UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
For the fiscal year ended December 31, 2011
Or
For the transition period from to
Commission File Number 1-13102
FIRST INDUSTRIAL REALTY TRUST, INC.
(Exact name of Registrant as specified in its Charter)
(312) 344-4300
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Common Stock
(Title of Class)
New York Stock Exchange
(Name of exchange on which registered)
Depositary Shares Each Representing 1/10,000 of a Share of 7.25% Series J Cumulative Preferred Stock
Depositary Shares Each Representing 1/10,000 of a Share of 7.25% Series K Cumulative Preferred Stock
(Title of class)
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ¨ No þ
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. Yes ¨ No þ
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 (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ No ¨
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No þ
The aggregate market value of the voting and non-voting stock held by non-affiliates of the Registrant was approximately $986.0 million based on the closing price on the New York Stock Exchange for such stock on June 30, 2011.
At February 28, 2012, 86,733,657 shares of the Registrant’s Common Stock, $0.01 par value, were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Part III incorporates certain information by reference to the Registrant’s definitive proxy statement expected to be filed with the Securities and Exchange Commission no later than 120 days after the end of the Registrant’s fiscal year.
TABLE OF CONTENTS
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
Item 15.
Signatures
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This report contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, and Section 21E of the Securities Exchange Act of 1934 (the “Exchange Act”). We intend such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995, and are including this statement for purposes of complying with those safe harbor provisions. Forward-looking statements, which are based on certain assumptions and describe future plans, strategies and expectations of the Company, are generally identifiable by use of the words “believe,” “expect,” “intend,” “anticipate,” “estimate,” “project,” “seek,” “target,” “potential,” “focus,” “may,” “should” or similar expressions. Our ability to predict results or the actual effect of future plans or strategies is inherently uncertain. Factors which could have a materially adverse effect on our operations and future prospects include, but are not limited to: changes in national, international, regional and local economic conditions generally and real estate markets specifically; changes in legislation/regulation (including changes to laws governing the taxation of real estate investment trusts) and actions of regulatory authorities (including the Internal Revenue Service); our ability to qualify and maintain our status as a real estate investment trust; the availability and attractiveness of financing (including both public and private capital) to us and to our potential counterparties; the availability and attractiveness of terms of additional debt repurchases; interest rates; our credit agency ratings; our ability to comply with applicable financial covenants; competition; changes in supply and demand for industrial properties (including land, the supply and demand for which is inherently more volatile than other types of industrial property) in the Company’s current and proposed market areas; difficulties in consummating acquisitions and dispositions; risks related to our investments in properties through joint ventures; environmental liabilities; slippages in development or lease-up schedules; tenant creditworthiness; higher-than-expected costs; changes in asset valuations and related impairment charges; changes in general accounting principles, policies and guidelines applicable to real estate investment trusts; international business risks and those additional factors described in Item 1A, “Risk Factors” and in our other filings with the Securities and Exchange Commission (the “SEC”). We caution you not to place undue reliance on forward looking statements, which reflect our analysis only and speak only as of the date of this report or the dates indicated in the statements. We assume no obligation to update or supplement forward-looking statements. Unless the context otherwise requires, the terms “Company,” “we,” “us,” and “our” refer to First Industrial Realty Trust, Inc., First Industrial, L.P. and their controlled subsidiaries. We refer to our operating partnership, First Industrial, L.P., as the “Operating Partnership.”
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PART I
THE COMPANY
Item 1. Business
General
First Industrial Realty Trust, Inc. is a Maryland corporation organized on August 10, 1993, and is a real estate investment trust (“REIT”) as defined in the Internal Revenue Code of 1986 (the “Code”). We are a self-administered and fully integrated real estate company which owns, manages, acquires, sells, develops, and redevelops industrial real estate. As of December 31, 2011, our in-service portfolio consisted of 354 light industrial properties, 113 R&D/flex properties, 159 bulk warehouse properties, 105 regional warehouse properties and eight manufacturing properties containing approximately 66.3 million square feet of gross leasable area (“GLA”) located in 26 states in the United States and one province in Canada. Our 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). Properties which are at least 75% occupied at acquisition are placed in-service. Acquired properties less than 75% occupied are placed in-service upon the earlier of reaching 90% occupancy or one year from the acquisition date. Development properties are placed in-service upon the earlier of reaching 90% occupancy or one year from the date construction is completed. Redevelopments (generally projects which require capital expenditures exceeding 25% of basis) are placed in-service upon the earlier of reaching 90% occupancy or one year from the completion of renovation construction.
Our interests in our properties and land parcels are held through partnerships, corporations, and limited liability companies controlled, directly or indirectly, by the Company, including the Operating Partnership, of which we are the sole general partner with an approximate 94.3% and 92.8% ownership interest at December 31, 2011 and December 31, 2010, respectively, and through our taxable REIT subsidiaries. We also conduct operations through other partnerships and limited liability companies, the operating data of which, together with that of the Operating Partnership and the taxable REIT subsidiaries, is consolidated with that of the Company as presented herein.
We also own noncontrolling equity interests in, and provide services to, two joint ventures (the “2003 Net Lease Joint Venture” and the “2007 Europe Joint Venture”). During 2010, we provided various services to, and ultimately disposed of our equity interests in, five joint ventures (the “2005 Development/Repositioning Joint Venture,” the “2005 Core Joint Venture,” the “2006 Net Lease Co-Investment Program,” the “2006 Land/Development Joint Venture” and the “2007 Canada Joint Venture;” together with the 2003 Net Lease Joint Venture and the 2007 Europe Joint Venture, the “Joint Ventures”). The Joint Ventures are accounted for under the equity method of accounting. Accordingly, the operating data of our Joint Ventures is not consolidated with that of the Company as presented herein. The 2007 Europe Joint Venture does not own any properties. See Note 5 to the Consolidated Financial Statements for more information on the Joint Ventures.
We utilize 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 February 28, 2012, we had 176 employees.
We maintain a website at www.firstindustrial.com. Information on this website shall not constitute part of this Form 10-K. Copies of our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to such reports are available without charge on our website as soon as reasonably practicable after such reports are filed with or furnished to the SEC. In addition, our Corporate Governance Guidelines, Code of Business Conduct and Ethics, Audit Committee Charter, Compensation Committee Charter, Nominating/Corporate Governance Committee Charter, along with supplemental financial and operating information prepared by us, are all available without charge on our website or upon request to us. Amendments
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to, or waivers from, our Code of Business Conduct and Ethics that apply to our executive officers or directors will also be posted to our website. We also post or otherwise make available on our website from time to time other information that may be of interest to our investors. Please direct requests as follows:
First Industrial Realty Trust, Inc.
311 S. Wacker, Suite 3900
Chicago, IL 60606
Attention: Investor Relations
Business Objectives and Growth Plans
Our fundamental business objective is to maximize the total return to our stockholders through per share distributions and increases in the value of our properties and operations. Our long-term business growth plans include the following elements:
Internal Growth. We seek to grow internally by (i) increasing revenues by renewing or re-leasing spaces subject to expiring leases at higher rental levels; (ii) increasing occupancy levels at properties where vacancies exist and maintaining occupancy elsewhere; (iii) controlling and minimizing property operating and general and administrative expenses; and (iv) renovating existing properties.
External Growth. We seek to grow externally through (i) the development of industrial properties; (ii) the acquisition of portfolios of industrial properties, industrial property businesses or individual properties which meet our investment parameters and target markets; (iii) additional joint venture investments; and (iv) the expansion of our properties.
Our ability to pursue our long-term growth plans is affected by market conditions and our financial condition and operating capabilities.
Business Strategies
We utilize the following six strategies in connection with the operation of our business:
Organization Strategy. We implement our decentralized property operations strategy through the deployment of experienced regional management teams and local property managers. We provide acquisition, development and financing assistance, asset management oversight and financial reporting functions from our headquarters in Chicago, Illinois to support our regional operations. We believe the size of our portfolio enables us to realize operating efficiencies by spreading overhead among many properties and by negotiating purchasing discounts.
Market Strategy. Our market strategy is to concentrate on the top industrial real estate markets in the United States. These markets have one or more of the following characteristics: (i) strong industrial real estate fundamentals, including improving industrial demand expectations; (ii) a history of industry diversity and outlook for economic growth; and (iii) sufficient size to provide opportunity for ample transaction volume.
Leasing and Marketing Strategy. We have an operational management strategy designed to enhance tenant satisfaction and portfolio performance. We pursue an active leasing strategy, which includes broadly marketing available space, seeking to renew existing leases at higher rents per square foot and seeking leases which provide for the pass-through of property-related expenses to the tenant. We also have local and national marketing programs which focus on the business and real estate brokerage communities and national tenants.
Acquisition/Development Strategy. Our acquisition/development strategy is to invest in properties and other assets in the top industrial real estate markets in the United States.
Financing Strategy. To finance acquisitions, developments and debt maturities, as market conditions permit, we utilize a portion of proceeds from property sales, proceeds from mortgage financings, line
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of credit borrowings under our new $450 million unsecured credit facility, and proceeds from the issuance, when and as warranted, of additional equity securities (see Recent Developments). We also continually evaluate joint venture arrangements as another source of capital. As of February 28, 2012, we had approximately $262.4 million available for additional borrowings under our new $450 million unsecured credit facility.
Disposition Strategy. We continuously evaluate local market conditions and property-related factors in all of our markets for purposes of identifying assets suitable for disposition. During 2010, management identified a pool of real estate assets (the “Non-Strategic Assets”) that it intends to sell. At December 31, 2011, the Non-Strategic Assets consisted of 133 industrial properties comprising approximately 11.3 million square feet of GLA and land parcels comprising approximately 359 gross acres.
Recent Developments
During December 2011, we entered into a new $450 million unsecured revolving credit agreement (the “Unsecured Credit Facility”). The Unsecured Credit Facility provides for interest only payments initially at LIBOR plus 210 basis points or at a base rate plus 210 basis points, at our election, based on our leverage ratio. The Unsecured Credit Facility matures on December 12, 2014, unless extended an additional year at our election, subject to certain conditions. We may request that the maximum borrowing capacity under the Unsecured Credit Facility be increased to $500 million, subject to certain conditions. The Unsecured Credit Facility replaces our previous $400 million credit facility (the “Old Credit Facility”). Our Old Credit Facility commitment was for a $200 million term borrowing, $100 million of which was paid off earlier in 2011, and an aggregate $200 million of revolving borrowings. For the term borrowing, the Old Credit Facility required interest-only payments through March 29, 2012 at LIBOR plus 325 basis points or at a base rate plus 225 basis points, at our election. For the revolving borrowings, the Old Credit Facility provided for interest only payments at LIBOR plus 275 or at a base rate plus 175 basis points, at our election. At the time the Unsecured Credit Facility was executed, we wrote off $1.2 million of unamortized deferred financing costs during 2011 related to the replacement of the Old Credit Facility, which is reflected as loss from retirement of debt on our Consolidated Statement of Operations.
During the year ended December 31, 2011, we acquired one industrial property comprising approximately 0.7 million square feet of GLA in connection with the purchase of the 85% equity interest in one property from the institutional investor in the 2003 Net Lease Joint Venture at a cap rate of 8.4%. The cap rate was calculated by annualizing the contract rent in place at the time of acquisition and dividing it by the gross agreed upon fair value for the real estate. The acquisition was funded with a cash payment of $5.3 million and the assumption of a mortgage loan in the amount of $24.4 million. We also sold 36 industrial properties, at a weighted average cap rate of 6.3%, and one parcel of land for an aggregate gross sales price of $86.6 million. The cap rate is calculated by taking revenues of the property (excluding straight-line rent, lease inducement amortization and above and below market lease amortization) less operating expenses of the property for a period of twelve months prior to sale and dividing the sum by the sales price of the property. Included in the 36 industrial properties sold is one industrial property totaling approximately 0.4 million square feet of GLA that we transferred title to a lender in satisfaction of a non-recourse mortgage loan (See Note 6 to the Consolidated Financial Statements). At December 31, 2011, we owned 739 in-service industrial properties containing approximately 66.3 million square feet of GLA.
During 2011, we repurchased and retired prior to maturity $112.8 million of our senior unsecured notes and recognized a loss from retirement of debt on our Consolidated Statement of Operations of $2.0 million. Also, we paid off and retired our 2011 Exchangeable Notes, at maturity, in the amount of $128.9 million.
During 2011, we originated $255.9 million in mortgage financings at a weighted average interest rate of 4.57%, with maturities ranging between June 2018 and October 2021. Also, we paid off and/or retired $62.7 million in mortgage loans payable and recognized a loss on debt retirement of $2.1 million.
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During the year ended December 31, 2011, we issued 17,300,000 shares of the Company’s common stock, generating $201.4 million in net proceeds, in underwritten public offerings. Additionally, we issued 115,856 shares of the Company’s common stock, generating $1.4 million in net proceeds, under the Company’s “at-the-market” equity offering program (“ATM”).
Future Property Acquisitions, Developments and Property Sales
We have acquisition and development programs through which we seek to identify portfolio and individual industrial property acquisitions and developments.
We also sell properties based on market conditions and property-related factors. As a result, we are currently engaged in negotiations relating to the possible sale of certain industrial properties in our portfolio.
When evaluating potential industrial property acquisitions and developments, as well as potential industrial property sales, we 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 terms of tenant leases, including the potential for rent increases; (iv) the potential for economic growth and the tax and regulatory environment of the area in which the property is located; (v) the occupancy and demand by tenants for properties of a similar type in the vicinity; (vi) competition from existing properties and the potential for the construction of new properties in the area. (vii) the potential for capital appreciation of the property; (viii) the ability to improve the property’s performance through renovation; and (ix) the potential for expansion of the physical layout of the property and/or the number of sites.
INDUSTRY
Industrial properties are typically used for the design, assembly, packaging, storage and distribution of goods and/or the provision of services. As a result, the demand for industrial space in the United States is related to the level of economic output. For the five years ended December 31, 2011, the national occupancy rate for industrial properties in the United States has ranged from 85.4%* to 90.4%*, with an occupancy rate of 86.4%* at December 31, 2011.
* Source: CBRE Econometric Advisors
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Risk Factors
Our operations involve various risks that could adversely affect our financial condition, results of operations, cash flow, ability to pay distributions on our common stock and the market price of our common stock. These risks, among others contained in our other filings with the SEC, include:
Disruptions in the financial markets could affect our ability to obtain financing and negatively impact our liquidity, financial condition and operating results.
From time to time the capital and credit markets in the United States and other countries experience significant price volatility, dislocations and liquidity disruptions, which can cause the market prices of many securities and the spreads on prospective debt financings to fluctuate substantially. These circumstances can materially impact liquidity in the financial markets, making terms for certain financings less attractive, and in some cases result in the unavailability of financing. A significant amount of our existing indebtedness was sold through capital markets transactions. We anticipate that the capital markets could be a source of refinancing of our existing indebtedness in the future. This source of refinancing may not be available if capital market volatility and disruption occurs. Furthermore, we could potentially lose access to available liquidity under our Unsecured Credit Facility if one or more participating lenders were to default on their commitments. If our ability to issue additional debt or equity securities, to finance future acquisitions, developments and redevelopments and Joint Venture activities or to borrow money under our Unsecured Credit Facility were to be impaired by capital market volatility and disruption, it could have a material adverse effect on our liquidity and financial condition.
In addition, capital and credit market price volatility could make the valuation of our properties more difficult. There may be significant uncertainty in the valuation, or in the stability of the value, of our properties that could result in a substantial decrease in the value of our properties. As a result, we may not be able to recover the carrying amount of our properties, which may require us to recognize an impairment loss in earnings.
Real estate investments’ value fluctuates depending on conditions in the general economy and the real estate business. These conditions may limit the Company’s revenues and available cash.
The factors that affect the value of our real estate and the revenues we derive from our properties include, among other things:
general economic conditions;
local, regional, national and international economic conditions and other events and occurrences that affect the markets in which we own properties;
local conditions such as oversupply or a reduction in demand in an area;
the attractiveness of the properties to tenants;
tenant defaults;
zoning or other regulatory restrictions;
competition from other available real estate;
our ability to provide adequate maintenance and insurance; and
increased operating costs, including insurance premiums and real estate taxes.
These factors may be amplified in light of the disruption of the global credit markets. Our investments in real estate assets are concentrated in the industrial sector, and the demand for industrial space in the United States
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is related to the level of economic output. Accordingly, reduced economic output may lead to lower occupancy rates for our properties. In addition, if any of our tenants experiences a downturn in its business that weakens its financial condition, delays lease commencement, fails to make rental payments when due, becomes insolvent or declares bankruptcy, the result could be a termination of the tenant’s lease, which could adversely affect our cash flow from operations.
Many real estate costs are fixed, even if income from properties decreases.
Our financial results depend on leasing space to tenants on terms favorable to us. Our income and funds available for distribution to our stockholders will decrease if a significant number of our tenants cannot pay their rent or we are unable to lease properties on favorable terms. In addition, if a tenant does not pay its rent, we may not be able to enforce our rights as landlord without delays and we 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.
The Company may be unable to sell properties when appropriate because real estate investments are not as liquid as certain other types of assets.
Real estate investments generally cannot be sold quickly, which will tend to limit our ability to adjust our property portfolio promptly in response to changes in economic or other conditions. The inability to respond promptly to changes in the performance of our property portfolio could adversely affect our financial condition and ability to service debt and make distributions to our stockholders. In addition, like other companies qualifying as REITs under the Code, we 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, our ability at any time to sell assets may be restricted.
The Company may be unable to sell properties on advantageous terms.
We have sold to third parties a significant number of properties in recent years and, as part of our business, we intend to continue to sell properties to third parties. Our ability to sell properties on advantageous terms depends on factors beyond our control, including competition from other sellers and the availability of attractive financing for potential buyers of our properties. If we are unable to sell properties on favorable terms or redeploy the proceeds of property sales in accordance with our business strategy, then our financial condition, results of operations, cash flow and ability to pay dividends on, and the market price of, our common stock could be adversely affected.
The Company may be unable to complete development and re-development projects on advantageous terms.
As part of our business, we develop new and re-develop existing properties when and as conditions warrant. In addition, we have sold to third parties or sold to joint ventures development and re-development properties, and we may continue to sell such properties to third parties or to sell or contribute such properties to joint ventures as opportunities arise. The real estate development and re-development business involves significant risks that could adversely affect our financial condition, results of operations, cash flow and ability to pay dividends on, and the market price of, our common stock, which include:
we may not be able to obtain financing for development projects on favorable terms and complete construction on schedule or within budget, resulting in increased debt service expense and construction costs and delays in leasing the properties and generating cash flow;
we may not be able to obtain, or may experience delays in obtaining, all necessary zoning, land-use, building, occupancy and other governmental permits and authorizations;
the properties may perform below anticipated levels, producing cash flow below budgeted amounts and limiting our ability to sell such properties to third parties or to sell such properties to joint ventures.
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The Company may be unable to acquire properties on advantageous terms or acquisitions may not perform as the Company expects.
We acquire and intend to continue to acquire primarily industrial properties. The acquisition of properties entails various risks, including the risks that our investments may not perform as expected and that our cost estimates for bringing an acquired property up to market standards may prove inaccurate. Further, we face significant competition for attractive investment opportunities from other well-capitalized real estate investors, including both publicly-traded REITs and private investors. This competition increases as investments in real estate become attractive relative to other forms of investment. As a result of competition, we may be unable to acquire additional properties as we desire or the purchase price may be elevated. In addition, we expect to finance future acquisitions through a combination of borrowings under the Unsecured Credit Facility, proceeds from equity or debt offerings and debt originations by the Company and proceeds from property sales, which may not be available and which could adversely affect our cash flow. Any of the above risks could adversely affect our financial condition, results of operations, cash flow and ability to pay dividends on, and the market value of, our common stock.
The Company may be unable to renew leases or find other lessees.
We are 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, may be less favorable than expiring lease terms. If we were unable to promptly renew a significant number of expiring leases or to promptly relet the space covered by such leases, or if the rental rates upon renewal or reletting were significantly lower than the current rates, our financial condition, results of operation, cash flow and ability to pay dividends on, and the market price of, our common stock could be adversely affected. As of December 31, 2011, leases with respect to approximately 8.2 million, 11.3 million and 8.5 million square feet of GLA, representing 15%, 20% and 15% of our total GLA, expire in 2012, 2013 and 2014, respectively.
The Company might fail to qualify or remain qualified as a REIT.
We intend to operate so as to qualify as a REIT under the Code. Although we believe that we are 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 our control.
If we were to fail to qualify as a REIT in any taxable year, we would be subject to federal income tax, including any applicable alternative minimum tax, on our 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 we issue. Unless entitled to relief under certain statutory provisions, we would be disqualified from electing treatment as a REIT for the four taxable years following the year during which we failed to qualify as a REIT.
Certain property transfers may generate prohibited transaction income, resulting in a penalty tax on the gain attributable to the transaction.
As part of our business, we sell properties to third parties 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 (“IRS”) could contend that certain sales of properties by us are prohibited transactions. While we do not believe that the IRS would prevail in such a dispute, if the matter were successfully argued by the IRS, the 100% penalty tax could be assessed against the profits from these transactions. In addition, any income from a prohibited transaction may adversely affect our ability to satisfy the income tests for qualification as a REIT.
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The REIT distribution requirements may limit the Company’s ability to retain capital and require the Company to turn to external financing sources.
We could, in certain instances, have taxable income without sufficient cash to enable us to meet the distribution requirements of the REIT provisions of the Code. In that situation, we could be required to borrow funds or sell properties on adverse terms in order to meet those distribution requirements. In addition, because we must distribute to our stockholders at least 90% of our REIT taxable income each year, our ability to accumulate capital may be limited. Thus, to provide capital resources for our ongoing business, and to satisfy our debt repayment obligations and other liquidity needs, we 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 our leverage and additional equity offerings may result in substantial dilution of stockholders’ interests.
Debt financing, the degree of leverage and rising interest rates could reduce the Company’s cash flow.
Where possible, we intend to continue to use leverage to increase the rate of return on our investments and to allow us to make more investments than we otherwise could. Our use of leverage presents an additional element of risk in the event that the cash flow from our 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 our cash flow by increasing the amount of interest due on our floating rate debt and on our fixed rate debt as it matures and is refinanced.
Failure to comply with covenants in our debt agreements could adversely affect our financial condition.
The terms of our agreements governing our Unsecured Credit Facility and other indebtedness require that we comply with a number of financial and other covenants, such as maintaining debt service coverage and leverage ratios and maintaining insurance coverage. Complying with such covenants may limit our operational flexibility. Our failure to comply with these covenants could cause a default under the applicable debt agreement even if we have satisfied our payment obligations. Consistent with our prior practice, we will, in the future, continue to interpret and certify our performance under these covenants in a good faith manner that we deem reasonable and appropriate. However, these financial covenants are complex and there can be no assurance that these provisions would not be interpreted by the noteholders or lenders in a manner that could impose and cause us to incur material costs. We anticipate that we will be able to operate in compliance with our financial covenants in 2012. Our ability to meet our financial covenants may be adversely affected if economic and credit market conditions limit our ability to reduce our debt levels consistent with, or result in net operating income below, our current expectations. Under our Unsecured Credit Facility, an event of default can also occur if the lenders, in their good faith judgment, determine that a material adverse change has occurred which could prevent timely repayment or materially impair our ability to perform our obligations under the loan agreement.
Upon the occurrence of an event of default, we would be subject to higher finance costs and fees, and the lenders under our Unsecured Credit Facility will not be required to lend any additional amounts to us. In addition, our outstanding senior unsecured notes as well as all outstanding borrowings under the Unsecured Credit Facility, together with accrued and unpaid interest and fees, could be accelerated and declared to be immediately due and payable. Furthermore, our Unsecured Credit Facility and the indentures governing our senior unsecured notes contain certain cross-default provisions, which are triggered in the event that our other material indebtedness is in default. These cross-default provisions may require us to repay or restructure the Unsecured Credit Facility and the senior unsecured notes or other debt that is in default, which could adversely affect our financial condition, results of operations, cash flow and ability to pay dividends on, and the market price of, our stock. If repayment of any of our borrowings is accelerated, we cannot provide assurance that we will have sufficient assets to repay such indebtedness or that we would be able to borrow sufficient funds to refinance such indebtedness. Even if we are able to obtain new financing, it may not be on commercially reasonable terms, or terms that are acceptable to us.
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Cross-collateralization of mortgage loans could result in foreclosure on substantially all of the Company’s properties if the Company is unable to service its indebtedness.
We may obtain additional mortgage debt financing in the future, if it is available to us. 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 our 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 us, making it difficult for us to meet both debt payment obligations and the distribution requirements of the REIT provisions of the Code. At December 31, 2011, mortgage loans payable totaling $390.2 million were cross-collateralized.
The Company may have to make lump-sum payments on its existing indebtedness.
We are required to make the following lump-sum or “balloon” payments under the terms of some of our indebtedness, including indebtedness of the Operating Partnership:
$35.0 million aggregate principal amount of 7.750% Notes due 2032 (the “2032 Notes”)
$125.0 million aggregate principal amount of 7.600% Notes due 2028 (the “2028 Notes”)
$6.1 million aggregate principal amount of 7.150% Notes due 2027 (the “2027 Notes”)
$106.9 million aggregate principal amount of 5.950% Notes due 2017 (the “2017 II Notes”)
$59.6 million aggregate principal amount of 7.500% Notes due 2017 (the “2017 Notes”)
$159.7 million aggregate principal amount of 5.750% Notes due 2016 (the “2016 Notes”)
$90.8 million aggregate principal amount of 6.420% Notes due 2014 (the “2014 Notes”)
$61.8 million aggregate principal amount of 6.875% Notes due 2012 (the “2012 Notes”)
$601.5 million in mortgage loans payable, in the aggregate, due between January 2014 and October 2021 on certain of our mortgage loans payable.
a $450.0 million Unsecured Credit Facility under which we may borrow to finance the acquisition of additional properties and for other corporate purposes, including working capital.
As of December 31, 2011, $149.0 million was outstanding under the Unsecured Credit Facility at a weighted average interest rate of 2.385%, maturing December 12, 2014.
Our ability to make required payments of principal on outstanding indebtedness, whether at maturity or otherwise, may depend on our ability either to refinance the applicable indebtedness or to sell properties. We have no commitments to refinance the 2012 Notes, the 2014 Notes, the 2016 Notes, the 2017 Notes, the 2017 II Notes, the 2027 Notes, the 2028 Notes, the 2032 Notes, the Unsecured Credit Facility or the mortgage loans. Our existing mortgage loan obligations are collateralized by our properties and therefore such obligations will permit the lender to foreclose on those properties in the event of a default.
There is no limitation on debt in the Company’s organizational documents.
As of December 31, 2011, our ratio of debt to our total market capitalization was 54.9%. We compute the percentage by calculating our total consolidated debt as a percentage of the aggregate market value of all outstanding shares of our 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. Our organizational documents do not contain any limitation on the amount or percentage of indebtedness we may incur. Accordingly, we could become more highly leveraged, resulting in an increase in debt service that could adversely affect our ability to make expected distributions to stockholders and an increased risk of default on our obligations.
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Rising interest rates on the Company’s Unsecured Credit Facility could decrease the Company’s available cash.
Our Unsecured Credit Facility bears interest at a floating rate. As of December 31, 2011, our Unsecured Credit Facility had an outstanding balance of $149.0 million at a weighted average interest rate of 2.385%. Our Unsecured Credit Facility presently bears interest at LIBOR plus 210 basis points or at a base rate plus 210 basis points, at our election. Based on the outstanding balance on our Unsecured Credit Facility as of December 31, 2011, a 10% increase in interest rates would increase interest expense by $0.4 million on an annual basis. Increases in the interest rate payable on balances outstanding under our Unsecured Credit Facility would decrease our cash available for distribution to stockholders.
The Company’s mortgages may impact the Company’s ability to sell encumbered properties on advantageous terms or at all.
As part of our plan to enhance liquidity and pay down our debt, we have originated numerous mortgage financings and from time to time engage in active discussions with various lenders regarding the origination of additional mortgage financings. Certain of our mortgages contain, and it is anticipated that some future mortgages will contain, substantial prepayment premiums which we would have to pay upon the sale of a property, thereby reducing the net proceeds to us from the sale of any such property. As a result, our willingness to sell certain properties and the price at which we may desire to sell a property may be impacted by the terms of any mortgage financing encumbering a property. If we are unable to sell properties on favorable terms or redeploy the proceeds of property sales in accordance with our business strategy, then our financial condition, results of operations, cash flow and ability to pay dividends on, and the market price of, our common stock could be adversely affected.
Adverse market and economic conditions could cause us to recognize additional impairment charges.
We regularly review our real estate assets for impairment indicators, such as a decline in a property’s occupancy rate or decline in general market conditions. If we determine that indicators of impairment are present, we review the properties affected by these indicators to determine whether an impairment charge is required. We use considerable judgment in making determinations about impairments, from analyzing whether there are indicators of impairment to the assumptions used in calculating the fair value of the investment. Accordingly, our subjective estimates and evaluations may not be accurate, and such estimates and evaluations are subject to change or revision.
From time to time, adverse market and economic conditions and market volatility make it difficult to value the real estate assets owned by us as well as the value of our interests in unconsolidated joint ventures. There may be significant uncertainty in the valuation, or in the stability of the cash flows, discount rates and other factors related to such assets due to the adverse market and economic conditions that could result in a substantial decrease in their value. We may be required to recognize additional asset impairment charges in the future, which could materially and adversely affect our business, financial condition and results of operations.
Earnings and cash dividends, asset value and market interest rates affect the price of the Company’s common stock.
As a REIT, the market value of our common stock, in general, is based primarily upon the market’s perception of our growth potential and our current and potential future earnings and cash dividends. The market value of our common stock is also based upon the market value of our underlying real estate assets. For this reason, shares of our common stock may trade at prices that are higher or lower than our net asset value per share. To the extent that we retain operating cash flow for investment purposes, working capital reserves, or other purposes, these retained funds, while increasing the value of our underlying assets, may not correspondingly increase the market price of our common stock. Our failure to meet the market’s expectations with regard to future earnings and cash dividends likely would adversely affect the market price of our 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 our common stock. An increase in market interest rates might lead prospective purchasers of our common stock to expect a higher distribution yield, which would adversely affect the market price of our common stock.
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The Company may incur unanticipated costs and liabilities due to environmental problems.
Under various federal, state and local laws, ordinances and regulations, an owner or operator of real estate may be liable for the costs of clean-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 the 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 of clean-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 our properties reveal all environmental liabilities, that any prior owner or operator of any of the properties did not create any material environmental condition not known to us or that a material environmental condition does not otherwise exist as to any of our properties. In addition, changes to existing environmental regulation to address, among other things, climate change, could increase the scope of our potential liabilities.
The Company’s insurance coverage does not include all potential losses.
We currently carry 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 our properties and their business operations are located. The insurance coverage contains policy specifications and insured limits customarily carried for similar properties and business activities. We believe our 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 our properties, we could experience a significant loss of capital invested and potential revenues from these properties, and could potentially remain obligated under any recourse debt associated with the property.
The Company is subject to risks and liabilities in connection with its investments in properties through Joint Ventures.
As of December 31, 2011, the 2003 Net Lease Joint Venture owned approximately 3.4 million square feet of properties (see Subsequent Events). Our net investment in this Joint Venture was $1.7 million at December 31, 2011. Our organizational documents do not limit the amount of available funds that we may invest in joint ventures and we intend 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:
joint venturers may share certain approval rights over major decisions;
joint venturers might fail to fund their share of any required capital commitments;
joint venturers might have economic or other business interests or goals that are inconsistent with our business interests or goals that would affect our ability to operate the property;
joint venturers may have the power to act contrary to our instructions, requests, policies or objectives, including our current policy with respect to maintaining our qualification as a real estate investment trust;
the joint venture agreements often restrict the transfer of a member’s or joint venturer’s interest or “buy-sell” or may otherwise restrict our ability to sell the interest when we desire or on advantageous terms;
disputes between us and our joint venturers may result in litigation or arbitration that would increase our expenses and prevent our officers and directors from focusing their time and effort on our business and subject the properties owned by the applicable joint venture to additional risk; and
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we may in certain circumstances be liable for the actions of our joint venturers.
The occurrence of one or more of the events described above could adversely affect our financial condition, results of operations, cash flow and ability to pay dividends on, and the market price of, our 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 our investments in joint ventures are adversely affected by such risks our financial condition, results of operations, cash flow and ability to pay dividends on, and the market price of, our common stock could be adversely affected.
We are subject to risks associated with our international operations.
As of December 31, 2011, we owned one industrial property and one land parcel located in Canada. Our international operations will be subject to risks inherent in doing business abroad, including:
exposure to the economic fluctuations in the locations in which we invest;
difficulties and costs associated with complying with a wide variety of complex laws, treaties and regulations;
revisions in tax treaties or other laws and regulations, including those governing the taxation of our international revenues;
obstacles to the repatriation of earnings and funds;
currency exchange rate fluctuations between the United States dollar and foreign currencies;
restrictions on the transfer of funds; and
national, regional and local political uncertainty.
When we acquire properties located outside of the United States, we may face risks associated with a lack of market knowledge or understanding of the local economy, forging new business relationships in the area and unfamiliarity with local government and permitting procedures. We work to mitigate such risks through extensive diligence and research and associations with experienced partners; however, there can be no guarantee that all such risks will be eliminated.
Adverse changes in our credit ratings could negatively affect our liquidity and business operations.
The credit ratings of the Operating Partnership’s senior unsecured notes and the Company’s preferred stock are based on the Company’s operating performance, liquidity and leverage ratios, overall financial position and other factors employed by the credit rating agencies in their rating analyses. Our credit ratings can affect the availability, terms and pricing of any indebtedness and preferred stock that we may incur going forward. There can be no assurance that we will be able to maintain any credit rating, and in the event any credit rating is downgraded, we could incur higher borrowing costs or be unable to access certain capital markets at all.
None.
At December 31, 2011, we owned 739 in-service industrial properties containing an aggregate of approximately 66.3 million square feet of GLA in 26 states and one province in Canada, with a diverse base of approximately 1,900 tenants engaged in a wide variety of businesses, including manufacturing, retail, wholesale
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trade, distribution and professional services. The average annual rent per square foot on a portfolio basis, calculated at December 31, 2011, was $4.40. The properties are generally located in business parks that have convenient access to interstate highways and/or rail and air transportation. We maintain insurance on our properties that we believe is adequate.
We classify our 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, we use what we believe is the most dominant characteristic to categorize the property.
The following describes, generally, the different industrial categories:
Light industrial properties are of less than 100,000 square feet, have a ceiling height of 16-21 feet, are comprised of 5%-50% of office space and contain less than 50% of manufacturing space.
R&D/flex buildings are of less than 100,000 square feet, have a ceiling height of less than 16 feet, are comprised of 50% or more of office space and contain less than 25% of manufacturing space.
Bulk warehouse buildings are of more than 100,000 square feet, have a ceiling height of at least 22 feet, are comprised of 5%-15% of office space and contain less than 25% of manufacturing space.
Regional warehouses are of less than 100,000 square feet, have a ceiling height of at least 22 feet, are comprised of 5%-15% of office space and contain less than 25% of manufacturing space.
Manufacturing properties are a diverse category of buildings that have various ceiling heights, are comprised of 5%-15% of office space and contain at least 50% of manufacturing space.
Each of the properties is wholly owned by us. The following tables summarize certain information as of December 31, 2011, with respect to our in-service properties.
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In-Service Property Summary Totals
Metropolitan Area
Atlanta, GA
Baltimore, MD
Central PA
Chicago, IL
Cincinnati, OH
Cleveland, OH
Columbus, OH
Dallas, TX
Denver, CO
Detroit, MI
Houston, TX
Indianapolis, IN
Miami, FL
Milwaukee, WI
Minneapolis/ St.
Paul, MN
Nashville, TN
Northern New Jersey
Philadelphia, PA
Phoenix, AZ
Salt Lake City, UT
Seattle, WA
Southern California
Southern New Jersey
St. Louis, MO
Tampa, FL
Toronto, ON
Other(a)
Total
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Minneapolis/St. Paul, MN
Total or Average
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Property Acquisition/Development Activity
During the year ended December 31, 2011, we acquired one industrial property with a fair value of approximately $30.6 million in connection with the purchase of the 85% equity interest in one property from the institutional investor in the 2003 Net Lease Joint Venture. The acquisition was funded with a cash payment of $5.3 million and the assumption of a mortgage loan in the amount of $24.4 million. The acquired industrial property has the following characteristics:
At December 31, 2011 we have one building comprising 0.7 million square feet of GLA located in the Inland Empire market that is under development. The estimated completion cost, inclusive of impairment charges recorded prior to the fiscal year ended December 31, 2011, is approximately $34.7 million. There can be no assurance that the actual completion cost will not exceed the estimated completion cost.
Property Sales
During 2011, we sold 36 industrial properties totaling approximately 2.9 million square feet of GLA and one land parcel. Total gross sales proceeds approximated $86.6 million. The 36 industrial properties sold have the following characteristics:
Property Type
Property Acquisitions and Sales Subsequent to Year End
From January 1, 2012 to February 28, 2012, we acquired one industrial property comprising approximately 0.4 million square feet of GLA in connection with the purchase of the 85% equity interest in one property from the institutional investor in the 2003 Net Lease Joint Venture. The acquisition was funded through the assumption of a mortgage loan in the amount of $12.0 million, which was subsequently paid off at closing and a cash payment of $8.3 million. We will account for this transaction as a step acquisition utilizing the purchase method of accounting. There were no industrial properties sold during this time.
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Tenant and Lease Information
We have a diverse base of approximately 1,900 tenants engaged in a wide variety of businesses including manufacturing, retail, wholesale trade, distribution and professional services. At December 31, 2011, our leases have a weighted average lease length of 5.8 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, 2011, approximately 88% of the GLA of our in-service properties was leased, and no single tenant or group of related tenants accounted for more than 2.7% of our rent revenues, nor did any single tenant or group of related tenants occupy more than 2.0% of the total GLA of our in-service properties.
Lease Expirations (1)
The following table shows scheduled lease expirations for all leases for our in-service properties as of December 31, 2011.
Year of Expiration(1)
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
Thereafter
We are 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.
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PART II
Market Information
The following table sets forth for the periods indicated the high and low closing prices per share and distributions declared per share for our common stock, which trades on the New York Stock Exchange under the trading symbol “FR.”
Quarter Ended
December 31, 2011
September 30, 2011
June 30, 2011
March 31, 2011
December 31, 2010
September 30, 2010
June 30, 2010
March 31, 2010
We had 559 common stockholders of record registered with our transfer agent as of February 28, 2012.
In order to comply with the REIT requirements of the Code, we are generally required to make common share distributions and preferred share distributions (other than capital gain distributions) to our shareholders in amounts that together at least equal i) the sum of a) 90% of our “REIT taxable income” computed without regard to the dividends paid deduction and net capital gains and b) 90% of net income (after tax), if any, from foreclosure property, minus ii) certain excess non-cash income.
Our common share distribution policy is determined by our board of directors and is dependent on multiple factors, including cash flow and capital expenditure requirements, as well as ensuring that we meet the minimum distribution requirements set forth in the Code. We met the minimum distribution requirements with respect to 2011.
During 2011, the Operating Partnership did not issue any units of limited partnership interest (“Units”).
Subject to lock-up periods and certain adjustments, Units of the Operating Partnership are redeemable for common stock of the Company on a one-for-one basis or cash at the option of the Company.
Equity Compensation Plans
The following table sets forth information regarding our equity compensation plans.
Plan Category
Equity Compensation Plans Approved by Security Holders
Equity Compensation Plans Not Approved by Security Holders
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Performance Graph
The following graph provides a comparison of the cumulative total stockholder return among the Company, the FTSE NAREIT Equity REIT Total Return Index (the “NAREIT Index”) and the Standard & Poor’s 500 Index (“S&P 500”). The comparison is for the periods from December 31, 2006 to December 31, 2011 and assumes the reinvestment of any dividends. The closing price for our common stock quoted on the NYSE at the close of business on December 31, 2006 was $46.89 per share. The NAREIT Index includes REITs with 75% or more of their gross invested book value of assets invested directly or indirectly in the equity ownership of real estate. Upon written request, we will provide stockholders with a list of the REITs included in the NAREIT Index. The historical information set forth below is not necessarily indicative of future performance. The following graph was prepared at our request by Research Data Group, Inc., San Francisco, California.
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
Among First Industrial Realty Trust, Inc., The S&P 500 Index
And The FTSE NAREIT Equity REITs Index
Fiscal year ending December 31.
Copyright(C) 2012 S&P, a division of The McGraw-Hill Companies Inc. All rights reserved.
S&P 500
FTSE NAREIT Equity REITs
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The following sets forth selected financial and operating data for the Company on a historical consolidated basis. The following data should be read in conjunction with the Consolidated Financial Statements and Notes thereto and Management’s Discussion and Analysis of Financial Condition and Results of Operations included elsewhere in this Form 10-K. The historical statements of operations for the years ended December 31, 2011, 2010, 2009, 2008 and 2007 include the results of operations of the Company as derived from our audited financial statements, adjusted for discontinued operations. The results of operations of properties sold are presented in discontinued operations if they met both of the following criteria: (a) the operations and cash flows of the property have been (or will be) eliminated from the ongoing operations of the Company as a result of the disposition and (b) we will not have any significant involvement in the operations of the property after the disposal transaction. The historical balance sheet data and other data as of December 31, 2011, 2010, 2009, 2008 and 2007 include the balances of the Company as derived from our audited financial statements.
Statement of Operations Data:
Total Revenues
Loss from Continuing Operations
Loss from Continuing Operations Available to First Industrial Realty Trust, Inc’s Common Stockholders and Participating Securities
Net (Loss) Income Available to First Industrial Realty Trust, Inc.’s Common Stockholders and Participating Securities
Basic and Diluted Earnings Per Weighted Average Common Share Outstanding:
Loss from Continuing Operations Available to First Industrial Realty Trust, Inc.’s Common Stockholders
Net (Loss) Income Available to First Industrial Realty Trust, Inc.’s Common Stockholders
Distributions Per Share
Basic and Diluted Weighted Average Number of Common Shares Outstanding
Balance Sheet Data (End of Period):
Real Estate, Before Accumulated Depreciation
Total Assets
Indebtedness (Inclusive of Indebtedness Held for Sale)
Total Equity
Other Data:
Cash Flow From Operating Activities
Cash Flow From Investing Activities
Cash Flow From Financing Activities
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The following discussion should be read in conjunction with “Selected Financial Data” and the Consolidated Financial Statements and Notes thereto appearing elsewhere in this Form 10-K.
In addition, the following discussion contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, and Section 21E of the Exchange Act. We intend such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995, and are including this statement for purposes of complying with those safe harbor provisions. Forward-looking statements, which are based on certain assumptions and describe future plans, strategies and expectations of the Company, are generally identifiable by use of the words “believe,” “expect,” “intend,” “anticipate,” “estimate,” “project,” “seek,” “target,” “potential,” “focus,” “may,” “should” or similar expressions. Our ability to predict results or the actual effect of future plans or strategies is inherently uncertain. Factors which could have a materially adverse effect on our operations and future prospects include, but are not limited to: changes in national, international, regional and local economic conditions generally and real estate markets specifically; changes in legislation/regulation (including changes to laws governing the taxation of REITs) and actions of regulatory authorities (including the IRS); our ability to qualify and maintain our status as a REIT; the availability and attractiveness of financing (including both public and private capital) to us and to our potential counterparties; the availability and attractiveness of terms of additional debt repurchases; interest rates; our credit agency ratings; our ability to comply with applicable financial covenants; competition; changes in supply and demand for industrial properties (including land, the supply and demand for which is inherently more volatile than other types of industrial property) in the Company’s current and proposed market areas; difficulties in consummating acquisitions and dispositions; risks related to our investments in properties through joint ventures; environmental liabilities; slippages in development or lease-up schedules; tenant creditworthiness; higher-than-expected costs; changes in asset valuations and related impairment charges; changes in general accounting principles, policies and guidelines applicable to real estate investment trusts; international business risks and those additional factors described under the heading “Risk Factors” and in our other filings with the SEC. We caution you not to place undue reliance on forward looking statements, which reflect our analysis only and speak only as of the date of this report or the dates indicated in the statements. We assume no obligation to update or supplement forward-looking statements.
The Company was organized in the state of Maryland on August 10, 1993. We are a REIT, as defined in the Code. We began operations on July 1, 1994. Our interests in our properties and land parcels are held through partnerships, corporations, and limited liability companies controlled, directly or indirectly, by us, including First Industrial, L.P. (the “Operating Partnership”), of which we are the sole general partner, and through our taxable REIT subsidiaries. We also conduct operations through other partnerships and limited liability companies, the operating data of which, together with that of the Operating Partnership and the taxable REIT subsidiaries, is consolidated with that of the Company, as presented herein.
We believe our financial condition and results of operations are, primarily, a function of our performance in four key areas: leasing of industrial properties, acquisition and development of additional industrial properties, disposition of industrial properties and access to external capital.
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We generate revenue primarily from rental income and tenant recoveries from long-term (generally three to six years) operating leases of our industrial properties. Such revenue is offset by certain property specific operating expenses, such as real estate taxes, repairs and maintenance, property management, utilities and insurance expenses, along with certain other costs and expenses, such as depreciation and amortization costs and general and administrative and interest expenses. Our revenue growth is dependent, in part, on our ability to (i) increase rental income, through increasing either or both occupancy rates and rental rates at our properties, (ii) maximize tenant recoveries and (iii) minimize operating and certain other expenses. Revenues generated from rental income and tenant recoveries are a significant source of funds, in addition to income generated from gains/losses on the sale of our properties (as discussed below), for our liquidity. The leasing of property, in general, and occupancy rates, rental rates, operating expenses and certain non-operating expenses, in particular, are impacted, variously, by property specific, market specific, general economic and other conditions, many of which are beyond our control. The leasing of property also entails various risks, including the risk of tenant default. If we were unable to maintain or increase occupancy rates and rental rates at our properties or to maintain tenant recoveries and operating and certain other expenses consistent with historical levels and proportions, our revenue would decline. Further, if a significant number of our tenants were unable to pay rent (including tenant recoveries) or if we were unable to rent our properties on favorable terms, our financial condition, results of operations, cash flow and ability to pay dividends on, and the market price of, our common stock would be adversely affected.
Our revenue growth is also dependent, in part, on our ability to acquire existing, and acquire and develop new, additional industrial properties on favorable terms. The Company seeks to identify opportunities to acquire existing industrial properties on favorable terms, and, when conditions permit, also seeks to identify opportunities to acquire and develop new industrial properties on favorable terms. Existing properties, as they are acquired, and acquired and developed properties, as they are leased, generate revenue from rental income, tenant recoveries and fees, income from which, as discussed above, is a source of funds for our distributions. The acquisition and development of properties is impacted, variously, by property specific, market specific, general economic and other conditions, many of which are beyond our control. The acquisition and development of properties also entails various risks, including the risk that our investments may not perform as expected. For example, acquired existing and acquired and developed new properties may not sustain and/or achieve anticipated occupancy and rental rate levels. With respect to acquired and developed new properties, we may not be able to complete construction on schedule or within budget, resulting in increased debt service expense and construction costs and delays in leasing the properties. Also, we face significant competition for attractive acquisition and development opportunities from other well-capitalized real estate investors, including both publicly-traded REITs and private investors. Further, as discussed below, we may not be able to finance the acquisition and development opportunities we identify. If we were unable to acquire and develop sufficient additional properties on favorable terms, or if such investments did not perform as expected, our revenue growth would be limited and our financial condition, results of operations, cash flow and ability to pay dividends on, and the market price of, our common stock would be adversely affected.
We also generate income from the sale of our properties (including existing buildings, buildings which we have developed or re-developed on a merchant basis and land). The gain/loss on, and fees from, the sale of such properties are included in our income and can be a significant source of funds, in addition to revenues generated from rental income and tenant recoveries, for our operations. Currently, a significant portion of our proceeds from sales are being used to repay outstanding debt. Market conditions permitting, however, a significant portion of our proceeds from such sales may be used to fund the acquisition of existing, and the acquisition and development of new, industrial properties. The sale of properties is impacted, variously, by property specific, market specific, general economic and other conditions, many of which are beyond our control. The sale of properties also entails various risks, including competition from other sellers and the availability of attractive financing for potential buyers of our properties. Further, our ability to sell properties is limited by safe harbor rules applying to REITs under the Code which relate to the number of properties that may be disposed of in a year, their tax bases and the cost of improvements made to the properties, along with other tests which enable a REIT to avoid punitive taxation on the sale of assets. If we are unable to sell properties on favorable terms, our income growth would be limited and our financial condition, results of operations, cash flow and ability to pay dividends on, and the market price of, our common stock could be adversely affected.
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We utilize a portion of the net sales proceeds from property sales, borrowings under our Unsecured Credit Facility, and proceeds from the issuance, when and as warranted, of additional debt and equity securities to refinance debt and finance future acquisitions and developments. Access to external capital on favorable terms plays a key role in our financial condition and results of operations, as it impacts our cost of capital and our ability and cost to refinance existing indebtedness as it matures and to fund acquisitions and developments or through the issuance, when and as warranted, of additional equity securities. Our ability to access external capital on favorable terms is dependent on various factors, including general market conditions, interest rates, credit ratings on our preferred stock and debt, the market’s perception of our growth potential, our current and potential future earnings and cash distributions and the market price of our capital stock. If we are unable to access external capital on favorable terms, our financial condition, results of operations, cash flow and ability to pay dividends on, and the market price of, our common stock could be adversely affected.
CRITICAL ACCOUNTING POLICIES
Our significant accounting policies are described in more detail in Note 3 to the Consolidated Financial Statements. We believe the following critical accounting policies relate to the more significant judgments and estimates used in the preparation of our consolidated financial statements.
We maintain an allowance for doubtful accounts which is based on estimates of potential losses which could result from the inability of our tenants to satisfy outstanding billings with us. The allowance for doubtful accounts is an estimate based on our assessment of the creditworthiness of our tenants.
We review our held-for-use properties on a continuous basis for possible impairment and provide a provision if impairments are determined. We utilize the guidelines established under the Financial Accounting Standards Board’s (the “FASB”) guidance for accounting for the impairment of long lived assets to determine if impairment conditions exist. We review the expected undiscounted cash flows of the property to determine if there are any indications of impairment. If the expected undiscounted cash flows of a particular property are less than the net book basis of the property, we will recognize an impairment charge equal to the amount of carrying value of the property that exceeds the fair value of the property. Fair value is determined by discounting the future expected cash flows of the property. The preparation of the undiscounted cash flows and the calculation of fair value involve subjective assumptions such as estimated occupancy, rental rates, ultimate residual value and hold period. The discount rate used to present value the cash flows for determining fair value is also subjective.
Properties are classified as held for sale when all criteria within the FASB’s guidance relating to the disposal of long lived assets are met for such properties. When properties are classified as held for sale, we cease depreciating the properties and estimate the values of such properties and record them at the lower of depreciated cost or fair value, less costs to dispose. If circumstances arise that were previously considered unlikely, and, as a result, we decide not to sell a property previously classified as held for sale, we will reclassify such property as held and used. We estimate the value of such property and measure it at the lower of its carrying amount (adjusted for any depreciation and amortization expense that would have been recognized had the property been continuously classified as held and used) or fair value at the date of the subsequent decision not to sell. Fair value of operational industrial properties is determined either by discounting the future expected cash flows of the property or by third party contract prices. The preparation of the discounted cash flows and the calculation of fair value involve subjective assumptions such as estimated occupancy, rental rates, ultimate residual value, hold period and discount rate. Fair value of land is primarily determined by members of management who are responsible for the individual markets where the land parcels are located, quotes from local brokers or by third party contract prices. The determination of the fair value of real estate assets is also highly subjective, especially in markets where there is a lack of recent comparable transactions.
We analyze our investments in Joint Ventures to determine whether the joint ventures should be accounted for under the equity method of accounting or consolidated into our financial statements based on standards set forth under the FASB’s guidance relating to the consolidation of variable interest entities. Based on the guidance set forth in these pronouncements, we do not consolidate any of
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our joint venture investments because either the joint venture has been determined to be a variable interest entity but we are not the primary beneficiary or the joint venture has been determined not to be a variable interest entity and we lack control of the joint venture. Our assessment of whether we are the primary beneficiary of a variable interest entity involves the consideration of various factors including the form of our ownership interest, our representation on the entity’s governing body, the size of our investment and future cash flows of the entity.
On a continuous basis, we assess whether there are any indicators that the value of our investments in Joint Ventures may be impaired. An investment is impaired if our estimate of the value of the investment is less than the carrying value of the investment, and such decline in value is deemed to be other than temporary. To the extent impairment has occurred, the loss shall be measured as the excess of the carrying amount of the investment over the fair value of the investment. Our estimates of fair value for each investment are based on a number of subjective assumptions that are subject to economic and market uncertainties including, among others, demand for space, market rental rates and operating costs, the discount rate used to value the cash flows of the properties, the cap rate used to estimate the terminal value of the underlying properties and the discount rate used to value the Joint Ventures’ debt.
We capitalize (direct and certain indirect) costs incurred in developing, renovating, acquiring and rehabilitating real estate assets as part of the investment basis. During the land development and construction periods, we capitalize interest costs, real estate taxes and certain general and administrative costs of the personnel performing development, renovations or rehabilitation up to the time the property is substantially complete. The determination and calculation of certain costs requires estimates by us. Amounts included in capitalized costs are included in the investment basis of real estate assets.
We are engaged in the acquisition of individual properties as well as multi-property portfolios. We are required to allocate purchase price between land, building, tenant improvements, leasing commissions, in-place leases, tenant relationships and above and below market leases. Above-market and below-market lease values for acquired properties are recorded based on the present value (using a discount rate which reflects the risks associated with the leases acquired) of the difference between (i) the contractual amounts to be paid pursuant to each in-place lease and (ii) our estimate of fair market lease rents for each corresponding in-place lease. Acquired above and below market leases are amortized over the remaining non-cancelable terms of the respective leases as an adjustment to rental income. In-place lease and tenant relationship values for acquired properties are recorded based on our evaluation of the specific characteristics of each tenant’s lease and our overall relationship with the respective tenant. The value allocated to in-place lease intangible assets is amortized to depreciation and amortization expense over the remaining lease term of the respective lease. The value allocated to tenant relationships is amortized to depreciation and amortization expense over the expected term of the relationship, which includes an estimate of the probability of lease renewal and its estimated term. We also must allocate purchase price on multi-property portfolios to individual properties. The allocation of purchase price is based on our assessment of various characteristics of the markets where the property is located and the expected cash flows of the property.
In the preparation of our consolidated financial statements, significant management judgment is required to estimate our current and deferred income tax liabilities, and our compliance with REIT qualification requirements. Our estimates are based on our interpretation of tax laws. These estimates may have an impact on the income tax expense recognized. Adjustments may be required by a change in assessment of our deferred income tax assets and liabilities, changes due to audit adjustments by federal and state tax authorities, our inability to qualify as a REIT, and changes in tax laws. Adjustments required in any given period are included within the income tax provision.
In assessing the need for a valuation allowance against our deferred tax assets, we estimate future taxable income, considering the feasibility of ongoing tax planning strategies and the realizability of tax loss carryforwards. In the event we were to determine that we would not be able to realize all or a
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portion of our deferred tax assets in the future, we would reduce such amounts through a charge to income in the period in which that determination is made. Conversely, if we were to determine that we would be able to realize our deferred tax assets in the future in excess of the net carrying amounts, we would decrease the recorded valuation allowance through an increase to income in the period in which that determination is made.
RESULTS OF OPERATIONS
Comparison of Year Ended December 31, 2011 to Year Ended December 31, 2010
Our net loss available to First Industrial Realty Trust, Inc.’s common stockholders and participating securities was $27.0 million and $222.5 million for the years ended December 31, 2011 and 2010, respectively. Basic and diluted net loss available to First Industrial Realty Trust, Inc.’s common stockholders was $0.34 per share for the year ended December 31, 2011 and $3.53 per share for the year ended December 31, 2010.
The tables below summarize our revenues, property and construction expenses and depreciation and other amortization by various categories for the years ended December 31, 2011 and December 31, 2010. Same store properties are properties owned prior to January 1, 2010 and held as an operating property through December 31, 2011 and developments and redevelopments that were placed in service prior to January 1, 2010 or were substantially completed for the 12 months prior to January 1, 2010. Properties which are at least 75% occupied at acquisition are placed in service. All other properties are placed in service as they reach the earlier of a) stabilized occupancy (generally defined as 90% occupied), or b) one year subsequent to acquisition or development completion. Acquired properties are properties that were acquired subsequent to December 31, 2009 and held as an operating property through December 31, 2011. Sold properties are properties that were sold subsequent to December 31, 2009. (Re)Developments and land are land parcels and developments and redevelopments that were not: a) substantially complete 12 months prior to January 1, 2010 or b) stabilized prior to January 1, 2010. Other revenues are derived from the operations of our maintenance company, fees earned from our Joint Ventures and other miscellaneous revenues. Construction revenues and expenses represent revenues earned and expenses incurred in connection with certain subsidiaries of the Company acting as development manager to construct industrial properties. Other expenses are derived from the operations of our maintenance company and other miscellaneous regional expenses.
Our future financial condition and results of operations, including rental revenues, may be impacted by the future acquisition and sale of properties. Our future revenues and expenses may vary materially from historical rates.
For the years ended December 31, 2011 and December 31, 2010, the occupancy rates of our same store properties were 86.0% and 82.7%, respectively.
REVENUES
Same Store Properties
Acquired Properties
Sold Properties
(Re) Developments and Land, Not Included Above
Other
Discontinued Operations
Subtotal Revenues
Construction Revenues
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Revenues from same store properties decreased $2.8 million due primarily to a decrease in lease cancelation fees and rental rates, offset by an increase in occupancy. Revenues from acquired properties increased $2.3 million due to the four industrial properties acquired subsequent to December 31, 2009 totaling approximately 1.2 million square feet of GLA. Revenues from sold properties decreased $6.6 million due to the 49 industrial properties and one leased land parcel sold subsequent to December 31, 2009 totaling approximately 4.0 million square feet of GLA. Revenues from (re)developments and land increased $0.2 million primarily due to an increase in occupancy. Other revenues decreased $3.7 million due primarily to a decrease in fees earned from our Joint Ventures. Construction revenues decreased $0.9 million due to the substantial completion during 2010 of certain development projects for which we were acting in the capacity of development manager.
PROPERTY AND CONSTRUCTION EXPENSES
Property Expenses
Construction Expenses
Total Property and Construction Expenses
Property expenses include real estate taxes, repairs and maintenance, property management, utilities, insurance and other property related expenses. Property expenses from same store properties remained relatively unchanged. Property expenses from acquired properties increased $0.4 million due to properties acquired subsequent to December 31, 2009. Property expenses from sold properties decreased $2.7 million due to properties sold subsequent to December 31, 2009. Property expenses from (re)developments and land decreased $0.2 million due to a decrease in real estate tax expense and a decrease in bad debt expense. The $1.7 million decrease in other expense is primarily attributable to a decrease in compensation resulting from a reduction in employee headcount. Construction expenses decreased $0.5 million due to the substantial completion during 2010 of certain development projects for which we were acting in the capacity of development manager.
General and administrative expense decreased $6.0 million, or 22.4%, due primarily to a decrease in compensation expense resulting from the reduction in employee headcount that occurred in 2010, a decrease in rent expense resulting from a reduction in office space during 2011 and 2010, a decrease in lawsuit settlement expense and a decrease in franchise tax expense primarily due to the reversal of a state franchise tax reserve relating to the 1996-2001 tax years.
We committed to a plan to reduce organizational and overhead costs in October 2008 and have subsequently modified that plan with the goal of further reducing these costs. For the year ended December 31, 2011, we recognized $1.6 million in restructuring charges to provide for costs associated with the termination of certain office leases ($1.2 million) and other costs ($0.4 million) associated with implementing our restructuring plan. For the year ended December 31, 2010, we recognized $1.9 million in restructuring charges to provide for employee severance and benefits ($0.5 million), costs associated with the termination of certain office leases ($0.7 million) and other costs ($0.7 million) associated with implementing our restructuring plan.
On October 22, 2010, we amended our Old Credit Facility. In conjunction with the amendment, management identified a pool of real estate assets (the “Non-Strategic Assets”) that it intends to sell. At December 31, 2010, all of the Non-Strategic Assets, which consisted of 193 industrial properties comprising
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approximately 16.1 million square feet of GLA and land parcels comprising approximately 695 acres, were classified as held for sale (except one industrial property comprising 0.3 million square feet of GLA). An impairment charge of $185.4 million was recorded during the year ended December 31, 2010 related to certain of the Non-Strategic Assets due to a reassessment of the hold period. The impairment charge was necessary in order to adjust the carrying value of the assets to fair market value less costs to sell. At December 31, 2011, there are 87 industrial properties comprising approximately 6.5 million square feet of GLA that no longer qualify to be classified as held for sale and as such, any impairment charge or reversal recorded during 2011 and 2010 is reflected in continuing operations. Additionally, any impairment charge or reversal related to a land parcel, whether held for sale or held for use, is reflected in continuing operations. The impairment reversal included in continuing operations for the year ended December 31, 2011 of $8.8 million is primarily comprised of a reversal of impairment of $2.9 million relating to certain industrial properties and land parcels that no longer qualify for held for sale classification and $5.9 million relating to a sold land parcel.
In addition to the $185.4 million of impairment recorded related to the Non-Strategic Assets, in connection with our periodic review of the carrying values of our properties and the negotiation of a new lease, we recorded an impairment charge of $9.2 million during the first quarter of 2010 related to one property located in Grand Rapids, Michigan.
DEPRECIATION AND OTHER AMORTIZATION
Corporate Furniture, Fixtures and Equipment
Total Depreciation and Other Amortization
Depreciation and other amortization for same store properties decreased $10.3 million primarily due to the cessation of depreciation and amortization of the Non-Strategic Assets that qualified for held for sale classification during 2011 as well as accelerated depreciation and amortization taken during the twelve months ended December 31, 2010, attributable to certain tenants who terminated their lease early. Depreciation and other amortization from acquired properties increased $1.6 million due to properties acquired subsequent to December 31, 2009. Depreciation and other amortization from sold properties decreased $3.8 million due to properties sold subsequent to December 31, 2009. Depreciation and other amortization for (re)developments and land and other increased $0.3 million due primarily to an increase in the substantial completion of developments. Corporate furniture, fixtures and equipment decreased $0.5 million primarily due to assets becoming fully depreciated.
Interest income decreased $0.4 million, or 10.1%, due primarily to a decrease in the weighted average mortgage loans receivable balance outstanding for the year ended December 31, 2011 as compared to the year ended December 31, 2010.
Interest expense, inclusive of $0.1 million and $0.3 million of interest expense included in discontinued operations, for the years ended December 31, 2011 and 2010, respectively, decreased $6.0 million, or 5.6%, primarily due to a decrease in the weighted average debt balance outstanding for the year ended December 31, 2011 ($1,594.3 million) as compared to the year ended December 31, 2010 ($1,867.8 million) and by an increase in capitalized interest for the year ended December 31, 2011 due to an increase in development activities, offset
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by an increase in the weighted average interest rate for the year ended December 31, 2011 (6.31%), as compared to the year ended December 31, 2010 (5.68%).
Amortization of deferred financing costs increased $0.5 million, or 14.1%, due primarily to an increase in financing costs related to the amendment of our Old Credit Facility in October 2010.
In October 2008, we entered into an interest rate swap agreement (the “Series F Agreement”) to mitigate our exposure to floating interest rates related to the coupon reset of the Company’s Series F Preferred Stock. The Series F Agreement has a notional value of $50.0 million and is effective from April 1, 2009 through October 1, 2013. The Series F Agreement fixes the 30-year U.S. Treasury rate at 5.2175%. We recorded $1.7 million in mark to market loss, inclusive of $0.6 million in swap payments, which is included in Mark-to-Market (Loss) Gain on Interest Rate Protection Agreements for the year ended December 31, 2011, as compared to $1.1 million in mark to market loss, inclusive of $0.5 million in swap payments, for the year ended December 31, 2010.
For the year ended December 31, 2011, we recognized a net loss from retirement of debt of $5.5 million due primarily to the early payoff of certain mortgage loans, the partial repurchase of certain series of our senior unsecured notes, the write-off of unamortized fees associated with the Old Credit Facility and a loss on a transfer of a property to a lender in satisfaction of a mortgage loan. For the year ended December 31, 2010, we recognized a net loss from retirement of debt of $4.3 million due primarily to the redemption of our 2011 Notes.
Foreign currency exchange loss of $0.3 million for the year ended December 31, 2011 relates to the wind-down of our operations in Canada. Foreign currency exchange loss of $0.2 million for the year ended December 31, 2010 relates to the wind-down of our operations in Europe.
For the year ended December 31, 2011, Equity in Income of Joint Ventures was $1.0 million, as compared to Equity in Income of Joint Ventures of $0.7 million for the year ended December 31, 2010. The increase of $0.3 million is due primarily to selling our equity interests in five joint ventures (the 2005 Development/Repositioning Joint Venture, the 2005 Core Joint Venture, the 2006 Net Lease Co-Investment Program, the 2006 Land/Development Joint Venture and the 2007 Canada Joint Venture) during 2010. For the year ended December 31, 2010, our pro rata share of net losses from two of the sold joint ventures of $2.3 million was offset by our pro rata share of net income from three of the sold joint ventures of $2.1 million.
The Gain on Sale of Joint Venture Interests of $11.2 million for the year ended December 31, 2010 relates to the sale of our 10% equity interests in each of the 2005 Development/Repositioning Joint Venture, the 2005 Core Joint Venture, the 2006 Land/Development Joint Venture and the 2007 Canada Joint Venture to our joint venture partner on August 5, 2010. Additionally, the gain includes approximately $2.7 million of proceeds related to the separate sales of three industrial properties by the Joint Ventures during August and October 2010 for which, in accordance with the sale agreement, we were entitled to a final distribution.
For the year ended December 31, 2011, Gain on Change in Control of Interests relates to the acquisition of the 85% equity interest in one property from the institutional investor in the 2003 Net Lease Joint Venture. The $0.7 million gain is the difference between our carrying value and fair value of our equity interest on the acquisition date.
Income tax provision (included in continuing operations, discontinued operations and gain on sale of real estate) decreased by $1.2 million, or 35.0% for the year ended December 31, 2011 as compared to the year ended December 31, 2010 primarily due toan increase in state taxes in 2010 due to a one time unfavorable court decision on business loss carryforwards in the State of Michigan in 2010 and gain on sale of joint venture interests in 2010, partially offset by an increase in gain on sale of real estate within our taxable REIT subsidiaries for the year ended December 31, 2011 as compared to the year ended December 31, 2010.
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The following table summarizes certain information regarding the industrial properties included in discontinued operations for the years ended December 31, 2011 and December 31, 2010.
Impairment of Real Estate
Depreciation and Amortization
Interest Expense
Gain on Sale of Real Estate
Provision for Income Taxes
Income (Loss) from Discontinued Operations
Income from discontinued operations for the year ended December 31, 2011 reflects the results of operations and gain on sale of real estate relating to 36 industrial properties that were sold during the year ended December 31, 2011 and the results of operations of 46 industrial properties that were identified as held for sale at December 31, 2011. The impairment loss for the year ended December 31, 2011 of $6.1 million relates to an impairment charge related to certain Non-Strategic assets that were either sold during the year or classified as held for sale at December 31, 2011.
Loss from discontinued operations for the year ended December 31, 2010 reflects the results of operations and gain on sale of real estate relating to 13 industrial properties and one land parcel that generated ground rental revenue that were sold during the year ended December 31, 2010, the results of operations of 36 industrial properties that were sold during the year ended December 31, 2011 and the results of operations of the 46 industrial properties identified as held for sale at December 31, 2011. The impairment loss for the year ended December 31, 2010 of $81.6 million relates to an impairment charge related to certain Non-Strategic assets that were either sold during the year or classified as held for sale at December 31, 2011.
The $1.4 million gain on sale of real estate for the year ended December 31, 2011 resulted from the sale of one land parcel that did not meet the criteria for inclusion in discontinued operations. The $0.9 million gain on sale of real estate for the year ended December 31, 2010 resulted from the sale of several land parcels that did not meet the criteria for inclusion in discontinued operations.
Comparison of Year Ended December 31, 2010 to Year Ended December 31, 2009
Our net loss available to First Industrial Realty Trust, Inc.’s common stockholders and participating securities was $222.5 million and $13.8 million for the years ended December 31, 2010 and 2009, respectively. Basic and diluted net loss available to First Industrial Realty Trust, Inc.’s common stockholders were $3.53 per share for the year ended December 31, 2010 and $0.28 per share for the year ended December 31, 2009.
The tables below summarize our revenues, property and construction expenses and depreciation and other amortization by various categories for the years ended December 31, 2010 and December 31, 2009. Same store properties are properties owned prior to January 1, 2009 and held as an operating property through December 31, 2010 and developments and redevelopments that were placed in service prior to January 1, 2009 or were substantially completed for the 12 months prior to January 1, 2009. Properties which are at least 75% occupied at acquisition are placed in service. All other properties are placed in service as they reach the earlier of a) stabilized occupancy (generally defined as 90% occupied), or b) one year subsequent to acquisition or development completion. Acquired properties are properties that were acquired subsequent to December 31, 2008 and held as an operating property through December 31, 2010. Sold properties are properties that were sold subsequent to December 31, 2008. (Re)Developments and land are land parcels and developments and redevelopments that were not: a) substantially complete 12 months prior to January 1, 2009 or b) stabilized prior
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to January 1, 2009. Other revenues are derived from the operations of our maintenance company, fees earned from our Joint Ventures and other miscellaneous revenues. Construction revenues and expenses represent revenues earned and expenses incurred in connection with the taxable REIT subsidiaries acting as development manager to construct industrial properties and also include revenues and expenses related to the development and sale of properties built for third parties. Other expenses are derived from the operations of our maintenance company and other miscellaneous regional expenses.
For the years ended December 31, 2010 and December 31, 2009, the occupancy rates of our same store properties were 83.1% and 83.5%, respectively.
Revenues from same store properties decreased $6.6 million due primarily to a decrease in rental rates and a decrease in occupancy. Revenues from acquired properties increased $1.1 million due to the three industrial properties acquired subsequent to December 31, 2008 totaling approximately 0.5 million square feet of GLA. Revenues from sold properties decreased $8.6 million due to the 28 industrial properties and one leased land parcel sold subsequent to December 31, 2008 totaling approximately 3.0 million square feet of GLA. Revenues from (re)developments and land increased $4.8 million primarily due to an increase in occupancy. Other revenues decreased $8.8 million due primarily to a decrease in fees earned from our Joint Ventures. Construction revenues decreased $54.1 million primarily due to the substantial completion during 2010 and 2009 of certain development projects for which we were acting in the capacity of development manager.
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Property expenses include real estate taxes, repairs and maintenance, property management, utilities, insurance and other property related expenses. Property expenses from same store properties decreased $2.2 million due primarily to a decrease in bad debt expense. Property expenses from acquired properties increased $0.2 million due to properties acquired subsequent to December 31, 2008. Property expenses from sold properties decreased $2.2 million due to properties sold subsequent to December 31, 2008. Property expenses from (re)developments and land remained relatively unchanged. The $1.5 million decrease in other expense is primarily attributable to a decrease in compensation. Construction expenses decreased $52.2 million primarily due to the substantial completion during 2010 and 2009 of certain development projects for which we were acting in the capacity of development manager.
General and administrative expense decreased $11.2 million, or 29.7%, due primarily to a decrease in compensation resulting from the reduction in employee headcount occurring in 2009 and 2010, a decrease in rent expense resulting from office closings in 2009 and 2010 and a decrease in legal and professional services, partially offset by an increase in lawsuit settlements.
We committed to a plan to reduce organizational and overhead costs in October 2008 and have subsequently modified that plan with the goal of further reducing these costs. For the year ended December 31, 2010, we recognized $1.9 million in restructuring charges to provide for employee severance and benefits ($0.5 million), costs associated with the termination of certain office leases ($0.7 million) and other costs ($0.7 million) associated with implementing our restructuring plan. For the year ended December 31, 2009, we recorded as restructuring costs a pre-tax charge of $7.8 million to provide for employee severance and benefits ($5.2 million), costs associated with the termination of certain office leases ($1.9 million) and other costs ($0.7 million) associated with implementing the restructuring plan.
On October 22, 2010, we amended our Old Credit Facility. In conjunction with the amendment, management identified a pool of real estate assets (the “Non-Strategic Assets”) that it intends to sell. At December 31, 2010, all of the Non-Strategic Assets, which consisted of 193 industrial properties comprising approximately 16.1 million square feet of GLA and land parcels comprising approximately 695 acres, were classified as held for sale (except one industrial property comprising 0.3 million square feet of GLA). An impairment charge of $185.4 million was recorded during the year ended December 31, 2010 related to certain of the Non-Strategic Assets due to a reassessment of the hold period. The impairment charge was necessary in order to adjust the carrying value of the assets to fair market value less costs to sell. At December 31, 2011, there are 87 industrial properties comprising approximately 6.5 million square feet of GLA that no longer qualify to be classified as held for sale and as such, any impairment charge or reversal recorded during 2011 and 2010 is reflected in continuing operations. Additionally, any impairment charge or reversal related to a land parcel, whether held for sale or held for use, is reflected in continuing operations. The impairment charge of $112.9 million included in
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continuing operations for the year ended December 31, 2010 is primarily comprised of $104.6 million relating to certain industrial properties and land parcels that no longer qualify for held for sale classification and $8.3 million relating to sold land parcels.
As a result of adverse conditions in the credit and real estate markets, we recorded an impairment charge of $6.9 million during the year ended December 31, 2009 related to one property in the Inland Empire market ($1.3 million of this impairment charge is included in discontinued operations for the year ended December 31, 2009 because one building of the two-building property was sold during the year ended December 31, 2011).
Depreciation and other amortization for same store properties decreased $10.2 million due primarily to accelerated depreciation and amortization taken during the year ended December 31, 2009 attributable to the cessation of depreciation and amortization of the Non-Strategic Assets that qualified for held for sale classification during the fourth quarter of 2010 as well as to certain tenants who terminated their leases early. Depreciation and other amortization from acquired properties increased $0.6 million due to properties acquired subsequent to December 31, 2008. Depreciation and other amortization from sold properties decreased $4.1 million due to properties sold subsequent to December 31, 2008. Depreciation and other amortization for (re)developments and land and other increased $0.7 million due primarily to an increase in the substantial completion of developments. Corporate furniture, fixtures and equipment decreased $0.2 million primarily due to accelerated depreciation on furniture, fixtures and equipment taken in 2009 related to the termination of certain office leases.
Interest income increased $1.3 million, or 41.5%, due primarily to an increase in the weighted average mortgage loans receivable balance outstanding for the year ended December 31, 2010 as compared to the year ended December 31, 2009.
Interest expense, inclusive of $0.3 million and $0.7 million of interest expense included in discontinued operations for the years ended December 31, 2010 and 2009, respectively, decreased $9.3 million, or 8.0%, primarily due to a decrease in the weighted average debt balance outstanding for the year ended December 31, 2010 ($1,867.8 million), as compared to the year ended December 31, 2009 ($2,050.5 million), offset by an increase in the weighted average interest rate for the year ended December 31, 2010 (5.68%), as compared to the year ended December 31, 2009 (5.64%) and by a decrease in capitalized interest for the year ended December 31, 2010 due to a decrease in development activities.
Amortization of deferred financing costs increased $0.4 million, or 14.6%, due primarily to an increase in costs related to the amendment of our Old Credit Facility in October 2010 and the origination of mortgage financings during 2010 and 2009, partially offset by expensing of capitalized loan fees as a result of the repurchase and retirement of certain of our senior unsecured notes. The net unamortized deferred financing fees related to the prior line of credit are amortized over the remaining amortization period, except for $0.2 million of unamortized deferred financing costs that were expensed as a result of the decrease in the capacity of the Old Credit Facility, which is included in (Loss) Gain From Retirement of Debt for the year ended December 31, 2010.
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We recorded $1.1 million in mark to market loss, inclusive of $0.5 million in swap payments, related to the Series F Agreement which is included in Mark-to-Market (Loss) Gain on Interest Rate Protection Agreements for the year ended December 31, 2010, as compared to $2.7 million in mark to market gain, inclusive of $0.5 million of swap payments, for the year ended December 31, 2009. Additionally included in Mark-to-Market Gain on Interest Rate Protection Agreements for the year ended December 31, 2009 is $1.0 million related to two forward starting swaps. In January 2008, we entered into two forward starting swaps each with a notional value of $59.8 million, which fixed the interest rate on forecasted debt offerings. We designated both swaps as cash flow hedges. The rates on the forecasted debt issuances underlying the swaps locked on March 20, 2009 (the “Forward Starting Agreement 1”) and on April 6, 2009 (the “Forward Starting Agreement 2”), and as such, the swaps ceased to qualify for hedge accounting. The change in value of Forward Starting Agreement 1 and Forward Starting Agreement 2 from the respective day the interest rate on the underlying debt locked until settlement was $1.0 million and is included in Mark-to-Market (Loss) Gain on Interest Rate Protection Agreements for the year ended December 31, 2009.
For the year ended December 31, 2010, we recognized a net loss from retirement of debt of $4.3 million due primarily to the redemption of our 2011 Notes. For the year ended December 31, 2009, we recognized a $34.6 million gain from retirement of debt due to the partial repurchase of certain series of our senior unsecured notes.
Foreign currency exchange loss of $0.2 million for the year ended December 31, 2010 relates to our wind-down of our operations in Europe.
For the year ended December 31, 2010, Equity in Income of Joint Ventures was $0.7 million, as compared to Equity in Loss of Joint Ventures of $6.5 million for the year ended December 31, 2009. The variance of $7.2 million is due primarily to impairment losses of $5.6 million we recorded during the year ended December 31, 2009 related to the 2006 Net Lease Co-Investment Program as a result of adverse conditions in the credit and real estate markets and also due to the gain on sale of our 15% interest in the 2006 Net Lease Co-Investment Program which occurred during the year ended December 31, 2010, partially offset by a decrease in our pro rata share of gain on sale of real estate and earn outs on property sales from the 2005 Development/Repositioning Joint Venture and a decrease in our pro rata share of income from the 2005 Core Joint Venture during the year ended December 31, 2010, as compared to the year ended December 31, 2009.
For the year ended December 31, 2010, we recorded an income tax provision of $3.3 million, as compared to an income tax benefit of $23.2 million for the year ended December 31, 2009. The variance of $26.5 million is due primarily to a loss carryback generated from the tax liquidation of one of our taxable REIT subsidiaries for the year ended December 31, 2009, an increase in state taxes related to an unfavorable court decision on business loss carryforwards in the State of Michigan for the year ended December 31, 2010 and gain on sale of joint venture interests in 2010.
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The following table summarizes certain information regarding the industrial properties included in discontinued operations for the years ended December 31, 2010 and December 31, 2009.
(Loss) Income from Discontinued Operations
Loss from discontinued operations for the year ended December 31, 2010 reflects the results of operations and gain on sale of real estate relating to 13 industrial properties and one land parcel that generated ground rental revenue that were sold during the year ended December 31, 2010, the results of operations of 36 industrial properties that were sold during the year ended December 31, 2011 and the results of operations of 46 industrial properties that were identified as held for sale at December 31, 2011. The impairment loss for the year ended December 31, 2010 of $81.6 million relates to an impairment charge related to certain Non-Strategic assets that were either sold during the year or classified as held for sale at December 31, 2011.
Income from discontinued operations for the year ended December 31, 2009 reflects the results of operations and gain on sale of real estate relating to 15 industrial properties that were sold during the year ended December 31, 2009, the results of operations of 13 industrial properties and one land parcel that generated ground rental revenue that were sold during the year ended December 31, 2010, the results of operations of 36 industrial properties that were sold during the year ended December 31, 2011 and the results of operations of the 46 industrial properties identified as held for sale at December 31, 2011. The impairment loss for the year ended December 31, 2009 of $1.3 million relates to an impairment charge recorded related to one sold property in the Inland Empire market. The impairment charge was a result of adverse conditions in the credit and real estate markets.
The $0.9 million and $0.4 million gain on sale of real estate for the years ended December 31, 2010 and 2009, respectively, resulted from the sale of several land parcels that do not meet the criteria for inclusion in discontinued operations.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 2011 our cash and cash equivalents was approximately $10.2 million. We also had $300.5 million available for additional borrowings under our Unsecured Credit Facility, subject to certain restrictions.
We have considered our short-term (through December 31, 2012) liquidity needs and the adequacy of our estimated cash flow from operations and other expected liquidity sources to meet these needs. Our 2012 Notes, in the aggregate principal amount of $61.8 million, are due on April 15, 2012. We expect to satisfy the payment obligations on the 2012 Notes with borrowings on our Unsecured Credit Facility. With the exception of the 2012 Notes, we believe that our principal short-term liquidity needs are to fund normal recurring expenses, property acquisitions, developments, renovations, expansions and other nonrecurring capital improvements, debt service requirements and the minimum distributions required to maintain our REIT qualification under the Code. We anticipate that these needs will be met with cash flows provided by operating and investing activities, including the disposition of select assets.
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We expect to meet long-term (after December 31, 2012) liquidity requirements such as property acquisitions, developments, scheduled debt maturities, major renovations, expansions and other nonrecurring capital improvements through the disposition of select assets, long-term unsecured and secured indebtedness and the issuance of additional equity securities, subject to market conditions.
We also have financed the development or acquisition of additional properties through borrowings under our Unsecured Credit Facility and may finance the development or acquisition of additional properties through such borrowings, to the extent capacity is available, in the future. At December 31, 2011, borrowings under our Unsecured Credit Facility bore interest at a weighted average interest rate of 2.385%. As of February 28, 2012, we had approximately $262.4 million available for additional borrowings under our Unsecured Credit Facility, subject to certain restrictions. Our Unsecured Credit Facility contains certain financial covenants including limitations on incurrence of debt and debt service coverage. Our access to borrowings may be limited if we fail to meet any of these covenants. We believe that we were in compliance with our financial covenants as of December 31, 2011, and we anticipate that we will be able to operate in compliance with our financial covenants in 2012.
Our senior unsecured notes have been assigned credit ratings from Standard & Poor’s, Moody’s and Fitch Ratings of BB-/Ba3/BB, respectively. In the event of a downgrade, we believe we would continue to have access to sufficient capital; however, our cost of borrowing would increase and our ability to access certain financial markets may be limited.
Year Ended December 31, 2011
Net cash provided by operating activities of approximately $87.5 million for the year ended December 31, 2011 was comprised primarily of the non-cash adjustments of approximately $111.7 million, operating distributions received in excess of equity in income of joint ventures of $0.1 million and a decrease in restricted cash of approximately $0.1 million, offset by net loss of approximately $9.2 million, payments of discounts associated with senior unsecured notes of $5.3 million, prepayment premiums associated with the retirement of debt of approximately $1.3 million and net change in operating assets and liabilities of approximately $8.6 million. The adjustments for the non-cash items of approximately $111.7 million are primarily comprised of depreciation and amortization of approximately $136.3 million, the provision for bad debt of approximately $1.1 million, the loss from retirement of debt of approximately $5.5 million and the mark to market loss related to the Series F Agreement of approximately $1.7 million, offset by the reversal of impairment of real estate of $2.7 million, the gain on sale of real estate of approximately $21.8 million, the gain on the change in control of interests in connection with the redemption of the 85% equity interest in one property from the 2003 Net Lease Joint Venture of approximately $0.7 million and the effect of the straight-lining of rental income of approximately $7.7 million.
Net cash used in investing activities of approximately $3.8 million for the year ended December 31, 2011 was comprised primarily of the acquisition of the 85% equity interest in one property from the institutional investor in the 2003 Net Lease Joint Venture development of real estate, capital expenditures related to the improvement of existing real estate and payments related to leasing activities, offset by the net proceeds from the sale of real estate and the repayments on our mortgage loan receivables.
We invested approximately $0.2 million in, and received total distributions of approximately $1.7 million, from our Joint Ventures. As of December 31, 2011, our Joint Ventures owned seven industrial properties comprising approximately 3.4 million square feet of GLA.
During the year ended December 31, 2011, we sold 36 industrial properties comprising approximately 2.9 million square feet of GLA and one land parcel. Proceeds from the sales of the 36 industrial properties and one land parcel, net of closing costs, were approximately $76.0 million. We are in various stages of discussions with third parties for the sale of additional properties and plan to continue to selectively market other properties
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for sale throughout 2012. We expect to use at least a portion of sale proceeds to pay down additional debt. If we are unable to sell properties on an advantageous basis, this may impair our liquidity and our ability to meet our financial covenants.
During the year ended December 31, 2011, we acquired one industrial property comprising approximately 0.7 million square feet of GLA in connection with the redemption of the 85% equity interest in one property from the institutional investor in the 2003 Net Lease Joint Venture. The acquisition was funded with a cash payment of $5.3 million and the assumption of a mortgage loan in the amount of $24.4 million.
Net cash used in financing activities of approximately $99.5 million for the year ended December 31, 2011 was comprised primarily of repayments on our senior unsecured notes and mortgage loans payable, payments of debt and equity issuance costs, net repayments on our Unsecured Credit Facility, preferred stock dividends, the repurchase and retirement of restricted stock and payments on the interest rate swap agreement offset by the net proceeds from the issuance of common stock and proceeds from the new mortgage financings.
During the year ended December 31, 2011, we received proceeds from the origination of $255.9 million in mortgage loans. The mortgage loans bear interest at a fixed rate between 4.45% and 4.85% and mature between June 2018 and October 2021. We may engage various lenders, from time to time, regarding the origination of additional mortgage financings and the terms and conditions thereof. To the extent additional mortgage financing is originated, we expect to use proceeds received to pay down our other debt and/or make select property acquisitions. No assurances can be made that additional mortgage financing will be obtained.
During the year ended December 31, 2011, we redeemed or repurchased $241.7 million of our unsecured notes at an aggregate purchase price of $239.6 million. We may from time to time repay additional amounts of our outstanding debt. Any repayments would depend upon prevailing market conditions, our liquidity requirements, contractual restrictions and other factors we consider important. Future repayments may materially impact our liquidity, taxable income and results of operations.
During the year ended December 31, 2011, we issued 17,415,856 shares of the Company’s common stock under the ATM and underwritten public offerings, resulting in net proceeds of approximately $202.8 million. We may access the equity markets again, subject to contractual restrictions and market conditions. To the extent additional equity offerings occur, we expect to use at least a portion of the proceeds received to reduce our indebtedness or make property acquisitions.
Contractual Obligations and Commitments
The following table lists our contractual obligations and commitments as of December 31, 2011 (in thousands):
Operating and Ground Leases(1)
Long-term Debt
Interest Expense on Long-Term Debt(1)(2)
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Off-Balance Sheet Arrangements
Letters of credit are issued in most cases as pledges to governmental entities for development purposes. At December 31, 2011, we have $0.8 million in outstanding letters of credit. Additionally, we have $6.0 million in performance bonds outstanding at December 31, 2011. The letters of credit and performance bonds are not reflected as liabilities on our balance sheet. We have no other off-balance sheet arrangements, as defined in Item 303 of Regulation S-K, other than those disclosed on the Contractual Obligations and Commitments table above, that have or are reasonably likely to have a current or future effect on our financial condition, results of operation or liquidity and capital resources.
Environmental
We paid approximately $1.1 million and $0.6 million in 2011 and 2010, respectively, related to environmental expenditures. We estimate 2012 expenditures of approximately $1.2 million. We estimate that the aggregate expenditures which need to be expended in 2012 and beyond with regard to currently identified environmental issues will not exceed approximately $2.6 million.
Inflation
For the last several years, inflation has not had a significant impact on the Company because of the relatively low inflation rates in our markets of operation. Most of our leases require the tenants to pay their share of operating expenses, including common area maintenance, real estate taxes and insurance, thereby reducing our exposure to increases in costs and operating expenses resulting from inflation. In addition, many of the outstanding leases expire within six years which may enable us to replace existing leases with new leases at higher base rentals if rents of existing leases are below the then-existing market rate.
Market Risk
The following discussion about our risk-management activities includes “forward-looking statements” that involve risk and uncertainties. Actual results could differ materially from those projected in the forward-looking statements. Our business subjects us to market risk from interest rates, and to a much lesser extent, foreign currency fluctuations.
Interest Rate Risk
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 us at December 31, 2011 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, we also face risks that are either non-financial or non-quantifiable. Such risks principally include credit risk and legal risk and are not represented in the following analysis.
At December 31, 2011, approximately $1,330.5 million (approximately 89.9% of total debt at December 31, 2011) of our debt was fixed rate debt and approximately $149.0 million (approximately 10.1% of total debt at December 31, 2011) was variable rate debt. Currently, we do 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 our earnings or cash flows. Conversely, for variable rate debt, changes in the base interest rate used to calculate the all-in interest rate generally do not impact the fair value of the debt, but would affect our future earnings and cash flows. The interest rate risk and changes in fair market value of fixed rate debt generally do not have a significant impact on us until we are required to refinance such debt. See Note 6 to the Consolidated Financial Statements for a discussion of the maturity dates of our various fixed rate debt.
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Based upon the amount of variable rate debt outstanding at December 31, 2011, a 10% increase or decrease in the interest rate on our variable rate debt would decrease or increase, respectively, future net income and cash flows by approximately $0.4 million per year. The foregoing calculation assumes an instantaneous increase or decrease in the rates applicable to the amount of borrowings outstanding under our Unsecured Credit Facility at December 31, 2011. Changes in LIBOR could result in a greater than 10% increase in such rates. In addition, the calculation does not account for our option to elect the lower of two different interest rates under our borrowings or other possible actions, such as prepayment, that we might take in response to any rate increase. A 10% increase in interest rates would decrease the fair value of the fixed rate debt at December 31, 2011 by approximately $36.7 million to $1,337.3 million. A 10% decrease in interest rates would increase the fair value of the fixed rate debt at December 31, 2011 by approximately $38.9 million to $1,412.9 million.
The use of derivative financial instruments allows us to manage risks of increases in interest rates with respect to the effect these fluctuations would have on our earnings and cash flows. As of December 31, 2011, we had one outstanding derivative with a notional amount of $50.0 million which mitigates our exposure to floating interest rates related to the reset rate of our Series F Preferred Stock.
Foreign Currency Exchange Rate Risk
Owning, operating and developing industrial property outside of the United States exposes us to the possibility of volatile movements in foreign exchange rates. Changes in foreign currencies can affect the operating results of international operations reported in U.S. dollars and the value of the foreign assets reported in U.S. dollars. The economic impact of foreign exchange rate movements is complex because such changes are often linked to variability in real growth, inflation, interest rates, governmental actions and other factors. At December 31, 2011, we owned one land parcel for which the U.S. dollar was not the functional currency. The land parcel is located in Ontario, Canada and uses the Canadian dollar as its functional currency.
Supplemental Earnings Measure
Investors in and industry analysts following the real estate industry utilize funds from operations (“FFO”) as a supplemental operating performance measure of an equity REIT. Historical cost accounting for real estate assets in accordance with accounting principles generally accepted in the United States of America (“GAAP”) implicitly assumes that the value of real estate assets diminishes predictably over time through depreciation. Since real estate values instead have historically risen or fallen with market conditions, many industry analysts and investors prefer to supplement operating results that use historical cost accounting. The National Association of Real Estate Investment Trusts (“NAREIT”) created FFO as a supplemental measure of REIT operating performance that excludes historical cost depreciation, among other items, from net income determined in accordance with GAAP. FFO is a non-GAAP financial measure. FFO available to common stockholders and participating securities should not be considered as a substitute for its most comparable GAAP measure, net income (loss) available to common stockholders and participating securities, or any other measures derived in accordance with GAAP. FFO does not represent cash generated from operating activities in accordance with GAAP and should not be considered as an alternative to cash flow from operating activities as a measure of our liquidity, nor is it indicative of funds available for our cash needs, including our ability to make cash distributions. FFO is calculated by us in accordance with the definition adopted by the Board of Governors of NAREIT and therefore may not be comparable to other similarly titled measures of other companies.
Management believes that the use of FFO available to common stockholders and participating securities, combined with net income (which remains the primary measure of performance), improves the understanding of operating results of REITs among the investing public and makes comparisons of REIT operating results more meaningful. Management believes that, by excluding gains or losses related to sales of previously depreciated real estate assets, real estate asset depreciation and amortization and impairment write-downs taken on previously depreciated real estate, investors and analysts are able to identify the operating results of the long-term assets that form the core of a REIT’s activity and assist in comparing these operating results between periods or to those of different companies.
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The following table shows a reconciliation of net income (loss) available to common stockholders and participating securities to the calculation of FFO available to common stockholders and participating securities for the years ended December 31, 2011, 2010 and 2009.
Net Loss Available to First Industrial Realty Trust, Inc.’s Common Stockholders and Participating Securities
Adjustments:
Depreciation and Other Amortization of Real Estate
Depreciation and Other Amortization of Real Estate Included in Discontinued Operations
Company Share of Joint Venture Depreciation and Other Amortization
Impairment of Depreciated Real Estate
Impairment of Depreciated Real Estate Included in Discontinued Operations
Gain on Sale of Depreciated Real Estate
Company Share of Joint Venture Gain on Sale of Depreciated Real Estate
Gain on Change in Control of Interests
Noncontrolling Interest Share of Adjustments
Funds from Operations Available to First Industrial Realty Trust, Inc.’s Common Stockholders and Participating Securities
Subsequent Events
From January 1, 2012 to February 28, 2012, we repurchased and retired $0.4 million of our senior unsecured notes maturing in 2028 for a payment of $0.4 million.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Response to this item is included in Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” above.
Item 8. Financial Statements and Supplementary Data
See Index to Financial Statements and Financial Statement Schedule included in Item 15.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
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Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our periodic reports pursuant to the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required financial disclosure.
We carried out an evaluation, under the supervision and with the participation of our management, including the principal executive officer and principal financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Exchange Act Rule 13a-15(b) as of the end of the period covered by this report. Based upon this evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this report.
Management’s Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.
Our management has assessed the effectiveness of our internal control over financial reporting as of December 31, 2011. In making its assessment of internal control over financial reporting, management used the criteria described in the Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.
Our management has concluded that, as of December 31, 2011, our internal control over financial reporting was effective.
The effectiveness of our internal control over financial reporting as of December 31, 2011 has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report which appears herein within Item 15. See Report of Independent Registered Public Accounting Firm.
Changes in Internal Control Over Financial Reporting
There has been no change in our internal control over financial reporting that occurred during the fourth quarter of 2011 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Item 9B. Other Information
On February 27, 2012, the Company, in its capacity as the sole general partner of the Operating Partnership and owner of greater than 90% of all Units, amended and restated the Eleventh Amended and Restated Agreement of Limited Partnership of the Operating Partnership, effective March 17, 2012, in order to permit a merger of the Operating Partnership to be authorized by the vote of a majority of Units, make technical amendments of the agreement’s Unit issuance and general partnership interest transfer and succession provisions in the event of certain Company transactions and to expand the notice requirements under the agreement in the event of an amendment. The foregoing summary is qualified in its entirety by reference to the Twelfth Amended and Restated Agreement of Limited Partnership of the Operating Partnership, which is attached hereto as Exhibit 10.1, to this Annual Report on Form 10-K and is incorporated herein by reference.
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PART III
The information required by Item 10, Item 11, Item 12, Item 13 and Item 14 is hereby incorporated or furnished, solely to the extent required by such item, from the Company’s definitive proxy statement, which is expected to be filed with the SEC no later than 120 days after the end of the Company’s fiscal year. Information from the Company’s definitive proxy statement shall not be deemed to be “filed” or “soliciting material,” or subject to liability for purposes of Section 18 of the Securities Exchange Act of 1934 to the maximum extent permitted under the Exchange Act.
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PART IV
Item 15. Exhibits and Financial Statement Schedules
(a) Financial Statements, Financial Statement Schedule and Exhibits
(1 & 2) See Index to Financial Statements and Financial Statement Schedule.
(3) Exhibits:
Exhibits
Description
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46
47
48
49
50
EXHIBIT INDEX
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52
53
54
55
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INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE
FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets of First Industrial Realty Trust, Inc. (the “Company”) as of December 31, 2011 and 2010
Consolidated Statements of Operations of the Company for the Years Ended December 31, 2011, 2010 and 2009
Consolidated Statements of Comprehensive Income of the Company for the Years Ended December 31, 2011, 2010 and 2009
Consolidated Statements of Changes in Stockholders’ Equity of the Company for the Years Ended December 31, 2011, 2010 and 2009
Consolidated Statements of Cash Flows of the Company for the Years Ended December 31, 2011, 2010 and 2009
Notes to the Consolidated Financial Statements
FINANCIAL STATEMENT SCHEDULE
Schedule III: Real Estate and Accumulated Depreciation
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To the Board of Directors and Stockholders of
First Industrial Realty Trust, Inc.:
In our opinion, the consolidated financial statements listed in the index appearing under Item 15(a) (1) present fairly, in all material respects, the financial position of First Industrial Realty Trust, Inc. and its subsidiaries (the “Company”) at December 31, 2011 and 2010 and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2011 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule listed in the index appearing under Item 15(a)(2) presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2011, based on criteria established in Internal Control—Integrated Frameworkissued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company’s management is responsible for these financial statements and financial statement schedule, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in Management’s Report on Internal Control Over Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on these financial statements, on the financial statement schedule, and on the Company’s internal control over financial reporting based on our integrated audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
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CONSOLIDATED BALANCE SHEETS
Assets:
Investment in Real Estate:
Land
Buildings and Improvements
Construction in Progress
Less: Accumulated Depreciation
Net Investment in Real Estate
Real Estate and Other Assets Held for Sale, Net of Accumulated Depreciation and Amortization of $39,413 and $165,211
Cash and Cash Equivalents
Restricted Cash
Tenant Accounts Receivable, Net
Investments in Joint Ventures
Deferred Rent Receivable, Net
Deferred Financing Costs, Net
Deferred Leasing Intangibles, Net
Prepaid Expenses and Other Assets, Net
Liabilities:
Indebtedness:
Mortgage and Other Loans Payable, Net
Senior Unsecured Debt, Net
Unsecured Credit Facility
Mortgage Loan Payable on Real Estate Held for Sale, Net, Inclusive of $0 and $6 of Accrued Interest
Accounts Payable, Accrued Expenses and Other Liabilities, Net
Rents Received in Advance and Security Deposits
Leasing Intangibles Held for Sale, Net of Accumulated Amortization of $415 and $2,668
Total Liabilities
Commitments and Contingencies
Equity:
First Industrial Realty Trust Inc.’s Stockholders’ Equity:
Preferred Stock ($0.01 par value, 10,000,000 shares authorized, 500, 250, 600, and 200 shares of Series F, G, J, and K Cumulative Preferred Stock, respectively, issued and outstanding, having a liquidation preference of $100,000 per share ($50,000), $100,000 per share ($25,000), $250,000 per share ($150,000), and $250,000 per share ($50,000), respectively)
Common Stock ($0.01 par value, 150,000,000 and 100,000,000 shares authorized; 91,131,516 and 73,165,410 shares issued; and 86,807,402 and 68,841,296 shares outstanding)
Additional Paid-in-Capital
Distributions in Excess of Accumulated Earnings
Accumulated Other Comprehensive Loss
Treasury Shares at Cost (4,324,114 shares)
Total First Industrial Realty Trust, Inc.’s Stockholders’ Equity
Noncontrolling Interest
Total Liabilities and Equity
The accompanying notes are an integral part of the consolidated financial statements.
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CONSOLIDATED STATEMENTS OF OPERATIONS
Revenues:
Rental Income
Tenant Recoveries and Other Income
Expenses:
General and Administrative
Restructuring Costs
Depreciation and Other Amortization
Total Expenses
Other Income (Expense):
Interest Income
Amortization of Deferred Financing Costs
Mark-to-Market (Loss) Gain on Interest Rate Protection Agreements
(Loss) Gain From Retirement of Debt
Foreign Currency Exchange Loss
Total Other Income (Expense)
Loss from Continuing Operations Before Equity in Income (Loss) of Joint Ventures, Gain on Sale of Joint Venture Interests, Gain on Change in Control of Interests and Income Tax (Provision) Benefit
Equity in Income (Loss) of Joint Ventures
Gain on Sale of Joint Venture Interests
Income Tax (Provision) Benefit
Discontinued Operations:
Income (Loss) Attributable to Discontinued Operations
Provision for Income Taxes Allocable to Discontinued Operations
Total Discontinued Operations
(Loss) Income Before Gain on Sale of Real Estate
Provision for Income Taxes Allocable to Gain on Sale of Real Estate
Net (Loss) Income
Less: Net Loss Attributable to the Noncontrolling Interest
Net (Loss) Income Attributable to First Industrial Realty Trust, Inc.
Less: Preferred Dividends
Basic and Diluted Earnings Per Share:
Income (Loss) from Discontinued Operations Attributable to First Industrial Realty Trust, Inc.’s Common Stockholders
Weighted Average Shares Outstanding
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CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Mark-to-Market on Interest Rate Protection Agreements, Net of Income Tax Provision
Amortization of Interest Rate Protection Agreements
Write-off of Unamortized Settlement Amounts of Interest Rate Protection Agreements
Reclassification of Foreign Exchange Loss on Substantial Liquidation of Foreign Entities, Net of Income Tax Benefit
Foreign Currency Translation Adjustment, Net of Income Tax (Provision) Benefit
Comprehensive (Loss) Income
Comprehensive Loss Attributable to Noncontrolling Interest
Comprehensive (Loss) Income Attributable to First Industrial Realty Trust, Inc.
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CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
Balance as of December 31, 2008
Issuance of Common Stock, Net of Issuance Costs
Stock Based Compensation Activity
Conversion of Units to Common Stock
Reallocation—Additional Paid in Capital
Repurchase of Equity Component of Exchangeable Note
Preferred Dividends
Net Income (Loss)
Reallocation—Other Comprehensive Income
Other Comprehensive Income
Balance as of December 31, 2009
Net Loss
Balance as of December 31, 2010
Balance as of December 31, 2011
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CONSOLIDATED STATEMENTS OF CASH FLOWS
CASH FLOWS FROM OPERATING ACTIVITIES:
Adjustments to Reconcile Net (Loss) Income to Net Cash Provided by Operating Activities:
Depreciation
Other Amortization
Impairment of Real Estate, Net
Provision for Bad Debt
Equity in (Income) Loss of Joint Ventures
Distributions from Joint Ventures
Loss (Gain) on Retirement of Debt
Prepayment Premiums Associated with Retirement of Debt
Mark-to-Market Loss (Gain) on Interest Rate Protection Agreements
Decrease in Developments for Sale Costs
(Increase) Decrease in Tenant Accounts Receivable, Prepaid Expenses and Other Assets, Net
Increase in Deferred Rent Receivable
Decrease in Accounts Payable, Accrued Expenses, Other Liabilities, Rents Received in Advance and Security Deposits
Decrease (Increase) in Restricted Cash
Payments of Premiums and Discounts Associated with Senior Unsecured Notes
Net Cash Provided by Operating Activities
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of and Additions to Investment in Real Estate and Lease Costs
Net Proceeds from Sales of Investments in Real Estate
Contributions to and Investments in Joint Ventures
Distributions and Sales Proceeds from Joint Venture Interests
Repayment of Notes Receivable
Increase in Lender Escrows
Net Cash (Used in) Provided by Investing Activities
CASH FLOWS FROM FINANCING ACTIVITIES:
Debt and Equity Issuance Costs
Proceeds from the Issuance of Common Stock, Net of Underwriter’s Discount
Repurchase and Retirement of Restricted Stock
Payments on Interest Rate Swap Agreement
Settlement of Interest Rate Protection Agreements
Repayments of Senior Unsecured Notes
Dividends/Distributions
Preferred Stock Dividends
Repayments on Mortgage and Other Loans Payable
Proceeds from Origination of Mortgage Loans Payable
Proceeds from Unsecured Credit Facility
Repayments on Unsecured Credit Facility
Costs Associated with the Retirement of Debt
Repurchase of Equity Component Exchangeable Notes
Net Cash (Used in) Provided by Financing Activities
Net Effect of Exchange Rate Changes on Cash and Cash Equivalents
Net (Decrease) Increase in Cash and Cash Equivalents
Cash and Cash Equivalents, Beginning of Year
Cash and Cash Equivalents, End of Year
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands except share and per share data)
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 (“REIT”) as defined in the Internal Revenue Code of 1986 (the “Code”). Unless the context otherwise requires, the terms “Company,” “we,” “us,” and “our” refer to First Industrial Realty Trust, Inc., First Industrial, L.P. and their other controlled subsidiaries. We refer to our operating partnership, First Industrial, L.P., as the “Operating Partnership.”
We began operations on July 1, 1994. Our operations are conducted primarily through the Operating Partnership, of which we are the sole general partner, and through our taxable REIT subsidiaries. We also conduct operations through other partnerships and limited liability companies, the operating data of which, together with that of the Operating Partnership and the taxable REIT subsidiaries, is consolidated with that of the Company as presented herein.
We also own noncontrolling equity interests in, and provide various services to, two joint ventures (the “2003 Net Lease Joint Venture” and the “2007 Europe Joint Venture”). During 2010, we provided various services to, and ultimately disposed of our equity interests in, five joint ventures (the “2005 Development/Repositioning Joint Venture,” the “2005 Core Joint Venture,” the “2006 Net Lease Co-Investment Program,” the “2006 Land/Development Joint Venture,” and the “2007 Canada Joint Venture;” together with the 2003 Net Lease Joint Venture and the 2007 Europe Joint Venture, the “Joint Ventures”). The Joint Ventures are accounted for under the equity method of accounting. Accordingly, the operating data of our Joint Ventures is not consolidated with that of the Company as presented herein. The 2007 Europe Joint Venture does not own any properties. See Note 5 for more information on the Joint Ventures.
As of December 31, 2011, we owned 740 industrial properties located in 26 states in the United States and one province in Canada, containing an aggregate of approximately 66.3 million square feet of gross leasable area (“GLA”).
Any references to the number of buildings and square footage in the financial statement footnotes are unaudited.
2. Basis of Presentation
First Industrial Realty Trust, Inc. is the sole general partner of the Operating Partnership, with an approximate 94.3% and 92.8% common ownership interest at December 31, 2011 and 2010, respectively. Noncontrolling interest at December 31, 2011 and 2010 of 5.7% and 7.2%, respectively, represents the aggregate partnership interest in the Operating Partnership held by the limited partners thereof.
Our consolidated financial statements at December 31, 2011 and 2010 and for each of the years ended December 31, 2011, 2010 and 2009 include the accounts and operating results of the Company and our subsidiaries. Such financial statements present our noncontrolling equity interests in our Joint Ventures under the equity method of accounting. All intercompany transactions have been eliminated in consolidation.
3. Summary of Significant Accounting Policies
In order to conform with generally accepted accounting principles, we are required in preparation of our financial statements to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of December 31, 2011 and 2010, and the reported amounts of
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revenues and expenses for each of the years ended December 31, 2011, 2010 and 2009. Actual results could differ from those estimates. Certain reclassifications within the footnotes have been made to prior period amounts in order to conform with current period presentation.
Cash and cash equivalents include all cash and liquid investments with an initial maturity of three months or less. The carrying amount approximates fair value due to the short term maturity of these investments.
At December 31, 2010, restricted cash primarily includes cash held in escrow in connection with mortgage debt requirements. The carrying amount approximates fair value due to the short term maturity of these investments.
Investment in Real Estate and Depreciation
Investment in Real Estate is carried at cost, less accumulated depreciation and amortization. We review our properties on a continuous basis for impairment and provide a provision if impairments exist. To determine if an impairment may exist, we review our properties and identify those that have had either an event of change or event of circumstances warranting further assessment of recoverability (such as a decrease in occupancy or decline in general market conditions). If further assessment of recoverability is needed, we estimate the future net cash flows expected to result from the use of the property and its eventual disposition on an individual property basis. If the sum of the expected future net cash flows (undiscounted and without interest charges) is less than the carrying amount of the property on an individual property basis, we will recognize an impairment loss based upon the estimated fair value of such property. For properties we consider held for sale, we cease depreciating the properties and value the properties at the lower of depreciated cost or fair value, less costs to dispose. If circumstances arise that were previously considered unlikely, and, as a result, we decide not to sell a property previously classified as held for sale, we will reclassify such property as held and used. Such property is measured at the lower of its carrying amount (adjusted for any depreciation and amortization expense that would have been recognized had the property been continuously classified as held and used) or fair value at the date of the subsequent decision not to sell. To calculate the fair value of properties held for sale, we deduct from the estimated sales price of the property the estimated costs to close the sale. We classify properties as held for sale when all criteria within the Financial Accounting Standards Board’s (the “FASB”) guidance on the impairment or disposal of long-lived assets are met.
Interest costs, real estate taxes, compensation costs of development personnel and other directly related costs incurred during construction periods are capitalized and depreciated commencing with the date the property is substantially completed. Upon substantial completion, we reclassify construction in progress to building, tenant improvements and leasing commissions. Such costs begin to be capitalized to the development projects from the point we are undergoing necessary activities to get the development ready for its intended use and ceases when the development projects are substantially completed and held available for occupancy. Depreciation expense is computed using the straight-line method based on the following useful lives:
Land Improvements
Furniture, Fixtures and Equipment
Construction expenditures for tenant improvements, leasehold improvements and leasing commissions (inclusive of compensation costs of personnel attributable to leasing) are capitalized and amortized over the terms of each specific lease. Capitalized compensation costs of personnel attributable to leasing relate to time directly attributable to originating leases with independent third parties that result directly from and are essential to originating those leases and would not have been incurred had these leasing transactions not occurred. Repairs and maintenance are charged to expense when incurred. Expenditures for improvements are capitalized.
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Upon acquisition of a property, we allocate the purchase price of the property based upon the fair value of the assets acquired and liabilities assumed, which generally consists of land, buildings, tenant improvements, leasing commissions and intangible assets including in-place leases, above market and below market leases and tenant relationships. We allocate the purchase price to the fair value of the tangible assets of an acquired property by valuing the property as if it were vacant. Acquired above and below market leases are valued based on the present value of the difference between prevailing market rates and the in-place rates measured over a period equal to the remaining term of the lease for above market leases and the initial term plus the term of any below market fixed rate renewal options for below market leases. The above market lease values are amortized as a reduction of rental revenue over the remaining term of the respective leases, and the below market lease values are amortized as an increase to base rental revenue over the remaining initial terms plus the terms of any below market fixed rate renewal options of the respective leases.
The purchase price is further allocated to in-place lease values and tenant relationships based on our evaluation of the specific characteristics of each tenant’s lease and our overall relationship with the respective tenant. The value of in-place lease intangibles and tenant relationships, which are included as components of Deferred Leasing Intangibles, Net are amortized over the remaining lease term (and expected renewal periods of the respective lease for tenant relationships) as adjustments to depreciation and other amortization expense. If a tenant terminates its lease early, the unamortized portion of the tenant improvements, leasing commissions, above and below market leases, the in-place lease value and tenant relationships is immediately written off.
Deferred Leasing Intangibles, net of accumulated amortization (exclusive of Deferred Leasing Intangibles held for sale) included in our total assets and total liabilities consist of the following:
In-Place Leases
Above Market Leases
Tenant Relationships
Total included in Total Assets
Below Market Leases
Total included in Total Liabilities
Amortization expense related to in-place leases and tenant relationships of deferred leasing intangibles, exclusive of in-place leases and tenant relationships held for sale, was $11,076, $14,185 and $16,162 for the years ended December 31, 2011, 2010, and 2009, respectively. Rental revenues increased by $1,431, $2,857 and $4,273 related to net amortization of above/(below) market leases, exclusive of above/(below) market leases held for sale, for the years ended December 31, 2011, 2010, and 2009, respectively. We will recognize net amortization expense related to deferred leasing intangibles over the next five years, for properties owned as of December 31, 2011 and not classified as held for sale, as follows:
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Construction Revenues and Expenses
Construction revenues and expenses represent revenues earned and expenses incurred in connection with a taxable REIT subsidiary acting as a general contractor or development manager to construct industrial properties and also include revenues and expenses related to the development of properties for third parties. We use the percentage-of-completion contract method to recognize revenue. Using this method, revenues are recorded based on estimates of the percentage of completion of individual contracts. The percentage of completion estimates are based on a comparison of the contract expenditures incurred to the estimated final costs. Changes in job performance, job conditions and estimated profitability may result in revisions to costs and income and are recognized in the period in which the revisions are determined.
Foreign Currency Transactions and Translation
At December 31, 2011, we owned a land parcel located in Toronto, Canada for which the functional currency was determined to be the Canadian dollar. The assets and liabilities related to this land parcel are translated to U.S. dollars from the Canadian dollar based on the current exchange rate prevailing at each balance sheet date. The income statement accounts related to this land parcel are translated using the average exchange rate for the period. The resulting translation adjustments are included in Accumulated Other Comprehensive Income.
Deferred Financing Costs
Deferred financing costs include fees and costs incurred to obtain long-term financing. These fees and costs are being amortized over the terms of the respective loans. Accumulated amortization of deferred financing costs was $13,086 and $16,565 at December 31, 2011 and 2010, respectively. Unamortized deferred financing costs are written-off when debt is retired before the maturity date.
Investments in Joint Ventures represent our noncontrolling equity interests in our Joint Ventures. We account for our Investments in Joint Ventures under the equity method of accounting, as we do not have a majority voting interest, operational control or financial control. Control is determined using accounting standards related to the consolidation of joint ventures and variable interest entities. In order to assess whether consolidation of a variable-interest entity is required, an enterprise is required to qualitatively assess the determination of the primary beneficiary of a variable interest entity (“VIE”) based on whether the entity (1) has the power to direct matters that most significantly impact the activities of the VIE, and (2) has the obligation to absorb losses or the right to receive benefits of the VIE that could potentially be significant to the VIE. Additionally, they require an ongoing reconsideration of the primary beneficiary and provide a framework for the events that trigger a reassessment of whether an entity is a VIE.
Under the equity method of accounting, our share of earnings or losses of our Joint Ventures is reflected in income as earned and contributions or distributions increase or decrease our Investments in Joint Ventures as paid or received, respectively. Differences between our carrying value of our Investments in Joint Ventures and our underlying equity of such Joint Ventures are amortized over the respective lives of the underlying assets.
On a continuous basis, we assess whether there are any indicators that the value of our Investments in Joint Ventures may be impaired. An investment is impaired if our estimate of the fair value of the investment is less than the carrying value of the investment, and such decline in fair value is deemed to be other than temporary. To the extent impairment has occurred, the loss shall be measured as the excess of the carrying amount of the investment over the fair value of the investment. Our estimates of fair value for each investment are based on a number of subjective assumptions that are subject to economic and market uncertainties including, among others, demand for space, market rental rates and operating costs, the discount rate used to value the cash flows of the
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properties, the cap rate used to estimate the terminal value of the underlying properties and the discount rate used to value the Joint Ventures’ debt. As these factors are difficult to predict and are subject to future events that may alter our assumptions, our fair values estimated in the impairment analyses may not be realized.
Stock Based Compensation
We account for stock based compensation using the modified prospective application method, which requires measurement of compensation cost for all stock-based awards at fair value on the date of grant and recognition of compensation over the service period for awards expected to vest.
Net income, net of preferred dividends, is allocated to common stockholders and participating securities based upon their proportionate share of weighted average shares plus weighted average participating securities. Participating securities are unvested share-based payment awards that contain non-forfeitable rights to dividends or dividend equivalents. Certain restricted stock awards and restricted unit awards granted to employees and directors are considered participating securities as they receive non-forfeitable dividend or dividend equivalents at the same rate as common stock. See Note 9 for further disclosure about participating securities.
Revenue Recognition
Rental income is recognized on a straight-line method under which contractual rent increases are recognized evenly over the lease term. Tenant recovery income includes payments from tenants for real estate taxes, insurance and other property operating expenses and is recognized as revenue in the same period the related expenses are incurred by us.
Revenue is generally recognized on payments received from tenants for early lease terminations upon the effective termination of a tenant’s lease and when we have no further obligations under the lease.
Interest income on mortgage loans receivable is recognized based on the accrual method unless a significant uncertainty of collection exists. If a significant uncertainty exists, interest income is recognized as collected.
We provide an allowance for doubtful accounts against the portion of tenant accounts receivable including deferred rent receivable, which is estimated to be uncollectible. Accounts receivable in the consolidated balance sheets are shown net of an allowance for doubtful accounts of $2,675 and $3,001 as of December 31, 2011 and 2010, respectively. Deferred rent receivable in the consolidated balance sheets are shown net of an allowance for doubtful accounts of $2,302 and $1,855 as of December 31, 2011 and 2010, respectively. For accounts receivable we deem uncollectible, we use the direct write-off method.
Gain on sale of real estate is recognized using the full accrual method, when appropriate. Gains relating to transactions which do not meet the full accrual method of accounting are deferred and recognized when the full accrual method of accounting criteria are met or by using the installment or deposit methods of profit recognition, as appropriate in the circumstances. As the assets are sold, their costs and related accumulated depreciation are written off with resulting gains or losses reflected in net income or loss. Estimated future costs to be incurred by us after completion of each sale are included in the determination of the gain on sales.
Notes Receivable
Notes receivable are primarily comprised of mortgage note receivables that we have made in connection with sales of real estate assets. The note receivables are recorded at fair value at the time of issuance. Interest income is accrued as earned. Notes receivable are considered past due based on the contractual terms of the note agreement. On a quarterly basis, we evaluate the collectability of each mortgage note receivable based on various factors which may include payment history, expected fair value of the collateral securing the loan, internal and
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external credit information and/or economic trends. A loan is considered impaired when, based upon current information and events, it is probable that we will be unable to collect all amounts due under the existing contractual terms. When a loan is considered impaired, the amount of the loss accrual is calculated by comparing the carrying amount of the note receivable to the present value of expected future cash flows. Since the majority of our notes receivable are collateralized by a first mortgage, the loans have risk characteristics similar to the risks in owning commercial real estate.
Income Taxes
We have elected to be taxed as a REIT under the Code. To qualify as a REIT, we must meet a number of organizational and operational requirements, including a requirement to distribute at least 90% of our adjusted taxable income to our stockholders. Management intends to continue to adhere to these requirements and to maintain our REIT status. As a REIT, we are entitled to a tax deduction for some or all of the dividends we pay to shareholders. Accordingly, we generally will not be subject to federal income taxes as long as we currently distribute to shareholders an amount equal to or in excess of our taxable income. If we fail to qualify as a REIT in any taxable year, we will be subject to federal income taxes and may not be able to qualify as a REIT for four subsequent taxable years.
REIT qualification reduces, but does not eliminate, the amount of state and local taxes we pay. In addition, our financial statements include the operations of taxable corporate subsidiaries that are not entitled to a dividends paid deduction and are subject to corporate federal, state and local income taxes. As a REIT, we may also be subject to certain federal excise and franchise taxes if we engage in certain types of transactions. A benefit/provision has been made for federal, state and local income taxes in the accompanying consolidated financial statements. In accordance with FASB’s guidance, the total benefit/provision has been separately allocated to income (loss) from continuing operations, income (loss) from discontinued operations and gain (loss) on sale of real estate. The provision for excise and franchise taxes has been reflected in general and administrative expense in the consolidated statements of operations and has not been separately stated due to its insignificance.
We evaluate tax positions taken in the financial statements on a quarterly basis under the interpretation for accounting for uncertainty in income taxes. As a result of this evaluation, we may recognize a tax benefit from an uncertain tax position only if it is “more-likely-than-not” that the tax position will be sustained on examination by taxing authorities. As of December 31, 2011, we do not have any unrecognized tax benefits.
We file income tax returns in the U.S., and various states and foreign jurisdictions. In general, the statutes of limitations for income tax returns remain open for the years 2008 through 2011. One of our taxable REIT subsidiaries which liquidated in September 2009 is currently under examination by the Internal Revenue Service (“IRS”) for 2008 and for the tax year ended September 1, 2009 during which we received refunds from the IRS of $3,767 and $40,418, respectively.
During 2005, we recorded a $745 franchise tax reserve related to a potential state franchise tax assessment for the 1996-2001 tax years. During the year ended December 31, 2011, we received a refund from the state, representing amounts paid during 2006 related to the 1996-2001 tax years. Based on the refund received and discussions with the taxing authorities, as of December 31, 2011, management believes that it is unlikely that any franchise tax amounts will be assessed by the state for such tax years. As such, during the year ended December 31, 2011, we have reversed $745 of franchise taxes. Franchise taxes are recorded within general and administrative expense.
Earnings Per Share (“EPS”)
Basic net income (loss) per common share is computed by dividing net income (loss) available to common shareholders by the weighted average number of common shares outstanding for the period. Diluted net income (loss) per common share is computed by dividing net income (loss) available to common shareholders by the sum of the weighted average number of common shares outstanding and any dilutive non-participating securities for the period. See Note 9 for further disclosure about EPS.
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Derivative Financial Instruments
Historically, we have used interest rate protection agreements (“Agreements”) to fix the interest rate on anticipated offerings of senior unsecured notes or convert floating rate debt to fixed rate debt. Receipts or payments that result from the settlement of Agreements used to fix the interest rate on anticipated offerings of senior unsecured notes are amortized over the life of the derivative or the life of the debt and included in interest expense. Receipts or payments resulting from Agreements used to convert floating rate debt to fixed rate debt are recognized as a component of interest expense. Agreements which qualify for hedge accounting are marked-to-market and any gain or loss that is effective is recognized in other comprehensive income (shareholders’ equity). Agreements which do not qualify for hedge accounting are marked-to-market and any gain or loss is recognized in net income (loss) immediately. Amounts accumulated in other comprehensive income during the hedge period are reclassified to earnings in the same period during which the forecasted transaction or hedged item affects net income (loss). The credit risks associated with Agreements are controlled through the evaluation and monitoring of the creditworthiness of the counterparty. In the event that the counterparty fails to meet the terms of Agreements, our exposure is limited to the current value of the interest rate differential, not the notional amount, and our carrying value of Agreements on the balance sheet. See Note 14 for more information on Agreements.
Fair Value of Financial Instruments
Financial instruments other than our derivatives include tenant accounts receivable, net, notes receivable, accounts payable, other accrued expenses, mortgage and other loans payable, unsecured credit facility and senior unsecured notes. The fair values of tenant accounts receivable, net, accounts payable and other accrued expenses approximate their carrying or contract values. See Note 6 for the fair values of the mortgage and other loans payable, unsecured credit facility and senior unsecured notes and see Note 4 for the fair value of our notes receivable.
The FASB’s guidance on financial reporting for the disposal of long lived assets requires that the results of operations and gains or losses on the sale of property or property held for sale be presented in discontinued operations if both of the following criteria are met: (a) the operations and cash flows of the property have been (or will be) eliminated from the ongoing operations of the Company as a result of the disposal transaction and (b) we will not have any significant continuing involvement in the operations of the property after the disposal transaction. The guidance also requires prior period results of operations for these properties to be reclassified and presented in discontinued operations in prior consolidated statements of operations.
Segment Reporting
Management views the Company as a single segment based on its method of internal reporting.
4. Investment in Real Estate
Acquisitions
In 2009, we acquired one land parcel. The purchase price of the land parcel was approximately $208, excluding costs incurred in conjunction with the acquisition of the land parcel. We also substantially completed the development of two industrial properties comprising approximately 1.1 million square feet of GLA at a cost of approximately $41,258. We reclassed the costs of the substantially completed developments from construction in progress to building, tenant improvements and leasing commissions.
In 2010, we acquired three industrial properties comprising, in the aggregate, approximately 0.5 million square feet of GLA, including one industrial property purchased from the 2005 Development/Repositioning Joint Venture (see Note 5). The purchase price of these acquisitions totaled approximately $22,408 excluding costs incurred in conjunction with the acquisition of the industrial properties.
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In 2011, we acquired one industrial property comprising approximately 0.7 million square feet of GLA in connection with the purchase of the 85% equity interest in one property from the institutional investor in the 2003 Net Lease Joint Venture (see Note 5). The gross agreed-upon fair value for the real estate was $30,625, excluding costs incurred in conjunction with the acquisition of the industrial property. The acquisition was funded through the assumption of a mortgage loan, whose carrying value approximated fair market value, in the amount of $24,417 and a cash payment of $5,277 (85% of the net fair value of the acquisition). We accounted for this transaction as a step acquisition utilizing the purchase method of accounting. Due to the change in control that occurred, we recorded a gain of approximately $689 related to the difference between our carrying value and fair value of our equity interest on the acquisition date.
Intangible Assets Subject To Amortization in the Period of Acquisition
The fair value at the date of acquisition of in-place leases, above market leases and tenant relationships recorded due to real estate properties acquired for the years ended December 31, 2011 and 2010, which is recorded as deferred leasing intangibles, is as follows:
The weighted average life in months of in-place leases, above market leases and tenant relationships recorded at the time of acquisition at the time of acquisition as a result of the real estate properties acquired for the years ended December 31, 2011 and 2010 is as follows:
Sales and Discontinued Operations
In 2009, we sold 15 industrial properties comprising approximately 1.9 million square feet of GLA and several land parcels. Gross proceeds from the sales of the 15 industrial properties and several land parcels were approximately $100,194. The gain on sale of real estate was approximately $24,580, of which $24,206 is shown in discontinued operations. The 15 sold industrial properties meet the criteria to be included in discontinued operations. Therefore the results of operations and gain on sale of real estate for the 15 sold industrial properties are included in discontinued operations. The results of operations and gain on sale of real estate for the several land parcels that do not meet the criteria to be included in discontinued operations are included in continuing operations.
In 2010, we sold 13 industrial properties comprising approximately 1.1 million square feet of GLA and several land parcels. Gross proceeds from the sales of the 13 industrial properties and several land parcels were approximately $71,019. The gain on sale of real estate was approximately $11,951, of which $11,092 is shown in discontinued operations. The 13 sold industrial properties and one land parcel that received ground rental revenues meet the criteria to be included in discontinued operations. Therefore the results of operations and gain on sale of real estate for the 13 sold industrial properties and one land parcel that received ground rental revenues are included in discontinued operations. The results of operations and gain on sale of real estate for the several land parcels that do not meet the criteria to be included in discontinued operations are included in continuing operations.
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In 2011, we sold 36 industrial properties comprising approximately 2.9 million square feet of GLA and one land parcel. Gross proceeds from the sales of the 36 industrial properties and one land parcel were approximately $86,643. Included in the 36 industrial properties sold is one industrial property totaling approximately 0.4 million square feet of GLA that we transferred title to a lender in satisfaction of a non-recourse mortgage loan (See Note 6). The gain on sale of real estate was approximately $21,789, of which $20,419 is shown in discontinued operations. The 36 sold industrial properties meet the criteria to be included in discontinued operations. Therefore the results of operations and gain on sale of real estate for the 36 sold industrial properties are included in discontinued operations. The results of operations and gain on sale of real estate for the one land parcel that does not meet the criteria to be included in discontinued operations are included in continuing operations.
At December 31, 2011, we had 46 industrial properties comprising approximately 4.8 million square feet of GLA held for sale. The results of operations of the 46 industrial properties held for sale at December 31, 2011 are included in discontinued operations. There can be no assurance that such industrial properties held for sale will be sold.
The following table discloses certain information for the years ended December 31, 2011, 2010 and 2009 regarding the industrial properties included in our discontinued operations.
At December 31, 2011 and 2010, we had notes receivable outstanding of approximately $55,502 and $58,803, net of a discount of $319 and $383, respectively, which are included as a component of Prepaid Expenses and Other Assets, Net. At December 31, 2011 and 2010, the fair value of the notes receivable was $58,734 and $60,944, respectively. The fair value of our notes receivable was determined by discounting the future cash flows using current rates at which similar loans with similar remaining maturities would be made to other borrowers. The current market rates we utilized were internally estimated; therefore, we have concluded that our determination of fair value of our notes receivable was primarily based upon Level 3 inputs, as defined below.
Impairment Charges
On October 22, 2010, we amended our existing revolving credit facility (See Note 6). In conjunction with the amendment, management identified a pool of real estate assets (the “Non-Strategic Assets”) that it intended to sell. The Non-Strategic Assets originally consisted of 195 industrial properties comprising approximately 16.4 million square feet of GLA and land parcels comprising approximately 724 gross acres. At the time of the amendment, management reassessed the holding period for the Non-Strategic Assets and determined that certain of the industrial properties were impaired, and as such, the Company recorded an aggregate impairment charge of $185,397 for the year ended December 31, 2010.
At December 31, 2011, the Non-Strategic Assets consisted of 133 industrial properties comprising approximately 11.3 million square feet of GLA and land parcels comprising approximately 359 gross acres. Forty-six industrial properties comprising approximately 4.8 million square feet of GLA and land parcels comprising approximately 61 acres of the Non-Strategic Assets were classified as held for sale as of December 31, 2011. The net impairment charges for assets that qualify to be classified as held for sale at
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December 31, 2011 were calculated as the difference of the carrying value of the properties and land parcels over the fair value less costs to sell. The net impairment charges recorded during year ended December 31, 2011 are due to updated fair market values for certain of the Non-Strategic Assets whose estimated fair market values have changed since December 31, 2010. On the date an asset no longer qualifies to be classified as held for sale, the carrying value must be reestablished at the lower of the estimated fair market value of the asset or the carrying value of the asset prior to held for sale classification, adjusted for any depreciation and amortization that would have been recorded if the asset had not been classified as held for sale. Impairment has been reversed and/or catch-up depreciation and amortization has been recorded during year ended December 31, 2011, if applicable, for these assets that are no longer classified as held for sale.
In addition to the impairment recorded related to the Non-Strategic Assets, during the three months ended March 31, 2010, we recorded an impairment charge in the amount of $9,155 related to a property comprised of 0.3 million square feet of GLA located in Grand Rapids, Michigan (“Grand Rapids Property”) in connection with the negotiation of a new lease. During the year ended December 31, 2009, we recorded an impairment charge of $6,934 related to a property comprised of 0.2 million square feet of GLA located in the Inland Empire (“Inland Empire Property”) due to adverse conditions in the credit and real estate markets. The non-cash impairment charges related to the Grand Rapids Property and the Inland Empire Property were based upon the difference between the fair value of the properties and their carrying value.
During the years ended December 31, 2011, 2010 and 2009, we recorded the following net non-cash impairment charges:
Operating Properties—Held for Sale and Sold Assets
Impairment—Discontinued Operations
Land Parcels—Held for Sale and Sold Assets
Operating Properties—Held for Use
Land Parcels—Held for Use
Impairment—Continuing Operations
Total Net Impairment
The guidance for the fair value measurement provisions for the impairment of long lived assets recorded at fair value establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. These tiers include: Level 1, defined as observable inputs such as quoted prices in active markets for identical assets; Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions. The fair market values were determined using widely accepted valuation techniques including discounted cash flow analyses on expected cash flows, internal valuations of real estate and third party offers.
For operational real estate assets, the most significant assumptions used in the discounted cash flow analyses included the discount rate, projected occupancy levels, rental rates and capital expenditures, and the future exit capitalization rate. For the valuation of land parcels, we reviewed recent comparable sales transactions, to the extent available, or if not available, we considered older comparable transactions, adjusted upward or downward to reflect management’s assumptions about current market conditions. In all cases, members of our management team that were responsible for the individual markets where the land parcels were located determined the internal valuations. Valuations based on third party offers include bona fide contract prices and letter of intent amounts, that we believe are indicative of fair value.
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The following tables present information about our assets that were measured at fair value on a non-recurring basis during the years ended December 31, 2011 and 2010. The tables indicate the fair value hierarchy of the valuation techniques we utilized to determine fair value.
Long-lived Assets Held for Sale*
Long-lived Assets Held and Used*
Long-lived Assets Held for Sale
Long-lived Assets Held and Used
5. Investments in Joint Ventures
On May 16, 2003, we entered into the 2003 Net Lease Joint Venture with an institutional investor to invest in industrial properties. We own a 15% equity interest in and provide property management services to the 2003 Net Lease Joint Venture. As of December 31, 2011, the 2003 Net Lease Joint Venture owned seven industrial properties comprising approximately 3.4 million square feet of GLA (see Note 16 for subsequent events). The 2003 Net Lease Joint Venture is considered a variable interest entity, however, we continue to conclude that we are not the primary beneficiary of this venture. As of December 31, 2011, our investment in the 2003 Net Lease Joint Venture is $1,674. Our maximum exposure to loss is currently equal to our investment balance. On May 26, 2011, we acquired the 85% equity interest in one property from the institutional investor in the 2003 Net Lease Joint Venture (see Note 4).
During December 2007, we entered into the 2007 Europe Joint Venture with an institutional investor to invest in, own, develop, redevelop and operate industrial properties. We continue to hold our 10% equity interest in the 2007 Europe Joint Venture. As of December 31, 2011, the 2007 Europe Joint Venture did not own any properties.
On August 5, 2010, we sold our interests in the 2005 Development/Repositioning Joint Venture, the 2005 Core Joint Venture, the 2006 Land/Development Joint Venture and the 2007 Canada Joint Venture to our joint venture partner generating sale proceeds of approximately $5.0 million. In connection with the sale, we wrote off our carrying value for the 2005 Development/Repositioning Joint Venture, the 2005 Core Joint Venture, the 2006 Land/Development Joint Venture and the 2007 Canada Joint Venture as well as $1,625 of unrealized loss recorded in Other Comprehensive Income (see Note 14). We recorded an $11,226 gain related to the sale, which is included in Gain on Sale of Joint Venture Interests for the year ended December 31, 2010. As a result of this sale, we no longer serve as asset manager for these ventures. Pursuant to the sale agreement, we were entitled to proceeds related to sales of certain assets (the “Sale Assets”), if the sale of such assets was consummated by a
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stated timeframe. Three of the Sale Assets closed between August 6, 2010 and December 31, 2010 and we earned approximately $2,700, which is included in the Gain on Sale of Joint Venture Interests for the year ended December 31, 2010. Additionally, we were entitled to earn leasing, development and disposition fees related to certain assets identified at the time of sale within the sale agreement. On June 11, 2010, we purchased an industrial property from the 2005 Development/Repositioning Joint Venture for a purchase price of $14,627.
On March 21, 2006, we entered into the 2006 Net Lease Co-Investment Program with an institutional investor to invest in industrial properties. We owned a 15% equity interest in and provided property management, asset management and leasing management services to the 2006 Net Lease Co-Investment Program. Pursuant to the buy/sell provision in the 2006 Net Lease Co-Investment Program’s governing agreement that our counterparty exercised on May 25, 2010, we sold our interest in the real estate property assets in the 2006 Net Lease Co-Investment Program to our counterparty and received $4,541 in net proceeds. In connection with the sale, we wrote off our carrying value for the 2006 Net Lease Co-Investment Program and recorded a $852 gain, which is included in Equity in Income (Loss) of Joint Ventures.
During July 2007, we entered into a management arrangement with an institutional investor to provide property management, leasing, acquisition, disposition and portfolio management services for three industrial properties (the “July 2007 Fund”). We do not own an equity interest in the July 2007 Fund, however we are entitled to incentive payments if certain economic thresholds related to the industrial properties are achieved. Effective September 2, 2009, we ceased to provide any services for two of the industrial properties in the July 2007 Fund. We received a one-time fee of approximately $866 in 2009 from the termination of the management agreement. Effective May 24, 2010, we ceased to provide any services to the remaining industrial property in the July 2007 Fund.
At December 31, 2011 and 2010, we have receivables from the Joint Ventures (and/or our former Joint Venture partners) in the aggregate amount of $137 and $2,857, respectively. These receivable amounts are included in Prepaid Expenses and Other Assets, Net. During the years ended December 31, 2011, 2010 and 2009, we recognized fees of $970, $4,952 and $11,174, respectively, from our Joint Ventures.
The combined summarized financial information of the investments in Joint Ventures is as follows:
Condensed Combined Balance Sheets
Gross Real Estate Investment
Net Real Estate
Other Assets
Debt
Other Liabilities
Equity
Company’s share of Equity
Basis Differentials(1)
Carrying Value of the Company’s investments in Joint Ventures
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Condensed Combined Statements of Operations
Operating and Other
Interest
Income from Discontinued Operations (Including Gain on Sale of Real Estate of $3,137, $2,761 and $1,177 for the years ended December 31, 2011, 2010 and 2009, respectively)
Company’s Share of Net Income (Loss)
Impairment on the Company’s Investments in Joint Ventures
6. Indebtedness
The following table discloses certain information regarding our indebtedness:
Mortgage and Other Loans Payable, Net*
Unamortized Premiums*
Mortgage and Other Loans Payable, Gross*
Senior Unsecured Notes, Net
2016 Notes
2017 Notes
2027 Notes
2028 Notes
2012 Notes
2032 Notes
2014 Notes
2011 Exchangeable Notes
2017 II Notes
Subtotal
Unamortized Discounts
Senior Unsecured Notes, Gross
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During the year ended December 31, 2011, we originated or assumed the following mortgage loans:
Mortgage
Financing
I - VIII
IX
X-XX
For Mortgage Financings I through VIII and Mortgage Financings X through XX, principal prepayments are prohibited for 12 months after loan origination, after which prepayment premiums are calculated at the greater of yield maintenance or 1% of the outstanding balance. For Mortgage Financing IX, principal prepayments are prohibited until three months prior to maturity, but defeasance is allowed subject to certain conditions.
During the year ended December 31, 2011, we paid off and retired prior to maturity the following mortgage loans:
Loan
Principal Paid Off
On September 20, 2011, we transferred title to a property totaling approximately 0.4 million square feet of GLA and an escrow balance in the amount of $1,845 to a lender in satisfaction of a $5,040 non-recourse mortgage loan. We recognized a $147 loss related to the transaction, which is included in loss on retirement of debt for the year ended December 31, 2011.
On April 30, 2010, we prepaid and retired our secured mortgage debt maturing in September 2024 in the amount of $1,654, excluding a prepayment fee of $17, which is included in Loss from Retirement of Debt.
On December 1, 2010, we paid off and retired our secured mortgage debt maturing in December 2010 in the amount of $12,970.
As of December 31, 2011, mortgage and other loans payable are collateralized by, and in some instances cross-collateralized by, industrial properties with a net carrying value of $889,722 and one letter of credit in the amount of $537. We believe the Operating Partnership and the Company were in compliance with all covenants relating to mortgage loans payable as of December 31, 2011.
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During the years ended December 31, 2011 and December 31, 2010, we repurchased and retired the following senior unsecured notes prior to maturity:
2011 Notes
In connection with these repurchases prior to maturity, we recognized $2,012 and $4,096 as loss from retirement of debt for the years ended December 31, 2011 and December 31, 2010, respectively, which is the difference between the repurchase price of $110,667 and $265,858, respectively, and the principal amount retired of $112,757 and $264,796, respectively, net of the pro rata write off of the unamortized debt issue discount, the unamortized loan fees, the unamortized settlement amount of the interest rate protection agreements and the professional services fees related to the repurchases of $135, $717, $3,250 and $0, respectively, and $1,707, $519, $(183) and $991 respectively.
On September 15, 2011, we paid off and retired our 2011 Exchangeable Notes, at maturity, in the amount of $128,900.
The indentures governing our senior unsecured notes contain certain covenants, including limitations on incurrence of debt and debt service coverage. We believe the Operating Partnership and the Company were in compliance with all covenants relating to senior unsecured debt as of December 31, 2011. However, these financial covenants are complex and there can be no assurance that these provisions would not be interpreted by our noteholders in a manner that could impose and cause us to incur material costs.
We have maintained an unsecured credit facility since 1997. Effective October 22, 2010, we amended our existing revolving credit facility to provide for a $200,000 term loan and a $200,000 revolving line of credit (together the “Old Credit Facility”). The Old Credit Facility was to mature on September 28, 2012. In connection with the amendment of the Old Credit Facility, we wrote off $191 of unamortized deferred financing costs associated with the decreased capacity of the agreement, which is included in Loss from Retirement of Debt for the year ended December 31, 2010. During June 2011, we made a permanent repayment of $100,000 on the term loan of our Old Credit Facility.
During December 2011, we entered into a new $450,000 unsecured revolving credit agreement (the “Unsecured Credit Facility”) which replaced the Old Credit Facility. We may request that the borrowing capacity under the Unsecured Credit Facility be increased to $500,000, subject to certain restrictions. We wrote off $1,172 of unamortized deferred financing costs reflected in Loss from Retirement of Debt for the year ended December 31, 2011 related to the Old Credit Facility. The Unsecured Credit Facility provides for interest only payments initially at LIBOR plus 210 basis points or at a base rate plus 210 basis points, at our election, based on
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our leverage ratio. The Unsecured Credit Facility matures on December 12, 2014, unless extended an additional one year at our election, subject to certain conditions. At December 31, 2011, borrowings under the Unsecured Credit Facility bore interest at a weighted average interest rate of 2.385%.
The Unsecured Credit Facility contains certain covenants, including limitations on incurrence of debt and debt service coverage. Under the Unsecured Credit Facility, an event of default can also occur if the lenders, in their good faith judgment, determine that a material adverse change has occurred which could prevent timely repayment or materially impair our ability to perform our obligations under the loan agreement. We believe that we were in compliance with all covenants relating to the Unsecured Credit Facility as of December 31, 2011. However, these financial covenants are complex and there can be no assurance that these provisions would not be interpreted by our lenders in a manner that could impose and cause us to incur material costs.
The following is a schedule of the stated maturities and scheduled principal payments of our indebtedness, exclusive of premiums and discounts, for the next five years ending December 31, and thereafter:
Fair Value
At December 31, 2011 and 2010, the fair value of our indebtedness was as follows:
Mortgage and Other Loans Payable, including mortgages Held for Sale
Senior Unsecured Debt
The fair values of our mortgage loans payable and other loans payable were determined by discounting the future cash flows using the current rates at which similar loans would be made based upon similar leverage levels and similar remaining maturities. The current market rates we utilized were internally estimated; therefore, we have concluded that our determination of fair value for our mortgage and other loans payable was primarily based upon Level 3 inputs. The fair value of the senior unsecured notes was determined by quoted market prices (Level 1) or, for certain senior unsecured notes that are thinly traded, were based upon transactions for senior unsecured notes with comparable maturities (Level 2). The fair value of the Unsecured Credit Facility was determined by discounting the future cash flows using current rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining term, assuming no repayment until maturity. The current market rate utilized for our Unsecured Credit Facility was internally estimated; therefore, we have concluded that our determination of fair value was primarily based upon Level 3 inputs.
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7. Stockholders’ Equity
Preferred Stock
On May 27, 2004, we issued 50,000 Depositary Shares, each representing 1/100th of a share of our 6.236%, $0.01 par value, Series F Flexible Cumulative Redeemable Preferred Stock (the “Series F Preferred Stock”), at an initial offering price of $1,000.00 per Depositary Share. Dividends on the Series F Preferred Stock are cumulative from the date of initial issuance and are payable quarterly in arrears. The coupon rate of our Series F Preferred Stock resets every quarter at 2.375% plus the greater of (i) the 30 year Treasury CMT Rate, (ii) the 10 year Treasury CMT Rate or (iii) 3-month LIBOR. For the fourth quarter of 2011, the coupon rate was 5.365%. With respect to the payment of dividends and amounts upon liquidation, dissolution or winding up, the Series F Preferred Stock ranks senior to payments on our Common Stock and pari passu with our Series G Preferred Stock (hereinafter defined), Series J Preferred Stock (hereinafter defined) and Series K Preferred Stock (hereinafter defined). In October 2008, we entered into an interest rate swap agreement to mitigate our exposure to floating interest rates related to the forecasted reset rate of the coupon rate of our Series F Preferred Stock (see Note 14 for further information on the agreement).
On May 27, 2004, we issued 25,000 Depositary Shares, each representing 1/100th of a share of our 7.236%, $0.01 par value, Series G Flexible Cumulative Redeemable Preferred Stock (the “Series G Preferred Stock”), at an initial offering price of $1,000.00 per Depositary Share. Dividends on the Series G Preferred Stock are cumulative from the date of initial issuance and are payable semi-annually in arrears for the period from the date of original issuance of the Series G Preferred Stock through March 31, 2014 (the “Series G Initial Fixed Rate Period”), commencing on September 30, 2004, at a rate of 7.236% per annum of the liquidation preference (the “Series G Initial Distribution Rate”) (equivalent to $72.36 per Depositary Share). On or after March 31, 2014, the Series G Initial Distribution Rate is subject to reset, at our option, subject to certain conditions and parameters, at fixed or floating rates and periods. Fixed rates and periods will be determined through a remarketing procedure. Floating rates during floating rate periods will equal 2.500% (the initial credit spread), plus the greater of (i) the 3-month LIBOR, (ii) the 10 year Treasury CMT Rate, and (iii) the 30 year Treasury CMT Rate, reset quarterly. Dividends on the Series G Preferred Stock are payable semi-annually in arrears for fixed rate periods subsequent to the Series G Initial Fixed Rate Period and quarterly in arrears for floating rate periods. With respect to the payment of dividends and amounts upon liquidation, dissolution or winding up, the Series G Preferred Stock ranks senior to payments on our Common Stock and pari passu with our Series F Preferred Stock, Series J Preferred Stock (hereinafter defined) and Series K Preferred Stock (hereinafter defined).
On January 13, 2006, we issued 6,000,000 Depositary Shares, each representing 1/10,000th of a share of our 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. The Series J Preferred Stock is redeemable in whole or in part, at our option, at a cash redemption 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 payable quarterly in arrears. However, during any period that both (i) the depositary shares are not listed on the NYSE or AMEX, or quoted on NASDAQ, and (ii) we are not subject to the reporting requirements of the Exchange Act, but the preferred shares are outstanding, we will increase the dividend on the preferred shares to a rate of 8.25% of the liquidation preference per year. With respect to the payment of dividends and amounts upon liquidation, dissolution or winding up, the Series J Preferred Stock ranks senior to payments on our Common Stock and pari passu with our Series F Preferred Stock, Series G Preferred Stock and Series K Preferred Stock (hereinafter defined).
On August 21, 2006, we issued 2,000,000 Depositary Shares, each representing 1/10,000th of a share of our 7.25%, $.01 par value, Series K Flexible Cumulative Redeemable Preferred Stock (the “Series K Preferred Stock”), at an initial offering price of $25.00 per Depositary Share. The Series K Preferred Stock is redeemable in whole or in part, at our option, at a cash redemption price of $25.00 per depositary share. Dividends on the Series K Preferred Stock, represented by the Depositary Shares, are cumulative from the date of initial issuance and are payable quarterly in arrears. With respect to the payment of dividends and amounts upon liquidation, dissolution or winding up, the Series K Preferred Stock ranks senior to payments on our Common Stock and pari passu with our Series F Preferred Stock, Series G Preferred Stock and Series J Preferred Stock.
All series of preferred stock have no stated maturity (although we may redeem all such preferred stock on or following their optional redemption dates at our option, in whole or in part).
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Shares of Common Stock
For the years ended December 31, 2011, 2010 and 2009, 125,784, 27,586, and 415,466 shares of common stock, respectively, were converted from an equivalent number of units of limited partnership interests in the Operating Partnership (“Units”), resulting in a reclassification of $1,109, $316 and $7,817, respectively, of Noncontrolling Interest to First Industrial Realty Trust Inc.’s Stockholders’ Equity.
On May 12, 2011, we filed an amendment to the Company’s articles of incorporation, increasing the number of shares of the Company’s common stock authorized for issuance from 100 million to 150 million shares.
On May 31, 2011, we announced an underwritten public offering of 8,400,000 shares of the Company’s common stock at a price of $12.15 per share to the public. Gross offering proceeds upon settlement on June 6, 2011 were $102,060 in the aggregate. Proceeds to us, net of underwriter’s discount of $1,176 and total expenses of $138, were approximately $100,746.
On March 3, 2011, we announced an underwritten public offering of 8,900,000 shares of the Company’s common stock at a price of $11.40 per share to the public. Gross offering proceeds upon settlement on March 4, 2011 were $101,460 in the aggregate. Proceeds to us, net of underwriter’s discount of $890 and total expenses of $166, were approximately $100,404.
On October 5, 2009, the Company sold in an underwritten public offering 13,635,700 shares of its common stock at a price of $5.25 per share. Gross offering proceeds from the issuance were $71,587 in the aggregate. Proceeds to the Company, net of underwriters’ discount of $3,042 and total expenses of $765, were approximately $67,780.
On February 28, 2011, we entered into distribution agreements with sales agents to sell up to 10,000,000 shares of the Company’s common stock, for up to $100,000 aggregate gross sale proceeds, from time to time in “at-the-market” offerings (the “ATM”). During the year ended December 31, 2011, we issued 115,856 shares of the Company’s common stock under the ATM resulting in proceeds to us of approximately $1,391, net of $28 paid to the sales agent. Under the terms of the ATM, sales are to be made primarily in transactions that are deemed to be “at-the-market” offerings, including sales made directly on the New York Stock Exchange or sales made through a market maker other than on an exchange or by privately negotiated transactions.
On May 4, 2010, we entered into distribution agreements with sales agents to sell up to 10,000,000 shares of the Company’s common stock from time to time in “at-the-market” offerings (the “Original ATM”). During the year ended December 31, 2010, we issued 5,469,767 shares of the Company’s common stock under the Original ATM for approximately $44,117, net of $900 paid to the sales agent. Under the terms of the Original ATM, sales were made primarily in transactions that were deemed to be “at-the-market” offerings, including sales made directly on the New York Stock Exchange or sales made through a market maker other than on an exchange or by privately negotiated transactions. On December 31, 2010, we concluded the Original ATM as a result of the expiration of the distribution agreements with our sales agents.
On August 8, 2008, the Company’s Dividend Reinvestment and Direct Stock Purchase Plan (“DRIP”) became effective. Under the terms of the DRIP, stockholders who participate may reinvest all or part of their dividends in additional common stock of the Company at a discount from the market price, at our discretion, when the shares are issued and sold directly by us from authorized but unissued shares of the Company’s common stock. Stockholders and non-stockholders may also purchase additional shares at a discounted price, at our discretion, when the shares are issued and sold directly by us from authorized but unissued shares of the Company’s common stock, by making optional cash payments, subject to certain dollar thresholds. During the year ended December 31, 2011, we did not issue any shares of the Company’s common stock under the direct stock purchase component of the DRIP. During the year ended December 31, 2010, we issued 875,402 shares of the Company’s common stock under the direct stock purchase component of the DRIP for approximately $5,970. During the year ended December 31, 2009, the Company issued 3,034,120 shares under the direct stock purchase component of the DRIP for $15,920.
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During the years ended December 31, 2010 and 2009, we awarded 23,567 and 50,445 shares, respectively, of common stock to certain directors. The common stock shares had a fair value of approximately $128 and $240, respectively, upon issuance.
The following table is a roll-forward of our shares of common stock outstanding, including unvested restricted shares of common stock (see Note 13), for the three years ended December 31, 2011:
Balance at December 31, 2008
Issuance of Common Stock, including Issuance of Restricted Stock Units
Issuance of Restricted Stock Shares
Repurchase and Retirement of Restricted Stock Shares
Conversion of Operating Partnership Units
Balance at December 31, 2009
Balance at December 31, 2010
Balance at December 31, 2011
The coupon rate of our Series F Preferred Stock resets every quarter at 2.375% plus the greater of (i) the 30 year Treasury CMT Rate, (ii) the 10 year Treasury CMT Rate or (iii) 3-month LIBOR. For the fourth quarter of 2011, the new coupon rate was 5.365%. See Note 14 for additional derivative information related to the Series F Preferred Stock coupon rate reset.
The following table summarizes dividends/distributions declared for the past three years:
Common Stock/Operating Partnership Units
Series F Preferred Stock
Series G Preferred Stock
Series J Preferred Stock
Series K Preferred Stock
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8. Supplemental Information to Statements of Cash Flows
Supplemental disclosure of cash flow information:
Interest paid, net of capitalized interest
Capitalized Interest
Income Taxes Paid (Refunded)
Supplemental schedule of noncash investing and financing activities:
Distribution payable on preferred stock
Exchange of units for common stock:
Noncontrolling interest
Common stock
Additional paid-in-capital
Property Transfer to Lender in Satisfaction of Non-Recourse Mortgage Loan:
Net Investment of Real Estate
Mortgage Loan Payable, Net
Loss from Retirement of Debt
Mortgage loan payable assumed in conjunction with a property acquisition
Notes receivable issued in conjunction with certain property sales
Write-off of fully depreciated assets
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9. Earnings Per Share (“EPS”)
The computation of basic and diluted EPS is presented below:
Numerator:
Gain on Sale of Real Estate, Net of Income Tax Provision
Noncontrolling Interest Allocable to Continuing Operations
Loss from Continuing Operations Attributable to First Industrial Realty Trust, Inc.
Income (Loss) from Discontinued Operations, Net of Income Tax Provision
Noncontrolling Interest Allocable to Discontinued Operations
Income (Loss) from Discontinued Operations Attributable to First Industrial Realty Trust, Inc.
Net Loss Available to First Industrial Realty Trust, Inc.’s Common Stockholders
Denominator:
Weighted Average Shares—Basic and Diluted
Basic and Diluted EPS:
Participating securities include 673,381, 662,092 and 355,645 of unvested restricted stock awards outstanding at December 31, 2011, 2010 and 2009 respectively, which participate in non-forfeitable dividends of the Company. Participating security holders are not obligated to share in losses, therefore, none of the net loss attributable to First Industrial Realty Trust, Inc. was allocated to participating securities for the years ended December 31, 2011, 2010 and 2009.
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The number of weighted average shares—diluted is the same as the number of weighted average shares—basic for the years ended December 31, 2011, 2010 and 2009 as the effect of stock options and restricted unit awards (that do not participate in non-forfeitable dividends of the Company) was excluded as its inclusion would have been antidilutive to the loss from continuing operations available to First Industrial Realty Trust, Inc.’s common stockholders. The following awards were anti-dilutive and could be dilutive in future periods:
Non-Participating Securities:
Restricted Unit Awards
Options
10. Income Taxes
For income tax purposes, distributions paid to common shareholders are classified as ordinary income, capital gain, return of capital or qualified dividends. We did not pay common share distributions for the years ended December 31, 2011, 2010 and 2009.
For income tax purposes, distributions paid to preferred shareholders are classified as ordinary income, capital gain, return of capital or qualified dividends. For the years ended December 31, 2011, 2010 and 2009, the preferred distributions per depositary share were classified as follows:
Ordinary income
Long-term capital gains
Unrecaptured Section 1250 gain
Return of Capital
Qualified Dividends
The 2010 tax characterization of preferred dividends disclosed in this footnote in the 2010 Form 10-K contained an error. The impact of the error affects the treatment of our preferred distributions for tax purposes only. The correction results in an increase in the ordinary income classification of $1.4529, an increase in the qualified dividend classification of $0.0222, an increase in the unrecaptured Section 1250 gain classification of $0.0706, and a decrease in the amount of distributions classified as return of capital of ($1.5457), all per depository share of our Series J and Series K preferred shares.
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The components of income tax (provision) benefit for the years ended December 31, 2011, 2010 and 2009 are comprised of the following:
Current:
Federal
State
Foreign
Deferred:
Federal.
Foreign.
On August 24, 2009, we received a private letter ruling from the IRS granting favorable loss treatment under Sections 331 and 336 of the Code on the tax liquidation of one of our old taxable REIT subsidiaries. As a result, we completed a transaction on September 1, 2009 whereby approximately 75% of the assets formerly held by this taxable REIT subsidiary are now held by a limited liability company which is wholly owned by the Operating Partnership. The remaining 25% of the assets are now held by a partnership for federal income tax purposes, and is 99% owned by one of our taxable REIT subsidiaries formed in 2009. On November 6, 2009, legislation was signed that allows businesses with net operating losses for 2008 or 2009 to carry back those losses for up to five years. As a result, we received a refund from the IRS of $40,418 in the fourth quarter of 2009 due to the tax liquidation of one of our old taxable REIT subsidiaries.
Deferred income taxes represent the tax effect of the temporary differences between the book and tax basis of assets and liabilities. Deferred tax assets (liabilities) include the following as of December 31, 2011 and 2010:
Fixed assets
Prepaid rent
Restricted stock
Foreign net operating loss carrying forward
Valuation Allowance
Total deferred tax assets, net of allowance
Straight-line rent
Total deferred tax liabilities
Total net deferred tax (liability) asset
A valuation allowance is recorded if we believe it is more likely than not that all or some portion of our deferred tax assets will not be realized. We do not have projections of future taxable income in the taxable REIT subsidiaries significant enough to allow us to realize our deferred tax assets. Therefore, we have recorded a valuation allowance against our deferred tax assets. An increase or decrease in the valuation allowance that results from a change in circumstances, and which causes a change in our judgment about the realizability of the related deferred tax assets, is included in the current tax provision.
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As of December 31, 2011 and 2010, we had net deferred tax (liability) assets of $(120) and $863, after valuation allowances of $5,078 and $9,301, respectively. The decrease in the valuation allowance of $4,223 from December 31, 2010 to December 31, 2011 is primarily related to a decrease in net deferred tax assets and liabilities due to sales of property. As of December 31, 2010 and 2009, we had net deferred tax assets of $863 and $776, after valuation allowances of $9,301 and $1,299, respectively. The increase in the valuation allowance of $8,002 from December 31, 2009 to December 31, 2010 is primarily related to an increase in net deferred tax assets due to the impairment of real estate.
The components of income tax (provision) benefit for the years ended December 31, 2011, 2010 and 2009 are as follows:
Tax provision associated with income from operations on sold properties which is included in discontinued operations
Tax provision associated with gains and losses on the sale of real estate which is included in discontinued operations
Tax provision associated with gains and losses on the sale of real estate
Income tax (provision) benefit
The income tax (provision) benefit pertaining to income from continuing operations and gain on sale of real estate differs from the amounts computed by applying the applicable federal statutory rate as follows:
Tax (provision) benefit at federal rate related to continuing operations
State tax (provision) benefit, net of federal (provision) benefit
Non-deductible permanent items, net
Change in valuation allowance
Foreign taxes, net
Net income tax (provision) benefit
Michigan Tax Issue
As of December 31, 2008, we had paid approximately $1,400 (representing tax and interest for the years 1997-2000) to the State of Michigan regarding business loss carryforwards the appropriateness of which was the subject of litigation initiated by us. On December 11, 2007, the Michigan Court of Claims rendered a decision against us regarding the business loss carryforwards. Also, the court ruled against us on an alternative position involving Michigan’s Capital Acquisition Deduction. We filed an appeal to the Michigan Appeals Court in January 2008; however, as a result of the lower court’s decision, an additional approximately $800 (representing tax and interest for the year 2001) had been accrued through June 30, 2009 for both tax and financial statement purposes. On August 18, 2009, the Michigan Appeals Court issued a decision in our favor on the business loss carryforward issue. The Michigan Department of Treasury appealed the decision to the Michigan Supreme Court on September 29, 2009; however, we believed there was a very low probability that the Michigan Supreme Court would accept the case. Therefore, in September 2009 we reversed our accrual of $800 (related to the 2001 tax year) and set up a receivable of $1,400 for the amount paid in 2006 (related to the 1997-2000 tax years), resulting
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in an aggregate reversal of prior tax expense of approximately $2,200. On April 23, 2010, the Michigan Supreme Court reversed the decision of the Michigan Appeals Court and reinstated the decision of the Michigan Court of Claims. Based on the most recent ruling of the Michigan Supreme Court, we reversed the receivable of $1,400 and paid approximately $800, for a total of approximately $2,200 of tax expense for the year ended December 31, 2010, which is included in continuing operations.
11. Restructuring Costs
We committed to a plan to reduce organizational and overhead costs in October 2008 and subsequently modified that plan during 2011, 2010 and 2009 with the goal of further reducing these costs. The following summarizes our restructuring costs for each of the years ended December 31:
Pre-tax restructuring costs:
Employee severance and benefits*
Termination of certain office leases
Total restructuring costs
Included in Accounts Payable, Accrued Expenses and Other Liabilities, Net related to severance obligations, remaining lease payments and other costs incurred but not yet paid
12. Future Rental Revenues
Our properties are leased to tenants under net and semi-net operating leases. Minimum lease payments receivable, excluding tenant reimbursements of expenses, under non-cancelable operating leases in effect as of December 31, 2011 are approximately as follows:
13. Stock Based Compensation
We maintain five stock incentive plans (the “Stock Incentive Plans”) which are administered by the Compensation Committee of the Board of Directors. There are 11.5 million shares authorized for issuance under the Stock Incentive Plans. Only officers, certain employees, our Independent Directors and our affiliates generally are eligible to participate in the Stock Incentive Plans.
The Stock Incentive Plans authorize (i) the grant of stock options that qualify as incentive stock options under Section 422 of the Code, (ii) the grant of stock options that do not so qualify, (iii) restricted stock/Unit awards (including awards subject to performance conditions), and (iv) dividend equivalent rights. The exercise price of the stock options is determined by the Compensation Committee. Special provisions apply to awards
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granted under the Stock Incentive Plans in the event of a change in control in the Company. As of December 31, 2011, awards covering 1.9 million shares of common stock were available to be granted under the Stock Incentive Plans.
At December 31, 2011, all outstanding stock options are vested. Stock option transactions for the year ended December 31, 2011 are summarized as follows:
Outstanding at December 31, 2010
Expired or Terminated
Outstanding at December 31, 2011
The following table summarizes currently outstanding and exercisable options as of December 31, 2011:
January 2002 Grants
May 2002 Grants
In September 1994, the Board of Directors approved and we adopted a 401(k)/Profit Sharing Plan. Under our 401(k)/Profit Sharing Plan, all eligible employees may participate by making voluntary contributions. We may make, but are not required to make, matching contributions. For the years ended December 31, 2011, 2010 and 2009, matching contributions of $197, $194 and $0, respectively were recorded.
For the years ended December 31, 2011, 2010 and 2009, we awarded 292,339, 573,198 and 1,473,600 restricted stock and unit awards to our employees having a fair value at grant date of $3,248, $3,336 and $7,406, respectively. We also awarded 0, 0 and 35,145 restricted stock awards to our directors having a fair value at grant date of $0, $0 and $149 respectively. Restricted stock awards granted to employees generally vest over a period of three to four years and restricted stock awards granted to directors generally vest over a period of five years. For the years ended December 31, 2011, 2010 and 2009, we recognized $3,759, $6,040 and $13,015 in restricted stock amortization related to restricted stock and unit awards, of which $0, $0 and $45, respectively, was capitalized in connection with development activities. At December 31, 2011, we have $5,141 in unearned compensation related to unvested restricted stock awards. The weighted average period that the unrecognized compensation is expected to be incurred is 0.79 years.
Restricted stock award and restricted stock unit award transactions for the year ended December 31, 2011 are summarized as follows:
Issued
Forfeited
Vested
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During the year ended December 31, 2009, we made a grant of 1,000,000 restricted stock units to our Chief Executive Officer. These restricted stock units had a fair value of approximately $6,014 on the date of issuance. Of these restricted stock units, a total of 600,000 (the “Service Awards”) vest in four equal installments on the first, second, third and fourth year anniversary of December 31, 2008, and a total of 400,000 (the “Performance Awards I”) vest in four installments of up to 100,000 on the first, up to 200,000 on the second, up to 300,000 on the third and up to 400,000 on the fourth year anniversary of December 31, 2008, to the extent certain market conditions are met. The market conditions are met when certain stock price levels are achieved and maintained for certain time periods between the award issuance date and December 31, 2013. Both the Service Awards and Performance Awards I require the Chief Executive Officer to be employed by the Company at the applicable vesting dates, subject to certain clauses in the award agreement. The Service Awards are amortized over the four year service period. The Performance Awards I are amortized over the service period of each installment. As of December 31, 2011, there have been 525,000 Service and Performance Awards I issued.
During the year ended December 31, 2009, we made a grant of 473,600 restricted stock units to certain members of management (the “Performance Awards II”). The Performance Awards II had a fair value of approximately $1,392 on the date of issuance and will vest in four installments on the first, second, third and fourth anniversary of June 30, 2009, to the extent certain service periods and market conditions are both met. The market conditions are met when certain stock price levels are achieved and maintained for certain time periods between the award issuance date and June 30, 2014. The Performance Awards II are amortized over the service period of each installment. In conjunction with the issuance of the Performance Awards II, the members of management were also granted cash awards with a fair value of $792. The cash awards vested on June 30, 2010 and compensation expense was recognized on a straight-line basis over the service period. In order to receive the Performance Awards II, the members of management are required to be employed by the Company at the applicable vesting dates, subject to certain clauses in the award agreements. As of December 31, 2011, there have been 39,100 Performance Awards II issued.
The fair value of the Performance Awards I and the Performance Awards II at issuance was determined using a Monte Carlo simulation model with the following assumptions:
Expected dividend yield
Expected stock volatility
Risk-free interest rate
Expected life (years)
Grant Date Fair value
During the years ended December 31, 2011 and December 31, 2010, certain members of management were granted cash awards with a fair value of $1,810 and $688, respectively. The cash awards vest on June 30, 2012 and June 30, 2011, respectively, and compensation expense is recognized on a straight-line basis over the service period. In order to receive the cash awards, the members of management are required to be employed by the Company at the vesting date, subject to certain clauses of the award agreements.
14. Derivatives
Our objectives in using interest rate derivatives are to add stability to interest expense and to manage our cash flow volatility and exposure to interest rate movements. To accomplish this objective, we primarily use interest rate swaps as part of our interest rate risk management strategy. Interest rate swaps designated as cash flow hedges involve the receipt of variable-rate amounts from a counterparty in exchange for fixed-rate payments over the life of the agreements without exchange of the underlying notional amount.
Our Series F Preferred Stock is subject to a coupon rate reset. The coupon rate resets every quarter at 2.375% plus the greater of i) the 30 year Treasury CMT Rate, ii) the 10 year Treasury CMT Rate or iii) 3-month
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LIBOR. For the fourth quarter of 2011, the new coupon rate was 5.365% (see Note 7). In October 2008, we entered into an interest rate swap agreement with a notional value of $50,000 to mitigate our exposure to floating interest rates related to the forecasted reset rate of the coupon rate of our Series F Preferred Stock (the “Series F Agreement”). This Series F Agreement fixes the 30-year U.S. Treasury rate at 5.2175%. Accounting guidance for derivatives does not permit hedge accounting treatment related to equity instruments and therefore the mark to market gains or losses related to this agreement are recorded in the statement of operations. For the years ended December 31, 2011 and December 31, 2010, losses of $1,718 and $1,107, respectively, is recognized as Mark-to-Market Loss on Interest Rate Protection Agreements. Quarterly payments are treated as a component of the mark to market gains or losses and for the years ended December 31, 2011 and 2010, which totaled $574 and $492, respectively.
The effective portion of changes in the fair value of derivatives designated and that qualify as cash flow hedges is recorded in Other Comprehensive Income (“OCI”) and is subsequently reclassified to earnings through interest expense over the life of the derivative or over the life of the debt. In the next 12 months, we will amortize approximately $2,255 into net income by increasing interest expense for interest rate protection agreements we settled in previous periods.
The following is a summary of the terms of our derivatives and their fair values, which are included in Accounts Payable, Accrued Expenses and Other Liabilities, Net on the accompanying consolidated balance sheets:
Hedge Product
Derivatives not designated as hedging instruments:
Series F Agreement*
The following is a summary of the impact of the derivatives in cash flow hedging relationships on the statement of operations and the statement of OCI for the years ended December 31, 2011 and December 31, 2010:
Interest Rate Products
Location on Statement
Loss Recognized in OCI (Effective Portion)
Amortization Reclassified from OCI into Earnings
During 2010, the 2006 Land/Development Joint Venture had interest rate protection agreements outstanding which effectively converted floating rate debt to fixed rate debt on a portion of its total variable debt. The hedge relationships were considered highly effective and as such, for the year ended December 31, 2010, we recorded $1,137 in unrealized gain, representing our 10% share, offset by $414 of income tax provision, which is shown in Mark-to-Market on Interest Rate Protection Agreements, Net of Income Tax, in OCI. In connection with the sale of our equity interest of the 2006 Land/Development Joint Venture on August 5, 2010, we wrote off $1,625 that was recorded in OCI related to our 10% share of unrealized loss related to the interest rate protection agreements.
91
Our agreements with our derivative counterparties contain provisions where if we default on any of our indebtedness, then we could also be declared in default on our derivative obligations subject to certain thresholds.
The guidance for fair value measurement of financial instruments includes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. These tiers include: Level 1, defined as observable inputs such as quoted prices in active markets; Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions.
The following table sets forth our financial liabilities that are accounted for at fair value on a recurring basis as of December 31, 2011 and December 31, 2010:
Series F Agreement at December 31, 2011
Series F Agreement at December 31, 2010
The valuation of the Series F Agreement is determined using widely accepted valuation techniques including discounted cash flow analysis on the expected cash flows of the instrument. This analysis reflects the contractual terms of the agreements including the period to maturity. In adjusting the fair value of the interest rate protection agreements for the effect of nonperformance risk, we have considered the impact of netting and any applicable credit enhancements. To comply with the provisions of fair value measurement, we incorporated a credit valuation adjustment (“CVA”) to appropriately reflect both our own nonperformance risk and the respective counterparty’s nonperformance risk in the fair value measurements. However, assessing significance of inputs is a matter of judgment that should consider a variety of factors. One factor we consider is the CVA and its materiality to the overall valuation of the derivatives on the balance sheet and to their related changes in fair value. We consider the Series F Agreement to be classified as Level 3 in the fair value hierarchy due to a significant number of unobservable inputs. The Series F Agreement swaps a fixed rate 5.2175% for floating rate payments based on 30-year Treasury. No market observable prices exist for long-dated Treasuries. Therefore, we have classified the Series F Agreement in its entirety as a Level 3.
The following table presents a reconciliation of our liabilities classified as Level 3 at December 31, 2011 and December 31, 2010:
Ending asset balance at December 31, 2009
Total unrealized losses:
Mark-to-Market on Series F Agreement
Ending liability balance at December 31, 2010
Ending liability balance at December 31, 2011
92
15. Commitments and Contingencies
Twelve properties have leases granting the tenants options to purchase the property. Such options are exercisable at various times at appraised fair market value or at a fixed purchase price in excess of our depreciated cost of the asset. We have no notice of any exercise of any tenant purchase option.
At December 31, 2011, we had letters of credit outstanding and performance bonds in the aggregate amount of $6,780. These letters of credit expire between February 2012 and July 2013.
In the normal course of business, we are involved in legal actions arising from the ownership of our industrial properties. In our opinion, the liabilities, if any, that may ultimately result from such legal actions are not expected to have a materially adverse effect on our consolidated financial position, operations or liquidity.
Ground and Operating Lease Agreements
For the years ended December 31, 2011, 2010 and 2009, we recognized $1,955, $3,047 and $4,181, respectively, in operating and ground lease expense.
Future minimum rental payments under the terms of all non-cancelable ground and operating leases under which we are the lessee, offset by sub-lease rental payments under non-cancelable operating leases, as of December 31, 2011, are as follows:
16. Subsequent Events
From January 1, 2012 to February 28, 2012, we acquired one industrial property comprising approximately 0.4 million square feet of GLA in connection with the purchase of the 85% equity interest in one property from the institutional investor in the 2003 Net Lease Joint Venture. The acquisition was funded through the assumption of a mortgage loan in the amount of $12,026, which was subsequently paid off at closing and a cash payment of $8,324. We will account for this transaction as a step acquisition utilizing the purchase method of accounting. There were no industrial properties sold during this time.
From January 1, 2012 to February 28, 2012, we repurchased and retired $430 of our senior unsecured notes maturing in 2028 for a payment of $406.
17. Quarterly Financial Information (unaudited)
The following tables summarize our quarterly financial information. The first, second and third fiscal quarters of 2011 and all fiscal quarters in 2010 have been revised in accordance with guidance on accounting for discontinued operations. The results of operations for the fourth quarter of 2010 include $2,387 which should have been recorded as part of the impairment charge recorded during the third quarter in 2010. Management evaluated this impairment charge and believes it is not material to the results of operations of either quarter.
93
Net loss available to common stockholders and basic and diluted EPS from net loss available to common stockholders has not been affected.
Equity in Income of Joint Ventures
Loss from Continuing Operations, Net of Income Tax and Noncontrolling Interest
Income from Discontinued Operations, Net of Income Tax
Gain on Sale of Real Estate, Net of Income Tax
Noncontrolling Interest Allocable to Gain on Sale of Real Estate
Net Loss Available to Common Stockholders
Loss From Continuing Operations Available
Income from Discontinued Operations
94
Equity in (Loss) Income of Joint Ventures
Income (Loss) from Discontinued Operations, Net of Income Tax
Gain (Loss) on Sale of Real Estate, Net of Income Tax
Noncontrolling Interest Allocable to Gain (Loss) on Sale of Real Estate
Net Loss Attributable to First Industrial Realty Trust, Inc.
95
SCHEDULE III:
REAL ESTATE AND ACCUMULATED DEPRECIATION
As of December 31, 2011
(Dollars in thousand)
Building Address
Atlanta
4250 River Green Parkway
3450 Corporate Parkway
1650 Highway 155
1665 Dogwood Drive
1715 Dogwood
11235 Harland Drive
4051 Southmeadow Parkway
4071 Southmeadow Parkway
4081 Southmeadow Parkway
5570 Tulane Dr (d)
955 Cobb Place
1005 Sigman Road
2050 East Park Drive
1256 Oakbrook Drive
1265 Oakbrook Drive
1280 Oakbrook Drive
1300 Oakbrook Drive
1325 Oakbrook Drive
1351 Oakbrook Drive
1346 Oakbrook Drive
1412 Oakbrook Drive
3060 South Park Blvd
Greenwood Industrial Park
46 Kent Drive
100 Dorris Williams
605 Stonehill Drive
5095 Phillip Lee Drive
6514 Warren Drive
6544 Warren Drive
5356 E. Ponce De Leon
S-1
(Dollars in thousands)
5390 E. Ponce De Leon
195 & 197 Collins Boulevard
1755 Enterprise Drive
4555 Atwater Court
80 Liberty Industrial Parkway
596 Bonnie Valentine
11415 Old Roswell Road
Baltimore
1820 Portal
9700 Martin Luther King Hwy
9730 Martin Luther King Hwy
4621 Boston Way
4720 Boston Way
22520 Randolph Drive
22630 Dulles Summit Court
4201 Forbes Boulevard
4370-4383 Lottsford Vista Rd.
4400 Lottsford Vista Rd.
4420 Lottsford Vista Road
11204 McCormick Road
11110 Pepper Road
11100-11120 Gilroy Road
318 Clubhouse Lane
10709 Gilroy Road
10707 Gilroy Road
38 Loveton Circle
7120-7132 Ambassador Road
7142 Ambassador Road
7144-7162 Ambassador Road
7223-7249 Ambassador Road
7200 Rutherford Road
2700 Lord Baltimore Road
1225 Bengies Road
Central Pennsylvania
1214-B Freedom Road
S-2
401 Russell Drive
2700 Commerce Drive
2701 Commerce Drive
2780 Commerce Drive
350 Old Silver Spring Road
16522 Hunters Green Parkway
18212 Shawley Drive
37 Valleyview Business Park
301 Railroad Avenue
431 Railroad Avenue
6951 Allentown Blvd
320 Museum Road
1351 Eisenhower Blvd., Bldg 1
1351 Eisenhower Blvd., Bldg 2
1490 Commerce Avenue
600 First Avenue
225 Cross Farm Lane
Chicago
720-730 Landwehr Road
20W201 101st Street
6750 South Sayre Avenue
585 Slawin Court
2300 Windsor Court
3505 Thayer Court
305-311 Era Drive
3150-3160 MacArthur Boulevard
365 North Avenue
11241 Melrose Street
11939 S Central Avenue
405 East Shawmut
1010-50 Sesame Street
2120-24 Roberts
800 Business Center Drive
580 Slawin Court
19W661 101st Street
175 Wall Street
S-3
800-820 Thorndale Avenue
251 Airport Road
1661 Feehanville Drive
1850 Touhy & 1158 McCage Ave.
1088-1130 Thorndale Avenue
855-891 Busse Rd.
1060-1074 W. Thorndale Ave
400 Crossroads Pkwy
7609 W. Industrial Drive
7801 W. Industrial Drive
825 E. 26th Street
725 Kimberly Drive
17001 S. Vincennes
1111 Davis Road
2900 W. 166th Street
555 W. Algonquin Rd
7000 W. 60th Street
9501 Nevada
1501 Oakton Street
16500 W. 103rd Street
Cincinnati
9900-9970 Princeton
2940 Highland Avenue
4700-4750 Creek Road
901 Pleasant Valley Drive
4436 Mulhauser Road
4438 Mulhauser Road
420 Wards Corner Road
422 Wards Corner Road
4663 Dues Drive
9345 Princeton-Glendale Road
9525 Glades Drive
9776-9876 Windisch Road
9810-9822 Windisch Road
9842-9862 Windisch Road
9872-9898 Windisch Road
9902-9922 Windisch Road
S-4
Cleveland
31311 Emerald Valley Pkwy.
30333 Emerald Valley Pkwy.
7800 Cochran Road
7900 Cochran Road
7905 Cochran Road
30600 Carter Street
8181 Darrow Road
Columbus
3800 Lockbourne Industrial Pkwy
3880 Groveport Road
1819 North Walcutt Road
4115 Leap Road (d)
3300 Lockbourne
1076 Pittsburgh Drive
6150 Huntly Road
4985 Frusta Drive
4600 S. Hamilton Road
4311 Janitrol Road
Dallas/Fort Worth
2406-2416 Walnut Ridge
2401-2419 Walnut Ridge
900-906 Great Southwest Pkwy
3000 West Commerce
3030 Hansboro
405-407 113th
816 111th Street
7427 Dogwood Park
7348-54 Tower Street
7339-41 Tower Street
7437-45 Tower Street
7331-59 Airport Freeway
7338-60 Dogwood Park
7450-70 Dogwood Park
7423-49 Airport Freeway
7400 Whitehall Street
1602-1654 Terre Colony
S-5
2351-2355 Merritt Drive
701-735 North Plano Road
2220 Merritt Drive
2010 Merritt Drive
2363 Merritt Drive
2447 Merritt Drive
2465-2475 Merritt Drive
2485-2505 Merritt Drive
2081 Hutton Drive—Bldg 1 (e)
2110 Hutton Drive
2025 McKenzie Drive
2019 McKenzie Drive
1420 Valwood Parkway—Bldg 1 (d)
1620 Valwood Parkway (e)
1505 Luna Road—Bldg II
1625 West Crosby Road
2029-2035 McKenzie Drive
1840 Hutton Drive (d)
1420 Valwood Pkwy—Bldg II
2015 McKenzie Drive
2009 McKenzie Drive
1505 Luna Road—Bldg I
2104 Hutton Drive
900-1100 Avenue S
Plano Crossing (f)
7413A-C Dogwood Park
7450 Tower Street
7436 Tower Street
7426 Tower Street
7427-7429 Tower Street
2840-2842 Handley Ederville Rd
7451-7477 Airport Freeway
7450 Whitehall Street
3000 Wesley Way
7451 Dogwood Park
825-827 Avenue H (d)
1013-31 Avenue M
1172-84 113th Street (d)
S-6
1200-16 Avenue H (d)
1322-66 N. Carrier Parkway (e)
2401-2407 Centennial Dr
3111 West Commerce Street
9150 North Royal Lane
13800 Senlac Drive
801-831 S Great Southwest Pkwy (g)
801-842 Heinz Way
901-937 Heinz Way
3301 Century Circle
First Garland Dist Ctr.
Denver
4785 Elati
4770 Fox Street
3871 Revere
4570 Ivy Street
5855 Stapleton Drive North
5885 Stapleton Drive North
5977-5995 North Broadway
5952-5978 North Broadway
4721 Ironton Street
East 47th Drive—A
9500 West 49th Street—A
9500 West 49th Street—B
9500 West 49th Street—C
9500 West 49th Street—D
451-591 East 124th Avenue
608 Garrison Street
610 Garrison Street
15000 West 6th Avenue
14998 West 6th Avenue Bldg E
14998 West 6th Avenue Bldg F
12503 East Euclid Drive
6547 South Racine Circle
11701 East 53rd Avenue
5401 Oswego Street
14818 West 6th Avenue Bldg A
S-7
14828 West 6th Avenue Bldg B
445 Bryant Street
3811 Joliet
12055 E 49th Ave/4955 Peoria
4940-4950 Paris
4970 Paris
7367 South Revere Parkway
8200 East Park Meadows Drive (d)
3250 Quentin (d)
Highpoint Bus Ctr B
1130 W. 124th Ave.
1070 W. 124th Ave.
1020 W. 124th Ave.
Jeffco Bus Ctr Phase I
960 W. 124th Ave
8820 W. 116th Street
8835 W. 116th Street
18150 E. 32nd Street
3400 Fraser Street
7005 E. 46th Avenue Drive
4001 Salazar Way
5909-5915 N. Broadway
555 Corporate Circle
Detroit
1731 Thorncroft
47461 Clipper
238 Executive Drive
449 Executive Drive
501 Executive Drive
451 Robbins Drive
1095 Crooks Road
1416 Meijer Drive
1624 Meijer Drive
1972 Meijer Drive
1621 Northwood Drive
1707 Northwood Drive
1788 Northwood Drive
1821 Northwood Drive
S-8
1826 Northwood Drive
1864 Northwood Drive
2277 Elliott Avenue
2451 Elliott Avenue
2730 Research Drive
2791 Research Drive
2871 Research Drive
3011 Research Drive
2870 Technology Drive
2900 Technology Drive
2930 Technology Drive
2950 Technology Drive
23014 Commerce Drive
23028 Commerce Drive
23035 Commerce Drive
23042 Commerce Drive
23065 Commerce Drive
23079 Commerce Drive
23093 Commerce Drive
23135 Commerce Drive
23163 Commerce Drive
23177 Commerce Drive
23206 Commerce Drive
23370 Commerce Drive
6515 Cobb Drive
1451 East Lincoln Avenue
4400 Purks Drive
32450 N Avis Drive
12707 Eckles Road
9300-9328 Harrison Rd
9330-9358 Harrison Rd
28420-28448 Highland Rd
28450-28478 Highland Rd
28421-28449 Highland Rd
28451-28479 Highland Rd
28825-28909 Highland Rd
28933-29017 Highland Rd
S-9
28824-28908 Highland Rd
28932-29016 Highland Rd
9710-9734 Harrison Rd
9740-9772 Harrison Rd
9840-9868 Harrison Rd
9800-9824 Harrison Rd
29265-29285 Airport Dr
29185-29225 Airport Dr
29149-29165 Airport Dr
29101-29115 Airport Dr
29031-29045 Airport Dr
29050-29062 Airport Dr
29120-29134 Airport Dr
29200-29214 Airport Dr
9301-9339 Middlebelt Rd
32975 Capitol Avenue
32920 Capitol Avenue
11923 Brookfield Avenue
11965 Brookfield Avenue
13405 Stark Road
1170 Chicago Road
1200 Chicago Road
450 Robbins Drive
1230 Chicago Road
12886 Westmore Avenue
33025 Industrial Road
47711 Clipper Street
32975 Industrial Road
32985 Industrial Road
32995 Industrial Road
12874 Westmore Avenue
1775 Bellingham
1785 East Maple
1807 East Maple
980 Chicago
1840 Enterprise Drive
1885 Enterprise Drive
S-10
1935-55 Enterprise Drive
5500 Enterprise Court
750 Chicago Road
800 Chicago Road
850 Chicago Road
6833 Center Drive
1100 East Mandoline Road
1120 John A. Papalas Drive (e)
4872 S. Lapeer Road
22701 Trolley Industrial
1400 Allen Drive
1408 Allen Drive
1305 Stephenson Hwy
32505 Industrial Drive
1799-1813 Northfield Drive (d)
28435 Automation Blvd
32200 N Avis Drive
100 Kay Industrial Drive
32650 Capitol Avenue
11800 Sears Drive
1099 Chicago Road
42555 Merrill Road
200 Northpointe Drive
Houston
2102-2314 Edwards Street
3351 Rauch St
3851 Yale St
3337-3347 Rauch Street
8505 N Loop East
4749-4799 Eastpark Dr
4851 Homestead Road
3365-3385 Rauch Street
5050 Campbell Road
4300 Pine Timbers
2500-2530 Fairway Park Drive
S-11
6550 Longpointe
1815 Turning Basin Dr
1819 Turning Basin Dr
1805 Turning Basin Drive
9835A Genard Road
9835B Genard Road
11505 State Highway 225
1500 E. Main Street
700 Industrial Blvd
7230-7238 Wynnwood
7240-7248 Wynnwood
7250-7260 Wynnwood
7967 Blankenship
8800 City Park Look East
6400 Long Point
12705 S. Kirkwood, Ste 100-150
12705 S. Kirkwood, Ste 200-220
8850 Jameel
8800 Jameel
8700 Jameel
8600 Jameel
Indianapolis
2900 N Shadeland Avenue
1445 Brookville Way
1440 Brookville Way
1240 Brookville Way
1345 Brookville Way
1350 Brookville Way
1341 Sadlier Circle E Dr
1322-1438 Sadlier Circle E Dr
1327-1441 Sadlier Circle E Dr
1304 Sadlier Circle E Dr
1402 Sadlier Circle E Dr
1504 Sadlier Circle E Dr
1365 Sadlier Circle E Dr
1352-1354 Sadlier Circle E Dr
1335 Sadlier Circle E Dr
1327 Sadlier Circle E Dr
S-12
1425 Sadlier Circle E Dr
6951 E 30th St
6701 E 30th St
6737 E 30th St
6555 E 30th St
8402-8440 E 33rd St
8520-8630 E 33rd St
8710-8768 E 33rd St
3316-3346 N. Pagosa Court
7901 West 21st St.
1225 Brookville Way
6751 E 30th St
9200 East 146th Street
6575 East 30th Street
6585 East 30th Street
9210 E. 146th Street
5705-97 Park Plaza Ct.
9319-9341 Castlegate Drive
1133 Northwest L Street
14425 Bergen Blvd
Miami
4700 NW 15th Ave.
4710 NW 15th Ave.
4720 NW 15th Ave.
4740 NW 15th Ave.
4750 NW 15th Ave.
4800 NW 15th Ave.
Medley Industrial Center
Pan American Business Park
Milwaukee
N25 W23255 Paul Road
6523 N Sydney Place
5355 South Westridge Drive
320-334 W. Vogel Avenue
4950 South 6th Avenue
1711 Paramount Court
17005 W. Ryerson Road
S-13
W140 N9059 Lilly Road
200 W. Vogel Avenue-Bldg B
4921 S. 2nd Street
1500 Peebles Drive
16600 West Glendale Ave
2905 S. 160th Street
2855 S. 160th Street
2485 Commerce Drive
14518 Whittaker Way
Rust-Oleum BTS
Menomonee Falls-Barry Land
Minneapolis/St. Paul
6201 West 111th Street
7251-7267 Washington Avenue
7301-7325 Washington Avenue
7101 Winnetka Avenue North
9901 West 74th Street
1030 Lone Oak Road
1060 Lone Oak Road
5400 Nathan Lane
6655 Wedgewood Road
10120 W 76th Street
12155 Nicollet Ave.
4100 Peavey Road
5205 Highway 169
7100-7198 Shady Oak Road
7500-7546 Washington Square
7550-7586 Washington Square
5240-5300 Valley Industrial Blvd S
500-530 Kasota Avenue SE
2530-2570 Kasota Avenue
5775 12th Avenue
1157 Valley Park Drive
9600 West 76th Street
9700 West 76th Street
7600 69th Avenue
S-14
5017 Boone Avenue North
2300 West Highway 13
1087 Park Place
5391 12th Avenue SE
4701 Valley Industrial Blvd S
316 Lake Hazeltine Drive
6455 City West Parkway
1225 Highway 169 North
7102 Winnetka Avene North
139 Eva Street
21900 Dodd Boulevard
Nashville
1621 Heil Quaker Boulevard
3099 Barry Drive
3150 Barry Drive
5599 Highway 31 West
1931 Air Lane Drive
4640 Cummings Park
1740 River Hills Drive
211 Ellery Court
Rockdale BTS
14 World’s Fair Drive
12 World’s Fair Drive
22 World’s Fair Drive
26 World’s Fair Drive
24 World’s Fair Drive
20 World’s Fair Drive Lot 13
45 Route 46
43 Route 46
39 Route 46
26 Chapin Road
30 Chapin Road
20 Hook Mountain Road
30 Hook Mountain Road
55 Route 46
16 Chapin Rod
S-15
20 Chapin Road
Sayreville Lot 4
Sayreville Lot 3
309-319 Pierce Street
Philadelphia
230-240 Welsh Pool Road
264 Welsh Pool Road
254 Welsh Pool Road
251 Welsh Pool Road
151-161 Philips Road
216 Philips Road
14 McFadden Road
2801 Red Lion Road
3240 S. 78th Street
200 Cascade Drive, Bldg. 1
200 Cascade Drive, Bldg. 2
6300 Bristol Pike
2455 Boulevard of Generals
Phoenix
1045 South Edward Drive
50 South 56th Street
4701 W. Jefferson
7102 W. Roosevelt
4137 West Adams Street
245 W. Lodge
1590 E Riverview Dr.
14131 N. Rio Vista Dr.
8716 W. Ludlow Drive
3815 W. Washington St.
690 91st Avenue
Salt Lake City
512 Lawndale Drive (i)
1270 West 2320 South
1275 West 2240 South
1288 West 2240 South
2235 South 1300 West
1293 West 2200 South
S-16
1279 West 2200 South
1272 West 2240 South
1149 West 2240 South
1142 West 2320 South
1152 West 2240 South
2323 South 900 W
1815-1957 South 4650 West
2100 Alexander Street
2064 Alexander Street
Seattle
1901 Raymond Ave SW
19014 64th Avenue South
18640 68th Ave. South
Puget Sound Terminal 7
100 West Sinclair
14050 Day Street
12925 Marlay Avenue
1944 Vista Bella Way
2000 Vista Bella Way
2835 East Ana Street
665 N. Baldwin Park Blvd.
27801 Avenue Scott
2610 & 2660 Columbia St
433 Alaska Avenue
4020 S. Compton Ave
21730-21748 Marilla St.
8015 Paramount
3365 E. Slauson
3015 East Ana
19067 Reyes Ave
1250 Rancho Conejo Blvd.
1260 Rancho Conejo Blvd.
1270 Rancho Conejo Blvd.
1280 Rancho Conejo Blvd.
1290 Rancho Conejo Blvd
18201-18291 Santa Fe
S-17
1011 Rancho Conejo
2300 Corporate Center Drive
20700 Denker Avenue
18408 Laurel Park Road
19021 S. Reyes Ave.
16275 Technology Drive
6305 El Camino Real
2325 Camino Vida Roble
2335 Camino Vida Roble
2345 Camino Vida Roble
2355 Camino Vida Roble
2365 Camino Vida Roble
2375 Camino Vida Roble
6451 El Camino Real
8572 Spectrum Lane
13100 Gregg Street
8 Springdale Road
111 Whittendale Drive
7851 Airport Highway
103 Central
7890 Airport Hwy/7015 Central
600 Creek Road
1070 Thomas Busch Mem Hwy
St. Louis
8921-8971 Fost Avenue
9043-9083 Frost Avenue
10431-10449 Midwest Industrial Blvd
10751 Midwest Industrial Boulevard
6951 N Hanley (d)
1067 Warson-Bldg A
1067 Warson-Bldg B
1067 Warson-Bldg C
1067 Warson-Bldg D
S-18
6821-6857 Hazelwood Avenue
13701 Rider Trail North
1908-2000 Innerbelt (d)
9060 Latty Avenue
21-25 Gateway Commerce Center
6647 Romiss Court
Tampa
5313 Johns Road
5525 Johns Road
5709 Johns Road
5711 Johns Road
5453 W Waters Avenue
5455 W Waters Avenue
5553 W Waters Avenue
5501 W Waters Avenue
5503 W Waters Avenue
5555 W Waters Avenue
5557 W Waters Avenue
5463 W Waters Avenue
5461 W Waters
5481 W. Waters Avenue
4515-4519 George Road
6089 Johns Road
6091 Johns Road
6103 Johns Road
6201 Johns Road
6203 Johns Road
6205 Johns Road
6101 Johns Road
4908 Tampa West Blvd
7201-7245 Bryan Dairy Road (d)
11701 Belcher Road South
4900-4914 Creekside Drive (h)
12345 Starkey Road
Toronto
114 Packham Rd
S-19
5050 Kendrick Court
2250 Delaware Ave.
9601A Dessau Road
9601C Dessau Road
9601B Dessau Road
6266 Hurt Road
6301 Hazeltine National Drive
12626 Silicon Drive
3100 Pinson Valley Parkway
10330 I Street
3200 Pond Station
Ozburn Hessey Logistics
Pure Fishing BTS
3730 Wheeler Avenue
600 Greene Drive
Redevelopments / Developements / Developable Land
Redevelopments / Developments / Developable Land (j)
NOTES:
S-20
Buildings & Improvements
Accumulated Depreciation
Leasing Commissions, Net, Deferred Leasing Intangibles, Net and Deferred Rent Receivable, Net
Total at December 31, 2011
Buildings and Improvements and Land Improvements
Tenant Improvements, Leasehold Improvements
At December 31, 2011, the aggregate cost of land and buildings and equipment for federal income tax purpose was approximately $3.1 billion (excluding construction in progress).
S-21
The changes in total real estate assets, including real estate held for sale, for the three years ended December 31, 2011 are as follows:
Balance, Beginning of Year
Acquisition of Real Estate Assets
Construction Costs and Improvements
Disposition of Real Estate Assets
Write-off of Fully Depreciated Assets
Balance, End of Year
The changes in accumulated depreciation, including accumulated depreciation for real estate held for sale, for the three years ended December 31, 2011 are as follows:
Depreciation for Year
Disposition of Assets
S-22
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) 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.
Date: February 28, 2012
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
Signature
Title
Date
/s/ W. EDWINTYLER
W. Edwin Tyler
Chairman of the Board of Directors
/s/ BRUCE W. DUNCAN
Bruce W. Duncan
President, Chief Executive Officer and Director
/s/ MATTHEWDOMINSKI
Matthew Dominski
Director
/s/ H. PATRICK HACKETT, JR.
H. Patrick Hackett, Jr.
/s/ KEVIN W. LYNCH
Kevin W. Lynch
/s/ JOHN E. RAU
John E. Rau
/s/ L. PETERSHARPE
L. Peter Sharpe
/s/ ROBERT J. SLATER
Robert J. Slater
S-23