10-K 1 fr-20131231x10k.htm 10-K FR-2013.12.31-10K
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 _______________________________
Form 10-K
ý
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2013
or
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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)
 
Maryland
 
36-3935116
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
 
 
 
311 S. Wacker Drive,
Suite 3900, Chicago, Illinois
 
60606
(Address of principal executive offices)
 
(Zip Code)
(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)
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  þ    No  ¨
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):
 
Large accelerated filer
 
þ
 
 
 
Accelerated filer
 
¨
 
 
 
 
 
 
 
 
 
Non-accelerated filer
 
¨
 
(Do not check if a smaller reporting company)
 
Smaller reporting company
 
¨
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 $1,637.7 million based on the closing price on the New York Stock Exchange for such stock on June 28, 2013.
At February 27, 2014, 110,003,263 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.
 





FIRST INDUSTRIAL REALTY TRUST, INC.
TABLE OF CONTENTS
 
 
 
Page
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.


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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," "plan," "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 respective 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, 2013, our in-service portfolio consisted of 305 light industrial properties, 94 R&D/flex properties, 154 bulk warehouse properties and 96 regional warehouse properties containing approximately 61.3 million square feet of gross leasable area ("GLA") located in 25 states. 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 the gross cost 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 96.0% and 95.5% ownership interest at December 31, 2013 and 2012, 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"; collectively, 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. 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 27, 2014, we had 169 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. You may also read and copy any document filed at the public reference facilities of the SEC at 100 F Street, N.E., Washington, D.C. 20549. Please call the SEC at (800) SEC-0330 for further information about the public reference facilities. These documents also may be accessed through the SEC’s Interactive Data Electronic Application via the SEC's home page on the Internet (http://www.sec.gov). In addition, our Corporate Governance Guidelines, Code of Business Conduct and Ethics, Audit Committee Charter, Compensation Committee Charter and 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 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 Drive, Suite 3900
Chicago, IL 60606
Attention: Investor Relations


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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 or individual properties which meet our investment parameters within our target markets; (iii) the expansion of our properties; and (iv) possible additional joint venture investments.
Portfolio Enhancement. We continually seek to upgrade our overall portfolio via new investments as well as through the sale of select assets that we believe do not exhibit favorable characteristics for long-term income growth.
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:
Organizational 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) favorable industrial real estate fundamentals, including improving industrial demand and constrained supply that can lead to long-term rent growth; (ii) warehouse distribution markets with favorable economic and business environments that should benefit from increases in distribution activity driven by growth in global trade and local consumption; and (iii) sufficient size to provide ample opportunity for growth through incremental investments as well as offer asset liquidity.
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 industrial properties in the top industrial real estate markets in the United States.
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.
Financing Strategy. To finance acquisitions, developments and debt maturities, as market conditions permit, we utilize a portion of proceeds from property sales, unsecured debt offerings, term loans, mortgage financings and line of credit borrowings under our $625.0 million unsecured credit facility (the "Unsecured Credit Facility"), and proceeds from the issuance, when and as warranted, of additional equity securities (see Recent Developments). As of February 27, 2014, we had approximately $604.0 million available for additional borrowings under the Unsecured Credit Facility.

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Recent Developments
During the year ended December 31, 2013, we acquired two industrial properties comprising approximately 1.1 million square feet of GLA and several land parcels for an aggregate purchase price of approximately $72.8 million, excluding costs incurred in conjunction with the acquisitions. Additionally, we placed in-service one development totaling approximately 0.3 million square feet of GLA for a total cost of $19.1 million. We also sold 67 industrial properties comprising approximately 3.0 million square feet of GLA and several land parcels for total gross sales proceeds of $144.6 million. At December 31, 2013, we owned 649 in-service industrial properties containing approximately 61.3 million square feet of GLA.
During the year ended December 31, 2013, we amended and restated our existing $450.0 million revolving credit facility (the "Old Credit Facility"), increasing the borrowing capacity to $625.0 million. We may request that the borrowing capacity under the Unsecured Credit Facility be increased to $825.0 million, subject to certain restrictions. The amendment extended the maturity date from December 12, 2014 to September 29, 2017 with an option to extend an additional one year at our election, subject to certain restrictions. At December 31, 2013, the Unsecured Credit Facility provides for interest only payments at LIBOR plus 150 basis points. The interest rate on the Unsecured Credit Facility varies based on our leverage ratio. In the event we achieve an investment grade rating from one of certain rating agencies, the rate may be decreased at our election, based on the investment grade rating. In connection with the amendment of the Old Credit Facility, we wrote off $0.1 million of unamortized deferred financing costs, which is included in loss from retirement of debt for the year ended December 31, 2013.
During the year ended December 31, 2013, we repurchased and retired prior to maturity $29.8 million of our senior unsecured notes and $72.3 million in mortgage loans payable. We recognized a loss from retirement of debt on our Consolidated Statement of Operations of $6.6 million.
During the year ended December 31, 2013, we redeemed the remaining 4,000,000 Depositary Shares, each representing 1/10,000th of a share, of our 7.25% Series J Cumulative Redeemable Preferred Stock, $0.01 par value (the "Series J Preferred Stock"), at a redemption price of $25.00 per Depositary Share. We also redeemed all of the 2,000,000 Depositary Shares, each representing 1/10,000th of a share of our 7.25% Series K Cumulative Redeemable Preferred Stock, $0.01 par value (the "Series K Preferred Stock"), at a redemption price of $25.00 per Depositary Share.
During the year ended December 31, 2013, we issued 8,400,000 shares of the Company’s common stock, generating $132.1 million in net proceeds, in an underwritten public offering. Additionally, during the year ended December 31, 2013, we issued 2,315,704 shares of the Company's common stock, generating $41.7 million in net proceeds, under the Company's "at-the-market" equity offering program (the "2012 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 acquisition, development or 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 general business, 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.

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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, 2013, the national occupancy rate for industrial properties in the United States has ranged from 85.5%* to 88.7%*, with an occupancy rate of 88.7%* at December 31, 2013.

*
Source: CBRE Econometric Advisors

Item  1A.
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 may 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 issued 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 industry. 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 a 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 is related to the level of economic output. Accordingly, reduced economic output may lead to lower occupancy rates for our properties. In addition, if

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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 property, such as real estate taxes and maintenance costs, generally are not reduced when circumstances cause a reduction in income from the property.

The Company may be unable to sell properties when appropriate or at all 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; and
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.
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 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 prices 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

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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, 2013, leases with respect to approximately 7.1 million, 9.0 million and 10.3 million square feet of our total GLA, representing 13%, 16% and 18% of our total GLA, expire in 2014, 2015 and 2016, 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 have implemented controls to avoid prohibited transactions, if a dispute were to arise that was 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.
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

9


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 2014. 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.
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 this indebtedness 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 collateralized 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, 2013, mortgage loans payable totaling $474.5 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. Our lump-sum payments as of December 31, 2013 consist of the following:
$10.6 million aggregate principal amount of 7.750% Notes due 2032 (the “2032 Notes”);
$31.9 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”);
$101.9 million aggregate principal amount of 5.950% Notes due 2017 (the “2017 II Notes”);
$55.0 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”);
$81.8 million aggregate principal amount of 6.420% Notes due 2014 (the “2014 Notes”);
$599.5 million in mortgage loans payable, in the aggregate, due between October 2014 and September 2022 on certain of our mortgage loans payable; and
a $625.0 million Unsecured Credit Facility maturing September 29, 2017, under which we may borrow to finance the acquisition of additional properties, fund developments and for other corporate purposes, including working capital. The Unsecured Credit Facility contains a one year extension option at our election, subject to certain restrictions.


10


As of December 31, 2013, $173.0 million was outstanding under the Unsecured Credit Facility at a weighted average interest rate of 1.666%.
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 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, 2013, our ratio of debt to our total market capitalization was 38.5%. 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.
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, 2013, our Unsecured Credit Facility had an outstanding balance of $173.0 million at a weighted average interest rate of 1.666%. At December 31, 2013, our Unsecured Credit Facility provides for interest only payments at LIBOR plus 150 basis points which rate varies based on our leverage ratio. Based on the outstanding balance on our Unsecured Credit Facility as of December 31, 2013, a 10% increase in interest rates would increase interest expense by $0.3 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, decline in general market conditions or a change in the expected hold period of an asset. 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

11


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.

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 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, a loss in excess of insured limits occurs, or a loss is not paid due to insurer insolvency 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, 2013, the 2003 Net Lease Joint Venture owned approximately 2.5 million square feet of properties. Our net investment in this Joint Venture was $0.9 million at December 31, 2013. Our organizational documents do not limit the amount of available funds that we may invest in joint ventures and we may 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
we may in certain circumstances be liable for the actions of our joint venturers.

12


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, 2013, we owned 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.
Our business could be adversely impacted if we have deficiencies in our disclosure controls and procedures or internal control over financial reporting.
The design and effectiveness of our disclosure controls and procedures and internal control over financial reporting may not prevent all errors, misstatements or misrepresentations. While management will continue to review the effectiveness of our disclosure controls and procedures and internal control over financial reporting, there can be no guarantee that our internal control over financial reporting will be effective in accomplishing all control objectives all of the time. Deficiencies, including any material weakness, in our internal control over financial reporting which may occur in the future could result in misstatements of our results of operations, restatements of our financial statements, a decline in the price of our securities, or otherwise materially adversely affect our business, reputation, results of operations, financial condition or liquidity.

Item  1B.
Unresolved SEC Comments
None.


13


Item  2.
Properties
General
At December 31, 2013, we owned 649 in-service industrial properties containing an aggregate of approximately 61.3 million square feet of GLA in 25 states, with a diverse base of more than 1,800 tenants engaged in a wide variety of businesses, including manufacturing, retail, wholesale trade, distribution and professional services. The average annual rent per square foot on a portfolio basis, calculated at December 31, 2013, was $4.54. 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 four industrial categories: light industrial, R&D/flex, bulk warehouse and regional warehouse. 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; and
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.

14


The following tables summarize certain information as of December 31, 2013, with respect to the in-service properties, each of which is wholly owned.
In-Service Property Summary Totals
 
Light Industrial
 
R&D/Flex
 
Bulk Warehouse
 
Regional
Warehouse
 
Total
Metropolitan Area
GLA
 
Number  of
Properties
 
GLA
 
Number  of
Properties
 
GLA
 
Number  of
Properties
 
GLA
 
Number  of
Properties
 
GLA
 
Number  of
Properties
Atlanta, GA
622,944

 
11

 
174,350

 
4

 
3,820,667

 
14

 
923,807

 
7

 
5,541,768

 
36

Baltimore, MD
768,536

 
13

 
253,070

 
7

 
586,647

 
3

 
96,000

 
1

 
1,704,253

 
24

Central PA
297,790

 
6

 

 

 
4,113,585

 
9

 
381,719

 
4

 
4,793,094

 
19

Chicago, IL
689,606

 
10

 
197,997

 
3

 
3,592,679

 
15

 
424,851

 
5

 
4,905,133

 
33

Cincinnati, OH
278,000

 
5

 
100,000

 
2

 
918,250

 
3

 
763,069

 
5

 
2,059,319

 
15

Cleveland, OH

 

 

 

 
1,317,799

 
7

 

 

 
1,317,799

 
7

Dallas, TX
1,996,261

 
35

 
209,249

 
9

 
2,148,315

 
16

 
501,873

 
7

 
4,855,698

 
67

Denver, CO
1,148,368

 
26

 
369,949

 
10

 
399,754

 
3

 
756,685

 
7

 
2,674,756

 
46

Detroit, MI
2,171,855

 
78

 
188,263

 
6

 
658,927

 
5

 
550,089

 
13

 
3,569,134

 
102

Houston, TX
585,349

 
9

 
132,997

 
6

 
2,457,546

 
11

 
446,318

 
6

 
3,622,210

 
32

Indianapolis, IN
861,100

 
18

 
25,000

 
2

 
2,176,994

 
7

 
503,177

 
6

 
3,566,271

 
33

Miami, FL
88,820

 
1

 

 

 
142,804

 
1

 
281,626

 
6

 
513,250

 
8

Milwaukee, WI
343,726

 
7

 
55,940

 
1

 
1,126,929

 
6

 
90,089

 
1

 
1,616,684

 
15

Minneapolis/St. Paul, MN
969,796

 
14

 
265,565

 
3

 
2,972,995

 
13

 
201,173

 
3

 
4,409,529

 
33

Nashville, TN
163,852

 
2

 

 

 
1,249,288

 
5

 

 

 
1,413,140

 
7

Northern New Jersey
749,849

 
13

 
171,601

 
3

 
329,593

 
2

 

 

 
1,251,043

 
18

Philadelphia, PA
186,641

 
6

 
11,256

 
1

 
690,599

 
2

 
330,334

 
4

 
1,218,830

 
13

Phoenix, AZ
38,560

 
1

 

 

 
710,403

 
5

 
354,327

 
5

 
1,103,290

 
11

Salt Lake City, UT
190,620

 
6

 
146,937

 
6

 
279,179

 
1

 
122,900

 
1

 
739,636

 
14

Seattle, WA

 

 

 

 
258,126

 
2

 
127,399

 
2

 
385,525

 
4

Southern California(a)
772,878

 
21

 
88,064

 
1

 
2,016,153

 
8

 
639,087

 
10

 
3,516,182

 
40

Southern New Jersey
115,626

 
2

 
45,054

 
1

 
172,100

 
1

 
191,329

 
2

 
524,109

 
6

St. Louis, MO
631,732

 
9

 
191,923

 
2

 
1,613,095

 
6

 

 

 
2,436,750

 
17

Tampa, FL
234,679

 
7

 
689,782

 
27

 
209,500

 
1

 

 

 
1,133,961

 
35

Other(b)
201,997

 
5

 

 

 
2,096,108

 
8

 
88,498

 
1

 
2,386,603

 
14

Total
14,108,585

 
305

 
3,316,997

 
94

 
36,058,035

 
154

 
7,774,350

 
96

 
61,257,967

 
649

Occupancy by Industrial Building Type
 
 
88
%
 
 
 
85
%
 
 
 
95
%
 
 
 
95
%
 
 
 
93
%
_______________
(a)
Southern California includes the markets of Los Angeles, Inland Empire and San Diego.
(b)
Properties are located in Grand Rapids, MI, Austin, TX, Orlando, FL, Horn Lake, MS, Kansas City, MO, San Antonio, TX, Birmingham, AL, Jefferson County, KY, Greenville, KY, Des Moines, IA, Fort Smith, AR and Winchester, VA.


15


In-Service Property Summary Totals
Metropolitan Area
 
GLA
 
Number of
Properties
 
Average
Occupancy
at 12/31/13
 
GLA as
a  %
of Total
Portfolio
 
Encumbrances
at 12/31/13
(In 000s)(c)
Atlanta, GA
 
5,541,768

 
36

 
89
%
 
9.0
%
 
$
36,196

Baltimore, MD
 
1,704,253

 
24

 
90
%
 
2.8
%
 
9,737

Central PA
 
4,793,094

 
19

 
94
%
 
7.9
%
 
57,253

Chicago, IL
 
4,905,133

 
33

 
96
%
 
8.0
%
 
40,112

Cincinnati, OH
 
2,059,319

 
15

 
91
%
 
3.4
%
 
13,588

Cleveland, OH
 
1,317,799

 
7

 
100
%
 
2.2
%
 
25,921

Dallas, TX
 
4,855,698

 
67

 
94
%
 
7.9
%
 
57,673

Denver, CO
 
2,674,756

 
46

 
94
%
 
4.4
%
 
28,799

Detroit, MI
 
3,569,134

 
102

 
95
%
 
5.8
%
 

Houston, TX
 
3,622,210

 
32

 
99
%
 
5.9
%
 
56,205

Indianapolis, IN
 
3,566,271

 
33

 
93
%
 
5.8
%
 
20,050

Miami, FL
 
513,250

 
8

 
79
%
 
0.8
%
 

Milwaukee, WI
 
1,616,684

 
15

 
97
%
 
2.6
%
 
20,795

Minneapolis/St. Paul, MN
 
4,409,529

 
33

 
92
%
 
7.2
%
 
72,309

Nashville, TN
 
1,413,140

 
7

 
98
%
 
2.3
%
 
28,602

Northern New Jersey
 
1,251,043

 
18

 
92
%
 
2.0
%
 
24,135

Philadelphia, PA
 
1,218,830

 
13

 
85
%
 
2.0
%
 
24,588

Phoenix, AZ
 
1,103,290

 
11

 
94
%
 
1.8
%
 
17,932

Salt Lake City, UT
 
739,636

 
14

 
92
%
 
1.2
%
 
10,735

Seattle, WA
 
385,525

 
4

 
100
%
 
0.6
%
 
5,070

Southern California(a)
 
3,516,182

 
40

 
94
%
 
5.7
%
 
76,563

Southern New Jersey
 
524,109

 
6

 
41
%
 
0.9
%
 
3,115

St. Louis, MO
 
2,436,750

 
17

 
86
%
 
4.0
%
 
17,781

Tampa, FL
 
1,133,961

 
35

 
90
%
 
1.9
%
 
9,353

Other(b)
 
2,386,603

 
14

 
98
%
 
3.9
%
 
21,378

Total or Average
 
61,257,967

 
649

 
93
%
 
100
%
 
$
677,890

_______________
(a)
Southern California includes the markets of Los Angeles, Inland Empire and San Diego.
(b)
Properties are located in Grand Rapids, MI, Austin, TX, Orlando, FL, Horn Lake, MS, Kansas City, MO, San Antonio, TX, Birmingham, AL, Jefferson County, KY, Greenville, KY, Des Moines, IA, Fort Smith, AR and Winchester, VA.
(c)
Certain properties are pledged as collateral under our mortgage financings at December 31, 2013. For purposes of this table, the total principal balance of a mortgage loan payable that is collateralized by a pool of properties is allocated among the properties in the pool based on each property’s carrying balance.


16


Property Acquisitions
During the year ended December 31, 2013, we acquired two industrial properties and several land parcels for an aggregate purchase price of approximately $72.8 million. One of the two industrial properties was vacant upon acquisition and the other industrial property was acquired at a capitalization rate of 6.7%. The capitalization rate for this industrial property acquisition was calculated using the estimated stabilized net operating income (excluding straight line rent and amortization of below market rent) and dividing it by the sum of the purchase price plus estimated costs incurred to stabilize the property. The acquired industrial properties have the following characteristics:
 
Metropolitan Area
 
Number  of
Properties
 
GLA
 
Property
Type
 
Occupancy
at  12/31/13
Chicago, IL
 
1

 
509,216

 
Bulk Warehouse
 
0
%
Chicago, IL
 
1

 
626,784

 
Bulk Warehouse
 
100
%
 
 
2

 
1,136,000

 
 
 
 

Development Activity
During the year ended December 31, 2013, we placed in-service one bulk warehouse development located in Southern California totaling approximately 0.3 million square feet of GLA at a total cost of $19.1 million. Included in total costs is $1.8 million incurred on leasing costs, which includes tenant improvements and leasing commissions. At December 31, 2013, the occupancy is 100%. The capitalization rate for this development, calculated using the estimated stabilized net operating income (excluding straight line rent) divided by the total investment in the developed property, is 7.3%.
As of December 31, 2013, we substantially completed two industrial properties totaling approximately 1.2 million square feet of GLA and have three industrial properties that are under construction totaling approximately 0.8 million square feet of GLA. The estimated total costs for the two development properties that are substantially complete are approximately $88.2 million, of which $83.8 has been incurred as of December 31, 2013. The estimated total costs for the three development properties under construction are $49.2 million, of which $25.3 million has been incurred as of December 31, 2013. There can be no assurance that the actual completion cost will not exceed the estimated completion cost stated above. The completed developments and developments under construction have the following characteristics:
Completed Developments - Not In Service
 
GLA
 
Property
Type
 
Quarter of Building Completion
Southern California
 
489,000

 
Bulk Warehouse
 
Q4 2013
Central PA
 
708,000

 
Bulk Warehouse
 
Q4 2013
 
 
1,197,000

 
 
 
 
Developments Under Construction
 
GLA
 
Property
Type
 
Anticipated Quarter of Building Completion
Chicago, IL
 
250,000

 
Bulk Warehouse Expansion
 
Q3 2014
Southern California
 
555,670

 
Bulk Warehouse
 
Q2 2014
Southern California
 
43,485

 
Regional Warehouse
 
Q2 2014
 
 
849,155

 
 
 
 

17


Property Sales
During the year ended December 31, 2013, we sold 67 industrial properties comprising approximately 3.0 million square feet of GLA, at a weighted average capitalization rate of 5.6%, and several land parcels for total gross sales proceeds of approximately $144.6 million. The capitalization rate for the 67 industrial property sales 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 the last twelve full months prior to sale and dividing the sum by the sales price of the property. The sold industrial properties have the following characteristics:
Metropolitan Area
 
Number  of
Properties
 
GLA
 
Property Type
Atlanta, GA
 
1

 
90,000

 
Regional Warehouse
Baltimore, MD
 
1

 
171,000

 
Regional Warehouse
Chicago, IL
 
6

 
446,241

 
Light Industrial/R&D/Flex/Regional Warehouse
Dallas, TX
 
14

 
468,358

 
Light Industrial/R&D/Flex
Denver, CO
 
2

 
157,065

 
R&D/Flex
Detroit, MI
 
7

 
214,372

 
Light Industrial/Regional Warehouse/R&D/Flex
Indianapolis, IN
 
2

 
174,438

 
Bulk Warehouse/Regional Warehouse
Milwaukee, WI
 
1

 
43,440

 
Light Industrial
Minneapolis/St. Paul, MN
 
2

 
122,562

 
Regional Warehouse
Northern New Jersey
 
1

 
24,051

 
R&D/Flex
Salt Lake City, UT
 
27

 
384,305

 
Light Industrial
Southern New Jersey
 
1

 
109,000

 
Bulk Warehouse
Toronto, ON
 
1

 
280,773

 
Bulk Warehouse
Other (a)
 
1

 
355,964

 
Bulk Warehouse
Total
 
67

 
3,041,569

 
 
(a) Property was located in Omaha, NE.

18


Tenant and Lease Information
We have a diverse base of more than 1,800 tenants engaged in a wide variety of businesses including retail, wholesale trade, distribution, manufacturing and professional services. At December 31, 2013, our leases have a weighted average lease length of 6.0 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, 2013, approximately 93% of the GLA of our in-service properties was leased, and no single tenant or group of related tenants accounted for more than 3.2% of our rent revenues, nor did any single tenant or group of related tenants occupy more than 2.2% of the total GLA of our in-service properties.
Leasing Activity
The following table provides a summary of our leasing activity for the year ended December 31, 2013. The table does not include month to month leases or leases with terms less than twelve months.  
 
Number of
Leases
Signed
 
Square  Feet
Signed
(in 000’s)
 
Average GAAP
Rent Per
Square Foot (1)
 
GAAP  Basis
Rent  Growth (2)
 
Weighted
Average  Lease
Term (3)
 
Turnover Costs
Per Square
Foot (4)
 
Weighted
Average
Retention (5)
New Leases
239

 
3,955

 
$
4.86

 
(8.2
)%
 
5.3

 
$
6.85

 
N/A

Renewal Leases
408

 
10,080

 
$
4.11

 
8.7
 %
 
3.6

 
$
1.07

 
78.7
%
Development
9

 
416

 
$
4.71

 
N/A

 
5.8

 
N/A

 
N/A

Total / Weighted Average
656

 
14,451

 
$
4.33

 
2.8
 %
 
4.1

 
$
2.64

 
78.7
%
_______________
(1)
Average GAAP rent is the average rent calculated in accordance with GAAP, over the term of the lease.
(2)
GAAP basis rent growth is a ratio of the change in net effective rent (on a GAAP basis, including straight-line rent adjustments as required by GAAP) compared to the net effective rent (on a GAAP basis) of the comparable lease. New leases where there were no prior comparable leases are also excluded.
(3)
The lease term is expressed in years. Assumes no exercise of lease renewal options, if any.
(4)
Turnover costs are comprised of the costs incurred or capitalized for improvements of vacant and renewal spaces, as well as the commissions paid and costs capitalized for leasing transactions. Turnover costs per square foot represent the total turnover costs expected to be incurred on the leases signed during the period and do not reflect actual expenditures for the period.
(5)
Represents the weighted average square feet of tenants renewing their respective leases.
During the year ended December 31, 2013, we signed 163 new leases with free rent periods during the lease term on 3.3 million square feet of GLA. Total free rent concessions are $6.5 million associated with these new leases. Additionally, during the year ended December 31, 2013, we signed 79 renewal leases with free rent periods during the lease term on 1.7 million square feet of GLA. Total concessions are $1.4 million associated with these renewal leases. Lastly, during the twelve months ended December 31, 2013, we signed eight development leases with free rent periods during the lease term on 0.4 million square feet of GLA. Total free rent concessions are $0.5 million associated with these development leases.

19


Lease Expirations
Fundamentals for the United States industrial real estate market continued to improve in 2013, as growth in the general economy drove additional demand for space. Development of new industrial space has increased in response to this growth in demand, but demand has outpaced supply. The fourth quarter of 2013 marked the 14th consecutive quarter of increasing occupancy for the overall market. These conditions have resulted in improved market rental rate environments in virtually all of our markets. Based on our recent experience, market conditions, and the forecast from a leading national research company for 2014, we expect our average net effective rental rates for renewal leases on a cash basis to be slightly higher than the expiring rates. Rental rates for new leases on a cash basis on average are expected to be less than the comparative prior leases for 2014, primarily due to the differing market conditions when the comparative leases were structured. The following table shows scheduled lease expirations for all leases for our in-service properties as of December 31, 2013.
 
Year of Expiration(1)
 
Number  of
Leases
Expiring
 
GLA
Expiring(2)
 
Percentage
of  GLA
Expiring(2)
 
Annual Base
Rent
Under
Expiring
Leases(3)
 
Percentage
of Total
Annual
Base Rent
Expiring(3)
 
 
 
 
 
 
 
 
(In thousands)
 
 
2014
 
401

 
7,076,942

 
13
%
 
$
32,677

 
13
%
2015
 
392

 
8,951,602

 
16
%
 
40,673

 
16
%
2016
 
379

 
10,250,272

 
18
%
 
43,192

 
17
%
2017
 
219

 
6,399,692

 
11
%
 
30,713

 
12
%
2018
 
180

 
7,103,945

 
13
%
 
32,549

 
13
%
2019
 
112

 
5,250,158

 
9
%
 
26,254

 
11
%
2020
 
41

 
2,712,519

 
5
%
 
12,128

 
5
%
2021
 
35

 
3,207,189

 
6
%
 
13,733

 
6
%
2022
 
18

 
888,616

 
2
%
 
3,510

 
1
%
2023
 
17

 
2,084,190

 
4
%
 
8,182

 
3
%
Thereafter
 
16

 
1,609,228

 
3
%
 
8,363

 
3
%
Total
 
1,810

 
55,534,353

 
100
%
 
$
251,974

 
100
%
_______________
(1)
Includes leases that expire on or after January 1, 2014 and assumes tenants do not exercise existing renewal, termination or purchase options.
(2)
Does not include existing vacancies of 4,474,457 aggregate square feet and December 31, 2013 move outs of 1,249,157 aggregate square feet.
(3)
Annualized base rent is calculated as monthly base rent (cash basis) per the terms of the lease, as of December 31, 2013, multiplied by 12. If free rent is granted, then the first positive rent value is used.

Item  3.
Legal Proceedings
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.

Item  4.
Mine Safety Disclosures
None.


20


PART II
 
Item  5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
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
 
High
 
Low
 
Distribution
Declared
December 31, 2013
 
$
18.81

 
$
16.30

 
$
0.085

September 30, 2013
 
$
17.08

 
$
14.83

 
$
0.085

June 30, 2013
 
$
18.71

 
$
14.26

 
$
0.085

March 31, 2013
 
$
17.13

 
$
14.22

 
$
0.085

December 31, 2012
 
$
14.10

 
$
12.66

 
$
0.000

September 30, 2012
 
$
13.60

 
$
11.99

 
$
0.000

June 30, 2012
 
$
12.72

 
$
11.09

 
$
0.000

March 31, 2012
 
$
12.38

 
$
10.30

 
$
0.000

We had 481 common stockholders of record registered with our transfer agent as of February 27, 2014.
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 2013.
During the year ended December 31, 2013, 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 as of December 31, 2013.
 
Plan Category
 
Number  of
Securities
to be Issued
Upon
Exercise of
Outstanding
Options,
Warrants
and Rights
 
Weighted-
Average
Exercise
Price of
Outstanding
Options,
Warrants
and Rights
 
Number  of
Securities
Remaining
Available
for  Further
Issuance
Under Equity
Compensation
Plans
Equity Compensation Plans Approved by Security Holders
 

 
$

 
350,863

Equity Compensation Plans Not Approved by Security Holders
 

 
$

 
22,380

Total
 

 
$

 
373,243



21


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 historical information set forth below is not necessarily indicative of future performance.
*
$100 invested on 12/31/08 in stock or index, including reinvestment of dividends. Fiscal year ending December 31.

 
12/08
 
12/09
 
12/10
 
12/11
 
12/12
 
12/13
FIRST INDUSTRIAL REALTY TRUST, INC.
$
100.00

 
$
69.27

 
$
116.03

 
$
135.50

 
$
186.49

 
$
235.97

S&P 500
$
100.00

 
$
126.46

 
$
145.51

 
$
148.59

 
$
172.37

 
$
228.19

FTSE NAREIT Equity REITs
$
100.00

 
$
127.99

 
$
163.78

 
$
177.36

 
$
209.39

 
$
214.56

_______________
*
The information provided in this performance graph shall not be deemed to be “soliciting material,” to be “filed” or to be incorporated by reference into any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934 unless specifically treated as such.

22


Item 6.
Selected Financial Data
The following sets forth selected financial and operating data for the Company on a consolidated basis. The following selected consolidated financial 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. All consolidated financial data has been restated, as appropriate, to reflect the impact of activity classified as discontinued operations for all periods presented.
 
Year Ended
12/31/13
 
Year Ended
12/31/12
 
Year Ended
12/31/11
 
Year Ended
12/31/10
 
Year Ended
12/31/09
 
(In thousands, except per share data)
Statement of Operations Data:
 
 
 
 
 
 
 
 
 
Total Revenues
$
328,226

 
$
314,325

 
$
302,668

 
$
306,606

 
$
369,229

Income (Loss) from Continuing Operations
4,941

 
(22,459
)
 
(33,631
)
 
(161,520
)
 
(22,807
)
Loss from Continuing Operations Available to First Industrial Realty Trust, Inc’s Common Stockholders
(8,213
)
 
(37,395
)
 
(49,093
)
 
(166,604
)
 
(37,821
)
Net Income (Loss) Available to First Industrial Realty Trust, Inc.’s Common Stockholders and Participating Securities
$
25,907

 
$
(22,069
)
 
$
(27,010
)
 
$
(222,498
)
 
$
(13,783
)
Basic and Diluted Earnings Per Share:
 
 
 
 
 
 
 
 
 
Loss from Continuing Operations Available to First Industrial Realty Trust, Inc.’s Common Stockholders
$
(0.08
)
 
$
(0.41
)
 
$
(0.61
)
 
$
(2.65
)
 
$
(0.78
)
Net Income (Loss) Available to First Industrial Realty Trust, Inc.’s Common Stockholders
$
0.24

 
$
(0.24
)
 
$
(0.34
)
 
$
(3.53
)
 
$
(0.28
)
Distributions Per Share
$
0.34

 
$
0.00

 
$
0.00

 
$
0.00

 
$
0.00

Basic and Diluted Weighted Average Shares
106,995

 
91,468

 
80,616

 
62,953

 
48,695

Balance Sheet Data (End of Period):
 
 
 
 
 
 
 
 
 
Real Estate, Before Accumulated Depreciation
$
3,119,547

 
$
3,121,448

 
$
2,992,096

 
$
2,618,767

 
$
3,319,764

Total Assets
2,597,510

 
2,608,842

 
2,666,657

 
2,750,054

 
3,204,586

Indebtedness (Inclusive of Indebtedness Held for Sale)
1,296,806

 
1,335,766

 
1,479,483

 
1,742,776

 
1,998,332

Total Equity
1,171,219

 
1,145,653

 
1,072,595

 
892,144

 
1,074,247

Cash Flow Data:
 
 
 
 
 
 
 
 
 
Cash Flow From Operating Activities
$
125,751

 
$
136,422

 
$
87,534

 
$
83,189

 
$
142,179

Cash Flow From Investing Activities
(61,313
)
 
(42,235
)
 
(3,779
)
 
(9,923
)
 
4,777

Cash Flow From Financing Activities
(61,748
)
 
(99,407
)
 
(99,504
)
 
(230,383
)
 
32,724



23


Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion should be read in conjunction with "Selected Financial 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," "plan," "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 REITs; international business risks and those additional factors described in Item 1A, "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 the Operating Partnership, of which we are the sole general partner, and through our taxable REIT subsidiaries. The Company also owns a preferred partnership interest in the Operating Partnership represented by preferred units with an aggregate liquidation priority of $75.0 million at December 31, 2013. 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). 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. See Note 5 to the Consolidated Financial Statements for more information on the Joint Ventures.
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.
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

24


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 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. Proceeds from sales are being used to repay outstanding debt and, market conditions permitting, 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.
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 were 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.
Accounts Receivable: We are subject to tenant defaults and bankruptcies that could affect the collection of rent due under our outstanding accounts receivable, include straight-line rent. In order to mitigate these risks, we perform credit reviews and analyses on our major existing tenants and all prospective tenants meeting certain financial thresholds before leases are executed. We maintain an allowance for doubtful accounts which is an estimate that is based on our assessment of various factors including the accounts receivable aging, customer credit-worthiness and historical bad debts.

25


Notes Receivable: Notes receivable are included in prepaid expenses and other assets, net and are loans that are generally collateralized by real estate. Notes receivable are considered past due when a contractual payment is not remitted in accordance with the terms of the note agreement. We evaluate the collectability of each note receivable on an individual basis based on various factors which may include payment history, expected fair value of the collateral on the loan and internal and external credit information. A loan is considered to be impaired when, based upon current information and events, it is probable that we will be unable to collect all amounts due according to 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. Interest income on performing loans is accrued as earned. A loan is placed on non-accrual status when, based upon current information and events, it is probable that we will not be able to collect all amounts due according to the existing contractual terms. Recognition of interest income on non-performing loans on an accrual basis is resumed when it is probable that we will be able to collect amounts due according to the contractual terms.
Investment in Real Estate: 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 market leases are amortized as a reduction of rental revenue over the remaining non-cancelable terms of the respective leases and acquired below market leases are amortized as an increase to rental income over the remaining initial terms plus the terms of any below market fixed rate renewal options of the respective leases. 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.
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 generally 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.
Real Estate Held for Sale: 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 generally determined either by discounting the future expected cash flows of the property, third party contract prices or quotes from local brokers. 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.

26


Accounting for Joint Ventures: 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 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.
Capitalization of Costs: We capitalize (direct and certain indirect) costs incurred in developing and expanding real estate assets as part of the investment basis. Costs incurred in making repairs and maintaining real estate assets are expensed as incurred. 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 up to the time the property is substantially complete. The interest rate used to capitalize interest is based upon our average borrowing rate on existing debt. We also capitalize internal and external costs incurred to successfully originate a lease that result directly from, and are essential to, the acquisition of that lease. Leasing costs that meet the requirements for capitalization are presented as a component of prepaid expenses and other assets, net. The determination and calculation of certain costs requires estimates by us.
Deferred Tax Assets and Liabilities: In the preparation of our consolidated financial statements, significant management judgment is required to estimate our current and deferred income tax liabilities. 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 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, 2013 to Year Ended December 31, 2012
Our net income (loss) available to First Industrial Realty Trust, Inc.’s common stockholders and participating securities was $25.9 million and $(22.1) million for the years ended December 31, 2013 and 2012, respectively. Basic and diluted net income (loss) available to First Industrial Realty Trust, Inc.’s common stockholders was $0.24 per share and $(0.24) per share for the years ended December 31, 2013 and 2012, respectively.
The tables below summarize our revenues, property expenses and depreciation and other amortization by various categories for the years ended December 31, 2013 and 2012. Same store properties are properties owned prior to January 1, 2012 and held as an operating property through December 31, 2013 and developments and redevelopments that were placed in service prior to January 1, 2012 or were substantially completed for the 12 months prior to January 1, 2012. Properties which are at least 75% occupied at acquisition are placed in service. Acquisitions that are less than 75% occupied at the date of acquisition, developments and redevelopments 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/redevelopment construction completion. Properties are moved from the same store classification to the redevelopment classification when capital expenditures for a project are estimated to exceed 25% of the undepreciated gross book value of the property. Acquired properties are properties that were acquired subsequent to December 31, 2011 and held as an operating property through December 31, 2013. Sold properties are properties that were sold subsequent to December 31, 2011. (Re)Developments and land are land parcels and developments and redevelopments that were not: a) substantially complete 12 months prior to January 1, 2012 or b) stabilized prior to January 1, 2012. Other revenues are derived from the operations of our maintenance company, fees earned from our Joint Ventures and other miscellaneous revenues. Other expenses are derived from the operations of our maintenance company and other miscellaneous regional expenses.

27


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, 2013 and 2012, the average occupancy rates of our same store properties were 90.1% and 88.3%, respectively.
 
2013
 
2012
 
$ Change
 
% Change
 
($ in 000’s)
REVENUES
 
 
 
 
 
 
 
Same Store Properties
$
317,460

 
$
309,051

 
$
8,409

 
2.7
 %
Acquired Properties
2,729

 
1,954

 
775

 
39.7
 %
Sold Properties
10,892

 
21,618

 
(10,726
)
 
(49.6
)%
(Re) Developments and Land, Not Included Above
6,641

 
716

 
5,925

 
827.5
 %
Other
1,459

 
2,635

 
(1,176
)
 
(44.6
)%
 
$
339,181

 
$
335,974

 
$
3,207

 
1.0
 %
Discontinued Operations
(10,955
)
 
(21,649
)
 
10,694

 
(49.4
)%
Total Revenues
$
328,226

 
$
314,325

 
$
13,901

 
4.4
 %
Revenues from same store properties increased $8.4 million primarily due to increases in occupancy and tenant recoveries, partially offset by a decrease in lease cancellation fees. Revenues from acquired properties increased $0.8 million due to the two leased industrial properties acquired subsequent to December 31, 2011 totaling approximately 1.0 million square feet of GLA. Revenues from sold properties decreased $10.7 million due to the 95 industrial properties sold subsequent to December 31, 2011 totaling approximately 7.2 million square feet of GLA. Revenues from (re)developments and land increased $5.9 million due to an increase in occupancy. Other revenues decreased $1.2 million primarily due to certain one-time revenue transactions during the year ended December 31, 2012, as well as a decrease in leasing fees earned from our Joint Ventures and a decrease in revenues from the operations of our maintenance company for the year ended December 31, 2013, as compared to the year ended December 31, 2012.
 
2013
 
2012
 
$ Change
 
% Change
 
($ in 000’s)
PROPERTY EXPENSES
 
 
 
 
 
 
 
Same Store Properties
$
95,591

 
$
89,472

 
$
6,119

 
6.8
 %
Acquired Properties
1,047

 
420

 
627

 
149.3
 %
Sold Properties
4,226

 
8,700

 
(4,474
)
 
(51.4
)%
(Re) Developments and Land, Not Included Above
2,160

 
709

 
1,451

 
204.7
 %
Other
8,816

 
9,485

 
(669
)
 
(7.1
)%
 
$
111,840

 
$
108,786

 
$
3,054

 
2.8
 %
Discontinued Operations
(4,450
)
 
(8,879
)
 
4,429

 
(49.9
)%
Total Property Expenses
$
107,390

 
$
99,907

 
$
7,483

 
7.5
 %
 Property expenses include real estate taxes, repairs and maintenance, property management, utilities, insurance and other property related expenses. Property expenses from same store properties increased $6.1 million primarily due to an increase in real estate tax expense due to refunds received in 2012 relating to previous years and an increase in repairs and maintenance expense due to the higher snow removal costs incurred during the year ended December 31, 2013 as compared to the year ended December 31, 2012 due to the mild 2012 winter. Property expenses from acquired properties increased $0.6 million due to properties acquired subsequent to December 31, 2011. Property expenses from sold properties decreased $4.5 million due to properties sold subsequent to December 31, 2011. Property expenses from (re)developments and land increased $1.5 million primarily due to an increase in real estate tax expense. Other expenses remained relatively unchanged.
General and administrative expense decreased $2.0 million, or 7.8%, during the year ended December 31, 2013 compared to the year ended December 31, 2012 due primarily to the acceleration of expense recorded during 2012 related to restricted stock held by the Company’s CEO in connection with the terms of his employment agreement that was entered into in December 2012.

28


The impairment charge included in continuing operations for the year ended December 31, 2013 of $1.0 million is primarily due to marketing a certain property for sale and our assessment of the likelihood of a potential sale transaction. The impairment reversal included in continuing operations for the year ended December 31, 2012 of $0.2 million is primarily comprised of an impairment reversal relating to certain industrial properties that no longer qualified for held for sale classification.
 
2013
 
2012
 
$ Change
 
% Change
 
($ in 000’s)
DEPRECIATION AND OTHER AMORTIZATION
 
 
 
 
 
 
 
Same Store Properties
$
106,797

 
$
112,435

 
$
(5,638
)
 
(5.0
)%
Acquired Properties
1,755

 
808

 
947

 
117.2
 %
Sold Properties
3,646

 
7,832

 
(4,186
)
 
(53.4
)%
(Re) Developments and Land, Not Included Above
1,862

 
357

 
1,505

 
421.6
 %
Corporate Furniture, Fixtures and Equipment
618

 
1,077

 
(459
)
 
(42.6
)%
 
$
114,678

 
$
122,509

 
$
(7,831
)
 
(6.4
)%
Discontinued Operations
(3,647
)
 
(7,834
)
 
4,187

 
(53.4
)%
Total Depreciation and Other Amortization
$
111,031

 
$
114,675

 
$
(3,644
)
 
(3.2
)%
Depreciation and other amortization for same store properties decreased $5.6 million due to a decrease in catch-up depreciation taken for properties that were classified as held for sale in 2011 but no longer classified as held for sale during the year ended December 31, 2012, to certain intangible assets related to acquisitions of real estate becoming fully depreciated as well as certain adjustments, which should have been recorded in previous periods, recorded during the years ended December 31, 2013 and 2012 causing a decrease in depreciation and amortization expense. Depreciation and other amortization from acquired properties increased $0.9 million due to properties acquired subsequent to December 31, 2011. Depreciation and other amortization from sold properties decreased $4.2 million due to properties sold subsequent to December 31, 2011. Depreciation and other amortization for (re)developments and land increased $1.5 million primarily due to an increase in substantial completion of developments. Corporate furniture, fixtures and equipment depreciation expense decreased $0.5 million due to assets becoming fully depreciated.
Interest income decreased $0.5 million, or 18.1%, primarily due to a decrease in the weighted average note receivable balance outstanding and a decrease in the weighted average interest rate for the year ended December 31, 2013 as compared to the year ended December 31, 2012.
Interest expense decreased $9.9 million, or 11.9%, primarily due to a decrease in the weighted average debt balance outstanding for the year ended December 31, 2013 ($1,338.5 million) as compared to the year ended December 31, 2012 ($1,427.7 million), an increase in capitalized interest of $1.6 million for the year ended December 31, 2013 as compared to the year ended December 31, 2012 due to an increase in development activities and a decrease in the weighted average interest rate for the year ended December 31, 2013 (5.77%) as compared to the year ended December 31, 2012 (5.99%).
Amortization of deferred financing costs decreased $0.2 million, or 6.8%, due to lower deferred financing costs due to the amendment to our credit facility in July 2013 and the write off of financing costs related to the early retirement of certain mortgage loans and the repurchase and retirement of certain senior unsecured notes.
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 our Series F Cumulative Redeemable Preferred Stock. The Series F Agreement had a notional value of $50.0 million and fixed the 30 year Treasury constant maturity treasury rate at 5.2175%. We recorded $0.1 million in mark-to-market net gain, inclusive of $0.8 million in swap payments, for the year ended December 31, 2013, as compared to $0.3 million in mark-to-market net loss, inclusive of $1.2 million in swap payments, for the year ended December 31, 2012. The Series F Agreement matured on October 1, 2013.
For the year ended December 31, 2013, we recognized a net loss from retirement of debt of $6.6 million due to the partial repurchase of certain series of our senior unsecured notes, the early payoff of certain mortgage loans and the write-off of certain unamortized loan fees associated with the amendment of our revolving line of credit. For the year ended December 31, 2012, we recognized a net loss from retirement of debt of $9.7 million due to the partial repurchase of certain series of our senior unsecured notes and early payoff of certain mortgage loans.

29


Equity in income of joint ventures decreased $1.4 million, or 91.3%, during the year ended December 31, 2013 as compared to the year ended December 31, 2012 primarily due to a decrease in our pro rata share of gain on sale of real estate and earn-outs on property sales from the 2003 Net Lease Joint Venture.
For the year ended December 31, 2012, we recognized $0.8 million of gain on change in control of interests related to the acquisition of the 85% equity interest in one property from the institutional investor in the 2003 Net Lease Joint Venture. The $0.8 million of gain represents the difference between our carrying value and fair value of our equity interest on the acquisition date.
The income tax provision (as allocated to continuing operations and gain on sale of real estate, as applicable) decreased $5.5 million or 100.1% during the year ended December 31, 2013 compared to the year ended December 31, 2012 primarily due to a one-time IRS audit adjustment related to the 2009 liquidation of a former taxable REIT subsidiary that was recorded during the year ended December 31, 2012.
The following table summarizes certain information regarding the industrial properties included in discontinued operations for the years ended December 31, 2013 and 2012.
 
2013
 
2012
 
($ in 000’s)
Total Revenues
$
10,955

 
$
21,649

Property Expenses
(4,450
)
 
(8,879
)
Impairment of Real Estate
(1,605
)
 
(1,438
)
Depreciation and Amortization
(3,647
)
 
(7,834
)
Gain on Sale of Real Estate
34,344

 
12,665

Income from Discontinued Operations
$
35,597

 
$
16,163

Income from discontinued operations for the year ended December 31, 2013 reflects the results of operations and gain on sale of real estate relating to 67 industrial properties that were sold during the year ended December 31, 2013. The impairment loss for the year ended December 31, 2013 of $1.6 million relates to impairment charges recorded due to the carrying values of certain properties exceeding the estimated fair values based upon third party purchase contracts for properties held for sale during 2013.
Income from discontinued operations for the year ended December 31, 2012 reflects the results of operations and gain on sale of real estate relating to 28 industrial properties that were sold during the year ended December 31, 2012 and the results of operations of 67 industrial properties that were sold during the year ended December 31, 2013. The impairment loss for the year ended December 31, 2012 of $1.4 million relates to impairment charges recorded due to carrying values of certain properties exceeding the estimated fair values based upon third party purchase contracts for properties held for sale during 2012.
The $1.1 million and $3.8 million gain on sale of real estate for the years ended December 31, 2013 and 2012, respectively, resulted from the sale of several land parcels that did not meet the criteria for inclusion in discontinued operations.

30


Comparison of Year Ended December 31, 2012 to Year Ended December 31, 2011
Our net loss available to First Industrial Realty Trust, Inc.’s common stockholders was $22.1 million and $27.0 million for the years ended December 31, 2012 and 2011, respectively. Basic and diluted net loss available to First Industrial Realty Trust, Inc.’s common stockholders was $0.24 per share and $0.34 per share for the years ended December 31, 2012 and 2011, respectively.
The tables below summarize our revenues, property expenses and depreciation and other amortization by various categories for the years ended December 31, 2012 and 2011. Same store properties are properties owned prior to January 1, 2011 and held as an operating property through December 31, 2012 and developments and redevelopments that were placed in service prior to January 1, 2011 or were substantially completed for the 12 months prior to January 1, 2011. Properties which are at least 75% occupied at acquisition are placed in service. Acquisitions that are less than 75% occupied at the date of acquisition, developments and redevelopments 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/redevelopment construction completion. Properties are moved from the same store classification to the redevelopment classification when capital expenditures for a project are estimated to exceed 25% of the undepreciated gross book value of the property. Acquired properties are properties that were acquired subsequent to December 31, 2010 and held as an operating property through December 31, 2012. Sold properties are properties that were sold subsequent to December 31, 2010. (Re)Developments and land are land parcels and developments and redevelopments that were not: a) substantially complete 12 months prior to January 1, 2011 or b) stabilized prior to January 1, 2011. Other revenues are derived from the operations of our maintenance company, fees earned from our Joint Ventures and other miscellaneous revenues. Other expenses are derived from the operations of our maintenance company and other miscellaneous regional expenses.
During the period between January 1, 2011 and December 31, 2012, two industrial properties previously classified within same store, comprising approximately 0.1 million square feet, are included in the redevelopment classification as of December 31, 2012. As of December 31, 2013, redevelopment activities for both properties are complete and are classified as in-service. These properties were moved back to the same store classification in 2013.
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, 2012 and 2011, the average occupancy rates of our same store properties were 87.5% and 86.3%, respectively.
 
2012
 
2011
 
$ Change
 
% Change
 
($ in 000’s)
REVENUES
 
 
 
 
 
 
 
Same Store Properties
$
319,845

 
$
313,411

 
$
6,434

 
2.1
 %
Acquired Properties
4,378

 
1,396

 
2,982

 
213.6
 %
Sold Properties
7,049

 
17,213

 
(10,164
)
 
(59.0
)%
(Re) Developments and Land, Not Included Above
1,521

 
673

 
848

 
126.0
 %
Other
3,181

 
2,054

 
1,127

 
54.9
 %
 
$
335,974

 
$
334,747

 
$
1,227

 
0.4
 %
Discontinued Operations
(21,649
)
 
(32,079
)
 
10,430

 
(32.5
)%
Total Revenues
$
314,325

 
$
302,668

 
$
11,657

 
3.9
 %
Revenues from same store properties increased $6.4 million primarily due to an increase in average occupancy and an increase in lease cancellation fees. Revenues from acquired properties increased $3.0 million due to the two industrial properties acquired subsequent to December 31, 2010 totaling approximately 1.1 million square feet of GLA. Revenues from sold properties decreased $10.2 million due to the 64 industrial properties sold subsequent to December 31, 2010 totaling approximately 7.1 million square feet of GLA. Revenues from (re)developments and land increased $0.8 million primarily due to an increase in occupancy. Other revenues increased $1.1 million primarily due to several one-time fees and the reversal of an allowance for deferred rent receivable related to certain tenants, partially offset by a decrease in fees earned from our Joint Ventures.

31


 
2012
 
2011
 
$ Change
 
% Change
 
($ in 000’s)
PROPERTY EXPENSES
 
 
 
 
 
 
 
Same Store Properties
$
94,549

 
$
98,650

 
$
(4,101
)
 
(4.2
)%
Acquired Properties
888

 
261

 
627

 
240.2
 %
Sold Properties
2,610

 
6,602

 
(3,992
)
 
(60.5
)%
(Re) Developments and Land, Not Included Above
1,255

 
696

 
559

 
80.3
 %
Other
9,484

 
8,019

 
1,465

 
18.3
 %
 
$
108,786

 
$
114,228

 
$
(5,442
)
 
(4.8
)%
Discontinued Operations
(8,879
)
 
(12,947
)
 
4,068

 
(31.4
)%
Total Property Expenses
$
99,907

 
$
101,281

 
$
(1,374
)
 
(1.4
)%
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 $4.1 million due primarily to a decrease in real estate tax expense resulting from an increase in refunds received relating to previous tax years and a decrease in repairs and maintenance expense resulting from lower snow removal costs incurred due to the mild 2012 winter. Property expenses from acquired properties increased $0.6 million due to properties acquired subsequent to December 31, 2010. Property expenses from sold properties decreased $4.0 million due to properties sold subsequent to December 31, 2010. Property expenses from (re)developments and land increased by $0.6 million due to an increase in real estate tax expense related to developments being placed in service. Other expenses increased by $1.5 million due to an increase in incentive compensation expense.
General and administrative expense increased $4.5 million, or 21.6%, during the year ended December 31, 2012 compared to the year ended December 31, 2011 due primarily to the acceleration of expense recorded during 2012 related to restricted stock held by the Company’s CEO in connection with the terms of his employment agreement that was entered into in December 2012. The increase was also due to an increase in incentive compensation expense and an increase in franchise tax expense due to the reversal of a state franchise tax reserve relating to the 1996-2001 tax years during the year ended December 31, 2011.
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 incurred $1.6 million in restructuring charges to provide for costs associated with the termination of a certain office lease ($1.2 million) and other costs ($0.4 million) associated with implementing our restructuring plan.
The impairment reversal included in continuing operations for the years ended December 31, 2012 and 2011 of $0.2 million and $8.9 million, respectively, is primarily comprised of a impairment reversal relating to certain industrial properties that no longer qualified for held for sale classification and land parcels that were either sold or no longer qualified for held for sale classification.
 
2012
 
2011
 
$ Change
 
% Change
 
($ in 000’s)
DEPRECIATION AND OTHER AMORTIZATION
 
 
 
 
 
 
 
Same Store Properties
$
116,719

 
$
116,949

 
$
(230
)
 
(0.2
)%
Acquired Properties
2,625

 
1,219

 
1,406

 
115.3
 %
Sold Properties
1,248

 
3,482

 
(2,234
)
 
(64.2
)%
(Re) Developments and Land, Not Included Above
840

 
673

 
167

 
24.8
 %
Corporate Furniture, Fixtures and Equipment
1,077

 
1,426

 
(349
)
 
(24.5
)%
 
$
122,509

 
$
123,749

 
$
(1,240
)
 
(1.0
)%
Discontinued Operations
(7,834
)
 
(8,505
)
 
671

 
(7.9
)%
Total Depreciation and Other Amortization
$
114,675

 
$
115,244

 
$
(569
)
 
(0.5
)%
Depreciation and other amortization for same store properties decreased $0.2 million primarily due to the accelerated depreciation and amortization taken during the year ended December 31, 2011 attributable to certain tenants who terminated their lease early, offset by an increase due to depreciation taken for properties that were classified as held for sale in 2011 but are no longer classified as held for sale in 2012. Depreciation and other amortization from acquired properties increased $1.4 million due to properties acquired subsequent to December 31, 2010. Depreciation and other amortization from sold properties decreased $2.2 million due to properties sold subsequent to December 31, 2010. Depreciation and other amortization for (re)

32


developments and land and other increased $0.2 million due to an increase in substantial completion of developments. Corporate furniture, fixtures and equipment depreciation expense decreased $0.3 million due to assets becoming fully depreciated.
Interest income decreased $1.0 million, or 26.7%, primarily due to a decrease in the weighted average interest rate for notes receivable for the year ended December 31, 2012 as compared to the year ended December 31, 2011.
Interest expense, inclusive of interest expense included in discontinued operations, decreased $16.7 million, or 16.7%, primarily due to a decrease in the weighted average debt balance outstanding for the year ended December 31, 2012 ($1,427.7 million) as compared to the year ended December 31, 2011 ($1,594.3 million), an increase in capitalized interest of $1.6 million for the year ended December 31, 2012 as compared to the year ended December 31, 2011 due to an increase in development activities and a decrease in the weighted average interest rate for the year ended December 31, 2012 (5.99%) as compared to the year ended December 31, 2011 (6.31%).
Amortization of deferred financing costs decreased $0.5 million, or 12.7%, due primarily to lower deferred financing costs due to the write-off of financing costs related to the repurchase and retirement of certain of our senior unsecured notes, the replacement of our previous credit facility with the Old Credit Facility in December 2011 and the early retirement of certain mortgage loans, partially offset by the costs associated with the origination of mortgage financings during 2012 and 2011.
We recorded $0.3 million in mark-to-market net loss, inclusive of $1.2 million in swap payments, for the year ended December 31, 2012, as compared to $1.7 million in mark-to-market loss, inclusive of $0.6 million in swap payments, for the year ended December 31, 2011.
For the year ended December 31, 2012, we recognized a net loss from retirement of debt of $9.7 million due to the partial repurchase of a certain series of our senior unsecured notes and early payoff of certain mortgage loans. 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 a portion of unamortized fees associated with the previous unsecured credit facility and a loss on a transfer of a property to a lender in satisfaction of a mortgage loan.
Foreign currency exchange loss of $0.3 million for the year ended December 31, 2011 relates to the substantial liquidation of operations in Canada.
Equity in income of joint ventures increased $0.6 million, or 59.1%, during the year ended December 31, 2012 as compared to the year ended December 31, 2011 primarily due to an increase in our pro rata share of gain on sale of real estate from the 2003 Net Lease Joint Venture.
For the years ended December 31, 2012 and 2011, gain on change in control of interests relates to the acquisition of the 85% equity interest in one property in each of those periods from the institutional investor in the 2003 Net Lease Joint Venture. For the years ended December 31, 2012 and 2011, we recognized $0.8 million gain and $0.7 million gain, respectively, which is the difference between our carrying value and fair value of our equity interest in each of the properties on the respective acquisition date.
Income tax provision (as allocated to continuing operations, discontinued operations and gain on sale of real estate, as applicable) increased $3.4 million, or 157.1%, during the year ended December 31, 2012 compared to the year ended December 31, 2011 due primarily to a one-time IRS audit adjustment on the 2009 liquidation of a former taxable REIT subsidiary, partially offset by a decrease in taxes related to the gain on sale of real estate in the new taxable REIT subsidiaries for the year ended December 31, 2012 as compared to the year ended December 31, 2011.

33


The following table summarizes certain information regarding the industrial properties included in discontinued operations for the years ended December 31, 2012 and 2011.
 
2012
 
2011
 
($ in 000’s)
Total Revenues
$
21,649

 
$
32,079

Property Expenses
(8,879
)
 
(12,947
)
Impairment of Real Estate
(1,438
)
 
(6,214
)
Depreciation and Amortization
(7,834
)
 
(8,505
)
Interest Expense

 
(63
)
Gain on Sale of Real Estate
12,665

 
20,419

Provision for Income Taxes

 
(1,246
)
Income from Discontinued Operations
$
16,163

 
$
23,523

Income from discontinued operations for the year ended December 31, 2012 reflects the results of operations and gain on sale of real estate relating to 28 industrial properties that were sold during the year ended December 31, 2012 and the results of operations of 67 industrial properties that were sold during the year ended December 31, 2013. The impairment loss for the year ended December 31, 2012 of $1.4 million relates to impairment charges recorded due to carrying values of certain properties exceeding the estimated fair values based upon third party purchase contracts for properties held for sale during 2012.
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, the results of operations of 67 industrial properties that were sold during the year ended December 31, 2013 and the results of operations of 28 industrial properties that were sold during the year ended December 31, 2012. The impairment loss for the year ended December 31, 2011 of $6.2 million relates to impairment charges recorded due to carrying values of certain properties exceeding the estimated fair values based upon third party purchase contracts for properties held for sale during 2011.
The $3.8 million and $1.4 million gain on sale of real estate for the years ended December 31, 2012 and 2011, respectively, resulted from the sale of one land parcel in each respective year that did not meet the criteria for inclusion in discontinued operations.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 2013, our cash and cash equivalents were approximately $7.6 million. We also had $452.0 million available for additional borrowings under our Unsecured Credit Facility.
We have considered our short-term (through December 31, 2014) liquidity needs and the adequacy of our estimated cash flow from operations and other expected liquidity sources to meet these needs. Our 2014 Notes, in the aggregate principal amount of $81.8 million, are due June 2, 2014. Also, we have $44.5 million in mortgage loans payable outstanding at December 31, 2013 that mature prior to December 31, 2014 or we anticipate prepaying during 2014. Additionally, as discussed in Subsequent Events, during the first quarter of 2014 we are redeeming all outstanding shares of the Series F Flexible Cumulative Redeemable Preferred Stock and Series G Flexible Cumulative Redeemable Preferred Stock, for an aggregate payment of $75.0 million plus all accumulated and unpaid distributions. We expect to satisfy these payment obligations prior to December 31, 2014 with borrowings under our Unsecured Credit Facility and the $200.0 million unsecured term loan that we entered into during January 2014 (see Subsequent Events). With the exception of these payment obligations, 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, preferred dividends, the minimum distributions required to maintain our REIT qualification under the Code and distributions approved by our Board of Directors. We anticipate that these needs will be met with cash flows provided by operating activities as well as the disposition of select assets. These needs may also be met by the issuance of additional equity securities or long-term unsecured indebtedness, subject to market conditions and contractual restrictions or borrowings under our Unsecured Credit Facility.
We expect to meet long-term (after December 31, 2014) 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.

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We also financed the development and 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, 2013, borrowings under our Unsecured Credit Facility bore interest at a weighted average interest rate of 1.666%. As of February 27, 2014, we had approximately $604.0 million available for additional borrowings under our Unsecured Credit Facility. 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, 2013, and we anticipate that we will be able to operate in compliance with our financial covenants in 2014.
Our senior unsecured notes have been assigned credit ratings from Standard & Poor’s, Moody’s and Fitch Ratings of BBB-/Ba2/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, 2013
Net cash provided by operating activities of approximately $125.8 million for the year ended December 31, 2013, was comprised primarily of the non-cash adjustments of approximately $98.3 million and net income of approximately $41.4 million, offset by the net change in operating assets and liabilities of approximately $8.9 million and payments of premiums, discounts and prepayment penalties associated with retirement of debt of approximately $5.0 million. The adjustments for the non-cash items of approximately $98.3 million are primarily comprised of depreciation and amortization of approximately $128.2 million, the loss from retirement of debt of approximately $6.6 million, the impairment of real estate of approximately $2.7 million and the provision for bad debt of approximately $0.7 million, offset by the gain on sale of real estate of approximately $35.4 million and the effect of the straight-lining of rental income of approximately $4.5 million.
Net cash used in investing activities of approximately $61.3 million for the year ended December 31, 2013, was comprised primarily of the acquisition of two industrial properties and several land parcels, the 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, repayments on our notes receivable, a decrease in escrows and contributions to, and investments in, our Joint Ventures.
During the year ended December 31, 2013, we acquired two industrial properties comprising approximately 1.1 million square feet of GLA and several land parcels. The purchase price of these acquisitions totaled approximately $73.6 million, including costs incurred in conjunction with the acquisition of the industrial properties and land parcels.
During the year ended December 31, 2013, we sold 67 industrial properties comprising approximately 3.0 million square feet of GLA and several land parcels. Proceeds from the sales of the 67 industrial properties and several land parcels, net of closing costs, were approximately $126.3 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 for sale in 2014.
Net cash used in financing activities of approximately $61.7 million for the year ended December 31, 2013, was comprised primarily of the redemption of our Series J Preferred Stock and Series K Preferred Stock, repayments on our senior unsecured notes and mortgage loans payable, common stock/unit and preferred stock dividends, payments of debt and equity issuance costs, the repurchase and retirement of restricted stock and payments on the interest rate swap agreement, offset by net proceeds from the issuance of common stock and net proceeds from our Unsecured Credit Facility.
During the year ended December 31, 2013, we paid off and retired prior to maturity mortgage loans in the amount of $72.3 million and we repurchased $29.8 million of our unsecured notes at an aggregate purchase price of $33.5 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, 2013, we redeemed the remaining 4,000,000 Depositary Shares of the Series J Preferred Stock for $25.00 per Depositary Share, or $100.0 million in the aggregate, and paid a prorated second quarter dividend of $0.055382 per Depositary Share, totaling approximately $0.2 million. Additionally, during the year ended December 31, 2013, we redeemed all of the 2,000,000 outstanding Depositary Shares of the Series K Preferred Stock for $25.00 per Depositary Share, or $50.0 million in the aggregate, and paid a pro-rated third quarter dividend of $0.090625 per Depositary Share, totaling approximately $0.2 million.
During the year ended December 31, 2013, we issued 8,400,000 shares of the Company's common stock through a public offering, resulting in proceeds, net of the underwriter's discount, of approximately $132.3 million. Additionally, during the year ended December 31, 2013, we issued 2,315,704 shares of the Company's common stock through the 2012 ATM, resulting in net proceeds of approximately $41.7 million.

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Contractual Obligations and Commitments
The following table lists our contractual obligations and commitments as of December 31, 2013:
 
 
 
Payments Due by Period
(In thousands)
 
Total
Less Than
1 Year
 
1-3 Years
 
3-5 Years
 
Over 5 Years
Operating and Ground Leases(1)(2)
$
33,076

 
$
1,824

 
$
3,333

 
$
2,802

 
$
25,117

Real Estate Development Costs(1)(3)
23,900

 
23,900

 

 

 

Long Term Debt
1,297,671

 
113,321

 
310,380

 
510,064

 
363,906

Interest Expense on Long Term Debt(1)(4)
293,982

 
62,885

 
100,589

 
60,936

 
69,572

Total
$
1,648,629

 
$
201,930

 
$
414,302

 
$
573,802

 
$
458,595

_______________
(1)
Not on balance sheet.
(2)
Operating lease minimum rental payments have not been reduced by minimum sublease rentals of $6.8 million due in the future under non-cancelable subleases.
(3)
Represents estimated remaining costs on the completion of development projects.
(4)
Does not include interest expense on our Unsecured Credit Facility.

Off-Balance Sheet Arrangements
At December 31, 2013, we had a letter of credit and several performance bonds outstanding, amounting to $8.1 million in the aggregate. The letter 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 $0.6 million and $0.4 million in 2013 and 2012, respectively, related to environmental expenditures. We estimate 2014 expenditures of approximately $0.8 million. We estimate that the aggregate expenditures which need to be expended in 2014 and beyond with regard to currently identified environmental issues will not exceed approximately $2.3 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 have lease terms of 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, 2013 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, 2013, $1,123.8 million (86.7% of total debt at December 31, 2013) of our debt was fixed rate debt and $173.0 million (13.3% of total debt at December 31, 2013) of our debt was variable rate debt. At December 31, 2012,

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$1,237.8 million (92.7% of total debt at December 31, 2012) of our debt was fixed rate debt and $98.0 million (7.3% of total debt at December 31, 2012) of our debt 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.
Based upon the amount of variable rate debt outstanding at December 31, 2013 and 2012, 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 $0.3 million and $0.2 million per year, respectively. 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, 2013. Changes in LIBOR could result in a greater than 10% increase to such rates. In addition, the calculation does not account for 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, 2013 and 2012 by approximately $20.2 million to $1,147.5 million and by approximately $25.0 million to $1,306.8 million, respectively. A 10% decrease in interest rates would increase the fair value of the fixed rate debt at December 31, 2013 and 2012 by approximately $21.0 million to $1,188.7 million and by approximately $25.9 million to $1,357.8 million, respectively.
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. There were no derivatives outstanding as of December 31, 2013 (see Subsequent Events).

Foreign Currency Exchange Rate Risk
Owning 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, 2013, 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.
IRS Tax Refund
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 former taxable REIT subsidiaries. On November 6, 2009, legislation was signed that allowed 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 $40.4 million in the fourth quarter of 2009 (the "Refund") in connection with this tax liquidation. The IRS examination team, which is required by statute to review all refund claims in excess of $2.0 million on behalf of the Joint Committee on Taxation, indicated to us that it disagreed with certain of the property valuations we obtained from an independent valuation expert in support of our fair value of the liquidated taxable REIT subsidiary and our claim for the Refund. During the year ended December 31, 2012, we reached an agreement with the regional office of the IRS on a proposed adjustment to the Refund. The total agreed-upon adjustment to taxable income was $13.7 million, which equates to $4.8 million of taxes owed. We were also required to pay accrued interest of approximately $0.5 million. During the year ended December 31, 2012, the Company recorded the charge for the agreed-upon adjustment and the related estimated accrued interest which was reflected as a component of income tax expense. During the year ended December 31, 2013, the settlement amount was approved by the Joint Committee on Taxation and we paid the agreed upon taxes and related accrued interest.
As a result of the Joint Committee on Taxation's approval, during 2013 we entered into closing agreements with the IRS that determined the timing of the settlement on the tax characterization of the limited partners of the Operating Partnership and the stockholders of the Company. Pursuant to these closing agreements, $8.2 million of the preferred stock distributions for the year ended December 31, 2012 are taxable as capital gain.

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Supplemental Earnings Measure
Investors in and industry analysts following the real estate industry utilize funds from operations ("FFO") and net operating income ("NOI") as supplemental operating performance measures of an equity REIT. Historical cost accounting for real estate assets i