10-K 1 fr-20141231x10k.htm 10-K FR-2014.12.31-10K
 
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, 2014
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 $2,041.5 million based on the closing price on the New York Stock Exchange for such stock on June 30, 2014.
At February 24, 2015, 110,717,829 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 may contain 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 for such statements to be covered by the safe harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. Forward-looking statements are based on certain assumptions and describe future plans, strategies and expectations of the Company. Although we believe the expectations reflected in forward-looking statements are based upon reasonable assumptions, we can give no assurance that our expectations will be attained or that results will not materially differ. 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; 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) in the Company’s current and potential market areas; difficulties in identifying and consummating acquisitions and dispositions; our ability to manage the integration of properties we acquire; risks related to our investments in properties through joint ventures; environmental liabilities; delays 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; and those additional factors described in Item 1A, "Risk Factors" and elsewhere in this report and in the Company's other Exchange Act reports. We caution you not to place undue reliance on forward-looking statements, which reflect our outlook only and speak only as of the date of this report. 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, 2014, our in-service portfolio consisted of 285 light industrial properties, 90 R&D/flex properties, 160 bulk warehouse properties and 99 regional warehouse properties containing approximately 62.4 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 undepreciated gross book basis of the property) 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 First Industrial Realty Trust, Inc is the sole general partner with an approximate 96.2% and 96.0% ownership interest at December 31, 2014 and 2013, respectively, and through its taxable REIT subsidiaries. We also conduct operations through other partnerships (the "Other Real Estate 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. First Industrial Realty Trust, Inc. does not have any significant assets or liabilities other than its investment in the Operating Partnership and its 100% ownership interest in the general partners of the Other Real Estate Partnerships.
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"). At December 31, 2014, the 2003 Net Lease Joint Venture owned one industrial property comprising approximately 0.8 million square feet of GLA and the 2007 Europe Joint Venture did not own any properties. 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.
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 December 31, 2014, we had 173 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 Securities and Exchange Commission (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 may 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. As of February 24, 2015, we had approximately $418.0 million available for additional borrowings under the Unsecured Credit Facility.

5


Recent Developments
During the year ended December 31, 2014, we acquired eight industrial properties comprising approximately 1.1 million square feet of GLA and several land parcels for an aggregate purchase price of approximately $95.7 million, excluding costs incurred in conjunction with the acquisitions. Additionally, we placed in-service five developments totaling approximately 1.6 million square feet of GLA for a total cost of approximately $115.2 million. We also sold 29 industrial properties comprising approximately 2.0 million square feet of GLA and several land parcels for total gross sales proceeds of $102.6 million. At December 31, 2014, we owned 634 in-service industrial properties containing approximately 62.4 million square feet of GLA.
During the year ended December 31, 2014, we entered into a seven-year, $200.0 million unsecured loan (the "Unsecured Term Loan") with a syndicate of financial institutions. The Unsecured Term Loan requires interest only payments and bears interest at a variable rate based on LIBOR, as defined in the loan agreement, plus a specified spread based on our leverage ratio or credit ratings. We also entered into four interest rate protection agreements, with an aggregate notional value of $200.0 million, to effectively convert the variable rate to a fixed rate.
During the year ended December 31, 2014, we paid off and retired our 6.420% Notes due 2014 (the "2014 Notes"), at maturity, in the amount of $81.8 million and paid off and retired prior to maturity mortgage loans payable in the amount of $65.6 million. We recognized a loss from retirement of debt on our Consolidated Statement of Operations of $0.7 million.
During the year ended December 31, 2014, we redeemed all 50,000 Depositary Shares, each representing 1/100th of a share of our Series F Flexible Cumulative Redeemable Preferred Stock, $0.01 par value (the "Series F Preferred Stock"), at a redemption price of $1,000.00 per Depositary Share. We also redeemed all 25,000 Depositary Shares, each representing 1/100th of a share of our 7.236% Series G Flexible Cumulative Redeemable Preferred Stock, $0.01 par value (the "Series G Preferred Stock"), at a redemption price of $1,000.00 per Depositary Share.
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.
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. Accordingly, the competition we face to lease our existing properties and acquire new properties varies with the level of economic output.

6


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 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 volatility in or disruption of the capital markets 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 or to borrow money under our Unsecured Credit Facility were to be impaired by volatility in or disruption of the capital markets, it could have a material adverse effect on our liquidity and financial condition.
In addition, price volatility in the capital and credit markets 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 fluctuate in value depending on conditions in the general economy and the real estate industry. These conditions may limit our 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;
increasing labor and material costs;
the ability to collect on a timely basis all rents from tenants;
changes in tenant operations, real estate needs and credit;
changes in interest rates and in the availability, cost and terms of mortgage funding;
zoning or other regulatory restrictions;
competition from other available real estate;
operating costs, including maintenance, insurance premiums and real estate taxes; and
other factors that are beyond our control.
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 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. These factors may be amplified by a disruption of financial markets.

7


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 property, such as real estate taxes and maintenance costs, generally are not reduced when circumstances cause a reduction in income from the property.
We may be unable to acquire properties on advantageous terms or acquisitions may not perform as we expect.
We have routinely acquired properties from third parties as conditions warrant and, as part of our business, we intend to continue to do so. The acquisition of properties entails various risks, including 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 and purchase prices may increase. In addition, we expect to finance future acquisitions through a combination of borrowings under the Unsecured Credit Facility, proceeds from equity or debt offerings and debt originations by the Company and proceeds from property sales, which may not be available and which could adversely affect our cash flow. Any of the above risks could adversely affect our financial condition, results of operations, cash flow and ability to pay dividends on, and the market value of, our common stock.
We may obtain only limited warranties when we purchase a property and would have only limited recourse in the event our due diligence did not identify any issues that lower the value of our property.
The seller of a property often sells such property in its "as is" condition on a "where is" basis and "with all faults," without any warranties of merchantability or fitness for a particular use or purpose. In addition, purchase agreements may contain only limited warranties, representations and indemnifications that will only survive for a limited period after the closing. The purchase of properties with limited warranties increases the risk that we may lose some or all of our invested capital in the property as well as the loss of rental income from that property.

We 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 could limit our ability to adjust our property portfolio in response to changes in economic conditions or in the performance of the portfolio. This could adversely affect our financial condition and our ability to service debt and make distributions to our stockholders. In addition, like other companies qualifying as REITs under the Code, our ability to sell assets may be restricted by tax laws that potentially result in punitive taxation on asset sales that fail to meet certain safe harbor rules or other criteria established under case law.
We may be unable to sell properties on advantageous terms.
We have routinely sold properties to third parties as conditions warrant and, as part of our business, we intend to continue to do so. However, 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. If we are unable to sell properties on favorable terms or to redeploy the proceeds 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. Further, if we sell properties by providing financing to purchasers, defaults by the purchasers would adversely affect our operations and financial condition.

8


We may be unable to complete development and re-development projects on advantageous terms.
As part of our business, we develop new properties and re-develop existing properties as conditions warrant. This part of our business involves significant risks, including the following:
we may not be able to obtain financing for these projects on favorable terms;
we may not complete construction on schedule or within budget;
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;
contractor and subcontractor disputes, strikes, labor disputes or supply chain disruptions may occur; and
properties may perform below anticipated levels, producing cash flow below budgeted amounts, which may result in us paying too much for a property, cause the property to not be profitable and limit our ability to sell such properties to third parties.
To the extent these risks result in increased debt service expense, construction costs and delays in budgeted leasing, they 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.
We 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 the expiring lease terms. If we were unable to promptly renew a significant number of expiring leases or to promptly relet the spaces 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.

We might fail to qualify as a REIT under existing laws and/or federal income tax laws could change.
We intend to operate so as to qualify as a REIT under the Code, and we believe that we are organized and will operate in a manner that allows us to continue to do so. However, 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. There are only limited judicial and administrative interpretations of these provisions, and they 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 at corporate rates, including any applicable alternative minimum tax. This could result in a discontinuation or substantial reduction in dividends to stockholders and could reduce the cash available 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. Additionally, since the Internal Revenue Service ("IRS"), the United States Treasury Department and Congress frequently review federal income tax legislation, we cannot predict whether, when or to what extent new federal laws, regulations, interpretations or rulings will be adopted. Any such legislative action may prospectively or retroactively modify our tax treatment and therefore, may adversely affect taxation of us and/or our stockholders.
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 tax gain recognized 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 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 our 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.

9


The REIT distribution requirements may limit our ability to retain capital and require us to turn to external financing sources.
As a REIT, we must distribute to our stockholders at least 90% of our taxable income each year. We could, in certain instances, have taxable income without sufficient cash to enable us to meet this requirement. In that situation, we could be required to borrow funds or sell properties on adverse terms in order to do so. The distribution requirement could also limit our ability to accumulate capital 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.
Failure to hedge effectively against interest rate changes may adversely affect our results of operations.
Subject to maintaining our qualification as a REIT, we may seek to manage our exposure to interest rate volatility by using interest rate hedging arrangements, such as interest cap agreements and interest rate swap agreements. These agreements may fail to protect or could adversely affect us because, among other things:
interest rate hedging can be expensive, particularly during periods of rising and volatile interest rates;
available interest rate hedges may not correspond directly with the interest rate risk for which protection is sought;
the duration of the hedge may not match the duration of the related liability;
the amount of income that a REIT may earn from hedging transactions (other than through taxable REIT subsidiaries) is limited by U.S. federal tax provisions governing REITs;
the credit quality of the party owing money on the hedge may be downgraded to such an extent that it impairs our ability to sell or assign our side of the hedging transaction;
the party owing money in the hedging transaction may default on its obligation to pay;
we could incur significant costs associated with the settlement of the agreements;
the underlying transactions could fail to qualify as highly-effective cash flow hedges under generally accepted accounting practices; and
a court could rule that such an agreement is not legally enforceable.
We have adopted a practice relating to the use of derivative financial instruments to hedge interest rate risks related to our borrowings. This practice requires our Board of Directors to authorize our use of derivative financial instruments to manage the interest rates on our variable rate borrowings. Our practice is that we do not use derivatives for speculative or trading purposes and intend only to enter into contracts with major financial institutions based on their credit rating and other factors, but our Board of Directors may choose to change these practices in the future. Hedging may reduce the overall returns on our investments, which could reduce our cash available for distribution to our stockholders. Failure to hedge effectively against interest rate changes may materially adversely affect our financial condition, results of operations and cash flow.
Debt financing, the degree of leverage and rising interest rates could reduce our cash flow.
We use debt to increase the rate of return to our stockholders 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. Our organizational documents do not contain any limitation on the amount or percentage of indebtedness we may incur.
Failure to comply with covenants in our debt agreements could adversely affect our financial condition.
The terms of our agreements governing our indebtedness require that we comply with a number of financial and other covenants, such as maintaining debt service coverage and leverage ratios and maintaining insurance coverage. Complying with such covenants may limit our operational flexibility. Our failure to comply with these covenants could cause a default under the applicable debt agreement even if we have satisfied our payment obligations. Consistent with our prior practice, we will 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. Our ability to meet our financial covenants may be adversely affected if economic and credit market conditions limit our ability to reduce our debt

10


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 that 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 indebtedness, together with accrued and unpaid interest and fees, could be accelerated and declared to be immediately due and payable. Furthermore, our Unsecured Credit Facility, our Unsecured Term Loan and the indentures governing our senior unsecured notes contain certain cross-default provisions that may be triggered in the event that our other material indebtedness is in default. These cross-default provisions may require us to repay or restructure our Unsecured Credit Facility, our Unsecured Term Loan or our senior unsecured notes, depending on which is in default, and such restructuring 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 indebtedness is accelerated, we cannot provide assurance that we would be able to borrow sufficient funds to refinance such indebtedness or that we would be able to sell sufficient assets to repay such indebtedness. Even if we were 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 a significant portion of our properties if we are unable to service its indebtedness.
Certain of our mortgages were issued on a cross-collateralized basis. Cross-collateralization makes all of the subject properties available to the lender in order to satisfy the debt. To the extent indebtedness is cross-collateralized, lenders may seek to foreclose upon properties that do not comprise the primary collateral for a loan, which may, in turn, result in acceleration of other indebtedness collateralized by such 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.
We may have to make lump-sum payments on its existing indebtedness.
We are required to make lump-sum or "balloon" payments under the terms of some of our indebtedness. Our ability to make required payments of principal on outstanding indebtedness, whether at maturity or otherwise, may depend on our ability to refinance the applicable indebtedness or to sell properties. Currently, we have no commitments to refinance any of our indebtedness.
Our mortgages may impact our ability to sell encumbered properties on advantageous terms or at all.
Certain of our mortgages contain, and some future mortgages may contain, substantial prepayment premiums that 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. 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 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. As a result, we may be required to recognize asset impairment, which could materially and adversely affect our business, financial condition and results of operations. 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.

11


Earnings and cash dividends, asset value and market interest rates affect the price of our common stock.
The market value of our common stock is based in large part upon the market’s perception of the growth potential of our earnings and cash dividends. The market value of our common stock is also based upon the 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.

We may become subject to litigation, which could have a material and adverse effect on our financial condition, results of operations and cash flow.
We may become subject to litigation, including claims relating to our operations, offerings, and otherwise in the ordinary course of business. Some of these claims may result in significant defense costs and potentially significant judgments against us, some of which are not, or cannot be, insured against. Resolution of these types of matters could adversely impact our financial condition, results of operations and cash flow. Certain litigation or the resolution of certain litigation may affect the availability or cost of some of our insurance coverage, which could adversely impact our results of operations and cash flows, expose us to increased risks that would be uninsured, and/or adversely impact our ability to attract officers and directors.
We may incur unanticipated costs and liabilities due to environmental problems.
Under various federal, state and local laws, ordinances and regulations, we, as 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 our ability to rent or sell a property or to borrow using a property as collateral. The disposal or treatment of or arrangement for the disposal or treatment of hazardous or toxic materials may cause us to also be liable for the costs of clean-up of such materials or for related natural resource damages occurring at or emanating from an off-site disposal or treatment facility, whether or not the facility is owned or operated by us. 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 our 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 regulations to address, among other things, climate change, could increase the scope of our potential liabilities.
Our insurance coverage does not include all potential losses.

Real property is subject to casualty risk including damage, destruction, or loss resulting from events that are unusual, sudden and unexpected. Some of our properties are located in areas where casualty risk is higher due to earthquake, wind and/or flood risk. We carry comprehensive insurance coverage to mitigate our casualty risk, in amounts and of a kind that we believe are appropriate for the markets where each of our properties and their business operations are located. Among other coverage, we carry property, boiler & machinery, liability, fire, flood, terrorism, earthquake, extended coverage and rental insurance. Our coverage includes policy specifications and limits customarily carried for similar properties and business activities.  We evaluate our level of insurance coverage and deductibles using analysis and modeling, as is customary in our industry. However, we do not insure against all types of casualty, and we may not fully insure against those casualty types where we do have insurance, either because coverage is not available or because we do not deem it to be economically feasible or prudent to do so. As a result, we could experience a significant loss of capital or revenues, and be exposed to obligations under recourse debt associated with a property. This could occur if an uninsured loss occurs, a loss in excess of insured limits occurs, or a loss is not paid due to insurer insolvency.

12


We could be subject to risks and liabilities in connection with joint venture arrangements.
Our organizational documents do not limit the amount of available funds that we may invest in joint ventures and we may selectively develop and acquire properties through joint ventures with other persons or entities when we deem such transactions are 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 REIT;
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.
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.
We may incur significant costs complying with various federal, state and local laws, regulations and covenants that are applicable to our properties and, in particular costs associated with complying with regulations such as the Americans with Disabilities Act of 1990 (the "ADA") may result in unanticipated expenses.
The properties in our portfolio are subject to various covenants and U.S. federal, state and local laws and regulatory requirements, including permitting and licensing requirements. Local regulations, including municipal or local ordinances, zoning restrictions and restrictive covenants imposed by community developers may restrict our use of our properties and may require us to obtain approval from local officials or restrict our use of our properties and may require us to obtain approval from local officials of community standards organizations at any time with respect to our properties, including prior to acquiring a property or when undertaking renovations of any of our existing properties. Among other things, these restrictions may relate to fire and safety, seismic or hazardous material abatement requirements. There can be no assurance that existing laws and regulatory policies will not adversely affect us or the timing or cost of any future acquisitions or renovations, or that additional regulation will not be adopted that increase such delays or result in additional costs. Our growth strategy may be affected by our ability to obtain permits, licenses and zoning relief. Our failure to obtain such permits, licenses and zoning relief or to comply with applicable laws could have an adverse effect on our financial condition, results of operations and cash flow.
In addition, under the ADA, all places of public accommodation are required to meet certain U.S. federal requirements related to access and use by disabled persons. Noncompliance with the ADA could result in an order to correct any non-complying feature, which could result in substantial capital expenditures. We do not conduct audits or investigations of all of these properties to determine their compliance and we cannot predict the ultimate cost of compliance with the ADA, or other legislation. If one or more of our properties in which we invest is not in compliance with the ADA, or other legislation, then we would be required to incur additional costs to bring the property into compliance. If we incur substantial costs to comply with the ADA or other legislation, our financial condition, results of operations, cash flow, price per share of our common stock and our ability to satisfy debt service obligations and to pay distributions could be adversely affected.
Terrorist attacks and other acts of violence or war may affect the market for our common stock, the industry in which we conduct our operations and our profitability.
Terrorist attacks may harm our results of operations and financial condition. We cannot assure you that there will not be terrorist attacks in the localities in which we conduct business. More generally, any of these events could cause consumer confidence and spending to decrease or result in increased volatility in the worldwide financial markets and economy. These attacks or armed conflicts may adversely impact our operations or financial condition. In addition, losses resulting from these types of events may be uninsurable.

13


We face risks relating to cybersecurity attacks that could cause loss of confidential information and other business disruptions.
We rely extensively on computer systems to manage our business, and our business is at risk from and may be impacted by cybersecurity attacks. These could include attempts to gain unauthorized access to our data and computer systems. Attacks can be both individual and/or highly organized attempts organized by very sophisticated hacking organizations. We employ a number of measures to prevent, detect and mitigate these threats, which include password protection, frequent password change events, firewall detection systems, frequent backups, a redundant data system for core applications and annual penetration testing; however, there is no guarantee such efforts will be successful in preventing a cyber-attack. A cybersecurity attack could compromise the confidential information of our employees, tenants and vendors. A successful attack could disrupt and affect the business operations.
Adverse changes in our credit ratings could negatively affect our liquidity and business operations.
The credit ratings of our senior unsecured notes are based on our 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 may be unable to access certain or any capital markets.
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 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.
We are authorized to issue preferred stock. The issuance of preferred stock could adversely affect the holders of our common stock issued pursuant to our public offerings.
Our declaration of trust authorizes us to issue 150,000,000 shares, of which 10,000,000 shares are designated as preferred stock. Subject to approval by our Board of Directors, we may issue preferred stock with rights, preferences and privileges that are more beneficial than the rights, preferences and privileges of our common stock. Holders of our common stock do not have preemptive rights to acquire any shares issued by us in the future. If we ever create and issue preferred stock with a distribution preference over common stock, payment of any distribution preferences on outstanding preferred stock would reduce the amount of funds available for the payment of distributions on our common stock. In addition, holders of preferred stock are normally entitled to receive a preference payment in the event we liquidate, dissolve or wind up before any payment is made to our common stockholders, thereby reducing the amount a common stockholder might otherwise receive upon such an occurrence. Also, under certain circumstances, the issuance of preferred stock may have the effect of delaying or preventing a change in control of our company.
Our Board of Directors may change our strategies, policies or procedures without stockholder approval, which may subject us to different and more significant risks in the future.
Our investment, financing, leverage and distribution policies and our policies with respect to all other activities, including growth, debt, capitalization and operations, are determined by our Board of Directors. These policies may be amended or revised at any time and from time to time at the discretion of our Board of Directors without notice to or a vote of our stockholders. This could result in us conducting operational matters, making investments or pursuing different business or growth strategies. Under these circumstances, we may expose ourselves to different and more significant risks in the future, which could have a material adverse effect on our business and growth. In addition, our Board of Directors may change our governance policies provided that such changes are consistent with applicable legal requirements. A change in these policies could have an adverse effect on our financial condition, results of operations, cash flow, per share trading price of our common stock and ability to satisfy our principal and interest obligations and to make distributions to our stockholders.

14


We may be unable to retain and attract key management personnel.
We may be unable to retain and attract talented executives. In the event of the loss of key management personnel or upon unexpected death, disability or retirement, we may not be able to find replacements with comparable skill, ability and industry expertise. Until suitable replacements are identified and retained, if at all, our operating results and financial condition could be materially and adversely affected.

Item  1B.
Unresolved SEC Comments
None.
Item  2.
Properties
General
At December 31, 2014, we owned 634 in-service industrial properties containing an aggregate of approximately 62.4 million square feet of GLA in 25 states, with a diverse base of approximately 1,800 tenants engaged in a wide variety of businesses, including manufacturing, retail, wholesale trade, distribution and professional services. The average annual base rent per square foot on a portfolio basis, calculated at December 31, 2014, was $4.64. 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 and are comprised of 5%-50% of office space;
R&D/flex buildings are of less than 100,000 square feet, have a ceiling height of less than 16 feet and are comprised of 50% or more of office space;
Bulk warehouse buildings are of more than 100,000 square feet, have a ceiling height of at least 22 feet and are comprised of 5%-15% of office space; and
Regional warehouses are of less than 100,000 square feet, have a ceiling height of at least 22 feet and are comprised of 5%-15% of office space.

15


The following tables summarize, by market, certain information as of December 31, 2014, with respect to the in-service properties.
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

 
137,004

 
3

 
3,820,667

 
14

 
923,807

 
7

 
5,504,422

 
35

Baltimore, MD
453,398

 
8

 
198,229

 
6

 
586,647

 
3

 
96,000

 
1

 
1,334,274

 
18

Central PA
297,790

 
6

 

 

 
4,832,102

 
10

 
381,719

 
4

 
5,511,611

 
20

Chicago, IL
629,597

 
9

 
197,997

 
3

 
4,233,468

 
15

 
478,111

 
6

 
5,539,173

 
33

Cincinnati, OH
278,000

 
5

 
100,000

 
2

 
416,250

 
2

 
763,069

 
5

 
1,557,319

 
14

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
1,147,393

 
26

 
369,949

 
10

 
397,495

 
3

 
756,685

 
7

 
2,671,522

 
46

Detroit, MI
2,097,715

 
74

 
160,163

 
5

 
658,927

 
5

 
550,089

 
13

 
3,466,894

 
97

Houston, TX
470,101

 
8

 
132,997

 
6

 
2,457,546

 
11

 
355,793

 
5

 
3,416,437

 
30

Indianapolis, IN
583,100

 
13

 
25,000

 
2

 
2,176,994

 
7

 
503,512

 
6

 
3,288,606

 
28

Miami, FL
81,791

 
1

 

 

 
142,804

 
1

 
281,626

 
6

 
506,221

 
8

Milwaukee, WI
276,126

 
5

 
55,940

 
1

 
1,126,929

 
6

 
90,089

 
1

 
1,549,084

 
13

Minneapolis/St. Paul, MN
969,796

 
14

 
265,565

 
3

 
3,424,963

 
15

 
297,960

 
4

 
4,958,284

 
36

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

 

 

 
690,599

 
2

 
330,334

 
4

 
1,207,574

 
12

Phoenix, AZ
38,560

 
1

 

 

 
833,451

 
6

 
388,070

 
6

 
1,260,081

 
13

Salt Lake City, UT
190,620

 
6

 
146,937

 
6

 
279,179

 
1

 
122,900

 
1

 
739,636

 
14

Seattle, WA

 

 

 

 
100,611

 
1

 
126,803

 
2

 
227,414

 
3

Southern California(a)
772,878

 
21

 
88,064

 
1

 
2,852,620

 
11

 
682,572

 
11

 
4,396,134

 
44

Southern New Jersey
115,626

 
2

 
45,054

 
1

 
172,100

 
1

 
191,329

 
2

 
524,109

 
6

St. Louis, MO
503,132

 
8

 
191,923

 
2

 
1,741,695

 
7

 

 

 
2,436,750

 
17

Tampa, FL
212,901

 
6

 
654,748

 
27

 
209,500

 
1

 

 

 
1,077,149

 
34

Other(b)
201,997

 
5

 

 

 
2,096,108

 
8

 
88,498

 
1

 
2,386,603

 
14

Total
13,040,068

 
285

 
3,150,420

 
90

 
38,295,650

 
160

 
7,910,839

 
99

 
62,396,977

 
634

Occupancy by Industrial Building Type
 
 
92
%
 
 
 
86
%
 
 
 
96
%
 
 
 
95
%
 
 
 
94
%
_______________
(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.


16


In-Service Property Summary Totals
Metropolitan Area
 
GLA
 
Number of
Properties
 
Average
Occupancy
at 12/31/14
 
GLA as
a  %
of Total
Portfolio
 
Encumbrances
at 12/31/14
(In 000s)(c)
Atlanta, GA
 
5,504,422

 
35

 
88
%
 
8.8
%
 
$
24,481

Baltimore, MD
 
1,334,274

 
18

 
86
%
 
2.1
%
 
2,348

Central PA
 
5,511,611

 
20

 
99
%
 
8.8
%
 
52,016

Chicago, IL
 
5,539,173

 
33

 
97
%
 
8.9
%
 
46,560

Cincinnati, OH
 
1,557,319

 
14

 
95
%
 
2.5
%
 
13,461

Cleveland, OH
 
1,317,799

 
7

 
100
%
 
2.1
%
 
28,484

Dallas, TX
 
4,855,698

 
67

 
95
%
 
7.8
%
 
55,499

Denver, CO
 
2,671,522

 
46

 
95
%
 
4.3
%
 
23,774

Detroit, MI
 
3,466,894

 
97

 
96
%
 
5.6
%
 

Houston, TX
 
3,416,437

 
30

 
97
%
 
5.5
%
 
47,991

Indianapolis, IN
 
3,288,606

 
28

 
94
%
 
5.3
%
 
19,841

Miami, FL
 
506,221

 
8

 
99
%
 
0.8
%
 

Milwaukee, WI
 
1,549,084

 
13

 
99
%
 
2.5
%
 
17,484

Minneapolis/St. Paul, MN
 
4,958,284

 
36

 
87
%
 
7.9
%
 
75,496

Nashville, TN
 
1,413,140

 
7

 
99
%
 
2.3
%
 
27,464

Northern New Jersey
 
1,251,043

 
18

 
93
%
 
2.0
%
 
3,283

Philadelphia, PA
 
1,207,574

 
12

 
92
%
 
1.9
%
 
22,513

Phoenix, AZ
 
1,260,081

 
13

 
95
%
 
2.0
%
 
21,605

Salt Lake City, UT
 
739,636

 
14

 
91
%
 
1.2
%
 
6,983

Seattle, WA
 
227,414

 
3

 
100
%
 
0.4
%
 
4,604

Southern California(a)
 
4,396,134

 
44

 
98
%
 
7.1
%
 
73,683

Southern New Jersey
 
524,109

 
6

 
82
%
 
0.8
%
 

St. Louis, MO
 
2,436,750

 
17

 
91
%
 
3.9
%
 
17,636

Tampa, FL
 
1,077,149

 
34

 
89
%
 
1.7
%
 

Other(b)
 
2,386,603

 
14

 
99
%
 
3.8
%
 
14,779

Total or Average
 
62,396,977

 
634

 
94
%
 
100
%
 
$
599,985

_______________
(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, 2014. 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.


17


Property Acquisitions
During the year ended December 31, 2014, we acquired eight industrial properties and several land parcels for an aggregate purchase price of approximately $95.7 million. The industrial properties were acquired at a capitalization rate of approximately 6.6%. The capitalization rate for these industrial property acquisitions was calculated using the estimated stabilized net operating income (excluding straight-line rent, lease inducement amortization and above and below market lease amortization) and dividing it by the sum of the purchase price plus estimated costs incurred to stabilize the properties. The acquired industrial properties have the following characteristics: 
Metropolitan Area
 
Number  of
Properties
 
GLA
 
Property Type
 
Occupancy
at  12/31/14
Chicago, IL
 
1

 
53,260

 
Regional Warehouse
 
100
%
Minneapolis/St. Paul, MN
 
2

 
451,968

 
Bulk Warehouse
 
100
%
Phoenix, AZ
 
3

 
220,324

 
Bulk Warehouse/Regional Warehouse
 
71
%
Southern California
 
2

 
358,792

 
Bulk Warehouse
 
100
%
 
 
8

 
1,084,344

 
 
 
 

Development Activity
During the year ended December 31, 2014, we placed in-service five developments totaling approximately 1.6 million square feet of GLA at a total cost of approximately $115.2 million. Included in total costs is $3.1 million incurred on leasing commissions. The capitalization rate for these developments, calculated using the estimated stabilized net operating income (excluding straight-line rent, lease inducement amortization and above and below market lease amortization) divided by the total investment in the developed properties is 6.9%. The placed in-service developments have the following characteristics:
Developments Placed In Service - Metropolitan Area
 
GLA
 
Property Type
 
Occupancy
at  12/31/14
Central PA
 
708,000

 
Bulk Warehouse
 
100
%
Chicago, IL
 
250,243

 
Bulk Warehouse Expansion
 
100
%
Minneapolis/St. Paul, MN

 
96,787

 
Regional Warehouse
 
100
%
Southern California
 
489,038

 
Bulk Warehouse
 
100
%
Southern California
 
43,485

 
Regional Warehouse
 
100
%
 
 
1,587,553

 
 
 
 

18


As of December 31, 2014, we substantially completed three industrial properties totaling approximately 1.0 million square feet of GLA and have four industrial properties that are under construction totaling approximately 1.3 million square feet of GLA. The estimated total costs for the three development properties that are substantially complete are approximately $62.0 million, of which $53.9 has been incurred as of December 31, 2014. The estimated total investment for the four development properties under construction is $79.0 million, of which $28.4 million has been incurred as of December 31, 2014. 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:
Developments Completed - Not In Service - Metropolitan Area
 
GLA
 
Property Type
 
Quarter of Building Completion
Southern California
 
555,670

 
Bulk Warehouse
 
Q2 2014
Houston, TX
 
350,820

 
Bulk Warehouse
 
Q4 2014
Minneapolis/St. Paul, MN
 
142,290

 
Bulk Warehouse
 
Q4 2014
 
 
1,048,780

 
 
 
 
Developments In Process - Metropolitan Area
 
GLA
 
Property Type
 
Anticipated Quarter of Building Completion
Dallas, TX (a)
 
598,445

 
Bulk Warehouse
 
Q1/Q2 2015
Dallas, TX
 
153,000

 
Bulk Warehouse
 
Q2 2015
Philadelphia, PA (b)

 
584,760

 
Bulk Warehouse
 
Q4 2015
 
 
1,336,205

 
 
 
 
_______________
(a) Project includes the development of two buildings (376,601 square feet and 221,844 square feet).
(b) Project includes the development of two buildings (341,400 square feet and 243,360 square feet).
Property Sales
During the year ended December 31, 2014, we sold 29 industrial properties comprising approximately 2.0 million square feet of GLA, at a weighted average capitalization rate of 6.0%, and several land parcels for total gross sales proceeds of approximately $102.6 million. The capitalization rate for the 29 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 properties we sold this year have the following characteristics:
Metropolitan Area
 
Number  of
Properties
 
GLA
 
Property Type
Atlanta, GA
 
1

 
37,346

 
R&D/Flex
Baltimore, MD
 
6

 
369,979

 
Light Industrial/R&D/Flex
Chicago, IL
 
2

 
178,679

 
Bulk Warehouse/Light Industrial
Cincinnati, OH
 
1

 
502,000

 
Bulk Warehouse
Detroit, MI
 
5

 
102,240

 
Light Industrial/R&D/Flex
Houston, TX
 
2

 
205,773

 
Light Industrial
Indianapolis, IN
 
5

 
278,000

 
Light Industrial
Miami, FL
 
1

 
7,029

 
Light Industrial
Milwaukee, WI
 
2

 
67,600

 
Light Industrial
Philadelphia, PA
 
2

 
18,406

 
R&D/Flex
Seattle, WA
 
1

 
157,515

 
Bulk Warehouse
Tampa, FL
 
1

 
56,812

 
R&D/Flex
Total
 
29

 
1,981,379

 
 


19


Tenant and Lease Information
We have a diverse base of approximately 1,800 tenants engaged in a wide variety of businesses including retail, wholesale trade, distribution, manufacturing and professional services. At December 31, 2014, our leases have a weighted average lease length of 6.1 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, 2014, approximately 94% of the GLA of our in-service properties was leased, and no single tenant or group of related tenants accounted for more than 3.1% 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, 2014. 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
247

 
4,086

 
$
4.34

 
3.2
%
 
5.4

 
$
4.49

 
N/A

Renewal Leases
318

 
8,608

 
$
4.40

 
11.9
%
 
4.2

 
$
1.26

 
69.5
%
Development Leases
15

 
1,755

 
$
5.25

 
N/A

 
9.0

 
N/A

 
N/A

Total / Weighted Average
580

 
14,449

 
$
4.48

 
9.1
%
 
5.1

 
$
2.25

 
69.5
%
_______________
(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, 2014, 196 new leases with free rent periods during the lease term on 5.1 million square feet of GLA commenced. Total free rent concessions of $6.9 million were associated with these new leases. Additionally, during the year ended December 31, 2014, 22 renewal leases with free rent periods during the lease term on 0.9 million square feet of GLA commenced. Total free rent concessions of $0.7 million were associated with these renewal leases.

20


Lease Expirations
Fundamentals for the United States industrial real estate market continued to improve in 2014, as growth in the general economy drove additional demand for space. Development of new industrial space increased in response to this growth in demand, but incremental demand continued to exceed new supply. The fourth quarter of 2014 marked the 18th consecutive quarter of positive net absorption for the overall market. These conditions resulted in improved market rental rate environments in virtually all of our markets. Based on our recent experience, the favorable supply-demand balance and the forecast from a leading national research company, for 2015, we expect our average net rental rates for renewal leases on a cash basis to be slightly higher than the expiring rates. Net rental rates for new leases on a cash basis on average are expected to be slightly lower than the comparative prior leases for 2015, primarily due to the differing market conditions when the comparative leases were structured and the impact of contractual rent escalations within those leases. The following table shows scheduled lease expirations for all leases for our in-service properties as of December 31, 2014. 
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)
 
 
2015
 
351

 
6,412,756

 
11
%
 
$
30,884

 
12
%
2016
 
413

 
10,893,422

 
19
%
 
49,571

 
18
%
2017
 
329

 
7,834,085

 
14
%
 
38,202

 
14
%
2018
 
239

 
8,245,190

 
14
%
 
38,909

 
14
%
2019
 
201

 
7,005,304

 
12
%
 
33,452

 
12
%
2020
 
115

 
5,277,889

 
9
%
 
23,877

 
9
%
2021
 
56

 
4,635,796

 
8
%
 
18,557

 
7
%
2022
 
30

 
1,510,178

 
3
%
 
7,259

 
3
%
2023
 
19

 
1,578,362

 
3
%
 
7,620

 
3
%
2024
 
15

 
1,694,355

 
3
%
 
7,178

 
3
%
Thereafter
 
25

 
2,619,557

 
4
%
 
12,315

 
5
%
Total
 
1,793

 
57,706,894

 
100
%
 
$
267,824

 
100
%
_______________
(1)
Includes leases that expire on or after January 1, 2015 and assumes tenants do not exercise existing renewal, termination or purchase options.
(2)
Does not include existing vacancies of 3,530,966 aggregate square feet and December 31, 2014 move outs of 1,159,117 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, 2014, 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.

21


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, 2014
 
$
21.16

 
$
16.96

 
$
0.1025

September 30, 2014
 
$
19.30

 
$
16.91

 
$
0.1025

June 30, 2014
 
$
19.37

 
$
17.86

 
$
0.1025

March 31, 2014
 
$
19.50

 
$
16.42

 
$
0.1025

December 31, 2013
 
$
18.81

 
$
16.30

 
$
0.0850

September 30, 2013
 
$
17.08

 
$
14.83

 
$
0.0850

June 30, 2013
 
$
18.71

 
$
14.26

 
$
0.0850

March 31, 2013
 
$
17.13

 
$
14.22

 
$
0.0850

We had 450 common stockholders of record registered with our transfer agent as of February 24, 2015.
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 2014.
During the year ended December 31, 2014, 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, 2014.
 
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
 
352,944

 
$

 
3,480,365

Equity Compensation Plans Not Approved by Security Holders
 

 
$

 

Total
 
352,944

 
$

 
3,480,365



22


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 12/31/09 in stock or index, including reinvestment of dividends. Fiscal year ending December 31.

 
12/09
 
12/10
 
12/11
 
12/12
 
12/13
 
12/14
FIRST INDUSTRIAL REALTY TRUST, INC.
$
100.00

 
$
167.50

 
$
195.60

 
$
269.22

 
$
340.64

 
$
410.11

S&P 500
$
100.00

 
$
115.06

 
$
117.49

 
$
136.30

 
$
180.44

 
$
205.14

FTSE NAREIT Equity REITs
$
100.00

 
$
127.96

 
$
138.57

 
$
163.60

 
$
167.63

 
$
218.16

_______________
*
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.

23


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
12/31/14
 
Year Ended
12/31/13
 
Year Ended
12/31/12
 
Year Ended
12/31/11
 
Year Ended
12/31/10
 
(In thousands, except per share data)
Statement of Operations Data:
 
 
 
 
 
 
 
 
 
Total Revenues
$
344,599

 
$
318,454

 
$
304,517

 
$
292,757

 
$
296,678

Income (Loss) from Continuing Operations
23,265

 
3,972

 
(25,063
)
 
(36,489
)
 
(151,090
)
Income (Loss) from Continuing Operations Available to First Industrial Realty Trust, Inc’s Common Stockholders
19,813

 
(9,142
)
 
(39,864
)
 
(51,776
)
 
(156,986
)
Net Income (Loss) Available to First Industrial Realty Trust, Inc.’s Common Stockholders and Participating Securities
46,629

 
25,907

 
(22,069
)
 
(27,010
)
 
(222,498
)
Basic and Diluted Earnings Per Share:
 
 
 
 
 
 
 
 
 
Income (Loss) from Continuing Operations Available to First Industrial Realty Trust, Inc.’s Common Stockholders
$
0.18

 
$
(0.09
)
 
$
(0.44
)
 
$
(0.65
)
 
$
(2.49
)
Net Income (Loss) Available to First Industrial Realty Trust, Inc.’s Common Stockholders
0.42

 
0.24

 
(0.24
)
 
(0.34
)
 
(3.53
)
Distributions Per Share
$
0.41

 
$
0.34

 
$
0.00

 
$
0.00

 
$
0.00

Basic Weighted Average Shares
109,922

 
106,995

 
91,468

 
80,616

 
62,953

Diluted Weighted Average Shares
110,325

 
106,995

 
91,468

 
80,616

 
62,953

Balance Sheet Data (End of Period):
 
 
 
 
 
 
 
 
 
Real Estate, Before Accumulated Depreciation
$
3,183,369

 
$
3,119,547

 
$
3,121,448

 
$
2,992,096

 
$
2,618,767

Total Assets
2,581,995

 
2,597,510

 
2,608,842

 
2,666,657

 
2,750,054

Indebtedness (Inclusive of Indebtedness Held for Sale)
1,349,846

 
1,296,806

 
1,335,766

 
1,479,483

 
1,742,776

Total Equity
1,090,827

 
1,171,219

 
1,145,653

 
1,072,595

 
892,144

Cash Flow Data:
 
 
 
 
 
 
 
 
 
Cash Flow From Operating Activities
$
137,176

 
$
125,751

 
$
136,422

 
$
87,534

 
$
83,189

Cash Flow From Investing Activities
(69,069
)
 
(61,313
)
 
(42,235
)
 
(3,779
)
 
(9,923
)
Cash Flow From Financing Activities
(66,166
)
 
(61,748
)
 
(99,407
)
 
(99,504
)
 
(230,383
)

24


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 may contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, and Section 21E of the Exchange Act. We intend for 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. Forward-looking statements are based on certain assumptions and describe future plans, strategies and expectations of the Company. Although we believe the expectations reflected in forward-looking statements are based upon reasonable assumptions, we can give no assurance that our expectations will be attained or that results will not materially differ. 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; 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) in the Company’s current and potential market areas; difficulties in identifying and consummating acquisitions and dispositions; our ability to manage the integration of properties we acquire; risks related to our investments in properties through joint ventures; environmental liabilities; delays 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; and those additional factors described in Item 1A, "Risk Factors" and elsewhere in this report and in the Company's other Exchange Act reports. We caution you not to place undue reliance on forward-looking statements, which reflect our outlook only and speak only as of the date of this report. 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. We also conduct operations through the Other Real Estate 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. First Industrial Realty Trust, Inc. does not have any significant assets or liabilities other than its investment in the Operating Partnership and its 100% ownership interest in the general partner of the Other Real Estate Partnerships.
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). At December 31, 2014, the 2003 Net Lease Joint Venture owned one industrial property comprising approximately 0.8 million square feet of GLA and the 2007 Europe Joint Venture did not own any properties. 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.
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 operating leases of our industrial properties. Such revenue is offset by certain property specific operating expenses, such as real estate taxes, repairs and maintenance, property management, utilities and insurance expenses, along with certain other costs and expenses, such as depreciation and amortization costs and general and administrative and interest expenses. Our revenue growth is dependent, in part, on our ability to (i) increase rental income, through increasing either or both occupancy rates and rental rates at our properties, (ii) maximize tenant recoveries and (iii) minimize operating and certain other expenses. Revenues generated from rental income and tenant recoveries are a significant source of funds, in addition to income generated from gains/losses on the sale of our properties (as discussed below), for our liquidity. The leasing of property, in general, and occupancy rates, rental rates, operating expenses and certain non-operating expenses, in particular, are impacted, variously, by property specific, market specific, general economic and other conditions, many of which are beyond our control. The leasing of property also entails various risks, including the risk of tenant default. If we were unable to maintain or increase occupancy rates and rental rates at our properties or to maintain tenant recoveries and operating and certain other expenses consistent with historical levels and proportions, our revenue would decline. Further, if a significant number of our tenants were unable to pay rent (including tenant recoveries) or if we were unable to rent our properties on favorable terms, our financial condition, results of operations, cash flow and ability to pay dividends on, and the market price of, our common stock would be adversely affected.

25


Our revenue growth is also dependent, in part, on our ability to acquire existing, and develop new 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 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. Our ability to access external capital on favorable terms is dependent on various factors, including general market conditions, interest rates, credit ratings on our 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.

26


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, including 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.
Investment in Real Estate: We allocate purchase price of acquired properties to tangible (land, building, tenant improvements) and identified intangible assets (leasing commissions, in-place leases, tenant relationships, above and below market leases and below market ground lease obligations). Above-market and below-market lease and below market ground lease obligation 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. Leasing commission, 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 leasing commission and 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.
Capitalization of Costs: We capitalize costs incurred in developing and expanding real estate assets as part of the investment basis. During the construction period, we capitalize interest costs, real estate taxes and certain 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. Costs incurred in making repairs and maintaining real estate assets are expensed as incurred. 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. The determination and calculation of certain costs requires estimates by us.
Impairment of Real Estate Assets: We review our real estate assets for possible impairment whenever events or changes in circumstances indicate that their carrying amounts may not be recoverable. 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. To the extent applicable marketplace data is available, we generally use the market approach in estimating the fair value of undeveloped land. Real estate assets that are classified as held-for-sale are reported at the lower of their carrying value or their fair value, less estimated costs to sell.
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

27


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.
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, 2014 to Year Ended December 31, 2013
Our net income available to First Industrial Realty Trust, Inc.’s common stockholders and participating securities was $46.6 million and $25.9 million for the years ended December 31, 2014 and 2013, respectively. Basic and diluted net income available to First Industrial Realty Trust, Inc.’s common stockholders was $0.42 per share and $0.24 per share for the years ended December 31, 2014 and 2013, respectively.
The tables below summarize our revenues, property expenses and depreciation and other amortization by various categories for the years ended December 31, 2014 and 2013. Same store properties are properties owned prior to January 1, 2013 and held as an in-service property through December 31, 2014 and developments and redevelopments that were placed in service prior to January 1, 2013 or were substantially completed for the 12 months prior to January 1, 2013. 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, 2012 and held as an operating property through December 31, 2014. Sold properties are properties that were sold subsequent to December 31, 2012. (Re)Developments and land are land parcels and developments and redevelopments that were not: a) substantially complete 12 months prior to January 1, 2013 or b) stabilized prior to January 1, 2013. 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.
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, 2014 and 2013, the average occupancy rates of our same store properties were 92.5% and 90.9%, respectively.

28


 
2014
 
2013
 
$ Change
 
% Change
 
($ in 000’s)
REVENUES
 
 
 
 
 
 
 
Same Store Properties
$
331,594

 
$
315,118

 
$
16,476

 
5.2
 %
Acquired Properties
6,894

 
453

 
6,441

 
1,421.9
 %
Sold Properties
7,007

 
20,727

 
(13,720
)
 
(66.2
)%
(Re) Developments and Land, Not Included Above
4,165

 
1,425

 
2,740

 
192.3
 %
Other
1,946

 
1,458

 
488

 
33.5
 %
 
$
351,606

 
$
339,181

 
$
12,425

 
3.7
 %
Discontinued Operations
(7,007
)
 
(20,727
)
 
13,720

 
(66.2
)%
Total Revenues
$
344,599

 
$
318,454

 
$
26,145

 
8.2
 %
Revenues from same store properties increased $16.5 million primarily due to an increase in occupancy, an increase in tenant recoveries and a one-time restoration fee recognized in 2014, partially offset by an increase in the straight-line rent reserve for doubtful accounts. Revenues from acquired properties increased $6.4 million due to the 10 industrial properties acquired subsequent to December 31, 2012 totaling approximately 2.2 million square feet of GLA. Revenues from sold properties decreased $13.7 million due to the 96 industrial properties sold subsequent to December 31, 2012 totaling approximately 5.0 million square feet of GLA. Revenues from (re)developments and land increased $2.7 million due to an increase in occupancy. Other revenues increased $0.5 million primarily due to an increase in maintenance company revenues and other one-time revenue transactions.
 
2014
 
2013
 
$ Change
 
% Change
 
($ in 000’s)
PROPERTY EXPENSES
 
 
 
 
 
 
 
Same Store Properties
$
100,468

 
$
93,542

 
$
6,926

 
7.4
 %
Acquired Properties
2,647

 
454

 
2,193

 
483.0
 %
Sold Properties
2,784

 
8,126

 
(5,342
)
 
(65.7
)%
(Re) Developments and Land, Not Included Above
2,871

 
903

 
1,968

 
217.9
 %
Other
8,513

 
8,815

 
(302
)
 
(3.4
)%
 
$
117,283

 
$
111,840

 
$
5,443

 
4.9
 %
Discontinued Operations
(2,784
)
 
(8,126
)
 
5,342

 
(65.7
)%
Total Property Expenses
$
114,499

 
$
103,714

 
$
10,785

 
10.4
 %
 Property expenses include real estate taxes, repairs and maintenance, property management, utilities, insurance and other property related expenses. Property expenses from same store properties increased $6.9 million primarily due to higher snow removal costs incurred during the year ended December 31, 2014 as compared to the year ended December 31, 2013 due to the harsh 2014 winter, an increase in real estate tax expense and an increase in bad debt expense. Property expenses from acquired properties increased $2.2 million due to properties acquired subsequent to December 31, 2012. Property expenses from sold properties decreased $5.3 million due to properties sold subsequent to December 31, 2012. Property expenses from (re)developments and land increased $2.0 million primarily due to an increase in real estate tax expense related to the substantial completion of developments. Other expenses remained relatively unchanged.
General and administrative expense remained relatively unchanged.
For the years ended December 31, 2014 and 2013, we recognized $1.0 million and $0.3 million, respectively, of expense related to costs associated with acquiring buildings from third parties.

29


 
2014
 
2013
 
$ Change
 
% Change
 
($ in 000’s)
DEPRECIATION AND OTHER AMORTIZATION
 
 
 
 
 
 
 
Same Store Properties
$
104,120

 
$
104,676

 
$
(556
)
 
(0.5
)%
Acquired Properties
4,642

 
871

 
3,771

 
433.0
 %
Sold Properties
2,388

 
7,727

 
(5,339
)
 
(69.1
)%
(Re) Developments and Land, Not Included Above
2,609

 
786

 
1,823

 
231.9
 %
Corporate Furniture, Fixtures and Equipment
526

 
618

 
(92
)
 
(14.9
)%
 
$
114,285

 
$
114,678

 
$
(393
)
 
(0.3
)%
Discontinued Operations
(2,388
)
 
(7,727
)
 
5,339

 
(69.1
)%
Total Depreciation and Other Amortization
$
111,897

 
$
106,951

 
$
4,946

 
4.6
 %
Depreciation and other amortization for same store properties remained relatively unchanged. Depreciation and other amortization from acquired properties increased $3.8 million due to properties acquired subsequent to December 31, 2012. Depreciation and other amortization from sold properties decreased $5.3 million due to properties sold subsequent to December 31, 2012. Depreciation and other amortization for (re)developments and land increased $1.8 million primarily due to an increase in developments that were placed in service. Corporate furniture, fixtures and equipment depreciation expense decreased $0.1 million due to assets becoming fully depreciated.
Interest income decreased $0.2 million, or 10.4%, primarily due to a decrease in the weighted average note receivable balance outstanding for the year ended December 31, 2014 as compared to the year ended December 31, 2013 partially offset by the receipt of prepayment fees of $0.7 million related to note receivables that were paid off early during the year ended December 31, 2014.
Interest expense decreased $1.4 million, or 1.9%, primarily due to a decrease in the weighted average interest rate for the year ended December 31, 2014 (5.33%) as compared to the year ended December 31, 2013 (5.77%), partially offset by an increase in the weighted average debt balance outstanding for the year ended December 31, 2014 ($1,380.6 million) as compared to the year ended December 31, 2013 ($1,338.5 million) and a decrease in capitalized interest of $2.2 million for the year ended December 31, 2014 as compared to the year ended December 31, 2013 due to a decrease in development activities.
Amortization of deferred financing costs remained relatively unchanged.
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 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. The Series F Agreement matured on October 1, 2013.
For the year ended December 31, 2014, we recognized a loss from retirement of debt of $0.7 million due to the early payoff of certain mortgage loans. For the year ended December 31, 2013, we recognized a 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.
Equity in income of joint ventures increased $3.4 million during the year ended December 31, 2014 as compared to the year ended December 31, 2013 primarily due to an increase in our pro rata share of gain and earn outs from the sales of industrial properties from the 2003 Net Lease Joint Venture.
The income tax provision is not significant.

30


The following table summarizes certain information regarding the industrial properties included in discontinued operations for the years ended December 31, 2014 and 2013.
 
2014
 
2013
 
($ in 000’s)
Total Revenues
$
7,007

 
$
20,727

Property Expenses
(2,784
)
 
(8,126
)
Impairment of Real Estate

 
(2,652
)
Depreciation and Amortization
(2,388
)
 
(7,727
)
Gain on Sale of Real Estate
25,988

 
34,344

Income from Discontinued Operations
$
27,823

 
$
36,566

Income from discontinued operations for the year ended December 31, 2014 reflects the results of operations and gain on sale of real estate relating to 29 industrial properties that were sold during the year ended December 31, 2014.
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 and the results of operations of 29 industrial properties that were sold during the year ended December 31, 2014. The impairment loss for the year ended December 31, 2013 of $2.7 million primarily relates to an impairment charge recorded due to carrying values of certain properties exceeding the estimated fair value based upon third party purchase contracts for properties held for sale during 2013.
The $0.1 million loss and $1.1 million gain on sale of real estate for the years ended December 31, 2014 and 2013, respectively, resulted from the sale of land parcels that did not meet the criteria for inclusion in discontinued operations.

31


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 in-service 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.
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
(20,727
)
 
(31,457
)
 
10,730

 
(34.1
)%
Total Revenues
$
318,454

 
$
304,517

 
$
13,937

 
4.6
 %
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.

32


 
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
(8,126
)
 
(12,269
)
 
4,143

 
(33.8
)%
Total Property Expenses
$
103,714

 
$
96,517

 
$
7,197

 
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 $2.2 million, or 8.9%, 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.
For the years ended December 31, 2013 and 2012, we recognized $0.3 million and $0.04 million, respectively, of expense related to costs associated with acquiring buildings from third parties.
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
(7,727
)
 
(11,648
)
 
3,921

 
(33.7
)%
Total Depreciation and Other Amortization
$
106,951

 
$
110,861

 
$
(3,910
)
 
(3.5
)%
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, 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.

33


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.
We recorded $0.1 million in mark-to-market net gain, inclusive of $0.8 million in swap payments related to the Series F Agreement, 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.
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 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
$
20,727

 
$
31,457

Property Expenses
(8,126
)
 
(12,269
)
Impairment of Real Estate
(2,652
)
 
(1,438
)
Depreciation and Amortization
(7,727
)
 
(11,648
)
Gain on Sale of Real Estate
34,344

 
12,665

Income from Discontinued Operations
$
36,566

 
$
18,767

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 and the results of operations of 29 industrial properties that were sold during the year ended December 31, 2014. The impairment loss for the year ended December 31, 2013 of $2.7 million primarily relates to an impairment charge recorded due to the carrying values of certain properties exceeding the estimated fair value 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, the results of operations of 29 industrial properties that were sold during the year ended December 31, 2014 and the results of operations of

34


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.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 2014, our cash and cash equivalents and restricted cash were approximately $9.5 million and $1.8 million, respectively. Restricted cash is primarily comprised of cash held in escrow in connection with gross proceeds from the sales of certain industrial properties. These sales proceeds will be disbursed as we exchange industrial properties under Section 1031 of the Code. We also had $433.0 million available for additional borrowings under our Unsecured Credit Facility.
We have considered our short-term (through December 31, 2015) liquidity needs and the adequacy of our estimated cash flow from operations and other expected liquidity sources to meet these needs. We have $23.2 million in mortgage loans payable outstanding at December 31, 2014 that mature or we anticipate prepaying during 2015. We expect to satisfy these payment obligations prior to December 31, 2015 with borrowings under our Unsecured Credit Facility. 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, 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, 2015) liquidity requirements such as property acquisitions, developments, scheduled debt maturities, major renovations, expansions and other nonrecurring capital improvements through the disposition of select assets, long-term unsecured and secured indebtedness and the issuance of additional equity securities, subject to market conditions.
We also finance 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. At December 31, 2014, borrowings under our Unsecured Credit Facility bore interest at a weighted average interest rate of 1.662%. As of February 24, 2015, we had approximately $418.0 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, 2014, and we anticipate that we will be able to operate in compliance with our financial covenants in 2015.
Our senior unsecured notes have been assigned credit ratings from Standard & Poor’s, Moody’s and Fitch Ratings of BBB-/Baa3/BBB-, 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, 2014
Net cash provided by operating activities of approximately $137.2 million for the year ended December 31, 2014, was comprised primarily of the non-cash adjustments of approximately $100.3 million, a book overdraft of approximately $0.3 million, and net income of approximately $51.0 million, offset by the net change in operating assets and liabilities of approximately $2.1 million, payments of discounts and prepayment penalties associated with retirement of debt of approximately $10.7 million and equity in income of Joint Ventures in excess of distributions of approximately $1.6 million. The adjustments for the non-cash items of approximately $100.3 million are primarily comprised of depreciation and amortization of approximately $126.8 million, the loss from retirement of debt of approximately $0.7 million and the provision for bad debt of approximately $1.4 million, offset by the gain on sale of real estate of approximately $25.9 million and the effect of the straight-lining of rental income of approximately $2.7 million.
Net cash used in investing activities of approximately $69.1 million for the year ended December 31, 2014, was comprised primarily of the acquisition of certain land parcels and eight industrial properties comprising approximately 1.1 million square feet of GLA, the development of real estate, capital expenditures related to the improvement of existing real estate, payments related to leasing activities and an increase in escrows, offset by the net proceeds from the sale of real estate, repayments on our notes receivable and net distributions from our Joint Ventures.

35


During the year ended December 31, 2014, we sold 29 industrial properties comprising approximately 2.0 million square feet of GLA and several land parcels. Proceeds from the sales of the 29 industrial properties and several land parcels, net of closing costs, were approximately $98.5 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 2015.
Net cash used in financing activities of approximately $66.2 million for the year ended December 31, 2014, was comprised primarily of the redemption of our Series F Preferred Stock and Series G Preferred Stock, repayments on our senior unsecured notes and mortgage loans payable, common stock/unit and preferred stock dividends, payments of debt issuance costs and the repurchase and retirement of restricted stock, offset by proceeds from the Unsecured Term Loan (as defined hereafter) and net proceeds from our Unsecured Credit Facility.
During the year ended December 31, 2014, we entered into a seven-year, $200.0 million unsecured term loan (the "Unsecured Term Loan").
During the year ended December 31, 2014, we paid off and retired prior to maturity mortgage loans in the amount of $65.6 million. Additionally, we paid off and retired our 2014 Notes, at maturity, in the amount of $81.8 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, 2014, we redeemed all 50,000 Depositary Shares of the Series F Preferred Stock for $50.0 million and paid a pro-rated first quarter dividend of $11.3299 per Depositary Share, totaling approximately $0.6 million. Additionally, during the year ended December 31, 2014, we redeemed all 25,000 Depositary Shares of the Series G Preferred Stock for $25.0 million and paid a semi-annual dividend of $36.18 per Depositary Share, totaling approximately $0.9 million.
Contractual Obligations and Commitments
The following table lists our contractual obligations and commitments as of December 31, 2014:
 
 
 
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)
$
33,914

 
$
1,939

 
$
3,886

 
$
1,698

 
$
26,391

Real Estate Development Costs(1)(3)
50,600

 
50,600

 

 

 

Long Term Debt
1,349,997

 
12,158

 
605,593

 
244,764

 
487,482

Interest Expense on Long Term Debt(1)(4)
278,806

 
64,334

 
94,997

 
60,156

 
59,319

Total
$
1,713,317

 
$
129,031

 
$
704,476

 
$
306,618

 
$
573,192

_______________
(1)
Not on balance sheet.
(2)
Operating lease minimum rental payments have not been reduced by minimum sublease rentals of $5.4 million due in the future under non-cancelable subleases.
(3)
Represents estimated remaining costs on the completion of development projects.
(4)
Includes interest expense on our Unsecured Term Loan, inclusive of the impact of $200.0 million of interest rate protection agreements which effectively swap the variable interest rate to a fixed interest rate. Excludes interest expense on our Unsecured Credit Facility.

Off-Balance Sheet Arrangements
At December 31, 2014, we had letters of credit and performance bonds outstanding amounting to $17.6 million in the aggregate. The letters of credit and performance bonds are not reflected as liabilities on our balance sheet. We have no other off-balance sheet arrangements, as defined in Item 303 of Regulation S-K, other than those disclosed on the Contractual Obligations and Commitments table above that have or are reasonably likely to have a current or future effect on our financial condition, results of operation or liquidity and capital resources.

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Environmental
We paid approximately $0.7 million and $0.6 million in 2014 and 2013, respectively, related to environmental expenditures. We estimate 2015 expenditures of approximately $0.5 million. We estimate that the aggregate expenditures which need to be expended in 2015 and beyond with regard to currently identified environmental issues will not exceed approximately $1.8 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, as described below.
Interest Rate Risk
The following 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, 2014 that are sensitive to changes in 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, 2014, $1,164.8 million (86.3% of total debt at December 31, 2014) of our debt was fixed rate debt (includes $200.0 million of variable-rate debt that has been effectively swapped to a fixed rate through the use of interest rate protection agreements) and $185.0 million (13.7% of total debt at December 31, 2014) of our debt was variable rate debt. 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.
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 5 to the Consolidated Financial Statements for a discussion of the maturity dates of our various fixed rate debt.
Our variable rate debt is subject to risk based upon prevailing market interest rates. As of December 31, 2014 and 2013, we had approximately $185.0 million and $173.0 million, respectively, of variable rate debt outstanding indexed to LIBOR rates (excluding the $200.0 million of variable-rate debt that has been effectively swapped to a fixed rate through the use of interest rate protection