-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, VTPfOdCGd6lke9RYpkWeAAZYY8a23KoSbZy1vdHSr4I4KiIOKGH2PrHM+7XQXgZ3 2dPQ+xMpzNYSbShjVm7KuA== 0000950137-98-001114.txt : 19980325 0000950137-98-001114.hdr.sgml : 19980325 ACCESSION NUMBER: 0000950137-98-001114 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980324 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: FIRST INDUSTRIAL SECURITIES L P CENTRAL INDEX KEY: 0001000823 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE [6500] IRS NUMBER: 364036965 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 033-97014-01 FILM NUMBER: 98571468 BUSINESS ADDRESS: STREET 1: 150 N WACKER DR STREET 2: SUITE 150 CITY: CHICAGO STATE: IL ZIP: 60606 BUSINESS PHONE: 3127049000 MAIL ADDRESS: STREET 1: 150 N WACHER DR STREET 2: SUITE 150 CITY: CHICAGO STATE: IL ZIP: 60606 10-K 1 10-K 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K (X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1997 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 33-97014-01 FIRST INDUSTRIAL SECURITIES, L.P. (Exact name of Registrant as specified in its Charter) DELAWARE 36-4036965 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 311 S. WACKER DRIVE, SUITE 4000, 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: GUARANTEE OF THE 9 1/2% SERIES A CUMULATIVE PREFERRED STOCK OF FIRST INDUSTRIAL REALTY TRUST, INC. (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 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 X No . --- --- 2 FIRST INDUSTRIAL SECURITIES, L.P. TABLE OF CONTENTS
PAGE ---- PART I. Item 1. Business............................................................................... 3 Item 2. The Properties......................................................................... 4 Item 3. Legal Proceedings...................................................................... 8 Item 4. Submission of Matters to a Vote of Security Holders.................................... 8 PART II. Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.................. 9 Item 6. Selected Financial Data................................................................ 9 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.. 10 Item 8. Financial Statements and Supplementary Data............................................ 13 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosures 13 PART III. Item 10. Directors and Executive Officers of the Registrant.................................... 13 Item 11. Executive Compensation................................................................ 13 Item 12. Security Ownership of Certain Beneficial Owners and Management........................ 14 Item 13. Certain Relationships and Related Transactions........................................ 14 PART IV. Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K....................... 14 SIGNATURES....................................................................................... 15
2 3 This report contains certain forward-looking statements within the meaning of Section 27A of the Securities Act 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. First Industrial Securities, L.P. (the "Company") intends such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in the Private Securities Reform Act of 1995, and is including this statement for purposes of complying with these safe harbor provisions. Forward-looking statements, which are based on certain assumptions and describe future plans, strategies and expectations of the Company, are generally identifiable by use of the words "believe", "expect", "intend", "anticipate", "estimate", "project" or similar expressions. The Company's ability to predict results or the actual effect of future plans or strategies is inherently uncertain. Factors which could have a material adverse affect on the operations and future prospects of the Company include, but are not limited to, changes in: economic conditions generally and the real estate market specifically, legislative/regulatory changes, availability of capital, interest rates, competition, supply and demand for industrial properties in the Company's current market areas and general accounting principles, policies and guidelines. These risks and uncertainties should be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements. Further information concerning the Company and its business, including additional factors that could materially affect the Company's financial results, is included herein and in the Company's other filings with the Securities and Exchange Commission. PART I ITEM 1. BUSINESS THE COMPANY GENERAL First Industrial Securities, L.P. (the "Company") is a Delaware limited partnership which owns 19 bulk warehouses and light industrial properties (the "Properties"). The markets in which the Properties are located include: Chicago, Minneapolis/St. Paul, Grand Rapids, Detroit, and Central Pennsylvania. The Properties contain an aggregate of approximately 2.2 million square feet of gross leasable area ("GLA") which, as of December 31, 1997, was 98.6% leased to 33 tenants. At December 31, 1997, the Company had no employees. The Company's executive offices are located at 311 South Wacker Drive, Suite 4000, Chicago, Illinois 60606, and its telephone number is (312) 344-4300. The Company was formed in 1995 in connection with the issuance of a class of preferred stock (the "Series A Preferred Shares") of First Industrial Realty Trust, Inc. ("FR"). The 1% general partner of the Company is First Industrial Securities Corporation ("Securities Corporation"), which is a wholly owned subsidiary of FR. The 99% limited partner of the Company is First Industrial, L.P. (the "Operating Partnership"), of which FR is the sole general partner. In connection with the issuance of the $.01 par value Series A Preferred Stock (the "Series A Preferred Stock"), FR contributed to Securities Corporation the gross proceeds from the issuance of the Series A Preferred Stock in exchange for preferred stock of Securities Corporation, and Securities Corporation contributed such proceeds to the Company in exchange for a preferred limited partnership interest in the Company. The Operating Partnership and First Industrial Pennsylvania, L.P. contributed the Properties to the Company in exchange for limited partnership interests in the Company (the "Contribution"). The Pennsylvania Partnership subsequently distributed its limited partnership interest to the Operating Partnership, which is its sole limited partner. 3 4 THE GUARANTEE AND LIMITED PARTNERSHIP AGREEMENT The Company has guaranteed the payment of dividends on, and payments on liquidation or redemption of, the Series A Preferred Stock under a guarantee (the "Guarantee") contained in a Guarantee and Payment Agreement (the "Guarantee Agreement"). The Guarantee Agreement is administered by American National Bank and Trust Company, as guarantee agent (together with any subagents which it may appoint, the "Guarantee Agent"). The Guarantee Agent may enforce the Guarantee directly against the Company only at the direction of the holders of at least 25% of the outstanding Series A Preferred Stock. No holder of Series A Preferred Stock may seek directly to enforce the Guarantee. The Guarantee and the Guarantee Agreement will terminate upon confirmation to the Company from Fitch Investors Service, L.P. and Standard & Poor's Ratings Group that, immediately following such a termination, the Series A Preferred Stock would be rated at least BBB, whether or not the Series A Preferred Stock are so rated prior to such termination. The limited partnership agreement of the Company (the "Limited Partnership Agreement") and the Guarantee Agreement contain covenants generally restricting the Company's activities to the ownership and operation of the Properties and, under certain circumstances, other industrial properties. These covenants shall cease to have any effect upon the termination of the Guarantee. Under its Articles of Incorporation, Securities Corporation's sole purpose will be to act as general partner of the Company and to pay dividends on its common and preferred stock. These and other restrictions are intended to assure that even in the event of FR, the Operating Partnership or other affiliates of FR becoming subject to federal bankruptcy proceedings, neither Securities Corporation nor the Company nor their assets will be treated as subject to such bankruptcy proceedings under the doctrine of substantive consolidation or other doctrines (except to the extent liabilities are imposed by non-insolvency regulatory statutes on affiliates) and that activities of FR, the Operating Partnership and other affiliates will not cause Securities Corporation or the Company to become insolvent or unable to pay their debts as they mature (including the Guarantee). ITEM 2. THE PROPERTIES GENERAL At December 31, 1997 the Company owned 19 in-service properties containing approximately 2.2 million square feet of GLA in four states. The Properties are generally located in business parks which have convenient access to interstate highways and air transportation. The median age of the Properties as of December 31, 1997 was approximately ten years. The Company classifies its Properties into two industrial categories: bulk warehouse and light industrial. The Company's bulk warehouse properties are generally used for bulk storage of materials and manufactured goods, and its light industrial properties are generally used for the design, assembly, packaging and distribution of goods, and, in some cases, the provision of services. Each of the Properties is wholly owned by the Company. The following table summarizes certain information as of December 31, 1997 with respect to the Properties. PROPERTY SUMMARY
BULK WAREHOUSE LIGHT INDUSTRIAL TOTAL --------------------- ------------------- ----------------------------------- AVERAGE GLA AS A% NUMBER OF NUMBER OF NUMBER OF OCCUPANCY OF TOTAL METROPOLITAN AREA GLA PROPERTIES GLA PROPERTIES GLA PROPERTIES AT 12/31/97 PORTFOLIO - ----------------- --------- ---------- ------- ---------- --------- ---------- ----------- --------- Chicago 548,425 2 91,550 2 639,975 4 100% 30% Minneapolis/St. Paul 409,905 2 207,227 2 617,132 4 100% 29% Grand Rapids 464,500 4 - - 464,500 4 94% 21% Detroit - - 287,142 5 287,142 5 100% 13% Central Pennsylvania 100,000 1 49,350 1 149,350 2 100% 7% --------- ---------- ------- ---------- --------- ---------- ---- ---- Total or Average 1,522,830 9 635,269 10 2,158,099 19 99% 100% ========= ========== ======= ========== ========= ========== ==== ====
4 5 DETAIL PROPERTY LISTING The following table lists all of the Properties as of December 31, 1997, none of which were subject to mortgage liens as of such date. PROPERTY LISTING
LAND LOCATION YEAR BUILT BUILDING AREA OCCUPANCY BUILDING ADDRESS (CITY/STATE) RENOVATED TYPE (ACRES) GLA AT 12/31/97 - ----------------------------- ------------------- ---------- ---------------- ------- ------- ----------- 2101-2125 Gardner Road Broadview, IL 1950/69 Bulk Warehouse 9.98 323,425 100% 365 North Avenue Carol Stream, IL 1969 Bulk Warehouse 28.65 225,000 100% 2942 MacArthur Boulevard Northbrook, IL 1979 Light Industrial 3.12 49,730 100% 3150-3160 MacArthur Boulevard Northbrook, IL 1978 Light Industrial 2.14 41,820 100% 900 Apollo Road Eagan, MN 1970 Bulk Warehouse 39.00 312,265 100% 7316 Aspen Lane North Brooklyn Park, MN 1978 Bulk Warehouse 6.63 97,640 100% 6707 Shingle Creek Parkway Brooklyn Center, MN 1986 Light Industrial 4.22 75,939 100% 6655 Wedgwood Road Maple Grove, MN 1989 Light Industrial 17.88 131,288 100% 425 Gordon Industrial Court Grand Rapids, MI 1990 Bulk Warehouse 8.77 173,875 (a) 100% 2851 Prairie Street Grandville, MI 1989 Bulk Warehouse 5.45 117,251 75% 2945 Walkent Court Grand Rapids, MI 1993 Bulk Warehouse 4.45 93,374 100% 537 76th Street Grand Rapids, MI 1987 Bulk Warehouse 5.26 80,000 100% 2965 Technology Drive Rochester Hills, MI 1995 Light Industrial 4.92 66,395 100% 4177A Varsity Drive Ann Arbor, MI 1993 Light Industrial 2.48 11,050 100% 6515 Cobb Drive Sterling Heights, MI 1984 Light Industrial 2.91 47,597 100% 1451 Lincoln Avenue Madison Heights, MI 1967 Light Industrial 3.92 75,000 100% 4400 Purks Drive Auburn Hills, MI 1987 Light Industrial 13.04 87,100 100% 7195 Grayson Road Harrisburg, PA 1994 Bulk Warehouse 6.02 100,000 100% 5020 Louise Drive Mechanicsburg, PA 1995 Light Industrial 5.06 49,350 100% --------- ----------- TOTAL 2,158,099 99% ========= ===========
(a) On April 1, 1997, the company completed a 17,000 square foot expansion of this property. TENANT AND LEASE INFORMATION Many of the Company's leases have an initial term of between three and five years and provide for periodic rental 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, 1997, 98.6% of the GLA of the Properties was leased. 5 6 The following table sets forth, as of December 31, 1997, the annualized December 1997 base rent, and the total GLA leased, by tenants responsible for more than one percent of the aggregate annualized December 1997 base rent.
ANNUALIZED BASE RENT GLA ------------------------ ----------------------- TENANT AMOUNT % OF TOTAL OCCUPIED % OF TOTAL - ------------------------------- ---------- ---------- -------- ---------- Sci-Med Life Systems, Inc. $1,129,272 13.3% 131,288 6.1% Meyercord Company 804,996 9.5% 225,000 10.4% Anchor Hocking Plastics 765,048 9.0% 312,265 14.5% Yaskawa Electric America, Inc. 748,944 8.8% 91,550 4.2% B.L. Downey Company, Inc. 505,740 6.0% 162,306 7.5% MSX International Engineering 400,632 4.7% 87,100 4.0% American Axle & Manufacturing 383,172 4.5% 66,395 3.1% Universal Trim, Inc. 315,000 3.7% 75,000 3.5% Alabama Metals Industries Corp. 286,680 3.4% 100,000 4.6% Nelson Metal Products Corp. 281,268 3.3% 87,938 4.1% International Paper Company 271,236 3.2% 93,374 4.3% NWS Michigan 242,196 2.9% 113,875 5.3% Transpak, Inc. 223,200 2.6% 47,597 2.2% Auer Steel & Heating Supply Co. 208,200 2.5% 47,861 2.2% ITT Educational Services, Inc. 194,460 2.3% 21,000 1.0% Espec Corp 193,596 2.3% 60,000 2.8% Independent Metals Corp. 192,528 2.3% 61,119 2.8% Crest Engineering Company 184,860 2.2% 40,040 1.9% St. Thomas Creations 149,976 1.8% 28,350 1.3% Blevins, Inc. 140,004 1.6% 40,000 1.9% Spartan Stores, Inc. 120,000 1.4% 40,000 1.9% J.C. Penny Co., Inc. 106,740 1.3% 28,078 1.3% Mallinckrodt Veterinary, Inc. 89,004 1.0% 20,000 0.9% The Rugby Group, Inc. 85,560 1.0% 24,800 1.1% ---------- ---------- --------- ---------- TOTAL $8,022,312 94.6% 2,004,936 92.9% ========== ========== ========= ==========
The following table shows scheduled lease expirations for all leases for the Company's Properties as of December 31, 1997.
PERCENTAGE OF GLA PERCENTAGE OF TOTAL NUMBER GLA SUBJECT REPRESENTED ANNUALIZED ANNUALIZED BASE YEAR OF OF LEASES TO EXPIRING BY EXPIRING BASE RENT UNDER RENT REPRESENTED BY EXPIRATION (1) EXPIRING LEASES (2) LEASES EXPIRING LEASES EXPIRING LEASES - -------------- --------- ----------- ------------- --------------- ------------------- 1998 7 318,119 15% $1,622,496 19% 1999 9 537,881 25% 1,512,108 18% 2000 7 395,360 18% 2,167,788 25% 2001 1 28,350 1% 149,976 2% 2002 3 250,500 12% 907,668 11% 2003 1 100,000 5% 286,680 3% 2004 2 115,000 5% 455,004 5% 2005 2 66,395 3% 383,172 5% 2006 1 21,000 1% 194,460 2% Thereafter 4 296,181 14% 816,036 10% --------- ------------ ------------- --------------- ------------------- Total 37 2,128,786 99% $8,495,388 100% ========= ============ ============= =============== ===================
- -------------- (1) Lease expirations as of December 31, assuming tenants do not exercise existing renewal, termination, or purchase options. (2) Does not include existing vacancies of 29,313 aggregate square feet. 6 7 MATERIAL PROPERTIES At December 31, 1997, three of the Company's Properties (the "Material Properties") represent ten percent or more of the aggregate book value of the Properties as of December 31, 1997, or ten percent or more of the aggregate annualized rental revenues as of December 31, 1997. The following table shows the occupancy rate and average annual base rent per square foot for each of the Material Properties for the periods indicated:
6655 WEDGEWOOD ROAD 365 NORTH AVENUE 2101-2125 GARDNER ROAD MAPLE GROVE, MN CAROL STREAM, IL BROADVIEW, IL -------------------------- ----------------------------- ----------------------------- AVERAGE AVERAGE AVERAGE ANNUAL ANNUAL ANNUAL OCCUPANCY BASE RENT OCCUPANCY BASE RENT OCCUPANCY BASE RENT YEAR RATE (1) PER SQ. FT. RATE (1) PER SQ. FT. RATE (1) PER SQ. FT. ---- --------- ----------- --------- -------------- --------- ----------- 1997............. 100% $8.60 100% $3.58 100% $3.05 1996............. 100% 8.60 100% 3.79 93% 3.09 1995............. 100% 8.60 100% 4.00 100% 2.81 1994............. 100% 7.63 100% 4.00 100% 2.67 1993............. (2) (2) (3) (3) 100% 2.59 1992............. (2) (2) (3) (3) 100% 2.42
- --------------- (1) As of December 31 of the year indicated. (2) The Company acquired this property on September 30, 1994. Information for periods prior to January 1, 1994, is not available. (3) The Company acquired this property on November 14, 1994. Information for periods prior to January 1, 1994, is not available. The following table sets forth certain information concerning the tenants and leases in the Material Properties as of December 31, 1997.
ANNUALIZED PRIMARY MAXIMUM GLA BASE RENT AT LEASE LEASE NATURE OF OCCUPIED DECEMBER TERM TERM TENANT BUSINESS (SQ. FT.) 31, 1997 EXPIRATION EXPIRATION - ------ -------- ----------- -------- ---------- ---------- 6655 WEDGEWOOD ROAD SciMed Life Systems, Inc. (1).... Medical devices 131,288 $1,129,272 2000 2005 365 NORTH AVENUE Meyercord Company.............. Printed transfers 225,000 (2) 804,996 2002 2012 and decals 2101-2125 GARDNER ROAD B.L. Downey.................... Plastics 162,306 505,740 2007 2012 Alabama Metals Industries Corp... Rolled steel 100,000 286,680 2003 2003 processor Independent Metals Corporation... Rolled steel 61,119 192,528 1998 2003 processor
- ---------------------- (1) The tenant currently has the right to terminate the lease on 9 months prior notice beginning December 31, 1998, without an early termination fee. (2) The tenant has subleased 87,571 sq. ft. of this property to CP&P, Incorporated, which is a fast food paper and plastic supplier. PROPERTY MANAGEMENT The Company's properties are managed by the Operating Partnership, of which FR is the sole general partner. 7 8 ITEM 3. LEGAL PROCEEDINGS The Company is involved in legal proceedings arising in the ordinary course of business. All such proceedings, taken together, are not expected to have a material impact on the Company. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. 8 9 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS None. ITEM 6. SELECTED FINANCIAL DATA The following sets forth selected financial and operating data for the Company and its Predecessor Businesses (herein after defined). The following data should be read in conjunction with the 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. "Predecessor Businesses" include the historical statements of operations of the Properties from the date of acquisition (or, if the Property was developed, the date placed in service) by the Operating Partnership or the Pennsylvania Partnership for the period January 1, 1995 to December 15, 1995 (or the earlier date of contribution to the Company) and the year ended December 31, 1994.
FIRST INDUSTRIAL SECURITIES, L.P. PREDECESSOR BUSINESSES ------------------------------------------- --------------------------- FOR THE PERIOD FOR THE PERIOD FOR THE FOR THE AUGUST 14, JANUARY 1, FOR THE YEAR ENDED YEAR ENDED 1995 TO 1995 TO YEAR ENDED DECEMBER DECEMBER DECEMBER 31, DECEMBER 15, DECEMBER 31, 1997 31, 1996 1995 1995 31, 1994 ----------- ---------- --------------- ------------- ---------- (IN THOUSANDS, EXCEPT PROPERTY DATA) STATEMENTS OF OPERATIONS DATA: Total Revenues............................. $11,355 $11,516 $1,223 $8,048 $2,940 Property Expenses....................... 3,311 3,394 269 2,291 771 Interest Expense........................... --- --- --- 2,376 846 Depreciation and Amortization. 1,820 1,766 271 1,261 491 --------- --------- --------- ------- ------- Net Income.................................... $6,224 $6,356 $683 $2,120 $832 ========= ========= ========= ======= ======= BALANCE SHEET DATA (END OF PERIOD): Real Estate, Before Accumulated Depreciation................................. $79,491 $76,255 $75,319 $52,638 Real Estate, After Accumulated Depreciation................................. 74,106 72,582 73,338 52,149 Total Assets................................... 76,822 76,337 75,878 52,404 Acquisition Facility...................... --- --- --- 25,175 Total Liabilities............................. 1,521 1,440 1,110 26,200 Partners' Capital........................... $75,301 $74,897 $74,768 $26,204 OTHER DATA (END OF PERIOD): Total Properties............................. 19 19 19 12 Total GLA in sq. ft........................ 2,158,099 2,141,099 2,139,459 1,489,094 Occupancy %................................. 99% 97% 100% 99%
9 10 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW The following discussion should be read in conjunction with "Selected Financial Data" and the historical Financial Statements and Combined Financial Statements and Notes thereto appearing elsewhere in this Form 10-K. RESULTS OF OPERATIONS The results of operations for the years ended December 31, 1997 and 1996 include the operations of the Company. The results of operations for the year ended December 31, 1995 include the operations of the Predecessor Businesses from January 1, 1995, to December 15, 1995 and the operations of the Company from August 14, 1995 to December 31, 1995. At December 31, 1997, the Company owned 19 in-service Properties containing approximately 2.2 million square feet. At December 31, 1996 and 1995, the Company owned 19 in-service Properties containing approximately 2.1 million square feet. During 1997, the Company completed a 17,000 square foot expansion of an existing industrial property located in Grand Rapids, Michigan. The cost of the expansion was approximately $.3 million and was funded with cash flows from operations. COMPARISON OF YEAR ENDED DECEMBER 31, 1997 TO YEAR ENDED DECEMBER 31, 1996 Revenues decreased by $.2 million or 1.4%, due primarily to a decrease in occupancy. Average occupancy for the years ended December 31, 1997 and 1996 was 94% and 97%, respectively. The lower average occupancy for the year ended 1997 is due to vacancies in the first and second quarters of 1997. As of December 31, 1997, 99% of the GLA of the Properties was leased. Property expenses, which include real estate taxes, repairs and maintenance, property management, utilities, insurance and other expenses remained relatively unchanged. Depreciation and amortization remained relatively unchanged. COMPARISON OF YEAR ENDED DECEMBER 31, 1996 TO YEAR ENDED DECEMBER 31, 1995 Revenues increased by $2.2 million or 24.2%, due primarily to the Properties acquired or developed after December 31, 1994. Property expenses, which include real estate taxes, repairs and maintenance, property management, utilities, insurance and other expenses, increased by $.8 million or 32.6% due primarily to Properties acquired or developed after December 31, 1994. Interest expense decreased from $2.4 million to $0 million due to the repayment of indebtedness collateralized by the Properties at the time of the Contribution. Depreciation and amortization increased by $.2 million due primarily to the additional depreciation and amortization related to the Properties acquired and developed after December 31, 1994. 10 11 LIQUIDITY AND CAPITAL RESOURCES As of December 31, 1997 and 1996, the Company had no outstanding indebtedness. Net cash provided by operating activities was $7.6 million for the year ended December 31, 1997 compared to $7.5 million for the year ended December 31, 1996. This increase is primarily due to a decrease in the amount of outstanding tenant accounts receivable partially offset by a decrease in accounts payable and accrued expenses and rents received in advance and security deposits. Net cash provided by operating activities was $7.5 million for the year ended December 31, 1996 compared to $3.6 million for the year ended December 31, 1995. This increase is primarily related to increased net operating income due to the Properties acquired or developed after December 31, 1994 and reduced interest expense due to the repayment of indebtedness collateralized by the Properties at the time of the Contribution. Net cash used in investing activities was $2.8 million for the year ended December 31, 1997 compared to $.9 million for the year ended December 31, 1996. The majority of the increase in cash used in investing activities for the year ended December 31, 1997 relates to the completed expansion of an existing industrial property located in Grand Rapids, Michigan and the current expansion of an existing industrial property located in Auburn Hills, Michigan. Net cash used in investing activities was $22.7 million for the year ended December 31, 1995. The significantly higher net cash used in investing activities for the year ended December 31, 1995 reflects the acquisition and development of additional Properties. Net cash used in financing activities for the year ended December 31, 1997 was $5.8 million, comprised of preferred limited partnership distributions to Securities Corporation and pro rata general and limited partnership distributions to Securities Corporation and the Operating Partnership, respectively, which were partially offset by a pro rata general and limited partnership capital contribution from the Securities Corporation and the Operating Partnership. Net cash used in financing activities for the year ended December 31, 1996 was $6.2 million, comprised of preferred limit partnership distributions to Securities Corporation and pro rata general and limited partnership distributions to Securities Corporation and the Operating Partnership, respectively. Net cash provided by financing activities for the year ended December 31, 1995 was $20.2 million, comprised primarily of increased borrowings related to the purchase and development of Properties and Security Corporation's capital contributions, which were partially offset by the repayment of indebtedness collateralized by the Properties at the time of Contribution. The Company completed a 17,000 square foot expansion of an existing industrial property located in Grand Rapids, Michigan. The cost of the expansion was approximately $.3 million and was funded with cash flows from operations. The Company has committed to the expansion of one industrial property located in Auburn Hills, Michigan. The estimated total cost of the expansion is approximately $2.6 million, and is expected to be funded with cash flows from operations and capital contributions, if necessary. In 1997, the Company paid preferred limited partnership distributions of $3.9 million to Securities Corporation. In 1997, the Company paid pro rata general and limited partnership distributions to Securities Corporation and the Operating Partnership, respectively, in the aggregate amount of $2.3 million that were partially off-set by a pro rata general and limited partnership capital contribution from the Securities Corporation and the Operating Partnership, respectively, in the amount of $.4 million. 11 12 The Company has considered its short-term (less than one year) liquidity needs and the adequacy of its estimated cash flow from operations and other expected liquidity sources to meet these needs. The Company believes that its principal short-term liquidity needs are to fund normal recurring expenses and to pay the preferred limited partnership distribution. The Company anticipates that these needs will be met with cash flows provided by operating activities. The Company expects to fund its long-term (greater than one year) liquidity requirements for non-recurring capital improvements and property expansions with its cash flow from operations, capital contributions and in part with a deferred maintenance escrow established in connection with the issuance of the Series A Preferred Stock. INFLATION Inflation has not had a significant impact on the Company because of the relatively low inflation rates in the Company's markets of operation. Most of the Company's leases require the tenants to pay their share of operating expenses, including common area maintenance, real estate taxes and insurance, thereby reducing the Company's exposure to increases in costs and operating expenses resulting from inflation. In addition, many of the leases are for terms less than five years which may enable the Company to replace existing leases with new leases at higher base rentals if rents of existing leases are below the then-existing market rate. YEAR 2000 CONCERNS The Company believes, based on discussions with its current systems' vendor, that its software applications and operational programs will properly recognize calendar dates beginning in the Year 2000. In addition, the Company is discussing with its major vendors and customers the possibility of any interface difficulties relating to the Year 2000 which may effect the Company. To date, no significant concerns have been identified, however, there can be no assurance that there will not be any Year 2000 related operating problems or expenses that will arise with the Company's computer systems and software or in connection with the Company's interface with the computer systems and software of its vendors and customers. OTHER In June 1997, the FASB issued Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income". This statement, effective for fiscal years beginning after December 15, 1997, requires the Company to report components of comprehensive income in a financial statement that is displayed with the same prominence as other financial statements. Comprehensive income is defined by Concepts Statement No. 6, "Elements of Financial Statements" as the change in the equity of a business enterprise during a period from transactions and other events and circumstances from non-owner sources. It includes all changes in equity during a period except those resulting from investments by owners and distributions to owners. The Company has not yet determined its comprehensive income. In June 1997, the FASB issued Statement of Financial Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and Related Information". This statement, effective for financial statements for periods beginning after December 15, 1997, requires that a public business enterprise report financial and descriptive information about its reportable operating segments. Generally, financial information is required to be reported on the basis that it is used internally for evaluating segment performance and deciding how to allocate resources to segments. The Company has not yet determined the impact of this statement on its financial statements. 12 13 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA See Index to Financial Statements and Financial Statement Schedule on page F-1 of this Form 10-K. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES None. PART III ITEM 10 AND 11. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT AND EXECUTIVE COMPENSATION The directors and executive officers of Securities Corporation, the general partner of the Company are as follows:
Name Age Office ---- --- ------ Michael T. Tomasz 55 President, Chief Executive Officer and Director Michael W. Brennan 41 Chief Operating Officer Michael J. Havala 38 Chief Financial Officer and Director Patrick J. Galvin 58 Independent Director
The independent director receives an annual director's fee of $10,000. No other director or executive officer of Securities Corporation receives any separate compensation as such. The following biographical descriptions set forth certain information with respect to the directors and executive officers of Securities Corporation: Michael T. Tomasz. Mr. Tomasz has been President, Chief Executive Officer and Director of Securities Corporation since its inception and has been President, Chief Executive Officer and Director of FR since April 1994. Between 1986 and 1994, he was managing partner of the Chicago office of The Shidler Group and was involved in the acquisition, financing, leasing, managing and disposition of over $270 million of commercial property. Michael W. Brennan. Mr. Brennan has been Chief Operating Officer of Securities Corporation since its inception and has been Chief Operating Officer of FR since December 1995 and a Director of FR since March, 1996, prior to which time he was Senior Vice President, Asset Management of FR since April 1994. He was a partner of The Shidler Group between 1988 and 1994 and the President of the Brennan/Tomasz/Shidler Investment Corporation and was in charge of asset management, leasing, project finance, accounting and treasury functions for The Shidler Group's Chicago operations. Michael J. Havala. Mr. Havala has been Chief Financial Officer and Director of Securities Corporation since its inception and has been the Chief Financial Officer of FR since April 1994. Between 1989 and 1994 he was Chief Financial Officer for The Shidler Group's Midwest region with responsibility for accounting, finance and treasury functions. Patrick J. Galvin. Mr. Galvin has been Director of Securities Corporation since 1995. He has been a senior partner in the law firm of Galvin, Galvin & Leeney in Hammond, Indiana since 1986. He is admitted to the practice of law in the States of Indiana and Illinois and the District of Columbia and is a member of the American Bar Association. Mr. Galvin holds a Bachelor of Arts degree from the University of Notre Dame and received J.D. and L.L.M. in taxation degrees from the Georgetown University Law Center. He serves on the Board of Directors of Mercantile National Bank of Indiana. 13 14 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Securities Corporation owns a 1% general partner interest and the preferred limited partner interest in the Company. The Operating Partnership owns a 99% limited partner interest in the Company. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The Company's Properties are managed by the Operating Partnership pursuant to a property management agreement. Management fees incurred are based on 3.25% of gross receipts. These fees totaled $380,173 for the period January 1, 1997 to December 31, 1997. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K (A) FINANCIAL STATEMENTS, FINANCIAL STATEMENT SCHEDULE AND EXHIBITS (1 & 2) See Index to Financial Statements and Financial Statement Schedule on page F-1 of this Form 10-K (3) Exhibits: Exhibit No. Description ----------- ----------- 27 *Financial Data Schedule (B) REPORTS ON FORM 8-K None. * Filed herewith. 14 15 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. FIRST INDUSTRIAL SECURITIES, L.P. BY: FIRST INDUSTRIAL SECURITIES CORPORATION, ITS SOLE GENERAL PARTNER Date: March 20, 1998 By: /s/ Michael T. Tomasz -------------------------------------------- Michael T. Tomasz President and Chief Executive Officer (Principal Executive Officer) Date: March 20, 1998 By: /s/ Michael J. Havala -------------------------------------------- Michael J. Havala Chief Financial Officer (Principal Financial and Accounting Officer) Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. Signature Title Date - --------- ----- ---- /s/ Michael T. Tomasz President, Chief Executive Officer March 20, 1998 - --------------------- and Director Michael T. Tomasz /s/ Michael J. Havala Chief Financial Officer and Director March 20, 1998 - --------------------- Michael J. Havala /s/ Patrick J. Galvin Director March 20, 1998 - --------------------- Patrick J. Galvin 15 16 EXHIBIT INDEX
Exhibit No. Description - ----------- ------------------------ 27 Financial Data Schedule
16 17 FIRST INDUSTRIAL SECURITIES, L.P. INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE PAGE FINANCIAL STATEMENTS Report of Independent Accountants........................................ F-2 Balance Sheets of First Industrial Securities, L.P. (the "Company") as of December 31, 1997 and 1996......................................... F-3 Statements of Operations of the Company for the Years Ended December 31, 1997 and 1996 and for the Period August 14, 1995 through December 31, 1995 and the Combined Statement of Operations for the Predecessor Businesses for the Period January 1, 1995 through December 15, 1995...... F-4 Statements of Changes in Partners' Capital of the Company for the Years Ended December 31, 1997 and 1996 and for the Period August 14, 1995 through December 31, 1995 and the Combined Statement of Changes in Partners' Capital of the Predecessor Businesses for the Period January 1, 1995 through December 15, 1995................................ F-5 Statements of Cash Flows of the Company for the Years Ended December 31, 1997 and 1996 and for the Period August 14, 1995 through December 31, 1995 and the Combined Statement of Cash Flows of the Predecessor Businesses for the Period January 1, 1995 through December 15, 1995...... F-6 Notes to Financial Statements and Combined Financial Statements.......... F-7 FINANCIAL STATEMENT SCHEDULE Schedule III: Real Estate and Accumulated Depreciation.................. S-1 F-1 18 REPORT OF INDEPENDENT ACCOUNTANTS To the Partners of First Industrial Securities, L.P. We have audited the financial statements and the financial statement schedule of First Industrial Securities, L.P. (the "Company") and the combined financial statements of the Predecessor Businesses as listed on page F-1 of this Form 10-K. These financial statements and the financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and the financial statement schedule based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of First Industrial Securities, L.P. as of December 31, 1997 and 1996, and the results of its operations and its cash flows for the years ended December 31, 1997 and 1996 and for the period August 14, 1995 through December 31, 1995 and the combined results of operations and cash flows of the Predecessor Businesses for the period January 1, 1995 through December 15, 1995, in conformity with generally accepted accounting principles. In addition, in our opinion, the financial statement schedule referred to above, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respects, the information required to be included therein. COOPERS & LYBRAND L.L.P. Chicago, Illinois February 17, 1998 F-2 19 FIRST INDUSTRIAL SECURITIES, L.P. BALANCE SHEETS (DOLLARS IN THOUSANDS)
December 31, December 31, 1997 1996 ----------- --------- ASSETS Assets: Investment in Real Estate: Land .......................................................... $ 11,626 $ 11,626 Buildings and Improvements .................................... 65,767 64,629 Construction in Progress ...................................... 2,098 -- Less: Accumulated Depreciation ................................ (5,385) (3,673) -------- -------- Net Investment in Real Estate ................................. 74,106 72,582 Cash and Cash Equivalents ........................................ 458 1,428 Restricted Cash .................................................. 411 411 Tenant Accounts Receivable, Net .................................. 99 568 Deferred Rent Receivable ......................................... 1,102 717 Prepaid Expenses and Other Assets, Net ........................... 646 631 -------- -------- Total Assets .......................................... $ 76,822 76,337 ======== ======== LIABILITIES AND PARTNERS' CAPITAL Liabilities: Accounts Payable and Accrued Expenses ............................ $ 1,053 $ 858 Rents Received in Advance and Security Deposits .................. 468 582 -------- -------- Total Liabilities ..................................... 1,521 1,440 -------- -------- Commitments and Contingencies ....................................... -- -- Partners' Capital: General Partner and Preferred Limited Partner ....................... 41,258 41,254 Limited Partner ..................................................... 34,043 33,643 -------- -------- Total Partners' Capital ............................. 75,301 74,897 -------- -------- Total Liabilities and Partners' Capital ............. $ 76,822 $ 76,337 ======== ========
The accompanying notes are an integral part of the financial statements. F-3 20 FIRST INDUSTRIAL SECURITIES, L.P. STATEMENTS OF OPERATIONS AND PREDECESSOR BUSINESSES COMBINED STATEMENT OF OPERATIONS (DOLLARS IN THOUSANDS)
Predecessor First Industrial Securities, L.P. Businesses ---------------------------------------------------------- --------------------- For the Period For the Period Year Ended Year Ended August 14, 1995 January 1, 1995 December 31, December 31, to December 31, to December 15, 1997 1996 1995 1995 ------------ ------------ ---------------- ---------------- Revenues: Rental Income .......................... $ 8,544 $ 8,644 $ 974 $ 6,261 Tenant Recoveries and Other Income 2,811 2,872 249 1,787 ------- ------- ------- ------- Total Revenues ................... 11,355 11,516 1,223 8,048 ------- ------- ------- ------- Expenses: Real Estate Taxes ...................... 2,213 2,328 219 1,597 Repairs and Maintenance ................ 444 390 6 217 Property Management .................... 380 386 36 271 Utilities............................... 158 106 2 72 Insurance .............................. 32 70 6 81 Other .................................. 84 114 -- 53 Interest Expense ....................... -- -- -- 2,376 Depreciation and Other Amortization 1,820 1,766 271 1,261 ------- ------- ------- ------- Total Expenses .................. 5,131 5,160 540 5,928 ------- ------- ------- ------- Net Income ............................... $ 6,224 $ 6,356 $ 683 $ 2,120 ======= ======= ======= =======
The accompanying notes are an integral part of the financial statements. F-4 21 FIRST INDUSTRIAL SECURITIES, L.P. STATEMENTS OF CHANGES IN PARTNERS' CAPITAL AND PREDECESSOR BUSINESSES COMBINED STATEMENT OF CHANGES IN PARTNERS' CAPITAL (DOLLARS IN THOUSANDS)
Predecessor Businesses -------------------- Partners' Capital Total -------------------- ----------------- Balance at December 31, 1994 $ 26,204 $ 26,204 Contributions ............... 4,567 4,567 Distributions (Note 2) ...... (32,891) (32,891) Net Income .................. 2,120 2,120 -------------- ------------ Balance at December 15, 1995 ... $ -- $ -- ============== ============
First Industrial Securities, L.P. ----------------------------------------------------------------- General Partner and Limited Preferred Limited Partner Partner Total ------------------- ------------------- ------------------- Balance at August 14, 1995............ $ -- $ -- $ -- Contributions: Cash................ -- 41,251 41,251 Contributions: Other .............. 33,302 -- 33,302 Distributions...................... -- (468) (468) Net Income ........................ 213 470 683 ---------- --------- --------- Balance at December 31, 1995 ......... $ 33,515 $ 41,253 $ 74,768 Distributions ..................... (2,284) (3,943) (6,227) Net Income ........................ 2,412 3,944 6,356 ---------- --------- --------- Balance at December 31, 1996 ......... $ 33,643 $ 41,254 $ 74,897 Contributions......................... 396 4 400 Distributions......................... (2,277) (3,943) (6,220) Net Income ........................ 2,281 3,943 6,224 ---------- --------- --------- Balance at December 31, 1997.......... $ 34,043 $ 41,258 $ 75,301 ========== ========= =========
The accompanying notes are an integral part of the financial statements. F-5 22 FIRST INDUSTRIAL SECURITIES, L.P. STATEMENTS OF CASH FLOWS AND PREDECESSOR BUSINESSES COMBINED STATEMENT OF CASH FLOWS (DOLLARS IN THOUSANDS)
Predecessor First Industrial Securities, L.P. Businesses ------------------------------------------------- --------------------- For the Year For the Year Ended Ended For the Period For the Period December 31, December 31, August 14, 1995 to January 1, 1995 to 1997 1996 December 31, 1995 December 15, 1995 ------------- -------------- -------------------- -------------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net Income................................................ $ 6,224 $ 6,356 $ 683 $ 2,120 Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities: Depreciation and Amortization........................ 1,820 1,766 271 1,261 Provision for Bad Debts.............................. --- 50 --- --- Increase in Deferred Rent Receivable................. (385) (291) (39) (311) Decrease (Increase) in Tenant Accounts Receivable.... 469 (455) (163) --- Increase in Prepaid Expenses and Other Assets........ (123) (277) (66) (223) (Decrease) Increase in Accounts Payable and Accrued Expenses and Rents Received in Advance and Security Deposits.................................. (368) 330 893 (808) -------- --------- -------------- -------------- Net Cash Provided by Operating Activities........ 7,637 7,479 1,579 2,039 -------- --------- -------------- -------------- CASH FLOWS FROM INVESTING ACTIVITIES Purchase of and Additions to Investment in Real Estate and Construction in Progress........... (2,787) (936) --- (22,681) -------- --------- -------------- -------------- Net Cash Used In Investing Activities................ (2,787) (936) --- (22,681) -------- --------- -------------- -------------- CASH FLOWS FROM FINANCING ACTIVITIES Distributions........................................ (6,220) (6,227) (468) --- Proceeds from Acquisition Facilities Payable......... --- --- --- 16,075 Repayments on Acquisition Facilities Payable......... --- --- (41,250) --- Capital Contributions................................ 400 --- 41,251 4,567 -------- --------- -------------- -------------- Net Cash (Used In) Provided by Financing Activities..................................... (5,820) (6,227) (467) 20,642 -------- --------- -------------- -------------- Net (Decrease) Increase in Cash and Cash Equivalents..... (970) 316 1,112 --- Cash and Cash Equivalents, Beginning of Period............ 1,428 1,112 --- --- -------- --------- -------------- -------------- Cash and Cash Equivalents, End of Period.................. $ 458 $ 1,428 $ 1,112 $ --- ======== ========== ============= ============== Supplemental Cash Flow Information Cash Paid for Interest........................... $ --- $ --- $ --- $ 1,957 ======== ========== ============= ============== Interest Capitalized............................. $ --- $ --- $ --- $ 114 ======== ========== ============= ==============
The accompanying notes are an integral part of the financial statements. F-6 23 FIRST INDUSTRIAL SECURITIES, L.P. AND PREDECESSOR BUSINESS NOTES TO FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA ) 1. ORGANIZATION First Industrial Securities, L.P. ("the Company") is a Delaware limited partnership formed on August 14, 1995, the 1% general partner of which is First Industrial Securities Corporation ("Securities Corporation"), a wholly owned subsidiary of First Industrial Realty Trust, Inc. ("FR"), and the 99% limited partner of which is First Industrial, L.P. (the "Operating Partnership"), of which FR is the sole general partner. Securities Corporation also owns a preferred limited partnership interest in the Company. The limited partnership agreement of the Company (the "Limited Partnership Agreement") and the Guarantee Agreement (herein after defined) contain covenants generally restricting the Company's activities to the ownership and operation of the properties and, under certain circumstances, other industrial properties. These covenants shall cease to have any effect upon the termination of the Guarantee. Under its Articles of Incorporation, Securities Corporation's sole purpose will be to act as general partner of the Company and to pay dividends on its common and preferred stock. These and other restrictions are intended to assure that even in the event of FR, the Operating Partnership or other affiliates of FR becoming subject to federal bankruptcy proceedings, neither Securities Corporation nor the Company nor their assets will be treated as subject to such bankruptcy proceedings under the doctrine of substantive consolidation or other doctrines (except to the extent liabilities are imposed by non-insolvency regulatory statutes on affiliates) and that activities of FR, the Operating Partnership and other affiliates will not cause Securities Corporation or the Company to become insolvent or unable to pay their debts as they mature (including the Guarantee). 2. FORMATION TRANSACTIONS The Initial Capitalization The Company was capitalized with a capital contribution of $1 on August 28, 1995 by Securities Corporation. The Contribution Transactions On November 17, 1995, FR completed a public offering of 1,500,000 shares of $.01 par value 9 1/2% Series A Cumulative Preferred Stock at $25.00 per share, and on December 14, 1995, FR issued 150,000 shares of $.01 par value 9 1/2% Series A Cumulative Preferred Stock for $25.00 per share pursuant to the underwriters' exercise of their over-allotment option (together the "Series A Preferred Shares"). The issuance of 1,650,000 Series A Preferred Shares is thus referred to as the "Offering". Gross proceeds to FR from the Offering were $41,250. FR contributed to Securities Corporation the gross proceeds from the Offering in exchange for preferred stock of Securities Corporation, and Securities Corporation contributed such proceeds to the Company in exchange for a preferred limited partnership interest in the Company. The Operating Partnership and First Industrial Pennsylvania, L.P. (the "Pennsylvania Partnership"), a Delaware limited partnership and a subsidiary of the Operating Partnership, contributed to the Company, in return for limited partnership interests, 14 properties and 5 properties (described below) on November 17, 1995 and December 14, 1995, respectively, encumbered by liens collateralizing debt under the 1994 Acquisition Facility (herein after defined). An amount of such debt equal to the gross proceeds of the Offering was repaid by the Company and such liens on the properties described F-7 24 FIRST INDUSTRIAL SECURITIES, L.P. AND PREDECESSOR BUSINESS NOTES TO FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA ) 2. FORMATION TRANSACTIONS, CONTINUED below have been released. The Pennsylvania Partnership contributed its limited partnership interest in the Company to the Operating Partnership. The foregoing is herein collectively referred to as the "Contribution Transactions". The Company commenced operations on November 17, 1995. The Properties Upon consummation of the Offering and the Contribution Transactions (collectively, the "Formation Transactions"), the Company owned 19 properties located in four states containing an aggregate of approximately 2.1 million square feet (unaudited) of gross leasable area ("GLA"). Of the properties: (a) Four were acquired by the Operating Partnership prior to FR's initial public offering (the "Initial Offering") in June, 1994; (b) Two were acquired concurrently with the consummation of the Initial Offering; and (c) Thirteen were acquired or developed by either the Operating Partnership or the Pennsylvania Partnership subsequent to the Initial Offering. During 1997, the Company completed a 17,000 (unaudited) square foot expansion of an existing industrial property located in Grand Rapids, Michigan. The Guarantee In connection with the Offering, the Company entered into a Guarantee and Payment Agreement (the "Guarantee Agreement") pursuant to which the Company guaranteed the payment of dividends on, and payments on liquidation or redemption of, the Series A Preferred Shares. The guarantee was created through the execution of the Guarantee Agreement between the Company and Securities Corporation, for the benefit of a guarantee agent. The Guarantee Agreement is administered and enforced for the benefit for the holders of the Series A Preferred Shares by the guarantee agent. The guarantee agent may enforce the guarantee directly against the Company only with the approval of the holders of at least 25% of the outstanding Series A Preferred Shares. No holder may seek directly to enforce the guarantee. Under the terms of the Guarantee Agreement, the Company was required to deposit approximately $414 into a restricted cash escrow account with the guarantee agent (the "Restricted Escrow"). These funds were set aside to pay for certain repair and maintenance items of the contributed properties. The balance of the Restricted Escrow at December 31, 1997 and 1996 is $411 and is included in restricted cash. F-8 25 FIRST INDUSTRIAL SECURITIES, L.P. AND PREDECESSOR BUSINESS NOTES TO FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA ) 3. BASIS OF PRESENTATION The Statements of Operations for the Company present the operations of the Company for the years ended December 31, 1997 and 1996 and for the period August 14, 1995 to December 31, 1995. The Combined Statements of Operations for the Predecessor Business present the historical operations of the properties from the date of acquisition (or, if the property was developed, the date placed in service) by the Predecessor Businesses through the dates of the Contribution Transactions. 4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES In order to conform with the generally accepted accounting principles, management, in preparation of the financial statements, is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of December 31, 1997 and 1996, and the reported amounts of revenues and expenses for the years ended December 31, 1997 and 1996, the period August 14, 1995 to December 31, 1995 and the period January 1, 1995 to December 15, 1995. Actual results could differ from those estimates. Revenue Recognition: Rental income is recognized on a straight-line method under which contractual rent increases are recognized evenly over the lease term. Tenant recovery income includes payments from tenants for taxes, insurance and other property operating expenses and are recognized as revenues in the period the related expenses are incurred by the Company. The Company evaluates and, if applicable, provides for an allowance for doubtful accounts against the portion of accounts receivable which is estimated to be uncollectible. Accounts receivable in the balance sheets are shown net of an allowance for doubtful accounts of $50 as of December 31, 1997 and 1996. General and Administrative Expenses incurred related to the operations of the properties are reflected in property management expense, therefore, there is no allocation of FR's general and administrative expense. Investment in Real Estate and Depreciation: Real estate assets are carried at the lower depreciated cost or fair value as determined by the Company. The Company reviews its properties on a quarterly basis for impairment and provides an allowance if impairments are determined. First, to determine if impairment may exist, the Company reviews its properties and identifies those which have had either an event of change or event of circumstance warranting further assessment of recoverability. Then, the Company estimates the fair value of those properties on an individual basis by capitalizing the expected net operating income. Such amounts are then compared to the property's depreciated cost to determine whether an impairment exists. F-9 26 FIRST INDUSTRIAL SECURITIES, L.P. AND PREDECESSOR BUSINESS NOTES TO FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA ) 4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED Interest expense, real estate taxes and other directly related expenses incurred during construction periods are capitalized and depreciated commencing with the date placed in service, on the same basis as the related assets. Depreciation expense is computed using the straight-line method based on the following useful lives:
Years ----- Buildings and Improvements................ 38 to 40 Land Improvements......................... 15
Construction expenditures for tenant improvements and leasing commissions are capitalized and amortized over the terms of each specific lease, and repairs and maintenance are charged to expense when incurred. Expenditures for improvements are capitalized. Cash and Cash Equivalents: Cash and cash equivalents include all cash and liquid investments with an initial maturity of three months or less. The carrying amount approximates fair value due to the short maturity of these investments. Income Taxes: No federal income taxes are payable by the Company or the Predecessor Businesses, and none have been provided for in the accompanying financial statements and combined financial statements. Prior to the Offering, the Predecessor Businesses were owned by the Operating Partnership and the Pennsylvania Partnership. In accordance with partnership taxation, each of the partners are responsible for reporting their share of taxable income or loss. Fair Value of Financial Investments: The Company's financial instruments include short-term investments, tenant accounts receivable, accounts payable and other accrued expenses. The fair value of these financial instruments was not materially different from their carrying amount or contract values. Reclassifications: Certain amounts in the 1996 and 1995 financial statements were reclassified to conform with the current year presentation. 5. RELATED PARTY TRANSACTIONS The 19 properties owned by the Company are managed by the Operating Partnership, of which FR is the sole general partner. Management fees incurred are based on 3.25% of gross receipts. Such fees totaled $380, $386 and $36 for the years ended December 31, 1997, 1996 and the period August 14, 1995 to December 31, 1995, respectively. At December 31, 1997 and 1996, $0 and $42 of accrued management fees were due to the Operating Partnership, respectively. F-10 27 FIRST INDUSTRIAL SECURITIES, L.P. AND PREDECESSOR BUSINESS NOTES TO FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA ) 6. THE ACQUISITION FACILITY PAYABLE On June 30, 1994, the Operating Partnership entered into a revolving credit facility (the "1994 Acquisition Facility") under which the Operating Partnership may borrow to finance the acquisition of additional properties and for other corporate purposes, including working capital. The combined financial statements of the Predecessor Business assume a loan balance proportional to the total lender's estimated value of the properties compared to the total lender's estimated value of all properties collateralizing the 1994 Acquisition Facility. Borrowings under the 1994 Acquisition Facility bear interest at a floating rate based on a "Corporate Base Rate" plus .5% or LIBOR plus 2.0%. Under the 1994 Acquisition Facility, interest only payments are due monthly. The borrowings under the 1994 Acquisition Facility are cross-collateralized by certain other properties acquired and held by the Operating Partnership and the Pennsylvania Partnership. In connection with the Contribution Transactions, the outstanding balance under the 1994 Acquisition Facility allocable to the Predecessor Businesses was repaid and the liens on the properties collateralizing such facility were released. 7. PARTNERS' CAPITAL During 1996, the Company distributed $4,388 ($468 of which was accrued in 1995) to Securities Corporation in respect of its preferred limited partnership interest in the Company, and Securities Corporation paid a preferred stock dividend of $4,388 to FR, in each case, the amount equal to the aggregate dividend payable on FR's Series A Preferred Stock. During 1996, the Company paid a pro rata general and limited partnership distribution to Securities Corporation and the Operating Partnership, respectively, in the aggregate amount of $2,307. During 1997, the Company distributed $3,920 to Securities Corporation in respect of its preferred limited partnership interest in the Company, and Securities Corporation paid a preferred stock dividend of $3,920 to FR, in each case, the amount equal to the aggregate dividend payable on FR's Series A Preferred Stock. During 1997, the Company paid a pro rata general and limited partnership distribution to Securities Corporation and the Operating Partnership, respectively, in the aggregate amount of $2,300. During 1997, the Company received a pro rata general and limited partnership distribution from Securities Corporation and the Operating Partnership, respectively, in the aggregate amount of $400. F-11 28 FIRST INDUSTRIAL SECURITIES, L.P. AND PREDECESSOR BUSINESS NOTES TO FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA ) 8. FUTURE RENTAL REVENUES The Company's properties are leased to tenants under net and semi-net operating leases. Minimum lease payments receivable, excluding tenant reimbursements of expenses, under noncancelable operating leases in effect as of December 31, 1997 are approximately as follows: 1998 $ 8,003 1999 7,086 2000 5,679 2001 3,771 2002 3,302 Thereafter 7,077 -------------- Total $ 34,918 ==============
Three of the Company's properties represent ten percent or more of the aggregate book value of the assets as of December 31, 1997, or ten percent or more of the Company's aggregate rental revenues as of December 31, 1997. 9. SUPPLEMENTAL INFORMATION TO STATEMENTS OF CASH FLOWS Supplemental disclosure of noncash investing and financing activities: Exchange of Limited Partnership Interest for Assets and Liabilities
FIRST INDUSTRIAL SECURITIES, L.P. FOR THE PERIOD AUGUST 14, TO DECEMBER 31, 1995 ------------------------------ Land ....................................... $ 11,626 Buildings and Improvements ................. 63,693 Accumulated Depreciation ................... (1,718) Restricted Cash ............................ 414 Deferred Rent Receivable ................... 387 Other Assets ............................... 367 Acquisition Facility Payable ............... (41,250) Accrued Expenses ........................... (217) Limited Partnership Interest ............... (33,302) ---------------- $ --- ================
F-12 29 FIRST INDUSTRIAL SECURITIES, L.P. AND PREDECESSOR BUSINESS NOTES TO FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) 10. COMMITMENTS AND CONTINGENCIES In the normal course of business, the Company is involved in legal actions arising from the ownership of their properties. In management's opinion, the liabilities, if any, that may ultimately result from such legal actions are not expected to have a material adverse effect on the financial position, results of operations or liquidity of the Company or the Predecessor Businesses. Two properties have leases granting the tenants options to purchase the property. Such options are exercisable at various times and at an appraised fair market value or at a fixed purchased price generally in excess of the Company's purchase price. The Company has no notice of any exercise of any tenant purchase option. The Company has committed to the expansion of one industrial property located in Auburn Hills, Michigan. The estimated total cost of the expansion is approximately $2.6 million, and is expected to be funded with cash flows from operations and capital contributions, if necessary. 11. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
FIRST INDUSTRIAL SECURITIES, L.P. YEAR ENDED DECEMBER 31, 1997 ----------------------------------------------------------------------- FIRST QUARTER SECOND QUARTER THIRD QUARTER FOURTH-QUARTER ---------------- ----------------- ----------------- ------------------ Revenues .................... $ 2,879 $ 2,677 $ 2,894 $ 2,905 Property Expenses ........... (904) (829) (784) (794) Depreciation and Amortization (447) (443) (462) (468) ------- ------- ------- ------- Net Income .................. $ 1,528 $ 1,405 $ 1,648 $ 1,643 ======= ======= ======= =======
FIRST INDUSTRIAL SECURITIES, L.P. YEAR ENDED DECEMBER 31, 1996 ----------------------------------------------------------------------- FIRST QUARTER SECOND QUARTER THIRD QUARTER FOURTH QUARTER ---------------- ----------------- ----------------- ------------------ Revenues .................... $ 2,742 $ 3,005 $ 2,876 $ 2,893 Property Expenses ........... (680) (775) (1,059) (880) Depreciation and Amortization (439) (439) (442) (446) ------- ------- ------- ------- Net Income .................. $ 1,623 $ 1,791 $ 1,375 $ 1,567 ======= ======= ======= =======
F-13 30 FIRST INDUSTRIAL SECURITIES, L.P. SCHEDULE III: REAL ESTATE AND ACCUMULATED DEPRECIATION AS OF DECEMBER 31, 1997 (DOLLARS IN THOUSANDS)
COSTS CAPITALIZED SUBSEQUENT TO INITIAL COST (A) ACQUISITION LOCATION ------------------------ OR BUILDING ADDRESS (CITY/STATE) LAND BUILDINGS COMPLETION - ---------------- ------------ --------- ------------- -------------- 5020 Louise Drive ........... Mechanisburg, PA $ 707 $ -- $ 2,773 7195 Grayson ................ Harrisburg, IL 478 2,771 77 3150-3160 MacArthur Boulevard Northbrook, IL 439 2,518 30 2101-2125 Gardner Road ...... Broadview, IL 1,177 6,818 110 365 North Avenue ............ Carol Stream, IL 1,208 6,961 81 2942 MacArthur Boulevard .... Northbrook, IL 315 1,803 15 2965 Technology Drive ....... Rochester Hills, MI 953 -- 2,403 1451 Lincoln Avenue ......... Madison Heights, MI 299 1,703 452 4400 Purks Drive ............ Auburn Hills, MI 602 3,410 114 4177A Varsity Drive ......... Ann Arbor, MI 90 536 78 6515 Cobb Drive ............. Sterling Heights, MI 305 1,753 30 425 Gordon Industrial Court . Grand Rapids, MI 611 3,747 1,331 2851 Prairie Street ......... Grandville, MI 337 2,778 281 2945 Walkent Court .......... Grand Rapids, MI 310 2,074 297 537 76th Street ............. Grand Rapids, MI 255 1,456 331 6655 Wedgewood Road ......... Maple Grove, MN 1,465 8,410 76 900 Apollo Road ............. Eagan, MN 1,029 5,855 195 7316 Aspen Lane North ....... Brooklyn Park, MN 368 2,156 181 6707 Shingle Creek Parkway .. Brooklyn Center, MN 376 2,101 364 ------- ------- ------- $11,324 $56,850 $ 9,219 ======= ======= ======= GROSS AMOUNT CARRIED AT CLOSE OF PERIOD (12/31/97)(C) --------------------------------------- ACCUMULATED BUILDING AND DEPRECIATION YEAR BUILT/ DEPRECIABLE BUILDING ADDRESS LAND IMPROVEMENTS TOTAL 12/31/97 RENOVATED LIVES(YEARS) - ---------------- ---------- --------------- --------- -------------- ------------ ------------- 5020 Louise Drive ........... $ 716 $ 2,764 $ 3,480 $ 257 1995 (b) 7195 Grayson ................ 479 2,847 3,326 219 1994 (b) 3150-3160 MacArthur Boulevard 439 2,548 2,987 224 1978 (b) 2101-2125 Gardner Road ...... 1,228 6,877 8,105 571 1950/69 (b) 365 North Avenue ............ 1,208 7,042 8,250 571 1969 (b) 2942 MacArthur Boulevard .... 315 1,818 2,133 159 1979 (b) 2965 Technology Drive ....... 964 2,392 3,356 172 1995 (b) 1451 Lincoln Avenue ......... 305 2,149 2,454 142 1967 (b) 4400 Purks Drive ............ 610 3,516 4,126 (d) 226 1987 (b) 4177A Varsity Drive ......... 90 614 704 92 1993 (b) 6515 Cobb Drive ............. 305 1,783 2,088 147 1984 (b) 425 Gordon Industrial Court . 644 5,045 5,689 411 1990 (b) 2851 Prairie Street ......... 445 2,951 3,396 277 1989 (b) 2945 Walkent Court .......... 352 2,329 2,681 219 1993 (b) 537 76th Street ............. 258 1,784 2,042 117 1987 (b) 6655 Wedgewood Road ......... 1,466 8,485 9,951 713 1989 (b) 900 Apollo Road ............. 1,029 6,050 7,079 427 1970 (b) 7316 Aspen Lane North ....... 394 2,311 2,705 166 1978 (b) 6707 Shingle Creek Parkway .. 379 2,462 2,841 275 1986 (b) ------- ------- ------- ------- $11,626 $65,767 $77,393 $ 5,385 ======= ======= ======= =======
NOTES: (a) Initial cost for each respective property is total acquisition costs associated with its purchase. (b) Depreciation is computed based upon the following estimated lives: Buildings, Improvements 38 to 40 years Tenant Improvements, Leasehold Improvements Life of lease (c) At December 31, 1997, aggregate cost of land, buildings and improvements for federal income tax purposes was approximately $77.0 million. (d) Excludes $2,098 of construction in progress related to the expansion of this property. Estimated total cost of the expansion is approximately $2,630. There were no encumbrances on the properties at December 31, 1997 S-1 31 FIRST INDUSTRIAL SECURITIES, L.P. SCHEDULE III: REAL ESTATE AND ACCUMULATED DEPRECIATION (CONTINUED) AS OF DECEMBER 31, 1997 (DOLLARS IN THOUSANDS) The changes in total real estate assets for the years ended December 31, 1997 and 1996 are as follows:
FIRST INDUSTRIAL SECURITIES, L.P. ---------------------------------------------- 1997 1996 --------------------- --------------------- Balance, Beginning of Year .................................................. $ 76,255 $ 75,319 Capital Contribution from Operating Partnership and Pennsylvania Partnership, Acquisitions, Construction Costs and Improvements ....................... 3,236 936 --------------------- --------------------- Balance, End of Year ........................................................ $ 79,491 $ 76,255 ===================== =====================
The changes in depreciation for the years ended December 31, 1997 and 1996 are as follows:
FIRST INDUSTRIAL SECURITIES, L.P. ---------------------------------------------- 1997 1996 --------------------- --------------------- Balance, Beginning of Year .................................................. $ 3,673 $ 1,981 Depreciation ................................................................ 1,712 1,692 --------------------- --------------------- Balance, End of Year ........................................................ $ 5,385 $ 3,673 ===================== =====================
S-2 EX-27 2 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM (A) THE FINANCIAL STATEMENTS OF FIRST INDUSTRIAL SECURITIES, L.P. FOR THE YEAR ENDED DECEMBER 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH (B) FINANCIAL STATEMENTS. 1,000 YEAR DEC-31-1997 JAN-01-1997 DEC-31-1997 458 0 149 (50) 0 557 79,491 (5,385) 76,822 1,053 0 0 0 0 75,301 76,822 0 11,355 0 (3,311) (1,820) 0 0 6,224 0 6,224 0 0 0 6,224 0 0
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