-----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, Qm56Th3lD0cbE9gBn4gr8pMpOmTM5cjIv5r93u7tWDYX8N+QLG0FVdS8ROqTFLr/ EoT6lwzi4O1Rej4GKMyn9w== 0000950137-99-000349.txt : 19990318 0000950137-99-000349.hdr.sgml : 19990318 ACCESSION NUMBER: 0000950137-99-000349 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 19990317 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: 99566835 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 FORM 10-K DATED 12-31-98 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, 1998 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...........................................................................9 Item 4. Submission of Matters to a Vote of Security Holders.........................................9 PART II. Item 5. Market for Registrant's Common Equity and Related Stockholder Matters......................10 Item 6. Selected Financial Data....................................................................10 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations......11 Item 7a. Quantitative and Qualitative Disclosures About Market Risk.................................15 Item 8. Financial Statements and Supplementary Data................................................15 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosures......15 PART III. Item 10. Directors and Executive Officers of the Registrant.........................................16 Item 11. Executive Compensation.....................................................................16 Item 12. Security Ownership of Certain Beneficial Owners and Management.............................16 Item 13. Certain Relationships and Related Transactions.............................................16 PART IV. Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K...........................17 SIGNATURES...........................................................................................18
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 industrial properties (the "Properties"). The Properties consist of seven light industrial properties, five bulk warehouse properties, four manufacturing properties, two regional warehouse properties and one R&D/Flex property. The markets in which the Properties are located include: Chicago, IL, Minneapolis/St. Paul, MN, Grand Rapids, MI, Detroit, MI 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, 1998, was 99.4% leased to 33 tenants. At December 31, 1998, 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 1,650,000 shares of $.01 par value Series A Cumulative Preferred Stock (the "Series A Preferred Stock") 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 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 the Company's limited partner. 3 4 THE GUARANTEE AND LIMITED PARTNERSHIP AGREEMENT The Company has guaranteed the payment of dividends on, and payments upon 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 is 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, 1998 the Company owned 19 in-service industrial 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, 1998 was approximately eleven years. The Company classifies its Properties into five industrial categories: Light Industrial, R&D/Flex, Bulk Warehouse, Regional Warehouse and Manufacturing. While some Properties may have characteristics which fall under more than one property type, the Company has used what it feels is the most dominating characteristic to categorize the property. 4 5 The following table summarizes certain information as of December 31, 1998 with respect to the Properties. PROPERTY SUMMARY
Regional Light Industrial R&D/ FLEX Bulk Warehouse Warehouse Manufacturing ------------------- ----------------------- --------------------- --------------------- ------------------- Number Number Number Number Number Metropolitan of of of of of Area GLA Properties GLA Properties GLA Properties GLA Properties GLA Properties - ------------ ------- ---------- ------- ---------- ------- ---------- ------- ---------- ------- ---------- Chicago 41,820 1 49,730 1 225,000 1 -- -- 323,425 1 Minneapolis/ St. Paul -- -- -- -- -- -- 75,939 1 541,193 3 Grand Rapids 80,000 1 -- -- 384,500 3 -- -- -- -- Detroit 290,747 4 -- -- -- -- 66,395 1 -- -- Central Pennsylvania 49,350 1 -- -- 100,000 1 -- -- -- -- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- Total 461,917 7 49,730 1 709,500 5 142,334 2 864,618 4 ======= ======= ======= ======= ======= ======= ======= ======= ======= =======
TOTALS -------------------------------------------------------- AVERAGE GLA AS A % NUMBER OF OCCUPANCY AT OF TOTAL METROPOLITAN AREA GLA PROPERTIES 12/31/98 PORTFOLIO - -------------------- --------- ---------- ------------ ---------- Chicago 639,975 4 100% 29% Minneapolis/St. Paul 617,132 4 98% 27% Grand Rapids 464,500 4 100% 21% Detroit 357,142 5 100% 16% Central Pennsylvania 149,350 2 100% 7% - -------------------- --------- --------- --------- --------- Total or Average 2,228,099 19 99% 100% ========= ========= ========= =========
5 6 DETAIL PROPERTY LISTING The following table lists all of the Properties as of December 31, 1998, 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 12/31/98 - ----------------------------- ------------------- ----------- --------------- ------- ---------- ------------ 2101-2125 Gardner Road Broadview, IL 1950/69 Manufacturing 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 R&D/Flex 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 Manufacturing 39.00 312,265 100% 7316 Aspen Lane North Brooklyn Park, MN 1978 Manufacturing 6.63 97,640 87% 6707 Shingle Creek Parkway Brooklyn Center, MN 1986 Reg. Warehouse 4.22 75,939 100% 6655 Wedgwood Road Maple Grove, MN 1989 Manufacturing 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 5.45 117,251 100% 2945 Walkent Court Grand Rapids, MI 1993 Bulk Warehouse 4.45 93,374 100% 537 76th Street Grand Rapids, MI 1987 Light Industrial 5.26 80,000 100% 2965 Technology Drive Rochester Hills, MI 1995 Reg. Warehouse 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 13.04 157,100 (b) 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 2,228,099 99% ========= ============
(a) On April 1, 1997, the Company completed a 17,000 square foot expansion of this property. (b) On February 1, 1998, the Company completed a 70,000 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, 1998, 99.4% of the GLA of the Properties was leased. 6 7 The following table sets forth, as of December 31, 1998, the annualized December 1998 base rent, and the total GLA leased, by tenants responsible for more than one percent of the aggregate annualized December 1998 base rent.
ANNUALIZED BASE RENT (IN THOUSANDS) GLA ------------------------ ------------------------ TENANT AMOUNT % OF TOTAL OCCUPIED % OF TOTAL - ------------------------------- --------- ---------- --------- ---------- Sci-Med Life Systems, Inc. $ 1,129 13.0% 131,288 5.9% Meyercord Company 834 9.6% 225,000 10.1% Prestige Plastics 765 8.8% 312,265 14.0% MSX International Engineering 697 8.0% 157,100 7.1% B.L. Downey Company, Inc. 480 5.5% 162,306 7.3% Underwriters Laboratories 423 4.9% 49,730 2.2% American Axle & Manufacturing 383 4.4% 66,395 3.0% Alabama Metals Industries Corp. 366 4.2% 100,000 4.5% Nelson Metal Products Corp. 358 4.1% 117,251 5.3% Universal Trim, Inc. 315 3.6% 75,000 3.4% International Paper Company 278 3.2% 93,374 4.2% NWS Michigan 242 2.8% 113,875 5.1% Transpak, Inc. 223 2.6% 47,597 2.1% Auer Steel & Heating Supply Co. 220 2.5% 47,861 2.1% ITT Educational Services, Inc. 206 2.4% 21,000 0.9% Independent Metals Corp. 205 2.4% 61,119 2.7% Espec Corp. 194 2.2% 60,000 2.7% Crest Engineering Company 185 2.1% 40,040 1.8% St. Thomas Creations 150 1.7% 28,350 1.3% Blevins, Inc. 140 1.6% 40,000 1.8% Spartan Stores, Inc. 120 1.4% 40,000 1.8% J.C. Penny Co., Inc. 107 1.2% 28,078 1.3% Phaidon Press 94 1.1% 24,800 1.1% --------- --------- --------- --------- TOTAL $ 8,114 93.3% 2,042,429 91.7% ========= ========= ========= =========
The following table shows scheduled lease expirations for all leases for the Company's Properties as of December 31, 1998.
PERCENTAGE OF ANNUALIZED TOTAL NUMBER PERCENTAGE OF BASE RENT UNDER ANNUALIZED YEAR OF OF LEASES GLA GLA EXPIRING LEASES BASE RENT EXPIRATION (1) EXPIRING EXPIRING (2) EXPIRING (IN THOUSANDS) EXPIRING - -------------- --------- ------------ ------------- --------------- ------------- 1999 5 105,628 4.8% $ 380 4.4% 2000 8 408,160 18.4% 2,227 25.6% 2001 3 145,601 6.6% 508 5.8% 2002 3 250,500 11.3% 943 10.8% 2003 6 452,749 20.4% 1,979 22.7% 2004 4 469,085 21.2% 1,288 14.8% 2005 2 66,395 3.0% 383 4.4% 2006 1 21,000 0.9% 206 2.4% 2007 3 296,181 13.4% 791 9.1% Thereafter -- -- -- -- -- --------- --------- --------- --------- --------- Total 35 2,215,299 100% $ 8,705 100% ========= ========= ========= ========= =========
- -------------- (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 12,800 aggregate square feet. 7 8 MATERIAL PROPERTIES At December 31, 1998, 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, 1998, or ten percent or more of the aggregate annualized rental revenues as of December 31, 1998. 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. - ------------------------- --------- ----------- ---------- ----------- --------- ----------- 1998 .................... 100% $8.60 100% $3.71 100% $3.25 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
(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, 1998.
ANNUALIZED PRIMARY MAXIMUM GLA BASE RENT AT LEASE LEASE NATURE OF OCCUPIED DECEMBER TERM TERM TENANT BUSINESS (SQ. FT.) 31, 1998 EXPIRATION EXPIRATION - -------------------------------------------- ------------------- ---------- ------------ ---------- ---------- 6655 WEDGEWOOD ROAD SciMed Life Systems, Inc. (1) .......... Medical instruments 131,288 $1,129,272 2000 2005 365 NORTH AVENUE Meyercord Company ...................... Commercial printing 225,000 (2) 833,748 2002 2012 2101-2125 GARDNER ROAD B.L. Downey ............................ Plastics 162,306 480,425 2007 2012 Rolled steel Alabama Metals Industries Corp. ........ processor 100,000 366,012 2003 2008 Rolled steel Independent Metals Corporation ......... processor 61,119 204,774 2003 2008
- ----------------------- (1) The tenant had the right to terminate the lease on 9 months prior notice beginning December 31, 1998, without an early termination fee. The tenant gave notice of early termination in March 1998 and subsequently moved out in January 1999. (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. 8 9 PROPERTY MANAGEMENT The Company's properties are managed by the Operating Partnership, of which FR is the sole general partner. 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. 9 10 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 (hereinafter 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 FOR THE AUGUST 14, JANUARY 1, FOR THE YEAR ENDED YEAR ENDED YEAR ENDED 1995 TO 1995 TO YEAR ENDED DECEMBER DECEMBER DECEMBER DECEMBER DECEMBER DECEMBER 31, 1998 31, 1997 31, 1996 31, 1995 15, 1995 31, 1994 ---------- ---------- ---------- -------------- -------------- ----------- (IN THOUSANDS, EXCEPT PROPERTY DATA) STATEMENTS OF OPERATIONS DATA: Total Revenues ....................... $ 11,821 $ 11,355 $ 11,516 $ 1,223 $ 8,048 $ 2,940 Property Expenses .................... 3,112 3,311 3,394 269 2,291 771 Interest Expense ..................... -- -- -- -- 2,376 846 Depreciation and Amortization ........ 1,913 1,820 1,766 271 1,261 491 ---------- ---------- ---------- ---------- --------- ---------- Net Income ........................... $ 6,796 $ 6,224 $ 6,356 $ 683 $ 2,120 $ 832 ========== ========== ========== ========== ========= ========== BALANCE SHEET DATA (END OF PERIOD): Real Estate, Before Accumulated Depreciation ........................ $ 80,600 $ 79,491 $ 76,255 $ 75,319 $ 52,638 Real Estate, After Accumulated Depreciation ........................ 73,437 74,106 72,582 73,338 52,149 Total Assets ......................... 77,449 76,822 76,337 75,878 52,404 Acquisition Facility ................. -- -- -- -- 25,175 Total Liabilities .................... 1,322 1,521 1,440 1,110 26,200 Partners' Capital .................... $ 76,127 $ 75,301 $ 74,897 $ 74,768 $ 26,204 OTHER DATA (END OF PERIOD): Total Properties ..................... 19 19 19 19 12 Total GLA in sq. ft .................. 2,228,099 2,158,099 2,141,099 2,139,459 1,489,094 Occupancy % .......................... 99% 99% 97% 100% 99%
10 11 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 Notes thereto appearing elsewhere in this Form 10-K. 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. RESULTS OF OPERATIONS At December 31, 1998 and 1997, the Company owned 19 in-service industrial properties containing approximately 2.2 million square feet. At December 31, 1996, the Company owned 19 in-service Properties containing approximately 2.1 million square feet. On April 1, 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. On February 1, 1998, the Company completed a 70,000 square foot expansion of an existing industrial property located in Auburn Hills, Michigan. The cost of the expansion was approximately $2.6 million and was funded with cash flows from operations and a general and limited partner capital contribution made in 1997. COMPARISON OF YEAR ENDED DECEMBER 31, 1998 TO YEAR ENDED DECEMBER 31, 1997 Total revenues increased by approximately $.5 million, or 4.1%, due primarily to an increase in rental income due to an increase in occupancy, general rent increases and additional rental income from the expansion of one of the Company's properties that was completed and placed in service on February 1, 1998. Average occupancy for the twelve months ended December 31, 1998 and 1997 was 99% and 94%, respectively. Property expenses, which include real estate taxes, repairs and maintenance, property management, utilities, insurance and other expenses decreased by $.2 million or 6.0% due primarily to a decrease in snow removal and related expenses incurred for properties located in certain of the Company's metropolitan areas during the year ended December 31, 1998 as compared to the year ended December 31, 1997. Depreciation and amortization increased by approximately $.1 million, or 5.1%, due primarily to the additional depreciation related to the expansion of one of the Company's properties that was completed and placed in service on February 1, 1998. COMPARISON OF YEAR ENDED DECEMBER 31, 1997 TO YEAR ENDED DECEMBER 31, 1996 Revenues decreased by approximately $.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. 11 12 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. LIQUIDITY AND CAPITAL RESOURCES As of December 31, 1998 and 1997, the Company had no outstanding indebtedness. YEAR ENDED DECEMBER 31, 1998 Net cash provided by operating activities of approximately $8.5 million for the year ended December 31, 1998 was primarily comprised of net income of approximately $6.8 million and adjustments for non-cash items of approximately $2.0 million, offset by the net change in operating assets and liabilities of approximately $.3 million. The adjustments for non-cash items are comprised of depreciation and amortization of approximately $1.9 million and a provision for bad debts of approximately $.1 million, offset by the effect of straight-lining of rental income. Net cash used in investing activities of approximately $1.6 million for the year ended December 31, 1998 was primarily comprised of capital expenditures related to an expansion of one of the Company's properties located in Auburn Hills, Michigan that was completed and placed in service on February 1, 1998 and various other capital improvements. Net cash used in financing activities of approximately $6.0 million for the year ended December 31, 1998 consisted of preferred limited partner distributions totaling approximately $3.9 million and general and limited partner distributions totaling approximately $2.1 million. YEAR ENDED DECEMBER 31, 1997 Net cash provided by operating activities of approximately $7.6 million for the year ended December 31, 1997 was primarily comprised of net income of approximately $6.2 million and adjustments for non-cash items of approximately $1.4 million. The adjustments for non-cash items are comprised of depreciation and amortization of approximately $1.8 million, offset by the effect of straight-lining of rental income of approximately $.4 million. Net cash used in investing activities of approximately $2.8 million for the year ended December 31, 1997 was primarily comprised of capital expenditures related to an expansion of one of the Company's properties located in Grand Rapids, Michigan that was completed and placed in service on April 1, 1997, capital expenditures related to the expansion of one of the Company's properties located in Auburn Hills, Michigan that was placed in service on February 1, 1998 and various other capital improvements. Net cash used in financing activities of approximately $5.8 million for the year ended December 31, 1997 consisted of preferred limited partner distributions of approximately $3.9 million and general and limited partner distributions totaling approximately $2.3 million, offset by a pro rata general and limited partner capital contribution from Securities Corporation and the Operating Partnership, respectively, in the amount of approximately $.4 million. YEAR ENDED DECEMBER 31, 1996 Net cash provided by operating activities of approximately $7.5 million for the year ended December 31, 1996 was primarily comprised of net income of approximately $6.4 million and adjustments for non-cash items of approximately $1.5 million, offset by the net change in operating assets and liabilities of approximately $.4 million. The adjustments for non-cash items are comprised of depreciation 12 13 and amortization of approximately $1.7 million and a provision for bad debts of approximately $.1 million, offset by the effect of straight-lining of rental income of approximately $.3 million. Net cash used in investing activities of approximately $.9 million for the year ended December 31, 1996 was primarily comprised of capital expenditures related to an expansion of one of the Company's properties located in Grand Rapids, Michigan that was completed and placed in service on April 1, 1997 and various other capital improvements. Net cash used in financing activities of approximately $6.2 million for the year ended December 31, 1996 consisted of preferred limited partner distributions of approximately $3.9 million and general and limited partner distributions totaling approximately $2.3 million. DISTRIBUTIONS AND CONTRIBUTIONS In 1998, the Company paid preferred limited partnership distributions of approximately $3.9 million to Securities Corporation. In 1998, the Company paid pro rata general and limited partnership distributions to Securities Corporation and the Operating Partnership, respectively, in the aggregate amount of approximately $2.1 million. In 1997, the Company paid preferred limited partnership distributions of approximately $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 approximately $2.3 million that were partially off-set by a pro rata general and limited partnership capital contribution from Securities Corporation and the Operating Partnership, respectively, in the amount of approximately $.4 million. In 1996, the Company paid preferred limited partnership distributions of approximately $3.9 million to Securities Corporation. In 1996, the Company paid pro rata general and limited partnership distributions to Securities Corporation and the Operating Partnership, respectively, in the aggregate amount of approximately $2.3 million. SHORT-TERM AND LONG-TERM LIQUIDITY NEEDS The Company has considered its short-term (one year or less) 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 quarterly 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 1,650,000 shares of FR's $.01 par value Series A Cumulative Preferred Stock which is included in restricted cash on the balance sheet. 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. 13 14 YEAR 2000 CONCERNS The Year 2000 compliance issue concerns the inability of computerized information systems and non-information systems to accurately calculate, store or use a date after 1999. This could result in computer systems failures or miscalculations causing disruptions of operations. The Year 2000 issue affects almost all companies and organizations. The Company has discussed its software applications and internal operational programs with its current information systems' vendor and, based on such discussions, believes that such applications and programs will properly recognize calendar dates beginning in the year 2000. The Company is discussing with its material third-party service providers, such as its banks, payroll processor and telecommunications provider, their Year 2000 compliance and is assessing what effect their possible non-compliance might have on the Company. In addition, the Company is discussing with its material vendors the possibility of any interface difficulties and/or electrical or mechanical problems relating to the year 2000 which may affect properties owned by the Company. The Company has also surveyed substantially all of its tenants to determine the status of their Year 2000 compliance and what effect their possible non-compliance might have on the Company. The Company is currently processing the information obtained from such tenant surveys and remains in discussions with its material vendors and third-party service providers. Of the tenant surveys processed to date, all have stated that they are Year 2000 compliant or will be Year 2000 compliant by the end of 1999. The Company plans to complete its assessment of Year 2000 compliance by such parties by June 30, 1999. Until such time the Company cannot estimate any potential adverse impact resulting from the failure of tenants, vendors or third-party service providers to address their Year 2000 issues; however, to date, no significant Year 2000-related conditions have been identified. Because the Company's evaluation of its Year 2000 issues has been conducted by its own personnel or by its vendors in connection with their servicing operations, the Company believes that its expenditures for assessing its Year 2000 issues, though difficult to quantify, to date have not been material. In addition, the Company is not aware of any Year 2000-related conditions that it believes would likely require any material expenditures by the Company in the future. Based on its current information, the Company believes that the risk posed by any foreseeable Year 2000-related problem with its internal systems and the systems at its properties (including both information and non-information systems) or with its vendors or tenants is minimal. Year 2000-related problems with the Company's software applications and internal operational programs or with the electrical or mechanical systems at its properties are unlikely to cause more than minor disruptions in the Company's operations. The Company believes that the risk posed by Year 2000-related problems at certain of its third-party service providers, such as its banks, payroll processor and telecommunications provider is marginally greater, though, based on its current information, the Company does not believe any such problems would have a material effect on its operations. Any Year 2000 related problems at such third-party service providers could delay the processing of financial transactions and the Company's payroll and could disrupt the Company's internal and external communications. At this time, the Company has not developed and does not anticipate developing any contingency plans with respect to Year 2000 issues. In addition, the Company has no plans to seek independent verification or review of its assessment of its Year 2000 issues. The Company does intend to complete its assessment of, and to continue to monitor, its Year 2000 issues and will develop contingency plans if, and to the extent, deemed necessary. While the Company believes that it will be Year 2000 compliant by December 31, 1999, there can be no assurance that the Company has been or will be successful in identifying and assessing Year 2000 issues, or that, to the extent identified, the Company's efforts to remediate such issues will be effective such that Year 2000 issues will not have a material adverse effect on the Company's business, financial condition or results of operation. 14 15 OTHER In June 1997, the Financial Accounting Standards Board 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's net income approximates its comprehensive income as defined in Concepts Statement No. 6, "Elements of Financial Statements". 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 fiscal years 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 general partner of the Company views the Company as a single segment. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK None. 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. 15 16 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 W. Brennan 42 President, Chief Executive Officer and Director Michael J. Havala 39 Chief Financial Officer and Director Patrick J. Galvin 59 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 W. Brennan. Mr. Brennan has been President and Chief Executive Officer and Director of Securities Corporation since November 1998. Prior to this, Mr. Brennan was the Chief Operating Officer of Securities Corporation since its inception. Mr. Brennan has been President, Chief Executive Officer and Director of FR since November 1998. From December 1995 to November 1998, Mr. Brennan was the Chief Operating Officer and Director of FR and from April 1994 to December 1995, he was Senior Vice President, Asset Management of FR. Between 1988 and 1994, he was a partner of The Shidler Group 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. 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 $.4 million for the year ended December 31, 1998. 16 17 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 ----------- ----------- 4.1 The Limited Partnership Agreement of First Industrial Securities, L.P. (incorporated by reference to Exhibit 4.1 of the Company's Annual Report on Form 10-K for the year ended December 31, 1995, File No. 33-97014-01) 4.2 Amended and Restated Articles of Incorporation of First Industrial Securities Corporation (incorporated by reference to Exhibit 4.2 of the Company's Annual Report on Form 10-K for the year ended December 31, 1995, File No. 33-97014-01). 4.3 Articles Supplementary of First Industrial Securities Corporation (incorporated by reference to Exhibit 4.3 of the Company's Annual Report on Form 10-K for the year ended December 31, 1995, File No. 33-97014-01) 4.4 Bylaws of First Industrial Securities Corporation (incorporated by reference to Exhibit 4.4 of the Company's Annual Report on Form 10-K for the year ended December 31, 1995, File No. 33-97014-01) 10.1 Guarantee and Payment Agreement (incorporated by reference to Exhibit 10.1 of the Company's Annual Report on Form 10-K for the year ended December 31, 1995, File No. 33-97014-01) 10.2 Agency and Advance Agreement (incorporated by reference to Exhibit 10.2 of the Company's Annual Report on Form 10-K for the year ended December 31, 1995, File No. 33-97014-01) 10.3 Guarantee Agency Agreement (incorporated by reference to Exhibit 10.3 of the Company's Annual Report on Form 10-K for the year ended December 31, 1995, File No. 33-97014-01) 10.4 Property Management Agreement (incorporated by reference to Exhibit 10.4 of the Company's Annual Report on Form 10-K for the year ended December 31, 1995, File No. 33-97014-01) 27 * Financial Data Schedule * Filed herewith.
(b) REPORTS ON FORM 8-K None. 17 18 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 16, 1999 By: /s/ Michael W. Brennan ------------------------------------- Michael W. Brennan President and Chief Executive Officer (Principal Executive Officer) Date: March 16, 1999 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 W. Brennan President, Chief Executive Officer March 16, 1999 - -------------------------------- and Director Michael W. Brennan /s/ Michael J. Havala Chief Financial Officer and Director March 16, 1999 - -------------------------------- Michael J. Havala /s/ Patrick J. Galvin Director March 16, 1999 - -------------------------------- Patrick J. Galvin
19 EXHIBIT INDEX
Exhibit No. Description ----------- ----------- 4.1 The Limited Partnership Agreement of First Industrial Securities, L.P. (incorporated by reference to Exhibit 4.1 of the Company's Annual Report on Form 10-K for the year ended December 31, 1995, File No. 33-97014-01) 4.2 Amended and Restated Articles of Incorporation of First Industrial Securities Corporation (incorporated by reference to Exhibit 4.2 of the Company's Annual Report on Form 10-K for the year ended December 31, 1995, File No. 33-97014-01). 4.3 Articles Supplementary of First Industrial Securities Corporation (incorporated by reference to Exhibit 4.3 of the Company's Annual Report on Form 10-K for the year ended December 31, 1995, File No. 33-97014-01) 4.4 Bylaws of First Industrial Securities Corporation (incorporated by reference to Exhibit 4.4 of the Company's Annual Report on Form 10-K for the year ended December 31, 1995, File No. 33-97014-01) 10.1 Guarantee and Payment Agreement (incorporated by reference to Exhibit 10.1 of the Company's Annual Report on Form 10-K for the year ended December 31, 1995, File No. 33-97014-01) 10.2 Agency and Advance Agreement (incorporated by reference to Exhibit 10.2 of the Company's Annual Report on Form 10-K for the year ended December 31, 1995, File No. 33-97014-01) 10.3 Guarantee Agency Agreement (incorporated by reference to Exhibit 10.3 of the Company's Annual Report on Form 10-K for the year ended December 31, 1995, File No. 33-97014-01) 10.4 Property Management Agreement (incorporated by reference to Exhibit 10.4 of the Company's Annual Report on Form 10-K for the year ended December 31, 1995, File No. 33-97014-01) 27 * Financial Data Schedule * Filed herewith.
20 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, 1998 and 1997............................................................... F-3 Statements of Operations of the Company for the Years Ended December 31, 1998, 1997 and 1996..................................................................... F-4 Statements of Changes in Partners' Capital of the Company for the Years Ended December 31, 1998, 1997 and 1996.................................................................. F-5 Statements of Cash Flows of the Company for the Years Ended December 31, 1998, 1997 and 1996................................................................................. F-6 Notes to Financial Statements............................................................ F-7 FINANCIAL STATEMENT SCHEDULE Report of Independent Accountants.......................................................... S-1 Schedule III: Real Estate and Accumulated Depreciation..................................... S-2
F-1 21 REPORT OF INDEPENDENT ACCOUNTANTS To the Partners of First Industrial Securities, L.P. In our opinion, the accompanying balance sheets and the related statements of operations, of changes in partners' capital and of cash flows present fairly, in all material respects, the financial position of First Industrial Securities, L.P. (the "Company") at December 31, 1998 and 1997, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1998, in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards which 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, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. PricewaterhouseCoopers LLP Chicago, Illinois February 16, 1999 F-2 22 FIRST INDUSTRIAL SECURITIES, L.P. BALANCE SHEETS (DOLLARS IN THOUSANDS)
December 31, December 31, 1998 1997 ------------ ------------ ASSETS Assets: Investment in Real Estate: Land........................................................... $ 11,580 $ 11,626 Buildings and Improvements..................................... 69,020 65,767 Construction in Progress....................................... -- 2,098 Less: Accumulated Depreciation................................. (7,163) (5,385) ----------- ----------- Net Investment in Real Estate.................................. 73,437 74,106 Cash and Cash Equivalents....................................... 1,391 458 Restricted Cash................................................. 410 411 Tenant Accounts Receivable, Net................................. 38 99 Deferred Rent Receivable........................................ 1,104 1,102 Prepaid Expenses and Other Assets, Net.......................... 1,069 646 ----------- ----------- Total Assets.............................................. $ 77,449 $ 76,822 =========== =========== LIABILITIES AND PARTNERS' CAPITAL Liabilities: Accounts Payable and Accrued Expenses............................ $ 794 $ 1,053 Rents Received in Advance and Security Deposits.................. 528 468 ----------- ----------- Total Liabilities......................................... 1,322 1,521 ----------- ----------- Commitments and Contingencies..................................... -- -- Partners' Capital: General Partner and Preferred Limited Partner..................... 41,266 41,258 Limited Partner................................................... 34,861 34,043 ----------- ----------- Total Partners' Capital................................... 76,127 75,301 ----------- ----------- Total Liabilities and Partners' Capital................... 77,449 76,822 =========== ===========
The accompanying notes are an integral part of the financial statements. F-3 23 FIRST INDUSTRIAL SECURITIES, L.P. STATEMENTS OF OPERATIONS (DOLLARS IN THOUSANDS)
For the Year For the Year For the Year Ended Ended Ended December 31, December 31, December 31, 1998 1997 1996 ------------ ------------ ------------ Revenues: Rental Income............................ $ 9,057 $ 8,544 $ 8,644 Tenant Recoveries and Other Income....... 2,764 2,811 2,872 ---------- ---------- ---------- Total Revenues......................... 11,821 11,355 11,516 ---------- ---------- ---------- Expenses: Real Estate Taxes........................ 2,149 2,213 2,328 Repairs and Maintenance.................. 304 444 390 Property Management...................... 407 380 386 Utilities................................ 107 158 106 Insurance................................ 32 32 70 Other.................................... 113 84 114 Depreciation and Other Amortization...... 1,913 1,820 1,766 ---------- ---------- ---------- Total Expenses......................... 5,025 5,131 5,160 ---------- ---------- ---------- Net Income................................ $ 6,796 $ 6,224 $ 6,356 ========== ========== ==========
The accompanying notes are an integral part of the financial statements. F-4 24 FIRST INDUSTRIAL SECURITIES, L.P. STATEMENTS OF CHANGES IN PARTNERS' CAPITAL (DOLLARS IN THOUSANDS)
General Partner and Limited Preferred Limited Total Partner Partner ----------- ----------- ----------------- Balance at December 31, 1995.......... $ 74,768 $ 33,515 $ 41,253 Distributions....................... (6,227) (2,284) (3,943) Net Income.......................... 6,356 2,412 3,944 ----------- ----------- ---------- Balance at December 31, 1996.......... $ 74,897 $ 33,643 $ 41,254 Contributions........................ 400 396 4 Distributions........................ (6,220) (2,277) (3,943) Net Income........................... 6,224 2,281 3,943 ----------- ----------- ---------- Balance at December 31, 1997.......... $ 75,301 $ 34,043 $ 41,258 Distributions........................ (5,970) (2,029) (3,941) Net Income........................... 6,796 2,847 3,949 ----------- ----------- ---------- Balance at December 31, 1998.......... $ 76,127 $ 34,861 $ 41,266 =========== =========== ==========
The accompanying notes are an integral part of the financial statements. F-5 25 FIRST INDUSTRIAL SECURITIES, L.P. STATEMENTS OF CASH FLOWS (DOLLARS IN THOUSANDS)
For the Year For the Year For the Year Ended Ended Ended December 31, December 31, December 31, 1998 1997 1996 ------------ ------------ ------------ CASH FLOWS FROM OPERATING ACTIVITIES: Net Income................................................ $ 6,796 $ 6,224 $ 6,356 Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities: Depreciation and Amortization......................... 1,913 1,820 1,766 Provision for Bad Debts............................... 50 -- 50 Increase in Deferred Rent Receivable.................. (2) (385) (291) Decrease (Increase) in Tenant Accounts Receivable..... 11 469 (455) Increase in Prepaid Expenses and Other Assets......... (558) (123) (277) Decrease in Restricted Cash........................... 1 -- -- Increase (Decrease) in Accounts Payable and Accrued Expenses and Rents Received in Advance and Security Deposits............................................ 246 (368) 330 --------- --------- --------- Net Cash Provided by Operating Activities......... 8,457 7,637 7,479 --------- --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES Purchase of and Additions to Investment in Real Estate and Construction in Progress......................... (1,554) (2,787) (936) --------- --------- --------- Net Cash Used In Investing Activities................. (1,554) (2,787) (936) --------- --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES Distributions......................................... (5,970) (6,220) (6,227) Capital Contributions................................. -- 400 -- --------- --------- --------- Net Cash Used In Financing Activities............. (5,970) (5,820) (6,227) --------- --------- --------- Net Increase (Decrease) in Cash and Cash Equivalents...... 933 (970) 316 Cash and Cash Equivalents, Beginning of Period............ 458 1,428 1,112 --------- --------- --------- Cash and Cash Equivalents, End of Period.................. $ 1,391 $ 458 $ 1,428 ========= ========= =========
The accompanying notes are an integral part of the financial statements. F-6 26 FIRST INDUSTRIAL SECURITIES, L.P. 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 below have been F-7 27 FIRST INDUSTRIAL SECURITIES, L.P. NOTES TO FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA ) 2. FORMATION TRANSACTIONS, CONTINUED 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. On April 1, 1997, the Company completed a 17,000 square foot (unaudited) expansion of an existing industrial property located in Grand Rapids, Michigan. The cost of the expansion was approximately $252 and was funded with cash flows from operations. On February 1, 1998, the Company completed a 70,000 square foot (unaudited) expansion of an existing industrial property located in Auburn Hills, Michigan. The cost of the expansion was approximately $2,630 and was funded with cash flows from operations. On July 31, 1998, a governmental entity condemned two parcels of land. The Company received gross proceeds of approximately $108 as consideration for these parcels of land, and the gain is reflected in total revenues. 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 of 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, 1998 and 1997 is $410 and $411, respectively, and is included in restricted cash. F-8 28 FIRST INDUSTRIAL SECURITIES, L.P. NOTES TO FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA ) 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES In order to conform with generally accepted accounting principles, management, in preparation of the Company's 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, 1998 and 1997, and the reported amounts of revenues and expenses for the years ended December 31, 1998, 1997 and 1996. 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 is shown net of an allowance for doubtful accounts of $100 and $50 as of December 31, 1998 and 1997, respectively. 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 of 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 29 FIRST INDUSTRIAL SECURITIES, L.P. NOTES TO FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA ) 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED 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, leasehold 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 and none have been provided for in the accompanying financial statements. In accordance with partnership taxation, each of the partners is 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. F-10 30 FIRST INDUSTRIAL SECURITIES, L.P. NOTES TO FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA ) 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED RECENT ACCOUNTING PRONOUNCEMENTS In June 1997, the Financial Accounting Standards Board 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's net income approximates its comprehensive income as defined in Concepts Statement No. 6, "Elements of Financial Statements". 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 fiscal years 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 general partner of the Company views the Company as a single segment. 4. 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 $407, $380 and $386 for the years ended December 31, 1998, 1997 and 1996, respectively. At December 31, 1998 and 1997, there were no accrued management fees due to the Operating Partnership. 5. PARTNERS' CAPITAL During 1998, 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 1998, the Company paid a pro rata general and limited partnership distribution to Securities Corporation and the Operating Partnership, respectively, in the aggregate amount of $2,050. 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. F-11 31 FIRST INDUSTRIAL SECURITIES, L.P. NOTES TO FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA ) 5. PARTNERS' CAPITAL, CONTINUED 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 contribution from Securities Corporation and the Operating Partnership, respectively, in the aggregate amount of $400. 6. 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, 1998 are approximately as follows: 1999 $ 9,524 2000 9,015 2001 7,137 2002 6,277 2003 4,498 Thereafter 4,767 ------------- Total $ 41,218 ============= Three of the Company's properties represent ten percent or more of the aggregate book value of the assets as of December 31, 1998, or ten percent or more of the Company's aggregate rental revenues as of December 31, 1998. 7. 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. Two properties have leases granting the tenants options to purchase the property. Such options are exercisable at various times and at a fixed purchased price in each case in excess of the property's depreciated cost. The Company has no notice of any exercise of any tenant purchase option. F-12 32 FIRST INDUSTRIAL SECURITIES, L.P. NOTES TO FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS) 8. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
FIRST INDUSTRIAL SECURITIES, L.P. YEAR ENDED DECEMBER 31, 1998 ---------------------------------------------------------------------------- FIRST QUARTER SECOND QUARTER THIRD QUARTER FOURTH QUARTER ------------- -------------- ------------- -------------- Revenues ........................ $ 3,030 $ 3,209 $ 3,054 $ 2,528 Property Expenses................ (790) (824) (821) (677) Depreciation and Amortization.... (462) (469) (482) (500) ----------- ------------ ----------- ------------- Net Income....................... $ 1,778 $ 1,916 $ 1,751 $ 1,351 =========== ============ =========== ============= 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 ============= ============== ============= ==============
F-13 33 REPORT OF INDEPENDENT ACCOUNTANTS To the Partners of First Industrial Securities, L.P. Our report on the financial statements of First Industrial Securities, L.P. is included on page F-2 of this Form 10-K. In connection with our audits of such financial statements, we have also audited the related financial statement schedule listed in the Index to Financial Statements and Financial Statement Schedule on page F-1 of this Form 10-K. 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. PricewaterhouseCoopers LLP Chicago, Illinois February 16, 1999 S-1 34 FIRST INDUSTRIAL SECURITIES, L.P. SCHEDULE III: REAL ESTATE AND ACCUMULATED DEPRECIATION AS OF DECEMBER 31, 1998 (DOLLARS IN THOUSANDS)
COSTS CAPITALIZED INITIAL COST (a) SUBSEQUENT TO LOCATION ------------------------ ACQUISITION OR BUILDING ADDRESS (CITY/STATE) LAND BUILDINGS COMPLETION - ---------------- ------------ --------- ------------- -------------- 5020 Louise Drive Mechanicsburg, PA $ 707 $ -- $ 2,773 7195 Grayson Harrisburg, IL 478 2,771 80 3150-3160 MacArthur Boulevard Northbrook, IL 439 2,518 21 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 1,803 232 2965 Technology Drive Rochester Hills, MI 964 2,277 123 1451 Lincoln Avenue Madison Heights, MI 299 1,703 435 4400 Purks Drive Auburn Hills, MI 602 3,410 2,687 4177A Varsity Drive Ann Arbor, MI 90 536 78 6515 Cobb Drive Sterling Heights, MI 305 1,753 150 425 Gordon Industrial Court Grand Rapids, MI 611 3,747 1,331 2851 Prairie Street Grandville, MI 377 2,778 240 2945 Walkent Court Grand Rapids, MI 310 2,074 296 537 76th Street Grand Rapids, MI 255 1,456 330 6655 Wedgewood Road Maple Grove, MN 1,466 8,342 143 900 Apollo Road Eagan, MN 1,029 5,855 511 7316 Aspen Lane North Brooklyn Park, MN 368 2,156 180 6707 Shingle Creek Parkway Brooklyn Center, MN 376 2,101 364 -------- -------- -------- $ 11,376 $ 59,059 $ 10,165 ======== ======== ======== GROSS AMOUNT CARRIED AT CLOSE OF PERIOD (12/31/98)(c) --------------------------------------- ACCUMULATED BUILDING AND DEPRECIATION YEAR BUILT/ DEPRECIABLE BUILDING ADDRESS LAND IMPROVEMENTS TOTAL 12/31/98 RENOVATED LIVES(YEARS) - ---------------- --------- ---------------- ---------- -------------- ----------- ------------- 5020 Louise Drive $ 716 $ 2,764 $ 3,480 $ 326 1995 (b) 7195 Grayson 479 2,850 3,329 290 1994 (b) 3150-3160 MacArthur Boulevard 429 2,549 2,978 288 1978 (b) 2101-2125 Gardner Road 1,228 6,877 8,105 744 1950/69 (b) 365 North Avenue 1,208 7,042 8,250 749 1969 (b) 2942 MacArthur Boulevard 311 2,039 2,350 215 1979 (b) 2965 Technology Drive 964 2,400 3,364 231 1995 (b) 1451 Lincoln Avenue 305 2,132 2,437 227 1967 (b) 4400 Purks Drive 612 6,087 6,699 352 1987 (b) 4177A Varsity Drive 90 614 704 114 1993 (b) 6515 Cobb Drive 305 1,903 2,208 193 1984 (b) 425 Gordon Industrial Court 644 5,045 5,689 545 1990 (b) 2851 Prairie Street 445 2,950 3,395 351 1989 (b) 2945 Walkent Court 352 2,328 2,680 277 1993 (b) 537 76th Street 258 1,783 2,041 178 1987 (b) 6655 Wedgewood Road 1,466 8,485 9,951 927 1989 (b) 900 Apollo Road 1,012 6,383 7,395 576 1970 (b) 7316 Aspen Lane North 377 2,327 2,704 231 1978 (b) 6707 Shingle Creek Parkway 379 2,462 2,841 349 1986 (b) -------- -------- -------- ------- $ 11,580 $ 69,020 $ 80,600 $ 7,163 ======== ======== ======== =======
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 and Improvements 38 to 40 years Tenant Improvements and Leasehold Improvements Life of lease Land Improvements 15 years (c) At December 31, 1998, aggregate cost of land, buildings and improvements for federal income tax purposes was approximately $80.6 million. These properties are owned by the Securities Partnership. The Securities Partnership guarantees the payment of the Series A Cumulative Preferred Stock dividends and amounts upon redemption, liquidation, dissolution or winding - up. S-2 35 FIRST INDUSTRIAL SECURITIES, L.P. SCHEDULE III: REAL ESTATE AND ACCUMULATED DEPRECIATION (CONTINUED) AS OF DECEMBER 31, 1998 (DOLLARS IN THOUSANDS) The changes in total real estate assets for the years ended December 31, 1998 and 1997 are as follows:
First Industrial Securities, L.P. --------------------------------- 1998 1997 ------------ ------------ Balance, Beginning of Year ........ $ 79,491 $ 76,255 Construction Costs and Improvements 1,155 3,236 Sale of Land ...................... (46) -- ------------ ------------ Balance, End of Year .............. 80,600 79,491 ============ ============
The changes in accumulated depreciation for the years ended December 31, 1998 and 1997 are as follows:
First Industrial Securities, L.P. --------------------------------- 1998 1997 ------------ ------------ Balance, Beginning of Year ........ $ 5,385 $ 3,673 Depreciation for Year ............. 1,778 1,712 ------------ ------------ Balance, End of Year .............. $ 7,163 $ 5,385 ============ ============
S-3 EX-27 2 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL STATEMENTS OF FIRST INDUSTRIAL SECURITIES, L.P. FOR THE YEAR ENDED DECEMBER 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 YEAR DEC-31-1998 JAN-01-1998 DEC-31-1998 1,391 0 138 (100) 0 1,429 80,600 (7,163) 77,449 794 0 0 0 0 76,127 77,449 0 11,821 0 (3,062) (1,913) (50) 0 6,796 0 6,796 0 0 0 6,796 0 0
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