10-K 1 c23671e10vk.htm ANNUAL REPORT e10vk
 

 
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
Form 10-K
 
     
þ
  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
    For the fiscal year ended December 31, 2007
or
o
  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
    For the transition period from          to          
 
Commission File Number 1-13102
 
FIRST INDUSTRIAL REALTY TRUST, INC.
(Exact name of Registrant as specified in its Charter)
 
     
Maryland   36-3935116
(State or other jurisdiction of
incorporation or organization)
  (I.R.S. Employer
Identification No.)
     
     
311 S. Wacker Drive,
Suite 4000, Chicago, Illinois
(Address of principal executive offices)
  60606
(Zip Code)
 
(312) 344-4300
(Registrant’s telephone number, including area code)
 
Securities registered pursuant to Section 12(b) of the Act:
Common Stock
(Title of class)
 
New York Stock Exchange
(Name of exchange on which registered)
 
Depositary Shares Each Representing 1/10,000 of a Share of 7.25% Series J Cumulative Preferred Stock
Depositary Shares Each Representing 1/10,000 of a Share of 7.25% Series K Cumulative Preferred Stock
(Title of class)
 
New York Stock Exchange
(Name of exchange on which registered)
 
Securities registered pursuant to Section 12(g) of the Act:
None
 
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  Yes þ     No o
 
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.  Yes o     No þ
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes þ     No o
 
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  þ
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
 
             
Large accelerated filer þ
  Accelerated filer o   Non-accelerated filer o
(Do not check if a smaller reporting company)
  Smaller reporting company o
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes o     No þ
 
The aggregate market value of the voting and non-voting stock held by non-affiliates of the Registrant was approximately $1,706.2 million based on the closing price on the New York Stock Exchange for such stock on June 30, 2007.
 
At February 15, 2008, 43,574,385 shares of the Registrant’s Common Stock, $0.01 par value, were outstanding.
 
DOCUMENTS INCORPORATED BY REFERENCE
 
Part III incorporates certain information by reference to the Registrant’s definitive proxy statement expected to be filed with the Securities and Exchange Commission no later than 120 days after the end of the Registrant’s fiscal year.
 


 

 
FIRST INDUSTRIAL REALTY TRUST, INC.
 
TABLE OF CONTENTS
 
                 
        Page
 
PART I.
 
Item 1.
    Business     3  
 
Item 1A.
    Risk Factors     7  
 
Item 1B.
    Unresolved SEC Comments     13  
 
Item 2.
    Properties     13  
 
Item 3.
    Legal Proceedings     20  
 
Item 4.
    Submission of Matters to a Vote of Security Holders     20  
 
PART II.
 
Item 5.
    Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities     21  
 
Item 6.
    Selected Financial Data     25  
 
Item 7.
    Management’s Discussion and Analysis of Financial Condition and Results of Operations     26  
 
Item 7A.
    Quantitative and Qualitative Disclosures About Market Risk     41  
 
Item 8.
    Financial Statements and Supplementary Data     42  
 
Item 9.
    Changes in and Disagreements with Accountants on Accounting and Financial Disclosure     42  
 
Item 9A.
    Controls and Procedures     42  
 
Item 9B.
    Other Information     42  
 
PART III.
 
Item 10.
    Directors, Executive Officers and Corporate Governance     43  
 
Item 11.
    Executive Compensation     43  
 
Item 12.
    Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters     43  
 
Item 13.
    Certain Relationships and Related Transactions and Director Independence     43  
 
Item 14.
    Principal Accountant Fees and Services     43  
 
PART IV.
 
Item 15.
    Exhibits and Financial Statement Schedules     43  
Signatures
    S-31  
 
This report contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. We intend such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995, and are including this statement for purposes of complying with those safe harbor provisions. Forward-looking statements, which are based on certain assumptions and describe future plans, strategies and expectations of the Company, are generally identifiable by use of the words “believe,” “expect,” “intend,” “anticipate,” “estimate,” “project” or similar expressions. Our ability to predict results or the actual effect of future plans or strategies is inherently uncertain. Factors which could have a material adverse affect on our operations and future prospects include, but are not limited to, changes in: international, national, regional and local economic conditions generally and the real estate market specifically, legislative/regulatory changes (including changes to laws governing the taxation of real estate investment trusts), availability of financing, interest rates, competition, supply and demand for industrial properties in our current and proposed market areas, potential environmental liabilities, slippage in development or lease-up schedules, tenant credit risks, higher-than-expected costs and changes in general accounting principles, policies and guidelines applicable to real estate investment trusts and risks related to doing business internationally (including foreign currency exchange risks). 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 our financial results, is included in Item 1A, “Risk Factors” and in our other filings with the Securities and Exchange Commission. Unless the context otherwise requires, the terms the “Company,” “we,” “us,” and “our” refer to First Industrial Realty Trust, Inc., First Industrial, L.P. and their other controlled subsidiaries. We refer to our operating partnership, First Industrial, L.P., as the “Operating Partnership,” and our taxable REIT subsidiary, First Industrial Investment, Inc., as the “TRS.”


2


 

 
PART I
 
THE COMPANY
 
Item 1.   Business
 
General
 
First Industrial Realty Trust, Inc. is a Maryland corporation organized on August 10, 1993, and is a real estate investment trust (“REIT”) under Sections 856 through 860 of the Internal Revenue Code of 1986 (the “Code”). We are a self-administered and fully integrated real estate company which owns, manages, acquires, sells, develops, and redevelops industrial real estate. As of December 31, 2007, our in-service portfolio consisted of 403 light industrial properties, 125 R&D/flex properties, 162 bulk warehouse properties, 89 regional warehouse properties and 25 manufacturing properties containing approximately 64.0 million square feet of gross leasable are (“GLA”) located in 28 states in the United States and one province in Canada. Our in-service portfolio includes all properties other than developed, redeveloped and acquired properties that have not yet reached stabilized occupancy (generally defined as properties that are 90% leased).
 
Our interests in our properties and land parcels are held through partnerships, corporations, and limited liability companies controlled, directly or indirectly, by the Company, including the Operating Partnership, of which we are the sole general partner with an approximate 87.1% and 87.3% ownership interest at December 31, 2007 and December 31, 2006, respectively, as well as, among others, the TRS which is a taxable REIT subsidiary of which the Operating Partnership is the sole stockholder, all of whose operating data is consolidated with that of the Company as presented herein.
 
We also own minority equity interests in, and provide various services to, five joint ventures which invest in industrial properties (the “2003 Net Lease Joint Venture,” the “2005 Development/Repositioning Joint Venture,” the “2005 Core Joint Venture,” the “2006 Net Lease Co-Investment Program” and the “2006 Land/Development Joint Venture”). We also owned economic interests in and provided various services to a sixth joint venture, (the “1998 Core Joint Venture”). On January 31, 2007 we purchased the 90% equity interest from the institutional investor in the 1998 Core Joint Venture. Effective January 31, 2007, the assets and liabilities and results of operations of the 1998 Core Joint Venture are consolidated with the Company since we own 100% of the equity interest. Prior to January 31, 2007, the 1998 Core Joint Venture was accounted for under the equity method of accounting. Additionally, in December 2007, we entered into two new joint ventures with institutional investors to invest in, own, develop, redevelop and operate industrial properties, (the “2007 Canada Joint Venture” and the “2007 Europe Joint Venture”; together with 2003 Net Lease Joint Venture, 2005 Development/Repositioning Joint Venture, 2005 Core Joint Venture, the 2006 Net Lease Co-Investment Program, the 2006 Land/Development Joint Venture and the 1998 Core Joint Venture, the “Joint Ventures”). We own a 10% interest in and will provide property management, asset management, development management and leasing management services to the 2007 Canada Joint Venture and the 2007 Europe Joint Venture. As of December 31, 2007, the 2007 Canada Joint Venture and the 2007 Europe Joint Venture did not own any properties.
 
The operating data of our Joint Ventures is not consolidated with that of the Company as presented herein. However, the operating data of the 2005 Development/Repositioning Joint Venture, referred to as FirstCal Industrial, LLC, is separately presented on a consolidated basis, separate from that of the Company.
 
We utilize an operating approach which combines the effectiveness of decentralized, locally-based property management, acquisition, sales and development functions with the cost efficiencies of centralized acquisition, sales and development support, capital markets expertise, asset management and fiscal control systems. At February 15, 2008, we had approximately 518 employees.
 
We have grown and will seek to continue to grow through the development and acquisition of additional industrial properties, through additional joint venture investments and through our corporate services program.
 
We maintain a website at www.firstindustrial.com. Information on this website shall not constitute part of this Form 10-K. Copies of our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports


3


 

on Form 8-K and amendments to such reports are available without charge on our website as soon as reasonably practicable after such reports are filed with or furnished to the Securities and Exchange Commission (the “SEC”). In addition, our Corporate Governance Guidelines, Code of Business Conduct and Ethics, Audit Committee Charter, Compensation Committee Charter, Nominating/Corporate Governance Committee Charter, along with supplemental financial and operating information prepared by us, are all available without charge on our website or upon request to us. Amendments to, or waivers from, our Code of Business Conduct and Ethics that apply to our executive officers or directors shall also be posted to our website. Please direct requests as follows:
 
First Industrial Realty Trust, Inc.
311 S. Wacker, Suite 4000
Chicago, IL 60606
Attn: Investor Relations
 
Business Objectives and Growth Plans
 
Our fundamental business objective is to maximize the total return to our stockholders through increases in per share distributions and increases in the value of our properties and operations. Our growth plans include the following elements:
 
  •  Internal Growth.  We seek to grow internally by (i) increasing revenues by renewing or re-leasing spaces subject to expiring leases at higher rental levels; (ii) increasing occupancy levels at properties where vacancies exist and maintaining occupancy elsewhere; (iii) controlling and minimizing property operating and general and administrative expenses; (iv) renovating existing properties; and (v) increasing ancillary revenues from non-real estate sources.
 
  •  External Growth.  We seek to grow externally through (i) the development of industrial properties; (ii) the acquisition of portfolios of industrial properties, industrial property businesses or individual properties which meet our investment parameters and target markets; (iii) additional joint venture investments; and (iv) the expansion of our properties.
 
  •  Corporate Services.  Through our corporate services program, we build for, purchase from, and lease and sell industrial properties to companies that need industrial facilities. We seek to grow this business by targeting both large and middle-market public and private companies.
 
Business Strategies
 
We utilize the following six strategies in connection with the operation of our business:
 
  •  Organization Strategy.  We implement our decentralized property operations strategy through the deployment of experienced regional management teams and local property managers. Each operating region is headed by a managing director who is a senior executive officer of, and has an equity interest in, the Company. We provide acquisition, development and financing assistance, asset management oversight and financial reporting functions from our headquarters in Chicago, Illinois to support our regional operations. We believe the size of our portfolio enables us to realize operating efficiencies by spreading overhead among many properties and by negotiating purchasing discounts.
 
  •  Market Strategy.  Our market strategy is to concentrate on the top industrial real estate markets in the United States and select industrial real estate markets in Canada, the Netherlands and Belgium. These markets have one or more of the following characteristic: (i) strong industrial real estate fundamentals, including increased industrial demand expectations; (ii) a history of and outlook for continued economic growth and industry diversity; and (iii) sufficient size to provide for ample transaction volume.
 
  •  Leasing and Marketing Strategy.  We have an operational management strategy designed to enhance tenant satisfaction and portfolio performance. We pursue an active leasing strategy, which includes broadly marketing available space, seeking to renew existing leases at higher rents per square foot and seeking leases which provide for the pass-through of property-related expenses to the tenant. We also


4


 

  have local and national marketing programs which focus on the business and real estate brokerage communities and national tenants.
 
  •  Acquisition/Development Strategy.  Our acquisition/development strategy is to invest in properties and other assets with higher yield potential in the top industrial real estate markets in the United States and select industrial real estate markets in Canada, the Netherlands and Belgium. Of the 804 industrial properties in our in-service portfolio at December 31, 2007, 112 properties have been developed by us or our former management. We will continue to leverage the development capabilities of our management, many of whom are leading industrial property developers in their respective markets.
 
  •  Disposition Strategy.  We continuously evaluate local market conditions and property-related factors in all of our markets for purposes of identifying assets suitable for disposition.
 
  •  Financing Strategy.  We plan on utilizing a portion of net sales proceeds from property sales, borrowings under our unsecured line of credit and proceeds from the issuance, when and as warranted, of additional debt and equity securities to finance future acquisitions and developments. We also continually evaluate joint venture arrangements as another source of capital. As of February 15, 2008, we had approximately $47.9 million available for additional borrowings under our unsecured line of credit (the “Unsecured Line of Credit”).
 
Recent Developments
 
In 2007, we acquired or placed in-service developments totaling 119 industrial properties and acquired several parcels of land for a total investment of approximately $609.8 million. We also sold 164 industrial properties and several parcels of land for a gross sales price of approximately $881.3 million. At December 31, 2007, we owned 804 in-service industrial properties containing approximately 64.0 million square feet of GLA.
 
In December 2007, we entered into two new joint ventures, the 2007 Canada Joint Venture and the 2007 Europe Joint Venture.
 
During the year ended December 31, 2007, we repurchased 1,797,714 shares of our own stock at an average price per share of $38.62, including brokerage commissions.
 
During 2007, in conjunction with the acquisition of several industrial properties, we assumed mortgage loans payable in the aggregate of $38.6 million; these mortgage loans payable were paid off and retired in 2007.
 
On May 7, 2007, we issued $150.0 million of senior unsecured debt which matures on May 15, 2017 and bears interest at a rate of 5.95% (the “2017 II Notes”). The issue price of the 2017 II Notes was 99.730%. In April 2006, we entered into interest rate protection agreements to fix the interest rate on the 2017 II Notes prior to issuance. The effective portion of the interest rate protection agreements were settled on May 1, 2007 for a payment of $4.3 million, which is included in other comprehensive income and will be amortized over the life of the notes.
 
On May 15, 2007, we paid off and retired our 7.60% 2007 Unsecured Notes in the amount of $150.0 million.
 
On September 28, 2007, we amended and restated our Unsecured Line of Credit. The Unsecured Line of Credit matures on September 28, 2012, has a borrowing capacity of $500.0 million (with the right, subject to certain conditions, to increase the borrowing capacity up to $700.0 million) and bears interest at a floating rate of LIBOR plus 0.475%, or the prime rate, at our election. Up to $100.0 million of the $500.0 million capacity may be borrowed in foreign currencies, including the Canadian dollar, Euro, British Sterling and Japanese Yen.
 
On January 31, 2007, we purchased the 90% equity interest in the 1998 Core Joint Venture from our partner. We paid $18.5 million in cash and assumed $30.3 million in mortgage loans payable. As of December 31, 2007, all of these mortgage loans payable were paid off and retired.


5


 

On February 27, 2007, we redeemed the 85% equity interest in one legal entity which owned one property from the institutional investor in the 2003 Net Lease Joint Venture. In connection with the redemption, we assumed a $8.3 million mortgage loan payable and $3.0 million in other liabilities. The mortgage loan payable was subsequently paid off in February 2007.
 
Future Property Acquisitions, Developments and Property Sales
 
We have an active acquisition and development program through which we are continually engaged in identifying, negotiating and consummating portfolio and individual industrial property acquisitions and developments. As a result, we are currently engaged in negotiations relating to the possible acquisition and development of certain industrial properties.
 
We also sell properties based on market conditions and property related factors. As a result, we are currently engaged in negotiations relating to the possible sale of certain industrial properties in our portfolio.
 
When evaluating potential industrial property acquisitions and developments, as well as potential industrial property sales, we will consider such factors as: (i) the geographic area and type of property; (ii) the location, construction quality, condition and design of the property; (iii) the potential for capital appreciation of the property; (iv) the ability of the Company to improve the property’s performance through renovation; (v) the terms of tenant leases, including the potential for rent increases; (vi) the potential for economic growth and the tax and regulatory environment of the area in which the property is located; (vii) the potential for expansion of the physical layout of the property and/or the number of sites; (viii) the occupancy and demand by tenants for properties of a similar type in the vicinity; and (ix) competition from existing properties and the potential for the construction of new properties in the area.
 
INDUSTRY
 
Industrial properties are typically used for the design, assembly, packaging, storage and distribution of goods and/or the provision of services. As a result, the demand for industrial space in the United States is related to the level of economic output. Historically, occupancy rates for industrial property in the United States have been higher than those for other types of commercial property. We believe that the higher occupancy rate in the industrial property sector is a result of the construction-on-demand nature of, and the comparatively short development time required for, industrial property. For the five years ended December 31, 2007, the occupancy rates for industrial properties in the United States have ranged from 88.2%* to 90.8%*, with an occupancy rate of 90.6%* at December 31, 2007.
 
 
* Source: Torto Wheaton Research


6


 

Item 1A.   Risk Factors
 
Risk Factors
 
Our operations involve various risks that could adversely affect our financial condition, results of operations, cash flow, ability to pay distributions on our common stock and the market price of our common stock. These risks, among others contained in our other filings with the SEC, include:
 
Real estate investments’ value fluctuates depending on conditions in the general economy and the real estate business. These conditions may limit the Company’s revenues and available cash.
 
The factors that affect the value of our real estate and the revenues we derive from our properties include, among other things:
 
  •  general economic conditions;
 
  •  local, regional, national and international economic conditions and other events and occurrences that affect the markets in which we own properties;
 
  •  local conditions such as oversupply or a reduction in demand in an area;
 
  •  the attractiveness of the properties to tenants;
 
  •  tenant defaults;
 
  •  zoning or other regulatory restrictions;
 
  •  competition from other available real estate;
 
  •  our ability to provide adequate maintenance and insurance; and
 
  •  increased operating costs, including insurance premiums and real estate taxes.
 
Many real estate costs are fixed, even if income from properties decreases.
 
Our financial results depend on leasing space to tenants on terms favorable to us. Our income and funds available for distribution to our stockholders will decrease if a significant number of our tenants cannot pay their rent or we are unable to lease properties on favorable terms. In addition, if a tenant does not pay its rent, we may not be able to enforce our rights as landlord without delays and we may incur substantial legal costs. Costs associated with real estate investment, such as real estate taxes and maintenance costs, generally are not reduced when circumstances cause a reduction in income from the investment.
 
The Company may be unable to sell properties when appropriate because real estate investments are not as liquid as certain other types of assets.
 
Real estate investments generally cannot be sold quickly and, therefore, will tend to limit our ability to adjust our property portfolio promptly in response to changes in economic or other conditions. The inability to respond promptly to changes in the performance of our property portfolio could adversely affect our financial condition and ability to service debt and make distributions to our stockholders. In addition, like other companies qualifying as REITs under the Internal Revenue Code (the “Code”), we must comply with the safe harbor rules relating to the number of properties disposed of in a year, their tax basis and the cost of improvements made to the properties, or meet other tests which enable a REIT to avoid punitive taxation on the sale of assets. Thus, our ability at any time to sell assets may be restricted.
 
The Company may be unable to sell properties on advantageous terms.
 
We have sold to third parties a significant number of properties in recent years and, as part of our business, we intend to continue to sell properties to third parties. Our ability to sell properties on advantageous terms depends on factors beyond our control, including competition from other sellers and the availability of attractive financing for potential buyers of our properties. If we are unable to sell properties on favorable terms


7


 

or redeploy the proceeds of property sales in accordance with our business strategy, then our financial condition, results of operations, cash flow and ability to pay dividends on, and the market price of, our common stock could be adversely affected.
 
We have also sold to our joint ventures a significant number of properties in recent years and, as part of our business, we intend to continue to sell or contribute properties to our joint ventures as opportunities arise. If we do not have sufficient properties available that meet the investment criteria of current or future joint ventures, or if the joint ventures have reduced or do not have access to capital on favorable terms, then such sales could be delayed or prevented, adversely affecting our financial condition, results of operations, cash flow and ability to pay dividends on, and the market price of, our common stock.
 
The Company may be unable to acquire properties on advantageous terms or acquisitions may not perform as the Company expects.
 
We acquire and intend to continue to acquire primarily industrial properties. The acquisition of properties entails various risks, including the risks that our investments may not perform as expected and that our cost estimates for bringing an acquired property up to market standards may prove inaccurate. Further, we face significant competition for attractive investment opportunities from other well-capitalized real estate investors, including both publicly-traded REITs and private investors. This competition increases as investments in real estate become attractive relative to other forms of investment. As a result of competition, we may be unable to acquire additional properties as we desire or the purchase price may be elevated. In addition, we expect to finance future acquisitions through a combination of borrowings under the Unsecured Line of Credit, proceeds from equity or debt offerings by the Company and proceeds from property sales, which may not be available and which could adversely affect our cash flow. Any of the above risks could adversely affect our financial condition, results of operations, cash flow and ability to pay dividends on, and the market value of, our common stock.
 
The Company may be unable to complete development and re-development projects on advantageous terms.
 
As part of our business, we develop new and re-develop existing properties. In addition, we have sold to third parties or sold to our joint ventures a significant number of development and re-development properties in recent years, and we intend to continue to sell such properties to third parties or to sell or contribute such properties to our joint ventures as opportunities arise. The real estate development and re-development business involves significant risks that could adversely affect our financial condition, results of operations, cash flow and ability to pay dividends on, and the market price of our common stock, which include:
 
  •  we may not be able to obtain financing for development projects on favorable terms and complete construction on schedule or within budget, resulting in increased debt service expense and construction costs and delays in leasing the properties and generating cash flow;
 
  •  we may not be able to obtain, or may experience delays in obtaining, all necessary zoning, land-use, building, occupancy and other governmental permits and authorizations;
 
  •  the properties may perform below anticipated levels, producing cash flow below budgeted amounts and limiting our ability to sell such properties to third parties or to sell such properties to our joint ventures.
 
The Company may be unable to renew leases or find other lessees.
 
We are subject to the risks that, upon expiration, leases may not be renewed, the space subject to such leases may not be relet or the terms of renewal or reletting, including the cost of required renovations, may be less favorable than expiring lease terms. If we were unable to promptly renew a significant number of expiring leases or to promptly relet the space covered by such leases, or if the rental rates upon renewal or reletting were significantly lower than the current rates, our financial condition, results of operation, cash flow and ability to pay dividends on, and the market price of our common stock could be adversely affected. As of


8


 

December 31, 2007, leases with respect to approximately 12.6 million, 10.1 million and 9.6 million square feet of GLA, representing 21%, 17% and 16% of GLA, expire in 2008, 2009 and 2010, respectively.
 
The Company might fail to qualify or remain qualified as a REIT.
 
We intend to operate so as to qualify as a REIT under the Code. Although we believe that we are organized and will operate in a manner so as to qualify as a REIT, qualification as a REIT involves the satisfaction of numerous requirements, some of which must be met on a recurring basis. These requirements are established under highly technical and complex Code provisions of which there are only limited judicial or administrative interpretations and involve the determination of various factual matters and circumstances not entirely within our control.
 
If we were to fail to qualify as a REIT in any taxable year, we would be subject to federal income tax, including any applicable alternative minimum tax, on our taxable income at corporate rates. This could result in a discontinuation or substantial reduction in dividends to stockholders and in cash to pay interest and principal on debt securities that we issue. Unless entitled to relief under certain statutory provisions, we would be disqualified from electing treatment as a REIT for the four taxable years following the year during which we failed to qualify as a REIT.
 
Certain property transfers may generate prohibited transaction income, resulting in a penalty tax on the gain attributable to the transaction.
 
As part of our business, we sell properties to third parties or sell properties to our joint ventures as opportunities arise. Under the Code, a 100% penalty tax could be assessed on the gain resulting from sales of properties that are deemed to be prohibited transactions. The question of what constitutes a prohibited transaction is based on the facts and circumstances surrounding each transaction. The IRS could contend that certain sales of properties by us are prohibited transactions. While we do not believe that the IRS would prevail in such a dispute, if the matter were successfully argued by the IRS, the 100% penalty tax could be assessed against the profits from these transactions. In addition, any income from a prohibited transaction may adversely affect our ability to satisfy the income tests for qualification as a REIT.
 
The REIT distribution requirements may require the Company to turn to external financing sources.
 
We could, in certain instances, have taxable income without sufficient cash to enable us to meet the distribution requirements of the REIT provisions of the Code. In that situation, we could be required to borrow funds or sell properties on adverse terms in order to meet those distribution requirements. In addition, because we must distribute to our stockholders at least 90% of our REIT taxable income each year, our ability to accumulate capital may be limited. Thus, in connection with future acquisitions, we may be more dependent on outside sources of financing, such as debt financing or issuances of additional capital stock, which may or may not be available on favorable terms. Additional debt financings may substantially increase our leverage and additional equity offerings may result in substantial dilution of stockholders’ interests.
 
Debt financing, the degree of leverage and rising interest rates could reduce the Company’s cash flow.
 
Where possible, we intend to continue to use leverage to increase the rate of return on our investments and to allow us to make more investments than we otherwise could. Our use of leverage presents an additional element of risk in the event that the cash flow from our properties is insufficient to meet both debt payment obligations and the distribution requirements of the REIT provisions of the Code. In addition, rising interest rates would reduce our cash flow by increasing the amount of interest due on our floating rate debt and on our fixed rate debt as it matures and is refinanced.
 
Cross-collateralization of mortgage loans could result in foreclosure on substantially all of the Company’s properties if the Company is unable to service its indebtedness.
 
If the Operating Partnership decides to obtain additional debt financing in the future, it may do so through mortgages on some or all of its properties. These mortgages may be issued on a recourse, non-recourse or


9


 

cross-collateralized basis. Cross-collateralization makes all of the subject properties available to the lender in order to satisfy our debt. Holders of indebtedness that is so secured will have a claim against these properties. To the extent indebtedness is cross-collateralized, lenders may seek to foreclose upon properties that are not the primary collateral for their loan, which may, in turn, result in acceleration of other indebtedness secured by properties. Foreclosure of properties would result in a loss of income and asset value to us, making it difficult for us to meet both debt payment obligations and the distribution requirements of the REIT provisions of the Code. As of December 31, 2007, none of our current indebtedness was cross-collateralized.
 
The Company may have to make lump-sum payments on its existing indebtedness.
 
We are required to make the following lump-sum or “balloon” payments under the terms of some of our indebtedness, including indebtedness of the Operating Partnership:
 
  •  $50.0 million aggregate principal amount of 7.75% Notes due 2032 (the “2032 Notes”)
 
  •  $200.0 million aggregate principal amount of 7.60% Notes due 2028 (the “2028 Notes”)
 
  •  approximately $15.0 million aggregate principal amount of 7.15% Notes due 2027 (the “2027 Notes”)
 
  •  $150.0 million aggregate principal amount of 5.95% Notes due 2017 (the “2017 II Notes”)
 
  •  $100.0 million aggregate principal amount of 7.50% Notes due 2017 (the “2017 Notes”)
 
  •  $200.0 million aggregate principal amount of 5.75% Notes due 2016 (the “2016 Notes”)
 
  •  $125.0 million aggregate principal amount of 6.42% Notes due 2014 (the “2014 Notes”)
 
  •  $200.0 million aggregate principal amount of 6.875% Notes due 2012 (the “2012 Notes”)
 
  •  $200.0 million aggregate principal amount of 4.625% Notes due 2011 (the “2011 Exchangeable Notes”)
 
  •  $200.0 million aggregate principal amount of 7.375% Notes due 2011 (the “2011 Notes”)
 
  •  $125.0 million aggregate principal amount of 5.25% Notes due 2009 (the “2009 Notes”)
 
  •  $500.0 million Unsecured Line of Credit under which we may borrow to finance the acquisition of additional properties and for other corporate purposes, including working capital.
 
The Unsecured Line of Credit provides for the repayment of principal in a lump-sum or “balloon” payment at maturity in 2012. Under the Unsecured Line of Credit, we have the right, subject to certain conditions, to increase the aggregate commitment by up to $200.0 million. As of December 31, 2007, $322.1 million was outstanding under the Unsecured Line of Credit at a weighted average interest rate of 5.787%.
 
Our ability to make required payments of principal on outstanding indebtedness, whether at maturity or otherwise, may depend on our ability either to refinance the applicable indebtedness or to sell properties. We have no commitments to refinance the 2009 Notes, the 2011 Notes, the 2011 Exchangeable Notes, the 2012 Notes, the 2014 Notes, the 2016 Notes, the 2017 Notes, the 2017 II Notes, the 2027 Notes, the 2028 Notes, the 2032 Notes or the Unsecured Line of Credit. Some of our existing debt obligations, other than those discussed above, are secured by our properties, and therefore such obligations will permit the lender to foreclose on those properties in the event of a default.
 
There is no limitation on debt in the Company’s organizational documents.
 
Our organizational documents do not contain any limitation on the amount or percentage of indebtedness we may incur. Accordingly, we could become more highly leveraged, resulting in an increase in debt service that could adversely affect our ability to make expected distributions to stockholders and in an increased risk of default on our obligations. As of December 31, 2007, our ratio of debt to our total market capitalization was 49.2%. We compute that percentage by calculating our total consolidated debt as a percentage of the aggregate market value of all outstanding shares of our common stock, assuming the exchange of all limited


10


 

partnership units of the Operating Partnership for common stock, plus the aggregate stated value of all outstanding shares of preferred stock and total consolidated debt.
 
Rising interest rates on the Company’s Unsecured Line of Credit could decrease the Company’s available cash.
 
Our Unsecured Line of Credit bears interest at a floating rate. As of December 31, 2007, our Unsecured Line of Credit had an outstanding balance of $322.1 million at a weighted average interest rate of 5.787%. Our Unsecured Line of Credit bears interest at the prime rate or at the LIBOR plus 0.475%, at our election. Based on an outstanding balance on our Unsecured Line of Credit as of December 31, 2007, a 10% increase in interest rates would increase interest expense by $1.9 million on an annual basis. Increases in the interest rate payable on balances outstanding under our Unsecured Line of Credit would decrease our cash available for distribution to stockholders.
 
Earnings and cash dividends, asset value and market interest rates affect the price of the Company’s common stock.
 
As a REIT, the market value of our common stock, in general, is based primarily upon the market’s perception of our growth potential and our current and potential future earnings and cash dividends. The market value of our common stock is based secondarily upon the market value of our underlying real estate assets. For this reason, shares of our common stock may trade at prices that are higher or lower than our net asset value per share. To the extent that we retain operating cash flow for investment purposes, working capital reserves, or other purposes, these retained funds, while increasing the value of our underlying assets, may not correspondingly increase the market price of our common stock. Our failure to meet the market’s expectations with regard to future earnings and cash dividends likely would adversely affect the market price of our common stock. Further, the distribution yield on the common stock (as a percentage of the price of the common stock) relative to market interest rates may also influence the price of our common stock. An increase in market interest rates might lead prospective purchasers of our common stock to expect a higher distribution yield, which would adversely affect the market price of our common stock. Additionally, if the market price of our common stock declines significantly, then we might breach certain covenants with respect to our debt obligations, which could adversely affect our liquidity and ability to make future acquisitions and our ability to pay dividends to our stockholders.
 
The Company may incur unanticipated costs and liabilities due to environmental problems.
 
Under various federal, state and local laws, ordinances and regulations, an owner or operator of real estate may be liable for the costs of clean-up of certain conditions relating to the presence of hazardous or toxic materials on, in or emanating from a property, and any related damages to natural resources. Environmental laws often impose liability without regard to whether the owner or operator knew of, or was responsible for, the presence of hazardous or toxic materials. The presence of such materials, or the failure to address those conditions properly, may adversely affect the ability to rent or sell the property or to borrow using a property as collateral. Persons who dispose of or arrange for the disposal or treatment of hazardous or toxic materials may also be liable for the costs of clean-up of such materials, or for related natural resource damages, at or from an off-site disposal or treatment facility, whether or not the facility is owned or operated by those persons. No assurance can be given that existing environmental assessments with respect to any of our properties reveal all environmental liabilities, that any prior owner or operator of any of the properties did not create any material environmental condition not known to us or that a material environmental condition does not otherwise exist as to any of our Company’s properties.
 
The Company’s insurance coverage does not include all potential losses.
 
We currently carry comprehensive insurance coverage including property, boiler & machinery, liability, fire, flood, terrorism, earthquake, extended coverage and rental loss as appropriate for the markets where each of our properties and their business operations are located. The insurance coverage contains policy specifications and insured limits customarily carried for similar properties and business activities. We believe our


11


 

properties are adequately insured. However, there are certain losses, including losses from earthquakes, hurricanes, floods, pollution, acts of war, acts of terrorism or riots, that are not generally insured against or that are not generally fully insured against because it is not deemed to be economically feasible or prudent to do so. If an uninsured loss or a loss in excess of insured limits occurs with respect to one or more of our properties, we could experience a significant loss of capital invested and potential revenues from these properties, and could potentially remain obligated under any recourse debt associated with the property.
 
The Company is subject to risks and liabilities in connection with its investments in properties through joint ventures.
 
As of December 31, 2007, five of our joint ventures owned approximately 19.9 million square feet of properties. As of December 31, 2007, our investment in joint ventures exceeded $57.5 million in the aggregate, and for the year ended December 31, 2007, our equity in income of joint ventures exceeded $30.0 million. Our organizational documents do not limit the amount of available funds that we may invest in joint ventures and we intend to continue to develop and acquire properties through joint ventures with other persons or entities when warranted by the circumstances. Joint venture investments, in general, involve certain risks, including:
 
  •  co-members or joint venturers may share certain approval rights over major decisions;
 
  •  co-members or joint venturers might fail to fund their share of any required capital commitments;
 
  •  co-members or joint venturers might have economic or other business interests or goals that are inconsistent with our business interests or goals that would affect our ability to operate the property;
 
  •  co-members or joint venturers may have the power to act contrary to our instructions, requests, policies or objectives, including our current policy with respect to maintaining our qualification as a real estate investment trust;
 
  •  the joint venture agreements often restrict the transfer of a member’s or joint venturer’s interest or “buy-sell” or may otherwise restrict our ability to sell the interest when we desire or on advantageous terms;
 
  •  disputes between us and our co-members or joint venturers may result in litigation or arbitration that would increase our expenses and prevent our officers and directors from focusing their time and effort on our business and subject the properties owned by the applicable joint venture to additional risk; and
 
  •  we may in certain circumstances be liable for the actions of our co-members or joint venturers.
 
The occurrence of one or more of the events described above could adversely affect our financial condition, results of operations, cash flow and ability to pay dividends on, and the market price of, our common stock.
 
In addition, joint venture investments in real estate involve all of the risks related to the ownership, acquisition, development, sale and financing of real estate discussed in the risk factors above. To the extent our investments in joint ventures are adversely affected by such risks our financial condition, results of operations, cash flow and ability to pay dividends on, and the market price of, our common stock could be adversely affected.
 
We are subject to risks associated with our international operations.
 
Under our market strategy, we plan to acquire and develop properties outside of the United States, including in Canada, the Netherlands and Belgium. Our international operations will be subject to risks inherent in doing business abroad, including:
 
  •  exposure to the economic fluctuations in the locations in which we invest;
 
  •  difficulties and costs associated with complying with a wide variety of complex laws, treaties and regulations;


12


 

 
  •  revisions in tax treaties or other laws and regulations, including those governing the taxation of our international revenues;
 
  •  obstacles to the repatriation of earnings and funds;
 
  •  currency exchange rate fluctuations between the United States dollar and foreign currencies;
 
  •  restrictions on the transfer of funds; and
 
  •  national, regional and local political uncertainty.
 
We also have offices outside of the United States. Our ability to effectively establish, staff and manage these offices is subject to risks associated with employment practices, labor issues, and cultural factors that differ from those with which we are familiar. In addition, we may be subject to regulatory requirements and prohibitions that differ between jurisdictions. As we continue to expand our business globally, we may have difficulty anticipating and effectively managing these and other risks that our international operations may face, which may adversely affect our business outside the United States and our financial condition and results of operations.
 
Acquired properties may be located in new markets, where we may face risks associated with investing in an unfamiliar market.
 
When we acquire properties located outside of the United States, we may face risks associated with a lack of market knowledge or understanding of the local economy, forging new business relationships in the area and unfamiliarity with local government and permitting procedures. We work to mitigate such risks through extensive diligence and research and associations with experienced partners; however, there can be no guarantee that all such risks will be eliminated.
 
Potential fluctuations in exchange rates between the U.S. dollar and the currencies of the other countries in which we invest may adversely affect our results of operations and financial position.
 
Owning, operating and developing industrial property outside of the United States exposes the Company to the possibility of volatile movements in foreign exchange rates. Changes in foreign currencies can affect the operating results of international operations reported in US dollars and the value of the foreign assets reported in US dollars. The economic impact of foreign exchange rate movements is complex because such changes are often linked to variability in real growth, inflation, interest rates, governmental actions and other factors. A significant depreciation in the value of the currency of one or more countries where we have a significant investment may materially affect our results of operations.
 
Item 1B.   Unresolved SEC Comments
 
None.
 
Item 2.   Properties
 
General
 
At December 31, 2007, we owned 804 in-service industrial properties containing an aggregate of approximately 64.0 million square feet of GLA in 28 states and one province in Canada, with a diverse base of more than 2,300 tenants engaged in a wide variety of businesses, including manufacturing, retail, wholesale trade, distribution and professional services. The properties are generally located in business parks that have convenient access to interstate highways and/or rail and air transportation. The weighted average age of the properties as of December 31, 2007 was approximately 20 years. We maintain insurance on our properties that we believe is adequate.
 
We classify our properties into five industrial categories: light industrial, R&D/flex, bulk warehouse, regional warehouse and manufacturing. While some properties may have characteristics which fall under more than one property type, we use what we believe is the most dominant characteristic to categorize the property.


13


 

The following describes, generally, the different industrial categories:
 
  •  Light industrial properties are of less than 100,000 square feet, have a ceiling height of 16-21 feet, are comprised of 5%-50% of office space, contain less than 50% of manufacturing space and have a land use ratio of 4:1. The land use ratio is the ratio of the total property area to the area occupied by the building.
 
  •  R&D/flex buildings are of less than 100,000 square feet, have a ceiling height of less than 16 feet, are comprised of 50% or more of office space, contain less than 25% of manufacturing space and have a land use ratio of 4:1.
 
  •  Bulk warehouse buildings are of more than 100,000 square feet, have a ceiling height of at least 22 feet, are comprised of 5%-15% of office space, contain less than 25% of manufacturing space and have a land use ratio of 2:1.
 
  •  Regional warehouses are of less than 100,000 square feet, have a ceiling height of at least 22 feet, are comprised of 5%-15% of office space, contain less than 25% of manufacturing space and have a land use ratio of 2:1.
 
  •  Manufacturing properties are a diverse category of buildings that have a ceiling height of 10-18 feet, are comprised of 5%-15% of office space, contain at least 50% of manufacturing space and have a land use ratio of 4:1.


14


 

 
Each of the properties is wholly owned by us or our consolidated subsidiaries. The following tables summarize certain information as of December 31, 2007, with respect to our in-service properties.
 
Property Summary
 
                                                                                 
    Light Industrial     R&D/Flex     Bulk Warehouse     Regional Warehouse     Manufacturing  
          Number of
          Number of
          Number of
          Number of
          Number of
 
Metropolitan Area
  GLA     Properties     GLA     Properties     GLA     Properties     GLA     Properties     GLA     Properties  
 
Atlanta, GA(a)
    696,922       12       206,826       5       2,650,542       11       393,535       5       847,950       4  
Baltimore, MD
    989,634       16       169,660       5       383,135       3                   171,000       1  
Central PA(b)
    541,722       7                   897,000       3       117,599       3              
Chicago, IL
    1,019,409       18       174,841       3       2,346,598       12       169,989       4       421,000       2  
Cincinnati, OH
    604,389       7                   1,525,130       7       130,870       2              
Cleveland, OH
    64,000       1                   608,740       4                          
Columbus, OH(c)
    217,612       2                   2,442,967       7       98,800       1              
Dallas, TX
    2,475,044       49       454,963       18       1,762,736       16       677,433       10       128,478       1  
Denver, CO
    1,248,829       21       1,016,054       23       1,399,876       8       521,664       8       126,384       1  
Detroit, MI
    2,361,883       85       452,376       15       530,843       5       710,308       17       116,250       1  
Houston, TX
    330,322       7       111,111       5       2,233,064       13       355,793       5              
Indianapolis, IN(d,e,f,g)
    909,253       18       38,200       3       3,348,469       13       222,710       5       71,600       2  
Inland Empire, CA
                            595,940       2                          
Los Angeles, CA
    460,820       10                   374,702       3       199,555       3              
Louisville, KY
                            124,935       1                          
Miami, FL
                                        228,726       5              
Milwaukee, WI
    263,567       6       93,705       2       838,129       6       129,557       2              
Minneapolis/St. Paul, MN(h,i)
    1,567,075       18       419,834       5       1,810,141       9       321,305       4       994,077       9  
Nashville, TN
    204,918       3                   870,323       5                   109,058       1  
N. New Jersey
    1,159,629       20       413,167       7       441,467       3       58,585       1              
Philadelphia, PA
    878,456       18       127,802       5       732,265       3       211,228       4       30,000       1  
Phoenix, AZ
    61,538       2                   131,000       1       256,615       4              
Salt Lake City, UT
    706,201       35       146,937       6       648,625       4                          
San Diego, CA
    112,773       5                               69,985       2              
S. New Jersey(j)
    1,356,377       20                   281,100       2       118,496       2       22,738       1  
St. Louis, MO(k)
    545,747       7                   1,887,790       8       96,392       1              
Tampa, FL(l)
    234,679       7       486,192       23       209,500       1                          
Toronto, ON
    57,540       1                   897,954       3                          
Other(m)
    696,547       8                   1,727,328       9       88,000       1       36,000       1  
                                                                                 
Total
    19,764,886       403       4,311,668       125       31,700,299       162       5,177,145       89       3,074,535       25  
                                                                                 
 
 
(a) One property collateralizes a $2.8 million mortgage loan which matures on May 1, 2016.
 
(b) One property collateralizes a $14.7 million mortgage loan which matures on December 1, 2010.
 
(c) One property collateralizes a $5.0 million mortgage loan which matures on December 1, 2019.
 
(d) Twelve properties collateralize a $1.1 million mortgage loan which matures on September 1, 2009.
 
(e) One property collateralizes a $1.4 million mortgage loan which matures on January 1, 2013.
 
(f) One property collateralizes a $2.4 million mortgage loan which matures on January 1, 2012.
 
(g) One property collateralizes a $1.7 million mortgage loan which matures on June 1, 2014.
 
(h) One property collateralizes a $5.1 million mortgage loan which matures on December 1, 2019.
 
(i) One property collateralizes a $1.8 million mortgage loan which matures on September 30, 2024.
 
(j) One property collateralizes a $6.4 million mortgage loan which matures on March 1, 2011.


15


 

 
(k) One property collateralizes a $13.8 million mortgage loan and a $11.7 million mortgage loan which both mature on January 1, 2014.
 
(l) Six properties collateralize a $5.7 million mortgage loan which matures on July 1, 2009.
 
(m) Properties are located in Wichita, KS, Grand Rapids, MI, Austin, TX, Orlando, FL, Johnson County, MS, Horn Lake, MS, Shreveport, LA, Kansas City, MO, San Antonio, TX, Birmingham, AL, Portland, OR, Des Moines, IA, Sumner, IA, Omaha, NE, and Winchester, VA.
 
Property Summary Totals
 
                                 
    Totals  
                Average
    GLA as a%
 
          Number of
    Occupancy at
    of Total
 
Metropolitan Area
  GLA     Properties(b)     12/31/07(b)     Portfolio(b)  
 
Atlanta, GA
    4,795,775       37       93 %     7.5 %
Baltimore, MD
    1,713,429       25       100 %     2.7 %
Central, PA
    1,556,321       13       100 %     2.4 %
Chicago, IL
    4,131,837       39       97 %     6.5 %
Cincinnati, OH
    2,260,389       16       98 %     3.5 %
Cleveland, OH
    672,740       5       100 %     1.1 %
Columbus, OH
    2,759,379       10       90 %     4.3 %
Dallas, TX/Ft. Worth, TX
    5,498,654       94       91 %     8.6 %
Denver, CO
    4,312,807       61       91 %     6.7 %
Detroit, MI
    4,171,660       123       81 %     6.5 %
Houston, TX
    3,030,290       30       99 %     4.7 %
Indianapolis, IN
    4,590,232       41       97 %     7.2 %
Inland Empire, CA
    595,940       2       100 %     0.9 %
Los Angeles, CA
    1,035,077       16       85 %     1.6 %
Louisville, KY
    124,935       1       100 %     0.2 %
Miami, FL
    228,726       5       99 %     0.4 %
Milwaukee, WI
    1,324,958       16       91 %     2.1 %
Minneapolis/St. Paul, MN
    5,112,432       45       95 %     8.0 %
Nashville, TN
    1,184,299       9       93 %     1.8 %
N. New Jersey
    2,072,848       31       95 %     3.2 %
Philadelphia, PA
    1,979,751       31       98 %     3.1 %
Phoenix, AZ
    449,153       7       100 %     0.7 %
Salt Lake City, UT
    1,501,763       45       94 %     2.3 %
San Diego, CA
    182,758       7       92 %     0.3 %
S. New Jersey
    1,778,711       25       98 %     2.8 %
St. Louis, MO
    2,529,929       16       99 %     4.0 %
Tampa, FL
    930,371       31       93 %     1.5 %
Toronto, ON
    955,494       4       100 %     1.5 %
Other(a)
    2,547,875       19       100 %     4.0 %
                                 
Total or Average
    64,028,533       804       95 %     100.0 %
                                 
 
 
(a) Properties are located in Wichita, KS, Grand Rapids, MI, Austin, TX, Orlando, FL, Johnson County, KS, Horn Lake, MS, Shreveport, LA, Kansas City, MO, San Antonio, TX, Birmingham, AL, Portland, OR, Des Moines, IA, Sumner, IA, Omaha, NE, and Winchester, VA.
 
(b) Includes only in-service properties.


16


 

 
Property Acquisition Activity
 
During 2007, we acquired 105 industrial properties totaling approximately 8.6 million square feet of GLA at a total purchase price of approximately $399.1 million, or approximately $46.41 per square foot. We also purchased several land parcels for an aggregate purchase price of approximately $71.7 million. The 105 industrial properties acquired have the following characteristics:
 
                                 
                      Average
 
    Number of
                Occupancy at
 
Metropolitan Area
  Properties     GLA    
Property Type
    12/31/2007(b)  
 
Atlanta, GA
    2       972,125       Bulk Warehouse       N/A  
Chicago, IL
    3       276,643       Lt. Ind./Bulk/Regional Warehouse       100 %
Cincinnati, OH
    6       329,070       Lt. Ind./Regional Warehouse       99 %
Columbus, OH(a)
    1       340,000       Bulk Warehouse       N/A  
Columbus, OH
    2       547,406       Bulk Warehouse       N/A  
Dallas, TX
    1       106,210       Bulk Warehouse       100 %
Houston, TX(a)
    31       1,070,233       Various       N/A  
Houston, TX
    14       451,370       Lt. Ind./Regional Warehouse/R&D Flex       85 %
Inland Empire, CA
    2       595,940       Bulk Warehouse       100 %
Los Angeles, CA(a)
    1       27,692       Regional Warehouse       N/A  
Los Angeles, CA
    12       918,974       Lt. Ind./Bulk/Regional Warehouse       100 %
Miami, FL
    7       424,730       Bulk/Regional Warehouse       99 %
Milwaukee, WI
    4       192,941       Light Industrial       N/A  
Minneapolis, MN
    1       132,000       Bulk Warehouse       N/A  
Nashville, TN
    1       76,016       Light Industrial       100 %
Philadelphia, PA(a)
    1       137,036       Bulk Warehouse       N/A  
Philadelphia, PA
    2       560,728       Bulk/Regional Warehouse       100 %
Phoenix, AZ
    1       39,360       Regional Warehouse       100 %
S. New Jersey(a)
    2       157,450       Bulk/Regional Warehouse       N/A  
S. New Jersey
    3       360,638       Bulk/Regional Warehouse       100 %
Salt Lake City, UT
    3       185,000       Light Industrial       100 %
San Diego, CA
    2       70,414       Regional Warehouse       100 %
St. Louis, MO(a)
    1       226,576       Bulk Warehouse       N/A  
St. Louis
    1       115,200       Bulk Warehouse       N/A  
Toronto, ON
    1       276,124       Bulk Warehouse       100 %
                                 
Total
    105       8,589,876                  
                                 
 
 
(a) Property was sold in 2007.
 
(b) Includes only in-service properties.


17


 

 
Property Development Activity
 
During 2007, we placed in-service 14 developments totaling approximately 2.6 million square feet of GLA at a total cost of approximately $139.0 million, or approximately $53.46 per square foot. The developments placed in-service have the following characteristics:
 
                         
                Average
 
                Occupancy
 
Metropolitan Area
  GLA    
Property Type
    at 12/31/07  
 
Baltimore, MD
    300,000       Bulk Warehouse       100 %
Baltimore, MD(a)
    130,200       Bulk Warehouse       N/A  
Dallas, TX(a)
    125,085       Bulk Warehouse       N/A  
Denver, CO
    20,320       R&D/Flex       100 %
Denver, CO
    39,434       Light Industrial       100 %
Indianapolis, IN
    71,753       Light Industrial       100 %
Indianapolis, IN
    177,600       Bulk Warehouse       100 %
Indianapolis, IN(a)
    241,824       Bulk Warehouse       N/A  
Kansas City, KS
    446,500       Bulk Warehouse       100 %
Louisville, KY
    118,159       Bulk Warehouse       100 %
Minneapolis, MN
    170,824       Bulk Warehouse       100 %
Minneapolis/St. Paul, MN(a)
    340,478       Bulk Warehouse       N/A  
Phoenix, AZ(a)
    335,039       Bulk Warehouse       N/A  
Salt Lake City, UT(a)
    92,290       Regional Warehouse       N/A  
                         
Total
    2,609,506                  
                         
 
 
(a) Property was sold in 2007.
 
At December 31, 2007, we had 17 development projects not placed in service, totaling an estimated 4.8 million square feet and with an estimated completion cost of approximately $256.0 million. There can be no assurance that we will place these projects in service in 2008 or that the actual completion cost will not exceed the estimated completion cost stated above.


18


 

Property Sales
 
During 2007, we sold 164 industrial properties totaling approximately 13.7 million square feet of GLA and several land parcels. Total gross sales proceeds approximated $881.3 million. The 164 industrial properties sold have the following characteristics:
 
                         
    Number of
             
Metropolitan Area
  Properties     GLA    
Property Type
 
 
Atlanta, GA
    4       421,036       Light Industrial/Bulk/Regional Warehouse  
Baltimore, MD
    2       657,800       Bulk Warehouse  
Central, PA
    1       49,350       Light Industrial  
Chicago, IL
    8       1,003,748       Light Industrial/Bulk/Regional Warehouse  
Cincinnati, OH
    1       240,000       Bulk Warehouse  
Columbus, OH
    1       340,000       Bulk Warehouse  
Dallas, TX
    4       1,189,403       Light Industrial/Bulk Warehouse  
Denver, CO
    25       966,117       R&D Flex/Light Industrial  
Detroit, MI
    3       154,011       Light Industrial/R&D/Flex  
Houston, TX
    36       1,437,659       Lt. Ind/R&D/Flex/Regional  
Indianapolis, IN
    9       1,022,376       Bulk/Lt. Ind/R&D/Flex/Regional  
Los Angeles, CA
    5       482,833       Regional/Bulk Warehouse/Lt. Ind.  
Louisville, KY
    2       443,500       Bulk Warehouse  
Minneapolis/St. Paul, MN
    5       415,882       Light Industrial/R&D/Flex  
N. New Jersey
    2       154,965       Bulk Warehouse  
Nashville, TN
    5       866,121       Light Industrial/Bulk Warehouse  
Philadelphia, PA
    2       160,086       Bulk Warehouse/R&D Flex  
Phoenix, AZ
    10       780,601       Regional/Bulk Warehouse/Light Industrial  
S. New Jersey
    5       273,076       Light Industrial/Regional/Bulk Warehouse  
Salt Lake City, UT
    3       363,562       Regional/Bulk Warehouse  
San Diego, CA
    9       672,009       Regional/Bulk Warehouse  
Tampa, FL
    19       686,092       R&D/Flex/Light Industrial  
Other(a)
    3       922,576       Regional/Bulk Warehouse  
                         
Total
    164       13,702,803          
                         
 
 
(a) Properties are located in Shreveport, LA, McAllen, TX, and Kansas City, MO.
 
Property Acquisitions, Developments and Sales Subsequent to Year End
 
From January 1, 2008 to February 15, 2008, we acquired 11 industrial properties and several land parcels for a total estimated investment of approximately $79.1 million. We also sold three industrial properties and one land parcel for approximately $3.6 million of gross proceeds during this period.


19


 

Tenant and Lease Information
 
We have a diverse base of more than 2,300 tenants engaged in a wide variety of businesses including manufacturing, retail, wholesale trade, distribution and professional services. Most leases have an initial term of between three and six years and provide for periodic rent increases that are either fixed or based on changes in the Consumer Price Index. Industrial tenants typically have net or semi-net leases and pay as additional rent their percentage of the property’s operating costs, including the costs of common area maintenance, property taxes and insurance. As of December 31, 2007, approximately 95% of the GLA of the in-service industrial properties was leased, and no single tenant or group of related tenants accounted for more than 1.6% of our rent revenues, nor did any single tenant or group of related tenants occupy more than 2.5% of our total GLA as of December 31, 2007.
 
The following table shows scheduled lease expirations for all leases for our in-service properties as of December 31, 2007.
 
                                         
    Number of
          Percentage of
    Annual Base Rent
    Percentage of Total
 
Year of
  Leases
    GLA
    GLA
    Under Expiring
    Annual Base Rent
 
Expiration(1)
  Expiring     Expiring(2)     Expiring     Leases     Expiring(2)  
                (In thousands)        
 
2008
    657       12,568,701       21 %     54,285       20 %
2009
    478       10,086,353       17 %     47,399       17 %
2010
    469       9,595,302       16 %     44,412       16 %
2011
    279       7,710,427       13 %     37,761       14 %
2012
    213       6,097,906       10 %     29,083       11 %
2013
    83       3,632,234       6 %     15,358       6 %
2014
    36       1,814,585       3 %     8,712       3 %
2015
    35       2,556,108       4 %     8,064       3 %
2016
    23       1,414,386       2 %     5,474       2 %
2017
    14       1,310,972       2 %     5,905       2 %
Thereafter
    33       4,112,248       7 %     16,077       6 %
                                         
Total
    2,320       60,899,222       100.0 %   $ 272,530       100.0 %
                                         
 
 
(1) Lease expirations as of December 31, 2007 assume tenants do not exercise existing renewal, termination or purchase options.
 
(2) Does not include existing vacancies of 3,129,311 aggregate square feet.
 
Item 3.   Legal Proceedings
 
We are involved in legal proceedings arising in the ordinary course of business. All such proceedings, taken together, are not expected to have a material impact on the results of operations, financial position or liquidity of the Company.
 
Item 4.   Submission of Matters to a Vote of Security Holders
 
None.


20


 

 
PART II
 
Item 5.   Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
 
Market Information
 
The following table sets forth for the periods indicated the high and low closing prices per share and distributions declared per share for our common stock, which trades on the New York Stock Exchange under the trading symbol “FR”.
 
                         
                Distribution
 
Quarter Ended
  High     Low     Declared  
 
December 31, 2007
  $ 42.71     $ 34.60     $ 0.7200  
September 30, 2007
  $ 41.28     $ 37.63     $ 0.7100  
June 30, 2007
  $ 45.77     $ 38.76     $ 0.7100  
March 31, 2007
  $ 49.51     $ 44.44     $ 0.7100  
December 31, 2006
  $ 50.52     $ 43.70     $ 0.7100  
September 30, 2006
  $ 44.25     $ 37.25     $ 0.7000  
June 30, 2006
  $ 41.79     $ 36.50     $ 0.7000  
March 31, 2006
  $ 43.24     $ 37.73     $ 0.7000  
 
We had 667 common stockholders of record registered with our transfer agent as of February 15, 2008.
 
We have estimated that, for federal income tax purposes, approximately 21.61% of the total $127.6 million in common stock distributions declared in 2007 were classified as ordinary dividend income to our shareholders, 69.02% qualified as capital gain income, and 9.37% represented a return of capital (nondividend distribution).
 
Additionally, for tax purposes, an estimated 23.84% of our 2007 preferred stock dividends were ordinary income, with 76.16% qualifying as capital gain income.
 
In order to comply with the REIT requirements of the Code, we are generally required to make common share distributions and preferred share dividends (other than capital gain distributions) to our shareholders in amounts that together at least equal i) the sum of a) 90% of our “REIT taxable income” computed without regard to the dividends paid deduction and net capital gains and b) 90% of net income (after tax), if any, from foreclosure property, minus ii) certain excess non-cash income. Our common share distribution policy is determined by our board of directors and is dependent on multiple factors, including cash flow and capital expenditure requirements, as well as ensuring that we meet the minimum distribution requirements set forth in the Code.
 
During 2007, the Operating Partnership did not issue any Units.
 
Subject to lock-up periods and certain adjustments, Units of the Operating Partnership are convertible into common stock of the Company on a one-for-one basis or cash at the option of the Company.


21


 

Equity Compensation Plans
 
The following table sets forth information regarding our equity compensation plans.
 
                         
    Number of Securities
          Number of Securities
 
    to be Issued
    Weighted-Average
    Remaining Available
 
    Upon Exercise of
    Exercise Price of
    for Further Issuance
 
    Outstanding Options,
    Outstanding Options,
    Under Equity
 
Plan Category
  Warrants and Rights     Warrants and Rights     Compensation Plans  
 
Equity Compensation Plans Approved by Security Holders
                1,743,543  
Equity Compensation Plans Not Approved by Security Holders(1)
    355,901     $ 31.68       84,274  
                         
Total
    355,901     $ 31.68       1,827,817  
                         
 
 
(1) See Notes 3 and 13 of the Notes to Consolidated Financial Statements contained herein for a description of the plan.


22


 

Performance Graph*
 
The following graph provides a comparison of the cumulative total stockholder return among the Company, the NAREIT Equity REIT Total Return Index (the “NAREIT Index”) and the Standard & Poor’s 500 Index (“S&P 500”). The comparison is for the period from December 31, 2002 to December 31, 2007 and assumes the reinvestment of any dividends. The closing price for our Common Stock quoted on the NYSE at the close of business on December 31, 2002 was $28.00 per share. The NAREIT Index includes REITs with 75% or more of their gross invested book value of assets invested directly or indirectly in the equity ownership of real estate. Upon written request, we will provide stockholders with a list of the REITs included in the NAREIT Index. The historical information set forth below is not necessarily indicative of future performance. The following graph was prepared at our request by Research Data Group, Inc., San Francisco, California.
 
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
 
(GRAPH)
 
                                                 
    12/02   12/03   12/04   12/05   12/06   12/07
FIRST INDUSTRIAL REALTY TRUST, INC.
  $ 100.00     $ 131.43     $ 170.19     $ 172.67     $ 224.61     $ 178.05  
S&P 500
    100.00       128.68       142.69       149.70       173.34       182.87  
NAREIT Equity
    100.00       137.13       180.44       202.38       273.34       230.45  
 
 
* The information provided in this performance graph shall not be deemed to be “soliciting material,” to be “filed” or to be incorporated by reference into any filing under the Securities Act of 1933 or the Exchange Act of 1934 unless specifically treated as such.


23


 

The following table contains information for shares of the our common stock repurchased during the year ended December 31, 2007:
 
                                 
                Total Number
    Approximate
 
                of Shares
    Dollar Value of
 
                Purchased as
    Shares that May
 
    Total
          Part of Publicly
    Yet be
 
    Number of
    Average
    Announced
    Purchased
 
    Shares
    Price Paid
    Plans or
    Under the Plans
 
Period
  Purchased     per Share     Programs     or Programs(1)  
 
January 1, 2007 — July 31, 2007
                    $ 29,513,176  
August 1, 2007 — August 31, 2007
    645,083     $ 39.46       645,083     $ 4,060,637  
September 1, 2007 — September 30, 2007
    98,431     $ 39.90       98,431     $ 100,132,878  
October 1, 2007 — October 31, 2007
                    $ 100,132,878  
November 1, 2007 — November 30, 2007
    1,054,200     $ 37.93       1,054,200     $ 60,144,757  
December 1, 2007 — December 31, 2007
                    $ 60,144,757  
                                 
Total
    1,797,714     $ 38.59       1,797,714          
                                 
 
 
(1) In March 2000 and in September 2007, our Board of Directors authorized a stock repurchase plan pursuant to which we are permitted to purchase up to $100.0 million and $100.0 million, respectively, of our outstanding common stock. During the year ended December 31, 2007, we repurchased 1,797,714 shares at an average price per share of $38.59 ($38.62 per share, including brokerage commissions). During November 2007 we completed the March 2000 Program.


24


 

 
Item 6.   Selected Financial Data
 
The following sets forth selected financial and operating data for the Company on a historical consolidated basis. The following data should be read in conjunction with the Consolidated Financial Statements and Notes thereto and Management’s Discussion and Analysis of Financial Condition and Results of Operations included elsewhere in this Form 10-K. The historical statements of operations for the years ended December 31, 2007, 2006, 2005, 2004, and 2003 include the results of operations of the Company as derived from our audited financial statements, adjusted for discontinued operations. The results of operations of properties sold are presented in discontinued operations if they met both of the following criteria: (a) the operations and cash flows of the property have been (or will be) eliminated from the ongoing operations of the Company as a result of the disposition and (b) we will not have any significant involvement in the operations of the property after the disposal transaction. The historical balance sheet data and other data as of December 31, 2007, 2006, 2005, 2004, and 2003 include the balances of the Company as derived from our audited financial statements.
 
                                         
    Year Ended
    Year Ended
    Year Ended
    Year Ended
    Year Ended
 
    12/31/07     12/31/06     12/31/05     12/31/04     12/31/03  
    (In thousands, except per unit and property data)  
 
Statement of Operations Data:
                                       
Total Revenues
  $ 434,927     $ 350,924     $ 287,663     $ 232,786     $ 217,925  
Interest Income
    1,926       1,614       1,486       3,632       2,416  
Mark-to-Market/(Loss) Gain on Settlement of Interest Rate Protection Agreements
          (3,112 )     811       1,583        
Property Expenses
    (129,403 )     (115,230 )     (95,172 )     (78,632 )     (73,428 )
General and Administrative Expense
    (92,101 )     (77,497 )     (55,812 )     (39,569 )     (26,953 )
Interest Expense
    (119,314 )     (121,141 )     (108,339 )     (98,636 )     (94,895 )
Amortization of Deferred Financing Costs
    (3,210 )     (2,666 )     (2,125 )     (1,931 )     (1,764 )
Depreciation and Other Amortization
    (153,682 )     (130,582 )     (94,490 )     (69,326 )     (56,788 )
Contractor Expenses
    (34,553 )     (10,263 )     (15,574 )            
(Loss) Gain from Early Retirement from Debt
    (393 )           82       (515 )     (1,466 )
Equity in Income of Joint Ventures
    30,045       30,673       3,699       37,301       539  
Income Tax Benefit
    10,571       9,882       14,337       8,195       5,878  
Minority Interest Allocable to Continuing Operations
    9,944       11,593       9,695       3,774       7,033  
                                         
Loss from Continuing Operations
    (45,243 )     (55,805 )     (53,739 )     (1,338 )     (21,503 )
Income from Discontinued Operations (Including Gain on Sale of Real Estate of $244,962, $213,442, $132,139, $88,245 and $79,485 for the Years Ended December 31, 2007, 2006, 2005, 2004, and 2003, respectively)
    260,975       240,145       167,406       129,625       149,330  
Provision for Income Taxes Allocable to Discontinued Operations (Including $36,032, $47,511, $20,529, $8,659 and $2,154 allocable to Gain on Sale of Real Estate for the Years ended December 31, 2007, 2006, 2005, 2004, and 2003, respectively)
    (38,044 )     (51,102 )     (23,898 )     (11,275 )     (3,866 )
Minority Interest Allocable to Discontinued Operations
    (28,178 )     (24,594 )     (18,886 )     (16,238 )     (21,427 )
Gain on Sale of Real Estate
    9,425       6,071       29,550       16,755       15,794  
Provision for Income Taxes Allocable to Gain on Sale of Real Estate
    (3,082 )     (2,119 )     (10,871 )     (5,359 )     (2,614 )
Minority Interest Allocable to Gain on Sale of Real Estate
    (802 )     (514 )     (2,458 )     (1,564 )     (1,941 )
                                         
Net Income
    155,051       112,082       87,104       110,606       113,773  
Redemption of Preferred Stock
    (2,017 )     (672 )           (7,959 )      
Preferred Dividends
    (21,320 )     (21,424 )     (10,688 )     (14,488 )     (20,176 )
                                         
Net Income Available to Common Stockholders
  $ 131,174     $ 89,986     $ 76,416     $ 88,159     $ 93,597  
                                         
Basic and Diluted Earnings Per Weighted Average Common Share Outstanding:
                                       
Loss from Continuing Operations Available to Common Stockholders
  $ (1.43 )   $ (1.69 )   $ (1.14 )   $ (0.34 )   $ (0.79 )
                                         
Net Income Available to Common Stockholders
  $ 2.99     $ 2.04     $ 1.80     $ 2.17     $ 2.43  
                                         
Distributions Per Share
  $ 2.8500     $ 2.8100     $ 2.7850     $ 2.7500     $ 2.7400  
                                         
Basic and Diluted Weighted Average Number of Common Shares Outstanding
    44,086       44,012       42,431       40,557       38,542  
                                         
Net Income
  $ 155,051     $ 112,082     $ 87,104     $ 110,606     $ 113,773  
Other Comprehensive Income (Loss):
                                       
Settlement of Interest Rate Protection Agreements
    (4,261 )     (1,729 )           6,816        
Reclassification of Settlement of Interest Rate Protection Agreements to Net Income
                (159 )            
Mark-to-Market of Interest Rate Protection Agreements and Interest Rate Swap Agreements, Net of Tax Provision
    3,819       (2,800 )     (1,414 )     106       251  
Amortization of Interest Rate Protection Agreements
    (916 )     (912 )     (1,085 )     (512 )     198  
Foreign Currency Translation Adjustment, Net of Tax Provision
    2,134                          
Other Comprehensive (Income) Loss Allocable to Minority Interest
    (142 )     698       837              
                                         
Other Comprehensive Income
  $ 155,685     $ 107,339     $ 85,283     $ 117,016     $ 114,222  
                                         


25


 

                                         
    Year Ended
    Year Ended
    Year Ended
    Year Ended
    Year Ended
 
    12/31/07     12/31/06     12/31/05     12/31/04     12/31/03  
    (In thousands, except per unit and property data)  
 
Balance Sheet Data (End of Period):
                                       
Real Estate, Before Accumulated Depreciation
  $ 3,326,268     $ 3,219,728     $ 3,260,761     $ 2,856,474     $ 2,738,034  
Real Estate, After Accumulated Depreciation
    2,816,287       2,754,310       2,850,195       2,478,091       2,388,782  
Real Estate Held for Sale, Net
    37,875       115,961       16,840       52,790        
Total Assets
    3,258,033       3,224,399       3,226,243       2,721,890       2,648,023  
Mortgage Loans Payable, Net, Unsecured Lines of Credit and Senior Unsecured Debt, Net
    1,946,670       1,834,658       1,813,702       1,574,929       1,453,798  
Total Liabilities
    2,183,755       2,048,873       2,020,361       1,719,463       1,591,732  
Stockholders’ Equity
    923,919       1,022,979       1,043,562       845,494       889,173  
Other Data:
                                       
Cash Flow From Operating Activities
  $ 92,736     $ 59,551     $ 49,350     $ 77,657     $ 103,156  
Cash Flow From Investing Activities
    126,909       129,147       (371,654 )     9,992       29,037  
Cash Flow From Financing Activities
    (230,023 )     (180,800 )     325,617       (83,546 )     (131,372 )
Total In-Service Properties
    804       858       884       827       834  
Total In-Service GLA, in Square Feet
    64,028,533       68,610,505       70,193,161       61,670,735       57,925,466  
In-Service Occupancy Percentage
    95 %     94 %     92 %     90 %     88 %
 
Item 7.   Management’s Discussion and Analysis of Financial Condition and Results of Operations
 
The following discussion should be read in conjunction with “Selected Financial Data” and the Consolidated Financial Statements and Notes thereto appearing elsewhere in this Form 10-K.
 
In addition, the following discussion contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. We intend such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995, and are including this statement for purposes of complying with those safe harbor provisions. Forward-looking statements, which are based on certain assumptions and describe future plans, strategies and expectations of the Company, are generally identifiable by use of the words “believe,” “expect,” “intend,” “anticipate,” “estimate,” “project” or similar expressions. Our ability to predict results or the actual effect of future plans or strategies is inherently uncertain. Factors which could have a material adverse affect on the operations and future prospects of the Company on a consolidated basis include, but are not limited to, changes in: international, national, regional and local economic conditions generally and the real estate market specifically, legislative/regulatory changes (including changes to laws governing the taxation of real estate investment trusts), availability of financing, interest rate, competition, supply and demand for industrial properties in our current and proposed market areas, potential environmental liabilities, slippage in development or lease-up schedules, tenant credit risks, higher-than-expected costs and changes in general accounting principles, policies and guidelines applicable to real estate investment trusts and risks related to doing business internationally (including foreign currency exchange risks). 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 our financial results, is included in Item 1A. “Risk Factors,” and in our other filings with the Securities and Exchange Commission (the “SEC”).
 
The Company was organized in the state of Maryland on August 10, 1993. We are a real estate investment trust (“REIT”), as defined in the Internal Revenue Code of 1986 (the “Code”). We began operations on July 1, 1994. Our interests in our properties and land parcels are held through partnerships, corporations, and limited liability companies controlled, directly or indirectly, by us, including First Industrial, L.P. (the “Operating Partnership”), of which we are the sole general partner, as well as, among others, our taxable REIT subsidiary, First Industrial Investment, Inc. (the “TRS”), of which the Operating Partnership is the sole stockholder, all of whose operating data is consolidated with that of the Company as presented herein.
 
We also own minority equity interests in, and provide services to, five joint ventures which invest in industrial properties (the “2003 Net Lease Joint Venture,” the “2005 Development/Repositioning Joint Venture,” the “2005 Core Joint Venture,” the “2006 Net Lease Co-Investment Program” and the “2006 Land/Development Joint Venture”). We also owned a minority interest in and provided property management services to a sixth joint venture (the “1998 Core Joint Venture”). On January 31, 2007, we purchased the 90%

26


 

equity interest from the institutional investor in the 1998 Core Joint Venture. Effective January 31, 2007, the assets and liabilities and results of operations of the 1998 Core Joint Venture are consolidated with the Company since we effectively own 100% of the equity interest. Prior to January 31, 2007, the 1998 Core Joint Venture was accounted for under the equity method of accounting. Additionally, on December 28, 2007 we entered into two new joint ventures with institutional investors (the “2007 Canada Joint Venture” and the “2007 Europe Joint Venture”; together with 2003 Net Lease Joint Venture, 2005 Development/Repositioning Joint Venture, 2005 Core Joint Venture, the 2006 Net Lease Co-Investment Program, the 2006 Land/Development Joint Venture and the 1998 Core Joint Venture, the “Joint Ventures”). The operating data of our Joint Ventures is not consolidated with that of the Company as presented herein. However, the operating data of the 2005 Development/Repositioning Joint Venture, referred to as FirstCal Industrial, LLC, is separately presented on a consolidated basis, separate from that of the Company.
 
We believe our financial condition and results of operations are, primarily, a function of our performance and our joint ventures’ performance in four key areas: leasing of industrial properties, acquisition and development of additional industrial properties, redeployment of internal capital and access to external capital.
 
We generate revenue primarily from rental income and tenant recoveries from long-term (generally three to six years) operating leases of our industrial properties and our joint ventures’ industrial properties. Such revenue is offset by certain property specific operating expenses, such as real estate taxes, repairs and maintenance, property management, utilities and insurance expenses, along with certain other costs and expenses, such as depreciation and amortization costs and general and administrative and interest expenses. Our revenue growth is dependent, in part, on our ability to (i) increase rental income, through increasing either or both occupancy rates and rental rates at our properties and our joint ventures’ properties, (ii) maximize tenant recoveries and (iii) minimize operating and certain other expenses. Revenues generated from rental income and tenant recoveries are a significant source of funds, in addition to income generated from gains/losses on the sale of our properties and our joint ventures’ properties (as discussed below), for our distributions. The leasing of property, in general, and occupancy rates, rental rates, operating expenses and certain non-operating expenses, in particular, are impacted, variously, by property specific, market specific, general economic and other conditions, many of which are beyond our control. The leasing of property also entails various risks, including the risk of tenant default. If we were unable to maintain or increase occupancy rates and rental rates at our properties and our joint ventures’ properties or to maintain tenant recoveries and operating and certain other expenses consistent with historical levels and proportions, our revenue growth would be limited. Further, if a significant number of our tenants and our joint ventures’ tenants were unable to pay rent (including tenant recoveries) or if we or our joint ventures were unable to rent our properties on favorable terms, our financial condition, results of operations, cash flow and ability to pay dividends on, and the market price of, our common stock would be adversely affected.
 
Our revenue growth is also dependent, in part, on our ability and our joint ventures’ ability to acquire existing, and acquire and develop new, additional industrial properties on favorable terms. The Company itself, and through our various joint ventures, continually seeks to acquire existing industrial properties on favorable terms, and, when conditions permit, also seeks to acquire and develop new industrial properties on favorable terms. Existing properties, as they are acquired, and acquired and developed properties, as they are leased, generate revenue from rental income, tenant recoveries and fees, income from which, as discussed above, is a source of funds for our distributions. The acquisition and development of properties is impacted, variously, by property specific, market specific, general economic and other conditions, many of which are beyond our control. The acquisition and development of properties also entails various risks, including the risk that our investments and our joint ventures’ investments may not perform as expected. For example, acquired existing and acquired and developed new properties may not sustain and/or achieve anticipated occupancy and rental rate levels. With respect to acquired and developed new properties, we may not be able to complete construction on schedule or within budget, resulting in increased debt service expense and construction costs and delays in leasing the properties. Also, we, as well as our joint ventures, face significant competition for attractive acquisition and development opportunities from other well-capitalized real estate investors, including both publicly-traded REITs and private investors. Further, as discussed below, we and our joint ventures may not be able to finance the acquisition and development opportunities we identify. If we and our joint ventures


27


 

were unable to acquire and develop sufficient additional properties on favorable terms, or if such investments did not perform as expected, our revenue growth would be limited and our financial condition, results of operations, cash flow and ability to pay dividends on, and the market price of, our common stock would be adversely affected.
 
We also generate income from the sale of our properties and our joint ventures’ properties (including existing buildings, buildings which we or our joint ventures have developed or re-developed on a merchant basis, and land). The Company itself and through our various joint ventures is continually engaged in, and our income growth is dependent in part on, systematically redeploying capital from properties and other assets with lower yield potential into properties and other assets with higher yield potential. As part of that process, we and our joint ventures sell, on an ongoing basis, select stabilized properties or land or properties offering lower potential returns relative to their market value. The gain/loss on, and fees from, the sale of such properties are included in our income and are a significant source of funds, in addition to revenues generated from rental income and tenant recoveries, for our distributions. Also, a significant portion of our proceeds from such sales is used to fund the acquisition of existing, and the acquisition and development of new, industrial properties. The sale of properties is impacted, variously, by property specific, market specific, general economic and other conditions, many of which are beyond our control. The sale of properties also entails various risks, including competition from other sellers and the availability of attractive financing for potential buyers of our properties and our joint ventures’ properties. Further, our ability to sell properties is limited by safe harbor rules applying to REITs under the Code which relate to the number of properties that may be disposed of in a year, their tax bases and the cost of improvements made to the properties, along with other tests which enable a REIT to avoid punitive taxation on the sale of assets. If we and our joint ventures were unable to sell properties on favorable terms, our income growth would be limited and our financial condition, results of operations, cash flow and ability to pay dividends on, and the market price of, our common stock would be adversely affected.
 
Currently, we utilize a portion of the net sales proceeds from property sales, borrowings under our unsecured line of credit (the “Unsecured Line of Credit”) and proceeds from the issuance when and as warranted, of additional debt and equity securities to finance future acquisitions and developments and to fund our equity commitments to our joint ventures. Access to external capital on favorable terms plays a key role in our financial condition and results of operations, as it impacts our cost of capital and our ability and cost to refinance existing indebtedness as it matures and to fund acquisitions, developments and contributions to our joint ventures or through the issuance, when and as warranted, of additional equity securities. Our ability to access external capital on favorable terms is dependent on various factors, including general market conditions, interest rates, credit ratings on our capital stock and debt, the market’s perception of our growth potential, our current and potential future earnings and cash distributions and the market price of our capital stock. If we were unable to access external capital on favorable terms, our financial condition, results of operations, cash flow and ability to pay dividends on, and the market price of, our common stock would be adversely affected.
 
CRITICAL ACCOUNTING POLICIES
 
Our significant accounting policies are described in more detail in Note 3 to the consolidated financial statements. We believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our consolidated financial statements.
 
  •  We maintain an allowance for doubtful accounts which is based on estimates of potential losses which could result from the inability of our tenants to satisfy outstanding billings with us. The allowance for doubtful accounts is an estimate based on our assessment of the creditworthiness of our tenants.
 
  •  Properties are classified as held for sale when our management has approved the sales of such properties. When properties are classified as held for sale, we cease depreciating the properties and estimate the values of such properties and measure them at the lower of depreciated cost or fair value, less costs to dispose. If circumstances arise that were previously considered unlikely, and, as a result, we decide not to sell a property previously classified as held for sale, we will reclassify such property as held and used. We estimate the value of such property and measure it at the lower of its carrying


28


 

  amount (adjusted for any depreciation and amortization expense that would have been recognized had the property been continuously classified as held and used) or fair value at the date of the subsequent decision not to sell. Fair value is determined by deducting from the estimated sales price of the property the estimated costs to close the sale.
 
  •  We review our properties on a quarterly basis for possible impairment and provide a provision if impairments are determined. We utilize the guidelines established under Financial Accounting Standards Board’s (“FASB”) Statement of Financial Accounting Standards (“FAS”) No. 144, “Accounting for the Impairment or Disposal of Long Lived Assets” (“FAS 144”) to determine if impairment conditions exist. We review the expected undiscounted cash flows of each property to determine if there are any indications of impairment. If the expected undiscounted cash flows of a particular property are less than the net book basis of the property, we will recognize an impairment charge equal to the amount of carrying value of the property that exceeds the fair value of the property. Fair value is determined by discounting the future expected cash flows of the property. The calculation of the fair value involves subjective assumptions such as estimated occupancy, rental rates, ultimate residual value and the discount rate used to present value the cash flows.
 
  •  We are engaged in the acquisition of individual properties as well as multi-property portfolios. In accordance with FAS No. 141, “Business Combinations” (“FAS 141”), we are required to allocate purchase price between land, building, tenant improvements, leasing commissions, in please leases, tenant relationship and above and below market leases. Above-market and below-market lease values for acquired properties are recorded based on the present value (using a discount rate which reflects the risks associated with the leases acquired) of the difference between (i) the contractual amounts to be paid pursuant to each in-place lease and (ii) our estimate of fair market lease rents for each corresponding in-place lease. Acquired above and below market leases are amortized over the remaining non-cancelable terms of the respective leases as an adjustment to rental income. In-place lease and tenant relationship values for acquired properties are recorded based on our evaluation of the specific characteristics of each tenant’s lease and our overall relationship with the respective tenant. The value allocated to in-place lease intangible assets is amortized to depreciation and amortization expense over the remaining lease term of the respective lease. The value allocated to tenant relationship is amortized to depreciation and amortization expense over the expected term of the relationship, which includes an estimate of the probability of lease renewal and its estimated term. We also must allocate purchase price on multi-property portfolios to individual properties. The allocation of purchase price is based our assessment of various characteristics of the markets where the property is located and the expected cash flows of the property.
 
  •  We capitalize (direct and certain indirect) costs incurred in developing, renovating, acquiring and rehabilitating real estate assets as part of the investment basis. Costs incurred in making certain other improvements are also capitalized. During the land development and construction periods, we capitalize interest costs, real estate taxes and certain general and administrative costs of the personnel performing development, renovations or rehabilitation up to the time the property is substantially complete. The determination and calculation of certain costs requires estimates by us. Amounts included in capitalized costs are included in the investment basis of real estate assets.
 
  •  We analyze our investments in joint ventures to determine whether the joint venture should be accounted for under the equity method of accounting or consolidated into our financial statements based on standards set forth under FAS Interpretation No. 46(R), Consolidation of Variable Interest Entities, EITF 96-16, Investor’s Accounting for an Investee When the Investor Has a Majority of the Voting Interest but the Minority Shareholder or Shareholders Have Certain Approval or Veto Rights and Statement of Position 78-9, Accounting for Investments in Real Estate Ventures. Based on the guidance set forth in these pronouncements, we do not consolidate any of our joint venture investments because either the joint venture has been determined not to be a variable interest entity or it has been determined we are not the primary beneficiary. Our assessment of whether we are the primary beneficiary of a variable interest involves the consideration of various factors including the form of our


29


 

  ownership interest, our representation on the entity’s governing body, the size of our investment and future cash flows of the entity.
 
  •  In the preparation of our consolidated financial statements, significant management judgment is required to estimate our current and deferred income tax liabilities, and our compliance with REIT qualification requirements. Our estimates are based on our interpretation of tax laws. These estimates may have an impact on the income tax expense recognized. Adjustments may be required by a change in assessment of our deferred income tax assets and liabilities, changes due to audit adjustments by federal and state tax authorities, our inability to qualify as a REIT, and changes in tax laws. Adjustments required in any given period are included within the income tax provision.
 
RESULTS OF OPERATIONS
 
Comparison of Year Ended December 31, 2007 to Year Ended December 31, 2006
 
Our net income available to common stockholders was $131.7 million and $90.0 million for the year ended December 31, 2007 and 2006, respectively. Basic and diluted net income available to common stockholders were $2.99 per share for the year ended December 31, 2007 and $2.04 per share for the year ended December 31, 2006.
 
The tables below summarize our revenues, property expenses and depreciation and other amortization by various categories for the year ended December 31, 2007 and December 31, 2006. Same store properties are properties owned prior to January 1, 2006 and held as an operating property through December 31, 2007 and developments and redevelopments that were stabilized (generally defined as 90% occupied) prior to January 1, 2006 or were substantially completed for 12 months prior to January 1, 2006. Acquired properties are properties that were acquired subsequent to December 31, 2005 and held as an operating property through December 31, 2007. Sold properties are properties that were sold subsequent to December 31, 2005. (Re)Developments and land are land parcels and developments and redevelopments that were not: a) substantially complete 12 months prior to January 1, 2006 or b) stabilized prior to January 1, 2006. Other revenues are derived from the operations of our maintenance company, fees earned from our joint ventures, and other miscellaneous revenues. Contractor revenues and expenses represent revenues earned and expenses incurred in connection with the TRS acting as general contractor to construct industrial properties, including industrial properties for the 2005 Development/Repositioning Joint Venture and also includes revenues and expenses related to the development of properties for third parties. Other expenses are derived from the operations of our maintenance company and other miscellaneous regional expenses.
 
Our future financial condition and results of operations, including rental revenues, may be impacted by the future acquisition and sale of properties. Our future revenues and expenses may vary materially from historical rates.
 
At December 31, 2007 and 2006, the occupancy rates of our same store properties were 94.1% and 92.3%, respectively.
 


30


 

                                 
    2007     2006     $ Change     % Change  
    ($ in 000’s)  
 
REVENUES
                               
Same Store Properties
  $ 301,404     $ 289,761     $ 11,643       4.0 %
Acquired Properties
    55,724       16,844       38,880       230.8 %
Sold Properties
    41,037       80,409       (39,372 )     (49.0 )%
(Re)Developments and Land, Not Included Above
    8,213       5,973       2,240       37.5 %
Other
    36,890       29,958       6,932       23.1 %
                                 
    $ 443,268     $ 422,945     $ 20,323       4.8 %
Discontinued Operations
    (43,969 )     (82,561 )     38,592       (46.7 )%
                                 
Subtotal Revenues
  $ 399,299     $ 340,384     $ 58,915       17.3 %
                                 
Contractor Revenues
    35,628       10,540       25,088       238.0 %
                                 
Total Revenues
  $ 434,927     $ 350,924     $ 84,003       23.9 %
                                 
 
Revenues from same store properties increased by $11.6 million due primarily to an increase in same store property occupancy rates and an increase in same store rental rates. Revenues from acquired properties increased $38.9 million due to the 196 industrial properties acquired subsequent to December 31, 2005 totaling approximately 19.1 million square feet of gross leasable area (“GLA”). Revenues from sold properties decreased $39.4 million due to the 289 industrial properties sold subsequent to December 31, 2005 totaling approximately 30.8 million square feet of GLA. Revenues from (re)developments and land increased $2.2 million due to an increase in occupancy. Other revenues increased by approximately $6.9 million due primarily to an increase in joint venture fees and fees earned related to us assigning our interest in certain purchase contracts to third parties for consideration. Contractor revenues increased $25.1 million for the year ended December 31, 2007 due primarily to increased third party development activity and an increased number of construction projects for which the TRS acted as general contractor.
 
                                 
    2007     2006     $ Change     % Change  
    ($ in 000’s)  
 
PROPERTY AND CONTRACTOR EXPENSES
                               
Same Store Properties
  $ 96,368     $ 94,400     $ 1,968       2.1 %
Acquired Properties
    13,680       4,037       9,643       238.9 %
Sold Properties
    12,346       23,532       (11,186 )     (47.5 )%
(Re) Developments and Land, Not Included Above
    4,512       3,979       533       13.4 %
Other
    16,603       15,427       1,176       7.6 %
                                 
    $ 143,509     $ 141,375     $ 2,134       1.5 %
Discontinued Operations
    (14,106 )     (26,145 )     12,039       (46.0 )%
                                 
Property Expenses
  $ 129,403     $ 115,230     $ 14,173       12.3 %
                                 
Contractor Expenses
    34,553       10,263       24,290       236.7 %
                                 
Total Property and Contractor Expenses
  $ 163,956     $ 125,493     $ 38,463       30.6 %
                                 
 
Property expenses include real estate taxes, repairs and maintenance, property management, utilities, insurance, other property related expenses, and contractor expenses. Property expenses from same store properties increased $2.0 million due primarily to an increase in real estate taxes due to a reassessment of values of certain properties of ours, as well as an increase in repairs and maintenance. Property expenses from acquired properties increased by $9.6 million due to properties acquired subsequent to December 31, 2005. Property expenses from sold properties decreased by $11.2 million due to properties sold subsequent to

31


 

December 31, 2005. Property expenses from (re)developments and land increased $0.5 million due to an increase in occupancy. The $1.2 million increase in other expense is primarily attributable to increases in employee compensation. Contractor expenses increased $24.3 million for the year ended December 31, 2007 due primarily to increased third party development activity and an increased number of construction projects for which the TRS acted as general contractor.
 
General and administrative expense increased by approximately $14.6 million, or 18.8%, due primarily to increases in employee compensation related to compensation for additional employees as well as an increase in incentive compensation.
 
                                 
    2007     2006     $ Change     % Change  
    ($ in 000’s)  
 
DEPRECIATION AND OTHER AMORTIZATION
                               
Same Store Properties
  $ 109,896     $ 107,451     $ 2,445       2.3 %
Acquired Properties
    38,988       13,727       25,261       184.0 %
Sold Properties
    12,568       28,383       (15,815 )     (55.7 )%
(Re) Developments and Land, Not Included Above
    4,243       8,821       (4,578 )     (51.9 )%
Corporate Furniture, Fixtures and Equipment
    1,837       1,913       (76 )     (4.0 )%
                                 
    $ 167,532     $ 160,295     $ 7,237       4.5 %
Discontinued Operations
    (13,850 )     (29,713 )     15,863       (53.4 )%
                                 
Total Depreciation and Other Amortization
  $ 153,682     $ 130,582     $ 23,100       17.7 %
                                 
 
Depreciation and other amortization for same store properties remained relatively unchanged. Depreciation and other amortization from acquired properties increased by $25.3 million due to properties acquired subsequent to December 31, 2005. Depreciation and other amortization from sold properties decreased by $15.8 million due to properties sold subsequent to December 31, 2005. Depreciation and other amortization for (re)developments and land decreased by $4.6 million due primarily to accelerated depreciation recognized for the year ended December 31, 2006 on one property in Columbus, OH which was razed during 2006.
 
Interest income increased $0.3 million due primarily to an increase in the average mortgage loans receivable outstanding during the year ended December 31, 2007, as compared to the year ended December 31, 2006, partially offset by a decrease in interest income earned on funds held with intermediaries in connection with completing property transactions in accordance with Section 1031 of the Code.
 
Interest expense decreased by approximately $1.8 million primarily due to a decrease in the weighted average interest rate for the year ended December 31, 2007 (6.45%), as compared to the year ended December 31, 2006 (6.72%) and due to an increase in capitalized interest for the year ended December 31, 2007 due to an increase in development activities, partially offset by an increase in the weighted average debt balance outstanding for the year ended December 31, 2007 ($1,981.4 million), as compared to the year ended December 31, 2006 ($1,878.5 million).
 
Amortization of deferred financing costs increased by $0.5 million, or 20.4%, due primarily to financing fees incurred associated with the issuance of $200.0 million of senior unsecured debt in September 2006.
 
In October 2005, we entered into an interest rate protection agreement which hedged the change in value of a build to suit development project we were constructing. This interest rate protection agreement had a notional value of $50.0 million, was based on the three month LIBOR rate, had a strike rate of 4.8675%, had an effective date of December 30, 2005 and a termination date of December 30, 2010. Per FAS No. 133, “Accounting for Derivative Instruments and Hedging Activities,” fair value and cash flow hedge accounting for hedges of non-financial assets and liabilities is limited to hedges of the risk of changes in the market price of the entire hedged item because changes in the price of an ingredient or component of a non-financial item generally do not have a predictable, separately measurable effect on the price of the item. Since the interest rate protection agreement is hedging a component of the change in value of the build to suit development, the


32


 

interest rate protection agreement does not qualify for hedge accounting and the change in value of the interest rate protection agreement is recognized immediately in net income as opposed to other comprehensive income. On January 5, 2006, we settled the interest rate protection agreement for a payment of $0.2 million. Included in Mark-to-Market/Loss on Settlement of Interest Rate Protection Agreement for the year ended December 31, 2006 is the settlement and mark-to-market of the interest rate protection agreement.
 
In April 2006, we entered into interest rate protection agreements which we designated as cash flow hedges. Each of the interest rate protection agreements had a notional value of $74.8 million, were effective from May 10, 2007 through May 10, 2012, and fixed the LIBOR rate at 5.42%. In September 2006, the interest rate protection agreements failed to qualify for hedge accounting since the actual debt issuance date was not within the range of dates we disclosed in our hedge designation. We settled the interest rate protection agreements and paid the counterparties $2.9 million.
 
We recognized a $0.4 million loss from early retirement of debt for the year ended December 31, 2007. This includes $0.1 million write-off of financing fees associated with our previous line of credit agreement which was amended and restated on September 28, 2007. The loss from early retirement of debt also includes $0.3 million due to early payoffs on mortgage loans.
 
Equity in income of joint ventures decreased by $0.6 million primarily due to a decrease in our economic share of the gains and earn outs on property sales from the 2005 Development/Repositioning Joint Venture during the year ended December 31, 2007, partially offset by an increase in our economic share of the gains on property sales from the 2005 Core Joint Venture for the year ended December 31, 2007.
 
The year to date income tax provision (included in continuing operations, discontinued operations and gain of sale) decreased $12.8 million, in the aggregate, due primarily to a decrease in rental income and gain on sale of real estate and an increase in general and administrative expenses, partially offset by an increase in joint venture fees and management/leasing fees, and a decrease in interest expense within the TRS.
 
The $9.4 million gain on sale of real estate for the year ended December 31, 2007, resulted from the sale of three industrial properties and several land parcels that do not meet the criteria established by FAS 144 for inclusion in discontinued operations. The $6.1 million gain on sale of real estate for the year ended December 31, 2006, resulted from the sale of several land parcels that do not meet the criteria established by FAS 144 for inclusion in discontinued operations.
 
The following table summarizes certain information regarding the industrial properties included in our discontinued operations for the year ended December 31, 2007 and December 31, 2006.
 
                 
    2007     2006  
    ($ in 000’s)  
 
Total Revenues
  $ 43,969     $ 82,561  
Property Expenses
    (14,106 )     (26,145 )
Depreciation and Amortization
    (13,850 )     (29,713 )
Gain on Sale of Real Estate
    244,962       213,442  
Provision for Income Taxes
    (38,044 )     (51,102 )
Minority Interest
    (28,178 )     (24,594 )
                 
Income from Discontinued Operations
  $ 194,753     $ 164,449  
                 
 
Income from discontinued operations (net of income taxes and minority interest) for the year ended December 31, 2007 reflects the results of operations and gain on sale of real estate relating to 161 industrial properties that were sold during the year ended December 31, 2007 and the results of operations of six properties that were identified as held for sale at December 31, 2007.
 
Income from discontinued operations (net of income taxes and minority interest) for the year ended December 31, 2006 reflects the results of operations of the 161 industrial properties that were sold during the year ended December 31, 2007, the results of operations of 125 industrial properties that were sold during the year ended December 31, 2006, the results of operations of the six industrial properties identified as held for


33


 

sale at December 31, 2007 and gain on sale of real estate relating to 125 industrial properties that were sold during the year ended December 31, 2006.
 
Comparison of Year Ended December 31, 2006 to Year Ended December 31, 2005
 
Our net income available to common stockholders was $90.0 million and $76.4 million for the years ended December 31, 2006 and 2005, respectively. Basic and diluted net income available to common stockholders were $2.04 per share for the year ended December 31, 2006, and $1.80 per share for the year ended December 31, 2005.
 
The tables below summarize our revenues, property expenses and depreciation and other amortization by various categories for the years ended December 31, 2006 and December 31, 2005. Same store properties are properties owned prior to January 1, 2005 and held as an operating property through December 31, 2006 and developments and redevelopments that were stabilized (generally defined as 90% occupied) prior to January 1, 2005 or were substantially completed for 12 months prior to January 1, 2005. Acquired properties are properties that were acquired subsequent to December 31, 2004 and held as an operating property through December 31, 2006. Sold properties are properties that were sold subsequent to December 31, 2004. (Re)Developments and land are land parcels and developments and redevelopments that were not: a) substantially complete 12 months prior to January 1, 2005 or b) stabilized prior to January 1, 2005. Other revenues are derived from the operations of our maintenance company, fees earned from our joint ventures, and other miscellaneous revenues. Contractor revenues and expenses represent revenues earned and expenses incurred in connection with the TRS acting as general contractor to construct industrial properties, including industrial properties for the 2005 Development/Repositioning Joint Ventures and also includes revenues and expenses related to the development of properties for third parties. Other expenses are derived from the operations of our maintenance company and other miscellaneous regional expenses.
 
At December 31, 2006 and 2005, the occupancy rates of our same store properties were 92.6% and 91.7%, respectively.
 
                                 
    2006     2005     $ Change     % Change  
    ($ in 000’s)  
 
REVENUES
                               
Same Store Properties
  $ 257,525     $ 255,963     $ 1,562       0.6 %
Acquired Properties
    86,150       18,565       67,585       364.0 %
Sold Properties
    27,072       63,585       (36,513 )     (57.4 )%
(Re)Developments and Land, Not Included Above
    22,217       18,789       3,428       18.2 %
Other
    29,981       19,118       10,863       56.8 %
                                 
    $ 422,945     $ 376,020     $ 49,925       12.5 %
Discontinued Operations
    (82,561 )     (104,598 )     22,037       (21.1 )%
                                 
Subtotal Revenues
  $ 340,384     $ 271,422     $ 68,962       25.4 %
                                 
Contractor Revenues
    10,540       16,241       (5,701 )     (35.1 )%
                                 
Total Revenues
  $ 350,924     $ 287,663     $ 63,261       22.0 %
                                 
 
Revenues from same store properties remained relatively unchanged. Revenues from acquired properties increased $67.6 million due to the 252 industrial properties totaling approximately 30.6 million square feet of GLA acquired subsequent to December 31, 2004. Revenues from sold properties decreased $36.5 million due to the 221 industrial properties totaling approximately 29.9 million square feet of GLA sold subsequent to December 31, 2004. Revenues from (re)developments and land increased by approximately $3.4 million due primarily to an increase in properties placed in service during 2006 and 2005. Other revenues increased by approximately $10.9 million due primarily to an increase in joint venture fees, partially offset by a decrease in assignment fees. Contractor revenues decreased $5.7 million due to decreased third party development activity.
 


34


 

                                 
    2006     2005     $ Change     % Change  
    ($ in 000’s)  
 
PROPERTY AND CONTRACTOR EXPENSES
                               
Same Store Properties
  $ 87,047     $ 85,220     $ 1,827       2.1 %
Acquired Properties
    21,784       5,688       16,096       283.0 %
Sold Properties
    7,603       19,385       (11,782 )     (60.8 )%
(Re)Developments and Land, Not Included Above
    9,512       9,005       507       5.6 %
Other
    15,429       11,321       4,108       36.3 %
                                 
    $ 141,375     $ 130,619     $ 10,756       8.2 %
Discontinued Operations
    (26,145 )     (35,447 )     9,302       (26.2 )%
                                 
Property Expenses
  $ 115,230     $ 95,172     $ 20,058       21.1 %
                                 
Contractor Expenses
    10,263       15,574       (5,311 )     (34.1 )%
                                 
Total Property and Contractor Expenses
  $ 125,493     $ 110,746     $ 14,747       13.3 %
                                 
 
Property expenses include real estate taxes, repairs and maintenance, property management, utilities, insurance, other property related expenses and contractor expenses. Property expenses from same store properties increased $1.8 million or 2.1% primarily due to an increase of $1.1 million in utility expense attributable to increases in gas and electric costs and an increase of $0.8 million in real estate tax expense. Property expenses from acquired properties increased by $16.1 million primarily due to properties acquired subsequent to December 31, 2004. Property expenses from sold properties decreased $11.8 million due to properties sold subsequent to December 31, 2004. Property expenses from (re)developments and land increased by approximately $0.5 million due primarily to an increase in properties placed in service during 2006 and 2005. Other expenses increased $4.1 million due primarily to increases in employee compensation. Contractor expenses decreased $5.3 million due to decreased third party development activity.
 
General and administrative expense increased by approximately $21.7 million, or 38.9%, due primarily to increases in employee compensation related to compensation for new employees as well as an increase in incentive compensation.
 
                                 
    2006     2005     $ Change     % Change  
    ($ in 000’s)  
 
DEPRECIATION AND OTHER AMORTIZATION
                               
Same Store Properties
  $ 82,896     $ 84,009     $ (1,113 )     (1.3 )%
Acquired Properties
    51,652       11,808       39,844       337.4 %
Sold Properties
    9,584       20,644       (11,060 )     (53.6 )%
(Re)Developments and Land, Not Included Above
    14,250       10,169       4,081       40.1 %
Corporate Furniture, Fixtures and Equipment
    1,913       1,371       542       39.5 %
                                 
      160,295       128,001       32,294       25.2 %
Discontinued Operations
    (29,713 )     (33,511 )     3,798       (11.3 )%
                                 
Total Depreciation and Other Amortization
  $ 130,582     $ 94,490     $ 36,092       38.2 %
                                 
 
Depreciation and other amortization for same store properties remained relatively unchanged. Depreciation and other amortization from acquired properties increased by $39.8 million due to properties acquired subsequent to December 31, 2004. Depreciation and other amortization from sold properties decreased by $11.1 million due to properties sold subsequent to December 31, 2004. Depreciation and other amortization for (re)developments and land increased $4.1 million due primarily to accelerated depreciation on one property in Columbus, OH which was razed during the year ended December 31, 2006. Amortization of corporate

35


 

furniture, fixtures and equipment increased $0.5 million primarily due to expansion and improvement to corporate offices.
 
Interest income remained relatively unchanged.
 
In April 2006, we entered into interest rate protection agreements which we designated as cash flow hedges. Each of the interest rate protection agreements had a notional value of $74.8 million, were effective from May 10, 2007 through May 10, 2012, and fixed the LIBOR rate at 5.42%. In September 2006, the interest rate protection agreements failed to qualify for hedge accounting since the actual debt issuance date was not within the range of dates we disclosed in our hedge designation. We settled the interest rate protection agreements and paid the counterparties $2.9 million. In October 2005, we entered into an interest rate protection agreement which hedged the change in value of a build-to-suit development project we were constructing. This interest rate protection agreement did not qualify for hedge accounting. We recognized a loss of $0.2 million related to this interest rate protection agreement for the year ended December 31, 2006. Both transactions are recognized in the mark-to-market/(loss) gain on settlement of interest rate protection agreements caption on the consolidated statement of operations.
 
We recognized a $0.6 million gain related to the settlement/mark-to-market of two interest rate protection agreements we entered into during 2005 in order to hedge the change in value of a build-to-suit development project as well as $0.2 million in deferred gain that was reclassified out of other comprehensive income relating to a settled interest rate protection agreement that no longer qualified for hedge accounting.
 
Interest expense increased by approximately $12.8 million due primarily to an increase in the weighted average debt balance outstanding for the year ended December 31, 2006 ($1,878.5 million) as compared to the year ended December 31, 2005 ($1,690.2 million), an increase in the weighted average interest rate for the year ended December 31, 2006 (6.72%) as compared to the year ended December 31, 2005 (6.63%), partially offset by an increase in capitalized interest for the year ended December 31, 2006 due to an increase in development activities.
 
Amortization of deferred financing costs increased by approximately $0.5 million, or 25.5%, due primarily to financing fees incurred associated with the amendment and restatement of our Unsecured Line of Credit in August 2005, the issuance of the 2016 Notes in January 2006 and the issuance of the 2011 Exchangeable Notes in September 2006.
 
We recognized approximately $0.08 million of gain on the early retirement of debt for the year ended December 31, 2005, comprised of $0.05 million write-off of financing fees associated with our previous line of credit agreement which was amended and restated on August 23, 2005. The gain on early retirement of debt also includes a payment of $0.3 million of fees and a write-off of loan premium of $0.4 million on a $13.7 million mortgage loan which was assumed by the buyers of the related properties on July 13, 2005.
 
Equity in income of joint ventures increased by approximately $27.0 million due primarily to our economic share of gains and earn outs on property sales from the 2005 Development/Repositioning Joint Venture and the 2005 Core Joint Venture during the year ended December 31, 2006.
 
The income tax provision (included in continuing operations, discontinued operations and gain on sale) increased by $22.9 million, in the aggregate, due primarily to an increase in the gain on sale of real estate, joint venture fees, equity in net income of joint ventures, partially offset by an increase in interest expense and an increase in general and administrative expense within the TRS.
 
The $6.1 million gain on sale of real estate for the year ended December 31, 2006 resulted from the sale of several land parcels that do not meet the criteria established by FAS 144 for inclusion in discontinued operations. The $29.6 million gain on sale of real estate for the year ended December 31, 2005 resulted from the sale of ten industrial properties and several land parcels that do not meet the criteria established by FAS 144 for inclusion in discontinued operations.


36


 

The following table summarizes certain information regarding the industrial properties included in our discontinued operations for the years ended December 31, 2006 and December 31, 2005.
 
                 
    Year Ended
 
    December 31,  
    2006     2005  
    ($ in 000’s)  
 
Total Revenues
  $ 82,561     $ 104,598  
Property Expenses
    (26,145 )     (35,447 )
Interest Expense
          (373 )
Depreciation and Amortization
    (29,713 )     (33,511 )
Gain on Sale of Real Estate
    213,442       132,139  
Provision for Income Taxes
    (51,102 )     (23,898 )
Minority Interest
    (24,594 )     (18,886 )
                 
Income from Discontinued Operations
    164,449       124,622  
                 
 
Income from discontinued operations, net of income taxes and minority interest, for the year ended December 31, 2006 reflects the results of operations of industrial properties that were sold during the year ended December 31, 2007, the results of operations and gain on sale of real estate of $213.4 million relating to 125 industrial properties that were sold during the year ended December 31, 2006 and the results of operations of six properties that were identified as held for sale at December 31, 2007.
 
Income from discontinued operations, net of income taxes and minority interest, for the year ended December 31, 2005 reflects the results of operations of industrial properties that were sold during the years ended December 31, 2007 and 2006, six properties that were identified as held for sale at December 31, 2007, the results of operations and gain on sale of real estate of $132.1 million from the 86 industrial properties which were sold during the year ended December 31, 2005.
 
LIQUIDITY AND CAPITAL RESOURCES
 
At December 31, 2007, our cash and restricted cash was approximately $5.8 and $24.9 million, respectively. Restricted cash is primarily comprised of cash held in escrow in connection with mortgage debt requirements and gross proceeds from the sales of certain industrial properties. These sales proceeds will be disbursed as we exchange industrial properties under Section 1031 of the Code.
 
We have considered our short-term (one year or less) liquidity needs and the adequacy of our estimated cash flow from operations and other expected liquidity sources to meet these needs. We believe that our principal short-term liquidity needs are to fund normal recurring expenses, debt service requirements and the minimum distribution required to maintain our REIT qualification under the Code. We anticipate that these needs will be met with cash flows provided by operating and investment activities.
 
We expect to meet long-term (greater than one year) liquidity requirements such as property acquisitions, developments, scheduled debt maturities, major renovations, expansions and other nonrecurring capital improvements through the disposition of select assets, long-term unsecured indebtedness and the issuance of additional equity securities. On April 30, 2007 we filed a registration statement with the SEC covering an indefinite number or amount of securities to be issued in the following three years.
 
We also may finance the development or acquisition of additional properties through borrowings under our Unsecured Line of Credit. At December 31, 2007, borrowings under our Unsecured Line of Credit bore interest at a weighted average interest rate of 5.787%. Our Unsecured Line of Credit bears interest at a floating rate of LIBOR plus 0.475% or the Prime Rate, at our election. As of February 15, 2008, we had approximately $47.9 million available for additional borrowings under our Unsecured Line of Credit. Our Unsecured Line of Credit contains certain financial covenants including limitations on incurrence of debt and debt service coverage. Our access to borrowings may be limited if we fail to meet any of these covenants. Also, our


37


 

borrowing rate on our Unsecured Line of Credit may increase in the event of a downgrade on our unsecured notes by the rating agencies.
 
We currently have credit ratings from Standard & Poor’s, Moody’s and Fitch Ratings of BBB/Baa2/BBB, respectively. Our goal is to maintain our existing credit ratings. In the event of a downgrade, we believe we would continue to have access to sufficient capital; however, our cost of borrowing would increase and our ability to access certain financial markets may be limited.
 
Year Ended December 31, 2007
 
Net cash provided by operating activities of approximately $92.7 million for the year ended December 31, 2007 was comprised primarily of net income before minority interest of approximately $174.1 million and net distributions from joint ventures of $1.3 million, offset by adjustments for non-cash items of approximately $82.2 million and the net change in operating assets and liabilities of approximately $0.5 million. The adjustments for the non-cash items of approximately $82.2 million are primarily comprised of the gain on sale of real estate of approximately $254.4 million and the effect of the straight-lining of rental income of approximately $9.7 million, offset by depreciation and amortization of approximately $179.3 million, the provision for bad debt of approximately $2.2 million, and loss on early retirement of debt of approximately $0.4 million.
 
Net cash provided by investing activities of approximately $126.9 million for the year ended December 31, 2007 was comprised primarily of the net proceeds from the sale of real estate, the repayment of notes receivable, and distributions from our industrial real estate joint ventures, partially offset by the acquisition of real estate, development of real estate, capital expenditures related to the expansion and improvement of existing real estate, contributions to, and investments in, our industrial real estate joint ventures, the increase in restricted cash that is held by an intermediary for Section 1031 exchange purposes, and the funding of notes receivable.
 
During the year ended December 31, 2007, we acquired 105 industrial properties comprising approximately 8.6 million square feet of GLA and several land parcels. The purchase price of these acquisitions totaled approximately $470.8 million, excluding costs incurred in conjunction with the acquisition of the industrial properties and land parcels. We also substantially completed the development of 15 industrial properties comprising approximately 3.7 million square feet of GLA at a cost of approximately $114.8 million for the year ended December 31, 2007.
 
We invested approximately $27.7 million in, and received total distributions of approximately $54.2 million from, our industrial real estate joint ventures. As of December 31, 2007, our industrial real estate joint ventures owned 113 industrial properties comprising approximately 19.9 million square feet of GLA and several land parcels.
 
During the year ended December 31, 2007, we sold 164 industrial properties comprising approximately 13.7 million square feet of GLA and several land parcels. Net proceeds from the sales of the 164 industrial properties and several land parcels were approximately $800.1 million.
 
Net cash used in financing activities of approximately $230.0 million for the year ended December 31, 2007 was derived primarily from repayments of senior unsecured debt, common and preferred stock dividends and unit distributions, redemption of preferred stock, repayments on mortgage loans payable, purchase of treasury shares, other costs of senior unsecured debt, the repurchase of restricted stock from our employees to pay for withholding taxes on the vesting of restricted stock and costs incurred in connection with the early retirement of debt, partially offset by the net proceeds from the issuance of senior unsecured debt, net borrowings under our Unsecured Line of Credit, net proceeds from the exercise of stock options and a cash book overdraft.
 
During the year ended December 31, 2007, we repurchased 1,797,714 shares of our common stock, totaling approximately $69.4 million.


38


 

On June 7, 2007, we redeemed the Series C Preferred Stock for $25.00 per Depositary Share, or $50.0 million in the aggregate, and paid a prorated second quarter dividend of $0.40729 per Depositary Share, totaling approximately $0.8 million.
 
For the year ended December 31, 2007, certain directors and employees of the Company exercised 19,600 non-qualified employee stock options. Net proceeds to us were approximately $0.6 million.
 
On May 7, 2007, we issued the 2017 II Notes. Net of issuance discount, we received net proceeds of $149.6 million from the issuance of the 2017 II Notes. In April 2006, we entered into interest rate protection agreements to fix the interest rate on the 2017 II Notes prior to issuance. We settled the effective portion of the interest rate protection agreements on May 1, 2007 for a payment of $4.3 million which is included in other comprehensive income.
 
On May 15, 2007, we paid off and retired the 2007 Unsecured Notes in the amount of $150.0 million.
 
Contractual Obligations and Commitments
 
The following table lists our contractual obligations and commitments as of December 31, 2007 (In thousands):
 
                                         
          Payments Due by Period  
          Less Than
                   
    Total     1 Year     1-3 Years     3-5 Years     Over 5 Years  
 
Operating and Ground Leases*
  $ 52,764     $ 3,339     $ 5,821     $ 4,692     $ 38,912  
Real Estate Development*
    64,641       63,335       1,306              
Long-term Debt
    1,958,553       3,111       148,412       933,757       873,273  
Interest Expense on Long-Term Debt*
    894,138       104,003       196,559       141,551       452,025  
                                         
Total
  $ 2,970,096     $ 173,788     $ 352,098     $ 1,080,000     $ 1,364,210  
                                         
 
 
* Not on balance sheet.
 
Off-Balance Sheet Arrangements
 
Letters of credit are issued in most cases as pledges to governmental entities for development purposes. At December 31, 2007, we have $9.6 million in outstanding letters of credit, none of which are reflected as liabilities on our balance sheet. We have no other off-balance sheet arrangements other than those disclosed on the Contractual Obligations and Commitments table above.
 
Environmental
 
We incurred environmental costs of approximately $0.6 million and $0.6 million in 2007 and 2006, respectively. We estimate 2008 costs of approximately $0.5 million. We estimate that the aggregate cost which needs to be expended in 2008 and beyond with regard to currently identified environmental issues will not exceed approximately $2.6 million.
 
Inflation
 
For the last several years, inflation has not had a significant impact on the Company because of the relatively low inflation rates in our markets of operation. Most of our leases require the tenants to pay their share of operating expenses, including common area maintenance, real estate taxes and insurance, thereby reducing our exposure to increases in costs and operating expenses resulting from inflation. In addition, many of the outstanding leases expire within six years which may enable us to replace existing leases with new leases at higher base rentals if rents of existing leases are below the then-existing market rate.


39


 

Market Risk
 
The following discussion about our risk-management activities includes “forward-looking statements” that involve risk and uncertainties. Actual results could differ materially from those projected in the forward-looking statements. Our business subjects us to market risk from interest rates, and to a much lessor extent, foreign currency fluctuations.
 
Interest Rate Risk
 
This analysis presents the hypothetical gain or loss in earnings, cash flows or fair value of the financial instruments and derivative instruments which are held by us at December 31, 2007 that are sensitive to changes in the interest rates. While this analysis may have some use as a benchmark, it should not be viewed as a forecast.
 
In the normal course of business, we also face risks that are either non-financial or non-quantifiable. Such risks principally include credit risk and legal risk and are not represented in the following analysis.
 
At December 31, 2007, $1,624.5 million (approximately 83.5% of total debt at December 31, 2007) of our debt was fixed rate debt and $322.1 million (approximately 16.5% of total debt at December 31, 2007) was variable rate debt. Currently, we do not enter into financial instruments for trading or other speculative purposes.
 
For fixed rate debt, changes in interest rates generally affect the fair value of the debt, but not our earnings or cash flows. Conversely, for variable rate debt, changes in the interest rate generally do not impact the fair value of the debt, but would affect our future earnings and cash flows. The interest rate risk and changes in fair market value of fixed rate debt generally do not have a significant impact on us until we are required to refinance such debt. See Note 5 to the consolidated financial statements for a discussion of the maturity dates of our various fixed rate debt.
 
Based upon the amount of variable rate debt outstanding at December 31, 2007, a 10% increase or decrease in the interest rate on our variable rate debt would decrease or increase, respectively, future net income and cash flows by approximately $1.9 million per year. A 10% increase in interest rates would decrease the fair value of the fixed rate debt at December 31, 2007 by approximately $55.3 million to $1,624.6 million. A 10% decrease in interest rates would increase the fair value of the fixed rate debt at December 31, 2007 by approximately $59.3 million to $1,739.2 million.
 
The use of derivative financial instruments allows us to manage risks of increases in interest rates with respect to the effect these fluctuations would have on our earnings and cash flows. As of December 31, 2007, we had no outstanding derivative instruments.
 
Foreign Currency Exchange Rate Risk
 
Owning, operating and developing industrial property outside of the United States exposes the Company to the possibility of volatile movements in foreign exchange rates. Changes in foreign currencies can affect the operating results of international operations reported in U.S. dollars and the value of the foreign assets reported in U.S. dollars. The economic impact of foreign exchange rate movements is complex because such changes are often linked to variability in real growth, inflation, interest rates, governmental actions and other factors. At December 31, 2007, the Company had only one property and one land parcel for which the U.S. dollar was not the functional currency. This property and land parcel are located in Ontario, Canada and use the Canadian dollar as their functional currency.
 
Subsequent Events
 
On January 22, 2008, we paid a fourth quarter 2007 distribution of $0.7200 per share, totaling approximately $36.1 million.
 
From January 1, 2008 to February 15, 2008, we awarded 2,168 shares of restricted common stock to certain Directors. These shares of restricted common stock had a fair value of approximately $0.1 million on


40


 

the date of grant. The restricted common stock vest over a period of five years. Compensation expense will be charged to earnings over the respective vesting period.
 
From January 1, 2008 to February 15, 2008, we acquired 11 industrial properties and several land parcels for a total estimated investment of approximately $79.1 million. We also sold three industrial properties and one land parcel for approximately $3.6 million of gross proceeds during this period.
 
In January 2008, we entered into two interest rate protection agreements which fixed the interest rate on forecasted offerings of unsecured debt which we designated as cash flow hedges (the “January 2008 Agreements”). The January 2008 Agreements each have a notional value of $59.8 million and are effective from May 15, 2009 through May 15, 2014. The January 2008 Agreements fix the LIBOR rate at 4.0725% and 4.0770%, respectively.
 
Related Party Transactions
 
We periodically engage in transactions for which CB Richard Ellis, Inc. acts as a broker. A relative of Michael W. Brennan, the President and Chief Executive Officer and a director of the Company, is an employee of CB Richard Ellis, Inc. For the years ended December 31, 2007, 2006 and 2005 this relative received approximately $0.2, $0.3, and $0.3 million in brokerage commissions.
 
Other
 
In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” which establishes a common definition of fair value, establishes a framework for measuring fair value, and expands disclosure about such fair value measurements. For financial assets and liabilities and nonfinancial assets and liabilities that are remeasured at least annually, this statement is effective for fiscal years beginning after November 15, 2007. We do not expect that the implementation of this statement will have a material effect on our consolidated financial position or results of operations.
 
In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities” which permits entities to choose to measure many financial instruments and certain other items at fair value. This statement is effective for fiscal years beginning after November 15, 2007. We do not expect that the implementation of this statement will have a material effect on our consolidated financial position or results of operations.
 
In December 2007, the FASB issued SFAS No. 141 (revised 2007), “Business Combinations” (“SFAS 141R”). SFAS 141R establishes principles and requirements for how an acquirer recognizes and measures in it’s financial statements the identifiable assets acquired, the liabilities assumed, any noncontrolling interest in the acquiree and the goodwill acquired. SFAS 141R also establishes disclosure requirements to enable the evaluation of the nature and financial effects of the business combination. SFAS 141R is effective for financial statements issued for fiscal years beginning after December 15, 2008. We are currently evaluating the potential impact of adoption of SFAS 141R on our consolidated financial statements.
 
In December 2007, the FASB issued SFAS No. 160. “Noncontrolling Interests in Consolidated Financial Statements-and Amendment of ARB No. 51 (“SFAS 160”) SFAS 160 establishes accounting and reporting standards pertaining to ownership interests in subsidiaries held by parties other than the parent, the amount of net income attributable to the parent and to the noncontrolling interest, changes in a parent’s ownership interest, and the valuation of any retained noncontrolling equity investment when a subsidiary is deconsolidated. This statement also establishes disclosure requirements that clearly identify and distinguish between the interests of the parent and the interests of the noncontrolling owners. SFAS 160 is effective for fiscal years beginning on or after December 15, 2008. We are currently evaluating the potential impact of adoption of SFAS 160 on our consolidated financial statements.
 
Item 7A.   Quantitative and Qualitative Disclosures About Market Risk
 
Response to this item is included in Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” above.


41


 

Item 8.   Financial Statements and Supplementary Data
 
See Index to Financial Statements and Financial Statement Schedule included in Item 15.
 
Item 9.   Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
 
None.
 
Item 9A.  Controls and Procedures
 
Evaluation of Disclosure Controls and Procedures
 
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our periodic reports pursuant to the Securities Exchange Act of 1934 (the “Exchange Act”) is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including its principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required financial disclosure.
 
We carried out an evaluation, under the supervision and with the participation of our management, including the principal executive officer and principal financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Exchange Act Rule 13a-15(b) as of the end of the period covered by this report. Based upon this evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this report.
 
Management’s Report on Internal Control Over Financial Reporting
 
Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.
 
Our management has assessed the effectiveness of our internal control over financial reporting as of December 31, 2007. In making its assessment of internal control over financial reporting, management used the criteria described in the Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.
 
Our management has concluded that, as of December 31, 2007, our internal control over financial reporting was effective.
 
The effectiveness of our internal control over financial reporting as of December 31, 2007 has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report which appears herein within Item 15. See Report of Independent Registered Public Accounting Firm.
 
Changes in Internal Control Over Financial Reporting
 
There has been no change in our internal control over financial reporting that occurred during the fourth quarter of 2007 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
 
Item 9B.   Other Information
 
None.


42


 

 
PART III
 
Item 10, 11, 12, 13 and 14.   Directors, Executive Officers and Corporate Governance, Executive Compensation, Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters, Certain Relationships and Related Transactions and Director Independence and Principal Accountant Fees and Services
 
The information required by Item 10, Item 11, Item 12, Item 13 and Item 14 is hereby incorporated or furnished, solely to the extent required by such item, from the Company’s definitive proxy statement, which is expected to be filed with the SEC no later than 120 days after the end of the Company’s fiscal year. Information from the Company’s definitive proxy statement shall not be deemed to be “filed” or “soliciting material,” or subject to liability for purposes of Section 18 of the Securities Exchange Act of 1934 to the maximum extent permitted under the Exchange Act.
 
PART IV
 
Item 15.   Exhibits and Financial Statement Schedules
 
(a) Financial Statements, Financial Statement Schedule and Exhibits
 
(1 & 2) See Index to Financial Statements and Financial Statement Schedule.
 
(3) Exhibits:
 
         
Exhibits
 
Description
 
  3 .1   Amended and Restated Articles of Incorporation of the Company (incorporated by reference to Exhibit 3.1 of the Form 10-Q of the Company for the fiscal quarter ended June 30, 1996, File No. 1-13102)
  3 .2   Amended and Restated Bylaws of the Company, dated September 4, 1997 (incorporated by reference to Exhibit 1 of the Company’s Form 8-K, dated September 4, 1997, as filed on September 29, 1997, File No. 1-13102)
  3 .3   Articles of Amendment to the Company’s Articles of Incorporation, dated June 20, 1994 (incorporated by reference to Exhibit 3.2 of the Form 10-Q of the Company for the fiscal quarter ended June 30, 1996, File No. 1-13102)
  3 .4   Articles of Amendment to the Company’s Articles of Incorporation, dated May 31, 1996 (incorporated by reference to Exhibit 3.3 of the Form 10-Q of the Company for the fiscal quarter ended June 30, 1996, File No. 1-13102)
  3 .5   Articles Supplementary relating to the Company’s 6.236% Series F Flexible Cumulative Redeemable Preferred Stock, $0.01 par value (incorporated by reference to Exhibit 3.1 of the Form 10-Q of the Company for the fiscal quarter ended June 30, 2004, File No. 1-13102)
  3 .6   Articles Supplementary relating to the Company’s 7.236% Series G Flexible Cumulative Redeemable Preferred Stock, $0.01 par value (incorporated by reference to Exhibit 3.2 of the Form 10-Q of the Company for the fiscal quarter ended June 30, 2004, File No. 1-13102)
  3 .7   Articles Supplementary relating to the Company’s Junior Participating Preferred Stock, $0.01 par value (incorporated by reference to Exhibit 4.10 of Form S-3 of the Company and First Industrial, L.P. dated September 24, 1997, Registration No. 333-29879)
  3 .8   Articles Supplementary relating to the Company’s 7.25% Series J Cumulative Redeemable Preferred Stock, $0.01 par value (incorporated by reference to Exhibit 4.1 of the Form 8-K of the Company filed January 17, 2006, File No. 1-13102)
  3 .9   Articles Supplementary relating to the Company’s 7.25% Series K Cumulative Redeemable Preferred Stock, $0.01 par value (incorporated by reference to Exhibit 1.6 of the Form 8-A of the Company, as filed on August 18, 2006, File No. 1-13102)


43


 

         
Exhibits
 
Description
 
  4 .1   Deposit Agreement, dated May 27, 2004, by and among the Company, EquiServe Inc. and EquiServe Trust Company, N.A. and holders from time to time of Series F Depositary Receipts (incorporated by reference to Exhibit 4.1 of the Form 10-Q of the Company for the fiscal quarter ended June 30, 2004, File No. 1-13102)
  4 .2   Deposit Agreement, dated May 27, 2004, by and among the Company, EquiServe Inc. and EquiServe Trust Company, N.A. and holders from time to time of Series G Depositary Receipts (incorporated by reference to Exhibit 4.2 of the Form 10-Q of the Company for the fiscal quarter ended June 30, 2004, File No. 1-13102)
  4 .3   Remarketing Agreement, dated May 27, 2004, relating to 50,000 depositary shares, each representing 1/100 of a share of the Series F Flexible Cumulative Redeemable Preferred Stock, by and among Lehman Brothers Inc., the Company and First Industrial, L.P. (incorporated by reference to Exhibit 1.2 of the Form 8-K of the Company, dated May 27, 2004, File No. 1-13102)
  4 .4   Remarketing Agreement, dated May 27, 2004, relating to 25,000 depositary shares, each representing 1/100 of a share of the Series G Flexible Cumulative Redeemable Preferred Stock, by and among Lehman Brothers Inc., the Company and First Industrial, L.P. (incorporated by reference to Exhibit 1.3 of the Form 8-K of the Company, dated May 27, 2004, File No. 1-13102)
  4 .5   Deposit Agreement, dated January 13, 2006, by and among the Company, Computershare Shareholder Services, Inc. and Computershare Trust Company, N.A., as depositary, and holders from time to time of Series J Depositary Receipts (incorporated by reference to Exhibit 10.1 of the Form 8-K of the Company, filed January 17, 2006, File No. 1-13102)
  4 .6   Deposit Agreement, dated August 21, 2006, by and among the Company, Computershare Shareholder Services, Inc. and Computershare Trust Company, N.A., as depositary, and holders from time to time of Series K Depositary Receipts (incorporated by reference to Exhibit 1.7 of the Form 8-A of the Company, as filed on August 18, 2006, File No. 1-13102)
  4 .7   Indenture, dated as of May 13, 1997, between First Industrial, L.P. and First Trust National Association, as Trustee (incorporated by reference to Exhibit 4.1 of the Form 10-Q of the Company for the fiscal quarter ended March 31, 1997, as amended by Form 10-Q/A No. 1 of the Company filed May 30, 1997, File No. 1-13102)
  4 .8   Supplemental Indenture No. 1, dated as of May 13, 1997, between First Industrial, L.P. and First Trust National Association as Trustee relating to $150 million of 7.60% Notes due 2007 and $100 million of 7.15% Notes due 2027 (incorporated by reference to Exhibit 4.2 of the Form 10-Q of the Company for the fiscal quarter ended March 31, 1997, as amended by Form 10-Q/A No. 1 of the Company filed May 30, 1997, File No. 1-13102)
  4 .9   Supplemental Indenture No. 2, dated as of May 22, 1997, between First Industrial, L.P. and First Trust National Association as Trustee relating to $100 million of 73/8% Notes due 2011(incorporated by reference to Exhibit 4.4 of the Form 10-Q of First Industrial, L.P. for the fiscal quarter ended March 31, 1997, File No. 333-21873)
  4 .10   Supplemental Indenture No. 3 dated October 28, 1997 between First Industrial, L.P. and First Trust National Association providing for the issuance of Medium-Term Notes due Nine Months or more from Date of Issue (incorporated by reference to Exhibit 4.1 of Form 8-K of First Industrial, L.P., dated November 3, 1997, as filed November 3, 1997, File No. 333-21873)
  4 .11   7.50% Medium-Term Note due 2017 in principal amount of $100 million issued by First Industrial, L.P. (incorporated by reference to Exhibit 4.19 of the Company’s Annual Report on Form 10-K for the year ended December 31, 1997, File No. 1-13102)
  4 .12   Trust Agreement, dated as of May 16, 1997, between First Industrial, L.P. and First Bank National Association, as Trustee (incorporated by reference to Exhibit 4.5 of the Form 10-Q of First Industrial, L.P. for the fiscal quarter ended March 31, 1997, File No. 333-21873)
  4 .13   7.60% Notes due 2028 in principal amount of $200 million issued by First Industrial, L.P. (incorporated by reference to Exhibit 4.2 of the Form 8-K of First Industrial, L.P. dated July 15, 1998, File No. 333-21873)

44


 

         
Exhibits
 
Description
 
  4 .14   Supplemental Indenture No. 5, dated as of July 14, 1998, between First Industrial, L.P. and U.S. Bank Trust National Association, relating to First Industrial, L.P.’s 7.60% Notes due July 15, 2028 (incorporated by reference to Exhibit 4.1 of the Form 8-K of First Industrial, L.P. dated July 15, 1998, File No. 333-21873)
  4 .15   7.375% Note due 2011 in principal amount of $200 million issued by First Industrial, L.P. (incorporated by reference to Exhibit 4.15 of First Industrial, L.P.’s Annual Report on Form 10-K for the year ended December 31, 2000, File No. 333-21873)
  4 .16   Supplemental Indenture No. 6, dated as of March 19, 2001, between First Industrial, L.P. and U.S. Bank Trust National Association, relating to First Industrial, L.P.’s 7.375% Notes due March 15, 2011 (incorporated by reference to Exhibit 4.16 of First Industrial, L.P.’s Annual Report on Form 10-K for the year ended December 31, 2000, File No. 333-21873)
  4 .17   Registration Rights Agreement, dated as of March 19, 2001, among First Industrial, L.P. and Credit Suisse First Boston Corporation, Chase Securities, Inc., Merrill Lynch, Pierce, Fenner & Smith Incorporated, Salomon Smith Barney, Inc., Banc of America Securities LLC, Banc One Capital Markets, Inc. and UBS Warburg LLC (incorporated by reference to Exhibit 4.17 of First Industrial, L.P.’s Annual Report on Form 10-K for the year ended December 31, 2000, File No. 333-21873)
  4 .18   Supplemental Indenture No. 7 dated as of April 15, 2002, between First Industrial, L.P. and U.S. Bank National Association, relating to First Industrial, L.P.’s 6.875% Notes due 2012 and 7.75% Notes due 2032 (incorporated by reference to Exhibit 4.1 of the Form 8-K of First Industrial, L.P. dated April 4, 2002, File No. 333-21873)
  4 .19   Form of 6.875% Notes due in 2012 in the principal amount of $200 million issued by First Industrial, L.P. (incorporated by reference to Exhibit 4.2 of the Form 8-K of First Industrial, L.P., dated April 4, 2002, File No. 333-21873)
  4 .20   Form of 7.75% Notes due 2032 in the principal amount of $50.0 million issued by First Industrial, L.P. (incorporated by reference to Exhibit 4.3 of the Form 8-K of First Industrial, L.P., dated April 4, 2002, File No. 333-21873)
  4 .21   Supplemental Indenture No. 8, dated as of May 17, 2004, relating to 6.42% Senior Notes due
        June 1, 2014, by and between First Industrial, L.P. and U.S. Bank National Association (incorporated by reference to Exhibit 4.1 of the Form 8-K of First Industrial, L.P., dated May 27, 2004, File No. 333-21873)
  4 .22   Supplemental Indenture No. 9, dated as of June 14, 2004, relating to 5.25% Senior Notes due 2009, by and between the Operating Partnership and U.S. Bank National Association (incorporated by reference to Exhibit 4.1 of the Form 8-K of First Industrial, L.P., dated June 17, 2004, File No. 333-21873)
  4 .23   Supplemental Indenture No. 10, dated as of January 10, 2006, relating to 5.75% Senior Notes due 2016, by and between the Operating Partnership and U.S. Bank National Association (incorporated by reference to Exhibit 4.1 of the Form 8-K of the Company, filed January 11, 2006, File No. 1-13102)
  4 .24   Indenture dated as of September 25, 2006 among First Industrial, L.P., as issuer, the Company, as guarantor, and U.S. Bank National Association, as trustee (incorporated by reference to Exhibit 4.1 of the current report on Form 8-K of First Industrial, L.P. dated September 25, 2006, File No. 333-21873)
  4 .25   Form of 4.625% Exchangeable Senior Note due 2011 (incorporated by reference to Exhibit 4.2 of the current report on Form 8-K of First Industrial, L.P. dated September 25, 2006, File No. 333-21873)
  4 .26   Registration Rights Agreement dated September 25, 2006 among the Company, First Industrial, L.P. and the Initial Purchasers named therein (incorporated by reference to Exhibit 10.1 of the current report on Form 8-K of First Industrial, L.P. dated September 25, 2006, File No. 333-21873)
  4 .27   Supplemental Indenture No. 11, dated as of May 7, 2007, relating to 5.95% Senior Notes due 2017, by and between the Operating Partnership and U.S. Bank National Association (incorporated by reference to Exhibit 4.1 of the Form 8-K of the Company, filed May 5, 2007, File No. 1-13102)

45


 

         
Exhibits
 
Description
 
  10 .1   Eleventh Amended and Restated Partnership Agreement of First Industrial, L.P. dated August 21, 2006 (the “LP Agreement”) (incorporated by reference to Exhibit 10.2 of the Form 8-K of the Company, filed August 22, 2006, File No. 1-13102)
  10 .2   Sales Agreement by and among the Company, First Industrial, L.P. and Cantor Fitzgerald & Co. dated September 16, 2004 (incorporated by reference to Exhibit 1.1 of the Form 8-K of the Company, dated September 16, 2004, File No. 1-13102)
  10 .3   Registration Rights Agreement, dated April 29, 1998, relating to the Company’s Common Stock, par value $0.01 per share, between the Company, the Operating Partnership and Merrill Lynch, Pierce, Fenner & Smith Incorporated (incorporated by reference to Exhibit 4.1 of the Form 8-K of the Company dated May 1, 1998, File No. 1-13102)
  10 .4   Non-Competition Agreement between Jay H. Shidler and First Industrial Realty Trust, Inc. (incorporated by reference to Exhibit 10.16 of the Company’s Annual Report on Form 10-K for the year ended December 31, 1994, File No. 1-13102)
  10 .5   Form of Non-Competition Agreement between each of Michael T. Tomasz, Paul T. Lambert, Michael J. Havala, Michael W. Brennan, Michael G. Damone, Duane H. Lund, and Johannson L. Yap and First Industrial Realty Trust, Inc. (incorporated by reference to Exhibit 10.14 to the Company’s Registration Statement on Form S-11, File No. 33-77804)
  10 .6†   1994 Stock Incentive Plan (incorporated by reference to Exhibit 10.37 of the Company’s Annual Report on Form 10-K for the year ended December 31, 1994, File No. 1-13102)
  10 .7†   First Industrial Realty Trust, Inc. Deferred Income Plan (incorporated by reference to Exhibit 10 of the Form 10-Q of the Company for the fiscal quarter ended March 31, 1996, File No. 1-13102)
  10 .8   Contribution Agreement, dated March 19, 1996, among FR Acquisitions, Inc. and the parties listed on the signature pages thereto (incorporated by reference to Exhibit 10.1 of the Form 8-K of the Company, dated April 3, 1996, File No. 1-13102)
  10 .9   Contribution Agreement, dated January 31, 1997, among FR Acquisitions, Inc. and the parties listed on the signature pages thereto (incorporated by reference to Exhibit 10.58 of the Company’s Annual Report on Form 10-K for the year ended December 31, 1996, File No. 1-13102)
  10 .10†   Employment Agreement, dated June 21, 2005, between the Company and Michael W. Brennan (incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K filed June 24, 2005 File No. 1-13102)
  10 .11†   1997 Stock Incentive Plan (incorporated by reference to Exhibit 10.62 of the Company’s Annual Report on Form 10-K for the year ended December 31, 1996, File No. 1-13102)
  10 .12†   2001 Stock Incentive Plan (incorporated by reference to Exhibit 10.34 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2001, File No. 1-13102)
  10 .13†   Employment Agreement, dated March 31, 2002, between First Industrial Realty Trust, Inc. and Michael J. Havala (incorporated by reference to Exhibit 10.1 of the Form 10-Q of First Industrial Realty Trust, Inc. for the fiscal quarter ended March 31, 2002, File No. 1-13102)
  10 .14†   Employment Agreement, dated March 31, 2002, between First Industrial Realty Trust, Inc. and Johannson L. Yap (incorporated by reference to Exhibit 10.2 of the Form 10-Q of First Industrial Realty Trust, Inc. for the fiscal quarter ended March 31, 2002, File No. 1-13102)
  10 .15†   Employment Agreement, dated March 25, 2002, between First Industrial Realty Trust, Inc. and David P. Draft (incorporated by reference to Exhibit 10.3 of the Form 10-Q of First Industrial Realty Trust, Inc. for the fiscal quarter ended March 31, 2002, File No. 1-13102)
  10 .16†   Form of Restricted Stock Award Agreement (incorporated by reference to Exhibit 10.3 of the Form 10-Q of the Company for the fiscal quarter ended June 30, 2004, File No. 1-13102)
  10 .17†   Form of Restricted Stock Award Agreement (incorporated by reference to Exhibit 10.4 of the Form 10-Q of the Company for the fiscal quarter ended June 30, 2004, File No. 1-13102)
  10 .18†   Form of Restricted Stock Award Agreement (incorporated by reference to Exhibit 10.5 of the Form 10-Q of the Company for the fiscal quarter ended June 30, 2004, File No. 1-13102)
  10 .19†   Form of Restricted Stock Award Agreement (incorporated by reference to Exhibit 10.6 of the Form 10-Q of the Company for the fiscal quarter ended June 30, 2004, File No. 1-13102)

46


 

         
Exhibits
 
Description
 
  10 .20   Fifth Amended and Restated Unsecured Revolving Credit Agreement, dated as of September 28, 2007, among First Industrial, L.P., First Industrial Realty Trust, Inc., JP Morgan Chase Bank, NA and certain other banks (incorporated by reference to Exhibit 10.1 of the Form 8-K of the Company filed October 1, 2007, File No. 1-13102)
  10 .21†   Form of Restricted Stock Agreement (Director’s Annual Retainer) (incorporated by reference to Exhibit 10.1 of the Form 8-K of the Company filed May 19, 2006, File No. 1-13102)
  10 .22†   Amendment No. 1 to the Company’s 2001 Stock Incentive Plan (incorporated by reference to Exhibit 10.2 of the Form 10-Q of the Company for the fiscal quarter ended June 30, 2006, File No. 1-13102)
  10 .23†   Amendment No. 2 to the Company’s 2001 Stock Incentive Plan (incorporated by reference to Exhibit 10.1 of the Form 10-Q of the Company for the fiscal quarter ended June 30, 2007, File No. 1-13102)
  10 .24†*   Amendment No. 1 to the Company’s 1994 Stock Incentive Plan
  10 .25†*   Amendment No. 1 to the Company’s 1997 Stock Incentive Plan
  10 .26†*   Form of Director Restricted Stock Award Agreement
  10 .27†*   Form of Director Restricted Stock Award Agreement
  10 .28†*   Form of Employee Restricted Stock Award Agreement
  10 .29†*   Form of Employee Restricted Stock Award Agreement
  10 .30†*   Employment Agreement dated January 30, 2006 between First Industrial Development Services, Inc. and Gerald A. Pientka
  10 .31†   Employment Agreement dated September 10, 2007 between First Industrial Realty Trust, Inc. and Robert Cutlip (incorporated by reference to Exhibit 10.1 of the Form 8-K of the Company filed September 12, 2007, File No. 1-13102)
  21 *   Subsidiaries of the Registrant
  23 *   Consent of PricewaterhouseCoopers LLP
  31 .1*   Certification of Principal Executive Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as amended
  31 .2*   Certification of Principal Financial Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as amended
  32 **   Certification of the Principal Executive Officer and Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
 
 
* Filed herewith.
 
** Furnished herewith.
 
Indicates a compensatory plan or arrangement contemplated by Item 15 a (3) of Form 10-K.

47


 

EXHIBIT INDEX
 
         
Exhibits
 
Description
 
  3 .1   Amended and Restated Articles of Incorporation of the Company (incorporated by reference to Exhibit 3.1 of the Form 10-Q of the Company for the fiscal quarter ended June 30, 1996, File No. 1-13102)
  3 .2   Amended and Restated Bylaws of the Company, dated September 4, 1997 (incorporated by reference to Exhibit 1 of the Company’s Form 8-K, dated September 4, 1997, as filed on September 29, 1997, File No. 1-13102)
  3 .3   Articles of Amendment to the Company’s Articles of Incorporation, dated June 20, 1994 (incorporated by reference to Exhibit 3.2 of the Form 10-Q of the Company for the fiscal quarter ended June 30, 1996, File No. 1-13102)
  3 .4   Articles of Amendment to the Company’s Articles of Incorporation, dated May 31, 1996 (incorporated by reference to Exhibit 3.3 of the Form 10-Q of the Company for the fiscal quarter ended June 30, 1996, File No. 1-13102)
  3 .5   Articles Supplementary relating to the Company’s 6.236% Series F Flexible Cumulative Redeemable Preferred Stock, $0.01 par value (incorporated by reference to Exhibit 3.1 of the Form 10-Q of the Company for the fiscal quarter ended June 30, 2004, File No. 1-13102)
  3 .6   Articles Supplementary relating to the Company’s 7.236% Series G Flexible Cumulative Redeemable Preferred Stock, $0.01 par value (incorporated by reference to Exhibit 3.2 of the Form 10-Q of the Company for the fiscal quarter ended June 30, 2004, File No. 1-13102)
  3 .7   Articles Supplementary relating to the Company’s Junior Participating Preferred Stock, $0.01 par value (incorporated by reference to Exhibit 4.10 of Form S-3 of the Company and First Industrial, L.P. dated September 24, 1997, Registration No. 333-29879)
  3 .8   Articles Supplementary relating to the Company’s 7.25% Series J Cumulative Redeemable Preferred Stock, $0.01 par value (incorporated by reference to Exhibit 4.1 of the Form 8-K of the Company filed January 17, 2006, File No. 1-13102)
  3 .9   Articles Supplementary relating to the Company’s 7.25% Series K Cumulative Redeemable Preferred Stock, $0.01 par value (incorporated by reference to Exhibit 1.6 of the Form 8-A of the Company, as filed on August 18, 2006, File No. 1-13102)
  4 .1   Deposit Agreement, dated May 27, 2004, by and among the Company, EquiServe Inc. and EquiServe Trust Company, N.A. and holders from time to time of Series F Depositary Receipts (incorporated by reference to Exhibit 4.1 of the Form 10-Q of the Company for the fiscal quarter ended June 30, 2004, File No. 1-13102)
  4 .2   Deposit Agreement, dated May 27, 2004, by and among the Company, EquiServe Inc. and EquiServe Trust Company, N.A. and holders from time to time of Series G Depositary Receipts (incorporated by reference to Exhibit 4.2 of the Form 10-Q of the Company for the fiscal quarter ended June 30, 2004, File No. 1-13102)
  4 .3   Remarketing Agreement, dated May 27, 2004, relating to 50,000 depositary shares, each representing 1/100 of a share of the Series F Flexible Cumulative Redeemable Preferred Stock, by and among Lehman Brothers Inc., the Company and First Industrial, L.P. (incorporated by reference to Exhibit 1.2 of the Form 8-K of the Company, dated May 27, 2004, File No. 1-13102)
  4 .4   Remarketing Agreement, dated May 27, 2004, relating to 25,000 depositary shares, each representing 1/100 of a share of the Series G Flexible Cumulative Redeemable Preferred Stock, by and among Lehman Brothers Inc., the Company and First Industrial, L.P. (incorporated by reference to Exhibit 1.3 of the Form 8-K of the Company, dated May 27, 2004, File No. 1-13102)
  4 .5   Deposit Agreement, dated January 13, 2006, by and among the Company, Computershare Shareholder Services, Inc. and Computershare Trust Company, N.A., as depositary, and holders from time to time of Series J Depositary Receipts (incorporated by reference to Exhibit 10.1 of the Form 8-K of the Company, filed January 17, 2006, File No. 1-13102)
  4 .6   Deposit Agreement, dated August 21, 2006, by and among the Company, Computershare Shareholder Services, Inc. and Computershare Trust Company, N.A., as depositary, and holders from time to time of Series K Depositary Receipts (incorporated by reference to Exhibit 1.7 of the Form 8-A of the Company, as filed on August 18, 2006, File No. 1-13102)


48


 

         
Exhibits
 
Description
 
  4 .7   Indenture, dated as of May 13, 1997, between First Industrial, L.P. and First Trust National Association, as Trustee (incorporated by reference to Exhibit 4.1 of the Form 10-Q of the Company for the fiscal quarter ended March 31, 1997, as amended by Form 10-Q/A No. 1 of the Company filed May 30, 1997, File No. 1-13102)
  4 .8   Supplemental Indenture No. 1, dated as of May 13, 1997, between First Industrial, L.P. and First Trust National Association as Trustee relating to $150 million of 7.60% Notes due 2007 and $100 million of 7.15% Notes due 2027 (incorporated by reference to Exhibit 4.2 of the Form 10-Q of the Company for the fiscal quarter ended March 31, 1997, as amended by Form 10-Q/A No. 1 of the Company filed May 30, 1997, File No. 1-13102)
  4 .9   Supplemental Indenture No. 2, dated as of May 22, 1997, between First Industrial, L.P. and First Trust National Association as Trustee relating to $100 million of 73/8% Notes due 2011(incorporated by reference to Exhibit 4.4 of the Form 10-Q of First Industrial, L.P. for the fiscal quarter ended March 31, 1997, File No. 333-21873)
  4 .10   Supplemental Indenture No. 3 dated October 28, 1997 between First Industrial, L.P. and First Trust National Association providing for the issuance of Medium-Term Notes due Nine Months or more from Date of Issue (incorporated by reference to Exhibit 4.1 of Form 8-K of First Industrial, L.P., dated November 3, 1997, as filed November 3, 1997, File No. 333-21873)
  4 .11   7.50% Medium-Term Note due 2017 in principal amount of $100 million issued by First Industrial, L.P. (incorporated by reference to Exhibit 4.19 of the Company’s Annual Report on Form 10-K for the year ended December 31, 1997, File No. 1-13102)
  4 .12   Trust Agreement, dated as of May 16, 1997, between First Industrial, L.P. and First Bank National Association, as Trustee (incorporated by reference to Exhibit 4.5 of the Form 10-Q of First Industrial, L.P. for the fiscal quarter ended March 31, 1997, File No. 333-21873)
  4 .13   7.60% Notes due 2028 in principal amount of $200 million issued by First Industrial, L.P. (incorporated by reference to Exhibit 4.2 of the Form 8-K of First Industrial, L.P. dated July 15, 1998, File No. 333-21873)
  4 .14   Supplemental Indenture No. 5, dated as of July 14, 1998, between First Industrial, L.P. and U.S. Bank Trust National Association, relating to First Industrial, L.P.’s 7.60% Notes due July 15, 2028 (incorporated by reference to Exhibit 4.1 of the Form 8-K of First Industrial, L.P. dated July 15, 1998, File No. 333-21873)
  4 .15   7.375% Note due 2011 in principal amount of $200 million issued by First Industrial, L.P. (incorporated by reference to Exhibit 4.15 of First Industrial, L.P.’s Annual Report on Form 10-K for the year ended December 31, 2000, File No. 333-21873)
  4 .16   Supplemental Indenture No. 6, dated as of March 19, 2001, between First Industrial, L.P. and U.S. Bank Trust National Association, relating to First Industrial, L.P.’s 7.375% Notes due March 15, 2011 (incorporated by reference to Exhibit 4.16 of First Industrial, L.P.’s Annual Report on Form 10-K for the year ended December 31, 2000, File No. 333-21873)
  4 .17   Registration Rights Agreement, dated as of March 19, 2001, among First Industrial, L.P. and Credit Suisse First Boston Corporation, Chase Securities, Inc., Merrill Lynch, Pierce, Fenner & Smith Incorporated, Salomon Smith Barney, Inc., Banc of America Securities LLC, Banc One Capital Markets, Inc. and UBS Warburg LLC (incorporated by reference to Exhibit 4.17 of First Industrial, L.P.’s Annual Report on Form 10-K for the year ended December 31, 2000, File No. 333-21873)
  4 .18   Supplemental Indenture No. 7 dated as of April 15, 2002, between First Industrial, L.P. and U.S. Bank National Association, relating to First Industrial, L.P.’s 6.875% Notes due 2012 and 7.75% Notes due 2032 (incorporated by reference to Exhibit 4.1 of the Form 8-K of First
        Industrial, L.P. dated April 4, 2002, File No. 333-21873)
  4 .19   Form of 6.875% Notes due in 2012 in the principal amount of $200 million issued by First Industrial, L.P. (incorporated by reference to Exhibit 4.2 of the Form 8-K of First Industrial, L.P., dated April 4, 2002, File No. 333-21873)
  4 .20   Form of 7.75% Notes due 2032 in the principal amount of $50.0 million issued by First Industrial, L.P. (incorporated by reference to Exhibit 4.3 of the Form 8-K of First Industrial, L.P., dated April 4, 2002, File No. 333-21873)


49


 

         
Exhibits
 
Description
 
  4 .21   Supplemental Indenture No. 8, dated as of May 17, 2004, relating to 6.42% Senior Notes due June 1, 2014, by and between First Industrial, L.P. and U.S. Bank National Association (incorporated by reference to Exhibit 4.1 of the Form 8-K of First Industrial, L.P., dated May 27, 2004, File No. 333-21873)
  4 .22   Supplemental Indenture No. 9, dated as of June 14, 2004, relating to 5.25% Senior Notes due 2009, by and between the Operating Partnership and U.S. Bank National Association (incorporated by reference to Exhibit 4.1 of the Form 8-K of First Industrial, L.P., dated June 17, 2004, File No. 333-21873)
  4 .23   Supplemental Indenture No. 10, dated as of January 10, 2006, relating to 5.75% Senior Notes due 2016, by and between the Operating Partnership and U.S. Bank National Association (incorporated by reference to Exhibit 4.1 of the Form 8-K of the Company, filed January 11, 2006, File No. 1-13102)
  4 .24   Indenture dated as of September 25, 2006 among First Industrial, L.P., as issuer, the Company, as guarantor, and U.S. Bank National Association, as trustee (incorporated by reference to Exhibit 4.1 of the current report on Form 8-K of First Industrial, L.P. dated September 25, 2006, File No. 333-21873)
  4 .25   Form of 4.625% Exchangeable Senior Note due 2011 (incorporated by reference to Exhibit 4.2 of the current report on Form 8-K of First Industrial, L.P. dated September 25, 2006, File No. 333-21873)
  4 .26   Registration Rights Agreement dated September 25, 2006 among the Company, First Industrial, L.P. and the Initial Purchasers named therein (incorporated by reference to Exhibit 10.1 of the current report on Form 8-K of First Industrial, L.P. dated September 25, 2006, File No. 333-21873)
  4 .27   Supplemental Indenture No. 11, dated as of May 7, 2007, relating to 5.95% Senior Notes due 2017, by and between the Operating Partnership and U.S. Bank National Association (incorporated by reference to Exhibit 4.1 of the Form 8-K of the Company, filed May 5, 2007, File No. 1-13102)
  10 .1   Eleventh Amended and Restated Partnership Agreement of First Industrial, L.P. dated August 21, 2006 (the “LP Agreement”) (incorporated by reference to Exhibit 10.2 of the Form 8-K of the Company, filed August 22, 2006, File No. 1-13102)
  10 .2   Sales Agreement by and among the Company, First Industrial, L.P. and Cantor Fitzgerald & Co. dated September 16, 2004 (incorporated by reference to Exhibit 1.1 of the Form 8-K of the Company, dated September 16, 2004, File No. 1-13102)
  10 .3   Registration Rights Agreement, dated April 29, 1998, relating to the Company’s Common Stock, par value $0.01 per share, between the Company, the Operating Partnership and Merrill Lynch, Pierce, Fenner & Smith Incorporated (incorporated by reference to Exhibit 4.1 of the Form 8-K of the Company dated May 1, 1998, File No. 1-13102)
  10 .4   Non-Competition Agreement between Jay H. Shidler and First Industrial Realty Trust, Inc. (incorporated by reference to Exhibit 10.16 of the Company’s Annual Report on Form 10-K for the year ended December 31, 1994, File No. 1-13102)
  10 .5   Form of Non-Competition Agreement between each of Michael T. Tomasz, Paul T. Lambert, Michael J. Havala, Michael W. Brennan, Michael G. Damone, Duane H. Lund, and Johannson L. Yap and First Industrial Realty Trust, Inc. (incorporated by reference to Exhibit 10.14 to the Company’s Registration Statement on Form S-11, File No. 33-77804)
  10 .6†   1994 Stock Incentive Plan (incorporated by reference to Exhibit 10.37 of the Company’s Annual Report on Form 10-K for the year ended December 31, 1994, File No. 1-13102)
  10 .7†   First Industrial Realty Trust, Inc. Deferred Income Plan (incorporated by reference to Exhibit 10 of the Form 10-Q of the Company for the fiscal quarter ended March 31, 1996, File No. 1-13102)
  10 .8   Contribution Agreement, dated March 19, 1996, among FR Acquisitions, Inc. and the parties listed on the signature pages thereto (incorporated by reference to Exhibit 10.1 of the Form 8-K of the Company, dated April 3, 1996, File No. 1-13102)
  10 .9   Contribution Agreement, dated January 31, 1997, among FR Acquisitions, Inc. and the parties listed on the signature pages thereto (incorporated by reference to Exhibit 10.58 of the Company’s Annual Report on Form 10-K for the year ended December 31, 1996, File No. 1-13102)


50


 

         
Exhibits
 
Description
 
  10 .10†   Employment Agreement, dated June 21, 2005, between the Company and Michael W. Brennan (incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K filed June 24, 2005 File No. 1-13102)
  10 .11†   1997 Stock Incentive Plan (incorporated by reference to Exhibit 10.62 of the Company’s Annual Report on Form 10-K for the year ended December 31, 1996, File No. 1-13102)
  10 .12†   2001 Stock Incentive Plan (incorporated by reference to Exhibit 10.34 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2001, File No. 1-13102)
  10 .13†   Employment Agreement, dated March 31, 2002, between First Industrial Realty Trust, Inc. and Michael J. Havala (incorporated by reference to Exhibit 10.1 of the Form 10-Q of First Industrial Realty Trust, Inc. for the fiscal quarter ended March 31, 2002, File No. 1-13102)
  10 .14†   Employment Agreement, dated March 31, 2002, between First Industrial Realty Trust, Inc. and Johannson L. Yap (incorporated by reference to Exhibit 10.2 of the Form 10-Q of First Industrial Realty Trust, Inc. for the fiscal quarter ended March 31, 2002, File No. 1-13102)
  10 .15†   Employment Agreement, dated March 25, 2002, between First Industrial Realty Trust, Inc. and David P. Draft (incorporated by reference to Exhibit 10.3 of the Form 10-Q of First Industrial Realty Trust, Inc. for the fiscal quarter ended March 31, 2002, File No. 1-13102)
  10 .16†   Form of Restricted Stock Award Agreement (incorporated by reference to Exhibit 10.3 of the Form 10-Q of the Company for the fiscal quarter ended June 30, 2004, File No. 1-13102)
  10 .17†   Form of Restricted Stock Award Agreement (incorporated by reference to Exhibit 10.4 of the Form 10-Q of the Company for the fiscal quarter ended June 30, 2004, File No. 1-13102)
  10 .18†   Form of Restricted Stock Award Agreement (incorporated by reference to Exhibit 10.5 of the Form 10-Q of the Company for the fiscal quarter ended June 30, 2004, File No. 1-13102)
  10 .19†   Form of Restricted Stock Award Agreement (incorporated by reference to Exhibit 10.6 of the Form 10-Q of the Company for the fiscal quarter ended June 30, 2004, File No. 1-13102)
  10 .20   Fifth Amended and Restated Unsecured Revolving Credit Agreement, dated as of September 28, 2007, among First Industrial, L.P., First Industrial Realty Trust, Inc., JP Morgan Chase Bank, NA and certain other banks (incorporated by reference to Exhibit 10.1 of the Form 8-K of the Company filed October 1, 2007, File No. 1-13102)
  10 .21†   Form of Restricted Stock Agreement (Director’s Annual Retainer) (incorporated by reference to Exhibit 10.1 of the Form 8-K of the Company filed May 19, 2006, File No. 1-13102)
  10 .22†   Amendment No. 1 to the Company’s 2001 Stock Incentive Plan (incorporated by reference to Exhibit 10.2 of the Form 10-Q of the Company for the fiscal quarter ended June 30, 2006, File No. 1-13102)
  10 .23†   Amendment No. 2 to the Company’s 2001 Stock Incentive Plan (incorporated by reference to Exhibit 10.1 of the Form 10-Q of the Company for the fiscal quarter ended June 30, 2007, File No. 1-13102)
  10 .24†*   Amendment No. 1 to the Company’s 1994 Stock Incentive Plan
  10 .25†*   Amendment No. 1 to the Company’s 1997 Stock Incentive Plan
  10 .26†*   Form of Director Restricted Stock Award Agreement
  10 .27†*   Form of Director Restricted Stock Award Agreement
  10 .28†*   Form of Employee Restricted Stock Award Agreement
  10 .29†*   Form of Employee Restricted Stock Award Agreement
  10 .30†*   Employment Agreement dated January 30, 2006 between First Industrial Development Services, Inc. and Gerald A. Pientka
  10 .31†   Employment Agreement dated September 10, 2007 between First Industrial Realty Trust, Inc. and Robert Cutlip (incorporated by reference to Exhibit 10.1 of the Form 8-K of the Company filed September 12, 2007, File No. 1-13102)
  21 *   Subsidiaries of the Registrant
  23 *   Consent of PricewaterhouseCoopers LLP


51


 

         
Exhibits
 
Description
 
  31 .1*   Certification of Principal Executive Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as amended
  31 .2*   Certification of Principal Financial Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as amended
  32 **   Certification of the Principal Executive Officer and Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes — Oxley Act of 2002
 
 
* Filed herewith.
 
** Furnished herewith.
 
Indicates a compensatory plan or arrangement contemplated by Item 15 a (3) of Form 10-K.


52


 

FIRST INDUSTRIAL REALTY TRUST, INC.
 
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE
 
         
    Page
 
FINANCIAL STATEMENTS
       
Report of Independent Registered Public Accounting Firm
    54  
Consolidated Balance Sheets of First Industrial Realty Trust, Inc. (the “Company”) as of December 31, 2007 and 2006
    55  
Consolidated Statements of Operations of the Company for the Years Ended December 31, 2007, 2006 and 2005
    56  
Consolidated Statements of Comprehensive Income of the Company for the Years Ended December 31, 2007, 2006 and 2005
    57  
Consolidated Statements of Changes in Stockholders’ Equity of the Company for the Years Ended December 31, 2007, 2006 and 2005
    58  
Consolidated Statements of Cash Flows of the Company for the Years Ended December 31, 2007, 2006 and 2005
    59  
Notes to the Consolidated Financial Statements
    60  
FINANCIAL STATEMENT SCHEDULE
       
Schedule III: Real Estate and Accumulated Depreciation
    S-1  
 
FIRSTCAL INDUSTRIAL, L.L.C.
 
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE
 
         
    Page
 
FINANCIAL STATEMENTS
       
Report of Independent Registered Public Accounting Firm
    92  
Consolidated Statements of Financial Position of FirstCal Industrial, L.L.C. as of December 31, 2007 and 2006 (not covered by the report included herein)
    93  
Consolidated Statements of Operations of FirstCal Industrial, L.L.C. for the Years Ended December 31, 2007 and 2006 (not covered by the report included herein) and for the period from March 18, 2005 (inception) to December 31, 2005
    94  
Consolidated Statements of Changes in Members’ Capital of FirstCal Industrial, L.L.C. for the Years Ended December 31, 2007 and 2006 (not covered by the report included herein) and for the period from March 18, 2005 (inception) to December 31, 2005
    95  
Consolidated Statements of Cash Flows of FirstCal Industrial, L.L.C. for the Years Ended December 31, 2007 and 2006 (not covered by the report included herein) and for the period from March 18, 2005 (inception) to December 31, 2005
    96  
Notes to the Consolidated Financial Statements
    97  


53


 

 
Report of Independent Registered Public Accounting Firm
 
To the Board of Directors and Stockholders of
First Industrial Realty Trust, Inc.:
 
In our opinion, the consolidated financial statements listed in the index appearing under Item 15(a)(1) present fairly, in all material respects, the financial position of First Industrial Realty Trust, Inc. and its subsidiaries (“the Company”) at December 31, 2007 and 2006, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2007 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule listed in the index appearing under Item 15(a)(2) presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2007, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company’s management is responsible for these financial statements and financial statement schedule, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in Management’s Report on Internal Control Over Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on these financial statements and financial statement schedule and on the Company’s internal control over financial reporting based on our integrated audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
 
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
 
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
 
/s/  PricewaterhouseCoopers LLP
Chicago, Illinois
 
February 25, 2008


54


 

 
FIRST INDUSTRIAL REALTY TRUST, INC.
 
CONSOLIDATED BALANCE SHEETS
 
                 
    December 31,
    December 31,
 
    2007     2006  
    (Dollars in thousands, except share and per share data)  
 
ASSETS
Assets:
               
Investment in Real Estate:
               
Land
  $ 655,523     $ 558,425  
Buildings and Improvements
    2,599,784       2,626,284  
Construction in Progress
    70,961       35,019  
Less: Accumulated Depreciation
    (509,981 )     (465,418 )
                 
Net Investment in Real Estate
    2,816,287       2,754,310  
                 
Real Estate Held for Sale, Net of Accumulated Depreciation and Amortization of $3,038 and $9,688 at December 31, 2007 and December 31, 2006, respectively
    37,875       115,961  
Cash and Cash Equivalents
    5,757       16,135  
Restricted Cash
    24,903       15,970  
Tenant Accounts Receivable, Net
    9,665       8,014  
Investments in Joint Ventures
    57,543       55,527  
Deferred Rent Receivable, Net
    32,665       28,839  
Deferred Financing Costs, Net
    15,373       15,210  
Deferred Leasing Intangibles, Net
    87,019       86,265  
Prepaid Expenses and Other Assets, Net
    170,946       128,168  
                 
Total Assets
  $ 3,258,033     $ 3,224,399  
                 
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Liabilities:
               
Mortgage Loans Payable, Net
  $ 73,550     $ 77,926  
Senior Unsecured Debt, Net
    1,550,991       1,549,732  
Unsecured Line of Credit
    322,129       207,000  
Accounts Payable and Accrued Expenses
    146,308       119,027  
Deferred Leasing Intangibles, Net
    22,041       19,486  
Rents Received in Advance and Security Deposits
    31,425       30,844  
Leasing Intangibles Held for Sale, Net of Accumulated Amortization of $0 and $183 at December 31, 2007 and December 31, 2006, respectively
          2,310  
Dividends Payable
    37,311       42,548  
                 
Total Liabilities
    2,183,755       2,048,873  
                 
Commitments and Contingencies
           
Minority Interest
    150,359       152,547  
Stockholders’ Equity:
               
Preferred Stock ($0.01 par value, 10,000,000 shares authorized, 500, 250, 600, and 200 shares of Series F, G, J, and K Cumulative Preferred Stock, respectively, issued and outstanding at December 31, 2007, having a liquidation preference of $100,000 per share ($50,000), $100,000 per share ($25,000), $250,000 per share ($150,000), and $250,000 per share ($50,000), respectively. At December 31, 2006, 10,000,000 shares authorized, 20,000, 500, 250, 600 and 200 shares of Series C, F, G, J and K Cumulative Preferred Stock, respectively, issued and outstanding, having a liquidation preference of $2,500 per share ($50,000), $100,000 per share ($50,000), $100,000 per share ($25,000), $250,000 per share ($150,000) and $250,000 per share ($50,000), respectively)
           
Common Stock ($0.01 par value, 100,000,000 shares authorized, 47,996,263 and 47,537,030 shares issued and 43,672,149 and 45,010,630 shares outstanding at December 31, 2007 and December 31, 2006, respectively)
    480       475  
Additional Paid-in-Capital
    1,354,674       1,388,311  
Distributions in Excess of Accumulated Earnings
    (281,587 )     (284,955 )
Accumulated Other Comprehensive Loss
    (9,630 )     (10,264 )
Treasury Shares at Cost (4,324,114 and 2,526,400 shares at December 31, 2007 and December 31, 2006, respectively)
    (140,018 )     (70,588 )
                 
Total Stockholders’ Equity
    923,919       1,022,979  
                 
Total Liabilities and Stockholders’ Equity
  $ 3,258,033     $ 3,224,399  
                 
 
The accompanying notes are an integral part of the financial statements.


55


 

 
FIRST INDUSTRIAL REALTY TRUST, INC.
 
CONSOLIDATED STATEMENTS OF OPERATIONS
 
                         
    Year Ended
    Year Ended
    Year Ended
 
    December 31,
    December 31,
    December 31,
 
    2007     2006     2005  
    (In thousands except per share data)  
 
Revenues:
                       
Rental Income
  $ 281,747     $ 239,448     $ 194,500  
Tenant Recoveries and Other Income
    117,552       100,936       76,922  
Contractor Revenues
    35,628       10,540       16,241  
                         
Total Revenues
    434,927       350,924       287,663  
                         
Expenses:
                       
Property Expenses
    129,403       115,230       95,172  
General and Administrative
    92,101       77,497       55,812  
Depreciation and Other Amortization
    153,682       130,582       94,490  
Contractor Expenses
    34,553       10,263       15,574  
                         
Total Expenses
    409,739       333,572       261,048  
                         
Other Income/Expense:
                       
Interest Income
    1,926       1,614       1,486  
Interest Expense
    (119,314 )     (121,141 )     (108,339 )
Amortization of Deferred Financing Costs
    (3,210 )     (2,666 )     (2,125 )
Mark-to-Market/(Loss) Gain on Settlement of Interest Rate Protection Agreements
          (3,112 )     811  
(Loss) Gain From Early Retirement of Debt
    (393 )           82  
                         
Total Other Income/Expense
    (120,991 )     (125,305 )     (108,085 )
Loss from Continuing Operations Before Equity in Income of Joint Ventures, Income Tax Benefit and Income Allocated To Minority Interest
    (95,803 )     (107,953 )     (81,470 )
Equity in Income of Joint Ventures
    30,045       30,673       3,699  
Income Tax Benefit
    10,571       9,882       14,337  
Minority Interest Allocable to Continuing Operations
    9,944       11,593       9,695  
                         
Loss from Continuing Operations
    (45,243 )     (55,805 )     (53,739 )
Income from Discontinued Operations (Including Gain on Sale of Real Estate of $244,962, $213,442, and $132,139 for the Years Ended December 31, 2007, 2006 and 2005, respectively)
    260,975       240,145       167,406  
Provision for Income Taxes Allocable to Discontinued Operations (including $36,032, $47,511, and $20,529 allocable to Gain on Sale of Real Estate for the Years Ended December 31, 2007, 2006 and 2005, respectively)
    (38,044 )     (51,102 )     (23,898 )
Minority Interest Allocable to Discontinued Operations
    (28,178 )     (24,594 )     (18,886 )
                         
Income Before Gain on Sale of Real Estate
    149,510       108,644       70,883  
Gain on Sale of Real Estate
    9,425       6,071       29,550  
Provision for Income Taxes Allocable to Gain on Sale of Real Estate
    (3,082 )     (2,119 )     (10,871 )
Minority Interest Allocable to Gain on Sale of Real Estate
    (802 )     (514 )     (2,458 )
                         
Net Income
    155,051       112,082       87,104  
Less: Preferred Dividends
    (21,320 )     (21,424 )     (10,688 )
Less: Redemption of Preferred Stock
    (2,017 )     (672 )      
                         
Net Income Available to Common Stockholders
  $ 131,714     $ 89,986     $ 76,416  
                         
Basic and Diluted Earnings Per Share:
                       
Loss from Continuing Operations Available to Common Stockholders
  $ (1.43 )   $ (1.69 )   $ (1.14 )
                         
Income from Discontinued Operations
  $ 4.42     $ 3.74     $ 2.94  
                         
Net Income Available to Common Stockholders
  $ 2.99     $ 2.04     $ 1.80  
                         
Weighted Average Shares Outstanding
    44,086       44,012       42,431  
                         
Dividends/Distributions declared per Common Share/Unit Outstanding
  $ 2.8500     $ 2.8100     $ 2.7850  
                         
 
The accompanying notes are an integral part of the financial statements.


56


 

 
FIRST INDUSTRIAL REALTY TRUST, INC.
 
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
 
                         
    Year Ended
    Year Ended
    Year Ended
 
    December 31,
    December 31,
    December 31,
 
    2007     2006     2005  
    (Dollars in thousands)  
 
Net Income
  $ 155,051     $ 112,082     $ 87,104  
Other Comprehensive Income (Loss):
                       
Settlement of Interest Rate Protection Agreements
    (4,261 )     (1,729 )      
Reclassification of Settlement of Interest Rate Protection Agreements to Net Income
                (159 )
Mark-to-Market of Interest Rate Protection Agreements, Net of Tax Provision
    3,819       (2,800 )     (1,414 )
Amortization of Interest Rate Protection Agreements
    (916 )     (912 )     (1,085 )
Foreign Currency Translation Adjustment, Net of Tax Provision
    2,134              
Other Comprehensive (Income) Loss Allocable to Minority Interest
    (142 )     698       837  
                         
Other Comprehensive Income
  $ 155,685     $ 107,339     $ 85,283  
                         
 
The accompanying notes are an integral part of the financial statements.


57


 

 
FIRST INDUSTRIAL REALTY TRUST, INC.
 
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
 
                         
    Year Ended
    Year Ended
    Year Ended
 
    December 31,
    December 31,
    December 31,
 
    2007     2006     2005  
    (Dollars in thousands)  
 
Preferred Stock — Beginning of Year
  $     $     $  
Issuance of Preferred Stock
                 
Redemption of Preferred Stock
                 
                         
Preferred Stock — End of Year
  $     $     $  
                         
Common Stock — Beginning of Year
  $ 475     $ 470     $ 454  
Net Proceeds from the Issuance of Common Stock
          1       15  
Issuance of Restricted Stock
    5       3       2  
Repurchase and Retirement of Common Stock
          (1 )     (1 )
Restricted Stock Forfeitures
                (1 )
Conversion of Units to Common Stock
          2       1  
                         
Common Stock — End of Year
  $ 480     $ 475     $ 470  
                         
Additional Paid-In-Capital — Beginning of Year
  $ 1,388,311     $ 1,384,712     $ 1,142,356  
Net Proceeds from the Issuance of Common Stock
    567       3,819       56,109  
Issuance of Restricted Stock
    (5 )     (3 )     8,379  
Repurchase and Retirement of Restricted Stock/Common Stock
    (3,210 )     (2,463 )     (2,741 )
Restricted Stock Forfeitures
                (2,825 )
Call Spread
          (6,835 )      
Net Proceeds from the Issuance of Preferred Stock
          192,624       181,484  
Redemption of Preferred Stock
    (47,997 )     (181,484 )      
Conversion of Units to Common Stock
    2,858       5,142       1,950  
Reclassification to initially adopt SFAS No. 123R
          (16,825 )      
Amortization of Restricted Stock Grants
    14,150       9,624        
                         
Additional Paid-In-Capital — End of Year
  $ 1,354,674     $ 1,388,311     $ 1,384,712  
                         
Dist. In Excess of Accum. Earnings — Beginning of Year
  $ (284,955 )   $ (248,686 )   $ (203,417 )
Preferred Stock Dividends
    (21,320 )     (21,424 )     (10,688 )
Distributions ($2.8500, $2.8100 and $2.7850 per Share/Unit at December 31, 2007, 2006 and 2005, respectively)
    (146,126 )     (144,720 )     (139,168 )
Redemption of Preferred Stock
    (2,017 )     (672 )      
Repurchase and Retirement of Restricted Stock/Common Stock
    (728 )     (269 )     (543 )
Restricted Stock Forfeitures
                (147 )
Net Income Before Minority Interest
    174,087       125,597       98,753  
Minority Interest:
                       
Allocation of Income
    (19,036 )     (13,515 )     (11,649 )
Distributions ($2.8500, $2.8100 and $2.7850 per Unit at December 31, 2007, 2006 and 2005, respectively)
    18,508       18,734       18,173  
                         
Dist. In Excess of Accum. Earnings — End of Year
  $ (281,587 )   $ (284,955 )   $ (248,686 )
                         
Unearned Value of Rest. Stock Grants — Beginning of Year
  $     $ (16,825 )   $ (19,611 )
Issuance of Restricted Stock
                (8,381 )
Amortization of Restricted Stock Grants
                8,845  
Restricted Stock Forfeitures
                2,322  
Reclassification to initially adopt SFAS No. 123R
          16,825        
                         
Unearned Value of Rest. Stock Grants — End of Year
  $     $     $ (16,825 )
                         
Treasury Shares, at cost — Beginning of Year
  $ (70,588 )   $ (70,588 )   $ (70,588 )
Purchase of Treasury Shares
    (69,430 )            
                         
Treasury Shares, at cost — End of Year
  $ (140,018 )   $ (70,588 )   $ (70,588 )
                         
Accum. Other Comprehensive Loss — Beginning of Year
  $ (10,264 )   $ (5,521 )   $ (3,700 )
Settlement of Interest Rate Protection Agreements
    (4,261 )     (1,729 )      
Reclassification of Settlement of Interest Rate Protection Agreements to Net Income
                (159 )
Mark-to-Market of Interest Rate Protection Agreements, Net of Tax Provision
    3,819       (2,800 )     (1,414 )
Amortization of Interest Rate Protection Agreements
    (916 )     (912 )     (1,085 )
Foreign Currency Translation Adjustment, Net of Tax Provision
    2,134              
Other Comprehensive (Income) Loss Allocable to Minority Interest
    (142 )     698       837  
                         
Accum. Other Comprehensive Loss — End of Year
  $ (9,630 )   $ (10,264 )   $ (5,521 )
                         
Total Stockholders’ Equity at End of Year
  $ 923,919     $ 1,022,979     $ 1,043,562  
                         
 
The accompanying notes are an integral part of the financial statements.


58


 

 
FIRST INDUSTRIAL REALTY TRUST, INC.
 
CONSOLIDATED STATEMENTS OF CASH FLOWS
 
                         
    Year Ended
    Year Ended
    Year Ended
 
    December 31,
    December 31,
    December 31,
 
    2007     2006     2005  
 
CASH FLOWS FROM OPERATING ACTIVITIES:
                       
Net Income
  $ 155,051     $ 112,082     $ 87,104  
Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities:
                       
Allocation of Income to Minority Interest
    19,036       13,515       11,649  
Depreciation
    121,584       121,347       99,338  
Amortization of Deferred Financing Costs
    3,210       2,666       2,125  
Other Amortization
    54,556       40,965       33,728  
Provision for Bad Debt
    2,212       2,289       1,817  
Mark-to-Market/Loss on Settlement of Interest Rate Protection Agreements
          (16 )     (143 )
Loss (Gain) From Early Retirement of Debt
    393             (82 )
Equity in Income of Joint Ventures
    (30,045 )     (30,673 )     (3,699 )
Distributions from Joint Ventures
    31,365       31,664       3,866  
Decrease (Increase) in Developments for Sale Costs
    1,209       5,883       (16,241 )
Gain on Sale of Real Estate
    (254,387 )     (219,513 )     (161,689 )
Increase in Tenant Accounts Receivable and Prepaid Expenses and Other Assets, Net
    (20,140 )     (16,524 )     (23,371 )
Increase in Deferred Rent Receivable
    (9,710 )     (10,154 )     (9,459 )
Increase in Accounts Payable and Accrued Expenses and Rents Received in Advance and Security Deposits
    18,408       6,020       24,407  
Increase in Restricted Cash
    (6 )            
                         
Net Cash Provided by Operating Activities
    92,736       59,551       49,350  
                         
CASH FLOWS FROM INVESTING ACTIVITIES:
                       
Purchases of and Additions to Investment in Real Estate
    (677,461 )     (813,840 )     (920,707 )
Net Proceeds from Sales of Investments in Real Estate
    800,147       907,428       537,252  
Contributions to and Investments in Joint Ventures
    (27,696 )     (32,773 )     (45,175 )
Distributions from Joint Ventures
    22,863       19,734       2,971  
Funding of Notes Receivable
    (8,385 )            
Repayment and Sale of Mortgage Loans Receivable
    26,350       34,987       83,561  
(Increase) Decrease in Restricted Cash
    (8,909 )     13,611       (29,556 )
                         
Net Cash Provided by (Used in) Investing Activities
    126,909       129,147       (371,654 )
                         
CASH FLOWS FROM FINANCING ACTIVITIES:
                       
Net Proceeds from the Issuance of Common Stock
    567       3,462       55,754  
Proceeds from the Issuance of Preferred Stock
          200,000       187,500  
Preferred Stock Offering Costs
          (7,103 )     (5,906 )
Redemption of Preferred Stock
    (50,014 )     (182,156 )      
Repurchase of Restricted Stock
    (3,938 )     (2,660 )     (3,285 )
Proceeds from Senior Unsecured Debt
    149,595       399,306        
Other Costs from Senior Unsecured Debt
    (4,261 )     (1,729 )      
Repayment of Senior Unsecured Debt
    (150,000 )     (150,000 )     (50,000 )
Dividends/Distributions
    (146,660 )     (143,858 )     (137,672 )
Preferred Stock Dividends
    (26,023 )     (19,248 )     (8,162 )
Purchase of Treasury Shares
    (69,430 )            
Proceeds from Mortgage Loans Payable
                1,167  
Repayments of Mortgage Loans Payable
    (41,475 )     (12,618 )     (1,987 )
Proceeds from Unsecured Lines of Credit
    879,129       779,300       647,500  
Repayments on Unsecured Lines of Credit
    (764,000 )     (1,029,800 )     (357,500 )
Call Spread
          (6,835 )      
Debt Issuance Costs and Costs Incurred in Connection with the Early Retirement of Debt
    (3,766 )     (6,861 )     (1,792 )
Cash Book Overdraft. 
    253              
                         
Net Cash (Used in) Provided by Financing Activities
    (230,023 )     (180,800 )     325,617  
                         
Net (Decrease) Increase in Cash and Cash Equivalents
    (10,378 )     7,898       3,313  
Cash and Cash Equivalents, Beginning of Period
    16,135       8,237       4,924  
                         
Cash and Cash Equivalents, End of Period
  $ 5,757     $ 16,135     $ 8,237  
                         
 
The accompanying notes are an integral part of the financial statements.


59


 

 
FIRST INDUSTRIAL REALTY TRUST, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
 
1.   Organization and Formation of Company
 
First Industrial Realty Trust, Inc. was organized in the state of Maryland on August 10, 1993. First Industrial Realty Trust, Inc. is a real estate investment trust (“REIT”) as defined in the Internal Revenue Code of 1986, (the “Code”). Unless the context otherwise requires, the terms the “Company,” “we,” “us,” and “our” refer to First Industrial Realty Trust, Inc., First Industrial L.P. and their other controlled subsidiaries. We refer to our operating partnership, First Industrial L.P., as the “Operating Partnership,” and our taxable REIT subsidiary, First Industrial Investment, Inc., as the “TRS.”
 
We began operations on July 1, 1994. Our operations are conducted primarily through the Operating Partnership, of which we are the sole general partner, and the TRS, of which the Operating Partnership is the sole stockholder. We also conduct operations through other partnerships, corporations, and limited liability companies, the operating data of which, together with that of the Operating Partnership and the TRS, is consolidated with that of the Company as presented herein.
 
We also own minority equity interests in, and provide various services to, five joint ventures which invest in industrial properties (the “2003 Net Lease Joint Venture,” the “2005 Development/Repositioning Joint Venture,” the “2005 Core Joint Venture,” the “2006 Net Lease Co-Investment Program” and the “2006 Land/Development Joint Venture”). We also owned economic interests in and provided various services to a sixth joint venture (the “1998 Core Joint Venture”). On January 31, 2007, we purchased the 90% equity interest from the institutional investor in the 1998 Core Joint Venture. Effective January 31, 2007, the assets and liabilities and results of operations of the 1998 Core Joint Venture are consolidated with the Company since we own 100% of the equity interest. Prior to January 31, 2007, the 1998 Core Joint Venture was accounted for under the equity method of accounting. Additionally, in December 2007, we entered into two new joint ventures, (the “2007 Canada Joint Venture” and the “2007 Europe Joint Venture”; together with 2003 Net Lease Joint Venture, 2005 Development/Repositioning Joint Venture, 2005 Core Joint Venture, the 2006 Net Lease Co-Investment Program, the 2006 Land/Development Joint Venture and the 1998 Core Joint Venture, the “Joint Ventures”). At December 31, the 2007 Canada Joint Venture and the 2007 Europe Joint Venture did not own any properties. The operating data of our Joint Ventures is not consolidated with that of the Company as presented herein. However, the operating data of the 2005 Development/Repositioning Joint Venture, referred to as FirstCal Industrial, LLC, is separately presented on a consolidated basis, separate from that of the Company.
 
As of December 31, 2007, we owned 885 industrial properties (inclusive of developments in progress) located in 28 states in the United States and one province in Canada, containing an aggregate of approximately 75.9 million square feet of gross leasable area (“GLA”).
 
Any references to the number of buildings and square footage in the financial statement footnotes are unaudited.
 
2.   Basis of Presentation
 
First Industrial Realty Trust, Inc. is the sole general partner of the Operating Partnership, with an approximate 87.1% and 87.3% ownership interest at December 31, 2007 and 2006, respectively. Minority interest at December 31, 2007 and 2006, represents the approximate 12.9% and 12.7%, respectively, aggregate partnership interest in the Operating Partnership held by the limited partners thereof.
 
Our consolidated financial statements at December 31, 2007 and 2006 and for each of the years ended December 31, 2007, 2006 and 2005 include the accounts and operating results of the Company and our subsidiaries. Such financial statements present our minority equity interests in our joint ventures under the equity method of accounting. All intercompany transactions have been eliminated in consolidation.


60


 

 
FIRST INDUSTRIAL REALTY TRUST, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
3.   Summary of Significant Accounting Policies
 
In order to conform with generally accepted accounting principles, we are required in preparation of our financial statements to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of December 31, 2007 and 2006, and the reported amounts of revenues and expenses for each of the years ended December 31, 2007, 2006 and 2005. Actual results could differ from those estimates.
 
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 term maturity of these investments.
 
Restricted Cash
 
At December 31, 2007 and 2006, restricted cash includes cash held in escrow in connection with mortgage debt requirements and gross proceeds from the sales of certain industrial properties. These sales proceeds will be disbursed as we exchange into properties under Section 1031 of the Internal Revenue Code. The carrying amount approximates fair value due to the short term maturity of these investments.
 
Investment in Real Estate and Depreciation
 
Investment in Real Estate is carried at cost. We review our properties on a quarterly basis for impairment and provide a provision if impairments are found. To determine if an impairment may exist, we review our properties and identify those that have had either an event of change or event of circumstances warranting further assessment of recoverability (such as a decrease in occupancy). If further assessment of recoverability is needed, we estimate the future net cash flows expected to result from the use of the property and its eventual disposition, on an individual property basis. If the sum of the expected future net cash flows (undiscounted and without interest charges) is less than the carrying amount of the property on an individual property basis, we will recognize an impairment loss based upon the estimated fair value of such property. For properties we consider held for sale, we cease depreciating the properties and value the properties at the lower of depreciated cost or fair value, less costs to dispose. If circumstances arise that were previously considered unlikely, and, as a result, we decide not to sell a property previously classified as held for sale, we will reclassify such property as held and used. Such property is measured at the lower of its carrying amount (adjusted for any depreciation and amortization expense that would have been recognized had the property been continuously classified as held and used) or fair value at the date of the subsequent decision not to sell. To calculate the fair value of properties held for sale, we deduct from the estimated sales price of the property the estimated costs to close the sale. We classify properties as held for sale when our management has approved the properties for sale.
 
Interest costs, real estate taxes, compensation costs of development personnel and other directly related costs incurred during construction periods are capitalized and depreciated commencing with the date the property is substantially completed. Upon substantial completion, we reclassify construction in progress to building, tenant improvements and leasing commissions. Such costs begin to be capitalized to the development projects from the point we are undergoing necessary activities to get the development ready for its intended use and ceases when the development projects are substantially completed and held available for occupancy. Depreciation expense is computed using the straight-line method based on the following useful lives:
 
         
    Years  
 
Buildings and Improvements
    8 to 50  
Land Improvements
    1 to 15  
Furniture, Fixtures and Equipment
    5 to 10  


61


 

 
FIRST INDUSTRIAL REALTY TRUST, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
Construction expenditures for tenant improvements, leasehold improvements and leasing commissions (inclusive of compensation costs of personnel attributable to leasing) are capitalized and amortized over the terms of each specific lease. Capitalized compensation costs of personnel attributable to leasing relate to time directly attributable to originating leases with independent third parties that result directly from and are essential to originating those leases and would not have been incurred had these leasing transactions not occurred. Repairs and maintenance are charged to expense when incurred. Expenditures for improvements are capitalized.
 
We account for all acquisitions entered into subsequent to June 30, 2001 in accordance with Financial Accounting Standards Board’s (“FASB”) Statement of Financial Accounting Standard No. 141, “Business Combinations” (“FAS 141”). Upon acquisition of a property, we allocate the purchase price of the property based upon the fair value of the assets acquired, which generally consist of land, buildings, tenant improvements, leasing commissions and intangible assets including in-place leases, above market and below market leases and tenant relationships. We allocate the purchase price to the fair value of the tangible assets of an acquired property by valuing the property as if it were vacant. Acquired above and below market leases are valued based on the present value of the difference between prevailing market rates and the in-place rates over the remaining lease term. Acquired above and below market leases are amortized over the remaining non-cancelable terms of the respective leases as an adjustment to rental revenue on our consolidated statements of operations.
 
The purchase price is further allocated to in-place lease values and tenant relationships based on our evaluation of the specific characteristics of each tenant’s lease and our overall relationship with the respective tenant. The value of in-place lease intangibles and tenant relationships, which are included as components of Deferred Leasing Intangibles, Net (see below) are amortized over the remaining lease term (and expected renewal periods of the respective lease for tenant relationships) as adjustments to depreciation and other amortization expense. If a tenant terminates its lease early, the unamortized portion of the tenant improvements, leasing commissions, above and below market leases, the in-place lease value and tenant relationships is immediately written off.
 
Deferred Leasing Intangibles, exclusive of deferred leasing intangibles held for sale, included in our total assets consist of the following:
 
                 
    December 31,
    December 31,
 
    2007     2006  
 
In-Place Leases
  $ 86,398     $ 81,422  
Less: Accumulated Amortization
    (24,860 )     (15,361 )
                 
    $ 61,538     $ 66,061  
                 
Above Market Leases
  $ 6,440     $ 6,933  
Less: Accumulated Amortization
    (2,519 )     (2,177 )
                 
    $ 3,921     $ 4,756  
                 
Tenant Relationships
  $ 24,970     $ 16,657  
Less: Accumulated Amortization
    (3,410 )     (1,209 )
                 
    $ 21,560     $ 15,448  
                 
Total Deferred Leasing Intangibles, Net
    87,019       86,265  
                 


62


 

 
FIRST INDUSTRIAL REALTY TRUST, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
Deferred Leasing Intangibles, exclusive of deferred leasing intangibles held for sale, included in our total liabilities consist of the following:
 
                 
    December 31,
    December 31,
 
    2007     2006  
 
Below Market Leases
  $ 31,668     $ 25,735  
Less: Accumulated Amortization
    (9,627 )     (6,249 )
                 
Total Deferred Leasing Intangibles, Net
  $ 22,041     $ 19,486  
                 
 
Amortization expense related to in-place leases and tenant relationships of deferred leasing intangibles was $23,913, $17,403, and $9,160 for the years ended December 31, 2007, 2006, and 2005, respectively. Rental revenues increased by $4,265, $3,656, and $2,427 related to amortization of above/(below) market leases for the years ended December 31, 2007, 2006, and 2005, respectively. We will recognize net amortization expense related to deferred leasing intangibles over the next five years, for properties owned as of December 31, 2007, as follows:
 
                 
          Estimated Net Increase to
 
    Estimated Net Amortization
    Rental Revenues Related to
 
    of In-Place Leases and
    Above and Below Market
 
    Tenant Relationships     Leases  
 
2008
  $ 15,110     $ 3,948  
2009
    12,829       3,160  
2010
    11,046       2,373  
2011
    9,592       1,480  
2012
    7,942       1,077  
 
Contractor Revenues and Expenses
 
During 2007 and 2006, the TRS entered into contracts with third parties to construct industrial properties and also acted as general contractor to construct industrial properties, including properties for the 2005 Development/Repositioning Joint Venture during 2007. We use the percentage-of-completion contract method to recognize revenue. Using this method, revenues are recorded based on estimates of the percentage of completion of individual contracts. The percentage of completion estimates are based on a comparison of the contract expenditures incurred to the estimated final costs. Changes in job performance, job conditions and estimated profitability may result in revisions to costs and income and are recognized in the period in which the revisions are determined.
 
Foreign Currency Transactions and Translation
 
During 2007, we owned one industrial property and one land parcel located in Toronto, Canada for which the functional currency was determined to be the Canadian dollar. The assets and liabilities of this industrial property and land parcel are translated to U.S. dollars from the Canadian dollar based on the current exchange rate prevailing at each balance sheet date and any resulting translation adjustments are included in accumulated other comprehensive income (loss). The revenues and expenses of this property and land parcel are translated into U.S. dollars using the average exchange rates prevailing during the periods presented.
 
Deferred Financing Costs
 
Deferred financing costs include fees and costs incurred to obtain long-term financing. These fees and costs are being amortized over the terms of the respective loans. Accumulated amortization of deferred financing costs was $15,089 and $13,863 at December 31, 2007 and 2006, respectively. Unamortized deferred financing costs are written-off when debt is retired before the maturity date.


63


 

 
FIRST INDUSTRIAL REALTY TRUST, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
Investments in Joint Ventures
 
Investments in Joint Ventures represent our minority equity interests in our joint ventures. We account for our Investments in Joint Ventures under the equity method of accounting, as we do not have operational control or a majority voting interest. Under the equity method of accounting, our share of earnings or losses of our Joint Ventures is reflected in income as earned and contributions or distributions increase or decrease, respectively, our Investments in Joint Ventures as paid or received, respectively. Differences between our carrying value of our Investments in Joint Ventures and our underlying equity of such Joint Ventures are amortized over the respective lives of the underlying assets.
 
Stock Based Compensation
 
Effective January 1, 2006 we adopted Statement of Financial Accounting Standards No. 123R, “Share Based Payment” (“FAS 123R”), using the modified prospective application method, which requires measurement of compensation cost for all stock-based awards at fair value on the date of grant and recognition of compensation over the service period for awards expected to vest. For the year ended December 31, 2005, we accounted for our stock incentive plans under the recognition and measurement principles of Statement of Financial Accounting Standards No. 123, “Accounting for Stock Based Compensation” for all new issuances of stock based compensation. At January 1, 2006, we did not have any unvested option awards and we had accounted for our previously issued restricted stock awards at fair value. Accordingly, the adoption of FAS 123R did not require us to recognize a cumulative effect of a change in accounting principle. We reclassified $16,825 from the Unearned Value of Restricted Stock Grants caption within Stockholder’s Equity to Additional Paid in Capital during the year ended December 31, 2006 in accordance with the provisions of FAS 123R.
 
Prior to January 1, 2003, we accounted for our stock incentive plans under the recognition measurement principles of Accounting Principles Board opinion No. 25, “Accounting for Stock Issued to Employees” (“APB 25”). Under APB 25, compensation expense is not recognized for options issued in which the strike price is equal to the fair value of our stock on the date of grant. The following table illustrates the pro forma effect on net income and earnings per share as if the fair value recognition provisions of FAS 123R had been applied to all outstanding and unvested option awards for the year ended December 31, 2005:
 
         
    2005  
 
Net Income Available to Common Stockholders — as reported
  $ 76,416  
Add: Stock-Based Employee Compensation Expense Included in Net Income Available to Common Stockholders, Net of Minority Interest — as reported
     
Less: Total Stock-Based Employee Compensation Expense, Net of Minority Interest — Determined Under the Fair Value Method
    (87 )
         
Net Income Available to Common Stockholders — pro forma
  $ 76,329  
         
Net Income Available to Common Stockholders per Share — as reported — Basic
  $ 1.80  
Net Income Available to Common Stockholders per Share — pro forma — Basic
  $ 1.80  
Net Income Available to Common Stockholders per Share — as reported — Diluted
  $ 1.80  
Net Income Available to Common Stockholders per Share — pro forma — Diluted
  $ 1.80  
 
We have not issued any stock options subsequent to January 2005.
 
Revenue Recognition
 
Rental income is recognized on a straight-line method under which contractual rent increases are recognized evenly over the lease term. Tenant recovery income includes payments from tenants for real estate


64


 

 
FIRST INDUSTRIAL REALTY TRUST, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
taxes, insurance and other property operating expenses and is recognized as revenue in the same period the related expenses are incurred by us.
 
Revenue is recognized on payments received from tenants for early lease terminations after we determine that all the necessary criteria have been met in accordance with FASB Statement of Financial Accounting Standards No. 13, “Accounting for Leases” (“FAS 13”).
 
Interest income on mortgage loans receivable is recognized based on the accrual method unless a significant uncertainty of collection exists. If a significant uncertainty exists, interest income is recognized as collected.
 
We provide an allowance for doubtful accounts against the portion of tenant accounts receivable which is estimated to be uncollectible. Accounts receivable in the consolidated balance sheets are shown net of an allowance for doubtful accounts of $837 and $783 as of December 31, 2007 and 2006, respectively. For accounts receivable we deem uncollectible, we use the direct write-off method.
 
Gain on Sale of Real Estate
 
Gain on sale of real estate is recognized using the full accrual method, when appropriate. Gains relating to transactions which do not meet the full accrual method of accounting are deferred and recognized when the full accrual method of accounting criteria are met or by using the installment or deposit methods of profit recognition, as appropriate in the circumstances. As the assets are sold, their costs and related accumulated depreciation are written off with resulting gains or losses reflected in net income or loss. Estimated future costs to be incurred by us after completion of each sale are included in the determination of the gain on sales.
 
Income Taxes
 
We have elected to be taxed as a REIT under Sections 856 through 860 of the Code. As a result, we generally are not subject to federal income taxation to the extent of the income which we distribute if we satisfy the requirements set forth in Section 856 of the Code (pertaining to its organization and types of income and assets) necessary to maintain our status as a REIT. We are required to distribute annually at least 90% of our REIT taxable income, as defined in the Code, to our stockholders and we satisfy certain other requirements.
 
A provision has been made for federal income taxes in the accompanying consolidated financial statements for activities conducted in the TRS, which has been accounted for under FAS No. 109, “Accounting for Income Taxes” (“FAS 109”). In accordance with FAS 109, the total benefit/expens