FIRST INDUSTRIAL REALTY TRUST INC - Quarter Report: 2009 June (Form 10-Q)

 

UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

 

Form 10-Q

 

 

 

 

 

 

Commission file number 1-13102

 

 

 

 

First Industrial Realty Trust, Inc.

(Exact Name of Registrant as Specified in its Charter)

 

 

 

 

311 S. Wacker Drive, Suite 4000, Chicago, Illinois 60606

(Address of Principal Executive Offices)

 

(312) 344-4300

(Registrant’s Telephone Number, Including Area Code)

 

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, and (2) has been subject to such filing requirements for the past 90 days.  Yes þ     No o

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes o     No o

 

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):

 

(Do not check if a smaller reporting company)

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes o     No þ

 

Number of shares of Common Stock, $.01 par value, outstanding as of August 7, 2009: 44,864,397.

 

 

FIRST INDUSTRIAL REALTY TRUST, INC.

 

Form 10-Q

 

For the Period Ended June 30, 2009

 

INDEX

 

 

 

FIRST INDUSTRIAL REALTY TRUST, INC.

CONSOLIDATED BALANCE SHEETS

 

 

 

The accompanying notes are an integral part of the consolidated financial statements.

FIRST INDUSTRIAL REALTY TRUST, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

 

 

The accompanying notes are an integral part of the consolidated financial statements.

FIRST INDUSTRIAL REALTY TRUST, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

 

 

The accompanying notes are an integral part of the consolidated financial statements.

FIRST INDUSTRIAL REALTY TRUST, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

 

 

The accompanying notes are an integral part of the consolidated financial statements.

 

FIRST INDUSTRIAL REALTY TRUST, INC.

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands except share and per share data)

(Unaudited)

 

 

First Industrial Realty Trust, Inc. (the “Company”) was organized in the state of Maryland on August 10, 1993. The Company 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 with an approximate 89.0% and 87.6% ownership interest at June 30, 2009 and June 30, 2008, respectively, and through 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, are consolidated with that of the Company as presented herein. Noncontrolling interest at June 30, 2009 and June 30, 2008 of approximately 11.0% and 12.4%, respectively, represents the aggregate partnership interest in the Operating Partnership held by the limited partners thereof.

 

We also own noncontrolling equity interests in, and provide various services to, seven joint ventures whose purpose is to 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,” the “2006 Land/Development Joint Venture”, the “2007 Canada Joint Venture” and the “2007 Europe Joint Venture” together the “Joint Ventures”). The Joint Ventures are accounted for under the equity method of accounting. The 2007 Europe Joint Venture does not own any properties.

 

The operating data of the Joint Ventures is not consolidated with that of the Company as presented herein.

 

As of June 30, 2009, we owned 792 industrial properties (inclusive of developments in process) located in 28 states in the United States and one province in Canada, containing an aggregate of approximately 70.0 million square feet of gross leaseable area (“GLA”).

 

 

The real estate markets have been significantly impacted by recent events in the global capital markets. The current recession has resulted in downward pressure on our net operating income and has impaired our ability to sell properties.

 

Our $500,000 unsecured credit facility (the “Unsecured Line of Credit”) and the indentures under which our senior unsecured indebtedness is, or may be, issued, contain certain financial covenants, including, among other things, coverage ratios and limitations on our ability to incur total indebtedness and secured and unsecured indebtedness. Consistent with our prior practice, we will, in the future, continue to interpret and certify our performance under these covenants in a good faith manner that we deem reasonable and appropriate. However, these financial covenants are complex and there can be no assurance that these provisions would not be interpreted by our lenders in a manner that could impose and cause us to incur material costs. Any violation of these covenants would subject us to higher finance costs and fees, or accelerated maturities. In addition, our credit facilities and senior debt securities contain certain cross-default provisions, which are triggered in the event that our other material indebtedness is in default. Under the Unsecured Line of Credit, an event of default can also occur if the lenders, in their good faith judgment, determine that a material adverse change has occurred which could prevent timely repayment or materially impair our ability to perform our obligations under the loan agreement.

 

FIRST INDUSTRIAL REALTY TRUST, INC.

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

 

We believe that we were in compliance with our financial covenants as of June 30, 2009, and we anticipate that we will be able to operate in compliance with our financial covenants for the remainder of 2009. However, our ability to meet our financial covenants may be reduced if economic and capital market conditions limit our property sales and reduce our net operating income below our projections. We plan to enhance our liquidity through a combination of capital retention, mortgage financing and asset sales.

 

 

In addition, we repurchased $15,700 of our 2012 Notes during the six months ended June 30, 2009 (see Note 5) and $56,500 of senior unsecured debt from July 1, 2009 to August 7, 2009 (see Note 15) at a substantial discount to the principal amount of the notes. We may from time to time repurchase or redeem additional amounts of our outstanding securities. Any repurchases or redemptions would depend upon prevailing market conditions, our liquidity requirements, contractual restrictions and other factors we consider important. Future repurchases or redemptions may materially impact our liquidity, future tax liability and results of operations.

 

Although we believe we will be successful in meeting our liquidity needs through a combination of capital retention, mortgage financing and asset sales, if we were to be unsuccessful in executing one or more of the strategies outlined above, we could be materially adversely affected.

 

 

The accompanying unaudited interim financial statements have been prepared in accordance with the accounting policies described in the financial statements and related notes included in our Annual Report on Form 10-K for the year ended December 31, 2008 (“2008 Form 10-K”) and should be read in conjunction with such financial statements and related notes. The following notes to these interim financial statements highlight significant changes to the notes included in the December 31, 2008 audited financial statements included in our 2008 Form 10-K and present interim disclosures as required by the Securities and Exchange Commission.

 

The 2008 year end consolidated balance sheet data included in this Form 10-Q filing was derived from the audited financial statements in our 2008 Form 10-K, and has been revised as the result of the adoption of new accounting principles (mentioned hereafter), but does not include all disclosures required by accounting principles generally accepted in the United States of America (“GAAP”).

 

FIRST INDUSTRIAL REALTY TRUST, INC.

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

 

In order to conform with GAAP, we, in preparation of our financial statements, are required to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of June 30, 2009 and December 31, 2008, and the reported amounts of revenues and expenses for the three and six months ended June 30, 2009 and June 30, 2008. Actual results could differ from those estimates.

 

In our opinion, the accompanying unaudited interim financial statements reflect all adjustments necessary for a fair statement of our financial position as of June 30, 2009 and December 31, 2008 and the results of our operations and comprehensive income for each of the three and six months ended June 30, 2009 and June 30, 2008, and our cash flows for each of the six months ended June 30, 2009 and June 30, 2008, and all adjustments are of a normal recurring nature.

 

Deferred Leasing Intangibles

 

Deferred Leasing Intangibles, exclusive of Deferred Leasing Intangibles held for sale, included in our total assets consist of the following:

 

 

Deferred Leasing Intangibles, exclusive of Deferred Leasing Intangibles held for sale, included in our total liabilities consist of the following:

 

 

Amortization expense related to in-place leases and tenant relationships of deferred leasing intangibles was $4,307 and $10,472 for the three months ended June 30, 2009 and June 30, 2008, respectively, and $10,044 and $16,888 for the six months ended June 30, 2009 and June 30, 2008, respectively. Rental revenues increased by $924 and $3,546 related to net amortization of above/(below) market leases for the three months ended June 30, 2009 and June 30, 2008, respectively, and $1,298 and $4,823 for the six months ended June 30, 2009 and June 30, 2008, respectively.

 

FIRST INDUSTRIAL REALTY TRUST, INC.

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

 

Recent Accounting Pronouncements

 

In June 2009, the Financial Accounting Standards Board (the “FASB”) issued new guidance which revises and updates previously issued guidance related to variable interest entities. This new guidance revises the previous guidance by eliminating the exemption for qualifying special purpose entities, by establishing a new approach for determining who should consolidate a variable-interest entity and by changing when it is necessary to reassess who should consolidate a variable-interest entity. We will adopt this new guidance January 1, 2010. We are currently reviewing the impact of the guidance on our financial statements and expect to complete this evaluation in 2009.

 

In May 2009, the FASB issued guidance relating to events that occur subsequent to the reporting date. The guidance is intended to establish general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. It requires the disclosure of the date through which an entity has evaluated subsequent events and the basis for that date — that is, whether that date represents the date the financial statements were issued or were available to be issued. The guidance is effective for interim and annual periods ending after June 15, 2009. We have adopted this guidance in this Quarterly Report on Form 10-Q. This guidance does not impact the consolidated financial results as it is disclosure-only in nature.

 

In April 2009, the FASB issued guidance which requires an entity to provide disclosures about fair value of financial instruments in interim financial information. The disclosures are required prospectively and are effective for interim and annual periods ending after June 15, 2009 with early adoption permitted for periods ending after March 15, 2009. We included the required disclosures in this Quarterly Report on Form 10-Q. This guidance does not impact the consolidated financial results as it is disclosure-only in nature.

 

Effective January 1, 2009 we adopted newly issued guidance from the FASB relating to noncontrolling interests within consolidated financial statements. This guidance establishes requirements for ownership interests in subsidiaries held by parties other than the Company (formerly called “minority interests”) to be clearly identified, presented, and disclosed in the consolidated statement of financial position within equity, but separate from the parent’s equity. Changes in a parent’s ownership interest (and transactions with noncontrolling interest holders) while the parent retains its controlling financial interest in its subsidiary should be accounted for as equity transactions. The carrying amount of the noncontrolling interest shall be adjusted to reflect the change in its ownership interest in the subsidiary, with the offset to equity attributable to the parent. As a result of transactions with noncontrolling interest holders and changes in ownership percentages that occurred during the six months ended June 30, 2009, we decreased noncontrolling interest and increased Additional Paid-in-Capital by $36,151, which represents the cumulative impact of historical changes in the parent’s ownership in the subsidiary. This guidance was effective, on a prospective basis, for fiscal years beginning after December 15, 2008, however, presentation and disclosure requirements need to be retrospectively applied to comparative financial statements. See Note 6 for additional disclosures.

 

Effective January 1, 2009 we adopted newly issued guidance from the FASB relating to disclosures about derivatives and hedging activities. This guidance expands the current disclosure requirements and entities must now provide enhanced disclosures on an interim basis and annual basis regarding how and why the entity uses derivatives, how derivatives and related hedged items are accounted for and how derivatives and related hedged items affect the entity’s financial position, financial results and cash flow. See Note 13 for the required disclosures. This guidance does not impact the consolidated financial results as it is disclosure-only in nature.

 

Effective January 1, 2009 we adopted newly issued guidance from the FASB which delayed the effective date relating to fair value measurements for all nonfinancial assets and nonfinancial liabilities, except those that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually). The adoption of the provisions of this guidance related to nonfinancial assets and nonfinancial liabilities did not impact our consolidated financial statements.

 

FIRST INDUSTRIAL REALTY TRUST, INC.

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

 

Effective January 1, 2009 we adopted newly issued guidance from the Emerging Issues Task Force (“EITF”) regarding the determination of whether instruments granted in share-based payment transactions are participating securities. The guidance required retrospective application. Under this guidance, unvested share-based payment awards that contain non-forfeitable rights to dividends or dividend equivalents are participating securities and, therefore, are included in the computation of earnings per share (“EPS”) pursuant to the two-class method. The two-class method determines EPS for each class of common stock and participating securities according to dividends or dividend equivalents and their respective participation rights in undistributed earnings. Certain restricted stock awards granted to employees and directors are considered participating securities as they receive non-forfeitable dividend or dividend equivalents at the same rate as common stock. The impact of adopting this guidance decreased previously filed basic and diluted EPS by $0.03 for the three months ended June 30, 2008 and $0.05 for the six months ended June 30, 2008.

 

Effective January 1, 2009 we adopted newly issued guidance from the FASB regarding business combinations. This guidance states that direct costs of a business combination, such as transaction fees, due diligence and consulting fees no longer qualify to be capitalized as part of the business combination. Instead, these direct costs need to be recognized as expense in the period in which they are incurred. Accordingly, we retroactively expensed these types of costs in 2008 related to future operating property acquisitions.

 

Effective January 1, 2009 we adopted newly issued guidance from the Accounting Principles Board regarding accounting for convertible debt instruments that may be settled for cash upon conversion. This guidance requires the liability and equity components of convertible debt instruments to be separately accounted for in a manner that reflects the issuer’s nonconvertible debt borrowing rate. The guidance requires that the value assigned to the debt component be the estimated fair value of a similar bond without the conversion feature, which would result in the debt being recorded at a discount. The resulting debt discount is then amortized over the period during which the debt is expected to be outstanding (i.e., through the first optional redemption date) as additional non-cash interest expense. Retrospective application to all periods presented is required.

 

The equity component of our convertible unsecured notes (the “2011 Exchangeable Notes”) was $7,898 and therefore we retroactively adjusted our Senior Unsecured Debt by this amount as of September 2006. This debt discount has been subsequently amortized and as of June 30, 2009 the principal amount of the 2011 Exchangeable Notes, its unamortized discount and the net carrying amount is $200,000, $3,554 and $196,446, respectively. In addition, we reclassified $194 of the original finance fees incurred in relation to the 2011 Exchangeable Notes to equity as of September 2006. For the three and six months ended June 30, 2009, we recognized $2,708 and $5,415, respectively, of interest expense related to the 2011 Exchangeable Notes of which $2,313 and $4,625, respectively, relates to the coupon rate and $395 and $790, respectively, relates to the debt discount amortization. We anticipate amortizing the remaining debt discount into interest expense through maturity in September 2011. We recognized $3,555 and $(88) as an adjustment to total equity as of December 31, 2008 that represents amortization expense of the discount and the loan fees, respectively, which would have been recognized had the new guidance regarding accounting for convertible debt instruments been effective since the issuance date of our 2011 Exchangeable Notes.

 

The impact to net income and the loss from continuing operations, before noncontrolling interest, related to the adoption of the guidance regarding business combinations and convertible debt instruments, for the three and six months ended June 30, 2008 was an increase to general and administrative expense of $62 and $129, respectively, an increase to interest expense of $395 and $790, respectively, and a decrease to amortization of deferred financing fees of $10 and $20, respectively.

 

FIRST INDUSTRIAL REALTY TRUST, INC.

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

 

The impact to the balance sheet as of December 31, 2008 related to the adoption of the guidance regarding business combinations and convertible debt instruments is as follows:

 

 

 

At June 30, 2009, the 2003 Net Lease Joint Venture owned ten industrial properties comprising approximately 5.1 million square feet of GLA, the 2005 Development/Repositioning Joint Venture owned 47 industrial properties comprising approximately 8.4 million square feet of GLA and several land parcels, the 2005 Core Joint Venture owned 48 industrial properties comprising approximately 3.9 million square feet of GLA and several land parcels, the 2006 Net Lease Co-Investment Program owned 12 industrial properties comprising approximately 5.0 million square feet of GLA, the 2006 Land/Development Joint Venture owned one industrial property comprising approximately 0.8 million square feet and several land parcels and the 2007 Canada Joint Venture owned two industrial properties comprising approximately 0.2 million square feet of GLA and several land parcels. As of June 30, 2009, the 2007 Europe Joint Venture does not own any properties.

 

During July 2007, we entered into a management arrangement with an institutional investor to provide property management, leasing, acquisition, disposition and portfolio management services for industrial properties (the “July 2007 Fund”). We do not own an equity interest in the July 2007 Fund, however, we are entitled to incentive payments if certain economic thresholds related to the industrial properties are achieved.

 

At June 30, 2009 and December 31, 2008, we have receivables from the Joint Ventures and the July 2007 Fund of $2,217 and $3,939, respectively, which mainly relates to development, leasing, property management and asset management fees due to us from the Joint Ventures and the July 2007 Fund, reimbursement for other operating expenditures paid on behalf of the Joint Ventures and the July 2007 Fund and reimbursement for development expenditures made by the TRS who is acting in the capacity of the general contractor for development projects for the 2005 Development/Repositioning Joint Venture. These receivable amounts are included in Prepaid Expenses and Other Assets, Net.

 

FIRST INDUSTRIAL REALTY TRUST, INC.

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

 

During the three and six months ended June 30, 2009 and June 30, 2008, we invested the following amounts in, as well as received distributions from, our Joint Ventures and recognized fees from acquisition, disposition, leasing, development, incentive, property management and asset management services from our Joint Ventures and the July 2007 Fund in the following amounts:

 

 

 

The following table discloses certain information regarding our mortgage loans payable, senior unsecured debt and unsecured line of credit:

 

 

 

 

FIRST INDUSTRIAL REALTY TRUST, INC.

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

 

 

On May 7, 2009, we obtained a mortgage loan in the amount of $14,680 (the “Mortgage Financing I”). The Mortgage Financing I is collateralized by one industrial property totaling approximately 0.6 million square feet of GLA with a carrying value of $22,233. The Mortgage Financing I bears interest at a fixed rate of 7.50% and provides for equal monthly principal and interest payments based on a 25-year amortization schedule. The Mortgage Financing I matures on June 5, 2016. Prepayment is prohibited for 48 months and thereafter requires the payment of a premium equal to 3% of the loan balance if paid during the fifth loan year, 2% during the sixth loan year, 1% during the seventh loan year and thereafter. No premium shall be due on payments made within 45 days of maturity.

 

On May 8, 2009, we obtained a mortgage loan in the amount of $62,500 (the “Mortgage Financing II”). The Mortgage Financing II is collateralized by 26 industrial properties totaling approximately 3.1 million square feet of GLA with a carrying value of $94,296. The Mortgage Financing II bears interest at a fixed rate of 7.75% and provides for monthly payments of interest only for the first two years and thereafter for equal monthly principal and interest payments based on a 25-year amortization schedule. The Mortgage Financing II matures on June 1, 2016. Prepayment is prohibited for 42 months and thereafter requires the payment of a premium equal to the greater of 1% of the loan balance or a yield maintenance amount.

 

On June 1, 2009, we paid off and retired our secured mortgage debt maturing in July 2009 in the amount of $5,025.

 

On June 3, 2009, we obtained a mortgage loan in the amount of $77,000 (the “Mortgage Financing III”). The Mortgage Financing III is collateralized by 28 industrial properties totaling approximately 2.6 million square feet of GLA with a carrying value of $128,498. The Mortgage Financing III bears interest at a fixed rate of 7.87% and provides for equal monthly principal and interest payments based on a 30-year amortization schedule. The Mortgage Financing III matures on July 1, 2019. Prepayment is prohibited for 60 months and thereafter requires the payment of a premium equal to the greater of 1% of the loan balance or a yield maintenance amount.

 

On June 15, 2009, we paid off and retired our 2009 Notes in the amount of $105,721. Prior to the payoff and retirement of the 2009 Notes on June 15, 2009, during the three months ended June 30, 2009, we repurchased and retired an aggregate $19,279 of our 2009 Notes at a weighted average repurchase price of 98.887% of par. In connection with these repurchases prior to maturity, we recognized $232 as gain on early retirement of debt, which is the difference between the repurchase amount of $19,064 and the principal amount retired of $19,279, net of the pro rata write off of the unamortized debt issue discount, the unamortized loan fees and the unamortized settlement amount of the interest rate protection agreements related to the 2009 Notes of $1, $5 and $(23), respectively.

 

During the three months ended June 30, 2009, we repurchased and retired an aggregate $15,700 of our 2012 Notes at a repurchase price of 75.881% of par. In connection with these partial retirements, we recognized $3,754 as gain on early retirement of debt, which is the difference between the repurchase amount of $11,913 and the principal

 

FIRST INDUSTRIAL REALTY TRUST, INC.

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

 

amount retired of $15,700, net of the pro rata write off of the unamortized debt issue discount, the unamortized loan fees and the unamortized settlement amount of the interest rate protection agreements related to the 2012 Notes of $32, $41 and $(40), respectively.

 

The following is a schedule of the stated maturities and scheduled principal payments of the mortgage loans payable, senior unsecured debt and unsecured line of credit, exclusive of premiums and discounts, for the next five years ending December 31, and thereafter:

 

 

All of our senior unsecured debt (except for the 2011 Exchangeable Notes) contain certain covenants, including limitations on incurrence of debt and debt service coverage. The Unsecured Line of Credit contains certain covenants including limitations on incurrence of debt and debt service coverage. Under the Unsecured Line of Credit, an event of default can also occur if the lenders, in their good faith judgment, determine that a material adverse change has occurred which could prevent timely repayment or materially impair our ability to perform our obligations under the loan agreement. We believe that the Operating Partnership and the Company were in compliance with all covenants relating to senior unsecured debt and the Unsecured Line of Credit as of June 30, 2009. However, these financial covenants are complex and there can be no assurance that these provisions would not be interpreted by our noteholders or lenders in a manner that could impose and cause us to incur material costs.

 

Fair Value

 

At June 30, 2009 and December 31, 2008, the fair value of our mortgage loans payable, senior unsecured debt and Unsecured Line of Credit were as follows:

 

 

The fair value of the senior unsecured debt was determined by quoted market prices, if available. The fair values of our mortgage loans payable were determined by discounting the future cash flows using the current rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities. The fair value of the Unsecured Line of Credit was determined by discounting the future cash flows using current rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining term, assuming no repayment until maturity.

 

FIRST INDUSTRIAL REALTY TRUST, INC.

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

 

 

 

Shares of Common Stock:

 

During the six months ended June 30, 2009, 273,274 limited partnership interests in the Operating Partnership (“Units”) were converted into an equivalent number of shares of common stock, resulting in a reclassification of $5,796 of noncontrolling interest to First Industrial Realty Trust Inc.’s Stockholders’ Equity.

 

The following table summarizes the changes in Total Equity:

 

 

Restricted Stock:

 

During the six months ended June 30, 2009, we awarded 35,145 shares of restricted common stock to certain directors. These restricted common stock shares had a fair value of approximately $149 on the date of issuance. The restricted common stock awarded to directors vests over a five year period. Compensation expense will be charged to earnings over the respective vesting period for the shares expected to vest.

 

During the six months ended June 30, 2009, we made a grant of 1,000,000 restricted stock units to our Chief Executive Officer. These restricted stock units had a fair value of approximately $6,014 on the date of issuance. Of these restricted stock units, a total of 600,000 (the “Service Awards”) vest in four equal installments on the first, second, third and fourth year anniversary of December 31, 2008, and a total of 400,000 (the “Performance Awards”) vest in four installments of up to 100,000 on the first, up to 200,000 on the second, up to 300,000 on the third and up to 400,000 on the fourth year anniversary of December 31, 2008, to the extent certain market conditions are met. The market conditions are met when certain stock price levels are achieved and maintained for certain time periods between the award issuance date and December 31, 2013. Both the Service Awards and Performance Awards require the Chief Executive Officer to be employed by the Company at the applicable vesting dates, subject to certain clauses in the award agreement. The Service Awards are amortized over the four year service period. The Performance Awards are amortized over the service period of each installment.

 

FIRST INDUSTRIAL REALTY TRUST, INC.

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

 

Dividend/Distributions:

 

The coupon rate of our Series F Preferred Stock resets every quarter beginning March 31, 2009 at 2.375% plus the greater of (i) the 30 year U.S. Treasury rate, (ii) the 10 year U.S. Treasury rate or (iii) 3-month LIBOR. On April 1, 2009, the new coupon rate was 5.975%. See Note 13 for additional derivative information related to the Series F Preferred Stock coupon rate reset.

 

The following table summarizes dividends/distributions accrued during the six months ended June 30, 2009.

 

 

 

During the six months ended June 30, 2008, we acquired 18 industrial properties comprising approximately 2.2 million square feet of GLA and several land parcels. The purchase price of these acquisitions totaled approximately $179,597, excluding costs incurred in conjunction with the acquisition of the industrial properties and land parcels.

 

During the six months ended June 30, 2009, we acquired one land parcel. The purchase price of the land parcel was approximately $208, excluding costs incurred in conjunction with the acquisition of the land parcel.

 

Intangible Assets Subject to Amortization in the Period of Acquisition

 

The fair value of in-place leases, above market leases, tenant relationships and below market leases recorded due to real estate properties acquired for the six months ended June 30, 2009 and June 30, 2008 is as follows:

 

 

The weighted average life in months of in-place leases, above market leases, tenant relationships and below market leases recorded as a result of the real estate properties acquired for the six months ended June 30, 2009 and June 30, 2008 is as follows:

 

 

FIRST INDUSTRIAL REALTY TRUST, INC.

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

 

 

 

During the six months ended June 30, 2009, we sold six industrial properties comprising approximately 1.0 million square feet of GLA and one land parcel. Gross proceeds from the sales of the six industrial properties and one land parcel were approximately $33,485. The gain on sale of real estate was approximately $8,780, of which $8,320 is shown in discontinued operations. The six sold industrial properties meet the criteria to be included in discontinued operations. Therefore the results of operations and gain on sale of real estate for the six sold industrial properties are included in discontinued operations. The results of operations and gain on sale of real estate for the one land parcel that does not meet the criteria to be included in discontinued operations is included in continuing operations.

 

At June 30, 2009, we had six industrial properties comprising approximately 0.6 million square feet of GLA held for sale. The results of operations of the six industrial properties held for sale at June 30, 2009 are included in discontinued operations. There can be no assurance that such industrial properties held for sale will be sold.

 

Income from discontinued operations, net of income taxes, for the six months ended June 30, 2008 reflects the results of operations of the six industrial properties that were sold during the six months ended June 30, 2009, the results of operations of 113 industrial properties that were sold during the year ended December 31, 2008, the results of operations of the six industrial properties identified as held for sale at June 30, 2009 and the gain on sale of real estate relating to 89 industrial properties that were sold during the six months ended June 30, 2008.

 

The following table discloses certain information regarding the industrial properties included in our discontinued operations for the three and six months ended June 30, 2009 and June 30, 2008:

 

 

At June 30, 2009 and December 31, 2008, we had notes receivables outstanding of approximately $46,311 and $37,512, respectively, which is included as a component of Prepaid Expenses and Other Assets, Net. At June 30, 2009 and December 31, 2008, the fair value of the notes receivables were $40,696 and $31,061, respectively. The fair values of our notes receivables were determined by discounting the future cash flows using the current rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities.

 

FIRST INDUSTRIAL REALTY TRUST, INC.

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

 

 

 

Supplemental disclosure of cash flow information:

 

 

FIRST INDUSTRIAL REALTY TRUST, INC.

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

 

 

 

The computation of basic and diluted EPS is presented below:

 

 

Participating securities included unvested restricted stock/units outstanding during the respective period that participate in non-forfeitable dividends of the Company. In accordance with the newly issued guidance regarding participating securities, $1,087 and $2,124 of income was allocated to participating securities for purposes of the EPS computation based on their proportionate share of net income for the three and six months ended June 30, 2008,

 

FIRST INDUSTRIAL REALTY TRUST, INC.

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

 

respectively. Participating security holders are not obligated to share in losses, therefore, none of the loss was allocated to participating securities for the three months or the six months ended June 30, 2009.

 

The number of weighted average shares — diluted is the same as the number of weighted average shares — basic for the three and six months ended June 30, 2009 and June 30, 2008 as the dilutive effect of stock options and restricted units (that are not participating securities) was excluded as its inclusion would have been antidilutive to the loss from continuing operations available to First Industrial Realty Trust, Inc’s common stockholders. If the loss from continuing operations available to First Industrial Realty Trust, Inc’s common stockholders had been income, the dilutive effect of stock options and restricted units (that are not participating securities) would have been 0 and 0, respectively, for the three and six months ended June 30, 2009, 2,718 and 0, respectively, for the three months ended June 30, 2008, and 5,147 and 0, respectively, for the six months ended June 30, 2008.

 

Unvested restricted units (that are not participating securities) aggregating 1,000,000 for the three and six months ended June 30, 2009 were antidilutive as the issue price of these units was higher than the Company’s average stock price during the respective periods and accordingly, was excluded from dilution computations. There were no restricted units (that are not participating securities) outstanding in 2008.

 

Additionally, options to purchase common stock of 141,034 for the three and six months ended June 30, 2009 and 183,000 and 163,000 for the three and six months ended June 30, 2008, respectively, were antidilutive as the strike price of these stock options was higher than the Company’s average stock price during the respective periods and accordingly was excluded from dilution computations.

 

The 2011 Exchangeable Notes issued during 2006, which are convertible into common shares of the Company at a price of $50.93, were not included in the computation of diluted EPS as our average stock price did not exceed the strike price of the conversion feature.

 

 

During the first quarter of 2009, the Board of Directors committed the Company to a plan to further reduce organizational and overhead costs. For the three and six months ended June 30, 2009, we recorded as restructuring costs a pre-tax charge of $72 and $4,816, respectively, to provide for employee severance and benefits ($49 and $4,081, respectively), costs associated with the termination of certain office leases ($91 and $419, respectively) and other costs ($(68) and $316, respectively) associated with implementing the restructuring plan. Included in employee severance costs is $0 and $2,759, respectively, of non-cash costs which represents the accelerated recognition of restricted stock expense for certain employees for the three and six months ended June 30, 2009. At June 30, 2009, we have $1,615 included in Accounts Payable, Accrued Expenses and Other Liabilities, Net related to severance obligations, remaining lease payments and other costs incurred but not yet paid.

 

 

We recognized $2,625 and $4,724 for the three months ended June 30, 2009 and June 30, 2008, respectively, and $8,047 and $8,184 for the six months ended June 30, 2009 and June 30, 2008, respectively, in compensation expense related to restricted stock/unit awards, of which $0 and $396, respectively, was capitalized for the three months ended June 30, 2009 and June 30, 2008, and $45 and $771, respectively, was capitalized for the six months ended June 30, 2009 and June 30, 2008, in connection with development activities. At June 30, 2009, we have $13,842 in unrecognized compensation related to unvested restricted stock/unit awards. The weighted average period that the unrecognized compensation is expected to be recognized is 1.24 years. We did not award options to our employees or our directors during the six months ended June 30, 2009 and June 30, 2008 and all outstanding options are fully vested; therefore, no stock-based employee compensation expense related to options is included in Net (Loss) Income Available to First Industrial Realty Trust, Inc.’s Common Stockholders and Participating Securities.

 

FIRST INDUSTRIAL REALTY TRUST, INC.

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

 

On October 23, 2008, we granted stock appreciation rights (“SARs”) to our former interim Chief Executive Officer (who is currently Chairman of the Board of Directors of the Company) that entitles him to a special cash payment equal to the appreciation in value of 75,000 shares of our common stock. The payment is to be based on the excess of the closing price of our common stock on October 22, 2009 over $7.94, the closing price on the grant date. The award fully vested during the three months ended December 31, 2008 upon his acceptance of the position.

 

At June 30, 2009, the fair value of the stock appreciation rights was determined using the Black-Scholes option pricing model with the following assumptions:

 

 

For the three and six months ended June 30, 2009, we recognized compensation expense of $44 and $(134), respectively, based on the fair value of the SARs.

 

During the six months ended June 30, 2009, we made a grant of 1,000,000 restricted stock units to our Chief Executive Officer (see Note 6).

 

 

Our objectives in using interest rate derivatives are to add stability to interest expense and to manage our exposure to interest rate movements. To accomplish this objective, we primarily use interest rate swaps as part of our interest rate risk management strategy. Interest rate swaps designated as cash flow hedges involve the receipt of variable-rate amounts from a counterparty in exchange for fixed-rate payments over the life of the agreements without exchange of the underlying notional amount.

 

In January 2008, we entered into two forward starting swaps each with a notional value of $59,750, which fixed the interest rate on forecasted debt offerings. We designated both swaps as cash flow hedges. The rates on the forecasted debt issuances underlying the swaps locked on March 20, 2009 (the “Forward Starting Agreement 1”) and on April 6, 2009 (the “Forward Starting Agreement 2”), and as such, the swaps ceased to qualify for hedge accounting. On March 20, 2009, the fair value of Forward Starting Agreement 1 was a liability of $4,442 and on April 6, 2009, the fair value of Forward Starting Agreement 2 was a liability of $4,023. These amounts are included in Other Comprehensive Income (“OCI”) and will be amortized over five years, which is the life of the Forward Starting Agreement 1 and Forward Starting Agreement 2, as an increase to interest expense. On May 8, 2009, we settled the Forward Starting Agreement 1 and paid the counterparty $4,105 and on June 3, 2009 we settled the Forward Starting Agreement 2 and paid the counterparty $3,386. The change in value of Forward Starting Agreement 1 and Forward Starting Agreement 2 from the respective day the interest rate on the underlying debt was locked until settlement is $1,358 and $974 for the three and six months ended June 30, 2009, respectively, and is included in Mark-to-Market Gain on Interest Rate Protection Agreements in the statement of operations.

 

The effective portion of changes in the fair value of derivatives designated and that qualify as cash flow hedges is recorded in OCI and is subsequently reclassified to earnings through interest expense over the life of the derivative or over the life of the debt. In the next 12 months, we will amortize approximately $1,965 into net income by increasing interest expense for the Forward Starting Agreement 1 and Forward Starting Agreement 2 and similar interest rate protection agreements we settled in previous periods.