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Business Context and Reporting Period

Company: First Industrial Realty Trust, Inc. (First Industrial)

Filing Type: Form 10-K (Annual Report)

Period Ended: December 31, 1996

Business Overview: First Industrial is a self-administered, fully integrated real estate investment trust (REIT) owning, managing, acquiring, and developing industrial real estate, primarily bulk warehouse and light industrial properties. As of December 31, 1996, the portfolio consisted of 379 in-service properties totaling approximately 32.7 million square feet of gross leasable area (GLA) across 14 states, with a median property age of 11 years. The portfolio is concentrated in the Midwest, where occupancy rates historically exceed national averages.

Key Financial Metrics

Material Changes vs. Prior Period

• Revenue Growth: Total revenues increased 31.5% to $140.1 million, driven primarily by the acquisition of 112 properties (10.4 million sq. ft.) during 1996. Revenues from properties owned prior to 1995 increased 3.3% due to lease renewals at higher rates.
• Profitability: Net income available to common stockholders more than doubled to $31.7 million ($1.28 per share) from $11.9 million ($0.63 per share). This was aided by a $4.3 million gain on the sale of six properties.
• Portfolio Expansion: The company grew its portfolio from 271 properties (22.6 million sq. ft.) in 1995 to 379 properties (32.7 million sq. ft.) in 1996. This included the completion of two new developments totaling 0.2 million sq. ft.
• Capital Structure: The company significantly strengthened its balance sheet by issuing 10.9 million shares of common stock in two offerings (February and October 1996), raising net proceeds of $244.0 million. These proceeds were used to repay $143.6 million in outstanding borrowings and fund acquisitions.
• Debt Management: The company terminated its $150 million secured revolving credit facility and replaced it with a $200 million unsecured facility at a lower interest rate (LIBOR + 1.10% vs. LIBOR + 1.75%).

Guidance, Outlook, and Risks

Management Commentary & Outlook: Management expects to continue growth through acquisitions and development, primarily on a pre-leased basis. The company has committed to constructing seven additional properties (1.0 million sq. ft.) with estimated costs of $27.4 million. Liquidity is supported by cash flows from operations and a $200 million unsecured acquisition facility, with $68.1 million available as of March 20, 1997. The company obtained investment-grade ratings on its senior unsecured debt and preferred stock in 1997.

Risks and Contingencies:

• Market Risks: Operations are sensitive to general economic conditions, interest rates, and supply/demand for industrial properties in specific markets.
• REIT Compliance: The company must distribute at least 95% of its REIT taxable income to maintain tax status. In 1996, distributions totaled $1.9675 per share, with 65.97% characterized as ordinary income and 34.03% as a return of capital.
• Environmental: The company maintains reserves for potential environmental costs. Estimated aggregate costs for identified issues in 1997 and beyond are not expected to exceed $1.2 million.
• Lease Expirations: Approximately 17.5% of GLA and 17.0% of annual base rent are scheduled to expire in 1997.

Investor Verification Checklist

• Debt Maturities: Verify the impact of the $300 million 1994 Mortgage Loan maturing in 1999 (extendable to 2001) and the refinancing strategy.
• Acquisition Pricing: Review the average acquisition cost of $24 per square foot in 1996 versus the $42 per square foot for post-year-end acquisitions to assess valuation trends.
• FFO vs. Net Income: Confirm the reconciliation of Net Income to Funds From Operations (FFO), noting the addition of depreciation ($28.0 million) and exclusion of gains on sales ($4.3 million).
• Dividend Sustainability: Assess the ability to maintain the $1.9675 per share distribution rate given the 34% return of capital component and future debt service requirements.
• Post-Year-End Activity: Note the $164.3 million in property acquisitions completed between January and March 1997, which may impact 1997 leverage ratios.