FR

Business Context and Reporting Period

Company: First Industrial Realty Trust, Inc. (REIT)
Reporting Period: Nine and three months ended September 30, 1998
Portfolio Overview: As of September 30, 1998, the Company owned 1,000 in-service industrial properties totaling approximately 69.9 million square feet of gross leasable area (GLA) across 25 states. This represents a significant expansion from 494 properties (41.6 million sq. ft.) at September 30, 1997.

Key Financial Metrics

Earnings Per Share (Nine Months): Basic $1.18; Diluted $1.18.
Dividends: Common stock distribution of $0.53 per share/quarter.

Material Changes vs. Prior Period

• Revenue Growth: Total revenues increased 64.9% to $255.9 million from $155.2 million in the prior year period. Rental income and tenant recoveries rose 74.5%, driven primarily by the acquisition of approximately $1.0 billion in properties subsequent to September 30, 1997.
• Expense Increases: Total expenses rose to $182.8 million from $109.7 million. Interest expense increased $16.8 million due to higher debt balances funding acquisitions. Property expenses increased 79.4% due to portfolio expansion.
• Net Income: Net income available to common stockholders increased 61.1% to $44.1 million from $27.4 million. This growth occurred despite a $2.0 million cumulative effect of a change in accounting principle (write-off of organizational costs) in 1998, compared to a $12.6 million extraordinary loss in 1997 related to debt defeasance.
• Balance Sheet: Total assets grew 12.8% to $2.56 billion. Senior unsecured debt increased significantly to $948.6 million from $649.0 million to fund growth.

Outlook, Risks, and Unusual Items

• Acquisition Activity: The Company acquired 234 properties for approximately $519.5 million during the nine months ended September 30, 1998. Subsequent to the period end (Oct-Nov 1998), an additional 15 properties were acquired for $14.8 million.
• Joint Venture: Entered a joint venture in September 1998 with an institutional investor to acquire industrial properties. The Company holds a 10% equity interest and expects the venture to acquire approximately $300 million in properties.
• Unusual Items & Accounting Changes:
  • Adopted EITF 97-11, requiring expensing of internal pre-acquisition costs, increasing G&A expenses by an estimated $2.5-$3.0 million for 1998.
  • Adopted SOP 98-5, resulting in a $1.976 million write-off of organizational costs recorded as a cumulative effect of a change in accounting principle.
  • Subsequent Event: On November 5, 1998, the Company terminated an interest rate protection agreement, expecting to recognize an expense of approximately $8.5 million in the fourth quarter of 1998.
• Liquidity: The Company maintains a $300 million unsecured revolving credit facility with approximately $153.2 million available as of November 6, 1998. Management believes cash flows from operations will meet short-term needs.
• Risks: Management assesses Year 2000 compliance risks as minimal but notes potential disruptions from third-party service providers. Legal proceedings are not expected to have a material adverse effect.

Investor Verification Checklist

• Debt Covenants: Verify compliance with debt service coverage and incurrence limitations on the new $200 million 2028 Notes and $100 million 2011 Dealer remarketable securities.
• Q4 Expense Impact: Confirm the $8.5 million expense related to the termination of the interest rate protection agreement in the upcoming Q4 1998 results.
• Occupancy & Rent Growth: Assess the absorption rates and rent growth on the 522 properties added to the portfolio in the last 12 months.
• Joint Venture Terms: Review the definitive documentation for the September 1998 Joint Venture to understand the Company's exposure and management fee structure.
• Executive Transition: Monitor the impact of the CEO resignation (Michael T. Tomasz) and appointment of Michael W. Brennan on strategic execution.