10-Q 1 c58359e10-q.txt QUARTERLY REPORT 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2000 [ ] Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 ---------------------- Commission File Number 33-97014-01 --------------------- FIRST INDUSTRIAL SECURITIES, L.P. (Exact name of registrant as specified in its charter) DELAWARE 36-4036965 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 311 S. WACKER DRIVE, SUITE 4000, CHICAGO, ILLINOIS 60606 (Address of principal executive offices) (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 [X] No [ ] . 2 FIRST INDUSTRIAL SECURITIES, L.P. FORM 10-Q FOR THE PERIOD ENDED SEPTEMBER 30, 2000 INDEX

1 3 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS FIRST INDUSTRIAL SECURITIES, L.P. BALANCE SHEETS (IN THOUSANDS) (UNAUDITED)

The accompanying notes are an integral part of the financial statements. 2 4 FIRST INDUSTRIAL SECURITIES, L.P. STATEMENTS OF OPERATIONS (IN THOUSANDS) (UNAUDITED)

The accompanying notes are an integral part of the financial statements. 3 5 FIRST INDUSTRIAL SECURITIES, L.P. STATEMENTS OF OPERATIONS (IN THOUSANDS) (UNAUDITED)

The accompanying notes are an integral part of the financial statements. 4 6 FIRST INDUSTRIAL SECURITIES, L.P. STATEMENTS OF CASH FLOWS (IN THOUSANDS) (UNAUDITED)

The accompanying notes are an integral part of the financial statements. 5 7 FIRST INDUSTRIAL SECURITIES, L.P. NOTES TO FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS) 1. ORGANIZATION First Industrial Securities, L.P. (the "Company") is a Delaware limited partnership formed on August 14, 1995, the 1% general partner of which is First Industrial Securities Corporation ("Securities Corporation"), a wholly-owned subsidiary of First Industrial Realty Trust, Inc. ("FR"), and the 99% limited partner of which is First Industrial, L.P. (the "Operating Partnership"), of which FR is the sole general partner. Securities Corporation also owns a preferred limited partnership interest in the Company. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 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 the Company's 1999 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, 1999 audited financial statements included in the Company's 1999 Form 10-K and present interim disclosures as required by the Securities and Exchange Commission. In order to conform with generally accepted accounting principles, management, in preparation of the Company's financial statements, is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of September 30, 2000 and December 31,1999, and the reported amounts of revenues and expenses for each of the nine months and three months ended September 30, 2000 and 1999. Actual results could differ from those estimates. In the opinion of management, all adjustments consist of normal recurring adjustments necessary for a fair statement of the financial position of the Company as of September 30, 2000 and the results of its operations and its cash flows for each of the nine months and three months ended September 30, 2000 and 1999. 3. RELATED PARTY TRANSACTIONS The 21 properties owned by the Company are managed by the Operating Partnership. Management fees incurred are based on 3.25% of gross receipts. Such fees totaled approximately $285 and $266 for the nine months ended September 30, 2000 and 1999, respectively. 4. REAL ESTATE HELD FOR SALE At September 30, 2000, the Company has four properties comprising approximately .5 million square feet of GLA held for sale. The Company plans to substitute properties in place of these properties if the sales occur. There can be no assurance that such properties held for sale will be sold. 6 8 FIRST INDUSTRIAL SECURITIES, L.P. NOTES TO FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS) 4. REAL ESTATE HELD FOR SALE, CONTINUED The following table discloses certain information regarding the four properties held for sale by the Company.

5. COMMITMENTS AND CONTINGENCIES In the normal course of business, the Company is involved in legal actions arising from the ownership of its properties. In management's opinion, the liabilities, if any, that may ultimately result from such legal actions are not expected to have a materially adverse effect on the financial position, operations or liquidity of the Company. 6. PARTNERS' CAPITAL During the nine months ended September 30, 2000, the Company paid pro rata general and limited partner distributions to Securities Corporation and the Operating Partnership, respectively, in the aggregate amount of approximately $1,800. During the nine months ended September 30, 2000, the Company distributed approximately $2,940 to Securities Corporation in respect of its preferred limited partnership interest in the Company, and Securities Corporation paid a preferred stock dividend of approximately $2,940 to FR, the amount equal to the aggregate dividend payable on FR's 9.5%, $.01 par value, Series A Cumulative Preferred Stock. 7. SUPPLEMENTAL INFORMATION TO STATEMENT OF CASH FLOWS The following table discloses the non-cash operating, investing and financing activities that resulted from the contribution of the three industrial properties comprising approximately .1 million square feet of GLA from the limited partner during the nine months ended September 30, 1999. Nine Months Ended September 30, 1999 ------------------ Land ........................................ $ 1,472 Building .................................... 8,844 Accumulated Depreciation .................... (1,140) Deferred Rent Receivable .................... 18 Tenant Accounts Receivable .................. 2 Accounts Payable and Accrued Expenses ....... (73) Limited Partner Contribution ................ (9,123) ------- $ -- ======= 7 9 FIRST INDUSTRIAL SECURITIES, L.P. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis of First Industrial Securities, L.P.'s (the "Company") financial condition and the results of operations should be read in conjunction with the financial statements and notes thereto appearing elsewhere in this Form 10-Q. This report contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. The Company intends such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in the Private Securities Reform Act of 1995, and is including this statement for purposes of complying with these safe harbor provisions. Forward-looking statements, which are based on certain assumptions and describe future plans, strategies and expectations of the Company, are generally identifiable by use of the words "believe", "expect", "intend", "anticipate", "estimate", "project" or similar expressions. The Company's ability to predict results or the actual effect of future plans or strategies is inherently uncertain. Factors which could have a material adverse affect on the operations and future prospects of the Company include, but are not limited to, changes in: economic conditions generally and the real estate market specifically, legislative/regulatory changes, availability of capital, interest rates, competition, supply and demand for industrial properties in the Company's current market areas and general accounting principles, policies and guidelines. These risks and uncertainties should be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements. Further information concerning the Company and its business, including additional factors that could materially affect the Company's financial results, is included herein and in the Company's other filings with the Securities and Exchange Commission. The Company is a Delaware limited partnership formed on August 14, 1995, the 1% general partner of which is First Industrial Securities Corporation ("Securities Corporation"), a wholly-owned subsidiary of First Industrial Realty Trust, Inc. ("FR"), and the 99% limited partner of which is First Industrial, L.P. (the "Operating Partnership"), of which FR is the sole general partner. Securities Corporation also owns a preferred limited partnership interest in the Company. RESULTS OF OPERATIONS At September 30, 2000 and September 30, 1999, the Company owned 21 properties with approximately 2.0 million square feet of gross leasable area ("GLA"). During the period January 1, 1999 through September 30, 1999, the Company sold one industrial property comprising approximately .3 million square feet of GLA. During this same time period, the Operating Partnership contributed three industrial properties comprising approximately .1 million square feet of GLA. During the period October 1, 1999 through December 31, 1999, the Company sold one industrial property comprising approximately .1 million square feet of GLA. During this same time period, the Operating Partnership contributed one industrial property comprising approximately .1 million square feet of GLA. No sales or additions occurred during the nine months ended September 30, 2000. COMPARISON OF NINE MONTHS ENDED SEPTEMBER 30, 2000 TO NINE MONTHS ENDED SEPTEMBER 30, 1999 Total revenues increased by approximately $.8 million, or 10.1%, due primarily to an increase in occupancy, offset by a decrease in recoverable income due to a decrease in property expenses as discussed below. Average occupancy for the nine months ended September 30, 2000 and 1999 was 97.1% and 94.4%, respectively. Property expenses, which include real estate taxes, repairs and maintenance, property management, utilities, insurance and other expenses decreased by approximately $.2 million or 8.2%, due primarily to a decrease in real estate taxes. The decrease in real estate tax expense is attributable to a 8 10 property that is under redevelopment and lower real estate taxes associated with the four properties contributed by the Operating Partnership during 1999 as compared to the two properties sold during 1999. Depreciation and amortization increased by approximately $.1 million due to depreciation and amortization related to the four properties contributed by the Operating Partnership during 1999, offset by the depreciation and amortization related to the two properties sold during 1999 and the Company ceasing depreciation and amortization on properties it considers held for sale. The $.9 million gain on sale of property for the nine months ended September 30, 1999 resulted from the sale of one industrial property. Gross proceeds from this sale were approximately $8.8 million. COMPARISON OF THREE MONTHS ENDED SEPTEMBER 30, 2000 TO THREE MONTHS ENDED SEPTEMBER 30, 1999 Total revenues increased by approximately $.4 million, or 15.6%, due primarily to an increase in occupancy. Average occupancy for the three months ended September 30, 2000 and 1999 was 97.4% and 93.2%, respectively. Property expenses, which include real estate taxes, repairs and maintenance, property management, utilities, insurance and other expenses decreased by approximately $.1 million or 5.8%, due primarily to a decrease in real estate taxes. The decrease in real estate tax expense is attributable to a property that is under redevelopment and lower real estate taxes associated with the four properties contributed by the Operating Partnership during 1999 as compared to the two properties sold during 1999. Depreciation and amortization decreased by approximately $.1 million or 18.0%, due primarily to the Company ceasing depreciation and amortization on properties it considers held for sale. The $.9 million gain on sale of property for the three months ended September 30, 1999 resulted from the sale of one industrial property. Gross proceeds from this sale were approximately $8.8 million. LIQUIDITY AND CAPITAL RESOURCES NINE MONTHS ENDED SEPTEMBER 30, 2000 Net cash provided by operating activities of approximately $6.0 million for the nine months ended September 30, 2000 was primarily comprised of net income of approximately $5.0 million, adjustments for non-cash items of approximately $1.4 million, offset by the net change in operating assets and liabilities of approximately $.4 million. The adjustments for non-cash items of approximately $1.4 million are primarily comprised of depreciation and amortization of approximately $1.5 million, offset by the effect of the straight-lining of rental income of approximately $.1 million. Net cash used in investing activities of approximately $.7 million for the nine months ended September 30, 2000 was primarily comprised of construction expenditures related to the redevelopment of one of the Company's properties located in Maple Grove, Minnesota ($.4 million) as well as various other capital improvements ($.3 million). Net cash used in financing activities of approximately $4.7 million for the nine months ended September 30, 2000 consisted of preferred limited partner distributions totaling, in the aggregate, approximately $2.9 million and general and limited partner distributions totaling, in the aggregate, approximately $1.8 million. 9 11 NINE MONTHS ENDED SEPTEMBER 30, 1999 Net cash provided by operating activities of approximately $5.8 million for the nine months ended September 30, 1999 was primarily comprised of net income of approximately $5.0 million, adjustments for non-cash items of approximately $.5 million and the net change in operating assets and liabilities of approximately $.3 million. The adjustments for non-cash items of approximately $.5 million are comprised of depreciation and amortization of approximately $1.4 million, offset by the gain on sale of real estate of approximately $.9 million. Net cash provided by investing activities of approximately $5.2 million for the nine months ended September 30, 1999 was primarily comprised of $8.8 million of gross proceeds from the sale of real estate and the receipt of $.4 million from a deferred maintenance escrow established in connection with the issuance of FR's 9.5%, $.01 par value, Series A Cumulative Preferred Stock (the "Series A Preferred Stock"), offset by capital expenditures related to the redevelopment of one of the Company's properties located in Maple Grove, Minnesota ($.9 million) and the development of one of the Company's properties located in Carol Stream, Illinois ($2.1 million) as well as various other capital improvements and closing costs from the sale of investment in real estate ($1.0 million). Net cash used in financing activities of approximately $11.8 million for the nine months ended September 30, 1999 consisted of preferred limited partner distributions totaling, in the aggregate, approximately $2.9 million and general and limited partner distributions totaling, in the aggregate, approximately $9.7 million, offset by general and limited partnership contributions totaling, in the aggregate, approximately $.8 million. REAL ESTATE HELD FOR SALE At September 30, 2000, the Company had four properties comprising approximately .5 million square feet of GLA held for sale. Income from operations of the four properties held for sale for the nine months ended September 30, 2000 and 1999 is approximately $.9 million and $.8 million, respectively. Income from operations of the four properties held for sale for the three months ended September 30, 2000 and 1999 is approximately $.4 million and $.3 million, respectively. Net carrying value of the four properties held for sale at September 30, 2000 is approximately $12.0 million. The Company plans to substitute properties in place of these properties if the sales occur. There can be no assurance that such properties held for sale will be sold. DISTRIBUTIONS/DIVIDENDS During the nine months ended September 30, 2000, the Company paid pro rata general and limited partner distributions to Securities Corporation and the Operating Partnership, respectively, in the aggregate amount of approximately $1.8 million. During the nine months ended September 30, 2000, the Company distributed approximately $2.9 million to Securities Corporation in respect of its preferred limited partnership interest in the Company, and Securities Corporation paid preferred stock dividends of approximately $2.9 million to FR, the amount equal to the aggregate dividend payable on FR's Series A Preferred Stock. SHORT-TERM AND LONG-TERM LIQUIDITY NEEDS The Company has considered its short-term (one year or less) liquidity needs and the adequacy of its estimated cash flow from operations and other expected liquidity sources to meet these needs. The Company believes that its principal short-term liquidity needs are to fund normal recurring expenses and to pay the quarterly preferred limited partnership distribution. The Company anticipates that these needs will be met with cash flows provided by operating activities. 10 12 The Company expects to fund its long-term (greater than one year) liquidity requirements for non-recurring capital improvements, property redevelopments and property developments with its cash flow from operations, capital contributions and, in part, with a deferred maintenance escrow established in connection with the issuance of FR's Series A Preferred Stock which is included in restricted cash on the balance sheet. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK None. 11 13 PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS None. ITEM 2. CHANGES IN SECURITIES None. ITEM 3. DEFAULTS UPON SENIOR SECURITIES None. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Not applicable. ITEM 5. OTHER INFORMATION Not applicable. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K Exhibit No Description ---------- ----------- 27* Financial Data Schedule * Filed herewith No reports on Form 8-K were filed during the quarter ended September 30, 2000. 12 14 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. FIRST INDUSTRIAL SECURITIES, L.P., By: FIRST INDUSTRIAL SECURITIES CORPORATION, ITS SOLE GENERAL PARTNER Date: November 13, 2000 By: /s/ Michael J. Havala ----------------------------- Michael J. Havala Chief Financial Officer (Principal Financial and Accounting Officer) 13 15 EXHIBIT INDEX Exhibit No. Description 27* Financial Data Schedule * Filed herewith 14

FIRST INDUSTRIAL SECURITIES L P 10-Q