Document


 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 _______________________________
Form 10-Q
_______________________________
ý
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2018
or
¨
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.)
333-21873 (First Industrial, L.P.)
  _______________________________
FIRST INDUSTRIAL REALTY TRUST, INC.
FIRST INDUSTRIAL, L.P.
(Exact name of Registrant as specified in its Charter)
 
Maryland (First Industrial Realty Trust, Inc.)
 
36-3935116 (First Industrial Realty Trust, Inc.)
Delaware ( First Industrial, L.P.)
 
36-3924586 (First Industrial, L.P.)
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
 
 
 
311 S. Wacker Drive,
Suite 3900, Chicago, Illinois
 
60606
(Address of principal executive offices)
 
(Zip Code)
(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 (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.
First Industrial Realty Trust, Inc.
Yes þ No o
First Industrial, L.P.
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).
First Industrial Realty Trust, Inc.
Yes þ No o
First Industrial, L.P.
Yes þ No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one):
First Industrial Realty Trust, Inc.:
 
 
 
 
 
 
 
Large accelerated filer
 
þ
 
 
Accelerated filer
 
o
Non-accelerated filer
 
o
 
(Do not check if a smaller reporting company)
Smaller reporting company
 
o
Emerging growth company
 
o
 
 
 
 
 
First Industrial, L.P.:
 
 
 
 
 
 
 
Large accelerated filer
 
o
 
 
Accelerated filer
 
þ
Non-accelerated filer
 
o
 
(Do not check if a smaller reporting company)
Smaller reporting company
 
o
Emerging growth company
 
o
 
 
 
 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
First Industrial Realty Trust, Inc.
Yes o No o
First Industrial, L.P.
Yes o No o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
First Industrial Realty Trust, Inc.
Yes o No þ
First Industrial, L.P.
Yes o No þ
At April 26, 2018, 120,560,079 shares of First Industrial Realty Trust, Inc.’s Common Stock, $0.01 par value, were outstanding. 
 






EXPLANATORY NOTE
This report combines the Quarterly Reports on Form 10-Q for the period ended March 31, 2018 of First Industrial Realty Trust, Inc., a Maryland corporation (the "Company"), and First Industrial, L.P., a Delaware limited partnership (the "Operating Partnership"). Unless stated otherwise or the context otherwise requires, the terms "we," "our" and "us" refer to the Company and its subsidiaries, including the Operating Partnership and its consolidated subsidiaries.
The Company is a real estate investment trust and the general partner of the Operating Partnership. At March 31, 2018, the Company owned an approximate 97.1% common general partnership interest in the Operating Partnership. The remaining approximate 2.9% common limited partnership interests in the Operating Partnership are owned by certain limited partners. As the sole general partner of the Operating Partnership, the Company exercises exclusive and complete discretion over the Operating Partnership’s day-to-day management and control and can cause it to enter into certain major transactions, including acquisitions, dispositions and refinancings. The management of the Company consists of the same members as the management of the Operating Partnership.
The Company and the Operating Partnership are managed and operated as one enterprise. The financial results of the Operating Partnership are consolidated into the financial statements of the Company. The Company has no significant assets other than its investment in the Operating Partnership. Substantially all of the Company’s assets are held by, and its operations are conducted through, the Operating Partnership and its subsidiaries. Therefore, the assets and liabilities of the Company and the Operating Partnership are substantially the same.
We believe it is important to understand the differences between the Company and the Operating Partnership in the context of how the Company and the Operating Partnership operate as an interrelated, consolidated company. The main areas of difference between the consolidated financial statements of the Company and those of the Operating Partnership are:
Stockholders’ Equity, Noncontrolling Interest and Partners’ Capital. The 2.9% equity interest in the Operating Partnership held by entities other than the Company is classified within partners’ capital in the Operating Partnership’s financial statements and as a noncontrolling interest in the Company's financial statements.
Relationship to Other Real Estate Partnerships. The Company's operations are conducted primarily through the Operating Partnership and its subsidiaries, although operations are also conducted through eight other limited partnerships, which are referred to as the "Other Real Estate Partnerships." The Operating Partnership is a limited partner, holding at least a 99% interest, and the Company is a general partner, holding at least a .01% general partnership interest through eight separate wholly-owned corporations, in each of the Other Real Estate Partnerships. The Other Real Estate Partnerships are variable interest entities that both the Company and the Operating Partnership consolidate. The Company's direct general partnership interest in the Other Real Estate Partnerships is reflected as noncontrolling interest within the Operating Partnership's financial statements.
Relationship to Service Subsidiary. The Company has a direct wholly-owned subsidiary that does not own any real estate but provides services to various other entities owned by the Company. Since the Operating Partnership does not have an ownership interest in this entity, its operations are reflected in the consolidated results of the Company but not the Operating Partnership. Also, this entity owes certain amounts to the Operating Partnership, for which a receivable is included on the Operating Partnership’s balance sheet but is eliminated on the Company’s consolidated balance sheet, since both this entity and the Operating Partnership are fully consolidated by the Company.
We believe combining the Company’s and Operating Partnership’s quarterly reports into this single report results in the following benefits:
enhances investors' understanding of the Company and the Operating Partnership by enabling them to view the business as a whole and in the same manner as management views and operates the business;
creates time and cost efficiencies through the preparation of one combined report instead of two separate reports; and
eliminates duplicative disclosures and provides a more streamlined and readable presentation for our investors to review since a substantial portion of the Company’s disclosure applies to both the Company and the Operating Partnership.
To help investors understand the differences between the Company and the Operating Partnership, this report provides the following separate disclosures for each of the Company and the Operating Partnership:
consolidated financial statements;
a single set of consolidated notes to such financial statements that includes separate discussions of each entity’s stockholders’ equity or partners’ capital, as applicable; and
a combined Management’s Discussion and Analysis of Financial Condition and Results of Operations section that includes distinct information related to each entity.
This report also includes separate Part I, Item 4, Controls and Procedures sections and separate Exhibit 31 and 32 certifications for the Company and the Operating Partnership in order to establish that the requisite certifications have been made and that the Company and the Operating Partnership are both compliant with Rule 13a-15 and Rule 15d-15 of the Securities Exchange Act of 1934, as amended, and 18 U.S.C. §1350.




FIRST INDUSTRIAL REALTY TRUST, INC. AND FIRST INDUSTRIAL, L.P.
FORM 10-Q
FOR THE PERIOD ENDED MARCH 31, 2018
INDEX
 
 
 
Page
 
First Industrial Realty Trust, Inc.
 
 
 
 
 
 
 
First Industrial, L.P.
 
 
 
 
 
 
 
First Industrial Realty Trust, Inc. and First Industrial, L.P.
 
 



2



PART I: FINANCIAL INFORMATION 
Item 1.
Financial Statements
FIRST INDUSTRIAL REALTY TRUST, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)

 
March 31, 2018
 
December 31, 2017
 
(Unaudited)
 
 
ASSETS
 
 
 
Assets:
 
 
 
Investment in Real Estate:
 
 
 
Land
$
879,051

 
$
864,813

Buildings and Improvements
2,507,087

 
2,521,457

Construction in Progress
157,667

 
109,475

Less: Accumulated Depreciation
(788,234
)
 
(789,919
)
Net Investment in Real Estate
2,755,571

 
2,705,826

Real Estate and Other Assets Held for Sale, Net of Accumulated Depreciation and Amortization of $9,384 and $0
16,725

 

Cash and Cash Equivalents
19,782

 
21,146

Restricted Cash
48,579

 
25,336

Tenant Accounts Receivable, Net
5,770

 
4,873

Deferred Rent Receivable, Net
70,386

 
70,254

Deferred Leasing Intangibles, Net
31,350

 
30,481

Prepaid Expenses and Other Assets, Net
96,432

 
83,146

Total Assets
$
3,044,595

 
$
2,941,062

LIABILITIES AND EQUITY
 
 
 
Liabilities:
 
 
 
Indebtedness:
 
 
 
Mortgage Loans Payable, Net
$
301,661

 
$
450,056

Senior Unsecured Notes, Net
544,204

 
246,673

Unsecured Term Loans, Net
456,016

 
455,768

Unsecured Credit Facility
100,000

 
144,500

Accounts Payable, Accrued Expenses and Other Liabilities
70,997

 
86,532

Deferred Leasing Intangibles, Net
10,734

 
10,355

Rents Received in Advance and Security Deposits
45,961

 
44,285

Dividends and Distributions Payable
27,558

 
27,016

Total Liabilities
1,557,131

 
1,465,185

Commitments and Contingencies

 

Equity:
 
 
 
First Industrial Realty Trust Inc.’s Stockholders’ Equity:
 
 
 
Common Stock ($0.01 par value, 225,000,000 shares authorized and 120,557,079 and 119,883,180 shares issued and outstanding)
1,206

 
1,199

Additional Paid-in-Capital
1,970,717

 
1,967,110

Distributions in Excess of Accumulated Earnings
(535,169
)
 
(541,847
)
Accumulated Other Comprehensive Income
7,704

 
1,338

Total First Industrial Realty Trust, Inc.’s Stockholders’ Equity
1,444,458

 
1,427,800

Noncontrolling Interest
43,006

 
48,077

Total Equity
1,487,464

 
1,475,877

Total Liabilities and Equity
$
3,044,595

 
$
2,941,062

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

3



FIRST INDUSTRIAL REALTY TRUST, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited; in thousands, except per share data)

 
Three Months Ended March 31, 2018
 
Three Months Ended March 31, 2017
Revenues:
 
 
 
Rental Income
$
75,180

 
$
74,918

Tenant Recoveries and Other Income
24,591

 
22,465

Total Revenues
99,771

 
97,383

Expenses:
 
 
 
Property Expenses
29,411

 
28,486

General and Administrative
8,143

 
8,033

Impairment of Real Estate
2,756

 

Depreciation and Other Amortization
28,315

 
28,494

Total Expenses
68,625

 
65,013

Other Income (Expense):
 
 
 
Gain on Sale of Real Estate
20,089

 
8,009

Interest Expense
(12,791
)
 
(14,369
)
Amortization of Debt Issuance Costs
(855
)
 
(778
)
Loss from Retirement of Debt
(39
)
 
(1,653
)
Total Other Income (Expense)
6,404

 
(8,791
)
Income from Operations Before Income Tax Provision
37,550

 
23,579

Income Tax Provision
(86
)
 
(88
)
Net Income
37,464

 
23,491

Less: Net Income Attributable to the Noncontrolling Interest
(1,172
)
 
(782
)
Net Income Available to First Industrial Realty Trust, Inc.’s Common Stockholders and Participating Securities
$
36,292

 
$
22,709

Basic and Diluted Earnings Per Share:
 
 
 
Net Income Available to First Industrial Realty Trust, Inc.’s Common Stockholders
$
0.30

 
$
0.19

Dividends/Distributions Per Share
$
0.2175

 
$
0.2100

Weighted Average Shares Outstanding - Basic
119,846

 
116,837

Weighted Average Shares Outstanding - Diluted
120,211

 
117,261

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


4



FIRST INDUSTRIAL REALTY TRUST, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited; in thousands)

 
Three Months Ended March 31, 2018
 
Three Months Ended March 31, 2017
Net Income
$
37,464

 
$
23,491

Mark-to-Market Gain on Interest Rate Protection Agreements
6,525

 
2,178

Amortization of Interest Rate Protection Agreements
24

 
96

Comprehensive Income
44,013

 
25,765

Comprehensive Income Attributable to Noncontrolling Interest
(1,378
)
 
(858
)
Comprehensive Income Attributable to First Industrial Realty Trust, Inc.
$
42,635

 
$
24,907

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


5



FIRST INDUSTRIAL REALTY TRUST, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(Unaudited; in thousands)

 
Common
Stock
 
Additional
Paid-in-
Capital
 
Distributions
in Excess of
Accumulated
Earnings
 
Accumulated
Other
Comprehensive
Loss
 
Noncontrolling
Interest
 
Total
Balance as of December 31, 2017
$
1,199

 
$
1,967,110

 
$
(541,847
)
 
$
1,338

 
$
48,077

 
$
1,475,877

Net Income

 

 
36,292

 

 
1,172

 
37,464

Other Comprehensive Income

 

 

 
6,366

 
183

 
6,549

Stock Based Compensation Activity
3

 
(1,106
)
 
(3,282
)
 

 

 
(4,385
)
Common Stock Dividends and Unit Distributions

 

 
(26,332
)
 

 
(775
)
 
(27,107
)
Conversion of Limited Partner Units to Common Stock
4

 
5,005

 

 

 
(5,009
)
 

Retirement of Limited Partner Units

 

 

 

 
(934
)
 
(934
)
Reallocation - Additional Paid-in-Capital

 
(292
)
 

 

 
292

 

Balance as of March 31, 2018
$
1,206

 
$
1,970,717

 
$
(535,169
)
 
$
7,704

 
$
43,006

 
$
1,487,464

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

6



FIRST INDUSTRIAL REALTY TRUST, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited; in thousands)
 
Three Months Ended March 31, 2018
 
Three Months Ended March 31, 2017
CASH FLOWS FROM OPERATING ACTIVITIES:
 
 
 
Net Income
$
37,464

 
$
23,491

Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities:
 
 
 
Depreciation
22,953

 
23,200

Amortization of Debt Issuance Costs
855

 
778

Other Amortization, including Stock Based Compensation
6,626

 
8,112

Impairment of Real Estate
2,756

 

Provision for Bad Debt
88

 
75

Gain on Sale of Real Estate
(20,089
)
 
(8,009
)
Loss from Retirement of Debt
39

 
1,653

Increase in Tenant Accounts Receivable, Prepaid Expenses and Other Assets, Net
(6,706
)
 
(4,147
)
Increase in Deferred Rent Receivable, Net
(713
)
 
(1,494
)
Decrease in Accounts Payable, Accrued Expenses, Other Liabilities, Rents Received in Advance and Security Deposits
(6,249
)
 
(3,571
)
Net Cash Provided by Operating Activities
37,024

 
40,088

CASH FLOWS FROM INVESTING ACTIVITIES:
 
 
 
Acquisitions of Real Estate
(49,865
)
 
(15,074
)
Additions to Investment in Real Estate and Non-Acquisition Tenant Improvements and Lease Costs
(63,994
)
 
(34,910
)
Net Proceeds from Sales of Investments in Real Estate
41,691

 
19,916

Other Investing Activity
(3,053
)
 
(1,700
)
Net Cash Used in Investing Activities
(75,221
)
 
(31,768
)
CASH FLOWS FROM FINANCING ACTIVITIES:
 
 
 
Financing and Equity Issuance Costs
(2,676
)
 
(13
)
Repurchase and Retirement of Restricted Stock
(6,020
)
 
(2,401
)
Common Stock Dividends and Unit Distributions Paid
(26,565
)
 
(23,017
)
Repayments on Mortgage Loans Payable
(160,163
)
 
(38,896
)
Payments of Prepayment Penalties Associated with Retirement of Debt

 
(1,453
)
Proceeds from Senior Unsecured Notes
300,000

 

Proceeds from Unsecured Credit Facility
162,000

 
85,000

Repayments on Unsecured Credit Facility
(206,500
)
 
(22,500
)
Net Cash Provided by (Used in) Financing Activities
60,076

 
(3,280
)
Net Increase in Cash, Cash Equivalents and Restricted Cash
21,879

 
5,040

Cash, Cash Equivalents and Restricted Cash, Beginning of Year
46,482

 
21,461

Cash, Cash Equivalents and Restricted Cash, End of Period
$
68,361

 
$
26,501

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
FIRST INDUSTRIAL REALTY TRUST, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(Unaudited; in thousands)
 
Three Months Ended March 31, 2018
 
Three Months Ended March 31, 2017
SUPPLEMENTAL INFORMATION TO STATEMENTS OF CASH FLOWS:
 
 
 
Interest Expense Capitalized in Connection with Development Activity
$
1,602

 
$
1,027

Supplemental Schedule of Non-Cash Investing and Financing Activities:
 
 
 
Common Stock Dividends and Unit Distributions Payable
$
27,558

 
$
25,977

Exchange of Limited Partnership Units for Common Stock:
 
 
 
Noncontrolling Interest
$
(5,009
)
 
$

Common Stock
4

 

Additional Paid-in-Capital
5,005

 

Total
$

 
$

Assumption of Indebtedness and Other Liabilities in Connection with the Acquisition of Real Estate
$
11,724

 
$

Accounts Payable Related to Construction in Progress and Additions to Investment in Real Estate
$
32,006

 
$
22,186

Write-off of Fully Depreciated Assets
$
(13,663
)
 
$
(7,023
)
The accompanying notes are an integral part of the consolidated financial statements.

7



FIRST INDUSTRIAL, L.P.
CONSOLIDATED BALANCE SHEETS
(In thousands, except Unit data)

 
March 31, 2018
 
December 31, 2017
 
(Unaudited)
 
 
ASSETS
 
 
 
Assets:
 
 
 
Investment in Real Estate:
 
 
 
Land
$
879,051

 
$
864,813

Buildings and Improvements
2,507,087

 
2,521,457

Construction in Progress
157,667

 
109,475

Less: Accumulated Depreciation
(788,234
)
 
(789,919
)
Net Investment in Real Estate (including $268,442 and $270,708 related to consolidated variable interest entities, see Note 5)
2,755,571

 
2,705,826

Real Estate and Other Assets Held for Sale, Net of Accumulated Depreciation and Amortization of $9,384 and $0
16,725

 

Cash and Cash Equivalents
19,782

 
21,146

Restricted Cash
48,579

 
25,336

Tenant Accounts Receivable, Net
5,770

 
4,873

Deferred Rent Receivable, Net
70,386

 
70,254

Deferred Leasing Intangibles, Net
31,350

 
30,481

Prepaid Expenses and Other Assets, Net
106,645

 
93,264

Total Assets
$
3,054,808

 
$
2,951,180

LIABILITIES AND PARTNERS’ CAPITAL
 
 
 
Liabilities:
 
 
 
Indebtedness:
 
 
 
Mortgage Loans Payable, Net (including $20,833 and $61,256 related to consolidated variable interest entities, see Note 5)
$
301,661

 
$
450,056

Senior Unsecured Notes, Net
544,204

 
246,673

Unsecured Term Loans, Net
456,016

 
455,768

Unsecured Credit Facility
100,000

 
144,500

Accounts Payable, Accrued Expenses and Other Liabilities
70,997

 
86,532

Deferred Leasing Intangibles, Net
10,734

 
10,355

Rents Received in Advance and Security Deposits
45,961

 
44,285

Distributions Payable
27,558

 
27,016

Total Liabilities
1,557,131

 
1,465,185

Commitments and Contingencies

 

Partners’ Capital:
 
 
 
First Industrial, L.P.'s Partners' Capital:
 
 
 
General Partner Units (120,557,079 and 119,883,180 units outstanding)
1,412,146

 
1,401,583

Limited Partners Units (3,564,107 and 4,008,221 units outstanding)
76,705

 
82,251

Accumulated Other Comprehensive Income
7,931

 
1,382

Total First Industrial L.P.'s Partners’ Capital
1,496,782

 
1,485,216

Noncontrolling Interest
895

 
779

Total Partners’ Capital
1,497,677

 
1,485,995

Total Liabilities and Partners’ Capital
$
3,054,808

 
$
2,951,180

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

8



FIRST INDUSTRIAL L.P.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited; in thousands, except per Unit data)

 
Three Months Ended March 31, 2018
 
Three Months Ended March 31, 2017
Revenues:
 
 
 
Rental Income
75,180

 
$
74,918

Tenant Recoveries and Other Income
24,591

 
22,465

Total Revenues
99,771

 
97,383

Expenses:
 
 
 
Property Expenses
29,411

 
28,486

General and Administrative
8,143

 
8,033

Impairment of Real Estate
2,756

 

Depreciation and Other Amortization
28,315

 
28,494

Total Expenses
68,625

 
65,013

Other Income (Expense):
 
 
 
Gain on Sale of Real Estate
20,089

 
8,009

Interest Expense
(12,791
)
 
(14,369
)
Amortization of Debt Issuance Costs
(855
)
 
(778
)
Loss from Retirement of Debt
(39
)
 
(1,653
)
Total Other Income (Expense)
6,404

 
(8,791
)
Income from Operations Before Income Tax Provision
37,550

 
23,579

Income Tax Provision
(86
)
 
(88
)
Net Income
37,464

 
23,491

Less: Net Income Attributable to the Noncontrolling Interest
(21
)
 
(27
)
Net Income Available to Unitholders and Participating Securities
$
37,443

 
$
23,464

Basic and Diluted Earnings Per Unit:
 
 

Net Income Available to Unitholders
$
0.30

 
$
0.19

Distributions Per Unit
$
0.2175

 
$
0.2100

Weighted Average Units Outstanding - Basic
123,729

 
120,877

Weighted Average Units Outstanding - Diluted
124,094

 
121,301

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



9



FIRST INDUSTRIAL L.P.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited; in thousands)

 
Three Months Ended March 31, 2018
 
Three Months Ended March 31, 2017
Net Income
$
37,464

 
$
23,491

Mark-to-Market Gain on Interest Rate Protection Agreements
6,525

 
2,178

Amortization of Interest Rate Protection Agreements
24

 
96

Comprehensive Income
$
44,013

 
$
25,765

Comprehensive Income Attributable to Noncontrolling Interest
(21
)
 
(27
)
Comprehensive Income Attributable to Unitholders
$
43,992

 
$
25,738

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


10



FIRST INDUSTRIAL, L.P.
CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS’ CAPITAL
(Unaudited; in thousands)

 
General
Partner
Units
 
Limited
Partner
Units
 
Accumulated
Other
Comprehensive
Income
 
Noncontrolling Interest
 
Total
Balance as of December 31, 2017
$
1,401,583

 
$
82,251

 
$
1,382

 
$
779

 
$
1,485,995

Net Income
36,271

 
1,172

 

 
21

 
37,464

Other Comprehensive Income

 

 
6,549

 

 
6,549

Stock Based Compensation Activity
(4,385
)
 

 

 

 
(4,385
)
Unit Distributions
(26,332
)
 
(775
)
 

 

 
(27,107
)
Conversion of Limited Partner Units to General Partner Units
5,009

 
(5,009
)
 

 

 

Retirement of Limited Partner Units

 
(934
)
 

 

 
(934
)
Contributions from Noncontrolling Interest

 

 

 
116

 
116

Distributions to Noncontrolling Interest

 

 

 
(21
)
 
(21
)
Balance as of March 31, 2018
$
1,412,146

 
$
76,705

 
$
7,931

 
$
895

 
$
1,497,677

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


11



FIRST INDUSTRIAL, L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited; in thousands)
 
Three Months Ended March 31, 2018
 
Three Months Ended March 31, 2017
CASH FLOWS FROM OPERATING ACTIVITIES:
 
 
 
Net Income
$
37,464

 
$
23,491

Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities:
 
 
 
Depreciation
22,953

 
23,200

Amortization of Debt Issuance Costs
855

 
778

Other Amortization, including Stock Based Compensation
6,626

 
8,112

Impairment of Real Estate
2,756

 

Provision for Bad Debt
88

 
75

Gain on Sale of Real Estate
(20,089
)
 
(8,009
)
Loss from Retirement of Debt
39

 
1,653

Increase in Tenant Accounts Receivable, Prepaid Expenses and Other Assets, Net
(6,801
)
 
(4,137
)
Increase in Deferred Rent Receivable, Net
(713
)
 
(1,494
)
Decrease in Accounts Payable, Accrued Expenses, Other Liabilities, Rents Received in Advance and Security Deposits
(6,249
)
 
(3,571
)
Net Cash Provided by Operating Activities
36,929

 
40,098

CASH FLOWS FROM INVESTING ACTIVITIES:
 
 
 
Acquisitions of Real Estate
(49,865
)
 
(15,074
)
Additions to Investment in Real Estate and Non-Acquisition Tenant Improvements and Lease Costs
(63,994
)
 
(34,910
)
Net Proceeds from Sales of Investments in Real Estate
41,691

 
19,916

Other Investing Activity
(3,053
)
 
(1,700
)
Net Cash Used in Investing Activities
(75,221
)
 
(31,768
)
CASH FLOWS FROM FINANCING ACTIVITIES:
 
 
 
Financing and Equity Issuance Costs
(2,676
)
 
(13
)
Repurchase and Retirement of Restricted Units
(6,020
)
 
(2,401
)
Unit Distributions Paid
(26,565
)
 
(23,017
)
Contributions from Noncontrolling Interests
116

 
7

Distributions to Noncontrolling Interests
(21
)
 
(17
)
Repayments on Mortgage Loans Payable
(160,163
)
 
(38,896
)
Payments of Prepayment Penalties Associated with Retirement of Debt


 
(1,453
)
Proceeds from Senior Unsecured Notes
300,000

 

Proceeds from Unsecured Credit Facility
162,000

 
85,000

Repayments on Unsecured Credit Facility
(206,500
)
 
(22,500
)
Net Cash Provided by (Used in) Financing Activities
60,171

 
(3,290
)
Net Increase in Cash, Cash Equivalents and Restricted Cash
21,879

 
5,040

Cash, Cash Equivalents and Restricted Cash, Beginning of Year
46,482

 
21,461

Cash, Cash Equivalents and Restricted Cash, End of Period
$
68,361

 
$
26,501

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

12



FIRST INDUSTRIAL, L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(Unaudited; in thousands)
 
Three Months Ended March 31, 2018
 
Three Months Ended March 31, 2017
SUPPLEMENTAL INFORMATION TO STATEMENTS OF CASH FLOWS:
 
 
 
Interest Expense Capitalized in Connection with Development Activity
$
1,602

 
$
1,027

Supplemental Schedule of Non-Cash Investing and Financing Activities:
 
 
 
General and Limited Partner Unit Distributions Payable
$
27,558

 
$
25,977

Exchange of Limited Partner Units for General Partner Units:
 
 
 
Limited Partner Units
$
(5,009
)
 
$

General Partner Units
5,009

 

Total
$

 
$

Assumption of Indebtedness and Other Liabilities in Connection with the Acquisition of Real Estate
$
11,724

 
$

Accounts Payable Related to Construction in Progress and Additions to Investment in Real Estate
$
32,006

 
$
22,186

Write-off of Fully Depreciated Assets
$
(13,663
)
 
$
(7,023
)
The accompanying notes are an integral part of the consolidated financial statements.

13



FIRST INDUSTRIAL REALTY TRUST, INC. AND FIRST INDUSTRIAL, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited; dollars in thousands, except per share and Unit data)
1. Organization
First Industrial Realty Trust, Inc. (the "Company") is a self-administered and fully integrated real estate company which owns, manages, acquires, sells, develops and redevelops industrial real estate. The Company is a Maryland corporation organized on August 10, 1993 and a real estate investment trust ("REIT") as defined in the Internal Revenue Code of 1986 (the "Code"). Unless stated otherwise or the context otherwise requires, the terms "we," "our" and "us" refer to the Company and its subsidiaries, including its operating partnership, First Industrial, L.P. (the "Operating Partnership"), and its consolidated subsidiaries.
We began operations on July 1, 1994. The Company's operations are conducted primarily through the Operating Partnership, of which the Company is the sole general partner (the "General Partner"), with an approximate 97.1% ownership interest ("General Partner Units") at March 31, 2018. The Operating Partnership also conducts operations through eight other limited partnerships (the "Other Real Estate Partnerships"), numerous limited liability companies ("LLCs") and certain taxable REIT subsidiaries ("TRSs"), the operating data of which, together with that of the Operating Partnership, is consolidated with that of the Company as presented herein. The Operating Partnership holds at least a 99% limited partnership interest in each of the Other Real Estate Partnerships. The general partners of the Other Real Estate Partnerships are separate corporations, wholly-owned by the Company, each with at least a .01% general partnership interest in the Other Real Estate Partnerships. The Company does not have any significant assets or liabilities other than its investment in the Operating Partnership and its 100% ownership interest in the general partners of the Other Real Estate Partnerships. Noncontrolling interest in the Operating Partnership of approximately 2.9% at March 31, 2018 represents the aggregate partnership interest held by the limited partners thereof ("Limited Partner Units" and together with the General Partner Units, the "Units").
Profits, losses and distributions of the Operating Partnership, the LLCs, the Other Real Estate Partnerships and the TRSs are allocated to the general partner and the limited partners, the members or the shareholders, as applicable, of such entities in accordance with the provisions contained within their respective organizational documents.
As of March 31, 2018, we owned 485 industrial properties located in 21 states, containing an aggregate of approximately 60.1 million square feet of gross leasable area ("GLA"). Of the 485 properties owned on a consolidated basis, none of them are directly owned by the Company.
2. Summary of Significant Accounting Policies
Basis of Presentation
The accompanying unaudited interim consolidated financial statements have been prepared in accordance with the accounting policies described in the consolidated financial statements and related notes included in our annual report on Form 10-K for the year ended December 31, 2017 ("2017 Form 10-K") and should be read in conjunction with such consolidated financial statements and related notes. The 2017 year end consolidated balance sheet data included in this Form 10-Q filing was derived from the audited consolidated financial statements in our 2017 Form 10-K, but does not include all disclosures required by accounting principles generally accepted in the United States of America ("GAAP"). The following notes to these interim consolidated financial statements highlight significant changes to the notes included in the December 31, 2017 audited consolidated financial statements included in our 2017 Form 10-K and present interim disclosures as required by the Securities and Exchange Commission.
Use of Estimates
In order to conform with GAAP, in preparation of our consolidated financial statements we 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 March 31, 2018 and December 31, 2017, and the reported amounts of revenues and expenses for the three months ended March 31, 2018 and 2017. Actual results could differ from those estimates. In our opinion, the accompanying unaudited interim consolidated financial statements reflect all adjustments necessary for a fair statement of our financial position as of March 31, 2018 and December 31, 2017, the results of our operations and comprehensive income for each of the three months ended March 31, 2018 and 2017, and our cash flows for each of the three months ended March 31, 2018 and 2017. All adjustments are of a normal recurring nature.

14



Recent Accounting Pronouncements
Recent Accounting Standards Adopted
In May 2014, the Financial Accounting Standards Board ("the FASB") issued Accounting Standards Updates ("ASU") No. 2014-09, “Revenue from Contracts with Customers” (“ASU 2014-09”). ASU 2014-09 requires entities to recognize revenue when they transfer promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled to in exchange for those goods or services. ASU 2014-09 is effective for annual periods beginning after December 15, 2017. We adopted the new standard effective January 1, 2018. The adoption of the standard did not impact our financial position or results of operations.
In August 2016 and November 2016, the FASB issued new ASUs impacting the statement of cash flows. ASU No. 2016-15, “Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments” intends to reduce the diversity in practice in how certain cash receipts and cash payments are presented and classified in the statement of cash flows. ASU No. 2016-18, "Statement of Cash Flows (Topic 230): Restricted Cash" requires that the statement of cash flows explain the change during the period in the total of cash, cash equivalents and amounts generally described as restricted cash and restricted cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. We adopted both standards on January 1, 2018.
The adoption of these standards modified our presentation of certain activities within the Consolidated Statements of Cash Flows. Restricted cash is comprised of gross proceeds from the sales of certain industrial properties that are held by intermediary agents to be used for tax-deferred, like-kind exchange transactions under Section 1031 of the Code. For the three month ended March 31, 2018 and 2017, $48,579 and $7,503 of restricted cash was included in "Cash, Cash Equivalents and Restricted Cash" in our Consolidated Satements of Cash Flows. Additionally, as a result of the adoption of the standards we reclassified $1,453 of prepayment penalties in connection with the payoff of certain mortgage loans from operating activities to financing activities for the three months ended March 31, 2017.
The following table presents a reconciliation of cash, cash equivalents and restricted cash reported within our Consolidated Balance Sheets to amounts reported within our Consolidated Statements of Cash Flows for the three months ended March 31, 2018 and 2017:
 
2018
 
2017
Cash and Cash Equivalents
19,782

 
18,998

Restricted Cash
48,579

 
7,503

Total Cash, Cash Equivalents and Restricted Cash
68,361

 
26,501


15



Recent Accounting Standards Not Yet Adopted
In February 2016, the FASB issued ASU No. 2016-02, "Leases" ("ASU 2016-02"), which amends the existing accounting standards for lease accounting and sets out the principles for the recognition, measurement, presentation and disclosure of leases. ASU 2016-02 will require lessees, at lease commencement to record a lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis, and record a right-of-use asset, which represents the lessee’s right to use, or control the use of, a specified asset for the lease term. We are a lessee on a limited number of ground and office leases and expect to record a right-of-use asset and lease liability for these leases upon adoption of this standard. We are the lessor on a significant number of leases, however, we believe that ASU 2016-02 will have minimal impact to our financial condition or results of operations as such leases will be accounted for in a similar method to existing GAAP standards with the underlying leased asset being reported and recognized as a real estate asset and rental income being recognized on a straight line basis over the lease term. The most significant changes ASU 2016-02 will have to lessor accounting will be the requirement that lessors expense certain initial direct costs that are not incremental in negotiating a lease as incurred. Under existing GAAP standards, certain of these costs are capitalizable. ASU 2016-02 requires the use of a modified retrospective approach for all leases existing at, or entered into after, the beginning of the earliest period presented in the consolidated financial statements, with certain practical expedients available. If practical expedients are elected, we would not be required to reassess (1) whether an expired or existing contract meets the definition of a lease; (2) the lease classification for expired or existing leases; and (3) whether costs previously capitalized as initial direct costs would continue to be amortized. We continue to monitor FASB activity with respect to possible amendments to ASU 2016-02, particularly the FASB's recent vote to provide an optional practical expedient to lessors that would remove the requirement for lessors to separate lease and non-lease components when the timing and pattern of transfer of the non-lease components and the lease component are the same and, when the stand-alone lease component would be classified as an operating lease if account for separately. Should such amendment be finalized, we expect to elect the practical expedient. We will adopt ASU 2016-02 on January 1, 2019 and anticipate electing the practical expedients. We will continue to refine our evaluation and finalize our implementation plan throughout 2018.
In August 2017, the FASB issued ASU 2017-12, “Derivatives and Hedging (Topic 815): Targeting Improvements to Accounting for Hedging Activities” (“ASU 2017-12”). ASU 2017-12 is intended to better align financial reporting for hedging activities with the economic objectives of those activities. As a result of the transition guidance, cumulative ineffectiveness that has been previously recognized on cash flow and net investment hedges that are still outstanding and designated as of the date of adoption will be adjusted and removed from beginning retained earnings and placed in accumulated other comprehensive income. ASU 2017-12 is effective for annual periods beginning after December 15, 2018. We continue to assess all the potential impacts of ASU 2017-12, however, we do not expect the adoption to have an impact on our financial condition or results of operations.
3. Investment in Real Estate
Acquisitions
During the three months ended March 31, 2018, we acquired five industrial properties comprised of approximately 0.4 million square feet of GLA and one land parcel. We considered these properties asset acquisitions and therefore capitalized acquisition costs to the basis of the acquired assets. The following table summarizes the amounts recognized for each major class of asset and liability for the industrial properties and land parcels acquired during the three months ended March 31, 2018:
 
Purchase Price
Land
$
24,146

Building and Improvements
34,474

Other Assets (leasing commissions)
526

In-Place Leases
2,483

Above Market Leases
73

Below Market Leases
(737
)
Total Purchase Price (A)
$
60,965

Assumed Mortgage Loan (Note 4)
(11,654
)
Total Net Assets Acquired
$
49,311

_______________
(A) Excludes closing costs incurred in conjunction with the acquisition of the industrial properties and the land parcel.
The revenue and net income associated with the acquisition of the industrial properties, since their respective acquisition dates, are not significant for the three months ended March 31, 2018.

16



Real Estate Held for Sale
As of March 31, 2018, we had 19 industrial properties comprised of approximately 0.5 million square feet of GLA held for sale.
Sales
During the three months ended March 31, 2018, we sold eight industrial properties comprised of approximately 0.5 million square feet of GLA and one land parcel. Gross proceeds from the sales of these industrial properties were $42,390. The gain on sale of real estate was $20,089.
Impairment Charges
The impairment charges of $2,756 recorded during the three months ended March 31, 2018 were due to marketing one industrial property and one land parcel for sale and our assessment of the likelihood and timing of a potential sale transaction.
The following table presents information about our real estate assets that were measured at fair value on a non-recurring basis and for which impairment charges were recorded during the three months ended March 31, 2018. The table also indicates the fair value hierarchy of the valuation techniques we used to determine such fair value.
 
Fair Value Measurements on a Non-Recurring Basis Using:
 
 
Description
At March 31, 2018
 
Quoted Prices in
Active Markets for
Identical Assets
(Level  1)
 
Significant Other
Observable Inputs
(Level 2)
 
Unobservable
Inputs
(Level 3)
 
Total
Impairment for the Three Months Ended
Real estate assets
$
6,416

 

 

 
$
6,416

 
$
2,756

The following table presents quantitative information about the significant unobservable inputs we used to determine fair value of non-recurring items at March 31, 2018.
Quantitative Information about Level 3 Fair Value Measurements:
Description
 
Fair Value
 
Valuation Technique
 
Unobservable Inputs
 
Range
Impairment of one industrial property comprising approximately 0.1 million square feet of GLA and one land parcel
 
$
6,416

 
Contracted Price
 
(A) 
 
N/A
_______________
(A) The fair value for both the industrial property and the land parcel was based upon the value included in a third party purchase contract, which was subject to our corroboration for reasonableness.

17



4. Indebtedness
The following table discloses certain information regarding our indebtedness: 
 
Outstanding Balance at
 
Interest
Rate at
March 31, 2018
 
Effective
Interest
Rate at
Issuance
 
Maturity
Date
 
March 31, 2018
 
December 31,
2017
 
Mortgage Loans Payable, Gross
$
303,093

 
$
451,602

 
4.03% – 8.26%
 
3.82% – 8.26%
 
July 2019 –
August 2028
Unamortized Debt Issuance Costs
(1,644
)
 
(1,806
)
 
 
 
 
 
 
Unamortized Premiums
212

 
260

 
 
 
 
 
 
Mortgage Loans Payable, Net
$
301,661

 
$
450,056

 
 
 
 
 
 
Senior Unsecured Notes, Gross
 
 
 
 
 
 
 
 
 
2027 Notes
6,070

 
6,070

 
7.15%
 
7.11%
 
5/15/2027
2028 Notes
31,901

 
31,901

 
7.60%
 
8.13%
 
7/15/2028
2032 Notes
10,600

 
10,600

 
7.75%
 
7.87%
 
4/15/2032
2027 Private Placement Notes
125,000

 
125,000

 
4.30%
 
4.30%
 
4/20/2027
2028 Private Placement Notes
150,000

 

 
3.86%
 
3.86%
 
2/15/2028
2029 Private Placement Notes
75,000

 
75,000

 
4.40%
 
4.40%
 
4/20/2029
2030 Private Placement Notes
150,000

 

 
3.96%
 
3.96%
 
2/15/2030
Subtotal
$
548,571

 
$
248,571

 
 
 
 
 
 
Unamortized Debt Issuance Costs
(4,285
)
 
(1,814
)
 
 
 
 
 
 
Unamortized Discounts
(82
)
 
(84
)
 
 
 
 
 
 
Senior Unsecured Notes, Net
$
544,204

 
$
246,673

 
 
 
 
 
 
Unsecured Term Loans, Gross
 
 


 
 
 
 
 
 
2014 Unsecured Term Loan (A)
$
200,000

 
$
200,000

 
3.39%
 
N/A
 
1/29/2021
2015 Unsecured Term Loan (A)
260,000

 
260,000

 
2.89%
 
N/A
 
9/12/2022
Subtotal
$
460,000

 
$
460,000

 

 

 

Unamortized Debt Issuance Costs
(3,984
)
 
(4,232
)
 
 
 
 
 
 
Unsecured Term Loans, Net
$
456,016

 
$
455,768

 
 
 
 
 
 
Unsecured Credit Facility (B)
$
100,000

 
$
144,500

 
2.83%
 
N/A
 
10/29/2021
_______________
(A) During the three months ended March 31, 2018, pursuant to our agreements for the 2014 Unsecured Term Loan and our 2015 Unsecured Term Loan, we elected to have the interest spread calculated based on our investment grade rating resulting in a 10 basis point reduction in the credit spread compared to the prior rate. The interest rate at March 31, 2018 also reflects the interest rate protection agreements we entered into to effectively convert the variable rate to a fixed rate. See Note 10.
(B) The maturity date may be extended an additional year at our election, subject to certain restrictions. Amounts exclude unamortized debt issuance costs of $4,495 and $4,781 as of March 31, 2018 and December 31, 2017, respectively, which are included in prepaid expenses and other assets on the consolidated balance sheets.
Mortgage Loans Payable, Net
During the three months ended March 31, 2018, we assumed a mortgage loan in the amount of $11,654 in conjunction with the acquisition of three industrial properties, totaling approximately 0.2 million square feet of GLA. The mortgage loan bears interest at a fixed rate of 4.17%, principal payments are amortized over 30 years and the loan matures in August 2028.
During the three months ended March 31, 2018, we paid off mortgage loans in the amount of $157,782. In connection with the mortgage loans paid off during the three months ended March 31, 2018, we recognized $39 as loss from retirement of debt representing the write-off of unamortized debt issuance costs offset by the write off of an unamortized premium.
As of March 31, 2018, mortgage loans payable are collateralized, and in some instances cross-collateralized, by industrial properties with a net carrying value of $452,685. We believe the Operating Partnership and the Company were in compliance with all covenants relating to mortgage loans as of March 31, 2018.

18



Senior Unsecured Notes, Net
During the three months ended March 31, 2018, the Operating Partnership issued $150,000 of 3.86% Series C Guaranteed Senior Notes due February 15, 2028 (the “2028 Private Placement Notes”) and $150,000 of 3.96% Series D Guaranteed Senior Notes due February 15, 2030 (the “2030 Private Placement Notes”) (together with the 2027 Private Placement Notes and the 2029 Private Placement Notes (each as described in Note 4), collectively, the "Private Placement Notes") in a private placement pursuant to a Note and Guaranty Agreement dated December 12, 2017. The 2028 Private Placement Notes and the 2030 Private Placement Notes are unsecured obligations of the Operating Partnership that are fully and unconditionally guaranteed by the Company and require semi-annual interest payments.
Indebtedness
The following is a schedule of the stated maturities and scheduled principal payments of our indebtedness, exclusive of premiums, discounts and debt issuance costs, for the next five years as of March 31, and thereafter: 
 
Amount
Remainder of 2018
$
5,483

2019
79,600

2020
59,046

2021
367,113

2022
341,552

Thereafter
558,870

Total
$
1,411,664

Our unsecured credit facility (the "Unsecured Credit Facility"), the Unsecured Term Loans (as defined in Note 10), the Private Placement Notes and the indentures governing our senior unsecured notes contain certain financial covenants, including limitations on incurrence of debt and debt service coverage. Under the Unsecured Credit Facility and the Unsecured Term Loans an event of default can 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 agreements. We believe that the Operating Partnership and the Company were in compliance with all covenants relating to the Unsecured Credit Facility, the Unsecured Term Loans, the Private Placement Notes and indentures governing our senior unsecured notes as of March 31, 2018. However, these financial covenants are complex and there can be no assurance that these provisions would not be interpreted by our lenders and noteholders in a manner that could impose and cause us to incur material costs.

19



Fair Value
At March 31, 2018 and December 31, 2017, the fair value of our indebtedness was as follows: 
 
March 31, 2018
 
December 31, 2017
 
Carrying
Amount (A)
 
Fair
Value
 
Carrying
Amount (A)
 
Fair
Value
Mortgage Loans Payable, Net
$
303,305

 
$
313,953

 
$
451,862

 
$
467,303

Senior Unsecured Notes, Net
548,489

 
548,195

 
248,487

 
269,731

Unsecured Term Loans
460,000

 
460,000

 
460,000

 
460,000

Unsecured Credit Facility
100,000

 
100,000

 
144,500

 
144,500

Total
$
1,411,794

 
$
1,422,148

 
$
1,304,849

 
$
1,341,534

_______________
(A) The carrying amounts include unamortized premiums and discounts and exclude unamortized debt issuance costs.
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 based upon similar remaining maturities. The current market rates we utilized were internally estimated. The fair value of the senior unsecured notes were determined by using rates, as advised by our bankers, that are based upon recent trades within the same series of the senior unsecured notes, recent trades for senior unsecured notes with comparable maturities, recent trades for fixed rate unsecured notes from companies with profiles similar to ours, as well as overall economic conditions. The fair value of the Unsecured Credit Facility and the Unsecured Term Loans 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. We have concluded that our determination of fair value for each of our mortgage loans payable, senior unsecured notes, the Unsecured Term Loans and the Unsecured Credit Facility was primarily based upon Level 3 inputs.
5. Variable Interest Entities
The Other Real Estate Partnerships are variable interest entities ("VIEs") of the Operating Partnership and the Operating Partnership is the primary beneficiary, thus causing the Other Real Estate Partnerships to be consolidated by the Operating Partnership. In addition, the Operating Partnership is a VIE of the Company and the Company is the primary beneficiary.
The following table summarizes the assets and liabilities of the Other Real Estate Partnerships included in our consolidated balance sheets, net of intercompany amounts:
 
March 31, 2018
 
December 31, 2017
ASSETS
 
 
 
Assets:
 
 
 
Net Investment in Real Estate
$
268,442

 
$
270,708

Other Assets, Net
24,966

 
23,530

Total Assets
$
293,408

 
$
294,238

LIABILITIES AND PARTNERS’ CAPITAL
 
 
 
Liabilities:
 
 
 
Mortgage Loans Payable, Net
$
20,833

 
$
61,256

Other Liabilities, Net
8,434

 
9,283

Partners’ Capital
264,141

 
223,699

Total Liabilities and Partners’ Capital
$
293,408

 
$
294,238


20



6. Stockholders’ Equity of the Company and Partners' Capital of the Operating Partnership
Noncontrolling Interest of the Company
The following table summarizes the changes in noncontrolling interest for the Company for the three months ended March 31, 2018 and 2017:
 
2018
 
2017
Balance as of December 31
$
48,077

 
$
43,184

    Net Income
1,172

 
782

    Other Comprehensive Income
183

 
76

    Common Stock Dividends and Unit Distributions
(775
)
 
(848
)
    Conversion of Limited Partner Units to Common Stock (A)
(5,009
)
 

    Retirement of Limited Partner Units (B)
(934
)
 

    Reallocation - Additional Paid-in-Capital
292

 
(38
)
Balance as of March 31
$
43,006

 
$
43,156

_______________
(A) For the three months ended March 31, 2018 and 2017, 410,781 and 0 Limited Partner Units, respectively, were converted into an equivalent number of shares of common stock of the Company, resulting in a reclassification of $5,009 and $0, respectively, of noncontrolling interest to the Company’s stockholders’ equity.
(B) During the three months ended March 31, 2018, 33,333 Limited Partner Units were forfeited by a unitholder and were retired by the Operating Partnership.
Noncontrolling Interest of the Operating Partnership
The following table summarizes the changes in noncontrolling interest for the Operating Partnership for the three months ended March 31, 2018 and 2017:
 
2018
 
2017
Balance as of December 31
$
779

 
$
956

    Net Income
21

 
27

    Contributions
116

 
7

    Distributions
(21
)
 
(17
)
Balance as of March 31
$
895

 
$
973

Dividends/Distributions
During the three months ended March 31, 2018, we declared $27,107 common stock dividends and Unit distributions.

21



7. Accumulated Other Comprehensive Income
The following table summarizes the changes in accumulated other comprehensive income by component for the Company and the Operating Partnership for the three months ended March 31, 2018:
 
Interest Rate Protection Agreements
 
Accumulated Other Comprehensive Income of the Operating Partnership
 
Comprehensive Income Attributable to Noncontrolling Interest of the Company
 
Accumulated Other Comprehensive Income of the Company
Balance as of December 31, 2017
$
1,382

 
$
1,382

 
$
(44
)
 
1,338

Other Comprehensive Income Before Reclassifications
6,062

 
6,062

 
(183
)
 
5,879

Amounts Reclassified from Accumulated Other Comprehensive Income
487

 
487

 

 
487

Net Current Period Other Comprehensive Income
6,549

 
6,549

 
(183
)
 
6,366

Balance as of March 31, 2018
$
7,931

 
$
7,931

 
$
(227
)
 
$
7,704

The following table summarizes the reclassifications out of accumulated other comprehensive income for both the Company and the Operating Partnership for the three months ended March 31, 2018 and 2017:
 
 
Amounts Reclassified from Accumulated
Other Comprehensive Income
 
Details about Accumulated
Other Comprehensive Loss Components
 
Three Months Ended March 31, 2018
 
Three Months Ended March 31, 2017
 
Affected Line Items in the
Consolidated Statements of Operations
Interest Rate Protection Agreements:
 
 
 
 
 
 
Amortization of Previously Settled Interest Rate Protection Agreements
 
$
24

 
$
96

 
Interest Expense
Settlement Payments to our Counterparties
 
463

 
1,413

 
Interest Expense
Total
 
$
487

 
$
1,509

 
 
The effective portion of changes in the fair value of derivatives designated and that qualify as cash flow hedges is recorded in other comprehensive income 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 expect to amortize approximately $95 into net income by increasing interest expense for interest rate protection agreements we settled in previous periods. Additionally, recurring settlement amounts on the 2014 Swaps and 2015 Swaps (as defined in Note 10) will also be reclassified to net income. See Note 10 for more information about our derivatives.

22


8. Earnings Per Share and Earnings Per Unit ("EPS"/"EPU")
The computation of basic and diluted EPS of the Company is presented below: 
 
Three Months Ended
March 31, 2018
 
Three Months Ended
March 31, 2017
Numerator:
 
 
 
Net Income Available to First Industrial Realty Trust, Inc.’s Common Stockholders and Participating Securities
$
36,292

 
$
22,709

Net Income Allocable to Participating Securities
(97
)
 
(67
)
Net Income Available to First Industrial Realty Trust, Inc.’s Common Stockholders
$
36,195

 
$
22,642

Denominator (In Thousands):
 
 
 
Weighted Average Shares - Basic
119,846

 
116,837

Effect of Dilutive Securities:
 
 
 
        LTIP Unit Awards (As Defined in Note 9)
365

 
424

Weighted Average Shares - Diluted
120,211

 
117,261

Basic and Diluted EPS:
 
 
 
Net Income Available to First Industrial Realty Trust, Inc.’s Common Stockholders
$
0.30

 
$
0.19

The computation of basic and diluted EPU of the Operating Partnership is presented below:
 
Three Months Ended
March 31, 2018
 
Three Months Ended
March 31, 2017
Numerator:
 
 
 
Net Income Available to Unitholders and Participating Securities
$
37,443

 
$
23,464

Net Income Allocable to Participating Securities
(97
)
 
(66
)
Net Income Available to Unitholders
$
37,346

 
$
23,398

Denominator (In Thousands):
 
 
 
Weighted Average Units - Basic
123,729

 
120,877

Effect of Dilutive Securities that Result in the Issuance of General Partner Units:
 
 
 
LTIP Unit Awards (As Defined in Note 9)
365

 
424

Weighted Average Units - Diluted
124,094

 
121,301

Basic and Diluted EPU:
 
 
 
Net Income Available to Unitholders
$
0.30

 
$
0.19

Participating securities include 410,132 and 403,628 of unvested restricted stock or restricted Unit awards outstanding at March 31, 2018 and 2017, respectively, which participate in non-forfeitable distributions. Under the two class method, participating security holders are allocated income, in proportion to total weighted average shares or Units outstanding, based upon the greater of net income or common stock dividends or Unit distributions declared.

23



9. Benefit Plans
Restricted Stock or Restricted Unit Awards
For the three months ended March 31, 2018, the Company awarded 208,890 shares of restricted stock awards to certain employees, which had an aggregate fair value of $5,981 on the date such awards were approved by the Compensation Committee of the Board of Directors. These restricted stock awards were granted based upon the achievement of certain corporate performance goals and generally vest over a period of three years. The Operating Partnership issued restricted Unit awards to the Company in the same amount for both restricted stock awards.
Compensation expense is charged to earnings over the vesting periods for the restricted stock or restricted Unit awards expected to vest except if the recipient is not required to provide future service in exchange for vesting of such restricted stock or restricted Unit awards. If vesting of a recipient's restricted stock or restricted Unit awards is not contingent upon future service, the expense is recognized immediately at the date of grant. During the three months ended March 31, 2017, we recognized $1,590 of compensation expense related to restricted stock or restricted Unit awards granted to our former Chief Executive Officer for which future service was not required.
LTIP Unit Awards
For the three months ended March 31, 2018, the Company granted to certain employees 179,288 Long-Term Incentive Program ("LTIP") performance units ("LTIP Unit Awards"), which had a fair value of $2,381 on the grant date as determined by a lattice-binomial option-pricing model based on a Monte Carlo simulation. The LTIP Unit Awards vest based upon the relative total shareholder return ("TSR") of the Company's common stock compared to the weighted average TSRs of the MSCI US REIT Index and the NAREIT Industrial Index over a performance period of three years. Compensation expense is charged to earnings on a straight-line basis over the performance period. The Operating Partnership issues General Partner Units to the Company in the same amounts for vested LTIP Unit Awards.
Outstanding Restricted Stock or Restricted Unit Awards and LTIP Unit Awards
We recognized $1,689 and $3,101 for the three months ended March 31, 2018 and 2017, respectively, in amortization related to restricted stock or restricted Unit awards and LTIP Unit Awards. Restricted stock or restricted Unit award and LTIP Unit Award amortization capitalized in connection with development activities was not significant. At March 31, 2018, we had $13,873 in unrecognized compensation related to unvested restricted stock or restricted Unit awards and LTIP Unit Awards. The weighted average period that the unrecognized compensation is expected to be recognized is 1.14 years.
Severance Expense
During the three months ended March 31, 2018, we incurred $1,298 of severance costs related to a reduction in personnel as a result of changes in our real estate portfolio. The severance costs are included in general and administrative expense.
10. Derivatives
Our objectives in using derivatives are to add stability to interest expense and to manage our cash flow volatility and exposure to interest rate movements. To accomplish this objective, we primarily use interest rate protection agreements as part of our interest rate risk management strategy. Interest rate protection agreements 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.
Our agreements with our derivative counterparties contain provisions whereby a default on any of our indebtedness, could cause us to be declared in default on our derivative obligations subject to certain thresholds. As of March 31, 2018, we had not posted any collateral related to these agreements and were not in breach of any of the provisions of these agreements. If we had breached these agreements, we could have been required to settle our obligations under the agreements at their termination value.

24



Fair Value Hedges
In connection with the originations of the Unsecured Term Loans (see Note 4), we entered into interest rate protection agreements to manage our exposure to changes in the one month LIBOR rate. The four interest rate protection agreements, which fix the variable rate of the 2014 Unsecured Term Loan, have an aggregate notional value of $200,000, mature on January 29, 2021 and fix the LIBOR rate at a weighted average rate of 2.29% (the "2014 Swaps"). The six interest rate protection agreements, which fix the variable rate of the 2015 Unsecured Term Loan, have an aggregate notional value of $260,000, mature on September 12, 2022 and fix the LIBOR rate at a weighted average rate of 1.79% (the "2015 Swaps"). We designated the 2014 Swaps and 2015 Swaps as cash flow hedges.
Our agreements with our derivative counterparties contain provisions where if we default on any of our indebtedness, then we could also be declared in default on our derivative obligations subject to certain thresholds. As of March 31, 2018, we had not posted any collateral related to these agreements and were not in breach of any of the provisions of these agreements. If we had breached these agreements, we could have been required to settle our obligations under the agreements at their termination value.
The following table sets forth our financial assets related to the 2015 Swaps and the 2014 Swaps which are included in prepaid expenses and other assets on the consolidated balance sheets and which are accounted for at fair value on a recurring basis as of March 31, 2018:
 
 
 
 
Fair Value Measurements:
Description
 
Fair Value
 
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
 
Significant Other
Observable Inputs
(Level 2)
 
Unobservable
Inputs
(Level 3)
Derivatives designated as a hedging instrument:
 
 
 
 
 
 
 
 
Assets:
 
 
 
 
 
 
 
 
2014 Swaps
 
$
799

 

 
$
799

 

2015 Swaps
 
$
8,112

 

 
$
8,112

 

There was no ineffectiveness recorded on the 2014 Swaps and 2015 Swaps during the three months ended March 31, 2018. See Note 7 for more information regarding our derivatives.
The estimated fair value of the 2014 Swaps and the 2015 Swaps was determined using the market standard methodology of netting the discounted fixed cash payments and the discounted expected variable cash receipts. The variable cash receipts are based on an expectation of interest rates (forward curves) derived from observable market interest rate curves. In addition, credit valuation adjustments are incorporated in the fair value to account for potential non-performance risk, including our own non-performance risk and the respective counterparty’s non-performance risk. We determined that the significant inputs used to value the 2014 Swaps and the 2015 Swaps fell within Level 2 of the fair value hierarchy.
11. Related Party Transactions
 At March 31, 2018 and December 31, 2017, the Operating Partnership had receivable balances of $10,223 and $10,129, respectively, from a direct wholly-owned subsidiary of the Company.

25



12. Commitments and Contingencies
In the normal course of business, we are involved in legal actions arising from the ownership of our industrial properties. In our opinion, the liabilities, if any, that may ultimately result from such legal actions are not expected to have a materially adverse effect on our consolidated financial position, operations or liquidity.
In conjunction with the development of industrial properties, we have entered into agreements with general contractors for the construction of industrial properties. At March 31, 2018, we had 11 industrial properties totaling approximately 4.2 million square feet of GLA under construction. The estimated total investment as of March 31, 2018 is approximately $291,000. Of this amount, approximately $128,500 remains to be funded. There can be no assurance that the actual completion cost will not exceed the estimated total investment.
13. Subsequent Events
From April 1, 2018 to April 26, 2018, we acquired one land parcel for a purchase price of approximately $3,270, excluding costs and credits incurred in conjunction with the acquisition.
On April 3, 2018, we entered into a joint venture arrangement with a third party (the "Joint Venture") for the purpose of acquiring, developing, leasing and operating approximately 532 net developable acres of land located in the Phoenix metropolitan area. Through a wholly-owned subsidiary of the Operating Partnership, we own a 49% interest in the Joint Venture. On April 3, 2018, the Joint Venture acquired the land for a purchase price of $49,000.


26



Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the consolidated financial statements and notes thereto appearing elsewhere in this Form 10-Q. Unless stated otherwise or the context otherwise requires, the terms "we," "our" and "us" refer to First Industrial Realty Trust, Inc. (the "Company") and its subsidiaries, including First Industrial, L.P. (the "Operating Partnership") and its consolidated subsidiaries.
Forward-Looking Statements
The following discussion may contain 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 (the "Exchange Act"). We intend for 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. Forward-looking statements are based on certain assumptions and describe our future plans, strategies and expectations, and are generally identifiable by use of the words "believe," "expect," "plan," "intend," "anticipate," "estimate," "project," "seek," "target," "potential," "focus," "may," "will," "should" or similar words. Although we believe the expectations reflected in forward-looking statements are based upon reasonable assumptions, we can give no assurance that our expectations will be attained or that results will not materially differ. Factors which could have a materially adverse effect on our operations and future prospects include, but are not limited to:
changes in national, international, regional and local economic conditions generally and real estate markets specifically;
changes in legislation/regulation (including changes to laws governing the taxation of real estate investment trusts) and actions of regulatory authorities;
our ability to qualify and maintain our status as a real estate investment trust;
the availability and attractiveness of financing (including both public and private capital) and changes in interest rates;
the availability and attractiveness of terms of additional debt repurchases;
changes in our credit agency ratings;
our ability to comply with applicable financial covenants;
our competitive environment;
changes in supply, demand and valuation of industrial properties and land in our current and potential market areas;
difficulties in identifying and consummating acquisitions and dispositions;
our ability to manage the integration of properties we acquire;
potential liability relating to environmental matters;
defaults on or non-renewal of leases by our tenants;
decreased rental rates or increased vacancy rates;
higher-than-expected real estate construction costs and delays in development or lease-up schedules;
changes in general accounting principles, policies and guidelines applicable to real estate investment trusts; and
other risks and uncertainties described in this report, in Item 1A, "Risk Factors" and elsewhere in our annual report on Form 10-K for the year ended December 31, 2017 as well as those risks and uncertainties discussed from time to time in our other Exchange Act reports and in our other public filings with the Securities and Exchange Commission (the “SEC”).
We caution you not to place undue reliance on forward-looking statements, which reflect our outlook only and speak only as of the date of this report. We assume no obligation to update or supplement forward-looking statements.

27



General
The Company is a self-administered and fully integrated real estate company which owns, manages, acquires, sells, develops and redevelops industrial real estate. The Company is a Maryland corporation organized on August 10, 1993 and a real estate investment trust ("REIT") as defined in the Internal Revenue Code of 1986 (the "Code").
We began operations on July 1, 1994. The Company's operations are conducted primarily through the Operating Partnership, of which the Company is the sole general partner (the "General Partner"), with an approximate 97.1% ownership interest ("General Partner Units") at March 31, 2018. The Operating Partnership also conducts operations through eight other limited partnerships (the "Other Real Estate Partnerships"), numerous limited liability companies ("LLCs") and certain taxable REIT subsidiaries ("TRSs"), the operating data of which, together with that of the Operating Partnership, is consolidated with that of the Company as presented herein. The Operating Partnership holds at least a 99% limited partnership interest in each of Other Real Estate Partnerships. The general partners of the Other Real Estate Partnerships are separate corporations, wholly-owned by the Company, each with at least a .01% general partnership interest in the Other Real Estate Partnerships. The Company does not have any significant assets or liabilities other than its investment in the Operating Partnership and its 100% ownership interest in the general partners of the Other Real Estate Partnerships. Noncontrolling interest in the Operating Partnership of approximately 2.9% at March 31, 2018 represents the aggregate partnership interest held by the limited partners thereof ("Limited Partner Units" and together with the General Partner Units, the "Units"). 
Profits, losses and distributions of the Operating Partnership, the LLCs, the Other Real Estate Partnerships and the TRSs are allocated to the general partner and the limited partners, the members or the shareholders, as applicable, of such entities in accordance with the provisions contained within their respective organizational documents.
As of March 31, 2018, we owned 485 industrial properties located in 21 states, containing an aggregate of approximately 60.1 million square feet of gross leasable area ("GLA"). Of the 485 properties owned on a consolidated basis, none of them are directly owned by the Company.
Available Information
We maintain a website at www.firstindustrial.com. Information on this website shall not constitute part of this Form 10-Q. Copies of our respective annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports 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 SEC. You may also read and copy any document filed at the public reference facilities of the SEC at 100 F Street, N.E., Washington, D.C. 20549. Please call the SEC at (800) SEC-0330 for further information about the public reference facilities. These documents also may be accessed through the SEC’s Interactive Data Electronic Application via the SEC's home page on the Internet (www.sec.gov). In addition, the Company's Corporate Governance Guidelines, Code of Business Conduct and Ethics, Audit Committee Charter, Compensation Committee Charter and Nominating/Corporate Governance Committee Charter, along with supplemental financial and operating information prepared by us, are all available without charge on the Company's website or upon request to the Company. Amendments to, or waivers from, our Code of Business Conduct and Ethics that apply to our executive officers or directors will also be posted to our website. We also post or otherwise make available on our website from time to time other information that may be of interest to our investors. Please direct requests as follows:
Before June 1, 2018:
First Industrial Realty Trust, Inc.
311 S. Wacker Drive, Suite 3900
Chicago, IL 60606
Attention: Investor Relations
After June 1, 2018:
First Industrial Realty Trust, Inc.
1 N. Wacker Drive, Suite 4200
Chicago, IL 60606
Attention: Investor Relations


28



Management's Overview
We believe our financial condition and results of operations are, primarily, a function of our performance in four key areas: leasing of industrial properties, acquisition and development of additional industrial properties, disposition of industrial properties and access to external capital.
We generate revenue primarily from rental income and tenant recoveries from operating leases of our 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; (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 on the sale of our properties (as discussed below), for our liquidity. 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 or to maintain tenant recoveries and operating and certain other expenses consistent with historical levels and proportions, our revenue would decline. Further, if a significant number of our tenants were unable to pay rent (including tenant recoveries) or if we were unable to rent our properties on favorable terms, our financial condition, results of operations, cash flow and ability to make distributions to our stockholders and Unitholders, the market price of the Company's common stock and the market value of the Units would be adversely affected.
Our revenue growth is also dependent, in part, on our ability to acquire existing, and develop new industrial properties on favorable terms. We seek to identify opportunities to acquire existing industrial properties on favorable terms, and, when conditions permit, also seek 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, which, as discussed above, are sources of funds for our distributions to our stockholders and Unitholders. 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 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 face significant competition for attractive acquisition and development opportunities from other well-capitalized real estate investors, including publicly-traded REITs and private investors. Further, as discussed below, we may not be able to finance the acquisition and development opportunities we identify. If we 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 make distributions to our stockholders and Unitholders, the market price of the Company's common stock and the market value of the Units would be adversely affected.
We also generate income from the sale of our properties (including existing buildings, buildings which we have developed or re-developed on a merchant basis and land). The gain or loss on, and fees from, the sale of such properties are included in our income and can be a significant source of funds, in addition to revenues generated from rental income and tenant recoveries. Proceeds from sales are used to repay outstanding debt and, market conditions permitting, may be used to fund the acquisition of existing industrial properties, 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. 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 are 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 make distributions to our stockholders and Unitholders, the market price of the Company's common stock and the market value of the Units could be adversely affected.

29



We utilize a portion of the net sales proceeds from property sales, borrowings under our unsecured credit facility (the "Unsecured Credit Facility") and proceeds from the issuance, when and as warranted, of additional debt and equity securities to refinance debt and finance future acquisitions and developments. 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 our ability to fund acquisitions and developments. Our ability to access external capital on favorable terms is dependent on various factors, including general market conditions, interest rates, credit ratings on our debt, the market’s perception of our growth potential, our current and potential future earnings and cash distributions and the market price of the Company's common stock. If we were unable to access external capital on favorable terms, our financial condition, results of operations, cash flow and ability to make distributions to our stockholders and Unitholders, the market price of the Company's common stock and the market value of the Units could be adversely affected.
Summary of Significant Transactions During the Three Months Ended March 31, 2018
During the three months ended March 31, 2018, we completed the following significant real estate transactions and financing activities:
We acquired five industrial properties comprised of approximately 0.4 million square feet of GLA and one land parcel for an aggregate purchase price of approximately $61.0 million, excluding costs incurred in conjunction with the acquisition.
We sold eight industrial properties comprised of approximately 0.5 million square feet of GLA and one land parcel for total gross sales proceeds of approximately $42.4 million.
We issued ten-year, $150.0 million private placement notes at a rate of 3.86% and twelve-year, $150.0 million private placement notes at a rate of 3.96%.
We paid off $157.8 million in mortgage loans payable.
We declared a first quarter cash dividend of $0.2175 per common share or Unit per quarter, an increase of 3.6% from the 2017 quarterly rate.
Results of Operations
The tables below summarize our revenues, property expenses and depreciation and other amortization by various categories for the three months ended March 31, 2018 and 2017. Same store properties are properties owned prior to January 1, 2017 and held as an in-service property through March 31, 2018 and developments and redevelopments that were placed in service prior to January 1, 2017 or were substantially completed for the 12 months prior to January 1, 2017. Properties which are at least 75% occupied at acquisition are placed in service, unless we anticipate tenant move-outs within two years of ownership would drop occupancy below 75%. Acquisitions that are less than 75% occupied at the date of acquisition, developments and redevelopments are placed in service as they reach the earlier of a) stabilized occupancy (generally defined as 90% occupied), or b) one year subsequent to acquisition or development/redevelopment construction completion. Acquired properties with occupancy greater than 75% at acquisition, but with tenants that we anticipate will move out in the first year of ownership, will be placed in service upon the earlier of reaching 90% occupancy or twelve months after move out. Properties are moved from the same store classification to the redevelopment classification when capital expenditures for a project are estimated to exceed 25% of the undepreciated gross book value of the property. Acquired properties are properties that were acquired subsequent to December 31, 2016 and held as an operating property through March 31, 2018. Sold properties are properties that were sold subsequent to December 31, 2016. (Re)Developments include developments and redevelopments that were not: a) substantially complete 12 months prior to January 1, 2017; or b) stabilized prior to January 1, 2017. Other revenues are derived from the operations of properties not placed in service under one of the categories discussed above, the operations of our maintenance company and other miscellaneous revenues. Other property expenses are derived from the operations of properties not placed in service under one of the categories discussed above, the operations of our maintenance company, vacant land expenses and other miscellaneous regional expenses.
During the three months ended March 31, 2018, one industrial property, comprising approximately 0.1 million square feet of GLA, was taken out of service for redevelopment. As a result of taking this industrial property out of service, the results of operations were reclassified from the same store property classification to the re(development) classification.
Our future financial condition and results of operations, including rental revenues, may be impacted by the future acquisition, (re)development and sale of properties. Our future revenues and expenses may vary materially from historical rates.


30



Comparison of Three Months Ended March 31, 2018 to Three Months Ended March 31, 2017
Our net income was $37.5 million and $23.5 million for the three months ended March 31, 2018 and 2017, respectively.
For the three months ended March 31, 2018 and 2017, the average occupancy rates of our same store properties were 96.9% and 95.6%, respectively.
 
Three Months Ended March 31,
 
 
 
 
 
2018
 
2017
 
$ Change
 
% Change
 
($ in 000’s)
REVENUES
 
 
 
 
 
 
 
Same Store Properties
$
93,879

 
$
89,505

 
$
4,374

 
4.9
 %
Acquired Properties
2,623

 

 
2,623

 

Sold Properties
952

 
6,813

 
(5,861
)
 
(86.0
)%
(Re)Developments
1,866

 
704

 
1,162

 
165.1
 %
Other
451

 
361

 
90

 
24.9
 %
Total Revenues
$
99,771

 
$
97,383

 
$
2,388

 
2.5
 %
Revenues from same store properties increased $4.4 million primarily due to an increase in occupancy and rental rates as well as tenant recoveries. Revenues from acquired properties increased $2.6 million due to the 13 industrial properties acquired subsequent to December 31, 2016 totaling approximately 1.4 million square feet of GLA. Revenues from sold properties decreased $5.9 million due to the 68 industrial properties sold subsequent to December 31, 2016 totaling approximately 5.1 million square feet of GLA. Revenues from (re)developments increased $1.2 million due to an increase in occupancy. Other revenues increased $0.1 million primarily due to an increase in occupancy related to one property acquired in 2016 and placed in service during 2017 as well as an increase in interest income earned on our cash equivalents.
 
Three Months Ended March 31,
 
 
 
 
 
2018
 
2017
 
$ Change
 
% Change
 
($ in 000’s)
PROPERTY EXPENSES
 
 
 
 
 
 
 
Same Store Properties
$
25,951

 
$
23,805

 
$
2,146

 
9.0
 %
Acquired Properties
697

 

 
697

 

Sold Properties
314

 
2,273

 
(1,959
)
 
(86.2
)%
(Re)Developments
692

 
184

 
508

 
276.1
 %
Other
1,757

 
2,224

 
(467
)
 
(21.0
)%
Total Property Expenses
$
29,411

 
$
28,486

 
$
925

 
3.2
 %
Property expenses include real estate taxes, repairs and maintenance, property management, utilities, insurance and other property related expenses. Property expenses from same store properties increased $2.1 million primarily due to an increase in snow removal costs as well as real estate taxes and insurance. Property expenses from acquired properties increased $0.7 million due to properties acquired subsequent to December 31, 2016. Property expenses from sold properties decreased $2.0 million due to properties sold subsequent to December 31, 2016. Property expenses from (re)developments increased $0.5 million primarily due to the substantial completion of developments. Other property expenses decreased $0.5 million due to a decrease in certain miscellaneous expenses.
General and administrative expense increased $0.1 million, or 1.4%, primarily due to an increase related to $1.3 million of severance payments made during the three months ended March 31, 2018, offset by a decrease in amortization of restricted stock due to immediate recognition of expense related to the issuance of restricted stock to our former CEO during the three months ended March 31, 2017.
The impairment charge for the three months ended March 31, 2018 of $2.8 million is due to marketing a property and a land parcel for sale and our assessment of the likelihood of potential sales transaction.

31



 
Three Months Ended March 31,
 
 
 
 
 
2018
 
2017
 
$ Change
 
% Change
 
($ in 000’s)
DEPRECIATION AND OTHER AMORTIZATION
 
 
 
 
 
 
 
Same Store Properties
$
25,876

 
$
26,273

 
$
(397
)
 
(1.5
)%
Acquired Properties
1,371

 

 
1,371

 

Sold Properties
250

 
1,812

 
(1,562
)
 
(86.2
)%
(Re) Developments
545

 
148

 
397

 
268.2
 %
Corporate Furniture, Fixtures and Equipment and Other
273

 
261

 
12

 
4.6
 %
Total Depreciation and Other Amortization
$
28,315

 
$
28,494

 
$
(179
)
 
(0.6
)%
Depreciation and other amortization from same store properties remained relatively unchanged. Depreciation and other amortization from acquired properties increased $1.4 million due to properties acquired subsequent to December 31, 2016. Depreciation and other amortization from sold properties decreased $1.6 million due to properties sold subsequent to December 31, 2016. Depreciation and other amortization from (re)developments increased $0.4 million primarily due to an increase in depreciation and amortization related to completed developments. Depreciation from corporate furniture, fixtures and equipment and other remained relatively unchanged.
For the three months ended March 31, 2018, we recognized $20.1 million of gain on sale of real estate related to the sale of eight industrial properties comprised of approximately 0.5 million square feet of GLA. For the three months ended March 31, 2017, we recognized $8.0 million of gain on sale of real estate related to the sale of 12 industrial properties comprising approximately 0.3 million square feet of GLA.
Interest expense decreased $1.6 million, or 11.0%, primarily due to a decrease in the weighted average interest rate for the three months ended March 31, 2018 (4.28%) as compared to the three months ended March 31, 2017 (4.48%), an increase in development activities resulting in an increase in capitalized interest of $0.6 million for the three months ended March 31, 2018 as compared to the three months ended March 31, 2017 and a decrease in the weighted average debt balance outstanding for the three months ended March 31, 2018 ($1,365.2 million) as compared to the three months ended March 31, 2017 ($1,392.9 million).
Amortization of debt issuance costs remained relatively unchanged.
For the three months ended March 31, 2018, we recognized a loss from retirement of debt of $0.04 million due to early payoff of certain mortgage loans which resulted in the write-off of unamortized debt issuance costs offset by the write off of an unamortized premium. For the three months ended March 31, 2017, we recognized a loss from retirement of debt of $1.7 million, due to the early payoff of certain mortgage loans which resulted in the payment of prepayment penalties and the write-off of unamortized debt issuance costs.
Income tax provision was not significant in either period.

32



Leasing Activity
The following table provides a summary of our commenced leases for the three months ended March 31, 2018. The table does not include month-to-month leases or leases with terms less than twelve months.  
Three Months Ended
Number of
Leases
Commenced
 
Square Feet
Commenced
(in 000’s)
 
Net Rent Per
Square Foot (A)
 
Straight Line Basis
Rent  Growth (B)
 
Weighted
Average  Lease
Term (C)
 
Lease Costs
Per Square
Foot (D)
 
Weighted
Average Tenant
Retention (E)
New Leases
28

 
327

 
$
6.76

 
25.6
%
 
5.9

 
$
5.25

 
N/A

Renewal Leases
61

 
2,579

 
$
4.61

 
16.6
%
 
3.3

 
$
0.98

 
77.0
%
Development / Acquisition Leases
4

 
305

 
$
5.25

 
N/A

 
5.3

 
N/A

 
N/A

Total / Weighted Average
93

 
3,211

 
$
4.89

 
18.0
%
 
3.8

 
$
1.46

 
77.0
%
_______________
(A) 
Net rent is the average base rent calculated in accordance with GAAP, over the term of the lease.
(B) 
Straight Line basis basis rent growth is a ratio of the change in net rent (including straight line rent adjustments) on a new or renewal lease compared to the net rent (including straight line rent adjustments) of the comparable lease. New leases where there were no prior comparable leases are excluded.
(C) 
The lease term is expressed in years. Assumes no exercise of lease renewal options, if any.
(D) 
Lease costs are comprised of the costs incurred or capitalized for improvements of vacant and renewal spaces, as well as the commissions paid and costs capitalized for leasing transactions. Lease costs per square foot represent the total turnover costs expected to be incurred on the leases signed during the period and do not reflect actual expenditures for the period.
(E) 
Represents the weighted average square feet of tenants renewing their respective leases.

The following table provides a summary of our leases that commenced during the three months ended March 31, 2018 which included rent concessions during the lease term.  
Three Months Ended
Number of
Leases
With Rent Concessions
 
Square Feet
(in 000’s)
 
Rent Concessions ($)
New Leases
17

 
226

 
$
230

Renewal Leases
4

 
177

 
$
168

Development / Acquisition Leases
4

 
305

 
$
411

Total
25

 
708

 
$
809





33



Liquidity and Capital Resources
At March 31, 2018, our cash and cash equivalents and restricted cash were approximately $19.8 million and $48.6 million, respectively. Restricted cash is comprised of gross proceeds from the sales of certain industrial properties. These sale proceeds will be disbursed as we exchange industrial properties under Section 1031 of the Code. We also had $620.8 million available for additional borrowings under our Unsecured Credit Facility as of March 31, 2018.
We have considered our short-term (through March 31, 2019) liquidity needs and the adequacy of our estimated cash flow from operations and other expected liquidity sources to meet these needs. We have $73.6 million in mortgage loans payable outstanding at March 31, 2018 that we anticipate prepaying (without penalty) prior to March 31, 2019. We expect to satisfy these payment obligations with borrowings under our Unsecured Credit Facility. With the exception of these payment obligations, we believe that our principal short-term liquidity needs are to fund normal recurring expenses, property acquisitions, developments, renovations, expansions and other nonrecurring capital improvements, debt service requirements, the minimum distributions required to maintain the Company's REIT qualification under the Code and distributions approved by the Company's Board of Directors. We anticipate that these needs will be met with cash flows provided by operating activities as well as the disposition of select assets. These needs may also be met by the issuance of additional equity or debt securities or long-term unsecured indebtedness, subject to market conditions and contractual restrictions or borrowings under our Unsecured Credit Facility.
We expect to meet long-term (after March 31, 2019) 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 and secured indebtedness and the issuance of additional equity or debt securities, subject to market conditions.
At March 31, 2018, borrowings under our Unsecured Credit Facility bore interest at a weighted average interest rate of 2.83%. As of April 26, 2018, we had approximately $573.8 million available for additional borrowings under our Unsecured Credit Facility. Our Unsecured Credit Facility 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. We believe that we were in compliance with our financial covenants as of March 31, 2018, and we anticipate that we will be able to operate in compliance with our financial covenants for the remainder of 2018.
Our senior unsecured notes have been assigned credit ratings from Standard & Poor’s, Moody’s and Fitch Ratings of BBB/Stable, Baa3/Positive and BBB/Stable, respectively. 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.

34



Cash Flow Activity
The following table summarizes our cash flow activity for the Company for the three months ended March 31, 2018 and 2017:
 
 
2018
 
2017
 
 
(In millions)
Net cash provided by operating activities
 
$
37.0

 
$
40.1

Net cash used in investing activities
 
(75.2
)
 
(31.8
)
Net cash provided by (used in) financing activities
 
60.1

 
(3.3
)
The following table summarizes our cash flow activity for the Operating Partnership for the three months ended March 31, 2018 and 2017:
 
 
2018
 
2017
 
 
(In millions)
Net cash provided by operating activities
 
$
36.9