FIRST INDUSTRIAL REALTY TRUST INC

2. Summary of Significant Accounting Policies

Basis of Presentation

The accompanying financial statements at December 31, 2024 and 2023, and for the years ended December 31, 2024, 2023 and 2022 include the accounts and operating results of the Joint Venture. The Joint Venture wholly owns DRI FR Glendale Propco One, LLC, the operating data of which is consolidated with that of the Joint Venture as presented herein. All intercompany transactions have been eliminated.

Managements Use of Estimates

In order to conform with generally accepted accounting principles in the United States of America (“GAAP”), management, in preparation of the Joint Venture’s financial statements, is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of December 31, 2024 and 2023, and the reported amounts of revenues and expenses for the years ended December 31, 2024, 2023 and 2022. Actual results could differ from those estimates.

Cash and Cash Equivalents

Cash and cash equivalents include all cash and liquid investments with an initial maturity of three months or less. The carrying amount approximates fair value due to the short term maturity of these investments. The Joint Venture maintains cash and cash equivalents in banking institutions that may exceed amounts insured by the Federal Deposit Insurance Corporation. There have been no realized losses of such cash investments or accounts.

Investment in Real Estate and Depreciation

Investment in real estate is carried at cost, less accumulated depreciation and amortization.

The Joint Venture reviews its long-lived assets for potential impairment whenever an event or changes in circumstances indicate the carrying value of the asset may not be recoverable. If further assessment of recoverability is needed, the Joint Venture will estimate the future net cash flows expected to result from the use of the property and its eventual disposition. Estimated future net cash flows are based on estimates of future operating performance and market conditions. If the sum of the expected future net cash flows (undiscounted and without interest charges) is less than the carrying amount of the property or group of properties, the Joint Venture will recognize an impairment loss equal to the amount in which the carrying value exceeds the estimated fair value of the property or group of properties. The assessment of fair value requires the use of estimates and assumptions relating to the timing and amounts of cash flow projections, discount rates and termination capitalization rates.

Interest expense, real estate taxes, and other directly related costs incurred during construction periods are capitalized to a development project from the point the Joint Venture begins undergoing necessary activities to get the development ready for its intended use and ceases when a development project is substantially completed and held available for occupancy. Upon substantial completion, the Joint Venture reclassifies construction in progress to building and tenant improvements and will start depreciating the asset based on the estimated useful life.

Depreciation expense is computed using the straight-line method based on the following useful lives:

Construction expenditures for tenant improvements, leasehold improvements and leasing commissions, inclusive of related party coordination fees, are capitalized and amortized over the terms of each specific lease. Repairs and maintenance are charged to expense when incurred.

The Joint Venture classifies certain properties and related assets and liabilities as held for sale when the sale of an asset has been approved by the Members, a legally enforceable contract has been executed and the buyer's due diligence period, if any, has expired. At such time, the respective assets and liabilities are presented separately on the Consolidated Balance Sheets. Upon held for sale classification, depreciation ceases and the properties are reflected at the lower of depreciated cost or fair value, less costs to dispose.

Fair Value of Financial Instruments

The fair values of prepaid expenses and other assets, accounts payable and other accrued expenses and due to related party were not materially different from their carrying or contract values due to the short-term nature of these financial instruments. The Joint Venture has concluded that its determination of fair value for these financial instruments was primarily based on level 2 inputs. See Note 4 for the fair value of the construction loan.

Debt Issuance Costs

Debt issuance costs, which include fees and costs incurred to obtain long-term financing, are amortized over the term of the construction loan and are presented as a direct deduction from the carrying amount of the construction loan liability.

Revenue Recognition

The Joint Venture leases properties to tenants under agreements that are classified as leases. Rental revenue is recognized on a straight-line method under which contractual rent increases are recognized evenly over the lease term. Generally, under the terms of the leases, a majority of property operating expenses, including real estate taxes, insurance and other property operating expenses are recovered from tenants and recognized as tenant recovery revenue in the same period that the expenses are incurred. As the timing and straight-line pattern of transfer to the lessee for rental revenue and the associated rental recoveries are the same and as the leases qualify as operating leases, the Joint Venture accounts for the present rental revenue and tenant recovery revenue as a single component under Lease Revenue.

The Joint Venture assesses the collectability of lease receivables (including future minimum rental payments) at commencement and throughout the lease term. If the Joint Venture concludes that collection of lease payments is not probable at lease commencement, lease payments will be recognized as they are received or on a straight-line basis, whichever is lower. If collection of lease payments is concluded to be probable at commencement and the assessment of collectability changes during the lease term, any difference between the revenue that would have been received under the straight-line method and the lease payments that have been collected will be recognized as a current period adjustment to Lease Revenue and revenue will subsequently be accounted for on a cash basis until such time that collection of future rent is deemed probable.

If a lease provides for tenant improvements, the Joint Venture determines whether the Joint Venture or the tenant is the owner of the tenant improvements. When the Joint Venture is the owner of the tenant improvements, any tenant improvements funded by the tenant are treated as lease payments which are deferred and amortized as revenue over the lease term. When the tenant is the owner of the tenant improvements, the Joint Venture will record any tenant improvement allowance funded as a lease inducement and amortize it as a reduction of revenue over the lease term.

Property Expenses

Property expenses include real estate taxes, utilities, repairs and maintenance, property insurance as well as other costs of managing properties in the Joint Venture. The Joint Venture excludes from property expenses certain lessor costs, such as real estate taxes, that the Joint Venture contractually requires the tenant to pay directly to a third party on the Joint Venture’s behalf. The amounts paid directly to third parties by tenants for lessor costs are also excluded from lease revenues.

Gain on Sale of Real Estate

Asset sales are generally recognized when control of the asset being sold is transferred to the buyer. As the assets are sold, their costs and related accumulated depreciation, if any, are derecognized with resulting gains or losses reflected in net income. Estimated future costs to be incurred by the Joint Venture after completion of each sale are accrued and included in the determination of the gain on sales.

When leases contain purchase options, the Joint Venture will assess the probability that the tenant will execute the purchase option both at lease commencement or at the time the tenant communicates their intent to execute the purchase option. If the Joint Venture determines that the execution of the purchase option is reasonably certain, the Joint Venture will account for the lease as a sales-type lease and derecognize the associated real estate assets on the Joint Venture’s balance sheet and record a gain or loss on sale.

Income Taxes

In accordance with limited liability company taxation, each of the Members is responsible for reporting their share of taxable income or loss. Accordingly, no provision has been made in the financial statements for federal or state income taxes.

The Joint Venture files a federal tax return as well as a state return. The statute of limitations for income taxes is generally three years. As such, the Joint Venture’s tax returns for the 2024, 2023 and 2022 tax years are subject to examination.