-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, R5aCWAfgqCESwTxwIsytc81I454T+pK5AalJKpnxHQ2ZdZr3gpv10rHzMLLkaH6a MIgesin0YZsLR82ePuY5+g== /in/edgar/work/20000803/0001063393-00-000029/0001063393-00-000029.txt : 20000921 0001063393-00-000029.hdr.sgml : 20000921 ACCESSION NUMBER: 0001063393-00-000029 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20000630 FILED AS OF DATE: 20000803 FILER: COMPANY DATA: COMPANY CONFORMED NAME: GREAT LAKES REIT CENTRAL INDEX KEY: 0001063393 STANDARD INDUSTRIAL CLASSIFICATION: [6798 ] IRS NUMBER: 364238056 STATE OF INCORPORATION: MD FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-14307 FILM NUMBER: 685584 BUSINESS ADDRESS: STREET 1: 823 COMMERCE DRIVE STREET 2: STE 300 CITY: OAK BROOK STATE: IL ZIP: 60523 BUSINESS PHONE: 6303682900 MAIL ADDRESS: STREET 1: 823 COMMERCE DR STREET 2: STE 300 CITY: OAK BROOK STATE: IL ZIP: 60523 FORMER COMPANY: FORMER CONFORMED NAME: GREAT LAKES MERGER TRUST DATE OF NAME CHANGE: 19980604 10-Q 1 0001.txt FORM 10-Q FOR THE PERIOD ENDED JUNE 30, 2000 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q /X/ Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended June 30, 2000 OR / /Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Commission file number: 1-14307 Great Lakes REIT (Exact name of Registrant as specified in its Charter) Maryland 36-4238056 (State or other jurisdiction (IRS employer identification no.) of incorporation or organization) 823 Commerce Drive, Suite 300, Oak Brook, IL 60523 (Address of principal executive offices) (Zip Code) (630) 368 - 2900 (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. Yes X No Number of shares of the registrant's common shares of beneficial interest, $.01 par value, outstanding as of August 2, 2000: 16,626,814
Great Lakes REIT Index to Form 10-Q June 30, 2000 Page Number Part I - Financial Information Item 1. Financial Statements (unaudited): Consolidated Balance Sheets as of June 30, 2000 and December 31, 1999 4 Consolidated Statements of Income for the three months ended June 30, 2000 and 1999 5 Consolidated Statements of Income for the six months ended June 30, 2000 and 1999 6 Consolidated Statement of Changes in Shareholders' Equity for the six months ended June 30, 2000 7 Consolidated Statements of Cash Flows for the six months ended June 30, 2000 and 1999 8 Notes to Consolidated Financial Statements 9 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 10 Item 3. Quantitative and Qualitative Disclosures about Market Risk 13 Part II - Other Information Item 2. Changes in Securities 14 Item 4. Submission of Matters to a Vote of Security Holders 14 Item 6. Exhibits and Reports on Form 8-K 14
Great Lakes REIT Consolidated Balance Sheets (unaudited) (Dollars in Thousands, except per share data) June 30, December 31, 2000 1999 ---- ---- Assets Properties: Land $58,598 $60,983 Buildings, improvements, and equipment 407,214 410,478 ------------------------------- 465,812 471,461 Less accumulated depreciation 38,495 33,074 ------------------------------- 427,317 438,387 Cash and cash equivalents 13,874 1,518 Real estate tax escrows 228 277 Rents receivable 5,437 6,274 Deferred financing and leasing costs, net of accumulated amortization 5,978 6,069 Goodwill, net of accumulated amortization 1,173 1,210 Other assets 1,309 1,467 ------------------------------- Total assets $455,316 $455,202 =============================== Liabilities and shareholders' equity Bank loan payable $105,500 $107,000 Mortgage loans payable 98,900 100,113 Bonds payable 4,270 4,550 Accounts payable and accrued liabilities 4,209 5,947 Accrued real estate taxes 9,658 11,687 Dividends payable 6,290 -- Prepaid rent 3,778 3,936 Security deposits 1,198 1,084 ------------------------------- Total liabilities 233,803 234,317 ------------------------------- Minority interests 694 951 ------------------------------- Preferred shares of beneficial interest ($0.01 par value, 37,500 37,500 10,000,000 shares authorized; 1,500,000 9 3/4% Series A Cumulative Redeemable shares, with a $25.00 per share Liquidation Preference, issued and outstanding in 2000 and 1999) Common shares of beneficial interest ($0.01 par value, 182 178 60,000,000 shares authorized; 18,170,199 and 17,816,883 shares issued in 2000 and 1999, respectively) Paid-in-capital 233,476 227,907 Retained earnings (deficit) (4,973) (5,936) Employee share loans (18,715) (16,335) Deferred compensation (2,977) (22) Treasury shares, at cost (1,543,385 and 1,521,785 shares in (23,674) (23,358) 2000 and 1999, respectively) ------------------------------- Total shareholders' equity 220,819 219,934 ------------------------------- Total liabilities and shareholders' equity $455,316 $455,202 =============================== The accompanying notes are an integral part of these financial statements.
Great Lakes REIT Consolidated Statements of Income (unaudited) (In Thousands, except per share data) Three months ended June 30, 2000 1999 Revenues: Rental $18,907 $18,618 Reimbursements 5,349 5,032 Interest and other 630 274 ----------------------- Total revenues 24,886 23,924 ----------------------- Expenses: Real estate taxes 3,161 4,521 Other property operating 6,572 5,890 General and administrative 1,291 1,050 Interest 3,809 3,479 Depreciation and amortization 4,172 4,028 ----------------------- Total expenses 19,005 18,968 ----------------------- Income before gain on sale of properties 5,881 4,956 Gain on sale of properties, net 2,964 4,858 ----------------------- Income before allocation to minority interests 8,845 9,814 Minority interests 21 33 ----------------------- Net income 8,824 9,781 Income allocated to preferred shareholders 914 914 ----------------------- Net income applicable to common shares $7,910 $8,867 ======================= Earnings per common share - basic $0.48 $0.54 ======================= Weighted average common shares outstanding - basic 16,482 16,491 ======================= Diluted earnings per common share $0.48 $0.54 ======================= Weighted average common shares outstanding - diluted 16,515 16,572 ======================= The accompanying notes are an integral part of these financial statements. Great Lakes REIT Consolidated Statements of Income (unaudited) (In Thousands, except per share data) Six months ended June 30, 2000 1999 Revenues: Rental $37,692 $36,142 Reimbursements 10,600 10,001 Interest and other 1,073 519 --------------------- Total revenues 49,365 46,662 --------------------- Expenses: Real estate taxes 7,082 8,146 Other property operating 12,608 12,013 General and administrative 2,396 2,214 Interest 7,556 6,755 Depreciation and amortization 8,299 7,749 --------------------- Total expenses 37,941 36,877 --------------------- Income before gain on sale of properties 11,424 9,785 Gain on sale of properties, net 2,964 4,858 --------------------- Income before allocation to minority interests 14,388 14,643 Minority interests 34 49 --------------------- Net income 14,354 14,594 Income allocated to preferred shareholders 1,828 1,828 --------------------- Net income applicable to common shares $12,526 $12,766 ===================== Earnings per common share - basic $0.76 $0.77 ===================== Weighted average common shares outstanding - basic 16,408 16,533 ===================== Diluted earnings per common share $0.76 $0.77 ===================== Weighted average common shares outstanding - diluted 16,442 16,614 ===================== The accompanying notes are an integral part of these financial statements. Great Lakes REIT Consolidated Statement of Changes in Shareholders' Equity (unaudited) For the Six Months Ended June 30, 2000 (Dollars in Thousands) 2000 - ----------------------------------------------------------------------- Preferred Shares Balance at beginning of period $37,500 - ----------------------------------------------------------------------- Balance at end of period 37,500 Common Shares Balance at beginning of period 178 Restricted share award 2 Exercise of share options 2 - ----------------------------------------------------------------------- Balance at end of period 182 Paid-in capital Balance at beginning of period 227,907 Restricted share award 3,136 Exercise of share options 2,433 - ----------------------------------------------------------------------- Balance at end of period 233,476 Retained earnings (deficit) Balance at beginning of period (5,936) Net income 14,354 Distributions/dividends (13,391) - ----------------------------------------------------------------------- Balance at end of period (4,973) Employee share loans Balance at beginning of period (16,335) Exercise of share options (2,380) - ----------------------------------------------------------------------- Balance at end of period (18,715) Deferred compensation Balance at beginning of period (22) Restricted share award (3,138) Amortization of deferred compensation 183 - ----------------------------------------------------------------------- Balance at end of period (2,977) Treasury shares Balance at beginning of period (23,358) Purchase of treasury shares (316) - ----------------------------------------------------------------------- Balance at end of period (23,674) - ----------------------------------------------------------------------- Total shareholders' equity $220,819 ======================================================================= The accompanying notes are an integral part of these financial statements.
Great Lakes REIT Consolidated Statements of Cash Flows (unaudited) (Dollars in Thousands) Six Months Ended June 30, 2000 1999 CASH FLOWS FROM OPERATING ACTIVITIES Net income $14,354 $14,594 Adjustments to reconcile net income to cash flows from operating activities Depreciation and amortization 8,299 7,749 Gain on sale of properties (2,964) (4,858) Other non cash items 216 62 Net changes in assets and liabilities: Rents receivable 837 (26) Real estate tax escrows and other assets 303 631 Accounts payable, accrued expenses and other liabilities (1,477) (59) Accrued real estate taxes (2,029) (811) Payment of deferred leasing costs (881) (1,142) ------------------------------------- Net cash provided by operating activities 16,658 16,140 ------------------------------------- CASH FLOWS FROM INVESTING ACTIVITIES Purchase of properties -- (19,634) Additions to buildings, improvements and equipment (5,334) (6,110) Proceeds from property sales, net 12,144 13,458 Other investing activities (100) (362) ------------------------------------- Net cash provided by (used in) investing activities 6,710 (12,648) ------------------------------------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from exercise of share options 55 80 Proceeds from bank and mortgage loans payable 4,500 27,775 Distributions / dividends paid (7,401) (12,628) Distributions to minority interests (33) (18) Purchase of minority interests (258) (256) Purchase of treasury shares (316) (5,986) Payment of bank and mortgage loans and bonds (7,493) (1,410) Payment of deferred financing costs (66) (229) ------------------------------------- Net cash provided by (used in) financing activities (11,012) 7,328 ------------------------------------- Net increase in cash and cash equivalents 12,356 10,820 Cash and cash equivalents, beginning of year 1,518 2,466 ------------------------------------- Cash and cash equivalents, end of period $13,874 $13,286 ===================================== Supplemental disclosure of cash flow: Interest paid $7,542 $6,718 ===================================== Non cash financing transactions: Employee share loans $2,380 $3,702 ===================================== Mortgage assumed by purchaser of property -- $2,079 ===================================== Increase in preferred dividends payable -- $142 ===================================== The accompanying notes are an integral part of these financial statements.
Great Lakes REIT Notes to Consolidated Financial Statements Dollars in thousands, except per share data (Unaudited) 1. Basis of Presentation Great Lakes REIT, a Maryland real estate investment trust (the "Company"), was formed in 1992 to invest in income-producing real property. The principal business of the Company is the ownership, management, leasing, renovation and acquisition of suburban office and light industrial properties primarily located in the Midwest. At June 30, 2000, the Company owned and operated 35 properties primarily located in suburban areas of Chicago, Detroit, Milwaukee, Denver, Cincinnati, Columbus and Minneapolis. The Company leases office and light industrial space to over 500 tenants in a variety of businesses. The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries and controlled partnership. Intercompany accounts and transactions have been eliminated in consolidation. The accompanying consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and do not include all information and footnotes necessary for a fair presentation of financial position, results of operations and cash flows in conformity with generally accepted accounting principles. These statements should be read in conjunction with the Company's most recent year-end audited financial statements contained in the Company's Annual Report on Form 10-K for the year ended December 31, 1999, as amended (the "1999 10-K"). In the opinion of management, the financial statements contain all adjustments (which are normal and recurring) necessary for a fair statement of financial results for the interim periods. For further information, refer to the consolidated financial statements and notes thereto included in the 1999 10-K. 2. Segment Information The Company has three reportable segments distinguished by property type. The property types are office, with 89% (as measured by square feet) of the Company's overall portfolio, office/service center (11%), and industrial (0%, as the Company sold its only industrial property in 1999), and are primarily located in the Midwest. As of June 30, 2000, the properties were leased to more than 500 tenants, no single tenant accounted for more than 5% of the aggregate annualized base rent of the Company's portfolio and only 20 tenants individually represented more than 1% of such aggregate annualized base rent. The Company evaluates performance and allocates resources based on property revenues (rental and reimbursement income) less property operating expenses and real estate taxes to arrive at net operating income which is a widely recognized industry measure of a property's performance. The following table summarizes the Company's segment information for the three and six months ended June 30, 2000 and 1999.
For the six months ended For the three months ended June 30, June 30, 2000 1999 2000 1999 Revenues Office $44,785 $42,490 $22,483 $21,829 Office/service center 3,365 3,318 1,631 1,699 Industrial -- 172 -- 33 Deferred rental revenues 142 163 142 90 Interest and other 1,073 519 630 273 ------------------------------------------------------------------------------ Total $49,365 $46,662 $24,886 $23,924 ============================================================================== Net operating income Office $26,215 $23,663 $13,248 $12,011 Office/service center 2,245 2,017 1,133 1,105 Industrial -- 141 -- 34 ------------------------------------------------------------------------------ Total $28,460 $25,821 $14,381 $13,150 ============================================================================== Depreciation and amortization Office $7,369 $6,860 $3,724 $3,579 Office/service center 659 614 312 316 Industrial -- 33 -- 7 Other 271 242 136 126 ------------------------------------------------------------------------------ Total $8,299 $7,749 $4,172 $4,028 ============================================================================== Interest expense Office $6,796 $5,987 $3,424 $3,097 Office/service center 760 698 385 367 Industrial -- 70 -- 15 ------------------------------------------------------------------------------ Total $7,556 $6,755 $3,809 $3,479 ============================================================================== Additions to properties Office $5,173 $25,161 $2,489 $21,743 Office/service center 129 505 8 316 Industrial -- 36 -- Other 32 40 8 24 ------------------------------------------------------------------------------ Total $5,334 $25,742 $2,505 $22,083 ============================================================================== Income before allocation to minority interests and gains on sale of properties For the six months ended For the three months ended June 30, June 30, 2000 1999 2000 1999 Office $12,050 $10,816 $6,100 $5,335 Office/service center 826 705 436 422 Industrial -- 38 -- 12 Deferred rental revenues 142 163 142 90 Interest and other income 1,073 519 630 273 General and administrative (2,396) (2,214) (1,291) (1,050) Other depreciation (271) (242) (136) (126) ------------------------------------------------------------------------------ Total $11,424 $9,785 $5,881 $4,956 ==============================================================================
Following is a summary of segment assets at June 30, 2000 and December 31, 1999: June 30, December 31, ---------------------------------------- 2000 1999 Asset Office $404,902 $411,738 Office/service center 24,872 30,635 Other 25,542 12,829 ---------------------------------------- Total $455,316 $455,202 ======================================== 3. Property Dispositions On April 6, 2000, the Company sold its property located at 3010 and 3020 Woodcreek Drive, Downers Grove, Illinois for a contract price of $12,700 resulting in a gain on sale of $2,964. In July 2000, the Company signed a contract to sell 183 Inverness Drive, Englewood, Colorado for a contract price of $28,250. 4. Restricted Share Grant On June 1, 2000, the Company issued 200,000 restricted common shares to certain officers and employees. The shares vest ten years from the date of issuance provided the recipient is still employed by the Company but may vest in increments during the period ended December 31, 2002 subject to the Company achieving certain performance objectives. Upon a change in control of the Company, 100,000 of the restricted shares issued to certain officers of the Company vest immediately. The total fair value of the restricted shares at the date of issuance ($3,138) is being amortized into expense over ten years on a straight-line basis subject to adjustment when the Company determines that it is probable to achieve certain performance objectives which accelerate the full or partial vesting of the shares. 5. Commitments In July 2000, the Company signed a contract to acquire, upon completion, Two Riverwood Place, a 96,000 square foot office building in Pewaukee, Wisconsin for a maximum price of $8,500. The total investment in this property is expected to be $11,700. The Company expects to acquire this property in July 2001. 6. Subsequent Events On August 1, 2000, the Company acquired a 109,647 square foot one-story office building in Schaumburg, Illinois for approximately $9,700. The Company used a portion of the proceeds from the sale of its Downers Grove, Illinois property to purchase this investment. ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Dollars in thousands) The following is a discussion and analysis of the consolidated financial condition and results of operations for the three and six months ended June 30, 2000. The following should be read in conjunction with the consolidated financial statements and related notes appearing elsewhere herein and the consolidated financial statements and related notes contained in the 1999 10-K. Overview - -------- The principal business of the Company is the ownership, management, leasing, renovation, and acquisition of suburban office properties primarily located in the Midwest. At June 30, 2000, the Company owned and operated 35 properties primarily located in suburban areas of Chicago, Detroit, Milwaukee, Columbus, Minneapolis, Denver and Cincinnati. The Company leases space to over 500 tenants who are engaged in a variety of businesses. Three months ended June 30, 2000 compared to three months ended June 30, 1999 In analyzing the operating results for the quarter ended June 30, 2000, the changes in rental and reimbursement income, real estate taxes and property operating expenses, from 1999 are due principally to the following factors: (1) the addition of a full year's operating results in 2000 from properties acquired in 1999 as compared to a partial year's operating results in 1999, (2) the effect of property dispositions in 1999 and 2000 and (3) improved operations of properties during 2000 as compared to 1999.
Rental and Real estate Property reimbursement taxes operating income expenses Increase (decrease) due to inclusion of results of $592 $105 $325 properties acquired in 1999 (Decrease) due to property dispositions in 1999 and 2000 (1,246) (197) (275) Increase (decrease) in operations in 2000 as compared to 1999 1,260 (1,268) 632 ----------------- ------------------ -------------- Total increase (decrease) $606 $(1,360) $682 ================= ================== ==============
Interest expense during the quarter ended June 30, 2000 increased by $330 primarily as a result of higher debt balances in 2000 as compared to 1999. General and administrative expenses increased primarily due to the amortization expense associated with the May 2000 restricted share grants. The Company sold one property during the quarter ended June 30, 2000 resulting in a gain on sale of $2,964 as compared to three properties sold in the quarter ended June 30, 1999 with a gain on sale of $4,858. Six months ended June 30, 2000 as compared to the six months ended June 30, 1999 In analyzing the operating results for the six months ended June 30, 2000, the changes in rental and reimbursement income, real estate taxes and property operating expenses, from 1999 are due principally to the following factors: (1) the addition of a full year's operating results in 2000 for properties acquired in 1999 as compared to a partial year's results from the dates of their respective acquisitions in 1999, (2) the effect of property dispositions in 1999 and 2000 and (3) improved operations of properties during 2000 as compared to 1999.
Rental and Real estate Property reimbursement taxes operating income expenses Increase (decrease) due to inclusion of results of $1,501 $291 $621 properties acquired in 1999 Decrease due to property dispositions in 1999 and 2000 (2,319) (376) (551) Increase (decrease) in operations in 2000 as compared to 1999 2,967 (979) 525 ----------------- ---------------- -------------- Total increase (decrease) $2,149 $(1,064) $595 ================= ================ ==============
Interest expense during the six months ended June 30, 2000 increased by $801 primarily as a result of higher debt balances in 2000 as compared to 1999. General and administrative expenses increased primarily due to the amortization expense associated with the May 2000 restricted share grants. The Company sold three properties during the six months ended June 30, 1999 for a total net gain on sale of $4,858. The Company sold one property during the six months ended June 30, 2000 resulting in a gain on sale of $2,964. Liquidity and Capital Resources - ------------------------------- The Company expects to meet its short-term liquidity requirements principally through its working capital and net cash provided by operating activities. The Company considers its cash provided by operating activities to be adequate to meet operating requirements and to fund the payment of dividends in order to comply with certain federal income tax requirements applicable to real estate investment trusts ("REITs"). The Company expects to meet its liquidity requirements for property acquisitions and significant capital improvements through property dispositions and additional borrowings on its existing $150,000 unsecured bank credit facility that matures in April 2001. The Company had $44,500 available for future borrowings under this credit facility at June 30, 2000. The Company expects to meet its long-term liquidity requirements (such as scheduled mortgage debt maturities, property acquisitions and significant capital improvements) through long-term collateralized and uncollateralized borrowings, the issuance of debt or equity securities and targeted property dispositions. In 2000, the Company announced a plan to repurchase up to 250,000 common shares. Through June 30, 2000, the Company had repurchased 21,600 of its common shares for an aggregate purchase price of $316. Funds for the share repurchases came from borrowings under the Company's unsecured bank credit facility and working capital. In April 2000, the Company sold its Downers Grove, Illinois property for a contract price of $12,700. The Company had deposited the proceeds from the sale in a tax-deferred exchange trust and used a portion of the proceeds to acquire Woodfield Green Executive Center, a 109,647 square foot office building in Schaumburg, Illinois on August 1, 2000, for approximately $9,700. The Company may elect to use the remaining proceeds for additional property investments, to reduce the outstanding balance on its unsecured bank credit facility and for working capital. In July 2000, the Company signed a contract to acquire, upon completion, Two Riverwood Place, a 96,000 square foot office building in Pewaukee, Wisconsin. The total investment in this property is expected to be $11,700. The Company expects to acquire this property in July 2001. Funds from Operations (FFO) - --------------------------- The White Paper on Funds From Operations approved by the Board of Governors of the National Association of Real Estate Investment Trusts ("NAREIT") in October 1999 (the "White Paper") defines Funds from Operations as net income (loss) (computed in accordance with GAAP), excluding gains (or losses) from debt restructuring and sales of property, plus real estate related depreciation and amortization and after adjustments for unconsolidated partnerships and joint ventures. Management considers Funds from Operations an appropriate measure of performance of an equity REIT because it is predicated on cash flow analyses. The Company computes Funds from Operations in accordance with standards established by the White Paper, which may differ from the methodology for calculating Funds from Operations utilized by other equity REITs and, accordingly, may not be comparable to such other REITs. Funds from Operations should not be considered as an alternative to net income (determined in accordance with GAAP) as an indicator of the Company's financial performance or to cash flow from operating activities (determined in accordance with GAAP) as a measure of the Company's liquidity, nor is it indicative of funds available to fund the Company's cash needs, including its ability to make distributions. FFO for the three and six months ended June 30, 2000 and 1999 is as follows (Dollars in Thousands):
Six months ended Three months ended June 30, June 30, 2000 1999 2000 1999 Net income applicable to common shares $12,526 $12,766 $7,910 $8,867 Gain on sale of properties, net (2,964) (4,858) (2,964) (4,858) Depreciation and amortization 7,982 7,390 4,012 3,809 Minority interests 34 49 21 33 ----------------- ----------------- ---------------- --------------- FFO $17,578 $15,347 $8,979 $7,851 ================= ================= ================ ===============
Forward-Looking Statements - -------------------------- Certain statements in this document constitute "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, and the Company intends that such "forward-looking statements" be subject to the safe harbors created thereby. The words "believe," "expect" and "anticipate" and similar expressions identify forward-looking statements. These forward-looking statements reflect the Company's current views with respect to future events and financial performance, but are subject to many uncertainties and factors relating to the Company's operations and business environment that may cause the actual results of the Company to be materially different from any future results expressed or implied by such forward-looking statements. Examples of such uncertainties include, but are not limited to, changes in interest rates, increased competition for acquisition of new properties, unanticipated expenses and delays in acquiring properties and regional occupancy rates and regional economic and business conditions. ITEM 3. MARKET RISK (Dollars in thousands) The Company's interest income is sensitive to changes in the general levels of U.S. short-term interest rates. The Company's interest expense is sensitive to changes in the general level of U.S. short-term and long-term interest rates as the Company has indebtedness outstanding at fixed and variable rates. The Company's variable rate debt bears interest at LIBOR plus 1% to 1.3% per annum depending on overall Company leverage. Increases in LIBOR rates would increase the Company's interest expense and reduce its cash flow. Conversely, declines in LIBOR rates would decrease its interest expense and increase its cash flow. In 1999, the Company entered into an interest rate cap agreement with a major financial institution whereby the Company limited the LIBOR interest rate on $50,000 of its variable rate debt to no more than 6% per annum until June 2001 thereby limiting the interest rate on that portion of the Company's line of credit to 7.0% to 7.3% per annum. At June 30, 2000, the Company had $148,900 of fixed rate debt outstanding at an average rate of 7.08%. If the general level of interest rates in the United States were to fall, the Company would not likely have the opportunity to refinance this fixed rate debt at lower interest rates due to prepayment restrictions and penalties on its fixed rate debt. In general, the Company believes long-term fixed rate debt is preferable as a financing vehicle for its operations due to the long-term fixed contractual rental income the Company receives from its tenants. As a result, 71% of the Company's long-term debt outstanding (including the interest rate cap agreement described above) at June 30, 2000, bears interest at fixed rates. The Company may, as market conditions warrant, incur additional long-term debt at fixed rates on either a secured or unsecured basis. A tabular presentation of interest rate sensitivity is as follows:
Interest Rate Sensitivity Principal Amount by Expected Maturity Average Interest Rate 2000 (1) 2001 2002 2003 2004 Thereafter Liabilities: Fixed Rate Mortgage loans payable $1,270 $2,660 $2,851 $13,861 $5,440 $72,818 Average interest rate 6.97% 6.97% 6.97% 7.06% 7.86% 6.87% Fixed Rate Bank loan payable $50,000 Average interest rate(2) Variable Rate Bank loan payable $55,500 Average interest rate (3) Bonds payable $310 $340 $375 $415 $2,830 Average interest rate (4) (4) (4) (4) (4) (4) (1) For the period July 1, 2000 to December 31, 2000. (2) The maximum interest rate on this loan is 7.3%. The average interest rate for 2000 was 7.3%. (3) The current interest rate on this debt is LIBOR + 1.15%. The average interest rate for this loan for 2000 was 7.50%. (4) The interest rate on the bonds payable is reset weekly. After factoring in credit enhancement costs for the bonds, the average interest rate in 2000 was 6.02%.
Part II Other Information Item 2. Changes in Securities (Dollars in thousands) During the quarter ended June 30, 2000, the Company issued 1,085 common shares pursuant to the exercise of outstanding share options with an aggregate exercise price of $15. These shares were issued to the option holders pursuant to exemptions from the registration requirements of the Securities Act of 1933, as amended (the "Act") provided by Section 4(2) of the Act or Rule 701 thereunder. Item 4. Submission of Matters to a Vote of Security Holders On May 16, 2000, the Company held its 2000 Annual Shareholders' Meeting. All seven members of the Company's Board of Trustees were nominated and were reelected to serve another term at the annual meeting. No other matters were submitted to a vote of shareholders at the annual meeting. The following is a list of individuals who were elected to the Board of Trustees at the annual meeting: Mr. James J. Brinkerhoff, Mr. Patrick R. Hunt, Mr. Daniel E. Josephs, Mr. Daniel P. Kearney, Mr. Edward Lowenthal, Mr. Richard A. May, and Mr. Donald E. Phillips. The following table describes the voting results for each of the nominees. Name of Nominee For Against Abstain Total James J. Brinkerhoff 12,134,684 74,738 -- 12,212,422 Patrick R. Hunt 12,143,384 69,038 -- 12,212,422 Daniel E. Josephs 12,131,051 81,371 -- 12,212,422 Daniel P. Kearney 12,143,434 68,988 -- 12,212,422 Edward Lowenthal 12,143,684 68,738 -- 12,212,422 Richard A. May 12,142,404 70,018 -- 12,212,422 Donald E. Phillips 12,140,993 71,429 -- 12,212,422 Item 6. Exhibits and Reports on Form 8-K (a) Exhibits The following exhibits are filed with this report: Exhibit Number Description of Document - ------ ----------------------- 10.1 Form of Restricted Shares Agreement; Richard A. May, Patrick R. Hunt, Richard L. Rasley, Raymond M. Braun and James Hicks entered into agreements covering 28,552, 23,891, 14,497, 16,530 and 16,530 restricted shares, respectively. 27.1 Financial Data Schedule (b) Reports on Form 8-K: None SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Great Lakes REIT (Registrant) Date: August 3, 2000 /s/ James Hicks Chief Financial Officer and Treasurer (Principal Financial and Accounting Officer) EX-10.1 2 0002.txt FORM OF RESTRICTED SHARE AGREEMENT Exhibit 10.1 Form of Restricted Share Agreement WHEREAS, ____________ (the "Grantee") is an executive of Great Lakes REIT, a Maryland real estate investment trust (the "Company"); and WHEREAS, the grant of the Restricted Shares (as defined in the Company's Amended and Restated 1997 Equity and Performance Incentive Plan (the "Plan")) has been authorized by a resolution of the Compensation Committee of the Board of Trustees of the Company (the "Board") that was duly adopted on May 16, 2000; NOW, THEREFORE, pursuant to the Plan, the Company hereby grants to the Grantee ___________ Restricted Shares (such ___________ Restricted Shares being hereinafter referred to as the "Restricted Shares"), effective as of June 1, 2000 (the "Date of Grant"), and subject to the terms and conditions of the Plan and the terms and conditions of this Agreement; 1. Definitions. All capitalized terms used herein and not otherwise defined herein shall have the meanings assigned to them in the Plan. 2. Issuance of Shares. The Restricted Shares shall be issued to the Grantee as soon as practicable following the Grantee's execution and acceptance of this Agreement, shall be fully paid and nonassessable and shall be represented by a certificate or certificates issued in the name of the Grantee and endorsed with an appropriate legend referring to the restrictions hereinafter set forth. 3. Restrictions on Transfer of Shares. The Restricted Shares may not be sold, assigned, transferred, conveyed, pledged, exchanged or otherwise encumbered or disposed of by the Grantee, except to the Company, until they have become nonforfeitable as provided in Section 4; provided, however, that the Grantee's rights with respect to the Restricted Shares may be transferred by will or pursuant to the laws of descent and distribution. Any purported encumbrance or disposition in violation of the provisions of this Section 3 shall be void ab initio, and the other party to any such purported transaction shall not obtain any rights to or interest in the Restricted Shares. As and when permitted by the Plan, the Company may in its sole discretion waive the restrictions on transferability with respect to all or a portion of the Restricted Shares. 4. Vesting of Shares. (a) To the extent that they shall not have previously become nonforfeitable as provided below, the Restricted Shares shall become nonforfeitable ten years from the Date of Grant (the "Vesting Period"), subject to the Grantee remaining in the continuous employment of the Company or a subsidiary of the Company during the Vesting Period. For the purposes of this Agreement, the continuous employment of the Grantee with the Company or a subsidiary of the Company shall not be deemed interrupted, and the Grantee shall not be deemed to have ceased to be an employee of the Company or a subsidiary of the Company, by reason of a leave of absence approved by the Board. (b) Notwithstanding the provisions of Section 4(a): (i) Some or all of the Restricted Shares may become nonforfeitable during the period from the Date of Grant through and including December 31, 2002 (the "Performance Period," and each December 31 during the Performance Period being hereinafter referred to as an "Early Vesting Date"), provided that the Grantee is still employed by the Company or a subsidiary of the Company on the applicable Early Vesting Date. (ii) If the Grantee ceases to be an employee of the Company or a subsidiary of the Company during the Vesting Period as the result of his or her death or Disability (as hereinafter defined), a ratable portion of the Restricted Shares that would otherwise have become nonforfeitable at the end of the Vesting Period, less any Restricted Shares that previously have become nonforfeitable pursuant to Section 4(b)(i) above, shall vest based upon the number of full months that has elapsed during the Vesting Period up to and including the date of such cessation of employment. "Disability" shall mean Grantee's permanent disability within the meaning of the long-term disability plan in effect for (or applicable to) Grantee. 5. Determination of Achievement of Management Objectives. As soon as practicable after each Early Vesting Date and in no event later than [90] days thereafter, the Compensation Committee of the Board shall determine (a) the extent, if any, to which the Management Objectives for the applicable periods ending on the applicable Early Vesting Date shall have been achieved in accordance with Exhibit A which exhibit is incorporated herein and made a part of this Agreement by this reference thereto, and (b) the number of Restricted Shares (rounded down to the nearest whole share for Performance Years 1 and 2 and rounded up for Performance Year 3), if any, that shall have become nonforfeitable as of the applicable Early Vesting Date in accordance with Exhibit A. 6. Forfeiture of Shares. Except as and to the extent the Restricted Shares have become nonforfeitable pursuant to Sections 4 and 5, the Restricted Shares shall be forfeited by the Grantee, if the Grantee ceases to be employed by the Company or a subsidiary of the Company prior to the tenth anniversary of the Date of Grant, and the certificate(s) representing Restricted Shares so forfeited shall be canceled. 7. Dividend, Voting and Other Rights. Except as otherwise provided in this Agreement, from and after the Date of Grant, the Grantee shall have all of the rights of a shareholder with respect to the Restricted Shares, including the right to vote the Restricted Shares and receive any dividends that may be paid thereon; provided, however, that any additional Common Shares or other securities that the Grantee may become entitled to receive pursuant to a stock dividend, stock split, recapitalization, combination of shares, merger, consolidation, separation or reorganization or any other change in the capital structure of the Company shall be subject to the same risk of forfeiture and restrictions on transfer as the forfeitable Restricted Shares in respect of which they are issued or transferred and shall become Restricted Shares for the purposes of this Agreement. 8. Retention of Stock Certificate(s) by the Company. The certificate(s) representing the Restricted Shares shall be held in custody by the Company, together with a stock power endorsed in blank by the Grantee with respect thereto, until such shares have become nonforfeitable in accordance with Sections 4 and 5. 9. Compliance with Law. The Company shall make reasonable efforts to comply with all applicable federal and state securities laws; provided, however, notwithstanding any other provision of this Agreement, the Company shall not be obligated to issue or release from restrictions on transfer any Common Shares pursuant to this Agreement if such issuance or release would result in a violation of any such law. 10. Withholding Taxes. If the Company or any subsidiary of the Company shall be required to withhold any federal, state, local or foreign tax in connection with any issuance or vesting of Common Shares or other securities pursuant to this Agreement, and the amounts available to the Company or such subsidiary for such withholding are insufficient, the Grantee shall pay the tax or make provisions that are satisfactory to the Company or such subsidiary for the payment thereof. The Grantee may elect to satisfy all or any part of any such withholding obligation by surrendering to the Company or such subsidiary a portion of the Restricted Shares that become nonforfeitable hereunder, and the Common Shares so surrendered by the Grantee shall be credited against any such withholding obligation at the Market Value per Share of such Common Shares on the date of such surrender. 11. No Employment Contract. Nothing contained in this Agreement shall confer upon the Grantee any right with respect to continuance of employment by the Company or a subsidiary of the Company or limit or affect in any manner the right of the Company or a subsidiary of the Company to terminate the employment or adjust the compensation of the Grantee. 12. Relation to Other Benefits. Any economic or other benefit to the Grantee under this Agreement or the Plan shall not be taken into account in determining any benefits to which the Grantee may be entitled under any profit-sharing, retirement or other benefit or compensation plan maintained by the Company or a subsidiary of the Company and shall not affect the amount of any life insurance coverage available to any beneficiary under any life insurance plan covering employees of the Company or a subsidiary of the Company. 13. Amendments. Any amendment to the Plan shall be deemed to be an amendment to this Agreement to the extent that the amendment is applicable hereto; provided, however, that no amendment shall adversely affect the rights of the Grantee under this Agreement without the Grantee's written consent. 14. Severability. In the event that one or more of the provisions of this Agreement shall be invalidated for any reason by a court of competent jurisdiction, any provision so invalidated shall be deemed to be separable from the other provisions hereof, and the remaining provisions hereof shall continue to be valid and fully enforceable. 15. Relation to Plan. This Agreement is subject to the terms and conditions of the Plan. In the event of any inconsistent provisions between this Agreement and the Plan, the Plan shall govern. The Board acting pursuant to the Plan, as constituted from time to time, shall except as otherwise expressly provided herein have the right to determine any questions that arise under this Agreement. 16. Successors and Assigns. The provisions of this Agreement shall inure to the benefit of, and be binding upon, the successors, administrators, heirs, legal representatives and assigns of the Grantee and the successors and assigns of the Company. 17. Notices. Any notice to the Company provided for herein shall be in writing to the attention of the Corporate Secretary at Great Lakes REIT, 823 Commerce Drive, Oak Brook, Illinois 60523, and any notice to the Grantee shall be addressed to the Grantee at his address currently on file with the Company. Except as otherwise provided herein, any written notice shall be deemed to be duly given if and when hand delivered, or five business days after having been mailed by United States registered or certified mail, return receipt requested, postage prepaid, or three business days after having been sent by a nationally recognized overnight courier service, addressed as aforesaid. Any party may change the address to which notices are to be given hereunder by written notice to the other party as herein specified, except that notices of changes of address shall be effective only upon receipt. 18. Governing Law. The laws of the State of [Maryland] shall govern the rights and responsibilities associated with the Restricted Shares and the laws of the State of Illinois, without giving effect to the principles of conflict of laws thereof, shall govern all other aspects of the interpretation, performance and enforcement of this Agreement. [signature page follows] This Agreement is executed by the Company as of the 22nd day of June 2000. Great Lakes REIT By: Name: Title: The undersigned hereby acknowledges receipt of an executed original of this Agreement and accepts the award of Restricted Shares granted hereunder on the terms and conditions set forth herein and in the Plan. Date: June 1, 2000 Exhibit A Management Objectives 1. Management Objectives. The Management Objectives applicable to the Restricted Shares for each of the years ending December 31, 2000, 2001 and 2002 (each a "Performance Year") shall be based on the Company's ranking within an index of the levels of annual growth in funds from operations ("FFO") per share of common stock (or other comparable interest) (the "Growth Rate") for each company in the Company's peer group1 (the "FFO Growth Index"). The applicable FFO Growth Index shall be arranged in ascending order beginning with the company with the lowest Growth Rate, and ending with the company with the highest Growth Rate. The company with the median Growth Rate shall represent the 50th percentile (the "Median"). 2. Annual Growth Rate Determination. For Performance Year 1, the Annual Growth Rate for the Company and each company in the Company's peer group shall be equal to the percentage increase in FFO per Common Share or share of common stock (or other comparable interest), as the case may be, for the year ending December 31, 2000, over such FFO for the year ended December 31, 1999 (the "Base Year"). For Performance Years 2 and 3, the annual Growth Rate for the Company and the Company's peer group shall be computed based on a computation of the percentage increase in FFO for such Performance Year compared to such FFO for the immediately preceding year. 3. Cumulative Growth Rate Determination. For Performance Years 2 and 3, the Growth Rate for the Company and each company is the Company's peer group shall be computed on a cumulative basis for the two and three year periods ending December 31, 2001 and 2002, respectively, based on the percentage increase in FFO per Common Share or share of common stock (or other comparable interest), for such two or three year period, as the case may be, over such FFO for the Base Year. 4. Minimum and Target Rankings. The following Management Objectives have been established for the Company2: - -------- 1 The Board shall, in its sole discretion, select the companies that comprise the Company's peer group prior to the conclusion of Performance Year 1. Thereafter, the Board may make appropriate modifications to the peer group to reflect changes in the operations of the Company or other companies. 2 For the purpose of determining the Company's achievement of the Minimum and Target Milestones, with a ten company peer group, the Company's Growth Rate must exceed that of the sixth ranked company, and must equal or exceed that of the third ranked company, respectively. In the event the number of companies in the peer group changes the Board shall make appropriate modifications to this specification. Milestones Company's Ranking Within the FFO Growth Index Minimum Milestone: Greater than or equal to the Median and less than the 75th percentile Target Milestone: Greater than or equal to the 75th percentile. 5. Performance-Based Vesting. On each Early Vesting Date, up to one-third of the total number of Restricted Shares, (rounded down to the nearest whole share in Years 1 and 2 and rounded up in Year 3) (the "Annual Maximum Earn-Out Amount") may become vested and nonforfeitable, depending on whether the Target Milestone for such year is achieved or whether the Minimum Milestone (but not the Target Milestone) for such year is achieved. In addition, in Performance Years 2 and 3, any Restricted Shares which could have become vested and nonforfeitable on or before the applicable Early Vesting Date but for the fact that an applicable Milestone was not achieved previously may become vested and nonforfeitable depending on whether the Target Milestone or Minimum Milestone has been achieved on a cumulative basis as computed pursuant to paragraph 3 above. (a) Achievement of Target Milestone. If the Target Milestone is achieved for any Performance Year, 100 percent of the applicable annual Maximum Earn-Out Amount will become vested and nonforfeitable. In addition, with respect to Performance Years 2 and 3, if the applicable Target Milestone is achieved on a cumulative basis, any Restricted Shares which could have become vested and nonforfeitable on or before the applicable Early Vesting Date but for the fact that an applicable Milestone was not achieved previous shall become vested and nonforfeitable. (b) Achievement of Minimum Milestone but Not Target Milestone. If the Minimum Milestone is achieved for any Performance Year, but the Target Milestone for such Performance Year is not achieved, one-half of the annual Maximum Earn-Out Amount will become vested and nonforfeitable. In addition, with respect to Performance Years 2 and 3, if the Minimum Milestone is achieved on a cumulative basis but the applicable cumulative Target Milestone is not achieved, one-half of the aggregate of (1) any Restricted Shares which previously became vested and nonforfeitable and (2) any Restricted Shares which could have become vested and nonforfeitable on or before the applicable Early Vesting Date but for the fact that an applicable Milestone was not achieved previously shall become vested and nonforfeitable. 6. By way of example and not as a limitation, if in Performance Years 1 and 2, the Company did not achieve the Median in FFO growth on an annual or cumulative basis, no Restricted Shares would vest on the first two Early Vesting Dates. If, in Performance Year 3, the Company's FFO growth for the year placed it in the 90th percentile, one-third on the total Restricted Shares would vest and become nonforfeitable. In addition, if the Company's FFO growth for the three year period ending December 31, 2002 placed the Company in the 70th percentile compared to its peer group, then an additional one-sixth of the Restricted Shares would vest and become nonforfeitable (i.e., one-half of all Restricted Shares less the one-third that vested in connection with the annual performance for Performance Year 3). EX-27 3 0003.txt FDS
5 3-MOS DEC-31-2000 MAR-31-2000 13,874 0 5,437 0 0 19,539 465,812 38,495 455,316 130,633 103,170 0 37,500 182 183,137 455,316 48,292 49,365 0 30,385 0 0 7,556 14,388 0 14,388 0 0 0 12,526 .76 .76
-----END PRIVACY-ENHANCED MESSAGE-----