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 March 31, 1999
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 May 12, 1999: 16,418,760
<PAGE>
Great Lakes REIT
Index to Form 10-Q
March 31, 1999
Page Number
Part I - Financial Information
Item 1. Financial Statements (unaudited):
Consolidated Balance Sheets
as of March 31, 1999
and December 31, 1998 4
Consolidated Statements of Income
for the three months
ended March 31, 1999 and 1998 5
Consolidated Statements of Cash Flows
for the trhee months
ended March 31, 9999 and 1998 6
Consolidated Statement of Changes
in Shareholders' Equity
for the three months ended March 31, 1999 7
Notes to Consolidated Financial Statements 8
Item 2. Management's Discussion and Analysis of Results
of Operations and Financial Condition 11
Item 3. Quantitative and Qualitative Disclosures
about Market Risk
Part II - Other Information
Item 2. Changes in Securities 16
Item 6. Exhibits and Reports on Form 8-K 17
<PAGE>
<TABLE>
<CAPTION>
Great Lakes REIT
Consolidated Balance Sheets (unaudited)
(Dollars in Thousands) March 31, December 31,
-------------------------------------
1999 1998
Assets
<S> <C> <C>
Properties:
Land $60,960 $60,960
Buildis, improvements, and equipment 391,698 388,068
-------------------------------------
452,658 449,028
Less aumulated depreciation 25,417 22,166
-------------------------------------
427,241 426,862
Cash and cash equivalents 2,241 2,466
Real estate tax escrows 640 619
Rents receivable 4,789 5,021
Deferred financing and leasing costs, net of accumulated amortization 6,153 6,067
Goodwill, net of accumulated amortization 1,266 1,284
Other assets 1,596 1,370
-------------------------------------
Total assets $443,926 $443,689
=====================================
Liabilities and shareholders' equity
Bank loan payable $91,566 $84,291
Mortgage loans payable 103,955 104,532
Bonds payable 4,800 4,800
Accounts payable and accrued liabilities 4,253 4,338
Accrued real estate taxes 9,709 11,149
Prepaid rent 4,213 3,220
Security deposits 1,203 1,107
------------------------------------
Total liabilities 219,699 213,437
-------------------------------------
Minority interests 926 1,165
-------------------------------------
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 1999 and 1998)
Common shares of beneficial interest ($0.01 par value, 175 175
60,000,000 shares authorized; 17,548,245 and 17,513,578
shares issued in 1999 and 1998, respectively)
Paid-in-capital 223,847 223,414
Retained earnings (deficit) (10,179) (8,790)
Employee share loans (12,399) (11,967)
Deferred compensation (37) (44)
Treasury shares, at cost (1,030,985 and 743,184 shares in (15,606) (11,201)
1999 and 1998, respectively)
-------------------------------------
Total shareholders' equity 223,301 229,087
-------------------------------------
Total liabilities and shareholders' equity $443,926 $443,689
=====================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
<TABLE>
Great Lakes REIT
Consolidated Statements of Income (unaudited)
(Dollars in Thousands, except per share data)
<CAPTION>
Three months ended March 31,
1999 1998
Revenues:
<S> <C> <C>
Rental $17,524 $12,928
Reimbursements 4,968 3,765
Interest and other 246 110
--- ---
Total revenues
22,738 16,803
------ ------
Expenses:
Real estate taxes 3,625 2,728
Other property operating 6,124 4,230
General and administrative 1,163 1,097
Interest 3,276 2,035
Depreciation and amortization 3,721 2,739
----- -----
Total expenses 17,909 12,829
------ ------
Income before allocation to minority interests 4,829 3,974
Minority interests 16 6
-- -
Net income 4,813 3,968
Income allocated to preferred shareholders 914
--- ---
Net income applicable to common shares $3,899 $3,968
====== ======
Earnings per common share - basic $0.24 $0.25
===== =====
Weighted average common shares outstanding - basic 16,574,149 15,860,320
========== ==========
Diluted earnings per common share $0.23 $0.25
===== =====
Weighted average common shares outstanding - diluted 16,658,601 16,145,417
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
<TABLE>
Great Lakes REIT
Consolidated Statements of Cash Flows (unaudited)
(Dollars in Thousands)
<CAPTION>
Three Months Ended March 31,
1999 1998
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C>
Net income $4,813 $3,968
Adjustments to reconcile net income to cash
flows from operating activities
Depreciation and amortization 3,721 2,739
Other non cash items 23 13
Net changes in assets and liabilities:
Rents receivable 232 161
Real estate tax escrows and other assets (46) 46
Accounts payable, accrued expenses and other liabilities 862 (199)
Accrued real estate taxes (1,440) (443)
Payment of deferred leasing costs (495) (717)
---- ----
Net cash provided by operating activities 7,670 5,568
----- -----
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of properties (21,939)
Additions to buildings, improvements and equipment (3,660) (3,767)
Other investing activities (200) 1,610
---- -----
Net cash used by investing activities (3,860) (24,096)
------ -------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from exercise of share options 1
Proceeds from bank and mortgage loans payable 7,275 21,066
Distributions / dividends paid (6,060)
Purchase of minority interests (256)
Purchase of treasury shares (4,405)
Payment of bank and mortgage loans and bonds (577) (83)
Payment of deferred financing costs (13) (82)
--- ---
Net cash provided by (used in) financing activities (4,035) 20,901
------ ------
Net increase (decrease) in cash and cash equivalents (225) 2,373
Cash and cash equivalents, beginning of year 2,466 1,437
----- -----
Cash and cash equivalents, end of quarter $2,241 $3,810
====== ======
Supplemental disclosure of cash flow:
Interest paid $3,310 $1,840
====== ======
Non cash financing transactions:
Employee share loans $433 $923
==== ====
Increase in preferred dividends payable $142
====
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
Great Lakes REIT
Consolidated Statement of Changes in Shareholders' Equity (unaudited)
For the Three Months Ended March 31, 1999
(Dollars in Thousands)
1999
- -----------------------------------------------------------------------------
Preferred Shares
Balance at beginning of period $37,500
Proceeds from the sale of preferred shares
- -----------------------------------------------------------------------------
Balance at end of period 37,500
Common Shares
Balance at beginning of period 175
Exercise of share options
- -----------------------------------------------------------------------------
Balance at end of period 175
Paid-in capital
Balance at beginning of period 223,414
Exercise of share options 433
- -----------------------------------------------------------------------------
Balance at end of period 223,847
Retained earnings (deficit)
Balance at beginning of period (8,790)
Net income 4,813
Distributions/dividends (6,202)
- -----------------------------------------------------------------------------
Balance at end of period (10,179)
Employee share loans
Balance at beginning of period (11,967)
Exercise of share options (432)
- -----------------------------------------------------------------------------
Balance at end of period (12,399)
Deferred compensation
Balance at beginning of period (44)
Amortization of deferred compensation 7
- -----------------------------------------------------------------------------
Balance at end of period (37)
Treasury shares
Balance at beginning of period (11,201)
Purchase of treasury shares (4,405)
- -----------------------------------------------------------------------------
Balance at end of period (15,606)
- -----------------------------------------------------------------------------
Total shareholders' equity $223,301
=============================================================================
The accompanying notes are an integral part of these financial statements.
<PAGE>
Great Lakes REIT
Notes to Consolidated Financial Statements
Dollars in thousands except per share data
(Unaudited)
1. Basis of Presentation
Great Lakes REIT, (the "Company"), was formed in 1992 to invest in
income-producing real property. In 1998, the Company changed its form of
organization from a Maryland corporation to a Maryland real estate investment
trust. The principal business of the Company is the ownership, management,
leasing, renovation and acquisition of suburban office and service center
properties primarily located in the Midwest. At March 31, 1999, the Company
owned and operated 40 properties primarily located in suburban areas of Chicago,
Detroit, Milwaukee, Columbus, Minneapolis, Denver, and Cincinnati. The Company
leases office, service center and industrial properties to over 550 tenants in a
variety of businesses. The Company conducts substantially all of its operations
through Great Lakes REIT, L.P. of which the Company is the sole general partner.
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. 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 Company's Annual Report on Form 10-K for the
year ended December 31, 1998.
2. Segment Information
The Company has three reportable segments distinguished by property type. The
property types are office, with 87% (as measured by square feet) of the
Company's overall portfolio, office/service center (11%), and industrial (2%),
and are primarily located in the Midwest. As of March 31, 1999, the properties
were leased to more than 550 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 - a widely recognized
industry measure of a property's performance.
Following is a summary report of segment information for the three months ended
March 31, 1999 and 1998.
For the three months ended March 31,
-----------------------------------------
1999 1998
Revenues
Office $20,661 $14,546
Office/service center 1,619 1,812
Industrial 139 75
Deferred rental revenues 73 260
Interest and other 246 110
--- ---
Total $22,738 $16,803
======= =======
Net operating income
Office $11,652 $8,237
Office/service center 914 1,212
Industrial 104 26
--- --
Total $12,670 $9,475
======= ======
Depreciation
and amortization
Office $3,281 $2,199
Office/service center 298 263
Industrial 26 23
Other 116 254
--- ---
Total $3,721 $2,739
====== ======
Interest expense
Office $2,890 $1,747
Office/service center 332 239
Industrial 54 49
-- --
Total $3,276 $2,035
====== ======
Additions to properties
Office $3,418 $25,342
Office/service center 189 333
Industrial 36
Other 17 31
-- --
Total $3,660 $25,706
====== =======
Income before allocation to minority interests
Office $5,481 $4,291
Office/service center 284 710
Industrial 24 (46)
Deferred rental revenues 73 260
Interest and other income 246 110
General and administrative (1,163) (1,097)
Other depreciation (116) (254)
---- ----
Income before allocation
to minority interests $4,829 $3,974
====== ======
Following is a summary of segment assets at March 31, 1999 and December 31,
1998:
March 31, December 31,
----------------------------------------
1999 1998
Assets
Office $393,740 $394,607
Office/service center 31,769 31,841
Industrial 3,979 3,949
Other 14,438 13,292
----------------------------------------
Total $443,926 $443,689
========================================
3. Subsequent Events
On April 21, 1999, the Company sold its Elgin, Illinois property for a contract
price of $4,700 (including the assumption of $2,083 of mortgage debt).
On May 11, 1999, the Company acquired Burlington Office Center located in Ann
Arbor, Michigan for a contract price of $19,650. The property contains three
multi-story office buildings totaling 190,000 square feet.
ITEM 2. Management's Discussion and Analysis of Results of Operations and
Financial Condition (Dollars in thousands)
The following is a discussion and analysis of the consolidated financial
condition and results of operations for the three months ended March 31, 1999.
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 Company's 1998 Form
10-K.
Overview
The principal business of the Company is the ownership, management, leasing,
renovation, and acquisition of suburban office properties located primarily in
the Midwest. At March 31, 1999, the Company owned and operated 40 properties
primarily located in suburban areas of Chicago, Detroit, Milwaukee, Columbus,
Minneapolis, Denver and Cincinnati. The Company leases space to over 550 tenants
in a variety of businesses.
The Company expanded its real estate portfolio in 1998 through the acquisition
of suburban office and office/service center properties. The Company has
financed its growth by the issuance of common and preferred shares and short and
long-term debt. Growth in net income and funds from operations (FFO) for the
three months ended March 31, 1999 as compared to March 31, 1998 has been due to
a combination of improved operations of the Company's properties and the
inclusion of the operating results of properties acquired in 1998 from the dates
of their respective acquisitions.
Three months ended March 31, 1999 compared to three months ended March 31, 1998
In analyzing the operating results for the quarter ended March 31, 1999 the
changes in rental and reimbursement income, real estate taxes and property
operating expenses, from 1998 are due principally to two factors: (1) the
addition of operating results from properties acquired subsequent to March 31,
1998 and (2) improved operations of properties during 1999 as compared to 1998.
The Company acquired one property during the first quarter of 1998 and six
properties subsequent to March 31, 1998. The operating results of these
properties have been included in the Company's financial statements from the
dates of their acquisitions. A summary of these changes as they impact rental
and reimbursement income, real estate taxes, and property operating expenses
follows:
<TABLE>
<CAPTION>
Rental and Real estate taxes Property
reimbursement income operating
expenses
<S> <C> <C> <C>
Increase due to inclusion of results of properties acquired $5,279 $755 $2,101
in 1998
Improved operations in 1999 as compared to 1998 520 142 (207)
--------------------- ------------------ --------------
Total $5,799 $897 $1,894
===================== ================== ==============
</TABLE>
Interest expense during the quarter ended March 31, 1999 increased by $1,241
as the Company had greater amounts of debt outstanding in 1999.
Depreciation and amortization increased in 1999 by $982 as the Company incurred
these expenses on 40 properties as of March 31, 1999 as compared to 34
properties as of March 31, 1998.
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 additional borrowings on its
existing $150,000 unsecured line of credit, which matures in April 2001 and with
proceeds from the sale of properties.
In 1998, the Company completed approximately $142,000 of property acquisitions.
The ability of the Company to continue to make acquisitions at this pace is
predicated upon the Company's ability to access the public and private equity
and debt markets at acceptable prices and rates. In light of the recent market
price of the Company's common shares, the Company expects its acquisition
activity will be reduced.
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 additional equity securities in the Company,
and targeted property dispositions.
In 1998, the Company announced a 1,000,000 common share repurchase plan. During
the quarter ended March 31, 1999, the Company purchased 278,600 common shares
and completed this plan. In March 1999, the Company announced a new 500,000
common share repurchase plan. During the quarter ended March 31, 1999, the
Company repurchased 9,201 common shares as part of the new plan. Share purchases
totaled $4,405 for the quarter ended March 31, 1999. Funds for the share
purchases came from borrowings on its unsecured line of credit and working
capital.
The Company has marketed five properties for sale, all in suburban Chicago:
Property Location
565 Lakeview Parkway Vernon Hills
2800 River Road Des Plaines
1251 Plum Grove Road Schaumburg
Court Office Center Markham
1675 Holmes Road Elgin
The Company expects to generate proceeds from the sale of these assets in the
range of $20,000 to $24,000. These proposed dispositions are consistent with the
Company's strategy to seek to enhance shareholder value in part through
strategic dispositions. The Company currently plans to use the proceeds from the
sale to reduce outstanding balance on its unsecured credit facility, to acquire
additional investment properties and for working capital.
In April 1999, the Company sold its Elgin, Illinois property for a contract
price of $4,700 (including assumption of $2,083 of mortgage debt).
The Company has signed a contract to sell its 1251 Plum Grove Road and 2800
River Road properties for a contract price of $11,800. The Company anticipates
the closings of these transactions will occur in the second or third quarter of
1999.
At March 31, 1999, the Company has committed to fund $2,312 for the renovation
of its Ann Arbor, Michigan property. The Company also has committed to acquire,
upon completion, an office building under construction in Pewaukee, Wisconsin
for a maximum contract price of $11,400. The Company expects to close this
acquisition in November 1999.
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 March
1995 (the "White Paper") defines FFO as net income (loss) (computed in
accordance with generally accepted accounting principles), excluding gains or
losses from debt restructuring and sales of property, plus real estate
depreciation and amortization and after adjustments for unconsolidated
partnerships and joint ventures. Management considers FFO to be an appropriate
measure of performance of an equity REIT because it is predicated on cash flow
analyses. The Company computes FFO in accordance with standards established by
the White Paper (except for the amortization of deferred compensation related to
restricted stock awards) which may differ from the methodology for calculating
FFO utilized by other equity REITs and accordingly, may not be comparable to
other equity REITs. FFO should not be considered as an alternative to net income
(determined in accordance with generally accepted accounting principles) as an
indicator of the Company's financial performance or to cash flow from operating
activities (determined in accordance with generally accepted accounting
principles) 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 months ended March 31, 1999 and 1998 is as
follows (Dollars in Thousands):
1999 1998
Net income applicable to common shares $3,899 $3,968
Depreciation and amortization 3,580 2,462
Minority interests 16 6
----------------- --------------
FFO $7,495 $6,436
================= ==============
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 Acts 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. In addition, statements regarding the Company's
expectations with respect to its short-term and long-term liquidity requirements
and related sources, statements regarding the anticipated timing and proceeds
related to planned property dispositions and expenditures regarding property
acquisitions are 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, changes in the
equity value of the Company, increased competition for acquisition of new
properties, availability of alternative financing sources, unanticipated delays
in property sales, adverse changes in the market value of properties selected
for sale, unanticipated expenses and delays in acquiring properties or
increasing occupancy rates and regional economic and business conditions. In
addition, many of the statements below with respect to Year 2000 issues and
status are forward-looking statements and are subject to the uncertainties
expressed below.
Year 2000 Issues and Status
The Company recognizes the importance of the Year 2000 issues and has initiated
a program of evaluation, remediation and testing of the systems and equipment
serving its businesses for Year 2000 readiness. The Company is also assessing
the readiness of external parties, including its suppliers, vendors, bankers,
insurers and other service providers as well as its tenants. The evaluation
phase is intended to determine the readiness of internal systems and equipment
as well as the readiness of third parties. The remediation phase includes
computer software, hardware and operating equipment as well as identifying
solutions to possible third party noncompliance. The testing phase includes
integrated testing of all systems which are modified.
Amounts incurred to date for remediation costs have not been material. The
current status of the Company's state of readiness and expected completion dates
for evaluation, remediation and testing related to Year 2000 issues are
summarized below:
Financial software: The evaluation of the Company's financial software is 100%
complete and since the Company believes this software is Year 2000 compliant, no
remediation is required. The Company has not yet tested whether the financial
items are in fact Year 2000 compliant but expects to begin such testing in the
second quarter of 1999. Costs associated with the testing phase are not expected
to be material.
Networking software: In the first quarter of 1999 the Company completed the
upgrade of its internal computer networking software and hardware to a system
that is Year 2000 compliant. Total costs incurred were $16.
Building systems: Building systems include heating and air-conditioning control
systems, elevator operating software, building security systems, telephone
systems, and alarm monitoring systems. The Company has contacted its significant
vendors related to these systems in order to evaluate Year 2000 issues with
respect to embedded technology related to these building systems. The Company
has requested that its vendors for these systems indicate their compliance with
Year 2000 issues. Most vendors have been reluctant to disclose their readiness
with respect to Year 2000 issues.
The Company has identified several building systems in certain of its properties
that will need modification or replacement to be Year 2000 compliant. Total
costs for these upgrades, which are expected to occur in 1999, are expected to
be $250. Costs incurred during the quarter ended March 31, 1999, were $34.
Tenants: The Company is developing a plan to contact its tenants to inquire as
to whether the tenant's accounts payable systems will be able to make required
payments for the Year 2000 on a timely basis. The Company expects to complete
its evaluation of this issue by June 1999 and to develop contingency plans, if
necessary, beginning in July 1999.
The Company believes that in the most likely, worst case scenario, internal
remediation and testing of financial and networking technology systems and
building systems will be completed as indicated above and will have minimal
unfavorable impact on the results of operations and financial condition of the
Company. If any or all of these efforts are delayed, there could be disruption
of the financial, networking, and building systems. Critical third party
vendors, suppliers and service providers have been contacted to evaluate their
Year 2000 readiness. However, external parties providing materials and services
to the Company have been reluctant to fully disclose information about their
readiness. Accordingly, the Company cannot be assured there will be no
disruption of operations because of vendors and service providers who are not
fully Year 2000 compliant. Contingency plans will be developed, where necessary,
as part of the remediation phases indicated above, in an effort to provide a
continued supply of building services. The Company is developing a plan to
contact significant tenants to determine their compliance with Year 2000 issues.
However, the Company has not completed these evaluations and cannot determine
whether there are vendors, suppliers and tenants who will not be compliant on a
timely basis or whether the failure of any of these entities to become compliant
could have a material adverse effect on the Company's business, consolidated
results of operations and consolidated financial position.
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. At March 31, 1999, the Company has not hedged (i.e., fixed the
interest rate) on its variable rate debt. The Company may, in the future, enter
into interest rate swaps, interest rate caps or other derivative financial
instruments to fix interest rates on its variable rate debt. The Company
generally operates with variable rate debt representing less than 50% of total
long-term debt.
At March 31, 1999, the Company had $103,955 of fixed rate debt outstanding at an
average rate of 6.92%. 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, the Company
has 52% of its long-term debt outstanding at March 31, 1999, at fixed rates. The
Company may, as market conditions warrant, enter into additional fixed rate
long-term debt instruments on either a secured or unsecured basis.
A tabular presentation of interest rate sensitivity is as follows:
<TABLE>
Interest Rate Sensitivity
Principal Amount by Expected Maturity
Average Interest Rate
<CAPTION>
1999(1) 2000 2001 2002 2003 Thereafter
<S> <C> <C> <C> <C> <C> <C>
Liabilities:
Fixed Rate
Mortgage loans payable $1,813 $2,566 $2,749 $2,947 $13,964 $79,916
Average interest rate 7.00% 7.00% 7.01% 7.01% 7.06% 6.97%
Variable Rate
Bank loan payable $91,566
Average interest rate(2)
Bonds payable $250 280 310 340 375 3,245
Average interest rate (3) (3) (3) (3) (3) (3)
</TABLE>
(1) For the period April 1, 1999 to December 31, 1999.
(2) The current interest rate on this debt is LIBOR + 1.3%.
(3) The interest rate on the bonds payable is reset weekly. After factoring in
credit enhancement costs for the bonds, the average interest rate in the first
quarter of 1999 was 4.63%.
<PAGE>
Part II Other Information
Item 2. Changes in Securities (Dollars in thousands)
During the quarter ended March 31, 1999, the Company issued 24,000 common shares
of beneficial interest pursuant to the exercise of outstanding share options
with an aggregate exercise price of $294. These shares were issued to the
optionholders 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 6. Exhibits and Reports on Form 8-K
(a) Exhibits
The following exhibits are attached hereto:
Exhibit
Number Description of Document
27.1 Financial Data Schedule
(b) Reports on Form 8-K:
None
<PAGE>
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: May 12, 1999 /s/ James Hicks
Chief Financial Officer
and Treasurer
(Principal Financial and
Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 2,241
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0
37,500
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</TABLE>