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
<PAGE>
<TABLE>
<CAPTION>
Great Lakes REIT
Index to Form 10-Q
June 30, 2000
<S> <C>
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
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Great Lakes REIT
Consolidated Balance Sheets (unaudited)
(Dollars in Thousands, except per share data)
June 30, December 31,
2000 1999
---- ----
<S> <C> <C>
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.
</TABLE>
<PAGE>
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.
<PAGE>
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.
<PAGE>
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.
<PAGE>
<TABLE>
<CAPTION>
Great Lakes REIT
Consolidated Statements of Cash Flows (unaudited)
(Dollars in Thousands)
Six Months Ended June 30,
2000 1999
<S> <C> <C>
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.
</TABLE>
<PAGE>
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.
<TABLE>
<CAPTION>
For the six months ended For the three months ended
June 30, June 30,
2000 1999 2000 1999
<S> <C> <C> <C> <C>
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
==============================================================================
</TABLE>
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.
<TABLE>
<CAPTION>
Rental and Real estate Property
reimbursement taxes operating
income expenses
<S> <C> <C> <C>
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
================= ================== ==============
</TABLE>
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.
<TABLE>
<CAPTION>
Rental and Real estate Property
reimbursement taxes operating
income expenses
<S> <C> <C> <C>
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
================= ================ ==============
</TABLE>
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):
<TABLE>
<CAPTION>
Six months ended Three months ended
June 30, June 30,
2000 1999 2000 1999
<S> <C> <C> <C> <C>
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
================= ================= ================ ===============
</TABLE>
<PAGE>
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:
<TABLE>
<CAPTION>
Interest Rate Sensitivity
Principal Amount by Expected Maturity
Average Interest Rate
2000 (1) 2001 2002 2003 2004 Thereafter
<S> <C> <C> <C> <C> <C> <C>
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%.
</TABLE>
<PAGE>
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
<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: August 3, 2000 /s/ James Hicks
Chief Financial Officer
and Treasurer
(Principal Financial and
Accounting Officer)
