SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10/A
GENERAL FORM FOR REGISTRATION OF SECURITIES
Pursuant to Section 12(b) or (g) of The Securities Exchange Act of 1934
Great Lakes REIT, Inc.
(Exact name of registrant as specified in its charter)
Maryland 36-3844714
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2311 West 22nd Street, Suite 109, Oak Brook, IL 60521
(Address of principal executive offices) (Zip)
Registrant s telephone number, including area code: (708) 368-2900
Securities to be registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which
to be registered each class is to be registered
Securities to be registered pursuant to Section 12 (g) of the Act:
Common Stock, par value $0.01 per share (Title of class)
Exhibit index is sequential page 102.<PAGE>
ITEM 1. BUSINESS
General
Great Lakes REIT, Inc. (the Company ) was incorporated as a Maryland
corporation on June 22, 1992 to invest in income producing property. The
principal business of the Company is the acquisition, ownership, management,
leasing and renovation of suburban office and industrial properties located in
the Midwestern United States. At December 31, 1995, the Company owned and
operated sixteen properties aggregating approximately 1.5 million square feet
located in suburban areas of Chicago, Illinois; Detroit, Michigan; Milwaukee,
Wisconsin; and Minneapolis, Minnesota. The Company leases office and industrial
space to over 200 tenants in a variety of business. In 1993, three tenants
accounted for more than 10% of total revenues. In 1994 and 1995, no tenant
individually accounted for more than 10% of total revenues.
Operating Strategy
The Company s operating strategy is to acquire, manage, and, when
appropriate, redevelop suburban office properties in certain large metropolitan
markets within approximately a 400 mile radius of Chicago.
The Company believes that due to improvements in the regional economy and
reduced availability of financing for new construction, an investment in
suburban office properties in the Midwestern United States provides the
potential for attractive investment returns. The Company also believes that
further improvement in economic conditions in the Midwestern United States could
favorably affect occupancy levels, rents and real estate values, although there
can be no assurance that this will in fact occur. The Company seeks to increase
its asset base through the acquisition of individual suburban office properties
and portfolios of such properties.
The Company believes that employment growth is a reliable indicator of
future demand for suburban office space. In addition, the Company believes that
certain supply-side constraints, such as limited availability of undeveloped
land, and financing for speculative real estate construction, increase a market
s potential for higher average rents over time. Therefore, the Company is
currently targeting selected suburban markets in the Midwestern United States
that are experiencing, or are expected by the Company to experience, economic
growth, increased spending or production and supply-side constraints.
The Company currently maintains its headquarters in Oak Brook, Illinois,
however, it also operates property management offices in Des Plaines, Illinois;
Vernon Hills, Illinois; Southfield, Michigan; and Milwaukee, Wisconsin.
Competition
Leasing of Office and Industrial Space:
The Company faces significant competition from both institutional and local
property owners for the leasing of space to tenants. Many factors enter into
a tenant s decision to lease space in a particular building, including:
the property s location, functionality, amenities, rental rates, and
available tenant improvement allowances. The supply of available space in the
markets in which the Company operates its properties also has a significant
impact on rental rates and tenant improvement costs incurred by landlords.
The Company believes no single or group of competitors hold a dominant
position in the markets in which the Company operates its properties.
The cash flow of a real estate asset can vary significantly from year to
year depending on tenant turnover. When a lease expires and a tenant renews or
vacates its space, costs associated with tenant improvements, leasing
commissions and lost income due to vacancy or construction down-time can
significantly reduce the cash flow from a property. Due to the capital intensive
nature of suburban office properties and, to a lesser degree, industrial
properties, management believes that planning and budgeting for future costs
associated with tenant turnover is a prudent component of evaluating investment
yields and managing the cash flow of properties. For its existing portfolio, the
Company estimates income due to vacancy and construction down-time on a property
by property basis. Although these future costs are not accrued for financial
reporting purposes, the Company incorporates these estimates in its annual cash
budgets and long-term cash forecasts. The Company believes that its ability to
fund tenant improvements and pay leasing commissions helps to retain and attract
tenants.
Acquisition of Properties
The Company s strategy is to acquire well-located, well-constructed
suburban office and industrial properties that are less than 15 years old with
purchase prices of less than $15 million. Historically, and currently, most
institutional buyers have tended to focus their acquisition activities on
properties with purchase prices exceeding $20 million. In addition, there are
currently no other publicly traded REITs which have the stated objective to
purchase suburban office properties throughout the Company s Midwest market
area. As a result of the purchasing bias of institutions and the absence of
substantial competition from other publicly traded REITs, the Company has
encountered, few well-capitalized competitors for the Company s target
properties in its target markets. By avoiding properties that institutional
investors have been interested in purchasing, the Company believes it has been
able to achieve more favorable pricing on the Company s property acquisitions
since the Company has been able to contract for the purchase of properties
without financing and other contingencies which are generally required by less
well-capitalized local buyers of these property types. In addition, the Company
has established a successful track record and reputation for closing on
properties it has contracted to purchase.
The Company believes that: (1) the experience of its management team; (2)
its conservative capital structure and its credit facility; (3) its strong
relationships with the region s investment real estate brokers; and (4) its
integrated asset management program, have enhanced, and will continue to
enhance, its ability to identify and capitalize on acquisition opportunities.
Each acquisition opportunity is reviewed to evaluate whether it meets the
following criteria: (1) the potential for higher occupancy levels and/or rents
as well as for lower turnover and/or operating expenses; (2) ability to generate
returns in excess of the Company s weighted average cost of capital, taking into
account the estimated costs associated with tenant turnover (i.e. tenant
improvements, leasing commissions and the loss of income due to vacancy); and
(3) availability for purchase at a price at or below estimated replacement cost.
Investment Growth Strategy
The Company s long term objective is to manage the Company and its properties so
that the Company s shareholders enjoy: (i) preservation of capital; (ii) capital
appreciation; and (iii) dividends that increase over time. To accomplish this
objective, the Company intends to increase its funds from operations and the
value of the Company s properties by: (1) retaining existing tenants when their
current leases expire; (2) leasing vacant space in its properties; (3)
maintaining or improving (as necessary) the interior and exterior appearance of
its properties; (4) reducing and controlling operating costs of its properties
through prudent and careful property management; and (5) acquiring under-leased
and under-managed properties at favorable prices and then increasing funds from
operations through better leasing and management of the properties. The Company
believes that by managing its own properties, it will be more effective at
operating its properties than other owners who employ third party management
companies.
To accomplish its operating objectives, the Company intends to:
Capitalize on its experienced management team, whose senior officers have
experience in the ownership, management, and acquisition of suburban
office properties in the Midwestern United States;
Focus its acquisition efforts in the Midwestern United States;
Pursue a market-driven strategy which is based upon an analysis of the
regional factors which the Company believes impact the supply of, and
demand for, suburban office properties;
Plan for future anticipated expenses associated with tenant turnover by
budgeting for tenant improvements, lease commissions, and lost income due
to vacancy or construction down-time;
Concentrate on acquiring general purpose, flexible properties which are
suitable for a diverse range of tenants;
Utilize its in-house asset and property management personnel in order to
reduce overhead costs and increase its responsiveness to tenant needs;
Cooperate with local leasing brokers in order to more effectively attract
and retain tenants; and
Maintain a conservative capital structure by limiting total indebtedness
to no more than 50% of the value of its properties.
Financing
The Company seeks to maintain a well-balanced, conservative and flexible
capital structure by: (1) targeting a ratio of long and short-term debt to
property value of no greater than 50%; (2) generally borrowing on a long-term
basis at fixed rates and limiting the use of its variable rate credit facility
to short term financing of acquisitions and working capital requirements; and
(3) maintaining conservative debt service and fixed charge ratios. The Company
believes that adherence to this strategy will, in the future, increase the
probability that it can access the public securities markets for both debt and
equity capital.
The Company recently established a $35 million revolving credit facility
with the Bank of Boston (as agent) which is expandable to $50 million upon the
election of the Company.
Insurance
The Company carries commercial general liability coverage with primary
limits of $1 million per occurrence and $2 million in the aggregate, as well as
a $10 million umbrella liability policy. This coverage protects the Company
against liability claims as well as the cost of lawsuits. The Company carries
property insurance on a replacement value basis, covering both the cost of
direct physical damage and the loss of rental income.
Government Regulations
The Company s properties are subject to various federal, state and local
statutes and regulations including: the Americans with Disabilities Act (the ADA
), and various federal, state and local environmental regulations, (collectively
Property Regulations ). If the Company s properties did not comply with the ADA
or other Property Regulations, substantial capital expenditures might be
required to correct the non-compliance including the substantial modification of
property common area facilities. However, based upon engineering studies
conducted prior to the acquisition of the various properties, the Company
believes that its properties are currently in substantial compliance with all
applicable Property Regulations, although expenditures may be required to comply
with any future changes in such Property Regulations. No material expenditures
are believed necessary at this time in order to comply with any such Property
Regulations.
Under certain Property Regulations regarding environmental matters, an
owner or operator of real estate is liable for the costs of removal or
remediation of certain hazardous or toxic substances released on, above, under,
or in such property. Such Property Regulations often impose such liability
without regard to whether the owner knew of, or was responsible for, the
presence of such hazardous or toxic substances. The costs of such removal or
remediation with respect to any individual property could be substantial.
Additionally, the presence of such substances or the failure to properly
remediate such substances may adversely affect the owner s ability to borrow
using such real estate as collateral. All of the Company s properties have had
Phase I environmental site assessments (which involve inspection without soil
sampling or groundwater analysis) performed by independent environmental
consultants and have been inspected for hazardous materials as part of the
Company s acquisition inspections. According to these consultants, none of these
Phase I assessments has revealed any environmental conditions requiring material
expenditures for remediation.
The Company believes that it is in compliance in all material respects with
all Property Regulations regarding hazardous or toxic substances, and the
Company has not been notified by any governmental authority of any
non-compliance or other claim in connection with any of its present or former
properties. The Company does not anticipate that compliance with all Property
Regulations regarding hazardous or toxic substances will have any material
adverse impact on the financial position, results of operations or liquidity of
the Company.
Corporate Structure
As of December 31, 1995, the Company had no employees and the Company
s
day-to- day operations were conducted by Equity Partners Ltd. (the Advisor
)
pursuant to the terms of several agreements between the Company and the Advisor.
Services related to real estate acquisition, asset management, shareholder
communication, and other general corporate matters were performed by the Advisor
pursuant to an advisory agreement dated July 2, 1992 as restated July 1, 1994
(the Advisory Agreement ). Services related to the three private securities
offerings concluded by the Company prior to April 1, 1996 were performed
pursuant to three separate offering services agreements. These offering services
agreements required the Advisor to supervise and participate in the preparation
and distribution of offering materials, state and federal securities compliance,
and other matters related to the prior offerings. Finally, the Advisor managed
each of the Company s properties pursuant to separate property management
agreements negotiated for each property. (For additional information, see Item
7, Certain Relationships and Related Transactions .)
In January 1996, the Company entered into an agreement to merge with the
Advisor (the Merger Agreement ) with the intent to thereby become a self-managed
and self-advised real estate investment trust ( REIT ). Under the terms of the
Merger Agreement, the shareholders of the Advisor, who include members of the
Company s Board of Directors and senior management, would receive a total of
100,000 shares of the Company s common stock. In addition, it was a condition to
the Company s obligation to complete the merger, that certain members of the
Advisor s senior management (including one member of the Company s Board of
Directors) would receive a total of 30,000 shares of the Company s common stock
as an incentive to continue as employees of the Company after the merger of the
Advisor into the Company, and would sign restricted stock agreements with
respect to those shares. After the Merger Agreement was signed, proxy materials
related to the proposed transaction (the Proxy Materials ) were delivered to the
Company s stockholders and on February 27, 1996, at a duly held stockholder
s
meeting, the proposed merger of the Advisor with and into the Company was
approved. On April 1, 1996, the Company issued the required number of common
shares pursuant to a transaction qualifying as a private placement pursuant to
Regulation D, and completed the acquisition of the Advisor by statutory merger.
On that date the employees of the Advisor became employees of the Company. The
Company is now self-managed and has 28 employees.
In addition, the Company has determined that it will reorganize its
structure by establishing an operating partnership to which substantially all of
the Company s properties will be contributed in exchange for a controlling
interest in such operating partnership (the Reorganization ). A substantial
majority of real estate investment trusts which have become public companies
during the last three years have adopted a structure whereby an operating
partnership or similar entity holds title to the real estate assets and may
manage and administer such assets. In addition, such a structure permits the
acquisition of properties on a tax- deferred basis for many current property
owners. Due to these factors and others, the Company believes that the
Reorganization will aid it in its property acquisition activities and in
attracting investment capital. The Proxy Materials also included a description
of the Reorganization and sought stockholder approval for it. The stockholders
of the Company approved the Reorganization at the stockholder s meeting held
February, 27, 1996, and it is currently anticipated that the Company will
establish the operating partnership during the third quarter of 1996.
When the Reorganization is implemented, the Company will own approximately
97% of the operating partnership. All properties will be transferred to the
operating partnership by the Company at cost. The Company will consolidate the
results of the operating partnership into its financial statements. As the
Company will own approximately 97% of the operating partnership, no proforma
financial information will be presented as such proforma financial information
will not materially differ from the Company s financial information.
ITEM 2. FINANCIAL INFORMATION
The following sets forth selected financial and operating data on
a
historical basis for the years ended December 31, 1995, 1994, 1993, for the
period ended December 31, 1992, and for the quarters ended March 31, 1996 and
1995. The following information should be read in conjunction with Management
s
Discussion and Analysis of Financial Condition and Results of Operations below.
<TABLE>
<CAPTION>
1995 1994
1993 1992 (1)
<S> <C> <C> <C>
<C>
Total revenues .................... $ 14,965,926 $ 7,582,839 $
1,293,316 $ 16,028
Total rental revenues ............. 14,765,108 7,531,435
1,230,281 --
Net income ........................ 3,199,801 1,987,787
410,172 5,710
Net income per share .............. $ 0.88 $ 0.96 $
0.38 $ 0.02
Weighted average number of
common shares and common
share equivalents outstanding ..... 3,650,133 2,070,221
1,080,875 315,658
Properties, before
accumulated depreciation 94,340,836 38,051,072 17,558,181
- --
Total assets ...................... 98,978,436 42,522,344
21,918,723 2,784,931
Mortgage notes and bonds
payable ........................... 48,307,170 15,955,018
3,777,188 --
Total stockholders equity ........ 44,965,197 24,062,122
6,498,408 2,781,631
Total shares outstanding
at year end ....................... 4,507,945 2,561,418
1,839,352 315,658
Cash dividends per share $1.13 .... $ 0.96 $
0.47 --
Funds from operations (2) ......... 4,777,335 2,219,130
570,547 5,710
Cash flows from operating
activities ........................ 5,649,507 1,977,299
1,568,790 9,010
Cash flows used by
investing activities .............. (51,649,764) (20,492,891)
(17,558,181) (44,730)
Cash flows from financing
activities ........................ 44,626,391 17,419,887
17,021,489 2,775,921
Number of properties owned ........ 16 9
6 --
Aggregate square footage
of properties owned ............... 1,529,215 757,867
441,042 --
</TABLE>
<TABLE>
<CAPTION>
For the Quarters ended March 31, 1996 and 1995:
1996 1995
<S> <C> <C>
Total revenues .............. $ 5,543,783 $ 2,619,990
Total rental revenues ....... 5,521,494 2,597,827
Net income .................. 971,412 624,832
Net income per share ........ $ 0.21 $ 0.23
Weighted average number of
common shares and common
share equivalents outstanding 4,574,504 2,764,243
Properties, before
accumulated depreciation .... 96,206,763 43,447,045
Total assets ................ 98,831,888 46,083,697
Mortgage notes and bonds
payable ..................... 46,898,904 15,826,399
Total stockholders equity .. 44,869,251 27,344,291
Total shares outstanding at
quarter end ................. 4,524,229 2,874,641
Cash dividends per share .... $ 0.30 $ 0.27
Funds from operations (2) ... 1,608,919 845,332
Cash flows from operating
activities .................. 3,308,186 1,351,392
Cash flows used in investing
activities .................. 1,015,927 5,395,973
Cash flows from (used by)
financing activities ........ (2,773,489) 2,528,762
Number of properties owned .. 17 10
Aggregate square footage of
properties owned ............ 1,572,516 856,430
</TABLE>
(1) The Company was incorporated on June 22, 1992. Total revenues, net income,
and net income per share are for the period June 22, 1992 to December 31, 1992.
(2) Management believes that to facilitate a clear understanding of the
historical operating results of the Company, Funds from Operations ( FFO )
should be considered in conjunction with net income as presented in the
financial statements included in this Registration Statement. Management
generally considers FFO to be an appropriate measure of the performance of an
equity real estate investment trust. FFO represents net income, computed in
accordance with generally accepted accounting principles ( GAAP ) excluding
gains or losses from debt restructuring, sales of property, and income
attributed to the straight-lining of rents, plus depreciation and amortization.
FFO does not represent cash flow from operating activities in accordance with
GAAP and is not indicative of cash available to fund all of the Company s cash
needs. FFO should not be considered as an alternative to net income or any
other GAAP measure as an indicator of performance and should not be considered
as an alternative to cash flow as a measure of liquidity or the ability to
service debt or to pay dividends. A reconciliation of net income to FFO for the
fiscal years ended December 31 is as follows:
<TABLE>
<CAPTION>
1995 1994 1993 1992
<S> <C> <C> <C> <C>
Net income .......... $3,199,801 $1,987,787 $ 410,172 $ 5,710
Plus:
Depreciation &
amortization ........ 1,954,885 761,284 160,375 --
Less:
Adjustment for
straight-lining of
rents ............... $ 377,351 529,941 -- --
Funds from operations $4,777,335 $2,219,130 $ 570,547 $ 5,710
</TABLE>
A reconciliation of net income to FFO for the quarters ended March 31, 1996 and
1995 is as follows:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Net income ........................... $ 971,412 $ 624,832
Plus:
Depreciation & amortization ..... 724,442 325,170
Less:
Adjustment for straight-lining of
rents ........................... 86,935 104,670
Funds from operations ................ $1,608,919 $ 845,332
</TABLE>
Management s Discussion and Analysis of Financial Condition and Results of
Operations
Overview
The following discussion and analysis should be read in conjunction with the
historical Financial Statements and notes thereto which are included in Item 13
of this Form 10.
Over the past three years, the Company has expanded its real estate portfolio
through the acquisition of suburban office and office/service center properties
in the Midwest. The Company has financed its growth by the issuance of
additional shares of its common stock and by issuing short and long-term
mortgage notes payable secured by its property assets. Growth in net income and
FFO has been due to a combination of improved operations of the Company s
properties as compared to prior years and the inclusion of the operating results
of properties acquired in 1994 and 1995 from the dates of their respective
acquisitions.
The Company believes that to facilitate a clear understanding of its operating
results FFO should be examined in conjunction with the net income as presented
in the Financial Statements included elsewhere in this Form 10. However, FFO
should not be considered as a substitute for net income (as an indicator of the
Company s performance) or as a substitute for cash flows (as a measure of
liquidity).
Results of Operations quarter ended March 31, 1996 as compared to 1995
The changes in the condensed income statement items for the quarter ended March
31, 1996 as compared to 1995 are as follows:
<TABLE>
<CAPTION>
Increase (Decrease)
<S> <C>
Rents $2,924,000
Interest -
Total revenues $2,924,000
----------
Property operating expenses $1,418,000
General and administrative $174,000
Interest $586,000
Depreciation and amortization $399,000
Total expenses $2,577,000
----------
Net income $347,000
========
</TABLE>
In analyzing the Company s operating results for the quarter ended March 31,
1996, the changes in rental income and property operating expenses from 1995 are
due principally to three factors: (1) the addition of operating results from
properties acquired during 1996; (2) the addition of full quarter of operating
results in 1996 of properties acquired in 1995 as compared to the partial
quarter of operating results from the dates of their respective acquisitions in
1995 and; (3) improved operations of properties during 1996 as compared to 1995.
During the quarter ended March 31, 1996, the Company acquired one new investment
property. The operating results of this property have been included in the
Company s financial statements from the date of its acquisition. In 1995, the
Company acquired 7 properties, and in 1996 a full quarter of operations of these
properties has been included in the Company s financial statements.
A summary of these changes as they impact rental income, and net property
operating expenses follows:
<TABLE>
<CAPTION>
Rental income Property
operating
expenses
<S> <C> <C>
Increase due to inclusion
of results of properties acquired
after January 1, 1995 ........... $2,696,000 1,290,000
Increase due to 1996
Acquisitions ............... 62,000 56,000
Improved operations in
1996 compared to 1995 ...... 166,000 72,000
---------- ----------
Total increase in 1996 $2,924,000 $1,418,000
========== ==========
</TABLE>
Interest expense during 1996 increased by $586,000 as the Company had
greater amounts of long and short-term debt outstanding in 1996. This debt was
used to finance the acquisition of properties acquired in 1995.
General and administrative expenses increased by $174,000 primarily due to
an increase in the advisory fee paid to the Advisor.
Depreciation and amortization increased in 1996 by $399,000 as the Company
incurred these expenses on seventeen properties in 1996 versus ten properties in
1995.
Liquidity and Capital Resources
Cash and cash equivalents as of March 31, 1996 were $821,000, a decrease of
$482,000 as compared to December 31, 1995. The decline is primarily due to the
Company continuing to invest in tenant and other capital improvements at its
properties and the repayment of $1.25 million on its line of credit.
Cash flows from operating activities increased by $2.0 million in 1996 as
compared to 1995 as the Company acquired 7 properties in 1995 and a full quarter
of operations of the acquired properties is included in the first quarter 1996
results versus only the operations in 1995 from the dates of their respective
acquisitions.
Cash flows used in investing activities decreased by $4.3 million as the
Company acquired one property in 1995 at a cost of $4.7 million versus acquiring
one property in 1996 at a cost of $1.1 million.
Cash flows from financing activities declined by $5.3 million as the
Company did not sell any new shares during the first quarter of 1996 and repaid
$1.25 million of its bank line of credit.
The Company expects to meet its short-term liquidity requirements generally
through its 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 accordance with the REIT
requirements under the Internal Revenue Code.
At March 31, 1996, the Company continued its renovation program at its
property located in Oak Brook, Illinois (total cost is estimated at $1.3
million). The Company had also contracted to acquire a property located in
Springdale, Ohio at a cost of $6,075,000. In addition, the Company has committed
to reimburse a new tenant at the Springdale, Ohio property for approximately $1
million dollars of tenant improvement work. The Company anticipated funding
these commitments through its new line of credit with the Bank of Boston.
The Company expects to meet its long-term liquidity requirements (such as
scheduled mortgage debt maturities, property acquisitions, and significant
capital improvements) by long-term collateralized and uncollateralized
borrowings and the issuance of debt or additional equity securities in the
Company. As of March 31, 1996, the Company had available a $25 million line of
credit from American National Bank and Trust Company of Chicago ( the ANB Line
of Credit ). The amount available from time to time under the line of credit is
subject to certain requirements and customary financial covenants. The Company
uses the line of credit for property acquisitions and improvements, working
capital needs and as a source of funds for share redemptions as required. As of
March 31, 1996, the outstanding borrowings under the ANB Line of Credit were $23
million with approximately $2 million available to borrow.
In April 1996, the Company established a $35 million revolving credit
facility with the First National Bank of Boston (as agent) and repaid
substantially all of the balance outstanding on the ANB Line of Credit. The
balance on the Bank of Boston line of credit at June 15, 1996, was $29,002,000
with $900,000 available to borrow. The Company continues to maintain the ANB
Line of Credit, but the Company s borrowing capacity under the ANB Line of
Credit has been reduced to approximately $5 million all of which is available as
of June 1, 1996.
1995 as compared to 1994
The changes in the income statement items in 1995 as compared to 1994 are
as follows:
<TABLE>
<CAPTION>
Increase (Decrease)
<S> <C>
Rents ....................... $7,234,000
Interest .................... 149,000
-------
Total Revenues ......... 7,383,000
---------
Real estate taxes ........... 1,207,000
Property operations ......... 2,024,000
General and administrative .. 362,000
Interest .................... 1,385,000
Depreciation and amortization 1,193,000
---------
Total expenses ......... 6,171,000
---------
Net income ............. $1,212,000
==========
</TABLE>
During 1995, the Company acquired 7 new investment properties. The
operating results of these properties have been included in the Company
s
financial statements from the dates of their respective acquisitions. In 1994,
the Company acquired 3 properties, and in 1995 a full year of operations of
these properties has been included in the Company s financial statements as
compared to only the operating results of these 3 properties from the respective
dates of their acquisitions in 1994.
In analyzing the 1995 operating results of the Company, the changes in
rental income, real estate taxes, and property operating expenses, (which
include management fees, repairs and maintenance, janitorial and other services
related to the operation of the properties) from 1994 are due principally to
three factors: (i) the addition of operating results from properties acquired
during 1995; (ii) the addition of full year operating results of properties
acquired in 1994 as compared to the partial year operating results from the
dates of their respective acquisitions in 1994; and (iii) improved operations of
properties during 1995 as compared to 1994.
An analysis of the changes in rental income, real estate tax expense, and
property operating expenses is as follows:
<TABLE>
<CAPTION>
Rental Real Estate Property
Income Taxes Operating
Expenses
<S> <C> <C> <C>
Increase due to 1995
property acquisitions 4,744,000 1,000,000 1,413,000
Increase due to
inclusion of full
year s results in
1995 for properties
acquired in 1994 .... 1,603,000 177,000 535,000
Improvement in 1995
operations as
compared to 1994 .... 887,000 30,000 76,000
Increase in 1995 .... 7,234,000 1,207,000 2,024,000
</TABLE>
Interest expense increased by $1,385,000 in 1995 as compared to 1994 as the
Company increased its short and long-term mortgage debt to partially finance the
acquisition of investment properties in 1995.
Depreciation and amortization increased by $1,193,000 as the Company
acquired additional properties in 1995, incurred a full year of depreciation in
1995 on properties acquired in 1994, and had increased amortization of tenant
improvement costs incurred in connection with the increased occupancy levels of
its properties.
General and administrative expenses increased by $362,000 due to increased
advisory fees paid the Advisor (which fees are a function of the Company s funds
from operations), increased directors fees, legal fees, and other professional
fees related to the growth in the size of the Company. General and
administrative costs declined to 6.2% of revenues in 1995, from 7.4% of revenues
in 1994 due to an increase in revenues as described above.
1994 as compared to 1993
The changes in the income statement items in 1994 as compared to 1993 were
as follows:
<TABLE>
<CAPTION>
Increase (Decrease)
<S> <C>
Rents ....................... $ 6,301,000
Interest .................... (12,000)
-------
Total Revenues ......... 6,289,000
---------
Real estate taxes ............ 1,126,000
Property operating expenses . 1,762,000
General and administrative .. 384,000
Interest .................... 838,000
Depreciation and amortization 601,000
-------
Total expenses ......... 4,711,000
---------
Net income ............ $ 1,578,000
===========
</TABLE>
During 1994 and 1993, the Company acquired three and six investment properties
respectively. The operating results of those properties are presented in the
Financial Statements from the dates of their acquisition. Operating results of
properties acquired in 1993 are included in the 1994 Financial Statements for
the entire year as compared with operating results only from the dates of their
acquisition in 1993. The changes in, rental income, real estate taxes, and
property operating expenses, resulted from: (1) the addition of operations of
properties acquired during 1994; (2) the inclusion of a full years operations
for properties acquired during 1993 as compared to the partial year operating
results from the dates of their respective acquisitions in 1993; and (3)
improved operating results in 1994 for the properties acquired in 1993 due to
increased leasing levels at such properties.
A summary of these changes as they impact rental income, real estate taxes, and
property operating expenses follows:
<TABLE>
<CAPTION>
Rental Real Estate Property
Income Taxes Operating
Expenses
<S> <C> <C> <C>
Increase due to 1994
property acquisitions 1,872,000 237,000 502,000
Increase due to
inclusion of full
year s results in
1994 for properties
acquired in 1993 .... 4,078,000 1,010,000 1,080,000
Improvement in 1994
operations as
compared to 1993 .... 351,000 (121,000) 180,000
Total increase in
1994 6,301,000 1,126,000 1,762,000
</TABLE>
Interest expense during 1994 increased by $838,000 as the Company had financed
a portion of the purchase prices of eight properties as of December 31, 1994,
as compared to three properties as of December 31, 1993.
Depreciation and amortization increased by $601,000 as the Company acquired
additional properties in 1994, and incurred a full year of depreciation in 1994
on properties acquired in 1993.
General and administrative expenses increased by $384,000 due to increased cost
for the annual audit, directors fees, legal costs and the advisory fee paid to
the Advisor, each of which were a consequence of the growth in the size of the
Company in 1994. General and administrative costs declined as a percentage of
revenues from 13.7% in 1993, to 7.4% in 1994, due to an increase in revenues as
described above.
Liquidity and Capital Resources
Cash and cash equivalents as of December 31, 1995 were $1.3 million, a decrease
of $1.4 million as compared to December 31, 1994. The decline is primarily due
to the Company having fully invested the proceeds from the sale of its common
stock, the proceeds from its short and long-term mortgage debt, and its excess
cash balances at December 31, 1994, in new investment properties and in tenant
and other capital improvements at its properties.
Cash flows from operating activities increased by $3.7 million in 1995 as
compared to 1994 due to: (1) the Company s acquisition of 7 properties in 1995
and the inclusion of cash flows from those properties in the operating
activities from the dates of their respective acquisitions; (2) the addition of
a full year of operating cash flows in 1995 for properties acquired in 1994; and
(3) improved operating results of properties during 1995.
Cash flows used by investing activities increased by $31.2 million in 1995 as
compared to 1994 as the Company acquired 7 properties in 1995 as compared to 3
properties in 1994.
Cash flows from financing activities increased by $27.2 million in 1995 as
compared to 1994 as the Company raised $18.8 million via the sale of its common
stock in 1995 as compared to $6 million in 1994. In addition, the Company
increased its short and long-term borrowings by $15 million in 1995. These
funds were used primarily for the acquisition of investment properties and the
payment of tenant and building improvement costs.
The Company expects to meet its short-term liquidity requirements generally
through its 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 accordance with the REIT
requirements under the Internal Revenue Code.
The Company expects to meet its long-term liquidity requirements (such as
scheduled mortgage debt maturities, property acquisitions, and significant
capital improvements) by long-term collateralized and uncollateralized
borrowings and the issuance of debt or additional equity securities in the
Company. As of December 31, 1995, the Company had available a $25 million line
of credit from American National Bank and Trust Company of Chicago (the ANB
Line of Credit ). The amount available from time to time under the line of
credit is subject to certain requirements and customary financial covenants.
The Company uses the line of credit for property acquisitions and improvements,
working capital needs and as a source of funds for share redemptions as
required. As of December 31, 1995, the outstanding borrowings under the ANB Line
of Credit were $24,253,148 with $746,852 available to borrow.
The Company recently established a $35 million revolving credit facility with
the First National Bank of Boston (as agent) and repaid substantially all of the
balance outstanding on the ANB Line of Credit. However, the Company continues
to maintain the ANB Line of Credit, but the Company s borrowing capacity under
the ANB Line of Credit has been reduced to approximately $5 million.
The Company has no material capital expenditure commitments except that as of
December 31, 1995, the Company has commenced a renovation program on its
property located in Oak Brook, Illinois. The total renovation costs are
estimated to be $1.3 million and will be incurred in 1996. The Company intends
to finance the renovation costs by drawing on its Bank of Boston line of credit
or the ANB Line of Credit.
Forward-Looking Statements
Certain statements in this Form 10 report and in the future filings by the
Company with the Securities and Exchange Commission 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 which 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 or increasing occupancy rates, and regional economic and business
conditions. The Company undertakes no obligation to publicly update or revise
any forward-looking statements whether as a result of new information, future
events or otherwise.
ITEM 3. DESCRIPTION OF PROPERTIES
Tabular information regarding the Company s properties is presented
hereafter followed by narrative descriptions of the properties.
<TABLE>
<CAPTION>
Property Location Property Type Ownership Company Year Date
Interest Ownership % Built Acquired
<S> <C> <C> <C> <C> <C>
11100 Hampshire Ave. Industrial Fee 100% 1980 Jan-93
Bloomington, MN
601 Campus Dr. Single story Fee 100% 198 May-93
Arlington Heights, IL office/
office service
11925 W. Lake Park Dr. Single story Fee 100% 1989 Jun-93
Milwaukee, WI office
3400 Dundee Road Multi-story Fee 100% 1986 Oct-93
Northbrook, IL office
830 West End Court Single story Fee 100% 1986 Nov-93
Vernon Hills, I office
1011 Touhy Avenue Multi-story Fee 100% 1978 Dec-93
Des Plaines, I office
160-185 Hansen Court Single story Fee 100% 1986 Jan-94
Wood Dale, IL office/
office service
150, 175, 250 Patrick Single story Fee 100% 1987 Jun-94
Blvd. office/
Brookfield, WI office service
175 Hawthorn Parkway Multi-story Fee 100% 1986 Sep-94
Vernon Hills, IL office
2800 River Road Multi-story Fee 100% 1983 Feb-95
Des Pla ines, IL office
2221 University Ave Multi-story Fee 100% 1979 May-95
SE office
Minneapolis, MN
1660 Feehanville Dr. Multi-story Fee 100% 1989 Aug-95
Mount Prospect, IL office
10 Oak Hollow & 24800 Multi-story Fee 100% 1986 Aug-95
Denso Drive office
Southfield, MI
11270 W. Park Place Multi-story Fee 100% 1984 Sep-95
Milwaukee, WI office
823 Commerce Drive Multi-story Fee 100% 1969 Nov-95
Oak Brook, IL office
565 Lakeview Parkway Single story Fee 100% 1991 Dec-95
Vernon Hills, IL office
1251 Plum Grove Rd. Single story Fee 43% 1985 Jan-96
Schaumburg, IL office
30 Merchant Street Multi-story Fee 31.6% 1988 Apr-96
Springdale, OH office
</TABLE>
<TABLE>
<CAPTION>
Property location Land Square Occu- Encum-brance Avg. Avg.
area footage pancy Gross Gross
in 12/31/ Rents Rents
acres 1995 PSF PSF
1995 1994
<S> <C> <C> <C> <C> <C> <C>
11100 Hampshire 4.0 50,625 91% $862,977 $4.42 $4.42
Ave.
Bloomington, MN
601 Campus Dr. 6.0 96,792 83% $1,471,739 $12.46 $12.28
Arlington Heights,
IL
11925 W. Lake Park 3.4 36,069 93% $1,202,117 $16.20 $15.87
Dr.
Milwaukee, WI
3400 Dundee Road 2.6 75,877 100% $2,156,869 $18.78 $17.10
Northbrook, IL
830 West End Court 2.3 26,922 100% $961,213 $14.74 $12.88
Vernon Hills, IL
1011 Touhy Avenue 5.3 155,787 80% $2,533,586 $16.08 $17.15
Des Plaines, IL
160-185 Hansen 10.6 113,911 92% $2,813,307 $12.71 $13.44
Court
Wood Dale, IL
150, 175, 250 12.0 116,091 97% $3,422,479 $14.82 $13.88
Patrick Blvd.
Brookfield, WI
175 Hawthorn 4.6 85,803 80% $3,209,735 $18.17 $16.15
Parkway
Vernon Hills, IL
2800 River Road 2.0 98,553 75% (A) $15.83 n/a
Des Plaines, IL
2221 University 2.8 97,658 98% $5,420,000 $17.80 n/a
Ave
Minneapolis, MN
1660 Feehanville 7.3 85,865 85% (A) $23.51 n/a
Dr.
Mount Prospect, IL
10 Oak Hollow & 10.5 164,282 92% (A) $17.07 n/a
24800 Denso Drive
Southfield, MI
11270 W. Park 7.9 196,172 94% (A) $17.06 n/a
Place
Milwaukee, WI
823 Commerce Drive 2.6 44,000 36% -- $14.17 n/a
Oak Brook, IL
565 Lakeview 7.1 84,808 68% (A) $12.51 n/a
Parkway
Vernon Hills, IL
1251 Plum Grove 3.2 43,000 (B) -- n/a n/a
Rd.
Schaumburg, IL
30 Merchant St. 5.9 95,910 (B) -- n/a n/a
Springdale, OH
</TABLE>
Totals 1,668,125
=========
An n/a indicates the Company did not own the property at the end of 1994
(A) These properties are pledged as collateral for the Company s line of
credit which tot aled $24,253,148 at December 31, 1995.
(B) This property was acquired by the Company after December 31, 1995.
<TABLE>
<CAPTION>
Occupancy Table for 1994
Property location 12/31/94 9/30/94 6/30/94 3/31/94
<S> <C> <C> <C> <C>
11100 Hampshire Ave. 91% 91% 91% 91%
Bloomington, MN
601 Campus Dr. 93% 92% 92% 77%
Arlington Heights, IL
11925 W. Lake Park 94% 94% 89% 91%
Dr.
Milwaukee, WI
3400 Dundee Road 93% 87% 73% 73%
Northbrook, IL
830 West End Court 100% 84% 75% 75%
Vernon Hills, IL
1011 Touhy Avenue 79% 74% 74% 75%
Des Plaines, IL
160 -185 Hansen Court 74% 74% 74% 60%
Wood Dale, IL
150 , 175, 250 Patrick 84% 84% 69% n/a
Blvd.
Brookfield, WI
175 Hawthorn Parkway 79% 79% n/a n/a
Vernon Hills, IL
2800 River Road n/a n/a n/a n/a
Des Plaines, IL
221 University Ave n/a n/a n/a n/a
SE
Minneapolis, M
1660 Feehanville Dr. n/a n/a n/a n/a
Mount Prospect, IL
10 Oak Hollow & 24800 n/a n/a n/a n/a
Denso Drive
Southfield, MI
11270 W. Park Place n/a n/a n/a n/a
Milwaukee, WI
823 Commerce Drive n/a n/a n/a n/a
Oak Brook, IL
565 Lakeview Parkway n/a n/a n/a n/a
Vernon Hills, IL
n/a
1251 Plum Grove Rd. n/a n/a n/a n/a
Schaumburg, IL
30 Merchant St. n/a n/a n/a n/a
Springdale, OH
</TABLE>
An n/a indicates the Company did not own the property at the end of that
quarter.
<TABLE>
<CAPTION>
Occupancy Table for 1995
Property location 12/31/95 9/30/95 6/30/95 3/31/95
<S> <C> <C> <C> <C>
11100 Hampshire Ave. 91% 91% 91% 91%
Bloomington, MN
601 Campus Dr. 83% 83% 93% 93%
Arlington Heights, IL
11925 W. Lake Park 93% 93% 87% 87%
Dr.
Milwaukee, WI
3400 Dundee Road 100% 98% 95% 95%
Northbrook, IL
830 West End Court 100% 100% 100% 100%
Vernon Hills, IL
1011 Touhy Avenue 80% 81% 76% 80%
Des Plaines, IL
160-185 Hansen Court 92% 92% 92% 74%
Wood Dale, IL
150 , 175, 250 Patrick 97% 96% 87% 84%
Blvd.
Brookfield, WI
175 Hawthorn Parkway 80% 82% 84% 83%
Vernon Hills, IL
2800 River Road 75% 72% 75% 85%
Des Plaines, IL
2221 University Ave 98% 100% 99% n/a
SE
Minneapolis, M
1660 Feehanville Dr. 85% 83% n/a n/a
Mount Prospect, IL
10 Oak Hollow & 24800 92% 90% n/a n/a
Denso Drive
Southfield, MI
11270 W. Park Place 94% 93% n/a n/a
Milwaukee, WI
823 Commerce Drive 36% n/a n/a n/a
Oak Brook, IL
565 Lakeview Parkway 68% n/a n/a n/a
Vernon Hills, IL
1251 Plum Grove Rd. n/a n/a n/a n/a
Schaumburg, IL
30 Merchant St. n/a n/a n/a n/a
Springdale, OH
</TABLE>
An n/a indicates the Company did not own the property at the end of that
quarter.
The Company has leases with approximately 200 tenants with an average
remaining lease term of 5.2 years. Given current market condition and increasing
rental rates in all of the Company's suburban markets, the Company believes that
releasing upon rollover to existing or new tenants will provide increases in
annual gross rents, net income and FFO. The lease rollover schedule for the
portfolio as of December 31, 1995 is summarized bel ow:
<TABLE>
<CAPTION>
Number of Square Feet(SF) Percentage of Annualized Percentage of
Leases Subject to Portfolio Total Rent Annual Total
Expiring Expiring Leases SF Expiring Under Rent Under
Expiring Expiring
Leases
Year Leases
<S> <C> <C> <C> <C> <C>
1996 31 120,256 7.6% $2,093,399 10.0%
1997 33 191,185 12.2% 2,220,465 10.6%
1998 34 236,070 15.0% 4,173,504 20.0%
1999 29 167,767 10.7% 2,756,304 13.3%
2000 32 228,755 14.5% 3,573,221 17.1%
2001 13 157,673 10.0% 2,499,144 12.0%
2002 5 76,964 4.9% 1,104,288 5.3%
2003 1 3,704 0.2% 52,314 .3%
2004 4 40,618 2.6% 569,892 2.7%
2005 2 69,253 4.4% 901,356 4.3%
2006 1 48,798 3.1% 898,752 4.3%
</TABLE>
Current Vacancies 231,436 14.7%
<TABLE>
<S> <C> <C> <C> <C>
Total
Port-
folio 185 1,572,506 100% $20,854,638 100.0%
</TABLE>
Summary of Primary Tenants
The Company has the following tenants which occupy ten percent or more of
the rentable square footage of the property they occupy. However, no tenant
occupies more than ten percent of the rentable square footage of the properties
in the aggregate, or represents more than ten percent of the aggregate annual
base rent of the properties. The following chart shows the principal provisions
of the lease with each of those tenants that occupy ten percent or more of the
leasable square footage of each property:
<TABLE>
<CAPTION>
Expiration
Tenant Business of Tenant Annual Date of Renewal
Base Rent Lease Options
<S> <C> <C> <C> <C>
Roadway Package Freight $200,400 08/31/1997 (1)
Systems, Inc. Distribution
American Honda Automobile $480,679 05/31/2000 None
Motor Co.(2) Training
American Honda Automobile Finance $119,564 05/31/2000 None
Finance, Inc.(2)
C.P. Clare Industrial $160,893 06/30/2000 None
Electronics Sales
DonTech Publishing $179,181 05/14/2004 None
Siemens Nixdorf Electronics $115,047 04/30/1997 (3)
AGIE, USA Tool & Die $168,673 12/31/2002 (4)
Equipment Sales/
Showroom
Merisel, Inc. Computer Reseller $123,769 04/30/1997 None
Sales Force,Inc. Food Distribution $159,609 08/31/2005 None
Sisters of the Healthcare $269,852 09/30/1998 None
Sorrowful Mother
Ministry Corp.
Montgomery Environmental $118,677 04/30/2000 None
Watson Testing Services
North American Insurance $188,960 02/28/1998 None
Special Risk
Medical Business Financial Planning $268,769 02/13/1999 (5)
Consultants,
Inc.
Manpower, Inc. Temporary $ 55,723 09/30/1999 (5)
Employment Service
Family Care Healthcare $ 31,813 12/31/1997 None
Services
North Suburban Healthcare $151,496 12/31/2004 None
Clinic
Graber & Healthcare $ 35,844 10/16/2000 None
Associates
Health Direct, Healthcare $409,947 06/28/2002 (6)
Inc.
Lutheran General Healthcare $188,163 05/31/2002 (6)
Medical Group
Hewlett Packard Computer Related $200,688 11/30/1999 (8)
Co. Sales/Service
Digital Computer Related $100,160 12/31/1998 (9)
Equipment Corp. Sales/Service
Abbott Pharmaceutical $230,749 02/28/2000 (9)
Laboratories Supplies
Polygram Group Entertainment $211,498 03/14/1999 None
WorldCom, Inc. Telecommunications $209,932 07/14/2001 (10)
Contract Commercial $612,205 11/30/1996 (b)
Interiors Interior Designer
AT&T Telecommunications $239,583 01/31/2000 (c)
Bay Networks, Computer $271,813 09/30/2000 None
Inc. Networking
Metropolitan Insurance $ 781,942 08/31/1998 (a)
Life
Howard Needles Architectural $544,633 11/30/2000 (d)
Tamen & Bergdoff Services
A.O. Smith Corp. Car and Truck $ 343,537 10/31/2005 None
Frames
Wausau Insurance Insurance $ 524,578 04/30/2006 (c)
Computer Power Software $ 196,364 10/31/1998 None
Group Installation &
Service
The Waxler Food Distribution $ 99,167 05/31/1999 (d)
Company
Sparkling Spring Bottled Water $ 154,480 03/31/2001 (d)
Water Co. Sales
PNC Mortgage Co. Mortgage Broker $ 276,021 08/31/1997 None
State Farm Auto Insurance $ 41,951 04/30/1997 None
Mutual Auto
Insurance
Vanguard Property $ 87,638 07/31/1998 None
Management Corp. Management
Health Partners Professional $748,560 01/31/2001 (11)
Medical
Associations
</TABLE>
(a) Two five-year options at market (as defined)
(b) Two three-year renewal options at market (as defined)
(c) One five-year option at $19.00 psf. May terminate on 1/31/98 with nine
months notice plus penalty of $82,000.
(d) One five-year option at market
(e) May terminate on 4/30/2001 with at least six months notice plus
a
penalty as defined in the lease (but no less than five months base rent).
(1) Roadway Package Systems, Inc. has two five-year extension options. The
first five- year option has a base rent of $210,000 per annum for the period
September 1, 1997 to August 31, 1999, and $215,000 per annum for the period
September 1, 1999 to August 31, 2002. The second five-year option requires the
rent to be adjusted to the lesser of a market rate of rent as determined by
certified appraiser or the base rent for the year ended August 31, 1997 adjusted
for the increase in the Consumer Price Index during the period from June 1997 to
June 2002.
(2) American Honda Motor Co. and American Honda Finance Co. are affiliated
companies.
(3) Siemens Nixdorf has two three-year renewal options to extend the term
of its lease at 90% of the market rental rate (as defined in the lease) at the
time of each renewal.
(4) AGIE, USA has two five-year renewal options to extend the term of its
lease at a market rental rate (as defined in the lease) at the time of each
renewal.
(5) This tenant has one five-year renewal option to extend the term of its
lease at a market rental rate (as defined in the lease) at the time of renewal.
(6) Health Direct, Inc. and Lutheran General Medical Group (which are
affiliated companies) have two five-year renewal options to extend the term of
their leases at a market rental rate (as defined in the lease) at the time of
each renewal.
(7) Hewlett Packard Co. has two five-year renewal options to extend the
term of its lease at 90% of the market rental rate (as defined in the lease) at
the time of each renewal.
(8) Digital Equipment Corp. has two one-year renewal options to extend the
term of its lease at a market rental rate at the time of each renewal. In no
event can the rental rate on each renewal be less than $10.41 per square foot.
(9) This tenant has two three-year options to renew its lease at market
rent (as defined in the lease).
(10) This tenant has two five-year renewal options to renew its lease at
market rent (as defined in the lease).
(11) Health Partners has one five-year renewal option at a rental rate as
defined in the lease. If Health Partners does not provide the landlord with
a
notice that it does not elect to renew its lease, the lease automatically
extends for five years at stated terms.
Narrative Description of the Properties:
Light Industrial/Distribution Facilities
11100 Hampshire Avenue, Bloomington, Minnesota.
This property is a single story light industrial building that includes two
stories of attached office space situated on approximately four acres of land.
There are parking spaces for 90 cars and 10 truck trailers. Built in 1980, the
property contains 50,625 square feet of which 8,750 square feet is office space
and the balance is warehouse space. The property competes with other
office/warehouse properties in the surrounding suburban Minneapolis area. The
submarket in which the property is located contains approximately 6.1 million
square feet of office/warehouse building space. As of December 31, 1995, the
market occupancy rate for this type of space was approximately 98%. The Company
believes that its market rental rates and concession packages offered to tenants
are competitive with the rental rates and concessions offered by other property
owners in this submarket.
This property was purchased by the Company in January 1993 for the fully
capitalized cost of $1,433,932 ($28.32 per square foot), and a portion of the
purchase price was refinanced by a first mortgage loan in the amount of
$940,000. The mortgage loan bears interest at 8.5% per annum, which is
adjustable on October 1, 1998 and each October 1 thereafter to the Moody's A
Corporate Bond Index Daily rate plus 0.125% per annum. Monthly payments of
$9,257 (including interest) are due until October 1998 when the monthly payment
is adjusted concurrent with the interest rate reset so that monthly payments are
based on a fifteen-year amortization period. The loan matures October 1, 2003,
when the remaining principal balance of $451,091 is due (assuming the interest
rate remains at 8.5% per annum throughout the term of the loan). The loan may
be prepaid at any time with 30 days' notice to the lender. A prepayment penalty
is due equal to a percentage of the then outstanding principal amount as
follows:
Period Percentage
October 1, 1995 - September 30, 1996 4.0%
October 1, 1996 - September 30, 1997 3.5%
October 1, 1997 - September 30, 1998 3.0%
October 1, 1998 - September 30, 1999 2.5%
After September 30, 1999 2.0%
The loan may be prepaid without penalty during the 15-day period prior to
the interest rate reset on October 1, 1998 and each October 1st thereafter and
during the last 60 days of the loan term. The loan balance as of December 31,
1995 was $862,977.
As of December 31, 1995, this property was 91.4% leased. The only tenant is
Roadway Package Systems, Inc., which occupies the property pursuant to a lease
expiring in 1997 with two five-year options. This tenant uses the space
primarily as a warehouse in connection with the operation of its freight
distribution and delivery business .
The following table is a schedule of lease expirations for the leases in
place as of December 31, 1995 for this property, assuming the tenant does not
exercise renewal options.
<TABLE>
<CAPTION>
Year of Number of Net Rentable Annual Base Percentage of
Lease Tenants Square Feet Rent Under Total Annual
Expiration with Subject to Expiring Base Rent
Expiring Expiring Leases Represented by
Leases Leases Expiring Leases
<S> <C> <C> <C> <C>
1996 - - - -
1997 1 46,250 $200,400 100%
1998 - - - -
</TABLE>
For Federal income tax purposes, the Company's basis in this property was
$1,375,242 (including $310,000 for the land) at December 31, 1994. Buildings and
improvements are depreciated over 40-year life using the straight-line method.
Property taxes paid in 1995 for the tax year ended December 31, 1995 were
$74,069.
Office/Office Service Center Facilities:
601 Campus Drive, Arlington Heights, Illinois.
This property is a single story office/service center building built in
1987, and has approximately 97,000 square feet. It is located on a six-acre site
with parking spaces for 285 cars. The property competes with other
office/service properties and single-story office properties in the surrounding
area. The submarket in which the property is located contains approximately 1.9
million square feet of such space. As of December 31, 1995, the market occupancy
rate for this type of space was approximately 85%. The Company believes that its
market rental rates and concession packages offered to tenants are competitive
with the rental rates and concessions offered by other property owners in this
submarket.
The Company purchased this property in May 1993 for the fully capitalized
cost of $3,163,967 ($32.69 per square foot), and later placed a first mortgage
loan on the property in the amount of $1,600,000. The mortgage loan bears
interest at 8.25% per annum until November 1, 1998, when the rate is reset on
that date and on each November 1 thereafter at a rate equal to the one-year
Treasury Constant Maturity Index (as defined) plus 3.25% per annum. In no event
can the interest rate on the loan be less than 7% per annum. Monthly payments of
$15,522 (including interest) are required until November 1, 1998, when the
monthly payment will be adjusted concurrent with the reset of the interest rate
as if the loan were amortized over a 15-year term. The loan matures October 31,
2003, when the remaining principal balance of $807,905 is due (assuming the
interest rate on the loan remains at 8.25% per annum throughout the term of the
loan). The loan may be prepaid with a penalty equal to ninety days' interest at
any time. In addition, the loan may be prepaid without penalty during the period
October 1, 1998 to October 31, 1998 and during each sixty-day period immediately
prior to the date of the annual interest rate reset. The loan balance at
December 31, 1995 was $1,471,739.
As of December 31, 1995, the property was 83.1% leased. Approximately half
the space is rented by American Honda Motor Co. to house its finance division
and to use as a mechanics classroom/training facility pursuant to leases
expiring in the year 2000. Other tenants use the space predominantly as office
space for sales and technical representatives.
The following table is a schedule of lease expirations for the leases in
place as of December 31, 1995 for this property, assuming none of the tenants
exercise renewal options.
<TABLE>
<CAPTION>
Year of Number of Net Rentable Annual Base Percentage of
Lease Tenants Square Feet Rent Under Total Annual
Expiration with Subject to Expiring Base Rent
Expiring Expiring Leases Represented by
Leases Leases Expiring Leases
<S> <C> <C> <C> <C>
1996 1 3,757 $44,419 4.5%
1997 - - - -
1998 - - - -
1999 - - - -
2000 3 61,980 761,136 77.3%
2001 - - - -
2002 - - - -
2003 - - - -
2004 1 14,690 179,181 18.2%
2005 - - - -
</TABLE>
For Federal income tax purposes, the Company's basis in this property was
$3,738,942 (including $900,000 for the land) at December 31, 1994. Buildings and
improvements are depreciated over a 40-year life using the straight-line method.
Property taxes paid in 1995 for the tax year ended December 31, 1994 were
$315,501.
160, 165, 175, 180, and 185 Hansen Court, Wood Dale, Illinois.
This property consists of five single-story office/service center buildings
with a total rentable space of approximately 114,000 square feet on 10.58 acres.
There is parking available for 389 cars. The buildings were constructed in 1986.
Tenants use the space in the buildings predominantly as office/showroom space
for sales and technical representatives. The property competes with other
office/service properties and single-story office properties in the surrounding
area. The submarket in which the property is located contains approximately 1.9
million square feet of such space. As of December 31, 1995, the market occupancy
rate for this type of space was approximately 85%. The Company believes that its
market rental rates and concession packages offered to tenants are competitive
with the rental rates and concessions offered by other property owners in this
submarket.
This property was acquired by the Company in January 1994 for the fully
capitalized cost of $5,310,289 ($46.62 per square foot) from a life insurance
company. On April 29, 1994, the Company refinanced a portion of the purchase
price of the property with a first mortgage loan in the amount of $3,000,000.
The mortgage loan bears interest at 7.875% per annum and requires monthly
payments of $28,454 (including interest) until May 1, 2009, when the loan will
be fully amortized and retired. The loan may be prepaid at any time with payment
of a prepayment fee equal to 4% of the then outstanding principal balance during
the first ten years of the loan term. The prepayment fee declines to 3% of the
then outstanding principal balance during the last five years of the loan term.
The loan may be prepaid without penalty during the last six months of the loan
term. The loan balance at December 31, 1995 was $2,813,807.
Approximately 92.4% of the rentable space was leased as of December 31,
1995. Major tenants include the Sales Force Companies (18,241 square feet),
Agie, USA (16,955 square feet), and Siemens Nixdorf (12,384 square feet), with
leases expiring in 2005, 2002 and 1997, respectively, for approximately 42% of
the rentable space.
The following table is a schedule of lease expirations for the leases in
place as of December 31, 1995 for this property, assuming none of the tenants
exercises renewal options.
<TABLE>
<CAPTION>
Year of Number of Net Rentable Annual Base Percentage of
Lease Tenants Square Feet Rent Under Total Annual
Expiration with Subject to Expiring Base Rent
Expiring Expiring Leases Represented by
Leases Leases Expiring Leases
<S> <C> <C> <C> <C>
1996 1 4,678 $4,441 4.3%
1997 5 41,535 415,626 39.8%
1998 2 13,004 153,468 14.7%
1999 - - - -
2000 1 2,958 25,883 2.5%
2001 - - - -
2002 1 16,935 168,673 16.2%
2003 - - - -
2004 1 7,939 77,306 7.4%
2005 1 18,241 159,609 15.3%
</TABLE>
For Federal income tax purposes, the Company's basis in this property was
approximately $5,636,620 (including $2,100,000 for the land) as of December 31,
1994. Buildings and improvements will be depreciated over a 40-year life using
the straight-line method. Property taxes paid in 1995 for the tax year ended
December 31, 1994 were $113,054.
150, 175, and 250 North Patrick, Brookfield, Wisconsin.
This property consists of two single-story office buildings and one
single-story service center building with a total rentable space of
approximately 116,085 square feet on 12 acres. There is parking available for
515 cars. This property is situated in Brookfield Lakes Corporate Center in
suburban Milwaukee which was developed by Trammel Crow Company in 1987. The
development includes five lakes, extensive landscaping, jogging trails,
a
Wyndham Hotel/Health Club, a bank, child care facilities, restaurants and retail
facilities. Businesses of tenants in this property include insurance,
healthcare, electronics sales and service, and computer-related sales and
service. The property competes with other single- story and multi-story
buildings in the surrounding area. The submarket in which the property is
located contains 2.8 million square feet of single-story and multi-story office
space. As of December 31, 1995, the market occupancy for this type of space was
approximately 95%. The Company believes that its rental rates and concession
packages offered to tenants are competitive with those offered by
other property owners in this submarket.
The property was acquired by the Company in June 1994 for the fully
capitalized cost of $6,564,742 ($55.57 per square foot) from a life insurance
company that had foreclosed on the property in 1992. The Company obtained
a
mortgage loan in the amount of $3,500,000 secured by the property in October
1994. The mortgage loan bears interest at 8.95% per annum, has a twenty (20)
year amortization schedule and requires monthly payments of $31,378 (including
interest) until October 13, 2004, when the remaining principal balance of
$2,495,096 will be due and payable. The Company has no right to prepay the loan
for the first five years; however, the lender may agree to accept prepayment
with a 7% premium on the principal amount prepaid. Beginning in the sixth year
of the loan, the Company may prepay the loan with a premium equal to
a
percentage of the principal amount prepaid as follows:
Period Percentage
October 13, 1999 - October 12, 2000 5%
October 13, 2000 - October 12, 2001 4%
October 13, 2001 - October 12, 2002 3%
October 13, 2002 - October 12, 2003 2%
October 13, 2003 - April 12, 2004 1%
There is no prepayment premium due if the remaining principal balance is
paid on October 13, 2004 or during the 180 days before that date. The loan
balance as of December 31, 1995 was $3,422,47 9.
Approximately 96.5% of the rentable space was leased as of December 31,
1995. Major tenants include Digital Equipment (15,297 square feet),
Hewlett-Packard (22,910 square feet), and the Genetic Testing Institute (9,277
square feet), with leases expiring in 2000, 1999, and 2002, respectively, for
approximately 41% of the rentable space.
The following table is a schedule of lease expirations for the leases in
place as of December 31, 1995 for this property, assuming none of the tenants
exercise renewal options.
<TABLE>
<CAPTION>
Year of Number of Net Rentable Annual Base Percentage of
Lease Tenants Square Feet Rent Under Total Annual
Expiration with Subject to Expiring Base Rent
Expiring Expiring Leases Represented by
Leases Leases Expiring Leases
<S> <C> <C> <C> <C>
1996 1 2,364 20,709 2.0%
1997 1 5,353 58,455 5.5%
1998 4 25,822 292,484 27.7%
1999 5 43,072 397,643 37.7%
2000 4 20,588 210,024 19.9%
2001 - - - -
2002 1 9,277 76,257 7.2%
</TABLE>
For Federal income tax purposes, the Company's basis in this property was
$6,744,778 (including $2,600,000 for the land) as of December 31, 1994.
Buildings and improvements are depreciated over a 40-year life using the
straight-line method. Property taxes paid in 1995 for the tax year ended
December 31, 1994 were $149,143.
Office Properties:
11925 West Lake Park Drive, Milwaukee, Wisconsin.
This property is a single-story office building developed in 1989 and
situated in "Park Place Business Park," a 305-acre commercial development of an
affiliate of the Trammell Crow Company. The property has 36,000 square feet of
rentable space and rests on 3.4 acres. There are parking spaces for 131 cars.
The headquarters offices of the Sisters of the Sorrowful Mother Ministry
Corp., a prominent Wisconsin hospital and health care company, are located in
the building. This property competes with other single-story and multi-story
office properties in the surrounding area. Within the Park Place Business Park,
there is approximately 707,000 square feet of building space. As of December 31,
1995, the occupancy within the Park Place Business Park was approximately 91%.
The company believes that its market rental rates and concession packages
offered to tenants are competitive with the rental rates and concessions offered
by other property owners in this submarket.
The Company acquired this property in June 1993 from the Resolution Trust
corporation for the fully capitalized price of $2,137,808 ($59.27 per square
foot) and later obtained a first mortgage loan secured by the property in an
amount of $1,260,000. The mortgage note bears interest at 8.75% per annum and
requires monthly payments of $11,135 (including interest) until October 1, 2003
when the remaining principal balance of $893,034 is payable. The loan may be
prepaid with a penalty equal to a percentage of the then outstanding principal
balance as follows:
Period Percentage
October 1, 1995 - September 30, 1996 3%
October 1, 1996 - September 30, 1997 2%
October 1, 1997 - September 30, 1998 1%
After September 30, 1998, the loan may be prepaid without penalty. The
mortgage loan requires that the Company limit secured borrowing on any
individual property it owns to a 70% loan-to-value ratio and aggregate secured
borrowing on its owned properties to a 50% loan-to-value ratio. The loan balance
at December 31, 1995 was $1,202,117.
As of December 31, 1995, 93.1% of the property was leased and the major
tenants are the Sisters of the Sorrowful Mother Ministry Corp. (18,364 square
feet) and Montgomery Watson (6,981 square feet). The Sisters of the Sorrowful
Mother Ministry Corp. has a lease for approximately 52% of the space which
expires in 1998. Montgomery Watson's lease for approximately 19% of the space
expires in 2000.
The following table is a schedule of lease expirations for the leases in
place as of December 31, 1995 for this property, assuming none of the tenants
exercise renewal options.
<TABLE>
<CAPTION>
Year of Number of Net Rentable Annual Base Percentage of
Lease Tenants Square Feet Rent Under Total Annual
Expiration with Subject to Expiring Base Rent
Expiring Expiring Leases Represented by
Leases Leases Expiring Leases
<S> <C> <C> <C> <C>
1996 1 2,144 $33,532 6.4%
1997 - - - -
1998 1 18,364 269,852 51.5%
1999 1 4,013 67,619 12.9%
2000 2 9,069 153,338 29.2%
</TABLE>
For Federal income tax purposes, the company's basis in this property was
$2,139,142 (including $318,750 for the land) at December 31, 1994. Buildings and
improvements are depreciated over a 40-year life using the straight-line method.
Property taxes paid in 1995 for the tax year ended December 31, 1994 were
$78,192.
3400 Dundee Road, Northbrook, Illinois.
This property is a three-story office building with 75,000 square feet of
rentable space on 2.6 acres with parking spaces for 296 cars. The building was
built in 1986. Tenants include insurance brokerage, financial planning, mortgage
banking and accounting firms, among others. This property competes with other
single-story and multi-story office properties in the surrounding area. The
submarket in which the property is located contains approximately 5 million
square feet of single-story and multi-story office space. As of December 31,
1995, the market occupancy rate for this type of space was approximately 91%.
The Company believes that its market rental rates and concession packages
offered to tenants are competitive with the rental rates and concessions offered
by other property owners in this submarket.
This property was acquired by the Company from a major insurance company in
October 1993 for the fully capitalized cost of $4,083,422 ($53.82 per square
foot). In April 1994, the Company financed a portion of the purchase price with
a first mortgage loan in an amount of $2,300,000 bearing interest at 7.875% per
annum and requiring monthly payments of $21,814 (including interest) until May
1, 2009 when the loan will be fully amortized and retired. The loan may be
prepaid at any time with a prepayment fee equal to 4% of the then outstanding
principal amount during the first ten years of the loan term. The prepayment fee
declines to 3% of the then outstanding principal amount during the last five
years of the loan term. The loan may be repaid without penalty during the last
six months of the loan term. The loan balance at December 31, 1995 was
$2,156,869.
As of December 31, 1995, this property was 100% leased. Medical Business
Consultants (12,561 square feet) and North American Special Risk Association
(9,550 square feet) are the two largest tenants, representing 29% of the
rentable space, with leases expiring in 1999 and 1998, respectively.
The following table is a schedule of lease expirations for the leases in
place, as of December 31, 1995 for this property, assuming none of the tenants
exercise renewal options.
<TABLE>
<CAPTION>
Year of Number of Net Rentable Annual Base Percentage of
Lease Tenants Square Feet Rent Under Total Annual
Expiration with Subject to Expiring Base Rent
Expiring Expiring Leases Represented by
Leases Leases Expiring Leases
<S> <C> <C> <C> <C>
1996 - - - -
1997 3 4,515 $49,277 4.2%
1998 4 17,186 297,725 25.3%
1999 3 20,349 391,335 33.2%
2000 5 16,821 266,660 22.6%
2001 2 6,856 78,054 6.6%
2002 1 3,535 50,427 4.3%
2003 - - - -
2004 1 5,622 44,976 3.8%
</TABLE>
For Federal income tax purposes, the Company's basis in this property was
$4,371,921 (including $607,500 for the land) at December 31, 1994. Buildings and
improvements are depreciated over a 40-year life using the straight-line method.
Property taxes paid in 1995 for the tax year ended December 31, 1994 were
$264,639.
830 West End Court, Vernon Hills, Illinois.
This property is a single-story medical office building containing 26,900
square feet of rentable space on 2.26 acres. The property was built by an
affiliate of the Trammell Crow Company in 1990. There are parking spaces for 122
cars. Tenants in the property are engaged in a variety of medical,
health-related and other service businesses. The property competes with other
single story and multi-story office properties in the surrounding area. The
submarket in which the property is located contains approximately 1.9 million
square feet of single story and multi-story office space. As of December 31,
1995, the market occupancy rate for this type of space was approximately 90%.
The Company believes that its market rental rates and concession packages
offered to tenants are competitive with the rental rates and concessions offered
by other property owners in this submarket.
The building was purchased by the Company from a major financial
institution in November 1993 for the fully capitalized cost of $1,853,484
($68.85 per square foot). In May 1994, a portion of the purchase price was
refinanced with a first mortgage loan of $1,025,000 bearing interest at 7.875%
per annum. The mortgage loan requires monthly payments of $9,722 (including
interest) until May 1, 2009 when the loan will be fully amortized and retired.
The loan may be prepaid at any time with payment of a prepayment fee equal to 4%
of the then outstanding principal amount during the first ten years of the loan
term. The prepayment fee declines to 3% of the then outstanding principal
balance amount during the last five years of the loan term. The loan may be
prepaid without penalty during the last six months of the loan term. The loan
balance at December 31, 1995 was approximately $961,213.
As of December 31, 1995, the property was 100% leased, with 46% of the
rentable space being rented by The North Suburban Clinic, a subsidiary of
Caremark, Inc., subject to a lease expiring in 2004. The North Suburban Clinic
operates medical clinics (multiple specialties) in three different suburban
locations.
The following table is a schedule of lease expirations for the leases in
place, as of December 31, 1995 for this property, assuming none of the tenants
exercise renewal options.
<TABLE>
<CAPTION>
Year of Number of Net Rentable Annual Base Percentage of
Lease Tenants Square Feet Rent Under Total Annual
Expiration with Subject to Expiring Base Rent
Expiring Expiring Leases Represented by
Leases Leases Expiring Leases
<S> <C> <C> <C> <C>
1996 - - - -
1997 1 4,388 $31,813 10.8%
1998 1 1,688 17,724 6.1%
1999 1 5,743 55,723 19.0%
2000 1 2,736 35,844 12.3%
2004 1 12,367 151,496 51.8%
</TABLE>
For Federal income tax purposes, the Company's basis in this property was
$1,901,697 (including $277,500 for the land) at December 31, 1994. Buildings and
improvements are depreciated over a 40-year life using the straight-line method.
Property taxes paid in 1995 for the tax year ended December 31, 1994 were
$32,428.
1011 East Touhy Avenue, Des Plaines, Illinois.
This property is a five-story office building with 155,787 square feet of
rentable space on 5.3 acres. The property was built by an affiliate of the
Trammell Crow Company in 1978, and has parking spaces for 500 cars. Tenants use
this property's office space for a variety of service businesses, including
healthcare, insurance sales, financial planning, and public relations. This
property competes with other multi-story office properties in the surrounding
area. The submarket in which the property is located contains approximately 13
million square feet of multi-story office space. As of December 31, 1995, the
market occupancy rate for this type of space was approximately 85%. The Company
believes that the market rental rates and concession packages to tenants are
competitive with the rental rates and concessions offered by other property
owners in this submarket and that the improvements (described below)
strengthened the property's competitive position in this submarket.
In December 1993, the Company acquired this property for the fully
capitalized cost of $4,652,623 ($29.87 per square foot) from an affiliate of
a
major financial institution. The Company renovated this property to modernize
the atrium and common areas for approximately $900,000. Renovation was completed
in October, 1995. After acquisition, the Company financed a portion of the
purchase price with a first mortgage loan in the amount of $2,675,000. The loan
bears interest at 8.5% per annum and requires monthly payments of $26,342
(including interest) until August, 2009 when the loan will be fully amortized
and retired. The loan may be repaid at any time with payment of a prepayment fee
equal to 4% of the then outstanding principal balance during the first ten years
of the loan term. The prepayment fee declines to 3% of the then outstanding
principal balance during the last five years of the loan term. The loan may be
repaid without penalty during the last six months of the loan term. The loan
balance at December 31, 1995 was $2,533,586.
As of December 31, 1995, the property was 79.9% leased. The major tenants
in the building are Health Direct, Inc. (28,779 square feet), Lutheran General
Medical Group, S.C. (20,950 square feet), Prudential Insurance (10,846 square
feet), and Irwin Broh and Associates (10,825 square feet), who together rent 46%
of the total rentable space. Health Direct, Inc. and Lutheran General Medical
Group, S.C. are affiliated companies whose leases expire in 2002. The Irwin Broh
and Associates and Prudential Insurance leases expire in 1998 and 2001
respectively.
The following table is a schedule of lease expirations for the leases in
place as of December 31, 1995 for this property, assuming none of the tenants
exercise renewal options.
<TABLE>
<CAPTION>
Year of Number of Net Rentable Annual Base Percentage of
Lease Tenants Square Feet Rent Under Total Annual
Expiration with Subject to Expiring Base Rent
Expiring Expiring Leases Represented by
Leases Leases Expiring Leases
<S> <C> <C> <C> <C>
1996 4 12,613 233,707 12.7%
1997 8 17,619 277,078 15.1%
1998 6 22,103 434,418 23.6%
1999 2 4,961 69,705 3.8%
2000 1 6,132 87,381 4.8%
2001 2 12,732 120,136 6.5%
2002 2 49,729 618,101 33.6%
</TABLE>
For Federal income tax purposes, the Company's basis in this property was
$4,630,780 (including $720,000 for the land) at December 31, 1994. Buildings and
improvements are depreciated over a 40-year life using the straight-line method.
Property taxes paid in 1995 for the tax year ended December 31, 1994 were
$471,864.
One Hawthorn Place, 175 East Hawthorn Parkway, Vernon Hills, Illinois
This property is a four-story office building containing 85,803 square feet
of rentable space. This property was completed in 1986 and includes a two-story
glassed lobby with a cathedral ceiling and an inlaid mosaic floor. The property
is situated on approximately 4.6 acres of land and there are parking spaces for
280 cars. Tenants are engaged in a variety of businesses and industries. The
property competes with single-story and other multi-story office properties in
the surrounding area. The submarket in which the property is located contains
approximately 1.9 million square feet of such space. As of December 31, 1995,
the market occupancy rate for this type of space was approximately 90%. The
Company believes that its market rental rates and concession packages are
competitive with the rental rates and concessions offered by other property
owners in this submarket.
On September 30, 1994, the Company purchased this property from Turner
Development Corp., a subsidiary of Turner Construction Co. The fully capitalized
purchase price was $6,312,338 ($73.67 per square foot). In April, 1995, the
Company obtained a first mortgage loan in the amount of $3,250,000 with a term
of five years. The loan bears interest of 8.94% per annum and requires monthly
payments of $29,116 (including interest) until April 1, 2000 when the remaining
balance of $2,888,352 is due. The loan may be repaid at any time without
penalty. The loan balance at December 31, 1995 was $3,209,735.
As of December 31, 1995, this property was 79.9% leased. The major tenant
is Abbott Laboratories, Inc. which occupies two spaces, one space of
approximately 7,900 square feet under a lease which commenced December 1994 and
expires in 1999, and another space of approximately 5,440 square feet under
a
lease which commenced March 1995 and expires in 2000. These leases represent
15.0% of the rentable space in this property. Another major tenant, Association
of Legal Administrators, occupies a space of 8,380 square feet under a lease
expiring January 1999. This lease represents 9.8% of the rentable space in this
property.
The following is a schedule of lease expirations for the leases in place as
of December 31, 1995 for this property, assuming none of the tenants exercise
renewal options.
<TABLE>
<CAPTION>
Year of Number of Net Rentable Annual Base Percentage of
Lease Tenants Square Feet Rent Under Total Annual
Expiration with Subject to Expiring Base Rent
Expiring Expiring Leases Represented by
Leases Leases Expiring Leases
<S> <C> <C> <C> <C>
1996 6 11,133 180,938 16.0%
1997 6 11,624 191,342 16.9%
1998 3 10,868 182,087 16.1%
1999 3 15,892 244,349 21.6%
2000 3 17,658 308,312 27.2%
2001 1 1,373 24,027 2.1%
</TABLE>
For Federal income tax purposes, the Company's basis in this property was
$6,453,973 (including $1,600,000 for the land) at December 31, 1994. Buildings
and improvements are depreciated over a 40-year life using the straight-line
method. Property taxes paid in 1995 for the tax year ended December 31, 1994
were $117,791.
2800 River Road, Des Plaines, Illinois
This property is a four-story office building with 98,553 square feet of
rentable space on 1.97 acres. The property was built in 1983. There are parking
spaces for 322 cars, including a two-level parking deck and 52 underground
heated parking spaces. Tenants in the property are engaged in a variety of
businesses. The property competes with other single-story/multi-story office
properties in the surrounding area. The submarket in which the property is
located contains approximately 13 million square feet of single and multi-story
office space. As of December 31, 1995, the market occupancy rate for this type
of space was approximately 85%. The Company believes that its market rental
rates and concession packages offered to tenants are competitive with the rental
rates and concessions offered by other property owners in this submarket.
The building was purchased by the Company from The California State
Teachers Retirement System in February 1995 for the fully capitalized cost of
$4,761,053 ($48.31 per square foot). As of December 31, 1995, the property was
75% leased. Major tenants include WorldCom, Inc. which occupies two spaces
aggregating 18,700 square feet, and Polygram Group which occupies 11,348 square
feet. These leases represent 36% of the rentable space in the building and
expire in 2001 and 1999.
The following table is a schedule of lease expirations for the leases in
place as of December 31, 1995 for this property, assuming none of the tenants
exercise renewal options.
<TABLE>
<CAPTION>
Year of Number of Net Rentable Annual Base Percentage of
Lease Tenants Square Feet Rent Under Total Annual
Expiration with Subject to Expiring Base Rent
Expiring Expiring Leases Represented by
Leases Leases Expiring Leases
<S> <C> <C> <C> <C>
1996 5 14,229 255,186 22.6%
1997 4 12,837 183,112 16.2%
1998 2 5,791 83,350 7.4%
1999 2 14,453 254,964 22.6%
2000 4 8,797 141,011 12.5%
2001 1 18,700 209,932 18.6%
</TABLE>
For Federal income tax purposes, the Company's basis in this property is
approximately $4,745,000 (including $1,300,000 for the land) at the date of
purchase. Buildings and improvements will be depreciated over a forty-year life
using the standard line method. Property taxes paid in 1995 for the year ended
December 31, 1994 were $404,287.
2221 University Avenue Southeast, Minneapolis, Minnesota
This property is a four-story office building with 97,658 square feet of
rentable space on 2.82 acres. The property was built in 1980. There are parking
spaces for 259 cars, including 59 spaces in an underground heated garage. Given
the proximity of the property to the University of Minnesota-Minneapolis campus
and the University Hospital, tenants in the property are engaged in University
and health care related businesses. The property competes with other single-
story/multi-story office properties owned by private parties and the University
in the surrounding area. The submarket in which the property is located contains
approximately 1.1 million square feet of single and multi-story office space.
The property is the closest privately-owned facility to the University campus.
As of December 31, 1995, the market occupancy rate for this type of space was
approximately 90%. The Company believes that its market rental rates and
concession packages offered to tenants are competitive with the rental rates and
concessions offered by other property owners in this submarket.
The property was purchased by the Company from a private limited
partnership in May 1995 for the fully capitalized cost of $8,190,374 ($83.87 per
square foot). A portion of the purchase price of the property was financed by
the assumption of $5,590,000 of tax-exempt bonds issued by the City of
Minneapolis and secured by a letter of credit issued by a bank on behalf of the
Company. The bonds bear interest at a floating rate (with a maximum rate of 10%
per annum) which is determined by the bond placement agent. The rate on the
bonds at December 31, 1995 was 5.3% per annum. The total interest cost on the
bonds to the Company is currently approximately 6% per annum which includes the
interest due on the bonds, a fee paid for the letter of credit, and certain
trustee and bond placement fees.
The bonds mature on June 1, 2009, and are subject to annual principal
payments on June 1 of each year as follows:
Year Amount Year Amount Year Amount
1996 $185,000 2001 $310,000 2006 $505,000
1997 205,000 2002 340,000 2007 560,000
1998 230,000 2003 375,000 2008 620,000
1999 230,000 2004 415,000 2009 685,000
2000 280,000 2005 460,000
Interest is payable monthly. The bonds may be repaid at any time without
penalty. The principal balance outstanding at December 31, 1995 was $5,420,000.
As of December 31, 1995, the property was 98.1% leased. Approximately
76,000 square feet of space (78% of the property) is leased to Health Partners,
a partnership of four medical associations, under a lease which expires January
31, 2001. The partners of Health Partners are the American Academy of Neurology,
the Hennepin County Medical Society, the Minnesota Hospital Association, and the
Minnesota Medical Association. The American Academy of Neurology, and the
Minnesota Hospital Association occupy 26,797 square feet at the property. The
balance of the space leased by Health Partners has been sublet to the University
of Minnesota. In addition to the space sublet from Health Partners, the
University of Minnesota leases 10,675 square feet (11% of the property) under
leases which expire at various dates in 1996.
The following table is a schedule of lease expirations for the leases in
place as of December 31, 1995 for this property, assuming none of the tenants
exercise renewal options.
<TABLE>
<CAPTION>
Year of Number of Net Rentable Annual Base Percentage of
Lease Tenants Square Feet Rent Under Total Annual
Expiration with Subject to Expiring Base Rent
Expiring Expiring Leases Represented by
Leases Leases Expiring Leases
<S> <C> <C> <C> <C>
1996 5 11,206 185,517 17.6%
1997 2 668 36,917 3.5%
1998 - - - -
1999 - - - -
2000 1 1,555 18,268 1.7%
2001 2 82,672 812,568 77.2%
</TABLE>
For Federal income tax purposes, the Company's basis in this property is
approximately $8,130,000 (including $1,100,000 for the land) at the date of
purchase. Buildings and improvements will be depreciated over a forty-year life
using the straight line method. Property taxes paid in 1995 for the year ended
December 31, 1995 were $268,585.
1660 Feehanville Drive, Mount Prospect, Illinois.
This property is a Class A office building with 85,863 square feet of
rentable space which was constructed during 1989 in the Kensington Center
Business Park, which is bounded by U.S. 12, Wolf Road, and Kensington Avenue.
The exterior is clad in two sizes of ironspot face brick with matte black accent
at the floor lines. Highlighting the entryway is the lobby's clear curtain wall
area and a silver reflective curtainwall with black horizontal trim on the east
elevation. The remainder of the building features strip windows with gray tinted
glass in black anodized aluminum frames. Metropolitan Life Insurance Company is
the major tenant. The seller was a prominent national real estate developer and
general contractor, which acted on a decision to liquidate its entire office
portfolio and focus on its construction management and build-to-suit business.
The submarket in which the property is located contains approximately 12.1
million square feet of office space. As of December 31, 1995, the market
occupancy for this type of space was approximately 85%. The Company believes
that its market rental rates and concession packages offered to tenants are
competitive with the rental rates and concessions offered by other property
owners in this submarket.
The Company acquired this property in September 1995 for the fully
capitalized cost of $5,402,526 ($62.92 per square foot). The property is pledged
as security for the Company's line of credit.
As of December 31, 1995, 84.9% of the property was leased with the major
tenant being Metropolitan Life Insurance Company (66,419 sq. ft.). Metropolitan
Life Insurance Company has a lease for approximately 77% of the space which
expires in 1998.
The following table is a schedule of lease expirations for the leases in
place as of December 31, 1995 for this property, assuming none of the tenants
exercise renewal options.
<TABLE>
<CAPTION>
Year of Number of Net Rentable Annual Base Percentage of
Lease Tenants Square Feet Rent Under Total Annual
Expiration with Subject to Expiring Base Rent
Expiring Expiring Leases Represented by
Leases Leases Expiring Leases
<S> <C> <C> <C> <C>
1996 1 4,885 66,164 7.7%
1997 - - - -
1998 1 66,419 791,886 92.3%
</TABLE>
For Federal income tax purposes, the Company's basis in this property was
approximately $5,380,000 (including $1,100,000 for the land). Buildings and
improvements are depreciated over a 40-year life using the straight-line method.
Property taxes paid in 1995 for the tax year ended December 31, 1994 were
$434,226.
24800 Denso Drive/#10 Oak Hollow, Southfield, Michigan
These Class A office buildings were constructed during 1986-1987 in the Oak
Hollow Corporate Campus, an award-winning office park located in the area's only
naturally wooded setting. The two buildings collectively total 164,282 square
feet of rentable space and feature two-story atriums with lobbies finished in
either marble and polished brass or brick pavers with accents of oak trim and
glass railings. The site is within one mile of Detroit's primary freeway hub,
affording easy access in all directions via Telegraph Road, I-696, and
Northwestern Highway. Exterior construction consists of face brick on metal
stubs surrounding a steel frame. Continuous strip windows with anodized aluminum
frames and tinted double-pane insulating glass highlight each floor. The
submarket in which the property is located contains approximately 15 million
square feet of office space. As of December 31, 1995, the market occupancy for
this type of space was approximately 84%. The Company believes that its market
rental rates and concession packages offered to tenants are competitive with the
rental rates and concessions offered by other property owners in this submarket.
The Company acquired these two buildings in a single transaction in
September 1995 for the fully capitalized cost of $12,756,163 ($77.65 per square
foot). The property is pledged as security for the Company's line of credit.
As of December 31, 1995, 91.6% of the property was leased and the major
tenants are Contract Interiors (31,262 sq. ft., 19% of the building), Tokai Rika
(13,662 sq. ft., 8% of the building), Firemans Fund Insurance (15,170 sq. ft.,
9% of the building), Alcoa (7% of the building, 12,010 sq. ft.), AT&T (16,523
sq. ft., 10% of the building) and Bay Networks (17,258 sq. ft., 11% of the
building).
The following table is a schedule of lease expirations for the leases in
place as of December 31, 1995 for this property, assuming none of the tenants
exercise renewal options.
<TABLE>
<CAPTION>
Year of Number of Net Rentable Annual Base Percentage of
Lease Tenants Square Feet Rent Under Total Annual
Expiration with Subject to Expiring Base Rent
Expiring Expiring Leases Represented by
Leases Leases Expiring Leases
<S> <C> <C> <C> <C>
1996 3 41,693 $781,222 29.3%
1997 2 15,294 255,941 9.6%
1998 3 20,741 386,183 14.5%
1999 4 25,859 412,241 15.5%
2000 6 46,769 727,463 27.3%
2001 1 8,376 100,512 3.8%
</TABLE>
For Federal income tax purposes, the Company's basis in these properties
will be approximately $12,738,000 (including $2,287,000 for the land). Building
and improvements will be depreciated over a 40 year life using the straight line
method. Property taxes paid in 1995 were $292,744.
One Park Plaza, Milwaukee, Wisconsin
This property is a Class A office building with 196,172 square feet of
rentable square feet which is located in the 305-acre Park Place development in
the northwest sector of the city of Milwaukee. Park Place features a spring-fed
seven-acre lake with fountains, an outdoor plaza amphitheater, a 0.7 mile
walking path, and tennis and basketball courts. Constructed in 1984 by
a
well-known national real estate developer, the building features an on-site
bank, a deli/restaurant, and a U.S. postal station. The exterior elevation of
this 12- story building consists of polished granite on the first two floors and
reflective glass set in anodized aluminum frames on the remaining levels.
Parking for 656 cars is provided by a two-story parking deck. The building's
location hear the intersection of U.S. 41, U.S. 45, and Good Hope Road affords
easy access to all parts of the metropolitan area. Within the Park Place
Business Park, there is approximately 707,000 square feet of building space. As
of December 31, 1995, the occupancy within the Park Place Business Park was
approximately 91%. The company believes that its market rental rates and
concession packages offered to tenants are competitive with the rental rates and
concessions offered by other property owners in this submarket.
The Company acquired this property in September 1995 for the fully
capitalized cost of $15,675,908 ($79.91 per square foot). The property is
pledged as security for the Company's line of credit.
As of December 31, 1995, 93.5% of the property was leased and the major
tenants include Wausau Insurance (48,798 sq. ft., 25% of building), A.O. Smith
(51,012 sq. ft., 26% of building), Howard Needles Tammen & Bergendoff (33,177
sq. ft., 17% of building), and New York Life (6,461 sq. ft., 3% of building).
The following table is a schedule of lease expirations for the leases in
place as of December 31, 1995 for this property, assuming none of the tenants
exercise renewal options.
<TABLE>
<CAPTION>
Year of Number of Net Rentable Annual Base Percentage of
Lease Tenants Square Feet Rent Under Total Annual
Expiration with Subject to Expiring Base Rent
Expiring Expiring Leases Represented by
Leases Leases Expiring Leases
<S> <C> <C> <C> <C>
1996 5 12,206 $99,650 5.3%
1997 1 516 4,902 0.3%
1998 4 9,971 91,918 4.9%
1999 3 16,143 150,464 8.0%
2000 3 35,482 567,106 30.0%
2001 1 6,461 58,214 3.1%
2005 1 51,012 394,306 20.9%
2006 1 48,798 524,578 27.7%
</TABLE>
For Federal income tax purposes, the Company's basis in this property will
be approximately $15,656,000 (including $940,000 for the land). Buildings and
improvements will be depreciated over a 40 year life using the straight line
method. Property taxes paid in 1995 were $561,280 for the calendar year ended
December 31, 1994.
823 Commerce Drive, Oak Brook, Illinois
This property is a three story office building built in 1969 and has
approximately 44,000 square feet. It is located on a 2.6 acre site with parking
for 170 cars. The Company plans a complete renovation program which should
enable the property to compete with other office buildings in the surrounding
area. The submarket in which this property is located contains approximately
12.4 million square feet and is currently 92% occupied.
The renovation planned by the Company is expected to cost $1.2 million and
will include a new exterior facade, new windows, parking lots, landscaping,
common area corridors and lobby, elevator cabs, as well as a new HVAC system.
Upon completion of the renovation, the Company thinks the property will be able
to compete with other buildings in the Oak Brook submarket and that the property
will achieve substantially higher rental rates and occupancies than at the
present time.
The Company purchased this property in November, 1995 for the fully
capitalized cost of $1,760,930 ($40.02 per square foot). Upon completion of the
renovation, the Company's total investment in the property will be approximately
$2,925,000 ($66.48 per square foot). At December 31, 1995, the property was 36%
occupied with Computer Power Group leasing 32% of the leasable space at the
property pursuant to the lease which expires in 1998. Great Lakes REIT, Inc.
intends to occupy approximately 7,000 square feet at the property as its
corporate headquarters.
The following is a table of lease expirations for leases in place as of
December 31, 1995.
<TABLE>
<CAPTION>
Year of Number of Net Rentable Annual Base Percentage of
Lease Tenants Square Feet Rent Under Total Annual
Expiration with Subject to Expiring Base Rent
Expiring Expiring Leases Represented by
Leases Leases Expiring Leases
<S> <C> <C> <C> <C>
1996 1 1,840 21,160 9.7
1997 - - - -
1998 1 14,026 196,364 90.3%
</TABLE>
For Federal income tax purposes, the Company's basis in the property is
approximately $1,750,000 (including $500,000 for the land). Buildings and
improvements will be depreciated on a 40 year life using the straight-line
method. Property taxes paid in 1995 for the year ended December 31, 1994 were
$33,408.
565 Lakeview Parkway, Vernon Hills, Illinois
This property is a single story office building built in 1991, and has
approximately 84,815 square feet. It is located on a seven acre site with
parking spaces for 253 cars. The property competes with other office/service
properties and single-story office properties in the surrounding area. The
submarket in which the property is located contains approximately 1.9 million
square feet of such space. The market occupancy rate for this type of space is
approximately 90%. The Company believes that its market rental rates and
concession packages offered to tenants are competitive with the rental rates and
concessions offered by other property owners in this submarket.
The Company purchased this property in December, 1995 for approximately
$4,881,675 ($57.56 per square foot). As of December 31, 1995, the property was
68% leased. The principal tenants are PNC Mortgage Corporation (28,223 square
feet), The Waxler Company (8,942 square feet) and Sparking Spring Water Company
(17,133 square feet) who lease 64% of the building under leases which expire in
1997, 1999 and 2001 respectively.
The following table is a schedule of lease expirations for the leases in
place as of December 31, 1995 for this property, assuming none of the tenants
exercise renewal options.
<TABLE>
<CAPTION>
Year of Number of Net Rentable Annual Base Percentage of
Lease Tenants Square Feet Rent Under Total Annual
Expiration with Subject to Expiring Base Rent
Expiring Expiring Leases Represented by
Leases Leases Expiring Leases
<S> <C> <C> <C> <C>
1996 - - - -
1997 1 28,223 $276,021 48.1%
1998 - - - -
1999 1 8,942 99,167 17.3%
2000 - - - -
2001 1 17,133 158,480 27.6%
2002 - - - -
2003 1 3,704 39,818 6.9%
2004 - - - -
2005 - - - -
</TABLE>
For Federal income tax purposes, the Company's basis in this property is
approximately $4,850,000 (including $1,300,000 for the land) at December 31,
1995. Buildings and improvements will be depreciated over a 40 year life using
the straight-line method. Property taxes paid in 1995 for the tax year ended
December 31, 1994 were $92,488.
1251 Plum Grove Road, Schaumburg, Illinois
This property is a single-story office building developed in 1986. The
property has 43,000 square feet of rentable space and rests on 3.2 acres. There
are parking spaces for 173 cars.
The current occupancy rate within this submarket is approximately 87%. The
Company believes that its market rental rates and concession packages offered to
tenants are competitive with the rental rates and concessions offered by other
property owners in this submarket.
The Company acquired this property in January, 1996 for the contract price
of $1,050,000 ($24.25 per square foot). As of January 1, 1996, 43% of the
property was leased and the major tenants are State Farm Insurance (5,085 square
feet) and Vanguard Management (6,124 square feet) under leases which expire in
1997 and 1998 respectively.
The following table is a schedule of lease expirations for the leases in
place as of January 1, 1995 for this property, assuming none of the tenants
exercise renewal options.
<TABLE>
<CAPTION>
Year of Number of Net Rentable Annual Base Percentage of
Lease Tenants Square Feet Rent Under Total Annual
Expiration with Subject to Expiring Base Rent
Expiring Expiring Leases Represented by
Leases Leases Expiring Leases
<S> <C> <C> <C> <C>
1997 1 5,085 $ 41,951 21.2%
1998 2 9,195 12,206 56.8%
1999 1 3,615 43,380 22.0%
</TABLE>
For Federal income tax purposes, the Company's basis in this property will
be approximately $1,065,000 (including $210,000 for the land) at December 31,
1996. Buildings and improvements are depreciated over a 40 year life using the
straight-line method. Property taxes paid in 1995 for the tax year ended
December 31, 1994 were $86,183.
30 Merchant Street, Springdale, Ohio
The Company purchased this property in April, 1996 for the contract price
of $6,075,000 ($63.34 per square foot). This property is a three story office
building built in 1988, and has approximately 95,910 square feet. It is located
on a 5.9 acre site with parking spaces for 413 cars. The property competes with
other multi-story and single-story office properties in the surrounding area.
The submarket in which the property is located contains approximately 2.5
million square feet of such space. The market occupancy rate for this type of
space is approximately 82%. The Company believes that its market rental rates
and concession packages offered to tenants are competitive with the rental rates
and concessions offered by other property owners in this submarket.
As of June 15, 1996, the property was 31.7% occupied. The principal tenants
occupying space in the property as of June 15, 1996 were: Health Span (12,545
square feet), Info Builders (8,633 square feet) and J.D. Edwards (6,159 square
feet) which lease 28.5% of the building under leases which expire in 2000, 1998
and 2000 respectively. However, on May, 31, 1996 the Company executed a lease
with Community Insurance Company pursuant to which that company has agreed to
lease 68,573 square feet of space in the property (70.2% of the property).
The following table is a schedule of lease expirations for the leases in
place as of June 15, 1996 for this property, including the new lease noted
above, assuming none of the tenants exercise renewal options.
<TABLE>
<CAPTION>
Year of Number of Net Rentable Annual Base Percentage of
Lease Tenants Square Feet Rent Under Total Annual
Expiration with Subject to Expiring Base Rent
Expiring Expiring Leases Represented by
Leases Leases Expiring Leases
<S> <C> <C> <C> <C>
1996 - - - -
1997 - - - -
1998 1 8,633 $93,236 8.8%
1999 - - - -
2000 2 18,704 $223,887 21.0%
2001 1 77,206 $747,446 70.2%
</TABLE>
For Federal income tax purposes, the Company's basis in this property will
be approximately $6,100,000(including $915,000 for the land). Buildings and
improvements will be depreciated over a 40 year life using the straight-line
method. Property taxes paid in 1995 for the tax year ended December 31, 1994
were approximately $112,000.
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
There is no person (or group as that term is used in section 13(d)(3) of
the Exchange Act) who is known to the Company to be the beneficial owner of more
than five percent (5%) of the Company s voting securities.
The following table sets forth, as of June 15, 1996, information to the
best of the Company s knowledge regarding the beneficial ownership of shares of
Common Stock by each Director and by all of the Company s Directors and
executive officers as a group. This table includes shares owned or options held
by individuals who became officers of the Company on April 1, 1996 upon the
completion of the Company s merger with the Advisor.
<TABLE>
<CAPTION>
Name of Beneficial Owner Shares Percent of Share Option Shares
Beneficially Ownership (1) (3)
Owned (1) (2) (2)
<S> <C> <C> <C>
Richard A. May 303,203 5.8% 139,125
Richard L. Rasley 108,229 2.1% 86,310
Walter H. Teninga 39,426 * 10,000
Donald E. Phillips 38,981 * 3,000
Daniel E. Josephs 59,856 1.2% 9,000
Wayne M. Janus 84,096 1.6% 76,394
Jon K. Haahr 10,881 * 6,000
Raymond M. Braun 44,871 * 28,225
Brett A. Brown 26,686 * 20,900
James Hicks 23,386 * 4,700
Edith M. Scurto 25,086 * 9,965
All Directors and Officers
as a Group 764,701 14.7% 393,617
</TABLE>
(*) Less than 1%
(1) Includes shares which are not currently outstanding but are deemed
beneficially owned since they are subject to option that are currently
exercisable.
(2) Includes shares that are owned by a Director s spouse, as to which
beneficial ownership is disclaimed.
(3) For their service as Independent Directors, Messrs. Haahr, Janus,
Josephs, Phillips and Teninga annually are granted options to purchase shares of
Common Stock which expire ten years from the date of grant. In lieu of selling
commissions, Mr. Janus and Mr. May received options in connection with the sale
of common shares in the Company s private placement offerings. Messrs. May and
Rasley have not received options for their services as Directors; however the
Advisor, of which Messrs. May and Rasley were shareholders as of December 31,
1995, was granted options in connection with the Company s stock offerings and
the Advisory Agreement with the Advisor. The Advisor assigned those options in
part to Messrs. May, Rasley, Braun, Brown, and Hicks and Ms. Scurto.
ITEM 5. DIRECTORS AND EXECUTIVE OFFICERS
The Company s Board of Directors currently consists of seven members.
Pursuant to the Company s Bylaws, each Director holds office for a one-year term
expiring at the next annual stockholders meeting. Company officers are elected
annually by the Board of Directors, but may be removed at any time by the Board
acting in its discretionary authority.
The following table sets forth information with respect to the Directors
and executive officers of the Company as of December 31, 1995. This table does
not include individuals who became officers of the Company on April 1, 1996 upon
the completion of the Company s merger with the Advisor, however, those
individuals are des cribed in the narrative following the table.
Name Age Positio n with the Company
Richard A. May 51 Chairman of the Board, President
Richard L. Rasley 39 Secretary, Director
Walter H. Teninga 68 Director
Donald E. Phillips 63 Director
Daniel E. Josephs 64 Director
Wayne M. Janus 49 Director
Jon K.Haahr 42 Director
Richard A. May
President and Chief Executive Officer
Director
In 1992, Mr. May co-founded the Company and has served as President and
Chairman of the Board of Directors from its inception. Mr. May is currently the
Chairman of the Board, President and Chief Executive Officer of the Company. In
1984, Mr. May co-founded JMG Financial Group, Ltd. ( JMG ), a registered
investment adviser, which provides personal financial and tax planning to senior
executives of public and private companies and affluent business owners. In
1986, he co- founded the Advisor as an affiliate of JMG. The Advisor became an
independent company in 1989, and Mr. May sold his JMG interest at that time. Mr.
May is a licensed real estate broker in the States of Illinois and Indiana and
holds several inactive NASD licenses. He is also a member of NAREIT.
Mr. May received his bachelors degree in mechanical engineering from the
University of Illinois and his MBA degree from The University of Chicago. From
1968 to 1979, he was employed in the water pollution control industry as
a
project engineer and marketer of engineering products and services. He began his
financial services career in 1979 as a commercial real estate broker and worked
for Inland Real Estate Corporation from 1981 to 1984 marketing real estate
investment products.
Richard L. Rasley
Executive Vice President,
General Counsel, Secretary
Director
In 1992, Mr. Rasley co-founded the Company and has served as Secretary and
Director from its inception. Mr. Rasley is currently the Executive Vice Preside
nt, General Counsel and Secretary of the Company.
From 1985 to 1987, Mr. Rasley worked for Dreher & Associates, Inc., a NASD
broker-dealer, where he was responsible for the review, approval, and monitoring
of the firm s direct participation investments. Prior to that, he worked for
Deloitte, Haskins & Sells (now Deloitte & Touche LLP) as a general business
consultant. Mr. Rasley is a Certified Public Accountant, holds several inactive
NASD li censes, and is a member of the Illinois Bar and NAREIT.
Mr. Rasley received his Bachelor of Business Administration (BBA) degree in
Financial Economics from the University of Iowa in 1978 and his MBA and JD
degrees from the University of Illinois in 1982.
Walter H. Teninga
Director
Mr. Teninga is an Independent Director of the Company and joined the Board
in September, 1992. Mr. Teninga is the retired President and Chief Executive
Officer of American Club Stores, Inc., where he worked from 1991 to 1993. In
1982, he founded the Warehouse Club, a wholesale cash-and-carry warehouse
business, which became a public company in 1985. Mr. Teninga resigned as
Chairman, Chief Executive Officer and Director of the Warehouse Club in 1991.
From 1956 to 1979, Mr. Teninga was employed by K-mart Corporation in various
positions, including as a Director, Vice Chairman, and Chief Financial and
Develop ment Officer.
Mr. Teninga is currently a member of the Board of Directors of Developers
Diversified Realty Corporation (a NYSE-listed real estate investment trust), and
Solo Se rve Corporation.
Mr. Teninga received his undergraduate degree from the University of
Michigan and his MBA degree from Michigan State University.
Donald E. Phillips
Directo
Mr. Phillips in an Independent Director of the Company and joined the Board
in September, 1992. Mr. Phillips is currently retired. From 1960 until 1980, Mr.
Phillips served as a corporate executive in a variety of capacities for
International Minerals & Chemicals Corporation of Northbrook, Illinois and, from
1976 to 1980, he was Group President & CEO of IMC Industry Group, Inc. ( IMC ).
From 1980 until 1988, he served as Group President & CEO of Pitman Moore, Inc.,
then a wholly-owned subsidiary of IMC.
Mr. Phillips presently serves as Chairman of the Board of Directors of
Synbiotics Corporation of Rancho Bernardo, California, a company which
manufactures and distributes veterinary devices and products and as a member of
the Board of Directors of Potash Corporation of Saskatchewan, Canada, a company
which mines and distributes minerals for agricultural application, the Board of
Regents of Bethel College and Seminary of Arden Hills, Minnesota, and as the
President of Holmes Community College Development Foundation, Goodman, Mississ
ippi.
Mr. Phillips is the past Chairman of the Board of Lake Forest Graduate
School of Business and on the Board of The Skokie Valley Baptist Church. Mr.
Phillips received his undergraduate degree from Mississippi College and his MBA
from the University of Mississippi. He is also a graduate of the Executive
Program in Business Administration in the Graduate School of Business, Columbia
University and he is a recipient of an Honorary Doctor of Laws degree from
Mississippi College .
Daniel E. Josephs
Director
Mr. Josephs is an Independent Director of the Company and joined the Board
in March, 1993. Mr. Josephs is currently an independent business consultant.
From 1985 until 1995, Mr. Josephs served as the President, Chief Operating
Officer and Director of Dominick s Finer Foods of Northlake, Illinois, a major
Chicago- area retail grocery company. Prior to 1985, Mr. Josephs was the Chief
Operating Officer of both Kohl s Food Stores and Pantry Pride Food Stores. From
1948 to 1980, Mr. Josephs was employed by Jewel Food Stores, concluding his
tenure as Group V ice President for Marketing.
Mr. Josephs received his undergraduate degree from Northwestern University
and his MBA from the University of Chicago. Mr. Josephs serves on the Board of
Trustees for The Chicago Academy of Sciences and the Board of Directors of
Options for People, Inc., a Chicago-area non-profit concern. He is a member of
the Advisory Council of the Keller Graduate School of Management. He has also
been a guest lecturer for the graduate business schools of Northwestern
University and the University of Illinois. He has also served on the Board of
Directo rs of the Chicago Economic Development Corporation.
Wayne M. Janus
Director
Mr. Janus is an Independent Director of the Company and joined the Board in
May, 1994. Mr. Janus is President of JMG, a registered investment adviser, which
provides personal financial and tax planning to senior executives of public and
private companies and affluent business owners. Mr. Janus co-founded JMG in
1984. Mr. Janus is a registered representative of Dreher & Associates, an NASD
broker-dealer. Prior to founding JMG, Mr. Janus was a tax principal with Arthur
Young & Company (now Ernst & Young LLP) where he provided financial planning
services and coordinated executive compensation programs for a number of publicl
y-held Chicago area companies.
Mr. Janus earned a Bachelor of Science degree in accounting and a Master of
Science degree in taxation from DePaul University. He is a Certified Public
Accountant, and a member of The Illinois CPA Society, the American Institute of
Certified Public Accountants, the Chicago Estate Planning Council and the
Interna tional Association for Financial Planning.
Jon K.Haahr
Director
Mr. Haahr is an Independent Director of the Company and joined the Board in
May, 1994. Mr. Haahr is a Managing Director, Investment Banking of EVEREN
Securities, Inc. a regional NASD broker-dealer, and currently serves as co-chair
of the firm s Real Estate Group. In that capacity, he provides corporate finance
services to a broad array of real estate related companies, with a particular
emphasis on commercial and health care real estate investment trusts. His
efforts are focused on the areas of capital formation and balance sheet
restructuring, as well as providing general financial advisory services. Mr.
Haahr established EVEREN Securities, Inc. s real estate investment banking
services group in 1992, after joining the firm in October 1988.
At EVEREN Securities, Inc., Mr. Haahr has also provided general banking
expertise to corporate finance clients, including raising both public and
private capital for a broad range of companies. Mr. Haahr s previous experience
includes six years at the Continental Bank in Chicago providing corporate
lending and capital markets services to middle-market companies.
Mr. Haahr received his MBA in finance from the University of Iowa, holds
a
bachelor s degree in economics from Iowa State University, and is a Certified
Public Accountant. He is a member of NAREIT.
Additional Executive Officers
Upon the completion of the Company s merger with the Advisor on April 1,
1996, the fol lowing people became executive officers of the Company.
Raymond M. Braun
Senior Vice President, Acquisitions
Raymond M. Braun, age 36, joined the Advisor in May 1990. Mr. Braun has
primary responsibility for all of the Company s real estate acquisition
activities.
Prior to joining the Advisor, Mr. Braun was employed from 1986 to 1990 by
The Balcor Company, a major real estate investment company involved in all
aspects of real estate including development, management, syndication, and
mortgage lending. While with Balcor, Mr. Braun was involved in equity and debt
financing for various projects which, in the aggregate, exceeded 5 thousand
apartment units, 4 million square feet of retail space, 1 million square feet of
office space, and 10 thousand acres of unimproved land. Prior to joining Balcor,
Mr. Braun worked as a credit analyst and loan review officer for MBank, N.A. in
Dallas, Texas from 1984 to 1986.
Mr. Braun received a Bachelor s degree in Finance from the University of
Illinois in Champaign-Urbana. Mr. Braun is both a member of the Chicago Board of
Realtors and the local CCIM chapter of the National Association of Realtors.
James Hicks
Sr. Vic President, Finance,
Chief Financial Officer, and
Treasurer
James Hicks, age 40, joined the Advisor in 1994. He currently has general
supervisory responsibility for the finance and accounting activities of the
Company .
From 1989 to 1993, Mr. Hicks was employed by JMB Institutional Realty
Corporation, which was a real estate adviser to pension funds and other
institutional investors, as a vice president of portfolio management with
responsibility for overall asset management of a portfolio of international and
domestic commercial real estate properties. As portfolio manager, he was
responsible for all leasing, redevelopment, financing, investor reporting and
financial reporting matters. From 1982-1989, he worked at The Balcor Company,
a
real estate syndication company. Mr. Hicks was Controller of Balcor from
1982-1987 where he was responsible for all corporate financial reporting, tax
planning and reporting, and the installation of financial management information
systems, and thereafter was a vice president in The Balcor Capital Markets Group
where he was involved with the sale of pools of commercial real estate
mortgages. From 1977 to 1982, he was with Peat, Marwick, Mitchell & Co. (now
KPMG Peat Marwick LLP), where he audited publicly owned and private real estate
compani es.
He received his Bachelor s degree in Accounting and Mathematics from
Augustana College in 1977, and his MBA from Northwestern University in 1988. Mr.
Hicks is a Certified Public Accountant. Mr. Hicks is a member of the Illinois
CPA Society and American Institute of Certified Public Accountants.
Kim S.Mills
Senior Vice President, Asset Management and Leasing
Kim S. Mills, age 47, joined the Advisor in January, 1996. Mr. Mills has
primary responsibility for all of the Company s asset management, property
managem ent and leasing activities.
Prior to joining the Advisor, Mr. Mills was employed by Simon Property
Group REIT, a commercial property REIT, from 1992 to 1995 as a regional manager
with responsibility for overall portfolio management of high rise office
buildings totaling over 4 million square feet. From 1984 to 1991, he worked for
the RREEF Funds which is a real estate adviser to pension funds and other
institutional investors. Mr. Mills was District Manager with RREEF from 1989 to
1991 with responsibility for all asset/property management functions in the
Chicago Suburban District for 4 million square feet of office, retail,
industrial and apartment properties and prior to 1989, he was District Manager
of the Denver suburban district. Prior to RREEF, Mr. Mills worked at Urban
Investment and Development Company as a property manager/leasing coordinator
from 1982 to 1984.
Mr. Mills received a Bachelor s degree from Ohio Northern University in
Ada, Ohio. Mr. Mills has a RPA (Real Property Administrator) designation from
BCMA.
Brett A. Brown
Vice President, Accounting
Brett A. Brown, age 31, joined the Advisor in 1988. Mr. Brown has primary
responsibility for all financial and tax reporting for the Company.
Prior to joining the Advisor, Mr. Brown began his professional career
working for a bank holding company where he was responsible for the
consolidation of all financial and tax reporting for all of the entities; he
also assisted in an initial public offering. He received a Bachelor of Science
degree in Accounting from Northern Illinois University. Mr. Brown is a Certified
Public Accountant and a member of the Illinois CPA Society and the American
Institute of Certified Public Accountants.
Edith M. Scurto
Vice President
Property Management
Edie M. Scurto, age 30, joined the Advisor in 1986 and currently heads the
property management staff of the Company. She currently manages and supervises
the daily management activities of 14 properties including office,
office/service center, and light industrial buildings. Ms. Scurto is a licensed
real estate sales person in the State of Illinois and a member of the Illinois
Institute of Real Estate Management. She is a Certified Property Manager.
ITEM 6. EXECUTIVE COMPENSATION
For the years ended December 31, 1993, 1994 and 1995, the Company had no
employees. See Item 7 below which generally describes the arrangements and
agreements between the Company and certain parties regarding compensation for
service s provided to the Company.
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
From the Company s incorporation until the completion of the merger of the
two companies on April 1, 1996, the Advisor served the Company pursuant to an
advisory agreement dated July 2, 1992 as restated July 1, 1994, relating to the
selection, purchase, financing, and operation of the Company s properties (the
Advisory Agreement ), and pursuant to other agreements regarding property
management and offering administration activities. The Advisory Agreement and
the other agreements obligated the Advisor to manage and conduct the Company
s
day-to-day operations in consideration for certain fees which were based in part
on the Company s funds from operations. Messrs. May and Rasley, who are
directors and officers of the Company, were shareholders owning 70.5% of the
outstanding common stock of the Advisor. Under the terms of the Advisory
Agreement and other agreements, the Advisor was paid $2,139,826 in 1995.
Except for their compensation as employees, the Company does not compensate
those Directors who are employees of the Company for their service as Directors.
In connection with rendering a fairness opinion with respect to the merger
of the Company and the Advisor, EVEREN Securities, Inc. ( EVEREN ) has received
a fee of $200,000. The Company also agreed to reimburse EVEREN for its
reasonable and out-of-pocket expenses, including the reasonable fees and
expenses of EVEREN s counsel, and to indemnify EVEREN for certain liabilities to
which it may be subject in connection with its engagement. The Company has also
retained EVEREN to act as agent in a pending private placement of shares of the
Company s common stock, for which EVEREN will receive customary fees and expense
reimbursement. Jon K. Haahr, a Managing Director of EVEREN, is a Director of the
Com pany.
In addition, see footnote 5 to the Financial Statements presented in Item
13 for a summary of fees paid to the Advisor under the Advisory Agreement and
other agreeme nts between the same parties.
ITEM 8. LEGAL PROCEEDINGS As of this date the Company is not a party to any
material legal proceedings.
As of this date the Company is not a party to any material legal
proceedings.
ITEM 9. MARKET PRICE OF DIVIDENDS ON THE REGISTRANT S COMMON EQUITY
AND
RELATED STOCKHOLDERS MATTERS At June 15, 1996, there is no established trading
market for the common shares of the Company. At June 15, 1996, the Company has
approximately 625 holders of record of its common stock. The Company currently
has only one class of equity securities outstanding. The Company has paid
quarterly dividends per share during 1994 and 1995 as follows :
<TABLE>
<CAPTION>
Quarter Ended Quarter Ended Quarter Ended Quarter Ended
March 31, June 30 September 30, December 31,
<S> <C> <C> <C> <C>
1994 $0.20 $0.23 $0.26 $0.27
1995 $0.27 $0.27 $0.29 $0.30
</TABLE>
As of December 31, 1995, the Company had two stock option plans, the Plan
for Independent Directors and Brokers, and the Advisor Stock Option Plan. Under
the plans, options have been granted to purchase shares at fair market value on
the date of grant. In connection with the acquisition of the Advisor, approved
by the Company s stockholders on February 27, 1996, the Advisor Stock Option
Plan was canceled subject to the rights of the holders of the outstanding
options, and currently options under the remaining plan are only granted to
Independent Directors. At December 31, 1995, options on 232,014 shares were
available for futur e grant.
The following table is a summary of the option transactions during the
period from the Company s incorporation through December 31, 1995:
<TABLE>
<CAPTION>
Shares Exercise
Price Per Share
<S> <C> <C>
Options outstanding at January 1, 1993 2,000 $9.50
Options granted 373,979 $9.50 - $10.00
Outstanding at December 31, 1993 375,979 $9.50 - $10.00
Options granted 75,150 $10.75
Outstanding at December 31, 1994 451,129 $9.50 - $10.75
Options granted 316,857 $12.00 - $13.50
Options exercised (32,410) $9.50 - $10.00
Outstanding and exercisable at
December 31, 1995 735,576 $9.50 - $13.50
</TABLE>
ITEM 10. RECENT SALES OF UNREGISTERED SECURITIES
The following table is a summary of the Company s recent sales of unregistered
securities.
<TABLE>
<CAPTION>
Type of Offering Period Shares Sold Total Offering
Share Sold Proceeds Costs
<S> <C> <C> <C> <C>
Common 7/1/92-12/31/93 1,839,352 $17,511,995 $ 860,938
Common 7/15/94-6/30/95 2,145,156 $25,132,411 $2,111,428
Common 8/20/95-12/31/95 503,978 $6,365,677 $ 454,051
Common 4/1/96 130,000 $1,500,000 $0
</TABLE>
The Company conducted these offerings pursuant to Regulation D of the Securities
and Exchange Commission to accredited investors and to not more than 35 non-
accredited investors in those states where it was legally authorized to do so.
These offerings were conducted on a best-efforts basis, and there was no
underwriter involved in these offerings.
The commissions paid during the July 1992-December 1993 offering, the July 1994-
June 1995 offering, and the August 1995-December 1995 offering were: $207,894,
$1,494,816, and $223,561 respectively. Such commissions are included in the
Offering Costs listed in the table above in this Item 10.
The table above includes shares issued under the Company s dividend reinvestment
program.
ITEM 11. DESCRIPTION OF REGISTRANT S SECURITIES
General
The Articles of Incorporation ( Articles ) authorize the Company to issue up to
20 million Shares of common stock ( Common Stock ), par value $.01 per share,
and 10 million shares of preferred stock, par value $.01 per share ( Preferred
Stock ). One million shares of Common Stock are reserved for issuance pursuant
to various option programs. The Board of Directors is authorized to issue
shares of Common Stock and Preferred Stock without the approval of the
Stockholders. Under Maryland law, stockholders of the Company generally are not
liable for a corporation s debts or obligations.
Common Stock
All authorized and outstanding Common Stock is duly authorized, fully paid and
nonassessable. Subject to the preferential rights of the Preferred Stock, if
issued, holders of Common Stock will be entitled to receive dividends on the
Common stock if, as and when authorized and declared by the Board of Directors,
out of assets legally available therefore and to share ratably in the assets of
the Company legally available for distribution to its stockholders in the event
of its liquidation, dissolution or winding-up after payment of, or adequate
provision for, all known debts and liabilities of the Company. The Company
intends to pay regular quarterly dividends.
Subject to the provisions of the Company s Articles, each outstanding share of
Common Stock entitles the holder to one vote on all matters submitted to a vote
of stockholders, including the election of directors and, except as otherwise
required by law or except as provided with respect to any other class or series
of stock, the holders of Common Stock possess the exclusive voting power. There
is no cumulative voting in the election of directors, which means that the
holders of a majority of the outstanding shares of Common Stock can elect all
of the directors then standing for election and the holders of the remaining
shares of Common Stock will not be able to elect any directors. Holders of
shares of Common Stock have no conversion, sinking fund, redemption rights or
preemptive rights to subscribe for any securities of the company.
Pursuant to the Maryland General Corporation Law, a corporation generally cannot
dissolve, amend its charter, merge, sell all or substantially all of its assets,
engage in a share exchange or engage in similar transactions outside the
ordinary course of business unless approved by the affirmative vote of
stockholders holding at least two-thirds of the shares entitled to vote on the
matter, unless a lesser percentage (but not less than a majority of all of the
votes to be cast on the matter) is set forth in the corporation s charter. The
Company s Articles provide that a majority of all of the votes entitled to be
cast is sufficient to take such actions.
The Company currently acts as its own transfer agent.
Preferred Stock
Shares of Preferred Stock may be issued from time to time, in one or more
series, as authorized by the Board of Directors. Prior to issuance of shares
of each series and, subject to the provisions of the Company s Articles, the
Board of Directors is required by the Maryland General Corporation Law and the
Company s Articles to fix for each such series the terms, preferences,
conversion or other rights, voting powers, restrictions, limitations as to
dividends or other distributions, qualifications and terms or conditions of
redemption, as are permitted by Maryland law. The Board of Directors could
authorize the issuance of shares of Preferred Stock with terms and conditions
which could have the effect of discouraging a takeover or other transaction
which holders of some, or a majority of, shares of Common Stock might believe
to be in their best interests or in which holders of some, or a majority of,
shares of Common Stock might receive a premium for their shares of Common Stock
over the then market price of those shares.
Restrictions on Ownership and Transfer of Shares
Shares of Common Stock are subject to certain restrictions on their ownership
and transferability, as described below. The Board of Directors has the right
to limit the investment of new stockholders, to redeem stockholder s shares, and
to restrict the transfer of shares by stockholders in the event the Board of
Directors deems it necessary to protect the status of the Company as a real
estate investment trust ( REIT ) under the rules of the Internal Revenue Code
(the Code ). There are also securities laws restrictions on the transfer of
certain currently outstanding shares of Common Stock.
For the Company to qualify as a REIT under the Code, Common Stock must be
beneficially owned by 100 or more persons during at least 335 days of a taxable
year of twelve months (other than the first year) or during a proportionate part
of a shorter taxable year. Further, not more than 50% of the value of the
issued and outstanding shares of capital stock may be owned, directly or
indirectly, by five or fewer individuals (as defined in the Code) during the
last half of a taxable year or during a proportionate part of a shorter taxable
year.
Since the Company believes it is essential to continue to qualify as a REIT, the
Articles provide that the Board of Directors, acting on behalf of the Company,
may take certain actions with respect to a stockholder s ownership or transfer
of shares in order to preserve the Company s status as a REIT. The Board of
Directors may demand that a stockholder disclose in writing information
regarding the direct and indirect ownership of shares of Common Stock or shares
of preferred stock with voting rights (collectively the Voting Shares ) as the
Board deems appropriate to comply with the provisions of the Code. In addition,
the Directors may require any stockholder or proposed transferee or purchaser
of Voting Shares to provide a statement as to the number of Voting Shares
already owned by the stockholder and related persons within the meaning of
certain applicable attribution of ownership provisions contained in the Code.
Whenever the Directors determine that a proposed transfer or purchase of Voting
Shares would jeopardize the status of the Company as a REIT, the Board has the
right (but not the duty) to refuse to permit such transfer or purchase.
In addition, the Board of Directors may purchase or redeem any or all of the
Voting Shares which, in the opinion of the Board of Directors, jeopardize the
status of the Company as a REIT under the Code. Under these circumstances, the
purchase price for the Voting Shares called for purchase or redemption is equal
to the fair market value of the Voting Shares. The Articles provide that the
fair market value of the Voting Shares is conclusively deemed to be the closing
sales price for such shares if then listed on the NASDAQ National Market System
or the average of closing sales prices if those Shares are listed on more than
one exchange or over-the-counter system. If the Voting Shares are not listed
or traded, then the purchase price is the current Net Asset Value as determined
by the Board of Directors in good faith as of the date prior to the date the
notice is sent. When the Company purchases or redeems shares in such a manner,
the purchase price shall be in cash. After the date fixed for purchase, the
holder of any Voting Shares ceases to be entitled to any distributions, voting
rights or any other benefits with respect to the Voting Shares, except the
purchase price.
These ownership limitations could adversely impact a stockholder s ability to
liquidate his investment in the Company, or discourage a takeover or other
transaction in which holders of some, or a majority, of shares might receive a
premium for their shares over the then prevailing market price or which these
holders might believe to be otherwise in their best interest.
ITEM 12. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Articles provide that the Company shall, to the fullest extent permitted by
the Maryland General Corporation Law, indemnify any and all Directors and
officers of the Company, but such indemnification provisions are not exclusive
of any other right which the officer or Director may have to be indemnified
under any bylaw, agreement, vote of the stockholders or otherwise. The Maryland
General Corporation Law permits a company to indemnify its present and former
directors and officers, among others, against judgments, penalties, fines,
settlements and reasonable expenses actually incurred by them in connection with
any proceeding to which they may be made a part by reason of their service in
those or other capacities, unless it is established that (a) the act or omission
of the director or officer was material to the matter giving rise to the
proceeding and was committed in bad faith or was the result of active and
deliberate dishonesty, (b) the director or officer actually received an improper
personal benefit in money, property or services, or (c) in the case of any
criminal proceeding, the director or officer had reasonable cause to believe
that the act or omission was unlawful.
The Company s bylaws obligate the Company to indemnify any person who was or is
a party or threatened to be made a party to any threatened, pending or completed
civil, criminal, administrative or investigative action (other than an action
by or in the right of the corporation) by reason of the fact that he is or was
a director, officer, employee or agent of the Company, or is or was serving at
the request of the Company as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, against
expenses (including attorneys fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by him in connection with such
action, suit or proceedings if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
Company, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful.
The Company currently maintains a $3 million directors and officers insurance
policy.
In addition, the Articles provide that the Directors and officers of the Company
shall have no liability for monetary damages to the Company or its stockholders
except to the extent required by Maryland law. Currently, the Maryland General
Corporation Law provides that a Director or officer may be held liable to a
company for monetary damages or to its stockholders if: (a) it is proved that
the individual person actually received an improper benefit or profit in money,
property, or services for the amount of benefit or profit in money, property or
services actually received; or (b) to the extent that a judgment or other final
adjudication adverse to the individual person is entered in a proceeding based
on finding in that proceeding that the person s action or failure to act was the
result of active and deliberate dishonesty and was material to the cause of
action adjudicated in that proceeding.
ITEM 13. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index to Financial Statement and Financial Statement Schedules
Report of Independent Auditors . . . . . . . . . . . . . . . . . . . . .72
Financial Statements:
Balance sheets at December 31, 1995 and 1994 . . . . . . . . . . . . . .73
Statements of Income for the Years Ended December 31, 1995, 1994 and 1993
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .74
Statements of Changes in Stockholders Equity for the Years Ended
December 31, 1995, 1994, and 1993 . . . . . . . . . . . . . . . . .75
Statements of Cash Flows for the Years Ended December 31, 1995, 1994, and
1993. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .76
Notes to Financial Statements. . . . . . . . . . . . . . . . . . . . . .77
Schedules:
III Real Estate and Accumulated Depreciation . . . . . . . . . . .85
Schedules, other than as listed above are omitted because they are
inapplicable or equivalent information has been included elsewhere
herein.
Consent of Independent Auditors. . . . . . . . . . . . . . . . . . . . .89
Additional Financial Statements:
Condensed Balance sheets at March 31, 1996. . . . . . . . . . . . . 90
Condensed Statements of Income for the three months ended March 31, 1996
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .91
Condensed Statements of Changes in Stockholders Equity for the three
months ended March 31, 1996 . . . . . . . . . . . . . . . . . . . .92
Condensed Statements of Cash Flows for the three months ended March 31,
1996 and 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . .93
Notes to Condensed Financial Statements. . . . . . . . . . . . . . . . .94
Report of Independent Auditors
The Board of Directors and Stockholders
Great Lakes REIT, Inc.
We have audited the accompanying balance sheet of Great Lakes REIT, Inc. as of
December 31, 1995 and the related statements of income, stockholders equity,
and cash flows for each of the three years in the period ended December 31,
1995. Our audit also included the financial statement schedule listed in the
index at Item 13. The financial statements and schedule are the responsibility
of the Company s management. Our responsibility is to express an opinion on
these financial statements and schedule based on our audits.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Great Lakes REIT, Inc. at
December 31, 1995 and 1994, and the results of its operations and cash flows for
the year then ended in conformity with generally accepted accounting principles.
Also, in our opinion, the related financial statement schedule, when considered
in relation to the basic financial statements taken as a whole, presents fairly
in all material respects the information set forth therein.
Ernst & Young LLP
Chicago, Illinois
April 24, 1996
<TABLE>
<CAPTION>
GREAT LAKES REIT, INC
BALANCE SHEETS
December 31, 1995 and 1994
ASSETS
1995 1994
<S> <C>
<C>
Properties:
Land ..................................................................... $
18,673,750 $ 9,433,750
Buildings,
improvements and
equipment ................................................................
75,667,086 28,617,322
- ------------ ------------
94,340,836 38,051,072
Less accumulated depreciation .......................................
2,482,844 817,114
- ------------ ------------
91,857,992 37,233,958
Cash and cash equivalents ................................................
1,302,728 2,676,594
Real estate tax escrows ..................................................
1,424,159 934,222
Rents receivable .........................................................
1,284,316 570,160
Deferred costs ...........................................................
1,492,149 1,003,651
Other assets .............................................................
1,617,092 103,759
- ------------ ------------
Total Assets ........................................................ $
98,978,436 $ 42,522,344
============ ============
LIABILITIES AND STOCKHOLDERS EQUITY
Bank loan payable ........................................................ $
24,253,148 $ --
Mortgage notes payable ...................................................
18,634,022 15,955,018
Bonds payable ............................................................
5,420,000 --
Accounts payable and accrued liabilitie 1,128,692 ........................
471,434
Accrued real estate taxes ...............................................
3,200,570 1,501,058
Prepaid rent .............................................................
469,763 145,137
Security deposits ........................................................
402,480 260,256
Distributions/dividends payable ..........................................
504,564 127,319
- ------------ ------------
Total liabilities ...................................................
54,013,239 18,460,222
============ ============
Preferred stock
($0.01 par value, 10,000,000 shares
authorized; none issued) ................................................
-- --
Common stock
($0.01 par value, 20,000,000 shares authorized;
4,520,896 and 2,561,418 shares issued in
1995 and 1994, respectively) ............................................
45,209 25,614
Paid-in capital ..........................................................
45,861,352 24,121,806
Distributions in excess of accumulated earnings ..........................
(785,953) (85,298)
Treasury stock, at cost (12,951 shares) ..................................
(155,411) --
-------
--------
Total stockholders equity ..........................................
44,965,197 24,062,122
- ---------- ----------
Total Liabilities and Stockholders Equity ............................... $
98,978,436 $ 42,522,344
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements
<TABLE>
<CAPTION>
GREAT LAKES REIT, INC.
STATEMENTS OF INCOME
For the Years Ended December 31, 1995, 1994, and 1993
<S> <C> <C> <C>
1995 1994 1993
Revenues
Rental ................................ $14,765,108 $ 7,531,435 $ 1,230,281
Interest .............................. 200,818 51,404 63,035
Total revenues ...................... 14,965,926 7,582,839 1,293,316
Expenses
Real estate taxes ..................... 2,624,588 1,417,679 291,724
Property operating .................... 3,967,543 1,943,584 181,135
General and administrative ............ 922,652 561,124 176,917
Interest .............................. 2,296,457 911,381 72,993
Depreciation and amortization 1,954,885 761,284 160,375
Total expenses ...................... 11,766,125 5,595,052 883,144
Net Income ............................ $ 3,199,801 $ 1,987,787 $ 410,172
Earnings per common share and
common share equivalent ............... $ 0.88 $ 0.96 $ 0.38
Weighted average number of
common shares and common share
equivalents outstanding ............... 3,650,133 2,070,221 1,080,875
</TABLE>
The accompanying notes are an integral part of these financial statements.
<TABLE>
<CAPTION>
GREAT LAKES REIT, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY
For the Years Ended December 31, 1995, 1994, and 1993
Common Stock Distri-
Total
butions
Stock-
Shares in Excess of
holders
Out- Amount Paid-in Accumu-lated
Treasury Equity
standing Capital Earnings
Stock
<S> <C> <C> <C> <C>
<C> <C>
Balance at 12/1/93 315,658 $ 3,157 $2,772,764 $ 5,710
$2,781,631
Net proceeds from
sale of common stock 1,478,491 14,785 13,430,922
13,445,707
Net income 410,172
410,172
Distributions/divid.
($0.47 per share) (568,531)
(568,531)
Distributions/divid.
reinvested 45,203 452 428,977 _________
429,429
------ --- -------
-------
Balance at 12/31/93 1,839,352 18,394 16,632,663 (152,649)
16,498,408
Net proceeds from sale
of common stock 580,043 5,800 5,963,812
5,969,612
Net income 1,987,787
1,987,787
Distributions/divid.
($0.96 per share) (1,920,436)
(1,920,436)
Distributions/divid.
reinvested 142,023 1,420 1,525,331
1,526,751
------- ----- ---------
---------
Balance at 12/31/94 2,561,418 25,614 24,121,806 (85,298)
24,062,122
Net proceeds from sale
of common stock 1,698,610 16,986 18,810,244
18,827,230
Exercise of stock 32,410 324 322,571
322,895
Net income 3,199,801
3,199,801
Distributions/divid.
($1.13 per share) (3,900,456)
(3,900,456)
Distributions/divid.
reinvested 228,458 2,285 2,606,731
2,609,016
Purchase of
treasury stock (12,951) ___ ______ _________
($155,411)) (155,411)
Balance at 12/31/95 4,507,945 $45,209 $45,861,352 ($ 785,953)
($155,411) $
44,965,197
</TABLE>
<TABLE>
<CAPTION>
GREAT LAKES REIT, INC.
STATEMENT OF CASH FLOWS
For the Years ended December 31, 1995, 1994, and 1993
1995 1994 1993
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income ......................... $ 3,199,801 $ 1,987,787 $
410,172
Adjustments to reconcile
net income to net cash
flows from operating activities:
Depreciation and amortization ...... 1,954,885 761,284
160,375
Net changes in assets
and liabilities:
Rents receivable ................ (714,156) (499,425)
(70,735)
Real estate tax escrows ............ (489,937) (703,972)
(230,250)
Other assets ....................... (563,333) 80,761
(139,790)
Accounts payable and accrued
liabilities ...................... 657,258 353,534
114,600
Accrued real estate taxes ........... 1,699,512 411,604
1,089,454
Payment of deferred
leasing costs ....................... (561,373) (454,215)
(130,488)
Other liabilities ................... 466,850 39,941
365,452
------------ ------------
- ------------
Net cash provided by
operating activities ................ 5,649,507 1,977,299
1,568,790
------------ ------------
- ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of properties ............ (47,838,629) (18,196,369)
(17,327,393)
Payment of tenant and
building improvement costs .......... (2,861,135) (2,296,522)
Increase in earnest
money deposit ....................... (950,000) --
- --
- ------------
Net cash used by investing ......... (51,649,764) (20,492,891)
(17,558,181)
------------ ------------
- ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from sale of
common stock ....................... 20,628,232 6,734,492
14,070,195
Payment of stock
offering costs ..................... (1,801,002) (764,880)
(624,488)
Proceeds from exercise
of stock options ................... 322,895 --
- --
Proceeds from bad
loans payable ...................... 24,253,148 --
- --
Distributions/
dividends paid ..................... (3,523,211) (1,863,438)
(498,210)
Common stock purchased
with reinvested
Distributions/dividends ........... 2,609,016 1,526,751
429,429
Proceeds from mortgage
notes payable ...................... 3,250,000 12,500,000
3,800,000
Purchase of
treasury stock ..................... (155,411) --
- --
Repayment of mortgage
notes and bonds payable ............ (740,996) (322,170)
(22,812)
Payment of deferred
financing costs .................... (216,280) (390,868)
(132,625)
------------ ------------
- ------------
Net cash provided by
financing activities ............... 44,626,391 17,419,887
17,021,489
------------ ------------
- ------------
NET (DECREASE) INCREASE IN CASH
AND CASH EQUIVALENTS ............. (1,373,866) (1,095,705)
1,032,098
CASH AND CASH EQUIVALENTS,
BEGINNING OF YEAR ............. 2,676,594 3,772,299
2,740,201
------------ ------------
- ------------
CASH AND CASH EQUIVALENTS,
END OF YEAR ................... $ 1,302,728 $ 2,676,594 $
3,772,299
============ ============
============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
Interest paid ................... $ 2,311,568 $ 896,270 $
72,993
============ ============
============
Income taxes paid ................. -- -- $
3,424
============
NON CASH FINANCING TRANSACTIONS
Bonds payable assumed
in purchase of property ......... $ 5,590,000 --
- --
============
</TABLE>
The accompanying notes are an integral part of these financial statements.
GREAT LAKES REIT, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
1. Summary of Significant Policies
Nature of Activities
Great Lakes REIT, Inc., ( the Company ) a Maryland corporation, was formed
on June 22, 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 industrial properties located in the Midwest.
At December 31, 1995, the Company owns and operates sixteen properties located
in suburban areas of Chicago, Detroit, Milwaukee, and Minneapolis. The Company
leases office and industrial space to over 200 tenants in a variety of
businesses.
Properties
Costs incurred for the acquisition, development, construction and improvement
of properties are capitalized. Certain costs of yet-to-be acquired properties,
including deposits and professional fees, are capitalized as other assets.
These costs are subsequently capitalized as property acquisition costs or
charged to expense when it becomes apparent that acquisition of a particular
property is not probable. Maintenance and repairs are charged to expenses when
incurred.
Depreciation of buildings is computed using the straight-line method over the
estimated useful lives of the assets, generally 40 years. Depreciation of
tenant improvements is computed using the straight-line method over the shorter
of the lease term or useful life. For the years ended December 31, 1995, 1994,
and 1993 depreciation expense amounted to $1,665,730, $667,509 and $149,605,
respectively.
At December 31, 1994, properties were carried at cost, which was not in
excess of net realizable value as determined by Company management. In March
1995, the Financial Accounting Standards Board issued Statement No. 121,
Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to be
Disposed of , under which the Company would be required to recognize impairment
losses for its properties when indicators of impairment are present and
a
property s expected undiscounted cash flows are not sufficient to recover the
property s carrying amount. The Company adopted Statement No. 121 in the fourth
quarter effective January 1, 1995 with no effect on the financial statements.
Deferred Costs
Deferred costs consist principally of financing fees and leasing commissions
which are amortized over the terms of the respective agreements.
GREAT LAKES REIT, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
Revenue Recognition
Minimum rentals are recognized on a straight-line basis over the term of the
related leases. Additional rents from expense reimbursements for common area
maintenance expenses and real estate taxes are recognized in the period in which
the related expenses are incurred.
Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with an original
maturity of three months or less to be cash equivalents. At December 31, 1995
and 1994, the Company had $1,300,265 and $2,501,150, respectively, in a money
market fund.
Income Taxes
For the years ended December 31, 1995, 1994, and 1993, the Company has
continued to be treated as a real estate investment trust under the applicable
provisions of the Internal Revenue Code. In order to qualify as a real estate
investment trust, the Company is required to distribute to stockholders at least
95% of its taxable income and to meet certain asset and income tests as well as
certain other requirements. Accordingly, no provision for income taxes has been
reflected in the financial statements. The carrying amount of tenant
improvements in the accompanying balance sheet at December 31, 1995 is $528,000
less than the carrying amount for Federal income tax purposes.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
Reclassification
Certain reclassifications have been made to the 1994 and 1993 financial
statements to conform to the 1995 presentation. Such reclassifications did not
affect the results of operations.
2. Deferred Costs
Deferred costs consisted of the following at December 31, 1995 and 1994:
GREAT LAKES REIT, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Deferred financing costs ...... $ 739,773 $ 523,493
Deferred leasing costs ........ 1,146,076 584,703
1,885,849 1,108,196
Less: accumulated amortization 393,700 104,545
$1,492,149 $1,003,651
</TABLE>
During 1995, 1994 and 1993 amortization of financing costs was $130,500,
$33,744 and $2,925, respectively. Amortization of leasing costs in 1995, 1994
and 1993 was $158,655, $60,031 and $7,845, respectively.
3. Long-Term Debt
Mortgage notes payable aggregated $18,634,022 and $15,955,018 at December
31, 1995 and 1994, respectively. The mortgage notes payable require monthly
payments of principal and interest and mature at various dates through 2009.
Interest rates at December 31, 1995 ranged from 7.875% to 8.95%.
In 1995 the Company acquired an office building located in Minneapolis,
Minnesota subject to Variable Rate Demand Commercial Development Revenue Bonds
(the Bonds) issued by the City of Minneapolis with an outstanding principal
amount of $5,420,000 at December 31, 1995. The Company has obtained a bank
letter of credit to secure repayment of the Bonds in an amount of approximately
$5.7 million. The Company has guaranteed repayment of the letter of credit to
the issuing bank as well as granted the issuing bank a first mortgage on the
property. The interest rate on the bonds (5.3% per annum at December 31, 1995)
is reset weekly by the bond placement agent. The bonds mature June 1, 2006 and
require the Company to make annual principal payments on June 1 of each year at
a stipulated amount so that the bonds will be fully retired on June 1, 2006.
The following is a summary of principal maturities of mortgage notes and bonds
payable over the next five years:
<TABLE>
<CAPTION>
Year Ending
December 31, Amount
<S> <C>
1996 $ 826,851
1997 902,387
1998 987,742
1999 1,053,335
2000 3,992,522
</TABLE>
The Company has obtained a line of credit from a bank in an amount of $25
million. The line of credit is limited by certain loan-to-value covenants
related to the Company s properties. At December 31, 1995, the amount
outstanding was $24,253,148. Interest accrues on the amounts outstanding under
the line of credit at the Bank s prime rate of interest plus 0.5% per annum
GREAT LAKES REIT, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
9.0% per annum at December 31, 1995). Amounts outstanding under the line of
credit are due, with extensions, on June 30, 1996.
At December 31, 1995, properties with a carrying amount of approximately $85.2
million are pledged as collateral under the various debt agreements.
4. Dividend Reinvestment and Share Redemption Plans
The Company had established a dividend reinvestment plan whereby
shareholders were able to reinvest dividends and receive additional shares of
the Company priced at the Net Asset Value per share, as defined in the dividend
reinvestment plan, as set by the Board of Directors. Subsequent to December 31,
1995, the Company suspended the dividend reinvestment plan.
Shareholders have the right to redeem their shares at the then Net Asset
Value per share (as defined) subject to approval of the Board of Directors and
certain other limitations. As of December 31, 1995, the aggregate amount subject
to share redemptions is approximately $4.6 million. During the year ended
December 31, 1995, 12,951 shares were redeemed at a cost of $155,411.
5. Related Parties
The following fees will be or have been paid to Equity Partners Ltd., (the
Advisor ) or affiliates. Two directors of the Company are owners of the
Advisor.
<TABLE>
<CAPTION>
Payable at Paid Paid Paid
1995 1994 1993 Dec. 31, 1995
<S> <C> <C> <C> <C>
Property acquisition fees ... $715,275 $ 93,045 $441,982 $ 71,981
Stock offering fees ......... 125,266 42,551 -- 6,481
Stock selling commissions (a) 217,046 67,065 -- --
Advisory fees (b) ........... 630,664 294,530 64,904 14,341
Property management fees (b) 564,369 273,671 41,238 --
Construction management fees 73,549 67,525 8,471 --
Other fees, primarily
legal fees .................. 30,703 19,781 9,725 --
</TABLE>
(a) Selling commissions are paid to owners and/or employees of the Advisor
who are registered representatives.
(b) Advisory fees are classified as general and administrative expenses in
these financial statements. Property management fees are classified as property
operating expenses in these financial statements.
Certain computer hardware and software owned by the Company is leased to
the Advisor under a five year lease which expires April 1, 1999. Semi-annual
rental payments of $9,103 are due to the Company from the Advisor.
GREAT LAKES REIT, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
On February 27, 1996 the shareholders of the Company approved the
acquisition of all the outstanding shares of Advisor in exchange for 100,000 of
its shares. In addition, certain employees of the Advisor will receive 30,000
restricted shares of the Company. At the time of this transaction the Company
will absorb the employees of the Advisor and became self-managed and
self-advised. All contracts between the Advisor and the Company will be
transferred to the Company.
6. Stock Options
As of December 31, 1995, the Company had two stock option plans, the Plan
for Independent Directors and Brokers and the Advisor Stock Option Plan. Under
the plans, options have been granted to purchase shares at fair market value on
the date of grant. In connection with the acquisition of the Advisor, approved
by the Company s stockholders on February 27, 1996, the Advisor Stock Option
Plan will be canceled and options under the other plan will only be granted to
Directors. At December 31, 1995, options on 232,014 shares were available for
future grant.
<TABLE>
<CAPTION>
A summary of the option transactions during the period covered by this
report are:
Shares Exercise Price Per Share
<S> <C> <C>
Options outstanding at January 1, 1993 2,000 $9.50
Options granted ...................... 373,979 $9.50 - $10.00
Outstanding at December 31, 1993 ..... 375,979 $9.50 - $10.00
Options granted .................. 75,150 $10.75
Outstanding at December 31, 1994 ..... 451,129 $9.50 - $10.75
Options granted ...................... 316,857 $12.00 - $13.50
Options exercised .................... (32,410) $9.50 - $10.00
Outstanding and exercisable at
December 31, 1995 ................ 735,576 $9.50 - $13.50
</TABLE>
7. Leases
The Company leases office and industrial properties to tenants under
noncancelable operating leases that expire at various dates through 2006. The
lease agreements typically provide for a specific monthly payment plus
reimbursement of certain operating expenses. The following is a summary of
minimum future rental revenue under noncancelable operating leases:
<TABLE>
<CAPTION>
Year Ending
December 31,
<S> <C>
1996 $16,536,640
1997 14,894,579
1998 12,193,802
1999 9,427,421
2000 6,868,428
Thereafter 10,333,351
$70,254,221
</TABLE>
GREAT LAKES REIT, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
Minimum future rentals do not include amounts which are received from
tenants as a reimbursement of property operating expenses. No individual tenant
accounted for more than 10% of total revenues in 1995 and 1994.
8. Distributions/Dividends
The Company declared periodic distributions/dividends of $3,900,456,
$1,920,436 and $568,531 to stockholders of record during calendar years
1995,1994 and 1993, respectively.
Of the $3,900,456 and $1,920,436 of distributions/dividends for 1995 and
1994, $504,564 and $127,319 were paid in January of the next calendar year,
respectively. The Company has determined the treatment for Federal income tax
purposes is as follows:
1995 1994 1993
Ordinary income . $3,410,249 $1,785,429 $ 533,347
Return of capital 490,207 135,007 35,184
Total ........ $3,900,456 $1,920,436 $ 568,531
9. Property Acquisitions
The following properties were acquired in 1995 and 1994 and the results of
their operations are included in the statements of income from their respective
dates of acquisition.
<TABLE>
<CAPTION>
Total Acquisition Price
Location Date Acquired 1995 1994
<S> <C> <C> <C>
Wood Dale, IL ........ January 31, 1994 -- $ 5,310,289
Brookfield, WI ....... June 24, 1994 -- 6,564,742
175 E. Hawthorn Parkway
Vernon Hills, IL ..... September 30, 1994 -- 6,321,338
2800 River Road
Des Plaines, IL ..... February 9, 1995 $ 4,761,053 --
Minneapolis, MN ...... May 4, 1995 8,190,374 --
Mt. Prospect, IL ..... August 22,1995 5,402,526 --
Southfield, MI ....... August 29, 1995 12,756,163 --
One Park
Plaza Milwaukee, WI . September 29, 1995 15,675,908 --
Oak Brook, IL ......... November28, 1995 1,760,930 --
565 Lakeview Parkway
Vernon Hills, IL ...... December 27, 1995 4,881,675 --
</TABLE>
The following unaudited proforma condensed statement of income presents the
results of operations of the Company as if the 1995 property acquisitions had
occurred at the beginning of 1995, after giving effect to certain adjustments,
including increased depreciation and interest expense. The unaudited proforma
statement of
GREAT LAKES REIT, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
income information does not necessarily reflect the results of operations
as they would have been if the Company had acquired the properties on January 1,
1995.
A proforma statement of income for 1995 as if all properties had been
acquired as of January 1, 1995 is as follows: (unaudited)
<TABLE>
<CAPTION>
Operating Operating Proforma Proforma
results for results of Adjust-ments results for
1995 as acquired calendar
reported properties 1995
from January
1, 1995 to
the dates of
acquisition
<S> <C> <C> <C> <C>
Total revenues ...... $14,965,926 $ 6,462,074 $ 2,142,800
----------- ----------- -- -----------
Expenses:
Real estate taxes ... 2,624,588 1,254,389 -- 3,878,977
Property operating .. 3,967,543 2,056,651 -- 6,024,194
General & administra-
tive administrative . 922,652 -(a) 178,696 1,101,348
Interest ............ 2,296,457 -(b) 1,570,142 3,866,599
Deprec. & amortiza-
tion ................ 1,954,885 -(c) 694,997 2,649,882
--------- ------- ---------
Total expenses ...... 11,766,125 3,311,040 2,443,835 17,521,000
---------- --------- --------- ----------
Net income .......... $ 3,199,801 $ 3,151,034 ($2,443,835) $ 3,907,000
=========== =========== =========== ===========
</TABLE>
(a) This amount represents the additional advisory fee that would have been
earned by the Advisor if the properties had been acquired on January 1, 1995.
(b) To acquire all properties on January 1, 1995, the Company would have
incurred additional interest expense on borrowings to partially finance the
acquisition of the properties.
(c) This amount represents the additional depreciation and amortization
which would have been incurred by the Company had all properties been acquired
on January 1, 1995.
GREAT LAKES REIT, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
10. Subsequent Events
On January 1, 1996, the Company acquired a one-story office building in
Schaumburg, Illinois for a contract price of $1,050,000. An earnest money
deposit of $950,000, included in other assets in the accompanying December 31,
1995 balance sheet, relates to this acquisition.
<TABLE>
<CAPTION>
SCHEDULE III
Real Estate and Accumulated Depreciation, December 31, 1995
Initial Cost to the Company
Encumbrance Land Buildings &
Improvements
<S> <C> <C> <C>
11100 Hampshire Ave .. $ 862,977 $ 310,000 $ 1,123,932
Bloomington, MN
601 Campus Dr. ....... $ 1,471,739 $ 900,000 $ 2,263,967
Arlington Heights, IL
11925 W. Lake Park Dr. $ 1,202,117 $ 318,750 $ 1,819,058
Milwaukee, WI
3400 Dundee Road ..... $ 2,156,869 $ 607,500 $ 3,475,922
Northbrook, IL
830 West End Court ... $ 961,213 $ 277,500 $ 1,575,984
Vernon Hills, IL
1011 Touhy Avenue .... $ 2,533,586 $ 720,000 $ 3,932,248
Des Plaines, IL
160-185 Hansen Court . $ 2,813,307 $ 2,100,000 $ 3,210,289
Wood Dale, IL
150, 175, 250 Patrick $ 3,422,479 $ 2,600,000 $ 3,964,742
Blvd .................
Brookfield, WI
175 Hawthorn Parkway . $ 3,209,735 $ 1,600,000 $ 4,721,338
Vernon Hills, IL
2800 River Road ...... (B) $ 1,300,000 $ 3,461,053
Des Plaines, IL
2221 University Ave SE $ 5,420,000 $ 1,100,000 $ 7,090,374
Minneapolis, MN
1660 Feehanville Dr. . (B) $ 1,100,000 $ 4,302,526
Mount Prospect, IL
10 Oak Hollow & ...... (B) $ 3,000,000 $ 9,756,163
24800 Denso Drive
Southfield, MI
11270 W. Park Place .. (B) $ 940,000 $14,735,908
Milwaukee, WI
823 Commerce Drive ... -- $ 500,000 $ 1,260,930
Oak Brook, IL
565 Lakeview Parkway . (B) $ 1,300,000 $ 3,581,675
----------- ----------- -----------
Vernon Hills, IL
Totals ............... $24,054,022 $18,673,750 $70,276,109
=========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
Costs Capitalized Gross Amount at which
Subsequent to Acquisition Carried at Dec. 31, 1995
Land Buildings & Land Buildings &
Total
Improvements Improvement
<S> <C> <C> <C> <C>
<C>
11100 Hampshire Ave ..
Bloomington, MN ...... -- $ 5,873 $ 310,000 $ 1,129,805
$ 1,439,805
601 Campus Dr. .......
Arlington Heights, IL -- $ 712,832 $ 900,000 $ 2,976,799
$ 3,876,799
11925 W. Lake Park Dr.
Milwaukee, WI ........ -- $ 127,206 $ 318,750 $ 1,946,264
$ 2,265,014
3400 Dundee Road
Northbrook, IL ....... -- $ 659,242 $ 607,500 $ 4,135,164
$ 4,742,664
830 West End Court
Vernon Hills, IL ..... -- $ 112,839 $ 277,500 $ 1,688,823
$ 1,966,323
1011 Touhy Avenue
Des Plaines, IL ...... -- $ 1,378,479 $ 720,000 $ 5,310,727
$ 6,030,727
160-185 Hansen Court
Wood Dale, IL ........ -- $ 849,021 $ 2,100,000 $ 4,059,310
$ 6,159,310
150, 175, 250 Patrick
Blvd .................
Brookfield, WI ...... -- $ 486,160 $ 2,600,000 $ 4,450,902
$ 7,050,902
175 Hawthorn Parkway
Vernon Hills, IL ..... -- $ 398,086 $ 1,600,000 $ 5,119,424
$ 6,719,424
2800 River Road
Des Plaines, IL ...... -- $ 233,803 $ 1,300,000 $ 3,694,856
$ 4,994,856
2221 University Ave SE
Minneapolis, MN ...... -- $ 20,408 $ 1,100,000 $ 7,110,782
$ 8,210,782
1660 Feehanville Dr. .
Mount Prospect, IL ... -- $ 2,400 $ 1,100,000 $ 4,304,926
$ 5,404,926
10 Oak Hollow &
24800 Denso Drive
Southfield, MI ....... -- $ 306,214 $ 3,000,000 $10,062,377
$13,062,377
11270 W. Park Place
Milwaukee, WI ...... -- $ 33,007 $ 940,000 $14,768,915
$15,708,915
823 Commerce Drive Oak
Brook, IL ........... -- $ 325 $ 500,000 $ 1,261,255
$ 1,761,255
565 Lakeview Parkway
Vernon Hills, IL .... ___ ($ 9,775) $ 1,300,000 $ 3,571,900
$ 4,871,900
Totals .............. $ 0 $ 5,316,120 $18,673,750 $75,592,229
$94,265,979
</TABLE>
<TABLE>
<CAPTION>
Accumulated Date Method of
Depreciation Acquired Depreciation
<S> <C> <C> <C>
11100 Hampshire Ave
Bloomington, MN .. $ 83,436 Jan-93 (A)
601 Campus Dr. .........
Arlington Heights, IL .. $306,751 May-93 (A)
11925 W. Lake Park Dr. .
Milwaukee, WI ......... $132,108 Jun-93 (A)
3400 Dundee Road
Northbrook, IL ........ $345,245 Oct-93 (A)
830 West End Court
Vernon Hills, IL ...... $112,436 Nov-93 (A)
1011 Touhy Avenue
Des Plaines, IL ...... $265,556 Dec-93 (A)
160-185 Hansen Court
Wood Dale, IL .... $291,214 Jan-94 (A)
150, 175, 250 Patrick
Blvd
Brookfield, WI ....... $240,080 Jun-94 (A)
175 Hawthorn Parkway
Vernon Hills, IL ....... $214,723 Sep-94 (A)
2800 River Road
Des Plaines, IL ..... $ 95,916 Feb-95 (A)
2221 University Ave SE
Minneapolis, MN ... $111,579 May-95 (A)
1660 Feehanville Dr. ..
Mount Prospect, IL ... $ 40,351 Aug-95 (A)
10 Oak Hollow &
24800 Denso Drive
Southfield, MI ....... $106,893 Aug-95 (A)
11270 W. Park Place
Milwaukee, WI .... $108,302 Sep-95 (A)
823 Commerce Drive
Oak Brook, IL .......... $ 3,941 Nov-95 (A)
565 Lakeview Parkway
Vernon Hills, IL ..... $ 3,656 Dec-95 (A)
------ ---
Total $2,462,187
==========
</TABLE>
(A) Depreciation of buildings is computed over a 40 year life on a straight
line basis. Tenant improvements are depreciated over the shorter of the
estimated useful life of the improvements or the term of the lease.
(B) These properties are pledged as security for the Company s line of
credit which totalled $24,253,148 at December 31, 1995.
(C) At December 31, 1995, the aggregate cost of land, buildings, and
improvements for Federal income tax purposes was approximately $94,266,000.
(D) Reconciliation of Real Estate Owned and Accumulated Depreciation
<TABLE>
<CAPTION>
Real Estate Owned:
1995 1994 1993
<S> <C> <C> <C>
Balance beginning of year $37,976,215 $17,558,181 --
Property acquisitions ... $53,428,629 $18,196,369 $17,327,393
Additions ............... $ 2,861,135 $ 2,221,665 $ 230,788
Disposals ............... -- -- --
Balance end of year ..... $94,265,979 $37,976,215 $17,558,181
</TABLE>
<TABLE>
<CAPTION>
Accumulated Depreciation:
1995 1994 1993
<S> <C> <C> <C>
Balance beginning of year $ 817,114 149,605 --
Depreciation expense .... $ 1,645,073 $ 667,509 149,605
Retirements ............. -- -- --
Disposals ............... -- -- --
Balance end of year ..... $ 2,462,187 $ 817,114 $ 149,605
</TABLE>
Consent of Independent Auditors
We consent to the use of our report dated April 24, 1996 in the Registration
Statement (Form 10/A) of Great Lakes REIT, Inc.
Ernst & Young LLP
Chicago, Illinois
June 21, 1996
<TABLE>
<CAPTION>
GREAT LAKES REIT, INC.
CONDENSED BALANCE SHEET
For the three months ended March 31, 1996
(unaudited)
March 31, 1996
<S> <C>
Assets
Properties:
Land ........................................ $ 19,046,500
Buildings, improvements and equipment ....... 77,160,263
Less accumulated depreciation ............ 3,145,259
93,061,504
Cash and cash equivalents ..................... 821,498
Other assets .................................. 4,948,886
Total assets ............................. $ 98,831,888
Liabilities and Stockholders Equity
Bank loan payable ............................. $ 23,000,000
Bonds payable ................................. 5,420,000
Mortgage notes payable ........................ 18,478,904
Accounts payable, accrued expenses and
other liabilities ......................... 7,063,733
Total liabilities ........................ 53,962,637
Preferred stock (none issued)
Common stock (4,537,180 shares issued) ........ 45,501
Paid-in capital ............................... 46,149,857
Distributions in excess of accumulated earnings (1,170,696)
Treasury stock, at cost (12,951 shares) ....... (155,411)
Total stockholders equity ............... 44,869,251
Total liabilities and stockholders
equity .................................. $ 98,831,888
</TABLE>
The accompanying notes are an integral part of these condensed financial
statements.
<TABLE>
<CAPTION>
GREAT LAKES REIT, INC.
CONDENSED STATEMENT OF INCOME
For the three months ended
March 31, 1996 and 1995
(unaudited)
1996 1995
<S> <C> <C>
Revenues
Rental ...................... $5,521,494 $2,597,827
Interest .................... 22,289 22,163
Total revenues ........ 5,543,783 2,619,990
Expenses
Property operating .......... 2,569,091 1,150,870
General and administrative .. 338,052 164,182
Interest .................... 940,786 354,936
Depreciation and amortization 724,442 325,170
Total expenses ........ 4,572,371 1,995,158
Net income ....................... $ 971,412 $ 624,832
Earnings per common share and
common share equivalent ..... $ 0.21 $ 0.23
</TABLE>
Weighted average number of common
shares and common share equivalents outstanding4,574,5042,764,243
The accompany notes are an integral part of these condensed financial
statements.
<TABLE>
<CAPTION>
GREAT LAKES REIT, INC.
CONDENSED STATEMENT OF CHANGES IN STOCKHOLDERS EQUITY
For the three months ended March 31, 1996
(unaudited)
Common Stock
Shares Amount Paid-in Dist. in
Treasury Total
Outstand Capita excess of Stock
Stock-
ing Accumu-
holders
lated Equity
Earnings
<S> <C> <C> <C> <C> <C>
<C>
Balance at
1/1/96 .... 4,507,945 $ 45,209 45,861,352 (785,953)
(155,411) $ 44,965,197
Exercise of
Stock
Options ... 29,235 292 288,505 --
-- 288,797
Net income -- -- -- 971,412
-- 971,412
Distribu-
tions and
dividends
payable
($.30 per
share) .... -- -- -- (1,356,155)
-- (1,356,155)
Balance at
3/31/96 ... 4,537,180 $ 45,501 46,149,857 (1,170,696)
(155,411) $ 44,869,251
</TABLE>
The accompanying notes are an integral part of these condensed financial
statements.
<TABLE>
<CAPTION>
GREAT LAKES REIT, INC.
CONDENSED STATEMENTS OF CASH FLOWS
For the three months ended
March 31, 1996 and 1995
(unaudited)
1996
1995
- ------------------------
Cash flows from operating activities:
<S> <C> <C>
Net income .............................................. $ 971,412
624,832
Adjustments to reconcile net income to net
cash flows from operating activities:
Depreciation and amortization ........................ 724,442
325,170
Net changes in assets and liabilities:
Other assets ........................................ 411,783
52,353
Accounts payable and accrued liabilities ............ 1,358,452
407,759
Payment of deferred leasing costs ................... (157,903)
(58,722)
--------
- -------
Net cash provided by operating activities ............ 3,308,186
1,351,392
---------
- ---------
Cash flows from investing activities:
Purchase of properties .................................. (1,085,639
(4,761,763)
Payment of tenant & building improvement costs .......... (780,288)
(634,210)
Decrease in earnest money deposits ...................... 850,000
--
-------
Net cash used by investing activities (1,015,927)
(5,395,973)
----------
- ----------
Cash flows from financing activities
Proceeds from sale of common stock ...................... -- $
3,631,521
Payment of stock issuance costs ......................... --
(264,250)
Proceeds from exercise of stock options ................. 288,797
--
Proceeds from bank loans payable ........................ --
1,200,000
Distributions/dividends payable ......................... (1,356,155)
(709,890)
Repayment of bank loans payable ......................... (1,253,148)
(1,200,000)
Repayment of mortgage notes and bonds payable ........... (155,118)
(128,619)
Payment of deferred financing costs ..................... (297,865)
--
--------
Net cash (used) provided by financing activities ........ (2,773,489)
2,528,762
---------
- ---------
Net (decrease) increase in cash and cash equivalents .... (481,230)
(1,515,819)
Cash and cash equivalents, beginning of quarter ......... 1,302,728
2,676,594
---------
- ---------
Cash and cash equivalents, end of quarter ............... $ 821,498 $
1,160,775
===========
===========
</TABLE>
The accompanying notes are an integral part of these condensed financial
statements.
1. Basis of Presentation
The accompanying condensed unaudited financial statements 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 since the user of these statements is assumed to
read them in conjunction with the 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
financial statements and notes thereto included in the Great Lakes REIT, Inc.
financial statements included elsewhere in this Form 10 for the year ended
December 31, 1995. The interim results of operations are not necessarily
indicative of the results that may be expected for the year ending December 31,
1996.
2. Properties Acquired in 1996
On January 1, 1996, the Company acquired a 43,300 square foot single-story
office building in Schaumburg, Illinois for an acquisition price of
approximately $1,086,000.
3. Related Party Transactions
The following fees will be or have been paid to Equity Partners Ltd., (the
Advisor ) or affiliates. Two directors of the Company were owners of the
Advisor.
<TABLE>
<CAPTION>
Paid 1996 Paid 1995 Payable 3/31/96
<S> <C> <C> <C>
Property acquisition fees .. $ 87,731 $ 70,125 --
Stock offering fees ........ -- 17,922 $ 6,481
Advisory fees .............. 268,015 129,809 9,991
Property management fees ... 282,094 97,603 --
Construction management fees 109,661 15,208 10,475
Other fees, primarily legal 21,484 10,081 --
</TABLE>
On February 27, 1996, the shareholders of the Company approved the
acquisition of all the outstanding shares of the Advisor in exchange for 100,000
of its shares. This transaction closed on April 1, 1996. In addition, certain
employees of the Advisor received 30,000 restricted shares of the Company. As of
April 1, 1996, the Company absorbed the employees of the Advisor and is now
self-managed and self-advised. All contracts between the Advisor and the Company
were transferred to the Company.
4. Subsequent Events
On April 15, 1996, the Company refinanced its bank line of credit. The new
line of credit allows for maximum borrowings of $35,000,000 subject to certain
loan covenants. Interest on the new line of credit accrues at LIBOR + 1.875% per
annum. Amounts outstanding under the line of credit are due on April 12, 1998.
On April 17, 1996, the Company acquired a 96,000 square foot office
building in Springdale, Ohio, for a contract price of $6,075,000. A portion of
the purchase price was financed using the Company's new bank line of credit.
5. Profo rma Financial Statements
On April 1, 1996, the Company acquired Equity Partners Ltd., its Advisor.
A
proforma balance sheet as of March 31, 1996 is presented along with proforma
income statements for the quarter ended March 31, 1996 and the year ended Decem
ber 31, 1995.
This unaudited Proforma Condensed Balance Sheet is presented as if the
acquisition of Equity Partners Ltd. (the Advisor) by Great Lakes REIT, Inc. (the
Company) had occurred on March 31, 1996. The acquisition has been accounted for
under purchase accounting. In the opinion of the Company, all adjustments
necessary t o reflect the acquisition have been made.
This unaudited Proforma Condensed Balance Sheet is presented for
comparative purposes only and is not necessarily indicative of what the actual
financial position of the Company would have been at March 31, 1996, nor does it
purport to represen t the future financial position of the Company.
<TABLE>
<CAPTION>
GREAT LAKES REIT, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
For the months ended March 31, 1996 and 1995
(Unaudited)
Proforma Condensed Balance Sheet, March 31, 1996, (unaudited)
Assets Great Lakes Equity Proforma
Proforma Proforma at
REIT, Inc.(1) Partners Adjust-ments
Adjustments 3/31/96
Ltd. (2)
<S> <C> <C> <C> <C>
<C>
Land ................ 19,046,500 -- --
-- 19,046,500
Buildings,
improvements
& equipment ......... 77,160,263 81,860 --
-- 77,242,123
Less:
accumulated
depreciation ........ (3,145,259) -- --
-- (3,145,259)
----------
----------
93,061,504 81,860 0.00
0.00 93,143,364
Cash and
cash equiv .......... 821,498 -- --
-- 821,498
Other assets ........ 4,948,886 3,661 --
(462,591)(3) 4,489,956
--------- -----
- -------- -- ---------
$ 98,831,888 $ 85,521 0.00 ($
462,591) $ 98,454,818
============ ============ ====
============
============
Liabilities &
Shareholders Equity
Accounts payable,
accrued expenses and
other liabilities ... 7,063,733 8,827 --
-- 7,072,560
Mortgages payable ... 46,898,904 -- --
-- 46,898,904
----------
----------
53,962,637 8,827 --
-- 53,971,464
---------- -----
----------
Shareholders equity:
Preferred stock
Common stock ........ 45,501 1,000 (1,000)(2)
1,000(3) 46,501
Paid-in capital ..... 46,149,857 -- --
1,199,000(3) 47,348,857
Treasury stock ...... (155,411) -- --
-- (155,411)
Distributions
in excess
of accumulated
earnings ............ (1,170,696) 75,694 (75,694)(2)
(1,585,897)(3) (2,756,593)
---------- ------ ------- --
- ---------- -- ----------
Total Shareholders
Equity .............. 44,869,251 76,694 (76,694)
(385,897) 44,483,354
---------- ------ -------
- -------- ----------
$ 98,831,888 $ 85,521 ($ 76,694) ($
385,897) $ 98,454,818
============ ============ ============
============
============
</TABLE>
See accompanying notes to proforma condensed balance sheet.
Notes to Proforma Condensed Balance Sheet, March 31, 1996, (unaudited)
(1) Represents the historical financial position of the Company as of March
31, 1996.
(2) The historical balance sheet of Equity Partners consists of certain
operating equipment, indebtedness associated with the equipment, and
shareholders' equity. The common stock ($1,000) and retained earnings ($75,684)
are eliminated from the Pro Forma Condensed Balance Sheet.
(3) The Company issued 100,000 shares of its common stock on April 1, 1996
to the shareholders of Equity Partners to accomplish the acquisition which in
legal form is a merger of the Company and Equity Partners. The total acquisition
price is as follows:
Common shares issued $1,200,000 (a)
Acquisition costs 462,591 (b)
Total acquisition price $1,662,591
(a) The fair value of The Company's shares is $12 per share. The issuance
of 100,000 shares results in a value assigned to the shares issued of $1.2
million.
(b) Acquisition costs represent investment banking, legal and accounting
services, all incurred prior to March 31, 1996, in connection with the merger.
Acquisition costs include $218,000 paid to EVEREN Securities, Inc. A director of
The Company is employed by EVEREN Securities, Inc. and directed its work
relative to the acquisition.
In addition to the 100,000 common shares of The Company issued to
shareholders of Equity Partners, 30,000 shares of restricted common stock
(valued at $360,000) were issued to certain employees of Equity Partners. Such
amount will be accounted for by the Company as both compensation expense and an
increase in shareholders' equity when the restrictions on the shares are
removed.
(4) The principal assets of Equity Partners are its property management and
advisory contracts with The Company. These contracts are reflected at no value
in the historical balance sheet of Equity Partners. Since these contracts were
terminated upon completion of the acquisition, the total estimated acquisition
costs assigned to these contracts ($1,585,897) are being expensed as contract
termination costs.
These unaudited Proforma Condensed Statements of Operations are presented
as if the acquisition of the Advisor by the Company had occurred on January 1,
1995. In the opinion of the Company, all necessary adjustments have been made to
reflect the effects of the transaction.
These unaudited Proforma Condensed Statements of Operations are presented
for comparative purposed only and are not necessarily indicative of what the
actual results of operations would have been for the periods presented nor does
it purport to represent results for future periods.
<TABLE>
<CAPTION>
Proforma Condensed Statement of Operations
For the three months ended March 31, 1996
(Unaudited)
Great Lakes Equity Partners Proforma Proforma
REIT, Inc.(1) Ltd.(1) Adjustments(2)
<S> <C> <C> <C> <C>
Revenue
Rental income .. $5,521,494 -- -- $5,521,494
Interest and
other income ... 22,289 567,620 (555,619)(3) 34,290
------ ------- -------- -- ------
5,543,783 567,620 (555,619) 5,555,784
--------- ------- -------- ---------
Expenses
Property
Operating ...... 2,569,091 144,436 (286,031)(4) 2,427,496
General &
Administrative . 338,052 245,930 (193,706)(4) 390,276
Interest ....... 940,786 5,568 -- 946,354
Depreciation &
Amortization ... 724,442 6,357 (8,441)(5) 722,358
4,572,371 402,291 (488,178) 4,486,484
--------- ------- -------- ---------
Net income ..... $ 971,412 165,329 (67,441) $1,069,300
========== ======= ======= ==========
Net income per
share .......... $ 0.21 -- -- $ 0.23
========== ==========
Weighted Average
shares
outstanding .... 4,574,504 -- -- 4,674,504
</TABLE>
<TABLE>
<CAPTION>
Proforma Condensed Statement of Operations
For the year ended December 31, 1995
(Unaudited)
Great Lakes Equity Partners Proforma Proforma
REIT, Inc.(1) Ltd.(1) Adjustments(2)
<S> <C> <C> <C> <C>
Revenue
Rental income .. $14,765,108 -- -- 14,765,108
Interest and
other income ... 200,818 2,519,443 (2,414,749)(3) 305,512
------- --------- ---------- -- -------
14,965,926 2,519,443 (2,414,749) 15,070,620
---------- --------- ---------- ----------
Expenses
Property
Operating ...... 6,592,131 378,389 (701,637)(4) 6,268,883
General &
Administrative . 922,652 1,107,470 (626,818)(4) 1,403,304
Interest ....... 2,296,457 1,637 -- 2,298,094
Depreciation &
Amortization ... 1,954,885 25,430 (33,372)(5) 1,946,943
--------- ------ ------- -- ---------
11,766,125 1,512,926 (1,361,827) 11,917,224
---------- --------- ---------- ----------
Net income ..... $ 3,199,801 1,006,517 (1,052,922) $ 3,153,396
=========== ========= ========== ===========
Net income per
share .......... $ 0.88 -- -- $ 0.84
=========== ===========
Weighted Average
shares
outstanding .... 3,650,133 -- -- 3,750,133
</TABLE>
Great Lakes REIT, Inc.
Notes to Proforma Income Statements
For the year ended December 31, 1995 and the
Three Months ended March 31, 1996
(Unaudited)
(1) These condensed income statements present the historical operations of Great
Lakes REIT, Inc. and Equity Partners for the periods described.
(2) The pro forma condensed income statements do not include the one-time
charge to expense for contract termination costs of $1,585,897. See note (4) to
Notes to Pro Forma Condensed Balance Sheet.
(3) Income earned by Equity Partners from The Company is eliminated from
the pro forma condensed income statements:
<TABLE>
<CAPTION>
1995 1996
<S> <C> <C>
Acquisition fees ........... $ 787,256 $ 15,750
Advisory fees .............. 626,818 253,494
Property management fees ... 564,369 214,823
Construction management fees 136,907 --
Offering service fees ...... 131,748 --
Other ...................... 167,651 71,552
$2,414,749 $ 555,619
</TABLE>
(4) Expenses incurred by the Company which are paid to Equity Partners and
equipment rentals incurred by Equity Partners which are paid to the Company are
eliminated from the pro forma condensed income statements.
<TABLE>
<CAPTION>
1995 1996
<S> <C> <C>
Property management fees $564,369 $214,823
Maintenance costs ............... 137,268 71,208
$701,637 $286,031
General and administrative costs:
Advisory fees ................ $626,818 $193,706
</TABLE>
(5) Acquisition, construction management and certain other fees paid by the
Company to Equity Partners are capitalized by the Company into buildings and
improvements. If the acquisition had occurred on January 1, 1995 these fees
would not have been incurred and depreciation and amortization expenses would
decrease by $33,372 and $8,441 in 1995 and 1996 respectively.
<PAGE>
Statement of Revenue and Certain Expenses
565 Lakeview Parkway
November 30, 1995
with Report of Independent Auditors
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Chief Financial Officer
Great Lakes REIT, Inc.
We have audited the Statement of Revenue and Certain Expenses of 565 Lakeview
Parkway (the Property) as described in Note 2 for the year ended November 30,
1995. The Statement of Revenue and Certain Expenses is the responsibility of
the Property's management. Our responsibility is to express an opinion on the
Statement of Revenue and Certain Expenses based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the Statement of Revenue and Certain
Expenses is free from material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures made in the
Statement of Revenue and Certain Expenses. An audit also includes assessing
the basis of accounting used and the significant estimates made by management,
as well as evaluating the overall presentation of the Statement of Revenue and
Certain Expenses. We believe that our audit provides a reasonable basis for
our opinion.
The accompanying Statement of Revenue and Certain Expenses was prepared for
the purpose of complying with the rules and regulations of the Securities and
Exchange Commission and is not intended to be a complete presentation of the
Property's revenue and expenses.
In our opinion, the Statement of Revenue and Certain Expenses referred to
above presents fairly, in all material respects, the revenue and certain
expenses described in Note 2 for the year ended November 30, 1995, in
conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
July 3, 1996
Chicago, Illinois<PAGE>
<TABLE>
565 LAKEVIEW PARKWAY
STATEMENT OF REVENUE AND CERTAIN EXPENSES
<CAPTION>
Year Ended December 1, 1995
November 30, to December 26, 1995
1995 (unaudited)
<S> <C> <C>
Revenue
Base rents $422,984 $44,316
Tenant reimbursements 102,367 12,128
Total revenue 525,351 56,444
Expenses
Real estate taxes 89,995 8,093
General operating 44,672 8,094
Utilities 22,489 2,638
Cleaning and landscaping 19,455 1,266
Repairs and maintenance 6,207 741
Insurance 25,900 2,158
Management fee 16,485 1,693
Total expenses 225,203 24,683
Revenue in excess of
certain expenses $300,148 $31,761
See accompanying notes.
<PAGE>
<FN>
565 LAKEVIEW PARKWAY
NOTES TO STATEMENT OF REVENUE AND CERTAIN EXPENSES
Note 1 Business
The accompanying Statement of Revenue and Certain Expenses relates to the
operations of 565 Lakeview Parkway (the Property). The Property was acquired
on December 27, 1995, by Great Lakes REIT, Inc. (Great Lakes). The Property
was previously owned by Collin Equities, Inc.
As of November 30 1995, the Property was 64% leased with three tenants.
Note 2 Summary of Significant Accounting Policies
Basis of Presentation
The accompanying statement of revenue and certain expenses was prepared for
the purpose of complying with the rules and regulations of the Securities and
Exchange Commission. The statement is not representative of the actual
operations of the Property for the period presented nor indicative of future
operations as certain expenses, primarily depreciation and amortization, which
may not be comparable to the expenses expected to be incurred by Great Lakes
in future operations of the Property, have been excluded.
Revenue and Expense Recognition
Revenue is recognized in the period in which it is earned. Expenses are
recognized in the period in which they are incurred.
Use of Estimates
The preparation of the Statement of Revenue and Certain Expenses in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of revenue and
expenses during the reporting period. Actual results could differ from these
estimates.
Note 3 Rentals
The Property has entered into tenant leases that provide for tenants to share
in increases in operating expenses and real estate taxes in excess of base
amounts, as defined.
Note 4 Management Agreement
During the year ended November 30, 1995, the Property was managed by a
third-party management company. The management agreement provided for an annual
fee
of 3% of gross operating receipts.
</FN>
</TABLE>
<PAGE>
Statement of Revenue and
Certain Expenses
Kensington Corporate Center
March 31, 1995
with Report of Independent Auditors
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Chief Financial Officer
Great Lakes REIT, Inc.
We have audited the Statement of Revenue and Certain Expenses of Kensington
Corporate Center (the Property) as described in Note 2 for the year ended
March 31, 1995. The Statement of Revenue and Certain Expenses is the
responsibility of the Property's management. Our responsibility is to express
an opinion on the Statement of Revenue and Certain Expenses based on our
audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the Statement of Revenue and Certain
Expenses is free from material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures made in the
Statement of Revenue and Certain Expenses. An audit also includes assessing
the basis of accounting used and the significant estimates made by management,
as well as evaluating the overall presentation of the Statement of Revenue and
Certain Expenses. We believe that our audit provides a reasonable basis for
our opinion.
The accompanying Statement of Revenue and Certain Expenses was prepared for
the purpose of complying with the rules and regulations of the Securities and
Exchange Commission and is not intended to be a complete presentation of the
Property's revenue and expenses.
In our opinion, the Statement of Revenue and Certain Expenses referred to
above presents fairly, in all material respects, the revenue and certain
expenses described in Note 2 for the year ended March 31, 1995, in conformity
with generally accepted accounting principles.
ERNST & YOUNG LLP
July 25, 1996
Chicago, Illinois<PAGE>
<TABLE>
KENSINGTON CORPORATE CENTER
STATEMENT OF REVENUE AND CERTAIN EXPENSES
<CAPTION>
Year Ended April 1, 1995
March 31,1995 to August 21, 1995
(unaudited)
<S> <C> <C>
Revenue
Base rents $ 745,376 $394,909
Tenant reimbursements 695,869 360,591
Total revenue 1,441,245 755,500
Expenses
Real estate taxes 459,800 306,944
General operating 35,156 18,963
Utilities 70,041 29,839
Cleaning and contract services 126,191 29,615
Repairs and maintenance 94,983 27,034
Management fee 84,940 31,142
Insurance 8,364 2,149
Total expenses 879,475 445,686
Revenue in excess of
certain expenses $ 561,770 $309,814
See accompanying notes.
<PAGE>
<FN>
KENSINGTON CORPORATE CENTER
NOTES TO STATEMENT OF REVENUE AND CERTAIN EXPENSES
Note 1 Business
The accompanying Statement of Revenue and Certain Expenses relates to the
operations of Kensington Corporate Center (the Property). The Property was
acquired on August 22, 1995, by Great Lakes REIT, Inc. (Great Lakes). The
Property was previously owned by Opus North Corporation.
As of March 31, 1995, the Property was 85% leased with three tenants.
Note 2 Summary of Significant Accounting Policies
Basis of Presentation
The accompanying Statement of Revenue and Certain Expenses was prepared for
the purpose of complying with the rules and regulations of the Securities and
Exchange Commission. The statement is not representative of the actual
operations of the Property for the period presented nor indicative of future
operations as certain expenses, primarily depreciation and amortization, which
may not be comparable to the expenses expected to be incurred by Great Lakes
in future operations of the Property, have been excluded.
Revenue and Expense Recognition
Revenue is recognized in the period in which it is earned. Expenses are
recognized in the period in which they are incurred.
Use of Estimates
The preparation of the Statement of Revenue and Certain Expenses in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of revenue and
expenses during the reporting period. Actual results could differ from these
estimates.
Note 3 Rentals
The Property has entered into tenant leases that provide for tenants to share
in increases in operating expenses and real estate taxes in excess of base
amounts, as defined.
Approximately 68% of the space at the Property is leased to a single tenant
and approximately 76% of the Property s total rental income recognized during
the year ended March 31, 1995, related to this tenant. The lease expires in
1998.
Note 4 Related Parties
During the year ended March 31, 1995, the Property was managed by a wholly
owned subsidiary of Opus North Corporation. The management agreement provided
for an annual fee of 5% of gross operating receipts.
</FN>
</TABLE>
<PAGE>
Combined Statement of Revenue and
Certain Expenses
10 Oak Hollow and
Oak Hollow Gateway
December 31, 1994
with Report of Independent Auditors
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Chief Financial Officer
Great Lakes REIT, Inc.
We have audited the Combined Statement of Revenue and Certain Expenses of 10
Oak Hollow and Oak Hollow Gateway (the Properties) as described in Note 2 for
the year ended December 31, 1994. The Combined Statement of Revenue and
Certain Expenses is the responsibility of the Properties management. Our
responsibility is to express an opinion on the Combined Statement of Revenue
and Certain Expenses based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the Combined Statement of Revenue
and Certain Expenses is free from material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
made in the Combined Statement of Revenue and Certain Expenses. An audit also
includes assessing the basis of accounting used and the significant estimates
made by management, as well as evaluating the overall presentation of the
Combined Statement of Revenue and Certain Expenses. We believe that our audit
provides a reasonable basis for our opinion.
The accompanying Combined Statement of Revenue and Certain Expenses was
prepared for the purpose of complying with the rules and regulations of the
Securities and Exchange Commission and is not intended to be a complete
presentation of the Property's revenue and expenses.
In our opinion, the Combined Statement of Revenue and Certain Expenses
referred to above presents fairly, in all material respects, the revenue and
certain expenses described in Note 2 for the year ended December 31, 1994, in
conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
August 5, 1996
Chicago, Illinois
<PAGE>
<TABLE>
10 OAK HOLLOW AND
OAK HOLLOW GATEWAY
COMBINED STATEMENT OF REVENUE AND CERTAIN EXPENSES
<CAPTION>
Year Ended January 1, 1995
December 31, to August 29, 1995
1994
(unaudited)
<S> <C> <C>
Revenue
Base rents $2,150,972 $1,440,160
Tenant reimbursements 153,314 87,368
Total revenue 2,304,286 1,527,528
Expenses
Real estate taxes 349,514 154,157
General operating 153,657 131,907
Utilities 397,539 251,048
Cleaning, landscaping
and contracts 199,129 140,811
Repairs and maintenance 98,655 68,620
Insurance 19,257 10,434
Management fee 93,426 61,442
Total expenses 1,311,177 818,419
Revenue in excess of
certain expenses $ 993,109 $ 709,109
See accompanying notes.
<PAGE>
<FN>
10 OAK HOLLOW AND
OAK HOLLOW GATEWAY
NOTES TO COMBINED STATEMENT OF REVENUE AND CERTAIN EXPENSES
Note 1 Business
The accompanying Combined Statement of Revenue and Certain Expenses relates to
the operations of 10 Oak Hollow and Oak Hollow Gateway (the Properties). The
Properties were acquired on August 29, 1995, by Great Lakes REIT, Inc. (Great
Lakes). The Properties were previously owned by Metropolitan Life Insurance
Company.
As of December 31, 1994, 10 Oak Hollow and Oak Hollow Gateway, respectively,
were 94% and 50% leased with nine tenants and six tenants.
Note 2 Summary of Significant Accounting Policies
Basis of Presentation
The accompanying Combined Statement of Revenue and Certain Expenses was
prepared for the purpose of complying with the rules and regulations of the
Securities and Exchange Commission. The statement is not representative of
the actual operations of the Properties for the period presented nor
indicative of future operations as certain expenses, primarily depreciation
and amortization, which may not be comparable to the expenses expected to be
incurred by Great Lakes in future operations of the Properties, have been
excluded.
Revenue and Expense Recognition
Revenue is recognized in the period in which it is earned. Expenses are
recognized in the period in which they are incurred.
Use of Estimates
The preparation of the Combined Statement of Revenue and Certain Expenses in
conformity with generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported amounts of revenue
and expenses during the reporting period. Actual results could differ from
these estimates.
Note 3 Rentals
The Properties have entered into tenant leases that provide for tenants to
share in increases in operating expenses and real estate taxes in excess of
base amounts, as defined.
<PAGE>
Approximately 45% and 23% of the base rent recognized during 1994 at 10 Oak
Hollow related to the Contract Interiors and Fireman s Fund Insurance Company
leases, respectively. Approximately 26% of the base rent recognized during
1994 at Oak Hollow Gateway related to the Tokai Rika lease.
Note 4 Management Agreement
During the year ended December 31, 1994, the Properties were managed by a
third-party management company. The management agreement provided for an
annual fee of 4% of gross operating receipts.
</FN>
</TABLE>
<PAGE>
Statement of Revenue and
Certain Expenses
One Park Plaza
December 31, 1994
with Report of Independent Auditors
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Chief Financial Officer
Great Lakes REIT, Inc.
We have audited the Statement of Revenue and Certain Expenses of One Park
Plaza (the Property) as described in Note 2 for the year ended December 31,
1994. The Statement of Revenue and Certain Expenses is the responsibility of
the Property's management. Our responsibility is to express an opinion on the
Statement of Revenue and Certain Expenses based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the Statement of Revenue and Certain
Expenses is free from material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures made in the
Statement of Revenue and Certain Expenses. An audit also includes assessing
the basis of accounting used and the significant estimates made by management,
as well as evaluating the overall presentation of the Statement of Revenue and
Certain Expenses. We believe that our audit provides a reasonable basis for
our opinion.
The accompanying Statement of Revenue and Certain Expenses was prepared for
the purpose of complying with the rules and regulations of the Securities and
Exchange Commission and is not intended to be a complete presentation of the
Property's revenue and expenses.
In our opinion, the Statement of Revenue and Certain Expenses referred to
above presents fairly, in all material respects, the revenue and certain
expenses described in Note 2 for the year ended December 31, 1994, in
conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
August 16, 1996
Chicago, Illinois
<PAGE>
<TABLE>
ONE PARK PLAZA
STATEMENT OF REVENUE AND CERTAIN EXPENSES
<CAPTION>
Year Ended January 1, 1995
December 31, to Sep. 29, 1995
1994 (unaudited)
<S> <C> <C>
Revenue
Base rents $2,218,398 $1,399,552
Tenant reimbursements 934,796 839,175
Total revenue 3,153,194 2,238,727
Expenses
Real estate taxes 561,280 517,816
General operating 175,819 111,212
Utilities 265,459 167,691
Cleaning and landscaping 241,864 183,503
Repairs and maintenance 255,468 152,703
Insurance 31,252 27,645
Management fee 110,920 46,894
Total expenses 1,642,062 1,207,464
Revenue in excess of
certain expenses $1,511,132 1,031,263
See accompanying notes.
<PAGE>
<FN>
ONE PARK PLAZA
NOTES TO STATEMENT OF REVENUE AND CERTAIN EXPENSES
Note 1 Business
The accompanying Statement of Revenue and Certain Expenses relates to the
operations of One Park Plaza (the Property). The Property was acquired on
September 29, 1995, by Great Lakes REIT, Inc. (Great Lakes). The Property was
previously owned by Metropolitan Life Insurance Company.
As of December 31, 1994, the Property was 77% leased with twenty tenants.
Note 2 Summary of Significant Accounting Policies
Basis of Presentation
The accompanying Statement of Revenue and Certain Expenses was prepared for
the purpose of complying with the rules and regulations of the Securities and
Exchange Commission. The statement is not representative of the actual
operations of the Property for the period presented nor indicative of future
operations as certain expenses, primarily depreciation and amortization, which
may not be comparable to the expenses expected to be incurred by Great Lakes
in future operations of the Property, have been excluded.
Revenue and Expense Recognition
Revenue is recognized in the period in which it is earned. Expenses are
recognized in the period in which they are incurred.
Use of Estimates
The preparation of the Statement of Revenue and Certain Expenses in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of revenue and
expenses during the reporting period. Actual results could differ from these
estimates.
Note 3 Rentals
The Property has entered into tenant leases that provide for tenants to share
in increases in operating expenses and real estate taxes in excess of base
amounts, as defined.
Approximately 24%, 26%, and 25% of the base rent recognized during 1994
related to the Employers Insurance of Wausau, A.O. Smith Corporation, and
Howard Needles Tammen & Bergendoff leases, respectively.
<PAGE>
Note 4 Management Agreement
During the year ended December 31, 1994, the Property was managed by a
third-party management company. The management agreement provided for an annual
fee
of 3.5% of gross operating receipts.
</FN>
</TABLE>
<PAGE>
Statement of Revenue and
Certain Expenses
University Office Plaza
December 31, 1994
with Report of Independent Auditors
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Chief Financial Officer
Great Lakes REIT, Inc.
We have audited the Statement of Revenue and Certain Expenses of University
Office Plaza (the Property) as described in Note 2 for the year ended December
31, 1994. The Statement of Revenue and Certain Expenses is the responsibility
of the Property's management. Our responsibility is to express an opinion on
the Statement of Revenue and Certain Expenses based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the Statement of Revenue and Certain
Expenses is free from material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures made in the
Statement of Revenue and Certain Expenses. An audit also includes assessing
the basis of accounting used and the significant estimates made by management,
as well as evaluating the overall presentation of the Statement of Revenue and
Certain Expenses. We believe that our audit provides a reasonable basis for
our opinion.
The accompanying Statement of Revenue and Certain Expenses was prepared for
the purpose of complying with the rules and regulations of the Securities and
Exchange Commission and is not intended to be a complete presentation of the
Property's revenue and expenses.
In our opinion, the Statement of Revenue and Certain Expenses referred to
above presents fairly, in all material respects, the revenue and certain
expenses described in Note 2 for the year ended December 31, 1994, in
conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
June 27, 1996
Chicago, Illinois<PAGE>
<TABLE>
UNIVERSITY OFFICE PLAZA
STATEMENT OF REVENUE AND CERTAIN EXPENSES
<CAPTION>
Year Ended January 1, 1995
December 31, to May 3, 1995
1994 (unaudited)
<S> <C> <C>
Revenue
Base rents $1,085,448 $ 389,774
Tenant reimbursements 676,463 221,874
Total revenue 1,761,911 611,648
Expenses
Real estate taxes 318,912 90,509
General operating 76,597 21,609
Utilities 167,704 44,395
Cleaning and landscaping 99,237 30,643
Repairs and maintenance 61,718 12,574
Management fee 38,797 13,759
Insurance 13,607 4,710
Total expenses 776,572 218,199
Revenue in excess of
certain expenses $ 985,339 $ 393,449
See accompanying notes.
<PAGE>
<FN>
UNIVERISTY OFFICE PLAZA
NOTES TO STATEMENT OF REVENUE AND CERTAIN EXPENSES
Note 1 Business
The accompanying Statement of Revenue and Certain Expenses relates to the
operations of University Office Plaza (the Property). The Property was
acquired on May 4, 1995, by Great Lakes REIT, Inc. (Great Lakes). The
Property was previously owned by Health Association Center Limited
Partnership.
As of December 31, 1994, the Property was 100% leased with ten tenants.
Note 2 Summary of Significant Accounting Policies
Basis of Presentation
The accompanying statement of revenue and certain expenses was prepared for
the purpose of complying with the rules and regulations of the Securities and
Exchange Commission. The statement is not representative of the actual
operations of the Property for the period presented nor indicative of future
operations as certain expenses, primarily depreciation, amortization and net
interest expense, which may not be comparable to the expenses expected to be
incurred by Great Lakes in future operations of the Property, have been
excluded.
Revenue and Expense Recognition
Revenue is recognized in the period in which it is earned. Expenses are
recognized in the period in which they are incurred.
Use of Estimates
The preparation of the Statement of Revenue and Certain Expenses in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of revenue and
expenses during the reporting period. Actual results could differ from these
estimates.
Note 3 Rentals
The Property has entered into tenant leases that provide for tenants to share
in increases in operating expenses and real estate taxes in excess of base
amounts, as defined.
Note 4 Management Agreement
During the year ended December 31, 1994, the Property was managed by a
third-party management company. The management agreement provided for an annual
fee of 4% of base rental operating receipts.
<PAGE>
Note 5 Related Parties
Approximately 78% of the space at the Property is leased to Health Partners,
an affiliate of the previous owner, and approximately 79% of the Property s
total rental income recognized during 1994 related to Health Partners. The
Health Partners lease expires January 31, 2001.
</FN>
/TABLE
<PAGE>
ITEM 14. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND
FINANCIAL DISCLOSURE
For the year ended December 31, 1995, the Company selected Ernst & Young
LLP as its independent accountant. For the years ended December 31, 1994 and
1993, the Company s independent accountant had been Coopers & Lybrand LLP. The
change in independent accountants was recommended by the Audit Committee of the
Board of Directors of the Company and approved by the Board of Directors of the
Company on August 14, 1995. The decision of the Board of Directors to dismiss
Coopers & Lybrand L.L.P. was made notwithstanding that there were no
disagreements with the Company s former independent accountant on any matter of
accounting principles or practices, financial statement disclosures, or auditing
scope or procedure for the two most recent fiscal years and the subsequent
interim period preceding the dismissal. The opinion on the Company s financial
statements for the years ended December 31, 1994 and 1993 expressed by the
former independent accountant was unqualified. However, Coopers & Lybrand L.L.P.
considered the reissuance and inclusion of its reports on the Company s 1993 and
1994 financial statements in this Form 10 as a new engagement, and has declined
to accept this engagement. Therefore, the Company engaged Ernst & Young LLP to
conduct audits of its financial statements for the years ended December 31, 1993
and 1994. The reports of Ernst & Young LLP regarding those years are included
herein.
ITEM 15. FINANCIAL STATEMENTS AND EXHIBITS
Financial Statements:
List of all financial statements included herein: see index at Item 13
Exhibits:
Note: the page numbers listed below conform to the Form 10 filed April 28,
1996.
Exhibit No.
Description
Page No.
2.1 Merger Agreement dated January 26, 1996 between Great
Lakes REIT, Inc. and Equity Partners Ltd. 60
3.1 Great Lakes REIT, Inc. Articles of Incorporation dated
June 22, 1992 150
3.2 Articles of Merger Great Lakes REIT, Inc (survivor) and
Equity Partners, Ltd. (merging out) dated April 1, 1996 156
3.3 By-Laws of Great Lakes REIT, Inc. 163
4.1 Specimen of Certificate representing Shares of Common
Stock 175
10.1 Advisory Agreement dated July 1, 1994 between Great
Lakes REIT, Inc. and Equity Partners Ltd. 177
10.2 Offering Services Agreement dated July 2, 1992 between
Great Lakes REIT, Inc. and Equity Partners Ltd. 189
10.3 Offering Services Agreement dated July 1, 1994 between
Great Lakes REIT, Inc. and Equity Partners Ltd. 194
10.4 Offering Services Agreement dated August 15, 1995
between Great Lakes REIT, Inc. and Equity Partners Ltd. 198
10.5 Managing Dealer & Wholesaling Agreement dated July 22,
1994 between Great Lakes REIT, Inc. and Chauner
Securities, Inc. 201
10.6 Managing Dealer & Wholesaling Agreement dated August 20,
1995 between Great Lakes REIT, Inc. and Chauner
Securities, Inc. 209
10.7 Agreement dated August 24, 1995 between Great Lakes
REIT, Inc. and EVEREN Securities, Inc. regarding
offering services 212
10.8 Indemnification Escrow Agreement dated April 1, 1996
between Great Lakes REIT, Inc., Richard A. May, Richard
L. Rasley, Tim A. Grodrian, and American National Bank 217
10.9(a) Restricted Stock Agreement dated April 1, 1996 between
Great Lakes REIT and Richard L. Rasley 230
10.9(b) Restricted Stock Agreement dated April 1, 1996 between
Great Lakes REIT and James Hicks 236
10.9(c) Restricted Stock Agreement dated April 1, 1996 between
Great Lakes REIT and Ray Braun 240
10.9(d) Restricted Stock Agreement dated April 1, 1996 between
Great Lakes REIT and Edith M. Scurto 245
10.9(e) Restricted Stock Agreement dated April 1, 1996 between
Great Lakes REIT and Brett R. Brown 250
10.10 Advisor Stock Option Plan of Great Lakes REIT, Inc.
dated July 2, 1992 256
10.11 Agreement dated August 24, 1995 between Great Lakes
REIT, Inc. and EVEREN Securities, Inc. regarding
fairness opinion 264
10.12 Stock Option Plan for Independent Directors and Brokers
dated July 2, 1992 as amended July 15, 1994 268
10.13(a) Non-qualified Stock Option Certificate dated December
31, 1995 from Great Lakes REIT, Inc. to Jon K. Haahr 273
10.13(b) Non-qualified Stock Option Certificate dated December
31, 1995 from Great Lakes REIT, Inc. to Wayne M. Janus 275
10.13(c) Non-qualified Stock Option Certificate dated December
31, 1995 from Great Lakes REIT, Inc. to Daniel E.
Josephs 277
10.13(d) Non-qualified Stock Option Certificate dated December
31, 1995 from Great Lakes REIT, Inc. to Donald E.
Phillips 279
10.13(e) Non-qualified Stock Option Certificate dated December
31, 1995 from Great Lakes REIT, Inc. to Walter H.
Teninga 281
10.13(f) Non-qualified Stock Option Certificate dated December
31, 1995 from Great Lakes REIT, Inc. to Richard A. May 283
10.13(g) Non-qualified Stock Option Certificate dated December
31, 1995 from Great Lakes REIT, Inc. to Richard L.
Rasley 285
10.13(h) Non-qualified Stock Option Certificate dated December
31, 1995 from Great Lakes REIT, Inc. to Raymond M.
Braun 287
10.13(i) Non-qualified Stock Option Certificate dated December
31, 1995 from Great Lakes REIT, Inc. to James Hicks 289
10.13(j) Non-qualified Stock Option Certificate dated December
31, 1995 from Great Lakes REIT, Inc. to Edith M. Scurto 291
10.13(k) Non-qualified Stock Option Certificate dated December
31, 1995 from Great Lakes REIT, Inc. to Brett A. Brown 293
10.14 Contract of Sale dated May 25, 1994 between Great Lakes
REIT, Inc. and Metropolitan Life Insurance Company for
the purchase of 150, 175, 250 North Patrick,
Brookfield, Wisconsin 295
10.15 Agreement of Purchase and Sale dated September 22, 1994
between Great Lakes REIT, Inc. and Turner Development
Corporation for the purchase of 175 E. Hawthorn
Parkway, Vernon Hills, Illinois 327
10.16 Purchase Agreement dated January 23, 1995 between Great
Lakes REIT, Inc. and California State Teachers
Retirement System for the purchase of 2800 River Road,
Des Plaines, Illinois 450
10.17 Purchase Agreement dated March 27, 1995 between Great
Lakes REIT, Inc. and Health Associations Limited
Partnership for the purchase of 2221 University Avenue
Southeast, Minneapolis, Minnesota 493
10.18 Purchase Agreement dated August 11, 1995 between Great
Lakes REIT, Inc. and Opus North Corporation for the
purchase of 1660 Feehanville Drive, Mount Prospect,
Illinois 522
10.19 Contract of Sale dated August 9, 1995 between Great
Lakes REIT, Inc. and Metropolitan Life Insurance
Company for the purchase of 10 Oak Hollow, Southfield,
Michigan 568
10.20 Contract of Sale dated August 9, 1995 between Great
Lakes REIT, Inc. and Metropolitan Life Insurance
Company for the purchase of Oak Hollow Gateway,
Southfield, Michigan 612
10.21 Contract of Sale dated September 25, 1995 between Great
Lakes REIT, Inc. and Metropolitan Life Insurance
Company for the purchase of 11270 W. Park Place,
Milwaukee, Wisconsin 657
10.22 Real Estate Purchase and Sale Agreement dated November
15, 1995 between Great Lakes REIT, Inc. and Brauvin
Real Estate Fund II for the purchase of 823 Commerce
Drive, Oak Brook, Illinois 705
10.23 Option Agreement dated December 15, 1995 between Great
Lakes REIT, Inc. and Collin Equities, Inc. for the
purchase of 565 Lakeview Parkway, Vernon Hills,
Illinois 749
10.24 Real Estate Purchase and Sale Agreement dated October 2,
1996 between Great Lakes REIT, Inc. and S & S
Associates for the purchase of 1251 Plum Grove Road,
Schaumburg, Illinois 810
10.25 Real Estate Purchase and Sale Agreement dated February
12, 1996 between Great Lakes REIT, Inc. and Findlay
Properties, Inc. the purchase of 30 Merchant Street,
Springdale, Ohio 847
10.26 Amended and Restated Secured Revolving Loan Agreement
dated September 28, 1994 between Great Lakes REIT, Inc.
and American National Bank and Trust Company of Chicago 895
10.27 First Amendment to Amended and Restated Secured
between Great Lakes REIT, Inc. and American National
Bank and Trust Company of Chicago 955
10.28 Second Amendment to Amended and Restated Secured
Revolving Loan Agreement dated December 27, 1995
between Great Lakes REIT, Inc. and American National
Bank and Trust Company of Chicago 981
10.29 Revolving Note dated December 27, 1995 between Great
Lakes REIT, Inc. and American National Bank and Trust
Company of Chicago for $25,000,000 994
10.30 Sample Mortgage Document: Mortgage, Assignment of
Rents, Security Agreement and Fixture Financing
Statement dated December 27, 1995 between Great Lakes
REIT, Inc. and American National Bank and Trust Company
regarding the financing of 565 Lakeview Parkway, Vernon
Hills, Illinois 1003
10.31 Mortgage, Assignment of Rents and Leases, Security
Agreement and Fixture Financing Statement dated
September 20, 1993 between Great Lakes REIT, Inc. and
Great Northern Insured Annuity Corporation related to
11100 Hampshire Avenue, Bloomington, Minnesota 1074
10.32 Promissory Note dated September 20, 1993 between Great
Lakes REIT, Inc. and Great Northern Insured Annuity
Corporation in the amount of $940,000 relating to
Bloomington, Minnesota 1097
10.33 Real Estate Mortgage dated August 18, 1993 between Great
Lakes REIT, Inc. and Firstar Bank Milwaukee in the
amount of $1,260,000 relating to 11925 W. Lake Park
Drive, Milwaukee, Wisconsin Mortgage 1103
10.34 Mortgage Note dated August 18, 1993 between Great Lakes
REIT, Inc. and Firstar Bank Milwaukee, NA in the amount
Milwaukee, Wisconsin 1105
10.35 Mortgage and Security Agreement dated October 26, 1993
between Great Lakes REIT, Inc. and Calumet Federal
Savings and Loan Association of Chicago regarding
Arlington Ridge Service Center 1108
10.36 Promissory Note dated October 26, 1993 between Great
Lakes REIT, Inc. and Calumet Federal Savings and Loan
Association of Chicago regarding Arlington Ridge
Service Center 1129
10.37 Mortgage dated May 2, 1994 between Great Lakes REIT,
Inc. and General American Life Insurance Company
regarding 185 Hansen Court, Wood Dale, Illinois 1134
10.38 First Mortgage Amortization Payment Note dated May 2,
1994 between Great Lakes REIT, Inc. and General
American Life Insurance Company in the amount of
$3,000,000 relating to 185 Hansen Court, Wood Dale,
Illinois 1140
10.39 Mortgage dated May 10, 1994 between Great Lakes REIT,
Inc. and General American Life Insurance Company 1141
10.40 First Mortgage Amortization Payment Note dated May 10,
1994 between Great Lakes REIT, Inc. and General
American Life Insurance Company in the amount of
$1,025,000 relating to 830 West End Court, Vernon
Hills, Illinois 1146
10.41 Mortgage dated June 16, 1994 between Great Lakes REIT,
Inc. and General American Life Insurance Company 1147
10.42 First Mortgage Amortization Payment Note dated June 16,
1994 between Great Lakes REIT, Inc. and General
American Life Insurance Company in the amount of
$2,675,000 relating to 1011 E. Touhy, Des Plaines,
Illinois 1152
10.43 Mortgage, Security Agreement and Fixture Financing
Statement dated October 13, 1994 between Great Lakes
REIT, Inc. and American Family Life Insurance Company
relating to Brookfield, Wisconsin 1153
10.44 Promissory Note dated October 13, 1994 between Great
Company in the amount of $3,500,000 relating to
Brookfield, Wisconsin 1209
10.45 Heritage Bank Mortgage dated April 14, 1995 between
Great Lakes REIT, Inc. and Heritage Bank regarding 175
E. Hawthorn Parkway, Vernon Hills, Illinois in the
amount of $3,250,000 1219
10.46 Promissory Note dated April 14, 1995 between Great Lakes
$3,250,000 relating to 175 E. Hawthorn Parkway, Vernon
Hills, Illinois 1228
10.47 Assignment and Assumption Agreement dated May 4, 1995
between Great Lakes REIT, Inc. and Health Associations
Center Limited Partnership 1230
10.48 Loan Agreement dated June 1, 1994 between City of
Minneapolis, Minnesota and Health Associations Center
Limited Partnership relating to the issuance and sale
of $5,590,000 Variable Rate Demand Commercial
Development Revenue Refunding Bonds 1237
10.49 First Amendment to Letter of Credit and Reimbursement
Agreement dated May 4, 1994 1293
10.5 Letter of Credit and Reimbursement Agreement dated June
1, 1994 between First Bank National Association and
Health Associations Center Limited Partnership 1308
10.51 Indenture of Trust document dated June 1, 1994 by City
of Minneapolis, Minnesota as Issuer and First Trust
National Association as Trustee relating to the
issuance and sale of $5,590,000 Variable Rate Demand
Commercial Development Revenue Refunding Bonds 1350
10.52 Amendment to Irrevocable Direct Pay Letter of Credit
dated May 4, 1995 1454
10.53 Irrevocable Direct Pay Letter of Credit dated July 1,
1994 regarding Health Associations Center Limited
Partnership 1455
10.54 Combination Mortgage, Assignment of Leases and Rents,
Security Agreement and Fixture Financing Statement
dated June 1, 1994 between First Bank National
Association and Health Associations Center Limited
Partnership 1477
10.55 Master Revolving Credit Agreement dated April 12, 1996
between Great Lakes REIT, Inc. and The First National
Bank of Boston 1508
10.56 Bank of Boston Note dated April 12, 1996 for $35,000,000 1610
10.57 Sample Mortgage Document: Mortgage and Security
Agreement dated April 12, 1996 between Great Lakes
REIT, Inc. and The First National Bank of Boston
relating to the premises at 2800 River Road, Des
Plaines, Illinois 1612
16.1 Letter regarding change in certifying accountant 1632
SIGNATURE PAGE
Pursuant to the requirements of Section 12 of the Securities Exchange Act of
1934, the registrant has duly caused this registration statement to be signed
on its behalf by the undersigned, thereunto duly authorized.
Great Lakes REIT, Inc.
Date: April 26, 1996
By:
Richard L. Rasley, Secretary
