SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
[X] Quarterly Report Pursuant to Section 13 OR 15(d)
of the Securities Exchange Act of 1934
For the quarterly period ended June 30, 1996
OR
[]Transition Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Commission file number: 0-28354
Great Lakes REIT, Inc.
(Exact name of Registrant as specified in its Charter)
Maryland 36-3844714
(State or other jurisdiction (I.R.S.employer identification no.)
of incorporation organization)
823 Commerce Drive, Suite 300, Oak Brook, IL 60521
(Address of principal executive offices) (Zip Code)
(630) 368 - 2900
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
Number of common shares outstanding at March 27, 1997 8,938,040
<PAGE>
Great Lakes REIT, Inc.
Index to Form 10-Q
June 30, 1996
Page Number
Part I
Item 1. Financial Information:
Condensed Balance Sheets
as of June 30, 1996
and December 31, 1995 4
Condensed Statements of Income
for the three months
ended June 30, 1996 and 1995 5
Condensed Statements of Income
for the six months 6
ended June 30, 1996 and 1995
Condensed Statement of Changes
in Stockholders' Equity
for the six months ended
June 30, 1996 7
Condensed Statements of Cash flows
for the six months
ended June 30, 1996 and 1995 9
Notes to Condensed Financial Statements 10
Item 2. Management Discussion and Analysis of Results of
Operations and Financial Condition 12
<PAGE>
<TABLE>
Great Lakes REIT, Inc.
Condensed Balance Sheets
(unaudited)
<CAPTION>
June 30, 1996 December 31, 1995
------------- -----------------
<S> <C> <C>
Properties:
Land $19,566,500 $18,673,750
Buildings, improvements and equipment 83,994,002 75,667,086
Less accumulated depreciation 3,872,237 2,482,844
------------- -------------
99,688,265 91,857,992
Cash and cash equivalents 327,681 1,302,728
Goodwill 1,470,420 -
Other assets 5,004,349 5,817,716
------------- -------------
Total assets $106,490,715 $98,978,436
============== =============
Liabilities and Stockholders' Equity
Bank loan payable $29,002,368 $24,253,148
Bonds payable 5,235,000 5,420,000
Mortgage notes payable 18,320,320 18,634,022
Accounts payable, accrued expenses and
other liabilities 6,947,084 5,706,069
----------- -----------
Total liabilities 59,504,772 54,013,239
----------- -----------
Preferred stock (none issued)
Common stock (4,832,216 shares issued) 48,322 45,209
Paid-in capital 49,166,640 45,861,352
Distributions in excess of accumulated earnings (1,669,830) (785,953)
Treasury stock, at cost (12,951 shares) (155,411) (155,411)
Deferred compensation (40,000 shares) (403,778)
---------
Total stockholders' equity 46,985,943 44,965,197
----------- -----------
Total liabilities and stockholders' equity $106,490,715 $98,978,436
============ ===========
</TABLE>
The accompany notes are an integral part of these condensed financial
statements.
<PAGE>
<TABLE>
Great Lakes REIT, Inc.
Condensed Statements of Income
For the three months ended
June 30, 1996 and 1995
(unaudited)
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Revenues
Rental $5,900,684 $3,120,944
Interest and other 26,598 25,765
----------- -----------
Total revenues 5,927,282 3,146,709
----------- -----------
Expenses
Property operating 2,535,198 1,391,922
General and administrative 562,207 201,265
Interest 981,459 446,416
Depreciation and amortization 909,044 393,997
------- -------
Total expenses 4,987,908 2,433,600
---------- ----------
Net income (loss) $939,374 $713,109
========= ==========
Earnings (loss)per common share and
common share equivalent $0.19 $0.21
===== ======
Weighted average number of common
shares and common share equivalents outstanding 4,848,197 3,377,054
========= =========
</TABLE>
The accompany notes are an integral part of these condensed financial
statements.
<PAGE>
<TABLE>
Great Lakes REIT, Inc.
Condensed Statements of Income
For the six months ended June 30, 1996 and 1995
(unaudited)
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Revenues
Rental $11,423,630 $5,718,771
Interest and other 47,435 47,928
----------- -----------
Total revenues 11,471,065 5,766,699
------------ -----------
Expenses
Property operating 5,003,110 2,542,792
General and administrative 900,259 365,447
Interest 1,922,245 801,352
Depreciation and amortization 1,734,666 719,167
--------- -------
Total expenses 9,560,280 4,428,758
---------- ----------
Net income (loss) $1,910,785 $1,337,941
=========== ============
Earnings (loss)per common share and
common share equivalent $0.41 $0.44
====== ======
Weighted average number of common
shares and common share equivalents outstanding 4,707,565 3,069,497
========= =========
</TABLE>
The accompany notes are an integral part of these condensed financial
statements.
<PAGE>
<TABLE>
Great Lakes REIT, Inc.
Condensed Statement of Changes in Stockholders' Equity
For the six months ended June 30, 1996
(Unaudited)
<CAPTION>
Distribution Total
in Excess of Stock-
Accumulated Treasury Deferred holders'
Earnings Stock Compensation Equity
<S> <C> <C> <C> <C> <C>
Balance, 1/1/96 ($785,953) (155,411) - $44,965,197
Exercise of
stock options - - 1,697,829
Net income 1,910,785 - - 1,910,785
Distributions/
dividends payable
($0.30 per share) (2,794,662) - - (2,794,662)
Issuance of shares
in merger 1,130,572
Restricted stock
awards (403,778) 76,222
----------- --------- --------- ------------
Balance at 6/30/96 ($1,669,830) (155,411) (403,778) $46,985,943
============ ========= ========= ===========
</TABLE>
The accompanying notes are an integral part of these condensed financial
statements.
<PAGE>
<TABLE>
Great Lakes REIT, Inc.
Condensed Statement of Changes in Stockholders' Equity
For the six months ended June 30, 1996
(Unaudited)
<CAPTION>
Common Stock
Shares Paid-in
Outstanding Amount Capital
<S> <C> <C> <C>
Balance, 1/1/96 4,507,945 $45,209 45,861,352
Exercise of
stock options 171,320 1,713 1,696,116
Net income - - -
Distributions/
dividends payable
($0.30 per share) - - -
Issuance of shares
in merger 100,000 1,000 1,129,572
Restricted stock
awards 40,000 400 479,600
Balance at 6/30/96 4,819,265 $48,322 49,166,640
========= ======= ==========
</TABLE>
The accompanying notes are an integral part of these condensed financial
statements.
<PAGE>
<TABLE>
Great Lakes REIT, Inc.
Condensed Statements of Cash Flows
For the six months ended June 30, 1996 and 1995
(unaudited)
<CAPTION>
Cash flows from operating activities 1996 1995
---- ----
<S> <C> <C>
Net income $1,910,785 1,337,841
Adjustments to reconcile net income to net
cash flows from operating activities:
Depreciation and amortization 1,734,666 719,167
Amortization of deferred compensation 76,222
Net changes in assets and liabilities:
Other assets 672,957 (1,194,567)
Accounts payable and accrued liabilities 1,241,015 1,796,654
Payment of deferred leasing costs (611,793) (211,211)
--------- -----------
Net cash provided by operating activities 5,023,852 2,447,884
--------- ---------
Cash flows from investing activities
Purchase of properties (7,399,198) (7,287,043)
Payment of tenant & building improvement costs (1,743,775) (1,153,678)
Decrease in earnest money deposits 875,000 -
---------- ------
Net cash used by investing activities (8,267,973) (8,440,721)
----------- -----------
Cash flows from financing activities
Proceeds from sale of common stock 13,799,104
Payment of stock issuance costs (1,220,691)
Proceeds from exercise of stock options 1,697,829
Proceeds from bank and mortgage loans payable 4,749,220 3,250,000
Distributions/dividends paid and payable (2,794,662) (1,515,762)
Repayment of mortgage notes and bonds payable (498,702) (439,752)
Payment of deferred financing costs (449,457) -
Acquisition of advisor (435,154) -
--------- -
Net cash (used) provided by financing activities 2,269,074 13,872,899
--------- ----------
Net (decrease) increase in cash and cash equivalents (975,047) 7,880,062
Cash and cash equivalents, beginning of quarter 1,302,728 2,676,594
--------- ---------
Cash and cash equivalents, end of quarter $ 327,681 $10,556,656
=========== ===========
Non-cash financing transactions:
Bonds payable assumed in purchase of property $ - $5,590,000
============ ==========
Issuance of common stock for acquisition of Advisor $1,350,000 -
========== ====
Restricted stock awards $480,000 -
======== ====
</TABLE>
The accompanying notes are an integral part of these condensed financial
statements.
<PAGE>
Great Lakes REIT, Inc.
Notes to Condensed Financial Statements
June 30,1996
(Unaudited)
1. Basis of Presentation
The accompanying condensed unaudited financial statements have been
prepared in accordance with the instructions to Form 10-Q and do not
include all information and footnotes necessary for a fair
presentation of financial position, results of operations and cash
flows in conformity with generally accepted accounting principles
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
on Form 10/A for the year ended December 31, 1995.
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.
On April 17, 1996, the Company acquired a 96,000 square foot office
building in Springdale, Ohio, for an acquisition price of $6,314,000.
A portion of the purchase price was financed using the Company's Bank
of Boston bank line of credit.
3. Related Party Transactions
The following fees will be or have been paid to Equity Partners Ltd.,
(the "Advisor") or affiliates. All fees earned in 1996 related to the
period prior to April 1,1996.
Two directors of the Company were owners of the Advisor.
Paid Paid Payable
1996 1995 at
June 30, 1996
Property acquisition fees $87,731 $190,275
Stock offering fees 6,481 125,266
Advisory fees 278,006 235,541
Property management fees 269,919 253,598
Construction management fees 127,717 31,490
Other fees, primarily legal fees 17,751
On April 1, 1996, the Company acquired all the outstanding shares of
the Advisor in exchange for 100,000 shares of Common Stock (the
"Merger"). The Merger has been accounted for as a purchase. Of the
total purchase price of $1,565,726, $1,489,033 was assigned to
goodwill and $76,693 to the net tangible assets of the Advisor
acquired by the Company. Goodwill amortization is computed on a
straight-line basis over a twenty year period. As of April 1, 1996,
the Company employed the employees
<PAGE>
of the Advisor and is now self-managed and self-advised. Certain
employees of the Advisor have received 40,000 restricted shares of
Common Stock. Certain restricted shares (30,000 shares) vest to the
recipients in equal amounts on April 1, 1997 and April 1, 1998
provided the recipients are still employed by the Company. The other
restricted shares (10,000 shares) vest 25% on May 1, 1999 and 25% on
May 1 of the next three years (2000-2002) provided the recipient is
still employed by the Company. The fair value of the restricted
shares at the dates of grant ($480,000) was deferred and is being
recognized as compensation expense over the vesting periods.
4. Financing Activities
On April 15, 1996, the Company refinanced its bank line of credit
with the First National Bank of Boston. The new line of credit allows
for maximum borrowings of $35,000,000 subject to certain loan
covenants. On June 28, 1996, the maximum borrowings under the line of
credit were increased to $50,000,000 subject to certain loan
covenants. Interest on the new line of credit accrues at LIBOR +
1.875% per annum. Amounts outstanding under this line of credit are
due on April 12, 1998. On June 30, 1996, the Company extended its
line of credit with American National Bank until June 30, 1997. The
maximum amount available to be borrowed under this line of credit is
$5,000,000.
5. Proforma Financial Statements
The following unaudited pro forma summary presents the results of
operations of the Company as if the acquisition of the Advisor and
the property acquisitions in 1996 and 1995 had occurred at the
beginning of 1995, after giving effect to certain adjustments,
including increased depreciation and interest expense. The unaudited
pro forma summary information does not necessarily reflect the
results of operations as they would have been if the Company had
acquired the Advisor and properties on January 1, 1995.
Six months Six months
ended ended
June 30, 1996 June 30, 1995
Revenues $11,649,000 $10,648,000
Net Income $1,798,000 $1,781,000
Earnings per common
share and common
share equivalent $0.37 $0.37
5. Subsequent Event
On July 24, 1996, the Company acquired a 41,500 square foot
single-story office building located in Lincolnshire, Illinois for a
contract price of $2,800,000. A portion of the purchase price of this
property was financed under the American National Bank line of
credit.
<PAGE>
ITEM 2.Management's Discussion and Analysis of Results of Operations and
Financial Condition
Overview
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 June 30, 1996, the Company owns and operates eighteen properties located in
suburban areas of Chicago, Detroit, Milwaukee, Cincinnati and Minneapolis. The
Company leases office and industrial space to over 200 tenants in a variety of
businesses.
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
funds from operations (FFO) for the three and six months ended June 30, 1996 as
compared to June 30, 1995 has been due to a combination of improved operations
of the Company's properties and the inclusion of the operating results of
properties acquired in 1995 and 1996 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 Condensed Financial Statements included elsewhere in this Form 10-Q.
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
Six months ended June 30, 1996
In analyzing the operating results for the six months ended June 30, 1996 of the
Company, 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 six months of operating
results in 1996 of properties acquired in 1995 as compared to the partial period
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 six months ended June 30, 1996, the Company acquired two new
investment properties. The operating results of these properties 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 six months 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 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 $5,129,000 2,252,000
Increase due to 1996 acquisitions 263,000 208,000
Improved operations in 1996
compared to 1995 313,000 -
---------- ---------
Total increase in 1996 $5,705,000 2,460,000
========== =========
</TABLE>
<PAGE>
Interest expense during the six months ended June 30, 1996 increased by
$1,121,000 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 and 1996.
General and administrative expenses increased by $535,000 due to the increase in
the size of the Company.
Depreciation and amortization increased in 1996 by $1,015,000 as the Company
incurred these expenses on eighteen properties in 1996 versus eleven properties
in 1995.
Three months ended June 30, 1996
In analyzing the operating results for the quarter ended June 30, 1996 of the
Company, 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.
The Company acquired two new investment properties. The operating results of
these properties 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 months 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 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 $2,438,000 989,000
Increase due to 1996 acquisitions 201,000 152,000
Improved operations in 1996
compared to 1995 141,000 2,000
---------- --------
Total increase in 1996 $2,780,000 1,143,000
========== =========
</TABLE>
Interest expense during the quarter ended June 30, 1996 increased by $535,000 as
the Company had greater amounts of long and short-term debt outstanding in 1996.
This debt was used to finance the acquisistion of properties acquired in 1995
and 1996.
General and administrative expenses increased by $361,000 due to the increase in
the size of the Company.
Depreciation and amortization increased in 1996 by $515,000 as the Company
incurred these expenses on eighteen properties in 1996 versus eleven properties
in 1995.
Liquidity and Capital Resources
Cash and cash equivalents as of June 30, 1996 were $328,000, a decrease of
$975,000 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 acquisition of two
<PAGE>
investment properties in 1996.
The Company expects to meet its short-term liquidity requirements generally
through its working capital and net cash provided by operating activities. The
Company considers its cash provided by operating activities to be adequate to
meet operating requirements and to fund the payment of dividends in 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. 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 American National Bank line
of credit. In June of 1996, the Company increased its line of credit with the
First National Bank of Boston to $50 million, subject to certain loan covenants.
The Company also extended its line of credit with the American National Bank
until June 30, 1997. The maximum amount that may be borrowed from the American
National Bank is $5 million. At June 30, 1996, the Company has $29,002,368
outstanding on its line of credit with the First National Bank of Boston with
approximately $950,000 available to borrow. The amount available to be borrowed
at June 30, 1996 under the American National Bank line of credit is $5 million.
At June 30, 1996, the Company had committed to a $1.3 million (with $600,000
remaining outstanding) renovation program at its Oak Brook, Illinois property.
The Company has also committed to fund approximately $1.1 million of tenant
improvements at its Springdale, Ohio property. The Company expects to fund these
commitments, in part, through its Bank of Boston and American National Bank
lines of credit.
Funds from Operations (FFO)
FFO, as defined by the National Association of Real Estate Investment Trusts
(NAREIT), is a measure of operating performance for real estate investment
trusts and is defined as net income computed in accordance with generally
accepted accounting principles (GAAP), excluding gains and losses from debt
restructuring and sales of property, plus real estate depreciation and
amortization. FFO for the six months ended June 30, 1996 is calculated by the
Company as follows:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Net income $ 1,910,785 $ 1,337,841
Depreciation and amortization 1,490,041 654,017
--------- -------
FFO $ 3,400,827 $ 1,991,858
========= =========
FFO for the three months ended June 30, 1996 and 1995 is as follows:
1996 1995
---- ----
Net income $939,374 $713,109
Depreciation and amortization 869,693 361,372
------- -------
FFO $1,809,967 $1,074,481
========== ==========
</TABLE>
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Great Lakes REIT, Inc.
(Registrant)
March 26, 1997 /s/ James Hicks
Date James Hicks
Senior Vice President & Chief Financial Officer
(Principal Financial Officer)
March 26, 1997 /s/ Brett A. Brown
Date Brett A. Brown
Vice President & Controller
(Principal Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 327,681
<SECURITIES> 0
<RECEIVABLES> 5,004,349
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 5,332,030
<PP&E> 103,560,502
<DEPRECIATION> 3,872,237
<TOTAL-ASSETS> 106,490,715
<CURRENT-LIABILITIES> 6,947,084
<BONDS> 52,557,688
0
0
<COMMON> 48,322
<OTHER-SE> 46,937,621
<TOTAL-LIABILITY-AND-EQUITY> 106,490,715
<SALES> 11,423,630
<TOTAL-REVENUES> 11,471,065
<CGS> 0
<TOTAL-COSTS> 7,638,035
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,922,245
<INCOME-PRETAX> 1,910,785
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,910,785
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,910,785
<EPS-PRIMARY> .41
<EPS-DILUTED> .41
</TABLE>
