SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
[X] Current Report Pursuant to Section 13 OR 15(d)
of the Securities Exchange Act of 1934
November 14, 1997
(Date of Report)
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
<PAGE>
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
ACQUISITIONS
As previously reported in a Current Report on Form 8-K filed September 15, 1997,
on September 2, 1997, Great Lakes REIT, Inc. through Great Lakes REIT L.P.
(collectively the "Company") acquired a eleven-story, class A office building
located at 1750 E. Golf Road, Schaumburg, Illinois ("One Century Centre").
TERMS OF PURCHASE
One Century Centre was purchased from an unaffiliated third party for
approximately $19.9 million. Funds for the purchase came from Company line
of credit and cash reserves
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
The required financial statement for One Century Centre is attached as Exhibit
A. The required proforma financial statement is attached as Exhibit B.
No information is required under Items 1,3,4, and 6, and these items have
therefore been omitted.
By: /s/ Richard L. Rasley
Richard L. Rasley, Secretary
<PAGE>
Exhibit A
Statements of Revenue and Certain Expenses
One Century Centre
Year Ended December 31, 1996
with Report of Independent Auditors
<PAGE>
Report of Independent Auditors
The Board of Directors
Great Lakes REIT, Inc.
We have audited the accompanying Statement of Revenue and Certain Expenses of
One Century Centre (the Property) for the year ended December 31, 1996. 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 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, for inclusion in the Current Report on Form 8-K of Great
Lakes REIT, Inc. as described in Note 2, 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 of the Property for the year ended December 31, 1996, in
conformity with generally accepted accounting principles.
[GRAPHIC OMITTED]
Ernst & Young LLP
Chicago, Illinois
October 10, 1997
<PAGE>
Exhibit B
GREAT LAKES REIT, INC.
PRO FORMA CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
The unaudited consolidated pro forma statement of income for the year ended
December 31, 1996 is presented as if the acquisition and disposition of
properties subsequent to December 31, 1995, the Companys private equity
offering in 1996, the acquisition of Equity Partners Ltd., the Advisor, and
the Companys initial public offering of its common shares had all occurred as
of January 1, 1996 (the Offering).
The unaudited consolidated pro forma statement of income for the nine
months ended September 30, 1997 is presented as if the properties acquired in
1997 had occurred as of January 1, 1997.
The pro forma financial statements are not necessarily indicative of what
the Companys results of operations would have been assuming the above events
actually occurred as of the dates indicated, nor do they purport to project the
Companys financial position or results of operations at any future date or for
any future period.
<PAGE>
<TABLE>
Consolidated Pro forma Statement of Income
For the Year Ended December 31, 1996
<CAPTION>
1996 1996 1996 Pro forma
Historical (1) Advisor (1) Acquisitions (2) Dispositions (3) Adjustments
<S> <C> <C> <C> <C> <C>
Revenues
Rental $20,249,565 10,181,410 (1,522,795)
Reimbursements 4,814,005 4,196,142 (172,833)
Interest and other 168,739 567,620 472,579 (562,847)(4)
----------------------------------------------------------------------------------------------------
Total revenues 25,232,309 567,620 14,850,131 (1,695,628) (562,847)
-----------------------------------------------------------------------------------------------------
Expenses
Real estate taxes 3,954,144 2,853,267 (160,166)
Other property operating 6,548,057 144,436 4,264,742 (449,311) (217,971)(5)
General and administrative 2,242,165 339,220 (203,697)(5)
Interest 3,778,065 (105,902) 2,882,725 (8)
Depreciation and amortization 4,000,736 (221,246) 1,728,428 (6)
----------------------------------------------------------------------------------------------------
Total expenses 20,523,167 483,656 7,118,009 (936,625) 4,256,945
----------------------------------------------------------------------------------------------------
Income before gains on sale of 4,709,142 83,964 7,732,122 (759,003) (4,819,792)
real property
Gain on sale of properties 3,139,892 (3,139,892)(9)
----------------------------------------------------------------------------------------------------
Net income $7,849,034 83,964 7,732,122 (759,003) (7,959,684)
====================================================================================================
</TABLE>
<TABLE>
Consolidated Pro forma Statement of Income
For the Year Ended December 31, 1996
<CAPTION>
Pro forma
Before 1997 Pre Offering Pro forma
Acquisitions and 1997 Pro Forma Pro forma Adjustments
the Offering Acquisitions Adjustments 12/31/96 ForOffering
<S> <C> <C> <C> <C> <C>
Revenues
Rental 28,908,180 1,499,090 30,407,270
Reimbursements 8,837,314 100,683 8,937,997
Interest and other 646,091 646,091
------------------------------------------------------------------------------------------------
Total revenues 38,391,585 1,599,773 39,991,358
------------------------------------------------------------------------------------------------
Expenses
Real estate taxes 6,647,245 230,256 6,877,501
Other property operating 10,289,953 360,964 10,650,917
General and administrative 2,445,148 2,445,148
Interest 6,554,888 267,113 6,822,001 (6,047,878)(10)
Depreciation and amortization 5,507,918 209,682 (6) 5,717,600 (14,798)(6)
------------------------------------------------------------------------------------------------
Total expenses 31,445,152 858,333 209,682 32,513,167 (6,062,676)
------------------------------------------------------------------------------------------------
Income before gains on sale of 6,946,433 741,440 (209,682) 7,478,191 6,062,676
real property
Gain on sale of properties
------------------------------------------------------------------------------------------------
Net income 6,946,433 741,440 (209,682) 7,478,191 6,062,676
================================================================================================
</TABLE>
<PAGE>
<TABLE>
Consolidated Pro forma Statement of Income
For the Year Ended December 31, 1996
<CAPTION>
Pro forma
Before 1996
One Century One Century Company
Acquisition Acquisition Pro forma
Revenues
<S> <C> <C> <C>
Rental 30,407,270 3,007,226 $33,414,496
Reimbursements 8,937,997 134,600 9,072,597
Interest and other 646,091 71,077 717,168
----------------------------------------------------------
Total revenues 39,991,358 3,212,903 43,204,261
----------------------------------------------------------
Expenses
Real estate taxes 6,877,501 807,975 7,685,476
Other property operating 10,650,917 965,451 11,616,368
General and administrative 2,445,148 2,445,148
Interest 774,423 600,000 1,374,123
Depreciation and amortization 5,702,802 439,616 6,142,418
----------------------------------------------------------
Total expenses 26,450,791 2,813,042 29,263,533
----------------------------------------------------------
Income before gains on sale of 13,540,567 399,861 13,940,728
real property
Gain on sale of properties
----------------------------------------------------------
Net income 13,540,567 399,861 $13,940,728
==========================================================
Earnings per common share and
common share equivalent $0.89
===================
Weighted average number of
common shares and common 15,697,473
===================
share equivalents outstanding
See accompanying notes to pro forma consolidated statement of income.
<FN>
GREAT LAKES REIT, INC.
NOTES TO CONSOLIDATED PRO FORMA STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1996
(Unaudited)
1. Represents the historical operations of the Company and Equity
Partners Ltd., the Advisor for the period described.
2. Represents the historical operations of properties acquired subsequent to December 31,
1995. Based on preacquisition discussions with local assessors and tax counsel, the
Company has concluded that no adjustment to historical real estate taxes is appropriate.
3. Represents the actual historical results of the properties sold in 1996 for the period prior to
disposition.
4. On April 1, 1996, the Company acquired all of the outstanding shares of the Advisor in
exchange for 100,000 shares of the Common Stock (the Merger). Income earned in 1996
by the Advisor from the Company prior to the Merger is eliminated from the pro forma
income statements:
Acquisition fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 15,750
Advisory fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 203,697
Property management fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 217,971
Construction fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 107,717
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17,712
$562,847
Amounts not eliminated represent income earned by the Advisor from third parties which
would have been earned by the Company had the Merger occurred at the beginning of 1996.
5. Expenses incurred by the Company which were paid to the Advisor prior to the Merger are
eliminated from the pro forma income statement:
1996
Other property operating expenses:
Property management fees. . . . . . . . . . . . . . . . . . . . . . . . . . $217,971
General and administrative costs:
Advisory fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .$203,697
As a consequence of this elimination, the accompanying consolidated pro forma statement
of income includes the property operating and general and administrative expenses of the
Advisor for the period prior to the Merger.
<PAGE>
6. Acquisition, construction, and certain other fees paid by the Company to the Advisor were
capitalized by the Company into buildings and improvements. If the Merger had occurred
on January 1, 1996, these fees would not have been incurred and depreciation and
amortization expenses would have decreased by $56,327 in 1996. Costs incurred by the
Advisor for acquisition and construction activities during 1996 are primarily salary costs and
are reflected as general and administrative expenses in the historical operations of the
Advisor.
Goodwill amortization is increased by $18,613 in 1996 as the Merger is assumed to have
occurred on January 1, 1996 in this consolidated pro forma statement of income.
Amortization of deferred financing costs is decreased by $14,798 in 1996 as the deferred
financing costs on long-term debt retired with the proceeds of the Offering are assumed to
be written off as of January 1, 1996.
Depreciation is computed on a straight-line basis over 40 years based on the purchase price
paid by the Company for the properties.
A summary of the depreciation and amortization adjustments is as follows:
Pro Forma
Offering
1996 Acquisitions 1997 Acquisitions Other
Increase in goodwill amortization.. $ 18,613
Decrease in amortization of deferred
financing costs. . . . ... . . . . .. $(14,798)
Decrease in depreciation due to
Advisor capitalized costs. . . . . . . . (56,327)
Depreciation on acquisitions . . . . . . 1,867,074 $209,682
Total. . . . . . . . . . . . . . . . . . $1,829,360 $209,682 $(14,798)
7. If the Merger had occurred on January 1, 1996, general and administrative expense would
have increased by $67,460 representing an additional three months amortization of deferred
compensation related to restricted stock awards issued in connection with the acquisition of
the Advisor.
8. As the acquisitions subsequent to December 31, 1995, the dispositions in 1996, and the 1996
private equity offering are all assumed to have occurred on January 1, 1996, the Company
would need to borrow approximately $38,436,335 as of January 1, 1996 to fund the property
acquisitions calculated as follows:
Cost of properties acquired in 1996. . . . . . . . . . . . . . . . . . $97,563,034
less: Proceeds of 1996 private equity offering. . . . . . . . . . . . 47,419,261
less: Proceeds of property sales. . . . . . . . . . . . . . . . . . . 11,707,438
Borrowings needed to acquire properties. . . . . . . . . . . . . . . . $38,436,335
Interest expense is calculated on this amount at 7.5% per annum, the interest rate in effect
under the Credit Facility during 1996, resulting in additional interest expenses in 1996 of
$2,882,725.
9. The Consolidated Pro Forma Statement of Income excludes gain on sale of properties of
$3,139,892.
10. In connection with the Offering, the Company retired all of its bank loan payable and
$13,568,404 of its long-term debt.
The pro forma interest expense adjustment is calculated as follows:
Pro forma adjustment in Note 8. . . . . . . . . . . . . . . . . . . . $2,882,725
Actual bank loan interest incurred by the Company in 1996. . . . . . 1,991,130
Actual interest incurred by the Company in 1996 on long-term debt
retired. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,174,023
---------
Pro forma interest expense adjustment. . . . . . . . . . . . . . . . . $6,047,878
</FN>
</TABLE>
<PAGE>
<TABLE>
Consolidated Pro Forma Statement of Income
For the Nine Months Ended September 30, 1997
<CAPTION>
Pro Forma
Previous Before
09/30/97 1997 Pro Forma One Century One Century Company
As reported Acquisitions Adjustments Acquisition Acquisition Pro Forma
<S> <C> <C> <C> <C> <C> <C>
Revenues
Rental $25,219,293 316,315 25,535,608 2,184,426 $27,720,034
Reimbursements 7,775,120 20,113 7,795,233 78,250 7,873,483
Interest and other 539,811 1,915 541,726 28,614 570,340
------------------------------------------------------------------------------------------------
Total revenues 33,534,224 338,343 33,872,567 2,291,290 36,163,857
------------------------------------------------------------------------------------------------
Expenses
Real estate taxes 5,400,664 102,672 5,503,336 400,972 5,904,308
Other property operating 8,323,061 97,235 8,420,296 659,342 9,079,638
General and administrative 2,598,460 2,598,460 2,598,460
Interest 3,144,940 21,103 (2,631,517) 534,526 430,068 964,595
Depreciation and amortization 5,839,273 43,026 5,882,299 293,881 6,176,179
------------------------------------------------------------------------------------------------
Total expenses 25,306,398 264,036 (2,631,517) 22,938,917 1,784,263 24,723,181
------------------------------------------------------------------------------------------------
Net income $8,227,826 74,306 2,631,517 10,933,649 507,027 $11,440,676
================================================================================================
Earnings per common share and
common share equivalent $0.52 $0.73
===================== ====================
Weighted average number of common
shares and common share equivalents
outstanding 15,697,473 15,697,473
===================== ====================
<FN>
NOTES TO PRO FORMA CONSOLIDATED STATEMENT OF INCOME
NINE MONTHS ENDED SEPTEMBER 30, 1997
1. Represents the historical results of the Company.
2. Represents the unaudited historical results of operations of One Century Centre for the
period January 1, 1997 to August 31, 1997.
3. Depreciation is computed on a straight-line basis over 40 years for the period January 1,
1997 to August 31, 1997.
4. Interest expense ($430,068) is computed on the amount borrowed ($8,000,000) to acquire
One Century Centre for the period January 1, 1997 to September 30, 1997 at 7.2% per
annum, the average interest rate during this period.
5. Interest expense has been reduced by $2,631,517 which represents interest paid on debt
retired with the proceeds of the Offering.
See accompanying notes to pro forma consolidated statement of income
</FN>
</TABLE>
<PAGE>
<TABLE>
One Century Centre
Statements of Revenue And Certain Expenses
(Dollars in thousands)
<CAPTION>
January 1,
1997 through
Year Ended September 1,
December 31, 1997
1996 (Unaudited)
--------------------------------------------------
<S> <C> <C>
Revenue
Base rents $3,007,226 $2,184,426
Tenant reimbursements 134,600 78,250
Other income 71,077 28,614
--------------------------------------------------
Total revenue 3,212,903 2,291,290
--------------------------------------------------
Expenses
Real estate taxes 807,975 400,972
General operating 181,162 137,574
Utilities 235,645 151,979
Cleaning and landscaping 295,518 211,797
Repairs and maintenance 159,369 99,410
Management fee 93,757 58,582
--------------------------------------------------
Total expenses 1,773,426 1,060,314
--------------------------------------------------
Revenue in excess of certain expenses $1,439,477 $1,230,976
==================================================
</TABLE>
See accompanying notes.
<PAGE>
One Century Centre
Notes to Statements of Revenue and Certain Expenses (continued)
1. Business
The accompanying Statements of Revenue and Certain Expenses relate to the
operations of One Century Centre (the Property), an 11-story office building
property located in Schaumburg, Illinois. The Property was acquired on September
1, 1997 by a partnership controlled by Great Lakes REIT, Inc. (Great Lakes).
As of September 1, 1997 and December 31, 1996, the Property was 97% leased with
twenty-one tenants. Four tenants accounted for approximately 63% and 60% of base
rents at September 1, 1997 and December 31, 1996, respectively.
1 Summary of Significant Accounting Policies
Basis of Presentation
The accompanying Statements of Revenue and Certain Expenses were prepared for
the purpose of complying with the rules and regulations of the Securities and
Exchange Commission, for inclusion in the Current Report on Form 8-K of Great
Lakes. The statements are not representative of the actual operations of the
Property for the periods 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 on a straight-line basis over the terms of the related
leases. Expenses are recognized in the period in which they are incurred.
Use of Estimates
The preparation of the Statements 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 periods. Actual results could differ from those
estimates.
Unaudited Interim Statement
In the opinion of management, the interim financial statement reflects all
adjustments necessary for a fair presentation of the results of the interim
period. All adjustments are of a normal, recurring nature.
<PAGE>
3. Rentals
The Property has entered into tenant leases that provide for tenants to share in
the operating expenses and real estate taxes in relation to their pro rata
basis, as defined.
4. Management Agreement
During the periods from January 1, 1997 to September 1, 1997 and from January 1,
1996 to December 31, 1996, the Property was managed by a third-party management
company. The management agreement provided for the greater of 2.75% of gross
monthly receipts or $5,000.
5. Related Party Transactions
At September 1, 1997 and December 31, 1996, related parties to Pioneer Life
Insurance Company of Illinois, the prior owner, occupied 20% of the available
space of the Property. The related parties accounted for approximately 25% and
24% of base rents at September 1, 1997 and December 31, 1996, respectively.
