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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15 (d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): JANUARY 14, 1998
PRIME GROUP REALTY TRUST
(Exact name of Registrant as specified in its Charter)
MARYLAND 1-13589 36-4173047
(State or other jurisdiction of (Commission File (I.R.S. Employer
incorporation or organization) Number) Identification No.)
77 West Wacker Drive, Suite 3900, Chicago, Illinois 60601
(Address of principal executive offices) (Zip Code)
(312) 917-1300
(Registrant's telephone number, including area code)
N/A
(Former name or former address,
if changed since last report)
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ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
As reported on Form 8-K filed with the Securities and Exchange Commission on
January 14, 1998, Prime Group Realty Trust (the "Company") acquired the
office property known as 33 North Dearborn for approximately $32.3 million.
Financial statements for this acquisition are included in this Form 8-K/A.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements Under Rule 3-14 of Regulation S-X
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PAGE
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(i) Statements of revenue and expenses of 33 North Dearborn
Report of Independent Auditors 4
Statements of Revenue and Certain Expenses for the year ended
December 31, 1996 (Audited) and for the nine months ended
September 31, 1997 (Unaudited) 5
Notes to Statements of Revenue and Certain Expenses 6-7
(b) Pro Forma Financial Statements 8
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The accompanying unaudited pro forma condensed consolidated statements of
operations for the nine months ended September 30, 1997 and the year ended
December 31, 1996, were prepared as if each of the following had occurred on
January 1, 1996: (i) the Company had sold 12.38 million of its common
shares of beneficial interest at $20.00 per share (the "Offering") and
contributed the net proceeds to Prime Group Realty, L.P. (the "Operating
Partnership"), (ii) the Company had sold 2.0 million shares of its cumulative
convertible preferred shares of beneficial interest at $20.00 per share (the
"Private Placement") and contributed the net proceeds to the Operating
Partnership, (iii) Prime Group, Inc. ("PGI") and other individuals had
contributed certain of their respective properties and operations, as
described in the Company's Prospectus dated November 11, 1997 as filed with
the Securities and Exchange Commission on November 13, 1997 (the
"Prospectus"), to the Operating Partnership, (iv) the Operating Partnership
had issued 4.57 million common units for $85.0 million to a partnership owned
60% by PGI and 40% by certain affiliates of Blackstone Real Estate Advisors,
L.P., (v) the Operating Partnership acquired various office and industrial
properties (including 33 North Dearborn), (vi) the Operating Partnership
acquired Continental Office, Ltd. and Continental Offices, Ltd. Realty,
construction/property management companies, (vii) the Operating Partnership
acquired the first mortgage notes encumbering Continental Towers and 180
North LaSalle Street (the operations of Continental Towers have been
consolidated), (viii) the Operating Partnership repaid debt on certain of
its properties, as described in the Prospectus, (ix) the Operating
Partnership financed certain acquisitions with borrowings under new mortgage
notes and a line of credit facility, and (x) the Company sold 600,000 shares
of its common shares of beneficial interest pursuant to the underwriter's
over allotment option and received net proceeds therefrom of approximately
$11.25 million.
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The acquisition of 33 North Dearborn increased pro forma revenue, expenses
and net income by $4,457, $5,008 and ($306), respectively, for the nine
months ended September 30, 1997 and $6,066, $6,684 and ($343), respectively,
for the year ended December 31, 1996.
The unaudited pro forma Condensed Consolidated Statements of Operations
should be read in conjunction with unaudited Pro Forma condensed consolidated
financial statements and all of the historical financial statements contained
in the Prospectus. In management's opinion, all adjustments necessary to
reflect the effects of the Offering and the Private Placement have been made.
The unaudited Pro Forma Condensed Consolidated Statements of Operations of
the Company are not necessarily indicative of what the actual results of
operations would have been assuming the Offering and the Private Placement
had occurred at the dates indicated above, nor do they purport to represent
the future results of operations of the Company.
(c) Exhibits
None.
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REPORT OF INDEPENDENT AUDITORS
Board of Trustees
Prime Group Realty Trust
We have audited the accompanying Statement of Revenue and Certain Expenses of
33 North Dearborn (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
made in the Statement of Revenue and Certain Expenses. An audit also
includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
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 Prime
Group Realty Trust 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 for the year ended December 31, 1996, in
conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Chicago, Illinois
November 24, 1997
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33 NORTH DEARBORN
STATEMENTS OF REVENUE AND CERTAIN EXPENSES
(in thousands)
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PERIOD FROM
JANUARY 1, 1997 TO
YEAR ENDED SEPTEMBER 30, 1997
DECEMBER 31, 1996 (UNAUDITED)
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<S> <C> <C>
Revenue
Rental $ 4,532 $ 3,417
Tenant reimbursements 1,445 989
Other income 89 51
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Total revenue 6,066 4,457
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Expenses
Cleaning 403 316
Utilities 599 458
Other property operating 1,321 959
Real estate taxes 1,408 1,059
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Total expenses 3,731 2,792
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Revenue in excess of certain expenses $ 2,335 $ 1,665
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SEE ACCOMPANYING NOTES.
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33 NORTH DEARBORN
NOTES TO STATEMENTS OF REVENUE AND CERTAIN EXPENSES
(in thousands)
1. BUSINESS
The accompanying Statements of Revenue and Certain Expenses relate to
the operations of 33 North Dearborn, an office building located in Chicago,
Illinois (the Property). As of September 30, 1997, the Property had sixty
tenants (unaudited).
2. 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 Prime
Group Realty Trust. 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 Prime Group
Realty Trust 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 incurred.
USE OF ESTIMATES
The preparation of the Statements of Revenue and Certain Expenses in
conformity with generally accepted accounting principles require management
to make estimates and assumptions that affect the reported amounts of revenue
and certain expenses during the reporting periods. Actual results could
differ from these estimates.
3. INTERIM PERIOD (UNAUDITED)
The unaudited Statement of Revenue and Certain Expenses for the period
from January 1, 1997 to September 30, 1997 has been prepared in accordance
with generally accepted accounting principles for interim financial
information. In the opinion of management, all adjustments of a normal
recurring nature considered necessary for a fair presentation have been
included. Operating results for the period from January 1, 1997 to September
30, 1997, are not necessarily indicative of future operating results.
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4. RENTALS
The Property has lease agreements with lease terms ranging from one year
to twenty years. The leases generally provide for tenants to share in
increases in operating expenses and real estate taxes in excess of specified
base amounts. The total future minimum rentals to be received under such
noncancelable operating leases as of September 30, 1997, exclusive of tenant
reimbursements and contingent rentals, are as follows:
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YEAR ENDED DECEMBER 31 AMOUNT
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1997 $ 1,122
1998 4,464
1999 4,230
2000 3,863
2001 3,271
Thereafter 7,125
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$ 24,075
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Prime Group Realty Trust
Pro Forma Condensed Statements of Operations
(in thousands, except per share data)
(Unaudited)
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FOR THE NINE FOR THE YEAR
MONTHS ENDED ENDED
SEPTEMBER 30, DECEMBER 31,
1997 1996
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REVENUE:
Rental $ 54,252 $ 67,270
Tenant reimbursements 21,794 27,877
Other 5,045 9,047
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TOTAL REVENUE 81,091 104,194
EXPENSES:
Property operations 15,123 20,910
Real estate taxes 13,795 17,690
Depreciation and amortization 15,353 20,108
Interest 17,250 22,200
Financing fees - -
General and administrative 4,578 7,161
Write-off of deferred costs - 3,081
Provision for environmental remediation 3,205 -
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TOTAL EXPENSES 69,304 91,150
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INCOME(LOSS) FROM OPERATIONS BEFORE
SHARE OF INCOME OF INVESTMENT
SUBSIDIARIES AND MINORITY INTEREST 11,787 13,044
SHARE OF INCOME OF INVESTMENT SUBSIDIARIES 170 387
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INCOME (LOSS) BEFORE PREFERRED STOCK
AND MINORITY INTEREST 11,957 13,431
PREFERRED STOCK DIVIDENDS (2,100) (2,800)
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INCOME (LOSS) BEFORE MINORITY INTEREST 9,857 10,631
MINORITY INTEREST (4,386) (4,731)
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NET INCOME(LOSS) $ 5,471 $ 5,900
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AVERAGE NUMBER OF COMMON SHARES OUTSTANDING
OF BENEFICIAL INTEREST OUTSTANDING 12,980 12,980
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NET INCOME PER COMMON SHARE OF BENEFICIAL INTEREST $ 0.42 $ 0.45
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SIGNATURE
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.
PRIME GROUP REALTY TRUST
Registrant
/s/ William M. Karnes
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William M. Karnes
Executive Vice President and
Chief Financial Officer
Date: March 31, 1998
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