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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): FEBRUARY 20, 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 March 6, 1998, Prime Group Realty Trust (the "Company") acquired the office
property known as Commerce Point Business Park for approximately $28.4 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
PAGE
Statements of Revenue and Certain Expenses of Commerce Point
Report of Independent Auditors 5
Statements of Revenue and Certain Expenses for the year ended
December 31, 1996 (Audited) 6
Notes to Statements of Revenue and Certain Expenses 7-8
(b) Pro Forma Financial Statement 9
The accompanying unaudited pro forma condensed consolidated statement of
operations for the year ended December 31, 1997 was prepared as if each of
the following had occurred on January 1, 1997: (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) The 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 the
office properties known as 33 North Dearborn and Commerce Point, (vi) the
Operating Partnership acquired certain assets from the Continental Office,
Ltd. and Continental Offices, Ltd. Realty, construction/property management
companies, (vii) the Operating Partnership acquired the first mortgage notes
encumbering the office properties known as 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.
2
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The acquisition of Commerce Point increased pro forma revenue, expenses and
net income by $5,413, $4,854 and $311, respectively, for the year ended
December 31, 1997.
The unaudited pro forma Condensed Consolidated Statement 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 Statement of Operations of the
Company is 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.
3
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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
------------------------------
William M. Karnes
Executive Vice President and
Chief Financial Officer
Date: May 5, 1998
4
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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
Commerce Point (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
December 20, 1997
5
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COMMERCE POINT
STATEMENTS OF REVENUE AND CERTAIN EXPENSES
(IN THOUSANDS)
<TABLE>
<CAPTION>
PERIOD FROM
JANUARY 1, 1997 TO
YEAR ENDED SEPTEMBER 30, 1997
DECEMBER 31, 1996 (UNAUDITED)
----------------- ------------------
<S> <C> <C>
Revenue
Rental. . . . . . . . . . . . . . . . . . . . $2,954 $2,323
Tenant reimbursements . . . . . . . . . . . . 2,109 1,687
Other income. . . . . . . . . . . . . . . . . 65 50
----------------- ------------------
Total revenue . . . . . . . . . . . . . . . . 5,128 4,060
----------------- ------------------
Expenses
Cleaning. . . . . . . . . . . . . . . . . . . 162 120
Utilities . . . . . . . . . . . . . . . . . . 251 185
Other property operating. . . . . . . . . . . 590 434
Real estate taxes . . . . . . . . . . . . . . 1,263 943
----------------- ------------------
Total expenses. . . . . . . . . . . . . . . . 2,266 1,682
----------------- ------------------
Revenue in excess of certain expenses . . . . $2,862 $2,378
----------------- ------------------
----------------- ------------------
</TABLE>
SEE ACCOMPANYING NOTES.
6
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COMMERCE POINT
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 Commerce Point, an office complex located in Arlington
Heights, Illinois (the Property). As of September 30, 1997, the Property had
twenty-seven tenants (unaudited), one of which accounted for approximately
52% and 55% of rental revenue for the period from January 1, 1997 to
September 30, 1997 (unaudited), and for the year ended December 31, 1996,
respectively.
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.
7
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4. RENTALS
The Property has lease agreements with lease terms ranging from one year
to six 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 (unaudited):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31 AMOUNT
---------------------- ------
<S> <C>
1997 $ 680
1998 2,903
1999 2,871
2000 2,822
2001 2,643
Thereafter 2,895
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$14,814
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</TABLE>
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Prime Group Realty Trust
Pro Forma Condensed Statements of Operations
(in thousands, except per share data)
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE YEAR
ENDED
DECEMBER 31,
1997
------------
<S> <C>
REVENUE:
Rental $73,862
Tenant reimbursements 30,492
Other 7,467
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TOTAL REVENUE 111,821
EXPENSES:
Property operations 21,602
Real estate taxes 19,807
Depreciation and amortization 21,072
Interest 24,978
General and administrative 4,524
Provision for environmental remediation 3,205
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TOTAL EXPENSES 95,188
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INCOME BEFORE MINORITY INTEREST 16,633
MINORITY INTEREST (7,402)
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NET INCOME 9,231
NET INCOME ALLOCATED TO PREFERRED SHAREHOLDERS (2,800)
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NET INCOME AVAILABLE TO COMMON SHAREHOLDERS $ $6,431
------------
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AVERAGE NUMBER OF COMMON SHARES
OF BENEFICIAL INTEREST OUTSTANDING 12,990
------------
------------
NET INCOME PER COMMON SHARE OF BENEFICIAL INTEREST $ 0.50
------------
------------
</TABLE>
