<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15 (d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): MAY 29, 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)
<PAGE>
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
On May 29, 1998, the Company acquired the office property known as
6400 Shafer Court, which is an eight-story Class A office building containing a
total of approximately 162,115 square feet of rentable space (approximately
95.0% leased), located in Rosemont, Illinois. The property was purchased from a
third party for approximately $22.1 million.
On June 9, 1998, the Company acquired the office property known as Two
Century Centre, which is an eleven-story Class A office building containing a
total of approximately 203,140 square feet of rentable office space and 10,821
square feet of rentable retail space (approximately 98.7% leased), located in
Schaumburg, Illinois. The property was purchased from a third party for
approximately $35.7 million.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements Under Rule 3-14 of Regulation S-X
<TABLE>
<CAPTION>
PAGE
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<S> <C>
Statement of Revenue and Certain Expenses of 6400 Shafer Court
Report of Independent Auditors 5
Statement of Revenue and Certain Expenses for the year ended
December 31, 1997 6
Notes to Statement of Revenue and Certain Expenses 7-8
Statement of Revenue and Certain Expenses of Two Century Centre
Report of Independent Auditors 9
Statement of Revenue and Certain Expenses for the year ended
December 31, 1997 10
Notes to Statement of Revenue and Certain Expenses 11-12
(b) Pro Forma Financial Statements 13
</TABLE>
The accompanying unaudited Pro Forma Condensed Consolidated Statement of
Operations for the three months ended March 31, 1998 was prepared as if each of
the following had occurred on January 1, 1998: (i) the Company had sold 2.58
million of its common shares of beneficial interest at $19.375 per share (the
"Offering") and contributed the net proceeds to Prime Group Realty, L.P. (the
"Operating Partnership") and (ii) the Operating Partnership acquired the office
properties known as 33 North Dearborn, Commerce Point, 208 South LaSalle Street,
122 South Michigan Avenue, 6400 Shafer Court and Two Century Centre
(collectively, the "Acquisitions").
The acquisition of 6400 Shafer and Two Century Centre increased pro forma
revenue, expenses and net income by $2,311, $1,540 and $433 (in thousands),
respectively, for the three months ended March 31, 1998.
2
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The unaudited Pro Forma Condensed Consolidated Statement of Operations should be
read in conjunction with the unaudited Pro Forma Condensed Consolidated
Financial Statements and all of the historical financial statements contained in
the Company's Form 10-K, Form 10-K/A and Form 10-Q filed with the Securities and
Exchange Commission on March 31, 1998, April 28, 1998 and May 15, 1998,
respectively. In management's opinion, all adjustments necessary to reflect the
effects of the Acquisitions and the Offering 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 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: June 15, 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
6400 Shafer Court (the Property) for the year ended December 31, 1997. 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 registration statement on Form S-11 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, 1997, in conformity with
generally accepted accounting principles.
ERNST & YOUNG LLP
Chicago, Illinois
April 16, 1998
5
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6400 SHAFER COURT
STATEMENTS OF REVENUE AND CERTAIN EXPENSES
(IN THOUSANDS)
<TABLE>
<CAPTION>
PERIOD FROM
JANUARY 1, 1998 TO
MARCH 31, 1998 YEAR ENDED
(UNAUDITED) DECEMBER 31, 1997
------------------ -----------------
<S> <C> <C>
Revenue
Rental . . . . . . . . . . . . . . . . . $ 483 $ 1,630
Tenant reimbursements. . . . . . . . . . 369 1,479
Other. . . . . . . . . . . . . . . . . . -- 57
------ --------
Total revenue. . . . . . . . . . . . . . 852 3,166
------ --------
Expenses
Cleaning . . . . . . . . . . . . . . . . 27 98
Utilities. . . . . . . . . . . . . . . . 63 210
Other property operating . . . . . . . . 165 783
Real estate taxes. . . . . . . . . . . . 194 687
------ --------
Total expenses . . . . . . . . . . . . . 449 1,778
------ --------
Revenue in excess of certain expenses. . $ 403 $ 1,388
------ --------
------ --------
</TABLE>
SEE ACCOMPANYING NOTES.
6
<PAGE>
6400 SHAFER COURT
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 6400 Shafer Court, an office building located in Chicago, Illinois
(the Property). As of March 31, 1998, the Property had 21 tenants (unaudited).
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying Statements 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 registration statement on Form S-11 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 requires 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, 1998 to March 31, 1998 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, 1998 to March 31, 1998, are not necessarily indicative of
future operating results.
4. RELATED PARTY TRANSACTIONS
In connection with the operation of the Property, an affiliate of the owner
earned management fees equal to 3.3% of gross revenues or $35 (unaudited) or
$104 for the period from January 1, 1998 to March 31, 1998 and for the year
ended December 31, 1997, respectively, which are included in other property
operating expenses.
7
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5. 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 March 31, 1998, exclusive of tenant reimbursements and
contingent rentals, are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31 AMOUNT
---------------------- --------
<S> <C>
1998 . . . . . . . . . . . . . . . . . . $ 1,465
1999 . . . . . . . . . . . . . . . . . . 1,659
2000 . . . . . . . . . . . . . . . . . . 1,567
2001 . . . . . . . . . . . . . . . . . . 1,213
2002 . . . . . . . . . . . . . . . . . . 858
Thereafter . . . . . . . . . . . . . . . 800
--------
$ 7,562
--------
--------
</TABLE>
8
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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
Two Century Centre (the Property) for the year ended December 31, 1997. 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 registration statement on Form S-11 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, 1997, in conformity with
generally accepted accounting principles.
ERNST & YOUNG LLP
Chicago, Illinois
April 23, 1998
9
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TWO CENTURY CENTRE
STATEMENTS OF REVENUE AND CERTAIN EXPENSES
(IN THOUSANDS)
<TABLE>
<CAPTION>
PERIOD FROM
JANUARY 1, 1998 TO
MARCH 31, 1998 YEAR ENDED
(UNAUDITED) DECEMBER 31, 1997
------------------ -----------------
<S> <C> <C>
Revenue
Rental . . . . . . . . . . . . . . . . . $ 890 $ 2,987
Tenant reimbursements. . . . . . . . . . 569 1,717
------ --------
Total revenue. . . . . . . . . . . . . . 1,459 4,704
------ --------
Expenses
Cleaning . . . . . . . . . . . . . . . . 41 163
Utilities. . . . . . . . . . . . . . . . 55 220
Other property operating . . . . . . . . 135 640
Real estate taxes. . . . . . . . . . . . 325 1,185
------ --------
Total expenses . . . . . . . . . . . . . 556 2,208
------ --------
Revenue in excess of certain expenses. . $ 903 $ 2,496
------ --------
------ --------
</TABLE>
SEE ACCOMPANYING NOTES.
10
<PAGE>
TWO CENTURY CENTRE
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 Two Century Centre, an office building located in Schaumburg,
Illinois (the Property). As of March 31, 1998, the Property had 10 tenants
(unaudited).
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying Statements 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 registration statement on Form S-11 of
Prime Group Realty Trust. The statements are 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 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 requires management to
make estimates and assumptions that affect the reported amounts of revenue and
certain expenses during the reporting period. 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, 1998 to March 31, 1998 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, 1998 to March 31, 1998, are not necessarily indicative of
future operating results.
4. RELATED PARTY TRANSACTIONS
In connection with the operation of the Property, an affiliate of the owner
earned management fees equal to $25 (unaudited) and $100 (the lesser of 2.2% of
gross receipts or $100) for the period from January 1, 1998 to March 31, 1998
and for the year ended December 31, 1997, respectively, which are included in
other property operating expenses.
11
<PAGE>
5. RENTALS
The Property has lease agreements with lease terms ranging from one year to
ten years. The leases generally provide for tenants to share in increases in
operating expenses and real estate taxes. The total future minimum rentals to
be received under such noncancelable operating leases as of March 31, 1998,
exclusive of tenant reimbursements and contingent rentals, are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31 AMOUNT
---------------------- --------
<S> <C>
1998 . . . . . . . . . . . . . . . . . . $ 2,830
1999 . . . . . . . . . . . . . . . . . . 3,835
2000 . . . . . . . . . . . . . . . . . . 3,878
2001 . . . . . . . . . . . . . . . . . . 1,664
2002 . . . . . . . . . . . . . . . . . . 1,013
Thereafter . . . . . . . . . . . . . . . 5,228
-------
$18,448
-------
-------
</TABLE>
12
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Prime Group Realty Trust
Pro Forma Condensed Statement of Operations
(in thousands, except per share data)
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE
MONTHS ENDED
MARCH 31,
1998
-------------
<S> <C>
REVENUE:
Rental $ 23,889
Tenant reimbursements 10,179
Other 2,781
---------
TOTAL REVENUE 36,849
EXPENSES:
Property operations 7,724
Real estate taxes 6,923
Depreciation and amortization 6,216
Interest 7,780
General and administrative 1,396
---------
TOTAL EXPENSES 30,039
---------
INCOME BEFORE MINORITY INTEREST 6,810
MINORITY INTEREST (2,980)
---------
NET INCOME 3,830
NET INCOME ALLOCATED TO PREFERRED SHAREHOLDERS (700)
---------
NET INCOME AVAILABLE TO COMMON SHAREHOLDERS $ 3,130
---------
---------
AVERAGE NUMBER OF COMMON SHARES
OF BENEFICIAL INTEREST OUTSTANDING 15,560
---------
---------
NET INCOME PER COMMON SHARE OF BENEFICIAL INTEREST $ 0.20
---------
---------
</TABLE>
13
