<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): MARCH 31, 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 March 31, 1998, the Company acquired the office property known as 208
South LaSalle Street located in the center of the financial district in
Chicago, Illinois containing 828,000 net rentable square feet. The property
was purchased from an unaffiliated third party for approximately $60.7
million.
On April 1, 1998, the Company acquired the office property known as 122
South Michigan Avenue, which is a 21-story building located in Chicago,
Illinois containing 512,369 net rentable square feet. The property was
purchased from an unaffiliated third party for approximately $28.8 million.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements Under Rule 3-14 of Regulation S-X
PAGE
----
(i) Statement of Revenue and Certain Expenses of 208 South
LaSalle Street
Report of Independent Auditors 4
Statement of Revenue and Certain Expenses for the year ended
December 31, 1997 (Audited) 5
Notes to Statement of Revenue and Certain Expenses 6-7
(ii) Statement of Revenue and Certain Expenses of 122 South
Michigan Avenue
Report of Independent Auditors 8
Statement of Revenue and Certain Expenses for the year ended
December 31, 1997 (Audited) 9
Notes to Statement of Revenue and Certain Expenses 10-11
(b) Pro Forma Financial Statements
The Company has determined that it is impractical at this time to file pro
forma financial statements for the Company as prescribed by Article 11 of
Regulation S-X. Such statements will be filed by amendment as soon as
practicable, but in any event not later than June 15, 1998.
(c) Exhibits
None.
2
<PAGE>
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: April 15, 1998
3
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Trustees
Prime Group Realty Trust
We have audited the accompanying Statement of Revenue and Certain Expenses of
208 South LaSalle (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 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, 1997, in conformity with
generally accepted accounting principles.
ERNST & YOUNG LLP
Chicago, Illinois
January 30, 1998
4
<PAGE>
208 SOUTH LASALLE
STATEMENT OF REVENUE AND CERTAIN EXPENSES
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1997
-----------------
<S> <C>
Revenue
Rental . . . . . . . . . . . . . . . . . . $ 9,782
Tenant Reimbursements. . . . . . . . . . . 2,560
Other Revenue. . . . . . . . . . . . . . . 251
-----------------
Total Revenue. . . . . . . . . . . . . . . 12,593
-----------------
Expenses
Cleaning . . . . . . . . . . . . . . . . . 1,008
Utilities. . . . . . . . . . . . . . . . . 2,177
Other Property Operating . . . . . . . . . 2,818
Real Estate Taxes. . . . . . . . . . . . . 1,854
-----------------
Total Expenses . . . . . . . . . . . . . . 7,857
-----------------
Revenue in excess of certain expenses. . . $ 4,736
-----------------
-----------------
</TABLE>
SEE ACCOMPANYING NOTES.
5
<PAGE>
208 SOUTH LASALLE
NOTES TO STATEMENT OF REVENUE AND CERTAIN EXPENSES
1. BUSINESS
The accompanying Statement of Revenue and Certain Expenses relates to the
operations of 208 South LaSalle, an office building located in Chicago,
Illinois (the Property). As of December 31, 1997, the Property had 158
tenants (unaudited).
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
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. The statement is 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 Statement 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. RELATED PARTY TRANSACTIONS
In connection with the operation of the Property, an affiliate of the owner
earned management fees equal to 3.25% of gross revenues or $392,207 which are
included in other property operating expenses.
6
<PAGE>
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 December 31, 1997, exclusive of tenant
reimbursements and contingent rentals, are as follows:
<TABLE>
<CAPTION>
AMOUNT
YEAR ENDED DECEMBER 31 (IN THOUSANDS)
---------------------- --------------
<S> <C>
1998. . . . . . . . . . . . . $ 10,572
1999. . . . . . . . . . . . . 10,025
2000. . . . . . . . . . . . . 8,909
2001. . . . . . . . . . . . . 7,846
2002. . . . . . . . . . . . . 6,197
Thereafter. . . . . . . . . . 20,943
--------------
$ 64,492
--------------
--------------
</TABLE>
7
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Trustees
Prime Group Realty Trust
We have audited the accompanying Statement of Revenue and Certain Expenses of
122 South Michigan (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 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, 1997, in
conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Chicago, Illinois
January 30, 1998
8
<PAGE>
122 SOUTH MICHIGAN
STATEMENT OF REVENUE AND CERTAIN EXPENSES
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1997
------------------
<S> <C>
Revenue
Rental . . . . . . . . . . . . . . . . . . . $4,741
Tenant reimbursements. . . . . . . . . . . . 482
Other revenue. . . . . . . . . . . . . . . . 153
------------------
Total revenue. . . . . . . . . . . . . . . . 5,376
------------------
Expenses
Cleaning . . . . . . . . . . . . . . . . . . 465
Utilities. . . . . . . . . . . . . . . . . . 1,022
Other property operating . . . . . . . . . . 1,423
Real estate taxes. . . . . . . . . . . . . . 1,119
------------------
Total expenses . . . . . . . . . . . . . . . 4,029
------------------
Revenue in excess of certain expenses. . . . $1,347
------------------
------------------
</TABLE>
SEE ACCOMPANYING NOTES.
9
<PAGE>
122 SOUTH MICHIGAN
NOTES TO STATEMENT OF REVENUE AND CERTAIN EXPENSES
1. BUSINESS
The accompanying Statement of Revenue and Certain Expenses relates to the
operations of 122 South Michigan, an office building located in Chicago,
Illinois (the Property). As of December 31, 1997, the Property had fifty
tenants (unaudited).
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
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. The statement is 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 Statement 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. RELATED PARTY TRANSACTIONS
In connection with the operation of the Property, an affiliate of the owner
earned management fees equal to 3.25% of gross revenues or $152,196 which are
included in other property operating expenses.
10
<PAGE>
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 December 31, 1997, exclusive of tenant
reimbursements and contingent rentals, are as follows:
<TABLE>
<CAPTION>
AMOUNT
YEAR ENDED DECEMBER 31 (IN THOUSANDS)
---------------------- --------------
<S> <C>
1998 . . . . . . . . . . . . . . . $4,650
1999 . . . . . . . . . . . . . . . 4,262
2000 . . . . . . . . . . . . . . . 4,141
2001 . . . . . . . . . . . . . . . 3,881
2002 . . . . . . . . . . . . . . . 3,405
Thereafter . . . . . . . . . . . . 17,079
--------------
$37,418
--------------
--------------
</TABLE>
11
