<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 8, 1999
REGISTRATION STATEMENT NO. 333-
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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PRIME GROUP REALTY TRUST
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
MARYLAND 36-4173047
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION OR IDENTIFICATION
ORGANIZATION) NO.)
</TABLE>
77 West Wacker Drive, Suite 3900
Chicago, Illinois 60601
(312) 917-1300
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
JAMES F. HOFFMAN, ESQ.
SENIOR VICE PRESIDENT,
GENERAL COUNSEL AND SECRETARY
PRIME GROUP REALTY TRUST
77 WEST WACKER DRIVE, SUITE 3900
CHICAGO, ILLINOIS 60601
(312) 917-1300
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
------------------------
COPIES TO:
WAYNE D. BOBERG, ESQ.
BRIAN T. BLACK, ESQ.
WINSTON & STRAWN
35 WEST WACKER DRIVE
CHICAGO, ILLINOIS 60601
(312) 558-5600
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
From time to time after the effective date of this Registration Statement as the
Registrant shall determine.
---------------------
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. / /
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If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. /X/
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
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If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
- ------------
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
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If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION,
ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
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(CONTINUED FROM COVER)
CALCULATION OF REGISTRATION FEE
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<CAPTION>
PROPOSED MAXIMUM
PROPOSED MAXIMUM AGGREGATE
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED(1) PER UNIT PRICE(1)(3) REGISTRATION FEE
<S> <C> <C> <C> <C>
Common Shares of Beneficial Interest... (4)
Preferred Shares of Beneficial
Interest.............................. (4)(5)
Depositary Shares Representing
Preferred Shares of Beneficial
Interest.............................. (4)(6) (2)
Share Purchase Contracts............... (4)(7)
Debt Securities........................ (4)(8)
Common Share Warrants.................. (4)(9)
Preferred Share Warrants............... (4)(10)
Depositary Share Warrants.............. (4)(5)(11)
Debt Warrants.......................... (4)(12)
Total................................ $500,000,000 $500,000,000 $139,000
</TABLE>
(1) In U.S. dollars or the equivalent thereof in one or more foreign currencies
or currency units or composite currencies, including the European Currency
Unit.
(2) The Proposed Maximum Offering Price Per Unit will be determined from time to
time by the Registrant in connection with the issuance of the Securities.
(3) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(o) of the Securities Act of 1933, as amended (the
"Securities Act"). Exclusive of accrued interest, distributions and
dividends, if any.
(4) This Registration Statement covers (a) Common Shares of Beneficial Interest
("Common Shares") issued other than on conversion of Debt Securities,
conversion of Preferred Shares of Beneficial Interest ("Preferred Shares"),
exercise of Common Share Warrants or exercise of Share Purchase Contracts
and includes Common Shares which may be purchased by underwriters to cover
over-allotments, if any, and (b) subject to notes 6, 7, 10, 11 and 12, the
number of other Securities listed above as may from time to time be issued
at indeterminate prices, but with an aggregate initial offering price for
all such Common Shares and other Securities not to exceed $500,000,000. Also
includes such presently indeterminate number of additional Common Shares
("Additional Common Shares") as may be issued on (i) conversion of any Debt
Securities as may be issued, if and to the extent convertible into Common
Shares, (ii) conversion of any Preferred Shares as may be issued separately,
on conversion of Debt Securities or exercise of Preferred Share Warrants, if
and to the extent such Preferred Shares are convertible into Common Shares,
(iii) exercise of any Common Share Warrants as may be issued, if and to the
extent exercisable for Common Shares or (iv) exercise of any Share Purchase
Contract as may be issued, if and to the extent exercisable for Common
Shares. The Amount to be Registered, Proposed Maximum Offering Price Per
Unit, Proposed Maximum Aggregate Offering Price and Amount of Registration
Fee with respect to such Debt Securities, Preferred Shares, Common Share
Warrants and Share Purchase Contracts include such Additional Common Shares.
(5) Includes Preferred Shares (a) issued other than on conversion of Debt
Securities, exercise of Preferred Share Warrants or exercise of Share
Purchase Contracts and (b) which may be purchased by underwriters to cover
over-allotments, if any. Also includes such presently indeterminate number
of additional Preferred Shares ("Additional Preferred Shares") as may be
issued on (i) conversion of any Debt Securities as may be issued, if and to
the extent convertible into Preferred Shares, (ii) exercise of any Preferred
Share Warrants as may be issued, if and to the extent exercisable for
Preferred Shares, (iii) conversion of any Depositary Shares, (iv) exercise
of any Depositary Share Warrants and subsequent conversion of Depositary
Shares received thereby or (v) exercise of any Share Purchase Contract as
may be issued, if and to the extent exercisable for Preferred Shares. The
Amount to be Registered, Proposed Maximum Offering Price Per Unit, Proposed
Maximum Aggregate Offering Price and Amount of Registration Fee with respect
to such Debt Securities, Preferred Share Warrants and Share Purchase
Contracts include such Additional Preferred Shares.
(6) This Registration Statement covers such indeterminate number of Depositary
Shares as may be issued (i) if the Registrant elects to offer fractional
interests in shares of some or all of the Preferred Shares, (ii) on exercise
of any Depositary Share Warrants or (iii) in connection with purchases by
underwriters to cover over-allotments, if any. The Amount to be Registered,
Proposed Maximum Offering Price Per Unit, Proposed Maximum Aggregate
Offering Price and Amount of Registration Fee (i) with respect to such
Preferred Shares, include such Depositary Shares and (ii) without
duplication, with respect to the Depositary Shares, include such Preferred
Shares.
(7) Includes Share Purchase Contracts which may be (a) issued other than as part
of Units of Share Purchase Contracts and other Securities and (b) purchased
by underwriters to cover over-allotments, if any. Also includes additional
Share Purchase Contracts ("Additional Share Purchase Contracts") which may
be offered as part of Units of Share Purchase Contracts and other
Securities. The Amount to be Registered, Proposed Maximum Aggregate Offering
Price Per Unit, Proposed Maximum Offering Price and Amount of Registration
Fee with respect to such Units and Share Purchase Contracts and other
Securities include such Additional Share Purchase Contracts.
(8) Includes the principal amount of (a) Debt Securities and, as to Debt
Securities offered at an original issue discount, the offering price thereof
and (b) Debt Securities which may be purchased by underwriters to cover
over-allotments, if any. The Registration Statement also includes such
presently indeterminable amount of Debt Securities ("Additional Debt
Securities") as may be issued in exchange for Preferred Shares or upon
exercise of any Debt Warrants as may be issued, if and to the extent
exercisable for Debt Securities. The Amount to be Registered, Proposed
Maximum Offering Price Per Unit, Proposed Maximum Offering Price and Amount
of Registration Fee with respect to such Preferred Shares and Debt Warrants
include such Additional Debt Securities.
(9) Includes Common Share Warrants which may be (a) issued other than as part of
Units of Common Share Warrants and other Securities and (b) purchased by
underwriters to cover over-allotments, if any. Also includes additional
Common Share Warrants ("Additional Common Share Warrants") which may be
offered as part of Units of Common Share Warrants and other Securities. The
Amount to be Registered, Proposed Maximum Offering Price Per Unit, Proposed
Maximum Aggregate Offering Price and Amount of Registration Fee with respect
to such Units of Common Share Warrants and other Securities include such
Additional Common Share Warrants.
(10) Includes Preferred Share Warrants which may be (a) issued other than as
part of Units of Preferred Share Warrants and other Securities and (b)
purchased by underwriters to cover over-allotments, if any. Also includes
additional Preferred Share Warrants ("Additional Preferred Share Warrants")
which may be offered as part of Units of Preferred Share Warrants and other
Securities. The Amount to be Registered, Proposed Maximum Offering Price Per
Unit, Proposed Maximum Aggregate Offering Price and Amount of Registration
Fee with respect to such Units of Preferred Share Warrants and other
Securities include such Additional Preferred Share Warrants.
(11) Includes Depositary Share Warrants which may be (a) issued other than as
part of Units of Depositary Shares and other Securities and (b) purchased by
underwriters to cover over-allotments, if any. Also includes additional
Depositary Share Warrants ("Additional Depositary Share Warrants") which may
be offered as part of Units of Depositary Shares and other Securities. The
Amount to be Registered, Proposed Maximum Offering Price Per Unit, Proposed
Maximum Aggregate Offering Price and Amount of Registration Fee with respect
to such Units of Depositary Share Warrants and other Securities include such
Additional Depositary Share Warrants.
(12) Includes Debt Warrants which may be (a) issued other than as part of Units
of Debt Warrants and other Securities and (b) purchased by underwriters to
cover over-allotments, if any. Also includes additional Debt Warrants
("Additional Debt Warrants") which may be offered as part of Units of Debt
Warrants and other Securities. The Amount to be Registered, Proposed Maximum
Offering Price Per Unit, Proposed Maximum Aggregate Offering Price and
Amount of Registration Fee with respect to such Units of Debt Warrants and
other Securities include such Additional Debt Warrants.
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<PAGE>
THIS INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND WE ARE NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
<PAGE>
SUBJECT TO COMPLETION--DATED JANUARY 8, 1999
PROSPECTUS
$500,000,000
PRIME GROUP REALTY TRUST
Common Shares of Beneficial Interest
Preferred Shares of Beneficial Interest
Depositary Shares
Share Purchase Contracts
Senior Debt Securities
Subordinated Debt Securities
Warrants to Purchase Common Shares
Warrants to Purchase Preferred Shares
Warrants to Purchase Depositary Shares
Warrants to Purchase Debt Securities
CORPORATE HEADQUARTERS:
77 West Wacker Drive
Suite 3900
Chicago, Illinois 60601
(312) 917-1300
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This prospectus may not be used to sell these securities unless accompanied by a
prospectus
supplement, which will describe the specific terms of the securities.
We urge you to read this prospectus and the accompanying prospectus supplement
carefully before you make your investment decision.
INVESTING IN OUR SECURITIES INVOLVES CERTAIN RISKS. SEE "RISK FACTORS" ON PAGES
4 TO 13.
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NEITHER THE SEC NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED
OF THESE SECURITIES OR DETERMINED IF THIS PROSPECTUS OR THE ACCOMPANYING
PROSPECTUS SUPPLEMENT IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
-------------------
The date of this prospectus is , 1999.
<PAGE>
TABLE OF CONTENTS
<TABLE>
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PAGE
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<S> <C>
About this Prospectus........................... 1
Private Securities Litigation Reform Act
of 1995 Safe Harbor Cautionary Statement...... 1
About Prime Group Realty Trust.................. 1
Risk Factors.................................... 4
Use of Proceeds................................. 14
Ratios of Earnings to Combined
Fixed Charges and Preferred
Share Distributions........................... 14
General Description of the Offered Securities... 14
Description of Our Shares of Beneficial
Interest...................................... 15
Description of Debt Securities.................. 25
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PAGE
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<S> <C>
Description of Depositary Shares................ 31
Description of Warrants......................... 34
Description of Share Purchase Contracts and
Share Purchase Units.......................... 35
Description of Global Securities................ 36
Material Federal Income Tax Considerations...... 38
Plan of Distribution............................ 47
Legal Matters................................... 48
Experts......................................... 48
Where You Can Find More Information............. 49
Incorporation of Certain Documents By
Reference..................................... 49
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i
<PAGE>
ABOUT THIS PROSPECTUS
The prospectus is part of a registration statement that we filed with the
SEC utilizing a "shelf" registration process. Under this shelf process, Prime
Group Realty Trust may offer and sell any combination of the securities
described in this prospectus in one or more offerings up to a total dollar
amount of $500,000,000. This prospectus provides you with a general description
of the securities we may offer. Each time we offer securities, we will provide a
prospectus supplement and attach it to this prospectus. The prospectus
supplement will contain specific information about the terms of the securities
being offered at that time. The prospectus supplement may also add, update or
change information contained in this prospectus. You should read both this
prospectus and any prospectus supplement, including the documents we have
referred to under the heading "Incorporation of Certain Documents by Reference,"
together with any additional information you may need to make your investment
decision.
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
SAFE HARBOR CAUTIONARY STATEMENT
THIS PROSPECTUS AND THE DOCUMENTS INCORPORATED BY REFERENCE HEREIN CONTAIN
"FORWARD-LOOKING" STATEMENTS, AS DEFINED IN THE PRIVATE SECURITIES LITIGATION
REFORM ACT OF 1995, THAT ARE BASED ON OUR CURRENT EXPECTATIONS, ESTIMATES AND
PROJECTIONS. STATEMENTS THAT ARE NOT HISTORICAL FACTS, INCLUDING STATEMENTS
ABOUT OUR BELIEFS AND EXPECTATIONS, ARE FORWARD-LOOKING STATEMENTS. THESE
STATEMENTS ARE NOT GUARANTEES OF FUTURE PERFORMANCE, EVENTS OR RESULTS AND
INVOLVE POTENTIAL RISKS AND UNCERTAINTIES. ACCORDINGLY, ACTUAL RESULTS MAY
DIFFER MATERIALLY. WE UNDERTAKE NO OBLIGATION TO UPDATE PUBLICLY ANY
FORWARD-LOOKING STATEMENTS, WHETHER AS A RESULT OF NEW INFORMATION, FUTURE
EVENTS OR OTHERWISE.
IMPORTANT FACTS THAT MAY AFFECT THESE EXPECTATIONS, ESTIMATES OR PROJECTIONS
INCLUDE, BUT ARE NOT LIMITED TO: GENERAL ECONOMIC AND BUSINESS CONDITIONS, WHICH
WILL, AMONG OTHER THINGS, AFFECT DEMAND FOR OFFICE AND INDUSTRIAL PROPERTIES,
AVAILABILITY AND CREDITWORTHINESS OF PROSPECTIVE TENANTS, LEASE RENTS AND THE
AVAILABILITY OF FINANCING; ADVERSE CHANGES IN THE REAL ESTATE MARKETS INCLUDING,
AMONG OTHER THINGS, COMPETITION WITH OTHER COMPANIES; RISKS OF REAL ESTATE
ACQUISITION AND DEVELOPMENT; GOVERNMENTAL ACTIONS AND INITIATIVES; AND
ENVIRONMENTAL REQUIREMENTS, AND THE OTHER FACTORS DESCRIBED IN THIS PROSPECTUS
UNDER THE HEADING "RISK FACTORS."
ABOUT PRIME GROUP REALTY TRUST
GENERAL
We are a fully-integrated real estate investment company organized under
Maryland law, providing property management, leasing, marketing, acquisition,
development, redevelopment, construction, finance and other related services. We
have elected to be taxed as a REIT for federal income tax purposes beginning
with our taxable period ended December 31, 1997. As of December 31, 1998, we
owned 24 office properties, 46 industrial properties, one retail center and one
parking facility. Our properties are located primarily in the Chicago
metropolitan area. In addition, we own a mortgage on an office property located
at 180 N. LaSalle Street, Chicago, Illinois.
We also own approximately 225.5 acres of land that we may develop. This
acreage includes a development site which contains approximately 67,000 square
feet located in the Chicago central business district and is held by a joint
venture with a third party. We also have rights to acquire approximately 325.8
acres of developable land, including rights to acquire two sites located in the
Chicago central business district containing approximately 119,000 square feet.
We believe that this land could be developed to have approximately 5.4 million
square feet of additional office space and over 7.6 million square feet of
additional industrial space.
1
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In terms of net rentable square feet, approximately 90.1% of our office
properties and 87.8% of our industrial properties are located in the Chicago
metropolitan area in prime business locations within established business
communities. The properties located in the Chicago metropolitan area account for
approximately 92.6% of our annualized net rent. "Annualized net rent" means the
monthly net rent due under a lease as determined in accordance with generally
accepted accounting principles ("GAAP"), annualized for all leases in effect on
June 30, 1998. Our remaining office properties are located in the Nashville,
Tennessee; Knoxville, Tennessee; and Milwaukee, Wisconsin metropolitan areas.
Our remaining industrial properties are located in the Columbus, Ohio
metropolitan area. We believe that our properties are well-located, have
excellent highway access, attract high-quality tenants, are well-maintained and
are professionally managed. Our properties have a diverse and stable base of
tenants and have historically provided steadily increasing rents. We believe
this is due to the quality of our properties, the contractual rent escalations
contained in a number of long-term leases and the strength of the markets in
which the properties are located.
Our primary business strategy is to achieve our investment and growth
objectives by focusing on the acquisition, development and operation of office
and industrial real estate located in the Chicago metropolitan area and, to a
lesser extent, other midwestern markets. To implement this strategy, we intend
to continue to:
- own, acquire, develop, redevelop, lease, manage and operate Class A office
buildings that have below market rents and, therefore, provide the
opportunity to enhance returns as leases expire or are renewed;
- acquire distressed, underperforming and undermanaged Class B office
buildings in desirable locations and improve the income potential of such
assets by raising them to a higher operating standard through value-added
renovation programs, professional property management and aggressive
leasing, retenanting and marketing efforts;
- acquire and develop properties that underutilize their sites or where
there is excess land for future development;
- acquire properties or portfolios of properties from tax-sensitive owners
where the properties can be acquired on a tax-deferred basis using common
units of limited partner interest in our operating partnership, Prime
Group Realty, L.P., as purchase consideration; and
- own, acquire, develop, redevelop, lease, manage and operate bulk
warehouse/distribution facilities and overhead crane/manufacturing
facilities.
Class A office buildings are centrally located, professionally managed and
maintained, attract high-quality tenants and command upper-tier rental rates and
are modern structures or have been modernized to compete with newer buildings.
Class B office buildings have good location, construction and tenancy and are
sometimes considered to be competitive with the lower spectrum of Class A
buildings.
We believe that we can draw upon our extensive experience and long-term
presence in the Chicago metropolitan area to create a strategic advantage in
competing for future development and acquisition opportunities.
We are the managing general partner of, and currently hold 59.5% of the
economic interests in, the operating partnership. We conduct substantially all
of our business through the operating partnership, except for some office and
industrial development, leasing, property management services and land sales
which are conducted through Prime Group Realty Services, Inc., a Maryland
corporation (the "Services Company.")
We were formed on July 21, 1997 as a Maryland real estate investment trust.
On November 17, 1997, we sold 12,380,000 of our common shares at a price of
$20.00 per share in an underwritten
2
<PAGE>
offering and became a public company. Our executive offices are located at 77
West Wacker Drive, Suite 3900, Chicago, Illinois 60601, and our telephone number
is (312) 917-1300.
SERVICES COMPANY
The Services Company was formed in March 1997 under the laws of the state of
Maryland to provide industrial property management, leasing, construction,
architectural and corporate advisory services business. The Services Company
also acquires, markets and sells land. The operating partnership owns 100.0% of
the nonvoting preferred stock of the Services Company, representing 95.0% of its
economic value and also holds a $4.8 million promissory note issued by the
Services Company in connection with its formation. This ownership structure
permits us to share in the Service Company's income and also maintain our status
as a REIT for federal income tax purposes. We receive substantially all of the
economic benefit of the businesses carried on by the Services Company because we
have the right to receive dividends through the operating partnership's
investment in the preferred stock and interest payments on the note held by the
operating partnership. However, we do not elect the Services Company's officers
or directors and, consequently, do not have the ability to control the
operations of the Services Company or require the declaration of dividends.
The Services Company provides management, leasing, tenant improvement
construction, painting contracting and tenant representation services to
buildings owned by others pursuant to contracts contributed to the Services
Company by the operating partnership. The Services Company's leasing division
provides leasing services to certain of our properties and other property owners
for fees that are paid as leases are executed and as the space is occupied. The
Services Company's construction management division provides construction
management services for tenant improvements, renovations and other construction
to the properties managed by us.
3
<PAGE>
RISK FACTORS
In addition to the other information presented or incorporated by reference
in this prospectus, you should carefully consider the following matters before
purchasing any of our securities offered by this prospectus.
CONFLICTS OF INTEREST
OUR PARTNERS IN THE OPERATING PARTNERSHIP, INCLUDING SEVERAL OF OUR OFFICERS
AND TRUSTEES, HAVE THE ABILITY TO INFLUENCE THE OPERATING PARTNERSHIP. Mr.
Michael W. Reschke, through various affiliates including The Prime Group, Inc.
(collectively, "PGI"), owns a substantial indirect interest in our operating
partnership, Prime Group Realty, L.P. Therefore, conflicts may exist between the
obligations of Mr. Reschke as one of our trustees and officers and his interest
in the operating partnership through his ownership interests in PGI.
Mr. Jeffrey A. Patterson, one of our executive officers, owns a 0.4%
interest in the operating partnership. Blackstone Real Estate Advisors, L.P.
("Blackstone"), as the 40.0% owner of a joint venture (the "Primestone Joint
Venture") that owns a 31.3% interest in the operating partnership, designated
Mr. Thomas J. Saylak to be elected as one of our trustees. The Primestone Joint
Venture is between PGI, BRE/Primestone Investment L.L.C. and BRE/Primestone
Management Investors L.L.C., which are affiliates of Blackstone. Therefore,
conflicts may exist between the obligations of Mr. Patterson, as one of our
officers, and Mr. Saylak, as one of our trustees, and their respective interests
in the operating partnership.
Several entities and persons which contributed properties to us in
connection with our formation own, in total, a 7.3% interest in the operating
partnership. Each of these property contributors are controlled by or affiliated
with Mr. Edward S. Hadesman or Mr. Stephen J. Nardi. Mr. Hadesman is one of our
officers and Mr. Nardi is one of our trustees. These limited partners of the
operating partnership, and a general partner of the operating partnership that
is controlled by Mr. Nardi, may suffer different and more adverse tax
consequences than we will upon the sale or refinancing of properties contributed
by them in connection with our formation.
Further, PGI has agreed to indemnify us for amounts we may be required to
pay for tax liabilities which may be incurred by Mr. Nardi or his affiliates
upon the sale of properties they contributed to us in connection with our
formation. Therefore, the limited partners and the general partner controlled by
Mr. Nardi may have objectives regarding the appropriate pricing and timing of
any sale or refinancing of such properties that differ from our objectives.
While we, as the managing general partner of the operating partnership, have the
ability to determine whether and on what terms to sell or refinance an
individual property, those members of our management and our board of trustees
who directly or indirectly hold common units of limited partner interest in the
operating partnership, could have an ability to influence us not to sell or
refinance certain properties, even though a sale might otherwise be financially
advantageous to us, or may influence us to refinance a property with a high
level of debt.
MR. RESCHKE, OUR CHAIRMAN OF THE BOARD, CONTINUES TO ENGAGE IN ACTIVITIES
OUTSIDE OF PRIME, INCLUDING REAL ESTATE ACTIVITIES. Under the terms of his
employment agreement with us as our chairman of the board, Mr. Reschke is
permitted to devote a considerable portion of his time to the management of
other interests. In addition to serving as our chairman of the Board, Mr.
Reschke serves as chairman of the board of Prime Retail, Inc. (NYSE: PRT),
chairman of the board of Brookdale Living Communities, Inc. (Nasdaq: BLCI),
chairman of the board and CEO of The Prime Group, Inc., and a director of
Horizon Group Properties, Inc. (Nasdaq: HGPI). As a result of these interests
and the business time to be devoted to activities related to them, conflicts of
interest may arise between Mr. Reschke's duties and responsibilities to us and
these other interests. We could be adversely affected if these conflicts of
interest were to impair the performance of his managerial duties and
responsibilities to us.
4
<PAGE>
PARTNER APPROVAL RIGHTS LIMIT OUR ABILITY TO TAKE CERTAIN ACTIONS WITH
RESPECT TO THE OPERATING PARTNERSHIP. Although we generally have the ability to
exercise full and exclusive responsibility and discretion in the management and
control of the operating partnership, provisions of the operating partnership's
partnership agreement limit our ability to make decisions on behalf of the
operating partnership. For example:
- we cannot take any action to dissolve the operating partnership without
the prior consent of the holders of more than 50.0% of the common units in
the operating partnership; and
- in connection with any extraordinary transactions, such as a merger or
consolidation, that treats partners in the operating partnership
differently than the holders of common shares, the consent of partners
holding more than 50.0% of the common units is required.
REAL ESTATE FINANCING RISKS
REQUIRED REPAYMENT OF DEBT OR OF RELATED INTEREST COULD ADVERSELY AFFECT
US. We are generally subject to the risks associated with debt financing. These
risks include:
- the risk that our cash flow will not satisfy required payments of
principal and interest;
- the risk that we cannot refinance existing indebtedness on our properties
as necessary or that the terms of the refinancing will be less favorable
to us than the terms of existing debt; and
- the risk that necessary capital expenditures for purposes such as
reletting space cannot be financed on favorable terms.
If a property is mortgaged to secure payment of indebtedness and we cannot pay
the mortgage payments, we may have to surrender the property to the lender with
a consequent loss of any prospective income and equity value from such property.
OUR ABILITY TO INCREASE OUR DEBT COULD ADVERSELY AFFECT OUR CASH
FLOW. Generally, our organizational documents do not limit the level or amount
of debt that we may incur. At September 30, 1998, we had outstanding debt of
approximately $510.1 million. If we were to become more highly leveraged, our
cash needs to fund debt service would increase accordingly. Such an increase
could adversely affect our financial condition and results of operations. In
addition, increased leverage could increase the risk of default on our debt
obligations, which could reduce our cash available for distribution and our
asset values.
OUR ABILITY TO CONTINUE TO OBTAIN PERMANENT FINANCING CANNOT BE ASSURED. In
the past, we have financed certain acquisitions and certain development
activities in part with proceeds from our credit facility with BankBoston, N.A.
and Prudential Securities Credit Corporation, as amended. This financing has
been, and may continue to be, replaced by permanent financing. However, we may
not be able to obtain permanent financing for future acquisitions or development
activities on acceptable terms. If market interest rates were to increase at a
time when amounts were outstanding under the credit facility or under our
floating rate tax-exempt bond debt or if other variable rate debt was
outstanding, our debt interest costs would increase, causing potentially adverse
effects on our financial condition and results of operations.
ANTI-TAKEOVER PROVISIONS COULD INHIBIT A CHANGE OF CONTROL
EQUITY OWNERSHIP LIMIT COULD INHIBIT TAKEOVERS OR CHANGES OF CONTROL THAT
MIGHT BE BENEFICIAL TO OUR COMMON SHAREHOLDERS. In order to protect our REIT
status for federal income tax purposes against a prohibited concentration of
ownership among our shareholders, our declaration of trust, as restated and
supplemented, contains an ownership limit. We refer to this as the "Ownership
Limit." The Ownership Limit generally provides that no person or entity may own,
or be deemed to own by virtue of the applicable constructive ownership
provisions of the Internal Revenue Code, more than 9.9% of our
5
<PAGE>
outstanding Equity Shares. "Equity Shares" means our outstanding common shares,
the convertible preferred shares and our 9% Series B Cumulative Redeemable
Preferred Shares. The Ownership Limitations may preclude a third party's
acquisition of control of us without the consent of our board of trustees.
Consequently, shareholders may be unable to realize a premium for their shares
over the then-prevailing market price because a premium is customarily
associated with such acquisitions. See "Description of Our Shares of Beneficial
Interest--Restrictions on Ownership and Transfer."
ISSUANCE OF ADDITIONAL PREFERRED SHARES COULD INHIBIT TAKEOVERS OR CHANGES
OF CONTROL THAT MIGHT BE BENEFICIAL TO OUR COMMON SHAREHOLDERS. Our declaration
of trust permits us to issue up to 30.0 million preferred shares, and to
establish the preferences and rights of any such preferred shares issued,
without shareholder approval. This capability allows our board of trustees to
authorize the issuance of preferred shares with terms and conditions which could
discourage a tender offer or other transaction in which holders of some or a
majority of the common shares might receive a premium over the then-prevailing
market price of such common shares. Of such 30.0 million preferred shares, 2.0
million have been issued as our convertible preferred shares and 4.0 million
have been issued as our redeemable preferred shares. See "Description of Our
Shares of Beneficial Interest--Redeemable Preferred Shares and--Convertible
Preferred Shares."
OUR STAGGERED BOARD COULD INHIBIT TAKEOVERS OR CHANGES OF CONTROL THAT MIGHT
BE BENEFICIAL TO OUR COMMON SHAREHOLDERS. Our board of trustees is divided into
three classes of trustees that are elected to serve staggered three-year terms.
Generally, a trustee may be removed only for cause and upon the affirmative vote
of two-thirds of our outstanding common shares. The staggered terms of trustees
may reduce the possibility of a tender offer or an attempt to change control
even though a tender offer or a change of control might benefit our
shareholders.
CERTAIN PROVISIONS OF THE PARTNERSHIP AGREEMENT COULD INHIBIT TAKEOVERS OR
CHANGES OF CONTROL THAT MIGHT BE BENEFICIAL TO OUR COMMON SHAREHOLDERS. The
operating partnership's partnership agreement generally prohibits us from
engaging in a "business combination," such as any merger, consolidation or other
combination with or into another person or in any reclassification, or any
recapitalization or change of outstanding common shares or from selling all or
substantially all of our assets, unless certain conditions are met. In
particular, the holders of common units must receive, or have the opportunity to
receive, the same consideration per common unit as holders of common shares
receive per common share in the transaction. If holders of common units will not
be treated in such manner, then we may not engage in such transaction unless
partners holding more than 50.0% of the common units vote to approve the
business combination.
In addition, if we conducted a vote of our shareholders regarding a business
combination, we could not complete the transaction unless it would have been
approved had holders of common units been able to vote together with our
shareholders on the transaction. In other words, if our shareholders did approve
a business combination, we could not complete it unless all three of the
following conditions are met:
- we, as managing general partner of the operating partnership, conduct a
vote of all holders of common units, including both limited partner and
general partner common units;
- we vote our common units in the same proportion as our shareholders voted
their shares at the shareholder meeting; and
- the result of the common unit vote is an affirmative vote of at least that
percentage necessary for our shareholders to approve the business
combination.
These provisions of the partnership agreement could inhibit a third party from
making an acquisition proposal that it may otherwise make. The provisions may
also prevent us from completing a business combination even though we had the
requisite authority to do so under our declaration of trust.
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<PAGE>
POSSIBLE LIMITATIONS ON CHANGE OF CONTROL PURSUANT TO MARYLAND BUSINESS
COMBINATION STATUTE. Maryland law prohibits us from engaging in "business
combinations" with designated persons, including beneficial owners of 10% or
more of our outstanding voting shares ("Interested Shareholders"). These
prohibitions last for five years after the most recent date on which the
Interested Shareholder became an Interested Shareholder. Thereafter, a business
combination with the Interested Shareholder may not be completed unless
conditions specified in the statute for the protection of shareholders are
satisfied. These provisions could discourage offers from third parties to
acquire us and increase the difficulty of consummating any such offer. These
provisions of Maryland law do not apply, however, to business combinations that
are approved or exempted by our board of trustees prior to the time that the
Interested Shareholder becomes an Interested Shareholder.
POSSIBLE LIMITATIONS ON CHANGE OF CONTROL PURSUANT TO MARYLAND CONTROL SHARE
ACQUISITION STATUTE. Maryland's control share acquisition statute provides that
"control shares" of a Maryland REIT acquired in a "control share acquisition"
generally have no voting rights except to the extent approved by a vote of
two-thirds of the votes eligible under the statute to be cast on the matter.
"Control shares" are voting shares of stock or beneficial interest which entitle
their holder to several specified ranges of voting power in elections of
directors or trustees. If voting rights are not approved at a meeting of
shareholders, then a Maryland company generally may redeem any or all of the
control shares for fair value. If voting rights for control shares are approved
at a shareholders' meeting and the acquiror becomes entitled to vote a majority
of the shares of beneficial interest entitled to vote, all other shareholders
may exercise appraisal rights.
Our bylaws, as amended and restated, contain a provision exempting from the
control share acquisition statute any and all acquisitions by any person of our
shares of beneficial interest. This provision may be amended or eliminated at
any point in the future without shareholder approval. If the foregoing exemption
in our bylaws is rescinded, the control share acquisition statute could
discourage third party offers to acquire us and increase the difficulty of
consummating any such offer.
ADVERSE CONSEQUENCES IF WE FAIL TO QUALIFY AS A REIT; OTHER TAX LIABILITIES
SIGNIFICANT TAX LIABILITIES COULD RESULT IF WE FAIL TO QUALIFY AS A
REIT. We intend to qualify as a REIT for federal income tax purposes. A REIT
generally is not subject to federal income tax at the corporate level on income
which it currently distributes to its shareholders so long as it distributes at
least 95% of its taxable income (excluding any net capital gain) each year.
Many of the REIT requirements are highly technical and complex. The
determination that we qualify as a REIT requires an analysis of various factual
matters and circumstances which are not entirely within our control. The fact
that we hold our assets in partnership form through the operating partnership
further complicates the application of the REIT requirements. Furthermore,
Congress and the Internal Revenue Service might make changes to the tax laws and
regulations, and the courts might issue new rulings, that might make it more
difficult, or impossible, for us to remain qualified as a REIT.
If we fail to qualify as a REIT, we would be subject to federal income tax
at regular corporate rates. Also, unless entitled to relief under certain
statutory provisions, we would be ineligible for qualification as a REIT for
four years following the year in which we fail to qualify. Such disqualification
would lower our net earnings available for investment or distribution to
shareholders due to the additional tax liability. This likely would have a
significant adverse affect on the value of our securities. See "Material Federal
Income Tax Considerations--Taxation of Prime Group Realty Trust-- Failure to
Qualify."
OTHER TAX LIABILITIES COULD RESULT IF WE ENGAGE IN CERTAIN PROHIBITED
TRANSACTIONS. Even if we qualify as and maintain our status as a REIT, we will
be subject to certain federal, state and local taxes on our income and property.
For example, if we have net income from a "prohibited transaction," such
7
<PAGE>
income will be subject to a 100.0% tax. See "Material Federal Income Tax
Considerations--Taxation of Prime Group Realty Trust--Requirements for REIT
Qualification--Penalty Tax on Prohibited Transactions."
DISTRIBUTIONS TO OUR SHAREHOLDERS ARE AFFECTED BY MANY FACTORS. Our
distributions to shareholders are based principally on cash available for
distribution from our properties. Contractual increases in rent under the leases
of the properties and the receipt of rental revenue in connection with future
acquisitions are expected to increase our cash available for distribution to
shareholders. However, if a lessee defaults under or terminates a lease, there
could be a decrease or cessation of rental payments from the lessee. Such a
decrease could in turn decrease cash available for distribution. In addition,
the amount available to make distributions may decrease if properties acquired
in the future yield lower than expected returns.
The distribution requirements for REITs under federal income tax laws may
limit our ability to finance future developments, acquisitions and/or expansions
without additional debt or equity financing. If we incur additional indebtedness
in the future, it will require additional funds to service such indebtedness. As
a result, amounts available to make distributions may decrease. Our
distributions are also dependent on a number of other factors, including our
financial condition, any decision to reinvest Funds rather than to distribute
such funds, capital expenditures, the annual distribution requirements under the
REIT provisions of the Internal Revenue Code and such other factors as we deem
relevant. See "Material Federal Income Tax Considerations--Taxation of Prime
Group Realty Trust-- Requirements for REIT Qualification--Annual Distribution
Requirements."
HISTORICAL LOSSES; POSSIBILITY OF FUTURE LOSSES. Through the properties
which PGI contributed to us at our formation, we have had historical accounting
losses for certain fiscal years, and there can be no assurance that we will not
have similar losses in the future.
ACQUISITION AND DEVELOPMENT RISKS
GENERAL. We intend to continue to acquire additional office and industrial
properties and anticipate that future acquisitions will be financed, in part,
through a combination of secured or unsecured financing. If we finance new
developments through construction loans, there is a risk that, upon completion
of construction, permanent financing for newly-developed properties may not be
available or may be available only on disadvantageous terms. In addition, there
is a risk that we could acquire office or industrial properties that fail to
perform in accordance with expectations. Our estimates of the costs of
improvements to bring an acquired property up to standards established for the
market position intended for that property may also prove inaccurate. Further,
there are general investment risks associated with any real estate investment.
See "--Our Performance and Asset Values are Subject to Real Estate Investment
Risks--General."
While we expect to continue to limit our business primarily to the Chicago
metropolitan area, and to a lesser extent the rest of the midwestern United
States, it is possible that we will expand our business to new geographic
markets in the future. In such event, we will not initially possess the same
level of familiarity with new markets as we have with our current markets. Our
lack of familiarity in such cases could adversely affect our ability to develop,
acquire, manage or lease properties in the new markets.
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<PAGE>
CASH FLOWS FROM OUR ANTICIPATED DEVELOPMENT ACTIVITIES ARE UNCERTAIN. A
portion of our anticipated cash available for distribution may be generated from
development activities. These activities are partially dependent on the
availability of development opportunities and are subject to the risks inherent
in development and general economic conditions. We may not realize such
anticipated cash flows from future development projects.
OUR PERFORMANCE AND ASSET VALUES ARE SUBJECT TO REAL ESTATE INVESTMENT RISKS
GENERAL. Real property investments are subject to varying degrees of risk.
If our properties do not generate income sufficient to meet operating expenses,
including debt service and capital expenditures, our ability to make
distributions to shareholders could be adversely affected. Income from, and the
value of, our properties may be adversely affected by:
- the general economic climate;
- local conditions such as oversupply of office or industrial space or a
reduction in demand for office or industrial space in the area;
- the attractiveness of our properties to potential tenants;
- competition from other office or industrial properties; and
- our ability to pay for adequate maintenance and insurance and increased
operating costs, including insurance premiums, utilities and real estate
taxes.
In addition, revenues from properties and real estate values are affected by
such factors as interest rate levels, the availability of financing, the cost of
compliance with regulations and the potential for liability under applicable
laws, including changes in tax laws.
Further, our income would be adversely affected if a significant number of
tenants were unable to pay rent or if office or industrial space could not be
rented on favorable terms. Certain significant expenditures associated with an
investment in real estate, such as mortgage payments, real estate taxes and
maintenance costs, generally are not reduced when circumstances cause a
reduction in rental income from tenants. It would be very difficult for us to
convert a project to an attractive alternative use or to sell a project to
recoup our investment if a project was not successful. Should such an event
occur, our income and funds available for distribution would be adversely
affected.
BECAUSE REAL ESTATE INVESTMENTS ARE ILLIQUID, WE MAY NOT BE ABLE TO SELL
PROPERTIES WHEN APPROPRIATE. Real estate investments generally can not be sold
quickly. Therefore, we have a limited ability to vary our portfolio promptly in
response to changes in economic or other conditions. In addition, the Internal
Revenue Code and related regulations prohibit a REIT such as us from holding
property for sale, which may affect our ability to sell properties without
adversely affecting distributions to our shareholders.
COMPETITION COULD ADVERSELY AFFECT OUR BUSINESS. We currently plan to
continue to expand, primarily through the acquisition and development of
additional office and industrial buildings, in the Chicago metropolitan area and
other midwestern markets. There are a number of office and industrial building
developers and real estate companies that compete with us in seeking properties
for acquisition, prospective tenants and land for development. All of our
properties are in developed areas where there are generally other properties of
the same type and quality. Competition from other office and industrial
properties may adversely affect our ability to attract and retain tenants,
rental rate and expenses of operation, particularly in light of the higher
vacancy rates of many competing properties which may result in lower-priced
space being available in such properties.
GEOGRAPHIC CONCENTRATION OF OUR PROPERTIES IN THE CHICAGO METROPOLITAN AREA,
NASHVILLE, KNOXVILLE, MILWAUKEE AND COLUMBUS; LOCAL ECONOMIC CONDITIONS. A
number of factors, including the local
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<PAGE>
economic climate, which may be adversely impacted by business layoffs or
downsizing, industry slowdowns, changing demographics and other factors, and
local real estate conditions, such as oversupply of or reduced demand for office
and industrial properties could adversely affect our revenues and the values of
our properties. Further, 19 of our office properties and 40 of our industrial
properties are located in the Chicago metropolitan area. These properties
represent approximately 90.1% of the aggregate net rentable square feet of our
office space and approximately 87.8% of the aggregate net rentable square feet
of our industrial space. Moreover, the 77 West Wacker Drive Building, which
represents 24.0% of the annualized net rent of our properties, is located in the
Chicago central business district. "Annualized net rent" means the monthly net
rent due under a lease as determined in accordance with generally accepted
accounting principles ("GAAP"), annualized for all leases in effect on June 30,
1998.
A material decline in the demand and/or the ability of tenants to pay rent
for office and industrial space in the Chicago metropolitan area could cause a
material decline in the demand for our office or industrial space and our cash
available for distribution. Such a decline may have a material adverse effect
greater than if we had a more geographically diverse portfolio of properties.
Because we own properties in the Nashville, Tennessee; Knoxville, Tennessee;
Milwaukee, Wisconsin; and Columbus, Ohio metropolitan areas, the local economic
conditions of these areas will also affect our business.
LEASE EXPIRATIONS AND RELETTING EXPENSES COULD ADVERSELY AFFECT OUR CASH
FLOW. Some of our existing leases contain rental rates that are higher than
recently negotiated leases. These leases, as well as our other existing and
future leases, may not be renewed or, if renewed, may be renewed at lower rental
rates. Decreases in the rental rates for our properties, the failure of tenants
to renew their leases or our failure to relet any of our net rentable space
could materially adversely affect our business and our ability to make
distributions. If we are unable to promptly relet or renew the leases for all or
a substantial portion of certain space currently leased or if the rental rates
upon such renewal or reletting is significantly lower than expected rates, our
cash flow and ability to make expected distributions to shareholders would be
adversely affected.
CAPITAL IMPROVEMENT REQUIREMENTS COULD ADVERSELY AFFECT OUR CASH FLOW. Our
properties vary in age and require regular capital improvements. If the cost of
improvements, whether required to attract and retain tenants or to comply with
governmental requirements, substantially exceeds our management's expectations,
our cash available for distribution may be reduced.
UNINSURED LOSSES COULD ADVERSELY AFFECT OUR CASH FLOW. We believe that our
properties are covered by adequate insurance provided by reputable companies,
and that our policies contain commercially reasonable deductibles and
specifications customarily carried for similar properties. Certain types of
losses, however, may be either uninsurable or not economically insurable, such
as losses due to floods, riots or acts of war, or may be insured subject to
certain limitations, such as large deductibles or copayments. If an uninsured
loss or a loss in excess of insured limits occurs, we could lose our investment
in and the cash flow from a property and may continue to be obligated on any
mortgage indebtedness or other obligations related to such property. Any such
loss could adversely affect our business and our ability to make distributions.
RISKS OF INVESTMENTS IN SECURITIES RELATED TO REAL ESTATE. We may pursue
our investment objectives through the ownership of securities of entities
engaged in the ownership of real estate. Ownership of such securities may not
entitle us to control the ownership, operation and management of the underlying
real estate. In addition, we may have no ability to control the distributions
with respect to such securities, which may adversely affect our ability to make
required distributions to shareholders. Furthermore, if we should desire to
control an issuer of securities, we may be prevented from doing so by the
limitations on the asset and gross income tests which must be satisfied in order
for us to qualify as a REIT for federal income tax purposes. See "Material
Federal Income Tax Considerations-- Taxation of Prime Group Realty Trust--REIT
Taxation" and "--Requirements for Qualification."
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We also may invest in mortgages or other debt instruments secured by real
estate, either solely as an investment or as a strategy to ultimately acquire
the underlying real estate. In general, investments in mortgages include:
- the risk that borrowers may be unable to make debt service payments or pay
principal when due;
- the risk that the value of the mortgaged property may be less than the
principal amount of the mortgage note securing such property; and
- the risk that interest rates payable on the mortgages may be lower than
our cost of funds to acquire these mortgages.
In any of these events, our Funds from Operations and our ability to make
required distributions to shareholders could be adversely affected. "Funds from
Operations" means funds from operations computed in accordance with the
resolution adopted by the Board of Governors of the National Association of Real
Estate Investment Trusts, Inc. ("NAREIT") in its March 1995 White Paper, with
the exception that we report base rents on a cash basis (i.e., based on
contractual lease terms), rather than computed on a straight-line basis in
accordance with GAAP. We believe that reporting base rents on a cash basis will
result in a more accurate presentation of our actual operating activities. Thus,
we calculate Funds from Operations as follows:
- net income (loss), computed in accordance with GAAP except that base rents
are reported on a cash basis as described above;
- adjusted for the exclusion of any gains (or losses) from debt
restructuring and sales of real property;
- plus the amortization of any assumed lease liabilities;
- plus real estate related depreciation and amortization, excluding
amortization of deferred financing costs; and
- adjusted for any unconsolidated partnerships, joint ventures and minority
interests.
CHANGES IN LAWS AND PROPERTY TAX RATES COULD ADVERSELY AFFECT OUR FINANCIAL
CONDITION. Costs resulting from changes in real estate laws and property taxes
generally may be passed through to our tenants and in those cases should not
adversely affect us. Increases in taxes on income, services or transfers,
however, generally are not passed through to tenants and may adversely affect
our results of operations and our ability to make distributions to shareholders.
Similarly, changes in laws increasing the potential liability for environmental
conditions existing on properties or increasing the restrictions on discharges
or other conditions, may result in significant unanticipated expenditures, which
could adversely affect our ability to make distributions to shareholders.
CHANGES IN POLICY AND INVESTMENT ACTIVITY WITHOUT SHAREHOLDER APPROVAL
WE CAN CHANGE CERTAIN POLICIES WITHOUT SHAREHOLDER APPROVAL. Our board of
trustees determines our policies relating to the following matters:
- investing and financing;
- acquisitions;
- developments;
- expansions;
- capitalization;
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<PAGE>
- distributions; and
- operations.
Although our board of trustees has no present intention to do so, it may amend
or revise these and other policies without a vote of our shareholders. Change in
these policies could adversely affect our financial condition or results of
operations. We cannot, however, change our policy of seeking to maintain our
qualification as a REIT for federal income tax purposes without the approval of
the holders of at least a majority of the outstanding common shares.
WE CAN ENGAGE IN INVESTMENT ACTIVITY WITHOUT SHAREHOLDER APPROVAL. In the
future, we expect to acquire and develop additional real estate assets pursuant
to our investment strategies and consistent with our investment policies. Our
shareholders are not entitled to receive historical financial statements
regarding, or to vote on, any such activities. Instead, shareholders will be
required to rely entirely on the decisions of management.
DEPENDENCE ON KEY PERSONNEL. We depend on the efforts of certain of our
executive officers and trustees, particularly Mr. Reschke, our chairman of the
board, and Mr. Curto, our president and chief executive officer, for strategic
business direction and experience in the Chicago metropolitan area and other
real estate markets. While we believe that we could find replacements for these
key personnel, the loss of their services could have an adverse effect on our
operations. We have employment agreements with each of Messrs. Reschke and
Curto.
DEPENDENCE ON SIGNIFICANT TENANTS
GENERAL. Any of the following events with regard to any of our significant
tenants would disproportionately and materially adversely affect our revenues
and cash available for distribution to shareholders:
- the bankruptcy or insolvency of the tenant;
- a downturn in the business of the tenant;
- the nonrenewal of a lease by the tenant; or
- the renewal of a lease by the tenant on terms less favorable than those
contained in the expiring lease.
BANKRUPTCY AND FINANCIAL CONDITION OF TENANTS COULD ADVERSELY AFFECT OUR
CASH FLOW. At any time, any of our tenants may seek the protection of the
bankruptcy laws, which could result in the rejection and termination of the
tenant's lease and cause a reduction in our cash available for distribution. It
is possible that some tenants will file for bankruptcy protection in the future
and, if so, that they will not affirm their leases and continue to make rental
payments in a timely manner. In addition, tenants from time to time may
experience downturns in their business which may weaken their financial
condition and result in the failure to make rental payments when due, which may
adversely affect our cash flow and our ability to make expected distributions to
our shareholders.
MANAGED PROPERTY BUSINESSES AND NON-REIT SERVICES
OUR LACK OF CONTROL OVER THE SERVICES COMPANY COULD ADVERSELY AFFECT OUR
BUSINESS. We receive substantially all of the economic benefit of the business
carried on by the Services Company because the operating partnership receives
interest on a $4.8 million promissory note issued by the Services Company and
has the right to receive dividends on the Services Company's preferred stock,
all of which is owned by the operating partnership. However, we are not able to
elect directors or officers of the Services Company because Messrs. Reschke and
Curto own all of the Services Company's outstanding common stock. Therefore, we
cannot directly influence the operations of the Services
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<PAGE>
Company or require that the Services Company's board of directors declare and
pay a cash dividend on the preferred stock held by the operating partnership. As
a result, the board of directors and management of the Services Company may
implement business policies or decisions that would not have been implemented by
entities controlled by us. These policies or decisions could be adverse to our
interests or lead to adverse financial results, which could adversely impact our
net operating income and cash flow. See "About Prime Group Realty
Trust--Services Company."
TAX LIABILITIES AND ADVERSE CONSEQUENCES OF REIT STATUS ON THE BUSINESS OF
THE SERVICES COMPANY. The Services Company is subject to federal and state
income tax on its taxable income at regular corporate rates. Certain
requirements for REIT qualification may in the future limit our ability to
receive increased distributions from the Services Company without jeopardizing
our qualification as a REIT. See "--Adverse Consequences if We Fail to Qualify
as a REIT; Other Tax Liabilities."
LIABILITIES FOR ENVIRONMENTAL MATTERS COULD ADVERSELY AFFECT OUR FINANCIAL
CONDITION. Federal, state and local laws and regulations relating to the
protection of the environment may require a current or previous owner or
operator of real estate to investigate and clean up hazardous or toxic
substances at such property. The owner or operator may have to pay a
governmental entity or third parties for property damage and for investigation
and clean-up costs incurred by such parties in connection with the
contamination. These laws often impose liability without regard to whether the
owner or operator was responsible for, or even knew of, the presence of these
hazardous or toxic substances. The costs of investigation, removal or
remediation of these substances may be substantial. The presence of these
substances may adversely affect the owner's or operator's ability to rent or
sell such property or to Borrow using the property as collateral and may expose
such owner or operator to liability resulting from any release of or exposure to
such substances. Persons who arrange for the disposal or treatment of hazardous
or toxic substances at another location also may be liable for the costs of
removal or remediation of such substances at the disposal or treatment facility,
whether or not the facility is owned or operated by such person.
Certain environmental laws also impose liability for release of
asbestos-containing materials into the air. Third parties may also seek recovery
from owners or operators of real properties for personal injury associated with
asbestos-containing materials and other hazardous or toxic substances. Because
of our ownership (direct or indirect), operation, management and development of
real properties, we may be considered an owner or operator of such properties or
as having arranged for the disposal or treatment of hazardous or toxic
substances. As a result, we may be potentially liable for removal or remediation
costs, as well as certain other related costs, including governmental penalties
and injuries to persons and property.
It is possible that future laws, ordinances or regulations may impose
material environmental liabilities upon us. In addition, the current
environmental condition of our properties could be affected by tenants, by the
condition of land or operations in the vicinity of our properties, such as the
presence of underground storage tanks, or by third parties unrelated to us. Our
ability to make expected distributions to shareholders could be adversely
affected if our expenditures for compliance with the various laws and
regulations, present and future, exceeds our estimates of such items.
OTHER REGULATIONS COULD ADVERSELY AFFECT OUR FINANCIAL CONDITION. Our
properties also are subject to various federal, state and local regulatory
requirements, such as state and local fire and safety requirements. Failure to
comply with these requirements could result in the imposition of fines by
governmental authorities or awards of damages to private litigants. We believe
that the properties are currently in material compliance with all such
regulatory requirements. There can be no assurance, however, that these
requirements will not be changed or that new requirements will not be imposed
which would require significant unanticipated expenditures which could have an
adverse effect on our Funds from Operations and expected distributions.
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USE OF PROCEEDS
Unless otherwise indicated in an accompanying prospectus supplement, we
intend to use the net proceeds from the sale of the securities offered by this
prospectus, which we refer to collectively as the "securities", for general
trust purposes, including capital expenditures, acquisition or development of
additional properties, repayment of indebtedness, repurchases of our common
shares and meeting our working capital needs.
RATIOS OF EARNINGS TO COMBINED FIXED CHARGES
AND PREFERRED SHARE DISTRIBUTIONS
The following table details our consolidated historical ratios of earnings
to combined fixed charges and preferred share distributions for the nine months
ended September 30, 1998 and for the period from November 17, 1997 through
December 31, 1997 and for the properties contributed to us by PGI for the nine
months ended September 30, 1997, the period January 1, 1997 through November 16,
1997 and for the years ended December 31, 1996, 1995, 1994 and 1993. We refer to
these contributed properties collectively as the "Predecessor."
<TABLE>
<CAPTION>
US--HISTORICAL PREDECESSOR--HISTORICAL
- ---------------------------------- --------------------------------------------------------------------------------------
PERIOD FROM PERIOD FROM
NOVEMBER 17, JANUARY 1, 1997
NINE MONTHS ENDED 1997 THROUGH NINE MONTHS ENDED THROUGH YEAR ENDED DECEMBER 31,
SEPTEMBER 30, DECEMBER 31, SEPTEMBER 30, NOVEMBER 16, --------------------------------------------------
1998 1997 1997 1997 1996 1995 1994 1993
- ----------------- --------------- ----------------- --------------- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C>
1.56 1.50 -- -- -- -- -- --
</TABLE>
The ratios of earnings to combined fixed charges and preferred share
distributions were computed by dividing earnings by combined fixed charges and
preferred share distributions. For this purpose, earnings consist of income
(loss) before minority interest, plus combined fixed charges. Combined fixed
charges consist of interest expense, amortization of debt issuance costs, and
preferred share distributions. The Predecessor's historical earnings were
insufficient to cover fixed charges by approximately $25.1 million, $29.1
million, $31.4 million, $29.6 million, $22.1 million and $20.8 million for the
nine months ended September 30, 1997, the period from January 1, 1997 through
November 16, 1997 and for the years ended December 31, 1996, 1995, 1994 and
1993, respectively.
GENERAL DESCRIPTION OF THE OFFERED SECURITIES
We may use this prospectus to offer common shares, preferred shares,
depositary shares, share purchase contracts, senior debt securities,
subordinated debt securities, warrants to purchase common shares, warrants to
purchase preferred shares, warrants to purchase depositary shares and warrants
to purchase debt securities (collectively, the "securities"), or any combination
of the foregoing, either individually or as units consisting of two or more such
securities. The aggregate offering price of our securities will not exceed
$500,000,000. If securities offered by this prospectus are offered as units, the
terms of the units will be set forth in a related prospectus supplement.
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DESCRIPTION OF OUR SHARES OF BENEFICIAL INTEREST
We were formed as a real estate investment trust under the laws of the State
of Maryland. Rights of shareholders are governed by Title 8 of the Corporations
and Associations Article, Annotated Code of Maryland (the "Maryland REIT Law")
and certain provisions of the Maryland General Corporation Law (the "MGCL") and
by our declaration of trust and our bylaws. The following summary of the terms
of our shares of beneficial interest does not purport to be complete and is
subject to and qualified in its entirety by reference to our declaration of
trust, the Articles Supplementary to our declaration of trust relating to our 9%
Series B Cumulative Redeemable Preferred Shares of Beneficial Interest, par
value $0.01 per share and having a liquidation value of $25.00 per share, and
our bylaws, forms of which are filed or incorporated by reference as exhibits to
the registration statement of which this prospectus is a part.
AUTHORIZED SHARES
Our declaration of trust provides that we may issue up to 100.0 million
common shares, par value $0.01 per share, 65.0 million shares of Excess Shares,
par value $0.01 per share ("Excess Shares"), and 30.0 million preferred shares,
par value $0.01 per share. Our declaration of trust designated 2.0 million
preferred shares as 7% Series A Cumulative Convertible Preferred Shares of
Beneficial Interest. The Articles Supplementary designated up to 4.6 million of
the preferred shares as redeemable preferred shares. Excess Shares are to be
issued automatically upon any automatic conversion of common shares or preferred
shares which are purported to be held, transferred or acquired by any person in
violation of the ownership limitations contained in the declaration of trust.
See "--Restrictions on Ownership and Transfer." On January 7, 1999, there were
15,110,794 common shares issued and outstanding, 2.0 million convertible
preferred shares issued and outstanding and 4.0 million redeemable preferred
shares issued and outstanding.
Under the Maryland REIT law, a shareholder is not liable for our obligations
solely as a result of his or her status as a shareholder. Our declaration of
trust provides that no shareholder is liable for any of our debts or obligations
by reason of being a shareholder.
REDEEMABLE PREFERRED SHARES
RANK AND DIVIDENDS. Our redeemable preferred shares rank senior to our
outstanding convertible preferred shares and common shares as to the payment of
dividends and as to the distribution of our assets upon liquidation, dissolution
or winding up. Subject to the preferential rights of the holders of any
preferred shares that rank senior in the payment of dividends to the redeemable
preferred shares, the holders of the redeemable preferred shares are entitled to
receive, when, as and if declared by the board of trustees, out of available
funds, cumulative preferential dividends payable in cash in an amount per
redeemable preferred share equal to an annual rate of $2.25 per redeemable
preferred share.
Dividends on the redeemable preferred shares begin to accrue and are fully
cumulative from the date of original issuance whether or not we have available
funds. The dividends are payable quarterly, when, as and if declared by our
board of trustees, in arrears on the last day of each January, April, July and
October.
No dividends (other than stock dividends) will be disclosed or made or set
apart for payment on any of our shares of beneficial interest that rank junior
as to dividend rights to the redeemable preferred shares (such as the
convertible preferred shares and the common shares) and no repurchases or
redemptions of such junior shares may be made if we have not paid or set apart
for payment all of the cumulative dividends on the redeemable preferred shares
and any other class or series of preferred shares that rank on a parity with the
redeemable preferred shares.
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LIQUIDATION PREFERENCE. If we are liquidated, dissolved or wound up,
whether voluntarily or involuntarily, the holders of the redeemable preferred
shares will be entitled to receive a liquidation preference of $25.00 per
redeemable preferred share, plus an amount equal to all dividends accrued and
unpaid to the date of final distribution. This distribution is subject to the
prior preferences and other rights of any shares ranking senior to the
redeemable preferred shares upon our liquidation, distribution or winding up,
and will be made before any distribution of assets is made to holders of
convertible preferred shares, common shares or any other shares ranking junior
to the redeemable preferred shares as to liquidation rights.
REDEMPTION. On and after June 5, 2003, we have the option to redeem the
redeemable preferred shares, in whole or in part, out of available funds for
$25.00 per redeemable preferred share, plus all accumulated, accrued and unpaid
dividends, if any, without interest, to the redemption date. The redemption
price of the redeemable preferred shares, other than any portion consisting of
accrued and unpaid dividends, will be paid solely from the proceeds from our
issuance and sale of other of our capital shares. For purposes of the preceding
sentence, "capital shares" means any equity securities, both common and
preferred shares, interests, participations, or other ownership interests
(however designated) and any rights, other than debt securities convertible into
or exchangeable for equity securities, or options to purchase any of the
foregoing.
If full cumulative dividends on the redeemable preferred shares and any
other class of our shares that are on a parity with the redeemable preferred
shares as to dividends have not been declared and paid or set apart for payment:
- we may not redeem the redeemable preferred shares in part; and
- we may not purchase or acquire redeemable preferred shares, other than
pursuant to a purchase or exchange offer made on the same terms to all
holders of redeemable preferred shares.
VOTING RIGHTS. Holders of our redeemable preferred shares do not have any
voting rights, except in the following instances. First, whenever dividends on
any of our redeemable preferred shares, or other shares on a parity with the
redeemable preferred shares as to dividends, have been in arrears for six or
more consecutive quarterly periods, then the holders of such shares may vote for
the election of two additional trustees. This voting right will terminate when
all dividends in arrears on the redeemable preferred shares and the other shares
on a parity with the redeemable preferred shares (as discussed above) have been
paid and the then current quarterly dividend is also declared and paid or set
apart for payment. When this voting right is terminated, the term of office of
the additional trustees will also terminate.
Second, as long as any redeemable preferred shares are outstanding, in
addition to any other vote or consent of shareholders required by law or by the
declaration of trust, the affirmative vote of at least 66 2/3% of the votes
entitled to be cast by the holders of our redeemable preferred shares is
necessary for us to:
- amend, alter or repeal of any provision of the declaration of trust in a
manner that materially and adversely affects the voting powers, rights or
preferences of the holders of the redeemable preferred shares, or
- effect a share exchange that affects the redeemable preferred shares, a
consolidation with or merger of us into another entity, or a consolidation
with or merger of another entity into us, unless in each case each
redeemable preferred share will remain outstanding without a material and
adverse change to its terms and rights or will be converted into or
exchanged for cumulative redeemable preferred shares of the surviving
entity having terms identical to those of the redeemable preferred shares,
except for changes that do not materially and adversely affect the holders
of the redeemable preferred shares.
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HOWEVER, no vote of the holders of redeemable preferred shares will be
required if, at or prior to the time either of the two circumstances discussed
above occur, we make provision for the redemption of all outstanding redeemable
preferred shares to the extent the redemption is authorized.
In other words, the affirmative vote of the holders of at least 66 2/3% of
the redeemable preferred shares will be required to permit us to issue any
preferred shares having rights senior to the redeemable preferred shares as to
dividend payments or as to liquidation rights but no vote is required to permit
us to issue preferred shares having rights junior to, or on a parity with, the
redeemable preferred shares as to dividend payments or as to liquidation rights.
Each redeemable preferred share will have one vote per share. However, when
any other series of preferred shares has the right to vote with the redeemable
preferred shares as a single class on any matter, then the redeemable preferred
shares and other series will have one vote per $25.00 of stated liquidation
preference with respect to such matters.
GENERAL. The redeemable preferred shares have no stated maturity. Except as
otherwise described in "--Restrictions on Ownership and Transfer," the
redeemable preferred shares are not convertible into or exchangeable for any
other of our property or securities and will not be subject to any sinking fund
or mandatory redemption provisions.
The redeemable preferred shares have traded on the NYSE since June 23, 1998
under the symbol "PGE PrB."
CONVERTIBLE PREFERRED SHARES
RANK AND DIVIDENDS. Our convertible preferred shares rank senior to our
outstanding common shares as to payment of dividends and as to the distribution
of assets upon liquidation, dissolution or winding up. Subject to the
preferential rights of the holders of any preferred shares, including the
redeemable preferred shares, that rank senior in the payment of dividends to the
convertible preferred shares, the holders of the convertible preferred shares
are entitled to receive, when, as and if declared by the board of trustees, out
of funds legally available for the payment of dividends, cumulative preferential
dividends payable in cash in an amount per convertible preferred share equal to
the greater of:
- $1.50 per year; and
- the regular cash dividends on the common shares, or portion thereof, into
which a convertible preferred share is convertible. These dividends will
equal the number of common shares, or portion thereof, into which a
convertible preferred share will be convertible (as described below under
"--Conversion"), multiplied by the most current quarterly dividend on a
common share on or before the convertible preferred share dividend payment
date.
Dividends on the convertible preferred shares accrue and are fully
cumulative from the date of original issuance, whether or not we have funds
available for the payment of the dividends. Dividends are payable quarterly,
when, as and if declared by our board of trustees, in arrears on either:
- the date on which we pay the dividends on the common shares; or
- if we do not pay a common share dividend in any quarterly dividend period,
the date our board of trustees sets.
No dividends (other than stock dividends,) will be declared or made or set
apart for payment on any of our shares of capital stock that rank junior as to
dividend rights to the convertible preferred shares (such as the common shares)
and no repurchases or redemptions of such junior shares may be made if we had
not paid or set apart for payment all of the cumulative dividends on the
convertible
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preferred shares and any other class or series of preferred shares that rank on
a parity with the convertible preferred shares.
LIQUIDATION PREFERENCE. If we are liquidated, dissolved or wound up,
whether voluntarily or involuntarily, the holders of the convertible preferred
shares will be entitled to receive a liquidation preference of $20.00 per
convertible preferred share, plus an amount equal to all dividends accrued and
unpaid to the date of final distribution to such holders. This distribution is
subject to the prior preferences and other rights of any shares ranking senior
to our convertible preferred shares upon our liquidation, dissolution or winding
up, such as our redeemable preferred shares, and will be made before any
distribution of assets is made to holders of common shares or any other shares
ranking junior to our convertible preferred shares as to liquidation rights.
REDEMPTION. Except under limited circumstances as set forth in the
declaration of trust, we may not redeem the convertible preferred shares prior
to November 17, 2007. On and after November 17, 2007, we have the option to
redeem the convertible preferred shares for cash, in whole or in part, out of
available funds at a redemption price of $20.00 per convertible preferred share,
plus all accumulated, accrued and unpaid dividends, if any, without interest to
the redemption date.
If full cumulative dividends on our convertible preferred shares, and any
other shares on a parity with our convertible preferred shares as to dividends,
have not been declared and paid or set apart for payment:
- we may not redeem the convertible preferred shares in part; and
- we may not purchase or acquire convertible preferred shares, other than
pursuant to a purchase or exchange offer made on the same terms to all
holders of convertible preferred shares.
CONVERSION. A holder of convertible preferred shares has the right to
convert all or any portion of those shares into common shares at the conversion
price of $20.00 per common share. The number of common shares issuable upon
conversion and the conversion price are subject to adjustment as set forth in
our declaration of trust.
LIMITATION OF ISSUANCE OF ADDITIONAL PREFERRED SHARES AND
INDEBTEDNESS. Without the written consent of the holders of 66 2/3% of the
issued and outstanding convertible preferred shares, none of us, the operating
partnership or any of our or its subsidiaries may issue any additional preferred
securities or incur any indebtedness if, immediately following the issuance and
the application of the net proceeds of the issuance, the entity would be
reasonably expected to not satisfy either both of (i) a total debt and
liquidation value of non-convertible preferred shares to total market
capitalization ratio of less than .65 to 1.0, or (ii) a consolidated EBITDA to
consolidated fixed charges ratio of at least 1.4 to 1.0 (each ratio as more
fully set forth in our declaration of trust). The preceding limitation does not
apply to the ability to incur trade payables or accrued expenses incurred in the
ordinary course of business. If the entity fails to satisfy one or both of those
ratios for two consecutive quarters, the holders of convertible preferred shares
will have the right to require that we repurchase any or all of each holder's
convertible preferred shares at a $20.00 per share repurchase price payable in
cash, subject to adjustment, plus accrued and unpaid dividends whether or not
declared, if any to the repurchase date.
VOTING RIGHTS. Holders of our convertible preferred shares do not have any
voting rights except in the following instances. First, whenever dividends on
any of our convertible preferred shares or other shares on a parity with our
convertible preferred shares as to dividends, have been in arrears for two or
more consecutive quarterly periods, or if we do not pay dividends on our common
shares of at least $0.3375 per share for two consecutive quarterly dividend
periods, then the holders of our convertible
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preferred shares and the holders of the shares ranking on a parity with our
convertible preferred shares may vote for the election of one additional
trustee. This voting right will terminate when:
- all dividends in arrears on our convertible preferred shares and the other
shares on a parity with them, as discussed above, have been paid and the
then current quarterly dividend is also declared and paid or set apart for
payment; or
- we have paid a common share dividend of at least $0.3375 per share for two
consecutive quarters.
When this voting right is terminated, the term of office of the additional
trustee will also terminate.
Second, as long as any convertible preferred shares are outstanding, in
addition to any other vote or consent of shareholders required by law or by our
declaration of trust, the affirmative vote of at least 66 2/3% of the votes
entitled to be cast by the holders of our convertible preferred shares is
necessary for us to:
- amend, alter or repeal any provision of our declaration of trust in a
manner that materially and adversely affects the voting powers, rights or
preferences of the holders of the convertible preferred shares; or
- effect a share exchange that affects our convertible preferred shares, a
consolidation with or merger of us into another entity, or a consolidation
with or merger of another entity into us, unless in each case each
convertible preferred share will remain outstanding without a material and
adverse change to its terms and rights or will be converted into or
exchanged for convertible preferred shares of the surviving entity having
terms identical to those of the convertible preferred shares (except for
changes that do not materially and adversely affect the holders of the
convertible preferred shares).
HOWEVER, no vote of the holders of convertible preferred shares will be
required if, at or prior to the time the two circumstances discussed above
occur, we make provision for the redemption of all outstanding convertible
preferred shares to the extent such redemption is authorized.
In other words, the affirmative vote of the holders of at least 66 2/3% of
the convertible preferred shares will be required to permit us to issue any
outstanding preferred shares having rights senior to the convertible preferred
shares as to dividend payments outstanding or as to liquidation rights.
Each convertible preferred share will have one vote per share. However, when
any other series of preferred shares will have the right to vote with the
convertible preferred shares as a single class on any matter, then the
convertible preferred shares and such other series will have one vote per $20.00
of stated liquidation preference with respect to such matters.
REGISTRATION RIGHTS. We have granted the sole holder of the convertible
preferred shares registration rights with respect to any common shares acquired
by it upon conversion of their convertible preferred shares into common shares.
Pursuant to these rights, we have prepared and filed a registration statement
with the Securities and Exchange Commission. We cannot predict how the sale of
any common shares by such holders pursuant to the registration statement, or the
perception that such sales could occur, will affect the market price of any
common shares offered pursuant to this prospectus and an applicable prospectus
supplement.
GENERAL. The convertible preferred shares are not entitled to the benefit
of any sinking fund. The convertible preferred shares are not listed or
qualified for trading on any exchange or on the Nasdaq National Market.
The preceding summaries of the terms of the redeemable preferred shares and
convertible preferred shares are qualified in their entirety by reference to our
declaration of trust and Articles Supplementary.
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ISSUANCE OF ADDITIONAL PREFERRED SHARES
Our board of trustees has the authority to issue up to an additional 24.0
million preferred shares from time to time, in one or more series, without any
further action by our shareholders, subject to the rights of the holders of our
redeemable preferred shares and our convertible preferred shares. The following
description of our preferred shares of beneficial interest, $0.01 par value per
share, sets forth general terms and provisions of the preferred shares to which
any prospectus supplement may relate. The statements below describing the
preferred shares are in all respects subject to and qualified in their entirety
by reference our declaration of trust, bylaws and any applicable amendment to
the declaration of trust designating terms of a series of preferred shares (a
"Designating Amendment"). The preferred shares, when issued, will be fully paid
and non-assessable. Because our board of trustees has the power to establish the
preferences, powers and rights of each series of preferred shares, it may afford
the holders of any series of preferred shares preferences, powers and rights,
voting or otherwise, senior to the rights of holders of common shares. The
issuance of additional series of preferred shares could have the effect of
delaying or preventing a change of control that might involve a premium price
for shareholders or otherwise be in their best interest.
The rights, preferences, privileges and restrictions of the preferred shares
of each series will be fixed by the Designating Amendment relating to the
series. A prospectus supplement, relating to each series, will specify the terms
of the preferred shares, as follows:
- the title and stated value of the preferred shares;
- the number of preferred shares offered, the liquidation preference per
share and the offering price of the preferred shares;
- the dividend rate(s), period(s) and/or payment date(s) or method(s) of
calculation applicable to the preferred shares;
- the date from which dividends on the preferred shares will accumulate, if
applicable;
- the procedures for any auction and remarketing, if any, for the preferred
shares;
- the provision for a sinking fund, if any, for the preferred shares;
- the provision for redemption, if applicable, of the preferred shares;
- any listing of the preferred shares on any securities exchange;
- the terms and conditions, if applicable, upon which the preferred shares
will be convertible into our common shares, including the conversion price
(or manner of calculation) and conversion period;
- whether interests in the preferred shares will be represented by
Depositary Shares;
- any other specific terms, preferences, rights, limitations or restrictions
of the preferred shares;
- a discussion of certain material federal income tax considerations
applicable to the preferred shares;
- the relative ranking and preferences of the preferred shares as to
dividend rights and rights upon the liquidation, dissolution or winding up
of our affairs;
- any limitation on issuance of any series of preferred shares ranking
senior to or on a parity with the series of preferred shares as to
dividend rights and rights upon the liquidation, dissolution or winding up
of our affairs; and
- any limitations on direct or beneficial ownership and restrictions on
transfer of the preferred shares, in each case as may be appropriate to
preserve our status as a REIT.
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COMMON SHARES
DIVIDENDS AND LIQUIDATION RIGHTS. Subject to the preferential rights of the
convertible preferred shares, redeemable preferred shares and any other class or
series of shares of beneficial interest and to the provisions of our declaration
of trust regarding the Excess Shares and convertible preferred shares and
redeemable preferred shares, holders of common shares will be entitled to
receive distributions on such shares if authorized and declared by our board of
trustees and to share ratably in our assets legally available for distribution
to the shareholders in the event of our liquidation, dissolution or winding-up
after payment of, or adequate provision for, all our known debts and
liabilities. We currently pay quarterly distributions on the common shares,
which quarterly distributions commenced with the partial quarter ending December
31, 1997 and intend to continue to pay quarterly distributions.
Subject to the provisions of our declaration of trust regarding Excess
Shares, common shares will have equal dividend, distribution, liquidation and
other rights, and will have no preference, appraisal (except as provided by
Maryland law) or exchange rights.
VOTING RIGHTS. Subject to the provisions of our declaration of trust
regarding Excess Shares, our convertible preferred shares and our redeemable
preferred shares, each outstanding common share entitles the holder to one vote
on all matters submitted to a vote of shareholders. These matters include the
election of trustees and, except as otherwise required by law or except as
provided with respect to any shares, the holders of such shares will possess
exclusive voting power. There is no cumulative voting in the election of
trustees. This means that the holders of a majority of the outstanding common
shares can elect all of the trustees then standing for election, and the holders
of the remaining shares will not be able to elect any trustees.
Pursuant to Maryland REIT Law, a Maryland real estate investment trust
generally cannot dissolve, amend its declaration of trust or merge, unless
approved by the affirmative vote or written consent of shareholders holding at
least two-thirds of the shares entitled to vote on the matter unless the trust's
declaration of trust sets forth a lower percentage, but always more than 50%.
Our declaration of trust contains such a provision providing for a lower
percentage, a majority of outstanding shares, with respect to transactions
pursuant to which our assets will be combined with those of one or more other
entities. Such a transaction could include a merger, sale or other transfer of
assets, consolidation or share exchange.
GENERAL. Holders of the common shares have no conversion, sinking fund,
redemption rights, exchange rights or preemptive rights to subscribe for any of
our securities.
The transfer agent and registrar for the common shares is LaSalle National
Bank.
The common shares have traded on the NYSE since November 12, 1997 under the
trading symbol "PGE."
COMMON SHARE REPURCHASE PROGRAM. On September 14, 1998, we established a
program to repurchase up to 1.55 million of our common shares in open market and
privately negotiated transactions. As of January 7, 1999, we had repurchased
474,200 common shares for an aggregate purchase price of approximately $7.3
million.
RESTRICTIONS ON OWNERSHIP AND TRANSFER
Our declaration of trust contains restrictions on the number of our shares
of beneficial interest that shareholders may own. For us to qualify as a REIT
under the Internal Revenue Code no more than 50.0% in value of our outstanding
shares of beneficial interest may be owned, actually or constructively under the
applicable attribution rules of the Internal Revenue Code, by five or fewer
individuals during the last half of a taxable year, other than the first year
for which the election to be
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taxed as a REIT has been made, or during a proportionate part of a shorter
taxable year (the "five or fewer requirement"). Pension plans and mutual funds
are among the entities that are not treated as holders of stock or beneficial
interests under the five or fewer requirement and instead the beneficial owners
of the entities are counted as holders for this purpose. Our shares of
beneficial interest must also be owned by 100 or more persons during at least
335 days of a taxable year of 12 months or during a proportionate part of a
shorter taxable year.
In general, the Ownership Limit set forth in our declaration of trust
provides that no person or entity may own, or be deemed to own by virtue of the
applicable constructive ownership provisions of the Internal Revenue Code, more
than 9.9%, of our outstanding shares of beneficial interest, including the
common shares, convertible preferred shares and redeemable preferred shares (the
"Equity Shares"). The 9.9% limitation applies to the number or value of our
Equity Shares, whichever is more restrictive. The constructive ownership rules
of the Internal Revenue Code are complex, and may cause Equity Shares owned
actually or constructively by a group of related individuals and/or entities to
be deemed to be constructively owned by one individual or entity.
Our board of trustees may, but in no event will be required to, waive the
Ownership Limit or any other limit provided in our declaration of trust with
respect to a particular shareholder if our board of trustees determines that the
shareholder's ownership will not jeopardize our status as a REIT and our board
of trustees otherwise decides such action would be in our best interest. As a
condition of such waiver, our board of trustees must obtain a ruling from the
IRS or an opinion of counsel satisfactory to it with respect to preserving our
REIT status. In accordance with these provisions, we have waived the Ownership
Limit with respect to the Equity Shares to permit Security Capital Preferred
Growth Incorporated to own, at any one time, up to 16%, in value or number, of
the total outstanding Equity Shares. Additionally, we have waived the Ownership
Limit to permit Long Leaf Partners Realty Fund to purchase 2.6 million common
shares.
Our declaration of trust further prohibits any person from actually or
constructively owning our shares of beneficial interest that would result in us
being "closely held" under Section 856(h) of the Internal Revenue Code or
otherwise cause us to fail to qualify as a REIT. In addition, no person may
transfer any of our shares of beneficial interest if such transfer would result
in our shares of beneficial interest being owned by fewer than 100 persons.
Any person who acquires or attempts or intends to acquire actual or
constructive ownership of our shares of beneficial interest that will or may
violate any of the restrictions on transferability of ownership discussed above
is required to give notice immediately to us. They must also provide us with any
other information as we may request in order to determine the effect of such
transfer on our status as a REIT.
If any purported transfer of our Equity Shares or any other event would
otherwise result in any person violating the Ownership Limit or such other limit
as provided in the declaration of trust, then any such purported transfer will
be void and of no force or effect with respect to the purported transferee (the
"Prohibited Transferee") as to that number of shares in excess of the Ownership
Limit or such other limit as provided in the declaration of trust. The
Prohibited Transferee will acquire no right or interest in such excess shares.
Any excess shares described above will be converted automatically into an equal
number of Excess Shares (the "Shares-in-Trust") and transferred automatically,
by operation of law, to a trust (the "Share Trust"), the beneficiary of which
will be selected by us (the "Beneficiary"). Such automatic transfer will be
deemed to be effective as of the close of business on the business day prior to
the date of such violative transfer.
At any time after the expiration of a 90-day period which commences upon the
receipt of notice from us of the transfer of Shares-in-Trust to the Share Trust
and during which we will have the right to purchase such Shares-in-Trust, the
trustee of the Share Trust will have the right to sell such Shares-in-Trust to a
person or entity who could own such shares without violating the Ownership Limit
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or such other limit as provided in the declaration of trust. The trustee of the
Share Trust, who will be designated by us and be unaffiliated with us or any
Prohibited Transferee, will then distribute to the Prohibited Transferee an
amount equal to the lesser of the price paid by the Prohibited Transferee for
such Shares-in-Trust or the sales proceeds received by the Share Trust for such
Shares-in-Trust. In the case of any Shares-in-Trust issued as a result of any
event other than a transfer, or from a transfer for no consideration, such as a
gift, the trustee will be required to sell such Shares-in-Trust to a qualified
person or entity and distribute to the Prohibited Transferee an amount equal to
the lesser of the market price of such Shares-in-Trust as of the date of such
event or the sales proceeds received by the trust for such Shares-in-Trust. In
either case, any proceeds in excess of the amount distributable to the
Prohibited Transferee will be distributed to the Beneficiary.
Prior to a sale of any such Shares-in-Trust by the Share Trust, the trustee
will be entitled to receive, in trust for the Beneficiary, all dividends and
other distributions paid by us with respect to such Shares-in-Trust. It will be
entitled to exercise all voting rights with respect to such Shares-in-Trust.
Subject to Maryland law, effective as of the date that such Shares-in-Trust have
been transferred to the Share Trust:
- any vote cast by a Prohibited Transferee prior to the discovery by us that
such Shares-in-Trust have been transferred to the Share Trust will be void
and of no force or effect; and
- the trustee will have the authority to recast such vote in accordance with
the desires of the trustee acting for the benefit of the Beneficiary.
Any dividend or other distribution inadvertently paid to the Prohibited
Transferee will be required to be repaid to the trustee for distribution to the
Beneficiary.
In addition, Shares-in-Trust held in the Share Trust will be deemed to have
been offered for sale to us at a price per share equal to the lesser of:
- the price per share in the transaction that resulted in such transfer to
the Share Trust, or in the case of a gift, the market price at the time of
the gift; and
- the market price on the date we accept such offer.
We will have the right to accept such offer for a period of 90 days.
If any attempted transfer of Equity Shares would cause our shares of
beneficial interest to be beneficially owned by fewer than 100 persons, such
transfer will be null and void in its entirety and the intended purchaser or
recipient will acquire no rights to Equity Shares.
The restrictions on transferability and ownership discussed above will not
apply if our board of trustees determines that it is no longer in our best
interest to attempt to qualify, or to continue to
qualify, as a REIT and such determination is approved by an affirmative vote of
two-thirds of the votes entitled to be cast on such matter at a regular or
special meeting of our shareholders. Except as otherwise described above, any
change in the Ownership Limit would require an amendment to our declaration of
trust. Generally, amendments to the declaration of trust require the affirmative
vote of holders owning at least two-thirds of our shares of beneficial interest
outstanding and entitled to vote thereon.
All certificates representing our Equity Shares currently bear a legend
referring to the restrictions described above.
If the transfer restrictions discussed above are determined to be void or
invalid by virtue of any legal decision, statute, rule or regulation, then the
intended transferee of any Excess Shares may be deemed, at our option, to have
acted as agent on our behalf in acquiring such Excess Shares and to hold such
Excess Shares on our behalf.
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Under our declaration of trust, every owner of more than 5%, or a lower
percentage as required by the Internal Revenue Code or Treasury Regulations, of
our outstanding Equity Shares must file, within 30 days after January 1 of each
year, a written notice with us containing information regarding their ownership
of such shares. Under current Treasury Regulations, the percentage will be set
between one-half of 1% and 5%, depending upon the number of record holders of
our shares. Further, each shareholder must upon demand disclose to us in writing
any information we may request in order to determine the effect, if any, of such
shareholder's actual and constructive ownership of Equity Shares on our status
as a REIT.
The ownership limitations discussed above may have the effect of precluding
acquisition of our control without the consent of our board of trustees and,
consequently, shareholders may be unable to realize a premium for their shares
over the then-prevailing market price which is customarily associated with such
acquisitions and to ensure compliance with the Ownership Limit, or such other
limit as provided in our declaration of trust.
These restrictions will not preclude settlement for transactions through the
NYSE.
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DESCRIPTION OF DEBT SECURITIES
The following description of the Debt Securities sets forth general terms
and provisions of the Debt Securities to which any prospectus supplement may
relate ("Offered Debt Securities"). The particular terms of the Offered Debt
Securities and the extent to which those general provisions may apply will be
described in a prospectus supplement relating to those Offered Debt Securities.
Unless otherwise specified in the applicable prospectus supplement, the Debt
Securities will constitute our senior, senior subordinated or subordinated,
including, if applicable, junior subordinated, debt. They will be issued under a
Senior Debt Indenture (the "Senior Debt Indenture") or a Subordinated Debt
Indenture (the "Subordinated Debt Indenture"). [ ] (the "Senior Debt
Trustee") will serve as the trustee under the Senior Debt Indenture. [ ]
will serve as the trustee under the Subordinated Debt Indenture (the
"Subordinated Debt Trustee," and together with the Senior Debt Trustee, the
"Trustees"). The Senior Debt Indenture and the Subordinated Debt Indenture are
sometimes referred to below individually as an "Indenture" and collectively as
the "Indentures." If and to the extent set forth in the applicable prospectus
supplement, the Debt Securities may be convertible into our preferred shares or
common shares or issued as part of Units of Debt Securities and other
securities. If Debt Securities are to be issued as part of Units of Debt
Securities and other securities or are to be issued in exchange for preferred
shares or warrants to purchase Debt Securities, the prospectus supplement will
describe any applicable material federal income tax consequences.
The following summaries of some provisions of the Indentures and the Debt
Securities do not purport to be complete. These summaries include
cross-references to some of the Indenture provisions, to assist you in reviewing
the Indentures. The cross references are indicated by parentheses and refer to
numbered sections of the applicable Indenture. Except to the extent set forth in
the prospectus supplement with respect to a particular issue of Debt Securities,
the Indentures are substantially identical, except for certain covenants and the
provisions relating to subordination, including the fact that Senior Debt
Securities will rank senior to the Subordinated Debt Securities.
GENERAL
The Indentures will not limit the amount of additional debt we or any of our
subsidiaries may incur, except as may be provided in the applicable prospectus
supplement. The Debt Securities will be our senior or subordinated obligations,
as set forth in the applicable prospectus supplement.
The applicable prospectus supplement will contain the following terms of,
and information relating to, any Debt Securities, to the extent such terms are
applicable to such Debt Securities and have not been otherwise disclosed:
- the specific title, aggregate principal amount, denomination and form;
- the date of maturity;
- the interest rate or rates, or the method by which such rate will be
determined, if any;
- the date from which interest will accrue, the dates on which any such
interest will be payable and the record date for any interest payable on
the interest payment date;
- if other than the corporate trust office of the trustee for such Debt
Securities, the place or places where the principal of, premium, if any,
and interest, if any, on the Debt Securities will be payable;
- the portion of the principal amount of Debt Securities of the series
payable upon certain declarations of acceleration or the method by which
such portion shall be determined;
- the currency, currencies or currency unit in which payments will be made,
if other than U.S. dollars;
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- whether the Debt Securities are senior or subordinated Debt Securities;
- any redemption, repayment or sinking fund provisions, including the period
or periods within which, the currency, currencies or currency units in
which and the other terms and conditions upon which Debt Securities may be
redeemed;
- whether the Debt Securities are convertible or exchangeable into common
shares or preferred shares and the terms of the security into which they
are convertible or exchangeable (see "Description of Our Shares of
Beneficial Interest-Redeemable Preferred Shares", "--Convertible Preferred
Shares" and "--Common Shares"), the conversion or exchange price, other
terms related to conversion or exchange, whether such conversion or
exchange is mandatory or at the option of the holder or us, and any
anti-dilution protections;
- whether the Debt Securities will be sold as part of Units consisting of
Debt Securities and other securities;
- whether the Debt Securities are to be issued upon the exchange of debt
warrants, and if so, the time, manner and place for such Debt Securities
to be authenticated or declared;
- if the amount of payments of principal of or any premium or interest on
any Debt Securities of the series may be determined with reference to an
index, formula or other method, the index, formula or other method by
which such amounts shall be determined;
- whether and by what method the Debt Securities of the series, or certain
covenants under the related Indenture, may be defeased and discharged by
us;
- whether the Debt Securities of the series shall be issued in whole or in
part as book-entry securities;
- whether any material provisions of the applicable Indenture described in
this prospectus do not apply to the Debt Securities;
- any applicable material federal income tax consequences; and
- any other material specific terms of the Debt Securities not inconsistent
with the provisions of the Indentures, including any material additional
events of default or covenants provided for with respect to the Debt
Securities and any material terms that may be required by or advisable
under applicable laws or regulations.
Debt Securities may bear interest at a fixed rate or a floating rate. Debt
Securities:
- bearing no interest; or
- bearing interest at a rate that at the time of issuance is below the
prevailing market rate; or
- as part of Units consisting of Debt Securities and other securities
may be sold or deemed to be sold at a discount below their stated principal
amount ("Original Issue Discount Securities"). With respect to any Debt
Securities as to which we have the right to defer interest, the holders of such
Debt Securities may be allocated interest income for federal and state income
tax purposes without receiving equivalent, or any, interest payments. Any
material federal income tax considerations applicable to any of these discounted
Debt Securities or to some Debt Securities issued at par that are treated as
having been issued at a discount for federal income tax purposes will be
described in the applicable prospectus supplement.
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SUBORDINATION OF SUBORDINATED DEBT SECURITIES
Any Subordinated Debt Securities will be subordinate and junior in right of
payment, to the extent and in the manner to be set forth in the Indenture, to
all of our "Senior Debt." "Senior Debt" means, without duplication, the
principal, premium (if any) and unpaid interest on all our present and future:
- indebtedness for borrowed money;
- obligations evidenced by bonds, debentures, notes or similar instruments;
- indebtedness incurred, assumed or guaranteed by us in connection with the
acquisition by us or a Subsidiary of any business, properties or assets,
except purchase-money indebtedness classified as accounts payable under
generally accepted accounting principles;
- obligations as lessee under leases required to be capitalized on the
balance sheet of the lessee under generally accepted accounting
principles;
- reimbursement obligations in respect of letters of credit relating to our
indebtedness or other obligations that qualify as indebtedness or
obligations of the kind referred to in the clauses above; and
- obligations under direct or indirect guarantees in respect of, and
obligations (contingent or otherwise) to purchase or otherwise acquire, or
otherwise to assure a creditor against loss in respect of, indebtedness or
obligations of others of the kinds referred to in the clauses above;
in each case unless in the instrument creating or evidencing the indebtedness or
obligation, or pursuant to which the same is outstanding, it is provided that
such indebtedness or obligation is not superior in right of payment to Senior
Debt Securities.
CERTAIN COVENANTS
EXISTENCE. The Indentures generally require us to do or cause to be done
all things necessary to preserve and keep in full force and effect our
existence, rights and franchises. (Section 1004).
MAINTENANCE OF PROPERTIES. The Indentures generally require us to cause all
of our material properties used or useful in the conduct of our business or the
business of any subsidiary to be maintained and kept in good condition, repair
and working order, all as in our judgment may be necessary so that the business
carried on in connection therewith may be properly and advantageously conducted
at all times. We and our subsidiaries are not prevented from selling or
otherwise disposing of our or their properties for value in the ordinary course
of business. (Section 1006).
INSURANCE. The Indentures require us to cause each of our and our
subsidiaries' insurable properties to be insured in a commercially reasonable
amount against loss or damage with insurers of recognized responsibility and, if
described in the applicable prospectus supplement, in specified amounts and with
insurers having a specified rating from a recognized insurance rating service.
(Section 1007).
PAYMENT OF TAXES AND OTHER CLAIMS. The Indentures generally require us to
pay or discharge or cause to be paid or discharged, before the same shall become
delinquent, (i) all taxes, assessments and governmental charges levied or
imposed upon us or any subsidiary or upon our income, profits or that of any
subsidiary and (ii) all lawful claims for labor, materials and supplies which,
if unpaid, might by law become a lien upon any of our properties or that of any
subsidiary. (Section 1008).
ADDITIONAL COVENANTS. We refer you to the applicable prospectus supplement
for information with respect to any additional covenants specific to a
particular series of Debt Securities.
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REDEMPTION
If and to the extent set forth in the applicable prospectus supplement, we
will have the right to redeem the Debt Securities, in whole or from time to time
in part, after the date and at the redemption prices set forth in the applicable
prospectus supplement.
EVENTS OF DEFAULT
An Event of Default with respect to the Debt Securities of any series is
defined in the Indentures as:
- our failure to pay principal of or premium, if any, on any Debt Security
of that series at Maturity;
- our failure to pay 30 days of interest on any Debt Security of that
series;
- our failure for 30 days to make the deposit of any sinking fund payment
when due in respect of that series;
- our failure in the performance of any other of the covenants or warranties
in the Indentures continued for 90 days after due notice by the Trustee or
by Holders of at least 25% in principal amount of the Outstanding Debt
Securities of that series;
- certain events of bankruptcy, insolvency or reorganization; and
- any other Event of Default provided with respect to Debt Securities of
that series. (Section 501)
The Indentures provide that, if any Event of Default with respect to Debt
Securities of any series at the time Outstanding occurs and is continuing,
either the Trustee or the Holders of not less than 25% in principal amount of
the Outstanding Debt Securities of that series may declare the principal amount
(or, if the Debt Securities of that series are Original Issue Discount
Securities or Indexed Securities as defined in the Indentures, such portion of
the principal amount of such Debt Securities as may be specified in the terms
thereof) of all Debt Securities of that series to be due and payable
immediately. Upon some conditions as more fully set forth in the Indentures, the
declaration may be annulled and past defaults may be waived by the Holders of a
majority in principal amount of the Outstanding Debt Securities of that series
on behalf of the Holders of all Debt Securities of that series. However, unless
previously cured, defaults in payment of principal of or premium, if any, or
interest, if any, on the Debt Securities of that series and some other defaults
set forth in the Indentures may not be waived. (Sections 502 and 513)
Reference is made to the prospectus supplement relating to each series of
Debt Securities which are Original Issue Discount Securities for the particular
provisions relating to acceleration of the Maturity of a portion of the
principal amount of such Original Issue Discount Securities upon the occurrence
of an Event of Default and its continuation.
The Indentures provide that the Trustees will, within 90 days after the
occurrence of a default with respect to Debt Securities of any series at the
time Outstanding, give to the Holders of the Outstanding Debt Securities of that
series notice of such default known to it if uncured or not waived. However,
except regarding default in the payment of principal of or premium, if any, or
interest on any Debt Security of that series, or in the deposit of any sinking
fund payment which is provided for, this notice will not be given until 30 days
after the occurrence of a default with respect to Outstanding Debt Securities of
such series. The term default with respect to any series of Outstanding Debt
Securities for the purpose of this provision only means the happening of any of
the Events of Default specified in the Indenture and relating to such series of
Outstanding Debt Securities, excluding any grace periods and irrespective of any
notice requirements. (Section 602)
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The Indentures contain a provision entitling the Trustees, subject to the
duty of the Trustee during default to act with the required standard of care, to
be indemnified by the Holders of any series of Outstanding Debt Securities
before proceeding to exercise any right or power under the Indenture at the
request of the Holders of such series of Debt Securities. (Section 603) The
Indentures provide that the Holders of a majority in principal amount of
Outstanding Debt Securities of any series, after notice and request made to the
applicable Trustee, may direct the time, method and place of conducting any
proceeding for any remedy available to the applicable Trustee, or exercising any
trust or other power conferred on the Trustee, with respect to the Debt
Securities of such series, provided that the Trustee may decline to act if such
direction is contrary to law or the Indentures or would expose it to personal
liability. (Section 512)
DEFEASANCE OF DEBT SECURITIES OR CERTAIN COVENANTS IN CERTAIN CIRCUMSTANCES
DEFEASANCE AND DISCHARGE. Unless otherwise provided in the applicable
prospectus supplement, the terms of any series of Debt Securities will provide
that we will be discharged from any and all obligations in respect of the Debt
Securities of such series upon the deposit with the Trustee, in trust, of money
and/or U.S. Government Obligations which, through the payment of interest and
principal thereof in accordance with their terms, will provide money in an
amount sufficient to pay and discharge the principal of (and premium, if any)
and interest on, and any mandatory sinking fund payments applicable to, the Debt
Securities of such series on the stated maturity of such payments in accordance
with the terms of the Indenture and such Debt Securities. This discharge may
only occur if, among other things, we have delivered to the Trustee an opinion
of counsel indicating that we have received from, or there has been published
by, the United States Internal Revenue Service a ruling, or there has been a
change in tax law, in either case to the effect that such a discharge will not
be deemed, or result in, a taxable event with respect to Holders of the Debt
Securities of such series. This discharge of obligations is not applicable to
certain obligations to register the transfer or exchange of Debt Securities of
such series, to replace stolen, lost or mutilated Debt Securities of such
series, to maintain paying agencies and to hold moneys for payment in trust.
(Article Thirteen of the Senior Debt Indenture; Article Fifteen of the
Subordinated Debt Indenture)
DEFEASANCE OF CERTAIN COVENANTS. Unless otherwise provided in the
applicable prospectus supplement, the terms of any series of Debt Securities
will provide us with the option to omit to comply with some restrictive
covenants, including those described in Sections 801, 1007 and 1008 of the
Senior Debt Indenture. In order to exercise this option, we will be required to
deposit with the Trustee money and/or U.S. Government Obligations, which,
through the payment of interest and principal in accordance with their terms,
will provide money in an amount sufficient to pay the principal of (and premium,
if any) and interest on, and mandatory sinking fund payments applicable to the
Debt Securities of such series on the stated maturity of such payments in
accordance with the terms of the Indentures and such Debt Securities. We will
also be required to deliver to the Trustee an opinion of counsel to the effect
that the deposit and related covenant defeasance will not cause the Holders of
the Debt Securities of such series to recognize income, gain or loss for federal
income tax purposes. In the event we exercise this option and the Debt
Securities of such series are declared due and payable because of the occurrence
of any Event of Default, the amount of money and U.S. Government Obligations, as
the case may be, on deposit with the Trustee will be sufficient to pay amounts
due on the Debt Securities of such series at the time of their Stated Maturity
but may not be sufficient to pay amounts due on the Debt Securities of such
series at the time of the acceleration resulting from such Event of Default.
However, we will remain liable for those payments.
The applicable prospectus supplement will state if any defeasance provision
will apply to Debt Securities offered in connection with it.
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MODIFICATION OF THE INDENTURE AND WAIVER OF COVENANTS
The Indentures contain provisions permitting us and the applicable Trustee, with
the consent of the Holders of not less than a majority in principal amount of
Outstanding Debt Securities of each series affected thereby, to execute
supplemental indentures with respect to:
- adding any provisions to or changing or eliminating any of the provisions
of the Indentures; or
- modifying the rights of the Holders of Outstanding Debt Securities of such
series.
However, no such supplemental indenture may, without the consent of the
Holder of each Outstanding Debt Security affected thereby:
- change the Stated Maturity, or reduce the principal amount, the premium,
if any, or the rate of payment of interest, of any Debt Security of any
series;
- reduce the percentage of Outstanding Debt Securities of any series, as
discussed above, the consent of the Holders of which is required for any
supplemental indenture or for waiver of compliance with certain provisions
of or certain defaults under, the applicable Indenture; or
- effect certain other changes. (Section 902)
The Indentures also permit us to omit compliance with some covenants in the
Indentures with respect to Debt Securities of any series upon waiver by the
Holders of a majority in principal amount of Outstanding Debt Securities of such
series.
The Indenture's contain provisions permit us and the applicable Trustee,
without the consent of any Holders of Outstanding Debt Securities, to execute
supplemental indentures with respect to:
- fixing any ambiguity, defect or inconsistency in such Indenture; or
- changing any provision that does not materially adversely affect the
interests of any Holders of such series of Debt Securities.
CONSOLIDATION, MERGER AND SALE OF ASSETS
The Indentures contain a provision permitting us, without the consent of the
Holders of any of the Outstanding Debt Securities under the Indenture, to
consolidate with or merge into any other corporation or transfer or lease our
assets substantially as an entirety to any person provided that:
- the successor is a corporation organized under the laws of any domestic
jurisdiction;
- the successor assumes our obligations on the Debt Securities and under the
Indentures;
- after giving effect to the transaction, no Event of Default, and no event
which, after notice or lapse of time, would become an Event of Default,
will have happened and be continuing; and
- certain other conditions are met. (Sections 801 and 802)
CONCERNING THE TRUSTEES
[ ] is the Trustee under the Senior Debt Indenture.
[ ] is the Trustee under the Subordinated Debt Indenture.
GOVERNING LAW
Unless otherwise specified in the applicable prospectus supplement, the
Indenture for the Debt Securities will be governed by New York law, except to
the extent that the Trust Indenture Act shall be applicable.
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DESCRIPTION OF DEPOSITARY SHARES
GENERAL
The following summary of each of the Deposit Agreement, the Depositary
Shares and the Depositary Receipts, each as defined below, does not purport to
be complete and is qualified in its entirety by reference to the Deposit
Agreement and Depositary Receipts with respect to the Depositary Shares relating
to any particular series of preferred shares, the forms of which are filed as,
or will be incorporated by reference as, exhibits to the registration statement
of which this prospectus is a part in connection with the issuance of such
Depositary Shares.
The following summary of the Deposit Agreement, the Depositary Shares and
the Depositary Receipts relates to terms and conditions applicable to such
securities generally. The particular terms of any series of Depositary Shares
will be described in the applicable prospectus supplement. If so indicated in
the prospectus supplement, the terms of any such series may differ from the
terms set forth below.
We may, at our option, elect to offer fractional interests in preferred
shares, rather than preferred shares. If we elect to do so, we will provide for
the issuance by a Depositary (as described below) to the public of receipts for
Depositary Shares. Each of these Depositary Shares will represent a fractional
interest of a preferred share, the specific interest to be set forth in the
applicable prospectus supplement.
The preferred shares underlying any Depositary Shares will be deposited
under a separate Deposit Agreement (each, a "Deposit Agreement") between us and
a bank or trust company selected by us with respect to such preferred shares.
This bank or trust company will have its principal office in the United States
and have a combined capital and surplus of at least $50,000,000 (with respect to
such preferred shares, the "Depositary"). The applicable prospectus supplement
relating to a series of Depositary Shares will set forth the name and address of
the Depositary. Subject to the terms of the applicable Deposit Agreement, each
owner of a Depositary Share will be entitled, in proportion to the applicable
fractional interest in a preferred share underlying such Depositary Share, to
all the rights, preferences or privileges of such preferred shares (including
dividend, voting, redemption, conversion, exchange and liquidation rights).
Depositary Shares will be evidenced by depositary receipts issued pursuant
to the applicable Deposit Agreement (the "Depositary Receipts").
DIVIDENDS
The Depositary will distribute all cash dividends or other cash
distributions received by the Depositary in respect of the preferred shares to
the record holders of Depositary Shares relating to such preferred shares in
proportion to the respective numbers of such Depositary Shares held by such
holders on the relevant record date. However, if we or the Depositary is
required to withhold and does withhold from any cash dividend or other cash
distribution an amount on account of taxes, the amount made available for
distribution will be reduced accordingly. The Depositary will distribute only
such amount, however, as can be distributed without attributing to any holder of
Depositary Shares a fraction of one cent. Any balance not so distributed will be
added to and treated as part of the following distribution to record holders of
such Depositary Shares.
In the event of a distribution other than in cash, the Depositary will
distribute securities or property received by it to the record holders of
Depositary Shares entitled thereto in proportion to the respective numbers of
such Depositary Shares held by such holders on the relevant record date, unless
the Depositary determines that it is not feasible to make such distribution. In
that case, the Depositary may, with our approval, adopt such method as it deems
equitable and practicable for the purpose of effecting such distribution,
including the public or private sale of such securities or property. The net
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proceeds from any such sale will then be distributed to the holders as provided
in the case of a cash distribution.
Each Deposit Agreement will also contain provisions relating to the manner
in which any subscription or similar rights offered by us to holders of the
preferred shares of the applicable series will be made available to holders of
Depositary Shares.
WITHDRAWAL OF SHARES
Upon surrender of Depositary Receipts at the Depositary's office, unless the
related Depositary Shares have previously been called for redemption, the holder
of the Depositary Shares evidenced by the Depositary Receipts will be entitled
to delivery at such office, to or upon such holder's order, of the number of
whole shares of the related series of preferred shares and all money and other
property, if any, underlying such Depositary Shares. Holders of Depositary
Shares will be entitled to receive whole shares of the related series of
preferred shares on the basis set forth in the applicable prospectus supplement.
However, holders of such whole preferred shares will not thereafter be entitled
to deposit such preferred shares or to receive receipts evidencing Depositary
Shares therefor. If the Depositary Receipts delivered by the holder evidence a
number of Depositary Shares in excess of the number of Depositary Shares
representing the number of whole shares of the related series of preferred
shares to be withdrawn, the Depositary will deliver to such holder or upon such
holder's order at the same time a new Depositary Receipt evidencing such excess
number of Depositary Shares.
REDEMPTION OF DEPOSITARY SHARES
The terms, if any, on which the Depositary Shares relating to the preferred
shares of any series may be redeemed will be set forth in the applicable
prospectus supplement.
VOTING OF UNDERLYING PREFERRED SHARES
Upon receipt of notice of any meeting at which the holders of the preferred
shares of any series are entitled to vote, the applicable Depositary will mail
the information contained in such notice of meeting to the record holders of the
Depositary Shares relating to such series of preferred shares. Each record
holder of such Depositary Shares on the record date, which will be the same date
as the record date for the preferred shares, will be entitled to instruct the
Depositary as to the exercise of the voting rights pertaining to the number of
preferred shares underlying such holder's Depositary Shares. The Depositary will
endeavor, insofar as practicable, to vote the number of whole preferred shares
underlying such Depositary Shares in accordance with such instructions. We will
agree to take all action that may be deemed necessary by the Depositary in order
to enable the Depositary to do so. To the extent the Depositary does not receive
specific instructions from the holders of Depositary Shares relating to such
preferred shares, it will abstain from voting such preferred shares, unless
otherwise indicated by the holders of such Depositary Shares.
AMENDMENT AND TERMINATION OF THE DEPOSIT AGREEMENT
The form of Depositary Receipt evidencing the Depositary Shares and any
provision of the applicable Deposit Agreement may at any time be amended by
agreement between us and the Depositary. However, no amendment that materially
and adversely alters the rights of the existing holders of Depositary Shares
will be effective unless such amendment has been approved by the record holders
of at least a majority of the Depositary Shares then outstanding. A Deposit
Agreement may be terminated by us or the Depositary only if:
- all outstanding Depositary Shares relating to it have been redeemed and
any accumulated and unpaid dividends on the preferred shares represented
by the Depositary Shares, together with all
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other moneys and property, if any, to which holders of Depositary Receipts
are entitled, have been paid or distributed;
- all preferred shares have been withdrawn; or
- there has been a final distribution in respect of the preferred shares of
the applicable series in connection with our liquidation, dissolution or
winding up and such distribution has been distributed to the holders of
Depositary Receipts.
CHANGES OF PREFERRED SHARE DEPOSITARY
We will pay all transfer and other taxes and governmental charges arising
solely from the existence of any depositary arrangements. We will pay all
charges of each Depositary in connection with the initial deposit of the
preferred shares of any series, any redemption of such preferred shares and any
withdrawals of such preferred shares by holders of Depositary Shares. Holders of
Depositary Shares will be required to pay any other transfer and other taxes and
governmental charges and such other charges as are expressly provided in the
Deposit Agreement to be for their accounts.
RESIGNATION AND REMOVAL OF DEPOSITARY
A Depositary may resign at any time by delivering to us notice of its
election to do so. We may at any time remove a Depositary. Such resignation or
removal will take effect upon the appointment of a successor Depositary and its
acceptance of such appointment. Such successor Depositary must be appointed
within 60 days after delivery of the notice of resignation or removal and must
be a bank or trust company having its principal office in the United States and
having a combined capital and surplus of at least $50,000,000.
MISCELLANEOUS
Each Depositary will forward to the holders of the applicable Depositary
Shares all notices, reports and communications from us which are delivered to
such Depositary and which we are required to furnish the holders of the
Depositary Receipts or preferred shares of the applicable series.
Neither any Depositary nor we will be liable if it or us is prevented or
delayed by law or any circumstance beyond its or our control in performing its
or our obligations under any Deposit Agreement. Neither any Depositary nor we
will assume any obligation or be subject to any liability under any Deposit
Agreement other than for its or our negligence or willful misconduct. They will
not be obligated to prosecute or defend any legal proceeding in respect of any
Depositary Shares or preferred shares unless indemnity satisfactory to them is
furnished. The Depositary will agree to perform its duties as are specifically
set forth in the Deposit Agreement using its reasonable best efforts and in good
faith. We or any Depositary may rely upon written advice of counsel or
accountants, or information provided by persons presenting preferred shares for
deposit, holders of Depositary Shares or other persons believed by us or it to
be competent and on documents believed by us or them to be genuine.
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DESCRIPTION OF WARRANTS
We have no outstanding warrants to purchase common shares ("Common Share
Warrants"), warrants to purchase preferred shares ("Preferred Share Warrants"),
warrants to purchase Depository Shares ("Depository Share Warrants") and
warrants to purchase Debt Securities ("Debt Securities Warrants" and
collectively with Common Share Warrants, Preferred Share Warrants and Depository
Share Warrants, the "Warrants"). We may issue Warrants for the purchase of
preferred shares, common shares, Depository Shares or Debt Securities. Warrants
may be issued independently or together with any other securities offered by any
prospectus supplement and may be attached to or separate from those securities.
Each series of Warrants will be issued under a separate warrant agreement (each,
a "Warrant Agreement") to be entered into between us and a warrant agent
specified in a prospectus supplement (the "Warrant Agent"), the form of which
will be filed or incorporated by reference as an exhibit to the registration
statement of which this prospectus forms a part. The Warrant Agent will act
solely as our agent in connection with the Warrants of such series and will not
assume any obligation or relationship of agency or trust for or with any
provisions of the Warrants offered hereby. Further terms of the Warrants and the
applicable Warrant Agreements will be set forth in the applicable prospectus
supplement relating to the issuance of any Warrants.
The applicable prospectus supplement will describe the terms of the Warrants
in respect of which this prospectus is being delivered including, where
applicable, the following:
- the title of the Warrants;
- the aggregate number of the Warrants;
- the price or prices at which the Warrants will be issued;
- the designation, terms and number of common shares, preferred shares,
Depositary Shares or Debt Securities purchasable upon exercise of the
Warrants;
- the designation and terms of the securities, if any, with which the
Warrants are issued and the number of the Warrants issued with each such
offered security;
- the date, if any, on and after which the Warrants and the related
preferred shares, common shares, Depositary Shares or Debt Securities will
be separately transferable;
- the price at which each common share, preferred share, Depositary Share or
Debt Security purchasable upon exercise of the Warrants may be purchased;
- the date on which the right to exercise the Warrants shall commence and
the date on which the right shall expire;
- the minimum or maximum amount of the Warrants which may be exercised at
any one time;
- information with respect to book-entry procedures, if any;
- a discussion of certain material federal income tax considerations; and
- any other terms of the Warrants, including terms, procedures and
limitations relating to the exchange and exercise of the Warrants.
The exercise of any Warrants will be subject to and limited by the transfer and
ownership restrictions in our declaration of trust. See "Description of Our
Shares of Beneficial Interest--Restrictions on Ownership and Transfer."
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DESCRIPTION OF SHARE PURCHASE CONTRACTS
AND SHARE PURCHASE UNITS
GENERAL
Unless otherwise specified in the applicable prospectus supplement, we may
issue Share Purchase Contracts, including contracts obligating holders to
purchase from us, and us to sell to the holders, a specified number of common
shares or preferred shares at a future date or dates. The consideration per
common share or preferred share may be fixed at the time the Share Purchase
Contracts are issued or may be determined by a specific reference to a formula
set forth in the Share Purchase Contracts. The Share Purchase Contracts may be
issued separately or as part of Units ("Share Purchase Units") consisting of a
Share Purchase Contract and Debt Securities, Preferred Securities or debt
obligations of third parties, including U.S. Treasury securities, securing the
holders' obligations to purchase common shares or preferred shares under the
Share Purchase Contracts. The Share Purchase Contracts may require us to make
periodic payments to the holders of the Share Purchase Units or vice versa.
These payments may be unsecured or prefunded on some basis. The Share Purchase
Contracts may require holders to secure their obligations thereunder in a
specified manner.
PLEDGED SECURITIES AND PLEDGE AGREEMENT
The securities related to the Share Purchase Contracts (collectively, the
"Pledged Securities") will be pledged to a collateral agent (the "Collateral
Agent"), for our benefit, pursuant to the Pledge Agreement to secure the
obligations of holders of Share Purchase Contracts to purchase common shares or
preferred shares under the related Share Purchase Contracts. The rights of
holders of Share Purchase Contracts to the related Pledged Securities will be
subject to our security interest therein created by the Pledge Agreement. No
holder of Share Purchase Contracts will be permitted to withdraw the Pledged
Securities related to the Share Purchase Contracts from the pledge arrangement
except upon the termination or Early Settlement of the related Share Purchase
Contracts. Subject to such security interest and the terms of the Purchase
Contract Agreement and the Pledge Agreement, the forms of which will be filed or
incorporated by reference as exhibits to the registration statement of which
this prospects forms a part, each holder of a Share Purchase Contract will
retain full beneficial ownership of the related Pledged Securities.
DISTRIBUTIONS
Except as described in the applicable prospectus supplement, the Collateral
Agent will, upon receipt of distributions on the Pledged Securities, distribute
such payments to us or the Purchase Contract Agent, as provided in the Pledge
Agreement. The Purchase Contract Agent will in turn distribute payments it
receives as provided in the Purchase Contract Agreement.
The applicable prospectus supplement will describe the terms of any Share
Purchase Contracts or Share Purchase Units, the forms of which will be filed or
incorporated by reference as exhibits to the registration statement of which
this prospects forms a part. The description in the prospectus supplement will
not necessarily be complete and will be qualified in its entirety by reference
to the Share Purchase Contracts, and, if applicable, collateral arrangements and
depositary arrangements, relating to such Share Purchase Contracts or Share
Purchase Units.
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DESCRIPTION OF GLOBAL SECURITIES
Unless otherwise specified in the applicable prospectus supplement,
securities offered hereby, other than common shares and preferred shares, will
be issued in the form of one or more book-entry certificates (collectively, with
respect to each series or issue of securities, the "Global Securities")
registered in the name of a depositary or a nominee of a depositary. Unless
otherwise specified in the applicable prospectus supplement, the depositary will
be The Depository Trust Company ("DTC"). We have been informed by DTC that its
nominee will be Cede & Co. ("Cede"). Accordingly, Cede is expected to be the
initial registered holder of all securities that are issued in book-entry form.
No person that acquires a beneficial interest in such securities will be
entitled to receive a certificate representing that person's interest in the
securities except as set forth in this prospectus or in the applicable
prospectus supplement. Unless and until definitive securities are issued under
the limited circumstances described below, all references to actions by holders
of securities issued in book-entry form shall refer to actions taken by DTC upon
instruction from its Participants (as defined below), and all references in this
prospectus to payments and notices to holders shall refer to payments and
notices to DTC or Cede, as the registered holder of such securities.
DTC has informed us that it is a limited purpose trust company organized
under the New York Banking Law, a "banking organization" within the meaning of
the New York Banking Law, a member of the Federal Reserve System, a "clearing
company" within the meaning of the New York Uniform Commercial Code and a
"clearing agency" registered pursuant to Section 17A of the Exchange Act. It has
also informed us that it was created to hold securities for its participating
organizations ("Participants") and to facilitate the clearance and settlement of
securities transactions among Participants through electronic book-entry,
thereby eliminating the need for physical movement of certificates. Participants
include securities brokers and dealers, banks, trust companies and clearing
corporations, and may include certain other organizations. Indirect access to
the DTC system also is available to others such as banks, brokers, dealers and
trust companies that clear through or maintain a custodial relationship with a
Participant, either directly or indirectly ("Indirect Participants").
Persons that are not Participants or Indirect Participants but desire to
purchase, sell or otherwise transfer ownership of, or other interests in,
securities may do so only through Participants and Indirect Participants. Under
a book-entry format, Holders may experience some delay in their receipt of
payments, as such payments will be forwarded by the agent designated by us to
Cede, as nominee for DTC. DTC will forward such payments to its Participants,
which then will forward them to Indirect Participants or Holders. Holders will
not be recognized by the applicable registrar, transfer agent, Trustee,
Depositary or Warrant Agent as registered holders of the securities entitled to
the benefits of the Certificate or the applicable Indenture, Deposit Agreement
or Warrant Agreement. Beneficial owners that are not Participants will be
permitted to exercise their rights as such only indirectly through and subject
to the procedures of Participants and, if applicable, Indirect Participants.
Under the rules, regulations and procedures creating and affecting DTC and
its operations as currently in effect (the "Rules"), DTC will be required to
make book-entry transfers of securities among Participants and to receive and
transmit payments to Participants. Participants and Indirect Participants with
which beneficial owners of securities have accounts with respect to the
securities similarly are required by the Rules to make book-entry transfers and
receive and transmit such payments on behalf of their respective account
holders.
Because DTC can act only on behalf of Participants, who in turn act only on
behalf of Participants or Indirect Participants, and on behalf of certain banks,
trust companies and other persons approved by it, the ability of a beneficial
owner of securities issued in book-entry form to pledge such securities to
persons or entities that do not participate in the DTC system, or to otherwise
act with respect to such securities, may be limited due to the unavailability of
physical certificates for such securities.
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DTC has advised us that DTC will take any action permitted to be taken by a
registered holder of any securities under our declaration of trust or the
applicable Indenture, Deposit Agreement or Warrant Agreement only at the
direction of one or more Participants to whose accounts with DTC such securities
are credited.
Unless otherwise specified in the applicable prospectus supplement, a Global
Security will be exchangeable for the relevant definitive securities registered
in the names of persons other than DTC or its nominee only if:
- DTC notifies us that it is unwilling or unable to continue as depositary
for such Global Security or if at any time DTC ceases to be a clearing
agency registered under the Exchange Act at a time when DTC is required to
be so registered in order to act as such depository and we do not appoint
a successor within 90 days;
- we execute and deliver to the applicable registrar, transfer agent,
Trustee, Depositary and/or Warrant Agent an order complying with the
requirements of our declaration of trust, the Articles Supplementary or
the applicable Indenture, Deposit Agreement and/or Warrant Agreement that
such Global Security shall be so exchangeable; or
- there has occurred and is continuing a default in the payment of any
amount due in respect of the securities or, in the case of Debt
Securities, an Event of Default or an event that, with the giving of
notice or lapse of time, or both, would constitute an Event of Default
with respect to such Debt Securities.
Any Global Security that is exchangeable pursuant to the preceding sentence will
be exchangeable for securities registered in such names as DTC directs.
Upon the occurrence of any event described in the immediately preceding
paragraph, DTC is generally required to notify all Participants of the
availability through DTC of definitive securities. Upon surrender by DTC of the
Global Security representing the securities and delivery of instructions for
re-registration, the registrar, transfer agent, Trustee, Depositary or Warrant
Agent, as the case may be, will reissue the securities as definitive securities.
Then, such persons will recognize the holders of the definitive securities as
registered holders of securities entitled to the benefits of the Certificate or
the applicable Indenture, Deposit Agreement and/or Warrant Agreement.
Except as described above, a Global Security may not be transferred except
as a whole by DTC to a nominee of DTC or by a nominee of DTC to DTC or another
nominee of DTC or to a successor depositary appointed by us. Except as described
above, DTC may not sell, assign, transfer or otherwise convey any beneficial
interest in a Global Security evidencing all or part of any securities unless
such beneficial interest is in an amount equal to an authorized denomination for
such securities.
We, the Trustees, any registrar and transfer agent, any Warrant Agent or any
Depositary, or any agent of any of them, will not have any responsibility or
liability for any aspect of DTC's or any Participant's records relating to, or
for payments made on account of, beneficial interests in a Global Security, or
for maintaining, supervising or reviewing any records relating to such
beneficial interests.
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MATERIAL FEDERAL INCOME TAX CONSIDERATIONS
The following discussion summarizes the material federal income tax
considerations to us resulting from the treatment of us as a REIT. Winston &
Strawn has acted as tax counsel ("Tax Counsel") to us in connection with the
offering and the preparation of this prospectus. This summary should not be
construed as tax advice.
The statements in this summary are based on current provisions of the
Internal Revenue Code, Treasury Regulations promulgated thereunder and
administrative and judicial interpretations thereof, as of the date hereof, all
of which are subject to change, possibly with retroactive effect. The provisions
of the Internal Revenue Code, the Treasury Regulations promulgated thereunder
and the relevant administrative and judicial interpretations that concern REITs
are highly technical and complex, and this summary is qualified in its entirety
by such Internal Revenue Code provisions, Treasury Regulations, and
administrative and judicial interpretations. No assurance can be given that
future legislative, judicial, or administrative actions or decisions will not
affect the accuracy of any statements in this summary. In addition, there can be
no assurance that a ruling will be sought from the Internal Revenue Service (the
"IRS") with respect to any matter discussed herein, or that the IRS or a court
will agree with the statements made herein.
This summary of Material Federal Income Tax Considerations describes our tax
treatment as a REIT. The summary describes the complex technical requirements
which we must satisfy in order to qualify as a REIT. Our failure to meet those
requirements could result in our income becoming taxable in the same manner as
any regular C Corporation. The resulting tax liability to us if we failed to
meet the REIT requirements would have a significant adverse effect on an
investment in the Equity Shares. See "--Taxation of Prime Group Realty
Trust--Failure to Qualify" below. In addition, even if we do qualify as a REIT,
various federal income taxes may still be imposed on us as are described in the
summary.
TAXATION OF PRIME GROUP REALTY TRUST
GENERAL
We have elected to be taxed as a REIT under Sections 856 through 860 of the
Internal Revenue Code and the applicable Treasury Regulations, which together
set forth the requirements for qualifying as a REIT (the "REIT Requirements"),
beginning with our taxable year ended December 31, 1997. We believe that we are
organized, have operated and will continue to operate in a manner to qualify for
taxation as a REIT under the Internal Revenue Code. No assurance can be given,
however, that we have actually operated in such a manner to qualify as a REIT or
will continue to operate in a manner to remain qualified as a REIT.
Subject to the qualifications described in this summary and stated in its
opinion, Tax Counsel has given us an opinion that we are organized in conformity
with the requirements for qualification as a REIT under the Internal Revenue
Code, and our method of operation has enabled us to meet the requirements for
qualification and taxation as a REIT under the Internal Revenue Code and our
method of operation enables us to continue to meet the requirements for
qualification as a REIT. An opinion of counsel is not binding on the IRS or a
court and there can be no assurance that the IRS or a court will not take a
position different from that expressed by Tax Counsel. It also must be
emphasized that Tax Counsel's opinion is based on various assumptions and is
conditioned upon numerous representations made by us and the operating
partnership as to factual matters, including those related to our and its
businesses and properties as set forth in this prospectus. Tax Counsel has not
independently verified our representations. Moreover, our qualification and
taxation as a REIT depend upon our ability to meet on a continuing basis the
actual operating results, distribution levels, diversity of ownership and the
various other qualification tests imposed by the Internal Revenue Code as
discussed below. Tax Counsel will not review our compliance with these tests on
a continuing basis.
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Accordingly, no assurance can be given that the actual results of our operations
for any given taxable year will satisfy the requirements for qualification and
taxation as a REIT. See "--Failure to Qualify."
REIT TAXATION
For any taxable year in which we qualify for taxation as a REIT, we
generally will not be subject to federal corporate income tax on that portion of
our ordinary income or capital gain that is currently distributed to our
shareholders. The REIT provisions of the Internal Revenue Code generally allow a
REIT to deduct dividends paid to its shareholders in calculating its taxable
income. This deduction for dividends paid to shareholders substantially
eliminates the federal "double taxation" on earnings (once at the corporate
level and once again at the shareholder level) that generally results from an
investment in a corporation.
Even if we continue to qualify for taxation as a REIT, we may be subject to
federal income tax in the following circumstances:
- We will be taxed at regular corporate rates on any undistributed "REIT
taxable income" and undistributed net capital gains.
- In some circumstances, we may be subject to the corporate "alternative
minimum tax" on our items of tax preference, if any.
- If we have (A) net income from the sale or other disposition of
"foreclosure property" which is held primarily for sale to customers in
the ordinary course of business or (B) other nonqualifying income from
foreclosure property, we will be subject to tax on such income at the
highest regular corporate rate (currently 35%).
- If we have net income from prohibited transactions, such income will be
subject to a 100% tax. Prohibited transactions, in general, are sales or
other dispositions of property held primarily for sale to customers in the
ordinary course of business, other than foreclosure property.
- If we should fail to satisfy the 75% gross income test or the 95% gross
income test (as discussed below), but nonetheless maintain our
qualification as a REIT because we meet other requirements, we will be
subject to a 100% tax on the greater of the amount by which we fail the
75% or the 95% test, multiplied by a fraction intended to reflect our
profitability.
- If we should fail to distribute for each calendar year at least the sum of
(A) 85% of our REIT ordinary income for such year, (B) 95% of our REIT
capital gain net income for such year, and (C) any undistributed taxable
income from prior periods, we will be subject to a 4% excise tax on the
excess of such required distribution over the amounts actually
distributed. However, to the extent we elect to retain and pay income tax
on net long-term capital gains we received during the year such amounts
will be treated as having been distributed for purposes of the 4.0% excise
tax.
- If we acquire any asset from a C corporation, I.E., any corporation
subject to full corporate level tax, in a transaction in which the basis
of the asset in our hands is determined by reference to the basis of the
asset (or any other property) in the hands of the C corporation, and we
subsequently recognize gain on the disposition of such asset during the
ten-year period (the "Recognition Period") beginning on the date on which
the asset was acquired by us, then, pursuant to guidelines issued by the
IRS, the C corporation from which we acquired the asset will be taxable on
the amount of gain that would have been realized if the C corporation had
liquidated on the last day before the date on which we acquired the asset.
Alternatively, we may elect, in lieu of the treatment described above, to
be subject to tax at the highest regular corporate tax rate on the excess,
if any, of (A) the fair market value of the asset as of the beginning of
the applicable Recognition Period, over (B) our adjusted basis in such
asset as of
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the beginning of such Recognition Period (I.E., "built-in gain"). We also
will be taxed on any built-in gains during the Recognition Period
attributed to the disposition of assets of an acquired corporation which
is a "qualified REIT subsidiary." See "--Requirements for Qualification--
Qualified REIT Subsidiary."
If we invest in properties in foreign countries, our profits from those
investments will generally be subject to tax in the countries where such
properties are located. The precise nature and amount of any taxation will
depend on the laws of the countries where the properties are located. If we
satisfy the annual distribution requirements for qualification as a REIT and are
therefore not subject to federal corporate income tax on that portion of our
ordinary income and capital gain that is currently distributed to our
shareholders, we will generally not be able to recover the cost of any foreign
tax imposed on profits from our foreign investments by claiming foreign tax
credits against our U.S. tax liability on such profits. Moreover, a REIT is not
able to pass foreign tax credits through to its shareholders.
We use the calendar year for both federal income tax purposes and financial
reporting purposes.
REQUIREMENTS FOR REIT QUALIFICATION
To qualify as a REIT, we must have met and continue to meet the
requirements, discussed below, relating to our organization, the sources of our
gross income, the nature of our assets, and the level of distributions to our
shareholders.
ORGANIZATIONAL REQUIREMENTS
The Internal Revenue Code requires that a REIT be a corporation, trust, or
association:
- which is managed by one or more trustees or directors;
- the beneficial ownership of which is evidenced by transferable shares or
by transferable certificates of beneficial interest;
- which would be taxable as a domestic corporation but for compliance with
the REIT requirements;
- which is neither a financial institution nor an insurance company under
the Internal Revenue Code;
- the beneficial ownership of which is held by 100 or more persons;
- at any time during the last half of each taxable year not more than 50% in
value of the outstanding stock or shares of beneficial interest of which
is owned, directly or indirectly through the application of attribution
rules, by or for five or fewer individuals (as defined in the Internal
Revenue Code to include tax-exempt entities other than, in general,
qualified domestic pension funds); and
- which meets other tests, described below, regarding the nature of its
income and assets and distribution requirements.
The Internal Revenue Code provides that the first four conditions above must
be met during the entire taxable year and that the fifth condition must be met
during at least 335 days of a taxable year of 12 months, or during a
proportionate part of a taxable year of less than 12 months. A corporation may
not elect to become a REIT unless its taxable year is a calendar year.
We have issued sufficient shares to enough holders to allow us to satisfy
the fifth condition set forth above (the "100 holder" requirement). For purposes
of determining ongoing compliance with the 100 holder requirement, Treasury
Regulations require us to issue letters to some shareholders
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demanding information regarding the amount of shares each such shareholder
actually or constructively owns. Although any failure by us to comply with the
shareholder demand letters requirement should not jeopardize our REIT status,
such failure would subject us to financial penalties. A list of those
shareholders failing or refusing to comply with this demand must be maintained
as part of our records. A shareholder who fails or refuses to comply with the
demand must submit a statement with its tax return disclosing the actual
ownership of the shares and other information.
As set forth in the sixth condition above, to qualify as a REIT we must also
satisfy the requirement set forth in Section 856(a)(6) of the Internal Revenue
Code that we not be closely held. We will not be closely held so long as at all
times during the last half of any of our taxable years (other than the first
taxable year for which the REIT election is made) not more than 50% in value of
our outstanding shares of beneficial interest is owned, directly or
constructively under the applicable attribution rules of the Internal Revenue
Code, by five or fewer individuals (as defined in the Internal Revenue Code to
include tax-exempt entities, other than, in general, qualified domestic pension
funds) (the "5/50 Rule").
Although our declaration of trust contains restrictions on the ownership and
transfer of the Equity Shares, the restrictions do not ensure that we will be
able to satisfy the 5/50 Rule. If we fail to satisfy the 5/50 Rule, our status
as a REIT will terminate, and we will not be able to prevent such termination.
However, for taxable years beginning after August 5, 1997, if we comply with the
procedures prescribed in Treasury Regulations for issuing shareholder demand
letters and do not know, or with the exercise of reasonable diligence would not
have known, that the 5/50 Rule was violated, the requirement that we not be
closely held will be deemed to be satisfied for the year. See "--Failure to
Qualify."
OWNERSHIP OF A PARTNERSHIP INTEREST
In the case of a REIT that is a partner in a partnership, Treasury
Regulations provide that the REIT is deemed to own its proportionate share of
the assets of the partnership corresponding to the REIT's capital interest in
such partnership and is deemed to earn such proportionate share of the income of
the partnership. In addition, the partnership's assets and gross income retain
the same character in the hands of the REIT for purposes of the REIT
Requirements, including satisfying the gross income tests and the asset tests.
Accordingly, our proportionate share of the assets, liabilities and items of
income of the operating partnership, including the operating partnership's
proportionate share of the assets, liabilities and items of income of each of
its property-owning subsidiaries (each a "Property Partnership"), are treated as
our assets, liabilities and items of income for purposes of applying the REIT
Requirements, provided that the operating partnership and each of the Property
Partnerships are treated as partnerships for federal income tax purposes.
QUALIFIED REIT SUBSIDIARY
If a REIT owns a corporate subsidiary that is a "qualified REIT subsidiary,"
within the meaning of section 856(i) of the Internal Revenue Code, that
subsidiary is disregarded for federal income tax purposes, and all assets,
liabilities, and items of income, deduction, and credit of the subsidiary are
treated as assets, liabilities and such items of the REIT itself. A "qualified
REIT subsidiary" is a corporation all of the capital stock of which is owned by
the REIT. If an existing corporation is acquired by a REIT and becomes a
"qualified REIT Subsidiary" of such REIT, all of its pre-acquisition earnings
and profits must be distributed before the end of the REIT's taxable year. Any
corporation formed directly by us to act as a general partner in any of the
Property Partnerships will be a "qualified REIT subsidiary" and thus all of such
subsidiary corporation's assets, liabilities, and items of income, deduction,
and credit will be treated as our assets, liabilities, and items of income,
deduction and credit.
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INCOME TESTS
To maintain our qualification as a REIT, we must satisfy two gross income
requirements annually. First, at least 75% of our gross income (excluding gross
income from prohibited transactions) for each taxable year must be derived
directly or indirectly from investments relating to real property or mortgages
on real property (including "rents from real property" and, in some
circumstances, interest) or from some types of temporary investments. Second, at
least 95% of our gross income (excluding gross income from prohibited
transactions) for each taxable year must be derived from such real property
investments and from dividends, interest, and gain from the sale or disposition
of stock or securities or from any combination of the foregoing.
Rents received by us will qualify as "rents from real property" in
satisfying the gross income requirements for a REIT described above only if
several conditions are met:
- First, the amount of rent received or accrued with respect to any property
must not be based in whole or in part on the income or profits derived by
any person from such property, although an amount received or accrued
generally will not be excluded from the term "rents from real property"
solely by reason of being based on a fixed percentage or percentages of
gross receipts or gross sales. Rents received from a tenant that are based
on the tenant's income from the property will not be treated as rents
based on income or profits and thus excluded from the term "rents from
real property" if the tenant derives substantially all of its income with
respect to such property from the leasing or subleasing of substantially
all of such property, provided that the tenant receives from subtenants
only amounts that would be treated as rents from real property if received
directly by a REIT.
- Second, rents received from a tenant will not qualify as "rents from real
property" in satisfying the gross income tests if the REIT, or an owner of
10% or more of the REIT, directly or constructively owns 10% or more of
such tenant (a "Related Party Tenant").
- Third, if rent attributable to personal property, leased in connection
with a lease of real property, is greater than 15% of the total rent
received under the lease, then the portion of rent attributable to such
personal property will not qualify as "rents from real property."
- Finally, a REIT generally must not operate or manage the property or
furnish or render services to the tenants of such property, other than
through an "independent contractor" from whom the REIT derives no income.
However, we (or our affiliates) are permitted to directly perform services
that are "usually or customarily rendered" in connection with the rental
of space for occupancy only and are not otherwise considered rendered for
the convenience of the occupant of the property. A DE MINIMIS exception
allows a REIT to provide non-customary services to its tenants and not
disqualify income received with respect to that property as rents from
real property so long as the aggregate income derived by the REIT with
respect to a particular property that is attributable to the impermissible
services performed for any and all tenants at the property does not exceed
1.0% of the gross income derived by the REIT with respect to that
property. For these purposes, the amount we receive that is attributable
to impermissible services may not be valued at less than 150% of our
direct cost of providing these services.
Substantially all of our gross income is attributable to investments in real
property and specifically to rents attributable to and gains from the
disposition of real property. We believe that we do not receive rents based on
the net income or profits of a tenant. Moreover, we believe that we do not
receive rents in excess of a DE MINIMIS amount (generally rent from office space
leased to PGI affiliates) from a Related Party Tenant. We also believe that we
do not receive any rent attributable to personal property leased in connection
with a lease of real property that exceeds 15% of the total rents received under
any such lease. For this purpose we took into account as personal property the
overhead cranes in use at some of our industrial properties.
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The operating partnership provides services with respect to our properties,
but does not satisfy the "independent contractor" requirements described above.
To the extent necessary to preserve our status as a REIT, the operating
partnership will arrange to have services provided by independent contractors
from whom we or the operating partnership does not derive or receive any income.
The operating partnership also receives fees in exchange for the performance
of usual and customary services relating to properties not owned entirely by the
operating partnership. The ratable portion of these fees attributable to the
part of the property not owned by the operating partnership does not constitute
qualifying income under the 75% or 95% gross income tests. The remainder of
these fees is ignored under the 75% and 95% gross income test so long as we have
a significant interest in such property. We believe that the aggregate amount of
such nonqualifying fees (and any other nonqualifying income) in any taxable year
will not exceed the limits on nonqualifying income under the gross income tests
described above.
Our properties include a 398-space parking facility for which we, through
the operating partnership, receive fees. This parking facility is operated
through an independent contractor from whom we derive no income.
The Services Company, pursuant to contractual arrangements, performs
management services with respect to properties not owned by us or the operating
partnership. The health club located in the 77 West Wacker Drive Building is
owned by the Services Company. The income from such services and the revenues
from the health club is taxed to the Services Company at the regular corporate
tax rates. Note payments and dividends paid by the Services Company to the
operating partnership will constitute qualifying income for purposes of the 95%
gross income test but not for the purposes of the 75% gross income test.
We intend to monitor the potential amount of nonqualifying income in the
future and to take action to avoid jeopardizing our REIT qualification. We may
for instance transfer some nonqualifying activities to a taxable corporation
such as the Services Company, from which we would receive dividends. If this
should occur, the operating partnership would be entitled to receive dividends
as a stockholder of such corporation. The amount of dividends available for
distribution to us would be reduced below the comparable amount of fee income
that would otherwise be received by the operating partnership because such a
corporation would be subject to a corporate level tax on its taxable income,
thereby reducing the amount of cash available for distribution. Furthermore, we
would be required to structure the stock interest owned by the operating
partnership in such a corporation to ensure that the various asset tests
described below were not violated. Particularly, the operating partnership would
not own more than 10% of the voting securities of such corporation and the value
of the stock interest would not exceed 5% of the value of our total assets.
If we fail to satisfy one or both of the 75% or the 95% gross income tests
for any taxable year, we may nevertheless qualify as a REIT for such year if we
are entitled to relief under some provisions of the Internal Revenue Code. These
relief provisions will be generally available if:
- Our failure to meet such test(s) was due to reasonable cause and not due
to willful neglect;
- We reported the nature and amount of each item of our income included in
the test(s) for such taxable year on a schedule attached to our return;
and
- any incorrect information on the schedule was not due to fraud with intent
to evade tax.
It is not possible, however, to state whether, in all circumstances, we would be
entitled to the benefit of these relief provisions. For example, if we fail to
satisfy the gross income tests because nonqualifying income that we
intentionally earn exceeds the limits on such income, the IRS could conclude
that our failure to satisfy the tests was not due to reasonable cause. As
discussed above in "--REIT Taxation" even if these relief provisions apply, we
will still be subject to a 100% tax on the greater of the amount
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<PAGE>
by which we failed the 75% or the 95% test, multiplied by a fraction intended to
reflect our profitability. See "--Failure to Qualify."
ASSET TESTS
At the close of each quarter of our taxable year, we also must satisfy three
tests relating to the nature of our assets.
- First, at least 75% of the value of our total assets, including our
allocable share of assets held by the operating partnership and each
Property Partnership in which the operating partnership is a partner, must
be represented by real estate assets, cash, cash items and U.S. government
securities. For this purpose, real estate assets include stock or debt
instruments held for not more than one year purchased with proceeds of a
stock offering or a long-term (at least five years) debt offering of ours.
- Second, not more than 25% of our total assets may be represented by
securities other than those in the 75% asset class.
- Third, of the investments included in the 25% asset class, the value of
any one issuer's securities owned by us may not exceed 5% of the value of
our total assets, and we may not own more than 10% of any one issuer's
outstanding voting securities.
By virtue of our partnership interest in the operating partnership, we will be
deemed to own for purposes of these three asset tests our pro rata share of the
assets of the operating partnership, and the assets of each Property Partnership
in which the operating partnership is a partner. The operating partnership owns
100% of the preferred stock of the Services Company and the note issued by the
Services Company, but none of that corporation's voting stock. We do not believe
that our pro rata share of the stock and securities (I.E., the note) owned by
the operating partnership in such corporation exceeds 5% of the total value of
our assets. No independent appraisals will be obtained to support this
conclusion, and Tax Counsel, in rendering its opinion as to our qualification as
a REIT, is relying on our representation that the preferred stock and note
issued by the Services Company and held by the operating partnership does not
cause us to fail the 5% value test.
After initially meeting the asset tests at the close of any quarter, we will
not lose our status as a REIT for failure to satisfy any of the asset tests at
the end of a later quarter solely by reason of changes in asset values. If the
failure to satisfy the asset tests results from an acquisition of securities or
other property during a quarter, the failure can be cured by disposition of
sufficient nonqualifying assets within 30 days after the close of that quarter.
We intend to maintain adequate records of the value of our assets to ensure
compliance with the asset tests, and to take such other action within 30 days
after the close of any quarter as may be required to cure any noncompliance.
ANNUAL DISTRIBUTION REQUIREMENTS
To continue to qualify as a REIT, we are required to distribute dividends
(other than capital gain dividends) to our shareholders each year in an amount
at least equal to:
- the sum of (A) 95% of our "REIT taxable income" (computed without regard
to the dividends paid deduction and our net capital gain) plus (B) 95% of
the net income (after tax), if any, from foreclosure property, minus
- the sum of items of non-cash income.
Such distributions must be paid in the taxable year to which they relate, or
in the following taxable year if declared before we timely file our tax return
for such year and if paid on or before the first regular dividend payment after
such declaration. A distribution which is not pro rata within a class of
beneficial interest entitled to a dividend or which is not consistent with the
rights to distributions
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between classes of beneficial interest (a "preferential dividend") is not taken
into consideration for the purpose of meeting the distribution requirement.
Accordingly, the payment of a preferential dividend could affect our ability to
meet this distribution requirement.
To the extent that we do not distribute all of our net capital gain or
distribute at least 95%, but less than 100%, of our "REIT taxable income," as
adjusted, we will be subject to tax on the undistributed amount at regular
capital gains or ordinary corporate tax rates, as the case may be. Furthermore,
if we should fail to distribute for each calendar year at least the sum of (A)
85% of our REIT ordinary income for such year, (B) 95% of our REIT capital gain
net income for such year, plus (C) any undistributed taxable income from prior
periods, we will be subject to a 4% excise tax on the excess of such required
distribution over the amounts actually distributed. However, to the extent we
elect to retain and pay income tax on net long-term capital gains we received
during the year such amounts will be treated as having been distributed for
purposes of the 4.0% excise tax.
We have and intend to continue to make timely distributions sufficient to
satisfy all of the annual distribution requirements. We anticipate that we will
generally have sufficient cash or liquid assets to enable us to satisfy these
distribution requirements. It is possible that, from time to time, we may not
have sufficient cash or other liquid assets to meet the 95% distribution
requirement due to the insufficiency of cash flow from the operating partnership
in a particular year or to timing differences between the actual receipt of
income and actual payment of deductible expenses, on the one hand, and the
inclusion of such income and deduction of such expenses in computing our "REIT
taxable income," on the other hand. In the event that such an insufficiency or
such timing differences occur, in order to meet the 95% distribution
requirement, we may find it necessary to cause the operating partnership to make
distributions, to borrow funds, or to liquidate assets.
If we fail to meet the 95% distribution requirement as a result of an
adjustment to our tax return by the IRS upon audit, we may retroactively cure
the failure by paying "deficiency dividends" to our shareholders in a later
year, which may then be included in our deduction for dividends paid for the
earlier year. We may thus be able to avoid being taxed on amounts distributed as
deficiency dividends; however, we will be required to pay interest to the IRS
based upon the amount of any deduction taken for deficiency dividends.
PENALTY TAX ON PROHIBITED TRANSACTIONS
Our share of any gain realized on the sale of any property held as inventory
or otherwise primarily for sale to customers in the ordinary course of our trade
or business generally will be treated as income from a prohibited transaction
that is subject to a 100% penalty tax. Under existing law, whether property is
held as inventory or primarily for sale to customers in the ordinary course of a
trade or business is a question of fact that depends on all the facts and
circumstances with respect to the particular transaction. The operating
partnership, through the Property Partnerships, intends to hold our properties
for investment with a view to long-term appreciation, to engage in the business
of acquiring, developing, owning and operating the properties and to make such
occasional sales of the properties as are consistent with our investment
objectives. Based upon such investment objectives, we believe that in general
the properties should not be considered inventory or other property held
primarily for sale to customers in the ordinary course of a trade or business
and that the amount of income from prohibited transactions, if any, will not be
material.
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FAILURE TO QUALIFY
If we fail to qualify for taxation as a REIT in any taxable year and the
relief provisions do not apply, we will be subject to tax (including any
applicable alternative minimum tax) on our taxable income at regular corporate
rates. Distributions to shareholders in any year in which we fail to qualify as
a REIT will not be required and, if made, will not be deductible by us. As a
result, our failure to qualify as a REIT will reduce the cash available for
distribution by us to our shareholders. In addition, if we fail to qualify as a
REIT, all distributions to our shareholders will be taxable as ordinary dividend
income to the extent of our then current and accumulated earnings and profits,
and, subject to limitations in the Internal Revenue Code, corporate distributees
may be eligible for the dividends-received deduction. Unless entitled to relief
under specific statutory provisions, we also will be ineligible for
qualification as a REIT during the four taxable years following the year during
which qualification was lost. It is not possible to determine whether we would
be entitled to such statutory relief in all circumstances.
TAXATION OF OUR SECURITYHOLDERS
Any material federal income tax considerations relating to a particular
offering of securities covered by this prospectus will be described in the
applicable prospectus supplement.
EACH PROSPECTIVE PURCHASER IS ADVISED TO CONSULT HIS OR HER OWN TAX ADVISOR
REGARDING THE SPECIFIC TAX CONSEQUENCES TO HIM OR HER OF THE PURCHASE,
OWNERSHIP, AND SALE OF THE SECURITIES OFFERED BY THIS PROSPECTUS AND OF OUR
ELECTION TO BE TAXED AS A REIT, INCLUDING THE FEDERAL, STATE, LOCAL, FOREIGN,
AND OTHER TAX CONSEQUENCES OF SUCH PURCHASE, OWNERSHIP, SALE, AND ELECTION AND
OF POTENTIAL CHANGES IN APPLICABLE TAX LAWS.
POSSIBLE LEGISLATIVE OR OTHER ACTIONS AFFECTING TAX CONSIDERATIONS
Prospective holders should recognize that our present federal income tax
treatment may be modified by future legislative, judicial or administrative
actions or decisions at any time, which may be retroactive in effect, and, as a
result, any such action or decision may affect investments and commitments
previously made. The rules dealing with federal income taxation are constantly
under review by persons involved in the legislative process and by the IRS and
the Treasury Department, resulting in statutory changes as well as promulgation
of new, or revisions to existing, regulations and revised interpretations of
established concepts. No prediction can be made as to the likelihood of passage
of any new tax legislation or other provisions either directly or indirectly
affecting us or our securityholders.
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PLAN OF DISTRIBUTION
We may sell the securities offered pursuant to this prospectus and the
accompanying prospectus supplement to or through one or more underwriters or
dealers or may sell the securities to investors directly or through agents. Any
such underwriter or agent involved in the offer and sale of the securities will
be named in the applicable prospectus supplement. We may sell securities
directly to investors on our own behalf in those jurisdictions where we are
authorized to do so.
Underwriters may offer and sell the securities at a fixed price or prices,
which may be changed, at market prices prevailing at the time of sale, at prices
related to such prevailing market prices or at negotiated prices. We also may,
from time to time, authorize dealers or agents to offer and sell these
securities upon such terms and conditions as may be set forth in the applicable
prospectus supplement. In connection with the sale of any of these securities,
underwriters may receive compensation from us in the form of underwriting
discounts or commissions and may also receive commissions from purchasers of the
securities for whom they may act as agent. Underwriters may sell the securities
to or through dealers, and such dealers may receive compensation in the form of
discounts, concessions or commissions from the underwriters or commissions from
the purchasers for which they may act as agents.
Any underwriting compensation paid by us to underwriters or agents in
connection with the offering of these securities, and any discounts or
concessions or commissions allowed by underwriters to participating dealers,
will be set forth in the applicable prospectus supplement. Dealers and agents
participating in the distribution of the securities may be deemed to be
underwriters, and any discounts and commissions received by them and any profit
realized by them on resale of the securities may be deemed to be underwriting
discounts and commissions.
Underwriters, dealers and agents may be entitled, under agreements entered
into with us, to indemnification against and contribution toward certain civil
liabilities, including liabilities under the Securities Act. Unless otherwise
set forth in the accompanying prospectus supplement, the obligations of any
underwriters to purchase any of these securities will be subject to certain
conditions precedent, and the underwriters will be obligated to purchase all of
such series of securities, if any are purchased.
Underwriters, dealers and agents may engage in transactions with, or perform
services for, us and our affiliates in the ordinary course of business.
In connection with the offering of the securities hereby, certain
underwriters, and selling group members and their respective affiliates may
engage in transactions that stabilize, maintain or otherwise affect the market
price of the applicable securities. Such transactions may include stabilization
transactions effected in accordance with Rule 104 of Regulation M promulgated by
the Securities and Exchange Commission (the "Commission") pursuant to which such
persons may bid for or purchase securities for the purpose of stabilizing their
market price. The underwriters in an offering of securities may also create a
"short position" for their account by selling more securities in connection with
the offering than they are committed to purchase from us. In such case, the
underwriters could cover all or a portion of such short position by either
purchasing securities in the open market following completion of the offering of
such securities or by exercising any over-allotment option granted to them by
us. In addition, the managing underwriter may impose "penalty bids" under
contractual arrangements with other underwriters, which means that they can
reclaim from an underwriter (or any selling group member participating in the
offering) for the account of the other underwriters, the selling concession with
respect to securities that are distributed in the offering but subsequently
purchased for the account of the underwriters in the open market. Any of the
transactions described in this paragraph or comparable transactions that are
described in any accompanying prospectus supplement may result in the
maintenance of the price of the securities at a level above that which might
otherwise prevail in the open market. None of such transactions described in
this paragraph or in an accompanying prospectus
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supplement are required to be taken by any underwriters and, if they are
undertaken, may be discontinued at any time.
The common shares are listed on the New York Stock Exchange under the symbol
"PGE." The Depositary Shares, Debt Securities, the preferred shares and the
Warrants will be new issues of securities with no established trading market and
may or may not be listed in a national securities exchange. Any underwriters or
agents to or through which securities are sold by us may make a market in such
securities, but such underwriters or agents will not be obligated to do so and
any of them may discontinue any market making at any time without notice. No
assurance can be given as to the liquidity of or trading market for any
Depositary Shares, Debt Securities, preferred shares or Warrants.
LEGAL MATTERS
Certain legal matters in connection with the validity of the securities
offered hereby will be passed upon for us by Winston & Strawn, Chicago,
Illinois. Legal matters relating to Maryland law, including the validity of the
issuance of any common shares or preferred shares offered hereby, will be passed
upon for us by Miles & Stockbridge P.C., Baltimore, Maryland. In addition, the
description of federal income tax considerations contained in this prospectus
under "Material Federal Income Tax Considerations" is, to the extent that it
constitutes matters of law, summaries of legal matters or legal conclusions, the
opinion of Winston & Strawn, our special tax counsel. The validity of the
securities offered by this prospectus may be passed upon for any underwriters or
agents by counsel named in the applicable prospectus supplement. Governor James
R. Thompson, Chairman of Winston & Strawn, is one of our trustees.
EXPERTS
Ernst & Young LLP, independent auditors, have audited our consolidated
financial statements as of December 31, 1997 and for the period from November
17, 1997 to December 31, 1997 and the combined financial statements of the
Predecessor Properties as of December 31, 1996 and for the period from January
1, 1997 to November 16, 1997 and for each of the two years in the period ended
December 31, 1996 included in our Annual Report on Form 10-K (as amended by Form
10-K/A), the statement of revenue and certain expenses of Continental Office
Towers for the year ended December 31, 1996 and the statement of revenue and
certain expenses of 180 North LaSalle Street for the year ended December 31,
1996 included in our Current Report on Form 8-K dated December 15, 1997 (as
amended by Form 8-K/A filed on February 27, 1998), the statement of revenue and
certain expenses of 2675 Mayfair for the period from January 1, 1997 to
September 30, 1997 included in our Current Report on Form 8-K dated December 30,
1997 (as amended by Form 8-K/A dated December 15, 1997 filed on February 27,
1998), the statement of revenue and certain expenses of 33 North Dearborn for
the year ended December 31, 1996 included in our Current Report on Form 8-K
dated January 14, 1998 (as amended by Form 8-K/A filed on March 31, 1998), the
statement of revenue and certain expenses of Commerce Point for the year ended
December 31, 1996 included in our Current Report on Form 8-K dated February 20,
1998 (as amended by Form 8-K/A filed on May 5, 1998), the statement of revenue
and certain expenses of 208 South LaSalle for the year ended December 31, 1997
and the statement of revenue and certain expenses of 122 South Michigan Avenue
for the year ended December 31, 1997 included in our Current Report on Form 8-K
dated March 31, 1998, the statement of revenue and certain expenses of 6400
Shafer Court for the year ended December 31, 1997 and the statement of revenue
and certain expenses of Two Century Centre for the year ended December 31, 1997
included in our Current Report on Form 8-K dated May 29, 1998, as set forth in
their reports which are incorporated in this prospectus by reference. Our
financial statements and statements of revenue and certain expenses are
incorporated by reference in reliance on their reports, given on their authority
as experts in accounting and auditing.
48
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WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and current reports, proxy statements and other
information with the Commission. You may inspect and copy such reports, proxy
statements and other information at the public reference facilities maintained
by the Commission at Room 1204, Judiciary Plaza, 450 Fifth Street, N.W,
Washington, D.C. 20549. Please call the Commission at 1-800-SEC-0330 for further
information. Such material can also be obtained from the Commission's worldwide
web site at http:/ www.sec.gov. Our outstanding common shares and redeemable
preferred shares are listed on the NYSE under the symbol "PGE" and PGE-PrB",
respectively, and all such reports, proxy statements and other information filed
by us with the NYSE may be inspected at the NYSE's offices at 20 Broad Street,
New York, New York 10005.
We have filed a registration statement, of which this prospectus is a part,
covering the securities offered hereby. As allowed by Commission rules, this
prospectus does not contain all the information set forth in the registration
statement and the exhibits, financial statements and schedules thereto. We refer
you to the registration statement, the exhibits, financial statements and
schedules thereto for further information. This prospectus is qualified in its
entirety by such other information.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Commission allows us to "incorporate by reference" information into this
prospectus, which mens that we can disclose important information to you by
referring you to another document filed separately with the Commission. The
information incorporated by reference is deemed to be part of this prospectus,
except for any information superseded by information in this prospectus. We have
filed the documents listed below with the Commission under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and these documents are
incorporated herein by reference:
a. Our Annual Report on Form 10-K/A for the year ended December 31, 1997;
b. Our Quarterly Reports on Form 10-Q for the quarters ended March 31, June
30, and September 30, 1998; and
c. Our Current Reports on Form 8-K dated January 14, 1998 (as amended on
Form 8-K/A filed on March 31, 1998), February 20, 1998 (as amended on Form 8-K/A
filed on May 5, 1998), March 19, 1998, March 31, 1998 (as amended on Form 8-K/A
filed on June 15, 1998), and May 29, 1998, and our two Current Reports on Form
8-K/A filed on February 27, 1998.
Any documents we file pursuant to Sections 13(a), 13(c), 14 or 15(d) of the
Exchange Act subsequent to the date of this prospectus and prior to the
termination of the offering of the securities to which this prospectus relates
will automatically be deemed to be incorporated by reference in this prospectus
and to be part hereof from the date of filing such documents. Any documents we
file pursuant to these sections of the Exchange Act after the date of the
initial registration statement that contains this prospectus and prior to the
effectiveness of the registration statement will automatically be deemed to be
incorporated by reference in this prospectus and to be part hereof from the date
of filing such documents.
Any statement contained in this prospectus or in a document incorporated by
reference shall be deemed to be modified or superseded for all purposes to the
extent that a statement contained in this prospectus or in any other document
which is also incorporated by reference modifies or supersedes such statement.
You may obtain copies of all documents which are incorporated in this
prospectus by reference (other than the exhibits to such documents which are not
specifically incorporated by reference herein) without charge upon written or
oral request to our Secretary/General Counsel, at Prime Group Realty Trust, 77
West Wacker Drive, Suite 3900, Chicago, Illinois, 60601, telephone number (312)
917-1300.
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PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
<TABLE>
<S> <C>
SEC registration fee........................................ $ 139,000
NYSE listing fee............................................ *
Printing and engraving expenses............................. *
Legal fees and expenses..................................... *
Accounting and due diligence fees and expenses.............. *
Transfer Agent's, Trustees', Depositary and Warrant Agent's
Fees...................................................... *
Rating Agency Fees.......................................... *
Miscellaneous............................................... *
------------
Total................................................... $ *
------------
------------
</TABLE>
- ---------
* To be completed by amendment.
ITEM 15. INDEMNIFICATION OF TRUSTEES AND OFFICERS.
The declaration of trust and bylaws authorize Prime Group Realty Trust to
indemnify its present and former trustees and officers and to pay or reimburse
expenses for such individuals in advance of the final disposition of a
proceeding to the maximum extent permitted from time to time under Maryland law.
The MGCL, as applicable to Maryland REITs, currently provides that
indemnification of a person who is a party, or threatened to be made a party, to
legal proceedings by reason of the fact that such a person is or was a trustee,
officer, employee or agent of a corporation or other firm at the request of a
corporation, or is or was serving as a trustee, officer, employee or agent of a
corporation or other firm at the request of a corporation, against judgments,
fines, penalties, amounts paid in settlement and reasonable expenses, is
mandatory in certain circumstances and permissive in others, subject to
authorization by the board of trustees, a committee of the board of trustees
consisting of two or more trustees not parties to the proceeding (if there does
not exist a majority vote quorum of the board of trustees consisting of trustees
not parties to the proceeding), special legal counsel appointed by the board of
trustees or such committee of the board of trustees, or by the shareholders, so
long as it is not established that the act or omission of such person was
material to the matter giving rise to the proceedings and was committed in bad
faith, was the result of active and deliberate dishonesty, involved such person
receiving an improper personal benefit in money, property or services, or, in
the case of criminal proceedings, such person had reason to believe that his or
her act or omission was unlawful.
Prime Group Realty Trust's officers and trustees are also indemnified
pursuant to the Partnership Agreement and their respective employment
agreements, which agreements are filed as exhibits hereto.
Prime Group Realty Trust purchased an insurance policy which purports to
insure the officers and trustees of Prime Group Realty Trust against certain
liabilities incurred by them in the discharge of their functions as such
officers and trustees, except for liabilities resulting from their own
malfeasance.
See the forms of underwriting agreements filed or to be filed as Exhibits
1.1 to 1.3 for certain indemnification provisions applicable to underwritten
offerings.
II-1
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ITEM 16. EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ----------- --------------------------------------------------------------------------------------------------------
<C> <S>
1.1* Form of Underwriting Agreement (for Common Shares)
1.2* Form of Underwriting Agreement (for Preferred Shares)
1.3* Form of Underwriting Agreement (for Debt Securities)
3.1 Articles of Amendment and Restatement of Declaration of Trust of Prime Group Realty Trust as filed as an
exhibit to Prime's 1997 Annual Report on Form 10-K and incorporated herein by reference
3.2 Articles Supplementary to the Articles of Amendment and Restatement of Declaration of Trust of Prime
Group Realty Trust as filed as an exhibit to Prime's Quarterly Report on Form 10-Q for the quarter ended
June 30, 1998 and incorporated herein by reference
3.3 Amended and Restated Bylaws of Prime Group Realty Trust as filed as an exhibit to Prime's 1997 Annual
Report on Form 10-K and incorporated herein by reference
3.4 Amended and Restated Agreement of Limited Partnership of Prime Group Realty, L.P. (the "Amended and
Restated Agreement of Limited Partnership") as filed as an exhibit to Prime's 1997 Annual Report on Form
10-K and incorporated herein by reference
3.5 Amendment No. 1 to the Amended and Restated Agreement of Limited Partnership dated as of December 15,
1998 as filed as an exhibit to Amendment No. 1 to Prime's Registration Statement on Form S-11 (No.
333-51599) and incorporated herein by reference
3.6 Amendment No. 2 to the Amended and Restated Agreement of Limited Partnership dated as of December 15,
1998 as filed as an exhibit to Amendment No. 1 to Prime's Registration Statement on Form S-11 (No.
333-51599) and incorporated herein by reference
3.7 Amendment No. 3 to the Amended and Restated Agreement of Limited Partnership dated as of January 15,
1998 as filed as an exhibit to Amendment No. 1 to Prime's Registration Statement on Form S-11 (No.
333-51599) and incorporated herein by reference
3.8 Amendment No. 4 to the Amended and Restated Agreement of Limited Partnership dated as of February 13,
1998 as filed as an exhibit to Amendment No. 1 to Prime's Registration Statement on Form S-11 (No.
333-51599) and incorporated herein by reference
3.9 Amendment No. 5 to the Amended and Restated Agreement of Limited Partnership dated as of March 13, 1998
as filed as an exhibit to Amendment No. 1 to Prime's Registration Statement on Form S-11 (No. 333-51599)
and incorporated herein by reference
3.10 Amendment No. 6 to the Amended and Restated Agreement of Limited Partnership dated as of March 25, 1998
as filed as an exhibit to Amendment No. 1 to Prime's Registration Statement on Form S-11 (No. 333-51599)
and incorporated herein by reference
3.11 Amendment No. 7 to the Amended and Restated Agreement of Limited Partnership dated as of April 15, 1998
as filed as an exhibit to Amendment No. 1 to Prime's Registration Statement on Form S-11 (No. 333-51599)
and incorporated herein by reference
3.12 Amendment No. 8 to the Amended and Restated Agreement of Limited Partnership dated as of May 15, 1998 as
filed as an exhibit to Amendment No. 2 to Prime's Registration Statement on Form S-11 (No. 333-51599)
and incorporated herein by reference
3.13 Amendment No. 9 to the Amended and Restated Agreement of Limited Partnership dated as of June 5, 1998 as
filed as an exhibit to Prime's Quarterly Report on Form 10-Q for the quarter ended June 30, 1998 and
incorporated herein by reference
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ----------- --------------------------------------------------------------------------------------------------------
<C> <S>
3.14 Amendment No. 10 to the Amended and Restated Agreement of Limited Partnership dated as of June 15, 1998
as filed as an exhibit to Prime's Quarterly Report on Form 10-Q for the quarter ended June 30, 1998 and
incorporated herein by reference
3.15 Amendment No. 11 to the Amended and Restated Agreement of Limited Partnership dated as of July 15, 1998
as filed as an exhibit to Post-Effective Amendment No. 1 to Prime's Registration Statement on Form S-11
(No. 333-51935) and incorporated herein by reference
3.16 Amendment No. 12 to the Amended and Restated Agreement of Limited Partnership dated as of August 14,
1998 as filed as an exhibit to Post-Effective Amendment No. 1 to Prime's Registration Statement on Form
S-11 (No. 333-51935) and incorporated herein by reference
3.17 Amendment No. 13 to the Amended and Restated Agreement of Limited Partnership dated as of September 15,
1998 as filed as an exhibit to Amendment No. 1 to Post-Effective Amendment No. 1 to Prime's Registration
Statement on Form S-11 (No. 333-51935) and incorporated herein by reference
3.18 Amendment No. 14 to the Amended and Restated Agreement of Limited Partnership dated as of October 15,
1998 as filed as an exhibit to Amendment No. 2 to Prime's Registration Statement on Form S-3 (No.
333-64973) and incorporated herein by reference
3.19 Amendment No. 15 to the Amended and Restated Agreement of Limited Partnership dated as of November 16,
1998 as filed as an exhibit to Amendment No. 1 to Prime's Registration Statement on Form S-3 (No.
333-64973) and incorporated herein by reference
3.20 Amendment No. 16 to the Amended and Restated Agreement of Limited Partnership dated as of December 15,
1998 as filed as an exhibit to Post-Effective Amendment No. 3 to Prime's Registration Statement on Form
S-3 (Registration No. 333-51935) and incorporated herein by reference
4.1* Form of Indenture of Prime Group Realty Trust, providing for Issuance of Senior Debt Securities in
Series
4.2* Form of Indenture of Prime Group Realty Trust, providing for Issuance of Subordinated Debt Securities in
Series
4.3* Form of Deposit Agreement
4.4* Form of Articles Supplementary for the Preferred Shares
4.5* Form of Warrant Agreement
4.6* Form of Purchase Contract Agreement
4.7* Form of Pledge Agreement relating to Share Purchase Contracts
5.1* Opinion of Miles & Stockbridge
5.2* Opinion of Winston & Strawn
8.1* Opinion of Winston & Strawn regarding tax matters
12.1* Computation of Ratios of Earnings to Fixed Charges and Preferred Share Distributions
23.1* Consent of Miles & Stockbridge (included in Exhibit 5.1)
23.2* Consent of Winston & Strawn (included in Exhibit 5.2 and 8.1)
23.3 Consent of Ernst & Young LLP
24.1 Powers of Attorney (included on signature page in Part II)
25.1* Form T-1 Statement of Eligibility and Qualification under the Trust Indenture Act of 1939 relating to
the Senior Debt Indenture
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ----------- --------------------------------------------------------------------------------------------------------
<C> <S>
25.2* Form T-1 Statement of Eligibility and Qualification under the Trust Indenture Act of 1939 relating to
the Subordinated Debt Indenture
</TABLE>
- ---------
* To be filed by amendment or incorporated by reference in connection with the
offering of securities covered by this registration statement
ITEM 17. UNDERTAKINGS.
(a) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to trustees, officers and controlling persons of
the registrant pursuant to the provisions described under Item 15 above, or
otherwise, the registrant has been advised that in the opinion of the Securities
and Exchange Commission, such indemnification is against public policy as
expressed in the Securities Act of 1933 and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than the
payment by the registrant of expenses incurred or paid by a trustee, officer, or
controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such trustee, officer or controlling person
in connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act of 1933 and will be governed by the final adjudication of such
issue.
(b) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth in
this registration statement. Notwithstanding the foregoing, any increase
or decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering
range may be reflected in the form of prospectus filed with the
Commission pursuant to Rule 424(b) if, in the aggregate, the changes in
volume and price represent no more than a 20 percent change in the
maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement; and
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement;
provided, however, that paragraphs (b)(1)(i) and (b)(1)(ii) herein do not apply
if the information required to be included in a post-effective amendment by
those paragraphs is contained in periodic reports filed by the undersigned
registrant pursuant to Section 13 or Section 15(d) of the Exchange Act that are
incorporated by reference in the registration statement.
(2) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(3) That for purposes of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that the shall be deemed to be the initial
bona fide offering thereof.
II-4
<PAGE>
(c) The registrant hereby undertakes that, for purposes of determining any
liability under the Securities Act of 1933, each filing of the registrant's
annual report pursuant to Section 13(a) or 15(d) of the Securities Exchange Act
of 1934 that is incorporated by reference in the registration statement shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(d) That, for purposes of determining liability under the Securities Act,
the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rules 424(b)(1) or 497(h) under
the Securities Act shall be deemed to be part of this registration statement as
of the time it was declared effective.
(e) The undersigned Company hereby undertakes to file an application, if
necessary, for the purpose of determining the eligibility of any trustee to act
under subsection (a) of Section 310 of the Trust Indenture Act (the "Act") in
accordance with the rules and regulations prescribed by the Commission under
Section 305(b)(2) of the Act.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-3 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Chicago, State of Illinois, on January 8, 1999
<TABLE>
<S> <C> <C>
PRIME GROUP REALTY TRUST
By: /s/ RICHARD S. CURTO
-----------------------------------------
Richard S. Curto
PRESIDENT AND CHIEF EXECUTIVE OFFICER
</TABLE>
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints each of Richard S. Curto and William M. Karnes as
his true and lawful attorney-in-fact and agent, with full power of substitution
and resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign any and all amendments (including posteffective amendments)
to this registration statement, and to file the same, with all exhibits thereto,
and other documents in connection therewith, with the Securities and Exchange
Commission, granting unto each said attorney-in-fact and agent full power and
authority to do and perform each and every act and thing requisite and necessary
to be done in and about the premises, as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that each said
attorney-in-fact and agent or his substitute or substitutes, may lawfully do or
cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
registration statement has been signed below on January 8, 1999 by the following
persons in the capacities indicated.
<TABLE>
<CAPTION>
NAME TITLE
- ------------------------------ ----------------------------------------------
<C> <S>
/s/ MICHAEL W. RESCHKE
- ------------------------------ Chairman of the Board, Trustee
Michael W. Reschke
/s/ RICHARD S. CURTO
- ------------------------------ President and Chief Executive Officer
Richard S. Curto (principal executive officer), Trustee
/s/ WILLIAM M. KARNES
- ------------------------------ Executive Vice President and Chief Financial
William M. Karnes Officer (principal financial officer)
/s/ ROY P. RENDINO Senior Vice President--Finance and Chief
- ------------------------------ Accounting Officer (principal accounting
Roy P. Rendino officer)
</TABLE>
II-6
<PAGE>
<TABLE>
<CAPTION>
NAME TITLE
- ------------------------------ ----------------------------------------------
<C> <S>
/s/ JACQUE M. DUCHARME
- ------------------------------ Trustee
Jacque M. Ducharme
/s/ STEPHEN J. NARDI
- ------------------------------ Trustee
Stephen J. Nardi
/s/ CHRISTOPHER J. NASSETTA
- ------------------------------ Trustee
Christopher J. Nassetta
/s/ THOMAS J. SAYLAK
- ------------------------------ Trustee
Thomas J. Saylak
/s/ JAMES R. THOMPSON
- ------------------------------ Trustee
James R. Thompson
</TABLE>
II-7
<PAGE>
EXHIBIT 23.3
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement (Form S-3) and related Prospectus of Prime Group Realty
Trust for the registration of Common Shares of Beneficial Interest, Preferred
Shares of Beneficial Interest, Depositary Shares Representing Preferred Shares
of Beneficial Interest, Share Purchase Contracts, Debt Securities, Common Share
Warrants, Preferred Share Warrants, Depositary Share Warrants, and Debt
Warrants, and to the incorporation by reference therein of our reports indicated
below with respect to the financial statements indicated below included in Prime
Group Realty Trust's filings as indicated below, filed with the Securities and
Exchange Commission.
<TABLE>
<CAPTION>
- --------------------------------------------------------------- ---------------------- -----------------------------
Date of Auditors'
Financial Statements Report Filing
- --------------------------------------------------------------- ---------------------- -----------------------------
<S> <C> <C>
Consolidated financial statements of Prime Group Realty Trust March 27, 1998 1997 Annual Report on Form
at December 31, 1997, and for the period from November 17, 10-K, as amended by Form
1997 to December 31, 1997 and the combined financial 10-K/A
statements of the Predecessor Properties at December 31,
1996, and for the period from January 1, 1997 to November 16,
1997 and for the two years in the period ended December 31,
1996.
Statement of revenue and certain expenses of Continental December 5, 1997 Current Report on Form
Office Towers for the year ended December 31, 1996 8-K, as amended by Form
8-K/A dated December 15,
1997 (filed on February 27,
1998)
Statement of revenue and certain expenses of 180 North December 2, 1997 Current Report on Form
LaSalle Street for the year ended December 31, 1996 8-K, as amended by Form
8-K/A dated December 15,
1997 (filed on February 27,
1998)
Statement of revenue and certain expenses of 2675 Mayfair for December 4, 1997 Current Report on Form
the period from January 1, 1997 to September 30, 1997 8-K dated December 30,
1997, as amended by Form
8-K/A dated December 15,
1997 (filed on February 27,
1998)
Statement of revenue and certain expenses of 33 North November 24, 1997 Current Report on Form
Dearborn for the year ended December 31, 1996 8-K, as amended by Form
8-K/A dated January 14, 1998
Statement of revenue and certain expenses of Commerce Point December 20, 1997 Current Report on Form
for the for the year ended December 31, 1996 8-K, as amended by Form
8-K/A dated February 20,
1998
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Statement of revenue and certain expenses of 208 South January 30, 1998 Current Report on Form
LaSalle for the year ended December 31, 1997 8-K dated March 31, 1998
Statement of revenue and certain expenses of 122 South January 30, 1998 Current Report on Form
Michigan Avenue for the year ended December 31, 1997 8-K dated March 31, 1998
Statement of revenue and certain expenses of 6400 Shafer April 16, 1998 Current Report on Form
Court for the year ended December 31, 1997 8-K dated May 29, 1998
Statement of revenue and certain expenses of Two Century April 23, 1998 Current Report on Form
Centre for the year ended December 31, 1997 8-K dated May 29, 1998
</TABLE>
Ernst & Young LLP
Chicago, Illinois
January 7, 1999
