UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): February 5, 1999
PRIME GROUP REALTY TRUST
(Exact name of registrant as specified in its charter)
Maryland 1-13589 36-4173047
(State or other (Commission File Number) (I.R.S. Employer
jurisdiction of Identification
incorporation or Number)
organization)
77 West Wacker Drive, Suite 3900, Chicago Illinois 60601
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (312) 917-1300
N/A
(Former name of former address, if changed since last report)
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ITEM 5. OTHER EVENTS
The registrant has announced the acquisition of the National City Center Office
Tower in Cleveland, Ohio. A press release dated February 5, 1999 relating to
this event is attached to this Report. This Current Report on Form 8-K is being
filed in accordance with Rule 135c (d) of the Securities Act of 1933, as
amended. The text of the press release is as follows:
Chicago, Illinois, February 5, 1999. Prime Group Realty Trust (NYSE:PGE) (the
"Company") announced today its acquisition of the National City Center office
tower in Cleveland, Ohio under a new agreement with affiliates of Blackstone
Real Estate Advisors ("Blackstone"), as well as the execution of an option
agreement with Blackstone granting the Company an option to purchase IBM Plaza
in Chicago, Illinois on or before December 20, 1999. Under the new agreement,
National City Center was purchased for $100 million. The option to acquire IBM
Plaza is at a purchase price of $238 million. Prime Group has made an $8.0
million nonrefundable option payment to the seller of the IBM Building, which
payment will be applied against the purchase price in the event the Company
exercises its option. As part of the new agreement, the pending lawsuit between
the parties has been dismissed and the $20.0 million earnest money deposit under
the original agreement has been applied toward the purchase price for National
City Center and the option payment for IBM Plaza.
"We believe the new agreement is an excellent investment opportunity for our
Company, which is expected to provide a combined 10 year unleveraged rate of
return of 13.6% on a cash basis, assuming the purchase of IBM Plaza under our
option," stated Richard S. Curto, the Chief Executive Officer of the Company.
"The new agreement contains two important improvements for the Company when
compared to the original agreement. First, the combined purchase price for these
two buildings was reduced by nearly $18 million. In addition, the exercise of
the option to acquire IBM Plaza at the end of 1999, as opposed to the originally
scheduled closing date in September, 1998, will result in a significant
improvement in the first year cash return from the property to be realized by
our Company. With contractual rent increases and the lease-up of vacant space
during the option period, we expect to realize a first year unleveraged cash
yield of 9.0% if we exercise our option and close on the property on or before
December 20, 1999. Thereafter, the property has an expected ten-year internal
growth rate of 5.4%."
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FINANCING
Financing for these acquisitions includes a combination of mortgage debt and
cash. The National City Center building was purchased through the assumption of
a $61.6 million nonrecourse first mortgage plus approximately $38.4 million in
cash. The Company anticipates obtaining mortgage financing of $150 to $160
million to purchase IBM Plaza, with the remainder of the purchase price being
paid with cash.
NATIONAL CITY CENTER
National City Center is one of the most visible Class A office buildings in
downtown Cleveland and is located at Euclid Avenue and East 9th Street. The
35-story building contains a total of 766,965 net rentable square feet and is
currently 99% leased. The building is the corporate headquarters of National
City Bank which occupies 520,425 rentable square feet in the building. National
City Bank is the largest bank in Ohio and the 13th largest in the United States,
and carries an A+ credit rating from Standard & Poor's. The building also is
occupied by Baker & Hostetler, one of Cleveland's leading law firms, KPMG Peat
Marwick, and Ernst & Young.
"The purchase price of $100.0 million, or $130.38 per rentable square foot,
represents approximately 60% of estimated replacement cost," added Curto. We
expect this transaction to produce a first year cash yield of 9.4%. More
importantly, however, the projected ten year unleveraged rate of return on this
property is estimated to be 14.2%."
IBM PLAZA
Chicago's prominent IBM Plaza building is located between State and Wabash
Streets along the north bank of the Chicago River, just two blocks east of the
Company's flagship office tower at 77 West Wacker Drive. The 47-story, Class A
office tower contains 1,354,354 rentable square feet and provides tenants with
unobstructed views of Lake Michigan and the Chicago River. The purchase price
includes an adjacent eleven-story, 902-space parking garage worth an estimated
$15.0 million, as well as approximately 6,500 rentable square feet of retail
space. IBM Plaza was designed by the internationally-renowned architect, the
late Ludwig Mies van der Rohe. The two largest tenants are IBM Corporation and
Jenner & Block, a leading Chicago law firm, which combined occupy approximately
48% of the building under long term leases.
"Our purchase of an option to acquire the IBM Plaza presents a significant
opportunity for Prime Group Realty Trust to capitalize on the continued growth
of the downtown Chicago office market," stated Mr. Curto. "Current rents in the
building are below market and a majority of the leases provide for substantial
escalation in net rent over the next ten years. Net of the value allocated to
the parking garage, the Company's option price represents only $164.65 per
rentable square foot, which we believe is less than 70% of the current
replacement cost of the building."
Prime Group Realty Trust is a fully-integrated, self-administered, and
self-managed real estate investment trust (REIT) which owns, manages, leases,
develops, and redevelops office and industrial real estate, primarily in the
Chicago metropolitan area. Including National City Center, the Company's
portfolio consists of 27 office properties, containing an aggregate of 8.2
million net rentable square feet, and 48 industrial properties containing an
aggregate of 6.1 million net rentable square feet. The portfolio also includes
225.5 acres of developable land and rights to acquire more than 325.8 additional
acres of developable land which management believes could be developed with
approximately 12.3 million rentable square feet of additional office and
industrial space.
This press release contains certain forward-looking statements. The words
"believes", "expects", "anticipates", "estimates", "projects" and similar words
or expressions are generally intended to identify forward-looking statements.
These statements involve risks and uncertainties and actual results may vary.
For further information, reference should be made to Prime Group realty Trust's
filings with the Securities and Exchange Commission.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PRIME GROUP REALTY TRUST
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Registrant
/s/ William M. Karnes
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William M. Karnes
Executive Vice President and
Chief Financial Officer
Date: February 12, 1999
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