UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 8-K
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CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): December 13, 1999
PRIME GROUP REALTY TRUST
(Exact name of registrant as specified in its charter)
MARYLAND 1-13589 36-4173047
(State or other jurisdiction of (Commission File (I.R.S. Employer
incorporation or organization) Number) Identification No.)
77 West Wacker Drive, Suite 3900, Chicago, Illinois 60601
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (312) 917-1300.
NOT APPLICABLE
(Former name or former address, if changed since last report)
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ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
On December 13, 1999, Prime Group Realty, L.P. (the "Operating
Partnership"), a partnership in which Prime Group Realty Trust (the "Company")
owns approximately a 58.6% interest and is the managing general partner,
acquired the office property known as IBM Plaza, which contains approximately
1,354,354 square feet of rentable space and is located in the Chicago, Illinois
central business, district for investment purposes. The property was purchased
from BRE/Wabash L.L.C., an affiliate of Blackstone Real Estate Advisors, an
affiliate of a partner in an entity holding common units of the Operating
Partnership, which held it for investment purposes. The acquisition cost of
$249.2 million was funded by a first mortgage loan of $160 million from
Westdeutsche Immobilienbank and cash.
(a) December 13, 1999 Press Release: On December 13, 1999, Prime Group
Realty Trust issued the Press Release attached hereto as Exhibit 99.1. Such
Press Release is incorporated herein by reference.
(b) Exhibits:
Exhibit
No. Description
--- -----------
99.1 Press Release of Prime Group Realty Trust dated
December 13, 1999.
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ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
The Registrant submits this Form 8-K in order to supply the financial statements
and schedules required pursuant to Rule 3-14 of Regulation S-X and the pro forma
financial information required pursuant to Article 11 of Regulation S-X with
respect to the Registrant's December 13, 1999 acquisition of IBM Plaza (the
"Property"), a 1,354,354 square foot office building located in the Chicago
central business district, for a total cost of $249.2 million.
a) Financial statements of the property to be acquired.
REPORT OF INDEPENDENT AUDITORS
Board of Trustees
Prime Group Realty Trust
We have audited the accompanying Statement of Revenue and Certain Expenses of
IBM Plaza (the Property) for the period from January 1, 1999 through September
30, 1999. The Statement of Revenue and Certain Expenses is the responsibility of
the Property's management. Our responsibility is to express an opinion on the
Statement of Revenue and Certain Expenses based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the Statement of Revenue and Certain Expenses is free
from material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures made in the Statement of Revenue
and Certain Expenses. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation of the Statement of Revenue and Certain
Expenses. We believe that our audit provides a reasonable basis for our opinion.
The accompanying Statement of Revenue and Certain Expenses was prepared for the
purpose of complying with the rules and regulations of the Securities and
Exchange Commission for inclusion in the Current Report on Form 8-K of Prime
Group Realty Trust as described in Note 2 and is not intended to be a complete
presentation of the Property's revenue and expenses.
In our opinion, the Statement of Revenue and Certain Expenses referred to above
presents fairly, in all material respects, the revenue and certain expenses,
described in Note 2, of the Property for the period from January 1, 1999 through
September 30, 1999, in conformity with generally accepted accounting principles.
/s/ ERNST & YOUNG LLP
Chicago, Illinois
October 29, 1999
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<TABLE>
IBM PLAZA
STATEMENT OF REVENUE AND CERTAIN EXPENSES
(in thousands)
<CAPTION>
Period from
January 1, 1999
through
September 30, 1999
----------------------------
<S> <C>
Revenue:
Rental $14,529
Tenant reimbursements 12,583
Other 1,540
----------------------------
Total revenue 28,652
Expenses:
Cleaning 1,429
Utilities 2,224
Other property operating 3,930
Real estate taxes 7,050
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Total expenses 14,633
----------------------------
Revenue in excess of certain expenses $14,019
============================
<FN>
See accompanying notes.
</FN>
</TABLE>
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IBM PLAZA
NOTES TO STATEMENT OF REVENUE AND CERTAIN EXPENSES
1. Business
The accompanying Statement of Revenue and Certain Expenses relates to the
operations of IBM Plaza, an office building located in the Chicago central
business district (the "Property"). As of September 30, 1999, the Property had
three tenants which accounted for approximately 70% of rental revenue for the
period from January 1, 1999 through September 30, 1999.
2. Summary of Significant Accounting Policies
Basis of Presentation
The accompanying Statement of Revenue and Certain Expenses was prepared for the
purpose of complying with the rules and regulations of the Securities and
Exchange Commission for inclusion in the Current Report on Form 8-K of Prime
Group Realty Trust. The statement is not representative of the actual operations
of the Property for the period presented nor indicative of future operations as
certain expenses, primarily depreciation and amortization, which may not be
comparable to the expenses expected to be incurred by Prime Group Realty Trust
in future operations of the Property, have been excluded.
Revenue and Expense Recognition
Revenue is recognized in the period in which it is earned. Expenses are
recognized in the period incurred.
Use of Estimates
The preparation of the Statement of Revenue and Certain Expenses in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of revenue and
certain expenses during the reporting period. Actual results could differ from
these estimates.
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3. Rentals
The Property has lease agreements with lease terms ranging from one year to
twenty years. The leases generally provide for tenants to share in increases in
operating expenses and real estate taxes in excess of specified base amounts.
The total future minimum rentals to be received under such noncancelable
operating leases executed through September 30, 1999, exclusive of tenant
reimbursements and contingent rentals, are as follows:
<TABLE>
<CAPTION>
Amount
(in thousands)
------------------------
<S> <C>
Period from October 1, 1999
through December 31, 1999 $ 4,035
Year ended December 31:
2000 16,135
2001 18,054
2002 19,013
2003 19,322
2004 19,200
Thereafter 78,686
========================
$174,445
========================
</TABLE>
4. Ground Lease
The Property is subject to a ground lease on a portion of land underneath the
parking garage. The ground lease provides for quarterly payments of $10,278
through the end of the lease term, April 30, 2019, which may be extended at the
option of Prime Group Realty Trust.
5. Subsequent Event
On December 13, 1999, the Property was acquired by Prime Group Realty Trust for
a total cost of approximately $249.2 million.
b) Pro forma financial information.
The unaudited Pro Forma Balance Sheet of Prime Group Realty Trust is presented
as if at September 30, 1999, we had purchased the Property for $249.2 million
($45.5 million in land and $203.7 million in building and improvements) with
cash of approximately $78.9 million, which was included in restricted cash as of
September 30, 1999, and proceeds from a new $160.0 million mortgage note
payable. The first mortgage loan bears interest at LIBOR plus 170 basis points,
payable monthly, and requires principal payments of $1.6 million and $3.2
million in 2000 and 2001, respectively, with the remaining amount due at
maturity, December 13, 2002. In connection with the first mortgage loan, we
entered into an interest rate swap agreement that changes the interest rate on
the loan to a fixed rate of 8.0% per annum for a period of three years. We
incurred fees of approximately $2.4 million related to obtaining the first
mortgage loan and swap agreement ($1.8 million for loan fees and $0.6 million
for swap fees) that will be deferred and amortized over the life of the
corresponding agreements. In addition, we funded $2.5 million in a capital
reserve account and assumed liabilities of $9.8 million ($9.2 million related to
accrued real estate taxes). No other adjustments of our Balance Sheet as of
September 30, 1999 are necessary. The unaudited Pro Forma Consolidated Condensed
Statement of Operations for the nine months ended September 30, 1999 are
presented as if the above transaction occurred as of January 1, 1999. Our
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unaudited Pro Forma Consolidated Condensed Financial Statements should be read
in conjunction with our Annual Report on Form 10-K for the year ended December
31, 1998, and our Quarterly Report on Form 10-Q for the quarter ended September
30, 1999. In management's opinion, all adjustments necessary to reflect the
transaction have been made.
Our unaudited Pro Forma Consolidated Condensed Financial Statements are not
necessarily indicative of what the actual results of operations would have been
assuming the acquisition of the Property had occurred at January 1, 1999, nor do
they purport to represent our future results of operations.
Basis of Presentation
Our Pro Forma Consolidated Condensed Statements of Operations include our
historical operations (for the period from January 1, 1999 through September 30,
1999), the properties acquired in 1999, ("1999 Acquisitions" - for the period
from their date of acquisition through September 30, 1999), the properties sold
in 1999 ("Sale of Manulife Properties" - for the period from January 1, 1999
through July 14, 1999 - their date of sale) and the sale of the 50% interest in
77 West Wacker Drive ("Sale of Interest in 77 W. Wacker" - for the period from
January 1, 1999 through September 30, 1999 - the date of sale). The 1999
Acquisitions column represents the historical operations of the properties prior
to our ownership, with interest expense and depreciation expense based upon our
ownership of the Properties. The "Sale of the Manulife Properties" and "Sale of
Interest in 77 West Wacker" columns represent the elimination of the historical
operations of the properties included in our consolidated historical operations.
The "Acquisition of IBM Plaza" (for the period from January 1, 1999 through
September 30, 1999) represents the historical operations of the property by the
previous owner. The "Pro Forma Adjustments" reflect the effect of our new
ownership interest in 77 West Wacker Drive and additional operating expenses
related to our ownership of IBM Plaza.
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<TABLE>
PRIME GROUP REALTY TRUST
PRO FORMA CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1999
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(Unaudited)
<CAPTION>
Prime Sale of
Group Sale of Interest Acquisition
Realty 1999 Manulife in 77 W. of
Trust Acquisitions Properties Wacker IBM Plaza Pro Forma
(1) (2) (3) (3) (4) Adjustments As Adjusted
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<S> <C> <C> <C> <C> <C> <C> <C>
Revenue
Rental $ 98,806 $4,098 $(4,097) $(15,903) $14,529 $ - $ 97,433
Tenant reimbursements 39,005 1,550 (911) (9,756) 12,583 - 42,471
Mortgage note interest 4,817 - - - - - 4,817
Other 9,159 3,708 (22) (300) 1,540 (1,290)(5) 12,795
-----------------------------------------------------------------------------------------------
Total revenue 151,787 9,356 (5,030) (25,959) 28,652 (1,290) 157,516
Expenses
Property operations 33,205 1,523 (253) (4,503) 7,583 - 37,555
Real estate taxes 26,370 1,035 (944) (5,561) 7,050 - 27,950
Depreciation and 25,382 820 (759) (5,933) - 4,408(6) 23,918
amortization
Interest 32,822 1,899 (243) (7,842) - 9,600(7) 36,236
Loss on land development
option 600 - - - - - 600
General and administrative 5,472 - - - - - 5,472
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Total expenses 123,851 5,277 (2,199) (23,839) 14,633 14,008 131,731
-----------------------------------------------------------------------------------------------
Income before minority
interests and 27,936 4,079 (2,831) (2,120) 14,019 (15,298) 25,785
extraordinary item
Minority interests (7,734) - - - - 881(8) (6,853)
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Income before
extraordinary item 20,202 4,079 (2,831) (2,120) 14,019 (14,417) 18,932
Extraordinary loss on
extinguishment of debt,
net of minority interest (829) - - - - 829(9) -
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Net income 19,373 4,079 (2,831) (2,120) 14,019 (13,588) 18,932
Net income allocated to
preferred shareholders (9,067) - - - - - (9,067)
===============================================================================================
Net income (loss)
available to common $ 10,306 $4,079 $(2,831) $(2,120) $14,019 $ (13,588) $ 9,865
shareholders
===============================================================================================
Earnings per weighted average common share of basic and diluted:
Income before
extraordinary item $ 0.73 $ (0.08)(10) 0.65
Extraordinary item (0.05) 0.05
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$ 0.68 $ (0.03) $ 0.65
============ =============================
<FN>
See accompanying notes.
</FN>
</TABLE>
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PRIME GROUP REALTY TRUST
ADJUSTMENTS TO PRO FORMA CONSOLIDATED CONDENSED
STATEMENTS OF OPERATIONS NINE MONTHS ENDED SEPTEMBER 30, 1999
(Unaudited)
(1) Represents Prime Group Realty Trust's historical operations for the period
presented. See our Quarterly Report on Form 10-Q for the period from
January 1, 1999 through September 30, 1999.
(2) Represents the historical operations of the properties we purchased in 1999
(1999 Acquisitions) prior to our date of acquisition. The following are the
properties we acquired in 1999:
Property Month Acquired
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33 West Monroe Street January
901 Technology Way (i) January
National City Center February
300 Craig Place (ii) July
800-810 Jorie Blvd. August
43-47 Hintz Road September
(i) 901 Technology Way was a newly constructed building. Therefore, it had
no historical operations to report.
(ii) 300 Craig Place was purchased and sold on the same day. Therefore, no
historical operations are reported.
The amounts reflected for all revenue line items, property operations and
real estate tax expenses represent the historical operations of the
previous owners. The amounts reflected for depreciation, amortization and
interest expense are based upon our ownership of these properties.
(3) Represents the removal of 100% of the properties' historical operations for
the properties under our ownership sold in 1999. The following are the
properties sold in 1999:
Month
Property Sold
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941-961 Weigel Drive July
300 Craig Place July
306-310 Era Drive July
515 Huehl Road/500 Lindberg Road July
555 Huehl Road July
1301 Ridgeview Drive July
3818 Grandville/1200 Northwestern July
801 Technology Way July
901 Technology Way July
1001 Technology Way July
77 West Wacker Drive (i) September
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(i) Sold 50% of our common ownership interest and a $66.0 million
preferred equity interest in the property. The preferred equity
interest receives a 9.5% cumulative preferred return.
(4) Represents the historical operations of IBM Plaza under the previous owner.
(5) Represents our 50% share of the historical operations of 77 West Wacker
Drive under the ownership structure of the newly formed joint venture.
(6) Represents depreciation expense (40 year depreciable life) based upon our
ownership of IBM Plaza and amortization expense associated with the new
deferred loan fees (approximately 3 years) and the swap agreement
(approximately 3 years) incurred in the purchase of IBM Plaza.
<TABLE>
<CAPTION>
Nine Months Ended
September 30, 1999
(in thousands)
----------------------
<S> <C>
Depreciation expense $ 3,821
Amortization expense 587
======================
Depreciation and amortization expense 4,408
======================
</TABLE>
(7) Represents interest expense based upon our ownership of IBM Plaza. The
purchase price for IBM Plaza was primarily funded through a $160.0 million
mortgage note payable with interest at fixed rate of 8.0% (per the swap
agreement).
(8) Represents the adjustment to reflect the minority interests' share of
income before minority interest and extraordinary items from the 1999
Acquisitions, sale of Manulife Properties, sale of interest in 77 West
Wacker Drive and the acquisition of IBM Plaza.
(9) Represents the elimination of the extraordinary item.
(10) Earnings per weighted average common share of basic and diluted have been
calculated based upon 15,134,434 and 15,198,963 respectively, our weighted
average common shares outstanding during the nine months ended September
30, 1999. This represents the number of shares that would have been
outstanding at January 1, 1999 had all of the above described transactions
occurred.
This current report on Form 8-K contains "forward-looking statements" within the
meaning of the Private Securities Litigation Reform Act of 1995. When used in
this report, the words "believes," "expects," "anticipates," "estimates,"
"projects," and similar words and expressions are generally intended to identify
forward-looking statements. Statements that describe our future strategic plans,
goals, objectives or expectations are also forward-looking statements. Readers
of this report are cautioned that any forward-looking statements, including
those regarding the intent, belief, or current expectations of our company or
management, are not guarantees of future performance, results or events and
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involve risks and uncertainties, and that actual results and events may differ
materially from those in the forward-looking statements as a result of various
factors, including, but not limited to (i) general economic conditions in the
markets in which we operate, (ii) competitive pressures within the industry
and/or the markets in which we operate, (iii) the effect of future legislation
or regulatory changes on our operations and (iv) other factors described from
time to time in our filings with the Securities and Exchange Commission. The
forward-looking statements included in this report are made only as of the date
hereof. We undertake no obligation to update such forward-looking statements to
reflect subsequent events or circumstances.
c) Exhibits.
Exhibit
Number Description
------------------- -------------------
23 Consent of Independent Auditors
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PRIME GROUP REALTY TRUST
----------------------------------
Registrant
Date: December 23, 1999 By: /s/ W. Michael Karnes
William M. Karnes
Executive Vice President and
Chief Financial Officer
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Exhibit 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statements
indicated below of Prime Group Realty Trust of our report indicated below filed
with the Securities and Exchange Commission.
Registration Statements
Form S-8 No. 333-65147
Form S-3 No. 333-70369
Financial Statements Date of Auditor's Report
- ----------------------------------------- ---------------------------------
The Statement of Revenue and Certain October 29, 1999
Expenses of IBM Plaza for the period from
January 1, 1999 to September 30, 1999
included in the Current Report (Form 8-K)
of Prime Group Realty Trust dated
December 13, 1999.
/s/ ERNST & YOUNG LLP
Chicago, Illinois
December 22, 1999
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Exhibit 99.1
Company Richard S. Curto William M. Karnes
Contacts: President Executive Vice President
Chief Executive Officer Chief Financial Officer
312/917-1300 312/917-1300
PRIME GROUP REALTY TRUST COMPLETES ACQUISITION OF IBM PLAZA
Office Portfolio Reaches 9.6 Million Square Feet
CHICAGO, Illinois December 13, 1999 -- Prime Group Realty Trust (NYSE: PGE)
announced today that it has closed on the previously announced acquisition of
IBM Plaza, a 47-story Class A office tower located in downtown Chicago. The
acquisition was completed pursuant to the terms of the revised contract with an
affiliate of Blackstone Real Estate Advisors dated February 4, 1999. IBM Plaza
includes 1,354,354 net rentable square feet of office space and a connected
eleven-story, 902-space parking garage which also contains 10,550 square feet of
retail space. The purchase price was $238.0 million and, after allocating $20.0
million for the value of the parking garage and retail space, the remaining
$218.0 million investment represents a cost of $160.96 per net rentable square
foot for the office space.
The Company funded the acquisition from cash on hand plus the proceeds from a
new $160.0 million first mortgage loan from Westdeutsche ImmobilienBank. The
first mortgage loan bears interest at LIBOR plus 170 basis points, requires
monthly payments of principal and interest pursuant to a 25-year amortization
schedule, and matures in five years.
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 IBM Plaza, the Company's portfolio consists
of 29 office properties, containing an aggregate of 9.6 million net rentable
square feet and 40 industrial properties containing an aggregate of 5.0 million
net rentable square feet. The portfolio also includes approximately 248.2 acres
of developable land and rights to acquire more than 261.2 additional acres of
developable land, which management believes could be developed with
approximately 11.0 million rentable square feet of office and industrial space.
This press release contains certain forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995 that reflect
management's current views with respect to future events and financial
performance. The words "believes", "expects", "anticipates", "estimates" and
similar words or expressions are generally intended to identify forward-looking
statements. Actual results may differ materially from those expected because of
various risks and uncertainties, including, but not limited to, changes in
general economic conditions, adverse changes in real estate markets as well as
other risks and uncertainties included from time to time in the Company's
filings with the Securities and Exchange Commission.
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