Prime Group Realty Trust Reports First Quarter 2003 Earnings.Business Editors CHICAGO--(BUSINESS WIRE)--May 13, 2003 Prime Group Realty realty n. a short form of "real estate." (See: real estate) REALTY. An abstract of real, as distinguished from personalty. Realty relates to lands and tenements, rents or other hereditaments. Vide Real Property. Trust (NYSE NYSE See: New York Stock Exchange :PGE PGE Pacific Gas and Electric Company PGE Portland General Electric PGE Prostaglandin E PGE Platinum Group Elements PGE Pacific Great Eastern (Railroad) PGE Phenyl Glycidyl Ether PGE Perfect Girl Evolution ): First Quarter 2003 Highlights GAAP GAAP See: Generally Accepted Accounting Principles GAAP See generally accepted accounting principles (GAAP). earnings per diluted di·lute tr.v. di·lut·ed, di·lut·ing, di·lutes 1. To make thinner or less concentrated by adding a liquid such as water. 2. To lessen the force, strength, purity, or brilliance of, especially by admixture. share for the first quarter of 2003 were $0.80, an increase of $2.16 from a loss of $1.36 per diluted share for the first quarter of 2002. The first quarter of 2003 includes lease termination fee termination fee The one-time charge for terminating or transferring an individual retirement account. If a financial institution charges a termination fee, the fee must be spelled out in the original agreement that is signed when the account is opened. income of $29.7 million, an increase of $29.0 million or $1.85 per diluted share. Funds from Operations Funds From Operations (FFO) Used by real estate and other investment trusts to define the cash flow from trust operations; earnings with depreciation and amortization added back. ("FFO FFO See: Funds from operations ") for the first quarter of 2003 totaled $1.21 per diluted share, as compared to $0.24 per diluted share for the first quarter of 2002. The Company realized a "same-store" increase in GAAP operating income Operating Income The profit realized from a business' own operations. Notes: This would not include income from things such as investments in other firms. Also referred to as operating profit or recurring profit. of 190.5% and a "same-store" decrease in net operating income of 11.0% for the 9.4 million square feet of office and industrial properties that were owned during both the 2002 and 2003 first quarters. During the quarter, the Company signed 11 new office leases totaling 86,171 square feet, expanded three office leases totaling 6,634 square feet, renewed re·new v. re·newed, re·new·ing, re·news v.tr. 1. To make new or as if new again; restore: renewed the antique chair. 2. 18 office leases totaling 100,022 square feet and renewed one industrial lease for 20,074 square feet. Subsequent to quarter end, the Company executed executed 1) adj. to have been completed. (Example: "it is an executed contract") 2) v. to have completed or fully performed. (Example: "he executed all the promises made in the contract") 3) v. 137,296 square feet of new, expansion and renewal office leases. The Company negotiated and received $33.5 million of lease termination fees from Arthur Andersen For the U.S. Supreme Court case commonly known as Arthur Andersen, see . Arthur Andersen LLP, based in Chicago, was once one of the "Big Five" accounting firms (the other four are PricewaterhouseCoopers, Deloitte Touche Tohmatsu, Ernst & Young and KPMG), performing , LLP LLP - Lower Layer Protocol in January January: see month. and February February: see month. 2003 relating to relating to relate prep → concernant relating to relate prep → bezüglich +gen, mit Bezug auf +acc its space at 33 West Monroe West Monroe, city (1990 pop. 14,096), Ouachita parish, N La., on the Ouachita River, opposite Monroe, in a forest and lake area; inc. 1851. Its chief industries are lumber and paper milling. Street and One IBM (International Business Machines Corporation, Armonk, NY, www.ibm.com) The world's largest computer company. IBM's product lines include the S/390 mainframes (zSeries), AS/400 midrange business systems (iSeries), RS/6000 workstations and servers (pSeries), Intel-based servers (xSeries) Plaza For the hotel in New York City, see . Plaza (IPA /'plaθa/ or /'plasa/ . After deducting outstanding receivables Receivables An asset designation applicable to all debts, unsettled transactions or other monetary obligations owed to a company by its debtors or customers. Receivables are recorded by a company's accountants and reported on the balance sheet, and they and include all debts owed (including deferred rent receivable), the Company recognized $29.7 million of lease termination fee income in the first quarter of 2003. Ray H. D'Ardenne and Daniel Daniel, book of the Bible Daniel, book of the Bible. It combines "court" tales, perhaps originating from the 6th cent. B.C., and a series of apocalyptic visions arising from the time of the Maccabean emergency (167–164 B.C. A. Lupiani were elected e·lect v. e·lect·ed, e·lect·ing, e·lects v.tr. 1. To select by vote for an office or for membership. 2. To pick out; select: elect an art course. to the Company's Board as independent Trustees. The Company executed several capital transactions during the quarter including: -- A $195.0 million senior loan refinancing Refinancing An extension and/or increase in amount of existing debt. the first mortgage and mezzanine loans A mezzanine loan is a relatively large loan, typically unsecured (ie., not backed by a pledging of assets) or with a deeply subordinated security structure (e.g., third lien on the property but non-recourse vis-a-vis the borrower). secured by One IBM Plaza; -- A $75.0 million mezzanine loan refinancing the mezzanine loan on Bank One Corporate Center; -- The acquisition of its former partner's interest in Bank One Corporate Center; -- The repayment Repayment The act of paying back a debt. Notes: Everyone has to repay their debts eventually. See also: Debt, Defeasance, Loan of $11.5 million of the Security Capital Preferred Growth indebtedness INDEBTEDNESS. The state, of being in debt, without regard to the ability or inability of the party to pay the same. See 1 Story, Eq. 343; 2 Hill. Ab. 421. 2. ; and -- An extension of the maturity date of two loans totaling $32.5 million until November November: see month. 15, 2004. The strategic alternatives process continues as Merrill Lynch Merrill Lynch & Co., Inc. (NYSE: MER TYO: 8675 ), through its subsidiaries and affiliates, provides capital markets services, investment banking and advisory services, wealth management, asset management, insurance, banking and related products and services on a global basis. and Wachovia Securities Wachovia Securities, located in Richmond, Virginia (soon to be moved to St. Louis), is the third largest brokerage firm in the United States as of 2006 with $689 billion retail client assets under management. It is a subsidiary of Wachovia Corporation. evaluate various options. Prime Group Realty Trust (NYSE:PGE) (the "Company") announced earnings today for the quarter ended March 31, 2003. GAAP net income available to common shareholders was $12.6 million. GAAP earnings per diluted share for the first quarter of 2003 were $0.80, as compared to the loss of $1.36 per diluted share reported in the first quarter of 2002. The increase of $2.16 per diluted share from the first quarter of 2002 resulted primarily from an increase in lease termination fee income of $29.0 million or $1.85 per diluted share, a decrease in the provision for impairment Impairment 1. A reduction in a company's stated capital. 2. The total capital that is less than the par value of the company's capital stock. Notes: 1. This is usually reduced because of poorly estimated losses or gains. 2. of $5.2 million or $0.33 per diluted share, and an increase in discontinued operations Discontinued operations Divisions of a business that have been sold or written off and that no longer are maintained by the business. of $19.4 million or $1.23 per diluted share (which includes a 2002 provision for impairment of $33.6 million). These items were partially offset by an increase in interest expense and amortization of deferred financing costs of $7.5 million or $0.48 per diluted share, and an increase in minority interests of $11.9 million or $0.76 per diluted share. Lease termination fee income for the first quarter of 2003 included fees associated with the leases terminated ter·mi·nate v. ter·mi·nat·ed, ter·mi·nat·ing, ter·mi·nates v.tr. 1. To bring to an end or halt: with Arthur Andersen LLP ("Andersen") of $29.7 million or $1.89 per diluted share. FFO for the first quarter of 2003 totaled $1.21 per diluted share, as compared to $0.24 per diluted share for the first quarter of 2002. Funds from operations for the first quarter of 2003, excluding non-operating charges and discontinued operations, ("Operating FFO") totaled $1.15 per diluted share, as compared to the $0.29 per diluted share for the first quarter of 2002. FFO and Operating FFO increased primarily as a result of an increase in lease termination fee income to $1.11 per diluted share from $0.02 per diluted share and a decrease in income allocated to the Series A preferred shareholder of $0.03 per diluted share (as the shares have been repurchased), which was partially offset by an increase in interest expense (see discussion below) and amortization of deferred financing costs of $0.28 per diluted share. In addition, FFO increased $0.19 per diluted share due to a provision for impairment in the first quarter of 2002 and decreased $2.8 million or $0.10 per diluted share due to a decrease in the results of discontinued operations from the first quarter of 2002 to the first quarter of 2003. For the purposes of computing computing - computer FFO and Operating FFO per diluted share, the Company included outstanding common shares and common units in its operating partnership in arriving at weighted average shares of beneficial interest. Funds from Operations and Operating Funds from Operations are non-GAAP financial measures. The Company believes that net income (loss) is the most directly comparable GAAP financial measure to both Funds from Operations and Operating FFO and has included a reconciliation of these measures to GAAP net income (loss) with this press release. As Bank One Corporate Center ("BOCC BOCC Board of County Commissioners BOCC Budget Object Classification Code BOCC Backward Optimistic-oriented Concurrency Control BOCC Branch Officer Candidate Course ") is not fully-stabilized, its positive impact upon earnings will not be fully realized until stabilization Stabilization The action undertakes a country when it buys and sells its own currency to protect its exchange value. Actions registered competitive traders undertake by on the NYSE to meet the exchange requirement that 75% of their traded be stabilizing, meaning that sell orders occurs. The Company estimates that annual GAAP net income that will be generated by BOCC at stabilization will be $0.8 million. This estimate assumes lease-up of the property to 96.7% occupancy Gaining or having physical possession of real property subject to, or in the absence of, legal right or title. In a fire insurance policy, for example, the term occupancy at an average projected gross rental RENTAL. A roll or list of the rents of an estate containing the description of the lands let, the names of the tenants, and other particulars connected with such estate. This is the same as rent roll, from which it is said to be corrupted. rate of $41.84 per square foot. Using the same assumptions, and excluding the effects of annual depreciation and amortization of $16.3 million, and a minority interest effect of $0.5 million, the Company estimates Funds from Operations from this property of $17.6 million at stabilization. On a related note, the increase in interest expense for the first quarter 2003 was principally due to a decrease in capitalized interest Capitalized interest Interest that is not immediately expensed, but rather is considered as an asset and is then amortized through the income statement over time. In the context of project financing, interest that is paid by additional borrowing. from $6.6 million for the first quarter of 2002 to $2.0 million for the first quarter of 2003; an increase of $2.1 million due to interest on the Company's debt obligation with Security Capital Preferred Growth ("SCPG SCPG Student Center Photo Gallery "); and fees associated with the retirement of refinanced debt of $1.0 million. These increases were partially offset by a decrease in LIBOR LIBOR See: London Interbank Offered Rate LIBOR See London interbank offered rate (LIBOR). rates for the Company's variable rate indebtedness. In addition, amortization of deferred financing fees increased by $0.9 million principally as a result of reduced capitalization capitalization n. 1) the act of counting anticipated earnings and expenses as capital assets (property, equipment, fixtures) for accounting purposes. 2) the amount of anticipated net earnings which hypothetically can be used for conversion into capital assets. of these costs. As the Company has placed BOCC in service, it now only capitalizes interest and amortization of deferred financing costs on those qualified expenditures associated with the percentage of the property which is vacant. Revenue for the first quarter was $73.3 million, a 75.4% increase over first quarter 2002 revenue of $41.8 million. A large portion of the revenue increase for the quarter was due to an increase in lease termination fee income relating to Arthur Andersen LLP. Exclusive of lease termination fee income in both periods, revenue for the first quarter was $43.6 million, a 6.1% increase over first quarter 2002 revenue of $41.1 million. "Same-store" operating income represents GAAP operating income from properties owned by the Company for the entire quarter for both of the quarters being compared. The Company realized an increase in same-store operating income of $25.4 million or 190.5%. Same-store operating income increased by 212.1% for the office portfolio and decreased by 32.1% for the industrial portfolio. The increase in same-store operating income was due to lease termination fee income as a result of Andersen's leases, partially offset by a decrease in February and March 2003 rental revenue from the Company's 33 West Monroe Street and IBM Plaza properties as a result of these lease terminations. The Company realized a decline in same-store "net operating income" of $2.0 million or 11.0% for the 9.4 million square feet of office and industrial space properties owned during both the first quarter of 2003 and 2002. Same-store net operating income declined by 11.6% for the office portfolio and 6.3% for the industrial portfolio. The decrease in same-store net operating income was principally due to the termination The point where a line, channel or circuit ends. See SCSI termination and hybrid. of Andersen's lease and the resulting significant decrease in February and March 2003 rental revenue from the Company's 33 West Monroe Street property. Same-store net operating income is a non-GAAP financial measure. In arriving at same-store net operating income, the Company has excluded lease termination fee income, depreciation and amortization, the effects of straight-line straight-line adj. 1. Lying in a straight line. 2. Relating to a device whose linkage produces or copies motion in straight lines. 3. rent and corporate charges from operating income. The Company believes exclusion exclusion /ex·clu·sion/ (eks-kloo´zhun) 1. a shutting out or elimination. 2. surgical isolation of a part, as of a segment of intestine, without removal from the body. of these items provides investors a meaningful comparison of income generated by the Company's properties from quarter to quarter. A schedule has been included with this press release which reconciles same-store net operating income to GAAP operating income, the most directly comparable GAAP measure. Portfolio Occupancy Update In the first quarter 2003, the Company signed 11 new office leases totaling 86,171 rentable square feet and three lease expansions totaling 6,634 square feet. In addition, 18 office leases totaling 100,022 rentable square feet and one industrial lease for 20,074 square feet were renewed during the quarter at net rental rates which averaged 17.0% higher than prior net rents in place. Subsequent to the end of the first quarter, the Company entered into leases for 137,296 square feet of new, expansion and renewal office leases. This includes a lease for 21,138 square feet which is subject to lender LENDER, contracts. He from whom a thing is borrowed. 2. The contract of loan confers rights, and imposes duties on the lender. 1. The lender has the right to revoke the loan at his mere pleasure; 9 Cowen, R. 687; 8 Johns. Rep. 432; 1 T. R. 480; 2 Campb. Rep. approval. In addition, the Company executed a sublease sublease n. the lease of all or a portion of premises by a tenant who has leased the premises from the owner. A sublease may be prohibited by the original lease, or require written permission from the owner. for 4,942 square feet at One North Wacker Drive Wacker Drive is a major street in Chicago, Illinois, United States, running along the south side of the main branch and the east side of the south branch of the Chicago River. related to the Company's lease reimbursement Reimbursement Payment made to someone for out-of-pocket expenses has incurred. obligation under its lease with Citadel Investment Group Citadel Investment Group is a $13.4 billion [1] hedge fund based in Chicago, Illinois, founded by billionaire trader Kenneth C. Griffin. It is one of the world's largest hedge funds. LLC (Logical Link Control) See "LANs" under data link protocol. LLC - Logical Link Control . During the quarter, the Company's overall portfolio occupancy decreased to 79.0% from 89.4% principally due to the termination of Andersen's leases at 33 West Monroe Street and One IBM Plaza and the addition of BOCC to the first quarter of 2003 statistics. Office portfolio occupancy decreased to 77.3% from 92.1%, and industrial portfolio occupancy decreased to 83.0% from 84.4%. Exclusive of the Bank One Corporate Center and space recently vacated by Andersen as a result of their lease terminations, office portfolio occupancy increased to 91.6% from 91.3%. The Company Elects Ray H. D'Ardenne and Daniel A. Lupiani to its Board of Trustees board of trustees Politics The posse of thugs who oversee an institution's administration. See Board of directors. Enhancing its Corporate Governance Corporate Governance The relationship between all the stakeholders in a company. This includes the shareholders, directors, and management of a company, as defined by the corporate charter, bylaws, formal policy, and rule of law. On April 14, 2003, the Company's Board of Trustees elected Ray H. D'Ardenne and Daniel A. Lupiani to fill newly created positions on the Board as independent Trustees. On April 17, 2003, Michael Michael, archangel Michael (mī`kəl) [Heb.,=who is like God?], archangel prominent in Christian, Jewish, and Muslim traditions. In the Bible and early Jewish literature, Michael is one of the angels of God's presence. W. Reschke resigned from the Company's Board of Trustees. In addition, Governor James James, person in the Bible James, in the Gospel of St. Luke, kinsman of St. Jude. The original does not specify the relationship. James, rivers, United States James. R. Thompson Thompson, city, Canada Thompson, city (1991 pop. 14,977), central Man., Canada, on the Burntwood River. A mining town, it developed after large nickel deposits were discovered in the area in 1956. has informed the Company that he has decided not to seek an additional term as a member of the Board of Trustees at the Company's upcoming annual meeting. Capital Markets Update On February 19, 2003, the Company extended the maturity dates of two loans from Fleet National Bank having a combined principal amount of $32.5 million. The two loans consist of a (i) $20.0 million mezzanine loan secured by pledges PLEDGES, pleading. It was anciently necessary to find pledges or sureties to prosecute a suit, and the names of the pledges were added at the foot of the declaration; but in the course of time it became unnecessary to find such pledges because the plaintiff was no longer liable to be of equity interests in various properties and having a previous maturity date of June June: see month. 30, 2003 and (ii) a $12.5 million mezzanine loan secured by a pledge A Bailment or delivery of Personal Property to a creditor as security for a debt or for the performance of an act. Sometimes called bailment, pledges are a form of security to assure that a person will repay a debt or perform an act under contract. of equity interests in the 33 West Monroe Street property and having a previous maturity date of November 15, 2003. The maturity dates for both of the loans were extended until November 15, 2004. On March 11, 2003, the Company closed a $195.0 million loan and retired both the existing senior and mezzanine loans secured by One IBM Plaza. The new loan has a term of three years, with two one-year adj. 1. completing its life cycle within a year. Adj. 1. one-year - completing its life cycle within a year; "a border of annual flowering plants" annual phytology, botany - the branch of biology that studies plants extension options, and does not require any scheduled repayments of principal prior to maturity. The loan has an interest rate of 285 basis points over one-month LIBOR, with a minimum rate which results in a current effective interest rate of 5.03%. On March 19, 2003, the Company closed a $75.0 million mezzanine loan secured by ownership interests in BOCC. The new loan matures on January 5, 2004 with a one-year extension option provided certain conditions are satisfied, including payment of a 0.5% extension fee. The loan has a 15% interest rate with a 10% current pay, plus a 1% exit fee upon initial maturity. The new loan retired an existing mezzanine loan which bore interest at 23.0%. Andersen Pays Lease Termination Fees of $33.5 Million As previously announced, the Company and Andersen entered into agreements terminating Andersen's leases covering 579,982 square feet at 33 West Monroe Street and 76,849 square feet at One IBM Plaza. Andersen paid the Company $33.5 million in lease termination fees. As a result, after deducting outstanding receivables (including deferred rent receivable), the Company recognized income of $29.7 million from the lease terminations in the first quarter of 2003. Bank One Corporate Center Placed in Service Bank One Corporate Center was placed in service in November 2002. Located in downtown Downtown (called a "city centre" in British English) is a term used in North America when referring to a city's core, usually both in a geographical and commercial / community sense. Chicago Chicago, city, United States Chicago (shĭkä`gō, shĭkô`gō), city (1990 pop. 2,783,726), seat of Cook co., NE Ill., on Lake Michigan; inc. 1837. , the Class A office tower contains approximately ap·prox·i·mate adj. 1. Almost exact or correct: the approximate time of the accident. 2. 1.5 million rentable square feet. The Bank One, N.A. lease for 603,767 net rentable square feet commenced on January 1, 2003, the Holland & Knight knight, in ancient and medieval history, a noble who did military service as a mounted warrior. The Knight in Ancient History In ancient history, as in Athens and Rome, the knight was a noble of the second class who in military service had to lease for 121,728 net rentable square feet commenced on February 1, 2003, and the Citadel Investment Group, L.L.C. lease for 274,417 net rentable square feet commenced on April 1, 2003, which brings total occupancy to 66.6%. On March 19, 2003, the Company purchased its joint venture partner's interest in BOCC, making the Company the sole owner of the property. The Company paid $9.2 million for the joint venture interest, of which $1.2 million was repaid to the Company by its partner in full payment of a loan. Having sole control of the property provides the Company increased flexibility in responding to the market and aggressively pursuing additional leasing transactions. Net Absorption absorption [Lat.,=sucking from], taking of molecules of one substance directly into another substance. It is contrasted with adsorption, in which the molecules adhere only to the surface of the second substance. in Downtown Chicago a Positive 368,078 Square Feet; Metropolitan Chicago Market Downtown Office and Vacancy VACANCY. A place which is empty. The term is principally applied to cases where an office is not filled. 2. By the constitution of the United States, the president has the power to fill up vacancies that may happen during the recess of the senate. Rates Decreases to 12.5% In the downtown Chicago office market, the vacancy rate decreased during the quarter to 12.5%, from 12.9% at the end of the fourth quarter 2002. Net absorption in the Central Business District was a positive 368,078 square feet for the quarter. The Chicago suburban office market vacancy rate increased to 19.4% from 17.0% at the end of the fourth quarter of 2002. The Chicago industrial In the early 1980s the Chicago-based record label Wax Trax! helped to forge the industrial music genre. At the forefront of this explosion of musical exploration were bands such as Chicago's Ministry, My Life With The Thrill Kill Kult, Die Warzau and Eight and One Half[1] market ended the quarter with a vacancy rate of 9.5% up from 9.2% at the end of the fourth quarter of 2002. Outstanding Obligation with Security Capital Preferred Growth Reduced by $11.5 Million The Company's debt obligations with SCPG matures July July: see month. 16, 2003. During the quarter, the Company utilized a portion of net proceeds Net Proceeds The amount received after all costs are deducted from the sale of a piece of property or security. Notes: In the case of an investor selling a security, net proceeds represent the proceeds from the sale minus any trading costs (i.e. commissions). from refinancing and asset sale transactions to repay $11.5 million of one of these obligations bringing the outstanding balance to $48.8 million (including accrued interest Accrued Interest The interest that has accumulated on a bond since the last interest payment up to but not including the settlement date. There are two methods for calculating accrued interest: 1) 360-day year method, used for corporate and municipal bonds. of $2.9 million) at March 31, 2003. The terms of these obligations provide for two 180-day extension periods, at the Company's option, if aggregate outstanding principal and accrued interest is not greater than $40.0 million at the date nine days prior to the date of the initial maturity and not greater than $25.0 million by 30-days prior to the end of the first extension period. The Company's debt obligations require compliance with various financial loan covenants A loan covenant is a condition in a commercial loan or bond issue that requires the borrower to fulfill certain conditions or forbids the borrower from undertaking certain actions, or possibly restricts certain activities to circumstances when other conditions are met. including quarter end liquidity covenants. The Company was not in compliance with two covenants from a single lender related to quarter-end unrestricted cash balance requirements for two loans. In both instances, the Company received a waiver The voluntary surrender of a known right; conduct supporting an inference that a particular right has been relinquished. The term waiver is used in many legal contexts. for the first quarter of 2003. The Company's ability to meet these and other covenants in the future is contingent on Adj. 1. contingent on - determined by conditions or circumstances that follow; "arms sales contingent on the approval of congress" contingent upon, dependant on, dependant upon, dependent on, dependent upon, depending on, contingent our ability to execute certain possible capital transactions and on our future financial results. In addition, if the SCPG obligation is not extended, SCPG's default remedies rem·e·dy n. pl. rem·e·dies 1. Something, such as medicine or therapy, that relieves pain, cures disease, or corrects a disorder. 2. Something that corrects an evil, fault, or error. 3. , including the foreclosure foreclosure Legal proceeding by which a borrower's rights to a mortgaged property may be extinguished if the borrower fails to live up to the obligations agreed to in the loan contract. upon our pledges and mortgages of certain of the direct and indirect equity interests of the Company's operating partnership in various properties, may also hinder hin·der 1 v. hin·dered, hin·der·ing, hin·ders v.tr. 1. To be or get in the way of. 2. To obstruct or delay the progress of. v.intr. the Company's ability to meet the minimum quarter end cash requirements and other financial loan covenants. Management continues to pursue various capital transactions, which, if consummated con·sum·mate tr.v. con·sum·mat·ed, con·sum·mat·ing, con·sum·mates 1. a. To bring to completion or fruition; conclude: consummate a business transaction. b. in sufficient amounts, would provide the necessary cash proceeds to meet these covenant covenant (kŭv`ənənt), agreement entered into voluntarily by two or more parties to do or refrain from doing certain acts. In the Bible and in theology the covenant is the agreement or engagement of God with man as revealed in the requirements, in addition to the repayment of part or all of the SCPG debt. If the necessary capital transactions are not consummated, or the proceeds of capital transactions are not sufficient to allow us to meet certain covenants or to exercise an option to extend the maturity date of the SCPG obligation, management intends to seek waivers or modifications from the lenders. Conference Call Information Prime Group Realty Trust has scheduled a conference call for Wednesday Wednesday: see week. , May 14, 2003 at 12:00 p.m. (EST EST electroshock therapy. EST abbr. electroshock therapy ) to discuss Company results for the first quarter ended March 31, 2003. Investors and interested parties may listen to the call via a live webcast accessible on the Company's web site at www.pgrt.com. To listen, please register and download To receive a file transmitted over a network. In any communications session, "download" means receive, and "upload" means send. The download/upload often implies a big/little scenario, in which data is being downloaded from the "big" server into the "little" user's computer. audio software on the site at least fifteen minutes prior to the start of the call. The webcast will be archived on the site until June 16, 2003. To participate via teleconference, please call 800.473.6123 at least five minutes prior to the beginning of the call. If you are calling from outside North America North America, third largest continent (1990 est. pop. 365,000,000), c.9,400,000 sq mi (24,346,000 sq km), the northern of the two continents of the Western Hemisphere. , please call 973.582.2706. A replay of the call will be available through May 21, 2003 by calling 877.519.4471 and referencing passcode 3896278. If calling outside of North America, please call 973.341.3080. In addition to the information provided in this press release, the Company publishes a quarterly "Supplemental Financial and Operating Statistics" package. The supplemental information package and the information contained in this press release can be found on the Company's web site under "Investor Information," and as part of a current report on Form 8-K Form 8-K The form required by the SEC when a publicly held company incurs any event that might affect its financial situation or the share value of its stock. Form 8-K See 8-K. furnished fur·nish tr.v. fur·nished, fur·nish·ing, fur·nish·es 1. To equip with what is needed, especially to provide furniture for. 2. to the Securities and Exchange Commission. About the Company Prime Group Realty Trust is a fully-integrated, self-administered, and self-managed real estate investment trust (REIT REIT See: Real Estate Investment Trust REIT See real estate investment trust (REIT). ) that owns, manages, leases, develops, and redevelops office and industrial real estate, primarily in metropolitan Chicago. The Company owns 15 office properties containing an aggregate of approximately 7.8 million net rentable square feet and 30 industrial properties containing an aggregate of approximately 3.9 million net rentable square feet. In addition, the Company owns 202.1 acres of developable land and joint venture interests in two office properties containing an aggregate of 1.3 million net rentable square feet. This press release contains certain forward-looking statements forward-looking statement A projected financial statement based on management expectations. A forward-looking statement involves risks with regard to the accuracy of assumptions underlying the projections. within the meaning of the Private Securities Litigation Reform Act The Private Securities Litigation Reform Act of 1995 (PSLRA) implemented several significant substantive changes affecting certain cases brought under the federal securities laws, including changes related to pleading, discovery, liability, class representation and awards fees and of 1995 that reflect management's current views with respect to future events and financial performance. The words "will be", "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.
Consolidated Statements of Operations
(Dollars in thousands, except per share data)
(Unaudited)
Three Months ended
March 31
2003 2002
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Revenue:
Rental $26,218 $24,240
Lease termination fees 29,712 667
Tenant reimbursements 15,382 13,970
Other property revenues 1,342 1,460
Services Company revenue 658 1,431
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Total revenue 73,312 41,768
Expenses:
Property operations 11,735 10,793
Real estate taxes 10,180 9,410
Depreciation and amortization 9,482 7,167
General and administrative 2,320 1,975
Services Company operations 560 1,135
Provision for asset impairment - 5,171
Strategic alternative costs 53 262
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Total expenses 34,330 35,913
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Operating income 38,982 5,855
Other income 496 837
Interest:
Expense (15,299) (8,661)
Amortization of deferred financing costs (1,622) (694)
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Income (loss) from continuing operations before
minority interests 22,557 (2,663)
Minority interests (8,358) 3,585
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Income from continuing operations 14,199 922
Discontinued operations, net of minority interests
of $(474) and $12,882 in 2003 and 2002,
respectively 672 (18,714)
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Income (loss) before loss on sales of real estate 14,871 (17,792)
Loss on sales of real estate, net of minority
interests of $218 in 2002 - (315)
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Net income (loss) 14,871 (18,107)
Net income allocated to preferred shareholders (2,250) (3,199)
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Net income (loss) available to common shareholders $12,621 $(21,306)
==================
Basic and diluted earnings available to common
shares per weighted-average common share:
Income (loss) from continuing operations $0.76 $(0.15)
Discontinued operations, net of minority interests 0.04 (1.19)
Loss on sales of real estate, net of minority
interests - (0.02)
------------------
Net income (loss) available per weighted-average
common share of beneficial interest -basic and
diluted $0.80 $(1.36)
==================
GAAP Reconciliation of Net Income (Loss) to Funds from Operations
and Operating Funds from Operations
(Dollars in thousands, except per share/unit data)
(Unaudited)
Three Months Ended
March 31
2003 2002
------------------
Net income (loss) $14,871 $(18,107)
Adjustments to reconcile to Funds from Operations:
Real estate depreciation and amortization 9,121 7,034
Amortization of costs for leases assumed 320 163
Share of joint venture real estate depreciation and
amortization 854 843
Loss on sale of operating property, net of minority
interests - 107
Adjustments for discontinued operations:
Real estate depreciation and amortization 555 2,421
Provision for impairment on operating real
estate - 33,634
Minority interests 474 (12,882)
Minority interests 8,358 (3,585)
Income allocated to preferred shareholders (2,250) (3,199)
------------------
Funds from Operations (1), (2) 32,303 6,429
Adjustments to reconcile to Operating Funds from
Operations:
Adjustment for discontinued operations (1,701) (4,459)
Strategic alternatives 53 262
Adjustment for provision for impairment on non-
operating real estate - 5,171
Loss on sale of land - 208
------------------
Operating Funds from Operations(2) $30,655 $7,611
==================
FFO per common share of beneficial interest:
Basic and Diluted $1.21 $0.24
==============
Operating FFO per common share of beneficial interest:
Basic and Diluted $1.15 $0.29
==============
Weighted average shares/units of beneficial interest:
Basic and Diluted 26,747 26,512
==============
(1) Funds from Operations and Operating Funds from Operations are
non-GAAP financial measures. Funds from Operations ("FFO") is
defined as net income (loss), computed in accordance with
generally accepted accounting principles ("GAAP") plus real estate
depreciation and amortization, excluding gains (or losses) from
sales of operating properties (which we believe includes
impairments on operating real estate), and after comparable
adjustments for unconsolidated joint ventures and discontinued
operations. The Company computes FFO in accordance with standards
established by the National Association of Real Estate Investment
Trusts ("NAREIT"), which may not be comparable to FFO reported by
other REITs that do not define the term in accordance with the
current NAREIT definition or that interpret the current NAREIT
definition differently than the Company. The Company utilizes FFO
and Operating FFO as performance measures. The Company believes
that FFO and Operating FFO provide useful information to investors
regarding the Company's performance as FFO provides investors with
additional means of comparing the Company's operating performance
with the operating performance of its competitors, and Operating
FFO excludes items which the Company believes are not reflective
of the Company's core and continuing operations. FFO and Operating
FFO are not representative of cash flow from operations, are not
indicative that cash flows are adequate to fund all cash needs and
should not be considered as alternatives to cash flows as a
measure of liquidity. The Company believes that net income (loss)
is the most directly comparable GAAP financial measure to FFO and
Operating FFO.
(2) Funds from Operations includes results from discontinued
operations, including revenues, property operations expense, real
estate taxes expense and interest expense. Operating Funds from
Operations excludes these amounts.
Consolidated Balance Sheets
(Dollars in thousands, except per share data)
(Unaudited)
March 31 December 31
2003 2002
----------------------
Assets
Real estate, at cost:
Land $169,054 $183,891
Building and improvements 973,475 1,032,669
Tenant improvements 109,765 111,547
Furniture, fixtures and equipment 10,245 10,218
----------------------
1,262,539 1,338,325
Accumulated depreciation (109,447) (110,387)
----------------------
1,153,092 1,227,938
Property held for or under development 20,151 20,158
----------------------
1,173,243 1,248,096
Property held for sale (including $1,968 of
restricted cash escrows) 81,388 -
Investments in unconsolidated entities 1,242 1,440
Cash and cash equivalents 7,116 15,800
Receivables, net of allowance of $2,077 and
$1,867 at March 31, 2003 and December 31, 2002,
respectively:
Tenant 2,314 1,595
Deferred rent 20,148 22,351
Other 519 2,453
Restricted cash escrows 79,831 58,933
Deferred costs, net 54,823 53,943
Other 3,997 3,987
----------------------
Total assets $1,424,621 $1,408,598
======================
Liabilities and Shareholders' Equity
Mortgages and notes payable $612,326 $671,340
Mortgage note payable related to property held
for sale 64,306 -
Bonds payable 24,900 24,900
Construction financing 229,617 208,198
Accrued interest payable 6,179 21,818
Accrued real estate taxes 32,353 36,642
Accrued tenant improvement allowances 26,011 33,172
Accounts payable and accrued expenses 18,592 16,981
Construction costs payable, including retention
of $4,467 and $5,034 at March 31, 2003 and
December 31, 2002, respectively 8,262 12,896
Liabilities for leases assumed 18,108 21,692
Deficit investment in unconsolidated entity 5,382 4,223
Other 10,255 10,654
----------------------
Total liabilities 1,056,291 1,062,516
Minority interests:
Operating Partnership 107,475 98,643
Other - 2,000
Shareholders' equity:
Preferred Shares, $0.01 par value; 30,000,000
shares authorized:
Series B - Cumulative Redeemable Preferred
Shares, 4,000,000 shares designated, issued
and outstanding at March 31, 2003 and
December 31, 2002 40 40
Common Shares, $0.01 par value; 100,000,000
shares authorized; and 15,689,623 shares
issued and outstanding at March 31, 2003 and
December 31, 2002 157 157
Additional paid-in capital 330,379 330,327
Accumulated other comprehensive loss (5,515) (6,008)
Distributions in excess of earnings (64,206) (79,077)
----------------------
Total shareholders' equity 260,855 245,439
----------------------
Total liabilities and shareholders' equity $1,424,621 $1,408,598
======================
GAAP Reconciliation of Operating Income to
Same-Store Net Operating Income
(Unaudited)
Three months ended March 31, 2003
-----------------------------------------------
Total Corporate/
Same-store Operating
Office Industrial Properties Partnership Total
-----------------------------------------------
(dollars in thousands)
Operating income (loss)$40,862 $816 $41,678 $(2,696) $38,982
Properties not held in
both periods (2,867) (14) (2,881) - (2,881)
-----------------------------------------------
Same-store operating
income (loss) 37,995 802 38,797 (2,696) 36,101
Less:
Lease termination
fees (29,712) - (29,712) - (29,712)
Services Company
revenues - - - (658) (658)
Depreciation and
amortization 6,338 1,367 7,705 421 8,126
General and
administrative - - - 2,320 2,320
Services Company
operations - - - 560 560
Strategic alternative
costs - - - 53 53
Straight-line rent
adjustment (492) (72) (564) - (564)
-----------------------------------------------
Same-store net
operating income(1) $14,129 $2,097 $16,226 $- $16,226
================================================
Three months ended March 31, 2002
-----------------------------------------------
Total Corporate/
Same-store Operating
Office Industrial Properties Partnership Total
-----------------------------------------------
(dollars in thousands)
Operating income
(loss) $12,001 $1,152 $13,153 $(7,298) $5,855
Properties not held in
both periods 173 30 203 - 203
-----------------------------------------------
Same-store operating
income (loss) 12,174 1,182 13,356 (7,298) 6,058
Less:
Lease termination fees (667) - (667) - (667)
Services Company
revenues - - - (1,431) (1,431)
Depreciation and
amortization 5,643 1,339 6,982 186 7,168
General and
administrative - - - 1,975 1,975
Services Company
operations - - - 5,171 5,171
Provision for asset
impairment - - - 1,135 1,135
Strategic alternative
costs - - - 262 262
Straight-line rent
adjustment (1,163) (283) (1,446) - (1,446)
-----------------------------------------------
Same-store net
operating income $15,987 $2,238 $18,225 $- $18,225
================================================
Percentage increase
(decrease):
Same-store operating
income 212.1% (32.1)% 190.5%
============================
Same-store net
operating income (11.6)% (6.3)% (11.0)%
============================
(1) Same-store net operating income is a non-GAAP financial measure.
The Company computes same-store net operating income by excluding
lease termination fee income, depreciation and amortization, and the
effects of corporate changes and straight-line rent from same-store
net operating income, which is derived by excluding GAAP results
attributable to properties not held in both periods presented for
comparison from GAAP operating income (loss). The Company believes
that the exclusion of the items described above from same-store net
operating income provides investors with a meaningful comparison of
income generated by the Company's properties from quarter to quarter.
The Company believes that operating income is the most directly
comparable GAAP financial measure to same-store net operating income.
Leasing Activity Summary (1)
March 31, 2003
New Leasing By Quarter
FIRST QUARTER 2003 Downtown Suburban Total Industrial Total
NEW LEASING Office(1) Office Office Portfolio
--------------------------------------------------
1/1/2003 Net
Rentable 5,539,643 1,686,176 7,225,819 3,874,712 11,100,531
Net
3/31/2003 Rentable 7,046,344 1,685,719 8,732,063 3,874,712 12,606,775
1/1/2003 Leased SF 5,251,926 1,426,959 6,678,885 3,270,585 9,949,470
1/1/2003 Occupied
SF 5,228,992 1,425,770 6,654,762 3,270,585 9,925,347
3/31/2003 Leased SF 5,631,193 1,443,825 7,075,018 3,214,979 10,289,997
3/31/2003 Occupied
SF 5,316,615 1,432,158 6,748,773 3,214,979 9,963,752
Number of
Move Outs 10 2 12 2 14
SF of Move
Outs 716,353 3,106 719,459 55,606 775,065
Number of
New Leases 9 2 11 - 11
SF of New
Leasing 73,131 13,040 86,171 - 86,171
1/1/2003 Leased % 94.8% 84.6% 92.4% 84.4% 89.6%
1/1/2003 Occupied % 94.4% 84.6% 92.1% 84.4% 89.4%
3/31/2003 Leased % 79.9% 85.7% 81.0% 83.0% 81.6%
3/31/2003 Occupied % 75.5% 85.0% 77.3% 83.0% 79.0%
Renewal/Expansion Leasing by Quarter
FIRST QUARTER 2003 Downtown Suburban Total Industrial Total
RENEWAL/EXPANSION Office Office Office Portfolio
LEASING -------------------------------------------------
Number of Renewals 12 6 18 1 19
SF up for Renewal(2) 803,600 15,881 819,481 20,480 839,961
SF of Leases Renewed 87,247 12,775 100,022 20,074 120,096
Renewal Percentage (3) 11.0% 84.5% 12.4% 98.0% 14.3%
Old Net Rent $9.60 $15.56 $10.36 $6.10 $9.65
Renewal Net Rent
Average $12.03 $13.95 $12.28 $6.38 $11.29
Percentage Increase
in Rent 25.4% -10.4% 18.5% 4.6% 17.0%
Number of Expansions 2 1 3 - 3
SF of Expansions 975 5,659 6,634 - 6,634
(1) 3/31/03 Downtown Office totals include Bank One Corporate Center
(2) SF up for Renewal excludes tenants in bankruptcy and includes
renewals in this period of leases originally set to expire in
future periods.
(3) SF up for Renewal includes square footage associated with Arthur
Andersen LLP's lease termination. Exclusive of the termination,
the Downtown Office, Total Office and Total Portfolio renewal
percentages would be 63.3%, 65.2% and 65.0%, respectively.
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