PGE Prime Grp. Realty Tr

Prime Group Realty Trust (NYSE:PGE) (the "Company") announced its results today for the quarter ended March 31, 2005. Net income available to common shareholders was $2.3 million or $0.10 per share for the first quarter of 2005, as compared to a net loss of $7.3 million or $0.31 per share reported for the first quarter of 2004. Funds From Operations ("FFO") available to common shareholders for the first quarter of 2005 totaled $0.07 per share, as compared to $0.13 per share for the first quarter of 2004. Revenue for the first quarter was $28.5 million, a decrease of $1.0 million from first quarter 2004 revenue of $29.5 million. The decrease was principally due to a lease termination fee of $0.3 million received in 2004, a decrease of $0.3 million due to lower occupancy, and a reduction in the Company's Services Company revenues of $0.2 million. The $9.6 million, or $0.41 per share, improvement in the net income (loss) was principally a result of: -- Additional gain on sale related to the Bank One Center Joint Venture of $8.7 million, or $0.37 per share, net of minority interest, as a result of a $9.8 million distribution received from the joint venture in January 2005 due to the Company meeting a leasing earnout target under the joint venture agreement, -- A net loss of $1.8 million, or $0.08 per share, in first quarter 2004 from the operations of the Company's former 33 West Monroe Street property, which was sold in April 2004, -- A $0.8 million, or $0.03 per share, improvement in the Company's share of the 77 West Wacker Drive joint venture results, and -- A reduction in first quarter 2005 interest expense and deferred financing fee amortization of $0.5 million, or $0.02 per share, principally related to the retirement of debt with proceeds from properties sold in 2004. These were partially offset by: -- An increase in the non-cash allocation of accounting losses of $0.4 million, or $0.02 per share, for the Company's share of the Bank One Center joint venture operations, and -- An increase in strategic alternative costs of $1.9 million, or $0.08 per share. The decrease in FFO is principally due to the reasons discussed above for the change in GAAP loss, with the exception of real estate depreciation and amortization, which is excluded from expense when computing FFO as well as the exclusion of the gain on sale of real estate. In addition, for the purposes of computing FFO available to common shareholders per share, the Company included outstanding common shares and common units in its operating partnership in arriving at weighted average shares of beneficial interest. FFO is a non-GAAP financial measure. The Company believes that net income (loss) is the most directly comparable GAAP financial measure to FFO and has included a reconciliation of this measure to GAAP net income (loss) with this press release. With respect to the Company's leasing activity, Jeffrey A. Patterson, the Company's President and CEO commented, "We are pleased with our leasing volume, particularly if you include leases signed after quarter-end, totaling 597,694 rentable square feet. This included 25,140 rentable square feet of new leases, 82,203 rentable square feet of lease expansions and 57,351 rentable square feet of lease renewals and extensions which commenced during the first quarter. During the quarter, we also executed 34,730 rentable square feet of new leases and 29,483 rentable square feet of renewals and expansions, which commence in the second quarter of 2005 or beyond. Portfolio occupancy (including joint venture properties) decreased to 83.2% as of March 31st versus 83.3% at the end of the fourth quarter of 2004. However, occupancy is up for the first three months of 2005 from the 82.0% occupancy level at the end of the first quarter of 2004. During this period, the Chicago CBD and Suburban office market overall vacancy factor (including sublease space) increased from 20.5% to 20.6% according to CB Richard Ellis. Subsequent to the end of the quarter, we entered into an additional 368,787 rentable square feet of new leases, renewals and expansions, including our recently announced 294,175 rentable square foot lease at Bank One Center with Seyfarth Shaw, LLP, a leading national law firm. This brings the leased percentage for our total portfolio, including joint ventures, from 83.2% to 87.9%". Continental Towers Refinanced On May 5, 2005, the Company refinanced its Continental Towers property with a first mortgage loan in the principal amount of $75.0 million from SunAmerica Life Insurance Company. Proceeds of the loan were utilized to repay the existing first mortgage loan encumbering the property in the amount of $65.6 million, including accrued interest, pay closing costs and expenses and for general corporate purposes. The loan matures on May 1, 2008 and bears interest at 30-day LIBOR plus 1.75%. The previous loan had a fixed interest rate of 7.22% per year. Payments of interest only are due monthly and there is no required principal amortization. The Company entered into an environmental indemnity agreement and intercreditor agreement for the benefit of the lender. Simultaneously with the closing, the Company purchased an interest rate protection agreement capping LIBOR at 6.5%, which results in a maximum interest rate of 8.25%. The loan can be repaid at any time provided there is a 1.0% prepayment fee through October 31, 2005, a 0.50% prepayment fee from November 1, 2005 through April 30, 2007 and no prepayment fee thereafter. The Company has two one-year extension options for the loan at then current market rates and upon the payment of a 0.25% extension fee, provided, among other things, the property is meeting at least a 1.35 debt service coverage ratio. The Company has the right to convert the loan to a seven-year fixed rate loan at any time during the term subject to the lender's underwriting requirements and then market loan terms. Conference Call Information Prime Group Realty Trust has scheduled an investor conference call for Tuesday, May 10, 2005 at 9:00 a.m. (CT) to discuss the Company's results for the quarter ended March 31, 2005. 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 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 May 17, 2005. To participate via teleconference, please call 877-294-9745 at least five minutes prior to the beginning of the call. If you are calling from outside North America, please call 706-679-7562. A replay of the call will be available through May 17, 2005 by calling 800-642-1687 or 706-645-9291 and entering the Conference ID #5959397 with your telephone keypad. 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 furnished 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) that owns, manages, leases, develops, and redevelops primarily office real estate, in metropolitan Chicago. The Company owns 11 office properties containing an aggregate of approximately 4.6 million net rentable square feet, one industrial property comprised of approximately 120,000 net rentable square feet, three joint venture interests in office properties totaling 2.8 million net rentable square feet, and approximately 6.3 acres of land suitable for new construction. 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 "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. -0- *T Prime Group Realty Trust Consolidated Statements of Operations (dollars in thousands, except per share data) (Unaudited) Three Months ended March 31 2005 2004 -------------------------- Revenue: Rental $ 15,991 $ 16,314 Tenant reimbursements 10,543 11,029 Other property revenues 932 891 Services Company revenue 1,022 1,270 -------------------------- Total revenue 28,488 29,504 Expenses: Property operations 7,828 7,744 Real estate taxes 6,351 6,231 Depreciation and amortization 5,574 5,440 General and administrative 2,424 2,479 Services Company expenses 775 1,266 Severance costs 176 - Strategic alternative costs 1,934 - -------------------------- Total expenses 25,062 23,160 Operating income 3,426 6,344 Loss from investments in unconsolidated joint ventures (3,057) (3,288) Other income 578 655 Interest: Expense (6,771) (7,210) Amortization of deferred financing costs (256) (363) -------------------------- Loss from continuing operations before minority interests (6,080) (3,862) Minority interests 958 644 -------------------------- Loss from continuing operations (5,122) (3,218) Discontinued operations, net of minority interests of $(123) and $233 in 2005 and 2004, respectively 947 (1,764) -------------------------- Loss before gain (loss) on sales of real estate (4,175) (4,982) Gain (loss) on sales of real estate, net of minority interests of $(1,138) and $2 in 2005 and 2004, respectively 8,758 (18) -------------------------- Net income (loss) 4,583 (5,000) Net income allocated to preferred shareholders (2,250) (2,250) -------------------------- Net income (loss) available to common shareholders $ 2,333 $ (7,250) ========================== Basic and diluted earnings available to common shares per weighted-average common share: Loss from continuing operations $ (0.31) $ (0.23) Discontinued operations, net of minority interests 0.04 (0.08) Gain (loss) on sales of real estate, net of minority interests 0.37 - -------------------------- Net income (loss) available per weighted- average common share of beneficial interest -basic and diluted $ 0.10 $ (0.31) ========================== Prime Group Realty Trust GAAP Reconciliation of Net(Loss) Income to Funds From Operations(FFO) Available to Common Share/Unit Holders (Unaudited) Three Months Ended March 31 2005 2004 -------------------------- (in thousands) Net income (loss) $ 4,583 $ (5,000) Adjustments to reconcile to Funds from Operations available to common shareholders: Real estate depreciation and amortization 5,244 5,108 Amortization of costs for leases assumed 69 72 Joint venture adjustments 4,480 4,388 (Gain) loss on sale of operating property, net of minority interests (8,758) 18 Adjustment for discontinued operations: Real estate depreciation and amortization - 2,079 Gain on sale (included in discontinued operations) (709) - Minority interests 123 (233) Minority interests (958) (644) -------------------------- Funds From Operations 4,074 5,788 Income allocated to preferred shareholders (2,250) (2,250) -------------------------- Funds from Operations available to common shareholders (1) $ 1,824 $ 3,538 ========================== FFO available to common share/unit holders per share/unit of beneficial interest: Basic and Diluted $ 0.07 $ 0.13 ========================== Weighted average shares/units of beneficial interest: Common shares 23,675 23,671 Nonvested employee stock grants 6 9 Operating Partnership units 3,076 3,076 -------------------------- Basic 26,757 26,756 ========================== Common shares 23,675 23,671 Nonvested employee stock grants 6 - Employee stock options 26 20 Operating Partnership units 3,076 3,076 -------------------------- Diluted 26,783 26,767 ========================== (1) Funds from Operations is a non-GAAP financial measure. 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, and after comparable adjustments for unconsolidated joint ventures and discontinued operations. FFO includes results from discontinued operations, including revenues, property operations expense, real estate taxes expense and interest expense. We compute 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 us. We utilize FFO as a performance measure. We believe that FFO provides useful information to investors regarding our performance as FFO provides investors with additional means of comparing our operating performance with the operating performance of our competitors. FFO is not representative of cash flow from operations, is not indicative that cash flows are adequate to fund all cash needs, and should not be considered as an alternative to cash flows as a measure of liquidity. We believe that net income (loss) is the most directly comparable GAAP financial measure to FFO. Prime Group Realty Trust Consolidated Balance Sheets (dollars in thousands, except share data) (Unaudited) Assets March 31 December 31 2005 2004 -------------------------- Real estate, at cost: Land $ 124,100 $ 124,100 Building and improvements 495,688 494,742 Tenant improvements 65,750 62,452 Furniture, fixtures and equipment 9,966 9,927 -------------------------- 695,504 691,221 Accumulated depreciation (112,493) (107,440) -------------------------- 583,011 583,781 Property held for development 1,588 1,588 -------------------------- 584,599 585,369 Properties held for sale - 591 Investments in unconsolidated joint ventures 22,607 26,088 Cash and cash equivalents 75,469 71,731 Receivables, net of allowance of $1,887 and $1,985 at March 31, 2005 and December 31, 2004, respectively: Tenant 1,966 641 Deferred rent 18,722 18,934 Other 1,419 2,190 Restricted cash escrows 36,279 42,774 Deferred costs, net 16,751 16,255 Other 1,915 2,790 -------------------------- Total assets $ 759,727 $ 767,363 ========================== Liabilities and Shareholders' Equity Mortgage notes payable $ 426,433 $ 427,445 Accrued interest payable 1,544 1,508 Accrued real estate taxes 20,744 25,861 Accrued tenant improvement allowances 6,428 4,884 Accounts payable and accrued expenses 7,767 9,184 Liabilities for leases assumed 9,301 9,957 Deficit investment in unconsolidated joint venture 3,962 4,087 Dividends payable 2,250 2,250 Other 14,052 17,609 -------------------------- Total liabilities 492,481 502,785 Minority interests: Operating Partnership 19,457 19,154 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 40 40 Common Shares, $0.01 par value; 100,000,000 shares authorized; 23,675,121 and 23,671,996 shares issued and outstanding at March 31, 2005 and December 31, 2004, respectively 236 236 Additional paid-in capital 381,293 381,293 Accumulated other comprehensive loss (436) (468) Distributions in excess of earnings (133,344) (135,677) -------------------------- Total shareholders' equity 247,789 245,424 -------------------------- Total liabilities and shareholders' equity $ 759,727 $ 767,363 ========================== *T