<PAGE>


                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                          ------------------------------

                                    FORM 10-K

                /X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

                   FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999

                                       or

              /_/ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

              FOR THE TRANSITION PERIOD FROM _________ TO _________

                         Commission File Number: 1-13589

                            PRIME GROUP REALTY TRUST
             (Exact name of Registrant as specified in its charter)

                        MARYLAND                               36-4173047
             (State or other jurisdiction of                 (I.R.S. Employer
             incorporation or organization)                Identification No.)
   77 WEST WACKER DRIVE, SUITE 3900, CHICAGO, ILLINOIS            60601
        (Address of principal executive offices)                (Zip Code)

                                 (312) 917-1300
              (Registrant's telephone number, including area code)

          Securities registered pursuant to Section 12(b) of the Act:
<TABLE>
<CAPTION>

             TITLE OF EACH CLASS                 NAME OF EACH EXCHANGE ON WHICH REGISTERED
             -------------------                 -----------------------------------------
  <S>                                                     <C>
    Common Shares of Beneficial Interest,                 New York Stock Exchange
          $0.01 par value per share
      Series B - Cumulative Redeemable                    New York Stock Exchange
  Preferred Shares of Beneficial Interest,
          $0.01 par value per share

</TABLE>

        Securities registered pursuant to Section 12(g) of the Act: None

         Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES  /X/    No ____

         Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. / /

         The aggregate market value of the Registrant's common shares held by
non-affiliates was approximately $219,530,371 based on the closing price on the
New York Stock Exchange for such shares on March 16, 2000.

         The number of the Registrant's common shares outstanding was 15,271,678
as of March 16, 2000.

                       DOCUMENTS INCORPORATED BY REFERENCE

         Part III of this report incorporates information by reference from the
definitive Proxy Statement for the Registrant's Annual Meeting of Shareholders,
to be held on May 17, 2000.


================================================================================


<PAGE>

ITEM 1.  BUSINESS

BACKGROUND AND GENERAL

         We are a fully-integrated real estate investment company organized
under Maryland law, providing property management, leasing, marketing,
acquisition, development, redevelopment, construction, finance and other related
services. We have elected to be taxed as a Real Estate Investment Trust ("REIT")
for federal income tax purposes. As of December 31, 1999, we owned 28 office
properties (including 1701 Golf Road, on which we own a second mortgage note,
but for which we have consolidated the property's operations), 40 industrial
properties, one retail center and one parking facility. Our properties are
located primarily in the Chicago metropolitan area. In addition, we own a 50%
common interest in a joint venture which owns an office property located at 77
West Wacker Drive, Chicago, Illinois, and a mortgage on an office property
located at 180 N. LaSalle Street, Chicago, Illinois.

         We also own approximately 239.4 acres of land that we may develop. This
acreage includes two development sites which contain approximately 131,000
square feet located in the Chicago central business district, one of which is
held by a joint venture with a third party. We also have rights to acquire
approximately 202.6 acres of developable land, including rights to acquire a
site located in the Chicago central business district containing approximately
58,000 square feet. We believe that this land could be developed to have
approximately 4.6 million square feet of additional office space and over 7.5
million square feet of additional industrial space.

         We were formed on July 21, 1997 as a Maryland real estate investment
trust and on November 17, 1997, we sold 12,380,000 of our common shares at a
price of $20.00 per share in an underwritten offering and became a public
company. Our executive offices are located at 77 West Wacker Drive, Suite 3900,
Chicago, Illinois 60601, and our telephone number is (312) 917-1300.

         We are the managing general partner of, and currently hold 58.4% of the
common interests in, Prime Group Realty, L.P., ("Operating Partnership"). We
conduct substantially all of our business through the Operating Partnership,
except for certain leasing, corporate advisory, construction, painting,
architectural and third party property management services, which are conducted
through Prime Group Realty Services, Inc., a Maryland corporation, and its
affiliates (collectively the "Services Company").

TAX STATUS

         We have elected to be taxed as a REIT under Sections 856 through 860 of
the Internal Revenue Code of 1986, as amended. As a REIT, we will not be subject
to federal income tax at the corporate level on income we distribute to our
shareholders as long as we distribute at least 95% of our taxable income
(excluding any net capital gain) each year. Since our inception, we believe that
we have complied with the tax regulations to maintain our REIT status. If we
fail to qualify as a REIT in any taxable year, we will be subject to federal
income tax (including any applicable alternative minimum tax) on our taxable
income at regular corporate rates. Even if we qualify as a REIT, we may be
subject to certain state and local taxes on our income and property.

BUSINESS AND GROWTH STRATEGIES

         Our primary business strategy is to achieve our investment and growth
objectives by focusing on the operation, development and selective acquisition
of office and industrial real estate located in


                                       2
<PAGE>

the Chicago metropolitan area and, to a lesser extent, other midwestern markets.
To implement this strategy, we intend to continue to:

         -    own, develop, redevelop, acquire, lease, manage and operate Class
              A office buildings that have below market rents and, therefore,
              provide the opportunity to enhance returns as leases expire or
              are renewed;

         -    develop Class A office buildings in prime locations with
              significant leasing potential;

         -    selectively acquire distressed, under-performing and
              under-managed Class B office buildings in desirable locations and
              improve the income potential of such assets by raising them to a
              higher operating standard through value-added renovation
              programs, professional property management and aggressive
              leasing, retenanting and marketing efforts;

         -    selectively acquire and develop properties that underutilize
              their sites or that have excess land for future development;

         -    selectively acquire properties or portfolios of properties from
              tax-sensitive owners where the properties can be acquired on a
              tax-deferred basis using common units of limited partner
              interests in the Operating Partnership, as purchase
              consideration; and

         -    own, develop, redevelop, acquire, lease, manage and operate bulk
              warehouse/ distribution facilities and overhead
              crane/manufacturing facilities.

         Class A office buildings are centrally located, professionally managed
and maintained, attract high-quality tenants and command upper-tier rental rates
and are modern structures or have been modernized to compete with newer
buildings. Class B office buildings have good location, construction and tenancy
and are sometimes considered to be competitive with the lower spectrum of Class
A buildings.

         We believe that we can draw upon our extensive experience and long-term
presence in the Chicago metropolitan area to create a strategic advantage in
competing for future development and acquisition opportunities.

         As evidence of this, we recently signed a 618,000 square foot lease
with a major financial institution to serve as the anchor tenant to our Dearborn
Center development. This state of the art office building will be located in
downtown Chicago and will contain approximately 1.5 million square feet of
rentable square feet. Construction will commence upon obtaining financing, which
is anticipated in the second quarter of 2000.

         OPERATING STRATEGY. We will focus on enhancing our cash flow per share
         by:

         -    engaging in pro-active leasing programs and effective property
              management;

         -    managing operating expenses through the use of in-house
              management expertise;

         -    maintaining and developing long-term relationships with a diverse
              tenant group;

         -    attracting and retaining motivated employees by providing
              financial and other incentives;

         -    continuing to emphasize value-added capital improvements to
              enhance our properties' competitive advantages in their
              submarkets; and

         -    maximizing the cash flow of our properties.


                                       3
<PAGE>


         DEVELOPMENT STRATEGY. As opportunities arise and where market
conditions support a favorable risk-adjusted return on investment, we intend to
pursue opportunities for growth through the development of new office and
industrial properties and the renovation of distressed Class B buildings. We
believe that the strength and experience of our management in the development of
office and industrial properties will provide us with a competitive advantage in
evaluating and pursuing opportunities to develop additional properties. During
the next few years, we expect that most of our development activities will be
focused on Chicago central business district office and suburban office and
industrial properties in the Chicago metropolitan area.

         Based on ongoing marketing activities and discussions with prospective
tenants, we expect that over the next several years there will be significant
demand from several large tenants that are unable to find large blocks of
contiguous Class A office space in downtown Chicago which may lead to office
development opportunities. We believe that our significant land holdings and
land option rights will provide us with a distinct advantage in competing for
future development opportunities.

         The Services Company's corporate advisory activities with third parties
are expected to give us further access to future development opportunities for
properties we will build and lease.

         ACQUISITION STRATEGY. We plan to increase our cash flow per share by
acquiring selected additional office and industrial properties, including
properties that:

provide attractive initial yields and significant potential for growth in cash
flow from property operations;

are well-located, of high quality and competitive in their respective
submarkets;

are located in our existing submarkets and/or in other strategic submarkets
where the demand for office and industrial space exceeds available supply; and

have been under-managed or are otherwise capable of improved performance through
intensive management, marketing and leasing.

         We plan to concentrate our acquisition activities in the Chicago
metropolitan area and, to a lesser extent, in other midwestern markets. We
believe that attractive opportunities exist to acquire office and industrial
properties in these markets at prices below replacement cost. Each acquisition
opportunity will be reviewed to evaluate whether it meets one or more of the
following criteria:

potential for higher occupancy levels and/or rents as well as for lower tenant
turnover and/or operating expenses;

ability to generate returns in excess of our weighted average cost of capital,
taking into account the estimated costs associated with renovation and tenant
turnover (I.E., tenant improvements and leasing commissions); and

purchase prices at or below estimated replacement cost.

         We believe we have certain competitive advantages that enhance our
ability to identify and complete acquisitions on a timely and efficient basis,
including:

         -    our management's significant local market experience with, and
              knowledge of, properties, submarkets and potential tenants;

         -    our management's long-standing relationships with commercial real
              estate brokers and institutional and other owners of commercial
              real estate in the Chicago metropolitan area;


                                       4
<PAGE>

         -    our fully-integrated real estate operations, which allow us to
              quickly evaluate and respond to acquisition opportunities;

         -    our ability to access relatively low-cost financing through the
              capital markets; o our management's reputation as an experienced
              purchaser of office and industrial properties with the ability to
              execute transactions in an efficient and timely manner; and

         -    our ability to add a number of office and industrial properties
              to our portfolio without the need for a significant increase in
              general and administrative expenses, due to our expertise and
              depth of management.

         We also plan to make strategic purchases of land where opportunities
exist for current -or future development.

         FINANCING STRATEGY. Our financing policy has the following targets in
place as of December 31, 1999: (i) a minimum interest coverage ratio of at least
2.0, (ii) a minimum fixed coverage charge ratio of at least 1.60, (iii) a ratio
of debt-to-net asset value of no more than 50%, and (iv) unencumbered cash and
credit availability of at least $40.0 million, of which $10.0 million should be
cash on hand. The foregoing ratios and measures are calculated pursuant to
detailed definitions set by our Board of Trustees (our "Board") and, in some
instances, are adjusted over time pursuant to a schedule set by our Board.

         The above targets do not mean that we will operate within each of the
ratios at all times or that our Board will not approve actions which will cause
us to not be in compliance with this policy. Our financing policy may be altered
without the consent of our shareholders, and our organizational documents do not
limit the amount or type of indebtedness that we may incur.

         We intend to use one or more sources of capital for future acquisitions
and development activities. These capital sources may include undistributed cash
flow, borrowings under certain credit facilities, property specific non-recourse
debt, proceeds from the issuance of long-term, tax-exempt bonds and other debt
or equity securities, other bank and/or institutional borrowings or proceeds
from the sale or joint venture of mature assets.

         Given the current trading prices of our shares, we intend to sell
and/or joint venture mature assets and use the proceeds from these sales and/or
joint ventures to repay debt and repurchase our shares. Our Board of Trustees
has approved the repurchase of up to $250.0 million of our outstanding shares.
The shares will be repurchased from time to time in open market and
privately-negotiated purchases, subject to applicable securities laws. Share
repurchase decisions will be made by management based on market conditions and
other factors. We plan to raise up to $500.0 million from the sale of stabilized
and mature properties, and/or the sale of joint venture interests in these
properties. We intend to use approximately 50% of these proceeds to retire debt
and the remainder to repurchase our shares. The properties or interests we
currently intend to sell and or joint venture will represent approximately 30%
of the net asset value of our current office and industrial portfolio.


                                       5
<PAGE>



RECENT DEVELOPMENTS

During 1999, we acquired, placed in service or sold the following office and
industrial properties and parcels of land:

<TABLE>
<CAPTION>

                                                                                ACQUISITION
                                                                  NET        COST/DEVELOP-MENT    MONTH ACQUIRED/
                                                                RENTABLE           COST/             PLACED IN
                                                                SQ. FT./      SALES PRICE (IN       SERVICE/SOLD
                 PROPERTY                      LOCATION          ACRES         MILLIONS) (1)
 -------------------------------------------------------------------------------------------------------------------
<S>                                        <C>                  <C>                  <C>            <C>
 ACQUIRED:
 Office:
    33 West Monroe Street (2)              Chicago, IL            846,759            $101.3             January
    National City Center (3), (4)          Cleveland, OH          766,965             105.0             February
    800-810 Jorie Blvd (5)                 Oak Brook, IL          190,829              30.0              August
    IBM Plaza (4), (6)                     Chicago, IL          1,350,660             248.5             December
    Brush Hill Office Center (7)           Westmont, IL           109,865              12.9             December
 Industrial:
    901 Technology Way (4), (8)            Libertyville, IL        68,824               4.1             January
    300 Craig Place (9)                    Hillside, IL           163,070               8.6              July
    43-47 Hintz Road (10)                  Wheeling, IL           310,156               9.7            September
                                                            -----------------------------------
 Total Office and Industrial
    Properties Acquired                                         3,807,128            $520.1
                                                            ===================================
 Land:
    Carol Stream Land (8), (11)            Carol Stream, IL    40.5 Acres            $  5.4         April, December
    Aurora Land (12)                       Aurora, IL          21.0 Acres               0.9          July, November
    300 West Monroe Street and 25
     & 77 South Wacker Drive (13)          Chicago, IL          1.4 Acres              55.9              July
                                                            -----------------------------------
 Total Land Acquired                                           62.9 Acres            $ 62.2
                                                            ===================================
 DEVELOPMENTS PLACED IN SERVICE:
 Office:
   Pine Meadows Center (14)                Libertyville, IL       180,926            $ 23.6              October,
                                                                                                         December
 Industrial:
   320 Fullerton Avenue (15)               Carol Stream, IL       263,208              10.1              December
                                                            -----------------------------------
 Total developments placed in service                             444,134            $ 33.7
                                                            ===================================
 SOLD:
 Office:
   941-961 Weigel Drive (16)               Elmhurst, IL           123,077                                July
 Industrial:
   300 Craig Place (16)                    Hillside, IL           163,070                                July
   306-310 Era Drive (16)                  Northbrook, IL          36,495                                July
   515 Huehl Road/
     500 Lindberg Road (16)                Northbrook, IL         201,244                                July
   555 Huehl Road (16)                     Northbrook, IL          74,000                                July
   1301 Ridgeview Drive (16)               McHenry, IL            217,600                                July
   3818 Grandville/
     1200 Northwestern (16)                Gurnee, IL             345,232                                July
   801 Technology Way (16)                 Libertyville, IL        68,824                                July
   901 Technology Way (16)                 Libertyville, IL        68,824                                July
   1001 Technology Way (16)                Libertyville, IL       212,831                                July
                                                            -----------------------------------
                                                                1,511,197            $ 89.5
   455 Academy Drive (17)                  Northbrook, IL         105,444               4.5            December
                                                            -----------------------------------
 Total Office and Industrial
   Properties Sold                                              1,616,641            $ 94.0
                                                            ===================================

</TABLE>


                                       6
<PAGE>


<TABLE>
<CAPTION>

                                                                NET
                                                             RENTABLE
                                                             SQ. FT./         SALES PRICE
               PROPERTY                    LOCATION            ACRES          (IN MILLIONS)         MONTH SOLD
 -------------------------------------------------------------------------------------------------------------------
 <S>                                   <C>                      <C>             <C>                    <C>
 Land:
   180 Kehoe Blvd. (18)                Carol Stream, IL         7.5 Acres       $    1.0               July
                                                         =======================================
 Portion of an Office Property:
   122 S. Michigan (19)                Chicago, IL                161,710       $   15.0                April
                                                         =======================================
 50% of Common Interest:
   77 W. Wacker Drive(20)              Chicago, IL                944,556       $   88.0               September
                                                         =======================================

</TABLE>


(1)  Acquisition cost includes cash paid at closing plus prorations and accrued
     real estate taxes.

(2)  This acquisition was partially funded by the proceeds of a $65.0 million
     mortgage loan initially bearing interest at LIBOR plus 2.0% increasing to
     LIBOR plus 2.15% in February 2000, requiring monthly interest only
     payments, and maturing January 2002. On January 31, 1999 we entered into a
     three year interest rate collar agreement with a financial institution for
     an original notional amount of $65.0 million. The interest rate ceiling is
     based on a LIBOR index rate of 7.50% and the interest rate floor is based
     on a LIBOR index rate of 3.73%.

(3)  We partially funded the acquisition costs with $30.0 million in advances
     from our credit facilities and the assumption of two notes with principal
     amounts of $52.9 million and $8.7 million, with actual interest rates of
     8.50% and 7.55%, respectively. These interest rates were in excess of the
     market rate at the acquisition date, which we estimated to be 6.75%. As a
     result, we have recorded an additional $2.0 million of principal to reflect
     an imputed interest rate of 6.75% over the term of the notes.

(4)  These properties were acquired from minority interest unit holders of the
     Operating Partnership or their affiliates, and, in the case of National
     City Center and IBM Plaza, an affiliate of the employer of a Board of
     Trustees member and, in the case of 901 Technology Way, an affiliate of one
     of our officers.

(5)  This acquisition was funded by the proceeds of a $21.0 million mortgage
     loan bearing interest at LIBOR plus 2.0%, requiring monthly principal and
     interest payments, maturing August 2002 and a portion of the proceeds from
     the sale of the properties referred to in note 16 below, as this property
     was identified as a replacement property under the tax-deferred exchange
     trust.

(6)  This acquisition was funded by the proceeds of a $160.0 million mortgage
     loan bearing interest at LIBOR plus 1.7%, requiring monthly interest
     payments and annual scheduled principal payments, maturing December 2002
     and a portion of the proceeds from the sale of the properties referred to
     in note 20 below, as this property was identified as a replacement property
     under the tax-deferred exchange trust.

(7)  This acquisition was funded by the proceeds of an $8.2 million mortgage
     loan bearing interest at 8.76%, requiring monthly principal and interest
     payments, maturing January 2010 and a portion of the proceeds from the sale
     of the properties referred to in notes 17 and 20 below, as this property
     was identified as a replacement property under the tax-deferred exchange
     trust.

(8)  Approximately 7.5 acres of the Carol Stream Land (180 Kehoe Blvd.) was sold
     on July 8, 1999 and 901 Technology Way was sold on July 14, 1999. See
     descriptions of sold properties for information regarding disposition of
     these parcels.

(9)  This property was purchased from an affiliate of a member of our Board of
     Trustees who is also a minority interest unit holder of the Operating
     Partnership. We assumed $6.5 million of debt upon


                                       7
<PAGE>

     acquisition of the property and repaid the balance in full upon sale of the
     property (see note 16 below).

(10) This acquisition was funded by the proceeds of a $6.0 million mortgage loan
     bearing interest at LIBOR plus 2.25%, requiring monthly principal and
     interest payments, maturing September 2002 and a portion of the proceeds
     from the sale of the properties referred to in note 16 below, as this
     property was identified as a replacement property under the tax-deferred
     exchange trust.

(11) This property was acquired from an affiliate of a member of our Board of
     Trustees who is also a minority interest unit holder in the Operating
     Partnership, for a total of $5.3 million in common units and $0.1 million
     in cash. These acquisitions were consummated pursuant to the Operating
     Partnership's 1998 commitment (subsequently extended to 1999) and 1999
     commitment under land purchase obligations established our initial public
     offering.

(12) We have contracts that require us to purchase an additional 107.9 acres
     over a remaining two to four year period. Certain minimum installment
     payments are required; however, the timing of purchases is at our
     discretion. These purchases are a part of these contracts. The acquisition
     of 7.5 acres in November 1999 was funded by a $0.6 million mortgage loan.

(13) This property was acquired with two acquisition mortgage loans in the
     amounts of $4.0 million and $24.0 million and a portion of the proceeds
     from the sale of the properties referred to note 16 below. The $4.0 million
     loan is collateralized by the parcel located at 25 and 77 South Wacker
     Drive, matures on November 1, 2001, bears interest at (a) until the funding
     of a construction loan for the 300 West Monroe Street parcel, the Prime
     Rate plus 0.5%, and (b) thereafter at LIBOR plus 2.75% and has been
     guaranteed by the Operating Partnership. The $24.0 million loan is
     collateralized by the adjacent parcel located at 300 West Monroe Street,
     matures on May 1, 2000, bears interest at the Prime Rate plus 0.5% and has
     been guaranteed by the Operating Partnership. The 25 and 77 South Wacker
     Drive property also has been pledged as collateral for the $24.0 million
     loan. The 25 and 77 South Wacker Drive property had been identified as a
     replacement property under the tax-deferred exchange trust discussed in
     note 16 below.

(14) These properties, consisting of two one-story buildings and one three-story
     building, were placed in service during 1999. The developments were funded
     through construction loans totaling $10.1 million at December 31, 1999.

(15) This property was acquired from a Board member, who is also a minority
     interest unit holder in the Operating Partnership, for a total of $2.2
     million in common units and $0.1 million in cash. These acquisitions were
     consummated pursuant to the Operating Partnership's 1998 commitment
     (subsequently extended to 1999) and 1999 commitment under land purchase
     obligations in the Operating Partnership established at the Company's
     initial public offering.

(16) These properties were sold in a single transaction with a total sales price
     of $89.5 million, resulting in a gain of approximately $3.6 million. As
     part of the sale, we agreed to assume responsibility for leasing two of the
     properties for five years, once the existing tenants' leases expire in 2000
     and 2001. Our total lease obligation is reduced as existing tenants renew
     their leases or as new leases from third parties are executed for space in
     the properties. As a result of these commitments, the gain has been
     deferred and is included in other liabilities until the tenants either
     renew their leases or are replaced. The gain may be reduced by any
     obligations we may incur as a result of these commitments. In order to
     defer the taxable gain on this transaction, net sales proceeds of $26.7
     million were deposited at closing into a tax-deferred exchange trust for
     reinvestment in future property purchases. The tax-deferred exchange was
     completed with the acquisition of four replacement properties: 300 West
     Monroe and 35 and 77 South Wacker Drive on July 15, 1999, 800-810 Jorie
     Boulevard on August 12, 1999, 43-47 Hintz Road on September 30, 1999 and
     Enterprise Center II on January 10, 2000.



                                       8
<PAGE>


(17) In order to defer the taxable gain of $0.9 million on this transaction, net
     sales proceeds of $4.2 million were deposited at closing into a
     tax-deferred exchange trust for reinvestment in future property purchases.

(18) The Services Company, an unconsolidated affiliate, constructed an
     office/warehouse facility on this parcel and sold it to the purchaser
     concurrently with our sale of the land. This affiliate leased the land from
     us during the portion of the construction period in which we owned the
     land.

(19) On April 19, 1999, we sold approximately 161,710 net rentable square feet
     of our 122 South Michigan Avenue office building to National-Louis
     University (NLU) for a gross sales price of $14.95 million and net
     consideration, net of commission, closing costs and a $1.1 million capital
     improvement allowance of $12.1 million. As part of this sale, NLU has also
     acquired an undivided 31.56% interest in certain common areas of the
     property. We continue to own the remaining 350,659 net rentable square feet
     of the building and are responsible for the management of the entire
     property. The sale resulted in a gain of $3.8 million for the year ended
     December 31, 1999.

(20) On September 30, 1999, we transferred this property into a new joint
     venture and concurrently sold 50% of our common interest for $22.0 million
     and a $66.0 million preferred interest (providing a cumulative preferred
     return of 9.5% per annum) in this property. The remaining 50% common
     interest is being accounted for using the equity method of accounting.
     Prior to the closing of the transaction, the existing $170.0 million
     non-recourse first mortgage was refinanced with a new $170.0 million
     non-recourse first mortgage. The extraordinary loss on extinguishment of
     debt for the year ended December 31, 1999 includes the write-off of
     unamortized deferred financing fees of $0.8 million. The new mortgage loan
     bears interest at LIBOR plus 1.25%, requiring interest only payments from
     time to time and annual principal payments, maturing September 2004. The
     sale resulted in a gain of $48.3 million for the year ended December 31,
     1999 representing the net proceeds in excess of net book value at the date
     of the sale. As a result, the book basis of the remaining 50% common
     interest is $0 for financial reporting purposes at the date of the sale. In
     order to defer the taxable gain on this transaction, net proceeds of $84.9
     million were deposited into a tax-deferred exchange trust for reinvestment
     in future property purchases. On December 10, 1999 and December 13, 1999,
     respectively, we purchased Brush Hill Office Court located in Westmont,
     Illinois and IBM Plaza, an office building located in Chicago, Illinois as
     replacement properties. The Aurora land contracts require us to purchase an
     additional 107.9 acres over a two to four year period for additional
     consideration of $8.9 million. Certain minimum installment payments are
     required; however, the timing of purchases is at our discretion. During
     1999, we made five installment payments totaling $0.8 million.

     Concurrently with the closing of our initial public offering, we obtained a
secured revolving credit facility from a group of financial institutions. We
used the credit facility to fund property acquisitions and letters-of-credit
that provide credit enhancements on certain of our bonds payable. The credit
facility is also subject to various financial and other operating covenants. The
credit facility had a maximum commitment of $80.0 million and the interest rate
was LIBOR plus 150 basis points which was amended to LIBOR plus 225 basis points
as of January 1, 1999. On February 4, 1999, the credit facility was amended and
the commitment was reduced to $75.0 million with the interest rate remaining the
same. On October 22, 1999, the credit facility was further amended and the
commitment was reduced to $35.0 million with the interest rate remaining the
same.

     On January 1, 1998, we provided the Services Company a $5.0 million
line-of-credit, which accrues interest at LIBOR plus 3%, requires monthly
principal and interest payments from available cash flow, as defined, and
matures on December 31, 2000. The line is collateralized by the Services
Company's third party receivables and is subject to various covenants. As of
December 31, 1999, the


                                       9
<PAGE>

line-of-credit had $1.8 million outstanding.

     In January 1998, we obtained a $15.0 million revolving line-of-credit with
a financial institution. The line-of-credit is collateralized by an industrial
property located at 475 Superior Avenue in Munster, Indiana. Outstanding
balances under the line-of-credit bear interest at a rate equal to LIBOR plus
195 basis points. In January 1999, we exercised an option to extend the
line-of-credit for one year to January 2000. In February 2000, the
line-of-credit was subsequently reduced to $11.5 million through March 14, 2000,
reducing to $10 million thereafter. Generally, the covenants contained in the
line-of-credit are identical to the covenants contained in the above mentioned
line-of-credit. The line-of-credit and the previously mentioned $35.0 million
credit facility are collectively referred to as the "Credit Facilities."

     During 1999, we incurred the following new indebtedness:

<TABLE>
<CAPTION>

                                            Original Principal                                        Maturity
 Collateral (1),(2)                        Balance (In Millions)           Interest Rate                Date
 -------------------------------------------------------------------------------------------------------------------
 <S>                                            <C>                 <C>                               <C>
 33 West Monroe (3)                             $ 65.0              LIBOR + 2.0% increasing to         1/02
                                                                         2.15% in 2/00
 National City Center (4),(5)                     63.6                       6.75%                     4/01
 122 S. Michigan                                  14.0                    LIBOR + 3.0%                 5/04
 National City Center (6)                         10.0                    LIBOR + 4.5%                 1/00
 25 and 77 South Wacker (7)                        4.0                        (8)                     11/01
 300 West Monroe (7)                              24.0                 Prime Rate + 0.5%               5/00
 Pine Meadows Center (two one-story
    buildings) (7)                                (9)                   LIBOR + 2.25%                  2/01
 Pine Meadows Center (one three-story
    building) (7)                                (10)                   LIBOR + 2.50%                  2/01
 2000 USG Drive (7)                              (11)                   LIBOR + 2.25%                  2/01
 800-810 Jorie Blvd. (4)                          21.0              LIBOR + 2.0% but not less          8/02
                                                                          than 6.50%
 43-47 Hintz Rd. (4),(7)                           6.0                  LIBOR + 2.25%                  9/02
 77 W. Wacker Drive (12)                         170.0                  LIBOR + 1.25%                  9/04
 IBM Plaza                                       160.0                      (13)                      12/02
 Brush Hill Office Court (4)                       8.2                     8.76%                       1/10
 33 West Monroe                                   12.5                    11.0%                        6/00
 1600-1700 167th Street (4)                        2.8                     8.68%                      12/09
 320 Fullerton Avenue (7)                        (14)                   LIBOR + 2.25%                  5/01
 Line of Credit                                  (15)                   LIBOR + 1.95%                  2/00
 Aurora Land (16)                                  0.6                     8.0%                        6/00

</TABLE>

(1)  All of the loans are subject to various financial and other operating
     covenants and are collateralized by mortgages on the properties, unless
     otherwise indicated.

(2)  Interest is payable monthly, with principal due at maturity, unless
     otherwise indicated.

(3)  On January 31, 1999, we entered into an interest rate collar agreement for
     the period from January 31, 1999 through January 31, 2002 with a financial
     institution for an original notional amount of $65.0 million. Pursuant to
     the agreement, the interest rate ceiling under the agreement is based on a
     LIBOR index rate of 7.50% and the interest rate floor is based on a LIBOR
     index rate of 3.73%.

(4)  Principal and interest payable monthly through maturity.

(5)  Consists of two assumed notes with principal amounts of $52.9 million and
     $8.7 million, with actual interest rates of 8.50% and 7.55%, respectively.
     These interest rates were in excess of the market rate at the acquisition
     date, which we estimated to be 6.75%. As a result, we have recorded an
     additional $2.0 million of principal to reflect an imputed interest rate of
     6.75% over the term of the notes.

(6)  This loan is collateralized by a pledge of a portion of the ownership
     interests in the entity that owns the property. At our election, the
     interest rate is either (a) the Prime Rate plus 3.25% or (b) LIBOR


                                       10
<PAGE>

     plus 4.5%. A loan modification agreement extended the maturity date and the
     loan was repaid in February 2000. Other loan terms remained substantially
     unchanged.

(7)  The Operating Partnership has guaranteed these loans. The $24.0 million 300
     West Monroe loan has also been guaranteed by our entity which owns the the
     25 and 77 South Wacker Drive property. The loan is secured by a second
     mortgage on the 25 and 77 South Wacker Drive property. The Pine Meadows
     Center and 2000 USG Drive loans document contain cross-collateralization
     and cross-default clauses. The 43-47 Hintz Rd. loan guaranty is limited to
     $1.5 million.

(8)  After the funding of a construction loan related to the 300 West Monroe
     parcel, the interest rate will be based on an index rate of LIBOR plus
     2.75%.

(9)  A $8.7 million construction loan, of which $6.1 million has been disbursed
     as of December 31, 1999.

(10) A $9.4 million construction loan, of which $4.9 million has been disbursed
     as of December 31, 1999.

(11) A $6.3 million construction loan, of which $4.4 million has been disbursed
     as of December 31, 1999.

(12) Refinancing of a mortgage loan of equal amount which provides for annual
     amortization during the term. The loan has been transferred into an
     unconsolidated joint venture in which we have a 50% common ownership
     interest.

(13) On December 10, 1999, we entered into an interest rate swap agreement based
     on a LIBOR index rate of 6.3% which effectively fixed our interest rate
     with respect to the variable rate mortgage note payable secured by the IBM
     Plaza property at a rate of 8.00%. This agreement has an original notional
     amount of $160.0 million that decreases to $158.4 million on December 10,
     2000 and to $155.2 million on December 10, 2001 coincident with principal
     payments on the mortgage note payable secured by IBM Plaza property. The
     swap agreement had a purchase price of $0.6 million and terminates on
     December 10, 2002. No amounts were paid or received under the terms of the
     swap agreement during 1999.

(14) A $8.1 million construction loan of which $5.1 million has been disbursed
     as of December 31, 1999.

(15) A $12.0 million revolving line of credit, all of which was outstanding as
     of December 31, 1999.

(16) Interest and principal are due at maturity.


                                       11
<PAGE>


         In January 2000, the Company acquired the following 62,559 square foot
office property and 7.5 acres of vacant land:

<TABLE>
<CAPTION>

                                                      ACQUISITION      MORTGAGE
                                                         COSTS           DEBT
            PROPERTY                   LOCATION      (IN MILLIONS)   (IN MILLIONS)
-------------------------------------------------------------------------------------
<S>                               <C>                     <C>              <C>
Office:
   Enterprise Center II           Westchester, IL         $8.8             $5.45
                                                     ================================
Land:
    Libertyville Office II        Libertyville, IL        $1.2              -
                                                     ================================

</TABLE>

         On January 8, 1999, the Company filed our initial shelf registration
statement on Form S-3 with the Securities and Exchange Commission (which was
declared effective on June 8, 1999) to register up to $500.0 million of our
equity and debt securities for future sale.

         On February 8, 1999, the Company signed a contract with a buyer
pursuant to which it will construct and sell to the buyer an approximately
1,018-space parking garage, including approximately 4,000 square feet of retail
space, on approximately 22,000 square feet of a 61,302 square foot parcel of
land that the Company owns in the Chicago central business district (see Note 13
to the table of properties acquired, placed in service and sold in 1999
regarding acquisition of this parcel). The contract provides for a sales price
of the completed garage of approximately $36.0 million, plus the value of any of
the retail space leased by the Company at the time of sale up to a maximum of
$1.75 million. In addition, the Company is entitled to receive an additional
$1.0 million from the buyer if, within 15 years after the sale of the parking
garage to the buyer, it substantially completes construction of an office
building on the land containing at least 800,000 square feet of office space,
which is occupied by at least one tenant who is not affiliated with us. Pursuant
to a letter agreement dated December 3, 1999, the contingency period for
obtaining the required city approvals for the construction of the parking garage
was extended from December 31, 1999 until April 30, 2000. The parties are
currently discussing the possibility of further extending such contingency if
necessary, as well as certain other potential modifications to the terms of the
transaction.

         In March 1999, the option period for a parcel adjacent to one of our
development property sites lapsed. We recorded the related non-refundable option
price of $0.6 million as a loss on land development option in our consolidated
statement of operations for the year ended December 31, 1999.

         On March 1, 1999, we terminated a $160.0 million treasury lock
agreement due to changes in terms and timing of the purchase of an office
building as a result of an amended purchase agreement. This resulted in
approximately $0.6 million on deposit related to the treasury lock agreement
being forfeited at the time of termination. On May 11, 1999, we terminated a
$170.0 million treasury lock agreement due to changes in timing of a planned
future securitization of a currently outstanding $170.0 million loan related to
the 77 West Wacker Drive building. The termination resulted in a net settlement
and gain upon termination of $1.2 million. The net gain of $0.6 million from the
two terminations has been included as a net gain in other income in the
statement of operations for the year ended December 31, 1999. During the year
ended December 31, 1999, we received net cash settlements of approximately $15.2
million related to both treasury lock agreements.


                                       12
<PAGE>

         On April 13, 1999, we modified the terms of our Series A preferred
shares. Under the original terms, the holders of the Series A preferred shares
had certain conversion rights if for two consecutive quarters (1) the ratio of
our debt plus nonconvertible preferred shares divided by our total market
capitalization exceeded 65% or (2) our fixed charges coverage ratio fell below
1.4. The new agreement eliminates the debt-to-market capitalization covenant. In
exchange, the holders of the Series A preferred shares were granted the future
right to cause the redemption of their shares at a price of $20.00 per share
upon 120 days' prior written notice, which redemption may occur during the
period beginning January 15, 2002 and ending January 15, 2004. The Series A
preferred shares will continue to pay an annual dividend of $1.50 per share and
will continue to be convertible into common shares on a one for one basis. We
made a $0.4 million one-time payment as part of this transaction, which will be
amortized, using the straight-line method, through January 15, 2002 as a
preferred dividend. All 2,000,000 outstanding shares of our Series A preferred
shares have been reclassified to redeemable equity at their aggregate redemption
price of $40.0 million, net of the unamortized transaction fee, in the
consolidated balance sheet.

         Under the provisions of one of the credit facilities, we are obligated
to maintain interest rate contracts on a portion of our variable rate
indebtedness. On January 31, 1999, we entered into an interest rate collar
agreement for the period from January 31, 1999 through January 31, 2002 with a
financial institution for an original notional amount of $65.0 million. The
interest rate ceiling under the agreement is based on a LIBOR index rate of
7.50% and the interest rate floor is based on a LIBOR index rate of 3.73%. We
entered into an interest rate cap agreement in July, 1999 with a financial
institution for an original notional amount of $150.0 million at 7.0% during the
period from July 1 through October 1, 1999. On November 1, 1999, we entered into
an interest rate collar agreement for the period from November 1, 1999 through
September 30, 2002 with a financial institution for an original notional amount
of $170.0 million. The interest rate ceiling under the agreement is based on a
LIBOR index rate of 7.75% and the interest rate floor is based on a LIBOR index
rate of 5.62%. On November 22, 1999, we transferred the $170.0 million interest
rate collar agreement to an unconsolidated investment partnership. However, we
have provided a guaranty to the counterparty related to this agreement. On
December 10, 1999, we entered into an interest rate swap agreement for a
purchase price of $591 for the period from December 10, 1999 through December
10, 2002 for an original notional amount of $160 million that decreases to
$158.4 million on December 10, 2000 and to $155.2 million on December 10, 2001.
The interest rate swap under the agreement is based on a LIBOR index rate of
6.3% and effectively fixed the interest rate on $160.0 million of variable rate
mortgage indebtedness at a rate of 8.0%. On March 20, 2000, we entered into an
interest rate cap agreement for the period from March 20, 2000 through November
17, 2000 for a notional amount of $70.0 million. The interest rate under the
agreement is dapped at a LIBOR index rate of 8.0%. These agreements satisfy our
obligation to maintain interest rate contracts under the provisions of one of
the credit facilities.

         In December 1999, we granted a permanent easement to space within the
IBM Plaza property to a utility company for a fee of $2.0 million, which has
been included in other income in 1999. We are under no obligation to perform any
services for the utility company to earn the fee, and we believe that the
easement does not decrease the value of the property.

SEGMENT REPORTING DATA

         See Note 15 to our consolidated financial statements for a discussion
on our operating segment data for the years ended December 31, 1999 and 1998 and
for the period from November 17, 1997 through December 31, 1997.



                                       13
<PAGE>


COMPETITION

         We compete with other owners and developers; some of whom may have
greater resources and more experience than we. In addition, the number of
competitive properties in any particular market or submarket in which our
properties are located could have a material adverse effect on both our ability
to lease space at our properties or any newly-acquired property and on the rents
charged at our properties. We believe that we are one of a limited number of
publicly-traded real estate companies primarily focusing on the office and
industrial market in the Chicago metropolitan area.

SERVICES COMPANY

         The Services Company was formed in March 1997 under the laws of the
state of Maryland. The Operating Partnership owns 100.0% of the nonvoting
preferred stock of the Services Company, representing 95.0% of its economic
value and also has a $4.8 million promissory note issued from Services Company
in connection with its formation. We have also provided a $5.0 million
line-of-credit to the Services Company. The ownership structure permits us to
share in the Services Company's income and also maintain our status as a REIT
for federal income tax purposes. We receive substantially all of the economic
benefit of the businesses carried on by the Services Company because we have the
right to receive dividends through the operating partnership's investment in the
preferred stock. However, we do not elect the Services Company's officers or
directors and, consequently, do not have the ability to control the operations
of the Services Company or require the declaration of dividends.

         The Services Company provides certain corporate advisory, management,
leasing, tenant improvement construction, painting and tenant representation
services to buildings owned by others. The Services Company's leasing division
provides leasing services to certain of our properties and other property owners
for fees. The Services Company's tenant improvements division provides
construction management services for tenant improvements, renovations and other
construction related services to the properties owned, acquired, developed or
managed by us.

GOVERNMENT REGULATION

         ENVIRONMENTAL MATTERS. All of our properties were subject to Phase I or
similar environmental assessments by independent environmental consultants.
Phase I assessments are intended to discover information regarding, and to
evaluate the environmental condition of, the surveyed property and surrounding
properties. Phase I assessments generally include an historical review, a public
records review, an investigation of the surveyed site and surrounding
properties, and the preparation and issuance of a written report, but do not
include soil sampling or subsurface investigations.

         We are aware of environmental contamination at certain of our older
industrial properties contributed to us as an equity contribution by The Prime
Group, Inc. ("PGI"). These properties are in remediation programs sponsored by
the appropriate state environmental agencies. PGI has contractually agreed to
retain liability, and indemnify us, for the costs of environmental remediation
with regard to these industrial properties, which environmental consultants have
estimated will cost, in the aggregate, up to $3.2 million. Based on such
estimates, certain properties PGI contributed recorded provisions for
environmental remediation costs totaling $3.2 million in 1997 prior to their
contribution. During 1997, PGI initiated lawsuits against a former owner (who is
also a former tenant) of one of the properties and an environmental consultant
to cover the cost of the remedial


                                       14
<PAGE>

GOVERNMENT REGULATION (CONTINUED)

action plans. On February 20, 1998, PGI reached an agreement with the former
owner and received a $1.8 million settlement payment, in addition to $0.5
million previously paid as a reimbursement for costs. In 1998, PGI sued a
current tenant of one of the properties to recover the cost of certain remedial
action plans. During 1999, we incurred $0.3 million of costs related to the
above remediation and for which we are due reimbursement from PGI.

         We are also aware of contamination at 455 Academy Drive in Northbrook,
Illinois. The tenant of the property during the time we owned it, NSI
Enterprises, Inc.("NSI"), provided us with an indemnity for all of the costs of
environmental remediation regarding the property they caused either knowingly or
unknowingly. On December 23, 1999, 455 Academy Drive was sold to NSI and NSI
agreed to clean up the contamination and obtain a no further action letter
pursuant to the Illinois Environmental Remediation Program. In addition, we are
aware of contamination at 1301 E. Tower Road in Schaumburg, Illinois. The
property has been submitted into a remediation program sponsored by the Illinois
Environmental Protection Agency and we are in the process of quantifying the
cost of necessary remedial actions. In connection with 1301 E. Tower Road, the
previous owner and other third parties have placed approximately $0.8 million in
escrow to fund the clean-up of the property. We currently anticipate that this
escrow will be sufficient to fund the necessary remedial action for this
property, although the previous owner and other third parties will not be
responsible for any costs in excess of the amount placed in escrow.

         We believe that our other properties are in compliance in all material
respects with all federal, state and local laws, ordinances and regulations
regarding hazardous or toxic substances. We have not been notified by any
governmental authority, and are not otherwise aware, of any material
noncompliance, liability or claim relating to hazardous or toxic substances in
connection with any of our other properties. None of our environmental
assessments of the properties have revealed any environmental liability that,
after giving effect to the contractual indemnities and escrows described above,
we believe would have a material adverse effect on our financial condition or
results of operations taken as a whole, nor are we aware of any such material
environmental liability. Nonetheless, it is possible that our assessments do not
reveal all environmental liabilities or that there are material environmental
liabilities of which we are unaware. Moreover, there can be no assurance that
(i) future laws, ordinances or regulations will not impose any material
environmental liability or (ii) the current environmental condition of our
properties will not be affected by tenants, by the condition of land or
operations in the vicinity of our properties (such as the presence of
underground storage tanks) or by third parties unrelated to us. If compliance
with the various laws and regulations, now existing or hereafter adopted,
exceeds our budgets for such items, our ability to make expected distributions
to shareholders could be adversely affected.

         COSTS OF COMPLIANCE WITH AMERICANS WITH DISABILITIES ACT. Under the
ADA, all public accommodations and commercial facilities are required to meet
certain federal requirements related to access and use by disabled persons.
These requirements became effective in 1992. Compliance with the ADA
requirements could require removal of access barriers, and noncompliance could
result in the imposition of fines by the federal government or an award of
damages to private litigants. We believe that our properties are substantially
in compliance with these requirements; however, we may incur additional costs to
comply with the ADA. Although we believe that such costs will not have a
material adverse effect on our financial position, if required changes involve a
greater amount of expenditures than we currently anticipate, our ability to make
expected distributions to shareholders could be adversely affected.


                                       15
<PAGE>



GOVERNMENT REGULATION (CONTINUED)

         OTHER REGULATIONS. Our properties are also subject to various federal,
state and local regulatory requirements, such as state and local fire and life
safety requirements. Failure to comply with these requirements could result in
the imposition of fines by governmental authorities or awards of damages to
private litigants. We believe that our properties are currently in material
compliance with all such regulatory requirements. However, there can be no
assurance that these requirements will not be changed or that new requirements
will not be imposed which would require us to make significant unanticipated
expenditures and could have an adverse effect on our Funds from Operations and
expected distributions.

INSURANCE

         We believe that our properties are covered by adequate comprehensive
liability, rental loss, and all-risk insurance, provided by reputable companies,
with commercially reasonable deductibles, limits and policy specifications
customarily carried for similar properties. There are, however, certain types of
losses which may be either uninsurable or not economically insurable, such as
losses due to floods, riots or acts of war. Should an uninsured loss occur, we
could lose both our invested capital in, and anticipated profits from, the
property.

EMPLOYEES

         As of December 31, 1999, we had approximately 216 full-time employees.
We believe that our relations with our employees are satisfactory.


                                       16
<PAGE>



ITEM 2.  PROPERTIES

GENERAL

         As of December 31, 1999, we owned 28 office properties (including 1701
Golf Road, on which we own a second mortgage note, but for which we have
consolidated the property's operations), 40 industrial properties, one retail
center and one parking facility. Our properties are located primarily in the
Chicago metropolitan area. In addition, we own a 50% common interest in a joint
venture which owns an office property located at 77 West Wacker Drive and a
mortgage on an office property located at 180 N. LaSalle Street, both in the
Chicago central business district. In terms of net rentable square feet,
approximately 83.3% of our office properties and 85.8% of our industrial
properties are located in the Chicago metropolitan area in prime business
locations within established business communities. The properties located in the
Chicago metropolitan area accounted for approximately 92.3% of our rental
revenue and 94.4% of our tenant reimbursements revenue for the year ended
December 31, 1999.

         Our management team has developed or redeveloped a significant number
of office properties, such as the 77 West Wacker Drive building in Chicago,
Illinois, and industrial properties, such as the 320 Fullerton Avenue building
in Carol Stream, Illinois. In the course of such development and redevelopment,
we have acquired experience across a broad range of development and
redevelopment projects. We believe our properties are well maintained and, based
on recent engineering reports, do not require significant capital improvements.

         We own approximately 239.4 acres of land that we may develop. This
acreage includes two development sites which contain approximately 131,000
square feet located in the Chicago central business district, one of which
comprises 67,000 square feet, and is held by a joint venture with a third party.
We also have rights to acquire approximately 202.6 acres of developable land,
including rights to acquire a site located in the Chicago central business
district containing approximately 58,000 square feet. We believe that this land
could be developed to have approximately 4.6 million square feet of additional
office space and over 7.5 million square feet of additional industrial space.
Included in the 202.6 acres are 48.9 acres to be acquired from affiliates of a
member of our Board of Trustees for a total purchase price of $6.0 million.

         Our office properties are leased to tenants either (i) on a net basis
with tenants obligated to pay their proportionate share of real estate taxes,
insurance, utility and operating expenses or (ii) on a gross basis, with the
landlord responsible for the payment of these expenses up to the amount incurred
during the tenants' first year of occupancy ("Base Year") or a negotiated amount
approximating the tenants' pro rata share of these expenses ("Expense Stop").
The tenants pay their pro rata share of increases in expenses above the Base
Year or Expense Stop. Most of the leases for our industrial properties are
written on either a (i) net basis, with tenants paying their proportionate share
of real estate taxes, insurance, utility and other operating expenses as
additional rent or (ii) triple net lease basis with the tenants paying all of
the real estate taxes, insurance, utility and other operating expenses for the
property.


                                       17
<PAGE>



PROPERTIES

         The following table sets forth certain information relating to each of
our properties as of December 31, 1999, unless indicated otherwise. Through the
Operating Partnership and other subsidiaries, we own a 100% interest in all of
the office and the industrial properties, except for 77 West Wacker Drive (we
own a 50% common ownership interest in the joint venture that owns the
property), 1701 Golf Road (we own the second mortgage note on this property) and
180 N. LaSalle Street (we own the first mortgage note on this property).


<TABLE>
<CAPTION>

                                                                                                NET         PERCENTAGE
                                                                         YEAR BUILT/         RENTABLE      LEASED AS OF
PROPERTY                                      LOCATION                   RENOVATED          SQUARE FEET    12/31/99(%)
--------                                      --------                   ---------          -----------    -----------
<S>                                           <C>                        <C>                   <C>              <C>
OFFICE PROPERTIES:
330 North Wabash Avenue (IBM Plaza)           Chicago, IL                1971                  1,350,660        91.9
1701 Golf Road (Continental Towers) (1)       Rolling Meadows, IL        1977/1979/1981          928,766        97.6
33 West Monroe Street                         Chicago, IL                1980                    846,759        99.8
208 South LaSalle Street                                                 1914/1956/
                                              Chicago, IL                1982/1991               835,229        98.5
1900 East Ninth Street (National City
      Center)                                 Cleveland, OH              1980                    766,965        98.4
122 South Michigan Avenue                     Chicago, IL                1910                    350,659        86.0
33 North Dearborn Street                      Chicago, IL                1967/1986               302,818        94.7
201 4th Avenue North (Suntrust Bldg.)         Nashville, TN              1968/1985               250,566        91.3
3800 and 3850 North Wilke Road and
  3930 Ventura Drive(Commerce Point)          Arlington Heights, IL      1987/1989               236,642        97.1
1700 East Golf Road (Two Century Centre)      Schaumburg, IL             1989                    217,960        71.2
2000 York Road (2000 York Brook)              Oak Brook, IL              1960/1986               200,045        99.9
800-810 Jorie Boulevard                       Oak Brook, IL              1961/1992               190,829        99.7
850, 860 and 1000 Technology Way (Pine
  Meadows Corporate Center) (2)               Libertyville, IL           1999                    180,926       100.0
4343 Commerce Court (The Olympian Office
  Center)                                     Lisle, IL                  1989                    167,756        93.6
6400 Shafer Court                             Rosemont, IL               1980/1990               164,958        99.4
2205-2255 Enterprise Drive (Enterprise
  Office Center)                              Westchester, IL            1987                    129,574        99.0
1990 Algonquin Road/2000-2060 Algonquin
   Road (Salt Creek Office Center)(3)         Schaumburg, IL             1979/1986               125,938        95.1
740-770 Pasquinelli Drive (Brush Hill
   Office Center)                             Westmont, IL               1986                    109,865        95.6
1699 E. Woodfield Road (Citibank Office
   Plaza)                                     Schaumburg, IL             1979                    105,602       100.0
2675 N. Mayfair (Wauwatosa Bldg.)             Wauwatosa, WI              1979                    104,031        89.6
620 Market Street (Professional Plaza)        Knoxville, TN              1988                     93,711        84.5
625 Gay Street (Centre Square II)             Knoxville, TN              1988                     91,426        85.2
1600-1700 167th Street (Narco River
   Business Center)                           Calumet City, IL           1981                     65,394        86.7
280 Shuman Blvd. (Atrium)                     Naperville, IL             1979                     65,273       100.0
2100 Swift Drive                              Oak Brook, IL              1985/1991                58,000       100.0
1301 E. Tower Road (Narco Tower)              Schaumburg, IL             1992                     50,400       100.0
4823 Old Kingston Pike (Weston Bldg.)         Knoxville, TN              1988                     34,638       100.0
4100 West Madison Street                      Hillside, IL               1978                     24,551        43.5
                                                                                          --------------------------------
OFFICE PROPERTIES SUBTOTAL                                                                     8,049,941        95.0%
                                                                                          --------------------------------

</TABLE>


                                       18
<PAGE>


<TABLE>
<CAPTION>

                                                                                            NET          PERCENTAGE
                                                                        YEAR BUILT/      RENTABLE       LEASED AS OF
 PROPERTY                                      LOCATION                 RENOVATED       SQUARE FEET     12/31/99(%)
 --------                                      --------                 ---------       -----------     -----------
<S>                                           <C>                       <C>             <C>                 <C>
INDUSTRIAL PROPERTIES:
WAREHOUSE/DISTRIBUTION FACILITIES:
   475 Superior Avenue                        Munster, IN               1989               450,000          100.0
   43-47 Hintz Road                           Wheeling, IL              1961/1990          310,156          100.0
   2160 McGaw Road                            Obetz, OH                 1974               310,100          100.0
   425 E. Algonquin Road                      Arlington Heights, IL     1978               304,506          100.0
   320 Fullerton Avenue                       Carol Stream, IL          1999               263,208           47.4
   11045 Gage Avenue                          Franklin Park, IL         1970/1992          136,600          100.0
   4849 Groveport Road                        Obetz, OH                 1968               132,100          100.0
   4248, 4250 and 4300 Madison Street         Hillside, IL              1980               127,129          100.0
   1051 N. Kirk Road                          Batavia, IL               1990               120,004          100.0
   4211 Madison Street                        Hillside, IL              1977/1992           90,344          100.0
   2400 McGaw Road                            Obetz, OH                 1972                86,400          100.0
   5160 Blazer Memorial Parkway (4)           Dublin, OH                1983                85,962           74.4
   4160-4190 W. Madison Street                Hillside, IL              1974/1992           79,532          100.0
    342-346 Carol Lane                        Elmhurst, IL              1989                67,935          100.0
    200 E. Fullerton Avenue                   Carol Stream, IL          1968/1995           66,254          100.0
    4411 Marketing Place                      Columbus, OH              1984                65,804          100.0
    370 Carol Lane                            Elmhurst, IL              1977/1994           60,290          100.0
    600 London Road                           Delaware, OH              1981                52,441          100.0
    550 Kehoe Blvd                            Carol Stream, IL          1997                44,575          100.0
    388 Carol Lane                            Elmhurst, IL              1979                40,920          100.0
    343 Carol Lane                            Elmhurst, IL              1989                30,084          100.0
    350 Randy Road                            Carol Stream, IL          1974                25,200          100.0
    11039 Gage Avenue                         Franklin Park, IL         1965/1993           21,935          100.0
    1401 S. Jefferson Street                  Chicago, IL               1965/1985           17,265          100.0
 OVERHEAD CRANE/MANUFACTURING FACILITIES:

    Chicago Enterprise Center                 Chicago, IL               1916/1991-1996

      13535-A S. Torrence Avenue                                                           384,806           37.9
      13535-B S. Torrence Avenue                                                           239,752             -
      13535-C S. Torrence Avenue                                                            99,333          100.0
      13535-D S. Torrence Avenue                                                            77,325          100.0
      13535-E S. Torrence Avenue                                                            57,453          100.0
      13535-F S. Torrence Avenue                                                            44,800          100.0
      13535-G S. Torrence Avenue                                                            54,743          100.0
      13535-H S. Torrence Avenue                                                            73,612           95.8
    East Chicago Enterprise Center            East Chicago, IN          1917/1991-1997

      Building 2 (4407 Railroad Avenue)                                                    169,435           17.1
      Building 3 (4407 Railroad Avenue)                                                    291,550          100.0
      Building 4 (4407 Railroad Avenue)                                                     87,483           98.1
      4440 Railroad Avenue (5)                                                              40,000          100.0
      4635 Railroad Avenue                                                                  14,070             -
    Hammond Enterprise Center                 Hammond, IN               1920-1952

      4507 Columbia Avenue                                                                 256,595          100.0
      4527 Columbia Avenue (6)                                                              16,701           58.1
      4531 Columbia Avenue                                                                 250,266           99.2
                                                                                      --------------------------------
    INDUSTRIAL PROPERTIES SUBTOTAL                                                       5,146,668           84.3%
                                                                                      ================================
    PORTFOLIO TOTAL                                                                     13,196,609           90.9%
                                                                                      ================================

</TABLE>

                                       19
<PAGE>


<TABLE>
<CAPTION>

                                                                                              NET           PERCENTAGE
                                                                       YEAR BUILT/          RENTABLE       LEASED AS OF
PROPERTY                                      LOCATION                 RENOVATED          SQUARE FEET      12/31/99(%)
--------                                      --------                 ---------          -----------      -----------
<S>                                           <C>                       <C>                 <C>               <C>
 MORTGAGE NOTE RECEIVABLE:
    180 N. LaSalle Street (7)                 Chicago, IL               1982/1999           769,384           57.5
 JOINT VENTURE INTEREST:
    77 West Wacker Drive (8)                  Chicago, IL               1992                944,556           99.8
 OTHER PROPERTIES:
    398 Unit Parking Facility                 Knoxville, TN             1981
    371-385 N. Gary Avenue (9)                Carol Stream, IL          1978                 11,276           78.3

</TABLE>

----------
     (1)  We hold a mortgage note receivable on the property and have
          consolidated the underlying property operations based upon receiving
          substantially all of the economic benefits of the property's
          operations.

     (2)  This property complex is comprised of two single-story buildings and a
          three-story building, but is treated as one office property.

     (3)  This property complex is comprised of 1990 Algonquin Road (a two-story
          office building) and 2000-2060 Algonquin Road (seven single-story
          office buildings), but is treated as one office property.

     (4)  This property is a mixed-use industrial/office property that has been
          classified as an industrial property.

     (5)  This property is an office building adjacent to the East Chicago
          Enterprise Center.

     (6)  This property is an office building within the Hammond Enterprise
          Center.

     (7)  We hold a mortgage note receivable on this office property. The
          operating results of this property have not been consolidated.

     (8)  On September 30, 1999, we sold 50% of our common ownership interest in
          77 West Wacker Drive to a third party for a gain of approximately
          $48.3 million. We contributed our remaining 50% common ownership
          interest to a new joint venture and are reflecting our ownership in
          the property using the equity method.

     (9)  This is a retail center.

ITEM 3. LEGAL PROCEEDINGS

     Neither we nor any of our properties are presently subject to any material
litigation nor, to our knowledge, is any material litigation threatened against
us, other than routine litigation arising in the ordinary course of business,
some of which is expected to be covered by liability insurance and all of which
collectively is not expected to have a material adverse effect on our
consolidated financial statements. Although subsequently settled in February
1999, we were subject to the litigation discussed below during early 1999.

     On July 22, 1998, we entered into a purchase agreement, with an affiliate
of an investor in the operating partnership, to acquire two office buildings,
IBM Plaza (a 1,354,354 square foot office building located in the Chicago
central business district) and National City Center (a 766,965 square foot
office building located in Cleveland, Ohio) for an aggregate purchase price of
approximately $357.0 million. On September 15, 1998, we terminated the purchase
agreement in accordance with the terms of the agreement due to the failure of a
material condition precedent to the closing of these acquisitions. On September
21, 1998, the sellers notified us in writing that they believed they were
entitled to the $20.0 million earnest money provided for by the agreement and
instructed the earnest


                                       20
<PAGE>

money escrow agent to draw the full amount under two earnest money
letters-of-credit we provided under one of the Credit Facilities. The sellers
also filed a compliant against us in with the Supreme Court of New York, New
York County alleging that we breached the contract. On October 30, 1998, we
filed our answer to the compliant and denied all material allegations of the
compliant. We also filed a counterclaim against the sellers alleging that the
sellers breached the contract and sought the return of the above mentioned
earnest money and other damages.

     On February 5, 1999, we entered into an amended option agreement with the
sellers of IBM Plaza and an amended purchase agreement with the sellers of
National City Center, which had the following terms:

     -    both the original lawsuit filed by the sellers and our counterclaim
          were dismissed;

     -    we purchased National City Center on February 5, 1999 for a contract
          price of $100.0 million; and

     -    the $20.0 million earnest money escrow described above was released
          and credited to the purchase of National City Center and an $8.0
          million nonrefundable payment for the option to purchase IBM Plaza
          which was subsequently purchased for $238.0 million (including the
          $8.0 million deposit) in December, 1999.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITYHOLDERS

     No matters were submitted to vote of security holders during the fourth
quarter of 1999.


                                       21
<PAGE>



PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

     Our common shares began trading on the New York Stock Exchange ("NYSE") on
November 12, 1997, under the symbol "PGE". On March 16, 2000, the reported
closing sale price on the NYSE was $14 3/8, and there were 15,271,678 common
shares outstanding held by approximately 3,000 holders of record. The following
table sets forth the high and low closing sales prices per common share reported
on the NYSE and the distributions we paid for the years ended December 31, 1999
and 1998


<TABLE>
<CAPTION>

                                                                                    CASH
                                                                                DISTRIBUTIONS
                                                 HIGH              LOW            PAID (1)
     <S>                                      <C>              <C>              <C>
     FISCAL YEAR 1999
     First quarter                            $   15 11/16     $   12 7/8       $   0.3375
     Second quarter                               17 3/16          13 3/16          0.3375
     Third quarter                                17 11/16         15               0.3375
     Fourth quarter                               15 7/16          13                   (2)

     FISCAL YEAR 1998
     First quarter                                20 7/8           19 5/8           0.3375
     Second quarter                               21               17 1/8           0.3375
     Third quarter                                19 15/16         13 1/16          0.3375
     Fourth quarter                               16 5/8           13 9/16              (3)

</TABLE>


(1)  All distributions are per common share and common unit.

(2)  On December 8, 1999, our Board of Trustees declared a dividend of $0.3375
     per common share and common unit for the fourth quarter of 1999 to holders
     of record on December 31, 1999. These dividends were paid January 20, 2000.

(3)  On December 9, 1998, our Board of Trustees declared a dividend of $0.3375
     per common share and common unit for the fourth quarter of 1998 to holders
     of record on December 31, 1998. These dividends were paid January 20, 1999.

     We currently make quarterly distributions to holders of our common shares
and Operating Partnership common units. Distributions on the common shares and
common units are not permitted unless all current and any accumulated
distributions on our Series A - Cumulative Convertible Preferred Shares, our
Series B - Cumulative Redeemable Preferred Shares and the related preferred
units in the operating partnership have been paid in full or set aside for
payment. Future distributions by us will be at the direction of our Board of
Trustees. These distributions will depend on the actual cash available for
distribution, our financial condition, capital requirements, the annual
distribution requirements under the REIT provisions of the Internal Revenue Code
and such other factors as our Board of Trustees deems relevant.

     Concurrently with the completion of our initial public offering, the
Operating Partnership issued 9,994,310 common units to PGI, Primestone
Investment Partners L.P. (a joint venture of PGI and a third party), other
contributors and certain members of management in exchange for property
contributions and cash. Additionally, since inception through December 31, 1999,
the Operating Partnership has issued 404,032 common units as partial
consideration for its acquisition of the first mortgage note of 180 N.


                                       22
<PAGE>

LaSalle Street and 479,803 common units as partial consideration for property
acquisitions from affiliates of a member of our Board of Trustees. Holders of
common units may redeem, after the lock-up period of one year from the date of
issuance, part or all of the common units for common shares on a one-for-one
basis, or at our option, cash equal to the fair market value of a common share
at the time of exchange. During 1999, 53,611 of these units were converted to
common shares.

     Also concurrently with the completion of our initial public offering, we
issued 2,000,000 of our Series A - Cumulative Convertible Preferred Shares of
Beneficial Interest, $0.01 par value per share, in a private placement to an
institutional investor for an aggregate purchase price of $40.0 million. Holders
of our Series A - Cumulative Convertible Preferred Shares can convert them to
our common shares.

     On March 25, 1998, we issued 2,579,994 of our common shares in a private
placement. In addition, during 1999 and 1998, we granted 55,099 and 50,694,
respectively, of our common shares to certain of our officers and Board members.
See "Business - Recent Developments."

     The issuance of 2,579,994 of our common shares, the common share grants
described above to certain of our employees and trustees, and the common units
described above and our Series A - Cumulative Convertible Preferred Shares
constituted private placements of securities which are exempt from the
registration requirements of the Securities Act of 1933, as amended, pursuant to
Section 4(2) thereof.


                                       23
<PAGE>





ITEM 6.  SELECTED FINANCIAL DATA

         The following table sets forth our ("PGRT") and our predecessor's
selected consolidated/combined financial data and should be read in conjunction
with our and our predecessor's consolidated/combined financial statements
included elsewhere in this Form 10-K.

<TABLE>
<CAPTION>

                                                                          (DOLLARS IN THOUSANDS)
                                               --------------------------------------------------
                                                      PGRT - CONSOLIDATED HISTORICAL
                                               --------------------------------------------------
                                                                                  PERIOD FROM
                                                                                  NOVEMBER 17,
                                                                                  1997 THROUGH
                                                   YEAR ENDED DECEMBER 31,        DECEMBER 31,
                                               ---------------------------------
                                                    1999              1998            1997
                                               -------------------------------------------------
<S>                                                <C>             <C>                <C>
STATEMENTS OF OPERATIONS DATA
REVENUE:
            Rental...........................      $ 126,687       $  97,212          $7,293
            Tenant reimbursements............         50,171          37,545           2,041
            Mortgage note interest...........          6,926           5,866             248
            Insurance settlement.............              -               -               -
            Other                                     12,770           6,978             248
                                               -------------------------------------------------
         Total revenue.......................        196,554         147,601           9,830
         EXPENSES:
            Property operations..............         44,446          29,598           2,213
            Real estate taxes................         34,470          25,077           1,765
            Depreciation and amortization....         33,258          25,447           2,478
            Interest.........................         42,648          30,901           1,680
            Interest-affiliates..............              -               -               -
            Loss on land development option..            600               -               -
            General and administrative.......          7,565           5,712             267
            Financing fees...................              -               -               -
            Property and asset
              management fees-affiliate......              -               -               -
            Provision for environmental
              remediation costs..............              -               -               -
            Write-off of deferred tenant
              costs..........................              -               -               -
                                               -------------------------------------------------
         Total expenses......................        162,987         116,735           8,403
                                               -------------------------------------------------
          Income (loss) before gain on
             sales of real estate, minority
             interests and extraordinary items        33,567         30,866            1,427
          Gain on sales of real estate........        53,050              -                -
                                                 -----------------------------------------------
          Income (loss) before minority
             interests and extraordinary
             items............................        86,617         30,866            1,427
          Minority interests..................       (30,687)        (9,368)            (635)
                                                 -----------------------------------------------
          Income (loss) before extraordinary
             items............................        55,930         21,498              792
          Extraordinary (loss) gain on early
             extinguishment of debt, net of
             minority interests' share in the
             amount of $754 in 1999, $878
             in 1998 and $1,127 in 1997.......        (1,082)        (1,253)               -
                                                 -----------------------------------------------
          Net income (loss)...................        54,848         20,245              792

          Net income allocated to preferred
            shareholders......................       (12,103)        (7,971)            (345)
                                                 -----------------------------------------------
          Net income available to
             common shareholders..............     $  42,745       $ 12,274           $  447
                                                 ================================================


</TABLE>


<TABLE>
<CAPTION>

                                               ---------------------------------------
                                                   PREDECESSOR - COMBINED HISTORICAL
                                               ---------------------------------------
                                               PERIOD FROM
                                               JANUARY 1,
                                               1997 THROUGH
                                               NOVEMBER 16,     YEAR ENDED DECEMBER 31,
                                               ----------------------------------------
                                                  1997          1996             1995
                                               ----------------------------------------
<S>                                               <C>         <C>              <C>
STATEMENTS OF OPERATIONS DATA
REVENUE:
            Rental...........................     $27,947     $ 30,538         $ 33,251
            Tenant reimbursements............      12,490       14,225           14,382
            Mortgage note interest...........           -            -                -
            Insurance settlement.............           -            -            7,257
            Other                                   1,229        2,551            1,944
                                               ----------------------------------------
         Total revenue.......................      41,666       47,314           56,834
         EXPENSES:
            Property operations..............       8,622        9,767            9,479
            Real estate taxes................       8,575        9,383            9,445
            Depreciation and amortization....      11,241       12,409           12,646
            Interest.........................      24,613       26,422           27,671
            Interest-affiliates..............       9,804       10,795            8,563
            Loss on land development option..           -            -                -
            General and administrative.......       2,414        4,927            4,508
            Financing fees...................       1,180        1,232                -
            Property and asset
              management fees-affiliate......       1,348        1,561            1,496
            Provision for environmental
              remediation costs..............       3,205            -                -
            Write-off of deferred tenant
              costs..........................           -        3,081            13,373
                                               ----------------------------------------
         Total expenses......................      71,002       79,577           87,181
                                               ----------------------------------------
          Income (loss) before gain on
             sales of real estate, minority
             interests and extraordinary items    (29,336)     (32,263)         (30,347)
          Gain on sales of real estate........        286          846              771
                                               -----------------------------------------
          Income (loss) before minority
             interests and extraordinary
             items............................    (29,050)     (31,417)         (29,576)
          Minority interests..................        666          894            3,281
                                               -----------------------------------------
          Income (loss) before extraordinary
             items............................    (28,384)     (30,523)         (26,295)
          Extraordinary (loss) gain on early
             extinguishment of debt, net of
             minority interests' share in the
             amount of $754 in 1999, $878
             in 1998 and $1,127 in 1997.......     65,990            -                -
                                               -----------------------------------------
          Net income (loss)...................    $37,606     $(30,523)        $(26,295)
                                               =========================================
          Net income allocated to preferred
            shareholders......................

          Net income available to
             common shareholders..............



</TABLE>



                                       24
<PAGE>


<TABLE>
<CAPTION>

                                                          PGRT - CONSOLIDATED HISTORICAL
                                                          ------------------------------
                                                                                      PERIOD FROM
                                                                                      NOVEMBER 17,
                                                                                      1997 THROUGH
                                                        YEAR ENDED DECEMBER 31,       DECEMBER 31,
                                                     --------------------------------------------------
                                                          1999             1998            1997
                                                     --------------------------------------------------
<S>                                                    <C>           <C>                    <C>
BASIC EARNINGS AVAILABLE TO COMMON SHARES
  PER WEIGHTED-AVERAGE COMMON SHARE (1):
  Income before gain on sales of real estate and
    extraordinary items.........................       $   0.84      $        0.91          $   0.04
  Gain on sales of real estate, net of minority
    interests...................................           2.05                 -               -
  Extraordinary loss on extinguishment of debt,
    net of minority interests...................          (0.07)             (0.08)             -
                                                     ---------------------------------------------------
  Net income available per weighted- average
    common share of beneficial interest - basic.       $   2.82      $        0.83          $   0.04
                                                     ===================================================
DILUTED EARNINGS AVAILABLE TO COMMON SHARES
  PER WEIGHTED-AVERAGE COMMON SHARE (1):
  Income before gain on sales of real estate and
    extraordinary items.........................       $   0.84      $        0.91          $   0.04
  Gain on sales of real estate, net of minority
    interest....................................           2.04                -                  -
  Extraordinary loss on extinguishment of debt,
    net of minority interests...................          (0.07)             (0.08)             -
                                                     ---------------------------------------------------
  Net income available per weighted- average
    common share of beneficial interest - diluted      $   2.81      $        0.83          $   0.04
                                                     ===================================================

</TABLE>

<TABLE>
<CAPTION>

                                                                                   (DOLLARS IN THOUSANDS)
                                                      -----------------------------------------------------------------------------
                                                                                                           PREDECESSOR - COMBINED
                                                               PGRT - CONSOLIDATED HISTORICAL                    HISTORICAL
                                                                        DECEMBER 31,                             DECEMBER 31,
                                                      ------------------------------------------------   --------------------------
                                                          1999               1998           1997            1996           1995
                                                      ------------------------------------------------   --------------------------
<S>                                                      <C>              <C>             <C>             <C>            <C>
BALANCE SHEET DATA:
   Real estate assets, exclusive of property under
      development and before accumulated
      depreciation ...............................       $1,151,094       $   843,031     $589,279        $291,757       $289,558
   Total assets...................................        1,444,175         1,164,514      741,468         325,230        343,641
   Mortgage notes payable, credit facilities and
      bonds payable...............................          799,171           593,168      328,044         421,983        405,562
   Total liabilities..............................          901,767           668,728      370,192         447,927        434,993
   Minority interests.............................          169,070           145,781      147,207          (6,905)        (6,047)
   Series A Preferred Shares......................           39,703                 -            -               -              -
   Shareholders' equity (partners' deficit).......          333,635           350,005      224,069        (115,792)       (85,305)

</TABLE>


                                       25
<PAGE>


<TABLE>
<CAPTION>


                                                                      (DOLLARS IN THOUSANDS)
                            --------------------------------------------------------------------------------------------------------
                                        PGRT - CONSOLIDATED HISTORICAL                       PREDECESSOR - COMBINED HISTORICAL
                            --------------------------------------------------------------------------------------------------------
                                                                    PERIOD FROM       PERIOD FROM
                                                                    NOVEMBER 17,    JANUARY 1, 1997
                                                                    1997 THROUGH        THROUGH
                                   YEAR ENDED DECEMBER 31,          DECEMBER 31,      NOVEMBER 16,         YEAR ENDED DECEMBER 31,
                                   1999               1998             1997               1997               1996           1995
                            --------------------------------------------------------------------------------------------------------
<S>                              <C>              <C>              <C>              <C>                  <C>           <C>
OTHER DATA:
Funds from operations(2)..       $   53,415       $   46,762       $     3,619      $    (14,461)        $  (17,367)   $   (12,733)
Cash flows provided by
   (used in):
   Operating activities...       $  105,092       $   53,525       $     6,706      $     (4,241)        $   (2,462)   $    (1,259)
   Investing activities...         (437,332)        (361,384)         (353,864)           (3,926)               423         (9,176)
   Financing activities...          306,907          342,390           355,390             6,331              5,733         10,873
Ratio of earnings to
   combined fixed charges
   and preferred share                                                                                            -
   distributions(3)...........         1.21             1.48              1.50                 -                  -              -
Office Properties:
   Square footage.........        8,049,941        5,833,280         4,073,722         2,353,759          1,414,897      1,414,897
   Occupancy (%)..........             95.0             89.9              91.9              88.0               92.5           95.8
Industrial Properties:
   Square footage.........        5,146,668        5,834,974         5,832,974         5,696,355          2,462,430       2,551,624
   Occupancy (%)..........             84.3             90.5              87.9              87.9               73.5            72.9

</TABLE>

----------

     (1)  Net income available per weighted-average common share of beneficial
          interest-basic equals net income divided by 15,141,630, 14,862,958 and
          12,593,000 common shares for the years ended December 31, 1999 and
          1998 and for the period from November 17, 1997 through December 31,
          1997, respectively. Net income available per weighted-average common
          share of beneficial interest-diluted equals net income divided by
          15,208,911, 14,875,035, and 12,593,000 common shares for the years
          ended December 31, 1999 and 1998 and for the period from November 17,
          1997 through December 31, 1997, respectively. See Note 8 to our
          consolidated financial statements for further information.

     (2)  As defined by the National Association of Real Estate Investment
          Trusts ("NAREIT"), in its March 1995 White Paper, Funds from
          Operations represents net income (loss) before minority interest of
          holders of Common Units (computed in accordance with GAAP), excluding
          gains (or losses) from debt restructuring and sales of property, plus
          real estate related depreciation and amortization (excluding
          amortization of deferred financing costs) and after adjustments for
          unconsolidated partnerships and joint ventures. Non-cash adjustments
          to Funds from Operations were as follows: in all periods, depreciation
          and amortization, for the year ended December 31, 1999, an adjustment
          associated with a Services Company write off, the net gain on treasury
          lock terminations, and the loss on a land development option, for the
          period from January 1, 1997 through November 16, 1997, provision for
          environmental remediation cost, for the years ended December 31, 1999,
          1996 and 1995, gains on the sale of real estate, for the years ended
          December 31, 1996 and 1995, write-off of deferred tenant costs, and
          for the year ended December 31, 1995, excess proceeds from insurance
          claims. Management considers Funds from Operations an appropriate
          measure of performance of an office and/or industrial REIT because
          industry analysts have accepted it as such. We computed Funds from
          Operations in accordance with standards established by the Board of
          Governors of NAREIT in its March 1995 White Paper (with the exception
          that we report rental revenues on a cash basis (based on contractual
          lease terms), rather than a straight-line GAAP basis, which we believe
          results in a more accurate presentation of our actual operating
          activities), which may differ from the methodology for calculating
          Funds from Operations used by other REITs and, accordingly, may not be
          comparable to such other REITs. Further, Funds from Operations does
          not represent amounts available for management's discretionary use
          because of needed capital replacement or expansion, debt repayment
          obligations, or other commitments and uncertainties. Funds from
          Operations should not be considered as an alternative for net income
          as a measure of profitability nor is it comparable to cash flows
          provided by operating activities determined in accordance with GAAP.


                                       26
<PAGE>

     (3)  The ratios of earnings to combined fixed charges and preferred share
          distributions were computed by dividing earnings by combined fixed
          charges and preferred share distributions. For this purpose, earnings
          consist of income (loss) before minority interest, plus combined fixed
          charges. Combined fixed charges consist of interest incurred,
          amortization of debt issuance costs, and preferred share
          distributions. The Predecessor's historical earnings were insufficient
          to cover fixed charges by approximately $29.1 million, $31.4 million,
          and $29.6 million for the period from January 1, 1997 through November
          16, 1997 and for the years ended December 31, 1996, and 1995,
          respectively.


                                       27
<PAGE>



The following is our consolidated quarterly summary of operations.

<TABLE>
<CAPTION>

                                                                            YEAR ENDED DECEMBER 31, 1999
                                                     ------------------------------------------------------------------------------
                                                                            FOURTH           THIRD         SECOND        FIRST
                                                           TOTAL            QUARTER         QUARTER        QUARTER      QUARTER

                                                     ------------------------------------------------------------------------------
                                                                                (In thousands, except per share amounts)
<S>                                                     <C>               <C>             <C>            <C>            <C>
Total revenues ......................................   $ 196,554         $ 44,767        $ 49,796       $ 52,912       $ 49,079
Total expenses ......................................     162,987           39,136          40,487         42,353         41,011
                                                     ------------------------------------------------------------------------------
Income before gain on sales of real estate, minority
   interests and extraordinary items ................      33,567            5,631           9,309         10,559          8,068
Gain on sales of real estate ........................      53,050              568          48,125          4,357              -
                                                     ------------------------------------------------------------------------------
Income before minority interests and extraordinary
   items ............................................      86,617            6,199          57,434         14,916          8,068
Income allocated to minority interests ..............     (30,687)          (1,440)        (22,330)        (4,861)        (2,056)
                                                     ------------------------------------------------------------------------------
Income before extraordinary items ...................      55,930            4,759          35,104         10,055          6,012
Extraordinary items - loss on early extinguishment
   of debt, net of minority interests in the amount
   $178 in the fourth quarter and $576 in the third
   quarter ..........................................      (1,082)            (253)           (829)             -              -
                                                     ------------------------------------------------------------------------------
Net income ..........................................      54,848            4,506          34,275         10,055          6,012
Net income allocated to preferred
    shareholders ....................................     (12,103)          (3,036)         (3,037)        (3,030)        (3,000)
                                                     ------------------------------------------------------------------------------
Net income applicable to common shares ..............   $  42,745         $  1,470        $ 31,238       $  7,025       $  3,012
                                                     ==============================================================================
BASIC EARNINGS AVAILABLE TO COMMON SHARES PER
   WEIGHTED AVERAGE COMMON SHARE:

Income before gain on sales of real estate and
   extraordinary items ..............................   $    0.84         $   0.11        $   0.25       $   0.29       $   0.20
Gain on sales of real estate, net of minority
   interests ........................................        2.05             0.01            1.86           0.17              -
Extraordinary  loss on extinguishment of debt,
   net of minority interests ........................       (0.07)           (0.02)          (0.05)             -              -
                                                     ------------------------------------------------------------------------------
Net income available per weighted-average
   common share of beneficial interest - basic ......   $    2.82         $   0.10        $   2.06       $   0.46       $   0.20
                                                     ==============================================================================
Weighted average common shares
   outstanding-basic ................................      15,142           15,163          15,136         15,136         15,132
                                                     ==============================================================================
DILUTED EARNINGS AVAILABLE TO COMMON SHARES
   PER WEIGHTED AVERAGE COMMON SHARE:
Income before gain on sales of real estate and
   extraordinary items ..............................   $    0.84         $   0.11        $   0.25       $   0.29       $   0.20
Gain on sales of real estate, net of minority
   interests ........................................        2.04             0.01            1.85           0.17              -
Extraordinary loss on extinguishment of debt,
   net of minority interests ........................       (0.07)           (0.02)          (0.05)             -              -
                                                     ------------------------------------------------------------------------------
Net income available per weighted-average
   common share of beneficial interest - diluted ....   $    2.81         $   0.10        $   2.05       $   0.46       $   0.20
                                                     ==============================================================================
Weighted average common shares
   outstanding - diluted ............................      15,209           15,222          15,254         15,209         15,134
                                                     ==============================================================================
Distributions paid per common share .................   $    1.35         $ 0.3375        $ 0.3375       $ 0.3375        $0.3375
                                                     ==============================================================================

</TABLE>



                                       28
<PAGE>


<TABLE>
<CAPTION>

                                                                                                                         PERIOD FROM
                                                                                                                        NOVEMBER 17,
                                                                                                                            1997
                                                                  YEAR ENDED DECEMBER 31, 1998                             THROUGH
                                            ----------------------------------------------------------------------------------------
                                                              FOURTH         THIRD         SECOND          FIRST        DECEMBER 31,
                                                TOTAL        QUARTER        QUARTER        QUARTER        QUARTER           1997
                                            ----------------------------------------------------------------------------------------
                                                                   (In thousands, except per share amounts)
<S>                                            <C>            <C>            <C>            <C>            <C>            <C>
Total revenues ...........................     $ 147,601      $  40,675      $  41,252      $  36,923      $  28,751      $   9,830
Total expenses ...........................       116,735         31,904         31,563         29,708         23,560          8,403
                                            ----------------------------------------------------------------------------------------
Income before minority interests and

   extraordinary item ....................        30,866          8,771          9,689          7,215          5,191          1,427
Income allocated to minority interests ...        (9,368)        (2,347)        (2,704)        (2,352)        (1,965)          (635)
                                            ----------------------------------------------------------------------------------------
Income before extraordinary items ........        21,498          6,424          6,985          4,863          3,226            792
Extraordinary items - loss on early
   extinguishment of debt, net of minority
   interests in the amount $503 in the
   fourth quarter and $375 in the second .        (1,253)          (728)            --           (525)            --             --
   quarter
                                            ----------------------------------------------------------------------------------------
Net income ...............................        20,245          5,696          6,985          4,338          3,226            792
Net income allocated to preferred
   shareholders ..........................        (7,971)        (2,980)        (2,950)        (1,341)          (700)          (345)
                                            ----------------------------------------------------------------------------------------
Net income applicable to common shares ...     $  12,274      $   2,716      $   4,035      $   2,997      $   2,526      $     447
                                            ========================================================================================
Earnings per common share - basic and
  diluted:
     Income before extraordinary items ...     $    0.91      $    0.23      $    0.26      $    0.22      $    0.19      $    0.04
     Extraordinary items .................         (0.08)         (0.05)            --          (0.03)            --             --
                                            ----------------------------------------------------------------------------------------
Net income ...............................     $    0.83      $    0.18      $    0.26      $    0.19      $    0.19      $    0.04
                                            ========================================================================================
Weighted average common shares outstanding
                                                  14,875         15,137         15,535         15,572         13,181         12,593
                                            ========================================================================================
Distributions paid per common share ......     $  1.1789      $  0.3375      $  0.3375      $  0.3375      $  0.1664      $      --
                                            ========================================================================================

</TABLE>




                                       29


<PAGE>

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

OVERVIEW

         The following discussion should be read in conjunction with our
historical consolidated financial statements and our predecessor's combined
financial statements and related notes thereto included elsewhere in this Form
10-K.

         We are a fully-integrated real estate investment company organized
under Maryland law, providing property management, leasing, marketing,
acquisition, development, redevelopment, construction, finance and other related
services. As of December 31, 1999, we owned 28 office properties (five were
acquired in 1999, one development was placed in service in 1999, eight were
acquired during 1998 and fourteen were contributed or acquired in 1997), 40
industrial properties (one was acquired in 1999, one development was placed in
service in 1999 and 38 were contributed or acquired in 1997), one retail center,
and one parking facility. Our properties are located primarily in the Chicago
metropolitan area. In addition, we own a 50% common interest in a joint venture
which owns an office property located at 77 West Wacker Drive, Chicago,
Illinois, and a mortgage on an office property located at 180 N. LaSalle Street,
Chicago, Illinois.

         As of December 31, 1999, in terms of net rentable square feet,
approximately 83.3% of our office properties and 85.8% of our industrial
properties were located in the Chicago metropolitan area in prime business
locations within established business communities. The properties located in the
Chicago metropolitan area account for approximately 92.3% of our rental revenue
and 94.4% of our tenant reimbursements revenue for the year ended December 31,
1999. Our remaining office properties are located in the Cleveland, Ohio;
Nashville, Tennessee; Knoxville, Tennessee; and Milwaukee, Wisconsin
metropolitan areas. Our remaining industrial properties are located in the
Columbus, Ohio metropolitan area.

         Our income is derived primarily from rental revenue (including tenant
reimbursements) from our properties supplemented by interest income on the
mortgage note owned. We expect that revenue growth over the next several years
will come from a combination of additional acquisitions and revenue generated
through increased rental and occupancy rates in the current portfolio.

CAUTIONARY STATEMENTS

         The following discussion and analysis of the consolidated financial
condition and results of operations should be read in conjunction with our
Consolidated Financial Statements and Notes thereto contained herein. Statements
contained in "Management's Discussion and Analysis of Financial Condition and
Results of Operations," include certain forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995 which reflect
management's current view with respect to future events and financial
performance. Such forward-looking statements are subject to certain risks and
uncertainties including, but not limited to, the effects of future events on our
financial performance; the risk that we may be unable to finance our planned
acquisition and development activities; risks related to the industrial and
office industry in which our properties compete, including the potential adverse
impact of external factors such as inflation, consumer confidence, unemployment
rates and consumer tastes and preferences; risks associated with our development
activities, such as the potential for cost overruns, delays and lack of
predictability with respect to the financial returns associated with these
development activities; the risk of a potential increase in market interest
rates from current rates; and risks associated with real estate ownership, such
as the potential adverse impact of changes in the local economic climate on the
revenues and the value of our



                                       30
<PAGE>

properties' systems as well as our tenants and vendors. Readers are cautioned
not to place undue reliance on these forward-looking statements, which speak
only as of December 31, 1999.

         Among the facts about which we have made assumptions are the following:

            -   future economic conditions which may impact the demand for
                office space and our tenants' ability to pay rent, either at
                current or increased levels;

            -   prevailing interest rates;

            -   the extent of any inflation on operating expenses;

            -   our ability to reduce various expenses as a percentage of
                revenues;

            -   our continuing ability to pay amounts due to our preferred
                shareholders prior to any distribution to our common
                shareholders;

            -   the continuing availability of our credit facilities; and

            -   the continuing availability of financing and capital.

         In addition, historical results and percentage relationships set forth
herein are not necessarily indicative of future operations.

RESULTS OF OPERATIONS

COMPARISON OF THE YEAR ENDED DECEMBER 31, 1999 TO THE YEAR ENDED DECEMBER 31,
1998.

         For the year ended December 31, 1999, the changes in rental and
reimbursable income, property operating expenses, real estate taxes and
depreciation and amortization from the same period in 1998 are due principally
to a full year of operating results for eight properties acquired in the first
half of 1998 and the additional operating results for the six properties
acquired and retained during 1999, offset by the sale of eleven properties in
1999 and the sale of 50% of our ownership in the 77 West Wacker Drive building
as of September 30, 1999.

         For the year ended December 31, 1999, rental revenue increased $29.5
million, or 30.3%, to $126.7 million (including lease termination revenue of
$5.2 million), tenant reimbursement income increased $12.6 million, or 33.6%, to
$50.2 million, other property revenues increased $7.0 million (including the
sale of easement rights for $2.6 million) or 163.6%, to $11.2 million, interest
income and other decreased $1.1 million, or 42.5%, to $1.6 million, property
operating expenses increased $14.8 million, or 50.2%, to $44.4 million, real
estate tax expense increased $9.4 million, or 37.5%, to $34.5 million, and
depreciation and amortization increased $7.8 million, or 30.7 %, to $33.3
million, in each case as compared to the year ended December 31, 1998. These
increases are impacted by 5.5 months less operations for seven of the nine
industrial properties and one office property sold on July 14, 1999 and the sale
of 50% of our ownership in 77 West Wacker Drive building as of September 30,
1999. For the corresponding 5.5 months in 1998, the industrial properties and
one office property had rental revenue of $3.4 million, tenant reimbursement
income of $0.8 million, property operating expenses of $0.1 million, real estate
tax expense of $0.9 million and depreciation and amortization of $0.7 million.
For the corresponding 3 months in 1998, the 77 West Wacker Drive building had a
revenue of $5.6 million, tenant reimbursement income of $3.0 million, property
operating expenses of $1.5 million, real estate tax expense of $1.9 million and
depreciation and amortization of $2.1 million. Included in interest income and
other is the net gain on the termination of treasury lock agreements of $0.6
million for the year ended December 31, 1999, due to events described in "Recent
Developments".


                                       31
<PAGE>

RESULTS OF OPERATIONS (CONTINUED)

         Rental revenue, tenant reimbursement income and other property revenue
for properties held in both periods increased $0.8 million for the year ended
December 31, 1999, primarily due to increased occupancy and rental rates.
Corresponding property operating expenses and real estate taxes increased $0.7
million primarily due to increases in real estate tax expense. Depreciation and
amortization increased $1.6 million for the year ended December 31, 1999,
primarily due to an increase in tenant improvements and leasing commissions.

         Mortgage note interest income increased $1.1 million, or 18.1%, to $6.9
million for the year ended December 31, 1999, compared to the same period in
1998, due to the additional advances on the first mortgage note held encumbering
the office property known as 180 North LaSalle Street.

         Interest expense increased $11.7 million, or 38.0%, to $42.6 million
during the year ended December 31, 1999, compared to the same period in 1998.
The increase was principally due to new mortgages obtained on certain of the
properties which were acquired in 1999 and 1998 and an increase in LIBOR rates
which increased the interest charges on our variable rate debt.

         General and administrative expense increased $1.9 million, or 32.4% to
$7.6 million for the year ended December 31, 1999, compared to the same period
in 1998, reflecting costs related to our growth.

         Gain on sales of real estate increased $53.1 million for the year ended
December 31, 1999, compared to the same period in 1998, due to the sale of
certain properties as more fully described in "Business Recent Developments."

         Income allocated to minority interests increased $21.3 million, or
227.6% to $30.7 million for the year ended December 31, 1999, compared to the
same period in 1998, due to an increase in income before minority interests of
$55.8 million, or 180.6% to $86.6 million. The increase in income before
minority interests and extraordinary item was principally due to gains on the
sales of real estate, additional properties acquired in 1999 and 1998 and the
effects they had on the revenue and expenses described above.

         The extraordinary loss on extinguishment of debt, net of minority
interests, decreased $0.2 million for the year ended December 31, 1999, due to
the write-off of unamortized deferred financing fees related to mortgage debt
repaid upon the sale of certain properties as more fully described in "Business
Recent Developments".

         Net income increased $34.6 million, or 170.9%, to $54.8 million for the
year ended December 31, 1999, compared to the same period in 1998, due to the
changes in revenue, expenses, gain on sales of real estate, minority interests
and extraordinary loss on extinguishment of debt described above.

         The following analysis provides a comparison of our operations for the
years ended December 31, 1998 and 1997. The period from January 1, 1997 through
November 16, 1997 represents the activity of the Predecessor's properties and
the period from November 17, 1997 through December 31, 1998 represents our
activity.


                                       32
<PAGE>

RESULTS OF OPERATIONS (CONTINUED)

COMPARISON OF THE YEAR ENDED DECEMBER 31, 1998 TO THE YEAR ENDED DECEMBER 31,
1997

         In analyzing the operating results for the year ended December 31,
1998, the changes in rental and reimbursable revenue, property operating
expenses, real estate taxes and depreciation and amortization from 1997 are due
principally to the addition of operating results from properties contributed and
acquired as part of our initial public offering as well as properties acquired
after our initial public offering through December 31, 1998.

         The Predecessor's properties owned by us as of December 31, 1998
consisted of five office properties, 17 industrial properties, and a parking
facility. At the time of our initial public offering, nine additional office
properties, 29 additional industrial properties and one retail center were
contributed or acquired. After the date of our initial public offering and
through December 31, 1998, we acquired ten additional office properties and a
first mortgage note encumbering an office property as described in the footnotes
to our consolidated financial statements contained elsewhere in this Form 10-K.

         For the year ended December 31, 1998, rental revenue and tenant
reimbursements income increased $85.0 million, or 170.7%, to $134.8 million, and
other revenue increased $5.5 million, or 372.4%, to $7.0 million, property
operating expenses and real estate tax expense increased $33.5 million, or
158.2%, to $54.7 million, and depreciation and amortization expense increased
$11.7 million, or 85.5%, to $25.4 million as compared to the year ended December
31, 1997. The primary reason for the increases in the above revenue and expense
categories was the contribution and acquisition of new office and industrial
properties we have made since our initial public offering. The additional office
and industrial properties resulted in increased total rental revenue and tenant
reimbursements income of $88.6 million, other revenue of $5.0 million, property
operating expenses and real estate tax expense of $35.4 million and depreciation
and amortization expense of $11.9 million for the year ended December 31, 1998.
Included in the rental revenue increase for 1998 is $4.1 million related to
lease terminations. Rental revenue and tenant reimbursement revenue for the
Predecessor's properties increased $0.6 million for the year ended December 31,
1998 compared to the same period in 1997. Depreciation and amortization expense
for the Predecessor's properties increased $0.7 million for the year ended
December 31, 1998 compared to the same period in 1997.

         Mortgage note interest income increased by $5.6 million to $5.9 million
due to the acquisition of the first mortgage note encumbering the property known
as 180 North LaSalle Street in December 1997.

         Interest expense had a net increase of $4.6 million, or 17.5%, to $30.9
million during the year ended December 31, 1998. The increase was due to a $36.2
million increase due to mortgages obtained on certain of the properties which
were contributed or acquired after our initial public offering, as well as our
Credit Facilities borrowings used to fund property acquisitions, offset by a
$31.6 million decrease as a result of the repayment of debt with proceeds from
our initial public offering or debt forgiveness in 1997.

         General and administrative expense increased $3.0 million during the
year ended December 31, 1998, reflecting costs related to our new public status
and increased size.

         The $1.2 million decrease in financing fees and the $1.3 million
decrease in property and asset management fees are due to these fees being
incurred by the Predecessor under their previous ownership and are costs we no
longer incur.


                                       33
<PAGE>

RESULTS OF OPERATIONS (CONTINUED)

         In 1997, the Predecessor recorded a provision for environmental
remediation costs of $3.2 million, which represents the estimated costs to be
incurred for the clean-up of environmental contamination of certain industrial
properties. PGI has contractually agreed to indemnify us from any environmental
liabilities we may incur. No additional provision was deemed necessary in 1998.

         Income allocated to minority interests increased $9.4 million to $9.4
million for the year ended December 31, 1998 compared to the same period in 1997
due to an increase in income before minority interest of $58.5 million, or
212.0%, to $30.9 million due to the changes in revenue and expenses described
above and a change in the ownership structure. The increase in income before
minority interests is due to additional properties either being contributed or
acquired and the effects they had on revenue and expenses described above. The
change in ownership structure is due to certain ownership percentages changing
due to our initial public offering.

         Extraordinary gain on extinguishment of debt decreased $67.2 million to
a $1.3 million extraordinary loss in 1998, due to the gain in 1997 related to
the forgiveness of debt principal net of the write-off of various deferred
costs, while the loss in 1998 represents only the write-off deferred costs for
mortgage indebtness that was repaid or refinanced and a reduction in the maximum
balance that can be drawn on one of our Credit Facilities.

         Net income decreased $18.2 million, or 47.3%, to $20.2 million for the
year ended December 31, 1998 compared to the same period in 1997 due to the
changes in revenue, expenses, minority interest, and extraordinary items
described above.

LIQUIDITY AND CAPITAL RESOURCES

         LIQUIDITY. Net cash provided from operations represents the primary
source of liquidity to fund distributions, debt service and recurring capital
costs. In order to qualify as a REIT for federal income tax purposes, we must
distribute 95% of our taxable income (excluding capital gains) annually.
Accordingly, we currently intend to continue to make, but are not contractually
bound to make, regular quarterly distributions to holders of our common
shares/units and our preferred shares. We have established annual distribution
rates as follows: $1.35 per annum per common share/unit, 7.5% per annum ($1.50
per share) for each Series A preferred share and 9% per annum ($2.25 per share)
for each Series B preferred share.

         CREDIT FACILITIES. Our Credit Facilities, with a maximum loan
availability totaling $46.5 million, have been provided by various financial
institutions, and are collateralized by first mortgages on certain properties
owned by the Operating Partnership. Subject to our compliance with the
applicable loan covenants, the Credit Facilities may be used to provide funds
for acquisitions and development activities and to provide the replacement
letters-of-credit for the $26.9 million of tax-exempt bonds. As of December 31,
1999, $19.5 million was drawn on our Credit Facilities (excluding the
letters-of-credit impact on current availability). See Note 4 to our
consolidated financial statements for further information.

         PROPERTY SALES. On April 19, 1999, we sold approximately 161,710 net
rentable square feet of our 122 South Michigan Avenue office building to NLU for
a gross sales price of $14.95 million and consideration, net of commission,
closing costs and a $1.1 million capital improvement allowance, of $12.1
million. As part of this sale, NLU also acquired an undivided 31.56% interest in
certain common areas of the property. We continue to own the remaining 350,659
net rentable square feet of the building and are responsible for the management
of the entire property. The sale resulted in a gain of $3.8 million for the year
ended December 31, 1999.


                                       34
<PAGE>

LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)

         On July 8, 1999, we sold approximately 7.5 acres of land to Antunes
Properties, L.L.C. for a sale price of $1.0 million. The Services Company, an
unconsolidated affiliate, constructed an office/warehouse facility on this
parcel and sold it to Antunes Properties, L.L.C. This affiliate leased the land
from us during the portion of the construction period in which we owned the
land.

         On July 14, 1999, we sold nine industrial properties and one office
property in a single transaction with a total sale price of $89.5 million. In
order to defer the taxable gain on this transaction, net sales proceeds of $26.7
million were deposited into a tax-deferred exchange trust for reinvestment in
future property purchases. Four replacement properties were identified under the
tax-deferred exchange trust; three of these properties have been acquired as of
December 31, 1999. The fourth property was acquired in January 2000.

         On September 30, 1999, we sold 50% of our common interest in the 77
West Wacker Drive property for $22.0 million and a $66.0 million preferred
interest (providing a cumulative preferred return of 9.5% per annum) in this
property. The remaining 50% common interest will be accounted for using the
equity method of accounting. Prior to the closing of the transaction, the
existing $170.0 million non-recourse first mortgage was refinanced with a new
$170.0 million non-recourse first mortgage. The new mortgage loan bears interest
at LIBOR plus 1.25%, requiring interest only payments from time to time and
annual principal payments, maturing September 2004. The sale resulted in a gain
of $48.3 million for the year ended December 31, 1999. In order to defer the
taxable gain on this transaction, net proceeds of $84.9 million were deposited
into a tax-deferred exchange trust and used for the acquisition of IBM Plaza and
the Brush Hill Office Center.

         On December 22, 1999, we sold an industrial property for a sale price
of $4.5 million. The sale resulted in a gain of $0.6 million attributed to the
building and approximately $0.3 million attributed to the adjacent land for the
year ended December 31, 1999. In order to defer the taxable gain on this
transaction, net sales proceeds of $4.2 million were deposited into a
tax-deferred exchange trust for reinvestment in future property purchases. Two
replacement properties were identified under the tax deferred trust. These
properties were acquired in January 2000.

         INDEBTEDNESS. Our aggregate indebtedness was $799.2 million and $593.2
million at December 31, 1999 and 1998, respectively. At December 31, 1999, such
indebtedness had a weighted average maturity of 5.2 years and bore interest at a
weighted average interest rate of 7.7% per annum. At December 31, 1999, $329.6
million, or 41.2%, of such indebtedness bore interest at fixed rates and $469.6
million, or 58.8% of such indebtedness, including $74.5 million of tax-exempt
bonds, bore interest at variable rates. Included in the variable rate debt is
$160.0 million subject to an interest rate swap agreement and $65.0 million
subject to an interest rate collar agreement and $70.0 million subject to an
interest cap agreement.

         We have financed a portion of our acquisitions with proceeds from
mortgage notes payable from various financial institutions, with fixed and
variable interest rates and maturities from 2000 through 2013. We believe that
our properties have excess value that may be utilized for additional borrowings
or debt securitizations.

         Under the provisions of one of the credit facilities, we are obligated
to maintain interest rate contracts on a portion of our variable rate
indebtedness. On January 31, 1999, we entered into an interest rate collar
agreement, for the period from January 31, 1999 through January 31, 2002, with a
financial institution for an original notional amount of $65.0 million. The
interest


                                       35
<PAGE>

LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)

rate ceiling under the agreement is based on a LIBOR index rate of 7.50% and the
interest rate floor is based on a LIBOR index rate of 3.73%. We entered into an
interest rate cap agreement in July, 1999 with a financial institution for an
original notional amount of $150.0 million at 7.0% during the period from July 1
to October 1, 1999. On November 1, 1999 we entered into an interest rate collar
agreement for the period from November 1, 1999 through September 30, 2004 with a
financial institution for an original notional amount of $170.0 million. The
interest rate ceiling under the agreement is based on a LIBOR rate of 7.75% and
the interest rate floor is based on a LIBOR rate of 5.62% through September 30,
2002 increasing to a LIBOR rate of 6.095% thereafter. This agreement satisfy our
obligation to maintain interest rate contracts under the provisions of one of
the credit facilities. On December 10, 1999, we entered into an interest rate
swap agreement for the period from December 10, 1999 through December 10, 2002
for an original notional amount of $160.0 million that decreases to $158.4
million on December 10, 2000 and to $155.2 million on December 10, 2001, based
on a LIBOR index rate of 6.3% and effectively fixed the interest rate on $160.0
million of variable rate mortgage indebtedness at a rate of 8.0%. On March 20,
2000, we entered into an interest rate cap agreement for the period from March
20, 2000 through November 17, 2000 for a notional amount of $70.0 million. The
interest rate under the agreement is capped at the LIBOR interest rate of 8.0%.
These agreements satisfy our obligation to maintain interest rate contracts
under the provisions of one of the credit facilities.

         DEBT REPAYMENTS. In connection with the sale of nine industrial
properties and one office property on July 14, 1999, mortgage debt of $63.2
million was repaid with sales proceeds or assumed by the purchaser.

         In connection with the sale of a 50% common interest in the 77 West
Wacker Drive building on September 30, 1999, $170.0 million of debt was
transferred to a newly formed unconsolidated joint venture. Therefore, the
indebtedness is no longer included in our consolidated financial statements.

         FUTURE DEBT AND EQUITY OFFERINGS. We filed a shelf registration
statement on Form S-3 with the Securities and Exchange Commission, which was
declared effective on June 8, 1999, to register up to $500.0 million of our
equity and debt securities for future sale at prices and on terms to be
determined at the time of offering.

         CAPITAL IMPROVEMENTS. Our properties require periodic investments of
capital for tenant-related capital improvements. During 1999 and 1998, our
tenant improvements and leasing commissions averaged $24.54 and $18.04,
respectively, per square foot of newly leased office space, $8.19 and $3.85,
respectively, per square foot of renewal leased office space, and $2.12 and
$4.53, respectively, per square foot of newly leased industrial space. Our
estimated annual cost of recurring tenant improvements and leasing commissions
is approximately $7.4 million based upon average annual square feet for leases
expiring during the year ending December 31, 2000. Our cost of general capital
improvements to our properties averages approximately $3.5 million annually
based upon an estimate of $0.19 per square foot.

         LIQUIDITY REQUIREMENTS. We expect to meet our short-term liquidity
requirements through net cash provided by operations, additional debt financings
and/or joint ventures, and refinancings of maturing debt. We expect to meet our
long-term liquidity requirements for the funding of property development,
property acquisitions, tenant improvements and other non-recurring capital
improvements through a combination of net cash from operations, long-term
secured and unsecured indebtedness (including our credit facilities), joint
ventures, property sales and the issuance of additional equity and debt
securities. There can be no assurance that we


                                       36
<PAGE>

HISTORICAL CASH FLOWS

will be successful in obtaining the required amount of funds for these items or
that the terms of capital raising activities, if any, will be as favorable as we
have experienced in prior periods. The terms of the credit facilities and our
preferred shares impose restrictions on our ability to incur indebtedness and
issue additional preferred shares.

         Historically, we have generated positive cash flows from operations to
fund distributions to our shareholders and have funded our expansion primarily
through equity offerings and mortgage debt financing. Historically, our
predecessor's principal sources of funding for operations and capital
expenditures were from mortgage debt financing.

         We had consolidated net cash provided by operating activities of $105.1
million and $53.5 million for the years ended December 31, 1999 and 1998,
respectively. We and our predecessor had consolidated and combined net cash
provided by operating activities of $2.5 million for the year ended December 31,
1997. The $51.6 million increase in net cash provided by operating activities
for the year ended December 31, 1999 from the year ended December 31, 1998 was
primarily due to a $34.6 million increase in net income, a $7.8 million increase
in depreciation and amortization expense, a $0.6 million increase in loss on
land development option, a $3.3 million increase in the equity in loss of
unconsolidated investments, a $21.3 million increase in income allocated to
minority interests, a $39.9 million decrease in other assets, a $1.4 million
increase in accounts payable and accrued expenses, and a $9.3 million increase
in accrued real estate taxes, offset by a $53.1 million increase in gain on sale
of real estate, a $0.6 million increase in gain on treasury lock terminations, a
$0.2 million increase in extraordinary items, a $1.6 million increase in
interest income and development costs added to the mortgage note receivable
principal, a $1.5 million increase in tenant receivables, a $2.0 million
increase in deferred rent receivable, a $0.1 million increase in accrued
interest payable, a $0.2 million decrease in amortization of costs for leases
assumed, a $0.2 million decrease in liabilities for leases assumed and a $7.1
million decrease in other liabilities. The $51.0 million increase in net cash
provided by operating activities for the year ended December 31, 1998 from the
year ended December 31, 1997 was primarily due to a $67.2 million decrease in
extraordinary items, a $9.4 million increase in income allocated to minority
interests, a $11.7 million increase in depreciation and amortization, a $4.6
million increase in other liabilities, a $3.8 million increase in accrued real
estate taxes, a $2.5 million increase in accrued interest payable, and a $0.3
million decrease in gain of sale of real estate, offset by a $18.2 million
decrease in net income, a $11.9 million increase in other assets, a $9.8 million
decrease in interest added to principal on mortgage note payable affiliate, a
$3.4 million decrease in accounts payable and accrued expenses, a $2.5 million
increase in tenant receivables, a $1.9 million decrease in deferred rent
receivable, a $1.0 million increase in interest income and developer fees added
to mortgage note receivable principal and a $0.5 million decrease in standby
loan fee-affiliate added to principal on mortgage note payable affiliate.

         We had consolidated net cash used in investing activities of $437.3
million and $361.4 million for the years ended December 31, 1999 and 1998,
respectively. We and our predecessor had consolidated and combined net cash used
in investing activities of $357.8 million for the year ended December 31, 1997.
The $75.9 million increase in net cash used in investing activities for the year
ended December 31, 1999, from the year ended December 31, 1998, was primarily
due to a $282.3 million increase in expenditures for real estate and equipment,
principally related to property acquisitions and development, a $11.9 million
increase in advances on the mortgage note receivable and a $4.3 increase in
leasing costs, offset by a $154.3 million increase in proceeds from the sales of
real estate, a $62.4 million decrease in restricted cash escrows, a $4.6 million
net repayment of loans by the Services Company, and a $1.3 million distribution
received from an unconsolidated joint venture. The $3.6 million increase in net
cash


                                       37
<PAGE>

HISTORICAL CASH FLOWS (CONTINUED)

used in investing activities for the year ended December 31, 1998 from the year
ended December 31, 1997 was primarily due to a $46.2 million decrease in
advances on mortgage note receivable, a $1.6 million decrease in expenditures
for real estate and equipment, a $2.9 million decrease in due from affiliates
and a $0.4 million decrease in cash contributed to the Services Company,offset
by a $50.7 million increase in restricted cash escrows, a $1.3 million increase
in deferred leasing costs, a $3.4 million decrease in loans provided to the
Services Company and a $0.3 million decrease in proceeds from sale of real
estate.

         We had consolidated net cash provided by financing activities of $306.9
million and $342.4 million for the years ended December 31, 1999 and 1998,
respectively. We and our predecessor had consolidated and combined net cash
provided by financing activities of $361.7 million for the year ended December
31,1997. The $35.5 million decrease in net cash provided by financing activities
from the year ended December 31, 1999, from the year ended December 31, 1998,
was due to a $0.5 million increase in financing costs, a $1.0 million decrease
in contributions from minority interests, a $95.3 million decrease in net
proceeds from the sale of Series B preferred shares, a $45.9 million decrease in
net proceeds from a private placement and a $11.3 million increase in
distributions to preferred shareholders, common shareholders and minority
interests, a $0.4 million increase in preferred stock transaction fee, a $129.2
million increase in the repayment of mortgage notes payable, offset by a $32.4
million increase in proceeds from mortgage notes payable, a $29.9 million
increase in deposits recovered on treasury lock agreements, $178.5 million
increase in net proceeds from the credit facilities, and a $7.3 million decrease
in cash used to repurchase our common shares. The $19.3 million decrease in net
cash provided by financing activities for the year ended December 31, 1998 from
the year ended December 31, 1997 was primarily due to a $215.7 million net
decrease in the net proceeds from the sale of our preferred and common shares
and operating partnership units, a $7.3 million increase in cash used to
repurchase our common shares, a $43.3 million increase in the repayment of
mortgage notes payable and net repayment of credit facilities, a $35.2 million
increase in distributions to our preferred and common shareholders and the
operating partnership's minority interest unit holders, a $19.1 million increase
in financings costs, a $5.6 million decrease in proceeds from mortgage note
payable affiliates, and a $44.3 million decrease in contributions from
predecessor partners offset by a $305.4 million increase in proceeds from
mortgage notes payable and net proceeds from credit facilities, a $42.3 million
decrease in the repayment of mortgage notes payable from affiliates, a $0.7
million decrease in due from affiliates, a $1.0 million contribution from
minority interest - other and a $1.7 million decrease in debt termination fees.

FUNDS FROM OPERATIONS

         Industry analysts generally consider Funds from Operations, as defined
by NAREIT, an alternative measure of performance of an equity REIT. Funds from
Operations is defined by NAREIT to mean net income (loss) determined in
accordance with GAAP, excluding gains (or losses) from debt restructuring and
sales of property, plus depreciation and amortization (other than amortization
of deferred financing costs and depreciation of non-real estate assets) and
after adjustment for unconsolidated partnerships and joint ventures. We believe
that in order to facilitate a clear understanding of our consolidated historical
operating results and the Predecessor's combined historical operating results,
Funds from Operations should be examined in conjunction with net income (loss)
as presented in audited consolidated and combined financial statements and
selected financial data included elsewhere in this Form 10-K. We compute Funds
from Operations


                                       38
<PAGE>

FUNDS FROM OPERATIONS (CONTINUED)

in accordance with standards established by the Board of Governors of NAREIT in
its March 1995 White Paper (with the exception that we report rental revenues on
a cash basis (based on contractual lease terms), rather than a straight-line
GAAP basis, which we believe results in a more accurate presentation of our
actual operating activities), which may differ from the methodology for
calculating Funds from Operations used by other REITs and, accordingly, may not
be comparable to such other REITs. As a result of our reporting rental revenues
on a cash basis for Funds from Operations, contractual rent increases will cause
reported Funds from Operations to increase. Further, Funds from Operations does
not represent amounts available for management's discretionary use because of
needed capital replacement or expansion, debt repayment obligations, or other
commitments and uncertainties. Funds from Operations should not be considered as
an alternative to net income (loss), as an indication of our performance or to
cash flows as a measure of liquidity or the ability to pay dividends or make
distributions.


                                       39
<PAGE>

         The following is our consolidated quarterly summary of Funds From
Operations.

<TABLE>
<CAPTION>

                                                               YEAR ENDED DECEMBER 31, 1999
                                            -----------------------------------------------------------------
                                                              FOURTH       THIRD       SECOND       FIRST
                                                  TOTAL       QUARTER     QUARTER      QUARTER     QUARTER
                                            -----------------------------------------------------------------
<S>                                          <C>           <C>         <C>          <C>           <C>
Net income allocated to common
   shareholders ...........................  $  42,745     $    1,470  $  31,238   $    7,025    $   3,012

FFO adjustments:

   Real estate depreciation and
     amortization (1) .....................     30,549          7,106      8,022        8,088        7,333

   Amortization of costs for leases
     assumed ..............................        899            163        245          246          245

   Straight-line rental revenue adjustments     (3,263)        (1,418)      (637)        (614)        (594)
   Joint venture adjustments ..............        654            654          -            -            -

   Gain on sales of real estate ...........    (52,706)          (224)   (48,125)      (4,357)           -
   Adjustment associated with Services
     Company ..............................      2,783          2,783           -           -            -

   Net (gain) loss on Treasury Lock
     terminations .........................       (615)             -           -      (1,172)         557

   Loss on land development options
     interests ............................        600              -          -            -          600

   Minority interests .....................     30,687          1,440     22,330        4,861        2,056

Extraordinary loss ........................      1,082            253        829            -            -
                                            -----------------------------------------------------------------
Funds from operations .....................  $  53,415     $   12,227  $  13,902    $  14,077    $  13,209
                                            =================================================================
Other data:

   Net cash provided by operating activities $ 105,092     $  39,612   $  27,867    $  16,195    $  21,418
   Net cash used in investing activities ...  (437,332)     (207,339)    (61,117)     (17,571)   (151,305)
   Net cash provided by financing activities   306,907       178,721      25,565        6,600       96,021

<CAPTION>

                                                                                                                       PERIOD FROM
                                                                  YEAR ENDED DECEMBER 31, 1998                         NOVEMBER 17,
                                             -----------------------------------------------------------------------      1997
                                                               FOURTH        THIRD        SECOND        FIRST          DECEMBER 31,
                                                   TOTAL      QUARTER       QUARTER       QUARTER       QUARTER           1997
                                             ---------------------------------------------------------------------------------------
<S>                                           <C>            <C>          <C>          <C>            <C>               <C>
Net income allocated to common
   shareholders ...........................   $  12,274      $   2,716    $   4,035    $    2,997     $    2,526        $    447

FFO adjustments:

   Real estate depreciation and
     amortization (1) .....................      23,964          7,009        6,106         5,834          5,015           2,215

   Amortization of costs for leases
     assumed ..............................       1,137            285          286           275            291             142

   Straight-line rental revenue adjustments      (1,234)          (181)        (531)         (494)           (28)            180

   Minority interests .....................       9,368          2,347        2,704         2,352          1,965             635

   Extraordinary loss .....................       1,253            728            -           525              -               -
                                             ---------------------------------------------------------------------------------------
Funds from operations .....................   $  46,762      $  12,904    $  12,600     $  11,489     $    9,769       $   3,619
                                             =======================================================================================
Other data:

   Net cash provided by (used in) operating
     activities ...........................   $  53,525      $    (133)   $  36,442     $   9,214     $    8,002       $   6,706
   Net cash used in investing activities ..    (361,384)       (25,803)     (68,245)      (91,645)      (175,691)       (353,864)
   Net cash provided by financing activities    342,390         64,298       26,774        86,011        165,307         355,390
------------------------------------------------------------------------------------------------------------------------------------

</TABLE>

(1)  Excludes the amortization of deferred financing costs and non-real estate
     related depreciation.


                                       40
<PAGE>

IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS

         None

INFLATION

         Substantially all of our office and industrial leases require tenants
to pay, as additional rent, a portion of any increases in real estate taxes and
operating expenses over a base amount. In addition, many of the office and
industrial leases provide for fixed increases in base rent or indexed
escalations (based on the Consumer Price Index or other measures). We believe
that inflationary increases in expenses will be offset, in part, by the expense
reimbursements and contractual rent increases described above.

         As of December 31, 1999, approximately $469.6 million of our
outstanding indebtedness (including our Credit Facilities) was subject to
interest at floating rates. Future indebtedness may also be subject to floating
rate interest. The floating rate debt includes $160.0 million subject to an
interest rate swap agreement, which effectively results in a fixed rate of 8.0%,
and $65.0 million subject to an interest rate collar agreement, which
effectively results in a cap at 9.65% and a floor at 5.88%. Inflation, and its
impact on floating interest rates, could affect the amount of interest payments
due on such indebtedness.


                                       41
<PAGE>


ITEM 7A.     QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

         The following table provides information about our derivative financial
instruments and other financial instruments that are sensitive to changes in
interest rates. For our mortgage note receivable, mortgage notes payable, credit
facilities and bonds payable, the table presents principal cash flows and
related weighted-average interest rates by expected maturity dates. For interest
rate swaps and collars, the table represents notional amounts and
weighted-average interest rates by expected (contractual) maturity dates.
Notional amounts are used to calculate the contractual payments to be exchanged
under the contract. None of these instruments were entered into for trading
purposes.

                            INTEREST RATE SENSITIVITY
                PRINCIPAL (NOTIONAL) AMOUNT BY EXPECTED MATURITY
                              AVERAGE INTEREST RATE

<TABLE>
<CAPTION>

-------------------------------------------------------------------------------------------------------------------------------
                                               2000        2001         2002       2003        2004      THEREAFTER    TOTAL
                                       ----------------------------------------------------------------------------------------
                                                                       (DOLLARS IN MILLIONS)
<S>                                          <C>         <C>         <C>          <C>        <C>         <C>          <C>
   ASSETS

   MORTGAGE NOTE RECEIVABLE (1):
   Fixed rate amount                             --          --           --         --      $   82.7         --      $    82.7
   Fixed interest rate                           --          --           --         --           9.64%       --           --

   LIABILITIES
   MORTGAGE NOTES PAYABLE (2):
   Fixed rate amount                         $   19.0    $   62.3    $     3.9    $   4.2    $    4.4    $   235.8    $   329.6
   Weighted-average interest rate (3)             9.69%       6.78%        7.32%      7.32%       7.32%        7.38%

   Variable rate                             $   67.3    $   48.3    $   246.0       --      $   14.0         --      $   375.6
   Weighted-average interest rate (3)             8.56%       8.68%        8.32%                  9.50%       --

   CREDIT FACILITIES(2):
   Variable rate amount                      $   19.5        --           --         --          --           --      $    19.5
   Weighted-average interest rate (3)             8.24%                   --         --          --           --

   BONDS PAYABLE (2):
   Variable rate amount                          --          --      $    48.2       --          --      $    26.3    $    74.5
   Weighted-average interest rate (3)                        --            5.67%     --          --            4.55%

   INTEREST  RATE  SWAP  AGREEMENT (2)(3):
   Notional amount                           $    1.6    $    3.2    $   155.2       --          --           --      $   160.0
   Pay rate                                       6.46%       6.46%        6.46%                 --           --
   Fixed swap rate                                6.30%       6.30%        6.30%                 --           --

   INTEREST RATE COLLAR  AGREEMENTS (2)(3):

   Notional amount                               --          --      $    65.0       --          --           --      $    65.0
   Pay rate                                                  --            6.48%     --          --           --
   Cap rate                                                  --            7.50%     --          --           --
   Floor rate                                                --            3.73%     --          --           --
-------------------------------------------------------------------------------------------------------------------------------
</TABLE>

(1)    See Note 2 to our consolidated financial statements for additional
       information.

(2)    See Note 4 to our consolidated financial statements for additional
       information.

(3)    Based upon the rates in effect at December 31, 1999. The weighted-average
       interest rates, including the interest rate swap and collar agreements,
       on our mortgage notes payable, credit facilities and bonds payable at
       December 31, 1999 were 7.91%, 8.24% and 5.27%, respectively.
       Additionally, the bonds payable of $48.2 million and $26.3 million are
       collateralized by letters of credit of $48.8 million and $26.9 million,
       respectively, incurring annual fees of 1.65% and 2.25%, respectively. If
       interest rates on our variable rate debt increased by one percentage
       point, our annual interest incurred (including the effects of the
       interest rate protection agreements) would increase by $3.1 million.


                                       42
<PAGE>

ITEM 8.      FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

         The financial statements and supplementary data required by Regulation
S-X are included in this Report on Form 10-K commencing on page F-1.

ITEM 9.      CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
             FINANCIAL DISCLOSURE

         Not applicable


                                       43
<PAGE>

                                    PART III

         Certain information required by Part III is omitted from this Report as
we will file a definitive proxy statement within 120 days after the end of our
fiscal year pursuant to Regulation 14A for our Annual Meeting of Shareholders to
be held on May 17, 2000 (the "Proxy Statement") and the information included
therein is incorporated herein by reference.

ITEM 10.     DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

         The information contained in the section captioned "Election of
Trustees" of the Proxy Statement is incorporated herein by reference.

ITEM 11.     EXECUTIVE COMPENSATION

         The information contained in the sections captioned and "Executive
Officers" of the Proxy Statement is incorporated herein by reference.

ITEM 12.     SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

         The information contained in the section captioned "Principal Security
Holders of the Company" of the Proxy Statement is incorporated herein by
reference.

ITEM 13.     CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         The information contained in the section captioned "Other Information
Certain Relationships and Related Transactions" of the Proxy Statement is
incorporated herein by reference.


                                       44
<PAGE>

                                     PART IV

ITEM 14.     EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

(a)      1.  Financial Statements

Prime Group Realty Trust and the Predecessor:

<TABLE>

<S>                                                                                                       <C>
Report of Independent Auditors.........................................................................   F-2

Consolidated Balance Sheets of Prime Group Realty Trust as of
   December 31, 1999 and 1998..........................................................................   F-3

Consolidated Statements of Operations of Prime Group Realty Trust for the years ended December 31,
   1999 and 1998 and for the period from November 17, 1997 through December 31, 1997 and Combined
   Statement of Operations of the Predecessor for the period from January 1, 1997 through November 16,
   1997................................................................................................   F-4

Consolidated Statements of Changes in Shareholders' Equity of Prime Group Realty
   Trust for the years ended December 31, 1999 and 1998 and for the period from
   November 17, 1997 to December 31, 1997..............................................................   F-6

Combined Statement of Changes in Predecessors' Deficit for the period from
   January 1, 1997 through November 16, 1997...........................................................   F-7

Consolidated Statements of Cash Flows of Prime Group Realty Trust for the years ended December 31,
   1999 and 1998 and for the period from November 17, 1997 through December 31, 1997 and the Combined
   Statement of Cash Flows of the Predecessor for the period from January 1, 1997 through November 16,
   1997................................................................................................   F-8

Notes to Consolidated and Combined Financial Statements................................................   F-12

        (2)  Financial Statement Schedule

            The following financial statement schedule is included in Item 14(d)

              Report of Independent Auditors on Schedule (included with consent filed
              as Exhibit 23.1)

              Schedule III - Real Estate and Accumulated Depreciation of Prime Group
              Realty Trust as of December 31, 1999......................................................    F-40

</TABLE>

         All other schedules for which provision is made in the applicable
accounting regulation of the Securities Exchange Commission are not required
under the related instructions or are inapplicable, and therefore have been
omitted.


                                       45
<PAGE>

     (3)    Exhibits

<TABLE>
<CAPTION>

 EXHIBIT
 -------
   NO.                                 DESCRIPTION
   ---                                 -----------
<S>         <C>
   3.1      Articles of Amendment and Restatement of Declaration of Trust of
            Prime Group Realty Trust as filed as an exhibit to our 1997 Annual
            Report on Form 10-4 and incorporated herein by reference.

   3.2      Articles Supplementary to the Articles of Amendment and Restatement
            of Declaration of Trust of Prime Group Realty Trust as filed as an
            exhibit to our Quarterly Report on Form 10-Q for the quarter ended
            June 30, 1998 and incorporated herein by reference.

   3.3      Articles Supplementary to the Articles of Amendment and Restatement
            of Declaration of Trust of Prime Group Realty Trust date as of
            December 29, 1998 as filed as an exhibit to our 1998 Annual Report
            on Form 10-K and incorporated by reference

   3.4      Amended and Restated Bylaws of Prime Group Realty Trust as filed as
            an exhibit to our 1997 Annual Report on Form 10-K and incorporated
            herein by reference.

   3.5      Amended and Restated Agreement of Limited Partnership of Prime Group
            Realty, L.P. (the "Amended and Restated Agreement of Limited
            Partnership") as filed as an exhibit to our 1997 Annual Report on
            Form 10-K and incorporated herein by reference

   3.6      Amendment No. 1 to the Amended and Restated Agreement of Limited
            Partnership dated as of December 15, 1997 as filed as an exhibit to
            Amendment No. 1 to our Registration Statement on Form S-11 (No.
            333-51599) and incorporated herein by reference

   3.7      Amendment No. 2 to the Amended and Restated Agreement of Limited
            Partnership dated as of December 15, 1997 as filed as an exhibit to
            Amendment No. 1 to our Registration Statement on Form S-11 (No.
            333-51599) and incorporated herein by reference

   3.8      Amendment No. 3 to the Amended and Restated Agreement of Limited
            Partnership dated as of January 15, 1998 as filed as an exhibit to
            Amendment No. 1 to our Registration Statement on Form S-11 (No.
            333-51599) and incorporated herein by reference

   3.9      Amendment No. 4 to the Amended and Restated Agreement of Limited
            Partnership dated as of February 13, 1998 as filed as an exhibit to
            Amendment No. 1 to our Registration Statement on Form S-11 (No.
            333-51599) and incorporated herein by reference

   3.10     Amendment No. 5 to the Amended and Restated Agreement of Limited
            Partnership dated as of March 13, 1998 as filed as an exhibit to
            Amendment No. 1 to our Registration Statement on Form S-11 (No.
            333-51599) and incorporated herein by reference

   3.11     Amendment No. 6 to the Amended and Restated Agreement of Limited
            Partnership dated as of March 25, 1998 as filed as an exhibit to
            Amendment No. 1 to our Registration Statement on Form S-11 (No.
            333-51599) and incorporated herein by reference

   3.12     Amendment No. 7 to the Amended and Restated Agreement of Limited
            Partnership dated as of April 15, 1998 as filed as an exhibit to
            Amendment No. 1 to our Registration Statement on Form S-11 (No.
            333-51599) and incorporated herein by reference

   3.13     Amendment No. 8 to the Amended and Restated Agreement of Limited
            Partnership dated as of May 15, 1998 as filed as an exhibit to
            Amendment No. 2 to our Registration Statement on Form S-11 (No.
            333-51599) and incorporated herein by reference

   3.14     Amendment No. 9 to the Amended and Restated Agreement of Limited
            Partnership dated as of June 5, 1998 as filed as an exhibit to our
            Quarterly Report on Form 10-Q for the quarter ended June 30, 1998
            and incorporated herein by reference.

</TABLE>

                                       46
<PAGE>

     (3)    EXHIBITS

<TABLE>
<CAPTION>

 EXHIBIT
 -------
   NO.                                 DESCRIPTION
   ---                                 -----------
<S>         <C>
   3.15     Amendment No. 10 to the Amended and Restated Agreement of Limited
            Partnership dated as of June 15, 1998 as filed as an exhibit to our
            Quarterly Report on Form 10-Q for the quarter ended June 30, 1998
            and incorporated herein by reference.

   3.16     Amendment No. 11 to the Amended and Restated Agreement of Limited
            Partnership dated as of July 15, 1998 as filed as an exhibit to
            Post-Effective Amendment No. 1 to our Registration Statement on Form
            S-11 (No. 333-51935) and incorporated herein by reference.

   3.17     Amendment No. 12 to the Amended and Restated Agreement of Limited
            Partnership dated as of August 14, 1998 as filed as an exhibit to
            Post-Effective Amendment No. 1 to our Registration Statement on Form
            S-11 (No. 333-51935) and incorporated herein by reference

   3.18     Amendment No. 13 to the Amended and Restated Agreement of Limited
            Partnership dated as of September 15, 1998 as filed as an exhibit to
            Amendment No. 1 to Post-Effective Amendment No. 1 to our
            Registration Statement on Form S-11 (No. 333-51935) and incorporated
            herein by reference

   3.19     Amendment No. 14 to the Amended and Restated Agreement of Limited
            Partnership dated as of October 15, 1998 as filed as an exhibit to
            Amendment No. 2 to our Registration Statement on Form S-3 (No.
            333-64973) and incorporated herein by reference

   3.20     Amendment No. 15 to the Amended and Restated Agreement of Limited
            Partnership dated as of November 16, 1998 as filed as an exhibit to
            Amendment No. 1 to our Registration Statement on Form S-3 (No.
            333-64973) and incorporated herein by reference

   3.21     Amendment No. 16 to the Amended and Restated Agreement of Limited
            Partnership dated as of December 15, 1998 as filed as an exhibit to
            Post-Effective Amendment No. 3 to our Registration Statement on Form
            S-3 (Registration No. 333-51935) and incorporated herein by
            reference

   3.22     Amendment No. 17 to the Amended and Restated Agreement of Limited
            Partnership dated as of January 15, 1999 as filed as an exhibit to
            our Quarterly Report on Form 10-Q for the quarter ended March 31,
            1999 and incorporated herein by reference

   3.23     Amendment No. 18 to the Amended and Restated Agreement of Limited
            Partnership dated as of February 15, 1999 as filed as an exhibit to
            our Quarterly Report on Form 10-Q for the quarter ended March 31,
            1999 and incorporated herein by reference

   3.24     Amendment No. 19 to the Amended and Restated Agreement of Limited
            Partnership dated as of March 15, 1999 as filed as an exhibit to our
            Quarterly Report on Form 10-Q for the quarter ended March 31, 1999
            and incorporated herein by reference

   3.26     Amendment No. 21 to the Amended and Restated Agreement of Limited
            Partnership dated as of April 15, 1999 as filed as an exhibit to
            Amendment No. 1 to our Registration Statement on Form S-3 (No.
            333-70369) and incorporated herein by reference

   3.27     Amendment No. 22 to the Amended and Restated Agreement of Limited
            Partnership dated as of April 22, 1999 as filed as an exhibit to
            Amendment No. 1 to our Registration Statement on Form S-3 (No.
            333-70369) and incorporated herein by reference

   3.28     Amendment No. 23 to the Amended and Restated Agreement of Limited
            Partnership dated as of May 15, 1999 as filed as an exhibit to
            Amendment No. 1 to our Registration Statement on Form S-3 (No.
            333-70369) and incorporated herein by reference

   3.29     Amendment No. 24 to the Amended and Restated Agreement of Limited
            Partnership dated as of June 15, 1999 as filed as an exhibit to our
            Quarterly Report on Form 10-Q for the quarter ended June 30, 1999
            and incorporated herein by reference

</TABLE>

                                       47
<PAGE>

     (3)    Exhibits

<TABLE>
<CAPTION>

   EXHIBIT
   -------
   NO.                                 DESCRIPTION
   ---                                 -----------
<S>         <C>
   3.30     Amendment No. 25 to the Amended and Restated Agreement of Limited
            Partnership dated as of July 14, 1999 as filed as an exhibit to our
            Quarterly Report on Form 10-Q for the quarter ended September 30,
            1999 and incorporated herein by reference

   3.31     Amendment No. 26 to the Amended and Restated Agreement of Limited
            Partnership dated as of July 15, 1999 as filed as an exhibit to our
            Quarterly Report on Form 10-Q for the quarter ended September 30,
            1999 and incorporated herein by reference

   3.32     Amendment No. 27 to the Amended and Restated Agreement of Limited
            Partnership dated as of August 16, 1999 as filed as an exhibit to
            our Quarterly Report on Form 10-Q for the quarter ended September
            30, 1999 and incorporated herein by reference

   3.33     Amendment No. 28 to the Amended and Restated Agreement of Limited
            Partnership dated as of September 15, 1999 as filed as an exhibit to
            our Quarterly Report on Form 10-Q for the quarter ended September
            30, 1999 and incorporated herein by reference

   3.34     Amendment No. 29 to the Amended and Restated Agreement of Limited
            Partnership dated as of October 15, 1999

   3.35     Amendment No. 30 to the Amended and Restated Agreement of Limited
            Partnership dated as of November 15, 1999

   3.36     Amendment No. 31 to the Amended and Restated Agreement of Limited
            Partnership dated as of December 15, 1999

   3.37     Amendment No. 32 to the Amended and Restated Agreement of Limited
            Partnership dated as of December 30, 1999

   10.1     Loan Agreement, dated December 13, 1999, between 330 N. Wabash
            Avenue, L.L.C., Westdeutsche Immobilienbank and Merrill Lynch
            Mortgage Capital Inc.

   10.2     Promissory Note, dated December 13, 1999, from 330 N. Wabash
            Avenue, L.L.C. to Westdeutsche Immobilienbank

   10.3     Guaranty Agreement, dated December 13, 1999, between Prime Group
            Realty, L.P. and Westdeutsche Immobilienbank

   10.4     Seventh Amendment to the Credit Agreement, dated October 22, 1999,
            between Prime Group Realty, L.P., Prime Group Realty Trust and Bank
            Boston, N.A., CIBC Inc. and Prudential Securities Corporation

   10.5     Fourth Note Modification Agreement, dated November 5, 1999, between
            LaSalle Bank National Association and Prime Group Realty, L.P.

   10.6     Second Amendment to Second Amended and Restated Loan Agreement,
            dated November 5, 1999, between LaSalle Bank National Association,
            Prime Group Realty, L.P. and Prime Group Realty Trust

   12.1     Computation of ratios of earnings to combined fixed changes and
            preferred share distributions.

   21.1     Subsidiaries of the Registrant

   23.1     Consent of Independent Auditors

   27.1     Financial Data Schedule

</TABLE>

                                       48
<PAGE>

         (b) Reports on Form 8-K
         We filed the following reports on Form 8-K during the fourth quarter of
         1999:

         Form 8-K dated  September  30, 1999,  (filed on October 15, 1999;  File
         No.  001-13589) relating to the sale of a 50% interest in one property.
         The report  includes pro forma financial information.

         Form 8-K dated December 17, 1999, (filed on December 21, 1999; File No.
         001-13589) relating to the Board of Trustees' approval of the
         repurchase of up to $250.0 million of the our outstanding common and
         preferred shares.

         Form 8-K dated December 13, 1999 (filed on December 23, 1999; File No.
         001-13589) relating to purchase of one property. The report includes
         the financial statements of the property and pro forma financial
         information.



                                       49
<PAGE>

                                   SIGNATURES

                  Pursuant to the  requirements  of Section 13 or 15(d) 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 on March ____, 2000.

                                                PRIME GROUP REALTY TRUST

Dated: March ___, 2000                          ________________________
                                                    Richard S. Curto
                                                  PRESIDENT AND CHIEF
                                                   EXECUTIVE OFFICER

Dated: March ___, 2000                          ________________________
                                                    William M. Karnes
                                              EXECUTIVE VICE PRESIDENT AND
                                                 CHIEF FINANCIAL OFFICER

                  Pursuant to the requirements of the Securities Exchange Act of
          1934, this report has been signed below by the following persons on
          behalf of the  registrant  and in the capacities and on the dates
          indicated.

<TABLE>
<CAPTION>

            NAME                                      TITLE                                           DATE
            ----                                      -----                                           ----
<S>                              <C>                                                              <C>
--------------------------------
 Michael W. Reschke              Chairman of the Board and Trustee                                March ___, 2000

--------------------------------
 Richard S. Curto                President, Chief Executive Officer and Trustee                   March ___, 2000

--------------------------------
 William M. Karnes               Executive Vice President and Chief Financial Officer             March ___, 2000

--------------------------------
 Roy P. Rendino                  Senior Vice President - Finance and Chief Accounting Officer     March ___, 2000

--------------------------------
 Stephen J. Nardi                Trustee                                                          March ___, 2000

--------------------------------
 James R. Thompson               Trustee                                                          March ___, 2000

--------------------------------
 Jacque M. Ducharme              Trustee                                                          March ___, 2000

--------------------------------
 Christopher J. Nassetta         Trustee                                                          March ___, 2000

--------------------------------
 Thomas J. Saylak                Trustee                                                          March ___, 2000

</TABLE>


                                       50
<PAGE>

                                   SIGNATURES

         Pursuant to the requirements of Section 13 or 15(d) 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 on March ____, 2000.

                                             PRIME GROUP REALTY TRUST

Dated: March ___, 2000

                                               /s/ RICHARD S. CURTO
                                               --------------------
                                                 Richard S. Curto
                                               PRESIDENT AND CHIEF
                                                EXECUTIVE OFFICER

Dated: March ___, 2000

                                               /s/ WILLIAM M. KARNES
                                               ---------------------
                                                 William M. Karnes
                                            EXECUTIVE VICE PRESIDENT AND
                                              CHIEF FINANCIAL OFFICER

         Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.

<TABLE>
<CAPTION>

             NAME                                       TITLE                                           DATE
             ----                                       -----                                           ----
<S>                                <C>                                                              <C>
 /s/ MICHAEL W. RESCHKE
----------------------------
 Michael W. Reschke                Chairman of the Board and Trustee                                March ___, 2000

 /s/ RICHARD S. CURTO
----------------------------
 Richard S. Curto                  President, Chief Executive Officer and Trustee                   March ___, 2000

 /s/ WILLIAM M. KARNES
----------------------------
 William M. Karnes                 Executive Vice President and Chief Financial Officer             March ___, 2000

 /s/ ROY P. RENDINO
----------------------------
 Roy P. Rendino                    Senior Vice President - Finance and Chief Accounting Officer     March ___, 2000

 /s/ STEPHEN J. NARDI
----------------------------
 Stephen J. Nardi                  Trustee                                                          March ___, 2000

 /s/ JAMES R. THOMPSON
----------------------------
 James R. Thompson                 Trustee                                                          March ___, 2000

 /s/ JACQUE M. DUCHARME
----------------------------
 Jacque M. Ducharme                Trustee                                                          March ___, 2000

 /s/ CHRISTOPHER J. NASSETTA
----------------------------
 Christopher J. Nassetta           Trustee                                                          March ___, 2000

 /s/ THOMAS J. SAYLAK
----------------------------
 Thomas J. Saylak                  Trustee                                                          March ___, 2000

</TABLE>

                                       51
<PAGE>

             INDEX TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS

Financial Statements

Prime Group Realty Trust and the Predecessor:

<TABLE>

<S>                                                                                                      <C>
Report of Independent Auditors.......................................................................... F-2

Consolidated Balance Sheets of Prime Group Realty Trust as of

December 31, 1999 and 1998.............................................................................. F-3

Consolidated Statements of Operations of Prime Group Realty Trust for the years ended
     December 31, 1999 and 1998 and for the period from November 17, 1997 through
     December 31, 1997 and Combined Statement of Operations of the Predecessor
     for the period from January 1, 1997 through November 16, 1997......................................  F-4

Consolidated Statements of Changes in Shareholders' Equity of Prime Group Realty
     Trust for the years ended December 31, 1999 and 1998 and for the period
     from November 17, 1997 to December 31, 1997........................................................  F-6

Combined Statement of Changes in Predecessors' Deficit for the period from
     January 1, 1997 through November 16, 1997..........................................................  F-7

Consolidated Statements of Cash Flows of Prime Group Realty Trust for the years ended
     December 31, 1999 and 1998 and for the period from November 17, 1997 through
     December 31, 1997 and the Combined Statement of Cash Flows of the Predecessor
     for the period from January 1, 1997 through November 16, 1997......................................  F-8

Notes to Consolidated and Combined Financial Statements.................................................  F-12


Financial Statement Schedule

Schedule III - Real Estate and Accumulated Depreciation of Prime Group Realty Trust
as of December 31, 1999.................................................................................  F-40

</TABLE>


                                      F-1
<PAGE>

                         REPORT OF INDEPENDENT AUDITORS

Board of Trustees
Prime Group Realty Trust

         We have audited the accompanying consolidated balance sheets of Prime
Group Realty Trust as of December 31, 1999 and 1998, and the related
consolidated statements of operations, shareholders' equity and cash flows for
the years ended December 31, 1999 and 1998 and for the period from November 17,
1997 (date of formation) through December 31, 1997. We have also audited the
accompanying combined statements of operations, changes in predecessor's
deficit, and cash flows of the Predecessor for the period from January 1, 1997
through November 16, 1997. These financial statements are the responsibility of
Prime Group Realty Trust's and Predecessor's management. Our responsibility is
to express an opinion on these financial statements based on our audits.

         We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

         In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Prime
Group Realty Trust at December 31, 1999 and 1998, and the consolidated results
of its operations and its cash flows for the years ended December 31, 1999 and
1998 and for the period from November 17, 1997 through December 31, 1997, and
the Predecessor's combined results of its operations and its cash flows for the
period from January 1, 1997 through November 16, 1997, in conformity with
accounting principles generally accepted in the United States.

                                                      /s/ ERNST & YOUNG LLP


Chicago, Illinois

MARCH 20, 2000


                                      F-2
<PAGE>

                            PRIME GROUP REALTY TRUST

                           CONSOLIDATED BALANCE SHEETS

              (DOLLARS IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)

<TABLE>
<CAPTION>

                                                                                                         December 31,
                                                                                                   1999                 1998
                                                                                          ------------------------------------------
<S>                                                                                            <C>                    <C>
Assets Real estate at cost:
   Land...............................................................................         $   183,295            $   139,505
   Building and improvements..........................................................             928,567                655,154
   Tenant improvements  ..............................................................              39,232                 48,372
                                                                                          ------------------------------------------
                                                                                                 1,151,094                843,031
Accumulated depreciation..............................................................             (37,977)               (24,756)
                                                                                          ------------------------------------------
                                                                                                 1,113,117                818,275
Property under development............................................................             125,724                 51,376
                                                                                          ------------------------------------------
                                                                                                 1,238,841                869,651
Mortgage note receivable..............................................................              82,687                 63,270
Cash and cash equivalents.............................................................              21,167                 46,500
Tenant receivables....................................................................              11,438                  7,288
Restricted cash escrows...............................................................              42,140                 53,820
Deferred rent receivable..............................................................               9,501                 39,062
Deferred costs - net..................................................................              26,901                 32,891
Other.................................................................................              11,500                 52,032
                                                                                          ==========================================
Total assets..........................................................................          $1,444,175             $1,164,514
                                                                                          ==========================================

Liabilities and shareholders' equity
Mortgage notes payable................................................................         $   705,194            $   518,718
Credit facilities.....................................................................              19,527                      -
Bonds payable.........................................................................              74,450                 74,450
Accrued interest payable..............................................................               3,508                  2,440
Accrued real estate taxes.............................................................              40,689                 29,657
Accounts payable and accrued expenses.................................................              36,133                 26,068
Liabilities for leases assumed........................................................               3,235                  4,792
Dividends payable.....................................................................               8,122                  8,080
Other.................................................................................              10,909                  4,523
                                                                                          ------------------------------------------
Total liabilities.....................................................................             901,767                668,728
Commitments and contingencies.........................................................                   -                      -
Minority interests:
   Operating partnership..............................................................             168,070                144,781
   Other..............................................................................               1,000                  1,000
Series A - Cumulative Convertible Preferred Shares, 2,000,000
   shares designated, issued and outstanding at December 31, 1999                                   39,703                      -
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 December 31, 1999 and 1998......                  40                     40
     Series A - Cumulative Convertible Preferred Shares, 2,000,000
        shares designated, issued and outstanding at December 31, 1998................                   -                     20
  Common Shares: $0.01 par value; 100,000,000 shares
     authorized; 15,189,438 and 15,110,794 shares issued and
     outstanding at December 31, 1999 and 1998, respectively..........................                 152                    151
   Additional paid-in capital.........................................................             321,357                360,017
   Retained (distributions in excess of) earnings.....................................              12,086                (10,223)
                                                                                          ------------------------------------------
Total shareholders' equity............................................................             333,635                350,005
                                                                                          ==========================================
Total liabilities and shareholders' equity............................................          $1,444,175             $1,164,514
                                                                                          ==========================================

</TABLE>

                             See accompanying notes.


                                      F-3
<PAGE>

                  PRIME GROUP REALTY TRUST AND THE PREDECESSOR

    CONSOLIDATED AND COMBINED STATEMENTS OF OPERATIONS OF PRIME GROUP REALTY

          TRUST AND COMBINED STATEMENT OF OPERATIONS OF THE PREDECESSOR

              (DOLLARS IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)

<TABLE>
<CAPTION>

                                                                       PRIME GROUP REALTY TRUST                     PREDECESSOR
                                                     ----------------------------------------------------------  ------------------
                                                                                               Period from         Period from
                                                                                               November 17,        January 1,
                                                                                               1997 through       1997 through
                                                            Year ended December 31,            December 31,       November 16,
                                                            1999               1998               1997                 1997
                                                     ---------------------------------------------------------- -------------------
<S>                                                       <C>               <C>                     <C>                <C>
Revenue
Rental.............................................       $ 126,687         $  97,212              $ 7,293             $27,947
Tenant reimbursements..............................          50,171            37,545                2,041              12,490
Other property revenues............................          11,201             4,249                   87               1,229
Mortgage note interest.............................           6,926             5,866                  248                   -
Interest income and other..........................           1,569             2,729                  161                   -
                                                     ---------------------------------------------------------- -------------------
Total revenue......................................         196,554           147,601                9,830              41,666


Expenses
Property operations................................          44,446            29,598                2,213               8,622
Real estate taxes..................................          34,470            25,077                1,765               8,575
Depreciation and amortization......................          33,258            25,447                2,478              11,241
Interest...........................................          42,648            30,901                1,680              24,613
Interest - affiliates..............................               -                 -                    -               9,804
Loss on land development option....................             600                 -                    -                   -
General and administrative.........................           7,565             5,712                  267               2,414
Financing fees.....................................               -                 -                    -               1,180
Property and asset management fees -affiliates.....               -                 -                    -               1,348
Provision for environmental remediation costs......               -                 -                    -               3,205
                                                     ---------------------------------------------------------- -------------------
Total expenses.....................................         162,987           116,735                8,403              71,002
                                                     ---------------------------------------------------------- -------------------

Income (loss) before gain on sales of real estate,
   minority interests and extraordinary items......          33,567            30,866                1,427             (29,336)
Gain on sales of real estate.......................          53,050                 -                    -                 286
                                                     ---------------------------------------------------------- -------------------
Income (loss) before minority interests
   and extraordinary items.........................          86,617            30,866                1,427             (29,050)
Minority interests.................................         (30,687)           (9,368)                (635)                666
                                                     ---------------------------------------------------------- -------------------
Income (loss) before extraordinary items...........          55,930            21,498                  792             (28,384)
Extraordinary items: (loss) gain on extinguishment
   of debt, net of minority interests in the amount
   of $754, $878 and $1,127 for the years ended
   December 31, 1999 and 1998, and for the period
   from January 1, 1997 through November 16,
   1997, respectively .............................          (1,082)           (1,253)                   -              65,990
                                                     ---------------------------------------------------------- -------------------
Net income.........................................          54,848            20,245                  792             $37,606
                                                                                                                ===================
Net income allocated to preferred
   shareholders....................................         (12,103)           (7,971)                (345)
                                                     ----------------------------------------------------------
Net income available to common
   shareholders....................................       $  42,745         $  12,274              $   447
                                                     ==========================================================

</TABLE>


                                      F-4

<PAGE>

                  PRIME GROUP REALTY TRUST AND THE PREDECESSOR

           CONSOLIDATED STATEMENTS OF OPERATIONS OF PRIME GROUP REALTY

          TRUST AND COMBINED STATEMENT OF OPERATIONS OF THE PREDECESSOR

<TABLE>
<CAPTION>

                                                            PRIME GROUP REALTY TRUST
                                                            ------------------------
                                                                                               Period from
                                                                                               November 17,
                                                                                               1997 through
                                                            Year ended December 31,            December 31,
                                                            1999               1998               1997
                                                     ----------------------------------------------------------
<S>                                                       <C>               <C>                    <C>
Basic earnings available to common
   shares per weighted-average common share:
Income before gain on sales of real estate and
   extraordinary items.............................       $    0.84         $     0.91             $   0.04
Gain on sales of real estate, net of minority                  2.05                  -                    -
   interests.......................................
Extraordinary loss on extinguishment of debt, net of
   minority interests..............................           (0.07)             (0.08)                   -
                                                     ----------------------------------------------------------
Net income available per weighted-average common
   share of beneficial interest - basic............       $    2.82         $     0.83             $   0.04
                                                     ==========================================================

Diluted earnings available to common shares
   per weighted-average common share:
Income before gain on sales of real estate and
   extraordinary items.............................        $    0.84        $     0.91             $   0.04
Gain on sales of real estate, net of minority                   2.04                 -                    -
   interests.......................................
Extraordinary loss on extinguishment of debt, net of
   minority interests..............................            (0.07)            (0.08)                   -
                                                     ----------------------------------------------------------
Net income available per weighted-average common
   share of beneficial interest - diluted..........        $    2.81        $     0.83             $   0.04
                                                     ==========================================================

</TABLE>

                             See accompanying notes.


                                      F-5
<PAGE>

                            PRIME GROUP REALTY TRUST

           CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
                 FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
       AND FOR THE PERIOD FROM NOVEMBER 17, 1997 THROUGH DECEMBER 31, 1997

         (DOLLARS IN THOUSANDS, EXCEPT FOR SHARE AND PER SHARE AMOUNTS)

<TABLE>
<CAPTION>

                                                                                            ADDITIONAL    DISTRIBUTIONS
                                                         PREFERRED SHARES       COMMON       PAID-IN       IN EXCESS OF
                                                         ----------------       ------
                                                      SERIES B    SERIES A      SHARES       CAPITAL         EARNINGS      TOTAL
                                                      --------    --------      ------       -------         --------      -----
<S>                                                       <C>          <C>     <C>           <C>            <C>           <C>
Issuance of 2,000,000 Series A - preferred shares         $  -         $20     $    -        $ 39,580       $       -     $ 39,600
Issuance of 12,980,000 common shares............             -           -        130         232,222               -      232,352
Step-up in basis from the purchase of third-party
  owner's interest in predecessor...............             -           -          -           1,430               -        1,430
Reclassification of predecessor's minority interest          -           -          -          (6,564)              -       (6,564)
Reclassification of net deficit of
  predecessor...................................             -           -          -         (33,976)              -      (33,976)
Additional contribution by predecessor..........             -           -          -          11,873               -       11,873
Contribution of net liabilities to services company          -           -          -             380               -          380
Additional paid-in capital allocated to minority
  interest......................................             -           -          -         (19,313)              -      (19,313)
Net income......................................             -           -          -               -             792          792
Series A-preferred share dividends
  declared ($0.173 per share)...................             -           -          -               -            (345)        (345)
Common share dividends declared                                                     -
  ($0.166 per share)............................             -           -                          -          (2,160)      (2,160)
                                                      ------------------------------------------------------------------------------
Balance at December 31, 1997....................             -          20        130         225,632          (1,713)     224,069
Issuance of 2,579,994 common shares.............             -           -         26          45,904               -       45,930
Issuance of 4,000,000 Series B - preferred shares           40           -          -          95,285               -       95,325
Issuance of 25,000 common shares
  granted during the year.......................             -           -          -             458               -          458
Repurchase of 474,200 common shares.............             -           -         (5)         (7,262)              -       (7,267)
Net income......................................             -           -          -               -          20,245       20,245
Series B-preferred share dividends
  declared ($1.29 per share)....................             -           -          -               -          (5,141)      (5,141)
Series A-preferred share dividends
  declared ($1.42 per share)....................             -           -          -               -          (2,830)      (2,830)
Common share dividends declared
  ($1.35 per share).............................             -           -          -               -         (20,784)     (20,784)
                                                      ------------------------------------------------------------------------------
Balance at December 31, 1998....................            40          20        151         360,017         (10,223)     350,005
Amortization of restricted
  stock awards..................................             -           -          -             576               -          576
Net income......................................             -           -          -               -          54,848       54,848
Series B-preferred share dividends
  declared ($2.25 per share)....................             -           -          -               -          (9,000)      (9,000)
Series A-preferred share dividends
  declared ($1.50 per share)....................             -           -          -               -          (3,000)      (3,000)
Series A-preferred share amortized dividend.....             -           -          -               -            (103)        (103)
Common share dividends declared
  ($1.35 per share).............................             -           -          -               -         (20,436)     (20,436)
Reclassification of Series A-preferred shares to
   redeemable equity............................             -         (20)         -         (39,980)              -      (40,000)
Conversion of 53,611 common units to common shares
   (one for one)................................             -           -          1             744               -          745
                                                      ------------------------------------------------------------------------------
Balance at December 31, 1999....................           $40         $ -       $152        $321,357       $  12,086     $333,635
                                                      ==============================================================================

</TABLE>

                             See accompanying notes.


                                      F-6
<PAGE>

                  PRIME GROUP REALTY TRUST AND THE PREDECESSOR

             COMBINED STATEMENT OF CHANGES IN PREDECESSOR'S DEFICIT

              PERIOD FROM JANUARY 1, 1997 THROUGH NOVEMBER 16, 1997

                             (DOLLARS IN THOUSANDS)

<TABLE>

<S>                                                                           <C>
Balance at January 1, 1997...............................................     $  (115,792)
Contributions............................................................          44,330
Distributions............................................................            (120)
Net income...............................................................          37,606
                                                                             ---------------
Balance at November 16, 1997.............................................     $   (33,976)
                                                                             ===============

</TABLE>

                             See accompanying notes.



                                      F-7
<PAGE>

                  PRIME GROUP REALTY TRUST AND THE PREDECESSOR

        CONSOLIDATED STATEMENTS OF CASH FLOWS OF PRIME GROUP REALTY TRUST
             AND COMBINED STATEMENT OF CASH FLOWS OF THE PREDECESSOR

                             (DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>

                                                                        PRIME GROUP REALTY TRUST                      PREDECESSOR
                                                                       --------------------------------------------- --------------
                                                                                                      Period from     Period from
                                                                                                      November 17,    January 1,
                                                                                                      1997 through    1997 through
                                                                           Year ended December 31,    December 31,    November 16,
                                                                             1999          1998           1997           1997
                                                                       --------------------------------------------- --------------
<S>                                                                       <C>             <C>       <C>                  <C>
Operating activities
Net income..........................................................      $   54,848      $20,245   $        792         $37,606
Adjustments to reconcile net income  to net cash provided
   by (used in) operating activities:
     Amortization of costs for leases assumed (included in rental
      revenue)......................................................             899        1,137            142           1,022
     Interest income and developer fees added to mortgage note
      receivable principal..........................................          (2,580)      (1,010)             -               -
     Gain on sales of real estate...................................         (53,050)           -              -            (286)
     Depreciation and amortization..................................          33,258       25,447          2,478          11,241
     Interest added to principal on mortgage note payable affiliate.               -            -              -           9,772
     Standby loan fee-affiliate added to principal on mortgage
      note payable affiliate........................................               -            -              -             460
     Net gain on treasury lock terminations.........................            (615)           -              -               -
     Loss on land development option................................             600            -              -               -
     Net equity in loss of unconsolidated investments...............           3,609          274              -               -
     Minority interests.............................................          30,687        9,368            635            (666)
     Extraordinary items, net of minority interest..................           1,082        1,253              -         (65,990)
     Changes in operating assets and liabilities:
       Increase  in tenant receivables..............................          (4,988)      (3,468)           (15)           (916)
       (Increase) decrease in deferred rent receivable..............          (3,263)      (1,234)           180             487
       Decrease (increase) in other assets..........................          18,435      (21,458)       (10,032)            506
       Increase (decrease) in accrued interest payable..............           1,068        1,195           (175)         (1,118)
       Increase in accrued real estate taxes........................          21,049       11,742          7,556             415
       Increase in accounts payable and accrued expenses............           8,702        7,299          7,202           3,498
       Decrease in liabilities for leases assumed...................          (1,204)        (966)          (350)         (1,049)
       (Decrease) increase in other liabilities.....................          (3,445)       3,701         (1,707)            777
                                                                       --------------------------------------------- --------------
Net cash provided by (used in) operating activities.................         105,092       53,525          6,706          (4,241)

</TABLE>

                             See accompanying notes.


                                      F-8
<PAGE>

                  PRIME GROUP REALTY TRUST AND THE PREDECESSOR

        CONSOLIDATED STATEMENTS OF CASH FLOWS OF PRIME GROUP REALTY TRUST
       AND COMBINED STATEMENT OF CASH FLOWS OF THE PREDECESSOR (CONTINUED)

                             (DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>

                                                                                 PRIME GROUP REALTY TRUST              PREDECESSOR
                                                                       -------------------------------------------------------------
                                                                                                       Period from     Period from
                                                                                                      November 17,      January 1,
                                                                                                      1997 through     1997 through
                                                                          Year ended December 31,     December 31,     November 16,
                                                                            1999           1998           1997            1997
                                                                       -------------------------------------------------------------
<S>                                                                        <C>           <C>            <C>              <C>
INVESTING ACTIVITIES
Expenditures for real estate and equipment..........................       $(583,454)    $(301,068)     $(297,019)       $ (5,659)
Proceeds from sales of real estate..................................         154,309             -              -             298
Purchase of and additional advances on mortgage note receivable.....         (16,837)       (4,943)       (51,163)              -
Decrease (increase) in restricted cash escrows......................          11,680       (50,736)             -               -
Leasing costs.......................................................          (7,106)       (2,840)           (48)         (1,459)
Net repayments from (loans provided to) services company............           2,801        (1,797)        (5,258)              -
Distribution from unconsolidated joint venture......................           1,275             -              -               -
Cash contributed to services company................................               -             -           (376)              -
Decrease in due from affiliates.....................................               -             -              -           2,894
                                                                       -------------------------------------------------------------
Net cash used in investing activities...............................        (437,332)     (361,384)      (353,864)         (3,926)

FINANCING ACTIVITIES
Net proceeds from the sale of preferred shares......................               -        95,325         39,600               -
Net proceeds from the sale of common shares.........................               -        45,930        232,352               -
Common share repurchases............................................               -        (7,267)             -               -
Proceeds from sale of operating partnership units...................               -             -         85,000               -
Financing costs.....................................................          (8,306)       (7,785)        (3,328)              -
Deposits returned (made)  under treasury lock agreements............          15,256       (14,641)             -               -
Proceeds from mortgage notes payable................................         546,538       514,065         84,198             480
Proceeds from mortgage notes payable - affiliates...................               -             -              -           5,647
Net proceeds (repayment of) from credit facilities..................          19,527      (159,000)       159,000               -
Repayment of mortgage notes payable.................................        (219,163)      (85,957)      (236,537)           (119)
Repayment of mortgage notes payable - affiliates....................               -        (3,984)        (4,895)        (41,367)
Decrease in due to affiliates.......................................               -             -              -            (708)
Contribution from minority interests - other........................               -         1,000              -               -
Distributions to minority interest - operating partnership..........         (14,151)      (12,116)             -            (120)
Series A - preferred shares transaction fee.........................            (400)            -              -               -
Dividends paid to Series B - preferred shareholders.................          (9,000)       (2,891)             -               -
Dividends paid to Series A - preferred shareholders.................          (2,980)       (2,445)             -               -
Dividends paid to common shareholders...............................         (20,414)      (17,844)             -               -
Contributions from partners.........................................               -             -              -          44,330
Distributions to partners...........................................               -             -              -            (120)
Debt termination fees...............................................               -             -              -          (1,692)
                                                                       -------------------------------------------------------------
Net cash provided by financing activities...........................         306,907       342,390        355,390           6,331
                                                                       -------------------------------------------------------------
Net (decrease) increase in cash and cash equivalents................         (25,333)       34,531          8,232          (1,836)
Cash and cash equivalents at beginning of period....................          46,500        11,969          3,737           5,573
                                                                       -------------------------------------------------------------
Cash and cash equivalents at end of period..........................       $  21,167     $  46,500     $   11,969        $  3,737
                                                                       =============================================================

</TABLE>

                             See accompanying notes.



                                      F-9
<PAGE>

                  PRIME GROUP REALTY TRUST AND THE PREDECESSOR

        CONSOLIDATED STATEMENTS OF CASH FLOWS OF PRIME GROUP REALTY TRUST
       AND COMBINED STATEMENT OF CASH FLOWS OF THE PREDECESSOR (CONTINUED)

                             (DOLLARS IN THOUSANDS)

During the year ended December 31, 1999, the Company sold the following assets
and liabilities:

<TABLE>

<S>                                                                                                                      <C>
   Real estate, net..............................................................................................        $ 261,255
   Tenant receivables, net.......................................................................................              838
   Deferred rent receivable......................................................................................           32,824
   Deferred costs, net...........................................................................................           13,318
   Mortgage notes payable........................................................................................         (205,109)
   Accrued real estate taxes.....................................................................................          (10,017)
   Other liabilities and assets, net.............................................................................            4,580
                                                                                                                     ---------------
   Net assets sold...............................................................................................           97,689
   Proceeds from sales of real estate............................................................................          154,309
                                                                                                                     ---------------
   Total gain on sales of real estate............................................................................           56,620
   Less gain deferred............................................................................................           (3,570)
                                                                                                                     ---------------
   Gain recognized on sales of real estate.......................................................................        $  53,050
                                                                                                                     ===============

   Supplemental disclosure of non-cash investing and financing activities:

   The following represents noncash activity for the years ended December 31, 1999
   and 1998:

<CAPTION>

                                                                                                          Year ended December 31,
                                                                                                             1999             1998
                                                                                                        ----------------------------
<S>                                                                                                      <C>           <C>
   Real estate additions through the assumption of mortgage payables................................     $ 140,899     $         -
   Real estate additions through the issuance of partnership units and common share grants..........         8,828           1,658
   Capital lease transaction........................................................................         1,250               -
   Accounts payable and accrued expenses for property under development.............................           989           4,060
   Accounts payable and accrued expenses for mortgage note receivable advances......................           374             806
                                                                                                        ----------------------------
                                                                                                         $ 152,340     $     6,524
                                                                                                        ============================

   Mortgage notes payable assumed...................................................................     $ 140,899     $         -
   Partnership units issued to minority interest....................................................         8,252           1,200
   Accounts payable and accrued expenses............................................................         1,363           4,866
   Capital lease mortgage note payable..............................................................         1,250               -
   Issuance of common share grants..................................................................           576             458
                                                                                                        ----------------------------
                                                                                                         $ 152,340     $     6,524
                                                                                                        ============================

</TABLE>


                                      F-10
<PAGE>

                  PRIME GROUP REALTY TRUST AND THE PREDECESSOR

        CONSOLIDATED STATEMENTS OF CASH FLOWS OF PRIME GROUP REALTY TRUST
       AND COMBINED STATEMENT OF CASH FLOWS OF THE PREDECESSOR (CONTINUED)

                             (DOLLARS IN THOUSANDS)

    The following assets and liabilities (Includes $12,000 of bonds receivable
    which have been netted against the corresponding bonds payable contributed
    by the Predecessor. Also includes cash of $376, net equipment of $83 and
    accounts payable of $839 which the Company immediately contributed to the
    Services Company.) were contributed by certain minority interest partners to
    the Company on November 17, 1997:

<TABLE>

<S>                                                                                                <C>
 Real estate, net...........................................................................       $ 243,637
 Cash and cash equivalents..................................................................           3,737
 Tenant receivable..........................................................................          41,813
 Deferred costs, net........................................................................          25,270
 Other assets...............................................................................             885
                                                                                               ----------------
 Total assets...............................................................................         315,342
                                                                                               ----------------

 Mortgage notes payable.....................................................................         241,432
 Bonds payable..............................................................................          74,450
 Accrued interest payable...................................................................           1,420
 Accrued real estate taxes..................................................................          10,359
 Accounts payable and accrued expenses......................................................           7,711
 Liabilities for leases assumed.............................................................           6,108
 Other liabilities..........................................................................           2,529
 Minority interests.........................................................................          (6,564)
                                                                                               ----------------
 Total liabilities and minority interests...................................................         337,445
                                                                                               ----------------
 Predecessor's net contribution.............................................................       $ (22,103)
                                                                                               ================


         The following represents our noncash activity during the period from
November 17, 1997 through December 31, 1997:

<CAPTION>

<S>                                                                                                <C>
Mortgage note receivable....................................................................       $   5,100
Real estate.................................................................................          48,814
                                                                                               ----------------
                                                                                                   $  53,914
                                                                                               ================

Debt assumed................................................................................       $  10,396
Partnership units issued to minority interest...............................................          42,088
Step-up in basis from purchase of third-party owner's interest in the Predecessor...........           1,430
                                                                                               ================
                                                                                                   $  53,914
                                                                                               ================

</TABLE>

                             See accompanying notes.


                                      F-11
<PAGE>

                  PRIME GROUP REALTY TRUST AND THE PREDECESSOR

             NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS

        (DOLLARS IN THOUSANDS, EXCEPT FOR PER SHARE AND PER UNIT AMOUNTS)

1.     SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

FORMATION AND ORGANIZATION OF THE COMPANY

         Prime Group Realty Trust (the "Company") was organized in Maryland on
July 21, 1997. The Company qualified as a real estate investment trust ("REIT")
beginning with the period ended December 31, 1997, under the Internal Revenue
Code of 1986, as amended, for Federal income tax purposes. On November 17, 1997,
the Company completed its initial public offering with the sale of 12,380,000 of
its common shares of beneficial interest at $20.00 per share and the private
placement of 2,000,000 of the Company's Series A-cumulative convertible
preferred shares of beneficial interest at $20.00 per share. The Company
contributed the initial net proceeds from the offering and private placement in
exchange for 12,380,000 common units of partnership interest and 2,000,000
preferred units of partnership interest in Prime Group Realty, L.P. (the
"Operating Partnership"). Subsequent to the initial public offering, the Company
issued an additional 3,204,994 of its common shares (sold 600,000 common shares
in 1997, sold 2,579,994 common shares in 1998 and granted 25,000 shares in 1998)
and 4,000,000 of its Series B-cumulative redeemable preferred shares and
contributed the net proceeds to the Operating Partnership in exchange for the
same number of common units and preferred units of partnership interest. In
addition, during 1998, the Company repurchased 474,200 of its common shares for
an aggregate purchase price of $7,267, pursuant to a common share repurchase
program the Company established in September 1998. On January 8, 1999, the
Company filed its initial shelf registration statement on Form S-3 with the
Securities and Exchange Commission (which was declared effective on June 8,
1999) to register up to $500,000 of its equity and debt securities for future
sale.

         The Company is the managing general partner of the Operating
Partnership and owns all of the preferred units and 58.4% and 59.4% of the
common units issued at December 31, 1999 and 1998, respectively. Each common
unit entitles the Company to receive distributions from the Operating
Partnership. Distributions declared or paid to holders of common shares and
preferred shares are based upon such distributions the Company receives with
respect to its common units and preferred units.

         In conjunction with the Company's initial contribution to the
Operating Partnership, The Prime Group, Inc. ("PGI") contributed its interest
in 23 partnerships that owned various office and industrial properties
(represents the Predecessor's operations) to the Operating Partnership in
exchange for 3,465,000 common units (PGI contributed 3,375,000 of these
common units to Primestone Investment Partners L.P. described below) and
received approximately $6,487 for the reimbursement of the Company's
formation costs advanced by PGI. The Operating Partnership was required to
acquire a third-party ownership interest in certain of the Predecessor's
properties for $1,797, resulting in a step-up in the basis of real estate of
$3,227. Certain other individuals contributed their ownership interests in
various properties, including the related debt, to the Operating Partnership
in exchange for cash of approximately $15,761 and 1,849,417 common units
valued at $20.00 per unit (total value of $36,988). In addition, Primestone
Investment Partners L.P. ("Primestone"), an entity in which PGI has a 60%
ownership interest,

                                      F-12
<PAGE>

1.       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

acquired 4,569,893 common units from the Operating Partnership for $85,000 (PGI
directly or indirectly owns 31.7% and 31.4% of the Operating Partnership at
December 31, 1999 and 1998, respectively.) These properties (including the
Predecessor's properties), along with other acquired properties, are controlled
by the Operating Partnership. PGI, the other contributors and Primestone
have been reflected as Minority Interest - Operating Partnership in the
consolidated financial statements.

BASIS OF PRESENTATION

         The Company's consolidated financial statements include all of its
accounts, including the Operating Partnership and the other entities in which
the Company has control. The combined financial statements of the Predecessor
include the accounts of the partnerships in which the Predecessor had majority
interest, control or managed. The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.

         Investments in corporations and partnerships in which the Company does
not have operational control or a majority interest are accounted for on the
equity method of accounting.

         Significant intercompany accounts and transactions have been eliminated
in consolidation and combination.

         Certain amounts in the prior period consolidated and combined financial
statements have been reclassified to conform to the current period presentation,
with no effect on the Company's consolidated or the Predecessor's combined
financial position or results of operations.

         On December 15, 1997, the Company acquired the first mortgage note
encumbering an office property known as Continental Towers for $108,870, with a
face value of $157,161. On May 15, 1998, the Company sold $75,000 of the note to
a third-party bank and the note became subordinate to the third-party note. The
note has a base interest rate of 6.5% per annum payable monthly, and a
contingent interest rate of 6.5% per annum, payable from available cash flow as
defined. All unpaid interest is added to principal. The note matures January
2013. The Company will receive all of the economic benefits from its interest in
the property and therefore, has consolidated the operations of the property from
the acquisition date.

         On November 17, 1997, the Operating Partnership acquired the assets and
business of two property management and realty services companies from a third
party and contributed these entities and certain other assets to a newly formed
corporation, Prime Group Realty Services, Inc. (the "Services Company"). In
exchange for its contribution, the Operating Partnership received 100% of the
non-voting preferred stock of the Services Company and a note receivable in the
amount of $4,800. Certain members of the Company's management own 100% of the
voting common stock. The Services Company was formed primarily to operate
certain business lines that are not directly associated with the collection of
rents. The Services Company is subject to federal, state and local taxes. The
Company records its ownership in the Services Company using the equity method of
accounting.


                                      F-13
<PAGE>

1.       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

REAL ESTATE

         Depreciation is calculated on the straight-line method over the
estimated useful lives of assets, which are as follows:

<TABLE>

<S>                                               <C>
       Building and improvements                  40 years
       Tenant improvements                        Term of related leases
       Furniture and equipment                    3-7 years

</TABLE>

         Development costs, which include land acquisition costs, fees and other
costs incurred in developing new properties, are capitalized as incurred. Upon
completion of construction, development costs are included in buildings and
improvements and are depreciated over the useful lives of the respective
properties on a straight-line basis. Interest, financing costs and other direct
costs incurred during development periods are capitalized as a component of the
building costs.

         Real estate is carried at depreciated cost. Expenditures for ordinary
maintenance and repairs are expensed to operations as incurred. Significant
renovations and improvements which improve and/or extend the useful life of the
asset are capitalized and depreciated over their estimated useful life.

CASH EQUIVALENTS

         The Company considers highly liquid investments with a maturity of
three months or less when purchased to be cash equivalents.

DEFERRED COSTS

         Costs incurred in connection with financings, refinancings or debt
modifications are capitalized as deferred financing costs and are amortized on
the straight-line method over the lives of the related loans. Leasing
commissions and other leasing costs directly attributable to tenant leases are
capitalized as deferred leasing costs and are amortized on the straight-line
method over the terms of the related lease agreements.

LEASES ASSUMED

       In connection with certain tenant leases, the Company has assumed the
liability for the remaining terms of the tenants' existing leases in their
previous location. The Company has recorded a liability for the difference
between total remaining costs for leases assumed and the expected benefits from
subleases of the assumed lease properties. The related incentive to lessee has
been capitalized as a deferred charge and is being amortized to rental revenue
over the life of the respective lease. The deferred charge and related liability
are adjusted for changes in the expected benefits from subleases. During the
year ended December 31, 1998, the Company assumed additional liability of
$1,357. During the period from January 1, 1997 through November 16, 1997, the
Predecessor wrote off $1,049 of deferred charges and reduced the related
liability due to changes in the estimated benefits from subleases. No amounts
were written off during the years ended December 31, 1999 and 1998 or during the
period from November 17, 1997 through December 31, 1997.


                                      F-14
<PAGE>

1.       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

RENTAL REVENUE

         Rental revenue is recorded on the straight-line method over the terms
of the related lease agreements for new leases and the remaining terms of
existing leases for acquired properties. Differences between rental revenue
earned and amounts due per the respective lease agreements are credited or
charged, as applicable, to deferred rent receivable. Rental payments received
prior to their recognition as income are classified as rent received in advance.

INTEREST RATE PROTECTION AGREEMENTS

         The Company from time to time enters into interest rate protection
agreements to effectively convert floating rate debt to a fixed rate basis,
provide for an interest rate cap or collar and hedge anticipated financing
transactions. Net amounts paid or received under these agreements are recognized
as an adjustment to interest expense when such amounts are incurred or earned.
Amounts payable or receivable from the counterparty are included in accrued
interest payable accounts or accounts receivable. Premiums paid for the
Company's interest rate protection agreements are included in deferred financing
costs and are amortized ratably over the term of the respective interest rate
protection agreement. Settlement amounts paid or received in connection with
terminated interest rate protection agreements are deferred and amortized over
the remaining term of the related financing transaction using the straight-line
method. The Company believes it has limited exposure to the extent of
non-performance by the counterparties of each protection agreement since each
counterparty is a major financial institution, and the Company does not
anticipate their non-performance. The fair value of the interest rate protection
agreements are not recognized in the financial statements as the agreements
qualify as hedges of the Company's interest rate risk. Interest rate protection
agreements or specific notional components thereof that do not qualify as a
hedge of the Company's interest rate risk would be recorded at fair value.

         In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for
Derivative Instruments and Hedging Activities" ("Statement No. 133"). Statement
No. 133 requires recording all derivative instruments as assets or liabilities,
measured at fair value. Derivatives that are not hedges must be adjusted to fair
value through income. If the derivative is a hedge, depending on the nature of
the hedge, changes in the fair value of derivatives will either be offset
against the change in fair value of the hedged assets, liabilities, or firm
commitments through earnings or recognized in other comprehensive income until
the hedged item is recognized in earnings. The ineffective portion of a
derivative's change in fair value will be immediately recognized in earnings.
Statement No. 133 was originally to be effective for fiscal years beginning
after June 15, 1999 but was subsequently postponed to all fiscal years beginning
after June 15, 2000. The Company is planning to adopt Statement No. 133
effective January 1, 2001 and does not anticipate that the adoption will have a
material impact on the Company's financial condition and results of operations.

EARNINGS PER SHARE

         Basic earnings per share ("EPS") is calculated by dividing net income
available to common shareholders by the weighted average number of shares
outstanding during the period. Diluted EPS includes the potentially dilutive
effect, if any, which would occur if outstanding (i) common stock options were
exercised, (ii) common units were converted into shares of common share, (iii)
share grants were fully-vested, and (iv) convertible preferred shares were
converted into common shares.


                                      F-15
<PAGE>

1.       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

STOCK BASED COMPENSATION

         The Company accounts for share option grants in accordance with
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" ("APB 25"). Under APB 25, no compensation expense is recognized for
the share option grants because the exercise price of the options equals the
market price of the underlying shares at the date of grant.

INCOME TAXES

         Commencing with the period ended December 31, 1997, the Company elected
to be taxed as a REIT under the Internal Revenue Code of 1986, as amended. As a
REIT, the Company generally will not be subject to federal income tax to the
extent that it distributes at least 95% of its REIT taxable income to its
shareholders. REITs are subject to a number of organizational and operational
requirements. If the Company fails to qualify as a REIT in any taxable year, the
Company will be subject to federal income tax (including any applicable
alternative minimum tax) on its taxable income at regular corporate tax rates.

         As of December 31, 1999, for income tax purposes, the Company's real
estate had a gross and net basis of $849,867 and $803,361, respectively,
mortgage notes receivable had a basis of $170,549, deferred costs had a gross
and net basis of $41,811and $27,438, respectively, and deferred rent receivable
had no tax basis.

         The Predecessor paid no income taxes, and the income or loss from its
partnerships is included on the respective income tax returns of the
Predecessor's partners.

2.     MORTGAGE NOTE RECEIVABLE

         On December 16, 1997, the Company acquired for approximately $51,163 in
cash and $5,100 in common units, the first mortgage note encumbering the office
property known as 180 North LaSalle Street. This 39-story office building is,
located in Chicago, Illinois contains 728,860 square feet of rentable space and
is approximately 58.0% leased at December 31, 1999. During 1999 and 1998, the
Company made additional advances of $17,146 and $4,943, respectively, which were
used to fund the redevelopment of the building and pay various operating
expenses. The Company anticipates providing additional advances of $2,654 to
complete the building's redevelopment. The note requires principal payments due
at maturity on January 15, 2004. The note has a face value of $89,573 and
$69,277 at December 31, 1999 and 1998, respectively.

       The note provides for interest at an accrual rate of 9.64% per annum, and
a minimum pay rate at the lower of 8.25% per annum, or $2,400 annually, as
defined, payable monthly. During 1999 and 1998, the Company received interest
income payments of $4,728 and $5,373, respectively. No payments were received
during the period from November 17, 1997 through December 31, 1997. During the
years ended December 31, 1999 and 1998 and the period from November 17, 1997
through December 31, 1997, $1,995, $258 and $248, respectively, of interest
income was added to the principal balance.

         Included in the purchase was a non-refundable option, exercisable until
July 30, 2000, to acquire the existing $85,000 second mortgage on the property
for $4,400 in common units of the Operating Partnership (amount included in
minority interest-operating partnership), valued at the lower of $20.00 per unit
or the Company's common share price at the date issued (5,000 common


                                      F-16
<PAGE>

2.       MORTGAGE NOTE RECEIVABLE  (CONTINUED)

units per month if the Company's common share market value is equal to or
greater than $20.00 per share or $100 in common units per month if the Company's
common share market value is below $20.00 per share; 80,442 and 67,018 common
units were issued during the years ended December 31, 1999 and 1998,
respectively), subject to certain adjustments, as defined. On November 15, 1999,
the holder of such common units redeemed 53,611 common units for 53,611 common
shares of the Company. At December 31, 1999 and 1998, $2,500 and $1,300,
respectively, is included in other assets related to the options. In addition,
the Company has an option to purchase the equity ownership of the property
during the period from January 15, 2004 to February 15, 2004 for a price equal
to the greater of the fair market value of the interest or $2,000.

         During 1999 and 1998, the Company provided construction management
services of $585 and $752, respectively, to the property, which have been added
to the principal balance. The Services Company provides property management and
leasing services for the property pursuant to a 10-year management and leasing
contract.

3.       DEFERRED COSTS

                  Deferred costs consist of the following:

<TABLE>
<CAPTION>

                                                                                      December 31,
                                                                   ---------------------------------------------------
                                                                              1999                     1998
                                                                   ---------------------------------------------------
<S>                                                                         <C>                       <C>
          Financing costs......................................             $  16,016                 $  12,161
          Leasing costs........................................                24,862                    40,132
                                                                   ---------------------------------------------------
                                                                               40,878                    52,293
          Less: Accumulated amortization.......................               (13,977)                  (19,402)
                                                                   ---------------------------------------------------
                                                                            $  26,901                 $  32,891
                                                                   ===================================================

</TABLE>


                                      F-17
<PAGE>

4.     MORTGAGE NOTES PAYABLE, CREDIT FACILITIES AND BONDS PAYABLE

         Mortgage notes payable, credit facilities and bonds payable consisted
of the following:

<TABLE>
<CAPTION>

                                                                                             DECEMBER 31,
                                                                                 -------------------------------------
                                                                                        1999              1998
                                                                                 -------------------------------------
<S>                                                                                   <C>               <C>
          Mortgage Notes Payable (A), (B):
             Mortgage notes payable to various financial institutions,
               collateralized by various properties, interest at fixed rates
               ranging from 6.75% to 11% per annum, with principal and interest
               payable through dates ranging from 2000 through 2013. The
               weighted average rate
               at December 31, 1999 was 7.4%.................................         $329,604          $282,618
             Mortgage notes payable to various financial institutions,
               collateralized by various properties, interest at variable rates
               ranging from LIBOR (5.82% at December 31, 1999) plus 165 basis
               points to LIBOR plus 450 basis points or Prime (8.5% at December
               31, 1999) plus 50 basis points per annum with principal and
               interest payable monthly through dates ranging from 2000 through
               2004. The weighted average rate at
               December 31, 1999 was 8.43%...................................          375,590           236,100
                                                                                 -------------------------------------
             Total mortgage notes payable....................................         $705,194          $518,718
                                                                                 =====================================
             Credit Facilities (A), (B):
             Line-of-credit with two financial institutions, collateralized by
               various properties with a maximum draw of $35,000, interest at
               rates of the higher of prime or federal funds rate plus 50 basis
               points or LIBOR plus 225 basis points, per annum, selected at the
               option of the Company with interest payable monthly and principal
               due November 2000 (D).........................................         $  7,527          $      -
             Line-of-credit with a financial institution, collateralized by an
               industrial property with a maximum draw of $12,000, interest at
               LIBOR plus 195 basis points, per annum, with interest payable
               monthly and principal due January 2000, with an option to extend
               the line for one year...........................................         12,000                 -
                                                                                 -------------------------------------
             Total credit facilities...........................................       $ 19,527          $      -
                                                                                 =====================================
             Bonds Payable:
             Variable rate taxable and tax-exempt bonds issued by various state
                and local government authorities (B), (C), (D)...............         $ 74,450          $ 74,450
                                                                                 =====================================

</TABLE>

(A)      The mortgage notes payable and credit facilities are subject to various
         operating and financial covenants. In addition, the Company is required
         to maintain escrow accounts to fund future real estate tax and other
         operating expense payments, which are included in restricted cash
         escrows.


                                      F-18
<PAGE>

4.       MORTGAGE NOTES PAYABLE, CREDIT FACILITIES AND BONDS PAYABLE (CONTINUED)

(B)      The majority of the Company's real estate assets and its mortgage note
         receivable have been pledged as collateral for its mortgage notes
         payable, credit facilities and bonds payable.

(C)      Permanent financing for the development of certain industrial
         properties has been provided by $48,150 of tax exempt industrial
         development revenue bonds that mature on February 16, 2022. On December
         13, 1995, and on May 20, 1996, the bonds were acquired by independent
         third party financial institutions from an affiliate of PGI.

         Under the terms of the bond loan agreements, the Company makes
         interest-only payments monthly, calculated using a floating rate
         determined by the remarketing agent of the bonds. The rates ranged from
         2.28% to 5.67% during 1999, 2.97% to 4.50% during 1998, and 3.35% to
         4.75% during 1997. The rate at December 31, 1999 was 5.67%. The maximum
         annual interest rate on the bonds is 13%. Under certain conditions, the
         interest rate on the bonds may be converted to a fixed rate at the
         Company's request.

         Beginning February 1998, the bonds were collateralized by letters of
         credit from a financial institution totaling $48,800 which expire
         February 2002 (the bonds become due on this date unless replacement
         collateral is obtained.) The letters of credit are collateralized by
         mortgages on the related industrial facilities and a $5,000 cash
         collateral account and have an annual fee of 1.65% of the letters of
         credit face amounts. From November 17, 1997 through February 1998, the
         bonds were collateralized by letters of credit totaling $48,000 from
         our $80,000 line-of-credit (subsequently reduced to $35,000). From May
         1996 to November 16, 1997, the bonds were collateralized by letters of
         credit that required the Predecessor to pay financing fees of 1.75% per
         annum of the face amount, payable quarterly in advance.

         The bondholders may tender bonds on any business day during the
         variable interest rate period discussed above and receive principal,
         plus accrued interest through the tender date. Upon tender, the
         remarketing agent will immediately remarket the bonds. In the event the
         remarketing agent fails to remarket any bonds, the Company is obligated
         to purchase those bonds. The remarketing agent receives a fee of 0.11%
         per annum of the outstanding bonds balance, payable quarterly in
         advance.

(D)      Permanent financing for the development of certain office properties
         has been provided by $26,300 of tax-exempt industrial revenue bonds.
         The bonds mature on December 1, 2014. Under the terms of the bond
         agreements, the Company makes interest-only payments monthly,
         calculated using a floating rate determined by the remarketing agent of
         the bonds. The rates ranged from 3.05% to 4.55% during 1999, 3.40% to
         4.00% during 1998 and 3.35% to 3.85% during 1997. The rate at December
         31, 1999 was 4.55%.

         Under certain conditions, the interest rates on the bonds may be
         converted to a fixed rate at the Company's request.

         The bonds are collateralized by letters of credit totaling $26,930 from
         our $35,000 line-of credit, which are subject to an annual fee of 2.25%
         of the amount outstanding.

         Under the terms of the bond agreements, the bondholders have the option
         to require the Company to purchase any of their bonds on the 15th day
         of any month while the bonds are outstanding. Upon the exercise of the
         bondholders' option to purchase the bonds, the remarketing agent will
         immediately remarket the bonds. In the event the remarketing agent
         fails to remarket the bonds, the Company is obligated to purchase those
         bonds. The remarketing agent receives a fee of 0.10% per annum of the
         outstanding bonds balance, payable quarterly in advance.


                                      F-19
<PAGE>

4.       MORTGAGE NOTES PAYABLE, CREDIT FACILITIES AND BONDS PAYABLE (CONTINUED)

         During the years ended December 31, 1999 and 1998, the Company
wrote-off deferred financing costs of $1,836 and $2,131, respectively, net of
accumulated amortization of $945 and $32, respectively. These write-offs
resulted from mortgage notes and bonds payable that were repaid or refinanced
and from the reduction in the maximum balance that can be drawn on the $35,000
line-of-credit (reduced from $235,000 to $80,000 during 1998 and from $80,000 to
$35,000 during 1999). The total of these write-offs has been reflected as an
extraordinary loss in the 1999 and 1998 statements of operations, net of
minority interests of $754 and $878, respectively.

         The Predecessor had entered into a mortgage note agreement with a
consortium of commercial lenders providing a maximum loan of $230,000
collateralized by a first mortgage on the 77 West Wacker Drive building. The
loan was repaid with proceeds from the initial public offering. Under the terms
of the loan, the Predecessor made monthly interest-only payments, calculated
using certain variable rate indices, as defined. To reduce the impact of
increases in interest rates, the Predecessor also entered into an interest rate
swap agreement with affiliates of one of 77 West Wacker Drive building's third
party owners (Counterparties) for the outstanding loan principal balance. Under
the terms of the interest rate swap agreement, the Predecessor paid the
Counterparties interest monthly at a fixed rate of 10% per annum. The
Predecessor was to receive monthly interest payments from the Counterparties at
the variable rate and was then responsible for making the monthly interest
payments required under the terms of the loan. The Predecessor incurred $692 of
fees to terminate the swap agreement, which have been reflected in the
extraordinary item extinguishment of debt in the period from January 1, 1997
through November 16, 1997.

         Total interest paid on the mortgage notes payable, credit facilities
and bonds payable was $49,566, $32,204, $1,855, and $25,731 for the years ended
December 31, 1999 and 1998, the period from November 17, 1997 through December
31, 1997, and the period from January 1, 1997 through November 16, 1997,
respectively. During the years ended December 31, 1999 and 1998, the Company
incurred interest expense of $50,634 and $33,399, respectively, of which $7,986
and $2,498, respectively, was capitalized related to development projects (no
interest was capitalized in the previous periods.)

         On August 21, 1998, the Company entered into two treasury lock
agreements with two financial institutions to lock certain debt instruments at
the interest rate on ten-year Treasury Notes effective on the date of the
agreements to provide interest rate protection on future debt financings. One of
these agreements was entered into in anticipation of a planned future
securitization of a $170,000 loan related to the 77 West Wacker Drive building,
and had a lock rate of 5.364%. The other agreement was entered into in
anticipation of $160,000 in debt related to the acquisition of IBM Plaza, had a
lock rate of 4.732% and was to expire on March 19, 1999. The Company made
deposits as required by the agreements, totaling approximately $14,641. The
deposits are exclusive of a $2,000 credit threshold described below. The
$170,000 agreement was to expire on February 18, 1999, but was extended to April
15, 1999. At that time, the lock rate was modified to 5.016% and the credit
threshold reduced from $2,000 to $500. On March 1, 1999, the Company terminated
the $160,000 treasury lock agreement due to the change in terms and timing of
the IBM Plaza purchase as a result of the amended purchase agreement.
Approximately $557 on deposit was forfeited at the time of termination. On May
11, 1999, the Company terminated the $170,000 treasury lock agreement due to
changes in timing of a planned future loan securitization related to the 77 West
Wacker Drive building. The termination resulted in a net settlement and gain
upon termination of $1,172. The net gain of $615 from the two terminations has
been included as a net gain in other income in the statement of operations for
the year ended December 31, 1999. During the period January 1, 1999 through


                                      F-20
<PAGE>

4.       MORTGAGE NOTES PAYABLE, CREDIT FACILITIES AND BONDS PAYABLE (CONTINUED)

May 11, 1999, the Company received net cash settlements of approximately $15,256
($7,094 related to the $170,000 agreement, and $8,162 related to the $160,000
agreement) related to both treasury lock agreements.

       On January 31, 1999, the Company entered into an interest rate collar
agreement that hedged the Company's interest rate exposure with respect to the
variable rate mortgage note secured by the 33 West Monroe property. The interest
rate ceiling under the agreement is based on a LIBOR index rate of 7.50% and the
interest rate floor is based on a LIBOR index rate of 3.73%. This agreement is
for an original notional amount of $65,000 and its term coincident with the
aforementioned variable rate mortgage note (January 31, 1999 through January 31,
2002).

       Under the provisions of one of the credit facilities, the Company is
obligated to maintain interest rate contracts on a portion of its variable rate
indebtedness. The Company entered into an interest rate cap agreement in July,
1999 with a financial institution for an original notional amount of $150,000 at
7.00% during the period from July 1 through October 1, 1999. On November 3,
1999, the Company entered into an interest rate collar agreement for the period
from November 1, 1999 through September 30, 2002 with a financial institution
for an original notional amount of $170,000. The interest rate ceiling under the
agreement is based on a LIBOR index rate of 7.75% and the interest rate floor is
based on a LIBOR index rate of 5.62%. This agreement satisfies the Company's
obligation to maintain interest rate contracts under the provisions of one of
its credit facilities. On November 22, 1999, the Company transferred the
$170,000 interest rate collar agreement to an unconsolidated investment
partnership. However, the Company has provided a guaranty to the counterparty
related to this agreement.

         On December 10, 1999, the Company entered into an interest rate swap
agreement based on a LIBOR index rate of 6.3% that effectively fixed the
Company's interest rate with respect to the variable rate mortgage note payable
secured by the IBM Plaza property at a rate of 8.0%. This agreement has an
original notional amount of $160,000 that decreases to $158,400 on December 10,
2000 and to $155,200 on December 10, 2001 coincident with principal payments on
the mortgage note payable secured by the IBM Plaza property. The swap agreement
had a purchase price of $591 which is being amortized over the term of the swap
agreement and terminates on December 10, 2002. No additional amounts were paid
or received under the terms of the swap agreement during 1999.

         On March 20, 2000, the Company entered into an interest rate cap
agreement for the period from March 20, 2000 through November 17, 2000 for a
notional amount of $70,000. The interest rate under the agreement is capped at a
LIBOR index rate of 8.0%.

         The above interest rate protection agreements satisfy the Company's
obligation to maintain interest rate contracts under the provisions of one of
the Company's credit facilities.

The following represents the Company's future minimum principal payments due on
its mortgage notes payable, credit facilities and bonds payable outstanding at
December 31, 1999:

<TABLE>
<CAPTION>

         YEAR ENDING DECEMBER 31                                AMOUNT
         --------------------------------------------------------------------
         <S>                                                     <C>
         2000..............................................      $105,807
         2001..............................................       110,699
         2002..............................................       297,986
         2003..............................................         4,146
         2004..............................................        18,425
         Thereafter........................................       262,108
                                                           ------------------
                                                                 $799,171
                                                           ==================

</TABLE>


                                      F-21
<PAGE>

5.     MORTGAGE NOTES AND BONDS PAYABLE-AFFILIATES

         On January 2, 1998, the Company repaid a 7.0% interest rate mortgage
note payable to a limited partner of $3,984. The note was collateralized by an
industrial property.

         The Predecessor had an 11% subordinate loan agreement with affiliates
of a former third party owner of the 77 West Wacker Drive building for a maximum
disbursement amount of $60,000. A portion of the loan was repaid ($4,895) with
proceeds of the initial public offering, and a portion was considered repaid
from the swap agreement between PGI and a third party related to the loan
described in Note 4 ($42,584 was recorded as a contribution from PGI in the
period from January 1, 1997 through November 17, 1997) and the remainder was
forgiven ($67,847), as of November 16, 1997 and included in the extraordinary
item-extinguishment of debt in the period from January 1, 1997 through November
16, 1997. The third party owner had provided a guarantee of 77 West Wacker Drive
building's first mortgage note payable and charged the Predecessor a standby
loan fee, as defined, which was included as a component of interest expense.
Standby loan fees incurred were $460 for the period from January 1, 1997 to
November 16, 1997 (unpaid interest expense is included in general and
administrative expenses in the Predecessor's combined statements of operations).
Under the terms of the subordinate loan agreement, the Predecessor was not
required to make any periodic principal or interest payments prior to the date
of stabilization, as defined; unpaid interest was added to the principal balance
monthly. Included in the extraordinary item-extinguishment of debt in the period
from January 1, 1997 through November 16, 1997 is $1,000 in loan termination
fees paid to an affiliate of the third party owner and the write-off of
unamortized deferred financing fees of $165.

         Permanent financing for the development of certain industrial
properties has been provided by $12,000 of taxable debt industrial development
revenue bonds and held by an affiliate of PGI. The bonds mature on June 1, 2022.
On November 17, 1997, PGI contributed the related bond receivables as part of
its capital contribution. The bonds payable and related receivable have been
eliminated in the Company's consolidated financial statements. The bonds have
the same terms as the bonds described in letter (C) of Note 4.

         Total interest paid on the mortgage notes payable and bonds payable to
affiliates was $33, and $32 for the year ended December 31, 1998, and for the
period from January 1, 1997 through November 16, 1997, respectively. No interest
was paid for the year ended December 31, 1999 or for the period from November
17, 1997 to December 31, 1997.

6.     FUTURE MINIMUM LEASE INCOME AND PAYMENTS

         The Company has entered into lease agreements with tenants 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.

         Approximately 21%, 16%, 39%, and 57%, of rental revenue for the years
ended December 31, 1999 and 1998, the period from November 17, 1997 through
December 31, 1997, and the period from January 1, 1997 through November 16,
1997, respectively, was received from six different tenants (only five of these
tenants were present during the year ended December 31, 1999, three tenants for
the year ended December 31, 1998 and the period from November 17, 1997 through
December 31, 1997, and four tenants for the period from January 1, 1997 to
November 16, 1997).


                                      F-22
<PAGE>

6.       FUTURE MINIMUM LEASE INCOME AND PAYMENTS (CONTINUED)

         The total future minimum rentals to be received by the Company under
such noncancelable operating leases in effect at December 31, 1999, exclusive of
tenant reimbursements and contingent rentals, are as follows:

<TABLE>
<CAPTION>

              YEAR ENDING DECEMBER 31                                AMOUNT
              -----------------------                                ------
<S>           <C>                                                    <C>
              2000...........................................        $ 118,464
              2001...........................................          109,835
              2002...........................................           98,298
              2003...........................................           89,722
              2004...........................................           80,882
              Thereafter.....................................          331,021
                                                                -----------------
                                                                     $ 828,222
                                                                =================

         Future minimum rentals include amounts to be received from PGI and
certain affiliates totaling $6,024.

         In addition, as a part of lease agreements entered into with certain
tenants, the Company assumed the tenants' leases at their previous locations and
subsequently executed subleases for certain of the assumed lease space. Future
minimum rental payments to be paid by the Company under leases assumed, net of
subleases executed through December 31, 1999, are as follows:

<CAPTION>

              YEAR ENDING DECEMBER 31                                  AMOUNT
              -----------------------                                  ------
<S>           <C>                                                       <C>
              2000...........................................           $1,367
              2001...........................................            1,400
              2002...........................................              749
              2003...........................................               67
                                                                ----------------------
                                                                        $3,583
                                                                ======================

</TABLE>

         During the years ended December 31, 1999 and 1998, the Company
recognized lease termination income of $5,205 and $4,124, respectively, which is
included in rental revenue. In 1999, the Company granted permanent easements for
fees of $2,600, which has been included in other property revenues.

         During 1995, a tenant of the 77 West Wacker Drive building experienced
financial difficulties and in 1997 defaulted on certain 1997 rental payments. In
early November 1997, the Predecessor reached an agreement with the tenant to
terminate the lease. During the period from January 1, 1997 through November 16,
1997, the Predecessor recognized revenue from this tenant only to the extent
cash was received.

7.     PREFERRED SHARES

         The Company is authorized to issue up to 30,000,000 of non-voting
preferred shares of beneficial interest in one or more series. At December 31,
1999 and 1998, the Company had 2,000,000 Series A-Cumulative Convertible
Preferred Shares of beneficial interest ("Series A - preferred shares") with a
$0.01 par value designated, issued and outstanding. On June 5, 1998, the Company
completed the sale of 4,000,000 Series B-Cumulative Redeemable Preferred Shares
of beneficial interest ("Series B - preferred shares") with a $0.01 par value,
which were designated issued and outstanding at December 31, 1999 and 1998.

         Distributions on the Series B-preferred shares are payable quarterly on
or about the last day of January, April, July and October of each year, at the
rate of 9% (equivalent to $2.25 per annum


                                      F-23
<PAGE>

7.     PREFERRED SHARES (CONTINUED)

per Series B-preferred share). The Series B-preferred shares rank senior to the
Company's common shares and Series A preferred shares as to the payment of
dividends and as to the distribution of assets. On and after June 5, 2003, the
Series B-preferred shares may be redeemed at the Company's option at a
redemption price of $25.00 per share plus accrued and unpaid distributions. The
redemption price is payable solely out of the proceeds from the sale of other
Company capital shares of beneficial interest.

         Distributions on the Series A-preferred shares are payable quarterly on
or about the last day of March, June, September and December of each year, at a
rate of 7.5% (equivalent of $1.50 per annum per Series A-preferred share
starting November 17, 1998; prior to November 17, 1998, equivalent of $1.40 per
annum per Series A - preferred share). The Series A-preferred shares rank senior
to the Company's common shares as to the payment of dividends and as to the
distribution of assets. Series A-preferred shareholders can convert their
preferred shares into the Company's common shares based on a conversion price,
as defined. The Company has the option to redeem the Series A-preferred shares
beginning on and after November 17, 2007, in cash equal to the original issue
price ($20.00) plus any accrued and unpaid dividends. The holders of the Series
A-preferred shares have the right to elect two additional members to the
Company's Board of Directors if the equivalent of two quarterly dividends are in
arrears. Each of such two directors will be elected to serve until the earlier
of: (1) the election and qualification of such directors' successor, or (2) the
payment of the dividend arrearage.

         On April 13, 1999, the Company modified the terms of the Company's
Series A preferred shares. Under the original terms, the holders of the Series A
preferred shares had certain conversion rights if for two consecutive quarters
(1) the ratio of the Company's debt plus nonconvertible preferred shares divided
by its total market capitalization exceeded 65% or (2) its fixed charges
coverage ratio fell below 1.4. The new agreement eliminates the debt-to-market
capitalization covenant. In exchange, the holders of the Series A preferred
shares were granted the future right to cause the redemption of their shares at
a price of $20.00 per share upon 120 days' prior written notice, which
redemption may occur during the period beginning January 15, 2002 and ending
January 15, 2004. The Series A preferred shares will continue to pay an annual
dividend of $1.50 per share and will continue to be convertible into common
shares on a one for one basis. The Company made a $400 one-time payment as part
of this transaction, which will be amortized, using the straight-line method,
through January 15, 2002 as a preferred divided. All 2,000,000 outstanding
shares of the Company's Series A preferred shares have been reclassified to
redeemable equity at their aggregate redemption price of $40,000, net of the
unamortized transaction fee ($297 as of December 31, 1999), in the consolidated
balance sheet.


                                      F-24
<PAGE>

8.       EARNINGS PER SHARE

         The following table sets forth the computation of the Company's basic
and diluted net income available per weighted-average common share of beneficial
interest for the years ended December 31, 1999 and 1998 and for the period from
November 17, 1997 through December 31, 1997:

<TABLE>
<CAPTION>

                                                                                                            PERIOD FROM NOVEMBER
                                                                                                              17, 1997 THROUGH
                                                                               YEAR ENDED DECEMBER 31,            DECEMBER 31,
                                                                               1999              1998                1997
                                                                     -------------------------------------------------------------
<S>                                                                       <C>            <C>                 <C>
         Numerator:
            Income before gain on sales of real estate, minority
              interests, extraordinary items and preferred
              distributions.......................................        $    33,567    $       30,866      $         1,427
            Minority interests....................................             (8,723)           (9,368)                (635)
            Net income allocated to preferred distributions.......            (12,103)           (7,971)                (345)
                                                                     ------------------------------------------------------------
            Income before gain on sales of real estate and
              and extraordinary items.............................             12,741            13,527                  447
            Gain on sales of real estate, net of minority interests            31,086                 -                    -
            Extraordinary loss on extinguishment of debt, net of
              minority interests .................................             (1,082)           (1,253)                   -
                                                                     ------------------------------------------------------------
            Numerator for earnings per share
              - income available to common shares.................        $    42,745    $       12,274      $           447
                                                                     ============================================================
         Denominator:
            Denominator for basic earnings per share-weighted
              average common shares...............................         15,141,630        14,862,958           12,593,000
         Effect of dilutive securities:
            Employee stock options................................             64,866            11,100                    -
            Employee stock grants.................................              2,415               977                    -
                                                                     ------------------------------------------------------------
            Denominator for diluted earnings per share - adjusted
              weighted average common shares and assumed
              conversions ........................................         15,208,911        14,875,035           12,593,000
                                                                     ============================================================
            BASIC EARNINGS AVAILABLE TO COMMON
              SHARES PER WEIGHTED-AVERAGE COMMON SHARE:
            Income before gain on sales of real estate and
              extraordinary items.................................        $      0.84    $         0.91      $          0.04
            Gain on sales of real estate, net of minority interests              2.05                 -                    -
            Extraordinary loss on extinguishment of debt, net of
              minority interests..................................              (0.07)            (0.08)                   -
                                                                     ------------------------------------------------------------
            Net income available per weighted-average common
              share of beneficial interest - basic................        $      2.82    $         0.83      $          0.04
                                                                     ============================================================
            DILUTED EARNINGS AVAILABLE TO COMMON
              SHARES PER WEIGHTED-AVERAGE COMMON SHARE:
            Income before gain on sales of real estate and
              extraordinary items.................................        $      0.84    $          0.91     $          0.04
            Gain on sales of real estate, net of minority interests              2.04                  -                   -
            Extraordinary loss on extinguishment of debt, net of
              minority interests..................................              (0.07)             (0.08)                  -
                                                                     ------------------------------------------------------------
            Net income available per weighted-average common
              share of beneficial interest - diluted..............        $      2.81    $          0.83     $          0.04
                                                                     ============================================================

</TABLE>


                                      F-25
<PAGE>

8.       EARNINGS PER SHARE (CONTINUED)

         For the 1999 earnings per share computation, 1,122,833 of the Company's
options during the first quarter of 1999, 1,120,333 options during the second
and third quarters of 1999, and 1,227,833 options during the fourth quarter of
1999 were not included in the computation of diluted earnings per share because
the conversion would have been antidilutive.

         For the 1998 earnings per share computation, all of the Company's
options during the second and third quarters of 1998, 1,150,000 options during
the fourth quarter and all options during the period from November 17, 1997
through December 31, 1997 were not included in the computation of diluted
earnings per share because the conversion would have been antidilutive.

         The minority interest in the Operating Partnership had 10,558,545,
10,282,521 and 10,250,882 weighted average common units outstanding during the
years ended December 31, 1999 and 1998 and for the period from November 17, 1997
through December 31, 1997, respectively, of which 9,631,445, 9,355,421 and
9,323,782, respectively, may be converted into common shares at the Company's
option on a one for one basis. The convertible common units were not included in
the computation of diluted earnings per share because the conversion would have
been antidilutive.

         The Company had 2,000,000 Series A-cumulative convertible preferred
shares outstanding during the years ended December 31, 1999 and 1998 and for the
period from November 17, 1997 through December 31, 1997. The Series
A-convertible preferred shares were not included in the computation of diluted
earnings per share because the conversion would have been antidilutive.

9.     EMPLOYEE BENEFIT PLANS

         On November 17, 1997, the Company established a Share Incentive Plan
(the "Plan") which permits the grant of stock options, stock appreciation
rights, restricted stock, restricted units and performance units to officers and
other key employees and to officers and employees of subsidiaries, the Operating
Partnership, the Services Company and other-owned partnerships. The Plan also
permits the grant of stock options to non-employee Trustees.

         Under the Plan, up to 2,540,000 of the Company's common shares may be
issued or transferred to participants. The maximum aggregate number of common
shares and share equivalent units that may be subject to awards granted during
any calendar year to any one participant under the Plan, regardless of the type
of awards, is 200,000. This limit applies regardless of whether such
compensation is paid in common shares or share equivalent units.

       The Compensation Committee of the Company's Board of Trustees (the
"Compensation Committee") administers the Plan and has the authority to
determine, among other things, subject to the terms and conditions of the Plan,
the individuals to be granted options, the exercise price at which shares may be
acquired, the number of shares subject to options, the vesting requirements and
the exercise period of each option. The Compensation Committee is granted
discretion to determine the term of each option granted under the Plan to
employees, executives and Trustees, but in no event will the term exceed ten
years and one day from the date of the grant. On November 17, 1997, the
Compensation Committee granted options to purchase a total of 1,160,500 of the
Company's common shares (including the 75,000 options granted to Board members
described below) at an exercise price of $20.00 per share to various executives
and employees of the Company. During 1999 and 1998, the Board granted options to
purchase a total of 107,500 and 129,500 respectively, (exclusive of options
described below as part of the Company's annual incentive award program) of the
Company's common shares to various employees and executives of the Company hired
in 1999 and 1998 at exercise equal to the closing price on the day before the


                                      F-26
<PAGE>

9.       EMPLOYEE BENEFIT PLANS (CONTINUED)

grant of the options. In addition, during 1999 and 1998, 63,167 and 117,500
options, respectively, expired as the result of employees or executives, who
held options, resigning from the Company. Options for these shares granted under
the plan to executives and employees have a term of 10 years and will be
exercisable and vest in installments as follows: (i) 33.3% of the number of
shares commencing in the first anniversary of the date of grant; (ii) an
additional 33.3% for the shares commencing on the second anniversary of the date
of the grant; and (iii) the remainder of the shares commencing on the third
anniversary of the date of grant.

         Under the Plan, four of the Trustees consisting of those Trustees who
are not employees or consultants of the Company as of November 17, 1997 received
options to acquire 5,000 of the Company's common shares at $20.00 per share (the
closing price on the day of the grant of the options). On December 16, 1999, the
Board granted each of the four non-employee Trustees options to acquire an
additional 5,000 of the Company's common shares at $13.19 per share (the closing
price on the day before the grant of the options). Stock options granted to the
Trustees have a term of 10 years and will vest and be exercisable at the rate of
33.3% per year over three years commencing on the first anniversary of their
date of grant.

       Under a consulting agreement with one of the members of the Board, the
Board granted on November 17, 1997, options to purchase 75,000 of the Company's
common shares at an exercise price of $20.00 per share. Pursuant to the
agreement, the options granted have a term of 10 years and will be exercisable
and vest at the rate of 33.3% per year over three years commencing on the first
anniversary of their date of grant.

       During 1998, the Company issued a total of 22,500 common shares granted
to two of its officers and 2,500 common shares granted to one of its Board
members pursuant to their employment agreements or consulting agreement, as
applicable, valued at the market price of the Company's common shares at the
date of grant, totaling $458.

       As part of an annual incentive award program, on December 16, 1999, the
Board granted certain executives 29,719 shares of the Company's common shares,
and options to purchase 363,891 of the Company's common shares at an exercise
price of $13.19 per share. The common share grants vest 50% on January 15, 2000
and 50% on January 15, 2001 and the options vested on January 15, 2000. The
Board also granted certain executives 25,380 shares of the Company's common
shares and certain executives and employees options to purchase 364,200 of the
Company's common shares, at an exercise price of $13.19 per share, as part of a
long-term incentive program. These common share grants and options vest at the
rate of 25.0% per year in four annual installments commencing on January 15,
2000. As the total options granted to date exceed that authorized under the
plan, the excess options are subject to the Company's shareholders' approval.

         As part of an annual incentive award program, on December 17, 1998, the
Board granted certain executives 24,933 shares of the Company's common shares
and options to purchase 538,889 of the Company's common shares at an exercise
price of $14.00 per share. The common share grants vest 50% on January 15, 1999
and 50% on January 15, 2000 and the options vested on January 15, 1999. The
Board also granted certain executives options to purchase 254,000 of the
Company's common shares, at an exercise price of $14.00 per share, as part of a
long-term incentive program. These options vest at the rate of 25.0% per year in
four annual installments commencing on January 15, 1999.


                                      F-27
<PAGE>

9.     EMPLOYEE BENEFIT PLANS (CONTINUED)

       The unaudited pro forma information regarding net income and earnings per
share is required by SFAS No. 123, "Accounting for Stock-Based Compensation,"
and has been determined as if the Company had accounted for its options under
the fair value method of that statement. The fair value for the options was
estimated at the date of grant using a Black-Scholes option pricing model with
the following weighted average assumptions for 1999, 1998 and 1997,
respectively: risk free interest rate of 6.47%, 5.01% and 5.41%; expected
dividend yield of 10.0%, 6.7% and 6.7%; volatility factor of the expected market
price common stock of 0.307, 0.339 and 0.156; and a weighted-average expected
life of the options of seven years for 1999 and three years for 1998 and 1997.
The unaudited pro forma expense would be $1,655 ($0.11 per basic and diluted
common share) for the year ended December 31, 1999, $1,174 ($0.08 per basic and
diluted common share) for the year ended December 31, 1998 and $69 ($0.01 per
basic and diluted common share) for the period from November 17, 1997 through
December 31, 1997. The effects on unaudited pro forma net income and pro forma
earnings per common share for the years ended December 31, 1999 and 1998 and for
the period from November 17, 1997 to December 31, 1997 of amortizing to expense
the estimated fair value of stock options are not necessarily representative of
the effects on net income to be reported in future years due to such things as
the vesting period of the stock options, and the potential for issuance of
additional stock options in future years. For purposes of pro forma disclosures,
the estimated fair value of the options is amortized to expense over the
options' vesting period.

         The Black-Scholes options valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. Because changes in the subjective input assumptions can materially
affect the fair value estimate, in the opinion of the Company's management, the
existing models do not necessarily provide a reliable single measure of the fair
value of the options granted under the plan.

         The following is a summary of the Company's stock option activity, and
related information for the years ended December 31, 1999 and 1998 and for the
period from November 17, 1997 through December 31, 1997 follows:

<TABLE>
<CAPTION>

                                                                             SHARES               WEIGHTED
                                                                           SUBJECT TO         AVERAGE EXERCISE
                                                                             OPTION            PRICE PER SHARE
                                                                        ----------------- --------------------------
<S>                                                                          <C>                   <C>
    Initial options granted...........................................       1,160,500             $20.00
    Options canceled..................................................               -                   -
                                                                        -----------------
    Balance at December 31, 1997......................................       1,160,500              20.00
    Additional options granted........................................         922,389              14.77
    Options canceled..................................................        (117,500)             20.01
                                                                        -----------------
    Balance at December 31, 1998......................................       1,965,389              17.54
    Additional options granted........................................         855,591              13.60
    Options exercised.................................................            (100)             14.00
    Options canceled..................................................         (63,167)             18.43
                                                                        -----------------
    Balance at December 31, 1999......................................       2,757,713              16.30
                                                                        =================

</TABLE>

         At December 31, 1999, 1,308,126 shares were exercisable at a weighted
average exercise price of $17.24 per share. No options on shares were available
for future grant at December 31, 1999. The remaining weighted-average
contractual life of these options was 8.59 years. The weighted-average grant
date fair value of all options granted during the years ended December 31, 1999
and 1998 and the period from November 17, 1997 through December 31, 1997 was
$1.45, $2.49 and $1.39, respectively.



                                      F-28

<PAGE>

10.    RELATED PARTY TRANSACTIONS

         The Company owns 100% of the nonvoting preferred stock of the Services
Company which had an initial carrying value of $425 and the Company provided a
loan in the amount of $4,800 (included in other assets) to the Services Company
(unpaid interest expense is included in accrued interest described below), with
interest at 11% per annum, payable quarterly and principal due November 2007.

         On January 1, 1998, the Company provided the Services Company a $5,000
line-of-credit, with interest at LIBOR plus 3%, principal and interest payable
monthly from available cash flow, as defined, and matures on December 31, 2000.
The line is collateralized by the Services Company's third party receivables and
is subject to various covenants. As of December 31, 1999 and 1998, the
line-of-credit balance was $1,795 and $1,328, respectively, and is included in
other assets. At December 31, 1999 and 1998, accrued interest of $44 and $52,
respectively, related to the above notes is included in other assets.

         The Company's net deficit in the Services Company at December 31, 1999
and 1998 was $3,770 and $176, respectively, and is included in other assets.
During the years ended December 31, 1999 and 1998 and for the period from
November 17, 1997 through December 31, 1997, the Company recorded net loss
(income) related to the Services Company of $3,234, $(133) and $19, respectively
representing its share of the Services Company's loss from operations of $3,865,
$518 and $83, respectively, net of interest income of $631, $651 and $64,
respectively, related to the previously described loans. In December 1999, the
Services Company wrote-off approximately $4,970 in goodwill and related
capitalized costs associated with its initial acquisition of a management and
construction company. The Company's share of this write-down, net of the tax
benefit at the service subsidiary level, was $2,833 and is included in its share
of the Services Company loss described above.

         The Company also paid general and administrative expenses (primarily
rent, salaries and benefits) of $505 and $233 on behalf of the Services Company
for the years ended December 31, 1999 and 1998, respectively. No amounts were
paid for the period from November 17, 1997 through December 31, 1997.

         During the years ended December 31, 1999 and 1998 (no services were
provided for the period from November 17, 1997 through December 31, 1997), the
Services Company provided the Company with development, acquisition due
diligence, construction, construction management, leasing and property
management services, which are summarized as follows:


<TABLE>
<CAPTION>

                                                                              YEAR ENDED DECEMBER 31
                                                                             1999                 1998

                                                                     ------------------------------------------
<S>                                                                     <C>                  <C>
Development, construction and construction management...........        $  14,740            $   2,639
Acquisition due diligence.......................................              287                  182
Leasing.........................................................            1,985                  361
Property management.............................................              265                  301

</TABLE>

         At December 31, 1999, the Company owed the Services Company $2,227 and
at December 31, 1998, the Services Company owed the Company $1,033, related to
the above services or for advances not processed under the line-of-credit (net
amounts included in other assets).

         The Company has lease agreements with PGI and certain affiliates, from
which it recognized rental revenue of $644, $933 and $85 and tenant
reimbursements revenue of $523, $644 and $46 for the years ended December 31,
1999 and 1998 and for the period from November 17, 1997 through December 31,
1997, respectively. In addition, in 1999 and 1998 the


                                 F-29
<PAGE>



10.      RELATED PARTY TRANSACTIONS (CONTINUED)

Company provided $181 and $452, respectively, to one of the PGI affiliates for
tenant improvements.

         A nonaffiliated investor in Primestone currently has a lease agreement
with the Company that expires December 12, 2000. The Company recognized rental
revenue of $1,000 from this investor during 1999.

         During 1999, the Operating Partnership acquired various office and
industrial properties from minority interest holders for a total purchase price
of $366,200 and assumed mortgage notes payable of $70,092 (see Note 13 for a
listing of the properties). In addition, the Operating Partnership also acquired
40.5 acres of land in 1999 from a minority interest holder for a total purchase
price of $5,430.

         In connection with the leasing and management of the Predecessor's
properties, PGI was entitled to payments and fees for services performed. Such
amounts incurred during the period from January 1, 1997 through November 16,
1997:

<TABLE>
<CAPTION>
                                                                                        PERIOD FROM
                                                                                     NOVEMBER 17, 1997
                                                                                           THROUGH
                                                                                     DECEMBER 31, 1997
                                                                                     -----------------

<S>                                                                                        <C>
      Property management fee (a).....................................                     $1,238
      Administration fees (b).........................................                        463
      Legal fees (c)..................................................                        271
      Leasing fees (d)................................................                          2
      Reimbursables (e)...............................................                        252
      Asset management fee (f)........................................                        110
</TABLE>

---------------------
(A)      PGI was entitled to a property management fee ranging from 2.5% to 4%
         of gross receipts, payable monthly in arrears. Amounts are included in
         property and asset management fees to affiliates in the combined
         financial statements of the Predecessor.

(B)      PGI was entitled to an annual administration fee as defined in the
         Partnership agreement. Amounts are included in general and
         administrative expenses in the combined financial statements of the
         Predecessor.

(C)      PGI was reimbursed for reasonable legal and accounting expenses
         incurred in connection with the operations of the Predecessor
         partnerships. Amounts are included in general and administrative
         expenses in the combined financial statements of the Predecessor.

(D)      PGI was entitled to leasing commissions for all leases signed. The
         commissions are equal to 1.5% to 3% of rent, exclusive of tenant
         reimbursements, during the base term of the lease; commissions were
         payable upon commencement of the respective leases.

(E)      PGI was entitled to reimbursement for expenses paid for the benefit of
         the Predecessor partnerships. Amounts are included in general and
         administrative expenses in the combined financial statements of the
         Predecessor.

(F)      PGI was entitled to annual fees for providing asset management services
         to the Predecessor partnerships which was payable from available cash
         flows. Amounts are included in property and asset management fees to
         affiliates in the combined financial statements of the Predecessor.

         Predecessor amounts due to affiliates are for amounts due for advances
made by affiliates and amounts due from affiliates were for advances made by the
Predecessor partnerships to affiliates. Predecessor amounts due from and due to
affiliates incurred interest at Prime plus 2% and were payable upon demand. Any
unpaid amounts due to affiliates or amounts due from affiliates as of November
16, 1997, have been reflected as distributions to or contributions from PGI in
the combined financial statements of the Predecessor.


                                 F-30
<PAGE>



10.      RELATED PARTY TRANSACTIONS (CONTINUED)

       Average balances of amounts due from (including loans receivable from
Services Company) and due to affiliates for the years ended December 31, 1999
and 1998, for the period from November 17, 1997 through December 31, 1997, and
for the period from January 1, 1997 through November 16, 1997 are summarized as
follows:

<TABLE>
<CAPTION>

                                                              THE COMPANY                                PREDECESSOR
                                   ------------------------------------------------------------------ ------------------
                                                                                   PERIOD FROM           PERIOD FROM
                                                                                  NOVEMBER 17,           JANUARY 1,
                                                                                  1997 THROUGH          1997 THROUGH
                                            YEAR ENDED DECEMBER 31,               DECEMBER 31,          NOVEMBER 16,
                                          1999                  1998                  1997                  1997

                                 -------------------------------------------------------------------- ------------------
<S>                                      <C>                   <C>                   <C>                      <C>
Due from affiliates............          $5,738                $6,441                $5,029                   $1,447
Due to affiliates..............               -                     -                     -                      354

</TABLE>


11.    FAIR VALUES OF FINANCIAL INSTRUMENTS

         SFAS No. 107, "Disclosures About Fair Value of Financial Instruments"
and SFAS No. 119, "Disclosure about Derivative Financial Instruments and Fair
Value of Financial Instruments" require disclosure of the fair value of certain
on-and off-balance sheet financial instruments for which it is practicable to
estimate. Fair value is defined by SFAS No. 107 as the amount at which the
instrument could be exchanged in a current transaction between willing parties,
other than in a forced or liquidation sale.

         The Company used the following methods and assumptions in estimating
the fair value disclosures for financial instruments.

11.      FAIR VALUES OF FINANCIAL INSTRUMENTS

CASH AND CASH EQUIVALENTS AND RESTRICTED CASH ESCROWS

         The carrying amount of cash and cash equivalents and restricted cash
escrows reported in the consolidated balance sheets approximates their fair
value.

         The Company maintains its cash and cash equivalents and restricted cash
escrows at various financial institutions. The combined account balances at each
institution periodically exceed FDIC insurance coverage, and as a result, there
is a concentration of credit risk related to amounts on deposit in excess of
FDIC insurance coverage. The Company believes that the risk is not significant.

MORTGAGE NOTES PAYABLE, CREDIT FACILITIES AND BONDS PAYABLE

         The carrying amount of the Company's variable and fixed rate borrowings
(including accrued interest) and interest rate protection agreements
approximates fair value based on the current borrowing rate for similar types of
borrowing and interest rate protection arrangements.

12.    COMMITMENTS AND CONTINGENCIES

         The Company is a defendant in legal actions arising during the normal
course of business. The Company believes that the ultimate outcome of those
actions will not materially affect its consolidated financial position.

         All of the Company's properties were subject to Phase I or similar
environmental assessment by independent environmental consultants which were
intended to discover information regarding, and to evaluate the environmental
condition of, the surveyed property and surrounding properties. The


                                 F-31
<PAGE>



12.      COMMITMENTS AND CONTINGENCIES (CONTINUED)

Company is aware of contamination at certain of the industrial properties
included in the Predecessor properties, which are already in remediation
programs sponsored by the state in which they are located. The Phase I
assessments estimate that remedial action plans will have a probable cost of
approximately $3,205. During 1997, PGI initiated lawsuits against a former
environmental consultant and a former tenant of one of these properties for
damages to cover the cost of the remedial action plans. During 1997, the
Predecessor recorded a liability of $3,205 (included in accounts payable and
accrued expenses at December 31, 1999 and 1998). PGI has contractually agreed to
indemnify the Company from any environmental liabilities the Company may incur
in connection with the Chicago, Hammond, and East Chicago Enterprise industrial
parks. On February 20, 1998, PGI reached an agreement with the former tenant and
received a $1,822 settlement payment. The Company is also aware of contamination
at two other properties. At one of the properties, the tenant has provided the
Company with an indemnity for all the cost associated with the environmental
remediation and the tenant has purchased the property. The second property is in
the remediation program sponsored by the state in which it is located and the
previous owner has placed in an escrow account $760 (the maximum cost the
previous owner has agreed to pay), which is being used in the clean-up of the
property.

         The Company has contracts to acquire parcels of land and an industrial
property from affiliates of a member of the Board for a total purchase price of
approximately $20,856, $12,284 of which is payable in Operating Partnership
common units. The contracts require the Company to acquire minimum portions of
the land on an annual basis until all of the parcels are acquired by 2002.

         During 1998, the Company entered into contracts to acquire three
parcels of land totaling 233.3 acres, of which 24.9 acres was purchased in 1999
and 54.7 acres was purchased in 1998. The remaining 153.7 acres must be
purchased, at the Company's discretion, over the next two to four years for
approximately $9,754. The Company is required to make periodic installment
payments, of which $840 were made in 1999 and $400 were made in 1998 (amount
included in property under development).

       During 1999, the Company sold ten properties in a single transaction with
a total sales price of $89,500, resulting in a gain of approximately $3,570 (see
Note 13 for a listing of the properties). As part of the sale, the Company
agreed to assume responsibility for leasing two of the properties for five
years, once the existing tenants' leases expire in 2000 and 2001. The Company's
total lease obligation of $16,180 is reduced as existing tenants renew their
leases or as new leases from third parties are executed for space in the
properties. As a result of these commitments, the gain has been deferred and is
included in other liabilities until the tenants either renew their leases or are
replaced. The gain may be reduced by any obligations the Company may incur as a
result of these commitments.

       On February 8, 1999, the Company signed a contract with a buyer pursuant
to which we will construct and sell to the buyer an approximately 1,018-space
parking garage, including approximately 4,000 square feet of retail space, on
approximately 22,000 square feet of a 61,302 square foot parcel of land that we
own in the Chicago central business district (see Note 13 to the table of
properties acquired, placed in service and sold in 1999 regarding acquisition of
this parcel). The contract provides for a sales price of the completed garage of
approximately $36.0 million, plus the value of any of the retail space leased by
us at the time of sale up to a maximum of $1.75 million. In addition, we are
entitled to receive an additional $1.0 million from the buyer if, within 15
years after the sale of the parking garage to the buyer, we substantially
complete construction of an office building on the land containing at least
800,000 square feet of office space, which is occupied by at least one tenant
who is not affiliated with the Company. Pursuant to a letter agree-


                                 F-32
<PAGE>


12.      COMMITMENTS AND CONTINGENCIES (CONTINUED)

ment dated December 3, 1999, the contingency period for obtaining the required
city approvals for the construction of the parking garage was extended from
December 31, 1999 until April 30, 2000. The parties are currently discussing the
possibility of further extending such contingency if necessary, as well as
certain other potential modifications to the terms of the transaction.

         On November 3, 1999, an unconsolidated investment partnership of the
Company entered into an interest rate protection agreement to effectively fix
the interest rate cost of its mortgage note payable to within a range of 6.87%
to 9.00%. This agreement has an original notional amount of $170,000 that
decreases to $166,000 on September 30, 2000, and to $162,000 on September 30,
2001, coincident with principal payments on the mortgage note payable. The
interest rate protection agreement terminates on September 30, 2002. On November
10, 1999, the investment partnership entered into an additional interest rate
protection agreement to effectively fix the interest rate cost of its mortgage
note payable to within a range of 7.36% to 9.00% beginning on September 30,
2002. This agreement has an original notional amount of $157,500 that decreases
to $152,500 September 30, 2003, coincident with principal payments on the
mortgage note payable. The interest rate protection agreement terminates on
September 30, 2004. The Company has provided guarantees on both of the interest
rate protection agreements. As of December 31, 1999, the Company has not been
required to fulfill any commitments under the guarantees.

         During 1999, the Company granted to unrelated parties permanent
easements to space within an office property and to industrial land for total
fees of $2,600, which has been included in other property revenues in 1999. The
Company is under no obligation to perform any services for the parties to earn
these fees, and believes that the easements do not decrease the value of the
properties.


                                 F-33
<PAGE>


13.    PROPERTY ACQUISITIONS AND DISPOSITIONS

        The following properties were acquired, placed in service or sold in
1999 and 1998. The results of their operations are included in the Company's
consolidated statement of operations from their respective dates of acquisition.

<TABLE>
<CAPTION>

                                                                                   SALE PRICE/
                                                                                   ACQUISITION          MONTH

           PROPERTY                                      LOCATION                     COST          ACQUIRED/SOLD
   -------------------------------------------------------------------------------------------------------------------
<S>                                              <C>                                <C>               <C>
      1999 Acquisitions
   -----------------------------------------------
   Office and Industrial Properties:
   33 West Monroe Street                         Chicago, IL                        $  101,300         January
   National City Center(1)                       Cleveland, OH                         105,000         February
   800-810 Jorie Blvd                            Oak Brook, IL                          30,000          August
   901 Technology Way(1)                         Libertyville, IL                        4,100         January
   300 Craig Place(1)                            Hillside, IL                            8,600           July
   43-47 Hintz Road                              Wheeling, IL                            9,700        September
   IBM Plaza (1)                                 Chicago, IL                           248,500         December
   Brush Hill Office Court                       Westmont, IL                           12,900         December
                                                                                ------------------
   Total Office and Industrial Properties
   Acquired                                                                         $ 520,100
                                                                                ==================
   Land:
   Carol Stream Land                              Carol Stream, IL                $      5,430     April, December
   Aurora Land                                    Aurora, IL                               918      July, November
   300 West Monroe Street and 25 &

       77 South Wacker Drive                      Chicago, IL                           55,912           July
                                                                                ------------------
   Total Land Acquired                                                              $   62,260
                                                                                ==================
   Developments placed in service:
   Office:
     Pine Meadows Center                         Libertyville, IL                     $ 23,659          October,
                                                                                                        December
   Industrial:
     320 Fullerton Avenue                        Carol Stream, IL                       10,057          December
                                                                                ------------------
   Total developments placed in
      service                                                                       $   33,716
                                                                                ==================
   1999 Sales
   -----------------------------------------------
   941-961 Weigel Drive (2)                      Elmhurst, IL
   300 Craig Place (2)                           Hillside, IL
   306-310 Era Drive (2)                         Northbrook, IL
   515 Huehl Road/500 Lindberg Road (2)          Nothbrook, IL
   555 Huehl Road (2)                            Northbrook, IL
   1301 Ridgeview Drive (2)                      McHenry, IL
   3818 Grandville/1200 Northwestern(2)          Gurnee, IL
   801 Technology Way(2)                         Libertyville, IL
   901 Technology Way(2)                         Libertyville, IL
   1001 Technology Way(2)                        Libertyville, IL
                                                                                ------------------
                                                                                    $   89,500            July
   455 Academy Drive (3)                         Northbrook, IL                          4,500          December
                                                                                ------------------
                                                                                    $   94,000
                                                                                ==================
   Land:
     180 Kehoe Blvd.                             Carol Stream, IL                  $     1,000          December
                                                                                ==================
   50% of Common Interest:
     77 W. Wacker Drive (4)                      Chicago, IL                        $   88,000          September
                                                                                ==================
   Portion of an Office Property:

     122 S. Michigan Ave. (5)                    Chicago, IL                        $   14,950            April
                                                                                ==================
   1998 Acquisitions
   -----------------------------------------------
   Office and Industrial Properties:
   33 North Dearborn Street                      Chicago, IL                        $   34,425           January
   Commerce Point                                Arlington Heights, IL                  29,971          February
   208 South LaSalle Street                      Chicago, IL                            61,352            March
   122 South Michigan Avenue                     Chicago, IL                            29,680            April
   2100 Swift Drive                              Oak Brook, IL                           6,253            April

</TABLE>


                                 F-34
<PAGE>


<TABLE>
<S>                                              <C>                                <C>               <C>
   6400 Shafer Court                             Rosemont, IL                           22,228             May
   Two Century Centre                            Schaumburg, IL                         35,886            June
   2000 York Road                                Oak Brook, IL                          16,232            June
                                                                                ------------------
   Total Office and Industrial Properties
       Acquired                                                                     $  236,027
                                                                                ==================

</TABLE>


   (1)    These properties were acquired from minority interest unit holders of
          the Operating Partnership or their affiliates.
   (2)    These properties were sold in a single transaction with a total sales

          price of $89,500, resulting in a gain of approximately $3,570. As part
          of the sale, the Company agreed to assume responsibility for leasing
          two of the properties for five years, once the existing tenants'
          leases expire in 2000 and 2001. The Company's total lease obligation
          is reduced as existing tenants renew their leases or as new leases
          from third parties are executed for space in the properties. As a
          result of these commitments, the gain has been deferred and is
          included in other liabilities until the tenants either renew their
          leases or are replaced. The gain may be reduced by any obligations the
          Company may incur as a result of these commitments.

    (3)   On December 22, 1999, the Company sold this property for a total sales
          price of $4,500, resulting in a gain of $883.
    (4)   On September 30, 1999, the Company sold a 50% common interest for
          $22,000 and a $66,000 preferred interest in this property, resulting
          in a gain of $48,339. The remaining 50% common interest was
          contributed to a new joint venture, which is accounted for using the
          equity method of accounting. At December 31, 1999, the Company's
          investment in the new joint venture was a deficit of $1,019 (included
          in other assets) consisting of $256 representing its share of the new
          joint venture's operations (included in other revenue) net of $1,275
          of distributions received from the new joint venture. In addition, the
          Company owes the new joint venture $1,079 at December 31, 1999
          (included in other liabilities).

     (5)  On April 19, 1999, the Company sold approximately 161,710 net rentable
          square feet of its 122 South Michigan Avenue office building to
          National-Louis University (NLU), resulting in a gain of $3,828. As
          part of this sale, NLU has also acquired an undivided 31.56% interest
          in certain common areas of the property. The Company continues to own
          the remaining 350,659 net rentable square feet of the building and is
          responsible for the management of the entire property.

14.    UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

         The accompanying unaudited Pro Forma Condensed Consolidated Statements
of Operations are presented as if, at January 1, 1997, (i) the Company had
completed its initial public offering and its 1998 common share and preferred
share offerings and contributed the net proceeds to the Operating Partnership,
(ii) PGI and the other contributors had contributed certain of their respective
properties and operations to the Operating Partnership, (iii) the Operating
Partnership had completed the sale of common units to Primestone Investment
Partners L.P., (iv) the Operating Partnership acquired various office and
industrial properties and the Services Company from various third parties, (v)
sold all of or a portion of its interest in various office and industrial
properties, and (vi) the Operating Partnership repaid debt on certain of the
contribution properties. In the Company's management's opinion, all adjustments
necessary to reflect the effects of the above transactions have been made.

         The unaudited Pro Forma Condensed Consolidated Statements of Operations
are not necessarily indicative of what the actual results of operations would
have been assuming the above mentioned transactions had occurred at the dates
indicated above, nor do they purport to represent the Company's future results
of operations.


                                 F-35
<PAGE>


           PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                      (IN THOUSANDS, EXCEPT PER SHARE DATA)
                                   (UNAUDITED)

<TABLE>
<CAPTION>

                                                                         YEAR ENDED DECEMBER 31,
                                                          ---------------------------------------------------------
                                                                1999                1998              1997
                                                         ---------------------------------------------------------
<S>                                                             <C>                <C>               <C>
Total revenue........................................           $209,511           $204,794          $187,169
                                                         =========================================================
Net income...........................................            $21,523            $19,314           $13,890
                                                         =========================================================
Net income available to common shareholders..........            $ 9,420            $ 7,314           $ 1,890
                                                         =========================================================
Earnings per diluted common share....................            $  0.62            $  0.49           $  0.12
                                                         =========================================================

</TABLE>




                                 F-36
<PAGE>

15.   SEGMENT REPORTING

         Operating segments are defined as components of an enterprise about
which separate financial information is available that is evaluated regularly by
the chief operating decision maker, or decision making group, in deciding how to
allocate resources and in assessing performance. The Company's chief operating
decision makers manage its operating segments separately because each operating
segment represents a strategic business unit that has different issues and serve
different markets. The Company's reportable operating segments include its
office division and industrial division, with properties principally located in
the Chicago metropolitan area. The Company evaluates its office and industrial
divisions operations principally on their contribution to overall net income and
funds from operations.

        The following summarizes the Company's historical segment operating
results for the years ended December 31, 1999 and 1998 and for the period from
November 17, 1997 through December 31, 1997:

<TABLE>
<CAPTION>

                                                                         YEAR ENDED DECEMBER 31, 1999

                                                        ----------------------------------------------------------------
                                                                                         CORPORATE/
                                                                                         OPERATING
                                                            OFFICE       INDUSTRIAL      PARTNERSHIP           TOTAL
                                                        ----------------------------------------------------------------
<S>                                                        <C>            <C>          <C>                   <C>
Revenue:
   Rental..............................................    $  107,333     $   19,354   $          -          $ 126,687
   Tenant reimbursements...............................        44,075          6,096              -             50,171
   Mortgage note interest..............................         6,926              -              -              6,926
   Other...............................................        10,109          1,092          1,569             12,770
   Gain on sales of real estate........................        52,167            883              -             53,050
                                                        ----------------------------------------------------------------
Total revenue..........................................       220,610         27,425          1,569            249,604
Expenses:
   Property operations.................................        41,243          3,203              -             44,446
   Real estate taxes...................................        29,798          4,672              -             34,470
   Depreciation and amortization.......................        24,753          6,657          1,848             33,258
   Interest............................................             -              -         42,648             42,648
   Loss on land development option ....................             -              -            600                600
   General and administrative..........................             -              -          7,565              7,565
                                                        ----------------------------------------------------------------
Total expenses.........................................        95,794         14,532         52,661            162,987
                                                        ----------------------------------------------------------------
Income (loss) before minority interests and

   extraordinary items.................................       124,816         12,893        (51,092)            86,617
FFO adjustments (1) (unaudited):
   Real estate depreciation and amortization...........        24,017          4,683          1,849             30,549
   Amortization of costs for leases assumed............           899              -              -                899
   Straight-line rental revenue adjustments............        (2,809)          (454)             -             (3,263)
   Adjustments for sales of operating properties.......       (52,166)          (540)             -            (52,706)
   Net gain on Treasury lock terminations..............             -              -           (615)              (615)
   Joint venture adjustments ..........................             -              -            654                654
   Loss on land development option.....................             -              -            600                600
   Adjustment associated with services company writeoff             -              -          2,783              2,783
   Net income allocated to preferred shareholders......             -              -        (12,103)           (12,103)
                                                        ================================================================
Funds from operations..................................     $  94,757      $  16,582      $ (57,924)       $    53,415
                                                        ================================================================
</TABLE>

(1)   As defined by the National Association of Real Estate Investment Trusts
      ("NAREIT"), in its March 1995 White Paper


                                 F-37
<PAGE>

15.    SEGMENT REPORTING (CONTINUED)

<TABLE>
<CAPTION>
                                                                                YEAR ENDED DECEMBER 31, 1998
                                                          -----------------------------------------------------------------
                                                                                             CORPORATE/
                                                                                              OPERATING
                                                              OFFICE        INDUSTRIAL       PARTNERSHIP        TOTAL
                                                          -----------------------------------------------------------------
<S>                                                          <C>            <C>           <C>                  <C>
Revenue:
   Rental................................................    $  76,754      $  20,458     $            -       $  97,212
   Tenant reimbursements.................................       31,960          5,585                 -           37,545
   Mortgage note interest................................        5,866              -                 -            5,866
   Other.................................................        3,838            266             2,874            6,978
                                                          -----------------------------------------------------------------
Total revenue............................................      118,418         26,309             2,874          147,601

Expenses:

   Property operations...................................       26,838          2,760                 -           29,598
   Real estate taxes.....................................       19,858          5,219                 -           25,077
   Depreciation and amortization.........................       17,854          6,724               869           25,447
   Interest..............................................            -              -            30,901           30,901
   General and administrative............................            -              -             5,712            5,712
                                                          -----------------------------------------------------------------
Total expenses...........................................       64,550         14,703            37,482          116,735
                                                          -----------------------------------------------------------------
Income (loss) before minority interests

   and extraordinary items...............................       53,868         11,606           (34,608)          30,866
FFO adjustments (unaudited):
   Real estate depreciation and amortization.............       17,610          6,354                 -           23,964
   Amortization of costs for leases assumed..............        1,137              -                 -            1,137
   Straight-line rental revenue adjustments..............         (525)          (709)                -           (1,234)
   Net income allocated to preferred shareholders........            -              -            (7,971)          (7,971)
                                                          -----------------------------------------------------------------
Funds from operations....................................    $  72,090      $  17,251         $ (42,579)       $  46,762
                                                          =================================================================
</TABLE>

<TABLE>
<CAPTION>
                                                                           PERIOD FROM NOVEMBER 17, 1997
                                                                             THROUGH DECEMBER 31, 1997
                                                          ----------------------------------------------------------------
                                                                                             CORPORATE/
                                                                                             OPERATING
                                                              OFFICE       INDUSTRIAL       PARTNERSHIP          TOTAL
                                                          -----------------------------------------------------------------
<S>                                                         <C>             <C>          <C>                  <C>
Revenue:
   Rental................................................   $    5,025      $   2,268    $           -        $    7,293
   Tenant reimbursements.................................        1,663            378                -             2,041
   Mortgage note interest................................          248              -                -               248
   Other.................................................           87              -              161               248
                                                          -----------------------------------------------------------------
Total revenue............................................        7,023          2,646              161             9,830
Expenses:
   Property operations...................................        1,815            338               60             2,213
   Real estate taxes.....................................        1,479            286                -             1,765
   Depreciation and amortization.........................        1,582            803               93             2,478
   Interest..............................................            -              -            1,680             1,680

   General and administrative............................            -             -               267               267
                                                          -----------------------------------------------------------------
Total expenses...........................................        4,876          1,427            2,100             8,403
                                                          -----------------------------------------------------------------
Income (loss) before minority interests and
   extraordinary items...................................        2,147          1,219           (1,939)            1,427
FFO adjustments (unaudited):
   Real estate depreciation and amortization.............        1,470            745                -             2,215
   Amortization of costs for leases assumed..............          142              -                -               142
   Straight-line rental revenue adjustments..............          180              -                -               180
   Net income allocated to preferred shareholders........            -              -             (345)             (345)
                                                          =================================================================
Funds from operations....................................   $    3,939     $    1,964      $    (2,284)       $    3,619
                                                          =================================================================
</TABLE>

                                 F-38
<PAGE>


15. SEGMENT REPORTING (CONTINUED)

         The following summarizes the Company's segment assets and activity as
of December 31, 1999 and 1998 and expenditures for real estate for the years
ended December 31, 1999 and 1998 and the period from November 17, 1997 through
December 31, 1997.

<TABLE>
<CAPTION>

                                          .                                                        DECEMBER 31,
                                                                                              1999                1998
                                                                                      ---------------------------------------
<S>                                                                                       <C>                  <C>
Segment assets:
   Office........................................................                         $ 1,225,270          $   827,872
   Industrial....................................................                             149,158              180,116
   Corporate/operating partnership...............................                              69,747              156,526
                                                                                      ---------------------------------------
   Total consolidated assets.....................................                         $ 1,444,175           $1,164,514
                                                                                      =======================================

</TABLE>


<TABLE>
<CAPTION>

                                                                                                             PERIOD FROM
                                                                                                             NOVEMBER 17,
                                                                                    YEAR ENDED               1997 THROUGH
                                                                                   DECEMBER 31,              DECEMBER 31,
 Expenditures for real estate:                                                  1999           1998              1997
                                                                         ----------------------------------------------------
<S>                                                                           <C>             <C>                <C>
   Office........................................................             $500,037        $250,854           $417,802
   Industrial....................................................               31,083           2,898            171,477
   Corporate/operating partnership ..............................               52,334          47,316                  -
                                                                         ----------------------------------------------------
   Total expenditures for real estate............................             $583,454        $301,068           $589,279
                                                                         ====================================================

</TABLE>

16.      IMPACT OF YEAR 2000 (UNAUDITED)

         In prior years, the Company discussed the nature and progress of its
plans to become Year 2000 ready. In late 1999 and early 2000, the Company
completed its remediation and testing of systems. As a result of those planning
and implementation efforts, the Company experienced no significant disruptions
in mission critical information technology and non-information technology
systems and believes those systems successfully responded to the Year 2000 date
change. The Company is not aware of any material problems resulting from Year
2000 issues, either with its properties, its internal systems, or the products
and services of third parties. The Company will continue to monitor its mission
critical computer applications and those of its suppliers and vendors throughout
the year 2000 to ensure that any latent Year 2000 matters that may arise are
addressed promptly.


                                 F-39
<PAGE>


17. SUBSEQUENT EVENTS

         On January 20, 2000, the Company paid distributions of $0.375 per
Series A-preferred share, and $0.3375 per common share and on January 31, 2000
paid distributions of $0.5625 per Series B-preferred share to shareholders of
record on December 31, 1999.

         In January, 2000 the Company acquired the following 62,559 square foot
office property and 7.5 acres of vacant land.

<TABLE>
<CAPTION>

                                                           ACQUISITION     MORTGAGE
             PROPERTY                  LOCATION               COSTS          DEBT
----------------------------------------------------------------------------------------
<S>                                    <C>                   <C>            <C>
Office:
    Enterprise Center II               Westchester, IL       $  8,800       $  5,450
                                                        ================================
Land:
    Libertyville Office II             Libertyville, IL      $  1,200             -
                                                        ================================

</TABLE>



                                 F-40
<PAGE>



                            PRIME GROUP REALTY TRUST

             SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION

                             AS OF DECEMBER 31, 1999
                             (DOLLARS IN THOUSANDS)


<TABLE>
<CAPTION>

                                                                                     Cost Capitalized
                                                                                       Subsequent to
                                 Encumbrances(1)         Initial Cost                   Acquisition
                                ---------------- ---------------------------  ------------------------------


                                                                 Buildings                     Buildings
                                    December 31,                    and                           and
                                        1999          Land      Improvements       Land       Improvements
                                  -------------- ------------  -------------  -------------  ---------------
OFFICE
201 4th Ave N (4) ............     $    4,800     $    1,615     $    7,072     $       85     $    2,694
620 Market St. (4)  ..........          9,000             --          7,090            405            904
4823 Old Kingston
  Pike (4) ...................          3,500            378          2,808             19            289
625 Gay St. (4) ..............          9,000             --          7,379            568          1,090
Triad Parking Facility (4)....             --            507          1,046             24             64
1990 Algonquin Road ..........             --          1,550          6,375             --             98
2010 Algonquin Road ..........             --            508          2,044             --             82
1699 Woodfield Road ..........          8,605          1,962          7,853             16            388
2205-2255 Enterprise
  Drive ......................             --          2,304          9,259              3            243
280 Shuman Blvd (5)  .........             --          1,261          5,056             --            (27)
1701 Golf Road ...............         73,206         21,780         87,324             51          2,860
2675 N. Mayfair (5) ..........             --          1,613          6,443              1            552
4343 Commerce Court(3) .......             --          5,370         21,394            192          4,578
1600-1700 167th St.(3)........          2,798          1,073          4,291             70            703
1301 E. Tower Road(3) ........             --          1,005          4,020             60            614
4100 W. Madison Street........             --             41            169             --              7
371-385 N. Gary Ave.(3).......             --            218            871              5             45
33 North Dearborn ............         18,000          6,904         27,521              2          1,014
3800 North Wilke Road.........         19,551          5,994         23,977             23            142
208 South LaSalle Street......         45,148         12,310         49,042             20          4,048
122 South Michigan
  Avenue(6) ..................         14,000          5,952         23,728              4         (5,217)
2100 Swift Drive .............          5,100          1,391          4,862             --          3,223
6400 Shafer Court ............         14,077          4,385         17,843             --            477
1700 East Golf Road ..........         20,227          7,258         28,628             --          2,204
2000 York Road ...............         11,840          3,234         12,998             --          1,439
33 West Monroe ...............         77,500          5,619         95,850             --            494
National City Center .........         71,061         14,812         90,300             --            267
800-810 Jorie Blvd ...........         20,923          6,016         24,089             --             --
IBM Plaza ....................        160,000         39,726        208,898             --             --
Brush Hill Office Court.......          8,200          2,617         10,469             --             --
Pine Meadows Center ..........         10,979          2,155         21,505             --             --
                                      -------        ----------------------          --------------------
Total office .................        607,515        159,558        820,204          1,548         23,275
                                      -------        ----------------------          --------------------



INDUSTRIAL
East Chicago
   Enterprise ................             --             27            533             --             10
   Center (5)
EC I .........................          2,900             18            577             --              2
EC II ........................          5,000             18          2,360             --          1,830
EC III .......................          4,500             20          7,038             --            557
EC IV ........................          2,600             11          1,217             --              9



<CAPTION>
                                             Gross Amount Carried
                                             at December 31, 1999
                                  -------------------------------------------
                                                                                                Date of
                                                                               Accumulated     Acquisition(A)
                                               Buildings                       Depreciation   Contribution(C)
                                                  and                         at December 31,   Placed in
                                       Land      Improvements       Total         1999(2)       Service(P)
                                  ------------  -------------  -------------- --------------- ---------------
OFFICE
<S>                                <C>            <C>            <C>            <C>           <C>
201 4th Ave N (4) ............     $    1,700     $    9,766     $   11,466     $      858     Nov. 1997(C)
620 Market St. (4)  ..........            405          7,994          8,399            801     Nov. 1997(C)
4823 Old Kingston
  Pike (4) ...................            397          3,097          3,494            233     Nov. 1997(C)
625 Gay St. (4) ..............            568          8,469          9,037            956     Nov. 1997(C)
Triad Parking Facility (4)....            531          1,110          1,641             61     Nov. 1997(C)
1990 Algonquin Road ..........          1,550          6,473          8,023            407     Nov. 1997(A)
2010 Algonquin Road ..........            508          2,126          2,634            125     Nov. 1997(A)
1699 Woodfield Road ..........          1,978          8,241         10,219            448     Nov. 1997(A)
2205-2255 Enterprise Drive ...          2,307          9,502         11,809            539     Nov. 1997(A)
280 Shuman Blvd (5)  .........          1,261          5,029          6,290            288     Nov. 1997(A)
1701 Golf Road ...............         21,831         90,184        112,015          5,009     Dec. 1997(A)
2675 N. Mayfair (5) ..........          1,614          6,995          8,609            360     Dec. 1997(A)
4343 Commerce Court(3) .......          5,562         25,972         31,534          1,515     Nov. 1997(A)
1600-1700 167th St.(3)........          1,143          4,994          6,137            321     Nov. 1997(A)
1301 E. Tower Road(3).........          1,065          4,634          5,699            243     Nov. 1997(A)
4100 W. Madison Street........             41            176            217             13     Nov. 1997(A)
371-385 N. Gary Ave.(3).......            223            916          1,139             59     Nov. 1997(A)
33 North Dearborn ............          6,906         28,535         35,441          1,456     Jan. 1998(A)
3800 North Wilke Road.........          6,017         24,119         30,136          1,253     Feb. 1998(A)
208 South LaSalle Street......         12,330         53,090         65,420          2,782     Mar. 1998(A)
122 South Michigan
  Avenue(6) ..................          5,956         18,511         24,467            825     Apr. 1998(A)
2100 Swift Drive .............          1,391          8,085          9,476            236     Apr. 1998(A)
6400 Shafer Court ............          4,385         18,320         22,705            753     May 1998(A)
1700 East Golf Road ..........          7,258         30,832         38,090          1,358     June 1998(A)
2000 York Road ...............          3,234         14,437         17,671            632     June 1998(A)
33 West Monroe ...............          5,619         96,344        101,963          2,223     Jan. 1999(A)
National City Center .........         14,812         90,567        105,379          2,077     Feb. 1999(A)
800-810 Jorie Blvd ...........          6,016         24,089         30,105            233     Aug. 1999(A)
IBM Plaza ....................         39,726        208,898        248,624            259     Dec. 1999(A)
Brush Hill Office Court.......          2,617         10,469         13,086             15     Dec. 1999(A)
Pine Meadows Center ..........          2,155         21,505         23,660            105     Dec. 1999(P)
                                   -----------------------------------------------------------
Total office .................        161,106        843,479      1,004,585         26,443
                                   -----------------------------------------------------------
INDUSTRIAL
East Chicago
   Enterprise ................             27            543            570             92     Nov. 1997(C)
   Center (5)
EC I .........................             18            579            597             68     Nov. 1997(C)
EC II ........................             18          4,190          4,208            550     Nov. 1997(C)
EC III .......................             20          7,595          7,615            931     Nov. 1997(C)
EC IV ........................             11          1,226          1,237            217     Nov. 1997(C)


</TABLE>


                                 F-41
<PAGE>


                            PRIME GROUP REALTY TRUST

       SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION (CONTINUED)

                             AS OF DECEMBER 31, 1999
                             (DOLLARS IN THOUSANDS)


<TABLE>
<CAPTION>


                                                                                     Cost Capitalized
                                                                                       Subsequent to
                                  Encumbrances(1)      Initial Cost                    Acquisition
                                  -------------- ------------------------    ------------------------------


                                                              Buildings                       Buildings
                                    December 31,                 and                             and
                                        1999         Land    Improvements         Land       Improvements
                                  -------------- ----------  ------------    -------------  ---------------
<S>                                   <C>             <C>          <C>           <C>                    <C>
INDUSTRIAL (CONTINUED)
Hammond Enterprise
   Center (5) ................     $     --       $   26       $     614          $   --        $     75
EC VI ........................        5,000           81           2,883              --             317
EC VI ........................        4,900          101           2,936              --           1,366
Chicago Enterprise
  Center (5) .................           --          748             975              --              33
EC VII .......................        7,200          517           4,968              --             392
EC VIII ......................        7,000          124           2,493              --             440
EC IX ........................        4,750          269           1,127              --              64
EC X .........................        4,300          248           2,836              --             320
Arlington Heights I (5).......           --          617           2,638              --              22
Arlington Heights II(5).......           --          456           2,062              --              17
Arlington Heights III(5)......           --          452           1,938              --              14
2160 McGraw Rd ...............           --          904           3,617              --           1,458
4849 Groveport ...............           --          507           2,014              --             417
2400 McGraw Rd ...............           --          348           1,382              --             164
5160 Blazer Memorial
  Pkwy .......................           --          470           1,866              --              97
600 London Rd ................           --          223             885              --              11
4411 Marketing Place..........           --          445           1,767              --              42
475 Superior Avenue (7).......           --        2,700          10,801              --             112
1051 N. Kirk Road(3) .........           --          911           3,325              --            (473)
4211 Madison Street(3) .......           --          690           2,745              --              10
200 E. Fullerton(3) ..........           --          525           2,100              --              10
350 Randy Road(3) ............           --          267           1,063              --              30
4300,4248,4250
   Madison Street(3) .........           --        1,147           4,588              --             110
370 Carol Lane(3) ............           --          527           2,107               9              47
388 Carol Lane(3) ............           --          332           1,329              --              25
342-346 Carol Lane(3) ........           --          600           2,398              --              72
343 Carol Lane(3) ............           --          350           1,398               6              24
11039 Gage Avenue(3) .........           --          191             767              --              10
11045 Gage Avenue(3) .........           --        1,274           5,092              --             215
1401 S. Jefferson(3) .........           --          171             685              --              22
4160-4190 W  Madison
  Street(3)...................           --          931           3,708              --             170
550 Kehoe Blvd.(3)  ..........           --          686           2,743              13              71
43-47 Hintz Road .............        5,960        1,943           7,888              --              --
320 Fullerton ................        5,124        2,286           7,771              --              --
                                 -----------   ---------------------------    ----------------------------
Total Industrial .............       59,234       22,161         109,234              28           8,112
                                 -----------   ---------------------------    ----------------------------
Other Corporate Assets........           --           --             476              --           6,498
                                 -----------   ---------------------------    ----------------------------
Total ........................    $ 666,749    $ 181,719       $ 929,914        $  1,576        $ 37,885
                                 ===========   ===========================    ============================

<CAPTION>

                                              Gross Amount Carried
                                              at December 31, 1999
                                   -------------------------------------------
                                                                                                    Date of
                                                                                  Accumulated    Acquisition(A)
                                                   Buildings                     Depreciation   Contribution(C)
                                                     and                        at December 31,     Placed in
                                        Land      Improvements       Total         1999(2)         Service(P)
                                   ------------  -------------  -------------- ---------------  ---------------
<S>                                      <C>         <C>              <C>              <C>            <C>
INDUSTRIAL (CONTINUED)
Hammond Enterprise
   Center (5) ................      $    26        $   689         $    715       $    136       Nov. 1997(C)
EC VI ........................           81          3,200            3,281            602       Nov. 1997(C)
EC VI ........................          101          4,302            4,403            616       Nov. 1997(C)
Chicago Enterprise
   Center (5) ................          748          1,008            1,756            330       Nov. 1997(C)
EC VII .......................          517          5,360            5,877            674       Nov. 1997(C)
EC VIII ......................          124          2,933            3,057          1,459       Nov. 1997(C)
EC IX ........................          269          1,191            1,460            165       Nov. 1997(C)
EC X .........................          248          3,156            3,404            542       Nov. 1997(C)
Arlington Heights I (5).......          617          2,660            3,277            455       Nov. 1997(C)
Arlington Heights II(5).......          456          2,079            2,535            255       Nov. 1997(C)
Arlington Heights III(5) .....          452          1,952            2,404            239       Nov. 1997(C)
2160 McGraw Rd ...............          904          5,075            5,979            513       Nov. 1997(A)
4849 Groveport ...............          507          2,431            2,938            138       Nov. 1997(A)
2400 McGraw Rd ...............          348          1,546            1,894             88       Nov. 1997(A)
5160 Blazer Memorial Pkwy ....          470          1,963            2,433            119       Nov. 1997(A)
600 London Rd ................          223            896            1,119             56       Nov. 1997(A)
4411 Marketing Place..........          445          1,809            2,254            111       Nov. 1997(A)
475 Superior Avenue (7).......        2,700         10,913           13,613            571       Nov. 1997(A)
1051 N. Kirk Road(3) .........          911          2,852            3,763            175       Nov. 1997(A)
4211 Madison Street(3)........          690          2,755            3,445            146       Nov. 1997(A)
200 E. Fullerton(3) ..........          525          2,110            2,635            114       Nov. 1997(A)
350 Randy Road(3) ............          267          1,093            1,360             60       Nov. 1997(A)
4300,4248,4250
   Madison Street(3) .........        1,147          4,698            5,845            255       Nov. 1997(A)
370 Carol Lane(3) ............          536          2,154            2,690            114       Nov. 1997(A)
388 Carol Lane(3) ............          332          1,354            1,686             72       Nov. 1997(A)
342-346 Carol Lane(3) ........          600          2,470            3,070            131       Nov. 1997(A)
343 Carol Lane(3) ............          356          1,422            1,778             75       Nov. 1997(A)
11039 Gage Avenue(3) .........          191            777              968             41       Nov. 1997(A)
11045 Gage Avenue(3) .........        1,274          5,307            6,581            275       Nov. 1997(A)
1401 S. Jefferson(3) .........          171            707              878             41       Nov. 1997(A)
4160-4190 W Madison
  Street(3) ..................          931          3,878            4,809            202       Nov. 1997(A)
550 Kehoe Blvd.(3)  ..........          699          2,814            3,513            148       Nov. 1997(A)
43-47 Hintz Road .............        1,943          7,888            9,831             66       Sept. 1999(A)
320 Fullerton ................        2,286          7,771           10,057             16       Dec. 1999(P)
                                 -----------------------------------------------------------
Total Industrial .............       22,189        117,346          139,535         10,858
                                 -----------------------------------------------------------
Other Corporate Assets........           --          6,974            6,974            676
                                 -----------------------------------------------------------
Total ........................    $ 183,295     $  967,799      $ 1,151,094     $   37,977
                                 ===========================================================


</TABLE>





                                 F-42
<PAGE>


                            PRIME GROUP REALTY TRUST

       SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION (CONTINUED)

                             AS OF DECEMBER 31, 1999
                             (DOLLARS IN THOUSANDS)

(1)      The Company has a $20,000 mortgage note payable that is collateralized
         by a mortgage note receivable and $46,553 of various mortgage notes
         payable that are collateralized by properties under development. See
         Note 4 to the Company's consolidated financial statements for a
         description of its mortgage notes payable, credit facilities and bonds
         payable.

(2)      Depreciation is calculated on the straight-line method over the
         estimated useful lives of assets, which are as follows:

<TABLE>
         <S>                                                               <C>
         Building and improvements                                         40 years
         Tenant improvements                                               Term of related leases
         Furniture and equipment (included in buildings and improvements)  3-7 years
</TABLE>

(3)      These properties are collateral for $46,342 in various mortgage notes
         payable.

(4)      These properties are collateral for a $35,000 line-of-credit, which had
         $7,527 drawn at December 31, 1999.

(5)      These properties are collateral for letters-of-credit that support
         certain industrial revenue bonds on other properties reflected in this
         table.

(6)      During 1999, the Company sold 161,710 square feet of the building,
         which has a total of 512,369 square feet.

(7)      This property is collateral for a $12,000 line-of-credit, all of
         which was drawn at December 31, 1999.

         The aggregate gross cost of the properties included above, for federal
income tax purposes, approximated $849,867 as of December 31, 1999. The Company
has $125,724 in property under development at December 31, 1999, of which
$74,348 was added during 1999 (same basis for federal income tax purposes).

         The following table reconciles our historical cost for the years ended
December 31, 1999 and 1998 and for the period from November 17, 1997 through
December 31, 1997

<TABLE>
<CAPTION>
                                                                                                                     PERIOD FROM
                                                                                                                     NOVEMBER 17,
                                                                                  YEAR ENDED DECEMBER 31,            1997 THROUGH
                                                                          --------------------------------------     DECEMBER 31,
                                                                                  1999              1998                 1997
                                                                          ----------------------------------------------------------
<S>                                                                           <C>                  <C>            <C>
Balance, beginning of period...........................................       $   843,031          $589,279       $           -
Additions during period................................................           584,561           253,752             589,279
Disposals during the period............................................          (276,498)                -                   -
                                                                          ==========================================================
Balance, close of period...............................................        $1,151,094          $843,031            $589,279
                                                                          ==========================================================

</TABLE>

                                 F-43
<PAGE>



         The following table reconciles the accumulated depreciation for the
years ended December 31, 1999 and 1998 and for the period from November 17, 1997
through December 31, 1997


<TABLE>
<CAPTION>
                                                                                                                     PERIOD FROM
                                                                                                                     NOVEMBER 17,
                                                                                    YEAR ENDED DECEMBER 31,          1997 THROUGH
                                                                          --------------------------------------     DECEMBER 31,
                                                                                   1999             1998                 1997
                                                                          ----------------------------------------------------------
<S>                                                                               <C>              <C>              <C>
Balance at beginning of period.........................................           $24,736          $  2,338         $         -
Depreciation and amortization for the period...........................            28,454            22,418               2,338
Disposals during the period............................................           (15,213)                -                   -
                                                                          ----------------------------------------------------------
Balance, close of period...............................................           $37,977           $24,756             $ 2,338
                                                                          ==========================================================

</TABLE>




                                 F-44