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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-K/A
 AMENDMENT No. 1
 þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
 For the fiscal year ended December 31, 2007
 or
 o
    
    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
  Maryland
(State or other jurisdiction of 
incorporation or organization)
    
    36-4173047
(I.R.S. Employer
Identification No.)77 West Wacker Drive, Suite 3900,Chicago, Illinois
    
    60601(Address of principal executive offices)
    
    (Zip Code)
 (312) 917-1300
  Title of each class
    
    Name of each exchange on which registeredSeries B  Cumulative Redeemable
    
    New York Stock ExchangePreferred Shares of Beneficial Interest,$0.01 par value per share
  o Yes þ No
 o Yes þ No
 þ o
 þ
  Large Accelerated Filer o
    
    Accelerated Filer o
    
    Non-Accelerated Filer þ
    
    Smaller Reporting Company o
 o þ




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EXPLANATORY NOTE
      2




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##### 



INDEX
 PAGEPART IItem 1. Business
    
    
    5Item 1A. Risk Factors
    
    
    13Item 1B. Unresolved Staff Comments
    
    
    23Item 2. Properties
    
    
    23Item 3. Legal Proceedings
    
    
    25Item 4. Submission of Matters to a Vote of Security Holders
    
    
    26PART IIItem 5. Market for Registrants Common Equity, Related
Stockholder Matters and Issuer Purchases of Equity
Securities
    
    
    27Item 6. Selected Financial Data
    
    
    29Item 7. Managements Discussion and Analysis of Financial
Condition and Results of Operations
    
    
    31Item 7A. Quantitative and Qualitative Disclosures About Market Risk
    
    
    53Item 8. Financial Statements and Supplementary Data
    
    
    54Item 9. Changes in and Disagreements With Accountants on
Accounting and Financial Disclosure
    
    
    54Item 9A. Controls and Procedures
    
    
    54Item 9B. Other Information
    
    
    56PART IIIItem 10. Directors and Executive Officers of the Registrant
    
    
    57Item 11. Executive Compensation
    
    
    61Item 12. Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters
    
    
    67Item 13. Certain Relationships and Related Transactions
    
    
    68Item 14. Principal Accountant Fees and Services
    
    
    69PART IVItem 15. Exhibits and Financial Statement Schedules
    
    
    71Signatures
    
    
    82Exhibit 10.81Exhibit 31.1Exhibit 31.2Exhibit 32.1Exhibit 32.2
   3




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Forward-Looking Statements
   
    
    future economic and market conditions which may impact the demand for office and
industrial space either at current or increased levels;
 
    
    the extent of any tenant bankruptcies or defaults that may occur;
 
    
    our ability or inability to renew existing tenant leases and lease up vacant space;
 
    
    prevailing interest rates;
 
    
    the effect of inflation and other factors on operating expenses and real estate taxes;
 
    
    our ability to minimize various expenses as a percentage of our revenues; and
 
    
    the availability of financing and capital.
   4




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PART I
 
 ITEM 1. BUSINESS
 Background and General
       5




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Tax Status
  Business Strategy
   6




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Ongoing Operations
  
    
    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;
and
 
    
    emphasizing value-added capital improvements to maintain and enhance our properties
competitive advantages in their submarkets.
 Liquidity and Capital Requirements .
      Acquisition, Disposition and Development Activity .
  7




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Recent Developments
 Dispositions .
 Net
    
    
    
    
    
    
    MortgageRentable
    
    
    Sales Price
    
    
    Debt
    
    
    MonthProperty
    
    Location
    
    Square Feet
    
    
    (in millions)
    
    
    (in millions)
    
    
    SoldNarco River Business
Center (1)
    
    Calumet City, IL
    
    
    65,394
    
    
    $
    7.4
    
    
    $
    2.7
    
    
    May
 (1)
    
    On May 22, 2007, we closed on the sale of our Narco River Business Center property located in
Calumet City, Illinois, for a sales price of $7.4 million. We recognized a gain of
$2.2 million and retired debt of $2.7 million related to this property. Indebtedness.
 LoanPrincipal
    
    
    
    
    
    
    
    
    OriginalAmount
    
    
    Interest
    
    Transaction
    
    
    MaturityCollateral
    
    Type of Loan
    
    (in millions)
    
    
    Rate
    
    Date
    
    
    DateNew IndebtednessPGRT ESH, Inc.
    
    Non-recourse
    
    $
    120.0
    
    
    Variable
    
    
    6/07
    
    
    
    6/08Indebtedness RetirementNarco River Business Center
    
    First Mortgage
    
    $
    2.7
    
    
    Fixed
    
    
    5/07
    
    
    
    12/09Principal PaymentsAmortization
    
    Various
    
    $
    1.8
    
    
    Various
    
    Various
    
    Various
    Shareholders and Board of Trustees Developments
  8




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Competition
  Services Company
  Government Regulations
 Environmental Matters .
   9




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Accounting for Conditional Asset Retirement
Obligations, Accounting for Asset
Retirement Obligations
   10




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Costs of Compliance with Americans with Disabilities Act of 1990 (the ADA) .
 Other Regulations .
 Insurance
       11




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Employees
  Available Information
   12




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ITEM 1A. RISK FACTORS
 Investment in us presents risks. If any of the risk events described below actually occurs,
our business, financial condition or results of operations could be adversely affected. Some
statements in the following risk factors discussion, constitute forward-looking statements.
Please refer to the section above entitled Forward-Looking Statements.
 Our properties depend upon the Chicago metropolitan area economy and its demand for office
space.
  We may be unable to renew leases, lease vacant space or re-lease space as leases expire.
  Our performance and value are subject to risks associated with real estate assets and with the
real estate industry.
  
    
    local oversupply, increased competition or reduction in demand for office space;
 
    
    inability to collect rent from tenants;
 
    
    vacancies or our inability to rent space on favorable terms;
  13




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
    
    increased operating costs, including insurance premiums, utilities and real
estate taxes, due to inflation and other factors which may not necessarily be
offset by increased rents;
 
    
    costs of complying with changes in governmental regulations;
 
    
    the relative illiquidity of real estate investments; and
 
    
    changing submarket demographics.
  We face significant competition, which may decrease or prevent increases of the occupancy and
rental rates of our properties.
  Our debt level reduces cash available for operations, capital expenditures and dividends to
holders of our Series B Shares and our common shareholder, and may expose us to the risk of default
under our debt obligations.
  
    
    our cash flow may be insufficient to meet our required principal and interest
payments;
 
    
    we may be unable to borrow additional funds as needed or on favorable terms;
 
    
    we may be unable to refinance our existing or future indebtedness at maturity or
the refinancing terms may be less favorable than the terms of our existing
indebtedness;
 
    
    because a portion of our debt bears interest at variable rates, increases in
interest rates could increase our interest expense;
 
    
    we may be forced to dispose of one or more of our properties, possibly on
disadvantageous terms;
  14




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
    
    we may default on our obligations and the lenders or mortgagees may foreclose on
our properties that secure their loans and receive an assignment of rents and
leases;
 
    
    we may violate restrictive covenants in our loan agreements, which would entitle
the lenders to accelerate our debt obligations; and
 
    
    our default under any one of our mortgage loans with cross default provisions
could result in a default on other indebtedness.
   Covenants in our debt instruments could adversely affect our financial condition and restrict
our range of operating activities.
  There can be no assurance that we will be able to pay or maintain cash dividends to holders of
Series B Shares or our common shareholder.
    15




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The average daily trading volume of our Series B Shares is relatively small, thus making it
difficult to buy or sell significant numbers of shares without affecting the market price.
 .
 Lightstone controls us, and will continue to control us, as long as one or more of its
affiliates own a majority of our common shares.
   16




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Lightstone and its designees on our Board may have interests that conflict with our interests.
  We may sell or acquire additional assets which could adversely affect our operations and
financial results.
  The redevelopment of certain of our existing properties and any future development we may
undertake could be costly and involve substantial risk.
   17




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Only our Series B Shares are listed on the NYSE and, therefore, we are entitled to rely on
exemptions from certain corporate governance requirements.
  We depend on significant tenants.
    Our current and future joint venture investments could be adversely affected by our lack of
sole decision-making authority, our reliance on our joint venture partners financial condition and
any disputes that may arise between us and our joint venture partners.
   18




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Tax indemnification obligations in the event that we sell a certain property could limit our
operating flexibility.
  Failure to qualify as a REIT would have significant adverse consequences to us.
  
    
    we would not be allowed a deduction for dividends to shareholders in computing
our taxable income and would be subject to federal income tax at regular corporate
rates;
 
    
    we also could be subject to the federal alternative minimum tax and possibly
increased state and local taxes; and
 
    
    unless we are entitled to relief under applicable statutory provisions, we could
not elect to be taxed as a REIT for four taxable years following the year during
which we were disqualified.
    19




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We are required to include in our annual reports a report of our management on our internal
controls over our financial reporting under Section 404 of the Sarbanes Oxley Act of 2002. Any
adverse results from future evaluations could result in a loss of investor confidence in our
financial reports and have an adverse effect on the stock price of our Series B Shares and the
value of our common shares.
  Other regulations could adversely affect our financial condition.
  Failure to hedge effectively against interest rate changes may adversely affect our results of
operations.
  Potential losses may not be covered by insurance.
   20




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The construction of new developments adjacent to or near certain of our existing properties
may adversely affect the leasing, operation and value of those properties.
  Book losses that have been recognized and that may be recognized in the future have eroded,
and may in the future erode, our book value.
   One or more of our properties may face foreclosure by our lenders or we may voluntarily decide
to convey one or more of our properties to a lender if a propertys cash flow is not enough to
service its debt, operating expenses and capital requirements or if we cannot refinance a property
upon debt maturity.
   21




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We may incur significant costs of complying with the Americans with Disabilities Act and
similar laws.
  Liabilities for environmental matters could adversely affect our financial condition.
  Future terrorist attacks in the United States could harm the demand for, and the values of,
our properties.
   22




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ITEM 1B. UNRESOLVED STAFF COMMENTS
  
 ITEM 2. PROPERTIES
 General
      23




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Properties
  Net
    
    
    PercentageYear Built/
    
    Rentable
    
    
    Occupied asLocation
    
    Renovated
    
    Square Feet
    
    
    of 12/31/07Wholly-Owned Properties:330 N. Wabash Avenue (1)
    
    Chicago, IL
    
    1971
    
    
    1,466,023
    
    
    
    66.5
    %Continental Towers (2)
    
    Rolling Meadows, IL
    
    1977 thru1981/2001
    
    
    910,796
    
    
    
    76.6
    %180 North LaSalle Street
    
    Chicago, IL
    
    1982/1999
    
    
    770,191
    
    
    
    87.0
    %800-810 Jorie Boulevard
    
    Oak Brook, IL
    
    1961/1992
    
    
    193,688
    
    
    
    41.8
    %4343 Commerce Court
    
    Lisle, IL
    
    1989
    
    
    167,756
    
    
    
    78.5
    %740-770 Pasquinelli Drive
    
    Westmont, IL
    
    1986
    
    
    110,299
    
    
    
    97.8
    %280 Shuman Blvd.
    
    Naperville, IL
    
    1979
    
    
    69,077
    
    
    
    90.1
    %Enterprise Center II
    
    Westchester, IL
    
    1999
    
    
    62,580
    
    
    
    64.8
    %7100 Madison Avenue
    
    Willowbrook, IL
    
    1999
    
    
    50,157
    
    
    
    100.0
    %1051 N. Kirk Road (3)
    
    Batavia, IL
    
    1990
    
    
    120,004
    
    
    
    100.0
    %Portfolio total
    
    
    
    
    
    
    3,920,571
    
    
    
    74.9
    %Unconsolidated Joint Venture
Properties:77 West Wacker Drive (4)
    
    Chicago, IL
    
    1992
    
    
    959,258
    
    
    
    86.3
    %Thistle Landing (5)
    
    Phoenix, AZ
    
    1999
    
    
    101,006
    
    
    
    59.4
    %
 (1)
    
    The land underlying a portion of this property, related to the parking garage, is leased
for a term expiring on April 30, 2019 with options to extend the term for an additional forty
years. On March 18, 2008, we sold floors 2 through 13 of this office property to a third
party that intends to construct a five-star super-luxury hotel on these floors.(2)
    
    We hold two mortgage notes receivable on this office property and have consolidated the
underlying property operations because we derive significant economic benefits from the
propertys operations.(3)
    
    1051 N. Kirk Road was sold to the tenant of this property on May 2, 2008.(4)
    
    At December 31, 2007, we held a 50.0% common ownership interest in a joint venture that
owned this office property. On January 7, 2008, we sold our joint venture interest in this
property to our joint venture partner and no longer hold any ownership interest in this
property.(5)
    
    We own a 23.1% common ownership interest in a joint venture that owns this office property.
On August 29, 2005, we were notified by our joint venture partner of the execution of a sale
agreement for three of the four buildings at Thistle Landing. The sale took place in early
November 2005 and we received a distribution relating to our interest of $3.9 million on
November 7, 2005, which was recorded as a reduction of our investment in the unconsolidated
joint venture. As a result of the sale, the net rentable square feet owned by the joint
venture was reduced to 101,006 square feet from 383,509 square feet. In addition, we have no
impairment on our investment because the fair value of our investment is greater than the
carrying value.  24




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ITEM 3. LEGAL PROCEEDINGS
       Accounting for Contingencies
  25




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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
     26




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PART II
 
 ITEM 5.
    
    MARKET FOR REGISTRANTS COMMON EQUITY, RELATED
STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
    CashDividendsPaid (per share)Fiscal Year 2006First quarter
    
    $
    2.8438Second quarter
    
    
    Third quarter
    
    
    Fourth quarter
    
    
    Fiscal Year 2007First quarter
    
    
    Second quarter
    
    
    Third quarter
    
    
    Fourth quarter
    
    
    
   27




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Equity Compensation Plans .
 Recent Sales of Unregistered Securities
  Purchases of Equity Securities by Issuer and Affiliated Purchasers
   28




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ITEM 6. SELECTED FINANCIAL DATA
  Successor Company
    
    
    
    Predecessor CompanyYear ended December 31
    
    
    
    Year ended December 312007
    
    
    2006
    
    
    2005
    
    
    
    2004
    
    
    2003(dollars in thousands)
    
    
    
    (dollars in thousands)As Restated(3)
    
    
    As Restated(3)Balance Sheet DataReal estate assets
    
    $
    499,050
    
    
    $
    482,447
    
    
    $
    471,892
    
    
    
    $
    619,059
    
    
    $
    681,933Total assets
    
    
    671,916
    
    
    
    650,013
    
    
    
    771,921
    
    
    
    
    767,363
    
    
    
    948,781Mortgage notes and notes payable
    
    
    567,910
    
    
    
    453,695
    
    
    
    452,965
    
    
    
    
    427,445
    
    
    
    435,869Total liabilities
    
    
    635,559
    
    
    
    524,868
    
    
    
    530,668
    
    
    
    
    502,785
    
    
    
    663,640Minority interests
    
    
    
    
    
    
    20,770
    
    
    
    135,853
    
    
    
    
    19,154
    
    
    
    21,803Shareholders equity
    
    
    36,357
    
    
    
    104,375
    
    
    
    105,400
    
    
    
    
    245,424
    
    
    
    263,338
 Successor Company
    
    
    
    Predecessor CompanySix months
    
    
    
    Six monthsended
    
    
    
    endedDecember 31
    
    
    
    June 302007
    
    
    2006
    
    
    2005
    
    
    
    2005
    
    
    2004
    
    
    2003(dollars in thousands,
    
    
    
    (dollars in thousands, exceptexcept per share amount)
    
    
    
    per share amount)As Restated(3)
    
    
    As Restated(3)Statement of Operations Data (1)Total revenue
    
    $
    91,013
    
    
    $
    97,396
    
    
    $
    47,691
    
    
    
    $
    47,339
    
    
    $
    97,040
    
    
    $
    123,532Operating income (loss)
    
    
    1,603
    
    
    
    1,108
    
    
    
    (1,025
    )
    
    
    
    (3,657
    )
    
    
    15,514
    
    
    
    28,741(Loss) income from continuing
operations
    
    
    (59,044
    )
    
    
    8,647
    
    
    
    4,292
    
    
    
    
    (9,344
    )
    
    
    (20,143
    )
    
    
    (15,666
    )Net (loss) income
    
    
    (59,018
    )
    
    
    8,647
    
    
    
    4,319
    
    
    
    
    (19,571
    )
    
    
    (11,383
    )
    
    
    (36,217
    )Net loss available to common
shareholders
    
    
    (68,018
    )
    
    
    (353
    )
    
    
    (181
    )
    
    
    
    (24,071
    )
    
    
    (20,383
    )
    
    
    (45,217
    )Basic and diluted earnings
available to common shares per
weighted-average common share (2)Loss from continuing operations
    
    $
    (287.73
    )
    
    $
    (1.49
    )
    
    $
    (0.88
    )
    
    
    $
    (0.59
    )
    
    $
    (1.23
    )
    
    $
    (1.23
    )Net loss available per
weighted-average common share of
beneficial interest basic and
diluted
    
    
    (287.62
    )
    
    
    (1.49
    )
    
    
    (0.76
    )
    
    
    
    (1.02
    )
    
    
    (0.86
    )
    
    
    (2.25
    )Dividends paid per common share
    
    
    
    
    
    
    2.8438
    
    
    
    1.1225
    
    
    
    
    
    
    
    
    
    
    
    
    Dividends paid per preferred share
    
    
    2.8125
    
    
    
    1.6875
    
    
    
    4.50
    
    
    
    
    1.125
    
    
    
    1.6875
    
    
    
    Cash Flow and Operating DataCash flow provided by (used in):Operating activities
    
    $
    1,134
    
    
    $
    638
    
    
    $
    1,236
    
    
    
    $
    (6,659
    )
    
    $
    22,108
    
    
    $
    56,875Investing activities
    
    
    (129,700
    )
    
    
    70,603
    
    
    
    (60,044
    )
    
    
    
    2,258
    
    
    
    116,613
    
    
    
    296,732Financing activities
    
    
    106,348
    
    
    
    (28,739
    )
    
    
    6,773
    
    
    
    
    2,314
    
    
    
    (99,598
    )
    
    
    (336,799
    )Office Properties:Square footage
    
    
    3,800,567
    
    
    
    3,865,828
    
    
    
    3,772,482
    
    
    
    
    4,636,918
    
    
    
    4,632,633
    
    
    
    5,536,065Occupancy (%)
    
    
    74.1
    
    
    
    79.0
    
    
    
    83.7
    
    
    
    
    82.8
    
    
    
    85.1
    
    
    
    75.1Industrial Properties:Square footage
    
    
    120,004
    
    
    
    120,004
    
    
    
    120,004
    
    
    
    
    120,004
    
    
    
    120,004
    
    
    
    3,874,712Occupancy (%)
    
    
    100.0
    
    
    
    100.0
    
    
    
    100.0
    
    
    
    
    100.0
    
    
    
    100.0
    
    
    
    81.4Unconsolidated Joint Venture
Properties:Square footage
    
    
    1,060,264
    
    
    
    1,060,725
    
    
    
    2,554,866
    
    
    
    
    2,833,068
    
    
    
    2,831,303
    
    
    
    2,827,302Occupancy (%)
    
    
    83.7
    
    
    
    76.4
    
    
    
    77.6
    
    
    
    
    80.9
    
    
    
    79.7
    
    
    
    74.1
  29




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(1)
    
    Information for the years ended December 31, 2006 (including the six months ended December
31, 2005 and the six months ended June 30, 2005), 2004 and 2003 has been restated for the
reclassification of the operations of properties, to reflect the impact of SFAS No. 144,
Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of (SFAS No. 144), from continuing operations to discontinued operations.(2)
    
    Net loss available per weighted-average common share of beneficial interest-basic equals net
income divided by 236,483; 236,483; 236,483; 23,658,579; 23,671,412 and 20,105,183 common
shares for the years ended December 31, 2007, December 31, 2006, for the six months ended
December 31, 2005, for the six months ended June 30, 2005 and for the years ended December 31,
2004 and 2003, respectively. Net loss available per weighted-average share of beneficial
interest-diluted equals net income divided by 236,483; 236,483; 236,483; 23,658,579;
23,671,412 and 20,105,183 common shares for the years ended December 31, 2007, December 31,
2006, for the six months ended December 31, 2005, for the six months ended June 30, 2005 and
for the years ended December 31, 2004 and 2003, respectively. The change in number of
weighted-average common shares is principally due to the Acquisition by Lightstone and common
unitholders in our Operating Partnership exchanging common units for common shares and the
issuance of new common units in our Operating Partnership in connection with property
acquisitions.(3)
    
    See Note 17 to the consolidated financial statements included in this report for further
discussion on the restatements and their specific impact on the historical financial
statements.  30




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ITEM 7.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 Overview
      Impact of Restatement
   31




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Portfolio OccupancyDecember 31
    
    
    September 30
    
    
    June 30
    
    
    March 31
    
    
    December 312007
    
    
    2007
    
    
    2007
    
    
    2007
    
    
    2006Portfolio Total
    
    
    74.9
    %
    
    
    74.5
    %
    
    
    76.3
    %
    
    
    80.2
    %
    
    
    79.6
    %Unconsolidated
Joint Venture
Properties
    
    
    83.7
    %
    
    
    80.8
    %
    
    
    90.0
    %
    
    
    92.1
    %
    
    
    76.4
    %
 2007 Business Summary
  
    
    retiring, extending or refinancing debt;
 
    
    completing certain capital transactions;
 
    
    reducing operating costs; and
 
    
    aggressively pursuing leasing transactions.
  32




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##### Table of Contents




    
    We initiated efforts to refinance our 330 N. Wabash Avenue property and to sell floors 2
through 13 to a hotel developer for the construction of a five-star super-luxury hotel, and
both transactions ultimately closed on March 18, 2008.
 
    
    Through December 31, 2007, we commenced 41 new and expansion office leases totaling 696,160
square feet, and renewed or extended 35 office leases totaling 376,403 square feet including
our joint venture properties.
 
    
    In 2007, we began negotiating the sale of our joint venture interest in The United
Building, and in January 2008 we closed on the sale and used a portion of the proceeds to
retire the $18.8 million outstanding indebtedness on two Citicorp mezzanine loans.
 Key Performance Indicators
     33




---



##### Table of Contents



Results of Operations
 Comparison of the Year ended December 31, 2007 to the Year ended December 31, 2006
  2007
    
    
    2006
    
    
    $ Change
    
    
    % Change(dollars in thousands)As Restated
    
    
    As RestatedProperty revenues
    
    $
    87,654
    
    
    $
    94,590
    
    
    $
    (6,936
    )
    
    
    (7.3
    )%Services Company revenues
    
    
    3,359
    
    
    
    2,806
    
    
    
    553
    
    
    
    19.7Total revenues
    
    
    91,013
    
    
    
    97,396
    
    
    
    (6,383
    )
    
    
    (6.6
    )Property operating expenses
    
    
    47,780
    
    
    
    47,240
    
    
    
    540
    
    
    
    1.1Depreciation and amortization
    
    
    32,585
    
    
    
    34,483
    
    
    
    (1,898
    )
    
    
    (5.5
    )General and administrative
    
    
    6,210
    
    
    
    6,393
    
    
    
    (183
    )
    
    
    (2.9
    )Services Company operations
    
    
    2,835
    
    
    
    3,972
    
    
    
    (1,137
    )
    
    
    (28.6
    )Loss on tax indemnification
    
    
    
    
    
    
    4,200
    
    
    
    (4,200
    )
    
    
    (100.0
    )Total expenses
    
    
    89,410
    
    
    
    96,288
    
    
    
    (6,878
    )
    
    
    (7.1
    )Operating income
    
    
    1,603
    
    
    
    1,108
    
    
    
    495
    
    
    
    44.7Loss from investments in unconsolidated
joint ventures
    
    
    (49,687
    )
    
    
    (9,145
    )
    
    
    (40,542
    )
    
    
    (443.3
    )Interest and other income
    
    
    2,961
    
    
    
    2,850
    
    
    
    111
    
    
    
    3.9Interest:Expense
    
    
    (36,610
    )
    
    
    (42,183
    )
    
    
    5,573
    
    
    
    13.2Amortization of deferred financing costs
    
    
    (910
    )
    
    
    (3,146
    )
    
    
    2,236
    
    
    
    71.1Gain on sales of real estate and joint venture interests
    
    
    
    
    
    
    19,460
    
    
    
    (19,460
    )
    
    
    (100.0
    )Distributions and losses to minority partners in excess
of basis
    
    
    (14,222
    )
    
    
    
    
    
    
    (14,222
    )
    
    
    Loss from continuing operations before minority interests
    
    
    (96,865
    )
    
    
    (31,056
    )
    
    
    (65,809
    )
    
    
    (211.9
    )Minority interests
    
    
    37,821
    
    
    
    39,703
    
    
    
    (1,882
    )
    
    
    (4.7
    )(Loss) income from continuing operations
    
    
    (59,044
    )
    
    
    8,647
    
    
    
    (67,691
    )
    
    
    (782.8
    )Discontinued operations,
net of minority interests
    
    
    26
    
    
    
    
    
    
    
    26
    
    
    
    Net (loss) income
    
    $
    (59,018
    )
    
    $
    8,647
    
    
    $
    (67,665
    )
    
    
    (782.5
    )%
 Property Revenues.
 Services Company Revenues
 Property Operating Expenses.
  34




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##### Table of Contents



Depreciation and Amortization.
 Services Company Operations.
 Loss on Tax Indemnification.
 Loss From Investments in Unconsolidated Joint Ventures.
 Interest Expense.
 Amortization of Deferred Financing Costs
 Gain on Sale of Real Estate and Joint Venture Interests.
 Distributions and losses to minority partners in excess of basis.
  35




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##### Table of Contents



Discontinued Operations.
 Comparison of the Year ended December 31, 2006 to the Year ended December 31, 2005
  2006
    
    
    2005
    
    
    $ Change
    
    
    % ChangeAs Restated(dollars in thousands)Property revenues
    
    $
    94,590
    
    
    $
    92,834
    
    
    $
    1,756
    
    
    
    1.9
    %Services Company revenues
    
    
    2,806
    
    
    
    2,196
    
    
    
    610
    
    
    
    27.8Total revenues
    
    
    97,396
    
    
    
    95,030
    
    
    
    2,366
    
    
    
    2.5Property operating expenses
    
    
    47,240
    
    
    
    47,707
    
    
    
    (467
    )
    
    
    (1.0
    )Depreciation and amortization
    
    
    34,483
    
    
    
    29,553
    
    
    
    4,930
    
    
    
    16.7General and administrative
    
    
    6,393
    
    
    
    7,708
    
    
    
    (1,315
    )
    
    
    (17.1
    )Services Company operations
    
    
    3,972
    
    
    
    4,062
    
    
    
    (90
    )
    
    
    (2.2
    )Loss on tax indemnification
    
    
    4,200
    
    
    
    
    
    
    
    (4,200
    )
    
    
    (100.0
    )Severance costs
    
    
    
    
    
    
    394
    
    
    
    (394
    )
    
    
    (100.0
    )Strategic alternative costs
    
    
    
    
    
    
    10,288
    
    
    
    (10,288
    )
    
    
    (100.0
    )Total expenses
    
    
    96,288
    
    
    
    99,712
    
    
    
    (3,424
    )
    
    
    (3.4
    )Operating income (loss)
    
    
    1,108
    
    
    
    (4,682
    )
    
    
    5,790
    
    
    
    123.6Loss from investments in unconsolidated
joint ventures
    
    
    (9,145
    )
    
    
    (13,022
    )
    
    
    3,877
    
    
    
    29.8Interest and other income
    
    
    2,850
    
    
    
    2,596
    
    
    
    254
    
    
    
    9.8Interest:Expense
    
    
    (42,183
    )
    
    
    (23,940
    )
    
    
    (18,243
    )
    
    
    (76.2
    )Amortization of deferred financing costs
    
    
    (3,146
    )
    
    
    (1,288
    )
    
    
    (1,858
    )
    
    
    (144.3
    )Gain on sales of real estate and joint venture interests
    
    
    19,460
    
    
    
    10,025
    
    
    
    9,435
    
    
    
    94.1Loss from continuing operations before minority interests
    
    
    (31,056
    )
    
    
    (30,311
    )
    
    
    (745
    )
    
    
    (2.4
    )Minority interests
    
    
    39,703
    
    
    
    25,259
    
    
    
    14,444
    
    
    
    57.2Income (loss) from continuing operations
    
    
    8,647
    
    
    
    (5,052
    )
    
    
    13,699
    
    
    
    271.1Discontinued operations,
net of minority interests
    
    
    
    
    
    
    (10,200
    )
    
    
    10,200
    
    
    
    100.0Net income (loss)
    
    $
    8,647
    
    
    $
    (15,252
    )
    
    $
    23,935
    
    
    
    156.9
    %
 Property Revenues.
 Services Company Revenues
 Property Operating Expenses.
  36




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##### Table of Contents



Depreciation and Amortization
 General and Administrative
 Loss on Tax Indemnification.
 Strategic Alternative Costs.
 Loss From Investments in Unconsolidated Joint Ventures.
 Interest and Other Income. .
 Interest Expense.
 Amortization of Deferred Financing Costs
 Minority Interests
 Discontinued Operations.
  37




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##### Table of Contents



Gain on Sales of Real Estate and Joint Venture Interests.
 Liquidity and Capital Resources
 Recent Developments .
  The United Building Sale.
  BHAC Capital IV, L.L.C
  330 N. Wabash Avenue Hotel Sale.
  38




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##### Table of Contents



330 N. Wabash Avenue Refinancing.
     39




---



##### Table of Contents



1051 N. Kirk Road Sale.
   BHAC Capital IV, L.L.C
  4343 Commerce Court Refinancing .
  40




---



##### Table of Contents



Liquidity
      41




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##### Table of Contents



Payments Due by Period(dollars in thousands)2009/
    
    
    2011/
    
    
    2013 andContractual Obligations(A)
    
    Total
    
    
    2008
    
    
    2010
    
    
    2012
    
    
    ThereafterMortgage notes payable (B)
    
    $
    567,910
    
    
    $
    351,014
    
    
    $
    36,492
    
    
    $
    65,404
    
    
    $
    115,000Operating lease obligations
    
    
    2,882
    
    
    
    561
    
    
    
    482
    
    
    
    442
    
    
    
    1,397Tenant improvement
allowances (C)
    
    
    10,337
    
    
    
    10,337
    
    
    
    
    
    
    
    
    
    
    
    Liabilities for leases
assumed and lease
reimbursement obligations
(D)
    
    
    43,556
    
    
    
    10,040
    
    
    
    17,805
    
    
    
    15,711
    
    
    
    Total contractual cash
obligations
    
    $
    624,685
    
    
    $
    371,952
    
    
    $
    54,779
    
    
    $
    81,557
    
    
    $
    116,397
 (A)
    
    We anticipate funding these obligations from operations, cash on hand, escrowed funds and the
proceeds of equity, debt or asset sale(s) transaction(s) as discussed above.(B)
    
    These totals represent the fair value of our mortgage notes payable as adjusted in
conjunction with the application of purchase accounting related to the Acquisition. Also, as
a result of the Acquisition, we are amortizing the fair value adjustment for our debt over the
remaining life of the debt, which is recorded in the accretion of mortgage note payable. For
the year ended December 31, 2007, amortization totaled $1.3 million. The actual amount owed to
lenders for mortgage notes payable at December 31, 2007, is $565.1 million. Of this balance,
$18.8 million was paid on January 7, 2008 to retire the outstanding balance on two Citicorp
mezzanine loans. In addition, on March 18, 2008, a $195.0 million first mortgage and
mezzanine loan was retired and refinanced by a new $138.0 million loan. Interest expense
obligations related to mortgage notes payable total $89.9 million and are due as follows:
$22.5 million in 2008; $26.5 million in 2009/2010; $14.1 million in 2011/2012; and $26.8
million in 2013/thereafter.(C)
    
    We have escrows of $9.0 million that may be utilized to fund these obligations.(D)
    
    These obligations would be offset by any receipts from subleasing of the related space. We
currently have executed subleases that we estimate will provide subleasing receipts of $35.8
million consisting of base rent and the pro-rata share of operating expenses and real estate
taxes. In addition, we have escrowed reserves totaling $6.3 million to fund a portion of this
contractual amount at December 31, 2007. Amount of Commitment Expiration Per PeriodTotal
    
    
    (dollars in thousands)Amounts
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2013 andOther Commercial Commitments
    
    Committed
    
    
    2008
    
    
    2009-2010
    
    
    2011-2012
    
    
    ThereafterGuarantees (A)
    
    $
    2,756
    
    
    $
    
    (A)
    
    $
    
    (A)
    
    $
    
    (A)
    
    $
    
    (A)Unconsolidated joint ventures (B)
    
    
    80,820
    
    
    
    
    (B)
    
    
    
    (B)
    
    
    
    (B)
    
    
    
    (B)Tax indemnifications (C)
    
    
    14,018
    
    
    
    
    (C)
    
    
    
    (C)
    
    
    
    (C)
    
    
    
    (C)Environmental remediation (D)
    
    
    4,467
    
    
    
    3,612
    
    
    
    609
    
    
    
    43
    
    
    
    203Series B Shares (E)
    
    
    
    (E)
    
    
    2,250
    
    
    
    
    (E)
    
    
    
    (E)
    
    
    
    (E)Total commercial commitments
    
    $
    102,061
    
    
    $
    5,862
    
    
    $
    609
    
    
    $
    43
    
    
    $
    203
 (A)
    
    This represents a guarantee for $2.8 million to ensure certain tenant improvement and lease
commission payments are made with respect to the joint venture that owned an office building
known as The United Building located at 77 West Wacker Drive in Chicago, Illinois. On January
7, 2008, we sold our joint venture interest in this property to our joint venture partner and
no longer hold any ownership interest in this property.(B)
    
    We had a 50.0% common interest in an unconsolidated real estate joint venture that owned The
United Building. The amount shown includes 50.0% of the balance of the $161.6 million
mortgage note payable secured by the property.  42




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##### Table of Contents



In addition, we have a 23.1% interest in an unconsolidated real estate venture, which owns a 0.1
million square foot office property in Phoenix, Arizona and subsequent to the sale of three of
the four buildings owned by the venture in August 2005, is unencumbered.(C)
    
    We estimate our maximum possible exposure on tax indemnifications to be $14.0 million if the
remaining indemnity property had been sold as of December 31, 2007. See Note 15 
Commitments and Contingencies  Tax Indemnities to our consolidated financial statements
included in this report for further information.(D)
    
    This represents a liability for asbestos abatement at our 330 N. Wabash Avenue property. See
Note 15  Commitments and Contingencies  Environmental to our consolidated financial
statements included in this report for further information.(E)
    
    Dividends are cumulative and payable at a 9.0% annual rate each quarter that our Series B
Shares remain outstanding. On March 22, 2007, our Board declared and set apart for payment a
quarterly dividend on our Series B Shares of $0.5625 per share for the first quarter of 2007
dividend period. This quarterly dividend had a record date of April 9, 2007 and a payment date
of April 30, 2007. On June 21, 2007, our Board declared and set apart for payment a quarterly
dividend on our Series B Shares of $0.5625 per share for the second quarter of 2007 dividend
period. This quarterly dividend had a record date of July 6, 2007 and a payment date of July
31, 2007. On September 24, 2007, our Board declared and set apart for payment a quarterly
dividend on our Series B Shares of $0.5625 per share for the third quarter of 2007 dividend
period. This quarterly dividend had a record date of October 8, 2007 and a payment date of
October 31, 2007. On December 20, 2007, our Board declared and set apart for payment a
quarterly dividend on our Series B Shares of $0.5625 per share for the fourth quarter of 2007
dividend period. The quarterly dividend had a record date of January 10, 2008 and a payment
date of January 31, 2008. Under our Charter, these dividends are deemed to be quarterly
dividends relating to the first, second, third and fourth quarter 2007 dividend periods, the
earliest accrued but unpaid quarterly dividends on our preferred shares.With respect to the payment of the dividends referred to above, there can be no assurance as
to the timing and amounts of any future dividends, and the payment of dividends at this
time should not be construed to convey any degree of certainty with respect to future
dividend payments. Management and our Board review the Companys cash position, the status
of potential capital events, debt levels and the Companys requirements for cash reserves
each quarter prior to making any decision with respect to paying dividends.The holders of our Series B Shares have the right to elect two additional members to our
Board if six consecutive quarterly dividends on our Series B Shares are not made. The term
of any trustees elected by the Series B shareholders will expire whenever all arrears in
dividends on the Series B Shares have been paid and current dividends declared and set
apart for payment. Tenant Concentration.
 GrossTenant
    
    
    % Of Our Total
    
    
    LeaseTenant
    
    Revenue
    
    
    Revenue
    
    
    Expiration(dollars in thousands)Jenner & Block (1)
    
    $
    13,339
    
    
    
    11.9
    %
    
    April 2010Ameriquest Mortgage Company
    
    
    6,736
    
    
    
    6.0
    
    
    June 2011Accenture
    
    
    5,124
    
    
    
    4.6
    
    
    July 2015Jones Day (2)
    
    
    3,409
    
    
    
    3.0
    
    
    September 2022United Airlines (2)
    
    
    3,402
    
    
    
    3.0
    
    
    February 2022$
    32,010
    
    
    
    28.5
    %
  43




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##### Table of Contents



(1)
    
    We have been informed that Jenner & Block will not be renewing their lease at
expiration.(2)
    
    These are tenants of The United Building in which we had an ownership interest in the
joint venture that owned the office property until our sale of such interest in January
2008 to our joint venture partner.  
    
    the nature of the financial difficulties;
    
    our ability to obtain control of the space for re-leasing;
    
    market conditions;
    
    the length of time it would require for us to re-lease the tenants space; and
    
    whether the tenants rent was above or below market.
 Property Sales
 Preferred Shares .
    44




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##### Table of Contents



Tax Indemnity Agreements .
    Indebtedness .
  45




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##### Table of Contents



Interest Rate Protection Agreement .
 Notional
    
    
    CappedAmount as of
    
    
    LIBOR/December 31
    
    
    Eurodollar
    
    
    Effective
    
    
    ExpirationLoan Associated with
    
    2007
    
    
    Rate
    
    
    Date
    
    
    Date330 N. Wabash Avenue
First Mortgage/Mezzanine Loans
    
    $
    195,000,000
    
    
    
    6.6
    %
    
    
    3/15/07
    
    
    
    3/15/08Continental Towers
First Mortgage
    
    $
    75,000,000
    
    
    
    6.5
    %
    
    
    5/02/05
    
    
    
    5/01/08PGRT Equity
Mezzanine Loans
    
    $
    47,000,000
    
    
    
    4.8
    %
    
    
    1/03/06
    
    
    
    1/03/08PGRT Equity II
Mezzanine Loan
    
    $
    11,000,000
    
    
    
    4.8
    %
    
    
    1/03/06
    
    
    
    1/03/08
   Debt Activity
 Capital Improvements
 Off-Balance Sheet Arrangements
    46




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##### Table of Contents



Historical Cash Flows
 Year ended December 312007
    
    
    2006
    
    
    $ Change
    
    
    % Change(dollars in thousands)As RestatedNet cash provided by operating activities
    
    $
    1,134
    
    
    $
    638
    
    
    $
    496
    
    
    
    77.7
    %Net cash (used in) provided by investing
activities
    
    $
    (129,700
    )
    
    $
    70,603
    
    
    $
    (200,303
    )
    
    
    (283.7
    )%Net cash provided by (used in) financing
activities
    
    $
    106,348
    
    
    $
    (28,739
    )
    
    $
    135,087
    
    
    
    470.0
    %
 Cash Flows from Operating Activities
 Cash Flows from Investing Activities.
 Cash Flows from Financing Activities.
  47




---



##### Table of Contents



Year ended December 312006
    
    
    2005
    
    
    $ Change
    
    
    % ChangeAs Restated(dollars in thousands)Net cash provided
by (used in)
operating
activities
    
    $
    638
    
    
    $
    (5,423
    )
    
    $
    6,061
    
    
    
    111.8
    %Net cash provided
by (used in)
investing
activities
    
    $
    70,603
    
    
    $
    (57,786
    )
    
    $
    128,389
    
    
    
    222.2
    %Net cash (used in)
provided by
financing
activities
    
    $
    (28,739
    )
    
    $
    9,087
    
    
    $
    (37,826
    )
    
    
    (416.3
    )%
 Cash Flows from Operating Activities. .
 Cash Flows from Investing Activities.
 Cash Flows from Financing Activities.
 Critical Accounting Policies
 General
  48




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##### Table of Contents



Consolidation Consolidation of Variable
Interest Entities
  Tenant Reimbursements
  49




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##### Table of Contents



Accounts Receivable and Allowance for Doubtful Accounts .
 Assumed Lease Liabilities .
 Depreciation and Amortization
 Interest Rate Protection Agreements
  Impairment of Long-Lived Assets .
  50




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##### Table of Contents



Minority Interest in Consolidated Real Estate Partnerships.
 Property Held for Sale.
  Impact of Recently Issued Accounting Standards
 Accounting for Uncertainty in Income
Taxes  an interpretation of FASB Statement No. 109
 Fair Value Measurements
  51




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##### Table of Contents



The Fair Value Option for Financial Assets
and Financial LiabilitiesIncluding an Amendment of FASB Statement No. 115
 Business Combinations  , Noncontrolling Interests in Consolidated Financial
Statements .
 Inflation
    52




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##### Table of Contents



ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  Interest Rate SensitivityPrincipal (Notional) Amount by Expected MaturityAverage Interest Rate2008
    
    
    2009
    
    
    2010
    
    
    2011
    
    
    2012
    
    
    Thereafter
    
    
    Total(dollars in millions)LiabilitiesMortgage notes payable (1):Fixed rate amount  Carrying Value
    
    $
    16.1
    
    
    $
    1.7
    
    
    $
    33.1
    
    
    $
    65.4
    
    
    $
    
    
    
    $
    115.0
    
    
    $
    231.3Weighted-average interest rate 
Carrying Value
    
    
    7.1
    %
    
    
    6.4
    %
    
    
    8.3
    %
    
    
    5.6
    %
    
    
    
    
    
    
    5.9
    %
    
    
    Fixed rate amount  Fair Value
    
    $
    17.2
    
    
    $
    2.7
    
    
    $
    33.8
    
    
    $
    65.4
    
    
    $
    
    
    
    $
    115.0
    
    
    $
    234.1Weighted-average interest rate 
Fair Value
    
    
    7.2
    %
    
    
    7.2
    %
    
    
    8.3
    %
    
    
    5.6
    %
    
    
    
    
    
    
    5.9
    %
    
    
    Variable rate amount (2)
    
    $
    333.8
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    333.8Weighted-average interest rate
    
    
    8.3
    %
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Interest rate cap agreements (3):Notional amount
    
    $
    213.8
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    213.8Weighted-average cap rate
    
    
    9.4
    %
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
 (1)
    
    Based upon the rates in effect at December 31, 2007, the weighted-average interest rates on
our mortgage notes payable at December 31, 2007 was 7.5%. If interest rates on our variable
rate debt increased by one percentage point, our annual interest incurred (excluding the
effects of the interest rate protection agreements) would increase by $3.3 million.(2)
    
    On June 29, 2007, through one of our subsidiaries, PGRT ESH, we obtained a $120.0 million
non-recourse loan from Citicorp. The loan is interest only and accrues interest at a variable
rate of 4.0% above LIBOR or 1.50% above Citicorps base interest rate, as selected by PGRT ESH
from time to time. The loan has a maturity date of June 10, 2008, and is guaranteed by
Lightstone Holdings, and our Chairman of the Board, Mr. David Lichtenstein.In February 2007, the final extension option on the $195.0 million 330 N. Wabash Avenue loan was
purchased for $0.5 million, which extended the maturity date to March 10, 2008 and included the
costs of extending the interest rate cap agreement.(3)
    
    In connection with the 330 N. Wabash Avenue loan extension we obtained an interest rate cap
of LIBOR at 6.6% with a notional amount of $195.0 million for the term of the outstanding debt
collateralized by our 330 N. Wabash Avenue property. In March 2008, this debt was retired and
replaced with a new $138.0 million first mortgage loan.In January 2006, a mezzanine loan for $58.0 million was obtained and collateralized by a
pledge of our holdings of Prime Equity. In addition, we purchased an interest rate protection
agreement which caps the total interest rate at 9.1%. On November 21, 2006, $39.2 million of
principal was repaid, leaving an outstanding balance of $18.8 million. This remaining balance
was subsequently paid on January 7, 2008 utilizing proceeds from the sale of our joint venture
interest in The United Building to our joint venture partner.  53




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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
  
 ITEM 9.
    
    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
  
 ITEM 9A. CONTROLS AND PROCEDURES
        Internal Control 
Integrated Framework. Internal Control  Integrated Framework
  54




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
    
    Accounting for distributions made to our minority interest partner.Specifically, our
policies and procedures did not provide for periodic review of the proper accounting for
distributions and dividends, and our personnel did not possess sufficient technical
expertise related to the application of EITF 95-7 (Implementation Issues Related to the
Treatment of Minority Interests in Certain Real Estate Investment Trusts). The Company had
accounted for distributions to the owners of the Operating Partnership common units as a
dividend of the Company and has recorded such dividends as a reduction of retained earnings
(or equity) when it should have accounted for these distributions as a distribution to
minority interest-operating partnership (a liability account).
    
    Accounting for tax indemnity payment.The Company did not possess sufficient technical
expertise related to the application of Statement of Financial Accounting Standards
(SFAS) No. 141 Business Combinations. The Company had determined that the tax
indemnification payment made in January 2006 that was previously capitalized as building
improvements as a purchase price allocation under SFAS No. 141 should have been charged to
operations.
  Plan for Remediation for Material Weakness
    55




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ITEM 9B. OTHER INFORMATION
   56




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##### Table of Contents



PART III
 
 ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
 Trustees
  Principal
    
    Year Term of
    
    Served as aOccupation and
    
    Office Will
    
    TrusteeName
    
    Age
    
    Positions Held
    
    Expire
    
    SinceDavid Lichtenstein
    
    47
    
    Chairman of the Board
    
    2008
    
    2005Jeffrey A. Patterson
    
    48
    
    President and Chief Executive Officer, Trustee
    
    2008
    
    2005Peyton Owen, Jr.
    
    51
    
    Trustee
    
    2008
    
    2007John M. Sabin
    
    53
    
    Independent Trustee
    
    2008
    
    2005Shawn R. Tominus
    
    48
    
    Independent Trustee
    
    2008
    
    2005Bruno de Vinck
    
    62
    
    Trustee
    
    2008
    
    2005George R. Whittemore
    
    58
    
    Independent Trustee
    
    2008
    
    2005
 David Lichtenstein
 Jeffrey A. Patterson
  57




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##### Table of Contents



Peyton (Chip) Owen, Jr.
 John M. Sabin
 Shawn R. Tominus
 Bruno de Vinck
 George R. Whittemore
  58




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##### Table of Contents



Executive Officers
  Name
    
    Age
    
    PositionDavid Lichtenstein
    
    47
    
    Chairman of the BoardJeffrey A. Patterson
    
    48
    
    President and Chief Executive Officer, TrusteeJames F. Hoffman
    
    45
    
    Senior Executive Vice PresidentGeneral Counsel and SecretarySteven R. Baron
    
    59
    
    Executive Vice PresidentLeasingPaul G. Del Vecchio
    
    43
    
    Executive Vice PresidentCapital MarketsVictoria A. Cory
    
    43
    
    Senior Vice PresidentLoan Administration, Real Estate Tax and Due DiligenceAnita T. Pallardy
    
    49
    
    Senior Vice PresidentLeasing
 David Lichtenstein
 Jeffrey A. Patterson
 James F. Hoffman
  59




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Steven R. Baron
 Paul G. Del Vecchio
 Victoria A. Cory
 Anita T. Pallardy.
 Section 16(a) Beneficial Ownership Reporting Compliance
    60




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Code of Ethics
 www.pgrt.com 8-K,
 Information Regarding Audit Committee
 www.pgrt.com
 Information Regarding Compensation Committee (or equivalent)
    
 ITEM 11. EXECUTIVE COMPENSATION
 Compensation Discussion and Analysis
   61




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Base Salaries
 Annual Cash Bonuses
  62




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Summary Compensation Table
  All OtherOption
    
    
    Compen-Salary
    
    
    Bonus
    
    
    Awards
    
    
    sation ($)Name and Principal Position
    
    Year
    
    
    ($) (1)
    
    
    ($) (1)(2)
    
    
    ($) (3)
    
    
    (4)
    
    
    Total ($)Jeffrey A. Patterson
    
    
    2007
    
    
    
    437,091
    
    
    
    542,913
    
    
    
    106,000
    
    
    
    5,500
    
    
    
    1,091,504President and Chief Executive Officer
    
    
    2006
    
    
    
    424,360
    
    
    
    500,000
    
    
    
    153,400
    
    
    
    5,500
    
    
    
    1,083,260James F. Hoffman
    
    
    2007
    
    
    
    242,500
    
    
    
    227,087
    
    
    
    0
    
    
    
    5,500
    
    
    
    475,087Senior Executive Vice
President
    
    
    2006
    
    
    
    233,400
    
    
    
    215,000
    
    
    
    0
    
    
    
    5,500
    
    
    
    453,900General Counsel and
SecretaryAnita T. Pallardy
    
    
    2007
    
    
    
    126,161
    
    
    
    293,696
    
    
    
    0
    
    
    
    3,154
    
    
    
    423,011Senior Vice PresidentLeasing
    
    
    2006
    
    
    
    120,000
    
    
    
    191,053
    
    
    
    0
    
    
    
    3,000
    
    
    
    314,053Paul G. Del Vecchio
    
    
    2007
    
    
    
    180,000
    
    
    
    120,000
    
    
    
    0
    
    
    
    5,500
    
    
    
    305,500Executive Vice PresidentCapital Markets
    
    
    2006
    
    
    
    159,650
    
    
    
    110,000
    
    
    
    0
    
    
    
    5,500
    
    
    
    275,150Steven R. Baron
    
    
    2007
    
    
    
    94,045
    
    
    
    127,529
    
    
    
    0
    
    
    
    5,313
    
    
    
    226,887Executive Vice PresidentLeasing
    
    
    2006
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
 
 (1)
    
    Amounts shown include cash and non-cash compensation or bonuses, as applicable, as reported
in the year in which the service was performed, even if such compensation or bonuses, as
applicable, were paid or vested in a subsequent year.(2)
    
    Bonus amounts for 2007 include cash bonuses paid in the ordinary course for services
performed in 2007. Further, Ms. Pallardy and Mr. Baron received leasing bonuses of $293,696
and $127,529, respectively, which are included in the table above.(3)
    
    Consisting of grants of options to acquire either directly or through equity interests in
Prime Office a 3.5% ownership interest in the Operating Partnership and us on substantially
the same economic terms as Prime Offices other initial equity investors. The option award in
the 2006 row expired on December 31, 2007 without being exercised. In January 2008, Mr.
Patterson and Prime Office entered into a new option agreement dated as of December 31, 2007,
as more fully described in Employment Agreements below.(4)
    
    Includes employer matching to the Operating Partnerships 401(k) Plan. Employment Agreements
   63




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64




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Option Grants, Exercises and Holdings
  Compensation of Trustees
  Fees Earnedor Paid inName
    
    Cash ($) (1)David Lichtenstein
    
    
    0John M. Sabin
    
    
    45,500Peyton Owen, Jr. (2)
    
    
    8,924Michael M. Schurer (2)
    
    
    31,152Shawn R. Tominus
    
    
    45,500Bruno de Vinck
    
    
    32,000George R. Whittemore
    
    
    50,500
 (1)
    
    We pay our trustees who are not our employees or affiliated with us a fee for their
services as trustees. Such persons receive annual compensation of $26,000 plus a fee of
$1,000 for attendance at each meeting of the Board and $500 for attendance at each
committee meeting. Members of the audit committee receive an additional $10,000 per year
(which is currently being paid to Messrs. Whittemore, Sabin and Tominus), plus an
additional $5,000 per year for the chairman of the audit committee (Mr. Whittemore).  65




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(2)
    
    On September 18, 2007, Michael M. Schurer resigned from his position as a Trustee on
our Board because he had decided to resign his position as the Chief Financial Officer of
the Companys parent company, Lightstone. On September 24, 2007, the Board of Trustees of
the Company elected Peyton Owen, Jr. as a non-independent trustee of our Board and a member
of the Executive Committee of the Board, to replace Mr. Schurer. Mr. Owen is currently the
President and Chief Operating Officer of Lightstone. Compensation Committee Interlocks and Insider Participation
  Compensation Report
    
  66




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ITEM 12.
    
    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS.
 Principal Security Holders Of The Company
   Number of Common Units ofPrime GroupName and Address of
    
    Realty L.P. Beneficially
    
    
    Percent of All Common UnitsBeneficial Owner
    
    Owned(1)
    
    
    of Prime Group Realty, L.P.David Lichtenstein (2)
    
    
    26,724,872
    
    
    
    100
    %Jeffrey A. Patterson
    
    
    
    (3)
    
    
    
    (3)James F. Hoffman
    
    
    
    
    
    
    Steven R. Baron
    
    
    
    
    
    
    Paul G. Del Vecchio
    
    
    
    
    
    
    Anita T. Pallardy
    
    
    
    
    
    
    Peyton Owen, Jr.
    
    
    
    
    
    
    John M. Sabin
    
    
    
    
    
    
    Shawn R. Tominus
    
    
    
    
    
    
    Bruno de Vinck
    
    
    
    
    
    
    George R. Whittemore
    
    
    
    
    
    
    Our trustees and
executive officers as a
group ([11] persons)
    
    
    26,724,872
    
    
    
    100
 (1)
    
    The ownership of common units of our Operating Partnership presented in this table is derived
from the transfer records maintained by the Operating Partnership based on information
provided by the limited partners.(2)
    
    Mr. Lichtenstein controls (i) Prime Office which owns 78.49% of the common units of limited
partner interest in the Operating Partnership and 100% of our common shares and (ii) Park
Avenue Funding, LLC, which owns 20.63% of the common units of limited partner interest in the
Operating Partnership.(3)
    
    Mr. Patterson has been granted an option to purchase interests equivalent to a 3.5% ownership
interest in the Operating Partnership and us.Except as described above and except for the dispute described above relating to a terminated
option to acquire a 1.0% ownership interest in the Operating Partnership and us previously
held by Ms. Fendley, none of our trustees or executive officers own any shares of any other
class of our equity securities or equity securities of any of our parent or our subsidiaries.  67




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Equity Compensation Plan Information
  
 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
 Transactions with Related Persons
        68




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Review, Approval or Ratification of Transaction with Related Persons
  Director Independence
  
 ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
 Audit And Non-Audit Fees
  Grant Thornton LLP
    
    
    Ernst & Young LLP
    
    
    Total2007
    
    
    2006
    
    
    2007
    
    
    2006
    
    
    2007
    
    
    2006Audit Fees
    
    $
    357,375
    
    
    $
    484,709
    
    
    $
    16,000
    
    
    $
    17,000
    
    
    $
    373,375
    
    
    $
    501,709Audit-Related Fees
    
    
    168,944
    
    
    
    122,225
    
    
    
    
    
    
    
    49,000
    
    
    
    168,944
    
    
    
    171,225Tax Fees
    
    
    230,370
    
    
    
    288,185
    
    
    
    119,499
    
    
    
    8,000
    
    
    
    349,869
    
    
    
    296,185$
    756,689
    
    
    $
    895,119
    
    
    $
    135,499
    
    
    $
    74,000
    
    
    $
    892,188
    
    
    $
    969,119
   69




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##### Table of Contents



70




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PRIME GROUP REALTY TRUST
 
 PART IV
 
 ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
 (a) (1) Consolidated Financial StatementsReport of Independent Registered Public Accounting Firm
    
    
    F-2Consolidated Balance Sheets as of December 31, 2007 (as restated) and
2006 (as restated)
    
    
    F-3Consolidated Statements of Operations and Comprehensive Income (Loss)
for the years ended December 31, 2007 (as restated), December 31,
2006 (as restated), for the six months ended December 31, 2005
(successor company) and for the six months ended June 30, 2005
(predecessor company)
    
    
    F-4Consolidated Statements of Changes in Shareholders Equity for the
years ended December 31, 2007 (as restated), December 31, 2006
(as restated), for the six months ended December 31, 2005 (successor
company) and for the six months ended June 30, 2005 (predecessor
company)
    
    
    F-5Consolidated Statements of Cash Flows for the years ended
December 31, 2007 (as restated), December 31, 2006 (as restated), for
the six months ended December 31, 2005 (successor company) and for
the six months ended June 30, 2005 (predecessor company)
    
    
    F-6Notes to Consolidated Financial Statements
    
    
    F-8Financial Statement ScheduleSchedule III  Real Estate and Accumulated Depreciation as of
December 31, 2007 (as restated)
    
    
    F-51Financial Statements of Significant Subsidiary
    
    
    F-55
   71




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(3) Exhibits
 ExhibitNumber
    
    Description2.1
    
    
    Purchase Agreement dated as of August 2, 2004 by and between
CenterPoint Properties Trust and Prime Group Realty, L.P., as
filed as exhibit 99.2 to our Current Report on Form 8-K (filed
August 6, 2004, File No. 001-13589) and incorporated herein by
reference.2.2
    
    
    First Amendment to Purchase Agreement dated as of October 8, 2004
by and between Prime Group Realty, L.P. and CenterPoint Properties
Trust, as filed as exhibit 99.3 to our Current Report on Form 8-K
(filed October 15, 2004, File No. 001-13589) and incorporated
herein by reference.2.3
    
    
    Agreement and Plan of Merger dated as of February 17, 2005 by and
among Prime Office Company, LLC, Prime Office Merger Sub LLC,
Prime Office Merger Sub I, LLC, Prime Group Realty Trust and Prime
Group Realty, L.P., as filed as exhibit 10.1 to our Current Report
on Form 8-K (filed February 17, 2005, File No. 001-13589) and
incorporated herein by reference.3.1
    
    
    Articles of Amendment and Restatement of Declaration of Trust of
Prime Group Realty Trust, as amended by Articles Supplementary to
the Articles of Amendment and Restatement of Declaration of Trust
and the First Amendment to Amended and Restated Declaration of
Trust as filed as exhibit 3.1 to our Annual Report on Form 10-K
for the year ended December 31, 2005 and incorporated herein by
reference.3.2
    
    
    Amended and Restated Bylaws of Prime Group Realty Trust, as
amended by the First Amendment to Amended and Restated Bylaws and
the Second Amendment to Amended and Restated Bylaws as filed as
exhibit 3.2 to our Annual Report on Form 10-K for the year ended
December 31, 2005 and incorporated herein by reference.3.3
    
    
    Second Amended and Restated Agreement of Limited Partnership of
Prime Group Realty, L.P. dated as of July 1, 2005, as filed as
exhibit 3.9 to our Quarterly Report on Form 10-Q for the quarter
ended June 30, 2005 and incorporated herein by reference.10.1
    
    
    Loan Agreement dated as of March 10, 2003 between Lehman Brothers
Bank FSB and 330 N. Wabash Avenue, L.L.C., as filed as Exhibit
10.1 to our Quarterly Report on Form 10-Q for the quarter ended
March 31, 2003 and incorporated herein by reference.10.2
    
    
    Promissory Note dated as of March 10, 2003 from 330 N. Wabash
Avenue, L.L.C. in favor of Lehman Brothers Bank FSB, as filed as
Exhibit 10.2 to our Quarterly Report on
Form 10-Q for the quarter ended March 31, 2003 and incorporated
herein by reference.10.3
    
    
    Guaranty dated as of March 10, 2003 by Prime Group Realty, L.P.
for the benefit of Lehman Brothers Bank FSB, as filed as Exhibit
10.3 to our Quarterly Report on Form 10-Q for the quarter ended
March 31, 2003 and incorporated herein by reference.10.4
    
    
    Guaranty dated as of March 10, 2003 by Prime Group Realty, L.P.
for the benefit of Lehman Brothers Bank FSB, as filed as Exhibit
10.4 to our Quarterly Report on Form 10-Q for the quarter ended
March 31, 2003 and incorporated herein by reference.10.5
    
    
    Guaranty dated as of March 10, 2003 by Prime Group Realty, L.P.
for the benefit of Lehman Brothers Bank FSB, as filed as Exhibit
10.5 to our Quarterly Report on Form 10-Q for the quarter ended
March 31, 2003 and incorporated herein by reference.
  72




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##### Table of Contents



ExhibitNumber
    
    Description10.6
    
    
    Mezzanine Loan Agreement dated as of May 28, 2003 between Lehman
Brothers Holdings Inc. and 330 N. Wabash Mezzanine, L.L.C., as
filed as Exhibit 10.15 to our Quarterly Report on Form 10-Q for
the quarter ended June 30, 2003 and incorporated herein by
reference.10.7
    
    
    Promissory Note dated as of May 28, 2003 from 330 N. Wabash
Mezzanine, L.L.C. in favor of Lehman Brothers Holdings Inc., as
filed as Exhibit 10.16 to our Quarterly Report on Form 10-Q for
the quarter ended June 30, 2003 and incorporated herein by
reference.10.8
    
    
    Guaranty dated as of May 28, 2003 by Prime Group Realty, L.P. for
the benefit of Lehman Brothers Holdings Inc., as filed as Exhibit
10.17 to our Quarterly Report on Form 10-Q for the quarter ended
June 30, 2003 and incorporated herein by reference.10.9
    
    
    Guaranty dated as of May 28, 2003 by Prime Group Realty, L.P. for
the benefit of Lehman Brothers Holdings Inc., as filed as Exhibit
10.18 to our Quarterly Report on Form 10-Q for the quarter ended
June 30, 2003 and incorporated herein by reference.10.10
    
    
    Guaranty dated as of May 28, 2003 by Prime Group Realty, L.P. for
the benefit of Lehman Brothers Holdings Inc., as filed as Exhibit
10.19 to our Quarterly Report on Form 10-Q for the quarter ended
June 30, 2003 and incorporated herein by reference.10.11
    
    
    Amendment to Loan Agreement dated as of May 28, 2003 between
330 N. Wabash Avenue, L.L.C. and Lehman Brothers Bank FSB, as
filed as Exhibit 10.20 to our Quarterly Report on Form 10-Q for
the quarter ended June 30, 2003 and incorporated herein by
reference.10.12
    
    
    Omnibus Amendment to Loan Documents dated as of May 28, 2003
between 330 N. Wabash Avenue, L.L.C. and Lehman Brothers Bank FSB,
as filed as Exhibit 10.21 to our Quarterly Report on Form 10-Q for
the quarter ended June 30, 2003 and incorporated herein by
reference.10.13
    
    
    Amendment to Guaranty dated as of May 28, 2003 between Prime Group
Realty, L.P. and Lehman Brothers Bank FSB, as filed as Exhibit
10.22 to our Quarterly Report on Form 10-Q for the quarter ended
June 30, 2003 and incorporated herein by reference.10.14
    
    
    Termination of $4,000,000 Mortgage Guaranty Note dated as of
May 28, 2003 between Prime Group Realty, L.P. and Lehman Brothers
Bank FSB, as filed as Exhibit 10.23 to our Quarterly Report on
Form 10-Q for the quarter ended June 30, 2003 and incorporated
herein by reference.10.15
    
    
    Environmental Escrow Agreement dated as of October 8, 2004 by and
among Prime Group Realty, L.P., CenterPoint Properties Trust and
Chicago Title and Trust Company, as filed as exhibit 99.4 to our
Current Report on Form 8-K (filed October 15, 2004, File No.
001-13589) and incorporated herein by reference10.16
    
    
    Escrow Agreement dated as of October 8, 2004 by and among
CenterPoint Properties Trust and Prime Group Realty, L.P. and
Chicago Title and Trust Company, as filed as exhibit 99.5 to our
Current Report on Form 8-K (filed October 15, 2004, File No.
001-13589) and incorporated herein by reference.
  73




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ExhibitNumber
    
    Description10.17
    
    
    Settlement and Release
dated as of May 18, 2005
by and among Prime/Mansur
Investment Partners, LLC,
Cumberland Blues Merger
Sub, LLC, Cumberland
Blues, LLC, The Prime
Group, Inc. Prime
Partners, LLC, Prime Group
Realty Trust, and Prime
Group Realty, L.P., as
filed as exhibit 10.6 to
our Quarterly Report on
Form 10-Q for the quarter
ended June 30, 2005 and
incorporated herein by
reference.10.18
    
    
    Sale and Purchase
Agreement dated as of May
18, 2005 by and between
LaSalle-Adams, L.L.C. and
Prime/Mansur Investment
Partners, LLC, as filed as
exhibit 10.7 to our
Quarterly Report on Form
10-Q for the quarter ended
June 30, 2005 and
incorporated herein by
reference.10.19
    
    
    Thistle Interest Option
Agreement dated as of by
and between Phoenix
Office, L.L.C. and
Prime/Mansur Investment
Partners, LLC, as filed as
exhibit 10.8 to our
Quarterly Report on Form
10-Q for the quarter ended
June 30, 2005 and
incorporated herein by
reference.10.20
    *
    
    Amended and Restated
Employment Agreement dated
as of May 31, 2005 by and
between Prime Office
Company, LLC and Jeffrey
A. Patterson, as filed as
exhibit 10.1 to our
Quarterly Report on Form
10-Q for the quarter ended
September 30, 2005 and
incorporated herein by
reference.10.21
    *
    
    Employment Agreement dated
as of May 31, 2005 by and
between Prime Office
Company, LLC and James F.
Hoffman, as filed as
exhibit 10.2 to our
Quarterly Report on Form
10-Q for the quarter ended
September 30, 2005, and
incorporated herein by
reference.10.22
    
    
    Loan Agreement dated as of
December 30, 2005 between
Prime Dearborn Equities
LLC and IPC Investments
Holdings Canada Inc. as
filed as exhibit 10.1 to
our Current Report on Form
8-K (filed January 11,
2006, File No. 001-13589)
and incorporated herein by
reference.10.23
    
    
    Investment Agreement dated
as of December 30, 2005
among The Lightstone
Group, LLC and IPC Prime
Equity, LLC, as filed as
exhibit 10.2 to our
Current Report on Form 8-K
(filed January 11, 2006,
File No. 001-13589) and
incorporated herein by
reference.10.24
    
    
    First Amendment to
Investment Agreement dated
as of December 30, 2005
among The Lightstone
Group, LLC and IPC Prime
Equity, LLC, as filed as
exhibit 10.3 to our
Current Report on Form 8-K
(filed January 11, 2006,
File No. 001-13589) and
incorporated herein by
reference.10.25
    
    
    Note dated as of December
30, 2005 from Prime
Dearborn Equities LLC to
IPC Investments Holdings
Canada Inc., as filed as
exhibit 10.4 to our
Current Report on Form 8-K
(filed January 11, 2006,
File No. 001-13589) and
incorporated herein by
reference.
  74




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ExhibitNumber
    
    Description10.26
    
    
    Guarantee of Interest and Recourse Obligations dated as of
December 30, 2005 between Prime Group Realty, L.P. and IPC
Investments Holdings Canada, Inc., as filed as exhibit 10.5 to our
Current Report on Form 8-K (filed January 11, 2006, File No.
001-13589) and incorporated herein by reference.10.27
    
    
    Loan Agreement dated as of January 10, 2006 between PGRT Equity
LLC and Citicorp USA, Inc., as filed as filed as exhibit 10.1 to
our Current Report on Form 8-K (filed January 18, 2006, File No.
001-13589) and incorporated herein by reference.10.28
    
    
    Guaranty dated as of January 10, 2006 by David Lichtenstein in
favor of Citicorp USA, Inc., as filed as exhibit 10.2 to our
Current Report on Form 8-K (filed January 18, 2006, File No.
001-13589) and incorporated herein by reference.10.29
    
    
    Promissory Note dated as of January 10, 2006 from PGRT Equity LLC
in favor of Citicorp USA, Inc., as filed as exhibit 10.3 to our
Current Report on Form 8-K (filed January 18, 2006, File No.
001-13589) and incorporated herein by reference.10.30
    
    
    Mortgage, Assignment of Leases and Rents, Security Agreement and
Fixture Filing dated as of January 10, 2006 by 280 Shuman Blvd.,
L.L.C. to and for the benefit of Citicorp USA, Inc., as filed as
exhibit 10.4 to our Current Report on Form 8-K (filed January 18,
2006, File No. 001-13589) and incorporated herein by reference.10.31
    
    
    Amended and Restated Tax Indemnity Agreement dated as of January
10, 2006 by and among Prime Group Realty, L.P., Roland E. Casati,
Richard A. Heise, CTA General Partner, LLC and Continental Towers,
L.L.C., as filed as exhibit 10.5 to our Current Report on Form 8-K
(filed January 18, 2006, File No. 001-13589) and incorporated
herein by reference.10.32
    
    
    Assumption, Consent and Modification Agreement dated as of January
10, 2006 by and among Chicago Title Land Trust Company, as trustee
under Land Trust Numbers 40935 and 5602, Continental Towers
Associates-I, L.P., Continental Towers, L.L.C., SunAmerica Life
Insurance Company, Prime Group Realty, L.P. and Prime Group
Management, LLC, as filed as exhibit 10.6 to our Current Report on
Form 8-K (filed January 18, 2006, File No. 001-13589) and
incorporated herein by reference.10.33
    
    
    Assumption Agreement dated as of January 10, 2006 among Prime
Group Realty, L.P. Chicago Title Land Trust Company, as trustee
under Land Trust Numbers 40935 and 5602, Continental Towers
Associates-I, L.P., Continental Towers, L.L.C., Richard A. Heise
and Roland E. Casati, as filed as exhibit 10.7 to our Current
Report on Form 8-K (filed January 18, 2006, File No. 001-13589)
and incorporated herein by reference.10.34
    
    
    Co-Ownership Agreement dated as of January 10, 2006 by and among
Continental Towers Associates-I, L.P. and Continental Towers,
L.L.C., as filed as exhibit 10.8 to our Current Report on Form 8-K
(filed January 18, 2006, File No. 001-13589) and incorporated
herein by reference.10.35
    
    
    Amended and Restated Loan Agreement dated as of September 27, 2006
between PGRT Equity LLC and Citicorp USA, Inc., as filed as
exhibit 10.1 to our Current Report on Form 8-K (filed October 3,
2006, File No. 001-13589) and incorporated herein by reference.
  75




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ExhibitNumber
    
    Description10.36
    
    
    Amended and Restated Promissory Note dated as of September 27,
2006 from PGRT Equity LLC in favor of Citicorp USA, Inc., as filed
as exhibit 10.2 to our Current Report on Form 8-K (filed October
3, 2006, File No. 001-13589) and incorporated herein by reference.10.37
    
    
    Amended and Restated Guaranty dated as of September 27, 2006 by
David Lichtenstein in favor of Citicorp USA, Inc., as filed as
exhibit 10.3 to our Current Report on Form 8-K (filed October 3,
2006, File No. 001-13589) and incorporated herein by reference.10.38
    
    
    Loan Agreement dated as of September 27, 2006 between PGRT Equity
II LLC and Citicorp USA, Inc., as filed as exhibit 10.4 to our
Current Report on Form 8-K (filed October 3, 2006, File No.
001-13589) and incorporated herein by reference.10.39
    
    
    Promissory Note dated as of September 27, 2006 from PGRT Equity II
LLC in favor of Citicorp, USA Inc., as filed as exhibit 10.5 to
our Current Report on Form 8-K (filed October 3, 2006, File No.
001-13589) and incorporated herein by reference.10.40
    
    
    Guaranty dated as of September 27, 2006 by David Lichtenstein in
favor or Citicorp USA, Inc., as filed as exhibit 10.6 to our
Current Report on Form 8-K (filed October 3, 2006, File No.
001-13589) and incorporated herein by reference.10.41
    
    
    Guaranty dated as of September 27, 2006 by PGRT Equity LLC in
favor of Citicorp USA, Inc., as filed as exhibit 10.7 to our
Current Report on Form 8-K (filed October 3, 2006, File No.
001-13589) and incorporated herein by reference.10.42
    
    
    Amendment to Mortgage, Assignment of Leases and Rents, Security
Agreement and Fixture Filing dated as of September 27, 2006 by and
between 280 Shuman Blvd., L.L.C., and Citicorp USA, Inc., as filed
as exhibit 10.8 to our Current Report on Form 8-K (filed October
3, 2006, File No. 001-13589) and incorporated herein by reference.10.43
    
    
    Promissory Note dated as of November 21, 2006 from Continental
Towers Associates III, LLC, and Continental Towers, L.L.C, jointly
and severally, payable to the order of CWCapital LLC in the
original principal amount of $115.0 million., as filed as exhibit
10.1 to our Current Report on Form 8-K (filed November 28, 2006,
File No. 001-13589) and incorporated herein by reference.10.44
    
    
    Mortgage, Security Agreement and Fixture Financing Statement dated
as of November 21, 2006 by Continental Towers Associates III, LLC
and Continental Towers, L.L.C., jointly and severally, in favor of
CWCapital LLC., as filed as exhibit 10.2 to our Current Report on
Form 8-K (filed November 28, 2006, File No. 001-13589) and
incorporated herein by reference.
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ExhibitNumber
    
    Description10.45
    
    
    Guaranty dated as of November 21, 2006 by Prime Group Realty, L.P.
for the benefit of CWCapital LLC., as filed as exhibit 10.3 to our
Current Report on Form 8-K (filed November 28, 2006, File No.
001-13589) and incorporated herein by reference.10.46
    
    
    Subordination and Standstill Agreement dated as of November 21,
2006 by PGRT Equity LLC for the benefit of CWCapital LLC., as
filed as exhibit 10.4 to our Current Report on Form 8-K (filed
November 28, 2006, File No. 001-13589) and incorporated herein by
reference.10.47
    
    
    First Amendment to Co-Ownership Agreement dated as of November 21,
2006 by and among Continental Towers Associates III, LLC and
Continental Towers, L.L.C., as filed as exhibit 10.5 to our
Current Report on Form 8-K (filed November 28, 2006, File No.
001-13589) and incorporated herein by reference.10.48
    
    
    First Amendment to Amended and Restated Tax Indemnity Agreement
dated as of November 21, 2006 by and among Prime Group Realty,
L.P., Richard A. Heise, CTA General Partner, LLC and Continental
Towers, L.L.C., as filed as exhibit 10.6 to our Current Report on
Form 8-K (filed November 28, 2006, File No. 001-13589) and
incorporated herein by reference.10.49
    
    
    Amended and Restated Promissory Note dated as of November 21, 2006
from Continental Towers, L.L.C. and Continental Towers Associates
III, LLC payable to the order of PGRT Equity, L.L.C., as filed as
exhibit 10.7 to our Current Report on Form 8-K (filed November 28,
2006, File No. 001-13589) and incorporated herein by reference.10.50
    
    
    Second Amended and Restated Loan Agreement dated as of November
21, 2006 by and between PGRT Equity, LLC, and Continental Towers
Associates III, LLC and Continental Towers, L.L.C., as filed as
exhibit 10.8 to our Current Report on Form 8-K (filed November 28,
2006, File No. 001-13589) and incorporated herein by reference.10.51
    
    
    Amended and Restated Mortgage and Security Agreement dated as of
November 21, 2006 by Continental Towers, L.L.C. and Continental
Towers Associates III, LLC, in favor of and for the benefit of
PGRT Equity, L.L.C., as filed as exhibit 10.9 to our Current
Report on Form 8-K (filed November 28, 2006, File No. 001-13589)
and incorporated herein by reference.10.52
    
    
    Indemnification Agreement dated as of November 8, 2006 between
Prime Group Realty, L.P. and 131 South Dearborn LLC as filed as
exhibit 10.59 to our Annual Report on Form 10-K for the year ended
December 31, 2006 and incorporated herein by reference.10.53
    *
    
    Employment Agreement, made and entered into as of November 30,
2006, by and between Prime Group Realty Trust, Prime Group Realty,
L.P., Prime Office Company LLC and Nancy Fendley as filed as
exhibit 10.60 to our Annual Report on Form 10-K for the year ended
December 31, 2006 and incorporated herein by reference.10.54
    
    
    Termination of Co-Ownership Agreement dated as of December 29,
2006, by and between Continental Towers Associates III, LLC and
Continental Towers, L.L.C as filed as exhibit 10.61 to our Annual
Report on Form 10-K for the year ended December 31, 2006 and
incorporated herein by reference.
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ExhibitNumber
    
    Description10.55
    
    
    Reciprocal Easement Agreement dated as of December 29, 2006, by
and between Continental Towers, L.L.C. and Continental Towers
Associates III, LLC as filed as exhibit 10.62 to our Annual Report
on Form 10-K for the year ended December 31, 2006 and incorporated
herein by reference.10.56
    
    
    Management Agreement dated as of December 29, 2006, by and between
Continental Towers, L.L.C. and Prime Group Management, L.L.C. as
filed as exhibit 10.63 to our Annual Report on Form 10-K for the
year ended December 31, 2006 and incorporated herein by reference.10.57
    
    
    Management Agreement dated as of December 29, 2006, by and between
Continental Towers Associates III, LLC and Prime Group Management,
L.L.C. as filed as exhibit 10.64 to our Annual Report on Form 10-K
for the year ended December 31, 2006 and incorporated herein by
reference.10.58
    
    
    Amended and Restated Promissory Note dated as of December 29,
2006, from Continental Towers Associates III, LLC to Wells Fargo
Bank, N.A., as trustee for the registered holders of Cobalt CMBS
Commercial Mortgage Trust 2006-C1, Commercial Mortgage
Pass-through Certificates, Series 2006-C1 as filed as exhibit
10.65 to our Annual Report on Form 10-K for the year ended
December 31, 2006 and incorporated herein by reference.10.59
    
    
    Amended and Restated Mortgage, Security Agreement and Fixture
Financing Statement dated as of December 29, 2006, from
Continental Towers Associates III, LLC to Wells Fargo Bank, N.A.,
as trustee for the registered holders of Cobalt CMBS Commercial
Mortgage Trust 2006-C1, Commercial Mortgage Pass-through
Certificates, Series 2006-C1, c/o CWCapital LLC as filed as
exhibit 10.66 to our Annual Report on Form 10-K for the year ended
December 31, 2006 and incorporated herein by reference.10.60
    
    
    Amended and Restated Guaranty dated as of December 29, 2006, by
Prime Group Realty, L.P. to Wells Fargo Bank, N.A., as trustee for
the registered holders of Cobalt CMBS Commercial Mortgage Trust
2006-C1, Commercial Mortgage Pass-through Certificates, Series
2006-C1, regarding the loan to Continental Towers Associates III,
LLC as filed as exhibit 10.67 to our Annual Report on Form 10-K
for the year ended December 31, 2006 and incorporated herein by
reference.10.61
    
    
    Amended and Restated Environmental and Hazardous Substance
Indemnification Agreement dated as of December 29, 2006, from
Continental Towers Associates III, LLC to Wells Fargo Bank, N.A.,
as trustee for the registered holders of Cobalt CMBS Commercial
Mortgage Trust 2006-C1, Commercial Mortgage Pass-through
Certificates, Series 2006-C1 as filed as exhibit 10.68 to our
Annual Report on Form 10-K for the year ended December 31, 2006
and incorporated herein by reference.10.62
    
    
    Amended and Restated Promissory Note dated as of December 29,
2006, from Continental Towers, L.L.C. to Wells Fargo Bank, N.A.,
as trustee for the registered holders of Cobalt CMBS Commercial
Mortgage Trust 2006-C1, Commercial Mortgage Pass-through
Certificates, Series 2006-C1 as filed as exhibit 10.69 to our
Annual Report on Form 10-K for the year ended December 31, 2006
and incorporated herein by reference.
  78




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ExhibitNumber
    
    Description10.63
    
    
    Amended and Restated Mortgage, Security Agreement and Fixture
Financing Statement dated as of December 29, 2006, from
Continental Towers, L.L.C. to Wells Fargo Bank, N.A., as trustee
for the registered holders of Cobalt CMBS Commercial Mortgage
Trust 2006-C1, Commercial Mortgage-Pass through Certificates,
Series 2006-C1, c/o CWCapital LLC as filed as exhibit 10.70 to our
Annual Report on Form 10-K for the year ended December 31, 2006
and incorporated herein by reference.10.64
    
    
    Amended and Restated Guaranty dated as of December 29, 2006, by
Prime Group Realty, L.P. to Wells Fargo Bank, N.A., as trustee for
the registered holders of Cobalt CMBS Commercial Mortgage Trust
2006-C1, Commercial Mortgage Pass-through Certificates, Series
2006-C1, regarding the loan to Continental Towers, L.L.C as filed
as exhibit 10.71 to our Annual Report on Form 10-K for the year
ended December 31, 2006 and incorporated herein by reference.10.65
    
    
    Amended and Restated Environmental and Hazardous Substance
Indemnification Agreement dated as of December 29, 2006, from
Continental Towers, L.L.C. to Wells Fargo Bank, N.A., as trustee
for the registered holders of Cobalt CMBS Commercial Mortgage
Trust 2006-C1, Commercial Mortgage Pass-through Certificates,
Series 2006-C1 as filed as exhibit 10.72 to our Annual Report on
Form 10-K for the year ended December 31, 2006 and incorporated
herein by reference.10.66
    
    
    Second Amended and Restated Promissory Note dated as of December
29, 2006, from Continental Towers Associates III, LLC to PGRT
Equity, L.L.C. as filed as exhibit 10.73 to our Annual Report on
Form 10-K for the year ended December 31, 2006 and incorporated
herein by reference.10.67
    
    
    Second Amended and Restated Environmental Indemnification
Agreement dated as of December 29, 2006, from Continental Towers
Associates III, LLC to PGRT Equity, L.L.C. as filed as exhibit
10.74 to our Annual Report on Form 10-K for the year ended
December 31, 2006 and incorporated herein by reference.10.68
    
    
    Third Amended and Restated Loan Agreement dated as of December 29,
2006, between Continental Towers Associates III, LLC and PGRT
Equity, L.L.C. as filed as exhibit 10.75 to our Annual Report on
Form 10-K for the year ended December 31, 2006 and incorporated
herein by reference.10.69
    
    
    Second Amended and Restated Mortgage and Security Agreement dated
as of December 29, 2006, from Continental Towers, L.L.C. to PGRT
Equity, L.L.C. as filed as exhibit 10.76 to our Annual Report on
Form 10-K for the year ended December 31, 2006 and incorporated
herein by reference.10.70
    
    
    Second Amended and Restated Promissory Note dated as of December
29, 2006, from Continental Towers, L.L.C. to PGRT Equity, L.L.C.
as filed as exhibit 10.77 to our Annual Report on Form 10-K for
the year ended December 31, 2006 and incorporated herein by
reference.
  79




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ExhibitNumber
    
    Description10.71
    
    
    Third Amended and Restated Loan Agreement dated as of December 29,
2006, by and between Continental Towers, L.L.C. and PGRT Equity,
L.L.C. as filed as exhibit 10.78 to our Annual Report on Form 10-K
for the year ended December 31, 2006 and incorporated herein by
reference.10.72
    
    
    Second Amended and Restated Mortgage and Security Agreement dated
as of December 29, 2006, from Continental Towers Associates III,
LLC to PGRT Equity, L.L.C. as filed as exhibit 10.79 to our Annual
Report on Form 10-K for the year ended December 31, 2006 and
incorporated herein by reference.10.73
    
    
    Second Amended and Restated Environmental Indemnification
Agreement dated as of December 29, 2006, from Continental Towers,
L.L.C. to PGRT Equity, L.L.C. as filed as exhibit 10.80 to our
Annual Report on Form 10-K for the year ended December 31, 2006
and incorporated herein by reference.10.74
    
    
    Amended and Restated Subordination and Standstill Agreement dated
as of December 29, 2006, by PGRT Equity LLC to Wells Fargo Bank,
N.A., as trustee for the registered holders of Cobalt CMBS
Commercial Mortgage Trust 2006-C1, Commercial Mortgage
Pass-through Certificates, Series 2006-C1, regarding the loan to
Continental Towers, L.L.C. as filed as exhibit 10.81 to our Annual
Report on Form 10-K for the year ended December 31, 2006 and
incorporated herein by reference.10.75
    
    
    Amended and Restated Subordination and Standstill Agreement dated
as of December 29, 2006, by PGRT Equity LLC to Wells Fargo Bank,
N.A., as trustee for the registered holders of Cobalt CMBS
Commercial Mortgage Trust 2006-C1, Commercial Mortgage
Pass-through Certificates, Series 2006-C1, regarding the loan to
Continental Towers Associates III, LLC as filed as exhibit 10.82
to our Annual Report on Form 10-K for the year ended December 31,
2006 and incorporated herein by reference.10.76
    
    
    Purchase and Sale Agreement dated as of June 29, 2007, by and
between Lightstone Holdings LLC and PGRT ESH, Inc. as filed as
exhibit 2.1 to our Current Report on Form 8-K (filed July 6, 2007,
File No. 001-13589) and incorporated herein by reference.10.77
    
    
    Loan Agreement dated as of June 29, 2007, by and between PGRT ESH,
Inc. and Citicorp USA, Inc. as filed as exhibit 10.1 to our
Quarterly Report on Form 10-Q for the quarter ended June 30, 2007
and incorporated herein by reference.10.78
    
    
    Pledge Agreement dated as of June 29, 2007, by PGRT ESH, Inc. in
favor of Citicorp USA, Inc. as filed as exhibit 10.2 to our
Quarterly Report on Form 10-Q for the quarter ended June 30, 2007
and incorporated herein by reference.10.79
    
    
    Continuing Guaranty dated as of June 29, 2007, by David
Lichtenstein in favor of Citicorp USA, Inc. as filed as exhibit
10.3 to our Quarterly Report on Form 10-Q for the quarter ended
June 30, 2007 and incorporated herein by reference.10.80
    
    
    Promissory Note dated as of June 29, 2007, by PGRT ESH, Inc. to
Citicorp USA, Inc. as filed as exhibit 10.4 to our Quarterly
Report on Form 10-Q for the quarter ended June 30, 2007 and
incorporated herein by reference.
  80




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ExhibitNumber
    
    Description10.81
    
    
    Equity Purchase Agreement dated as of December 31, 2007, by and
between Jeffrey A. Patterson, and Prime Office Company LLC.21.1
    
    
    Subsidiaries of Registrant.31.1
    
    
    Rule 13a-14(a) Certification of Jeffrey A. Patterson, President
and Chief Executive Officer of Registrant.31.2
    
    
    Rule 13a-14(a) Certification of Paul G. Del Vecchio, Executive
Vice President Capital Markets of Registrant.32.1
    
    
    Certification Pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 of
Jeffrey A. Patterson, President and Chief Executive Officer of the
Board of Registrant.32.2
    
    
    Certification Pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 of Paul
G. Del Vecchio, Executive Vice President Capital Markets of
Registrant.
 
 *
    
    Management contracts or compensatory plan or arrangement required to be filed as an exhibit to
this Report on Form 10-K pursuant to Item 14(b) of the Report on Form 10-K.  81




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##### Table of Contents



SIGNATURES
  PRIME GROUP REALTY TRUSTBy:

    /s/ Jeffrey A. PattersonName:

    Jeffrey A. PattersonTitle:

    President and Chief Executive Officer
  Signature
    
    Title
    
    Date/s/ Jeffrey A. Patterson
    
    President, Chief Executive Officer and Trustee
    
    March 26, 2009Jeffrey A. Patterson
    
    (Principal Executive Officer)/s/ Paul G. Del Vecchio
    
    Executive Vice President Capital Markets
    
    March 26, 2009Paul G. Del Vecchio
    
    (Principal Financial Officer)/s/ Robert M. OConnor
    
    Vice President Corporate Accounting
    
    March 26, 2009Robert M. OConnor
    
    (Principal Accounting Officer)/s/ Bruno de Vinck
    
    Trustee
    
    March 26, 2009Bruno de Vinck/s/ David Lichtenstein
    
    Chairman of the Board of Trustees
    
    March 26, 2009David Lichtenstein/s/ Peyton (Chip) Owen, Jr.Peyton (Chip) Owen, Jr.
    
    Trustee
    
    March 26, 2009/s/ John M. Sabin
    
    Trustee
    
    March 26, 2009John M. Sabin/s/ Shawn R. TominusShawn R. Tominus
    
    Trustee
    
    March 26, 2009/s/ George R. WhittemoreGeorge R. Whittemore
    
    Trustee
    
    March 26, 2009
  82




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##### Table of Contents



PRIME GROUP REALTY TRUST
 PART IV
 ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
 (a) (1) Consolidated Financial StatementsReport of Independent Registered Public Accounting Firm
    
    
    F-2Consolidated Balance Sheets as of December 31, 2007 (as restated)
and 2006 (as restated)
    
    
    F-3Consolidated Statements of Operations and Comprehensive Income
(Loss) for the years ended December 31, 2007 (as restated), December
31, 2006 (as restated), for the six months ended December 31, 2005
(successor company) and for the six months ended June 30, 2005
(predecessor company)
    
    
    F-4Consolidated Statements of Changes in Shareholders Equity for the
years ended December 31, 2007 (as restated), December 31, 2006 (as
restated), for the six months ended December 31, 2005 (successor
company) and for the six months ended June 30, 2005 (predecessor
company)
    
    
    F-5Consolidated Statements of Cash Flows for the years ended
December 31, 2007 (as restated), December 31, 2006 (as restated),
for the six months ended December 31, 2005 (successor company) and
for the six months ended June 30, 2005 (predecessor company)
    
    
    F-6Notes to Consolidated Financial Statements
    
    
    F-8Financial Statement ScheduleSchedule III  Real Estate and Accumulated Depreciation as of
December 31, 2007 (as restated)
    
    
    F-51Financial Statements of Significant Subsidiary
    
    
    F-55
   F-1




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##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
     /s/ GRANT THORNTON LLPChicago, IllinoisJuly 22, 2008 (except for Note 17, as to which the date is March 26, 2009)
  F-2




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##### Table of Contents



PRIME GROUP REALTY TRUST
 
 CONSOLIDATED BALANCE SHEETS
 (dollars in thousands, except share and per share amounts)
 December 31
    
    
    December 312007
    
    
    2006As Restated
    
    
    As RestatedAssetsReal estate:Land
    
    $
    89,661
    
    
    $
    90,936Building and improvements
    
    
    347,582
    
    
    
    341,263Tenant improvements
    
    
    60,709
    
    
    
    49,662Furniture, fixtures and equipment
    
    
    1,098
    
    
    
    586499,050
    
    
    
    482,447Accumulated depreciation
    
    
    (52,627
    )
    
    
    (31,366
    )446,423
    
    
    
    451,081Inplace lease value, net
    
    
    15,035
    
    
    
    25,493Abovemarket lease value, net
    
    
    16,396
    
    
    
    23,265477,854
    
    
    
    499,839Property held for sale
    
    
    3,691
    
    
    
    3,740Investments in unconsolidated entities
    
    
    87,741
    
    
    
    23,658Cash and cash equivalents
    
    
    37,893
    
    
    
    60,111Receivables, net of allowance for doubtful accounts of $1,074 and
$402 at December 31, 2007 and 2006, respectively:Tenant
    
    
    402
    
    
    
    1,018Deferred rent
    
    
    9,857
    
    
    
    6,200Other
    
    
    1,204
    
    
    
    2,202Restricted cash escrows
    
    
    41,696
    
    
    
    43,998Deferred costs, net
    
    
    10,939
    
    
    
    7,837Other
    
    
    639
    
    
    
    1,410Total assets
    
    $
    671,916
    
    
    $
    650,013Liabilities and Shareholders EquityMortgage notes payable
    
    $
    564,877
    
    
    $
    450,547Mortgage notes payable related to property held for sale
    
    
    3,033
    
    
    
    3,148Liabilities related to property held for sale
    
    
    165
    
    
    
    110Accrued interest payable
    
    
    2,106
    
    
    
    2,173Accrued real estate taxes
    
    
    19,871
    
    
    
    21,302Accrued tenant improvement allowances
    
    
    10,337
    
    
    
    8,849Accounts payable and accrued expenses
    
    
    13,102
    
    
    
    9,822Liabilities for leases assumed
    
    
    3,958
    
    
    
    4,962Belowmarket lease value, net
    
    
    7,442
    
    
    
    11,868Dividends payable
    
    
    2,250
    
    
    
    4,500Other
    
    
    8,418
    
    
    
    7,587Total liabilities
    
    
    635,559
    
    
    
    524,868Minority interests:Operating Partnership
    
    
    
    
    
    
    20,770Shareholders equity:Preferred Shares, $0.01 par value; 30,000,000 shares authorized:Series B  Cumulative Redeemable Preferred Shares,
4,000,000 shares designated, issued and outstanding
    
    
    40
    
    
    
    40Common Shares, $0.01 par value; 100,000,000 shares authorized;
236,483 shares issued and outstanding
    
    
    2
    
    
    
    2Additional paid-in capital
    
    
    109,039
    
    
    
    107,639Distributions in excess of earnings
    
    
    (72,724
    )
    
    
    (3,306
    )Total shareholders equity
    
    
    36,357
    
    
    
    104,375Total liabilities and shareholders equity
    
    $
    671,916
    
    
    $
    650,013
   F-3




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##### Table of Contents



PRIME GROUP REALTY TRUST
 
 CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
 (dollars in thousands, except per share amounts)
 PredecessorSuccessor Company
    
    
    
    CompanyYear
    
    
    Year
    
    
    Six months
    
    
    
    Six monthsended
    
    
    ended
    
    
    ended
    
    
    
    endedDecember 31
    
    
    December 31
    
    
    December 31
    
    
    
    June 302007
    
    
    2006
    
    
    2005
    
    
    
    2005As Restated
    
    
    As RestatedRevenue:Rental
    
    $
    49,019
    
    
    $
    53,067
    
    
    $
    26,411
    
    
    
    $
    26,112Tenant reimbursements
    
    
    31,683
    
    
    
    34,480
    
    
    
    17,331
    
    
    
    
    17,305Other property revenues
    
    
    6,952
    
    
    
    7,043
    
    
    
    2,855
    
    
    
    
    2,820Services Company revenue
    
    
    3,359
    
    
    
    2,806
    
    
    
    1,094
    
    
    
    
    1,102Total revenue
    
    
    91,013
    
    
    
    97,396
    
    
    
    47,691
    
    
    
    
    47,339Expenses:Property operations
    
    
    29,892
    
    
    
    26,985
    
    
    
    13,371
    
    
    
    
    12,618Real estate taxes
    
    
    17,888
    
    
    
    20,255
    
    
    
    10,823
    
    
    
    
    10,895Depreciation and amortization
    
    
    32,585
    
    
    
    34,483
    
    
    
    19,770
    
    
    
    
    9,783General and administrative
    
    
    6,210
    
    
    
    6,393
    
    
    
    2,941
    
    
    
    
    4,767Services Company operations
    
    
    2,835
    
    
    
    3,972
    
    
    
    1,593
    
    
    
    
    2,469Loss on tax indemnification
    
    
    
    
    
    
    4,200
    
    
    
    
    
    
    
    
    Severance costs
    
    
    
    
    
    
    
    
    
    
    218
    
    
    
    
    176Strategic alternative costs
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10,288Total expenses
    
    
    89,410
    
    
    
    96,288
    
    
    
    48,716
    
    
    
    
    50,996Operating income (loss)
    
    
    1,603
    
    
    
    1,108
    
    
    
    (1,025
    )
    
    
    
    (3,657
    )Loss from investments in unconsolidated
joint ventures
    
    
    (49,687
    )
    
    
    (9,145
    )
    
    
    (6,998
    )
    
    
    
    (6,024
    )Interest and other income
    
    
    2,961
    
    
    
    2,850
    
    
    
    1,271
    
    
    
    
    1,325Interest:Expense
    
    
    (36,610
    )
    
    
    (42,183
    )
    
    
    (12,163
    )
    
    
    
    (11,777
    )Amortization of deferred financing costs
    
    
    (910
    )
    
    
    (3,146
    )
    
    
    (25
    )
    
    
    
    (1,263
    )Gain (loss) on sales of real estate and
joint venture interests
    
    
    
    
    
    
    19,460
    
    
    
    (228
    )
    
    
    
    10,253Distributions and losses to minority
partners in excess of basis
    
    
    (14,222
    )
    
    
    
    
    
    
    
    
    
    
    
    Loss from continuing operations before
minority interests
    
    
    (96,865
    )
    
    
    (31,056
    )
    
    
    (19,168
    )
    
    
    
    (11,143
    )Minority interests
    
    
    37,821
    
    
    
    39,703
    
    
    
    23,460
    
    
    
    
    1,799(Loss) income from continuing operations
    
    
    (59,044
    )
    
    
    8,647
    
    
    
    4,292
    
    
    
    
    (9,344
    )Discontinued operations, net of minority
interests of $(2,919) for the year ended
December 31, 2007, $45 for the year ended
December 31, 2006, $(3,102) and $1,329 for
the six months ended December 31, 2005 and
for the six months ended June 30, 2005,
respectively
    
    
    26
    
    
    
    
    
    
    
    27
    
    
    
    
    (10,227
    )Net (loss) income
    
    
    (59,018
    )
    
    
    8,647
    
    
    
    4,319
    
    
    
    
    (19,571
    )Net income allocated to preferred
shareholders
    
    
    (9,000
    )
    
    
    (9,000
    )
    
    
    (4,500
    )
    
    
    
    (4,500
    )Net loss available to common shareholders
    
    $
    (68,018
    )
    
    $
    (353
    )
    
    $
    (181
    )
    
    
    $
    (24,071
    )Basic and diluted earnings available to
common shares per weightedaverage common
share:Loss from continuing operations after
minority interests and allocation to
preferred shareholders
    
    $
    (287.73
    )
    
    $
    (1.49
    )
    
    $
    (0.88
    )
    
    
    $
    (0.59
    )Discontinued operations, net of minority
interests
    
    
    0.11
    
    
    
    
    
    
    
    0.12
    
    
    
    
    (0.43
    )Net loss available per weightedaverage
common share of beneficial interest 
basic and diluted
    
    $
    (287.62
    )
    
    $
    (1.49
    )
    
    $
    (0.76
    )
    
    
    $
    (1.02
    )Comprehensive (loss) income:Net (loss) income
    
    $
    (59,018
    )
    
    $
    8,647
    
    
    $
    4,319
    
    
    
    $
    (19,571
    )Other comprehensive income (loss) 
interest rate protection agreements
Net unrealized gains arising during the
year
    
    
    
    
    
    
    
    
    
    
    2
    
    
    
    
    39Comprehensive (loss) income
    
    $
    (59,018
    )
    
    $
    8,647
    
    
    $
    4,321
    
    
    
    $
    (19,532
    )
   F-4




---



##### Table of Contents



PRIME GROUP REALTY TRUST
 
 CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY
 FOR THE YEARS ENDED DECEMBER 31, 2007 (AS RESTATED) AND 2006
 (AS RESTATED) FOR THE SIX MONTHS ENDED DECEMBER 31, 2005 (SUCCESSOR
 COMPANY) AND FOR THE SIX MONTHS ENDED JUNE 30, 2005 (PREDECESSOR
 COMPANY)
 (dollars in thousands, except for share and per share amounts)
 Accumulated
    
    
    (DistributionsSeries B
    
    
    
    
    
    
    Additional
    
    
    Other
    
    
    in Excess of)Preferred
    
    
    Common
    
    
    Paid-In
    
    
    Comprehensive
    
    
    RetainedShares
    
    
    Shares
    
    
    Capital
    
    
    Loss
    
    
    Earnings
    
    
    TotalBalance at January 1, 2005
    
    $
    40
    
    
    $
    236
    
    
    $
    381,293
    
    
    $
    (468
    )
    
    $
    (135,677
    )
    
    $
    245,424Net loss Predecessor Company
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (19,571
    )
    
    
    (19,571
    )Series B  preferred share
dividends declared ($1.125
per share)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,500
    )
    
    
    (4,500
    )Net unrealized gain on
derivative instruments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    39
    
    
    
    
    
    
    
    39Balance at June 30, 2005
    
    $
    40
    
    
    $
    236
    
    
    $
    381,293
    
    
    $
    (429
    )
    
    $
    (159,748
    )
    
    $
    221,392Impact of applying push
down accounting
    
    
    (40
    )
    
    
    (236
    )
    
    
    (381,293
    )
    
    
    429
    
    
    
    159,748
    
    
    
    (221,392
    )Opening balance at date of
Acquisition  July 1, 2005
    
    
    40
    
    
    
    2
    
    
    
    105,539
    
    
    
    
    
    
    
    
    
    
    
    105,581Accretion of fair value of
preferred stock
    
    
    
    
    
    
    
    
    
    
    700
    
    
    
    
    
    
    
    (700
    )
    
    
    Net income Successor Company
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,319
    
    
    
    4,319Series B  preferred share
dividends declared ($1.125
per share)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,500
    )
    
    
    (4,500
    )Balance at December 31, 2005
    
    $
    40
    
    
    $
    2
    
    
    $
    106,239
    
    
    $
    
    
    
    $
    (881
    )
    
    $
    105,400Accretion of fair value of
preferred stock
    
    
    
    
    
    
    
    
    
    
    1,400
    
    
    
    
    
    
    
    (1,400
    )
    
    
    Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,647
    
    
    
    8,647Series B  preferred share
dividends declared ($2.25
per share)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (9,000
    )
    
    
    (9,000
    )Common share dividends
declared ($2.8438 per
common share)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (672
    )
    
    
    (672
    )Balance at December 31,
2006  as restated
    
    $
    40
    
    
    $
    2
    
    
    $
    107,639
    
    
    $
    
    
    
    $
    (3,306
    )
    
    $
    104,375Accretion of fair value of
preferred stock
    
    
    
    
    
    
    
    
    
    
    1,400
    
    
    
    
    
    
    
    (1,400
    )
    
    
    Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (59,018
    )
    
    
    (59,018
    )Series B  preferred share
dividends declared ($2.25
per share)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (9,000
    )
    
    
    (9,000
    )Balance at December 31,
2007  as restated
    
    $
    40
    
    
    $
    2
    
    
    $
    109,039
    
    
    $
    
    
    
    $
    (72,724
    )
    
    $
    36,357
   F-5




---



##### Table of Contents



PRIME GROUP REALTY TRUST
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 (dollars in thousands)
 PredecessorSuccessor Company
    
    
    
    CompanyYear
    
    
    Year
    
    
    Six months
    
    
    
    Six monthsended
    
    
    ended
    
    
    ended
    
    
    
    endedDecember 31
    
    
    December 31
    
    
    December 31
    
    
    
    June 302007
    
    
    2006
    
    
    2005
    
    
    
    2005As Restated
    
    
    As RestatedOperating activitiesNet (loss) income
    
    $
    (59,018
    )
    
    $
    8,647
    
    
    $
    4,319
    
    
    
    $
    (19,571
    )Adjustments to reconcile net (loss)
income to net cash provided by (used
in) operating activities:Accretion of mortgage notes
payable
    
    
    (1,326
    )
    
    
    (1,373
    )
    
    
    (927
    )
    
    
    
    Amortization of costs for
leases assumed (included in
rental revenue)
    
    
    
    
    
    
    
    
    
    
    52
    
    
    
    
    138Amortization of
above/belowmarket lease value
(included in rental revenue)
    
    
    2,222
    
    
    
    2,987
    
    
    
    1,762
    
    
    
    
    Amortization of inplace lease
value
    
    
    9,919
    
    
    
    14,141
    
    
    
    8,956
    
    
    
    
    Provision for doubtful accounts
    
    
    996
    
    
    
    96
    
    
    
    (713
    )
    
    
    
    (186
    )Gain on sales of real estate
and joint venture interests
(gain (loss) of $2,220, $(6)
and $709 for the year ended
December 31, 2007, for the six
months ended December 31, 2005
and for the six months ended
June 30, 2005, respectively,
included in discontinued
operations)
    
    
    (2,220
    )
    
    
    (19,460
    )
    
    
    (170
    )
    
    
    
    (10,558
    )Depreciation and amortization
(including discontinued
operations  See Note 9)
    
    
    23,704
    
    
    
    24,060
    
    
    
    11,193
    
    
    
    
    12,075Distributions and losses to
minority partners in excess of
basis
    
    
    14,222
    
    
    
    
    
    
    
    
    
    
    
    
    Provision for asset impairment
(asset impairments of $15,074
in 2005 included in
discontinued operations)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    15,074Net equity in loss from
investments in unconsolidated
joint ventures
    
    
    49,687
    
    
    
    9,145
    
    
    
    6,998
    
    
    
    
    6,024Minority interests (including
discontinued operations)
    
    
    (34,902
    )
    
    
    (39,749
    )
    
    
    (35,318
    )
    
    
    
    (3,173
    )Net changes in other operating
assets and liabilities
(including discontinued
operations):Accounts receivable
    
    
    (3,090
    )
    
    
    (3,478
    )
    
    
    (2,807
    )
    
    
    
    545Other assets
    
    
    684
    
    
    
    1,173
    
    
    
    238
    
    
    
    
    224Accrued interest payable
    
    
    (67
    )
    
    
    377
    
    
    
    137
    
    
    
    
    178Accrued real estate taxes
    
    
    (1,056
    )
    
    
    (983
    )
    
    
    (1,102
    )
    
    
    
    685Accounts payable and accrued
expenses
    
    
    470
    
    
    
    257
    
    
    
    245
    
    
    
    
    (153
    )Other liabilities
    
    
    909
    
    
    
    555
    
    
    
    8,373
    
    
    
    
    (7,961
    )Preferential return on
investments in joint
ventures
    
    
    
    
    
    
    4,243
    
    
    
    
    
    
    
    
    Net cash provided by (used in)
operating activities
    
    
    1,134
    
    
    
    638
    
    
    
    1,236
    
    
    
    
    (6,659
    )Investing activitiesCapital expenditures for real estate
and equipment
    
    
    (17,410
    )
    
    
    (14,478
    )
    
    
    (4,612
    )
    
    
    
    (5,457
    )Proceeds from sales of real estate
    
    
    4,685
    
    
    
    2,136
    
    
    
    3,063
    
    
    
    
    10,397Change in restricted cash escrows
    
    
    2,295
    
    
    
    (4,062
    )
    
    
    (59,355
    )
    
    
    
    378Leasing costs (includes lease
assumption costs and leasing
commissions)
    
    
    (5,437
    )
    
    
    (5,799
    )
    
    
    (3,073
    )
    
    
    
    (3,360
    )Investments in unconsolidated entities
    
    
    (120,000
    )
    
    
    
    
    
    
    
    
    
    
    
    Distributions from unconsolidated
joint ventures
    
    
    6,167
    
    
    
    92,806
    
    
    
    3,933
    
    
    
    
    300Net cash (used in) provided by
investing activities
    
    
    (129,700
    )
    
    
    70,603
    
    
    
    (60,044
    )
    
    
    
    2,258
  F-6




---



##### Table of Contents



PRIME GROUP REALTY TRUST
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(dollars in thousands)
 PredecessorSuccessor Company
    
    
    
    CompanyYear
    
    
    Year
    
    
    Six Months
    
    
    
    Six Monthsended
    
    
    ended
    
    
    ended
    
    
    
    endedDecember 31
    
    
    December 31
    
    
    December 31
    
    
    
    June 302007
    
    
    2006
    
    
    2005
    
    
    
    2005Financing activitiesFinancing costs
    
    
    (644
    )
    
    
    (3,092
    )
    
    
    (1,367
    )
    
    
    
    (1,090
    )Proceeds from mortgages and notes payable
    
    
    120,000
    
    
    
    228,000
    
    
    
    55,000
    
    
    
    
    75,000Repayment of mortgages and notes payable
    
    
    (1,758
    )
    
    
    (170,897
    )
    
    
    (1,110
    )
    
    
    
    (67,096
    )Distributions to minority interestsoperating
partnership
    
    
    
    
    
    
    (75,328
    )
    
    
    (29,735
    )
    
    
    
    Dividends paid to Series B  preferred
shareholders
    
    
    (11,250
    )
    
    
    (6,750
    )
    
    
    (15,750
    )
    
    
    
    (4,500
    )Dividends paid to common shareholder
    
    
    
    
    
    
    (672
    )
    
    
    (265
    )
    
    
    
    Net cash provided by (used in) financing activities
    
    
    106,348
    
    
    
    (28,739
    )
    
    
    6,773
    
    
    
    
    2,314Net (decrease) increase in cash and cash
equivalents
    
    
    (22,218
    )
    
    
    42,502
    
    
    
    (52,035
    )
    
    
    
    (2,087
    )Cash and cash equivalents at beginning of period
    
    
    60,111
    
    
    
    17,609
    
    
    
    69,644
    
    
    
    
    71,731Cash and cash equivalents at end of period
    
    $
    37,893
    
    
    $
    60,111
    
    
    $
    17,609
    
    
    
    $
    69,644Supplemental cash flow information for net assets sold:Real estate, net
    
    $
    5,513
    
    
    $
    
    
    
    $
    48,598
    
    
    
    $
    590Deferred rent receivable
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Deferred costs, net
    
    
    48
    
    
    
    
    
    
    
    1,716
    
    
    
    
    Restricted escrows
    
    
    
    
    
    
    
    
    
    
    1,548
    
    
    
    
    Mortgage notes payable assumed by buyer
    
    
    (2,701
    )
    
    
    
    
    
    
    (45,977
    )
    
    
    
    Bonds payable assumed by buyer
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Accrued real estate taxes
    
    
    (369
    )
    
    
    
    
    
    
    (3,055
    )
    
    
    
    Other liabilities and assets, net
    
    
    (26
    )
    
    
    75,482
    
    
    
    (2,660
    )
    
    
    
    Net assets sold
    
    
    2,465
    
    
    
    75,482
    
    
    
    170
    
    
    
    
    590Proceeds from sales of real estate
    
    
    4,685
    
    
    
    94,942
    
    
    
    
    
    
    
    
    10,397Gain on sales of real estate and joint
venture interests(1)
    
    $
    2,220
    
    
    $
    19,460
    
    
    $
    170
    
    
    
    $
    9,807
 (1)
    
    Gain on sales of real estate of $2.2 million and $0.7 million are included in discontinued
operations for the year ended December 31, 2007 and for the six months ended June 30, 2005.
 Supplemental cash flow information for significant non-cash activity:Mortgage notes payable reduction through
assumption of debt by purchaser of sold
properties
    
    $
    
    
    
    $
    
    
    
    $
    45,977
    
    
    
    $
    Accretion of fair value of preferred stock
    
    $
    1,400
    
    
    $
    1,400
    
    
    $
    700
    
    
    
    $
    $
    1,400
    
    
    $
    1,400
    
    
    $
    46,677
    
    
    
    $
    Supplemental cash flow information for significant non-cash activity related to Acquisition:Real estate, net
    
    $
    
    
    
    $
    
    
    
    $
    30,293
    
    
    
    $
    Investments in unconsolidated entities
    
    
    
    
    
    
    
    
    
    
    107,863
    
    
    
    
    Deferred rent receivable
    
    
    
    
    
    
    
    
    
    
    (18,814
    )
    
    
    
    Deferred costs, net
    
    
    
    
    
    
    
    
    
    
    (13,363
    )
    
    
    
    Mortgage notes payable
    
    
    
    
    
    
    
    
    
    
    (10,630
    )
    
    
    
    Other liabilities
    
    
    
    
    
    
    
    
    
    
    (14,820
    )
    
    
    
    Minority interests
    
    
    
    
    
    
    
    
    
    
    (202,270
    )
    
    
    
    Shareholder equity
    
    
    
    
    
    
    
    
    
    
    121,741
    
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    
    $
    
   F-7




---



##### Table of Contents



Prime Group Realty Trust
 
 Notes to Consolidated Financial Statements
 1. Summary of Significant Accounting Policies
 Formation and Organization of the Company
       F-8




---



##### Table of Contents



1. Summary of Significant Accounting Policies (continued)
    Basis of Presentation
  Consolidation of Variable Interest Entities an interpretation of ARB No. 51
      F-9




---



##### Table of Contents



1. Summary of Significant Accounting Policies (continued)
 Accounting for the Acquisition
 Business Combinations
 (Dollars inthousands)Total Purchase Price
    
    $
    732,800Common Share Distribution
    
    
    (30,000
    )Net purchase price
    
    $
    702,800Land
    
    $
    108,656Building and improvements
    
    
    357,324Tenant Improvements
    
    
    36,515Furniture, fixtures and equipment
    
    
    506Inplace lease value
    
    
    44,875Above/belowmarket lease value
    
    
    15,579Property under development
    
    
    1,500Deferred Costs
    
    
    12,805Investments in unconsolidated entities
    
    
    122,072Current assets
    
    
    63,817Other assets
    
    
    2,531Other liabilities
    
    
    (52,750
    )Fair value adjustment to debt
    
    
    (10,630
    )Total allocated purchase price
    
    $
    702,800
     F-10




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##### Table of Contents



1. Summary of Significant Accounting Policies (continued)
      Real Estate
  Buildings
    
    40 years weighted average composite lifeBuilding improvements
    
    10 to 30 yearsTenant improvements
    
    Term of related leasesFurniture and equipment
    
    310 years
   F-11




---



##### Table of Contents



1. Summary of Significant Accounting Policies (continued)
 Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of
   Sales of Real Estate
 Accounting for Sales of Real Estate
  Property Held for Sale
    F-12




---



##### Table of Contents



1. Summary of Significant Accounting Policies (continued)
   December 31
    
    
    December 312007
    
    
    2006Real estate, net
    
    $
    3,211
    
    
    $
    3,260Tenant receivables
    
    
    
    
    
    
    13Deferred rent receivables
    
    
    92
    
    
    
    61In-place lease value, net
    
    
    255
    
    
    
    267Above-market lease value, net
    
    
    132
    
    
    
    139Deferred costs, net
    
    
    1
    
    
    
    Property held for sale
    
    $
    3,691
    
    
    $
    3,740
  December 31
    
    
    December 312007
    
    
    2006Mortgage note payable
    
    $
    3,033
    
    
    $
    3,148Accrued real estate taxes
    
    
    110
    
    
    
    104Accounts payable and accrued expenses
    
    
    
    
    
    
    2Other liabilities
    
    
    55
    
    
    
    4Mortgage note payable and liabilities related
to property held for sale
    
    $
    3,198
    
    
    $
    3,258
 Intangible Assets
   December 31, 2007Carrying
    
    
    Accumulated
    
    
    CarryingIntangible Asset Category
    
    AmountGross
    
    
    Amortization
    
    
    AmountNet(dollars in thousands)Inplace lease value
    
    $
    47,617
    
    
    $
    (32,582
    )
    
    $
    15,035Abovemarket lease value
    
    
    34,123
    
    
    
    (17,727
    )
    
    
    16,396Belowmarket lease value
    
    
    (18,610
    )
    
    
    11,168
    
    
    
    (7,442
    )$
    63,130
    
    
    $
    (39,141
    )
    
    $
    23,989
  F-13




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##### Table of Contents



1. Summary of Significant Accounting Policies (continued)
  In

    
    
    Above
    
    
    BelowPlace
    
    
    market
    
    
    marketYear ending December 31
    
    Lease Value
    
    
    Lease Value
    
    
    Lease Value(dollars in thousands)2007
    
    $
    9,879
    
    
    $
    6,522
    
    
    $
    (4,426
    )2008
    
    
    4,929
    
    
    
    4,926
    
    
    
    (1,938
    )2009
    
    
    3,963
    
    
    
    4,565
    
    
    
    (1,591
    )2010
    
    
    2,137
    
    
    
    2,235
    
    
    
    (1,140
    )2011
    
    
    1,354
    
    
    
    1,124
    
    
    
    (910
    )2012
    
    
    962
    
    
    
    1,084
    
    
    
    (537
    )
 Cash Equivalents
  Restricted Cash
  Deferred Costs
 Financing Costs.
 Leasing Costs.
 Allowance for Doubtful Accounts
   F-14




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##### Table of Contents



1. Summary of Significant Accounting Policies (continued)
 Leases Assumed
  Revenue Recognition
   Minority Interest in Consolidated Real Estate Partnerships
   F-15




---



##### Table of Contents



1. Summary of Significant Accounting Policies (continued)
 Interest Rate Protection Agreements
       F-16




---



##### Table of Contents



1. Summary of Significant Accounting Policies (continued)
 Accounting for Derivative Instruments and Hedging Activities Accounting for Certain Derivative Instruments and Certain
Hedging Activities
 Earnings Per Share
  Income Taxes
  Accounting for Income Taxes
   F-17




---



##### Table of Contents



1. Summary of Significant Accounting Policies (continued)
 Accounting for Uncertainty in Income
Taxes  an interpretation of FASB Statement No. 109
  Strategic Alternative Costs
  2. Asset Impairments
  PredecessorSuccessor Company
    
    
    
    CompanyYear
    
    
    Six months
    
    
    
    Six monthsended
    
    
    ended
    
    
    
    endedDecember 31
    
    
    December 31
    
    
    
    June 302007
    
    
    2006
    
    
    2005
    
    
    
    2005(dollars inthousands)Discontinued operations (1)
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    
    $
    15,074$
    
    
    
    $
    
    
    
    $
    
    
    
    
    $
    15,074
 (1)
    
    Discontinued operations for the year ended December 31, 2005 include provisions for asset
impairments related to properties held for sale or sold. See Note 9  Discontinued
Operations to these consolidated financial statements for a description of these asset
impairments.  F-18




---



##### Table of Contents



3. Deferred Costs
  December 312007
    
    
    2006(dollars in thousands)Financing costs
    
    $
    3,743
    
    
    $
    4,421Leasing costs
    
    
    11,496
    
    
    
    7,11015,239
    
    
    
    11,531Less: Accumulated amortization
    
    
    (4,300
    )
    
    
    (3,694
    )$
    10,939
    
    
    $
    7,837
 4. Mortgage Notes Payable
  December 312007
    
    
    2006(dollars in thousands)Mortgage Notes Payable(1), (2):Mortgage notes payable to various
financial institutions, collateralized by
various properties, interest at fixed
rates ranging from 5.43% to 8.76% per
annum, with principal and interest payable
monthly on dates ranging from 2008 through
December 1, 2016. The weighted average
rates at December 31, 2007 and 2006 were
6.26% and 6.30%, respectively
    
    $
    234,132
    
    
    $
    239,917Mortgage notes payable to various
financial institutions, collateralized by
various properties, interest at variable
rates ranging from LIBOR (5.03% at
December 31, 2007) plus 143 basis points
to LIBOR plus 570 basis points per annum,
with interest payable monthly through June
10, 2008. The weighted average rates at
December 31, 2007 and 2006 were 8.29% and
8.28%, respectively
    
    
    333,778
    
    
    
    213,778Total mortgage notes payable (3)
    
    $
    567,910
    
    
    $
    453,695
 (1)
    
    The mortgage notes payable are subject to various operating and financial covenants. In
addition, we are required to periodically fund and maintain escrow accounts to make future
real estate tax and insurance payments, as well as to fund certain tenant releasing costs and
capital expenditures. These are included in restricted cash escrows.(2)
    
    All of our operating real estate assets have been pledged as collateral for our mortgage
notes payable.(3)
    
    The fair value of our notes payable is estimated at $565.3 million and $452.3 million as of
December 31, 2007 and 2006, respectively.   F-19




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##### Table of Contents



4. Mortgage Notes Payable (continued)
       F-20




---



##### Table of Contents



4. Mortgage Notes Payable (continued)
       F-21




---



##### Table of Contents



4. Mortgage Notes Payable (continued)
        F-22




---



##### Table of Contents



4. Mortgage Notes Payable (continued)
 Interest Rate Protection Agreement.
 Notional
    
    
    CappedAmount as of
    
    
    LIBOR/December 31
    
    
    Eurodollar
    
    
    Effective
    
    
    ExpirationLoan Associated with
    
    2007
    
    
    Rate
    
    
    Date
    
    
    Date330 N. Wabash AvenueFirst
Mortgage/Mezzanine
Loans
    
    $
    195,000,000
    
    
    
    6.6
    %
    
    
    3/15/07
    
    
    
    3/15/08Continental TowersFirst Mortgage
    
    $
    75,000,000
    
    
    
    6.5
    %
    
    
    5/02/05
    
    
    
    5/01/08Prime Equity
Mezzanine Loans
    
    $
    47,000,000
    
    
    
    4.8
    %
    
    
    1/03/06
    
    
    
    1/03/08Prime Equity
Mezzanine Loans
    
    $
    11,000,000
    
    
    
    4.8
    %
    
    
    1/03/06
    
    
    
    1/03/08
  Amortization of Principal
 Other.
  Year Ending December 31
    
    Amount(dollars inthousands)2008
    
    $
    351,0142009
    
    
    2,6752010
    
    
    33,8172011
    
    
    65,4042012
    
    
    Thereafter
    
    
    115,000$
    567,910
   F-23




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##### Table of Contents



5. Debt Covenants
   6. Leases
   Year Ending December 31
    
    Amount(dollars in thousands)2008
    
    $
    42,9622009
    
    
    43,0202010
    
    
    31,6802011
    
    
    24,6902012
    
    
    21,283Thereafter
    
    
    81,394$
    245,029
   Gross
    
    
    Executed
    
    
    NetYear Ending December 31
    
    Amount
    
    
    Subleases
    
    
    Amount(dollars in thousands)2008
    
    $
    5,738
    
    
    $
    4,824
    
    
    $
    9142009
    
    
    5,098
    
    
    
    3,923
    
    
    
    1,1752010
    
    
    5,226
    
    
    
    4,032
    
    
    
    1,1942011
    
    
    5,357
    
    
    
    4,214
    
    
    
    1,1432012
    
    
    3,630
    
    
    
    2,819
    
    
    
    811Thereafter
    
    
    
    
    
    
    
    
    
    
    $
    25,049
    
    
    $
    19,812
    
    
    $
    5,237
  F-24




---



##### Table of Contents



7. Minority Interests
   8. Preferred Shares
    9. Discontinued Operations
 Accounting for the Impairment or Disposal of Long-Lived Assets
  F-25




---



##### Table of Contents



9. Discontinued Operations (continued)
     PredecessorSuccessor Company
    
    
    
    CompanySix
    
    
    
    SixYear

    
    
    months
    
    
    
    monthsended
    
    
    ended
    
    
    
    endedDecember 31
    
    
    December 31
    
    
    
    June 302007
    
    
    2006
    
    
    2005
    
    
    
    2005(dollars in(dollars in thousands)
    
    
    
    thousands)Rental revenue
    
    $
    741
    
    
    $
    1,103
    
    
    $
    4,952
    
    
    
    $
    6,114Tenant reimbursements
    
    
    305
    
    
    
    441
    
    
    
    4,210
    
    
    
    
    4,082Other property income
    
    
    1,092
    
    
    
    6
    
    
    
    151
    
    
    
    
    164Total revenue
    
    
    2,138
    
    
    
    1,550
    
    
    
    9,313
    
    
    
    
    10,360Property operations
    
    
    97
    
    
    
    151
    
    
    
    2,668
    
    
    
    
    3,084Real estate taxes
    
    
    581
    
    
    
    418
    
    
    
    1,698
    
    
    
    
    1,551Depreciation and amortization
    
    
    128
    
    
    
    572
    
    
    
    353
    
    
    
    
    986Interest expense
    
    
    607
    
    
    
    454
    
    
    
    1,459
    
    
    
    
    1,930Total expenses
    
    
    1,413
    
    
    
    1,595
    
    
    
    6,178
    
    
    
    
    7,551Income (loss) before provisions
for asset impairment, net gain
(loss) on sales of real estate
and minority interests
    
    
    725
    
    
    
    (45
    )
    
    
    3,135
    
    
    
    
    2,809Provisions for asset impairment(1)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (15,074
    )Net gain (loss) on sales of real
estate(2)
    
    
    2,220
    
    
    
    
    
    
    
    (6
    )
    
    
    
    709Minority interests
    
    
    (2,919
    )
    
    
    45
    
    
    
    (3,102
    )
    
    
    
    1,329Discontinued operations
    
    $
    26
    
    
    $
    
    
    
    $
    27
    
    
    
    $
    (10,227
    )
 (1)
    
    During the second quarter of 2005, we recorded an asset impairment of $15.1 million related
to our 208 South LaSalle Street office property as our anticipated hold period for the
property was reduced based upon our decision to pursue a sale.(2)
    
    See Note 16  Property Acquisitions, Placed in Service and Dispositions to these
consolidated financial statements for a description of these sales.  F-26




---



##### Table of Contents



10. Earnings Per Share
  PredecessorSuccessor Company
    
    
    
    CompanyYear
    
    
    Year
    
    
    Six months
    
    
    
    Six monthsEnded
    
    
    ended
    
    
    ended
    
    
    
    endedDecember 31
    
    
    December 31
    
    
    December 31
    
    
    
    June 302007
    
    
    2006
    
    
    2005
    
    
    
    2005As Restated
    
    
    As Restated
    
    
    
    
    
    
    (dollars inthousands, except(dollars in thousands, except per share amounts)
    
    
    
    per share amounts)Numerator:Loss from continuing operations
before minority interests
    
    $
    (96,865
    )
    
    $
    (31,056
    )
    
    $
    (19,168
    )
    
    
    $
    (11,143
    )Minority interests
    
    
    37,821
    
    
    
    39,703
    
    
    
    23,460
    
    
    
    
    1,799Net income allocated to preferred
shareholders
    
    
    (9,000
    )
    
    
    (9,000
    )
    
    
    (4,500
    )
    
    
    
    (4,500
    )Loss before discontinued operations
    
    
    (68,044
    )
    
    
    (353
    )
    
    
    (208
    )
    
    
    
    (13,844
    )Discontinued operations, net of
minority interests
    
    
    26
    
    
    
    
    
    
    
    27
    
    
    
    
    (10,227
    )Numerator for earnings per share  loss
available to common shares
    
    $
    (68,018
    )
    
    $
    (353
    )
    
    $
    (181
    )
    
    
    $
    (24,071
    )Denominator:Denominator for basic earnings per
share  weighted average common
shares
    
    
    236,483
    
    
    
    236,483
    
    
    
    236,483
    
    
    
    
    23,658,579Effect of dilutive securities:Employee stock options
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Employee stock grants
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Denominator for diluted earnings per
share  adjusted weighted average
common shares and assumed conversions
    
    
    236,483
    
    
    
    236,483
    
    
    
    236,483
    
    
    
    
    23,658,579BASIC AND DILUTED EARNINGS AVAILABLE TO
COMMON SHARES
PER WEIGHTED-AVERAGE COMMON SHARE:Loss from continuing operations after
minority interests and allocation to
preferred shareholders
    
    $
    (287.73
    )
    
    $
    (1.49
    )
    
    $
    (0.88
    )
    
    
    $
    (0.59
    )Discontinued operations, net of
minority interests
    
    
    0.11
    
    
    
    
    
    
    
    0.12
    
    
    
    
    (0.43
    )Net loss available per
weighted-average common share of
beneficial interest  basic and
diluted
    
    $
    (287.62
    )
    
    $
    (1.49
    )
    
    $
    (0.76
    )
    
    
    $
    (1.02
    )
   F-27




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##### Table of Contents



11. Investments in Unconsolidated Joint Ventures
   Extended Stay Hotels.
       F-28




---



##### Table of Contents



11. Investments in Unconsolidated Joint Ventures (continued)
  December 312007(dollars inthousands)Real estate, at cost (net):
    
    $
    5,683,185Other assets
    
    
    2,155,795Total assets
    
    $
    7,838,980Mortgage notes and other loans payable
    
    $
    7,402,447Other liabilities
    
    
    147,947Total members capital
    
    
    288,586Total liabilities and members capital
    
    $
    7,838,980
 For the periodJune 29, 2007throughDecember 31, 2007(dollars inthousands)Total revenue
    
    $
    515,364Total expenses
    
    
    (705,338
    )Net loss
    
    $
    (189,974
    )
 The United Building
  PredecessorSuccessor Company
    
    
    
    CompanyYear
    
    
    Six months
    
    
    
    Six monthsended
    
    
    ended
    
    
    
    endedDecember 31
    
    
    December 31
    
    
    
    June 302007
    
    
    2006
    
    
    2005
    
    
    
    2005(dollars in(dollars in thousands)
    
    
    
    thousands)Operations (included
in loss from
investments in
unconsolidated joint
ventures)
    
    $
    (1,772
    )
    
    $
    (3,622
    )
    
    $
    (1,837
    )
    
    
    $
    855Distributions received
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    300
  F-29




---



##### Table of Contents



11. Investments in Unconsolidated Joint Ventures (continued)
    December 312007
    
    
    2006(dollars in thousands)Real estate, at cost (net):
    
    $
    254,685
    
    
    $
    257,896Other assets
    
    
    26,820
    
    
    
    35,613Total assets
    
    $
    281,505
    
    
    $
    293,509Mortgage note payable
    
    $
    164,652
    
    
    $
    167,321Other liabilities
    
    
    24,896
    
    
    
    30,687Total members capital
    
    
    91,957
    
    
    
    95,501Total liabilities and members capital
    
    $
    281,505
    
    
    $
    293,509
 PredecessorSuccessor Company
    
    
    
    CompanyYear
    
    
    Six months
    
    
    
    Six monthsended
    
    
    ended
    
    
    
    endedDecember 31
    
    
    December 31
    
    
    
    June 302007
    
    
    2006
    
    
    2005
    
    
    
    2005(dollars in(dollars in thousands)
    
    
    
    thousands)Total revenue
    
    $
    38,278
    
    
    $
    41,109
    
    
    $
    20,192
    
    
    
    $
    21,972Total expenses
    
    
    35,551
    
    
    
    42,071
    
    
    
    20,731
    
    
    
    
    17,815Net income (loss)
    
    $
    2,727
    
    
    $
    (962
    )
    
    $
    (539
    )
    
    
    $
    4,157
 Citadel Center
  F-30




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##### Table of Contents



11. Investments in Unconsolidated Joint Ventures (continued)
       F-31




---



##### Table of Contents



11. Investments in Unconsolidated Joint Ventures (continued)
  PredecessorSuccessor Company
    
    
    
    CompanySix months
    
    
    
    Six monthsYear ended
    
    
    ended
    
    
    
    endedDecember 31
    
    
    December 31
    
    
    
    June 302007
    
    
    2006
    
    
    2005
    
    
    
    2005(dollars in(dollars in thousands)
    
    
    
    thousands)Operations
(included in loss
from investments in
unconsolidated
joint ventures) (1)
    
    $
    
    
    
    $
    (5,470
    )
    
    $
    (5,193
    )
    
    
    $
    (6,930
    )
 (1)
    
    During the 2006 period, distributions to our partner exceeded the joint ventures net income.
As a result, income equal to the distribution was allocated to our partner and we recorded a
loss in the amount of the difference between this allocation and the actual net income of the
joint venture. The distribution was $9.9 million, $5.9 million, $5.7 million and $10.6
million for the year ended December 31, 2006, for the six months ended December 31, 2005 and
the six months ended June 30, 2005, respectively.  December 312007
    
    
    2006(dollars in thousands)Real estate, at cost (net):
    
    $
    
    
    
    $
    Other assets
    
    
    
    
    
    
    386Total assets
    
    $
    
    
    
    $
    386Mortgage note payable
    
    $
    
    
    
    $
    Other liabilities
    
    
    
    
    
    
    386Total members capital
    
    
    
    
    
    
    Total liabilities and members capital
    
    $
    
    
    
    $
    386
 PredecessorSuccessor Company
    
    
    
    CompanySix months
    
    
    
    Six monthsYear ended
    
    
    ended
    
    
    
    endedDecember 31
    
    
    December 31
    
    
    
    June 302007
    
    
    2006
    
    
    2005
    
    
    
    2005(dollars in(dollars in thousands)
    
    
    
    thousands)Total revenue
    
    $
    
    
    
    $
    51,778
    
    
    $
    25,082
    
    
    
    $
    25,142Total expenses
    
    
    
    
    
    
    47,339
    
    
    
    24,383
    
    
    
    
    26,335Net income (loss)(2)
    
    $
    
    
    
    $
    4,439
    
    
    $
    699
    
    
    
    $
    (1,193
    )
 (2)
    
    Historical income does not reflect net income from the joint venture as reported in the
financial statements as a result of the difference in basis in connection with the
Acquisition.  F-32




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##### Table of Contents



11. Investments in Unconsolidated Joint Ventures (continued)
 Thistle Landing.
     12. Stock Based Compensation
    F-33




---



##### Table of Contents



12. Stock Based Compensation (continued)
 Accounting for Stock Issued to Employees
 Share-Based Payments
   Accounting for Stock-Based Compensation
     F-34




---



##### Table of Contents



12. Stock Based Compensation (continued)
  WeightedAverageShares
    
    
    ExerciseSubject to
    
    
    Price PerOption
    
    
    ShareBalance at January 1, 2005
    
    
    938,883
    
    
    $
    15.19Options cancelled
    
    
    (938,883
    )
    
    
    Balance at December 31, 2005
    
    
    
    
    
    
    Options cancelled
    
    
    
    
    
    
    Balance at December 31, 2006
    
    
    
    
    
    
    Options cancelled
    
    
    
    
    
    
    Balance at December 31, 2007
    
    
    
    
    
    $
    
 13. Related Party Transactions
   PredecessorSuccessor Company
    
    
    
    CompanyYear
    
    
    Six months
    
    
    
    Six monthsended
    
    
    ended
    
    
    
    endedDecember 31
    
    
    December 31
    
    
    
    June 302007
    
    
    2006
    
    
    2005
    
    
    
    2005(dollars in(dollars in thousands)
    
    
    
    thousands)Management fees (1)
    
    $
    913
    
    
    $
    1,151
    
    
    $
    541
    
    
    
    $
    523Payroll and other operating costs
    
    
    1,339
    
    
    
    1,397
    
    
    
    667
    
    
    
    
    674Leasing costs (1)
    
    
    867
    
    
    
    1,298
    
    
    
    398
    
    
    
    
    42
 (1)
    
    We earn a monthly management fee equal to 2.5% of gross rental income calculated on a cash
basis and lease commissions for services performed. For financial reporting purposes, 50.0% of
these amounts, representing our share of earnings from the joint venture, is offset by our
equity in earnings from this joint venture.  F-35




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##### Table of Contents



13. Related Party Transactions (continued)
  PredecessorSuccessor Company
    
    
    
    CompanyYear
    
    
    Six months
    
    
    
    Six monthsended
    
    
    ended
    
    
    
    endedDecember 31
    
    
    December 31
    
    
    
    June 302007
    
    
    2006
    
    
    2005
    
    
    
    2005(dollars in(dollars in thousands)
    
    
    
    thousands)Management fees (1)
    
    $
    
    
    
    $
    852
    
    
    $
    542
    
    
    
    $
    368Payroll and other operating costs
    
    
    
    
    
    
    700
    
    
    
    375
    
    
    
    
    374Leasing costs (1)
    
    
    
    
    
    
    36
    
    
    
    
    
    
    
    
    1,623
 (1)
    
    We earned a monthly management fee equal to 2.0% of gross rental income calculated on a cash
basis and lease commissions for services performed. For financial reporting purposes, these
are offset by our equity in the loss from this joint venture.      F-36




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##### Table of Contents



14. Fair Values of Financial Instruments
 Disclosures About Fair Value of Financial Instruments Disclosure about Derivative Financial Instruments and Fair Value of Financial
Instruments
  Cash and Cash Equivalents and Restricted Cash Escrows, Receivables and Payables
   Mortgage and Notes Payable
  Interest Rate Protection Agreements
  15. Commitments and Contingencies
 Legal.
   F-37




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##### Table of Contents



15. Commitments and Contingencies (continued)
    Accounting for Contingencies
 Environmental.
   F-38




---



##### Table of Contents



15. Commitments and Contingencies (continued)
  Accounting for Conditional Asset Retirement Obligations, Accounting for Asset
Retirement Obligations
   F-39




---



##### Table of Contents



15. Commitments and Contingencies (continued)
 Tax Indemnities.
       F-40




---



##### Table of Contents



15. Commitments and Contingencies (continued)
  Lease Liabilities.
      F-41




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##### Table of Contents



16. Property Acquisitions, Placed in Service and Dispositions
  MonthProperty
    
    Location
    
    Sales Price
    
    
    Sold(dollars inthousands)2007 SalesOffice:Narco River Business Center (1)
    
    Calumet City, IL
    
    $
    7,400
    
    
    May2006 SalesOffice:Citadel Center (2)
    
    Chicago, IL
    
    $
    560,000
    
    
    NovemberLand:Libertyville (3)
    
    Libertyville, IL
    
    $
    2,400
    
    
    April2005 SalesOffice:208 S. LaSalle Street (4)
    
    Chicago, IL
    
    $
    44,000
    
    
    DecemberLand:Libertyville (5)
    
    Libertyville, IL
    
    $
    700
    
    
    February
 (1)
    
    On May 22, 2007, we closed on the sale of our Narco River Business Center property located in
Calumet City, Illinois, for a sales price of $7.4 million. We recognized a gain of $2.2
million and retired debt of $2.7 million related to this property.(2)
    
    Dearborn LLC, the owner of Citadel Center and an entity in which we owned a joint venture
interest, sold Citadel Center in November 2006. This property was sold by Dearborn LLC for a
sales price for the entire property of $560.0 million. A subsidiary of our Operating
Partnership owned a thirty percent (30%) joint venture interest in the Citadel Center
property. At the closing, the Operating Partnership indemnified the purchaser against any
costs or expenses in connection with the Citadel Reimbursement Obligation (as described
below). The Operating Partnership previously indemnified its joint venture partner against
the Citadel Reimbursement Obligation. The Citadel Reimbursement Obligation is the obligation
of the joint venture under its lease with Citadel Investment Group, LLC (Citadel) to
reimburse Citadel for the financial obligations, consisting of base rent and the pro rata
share of operating expenses and real estate taxes, under Citadels pre-existing lease for
161,488 square feet of space at the One North Wacker Drive office building in downtown
Chicago, Illinois. We have executed subleases at One North Wacker Drive for all of the space
to partially mitigate our obligation under the Citadel Reimbursement Obligation. The
foregoing obligations are partially secured by a total of $7.1 million held in escrow at
closing.  F-42




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##### Table of Contents



16. Property Acquisitions, Placed in Service and Dispositions (continued)
 At the closing, the Operating Partnership received its annual distribution of income from the
joint venture of $4.2 million. The Operating Partnership share of the net proceeds from the
sale was $92.4 million, and the Operating Partnership used approximately $57.1 million of the
net proceeds to pay down corporate level debt. The Operating Partnership recorded a gain of
approximately $18.8 million from the transaction (included in gain on sales of real estate and
joint venture interests).(3)
    
    We sold this property for a sales price of $2.4 million. This property was unencumbered. A
gain of $0.6 million was recorded as gain on sales of real estate.(4)
    
    We sold this property for a gross sales price of $44.0 million minus certain agreed upon
closing prorations, including the assumption of the existing debt of $41.9 million on the
property. After closing prorations and costs we received approximately $0.5 million in net
proceeds from the sale. During the second quarter of 2005, we had recorded an asset impairment
charge of $15.1 million related to this property. As a result of the revaluation of our
balance sheet due to the Acquisition, no gain or loss was recorded on this sale.(5)
    
    Net proceeds from the sale of this property were $0.7 million. This property was
unencumbered. 17. Restatements
     F-43




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##### Table of Contents



17. Restatements (continued)
  December 31, 2007
    
    
    December 31, 2006As
    
    
    
    
    
    
    AsPreviously
    
    
    As
    
    
    Previously
    
    
    AsReported
    
    
    Restated
    
    
    Reported
    
    
    RestatedConsolidated Balance SheetsBuilding and improvements
    
    $
    351,782
    
    
    $
    347,582
    
    
    $
    345,463
    
    
    $
    341,263Accumulated depreciation
    
    
    (52,857
    )
    
    
    (52,627
    )
    
    
    (31,481
    )
    
    
    (31,366
    )Total assets
    
    
    675,886
    
    
    
    671,916
    
    
    
    654,098
    
    
    
    650,013Minority interests-Operating
Partnership
    
    
    65,040
    
    
    
    
    
    
    
    100,147
    
    
    
    20,770Shareholders equity (deficit) -
Distributions in excess of earnings
    
    
    (133,794
    )
    
    
    (72,724
    )
    
    
    (78,598
    )
    
    
    (3,306
    )Total shareholders equity (deficit)
    
    
    (24,713
    )
    
    
    36,357
    
    
    
    29,083
    
    
    
    104,375Consolidated Statements of
Operations and Comprehensive Income
(Loss)Depreciation and amortization
    
    
    32,700
    
    
    
    32,585
    
    
    
    34,598
    
    
    
    34,483Loss on tax indemnification
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,200Total expenses
    
    
    89,525
    
    
    
    89,410
    
    
    
    92,203
    
    
    
    96,288Operating income (loss)
    
    
    1,488
    
    
    
    1,603
    
    
    
    5,193
    
    
    
    1,108Distributions and losses to
minority partners in excess of
basis
    
    
    
    
    
    
    14,222
    
    
    
    
    
    
    
    (Loss) income from continuing
operations
    
    
    (44,822
    )
    
    
    (59,044
    )
    
    
    8,512
    
    
    
    8,647Net (loss) income
    
    
    (44,796
    )
    
    
    (59,018
    )
    
    
    8,683
    
    
    
    8,647Net loss available to common
shareholders
    
    
    (53,796
    )
    
    
    (68,018
    )
    
    
    (317
    )
    
    
    (353
    )Comprehensive (loss) income
    
    
    (44,796
    )
    
    
    (59,018
    )
    
    
    8,683
    
    
    
    8,647Basis and diluted earnings
available to common shares per
weighted-average common share:Loss from continuing operations
after minority interests and
allocation to preferred
shareholders
    
    
    (227.59
    )
    
    
    (287.73
    )
    
    
    (2.06
    )
    
    
    (1.49
    )Net loss available per
weighted-average common share of
beneficial interest
    
    
    (227.48
    )
    
    
    (287.62
    )
    
    
    (1.34
    )
    
    
    (1.49
    )Consolidated Statements of Cash
FlowsNet cash provided by operating
activities
    
    
    1,134
    
    
    
    1,134
    
    
    
    4,838
    
    
    
    638Net cash (used in) provided by
investing activities
    
    
    (129,700
    )
    
    
    (129,700
    )
    
    
    66,403
    
    
    
    70,603
  F-44




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##### Table of Contents



18. Interim Financial Information (unaudited) (as restated)
  Year ended December 31Fourth
    
    
    Third
    
    
    Second
    
    
    FirstTotal
    
    
    Quarter(1)
    
    
    Quarter
    
    
    Quarter
    
    
    QuarterAs Restated
    
    
    As Restated
    
    
    As Restated
    
    
    As Restated
    
    
    As Restated(dollars in thousands, except per share amounts)Total revenue
    
    $
    91,013
    
    
    $
    20,508
    
    
    $
    21,433
    
    
    $
    25,155
    
    
    $
    23,917Total expenses
    
    
    89,410
    
    
    
    20,857
    
    
    
    19,850
    
    
    
    25,725
    
    
    
    22,978Operating income
    
    
    1,603
    
    
    
    (349
    )
    
    
    1,583
    
    
    
    (570
    )
    
    
    939Loss from investments in
unconsolidated joint ventures
    
    
    (49,687
    )
    
    
    (48,274
    )
    
    
    (665
    )
    
    
    (224
    )
    
    
    (524
    )Interest and other income (expense)
    
    
    2,961
    
    
    
    (2,309
    )
    
    
    3,960
    
    
    
    981
    
    
    
    329Interest:Expense
    
    
    (36,610
    )
    
    
    (10,263
    )
    
    
    (10,773
    )
    
    
    (7,760
    )
    
    
    (7,814
    )Amortization of deferred
financing costs
    
    
    (910
    )
    
    
    (229
    )
    
    
    (229
    )
    
    
    (232
    )
    
    
    (220
    )Distributions and losses to
minority partners in excess of
basis
    
    
    (14,222
    )
    
    
    (10,172
    )
    
    
    (4,050
    )
    
    
    
    
    
    
    Loss from continuing operations
before minority interests
    
    
    (96,865
    )
    
    
    (71,596
    )
    
    
    (10,174
    )
    
    
    (7,805
    )
    
    
    (7,290
    )Minority interests
    
    
    37,821
    
    
    
    10,099
    
    
    
    8,300
    
    
    
    9,966
    
    
    
    9,456(Loss) income from continuing
operations
    
    
    (59,044
    )
    
    
    (61,497
    )
    
    
    (1,874
    )
    
    
    2,161
    
    
    
    2,166Discontinued operations, net of
minority interests in the amount
of $48 in the fourth quarter,
$(93) in the third quarter,
$(2,038) in the second quarter and
$(836) in the first quarter
    
    
    26
    
    
    
    
    
    
    
    
    
    
    
    19
    
    
    
    7Net (loss) income
    
    
    (59,018
    )
    
    
    (61,497
    )
    
    
    (1,874
    )
    
    
    2,180
    
    
    
    2,173Net income allocated to preferred
shareholders
    
    
    (9,000
    )
    
    
    (2,250
    )
    
    
    (2,250
    )
    
    
    (2,250
    )
    
    
    (2,250
    )Net loss available to common
shareholders
    
    $
    (68,018
    )
    
    $
    (63,747
    )
    
    $
    (4,124
    )
    
    $
    (70
    )
    
    $
    (77
    )Basic and diluted earnings
available to common shares per
weighted average common shareLoss from continuing operations
after minority interests and
allocation to preferred
shareholders
    
    $
    (287.73
    )
    
    $
    (269.55
    )
    
    $
    (17.44
    )
    
    $
    (0.38
    )
    
    $
    (0.36
    )Discontinued operations, net of
minority interests
    
    
    0.11
    
    
    
    
    
    
    
    
    
    
    
    0.08
    
    
    
    0.03Net loss available per
weighted-average common share of
beneficial interest  basic and
diluted
    
    $
    (287.62
    )
    
    $
    (269.55
    )
    
    $
    (17.44
    )
    
    $
    (0.30
    )
    
    $
    (0.33
    )Weighted average common
shares  basic and diluted
    
    
    236,483
    
    
    
    236,483
    
    
    
    236,483
    
    
    
    236,483
    
    
    
    236,483
  F-45




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##### Table of Contents



18. Interim Financial Information (unaudited) (as restated) (continued)
  Year ended December 31Fourth
    
    
    Third
    
    
    Second
    
    
    FirstTotal
    
    
    Quarter
    
    
    Quarter
    
    
    Quarter
    
    
    QuarterAs Restated
    
    
    As Restated
    
    
    As Restated
    
    
    As Restated
    
    
    As Restated(dollars in thousands, except per share amounts)Total revenue
    
    $
    97,396
    
    
    $
    24,571
    
    
    $
    24,446
    
    
    $
    24,311
    
    
    $
    24,068Total expenses
    
    
    96,288
    
    
    
    21,880
    
    
    
    23,235
    
    
    
    23,384
    
    
    
    27,789Operating income
    
    
    1,108
    
    
    
    2,691
    
    
    
    1,211
    
    
    
    927
    
    
    
    (3,721
    )(Loss) income from investments
in unconsolidated joint ventures
    
    
    (9,145
    )
    
    
    1,949
    
    
    
    (3,733
    )
    
    
    (3,365
    )
    
    
    (3,996
    )Interest and other income
    
    
    2,850
    
    
    
    839
    
    
    
    574
    
    
    
    566
    
    
    
    871Interest:Expense
    
    
    (42,183
    )
    
    
    (13,330
    )
    
    
    (10,085
    )
    
    
    (9,763
    )
    
    
    (9,005
    )Amortization of deferred
financing costs
    
    
    (3,146
    )
    
    
    (2,146
    )
    
    
    (352
    )
    
    
    (351
    )
    
    
    (297
    )Gain on sales of real estate and
joint venture interests
    
    
    19,460
    
    
    
    18,816
    
    
    
    
    
    
    
    644
    
    
    
    Loss from continuing operations
before minority interests
    
    
    (31,056
    )
    
    
    8,819
    
    
    
    (12,385
    )
    
    
    (11,342
    )
    
    
    (16,148
    )Minority interests
    
    
    39,703
    
    
    
    (6,512
    )
    
    
    14,506
    
    
    
    13,472
    
    
    
    18,237Income from continuing operations
    
    
    8,647
    
    
    
    2,307
    
    
    
    2,121
    
    
    
    2,130
    
    
    
    2,089Discontinued operations, net of
minority interests in the amount
of $123 in the fourth quarter,
$59 in the third quarter, $(97)
in the second quarter and $(40)
in the first quarter
    
    
    
    
    
    
    (1
    )
    
    
    
    
    
    
    1
    
    
    
    Net income
    
    
    8,647
    
    
    
    2,306
    
    
    
    2,121
    
    
    
    2,131
    
    
    
    2,089Net income allocated to
preferred shareholders
    
    
    (9,000
    )
    
    
    (2,250
    )
    
    
    (2,250
    )
    
    
    (2,250
    )
    
    
    (2,250
    )Net (loss) income available to
common shareholders
    
    $
    (353
    )
    
    $
    56
    
    
    $
    (129
    )
    
    $
    (119
    )
    
    $
    (161
    )Basic and diluted earnings
available to common shares per
weighted average common shareLoss from continuing operations
after minority interests and
allocation to preferred
shareholders
    
    $
    (1.49
    )
    
    $
    0.24
    
    
    $
    (0.55
    )
    
    $
    (0.50
    )
    
    $
    (0.68
    )Discontinued operations, net of
minority interests
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net (loss) income available per
weighted-average common share of
beneficial interest  basic and
diluted
    
    $
    (1.49
    )
    
    $
    0.24
    
    
    $
    (0.55
    )
    
    $
    (0.50
    )
    
    $
    (0.68
    )Weighted average common
shares  basic and diluted
    
    
    236,483
    
    
    
    236,483
    
    
    
    236,483
    
    
    
    236,483
    
    
    
    236,483
  F-46




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##### Table of Contents



18. Interim Financial Information (unaudited) (continued)
 (1)
    
    We have accounted for our investment in the membership interest that owns extended-stay hotel
properties under the equity method of accounting effective in the fourth quarter of 2007.
This change from the cost method of accounting is primarily due to the deteriorating real
estate and financial market conditions resulting in a re-evaluation of the expected term and
nature of the investment.
  a)
    
    Dividend income in the amount of $6.2 million previously recorded under the cost
method as interest and other income was recorded as a reduction of Investments in
Unconsolidated Entities.
 b)
    
    We recognized a loss allocation, assuming a hypothetical liquidation at December 31,
2007, of approximately $47.8 million from this investment under the equity method of
accounting as Loss From Investments in Unconsolidated Joint Ventures.
  19. Recent Accounting Pronouncements
 Accounting for Uncertainty in Income
Taxes  an interpretation of FASB Statement No. 109
 Fair Value Measurements
 The Fair Value Option for Financial Assets
and Financial LiabilitiesIncluding an Amendment of FASB Statement No. 115
  F-47




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##### Table of Contents



19. Recent Accounting Pronouncements (continued)
 Business Combinations  , Noncontrolling Interests in Consolidated Financial Statements .
 20. Subsequent Events
 The United Building Sale.
   330 N. Wabash Avenue Hotel Sale
  F-48




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##### Table of Contents



20. Subsequent Events (continued)
 330 N. Wabash Avenue Refinancing.
     F-49




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##### Table of Contents



20. Subsequent Events (continued)
     4343 Commerce Court Refinancing .
  F-50




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##### Table of Contents



PRIME GROUP REALTY TRUST
 
 SCHEDULE III  REAL ESTATE AND ACCUMULATED DEPRECIATION
 AS OF DECEMBER 31, 2007
As Restated
 (dollars in thousands)
 Gross Amount Carried atCost Capitalized
    
    
    Close of Period
    
    
    AccumulatedEncumbrances(1)
    
    
    Initial Cost(2)
    
    
    Subsequent to Acquisition
    
    
    12/31/07
    
    
    DepreciationBuildings
    
    
    
    
    
    
    Buildings
    
    
    
    
    
    
    Building
    
    
    
    
    
    
    at
    
    
    Date ofDecember 31
    
    
    
    
    
    
    and
    
    
    
    
    
    
    and
    
    
    
    
    
    
    and
    
    
    
    
    
    
    December 31
    
    
    Original2007
    
    
    Land
    
    
    Improvements
    
    
    Land
    
    
    Improvements
    
    
    Land
    
    
    Improvements
    
    
    Total
    
    
    2007(3)
    
    
    Acquisition280 Shuman Blvd.
    
    $
    
    
    
    $
    2,092
    
    
    $
    3,642
    
    
    $
    12
    
    
    $
    670
    
    
    $
    2,104
    
    
    $
    4,312
    
    
    $
    6,416
    
    
    $
    699
    
    
    Nov. 1997Continental Towers
    
    
    115,000
    
    
    
    12,166
    
    
    
    122,980
    
    
    
    363
    
    
    
    8,192
    
    
    
    12,529
    
    
    
    131,172
    
    
    
    143,701
    
    
    
    15,820
    
    
    Dec. 19974343 Commerce Court (4)
    
    
    11,648
    
    
    
    2,370
    
    
    
    13,572
    
    
    
    (8
    )
    
    
    1,257
    
    
    
    2,362
    
    
    
    14,829
    
    
    
    17,191
    
    
    
    1,716
    
    
    Nov. 1997800-810 Jorie Blvd.
    
    
    23,276
    
    
    
    6,265
    
    
    
    20,187
    
    
    
    
    
    
    
    800
    
    
    
    6,265
    
    
    
    20,987
    
    
    
    27,252
    
    
    
    2,927
    
    
    Aug. 1999330 N. Wabash Avenue (5)
    
    
    195,000
    
    
    
    45,582
    
    
    
    126,397
    
    
    
    (639
    )
    
    
    29,088
    
    
    
    44,943
    
    
    
    155,485
    
    
    
    200,428
    
    
    
    17,742
    
    
    Dec. 1999Brush Hill Office Court
    
    
    8,157
    
    
    
    3,456
    
    
    
    10,295
    
    
    
    (24
    )
    
    
    794
    
    
    
    3,432
    
    
    
    11,089
    
    
    
    14,521
    
    
    
    1,433
    
    
    Dec. 1999Enterprise Center II
    
    
    5,971
    
    
    
    1,659
    
    
    
    5,272
    
    
    
    (6
    )
    
    
    950
    
    
    
    1,653
    
    
    
    6,222
    
    
    
    7,875
    
    
    
    561
    
    
    Jan. 20007100 Madison Avenue
    
    
    3,897
    
    
    
    1,268
    
    
    
    3,663
    
    
    
    (2
    )
    
    
    (26
    )
    
    
    1,266
    
    
    
    3,637
    
    
    
    4,903
    
    
    
    365
    
    
    Apr. 2000180 North LaSalle Street
    
    
    63,150
    
    
    
    15,245
    
    
    
    55,497
    
    
    
    (138
    )
    
    
    5,625
    
    
    
    15,107
    
    
    
    61,122
    
    
    
    76,229
    
    
    
    10,972
    
    
    Aug. 2000Other Corporate Assets
    
    
    138,778
    
    
    
    
    
    
    
    464
    
    
    
    
    
    
    
    70
    
    
    
    
    
    
    
    534
    
    
    
    534
    
    
    
    392Total
    
    $
    564,877
    
    
    $
    90,103
    
    
    $
    361,969
    
    
    $
    (442
    )
    
    $
    47,420
    
    
    $
    89,661
    
    
    $
    409,389
    
    
    $
    499,050
    
    
    $
    52,627
  F-51




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##### Table of Contents



PRIME GROUP REALTY TRUST
 SCHEDULE III  REAL ESTATE AND ACCUMULATED DEPRECIATION
 AS OF DECEMBER 31, 2007
 (1)
    
    See Note 4  Mortgage Notes Payable to these consolidated financial statements for a
description of our mortgage notes payable.(2)
    
    As a result of the Acquisition, we were required to revalue our balance sheet to reflect the
fair market value of each of our assets and liabilities in accordance with SFAS No. 141.(3)
    
    Depreciation is calculated on the straight-line method over the estimated useful lives of
assets, which are as follows: Buildings
    
    40 years weighted average composite lifeBuilding improvements
    
    10 to 30 yearsTenant improvements
    
    Term of related leasesFurniture and equipment
    
    310 years
 (4)
    
    This property collateralizes a mortgage note payable of $11.6 million.(5)
    
    A pledge of 100.0% of the ownership interest in the entity which owns this property is
collateral for two mortgage notes payable totaling $195.0 million with the same lender.   Year ended December 312007
    
    
    2006
    
    
    2005(dollars in thousands)As Restated
    
    
    As RestatedBalance, beginning of period
    
    $
    482,447
    
    
    $
    471,892
    
    
    $
    619,059Additions
    
    
    21,602
    
    
    
    14,010
    
    
    
    18,674Disposals
    
    
    (4,999
    )
    
    
    
    
    
    
    (2,130
    )Impact of applying push down
purchase accounting
    
    
    
    
    
    
    
    
    
    
    (163,711
    )Property held for sale
    
    
    
    
    
    
    (3,455
    )
    
    
    Balance, close of period
    
    $
    499,050
    
    
    $
    482,447
    
    
    $
    471,892
  Year ended December 312007
    
    
    2006
    
    
    2005As Restated
    
    
    As Restated(dollars in thousands)Balance at beginning of period
    
    $
    31,366
    
    
    $
    11,142
    
    
    $
    94,252Depreciation and amortization
    
    
    21,678
    
    
    
    20,419
    
    
    
    20,211Disposals
    
    
    (368
    )
    
    
    
    
    
    
    (493
    )Impact of applying push down
purchase accounting
    
    
    
    
    
    
    
    
    
    
    (102,828
    )Property held for sale
    
    
    (49
    )
    
    
    (195
    )
    
    
    Balance, close of period
    
    $
    52,627
    
    
    $
    31,366
    
    
    $
    11,142
  F-52




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##### Table of Contents



EXHIBIT 21.1
 PRIME GROUP REALTY TRUST
 SUBSIDIARIES OF THE REGISTRANT
 DECEMBER 31, 2007
  Entity
    
    Property77 Fitness Center, L.P. (4)
    
    Owner of Health Club at 77 West Wacker
Drive77 West Wacker Drive, L.L.C. (1), (2)
    
    77 West Wacker Drive77 West Wacker Limited Partnership (3), (4)
    
    Sole member of 330 N. Wabash Avenue
Mezzanine, L.L.C. and 99.5% owner of Brush
Hill Office Center, L.L.C.180 N. LaSalle Holdings, L.L.C. (1), (3)
    
    Sole member of 180 N. LaSalle II, L.L.C.180 N. LaSalle II, L.L.C. (1), (3)
    
    180 N. LaSalle280 Shuman Blvd., L.L.C. (1), (3)
    
    280 Shuman Blvd. (Atrium)330 N. Wabash Avenue, L.L.C. (1), (3)
    
    330 N. Wabash Avenue330 N. Wabash Mezzanine, L.L.C. (1), (3)
    
    Sole member of 330 N. Wabash Avenue, L.L.C.330 Redevelopment LLC (1)
    
    Performs certain work at 330 N. Wabash
Avenue800 Jorie Blvd., L.L.C. (1), (3)
    
    800-810 Jorie Blvd.800 Jorie Blvd. Mezzanine, L.L.C. (1), (3)
    
    Member owning 49.0% of 800 Jorie Blvd.,
L.L.C. (50.5% is owned by Prime Group
Realty, L.P.)1051 N. Kirk Road, L.L.C. (1), (3)
    
    1051 N. Kirk Road1600 167th Street, L.L.C. (1), (3)
    
    Former owner of 1600-1700 167th Street
(Narco River Business Center)2305 Enterprise Drive, L.L.C. (1), (3)
    
    2305 Enterprise Drive4343 Commerce Court, L.L.C. (1), (3)
    
    4343 Commerce Court (The Olympian Office Center)7100 Madison, L.L.C. (1)
    
    7100 Madison AvenueBrush Hill Office Center, L.L.C. (1), (3)
    
    Brush Hill Office CenterDearborn Center, L.L.C. (1), (5)
    
    Former owner of Citadel CenterLaSalle-Adams, L.L.C. (1), (3)
    
    Former owner of 208 South LaSalle StreetLibertyville Corporate Office Park, L.L.C. (1)
    
    Former owner of Vacant Land adjacent to 80
Pine Meadow Corporate Office ParkLibertyville Corporate Office Park II, L.L.C. (1)
    
    Former owner of Vacant Land adjacent to 80
Pine Meadow Corporate Office ParkPGR Finance II, Inc. (6)
    
    Member owning 1% of LaSalle-Adams, L.L.C.PGR Finance IV, Inc. (6)
    
    Member owning 0.1% of 1600
167th Street., L.L.C.PGR Finance VIII, Inc. (6)
    
    Limited Partner owning 0.5% of 77 West
Wacker Limited Partnership
  F-53




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##### Table of Contents



Entity
    
    PropertyPGR Finance XIV, Inc. (6)
    
    Member owning 0.1% in both 1051 N. Kirk
Road, L.L.C. and 4343 Commerce Court,
L.L.C.PGR Finance XV, L.L.C. (1), (3)
    
    Member owning 0.5% of Brush Hill Office
Center, L.L.C.PGR Finance XVII, Inc. (6)
    
    Member owning 0.5% of 800 Jorie Blvd.,
L.L.C.PGR Finance XXI, L.L.C. (1)
    
    Member owning 0.1% of 2305 Enterprise
Drive, L.L.C.PGR Finance XXII, Inc. (6)
    
    Member owning 1% of 180 N. LaSalle
Holdings, L.L.C.PGRLP 77 Manager LLC (1)
    
    Manager of 77 W. Wacker DrivePGRLP 131 Manager LLC (1)
    
    Manager of Citadel Center, 131 S. Dearborn
St.PGRS 1407 BWAY LLC (1)
    
    Asset and Development Manager of 1407
Broadway Avenue, New York, NYPGRT Equity LLC (1)
    
    Owner of (i) junior loans encumbering
Continental Towers, (ii) 50% common
interest in 77 West Wacker Drive, L.L.C.,
(iii) 280 Shuman Blvd., L.L.C., (iv) 800
Jorie Blvd. Mezzanine, L.L.C., and (v)
Prime Group Management, L.L.C.PGRT Equity II LLC (1)
    
    Member owning 99.0% of 180 N. LaSalle
Holdings, L.L.C.PGRT ESH, Inc. (6)
    
    Owner of interest in BHAC Capital IV, LLCPGT Construction Co. (6)
    
    Subsidiary of Services Company for
construction workPhoenix Office, L.L.C. (1)
    
    Owner of 23.1% interest in
Plumcor/Thistle, L.L.C., owner of a
building in Thistle Landing in Phoenix,
ArizonaPrime Group Management, L.L.C. (1), (3)
    
    Manager of Continental TowersPrime Group Realty Services, Inc. (7)
    
    The Services Company, owner of 100% of PGT
Construction Co., PRS Corporate Real
Estate Services, Inc., Prime Services
Holdings, Inc. and 99.9% of 77 Fitness
Center, L.P.Prime Rolling Meadows, L.L.C.(1)
    
    Property adjacent to Continental TowersPrime Services Holding, Inc. (6)
    
    0.1% owner of 77 Fitness Center, L.P.PRS Corporate Real Estate Services, Inc. (6)
    
    Brokerage subsidiary of Services Company
 (1)
    
    Delaware Limited liability Company(2)
    
    PGRT Equity LLC, a subsidiary of the Operating Partnership, owns a 50% common interest, PGRLP
77 Manager LLC, a subsidiary of the Operating Partnership, manages the property and a third
party owns the remaining 50% common interest.(3)
    
    We own both direct and indirect ownership interest in these entities through wholly owned
subsidiaries listed above.(4)
    
    Illinois Limited Partnership(5)
    
    PGRT Equity LLC, a subsidiary of the Operating Partnership owns a 30% subordinated common
interest, the Operating Partnership manages the property and a third party owns the remaining
70% common interest.(6)
    
    Delaware Corporation.(7)
    
    Maryland Corporation.  F-54




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##### Table of Contents



Contents
 Report of Independent Registered Pubic Accounting Firm
    
    
    F-56Consolidated Financial Statements:Consolidated Balance Sheet
    
    
    F-57Consolidated Statement of Operations
    
    
    F-58Consolidated Statement of Changes in Members Equity
    
    
    F-59Consolidated Statement of Cash Flows
    
    
    F-60Notes to Consolidated Financial Statements
    
    
    F-61Financial Statement ScheduleSchedule III  Real Estate and Accumulated Depreciation as of December 31, 2007
    
    
    F-83
  F-55




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F-56




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##### Table of Contents



BHAC Capital IV LLC
 
 Consolidated Balance Sheet
 December 31, 2007  (In Thousands)
 AssetsCurrent assets
Cash and cash equivalents
    
    $
    7,853Accounts receivable, net of allowance for doubtful accounts of $896
    
    
    19,315Restricted cash
    
    
    91,619Other current assets
    
    
    19,437Due from affiliates
    
    
    71,286Total current assets
    
    
    209,510Property and equipment, net of accumulated depreciation of $171,151
    
    
    5,683,185Land available for sale
    
    
    2,000Deferred financing costs, net of accumulated amortization of $16,625
    
    
    58,255Trademarks
    
    
    43,000Intangible assets, net of accumulated amortization of $3,746
    
    
    117,222Goodwill
    
    
    246,913Receivable from affiliated party (mortgage and mezzanine obligation)
    
    
    1,476,656Other assets
    
    
    2,239Total assets
    
    $
    7,838,980Liabilities and Members EquityCurrent liabilitiesAccounts payable and other accrued expenses
    
    $
    41,817Construction and retainage payables
    
    
    1,739Accrued real estate taxes
    
    
    16,887Accrued payroll and payroll related expenses
    
    
    29,776Accrued interest payable
    
    
    25,162Subordinated notes, net of discount of $347
    
    
    30,553Total current liabilities
    
    
    145,934Mortgage payable
    
    
    4,100,000Mezzanine loans
    
    
    3,295,456Subordinated notes, net of discount of $1,158
    
    
    6,991Capital lease obligation
    
    
    131Other liabilities
    
    
    485Total liabilities
    
    
    7,548,997Commitments and contingenciesMinority interest in HVM L.L.C.
    
    
    1,280Minority interest in Extended Stay Inc.
    
    
    117Total minority interests
    
    
    1,397Members equity
    
    
    288,586Total liabilities and members equity
    
    $
    7,838,980
 See accompanying notes.
  F-57




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##### Table of Contents



BHAC Capital IV LLC
 
 Consolidated Statement of Operations
 Period from Acquisition (June 11, 2007) to December 31, 2007  (In Thousands)
 Revenues:Room revenues
    
    $
    474,016Other property revenues
    
    
    7,008Management, administrative services, and G&A
reimbursement fee income  affiliated party
    
    
    10,666Reimbursement of payroll from managed properties  affiliated party
    
    
    23,674Total revenues
    
    
    515,364Operating expenses:Property operating expenses
    
    
    202,202Corporate operating expenses
    
    
    33,701Managed properties payroll and payroll related expense
    
    
    23,674Depreciation and amortization
    
    
    184,560Total operating expenses
    
    
    444,137Other income
    
    
    484Income from operations
    
    
    71,711Loss on interest rate caps
    
    
    (2,900
    )Interest income
    
    
    1,279Interest income from affiliate
    
    
    59,328Interest and debt expense
    
    
    (318,036
    )Loss from operations before minority interests
    
    
    (188,618
    )Minority interest in income of HVM L.L.C.
    
    
    (1,356
    )Net loss
    
    
    (189,974
    )Preferred distributions
    
    
    (19,257
    )Net loss allocated to common unit holders
    
    $
    (209,231
    )
 See accompanying notes.
  F-58




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##### Table of Contents



BHAC Capital IV LLC
 
 Consolidated Statement of Changes in Members Equity
 Period from Acquisition (June 11, 2007) to December 31, 2007  (In Thousands)
 Accumulated
    
    
    TotalMembers
    
    
    Deficit and
    
    
    MembersCapital
    
    
    Distributions
    
    
    EquityContribution of capital June 11, 2007
    
    $
    497,817
    
    
    $
    
    
    
    $
    497,817Preferred distributions
    
    
    
    
    
    
    (19,257
    )
    
    
    (19,257
    )Net loss
    
    
    
    
    
    
    (189,974
    )
    
    
    (189,974
    )BalanceDecember 31, 2007
    
    $
    497,817
    
    
    $
    (209,231
    )
    
    $
    288,586
 See accompanying notes.
  F-59




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##### Table of Contents



BHAC Capital IV LLC
 
 Consolidated Statement of Cash Flows
 Period from Acquisition (June 11, 2007) to December 31, 2007
 Operating activitiesNet loss
    
    $
    (189,974
    )Adjustments to reconcile net loss to net cash
provided by operating activities:Depreciation and amortization
    
    
    184,560Amortization of deferred financing costs
    
    
    16,625Accretion of discount on subordinated notes
    
    
    1,078Loss on interest rate caps
    
    
    2,900Minority interest in income of HVM L.L.C.
    
    
    1,356Change in assets and liabilities:Accounts receivable, net of change in allowance
    
    
    1,669Other current assets
    
    
    (9,202
    )Accrued real estate taxes
    
    
    (3,184
    )Accounts payable and other accrued expenses
    
    
    (86
    )Accrued payroll and related expenses
    
    
    (7,560
    )Accrued interest payable
    
    
    17,910Net cash provided by operating activities
    
    
    16,092Investing activitiesBusiness combination purchase acquisition, net of cash acquired
    
    
    (6,056,561
    )Building improvements and purchase of furniture, fixtures, and equipment
    
    
    (25,895
    )Increase in restricted cash
    
    
    (91,619
    )Other noncurrent assets
    
    
    133Net cash used in investing activities
    
    
    (6,173,942
    )Financing activitiesProceeds from mortgage payable
    
    
    3,284,030Proceeds from mezzanine loans
    
    
    2,644,149Purchase of interest rate caps
    
    
    (2,963
    )Deferred financing costs
    
    
    (74,880
    )Repayment of mezzanine loans
    
    
    (4,544
    )Issuance of series units
    
    
    339,252Minority interest distributions  Extended Stay Inc.
    
    
    (8
    )Minority interest distributions and redemptions  HVM L.L.C.
    
    
    (76
    )Distributions
    
    
    (19,257
    )Net cash provided by financing activities
    
    
    6,165,703Net increase in cash and cash equivalents
    
    
    7,853Cash and cash equivalents:Beginning of period
    
    
    End of period
    
    $
    7,853Supplemental cash flow informationCash payments for interest
    
    $
    233,094Income tax payments, net of refunds
    
    $
    103Supplemental noncash disclosuresIncrease in mortgage payable
    
    $
    815,970Increase in mezzanine payable
    
    $
    655,851Increase in accrued interest payable
    
    $
    4,835Increase in receivable from affiliated party
    
    $
    1,476,656Contribution of Series B equity interests
    
    $
    158,565
   F-60




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##### Table of Contents



BHAC Capital IV LLC
 
 Notes to Consolidated Financial Statements
 As of and for the Period Ended December 31, 2007
 1. Business and Organization
 General
  Organization
   Acquisition Business Combinations
  F-61




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##### Table of Contents



1. Business and Organization (continued)
  Cash
    
    $
    43,518Other assets
    
    
    51,013Due from affiliates
    
    
    55,882Property and equipment
    
    
    5,826,163Land available for sale
    
    
    2,000Trademarks
    
    
    43,000Intangible assets subject to amortization
    
    
    130,972Goodwill
    
    
    246,913Total allocated purchase price
    
    $
    6,399,461
   2. Summary of Significant Accounting Policies
 Basis of Presentation
    Use of Estimates
   F-62




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##### Table of Contents



2. Summary of Significant Accounting Policies (continued)
 Cash and Cash Equivalents
  Accounts Receivable and Allowance for Doubtful Accounts
  Restricted Cash
  Property and Equipment
   Buildings
    
    27  45 yearsBuilding improvements
    
    2  30 yearsSite improvements
    
    2  25 yearsFurniture, fixtures, and equipment
    
    2  10 yearsOffice equipment, computers, and computer software
    
    3  10 years
   F-63




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##### Table of Contents



2. Summary of Significant Accounting Policies (continued)
  Goodwill, Trademarks and Other Intangible Assets
 Goodwill and Other Intangible Assets
    Asset Impairments
 Accounting for the
Impairment or Disposal of Long-Lived Assets
 Deferred Financing Costs
   F-64




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##### Table of Contents



2. Summary of Significant Accounting Policies (continued)
 Supplies
  Revenue Recognition
  Advertising Costs
  Operating Leases
  Fair Value of Financial Instruments
   Derivative Instruments
 Accounting for Derivative Instruments and Hedging Activities
  F-65




---



##### Table of Contents



2. Summary of Significant Accounting Policies (continued)
 Insurance Reserves
  Variable Interest Entity
    Income Taxes
    F-66




---



##### Table of Contents



2. Summary of Significant Accounting Policies (continued)
 Recently Issued Accounting Standards
 Accounting for Uncertainty in
Income Taxesan interpretation of FASB Statement No. 109
 Accounting for Certain Hybrid Financial
Instruments Accounting for Derivative Instruments and Hedging
Activities Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities
 Fair Value Measurements
 The Fair Value Option for Financial Assets and
Financial Liabilities
 Business Combinations
  F-67




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##### Table of Contents



2. Summary of Significant Accounting Policies (continued)
 Accounting for Noncontrolling Interests
 3. Property and Equipment
  December 31,2007Hotel operating facilities:Land
    
    $
    989,918Site improvements
    
    
    244,793Building and improvements
    
    
    4,394,854Furniture, fixtures, and equipment
    
    
    210,437Total hotel operating facilities
    
    
    5,840,002Office:Site improvements
    
    
    18Building and improvements
    
    
    10,835Fixtures and equipment
    
    
    3,481Total office
    
    
    14,334Land available for sale
    
    
    2,000Less accumulated depreciation
    
    
    (171,151
    )Total property and equipment
    
    $
    5,685,185
  F-68




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##### Table of Contents



3. Property and Equipment (continued)
   Years Ending December 31:2008
    
    
    3682009
    
    
    3692010
    
    
    3892011
    
    
    3972012
    
    
    398Thereafter
    
    
    6,636Total
    
    $
    8,557
     F-69




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##### Table of Contents



4. Intangible Assets, Deferred Financing Costs and Goodwill
  December 31, 2007GrossCarrying
    
    
    AccumulatedUseful Life
    
    
    Amount
    
    
    Amortization
    
    
    Net ValueValuation of customer relationships
    
    18 yrs.
    
    $
    120,814
    
    
    $
    (3,729
    )
    
    $
    117,085Valuation of customer email database
    
    5 yrs.
    
    
    154
    
    
    
    (17
    )
    
    
    137Valuation of advance booking backlog
    
    1 yr.
    
    
    10,004
    
    
    
    (9,670
    )
    
    
    334Total amortizable intangibles
    
    
    
    
    
    
    130,972
    
    
    
    (13,416
    )
    
    
    117,556Deferred financing costs
    
    25 yrs.
    
    
    74,880
    
    
    
    (16,625
    )
    
    
    58,255Total amortizable intangibles and
deferred financing costs
    
    
    
    
    
    $
    205,852
    
    
    $
    (30,041
    )
    
    $
    175,811Intangible assets not subject to
amortization:Trademarks
    
    
    
    
    
    $
    43,000
    
    
    
    
    
    
    $
    43,000Goodwill
    
    
    
    
    
    $
    246,913
    
    
    
    
    
    
    $
    246,913
   Intangibles
    
    
    DeferredSubject to
    
    
    FinancingAmortization
    
    
    Costs
    
    
    TotalYears Ending December 31:2008
    
    $
    7,077
    
    
    $
    29,810
    
    
    $
    36,8872009
    
    
    6,743
    
    
    
    16,078
    
    
    
    22,8212010
    
    
    6,743
    
    
    
    5,059
    
    
    
    11,8022011
    
    
    6,743
    
    
    
    5,059
    
    
    
    11,8022012
    
    
    6,725
    
    
    
    2,249
    
    
    
    8,974Thereafter
    
    
    83,525
    
    
    
    
    
    
    
    83,525Total
    
    $
    117,556
    
    
    $
    58,255
    
    
    $
    175,811
  F-70




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##### Table of Contents



5. Debt
 June 2007 Mortgage Payable$4.1 billion
  th
      F-71




---



##### Table of Contents



5. Debt (continued)
      F-72




---



##### Table of Contents



5. Debt (continued)
  Debt service
    
    $
    17,529Taxes and insurance
    
    
    23,139Replacements reserve
    
    
    8,469Operating expenses and management fees
    
    
    7,608Ground leases
    
    
    117Required repairs
    
    
    2,427Total
    
    $
    59,289
  June 2007 Mezzanine Loans$3.3 Billion
      F-73




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##### Table of Contents



5. Debt (continued)
  Subordinated Notes due March 2008
    Subordinated Notes due June 2011
    F-74




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##### Table of Contents



5. Debt (continued)
   Advance From Affiliate
  Interest Rate Caps
   WeightedAllocated
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Avg.Debt
    
    Notional
    
    
    Strike
    
    
    Effective
    
    
    Maturity
    
    
    Fair
    
    
    Allocated
    
    
    InterestObligation
    
    Amount
    
    
    Price
    
    
    Dates
    
    
    Dates
    
    
    Value
    
    
    Gain/(Loss)
    
    
    RateMortgage loan
    
    $
    1,281,000
    
    
    
    6
    %
    
    
    6/11/2007
    
    
    
    6/15/2009
    
    
    
    21
    
    
    
    
    
    
    
    6.784
    %Mezzanine
    
    
    1,762,000
    
    
    
    6
    %
    
    
    6/11/2007
    
    
    
    6/15/2009
    
    
    
    28
    
    
    
    
    
    
    
    7.908
    %Mezzanine
    
    
    881,000
    
    
    
    6
    %
    
    
    6/8/2007
    
    
    
    6/15/2009
    
    
    
    14
    
    
    
    
    
    
    
    7.983
    %Totals
    
    $
    3,924,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    63
    
    
    $
    (2,900
    )
  F-75




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##### Table of Contents



5. Debt (continued)
 Interest Expense
  PrincipalOutstandingOriginal
    
    
    as of
    
    
    InterestPrincipal
    
    
    December 31,
    
    
    Expense forAmount
    
    
    2007
    
    
    the PeriodJune 2007 Financing:Mortgage payable
    
    $
    4,100,000
    
    
    $
    4,100,000
    
    
    $
    151,904Mezzanine loans
    
    
    3,300,000
    
    
    
    3,295,456
    
    
    
    162,828Subtotal  June 2007 financing
    
    
    7,400,000
    
    
    
    7,395,456
    
    
    
    314,732Subordinated Notes:2008 Notes
    
    
    30,900
    
    
    
    30,900
    
    
    
    1,5712011 Notes
    
    
    8,149
    
    
    
    8,149
    
    
    
    447Discount on 2008 and 2011 Notes
    
    
    (2,583
    )
    
    
    (1,505
    )
    
    
    1,078Letters of credit fees and bank fees
    
    
    
    
    
    
    
    
    
    
    208Total
    
    $
    7,436,466
    
    
    $
    7,433,000
    
    
    $
    318,036
  Debt
    
    
    Discount
    
    
    TotalPayments
    
    
    Accretion
    
    
    ObligationYears Ending December 31:2008
    
    $
    30,900
    
    
    $
    (624
    )
    
    $
    30,2762009
    
    
    4,895,456
    
    
    
    (321
    )
    
    
    4,895,1352010
    
    
    
    
    
    
    (371
    )
    
    
    (371
    )2011
    
    
    8,149
    
    
    
    (189
    )
    
    
    7,9602012
    
    
    2,500,000
    
    
    
    
    
    
    
    2,500,000Thereafter
    
    
    
    
    
    
    
    
    
    
    Total
    
    $
    7,434,505
    
    
    $
    (1,505
    )
    
    $
    7,433,000
 6. Income Taxes
   F-76




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##### Table of Contents



6. Income Taxes (continued)
    7. Equity
   F-77




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##### Table of Contents



7. Equity (continued)
        F-78




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##### Table of Contents



7. Equity (continued)
   Series Units:
    
    
    Common Units:A-1
    
    
    A-2
    
    
    A-3
    
    
    B
    
    
    A-1
    
    
    A-2
    
    
    A-3
    
    
    B
    
    
    JPreferential return
of 12% of
liquidation value
    
    $
    14,280
    
    
    $
    8,160
    
    
    $
    629
    
    
    $
    10,782
    
    
    
    N/A
    
    
    
    N/A
    
    
    
    N/A
    
    
    
    N/A
    
    
    
    N/ALess cash
distributions paid
    
    
    (13,090
    )
    
    
    (6,167
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Adjustment of
liquidation
preference for losses
    
    
    
    
    
    
    (56,008
    )
    
    
    (9,252
    )
    
    
    (158,566
    )
    
    
    N/A
    
    
    
    N/A
    
    
    
    N/A
    
    
    
    N/A
    
    
    
    N/ANet change
    
    
    1,190
    
    
    
    (54,015
    )
    
    
    (8,623
    )
    
    
    (147,784
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Capital accounts,
beginning of period
    
    
    210,000
    
    
    
    120,000
    
    
    
    9,252
    
    
    
    158,566
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Capital accounts,
end of period
    
    $
    211,190
    
    
    $
    65,985
    
    
    $
    629
    
    
    $
    10,782
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
 8. Related Party Transactions
 Hotel Management Agreements
    F-79




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8. Related Party Transactions (continued)
  Service Agreements
  G&A Expense Reimbursement Agreements
  Services to Affiliates
  9. Trademark Licenses
   F-80




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##### Table of Contents



9. Trademark Licenses (continued)
  10. Commitments and Contingencies
   11. Employee Benefit Plans
  12. Fair Value of Financial Instruments
  December 31, 2007Carrying
    
    
    EstimatedValue
    
    
    Fair ValueMortgage payable, mezzanine loans and subordinated notes
    
    $
    7,434,505
    
    
    $
    7,331,430
   F-81




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13. Subsequent Events
     F-82




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##### Table of Contents



EXHIBIT INDEX
 ExhibitNumber
    
    Description10.81
    
    Equity Purchase Agreement dated as of December 31, 2007, by and
between Jeffrey A. Patterson, and Prime Office Company LLC.31.1
    
    Rule 13a-14(a) Certification of Jeffrey A. Patterson, President
and Chief Executive Officer of Registrant.31.2
    
    Rule 13a-14(a) Certification of Paul G. Del Vecchio, Executive
Vice President Capital Markets of Registrant.32.1
    
    Certification Pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 of
Jeffrey A. Patterson, President and Chief Executive Officer of the
Board of Registrant.32.2
    
    Certification Pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 of Paul
G. Del Vecchio, Executive Vice President Capital Markets of
Registrant.