<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of report (Date of earliest event reported): October 15, 1999
KEYSTONE PROPERTY TRUST
(Exact Name of Registrant as Specified in its Charter)
- --------------------------------------------------------------------------------
Maryland 1-12514 84-1246585
(State or Other (Commission (IRS Employer
Jurisdiction of File Number) Identification No.)
Incorporation)
- --------------------------------------------------------------------------------
200 Four Falls Corporate Center, Suite 208
West Conshohocken, Pennsylvania 19428
(Address of Principal Executive Offices)(Zip Code)
- --------------------------------------------------------------------------------
Registrant's telephone number, including area code:
(484) 530-1800
- --------------------------------------------------------------------------------
Page 1
<PAGE>
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
On October 15, 1999, Keystone Property Trust (the "Company"), through
Keystone Operating Partnership, L.P. (the "Operating Partnership"), acquired
a bulk distribution warehouse facility known as the Lemoyne Property
("Lemoyne Property"). The Lemoyne Property, located at 221 South 10th Street
in Lemoyne, PA, aggregates 885,802 square feet and was purchased for
approximately $29.8 million, including closing costs. The purchase price was
partially funded through proceeds from the Company's revolving credit
facility and a $19,500,000 10 year term loan from the Prudential Insurance
Company of America. As of October 15, 1999, the Lemoyne Property was 100%
leased to 4 tenants. Cumberland Distribution, WESCO Distribution, and
International Paper each occupies more than 10% of the total leaseable square
feet of the Lemoyne Portfolio.
The following table set forth below shows certain information regarding rental
rates and lease expirations for the Lemoyne Property as of September 30, 1999
(assuming that no tenants exercise renewal or cancellation options and that
there are no tenant bankruptcies or other tenant defaults):
<TABLE>
<CAPTION>
Annualized Rent
Percentage of Per Leased Square
Year of Lease Number of Expiring Square Footage of Total Leased Annualized Rent of Foot of Expiring
Expiration Leases Expiring Leases Square Feet Expiring Leases (1) Leases
- ----------------------- ---------------------- ------------------- ------------------- -------------------- -------------------
<S> <C> <C> <C> <C> <C>
1999 -- -- -- $-- $--
2000 1 73,380 8.28% 256,830 3.50
2001 -- -- -- -- --
2002 4 812,422 91.72% 2,927,500 3.60
2003 -- -- -- -- --
2004 -- -- -- -- --
2006 -- -- -- -- --
2007 -- -- -- -- --
2008 -- -- -- -- --
2009 -- -- -- -- --
---------------------- ------------------- ------------------- -------------------- -------------------
Grand Total 5 885,802 100.00% $ 3,184,330 $ 3.59
---------------------- ------------------- ------------------- -------------------- -------------------
---------------------- ------------------- ------------------- -------------------- -------------------
</TABLE>
(1) Annualized Rent of Expiring Leases, as used above, represents the
monthly contractual rental rate in the month the lease expires,
multiplied by twelve.
The seller of the Lemoyne Property, Conwego Contractors, Inc., is a party
unaffiliated with the Company and the Operating Partnership. The Company
based its determination of the purchase price of this property on the
expected cash flow, physical condition, location, competitive advantages,
existing tenancies, and opportunities to retain and attract tenants. The
purchase price was determined through an arm's length negotiation between the
Company and the sellers.
Page 2
<PAGE>
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
(a) FINANCIAL STATEMENTS OF BUSINESSES ACQUIRED
The audited statements of revenue and certain operating
expenses of the Lemoyne Property for the year ended December
31, 1998 and for the six month period ended June 30, 1999
(unaudited) are included on pages F-23 to F-26.
(b) PRO FORMA FINANCIAL INFORMATION
Unaudited pro forma condensed consolidating financial
information which reflects the Company's acquisitions of the
Lemoyne Property as of and for the six month period ended June
30, 1999 and for the year ended December 31, 1998 are included
on pages F-1 to F-22.
Page 3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned, thereunto duly authorized.
KEYSTONE PROPERTY TRUST
Date: October 20, 1999 By /s/ Jeffrey E. Kelter
---------------------
Jeffrey E. Kelter
President and Chief Executive Officer
Date: October 20, 1999 By /s/ Timothy A. Peterson
-----------------------
Timothy A. Peterson
Executive Vice President, Chief Financial
Officer and Secretary
Date: October 20, 1999 By /s/ Timothy E. McKenna
----------------------
Timothy E. McKenna
Treasurer, Senior Vice President Finance
and Corporate Controller (Principal
Accounting Officer)
Page 4
<PAGE>
KEYSTONE PROPERTY TRUST
INDEX
<TABLE>
<CAPTION>
I. UNAUDITED PRO FORMA CONDENSED CONSOLIDATING
FINANCIAL INFORMATION
<S> <C>
- Pro Forma Condensed Consolidating Balance Sheet as of June 30, 1999.....................F-2
- Pro Forma Condensed Consolidating Statement of Operations for the
Six-month period ended June 30, 1999....................................................F-3
- Pro Forma Condensed Consolidating Statement of Operations for the
year ended December 31, 1998............................................................F-5
- Notes to Management's Assumptions to Unaudited Pro Forma Condensed
Consolidating Financial Information.....................................................F-7
II. LEMOYNE PROPERTY
- Report of Independent Public Accountants...............................................F-23
- Combined Statement of Revenue and Certain Expenses for the six month period
ended June 30, 1999 (unaudited) and year ended December 31, 1998.......................F-24
- Notes to Combined Statement of Revenue and Certain Expenses............................F-25
</TABLE>
Page 5
<PAGE>
KEYSTONE PROPERTY TRUST
UNAUDITED PRO FORMA CONDENSED FINANCIAL STATEMENTS
The following sets forth the unaudited pro forma condensed consolidating balance
sheet at June 30, 1999 and the unaudited pro forma condensed consolidating
statements of operations for American Real Estate Investment Corporation (the
"Company") for the six months ended June 30, 1999 and the year ended December
31, 1998.
The pro forma condensed consolidating financial information should be read in
conjunction with the historical financial statements of the Company and those
acquisitions deemed significant pursuant to the rules and regulations of the
Securities and Exchange Commission.
The unaudited pro forma consolidating financial information is presented as if
the following events occurred on June 30, 1999 for balance sheet purposes and on
January 1, 1998 for purposes of the statements of operations:
- - The Company acquired the properties described in Note 1 to these pro
forma financial statements.
- - The Quadrangles Village Apartments and Americana Lakewood Apartments
dispositions. On June 24, 1998, the Company sold Quadrangles Village
Apartments, a 510-unit apartment building located in Tempe, Arizona for
approximately $26,500,000. On January 9, 1998, the Company consummated
the sale of a 300-unit multi-family residential property known as
Americana Lakewood Apartments located in the metropolitan Denver area
for a gross sales price of $15,066,000.
- - The Company's private placement on July 9, 1998 of 1,092,051 shares of
Common Stock with certain institutional investors for approximately
$18,000,000 and the use of net proceeds of $17,440,000 to repay
indebtedness under the Company's credit facility.
- - The Company's private placement on August 19, 1998 of 720,743 shares of
its Common Stock for an aggregate purchase price of $11,400,000 were
issued to the New York State Common Retirement Fund as partial
repayment of certain indebtedness encumbering certain properties in the
Pioneer Portfolio.
- - The Company's private placement on December 24, 1998 of 800,000 shares
of its Series A Convertible Preferred Stock to AEW Targeted Securities
Fund, L.P. ("AEW") for net proceeds of approximately $19,500,000 was
used to repay outstanding indebtedness. The Convertible Preferred
Shares have a conversion price of $16.50, a distribution rate of 9% per
annum and are convertible at any time, at AEW's option. The liquidation
preference of each Convertible Preferred Share is $25.00. The Company
may redeem the Convertible Preferred Shares at any time on or after
December 15, 2003.
- - The Company's acquisition of an industrial property located in
Lemoyne, PA for approximately $29.8 million, including closing costs.
This purchase price was funded through proceeds from the Company's
revolving credit facility and a $19.5 million loan with an interest
rate of 7.66% for a 10 year term. This property is 100% leased to
International Paper, Cumberland Distribution, Outdoor Advertising
Systems, and Wesco. The property is located adjacent to Route 581,
the Capital Beltway, Interstate 83 and the Pennsylvania Turnpike.
The acquisition transactions described in Note 1 to these pro forma financial
statements were accounted for in the pro forma financial statements using the
purchase method of accounting.
F-1
<PAGE>
KEYSTONE PROPERTY TRUST
PRO FORMA CONDENSED CONSOLIDATING BALANCE SHEET--AS OF JUNE 30, 1999
(Unaudited--in thousands, except share and per share data)
<TABLE>
<CAPTION>
The
Company Property Pro Forma The Company
Historical Acquisitions (A) Adjustments Pro Forma
---------- ---------------- ----------- ---------
ASSETS
<S> <C> <C> <C> <C>
Investments in real estate, net $ 550,140 $ 266,075 $ $ 816,215
Investment in direct financing lease 1,584 1,584
Investment in management company 4,329 4,329
Cash and cash equivalents 1,791 (1,483) 308
Restricted cash 3,628 3,628
Accounts and other receivables 3,747 3,747
Other assets, net 10,982 10,982
---------- ----------- -------- ---------
Total assets $ 576,201 $ 264,592 $ --- $ 840,793
---------- ----------- -------- ---------
---------- ----------- -------- ---------
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Mortgage notes payable and other debt $ 361,297 $ 154,921 $ $ 516,218
Accrued expenses and other liabilities 12,386 2,000 14,386
Minority interest 88,185 191(B) 88,376
Convertible Preferred Units 7,500 47,121 54,621
Shareholders' equity:
Preferred Stock 1 2 3
Common stock 8 8
Warrants 685 685
Additional paid-in capital 104,272 60,548 (191) (B) 164,629
Cumulative net income 17,912 17,912
Cumulative dividends (16,045) (16,045)
----------- ----------- --------- ----------
Total shareholders' equity 106,833 60,550 (191) (B) 167,192
---------- ----------- -------------- ---------
Total liabilities and shareholders' equity $ 576,201 $ 264,592 --- $ 840,793
---------- ----------- -------------- ---------
---------- ----------- -------------- ---------
</TABLE>
F-2
<PAGE>
KEYSTONE PROPERTY TRUST
PRO FORMA CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE SIX MONTH PERIOD ENDED JUNE 30, 1999
(Unaudited--in thousands, except Share and Per Share Data)
<TABLE>
<CAPTION>
The 1999 The Company,
Company Historical Dispositions (a) as Adjusted
------------------ ---------------- -----------
<S> <C> <C> <C>
REVENUE:
Minimum rent $ 32,976 $ (276) $ 32,700
Tenant reimbursements and other
income 3,506 (51) 3,455
--------- --------- ----------
Total revenue 36,482 (327) 36,155
OPERATING EXPENSES:
Property operating expenses 7,581 (152) 7,429
General and administrative 1,611 --- 1,611
Interest 13,148 --- 13,148
Depreciation 6,879 --- 6,879
--------- ---------- ------------
Total operating expenses 29,219 (152) 29,067
INCOME (LOSS) BEFORE EQUITY IN
LOSSES FROM INVEST-
MENT IN MANAGEMENT COMPANY, GAINS
ON SALES OF ASSETS, DISTRIBUTIONS
TO PREFERRED UNITHOLDERS,
MINORITY INTEREST, AND INCOME
ALLOCATED PREFERRED SHARES 7,263 (175) 7,088
EQUITY IN LOSSES FROM INVESTMENT IN
MANAGEMENT COMPANY (490) -- (490)
GAINS ON SALE OF ASSETS 1,284 (1,284) ---
--------- --------- ----------
(Continued)
</TABLE>
<TABLE>
<CAPTION>
1999 Property Acquisitions
--------------------------------
Historical Pro Forma The Company
Operations (b) Adjustments Pro Forma
-------------- ----------- ---------
<S> <C> <C> <C>
REVENUE:
Minimum rent $ 13,037 $ --- $ 45,737
Tenant reimbursements and other
income 1,975 --- 5,430
----------- -------- -----------
Total revenue 15,012 51,167
OPERATING EXPENSES:
Property operating expenses 2,993 (110)(c) 10,312
General and administrative --- 41(d) 1,652
Interest --- 5,730(c) 18,878
Depreciation --- 3,203(c) 10,082
----------- -------- -----------
Total operating expenses 2,993 8,864 40,924
INCOME (LOSS) BEFORE EQUITY IN
LOSSES FROM INVEST-
MENT IN MANAGEMENT COMPANY, GAINS
ON SALES OF ASSETS, DISTRIBUTIONS
TO PREFERRED UNITHOLDERS,
MINORITY INTEREST, AND INCOME
ALLOCATED PREFERRED SHARES 12,019 (8,864) 10,243
EQUITY IN LOSSES FROM INVESTMENT IN
MANAGEMENT COMPANY --- --- (490)
GAINS ON SALE OF ASSETS --- --- ---
----------- -------- -----------
</TABLE>
F-3
<PAGE>
KEYSTONE PROPERTY TRUST
PRO FORMA CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE SIX MONTH PERIOD ENDED JUNE 30, 1999
(CONTINUED)
(Unaudited--in thousands, except Share and Per Share Data)
<TABLE>
<CAPTION>
The 1999 The Company,
Company Historical Dispositions (a) as Adjusted
------------------ ---------------- -----------
<S> <C> <C> <C>
INCOME (LOSS) BEFORE DISTRIBUTIONS
TO PREFERRED UNITHOLDERS,
MINORITY INTEREST AND INCOME
ALLOCATED TO PREFERRED SHARES 8,057 (1,459) 6,598
DISTRIBUTIONS TO PREFERRED
UNITHOLDERS (337) --- (337)
---------- --------- -----------
INCOME (LOSS) BEFORE MINORITY
INTEREST AND INCOME ALLOCATED TO
PREFERRED SHARES 7,720 (1,459) 6,261
MINORITY INTEREST (3,200) --- (3,200)
---------- --------- -----------
NET INCOME (LOSS) 4,520 (1,459) 3,061
INCOME ALLOCATED TO PREFERRED SHARES (900) --- (900)
---------- --------- -----------
INCOME ALLOCATED TO COMMON SHARES $ 3,620 $ (1,459) $ 2,161
---------- --------- -----------
---------- --------- -----------
BASIC EARNINGS PER COMMON SHARE $ .49
----------
----------
DILUTED EARNINGS PER COMMON SHARES $ .47
----------
----------
WEIGHTED AVERAGE SHARES
OUTSTANDING-BASIC 7,432,909
----------
----------
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING - DILUTED 14,588,622
----------
----------
</TABLE>
<TABLE>
<CAPTION>
1999 Property Acquisitions
--------------------------------
Historical ProForma The Company
Operations (b) Adjustments Pro Forma
-------------- ----------- ---------
<S> <C> <C> <C>
INCOME (LOSS) BEFORE DISTRIBUTIONS
TO PREFERRED UNITHOLDERS,
MINORITY INTEREST AND INCOME
ALLOCATED TO PREFERRED SHARES 12,019 (8,864) 9,753
DISTRIBUTIONS TO PREFERRED
UNITHOLDERS --- (2,242)(e) (2,579)
------- --------- ------------
INCOME (LOSS) BEFORE MINORITY
INTEREST AND INCOME ALLOCATED TO
PREFERRED SHARES 12,019 (11,106) 7,174
MINORITY INTEREST --- 1,656(f) (1,544)
------- -------- ------------
NET INCOME (LOSS) 12,019 (9,450) 5,630
INCOME ALLOCATED TO PREFERRED SHARES --- (2,925)(g) (3,825)
------- --------- ------------
INCOME ALLOCATED TO COMMON SHARES $12,019 $(12,375) $ 1,805
------- --------- ------------
------- --------- ------------
BASIC EARNINGS PER COMMON SHARE $ .24
------------
------------
DILUTED EARNINGS PER COMMON SHARES $ .23
------------
------------
WEIGHTED AVERAGE SHARES
OUTSTANDING-BASIC 7,536,787
------------
------------
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING - DILUTED 14,722,244
------------
------------
</TABLE>
The accompanying notes and management's assumptions are an integral
part of this statement.
F-4
<PAGE>
KEYSTONE PROPERTY TRUST
PRO FORMA CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR YEAR ENDED DECEMBER 31, 1998
(Unaudited -in thousands, except Share and Per Share Data)
<TABLE>
<CAPTION>
1998 Events
--------------------------------
The Company Historical Pro Forma
Historical Operations (a) Adjustments Subtotal
---------- -------------- ----------- --------
<S> <C> <C> <C> <C>
REVENUE:
Minimum rent $ 36,332 $ 26,477 $ 1,688(b) $ 64,497
Tenant reimbursements and other
income 4,696 2,441 --- 7,137
----------- ------------ ---------- ----------
Total revenue 41,028 28,918 1,688 71,634
OPERATING EXPENSES:
Property operating expenses 8,814 6,112 22(b) 14,948
General and administrative 869 --- 869
Interest 14,539 --- 11,549 (b) 26,088
Depreciation and amortization 6,911 --- 5,654 (b) 12,565
----------- ------------ ------------- ----------
Total operating expenses 31,133 6,112 17,225 54,470
INCOME (LOSS) BEFORE EQUITY IN
LOSSES FROM INVEST-
MENT IN MANAGEMENT COMPANY, GAINS
ON SALES OF ASSETS, DISTRIBUTIONS
TO PREFERRED UNITHOLDERS, MINORITY
INTEREST, AND INCOME ALLOCATED
PREFERRED SHARES 9,895 22,806 (15,537) 17,164
EQUITY IN INCOME LOSSES FROM
INVESTMENT IN MANAGEMENT
COMPANY (1,167) --- --- (1,167)
GAINS ON SALES OF ASSETS 11,952 (11,952) ---
----------- ------------ ---------- ----------
INCOME (LOSS) BEFORE
DISTRIBUTIONS TO PREFERRED
UNITHOLDERS AND MINORITY
INTEREST 20,680 10,854 (15,537) 15,997
DISTRIBUTIONS TO PREFERRED
UNITHOLDERS (15) --- (660) (c) (675)
</TABLE>
<TABLE>
<CAPTION>
1999 Events
--------------------------------
Historical Pro Forma The Company Pro
---------------
Operations (e) Adjustments Forma
-------------- ----------- ---------
<S> <C> <C> <C>
REVENUE:
Minimum rent $ 21,332 479 (f) $ 86,308
Tenant reimbursements and other
income 3,406 632 (f) 11,175
----------- -------- -----------
Total revenue 24,738 1,111 97,483
OPERATING EXPENSES:
Property operating expenses 5,101 (208) (f) 19,841
General and administrative --- 165 (g) 1,034
Interest --- 7,729 (f) 33,817
Depreciation and amortization (194) 6,630 (f) 19,001
----------- -------- -----------
Total operating expenses 4,907 14,316 73,693
INCOME (LOSS) BEFORE EQUITY IN
LOSSES FROM INVEST-
MENT IN MANAGEMENT COMPANY, GAINS
ON SALES OF ASSETS, DISTRIBUTIONS
TO PREFERRED UNITHOLDERS, MINORITY
INTEREST, AND INCOME ALLOCATED
PREFERRED SHARES 19,831 (13,205) 23,790
EQUITY IN INCOME LOSSES FROM
INVESTMENT IN MANAGEMENT
COMPANY --- (1,842) (3,009)
GAINS ON SALES OF ASSETS --- --- ---
----------- -------- -----------
INCOME (LOSS) BEFORE
DISTRIBUTIONS TO PREFERRED
UNITHOLDERS AND MINORITY
INTEREST 19,831 (15,047) 29,781
DISTRIBUTIONS TO PREFERRED
UNITHOLDERS --- (4,483)(h) (5,158)
</TABLE>
F-5
<PAGE>
KEYSTONE PROPERTY TRUST
PRO FORMA CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR YEAR ENDED DECEMBER 31, 1998
(Continued)
(Unaudited -in thousands, except Share and Per Share Data)
<TABLE>
<CAPTION>
1998 Events
--------------------------------
The Company Historical Pro Forma
Historical Operations (a) Adjustments Subtotal
---------- -------------- ----------- --------
<S> <C> <C> <C> <C>
INCOME (LOSS) BEFORE MINORITY INTEREST
AND INCOME ALLOCATED TO PREFERRED
SHARES $ 20,665 $ 10,854 $ (16,197) $ 15,322
MINORITY INTEREST (9,452) --- --- (9,452)
----------- ------------ ---------- ----------
NET INCOME (LOSS) 11,213 10,854 (16,197) 5,870
INCOME LOSS ALLOCATED TO
PREFERRED SHARES (40) --- (1,760)(d) (1,800)
----------- ------------ ---------- ----------
INCOME ALLOCATED TO
COMMON SHARES $ 11,173 $ 10,854 $ (17,957) $ 4,070
----------- ------------ ---------- ----------
----------- ------------ ---------- ----------
BASIC EARNINGS PER COMMON
SHARE $ 1.51
-----------
-----------
DILUTED EARNINGS PER COMMON
SHARE $ 1.41
-----------
-----------
WEIGHTED AVERAGE SHARES
OUTSTANDING - BASIC 7,391,765
-----------
-----------
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING -
DILUTED 14,667,523
-----------
-----------
<CAPTION>
1999 Events
--------------------------------
Historical Pro Forma The Company Pro
---------------
Operations (e) Adjustments Forma
-------------- ----------- ---------
<S> <C> <C> <C>
INCOME (LOSS) BEFORE MINORITY INTEREST
AND INCOME ALLOCATED TO PREFERRED
SHARES $ 19,831 $(19,530) $ 15,623
MINORITY INTEREST --- 5,776 (i) (3,676)
----------- -------- -----------
NET INCOME (LOSS) 19,831 (13,754) 11,947
INCOME LOSS ALLOCATED TO
PREFERRED SHARES --- (5,850)(j) (7,650)
----------- --------- -----------
INCOME ALLOCATED TO
COMMON SHARES $ 19,831 $(19,604) $ 4,297
----------- --------- -----------
----------- --------- -----------
BASIC EARNINGS PER COMMON
SHARE $ .57
-----------
-----------
DILUTED EARNINGS PER COMMON
SHARE $ .54
-----------
-----------
WEIGHTED AVERAGE SHARES
OUTSTANDING - BASIC 7,495,643
-----------
-----------
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING -
DILUTED 14,761,339
-----------
-----------
</TABLE>
F-6
<PAGE>
KEYSTONE PROPERTY TRUST
NOTES AND MANAGEMENT'S ASSUMPTIONS TO UNAUDITED PRO FORMA
CONDENSED CONSOLIDATING FINANCIAL INFORMATION
1. BASIS OF PRESENTATION
Keystone Property Trust (the "Company") is a self-administered and
self-managed equity real estate investment trust that is organized in
the state of Maryland. As of October 18, 1999, the Company owned 96
industrial and 34 office properties aggregating 15.7 million and 2.4
million square feet, respectively and an investment in a direct
financing lease. The Company is the sole general partner of the
Keystone Operating Partnership, L.P. (the "Operating Partnership") and
as of June 30, 1999 owned approximately 53% of the Operating
Partnership.
These pro forma financial statements should be read in conjunction with
the historical financial statements and notes thereto of the Company,
101 Commerce Drive, the GATX Properties, the Double M Development
Properties, the Galesi Properties, the Fed One Industrial Portfolio,
the ASW Property, the Szeles Portfolio, the Pioneer Portfolio, the
Chambersburg Properties, the Browning Investments Portfolio, the
Brashier Portfolio, the Reckson Morris Industrial Portfolio, the BMG
Property, the Polyfoam Properties and the Lemoyne Property. In
management's opinion, all adjustments necessary to reflect the
acquisitions of the 101 Commerce Drive, the GATX Properties, the Double
M Development Properties, the Galesi Properties, the Fed One Industrial
Portfolio, the ASW Property, the Szeles Portfolio, the Pioneer
Portfolio, the Chambersburg Properties, the Browning Investments
Portfolio, the Brashier Portfolio, the Reckson Morris Industrial
Portfolio, BMG Property, the Polyfoam Properties, the Lemoyne Property,
the October 1998 debt refinancing, and the private placements
consummated in 1998 and 1999 by the Company have been made. The
operating results reflected herein include the historical results
and related pro forma adjustments to reflect the period January 1,
1998, through the earlier of the respective acquisition date or
June 30, 1999 or December 31, 1998. Operating results from those
dates forward are included in the historical results of the Company.
2. ADJUSTMENTS TO PRO FORMA CONSOLIDATING BALANCE SHEET AT JUNE 30, 1999
(A) Reflects the Company's recent property acquisitions as follows (in 000's):
<TABLE>
<CAPTION>
Cost Consideration
---------- ------------------------------------------------------------------------------------
Total Accrued Convertible Additional
Purchase Mortgage and other Preferred Preferred Common Paid in
Acquisition Price Debt Liabilities Units Stock Stock Capital Cash
- ----------- ----- ---- ----------- ----- ----- ----- ------- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
One Park Place $ 22,661 $ 11,193 $ --- $ 11,268 $ --- $ --- $ --- $ (200)
Polyfoam Properties
Stage II 8,500 --- --- --- --- --- --- (8,500)
Reckson Morris
Industrial Portfolio
Stage I 205,099 114,428 2,000(ii) 35,853 2 60,548(i) 7,732
Lemoyne Property 29,815 29,300 --- --- --- --- --- (515)
--------- --------- --------- --------- ---------- --------- ---------- ---------
$ 266,075 $ 154,921 $ 2,000 $ 47,121 $ 2 $ --- $ 60,548 $ (1,483)
--------- --------- --------- --------- ---------- --------- ---------- ---------
--------- --------- --------- --------- ---------- --------- ---------- ---------
</TABLE>
- ------------------------------
(i) Net of costs of equity issuance of $950,000.
(ii) Consists of the Company's estimate of required capital improvements to
these buildings as of acquisition date and other costs associated with the
transaction.
F-7
<PAGE>
KEYSTONE PROPERTY TRUST
NOTES AND MANAGEMENT'S ASSUMPTIONS TO UNAUDITED PRO FORMA
CONDENSED CONSOLIDATING FINANCIAL INFORMATION
(B) Adjustment to reflect the Company's 53.9% ownership of the Operating
Partnership after the consummation of the 1999 acquisitions and various
private placements.
3. ADJUSTMENTS TO PROFORMA CONDENSED CONSOLIDATING STATEMENTS OF
OPERATIONS FOR THE SIX MONTH PERIOD ENDED JUNE 30, 1999
(a) 1999 DISPOSITIONS
On March 26, 1999, the Company sold the Urban Farms Shopping Center in
Franklin Lakes, New Jersey. This 90,000 square foot retail facility was
sold for approximately $10,000,000, and generated a gain of $1,284,000.
Proforma adjustments reflect the disposition of this asset and the
related gain on sale.
F-8
<PAGE>
KEYSTONE PROPERTY TRUST
NOTES AND MANAGEMENT'S ASSUMPTIONS TO UNAUDITED PRO FORMA
CONDENSED CONSOLIDATING FINANCIAL INFORMATION
(b) 1999 EVENTS - HISTORICAL OPERATIONS:
Reflects the historical operations of the BMG Property, Polyfoam
Properties-Stages I and II, 10th Street-Office Works Building, One Park
Place, the Reckson Morris Industrial Portfolio and the Lemoyne Property
through the earlier of the respective acquisition dates, or June 30,
1999. Operating results from those dates forward are included in the
historical results of the Company.
<TABLE>
<CAPTION>
(In 000's)
-----------------------------------------------------------------------------
REVENUE OPERATING EXPENSES
------------------------------------------- ------------------------------
Tenant
Reimbursements Property
Minimum and Operating And
ACQUISITION Rent Other Income Total Other Expenses Subtotal
---- ------------ ----- -------------- --------
<S> <C> <C> <C> <C> <C>
BMG Property $ 103 $ 3 $ 106 $ 4 $ 102
Polyfoam Properties-Stage I 500 2 502 160 342
and II
10th Street-Office Works 104 -- 104 4 100
Building
One Park Place 2,076 372 2,448 894 1,554
Reckson Morris Industrial 8,860 1,402 10,262 1,726 8,536
Portfolio
Lemoyne Property 1,394 196 1,590 205 1,385
----------- ------------ ------------ ----------- ------------
TOTAL $ 13,037 $ 1,975 $ 15,012 $ 2,993 $ 12,019
----------- ------------ ------------ ----------- ------------
----------- ------------ ------------ ----------- ------------
</TABLE>
F-9
<PAGE>
KEYSTONE PROPERTY TRUST
NOTES TO MANAGEMENT'S ASSUMPTIONS TO UNAUDITED
PRO FORMA CONDENSED CONSOLIDATING INCOME STATEMENT
(c) 1999 PROFORMA ADJUSTMENTS:
Reflects the Company's pro forma adjustments relative to the acquisitions of the
BMG Property, Polyfoam Properties-Stage I and II, 10th Street-Office Works
Building, One Park Place, the Reckson Morris Industrial Portfolio and the
Lemoyne Property for the six months ended June 30, 1999.
<TABLE>
<CAPTION>
-----------------------------------------------
REVENUE
-----------------------------------------------
Tenant
Reimbursements
and
ACQUISITION Minimum Rent Other Income Total
------------ ------------ -----
<S> <C> <C> <C>
BMG Property $-- $-- $--
Polyfoam Properties-Stage I and II -- -- --
10th Street- Office Works Building -- -- --
One Park Place -- -- --
Reckson Morris Industrial Portfolio -- -- --
Lemoyne Property -- -- --
Urban Farms (iv) -- -- --
------------- ------------- -------------
$ -- $ -- $ --
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
<TABLE>
<CAPTION>
(In 000's)
--------------------------------------------------------------
OPERATING EXPENSES
-----------------------------------------------
Property
Operating And Depreciation and
ACQUISITION Other Expenses Interest Expense(i) Amortization (ii) Total
-------------- ---------------- ------------ -----
<S> <C> <C> <C> <C>
BMG Property $-- $ 90 $ 56 $ 146
Polyfoam Properties-Stage I and II -- 217 176 393
10th Street- Office Works Building -- 77 37 114
One Park Place -- 453 249 702
Reckson Morris Industrial Portfolio (110)(iii) 3,907 2,344 6,141
Lemoyne Property -- 1,070 341 1,411
Urban Farms (iv) -- (84) --- (84)
------------- -------- ---------- ----------
$ (110) $ 5,730 $ 3,203 $ 8,823
------------- -------- ---------- ----------
------------- -------- ---------- ----------
</TABLE>
Footnote explanations appear on the following page.
F-10
<PAGE>
KEYSTONE PROPERTY TRUST
NOTES TO MANAGEMENT'S ASSUMPTIONS TO UNAUDITED
PRO FORMA CONDENSED CONSOLIDATING INCOME STATEMENT
Footnotes to 1999 Pro Forma Adjustments:
(i) Proforma interest expense is presented assuming an effective
rate of 6.56% on borrowings under the Company's $150 million
revolving credit facility (the "Credit Facility"), and interest
rates on assumed mortgage debt from the BMG Property, 10th
Street-Office Works Building, One Park Place, Reckson Morris
Industrial Portfolio, and the Lemoyne Property acquisitions
ranging from 6.88% to 8.75%. Interest expense is shown net of
interest of $360,000 capitalized on land under development for
land acquired in the Reckson Morris Industrial Portfolio
transaction.
(ii) Proforma depreciation expense is presented assuming a useful life
of 35 years.
(iii) Adjustment to property operating expenses are recorded to
reflect a reduction in management fees to the actual management fee
levels to be changed as a result of the Company's acquisition.
(iv) Proforma interest savings from the sale of Urban Farm Shopping
Center on March 26, 1999. Approximately $5.5 million of proceeds
were utilized to repay Credit Facility borrowings which this
property had secured.
F-11
<PAGE>
KEYSTONE PROPERTY TRUST
NOTES TO MANAGEMENT'S ASSUMPTIONS TO UNAUDITED
PRO FORMA CONDENSED CONSOLIDATING INCOME STATEMENT
(d) To reflect additional general and administrative
expense associated with the Company's on-going
management of the acquired properties.
(e) To reflect the preferred distributions on 1,434,136 Series C
Preferred Units issued as partial consideration in the
acquisition of the Reckson Morris Industrial Portfolio. These
preferred units have an aggregate liquidation value of
approximately $35.9 million and are entitled to a 9.75%
preferred return. Also reflected is the preferred
distribution for 450,700 Series D Convertible Preferred Units
issued as partial consideration in the acquisition of One
Park Place. These preferred units have an aggregate
liquidation value of approximately $11.3 million and are
entitled to a 9.0% preferred return.
(f) To adjust the minority interest's share of income in
the Operating Partnership. The Company owns
approximately 53.9% of the Operating Partnership
after the consummation of Stage I of the Reckson
Morris Industrial Portfolio transaction. The
adjustment to record the income effect of the
minority interest share for the six months ended June
30, 1999 in the pro forma statement of operations was
computed as follows (IN 000's):
<TABLE>
<S> <C>
Proforma Revenue $ 51,167
Proforma Operating Expenses (40,924)
Proforma Preferred Dividends and Distributions (6,404)
Proforma Equity in Loss from Equity Investment (490)
-----------------------
Proforma Income before Minority Interest $ 3,349
-----------------------
-----------------------
Minority Interest (46.1%) $ 1,544
Minority Interest at June 30, 1999 3,200
----------------------
Adjustment Required $ 1,656
-----------------------
-----------------------
</TABLE>
F-12
<PAGE>
KEYSTONE PROPERTY TRUST
NOTES TO MANAGEMENT'S ASSUMPTIONS TO UNAUDITED
PRO FORMA CONDENSED CONSOLIDATING INCOME STATEMENT
(g) To reflect the income allocated to:
- the 1,600,000 shares of Series B Preferred Stock
issued as partial consideration in the acquisition
of the Reckson Morris Industrial Portfolio. These
Convertible Preferred shares have a liquidation
value of $40,000,000, and are entitled to a
preferred dividend at a rate equal to 9.75%.
- the 800,000 shares of Series C Preferred Stock
issued to the Investors. These Convertible Preferred
shares have a liquidation value of $20,000,000 and
entitled to a preferred dividend equal to 9.75%.
F-13
<PAGE>
KEYSTONE PROPERTY TRUST
NOTES AND MANAGEMENT'S ASSUMPTIONS TO UNAUDITED PRO FORMA
CONDENSED CONSOLIDATING FINANCIAL INFORMATION
4. ADJUSTMENTS TO PROFORMA CONDENSED CONSOLIDATING STATEMENTS OF
OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1998
(a) 1998 EVENTS-HISTORICAL OPERATIONS:
Reflects historical statements of operations of 101 Commerce
Drive, One Phillips Drive, Americana Lakewood Apartments, GATX
Properties, Double M Development Properties, The Galesi
Properties, Fed One Properties, 6 British American Boulevard,
Marway Circle, Szeles Portfolio, Pioneer Portfolio,
Chambersburg Properties, Browning Investments Portfolio, and
the Brashier Portfolio. The historical statements reflected
below include the operating results for the period January 1,
1998 through the earlier of the respective acquisition dates
or December 31, 1998. Operating results from those dates
forward are included in the historical results of the Company.
<TABLE>
<CAPTION>
(In 000's)
---------------------------------------------------------------------------------------
OPERATING
REVENUE EXPENSES
----------------------------------------------- ------------------
Tenant
Reimbursements Property
and Operating And Gains on Sales
ACQUISITION/DISPOSITION Minimum Rent Other Income Total Other Expenses of Properties
------------ ------------ ----- -------------- -------------
<S> <C> <C> <C> <C>
101 Commerce Drive $ 61 $ -- $ 61 $ $
One Phillips Drive 26 3 29 3
Americana Lakewood Apartments - Sale (44) (45) (89) (53) 6,852
GATX Properties 423 423
Double M Development Properties 350 78 428 109
The Galesi Properties 1,880 565 2,445 651
Quadrangles Village Apartments - Sale (1,636) (107) (1,743) (636) 5,100
Fed One Properties 852 8 860 42
6 British American Boulevard 209 91 300 90
Marway Circle 268 268 20
Szeles Portfolio 3,674 44 3,718 1,157
ASW Facility 477 5 482 43
Pioneer Portfolio 7,630 932 8,562 2,647
Chambersburg Properties 3,438 151 3,589 880
Browning Portfolio 3,161 545 3,706 532
Brashier Portfolio 5,708 171 5,879 627
---------- ----------- ---------- ------------ ------------
$ 26,477 $ 2,441 $ 28,918 $ 6,112 $ 11,952
---------- ----------- ---------- ------------ ------------
---------- ----------- ---------- ------------ ------------
</TABLE>
F-14
<PAGE>
KEYSTONE PROPERTY TRUST
NOTES AND MANAGEMENT'S ASSUMPTIONS TO UNAUDITED PRO FORMA
CONDENSED CONSOLIDATING FINANCIAL INFORMATION
(b) PRO FORMA ADJUSTMENTS FOR 1998 EVENTS
Reflect the Company's pro forma adjustments relative to the acquisitions of 101
Commerce Drive, One Phillips Drive,GATX Properties, Double M Development
Properties, The Galesi Properties, , Fed One Properties, 6 British American
Boulevard, Marway Circle, the ASW Facility, Szeles Portfolio, Pioneer
Properties, Chambersburg Properties, Browning Investments Portfolio and the
Brashier Portfolio and the disposition of Americana Lakewood Apartments and
Quadrangles Village Apartments during the year ended December 31, 1998 and
including pro forma adjustments to reflect the July 9, 1998 Private Placement,
the August 19, 1998 Private Placement, the October 1998 debt re-financing of a
portion of the Credit Facility with term debt provided by Column Financial, Inc.
,the AEW Preferred Stock Private Placement, and the Brashier Preferred Unit
transaction for the year ended December 31, 1998. The pro forma adjustments
below reflect the period January 1, 1998 through the earlier of the respective
acquisition dates or December 31, 1998. Operating results from those dates
forward are included in the historical results of the Company.
<TABLE>
<CAPTION>
(In 000's)
------------------------------------------------------------------------
REVENUE OPERATING EXPENSES
------------- -------------------------------------------------------
Property
ACQUISITION/DISPOSITION/ Operating And Depreciation and
OFFERING Minimum Rent Other Expenses Interest Expense (i) Amortization (ii)
------------ -------------- -------------------- ----------------
<S> <C> <C> <C> <C>
101 Commerce Drive $ $ $ 26 $ 13
One Phillips Drive 12 6
Americana Lakewood Apartments - Sale (23)
GATX Properties 155 71
Double M Development Properties 159 79
The Galesi Properties 1,018 450
Quadrangles Village Apartments - Sale (531)
Fed One Properties 435 134
6 British American Boulevard 137 42
Marway Circle 140 45
Szeles Portfolio 1,311 559
ASW Facility 327 105
Pioneer Portfolio 3,333 1,346
Chambersburg Properties (iii) 1,688 22 3,002 932
Browning Portfolio 1,461 735
July 9, 1999 Private Placement (iv) (663)
August 19, 1998 - Private Placement (630)
(iv)
Brashier Portfolio 1,846 1,137
Column Financial, Inc. Term Debt
Financing (v) 498
Amortization of Debt Premiums (v) (464)
---------- ----------- ----------- -----------
$ 1,688 $ 22 $ 11,549 $ 5,654
---------- ----------- ----------- -----------
---------- ----------- ----------- -----------
</TABLE>
(Footnote explanations appear on next page.)
F-15
<PAGE>
KEYSTONE PROPERTY TRUST
NOTES TO MANAGEMENT'S ASSUMPTIONS TO UNAUDITED
PRO FORMA CONDENSED CONSOLIDATING INCOME STATEMENT
Footnotes:
(i) Pro forma interest expense is presented assuming an effective rate of
7.39% on borrowings under the Company's Credit Facility. The adjustment
also includes interest expense associated with assumed indebtedness
which ranged from 7.03% to 9.75%.
(ii) Pro forma depreciation expense is presented assuming an approximate
useful life of 35 years.
(iii) To reflect rental income and other expenses associated with a lease
executed by the seller with the Company in conjunction with the
Company's acquisition of this property.
(iv) Assumes the proceeds from these offerings were utilized to repay the
Company's Credit Facility.
(v) To reflect additional interest expense related to the October 1998 term
debt refinancing, amortization of deferred finance costs related to the
refinancing over a 10 year term and amortization of debt premiums on
assumed indebtness over the respective debt term.
F-16
<PAGE>
KEYSTONE PROPERTY TRUST
NOTES AND MANAGEMENT'S ASSUMPTIONS TO UNAUDITED PRO FORMA
CONDENSED CONSOLIDATING FINANCIAL INFORMATION
(c) Reflects preferred distributions related to the 454,545 Series B
Convertible Preferred Units issued as partial consideration in the
acquisition of the Brashier Portfolio. The Series A Convertible Units
have an aggregate stated value of $7,500,000, and are entitled to a 9%
preferred return.
(d) Reflects income allocated to the 800,000 Series A Convertible Preferred
Shares issued to AEW in December 1998. The Series A Preferred Shares
have an aggregate liquidation value of $20,000,000 and are entitled to
preferred dividends at a rate equal to 9%.
F-17
<PAGE>
KEYSTONE PROPERTY TRUST
NOTES AND MANAGEMENT'S ASSUMPTIONS TO UNAUDITED PRO FORMA
CONDENSED CONSOLIDATING FINANCIAL INFORMATION
(e) 1999 EVENTS - HISTORICAL OPERATIONS:
Reflects the historical operations of the BMG Property, Polyfoam Properties,
10th Street-Office Works Building, One Park Place, the Reckson Morris Industrial
Portfolio and the Lemoyne Property for the year ended December 31, 1998. Also
reflected is the elimination of the historical operations of the Urban Farms
Shopping Center which was sold by the Company in March 1999.
<TABLE>
<CAPTION>
-----------------------------------------------
REVENUE
-----------------------------------------------
Tenant
Reimbursements
and
ACQUISITION/DISPOSITION Minimum Rent Other Income Subtotal
------------ ------------ --------
<S> <C> <C> <C>
BMG Property $ 411 $ 10 $ 421
Polyfoam Properties-Stage I and II 1,929 8 1,937
10th Street-Office Works Building 119 --- 119
One Park Place 4,562 816 5,378
Reckson Industrial Portfolio 12,715 2,510 15,225
Lemoyne Property 2,770 338 3,108
Urban Farms Shopping Center (1,174) (276) (1,450)
------------ ------------ ------------
Total $ 21,332 $ 3,406 $ 24,738
------------ ------------ ------------
------------ ------------ ------------
<CAPTION>
(In 000's)
-------------------------------------------------------------
OPERATING EXPENSES
--------------------------------------------
Property Depreciation Total
Operating And and Operating
ACQUISITION/DISPOSITION Other Expenses Amortization Expenses Total
------------- ------------ -------- -----
<S> <C> <C> <C>
BMG Property $ 15 $ $ 15 $ 406
Polyfoam Properties-Stage I and II 641 --- 641 1,296
10th Street-Office Works Building --- --- --- 119
One Park Place 1,505 --- 1,505 3,873
Reckson Industrial Portfolio 3,040 --- 3,040 12,185
Lemoyne Property 352 --- 352 2,756
Urban Farms Shopping Center (452) (194) (646) (804)
----------- ----------- ---------- -----------
Total $ 5,101 $ (194) $ 4,907 $ 19,831
----------- ----------- ---------- -----------
----------- ----------- ---------- -----------
</TABLE>
F-18
<PAGE>
KEYSTONE PROPERTY TRUST
NOTES AND MANAGEMENT'S ASSUMPTIONS TO UNAUDITED PRO FORMA
CONDENSED CONSOLIDATING FINANCIAL INFORMATION
(f) 1999 PRO FORMA ADJUSTMENT:
Reflects the Company's pro forma adjustments relative to the acquisitions of the
BMG Property, Polyfoam Properties, 10th Street-Office Works Building, One Park
Place, the Reckson Morris Industrial Portfolio and the Lemoyne Property for the
year ended December 31, 1998. Also reflected is a pro forma adjustment to
eliminate the interest expense associated with the Urban Farms Shopping Center
which was sold by the Company in March 1999.
<TABLE>
<CAPTION>
-----------------------------------------------
REVENUE
-----------------------------------------------
Tenant
Reimbursements
Minimum and
ACQUISITION/DISPOSITION Rent Other Income Subtotal
---- ------------ --------
<S> <C> <C> <C>
BMG Property $ --- $ --- $ ---
Polyfoam Properties-Stage I and II 479(v) 632(v) 1,111
10th Street-Office Works Building --- --- ---
One Park Place --- --- ---
Reckson Morris Industrial Portfolio --- --- ---
Lemoyne Property --- --- ---
Urban Farms (iv) -- -- --
----------- ----------- -----------
$ 479 $ 632 $ 1,111
----------- ----------- -----------
----------- ----------- -----------
<CAPTION>
(In 000's)
--------------------------------------------------------------
OPERATING EXPENSES
--------------------------------------------------------------
Property
Operating And Depreciation and
ACQUISITION/DISPOSITION Other Expenses Interest Expense (i) Amortization (ii) Total
-------------- -------------------- ----------------- -----
<S> <C> <C> <C> <C>
BMG Property $ --- $ 120 $ 237 $ 357
Polyfoam Properties-Stage I and II --- 866 510 1,376
10th Street-Office Works Building --- 31 15 46
One Park Place --- 905 499 1,404
Reckson Morris Industrial Portfolio (208)(iii) 4,024 4,688 8,504
Lemoyne Property --- 2,141 681 2,822
Urban Farms (iv) -- (358) --- (358)
---------- ------------ ---------- -----------
$ (208) $ 7,729 $ 6,630 $ 14,151
---------- ------------ ---------- -----------
---------- ------------ ---------- -----------
</TABLE>
F-19
<PAGE>
KEYSTONE PROPERTY TRUST
NOTES TO MANAGEMENT'S ASSUMPTIONS TO UNAUDITED
PRO FORMA CONDENSED CONSOLIDATING INCOME STATEMENT
Footnotes:
(i) Proforma interest expense is presented assuming an effective rate
of 6.56% on borrowings under the Company's $150 million revolving
credit facility (the "Credit Facility"), and interest rates on
assumed mortgage debt from the BMG Property, 10th Street-Office
Works Building, One Park Place, Reckson Morris Industrial
Portfolio, and the Lemoyne Property acquisitions ranging from
6.88% to 8.75%. Interest expense is shown net of approximately
$4,509,000 in interest capitalized on land under development
for land acquired in the Reckson Morris Industrial Portfolio
transaction.
(ii) Proforma depreciation expense is presented assuming a useful life
of 35 years.
(iii) Adjustment to property operating expenses are recorded to reflect
a reduction in management fees to the actual management fee levels
to be charged as a result of the Company's acquisition.
(iv) Proforma interest savings from the sale of Urban Farm Shopping
Center on March 26, 1999. Approximately $5.5 million of proceeds
were utilized to repay Credit Facility borrowings which this
property had secured.
(v) Adjustment to reflect additional rent and reimbursement of
property operating expenses associated with a lease executed by
the seller with the Company in conjunction with the Company's
acquisition of this property.
F-20
<PAGE>
KEYSTONE PROPERTY TRUST
NOTES TO MANAGEMENT'S ASSUMPTIONS TO UNAUDITED
PRO FORMA CONDENSED CONSOLIDATING INCOME STATEMENT
(g) To reflect additional general and administrative expense
associated with the Company's management of the acquired
properties.
(h) To reflect the preferred distributions on 1,434,136 Series C
Preferred Units issued as partial consideration in the
acquisition of the Reckson Morris Industrial Portfolio. These
Preferred Units have an aggregate liquidation value of
approximately $35.9 million and are entitled to a 9.75%
preferred return. Also reflected is the preferred
distribution of 450,700 Series D Convertible Preferred Units
issued as partial consideration in the acquisition of One
Park Place. These preferred units have an aggregate
liquidation value of approximately $11.3 million and are
entitled to a 9% preferred return.
(i) To adjust the minority interest's share of income in the
Operating Partnership. The Company owns approximately 53.9%
of the Operating Partnership after the consummation of Stage
I of the Reckson Morris Industrial Portfolio transaction. The
adjustment to record the income effect of the minority
interest share for the year ended December 31, 1998 in the
pro forma statement of operations was computed as follows
(IN 000's):
<TABLE>
<S> <C>
Pro forma Revenue $ 97,483
Pro forma Operating Expenses (73,693)
Pro forma Preferred Dividends and Distributions (12,808)
Pro forma Equity in Loss from Equity Investments (3,009)
-----------------
Pro forma Income before Minority Interest $ 7,973
-----------------
-----------------
Minority Interest (46.1%) 3,676
Minority Interest at December 31, 1998 9,452
-----------------
Adjustment Required $ 5,776
-----------------
-----------------
</TABLE>
F-21
<PAGE>
KEYSTONE PROPERTY TRUST
NOTES TO MANAGEMENT'S ASSUMPTIONS TO UNAUDITED
PRO FORMA CONDENSED CONSOLIDATING INCOME STATEMENT
(j) To reflect the income allocated to:
- the 1,600,000 shares of Series B Preferred Stock issued
as partial consideration in the acquisition of the Reckson
Morris Industrial Portfolio. These Convertible Preferred
shares have a liquidation value of $40,000,000, and are
entitled to a preferred dividend at a rate equal to 9.75%.
- the 800,000 shares of Series C Preferred Stock issued to
the Investors. These Convertible Preferred shares have a
liquidation value of $20,000,000 and entitled to a preferred
dividend equal to 9.75%.
F-22
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Keystone Property Trust:
We have audited the accompanying statement of revenue and certain expenses of
Lemoyne Property for the year ended December 31, 1998. This financial statement
is the responsibility of the Property's management. Our responsibility is to
express an opinion on this financial statement based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statement is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statement. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
The statement of revenue and certain expenses was prepared for the purpose of
complying with the rules and regulations of the Securities and Exchange
Commission for inclusion in a current report on Form 8-K of Keystone Property
Trust as described in Note 1 and is not intended to be a complete presentation
of the Property's revenue and expenses.
In our opinion, the financial statement referred to above presents fairly, in
all material respects, the revenue and certain expenses of Leymone Property
for the year ended December 31, 1998, in conformity with generally accepted
accounting principles.
Philadelphia, Pa.
October 15, 1999
F-23
<PAGE>
LEMOYNE PROPERTY
STATEMENT OF REVENUE AND CERTAIN EXPENSES (NOTE 1)
<TABLE>
<CAPTION>
For the Six For the Year
Months Ended Ended
June 30, 1999 December 31,
(unaudited) 1998
----------- ----
REVENUE:
<S> <C> <C>
Minimum rent (Note 2) $ 1,394,000 $ 2,770,000
Tenant reimbursements 196,000 338,000
---------------- ----------------
Total revenue 1,590,000 3,108,000
---------------- ----------------
CERTAIN EXPENSES:
Maintenance and other operating expenses 32,000 61,000
Real estate taxes 154,000 257,000
Insurance 19,000 34,000
---------------- ----------------
Total certain expenses 205,000 352,000
---------------- ----------------
REVENUE IN EXCESS OF CERTAIN EXPENSES $ 1,385,000 $ 2,756,000
---------------- ----------------
---------------- ----------------
</TABLE>
The accompanying notes are an integral part of this financial statement.
F-24
<PAGE>
LEMOYNE PROPERTY
NOTES TO COMBINED STATEMENT OF REVENUE AND CERTAIN EXPENSES
DECEMBER 31, 1998
1. BASIS OF PRESENTATION:
The statement of revenue and certain expenses reflects the operations of Lemoyne
Property (the "Property"), located in Lemoyne, Pennsylvania. The Property was
acquired by Keystone Property Trust (the "Company") on October 15, 1999 for a
total purchase price (excluding closing costs) of $29.3 million. The Property
has an aggregate net rentable area of 885,802 square feet and was 100% leased at
December 31, 1998. This statement of revenue and certain expenses is to be
included in the Company's current report on Form 8-K, as the above described
transaction has been deemed significant pursuant to the rules and regulations of
the Securities and Exchange Commission.
The accounting records of the Property are maintained on a modified cash basis.
Adjusting entries have been made to present the accompanying financial statement
in accordance with generally accepted accounting principles. The accompanying
financial statement excludes certain expenses such as interest, depreciation and
amortization, professional fees, and other costs not directly related to the
future operations of the Property.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of revenue and expenses during the reporting period.
The ultimate results could differ from those estimates.
The statement of revenue and certain expenses for the six months ended June 30,
1999 is unaudited; however, in the opinion of management, all adjustments
(consisting solely of normal recurring adjustments) necessary for the fair
presentation of the statement of revenue and certain expenses for the interim
period have been included. The results of the interim periods are not
necessarily indicative of the results for the full year.
2. OPERATING LEASES:
Minimum rent presented includes straight-line adjustments for rental revenue
increases in accordance with generally accepted accounting principles. The
aggregate rental revenue increase resulting from the straight-line adjustment
for the year ended December 31, 1998 was $56,000 and for the six months ended
June 30, 1999 was $12,000 (unaudited).
F-25
<PAGE>
The following tenants account for greater than 10% of annual minimum rent for
the year ended December 31, 1998:
<TABLE>
<CAPTION>
Tenant Minimum Rent
- ------ ------------
<S> <C>
Cumberland Distribution $ 1,316,000
International Paper 1,068,000
WESCO Distribution 321,000
</TABLE>
The Property is leased to tenants under operating leases with expiration
dates extending to 2009. Future minimum rentals under non-cancelable operating
leases, excluding tenant reimbursements of operating expenses, as of December
31, 1998 are as follows:
<TABLE>
<S> <C>
1999 $ 2,766,000
2000 2,797,000
2001 1,512,000
2002 1,543,000
2003 30,000
Thereafter 143,000
</TABLE>
3. RELATED PARTY TRANSACTIONS:
The Property incurred charges of $10,000 and $17,000 (unaudited) for the year
ended December 31, 1998 and for the six months ended June 30, 1999,
respectively, for repairs and maintenance work performed for the Property by
Conewago Enterprises, Inc., a related party. These repairs and maintenance
charges are included within the combined statement of revenue and certain
expenses.
F-26
