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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 14, 1999
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
KEYSTONE PROPERTY TRUST
(Exact name of registrant as specified in its charter)
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<S> <C>
MARYLAND 84-1246585
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
</TABLE>
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200 FOUR FALLS CORPORATE CENTER
SUITE 208
WEST CONSHOHOCKEN, PENNSYLVANIA 19428
(484) 530-1800
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
------------------------------
JEFFREY E. KELTER
PRESIDENT AND CHIEF EXECUTIVE OFFICER
KEYSTONE PROPERTY TRUST
200 FOUR FALLS CORPORATE CENTER
SUITE 208
WEST CONSHOHOCKEN, PENNSYLVANIA 19428
(484) 530-1800
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
------------------------------
COPIES TO:
BONNIE A. BARSAMIAN
ROBERT E. KING, JR.
ROGERS & WELLS LLP
200 PARK AVENUE
NEW YORK, NEW YORK 10166
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: From time
to time or at one time after the effective date of the Registration Statement as
determined by market conditions.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box: / /
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. /X/
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of earlier effective
registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
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CALCULATION OF REGISTRATION FEE
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<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF CLASS OF SECURITIES BEING AMOUNT TO BE OFFERING PRICE PER AGGREGATE OFFERING AMOUNT OF
REGISTERED REGISTERED SHARE PRICE REGISTRATION FEE
<S> <C> <C> <C> <C>
Common Stock, par value $.001 per
share 6,536,228 shares(1) $15.44(2) $100,919,360 $26,643
</TABLE>
(1) Includes the 1,269,841 Common Shares into which 800,000 shares of Series C
Convertible Preferred Stock are convertible (based on a ratio of 1:1.59),
the 4,461,420 Common Shares into which 4,461,420 OP Units of Keystone
Operating Partnership, L.P. are convertible (based on a conversion ratio of
1:1) and the 682,939 Common Shares into which 450,740 Series D Convertible
Preferred Units of Keystone Operating Partnership, L.P. are convertible
(based on a ratio of 1:1.52).
(2) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457(c) of the rules and regulations under the
Securities Act of 1933, as amended, and based on the average of the high and
low sale prices of the common shares reported on the American Stock Exchange
on December 10, 1999.
------------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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<PAGE>
SUBJECT TO COMPLETION, DATED DECEMBER 14, 1999
PROSPECTUS
6,536,228 SHARES
KEYSTONE PROPERTY TRUST
COMMON SHARES
------------------
This Prospectus relates to the offer and sale by the entities and persons
described in the section "Selling Security Holders" in this Prospectus of our
Common Shares. The selling security holders may offer and sell our Common Shares
from time to time on the American Stock Exchange where our Common Shares are
listed for trading under the symbol "KTR," in other markets where our Common
Shares may be traded or in negotiated transactions. The selling security holders
may offer our Common Shares at whatever prices are current when particular sales
take place or at other prices to which they agree. On December 10, 1999, the
closing price of our Common Shares reported on the American Stock Exchange was
$15.63. The selling security holders will pay any brokerage fees or commissions
relating to sales by them. See the section "Method of Sale" in this Prospectus.
The selling security holders received or will receive the Common Shares to which
this Prospectus relates from us (i) in privately negotiated transactions,
(ii) upon conversion of their shares of our preferred stock, (iii) upon
conversion of their common or preferred units of limited partnership interest in
our operating partnership or (iv) upon the exercise of options to purchase
Common Shares. We are registering the offer and sale by the selling security
holders of Common Shares in order to permit secondary trading of such Common
Shares that are or will be held by the selling security holders. The selling
security holders may offer their shares for resale from time to time. The
registration of their shares does not necessarily mean that the selling security
holders will sell their shares.
We will not receive any of the proceeds of sales by the selling security
holders. We are paying the costs of preparing and filing the Registration
Statement of which this Prospectus is a part.
SEE "RISK FACTORS" BEGINNING ON PAGE 4 OF THIS PROSPECTUS FOR A DISCUSSION
OF CERTAIN FACTORS YOU SHOULD CONSIDER BEFORE YOU INVEST IN OUR COMMON SHARES.
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Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these Securities and they have not
determined if this Prospectus is truthful or complete. Any representation to the
contrary is a criminal offense.
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THE DATE OF THIS PROSPECTUS IS , 1999.
THE INFORMATION CONTAINED IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED.
WE HAVE FILED A REGISTRATION STATEMENT RELATING TO THESE SECURITIES WITH THE
SECURITIES AND EXCHANGE COMMISSION. THE SELLING SECURITY HOLDERS MAY NOT SELL
THESE SECURITIES PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES EFFECTIVE.
THIS PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES AND IT IS NOT
SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE SUCH OFFER OR
SALE IS NOT PERMITTED.
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN OR INCORPORATED BY
REFERENCE INTO THIS PROSPECTUS. NEITHER KEYSTONE PROPERTY TRUST NOR THE SELLING
SECURITY HOLDERS HAVE AUTHORIZED ANY OTHER PERSON TO PROVIDE YOU WITH DIFFERENT
INFORMATION.
THE SELLING SECURITY HOLDERS ARE NOT MAKING AN OFFER OF COMMON SHARES IN ANY
LOCATION WHERE THE OFFER IS NOT PERMITTED.
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TABLE OF CONTENTS
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<S> <C>
WHERE YOU CAN FIND MORE INFORMATION......................... 2
INCORPORATION OF DOCUMENTS BY REFERENCE..................... 2
CAUTIONARY STATEMENTS CONCERNING FORWARD-LOOKING
INFORMATION............................................... 3
RISK FACTORS................................................ 4
THE COMPANY................................................. 10
USE OF PROCEEDS............................................. 11
SELLING SECURITY HOLDERS.................................... 12
METHOD OF SALE.............................................. 17
FEDERAL INCOME TAX CONSIDERATIONS........................... 19
LEGAL MATTERS............................................... 28
EXPERTS..................................................... 28
</TABLE>
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WHERE YOU CAN FIND MORE INFORMATION
We are subject to the informational requirements of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), and, as a result, file reports,
proxy statements and other information with the Securities and Exchange
Commission (the "Commission"). You may read and copy those reports, proxy
statements and other information which we file with the Commission at the public
reference facilities maintained by the Commission at Room 1024, Judiciary Plaza,
450 Fifth Street, N.W., Washington, D.C. 20549, and at the Regional Offices of
the Commission located at 7 World Trade Center, New York, New York 10048 and
Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661.
You may also obtain copies of that information from the Public Reference Section
of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, at
prescribed rates. Please call the Commission at 1-800-SEC-0330 for further
information on the public reference rooms. The Commission maintains a web site
that contains reports, proxy and information statements and other information
regarding registrants, including Keystone Property Trust, that file
electronically with the Commission. You may access the Commission's web site at
http://www.sec.gov. Our Common Shares are listed on the American Stock Exchange
(the "AMEX"). You may also read our reports, proxy statements and other
information which we file at the offices of the AMEX, 86 Trinity Place, New
York, New York 10006.
We have filed with the Commission a Registration Statement on Form S-3
(together with any amendments or supplements, the "Registration Statement")
under the Securities Act of 1933, as amended (the "Securities Act"). This
Prospectus is a part of the Registration Statement. This Prospectus does not
contain all the information contained in the Registration Statement, because we
have omitted certain parts of the Registration Statement in accordance with the
rules and regulations of the Commission. For further information, we refer you
to the Registration Statement, which you may read and copy at, or obtain from,
the Commission or the AMEX in the manner described above.
INCORPORATION OF DOCUMENTS BY REFERENCE
We incorporate by reference into this Prospectus the following documents
which we previously filed with the Commission under the File Number 1-12514:
(a) our Annual Report on Form 10-K for the fiscal year ended
December 31, 1998;
(b) our Quarterly Reports on Form 10-Q for the calendar quarters ended
March 31, 1999, June 30, 1999 and September 30, 1999;
(c) our Current Report on Form 8-K filed January 23, 1998, our Current
Report on Form 8-K/A filed February 24, 1998, our Current Reports on
Form 8-K filed April 10, 1998 and May 15, 1998, our Current Report on
Form 8-K/A filed June 10, 1998, our Current Report on Form 8-K filed
July 7, 1998, our Current Report on Form 8-K/A filed July 14, 1998, our
Current Report on Form 8-K filed August 13, 1998, our Current Report on
Form 8-K filed September 3, 1998, our Current Report on Form 8-K filed
November 13, 1998, our Current Report on Form 8-K filed December 18, 1998,
our Current Report on Form 8-K filed January 8, 1999, our Current Report on
Form 8-K/A filed January 13, 1999, our Current Report on Form 8-K filed
August 20, 1999, our Current Report on Form 8-K filed on October 12, 1999,
our Current Report on Form 8-K filed on October 13, 1999, our Current Report
on Form 8-K filed on October 18, 1999, our Current Report on Form 8-K filed
on October 20, 1999 and our Current Report on Form 8-K filed on November 4,
1999;
(d) the description of our capital shares and the description of the
limited partnership interests of Keystone Operating Partnership, L.P., our
operating partnership, contained in our Registration Statement on
Form 8-A/A filed on October 14, 1999 (including any amendments or reports
filed for the purpose of updating such description); and
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(e) all other reports we have filed pursuant to Section 13(a), 13(c), 14
or 15(d) of the Exchange Act since December 31, 1998.
When we file documents in accordance with Sections 13(a), 13(c), 14 and
15(d) of the Exchange Act between the date of this Prospectus and the time we
file a post-effective amendment to the Registration Statement of which this
Prospectus is a part saying all the securities which are the subject of that
Registration Statement have been sold or deregistering any securities which have
not been sold, the documents we file will be incorporated into this Prospectus
and will be a part of it beginning on the date the documents are filed. If any
document which we file changes anything said in this Prospectus or in an earlier
document which is incorporated into this Prospectus, the later document will
modify or supersede what is said in this Prospectus or the earlier document.
We will provide, without charge, at the written or oral request of anyone,
including any beneficial owner, to whom this Prospectus is delivered, copies of
the documents incorporated by reference in this Prospectus, other than exhibits
to those documents which are not specifically incorporated by reference.
Requests should be directed to: Keystone Property Trust, 200 Four Falls
Corporate Center, Suite 208, West Conshohocken, PA 19428, Attention: Investor
Relations (Telephone: (484) 530-1800).
CAUTIONARY STATEMENTS CONCERNING FORWARD-LOOKING INFORMATION
Certain information both included and incorporated by reference in this
Prospectus may contain forward-looking statements within the meaning of
Section 27A of the Securities Act and Section 21E of the Exchange Act, and as
such may involve known and unknown risks, uncertainties and other factors which
may cause the actual results, performance or achievements of our company to be
materially different from future results, performance or achievements expressed
or implied by such forward-looking statements. Forward-looking statements, which
are based on certain assumptions and describe our future plans, strategies and
expectations are generally identifiable by use of the words "may," "will,"
"should," "expect," "anticipate," "estimate," "believe," "intend" or "project"
or the negative thereof or other variations thereon or comparable terminology.
Factors which could have a material adverse effect on the operations and future
prospects of our company include, but are not limited to, changes in: economic
conditions generally and the real estate market specifically,
legislative/regulatory changes (including changes to laws governing the taxation
of real estate investment trusts (each, a "REIT")), availability of capital,
interest rates, competition, supply and demand for properties in our current and
proposed market areas and general accounting principles, policies and guidelines
applicable to REITs. These risks and uncertainties should be considered in
evaluating any forward-looking statements contained or incorporated by reference
herein.
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RISK FACTORS
BEFORE YOU INVEST IN OUR COMMON SHARES, YOU SHOULD BE AWARE THAT THERE ARE
VARIOUS RISKS, INCLUDING THOSE DESCRIBED BELOW. YOU SHOULD CONSIDER CAREFULLY
THESE RISK FACTORS TOGETHER WITH ALL OF THE OTHER INFORMATION INCLUDED OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS BEFORE YOU DECIDE TO PURCHASE OUR
COMMON SHARES. THIS SECTION INCLUDES OR REFERS TO CERTAIN FORWARD- LOOKING
STATEMENTS; YOU SHOULD REFER TO THE EXPLANATION OF THE QUALIFICATIONS AND
LIMITATIONS ON SUCH FORWARD-LOOKING STATEMENTS DISCUSSED ON PAGE 3 OF THIS
PROSPECTUS.
THERE ARE RISKS ASSOCIATED WITH THE ACQUISITION OF NEW PROPERTIES, WHICH MAY
ADVERSELY AFFECT THE VALUE OF OUR COMMON SHARES AND OUR ABILITY TO PAY DIVIDENDS
TO OUR SHAREHOLDERS.
We have recently experienced, and may continue to experience, rapid growth
through the acquisition of additional office and industrial properties. Our
ability to manage our growth effectively requires us to integrate successfully
our new acquisitions into our existing management structure. Properties which we
acquire typically have no operating history under our management and such
properties may have characteristics or deficiencies unknown to us which affect
their valuation or revenue potential. The operating performance of these
properties may decline under our management. A decline in the operating
performance of these properties will adversely affect our operating results and
funds from operations, which could adversely impact the price of our Common
Shares and the amount of dividends we will be able to pay.
We currently plan to continue acquiring properties to the extent we consider
appropriate. Our success in this area depends on many factors, including the
ability to successfully (i) identify properties which meet our acquisition
criteria, (ii) negotiate acceptable price and terms with the seller and
(iii) close the transactions for such properties. Also, we plan to finance our
future acquisitions through debt offerings, equity offerings, other debt
financing or any combination thereof. By using existing credit facilities or
other short-term debt for such activities, we may not be able to secure
financing in the future or financing on equally favorable terms. By using other
debt to finance such activities, we will be subject to risks normally associated
with debt financing. See the risk factor captioned "Our Financial Performance
and Value are Subject to Risks Associated with the Real Estate Industry That
Could Adversely Affect Our Financial Condition, Debt financing may have an
adverse effect on our cash flow and our ability to pay dividends" below. By
using equity to finance such activities, we may dilute your current interest in
our company. Accordingly, our acquisition activities may have an adverse effect
on our financial performance and ability to pay dividends to our shareholders.
THERE ARE RISKS ASSOCIATED WITH OUR ENTRY INTO NEW MARKETS
We currently intend to continue to seek expansion of our operations into
additional new markets other than Northern New Jersey, Central Pennsylvania,
Upstate New York, Indianapolis, Indiana, Ohio and Greenville, South Carolina. In
determining whether to enter a new market, we consider, among other factors,
demographics, job growth, employment, real estate fundamentals, competition and
other related matters. We cannot assure you that we will be successful in our
efforts to identify new markets, or that once we identify new markets, that we
will be able to successfully acquire properties in those markets and achieve
favorable operating results from properties acquired in those markets.
WE DEPEND ON THE PERFORMANCE OF OUR PRIMARY MARKETS, AND CHANGES IN SUCH MARKETS
MAY ADVERSELY AFFECT OUR FINANCIAL CONDITION.
Most of our properties are currently located in Northern New Jersey, Central
Pennsylvania, Indianapolis, Indiana, Upstate New York and Greenville, South
Carolina. Like other real estate markets, these commercial real estate markets
have experienced economic downturns in the past, and future declines in any of
these economies or real estate markets could adversely affect our operations
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or cash available for dividends. Our financial performance and our ability to
pay dividends to our shareholders will be particularly sensitive to the economic
conditions in those markets. Our revenues and the value of our properties may be
adversely affected by a number of factors, including the local economic climate
(which may be adversely impacted by business layoffs, industry slowdowns,
changing demographics and other factors) and local real estate conditions (such
as oversupply of or reduced demand for office and industrial properties). These
factors, when and if they occur in the area in which our properties are located,
would adversely affect our ability to pay dividends to our shareholders.
OUR SHAREHOLDERS' ABILITY TO EFFECT A CHANGE IN CONTROL OF OUR COMPANY IS
LIMITED, WHICH MAY NOT BE IN OUR SHAREHOLDERS' BEST INTEREST.
OUR OWNERSHIP LIMIT MAY NOT BE IN OUR SHAREHOLDERS' BEST INTEREST. For us
to maintain our qualification as a REIT for federal income tax purposes, not
more than 50% of the value of our outstanding capital shares may be owned,
directly or indirectly, by five or fewer individuals (as defined for federal
income tax purposes to include certain entities) during the last half of each
taxable year after 1993. Our Declaration of Trust (the "Declaration of Trust")
includes certain restrictions regarding transfers of our capital shares and
ownership limits that are intended to assist us in satisfying such limitations.
Such restrictions and limits may not be adequate in all cases, however, to
prevent the transfer of our capital shares in violation of the ownership
limitations. The ownership limit discussed above may have the effect of
delaying, deferring or preventing someone from taking control of our company,
even though such a change of control could involve a premium price for your
Common Shares or otherwise be in our shareholders' best interest.
OUR STAGGERED BOARD MAY NOT BE IN OUR SHAREHOLDERS' BEST INTEREST. Our
Board of Trustees is divided into three classes, with the members of each class
serving a three-year term. The staggered terms for trustees may reduce the
possibility of a tender offer or an attempt to effect a change in control of our
company, even if such a tender offer or change of control would be in our
shareholders' best interest.
ISSUANCES OF PREFERRED SHARES AND PREEMPTIVE RIGHTS MAY PREVENT A CHANGE OF
CONTROL THAT WOULD BE IN OUR SHAREHOLDERS' BEST INTEREST. Our Board of Trustees
is authorized by our Declaration of Trust to establish and issue one or more
series of preferred shares without shareholder approval. We currently have three
series of preferred shares outstanding. The establishment of these series or a
future series of preferred shares could make more difficult a change of control
of our company that would be in your best interest. The holders of our Series A
Convertible Preferred Stock have preemptive rights with respect to future
issuances of our Common Shares. Additionally, we have contractually granted
similar rights to certain holders of our Common Shares. These rights could make
more difficult a change of control of our company that would be in your best
interest.
THE CONCENTRATION OF OWNERSHIP OF OUR CAPITAL SHARES MAY NOT BE IN OUR
SHAREHOLDERS' BEST INTEREST.
Our officers and trustees as a group currently beneficially own 34.36% of
our company (assuming the conversion to Common Shares of all outstanding shares
of our Series A Convertible Preferred Stock, Series B Convertible Preferred
Stock, Series C Convertible Preferred Stock, common and convertible preferred
units of limited partnership interest in our operating partnership and the
conversion of outstanding warrants to purchase units of limited partnership
interest in our operating partnership and our Common Shares). In addition,
certain other investors currently own a significant amount of our Common Shares.
Although we feel this ownership is beneficial in aligning the interest of
officers and trustees with that of the other shareholders, this may enable the
officers and trustees to exercise substantial influence over the management of
our company and on the outcome of any matters submitted to a vote of our
shareholders. The concentration of beneficial ownership of our company may have
the effect of delaying, deferring or preventing a change in control of our
company, may
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discourage bids for our capital shares at a premium over the market price of our
capital shares and may adversely affect the market price of our capital shares.
CERTAIN TRUSTEES AND OFFICERS WHO OWN UNITS OF LIMITED PARTNERSHIP INTEREST IN
OUR OPERATING PARTNERSHIP MAY BE AFFECTED DIFFERENTLY THAN OUR SHAREHOLDERS AS A
RESULT OF THE SALE OF, OR REDUCTION OF MORTGAGE DEBT ON, CERTAIN OF THE
PROPERTIES.
Certain of our trustees and officers own units of limited partnership
interest in our operating partnership and, as a result, may face different and
more adverse tax consequences than you will if we sell or reduce our mortgage
indebtedness on certain of our properties. Those individuals therefore may have
different objectives than you regarding the appropriate pricing and timing of
any sale of such properties or reduction of mortgage debt. Accordingly, there
may be instances in which we may not sell a property or pay down the debt on a
property even though doing so would be advantageous to you.
RISKS ASSOCIATED WITH FUTURE ISSUANCES OF OUR COMMON SHARES
FUTURE ISSUANCES OF COMMON SHARES OR SECURITIES CONVERTIBLE INTO COMMON
SHARES MAY DILUTE YOUR INTEREST IN OUR COMPANY. Our Declaration of Trust
authorizes our Board of Trustees to issue additional Common Shares or securities
convertible into our Common Shares without shareholder approval. Additionally,
each of our three classes of preferred shares and all limited partnership
interests in our Operating Partnership may be converted into our Common Shares
pursuant to their terms. Such issuances of our Common Shares or conversion of
convertible securities into our Common Shares would have the effect of diluting
your existing interest in our company.
FUTURE SALES OF OUR COMMON SHARES MAY ADVERSELY AFFECT THE PRICE OF OUR
COMMON SHARES. Future sales of a substantial number of our Common Shares may
occur as a result of option holders exercising their rights to purchase our
shares or by resale availability from registration rights (including with
respect to our preferred shares and preferred and common units of limited
partnership interest in our operating partnership, Keystone Operating
Partnership, L.P. (the "Operating Partnership") converted into our Common
Shares) or exemptions from registration. The selling security holders are not
the only shareholders that have registration rights with respect to our Common
Shares and we are not prevented from granting registration rights to
shareholders in the future. Future sales of a substantial number of our Common
Shares could adversely affect the prevailing market price for our Common Shares.
WE HAVE AGREED NOT TO SELL CERTAIN OF OUR PROPERTIES
We have agreed with the sellers of certain of our properties not to sell
certain properties for a period of time ranging from one to ten years in any
transaction that would trigger taxable income, subject to certain exceptions.
Some of these agreements are with current officers and trustees of our company.
In addition, we may enter into similar agreements with future sellers of
properties. These agreements generally provide that we may dispose of these
properties in transactions that qualify as tax-free exchanges under
Section 1031 of the Internal Revenue Code of 1986, as amended (the "Code").
Therefore, we may be precluded from selling certain properties other than in
transactions that would qualify as tax-free exchanges for federal income tax
purposes, even if it would be in your best interest to do so.
OUR FINANCIAL PERFORMANCE AND VALUE ARE SUBJECT TO RISKS ASSOCIATED WITH THE
REAL ESTATE INDUSTRY THAT COULD ADVERSELY AFFECT OUR FINANCIAL CONDITION
GENERAL. Real property investments are subject to varying degrees of risk.
The yields available from equity investments in real estate depend upon the
amount of income generated and expenses incurred. If properties do not generate
income sufficient to meet operating expenses, including debt
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service and capital expenditures, the owner's income and ability to pay
dividends will be adversely affected. An owner's income from properties may be
adversely affected by a variety of factors, including the general economic
climate, local conditions, such as oversupply of the particular category of real
estate owned or controlled by the owner, or reduction in demand for any such
properties, competition from properties owned by others, or the ability of the
owner to provide adequate facilities maintenance, services and amenities. With
respect to office and industrial properties, maintaining income at desired
levels can be effected by a number of factors, including the ability to locate
desirable replacements for key tenants at attractive rent levels following
expiration of leases, and the costs of reletting and providing tenant
improvements required to attract and maintain attractive tenants at desirable
rentals.
Often, increased operating costs, including real estate taxes, insurance and
maintenance costs, do not decline when circumstances cause a reduction in income
from a property. If a property is mortgaged to secure payment of indebtedness,
and the owner is unable to meet its mortgage payments, a loss could be sustained
as a result of foreclosure on the property. In addition, income from properties
and real estate values are also affected by such factors as applicable laws,
including tax laws, interest rate levels and the availability of financing.
WE DEPEND ON OUR MAJOR TENANTS. Substantially all of our income is, and
will continue to be, derived from rental income on our properties and,
consequently, our distributable cash flow and ability to pay expected dividends
to shareholders would be adversely affected if a significant number of our
tenants failed to meet their lease obligations. At December 1, 1999, our ten
largest tenants represented approximately 23.9% of our industrial and office
properties' annualized rental income. At any time, a tenant at any of our
properties may seek the protection of the bankruptcy laws, which could result in
delays in rental payments or in the rejection and termination of such tenant's
lease and thereby cause a reduction in our cash flow and the amounts available
for dividends to our shareholders. We cannot assure you that tenants will not
file for bankruptcy protection in the future or, if any tenants file, that they
will affirm their leases and continue to make rental payments in a timely
manner. In addition, a tenant from time to time may experience a downturn in its
business which may weaken its financial condition and result in the failure to
make rental payments when due. If tenant leases are not affirmed following
bankruptcy or if a tenant's financial condition weakens, our cash flow and the
amounts available for dividends to you may be adversely effected.
WE COMPETE WITH OTHER OWNERS AND OPERATORS OF PROPERTIES. All of our
properties are located in well-developed market areas. There are numerous other
office and industrial properties and real estate companies (including other
REITs) within the market area of each of our properties which will compete with
us for tenants and for development and acquisition opportunities. The number of
competitive properties and real estate companies in such areas could have a
material effect on our operations, our ability to rent our properties and the
rents which we charge, and our development and acquisition opportunities. We
compete for tenants and acquisitions with others who may have greater resources
than us. We will continue to experience strong competition in pursuing
development and acquisition opportunities.
DEBT FINANCING MAY HAVE AN ADVERSE EFFECT ON OUR CASH FLOW AND OUR ABILITY
TO PAY DIVIDENDS. Our Declaration of Trust, By-laws or investment policies do
not contain any limitation on the amount of aggregate indebtedness which we may
incur and no shareholder approval is required for us to incur additional
indebtedness. Accordingly, our management or Board of Trustees will have
discretion to incur such amounts of aggregate indebtedness as they determine. We
may seek additional debt financing to fund future acquisitions. We are subject
to risks normally associated with debt financing, including the risk that our
cash flow will be insufficient to pay dividends at expected levels and meet
required payments of principal and interest, the risk that indebtedness on our
properties (which will not have been fully amortized at maturity in all cases)
will not be able to be refinanced or that the terms of
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such refinancing will not be as favorable as the terms of existing indebtedness.
Our properties are or may be mortgaged to secure payments on our indebtedness.
Certain properties are secured by debt which is cross-collateralized and
cross-defaulted. As of December 1, 1999, our mortgage debt totaled approximately
$512.8 million (or 97.9% of our total indebtedness), $144.9 million or
approximately 28.3% of which constituted borrowings under our $150 million
secured credit facility (the "Credit Facility"). Based on the market price for
our Common Shares at the close of business on December 9, 1999, our indebtedness
was equal to approximately 58.1% of our total market capitalization on that date
(assuming the conversion to Common Shares of all of our outstanding preferred
shares, preferred or common units of limited partnership interest in the
Operating Partnership, other than those shares or units which we own).
In the future, we may increase our borrowings under the Credit Facility for
new acquisitions, capital improvements, new development projects and for general
working capital purposes. Such variable rate debt creates higher debt service
requirements if market interest rates increase, which could adversely affect our
cash flow and the amounts of cash available for dividends to you.
If we fail to make required payments of principal and interest on any
mortgage debt, our lenders could foreclose on the properties securing such debt
which would result in a loss of income and asset value to us. If principal
payments due at maturity cannot be paid or refinanced, we expect that our cash
flow would not be sufficient in all years to pay dividends at expected levels
and to repay all maturing debt. Furthermore, any substantial increase in
interest expense relating to any such refinanced indebtedness also would
adversely affect our cash flow and the amounts available for dividends to you.
THERE ARE RISKS ASSOCIATED WITH OUR ACQUISITION, REDEVELOPMENT, DEVELOPMENT
AND CONSTRUCTION ACTIVITIES. We intend to acquire office and industrial
properties to the extent that they can be acquired on terms that meet our
investment criteria. Acquisitions of office and industrial properties entail
risks that investments will fail to perform in accordance with expectations.
Estimates of the costs of improvements to bring an acquired property up to
standards established for the market position intended for that property may
prove inaccurate. In addition, there are general investment risks associated
with any new real estate investment.
We intend to consider future investments in the redevelopment, development
and construction of office and industrial buildings in accordance with our
growth policies. Risks associated with our redevelopment, development and
construction activities may include: abandonment of redevelopment or development
opportunities; construction costs of a property exceeding original estimates,
possibly making the property unprofitable; occupancy rates and rents at a newly
renovated or completed property may not be sufficient to make the property
profitable; financing may not be available on favorable terms for redevelopment
or development of a property; and permanent financing may not be available on
favorable terms to replace a short-term construction loan and construction and
lease-up may not be completed on schedule, resulting in increased debt service
expense and construction costs. In addition, new redevelopment or development
activities, regardless of whether they are ultimately successful, typically
require a substantial portion of management's time and attention. Redevelopment
or development activities are also subject to risks relating to the inability to
obtain, or delays in obtaining, all necessary zoning, land-use, building,
occupancy and other required governmental permits and authorizations.
WE MAY NOT BE ABLE TO RENEW LEASES OR TO RELET SPACE. We are, and will
continue to be, subject to the risk that upon expiration of leases for space
located in our properties, such leases may not be renewed, the space may not be
relet or the terms of renewal or reletting (including the cost of required
renovations) may be less favorable than current lease terms. If we are unable to
relet promptly or renew the leases for all or a substantial portion of any
vacant space, if the rental rates upon such renewal or reletting were
significantly lower than expected or if our cash available proves inadequate,
then our cash flow and ability to pay expected dividends to you may be adversely
affected.
8
<PAGE>
LIABILITY FOR ENVIRONMENTAL MATTERS COULD ADVERSELY AFFECT OUR FINANCIAL
CONDITION. Under various federal, state, and local environmental laws,
ordinances and regulations, a current or previous owner or operator of real
property may be liable for the costs of removal or remediation of hazardous or
toxic substances on, under or in such property. Such laws often impose liability
whether or not the owner or operator knew of, or was responsible for, the
presence of such hazardous or toxic substances. In addition, the presence of
hazardous or toxic substances, or the failure to remediate such property
properly, may adversely affect the owner's ability to borrow using such real
property as collateral and to lease the property. Persons who arrange for the
disposal or treatment of hazardous or toxic substances may also be liable for
the costs of removal or remediation of hazardous substances at the disposal or
treatment facility, whether or not such facility is or ever was owned or
operated by such person. Certain environmental laws and common law principles
could be used to impose liability for release of, and exposure to, hazardous
substances, including asbestos-containing materials ("ACMs") into the air, and
third parties may seek recovery from owners or operators of real properties for
personal injury or property damage associated with exposure to released
hazardous substances, including ACMs. As the owner of our properties, we may be
potentially liable for any such costs. Phase I environmental site assessments
("ESAs") have been obtained on all of our properties. The purpose of Phase I
ESAs is to identify potential sources of contamination for which we may be
responsible and to assess the status of environmental regulatory compliance. For
a number of the properties, the Phase I ESAs referenced prior Phase II ESAs
obtained on such properties. Phase II ESAs generally involve more invasive
procedures than Phase I ESAs, such as soil sampling and testing or the
installation and monitoring of groundwater wells. The ESAs have not revealed any
environmental condition, liability or compliance concern that we believe would
have a material adverse effect on our business, assets or results of operations,
nor are we aware of any such condition, liability or concern. It is possible
that the ESAs relating to any of the properties do not reveal all environmental
conditions, liabilities or compliance concerns or that there are material
environmental conditions, liabilities or compliance concerns that arose at a
property after the related ESA report was completed of which we are otherwise
unaware. In addition, we cannot assure you that properties which we acquire in
the future will not have any material environmental conditions.
FAILURE TO QUALIFY AS A REIT WOULD CAUSE OUR COMPANY TO BE TAXED AS A
CORPORATION
WE WILL BE TAXED AS A CORPORATION IF WE FAIL TO QUALIFY AS A REIT. We
believe that, commencing with our taxable year ended December 31, 1993, we have
been organized and operated in a manner that has enabled us to meet the
requirements for qualification as a REIT for federal income tax purposes and we
intend to continue to operate in such a manner. We have not requested, and we do
not plan to request, a ruling from the Internal Revenue Service ("IRS") that we
qualify as a REIT. However, we have received an opinion from the law firm of
Rogers & Wells LLP that, based on certain assumptions and representations, we
have been organized in a manner so as to qualify as a REIT under the Code and
that our proposed method of operation will enable us to continue to so qualify.
You should be aware that opinions of counsel are not binding on the IRS or
any court. Furthermore, the conclusions stated in the opinion are conditioned
on, and our continued qualification as a REIT will depend on, our meeting
various requirements imposed by the Code. Such requirements are discussed in
more detail in the section "Federal Income Tax Considerations--Taxation of the
Company" in this Prospectus.
If we fail to qualify as a REIT, we would not be allowed a deduction for
dividends paid 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. Unless we are entitled to relief
under specific statutory provisions, we could not elect to be taxed as a REIT
for the four taxable years following the year during which we were disqualified.
Therefore, if we lost our REIT
9
<PAGE>
status, the funds available for dividends to you would be substantially reduced
for each of the years involved. In addition, we would no longer be required to
pay dividends to you.
FAILURE TO MEET MINIMUM DISTRIBUTION REQUIREMENTS MAY ADVERSELY AFFECT
US. To qualify as a REIT, we generally must distribute to our shareholders 95%
of our net taxable income. Such annual distribution requirements limit the
amount of cash we have available for other business purposes, including amounts
to fund our growth and make payments on our debt. If we fail to meet these
distribution requirements, we may be disqualified as a REIT and subject to
certain income and excise taxes. In addition, we will be subject to a 4%
nondeductible excise tax on the amount, if any, by which certain distributions
we make with respect to any calendar year are less than the sum of (i) 85% of
our REIT ordinary income for that year, (ii) 95% of our REIT capital gain net
income for that year and (iii) any undistributed taxable income from prior
years. We intend to make distributions to our shareholders to comply with the
95% distribution requirement and to avoid the nondeductible excise tax.
Differences in timing between (i) the actual receipt of income and actual
payment of deductible expenses and (ii) the inclusion of such income and
deduction of such expenses in arriving at our taxable income could require us,
directly or indirectly through the Operating Partnership, to borrow funds on a
short-term or long-term basis to meet the 95% distribution requirement and to
avoid the nondeductible excise tax. See the section "Federal Income Tax
Considerations Taxation of the Company Annual Distribution Requirements" in this
Prospectus.
POTENTIAL LEGISLATIVE ACTION REGARDING REITS MAY ADVERSELY US. During 1999,
the Clinton Administration released a summary of its proposed budget plan and
various legislation was introduced in Congress which contained several proposals
affecting REITs. One such proposal, if enacted in its present form, would
prohibit a REIT from holding securities representing more than 10% of the value
of all classes of stock of a corporation, other than a qualified REIT subsidiary
or another REIT. If enacted in its present form, the proposal may limit the
future activities and growth of Keystone Realty Services, Inc. (the "Management
Company"). No prediction can be made as to whether such proposal or any other
proposal affecting REITs will be enacted into legislation and the impact of any
such legislation on our operations. See the section "Federal Income Tax
Considerations--Other Tax Considerations" in this Prospectus.
WE MAY BE SUBJECT TO OTHER TAX LIABILITIES. Even if we qualify as a REIT,
we may be subject to certain federal, state and local taxes on our income and
property that could reduce operating cash flow. See the section "Federal Income
Tax Considerations--Other Tax Considerations" in this Prospectus.
WE DEPEND ON KEY PERSONNEL, THE LOSS OF WHOM MIGHT ADVERSELY AFFECT OUR
PERFORMANCE
We depend on the efforts of our key personnel, particularly Jeffrey E.
Kelter, our President and Chief Executive Officer, as well as certain other
senior management. While we believe that, if necessary, we could find
replacements for these key personnel, the loss of their services could have a
material adverse effect on our operations.
THE COMPANY
We used to be a Maryland corporation named American Real Estate Investment
Corporation. Effective October 13, 1999, we converted our form of business
organization from a Maryland corporation to a Maryland real estate investment
trust and changed our name to "Keystone Property Trust." This was effected
through a merger of American Real Estate Investment Corporation with and into
Keystone Property Trust, a wholly-owned real estate investment trust formed
solely for the purposes of the conversion. We are the surviving entity of the
merger and have succeeded to all of the rights, powers and property of our
predecessor and assumed all of the liabilities, debts and obligations of our
predecessor.
10
<PAGE>
We are a self-administered, self-managed REIT engaged in the ownership,
acquisition and development of industrial and office properties. As of
December 1, 1999, we owned a portfolio of 132 properties comprised of 97
industrial properties and 34 office properties containing an aggregate of
approximately 18.2 million square feet and an investment in a direct financing
lease (the "Properties"). The Properties are located principally in the
mid-Atlantic and Northeastern United States and are approximately 98.5% leased
to 321 tenants.
We conduct substantially all of our activities through, and substantially
all of the Properties are held directly or indirectly by, the Operating
Partnership. We are the sole general partner of the Operating Partnership and,
at December 1, 1999, owned approximately 55.5% of the outstanding units of
limited partnership interest in the Operating Partnership. The remaining units
of limited partnership interest are owned by limited partners of the Operating
Partnership. Our officers and trustees owned approximately 24.2% of the
outstanding units of limited partnership interest in the Operating Partnership
as of December 1, 1999. Each common unit of limited partnership interest of the
Operating Partnership (an "OP Unit") may be converted by the holder into one
common share (subject to certain anti-dilution provisions), or, at our option,
the cash value of one Common Share. Each Series B Convertible Preferred Unit of
limited partnership interest in the Operating Partnership may be converted by
the holder into the number of our Common Shares obtained by dividing the
liquidation preference (which is $25.00 per unit) by the conversion price (which
is $16.50 per unit) (subject to certain anti-dilution provisions). Each
Series C Convertible Preferred Unit of limited partnership interest in the
Operating Partnership may be converted by the holder into (a) at the election of
the holder, (1) the number of our Common Shares obtained by dividing the
liquidation preference (which is $25.00 per unit) by the conversion price (which
is $16.00 per unit) or (2) the number of shares of our Series B Convertible
Preferred Stock identical to the number of Series C Preferred OP Units being
converted (in each case subject to certain anti-dilution provisions); or if the
Operating Partnership elects to give cash instead of our Common Shares or
Series B Convertible Preferred Stock, (b) the amount of cash obtained by
multiplying the current market price per share of our Common Shares by a
fraction, the numerator of which is the liquidation preference and the
denominator of which is the conversion price. Each Series D Convertible
Preferred Unit of limited partnership interest in the Operating Partnership may
be converted by the holder into (a) at the election of the holder, the number of
our Common Shares or OP Units obtained by dividing the liquidation preference
(which is $25.00 per unit) by the conversion price (which is $16.00 per unit)
(in each case subject to certain anti-dilution provisions); or if the Operating
Partnership elects to give cash instead of our Common Shares or OP Units,
(b) the amount of cash obtained by multiplying the current market price per
share of our Common Shares by a fraction, the numerator of which is the
liquidation preference and the denominator of which is the conversion price.
With each such exchange, our percentage interest in the Operating Partnership
will increase.
Our Common Shares are listed on the AMEX under the symbol "KTR."
Our principal executive offices are located at 200 Four Falls Corporate
Center, Suite 208, West Conshohocken, PA 19428 and our telephone number is
(484) 530-1800. We also maintain offices in Franklin Lakes, New Jersey, New York
and Syracuse, New York, Allentown, Pennsylvania and Greenville, South Carolina.
Unless the context otherwise requires, all references to "we," "us" or "our
company" refers to Keystone Property Trust and its subsidiaries, including the
Operating Partnership.
USE OF PROCEEDS
We will not receive any of the proceeds of sales of Common Shares by the
selling security holders.
11
<PAGE>
SELLING SECURITY HOLDERS
Sales of our Common Shares registered hereby must (i) be accompanied by a
copy of this Prospectus, together with the applicable prospectus supplement or
(ii) be effected through an exemption from registration, such as pursuant to
Rule 144 under the Securities Act.
The following table lists (i) the selling security holders who may offer our
Common Shares from time to time pursuant to this Prospectus, (ii) the number and
percentage of Common Shares owned by each selling security holder, (iii) the
number and percentage of Common Shares of each selling security holder, the
offer and sale of which is to be registered on behalf of each selling security
holder pursuant to this Prospectus (the "Registered Shares") and (iv) the number
and percentage that, to the knowledge of the Company, will be held by selling
security holders after completion of this offering. We are registering the
Registered Shares in order to permit secondary trading of the Registered Shares,
and the selling security holder may offer Registered Shares for resale from time
to time. See the section "Method of Sale" in this Prospectus.
<TABLE>
<CAPTION>
SHARES OWNED SHARES OWNED
BEFORE OFFERING(1)(2) AFTER OFFERING(1)(2)
------------------------------- REGISTERED ----------------------
NAME NUMBER PERCENTAGE SHARES NUMBER PERCENTAGE
- ---- --------- ---------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C>
John Blumberg.................... 20,224(3) *(3) 20,224 0 *
Rosalind Davidowitz.............. 212,129(3) 1.42%(3) 212,129 0 *
Mariano Decola................... 16,916(3) *(3) 16,916 0 *
Floyd Hall....................... 13,838(3) *(3) 13,838 0 *
Hord Hardin, III................. 7,606(3)(4) *(3)(4) 7,606 0 *
David Jones...................... 11,813(3) *(3) 11,813 0 *
Lervo Investments, LLC........... 3,110(3) *(3) 3,110 0 *
James Marshall................... 21,000(3) *(3) 21,000 0 *
Houston McCollough............... 6,917(3) *(3) 6,917 0 *
Andrew Mulvihill................. 2,056(3) *(3) 2,056 0 *
Gail Mulvihill................... 128,456(3) *(3) 128,456 0 *
Gene Mulvihill, Jr............... 138(3) *(3) 138 0 *
Heather Mulvihill................ 76,389(3) *(3) 76,389 0 *
Christopher O'Keefe.............. 13,300(3)(5) *(3)(5) 13,300 0 *
Urban Farms Shopping Center, Inc. 390,735(3) 2.62%(3) 390,735 0 *
J Pool Associates, L.P........... 1,598,077(3) 10.72%(3) 1,598,077 0 *
Oakland Industrial Park, Inc..... 166,836(3) 1.12%(3) 166,836 0 *
Ramapo Ridge-McBride Office Park 22,744(3) *(3) 22,744 0 *
Hudson Bay Partners II, L.P...... 887,403(3) 5.95%(3) 797,748 89,655 *
Jeffrey E. Kelter................ 1,057,429(3) 7.09%(3) 463,636 593,793 3.98%
Thomas M. O'Neil................. 2,225(3) *(3) 2,225 0 *
Larry Martin..................... 2,225(3) *(3) 2,225 0 *
Carmel Drive Realty.............. 25,395(3) *(3) 25,395 0 *
MPSN LLC......................... 137,872(3) *(3) 137,872 0 *
Michael Browning................. 467,667(3) 3.14%(3) 413,167 54,500 .*
Timothy McBride.................. 177,757 1.19% 1,035 176,722 1.19%
Robert Branson................... 78,645(6) * 23,762 54,883 *
James R. Mulvihill............... 99,988 * 1,035 98,953 .*
Evan Zucker...................... 126,941 * 1,035 125,906 *
David H. Lesser.................. 12,722 * 1,035 11,687 *
Francesco Galesi................. 69,642 * 676 68,966 *
Michael J. Falcone............... 165,314(7) 1.11%(7) 164,350 964 *
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
SHARES OWNED SHARES OWNED
BEFORE OFFERING(1)(2) AFTER OFFERING(1)(2)
------------------------------- REGISTERED ----------------------
NAME NUMBER PERCENTAGE SHARES NUMBER PERCENTAGE
- ---- --------- ---------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C>
Allstate Insurance Company....... 634,921(8) 4.26%(8) 634,921 0 *
Teachers Insurance and Annuity
Association of America......... 317,460(8) 2.13%(8) 317,460 0 *
AEW TSF Inc...................... 317,460(8) 2.13%(8) 317,460 0 *
Michael P. Falcone............... 4,305(9) *(9) 4,305 0 *
Daniel J. Murphy................. 8,609(9) *(9) 8,609 0 *
David W. Murphy.................. 4,305(9) *(9) 4,305 0 *
Dale L. Van Epps................. 6,456(9) *(9) 6,456 0 *
Michael J. Lazar................. 109,412(9) *(9) 109,412 0 *
American General Life Insurance
Company of New York............ 319,917(9) 2.15%(9) 319,917 0 *
Pioneer Properties Company of
Syracuse....................... 65,903(9) *(9) 65,903 0 *
Total being registered....... 6,536,228
</TABLE>
- ------------------------
(1) This does not assume conversion to Common Shares of all of our outstanding
preferred shares, preferred OP Units and OP Units.
(2) The Registered Shares may be offered from time to time in one or more
offerings. This assumes that all of the Common Shares being offered under
this Prospectus are sold, and that the selling security holders acquire no
additional Common Shares before the completion of this offering.
(3) This assumes that all of the OP Units held by this selling security holder
are converted into Common Shares on a 1:1 basis as of December 14, 1999.
(4) Includes 2,500 shares issuable on exercise of options to purchase Common
Shares at $10 per share.
(5) Includes 13,300 shares issuable on exercise of options to purchase Common
Shares at $10 per share.
(6) Includes 34,545 Common Shares owned by Branson Associates.
(7) Excludes 2,110 Series D Convertible Preferred Units owned through Pioneer
Property Company of Syracuse.
(8) This assumes that all of the shares of Series C Convertible Preferred Stock
held by this selling security holder are converted into Common Shares on a
1:1.59 basis as of December 14, 1999.
(9) This assumes that all of the Series D Convertible Preferred Units held by
this selling security holder are converted into Common Shares on a 1:1.52
basis as of December 14, 1999.
McBride Hudson Bay, L.P. and Jeffrey E. Kelter each received OP Units as
part of the series of transactions pursuant to which we were transformed from a
multi-family residential REIT into an office and industrial REIT (the
"Reorganization"). The closing of the Reorganization took place on December 12,
1997. Pursuant to the Amended and Restated Agreement of Limited Partnership of
the Operating Partnership, dated as of December 12, 1997, we agreed to register
the Common Shares issuable upon conversion of McBride Hudson Bay, L.P. and
Mr. Kelter's OP Units within 24 months from the date of the closing of the
Reorganization. Pursuant to a contribution agreement, dated as of August 20,
1997, McBride Hudson Bay, L.P. agreed not to convert its OP Units into Common
Shares or to sell its OP Units or Common Shares for a period of two years after
the closing of the Reorganization. In addition, McBride Hudson Bay, L.P. agreed
not to sell more than 25% of its Common Shares during the three month period
following the expiration of this lock-up period and not
13
<PAGE>
to sell more than an additional 25% of its Common Shares during each three month
period thereafter. As a result, McBride Hudson Bay, L.P. may only sell all of
its Common Shares nine months after the expiration of the lock-up period. In
connection with an agreement between Hudson Bay Partners II, L.P. ("Hudson Bay")
and us, pursuant to which Hudson Bay will purchase additional Common Shares, we
have agreed to remove this lock up restriction from Hudson Bay's OP Units and
Common Shares. In December 1999, McBride Hudson Bay, L.P. was dissolved and its
OP Units were distributed to its partners Urban Farms Shopping Center, Inc., J
Pool Associates, L.P., Oakland Industrial Park, Inc., Ramapo Ridge-McBride
Office Park, Robert Branson and Hudson Bay.
We issued 100,000 Common Shares to Jeffrey E. Kelter in April, 1999 in
return for a promissory note in the amount of $1.3 million. The purchase price
of $13 per share represented the market price of the Common Shares on the date
of the grant by the Compensation Committee. The note is an interest-free demand
note which is forgivable by the Company over a seven-year period. In addition,
the loan will be forgiven if Mr. Kelter is no longer employed by the Company
after a change of control of the Company. If Mr. Kelter's employment is
terminated for any reason other than a change of control, Mr. Kelter must repay
the loan or surrender Common Shares to the Company (at a value of $13 per share)
sufficient to repay the outstanding principal balance of the Note. Under a
Registration Rights Agreement, dated as of April 21, 1999, we agreed to register
the Common Shares issued to Mr. Kelter within six months from the date of such
agreement and Mr. Kelter agreed not to sell his Common Shares for a period of
one year from the date of such agreement.
Thomas M. O'Neil, Larry Martin, Carmel Drive Realty, MPSN and Michael
Browning (collectively, the "Indianapolis Holders") all received their OP Units
as part of the consideration paid by us to purchase four office and industrial
buildings located in Indianapolis pursuant to contribution agreements, each
dated as of December 4, 1998. Under OP Unit Recipient Agreements, each dated as
of December 4, 1998, we agreed to register the Common Shares issuable upon
conversion of the Indianapolis Holders' OP Units within one year from the date
of such agreements and each Indianapolis Holder agreed not to convert its OP
Units into Common Shares or to sell its OP Units for a period of one year from
the date of such agreements. Each of the Indianapolis Holders has agreed not to
sell more than 25% of its Common Shares during the three month period following
the expiration of the lock-up period and not to sell more than an additional 25%
of its Common Shares during each three month period thereafter. As a result,
each Indianapolis Holder may only sell all of its Common Shares nine months
after the expiration of the lock-up period.
Timothy McBride, Robert Branson, James Mulvihill, Evan Zucker, David Lesser,
Francesco Galesi and Michael J. Falcone (collectively, the "Trustee Holders")
each received Common Shares in April 1999 as compensation for services provided
by them to us in their capacity as members of our Board of Trustees during our
1998 fiscal year. Under a Registration Rights Agreement, dated as of April 23,
1999, we agreed to register the Common Shares issued to the Trustee Holders
within six months from the date of such agreement and the Trustee Holders agreed
not to sell their Common Shares for a period of one year from the date of such
agreement.
Allstate Insurance Company, Teachers Insurance and Annuity Association of
America and AEW TSF Inc. (collectively, the "Series C Holders") each purchased
their shares of Series C Convertible Preferred Stock from us in September 1999
in a privately negotiated sale pursuant to an exemption from registration under
the Securities Act of 1933, as amended. Each holder of shares of Series C
Convertible Preferred Stock may at any time convert such shares into the number
of our Common Shares obtained by dividing the aggregate liquidation preference
of such Series C Convertible Preferred Stock by a conversion price of $15.75,
subject to certain anti-dilution provisions set forth in the Articles
Supplementary relating to the Series C Convertible Preferred Stock. Pursuant to
Registration Rights Agreements, each dated as of September 27, 1999, we agreed
to register the Common Shares issuable upon conversion of the Series C
Convertible Preferred Stock held by the Series C Holders within three months of
the date of such agreements.
14
<PAGE>
Michael J. Falcone, Michael P. Falcone, Daniel J. Murphy, David W. Murphy,
Dale L. Van Epps, Michael J. Lazar, American General Life Insurance Company of
New York, and Pioneer Properties Company of Syracuse (collectively, the "Pioneer
Holders") all received their Series D Convertible Preferred Units as part of the
consideration paid by us to purchase One Park Place, an office property located
in Northern New York State from One Park Place Associates pursuant to a
contribution agreement, dated as of April 30, 1998, as amended as of August 18,
1998 and July 21, 1999. Michael J. Falcone, a member of our Board of Trustees,
had a 24.4% interest in One Park Place Associates on the date we acquired One
Park Place. Each Series D Convertible Preferred Unit is convertible at any time
into (a) at the election of the holder, the number of our Common Shares or OP
Units obtained by dividing the liquidation preference (which is $25.00 per unit)
by the conversion price (which is $16.00 per unit) (in each case subject to
certain anti-dilution provisions); or if the Operating Partnership elects to
give cash instead of our Common Shares or OP Units, (b) the amount of cash
obtained by multiplying the current market price per share of our Common Shares
by a fraction, the numerator of which is the liquidation preference and the
denominator of which is the conversion price. Under OP Unit Recipient
Agreements, each dated as of July 21, 1999, we agreed to register the Common
Shares issuable upon conversion of the Pioneer Holders' Series D Convertible
Preferred Units within three months from the date of such agreements and each
Pioneer Holder agreed not to convert its Series D Convertible Preferred Units
into Common Shares or to sell its Series D Convertible Preferred Units for a
period of six months from the date of such agreements.
At the 1998 Annual Meeting, our shareholders approved the issuance of OP
Units in exchange for a portfolio of properties owned by Michael J. Falcone and
certain of his affiliates (the "Falcone Group"). On August 19, 1998, the
Company, through our Operating Partnership, acquired a portfolio of 11 office
properties and one industrial property (the "Pioneer Portfolio") from the
Falcone Group. The purchase price of the Pioneer Portfolio, including closing
costs, was approximately $87.6 million and was funded through the assumption of
approximately $5.5 million in debt, $51.0 million from the Company's senior
secured revolving credit facility, the issuance of the OP Units and the issuance
of 720,743 Common Shares for an aggregate purchase price of $11.4 million to the
New York State Common Retirement Fund as a partial repayment of certain
indebtedness encumbering certain properties in the Pioneer Portfolio. In
addition, we agreed to purchase three other properties (including One Park
Place) and were granted the option to purchase two other properties
(collectively, the "Additional Properties"). After the closing of the Pioneer
Portfolio, the Company and the Falcone Group agreed that the only Additional
Property that we would acquire would be One Park Place. The consideration
payable by us for One Park Place was also changed from (a) $8.7 million in cash,
the assumption of $11.2 million in debt and the issuance of $2.7 million in OP
Units to (b) the assumption of $11.2 million in debt and the issuance of 450,700
Series D Preferred Units (with a liquidation value of approximately
$11.3 million).
Neither the Falcone Group nor Michael J. Falcone were affiliated with the
Company or the Operating Partnership prior to the acquisition of the Pioneer
Portfolio. Michael J. Falcone became a member of our Board of Trustees as part
of the closing of the Pioneer Portfolio. We based our determination of the
purchase price of the Pioneer Portfolio and One Park Place on the expected cash
flow, physical condition, location, competitive advantages, existing tenancies
and opportunities to retain and attract additional tenants. The purchase price
of the Pioneer Portfolio and the Additional Properties was determined by arm's
length negotiation between the Company and the Falcone Group. The purchase price
for One Park Place was determined by arm's length negotiation between the
Company and American General which owned a 50% interest in One Park Place and
was not affiliated with Mr. Falcone. The Series D Convertible Preferred Units
were issued at an agreed upon value of $16.50 (on an as-converted basis). At the
time the OP units and the Series D Convertible Preferred Units were issued the
market value of our Common Shares (based on the prior day's closing price of the
Common Shares) was $15.875 and $15.6875, respectively, and the OP Units and
Series D Convertible Preferred Units equaled approximately 13.7% and 8.3% of our
then outstanding Common
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Shares (assuming conversion of such OP units or Series D Convertible Preferred
Units to Common Shares), respectively.
Each of Messrs. James Mulvihill, Lesser, Kelter, Galesi and Michael J.
Falcone is currently a member of our Board of Trustees and Mr. Kelter is
currently our President and Chief Executive Officer. In addition, as part of the
Reorganization, we organized and agreed to spin-off at a later date a subsidiary
to enable Messrs. Mulvihill and Zucker to pursue real estate investment
opportunities other than in the office and industrial sectors in the United
States, We have not yet determined the terms of the spin-off. Each of
Messrs. Hardin and O'Keeffe were directors of our predecessor, American Real
Estate Investment Corporation, and received their Common Shares as compensation
for services provided by them to us in such capacities. David Lesser, a member
of our Board of Trustees, is the President, sole director and sole shareholder
of Hudson Bay Partners, Inc., the general partner of Hudson Bay.
In October 1999, we agreed to sell an aggregate of 1,379,310 of our Common
Shares directly to a number of persons and entities which included Jeffrey E.
Kelter, Michael J. Falcone, Francesco Galesi, James Mulvihill, Hudson Bay and
David F. McBride (a partner or shareholder, as applicable., in each of Urban
Farms Shopping Center, Inc., J Pool Associates, L.P., Oakland Industrial
Park, Inc., Ramapo Ridge-McBride Office Park and Hudson Bay) at a purchase price
of $14.50 per share. The market price of the Common Shares was $14.50 on
August 3, 1999, the date the Board of Trustees approved the issuance of the
Common Shares (based upon the closing price on the day prior to the meeting of
the Trustees). The issuance of the Common Shares will be registered under our
shelf registration statement on Form S-3 filed with the Securities and Exchange
Commission on July 10, 1998. In connection with the issuance of Common Shares,
it is anticipated that our Operating Partnership will also issue to Hudson Bay
and to Messrs. Kelter and David F. McBride approximately 278,034 OP Units in
exchange for certain warrants to acquire 300,000 Common Shares and the
cancellation of certain warrants to acquire 375,000 OP Units at an exercise
price of $11 per share or unit, which are currently held by Hudson Bay and
Messrs. Kelter and David F. McBride. On October 12, 1999 we issued and sold
68,966 of these Common Shares to Mr. Galesi, on October 29, 1999, we issued and
sold 586,207 of these Common Shares to Mr. Kelter and on December 10, 1999 we
issued and sold 89,655 of these Common Shares to Hudson Bay.
On April 30, 1998, the Company, through our Operating Partnership, issued
1,362,940 OP Units to a group which includes Francesco Galesi as part of our
acquisition of a ten building portfolio of office and industrial facilities in
Albany, New York (collectively, the "Galesi Portfolio"). The purchase price of
the Galesi Portfolio of approximately $58 million was funded through the
assumption of approximately $18.0 million in debt, $18.5 million from our senior
secured revolving credit facility and the issuance of the OP Units. The sellers
of the Galesi Portfolio were not affiliated with us or our Operating Partnership
prior to the transaction. We based our determination of the purchase price of
the Galesi Portfolio on the expected cash flow, physical condition, location,
competitive advantages, existing tenancies and opportunities to retain and
attract additional tenants. The purchase price was determined through arm's
length negotiation between us and the sellers. Francesco Galesi became a trustee
of the Company on May 5, 1998, as part of the acquisition of the Galesi
Portfolio.
We have a lease for approximately 17,575 square feet with a company in which
Michael J. Falcone serves as Chairman. As of October 1, 1999, the annual
aggregate base rental revenue for this lease is approximately $354,000. We also
have a lease for approximately 73,000 square feet with a company in which
Francesco Galesi is an executive officer and a beneficial owner of Common
Shares. As of October 1, 1999, the annual aggregate base rental revenue for this
lease is approximately $481,000. In the past, we had leases with companies in
which David F. McBride is an officer and with respect to certain of these
companies, a shareholder. These leases are no longer in place as a result of our
sale of the Urban Farms Shopping Center in March 1999 and the sale of one of the
companies to a company which is not affiliated with David F. McBride. For the
nine months ended as of September 30, 1999 we
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received approximately $70,000 in aggregate base rental revenue from these
companies. In 1998, we received approximately $235,000 in base rental revenue
for these respective leases.
We incurred costs for the nine months ended on September 30, 1999 and for
the twelve months ended on December 31, 1998 related to capital and tenant
improvements and leasing commissions of approximately $1,350,000 and $489,000,
respectively, and repair and maintenance and other costs of approximately
$14,000 and $55,000, respectively, which were earned by companies in which David
F. McBride and Michael J. Falcone are officers and shareholders.
Through the Operating Partnership's 100% ownership of the preferred stock of
Keystone Realty Services, Inc. (the "Management Company"), the Operating
Partnership is entitled to receive 95% of the amounts paid as dividends by the
Management Company. The remaining amounts paid as dividends by the Management
Company are paid to the holders of common shares of the Management Company. To
date, the Management Company has not declared or paid any dividends.
Mr. Kelter, Hudson Bay and McBride Hudson Bay, L.P., own 40%, 30% and 30%,
respectively, of the common shares of the Management Company. Mr. Lesser is the
president, sole director and sole shareholder of the general partner of Hudson
Bay Partners, L.P., and Hudson Bay. Hudson Bay (a 5% Holder) is an affiliate of
Hudson Bay Partners, L.P. Mr. David F. McBride and Hudson Bay have an interest
in McBride Hudson Bay, L.P. The Operating Partnership, in the normal course of
business, advances funds to the Management Company to fund working capital
needs. The Operating Partnership has a management agreement with the Management
Company for property management and leasing services. Under the terms of this
Agreement the Management Company receives a management fee based upon a
percentage of rent for all properties it manages. For the nine months ended on
September 30, 1999 and for the twelve months ended on December 31, 1998, the
Management Company received $1,870,000 and $1,119,000, respectively, in
management fees from us. In addition, the Management Company is reimbursed for
the salaries of certain of our executive officers and certain employees involved
in management and operations of our properties and earns leasing commissions on
leases brokered by its employees. For the nine months ending on September 30,
1999 and for the twelve months ending on December 31, 1998, the Management
Company received $2,235,000 and $294,000, respectively, in such reimbursements
and $385,000 and $84,000, respectively, in leasing commissions. We believe that
the management fee paid to the Management Company is based upon competitive
rates.
The Management Company manages two properties which are owned by entities in
which Mr. Kelter has a general partnership interest. In addition, certain other
of our executives have limited partnership interests in one of these entities.
We have agreed to indemnify certain of the selling security holders against
certain liabilities. See "Method of Sale" below.
METHOD OF SALE
This Prospectus relates to the possible offer and sale from time to time by
the selling security holders (or by pledgees, donees, transferees or other
successors in interest of such selling security holders) of their Registered
Shares. We have registered the Registered Shares for resale to provide them with
freely tradeable securities. However, registration of the Registered Shares does
not necessarily mean that they will offer or sell any of their Registered
Shares. We will not receive any proceeds from the offering or sale of their
Registered Shares.
The selling security holders (or pledgees, donees, transferees or other
successors in interest) in one or more transactions (which may involve block
crosses or transactions) may sell the Registered Shares to which this Prospectus
relates from time to time (i) on the AMEX, where our Common Shares are listed
for trading, (ii) in other markets where our Common Shares are traded, (iii) in
negotiated transactions, (iv) through short sales or put and call option
transactions through underwriters, brokers or dealers (who may act as agent or
principal), (v) through the distribution of the Registered Shares by
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any selling security holder to its partners, members or shareholders,
(vi) directly to one or more purchasers, (vii) through agents or (viii) in a
combination of such methods of sale. They may sell the Registered Shares at
prices which are current when the sales take place or at other prices to which
they agree.
Any underwriters, brokers, dealers or agents may receive compensation in the
form of discounts, concessions or commissions from the selling security holders
or such other persons who may be effecting sales hereunder (which discounts,
concessions or commissions as to particular underwriters, brokers, dealers or
agents may be in excess of those customary in the types of transactions
involved). Underwriters may sell Registered Shares to or through dealers, and
such dealers may receive compensation in the form of discounts, concessions or
commissions from the underwriters and/or commissions from the purchasers for
whom they may act as agents. The selling security holders or other persons
effecting sales hereunder, and any such underwriters, brokers, dealers and
agents may be deemed to be "underwriters" within the meaning of the Securities
Act, and any discounts or commissions they receive and any profit on the sale of
the Registered Shares they realize may be deemed to be underwriting discounts
and commissions under the Securities Act. Some sales may involve shares in which
the selling security holders have granted security interests and which are being
sold because of foreclosure of those security interests. We have agreed to
indemnify certain of the selling security holders against certain liabilities,
including liabilities arising under the Securities Act. The selling security
holders or other persons effecting sales hereunder may agree to indemnify any
such underwriters, dealers and agents against certain liabilities, including
liabilities under the Securities Act.
The selling security holders may enter into hedging transactions with
broker-dealers or other financial institutions. In connection with such
transactions, broker-dealers or other financial institutions may engage in short
sales of our Common Shares in the course of hedging the positions they assume
with selling security holders. The selling security holders may also enter into
options or other transactions with broker-dealers or other financial
institutions which require the delivery to such broker-dealer or other financial
institution of our Common Shares offered hereby, which Common Shares such
broker-dealer or other financial institution may resell pursuant to this
Prospectus (as supplemented or amended to reflect such transaction).
Under the securities laws of certain states, the Registered Shares may be
sold in such states only through registered or licensed brokers or dealers. In
addition, in certain states the Registered Shares may not be sold unless the
Registered Shares have been registered or qualified for sale in such state or an
exemption from registration or qualification is available and is complied with.
The selling security holders also may resell all or a portion of their
Registered Shares in open market transactions in reliance upon Rule 144 under
the Securities Act, provided they meet the criteria and conform to the
requirements of such rule.
Upon notification by a selling security holder that any material arrangement
has been entered into with a broker-dealer for the sale of Shares through a
block trade, special offering, exchange distribution or secondary distribution
or a purchase by a broker or dealer, we will file a supplement to this
Prospectus, if required, pursuant to Rule 424(b) under the Securities Act,
disclosing (i) the name of each such selling security holder and of the
participating broker-dealer(s), (ii) the number of Registered Shares involved,
(iii) the price at which such Registered Shares were sold, (iv) the commissions
paid or discounts or concessions allowed to such broker-dealer(s), where
applicable, (v) that such broker-dealer(s) did not conduct any investigation to
verify the information set out or incorporated by reference in this prospectus
and (vi) other facts material to the transaction.
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FEDERAL INCOME TAX CONSIDERATIONS
GENERAL
The following discussion summarizes the material federal income tax
considerations that may be relevant to a U.S. person who holds Common Shares, is
based on current law, and is not intended and should not be construed as tax
advice. The following discussion, which is not exhaustive of all possible tax
considerations, does not include a detailed discussion of any state, local or
foreign tax considerations. In addition, this discussion is intended to address
only those federal income tax considerations that are generally applicable to
all prospective U.S. shareholders and does not discuss all of the aspects of
federal income taxation that may be relevant to a prospective U.S. shareholder
in light of his or her particular circumstances or to certain types of
shareholders (including insurance companies, tax-exempt entities, financial
institutions or broker-dealers, foreign corporations and persons who are not
citizens or residents of the United States) who are subject to special treatment
under the federal income tax laws.
The statements and opinions in this discussion are based on current
provisions of the Code, existing, temporary and currently proposed Treasury
Regulations under the Code, the legislative history of the Code, existing
administrative rulings and practices of the IRS and judicial decisions. No
assurance can be given that legislative, judicial or administrative changes will
not affect the accuracy of any statements in this Prospectus with respect to
transactions entered into or contemplated prior to the effective date of such
changes. In addition, we have not requested and do not plan to request any
rulings from the IRS concerning our tax treatment or the tax treatment of the
Operating Partnership. Accordingly, no assurance can be given that the
statements set forth herein (which do not bind the IRS or the courts) will not
be challenged by the IRS or sustained by the courts if so challenged.
THIS DISCUSSION IS NOT INTENDED AS A SUBSTITUTE FOR CAREFUL TAX PLANNING. WE
ADVISE EACH PROSPECTIVE PURCHASER OF COMMON SHARES TO CONSULT WITH HIS OR HER
OWN TAX ADVISOR REGARDING THE SPECIFIC TAX CONSEQUENCES TO HIM OR HER OF THE
PURCHASE, OWNERSHIP AND SALE OF COMMON SHARES IN AN ENTITY ELECTING TO BE TAXED
AS A REIT, INCLUDING THE FEDERAL, STATE, LOCAL, FOREIGN AND OTHER TAX
CONSEQUENCES OF SUCH PURCHASE, OWNERSHIP, SALE AND ELECTION, AND OF POTENTIAL
CHANGES IN APPLICABLE TAX LAWS.
TAXATION OF THE COMPANY
GENERAL. We have elected to be taxed as a REIT under Sections 856 through
860 of the Code, commencing with our taxable year ended December 31, 1993. We
believe that we have been organized and operated in a manner so as to qualify
for taxation as a REIT under the Code, and we intend to continue to operate in
such a manner. No assurance, however, can be given that we have operated in a
manner so as to qualify as a REIT or will continue to operate in a manner so as
to remain qualified as a REIT. Qualification and taxation as a REIT depends upon
our ability to meet, on a continuing basis, through periodic operating results,
distribution levels, diversity of share ownership and other qualification tests
imposed under the Code on REITs, some of which are summarized below. While we
intend to operate so as to qualify as a REIT, given the highly complex nature of
the rules governing REITs, the ongoing importance of factual determinations and
the possibility of future changes in our circumstances, no assurance can be
given that we will so qualify for any particular year. See the section "Failure
to Qualify" in this Prospectus.
In the opinion of Rogers & Wells LLP, our counsel ("Counsel"), commencing
with our taxable year ended December 31, 1993, we have been organized and
operated in conformity with the requirements for qualification as a REIT under
the Code and our proposed method of operation and that of the Operating
Partnership will enable us to continue to meet the requirements for
qualification as a REIT. Counsel's opinion is based on various assumptions and
is conditioned upon certain of our
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representations and the representations of the Operating Partnership as to
factual matters. In addition, Counsel's opinion is based upon our factual
representations concerning our business and properties, and the business and
properties of the Operating Partnership. Unlike a tax ruling, an opinion of
counsel is not binding upon the IRS and no assurance can be given that the IRS
will not challenge our status. Moreover, such qualification and taxation as a
REIT depends upon our ability to meet, through actual annual operating results,
distribution levels, diversity of stock ownership and various other
qualification tests imposed under the Code. Counsel will not review our
compliance with the various REIT qualification tests on a periodic or continuing
basis. Accordingly, no assurance can be given that the actual results of our
operation for any one taxable year will satisfy such requirements. See the
section "Failure to Qualify" in this Prospectus.
The following is a general summary of the Code provisions that govern the
federal income tax treatment of a REIT and its shareholders. These provisions of
the Code are highly technical and complex. This summary is qualified in its
entirety by the applicable Code provisions, Treasury Regulations and
administrative and judicial interpretations thereof, all of which are subject to
change, possibly with retroactive effect.
So long as we qualify for taxation as a REIT, we generally will not be
subject to federal corporate income tax on our net income that we distribute
currently to our shareholders. This treatment substantially eliminates the
"double taxation" (taxation at both the entity and shareholder levels) that
generally results from an investment in an entity taxable as a corporation. If
we do not qualify as a REIT, we would be taxed at rates applicable to
corporations on all of our income, whether or not distributed to our
shareholders. Even if we qualify as a REIT, we will be subject to federal income
or excise tax as follows: (i) we will be taxed at regular corporate rates on any
undistributed REIT taxable income and undistributed net capital gains other than
retained capital gains as discussed below; (ii) under certain circumstances, we
may be subject to the "alternative minimum tax" on our items of tax preference,
if any; (iii) if we have (1) net income from the sale or other disposition of
"foreclosure property" (generally, property acquired by reason of a foreclosure
or otherwise on default of a loan secured by the property) that is held
primarily for sale to customers in the ordinary course of business or (2) other
non-qualifying net income from foreclosure property, we will be subject to tax
at the highest corporate rate on such income; (iv) if we have net income from
prohibited transactions (which are, in general, certain sales or other
dispositions of property (other than dispositions of foreclosure property and
dispositions of property that occur due to involuntary conversion) held
primarily for sale to customers in the ordinary course of business), such income
will be subject to a 100% tax; (v) if we should fail to satisfy the 75% gross
income test or the 95% gross income test (as discussed below), and nonetheless
maintain our qualification as a REIT because certain other requirements are met,
we will be subject to a 100% tax on the net income attributable to the greater
of the amount by which we fail the 75% or 95% test, multiplied by a fraction
intended to reflect our profitability; (vi) if we should fail to distribute with
respect to each calendar year at least the sum of (1) 85% of our REIT ordinary
income for such year, (2) 95% of our REIT capital gain net income for such year,
and (3) any undistributed taxable income from prior years, we would be subject
to a 4% excise tax on the excess of such required distribution over the amounts
actually distributed; (vii) if we acquire any asset from a C corporation (I.E.,
generally a corporation subject to full corporate-level tax) in a transaction in
which the basis of the asset in our hands is determined by reference to the
basis of the asset (or any other property) in the hands of the C corporation and
we subsequently recognize gain on the disposition of such asset in a taxable
transaction during the 10-year period (the "Recognition Period") beginning on
the date on which we acquired the asset (or we first qualified as a REIT), then
pursuant to guidelines issued by the IRS, the excess of (1) the fair market
value of the asset as of the beginning of the applicable Recognition Period,
over (2) our adjusted basis in such asset as of the beginning of such
Recognition Period will be subject to tax at the highest regular corporate rate.
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REQUIREMENTS FOR QUALIFICATION. The Code defines a REIT as a corporation,
trust or association (i) that is managed by one or more trustees or directors;
(ii) the beneficial ownership of which is evidenced by transferable shares, or
by transferable certificates of beneficial interest; (iii) that would be taxable
as a domestic corporation but for Sections 856 through 859 of the Code;
(iv) that is neither a financial institution nor an insurance company subject to
certain provisions of the Code; (v) that has the calendar year as its taxable
year; (vi) the beneficial ownership of which is held by 100 or more persons;
(vii) during the last half of each taxable year not more than 50% in value of
the outstanding stock of which is owned, directly or indirectly, by five or
fewer individuals (as defined in the Code to include certain entities); and
(viii) that meets certain other tests, described below, regarding the nature of
its income and assets. The Code provides that conditions (i) through (v),
inclusive, must be met during the entire taxable year and that condition
(vi) must be met during at least 335 days of a taxable year of 12 months, or
during a proportionate part of a taxable year of less than 12 months. Conditions
(vi) and (vii), however, will not apply until after the first taxable year for
which an election is made to be taxed as a REIT.
We believe that we currently satisfy all of the conditions listed in the
preceding paragraph. In addition, our Declaration of Trust includes restrictions
regarding the transfer of our Common Shares that are intended to assist us in
continuing to satisfy the share ownership requirements described in (vi) and
(vii) above. In rendering its opinion that we are organized in conformity with
the requirements for qualification as a REIT, Counsel is relying on our
representation that ownership of our stock satisfies condition (vii) and Counsel
expresses no opinion as to whether the ownership restrictions contained in the
Declaration of Trust preclude us from failing to satisfy condition (vii) above.
In addition, we intend to continue to comply with the Treasury Regulations
requiring us to ascertain and maintain records which disclose the actual
ownership of our shares. Although a failure to ascertain the actual ownership of
our shares will not cause our disqualification as a REIT beginning with our
taxable year ending December 31, 1998, a monetary fine may result.
We currently have several "qualified REIT subsidiaries." A corporation that
is a qualified REIT subsidiary is not treated as a separate corporation for
federal income tax purposes, and all assets, liabilities and items of income,
deduction and credit of a qualified REIT subsidiary are treated as assets,
liabilities and items of the REIT. In applying the requirements described
herein, our qualified REIT subsidiaries will be ignored, and all assets,
liabilities and items of income, deduction and credit of such subsidiaries will
be treated as our assets, liabilities and items of income, deduction and credit.
Any qualified REIT subsidiary of ours will therefore not be subject to federal
corporate income taxation, although such qualified REIT subsidiary may be
subject to state or local taxation.
In the case of a REIT that is a partner in a partnership, the REIT is deemed
to own its proportionate share of the assets of the partnership and is deemed to
receive the income of the partnership attributable to such share. In addition,
the character of the assets and gross income of the partnership shall retain the
same character in the hands of the REIT. Accordingly, our proportionate share of
the assets, liabilities and items of income of the Operating Partnership are
treated as assets, liabilities and items of income of ours for purposes of
applying the requirements described herein, provided that the Operating
Partnership is treated as a partnership for federal income tax purposes. See the
section "Other Tax Considerations--Effect of Tax Status of the Operating
Partnership on REIT Qualification" in this Prospectus.
INCOME TESTS. In order to qualify as a REIT, a company must generally
satisfy two gross income requirements on an annual basis. First, at least 75% of
its gross income (excluding gross income from prohibited transactions) for each
taxable year must be derived directly or indirectly from investments relating to
real property or mortgages on real property (including "rents from real
property" and, in certain circumstances, interest) or from certain types of
temporary investments. Second, at least 95% of its gross income (excluding gross
income from prohibited transactions) for each taxable year must be derived from
the same items which qualify under the 75% gross income test, and from
dividends,
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interest and gain from the sale or disposition of stock or securities, or from
any combination of the foregoing. In addition, short-term gain from the sale or
other disposition of stock or securities, gain from prohibited transactions and
gain on the sale or other disposition of real property held for less than four
years (apart from involuntary conversions and sales of foreclosure property)
must represent less than 30% of its gross income (including gross income from
prohibited transactions) for each taxable year beginning on or prior to
August 5, 1997. The Taxpayer Relief Act of 1997 (the "Taxpayer Relief Act")
repealed the 30% gross income test for taxable years beginning after its
enactment on August 5, 1997. Accordingly, the 30% gross income test no longer
applies beginning with our taxable year ending December 31, 1998.
Rents received by a REIT will qualify as "rents from real property" in
satisfying the gross income requirements described above only if several
conditions are met. First, the amount of rent must not be based in whole or in
part on the income or profits of any person. However, an amount received or
accrued generally will not be excluded from the term "rents from real property"
solely by reason of being based on a fixed percentage or percentages of gross
receipts or sales. Second, rents received from a tenant will not qualify as
"rents from real property" in satisfying the gross income tests if the REIT, or
a direct or indirect owner of 10% or more of the REIT, directly or
constructively, owns 10% or more of such tenant (a "Related Party Tenant").
Third, if rent attributable to personal property, leased in connection with a
lease of real property, is greater than 15% of the total rent received under the
lease, then the portion of rent attributable to such personal property will not
qualify as "rents from real property." Finally, in order for rents received with
respect to a property to qualify as "rents from real property," the REIT
generally must not operate or manage the property or furnish or render services
to tenants, except through an "independent contractor" who is adequately
compensated and from whom the REIT derives no income. The "independent
contractor" requirement, however, does not apply to the extent the services
provided by the REIT are "usually or customarily rendered" in connection with
the rental of space for occupancy only and are not otherwise considered
"rendered to the occupant." The Taxpayer Relief Act provides a DE MINIMIS rule
for non-customary services beginning with our taxable year ending December 31,
1998. Specifically, if the value of the non-customary service income with
respect to a property (valued at no less than 150% of the direct costs of
performing such services) is 1% or less of the total income derived from the
property, then all rental income except the non-customary service income will
qualify as "rents from real property."
We do not anticipate charging rent that is based in whole or in part on the
income or profits of any person (except by reason of being based on a fixed
percentage or percentages of gross receipts or sales consistent with the rules
described above). We do not anticipate receiving more than a DE MINIMIS amount
of rents from any Related Party Tenant or rents attributable to personal
property leased in connection with real property that will exceed 15% of the
total rents received with respect to such property.
We will provide certain services with respect to our Properties through the
Operating Partnership, which is not an "independent contractor." However, we
believe (and have represented to Counsel) that all of such services will be
considered "usually or customarily rendered" in connection with the rental of
space for occupancy only so that the provision of such services will not
jeopardize the qualification of rent from the Properties as "rents from real
property." In rendering its opinion on our ability to qualify as a REIT, Counsel
is relying on such representations. In the case of any services that are not
"usual and customary" under the foregoing rules, we will employ an "independent
contractor" to provide such services.
The Operating Partnership may receive certain types of income that will not
qualify under the 75% or 95% gross income tests. In particular, dividends
received from the Management Company will not qualify under the 75% test. We
believe, and have represented to Counsel, however, that the aggregate amount of
such items and other non-qualifying income in any taxable year will not cause us
to exceed the limits on non-qualifying income under the 75% and 95% gross income
tests.
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If we fail to satisfy one or both of the 75% or the 95% gross income tests
for any taxable year, we may nevertheless qualify as a REIT for such year if we
are entitled to relief under certain provisions of the Code. These relief
provisions generally will be available if our failure to meet any such tests was
due to reasonable cause and not due to willful neglect, we attach a schedule of
the sources and nature of our income to our federal income tax return and any
incorrect information on the schedule was not due to fraud with the intent to
evade tax. It is not possible, however, to state whether in all circumstances we
would be entitled to the benefit of these relief provisions. As discussed above,
even if these relief provisions were to apply, a tax would be imposed on certain
excess net income.
ASSET TESTS. At the close of each quarter of its taxable year, a REIT must
also satisfy three tests relating to the nature of its assets: (i) at least 75%
of the value of its total assets must be represented by real estate assets
(including (1) its allocable share of real estate assets held by partnerships in
which it has an interest and (2) stock or debt instruments purchased with the
proceeds of a stock offering or long-term (at least five years) debt offering of
the REIT and held for not more than one year following the receipt of such
proceeds), cash, cash items and government securities; (ii) not more than 25% of
its total assets may be represented by securities other than those in the 75%
asset class; and (iii) of the investments included in the 25% asset class, the
value of any one issuer's securities (other than an interest in a partnership or
a "qualified REIT subsidiary" or another REIT) owned by a REIT may not exceed 5%
of the value of its total assets, and it may not own more than 10% of any one
issuer's outstanding voting securities (other than an interest in a partnership
or securities of a "qualified REIT subsidiary" or another REIT).
After initially meeting the asset tests at the close of any quarter, we will
not lose our status as a REIT for failure to satisfy the asset tests at the end
of a later quarter solely by reason of changes in asset values. If a failure to
satisfy the asset tests results from an acquisition of securities or other
property during a quarter (including, for example, as a result of increasing our
interest in the Operating Partnership as a result of a merger, the exercise of
redemption rights or an additional capital contribution of proceeds of an
offering of capital shares), such failure may be cured by a disposition of
sufficient non-qualifying assets within 30 days following the close of that
quarter. We intend to maintain adequate records of the value of our assets to
ensure compliance with the asset tests and plan to take such other action within
30 days following the close of any quarter as may be required to cure any
noncompliance. However, there can be no assurance that such action will always
be successful.
ANNUAL DISTRIBUTION REQUIREMENTS. In order to qualify as a REIT, a company
is generally required to distribute to its shareholders at least 95% of its
taxable income each year. In addition, it will be subject to regular capital
gains and ordinary corporate tax rates on undistributed income, and also may be
subject to a 4% excise tax on undistributed income in certain events. We believe
that we have made, and intend to continue to make, timely distributions
sufficient to satisfy the annual distribution requirements. However, it is
possible that, from time to time, we may not have sufficient cash or other
liquid assets to meet the distribution requirements. In such circumstances, we
may cause the Operating Partnership to arrange for short-term, or possibly
long-term, borrowings to permit the payment of required dividends.
Under certain circumstances, we may be able to rectify a failure to meet the
distribution requirement for a taxable year by paying "deficiency dividends" to
shareholders in a later year that may be included in our deduction for dividends
paid for the earlier year. Thus, we may be able to avoid being taxed on amounts
distributed as deficiency dividends. However, we would be required to pay to the
IRS interest based upon the amount of any deduction taken for deficiency
dividends.
FAILURE TO QUALIFY. If we fail to qualify for taxation as a REIT in any
taxable year and special relief provisions do not apply, we will be subject to
tax (including any applicable alternative minimum tax) on our taxable income at
regular corporate rates. Distributions to shareholders in any year in which we
fail to qualify as a REIT will not be deductible, nor will they be required to
be made. In such
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<PAGE>
event, to the extent of current and accumulated earnings and profits, all
distributions to our shareholders will be taxable as ordinary income and,
subject to certain limitations in the Code, corporate distributees may be
eligible for the "dividends received deduction." In addition, our failure to
qualify as a REIT would also substantially reduce the cash available for
distributions to shareholders. Unless entitled to relief under specific
statutory provisions, we also would be disqualified from taxation as a REIT for
the four taxable years following the year during which qualification was lost.
It is not possible to state whether in all circumstances we would be entitled to
such statutory relief.
TAXATION OF SHAREHOLDERS
TAXATION OF TAXABLE DOMESTIC SHAREHOLDERS. As long as we qualify as a REIT,
distributions made to our taxable domestic shareholders out of current or
accumulated earnings and profits (and not designated as capital gain dividends)
will constitute dividends taxable as ordinary income, and corporate shareholders
will not be eligible for the dividends received deduction as to such amounts.
Distributions that are designated as capital gain dividends will be taxed as
gains from the sale or exchange of a capital asset (to the extent they do not
exceed our actual net capital gain for the taxable year) without regard to the
period for which the shareholder has held its shares. If we designate any
portion of a dividend as a capital gain dividend, a shareholder's share of such
capital gain dividend would be an amount which bears the same ratio to the total
amount of dividends paid to such shareholder for the taxable year as the total
amount of capital gain dividends bears to the total amount of all dividends paid
on all classes of shares for the taxable year. However, corporate shareholders
may be required to treat up to 20% of certain capital gain dividends as ordinary
income. We may elect to retain and pay income tax on any net long-term capital
gain, in which case our domestic shareholders would include in their income as
long-term capital gain their proportionate share of such undistributed net
long-term capital gain. A domestic shareholder would also receive a refundable
tax credit for such shareholder's proportionate share of the tax paid by us on
such retained capital gains and an increase in its basis in our shares in an
amount equal to the difference between the undistributed long-term capital gains
and the amount of tax paid by us. See "Capital Gains and Losses" below.
Distributions in excess of current and accumulated earnings and profits will
not be taxable to a shareholder to the extent that they do not exceed the
adjusted basis of the shareholder's Common Shares, but rather will reduce the
adjusted basis of such Common Shares. To the extent that such distributions
exceed the adjusted basis of a shareholder's Common Shares, they will be
included in income as short-term or long-term capital gain (depending on the
length of time the shares have been held), assuming the Common Shares are a
capital asset in the hands of the shareholder. In addition, any dividend
declared by us in October, November or December of any year and payable to a
shareholder of record on a specific date in any such month shall be treated as
both paid by us and received by the shareholder on December 31 of such year,
provided that the dividend is actually paid by us during January of the
following calendar year. Shareholders may not include in their individual income
tax returns any of our net operating losses or capital losses.
In general, a domestic shareholder will realize capital gain or loss on the
disposition of Common Shares equal to the difference between (i) the amount of
cash and the fair market value of any property received on such disposition, and
(ii) the shareholder's adjusted basis of such Common Shares. Such gain or loss
generally will constitute short-term capital gain or loss if the shareholder has
not held such shares for more than one year and long-term capital gain or loss
if the shareholder has held such shares for more than one year. See "Capital
Gains and Losses" below. Loss upon a sale or exchange of Common Shares by a
shareholder who has held such Common Shares for six months or less (after
applying certain holding period rules) will be treated as a long-term capital
loss to the extent of distributions from us required to be treated by such
shareholder as long-term capital gain.
CAPITAL GAINS AND LOSSES. The maximum marginal individual federal income
tax rate is 39.6%. The maximum tax rate on net capital gains applicable to
individuals, trusts and estates from the sale or
24
<PAGE>
exchange of capital assets held for more than one year is 20%, and the maximum
rate is reduced to 18% for assets acquired after December 31, 2000 and held for
more than five years. For individuals, trusts and estates who would be subject
to a maximum tax rate of 15%, the rate on net capital gains is reduced to 10%,
and, effective for taxable years commencing after December 31, 2000, the rate is
reduced to 8% for assets held for more than five years. The maximum rate for net
capital gains attributable to the sale of depreciable real property held for
more than one year is 25% to the extent of the deductions for depreciation
(other than certain depreciation recapture taxable as ordinary income) with
respect to such property. Accordingly, the tax rate differential between capital
gain and ordinary income for non-corporate taxpayers may be significant. In
addition, the characterization of income as capital or ordinary may affect the
deductibility of capital losses. Capital losses not offset by capital gains may
be deducted against a non-corporate taxpayer's ordinary income only up to a
maximum annual amount of $3,000. Unused capital losses may be carried forward.
All net capital gain of a corporate taxpayer is subject to tax at ordinary
corporate rates. A corporate taxpayer can deduct capital losses only to the
extent of capital gains, with unused losses being carried back three years and
forward five years.
BACKUP WITHHOLDING. We will report to our domestic shareholders and the IRS
the amount of dividends paid during each calendar year and the amount of tax
withheld, if any, with respect thereto. Under the backup withholding rules, a
shareholder may be subject to backup withholding at the rate of 31% with respect
to dividends paid unless such holder (i) is a corporation or comes within
certain other exempt categories and, when required, demonstrates this fact or
(ii) provides a taxpayer identification number, certifies as to no loss of
exemption and otherwise complies with the applicable requirements of the backup
withholdings rules. Any amount paid as backup withholding will be creditable
against the shareholder's income tax liability. The United States Treasury has
issued final regulations on October 6, 1997 (the "Final Regulations") regarding
the withholding and information reporting rules discussed above. In general, the
Final Regulations do not alter the substantive withholding and information
reporting requirements but unify current certification procedures and forms and
clarify and modify reliance standards. The Final Regulations are generally
effective for payments made after December 31, 2000, subject to certain
transition rules. Prospective investors should consult their own tax advisors
concerning the adoption of the Final Regulations and the potential effect on
their ownership of Common Shares.
In addition, we may be required to withhold a portion of capital gain
dividends made to any shareholders which fail to certify their non-foreign
status to us. See "Taxation of Foreign Shareholders" below.
TAXATION OF TAX-EXEMPT SHAREHOLDERS. Distributions that we make to a
shareholder that is a tax-exempt entity will not constitute "unrelated business
taxable income" ("UBTI"), provided that the tax-exempt entity has not financed
the acquisition of Common Shares with "acquisition indebtedness" within the
meaning of the Code and the Common Shares are not otherwise used in an unrelated
trade or business of the tax-exempt entity. In addition, under certain
circumstances, qualified trusts that own more than 10% (by value) of our shares
may be required to treat a certain percentage of dividends as UBTI. This
requirement will only apply if we are a "pension-held REIT." The restrictions on
ownership in our Declaration of Trust should prevent us from being classified as
a pension-held REIT.
TAXATION OF FOREIGN SHAREHOLDERS. The rules governing the United States
federal income taxation of the ownership and disposition of Common Shares by
persons that are, for purposes of such taxation, nonresident alien individuals,
foreign corporations, foreign partnerships and other foreign shareholders
(collectively, "Non-U.S. Shareholders") are complex and no attempt will be made
herein to provide more than a very limited summary of such rules. PROSPECTIVE
NON-U.S. SHAREHOLDERS SHOULD CONSULT WITH THEIR OWN TAX ADVISORS TO DETERMINE
THE IMPACT OF FEDERAL, STATE, AND LOCAL INCOME TAX LAWS WITH REGARD TO AN
INVESTMENT IN
25
<PAGE>
SHARES, INCLUDING ANY REPORTING REQUIREMENTS, AS WELL AS THE TAX TREATMENT OF
SUCH AN INVESTMENT UNDER THEIR HOME COUNTRY LAWS.
Distributions that are not attributable to gain from sales or exchanges of
U.S. real property interests and not designated by us as capital gain dividends
will be treated as dividends and taxed as ordinary income to the extent that
they are made out of our current or accumulated earnings and profits. Such
distributions are, generally, subject to a withholding tax equal to 30% of the
gross amount of the distribution, unless an applicable tax treaty reduces that
tax. Distributions in excess of our current and accumulated earnings and profits
will not be taxable to a Non-U.S. Shareholder to the extent that they do not
exceed the adjusted basis of the Non-U.S. Shareholder's Common Shares, but
rather will reduce the adjusted basis of such Common Shares. To the extent that
such distributions exceed the adjusted basis of a Non-U.S. Shareholder's Common
Shares, they will give rise to tax liability if the Non-U.S. Shareholder
otherwise would be subject to tax on any gain from the sale or disposition of
his Common Shares as described below (in which case they also may be subject to
a 30% branch profits tax if the shareholder is a foreign corporation).
For withholding tax purposes, we are currently required to treat all
distributions as if made out of our current or accumulated earnings and profits
and thus intend to withhold at the rate of 30% (or a reduced treaty rate if
applicable) on the amount of any distribution (other than distributions
designated as capital gain dividends) made to a Non-U.S. Shareholder. Under the
Final Regulations, generally effective for distributions after December 31,
2000, we would not be required to withhold at the 30% rate on distributions we
reasonably estimate to be in excess of our current and accumulated earnings and
profits. If it cannot be determined at the time a distribution is made whether
such distribution will be in excess of current and accumulated earnings and
profits, the distribution will be subject to withholding at the rate applicable
to ordinary dividends. However, a Non-U.S. Shareholder may seek a refund of such
amounts from the IRS if it is subsequently determined that such distribution
was, in fact, in excess of our current or accumulated earnings and profits, and
the amount withheld exceeded the Non-U.S. Shareholder's United States tax
liability, if any, with respect to the distribution.
For any year in which we qualify as a REIT, distributions that are
attributable to gain from sales or exchanges of U.S. real property interests
will be taxed to a Non-U.S. Shareholder under the provisions of the Foreign
Investment in Real Property Tax Act of 1980 ("FIRPTA") at the normal capital
gain rates applicable to U.S. shareholders (subject to applicable alternative
minimum tax and a special alternative minimum tax in the case of nonresident
alien individuals). Also, distributions subject to FIRPTA may be subject to a
30% branch profits tax in the hands of a corporate Non-U.S. Shareholder not
entitled to treaty relief or exemption. We are required by the Code to withhold
35% of any distribution that could be designated by us as a capital gain
dividend. This amount is creditable against the Non-U.S. Shareholder's FIRPTA
tax liability.
Gain recognized by a Non-U.S. Shareholder upon a sale of Common Shares will
generally not be taxed under FIRPTA if we are a "domestically controlled REIT,"
defined generally as a REIT in which, at all times during a specified testing
period, less than 50% in value of the shares was held directly or indirectly by
foreign persons. We believe that we are a "domestically controlled REIT" and,
therefore, the sale of Common Shares will not be subject to taxation under
FIRPTA. However, because the Common Shares are publicly traded, no assurance can
be given that we will continue to qualify as a "domestically controlled REIT."
If the gain on the sale of Common Shares were to be subject to tax under FIRPTA,
the Non-U.S. Shareholder would be subject to the same treatment as U.S.
shareholders with respect to such gain (subject to applicable alternative
minimum tax, possible withholding tax and a special alternative minimum tax in
the case of nonresident alien individuals), and the purchaser of the Common
Shares would be required to withhold and remit to the IRS 10% of the purchase
price. In addition, if we are not a "domestically controlled REIT,"
distributions in excess of our current and accumulated earnings and profits
would be subject to withholding at a rate of 10%.
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<PAGE>
OTHER TAX CONSIDERATIONS
EFFECT OF TAX STATUS OF THE OPERATING PARTNERSHIP ON REIT
QUALIFICATION. All of our investments are through the Operating Partnership. We
believe that the Operating Partnership is properly treated as a partnership for
tax purposes (and not as an association taxable as a corporation). If, however,
the Operating Partnership were to be treated as an association taxable as a
corporation, we would cease to qualify as a REIT. Furthermore, in such a
situation, the Operating Partnership would be subject to corporate income taxes
and we would not be able to deduct our share of any losses generated by the
Operating Partnership in computing our taxable income.
TAX ALLOCATIONS WITH RESPECT TO THE PROPERTIES. The Operating Partnership
was formed by way of contributions of appreciated property (including certain of
the Properties). When property is contributed to a partnership in exchange for
an interest in the partnership, the partnership generally takes a carryover
basis in that property for tax purposes equal to the adjusted basis of the
contributing partner in the property, rather than a basis equal to the fair
market value of the property at the time of contribution (this difference is
referred to as a "Book-Tax Difference"). The partnership agreement of the
Operating Partnership requires allocations of income, gain, loss and deduction
with respect to contributed Property to be made in a manner consistent with the
special rules in Section 704(c) of the Code, and the regulations thereunder,
which tend to eliminate the Book-Tax Differences with respect to the contributed
Properties over the depreciable lives of the contributed Properties. However,
because of certain technical limitations, the special allocation rules of
Section 704(c) may not always entirely eliminate the Book-Tax Difference on an
annual basis or with respect to a specific taxable transaction such as a sale.
Thus, the carryover basis of the contributed Properties in the hands of the
Operating Partnership could cause us to be allocated lower amounts of
depreciation and other deductions for tax purposes than would be allocated to us
if all Properties were to have a tax basis equal to their fair market value at
the time of acquisition. The foregoing principles also apply in determining our
earnings and profits for purposes of determining the portion of distributions
taxable as dividend income. The application of these rules over time may result
in a higher portion of distributions being taxed as dividends than would have
occurred had we purchased our interests in the Properties at their agreed value.
Treasury Regulations under Section 704(c) of the Code allow partnerships to
use any reasonable method of accounting for Book-Tax Differences so that the
contributing partner receives the tax benefits and burdens of any built-in gain
or loss associated with the property. The Operating Partnership has determined
to use the "traditional method"(which is specifically approved in the Treasury
Regulations) for accounting for Book-Tax Differences with respect to the
contributed Properties.
STATE AND LOCAL TAXES. We and our shareholders may be subject to state or
local taxation in various state or local jurisdictions, including those in which
we or they transact business or reside. The state and local tax treatment of us
and our shareholders may not conform to the federal income tax consequences
discussed above. Consequently, prospective shareholders should consult with
their own tax advisors regarding the effect of state, local and other tax laws
of any investment in our Common Shares.
POTENTIAL LEGISLATIVE ACTION REGARDING REITS. During 1999, the Clinton
Administration released a summary of its proposed budget plan and various
legislation was introduced in Congress which contained several proposals
affecting REITs. One such proposal, if enacted in its present form, would
prohibit a REIT from holding securities representing more than 10% of the value
of all classes of stock of a corporation, other than a qualified REIT subsidiary
or another REIT. However, REITs would be allowed to hold certain "taxable REIT
subsidiaries" which would be subject to full corporate level taxation. Under the
proposal, we would be allowed to combine or convert our existing stock interest
in the Management Company into a "taxable REIT subsidiary," subject to certain
transition rules. If
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<PAGE>
enacted in its present form, the proposal may limit the future activities and
growth of the Management Company. No prediction can be made as to whether such
proposal or any other proposal affecting REITs will be enacted into legislation
and the impact of any such legislation on our operations.
LEGAL MATTERS
Piper Marbury Rudnick & Wolfe LLP, Baltimore, Maryland shall pass upon the
validity of the Common Shares offered by this Prospectus. Rogers & Wells LLP,
New York, New York shall pass upon certain legal matters described under
"Federal Income Tax Considerations."
EXPERTS
The consolidated financial statements and the related financial statement
schedule of Keystone Property Trust and subsidiaries (formerly American Real
Estate Investment Corporation) incorporated by reference in this Prospectus have
been audited by Arthur Andersen LLP, independent public accountants, to the
extent and for the periods indicated in their reports and are incorporated by
reference herein and have been so incorporated in reliance upon the authority of
said firm as experts in giving said reports.
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PART II. INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the estimated expenses in connection with the
issuance and distribution of the securities being registered, other than
underwriting discounts and commissions:
<TABLE>
<S> <C>
REGISTRATION FEE--SECURITIES AND EXCHANGE COMMISSION........ 26,643
ACCOUNTING FEES AND EXPENSES................................ 1,500 (A)
LEGAL FEES AND EXPENSES..................................... 25,00 (A)
PRINTING AND ENGRAVING EXPENSES............................. 5,000 (A)
MISCELLANEOUS............................................... 15,000 (A)
---------
TOTAL....................................................... 50,643
</TABLE>
- ------------------------
(A) DOES NOT INCLUDE EXPENSES OF PREPARING PROSPECTUS SUPPLEMENTS AND OTHER
EXPENSES RELATING TO OFFERINGS OF PARTICULAR SECURITIES.
ITEM 15. INDEMNIFICATION OF TRUSTEES AND OFFICERS
As permitted by Title 8 of the Corporations and Associations Articles of the
Annotated Code of Maryland ("Title 8"), our Declaration of Trust provides that
we shall indemnify (i) our trustees and officers to the fullest extent required
or permitted by Maryland law, including the advance of expenses under the
procedures and to the full extent permitted by law and (ii) other employees and
agents to such extent as shall be authorized by our Board of Trustees or our
Bylaws and be permitted by law. Title 8 requires a real estate investment trust
(a "Trust") to indemnify its present and former trustees and officers, among
others, against expenses incurred by them in connection with a proceedings where
the trustee or officer has been successful, on the merits or otherwise, in the
defense of any such proceedings. In addition, Title 8 permits a Trust to
indemnify its present and former trustees and officers, among others, against
judgments, penalties, fines, settlements and reasonable expenses actually
incurred by them in connection with any proceeding to which they may be made a
party by reason of their service in those or other capacities, unless it is
established that (a) the act or omission of the trustee or officer was material
to the matter giving rise to the proceeding and (i) was committed in bad faith,
or (ii) was the result of active and deliberate dishonesty, (b) the trustee or
officer actually received an improper personal benefit in money, property or
services or (c) in the case of any criminal proceeding, the trustee or officer
had reasonable cause to believe that the act or omission was unlawful.
As permitted by Title 8, our Declaration of Trust provides that no trustee,
officer, employee or agent shall be personally liable to the Trust or its
shareholders to the fullest extent permitted by Maryland law. Title 8 permits a
Trust to limit the liability of its trustees and officers to the Trust and its
shareholders for money damages, except to the extent that (1) it is provided
that the person actually received an improper benefit or profit in money,
property or services or (2) a judgment or other final adjudication is entered in
a proceeding based on a finding that the person's action, or failure to act, was
the result of active and deliberate dishonesty and was material to the cause of
action adjudicated in the proceeding.
We have a trustee and officer liability insurance policy with a $5,000,000
limit of liability and a company retention of $75,000 in the aggregate for each
claim.
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ITEM 16. EXHIBITS
<TABLE>
<C> <S>
2.1 Articles of Merger (incorporated by reference to Exhibit 2.1
of our Form 8-K, filed with the Commission on October 13,
1999 (File 1-12514)).
2.2 Agreement and Plan of Merger (incorporated by reference to
Exhibit 2.2 of our Registration Statement on Form S-3, filed
with the Commission on October 15, 1999 (File 333-89095)).
3.1 Declaration of Trust of the Registrant (incorporated by
reference to Exhibit 3.1 of our Registration Statement on
Form S-3, filed with the Commission on October 15, 1999
(File 333-89095)).
3.2 Articles Supplementary of the Registrant relating to our
Series A Convertible Preferred Stock (incorporated by
reference to Exhibit 3.2 of our Registration Statement on
Form S-3, filed with the Commission on October 15, 1999
(File 333-89095)).
3.3 Articles Supplementary of the Registrant relating to the
Series B Convertible Preferred Stock (incorporated by
reference to Exhibit 10.3 of our Form 10-Q, filed with the
Commission on November 15, 1999 (File 001-12514)).
3.4 Articles Supplementary of the Registrant relating to our
Series C Convertible Preferred Stock (incorporated by
reference to Exhibit 10.4 of our Form 10-Q, filed with the
Commission on November 15, 1999 (File 001-12514)).
3.5 By-Laws of the Registrant (incorporated by reference to
Exhibit 3.5 of our Registration Statement on Form S-3, filed
with the Commission on October 15, 1999 (File 333-89095)).
3.6 Specimen of Share Certificate (incorporated by reference to
our Registration Statement on
Form S-3, filed with the Commission on October 15, 1999
(File 333-89095)).
5 Opinion of Piper Marbury Rudnick & Wolfe LLP.
8 Opinion of Rogers & Wells LLP regarding tax matters.
23.1 Consent of Rogers & Wells LLP (included in Exhibit 8).
23.2 Consent of Piper Marbury Rudnick & Wolfe LLP (included in
Exhibit 5).
23.3 Consent of Arthur Andersen LLP.
24 Powers of Attorney (included on signature pages hereto).
</TABLE>
ITEM 17. UNDERTAKINGS
The undersigned registrant hereby undertakes:
1. To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement:
(i). To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii). To reflect in the prospectus any facts or events arising after the
effective date of this Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in this
Registration Statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering range
may be reflected in the form of prospectus filed with the Commission
pursuant to Rule 424(b) if, in the aggregate, the changes in volume and
price represent no more than a 20% change in the
II-2
<PAGE>
maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective Registration Statement; and
(iii). To include any material information with respect to the plan of
distribution not previously disclosed in this Registration Statement or any
material change to such information in the Registration Statement;
PROVIDED, HOWEVER, that the undertakings set forth in paragraphs (i) and
(ii) above shall not apply if the information required to be included in a
post-effective amendment by those paragraphs is contained in periodic reports
filed by the Registrant pursuant to Section 13 or Section 15(d) of the Exchange
Act that are incorporated by reference in this Registration Statement.
2. That, for the purpose of determining any liability under the Securities
Act, each such post-effective amendment will be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such
securities at that time will be deemed to be the initial bona fide offering
thereof.
3. To remove from registration by means of a post-effective amendment any of
the securities being registered which remain unsold at the termination of the
offering.
4. That, for purposes of determining any liability under the Securities Act,
each filing of the Registrant's annual report pursuant to Section 13(a) or
Section 15(d) of the Exchange Act that is incorporated by reference in this
Registration Statement will be deemed to be a new registration statement
relating to the securities offered herein, and the offering of such securities
at that time will be deemed to be the initial bona fide offering thereof.
5. That, (i) for purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective and (ii) for the purpose of
determining any liability under the Securities Act, each post-effective
amendment that contains a form of prospectus shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act may
be permitted to trustees, officers and controlling persons of the Registrant
pursuant to the foregoing provisions, or otherwise, the Registrant has been
advised that in the opinion of the Commission such indemnification is against
public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a trustee, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
trustee, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of counsel for the
Registrant the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Securities Act and will be
governed by the final adjudication of such issue.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of New York and State of New York on December 14, 1999.
<TABLE>
<S> <C> <C>
KEYSTONE PROPERTY TRUST
By: /s/ JEFFREY E. KELTER
-----------------------------------------
Jeffrey E. Kelter
PRESIDENT
</TABLE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below hereby constitutes and appoints Jeffrey E. Kelter, Timothy A. Peterson and
Timothy E. McKenna, and each of them, his true and lawful attorneys-in-fact and
agents, with full power of substitution and resubstitution, for him and in his
name, place and stead, in any and all capacities, to sign any and all
amendments, including any post-effective amendments, to this Registration
Statement on Form S-3 and any registration statement for the same offering that
is to be effective upon filing pursuant to Rule 462(b) under the Securities Act
of 1933, as amended, and any and all applications and other documents in
connection therewith, with the Securities and Exchange Commission and any state
or other securities authority, granting unto said attorneys-in-fact and agents,
and each of them full power and authority to do and perform each and every act
and thing requisite and necessary to be done in and about the premises, as fully
to all intents and purposes as he might or could do in person, hereby ratifying
and confirming all that said attorneys-in-fact or agents, or any of them, or his
substitute or substitutes may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
NAME TITLE DATE
---- ----- ----
<S> <C> <C>
/s/ DAVID F. MCBRIDE Chairman And Trustee
------------------------------------------- December 14, 1999
David F. Mcbride
President and Chief
/s/ JEFFREY E. KELTER Executive Officer And
------------------------------------------- Trustee (Principal December 14, 1999
Jeffrey E. Kelter Executive Officer)
Chief Financial Officer And
/s/ TIMOTHY A. PETERSON Assistant Secretary
------------------------------------------- (Principal Financial December 14, 1999
Timothy A. Peterson Officer)
/s/ TIMOTHY E. MCKENNA Senior Vice President and
------------------------------------------- Treasurer (Principal December 14, 1999
Timothy E. McKenna Accounting Officer)
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
NAME TITLE DATE
---- ----- ----
<S> <C> <C>
Trustee
------------------------------------------- December 14, 1999
Russell C. Platt
/s/ FRANCESCO GALESI Trustee
------------------------------------------- December 14, 1999
Francesco Galesi
/s/ MICHAEL J. FALCONE Trustee
------------------------------------------- December 14, 1999
Michael J. Falcone
/s/ DAVID H. LESSER Trustee
------------------------------------------- December 14, 1999
David H. Lesser
/s/ JAMES R. MULVIHILL Trustee
------------------------------------------- December 14, 1999
James R. Mulvihill
/s/ SCOTT H. RECHLER Trustee
------------------------------------------- December 14, 1999
Scott H. Rechler
/s/ JOSEPH D. MORRIS Trustee
------------------------------------------- December 14, 1999
Joseph D. Morris
</TABLE>
II-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBITS PAGE
- -------- ----
<C> <S> <C>
2.1 Articles of Merger (incorporated by reference to Exhibit 2.1
of our Form 8-K, filed with the Commission on October 13,
1999 (File 1-12514)).
2.2 Agreement and Plan of Merger (incorporated by reference to
Exhibit 2.2 of our Registration Statement on Form S-3, filed
with the Commission on October 15, 1999 (File 333-89095)).
3.1 Declaration of Trust of the Registrant (incorporated by
reference to Exhibit 3.1 of our Registration Statement on
Form S-3, filed with the Commission on October 15, 1999
(File 333-89095)).
3.2 Articles Supplementary of the Registrant relating to our
Series A Convertible Preferred Stock (incorporated by
reference to Exhibit 3.2 of our Registration Statement on
Form S-3, filed with the Commission on October 15, 1999
(File 333-89095)).
3.3 Articles Supplementary of the Registrant relating to the
Series B Convertible Preferred Stock (incorporated by
reference to Exhibit 3.3 of our Registration Statement on
Form S-3, filed with the Commission on October 15, 1999
(File 333-89095)).
3.4 Articles Supplementary of the Registrant relating to our
Series C Convertible Preferred Stock (incorporated by
reference to Exhibit 3.4 of our Registration Statement on
Form S-3, filed with the Commission on October 15, 1999
(File 333-89095)).
3.5 By-Laws of the Registrant (incorporated by reference to
Exhibit 3.5 of our Registration Statement on Form S-3, filed
with the Commission on October 15, 1999 (File 333-89095)).
3.6 Specimen of Share Certificate (incorporated by reference to
our Registration Statement on Form S-3, filed with the
Commission on October 15, 1999 (File 333-89095)).
5 Opinion of Piper Marbury Rudnick & Wolfe LLP.
8 Opinion of Rogers & Wells LLP regarding tax matters.
23.1 Consent of Rogers & Wells LLP (included in Exhibit 8).
23.2 Consent of Piper Marbury Rudnick & Wolfe LLP (included in
Exhibit 5).
23.3 Consent of Arthur Andersen LLP.
24 Powers of Attorney (included on signature pages hereto).
</TABLE>
<PAGE>
[Letterhead of Piper Marbury Rudnick & Wolfe LLP]
EXHIBIT 5
December 10, 1999
Keystone Property Trust
200 Four Falls Corporate Center, Suite 208
West Conshohocken, Pennsylvania 19428
Ladies and Gentlemen:
We have acted as special Maryland counsel to Keystone Property Trust, a
Maryland real estate investment trust (the "Trust"), in connection with the
registration under the Securities Act of 1933, as amended (the "Securities
Act"), pursuant to a Registration Statement on Form S-3 of the Trust (the
"Registration Statement") to be filed on December 14, 1999 with the Securities
and Exchange Commission (the "Commission"), of up to 6,536,228 Common Shares
(the "Shares"), par value $.001 per share, to be offered and sold from time to
time by certain selling stockholders of the Trust listed in the Registration
Statement. This opinion is being furnished to you at your request in connection
with the filing of the Registration Statement.
In rendering the opinion expressed herein, we have reviewed originals or
copies, certified or otherwise identified to our satisfaction, of the
Registration Statement, the Declaration of Trust and Bylaws of the Trust, the
proceedings of the Board of Trustees of the Trust or a committee thereof
relating to the organization of the Trust and to the authorization and issuance
of the Shares, a Certificate of the Assistant Secretary of the Trust (the
"Certificate"), and such other statutes, certificates, instruments, and
documents relating to the Trust and matters of law as we have deemed necessary
to the issuance of this opinion.
In our examination of the aforesaid documents, we have assumed, without
independent investigation, the genuineness of all signatures, the legal capacity
of all individuals who have executed any of the aforesaid documents, the
authenticity of all documents submitted to us as originals, the conformity with
originals of all documents submitted to us as copies (and the authenticity of
the originals of such copies), and the accuracy and completeness of all public
records reviewed by us. In making our examination of documents executed by
parties other than the Trust, we have assumed that such parties had the power,
corporate or other, to enter into and perform all obligations thereunder, and we
have also assumed the due authorization by all requisite action, corporate or
other, and the valid execution and delivery by such parties of such documents
and the validity, binding effect and enforceability thereof with respect to such
parties. As to any facts materials to this opinion which we did not
independently establish or verify, we have relied solely upon the Certificate.
Based upon the foregoing, having regard for such legal considerations as we
deem relevant, and limited in all respects to applicable Maryland law, we are of
the opinion and advise you that:
(1) The Trust has been duly formed and is validly existing as a real
estate investment trust in good standing under the laws of the State of
Maryland.
(2) The Shares have been duly authorized and, when issued as
contemplated by the resolutions authorizing their issuance, will be validly
issued, fully paid, and non-assessable.
In addition to the qualifications set forth above, this opinion is subject
to the qualification that we express no opinion as to the laws of any
jurisdiction other than the State of Maryland. We assume that the issuance of
the Shares will not cause (i) the Trust to issue Common Shares in excess of the
number of Common Shares authorized by the Trust's Declaration of Trust at the
time of their issuance or (ii) any person to violate any of the Ownership Limit,
Excepted Holder Limit, Hudson Bay Excepted Holder Limit, or McBride Family
Excepted Holder Limit provisions of the Trust's Declaration of Trust (as defined
in Article VIII thereof). This opinion concerns only the effect of the laws
(exclusive of the
<PAGE>
Keystone Property Trust
December 10, 1999
Page
securities or "blue sky" laws and the principles of conflict of laws) of the
State of Maryland as currently in effect. We assume no obligation to supplement
this opinion if any applicable laws change after the date hereof or if any facts
or circumstances come to our attention after the date hereof that might change
this opinion. To the extent that any documents referred to herein are governed
by the laws of a jurisdiction other than the State of Maryland, we have assumed
that the laws of such jurisdiction are the same as the laws of the State of
Maryland. This opinion is limited to the matters set forth herein, and no other
opinion should be inferred beyond the matters expressly stated.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to our firm under the heading "Legal
Matters" in the Prospectus included in the Registration Statement. In giving our
consent, we do not thereby admit that we are in the category of persons whose
consent is required under Section 7 of the Securities Act or the rules and
regulations of the Commission thereunder.
Very truly yours,
/s/ Piper Marbury Rudnick & Wolfe LLP
<PAGE>
[Letterhead of Rogers & Wells LLP]
EXHIBIT 8
December 14, 1999
Keystone Property Trust
200 Four Falls Corporate Center, Suite 208
West Conshohocken, PA 19428
Re: REIT Status of Keystone Property Trust
Ladies and Gentlemen:
We have acted as counsel to Keystone Property Trust, a Maryland real estate
investment trust (the "Company") and the general partner of Keystone Operating
Partnership, L.P., a Delaware limited partnership (the "Operating Partnership"),
in connection with the preparation and filing of the Company's Registration
Statement on Form S-3 (as the same may be amended or supplemented from time to
time, the "Registration Statement") with the Securities and Exchange Commission
(the "Commission") under the Securities Act of 1933, as amended (the "Securities
Act"), covering the offer and sale from time to time by the security holders
listed in the Registration Statement of up to 6,536,228 common shares, par value
$0.001 per share (the "Shares"), of the Company. This opinion is being provided
at your request in connection with the filing of the Registration Statement.
In rendering the opinion expressed herein, we have examined and relied on
the following items:
1. The Registration Statement;
2. The Company's Declaration of Trust;
3. The Amended and Restated Agreement of Limited Partnership of the
Operating Partnership dated December 12, 1997, as amended to the date
hereof; and
4. Such other documents, records and instruments as we have deemed
necessary in order to enable us to render the opinion referred to in this
letter.
In our examination of the foregoing documents, we have assumed, with your
consent, that (i) all documents reviewed by us are original documents, or true
and accurate copies of original documents, and have not been subsequently
amended, (ii) the signatures of each original document are genuine, (iii) each
party who executed the document had proper authority and capacity, (iv) all
representations and statements set forth in such documents are true and correct,
(v) all obligations imposed by any such documents on the parties thereto have
been or will be performed or satisfied in accordance with their terms and
(vi) the Company and the Operating Partnership at all times have been and will
continue to be organized and operated in accordance with the terms of such
documents. We have further assumed the accuracy of the statements and
descriptions of the Company's and the Operating Partnership's intended
activities as described in the Registration Statement and that the Company and
the Operating Partnership have operated and will continue to operate in
accordance with the method of operation described in the Registration Statement.
For purposes of rendering the opinion stated below, we have also assumed,
with your consent, the accuracy of the representations contained in the
Certificate of Representations, dated December 14, 1999, provided to us by the
Company and the Operating Partnership. These representations generally relate to
the classification and operation of the Company as a REIT and the organization
and operation of the Operating Partnership.
<PAGE>
Keystone Property Trust Page 2
December 14, 1999
Based upon and subject to the foregoing, we are of the opinion that:
(1) Commencing with its taxable year ended December 31, 1993, the Company
was organized and operated in conformity with the requirements for
qualification as a REIT under the Code and that the present and proposed
method of operation of the Company and the Operating Partnership, as
described in the Registration Statement and as represented by the Company
and the Operating Partnership, will permit the Company to continue to so
qualify; and
(2) The information in the Registration Statement under the heading "Federal
Income Tax Considerations" has been reviewed by us and, to the extent
that it constitutes matters of law or legal conclusions, is correct in
all material respects.
The opinion stated above represents our conclusions as to the application of
the federal income tax laws existing as of the date of this letter to the
transactions contemplated in the Registration Statement and we can give no
assurance that legislative enactments, administrative changes or court decisions
may not be forthcoming that would modify or supersede our opinion. Moreover,
there can be no assurance that positions contrary to our opinion will not be
taken by the Internal Revenue Service, or that a court considering the issues
would not hold contrary to such opinion. Further, the opinion set forth above
represents our conclusions based upon the documents, facts and representations
referred to above. Any material amendments to such documents, changes in any
significant facts or inaccuracy of such representations could affect the opinion
referred to herein. Moreover, the Company's qualification and taxation as a REIT
depend upon the Company's ability to meet, through actual annual operating
results, requirements under the Code regarding income, assets, distributions and
diversity of stock ownership. Because the Company's satisfaction of these
requirements will depend on future events, no assurance can be given that the
actual results of the Company's operations for any particular taxable year will
satisfy the tests necessary to qualify as or be taxed as a REIT under the Code.
Although we have made such inquiries and performed such investigations as we
have deemed necessary to fulfill our professional responsibilities as counsel,
we have not undertaken an independent investigation of all of the facts referred
to in this letter and the Certificate of Representations.
The opinion set forth in this letter: (i) is limited to those matters
expressly covered; no opinion is to be implied in respect of any other matter;
(ii) is as of the date hereof; and (iii) is rendered by us solely for your
benefit and may not be provided to or relied upon by any person or entity other
than you without our express consent.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and the reference to this firm under the captions "Legal
Matters" and "Federal Income Tax Considerations" in the Registration Statement.
In giving this consent, we do not concede that we are within the category of
persons whose consent is required under the Securities Act or the rules and
regulations of the Commission promulgated thereunder.
Very truly yours,
/s/ Rogers & Wells LLP
<PAGE>
EXHIBIT 23.3
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference into this Registration Statement on Form S-3 (the "Registration
Statement") of Keystone Property Trust (the "Company") of: our report dated
February 18, 1999, on the consolidated financial statements of the Company,
included in the Company's Annual Report on Form 10-K for the year ended
December 31, 1998; included in the Company's Form 8-K/A dated February 24, 1998;
our report dated April 1, 1998 on the statement of revenue and certain expenses
of GATX Properties for the year ended December 31, 1997 and our report dated
June 5, 1998 on the statement of revenue and certain expenses of Double M
Development Properties for the year ended December 31, 1997, both included in
the Company's Form 8-K/A dated June 10, 1998; our report dated April 1, 1998 on
the combined statement of revenue and certain expenses of Galesi Properties for
the year ended December 31, 1997 and our report dated June 15, 1998 on the
statement of revenue and certain expenses of Fed One Portfolio for the year
ended December 31, 1997, both included in the Company's Form 8-K/A dated
July 14, 1998; our report dated July 6, 1998 on the combined statement of
revenue and certain expenses of Pioneer Portfolio for the year ended
December 31, 1997, our report dated July 7, 1998 on the statement of revenue and
certain expenses of ASW Portfolio for the year ended December 31, 1997 and our
report dated July 31, 1998 on the combined statement of revenue and certain
expenses of Szeles Portfolio for the year ended December 31, 1997, all included
in the Company's 8-K dated August 13, 1998; our report dated December 5, 1998 on
the combined statement of revenue and certain expenses of Chambersburg
Properties for the year ended December 31, 1997, our report dated December 16,
1998 on the combined statement of revenue and certain expenses of Browning
Investment Portfolio for the year ended December 31, 1997 and our report dated
December 23, 1998 on the combined statement of revenue and certain expenses of
Brashier Portfolio for the year ended December 31, 1997, all included in the
Company's 8-K/A dated January 13, 1999; our report dated August 13, 1999 on the
combined statement of revenue and certain expenses of Reckson Morris Industrial
Portfolio for the year ended December 31, 1998, our report dated October 11,
1999 on the combined statement of revenue and certain expenses of Poly-Foam
Properties for the year ended December 31, 1998 and our report dated
October 11, 1999 on the statement of revenue and certain expenses of BMG
Property for the year ended December 31, 1998, all included in the Company's 8-K
dated October 12, 1999; and our report dated October 15, 1999 on the statement
of revenue and certain expenses of Lemoyne Property for the year ended
December 31, 1998 included in the Company's 8-K dated October 20, 1999 and to
all references to our Firm included in the Registration Statement.
/s/ Arthur Andersen LLP
Philadelphia, Pennsylvania
December 10, 1999
