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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 2, 2000
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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KEYSTONE PROPERTY TRUST
(Exact name of registrant as specified in its declaration of trust)
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MARYLAND 84-1246585
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
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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)
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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)
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COPIES TO:
ROBERT E. KING, JR.
CLIFFORD CHANCE ROGERS & WELLS LLP
200 PARK AVENUE
NEW YORK, NEW YORK 10166
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. / /
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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. / /
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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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PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF CLASS OF SECURITIES AMOUNT TO BE OFFERING PRICE AGGREGATE AMOUNT OF
BEING REGISTERED REGISTERED PER SHARE OFFERING PRICE REGISTRATION FEE
<S> <C> <C> <C> <C>
1,556,379 shares
Common Stock, par value $.001 par share...... (1) $12.56 (2) $19,548,120.24 $5,161
</TABLE>
(1) Includes the 278,034 common shares into which 278,034 common units of
limited partnership interest of Keystone Operating Partnership, L.P. are
convertible (based on a conversion ratio of 1:1).
(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 prices of the common shares reported on the American Stock
Exchange on February 29, 2000.
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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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SUBJECT TO COMPLETION, DATED MARCH 2, 2000
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
SEC. 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.
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PROSPECTUS
1,556,379 SHARES
KEYSTONE PROPERTY TRUST
COMMON SHARES
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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 March 1, 2000, the closing
price of our common shares reported on the American Stock Exchange was $12.63.
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 beginning
on page 17. The selling security holders received or will receive the common
shares to which this prospectus relates from us (i) in privately negotiated
transactions or (ii) upon conversion of their common units of limited
partnership interest in our operating partnership. 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 5 OF THIS PROSPECTUS FOR A DISCUSSION
OF CERTAIN FACTORS YOU SHOULD CONSIDER BEFORE YOU INVEST IN OUR COMMON SHARES.
NEITHER THE SEC 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.
The date of this prospectus is , 2000.
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TABLE OF CONTENTS
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WHERE YOU CAN FIND MORE INFORMATION......................... 3
INCORPORATION OF DOCUMENTS BY REFERENCE..................... 3
CAUTIONARY STATEMENTS CONCERNING FORWARD-LOOKING
INFORMATION............................................... 4
RISK FACTORS................................................ 5
THE COMPANY................................................. 11
USE OF PROCEEDS............................................. 12
SELLING SECURITY HOLDERS.................................... 12
METHOD OF SALE.............................................. 17
FEDERAL INCOME TAX CONSIDERATIONS........................... 19
LEGAL MATTERS............................................... 28
EXPERTS..................................................... 28
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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.
2
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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, and, as a result, file reports, proxy statements and
other information with the SEC. You may read and copy those reports, proxy
statements and other information which we file with the SEC at the public
reference facilities maintained by the SEC at Room 1024, Judiciary Plaza, 450
Fifth Street, N.W., Washington, D.C. 20549, and at the Regional Offices of the
SEC 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
SEC at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates.
Please call the SEC at 1-800-SEC-0330 for further information on the public
reference rooms. The SEC 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 SEC. You may access
the SEC's web site at http://www.sec.gov. Our common shares are listed on the
American Stock Exchange. 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 SEC a registration statement on Form S-3 under the
Securities Act of 1933, as amended. 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 SEC. For further information, we refer you to the registration statement,
which you may read and copy at, or obtain from, the SEC 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 SEC 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, our
Current Report on Form 8-K filed on November 4, 1999 our Current Report on
Form 8-K filed on December 20, 1999, our Current Report on Form 8-K filed on
January 5, 2000, our Current Report on Form 8-K filed on January 27, 2000;
(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
(e) all other reports we have filed pursuant to Section 13(a), 13(c), 14
or 15(d) of the 1934 Act since September 30, 1999.
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When we file documents in accordance with Sections 13(a), 13(c), 14 and
15(d) of the 1934 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 1933 Act and Section 21E of the 1934 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 REITs), 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 4 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, proceeds from sales of
assets, 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" beginning on page 8. 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, Upstate New York, Indianapolis, Indiana 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 or
cash available for
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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 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 shares 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 26.00% of
our company (assuming the conversion to common shares of all outstanding shares
of our Series A convertible preferred shares, Series B convertible preferred
shares, Series C convertible preferred shares and common and convertible
preferred units of limited partnership interest in our operating partnership).
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 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.
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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., 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 in connection with future
property acquisitions. 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. 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 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
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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 31, 1999, our ten
largest tenants represented approximately 23.5% 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 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 31, 1999, our mortgage debt totaled approximately $522.1 million (or
96.2% of our total indebtedness), $141.9 million or approximately 26.1% of which
constituted borrowings under our $150 million secured credit facility. Based on
the market price for our common shares at the close of business on February 8,
2000, our indebtedness was equal to approximately 59.75% of our total
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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.
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
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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 IRS that we qualify as a REIT. However,
we have received an opinion from the law firm of Clifford Chance 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 Internal Revenue Code
of 1986, as amended, 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 Internal Revenue Code of 1986, as amended.
Such requirements are discussed in more detail in the section "Federal Income
Tax Considerations--Taxation of the Company" in this prospectus beginning on
page 19.
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 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
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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 beginning on page 23.
NEW LEGISLATION AFFECTING REITS. On December 17, 1999, the Ticket to Work
and Work Incentives Improvement Act of 1999 (the "1999 Act") was enacted. The
1999 Act contains significant changes to the current requirements regarding the
qualification and taxation of REITs, and may limit the future activities and
growth of Keystone Realty Services, Inc., our management company. The 1999 Act
is generally effective beginning with our taxable year ending December 31, 2001.
No prediction can be made as to whether future legislation affecting REITs will
be enacted and the impact of any such legislation on our operations.
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 beginning on
page 26.
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 CEO, 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.
We are a self-administered, self-managed REIT engaged in the ownership,
acquisition and development of industrial and office properties. As of December
31, 1999, we owned a portfolio of 132 properties comprised of 98 industrial
properties and 34 office properties containing an aggregate of approximately
18.5 million square feet and an investment in a direct financing lease. Our
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 our properties are held directly or indirectly by our operating
partnership. We are the sole general partner of the operating partnership and,
at December 31, 1999, owned approximately 56.0% 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 23.1% of the
outstanding units of limited partnership interest in the operating partnership
as of December 31, 1999. Each common unit of limited partnership interest of the
operating partnership may be
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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 shares identical to the number of Series C
preferred 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 shares, (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 common 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 common
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 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 our operating
partnership.
USE OF PROCEEDS
We will not receive any of the proceeds of sales of common shares by the
selling security holders.
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 1933 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 our knowledge, 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
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Shares for resale from time to time. See the section "Method of Sale" in this
prospectus beginning on page 17.
<TABLE>
<CAPTION>
SHARES OWNED SHARES OWNED
BEFORE OFFERING AFTER OFFERING
------------------------- REGISTERED ----------------------------
NAME NUMBER(1) PERCENTAGE(2) SHARES NUMBER(1) PERCENTAGE(1)(2)
- ---- --------- ------------- ---------- --------- ----------------
<S> <C> <C> <C> <C> <C>
Crescent Real Estate Equities Limited
Partnership (3)........................ 2,459,278 23.96% 590,264 1,869,014 18.21%
David F. McBride (3)..................... 325,215 3.51% 48,615 276,600 2.98%
Russell Platt............................ 3,664 * 3,664 -- --
Jeffrey E. Kelter (3).................... 1,198,798 12.49% 692,759 506,039 5.27%
Timothy McBride (3)...................... 398,894 4.28% 338 398,556 4.28%
Robert Branson (3)(4).................... 78,645 * 338 78,307 *
James R. Mulvihill (3)................... 176,567 1.92% 964 175,603 1.91%
Evan Zucker (3).......................... 126,947 1.39% 338 126,609 1.39%
David H. Lesser (3)(5)................... 300,953 3.28% 70,062 230,891 2.51%
Francesco Galesi (3)..................... 900,435 9.07% 69,964 830,471 8.37%
Robert Savage............................ 71,916 * 3,036 68,880 *
Pond's Edge Associates, LLC.............. 144,663 1.58% 6,107 138,556 1.52%
Michael J. Falcone (3)(6)................ 291,459 3.13% 69,930 221,529 2.38%
---------
Total Being Registered............... 1,556,379
=========
</TABLE>
- ------------------------
* Less than 1%
(1) 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.
(2) This does not assume conversion to common shares of all of our outstanding
preferred shares, preferred units and common units.
(3) This assumes that all of the common units held by this selling security
holder are converted into common shares on a 1:1 basis as of March 2, 2000.
(4) Includes 34,545 common shares owned by Branson Family LLC.
(5) Includes 1,523 common shares owned by Hudson Bay Partners, Inc., including
common shares issuable on conversion of common units.
(6) This assumes that all of the shares of Series D convertible preferred units
held by this selling security holder are converted into common shares on a
1:1.52 basis.
During the fourth quarter of 1999 and in January 2000, we sold an aggregate
of 1,379,311 of our common shares directly to Hudson Bay Partners II, L.P.
("Hudson Bay"), Hudson Bay Partners, Inc., Crescent Real Estate Equities Limited
Partnership ("Crescent"), David H. Lesser, Jeffrey E. Kelter, Michael J.
Falcone, Russell C. Platt, Francesco Galesi, David F. McBride (collectively, the
"Holders") and several members of the McBride family, MS Special Funds PTE, Ltd.
and MS Realty Special Situations, Inc. 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 common
shares were sold as follows: 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; on December 10, 1999, we issued
and sold 89,655 of these common shares to Hudson Bay; on December 29, 1999, we
issued and sold 6,620 of these common shares to Hudson Bay, 252 of these common
shares to Hudson Bay Partners, Inc.,
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406,559 of these common shares to Crescent, 47,317 of these common shares to
David H. Lesser, and 3,000 of these common shares to Russell C. Platt; on
January 3, 2000, we issued and sold 68,966 of these common shares to Michael J.
Falcone; on January 18, 2000, we issued and sold 2,236 of these common shares to
David F. McBride. Under registration rights agreements entered into with each
Holder at the time of each sale, we agreed to register the common shares issued
to each Holder within six months from the date of their respective agreements
and each Holder agreed not to sell the common shares for a period of one year
from the date of such agreement. In December, 1999, Hudson Bay was dissolved and
its common shares were distributed to its partners, Crescent Real Estate
Equities Limited Partnership and David H. Lesser.
In connection with the issuance of common shares to the Holders, our
operating partnership issued to Hudson Bay and to Messrs. Kelter and David F.
McBride (the "OP Unit Recipients") approximately 278,034 common units in
exchange for certain warrants to acquire 300,000 common shares and the
cancellation of certain warrants to acquire 375,000 common units at an exercise
price of $11.00 per share or unit, which were held by Hudson Bay and Messrs.
Kelter and David F. McBride. Pursuant to the terms of their respective OP Unit
Recipient Agreements, each dated as of October 29, 1999, we agreed to register
the common shares issuable upon conversion of the common units within six months
from the date of such agreements and the OP Unit Recipients agreed not to sell
their common shares for a period of six months from the date of such agreements.
Messrs. Timothy B. McBride, Robert Branson, James Mulvihill, Evan Zucker,
David Lesser, Francesco Galesi, Russell C. Platt and Michael J. Falcone
(collectively, the "Trustee Holders"), received 5,602 common shares in December
1999, in aggregate, as compensation for services provided by them to us in their
capacity as members of our board of trustees during the second and third
quarters of our 1999 fiscal year. Under a registration rights agreement, dated
as of December 2, 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.
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 our compensation committee. The note is an interest-free demand
note which is forgivable by us over a seven-year period. In addition, the loan
will be forgiven if Mr. Kelter is no longer employed by us after we experience a
change of control. 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 us (at a value of $13 per share) sufficient to repay the outstanding
principal balance of the note.
Michael J. Falcone, a member of our board of trustees, received 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. Mr. Falcone,
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
common 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 common 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.
At the 1998 Annual Meeting, our shareholders approved the issuance of common
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, we, through
our operating partnership, acquired a portfolio of 11 office
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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 our senior secured
revolving credit facility, the issuance of the common 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, our 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
common 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 us 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 our company and the Falcone Group. The purchase price
for One Park Place was determined by arm's length negotiation between our
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 common 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 common units
and Series D convertible preferred units equaled approximately 13.7% and 8.3% of
our then outstanding common shares (assuming conversion of such common 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 CEO. In addition, as part of our organization, 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.
On April 30, 1998, our company, through our operating partnership, issued
1,362,940 common 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 common 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 our 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 December 31, 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 December 31, 1999, the annual aggregate base rental revenue for
this lease is approximately $481,000. In the past,
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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 twelve months ended as of December 31, 1999 we
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 twelve months ended on December 31, 1999 relating
to capital and tenant improvements and leasing commissions of approximately
$591,000 and $1,273,080 and repair and maintenance and other costs of
approximately $21,000 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., our 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. 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 twelve months
ended on December 31, 1999, the management company received $2,969,000 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 twelve months ending on December 31,
1999, the management company received $3,620,000, in such reimbursements and
$565,000 in leasing commissions. We believe that the management fee paid to the
management company is based upon competitive rates.
During 1998 and 1999, the management company managed 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. In December 1999, the company acquired a majority
ownership interest in one of these entities as discussed below.
In December 1999, the company acquired an 89% interest in a limited
partnership which owns a 407,100 square foot industrial building in Carlisle,
Pennsylvania. Jeffrey E. Kelter was the general partner and certain other
executives were limited partners in this limited partnership prior to the
company acquiring the limited partnership. The purchase price of this building
was $16,000,000 and the consideration consisted of $14,800,000 in cash and
$1,200,000 in units of limited partnership interest in the operating partnership
at a price of $15.26, which was the 30-day average price of the company's common
shares prior to the acquisition date.
The company subleased office space in Denver, Colorado from Black Creek
Capital, LLC. The lease agreement required a monthly payment of $1,346 until the
lease expiration of December 31, 1999. James R. Mulvihill and Evan Zucker are
principal officers and members of Black Creek Capital, LLC.
We have agreed to indemnify certain of the selling security holders against
certain liabilities. See "Method of Sale" below beginning on page 17.
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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 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 1933 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 1933 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 1933 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 1933 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 1933 Act, provided they meet the criteria and conform to the requirements of
such rule.
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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 1933 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 Internal Revenue Code of 1986, as amended (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 beginning on page 23.
In the opinion of Clifford Chance 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 beginning on page 23.
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.
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
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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 ended 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 beginning on page 26.
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, 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
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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.
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
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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 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.
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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 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
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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 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
25
<PAGE>
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%.
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.
26
<PAGE>
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.
NEW LEGISLATION AFFECTING REITS. On December 17, 1999, the Ticket to Work
and Work Incentives Improvement Act of 1999 (the "1999 Act") was enacted. The
1999 Act contains significant changes to the current requirements regarding the
qualification and taxation of REITs, including:
- the expansion of the asset tests to prohibit REITs from owning more than
10% of the vote or value of the securities of any single issuer;
- the allowance of new "taxable REIT subsidiaries" that may provide
noncustomary services to a REIT's tenants;
- the modification of the formula for determining rents attributable to
personal property in relation to rents attributable to real property from
being based on average adjusted tax basis to fair market values;
- the modification of the rules applicable to rents received from a tenant
in which the REIT owns a 10% or greater interest; and
- the reduction of the annual distribution requirement to 90% of net income.
Although a special grandfather rule should allow us to maintain our current
interest in the management company, this grandfather rule will generally cease
to apply if the management company engages in a substantial new line of
business, acquires any substantial asset, or if we acquire additional securities
of the management company. Accordingly, the 1999 Act may limit the future
activities and growth of the
27
<PAGE>
management company. The 1999 Act is generally effective beginning with our
taxable year ending December 31, 2001. No prediction can be made as to whether
future legislation affecting REITs will be enacted 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. Clifford Chance 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 for
the periods indicated in their reports have been audited by Arthur Andersen LLP,
independent public accountants, and are incorporated by reference herein in
reliance upon the authority of said firm as experts in giving said reports.
28
<PAGE>
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........ 5,161
Accounting fees and expenses................................ 1,500(a)
Legal fees and expenses..................................... 25,000(a)
Printing and engraving expenses............................. 5,000(a)
Miscellaneous............................................... 15,000(a)
------
Total....................................................... 51,661(a)
</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 the Maryland REIT Law, 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. The Maryland REIT Law 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, the Maryland
REIT Law 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 the Maryland REIT Law, 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. The
Maryland REIT Law 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.
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 SEC 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 SEC on October 15, 1999 (File 333-89095)).
</TABLE>
II-1
<PAGE>
<TABLE>
<C> <S>
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 SEC 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 SEC 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
SEC 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
SEC 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 SEC 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 SEC
on October 15, 1999 (File 333-89095)).
5 Opinion of Piper Marbury Rudnick & Wolfe LLP.
8 Opinion of Clifford Chance Rogers & Wells LLP regarding tax
matters.
23.1 Consent of Clifford Chance 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 1933
Act;
(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 SEC pursuant to
Rule 424(b) if, in the aggregate, the changes in volume and price represent
no more than a 20% change in the 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 1934 Act
that are incorporated by reference in this registration statement.
2. That, for the purpose of determining any liability under the 1933 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.
II-2
<PAGE>
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 1933 Act, each
filing of the Registrant's annual report pursuant to Section 13(a) or Section
15(d) of the 1934 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 1933 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 1933 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 1933 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 1933 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 SEC such indemnification is against public
policy as expressed in the 1933 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 1933 Act and will be governed by the final adjudication of such
issue.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the 1933 Act, 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 March 2, 2000.
<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 1933 Act, as
amended, and any and all applications and other documents in connection
therewith, with the SEC 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 1933 Act, this registration statement
has been signed below by the following persons in the capacities and on the
dates indicated.
<TABLE>
<CAPTION>
NAME TITLE DATE
---- ----- ----
<C> <S> <C>
/s/ DAVID F. MCBRIDE Chairman And Trustee
------------------------------------------- March 2, 2000
David F. McBride
/s/ JEFFREY E. KELTER President and Chief Executive
------------------------------------------- Officer And Trustee March 2, 2000
Jeffrey E. Kelter (Principal Executive Officer)
Executive Vice President, Chief
/s/ TIMOTHY A. PETERSON Financial Officer And
------------------------------------------- Assistant Secretary March 2, 2000
Timothy A. Peterson (Principal Financial
Officer)
Senior Vice President and
/s/ TIMOTHY E. MCKENNA Treasurer
------------------------------------------- (Principal Accounting March 2, 2000
Timothy E. McKenna Officer)
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
NAME TITLE DATE
---- ----- ----
<C> <S> <C>
/s/ RUSSELL C. PLATT Trustee
------------------------------------------- March 2, 2000
Russell C. Platt
/s/ FRANCESCO GALESI Trustee
------------------------------------------- March 2, 2000
Francesco Galesi
/s/ MICHAEL J. FALCONE Trustee
------------------------------------------- March 2, 2000
Michael J. Falcone
/s/ DAVID H. LESSER Trustee
------------------------------------------- March 2, 2000
David H. Lesser
/s/ JAMES R. MULVIHILL Trustee
------------------------------------------- March 2, 2000
James R. Mulvihill
/s/ SCOTT H. RECHLER Trustee
------------------------------------------- March 2, 2000
Scott H. Rechler
/s/ JOSEPH D. MORRIS Trustee
------------------------------------------- March 2, 2000
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 SEC 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 SEC 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 SEC 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 SEC 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 SEC 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 SEC 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 SEC 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 SEC
on October 15, 1999 (File 333-89095)).......................
5 Opinion of Piper Marbury Rudnick & Wolfe LLP................
8 Opinion of Clifford Chance Rogers & Wells LLP regarding tax
matters.....................................................
23.1 Consent of Clifford Chance 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
February 29, 2000
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 or about February 29, 2000 with the
Securities and Exchange Commission (the "Commission"), of up to 1,556,379 Common
Shares (the "Shares"), par value $.001 per share, to be offered and sold from
time to time by certain selling shareholders of the Trust listed in the
Registration Statement. Of the total number of the Shares, 1,278,345 (the
"Issued Shares") have been issued by the Trust, and 278,034 (the "Conversion
Shares") may be issued upon the conversion of common units of limited
partnership interest of Keystone Operating Partnership, L.P. 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.
<PAGE>
(2) The Issued Shares have been duly authorized and are
validly issued, fully paid, and non-assessable.
(3) The Conversion 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 Conversion 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 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 Clifford Chance Rogers & Wells LLP]
EXHIBIT 8
March 1, 2000
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 1,556,379 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.
<PAGE>
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 March 1, 2000, 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.
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/ Clifford Chance 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; 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
March 1, 2000
