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As filed with the Securities and Exchange Commission on April 5, 2000
REGISTRATION NO. 333-92741
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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POST-EFFECTIVE AMENDMENT NO. 1
TO
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)
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)
--------------------------
COPIES TO:
ROBERT E. KING, JR.
CLIFFORD CHANCE ROGERS & WELLS LLP
200 PARK AVENUE
NEW YORK, NEW YORK 10166
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: From
time to time or at one time after the effective date of the Registration
Statement as determined by market conditions.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box: |_|
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, other than securities offered only in connection with
dividend or interest reinvestment plans, check the following box. |X|
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of earlier effective
registration statement for the same offering. |_|
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. |_|
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. |_|
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Subject to completion, dated April 5, 2000
PROSPECTUS
6,536,228 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 April 4, 2000, the closing
price of our common shares reported on the American Stock Exchange was $13.00.
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 19. The selling security holders received or will receive the common
shares to which this prospectus relates from us (i) in privately negotiated
transactions, (ii) upon conversion of their shares of our preferred stock, (iii)
upon conversion of their common or preferred units of limited partnership
interest in our operating partnership or (iv) upon the exercise of options to
purchase common shares. We are registering the offer and sale by the selling
security holders of common shares in order to permit secondary trading of such
common shares that are or will be held by the selling security holders. The
selling security holders may offer their shares for resale from time to time.
The registration of their shares does not necessarily mean that the selling
security holders will sell their shares.
We will not receive any of the proceeds of sales by the selling
security holders. We are paying the costs of preparing and filing the
registration statement of which this prospectus is a part.
SEE "RISK FACTORS" BEGINNING ON PAGE 6 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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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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Table of Contents
<TABLE>
<S> <C>
WHERE YOU CAN FIND MORE INFORMATION......................................4
INCORPORATION OF DOCUMENTS BY REFERENCE..................................4
CAUTIONARY STATEMENTS CONCERNING FORWARD-LOOKING INFORMATION.............5
RISK FACTORS.............................................................6
THE COMPANY.............................................................12
USE OF PROCEEDS.........................................................13
SELLING SECURITY HOLDERS................................................13
METHOD OF SALE..........................................................19
FEDERAL INCOME TAX CONSIDERATIONS.......................................21
LEGAL MATTERS...........................................................29
EXPERTS.................................................................29
</TABLE>
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN OR INCORPORATED BY
REFERENCE INTO THIS PROSPECTUS. NEITHER KEYSTONE PROPERTY TRUST NOR THE SELLING
SECURITY HOLDERS HAVE AUTHORIZED ANY OTHER PERSON TO PROVIDE YOU WITH DIFFERENT
INFORMATION.
THE SELLING SECURITY HOLDERS ARE NOT MAKING AN OFFER OF COMMON SHARES
IN ANY LOCATION WHERE THE OFFER IS NOT PERMITTED.
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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, 1999;
(b) 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;
(c) 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
(d) all other reports we have filed pursuant to Section 13(a),
13(c), 14 or 15(d) of the 1934 Act since December 31, 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 5 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 9. 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
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available for dividends. Our financial performance and our ability to pay
dividends to our shareholders will be particularly sensitive to the economic
conditions in those markets. Our revenues and the value of our properties may be
adversely affected by a number of factors, including the local economic climate
(which may be adversely impacted by business layoffs, industry slowdowns,
changing demographics and other factors) and local real estate conditions (such
as oversupply of or reduced demand for office and industrial properties). These
factors, when and if they occur in the area in which our properties are located,
would adversely affect our ability to pay dividends to our shareholders.
OUR SHAREHOLDERS' ABILITY TO EFFECT A CHANGE IN CONTROL OF OUR COMPANY IS
LIMITED, WHICH MAY NOT BE IN OUR SHAREHOLDERS' BEST INTEREST.
OUR OWNERSHIP LIMIT MAY NOT BE IN OUR SHAREHOLDERS' BEST INTEREST. For
us to maintain our qualification as a REIT for federal income tax purposes, not
more than 50% of the value of our outstanding capital shares may be owned,
directly or indirectly, by five or fewer individuals (as defined for federal
income tax purposes to include certain entities) during the last half of each
taxable year after 1993. Our declaration of trust 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 respect to
office and industrial properties, maintaining income at desired
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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 February 29, 2000, our ten
largest tenants represented approximately 23.7% 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 February 29, 2000, our mortgage debt totaled approximately
$547.7 million (or 96.7% of our total indebtedness), $147.5 million or
approximately 26.0% 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 29, 2000, our indebtedness was equal to
approximately 61.35% of our total market capitalization on that date (assuming
the conversion to common shares of all of our outstanding preferred shares,
preferred or common units of limited partnership interest in the operating
partnership, other than those shares or units which we own).
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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 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
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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
21.
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 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
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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 25.
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 28.
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 February
29, 2000, we owned a portfolio of 133 properties comprised of 98 industrial
properties and 34 office properties containing an aggregate of approximately
19.0 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 98.0% leased to 324 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 February 29, 2000, owned approximately 55.5% of the
outstanding units of limited partnership interest in the operating partnership.
The remaining units of limited partnership interest are owned by limited
partners of the operating partnership. Our officers and trustees owned
approximately 23.8% of the outstanding units of limited partnership interest in
the operating partnership as of February 29, 2000. Each common unit of limited
partnership interest of the operating partnership may be converted by the holder
into one common share (subject to certain anti-dilution provisions), or, at our
option, the cash value of one common share. Each Series B convertible preferred
unit of limited partnership interest in the operating partnership may be
converted by the holder into the number of our common shares obtained by
dividing the liquidation preference (which is $25.00 per unit) by the conversion
price (which is $16.50 per unit) (subject to certain anti-dilution provisions).
Each Series C
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<PAGE>
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 $16.50 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 the knowledge of the company, will
be held by selling security holders after completion of this offering. We are
registering the Registered Shares in order to permit secondary trading of the
Registered Shares, and the selling security holder may offer Registered Shares
for resale from time to time. See the section "Method of Sale" in this
prospectus.
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<TABLE>
<CAPTION>
SHARES OWNED SHARES OWNED
BEFORE OFFERING (1)(2) AFTER OFFERING (1)(2)
---------------------------- REGISTERED -----------------------
NAME NUMBER PERCENTAGE SHARES NUMBER PERCENTAGE
- ---- ------ ---------- ------ ------ ----------
<S> <C> <C> <C> <C> <C>
John Blumberg............................... 20,224(3) *(3) 20,224 0 *
Rosalind Davidowitz......................... 212,129(3) 1.42%(3) 212,129 0 *
Mariano Decola.............................. 16,916(3) *(3) 16,916 0 *
Floyd Hall.................................. 13,838(3) *(3) 13,838 0 *
Hord Hardin, III............................ 7,606(3)(4) *(3)(4) 7,606 0 *
David Jones................................. 11,813(3) *(3) 11,813 0 *
Lervo Investments, LLC...................... 3,110(3) *(3) 3,110 0 *
James Marshall.............................. 21,000(3) *(3) 21,000 0 *
Houston McCollough.......................... 6,917(3) *(3) 6,917 0 *
Andrew Mulvihill............................ 2,056(3) *(3) 2,056 0 *
Gail Mulvihill.............................. 128,456(3) *(3) 128,456 0 *
Gene Mulvihill, Jr.......................... 138(3) *(3) 138 0 *
Heather Mulvihill........................... 76,389(3) *(3) 76,389 0 *
Christopher O'Keefe......................... 13,300(3)(5) *(3)(5) 13,300 0 *
Urban Farms Shopping Center, Inc............ 390,735(3) 2.62%(3) 390,735 0 *
J Pool Associates, L.P...................... 1,598,077(3) 10.72%(3) 1,598,077 0 *
Oakland Industrial Park, Inc................ 166,836(3) 1.12%(3) 166,836 0 *
Ramapo Ridge-McBride Office Park............ 22,744(3) *(3) 22,744 0 *
Crescent Real Estate Equities
Limited Partnership......................... 2,459,278(3)(10) 16.49%(3)(10) 661,993 1,797,285 12.05%
Jeffrey E. Kelter........................... 1,057,429(3) 7.09%(3) 463,636 593,793 3.98%
Thomas M. O'Neil............................ 2,225(3) *(3) 2,225 0 *
Larry Martin................................ 2,225(3) *(3) 2,225 0 *
Carmel Drive Realty......................... 25,395(3) *(3) 25,395 0 *
MPSN LLC.................................... 137,872(3) *(3) 137,872 0 *
Michael Browning............................ 467,667(3) 3.14%(3) 413,167 54,500 *
Timothy McBride............................. 177,757 1.19% 1,035 176,722 1.19%
Robert Branson.............................. 78,645(6) * 23,762 54,883 *
James R. Mulvihill.......................... 99,988 * 1,035 98,953 *
Evan Zucker................................. 126,941 * 1,035 125,906 *
David H. Lesser............................. 299,574(3)(10) 2.01%(3)(10) 77,046 222,384 1.49%
Francesco Galesi............................ 69,642 * 676 68,966 *
Michael J. Falcone.......................... 165,314(7) 1.11%(7) 164,350 964 *
Allstate Insurance Company.................. 634,921(8) 4.26%(8) 634,921 0 *
Teachers Insurance and Annuity
Association of America.................. 317,460(8) 2.13%(8) 317,460 0 *
AEW TSF Inc................................. 317,460(8) 2.13%(8) 317,460 0 *
Michael P. Falcone.......................... 4,305(9) *(9) 4,305 0 *
Daniel J. Murphy............................ 8,609(9) *(9) 8,609 0 *
David W. Murphy............................. 4,305(9) *(9) 4,305 0 *
Dale L. Van Epps............................ 6,456(9) *(9) 6,456 0 *
Michael J. Lazar............................ 109,412(9) *(9) 109,412 0 *
American General Life Insurance
Company of New York..................... 319,917(9) 2.15%(9) 319,917 0 *
Pioneer Properties Company of
Syracuse................................ 65,903(9) *(9) 65,903 0 *
Hudson Bay Partners, Inc.................... 1,523(3)(10) *(3)(10) 410 1,113 *
Robert F. Savage............................ 71,916(3)(10) *(3)(10) 19,358 52,558 *
Pond's Edge Associates, LLC................. 144,663(3)(10) *(3)(10) 38,941 105,722 *
Total being registered................. 6,536,228
</TABLE>
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- ----------
(1) This does not assume conversion to common shares of all of our
outstanding preferred shares, preferred common units and common units.
(2) The Registered Shares may be offered from time to time in one or more
offerings. This assumes that all of the common shares being offered
under this prospectus are sold, and that the selling security holders
acquire no additional common shares before the completion of this
offering.
(3) This assumes that all of the common units held by this selling security
holder are converted into common shares on a 1:1 basis as of April 5,
2000.
(4) Includes 2,500 shares issuable on exercise of options to purchase
common shares at $10 per share.
(5) Includes 13,300 shares issuable on exercise of options to purchase
common shares at $10 per share.
(6) Includes 34,545 common shares owned by Branson Associates.
(7) Excludes 2,110 Series D convertible preferred units owned through
Pioneer Property Company of Syracuse.
(8) This assumes that all of the shares of Series C convertible preferred
stock held by this selling security holder are converted into common
shares on a 1:1.59 basis as of April 5, 2000.
(9) This assumes that all of the Series D convertible preferred units held
by this selling security holder are converted into common shares on a
1:1.52 basis as of April 5, 2000.
(10) In December 1999, Hudson Bay Partners II, L.P. was dissolved and it
distributed: 1,286,912 common shares and 765,807 common units (of
which 661,993 common units are being registered pursuant to this
prospectus) to Crescent Real Estate Equities Limited Partnership;
149,778 common shares and 89,128 common units (of which 77,046 common
units are being registered pursuant to this prospectus) to David H.
Lesser; 797 common shares and 474 common units (of which 410 common
units are being registered pursuant to this prospectus) to Hudson Bay
Partners, Inc.; 75,700 common shares and 45,048 common units (of which
38,941 common units are being registered pursuant to this prospectus)
to Pond's Edge Associates, LLC; and 37,633 common shares and 22,394
common units (of which 19,358 common units are being registered
pursuant to this prospectus) to Robert F. Savage.
McBride Hudson Bay, L.P. and Jeffrey E. Kelter each received common
units as part of the series of transactions pursuant to which we were
transformed from a multi- family residential REIT into an office and industrial
REIT (the "Reorganization"). The closing of the Reorganization took place on
December 12, 1997. Pursuant to the amended and restated agreement of limited
partnership of the operating partnership, dated as of December 12, 1997, we
agreed to register the common shares issuable upon conversion of McBride Hudson
Bay, L.P. and Mr. Kelter's common units within 24 months from the date of the
closing of the Reorganization. Pursuant to a contribution agreement, dated as of
August 20, 1997, McBride Hudson Bay, L.P. agreed not to convert its common units
into common shares or to sell its common units or common shares for a period of
two years after the closing of the Reorganization. In addition, McBride Hudson
Bay, L.P. agreed not to sell more than 25% of its common shares during the three
month period following the expiration of this lock-up period and not to sell
more than an additional 25% of its common shares during each three month period
thereafter. As a result, McBride Hudson Bay, L.P. may only sell all of its
common shares nine months after the expiration of the lock-up period. In
connection with an agreement between Hudson Bay Partners II, L.P. ("Hudson Bay")
and us, pursuant to which Hudson Bay will purchase additional common shares, we
have agreed to remove this lock up restriction from Hudson Bay's common units
and common shares. In December 1999, McBride Hudson Bay, L.P. was dissolved and
its common units were distributed to its partners Urban Farms Shopping Center,
Inc., J Pool Associates, L.P., Oakland Industrial Park, Inc., Ramapo
Ridge-McBride Office Park,
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Robert Branson and Hudson Bay.
We issued 100,000 common shares to Jeffrey E. Kelter in April, 1999 in
return for a promissory note in the amount of $1.3 million. The purchase price
of $13 per share represented the market price of the common shares on the date
of the grant by the compensation committee. The note is an interest-free demand
note which is forgivable by the company over a seven-year period. In addition,
the loan will be forgiven if Mr. Kelter is no longer employed by the company
after a change of control of the company. If Mr. Kelter's employment is
terminated for any reason other than a change of control, Mr. Kelter must repay
the loan or surrender common shares to the company (at a value of $13 per share)
sufficient to repay the outstanding principal balance of the note. Under a
registration rights agreement, dated as of April 21, 1999, we agreed to register
the common shares issued to Mr. Kelter within six months from the date of such
agreement and Mr. Kelter agreed not to sell his common shares for a period of
one year from the date of such agreement.
Thomas M. O'Neil, Larry Martin, Carmel Drive Realty, MPSN and Michael
Browning (collectively, the "Indianapolis Holders") all received their common
units as part of the consideration paid by us to purchase four office and
industrial buildings located in Indianapolis pursuant to contribution
agreements, each dated as of December 4, 1998. Under OP Unit Recipient
Agreements, each dated as of December 4, 1998, we agreed to register the common
shares issuable upon conversion of the Indianapolis Holders' common units within
one year from the date of such agreements and each Indianapolis Holder agreed
not to convert its common units into common shares or to sell its common units
for a period of one year from the date of such agreements. Each of the
Indianapolis Holders has agreed not to sell more than 25% of its common shares
during the three month period following the expiration of the lock-up period and
not to sell more than an additional 25% of its common shares during each three
month period thereafter. As a result, each Indianapolis Holder may only sell all
of its common shares nine months after the expiration of the lock-up period.
Timothy McBride, Robert Branson, James Mulvihill, Evan Zucker, David
Lesser, Francesco Galesi and Michael J. Falcone (collectively, the "Trustee
Holders") each received common shares in April 1999 as compensation for services
provided by them to us in their capacity as members of our board of trustees
during our 1998 fiscal year. Under a registration rights agreement, dated as of
April 23, 1999, we agreed to register the common shares issued to the Trustee
Holders within six months from the date of such agreement and the Trustee
Holders agreed not to sell their common shares for a period of one year from the
date of such agreement.
Allstate Insurance Company, Teachers Insurance and Annuity Association
of America and AEW TSF Inc. (collectively, the "Series C Holders") each
purchased their shares of Series C convertible preferred stock from us in
September 1999 in a privately negotiated sale pursuant to an exemption from
registration under the 1933 Act. Each holder of shares of Series C convertible
preferred stock may at any time convert such shares into the number of our
common shares obtained by dividing the aggregate liquidation preference of such
Series C convertible preferred stock by a conversion price of $15.75, subject to
certain anti-dilution provisions set forth in the articles supplementary
relating to the Series C convertible preferred stock. Pursuant to registration
rights agreements, each dated as of September 27, 1999, we agreed to register
the common shares issuable upon conversion of the Series C convertible preferred
stock held by the Series C Holders within three months of the date of such
agreements.
Michael J. Falcone, Michael P. Falcone, Daniel J. Murphy, David W.
Murphy, Dale L. Van Epps, Michael J. Lazar, American General Life Insurance
Company of New York, and Pioneer Properties Company of Syracuse (collectively,
the "Pioneer Holders") all received their Series D convertible preferred units
as part of the consideration paid by us to purchase One Park Place, an office
property located in Northern New York State from One Park Place Associates
pursuant to a contribution agreement, dated as of April 30, 1998, as amended as
of August 18, 1998 and July 21, 1999. Michael J. Falcone, a member of our board
of trustees, had a 24.4% interest in One Park Place Associates on the date
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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.
Under OP Unit Recipient Agreements, each dated as of July 21, 1999, we agreed to
register the common shares issuable upon conversion of the Pioneer Holders'
Series D convertible preferred units within three months from the date of such
agreements and each Pioneer Holder agreed not to convert its Series D
convertible preferred units into common shares or to sell its Series D
convertible preferred units for a period of six months from the date of such
agreements.
During the fourth quarter of 1999 and in January 2000, we sold an
aggregate of 1,379,311 of our common shares directly to a number of persons and
entities which included Hudson Bay, Hudson Bay Partners, Inc., Crescent Real
Estate Equities Limited Partnership ("Crescent"), David H. Lesser, Jeffrey E.
Kelter, Michael J. Falcone, David F. McBride (a partner or shareholder, as
applicable, in each of Urban Farms Shopping Center, Inc., J. Pool Associates,
L.P., Oakland Industrial Park, Inc., Ramapo Ridge-McBride Office Park and Hudson
Bay) and Francesco Galesi 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., 406,559 of these common shares to Crescent and 47,317 of
these common shares to David H. Lesser; 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.
In connection with the issuance of common shares described in the
preceding paragraph, 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.
In December, 1999, Hudson Bay was dissolved and its common shares
and common units were distributed to its partners, Crescent Real Estate
Equities Limited Partnership, David H. Lesser, Hudson Bay Partners, Inc.,
Robert F. Savage and Pond's Edge Associates, LLC.
The Trustee Holders and one other trustee 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.
Each of Messrs. James Mulvihill, Lesser, Kelter, Galesi and Michael J.
Falcone is currently a member of our board of trustees and Mr. Kelter is
currently our President and Chief Executive Officer. In addition, as part of the
Reorganization, we organized and agreed to spin-off at a later date a subsidiary
to enable Messrs. Mulvihill and Zucker to pursue real estate investment
opportunities other than in the office and industrial sectors in the United
States. We have not yet determined the terms of the spin-off. Each of Messrs.
Hardin and O'Keeffe were directors of our predecessor, American Real Estate
Investment Corporation, and received their common shares as compensation for
services provided by them to us in such capacities. David Lesser, a member of
our board of trustees, is the President, sole director and sole shareholder of
Hudson Bay Partners, Inc.
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
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office properties and one industrial property (the "Pioneer Portfolio") from the
Falcone Group. The purchase price of the Pioneer Portfolio, including closing
costs, was approximately $87.6 million and was funded through the assumption of
approximately $5.5 million in debt, $51.0 million from 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.
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, 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.
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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 Partners, L.P. 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 $3,048,000
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 $2,800,000, 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.
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
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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.
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 25.
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 representations and the
representations of the operating partnership as to factual matters. In addition,
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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 25.
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 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;
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(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 28.
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 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.
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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
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
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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.
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
25
<PAGE>
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 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
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<PAGE>
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 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.
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<PAGE>
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.
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
28
<PAGE>
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 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
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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.
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PART II. INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the estimated expenses in connection
with the issuance and distribution of the securities being registered, other
than underwriting discounts and commissions:
<TABLE>
<S> <C>
Registration fee--Securities and Exchange Commission......... 26,643
Accounting fees and expenses................................. 1,500 (a)
Legal fees and expenses...................................... 25,000 (a)
Printing and engraving expenses.............................. 5,000 (a)
Miscellaneous................................................ 15,000 (a)
Total........................................................ 73,143 (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.
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ITEM 16. EXHIBITS
<TABLE>
<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 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 (incorporated by reference
to our registration statement on Form S-3, filed with the SEC on
December 14, 1999 (File 333-92741)).
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
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<PAGE>
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.
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.
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<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 April 5, 2000.
KEYSTONE PROPERTY TRUST
By: /s/ JEFFREY E. KELTER
------------------------------------------
Jeffrey E. Kelter
PRESIDENT
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.
Name Title Date
---- ----- ----
* Chairman And Trustee April 5, 2000
- ----------------------------
David F. McBride
/S/ JEFFREY E. KELTER President and Chief Executive April 5, 2000
- ---------------------------- Officer And Trustee
Jeffrey E. Kelter (Principal Executive
Officer)
* Executive Vice President, April 5, 2000
- ---------------------------- Chief Financial Officer
Timothy A. Peterson And Assistant Secretary
(Principal Financial
Officer)
* Senior Vice President and April 5, 2000
- ---------------------------- Treasurer (Principal
Timothy E. McKenna Accounting Officer)
* Trustee April 5, 2000
- ----------------------------
Russell C. Platt
* Trustee April 5, 2000
- ----------------------------
Francesco Galesi
* Trustee April 5, 2000
- ----------------------------
Michael J. Falcone
* Trustee April 5, 2000
- ----------------------------
David H. Lesser
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<PAGE>
Name Title Date
---- ----- ----
* Trustee April 5, 2000
- ----------------------------
James R. Mulvihill
* Trustee April 5, 2000
- ----------------------------
Scott H. Rechler
* Trustee April 5, 2000
- ----------------------------
Joseph D. Morris
By: /S/ JEFFREY E. KELTER
Attorny in Fact
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<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBITS PAGE
- -------- ----
<S> <C> <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 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 (incorporated by reference
to our registration statement on Form S-3, filed with the SEC on
December 14, 1999 (File 333-92741)).
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 Clifford Chance Rogers & Wells LLP]
EXHIBIT 8
April 5, 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 6,536,228 common shares, par value
$0.001 per share (the "Shares"), of the Company. This opinion is being provided
at your request in connection with the filing of the Registration Statement.
In rendering the opinion expressed herein, we have examined and relied on the
following items:
1. The Registration Statement;
2. The Company's Declaration of Trust;
3. The Amended and Restated Agreement of Limited Partnership of the
Operating Partnership dated December 12, 1997, as amended to the
date hereof; and
4. Such other documents, records and instruments as we have deemed
necessary in order to enable us to render the opinion referred to
in this letter.
In our examination of the foregoing documents, we have assumed, with your
consent, that (i) all documents reviewed by us are original documents, or true
and accurate copies of original documents, and have not been subsequently
amended, (ii) the signatures of each original document are genuine, (iii) each
party who executed the document had proper authority and capacity, (iv) all
representations and statements set forth in such documents are true and correct,
(v) all obligations imposed by any such documents on the parties thereto have
been or will be performed or satisfied in accordance with their terms and (vi)
the Company and the Operating Partnership at all times have been and will
continue to be organized and operated in accordance with the terms of such
documents. We have further assumed the accuracy of the statements and
descriptions of the Company's and the Operating Partnership's intended
activities as described in the Registration Statement and that the Company and
the Operating Partnership have operated and will continue to operate in
accordance with the method of operation described in the Registration Statement.
<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 April 5, 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 7, 2000, 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, 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
April 5, 2000
