SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of report (Date of earliest event reported): December 13, 2002
KEYSTONE PROPERTY TRUST
(Exact Name of Registrant as Specified in its Charter)
--------------------------------------------------------------------------------
Maryland
(State or Other 1-12514 84-1246585
Jurisdiction of (Commission (IRS Employer
Incorporation) File Number) Identification No.)
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200 Four Falls Corporate Center, Suite 208
West Conshohocken, PA 19428
(Address of Principal Executive Offices)(Zip Code)
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Registrant's telephone number, including area code:
(484) 530-1800
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ITEM 2. DISPOSITION OF ASSETS
On December 13, 2002, Keystone Property Trust (the "Company") disposed of its
New York office and industrial portfolio and other industrial properties (the
"Upstate New York Portfolio") for $178.3 million in a sale to Nocha, LLC (the
"Buyer"). The disposition consisted of 34 properties totaling 3.9 million square
feet ("SF"), which included 19 office properties (1.3 million SF) and 15
industrial properties (2.6 million SF). Of the 3.9 million SF disposed, over 2.5
million SF consists of 29 non-core office and industrial properties located in
the Albany, Syracuse, and Rochester markets of New York State. Of the 29 New
York properties, 19 properties (1.3 million SF) were office assets and 10
properties (1.2 million SF) were industrial assets. The Albany market included
10 properties, seven office assets (391,375 SF) and three industrial assets
(396,645 SF). In the Syracuse market, there were 15 properties including 11
office assets (910,230 SF) and four industrial assets (655,500 SF). In the
Rochester market, there were four properties including one office asset (26,700
SF) and three industrial assets (174,180 SF). Additionally, five other
industrial assets were disposed of as part of the package including 433,500 SF
in Central Ohio and 906,062 SF in Pennsylvania.
Total consideration for this disposition was approximately $178.3 million, of
which the Buyer assumed approximately $106 million of fixed rate mortgage debt
with an average interest rate of 7.68%, which included $92 million of conduit
financing, and approximately $7.8 million of mortgage debt which was repaid by
the Buyer simultaneously with the closing of the sale. The Company also repaid
approximately $17.5 million of variable rate debt under the Company's $125
million unsecured revolving credit facility with the proceeds of the
disposition. Approximately $17.2 million of net proceeds were deposited into
1031 exchange cash accounts to fund possible future acquisitions. The remaining
net proceeds were used to pay closing costs of the transaction. Lastly, Keystone
retained a $27 million preferred equity investment in the portfolio, which earns
an 11% preferred return.
The Buyer of the Upstate New York Portfolio was unaffiliated with the Company
and its subsidiary partnerships at the time of the execution of the Contribution
and Sale Agreement. The Company based its determination of the sale price of
these properties on the expected cash flow, physical condition, location,
competitive advantages, existing tenancies, and opportunities to retain and
attract tenants. The sales price was determined through an arm's length
negotiation between the Company and the Buyer.
The purpose of this filing is to report the closing of the Upstate New York
Portfolio disposition and file the required Item 7 pro forma information related
to this transaction.
ITEM 7. FINANCIAL STATEMENT, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
(b) PRO FORMA FINANCIAL INFORMATION
Unaudited pro forma condensed consolidating financial
information which reflects the Company's disposition of the
Upstate New York Portfolio as of and for the nine-month period
ended September 30, 2002 and for the year ended December 31,
2001 are included on pages F-1 to F-9.
2
(c) EXHIBITS
10.1 Contribution and Sale Agreement between Keystone Operating
Partnership, L.P. and Nocha, LLC (the "Contribution and Sale
Agreement")
10.2 Operating Agreement for Nocha, LLC.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned, thereunto duly authorized.
KEYSTONE PROPERTY TRUST
Date: December 27, 2002 By: /s/ JEFFREY E. KELTER
-------------------------
Jeffrey E. Kelter
President and Chief Executive Officer
Date: December 27, 2002 By: /s/ TIMOTHY E. MCKENNA
--------------------------
Timothy E. McKenna
Senior Vice President, and Chief
Financial Officer
Date: December 27, 2002 By: /s/ J. PETER LLOYD
----------------------
J. Peter Lloyd
Vice President, Corporate Controller
3
KEYSTONE PROPERTY TRUST
INDEX
I. UNAUDITED PRO FORMA CONDENSED CONSOLIDATING
FINANCIAL INFORMATION
o Pro Forma Condensed Consolidating Balance Sheet as of
September 30, 2002................................................F-3
o Pro Forma Condensed Consolidating Statement of Operations for
the nine-month period ended September 30, 2002....................F-4
o Pro Forma Condensed Consolidating Statement of Operations for
the year ended December 31, 2001..................................F-5
o Notes to Unaudited Pro Forma Condensed Consolidating Financial
Information.......................................................F-6
F-1
KEYSTONE PROPERTY TRUST
UNAUDITED PRO FORMA CONDENSED FINANCIAL STATEMENTS
The following sets forth the unaudited pro forma condensed
consolidating balance sheet as of September 30, 2002 and the unaudited pro forma
condensed consolidating statements of operations for Keystone Property Trust
(the "Company") for the nine months ended September 30, 2002 and the year ended
December 31, 2001.
The pro forma condensed consolidating financial information should be
read in conjunction with the historical financial statements of the Company
filed pursuant to the rules and regulations of the Securities and Exchange
Commission.
The unaudited pro forma condensed consolidating financial information
is presented as if the following event occurred on September 30, 2002 for
balance sheet purposes and as of the beginning of each period presented for
these proforma condensed consolidating statements of operations.
Total consideration for this disposition was approximately $178.3
million, of which Nocha, LLC (the "Buyer") assumed approximately $106 million of
fixed rate mortgage debt with an average interest rate of 7.68%, which included
$92 million of conduit financing, and approximately $7.8 million of mortgage
debt which was repaid by the Buyer simultaneously with the closing of the sale.
The Company also repaid approximately $17.5 million of variable rate debt under
the Company's $125 million unsecured revolving credit facility with the proceeds
of the disposition. Approximately $17.2 million of net proceeds were deposited
into 1031 exchange cash accounts to fund possible future acquisitions. The
remaining net proceeds were used to pay closing costs of the transaction.
Lastly, Keystone retained a $27 million preferred equity investment in the
portfolio, which earns an 11% preferred return.
The statements contained in this filing may include forward-looking
statements within the meaning of the Federal securities laws. Although the
Company believes that the expectations reflected in such forward-looking
statements are based on reasonable assumptions, it can give no assurance that
its expectations will be achieved. As forward-looking statements, these
statements involve risks and uncertainties that could cause actual results to
differ materially from the expected results. These risks and uncertainties
include, but are not limited to, uncertainties affecting real estate businesses
generally, risks relating to acquisition activities and risks relating to
leasing and re-leasing activities. Additional information on factors which could
impact the Company and the forward-looking statements contained herein are
detailed in the Company's filings with the Securities and Exchange Commission.
F-2
KEYSTONE PROPERTY TRUST
PRO FORMA CONDENSED CONSOLIDATING BALANCE SHEET--
AS OF SEPTEMBER 30, 2002
(UNAUDITED - IN THOUSANDS)
The Company Pro Forma The Company
Historical Events (A) Pro Forma
------------ ---------- -----------
ASSETS
Investment in real estate, net .............................................. $ 551,237 $ -- $ 551,237
Real estate assets held for sale ............................................ 167,854 (167,854) --
Equity method investments ................................................... 26,154 27,000 53,154
Cash and cash equivalents ................................................... 514 -- 514
Restricted cash ............................................................. 868 14,270 15,138
Accounts receivable and other ............................................... 10,765 -- 10,765
Other assets, net ........................................................... 13,975 -- 13,975
Other assets held for sale .................................................. 9,835 (9,835) --
--------- --------- ---------
Total assets ................................................................ $ 781,202 $(136,419) $ 644,783
========= ========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Mortgage notes and other debt ............................................ $ 317,628 $ (17,534) $ 300,094
Liabilities related to assets held for sale .............................. 118,885 (118,885) --
Accrued and other liabilities ............................................ 13,017 -- 13,017
Minority interest ........................................................... 36,634 -- 36,634
Convertible Preferred Units ................................................. 52,892 -- 52,892
Shareholders' equity
Preferred stock .......................................................... 1 -- 1
Common stock ............................................................. 21 -- 21
Additional paid-in capital ............................................... 295,107 -- 295,107
Loans to Employees to Purchase Common
Shares and Deferred Compensation .................................... (8,610) -- (8,610)
Cumulative net income .................................................... 22,996 -- 22,996
Cumulative dividends ..................................................... (67,369) -- (67,369)
--------- --------- ---------
Total shareholders' equity ............................................... 242,146 -- 242,146
--------- --------- ---------
Total liabilities and shareholders' equity .................................. $ 781,202 $(136,419) $ 644,783
========= ========= =========
The accompanying notes are an integral part of this statement.
F-3
KEYSTONE PROPERTY TRUST
PRO FORMA CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE NINE-MONTH PERIOD ENDED SEPTEMBER 30, 2002
(UNAUDITED--IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
THE COMPANY 2002
HISTORICAL HISTORICAL PRO FORMA THE COMPANY
(UNAUDITED) OPERATIONS (A) ADJUSTMENTS PRO FORMA
------------ -------------- ------------- ---------
REVENUE:
Rents $ 63,295 $ (20,313) $ -- $ 42,982
Reimbursement revenue and other income 9,984 (3,961) -- 6,023
------------ ------------ ------------ -----------
Total revenue 73,279 (24,274) -- 49,005
OPERATING EXPENSES:
Property operating expenses 12,995 (7,582) -- 5,413
General and administrative 5,980 -- -- 5,980
Interest expense 18,329 (7,240) -- 11,089
Depreciation and amortization 15,575 (4,655) -- 10,920
Provision for asset impairment 30,200 -- (30,200)(b) --
Employee termination costs 930 -- -- 930
------------ ------------ ------------ ----------
Total operating expenses 84,009 (19,477) (30,200) 34,332
Income/(Loss) Before Equity In Income From Equity Method
Investments, and Losses on sales of assets $ (10,730) $ 14,673
------------ -----------
Equity In Income From Equity Method Investments 583 2,228(c) 2,811
Losses on sales of assets (430) (430)
------------ -----------
Income/(Loss) Before Distributions To Preferred Unitholders,
Minority Interest of Unitholders In Operating Partnership
And Income Allocated To Preferred Shareholders (10,577) 17,054
Distributions To Preferred Unitholders (4,317) (4,317)
------------ -----------
Income/(Loss) Before Minority Interest of Unitholders In
Operating Partnership, and Income Allocated To Preferred
Shareholders (14,894) 12,737
Minority Interest of Unitholders In Operating Partnership 3,987 (6,477)(d) (2,490)
---------- ----------- -------
(10,907) 10,247
Income Allocated To Preferred Shareholders (2,673) (2,673)
------------ -----------
Income/(Loss) from Continuing Operations $ (13,580) $ 7,574
============= ===========
Income/(Loss) from continuing operations Per Common Share -
Basic $ (0.72) $ 0.40
============= ===========
Income/(Loss) from continuing operations Per Common Share -
Diluted $ (0.72) $ 0.40
============= ===========
Weighted Average Shares Outstanding-Basic 18,845,599 18,845,599
============= ===========
Weighted Average Common Shares Outstanding - Diluted 18,845,599 25,163,086
============= ===========
The accompanying notes are an integral part of this statement.
F-4
KEYSTONE PROPERTY TRUST
PRO FORMA CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR YEAR ENDED DECEMBER 31, 2001
(UNAUDITED IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
2002 Events
--------------------------------
The Company HISTORICAL Pro Forma THE COMPANY
HISTORICAL OPERATIONS (A) ADJUSTMENTS PRO FORMA
----------- -------------- ----------- ----------
REVENUE:
Rents and reimbursements $ 95,077 $(28,360) $ --- $ 66,717
Reimbursement revenue and other income 14,707 (5,727) --- 8,980
---------- ---------- --------- ----------
Total revenue 109,784 (34,087) --- 75,697
OPERATING EXPENSES:
Property operating expenses 18,817 (10,054) --- 8,763
General and administrative 7,983 --- --- 7,983
Interest expense 34,187 (9,977) --- 24,210
Depreciation and amortization 24,520 (6,184) --- 18,336
------------ ---------- ----------- ------------
Total operating expenses 85,507 (26,215) --- 59,292
Income Before Equity In Income From Equity Method
Investments, and Gains on Sales of Assets $ 24,277 $ 16,405
------------ ------------
Equity In Income From Equity Method Investments 1,123 2,970(b) 4,093
Gains on sales of assets 9,142 9,142
---------- ----------
Income Before Distributions To Preferred Unitholders,
Minority Interest of Unitholders In Operating
Partnership And Income Allocated To Preferred
Shareholders 34,542 29,640
Distributions To Preferred Unitholders (7,057) (7,057)
---------- ----------
Income/(Loss) Before Minority Interest of Unitholders
In Operating Partnership, and Income Allocated To
Preferred Shareholders 27,485 22,583
Minority Interest of Unitholders In Operating
Partnership (5,650) (211)(c) (5,861)
---------- ------------
21,835 16,722
Income Allocated To Preferred Shareholders (5,035) (5,035)
---------- ----------
Income from Continuing Operations $ 16,800 $ 11,687
========== ==========
Income from continuing operations Per Common Share -
Basic $ 1.16 $ 0.80
========= =========
Income from continuing operations Per Common Share -
Diluted $ 1.05 $ 0.80
==== ===== =========
Weighted Average Shares Outstanding - Basic 14,518,099 14,518,099
============ ==========
Weighted Average Common Shares Outstanding - Diluted 21,410,023 14,518,099
============ ==========
The accompanying notes are an integral part of this statement.
F-5
KEYSTONE PROPERTY TRUST
NOTES TO UNAUDITED PRO FORMA CONDENSED
CONSOLIDATING FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
Keystone Property Trust (together with its subsidiaries, the "Company")
is a fully integrated, self-administered, self-managed real estate investment
trust ("REIT") engaged in the ownership, acquisition, development and management
of industrial properties principally in the eastern portion of the United
States. At September 30, 2002, the Company owned interests in a portfolio of 123
properties (the "Properties") comprised of 103 industrial properties, 20 office
properties and an investment in a direct financing lease, which aggregated
approximately 22.6 million square feet. After the disposition of the Upstate New
York Portfolio, the Company owned interests in a portfolio of 89 properties and
an investment in a direct financing lease.
Total consideration for this disposition was approximately $178.3
million, of which the Buyer assumed approximately $106 million of fixed rate
mortgage debt with an average interest rate of 7.68%, which included $92 million
of conduit financing, and approximately $7.8 million of mortgage debt which was
repaid by the Buyer simultaneously with the closing of the sale. The Company
also repaid approximately $17.5 million of variable rate debt under the
Company's $125 million unsecured revolving credit facility with the proceeds of
the disposition. Approximately $17.2 million of net proceeds were deposited into
1031 exchange cash accounts to fund possible future acquisitions. The remaining
net proceeds were used to pay closing costs of the transaction. Lastly, Keystone
retained a $27 million preferred equity investment in the portfolio, which earns
an 11% preferred return.
These pro forma financial statements should be read in conjunction with
the historical financial statements and notes thereto of the Company. The
operating results reflected herein include the historical results and related
pro forma adjustments to reflect the periods ended December 31, 2001 and
September 30, 2002, as if the Upstate New York Portfolio had been sold as of the
beginning of these periods.
2. ADJUSTMENTS TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATING BALANCE
SHEET AS OF SEPTEMBER 30, 2002 (IN 000'S)
A) Reflects the Company's consummated disposition of the Upstate New York
Portfolio as follows:
LIABILITIES
REAL ESTATE RELATED TO
ASSETS HELD EQUITY METHOD RESTRICTED OTHER ASSETS ASSETS HELD
FOR SALE INVESTMENTS CASH HELD FOR SALE MORTGAGE DEBT FOR SALE
-------- ----------- ---- ------------- ------------- --------
DISPOSITION
Upstate New York
Portfolio $(167,854) $ 27,000 $ 14,270 $ (9,835) $(17,534) $(118,885)
------------- ------------- ------------ ------------ ------------ -------------
TOTAL $(167,854) $ 27,000 $ 14,270 $ (9,835) $(17,534) $(118,885)
============= ============= ============ ============ ============ =============
F-6
KEYSTONE PROPERTY TRUST
NOTES TO UNAUDITED PRO FORMA CONDENSED
CONSOLIDATING FINANCIAL STATEMENTS
3. ADJUSTMENTS TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATING
STATEMENTS OF OPERATIONS FOR THE NINE MONTH PERIOD ENDED
SEPTEMBER 30, 2002 (IN 000'S)
2002 EVENTS - HISTORICAL OPERATIONS:
(a) Reflects the historical operations of the Upstate New York
Portfolio for the nine months ended September 30, 2002:
REVENUE OPERATING EXPENSES
------------------------------------------------- ----------------------
TENANT
REIMBURSEMENTS PROPERTY OPERATING
AND AND
MINIMUM RENT OTHER INCOME SUBTOTAL OTHER EXPENSES
------------- ------------ --------- --------------
Upstate New York Portfolio $ (20,313) $ (3,961) $ (24,274) $ (7,582)
============ ================== ========== ==================
INTEREST AND DEPRECIATION
--------------------------------------------
INTEREST DEPRECIATION AND
EXPENSE (i) AMORTIZATION (ii)
------------ ------------------
Upstate New York Portfolio $ (7,240) $ (4,655)
============== =================
FOOTNOTES:
(i) Pro forma interest expense reflects effective interest
rates ranging from 3.45% to 9.68% on debt repayments
and debt assumed by the Buyer.
(ii) Pro forma depreciation expense reflects the
elimination of actual depreciation on the properties.
2002 EVENTS - PRO-FORMA ADJUSTMENTS:
(b) To eliminate the provision for asset impairment on the Upstate
New York Portfolio which was recorded on September 30, 2002.
The total impairment charge is now estimated to be
approximately $31 million.
(c) To adjust the equity in income from equity method investments
for the 11% preferred return on the $27 million preferred
equity investment.
(d) To adjust the minority interest's share of income in the
Operating Partnership. The Company owned approximately 75.25%
of the Operating Partnership. The adjustment to record the
income effect of the minority interest share for the nine
months ended September 30, 2002 in the pro forma statement of
operations was computed as follows:
F-7
KEYSTONE PROPERTY TRUST
NOTES TO UNAUDITED PRO FORMA CONDENSED
CONSOLIDATING FINANCIAL STATEMENTS
Pro forma Revenue $ 49,005
Pro forma Operating Expenses (34,332)
Distributions to Preferred Unitholders and Preferred Shareholders (6,990)
Pro forma Equity in Income from Equity Investment 2,811
Losses on sales of assets (430)
--------------
Pro forma Income before Minority Interest $ 10,064
==============
Minority Interest (24.75%) $ (2,490)
Minority Interest at September 30, 2002 3,987
--------------
Adjustment Required $ (6,477)
===============
4. ADJUSTMENTS TO PRO FORMA CONDENSED CONSOLIDATING STATEMENTS OF
OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2001 (IN 000'S)
2002 EVENTS - HISTORICAL OPERATIONS:
(a) Reflects the pro forma adjustments related to the historical
operations of the Upstate New York Portfolio for the year
ended December 31, 2001:
OPERATING
REVENUE EXPENSES
----------------------------------------------------------- -------------
TENANT
REIMBURSEMENTS PROPERTY
AND OPERATING AND
MINIMUM RENT OTHER INCOME SUBTOTAL OTHER EXPENSES
------------- ---------------- --------- --------------
Upstate New York Portfolio $ (28,360) $ (5,727) $ (34,087) $ (10,054)
============ ============== =========== ===========
INTEREST AND DEPRECIATION
----------------------------------------------------
DEPRECIATION AND
INTEREST EXPENSE (i) AMORTIZATION (ii)
-------------------- -----------------
Upstate New York Portfolio $ (9,977) $ (6,184)
============== ==============
F-8
KEYSTONE PROPERTY TRUST
NOTES TO UNAUDITED PRO FORMA CONDENSED
CONSOLIDATING FINANCIAL STATEMENTS
FOOTNOTES:
---------
(i) Pro forma interest expense reflects effective interest rates
ranging from 3.56% to 9.68% on debt repayments and debt assumed by the
Buyer.
(ii) Pro forma depreciation expense reflects the elimination of actual
depreciation on the properties.
2002 EVENTS -PRO-FORMA ADJUSTMENTS:
(b) To adjust the equity in income from equity method investments
for the 11% preferred return on the $27 million preferred
equity investment.
(c) To adjust the minority interest's share of income in the
Operating Partnership. The Company owned approximately 66.6%
of the Operating Partnership. The adjustment to record the
income effect of the minority interest share for the year
ended December 31, 2001 in the pro forma statement of
operations was computed as follows (in 000's):
Pro forma Revenue $ 75,697
Pro forma Operating Expenses (59,292)
Distributions to Preferred Unitholders and Preferred Shareholders (12,092)
Pro forma Equity in Income from Equity Investment 4,093
Gains on sale of assets 9,142
------------
Pro forma Income before Minority Interest $ 17,548
============
Minority Interest (33.4%) $ (5,861)
Minority Interest at December 31, 2001 (5,650)
-------------
Adjustment Required $ (211)
=============
F-9