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SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K/A

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Date of report (Date of earliest event reported): November 10, 2003

KEYSTONE PROPERTY TRUST

(Exact Name of Registrant as Specified in its Charter)
         
Maryland   1-12514   84-1246585
 
 
(State or Other Jurisdiction
of Incorporation)		   (Commission
File Number) 		  (IRS Employer
Identification No.)
200 Four Falls, Suite 208
West Conshohocken, PA 19428
(Address of Principal Executive Offices)(Zip Code)

Registrant’s telephone number, including area code: (484) 530-1800

 

     The purpose of this filing is to update the report of the acquisition of a portfolio of 13 properties totaling approximately 1.7 million square feet in Miami, Florida (the “Easton Portfolio”) and to file the required Item 7 pro forma information related to this transaction. The original report covered the period through June 30, 2003 and this report updates through September 30, 2003.

ITEM 2. ACQUISITION OF ASSETS EASTON PORTFOLIO ACQUISITION

     On November 10, 2003, Keystone Property Trust (the “Company”), through Keystone Operating Partnership, L.P. (the “Operating Partnership”) closed on an agreement to acquire a portfolio of properties consisting of thirteen industrial buildings located in Miami, Florida totaling approximately 1.7 million square feet (the “Easton Portfolio”). Total consideration for this acquisition was approximately $115.2 million, including closing costs, and was funded using a portion of the net proceeds from a November 2003 common share offering of approximately $47.6 million and approximately $67.6 million of assumed debt from various lenders. The sellers of the Easton Portfolio, International Place Associates II, Ltd., International Place Associates III, Ltd. and International Place Associates IV, Ltd., (the “Sellers”) were unaffiliated entities at the time of the execution of the purchase and sale agreement. The Company placed the Easton Portfolio properties in service as operating properties.

     The buildings acquired by the Company are as follows:

                         
        Leaseable Square   Occupancy    
Property Address   Location   Feet   September 30, 2003   Major Tenants
 
 
 
 
1600 N.W. 102 Avenue   Miami, FL     30,465       100 %   Great Spring Waters of America
9905 N.W. 17th Street   Miami, FL     116,200       75 %   BAX Global Inc.
1665 N.W. 102nd Avenue   Miami, FL     115,700       100 %   Associated Farms
10000 N.W. 17th Street   Miami, FL     73,600       100 %   Federal Express Corporation
9950 N.W. 17th Street   Miami, FL     148,750       100 %   Eagle Global Logistics
10200 N.W. 21st Street   Miami, FL     189,090       100 %   Yusen Air and Sea Service
10205 N.W. 19th Street   Miami, FL     262,992       94 %   Expeditors International
10000 N.W. 21st Street   Miami, FL     107,659       100 %   Federal Express Corporation
10300 N.W. 19th Street   Miami, FL     247,800       100 %   Air Express/Lucent Tech
10605 N.W. 21st Street   Miami, FL     100,800       100 %   Almar International/Schenker
9825 N.W. 17th Street   Miami, FL     44,981       100 %   Arrowmail
1530 N.W. 98th Court   Miami, FL     147,581       100 %   Union Transport Corporation
9835 N.W. 14th Street   Miami, FL     147,581       100 %   Software Brokers of America
         
             
Total         1,733,199              
         
             

     The Company based its determination of the purchase price of the Easton Portfolio on the expected cash flow, physical condition, location, competitive advantages, existing tenancies and opportunities to retain and attract tenants. The price was determined through arm’s length negotiations between the Company and the Sellers. The Company has included audited financial statements for the Easton Portfolio prepared pursuant to Rule 3-14 of the Regulation S-X of the Securities and Exchange Commission. Due to the non-related party nature of these transactions, only audited statements for the year ended December 31, 2002 are required. The Company is not aware of any material factors relating to these properties that would cause the reported financial information not to be necessarily indicative of future operating results. The Company has determined that the acquisition of the Easton Portfolio is significant under the rules and regulations of the Securities and Exchange Commission.

2

 

ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS

(a)   PRO FORMA FINANCIAL INFORMATION
 
    Unaudited pro forma condensed consolidated financial information which sets forth the Company’s acquisition of the Easton Portfolio as of and for the nine-month period ended September 30, 2003 and for the year ended December 31, 2002 are included on pages F-2 to F-10.
 
(b)   FINANCIAL STATEMENTS OF BUSINESSES ACQUIRED
 
    The combined statements of revenue and certain expenses of the Easton Portfolio for the year ended December 31, 2002 (audited) and the unaudited statements of revenue and certain operating expenses of the Easton Portfolio for the nine-month period ended September 30, 2003 are included on pages F-11 to F-14.
 
(c)   EXHIBITS
 
    23.1     Consent of KPMG LLP

3

 

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: February 11, 2004   By:   /s/ Jeffrey E. Kelter
       
        Jeffrey E. Kelter
        President and Chief Executive Officer
         
Date: February 11, 2004   By:   /s/ Timothy E. McKenna
       
        Timothy E. McKenna
        Senior Vice President and Chief Financial Officer
         
Date: February 11, 2004   By:   /s/ J. Peter Lloyd
       
        J. Peter Lloyd
        Vice President and Chief Accounting Officer

4

 

KEYSTONE PROPERTY TRUST
INDEX

                 
I.
   UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION        
 
     Pro Forma Condensed Consolidated Balance Sheet as of September 30, 2003     F-3  
 
     Pro Forma Condensed Consolidated Statement of Operations for the nine-month period ended September 30, 2003     F-4  
 
     Pro Forma Condensed Consolidated Statement of Operations for the year ended December 31, 2002     F-5  
 
     Notes to Unaudited Pro Forma Condensed Consolidated Financial Information     F-6  
II.
   FINANCIAL STATEMENTS OF EASTON PORTFOLIO        
 
     Independent Auditor’s Report     F-11  
 
     Combined Statements of Revenue and Certain Expenses for the nine-month period ended        
 
     September 30, 2003 (unaudited) and year ended December 31, 2002     F-12  
 
     Notes to Combined Statements of Revenue and Certain Expenses     F-13  

F-1

 

KEYSTONE PROPERTY TRUST
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

     The following sets forth the unaudited pro forma condensed consolidated balance sheet as of September 30, 2003 and the unaudited pro forma condensed consolidated statements of operations for Keystone Property Trust (the “Company”) for the nine months ended September 30, 2003 and the year ended December 31, 2002 as if the acquisition of the Easton Portfolio had occurred at the beginning of each period presented.

     The pro forma condensed consolidated 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 pro forma condensed consolidated financial statements do not purport to represent the Company’s financial position or results of operations that would actually have occurred had the following events occurred on September 30, 2003 or the first day of each period presented, nor do they purport to project the Company’s financial position or results of operations for any future period. The unaudited pro forma condensed consolidated financial information is presented as if the following event occurred on September 30, 2003 for balance sheet purposes and as of the beginning of each period presented for the pro forma condensed consolidated statements of operations.

     On November 10, 2003, the Company entered into an agreement to acquire a portfolio consisting of thirteen industrial buildings located in Miami, Florida totaling approximately 1.7 million square feet (“Easton Portfolio”). Total consideration for this acquisition was approximately $115.2 million, including closing costs, and was funded using the net proceeds from a November 2003 common stock offering of approximately $47.6 million and approximately $67.6 million of assumed debt from various lenders.

     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 CONSOLIDATED BALANCE SHEET—
AS OF SEPTEMBER 30, 2003

(Unaudited - in thousands)

                           
              Easton Portfolio   The Company
      The Company   (2A)   Pro Forma
     
 
 
Assets
                        
Investment in real estate, net
   $ 724,868     $ 122,996     $ 847,864  
Equity method investments
     68,161       —       68,161  
Cash and cash equivalents
     1,119       —       1,119  
Restricted cash
     764       —       764  
Notes and accounts receivable
     12,638       —       12,638  
Other assets, net
     29,671       2,928       32,599  
 
    
     
     
 
Total assets
   $ 837,221     $ 125,924     $ 963,145  
 
    
     
     
 
Liabilities and Shareholders’ Equity
                        
Liabilities:
                        
 
Mortgage notes and other debt
   $ 426,625     $ 46,394       473,019  
 
Accrued and other liabilities
     26,810       2,210       29,020  
Minority interest
     44,380       —       44,380  
Convertible preferred units
     52,892       —       52,892  
Shareholders’ equity
                       
 
Preferred stock
     4       —       4  
 
Common stock
     22       4       26  
 
Additional paid-in capital
     355,022       77,316       432,338  
 
Loans to employees to purchase common shares and deferred compensation
     (9,154 )     —       (9,154 )
 
Cumulative net income
     36,099       —       36,099  
 
Cumulative dividends
     (95,479 )     —       (95,479 )
 
    
     
     
 
 
Total shareholders’ equity
     286,514       77,320       363,834  
 
    
     
     
 
Total liabilities and shareholders’ equity
   $ 837,221     $ 125,924     $ 963,145  
 
    
     
     
 

The accompanying notes are an integral part of this statement.

F-3

 

KEYSTONE PROPERTY TRUST
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE NINE-MONTH PERIOD ENDED SEPTEMBER 30, 2003
(Unaudited, in thousands, except share and per share data)

                                     
        The Company   Easton   Pro Forma   The Company
        Historical   Portfolio (3A)   Adjustments (3)   Pro Forma
       
 
 
 
REVENUE:
                                
 
Rents
   $ 53,851     $ 8,411     $ 776 (B)   $ 63,038  
 
Reimbursement revenue and other income
     10,717       968       —       11,685  
 
    
     
     
     
 
   
Total revenue
     64,568       9,379       776       74,723  
 
    
     
     
     
 
OPERATING EXPENSES:
                                
 
Property operating expenses
     10,399       2,448       188 (A)     13,035  
 
General and administrative
     7,676       —       —       7,676  
 
Depreciation and amortization
     15,772       —       2,680 (A)     18,452  
 
    
     
     
     
 
   
Total operating expenses
     33,847       2,448       2,868       39,163  
 
    
     
     
     
 
Income before interest expense, equity in income from equity method investments and gains on sales of assets
     30,721                       35,560  
Interest expense
     14,037       —       2,782 (A)     16,819  
Equity in income from equity method investments
     4,484                       4,484  
Gains on sales of assets
     3,221                       3,221  
 
    
                     
 
Income before distributions to preferred unitholders, minority interest of unitholders in operating partnership and income allocated to preferred shareholders
     24,389                       26,446  
 
                            
 
Distributions to preferred unitholders
     (3,804 )                     (3,804 )
 
    
                     
 
Income before minority interest of unitholders in operating partnership and income allocated to preferred shareholders
     20,585                       22,642  
Minority interest of unit holders in operating partnership
     (3,163 )     —       (112 )(C)     (3,275 )
 
    
             
     
 
Income from continuing operations
   $ 17,422                     $ 19,367  
 
    
                     
 
Income allocated to preferred shareholders
     (4,980 )                     (4,980 )
 
    
                     
 
Income allocated to common shareholders
   $ 12,442                     $ 14,387  
 
    
                     
 
Income from continuing operations per common share basic
   $ 0.58                     $ 0.60  
 
    
                     
 
Income from continuing operations per common share diluted
   $ 0.57                     $ 0.59  
 
    
                     
 
Weighted average common shares outstanding basic
     21,656,634                       24,075.547  
 
    
                     
 
Weighted average common shares outstanding diluted
     27,424,617                       29,843,530  
 
    
                     
 

The accompanying notes are an integral part of this statement.

F-4

 

KEYSTONE PROPERTY TRUST
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR YEAR ENDED DECEMBER 31, 2002
(Unaudited, in thousands, except share and per share data)

                                     
        The Company   Easton   Pro Forma   The Company
        Historical (4)   Portfolio (4A)   Adjustments (4)   Pro Forma
       
 
 
 
REVENUE:
                                
 
Rents
   $ 83,067     $ 9,940     $ 911 (B)   $ 93,918  
 
Reimbursement revenue and other income
     13,434       1,322       —       14,756  
 
    
     
     
     
 
   
Total revenue
     96,501       11,262       911       108,674  
 
    
     
     
     
 
OPERATING EXPENSES:
                                
 
Property operating expenses
     17,728       3,186       223 (A)     21,137  
 
General and administrative
     10,024       —       —       10,024  
 
Depreciation and amortization
     19,978       —       3,574 (A)     23,552  
 
    
     
     
     
 
   
Total operating expenses
     47,730       3,186       3,797       54,713  
 
    
     
     
     
 
Income before interest expense, equity in income from equity method investments and losses on sales of assets
     48,771                       53,961  
Interest expense
     25,115 (E)     —       3,711 (A)     28,826  
Equity in income from equity method investments
     899                       899  
Losses on sales of assets
     (31,322 )                     (31,322 )
 
    
                     
 
Loss before distributions to preferred unitholders, minority interest of unitholders in operating partnership and loss allocated to preferred shareholders
     (6,767 )                     (5,288 )
Distributions to preferred unitholders
     (5,585 )                     (5,585 )
 
    
                     
 
Loss before minority interest of unit holders in operating partnership and loss allocated to preferred shareholders
     (12,352 )                     (10,873 )
Minority interest of unitholders in operating partnership
     3,492       —       (344 )(C)     3,148  
 
    
     
     
     
 
Loss from continuing operations
   $ (8,860 )                   $ (7,725 )
Income from discontinued operations, net of minority interest ($294)
     900                       900  
 
    
                     
 
Net loss
   $ (7,960 )                   $ (6,825 )
Loss allocated to preferred shareholders
     (3,449 )(D)                     (3,449 )
 
    
                     
 
Loss allocated to common shareholders
   $ (11,409 )                   $ (10,274 )
 
    
                     
 
Loss from continuing operations per common share basic
   $ (0.63 )                   $ (0.51 )
 
    
                     
 
Loss from continuing operations per common share diluted
   $ (0.63 )                   $ (0.51 )
 
    
                     
 
Weighted average common shares outstanding basic
     19,467,656                       21,894,847  
 
    
                     
 
Weighted average common shares outstanding diluted
     19,467,656                       21,894,847  
 
    
                     
 

The accompanying notes are an integral part of this statement.

F-5

 

KEYSTONE PROPERTY TRUST
NOTES TO UNAUDITED PRO FORMA
CONDENSED CONSOLIDATED 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. As of September 30, 2003, the Company owned interests in a portfolio of 120 properties (the “Properties”) comprised of 118 industrial properties, one office property and an investment in a direct financing lease, which aggregated approximately 26.9 million square feet with 26 of the Properties owned through unconsolidated joint ventures.

     On November 10, 2003, the Company, through Keystone Operating Partnership, L.P. (the “Operating Partnership”), entered into a purchase and sale agreement to acquire a portfolio of properties consisting of thirteen industrial buildings located in Miami, Florida totaling approximately 1.7 million square feet (“Easton Portfolio”). Total consideration for this acquisition was approximately $115.2 million, including closing costs, and was funded using the net proceeds from a November 2003 common stock offering of approximately $47.6 million and approximately $67.6 million of assumed debt from various lenders. The sellers of the Easton Portfolio, International Place Associates II, Ltd., International Place Associates III, Ltd., and International Place Associates IV, Ltd., (the “Sellers”) were unaffiliated entities at the time of the execution of the purchase and sale agreement. The purpose of this filing is to report Item 7 information regarding the acquisition of the Easton Portfolio.

     These pro forma financial statements should be read in conjunction with the historical financial statements and notes thereto of the Company. The pro forma operating results included herein include the historical results and related pro forma adjustments to reflect the periods ended December 31, 2002 and September 30, 2003, as if these transactions had been consummated as of the beginning of these periods.

2.   ADJUSTMENTS TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET AS OF SEPTEMBER 30, 2003 (in 000s)

A) Adjustments to record the Company’s acquisition of the Easton Portfolio as follows:

                                                 
    Investments in Real                                   Additional Paid-in
Acquisitions   Estate, Net   Other Assets, Net   Mortgage Debt   Accrued and Other Liabilities   Common Stock   Capital
 
 
 
 
 
 
Easton Portfolio
   $ 122,996 (i)   $ 2,928     $46,394 (ii)   $ 2,210     $ 4     $77,316 (iii)
 
    
     
     
     
     
     
 
TOTAL
   $ 122,996     $ 2,928     $ 46,394     $ 2,210     $ 4     $ 77,316  
 
    
     
     
     
     
     
 

     The costs of the to be acquired properties are allocated to individual properties and intangible assets related to acquired leases based on their respective fair values. The purchase allocation adjustments made in connection with the development of the pro forma condensed consolidated financial statements are based on information available at this time. Subsequent adjustments to the allocation may be made based on additional information. The increase in investments in real estate, net includes the purchase price with closing costs ($115.2 million) and debt premiums ($8.5 million) offset by adjustments related to Statement of Financial Accounting Standards (“SFAS”) No. 141, “Business Combinations” ($718).

Footnotes:

  i)   The acquisition cost includes the purchase price with closing costs ($115.2 million), debt premiums ($8.5 million), acquired lease intangibles ($2.9 million) and the acquired lease obligation ($2.2 million).
 
  ii)   Represents $67.6 million in assumed debt and $8.5 million in debt premiums reduced by $29.7 million of excess proceeds from our November Offering.
 
  iii)   Represents the net proceeds from the November Offering net of the offering costs.

F-6

 

3.   ADJUSTMENTS TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS FOR THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 2003 (in 000s)

     The accompanying unaudited pro forma condensed consolidated statement of operations contains certain adjustments, which are explained below, to give effect to the acquisition of the Easton Portfolio described in Note 1. The historical combined statement of revenue and certain expenses of the Easton Portfolio exclude certain expenses that would not be comparable with those resulting from the proposed future operations. The pro forma adjustments include results of operations for the indicated periods of the properties based on our accounting policies where such policies differ from those which were applied in preparing the historical statements of the properties.

F-7

 

KEYSTONE PROPERTY TRUST
NOTES TO UNAUDITED PRO FORMA
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

2003 Historical Operations Adjustments

A)   Reflects the pro forma adjustment related to historical operations for the nine months ended September 30, 2003:
                                 
                            OPERATING
    REVENUE   EXPENSES
   
 
            Tenant           Property Operating
            Reimbursements           And Other
    Minimum Rent   and Other Income   Subtotal   Expenses (i)
   
 
 
 
Easton Portfolio
   $ 8,411     $ 968     $ 9,379     $ 2,636  
 
    
     
     
     
 
                 
    INTEREST AND DEPRECIATION
   
            Depreciation and
    Interest Expense (ii)   Amortization (iii)
   
 
Easton Portfolio
   $ 2,782     $ 2,680  
 
    
     
 

Footnotes:

(i)   Pro forma property operating and other expenses includes a management fee expense calculated as 2% of minimum rent and tenant reimbursements received ($188).
 
(ii)   Pro forma interest expense on assumed debt of approximately $76.1 million, including debt premiums of $8.5 million, with an effective interest rate of 5% for indebtedness related to this transaction.
 
(iii)   Pro forma depreciation expense reflects depreciation based on a 35-year useful life ($2.2) and amortization of the intangible asset from the acquired leases which is amortized over the term of the related leases ($440).

2003 Other Pro-Forma Adjustments:

B)   Pro forma minimum rent includes a pro forma adjustment for straight line rent of $431 and an adjustment for amortization of lease intangibles recorded under SFAS No. 141, “Business Combinations”, of $345.
 
C)   To adjust the minority interest’s share of income in Keystone Operating Partnership, L.P. (the “Operating Partnership”). As of September 30, 2003, the Company owned approximately 81.4% on a pro forma basis of the common ownership of the Operating Partnership. The adjustment to record the income effect of the minority interest’s share for the nine months ended September 30, 2003 in the pro forma statement of operations was computed as follows:
         
Pro forma revenue
   $ 74,723  
Pro forma expenses, including interest expense
     55,982  
Distributions to preferred shareholders and unitholders
     8,784  
Gains on sales of assets
     3,221  
Pro forma equity in income from equity investments
     4,484  
 
    
 
Pro forma income before minority interest
     17,662  
 
    
 
Minority interest
     3,275  
Minority interest as reported for the nine months ended September 30, 2003
   3,163  
 
    
 
Adjustment required
   $ 112  
 
    
 

F-8

 

KEYSTONE PROPERTY TRUST
NOTES TO UNAUDITED PRO FORMA
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

4.   ADJUSTMENTS TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2002 (in 000s)

     The accompanying unaudited pro forma condensed statement of operations contain certain adjustments, which are explained below to give effect to the acquisition of the properties described in Note 1. The historical statements of revenue and certain expenses of the properties exclude certain expenses that would not be comparable with those resulting from the proposed future operations. The pro forma adjustments include results of operations for the indicated periods of the properties based on our accounting policies where such policies differ from those which were applied in preparing the historical statements of the properties.

2002 Historical Operations Adjustments:

  A)   Reflects the pro forma adjustments related to the historical operations for the year ended December 31, 2002:
                                 
                            OPERATING
    REVENUE           EXPENSES
   
         
            Tenant                
            Reimbursements and           Property
    Minimum Rent   Other Income   Subtotal   Operating Expenses(i)
   
 
 
 
Easton Portfolio
   $ 9,940     $ 1,322     $ 11,262     $ 3,409  
 
    
     
     
     
 
                 
    INTEREST & DEPRECIATION
   
            Depreciation and
    Interest Expense (ii)   Amortization (iii)
   
 
Easton Portfolio
   $ 3,711     $ 3,574  

Footnotes:

  (i)   Pro forma property operating and other expenses includes a management fee expense calculated as 2% of minimum rent and tenant reimbursements received ($223).
 
  (ii)   Pro forma interest expense on assumed debt of approximately $76.1 million, including debt premiums of $8.5 million, with an effective interest rate of 5% indebtedness related to this transaction.
 
  (iii)   Pro forma depreciation expense reflects depreciation based on a 35-year useful life ($3.0 million) and amortization of the intangible asset from the acquired leases which is amortized over the term of the related leases ($587).

2003 Other Pro-Forma Adjustments:

  B)   Pro forma minimum rent includes a pro forma adjustment for straight line rent of $451 and an adjustment for amortization of lease intangibles recorded under SFAS No. 141, “Business Combinations”, of $460.
 
  C)   To adjust the minority interest’s share of income in the Operating Partnership. As of December 31, 2002, the Company owned approximately 78.3% on a pro forma basis of the common ownership of the Operating Partnership. The adjustment to record the income effect of the minority interest’s share for the year ended December 31, 2002 in the pro forma statement of operations was computed as follows (in 000s):
         
Pro forma revenue
   $ 108,674  
Pro forma expenses, including interest expense
     83,539  
Distributions to preferred shareholders and unitholders
     9,034  
Losses on sales of assets
     31,322  
Pro forma equity in income from equity investment
     899  
Income from discontinued operations
     900  
 
    
 

F-9

 

         
Pro forma income before minority interest
     (13,422 )
 
    
 
Minority interest
     2,854  
Minority interest as reported for the year ended December 31, 2002
     3,198  
 
    
 
Adjustment required
   $ (344 )
 
    
 

  D)   Pursuant to Financial Accounting Standards Board (“FASB”) EITF Topic D-42, “The Effect on the Calculation of Earnings per Share for the Redemption or Induced Conversion of Preferred Stock,” the Company has changed its accounting treatment of the offering costs paid with the issuance of its Convertible Preferred Stock, of which $25 million was redeemed in September 2002. In accordance with a recent SEC clarification of this pronouncement, these costs, aggregating $411,000, have been expensed as a preferred dividend.
 
  E)   Certain amounts in the 2002 consolidated financial statements have been reclassified in order to conform with the presentation in the 2003 consolidated financial statements. The Company has adopted SFAS No. 145, “Rescission of FASB Statements Nos. 3, 44 and 64, Amendment of FASB Statement No. 13 and Technical Corrections”, effective January 1, 2003, and reclassified $863 previously reported as an extraordinary item related to early debt extinguishment to interest expense.

F-10

 

INDEPENDENT AUDITORS’ REPORT

To the Board of Trustees and Shareholders of Keystone Property Trust:

     We have audited the accompanying combined statement of revenue and certain expenses of the Easton Portfolio (the “Portfolio”) for the year ended December 31, 2002. This financial statement is the responsibility of the Portfolio’s management. Our responsibility is to express an opinion on this combined statement of revenue and certain expenses based on our audit.

     We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the combined statement of revenue and certain expenses is free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the combined statement of revenue and certain expenses. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the combined statement of revenue and certain expenses. We believe that our audit provides a reasonable basis for our opinion.

     The accompanying combined statement of revenue and certain expenses of the Easton Portfolio was prepared for the purpose of complying with the rules and regulations of the Securities and Exchange Commission for inclusion in the Current Report on Form 8-K of Keystone Property Trust as described in Note 1, and is not intended to be a complete presentation of the revenues and expenses of the Easton Portfolio.

     In our opinion, the combined statement of revenue and certain expenses referred to above presents fairly, in all material respects, the combined revenue and certain expenses of the Easton Portfolio for the year ended December 31, 2002, in conformity with accounting principles generally accepted in the United States of America.

/s/ KPMG LLP

October 31, 2003
Philadelphia, PA

F-11

 

EASTON PORTFOLIO
COMBINED STATEMENTS OF REVENUE AND CERTAIN EXPENSES
(in 000s)

                     
        For the Nine Months Ended   For the Year Ended
       
 
        September 30, 2003   December 31, 2002
       
 
        (Unaudited)        
REVENUE:
                
 
Rent
   $   8,411     $ 9,940  
 
Tenant Reimbursements
     968       1,322  
 
    
     
 
   
Total Revenue
     9,379       11,262  
CERTAIN EXPENSES:
                
 
Maintenance and Other Operating Expenses
     437       446  
 
Real Estate Taxes
     1,376       1,846  
 
Insurance
     635       894  
 
    
     
 
   
Total Certain Expenses
     2,448       3,186  
 
    
     
 
REVENUE IN EXCESS OF CERTAIN EXPENSES
   $   6,931     $ 8,076  
 
 
    
     
 

The accompanying notes are an integral part of this financial statement.

F-12

 

EASTON PORTFOLIO
NOTES TO COMBINED STATEMENTS OF REVENUE AND CERTAIN EXPENSES FOR THE PERIODS ENDING
SEPTEMBER 30, 2003 AND DECEMBER 31, 2002

1.     BASIS OF PRESENTATION:

     The combined statements of revenue and certain expenses reflect the operations for the periods presented of the Easton Portfolio (the “Portfolio”). Total consideration for the acquisition was approximately $115.2 million, including closing costs. The purchase price was funded using the net proceeds from the Company’s November 2003 common stock offering of approximately $47.6 million and approximately $67.6 million of assumed debt.

     The combined statements of revenue and certain expenses have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. These financial statements are not representative of the actual operations of the Portfolio for the periods presented, as certain expenses that may not be comparable to the expenses to be incurred in the proposed future operations of the Portfolio have been excluded. Expenses excluded consist of depreciation and amortization, interest, professional fees, management fees and other costs not directly related to the future operations of the Portfolio.

     The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of revenue and certain expenses during the reporting period. The ultimate results could differ from those estimates.

     The Portfolio consists of the following 13 properties:

                         
        Leaseable   Occupancy    
        Square   September 30,    
Property Address   Location   Feet   2003   Major Tenants
 
 
 
 
1600 N.W. 102 Avenue   Miami, FL     30,465       100 %   Great Spring Waters of America
9905 N.W. 17th Street   Miami, FL     116,200       75 %   BAX Global Inc.
1665 N.W. 102nd Avenue   Miami, FL     115,700       100 %   Associated Farms
10000 N.W. 17th Street   Miami, FL     73,600       100 %   Federal Express Corporation
9950 N.W. 17th Street   Miami, FL     148,750       100 %   Eagle Global Logistics
10200 N.W. 21st Street   Miami, FL     189,090       100 %   Yusen Air and Sea Service
10205 N.W. 19th Street   Miami, FL     262,992       94 %   Expeditors International
10000 N.W. 21st Street   Miami, FL     107,659       100 %   Federal Express Corporation
10300 N.W. 19th Street   Miami, FL     247,800       100 %   Air Express/Lucent Tech
10605 N.W. 21st Street   Miami, FL     100,800       100 %   Almar International/Schenker
9825 N.W. 17th Street   Miami, FL     44,981       100 %   Arrowmail
1530 N.W. 98th Court   Miami, FL     147,581       100 %   Union Transport Corporation
9835 N.W. 14th Street   Miami, FL     147,581       100 %   Software Brokers of America
         
             
Total         1,733,199              
         
             

     The accounts of each building noted above are combined in the accompanying statements of revenue and certain expenses for the periods presented.

     The combined statement of revenue and certain expenses for the nine months ended September 30, 2003 is unaudited; however, in the opinion of management, all adjustments (consisting solely of normal recurring adjustments) necessary for the fair presentation of the combined statement of revenue and certain expenses for the interim period have been included. The results of the interim period are not necessarily indicative of the results for the full year.

     Rental revenue for the periods ended September 30, 2003 and December 31, 2002 included straight line rent of $257,000 (unaudited) and $99,000, respectively.

F-13

 

EASTON PORTFOLIO
NOTES TO COMBINED STATEMENTS OF REVENUE AND CERTAIN EXPENSES FOR THE PERIODS ENDING
SEPTEMBER 30, 2003 AND DECEMBER 31, 2002

2.     OPERATING LEASES:

     In addition to minimum rent payments, the leases generally provide for the recovery of operating expenses from tenants based on their pro rata share of leased space. These amounts are included as tenant reimbursements in the accompanying combined statements of revenue and certain expenses.

     The following tenants account for greater than 10% of annual minimum rent for the year ended December 31, 2002 (in 000s):

                 
Property   Tenant   Minimum Rent
 
 
10205 N.W. 19th Street
   Expeditors International   $ 1,030  
 
            
 
 
           $ 1,030  
 
            
 

     The Portfolio is leased to tenants under operating leases with expiration dates extending to 2015. Future minimum rentals under non-cancelable operating leases, excluding tenant reimbursements of operating expenses, as of December 31, 2002 are as follows:

           
2003
   $ 11,016  
2004
     11,018  
2005
     9,022  
2006
     6,786  
2007
     6,067  
2008 and thereafter
     16,889  
 
    
 
 
Total
   $ 60,798  
 
    
 

F-14