<PAGE>
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                    U.S. SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                            ------------------------

                                   FORM 10-K

<TABLE>
<C>        <S>
   /X/     ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
           SECURITIES EXCHANGE ACT OF 1934
</TABLE>

          (FEE REQUIRED) FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999.

<TABLE>
<C>         <S>
   / /      TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
            SECURITIES EXCHANGE ACT OF 1934
</TABLE>

      (NO FEE REQUIRED) FOR THE TRANSITION PERIOD FROM                 TO
                                               .

                         COMMISSION FILE NUMBER 1-12514

                            ------------------------

                            KEYSTONE PROPERTY TRUST

         (Name of registrant as specified in its declaration of trust)

<TABLE>
<S>                                                 <C>
                     MARYLAND                                    84-1246586
           (State or other jurisdiction             (IRS Employer Identification Number)
        of incorporation or organization)

    200 FOUR FALLS CORPORATE CENTER, SUITE 208                     19428
         WEST CONSHOHOCKEN, PENNSYLVANIA                         (Zip Code)
              (Address of principal
                executive offices)
</TABLE>

                            ------------------------

       REGISTRANT'S TELEPHONE NUMBER (INCLUDED AREA CODE): (484) 530-1800

         Securities registered under Section 12(b) of the Exchange Act:
                              Title of each Class:
                         Common Shares, $.001 Par Value
       Name of each Exchange on which Registered: American Stock Exchange

    Securities registered under Section 12(g) of the Exchange Act: NONE

    Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes /X/  No / /

    Indicate by check if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained in this form, and will not be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. / /

    The aggregate market value of the voting common shares held by
non-affiliates of the Registrant (based upon the closing price on the American
Stock Exchange) on March 27, 2000 was approximately $96.1 million. As of
March 27, 2000, there were 9,092,169 Common Shares, $.001 par value,
outstanding.

    Portions of the proxy statement for the annual meeting of the shareholders
of Keystone Property Trust to be held in 2000 are incorporated by reference into
part III of this Form 10-K.

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<PAGE>
                               TABLE OF CONTENTS
                                   FORM 10-K

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<CAPTION>
                                                                            PAGE
                                                                          --------
<S>         <C>                                                           <C>
PART I

Item 1.     Business....................................................       3
Item 2.     Properties..................................................      15
Item 3.     Legal Proceedings...........................................      18
Item 4.     Submission of Matters to a Vote of Security Holders.........      18

PART II

Item 5.     Market for Registrant's Common Equity and Related
            Shareholder Matters.........................................      20
Item 6.     Selected and Summary Financial Data.........................      21
Item 7.     Management's Discussion and Analysis of Financial Condition
            and Results of Operations...................................      22
Item 7A.    Quantitative and Qualitative Disclosure About Market Risk...      30
Item 8.     Financial Statements and Supplementary Data.................      30
Item 9.     Changes in and Disagreements with Accountants on Accounting
            and Financial Disclosure....................................      30

PART III.

Item 10.    Trustees and Executive Officers of the Registrant...........      31
Item 11.    Executive Compensation......................................      31
Item 12.    Security Ownership of Certain Beneficial Owners and
            Management..................................................      31
Item 13.    Certain Relationships and Related Transactions..............      31

PART IV

Item 14.    Exhibits, Financial Statement Schedule and Reports on Form
            8-K.........................................................      32

Signatures..............................................................    II-1
</TABLE>

                                       2
<PAGE>
                                    PART I.

ITEM 1. BUSINESS.

    Keystone Property Trust (together with its subsidiaries, the "Company") is a
self-administered, self-managed real estate investment trust ("REIT") engaged in
the ownership, acquisition and development of industrial and office properties.
At December 31, 1999, the Company owned a portfolio of 133 properties (the
"Properties") comprised of 98 industrial properties, 34 office properties, and
an investment in a direct financing lease which aggregated approximately
18.6 million square feet. The Properties are located principally in the eastern
United States and were 98.9% leased to 331 tenants at December 31, 1999.

    The Company's strategic focus continues to be the acquisition and
development of institutional quality, "big box" distribution facilities located
in proximity to skilled labor pools, interstate and regional road systems,
airports (primarily those containing major freight and express package delivery
hubs) and ports. The Company's office properties consist principally of modern
mid-rise and single-story suburban buildings, located in suburban office parks.
Substantially all of the office buildings are located within established and
growing business communities with convenient access to regional and interstate
road systems and highways.

    The Company conducts substantially all of its activities through, and
substantially all of the Properties are held directly or indirectly by, Keystone
Operating Partnership, L.P. (the "Operating Partnership"). The Company is the
sole general partner of the Operating Partnership and owned, at December 31,
1999, approximately 56% of the limited partnership interests (the "OP Units") in
the Operating Partnership. The remaining OP Units are owned by limited partners
of the Operating Partnership. The officers and the trustees of the Company
currently own approximately 24% of the outstanding OP Units assuming the
conversion of all outstanding convertible preferred units of limited partnership
of the Operating Partnership ("Convertible Preferred Units") into OP Units. The
officers and the trustees of the Company currently own approximately 26% of the
outstanding common shares of beneficial interest of the Company ("Common
Shares"), assuming the conversion to Common Shares of all outstanding OP Units
and shares of convertible preferred stock ("Convertible Preferred Stock") and
Convertible Preferred Units. Each OP Unit may be redeemed by the holder for one
Common Share (subject to certain anti-dilution provisions), or, at the Company's
option, the cash value of one Common Share. With each such exchange, the
Company's percentage interest in the Operating Partnership will increase.

    During the year ended December 31, 1999, the Company increased the portfolio
of owned real estate from approximately 11.9 million square feet to
18.6 million square feet and the undepreciated book value of its real estate
assets from $543 million to $860 million, respectively. The Company accomplished
this by acquiring 34 industrial facilities and one office building for an
aggregate purchase price of approximately $322 million. Industrial acquisitions
totaled $308 million, comprising 34 buildings and 6.5 million square feet, and
the purchase price for the office acquisition, which comprised 290,000 square
feet, was approximately $24 million. At December 31, 1999, the Company's
industrial and office real estate portfolio composition, on a square footage
basis, was 87% industrial (98 properties totaling 16.2 million square feet) and
12% office (34 buildings, totaling 2.3 million square feet).

    As of December 31, 1999, the Company had an 80,000 square foot office
building located in Allentown, Pennsylvania under construction of which 66,000
square feet was leased to Aetna, Inc. In December 1999, the Company, through its
joint venture with Browning Investments, Inc. ("Browning"), completed the
construction of a 500,000 square foot distribution facility which is leased to
Brightpoint North America, Inc. and was the first building at Airtech Park
("Airtech"), a master planned industrial park of approximately 500 acres which
is adjacent to the Indianapolis International Airport. Airtech will accommodate
an additional 7.5 million square feet of industrial development. In
January 2000, the Company acquired Browning's 50% ownership interest in this
joint venture for $8.9 million. This joint

                                       3
<PAGE>
venture was part of a strategic alliance that the Company formed with Browning,
a developer located in Indianapolis, Indiana, in December 1998. The terms of
this alliance give the Company an option and right of first refusal to develop
distinct land parcels in Airtech through joint ventures in which the Company
will have a 50% non-controlling ownership interest.

    The Company also owns 112 acres of land which is under development and is
located adjacent to exit 8A of the New Jersey Turnpike in Middlesex County, New
Jersey. The Company also has options on several other tracks of land in Northern
New Jersey. Together, the Company's land holdings and the option land will
accommodate 4.5 million square feet of industrial development. The Company also
owns several industrial facilities located in Pennsylvania which have adjacent
land parcels on which the Company is in the process of planning the expansion of
the existing facilities. The aggregate square footage associated with the
expansion of these facilities is approximately 400,000 square feet.

    Certain office and industrial properties which aggregate approximately
$160.4 million in gross book value and do not meet the Company's ongoing
investment strategy have been designated as being held for sale in the Company's
December 31, 1999 financial statements. These properties are currently being
marketed for sale in 2000. There is no assurance that the sale of these
properties will ultimately be consummated.

    The Company was originally incorporated in Delaware in 1993 and was
re-incorporated in Maryland in 1994. In October 1999, the Company reorganized
from a Maryland corporation to a Maryland REIT and changed its name from
American Real Estate Investment Corporation to Keystone Property Trust.
Simultaneously, the name of the Operating Partnership was changed from American
Real Estate Investment, L.P. to Keystone Operating Partnership, L.P. The
Company's executive offices are located at 200 Four Falls Corporate Center,
Suite 208, West Conshohocken, Pennsylvania and its telephone number is
484-530-1800. The Company also maintains regional offices in Allentown,
Pennsylvania; Albany and Syracuse, New York; and Greenville, South Carolina.

MANAGEMENT AND EMPLOYEES

    The Company conducts its real estate management activities through Keystone
Realty Services, Inc. (the "Management Company"). The name of the Management
Company was also changed at the time of the Company's re-organization as a
Maryland REIT from American Real Estate Management, Inc. At December 31, 1999,
all of the Company's Properties were managed by the Management Company. The
Company also manages, through the Management Company, additional properties on
behalf of third parties. As of March 1, 2000, the Management Company was
managing industrial and office properties containing an aggregate of
approximately 21.9 million square feet, of which approximately 18.6 million
square feet was owned by the Company. Of the 3.2 million square feet managed for
third parties, approximately 458,000 square feet was managed for a limited
partnership in which the Company's Chief Executive Officer is a general partner.
Through its ownership of 100% of the nonvoting preferred stock of the Management
Company, the Operating Partnership is entitled to receive 95% of amounts paid as
dividends by the Management Company. The Management Company's voting stock is
owned by three trustees of the Company.

    The Company accounts for its investment in the Management Company in
accordance with the equity method of accounting as it does not control its
operations. The Management Company currently has 83 full-time employees,
including the Company's executive officers. Such persons provide services to
both the Company and the Operating Partnership.

BUSINESS OBJECTIVES AND STRATEGIES FOR GROWTH

    The Company's primary business objectives are to maximize total return to
shareholders through growth in the Company's cash flow per share and through
increases in the net asset value of its portfolio. The Company intends to pursue
these objectives through aggressive asset and property

                                       4
<PAGE>
management, by selectively acquiring and developing new properties, which
include state-of-the-art distribution facilities, with a view towards maximizing
cash flow and the selective disposition of non-core assets which include the
Company's office and certain industrial properties. Though the Company currently
is focusing its activities primarily in the eastern United States, particularly
the Northeast distribution corridor which includes New Jersey, New York,
Pennsylvania, Ohio and Indiana, no specific geographic limits have been
established.

    The Company's strategy is to generate growth opportunities (i) in markets
where it has a significant local market presence through acquisitions of single
properties and portfolios, (ii) by focusing on the expansion of its distribution
center platform, and (iii) by entering targeted markets through strategic
transactions with dominant local partners, often through the issuance of OP
Units in tax deferred transactions. Management targets markets which exhibit
strong, stable supply and demand fundamentals, yet offer the opportunity to
acquire high quality assets at discounts to replacement cost with attractive
total returns or those which offer development opportunities with attractive
risk adjusted returns. In implementing its growth strategy, management generally
does not pursue transactions which involve competitive bid situations. Rather
the Company endeavors to seek out owners before they are actively marketing
their properties and establish relationships with entrenched local developers
who can supply the Company with a pipeline of attractively priced real estate.

    The Company intends to accomplish its business objectives (i) through
contractual increases in rental rates from existing leases, (ii) by maintaining
and increasing occupancy levels in its properties, (iii) by increasing rental
rates through aggressive management and re-leasing of space, (iv) by acquiring
primarily new industrial properties which have potential for additional growth
through adaptive re-use and/or expansion, (v) by developing new state-of-the-art
distribution facilities on its land holdings, and (vi) by generating
build-to-suit development opportunities, particularly by maintaining strong
relationships with its tenants and establishing local market prominence.

POLICIES WITH RESPECT TO CERTAIN ACTIVITIES

    The following is a discussion of the Company's current investment and
financing policies. The Company's policies with respect to these activities have
been determined by the Company's Board of Trustees and may be amended or revised
from time to time at the discretion of the Trustees without a vote of the
shareholders of the Company.

INVESTMENT POLICIES

    The Company has not adopted any policy as to the amount or percentage of its
assets that can be invested in a single property. The key criterion for new
investments will be that they offer total returns likely to enhance shareholder
value and the opportunity for growth in cash flows from operating activities and
net asset value.

    The Company may purchase or develop properties for long-term investment,
expand, renovate and improve its properties or sell any of its existing or
acquired properties, in whole or in part, when circumstances warrant. The
Company may also participate with other entities in property ownership through
joint ventures or other types of shared ownership. Equity investments may be
subject to existing mortgage financing and other indebtedness which have
priority over the equity interest of the Company.

    Future investments are not limited (as to percentage of assets or otherwise)
to any geographic area or any specified type of property. The Company may
decide, under favorable economic circumstances, to develop additional
properties.

    While the Company intends to emphasize equity real estate investments, it
may, in its discretion, invest in mortgages and other real estate interests.
Mortgage investments may include participating or

                                       5
<PAGE>
convertible mortgages. The Company's investment in mortgages may include
investments as a strategy for ultimately acquiring a property, and might also
include the purchase of non-performing loans at a discounted price. Subject to
the percentage of ownership limitations and gross income and asset tests
necessary for REIT qualification, the Company may also invest in securities of
entities engaged in real estate activities or securities of other issuers. In
the future, the Company may acquire all or substantially all of the securities
or assets of other REITs or similar entities where such investments are
consistent with the Company's investment policies. In any event, the Company
does not intend that its investments in securities will require the Company to
register as an "investment company" under the Investment Company Act of 1940,
and the Company intends to divest securities before any such registration would
be required.

FINANCING POLICIES

    The Company has not adopted any policy to limit the amount or percentage of
debt the Company may incur or to maintain any maximum debt-to-Total Market
Capitalization ratio. As of December 31, 1999, the Company had a debt-to-Total
Market Capitalization ratio of approximately 57.5% (based on the closing price
of $15.50 per Common Share on December 31, 1999). "Total Market Capitalization"
means the sum of the aggregate market value of the Company's outstanding Common
Shares and OP Units, the total debt of the Company and the liquidation value of
the Convertible Preferred Stock and Convertible Preferred Units on the date
thereof. The debt-to-total market capitalization ratio, which is based upon the
market value of the Company's equity and, accordingly, fluctuates with changes
in the price of the Common Shares, differs from a debt-to-book capitalization
ratio. To the extent the Company incurs or assumes indebtedness with respect to
properties in connection with pending or future acquisitions or development, the
Company's debt-to-Total Market Capitalization may change. The Company believes
that debt-to-Total Market Capitalization provides a more appropriate indication
of leverage for a company whose assets are primarily operating real estate. The
Company also considers its interest coverage and fixed charge coverage ratios to
be indicative of its level of leverage and ability to service its debt and fixed
charges. For the twelve months ended December 31, 1999 the Company's interest
coverage ratio and fixed charge coverage ratios were 2.14 and 1.81,
respectively.

    The Company may in the future adopt a debt policy in light of then current
economic conditions, relative costs of debt and equity capital, market values of
properties, growth and acquisition opportunities and other factors, and may
modify any debt financing policy from time to time. If the Board of Trustees
determines that additional funding is required, the Company may raise such funds
through additional equity offerings (including offers of senior securities),
debt financing or retention of cash flow (subject to provisions in the Internal
Revenue Code of 1986, as amended (the "Code") concerning taxability of
undistributed REIT income), or a combination of these methods. The Company has
agreed as a result of certain acquisitions closed since December 1997 to use all
commercially reasonable efforts to maintain a certain level of indebtedness and
to permit certain holders of OP Units ("Unitholders") to guarantee such level of
indebtedness. At December 31, 1999, approximately $58.4 million, in the
aggregate, of the Company's outstanding indebtedness is guaranteed by these
Unitholders.

    In the event the Board of Trustees determines to raise additional equity
capital, the Board of Trustees has the authority, without shareholder approval,
to issue additional Common Shares up to the maximum number authorized, or other
capital stock, on such terms and for such consideration it deems appropriate,
including in exchange for property. Any such offerings might cause a dilution of
a shareholder's investment in the Company.

    To the extent that the Board of Trustees determines to obtain additional
debt financing, the Company intends to do so generally through loans secured by
mortgages on its properties and lines of credit. These mortgage loans may be
recourse, non-recourse or cross-collateralized and may contain cross-default
provisions. The Company does not have a policy limiting the number of mortgages
that

                                       6
<PAGE>
may be placed on any particular property or the amount of the loans secured by
such mortgages, but mortgage financing instruments usually limit additional
indebtedness on such properties. Indebtedness incurred by the Company may be in
the form of bank borrowings, secured and unsecured, and publicly and privately
placed debt instruments. Such indebtedness may be with recourse to all or any
part of the property of the Company, or may be limited to the particular
property to which the indebtedness relates. The proceeds from any borrowings by
the Company may be used for the payment of distributions, for working capital,
to refinance existing indebtedness or to finance acquisitions of new properties
or expansions of existing or new properties.

    The Company will acquire additional real estate assets using Common Shares
or OP Units to pay all or a portion of the purchase price when the Company feels
that such issuance would be additive to its intrinsic value on a per share
basis. The Company may also issue senior equity securities or shares of
preferred stock for this purpose. There can be no assurance that such issuances
may not be dilutive to the Company's existing shareholders. In addition, Common
Shares may be issued on terms which grant the recipient the right to require the
Company to register the shares under the Securities Act of 1933, as amended
("the "Securities Act"). Sales of those shares may adversely affect the market
price of the Company's outstanding Common Shares.

                                       7
<PAGE>
SUMMARY OF INDEBTEDNESS

    The following table sets forth the Company's mortgage indebtedness
outstanding, excluding debt premiums, at December 31, 1999.

<TABLE>
<CAPTION>
                                                                                              ANNUAL
                                DECEMBER 31, 1999    INTEREST    MATURITY DATE    AMOR-      PAYMENTS
LENDER                          BALANCE (IN 000'S)     RATE      (MONTH/YEAR)    TIZATION   (IN 000'S)          COLLATERAL
------                          ------------------   --------    -------------   --------   ----------   ------------------------
<S>                             <C>                  <C>         <C>             <C>        <C>          <C>
USG Annuity and Life..........       $  2,715         8.25%          09/00        20         $   309     One Tabas Lane
USG Annuity and Life..........          4,141         8.50%          09/05        20             479     Two Tabas Lane
USG Annuity and Life..........          3,173         8.50%          09/05        20             367     1305 Goshen Parkway
M&T Real Estate, Inc..........          1,561         8.68%          11/01        N/A            140     13 Columbia Circle
M&T Real Estate, Inc..........          5,021         8.33%          11/05        N/A            432     3 Columbia Circle
M&T Real Estate, Inc..........          6,808         8.53%          11/06        N/A            600     15 Columbia Circle
Independent Order of                    4,478         8.50%          03/03        10             489     1 Columbia Circle
  Foresters...................
Guardian Life Insurance                 3,221         9.68%          02/07        20             453     1045 James Street
  Company.....................
Nationwide Life Insurance               1,689         8.25%          09/02        N/A            139     8677 Logo Court
  Company.....................
Nationwide Life Insurance               1,266         9.75%          09/02        N/A            124     8677 Logo Court
  Company.....................
Nationwide Life Insurance               5,841         9.75%          09/02        N/A            569     8677 Logo Court
  Company.....................
Column Financial, Inc.........          7,364         7.03%          02/08        30             601     One Philips Drive
Column Financial, Inc.........         16,687         7.03%          02/08        30           1,361     101 Commerce Drive
Column Financial, Inc.........         64,914         7.50%          10/08        30           5,496     Various (1)
Column Financial, Inc.........         29,123         7.55%          10/08        30           2,479     Various (2)
Berkshire Life Insurance                2,010         8.75%          07/13        25             259     5000 Campuswood Drive
  Company.....................
AEGON USA Realty Advisors.....          6,344         6.92%          07/13        15             724     4400 West 96(th) Street
Nationwide Life Insurance                 650         7.91%          04/06        N/A             51     6402 Corporate Drive
  Company.....................
Nationwide Life Insurance               2,497         7.91%          04/06        N/A            198     6402 Corporate Drive
  Company.....................
Nationwide Life Insurance               2,871         8.41%          04/06        N/A            242     6402 Corporate Drive
  Company.....................
Nationwide Life Insurance               2,300         6.88%          06/04        N/A            158     351 West 10(th) Street
  Company.....................
Nomura Asset Capital                   43,714         7.71%          10/22        25           4,064     (3)
  Corporation.................
Bank Boston, N.A. and various         141,980         8.00%          04/02        N/A         11,358     (4)(5)
  lenders.....................
First Union National Bank               2,147         7.40%          04/01        N/A            159     3535 Winchester Road (6)
  (6).........................
American States Insurance              10,020         8.75%          09/09        15           1,540     One Park Place
  Company.....................
Kraft Foods, Inc..............          1,650         7.00%          03/02        N/A            116     74 acres land in
                                                                                                         Middlesex Co., NJ
Principal Financial...........         10,345         7.50%          03/07        N/A            776     409 Kennedy Drive
Principal Financial...........          4,434         7.50%          03/07        N/A            333     309 Kennedy Drive
Teachers Annuity and Assurance         98,000         7.45%          10/05         6           7,301     Various (7)
  Association of America......
Prudential Insurance                   12,000         7.87%          12/06        25           1,099     21 Roadway
  Company.....................
Prudential Mortgage Company...         19,457         7.66%          10/04         5           1,754     221 South 10(th) Street
                                     --------                                                -------
TOTAL DEBT (8)................        518,421                                                $44,170
                                     ========                                                =======
</TABLE>

------------------------------

(1) Secured by a first lien on 17 properties (see Schedule III--Real Estate and
    Accumulated Depreciation) subject to certain permitted release provisions.
    The loan facility contains covenants and agreements customary in such
    borrowings.

(2) Secured by a first lien on 4 properties (see Schedule III--Real Estate and
    Accumulated Depreciation) subject to certain permitted release provisions.
    The loan facility contains covenants and agreements customary in such
    borrowings.

                                       8
<PAGE>
(3) Secured by a first lien on 10 properties (see Schedule III--Real Estate and
    Accumulated Depreciation) subject to certain permitted release provisions.
    The loan facility contains covenants and agreements customary in such
    borrowings.

(4) Secured by a first lien on 63 properties (see Schedule III--Real Estate and
    Accumulated Depreciation) subject to certain permitted release provisions.
    The loan facility contains covenants and agreements customary in such
    borrowings.

(5) Debt service is interest only which is payable monthly, at LIBOR plus 2.25%
    or the prime rate, at the Company's option. The LIBOR interest rate is based
    on a sliding scale which is based on the Company's leverage. The scale
    ranges from LIBOR plus 1.625% to LIBOR plus 2.25%. Rate as of December 31,
    1999 was 8.00%. Annual payment is based on annual interest payments at
    8.00%.

(6) This indebtedness is for a $8.2 million construction loan for an 80,000
    square foot office building located in Allentown, Pennsylvania.

(7) Secured by a first lien on 8 properties (see Schedule III--Real Estate and
    Accumulated Depreciation) subject to certain permitted release provisions.

(8) Excludes unamortized debt premiums of $3,691,000 at December 31, 1999.

RECENT ACQUISITIONS AND DISPOSITIONS

    In January 2000, the Company acquired its 50% joint venture partners'
ownership interest in a limited partnership which constructed a 500,000 square
foot distribution facility in Indianapolis, Indiana for $8.9 million. The
consideration for this acquisition was $5.9 million in OP Units and
$3.0 million in cash.

    In January 2000, the Company sold 243 St. Nicholas Avenue, a 15,000 square
foot industrial building for net proceeds of $900,000. This sale resulted in a
gain on sale of approximately $100,000.

    The Company has a commitment to close the final phase of a transaction, of
which the first phase was closed in September 1999, with Reckson Morris
Operating Partnership, L.P. which requires the purchase of six big box
distribution facilities aggregating 2.2 million square feet and six acres of
land located in New Jersey for a purchase price of approximately $100.0 million.
The Company anticipates funding this acquisition with a combination of debt
financing and $5.6 million of Convertible Preferred Units to be issued to the
seller. The Company anticipates that this final phase of this transaction will
close in the second quarter of 2000. The Company has posted a $10.0 million
letter of credit as a deposit for this transaction.

    The Company is currently evaluating several property acquisitions and
transactions which include strategic transactions designed to increase
shareholder value over the long-term. There can be no assurance that the Company
will pursue any of these potential acquisitions or transactions, or that, if
pursued, the Company will successfully acquire any such properties or complete
such transactions or that such properties or transactions once completed will
perform as expected.

COMPETITION

    The Properties are primarily located in the Eastern United States. There are
numerous other industrial and office properties and real estate companies within
the market area of each of such properties which competes with the Company for
tenants and development and acquisition opportunities. The number of competitive
properties and real estate companies in such areas could have a material adverse
effect on the Company's (i) future operations, (ii) ability to rent its
properties and the rents charged, and (iii) development and acquisition
opportunities. The Company will compete for tenants and acquisitions with others
who may have greater resources. The Company's competitive position for tenants
is strongly influenced by economic conditions in its market areas. However, the
Company believes that its responsiveness to tenant needs will enable it to
attract and maintain high quality tenants in the markets in which the properties
are located. With respect to development and acquisition opportunities, the
Company competes with other REITs and investors in office and industrial
properties seeking to develop or acquire properties in the areas where the
Company will

                                       9
<PAGE>
concentrate its activities. The Company will experience strong competition in
pursuing development and acquisition opportunities.

    The Company's financial performance and its ability to make distributions to
shareholders continues to be particularly sensitive to the economic conditions
in northern New Jersey, central Pennsylvania, Indianapolis, Indiana, the
Greenville/Spartanburg region of South Carolina and New York State. Like other
real estate markets, these markets have experienced economic downturns in the
past, and future declines in any of these economies or real estate markets could
adversely affect the Company's operations or cash available for distribution.
The Company's revenues and the value of the Properties may be affected by a
number of factors, including the local economic climate (which may be adversely
impacted by business layoffs or downsizing, industry slowdowns, changing
demographics and other factors) and local real estate conditions (such as
oversupply of or reduced demand for office, industrial and other competing
commercial properties). These factors, when and if they occur in an area in
which the Properties are located, would adversely affect the Company's ability
to make distributions to its shareholders.

ENVIRONMENTAL AND OTHER REGULATORY MATTERS

    Under various federal, state and local laws and regulations, an owner of
real estate is liable for the costs of removal or remediation of certain
hazardous or toxic substances on such property. Such laws often impose such
liability without regard to whether the owner knew of, or was responsible for,
the presence of such hazardous or toxic substances. The costs of remediation or
removal of such substances may be substantial, and the presence of such
substances, or the failure to promptly remediate such substances, may adversely
affect the owner's ability to sell such real estate or to borrow using such real
estate as collateral. In connection with its ownership and operation of the
Properties, the Company or the Operating Partnership, as the case may be, may be
potentially liable for such costs.

    All of the Properties have been subject to Phase I or similar environmental
assessments, which are intended to discover information regarding, and to
evaluate the environmental condition of, the surveyed properties and surrounding
properties. The Phase I assessments included a historical review, a public
records review, a preliminary investigation of the site and surrounding
properties, screening for the presence of asbestos, polychlorinated biphenyls
("PCBs") and underground storage tanks and the preparation and issuance of a
written report, but do not include soil sampling or subsurface investigations.
Where Phase I assessments resulted in specific recommendations for remedial
actions, the recommended action has been taken.

    The Phase I assessments have not revealed any environmental liability that
the Company believes would have a material adverse effect on the Company's
business, assets or results of operations, nor is the Company aware of any such
liability. Nevertheless, it is possible that these assessments do not reveal all
environmental liabilities of which the Company is unaware. Moreover, no
assurance can be given that (i) future laws, ordinances or regulations will not
impose any material environmental liability or (ii) the current environmental
condition of its properties will not be affected by tenants and occupants of its
properties, by the condition of properties in the vicinity of the Properties
(such as the presence of underground storage tanks) or by third parties
unrelated to the Operating Partnership or the Company.

    Environmental inspections indicate that there are minor amounts of asbestos
containing materials ("ACMs") in certain of the Properties, primarily in the
form of floor tiles and ceiling materials, which are generally in good
condition. The presence of such amounts of ACMs is in compliance with current
law.

    The Company believes that the Properties are in compliance in all material
respects with all federal, state and local ordinances and regulations regarding
hazardous or toxic substances. Neither the Company nor the Operating Partnership
has been notified by any governmental authority, or is

                                       10
<PAGE>
otherwise aware, of any material noncompliance, liability or claim related to
hazardous or toxic substances in connection with any of its present Properties.

    From time to time legislation is proposed which, if enacted, would require
installation of various items of safety equipment, such as smoke alarms and
sprinkler equipment. If such legislation should be enacted and be applicable to
the Properties, the Company could be required to expend material sums in
fulfilling these requirements.

DEPRECIATION

    See "Schedule III--Real Estate and Accumulated Depreciation" herein.

GENERAL

    In the opinion of management, the Properties are adequately covered by
insurance. The Company has no plans to make any material renovations or
improvements to any of the Properties.

EXECUTIVE OFFICERS

    The following table sets forth certain information regarding named executive
officers and other executives of the Company.

<TABLE>
<CAPTION>
NAME                            AGE                              POSITION
----                          --------                           --------
<S>                           <C>        <C>
David F. McBride (1)(2).....  53         Chairman

Jeffrey E. Kelter (1)(2)....  45         President and Chief Executive Officer

Timothy A. Peterson (1).....  34         Executive Vice President and Chief Financial Officer

John B. Begier..............  34         Executive Vice President--Acquisitions and Development

Stephen J. Butte (1)........  40         Senior Vice President, Chief Investment Officer and
                                         Secretary

Charles C. Lee, Jr..........  36         Senior Vice President--Marketing and Leasing

Francis X. Ryan.............  40         Senior Vice President--Property Operations

Timothy E. McKenna (1)......  36         Senior Vice President--Finance

Jennifer A. Pancoast........  36         Vice President--Leasing

Jeffrey D. Anderson.........  47         Vice President--Operations

Matthew Marshall............  34         Vice President--Industrial Leasing

George Hasenecz.............  32         Vice President--Acquisitions

Rosemarie Gentner...........  37         Vice President--Operations

Sandra Richardson...........  42         Vice President--Leasing
</TABLE>

------------------------

(1) This executive is a named executive officer of the Company.

(2) This executive is a trustee of the Company.

    Mr. McBride has been Chairman of the Board of Trustees of the Company since
December 1997. He served as Secretary of the Company from January 1998 until
December 1998. He is currently a partner in the law firm of Harwood Lloyd, LLC.
He has served as Chief Executive Officer of McBride Enterprises, Inc. and an
affiliated family real estate, construction and brokerage companies since 1987

                                       11
<PAGE>
and has been a director of McBride Enterprises, Inc. and these affiliates since
1975. He has been a member of the Georgetown University Board of Regents since
1990, and is a member of the Board of Directors of the Towne Center Bank.
Mr. McBride has served as a director of Midlantic Corporation, Midlantic
National Bank and various subsidiaries for thirteen years prior to its merger
with PNC Bank in 1996. Prior to 1987, he was a partner in the law firm of
Harwood Lloyd from 1981 to 1987, a partner in the law firm of Murphy, Ellis &
McBride from 1997 to 1981, and an associate in the law firm of Robinson,
Wayne & Greenberg from 1973 to 1977, all located in New Jersey. He is a member
of the bars of New Jersey and New York.

    Mr. Kelter has been President of the Company since December 1997 and was
appointed Chief Executive Officer in December 1998. He has over 18 years of
experience in all phases of commercial real estate including development and
third-party management. Mr. Kelter began his career at Bankers Trust Corporation
where he was an assistant treasurer in the Corporate Finance division. In 1982,
Mr. Kelter was employed by Vector Properties in Tulsa, Oklahoma, where he was in
charge of the development and finance of several downtown Tulsa office building
renovations. In 1982, Mr. Kelter founded Penn Square Properties, Inc. in
Philadelphia and served as Chief Executive Officer and President. He has
developed, owned, managed and leased more than 4.5 million square feet of office
and warehouse projects throughout the Pennsylvania and New Jersey markets.

    Mr. Peterson has served as Chief Financial Officer of the Company since
August 1998 and was Secretary from December 1998 until September 1999. He was
appointed Executive Vice President of the Company in December 1998. Prior to
joining the Company, Mr. Peterson held a variety of positions with Post
Properties, Inc. since 1989, including his most recent responsibility as
Executive Vice President, Finance. While at Post Properties, Mr. Peterson
managed all capital markets activities, maintained all rating agency
relationships and oversaw accounting, budgeting and financial reporting
functions. Mr. Peterson is a Certified Public Accountant, is a member of the
National Association of Real Estate Investment Trusts and currently serves as
Co-Chairman of its Accounting Committee and Adjunct member of the Best Financial
Practices Task Force. He is a member of University of Florida Real Estate
Advisory Board and serves on President's Council of the Real Estate Round Table.

    Mr. Begier has served as Senior Vice President of the Company since
December 1997 with primary responsibility for the Company's acquisition and
development activities. In January 2000, he was appointed to Executive Vice
President. Mr. Begier joined Penn Square Properties, Inc. in 1995; prior to
working for Penn Square Properties he worked for eight years as a real estate
broker with the Pennsylvania office of Cushman & Wakefield where he was
responsible for leasing, sales and acquisition of commercial and industrial
properties.

    Mr. Butte has served as Senior Vice President of the Company with primary
responsibility for acquisition and development due diligence since
December 1997. He was appointed Chief Investment Officer in March 1999 and
Secretary in September 1999. Prior to joining Penn Square Properties, Inc. in
1988, he spent five years in public accounting as a manager in the audit
department of Asher & Company, specializing in providing financial and
accounting services to companies in the real estate industry. Mr. Butte is a
Certified Public Accountant.

    Mr. Lee has served as Senior Vice President of the Company since March 1998
with primary responsibility for the Company's leasing and marketing activities.
Mr. Lee joined Penn Square Properties, Inc. in 1987 where he was responsible for
leasing and marketing activities for various commercial properties. From
September 1997 until March 1998, when he re-joined the Company, Mr. Lee was the
regional leasing director for the Philadelphia region of Equity Office
Properties. Prior to working for Penn Square Properties, he was an Assistant
Portfolio Manager in the Private Banking Division of the Boston Safe Deposit and
Trust Company.

    Mr. Ryan has served as Senior Vice President of the Company since
December 1997 with primary responsibility for the Company's property operations
and management activities. Mr. Ryan joined Penn

                                       12
<PAGE>
Square Properties, Inc. in 1991 where he was responsible for the management of
various commercial offices and industrial properties. Prior to working for Penn
Square Properties, Mr. Ryan worked for four years as a senior property manager
for Cushman & Wakefield's Pennsylvania office and as a project manager for
American Building Maintenance from 1984 through 1986. Mr. Ryan is certified as a
Real Property Administrator by the Building Owners and Managers Association.

    Mr. McKenna has served as Vice President-Finance of the Company from
January 1999 until June 1998 when he was promoted to Senior Vice
President-Finance. Mr. McKenna was previously employed as a senior manager in
the Real Estate Services Group of Arthur Andersen LLP's Philadelphia office.
Prior to joining the Company, he worked for over 12 years providing consulting
and accounting services to publicly and privately-owned real estate companies;
over 11 years of his experience was obtained as an employee of Arthur Andersen
LLP. Mr. McKenna is a Certified Public Accountant.

    Ms. Pancoast has served as Vice President of the Company since
December 1997 with responsibility for the Company's leasing activities related
to office properties. Since January 2000, she is responsible for leasing
activities associated with the Company's industrial portfolio. Prior to
rejoining Penn Square Properties, Inc. in October 1995, she spent two years with
Bell Atlantic Properties, the real estate subsidiary of Bell Atlantic, where she
was director of property management for over 600,000 square feet of properties
located in the Philadelphia region. From September 1990 until September 1993 she
was responsible for leasing over 600,000 square feet of office properties
located in Philadelphia for Penn Square Properties, Inc. From September 1986
until September 1990, she worked as a real estate broker for The Flynn Company,
a manager and developer of office and industrial properties in the Philadelphia
region.

    Mr. Anderson has served as Vice President of the Company since August 1998
with primary responsibility for the operations and management of the properties
located in New York state. Mr. Anderson was previously employed by Pioneer
Management Services Company, an affiliate of Pioneer Development LLC from
March 1996 until August 1998 as director of property management where he managed
over five million square feet of office and retail properties located in the
northeastern region of the United States. From March 1993 until March 1996, he
was vice president of property management for United Properties, Inc., a
developer and manager of commercial properties located in Minneapolis,
Minnesota. Prior to March 1993, he was director of property management for the
Trammell Crow Company's Milwaukee, Wisconsin office for thee years and managed
over six million square feet of office and industrial properties. He has over
twenty years of property management experience.

    Mr. Marshall has served as Vice President of the Company since October 1999
with responsibility for the Company's leasing activities related to industrial
properties. Mr. Marshall was previously employed by Trammell Crow Company in
Wayne, Pennsylvania from August 1998 to October 1999 where he was Senior
Associate and was responsible for leasing and advisory services for
institutional and corporate clients. Prior to joining Trammell Crow Company, he
was employed by the Staubach Company in Palo Alto, California from March 1995 to
July 1998 where he was responsible for business development in Silicon Valley
and the northwest United States. He began his career in real estate in July 1989
with the Binswanger Company in Philadelphia, Pennsylvania where he remained as a
commercial broker until March 1993. Mr. Marshall has 11 years experience in the
commercial real estate industry, specializing in project leasing and tenant
advisory services.

    Mr. Hasenecz joined the Company in October 1999 as a senior analyst before
being promoted to Vice President in January 2000. Mr. Hasenecz was previously
employed by Brandywine Realty Trust as the marketing and leasing director of
central New Jersey region since December 1998. Prior to that, Mr. Hasenecz
served as the senior acquisition analyst at Brandywine since December 1997
overseeing the acquisition of over three million square feet of office and
industrial properties with 71 acres of

                                       13
<PAGE>
additional developable land at a total purchase price of $362 million. He joined
Brandywine in April 1997 as an acquisition analyst and handled the acquisition
of four million square feet of office and industrial properties and 200 acres of
developable land. Prior to that time, Mr. Hasenecz served as a senior accountant
for Jackson-Cross*ONCOR International, a Philadelphia-based private real estate
company, from April 1994 until April 1997.

    Ms. Gentner joined Penn Square Properties in November 1997 as property
administrator. She was promoted to Vice President-Property Operations in
January 2000. Ms. Gentner is responsible for oversight of all the Company's
property managers, as well as risk management. She was previously employed by
Renaissance Properties since 1992 as senior property manager responsible for
overseeing and coordinating the day-to-day facilities management of a diverse
portfolio of assets, including commercial office, residential, and industrial
complexes aggregating over 3.0 million square feet and stretching from Maine to
Delaware. Ms. Gentner began her management career with Kevin F. Donohoe Company
in 1988 in Philadelphia as property manager responsible for 1.3 million square
feet of office space.

    Ms. Richardson joined the Company in May 1998 as leasing director for the
office portfolio managed for third parties. She was promoted to Vice President
in February 2000. Currently, Ms. Richardson's responsibilities include the
leasing activities for the Company's office portfolio and the office assets
managed for third parties. She was previously employed by Compass, an Equitable
Real Estate affiliate, since May 1996 and Heitman Financial Services, a national
pension fund advisor, from May 1989 to May 1996 where she was responsible for
institutional leasing management and asset management. Prior to that, she worked
with a brokerage firm in Washington, DC since November 1986 handling leasing on
several accounts for national institutional investors.

                                       14
<PAGE>
ITEM 2. DESCRIPTION OF PROPERTY

SUMMARY PROPERTY TABLE

    The following table sets forth certain information with respect to each of
the Properties at December 31, 1999.
<TABLE>
<CAPTION>
                                                                                                     % OF
                                                                                                   PORTFOLIO
                                                                                                   RENTABLE
                                       # OF                             YEAR BUILT/     SQUARE      SQUARE        %
             BUILDINGS               BUILDINGS         LOCATION          RENOVATED       FEET        FEET       LEASED
-----------------------------------  ---------   --------------------   -----------   ----------   ---------   --------
<S>                                  <C>         <C>                    <C>           <C>          <C>         <C>
INDUSTRIAL:
100 Oakhill Road...................       1      Mountaintop, PA           1996          105,000      0.56%     100.0%
1701 Pollitt Drive (4).............       1      Fair Lawn, NJ             1968          108,877      0.58%     100.0%
1905 Nevins Road (4)...............       1      Fair lawn, NJ             1955          151,700      0.81%     100.0%
2 Volvo Drive (4)..................       1      Rockleigh, NJ          1966/1995         67,460      0.36%     100.0%
5 Thornton Road (4)................       1      Oakland, NJ             1973/81         151,874      0.81%     100.0%
1305 Goshen Parkway................       1      West Chester, PA          1991           90,000      0.48%     100.0%
One Tabas Lane.....................       1      Exton, PA                 1970          150,027      0.80%     100.0%
Two Tabas Lane.....................       1      Exton, PA               1970/91         150,000      0.80%     100.0%
1091 Arnold Road...................       1      Reading, PA               1996          133,055      0.71%     100.0%
1157 Arnold Road...................       1      Reading, PA               1995          219,120      1.17%     100.0%
101 Commerce Drive.................       1      Mechancisburg, PA         1997          597,100      3.20%     100.0%
1 Phillips Drive...................       1      Mountaintop, PA        1991-1993        400,000      2.14%     100.0%
1001, 1011 AIP Drive...............       2      Middletown, PA            1991          284,262      1.52%     100.0%
2400, 2404, 2410 Gettysburg Road...       3      Camp Hill, PA          1952/1993        182,770      0.98%     100.0%
4472 & 4480 Steelway Blvd..........       4      Liverpool, NY             1977          655,500      3.50%     100.0%
Northeastern Industrial Park, Bldg.
  21...............................       1      Albany, NY                1989          100,000      0.54%     100.0%
Northeastern Industrial Park, Bldg.
  22...............................       1      Albany, NY                1988          104,000      0.55%     100.0%
Northeastern Industrial Park, Bldg.
  8................................       1      Albany, NY             1950/1997        192,645      1.03%     100.0%
4, 5 & 8 Marway Circle.............       3      Gates, NY               1976/77         171,300      1.05%      94.7%
1030 South Edgewood Drive..........       1      Urbana, OH                1988          200,000      1.07%     100.0%
16725 Square Drive.................       1      Marysville, OH            1987          133,500      0.71%     100.0%
3530 East Pike.....................       1      Zanesville, OH            1991          300,000      1.61%     100.0%
5555 Massillon Road................       1      Green, OH                 1996          255,000      1.37%     100.0%
One Apollo Drive...................       1      Glens Falls, NY           1992          158,000      0.85%     100.0%
1440 Sheffler Drive................       1      Chambersburg, PA          1996          355,200      1.90%     100.0%
1465 Nitterhouse Drive.............       1      Chambersburg, PA          1995          420,000      2.25%     100.0%
2294 Molly Pitcher Highway.........       1      Chambersburg, PA          1986          621,400      3.32%     100.0%
4400 W. 96(th) Street..............       1      Indianapolis, IN          1998          100,000      0.54%     100.0%
6402 Corporate Drive...............       1      Indianapolis, IN          1996          162,608      0.87%     100.0%
8677 Logo Court....................       1      Indianapolis, IN          1993          599,152      3.21%     100.0%
1221 South Batesville Road.........       1      Greer, SC              1970/1985        434,798      2.33%      99.2%
Augusta Road Industrial Park.......       2      Greenville, SC            1996          360,000      1.92%     100.0%
Buncombe Road Industrial Park......       5      Greer, SC              1988/1995        350,000      1.88%      94.3%
Outlaw Industrial Park.............       3      Greenville, SC         1994/1997        302,000      1.62%     100.0%
Piedmont Highway Industrial Park...       3      Piedmont, SC           1995/1997        400,000      2.13%     100.0%
Rocky Creek Business Park..........       5      Greenville, SC            1997          159,400      0.85%     100.0%
White Horse Industrial Park........       7      Greenville, SC         1989/1997        390,000      2.09%      76.9%
104 Hidden Lake Circle.............       1      Duncan, SC             1986/1992        142,500      0.76%     100.0%
118 Moonachie......................       1      Carlstadt, NJ             1989          243,751      1.30%     100.0%
122 Hidden Lake Circle.............       1      Duncan, SC                1998          303,091      1.62%     100.0%
1311 Majestic Drive................       1      Fremont, OH               1993          143,400      0.77%     100.0%
135 Fieldcrest.....................       1      Edison, NJ                1980           77,975      0.42%     100.0%
1411 Majestic Drive................       1      Fremont, OH               1995          181,350      0.96%     100.0%
18 Madison.........................       1      Fairfield, NJ             1979           14,000      0.08%     100.0%
200 Carter.........................       1      Edison, NJ                1985          105,910      0.57%     100.0%
200 Industrial Avenue..............       1      Teterboro, NJ             1998          332,352      1.78%     100.0%
200-250 Kennedy....................       1      Sayerville, NJ            1988          164,267      0.88%     100.0%
21 Cranbury........................       1      Cranbury, NJ              1998          845,835      4.53%     100.0%
21 Roadway.........................       1      Harrisburg, PA            1988          407,100      2.18%     100.0%
22 Madison.........................       1      Fairfield, NJ             1980           39,875      0.21%     100.0%
221 South 10(th) Street............       1      Lemoyne, PA               1997          885,802      4.75%     100.0%
24 Abeel...........................       1      Cranbury, NJ              1978           40,022      0.21%     100.0%
24 Madison.........................       1      Fairfield, NJ             1992           35,494      0.19%     100.0%
243 St. Nicholas (3)(4)............       1      South Plainfield, NJ      1984           15,000      0.08%     100.0%
26 Madison.........................       1      Fairfield, NJ             1992           30,306      0.16%     100.0%
275-285 Pierce.....................       1      Franklin Twp., NJ         1988          102,735      0.55%     100.0%
300 Enterprise Drive...............       1      Bellevue, OH              1998          181,838      0.97%     100.0%
300-350 Kennedy....................       1      Sayerville, NJ            1988          161,705      0.87%     100.0%
301-321 Herrod.....................       1      S. Brunswick, NJ          1989          610,949      3.28%     100.0%
309 Kennedy........................       1      Sayerville, NJ            1996          202,000      1.08%     100.0%
34 Englehard.......................       1      Cranbury, NJ              1982          203,404      1.09%     100.0%
351 West 10(th) Street.............       1      Indianapolis, IN          1999           39,252      0.21%     100.0%
409 Kennedy........................       1      Sayerville, NJ            1996          225,831      1.21%     100.0%
535 Secaucus.......................       1      Secaucus, NJ              1974           68,439      0.37%     100.0%
55 Carter..........................       1      Edison, NJ                1986          108,548      0.58%      92.9%
600 Hagerty Drive..................       1      Fremont, OH            1980/86/87       126,250      0.68%     100.0%
605 Hagerty Drive..................       1      Fremont, OH               1991           76,464      0.41%     100.0%
670 Hagerty Drive..................       1      Fremont, OH            1980/88/90       100,272      0.54%     100.0%
800 Hagerty Drive..................       1      Fremont, OH               1987           30,150      0.16%     100.0%
Mt. Ebo............................       1      Mt. Ebo, NY               1998           93,948      0.50%     100.0%
One Nixon..........................       1      Edison, NJ                1987          192,829      1.03%     100.0%
                                        ---                                           ----------     -----      -----
Total Industrial Properties........      98                                           16,248,392     87.11%      99.2%

<CAPTION>
                                                                           ANNUALIZE
                                                      % OF                  RENT PER
                                                   PORTFOLIO                 LEASED
                                     ANNUALIZED    ANNUALIZED     # OF       SQUARE
             BUILDINGS                RENT (1)        RENT       LEASES     FOOT (2)            MAJOR TENANTS
-----------------------------------  -----------   ----------   --------   ----------   ------------------------------
<S>                                  <C>           <C>          <C>        <C>          <C>
INDUSTRIAL:
100 Oakhill Road...................  $   386,870      0.40%         1        $ 3.68     Dana Perfumes Corp.
1701 Pollitt Drive (4).............      723,263      0.75%         4          6.64     MDA Services
1905 Nevins Road (4)...............      701,613      0.73%         1          4.63     Road-Con Systems
2 Volvo Drive (4)..................      502,572      0.52%         1          7.45     National Medical
5 Thornton Road (4)................    1,050,512      1.09%         1          6.92     Aramis, Inc.
1305 Goshen Parkway................      432,000      0.45%         1          4.80     Communication Test Design
One Tabas Lane.....................      450,084      0.47%         1          3.00     Alstrip
Two Tabas Lane.....................      762,520      0.79%         1          5.08     International Paper
1091 Arnold Road...................      465,696      0.48%         1          3.50     The Glidden Company
1157 Arnold Road...................      747,636      0.78%         3          3.41     HMG Intermark Worldwide
101 Commerce Drive.................    2,376,458      2.47%         1          3.98     Hershey Foods, Inc.
1 Phillips Drive...................    1,188,000      1.23%         1          2.97     Philips Lighting Co.
1001, 1011 AIP Drive...............    1,044,282      1.08%         6          3.67     Bayard Sales
2400, 2404, 2410 Gettysburg Road...      755,453      0.78%         4          4.13     Exel Logistics
4472 & 4480 Steelway Blvd..........    1,770,745      1.84%         1          2.70     GATX Logistics, Inc.
Northeastern Industrial Park, Bldg.
  21...............................      762,600      0.79%         2          7.63     Distribution Unlimited
Northeastern Industrial Park, Bldg.
  22...............................      530,400      0.55%         1          5.10     Ameriserve Food
Northeastern Industrial Park, Bldg.
  8................................      659,097      0.68%         1          3.42     Moran Foods, Inc.
4, 5 & 8 Marway Circle.............      584,981      0.94%        10          3.42     Anixter, Inc.
1030 South Edgewood Drive..........      440,000      0.46%         1          2.20     ODW Logistics, Inc.
16725 Square Drive.................      481,572      0.50%         1          3.61     Midwest Express, Inc.
3530 East Pike.....................      840,000      0.87%         1          2.80     Owens Brockway Glass
5555 Massillon Road................      907,500      0.94%         2          3.56     General Electric
One Apollo Drive...................    1,323,104      1.37%         1          8.37     Niagra Mohawk
1440 Sheffler Drive................    1,518,836      1.58%         3          4.28     Ingram Book Company
1465 Nitterhouse Drive.............    1,617,000      1.68%         1          3.85     Franklin Storage, Inc.
2294 Molly Pitcher Highway.........    2,330,256      2.42%         2          3.75     Franklin Storage, Inc.
4400 W. 96(th) Street..............      930,000      0.97%         1          9.30     Support Net
6402 Corporate Drive...............      894,456      0.93%         2          5.50     Brightpoint, Inc.
8677 Logo Court....................    1,527,838      1.59%         1          2.55     Logo 7
1221 South Batesville Road.........    1,188,560      1.23%         2          2.73     BMW
Augusta Road Industrial Park.......    1,026,000      1.07%         2          2.85     Benore Logistics Systems
Buncombe Road Industrial Park......      898,500      0.93%         4          2.57     Spring Industries
Outlaw Industrial Park.............      588,504      0.61%         3          1.95     Graco
Piedmont Highway Industrial Park...    1,075,000      1.11%         3          2.69     Fabri-Kal Corp.
Rocky Creek Business Park..........      529,300      0.55%         5          3.32     Export Packaging
White Horse Industrial Park........      810,500      0.84%         6          2.08     Benore Logistics Systems
104 Hidden Lake Circle.............      550,960      0.57%         1          3.87     BMG Music
118 Moonachie......................    1,828,128      1.90%         1          7.50     Coca Cola
122 Hidden Lake Circle.............    1,000,178      1.04%         1          3.30     BMG Music
1311 Majestic Drive................      394,350      0.41%         1          2.75     Poly-Foam International, Inc.
135 Fieldcrest.....................      327,350      0.34%         2          4.20     Front Row
1411 Majestic Drive................      498,713      0.52%         1          2.75     GMH Enterprises
18 Madison.........................       95,904      0.10%         1          6.85     Logotech, Inc.
200 Carter.........................      409,332      0.43%         2          3.86     Johnson Control
200 Industrial Avenue..............    2,193,528      2.28%         1          6.60     Neuman Distributors, Inc.
200-250 Kennedy....................      739,200      0.77%         1          4.50     Garden Bolt
21 Cranbury........................    3,421,440      3.55%         4          4.05     Cosmetic Essence
21 Roadway.........................    1,567,332      1.63%         1          3.85     Dana Corporation
22 Madison.........................      215,724      0.22%         1          5.41     Gould Pumps
221 South 10(th) Street............    3,080,119      3.20%         5          3.48     International Paper
24 Abeel...........................      190,000      0.20%         1          4.75     KAR Products
24 Madison.........................      226,323      0.24%         2          6.38     Crane Packing
243 St. Nicholas (3)(4)............       82,500      0.09%         1          5.50     Vanguard
26 Madison.........................      170,466      0.18%         2          5.62     Intermarket Tech
275-285 Pierce.....................      436,581      0.45%         2          4.25     MBI Merchandising A
300 Enterprise Drive...............      551,013      0.57%         2          3.03     American Can
300-350 Kennedy....................      707,328      0.73%         3          4.37     Enchante
301-321 Herrod.....................    2,291,064      2.38%         1          3.75     Herrod Distribution
309 Kennedy........................      909,000      0.94%         1          4.50     Nippon Express
34 Englehard.......................      894,984      0.93%         1          4.40     SETCO
351 West 10(th) Street.............      368,580      0.38%         1          9.39     Office Works
409 Kennedy........................      982,365      1.02%         1          4.35     Guest Supply
535 Secaucus.......................      410,634      0.42%         2          6.00     LTA Group
55 Carter..........................      432,392      0.45%         4          3.98     Checkolite
600 Hagerty Drive..................      347,187      0.36%         1          2.75     Poly-Foam International, Inc.
605 Hagerty Drive..................      210,276      0.22%         1          2.75     Poly-Foam International, Inc.
670 Hagerty Drive..................      300,816      0.31%         1          3.00     Poly-Foam International, Inc.
800 Hagerty Drive..................      113,063      0.12%         1          3.75     Armstrong
Mt. Ebo............................      898,143      0.93%         1          9.56     Schien Pharmaceutical
One Nixon..........................      645,981      0.67%         2          3.35     Ultimate Distribution
                                     -----------     -----        ---        ------
Total Industrial Properties........  $62,312,662     64.42%       137        $ 3.84
</TABLE>

                                       15
<PAGE>
<TABLE>
<CAPTION>
                                                                                                     % OF
                                                                                                   PORTFOLIO
                                                                                                   RENTABLE
                                       # OF                             YEAR BUILT/     SQUARE      SQUARE        %
             BUILDINGS               BUILDINGS         LOCATION          RENOVATED       FEET        FEET       LEASED
-----------------------------------  ---------   --------------------   -----------   ----------   ---------   --------
<S>                                  <C>         <C>                    <C>           <C>          <C>         <C>
128 Bauer Drive (4)................       1      Oakland, NJ               1981           41,450      0.22%     100.0%
1500 Pollit Drive (4)..............       1      Fair Lawn, NJ          1970/1992         18,614      0.10%     100.0%
1600 Route 208 (4).................       1      Fair Lawn, NJ             1983           52,748      0.28%      99.6%
1655 Valley Road (4)...............       1      Wayne, NJ                 1989          155,700      0.83%     100.0%
1900 Pollitt Drive (4).............       1      Fair Lawn, NJ          1970/84/95        77,262      0.41%     100.0%
22-08 Route 208 (4)................       1      Fair Lawn, NJ          1968/1998         75,599      0.41%      97.0%
40 Potash Road (4).................       1      Oakland, NJ               1992           60,994      0.33%     100.0%
95 Bauer Drive (4).................       1      Oakland, NJ            1974/1991          6,792      0.04%     100.0%
99 Bauer Drive (4).................       1      Oakland, NJ               1971           20,449      0.11%     100.0%
8 Airline Drive....................       1      Albany, NY                1997           61,127      0.33%     100.0%
Fifteen Columbia Circle............       1      Albany, NY                1995           82,608      0.44%     100.0%
Nine Columbia Circle...............       1      Albany, NY                1992           10,908      0.06%      98.4%
One Columbia Circle................       1      Albany, NY                1991           68,895      0.37%     100.0%
Seventeen Columbia Circle..........       1      Albany, NY                1995           66,000      0.35%     100.0%
Thirteen Columbia Circle...........       1      Albany, NY                1996           21,468      0.12%     100.0%
Three Columbia Circle..............       1      Albany, NY                1992           78,971      0.42%     100.0%
6 British American Boulevard.......       1      Latham, NY                1980           70,550      0.38%      98.6%
Corporate Center 15 (4)............       1      Mechanicsburg, PA         1979           55,574      0.30%      71.5%
Executive Park (4).................       1      Wyomissing, PA            1979           52,841      0.28%     100.0%
Hillside Corporate Center (4)......       1      Mechanicsburg, PA         1991           67,473      0.36%      98.2%
Treeview Corporate Center (4)......       1      Wyomissing, PA            1991           63,084      0.34%      83.0%
Winchester Plaza Corp. Ctr. (4)....       1      Allentown, PA          1992/1998        146,000      0.78%     100.0%
1045 James Street..................       1      Syracuse, NY              1992           50,000      0.27%     100.0%
125 Indigo Creek Drive.............       1      Greece, NY                1992           26,700      0.14%     100.0%
250 South Clinton Street...........       1      Syracuse, NY              1991          183,206      0.98%      97.5%
308 Maltbie Street.................       1      Syracuse, NY              1992           26,221      0.14%     100.0%
400 West Division Street...........       1      Syracuse, NY              1992           38,051      0.21%      84.7%
5000 Campuswood Drive..............       1      East Syracuse, NY         1988           32,636      0.17%     100.0%
5009 Campuswood Drive..............       1      East Syracuse, NY         1989            6,584      0.04%     100.0%
5010 Campuswood Drive..............       1      East Syracuse, NY         1989           70,163      0.38%      98.5%
5015 Campuswood Drive..............       1      East Syracuse, NY         1991           99,888      0.54%      99.6%
507 Franklin Square................       1      Syracuse, NY              1991           71,449      0.38%     100.0%
One Clinton Square.................       1      Syracuse, NY              1991           39,609      0.21%     100.0%
One Park Place.....................       1      Syracuse, NY              1983          290,278      1.56%      91.7%
                                        ---                                           ----------     -----      -----
Sub-Total Office...................      34                                            2,289,892     12.28%      96.9%
OTHER:
88 Mary Street.....................       1      Paterson, NJ              1976          114,000      0.61%     100.0%
                                        ---                                           ----------     -----      -----
GRAND TOTAL........................     133                                           18,652,284     100.0%      98.9%
                                        ===                                           ==========     =====      =====

<CAPTION>
                                                                           ANNUALIZE
                                                      % OF                  RENT PER
                                                   PORTFOLIO                 LEASED
                                     ANNUALIZED    ANNUALIZED     # OF       SQUARE
             BUILDINGS                RENT (1)        RENT       LEASES     FOOT (2)            MAJOR TENANTS
-----------------------------------  -----------   ----------   --------   ----------   ------------------------------
<S>                                  <C>           <C>          <C>        <C>          <C>
128 Bauer Drive (4)................  $   244,469      0.25%         4        $ 5.90     N-D Industries
1500 Pollit Drive (4)..............      162,873      0.17%         1          8.75     Bell Atlantic-NJ, Inc.
1600 Route 208 (4).................      834,090      0.87%        22         15.81     Fogarty & Hara
1655 Valley Road (4)...............    2,617,800      2.72%         1         16.81     Reckitt & Coleman, Inc.
1900 Pollitt Drive (4).............      687,632      0.71%         1          8.90     Paid Prescriptions
22-08 Route 208 (4)................    1,026,914      1.07%        10         13.58     Maxell Corporation
40 Potash Road (4).................    1,216,377      1.26%         1         19.94     TCI-UA-Columbia
95 Bauer Drive (4).................       88,296      0.09%         1         13.00     Greentree Learning
99 Bauer Drive (4).................      141,303      0.15%         1          6.91     Stratton Travel, Inc.
8 Airline Drive....................      882,053      0.92%         4         14.43     Homestead Funding
Fifteen Columbia Circle............      970,644      1.01%         1         11.75     Prudential Insurance
Nine Columbia Circle...............      178,382      0.19%         4         16.35     Banc One Financial
One Columbia Circle................    1,108,707      1.15%         6         16.09     Novalis
Seventeen Columbia Circle..........      741,180      0.77%         2         11.23     CDPHP
Thirteen Columbia Circle...........      270,552      0.28%         4         12.60     Roemer, Wallens & Mineaux
Three Columbia Circle..............    1,124,102      1.17%        18         14.23     Thompson Corp.--Delmar
6 British American Boulevard.......      490,750      0.51%         8          6.96     BOCES
Corporate Center 15 (4)............      631,283      0.66%         6         11.36     Acordia Northeast
Executive Park (4).................      883,832      0.92%        10         16.73     GE Capital
Hillside Corporate Center (4)......    1,121,653      1.16%         9         16.62     Travelers
Treeview Corporate Center (4)......      869,069      0.90%        11         13.78     Carpenter Technology
Winchester Plaza Corp. Ctr. (4)....    2,448,618      2.54%         3         16.77     Aetna Life & Casualty
1045 James Street..................      825,996      0.86%         1         16.52     Royal Indemnity Co.
125 Indigo Creek Drive.............      346,500      0.36%         1         12.98     Park Ridge Health
250 South Clinton Street...........    3,195,601      3.32%        11         17.44     AT&T Communications
308 Maltbie Street.................      329,688      0.34%         3         12.57     First Fortis
400 West Division Street...........      539,015      0.56%         2         14.17     Royal Indemnity Co.
5000 Campuswood Drive..............      546,085      0.57%         6         16.73     Cruise's Inc.
5009 Campuswood Drive..............       96,427      0.10%         1         14.65     Children's Discovery Center
5010 Campuswood Drive..............    1,150,919      1.20%         9         16.40     National Grange
5015 Campuswood Drive..............    1,686,617      1.75%         8         16.89     Time Warner/Intermedia
507 Franklin Square................    1,240,982      1.29%         2         17.37     Unity Mutual Life
One Clinton Square.................      763,297      0.79%         2         19.27     Fleet Bank
One Park Place.....................    4,436,158      4.59%        19         15.28     Hartford Fire Insurance
                                     -----------     -----        ---        ------
Sub-Total Office...................  $33,897,864     35.04%       193        $14.80
OTHER:
88 Mary Street.....................  $   525,000      0.54%         1        $ 4.61     St. Joseph's Hospital
                                     -----------     -----        ---        ------
GRAND TOTAL........................  $96,735,526     100.0%       331        $ 5.19
                                     ===========     =====        ===        ======
</TABLE>

----------------------------------------
(1) Annualized Rent, as used throughout this report, represents the total
    contractual base rent under existing leases for the month ended
    December 31, 1999, before any abatement and excluding any expense
    reimbursements, multiplied by 12.

(2) Annualized Rent Per Leased Square Foot, as used throughout this report,
    represents Annualized Rent, as described in Footnote (1) above, divided by
    the square footage of the property.

(3) This property was sold for net proceeds of approximately $900,000 in
    January 2000. This sale resulted in a gain of approximately $100,000 for
    financial reporting purposes.

(4) This property has been classified as held for sale in the Company's 1999
    consolidated financial statements included herein.

                                       16
<PAGE>
PRINCIPAL TENANTS

    The following table sets forth information regarding the leases with respect
to the current ten (10) largest tenants at the Properties, based on the
Annualized Rent received from such tenants as of December 31, 1999.

<TABLE>
<CAPTION>
                                                     TERM                    % OF TOTAL                        % OF TOTAL
                                                  REMAINING                   PORTFOLIO                         PORTFOLIO
TENANT (1)                      PROPERTY          IN MONTHS    SQUARE FEET   SQUARE FEET   ANNUALIZED RENT   ANNUALIZED RENT
----------               -----------------------  ----------   -----------   -----------   ---------------   ---------------
<S>                      <C>                      <C>          <C>           <C>           <C>               <C>
Franklin Storage.......  1440 Sheffler Drive
                         1465 Nitterhouse Drive
                         2294 Molly Pitcher
                         Highway                     10-34        852,000        4.57%       $ 3,243,560          3.37%
Reckitt & Colman,
  Inc. ................  1655 Valley Road (3)           48        155,700        0.84%         2,617,800          2.72%
Hershey Foods Corp. ...  101 Commerce Drive            156        597,100        3.20%         2,376,458          2.47%
Aetna Life &             Winchester Plaza Corp.
  Casualty.............  Center (3)                     88        133,082        0.71%         2,358,564          2.45%
Niagara Mohawk.........  507 Franklin Square
                         One Apollo Drive           21-168        188,449        1.01%         1,863,574          1.94%
Herrod Distribution....  301-321 Herrod
                         Boulevard                      26        610,949        3.28%         2,291,064          2.38%
Neuman Distributors,
  Inc..................  200 Industrial Avenue         160        332,352        1.78%         2,193,528          2.28%
Cosmetic Essence.......  21 Cranbury Road              108        483,507        2.59%         1,987,212          2.06%
International Paper....  221 South 10(th) Street
                         Two Tabas Lane              36-89        461,707        2.48%         1,861,487          1.93%
Coca Cola..............  118 Moonachie Avenue           13        243,751        1.31%         1,828,128          1.90%
                                                    ------      ---------       -----        -----------          ----
Total/Weighted
  Average (2)..........                                 75      4,058,597       21.77%       $22,621,375          23.5%
                                                    ======      =========       =====        ===========          ====
</TABLE>

------------------------------

(1) This list is not intended to be representative of the Company's tenants as a
    whole.

(2) Weighted average calculations based on the total square footage leased by
    each tenant.

(3) This property has been classified as held for sale in the Company's 1999
    consolidated financial statements included herein.

                                       17
<PAGE>
LEASE EXPIRATIONS

    The following table sets forth the annual lease expirations and certain
other information for leases existing at the Properties as of December 31, 1999
(assuming that no tenants exercise renewal or cancellation options and that
there are no tenant bankruptcies or other tenant defaults):

<TABLE>
<CAPTION>
                                                             PERCENTAGE OF                         ANNUALIZED RENT PER
YEAR OF                   NUMBER OF      SQUARE FOOTAGE OF   TOTAL LEASED    ANNUALIZED RENT OF   LEASED SQUARE FOOT OF
LEASE EXPIRATION       LEASES EXPIRING    EXPIRING LEASES     SQUARE FEET     EXPIRING LEASES        EXPIRING LEASES
----------------       ---------------   -----------------   -------------   ------------------   ---------------------
<S>                    <C>               <C>                 <C>             <C>                  <C>
2000.................         76              3,356,942            18.20%        $13,877,075                  4.13
2001.................         42              1,681,317             9.12%         10,192,074                  6.06
2002.................         49              3,706,963            20.10%         14,500,978                  3.91
2003.................         47              1,396,691             7.57%         11,520,489                  8.25
2004.................         38              1,213,717             6.58%          7,618,865                  6.28
2005.................         18                715,706             3.88%          5,789,880                  8.09
2006.................         25              1,395,763             7.57%          7,703,852                  5.52
2007.................          9              1,607,460             8.72%          8,060,287                  5.01
2008.................          8                772,111             4.19%          5,079,648                  6.58
2009.................          7                726,515             3.94%          2,524,713                  3.48
2011.................          3                348,023             1.89%          1,393,995                  4.01
2012.................          2                658,094             3.57%          3,592,835                  5.46
2013.................          3                491,430             2.67%          3,535,411                  7.19
2014.................          3                229,414             1.24%            903,963                  3.94
2018.................          1                139,703             0.76%            441,461                  3.16
                            ----             ----------        ---------         -----------           -----------
Total................        331             18,439,849           100.00%        $96,735,526           $      5.25
                            ====             ==========        =========         ===========           ===========
</TABLE>

ITEM 3. LEGAL PROCEEDINGS.

    Neither the Company nor the Properties are presently subject to any
litigation nor is the Company aware of any threatened litigation which the
Company believes will result in any liability that will be material to the
Company, other than routine litigation arising in the ordinary course of
business, substantially all of which is expected to be covered by liability
insurance.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

    On December 16, 1999, a Special Meeting of Shareholders was held in which
the following matters were submitted to a vote of the shareholders of the
Company.

       1.  To elect one Class I trustee to serve until the Annual Meeting of
           Shareholders to be held in 2001 and until his successor is duly
           elected and qualified and one Class II trustee to serve until the
           Annual Meeting of Shareholders to be held in 2002 and until his
           successor is duly elected and qualified.

       2.  To approve the issuance of up to 6.5 million Common Shares upon
           conversion of the Company's Series B Convertible Preferred Stock and
           Series C Convertible Preferred Units of the Operating Partnership,
           which have been or may be issued to certain individuals and entities
           in consideration for the Company's acquisition of certain entities
           owning 28 industrial facilities pursuant to a contribution agreement
           among the Company, the Operating Partnership and such individuals and
           entities.

                                       18
<PAGE>
    The shareholders of the Company approved both matters by the following votes
in person or by proxy:

<TABLE>
<CAPTION>
                                         VOTES CAST
                               -------------------------------                  BROKER
MATTER                            FOR      AGAINST    WITHHELD   ABSTENTIONS   NON-VOTES
------                         ---------   --------   --------   -----------   ---------
<S>                            <C>         <C>        <C>        <C>           <C>
1............................  4,902,908        --     6,847        4,300           --
2............................  4,198,391    86,958        --        6,800           --
</TABLE>

    Mr. Morris was elected to serve as a Class I trustee and Mr. Rechler was
elected to serve as a Class II trustee until the Annual Meeting of Shareholders
to be held in 2001 and 2002, respectively. Voting results for both Mr. Morris
and Mr. Rechler were as indicated above. After the Special Meeting of
Shareholders, Mr. Falcone and Mr. Galesi continued to serve as Class I trustees
until the Annual Meeting of Shareholders to be held in 2001, Mr. Kelter and
Mr. Platt continued to serve as Class II trustees until the Annual Meeting of
Shareholders to be held in 2002, and Mr. Lesser, Mr. McBride and Mr. Mulvihill
continued to serve as Class III trustees until the Annual Meeting of
Shareholders to be held in 2000.

                                       19
<PAGE>
                                    PART II.

ITEM 5. MARKET FOR COMMON EQUITY AND RELATED SHAREHOLDER MATTERS.

    The Company's Common Shares are traded on the American Stock Exchange
("AMEX") under the symbol "KTR". The high and low last sale prices as reported
by the AMEX for each calendar quarter from January 1, 1998 to December 31, 1999
and the dividends with respect to the Company's operations for each such
calendar quarter were as follows:

<TABLE>
<CAPTION>
                                                                  SALES PRICE
                                                    ---------------------------------------
YEAR/QUARTER                                          HIGH           LOW          DIVIDENDS
------------                                        --------       --------       ---------
<S>                                                 <C>            <C>            <C>
1999:
  1(st) Quarter...................................    $15 5/8        $12 5/8      $0.26500
  2(nd) Quarter...................................    $16 7/8        $12 3/4      $0.26500
  3(rd) Quarter...................................    $16 1/2        $14 1/16     $0.29500
  4(th) Quarter...................................    $16 1/8        $14 1/2      $0.29500

1998:
  1(st) Quarter...................................    $20            $15 3/8      $0.22000
  2(nd) Quarter...................................    $20            $16 5/8      $0.22000
  3(rd) Quarter...................................    $18 3/8        $12 3/8      $0.26500
  4(th) Quarter...................................    $15 7/8        $11 7/8      $0.26500
</TABLE>

    As of December 31, 1999, the Company had 144 shareholders of record and
believes that it had in excess of 1,200 beneficial holders.

    The Company currently anticipates that comparable cash dividends will
continue to be paid in the future however, the payment and the amount of the
dividends is at the discretion of the Board of Trustees and will depend on
numerous factors including the Company's cash flow and its capital and annual
distribution requirements under the REIT provisions of the Internal Revenue Code
of 1986, as amended, and other factors that the Board of Trustees deems
relevant.

    During the fourth quarter of 1999 and in January 2000, the Company sold an
aggregate of 1,379,311 Common Shares directly to Hudson Bay Partners II, L.P.
("Hudson Bay"), Hudson Bay Partners, Inc., Crescent Real Estate Equities Limited
Partnership ("Crescent"), David H. Lesser, Jeffrey E. Kelter, Michael J.
Falcone, Russell C. Platt, Francesco Galesi, David F. McBride (collectively, the
"Holders") and several members of the McBride family, and funds affiliated with
Morgan Stanley Asset Management 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 Board of trustees). The
Common Shares were sold as follows: on October 12, 1999, the Company issued and
sold 68,966 of these Common Shares to Mr. Galesi; on October 29, 1999, the
Company issued and sold 586,207 of these Common Shares to Mr. Kelter; on
December 10, 1999, the Company issued and sold 89,655 of these Common Shares to
Hudson Bay; on December 29, 1999, the Company 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, 47,317 of these
Common Shares to David H. Lesser, and 3,000 of these Common Shares to Russell C.
Platt; on January 18, 2000, the Company issued and sold 2,236 of these Common
Shares to David F. McBride.

    In connection with the issuance of Common Shares to the Holders, the
Operating Partnership issued to Hudson Bay and to Messrs. Kelter and David F.
McBride (the "OP Unit Recipients") 278,034 OP Units in exchange for certain
warrants to acquire 300,000 Common Shares and the cancellation of certain
warrants to acquire 375,000 Units at an exercise price of $11.00 per share or OP
Unit, which were held by Hudson Bay and Messrs. Kelter and David F. McBride.

                                       20
<PAGE>
    In December 1999, the Company issued 5,602 Common Shares, in aggregate, to
its trustees as compensation for services provided to the Company in their
capacity as members of the Board of Trustees during the second and third
quarters of our 1999 fiscal year.

ITEM 6. SELECTED AND SUMMARY FINANCIAL DATA

    The following table sets forth selected financial data for the Company for
each of the five years in the period ended December 31, 1999. The information
set forth below should be read in conjunction with Management's Discussion and
Analysis of Financial Condition and Results of Operations and the consolidated
financial statements and notes thereto appearing elsewhere in this annual
report.

<TABLE>
<CAPTION>
                                                                          YEARS ENDED DECEMBER 31,
                                                                   (IN 000'S, EXCEPT FOR PER SHARE DATA)
                                                      ----------------------------------------------------------------
                                                         1999          1998          1997         1996         1995
                                                      -----------   -----------   ----------   ----------   ----------
<S>                                                   <C>           <C>           <C>          <C>          <C>
OPERATING DATA
Total revenue.......................................  $    84,526   $    41,028   $    8,197   $   10,240   $    9,966
Property operating expenses.........................       15,096         7,693        3,112        4,350        4,107
Management fees paid to affiliate...................        3,048         1,121           --           --           --
General and administrative expenses.................        3,650           759          732          515          653
Depreciation and amortization.......................       16,359         6,911          909        1,366        1,304
Buy out of employment agreements,
  options and warrants..............................           --            --        3,203           --           --
Interest expense....................................       30,307        14,539        3,134        3,897        4,172
                                                      -----------   -----------   ----------   ----------   ----------
Total operating expenses............................       68,460        31,023       11,090       10,128       10,236

Equity in (losses) income
  from equity method investments....................          (62)       (1,167)         404          570          597
Gains on sales of assets............................        1,284        11,952        4,608        1,786           --
                                                      -----------   -----------   ----------   ----------   ----------
Income before minority interest, extraordinary item
  and distributions to preferred unitholders and net
  income allocated to preferred shareholders........       17,288        20,790        2,119        2,468          327
Minority interest...................................       (5,592)       (9,452)        (876)      (1,364)          16
Extraordinary item-loss from debt refinancing
  (net of amounts allocated to minority interest)...           --          (110)          --           --         (371)
Distributions to preferred unitholders and net
  income allocated to preferred shareholders........       (5,368)          (55)          --           --           --
                                                      -----------   -----------   ----------   ----------   ----------
Net income (loss) allocated to common
  shareholders......................................  $     6,328   $    11,173   $    1,243   $    1,104   $      (28)
                                                      ===========   ===========   ==========   ==========   ==========
Distributions paid on Common Shares.................  $     8,375   $     6,308   $      985   $      943   $      902
                                                      ===========   ===========   ==========   ==========   ==========

PER SHARE DATA
Net income (loss) per Common Share
  before extraordinary item--basic..................  $      0.83   $      1.79   $     0.92   $     1.00   $    (0.31)
Net income (loss) per Common Share--basic...........  $      0.83   $      1.77   $     0.92   $     1.00   $    (0.03)
Net income (loss) per Common Share
  before extraordinary item--diluted................  $      0.80   $      1.75   $     0.88   $     1.00   $    (0.18)
Net income (loss) per Common Share--diluted.........  $      0.80   $      1.73   $     0.88   $     1.00   $    (0.03)
Distributions paid per Common Share.................  $      1.12   $      0.97   $     0.87   $     0.85   $     0.83
Weighted average number of shares
  outstanding--basic EPS (1)........................    7,622,010     6,299,281    1,347,297    1,106,379    1,083,233
Weighted average number of shares
  outstanding--diluted EPS..........................   14,810,817    11,908,761    2,404,004    1,831,443    1,756,988
</TABLE>

                                       21
<PAGE>

<TABLE>
<CAPTION>
                                                                          YEARS ENDED DECEMBER 31,
                                                                   (IN 000'S, EXCEPT FOR PER SHARE DATA)
                                                      ----------------------------------------------------------------
                                                         1999          1998          1997         1996         1995
                                                      -----------   -----------   ----------   ----------   ----------
<S>                                                   <C>           <C>           <C>          <C>          <C>
OTHER DATA
Funds from Operations (2)...........................  $    32,780   $    16,132   $    1,849   $    2,166   $    2,009
Cash flow provided from (used in):
  Operating activities..............................       34,532        16,387        2,087        2,254        1,493
  Investing activities..............................     (199,074)     (261,100)      (3,134)      (2,571)        (576)
  Financing activities..............................      165,439       230,288       17,377       (4,119)      (1,342)

BALANCE SHEET DATA
Undepreciated book value of real estate.............  $   860,336   $   542,869   $  155,063   $   47,383   $   48,639
Net investment in real estate.......................      837,940       536,002      152,108       43,555       45,634
Total assets........................................      875,076       558,974      180,955       46,224       47,741
Total liabilities...................................      543,415       356,225       89,662       38,470       41,051
Total minority interest.............................      145,931        95,705       39,364        3,125        2,436
Total shareholders' equity..........................  $   185,730   $   107,044   $   51,929   $    4,629   $    4,254

OTHER DATA
Total leaseable square footage of properties at end
  of year...........................................   18,652,284    11,928,620    2,418,590    1,444,770    1,533,770
Number of properties at the end of year.............          133            99           21            5            6
Percentage leased at end of year....................           99%           98%          95%          92%          94%
</TABLE>

------------------------------

(1) Basic weighted average number of shares includes only Common Shares
    outstanding during the year and excludes OP Units.

(2) Funds From Operations ("FFO"), which is a commonly used measurement of the
    performance of an equity REIT, as defined by the National Association of
    Real Estate Investment Trusts, Inc., is net income (computed in accordance
    with generally accepted accounting principles), excluding gains (or losses)
    from debt restructuring and sales of property, plus depreciation and
    amortization, and after adjustments for unconsolidated partnerships and
    joint ventures. Adjustments for unconsolidated partnerships and joint
    ventures were calculated to reflect funds from operations on the same basis.
    Management believes the presentation of FFO is a useful disclosure as a
    general measurement of its performance in the real estate industry, although
    the Company's FFO may not necessarily be comparable to similarly titled
    measures of other REITs. FFO does not represent cash generated from
    operating activities in accordance with generally accepted accounting
    principles and is not necessarily indicative of cash available to fund cash
    needs and should not be considered as an alternative to net income as an
    indicator of the Company's operating performance or as an alternative to
    cash flow as a measure of liquidity.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
  OF OPERATIONS.

    The following discussion and analysis should be read in conjunction with the
consolidated financial statements appearing elsewhere herein. This annual report
contains forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933 and Section 21E of the Securities Act of 1934, as
amended. The words "believe", "expect", "anticipate", "intend", "estimate" and
other expressions which are predictions of or indicate future events and trends
which do not relate to historical matters identify forward-looking statements.
Although the Company believes that the expectations reflected in such forward
looking statements are based upon reasonable assumptions, there can be no
assurance that these expectations will be realized. As a result, the Company's
actual results could materially differ from those set forth in the
forward-looking statements. Certain factors that might cause such a difference
include but are not limited to the following: real estate investment
considerations, such as the effect of economic and other conditions in the
market area on cash flows and values; the need to renew leases or relet space
upon the expiration of current leases, and the ability of a property to generate
revenues sufficient to make principal payments on outstanding debt, outstanding
debt may be refinanced at higher interest rates or otherwise on terms less
favorable to the Company and interest rates under the Company's $150,000,000
senior secured revolving credit facility (the "Credit Facility") may increase.

                                       22
<PAGE>
OVERVIEW

    The Company has achieved significant growth since the transactions that
occurred in December 1997 which resulted in the reorganization (the
"Reorganization") of the Company as a real estate investment trust ("REIT")
focused on the industrial and office segments. In October 1999, the Company
changed its name to Keystone Property Trust and reorganized as a Maryland REIT
from a Maryland corporation. At December 31, 1999, the Company owned
18.6 million square feet consisting of 16.2 million square feet of industrial
properties, 2.3 million square feet of office properties and an investment in a
direct financing lease. During 1999, the Company acquired $322 million in
properties which aggregated approximately 6.8 million square feet, consisting of
6.5 million square feet of industrial properties (34 properties) and one office
property consisting of approximately 290,000 square feet. This represents a 56%
increase over the December 31, 1998 owned square feet of approximately
11.9 million. During 1998, the Company acquired approximately $418 million in
properties which aggregated approximately 9.9 million square feet, which was
comprised of 8.4 million square feet of industrial properties and 1.5 million
square feet of office properties. This represented a 495% increase over the
December 31, 1997 total owned square feet of approximately 2.0 million.

    A summary of the industrial and office square footage owned by the Company
by market region and related occupancy data, which excludes data associated with
the Company's investment in one property which is a direct financing lease, at
December 31, 1999 and 1998 is as follows:
<TABLE>
<CAPTION>
                                                                              1999
                                 ----------------------------------------------------------------------------------------------
                                             INDUSTRIAL                            OFFICE                         TOTAL
                                 ----------------------------------   ---------------------------------   ---------------------
                                              SQUARE                              SQUARE                               SQUARE
                                  BLDGS.       FEET      OCCUPANCY     BLDGS.      FEET      OCCUPANCY     BLDGS.       FEET
                                 --------   ----------   ----------   --------   ---------   ----------   --------   ----------
<S>                              <C>        <C>          <C>          <C>        <C>         <C>          <C>        <C>
Mid-Atlantic...................     18       5,000,836     100.0%         5        384,972      90.5%        23       5,385,808
Mid-Western....................     15       2,629,236     100.0%        --             --        --         15       2,629,236
Northeast......................     37       5,776,531      99.2%        29      1,904,920      98.8%        66       7,681,451
Southeast......................     28       2,841,789      96.7%        --             --        --         28       2,841,789
                                    --      ----------     -----         --      ---------      ----        ---      ----------
      Total....................     98      16,248,392      99.2%        34      2,289,892      96.9%       132      18,538,284
                                    ==      ==========     =====         ==      =========      ====        ===      ==========

<CAPTION>
                                    1999
                                 ----------
                                   TOTAL
                                 ----------

                                 OCCUPANCY
                                 ----------
<S>                              <C>
Mid-Atlantic...................     97.6%
Mid-Western....................    100.0%
Northeast......................     99.0%
Southeast......................     96.7%
                                   -----
      Total....................     98.9%
                                   =====
</TABLE>
<TABLE>
<CAPTION>
                                                                              1998
                                 ----------------------------------------------------------------------------------------------
                                             INDUSTRIAL                            OFFICE                         TOTAL
                                 ----------------------------------   ---------------------------------   ---------------------
                                              SQUARE                              SQUARE                               SQUARE
                                  BLDGS.       FEET      OCCUPANCY     BLDGS.      FEET      OCCUPANCY     BLDGS.       FEET
                                 --------   ----------   ----------   --------   ---------   ----------   --------   ----------
<S>                              <C>        <C>          <C>          <C>        <C>         <C>          <C>        <C>
Mid-Atlantic...................     16       3,707,934      99.0%         5        384,972      97.7%        21       4,092,906
Mid-Western....................      7       1,750,260      85.7%        --             --        --          7       1,750,260
Northeast......................     15       1,869,606      96.6%        28      1,614,642      96.6%        43       3,484,248
Southeast......................     26       2,396,198     100.0%        --             --        --         26       2,396,198
                                    --      ----------     -----         --      ---------      ----        ---      ----------
      Total....................     64       9,723,998      97.7%        33      1,999,614      97.0%        97      11,723,612
                                    ==      ==========     =====         ==      =========      ====        ===      ==========

<CAPTION>
                                    1998
                                 ----------
                                   TOTAL
                                 ----------

                                 OCCUPANCY
                                 ----------
<S>                              <C>
Mid-Atlantic...................     98.6%
Mid-Western....................     85.7%
Northeast......................     96.6%
Southeast......................    100.0%
                                   -----
      Total....................     98.9%
                                   =====
</TABLE>

This growth has resulted in the broadening of the Company's focus on the
Mid-Atlantic and Northeastern United States population centers to include
Northern New York State, Indianapolis, Indiana, Ohio and Greenville and
Spartanburg, South Carolina. In 1999, the Company also began to focus on
development opportunities through the start of construction of a 80,000 square
foot build-to-suit office building in Allentown, PA for Aetna, Inc. and the
construction, through a 50% joint venture with Browning Investments, of a
500,000 square foot distribution facility for Brightpoint, Inc. located in
Indianapolis, Indiana. The Company anticipates that it will continue to focus on
selective development opportunities via expansion of several industrial
properties in its core portfolio and through additional development in the New
Jersey and Indianapolis market areas.

                                       23
<PAGE>
RESULTS OF OPERATIONS

    YEAR ENDED DECEMBER 31, 1999 AS COMPARED TO YEAR ENDED DECEMBER 31, 1998

    Net income for the year ended December 31, 1999 was $6.3 million compared
with net income of $11.2 million for 1998. The decrease in net income was
primarily attributed to the $11.9 million in gains from sales of the Company's
last two multifamily assets in 1998 as compared to gains from asset sales of
only $1.3 million in 1999. These gains from asset sales in 1998 were also offset
by increases in net income in 1999 as a result of property acquisitions. At
December 31, 1999, the Company owned 133 properties aggregating 18.6 million
square feet as compared to the 99 properties owned at December 31, 1998 which
aggregated 11.9 million square feet. Net income for the years ended
December 31, 1999 and 1998, excluding the impact of the asset sales in both
years, would have been $5.6 million in 1999 or $.72 per share as compared to
$4.7 million or $.73 per share for 1998.

    Revenues increased by $43.5 million, to $84.5 million from $41.0 million, or
by 106% for the year ended December 31, 1999 as compared to 1998, respectively,
as a result of property acquisitions in both 1999 and 1998.

    Property operating expenses, management fee expense and depreciation and
amortization increased in the aggregate by $18.8 million as compared to 1998 as
a result of property acquisitions. General and administrative expenses increased
by $2.9 million from $759,000 in 1998 to $3.7 million in 1999 primarily as a
result of the Company paying for certain expenses, including certain payroll
costs during 1999, which were paid by Keystone Realty Services, Inc. (the
"Management Company") in 1998. In addition, the Company incurred approximately
$250,000 of non-recurring costs in 1999 associated with the change of the
Company's name and reorganization as a Maryland REIT in October 1999.

    Interest expense increased by $15.8 million primarily as a result of
additional indebtedness incurred to finance the Company's acquisitions.

    Equity in losses from the Company's equity method investment in the
Management Company was a loss of $62,000 as compared to a loss of $1.2 million
for 1998. The decrease in the loss was primarily the result of the Company
paying for certain expenses, including payroll costs during 1999, which were
paid by the Management Company in 1998.

    Gains on sales of assets decreased by $10.6 million in 1999 as compared to
the previous year as a result of the sale of Quadrangles Village Apartments
("Quadrangles") and Americana Lakewood Apartments ("Americana") in 1998 as the
Company consummated its plan to dispose of its remaining multifamily properties.
In 1999, only one property was sold, Urban Farms Shopping Center, which
generated a gain on sale of $1.3 million.

    SEGMENTS

    Revenues and property net operating income increased significantly in both
the industrial and office segments during 1999 in comparison to the previous
year as a result of the Company's acquisition activity. The owned square footage
in the industrial segment increased by approximately 68% since December 31,
1998, (from 9.7 million square feet to 16.2 million square feet). The owned
square footage in the office segment increased by approximately 15% since
December 31, 1998 (from 2.0 million square feet to 2.3 million square feet).
Revenue and property net operating income decreased in the multifamily segment
as a result of the sale of the remaining multifamily assets in 1998. Revenue and
property net operating income in the other properties segment decreased as a
result of the sale of the Company's only retail asset, Urban Farms Shopping
Center, in March 1999.

                                       24
<PAGE>
    SAME STORE PROPERTIES

    Property level operating income for the year ended December 31, 1999 for the
properties owned since January 1, 1998 (the "Same Store Properties") increased
to approximately $11.8 million from $11.0 million in 1998. This increase is
primarily a result of the increase in revenue which was the result of increases
in rental rates and increases in occupancy in the Same Store Properties.
Operating expenses for these properties decreased primarily as a result of
decreases in repair and maintenance expenses. The Same Store Properties consist
of 20 properties which aggregate approximately 1.9 million square feet. Same
Store Properties represent approximately 18% of property net operating income
for the year ended December 31, 1999.

    Set forth below is a schedule comparing the property level net operating
income for the Same Store Properties for the years ended December 31, 1999 and
1998.

<TABLE>
<CAPTION>
                                                       FOR THE YEARS ENDED
                                                           DECEMBER 31,
                                                  (DOLLARS IN 000'S) (UNAUDITED)
                                                  ------------------------------
                                                    1999       1998     % CHANGE
                                                  --------   --------   --------
<S>                                               <C>        <C>        <C>
Revenue
  Rental revenue................................  $12,735    $12,002      6.10%
  Tenant reimbursements and other...............    1,245      1,242      0.25%
                                                  -------    -------     -----
  Total revenue.................................   13,980     13,244      5.55%
                                                  =======    =======     =====
Operating Expenses
  Property operating expenses...................    1,333      1,436     (7.17)%
  Real estate taxes.............................      820        800      2.50%
                                                  -------    -------     -----
  Total operating expenses......................    2,153      2,236     (3.71)%
                                                  -------    -------     -----
Net operating income............................  $11,827    $11,008      7.44%
                                                  =======    =======     =====
Occupancy at December 31........................    99.87%     97.09%
</TABLE>

    YEAR ENDED DECEMBER 31, 1998 AS COMPARED TO YEAR ENDED DECEMBER 31, 1997

    Net income for the year ended December 31, 1998 was $11.2 million compared
with a net income of $1.2 million for the same period in 1997. The increase in
net income was primarily attributed to the operating results from the 99
properties acquired by the Company since December 1997 and the gains recorded
from sales of the last two multifamily assets owned by the Company.

    Revenues increased by $32.8 million for the year ended December 31, 1998 as
compared to the corresponding prior year period primarily as a result of
property acquisitions in 1998.

    Property operating expenses, general and administrative expenses,
depreciation and amortization increased in the aggregate by $11.7 million as
compared with the prior year primarily as a result of property acquisitions.
Interest expense increased by $11.4 million as a result of additional
indebtedness incurred to finance the Company's acquisitions.

    Equity in losses or earnings from equity method investments was a loss of
$1.2 million as compared to equity in earnings of $404,000 for the same period
in 1997. The loss in 1998 was attributed to the operations of the Management
Company. The earnings from equity method investments in 1997 primarily related
to the Company's 50% interest in Emerald Vista Associates, L.P. which was sold
in September 1997.

    Gains on sales of assets increased by $7.3 million in 1998 over the previous
year as a result of the sale of Quadrangles and Americana as the Company
consummated its plan to dispose of its remaining multifamily properties.

                                       25
<PAGE>
    In October 1998, the Company incurred an extraordinary loss of $220,000 as a
result of the refinancing of $66 million of debt under the Credit Facility and
$8.4 million of other debt with certain fixed rate debt.

    SEGMENTS

    Revenues and property net operating income increased significantly in both
the industrial and office segments during 1998 in comparison to the previous
year as a result of the Reorganization and various acquisitions by the Company.
Revenue and property net operating income decreased in the multifamily segment
by $5.4 million (74.5%) and $2.2 million (64.4%), respectively, as a result of
the sale of the remaining multifamily assets in 1997 and 1998.

LIQUIDITY AND CAPITAL RESOURCES

    CASH FLOWS

    Net cash provided by operating activities was $34.5 million in 1999 as
compared to $16.4 million in 1998. This represents the Company's primary source
of liquidity to fund distributions to shareholders and unitholders in the
Operating Partnership and to a certain extent, recurring costs associated with
the re-leasing and renovation of the Company's properties. The significant
increase in cash flow provided by operating activities is a direct result of the
acquisitions in 1999 and 1998.

    Net cash used in investing activities was $199.0 million in 1999 as compared
to $261.1 million in 1998. The decrease in net cash used in investing activities
in 1999 as compared to 1998 was primarily a result of the decrease in the level
of acquisitions in 1999 as compared to 1998. Included within the net cash used
in investing activities in 1999 and 1998 are net proceeds from the asset sales
of non-core assets of $9.5 million and $41.0 million, respectively, which the
Company re-invested in industrial and office properties in 1999 and 1998.

    Net cash provided by financing activities in 1999 was $165.4 million as
compared to $230.3 million in 1998. The decrease in net cash provided in 1999 as
compared to 1998 is also a result of the decline in acquisition activity in 1999
as compared to 1998 as net borrowings under the Company's Credit Facility during
1999 were only $18.2 million as compared to $123.8 million in 1998.

CAPITALIZATION

STOCK OFFERINGS

    During 1999 the Company raised an aggregate of approximately $129.3 million
in equity at an average price of $15.77 in several offerings which are discussed
in further detail below.

    In 1999, the Company received $38.5 million in cash proceeds from Common
Share and Convertible Preferred Stock offerings which were used to fund
acquisitions of real estate properties. These proceeds were generated from the
following offerings:

    - In September 1999, the Company issued 800,000 shares of Series C
      Convertible Preferred Stock in a $20,000,000 private placement to several
      institutional investors including Allstate Insurance Company, Teachers
      Insurance and Annuity Association of America ("TIAA") and AEW Targeted
      Securities Fund, L.P. A portion of the proceeds from this offering were
      used to close the first phase of a transaction with Reckson Morris
      Operating Partnership and Reckson Morris Industrial Trust ("RMIT").

                                       26
<PAGE>
    - In October through December 1999, the Company issued 1,276,800 Common
      Shares at $14.50 to various trustees of the Company, funds managed by
      Morgan Stanley Asset Management and Crescent Real Estate Equities Limited
      Partnership in a $18.5 million private placement. In January 2000, an
      additional 102,511 Common Shares were issued at $14.50 to various
      investors including two trustees of the Company. The proceeds from this
      offering were used to pay down the Company's Credit Facility and to
      acquire additional industrial properties.

    Additionally, in September 1999, in connection with the consummation of the
first phase of the RMIT acquisition, the Company issued 1,600,000 shares of
non-voting Series B Convertible Preferred Stock for $40,000,000 and 1,434,136 of
Series C Convertible Preferred Units for $35.8 million to investors affiliated
with the Morris Companies, respectively, as a partial consideration for the
acquisition. Each of the convertible preferred shares and units has liquidation
preference of $25 per share or unit and requires a preferred distribution of
9.75%. In addition to these preferred share and unit offerings, the Company
issued 103,878 Common Shares at $14.44 per share to RMIT for an aggregate price
of $1.5 million. The remaining consideration for this acquisition was funded
from the $20,000,000 Series C Convertible Preferred Stock offering, the proceeds
of a $98,000,000 six-year term loan at a fixed rate of 7.45% with TIAA and
assumed indebtedness of approximately $16.4 million.

    In addition to the offerings discussed above, the Operating Partnership
issued $2.2 million in OP Units as partial consideration for several
acquisitions that were consummated in 1999 at prices which ranged from $15.26 to
$17.50 per OP Unit. The Company also issued 450,700 Series D Convertible
Preferred Units for $11.3 million that are convertible into Common Shares at
$16.50 in connection with the acquisition of an office property which was the
final phase of the acquisition of the Pioneer Portfolio which was consummated in
1998.

CREDIT FACILITY AND OTHER DEBT

    In April 1998, the Company entered into a three year $150,000,000 Credit
Facility with a group of commercial lenders lead by Bank Boston, N.A. This
Credit Facility can be used to fund acquisitions, capital improvements,
development activities and working capital needs. On June 30, 1999, the terms of
the Credit Facility were amended and as a result the maturity was extended to
April 29, 2002, the interest rate was modified and several financial covenants
were also modified. The Credit Facility bears interest at a variable rate at the
Company's option of either a LIBOR rate plus 2.25% per annum or the prime rate.
The LIBOR interest rate is based on a sliding scale based on the Company's
leverage. The scale ranges from LIBOR + 1.625% to LIBOR + 2.25%. The Company's
outstanding borrowings under this Credit Facility are $141.9 million at
December 31, 1999 at an interest rate of 8.00%. The Company is able to elect to
increase the amount available under the Credit Facility to $250 million, subject
to the syndication of an additional $100 million.

    As of December 31, 1999, the Company had approximately $380.1 million of
mortgage notes outstanding, excluding the Credit Facility, that had a weighted
average interest rate of 7.68% and at a weighted average maturity of 8.8 years.
Approximately $2.6 million of this mortgage debt is scheduled to mature in 2000.
At December 31, 1999, the Company's market capitalization was approximately
$908.3 million and the Company's consolidated debt represented approximately
57.5% of total market capitalization.

SHORT AND LONG-TERM LIQUIDITY

    Cash flow from operating activities is the Company's principal source of
funds to fund debt service, common and preferred distributions, recurring
capital expenditures and certain upfront costs associated with the Company's
development activities. We expect to meet our short-term (one year or less)
liquidity requirements generally through working capital and net cash provided
by operating activities along with the Credit Facility. In addition, the Company
has several properties which are currently

                                       27
<PAGE>
unleveraged on which the Company is able to place mortgage debt in order to
generate further short-term liquidity. Further, the Company anticipates that it
will selectively dispose of certain office and to a lesser extent industrial
assets in 2000. The Company believes all of these sources will be available in
2000 in order to fund short-term liquidity needs.

    During 1999 and 1998, the Company paid distributions to common shareholders
and unitholders totaling $1.12 and $.97 per Common Share or unit, respectively,
which aggregated $16.1 million and $11.3 million, respectively. In addition, in
January 2000 the Company declared a distribution of $.295 per Common Share that
was paid on January 31, 2000 to shareholders of record on January 18, 2000.

    Our long-term liquidity needs generally include the funding of existing and
future development activity, selective asset acquisitions and the retirement of
mortgage debt and amounts outstanding under the Credit Facility. We expect to
meet our long-term liquidity needs through a combination of the following:
(i) the issuance of equity securities by the Company and its Operating
Partnership, (ii) the selective disposition of our office and certain industrial
assets, (iii) the sale or contribution of certain of our wholly-owned, non-core
properties to strategic joint ventures to be formed, which could allow the
Company to generate additional capital. Finally, the Company expects that
certain of the sources described above in short-term liquidity will be an
additional source of capital for long-term liquidity. In July 1998, the Company
filed with the Securities and Exchange Commission a Form S-3 Shelf Registration
Statement under which the Company from time to time may issue Common Stock, or
preferred stock and depository shares representing preferred stock with an
aggregate value of up to $500 million. As of January 31, 2000, the Company has
issued $20.0 million under this Registration Statement.

    The Company believes that our available cash and cash equivalents and cash
flows from operating activities included with cash available from borrowings and
other sources, will be adequate to meet our capital and liquidity needs in both
the short and the long-term.

OTHER COMMITMENTS

    The Company has a commitment to close Phase II of the RMIT acquisition which
requires a purchase price of approximately $100.0 million to acquire six big box
distribution facilities aggregating 2.2 million square feet and six acres of
land. The Company has posted a $10,000,000 letter of credit as a deposit for
this obligation. The Company anticipates funding this acquisition with a
combination of debt financing and $5.6 million of Convertible Preferred Units.

FUNDS FROM OPERATIONS AND FUNDS AVAILABLE FOR DISTRIBUTION

    Funds From Operations ("FFO"), which is a commonly used measurement of the
performance of an equity REIT, as defined by the National Association of Real
Estate Investment Trusts, Inc., is net income (computed in accordance with
generally accepted accounting principles), excluding gains (or losses) from debt
restructuring and sales of property, plus depreciation and amortization, and
after adjustments for unconsolidated partnerships and joint ventures.
Adjustments for unconsolidated partnerships and joint ventures are calculated to
reflect FFO on the same basis. Management believes the presentation of FFO and
Funds Available for Distribution ("FAD") are useful disclosures as general
measures of its performance in the real estate industry, although the Company's
FFO and FAD may not necessarily be comparable to similarly titled measures of
other REITs. FFO and FAD do not represent cash generated from operating
activities in accordance with generally accepted accounting principles and are
not necessarily indicative of cash available to fund cash needs and should not
be considered as an alternative to net income as an indicator of the Company's
operating performance or as an alternative to cash flow as a measure of
liquidity. FAD is defined as FFO less non-revenue producing capital
expenditures, tenant improvements, leasing commissions, straight-line rent
adjustments plus amortization of deferred financing costs and restricted stock
awards.

                                       28
<PAGE>
    FFO, FAD and cash flow information for each of the three years in the period
ended December 31, 1999 are summarized in the following table:

<TABLE>
<CAPTION>
                                           (IN 000'S, EXCEPT PER SHARE DATA)
                                        ---------------------------------------
                                           1999          1998          1997
                                        -----------   -----------   -----------
<S>                                     <C>           <C>           <C>
FUNDS FROM OPERATIONS: (UNAUDITED)
Income before distributions to
  preferred unitholders, minority
  interest, extraordinary item and net
  income allocated to preferred
  shareholders........................  $    17,288   $    20,790   $     2,119
(Less) Plus:
  Gains on sales of real estate.......       (1,284)      (11,952)       (4,608)
  Depreciation and amortization
    related to real estate............       16,359         6,911           909
  Termination of employment agreements
    and options and warrants buyout...           --            --         3,203
  Other adjustments...................          247           213            --
  Equity in (earnings) losses from
    equity method investments.........           62         1,167          (404)
  FFO contribution (loss) from equity
    method investments................          108          (997)          630
                                        -----------   -----------   -----------
Funds from Operations.................  $    32,780   $    16,132   $     1,849
                                        ===========   ===========   ===========

FUNDS AVAILABLE FOR DISTRIBUTION:
  (UNAUDITED)
  Funds from Operations...............  $    32,780   $    16,132   $     1,849
  Capitalized expenditures............       (1,074)         (415)       (1,152)
  Tenant improvements.................       (2,070)         (349)           --
  Leasing commissions.................       (2,097)         (446)           --
  Amortization of deferred financing
    costs.............................        1,473           643             6
  Amortization of restricted stock
    awards............................          274            --            --
  Straight line rent adjustments......       (1,866)       (1,282)           --
                                        -----------   -----------   -----------
  Funds Available for Distribution....  $    27,420   $    14,283   $       703
                                        ===========   ===========   ===========

CASH FLOW INFORMATION:
Cash flow from operating activities...  $    34,532   $    16,387   $     2,087
Cash flow from investing activities...     (199,074)     (261,100)       (3,134)
Cash flow from financing activities...      165,439       230,288        17,377
                                        -----------   -----------   -----------
Net (decrease) increase in cash and
  cash equivalents....................  $       897   $   (14,425)  $    16,330
                                        ===========   ===========   ===========
Weighted average number of Common
  Shares and Units and Preferred
  Shares and Units--diluted (1).......   18,363,330    11,908,761     2,404,004
                                        ===========   ===========   ===========
</TABLE>

------------------------

(1) For 1999, this diluted share amount differs from the amount used for
    earnings per share ("EPS") as it includes the Common Share equivalents
    issuable upon conversion of Preferred Units and Preferred Stock which are
    anti-dilutive for EPS reporting and dilutive for FFO reporting.

                                       29
<PAGE>
INFLATION

    The Company's leases for commercial office and industrial properties
generally require tenants to pay either their share of operating expenses,
including common area maintenance, real estate taxes and insurance or pay 100%
of these costs directly (for triple net leases), as a result, the Company's
exposure to increases in costs and operating expenses is reduced. The Company
does not anticipate that inflation will have a significant impact on its
operating results in the near future.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

    The Company's primary exposure to market risk is to changes in interest
rates. The Company is exposed to market risk related to its Credit Facility as
interest on the Credit Facility is subject to fluctuations in the market. The
amount outstanding under the Credit Facility represents approximately 27% of
debt outstanding as of December 31, 1999. The Company also utilizes mortgage
debt with fixed rates as a source of capital. The weighted average maturity for
fixed rate debt, excluding the Credit Facility, was 8.8 years at December 31,
1999. As these debt instruments mature, the Company typically refinances such
debt at then existing market interest rates which may be more or less than the
interest rates on the maturing debt.

    If the interest rate for the Credit Facility was 100 basis points higher or
lower during 1999, the Company's interest expense would have been increased or
decreased by approximately $1.4 million. Approximately $2.6 million of the
Company's fixed rate debt matures in 2000. The Company currently intends to
refinance this maturing obligation in 2000. If interest rates for this fixed
rate debt maturing and to be refinanced in 2000 is 100 basis points higher or
lower than its current rate of 8.25%, the Company's interest expense would be
increased or decreased by approximately $26,000.

    Due to the uncertainty of fluctuations in interest rates, the specific
actions that might be taken by management to mitigate the impact of such
fluctuations and their possible effects, this sensitivity analysis assumes no
changes in the Company's financial structure.

IMPACT OF RECENT ACCOUNTING STANDARDS

    See Note 2 to the 1999 consolidated financial statements.

THE YEAR 2000 READINESS DISCLOSURE

    The Company has experienced no problems or issues relating to the Year 2000
problem on or after January 1, 2000. The Company has fully implemented its Year
2000 compliance program and as part of that program intends to maintain its
contingency plans until the Company is satisfied that business operations will
not be adversely impacted by the possibility of a Year 2000 problem. Based upon
the Company's experience of no Year 2000 problems to-date, the Company believes
that this approach will adequately compensate for any Year 2000 problems which
may still arise.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

    The response to this Item 8 is included as a separate section of this Annual
Report on Form 10-K. See pages F-1 through F-27.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
  FINANCIAL DISCLOSURE.

    None.

                                       30
<PAGE>
                                   PART III.

ITEM 10. TRUSTEES AND EXECUTIVE OFFICERS OF THE REGISTRANT.

    This item is incorporated by reference from the proxy statement for the 2000
Annual Meeting of Shareholders.

ITEM 11. EXECUTIVE COMPENSATION.

    This item is incorporated by reference from the proxy statement for the 2000
Annual Meeting of Shareholders.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

    This item is incorporated by reference from the proxy statement for the 2000
Annual Meeting of Shareholders.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

    This item is incorporated by reference from the proxy statement for the 2000
Annual Meeting of Shareholders.

                                       31
<PAGE>
                                    PART IV.

ITEM 14. EXHIBITS, REPORTS ON FORM 8-K, AND FINANCIAL STATEMENT SCHEDULE.

    The following consolidated financial statements of Keystone Property Trust
are included in Item 8.

<TABLE>
<S>  <C>  <C>  <C>   <C>
(A)   1.  REPORTS OF ARTHUR ANDERSEN LLP, INDEPENDENT PUBLIC ACCOUNTANTS AND
          CONSOLIDATED FINANCIAL STATEMENTS.
                     Consolidated Balance Sheet as of December 31, 1999 and 1998.
                     Consolidated Statements of Operations for the years ended
                     December 31, 1999, 1998 and 1997.
                     Consolidated Statements of Shareholders' Equity for the
                     years ended December 31, 1999, 1998 and 1997.
                     Consolidated Statements of Cash Flows for the years ended
                     December 31, 1999, 1998 and 1997.
                     Notes to Consolidated Financial Statements.

      2.  FINANCIAL STATEMENT SCHEDULES.

                     Schedule III--Real Estate and Accumulated Depreciation as of
                     December 31, 1999 for Keystone Property Trust.
      3.  EXHIBITS.

            2  (a)   Articles of Merger between American Real Estate Investment
                     Corporation and Keystone Property Trust. (Incorporated by
                     reference to Exhibit 2.1 filed with the Registrant's Current
                     Report on Form 8-K filed with the Commission on October 13,
                     1999.)

            3  (a)   Declaration of Trust of the Registrant.
               (b)   By-laws of the Registrant.
               (c)   Articles Supplementary classifying and designating a series
                     of Preferred Stock as Series A Convertible Preferred Stock
                     and fixing distribution and other preferences and rights of
                     such series. (Incorporated by reference to Exhibit 10.6
                     filed with the Registrant's Current Report on Form 8-K filed
                     with the Commission on January 8, 1999.)
               (d)   Articles Supplementary Reclassifying Series B Convertible
                     Preferred Stock and Fixing Distribution and Other
                     Preferences and Right of Such Series. (Incorporated by
                     reference to Exhibit 10.3 filed with the Registrant's
                     Quarterly Report on Form 10-Q for the fiscal quarter ended
                     September 30, 1999.)
               (e)   Partnership Unit Designation of Series C Convertible
                     Preferred Units. (Incorporated by reference to Exhibit 10.4
                     filed with the Registrant's Quarterly Report on Form 10-Q
                     for the fiscal quarter ended September 30, 1999.)
               (f)   Partnership Unit Designation of Series E Convertible
                     Preferred Units. (Incorporated by reference to Exhibit 10.5
                     filed with the Registrant's Quarterly Report on Form 10-Q
                     for the fiscal quarter ended September 30, 1999.)
               (g)   Articles Supplementary Reclassifying Series C Convertible
                     Preferred Stock and Fixing Distribution and Other
                     Preferences and Right of Such Series. (Incorporated by
                     reference to Exhibit 10.12 filed with the Registrant's
                     Quarterly Report on Form 10-Q for the fiscal quarter ended
                     September 30, 1999.)
               (h)   Partnership Unit Designation of Series F Convertible
                     Preferred Units. (Incorporated by reference to
                     Exhibit 10.13 filed with the Registrant's Quarterly Report
                     on Form 10-Q for the fiscal quarter ended September 30,
                     1999.)
               (i)   Partnership Unit Designation of Series A Convertible
                     Preferred Units.
               (j)   Partnership Unit Designation of Series B Convertible
                     Preferred Units.
</TABLE>

                                       32
<PAGE>
<TABLE>
<S>  <C>  <C>  <C>   <C>
               (k)   Partnership Unit Designation of Series D Convertible
                     Preferred Units.

            4  (a)   Specimen Certificate for Common Shares.
               (b)   Specimen Certificate for Convertible Preferred Stock.

           10  (a)   Amended and Restated Agreement of Limited Partnership of
                     American Real Estate Investment, L. P.
               (b)   Dana Perfumes Mortgage Note dated September 11, 1997 by Fair
                     Lawn Industrial Park, Inc. and First Union National Bank in
                     the principal amount of $1,155,000. (Incorporated by
                     reference to Exhibit 10.p filed with the Registrant's Annual
                     Report on Form 10-KSB for the fiscal year ended
                     December 31, 1997.)
               (c)   L&W Promissory Note dated August 4, 1995 between L&W
                     Associates and USG Annuity & Life Company in the principal
                     sum of $3,525,000. (Incorporated by reference to
                     Exhibit 10.q filed with the Registrant's Annual Report on
                     Form 10-KSB for the fiscal year ended December 31, 1997.)
               (d)   Northfield Business Center Promissory Note dated
                     December 24, 1997 between McBride Properties, Inc. and
                     Column Financial, Inc. in the principal amount of
                     $3,500,000. (Incorporated by reference to Exhibit 10.r filed
                     with the Registrant's Annual Report on Form 10-KSB for the
                     fiscal year ended December 31, 1997.)
               (e)   One Tabas Promissory Note dated August 9, 1995 between
                     Hough-Loew Associates, Inc. and USG Annuity & Life Company
                     in the principal amount of $3,025,000. (Incorporated by
                     reference to Exhibit 10.s filed with the Registrant's Annual
                     Report on Form 10-KSB for the fiscal year ended
                     December 31, 1997.)
               (f)   Phillips Promissory Note dated January 5, 1998 between
                     McBride Properties, Inc. and Column Financial, Inc. in the
                     principal amount of $7,500,000. (Incorporated by reference
                     to Exhibit 10.t filed with the Registrant's Annual Report on
                     Form 10-KSB for the fiscal year ended December 31, 1997.)
               (g)   Two Tabas Promissory Note dated August 9, 1995 between
                     Hough-Loew Associates, Inc. and USG Annuity & Life Company
                     in the principal amount of $4,600,000. (Incorporated by
                     reference to Exhibit 10.u filed with the Registrant's Annual
                     Report on Form 10-KSB for the fiscal year ended
                     December 31, 1997.)
               (h)   Loan Agreement dated September 23, 1997 by and between
                     FLIP/BRE, Inc., OIP/BRE, L.L.C., MBP/BRE, L.L.C., and
                     NJA/BRE, L.L.C., and Nomura Asset Capital Corporation.
                     (Incorporated by reference to Exhibit 10.v filed with the
                     Registrant's Annual Report on Form 10-KSB for the fiscal
                     year ended December 31, 1997.)
               (i)   Master Investment Agreement dated as of August 20, 1997 by
                     and between American Real Estate Investment Corporation and
                     The Parties Listed on the Signature Pages Thereto.
                     (Incorporated by reference to Exhibit 10.1 filed with the
                     Registrant's Current Report on Form 8-K/A filed with the
                     Commission on August 20, 1997.)
               (j)   Stock Purchase Agreement dated as of August 20, 1997 by and
                     between American Real Estate Investment Corporation and
                     Hudson Bay Partners, L.P. (Incorporated by reference to
                     Exhibit 10.2 filed with the Registrant's Current Report on
                     Form 8-K/A filed with the Commission on August 20, 1997.)
               (k)   Management Contribution Agreement dated as of August 20,
                     1997 among American Real Estate Investment, L.P., American
                     Real Estate Investment Corporation, Jeffrey Kelter, and Penn
                     Square Properties, Inc. (Incorporated by reference to
                     Exhibit 10.3 filed with the Registrant's Current Report on
                     Form 8-K/ A filed with the Commission on August 20, 1997.)
</TABLE>

                                       33
<PAGE>
<TABLE>
<S>  <C>  <C>  <C>   <C>
               (l)   McBride Contribution Agreement between American Real Estate
                     Investment Corporation, American Real Estate Investment,
                     L.P, and The Other Parties Listed on the Signature Pages of
                     the Agreement. (Incorporated by reference to Exhibit 10.4
                     filed with the Registrant's Current Report on Form 8-K/A
                     filed with the Commission on August 20, 1997.)
               (m)   Agreement and Plan of Merger among American Real Estate
                     Investment Corporation and Fair Lawn Industrial Park, Inc.,
                     and The Other Parties Listed on the Signature Pages Thereto.
                     (Incorporated by reference to Exhibit 10.5 filed with the
                     Registrant's Current Report on Form 8-K/A filed with the
                     Commission on August 20, 1997.)
               (n)   Agreement of Sale and Purchase and Assignment of Agreement
                     of Sale and Purchase-101 Commerce Drive. (Incorporated by
                     reference to Exhibit 10.1 filed with the Registrant's
                     Current Report on Form 8-K/A filed with the Commission on
                     February 24, 1998.)
               (o)   Agreement of Sale and Purchase with Letter
                     Agreements--Philips Lighting Building. (Incorporated by
                     reference to Exhibit 10.2 filed with the Registrant's
                     Current Report on Form 8-K/A filed with the Commission on
                     February 24, 1998.)
               (p)   Agreement of Sale and Purchase-One and Two Tabas Lane with
                     First, Second, Third and Fourth Amendments. (Incorporated by
                     reference to Exhibit 10.3 filed with the Registrant's
                     Current Report on Form 8-K/A filed with the Commission on
                     February 24, 1998.)
               (q)   Agreement of Sale and Purchase-Northfield Business Center
                     (1057 and 1091 Arnold Road) with First, Second, Third,
                     Fourth and Fifth Amendments. (Incorporated by reference to
                     Exhibit 10.4 filed with the Registrant's Current Report on
                     Form 8-K/A filed with the Commission on February 24, 1998.)
               (r)   Agreement of Sale and Purchase-1305 Goshen Parkway with
                     First, Second, Third and Fourth Amendments. (Incorporated by
                     reference to Exhibit 10.5 filed with the Registrant's
                     Current Report on Form 8-K/A filed with the Commission on
                     February 24, 1998.)
               (s)   Agreement of Sale Americana Lakewood I & II and addendum.
                     (Incorporated by reference to Exhibit 10.6 filed with the
                     Registrant's Current Report on Form 8-K/A filed with the
                     Commission on February 24, 1998.)
               (t)   Employment Agreement dated December 12, 1997, by and between
                     American Real Estate Investment Corporation and Jeffrey
                     Kelter. (Incorporated by reference to Exhibit 10.ag filed
                     with the Registrant's Annual Report on Form 10-KSB for the
                     fiscal year ended December 31, 1997)
               (u)   Employment Agreement dated December 12, 1997, by and between
                     American Real Estate Investment Corporation and David
                     McBride. (Incorporated by reference to Exhibit 10.ah filed
                     with the Registrant's Annual Report on Form 10-KSB for the
                     fiscal year ended December 31, 1997)
               (v)   Agreement of Sale and Purchase dated July 17, 1997, with
                     John D. Moran Sr. with Amendment One and Assignment.
                     (Incorporated by reference to Exhibit 10.ai filed with the
                     Registrant's Annual Report on Form 10-KSB for the fiscal
                     year ended December 31, 1997)
               (w)   Warrant Agreement between American Real Estate Investment,
                     L.P. and Jeffrey Kelter. (Incorporated by reference to
                     Exhibit 10.aj filed with the Registrant's Annual Report on
                     Form 10-KSB for the fiscal year ended December 31, 1997)
               (x)   Warrant Agreement between American Real Estate Investment,
                     L.P. and David McBride. (Incorporated by reference to
                     Exhibit 10.ak filed with the Registrant's Annual Report on
                     Form 10-KSB for the fiscal year ended December 31, 1997)
</TABLE>

                                       34
<PAGE>
<TABLE>
<S>  <C>  <C>  <C>   <C>
               (y)   Agreements of Sale and Purchase--Double M Development
                     Properties and First Amendment dated March 9, 1998.
                     (Incorporated by reference to Exhibit 10.1 filed with the
                     Registrant's Current Report on Form 8-K/A filed with the
                     Commission on June 10, 1998.)
               (z)   Agreement of Sale and Purchase--GATX Properties and
                     Assignment dated March 16, 1998. (Incorporated by reference
                     to Exhibit 10.2 filed with the Registrant's Current Report
                     on Form 8-K/A filed with the Commission on June 10, 1998.)
               (aa)  Promissory Note for $8,430,000 dated March 27 1998 between
                     Virginia Street Associates and Column Financial, Inc.
                     (Incorporated by reference to Exhibit 10.3 filed with the
                     Registrant's Current Report on Form 8-K/A filed with the
                     Commission on June 10, 1998.)
               (ab)  Promissory Note for $5,725,000 dated March 27, 1998 between
                     Virginia Street Associates and Column Financial, Inc.
                     (Incorporated by reference to Exhibit 10.4 filed with the
                     Registrant's Current Report on Form 8-K/A filed with the
                     Commission on June 10, 1998.)
               (ac)  Promissory Note for $3,630,000 dated March 27, 1998 between
                     McBride Properties and Column Financial, Inc. (Incorporated
                     by reference to Exhibit 10.5 filed with the Registrant's
                     Current Report on Form 8-K/A filed with the Commission on
                     June 10, 1998.)
               (ad)  Contribution Agreement between American Real Estate
                     Investment, L.P., and Northeastern Industrial Park, Inc. and
                     Guilderland Ventures, Inc. (Incorporated by reference to
                     Exhibit 10.1 filed with the Registrant's Current Report on
                     Form 8-K/A filed with the Commission on July 14, 1998.)
               (ae)  Contribution Agreement between American Real Estate
                     Investment, L.P. and Columbia Executive I Assoc., Columbia
                     Executive II Assoc., Columbia Executive III Assoc., Columbia
                     Executive V Assoc., Columbia Executive VI Assoc., Columbia
                     Executive VII Assoc., and Columbia Executive VIII Assoc.
                     (Incorporated by reference to Exhibit 10.2 filed with the
                     Registrant's Current Report on Form 8-K/A filed with the
                     Commission on July 14, 1998.)
               (af)  Agreement of Sale and Purchase--Fed One Industrial
                     Portfolio. (Incorporated by reference to Exhibit 10.3 filed
                     with the Registrant's Current Report on Form 8-K/ A filed
                     with the Commission on July 14, 1998.)
               (ag)  Revolving Credit Facility between American Real Estate
                     Investment L.P., American Real Estate Investment Corporation
                     and BankBoston, N.A., and DLJ Capital Funding, Inc.
                     (Incorporated by reference to Exhibit 10.4 filed with the
                     Registrant's Current Report on Form 8-K/A filed with the
                     Commission on July 14, 1998.)
               (ah)  Registration Rights Agreement between American Real Estate
                     Investment Corporation and CRA Real Estate Securities, L.P.
                     (as attorney-in-fact for the purchasers named therein).
                     (Incorporated by reference to Exhibit 10.5 filed with the
                     Registrant's Current Report on Form 8-K/A filed with the
                     Commission on July 14, 1998.)
               (ai)  Registration Rights Agreement between American Real Estate
                     Investment Corporation and Morgan Stanley Asset
                     Management, Inc. (as attorney-in-fact for the purchasers
                     named therein). (Incorporated by reference to Exhibit 10.6
                     filed with the Registrant's Current Report on Form 8-K/A
                     filed with the Commission on July 14, 1998.)
</TABLE>

                                       35
<PAGE>
<TABLE>
<S>  <C>  <C>  <C>   <C>
               (aj)  Subscription Agreement between American Real Estate
                     Investment Corporation and CRA Real Estate Securities, L.P.
                     (as attorney-in-fact for the purchasers named therein).
                     (Incorporated by reference to Exhibit 10.7 filed with the
                     Registrant's Current Report on Form 8-K/A filed with the
                     Commission on July 14, 1998.)
               (ak)  Subscription Agreement between American Real Estate
                     Investment Corporation and Morgan Stanley Asset
                     Management, Inc. (as attorney-in-fact for the purchasers
                     named therein). (Incorporated by reference to Exhibit 10.8
                     filed with the Registrant's Current Report on Form 8-K/A
                     filed with the Commission on July 14, 1998.)
               (al)  Agreement of Sale and Purchase between American Real Estate
                     Investment, L.P. and ASW Properties, Ltd. Along with First,
                     Second and Third Amendments to Agreement of Sale and
                     Purchase. (Incorporated by reference to Exhibit 10.1 filed
                     with the Registrant's Current Report on Form 8-K filed with
                     the Commission on August 13, 1998.)
               (am)  Purchase and Sale Agreement between American Real Estate
                     Investment, L.P. and Szeles Real Estate Development Company
                     and Szeles Investment Company. (Incorporated by reference to
                     Exhibit 10.2 filed with the Registrant's Current Report on
                     Form 8-K filed with the Commission on August 13, 1998.)
               (an)  Contribution Agreement between American Real Estate
                     Investment, L.P., American Real Estate Investment
                     Corporation and Pioneer Properties Company of Clinton
                     Square, Waterfront Associates, Pioneer Indigo One Company,
                     Pioneer Franklin Square Company, 1045 James Street Company,
                     Pioneer Apollo Drive Company, Pioneer Park One Company,
                     Pioneer Clinton Street Company, Pioneer Maltbie Company,
                     5010 Campuswood Company, 5015 Campuswood Company, 400 West
                     Division Company, Pioneer Day Care Company, and Pioneer
                     Management Services Company, LLC. (Incorporated by reference
                     to Exhibit 10.3 filed with the Registrant's Current Report
                     on Form 8-K filed with the Commission on August 13, 1998.)
               (ao)  Employment Agreement dated as of August 15, 1998, between
                     American Real Estate Investment Corporation and Timothy A.
                     Peterson. (Incorporated by reference to Exhibit 10.4 filed
                     with the Registrant's Current Report on Form 8-K filed with
                     the Commission on August 13, 1998.)
               (ap)  Subscription Agreement between American Real Estate
                     Investment Corporation and the New York State Common
                     Retirement Fund. (Incorporated by reference to Exhibit 10.1
                     filed with the Registrant's Current Report on Form 8-K filed
                     with the Commission on September 3, 1998.)
               (aq)  Registration Rights Agreement between American Real Estate
                     Investment Corporation and the New York State Common
                     Retirement Fund. (Incorporated by reference to Exhibit 10.2
                     filed with the Registrant's Current Report on Form 8-K filed
                     with the Commission on September 3, 1998.)
               (ar)  Agreement of Sale and Purchase between WCN Properties, L.P.
                     and Franklin Storage, Inc. and American Real Estate, L.P.
                     along with Amendment to Agreement of Sale and Purchase.
                     (Incorporated by reference to Exhibit 10.1 filed with the
                     Registrant's Current Report on Form 8-K filed with the
                     Commission on November 13, 1998.)
               (as)  Contribution Agreement between American Real Estate
                     Investment, L.P., acquiror and MPSN, L.L.C., Corporate Drive
                     Associates, LLC, Post 70 Building 7 Partners, and COB
                     Associates, LLC. (Incorporated by reference to Exhibit 10.1
                     filed with the Registrant's Current Report on Form 8-K filed
                     with the Commission on December 18, 1998.)
</TABLE>

                                       36
<PAGE>
<TABLE>
<S>  <C>  <C>  <C>   <C>
               (at)  Promissory Note between American DE/SPE, LLC Virginia Street
                     Associates Limited Partnership and Column Financial, Inc.
                     for $65,500,000. (Incorporated by reference to Exhibit 10.1
                     filed with the Registrant's Quarterly Report on Form 10-Q
                     for the fiscal quarter ended September 30, 1998.)
               (au)  Amended and Restated Promissory Note between American
                     DE/SPE2, LLC, American DE/SPE4, L.P., and Column
                     Financial, Inc. for $29,400,000.) (Incorporated by reference
                     to Exhibit 10.2 filed with the Registrant's Quarterly Report
                     on Form 10-Q for the fiscal quarter ended September 30,
                     1998.)
               (av)  Promissory Note dated January 8, 1998 between American
                     Sedona Partners, L.P., American Real Estate Investment
                     Corporation and Column Financial, Inc. in the principal
                     amount of $17,000,000. (Incorporated by reference to
                     Exhibit 10.o filed with the Registrant's Annual Report on
                     Form 10-KSB for the fiscal year ended December 31, 1997.)
               (aw)  Agreement of Sale and Purchase between T. Walter Brashier,
                     Martin Timothy Brashier, Hopewell Properties, Inc. TTT
                     Partnership, Stoneledge, Inc., Kidco and American Real
                     Estate Investment, L.P. (Incorporated by reference to
                     Exhibit 10.1 filed with the Registrant's Current Report on
                     Form 8-K filed with the Commission on January 8, 1999.)
               (ax)  Twelfth Amendment to Agreement of Sale and Purchase between
                     T. Walter Brashier, Martin Timothy Brasher, Hopewell
                     Properties, Inc., TTT Partnership, Stoneledge, Inc., and
                     Kidco and American Real Estate Investment, L.P.
                     (Incorporated by reference to Exhibit 10.2 filed with the
                     Registrant's Current Report on Form 8-K filed with the
                     Commission on January 8, 1999.)
               (ay)  Preferred Unit Recipient Agreement between Hopewell
                     Properties, Inc., and American Real Estate Investment, L.P.
                     (Incorporated by reference to Exhibit 10.3 filed with the
                     Registrant's Current Report on Form 8-K filed with the
                     Commission on January 8, 1999.)
               (az)  Securities Purchase Agreement between American Real Estate
                     Investment Corporation and AEW Targeted Securities Fund,
                     L.P. (Incorporated by reference to Exhibit 10.4 filed with
                     the Registrant's Current Report on Form 8-K filed with the
                     Commission on January 8, 1999.)
               (ba)  Registration Rights Agreement between American Real Estate
                     Investment Corporation and AEW Targeted Securities Fund,
                     L.P. (Incorporated by reference to Exhibit 10.5 filed with
                     the Registrant's Current Report on Form 8-K filed with the
                     Commission on January 8, 1999.)
               (bb)  Keystone Property Trust Amended and Restated 1993 Omnibus
                     Incentive Plan. (Incorporated by reference to Exhibit A of
                     our Proxy Statement filed with the Commission on
                     November 24, 1999.)
               (bc)  First Amended and Restated Revolving Credit Agreement among
                     the Company, as the Operating Partnership and the Lenders
                     named therein dated as of June 30, 1999. (Incorporated by
                     reference to Exhibit 10.1 filed with the Registrant's
                     Quarterly Report on Form 10-Q for the fiscal quarter ended
                     June 30, 1999.)
               (bd)  Registration Rights Agreement dated September 27, 1999, by
                     and between Reckson Morris Industrial Trust and Keystone
                     Property Trust. (Incorporated by reference to Exhibit 10.1
                     filed with the Registrant's Quarterly Report on Form 10-Q
                     for the fiscal quarter ended September 30, 1999.)
</TABLE>

                                       37
<PAGE>
<TABLE>
<S>  <C>  <C>  <C>   <C>
               (be)  Registration Rights Agreement, dated September 27, 1999, by
                     and between Robert Morris, Joseph D. Morris, Ronald Schram,
                     Mark M. Bava, The Drew Morris Trust, The Justin Morris
                     Trust, The Keith Morris Trust, Joseph D. Morris Family
                     Limited Partnership, Robert Morris Family Limited
                     Partnership and Keystone Property Trust. (Incorporated by
                     reference to Exhibit 10.2 filed with the Registrant's
                     Quarterly Report on Form 10-Q for the fiscal quarter ended
                     September 30, 1999.)
               (bf)  Subscription Agreement between Keystone Property Trust and
                     AEW Targeted Securities Fund, LP. (Incorporated by reference
                     to Exhibit 10.6 filed with the Registrant's Quarterly Report
                     on Form 10-Q for the fiscal quarter ended September 30,
                     1999.)
               (bg)  Subscription Agreement between Keystone Property Trust and
                     Allstate Insurance Company. (Incorporated by reference to
                     Exhibit 10.7 filed with the Registrant's Quarterly Report on
                     Form 10-Q for the fiscal quarter ended September 30, 1999.)
               (bh)  Subscription Agreement between Keystone Property Trust and
                     Teachers Insurance and Annuity Association of America.
                     (Incorporated by reference to Exhibit 10.8 filed with the
                     Registrant's Quarterly Report on Form 10-Q for the fiscal
                     quarter ended September 30, 1999.)
               (bi)  Registration Rights Agreement between Keystone Property
                     Trust and AEW Targeted Securities Fund, LP. (Incorporated by
                     reference to Exhibit 10.9 filed with the Registrant's
                     Quarterly Report on Form 10-Q for the fiscal quarter ended
                     September 30, 1999.)
               (bj)  Registration Rights Agreement between Keystone Property
                     Trust and Allstate Insurance Company. (Incorporated by
                     reference to Exhibit 10.10 filed with the Registrant's
                     Quarterly Report on Form 10-Q for the fiscal quarter ended
                     September 30, 1999.)
               (bk)  Registration Rights Agreement between Keystone Property
                     Trust and Teachers Insurance and Annuity Association of
                     America. (Incorporated by reference to Exhibit 10.11 filed
                     with the Registrant's Quarterly Report on Form 10-Q for the
                     fiscal quarter ended September 30, 1999.)
               (bl)  Contribution and Exchange Agreement, dated as of August 6,
                     1999 by and between Reckson Operating Partnership L.P.,
                     Reckson Morris Industrial Trust, Reckson Morris Industrial
                     Interim GP, LLC, Robert Morris, Joseph D. Morris, Ronald
                     Schram, Mark M. Bava, The Drew Morris Trust, The Justin
                     Morris Trust, The Keith Morris Trust, The Joseph D. Morris
                     Family Limited Partnership, and The Robert Morris Family
                     Limited Partnership and Keystone Operating Partnership L.P.,
                     and Keystone Property Trust. (Incorporated by reference to
                     Exhibit 10.1 filed with the Registrant's Current Report on
                     Form 8-K filed with the Commission on August 20, 1999.)
               (bm)  Agreement of Transfer and Contribution of Partnership
                     Interest by and among PSPI, Inc. and Jeffrey E. Kelter, John
                     B. Begier, Charles C. Lee, J. Harold Shannon, and Stephen J.
                     Butte and Keystone Operating Partnership, L.P. (Incorporated
                     by reference to Exhibit 10.1 filed with the Registrant's
                     Current Report on Form 8-K filed with the Commission on
                     December 20, 1999.)
</TABLE>

                                       38
<PAGE>
21. SUBSIDIARIES OF THE REGISTRANT: The Registrant has subsidiaries carrying on
    the same line of business as the Registrant as follows:

<TABLE>
<CAPTION>
                                                                 STATE OF
                                                              INCORPORATION/
NAME                                                           ORGANIZATION
----                                                          --------------
<S>                                                           <C>
Keystone Operating Partnership, L.P.........................  Delaware
Virginia Street Associates Limited Partnership..............  Colorado
American Quadrangles Partners, L.P..........................  Delaware
American Sedona Partners, L.P...............................  Colorado
American Emerald Corp.......................................  Delaware
American Timberleaf Corp....................................  Delaware
American Quandrangles Corp..................................  Delaware
American Sedona Corp........................................  Colorado
RROP, L.L.C.................................................  New Jersey
McBride Properties..........................................  New Jersey
New Jersey Associates.......................................  New Jersey
UFSC, L.L.C.................................................  New Jersey
OIP/BRE, L.L.C..............................................  New Jersey
MBP/BRE, L.L.C..............................................  New Jersey
NJA/BRE, L.L.C..............................................  New Jersey
FLIP/BRE II, L.L.C..........................................  New Jersey
REA/SPC II, Inc.............................................  New Jersey
Keystone Realty Services, Inc...............................  Pennsylvania
Avalanche Investment Corporation............................  Maryland
Winchester Corporate Center GP Corp.........................  Pennsylvania
Winchester Corporate Center, L.P............................  Pennsylvania
American DE/SPE L.L.C.......................................  Delaware
American DE/SPE 2, L.L.C....................................  Delaware
American DE/SPE 1, Inc......................................  Delaware
American DE/SPE 2, Inc......................................  Delaware
American DE/SPE 3, Inc......................................  Delaware
American DE/SPE 4, Inc......................................  Delaware
American DE/SPE 4, L.P......................................  Delaware
21 Roadway, L.P.............................................  Pennsylvania
Keystone Roadway Partners GP, LLC...........................  Pennsylvania
</TABLE>

23.1 CONSENT OF ARTHUR ANDERSEN LLP

27. FINANCIAL DATA SCHEDULE

    (B) Reports on Form 8-K:

    - a Current Report on Form 8-K dated September 27, 1999 was filed on
      October 12, 1999 (reporting under Item 2, 5 and 7) regarding the Company's
      consummation of its acquisition of Reckson Morris Operating Partnership,
      L.P. from Reckson Morris Industrial Trust, Reckson Operating Partnership,
      L.P., Reckson Morris Industrial Interim GP, LLC, Robert Morris, Joseph D.
      Morris, and certain of their related entities. Such 8-K also included
      proforma information the issuance of regarding the Company's acquisition
      of the BMG Property, and the PolyFoam Properties.

                                       39
<PAGE>
    - a Current Report on Form 8-K dated October 13, 1999 was filed on
      October 13, 1999 (reporting under Item 5 and 7) regarding the Company's
      reorganization from a Maryland corporation to a Maryland real estate
      investment trust named "Keystone Property Trust".

    - a Current Report on Form 8-K dated October 12, 1999 was filed on
      October 18, 1999 (reporting under Item 5) regarding the completed issuance
      of 68,966 common shares of the Company's, par value $.001 per share, under
      the Company's existing shelf registration statement.

    - a Current Report on Form 8-K dated October 15, 1999 was filed on
      October 20, 1999 (reporting under Item 2 and 7) regarding the Company's
      acquisition of an industrial distribution facility totaling 885,802 square
      feet for approximately $29.8 million.

    - a Current Report on Form 8-K dated October 28, 1999 was filed on
      November 4, 1999 (reporting under Items 5 and 7) regarding the completed
      issuance of an aggregate of 618,627 common shares of the Company's, par
      value $.001 per share, under the Company's existing shelf registration
      statement.

    - A Current Report on Form 8-K dated December 14, 1999 was filed on
      December 20, 1999 (reporting under Items 2 and 7) regarding the Company's
      acquisition of an industrial distribution facility totaling 407,100 square
      feet for approximately $16.0 million.

                                       40
<PAGE>
                                 SCHEDULE III:
                    REAL ESTATE AND ACCUMULATED DEPRECIATION
                            AS OF DECEMBER 31, 1999
                                   (IN 000'S)
<TABLE>
<CAPTION>

                                                                                                      INITIAL COSTS
                                                                  LOCATION             (B)         --------------------
                      BUILDING ADDRESS                          (CITY/STATE)       ENCUMBRANCES      LAND     BUILDINGS   TRANSFERS
                      ----------------                        -----------------   --------------   --------   ---------   ---------
<S>                                                           <C>                 <C>              <C>        <C>         <C>
OFFICE PROPERTIES:
  40 Potash Road............................................  Oakland, NJ              7,720         2,312       9,746        --
  1655 Valley Road..........................................  Wayne, NJ               14,867         4,580      19,302        --
  16-00 Route 208...........................................  Fair Lawn, NJ            1,324           646       2,746        --
  128 Bauer Drive...........................................  Oakland, NJ                 (a)          420       1,774        --
  22-08 Route 208...........................................  Fair Lawn, NJ               (a)          990       4,175        --
  15-00 Pollitt Drive.......................................  Fair Lawn, NJ              966           308       1,300        --
  19-00 Pollitt Drive.......................................  Fair Lawn, NJ            4,898         1,450       6,105        --
  95 Bauer Drive............................................  Oakland, NJ                560           160         678        --
  99 Bauer Drive............................................  Oakland, NJ                864           276       1,167        --
  Thirteen Columbia Circle..................................  Albany, NY               1,561           441       1,883        --
  Nine Columbia Circle......................................  Albany, NY                  (a)          218         891        --
  Seventeen Columbia Circle.................................  Albany, NY                  (a)        1,330       5,683        --
  One Columbia Circle.......................................  Albany, NY               4,478         1,365       5,822        --
  Fifteen Columbia Circle...................................  Albany, NY               6,808         1,843       8,076        --
  Three Columbia Circle.....................................  Albany, NY               5,021         1,533       6,522        --
  8 Airline Drive...........................................  Albany, NY                  (a)        1,298       5,300        --
  6 British American Blvd...................................  Latham, NY                  (a)          780       3,082        --
  Executive Park............................................  Wyomissing, PA              (a)        1,145       4,285       200
  Treeview Corporate Center.................................  Wyomissing, PA              (a)        1,412       5,055        --
  Corporate Center 15.......................................  Mechanicsburg, PA           (a)        1,226       3,811      (750)
  Hillside Corporate Center.................................  Mechanicsburg, PA           (a)        1,483       6,040       150
  Winchester Plaza..........................................  Allentown, PA               (a)        2,834      13,282       400
  125 Indigo Creek Drive....................................  Greece, NY                  (a)          524       3,012        --
  5009 Campuswood Drive.....................................  East Syracuse, NY          512           144         625        --
  5000 Campuswood Drive.....................................  East Syracuse, NY        2,010           373       2,611        --
  5010 Campuswood Drive.....................................  East Syracuse, NY        4,441           767       6,516        --
  5015 Campuswood Drive.....................................  East Syracuse, NY        7,132           876       9,732        --
  308 Maltbie Street........................................  Syracuse, NY                (a)          325       1,870        --
  400 West Division Street..................................  Syracuse, NY                (a)          562       3,231        --
  One Clinton Square........................................  Syracuse, NY             1,665           371       2,132        --
  1045 James Street.........................................  Syracuse, NY             3,221           716       4,564        --
  507 Plum Street...........................................  Syracuse, NY             5,153         1,372       7,890        --
  250 South Clinton Street..................................  Syracuse, NY            16,412         4,135      23,782        --
  One Park Place............................................  Syracuse, NY            10,020         3,203      20,593        --
                                                                                     -------       -------     -------      ----
  Subtotal Office Properties................................                          99,633        41,418     203,283         0

INDUSTRIAL PROPERTIES:
  5 Thornton Road...........................................  Oakland, NJ              6,122         1,844       7,775        --
  2 Volvo Drive.............................................  Rockleigh, NJ               (a)          994       4,192        --
  17-01 Pollitt Drive.......................................  Oakland, NJ              2,534         1,200       5,053        --
  19-05 Nevins Road.........................................  Oakland, NJ              3,859         1,200       5,053        --
  100 Oak Hill Road.........................................  Mountaintop, PA             (a)          546       2,274        --
  1057 Arnold Road..........................................  Reading, PA                 (a)        1,152       4,750        --
  1091 Arnold Road..........................................  Reading, PA                 (a)          768       3,206        --
  1305 Goshen Parkway.......................................  West Chester, PA         3,173           901       4,084        --
  One Tabas Lane............................................  Exton, PA                2,715           842       3,552        --
  Two Tabas Lane............................................  Exton, PA                4,141         1,211       5,342        --
  101 Commerce Drive........................................  Mechanicsburg, PA       16,687         5,267      21,083        --
  1 Phillips Drive..........................................  Mountaintop, PA          7,364         2,213       8,855        --
  Gettysburg Road...........................................  Camp Hill, PA               (a)        1,351       4,236        --
  AIP Drive.................................................  Middletown, PA           7,213         1,539       7,225        --
  Steelway Boulevard........................................  Liverpool, NY           11,023         2,611      10,375        --
  Northeastern Ind. Park Bldg. 8............................  Albany, NY               4,633         1,254       5,124        --
  Northeastern Ind. Park Bldg. 21...........................  Albany, NY               4,948         1,340       5,472        --
  Northeastern Ind. Park Bldg. 22...........................  Albany, NY               3,580           971       3,964        --
  Marway Circle.............................................  Gates, NY                3,508           826       3,318        --
  16725 Square Drive........................................  Marysville, OH           2,220           564       2,459        --
  1030 Edgewood Drive.......................................  Urbana, OH                  (a)          782       2,293        --
  3530 East Pike............................................  Zanesville, OH           4,559         1,002       4,685        --
  5555 Massillon Road.......................................  Green, OH                   (a)        1,573       6,309        --
  One Apollo Drive..........................................  Glen Falls, NY              (a)        1,933      11,129        --
  2294 Molly Pitcher Highway................................  Chambersburg, PA        17,038         1,894      19,661        --
  1440 Sheffler Drive.......................................  Chambersburg, PA            (a)        2,253      10,116        --
  1465 Nitterhouse Drive....................................  Chambersburg, PA            (a)        3,191      11,944        --
  4400 West 96th Street.....................................  Indianapolis, IN         6,344         1,384       7,845        --
  6402 Corporate Drive......................................  Indianapolis, IN         6,018         1,250       7,424        --
  8677 Logo Court...........................................  Indianapolis, IN         8,796         2,547      15,109        --
  Piedmont Highway. Ind. Park...............................  Piedmont, SC                (a)        1,310       7,433        --
  Highway 14 Industrial Park................................  Greer, SC                   (a)          790       4,483        --
  Buncombe Road Ind. Park...................................  Greer, SC                   (a)        1,010       5,734        --
  Batesville Road Ind. Park.................................  Greer, SC                   (a)        1,497       8,498        --
  Rocky Creek Business Park.................................  Greenville, SC              (a)          617       3,499        --
  Augusta Road Ind. Park....................................  Greenville, SC              (a)        1,129       6,405        --
  White Horse Road Ind. Park................................  Greenville, SC              (a)        1,272       7,218        --
  120 Hidden Lake Circle....................................  Duncan, SC                  (a)        1,463       8,292        --
  351 West 10(th) Street....................................  Indianapolis, IN         2,300           547       3,105        --
  600 Hagerty Drive.........................................  Fremont, OH                 (a)          467       2,648        --
  605 Hagerty Drive.........................................  Fremont, OH                 (a)          283       1,604        --
  670 Hagerty Drive.........................................  Fremont, OH                 (a)          405       2,294        --
  800 Hagerty Drive.........................................  Fremont, OH                 (a)          128         724        --
  1411 Majestic Drive.......................................  Fremont, OH                 (a)          671       3,803        --
  1311 Majestic Drive.......................................  Fremont, OH                 (a)          528       2,991        --
  300 Enterprise Drive......................................  Bellevue, OH                (a)          746       4,226        --
  One Nixon Lane............................................  Edison, NJ               5,150         1,101       6,105        --
  200-250 Kennedy Drive.....................................  Sayerville, NJ           5,625         1,189       6,816        --
  300-350 Kennedy Drive.....................................  Sayerville, NJ           5,150         1,095       6,231        --
  309 Kennedy Drive.........................................  Sayerville, NJ           4,434         1,446       8,551        --
  409 Kennedy Drive.........................................  Sayerville, NJ          10,345         1,623       9,044        --
  55 Carter Drive...........................................  Edison, NJ                  --           668       3,722        --
  200-240 Carter Drive......................................  Edison, NJ                  --           725       3,566        --
  243 St. Nicholas Avenue...................................  S. Plainfield, NJ           --           115         668        --
  275-285 Pierce Street.....................................  Franklin Twp., NJ           --           625       3,239        --
  301-321 Herrod Blvd.......................................  S. Brunswick, NJ        18,000         3,777      21,376        --
  24 Abeel Road.............................................  Cranbury, NJ                --           292       1,435        --
  21 Cranbury Road..........................................  Cranbury, NJ            28,500         5,856      31,688        --
  34 Englehard Drive........................................  Cranbury, NJ             7,275         1,467       8,381        --
  200 Industrial Avenue.....................................  Teterboro, NJ           17,000         3,454      20,708        --
  118 Moonachie Avenue......................................  Carlstadt, NJ           11,300         2,296      15,738        --
  135 Fieldcrest Avenue.....................................  Edison, NJ                  --           528       2,744        --
  24 Madison Road...........................................  Fairfield, NJ               (a)          320       1,605        --
  22 Madison Road...........................................  Fairfield, NJ               (a)          342       1,440        --
  18 Madison Road...........................................  Fairfield, NJ               (a)          141         856        --
  26 Madison Road...........................................  Fairfield, NJ               (a)          254       1,233        --
  535 Secaucus Road.........................................  Secaucus, NJ                --           585       2,837        --
  Mount Ebo Corporate Park..................................  Mt. Ebo, NY                 --         1,495       6,990        --
  221 South 10(th) Street...................................  Lemoyne, PA             19,457         4,498      25,486        --
  104 Hidden Lake Circle....................................  Duncan, SC                  --           697       3,947        --
  21 Roadway................................................  Harrisburg, PA          12,000         2,332      13,217        --
                                                                                     -------       -------     -------      ----
  Subtotal Industrial Properties............................                         273,011        96,187     494,487        --
  Operating Partnership.....................................                              --            --          --        --
                                                                                     -------       -------     -------      ----
  Total All Properties......................................                         372,644(c)    137,605     697,770         0
                                                                                     =======       =======     =======      ====

<CAPTION>
                                                                  COSTS         GROSS AMOUNT CARRIED AT CLOSE OF
                                                               CAPITALIZED               PERIOD 12/31/99
                                                              SUBSEQUENT TO    -----------------------------------   ACCUMULATED
                                                              ACQUISITION OR              BUILDING AND               DEPRECIATION
                      BUILDING ADDRESS                          COMPLETION       LAND     IMPROVEMENTS     TOTAL       12/31/99
                      ----------------                        --------------   --------   -------------   --------   ------------
<S>                                                           <C>              <C>        <C>             <C>        <C>
OFFICE PROPERTIES:
  40 Potash Road............................................         --          2,312         9,746       12,058         (571)
  1655 Valley Road..........................................         --          4,580        19,302       23,882       (1,132)
  16-00 Route 208...........................................        499            646         3,245        3,891         (234)
  128 Bauer Drive...........................................          3            420         1,777        2,197         (104)
  22-08 Route 208...........................................        913            990         5,088        6,078         (343)
  15-00 Pollitt Drive.......................................         --            308         1,300        1,608          (76)
  19-00 Pollitt Drive.......................................         --          1,450         6,105        7,555         (358)
  95 Bauer Drive............................................         --            160           678          838          (40)
  99 Bauer Drive............................................          5            276         1,172        1,448          (68)
  Thirteen Columbia Circle..................................          5            441         1,888        2,329          (90)
  Nine Columbia Circle......................................        105            218           996        1,214          (62)
  Seventeen Columbia Circle.................................         17          1,330         5,700        7,030         (272)
  One Columbia Circle.......................................         57          1,365         5,879        7,244         (306)
  Fifteen Columbia Circle...................................         26          1,843         8,102        9,945         (387)
  Three Columbia Circle.....................................        171          1,533         6,693        8,226         (343)
  8 Airline Drive...........................................         17          1,298         5,317        6,615         (254)
  6 British American Blvd...................................         34            780         3,116        3,896         (150)
  Executive Park............................................         68          1,145         4,553        5,698         (207)
  Treeview Corporate Center.................................         85          1,412         5,140        6,552         (228)
  Corporate Center 15.......................................        381          1,226         3,442        4,668         (179)
  Hillside Corporate Center.................................         64          1,483         6,254        7,737         (267)
  Winchester Plaza..........................................         94          2,834        13,776       16,610         (558)
  125 Indigo Creek Drive....................................         --            524         3,012        3,536         (118)
  5009 Campuswood Drive.....................................         --            144           625          769          (24)
  5000 Campuswood Drive.....................................        129            373         2,740        3,113         (121)
  5010 Campuswood Drive.....................................        238            767         6,754        7,521         (302)
  5015 Campuswood Drive.....................................         68            876         9,800       10,676         (391)
  308 Maltbie Street........................................        324            325         2,194        2,519          (89)
  400 West Division Street..................................         --            562         3,231        3,793         (126)
  One Clinton Square........................................          8            371         2,140        2,511          (84)
  1045 James Street.........................................         --            716         4,564        5,280         (179)
  507 Plum Street...........................................         24          1,372         7,914        9,286         (318)
  250 South Clinton Street..................................          9          4,135        23,791       27,926         (935)
  One Park Place............................................         37          3,203        20,630       23,833         (455)
                                                                  -----        -------       -------      -------      -------
  Subtotal Office Properties................................      3,381         41,418       206,664      248,082       (9,371)
INDUSTRIAL PROPERTIES:
  5 Thornton Road...........................................         --          1,844         7,775        9,619         (456)
  2 Volvo Drive.............................................         --            994         4,192        5,186         (246)
  17-01 Pollitt Drive.......................................        339          1,200         5,392        6,592         (339)
  19-05 Nevins Road.........................................         --          1,200         5,053        6,253         (296)
  100 Oak Hill Road.........................................         --            546         2,274        2,820         (133)
  1057 Arnold Road..........................................         10          1,152         4,760        5,912         (275)
  1091 Arnold Road..........................................         71            768         3,277        4,045         (188)
  1305 Goshen Parkway.......................................         --            901         4,084        4,985         (238)
  One Tabas Lane............................................         34            842         3,586        4,428         (207)
  Two Tabas Lane............................................          5          1,211         5,347        6,558         (311)
  101 Commerce Drive........................................         --          5,267        21,083       26,350       (1,192)
  1 Phillips Drive..........................................         --          2,213         8,855       11,068         (500)
  Gettysburg Road...........................................         17          1,351         4,253        5,604         (224)
  AIP Drive.................................................        129          1,539         7,354        8,893         (372)
  Steelway Boulevard........................................        108          2,611        10,483       13,094         (528)
  Northeastern Ind. Park Bldg. 8............................        131          1,254         5,255        6,509         (245)
  Northeastern Ind. Park Bldg. 21...........................         34          1,340         5,506        6,846         (262)
  Northeastern Ind. Park Bldg. 22...........................         12            971         3,976        4,947         (190)
  Marway Circle.............................................         10            826         3,328        4,154         (145)
  16725 Square Drive........................................          1            564         2,460        3,024         (107)
  1030 Edgewood Drive.......................................        529            782         2,822        3,604         (124)
  3530 East Pike............................................          1          1,002         4,686        5,688         (203)
  5555 Massillon Road.......................................        (29)         1,567         6,286        7,853         (251)
  One Apollo Drive..........................................         --          1,933        11,129       13,062         (436)
  2294 Molly Pitcher Highway................................          2          1,894        19,663       21,557         (657)
  1440 Sheffler Drive.......................................          4          2,253        10,120       12,373         (338)
  1465 Nitterhouse Drive....................................          1          3,191        11,945       15,136         (399)
  4400 West 96th Street.....................................         43          1,391         7,881        9,272         (242)
  6402 Corporate Drive......................................         39          1,256         7,457        8,713         (228)
  8677 Logo Court...........................................         79          2,559        15,176       17,735         (466)
  Piedmont Highway. Ind. Park...............................         40          1,311         7,472        8,783         (218)
  Highway 14 Industrial Park................................         32            791         4,514        5,305         (131)
  Buncombe Road Ind. Park...................................         41          1,011         5,774        6,785         (168)
  Batesville Road Ind. Park.................................        251          1,499         8,747       10,246         (249)
  Rocky Creek Business Park.................................         76            617         3,575        4,192         (115)
  Augusta Road Ind. Park....................................         34          1,130         6,438        7,568         (187)
  White Horse Road Ind. Park................................         93          1,273         7,310        8,583         (213)
  120 Hidden Lake Circle....................................         --          1,463         8,292        9,755         (182)
  351 West 10(th) Street....................................         --            547         3,105        3,652          (55)
  600 Hagerty Drive.........................................         --            467         2,648        3,115          (55)
  605 Hagerty Drive.........................................         --            283         1,604        1,887          (34)
  670 Hagerty Drive.........................................         --            405         2,294        2,699          (48)
  800 Hagerty Drive.........................................         --            128           724          852          (15)
  1411 Majestic Drive.......................................         --            671         3,803        4,474          (79)
  1311 Majestic Drive.......................................         --            528         2,991        3,519          (22)
  300 Enterprise Drive......................................         --            746         4,226        4,972          (31)
  One Nixon Lane............................................         --          1,101         6,105        7,206          (46)
  200-250 Kennedy Drive.....................................         --          1,189         6,816        8,005          (50)
  300-350 Kennedy Drive.....................................         --          1,095         6,231        7,326          (46)
  309 Kennedy Drive.........................................         --          1,446         8,551        9,997          (60)
  409 Kennedy Drive.........................................         --          1,623         9,044       10,667          (68)
  55 Carter Drive...........................................          8            668         3,730        4,398          (29)
  200-240 Carter Drive......................................         --            725         3,566        4,291          (30)
  243 St. Nicholas Avenue...................................         --            115           668          783           (5)
  275-285 Pierce Street.....................................         --            625         3,239        3,864          (26)
  301-321 Herrod Blvd.......................................         --          3,777        21,376       25,153         (157)
  24 Abeel Road.............................................         --            292         1,435        1,727          (12)
  21 Cranbury Road..........................................         --          5,856        31,688       37,544         (244)
  34 Englehard Drive........................................         --          1,467         8,381        9,848          (61)
  200 Industrial Avenue.....................................         --          3,454        20,708       24,162         (144)
  118 Moonachie Avenue......................................         --          2,296        15,738       18,034          (96)
  135 Fieldcrest Avenue.....................................         --            528         2,744        3,272          (22)
  24 Madison Road...........................................         --            320         1,605        1,925          (13)
  22 Madison Road...........................................         --            342         1,440        1,782          (14)
  18 Madison Road...........................................         --            141           856          997           (6)
  26 Madison Road...........................................         --            254         1,233        1,487          (11)
  535 Secaucus Road.........................................         --            585         2,837        3,422          (24)
  Mount Ebo Corporate Park..................................         --          1,495         6,990        8,485          (62)
  221 South 10(th) Street...................................         --          4,498        25,486       29,984         (154)
  104 Hidden Lake Circle....................................         --            697         3,947        4,644          (10)
  21 Roadway................................................          8          2,332        13,225       15,557          (18)
                                                                  -----        -------       -------      -------      -------
  Subtotal Industrial Properties............................      2,153         96,213       496,614      592,827      (13,008)
  Operating Partnership.....................................        197             --           197          197          (17)
                                                                  -----        -------       -------      -------      -------
  Total All Properties......................................      5,731        137,631       703,475      841,106      (22,396)
                                                                  =====        =======       =======      =======      =======

<CAPTION>

                                                              YEAR BUILT/   DEPRECIABLE
                      BUILDING ADDRESS                         RENOVATED      YEAR(S)
                      ----------------                        -----------   -----------
<S>                                                           <C>           <C>
OFFICE PROPERTIES:
  40 Potash Road............................................        1992         (d)
  1655 Valley Road..........................................        1989         (d)
  16-00 Route 208...........................................        1983         (d)
  128 Bauer Drive...........................................        1981         (d)
  22-08 Route 208...........................................     1960/68         (d)
  15-00 Pollitt Drive.......................................     1970/92         (d)
  19-00 Pollitt Drive.......................................  1970/84/95         (d)
  95 Bauer Drive............................................     1974/91         (d)
  99 Bauer Drive............................................        1971         (d)
  Thirteen Columbia Circle..................................        1996         (d)
  Nine Columbia Circle......................................        1992         (d)
  Seventeen Columbia Circle.................................        1995         (d)
  One Columbia Circle.......................................        1991         (d)
  Fifteen Columbia Circle...................................        1995         (d)
  Three Columbia Circle.....................................        1992         (d)
  8 Airline Drive...........................................        1997         (d)
  6 British American Blvd...................................        1980         (d)
  Executive Park............................................        1979         (d)
  Treeview Corporate Center.................................        1991         (d)
  Corporate Center 15.......................................        1979         (d)
  Hillside Corporate Center.................................        1991         (d)
  Winchester Plaza..........................................   1992/1998         (d)
  125 Indigo Creek Drive....................................        1992         (d)
  5009 Campuswood Drive.....................................        1989         (d)
  5000 Campuswood Drive.....................................        1988         (d)
  5010 Campuswood Drive.....................................        1989         (d)
  5015 Campuswood Drive.....................................        1991         (d)
  308 Maltbie Street........................................        1992         (d)
  400 West Division Street..................................        1992         (d)
  One Clinton Square........................................        1991         (d)
  1045 James Street.........................................        1992         (d)
  507 Plum Street...........................................        1991         (d)
  250 South Clinton Street..................................        1991         (d)
  One Park Place............................................        1983

  Subtotal Office Properties................................
INDUSTRIAL PROPERTIES:
  5 Thornton Road...........................................     1973/81         (d)
  2 Volvo Drive.............................................     1966/93         (d)
  17-01 Pollitt Drive.......................................        1968         (d)
  19-05 Nevins Road.........................................        1955         (d)
  100 Oak Hill Road.........................................        1996         (d)
  1057 Arnold Road..........................................        1995         (d)
  1091 Arnold Road..........................................        1996         (d)
  1305 Goshen Parkway.......................................        1991         (d)
  One Tabas Lane............................................        1970         (d)
  Two Tabas Lane............................................     1970/91         (d)
  101 Commerce Drive........................................        1997         (d)
  1 Phillips Drive..........................................   1991-1993         (d)
  Gettysburg Road...........................................   1952/1993         (d)
  AIP Drive.................................................        1991         (d)
  Steelway Boulevard........................................        1977         (d)
  Northeastern Ind. Park Bldg. 8............................   1950/1997         (d)
  Northeastern Ind. Park Bldg. 21...........................        1989         (d)
  Northeastern Ind. Park Bldg. 22...........................        1988         (d)
  Marway Circle.............................................   1976-1977         (d)
  16725 Square Drive........................................        1987         (d)
  1030 Edgewood Drive.......................................        1988         (d)
  3530 East Pike............................................        1991         (d)
  5555 Massillon Road.......................................        1996         (d)
  One Apollo Drive..........................................        1992         (d)
  2294 Molly Pitcher Highway................................        1986         (d)
  1440 Sheffler Drive.......................................        1996         (d)
  1465 Nitterhouse Drive....................................        1995         (d)
  4400 West 96th Street.....................................        1998         (d)
  6402 Corporate Drive......................................        1996         (d)
  8677 Logo Court...........................................        1993         (d)
  Piedmont Highway. Ind. Park...............................   1995/1997         (d)
  Highway 14 Industrial Park................................   1994/1997         (d)
  Buncombe Road Ind. Park...................................   1988/1995         (d)
  Batesville Road Ind. Park.................................   1970/1985         (d)
  Rocky Creek Business Park.................................        1997         (d)
  Augusta Road Ind. Park....................................        1996         (d)
  White Horse Road Ind. Park................................   1989/1997         (d)
  120 Hidden Lake Circle....................................        1998         (d)
  351 West 10(th) Street....................................        1998         (d)
  600 Hagerty Drive.........................................  1980/86/87         (d)
  605 Hagerty Drive.........................................        1991         (d)
  670 Hagerty Drive.........................................  1980/88/90         (d)
  800 Hagerty Drive.........................................        1987         (d)
  1411 Majestic Drive.......................................        1995         (d)
  1311 Majestic Drive.......................................        1993         (d)
  300 Enterprise Drive......................................        1998         (d)
  One Nixon Lane............................................        1987         (d)
  200-250 Kennedy Drive.....................................        1988         (d)
  300-350 Kennedy Drive.....................................        1988         (d)
  309 Kennedy Drive.........................................        1996         (d)
  409 Kennedy Drive.........................................        1996         (d)
  55 Carter Drive...........................................        1986         (d)
  200-240 Carter Drive......................................        1985         (d)
  243 St. Nicholas Avenue...................................        1984         (d)
  275-285 Pierce Street.....................................        1988         (d)
  301-321 Herrod Blvd.......................................        1989         (d)
  24 Abeel Road.............................................        1978         (d)
  21 Cranbury Road..........................................        1998         (d)
  34 Englehard Drive........................................        1982         (d)
  200 Industrial Avenue.....................................        1998         (d)
  118 Moonachie Avenue......................................        1989         (d)
  135 Fieldcrest Avenue.....................................        1980         (d)
  24 Madison Road...........................................        1980         (d)
  22 Madison Road...........................................        1980         (d)
  18 Madison Road...........................................        1979         (d)
  26 Madison Road...........................................        1980         (d)
  535 Secaucus Road.........................................        1974         (d)
  Mount Ebo Corporate Park..................................        1992         (d)
  221 South 10(th) Street...................................        1997         (d)
  104 Hidden Lake Circle....................................     1986/92         (d)
  21 Roadway................................................        1988         (d)

  Subtotal Industrial Properties............................
  Operating Partnership.....................................                     (d)

  Total All Properties......................................

</TABLE>

                                      S-1
<PAGE>
                                 SCHEDULE III:
                    REAL ESTATE AND ACCUMULATED DEPRECIATION
                            AS OF DECEMBER 31, 1999
                                   (IN 000'S)

NOTES:

    (a) Collateralizes the Company's Credit Facility

    (b) See description of encumbrances in Item 1--Summary of Indebtedness

    (c) Reconciliation of encumbrances as shown above to total consolidated
       debt, excluding unamortized debt premiums of $3,691 at December 31, 1999
       is as follows:

<TABLE>
<S>                                                           <C>
Amount shown above..........................................  $372,644
Debt related to development or construction in progress.....     3,797
Credit Facility.............................................   141,980
                                                              --------
Total consolidated debt, excluding debt premiums............  $518,421
                                                              ========
</TABLE>

    (d) Depreciation is computed based on the following estimated lives:

<TABLE>
<S>                                    <C>
Buildings and Improvements...........  35 years
Tenant/Leasehold Improvements........  Life of lease
Furniture, Fixtures and Equipment....  5 to 10 years
</TABLE>

    (e) At December 31, 1999, the aggregate net carrying amount for land and
       buildings and improvements for federal income tax reporting was
       approximately $690,000,000.

    Summary of Real Estate and Accumulated Depreciation Activity:

<TABLE>
<CAPTION>
                                                            1999                      1998
                                                   -----------------------   -----------------------
                                                              ACCUMULATED               ACCUMULATED
                                                     COST     DEPRECIATION     COST     DEPRECIATION
                                                   --------   ------------   --------   ------------
<S>                                                <C>        <C>            <C>        <C>
Balance at beginning of year.....................  $541,162     $ 6,867      $153,143     $ 2,955
Property acquisitions............................   304,704          --       418,835          --
Capital improvements.............................     3,479          --           906          --
Properties sold..................................    (8,239)       (202)      (31,722)     (2,838)
Depreciation expense.............................        --      15,731            --       6,750
                                                   --------     -------      --------     -------
Balance at end of year...........................  $841,106     $22,396      $541,162     $ 6,867
                                                   ========     =======      ========     =======
</TABLE>

                                      S-2
<PAGE>
                            KEYSTONE PROPERTY TRUST
                   INDEX OF CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<S>                                                           <C>
Report of Independent Public Accountants....................  F-2

Consolidated Balance Sheets as of December 31, 1999 and
  1998......................................................  F-3

Consolidated Statements of Operations for the years ended
  December 31, 1999, 1998 and 1997..........................  F-4

Consolidated Statements of Shareholders' Equity for the
  years ended December 31, 1999, 1998, and 1997.............  F-5

Consolidated Statements of Cash Flows for the years ended
  December 31, 1999, 1998 and 1997..........................  F-6

Notes to Consolidated Financial Statements..................  F-7
</TABLE>

                                      F-1
<PAGE>
    To the Board of Trustees and Shareholders of Keystone Property Trust:

    We have audited the accompanying consolidated balance sheets of Keystone
Property Trust (a Maryland real estate investment trust) and subsidiaries as of
December 31, 1999 and 1998 and the related consolidated statements of
operations, shareholders' equity and cash flows for each of the three years in
the period ended December 31, 1999. These consolidated financial statements and
the schedule referred to below are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements and schedule based on our audits.

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

    In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Keystone Property Trust and subsidiaries as of December 31, 1999 and 1998, and
the consolidated results of their operations and their cash flows for each of
the three years in the period ended December 31, 1999 in conformity with
accounting principles generally accepted in the United States.

    Our audit was made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in the index of
financial statement schedules in Item 14 is presented for purposes of complying
with the Securities and Exchange Commission's rules and is not a required part
of the basic financial statements. This schedule has been subjected to the
auditing procedures applied in the audit of the basic financial statements and,
in our opinion, fairly states in all material respects the financial data
required to be set forth therein in relation to the basic financial statements
taken as a whole.

                                          /s/ Arthur Andersen LLP

Philadelphia, PA
February 7, 2000

                                      F-2
<PAGE>
                            KEYSTONE PROPERTY TRUST
                          CONSOLIDATED BALANCE SHEETS
                 (DOLLARS IN THOUSANDS, EXCEPT FOR SHARE DATA)

<TABLE>
<CAPTION>
                                                                  YEARS ENDED
                                                                 DECEMBER 31,
                                                              -------------------
                                                                1999       1998
                                                              --------   --------
<S>                                                           <C>        <C>
                                     ASSETS
INVESTMENT IN REAL ESTATE:
  Land and land improvements................................  $106,279   $ 92,243
  Buildings and improvements................................   574,466    440,680
  Assets held for sale......................................   160,361      8,239
  Development and construction-in-progress..................    17,770         --
  Investment in direct financing lease......................     1,460      1,707
                                                              --------   --------
                                                               860,336    542,869
  Less--Accumulated depreciation............................   (16,559)    (6,665)
    Accumulated depreciation--assets held for sale..........    (5,837)      (202)
                                                              --------   --------
      Total accumulated depreciation........................   (22,396)    (6,867)
                                                              --------   --------
      Total investment in real estate, net..................   837,940    536,002
                                                              --------   --------
CASH AND CASH EQUIVALENTS...................................     4,144      3,247
RESTRICTED CASH AND CASH ESCROWS............................     3,470      2,100
ACCOUNTS RECEIVABLE, including straight-line rent receivable
  of $3,029 and $1,281 in 1999 and 1998, respectively.......     5,966      2,007
DEFERRED FINANCING COSTS, net of accumulated amortization of
  $2,078 and $616 in 1999 and 1998, respectively............     6,522      6,154
DEFERRED LEASING COSTS, net of accumulated amortization of
  $776 and $149 in 1999 and 1998, respectively..............     3,672      1,614
INVESTMENT IN KEYSTONE REALTY SERVICES, INC.., at equity....     4,423      5,207
OTHER ASSETS................................................     8,939      2,643
                                                              --------   --------
      Total assets..........................................  $875,076   $558,974
                                                              ========   ========
                      LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES:
  Mortgage notes payable and revolving credit facility,
    including unamortized premium on assumed indebtedness of
    $3,691 and $3,542 in 1999 and 1998, respectively........  $522,112   $346,105
  Accounts payable..........................................     2,551        968
  Dividends and distributions payable.......................     1,999      3,713
  Accrued interest payable..................................     2,698        662
  Accrued expenses and other liabilities....................    11,347      3,243
  Deferred rent revenue.....................................     2,708      1,534
                                                              --------   --------
      Total liabilities.....................................   543,415    356,225
                                                              --------   --------
MINORITY INTEREST, 7,326,853 and 6,988,542 units outstanding
  in 1999 and 1998, respectively............................    91,310     88,205
CONVERTIBLE PREFERRED UNITS.................................    54,621      7,500
COMMITMENTS AND CONTINGENCIES...............................        --         --
SHAREHOLDERS' EQUITY:
  Convertible Preferred Stock, Series A; $.001 par value;
    800,000 shares authorized, issued and outstanding,
    liquidation preference of $20,000.......................         1          1
  Convertible Preferred Stock, Series B; $.001 par value;
    1,600,000 shares authorized, issued and outstanding;
    liquidation preference of $40,000.......................         1         --
  Convertible Preferred Stock, Series C; $.001 par value;
    800,000 shares authorized, issued and outstanding;
    liquidation preference of $20,000.......................         1         --
  Common Shares, $.001 par value; 65,000,000 authorized;
    8,906,943 and 7,391,765 shares issued and outstanding in
    1999 and 1998, respectively.............................         9          7
    Warrants................................................       125        685
    Additional paid-in capital..............................   185,079    104,864
    Loans to executive officers to purchase Common Shares...    (1,536)      (392)
    Deferred compensation...................................      (282)      (540)
    Cumulative net income...................................    20,620     14,292
    Cumulative distributions................................   (18,288)   (11,873)
                                                              --------   --------
      Total shareholders' equity............................   185,730    107,044
                                                              --------   --------
      Total liabilities and shareholders' equity............  $875,076   $558,974
                                                              ========   ========
</TABLE>

  The accompanying notes are an integral part of these consolidated financial
                                  statements.

                                      F-3
<PAGE>
                            KEYSTONE PROPERTY TRUST
                     CONSOLIDATED STATEMENTS OF OPERATIONS
                 (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
                                                                 YEARS ENDED DECEMBER 31,
                                                              ------------------------------
                                                                1999       1998       1997
                                                              --------   --------   --------
<S>                                                           <C>        <C>        <C>
REVENUE:
  Rents.....................................................  $75,769    $36,332    $ 7,713
  Reimbursement revenue and other income....................    8,757      4,696        484
                                                              -------    -------    -------
      Total revenue.........................................   84,526     41,028      8,197
                                                              =======    =======    =======
OPERATING EXPENSES:
  Property operating expenses...............................   15,096      7,693      3,112
  Management fees paid to affiliate.........................    3,048      1,121         --
  General and administrative................................    3,650        759        732
  Depreciation and amortization.............................   16,359      6,911        909
  Buyout of employment agreements, options and warrants.....       --         --      3,203
  Interest expense..........................................   30,307     14,539      3,134
                                                              -------    -------    -------
      Total operating expenses..............................   68,460     31,023     11,090
                                                              -------    -------    -------
Income (loss) before equity in income (losses) from equity
  method investments, gains on sales of assets,
  distributions to preferred unitholders, minority interest
  of unitholders in Operating Partnership, extraordinary
  item, and net income allocated to preferred shareholders..   16,066     10,005     (2,893)
Equity in income (losses) from equity method investments....      (62)    (1,167)       404
Gains on sales of assets....................................    1,284     11,952      4,608
                                                              -------    -------    -------
Income before distributions to preferred unitholders,
  minority interest of unitholders in Operating Partnership,
  extraordinary item, and net income allocated to preferred
  shareholders..............................................   17,288     20,790      2,119
Distributions to preferred unitholders......................   (2,040)       (15)        --
                                                              -------    -------    -------
Income before minority interest of unitholders in Operating
  Partnership, extraordinary item, and net income allocated
  to preferred shareholders.................................   15,248     20,775      2,119
Minority interest of unitholders in Operating Partnership...   (5,592)    (9,452)      (876)
Extraordinary loss on debt extinguishment net of $110
  allocated to minority interest of unitholders in Operating
  Partnership...............................................       --        110         --
                                                              -------    -------    -------
NET INCOME BEFORE NET INCOME ALLOCATED TO PREFERRED
  SHAREHOLDERS..............................................    9,656     11,213      1,243
NET INCOME ALLOCATED TO PREFERRED SHAREHOLDERS..............   (3,328)       (40)        --
                                                              -------    -------    -------
NET INCOME ALLOCATED TO COMMON SHAREHOLDERS.................  $ 6,328    $11,173    $ 1,243
                                                              =======    =======    =======
EARNINGS PER COMMON SHARE--BASIC:
  Net income per Common Share before extraordinary item.....  $   .83    $  1.79    $   .92
  Extraordinary item........................................       --       (.02)        --
                                                              -------    -------    -------
  Net income per Common Share--Basic........................  $   .83    $  1.77    $   .92
                                                              =======    =======    =======
EARNINGS PER COMMON SHARE--DILUTED:
  Net income per Common Share before extraordinary item.....  $   .80    $  1.75    $   .88
  Extraordinary item........................................       --       (.02)        --
                                                              -------    -------    -------
  Net income per Common Share--diluted......................  $   .80    $  1.73    $   .88
                                                              =======    =======    =======
</TABLE>

  The accompanying notes are an integral part of these consolidated financial
                                  statements.

                                      F-4
<PAGE>
                            KEYSTONE PROPERTY TRUST
                CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
                  FOR THE THREE YEARS ENDED DECEMBER 31, 1999
                 (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
                                                                                                           LOANS TO EXECUTIVE
                                                                                              ADDITIONAL      OFFICERS TO
                                                                                               PAID-IN          PURCHASE
                                      PREFERRED STOCK         COMMON SHARES       WARRANTS     CAPITAL       COMMON SHARES
                                    --------------------   --------------------   ---------   ----------   ------------------
                                     SHARES      AMOUNT     SHARES      AMOUNT
                                    ---------   --------   ---------   --------
<S>                                 <C>         <C>        <C>         <C>        <C>         <C>          <C>
BALANCES, JANUARY 1, 1997.........         --      --      1,121,630   $     1      $  --      $  5,374              --
Net income........................         --      --             --        --         --            --              --
Distributions paid ($.87 per
  share)..........................         --      --             --        --         --            --              --
Common Shares issued for cash, net
  of $870 of issuance costs.......         --      --      1,963,635         2         --        20,728              --
Common Shares issued to officers
  and directors...................         --      --          9,378        --         --            99              --
Common Shares issued for FLIP net
  assets..........................         --      --      2,001,132         2         --        22,010              --
Common Shares issued to terminate
  employment........agreements and
  options                                  --      --        171,266        --         --         2,536              --
Common Shares issued for
  OP Unit conversions.............         --      --         96,240        --         --           979              --
Warrants issued...................         --      --                       --        685            --
                                    ---------     ---      ---------   -------      -----      --------         -------
BALANCES, DECEMBER 31, 1997.......         --      --      5,363,281   $     5        685      $ 51,726              --
Net income allocated to common
  shareholders....................         --      --             --        --         --            --              --
Distributions paid ($.97 per
  share)..........................         --      --             --        --         --            --              --
Distributions declared............         --      --             --        --         --            --              --
Common Shares issued net of $1,042
  of issuance costs...............         --      --      1,812,794         2         --        28,459              --
Restricted Common Shares issued
  employees.......................         --      --         37,242        --         --           540              --
Common Shares issued for stock
  options exercised...............         --      --         38,500        --         --           385              --
Common Shares issued for OP Unit
  conversions.....................         --      --        139,948        --         --         1,631              --
Adjustment for minority interest
  of unitholders in Operating
  Partnership at dates of capital
  transactions....................         --      --             --        --         --         2,815              --
Issuance of Convertible Preferred
  Stock, net of $692 in issuance
  costs...........................    800,000       1             --        --         --        19,308              --
Loan to executive officer to
  purchase Common Shares..........         --      --             --        --         --            --            (392)
                                    ---------     ---      ---------   -------      -----      --------         -------
BALANCES, DECEMBER 31, 1998.......    800,000     $ 1      7,391,765   $     7      $ 685      $104,864            (392)
Net income allocated to common
  shareholders....................         --      --             --        --         --            --              --
Distributions paid ($1.12 per
  share)..........................         --      --             --        --         --            --              --
Common Shares issued, net of $200
  of issuance costs...............         --      --      1,380,678         1         --        19,812              --
Restricted Common Shares issued to
  employees, net of cancellations
  of 500 Common Shares............         --      --          1,054        --         --            22              --
Amortization of restricted share
  grants and forgiveness of
  executive loans.................         --      --             --        --         --            --             156
Common Shares issued for stock
  options exercised...............         --      --          2,200        --         --            22              --
Common Shares issued for OP Unit
  conversions.....................         --      --         19,416        --         --           242              --
Adjustment for minority interest
  of unitholders in Operating
  Partnership at dates of capital
  transactions....................         --      --             --        --         --          (733)             --
Issuance of Convertible Preferred
  Stock, net of $625 in issuance
  costs...........................  2,400,000       2             --        --         --        59,373              --
Loan to executive officer to
  purchase Common Shares..........         --      --        100,000         1         --         1,300          (1,300)
Common Shares issued as
  compensation to trustees........         --      --         11,830        --         --           177              --
Conversion of Warrants to OP Units
  in Operating Partnership........         --      --             --        --       (560)           --              --
                                    ---------     ---      ---------   -------      -----      --------         -------
BALANCES, DECEMBER 31, 1999.......  3,200,000     $ 3      8,906,943   $     9      $ 125      $185,079         $(1,536)
                                    =========     ===      =========   =======      =====      ========         =======

<CAPTION>
                                                      RETAINED
                                                     EARNINGS/        TOTAL
                                      DEFERRED      (ACCUMULATED   SHAREHOLDERS
                                    COMPENSATION      DEFICIT)        EQUITY
                                    -------------   ------------   ------------

<S>                                 <C>             <C>            <C>
BALANCES, JANUARY 1, 1997.........         --         $  (745)       $  4,630
Net income........................         --           1,243           1,243
Distributions paid ($.87 per
  share)..........................         --            (985)           (985)
Common Shares issued for cash, net
  of $870 of issuance costs.......         --              --          20,730
Common Shares issued to officers
  and directors...................         --              --              99
Common Shares issued for FLIP net
  assets..........................         --              --          22,012
Common Shares issued to terminate
  employment........agreements and
  options                                  --              --           2,536
Common Shares issued for
  OP Unit conversions.............         --              --             979
Warrants issued...................         --              --             685
                                        -----         -------        --------
BALANCES, DECEMBER 31, 1997.......      $  --         $  (487)       $ 51,929
Net income allocated to common
  shareholders....................         --          11,173          11,173
Distributions paid ($.97 per
  share)..........................         --          (6,308)         (6,308)
Distributions declared............         --          (1,959)         (1,959)
Common Shares issued net of $1,042
  of issuance costs...............         --              --          28,461
Restricted Common Shares issued
  employees.......................       (540)             --              --
Common Shares issued for stock
  options exercised...............         --              --             385
Common Shares issued for OP Unit
  conversions.....................         --              --           1,631
Adjustment for minority interest
  of unitholders in Operating
  Partnership at dates of capital
  transactions....................         --              --           2,815
Issuance of Convertible Preferred
  Stock, net of $692 in issuance
  costs...........................         --              --          19,309
Loan to executive officer to
  purchase Common Shares..........         --              --            (392)
                                        -----         -------        --------
BALANCES, DECEMBER 31, 1998.......       (540)        $ 2,419        $107,044
Net income allocated to common
  shareholders....................         --         $ 6,328        $  6,328
Distributions paid ($1.12 per
  share)..........................         --          (6,415)         (6,415)
Common Shares issued, net of $200
  of issuance costs...............         --              --          19,813
Restricted Common Shares issued to
  employees, net of cancellations
  of 500 Common Shares............        (22)             --              --
Amortization of restricted share
  grants and forgiveness of
  executive loans.................        280              --             436
Common Shares issued for stock
  options exercised...............         --              --              22
Common Shares issued for OP Unit
  conversions.....................         --              --             242
Adjustment for minority interest
  of unitholders in Operating
  Partnership at dates of capital
  transactions....................         --              --            (733)
Issuance of Convertible Preferred
  Stock, net of $625 in issuance
  costs...........................         --              --          59,375
Loan to executive officer to
  purchase Common Shares..........         --              --               1
Common Shares issued as
  compensation to trustees........         --              --             177
Conversion of Warrants to OP Units
  in Operating Partnership........         --              --            (560)
                                        -----         -------        --------
BALANCES, DECEMBER 31, 1999.......      $(282)        $ 2,332        $185,730
                                        =====         =======        ========
</TABLE>

   The accompanying notes are an integral part of these financial statements.

                                      F-5
<PAGE>
                            KEYSTONE PROPERTY TRUST

                     CONSOLIDATED STATEMENTS OF CASH FLOWS

                             (DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                  YEARS ENDED DECEMBER 31
                                                              -------------------------------
                                                                1999        1998       1997
                                                              ---------   --------   --------
<S>                                                           <C>         <C>        <C>
OPERATING ACTIVITIES:
  Net income allocated to common shareholders...............  $   6,328   $ 11,173   $  1,243
  Adjustments to reconcile net income allocated to common
    shareholders to net cash provided by operating
    activities-.............................................
    Depreciation and amortization...........................     17,821      7,554        909
    Amortization of debt premiums...........................       (701)      (221)        --
    Amortization of deferred compensation costs and loan
     forgiveness on executive stock loans...................        436         --         --
    Gain on sales of assets.................................     (1,284)   (11,952)    (4,608)
    Extraordinary loss......................................         --        110         --
    Increase in straight-line rents.........................     (1,867)    (1,282)        --
    Decrease in investment in direct financing lease........        247        213         --
    Buyout of employment agreements and options.............         --         --      2,536
    Equity in losses (income) from equity method
     investments............................................         62      1,167       (404)
    Amortization of investment in partnership in excess of
     underlying equity......................................         --         --        356
    Common Shares issued for trustees compensation..........        177         --         41
    Income allocated to preferred shareholders and preferred
     unitholders............................................      5,368         55         --
    Minority interest.......................................      5,592      9,452        876
    Cash provided by (used in) -
      Restricted cash.......................................     (1,370)       367        (11)
      Accounts receivable...................................     (1,310)      (593)       (11)
      Other assets..........................................     (1,449)    (2,734)       314
      Accrued interest......................................      2,036        122        283
      Accounts payable, accrued expenses and other
       liabilities..........................................      3,272      1,541        563
      Deferred rent revenue.................................      1,174      1,415         --
                                                              ---------   --------   --------
        Net cash provided by operating activities...........     34,532     16,387      2,087
                                                              ---------   --------   --------
INVESTING ACTIVITIES:
  Properties acquired, net of cash acquired.................   (198,549)  (300,757)   (17,933)
  (Advances to) repayments of advances from Keystone Realty
    Services, Inc...........................................        722     (1,997)      (150)
  Capital expenditures......................................     (3,479)      (906)    (1,152)
  Construction in progress expenditures.....................     (4,429)        --         --
  Payment of leasing commissions............................     (2,877)      (981)        --
  Increase (decrease) in cash escrows from deferred
    exchanges...............................................         --      2,540     (3,764)
  Proceeds from sales of assets, net........................      9,538     41,001     19,840
  Partnership cash distributions received...................         --         --         25
                                                              ---------   --------   --------
        Net cash used in investing activities...............   (199,074)  (261,100)    (3,134)
                                                              ---------   --------   --------
FINANCING ACTIVITIES:
  Issuances of Common Shares for stock options exercised....         22        385         --
  Issuances of Common and Convertible Preferred Stock, net
    of issuance costs.......................................     37,689     36,748     20,780
  Distributions paid on Common Shares.......................     (8,375)    (6,308)      (985)
  Distributions paid on Convertible Preferred Stock and
    Convertible Preferred Units.............................     (3,423)        --         --
  Distributions paid on OP Units............................     (7,729)    (4,994)      (688)
  Proceeds from mortgage notes payable......................    133,996    137,064      9,200
  Repayment of mortgage notes payable.......................     (3,061)   (50,111)   (10,236)
  Payments of deferred financing costs......................     (1,830)    (6,326)      (694)
  Net borrowings under Credit Facility......................     18,150    123,830         --
                                                              ---------   --------   --------
    Net cash provided by financing activities...............    165,439    230,288     17,377
                                                              ---------   --------   --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........        897    (14,425)    16,330
CASH AND CASH EQUIVALENTS, beginning of year................      3,247     17,672      1,342
                                                              ---------   --------   --------
CASH AND CASH EQUIVALENTS, end of year......................  $   4,144   $  3,247   $ 17,672
                                                              =========   ========   ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
        Cash paid for interest                                $  27,508   $ 14,091   $  3,188
                                                              =========   ========   ========
</TABLE>

See Notes 3 and 7 for disclosure of non-cash investing and financing activities
in 1999 and 1998.

  The accompanying notes are an integral part of these consolidated financial
                                  statements.

                                      F-6
<PAGE>
                            KEYSTONE PROPERTY TRUST

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. ORGANIZATION

    Keystone Property Trust is a self-administered and self-managed real estate
investment trust ("REIT") which was organized as a Maryland corporation in 1994
under the name of American Real Estate Investment Corporation (the
"Predecessor"). On October 13, 1999, the Company re-organized as a Maryland REIT
through the merger of the Predecessor with and into Keystone Property Trust (the
"Company"). Simultaneously, the name of its operating partnership, American Real
Estate Investment, L.P. (the "Operating Partnership") was changed to Keystone
Operating Partnership, L.P., and the name of its management company was changed
to Keystone Realty Services, Inc. (the "Management Company") from American Real
Estate Management, Inc. The Company also changed its ticker symbol on the
American Stock Exchange from "REA" to "KTR" effective October 13, 1999.

    The Predecessor was previously engaged in the ownership and operation of
multi-family residential properties located in certain markets within the
Southwestern United States. In connection with the transactions that were
consummated on December 12, 1997 (the "Reorganization"), the Predecessor
modified its strategy to focus on the acquisition of industrial and office
properties located in the Eastern United States. In June 1998, the Predecessor
sold its last remaining multi-family residential property, Quadrangles Village
Apartments (Note 3).

    As of December 31, 1999, the Company owned 98 industrial and 34 office
properties aggregating 16.2 million square feet and 2.3 million square feet,
respectively, and an investment in a direct financing lease (the "Properties").
The Properties are located in Central Pennsylvania; Northern New Jersey; New
York State; Ohio; Indianapolis, Indiana; and Greenville and Spartanburg, South
Carolina and have an overall occupancy of 98.9% at December 31, 1999. The
Company conducts all of its service operations, including leasing and property
management through the Management Company. As part of the Reorganization, the
Operating Partnership acquired 100% of the preferred stock of the Management
Company, which entitles the Operating Partnership to receive 95% of the amounts
paid as dividends by the Management Company.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

    PRINCIPLES OF CONSOLIDATION

    The Company is the sole general partner of the Operating Partnership with an
ownership interest of approximately 56% at December 31, 1999. The Company is
also the sole stockholder of several other subsidiary entities. The accompanying
consolidated financial statements include the account balances of the Company,
the Operating Partnership and the Company's wholly-owned and majority-owned
subsidiaries. All significant intercompany accounts and transactions have been
eliminated in consolidation.

    USE OF ESTIMATES

    The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting
periods. Actual results could differ from those estimates.

                                      F-7
<PAGE>
                            KEYSTONE PROPERTY TRUST

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
    INVESTMENT IN REAL ESTATE

    Investment in real estate is recorded at cost and depreciated over the
estimated useful lives of the related assets. Expenditures for additions,
renewals and betterments which extend the useful life of the properties are
capitalized. Routine maintenance and repairs are charged to expense as incurred.
The estimated useful lives of the assets are as follows:

<TABLE>
<CAPTION>
                                                               YEARS
                                                       ---------------------
<S>                                                    <C>
Buildings and improvements...........................  10-35
Land improvements....................................  15
Tenant improvements..................................  Applicable Lease Term
</TABLE>

    At December 31, 1999 and 1998, the Company had an investment in a direct
financing lease. The net investment in this lease was $1.5 million and
$1.7 million for 1999 and 1998, respectively, which consists of the gross
investment of $2.1 million and $2.6 million, net of unearned income of $640,000
and $918,000, respectively. The unearned income is amortized over the lease term
as annual rent payments are collected in order to produce a constant periodic
rate of return on the net investment in this lease.

    ASSETS HELD FOR SALE

    The Company accounts for properties as assets held for sale when a
commitment has been made to a formal plan of disposition. The Company reports
its assets to be disposed of at the lower of carrying value or fair value less
the cost to sell the related asset. At December 31, 1999, the Company has
classified $154.5 million of real estate, at net carrying value, as assets held
for sale. At December 31, 1999, assets held for sale consists of 15 office
properties and 11 industrial properties. As of December 31, 1998, a community
shopping center located in Northern New Jersey was shown in the accompanying
consolidated balance sheet as held for sale. This asset was sold in
February 1999. In accordance with Financial Accounting Standard No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed of", ("SFAS No. 121") the Company has suspended depreciation charges
on assets held for sale as of the date disposition plans were adopted.

    In accordance with SFAS No. 121, the Company assesses its assets for
impairment whenever events or changes in circumstances indicate that the
carrying amount of a respective asset that the Company expects to hold and use
may not be recoverable. In performing the review for recoverability, the Company
estimates the future cash flows expected to result from the use of the asset and
its eventual disposition. If the sum of the expected future cash flows
(undiscounted and without interest charges) is less than the carrying amount of
the asset, the Company will recognize an impairment loss. The impairment loss is
measured as the amount that the carrying value of the asset exceeds the fair
value of the asset. Estimates of fair value are based on quoted market prices in
active markets or, if quoted market prices are not available, the best
information available in the circumstances, such as the present value of
estimated expected future cash flows. Based upon management's review, no such
provisions were necessary in 1999, 1998 or 1997.

                                      F-8
<PAGE>
                            KEYSTONE PROPERTY TRUST

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
    CAPITALIZATION POLICY

    The Company capitalizes all direct and indirect costs, including interest
costs and payroll costs, associated with real estate assets under construction
and land under development by the Company and real estate assets under
construction and land under development, which are held in joint ventures.
During 1999, the Company capitalized $513,000 of interest costs associated with
assets under construction or development. No amount was capitalized in 1998, as
the Company had no assets under construction or active development.

    EQUITY METHOD INVESTMENTS

    The equity method of accounting is used to account for the Company's
non-controlling interest in 100% of the preferred stock of the Management
Company. The Company sold its non-controlling general partner interest in
Emerald Vista Associates, L.P. in September 1997, as part of its strategy to
sell its interest in multi-family assets.

    The equity method of accounting is used to account for the Company's 50%
non-controlling interest in a joint venture to develop 491 acres of land in
Indianapolis, Indiana and a joint venture to construct a 500,000 square foot
industrial building located in Indianapolis, Indiana (the "Indianapolis Joint
Ventures"). At December 31, 1999, the Company has an aggregate investment of
approximately $982,000 in the Indianapolis Joint Ventures, which is included in
other assets in the accompanying financial statements.

    CASH AND CASH EQUIVALENTS AND RESTRICTED CASH

    For purposes of reporting cash flows, the Company considers all highly
liquid investments purchased with an original maturity of three months or less
to be cash equivalents. Restricted cash represents amounts in escrow for payment
of property taxes, insurance or capital improvements, as required by the
Company's lenders.

    DEFERRED FINANCING AND LEASING COSTS

    Deferred financing costs are amortized on a straight-line basis over the
life of the related mortgage loans. Amortization is included in interest expense
in the accompanying statements of operations. Deferred leasing costs, which
include all direct and indirect costs associated with the rental of the
Company's properties, are amortized on a straight-line basis over the term of
the related leases.

    FAIR VALUE OF FINANCIAL INSTRUMENTS

    Fair values of current assets and payables approximate their carrying amount
due to their short-term nature. The carrying amounts of the mortgage notes
payable at December 31, 1999 and 1998 approximated their respective fair values,
as determined by using year-end interest rates and market conditions.

    ALLOCATIONS OF INCOME AND LOSSES

    Net income and losses of the Operating Partnership are allocated to the
Company and limited partners in accordance with their respective ownership
interests. The Company's ownership interest in

                                      F-9
<PAGE>
                            KEYSTONE PROPERTY TRUST

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
the Operating Partnership was approximately 56% and 53% and the limited
partners' ownership was approximately 44% and 47% at December 31, 1999 and 1998,
respectively. For the periods prior to the restatement of the Partnership
Agreement in connection with the Reorganization, the net income of the Operating
Partnership for each year was allocated as follows: an amount representing 80%
of the number of Common Shares outstanding at the end of each calendar year
(equivalent to approximately $904,000 for 1997) was allocated to the Company.
Any remaining net income for each such year was then allocated to the limited
partners until the cumulative net income allocated to the limited partners for
the current and all prior years was equal to approximately 42% of total
cumulative net income since inception. Net losses of the Operating Partnership
are allocated to all the partners in proportion to their percentage interests in
accordance with the terms of the amended and restated partnership agreement.

    REVENUE RECOGNITION

    Revenue is recognized on the accrual basis of accounting. Rental income
under leases in excess of one year in length is recognized using the
straight-line method under which contractual rent increases are recognized
evenly over the lease term. Tenant reimbursements are accrued as revenue in the
same period the related expenses are incurred by the Company.

    INCOME TAXES AND OTHER

    The Company elected to be taxed as a REIT under Sections 856 through 860 of
the Internal Revenue Code and applicable Treasury Regulations, commencing with
its taxable year ended December 31, 1993. The Company believes that it is
organized and will continue to operate in such a manner as to qualify for
taxation as a REIT under the Internal Revenue Code.

    A REIT is generally not subject to federal income taxes on that portion of
its ordinary income or capital gain that is currently distributed to
shareholders as the REIT provisions of the Internal Revenue Code generally allow
a REIT to deduct dividends paid to its shareholders to the extent it distributes
annually at least 95% of its taxable income and satisfies certain other
requirements. Accordingly, no provision has been made for federal income taxes
in the accompanying consolidated financial statements. If the Company fails to
qualify as a REIT in any taxable year, the Company will be subject to federal
income tax at regular corporate rates on its taxable income. The Company and
certain of its subsidiaries are subject to certain state and local taxes. The
provision for these taxes has been reflected in general and administrative
expense in the accompanying financial statements. The Management Company is
subject to federal, state and local taxes on its income as it is organized as a
"C" corporation.

                                      F-10
<PAGE>
                            KEYSTONE PROPERTY TRUST

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
    A summary of the tax status of the Company's distributions for the three
years ended December 31 is as follows:

<TABLE>
<CAPTION>
                                                                1999          1998          1997
                                                              --------      --------      --------
<S>                                                           <C>           <C>           <C>
COMMON SHARE DISTRIBUTIONS
Total distributions paid per share..........................   $ 1.12        $  .97        $ .87
Percent taxable as ordinary income..........................   100.00%       100.00%        6.92%
Percent taxable as long term capital gains..................     0.00%         0.00%         .28%
Percent non-taxable return of capital.......................     0.00%         0.00%       92.80%
Classified as ordinary income--per share (1)................   $  .95        $ 1.14        $ .06
Classified as return of capital--per share..................   $   --        $   --        $ .81

PREFERRED SHARE AND PREFERRED UNIT DISTRIBUTIONS
Distributions declared (in 000's)...........................   $5,368        $   55        $  --
</TABLE>

------------------------

(1) The Company reported that approximately $.10 or approximately 36% of the
    distribution declared on December 15, 1998 with a record date of
    December 31, 1998 and a payable date of January 31, 1999, was taxable in
    1999 in accordance with Internal Revenue Code Section 857(b)(8).
    Approximately $.17 of the remaining distribution was previously reported to
    shareholders as a 1998 distribution.

    There are differences in the Company's bases of assets and liabilities,
specifically relating to minority interests, between those used in financial
reporting and the tax basis used for annual federal and state income tax
returns. The net federal tax basis of the Company's real estate investments at
December 31, 1999 and 1998 was approximately $690.0 million and $445.0 million,
respectively.

    EARNINGS PER SHARE

    In 1997, The Company discloses earnings per share ("EPS") in accordance with
Statement of Financial Accounting Standard No. 128, ("SFAS No. 128"). SFAS
No. 128 established simplified standards for computing and presenting EPS and
supercedes the standards in APB Opinion No.15, making them more comparable to
international EPS standards. It requires the dual presentation of basic and
diluted EPS on the income statement and requires a reconciliation of the
numerator and denominator of basic EPS to diluted EPS.

    RECLASSIFICATIONS

    Certain amounts in the 1998 and 1997 consolidated financial statements have
been reclassified in order to conform with the presentation in the 1999
consolidated financial statements.

    IMPACT OF ACCOUNTING PRONOUNCEMENTS NOT YET ADOPTED

    Statement of Financial Accounting Standard ("SFAS No. 133"), "Accounting for
Derivative Instruments and Hedging Activities". SFAS No. 133 is effective for
all fiscal quarters of all fiscal years beginning after June 15, 2000. SFAS
No. 133 expands the definition of derivatives and requires every derivative to
be recorded on the balance sheet as either an asset or liability measured at its
fair value. It requires that companies must formally document, designate and
assess the effectiveness of transactions that receive hedge accounting.

                                      F-11
<PAGE>
                            KEYSTONE PROPERTY TRUST

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
    SFAS No. 133 requires that changes in the derivative's fair value be
recognized in the applicable financial reporting period in earnings unless
specific hedge criteria are met. At December 31, 1999, the Company does not have
any investments in derivative products, as a result, the impact of adopting SFAS
No. 133 is not determinable. The Company is planning to adopt SFAS No. 133
beginning January 1, 2001.

3. ACQUISITIONS AND DISPOSITIONS OF REAL ESTATE INVESTMENTS

    1999 TRANSACTIONS

    During 1999, the Company acquired 35 properties (34 industrial properties
and one office property) and 112 acres of land for an aggregate purchase price
of approximately $322.1 million. These properties contained an aggregate of
approximately 6.8 million square feet consisting of 6.5 million square feet of
industrial and 290,000 square feet of office. Consideration for these
acquisitions consisted of cash of approximately $198.5 million, future cash
payments of $5.2 million (Note 7), $27.6 million of debt assumed (including debt
premiums of $850,000), $40.0 million of Convertible Preferred Stock at a
conversion price of $16.00, $47.1 million of Convertible Preferred Units of
limited partnership interest in the Operating Partnership issued at conversion
prices ranging from $16.00 to $16.50 per unit, $2.2 million in units of limited
partnership interest ("OP Units") in the Operating Partnership issued at prices
ranging from $15.26 to $17.50 per unit and the issuance of $1.5 million of
Common Shares. The Convertible Preferred Stock and OP Units issued as part of
these transactions require a quarterly dividend or guaranteed payment at an
annual rate ranging from 9% to 9.75%.

    In August 1999, the Company agreed, as part of a phased transaction, to
acquire certain industrial properties from Reckson Morris Operating Partnership,
L.P. ("RMOP") and Reckson Morris Industrial Trust ("RMIT"). The first phase of
this transaction was consummated on September 27, 1999 and involved the
acquisition of RMOP from RMIT. RMOP owned 22 industrial properties aggregating
3.9 million square feet and 105 acres of land. The second phase of this
transaction is scheduled to close in the second quarter of 2000. This phase
requires the Company to acquire entities owning six industrial properties,
aggregating approximately 2.2 million square feet and six acres of land in New
Jersey for a purchase price of approximately $100.0 million. In addition, the
Company has acquired options to purchase an additional 259 acres of land in New
Jersey on which the Company can develop an additional 2.8 million square feet of
industrial properties. The Company has a $10.0 million letter of credit
outstanding as a deposit on the second and final phase of this transaction.

    The Company currently has under construction an 80,000 square foot office
building in Allentown, Pennsylvania, of which approximately 66,000 square feet
will be occupied by Aetna, Inc. It is anticipated that construction on this
building will be completed in the second quarter of 2000.

    In March 1999, the Company sold Urban Farms Shopping Center for
$10.0 million, which resulted in a gain of approximately $1.3 million. The net
proceeds from this asset sale were reinvested in the acquisition of an
industrial property in 1999.

    The following unaudited pro forma financial information of the Company for
the years ended December 31, 1999 and 1998 gives effect to the properties
acquired and sold and the Common Shares

                                      F-12
<PAGE>
                            KEYSTONE PROPERTY TRUST

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

3. ACQUISITIONS AND DISPOSITIONS OF REAL ESTATE INVESTMENTS (CONTINUED)
and Preferred Stock and OP Unit issuances during 1999 as if the purchases, sales
and issuances had occurred on January 1, 1998.

<TABLE>
<CAPTION>
                                                                   YEARS ENDED
                                                                  DECEMBER 31,
                                                              (IN 000'S, EXCEPT FOR
                                                                 PER SHARE DATA)
                                                              ---------------------
UNAUDITED                                                       1999        1998
---------                                                     ---------   ---------
<S>                                                           <C>         <C>
Pro forma total revenue.....................................  $108,525     $99,322
Pro forma net income allocated to Common Shares.............  $  5,058     $ 4,356
Pro forma net income per Common Share--Basic................  $    .58     $   .50
Pro forma net income per Common Share--Diluted..............  $    .56     $   .48
</TABLE>

    1998 TRANSACTIONS

    During 1998, the Company acquired 78 properties (24 office properties and 54
industrial properties) which contained an aggregate of approximately
9.9 million square feet (1.5 million square feet of office and 8.4 million
square feet of industrial) for an aggregate purchase price of approximately
$418.0 million. Consideration for these acquisitions consisted of cash of
approximately $300.0 million, $49.0 million of debt assumed (including debt
premiums of $3.8 million), $51.0 million in OP Units in the Operating
Partnership, issued at prices ranging from $16.50 to $17.50 per unit,
$7.5 million in Convertible Preferred Units, and the issuance of $11.0 million
of Common Shares. The 300,000 Convertible Preferred Units issued are convertible
into Common Shares at $16.50 and require a quarterly guaranteed payment at the
annual rate of 9% which increased to 9.5% effective December 23, 1999. These
Convertible Preferred Units are redeemable by the Company at par at any time.

    In 1998, the Company sold two multi-family properties (Americana Lakewood
Apartments and Quadrangle Village Apartments) which generated net proceeds of
$41.0 million and gains of $12.0 million. The net proceeds from these asset
sales were re-invested in industrial and office acquisitions in 1998.

    The following unaudited pro forma financial information of the Company for
the years ended December 31, 1998 and 1997 gives effect to the properties
acquired and sold during 1998 and 1997 as if the purchases, sales and Common
Share and Preferred Stock offerings and OP Unit issuances had occurred on
January 1, 1997.

<TABLE>
<CAPTION>
                                                                   YEARS ENDED
                                                                  DECEMBER 31,
                                                              (IN 000'S, EXCEPT FOR
                                                                 PER SHARE DATA)
                                                              ---------------------
UNAUDITED                                                       1998        1997
---------                                                     ---------   ---------
<S>                                                           <C>         <C>
Pro forma total revenue.....................................   $71,834     $67,331
Pro forma net income allocated to common shares.............   $ 6,365     $ 5,479
Pro forma net income per common share-Basic.................   $   .86     $   .74
Pro forma net income per common share-Diluted...............   $   .82     $   .71
</TABLE>

                                      F-13
<PAGE>
                            KEYSTONE PROPERTY TRUST

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

3. ACQUISITIONS AND DISPOSITIONS OF REAL ESTATE INVESTMENTS (CONTINUED)
    1997 TRANSACTIONS

    On December 12, 1997, the Company consummated the acquisition of the McBride
Portfolio which was effected through the contribution by McBride Hudson Bay,
L.P. and various entities affiliated with it (collectively, "McBride") of
interests in certain entities owning 15 office and industrial properties located
in Northern New Jersey, the merger of Fairlawn Industrial Park, Inc. ("FLIP")
with and into the Company and $8.4 million in cash in return for the issuance of
2.0 million Common Shares, 3.0 million OP Units, (representing aggregate
consideration valued at approximately $55.0 million), 125,000 of seven year
warrants to acquire OP Units at an exercise price of $11 per OP Unit and the
assumption of $45.0 million of mortgage debt. The Company also acquired all of
the outstanding preferred stock of the Management Company, a full service real
estate management, construction and brokerage company in consideration for the
issuance of 363,636 OP Units valued at $4.0 million, and warrants with a seven
year term to acquire 250,000 OP Units at an exercise price of $11.00 per OP
Unit.

    In December 1997, the Company, through its Operating Partnership, also
acquired six industrial properties aggregating approximately 850,000 square
feet. The aggregate purchase price for these acquisitions was $28.6 million,
consisting of $12.6 million in cash and $16.0 million in debt assumed, which
included $680,000 of debt premiums.

    Simultaneous with these transactions, Hudson Bay Partners II, L.P. ("Hudson
Bay"), CRA Real Estate Securities and Robert Branson (a former director of the
Predecessor) invested an aggregate of $21.6 million in the Company in return for
the issuance of an aggregate of 2.0 million Common Shares. In addition, Hudson
Bay was issued 300,000 Common Share warrants in the Company with a seven-year
term at an exercise price of $11.00 per share.

    The Company sold two multi-family properties (Timberleaf and Sedona
Apartments) in 1997 and its 50% general partnership interest in Emerald Vista,
which generated net proceeds of $19.8 million and gains totaling $4.6 million.

    All acquisitions described above were accounted for by the purchase method.
The results of operations for each of the acquired properties have been included
from the respective purchase dates. All pro forma financial information
presented within this footnote is unaudited and is not necessarily indicative of
the results that actually would have occurred if acquisitions had been
consummated on the respective dates indicated, nor does the pro forma
information purport to represent the results of operations for future periods.

4. INVESTMENTS IN UNCONSOLIDATED COMPANIES

    KEYSTONE REALTY SERVICES, INC.

    The Company accounts for its investment in 100% of the non-voting preferred
stock of the Management Company in accordance with the equity method of
accounting. The Company is entitled to receive 95% of the amounts paid as
dividends by the Management Company. The Management Company is responsible for
various activities including the management, leasing and development of the
Company's properties and properties owned by third parties as well as providing
other real estate related services for third parties.

                                      F-14
<PAGE>
                            KEYSTONE PROPERTY TRUST

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

4. INVESTMENTS IN UNCONSOLIDATED COMPANIES (CONTINUED)
    INDIANAPOLIS JOINT VENTURES

    In December 1998, the Company entered into an agreement to develop 491 acres
of land located in Airtech Park outside Indianapolis, Indiana. The terms of the
agreement give the Company an option and right of first refusal until
December 13, 2003 to develop distinct land parcels through joint ventures in
which the Company will have a 50% non-controlling interest. As consideration for
its investment in each joint venture the Company will issue OP Units to its
joint venture partner based upon a pre-determined formula which is based on the
number of acres in the specific development parcel. In addition, the Company
will be required to fund its 50% share of any additional capital requirements
for each venture. The Company is also required to make option payments on a
quarterly basis at a rate equal to its then current distribution rate to
unitholders in the Operating Partnership for the OP Units which have yet not
been issued in consideration for interests in specific joint ventures. On the
earlier of December 31, 2003 or the date in which the Company acquires a 50%
interest in at least 75% of the 491 acres of land, the joint venture partner has
an option to require the Company to purchase the remaining 50% interest in the
undeveloped land. In the years ended December 31, 1999 and 1998, the Company
incurred and capitalized $424,000 and $30,000 related to this option.

    At December 31, 1999, OP Units equivalent to approximately $200,000 have
been issued related to this venture's development of Airtech Park. One of the
joint ventures has completed construction of a 500,000 square foot industrial
building on 34 acres in Airtech Park. In conjunction with this development
project the Company agreed to jointly and severally co-guarantee $19.5 million
of construction and permanent financing, and contribute $2.5 million of capital.
At December 31, 1999, the Company has contributed $982,000 related to this
commitment. The Company also had a commitment to acquire its venture partner's
50% ownership interest in the building at the completion of its construction for
approximately $8.9 million less the capital already invested by the Company in
the venture. This acquisition was consummated in January 2000 (Note 14).

5. INDEBTEDNESS

    REVOLVING CREDIT FACILITY

    On April 30, 1998, the Company obtained a three year $150 million senior
secured revolving credit facility ("Credit Facility"). On June 30, 1999, the
terms of the Credit Facility were amended and restated. As a result, the
maturity of the Credit Facility was extended to April 29, 2002 and several
financial covenants were modified. The LIBOR interest rate was modified to a
sliding scale based on the Company's leverage. The scale ranges from LIBOR
+1.625% to LIBOR +2.25%. Borrowings under the Credit Facility enable the Company
to fund acquisitions and development of real estate, as well as provide working
capital and funds for capital improvements at a variable rate which was equal to
a LIBOR rate plus 2.25% (8.00%) at December 31, 1999 or the Prime Rate, at the
Company's option. In addition, a fee ranging from .25% to .375% per annum,
depending on the level of outstanding borrowings, on the unused amount of the
Credit Facility is payable quarterly. The Company is also able to elect to
increase the amount available under the Credit Facility to $250 million, subject
to the syndication of an additional $100 million.

    At December 31, 1999 and 1998, the Company had $141.9 million and
$123.8 million outstanding related to the Credit Facility. The Credit Facility
is recourse to the Company and the Operating Partnership and is secured by
cross-collateralized and cross-defaulted first mortgage loans on 63 and 53

                                      F-15
<PAGE>
                            KEYSTONE PROPERTY TRUST

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

5. INDEBTEDNESS (CONTINUED)
properties at December 31, 1999 and 1998, respectively. The weighted average
balance outstanding and weighted average interest rate for the years ended
December 31, 1999 and 1998 for borrowings under the Credit Facility were
$137.4 million and $77.8 million and 7.19% and 7.39%, respectively. The Credit
Facility requires the Company to meet certain financial covenants, related to
the Company's leverage and interest coverage ratios, on a quarterly, annual and
ongoing basis. The Company is in compliance with these debt covenants as of
December 31,1999.

    MORTGAGE NOTES PAYABLE

    Mortgage notes of $376.4 million and $218.7 million encumbered 60 and 45 of
the properties as of December 31, 1999 and 1998, respectively. At December 31,
1999 and 1998, interest rates on the mortgage loans ranged from fixed rates of
6.88% to 9.75% and 7.03% to 9.75%, respectively. Mortgage notes had weighted
average interest rates of 7.68%, 7.75% and 7.61% during December 31, 1999, 1998
and 1997, respectively. The maturities for these notes range from
September 2000 through October 2022.

    In connection with several acquisitions in 1999, 1998 and 1997, the Company
assumed certain mortgage notes with an aggregate principal value of
$75.9 million and a fair value of $80.5 million. The difference between the
principal value and the fair value was recorded as a debt premium. The debt
premium is being amortized into interest expense over the term of the related
mortgage debt. In 1999 and 1998, $701,000 and $221,000 was amortized into
interest expense related to this debt premium, respectively.

    In October 1998, the Company refinanced $66.0 million of amounts borrowed
under the Credit Facility and $8.4 million of other mortgage debt with
$77.7 million of mortgage debt with a fixed rate of 7.50%. As a result of this
refinancing, the Company wrote off $220,000 of unamortized deferred financing
costs associated with this mortgage debt as an extraordinary loss on debt
extinguishment in 1998.

    As a condition of certain of the mortgage loans, initial and ongoing cash
reserves are required to be funded for real estate taxes, insurance, tenant
rollover costs and capital reserves. The aggregate balances in these reserve
accounts at December 31, 1999 and 1998 were approximately $3.5 million and
$2.1 million, respectively.

    In December 1999, the Company obtained a $2.0 million working capital
facility from a commercial lender. The terms of the facility required monthly
interest at LIBOR + 1.85% and maturity in January 2003. At December 31, 1999, no
amounts were borrowed from this facility.

                                      F-16
<PAGE>
                            KEYSTONE PROPERTY TRUST

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

5. INDEBTEDNESS (CONTINUED)
    Maturities of mortgage notes payable, excluding debt premiums as of
December 31, 1999, over the next five years are as follows:

<TABLE>
<CAPTION>
                                                            PRINCIPAL     AMOUNT DUE AT
(IN 000'S)                                                 AMORTIZATION     MATURITY       TOTAL
----------                                                 ------------   -------------   --------
<S>                                                        <C>            <C>             <C>
2000.....................................................     $3,860         $  2,664     $  6,524
2001.....................................................      3,431            5,357        8,788
2002.....................................................      7,241          150,776      158,017
2003.....................................................      5,940            4,067       10,007
2004.....................................................      6,286           20,254       26,540
2005 and thereafter......................................         --               --      308,545
                                                                                          --------
TOTAL....................................................                                 $518,421
                                                                                          ========
</TABLE>

6. SHAREHOLDERS' EQUITY

    The following table summarizes the Company's issuance of shares of
Convertible Preferred Stock and Common Shares in 1999 and 1998:

<TABLE>
<CAPTION>
                                                          NUMBER OF
                                                           SHARES
                                                         CONVERTIBLE     NUMBER OF                     EXERCISE OR    NET CASH
                                           DATE OF        PREFERRED        COMMON                      CONVERSION     PROCEEDS
          TYPE OF ISSUANCE                ISSUANCE          STOCK          SHARES       SHARE PRICE       PRICE      (IN 000'S)
-------------------------------------  ---------------   -----------   --------------   ------------   -----------   ----------
<S>                                    <C>               <C>           <C>              <C>            <C>           <C>
1999 ACTIVITY
Stock offering (1)...................       Various              --        1,276,800    $      14.50          --      $18,314
Convertible Preferred Stock
Offering (2).........................       9/27/99       1,600,000               --              --     $ 16.00           --
Convertible Preferred Stock Offering
  (3)................................       9/27/99         800,000               --              --     $ 15.75       19,375
Stock offering (4)...................       9/27/99              --          103,878    $      14.44          --           --
Stock issued as compensation (5).....       Various              --           11,830    $14.50-15.56          --           --
Unit redemptions (6).................       Various              --           19,416              --          --           --
Stock options exercised..............       4/10/99              --            2,200              --     $ 10.00           22
Executive stock issuance and
  Restricted Stock Awards (7)........       3/24/99              --          101,554    $13.00-14.50          --           --
                                                          ---------     ------------                                  -------
                                                          2,400,000        1,515,678                                  $37,711
                                                          =========     ============                                  =======
1998 ACTIVITY
Convertible Preferred Stock offering
  (8)................................      12/24/98         800,000               --              --     $ 16.50      $19,308
Restricted Stock Awards (7)..........      12/11/98              --           37,242    $      14.50          --           --
Stock offering (9)...................       8/19/98              --          720,743    $      15.81          --           --
Stock offering (10)..................        7/9/98              --        1,092,051    $      16.50          --       17,440
Unit redemptions (6).................       Various              --          139,948              --          --           --
Stock options exercised..............       Various              --           38,500              --     $ 10.00          385
                                                          ---------     ------------                                  -------
                                                            800,000        2,028,484                                  $37,133
                                                          =========     ============                                  =======
</TABLE>

------------------------------

(1) These Common Shares were issued to certain trustees and executive officers
    of the Company between October 12, 1999 and December 29, 1999.

(2) Offering for 1,600,000 shares of non-voting Series B Convertible Preferred
    Stock, par value $.001 per share, with liquidation preference of $25.00 per
    share. The shares are convertible into Common Shares at $16.00 per share.
    Dividends are payable

                                      F-17
<PAGE>
                            KEYSTONE PROPERTY TRUST

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

6. SHAREHOLDERS' EQUITY (CONTINUED)
    quarterly at an annual rate of $2.4375 per share of Series B Preferred Stock
    and are subject to an increase in the event the annual dividend per share on
    the Common Shares exceeds $1.56. The Series B Preferred Stock is redeemable
    by the Company at any time for cash payments equal to an amount which
    produces a 17% internal rate of return to the preferred shareholder. After
    the fifth anniversary of the issuance date through the ninth anniversary of
    the redemption price is based on a defined premium as specified in the
    subscription agreement.

(3) Offering for 800,000 shares of non-voting Series C Convertible Preferred
    Stock, par value $.001 per share, with liquidation preference of $25.00 per
    share. The shares are convertible into Common Shares at $15.75 per share.
    Dividends are payable quarterly at an annual rate of $2.4375 per share of
    Series C Preferred Stock and are subject to an increase in the event the
    annual dividend per share on the Common Shares exceeds $1.54. The Series C
    Preferred Stock is not redeemable by the Company prior to September 27,
    2004.

(4) Shares issued as partial consideration for the RMIT acquisition.

(5) Shares issued to trustees as compensation in lieu of cash for trustee fees.

(6) Unit redemptions represent Common Shares issued upon conversion of OP Units.

(7) These restricted stock awards were issued to certain executives and
    employees and vest over a two-year period from the date of grant. (Note 9)

(8) Offering for 800,000 shares of non-voting Series A Convertible Preferred
    Stock, par value $.001 per share, with a liquidation preference of $25.00
    per share. These shares are convertible into Common Shares at $16.50 per
    share. Dividends are payable quarterly at an annual rate of $2.25 per
    Series A Preferred Share and are subject to an increase in the event the
    annual dividend per share on the Common Shares exceeds $1.485. The Series A
    Preferred Shares are not redeemable by the Company prior to December 15,
    2003.

(9) These shares were issued as a partial repayment for certain indebtedness
    encumbering certain properties in the Pioneer Portfolio, which was acquired
    on August 19, 1998.

(10) Investors were funds managed by Morgan Stanley Asset Management, Inc. and
    CRA Real Estate Securities, L.P. This private placement includes a provision
    for a purchase price adjustment on July 9, 2000 if the Company fails to
    consummate a Qualifying Offering, as defined in the subscription agreement,
    with net proceeds to the Company of at least $150.0 million and a per share
    price of at least $16.50. This purchase price adjustment is equal to 2.5% of
    the Common Shares outstanding on July 9, 2000 multiplied by the average
    price of the Company's Common Shares during the 30-day period ending on the
    third business day prior to July 9, 2000.

    MINORITY INTEREST AND CONVERTIBLE PREFERRED UNITS

    Minority interest represents interests in the Operating Partnership owned by
its limited partners. Income allocated to the minority interest is based on the
ownership of the limited partners throughout the year. Pursuant to the amended
and restated partnership agreement, the limited partners of the Operating
Partnership received a conversion right, which enables each limited partner to
convert their interests in the Operating Partnership into Common Shares or cash,
at the election of the Company at any time on a one for one basis. The number of
shares relating to the conversion right remains stable irrespective of the
market price of the Company's Common Shares. The limited partners, in the
aggregate, excluding 2.2 million of Convertible Preferred Units outstanding
could convert their partnership interests in the Operating Partnership into
7.3 million, 7.0 million and 4.1 million Common Shares as of December 31, 1999,
1998 and 1997, respectively. OP Units totaling 19,416, 139,948 and 96,240 were
converted for Common Shares in 1999, 1998 and 1997, respectively.

                                      F-18
<PAGE>
                            KEYSTONE PROPERTY TRUST

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

6. SHAREHOLDERS' EQUITY (CONTINUED)

    The Company has three series of non-voting Convertible Preferred Units
outstanding all of which have a liquidation value of $25 per share. The 300,000
Series B Convertible Preferred Units have a conversion price of $16.50 and
required a preferred return of 9.0% which increases to 9.5% in 2000. The
1,434,136 Series C Convertible Preferred Units have a conversion price of $16.00
and require a preferred return of 9.75%. The 450,700 Series D Convertible
Preferred Units have a conversion price of $16.50 and require a preferred return
of 9.0%. The preferential return on the Series C Convertible Preferred Units is
subject to increase in the event the annual distribution on common OP Units
exceeds $1.56. The Series B Convertible Preferred Units are redeemable by the
Company at any time. The Series C and Series D Convertible Preferred Units are
not redeemable by the Company prior to September 27, 2004 and July 21, 2004,
respectively.

7. RELATED PARTY TRANSACTIONS

    The Company subleased office space in Denver, Colorado from Black Creek
Capital, LLC. The lease agreement requires a monthly lease payment of $1,346.
This lease expired on December 31, 1999. A current trustee and a former director
of the Company's predecessor are principal officers and members of Black Creek
Capital, LLC.

    The Company has leases with companies in which trustees of the Company are
officers and shareholders. The annual aggregate base rental revenue under these
leases was approximately $974,000 and $1.1 million at December 31, 1999 and
1998, respectively.

    The Company incurred costs during 1999 and 1998 related to capital and
tenant improvements of $591,000 and $397,000, leasing commissions of
$1.3 million and $92,000, and repair, maintenance and other costs of $21,000 and
$55,000, respectively, which were earned by the companies in which the Company's
Chairman and one of its trustees are officers and shareholders.

    Certain limited partners of the Operating Partnership, which include certain
trustees and entities in which certain trustees have an ownership interest, have
guaranteed an aggregate of approximately $58.4 million and $37.8 million of the
mortgage loans as of December 31, 1999 and 1998, respectively.

    Through the Operating Partnership's 100% ownership of the preferred stock of
the Management Company, the Operating Partnership is entitled to receive 95% of
the amounts paid as dividends by the Management Company. The remaining amounts
paid as dividends by the Management Company are paid to the holders of common
stock of the Management Company. Jeffrey E. Kelter, Hudson Bay Partners, L.P.
and McBride own 40%, 30% and 30%, respectively, of the common stock of the
Management Company. No dividends were paid by the Management Company in 1999,
1998 or 1997. Total management fees paid by the Operating Partnership's
properties to the Management Company are included in property operating expenses
in the accompanying statements of operations and amounted to $3.0 million and
$1.1 million during 1999 and 1998, respectively. The Management Company also
receives reimbursements of certain costs attributable to the operation of the
properties. Such reimbursements are included in property operating expenses and
general and administrative expenses in the accompanying statements of operations
and amounted to $2.8 million and $294,000 during 1999 and 1998, respectively.
The Company also incurred $565,000 and $84,000 of leasing commissions in 1999
and 1998 related to services performed by the Management Company. No management
fees, other reimbursements or leasing commissions were incurred in 1997. The
Management Company also manages one property, which is owned by a limited
partnership in which the Company's Chief Executive Officer and President has a
general partnership interest.

                                      F-19
<PAGE>
                            KEYSTONE PROPERTY TRUST

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

7. RELATED PARTY TRANSACTIONS (CONTINUED)
    In December 1999, the Company acquired an 89% interest (and escrowed OP
Units to purchase the remaining 11%) in a limited partnership, which owns a
407,100 square foot industrial building in Central Pennsylvania. The Company's
Chief Executive Officer and President was the general partner and certain other
executives were limited partners in this limited partnership. Subsequent to this
acquisition, the Company's Chief Executive Officer and President and certain
other executive officers are limited partners in this limited partnership. The
purchase price of this building was $16.0 million and the consideration
consisted of $14.6 million in cash and $1.4 million in OP Units at a price of
$15.26, which was the 30-day average price of the Company's Common Shares prior
to the acquisition date.

    In connection with the RMIT transaction, the Company agreed to guarantee a
$12.5 million loan from Reckson Associates Realty Corp. ("Reckson") to certain
shareholders and executives of the Morris Companies (the "Morris Shareholders"),
including Joseph Morris, who was elected a trustee of the Company as a result of
the consummation of the RMIT transaction. Scott Rechler, who is President and
Co-Chief Executive Officer of Reckson, is also a trustee of the Company. The
Morris Shareholders have pledged $25.0 million of Series C Convertible Preferred
OP Units as collateral for this loan which bears interest payable monthly at
15%. Under the terms of the loan agreement, the Morris shareholders are
obligated to pay to Reckson monthly interest at the Prime Rate plus .50% (the
"Morris Interest") and the Company is obligated to pay the difference in
interest cost between the Morris Interest and 15%. During 1999, the Company
incurred $198,000 related to this obligation. The maturity of this loan is the
earlier of September 27, 2001 or the date upon which the Morris Shareholders are
able to consummate a re-financing of this obligation with a commercial lender.
The Company has also loaned an affiliate of the Morris Shareholders
approximately $800,000 under the terms of a note which matures on October 1,
2001. This note requires monthly interest payments equal to the Prime Rate plus
1%.

    In connection with the RMIT transaction, the Company is obligated to pay for
the twelve month period beginning January 1, 2000, a monthly construction
management fee to an affiliate of Reckson equal to $308,000. The Company has
capitalized and accrued this obligation as a cost of the RMIT transaction at
December 31, 1999.

    The Company is obligated to pay the Morris Companies additional purchase
price related to the RMIT transaction in an amount equal to 1.5% of the monthly
rent collected from the tenants in the acquired buildings. These payments are
required to be made monthly during the period of October 1999 until
October 2002. The Company has estimated the amounts due under this obligation
and has capitalized a portion of these payments aggregating $900,000 as
additional purchase price at December 31, 1999. The remaining portion will be
expensed as incurred over the three-year period as it relates to services to be
performed by the Morris Companies.

    As discussed further in Note 9, Hudson Bay, Mr. Kelter and Mr. McBride
contributed their outstanding warrants to the Operating Partnership in exchange
for OP Units.

    As further discussed in Notes 9 and 11, two executive officers have
outstanding loans from the Company related to Common Share issuances and
purchases.

                                      F-20
<PAGE>
                            KEYSTONE PROPERTY TRUST

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

8. OPERATING LEASES

    The Company's properties are leased to tenants generally under operating
leases with expiration dates extending through 2015. Future minimum rentals
under noncancellable operating leases, excluding tenant reimbursements of
operating expenses as of December 31, 1999 are as follows:

<TABLE>
<CAPTION>
                                                              (IN 000'S)
                                                              ----------
<S>                                                           <C>
2000........................................................   $ 90,631
2001........................................................   $ 77,534
2002........................................................   $ 66,441
2003........................................................   $ 54,887
2004........................................................   $ 45,722
Thereafter..................................................   $214,324
</TABLE>

    The revenue resulting from straight-line rental income adjustments for the
years ended December 31, 1999 and 1998 was $1.9 million and $1.3 million,
respectively. No straight line rent revenue was recognized in 1997. No tenant
represented more than 10% of the minimum rental revenues for 1999, 1998 and
1997.

9. BENEFIT PLANS AND STOCK WARRANTS

    STOCK OPTIONS AND RESTRICTED STOCK AWARDS

    The Company's Omnibus Incentive Plan (the "Plan"), as amended in 1998, has
authorized the grant of compensatory awards consisting of stock options, stock
awards, stock appreciation rights and other stock-based awards representing up
to 10% of the combined number of Common Shares and OP Units of the Operating
Partnership outstanding to certain officers and employees. Incentive stock
options are to be granted at not less than the fair market value of the
Company's stock on the date of the grant and the term cannot exceed ten years.
The vesting period of each grant varies and is determined at the date of grant.
During 1999, the Company granted 18,000 non-qualified options to certain
employees. During 1998, the Company granted 156,250 incentive stock options and
447,500 non-qualified options to certain employees. Each option is exchangeable
for one Common Share and has an exercise price ranging from $14.50 to $16.50,
the Company's market price at the grant date. These options have a ten-year term
and vest pro-rata in annual installments ranging from two to five years from the
grant date.

    In April 1999, the Company issued 100,000 Common Shares to its President and
Chief Executive Officer, Jeffrey Kelter, in consideration for a non-interest
bearing recourse note of $1.3 million. The note is also secured by the 100,000
Common Shares issued to Mr. Kelter. The loan is to be forgiven by the Company
annually at $186,000 per year over its seven-year term as long as Mr. Kelter
remains employed by the Company. These shares carry dividend and voting rights.
This loan has been shown in the accompanying financial statements as a reduction
in shareholders' equity.

    In 1999 and 1998, the Company granted 1,554 and 37,242 shares of restricted
Common Shares, respectively, to certain executives and employees under the Plan
as compensation. These shares carry dividend and voting rights and vest over a
two-year period. The shares issued under this Plan were recorded at their fair
market value on the date of grant with a corresponding charge of $22,000 and
$540,000 to shareholders' equity, which was recorded in additional paid-in
capital. The unearned

                                      F-21
<PAGE>
                            KEYSTONE PROPERTY TRUST

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

9. BENEFIT PLANS AND STOCK WARRANTS (CONTINUED)
portion is amortized to compensation expense over the two-year vesting period.
At December 31, 1999, the Company amortized $280,000 of compensation expense
relating to these restricted shares.

    In 1994, the Company adopted and authorized the Non-Employee Stock Option
Plan (the "Non-Employee Plan") and 300,000 shares were authorized thereunder in
the form of non-qualified stock options for issuance to certain trustees or
consultants. The exercise price for each option granted under the Non-Employee
Plan cannot be less than the fair market value of the Company's Common Shares
underlying the option at the date of grant. The term of each option is ten years
and each option is exercisable upon the date of grant, provided that the option
holder remains a trustee, employee or consultant to the Company during the
exercise period.

    The following table summarizes the activity and balance outstanding for each
plan for 1999, 1998 and 1997:

<TABLE>
<CAPTION>
                                                     1999                  1998                   1997
                                              -------------------   -------------------   --------------------
                                                         WEIGHTED              WEIGHTED               WEIGHTED
                                                         AVERAGE               AVERAGE                AVERAGE
                                                         EXERCISE              EXERCISE               EXERCISE
                                              OPTIONS     PRICE     OPTIONS     PRICE      OPTIONS     PRICE
                                              --------   --------   --------   --------   ---------   --------
<S>                                           <C>        <C>        <C>        <C>        <C>         <C>
OMNIBUS INCENTIVE PLAN
Outstanding, beginning of year..............  602,250     $15.18         --     82,000    $   10.00
Granted.....................................   18,000      15.24    603,750    $ 15.18       45,000     10.00
Exercised...................................       --         --         --         --
Forfeited...................................  (15,500)     15.08     (1,500)     16.50     (127,000)   $10.00
                                              -------     ------    -------    --------   ---------    ------
Outstanding, end of year....................  604,750     $15.18    602,250    $ 15.18           --        --
                                              =======     ======    =======    ========   =========    ======
NON-EMPLOYEE PLAN
Outstanding, beginning of year..............   18,000     $10.00     56,500    $ 10.00      104,000    $10.00
Granted.....................................       --         --         --     55,000        10.00
Exercised...................................   (2,200)     10.00    (38,500)     10.00       (5,000)    10.00
Forfeited...................................       --         --         --    (97,500)       10.00
                                              -------     ------    -------    --------   ---------    ------
Outstanding, end of year....................   15,800     $10.00     18,000    $ 10.00       56,500    $10.00
                                              =======     ======    =======    ========   =========    ======
</TABLE>

    The following table summarizes information about stock options exercisable
at December 31, 1999:

<TABLE>
<CAPTION>
                                                     NUMBER OF   WEIGHTED AVERAGE
YEAR                                                  OPTIONS     EXERCISE PRICE
----                                                 ---------   ----------------
<S>                                                  <C>         <C>
December 31, 1997..................................    56,500         10.00
December 31, 1998..................................    34,667         12.76
December 31, 1999..................................   181,703         14.43
</TABLE>

    Any award issued under the plans which is forfeited, expires or terminates
prior to vesting or exercise is available for future award under the plans. In
connection with the Reorganization, 388,700 options held by certain executives
were cancelled, in consideration for payments aggregating $1.4 million which the
executives elected to receive in the form of 129,449 Common Shares which were
issued as a result of the Reorganization and 22,500 options awarded to certain
directors in 1997 were cancelled at no cost to the Company. In addition, the
Company had entered into employment agreements with two former officers of the
Company and a consulting agreement with the former Chairman of the Board. These
agreements were terminated with the Reorganization. Pursuant to the

                                      F-22
<PAGE>
                            KEYSTONE PROPERTY TRUST

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

9. BENEFIT PLANS AND STOCK WARRANTS (CONTINUED)
terms of these agreements, these former officers elected to receive these
payments in 41,817 Common Shares. Accordingly, the cost of terminating these
agreements of approximately $620,000, based upon the December 12, 1997 market
price of the Common Shares, was expensed upon the closing of the Reorganization.

    The Company accounts for its stock-based options under Accounting Principles
Board Opinion No. 25, under which no compensation expense related to options has
been recognized, as all options have been granted with an exercise price equal
to or greater than the fair value of the Company's Common Shares on the date of
grant. The Company adopted Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" ("SFAS No. 123") for disclosure
purposes in 1996. In accordance with SFAS No. 123, the fair value of each option
grant has been estimated as of the date of grant using an option pricing model
with the following assumptions for 1999, 1998 and 1997, respectively: 7.00%
dividend yield; an expected life of 3.5 years; expected volatility of 29%, 29%
and 27%; and a risk free interest rate of 5.0%, 4.97% and 5.74%. The weighted
average fair value of those shares granted in 1999, 1998 and 1997 was $2.20,
$1.96 and $1.08, respectively, per option granted. The weighted average
remaining contractual life of the options outstanding is 8.7 years.

    Using these assumptions, the fair value of the stock options granted in
1999, 1998 and 1997, which were not cancelled as a result of the Reorganization,
was approximately $45,000, $1,323,000 and $35,000, respectively. Had
compensation cost been determined consistent with SFAS No. 123, utilizing the
assumptions detailed above, the Company's net income would have been reduced to
the following pro forma amounts:

<TABLE>
<CAPTION>
                                                     FOR THE YEARS ENDED DECEMBER 31,
                                                      (DOLLARS IN 000'S, EXCEPT PER
                                                              SHARE AMOUNTS)
                                                   ------------------------------------
                                                     1999          1998          1997
                                                   --------      --------      --------
<S>                                                <C>           <C>           <C>
Net income:
  As reported....................................   $6,328       $11,173        $1,243
  Pro forma (unaudited)..........................   $6,283       $10,961        $1,238

Basic earnings per share:
  As reported....................................   $  .83       $  1.77        $  .92
  Pro forma (unaudited)..........................   $  .82       $  1.74        $  .92

Diluted earnings per share
  As reported....................................   $  .80       $  1.73        $  .88
  Pro forma (unaudited)..........................   $  .80       $  1.70        $  .88
</TABLE>

    WARRANTS

    In conjunction with the Predecessor's initial public offering in 1993,
Dickinson & Co. received a warrant to purchase up to 107,500 Common Shares at an
exercise price of $16.50 per share at any time during the period from
November 3, 1993 to November 2, 1998. In conjunction with the acquisition of
Quadrangles Village apartments, another investor received a warrant to purchase
175,000 Common Shares at a price of $10.00 per share at any time during the
period from December 2, 1994 to December 2, 1999. Both of these warrants were
terminated in connection with the Reorganization for cash payments of $25,000
and $641,000, respectively.

                                      F-23
<PAGE>
                            KEYSTONE PROPERTY TRUST

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

9. BENEFIT PLANS AND STOCK WARRANTS (CONTINUED)
    In connection with the Reorganization, 300,000 Common Share warrants, with
an expiration date of December 12, 2004, were issued to Hudson Bay and 250,000
and 125,000 OP Unit warrants were issued to Jeffrey Kelter and David McBride,
respectively, at an exercise price of $11.00 per share or OP Unit. The Common
Share warrants issued to Hudson Bay and the OP Unit warrants issued to Jeffrey
Kelter and David McBride were valued at $685,000 at issuance. In December 1999,
Hudson Bay and Mr. Kelter contributed these outstanding warrants to the
Operating Partnership as consideration for the issuance of 125,103 and 106,552
OP Units, respectively. In January 2000, Mr. McBride contributed 125,000 OP Unit
warrants to the Operating Partnership in exchange for 46,379 OP Units.

10. EARNINGS PER SHARE

    The following is a reconciliation of the numerators and denominators of the
basic and diluted EPS computations.

<TABLE>
<CAPTION>
                                                                BASIC        DILUTED
                                                                 (DOLLARS IN 000'S,
                                                              EXCEPT PER SHARE AMOUNT)
                                                              ------------------------
<S>                                                           <C>          <C>
YEAR ENDED DECEMBER 31, 1999
Net income..................................................  $    6,328   $     6,328
Add: Minority interest allocation...........................          --         5,592
                                                              ----------   -----------
                                                              $    6,328   $    11,920
                                                              ==========   ===========
Weighted average number of shares outstanding...............   7,622,010     7,622,010
Stock equivalents...........................................          --     7,188,807
                                                              ----------   -----------
                                                               7,622,010    14,810,817
                                                              ==========   ===========
Earnings per share..........................................  $      .83   $       .80
                                                              ==========   ===========
YEAR ENDED DECEMBER 31, 1998

Net income..................................................  $   11,173   $    11,173
Add: Minority interest allocation...........................          --         9,342
Preferred dividends and distributions.......................          --            55
                                                              ----------   -----------
                                                              $   11,173   $    20,570
                                                              ==========   ===========
Weighted average number of shares outstanding...............   6,299,281     6,299,281
Stock equivalents...........................................          --     5,609,480
                                                              ----------   -----------
                                                               6,299,281    11,908,761
                                                              ==========   ===========
Earnings per share..........................................  $     1.77   $      1.73
                                                              ==========   ===========
</TABLE>

                                      F-24
<PAGE>
                            KEYSTONE PROPERTY TRUST

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

10. EARNINGS PER SHARE (CONTINUED)

<TABLE>
<CAPTION>
                                                                BASIC       DILUTED
                                                              ----------   ----------
<S>                                                           <C>          <C>
YEAR ENDED DECEMBER 31, 1997

Net income..................................................  $    1,243   $    1,243
Add: Minority interest allocation...........................          --          876
                                                              ----------   ----------
                                                              $    1,243   $    2,119
                                                              ==========   ==========
Weighted average number of shares outstanding...............   1,347,297    1,347,297
Stock equivalents...........................................          --    1,056,707
                                                              ----------   ----------
                                                               1,347,297    2,404,004
                                                              ==========   ==========
Earnings per share..........................................  $      .92   $      .88
                                                              ==========   ==========
</TABLE>

    The Company's weighted average stock equivalents consisted of the following:

<TABLE>
<CAPTION>
                                                                1999        1998        1997
                                                              ---------   ---------   ---------
<S>                                                           <C>         <C>         <C>
Options and warrants........................................    169,524     233,623      92,973
Convertible Preferred Stock and Convertible Preferred
  Units.....................................................         --      35,284          --
OP Units....................................................  7,019,283   5,340,573     963,734
                                                              ---------   ---------   ---------
                                                              7,188,807   5,609,480   1,056,707
                                                              =========   =========   =========
</TABLE>

11. COMMITMENTS AND CONTINGENCIES

    Three officers of the Company have employment agreements which provide for
aggregate initial base compensation of $600,000 subject to increases as approved
by the Compensation Committee, among other incentive compensation. In addition,
at December 31, 1999, an executive has a non-interest bearing recourse loan
outstanding of $359,000 from the Company, which the executive used to acquire
25,000 Common Shares. Under the terms of his employment agreement, $33,333 of
this loan is forgiven annually on each anniversary date of the start of his
employment by the Company. This loan has been shown in the accompanying
financial statements as a reduction in shareholders equity.

    The Company has guaranteed bank loans held by certain executives with which
these executives acquired stock in the Company. The Company advanced funds to
these executives on an interest bearing basis to fund these purchases until the
respective executives bank loans were funded in January 1999. At December 31,
1998, the Company had $464,000 outstanding from these executives for stock
purchases. These advances were repaid by the executives in January 1999.

    The Company has $10.2 million in outstanding letters of credit at
December 31, 1999 of which $10.0 million secures the Company's obligation to
close Phase II of the RMIT transaction which is scheduled to close in 2000. The
remaining letter of credit relates to the construction of an 80,000 square foot
office building in Allentown, Pennsylvania which is scheduled to be completed in
2000.

    As discussed further in Note 7, the Company has guaranteed a $12.5 million
loan which the Morris Shareholders have with Reckson as part of the RMIT
transaction.

    See Notes 6 and 7 for additional discussion of commitments of the Company
related to an equity issuance in 1998 and the RMIT transaction, which was
consummated in September 1999.

                                      F-25
<PAGE>
                            KEYSTONE PROPERTY TRUST

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

11. COMMITMENTS AND CONTINGENCIES (CONTINUED)
    LITIGATION

    In the normal course of business, the Company is involved in legal actions
relating to the ownership and operation of its properties. In management's
opinion, the liabilities, if any, that may ultimately result from such legal
actions are not expected to have a materially adverse effect on the consolidated
financial position, results of operations, or cash flows of the Company.

ENVIRONMENTAL MATTERS

    All of the Company's properties have been subject to Phase I environmental
assessments (and, in certain instances, Phase II environmental assessments).
Such assessments have not revealed, nor is management aware of, any
environmental liability that management believes would have a material adverse
effect on the accompanying consolidated financial statements.

12. INTERIM RESULTS (UNAUDITED)

    The following presents a summary of the unaudited quarterly financial
information for the years ended December 31, 1999, 1998 and 1997:

<TABLE>
<CAPTION>
                                                                                     1999
                                                              --------------------------------------------------
                                                                           THREE MONTH PERIOD ENDED
                                                                 (DOLLARS IN 000'S, EXCEPT PER SHARE AMOUNTS)
                                                              --------------------------------------------------
                                                              MARCH 31    JUNE 30    SEPTEMBER 30   DECEMBER 31
                                                              ---------   --------   ------------   ------------
<S>                                                           <C>         <C>        <C>            <C>
Revenue.....................................................  $ 18,033    $18,449      $20,454        $27,590
Income before equity in earnings (losses) from equity method
  investments, gains on sales of assets, distribution to
  preferred unitholders and preferred shareholders, minority
  interest of unitholders in Operating Partnership and
  extraordinary item........................................     3,679      3,584        3,755          5,048
Equity in earnings (losses) from equity method
  investments...............................................      (486)        (4)         143            285
Gains on sales of assets....................................     1,284         --           --             --
Distributions to preferred unitholders......................      (169)      (168)        (406)        (1,297)
Minority interest of unitholders in Operating Partnership...    (1,813)    (1,387)      (1,420)          (972)
                                                              --------    -------      -------        -------
Net income before net income allocated to preferred
  shareholders..............................................     2,495      2,025        2,072          3,064
Income allocated to preferred shareholders..................      (450)      (450)        (515)        (1,913)
                                                              --------    -------      -------        -------
Net income available to common shareholders.................  $  2,045    $ 1,575      $ 1,557        $ 1,151
                                                              ========    =======      =======        =======
Basic earnings per Common Share.............................  $    .28    $   .21      $   .21        $   .14
                                                              ========    =======      =======        =======
Diluted earnings per Common Share...........................  $    .27    $   .20      $   .20        $   .14
                                                              ========    =======      =======        =======
</TABLE>

                                      F-26
<PAGE>
                            KEYSTONE PROPERTY TRUST

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

12. INTERIM RESULTS (UNAUDITED) (CONTINUED)

<TABLE>
<CAPTION>
                                                                                     1998
                                                              --------------------------------------------------
                                                                           THREE MONTH PERIOD ENDED
                                                                 (DOLLARS IN 000'S, EXCEPT PER SHARE AMOUNTS)
                                                              --------------------------------------------------
                                                              MARCH 31    JUNE 30    SEPTEMBER 30   DECEMBER 31
                                                              ---------   --------   ------------   ------------
<S>                                                           <C>         <C>        <C>            <C>
Revenue.....................................................  $  5,741    $ 7,994      $11,869        $15,424
Income before equity in earnings (losses) from equity method
  investments, gains on sales of assets, distribution to
  preferred unitholders and preferred shareholders, minority
  interest of unitholders in Operating Partnership and
  extraordinary item........................................     1,792      2,249        2,921          3,043
Equity in losses from equity method investments.............      (162)      (299)        (562)          (144)
Gains on sales of assets....................................     6,880      5,072           --             --
Distributions to preferred unitholders......................        --         --           --            (15)
Minority interest of unitholders in Operating Partnership...    (3,617)    (3,403)      (1,086)        (1,346)
Extraordinary loss on debt extinguishment, net of $110,000
  allocated to minority interest of unitholders in Operating
  Partnership...............................................        --         --           --           (110)
                                                              --------    -------      -------        -------
Net income before net income allocated to preferred
  shareholders..............................................     4,893      3,619        1,273          1,428
Income allocated to preferred shareholders..................        --         --           --            (40)
                                                              ========    =======      =======        =======
Net income available to common shareholders.................  $  4,893    $ 3,619      $ 1,273        $ 1,388
                                                              ========    =======      =======        =======
Basic earnings per Common Share.............................  $   0.90    $  0.66      $  0.19        $   .19
                                                              ========    =======      =======        =======
Diluted earnings per Common Share...........................  $   0.87    $  0.66      $  0.18        $   .18
                                                              ========    =======      =======        =======
</TABLE>

<TABLE>
<CAPTION>
                                                                                     1997
                                                              --------------------------------------------------
                                                                           THREE MONTH PERIOD ENDED
                                                                 (DOLLARS IN 000'S, EXCEPT PER SHARE AMOUNTS)
                                                              --------------------------------------------------
                                                              MARCH 31    JUNE 30    SEPTEMBER 30   DECEMBER 31
                                                              ---------   --------   ------------   ------------
<S>                                                           <C>         <C>        <C>            <C>
Revenue.....................................................   $2,226      $1,867       $1,738        $ 2,366
Loss before equity in earnings (losses) from equity method
  investments, gains on sales of assets, distributions and
  minority interest of unitholders in Operating
  Partnership...............................................     (125)        (23)         (53)        (2,692)
Equity in earnings (losses) from equity method
  investments...............................................      130         134          173            (33)
Gains on sales of assets....................................      403          --        4,205             --
Minority interest of Unitholders in Operating Partnership...       --          --       (1,988)         1,112
                                                               ------      ------       ------        -------
Net income (loss)...........................................   $  408      $  111       $2,337        $(1,613)
                                                               ======      ======       ======        =======
Basic earnings (loss) per Common Share......................   $ 0.36      $ 0.10       $ 2.07        $  (.79)
                                                               ======      ======       ======        =======
Diluted earnings (loss) per Common Share....................   $ 0.22      $ 0.06       $ 2.07        $  (.92)
                                                               ======      ======       ======        =======
</TABLE>

13. SEGMENTS

   The Company adopted Statement of Financial Accounting Standards No. 131,
"Disclosures About Segments of an Enterprise and Related Information," in 1998
which changes the way the Company reports information about its operating
segments.

    The Company's Chief Executive Officer assesses and measures operating
results based upon property level operating income on an individual asset basis
within each of the Company's business segments. The Company considers its
reportable segments to be office, industrial, multi-family and other. Other
properties consist of a community shopping center, which was sold in 1999, and
an

                                      F-27
<PAGE>
                            KEYSTONE PROPERTY TRUST

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

13. SEGMENTS (CONTINUED)
investment in a direct financing lease. The accounting policies of the
reportable segments are consistent with those described in Note 2. Summarized
financial information concerning the Company reportable segments is shown in the
following table:

<TABLE>
<CAPTION>
BUSINESS SEGMENTS                                               1999       1998       1997
-----------------                                             --------   --------   --------
                                                                        (IN 000'S)
<S>                                                           <C>        <C>        <C>
REVENUES:
Industrial properties.......................................  $ 47,196   $ 18,545   $    287
Office properties...........................................    36,491     18,478        320
Multifamily properties......................................        --      1,860      7,304
Other properties............................................       625      1,863         88
Other (1)...................................................       214        282        198
                                                              --------   --------   --------
                                                              $ 84,526   $ 41,028   $  8,197
                                                              ========   ========   ========

PROPERTY OPERATING INCOME:
Industrial properties.......................................  $ 30,814   $ 12,330   $    213
Office properties...........................................    18,564     10,299        227
Multifamily properties......................................        --      1,234      3,464
Other properties............................................       431      1,158         74
                                                              --------   --------   --------
                                                              $ 49,809   $ 25,021   $  3,978
                                                              ========   ========   ========

CAPITAL EXPENDITURES:
Industrial properties.......................................  $    816   $     67   $     --
Office properties...........................................     3,746        746         --
Multifamily properties......................................        --         --      1,152
Other properties............................................        --         93         --
                                                              --------   --------   --------
                                                              $  4,562   $    906   $  1,152
                                                              ========   ========   ========

DEPRECIATION AND AMORTIZATION EXPENSE:
Industrial properties.......................................  $  9,810   $  3,623   $     53
Office properties...........................................     6,549      3,094         57
Multifamily properties......................................        --         --        792
Other properties............................................        --        194          7
                                                              --------   --------   --------
                                                              $ 16,359   $  6,911   $    909
                                                              ========   ========   ========

INVESTMENT IN REAL ESTATE, AT COST:
Industrial properties.......................................  $604,710   $311,273   $ 55,205
Office properties...........................................   254,166    221,650     58,082
Multifamily properties......................................        --         --     31,705
Other properties............................................     1,460      9,946     10,071
                                                              --------   --------   --------
                                                              $860,336   $542,869   $155,063
                                                              ========   ========   ========
</TABLE>

    The following is a reconciliation of segment property income as shown above
to the accompanying consolidated statement of operations for each respective
year:

                                      F-28
<PAGE>
                            KEYSTONE PROPERTY TRUST

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

13. SEGMENTS (CONTINUED)

<TABLE>
<CAPTION>
                                                                1999       1998       1997
                                                              --------   --------   --------
                                                                    (DOLLARS IN 000'S)
<S>                                                           <C>        <C>        <C>
Segment property operating income as shown above............  $ 49,809   $ 25,021   $ 3,978
General and administrative expense..........................    (3,650)      (759)     (732)
Buyout of employment agreements, options and warrants.......        --         --    (3,203)
Interest expense............................................   (30,307)   (14,539)   (3,134)
Other income (1)............................................       214        282       198
                                                              --------   --------   -------
Income (loss) before equity in (losses) earnings from equity
  method investments, gains on sales of assets,
  distributions to preferred unitholders and preferred
  shareholders, minority interest of unitholders in
  Operating Partnership and extraordinary items.............  $ 16,066   $ 10,005   $(2,893)
                                                              ========   ========   =======
</TABLE>

------------------------

(1) Amount consists of interest income not allocated to a specific business
    segment.

14. SUBSEQUENT EVENTS

    In January 2000, the Company acquired its 50% joint venture partners'
ownership interest in a limited partnership, which constructed a 500,000 square
foot industrial building in Indianapolis, Indiana, for $8.9 million. The
consideration for this acquisition was $5.9 million in OP Units and
$3.0 million in cash.

    In January 2000, the Company declared a dividend of $.295 per Common Share
payable on January 31, 2000 to all shareholders of record on January 18, 2000.

    In January 2000, the Company consummated the sale of 102,511 Common Shares
to a trustee of the Company, the Company's Chairman, and to other individuals
for aggregate net proceeds of approximately $1.5 million.

                                      F-29
<PAGE>
                                   SIGNATURES

    Pursuant to the requirements of Section 13 or 15(d) of the Securities and
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.

<TABLE>
<S>                                                    <C>  <C>
                                                       KEYSTONE PROPERTY TRUST

                                                       By:            /s/ JEFFREY E. KELTER
                                                            -----------------------------------------
                                                                        Jeffrey E. Kelter
                                                              PRESIDENT AND CHIEF EXECUTIVE OFFICER
</TABLE>

    Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.

<TABLE>
<CAPTION>
                      SIGNATURE                                   TITLE                    DATE
                      ---------                                   -----                    ----
<C>                                                    <S>                          <C>
                /s/ JEFFREY E. KELTER
     -------------------------------------------       President, Chief Executive     March 28, 2000
                  Jeffrey E. Kelter                      Officer and Trustee

               /s/ TIMOTHY A. PETERSON
     -------------------------------------------       Executive Vice President,      March 28, 2000
                 Timothy A. Peterson                     Chief Financial Officer

               /s/ TIMOTHY E. MCKENNA                  Senior Vice President--
     -------------------------------------------         Finance (Principal           March 28, 2000
                 Timothy E. McKenna                      Accounting Officer)

                /s/ DAVID F. MCBRIDE
     -------------------------------------------       Chairman and Trustee           March 28, 2000
                  David F. McBride

               /s/ JAMES R. MULVIHILL
     -------------------------------------------       Trustee                        March 28, 2000
                 James R. Mulvihill

                 /s/ DAVID H. LESSER
     -------------------------------------------       Trustee                        March 28, 2000
                   David H. Lesser

                /s/ FRANCESCO GALESI
     -------------------------------------------       Trustee                        March 28, 2000
                  Francesco Galesi
</TABLE>

                                      II-1
<PAGE>

<TABLE>
<CAPTION>
                      SIGNATURE                                   TITLE                    DATE
                      ---------                                   -----                    ----
<C>                                                    <S>                          <C>
               /s/ MICHAEL J. FALCONE
     -------------------------------------------       Trustee                        March 28, 2000
                 Michael J. Falcone

                /s/ RUSSELL C. PLATT
     -------------------------------------------       Trustee                        March 28, 2000
                  Russell C. Platt

                /s/ SCOTT H. RECHLER
     -------------------------------------------       Trustee                        March 28, 2000
                  Scott H. Rechler

                /s/ JOSEPH D. MORRIS
     -------------------------------------------       Trustee                        March 28, 2000
                  Joseph D. Morris
</TABLE>

                                      II-2