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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS PUSUANT TO SECTIONS 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
(Mark One)
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 2003
-----------------
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from_____________to_____________
Commission file number 0-50268
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THE NEWKIRK MASTER LIMITED PARTNERSHIP
------------------------------------------------------
(Exact Name of Registrant as Specified in Its Charter)
Delaware 11-3636084
-------- ----------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
7 Bulfinch Place, Suite 500, Boston, Massachusetts 02114
- -------------------------------------------------- -----
(Address of Principal Executive Offices) (Zip Code)
(617) 570-4600
--------------
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Units of Limited
Partnership Interest
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities 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 mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of 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. |_|
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2).
Yes |_| No |X|
There is no public market for the Units of Limited Partnership Interest.
Accordingly, information with respect to the aggregate market value of Units of
Limited Partnership Interest has not been supplied.
DOCUMENTS INCORPORATED BY REFERENCE
None.
TABLE OF CONTENTS
Page
FORWARD-LOOKING STATEMENTS.....................................................1
PART I
ITEM 1. BUSINESS........................................................2
ITEM 2. PROPERTIES.....................................................14
ITEM 3. LEGAL PROCEEDINGS..............................................28
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS............29
PART II
ITEM 5. MARKET FOR LIMITED PARTNERSHIP UNITS, RELATED
SECURITY HOLDER MATTERS AND ISSUER PURCHASES
OF EQUITY SECURITIES...........................................30
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA...........................32
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS............................33
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK......45
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA....................46
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE............................46
ITEM 9A. CONTROLS AND PROCEDURES........................................47
PART III
ITEM 10. MANAGERS AND EXECUTIVE OFFICERS OF THE REGISTRANT..............48
ITEM 11. EXECUTIVE COMPENSATION.........................................50
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT AND RELATED SECURITY HOLDER MATTERS.................50
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.................51
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.........................56
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON
FORM 8-K.......................................................57
FORWARD-LOOKING STATEMENTS
In addition to historical information, this document contains
forward-looking statements. Forward-looking statements include information
relating to our intent, belief or current expectations, primarily, but not
exclusively, with respect to:
o economic outlook;
o capital expenditures;
o cash flow;
o operating performance;
o financing activities;
o industry developments, including trends affecting our business; and
o financial condition and results of operations.
We identify forward-looking statements in this registration statement by
using words or phrases such as "anticipate," "believe," "estimate," "expect,"
"intend," "may be," "objective," "plan," "predict," "project" and "will be" and
similar words or phrases (or the negative thereof).
The forward-looking information involves important risks and uncertainties
that could cause our actual results, performance or achievements to differ
materially from our anticipated results, performance or achievements expressed
or implied by such forward-looking statements. These risks and uncertainties
include, but are not limited to:
o occupancy rates and market rents, which may be adversely affected by
economic and market conditions which are beyond our control,
including the financial condition of our tenants;
o uncertainties relating to potential changes in interest rates and
the availability of financing;
o uncertainties relating to our property portfolio;
o uncertainties relating to our operations;
o uncertainties relating to unexpected capital expenditures;
o uncertainties relating to domestic and international economic and
political conditions; and
o uncertainties regarding the impact of regulations, changes in
government policy, rules or laws and industry competition.
Although we believe the expectations reflected in such forward-looking
statements are based upon reasonable assumptions, we cannot assure you that such
expectations will be attained or that any deviations will not be material. We
disclaim any obligation or undertaking to disseminate to you any updates or
revisions to any forward-looking statement contained in this registration
statement to reflect any change in our expectations or any changes in events,
conditions or circumstances on which any statement is based.
PART I
ITEM 1. BUSINESS
General
Your partnership is a Delaware limited partnership that owns commercial
properties, most of which are net-leased to investment grade corporate tenants,
as well as other real estate assets. Your partnership commenced operations on
January 1, 2002 following the completion of a transaction that we refer to as
the exchange, involving the merger into wholly-owned subsidiaries of your
partnership of 90 limited partnerships, each of which owned commercial
properties, and the acquisition by your partnership of various assets, including
those related to the management or capital structure of those partnerships. See
"Structure Chart" below. Each of the 90 partnerships, which we refer to as the
"Newkirk partnerships", was organized and sponsored by Integrated Resources,
Inc. between 1978 and 1984 and owned one or more commercial properties that we
refer to as the "Newkirk properties". Integrated Resources filed for
reorganization under Chapter 11 of the U.S. Bankruptcy Code in February 1991 and
is no longer in existence. Members of the Newkirk Group, which consists of
affiliates of Apollo Real Estate Fund III, L.P., executive officers of Winthrop
Financial Associates, and affiliates of Vornado Realty Trust, first acquired
interests in the Newkirk partnerships in 1997.
Your partnership's initial capital structure consisted of units of limited
partnership interest, which we refer to as units, that were issued in the
exchange. These units were not registered under the Securities Act of 1933 (the
"Securities Act") in reliance on an exemption from registration under that Act.
There is no public market for the units, and there are substantial restrictions
on the transfer of units.
As of March 29, 2004, there were 6,310,983 units outstanding, 6,121,990 of
which were issued in the exchange and the balance of which were issued in a
subsequent transaction. The outstanding units reflect the repurchase by your
partnership of 128,820 units issued in the exchange.
Description of Assets
General. As of December 31, 2003, your partnership owned an interest in
225 of the Newkirk properties, subordinated interests in a securitized pool of
notes evidencing first mortgage indebtedness secured by certain of your
partnership's properties as well as other properties, limited partnership
interests in various partnerships that own commercial net-leased properties,
including 43 properties that are owned by partnerships whose operations are
consolidated for financial reporting purposes with those of your partnership,
substantially all of the interests in two entities that hold unsecured debt
obligations of your partnership, an interest in a management company that
provides services for your partnership as well as other real estate
partnerships, ground leases, remainder interests or the right to acquire
remainder interests in various properties and miscellaneous other assets. In
addition, your partnership or an affiliate of your partnership's general partner
controls the general partner of the real estate limited partnerships in which
your partnership owns limited partnership interests, and your partnership has an
option to acquire in the future second mortgage debt secured by a substantial
number of your partnership's properties as well as the properties owned by 9
other partnerships. As of December 31, 2003, your partnership's commercial
properties represented approximately 86% of the total value of your
partnership's assets.
2
Properties. The table below summarizes as of December 31, 2003,
information on the 225 Newkirk properties and 43 properties owned by 7 limited
partnerships whose operations are consolidated for financial reporting purposes
with those of your partnership. We refer to the partnerships that own the 43
properties as the consolidated partnerships and their properties as the
consolidated properties.
Property Type Number Square Footage
------------- ------ --------------
Office 39 7,724,000
Retail 206 6,441,000
Other 23 5,277,000
---------- ----------
TOTAL 268 19,442,000
========== ==========
The primary lease terms on the properties generally range from 20 to 25
years from their original commencement dates (between 1977 and 1984) with
primary term rents, typically above market, which, in most cases, fully amortize
the first mortgage debt on the properties. In addition, tenants generally have
multiple renewal options, with rents, on average, below market.
Below is a listing of tenants which accounted for 3% or more of the
aggregate rental revenues in 2003 from the Newkirk properties and the
consolidated properties:
Square Feet 2003 Percentage of Aggregate
Tenant Leased Revenues ($) Rental Revenues
------ ------ ------------ ---------------
Raytheon (1) 2,006,993 $40,421,162 13.63%
Albertson's, Inc. 2,609,979 29,857,244 10.07%
USF&G/The St Paul Co. 530,000 25,532,489 8.61%
Honeywell 727,557 19,799,258 6.68%
Federal Express 592,286 14,811,530 5.00%
Cummins Engine Company, Inc. 390,100 13,557,463 4.57%
Owens-Illinois 707,482 13,363,280 4.51%
Entergy Gulf States 453,189 11,394,759 3.84%
Stater Bros. Markets 1,434,152 9,319,153 3.14%
- ----------
(1) Property leased to Raytheon represented approximately 12.4% of your
partnership's total assets as of December 31, 2003. Raytheon is a public
company subject to the reporting requirements under the Securities
Exchange Act of 1934. As of December 31, 2003, no other lessee leased
property representing more than 10% of your partnership's total assets.
3
The following chart sets forth certain information as of December 31, 2003
concerning lease expirations on the Newkirk properties and the consolidated
properties (assuming no renewals) from 2004 to 2013:
Number of Properties Approximate Aggregate
at which sq/ft. Covered by Rental for Percentage of Total
Lease Expires Expiring Leases Leases Expiring ($) (1) Annualized Rental (1)
------------- --------------- ----------------------- ---------------------
2004 29 405,063 4,227,142 1.60%
2005 23 1,003,143 6,083,467 2.30%
2006 30 2,410,240 26,982,528 10.22%
2007 32 3,005,442 37,284,017 14.12%
2008 89 7,588,666 109,912,613 41.62%
2009 42 2,622,307 62,126,878 23.52%
2010 1 820,868 2,780,007 1.05%
2011 2 154,700 2,176,540 0.82%
2012 9 395,000 3,187,136 1.21%
2013 1 39,600 788,722 0.30%
- ----------
(1) Based on estimated base rent for the year ended December 31, 2004 and
excludes rent on a property in Dallas, Texas with multiple tenants. See "ITEM 2.
PROPERTIES."
Please see "ITEM 2. PROPERTIES" for more detailed information regarding
your partnership's properties.
Limited Partnership Interests in Other Partnerships. Your partnership owns
between 32.1% and 60.5% of the limited partnerships interests in the
consolidated partnerships as well as between .5% and 36.88% of the limted
partnerships interests in 8 other partnerships that own commercial net leased
properties. We refer to these latter partnerships as the unconsolidated
partnerships.
General Partner Interests. Your partnership or an affiliate of your
general partner controls each of the general partners of (i) the 7 consolidated
partnerships, (ii) the 8 unconsolidated partnerships and (iii) 6 other
partnerships that own commercial net leased properties. Your partnership has
only a negligible economic interest, if at all, in each general partner entity
that it controls.
The Management Company. Your partnership holds a 50.01% interest in
Newkirk Capital LLC. Newkirk Capital's wholly-owned subsidiary, Newkirk Asset
Management LLC, provides asset management services for your partnership and 9
other limited partnerships, the general partners of which are controlled by your
partnership. In 2002, $7,373,196 of asset management fees were paid, or accrued
for payment, to Newkirk Asset Management for services to your partnership and
the other partnerships. In 2003 approximately $7,000,000 of asset management
fees were paid, or accrued for payment, to Newkirk Asset Management. For
financial statement purposes, management fees received from the partnerships
that own the Newkirk properties and the consolidated properties are eliminated
in consolidation. Newkirk Asset Management also provides services in connection
with the sale, refinancing and re-leasing of properties owned by your
partnership and other partnerships for additional fees. In turn, Newkirk Asset
Management presently retains Winthrop Financial Associates, an affiliate of your
partnership's general partner, to perform accounting, asset management and
investor relations services for an annual fee of $1,800,000, subject to
adjustment based on increases in the Consumer Price Index (the "CPI"). The
adjustment for 2003 was 2.4%
4
bringing the fee to $1,843,200. All of the fees paid to Newkirk Asset Management
inure to the benefit of your partnership and its partners. Your partnership
realizes the benefits of the fee payments through its ownership interest in
Newkirk Capital and through its ownership of Newkirk Finco LLC (discussed
below). A substantial portion of these fees are not reflected in your
partnership's financial statements as they are eliminated in consolidation.
Pursuant to the terms of Newkirk Capital's Limited Liability Company
Agreement, Administrator LLC, which holds the 49.99% interest in Newkirk
Capital, is entitled to receive 100% of the distributions paid by Newkirk
Capital until Administrator LLC receives $2,568,000 annually and thereafter, the
balance of the distributions are paid to your partnership. Administrator LLC is
owned by former principals and employees of Integrated Resources, Inc. and is
not affiliated with the Newkirk Group. Those individuals owned various assets,
including interests in the general partners, related to the Newkirk
partnerships. In 1997, entities controlled by those individuals sold to members
of the Newkirk Group assets related to the Newkirk partnerships which assets
were eventually acquired by your partnership in the exchange. As part of the
1997 transaction members of the Newkirk Group made a $40 million loan to
Administrator LLC. The priority distribution to Administrator LLC enables
Administrator LLC to pay interest on the promissory note evidencing the loan.
The note is held by Newkirk Finco LLC which is wholly-owned by your partnership.
Accordingly, your partnership effectively receives 100% of the fees paid to
Newkirk Capital. The note bears interest at a rate of 6.42% per annum and
matures on November 20, 2007. Prior to maturity, the note requires payments of
interest only. The note is secured solely by Administrator LLC's 49.99%
membership interest in Newkirk Capital and is otherwise non-recourse.
Accordingly, if Administrator LLC were to default on the note, Newkirk Finco LLC
would have the ability to foreclose on Administrator LLC's interest in Newkirk
Capital. To ensure payment of interest on the note, Administrator LLC has
directed Newkirk Capital to pay directly to Newkirk Finco LLC all distributions
payable to Administrator LLC in respect of its interest in Newkirk Capital. As
owner of Newkirk Finco LLC, your partnership will receive as interest payments
the amount of any distributions made by Newkirk Capital to Administrator LLC.
Your partnership's ownership interest in Newkirk Capital is pledged to
Administrator LLC to secure certain obligations owed to Administrator LLC by the
Newkirk Group. Creditworthy affiliates of the Newkirk Group have agreed to
indemnify your partnership for losses that it may incur as a result of the
failure of the Newkirk Group to satisfy such obligations.
First Mortgage Interests. Your partnership owns the three most junior
classes of interests in a securitized pool of first mortgages with respect to 31
first mortgage loans encumbering a total of 65 of the Newkirk properties, two of
the consolidated properties and one other property owned by partnerships that
are controlled by affiliates of your partnership's general partner. In general,
the classes of interests in the pool of first mortgage loans represent
priorities of payments. When a payment is made by your partnership on one of
these loans, the first amounts are used to make the required payments to the
holders of senior interests. As a result, if the number of loan defaults results
in loan payments insufficient to fully satisfy the payments due on all
interests, payments will be made in the order of priority until all required
payments are made. If there is a default in the payment due on any interest the
entire loan is in default. However, in determining whether and when to exercise
various remedies upon a default, the servicer (the entity that manages the trust
fund into which the loans are pooled) must take into consideration what is best
for all interest holders.
The interests held by your partnership are subordinate to interests which
had an original principal balance of $371,506,000 and a balance at December 31,
2003 of $179,257,000.. The following table provides certain information with
respect to each of the first mortgage interests held by your partnership.
5
Class E Class F Class G
Certificate Certificate Certificate
----------- ----------- -----------
Contractual Principal Amount
at December 31, 2003 $4,824,000 $3,859,000 $5,794,000
Interest Rate 8.33% 8.38% 8.33%
Rating (Standard & Poor's) BB B Not Rated
Unsecured Loans. Your partnership beneficially owns 97.775% of the
interests in NK-Leyden Loan, L.P. which holds a $1,905,000 unsecured note of
your partnership and 97.324% of the interests in NK-Dautec Loan, L.P., which
holds a $1,075,000 unsecured note of your partnership. Your partnership acquired
these interests in connection with the exchange in order to substantially reduce
debt service costs associated with two properties owned by your partnership and
to eliminate potential conflicts relating to the unsecured loans in each case,
by owning a significant portion of the entity to which your partnership is
indebted. The remaining interests in these two entities are held by unaffiliated
third parties.
The $1,905,000 note provides for the payment of interest only at a basic
rate of 8% per annum until maturity on December 31, 2006. Additional interest,
which together with the basic interest can aggregate up to 25% per annum, is
payable after the establishment of reserves. Interest is payable solely out of
excess cash flow (as defined under the loan) from a property owned by your
partnership in Toledo, Ohio. Your partnership has the right to extend the loan
for 10 years. In that event the unpaid balance on the loan (including accrued
but unpaid interest) will thereafter bear interest at 18% per annum and be
required to be self-amortized over the remaining term of the loan. The principal
amount outstanding on this note at December 31, 2003 and 2002 was $1,905,000.
For financial statement purposes, the principal balance and interest income are
eliminated in consolidation.
The $1,075,000 note matures on May 1, 2008 and provides for payments of
principal and interest solely out of excess cash flow (as defined under the
loan) from a property owned by your partnership in New Kingston, Pennsylvania.
The basic interest rate is 8% per annum and additional interest, which together
with the basic interest can aggregate up to 18% per annum, is payable if excess
cash flow exceeds specified levels. The principal amount outstanding on this
note at December 31, 2003 and December 31, 2002 was $685,958 and $865,834,
respectively. For financial statement purposes, the principal balance and
interest income are eliminated in consolidation.
The Subordinate Mortgage Interests. In addition to being encumbered by
first mortgage loans, 181 of your partnership's Newkirk properties are
encumbered by second mortgage loans which as of December 31, 2003 had an
outstanding balance, including accrued interest, of approximately $354,952,000.
Prior to the transactions described below, affiliates of your partnership's
general partner, through a limited partnership called T-Two Partners, owned
subordinated beneficial interests in these and certain other second mortgage
loans. Senior beneficial interests in the second mortgage loans were held by an
unaffiliated entity and three junior tranches of such senior beneficial
interests were held by certain members of the Newkirk Group. Also prior to the
transactions described below, the owners of T-Two Partners had an option, which
we refer to as the put option, to require your partnership to purchase T-Two
Partners in December 2007 in exchange for units in your partnership and your
partnership had an option, which we refer to as the call option, to purchase
T-Two Partners in January 2008 in exchange for units in your partnership.
On November 24, 2003, your partnership obtained a $208,473,427 loan from
Fleet National Bank that bears interest at a rate elected by your partnership
equal to either (1) LIBOR plus 450 basis points or (2)
6
the prime rate charged by Fleet National Bank plus 250 basis points. The loan
was obtained to replace your partnership's existing loan from Fleet National
Bank, and effectively reduced the interest rate on such borrowing from a minimum
of 8.5% to a floating rate which is presently 5.71% and that will in no event
exceed 9.5%, after giving effect to the three-year interest rate protection
agreement entered into by your partnership. The loan is scheduled to mature on
November 24, 2006, subject to two one-year extensions. The loan requires monthly
payments of interest only which are currently approximately $976,000 per month.
In addition, mandatory prepayments of principal are required from the proceeds
of property sales and refinancings and other asset sales, as well as up to
$1,312,500 per quarter to the extent that T-Two Partners does not make the
required principal payments on the T-Two Loan that is described below. Your
partnership can prepay the loan in whole or in part at any time together with a
premium of 1% if such prepayment occurs on or before November 24, 2004, 1/2% if
such prepayment occurs between November 25, 2004 and November 24, 2005 and
thereafter with no premium. In addition, your partnership and T-Two Partners may
prepay up to $50,000,000 annually of this loan and the T-Two Loan without a
premium. The loan is secured by substantially all of the assets of your
partnership, and contains customary financial and other covenants consistent
with the prior loan from Fleet National Bank. The loan balance at December 31,
2003 was $208,355,757.
On November 24, 2003, at the same time as your partnership obtained its
loan from Fleet National Bank, T-Two Partners obtained a $316,526,573 loan from
Fleet National Bank. We refer to this loan as the T-Two Loan. The interest rate,
maturity date and principal terms of the T-Two Loan are the same as your
partnership's loan. T-Two Partners used part of the proceeds of the T-Two Loan
to purchase the senior beneficial interests in the second mortgage loans
encumbering your partnership's and certain other partnerships' properties so
that T-Two Partners is now the 100% beneficial owner of these second mortgage
loans. We refer to these senior beneficial interests as the T-1 Certificate. The
T-Two Loan is secured by all the assets of T-Two Partners, including the second
mortgage loans receivable from your partnership. Your partnership guaranteed
repayment of the T-Two Loan to Fleet National Bank. In consideration for your
partnership's guarantee, the owners of T-Two Partners agreed to the elimination
of their put option, and to provide a credit line to your partnership bearing
interest at LIBOR plus 450 basis points. Any amounts advanced to your
partnership under the credit line would have to be repaid in full before your
partnership could purchase the interests in T-Two Partners if your partnership
exercises the purchase option described below. The loan balance at December 31,
2003 was $315,901,500.
T-Two Partners will reimburse your partnership for approximately
$7,346,000 of closing costs incurred in connection with the Fleet loan and the
T-Two Loan, together with interest thereon at a rate equal to LIBOR plus 450
basis points.
Your partnership's call option had previously provided for the acquisition
of the interests in T-Two Partners in January 2008 in exchange for a number of
units in your partnership to be determined at the time of exercise based on an
agreed-upon formula. Your partnership and the owners of T-Two Partners modified
your partnership's option in certain respects. First, the option can now be
exercised by your partnership at any time between November 24, 2006 and November
24, 2009. Second, the purchase price is payable in cash rather than units in
your partnership. Finally, the formula for determining the purchase price
payable by your partnership if it exercises the option has been revised in a
manner that your partnership's general partner believes to be significantly more
favorable to your partnership than the formula previously in effect.
Specifically, the purchase price is calculated as follows: the sum of
$316,526,573 plus T-Two Partners' costs of obtaining the T-Two Loan
(approximately $7,346,000) and administering the trust that holds the second
mortgage loans, together with interest on the foregoing sum at the effective
rate of interest paid by T-Two Partners on the T-Two Loan, less all payments
made from and after November 24, 2003 on the second mortgage loans.
7
All of the above transactions were entered into in connection with the
settlement of an action that had been brought in the Connecticut Superior Court
against your partnership's general partner and various of its affiliates. See
"ITEM 3. LEGAL PROCEEDINGS."
On November 23, 2003, your partnership also acquired from T-Two Partners a
second mortgage loan on a property in El Segundo, California in which your
partnership has a 53% interest. The mortgage loan was acquired for $6,250,000
which represented its principal balance and accrued interest. The mortgage loan
bears interest at 8.0% per annum and matures in December 2023.
8
STRUCTURE CHART
Set forth below is a chart setting forth the structure of your
partnership.
MASTER PARTNERSHIP STRUCTURE
---------------------------- --------------------------- ---------------------------
Former Limited Partners of
the Newkirk Partnerships (1) MLP GP LLC (2) The Newkirk Group (3)
(Other than the Newkirk
Group)
---------------------------- --------------------------- ---------------------------
LIMITED PARTNER \ GENERAL PARTNER | LIMITED PARTNER /
\ | /
19.5% \ | / 80.5%
\ | /
\ | /
\ | /
-------------------------------------------------------------------------
THE NEWKIRK MASTER
LIMITED PARTNERSHIP
-------------------------------------------------------------------------
/ / | | \ \
/ / | | \ \
/ / | | \ \
/ / | | \ \
/ 100% / 100% | | 100% \ 100% \ 50.01%
/ / | | \ \
- ------------------------------- ------------------- | ------------------ --------------------- -----------------------
Subsidiary Limited Partnerships Limited Partnership | Newkirk GP LLC (6) Newkirk Finco LLC (7) Newkirk Capital LLC (8)
which hold the Newkirk interests (5) |
properties (4) |
- ------------------------------- ------------------- | ------------------ --------------------- -----------------------
|
|
|-------------------|------------------|------------------|----------------|---------------------------|
| 100% | 100% | 97.775% | 97.324% | 100% | 100%
| | | | | |
- ---------------- ----------------- --------------- --------------- --------------- ------------------------------------
NK-Remainder Option to Acquire NK-Leyden NK-Dautec Secured Debt NK First Loan E Certificate LLC
Interest LLC (9) Subordinate Loan, L.P. (11) Loan, L.P. (11) Obligation (12) NK First Loan F Certificate LLC
Mortgage NK First Loan G Certificate LLC (13)
Interests (10)
- ---------------- ----------------- --------------- --------------- --------------- ------------------------------------
9
(1) As a result of the exchange, the outstanding limited and general
partnership interests in the Newkirk partnerships held by "accredited
investors" (as that term is defined pursuant to Regulation D under the
Securities Act) were converted into the right to receive units. Limited
partners in Newkirk partnerships who were not "accredited investors"
received a one-time cash payment in exchange for their limited partnership
interests.
(2) This entity is the general partner of your partnership, but has no
economic interest in your partnership. It is owned by affiliates of
Vornado Realty Trust and executives of Winthrop Financial Associates.
(3) The Newkirk Group consists of affiliates of Apollo Real Estate Investment
Fund III, L.P., executive officers of Winthrop Financial Associates and
affiliates of Vornado Realty Trust. See "ITEM 12. SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED SECURITY HOLDER
MATTERS" for more information on the allocation of units in your
partnership among members of The Newkirk Group.
(4) As part of the exchange, which took place on January 1, 2002, each Newkirk
partnership was merged with and into a separate newly formed limited
partnership that is wholly owned by your partnership, as a result of which
your partnership became the owner of the properties and other assets
previously owned by the Newkirk partnerships, subject to the liabilities
of such partnerships.
(5) Consists of limited partnership interests in the consolidated partnerships
and the unconsolidated partnerships. See "- Description of Assets -
Properties" above.
(6) Controls the general partner interests in (i) 3 of the consolidated
partnerships, (ii) 3 of the unconsolidated partnerships and (iii) 6
additional partnerships that own net leased property. See "- Description
of Assets - The Management Company" above.
(7) Holds a non-recourse note from the minority partner in Newkirk Capital
LLC, your partnership's management company, secured solely by the minority
partner's membership interest in Newkirk Capital LLC. See "- Description
of Assets - The Management Company" above.
(8) Performs management services for your partnership and 9 other affiliated
partnerships for which it receives fees. See "- Description of Assets -
The Management Company" above.
(9) Owns ground leases, or owns or has the right to acquire remainder
interests, in the land underlying certain properties owned by your
partnership and other real estate limited partnerships.
(10) The subordinated mortgage interests are held by T-Two Partners, L.P.,
which is owned by NK-CR Holdings LLC and Holdings Subsidiary LLC,
affiliates of The Newkirk Group. Your partnership has the right to acquire
T-Two Partners, L.P. between November 2006 and November 2009. See "-
Description of Assets - The Subordinate Mortgage Interests" above.
10
(11) Holds an unsecured debt obligation of your partnership. See "- Description
of Assets - Unsecured Loans" above.
(12) Secured debt obligation of Cenland Associates Limited Partnership. This
obligation was fully satisfied in 2003. See "ITEM 2. PROPERTIES - Property
Matters.
(13) Own subordinated interests in a securitized pool of first mortgage
indebtedness with respect to 31 first mortgage loans encumbering a total
of 65 of the Newkirk properties, two of the consolidated properties and
one other property owned by affiliated partnerships. See "- Description of
Assets - First Mortgage Interests" above.
Description of Indebtedness
See "- Description of Assets - The Subordinate Mortgage Interests" for a
description of your partnership's loan with Fleet National Bank and the related
T-Two Loan to T-Two Partners. The loan requires your partnership and T-Two
Partners to maintain an aggregate minimum consolidated debt service coverage
ratio (i.e., the ratio of your partnership's and T-Two Partners' consolidated
net cash revenues from investments, exclusive of debt payable to T-Two Partners,
before property-level debt service to their total consolidated debt service) of
at least 1.15 during the initial 36 month term and at least 1.25 during the
extension periods. Your partnership and T-Two Partners are also required to
maintain an aggregate minimum debt service coverage ratio (i.e., the ratio of
your partnership's and T-Two Partners' net cash revenue from investments,
exclusive of debt payable to T-Two Partners, after property-level debt service
to unconsolidated debt service) of at least 1.75 during the initial 36 month
term or 2.0 during the extension periods. If your partnership's and T-Two
Partners' aggregate debt service coverage ratio falls below 1.75 during the
initial 36 month term or 2.0 during the extension periods, then all cash flow of
your partnership and T-Two Partners will be deposited into a cash sweep account
as additional collateral for the loan and your partnership would be prohibited
from making distributions. As of December 31, 2003, your partnership's and T-Two
Partners aggregate consolidated debt service coverage ratio was 1.28 and their
debt service coverage ratio was 3.57. Your partnership's general partner
believes that your partnership will be able to maintain the required ratios and
does not anticipate that the maintenance of these ratios will have an adverse
impact on your partnership's financial condition.
Your partnership is also required to maintain a consolidated leverage
ratio (i.e., the ratio of (i) your partnership's and T-Two Partners' allocable
share of all indebtedness with respect to investments plus the outstanding
balance under the loan and the T-Two Loan, but exclusive of the mortgage
indebtedness of your partnership owed to T-Two Partners, to (ii) your
partnership's allocable share of its investments, with your partnership's
properties being valued based on discounted cash flow, during the first, second
and third years of the initial term of the loan and during the extension
periods, if any, of not more than 70%, 67%, 65%, 60% and 55%, respectively. In
addition, your partnership is required to maintain minimum liquid assets of at
least $5,000,000 and a minimum consolidated net worth, with your partnership's
properties being valued based on discounted cash flow, equal to $500,000,000
during the initial loan term, $525,000,000 during the first extended term and
$550,000,000 during the second extended term. The loan also limits your
partnership's ability to incur any direct debt or contingent liabilities.
11
See "ITEM 2. PROPERTIES" for information on your partnership's mortgage
indebtedness.
Unit Repurchase
On February 1, 2004, your partnership purchased from its limited partners
8,408 units at a price of $35 per unit. Your partnership had purchased 115,000
units from its limited partners for $35 per unit in February 2003.
Business Objectives and Strategies; Future Intentions
In general, your partnership seeks to enhance the value of your units by
availing itself of investment and development opportunities relating to existing
properties as well as by seeking other potential strategic transactions such as
the sale of your partnership to a third party.
Industry Segments and Seasonality
Your partnership's primary business is the ownership and management of
commercial net-leased properties. Most of your partnership's tenants are
investment-grade corporate tenants. The largest single tenant leased multiple
properties and accounted for approximately 13.63% of your partnership's rental
revenues from the Newkirk properties and the consolidated properties for 2003.
Reference is made to " - Description of Assets - Properties" above for
additional information on your partnership's most significant tenants. Our
business is not seasonal.
Competition
Numerous lessors and developers compete with your partnership's properties
in attracting tenants and corporate users. The principal means of competition
are rent charged, location, services provided and the nature and condition of
the facility to be leased. Some of these competing properties may be newer or
better located than your partnership's properties. The number of competitive
commercial properties in a particular area could have a material effect on your
partnership's ability to lease or develop space. In addition, your partnership
may not be in a position to materially benefit from any real estate market
appreciation for a number of years due to the fixed rate renewal term rates
under the various lease agreements encumbering the properties. Likewise, your
partnership will remain subject, after the initial lease terms expire, to
downturns in the real estate market and general economic conditions. Your
partnership does not operate outside of the United States.
Environmental Regulations
Under various federal, state and local laws and regulations, an owner or
operator of real estate may be held liable for the costs of removal or
remediation of hazardous or toxic substances located on or in the property.
These laws often impose such liability without regard to whether the owner knows
of, or was responsible for, the presence of such hazardous or toxic substances.
The cost of any required remediation or removal of such substances may be
substantial. In addition, the owner's liability as to any property is generally
not limited under such laws and regulations and could exceed the value of the
property and/or the aggregate assets of the owner. The presence of such
substances, or the failure to remediate such substances properly, may also
adversely affect the owner's ability to sell or lease the property or to borrow
using the property as collateral. Under such laws and regulations, an owner or
entity who arranges for the disposal or treatment of hazardous or toxic
substances at a disposal or
12
treatment facility may also be liable for the costs of removal or remediation of
all such substances at such facility, whether or not such facility is owned or
operated by such person. Some laws and regulations impose liability for the
release of certain materials into the air or water from a property, including
asbestos, and such release can form the basis for liability to third parties for
personal injury or other damages. Other laws and regulations can limit the
development of and impose liability for the disturbance of wetlands or the
habitats of threatened or endangered species.
Almost all of your partnership's properties are net-leased, and tenants
are therefore generally required to pay all of the expenses relating to the
leased property. Accordingly, your partnership's general partner believes that
compliance with federal, state and local provisions otherwise relating to the
properties or the environment will not have a material effect on the capital
expenditures, earnings or competitive position of your partnership. However, no
assurance can be given that material environmental liabilities do not exist,
that despite the leases in place your partnership will not be held liable for
environmental liabilities, that any prior owner or operator of a property or
land held for development did not create any material environmental condition
not known to your partnership, that a material environmental condition does not
otherwise exist as to any one or more of your partnership's properties or land
held for development, or that future uses and conditions (including changes in
applicable environmental laws and regulations and the uses and conditions of
properties in the vicinity, such as leaking underground storage tanks and the
activities of the tenants) will not result in the imposition of environmental
liability. No material expenditures have been made by your partnership to date
relating to environmental matters.
Employees
Your partnership has no employees. Winthrop Financial Associates, A
Limited Partnership, executive officers of which jointly own your partnership's
general partner with an affiliate of Vornado Realty Trust, provides the services
of some of its employees, including the executive officers of the manager of
your partnership's general partner, to perform asset management services for us.
Your partnership anticipates that each executive officer of the manager of our
general partner will devote a significant portion of his or her time to the
business of Winthrop Financial Associates and its other affiliates. Winthrop
receives an annual fee of $1,800,000 (subject to adjustment based on increases
in the CPI) for its services to your partnership and to 9 other partnerships,
the general partners of which are controlled by your partnership. The CPI
adjustment for 2003 was 2.4% bringing the fee to $1,843,200.
13
ITEM 2. PROPERTIES
General
Substantially all of the Newkirk properties and the consolidated
properties are net-leased to investment grade corporate tenants. At December 31,
2003 your partnership had six vacant properties that were not subject to leases.
These properties contained an aggregate of 111,000 square feet or approximately
..6% of the total space of all properties. Your partnership also had one
multi-tenanted property containing approximately 151,000 square feet or
approximately .8% of the total space of all properties. This property was sold
in January 2004. Your partnership's remaining properties are net leased to
various tenants. The leases are similar in many respects and generally: (i)
provide for fixed rent payments and obligate the tenant to pay all capital and
operating expenses for a property; (ii) obligate the tenant to perform all
responsibilities (other than the payment of debt service) relating to the
property; (iii) require the tenant to maintain insurance against casualty and
liability losses; (iv) permit the tenant to sublet the property; and (v) afford
the tenant in many instances the right to terminate the lease at certain points
during the primary term if it determines that continued use and occupancy of the
property would be uneconomic or unsuitable. Many of the leases grant the tenant
an option to purchase the property upon the expiration of the primary term of
the lease and at the end of one or more renewal terms for a purchase price equal
to the fair market value of such property. Your partnership maintains insurance
on properties that are not leased and the general partner believes that your
partnership's properties are adequately covered by insurance.
The following table sets forth certain information on the Newkirk
properties and the consolidated properties as of December 31, 2003. Except as
otherwise indicated in the table, the ownership interest is a fee interest in
the underlying land.
Approximate 2004 Lease
Leaseable Annualized Base Expiration/
Building Rent Per sq. ft. Option
Location Square Footage ($) Principal Tenant Expiration
-------- -------------- ---------------- ---------------- -----------
OFFICE:
Arkansas Little Rock 36,000 12.31 Entergy Gulf States 2005/2030
Pine Bluff 27,000 13.63 Entergy Gulf States 2005/2030
California El Segundo (4) 185,000 16.10 Raytheon 2008/2038
El Segundo (4) 185,000 16.10 Raytheon 2008/2038
Long Beach (1)(3) 478,000 35.51 Raytheon 2008/2038
Walnut Creek (1) 55,000 37.52 Hercules Credit, Inc. 2007/2037
Colorado Colorado Springs 71,000 31.13 Federal Express Corporation 2008/2038
Connecticut Clinton (1) (14) 41,000 15.12 Cheeseborough Ponds 2008/2033
Florida Orlando(1) 184,000 5.22 Martin Marietta Corporation 2008/2038
Orlando(1) 357,000 12.97 Harcourt Brace & Company 2009/2039
Indiana Columbus (1) 390,000 23.46 Cummins Engine Company Inc. 2009/2039
14
Approximate 2004 Lease
Leaseable Annualized Base Expiration/
Building Rent Per sq. ft. Option
Location Square Footage ($) Principal Tenant Expiration
-------- -------------- ---------------- ---------------- -----------
Kentucky Owensboro (1) (14) 443,000 9.19 Ragu Foods 2008/2033
Louisiana New Orleans (1) (15) 222,000 20.86 Hibernia Bank 2008/2033
New Orleans 181,000 20.19 Hibernia Bank 2008/2033
Maryland Baltimore(1) 530,000 48.14 USF&G/The Saint Paul Co. 2009/2039
Missouri Bridgeton(1) 54,000 10.58 The Kroger Co. 2006/2031
New Jersey Carteret 96,000 18.25 Supermarkets General Corp. 2011/2036
Elizabeth 30,000 25.73 Summit Bank 2008/2038
Morris Township(1)(5) 225,000 26.20 Honeywell 2008/2038
Morris Township(1)(5) 50,000 29.41 Honeywell 2008/2038
Morris Township(1)(5) 137,000 25.99 Honeywell 2008/2038
Morris Township (9) 221,000 23.05 Crum & Forster 2022/2042
Morristown(1) 316,000 27.87 Honeywell 2008/2038
Plainsboro(1) 2,000 77.97 Summit Bank 2008/2038
Nevada Las Vegas 282,000 24.63 Nevada Power Company 2014/2039
Ohio Miamisburg(1) 61,000 11.62 The Mead Corporation 2008/2038
Miamisburg(1) 86,000 6.01 Reed Elsevier, Inc. 2008/2038
Toledo(1) 707,000 18.89 Owens-Illinois 2006/2036
Pennsylvania Allentown 71,000 6.54 First Union Corp. 2005/2025
Tennessee Johnson City 64,000 10.58 SunTrust Bank 2006/2031
Kingport 43,000 10.98 American Electric Power 2008/2038
Memphis(1) 521,000 24.65 Federal Express Corporation 2009/2039
Memphis(1) 75,000 16.57 The Kroger Co. 2008/2038
Texas Beaumont(1) 426,000 26.46 Entergy Gulf States 2007/2037
Beaumont 50,000 29.10 Allied Lakewood Bank 2007/2037
Bedford(1) 207,000 12.65 Team Bank 2004/2039
Dallas (3 buildings) 185,000 16.39 Allied Lakewood Bank 2007/2037
Dallas(6) 151,000 18.66 (6) (6)
Garland (18) 279,000 19.13 E-Systems, Inc. 2006/2036
----------- ------
TOTAL/AVERAGE OFFICE 7,724,000 21.90
=========== ======
RETAIL:
Alabama Dothan(1) 54,000 3.94 Albertson's Inc. 2005/2035
Florence(1) 42,000 15.65 The Kroger Co. 2008/2038
Hunstville(1) 60,000 7.45 Albertson's Inc. 2007/2037
Huntsville(1) 58,000 5.98 Albertson's Inc. 2006/2036
Montgomery(1) 54,000 3.14 Albertson's Inc. 2005/2010
Montgomery 66,000 10.35 Albertson's Inc. 2007/2037
15
Approximate 2004 Lease
Leaseable Annualized Base Expiration/
Building Rent Per sq. ft. Option
Location Square Footage ($) Principal Tenant Expiration
-------- -------------- ---------------- ---------------- -----------
Tuscaloosa(1) 53,000 4.22 Albertson's Inc. 2005/2020
Arizona Ajo 10,000 7.16 Albertson's Inc. 2004/2039
Bisbee(1) 30,000 9.06 Safeway, Inc. 2009/2039
Glendale 3,000 13.74 CSK Auto 2004/2039
Mesa 3,000 15.08 CSK Auto 2004/2039
Mesa 3,000 11.10 CSK Auto 2009/2039
Mesa 3,000 15.06 CSK Auto 2004/2039
Phoenix 3,000 10.40 CSK Auto 2004/2039
Phoenix (9) 3,000 12.07 CSK Auto 2004/2039
Tucson 3,000 37.21 CSK Auto 2004/2039
Tucson(1) 37,000 9.77 Safeway, Inc. 2009/2039
California Anaheim(1) 26,000 7.02 Stater Bros. Markets 2008/2038
Atascadero 4,000 18.29 CSK Auto 2009/2039
Barstow 30,000 7.15 Stater Bros. Markets 2008/2038
Beaumont 4,000 17.36 CSK Auto 2009/2039
Beaumont 29,000 5.58 Stater Bros. Markets 2008/2038
Calimesa 29,000 6.99 Stater Bros. Markets 2008/2038
Colton 73,000 4.44 Stater Bros. Markets 2008/2038
Colton 26,000 6.03 Stater Bros. Markets 2008/2038
Corona(1) 33,000 7.76 Stater Bros. Markets 2008/2038
Corona(1) 9,000 26.43 Mark C. Bloome 2007/2037
Costa Mesa(1) 18,000 10.56 Stater Bros. Markets 2008/2038
Costa Mesa(1) 17,000 11.63 Stater Bros. Markets 2008/2038
Desert Hot Springs(1) 29,000 5.61 Stater Bros. Markets 2008/2038
Downey 39,000 12.09 Albertson's Inc. 2007/2037
El Toro 11,000 13.20 GoodYear Tire 2009/2039
Fontana 26,000 6.26 Stater Bros. Markets 2008/2038
Garden Grove(1) 26,000 6.82 Stater Bros. Markets 2008/2038
Glen Avon Heights(1) 42,000 6.00 Stater Bros. Markets 2008/2038
Huntington Beach 44,000 12.61 Albertson's Inc. 2009/2039
Indio(1) 10,000 22.70 Mark C. Bloome 2007/2037
Lancaster 42,000 12.75 Albertson's Inc. 2009/2039
Livermore(1) (13) 53,000 10.73 Albertson's Inc. 2006/2036
Lomita(1) 33,000 10.24 Alpha Beta Company 2006/2033
Mammoth Lakes(1) 44,000 18.33 Safeway, Inc. 2007/2037
Mojave(1) 34,000 6.55 Stater Bros. Markets 2008/2038
Morgan Hill 10,000 7.60 GoodYear Tire 2009/2039
Ontario(1) 24,000 7.64 Stater Bros. Markets 2008/2038
Orange(1) 26,000 9.81 Stater Bros. Markets 2008/2038
Paso Robles 7,000 10.72 CSK Auto 2009/2039
Pinole(1) 58,000 7.16 Alpha Beta Company 2011/2036
Pleasanton 175,000 6.73 Federated Department Stores 2012/2040
Rancho Cucamonga 24,000 7.26 Stater Bros. Markets 2008/2038
Redlands 11,000 6.21 GoodYear Tire 2009/2039
Rialto 29,000 5.74 Stater Bros. Markets 2008/2038
Rubidoux 39,000 4.97 Stater Bros. Markets 2008/2038
San Bernadino 30,000 10.02 Stater Bros. Markets 2008/2038
16
Approximate 2004 Lease
Leaseable Annualized Base Expiration/
Building Rent Per sq. ft. Option
Location Square Footage ($) Principal Tenant Expiration
-------- -------------- ---------------- ---------------- -----------
San Bernadino 40,000 7.23 Stater Bros. Markets 2008/2038
San Diego(1) 226,000 7.08 Nordstrom, Inc. 2016/2036
San Pablo 5,000 15.08 CSK Auto 2004/2039
Santa Ana(1) 26,000 7.23 Stater Bros. Markets 2008/2038
Santa Monica 150,000 5.74 Federated Department Stores 2012/2040
Santa Rosa (13) 22,000 8.34 Albertson's Inc. 2006/2036
Simi Valley(1) 40,000 12.03 Albertson's Inc. 2008/2038
Sunnymead 30,000 7.18 Stater Bros. Markets 2008/2038
Tustin (1) (16) 72,000 1.99 Mervyn's 2009/2033
Union City 10,000 8.13 GoodYear Tire 2009/2039
Ventura(1) 40,000 19.92 City of Buenaventura 2013/2013
Westminster 26,000 9.09 Stater Bros. Markets 2008/2038
Yorba Linda 11,000 8.56 GoodYear Tire 2009/2039
Yucaipa 31,000 4.13 Stater Bros. Markets 2008/2038
Colorado Aurora(13) 41,000 6.88 Albertson's Inc. 2005/2035
Aurora(13) 29,000 9.25 Albertson's Inc. 2005/2035
Aurora(1) 42,000 5.06 Albertson's Inc. 2006/2036
Aurora(1) 24,000 21.26 Safeway, Inc. 2007/2037
Federal Heights 3,000 14.16 CSK Auto 2004/2039
Littleton(13) 29,000 8.85 Albertson's Inc. 2005/2035
Littleton 39,000 12.17 Albertson's Inc. 2009/2039
Pueblo 3,000 14.39 CSK Auto 2004/2039
Florida Bradenton 60,000 12.16 Albertson's Inc. 2007/2037
Cape Coral 30,000 14.85 Albertson's/Lucky Stores 2008/2038
Casselberry(1) 68,000 11.26 Albertson's Inc. 2007/2037
Gainesville 41,000 12.53 Albertson's/Lucky Stores 2008/2038
Largo(13) 54,000 6.90 Albertson's Inc. 2005/2035
Largo 40,000 14.86 Albertson's/Lucky Stores 2008/2038
Largo 30,000 12.95 Albertson's/Lucky Stores 2008/2038
Orlando(1) 58,000 5.67 Albertson's Inc. 2006/2036
Pinellas Park 60,000 11.74 Albertson's Inc. 2007/2037
Port Richey(1) 54,000 4.02 Albertson's Inc. 2005/2035
Stuart(1) (7) 54,000 -- Vacant
Tallahassee(1)(13) 54,000 4.15 Albertson's Inc. 2005/2035
Venice 42,000 12.60 Albertson's Inc. 2006/2036
Georgia Atlanta(1) 6,000 33.11 Bank South, N.A. 2009/2039
Atlanta(1) 4,000 37.25 Bank South, N.A. 2009/2039
Chamblee(1) 5,000 35.81 Bank South, N.A. 2009/2039
Cumming(1) 14,000 25.83 Bank South, N.A. 2009/2039
Duluth(1) 9,000 26.52 Bank South, N.A. 2009/2039
Forest Park(1) 15,000 24.84 Bank South, N.A. 2009/2039
Jonesboro(1) 5,000 29.19 Bank South, N.A. 2009/2039
Stone Mountain (1) 6,000 30.84 Bank South, N.A. 2009/2039
Idaho Boise 37,000 15.76 Albertson's Inc. 2007/2037
Boise(1) 43,000 8.05 Albertson's Inc. 2008/2038
17
Approximate 2004 Lease
Leaseable Annualized Base Expiration/
Building Rent Per sq. ft. Option
Location Square Footage ($) Principal Tenant Expiration
-------- -------------- ---------------- ---------------- -----------
Illinois Champaign 31,000 5.55 Albertson's/Lucky Stores 2008/2038
Freeport 30,000 12.77 Albertson's/Lucky Stores 2008/2038
Rock Falls 28,000 14.57 Albertson's/Lucky Stores 2008/2038
Indiana Carmel 39,000 4.11 Marsh Supermarkets, Inc. 2008/2038
Lawrence 29,000 6.72 Marsh Supermarkets, Inc. 2008/2038
Kentucky Louisville(1) 10,000 11.57 The Kroger Co. 2006/2011
Louisville(1) 40,000 16.45 The Kroger Co. 2006/2036
Louisiana Baton Rouge 58,000 12.21 Albertson's Inc. 2007/2037
Minden 35,000 11.55 Safeway, Inc. 2007/2037
Montana Billings(1) 41,000 9.05 Safeway, Inc. 2007/2015
Bozeman(1)(13) 21,000 5.83 Albertson's Inc. 2005/2030
Nebraska Omaha 73,000 5.32 Albertson's Inc. 2006/2036
Omaha 66,000 10.71 Albertson's Inc. 2007/2037
Omaha 67,000 10.99 Albertson's Inc. 2007/2037
Nevada Las Vegas(13) 38,000 7.68 Albertson's Inc. 2005/2035
Las Vegas(1) 60,000 7.57 Alpha Beta Company 2006/2021
Las Vegas(1) 38,000 14.13 Albertson's Inc. 2008/2023
Las Vegas 3,000 20.58 CSK Auto 2009/2039
Las Vegas 3,000 12.35 CSK Auto 2004/2039
Reno(1) 42,000 13.16 Albertson's Inc. 2007/2037
New Jersey Garwood(1) 52,000 11.91 Supermarkets General Corp. 2006/2021
New Mexico Albuquerque (9) 3,000 12.61 CSK Auto 2004/2039
Albuquerque(1) 35,000 18.70 Safeway, Inc. 2007/2037
Deming 3,000 13.74 CSK Auto 2004/2039
Farmington 3,000 11.87 CSK Auto 2009/2039
Las Cruces 30,000 14.64 Albertson's Inc. 2007/2037
New York Portchester(1) 59,000 18.89 Supermarkets General Corp. 2008/2023
North Carolina Charlotte 34,000 2.90 Food Lion Stores, Inc. 2008/2038
Concord 32,000 6.09 Food Lion Stores, Inc. 2008/2038
Jacksonville 23,000 3.63 Food Lion Stores, Inc. 2008/2038
Jefferson(1) 23,000 3.17 Food Lion Stores, Inc. 2008/2013
Lexington(1) 23,000 6.02 Food Lion Stores, Inc. 2008/2038
Mint Hill(10) 23,000 -- Vacant
Thomasville 21,000 5.07 Food Lion Stores, Inc. 2008/2038
Ohio Cincinnati(1) 26,000 14.39 The Kroger Co. 2006/2011
18
Approximate 2004 Lease
Leaseable Annualized Base Expiration/
Building Rent Per sq. ft. Option
Location Square Footage ($) Principal Tenant Expiration
-------- -------------- ---------------- ---------------- -----------
Columbus(1) 34,000 23.44 The Kroger Co. 2006/2036
Franklin 29,000 3.83 Marsh Supermarkets, Inc. 2008/2038
Oklahoma Bethany 3,000 13.45 CSK Auto 2004/2039
Lawton(1) 31,000 10.84 Safeway, Inc. 2009/2039
Midwest City 3,000 15.73 CSK Auto 2004/2039
Oklahoma City (9) 3,000 13.32 CSK Auto 2004/2039
Warr Acres (9) 3,000 13.52 CSK Auto 2004/2039
Oregon Beaverton 42,000 13.02 Albertson's Inc. 2009/2039
Grants Pass(1) 34,000 8.65 Safeway, Inc. 2009/2039
Portland 42,000 8.29 Albertson's Inc. 2006/2036
Salem 52,000 7.81 Albertson's Inc. 2009/2039
Pennsylvania Doylestown 4,000 38.81 Meritor Savings Bank 2008/2038
Lansdale 4,000 41.04 Meritor Savings Bank 2008/2038
Lima 4,000 44.66 Meritor Savings Bank 2008/2038
Philadelphia 50,000 14.49 Supermarkets General Corp. 2005/2035
Philadelphia(8) 4,000 -- Vacant
Philadelphia 4,000 36.58 Meritor Savings Bank 2008/2038
Philadelphia 4,000 52.19 Meritor Savings Bank 2008/2038
Philadelphia 4,000 11.77 Meritor Savings Bank 2008/2038
Philadelphia 4,000 42.99 Meritor Savings Bank 2008/2038
Philadelphia 4,000 49.12 Meritor Savings Bank 2008/2038
Philadelphia 4,000 38.81 Meritor Savings Bank 2008/2038
Philadelphia 4,000 39.09 Meritor Savings Bank 2008/2038
Philadelphia 4,000 55.26 Meritor Savings Bank 2008/2038
Richboro 4,000 36.02 Meritor Savings Bank 2008/2038
Wayne 4,000 52.75 Meritor Savings Bank 2008/2038
South Carolina Moncks Corner(1) 23,000 2.69 Food Lion Stores, Inc. 2008/2018
Tennessee Chattanooga(1) 42,000 16.81 The Kroger Co. 2008/2038
Paris(1) 31,000 15.04 The Kroger Co. 2008/2038
Texas Carrolton(1) 61,000 8.24 Skaggs Alpha Beta 2006/2036
Dallas(1) 68,000 7.89 The Kroger Co. 2006/2019
Dallas 3,000 13.34 CSK Auto 2004/2039
Dallas 3,000 15.15 CSK Auto 2004/2039
El Paso 3,000 15.66 CSK Auto 2009/2039
El Paso 3,000 16.66 CSK Auto 2009/2039
Euless 5,000 8.82 CSK Auto 2004/2039
Fort Worth(1) 44,000 13.72 Safeway, Inc. 2007/2037
Garland 40,000 17.05 Safeway, Inc. 2007/2037
Garland (9) 3,000 14.98 CSK Auto 2004/2039
Granbury(1) 35,000 12.15 Safeway, Inc. 2007/2037
Grand Prairie(1) 49,000 10.02 Safeway, Inc. 2009/2039
Greenville(1) 48,000 4.20 Safeway, Inc. 2006/2036
Hillsboro(1) 35,000 9.62 Safeway, Inc. 2007/2037
19
Approximate 2004 Lease
Leaseable Annualized Base Expiration/
Building Rent Per sq. ft. Option
Location Square Footage ($) Principal Tenant Expiration
-------- -------------- ---------------- ---------------- -----------
Houston(1) 52,000 14.45 The Kroger Co. 2006/2036
Lubbock(1)(13) 54,000 3.62 Albertson's Inc. 2005/2035
Lubbock 3,000 15.55 CSK Auto 2009/2039
Midland 60,000 10.53 Albertson's Inc. 2009/2039
Odessa (9) 3,000 14.30 CSK Auto 2004/2039
Rockdale 44,000 3.80 Wal-Mart Stores, Inc. 2005/2035
Taylor 62,000 3.44 Wal-Mart Stores, Inc. 2005/2035
Texarkana (13) 46,000 7.50 Albertson's Inc. 2006/2036
Woodville 44,000 3.65 Wal-Mart Stores, Inc. 2005/2035
Utah Bountiful(1) 50,000 7.85 Skaggs Alpha Beta 2006/2016
Sandy(1) 42,000 4.78 Albertson's Inc. 2006/2016
Virginia Staunton(1) 23,000 7.20 Food Lion Stores, Inc. 2008/2038
Washington Bothell(1)(13) 28,000 4.69 Albertson's Inc. 2005/2035
Edmonds(1)(13) 35,000 4.75 Albertson's Inc. 2005/2025
Everett 35,000 17.22 Albertson's Inc. 2007/2037
Federal Way 42,000 9.76 Albertson's Inc. 2007/2037
Graham(1) 45,000 9.22 Safeway, Inc. 2009/2039
Kent 42,000 12.99 Albertson's Inc. 2009/2039
Milton(1) 45,000 10.63 Safeway, Inc. 2009/2039
Port Orchard(1) 28,000 3.57 Albertson's Inc. 2005/2025
Redmond(1) 45,000 11.26 Safeway, Inc. 2009/2039
Spokane(13) 42,000 7.03 Albertson's Inc. 2005/2035
Spokane(1) 39,000 9.63 Safeway, Inc. 2009/2039
Woodinville(1) 30,000 5.77 Albertson's Inc. 2006/2031
Wyoming Cheyenne(11) 12,000 5.70 Key Bancshares of Wyoming 2004/2039
Cheyenne(13) 31,000 6.11 Albertson's Inc. 2006/2036
Douglas(11) 12,000 5.96 Key Bancshares of Wyoming 2004/2039
Evanston 28,000 4.94 Key Bancshares of Wyoming 2004/2039
Evanston 10,000 7.55 Key Bancshares of Wyoming 2004/2039
Torrington(11) 12,000 4.95 Key Bancshares of Wyoming 2004/2039
----------- ------
TOTAL/AVERAGE RETAIL 6,441,000 9.38
=========== ======
OTHER:
Arizona Flagstaff 10,000 -- Vacant (2) --
Sun City 10,000 15.00 Furr's Restaurant Group (2) 2012
California Colton 668,000 3.52 Stater Bros. Markets 2008/2038
El Segundo(4) 959,000 16.10 Raytheon 2008/2038
Long Beach(1)(3) 201,000 14.88 Raytheon 2008/2038
Palo Alto(1) 123,000 32.37 Xerox Corporation 2008/2013
Colorado Ft. Collins 10,000 24.96 Lithia Motors (2) 2012
20
Approximate 2004 Lease
Leaseable Annualized Base Expiration/
Building Rent Per sq. ft. Option
Location Square Footage ($) Principal Tenant Expiration
-------- -------------- ---------------- ---------------- -----------
Florida Orlando(1) 205,000 5.89 Walgreen Co. 2006/2031
Maine North Berwick 821,000 3.39 United Technologies Corp. 2010/2035
New Mexico Carlsbad 10,000 15.00 Furr's Restaurant Group (2) 2012
New York Saugerties (17) 52,000 4.41 Rotron, Inc. 2004/2029
Pennsylvania New Kingston(1) 430,000 8.52 Hershey Foods Corporation 2008/2038
South Carolina Myrtle Beach(1) 37,000 3.88 Food Lion Stores, Inc. 2008/2028
Tennessee Franklin(1) 289,000 5.10 United Technologies Corp. 2008/2038
Memphis 780,000 3.67 Sears Roebuck & Company 2007/2037
Texas Lewisville 256,000 5.89 Xerox Corporation 2008/2038
Corpus Christi 10,000 15.00 Furr's Restaurant Group (2) 2012
El Paso 10,000 15.00 Furr's Restaurant Group (2) 2012
Euless 10,000 -- Vacant (2)
Lewisville 10,000 -- Vacant (2) (12)
McAllen 10,000 15.00 Furr's Restaurant Group (2) 2012
Victoria 10,000 15.00 Furr's Restaurant Group (2) 2012
Wisconsin Windsor(1) 356,000 7.52 Walgreen Co. 2007/2032
----------- ------
TOTAL/AVERAGE OTHER 5,277,000 8.05
=========== ======
GRAND TOTAL/AVERAGE 19,442,000 14.00
=========== ======
- ----------
(1) Land held in land estate or pursuant to ground lease.
(2) See "- Property Matters" below for information on these properties.
(3) 55% interest owned by your partnership.
(4) 53% interest owned by your partnership.
(5) 99% interest owned by your partnership.
(6) The property, an office building leased to multiple tenants, was sold in
January 2004. See "- Property Matters" below for information on the sale.
(7) In November 2002, your partnership received notice from the tenant
exercising the economic discontinuance provisions of its lease. Under the
terms of the notice, the tenant proposed to terminate the lease effective
July 11, 2003 and to purchase the property for $630,797, an amount which
would have been insufficient to satisfy existing mortgage indebtedness.
Your partnership rejected the offer and satisfied the existing first
mortgage of approximately $531,000. Your partnership has entered into a
contract to sell the property for an amount in excess of the amount which
would have been paid by the prior tenant. The contract is subject to
completion of due diligence by the purchaser.
(8) The lease on this property was terminated effective June 1, 2003. The
tenant made a $276,576 early termination payment, $160,803 of which was
applied to existing mortgage indebtedness.
(9) These properties were sold in January 2004 (Morristown Township) and
February and March 2004 (6 properties leased to CSK Auto). See "- Property
Matters" below for information on the sale.
(10) The lease on this property expired during the fourth quarter of 2003 and
the property is now vacant.
21
(11) These properties were sold on March 31, 2004. See "- Property Matters"
below for information on the sale.
(12) The tenant defaulted on its lease and vacated this property during the
fourth quarter of 2003.
(13) Your partnership has received notice from Albertsons exercising a purchase
option in accordance with their lease on fifteen of your partnership's
properties. Your partnership has a right to reject this offer. If your
partnership accepts the offer, the sale would be effective July 1, 2004
for 11 properties, October 1, 2004 for 3 properties and February 1, 2005
for 1 property. If your partnership rejects this offer, the tenant can
elect to terminate the lease on July 1, 2004, October 1, 2004 and February
1, 2005, respectively, or extend its lease for eighteen months until
December 31, 2005, March 31, 2006 or July 31, 2006. Rent during the
eighteen month period would be at the renewal rates. If Albertsons elects
to renew for the eighteen month period it will still have a series of five
year renewal options. For all 15 of the properties Albertsons has elected
to renew the lease for eighteen months assuming the purchase offer is
rejected. Your partnership is currently reviewing all of the purchase
offers in order to determine a course of action.
(14) 47.52% interest owned by your partnership as of December 31, 2003. This
percentage will be increased to 55.28% effective April 1, 2004.
(15) 35.34% interest owned by your partnership.
(16) 40.68% interest owned by your partnership as of December 31, 2003. This
percentage will be increased to 68.68% effective April 1, 2004.
(17) 57.75% interest owned by your partnership. (18) 60.5% interest owned by
your partnership.
(18) 60.5% interest owned by your partnership.
Property Matters. On January 22, 2002, Kmart Corporation, a tenant at 12
of your partnership's properties, filed for protection under Chapter 11 of the
United States Bankruptcy Code. Kmart had the right to either accept or reject
the leases. Kmart elected to reject the leases, which caused an immediate
termination of such leases. Your partnership re-leased 9 of the properties to
Furr's Restaurant Group for 10-year lease terms, one of the properties to Lithia
Motors for a 10-year lease term and another property for use as a Chinese food
restaurant for a 5-year lease term. The tenant of the Chinese restaurant
subsequently defaulted on its lease. Your partnership is pursuing a claim
against Kmart in the Bankruptcy Court. In January 2003, Furr's Restaurant Group
filed for protection under Chapter 11 of the Bankruptcy Code and subsequently
rejected the lease on 3 sites. The remaining sites continue to be leased to
Furr's through 2012, and your partnership is pursuing a claim against Furr's in
the Bankruptcy Court for the 3 rejected sites. Furr's also has the right to
reject the lease that now covers the remaining sites. The aggregate annual rent
for the 7 sites that are presently leased is approximately $1,269,600 compared
to the approximately $1,885,000 that was scheduled to be received from Kmart on
the 12 properties during its first renewal term, which would have begun in
February 2003. Your partnership has purchased the land underlying all of the 12
original Kmart sites for $250,000, sold two of the vacant sites in the third
quarter of 2003 and is seeking to sell or re-lease the three remaining vacant
sites. The two sites were sold for $2,525,000. After satisfying existing
mortgage indebtedness and closing costs, there were no net proceeds to your
partnership.
On February 12, 2002, Kaiser Aluminum & Chemical Corp., the tenant at your
partnership's property located in Oakland, California, filed for protection
under Chapter 11. In an effort to protect your partnership's equity investment
in the property, your partnership, from its cash reserve account, purchased the
first mortgage debt that encumbered the property for $15,500,000. Your
partnership subsequently secured approximately $14,530,000 of replacement
financing from a third party lender. The note bore interest at LIBOR plus 4.5%
per annum (6.42% at December 31, 2002), had a maturity date of September 1, 2003
and required monthly payments of principal and interest. Your partnership sold
its interest in this property in March 2003 for approximately $122,918,000.
After satisfying existing mortgage indebtedness, the net sales proceeds were
approximately $28,000,000, half of which was applied to a principal payment
required to be made on your partnership's loan with Fleet National Bank.
22
In November 2002 and January 2003, your partnership sold two properties
owned by it in Oklahoma City, Oklahoma to the tenants of those properties. One
property, leased to Safeway, Inc., was sold for $1,444,000 and the other
property, leased to Fleming Companies, Inc., was sold for $945,611. Both
properties were sold under the economic discontinuance provisions of their
respective leases. As provided in the leases, the tenants had made rejectable
offers to purchase the properties for specified amounts, and your partnership
accepted the offers after it was unable to locate purchasers who would pay a
higher price or secure new tenants for the properties. $1,023,689 of the price
paid by Safeway, Inc. represented the rejectable offer price, and $420,323
represented deferred rent.
In January 2003, your partnership sold five properties owned by it in
Allen, Ennis, Huntsville, Rockwell, and Waxahachie, Texas to Wal-Mart Stores,
Inc., the tenant, for approximately $8,259,000. After satisfying existing
mortgage indebtedness, the net sales proceeds were approximately $4,500,000,
half of which was applied to a principal payment required to be made on your
partnership's loan with Fleet National Bank. During 2002, Wal-Mart paid rent of
$994,894 for the properties.
In February 2003, your partnership received the remaining balance due on a
secured note of Cenland Associates Limited Partnership that it acquired in the
exchange. The note had an outstanding balance of $1,342,000 at the time of the
exchange that had been reduced to $158,000 as of December 31, 2002.
In May 2003 your partnership sold its distribution facility located in
Flagstaff, Arizona to Walgreen Co., the tenant at the facility, after receiving
notice from Walgreen that it was exercising its option to purchase the property.
The purchase price was $9,500,000. After satisfying existing mortgage
indebtedness and other costs and adjustments, the net sales proceeds were
approximately $5,900,000, half of which was applied to a principal payment
required to be made on your partnership's loan with Fleet National Bank.
In June 2003, one of the consolidated partnerships sold a property owned
by it in Trumbull, Connecticut for $9,079,000, net of closing costs. $4,557,000
was used to pay mortgage indebtedness and your partnership received $2,149,000
of the remaining proceeds. Your partnership applied $1,075,000 to a prepaid
payment on your partnership's loan to Fleet National Bank. Interests in this
consolidated partnership had been acquired by your partnership from an affiliate
of your partnership's general partner in January 2003. See "ITEM 13. CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS" for additional information.
In September 2003 your partnership sold a property owned by it in Sioux
Falls, South Dakota for $2,700,000. After satisfying existing mortgage
indebtedness and closing costs, the net sales proceeds of approximately $150,000
were applied to a principal payment required to be made on your partnership's
loan with Fleet National Bank. The property had formerly been leased to
Albertson's Inc. and your partnership had previously rejected an offer by
Albertson's to purchase the property for $1,551,000 pursuant to the economic
discontinuance provisions of its lease. Your partnership also received a
$1,497,000 lease termination fee.
23
During the fourth quarter of 2003, your partnership sold the properties
owned by it in Liberal, Kansas and New Bern, North Carolina for $775,000. After
satisfying existing mortgage indebtedness and closing costs, the net sales
proceeds were approximately $157,000, $117,700 of which was applied to a
principal payment required to be made on your partnership's loan with Fleet
National Bank.
In January 2004, your partnership sold the property owned by it in
Morristown, New Jersey for $36,500,000. After satisfying existing mortgage
indebtedness and closing costs, the net sales proceeds were approximately
$7,532,000 which was applied to a principal payment on your partnership's loan
with Fleet National Bank.
In January 2004, your partnership sold the multi-tenanted office building
owned by it in Dallas, Texas for $13,000,000. After closing costs and
adjustments, the net sales proceeds were approximately $11,939,000, $8,954,000
of which was applied to a principal payment on your partnership's loan with
Fleet National Bank.
In February and March 2004, your partnership sold 6 retail properties
owned by it and formerly leased to CSK Auto for $1,073,000. After closing costs
and adjustments, the net sales proceeds were approximately $975,000,
approximately $319,000 of which was used to pay off debt to T-Two Partners.
In March 2004, your partnership sold 3 retail properties formerly leased
to Key Bancshares of Wyoming for $1,948,000. After closing costs and
adjustments, the net sales proceeds were approximately $1,860,000, approximately
$1,351,000 of which was used to pay off debt to T-Two Partners.
Land Estates and Ground Leases. As indicated above, your partnership holds
either an estate for years with an option to lease the land upon expiration of
the estate for years or leases a number of its properties pursuant to ground
leases. Where your partnership holds an estate for years, the arrangement is for
a stated period of time, which is typically one day longer than the primary term
of the underlying lease. At the expiration of the estate for years, title to the
land will automatically vest in a remainderman. Your partnership then has the
option to lease the land from the remainderman for a stated period of time,
which would in all cases exceed the aggregate number of years that a building
lessee could extend its underlying lease by exercising all of its renewal terms.
In general, the rentals due under the ground leases are nominal through the last
renewal term of the improvements lease and then increase to fair market rent.
The remainderman in almost all cases has subordinated its interest in the land
to any first mortgage encumbering the property, but has not, in any case,
subordinated its interest in the land to the second mortgage encumbering the
property. Any second mortgage encumbers your partnership's option to lease the
land at the expiration of your partnership's estate for years, and will encumber
the leasehold interest in the land created upon any exercise of the option to
lease by your partnership. Your partnership is continually seeking to acquire
the "remainder" interests in its properties in an effort to acquire fee title to
the properties.
With respect to those properties subject to a ground lease, your
partnership has the right to extend the ground lease for at least as long as the
aggregate number of years that a building lessee could extend its underlying
lease by exercising all of its renewal terms. In general, the ground rent is
passed through to the building lessee under the improvements lease.
24
On January 15, 2003, your partnership purchased the land underlying 12
sites formerly leased to Kmart Corporation for $250,000. Your partnership
previously leased the land under ground leases.
In May and June 2003, your partnership purchased the remainder interest in
the land underlying 25 properties for an aggregate of $1,193,000 and, as a
result, now owns a fee interest in the underlying land. The improvements on 23
of the properties are owned by your partnership and the improvements on the two
other properties are owned by partnerships in which your partnership owns
limited partnership interests and controls the general partner.
Mortgage Indebtedness of Your Partnership
Mortgage Loans. Of your partnership's properties, all but 69 properties
are secured by one or more mortgage loans. As of December 31, 2003, the first
mortgage indebtedness, together with the second mortgage indebtedness described
below on the El Segundo property, had an aggregate outstanding principal balance
of $602,919,000 with interest at rates ranging from 4.2% per annum to 11.3% per
annum and maturities at various dates from February 1, 2004 to January 1, 2024.
Most of these mortgage loans are prepayable only with a yield maintenance
payment or prepayment penalty. The weighted average interest rate on these loans
is 8% per annum, and there were no variable rate loans at December 31, 2003.
The following is a summary of scheduled principal maturities, by year,
under the mortgage debt described in the previous paragraph.
Year Amount
---- ------
2004............................... $ 116,964,000
2005............................... 103,848,000
2006............................... 134,805,000
2007............................... 94,653,000
2008............................... 70,390,000
Thereafter......................... 82,259,000
-------------
Total.............................. $ 602,919,000
=============
In December 2002, a substantial portion of the mortgage indebtedness
encumbering properties in El Segundo, California in which your partnership owns
a 53% interest was refinanced with (i) an $88,724,702 first mortgage, secured by
the buildings and the land estate, bearing interest at 6% per annum and
self-amortizing by January 1, 2009 and (ii) $25,352,919 of second mortgages,
secured by the buildings and the land estate, bearing interest at 4.86% per
annum, and maturing on January 1, 2024, at which time a $25,988,645 balloon
payment will be due. In addition, a $3,235,880 prepayment penalty was paid as
part of the refinancing. As part of the refinancing, your partnership purchased
the land underlying the property for $1,700,000, which was provided by the
proceeds of a new first mortgage secured by the land underlying the property.
This mortgage, which is the responsibility of your partnership, bears interest
at 6% per annum and is self-amortizing by January 1, 2009. Members of the
Newkirk Group acquired approximately 55% of the second mortgage indebtedness in
the refinancing for a purchase price of $1,012,486, exclusive of closing costs.
See "ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS" for additional
information. Prior to the refinancing, the property was encumbered by
approximately $56,800,000 of first mortgage indebtedness,
25
$50,500,000 of which bore interest at 13.25% and $6,300,000 of which bore
interest at 13.6% per annum, as well as $51,611,251 of second mortgage
indebtedness bearing interest at 15.5% per annum.
In August 2003, your partnership obtained a new $3,400,000 first mortgage
loan on its property in Beaumont, Texas. The loan bears interest at 6.2% per
annum and matures on November 30, 2007, at which time it is scheduled to be
fully amortized.
In June 2003, your partnership obtained a new first mortgage on its
property in Morris Township, New Jersey, that is leased to Crum & Forster. The
$21,000,000 mortgage loan bore interest at LIBOR plus 2.875% per annum (4.1% at
June 30, 2003), payable monthly, and had an initial term of three years.
Principal payments of $25,000 were due monthly commencing February 1, 2005.
$6,700,000 of the proceeds of the new loan were used to repay the existing first
mortgage loan that had an interest rate of 12.5% per annum and $13,100,000 was
used to satisfy the remaining balance payable by your partnership with respect
to the second mortgage acquired by your partnership in January 2003. In October
2003 your partnership refinanced this loan. The new loan had a principal balance
of $28,500,000, bore interest at 5.55% per annum and had a term of ten years.
After payment of closing costs, $21,100,000 of proceeds were used to satisfy the
existing first mortgage and $5,000,000 was applied to a principal payment on
your partnership's loan with Fleet National Bank. This property was sold in
January 2004. See "- Property Matters" above and "- Second Mortgage Loans"
below.
Second Mortgage Loans. A number of your partnership's properties are
encumbered by second mortgage loans. As of December 31, 2003, this second
mortgage indebtedness, which is referred to in our financial statements as
contract right mortgage notes, had an aggregate outstanding balance, including
accrued interest, of $460,860,000, bore simple interest at contractual rates
ranging from 5.31% per annum to 16.25% per annum and matured at various dates
from January 1, 2008 to January 1, 2025. Each of the loans is prepayable at any
time without premium or penalty subject to the prior or simultaneous
satisfaction of the underlying first mortgage loans. The weighted average
interest rate on these mortgage loans is 13.66% per annum. There are no variable
interest rates on these loans.
The following is a summary of scheduled principal and accrued interest
payable as of Dcember 31, 2003, by year, under the junior mortgage debt
described in the previous paragraph.
Year Amount
---- ------
2004............................... $ 16,821,000
2005............................... 28,589,000
2006............................... 29,980,000
2007............................... 30,825,000
2008............................... 33,392,000
Thereafter......................... 321,253,000
-------------
Total.............................. $ 460,860,000
=============
The foregoing debt amounts represent amounts contractually due and owing,
while your partnership's financial statements reflect the debt balance after
making an adjustment to fair value in accordance with generally accepted
accounting principles.
26
In January 2003, your partnership acquired a second mortgage loan that
encumbered your partnership's property in Morris Township, New Jersey that is
leased to Crum & Forster. Outstanding principal and accrued and unpaid interest
on the mortgage was $28,100,000. The mortgage bore interest at 10.25% per annum.
It was acquired for $22,100,000, $9,300,000 of which was initially paid and
$12,800,000, together with interest at 6% per annum, of which was payable on the
earlier of September 30, 2003 or the date on which your partnership obtained a
new first mortgage loan on the property. In June 2003, your partnership obtained
a new first mortgage loan on the property and satisfied the balance of the
purchase price. See "- First Mortgage Loans" above. This property was sold in
the first quarter of 2004. See "- Property Matters" above.
All rights of the mortgagee under each of the second mortgages are fully
subject and subordinate to the rights granted the holders of the first
mortgages. The second mortgages generally grant the mortgagee a security
interest in and include a subordinate assignment of, among other things, your
partnership's interest in its underlying lease. Each second mortgage contains an
assignment of your partnership's interest in all rents, income, revenues,
claims, issues and profits from and in respect of all of the property encumbered
by that second mortgage.
Substantially all of the second mortgages contain restrictions affecting
the ability of the applicable property-owning subsidiary of your partnership to
refinance its existing first mortgage loan or incur additional financing during
the primary term of the relevant lease. The principal restriction on such first
mortgage financing is a debt service coverage test under which the scheduled
rental payments from the properties at the time of such financing must be at
least 103% of your partnership's aggregate debt service payments due under the
second mortgage and such financing (except that if a lease is no longer in
effect, the debt service coverage test may be satisfied based on the scheduled
rent payments that otherwise would have been payable under the lease for the
period that the financing is to be in place). There is also a general risk that
a property encumbered by a second mortgage will not generate sufficient cash
flow to satisfy the debt service payments on the second mortgage loan after
satisfying payments on the first mortgage encumbering the property. However, the
combination of the Newkirk properties pursuant to the exchange has lessened this
risk to your partnership by substantially increasing the capital resources of
your partnership and thereby enhancing your partnership's ability to respond to
the capital needs of any particular property. In addition, as described under
"ITEM 1. BUSINESS - Description of Assets - The Subordinate Mortgage Interests,"
your partnership has an option to acquire the interests in T-Two Partners and
thereby effectively eliminate substantially all of its subordinate indebtedness.
27
ITEM 3. LEGAL PROCEEDINGS
In July 2002, an action was commenced in the Connecticut Superior Court by
four limited partners of three Newkirk Partnerships against, among others, your
partnership's general partner and various affiliates of your partnership's
general partner. The action alleges, among other things, that the price paid to
non-accredited investors in connection with the exchange was unfair and did not
fairly compensate them for the value of their partnership interests. The
complaint also alleges that the exchange values assigned in the exchange to
certain assets contributed by affiliates of your partnership's general partner
were too high in comparison to the exchange values assigned to the Newkirk
partnerships, that the option arrangement relating to your partnership's
potential acquisition in the future of T-Two Partners was unfair to limited
partners and that the disclosure document used in connection with the exchange
contained various misrepresentations and/or omissions of material facts. The
complaint seeks to have the action classified as a class action as well as
compensatory and punitive damages in an unspecified amount. The defendants have
denied and continue to deny the allegations of the complaint. In order to avoid
the expenses, distractions and uncertainties of litigation, the defendants
entered into a settlement agreement dated December 31, 2003 to settle the
litigation, which settlement agreement is subject to court approval. A court
hearing on whether to approve the settlement is currently scheduled to take
place on April 12, 2004. The settlement provides for the following material
terms: (i) the Newkirk Group will convey to unitholders of the Newkirk
partnerships who are unaffiliated with your general partner and who received
limited partnership units in the exchange, units in your partnership equal to 1%
of the outstanding units; (ii) your partnership will pay $1.5 million to an
escrow agent for the benefit of unaffiliated unitholders; and (iii) your
partnership will pay $2 million to an escrow agent for the benefit of
unitholders of the Newkirk partnerships who were entitled to receive cash in the
exchange. In addition, as described in "ITEM 1. BUSINESS" under the heading " -
Description of Assets - The Subordinate Mortgage Interests," your partnership,
in order to facilitate the settlement, entered into an agreement with T-Two
Partners and its equityholders pursuant to which your partnership has the right
to acquire substantially all of the assets of T-Two Partners or a 100% ownership
interest in T-Two Partners at any time between November 24, 2006 and November
24, 2009. In addition, as part of the settlement agreement, defendants have also
agreed not to object to the payment of reasonable attorneys fees expenses, and
incentive awards to be paid from the consideration payable under the settlement
agreement.
On December 31, 2002, a derivative action was commenced in the Dallas
County Texas District Court by a limited partner of Eastgar Associates, L.P.
against, among others, (i) the general partners of Eastgar and (ii) the Newkirk
Group. Your partnership owns a 60.5% limited partnership interest in Eastgar and
also controls the general partner of that partnership. The complaint alleges
that the defendants have charged Eastgar excessive management fees and have
unfairly prevented Eastgar from prepaying and refinancing its mortgage
indebtedness. The complaint seeks compensatory and punitive damages in an
unspecified amount, attorneys' fees and expenses, an accounting, and a
declaration of the parties' future rights and obligations regarding management
fees and the refinancing of mortgage indebtedness. The defendants have denied
and continue to deny the allegations of the complaint. In order to avoid the
expenses, distraction and uncertainties of litigation, the defendants entered
into an agreement to settle the litigation for a $137,500 payment by the
defendants other than Eastgar and to charge an asset management fee of $35,000
per year, adjusted for changes in the Consumer Price Index and as may be
adjusted for extraordinary circumstances by Eastgar's general partner. After
payment of
28
court-approved attorneys' fees and expenses, the remaining balance would be
distributed to Eastgar's limited partners other than your partnership or its
affiliates. The settlement also fixes the management fees to be charged to
Eastgar, subject to any changes that Eastgar may approve in the future
consistent with its fiduciary duty. The settlement has been, as required,
approved by the trial court after notice to the limited partners of Eastgar.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of the fiscal year covered by this report through the solicitation of
proxies or otherwise.
29
PART II
ITEM 5. MARKET FOR LIMITED PARTNERSHIP UNITS, RELATED SECURITY HOLDER MATTERS
AND ISSUER PURCHASES OF EQUITY SECURITIES
General
There is no established public trading market for the units. As of
December 31, 2003 , there were 1,372 holders of record of units. In addition, as
of December 31, 2003, there were no units that could be sold pursuant to Rule
144 under the Securities Act, or that your partnership has agreed to register
under the Securities Act for sale by unit holders, and there were no units that
are being, or have been publicly proposed to be, publicly offered by your
partnership.
Except as described under "ITEM 13. CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS - Acquisition of Limited Partnership Interests", as of December 31,
2003, there were no options or warrants to purchase units in your partnership.
Distributions
Since January 1, 2002 your partnership has made the following
distributions aggregating approximately $242,670,000
Date Per Unit Distribution
---- ---------------------
2/02 $30.31 (1)
4/02 $.50
7/02 $.65
10/02 $.70
2/03 $.75
4/03 $2.22 (2)
5/03 $.80
8/03 $.85
11/03 $.90
2/04 $1.75
- ----------
(1) This distribution represented proceeds received from the $225,000,000 loan
obtained from Fleet National Bank. The consent solicitation statement sent
to limited partners in the Newkirk partnerships in respect of the exchange
had disclosed that your partnership was attempting to obtain the Fleet
loan and that there would be a substantial distribution of the loan
proceeds.
(2) This distribution represents proceeds from the sale of your partnership's
property that was leased to Kaiser Aluminum.
Your partnership currently anticipates making regular quarterly
distributions in respect of your partnership's operations as well as special
distributions in respect of future property sales. However, future distributions
are dependent upon many factors, including your partnership's earnings, capital
requirements, property sales, financial condition and available cash flow. In
this regard, your partnership's Fleet loan requires your partnership to maintain
liquid assets of at
30
least $5,000,000 and a minimum consolidated net worth equal to $500,000,000
during the initial loan term and up to $550,000,000 during the last extended
term. In addition, under the terms of the loan, your partnership is prohibited
from making distributions if its unconsolidated debt service coverage ratio
falls below 1.75 during the initial period of the loan or 2.0 during the
extension periods. These and other restrictions relating to the Fleet loan that
are discussed above under "ITEM 1. BUSINESS - Description of Indebtedness" could
impact your partnership's ability to make distributions in the future.
Recent Sales of Unregistered Securities
In January 2003, your partnership issued 317,813 units to the Newkirk
Group in exchange for a contribution of limited partnership interests in various
partnerships that own net-leased properties. In January 2004, your partnership
sent notice of its intention to exercise an option to purchase additional
limited partnership interests in two of the above mentioned partnerships. It is
anticipated that these additional limited partnership interests will be acquired
on April 1, 2004 in exchange for 15,539 units. See "ITEM 13. CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS - THE EXCHANGE". These units were issued
in reliance on an exemption from registration under the Securities Act provided
by Section 4(2) thereof.
31
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The following financial data are derived from the audited consolidated
financial statements of your partnership for the year ended December 31, 2002
and 2003 and from the combined consolidated financial statements of Newkirk RE
Holdings, LLC and Newkirk NL Holdings, LLC ("Predecessor Entity") for the years
ended December 31, 1999, 2000 and 2001. The financial data set forth below
should be read in conjunction with "ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" below and "The Consolidated
Financial Statements" and the notes thereto appearing elsewhere in this report.
During the years ended December 31, 2001 and 2000 the Predecessor Entity
acquired additional limited partnership interests in entities it had recorded on
an equity basis. At the point sufficient limited partnership interests were
acquired to assert control over the limited partnership the Predecessor Entity
consolidated the respective limited partnership resulting in the recognition of
cash balances and other assets and liabilities as shown below.
Year Ended December 31,
(In thousands, except unit data)
-------------------------------------------------------------------------------------------
2003 2002 2001 2000 1999
Predecessor Predecessor Predecessor
- ---------------------------------------------------------------------------------------------------------------------------
Total Revenue $ 278,372 $ 270,866 $ 258,975 $ 35,255 $ 36,070
Income from Continuing
Operations 100,088 105,397 46,387 40,004 27,194
Income from Continuing
Operations per Unit 15.81 17.22 -- -- --
Total Assets 1,384,094 1,476,623 1,476,922 434,974 371,811
Long Term Debt 1,104,231 1,238,494 1,024,539 157,058 128,573
Cash Distributions
per Unit $ 5.52 $ 32.16 $ -- $ -- $ --
32
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Liquidity and Capital Resources
At December 31, 2003 your partnership owned an interest in 225 Newkirk
properties and limited partnership interests in seven partnerships which own 43
properties whose operations are consolidated for financial reporting purposes.
Almost all of the properties are leased to one or more tenants pursuant to net
leases with original lease terms, subject to extensions, ranging between
approximately twenty and twenty-five years. Approximately 90% of the original
lease terms expire between 2005 and 2009. There are six properties which are
vacant and not leased which represent approximately 111,000 square feet of your
partnership's Newkirk properties. The remaining 19,331,000 square feet or 99.4%
are leased. Your partnership also holds subordinated interests in a securitized
pool of notes evidencing first mortgage indebtedness secured by certain of your
partnership's properties as well as other properties, limited partnership
interests in various partnerships that own commercial net-leased properties, an
interest in a management company that provides services for your partnership as
well as other real estate partnerships, ground leases, remainder interests or
the right to acquire remainder interests in various properties and miscellaneous
other assets. In addition, your partnership, or an affiliate of your general
partner, controls the general partner of the real estate limited partnerships in
which your partnership owns limited partnership interests, and your partnership
has an option to acquire in the future second mortgage debt secured by a
substantial number of your partnership's properties as well as the properties
owned by nine other partnerships.
Your partnership receives rental income from its properties which is its
primary source of liquidity. Pursuant to the terms of the leases, the tenants
are responsible for substantially all of the operating expenses with respect to
the properties, including maintenance, capital improvements, insurance and
taxes. If a tenant fails to exercise its renewal option or exercises its option
to terminate its lease early, your partnership will be required to either sell
the property or procure a new tenant. If your partnership attempts to procure a
new tenant, it will be competing for new tenants in the then current rental
markets, which may not be able to support terms as favorable as those contained
in the original lease options.
The level of liquidity based on cash and cash equivalents experienced a
$4,399,000 increase at December 31, 2003 as compared to December 31, 2002. The
increase was due to net cash provided by operating activities of $162,017,000
and net cash provided by investing activities of $58,316,000, which were
substantially offset by net cash used in financing activities of $215,934,000.
Cash provided by operations consisted of $148,850,000 from continuing operations
and $13,167,000 from discontinued operations. Cash provided by investing
activities included $650,000 of cash related to previously unconsolidated
limited partnerships and $61,491,000 of net proceeds from disposal of real
estate, which were partially offset by land acquisitions of $2,518,000 and
investments in limited partnership interests of $1,307,000. Cash used in
financing activities consisted primarily of mortgage loan and contract right
mortgage loan payoffs of $266,599,000, principal payments on mortgage, contract
right and notes payable of $158,381,000, deferred costs expenditures of
$8,550,000 and partner distributions of $34,731,000, which were partially offset
by loan proceeds of $262,338,000. At December 31, 2003, your partnership had
$37,851,000, of which $5,148,000 is restricted, in cash reserves which were
invested primarily in money market mutual funds.
33
A summary of your partnership's contractual obligations is as follows:
(in thousands)
Payment due by period
----------------------------------------------------------------------
Less than 1-3 3-5 More than
Contractual Obligations Total 1 year years years 5 years
---------- ---------- ---------- ---------- ----------
Mortgage Notes Payable $ 602,919 $ 116,964 $ 238,653 $ 165,043 $ 82,259
Contract Right Mortgage
Notes Payable (1) 460,860 16,821 58,569 64,217 321,253
Note Payable 208,356 -- 208,356 -- --
Ground Lease Obligations 12,530 3,191 5,556 2,953 830
---------- ---------- ---------- ---------- ----------
Total $1,284,665 $ 136,976 $ 511,134 $ 232,213 $ 404,342
========== ========== ========== ========== ==========
- ----------
(1) The debt amounts represent amounts contractually due based upon December 31,
2003 principal and accrued interest payable. Your partnership's financial
statements reflect the debt balance after making an adjustment to fair value in
accordance with generally accepted accounting principles.
Off-Balance Sheet Arrangements
On November 24, 2003, at the same time as your partnership obtained its
loan from Fleet National Bank, T-Two Partners obtained a $316,526,573 loan from
Fleet National Bank. We refer to this loan as the T-Two Loan. The interest rate,
maturity date and principal terms of the T-Two Loan are the same as your
partnership's loan. The T-Two Loan is secured by all the assets of T-Two
Partners, including the second mortgage loans receivable from your partnership.
Your partnership guaranteed repayment of the T-Two Loan to Fleet National Bank.
In consideration for your partnership's guarantee, the owners of T-Two Partners
agreed to the elimination of their put option, and to provide a credit line to
your partnership bearing interest at LIBOR plus 450 basis points. Any amounts
advanced to your partnership under the credit line would have to be repaid in
full before your partnership could purchase the interests in T-Two Partners if
your partnership exercises the purchase option described below.
Your partnership's call option had previously provided for the acquisition
of the interests in T-Two Partners in January 2008 in exchange for a number of
units in your partnership to be determined at the time of exercise based on an
agreed-upon formula. Your partnership and the owners of T-Two Partners modified
your partnership's option in certain respects. First, the option can now be
exercised by your partnership at any time between November 24, 2006 and November
24, 2009. Second, the purchase price is payable in cash rather than units in
your partnership. Finally, the formula for determining the purchase price
payable by your partnership if it exercises the option has been revised in a
manner that your partnership's general partner believes to be significantly more
favorable to your partnership than the formula previously in effect.
Specifically, the purchase price is calculated as follows: the sum of
$316,526,573 plus T-Two Partners' costs of obtaining the T-Two Loan
34
(approximately $7,346,000) and administering the trust that holds the second
mortgage loans, together with interest on the foregoing sum at the effective
rate of interest paid by T-Two Partners on the T-Two Loan, less all payments
made from and after November 24, 2003 on the second mortgage loans.
35
Other Matters
On January 1, 2003, your partnership acquired from the Newkirk Group, an
affiliate of your partnership's general partner, limited partnership interests
in nine real estate limited partnerships that own net-leased commercial
properties. The limited partnership interests acquired by your partnership
ranged between 4.9% and 57.75% of each partnership and were acquired in exchange
for 317,813 limited partnership units of your partnership. In January 2004, your
partnership notified the Newkirk Group that it intends to exercise its option to
purchase the additional limited partnership interests in two of the
partnerships. It is anticipated that these additional limited partnership
interests will be acquired as of April 1, 2004 in exchange for approximately
15,539 units. In determining the number of units issuable to the affiliate in
exchange for such interests, your partnership's general partner estimated the
value of nine real estate limited partnerships utilizing a discounted cash flow
approach similar to that which was used to determine exchange values for Newkirk
partnerships as part of the exchange to arrive at a value of $22,704,776 for the
limited partnership interests. Your partnership's general partner then estimated
the per unit value of your partnership in order to determine the number of units
allocable to the affiliate for its interest in the limited partnerships. The
$71.44 estimated per unit value of your partnership was derived from the
aggregate value ascribed to your partnership in the exchange, as adjusted to
reflect the proceeds from your partnership's indebtedness to Fleet National Bank
that were distributed to limited partners following the exchange. During 2002,
appraisals were obtained for each of the properties owned by the nine real
estate limited partnerships. The aggregate appraised value of all of the
properties was $288,675,000. Based solely on your partnership's ownership
interests in the nine partnerships, $25,049,842 of the appraised value would be
attributable to the interests owned by your partnership. In August 2003, your
partnership acquired an additional 9.9% interest in one of those limited
partnerships for a cash purchase price of $525,000.
In January 2003, your partnership acquired the land underlying the
property owned by one of the net-leased partnerships referred to immediately
above. The land was acquired from a company affiliated with your general partner
for $1,000,000, $50,000 of which was paid in cash and the balance in the form of
a $950,000 note due September 8, 2008. The note bore interest at the rate of 6%
per annum, compounded annually, and was payable interest-only until maturity, at
which time the full balance of the note was to be due. In October 2003, the note
was satisfied by your partnership from cash reserves. The purchase price for the
land sale was determined without arms-length negotiations. An independent
appraisal was obtained on the value of the land that was acquired.
In February 2003, your partnership acquired from its limited partners
115,000 of its units of limited partnership interest at a purchase price of $35
per unit.
In January 2003, your partnership acquired a second mortgage loan that
encumbered your partnership's property in Morris Township, New Jersey. The
mortgage and accrued interest amounted to $28,100,000 at December 31, 2002. It
was acquired for $22,100,000, $9,300,000 of which was initially paid and
$12,800,000 of which was payable on or before September 30, 2003. The deferred
portion of the purchase price bore interest at a rate of 6% per annum. Your
partnership acquired this mortgage in connection with an extension of the lease
on the property and obtained new first mortgage financing in June 2003 to
satisfy the balance of the purchase price. The new first mortgage loan that was
obtained in June 2003 had a principal balance of $21,000,000 and an initial term
36
of three years. The loan bore interest at LIBOR plus 2.875% per annum, payable
monthly beginning August 1, 2003. Principal payments of $25,000 were due monthly
commencing February 1, 2005. After payment of closing costs, $6,700,000 of
proceeds were used to satisfy the existing first mortgage and the balance was
used to satisfy the deferred portion of the second mortgage purchase price. This
Loan was refinanced in October 2003.
In August 2003, your partnership obtained a new $3,400,000 first mortgage
loan on its property in Beaumont, Texas. The loan bears interest at 6.2% per
annum and matures on November 30, 2007, at which time it is scheduled to be
fully amortized.
In October 2003, your partnership refinanced its first mortgage loan on
its property in Morris Township, New Jersey. The new first mortgage loan had a
principal balance of $28,500,000, bears interest at 5.55% per annum and had a
term of ten years. After payment of closing costs, $21,100,000 of proceeds were
used to satisfy the existing first mortgage and accrued interest. Additionally,
$5,000,000 was applied to a principal payment on your partnership's loan with
Fleet National Bank. This property was sold in the first quarter of 2004.
In February 2003, your partnership received a notice from Albertson's,
Inc., the tenant at your partnership's Sioux Falls, South Dakota property,
exercising the economic discontinuance provisions of the lease. Under the terms
of the notice, Albertson's had proposed to terminate the lease effective
November 5, 2003 and had made a rejectable offer to purchase the property for
$1,551,000. Your partnership had until October 2003 to accept or reject this
offer. Your partnership elected to reject the offer and sold the property in
September 2003 for $2,700,000. Your partnership also received notice from
Albertson's indicating that it intended to exercise its right to terminate the
lease for the supermarket property located in Stuart, Florida. In accordance
with the economic discontinuance provision of its lease, Albertson's made a
rejectable offer to purchase the property for an amount stipulated in the lease
of approximately $631,000. Your partnership elected to reject the offer. As a
result of the rejection, your partnership was required to payoff the first
mortgage encumbering the property, which had a balance of approximately
$531,000. Your partnership satisfied the first mortgage using its cash reserves.
Your partnership has entered into a contract to sell the property for a price in
excess of the rejectable offer price. The sale, which is contingent upon the
purchaser completing its due diligence, is expected to occur, if at all, in the
second quarter of 2004.
Your partnership has also received notice from Albertsons exercising a
purchase option in accordance with their lease on fifteen of your partnership's
properties. Your partnership has a right to reject this offer. If your
partnership accepts the offer, the sale would be effective July 1, 2004 for 11
properties, October 1, 2004 for 3 properties and February 1, 2005 for 1
property. If your partnership rejects this offer, the tenant can elect to
terminate the lease on July 1, 2004, October 1, 2004 and February 1, 2005,
respectively, or extend its lease for eighteen months until December 31, 2005,
March 31, 2006 or July 31, 2006. Rent during the eighteen month period would be
at the renewal rates. If Albertsons elects to renew for the eighteen month
period it will still have a series of five year renewal options. For all 15 of
the properties Albertsons has elected to renew the lease for eighteen months
assuming the purchase offer is rejected. Your partnership is currently reviewing
all of the purchase offers in order to determine a course of action.
37
During February 2003, your partnership received the remaining balance due
on a secured note of Cenland Associates Limited Partnership that it acquired in
the exchange. The note had an outstanding balance of $1,342,000 at the time of
the exchange that had been reduced to $158,000 as of December 31, 2002.
In April and June 2003 your partnership acquired 30.6% and 46.1%,
respectively, of the outstanding limited partnership interests in two
partnerships that own commercial net-leased properties. The partnership
interests were acquired for an aggregate cash purchase price of $711,250. Your
partnership previously owned 1.5% and 3.8%, respectively, of the outstanding
limited partnership interests in these two partnerships. Your partnership
controls the general partners of each of these partnerships. Your partnership
has consolidated these partnerships in accordance with the guidance provided by
Statement of Position 78-9 "Accounting for Investments in Real Estate Ventures."
Results of Operations
Comparison of the year ended December 31, 2003 to the year ended December 31,
2002.
Income from Continuing Operations
Income from continuing operations decreased by $5,309,000 to $100,088,000
for the year ended December 31, 2003 from $105,397,000 for the year ended
December 31, 2002. As more fully described below, this decrease is attributable
to an increase in total expenses of $7,477,000 and an increase in minority
interest expense of $7,392,000, which was partially offset by an increase in
total revenue of $7,506,000 and an increase in equity in income from investments
in limited partnerships of $2,054,000.
Rental Income
Rental income increased by $8,155,000 or approximately 3% to $274,971,000
for the year ended December 31, 2003 from $266,816,000 for the year ended
December 31, 2002. The increase was primarily due to five newly acquired
consolidated partnerships which contributed approximately $13,810,000 in rental
income. This increase was partially offset by lower rental income received from
properties previously leased by Kmart of $1,506,000 and lower rental income on
lease renewals or renegotiations of $4,149,000.
Interest Income
Interest income decreased by $305,000 or approximately 9% to $2,983,000
for the year ended December 31, 2003 from $3,288,000 for the year ended December
31, 2002. The decrease was due to the payoff of a loan receivable and overall
lower interest rates on the invested cash balances.
38
Management Fees
Management fees decreased by $344,000 or approximately 45% to $418,000 for
the year ended December 31, 2003 from $762,000 for the year ended December 31,
2002. The decrease is attributable to fewer properties under management.
Interest Expense
Interest expense decreased by $5,868,000 or approximately 5% to
$106,898,000 for the year ended December 31, 2003 compared to $112,766,000 for
the year ended December 31, 2002. The decrease was primarily due to loan payoffs
during the period and normal scheduled principal payments.
Depreciation
Depreciation expense increased by $10,096,000 or approximately 37% to
$37,705,000 for the year ended December 31, 2003 compared to $27,609,000 for the
year ended December 31, 2002. The increase is primarily attributable to changing
the estimated useful lives of the real estate and additional depreciation
expense from five newly acquired consolidated partnerships. A significant
percentage of the increase in depreciation expense relating to the change in
estimated useful lives is offset by a corresponding decrease in minority
interest expense.
General and Administrative
General and administrative expenses increased by $2,368,000 or
approximately 26% to $11,486,000 for the year ended December 31, 2003 compared
to $9,118,000 for the year ended December 31, 2002. The increase is the result
of $3,600,000 incurred related to legal settlements. This increase was
substantially offset by one-time organizational expenses relating to the
formation of your partnership in 2002.
Amortization Expense
Amortization expense increased by $917,000 or approximately 24% to
$4,771,000 for the year ended December 31, 2003 as compared to $3,854,000 for
the year ended December 31, 2002. The increase in amortization expense is the
result of the refinancing of the Fleet debt which was partially offset by
savings from loans which have been paid off.
Ground Rent
Ground rent expense increased by $37,000 to $3,202,000 for the year ended
December 31, 2003 as compared to $3,165,000 for the year ended December 31,
2002. The increase in ground rent expense is the result of the addition of new
properties in 2003 partially offset by land purchases made in 2003.
State Income Taxes
State income tax expense decreased by $73,000 or approximately 9% to
$767,000 for the year ended December 31, 2003 compared to $840,000 for the year
ended December 31, 2002. The decrease is the result of tax savings in the State
of New Jersey.
39
Equity in Income from Investments in Limited Partnerships
Equity in income from investments in limited partnerships is the result of
the January 2003 purchase of equity positions in five new partnerships.
Minority Interest Expense
Minority interest expense increased by $7,392,000 or approximately 91% to
$15,509,000 for the year ended December 31, 2003 compared to $8,117,000 for the
year ended December 31, 2002. The increase was the result of minority interests
in the amount of $5,365,000 related to the five newly consolidated partnerships.
The remaining increase of $2,027,000 related to increased profitability at the
previous partially owned partnerships.
Discontinued Operations
During the year ended December 31, 2003, your partnership sold fourteen
properties for a combined net sales price of $156,409,000. Your partnership
recognized a net gain on disposal of these properties of $29,514,000. The sale
and operation of these properties for all periods presented have been recorded
as discontinued operations in compliance with the provisions of Statement of
Financial Accounting Standards ("SFAS") No. 144, "Accounting for the Impairment
or Disposal of Long Lived Assets."
Comparison of the year ended December 31, 2002 to the year ended December 31,
2001 (Pro-Forma).
Pro-Forma Information
Your partnership commenced operations on January 1, 2002 following
completion of the Exchange. In the Exchange the 90 Newkirk partnerships, each of
which owned commercial properties, were merged into wholly- owned subsidiaries
of your partnership, and your partnership acquired various assets including
those related to the management or capital structure of the Newkirk
partnerships. The financial information contained in the audited financial
statements for all periods, and as of all dates, prior to January 1, 2002 is
comprised of the assets, liabilities, revenue and expenses of Newkirk RE
Holdings, LLC and Newkirk NL Holdings, LLC, which are considered to be the
Predecessor Entity. The equity method of accounting was used to reflect the
Predecessor Entity's interest in Newkirk partnerships in which it did not own a
controlling interest. Accordingly, the Predecessor Entity's share of assets and
liabilities and revenue and expenses in those Newkirk partnerships was presented
as a single item on the balance sheet and statement of operations. In addition,
only a portion of the assets of the Predecessor Entity were contributed to your
partnership in the Exchange.
In view of the foregoing facts, and in order to facilitate a comparison of
the 2002 and 2001 results of operations in management's discussion and analysis
of financial condition and results of operations, we have prepared pro-forma
information. The pro-forma information has been prepared on the assumption that
the Exchange had been consummated on January 1, 2001.
40
The pro-forma information is presented as a tool to facilitate the
Management Discussion and Analysis of the Predecessor Entity and your
partnership. The operations of your partnership are essentially the Newkirk
properties (originally 230 properties), substantially all of which are
net-leased to tenants that typically have high credit ratings and are stock
exchange listed. Given the lease structure and the absence of tenant defaults,
underlying operations do not vary significantly from year to year.
The components of the Predecessor Entity's operations do vary
significantly from those of your partnership due to the acquisition by the
Predecessor Entity of limited partnership interests in the Newkirk partnerships
(certain assets, liabilities and operations of the Newkirk partnerships were
accounted for on the equity method for various periods depending on the point at
which control was achieved) and the inclusion of certain assets that were not
ultimately contributed in the Exchange.
Rather than continually referring to a core set of reasons (assets not
contributed to your partnership or liabilities not assumed by your partnership)
for differences between the periods discussed it was considered more meaningful
to highlight the changes in the underlying operations of what is now your
partnership and reconcile those operations to the Predecessor Entity's reported
financial position and results of operations.
41
The following table shows (i) the pro-forma consolidated statement of
operations for the year ended December 31, 2001, reflecting the pro-forma impact
had all the Newkirk partnerships' activities been consolidated effective January
1, 2001 and the assets not contributed by the Predecessor Entity were excluded.
CONSOLIDATED PRO-FORMA STATEMENT OF OPERATIONS
(In Thousands)
Predecessor Predecessor
As Reported As Reported Pro-Forma Pro-Forma
December 31, 2002 December 31, 2001 Adjustments December 31, 2001
-----------------------------------------------------------------------------------------------------------------
Revenue:
Rental income $ 266,816 $ 235,653 $ 34,993 (1) $ 270,646
Interest income 3,288 21,749 (17,184) (2) 4,565
Management fees 762 1,573 (705) (1) 868
------------ ------------ ------------ -------------
Total revenue 270,866 258,975 17,104 276,079
------------ ------------ ------------ -------------
Expenses
Interest 112,766 104,823 4,343 (1) 109,166
Depreciation 27,609 32,444 (2,987) (4) 29,457
General and
administrative 9,118 8,075 (2,826) (4) 5,249
Amortization 3,854 13,138 (10,007) (3) 3,131
Ground rent 3,165 3,177 68 (1) 3,245
Federal and state income
taxes 840 2,918 (2,054) (2) 864
------------ ------------ ------------ -------------
Total expenses 157,352 164,575 (13,463) 151,112
------------ ------------ ------------ -------------
Equity in income from limited
partnerships -- 7,649 (7,649) (1) --
------------ ------------ ------------ -------------
Income from continuing operations before
minority interest and discontinued
operations $ 113,514 $ 102,049 $ 22,918 $ 124,967
============ ============ ============ =============
Footnotes to Pro-Forma Statement of Operations:
(1) Reflects the consolidation of partnerships previously accounted for by the
Predecessor Entity as an equity investment.
(2) Primarily the result of the Predecessor Entity not contributing its
investments in contract right mortgages.
(3) Primarily the result of the Predecessor Entity not contributing Goodwill
to the Partnership.
(4) Certain assets were not contributed and expenditures related thereto will
not be incurred by the Partnership.
42
In order to provide a more meaningful comparison of the results of
operations, the following analysis compares the years ended December 31, 2002
and 2001 as if the exchange had occurred on January 1, 2001.
Income from Continuing Operations before Minority Interest
Income from continuing operations before minority interest decreased by
$11,453,000 to $113,514,000 for the year ended December 31, 2002 from
$124,967,000 for the year ended December 31, 2001. As more fully described
below, this decrease is attributable to a decrease in total revenue of
$5,213,000 and an increase in total expenses of $6,240,000.
Rental Income
Rental income decreased by $3,830,000 or approximately 1% to $266,816,000
for the year ended December 31, 2002 from $270,646,000 for the year ended
December 31, 2001. The decrease was primarily due to the January 2002 K-Mart
Corporation Chapter 11 bankruptcy filing. K-Mart Corporation rejected the leases
on 12 of your partnership's properties, which reduced 2002 revenues by
$2,482,000. Eight of the properties have been re-leased. The aggregate rental
rates under these leases is significantly less than the aggregate rent that was
scheduled to be received during the renewal term under the K-Mart leases.
Additionally, rental income decreased as a result of lease renewals at
lower rental rates.
Interest Income
Interest income decreased by $1,277,000 or approximately 28% to $3,288,000
for the year ended December 31, 2002 from $4,565,000 for the year ended December
31, 2001. The decrease was due to principal payments received by your
partnership on loans receivable and overall lower interest rates on the invested
cash balances.
Management Fees
Management fees decreased by $106,000 or approximately 12% to $762,000 for
the year ended December 31, 2002 from $868,000 for the year ended December 31,
2001. The decrease is attributable to fewer properties under management.
Interest Expense
Interest expense increased by $3,600,000 or approximately 3% to
$112,766,000 for the year ended December 31, 2002 compared to $109,166,000 for
the year ended December 31, 2001. The increase was due to $20,314,000 in
interest expense attributable to your partnership's mezzanine loan in the amount
of $225,000,000 which was obtained in January 2002, which was substantially
offset by decreases in the mortgage loan and contract right mortgage loan
interest of $10,920,000 as a result of loan payoffs during the year, through
scheduled principal payments and the net gain from the extinguishment of debt of
$5,794,000 for the year ended December 31, 2002, compared to zero for the year
ended December 31, 2001.
43
Depreciation
Depreciation expense decreased by $1,848,000 or approximately 6% to
$27,609,000 for the year ended December 31, 2002 compared to $29,457,000 for the
year ended December 31, 2001. The decrease is attributable to the completion of
the useful lives of various partnership assets while no further additions to
real estate were expended.
General and Administrative
General and administrative expenses increased by $3,869,000 or
approximately 74% to $9,118,000 for the year ended December 31, 2002 compared to
$5,249,000 for the year ended December 31, 2001. The increase was primarily the
result of one-time organizational expenses relating to the formation of your
partnership of $3,168,000. Additionally, legal expenses related to pending law
suits were also incurred.
Amortization Expense
Amortization expense increased by $723,000 or approximately 23% to
$3,854,000 for the year ended December 31, 2002 compared to $3,131,000 for the
year ended December 31, 2001. The increase is primarily the result of mortgage
cost amortization expense in the amount of $981,000 related to your
partnership's mezzanine loan partially offset by savings in land lease
amortization from 2001 land purchases.
Ground Rent
Ground rent expense decreased by $80,000 or approximately 2% to $3,165,000
for the year ended December 31, 2002 compared to $3,245,000 for the year ended
December 31, 2001. The decrease is the result of a June 2001 acquisition of land
previously leased resulting in no rent expense for the property in 2002.
State Income Taxes
State income taxes decreased by $24,000 or approximately 3% to $840,000
for the year ended December 31, 2002 compared to $864,000 for the year ended
December 31, 2001.
Critical Accounting Policies
The preparation of consolidated financial statements in conformity with
accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions in certain circumstances
that affect amounts reported in the accompanying consolidated financial
statements and related notes. In preparing these consolidated financial
statements, management has made its best estimates and judgments of certain
amounts included in the consolidated financial statements, giving due
consideration to materiality. Your partnership does not believe there is a great
likelihood that materially different amounts would be reported related to the
accounting policies described below. However, application of these accounting
policies involves the exercise of judgment and use of assumptions as to future
uncertainties and, as a result, actual results could differ from these
estimates.
44
Impairment of long-lived assets. At December 31, 2003, your partnership
had $1,129,237,000 of real estate (net) and $59,481,000 of real estate held for
sale (net), which combined,,account for approximately 86% of your partnership's
total assets. Buildings and improvements are carried at cost net of adjustments
for depreciation and amortization. The fair values of your partnership's
buildings and improvements are dependent on the performance of the properties.
Your partnership evaluates recoverability of the net carrying value of its
real estate and related assets at least annually, and more often if
circumstances dictate. If there is an indication that the carrying value of a
property might not be recoverable, your partnership prepares an estimate of the
future undiscounted cash flows expected to result from the use of the property
and its eventual disposition, generally over a five-year holding period. In
performing this review, management takes into account, among other things, the
existing occupancy, the expected leasing prospects of the property and the
economic situation in the region where the property is located.
If the sum of the expected future undiscounted cash flows is less than the
carrying amount of the property, your partnership recognizes an impairment loss
and reduces the carrying amount of the asset to its estimated fair value. Fair
value is the amount at which the asset could be bought or sold in a current
transaction between willing parties, that is, other than in a forced or
liquidation sale. Management estimates fair value using discounted cash flows or
market comparables, as most appropriate for each property. Independent certified
appraisers are utilized to assist management when warranted. During the year
ended December 31, 2003, your partnership recorded $1,560,000 in allowances for
impairment.
Because the cash flows used to evaluate the recoverability of the assets
and their fair values are based upon projections of future economic events, such
as property occupancy rates, rental rates, operating cost inflation and market
capitalization rates, which are inherently subjective, the amounts ultimately
realized at disposition may differ materially from the net carrying values at
the balance sheet dates. The cash flows and market comparables used in this
process are based on good faith estimates and assumptions developed by
management.
Unanticipated events and circumstances may occur, and some assumptions may
not materialize; therefore, actual results may vary from the estimates, and
variances may be material. The Partnership may provide additional write-downs,
which could be material in subsequent years if real estate markets or local
economic conditions change.
Useful lives of long-lived assets. Building and improvements and certain
other long-lived assets are depreciated or amortized over their useful lives.
Depreciation and amortization are computed using the straight-line method over
the useful life of the building and improvements. The cost of properties
represents the initial cost of the properties to your partnership plus
acquisition and closing costs less impairment adjustments.
During 2003, the Partnership made a change to its accounting estimates
with respect to the depreciable lives of its real estate assets. The change in
accounting estimates resulted in a decrease in net income of approximately
$6,823,000 and a decrease in net income per limited partnership unit of
approximately $ 1.08 per unit for the year ended December 31, 2003.
45
Recently Issued Accounting Standards
None of the recently issued accounting standards had any effect on the
partnership's consolidated financial statements.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Your partnership has both fixed and variable rate debt, as well as one
interest rate cap. All financial instruments were entered into for other than
trading purposes. A change in interest rates on the fixed rate portion of the
debt portfolio or the interest rate cap impacts the net financial instrument
position, but has no impact on interest incurred or cash flows. A change in
interest rates on the variable portion of the debt portfolio impacts the
interest incurred and cash flows, but does not impact the net financial
instrument position.
The fair value of your partnership's debt, based on discounted cash flows
at the current market conditions and interest rates for the remaining term of
such debt was less than the aggregate carrying amount by approximately
$13,700,000 at December 31, 2003. The change in the fair value of your
partnership's debt as of December 31, 2003 reflects the impact of the T-Two
Partners refinancing affected by your partnership in November 2003.
At December 31, 2003, your partnership had one loan which had a variable
interest rate. The loan which had an outstanding balance of $208.4 million at
December 31, 2003, was obtained in November 2003 and has a three-year term.
Interest on the outstanding balance accrues at a rate equal to, at your
partnership's option, either, (i) LIBOR rate (as defined) plus 450 basis points
or (ii) the bank's prime rate plus 250 basis points. Your partnership purchased
an interest rate cap on the loan so that the interest rate would be capped at
9.5%.
Your partnership elected to pay the loan based on the LIBOR rate. The
following table shows what the annual effect of a change in the LIBOR rate
(1.21% at December 31, 2003) will have on interest expense based upon increases
up to the cap of 9.5% all in interest rate.
Change in LIBOR
(In thousands)
------------------------------------------
1% 2% 3% 3.79%
-- -- -- -----
Additional interest expense $2,084 $4,167 $6,251 $7,898
46
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See "Index to Financial Statements" under "ITEM 15. EXHIBITS, FINANCIAL
STATEMENTS, SCHEDULES, AND REPORTS ON FORM 8-K."
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Effective September 30, 2002, your partnership dismissed its prior
Independent Auditors, Deloitte & Touche LLP (the "Prior Auditors"). The Prior
Auditors auditors' report on the consolidated balance sheet of the Predecessor
Entity as of December 31, 2001, and the related statements of operations,
partner's equity and cash flows for each of the two years in the period ended
December 31, 2001, did not contain an adverse opinion or a disclaimer of
opinion, and were not qualified or modified as to uncertainty, audit scope, or
accounting principles. The decision to change Independent Auditors was approved
by your partnership's general partner. During calendar year ended 2001 and 2000
and through September 30, 2002, there were no disagreements between your
partnership and the Prior Auditors on any matter or accounting principles or
practices, financial statement disclosure, or auditing scope of procedure.
Effective October 10, 2002, your partnership engaged Imowitz, Koenig &
Co., LLP as its Independent Auditors. Your partnership did not consult Imowitz
Koenig & Co., LLP regarding any of the matters or events set forth in Item
304(a)(2) of Regulation S-K prior to October 10, 2002.
47
ITEM 9A. CONTROLS AND PROCEDURES
In accordance with Exchange Act Rules 13a-15 and 15d-15, your partnership
carried out an evaluation, under the supervision and with the participation of
the Chief Executive Officer and Chief Financial Officer of your general
partner's manager, as well as other key members of your partnership's
management, of the effectiveness of your partnership's disclosure controls and
procedures as of the end of the period covered by this report. Based on that
evaluation, your partnership's Chief Executive Officer and Chief Financial
Officer concluded that your partnership's disclosure controls and procedures
were effective, as of the end of the period covered by this report, to provide
reasonable assurance that information required to be disclosed in your
partnership's reports filed or submitted under the Exchange Act is recorded,
processed, summarized and reported within the time periods specified in the
Securities and Exchange Commission's rules and forms.
No change occurred in your partnership's internal controls concerning
financial reporting during the fourth quarter of the fiscal year ended December
31, 2003 that has materially affected, or is reasonably likely to materially
affect, your partnership's internal controls over financial reporting.
48
PART III
ITEM 10. MANAGERS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The general partner of your partnership is MLP GP LLC, a Delaware limited
liability company, that is owned by affiliates of Vornado Realty Trust and
executive officers of Winthrop Financial Associates. In addition, Winthrop
Financial Associates performs asset management services for your partnership.
MLP GP LLC has no assets, liabilities or equity and does not have an equity
interest in your partnership.
The manager of your partnership's general partner is Newkirk MLP Corp.,
the principal officers of which are Michael L. Ashner, Chief Executive Officer;
Peter Braverman, Executive Vice President; Thomas C. Staples, Chief Financial
Officer; and Carolyn Tiffany, Chief Operating Officer. Such persons also serve
in those capacities for Winthrop Financial Associates. These officers manage and
control the day-to-day operations of your partnership on behalf of your
partnership's general partner. However, significant transactions, whether by
your partnership or any subsidiary partnership, such as sales, acquisitions,
debt refinancings and mergers, require the consent of the members of the general
partner under the limited liability company agreement of the general partner.
The principal occupations and relevant affiliations of the officers of
your partnership's general partner are as follows:
Michael L. Ashner. Mr. Ashner, age 51, serves as the Chief Executive
Officer of Winthrop Financial Associates and its affiliates, a position he has
held since January 15, 1996, as well as the Chief Executive Officer of Newkirk
MLP Corp., the manager of your partnership's general partner. Mr. Ashner has
served as Chief Executive Officer of First Union Real Estate Equity and Mortgage
Investments, a publicly traded real estate investment trust which we refer to as
First Union, since December 31, 2003. Since August 2002, Mr. Ashner has also
served as the Chief Executive Officer and a Director of Shelbourne Properties I,
II and III, three separate publicly traded real estate investment trusts. Since
1981, Mr. Ashner has been Chairman of Exeter Capital Corporation, a firm that
has organized and administered real estate limited partnerships. Since August
2001, Mr. Ashner has also served as Chief Executive Officer of AP-Fairfield GP,
LLC, the general partner of Fairfield Inn by Marriott Limited Partnership, an
entity that owns and operates 50 Fairfield Inns. Mr. Ashner also currently
serves on the Boards of Directors of the following publicly traded companies:
Greate Bay Hotel and Casino Inc., a hotel and casino operator, and NBTY Inc., a
manufacturer, marketer and retailer of nutritional supplements.
Peter Braverman. Mr. Braverman, age 52, has served as the Executive Vice
President of Winthrop Financial Associates and its affiliates since January
1996. Mr. Braverman also serves as the Executive Vice President of Newkirk MLP
Corp., the manager of your partnership's general partner. Mr. Braverman has
served as the Executive Vice President of First Union since January 2004. He has
also been an Executive Vice President of AP-Fairfield GP, LLC since August 2001.
Since August 2002, Mr. Braverman has also served as the Executive Vice President
and a Director of Shelbourne Properties I, II and III.
Thomas C. Staples. Mr. Staples, age 48, has been with Winthrop Financial
Associates since 1995. Since January 1999, Mr. Staples has served as the Chief
Financial Officer of Winthrop Financial Associates. Mr. Staples has also served
as the Treasurer and Chief Financial Officer of First Union since January 2004.
Since August 2002, Mr. Staples has also served as Assistant Treasurer of
49
Shelbourne Properties I, II and III. In addition, Mr. Staples is the Chief
Financial Officer of the Newkirk Group. He also serves as Chief Financial
Officer and Treasurer of AP-Fairfield GP, LLC. Mr. Staples is a certified public
accountant.
Carolyn Tiffany. Ms. Tiffany, age 37, has been with Winthrop Financial
Associates since January 1993. Since December 1997, Ms. Tiffany has served as
the Chief Operating Officer of Winthrop Financial Associates. Ms. Tiffany has
served as the Chief Operating Officer and Secretary of First Union since January
2004. Ms. Tiffany also serves as Vice President, Treasurer, Secretary and Chief
Financial Officer of Shelbourne Properties I, II and III. In addition, Ms.
Tiffany is the Chief Operating Officer of The Newkirk Group. She has also been
Chief Operating Officer of AP-Fairfield GP, LLC since August 2001.
One or more of the above persons are also directors or officers of a
general partner (or general partners of a general partner) of a number of
limited partnerships which either have a class of securities registered pursuant
to Section 12(g) of the Securities and Exchange Act of 1934, or are subject to
the reporting requirements of Section15(d) of such Act. In addition, each of the
foregoing individuals hold similar positions with AP-PCC III, L.P., an entity
that through one or more subsidiaries manage several limited partnerships that
hold title to real property including, commercial properties and residential
properties.
Except as indicated above, neither your partnership nor your general
partner or its manager has any significant employees within the meaning of Item
401(c) of Regulation S-K. There are no family relationships among the officers
and directors of the general partner.
Compliance with Section 16(a) of the Exchange Act.
Based solely upon a review of Forms 3 and 4 and amendments thereto
furnished to your partnership under Rule 16a-34(e) during your partnership's
most recent fiscal year and Forms 5 and amendments thereto furnished to your
partnership with respect to its most recent fiscal year, your partnership is not
aware of any manager, officer or beneficial owner of more than ten percent of
the units of limited partnership interest in your partnership that failed to
file on a timely basis, as disclosed in the above Forms, reports required by
Section 16(a) of the Exchange Act during the most recent fiscal year or prior
fiscal years.
Code of Ethics
Your partnership has adopted a Code of Ethics that applies to the chief
executive officer and chief financial officer of the manager of your
partnership's general partner, who perform functions similar to principal
executive officer and principal financial officer, respectively, for the
partnership. A copy of the Code of Ethics will be provided without charge to any
person who requests it by writing to the attention of Thomas Staples at the
address set forth on the cover page to this Form 10-K.
Your partnership has no directors and is not a "listed-issuer" under Item
401 to Regulation S-K. Accordingly, your partnership does not have an audit
committee or an audit committee financial expert under Item 401 of Regulation
S-K.
50
ITEM 11. EXECUTIVE COMPENSATION
Your partnership has no employees. Winthrop Financial Associates, an
affiliate of your general partner and of the Newkirk Group, provides the
services of some of its employees, including the executive officers of the
manager of your partnership's general partner, to perform asset management
services. Winthrop Financial Associates receives an annual fee of $1,800,000
(subject to adjustment based on increases in the CPI) for its services to your
partnership and 15 other affiliated partnerships. The CPI adjustment for 2003
was 2.4% bringing the fee to $1,843,200. See "ITEM 1. BUSINESS - Employees."
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTER
Security Ownership.
The following table sets forth the number of units held as of March 29,
2004 by (i) each person that, to our knowledge, beneficially owns more than 5%
of the total number of units, (ii) each officer or director of Newkirk MLP
Corp., the manager of your partnership's general partner, and (iii) the
directors and executive officers of Newkirk MLP Corp. as a group.
Name and Address of Percent of
Beneficial Owner Number of Units Total Units
- ---------------- --------------- -----------
Michael L. Ashner 3,657,230 (2)(3) 57.95%
Apollo Real Estate Investment Fund III, L.P.
Apollo Real Estate Advisors III, L.P.
Apollo Real Estate Management III, L.P. (1)
Vornado Realty Trust 1,639,818 (3)(4) 25.98%
888 Seventh Avenue
New York, NY 10019
Peter Braverman 0 --
Thomas Staples 0 --
Carolyn Tiffany 0 --
All executive officers and directors 3,657,230 (2)(3) 57.95%
as a group (4 individuals)
- ----------
(1) The address for Apollo Real Estate Investment Fund III, L.P. ("Apollo
Fund"), Apollo Real Estate Advisors III, L.P. ("Apollo Advisors"), and
Apollo Real Estate Management III, L.P. ("Apollo Management") is 2
Manhattanville Road, Purchase, New York 10577. The address for Mr. Ashner
is 100 Jericho Quadrangle, Jericho, New York 11753.
51
(2) Comprised of units that are held by Newkirk RE Holdings LLC, Newkirk NL
Holdings LLC, Newkirk Tender Holdings LLC, Marbax Venture LLC, AP-WIN
Associates, L.L.C., AP-III WEM WIN Tender LLC and AP-IV WEM WIN Tender
LLC, each of which is directly or indirectly controlled by either
WEM-Brynmawr Associates LLC, WEM Fund 1998 Limited Partnership or WEM-WIN
Tender Associates (the "WEM Entities") and by Apollo Fund. For purposes of
Section 13 of the Securities Exchange Act of 1934 (the "Exchange Act"), as
the sole manager of each of the WEM Entities, Mr. Ashner may be deemed to
be the beneficial owner of all units beneficially owned by the WEM
Entities. In addition, for purposes of Section 13 of the Exchange Act, as
the general partner of Apollo Fund, Apollo Advisors may be deemed to be
the beneficial owner of all units beneficially owned by Apollo Fund, and
all such units may be deemed to be beneficially owned by Apollo Management
as the day-to-day manager of Apollo Fund. Also includes 217,418 units that
Newkirk NL Holdings and Newkirk RE Holdings have a right to acquire from
Vornado Newkirk L.L.C. and an aggregate of 15,539 units which will be
issued to AP3-WEM WIN Tender LLC and AP-WIN Associates LLC on April 1,
2004. See "ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS -
ACQUISITION OF LIMITED PARTNERSHIP INTERESTS."
(3) Due to the relationships between the individual and entities referred to
on this chart and in notes (2) and (4) thereto, such individual and
entities may be deemed to constitute a "group" for purposes of Section
13d-3 of the Exchange Act.
(4) Comprised of units that are held by VNK Corp., Vornado Newkirk L.L.C. and
Vornado Realty L.P., each of which is controlled by Vornado Realty Trust.
Changes in Control.
There exists no arrangement known to the partnership the operation of
which may at a subsequent date result in a change in control of the partnership.
Securities Authorized for Issuance under Equity Compensation Plans.
The partnership has no securities authorized for issuance under any equity
compensation plans.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
OPTION MODIFICATION
As part of the exchange, your partnership and the Newkirk Group entered
into an option arrangement that gave your partnership an option to acquire in
January 2008 indirect interests in a pool of second mortgages of the Newkirk
partnerships and various other partnerships. The Newkirk Group also had a put
option to require your partnership to acquire these indirect interests in
December 2007. In November 2003 your partnership's option was modified and the
Newkirk Group's put option was eliminated. We refer you to "ITEM 1. BUSINESS -
Description of Assets - The Subordinate Mortgage Interests" for additional
information on the option arrangement and those interests.
52
ACQUISITION OF LIMITED PARTNERSHIP INTERESTS
In January 2003, your partnership acquired from the Newkirk Group limited
partnership interests, ranging from a 4.9% interest to a 57.75% interest in nine
partnerships that own net leased property in exchange for 317,813 units. We
refer to these partnerships as the additional partnerships. Four of the
additional partnerships are included in the consolidated partnerships and five
of the additional partnerships are included in the unconsolidated partnerships.
The 317,813 units were divided among the Newkirk Group as follows: 133,400 units
to AP-WIN Associates L.L.C., 23,319 units to AP3-WEM WIN Tender LLC, 59,433
units to AP4-WEM WIN Tender LLC and 101,662 units to Vornado Realty L.P. In
addition, in connection with this transaction, your partnership also acquired an
option to purchase additional limited partnership interests in two of these
partnerships. In January 2004, your partnership notified the Newkirk Group that
it intends to exercise its option to purchase the additional limited partnership
interests. It is anticipated that these additional limited partnership interests
will be acquired as of April 1, 2004 in exchange for 15,539 units: 13,139 will
be issued to AP-WIN Associates LLC and 2,400 will be issued to AP3-WEM Win
Tender LLC. This acquisition will increase your partnership's ownership of
interest in these partnerships to 68.68% and 55.28% from 40.68% and 47.52%,
respectively.
In determining the number of units issuable to the Newkirk Group in
exchange for such interests, your partnership's general partner estimated the
value of the additional partnerships utilizing a discounted cash flow approach
similar to that which was used to determine exchange values for Newkirk
partnerships as part of the exchange to arrive at a value of $22,704,776 for the
limited partnership interests acquired in January 2003. The limited partnership
units to be acquired in April 2004 are being valued at $1,110,000. This value
includes a $394,000 deduction from the original valuation in order to reflect a
2003 property sale. Your partnership's general partner estimated the per unit
value of your partnership in order to determine the number of units allocable to
the Newkirk Group for their interests in the additional partnerships. The
estimated per unit value of your partnership ($71.44 per unit) was derived from
the aggregate value ascribed to your partnership in the exchange, as adjusted to
reflect the proceeds from your partnership's indebtedness to Fleet that were
distributed to limited partners following the exchange. 47,743 of the units
allocated to the Newkirk Group were in respect of limited partnership interests
in the additional partnerships that the Newkirk Group had acquired in 2001 and
2002 for $1,305,204.
During 2002, appraisals were obtained for each of the properties owned by
the additional partnerships. The aggregate appraised value of all of the
properties was $288,675,000. Based solely on your partnership's ownership
interests in the additional partnerships following its January 2003 acquisition,
$25,049,842 of the appraised value would have been attributable to the interests
owned by your partnership at that time.
LAND ACQUISITIONS
In January 2003, your partnership acquired the land underlying the
property owned by one of its unconsolidated partnerships. The property is a
200,000 square foot office building that is net-leased to Associates
First-Financial Corp. until September 2008 with renewal options extending until
September 2038. This additional partnership has an estate for years in the land
that runs until September 2013 followed by an option to ground lease the land
for up to 45 years. The land was acquired from a company wholly-owned by
Winthrop Financial Associates, an affiliate of your partnership's general
53
partner, for $1,000,000, $50,000 of which was paid in cash and the balance in
the form of a $950,000 note due September 8, 2008. The note bears interest at
the rate of LIBOR plus 6% per annum, compounded annually, and payable
interest-only until maturity, at which time the full balance of the note is due.
In determining the purchase price for this land sale described above, your
partnership's general partner obtained a property appraisal.
54
MORTGAGE INDEBTEDNESS
Certain members of the Newkirk Group owned the three most junior tranches
of the T-1 Certificate that is described in "ITEM 1. BUSINESS" under the heading
"- Description of Assets - The Subordinate Mortgage Interests.". During the year
ended December 31, 2003 and prior to November 24, 2003, approximately $1,800,000
of interest was paid on these three junior tranches. On November 24, 2003,
$152,001,000 of the proceeds of the T-Two Loan referred to in Item 1 were used
by T-Two Partners to acquire the T-1 Certificate, which payment included
approximately $2,400,000 for accrued interest and approximately $4,400,000 of
prepayment penalties. Approximately $17,806,000 of the payments made by T-Two
Partners to acquire the T-1 Certificate were received by members of the Newkirk
Group for their interests in the three junior tranches of the T-1 Certificate.
MORTGAGE REFINANCING
See "ITEM 2. PROPERTIES - Mortgage Indebtedness of Your Partnership" for
information on the acquisition by members of the Newkirk Group of second
mortgage indebtedness on properties owned by your partnership. During 2003, your
partnership incurred approximately $685,000 of interest expense payable to
members of the Newkirk Group on the mortgage indebtedness. At December 31, 2004,
your partnership owed approximately $14,583,000 on the second mortgage to
members of the Newkirk Group.
T-TWO PARTNERS
See "ITEM 1. BUSINESS - Description of Assets - The Subordinate Mortgage
Interests" for a description of T-Two Partners, its ownership of second mortgage
loans on your partnership's properties and the sale to your partnership of a
mortgage loan encumbering a property in which your partnership has a 53%
interest. During 2003, your partnership incurred approximately $14,295,000 of
interest expense payable to T-Two Partners. T-Two Partners is owned by NK-CR
Holdings and Holdings Subsidiary, both of which are owned by members of the
Newkirk Group. After payment of the cost of acquiring the T-1 Certificate,
approximately $164,526,000 of the proceeds of the T-Two Loan referred to in Item
1 were distributed to the owners of T-Two Partners. At the time of the closing
of the T-Two Loan, T-Two Partners also distributed to its beneficial owners
$29,475,000 that was being held by T-Two Partners. This additional amount
represented payments that had previously been made on the second mortgage loans,
including second mortgage loans on your partnership's properties, in which T-Two
Partners owned subordinated beneficial interests, as well as proceeds from the
sale to your partnership of the mortgage loan referred to above. A substantial
portion of these amounts had previously been held in a reserve fund for the
holders of the T-1 Certificate.
MORTGAGE ON PROPERTY OF AFFILIATE
See "ITEM 1. BUSINESS - Description of Assets - First Mortgage Interests"
for information on a securitized pool of first mortgages held by your
partnership that is partially secured by properties owned by partnerships that
are controlled by affiliates of your partnership's general partner.
55
ASSET MANAGEMENT AGREEMENT
See "ITEM 1. BUSINESS - Description of Assets - The Management Company"
for a description of fees paid to Winthrop Financial Associates by Newkirk Asset
Management LLC for services rendered for your partnership and certain other
partnerships.
56
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The aggregate fees for professional services rendered by Imowitz, Koenig &
Co. during 2003 and 2002 were as follows:
Audit Fees. Fees for the audit of your partnership's annual financial
statements, the reviews of the financial statements in the Partnership's Forms
10-Q, the review of the financial statements in the Partnership's Form 10 and
amendments thereto, and other services in connection with statutory and
regulatory filings and engagements were $338,000 and $147,000, in 2003 and 2002,
respectively.
Audit Related Fees. The aggregate audit-related fees billed during 2003
and 2002 for assurance and related services that were reasonably related to the
performance of the audit or review of your partnership's financial statements
and not reported under "Audit Fees" were in the amount of $15,000 and 0,
respectively, billed by Imowitz, Koenig & Co. and covered agreed upon procedures
related to a bank financing.
Tax Fees. Fees for tax services relating to tax compliance were $366,000
and $294,000 in 2003 and 2002, respectively.
All Other Fees. None.
57
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K
(a) Financial Statements
See "Index to Financial Statements" below.
(b) Reports on Form 8-K
Date Items Reported Financial Statements
---- -------------- --------------------
11/26/03 5 None
(c) Exhibits
Exhibit No. Description
- ----------- -----------
* 2.1 Agreement and Plan of Merger between the Newkirk Master Limited
Partnership and each of the Merger Partnerships set forth on
Schedule A, dated December 6, 2001.
* 2.2 Assignment and Assumption Agreement by and between Newkirk Stock
LLC, The Newkirk Master Limited Partnership, Newkirk NL Holdings
LLC and VNK Corp. dated as of December 26, 2001.
* 2.3 Assignment and Assumption Agreement by and between Newkirk Eastgar
LLC, Newkirk Partner Interest LLC, The Newkirk Master Limited
Partnership and Newkirk MLP Unit LLC dated as of December 26,
2001.
* 2.4 Assignment and Assumption Agreement by and between Vornado Realty
L.P., Vornado Newkirk L.L.C., The Newkirk Master Limited
Partnership, and Newkirk MLP Unit LLC, dated as of December 26,
2001.
* 2.5 Assignment and Assumption Agreement between Newkirk RE Associates
LLC, The Newkirk Master Limited Partnership, Newkirk RE Holdings
and Vornado Newkirk L.L.C. dated as of December 26, 2001.
* 2.6 Assignment and Assumption Agreement by and between Newkirk
Associates LLC, The Newkirk Master Limited Partnership, Newkirk NL
Holdings LLC and Vornado Newkirk L.L.C. dated as of December 26,
2001.
* 2.7 Agreement and Plan of Merger by and between The Newkirk Master
Limited Partnership, Lanmar Associates Limited Partnership and
Newkirk Lanmar L.P., dated as of December 6, 2001.
* 3 Certificate of Limited Partnership of the Newkirk Master Limited
Partnership.
* 4.1 Agreement of Limited Partnership of The Newkirk Master Limited
Partnership, by and among MLP GP LLC, Newkirk Manager Corp. and
all other persons who shall, pursuant to the Exchange or otherwise
become limited partners of the Partnership, dated as of October
23, 2001.
* 4.2 Additional provisions incorporated by reference into the Agreement
of Limited Partnership of the Newkirk Master Limited Partnership.
* 4.3 Limited Liability Agreement of MLP GP LLC.
58
Exhibit No. Description
- ----------- -----------
* 10.1 Amended and Restated Cash Participation Agreement, dated as of
January 1, 2002, by and among Newkirk GP LLC, Newkirk Capital LLC,
Newkirk RE Associates LLC, Newkirk Stock LLC, Newkirk Associates
LLC, Vornado Realty L.P., Vornado Newkirk L.L.C., VNK Corp., on
the one hand, and Administrator LLC, as agent for itself and as
agent for the persons listed on Schedule A thereto.
* 10.2 Amended and Restated Pledge Agreement, dated as of January 1,
2002, by and between The Newkirk Master Limited Partnership and
Administrator LLC, for itself and as agent for the parties listed
on Schedule A thereto.
* 10.3 Put-Call Option Agreement, dated as of January 1, 2002, by and
among The Newkirk Master Limited Partnership,, NK-CR Holdings LLC
and Holdings Subsidiary LLC.
* 10.4 Asset Management Agreement dated as of January 1, 2002, by and
between Newkirk Asset Management LLC and Winthrop Financial
Associates.
* 10.5 Loan Agreement, dated January 30, 2002, among The Newkirk Master
Limited Partnership and Fleet National Bank and the lenders party
thereto.
* 10.6 Promissory Note, dated as of January 30, 2002, by The Newkirk
Master Limited Partnership in favor of Fleet National Bank.
* 10.7 Security Agreement, dated as of January 30, 2002, between The
Newkirk Master Limited Partnership and Fleet National Bank.
* 10.8 Ownership Interest Pledge and Security Agreement, dated as of
January 30, 2002, from The Newkirk Master Limited Partnership,
Newkirk GP Holding LLC and General Partners of Participating
Limited Partnerships to Fleet National Bank.
* 10.9 Ownership Interest Pledge and Security Agreement, dated as of
January 30, 2002, from The Newkirk Master Limited Partnership to
Fleet National Bank.
* 10.10 Ownership Interest Pledge and Security Agreement, dated as of
January 30, 2002, from The Newkirk Master Limited Partnership to
Fleet National Bank.
* 10.11 Ownership Interest Pledge and Security Agreement, dated as of
January 30, 2002, from The Newkirk Master Limited Partnership to
Fleet National Bank.
** 10.12 Indemnity Agreement, dated as of January 30, 2002, among Newkirk
NL Holdings, LLC, Newkirk MLP Corp., Vornado Realty, L.P., Vornado
Newkirk, LLC, VNK Corp., Apollo Real Estate Fund III, L.P., The
Newkirk Master Limited Partnership and Fleet National Bank.
*** 10.13 Master Loan Agreement, dated November 24,2003, among The Newkirk
Master Limited Partnership, T-Two Partners, L.P., and Fleet
National Bank and the lender's party thereto.
*** 10.14 Master Promissory Note, dated as of November 24, 2003, by The
Newkirk Master Limited Partnership in favor of Fleet National
Bank.
*** 10.15 Security Agreement, dated as of November 24, 2003, between The
Newkirk Master Limited Partnership and Fleet National Bank.
*** 10.16 Ownership Interest Pledge and Security Agreement, dated as of
November 24, 2003, from The Newkirk Master Limited Partnership,
Newkirk GP Holding LLC and General Partners of certain Limited
Partnerships to Fleet National Bank.
59
Exhibit No. Description
- ----------- -----------
*** 10.17 Ownership Interest Pledge and Security Agreement (GMAC
Partnerships), dated as of November 24, 2003, from The Newkirk
Master Limited Partnership to Fleet National Bank.
*** 10.18 Ownership Interest Pledge and Security Agreement (Subsidiaries),
dated as of November 24, 2003, from The Newkirk Master Limited
Partnership to Fleet National Bank.
*** 10.19 Ownership Interest Pledge and Security Agreement (Finco and
Capital), dated as of November 24, 2003, from The Newkirk Master
Limited Partnership to Fleet National Bank.
*** 10.20 Amended and Restated Indemnity Agreement, dated as of November 24,
2003, among Newkirk NL Holdings, LLC, Newkirk MLP Corp., Vornado
Realty, L.P., Vornado Newkirk, LLC, VNK Corp., Apollo Real Estate
Fund III, L.P., The Newkirk Master Limited Partnership and Fleet
National Bank.
*** 10.21 Guaranty from The Newkirk Master Limited Partnership to Fleet
National Bank.
**** 10.22 Amended Stipulation of Settlement of Albert McCall, et. al., v.
Newkirk Capital LLC, et al.
**** 16 Letter from Deloitte & Touche LLP.
* 21 List of subsidiaries of the Registrant.
31.1 Certificates of Chief Executive Officer pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.
31.2 Certificates of Chief Financial Officer pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.
32.1 Chief Executive Officer's Certificate, pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
32.2 Chief Financial Officer's Certificate, pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
- ----------
* Previously filed as an Exhibit to Form 10 filed on April 30, 2003.
** Previously filed as an Exhibit to Amendment No. 1 to Form 10 filed on
September 10, 2003.
*** Incorporated by reference to Exhibits filed with Form 8-K dated November
24, 2003.
**** Previously filed as an Exhibit to Amendment No. 2 to Form 10 filed on
February 12, 2004.
(d)(3) Financial Statement Schedule
Independent Auditor's Report on Financial Statement Schedule
Schedule of Real Estate and Accumulated Depreciation
60
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Dated: April 2, 2004
THE NEWKIRK MASTER LIMITED PARTNERSHIP
By: MLP GP LLC, its General Partner
By: Newkirk MLP Corp., its Manager
By: /s/ Michael L. Ashner
------------------------------------
Name: Michael L. Ashner
Title: Chief Executive Officer
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 date indicated:
Signature Title Date
--------- ----- ----
By: /s/ Michael L. Ashner Chief Executive Officer of the Manager of the April 2, 2004
------------------------------- General Partner of the Registrant
Michael L. Ashner
By: /s/ Thomas Staples Chief Financial Officer of the Manager of the April 2, 2004
------------------------------- General Partner of the Registrant
Thomas Staples
61
Exhibit Index
Exhibit No. Description
- ----------- -----------
14 Code of Ethics.
31.1 Certificates of Chief Executive Officer pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.
31.2 Certificates of Chief Financial Officer pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.
32.1 Chief Executive Officer's Certificate, pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
32.2 Chief Financial Officer's Certificate, pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
THE NEWKIRK MASTER LIMITED PARTNERSHIP
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
----
INDEPENDENT AUDITORS' REPORT AS OF AND FOR THE YEARS ENDED
DECEMBER 31, 2003 and 2002 F - 1
INDEPENDENT AUDITORS' REPORT FOR THE YEAR ENDED
DECEMBER 31, 2001 (PREDECESSOR) F - 2
FINANCIAL STATEMENTS
Consolidated Balance Sheets at December 31, 2003 and 2002 F - 3
Consolidated Statements of Operations for the Years Ended December 31, 2003 and
2002 and Combined Consolidated Statement of Operations for the Year Ended
December 31, 2001 (Predecessor) F - 4
Consolidated Statements of Partners' Equity for the Years Ended December 31, 2003
and 2002 and Combined Consolidated Statement of Members' Capital for the
Year Ended December 31, 2001 (Predecessor) F - 5
Consolidated Statements of Cash Flows for the Years Ended December 31, 2003 and
2002 and Combined Consolidated Statement of Cash Flows for the Year Ended
December 31, 2001 (Predecessor) F - 6 to F - 10
Notes to Consolidated Financial Statements F - 11 to F - 36
Independent Auditors' Report
To the Partners of
The Newkirk Master Limited Partnership
We have audited the accompanying consolidated balance sheets of The Newkirk
Master Limited Partnership (a Delaware limited partnership) (the "Partnership")
as of December 31, 2003 and 2002 and the related consolidated statements of
operations, partners' equity and cash flows for the years then ended. These
consolidated financial statements are the responsibility of the Partnership's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the consolidated
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the consolidated financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall consolidated 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 financial position of the Partnership as
of December 31, 2003 and 2002, and the results of its operations and its cash
flows for the years then ended in conformity with accounting principles
generally accepted in the United States of America.
/s/ Imowitz Koenig & Co., LLP
New York, New York
January 30, 2004
F - 1
INDEPENDENT AUDITORS' REPORT
To the Members of Newkirk RE Holdings, LLC and Newkirk NL Holdings, LLC:
We have audited the accompanying combined consolidated statements of operations,
changes in members' capital, and cash flows of Newkirk RE Holdings, LLC and
Newkirk NL Holdings, LLC and subsidiaries (the "Predecessor Company") for the
year ended December 31, 2001. These financial statements are the responsibility
of the Predecessor Company's management. Our responsibility is to express an
opinion on the financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the combined
consolidated financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the combined consolidated 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 audit provides a reasonable basis for our
opinion.
In our opinion, such combined consolidated financial statements present fairly,
in all material respects, the results of operations and cash flows of the
Predecessor Company for the year ended December 31, 2001, in conformity with
accounting principles generally accepted in the United States of America.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
April 11, 2002
F - 2
THE NEWKIRK MASTER LIMITED PARTNERSHIP
CONSOLIDATED BALANCE SHEETS
(In thousands, except unit data)
December 31,
2003 2002
----------- -----------
ASSETS
Real estate investments:
Land $ 37,674 $ 37,904
Land estates 45,204 54,524
Buildings and improvements 1,619,199 1,624,140
----------- -----------
Total real estate investments 1,702,077 1,716,568
Less accumulated depreciation and amortization (572,840) (512,678)
----------- -----------
Real estate investments, net 1,129,237 1,203,890
Real estate held for sale, net of accumulated depreciation of
$19,692 and $61,027 59,481 105,331
Cash and cash equivalents, of which $5,148 and $8,109 is restricted 37,851 33,452
Receivables and deferred rental income (including $7,346 and $0 from a
related party) 97,845 77,855
Equity investments in limited partnerships 8,492 --
Deferred costs, net of accumulated amortization of $29,638 and $26,656 22,993 24,418
Other assets 27,240 29,387
Other assets of discontinued operations 955 2,290
----------- -----------
Total Assets $ 1,384,094 $ 1,476,623
=========== ===========
LIABILITIES, MINORITY INTERESTS AND EQUITY
Liabilities:
Mortgage notes and accrued interest payable (including $14,583 and $ 615,993 $ 717,968
$13,964 to a related party)
Note payable 208,356 221,650
Contract right mortgage notes and accrued interest payable
(including $296,035 and $223,183 to related parties) 401,132 425,441
Accounts payable and accrued expenses 15,427 10,467
Liabilities of discontinued operations 35,997 105,500
----------- -----------
Total Liabilities 1,276,905 1,481,026
Contingencies
Minority interests (39,822) (29,096)
Partners' equity (6,319,391 and 6,116,578 limited partnership units outstanding
at December 31, 2003 and 2002, respectively) 147,011 24,693
----------- -----------
Total Liabilities, Minority Interests and Equity $ 1,384,094 $ 1,476,623
=========== ===========
See notes to consolidated financial statements.
F - 3
THE NEWKIRK MASTER LIMITED PARTNERSHIP
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001
(In thousands, except unit and per unit data)
2001
2003 2002 Predecessor
-------------- -------------- -------------
(Consolidated) (Consolidated) (Combined
Consolidated)
Revenue:
Rental income $ 274,971 $ 266,816 $ 235,653
Interest income 2,983 3,288 21,749
Management fees 418 762 1,573
----------- ----------- -----------
Total revenue 278,372 270,866 258,975
----------- ----------- -----------
Expenses:
Interest (including $14,521, $11,851 and $5,656 to
related parties, respectively) 106,898 112,766 104,823
Depreciation 37,705 27,609 32,444
General and administrative (including $1,843, $1,800 and 11,486 9,118 8,075
$3,000 to related parties, respectively)
Amortization 4,771 3,854 13,138
Ground rent 3,202 3,165 3,177
Federal and state income taxes 767 840 2,918
----------- ----------- -----------
Total expenses 164,829 157,352 164,575
----------- ----------- -----------
Income from continuing operations before equity in income
from investments in limited partnerships and minority interest 113,543 113,514 94,400
Equity in income from investments in limited partnerships 2,054 -- 7,649
Minority interest (15,509) (8,117) (55,662)
----------- ----------- -----------
Income from continuing operations 100,088 105,397 46,387
----------- ----------- -----------
Discontinued operations:
Income from discontinued operations 20,334 18,448 15,679
Gain (loss) from disposal of real estate 29,514 (983) (2,936)
Minority interest -- -- (9,519)
----------- ----------- -----------
Income from discontinued operations 49,848 17,465 3,224
----------- ----------- -----------
Net income $ 149,936 $ 122,862 $ 49,611
=========== =========== ===========
Income from continuing operations per limited partnership unit $ 15.81 $ 17.22
Income from discontinued operations per limited partnership unit 7.88 2.86
----------- -----------
Net income per limited partnership unit $ 23.69 $ 20.08
=========== ===========
Distributions per limited partnership unit $ 5.52 $ 32.16
=========== ===========
Weighted average limited partnership units 6,329,204 6,119,942
=========== ===========
See notes to consolidated financial statements.
F - 4
THE NEWKIRK MASTER LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF PARTNERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2003 and 2002
(In thousands, except unit data)
Limited
Partnership Partners'
Units Equity
----------- ----------
Equity Contributions 6,121,990 $ 98,893
Distributions -- (196,880)
Limited partner buyouts (5,412) (182)
Net income -- 122,862
---------- ----------
Balance at December 31, 2002 6,116,578 24,693
Equity Contributions 317,813 11,050
Distributions -- (34,731)
Limited partner buyouts (115,000) (3,937)
Net income -- 149,936
---------- ----------
Balance at December 31, 2003 6,319,391 $ 147,011
========== ==========
PREDECESSOR COMBINED CONSOLIDATED STATEMENT
OF MEMBERS' CAPITAL
FOR THE YEAR ENDED DECEMBER 31, 2001
(In thousands)
Members'
Capital
---------
Balance at January 1, 2001 $ 209,962
Contributions 5,329
Distributions (7,384)
Net income 49,611
---------
Balance at December 31, 2001 $ 257,518
=========
See notes to consolidated financial statements.
F - 5
THE NEWKIRK MASTER LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001
(In thousands)
2001
2003 2002 Predecessor
-------------- -------------- -------------
(Consolidated) (Consolidated) (Combined
Consolidated)
CASH FLOWS FROM OPERATING ACTIVITIES:
Continuing Operations:
Income from continuing operations $ 100,088 $ 105,397 $ 46,387
Adjustments to reconcile income from continuing
operations to net cash provided by continuing
operations:
Amortization of deferred costs and land estates 13,678 9,240 --
Depreciation expense 37,705 27,609 45,319
Net loss (gain) from early extinguishment of debt 28 (5,729) --
Amortization of discount on contract rights -- -- (13,190)
Amortization of discount on mortgage loans -- -- (159)
Minority interest expense 15,509 8,117 55,662
Equity in income of limited partnerships (2,054) -- (7,649)
Changes in operating assets and liabilities:
Notes receivable and accrued interest -- -- (3,707)
Income taxes payable -- -- (501)
Increase in receivables and deferred rental income (14,325) (1,100) (11,550)
Increase (decrease) in accounts payable and accrued expenses 3,344 (16,698) (23,158)
Decrease in accrued interest-mortgages and contract rights (6,994) (13,035) --
Decrease in other assets 1,871 5,044 --
Other liabilities -- -- 628
------------ ------------ ------------
Net cash provided by continuing operations 148,850 118,845 88,082
------------ ------------ ------------
Discontinued Operations:
Income from discontinued operations 49,848 17,465 3,224
Adjustments to reconcile income from discontinued
operations to net cash provided by discontinued
operations:
Amortization of deferred costs and land estates 211 579 --
Depreciation expense 2,634 6,414 5,054
Net gain from early extinguishment of debt (8,733) (553) --
(Gain) loss on sales of real estate (29,514) 983 2,936
Minority interest expense 781 -- 9,519
Impairment loss 1,560 -- --
Changes in assets and liabilities:
Net (decrease) increase in assets and liabilities of discontinued
operations (3,620) (241) 1,137
------------ ------------ ------------
Net cash provided by discontinued operations 13,167 24,647 21,870
------------ ------------ ------------
Net cash provided by operating activities 162,017 143,492 109,952
------------ ------------ ------------
(Continued)
See notes to consolidated financial statements.
F - 6
THE NEWKIRK MASTER LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001
(In thousands)
(continued)
2001
2003 2002 Predecessor
-------------- -------------- -------------
(Consolidated) (Consolidated) (Combined
Consolidated)
CASH FLOWS FROM INVESTING ACTIVITIES:
Continuing Operations:
Cash related to formation of partnership $ -- $ 10,776 $ --
Land additions (2,268) (2,904) (2,842)
Investment in contract rights -- -- (284)
Advances to related parties -- -- (3,334)
Cash related to previously unconsolidated limited partnerships 650 -- 21,235
Deposits on operating partnership units -- -- (418)
Investments in limited partnership interests (1,307) -- (37,374)
-------- -------- --------
Net cash (used in) provided by continuing operations (2,925) 7,872 (23,017)
-------- -------- --------
Discontinued Operations:
Net proceeds from disposal of real estate or other assets 61,491 3,208 844
Proceeds from sales of contract rights -- -- 542
Land additions (250) -- --
-------- -------- --------
Net cash provided by discontinued operations 61,241 3,208 1,386
-------- -------- --------
Net cash provided by (used in) investing activities 58,316 11,080 (21,631)
-------- -------- --------
(Continued)
See notes to consolidated financial statements.
F - 7
THE NEWKIRK MASTER LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001
(In thousands)
(continued)
2001
2003 2002 Predecessor
-------------- -------------- -------------
(Consolidated) (Consolidated) (Combined
Consolidated)
CASH FLOWS FROM FINANCING ACTIVITIES:
Continuing Operations:
Satisfaction of mortgage notes $ (7,265) $(115,537) $ --
Satisfaction of contract right mortgage notes and
accrued interest (6,053) (52,619) --
Satisfaction of note payable (194,367) -- --
Principal payments of mortgage notes payable (119,541) (104,640) (93,454)
Principal payments of note payable (27,401) (3,350) --
Principal payments of contract right mortgage notes (4,730) (1,090) --
Mortgage prepayment penalties (91) (4,710) --
Proceeds from new debt 212,838 396,870 35,812
Contributions from minority interests -- -- 1,191
Contributions from members -- -- 5,329
Distributions to partners/members (34,731) (196,880) (7,384)
Limited partner buyouts (3,937) (182) --
Distributions to minority interests (6,166) (1,693) (2,432)
Distributions from limited partnership interests 492 -- 1,848
Deferred costs (8,015) (10,365) (4,456)
Related party loans -- -- 1,851
--------- --------- ---------
Net cash used in continuing operations (198,967) (94,196) (61,695)
--------- --------- ---------
Discontinued Operations:
Satisfaction of notes payable (58,914) (24,153) --
Principal payments of notes payable (6,709) (16,773) (13,559)
Proceeds from new debt 49,500 14,533 --
Mortgage prepayment penalties (309) -- --
Deferred costs (535) (531) --
--------- --------- ---------
Cash used in discontinued operations (16,967) (26,924) (13,559)
--------- --------- ---------
Net cash used in financing activities (215,934) (121,120) (75,254)
--------- --------- ---------
Net increase in cash and cash equivalents 4,399 33,452 13,067
Cash and Cash Equivalents at Beginning of Year 33,452 -- 8,205
--------- --------- ---------
Cash and Cash Equivalents at End of Year $ 37,851 $ 33,452 $ 21,272
========= ========= =========
Supplemental Disclosure of Cash Flow Information:
Cash paid for state income taxes $ 1,072 $ 542 $ 520
========= ========= =========
Cash paid for interest $ 124,342 $ 174,488 $ 126,472
========= ========= =========
See notes to consolidated financial statements.
F - 8
THE NEWKIRK MASTER LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001
(Continued)
Supplemental Information
In January 2003, balances related to the issuance of 317,813 Units in the
Partnership for the various assets contributed to the Partnership were as
follows:
2003
--------------
(In thousands)
Real estate investments, net $ 36,836
Cash and cash equivalents 382
Receivables 3,557
Deferred costs, net 1,512
Equity investments in limited partnerships 6,335
Mortgage notes payable (61,057)
Accrued interest payable (1,134)
Accounts payable and accrued expenses (68)
Minority interests 24,687
--------
Partners' equity $ 11,050
========
In connection with the disposal of real estate, the purchaser of a property
assumed $94,918,000 of the Partnership's debt.
See notes to consolidated financial statements.
F - 9
THE NEWKIRK MASTER LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001
(Continued)
Supplemental Information (Continued)
The combined financial statements of Newkirk RE Holdings, LLC and Newkirk NL
Holdings, LLC are considered the acquirer and predecessor of the business
transferred to the Partnership in connection with the transaction because the
members of the combined entity acquired majority control of the businesses
transferred to the Partnership.
As of January 1, 2002, balances related to the exchange of Units in the
Partnership for the various assets of the combined entity and other contributing
unit holders were as follows:
2002
--------------
(In thousands)
Real estate, net $ 1,233,756
Real estate held for sale 113,982
Cash and cash equivalents 10,776
Receivables 78,376
Deferred costs, net 19,957
Other assets 34,377
Other assets of discontinued operations 880
Mortgage notes payable (776,633)
Contract right mortgage notes payable (325,264)
Accrued interest (188,567)
Accounts payable and accrued expenses (15,189)
Liabilities of discontinued operations (123,078)
Minority interest 35,520
Investment in limited partnerships --
-----------
Partners' equity $ 98,893
===========
See notes to consolidated financial statements.
F - 10
THE NEWKIRK MASTER LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - ORGANIZATION AND BUSINESS
The Newkirk Master Limited Partnership (the "Partnership") was
organized in October 2001 as a limited partnership under the
Delaware Revised Uniform Limited Partnership Act. The Partnership's
term is perpetual unless it is otherwise dissolved in accordance
with the terms of the Partnership's partnership agreement. The
Partnership commenced operations on January 1, 2002 following the
completion of a transaction (the "Exchange") involving the merger
into wholly-owned subsidiaries of the Partnership of 90 limited
partnerships, each of which owned commercial properties (the
"Newkirk Partnerships"), and the acquisition by the Partnership of
various assets, including those related to the management or capital
structure of the Newkirk Partnerships. The Partnership was formed to
facilitate and consummate the Exchange and for the purpose of
directly or indirectly (whether through a subsidiary or otherwise),
investing in, acquiring, owning, holding, managing, operating,
selling, exchanging and otherwise disposing of interests in real
estate and assets related to real estate and to engage in activities
and transactions as the general partner deems necessary or advisable
to promote the business of the Partnership.
As part of the Exchange, each Newkirk Partnership was merged with
and into a separate newly-formed limited partnership that is
wholly-owned by the Partnership; the Newkirk Partnerships ceased to
exist following completion of the merger. Each Newkirk Partnership
owned one or more commercial properties that are generally net
leased to a single tenant. As a result of the Exchange, the
Partnership owns the properties and other assets formerly owned by
the Newkirk Partnerships, subject to the liabilities of such
partnerships. In addition, as part of the Exchange, the "Newkirk
Group" contributed certain assets to the Partnership. The Newkirk
Group, which managed the Newkirk Partnerships, is comprised of
certain affiliates of Apollo Real Estate Fund III, L.P., ("Apollo"),
Vornado Realty Trust and senior executives of Winthrop Financial
Associates, A Limited Partnership ("WFA"). At December 31, 2003, the
Newkirk Group owned approximately 80% of the Partnership.
The limited partners of the Partnership consist of former limited
partners of the Newkirk Partnerships, former limited partners that
elected to participate in the Exchange of an additional limited
partnership that was affiliated with the Newkirk Partnerships and
affiliates of the Newkirk Group. The general partner of the
Partnership is MLP GP LLC, a Delaware limited liability company
owned by affiliates of the Newkirk Group. MLP GP LLC does not
receive any compensation for managing the Partnership. MLP GP LLC
has no assets, liabilities or equity and has no economic interest in
the Partnership. WFA, which performed asset
F - 11
THE NEWKIRK MASTER LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - ORGANIZATION AND BUSINESS (Continued)
management services for the Newkirk Partnerships, performs asset
management services for the Partnership.
At December 31, 2003, the Partnership owned the following:
(i) Net-Leased Properties:
Ownership of 268 commercial properties located throughout the United
States of America, each of which is generally net-leased to a single
tenant.
(ii) Other Assets:
(a) General partnership interests in (i) seven consolidated
partnerships, (ii) eight unconsolidated partnerships and
(iii) six other partnerships that own commercial net
leased properties.
(b) Limited partnership interests in (i) seven consolidated
partnerships which represent between 32.1% and 60.5% and
(ii) eight unconsolidated partnerships which represent
between .5% and 36.88%.
(c) A 50.01% interest in Newkirk Capital LLC whose
wholly-owned subsidiary, Newkirk Asset Management LLC,
provides asset management and other services to the
Partnership and the Other Partnerships. Prior to the
Exchange, Newkirk Asset Management LLC provided these
services to the Newkirk Partnerships and the Other
Partnerships. Newkirk Capital LLC and Newkirk Asset
Management LLC have retained WFA to perform certain of
the services provided to the Partnership and the Other
Partnerships. The fees payable to Newkirk Asset
Management LLC and Newkirk Capital LLC are retained by
the Partnership.
(d) Newkirk Finco LLC, which holds a note receivable from
Administrator LLC, a 49.99% owner of Newkirk Capital
LLC, valued at $13.2 million at December 31, 2003.
F - 12
THE NEWKIRK MASTER LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - ORGANIZATION AND BUSINESS (Continued)
(e) The right to acquire T-Two Partners, L.P., ("T-Two
Partners") from its current owners, affiliates of the
Newkirk Group.
(f) Land interests comprised of ground leases, remainder
interests or the right to acquire remainder interests in
the land underlying certain properties owned by the
Partnership and other real estate limited partnerships.
(g) An interest in NK Leasehold II LLC, which has a
leasehold and second mortgage interest in a property
owned by the Partnership.
(h) An interest in NK-Leyden Loan, L.P. and NK-Dautec Loan,
L.P., each of which hold an unsecured note of the
Partnership.
(i) Interests in entities which hold a securitized pool of
31 first mortgage loans encumbering 67 Partnership
properties and 1 property owned by another limited
partnership.
In February 2003, the Partnership acquired from its limited partners
115,000 of its units of limited partnership interest at a purchase
price of $35 per unit.
F - 13
THE NEWKIRK MASTER LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying consolidated financial statements present the
consolidated financial position, results of operations and cash
flows of the Partnership and its majority-owned subsidiaries. All
significant intercompany transactions, receivables and payables have
been eliminated in consolidation. Minority interests relate to the
interest in certain partnerships not owned by the Partnership. The
Partnership accounts for its investments in partnerships and joint
ventures, in which it does not have a controlling interest, using
the equity method of accounting. Equity investments are recorded
initially at cost and subsequently adjusted for the Partnership's
share of the net income or loss and cash contributions to and
distributions from these partnerships and joint ventures.
The Partnership has accounted for the Exchange as an exchange of
equity interests between entities under common control and initially
recognized the assets and liabilities contributed at the carrying
amounts of the contributing entities.
The combined financial statements of Newkirk RE Holdings, LLC and
Newkirk NL Holdings, LLC are considered the Predecessor Entity (the
"Predecessor Entity"). These entities are under the control of
Apollo, which controlled the General Partnership interests in the
Newkirk Partnerships and held more than a 50% voting ownership
interest before and after the Exchange. As a result, the Predecessor
Entity is considered the accounting acquirer and, accordingly, the
combined consolidated operating results for the year ended December
31, 2001 reflect the historical results of operations of the
Predecessor Entity. The combined consolidated operating results for
the year ended December 31, 2001 is not comparable to the
consolidated operating results for the years ended December 31, 2003
and 2002. The Predecessor Entity amounts include assets that were
not transferred to the Partnership, and the Partnership's amounts
included assets that were contributed to the Partnership by partners
other than the Predecessor Entity.
Use of Estimates
The preparation of consolidated financial statements in conformity
with accounting principles generally accepted in the United States
of America requires management to make estimates and assumptions
that affect the amounts reported in the consolidated financial
statements and accompanying notes. Actual results could differ from
those estimates.
F - 14
THE NEWKIRK MASTER LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Real Estate
Investments in real estate are stated at historical cost basis less
accumulated depreciation and amortization. Depreciation of buildings
and improvements is computed on a straight-line basis over their
estimated useful lives, which range from fourteen to forty years.
Amortization of the land estates is computed on a straight-line
basis over their estimated useful lives, which range from twenty-two
to thirty years.
During 2003, the Partnership made a change to its accounting
estimates with respect to the depreciable lives of its real estate
assets. The change in accounting estimates resulted in a decrease in
net income of approximately $6.8 million and a decrease in net
income of approximately $1.08 per limited partnership unit for the
year ended December 31, 2003.
The Predecessor Entity recorded its acquisition of the Newkirk
Partnerships interests as purchase transactions in accordance with
Accounting Principles Board Opinion No. 16, "Business Combinations"
("APB No. 16") as all such acquisitions were completed prior to July
1, 2001. The purchase price for such acquisitions was principally
allocated to the real estate and debt acquired as of the date of
each of the transactions. Statement of Financial Accounting
Standards No. 141 "Business Combinations" ("SFAS No. 141") applied
for the last six months of the year ended December 31, 2001. No
acquisitions occurred in that period.
The Partnership's real estate investments are reviewed for
impairment if events or changes in circumstances indicate that the
carrying amount of the real estate may not be recoverable. In such
an event, a comparison is made of the current and projected
operating cash flows of such real estate on an undiscounted basis to
the carrying amount of such real estate. Such carrying amount would
be adjusted, if necessary, to estimated fair value to reflect
impairment in the value of the real estate. Real estate assets for
which the Partnership has committed to a plan to dispose of the
assets, whether by sale or abandonment, are reported at the lower of
carrying amount or fair value less cost to sell. Preparation of
projected cash flows is inherently subjective and is based on the
Partnership's best estimate of assumptions concerning expected
future conditions.
F - 15
THE NEWKIRK MASTER LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Real Estate (continued)
Upon acquisitions of real estate, the Partnership assesses the fair
value of acquired assets (including land, buildings, tenant
improvements, and identified intangibles such as above and below
market leases and acquired in-place leases) and acquired
liabilities, and allocates purchase price based on these
assessments.
The Partnership accounts for properties as held for sale under the
provisions of SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets" ("SFAS No. 144"), when all criteria
of SFAS No. 144 have been met.
Cash and Cash Equivalents
The Partnership considers all highly liquid investments with
original purchase maturity dates of three months or less to be cash
equivalents.
Restricted Cash
Restricted cash includes reserves for tenant improvements, leasing
commissions and related costs established pursuant to the
Partnership's note payable agreement.
Concentration of Credit Risk
Substantially all of the Partnership's cash and cash equivalents
consist of money market mutual funds which invest in U.S. Treasury
Bills and repurchase agreements with original maturity dates of
three months or less.
The Partnership maintains cash with one banking institution, which
amounts at times exceed federally insured limits.
Interest Rate Protection Agreements
SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities," requires the recording of all derivative instruments as
either assets or liabilities depending on the rights and obligations
under the contracts. In addition, all derivative instruments shall
be measured at fair value, with the resulting gain or loss being
recognized either in earnings or equity in the period of change,
depending on whether the contract is designated as a hedge or not.
The Partnership invests in interest rate caps in order to cap the
maximum interest rate payable on its variable rate debt. The
interest rate caps are not designated as hedging instruments, and
are measured at fair value, with the resulting gain or loss being
recognized in interest expense in the period of change.
F - 16
THE NEWKIRK MASTER LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Receivables
Receivables consist of rent from tenants and other receivables which
are deemed collectable by the Partnership. No provision for doubtful
accounts was considered necessary based upon the Partnership's
evaluation of the collectability of these amounts.
Loans Receivable
The Partnership evaluates the collectability of both interest and
principal of each of its loans, if circumstances warrant, to
determine whether it is impaired. A loan is considered to be
impaired, when based on current information and events, it is
probable that the Partnership will be unable to collect all amounts
due according to the existing contractual terms. When a loan is
considered to be impaired, the amount of the loss accrual is
calculated by comparing the recorded investment to the value
determined by discounting the expected future cash flows at the
loan's effective interest rate. Interest on impaired loans is
recognized on a cash basis. Loans receivable are included with
"other assets" in the accompanying consolidated balance sheets.
Investments in Debt Securities and Mortgage Loans
Investments in debt securities are classified as held-to-maturity
and reported at amortized cost. Investment in mortgage loans is
included with "other assets" in the accompanying consolidated
balance sheets.
Deferred Costs
Fees paid in connection with the financing of the Partnership's and
Predecessor Entity's properties are deferred and amortized over the
terms of the related agreements as a component of interest expense.
F - 17
THE NEWKIRK MASTER LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Investments in Limited Partnerships
The Predecessor Entity accounted for its investments in limited
partnerships under the equity method when significant influence, but
not control was exercised over the limited partnership. Where
control was exercised, the limited partnerships were consolidated
for financial statement purposes. The investments were recorded by
the Predecessor Entity using the fair-value principles of APB No.
16, as all such acquisitions were completed prior to the effective
date of SFAS No. 141 of July 1, 2001, whereby the Predecessor
Entity's share of the assets acquired and liabilities assumed was
adjusted to fair value. During 2001, a significant number of
additional limited partnerships came under the control of the
Predecessor Entity resulting in a change from the equity method to
consolidation.
Revenue Recognition
The Partnership's lease agreements are operating leases and
generally provide for varying rents over the lease terms. The
Partnership records rental income for the full term of each lease on
a straight-line basis. Accordingly, deferred rental income is
recorded from tenants for the amount that is expected to be
collected over the remaining lease term rather than currently. When
a property is acquired, the term of existing leases is considered to
commence as of the acquisition date for purposes of this
calculation. Deferred rental income recorded amounted to $31.6
million and $27.1 million for the Partnership at December 31, 2003
and 2002, respectively.
F - 18
THE NEWKIRK MASTER LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Income Taxes
Taxable income or loss of the Partnership is reported in the income
tax returns of its partners. Accordingly, no provision for income
taxes is made in the consolidated financial statements of the
Partnership. However, the Partnership is required to pay certain
state and local entity level taxes which are expensed as incurred.
The Predecessor Entity provided for income taxes with respect to the
portion of the net income attributable to its taxable corporate
subsidiaries. Income tax expense for 2001 represented current income
taxes payable; no deferred income tax expense was recorded. The
corporate subsidiaries were not contributed to the Partnership.
Net Income per Unit
Net income per Unit is computed by dividing net income by the
6,329,204 and 6,119,942 weighted average Units outstanding during
the years ended December 31, 2003 and 2002, respectively.
The Predecessor Entity has only two members and does not have any
limited partnership units outstanding.
Distributions; Allocations of Income and Loss
As provided in the partnership agreement, distributions are
allocated to the limited partners based on their ownership of Units.
No distributions, or net income or loss allocation, are made to the
general partner. Income and loss for financial reporting purposes is
allocated to limited partners based on their ownership of Units.
Special allocation rules affect the allocation of taxable income and
loss. The Partnership paid distributions of $34,731,000 ($5.52 per
Unit) and $196,880,000 ($32.16 per Unit) to its limited partners
during the years ended December 31, 2003 and 2002, respectively.
The members of the Predecessor Entity are Apollo Real Estate
Investment Fund III L.P. holding 98.57% and WEM Brynmar Associates
LLC holding 1.43%.
Segment Reporting
The Partnership has one reportable segment, net-leased commercial
real estate. The Partnership evaluates performance based on net
operating income, which is income before depreciation, amortization,
interest and non-operating items.
F - 19
THE NEWKIRK MASTER LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Fair Value of Financial Instruments
Financial instruments held by the Partnership include cash and cash
equivalents, receivables, accounts payable and long-term debt. The
fair value of cash and cash equivalents, receivables and accounts
payable approximates their current carrying amounts due to their
short-term nature. The fair value of long-term debt, which has fixed
interest rates, was determined based upon current market conditions
and interest rates. The fair value of the mortgage notes payable
approximates fair value for debt with similar terms and conditions
due to yield maintenance requirements and prepayment penalties. The
fair value of the Partnership's contract right mortgage notes
payable is approximately $393.0 million, which is $13.7 million less
than the aggregate carrying amount at December 31, 2003. The fair
value of the Partnership's interest rate cap is approximately $2.6
million at December 31, 2003. Such fair value estimates are not
necessarily indicative of the amounts that would be realized upon
disposition of the Partnerships' financial instruments.
Reclassifications
Certain prior year amounts have been reclassified to conform to the
2003 presentation, including the reporting of discontinued
operations for those assets that have been disposed of or classified
as held for sale in accordance with SFAS No. 144.
Recently Issued Accounting Standards
In January 2003, the Financial Accounting Standards Board ("FASB")
issued Interpretation No. 46, "Consolidation of Variable Interest
Entities." This interpretation clarifies the application of existing
accounting pronouncements to certain entities in which equity
investors do not have the characteristics of a controlling financial
interest or do not have sufficient equity at risk for the entity to
finance its activities without additional subordinated financial
support from other parties. In December 2003, the FASB issued a
revision to Interpretation No. 46 ("46R") to clarify some of the
provisions of Interpretation No. 46, and to exempt certain entities
from its requirements. The provisions of the interpretation need to
be applied in the first fiscal period beginning after March 15,
2004, except for entities that are considered to be special-purpose
entities which need to be applied as of December 31, 2003. This
interpretation had no effect on the Partnership's consolidated
financial statements.
F - 20
THE NEWKIRK MASTER LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Recently Issued Accounting Standards (Continued)
In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and
Equity." The statement improves the accounting for certain financial
instruments that under previous guidance, issuers could account for
as equity. The new statement requires that those instruments be
classified as liabilities in statements of financial position. SFAS
No. 150 affects the issuer's accounting for three types of
freestanding financial instruments. One type is mandatorily
redeemable shares, which the issuing company is obligated to buy
back in exchange for cash or other assets. A second type, which
includes put options and forward purchase contracts, involves
instruments that do or may require the issuer to buy back some of
its shares in exchange for cash or other assets. The third type of
instruments that are liabilities under this statement is obligations
that can be settled with shares, the monetary value of which is
fixed, tied solely or predominantly to a variable such as a market
index, or varies inversely with the value of the issuers' shares.
SFAS No. 150 does not apply to features embedded in a financial
instrument that is not a derivative in its entirety. In addition to
its requirements for the classification and measurement of financial
instruments in its scope, SFAS No. 150 also requires disclosures
about alternative ways of settling the instruments and the capital
structure of entities, all of whose shares are mandatorily
redeemable. Most of the guidance in SFAS No. 150 is effective for
all financial instruments entered into or modified after May 31,
2003, and otherwise is effective at the beginning of the first
interim period beginning after June 15, 2003. In October 2003, the
FASB deferred, indefinitely, the application of paragraphs 9 and 10
of SFAS No. 150 as it relates to recording mandatorily redeemable
non-controlling interests in consolidated subsidiaries at fair
value. The remainder of this statement had no effect on the
Partnership's consolidated financial statements.
F - 21
THE NEWKIRK MASTER LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 3 - REAL ESTATE INVESTMENTS
Most of the Partnership's properties are each net-leased to a single
commercial tenant. The properties are located throughout the United
States. The lease terms vary, but most leases have a primary term of
25 years followed by multiple 5-year optional renewal terms. The
leases are similar in many respects and generally provide for fixed
rent payments and obligate the tenant to pay all capital and
operating expenses for a property; obligate the tenant to perform
all responsibilities (other than the payment of debt service)
relating to the property; require the tenant to maintain insurance
against casualty and liability losses; permit the tenant to sublet
the property; and afford the tenant in many instances the right to
terminate the lease at certain points during the primary term if it
determines that its continued use and occupancy of the property
would be uneconomic or unsuitable.
The Partnership's ability to maintain and operate its properties and
satisfy its contractual obligations is dependent upon the
performance by the tenants of their obligations under their lease
agreements with the Partnership. Under certain conditions (including
the destruction of the property), many of the tenants have an option
to purchase the property upon the expiration of the primary term of
the lease and at the end of one or more renewal terms for a price
stated in the lease agreement.
The Partnership's properties are encumbered by mortgage notes
payable and subordinated contract rights payable.
The future minimum lease payments that are scheduled to be received
under non-cancellable operating leases are as follows (in
thousands):
2004 $ 265,547
2005 258,032
2006 243,429
2007 209,384
2008 153,892
Thereafter 95,828
----------
$1,226,112
==========
Two tenants accounted for approximately 24% and 25% of the aggregate
rental revenues of the Partnership in 2003 and 2002, respectively.
F - 22
THE NEWKIRK MASTER LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 3 - REAL ESTATE INVESTMENTS (Continued)
The Partnership owns the fee interest in the land on which certain
of its properties are located, leases the land pursuant to ground
leases or holds an estate for years with an option to lease the land
upon expiration of the estate for years. Certain land interests held
by the Newkirk Group comprised of ground leases, remainder interests
or the right to acquire remainder interests in the land underlying
certain properties were contributed to the Partnership in connection
with the Exchange.
The rent payable under the ground leases is as follows (in
thousands):
2004 $ 3,191
2005 3,143
2006 2,413
2007 1,769
2008 1,184
Thereafter 830
-------
$12,530
=======
Note 4 - NOTES AND CONTRACT RIGHTS PAYABLE
The Partnership, excluding discontinued operations, had outstanding
mortgage notes payable and contract right mortgage notes payable of
$895.9 million and $1.0 billion at December 31, 2003 and 2002,
respectively. The mortgage notes are at fixed interest rates with
payments of principal and interest generally due either monthly,
quarterly or semi-annually. All the mortgage notes are
collateralized by the Partnership's real estate; some of the
mortgage notes are cross-collateralized.
An aggregate of $602.9 million in indebtedness under the mortgage
notes mature at various dates from 2004 to 2024. Prepayment of most
of the mortgage notes is permitted only with a yield maintenance
payment or prepayment penalty as defined in the mortgage note
agreements. Interest rates on the mortgages ranged from 4.2% to
11.3%, with a weighted average interest rate of 8.0% at December 31,
2003. Interest rates on the fixed rate mortgages ranged from 4.2% to
11.3% with a weighted average interest rate of 8.9% at December 31,
2002.
F - 23
THE NEWKIRK MASTER LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 4 - NOTES AND CONTRACT RIGHTS PAYABLE (Continued)
The contract right mortgage notes aggregating $293.0 million mature
at various dates from 2008 to 2024. The Partnership has the option
to prepay some of these mortgage notes at a discount. All of the
contract right mortgages are prepayable at any time without premium
or penalty subject to the prior or simultaneous satisfaction of the
underlying first mortgage loans. Interest rates ranged from 8.11% to
16.25%, with a weighted average interest rate of 10.3% at December
31, 2003. Interest rates ranged from 8.13% to 16.25%, with a
weighted average interest rate of 10.99% at December 31, 2002.
Mortgage notes payable and contract right mortgage notes payable
aggregating approximately $1.1 billion and accrued interest thereon
were assumed as part of the Exchange. The Predecessor Entity
recorded these notes at their fair value as of the various dates of
acquisition. This accounting method resulted in recorded interest
expense that was $3.8 million, $4.0 million and ($1.7) million
greater (or less) than the contractual interest expense for the
years ended December 31, 2003, 2002 and 2001, respectively. The
effect of utilizing this accounting method was to increase the
principal balance of mortgage and contract rights notes payable and
reduce interest accrued on these obligations. The cumulative
reduction in liabilities related to utilizing this accounting method
was $56.1 million and $50.5 million at December 31, 2003 and 2002,
respectively.
During January 2003, the Partnership acquired a second mortgage loan
that encumbered the Partnership's property in Morris Township, New
Jersey. The outstanding mortgage principal and accrued interest was
$28.1 million at December 31, 2002. It was acquired for $22.1
million, $9.3 million of which was paid in January 2003 and $12.8
million of which was to be payable on or before September 30, 2003.
The deferred portion of the purchase price bore interest at a rate
of 6.0% per annum. The Partnership acquired this mortgage in
connection with an extension of the lease on the property and
obtained new first mortgage financing in June 2003 to satisfy the
balance of the purchase price. The new first mortgage that was
obtained in June 2003, had a principal balance of $21.0 million and
bore interest at LIBOR plus 2.875% per annum. After payment of
closing costs, $6.7 million of the proceeds were used to satisfy the
existing first mortgage and the balance of the net proceeds was used
to satisfy the deferred portion of the second mortgage purchase
price. This loan was refinanced in October 2003.
F - 24
THE NEWKIRK MASTER LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 4 - NOTES AND CONTRACT RIGHTS PAYABLE (Continued)
During October 2003, the Partnership refinanced its first mortgage
loan on its property in Morris Township, New Jersey. The new first
mortgage loan has a principal balance of $28.5 million, bears
interest at 5.55%, and has a term of ten years. After payment of
closing costs, $21.1 million of proceeds were used to satisfy the
existing first mortgage and accrued interest.
During August 2003, the Partnership obtained a first mortgage loan
encumbering the Partnership's property in Beaumont, Texas in the
amount of $3.4 million. The new loan bears interest at 6.2% per
annum and matures on November 30, 2007, at which time it is
scheduled to be fully amortized.
During November 2003, the Partnership obtained a $208.5 million
loan, which had an outstanding balance of $208.4 million at December
31, 2003. The note payable bears interest at a rate elected by the
Partnership equal to either (1) LIBOR plus 450 basis points or (2)
the prime rate charged by the bank plus 250 basis points. The note
payable was obtained to replace the Partnership's existing note
payable and effectively reduced the interest rate on such borrowing
from a minimum of 8.5% to a floating rate which was 5.71% (LIBOR
plus 450 basis points) at December 31, 2003 and that will in no
event exceed 9.5%, after giving effect to the three-year interest
rate protection agreement entered into by the Partnership. The note
payable is scheduled to mature on November 24, 2006, subject to two
one-year extensions. The note payable requires monthly payments of
interest only. In addition, mandatory prepayments of principal are
required from the proceeds of property sales and refinancings and
other asset sales, as well as up to approximately $1.3 million per
quarter to the extent that T-Two Partners does not make the required
principal payments on the T-Two Loan that is described below. The
Partnership can prepay the note payable in whole or in part at any
time together with a premium of 1% if such prepayment occurs on or
before November 24, 2004, 1/2% if such prepayment occurs between
November 25, 2004 and November 24, 2005 and thereafter with no
premium. In addition, the Partnership and T-Two Partners may prepay
up to $50.0 million annually of this Loan and the T-Two Loan without
a premium. The note payable is secured by substantially all of the
assets of the Partnership, and contains customary financial and
other covenants.
F - 25
THE NEWKIRK MASTER LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 4 - NOTES AND CONTRACT RIGHTS PAYABLE (Continued)
At the same time as the Partnership obtained the loan, T-Two
Partners obtained a $316.5 million loan. This loan is referred to as
the T-Two Loan. The interest rate, maturity date and principal terms
of the T-Two Loan are the same as the Partnership's note payable.
T-Two Partners used part of the proceeds of the T-Two Loan to
purchase the senior beneficial interests in the contract rights
encumbering the Partnership's and certain other partnership's
properties so that T-Two Partners is now the 100% beneficial owner
of the contract rights. These senior beneficial interests in the
contract rights are referred to as the T-1 Certificate. The T-Two
Loan is secured by all the assets of T-Two Partners, including the
contract rights receivable from the Partnership. The Partnership
guaranteed repayment of the T-Two Loan. In consideration for the
Partnership's guarantee, the owners of T-Two Partners agreed to the
elimination of their put option, which could require the Partnership
to purchase T-Two Partners in December 2007, provided a credit line
to the Partnership bearing interest at LIBOR plus 450 basis points
and modified the Partnership's option to acquire T-Two Partners in
January 2008. The credit line is in an amount sufficient to satisfy
any shortfall between amounts T-2 Partners collects from the
Partnership and pays to the lender. The option can now be exercised
anytime between November 24, 2006 and November 24, 2009 and the
purchase price is payable in cash rather than Units. Any amounts
advanced to the Partnership under the credit line would have to be
repaid in full before the Partnership could purchase the interests
in T-Two Partners if the Partnership exercises its purchase option
for T-Two Partners.
T-Two Partners will reimburse the Partnership for approximately $7.3
million of closing costs incurred in connection with the note
payable and the T-Two Loan, together with interest thereon at a rate
equal to LIBOR plus 450 basis points.
In connection with the Partnership's refinancings, real estate sales
and repayments of mortgage debt during 2003, the Partnership has
recognized a net gain from early extinguishment of debt of $8.7
million, which is included in discontinued operations. The net gain
from early extinguishment of debt consisted of gains from debt
extinguishment of $9.1 million, net of mortgage prepayment penalties
of $0.4 million. During 2002, the Partnership recognized a net gain
from early extinguishment of debt of $6.3 million, $5.8 million of
which is included in interest expense and $0.5 million of which is
included in discontinued operations. The net gain from early
extinguishment of debt consisted of gains from debt extinguishment
of $11.0 million, net of mortgage prepayment penalties of $4.7
million.
F - 26
THE NEWKIRK MASTER LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 4 - NOTES AND CONTRACT RIGHTS PAYABLE (Continued)
Scheduled payments of principal at December 31, 2003, for the next
five years and thereafter through maturity, are as follows (in
thousands):
Contract Right
Mortgage Note Mortgage
Year Notes Payable Payable Notes Payable Total
-------------- ------------- ------- ------------- -----
2004 $ 116,964 $ -- $ 4,314 $ 121,278
2005 103,848 -- 9,781 113,629
2006 134,805 208,356 11,454 354,615
2007 94,653 -- 19,351 114,004
2008 70,390 -- 21,956 92,346
Thereafter 82,259 -- 226,100 308,359
---------- ---------- ---------- ----------
602,919 208,356 292,956 1,104,231
Plus: Accrued
interest payable 13,074 -- 108,176 121,250
---------- ---------- ---------- ----------
$ 615,993 $ 208,356 $ 401,132 $1,225,481
========== ========== ========== ==========
Note 5 - MINORITY INTERESTS
Minority interests consist of external ownership interests in
limited partnerships consolidated by the Partnership. Certain
limited partnerships have negative partnership capital balances, as
liabilities exceed assets, principally depreciated real estate. The
limited partnerships have profitable operations and due to their
nature, triple net-leased properties with declining debt service
obligations are expected to maintain profitable operations and
eliminate any negative capital balance.
Note 6 - RELATED PARTY TRANSACTIONS
WFA, an affiliate of the Newkirk Group, performs asset management
services for the Partnership and received a fee of $1.8 million for
the years ended December 31, 2003 and 2002. WFA performed asset
management services for the Predecessor Entity and received a fee of
$3.0 million for the year ended December 31, 2001.
The Partnership provides certain asset management, investor and
administrative services to the Other Partnerships that were
controlled by the Newkirk Group and were not merged into the
Partnership. Control of the general partners of these partnerships
was acquired by the Partnership. The Partnership earned $0.4 million
and $0.8 million of management fees for these services for the years
ended
F - 27
THE NEWKIRK MASTER LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 6 - RELATED PARTY TRANSACTIONS (Continued)
December 31, 2003 and 2002, respectively. The Partnership had
receivables for management fees of $1.1 million and $1.0 million due
from these partnerships at December 31, 2003 and 2002, respectively.
In addition, the Partnership had a receivable of $0.6 million at
December 31, 2002 for a non-interest bearing advance made to one of
these partnerships. This receivable was collected during 2003.
The Partnership had a loan receivable and accrued interest of $0.2
million at December 31, 2002 and earned interest income of $0.2
million for the year ended December 31, 2002 from Cenland Associates
Limited Partnership, one of the Other Partnerships. In February
2003, the Partnership received the remaining amount due on this
loan.
The Partnership has an ownership interest in the three most junior
tranches of a securitized pool of first mortgages with respect to 31
first mortgage loans encumbering 67 Partnership properties and 1
other property controlled by affiliates of the general partner. The
Partnership had a loan receivable, net of discount, of $9.8 million
and $9.5 million at December 31, 2003 and 2002, respectively, and
earned interest income of $1.2 million for the years ended December
31, 2003 and 2002, related to this ownership interest.
Affiliates and executives of the Newkirk Group owned $17.3 million
of a $145.2 million Real Estate Mortgage Investment Conduit
("REMIC") which was secured by the contract rights payable. The
affiliates and executives of the Newkirk Group earned $2.2 million,
$2.5 million and $2.5 million of interest income during 2003, 2002
and 2001. The affiliates and executives were repaid when T-Two
Partners purchased the T-1 Certificate as discussed in the following
paragraph.
T-Two Partners, an affiliate of the Newkirk Group, is the 100%
beneficial owner of the contract rights. T-Two Partners owned the
portion of the contract rights referred to as the T-2 Certificate
and during 2003, purchased the portion of the contract rights
referred to as the T-1 Certificate. The Partnership incurred $14.3
million, $12.5 million and $6.3 million of interest expense on these
contract rights during 2003, 2002 and 2001, respectively. The
Partnership had the right to acquire T-Two Partners' interest in the
contract rights in January 2008 by acquiring T-Two Partners in
exchange for Units. The Newkirk Group had the right to require the
Partnership to purchase this interest in December 2007 in exchange
for Units. During 2003, the Partnership and the owners of T-Two
Partners modified these rights. The Partnership can now exercise
their option anytime between November 24, 2006 and November 24,
2009.
F - 28
THE NEWKIRK MASTER LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 6 - RELATED PARTY TRANSACTIONS (Continued)
In addition, the purchase price is payable in cash rather than
Units. The owners of T-Two Partners agreed to eliminate their put
option which could require the Partnership to purchase T-Two
Partners in December 2007 and the Partnership agreed to guarantee
repayment of the T-Two Loan. T-Two Partners also agreed to provide a
credit line to the Partnership bearing interest at LIBOR plus 450
basis points. If the Partnership exercises the option, the purchase
price is to be calculated as follows: the sum of $316.5 million plus
T-Two Partners' costs of obtaining the T-Two Loan (approximately
$7.3 million) and administering the trust that holds the contract
rights, together with interest on the foregoing sum at the effective
rate of interest paid by T-Two Partners on the T-Two Loan, less all
payments made from and after November 24, 2003 on the contract
rights.
T-Two Partners will reimburse the Partnership for approximately $7.3
million of closing costs incurred in connection with the note
payable and the T-Two Loan, together with interest thereon at a rate
equal to LIBOR plus 450 basis points. The Partnership earned
interest income of $37,000 during 2003.
Also see Note 8 for related party acquisitions.
Note 7 - CONTINGENCIES
Legal
In July 2002, an action was commenced in the Connecticut Superior
Court against, among others, the Partnership's general partner and
various affiliates of the Partnership's general partner. Plaintiffs
are four limited partners of three of the Newkirk Partnerships. The
action alleges, among other things, that the price paid to
non-accredited investors in connection with the Exchange was unfair
and did not fairly compensate them for the value of their
partnership interests. The complaint also alleges that the exchange
values assigned in the Exchange to certain assets contributed by
affiliates of the Partnership's general partner were too high in
comparison to the exchange values assigned to the Newkirk
Partnerships, that the option arrangement relating to the
Partnership's potential acquisition in the future of the T-2
Certificate, which represents an interest in a grantor trust, the
mortgage assets of which consist of contract rights secured by the
Partnership's real properties as well as other properties owned by
other partnerships that are controlled by affiliates of the
Partnership's general partner, was unfair to limited partners and
that the disclosure document used in connection with the Exchange
contained various misrepresentations and/or omissions of material
facts. The complaint seeks to have
F - 29
THE NEWKIRK MASTER LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 7 - CONTINGENCIES (Continued)
Legal (Continued)
the action classified as a class action as well as compensatory and
punitive damages in an unspecified amount. The defendants have
denied and continue to deny the allegations of the complaint. In
order to avoid the expenses, distraction, and uncertainties of
litigation, the defendants entered into a settlement agreement dated
December 31, 2003 to settle the litigation, which settlement
agreement is subject to court approval. A court hearing on whether
to approve the settlement is currently scheduled to take place on
April 12, 2004. The settlement provides for the following material
terms: (i) the Newkirk Group will convey to unitholders of the
Newkirk Partnerships who are unaffiliated with the general partner
and who received limited partnership units in the Exchange, units in
the Partnership equal to 1% of the outstanding units; (ii) the
Partnership will pay $1.5 million to an escrow agent for the benefit
of unaffiliated unitholders; and (iii) the Partnership will pay $2.0
million to an escrow agent for the benefit of unitholders of the
Newkirk Partnerships who were entitled to receive cash in the
Exchange. In addition, the Partnership, in order to facilitate the
settlement, entered into an agreement with T-Two Partners and its
equityholders pursuant to which the Partnership has the right to
acquire substantially all of the assets of T-Two Partners or a 100%
ownership interest in T-Two Partners at any time between November
24, 2006 and November 24, 2009. As part of the agreement, defendants
have also agreed not to object to the payment of reasonable
attorneys fees, expenses, and incentive awards to be paid from the
consideration payable under the settlement agreement. The
Partnership accrued $3.5 million with respect to this matter, which
is included in general and administrative expense in the
consolidated statement of operations for the year ended December 31,
2003.
On December 31, 2002, a derivative action was commenced in the
Dallas County Texas District Court by a limited partner of Eastgar
Associates, L.P. ("Eastgar") against, among others, the general
partners of Eastgar and affiliates of the Newkirk Partnerships. The
Partnership owns a 60.5% limited partnership interest in Eastgar and
also controls the general partner of that partnership. The complaint
alleges that the defendants have charged Eastgar excessive
management fees and have unfairly prevented Eastgar from prepaying
and refinancing its mortgage indebtedness. The complaint seeks
compensatory and punitive damages in an unspecified amount,
attorneys' fees and expenses, an accounting, and a declaration of
the parties' future rights and obligations regarding management fees
and the refinancing of mortgage indebtedness. The defendants have
denied and continue to deny the allegations of the complaint. In
order to avoid the expenses, distraction and uncertainties of
litigation, the defendants entered into an agreement to settle the
litigation for a
F - 30
THE NEWKIRK MASTER LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 7 - CONTINGENCIES (Continued)
Legal (Continued)
$137,500 payment by the defendants other than Eastgar and to charge
an asset management fee of $35,000 per year, adjusted for changes in
the Consumer Price Index and as may be adjusted for extraordinary
circumstances by Eastgar's general partner. After payment of
court-approved attorneys' fees and expenses, the remaining balance
would be distributed to Eastgar's limited partners other than the
Partnership or its affiliates. The settlement also sets the
management fees to be charged to Eastgar, subject to any changes
that Eastgar may approve in the future consistent with its fiduciary
duty. The settlement has been, as required, approved by the trial
court after notice to the limited partners of Eastgar, and remains
subject only to a potential appeal of court approval prior to the
close of the appeals period. The Partnership accrued $137,500 with
respect to this matter, which is included in general and
administrative expense in the consolidated statement of operations
for the year ended December 31, 2003.
Property Matters
In January 2002, Kmart Corporation ("Kmart"), a tenant at twelve of
the Partnership's properties, filed for protection under Chapter 11
of the United States Bankruptcy Code. Kmart had the right to either
accept or reject the leases. Kmart elected to reject the leases,
which caused an immediate termination of such leases. The
Partnership re-leased nine of the properties to Furr's Restaurant
Group ("Furr's") for 10-year lease terms, one of the properties to
Lithia Motors for a 10-year lease term and another property for use
as a Chinese food restaurant for a five-year lease term. The
remaining property was vacant. The Partnership is pursuing a claim
against Kmart in Bankruptcy Court. In January 2003, Furr's filed for
protection under Chapter 11 of the Bankruptcy Code and subsequently
rejected the lease on three sites. The remaining sites continue to
be leased to Furr's through 2012 and the Partnership is pursuing a
claim against Furr's in Bankruptcy Court for the three rejected
sites. Furr's also has the right to reject the lease that now covers
the remaining sites. In addition, the Chinese food restaurant
defaulted on its lease and that property has been vacated. The
aggregate rent for the seven sites that are presently leased is
approximately $0.6 million less than the amount that was scheduled
to be received from Kmart on the twelve properties during its
renewal term which would have begun in February 2003. The
Partnership is responsible for the payment of insurance, real estate
taxes and mortgage debt on the vacant properties. The Partnership
has purchased the land underlying all twelve properties for $0.25
million. In September 2003, two of the vacant properties were sold.
The
F - 31
THE NEWKIRK MASTER LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 7 - CONTINGENCIES (Continued)
Property Matters (Continued)
Partnership is attempting to sell the three remaining vacant
properties. The Partnership has classified the vacant properties as
part of real estate held for sale in the accompanying consolidated
balance sheet at December 31, 2003 and has classified the operations
of the properties as part of discontinued operations in the
accompanying consolidated statement of operations for the years
ended December 31, 2003 and 2002.
Note 8 - ACQUISITIONS
On January 1, 2003, the Partnership acquired from an affiliate of
the general partner, limited partnership interests in nine limited
partnerships that own net-leased commercial properties. The limited
partnership interests acquired by the Partnership ranged between
4.9% and 57.75% of each partnership and were acquired in exchange
for 317,813 limited partnership units of the Partnership valued at
$22.7 million. In August 2003, the Partnership acquired
approximately an additional 9.9% interest in one of these limited
partnerships for a cash purchase price of $525,000, increasing the
partnership interest to 23.4% from 13.5%. These interests were
aquired from unaffiliated limited partners. In January 2004, the
Partnership sent notice of its intent to exercise an option to
purchase additional limited partnership interests in two of the
partnerships. It is anticipated that these additional limited
partnership interests will be acquired on April 1, 2004. The values
of the net-leased real estate partnerships and the Partnership units
were determined without arms-length negotiations. Independent
appraisals were obtained on the value of the properties owned by the
limited partnerships. The Partnership has accounted for the
acquisition on a historical cost basis. Four of the limited
partnerships have been consolidated into the Partnership's financial
statements and five of the limited partnerships are being accounted
for under the equity method of accounting.
In January 2003, the Partnership acquired the land underlying the
property owned by one of the net-leased partnerships referred to
immediately above. The land was acquired from a company affiliated
with the general partner for $1.0 million, $50,000 of which was paid
in cash and the balance in the form of a $950,000 note due September
8, 2008. The note bore interest at the rate of 6.0% per annum,
compounded annually, and was payable interest-only until maturity,
at which time the full balance of the note was to be due. In October
2003, the note was satisfied by the Partnership from cash reserves.
The purchase price for the land sale was
F - 32
THE NEWKIRK MASTER LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 8 - ACQUISITIONS (Continued)
determined without arms-length negotiations. An independent
appraisal was obtained on the value of the land that was acquired.
In April and June 2003, the Partnership acquired 30.6% and 46.1%,
respectively, of the outstanding limited partnership interests in
two Other Partnerships. The partnership interests were acquired for
an aggregate cash purchase price of $711,250. The Partnership
previously owned 1.5% and 3.8%, respectively, of the outstanding
limited partnership interests in these two partnerships. The
Partnership controls the general partners of each of these
partnerships. The Partnership has consolidated these partnerships in
accordance with the guidance provided by Statement of Position 78-9
"Accounting for Investments in Real Estate Ventures."
In May and June 2003, the Partnership purchased the remainder
interest in the land underlying 25 properties for an aggregate
purchase price of $1.2 million and, as a result, now owns a fee
interest in the underlying land. The improvements on 23 of the
properties are owned by the Partnership and the improvements on the
two other properties are owned by one of the Other Partnerships in
which the Partnership owns limited partnership interests and
controls the general partner.
Note 9 - DISCONTINUED OPERATIONS AND SALES OF REAL ESTATE
During the year ended December 31, 2003, the Partnership sold
fourteen properties for a combined net sales price of $156.4
million. The Partnership recognized a net gain on sale of these
properties of $29.5 million. During the year ended December 31,
2002, the Partnership sold two properties for a combined net sales
price of $3.2 million. The Partnership recognized a net loss on sale
of these properties of $1.0 million. During the year ended December
31, 2001, the Predecessor Entity sold 3 properties for a combined
net sales price of $.8 million. The Predecessor Entity recognized a
net loss on sale of these properties of $2.9 million. The sale and
operations of these properties for all periods presented have been
recorded as discontinued operations in accordance with the
provisions of SFAS No. 144. In addition, the Partnership has
classified various properties which have met all of the criteria of
SFAS No. 144 as real estate held for sale in the accompanying
consolidated balance sheets and has classified the operations of the
properties and the sold properties as discontinued operations in the
accompanying consolidated statements of operations.
Discontinued operations for the years ended December 31, 2003, 2002
and 2001 are summarized as follows (in thousands):
F - 33
THE NEWKIRK MASTER LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 9 - DISCONTINUED OPERATIONS AND SALES OF REAL ESTATE (Continued)
2003 2002 2001
-------- -------- --------
Revenue $ 23,149 $ 43,588 $ 36,010
Expenses (9,988) (25,693) (29,850)
Impairment loss on real estate (1,560) -- --
Net gain from early extinguishment of debt 8,733 553 --
Gain (loss) from disposal of real estate 29,514 (983) (2,936)
-------- -------- --------
Income from discontinued operations $ 49,848 $ 17,465 $ 3,224
======== ======== ========
Expenses include interest expense to related parties of $459,000,
$623,000 and $767,000 for the years ended December 31, 2003, 2002
and 2001, respectively.
Other assets of discontinued operations at December 31, 2003 and
2002 are summarized as follows (in thousands):
2003 2002
------ ------
Receivables $ 734 $2,164
Other assets 221 126
------ ------
$ 955 $2,290
====== ======
Liabilities of discontinued operations at December 31, 2003 and 2002
are summarized as follows:
2003 2002
-------- --------
Mortgage notes and accrued interest payable $ 30,371 $ 44,999
Contract right mortgage notes and accrued
interest payable (including $5,626 and
$2,371 to related parties) 5,626 59,707
Accounts payable and accrued expenses -- 794
-------- --------
$ 35,997 $105,500
======== ========
F - 34
THE NEWKIRK MASTER LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 10 - INCOME TAXES
The Partnership's taxable income for 2003 and 2002 differs from net
income for financial reporting purposes as follows (in thousands,
except per unit data):
2003 2002
--------- ---------
Net income for financial reporting purposes $ 149,936 $ 122,862
Depreciation and amortization 37,364 23,425
Interest expense 10,219 4,081
Gain on sale of real estate 80,517 4,118
Costs capitalized for tax purposes -- 3,211
Other (3,127) 3,391
Net gain from early extinguishment of debt (4,266) (10,992)
Straight-line rent adjustment (3,248) (2,293)
--------- ---------
Taxable income $ 267,395 $ 147,803
========= =========
The net basis of the Partnership's assets and liabilities for tax
reporting purposes is approximately $896.0 million and $1.0 billion
lower than the amount reported for financial statement purposes at
December 31, 2003 and 2002, respectively.
Note 11 - SUBSEQUENT EVENTS
During January 2004, the Partnership sold two properties to
unaffiliated third parties for a combined net sales price of $48.4
million. For financial reporting purposes, the Partnership expects
to recognize a net gain on sale of these properties of approximately
$7.1 million during 2004.
F - 35
THE NEWKIRK MASTER LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 12 - SUMMARY OF QUARTERLY RESULTS (UNAUDITED)
The following summary represents the results of operations for each
quarter in 2003 and 2002:
(In thousands, except units amounts)
Quarters Ended
-----------------------------------------------------------
March 31 June 30 September 30 December 31
-------- ------- ------------ -----------
2003 (Restated)
Revenues $ 70,266 $ 70,282 $ 69,234 $ 68,590
=========== ========== =========== ============
Net income $ 65,330(1) $ 34,097(2) $ 26,180(3) $ 24,329(4)
=========== ========== =========== ============
Net income per
limited partnership unit $ 10.27 $ 5.40 $ 4.14 $ 3.85
=========== ========== =========== ============
2002
Revenues $ 67,826 $ 67,062 $ 67,201 $ 68,777
=========== ========== =========== ============
Net income $ 28,814 $ 28,898 $ 32,605 $ 32,545 (5)
=========== ========== =========== ============
Net income per
limited partnership unit $ 4.71 $ 4.72 $ 5.33 $ 5.32
=========== ========== =========== ============
(1) Includes gain from disposal of real estate of $26.1 million.
(2) Includes gain from disposal of real estate of $6.2 million.
(3) Includes loss from disposal of real estate of $2.0 million.
(4) Includes loss from disposal of real estate of $0.8 million.
(5) Includes loss from disposal of real estate of $1.0 million.
F - 36
Independent Auditor's Report
To the Partners of
The Newkirk Master Limited Partnership
Under date of January 30, 2004, we reported on the consolidated balance sheets
of The Newkirk Master Limited Partnership as of December 31, 2003 and 2002, and
the related consolidated statements of operations, partners' equity, and cash
flows for the years then ended, which is included in the Annual Report on Form
10-K. In connection with our audits of the aforementioned consolidated financial
statements, we also audited the related financial statement schedule listed
under Item 15(d)(3) on page 60. This financial statement schedule is the
responsibility of the Partnership's management. Our responsibility is to express
an opinion on this financial statement schedule based on our audits.
In our opinion, such financial statement schedule, when considered in relation
to the basic consolidated financial statements taken as a whole, represents
fairly, in all material respects, the information set forth therein.
/s/ Imowitz Koenig & Co., LLP
New York, New York
January 30, 2004
THE NEWKIRK MASTER LIMITED PARTNERSHIP
SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION
At December 31, 2003
Cost capitalized
subsequent to
Initial Cost to Registrant acquistion
-------------------------------------------------------
Encumbrances Land Building and Building and
Description Location Mortgage Contract Right Land Estates Improvements Improvements
- ----------------------------------------- -------------------------- -------------------------------------------------------
Continuing Operations:
Office Little Rock AR $ 644,790 $ 413,779 $ 244,068 $ 0 $ 2,596,681 $ 0
Office Pine Bluff AR 562,233 335,730 37,723 0 2,997,699 0
Office El Segundo CA 31,131,185 0 550,419 0 38,871,092 0
Office Long Beach CA 46,076,477 5,968,731 0 13,955,889 65,745,241 0
Office Walnut Creek CA 3,736,407 2,871,512 0 1,339,403 12,740,691 0
Office Colorado Spring CO 5,044,323 0 384,876 0 13,260,300 0
Office Clinton CT 1,497,063 0 0 0 2,267,879 0
Office Orlando FL 11,184,695 8,888,896 2,015,271 0 54,845,812 0
Office Columbus IN 3,594,294 11,959,804 0 0 53,535,792 0
Office Owensboro KY 16,526,815 0 0 0 25,036,228 0
Office New Orleans LA 16,404,535 0 0 0 26,187,779 0
Office NewOrleans LA 13,191,580 0 0 0 21,058,702 0
Office Baltimore MD 16,400,000 53,729,899 0 0 138,489,552 0
Office Bridgeton MO 916,628 457,360 0 420,249 3,177,573 0
Office Carteret NJ 5,882,554 1,630,703 482,890 0 10,450,068 0
Office Elizabeth NJ 265,633 188,021 245,140 0 866,678 0
Office MorrisTownship NJ 23,360,735 15,102,542 0 0 65,421,691 0
Office Morristown NJ 17,045,710 12,408,267 0 0 61,910,388 0
Office Plainsboro NJ 1,459,404 1,032,998 46,867 0 4,761,579 0
Office Las Vegas NV 19,323,384 10,818,191 1,121,178 0 43,198,548 0
Office Miamisburg OH 0 2,612,156 0 702,011 7,922,845 0
Office Miamisburg OH 0 1,404,933 0 251,821 6,454,696 0
Office Toledo OH 53,377,945 7,185,840 0 0 95,878,252 0
Office Allentown PA 1,358,875 0 29,773 0 4,816,913 0
Office Johnson City TN 0 1,593,970 550,046 0 4,543,653 0
Office Kingport TN 891,496 754,594 89,846 0 3,146,885 0
Office Memphis TN 36,868,966 10,993,926 356,650 0 63,296,739 0
Office Memphis TN 5,598,090 2,263,903 0 0 19,233,942 0
Office Beaumont TX 33,768,608 11,025,715 370,578 0 58,891,296 0
Office Bedford TX 1,584,651 4,758,098 0 0 22,033,586 0
Office Dallas TX 5,190,218 5,184,845 631,561 0 20,059,117 0
Office Garland TX 0 2,620,413 203,162 1,676,696 11,347,001 0
------------------------- --------------------------------------------------
372,887,294 176,204,826 7,360,048 18,346,069 965,044,898 0
------------------------- --------------------------------------------------
Retail Dothan AL 210,254 251,268 0 0 1,618,558 0
Retail Florence AL 1,094,647 715,818 0 343,661 3,187,224 0
Retail Huntsville AL 664,769 1,133,195 0 0 5,005,608 0
Retail Montgomery AL 780,934 660,231 269,635 0 2,826,176 0
Retail Montgomery AL 321,145 230,200 0 0 1,452,940 0
Retail Tuscaloosa AL 323,689 243,455 0 0 1,234,233 0
Retail Bisbee AZ 846,606 331,563 0 333,266 2,127,157 0
Retail Tucson AZ 966,582 378,550 42,620 380,494 2,428,605 0
Retail Anaheim CA 0 686,098 233,033 0 1,186,391 0
Retail Barstow CA 0 379,912 196,719 0 951,285 0
Retail Beaumont CA 0 600,417 203,932 0 1,038,233 0
Retail Calimesa CA 0 760,143 258,182 0 1,314,429 0
Retail Colton, Rancho CA 0 1,199,087 407,834 0 2,073,445 0
Retail Colton, Valley CA 0 572,009 194,553 0 989,111 0
Retail Corona CA 446,535 221,895 0 121,144 1,008,072 0
Retail Corona CA 0 366,836 0 641,229 1,761,811 0
Retail Costa Mesa, 19th CA 0 690,065 234,330 0 1,193,251 0
Retail Costa Mesa, Newport CA 0 739,034 251,013 0 1,277,927 0
Retail Desert Hot Springs CA 0 603,614 205,302 0 1,043,762 0
Retail Downey CA 416,952 709,968 327,365 0 2,501,610 0
Retail El Toro CA 39,112 292,212 141,727 319,982 879,559 0
Retail Fontana CA 0 610,853 207,476 0 1,056,279 0
Retail Garden Grove CA 0 646,588 219,614 0 1,118,071 0
Retail Glen Avon CA 0 938,314 318,698 0 1,622,520 0
Retail Huntington Beach CA 717,908 1,089,632 421,465 0 2,853,660 0
Retail Indio CA 391,738 194,665 0 106,278 884,366 0
Retail Lancaster CA 694,575 1,054,218 407,766 0 2,760,915 0
Retail Livermore CA 481,073 531,598 180,441 0 2,903,113 0
Retail Lomita CA 736,108 645,808 0 408,435 2,878,868 0
Retail Mammoth Lake CA 1,313,615 1,199,048 0 561,578 4,857,298 0
Retail Mojave CA 0 323,164 0 564,891 1,552,069 0
As of December 31, 2003
---------------------------------------------------------------------
Land Building and Accumulated Date
Description Land Estates Improvements Total Depreciation Acquired Life
- ---------------------------------------------------------------------------------- -----------------------
Continuing Operations:
Office $ 244,068 $ 0 $ 2,596,681 $ 2,840,749 $ 748,075 1/1/2002 40 yrs
Office 37,723 0 2,997,699 3,035,422 1,180,533 1/1/2002 40 yrs
Office 550,419 0 38,871,092 39,421,511 13,071,022 1/1/2002 38-40 yrs
Office 0 13,955,889 65,745,241 79,701,130 29,003,290 1/1/2002 22-40 yrs
Office 0 1,339,403 12,740,691 14,080,094 5,022,588 1/1/2002 22-40 yrs
Office 384,876 0 13,260,300 13,645,176 4,139,323 1/1/2002 38-40 yrs
Office 0 0 2,267,879 2,267,879 1,092,533 1/1/2003 20-40 yrs
Office 2,015,271 0 54,845,812 56,861,083 19,174,680 1/1/2002 38-40 yrs
Office 0 0 53,535,792 53,535,792 10,640,323 1/1/2002 38-40 yrs
Office 0 0 25,036,228 25,036,228 12,061,001 1/1/2003 20-40 yrs
Office 0 0 26,187,779 26,187,779 16,423,364 1/1/2003 20-40 yrs
Office 0 0 21,058,702 21,058,702 13,206,722 1/1/2003 20-40 yrs
Office 0 0 138,489,552 138,489,552 55,561,487 1/1/2002 14-38 yrs
Office 0 420,249 3,177,573 3,597,822 1,439,872 1/1/2002 22-40 yrs
Office 482,890 0 10,450,068 10,932,958 3,397,993 1/1/2002 38-40 yrs
Office 245,140 0 866,678 1,111,818 283,199 1/1/2002 38-40 yrs
Office 0 0 65,421,691 65,421,691 19,815,196 1/1/2002 20-40 yrs
Office 0 0 61,910,388 61,910,388 25,658,368 1/1/2002 20-40 yrs
Office 46,867 0 4,761,579 4,808,446 1,555,913 1/1/2002 38-40 yrs
Office 1,121,178 0 43,198,548 44,319,726 7,205,410 1/1/2002 38-40 yrs
Office 0 702,011 7,922,845 8,624,856 4,115,867 1/1/2002 20-40 yrs
Office 0 251,821 6,454,696 6,706,517 2,737,926 1/1/2002 22-40 yrs
Office 0 0 95,878,252 95,878,252 33,525,494 1/1/2002 38-40 yrs
Office 29,773 0 4,816,913 4,846,686 2,202,519 1/1/2002 40 yrs
Office 550,046 0 4,543,653 5,093,699 791,167 1/1/2002 38-40 yrs
Office 89,846 0 3,146,885 3,236,731 876,784 1/1/2002 38-40 yrs
Office 356,650 0 63,296,739 63,653,389 14,325,498 1/1/2002 38-40 yrs
Office 0 0 19,233,942 19,233,942 8,412,254 1/1/2002 30-40 yrs
Office 370,578 0 58,891,296 59,261,874 9,958,339 1/1/2002 38-40 yrs
Office 0 0 22,033,586 22,033,586 4,629,296 1/1/2002 38-40 yrs
Office 631,561 0 20,059,117 20,690,678 9,364,903 1/1/2002 38-40 yrs
Office 203,162 1,676,696 11,347,001 13,226,859 3,649,921 1/1/2002 22-40 yrs
---------------------------------------------------------------------
7,360,048 18,346,069 965,044,898 990,751,015 335,270,861
---------------------------------------------------------------------
Retail 0 0 1,618,558 1,618,558 700,553 1/1/2002 40 yrs
Retail 0 343,661 3,187,224 3,530,885 1,266,780 1/1/2002 22-40 yrs
Retail 0 0 5,005,608 5,005,608 1,620,402 1/1/2002 38-40 yrs
Retail 269,635 0 2,826,176 3,095,811 564,647 1/1/2002 38-40 yrs
Retail 0 0 1,452,940 1,452,940 673,125 1/1/2002 40 yrs
Retail 0 0 1,234,233 1,234,233 434,134 1/1/2002 40 yrs
Retail 0 333,266 2,127,157 2,460,422 984,318 1/1/2002 22-40 yrs
Retail 42,620 380,494 2,428,605 2,851,719 1,123,809 1/1/2002 22-40 yrs
Retail 233,033 0 1,186,391 1,419,424 421,689 1/1/2002 20-40 yrs
Retail 196,719 0 951,285 1,148,004 132,411 1/1/2002 38-40 yrs
Retail 203,932 0 1,038,233 1,242,164 369,028 1/1/2002 20-40 yrs
Retail 258,182 0 1,314,429 1,572,611 467,199 1/1/2002 20-40 yrs
Retail 407,834 0 2,073,445 2,481,279 736,983 1/1/2002 20-40 yrs
Retail 194,553 0 989,111 1,183,664 351,568 1/1/2002 20-40 yrs
Retail 0 121,144 1,008,072 1,129,216 248,351 1/1/2002 22-40 yrs
Retail 0 641,229 1,761,811 2,403,040 2,295,256 1/1/2002 22-39 yrs
Retail 234,330 0 1,193,251 1,427,580 424,128 1/1/2002 20-40 yrs
Retail 251,013 0 1,277,927 1,528,940 454,225 1/1/2002 20-40 yrs
Retail 205,302 0 1,043,762 1,249,064 370,993 1/1/2002 20-40 yrs
Retail 327,365 0 2,501,610 2,828,975 776,008 1/1/2002 38-40 yrs
Retail 141,727 319,982 879,559 1,341,269 629,756 4/1/2003 22-40 yrs
Retail 207,476 0 1,056,279 1,263,755 375,442 1/1/2002 20-40 yrs
Retail 219,614 0 1,118,071 1,337,685 397,406 1/1/2002 20-40 yrs
Retail 318,698 0 1,622,520 1,941,218 576,706 1/1/2002 20-40 yrs
Retail 421,465 0 2,853,660 3,275,125 545,568 1/1/2002 38-40 yrs
Retail 0 106,278 884,366 990,644 217,875 1/1/2002 22-40 yrs
Retail 407,766 0 2,760,915 3,168,681 527,837 1/1/2002 38-40 yrs
Retail 180,441 0 2,903,113 3,083,554 1,057,211 1/1/2002 38-40 yrs
Retail 0 408,435 2,878,868 3,287,303 1,078,063 1/1/2002 22-40 yrs
Retail 0 561,578 4,857,298 5,418,876 2,175,871 1/1/2002 22-40 yrs
Retail 0 564,891 1,552,069 2,116,960 2,022,007 1/1/2002 22-39 yrs
THE NEWKIRK MASTER LIMITED PARTNERSHIP
SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION
At December 31, 2003
Cost capitalized
subsequent to
Initial Cost to Registrant acquistion
-------------------------------------------------------
Encumbrances Land Building and Building and
Description Location Mortgage Contract Right Land Estates Improvements Improvements
- ----------------------------------------- -------------------------- -------------------------------------------------------
Retail Morgan Hill CA 23,001 171,849 83,350 188,181 517,267 0
Retail Ontario CA 0 689,088 234,049 0 1,191,561 0
Retail Orange CA 0 958,476 325,546 0 1,657,384 0
Retail Pinole CA 1,790,595 419,110 0 190,365 3,930,655 0
Retail Pleasanton CA 6,512,907 1,073,479 480,348 0 13,118,825 0
Retail Rancho Cucamonga CA 0 654,833 222,415 0 1,132,329 0
Retail Redlands CA 20,115 150,284 72,890 164,566 452,354 0
Retail Rialto CA 0 625,256 212,368 0 1,081,185 0
Retail Rubidoux CA 0 711,677 241,721 0 1,230,623 0
Retail San Bernadino CA 0 1,069,159 363,140 0 1,848,776 0
Retail San Bernadino CA 0 532,662 275,811 0 1,333,767 0
Retail San Diego CA 0 3,524,962 0 0 15,656,895 0
Retail Santa Ana CA 0 705,564 239,645 0 1,220,051 0
Retail Santa Monica CA 4,624,419 901,322 445,955 0 7,050,333 0
Retail Santa Rosa CA 226,960 210,017 69,074 0 925,951 0
Retail Simi Valley CA 755,024 527,348 15,883 0 2,778,433 0
Retail Sunnymead CA 0 377,461 195,449 0 945,148 0
Retail Tustin CA 0 0 285,000 0 2,556,557 0
Retail Union City CA 25,679 191,856 93,053 210,089 577,486 0
Retail Ventura CA 3,608,474 1,584,653 0 0 6,870,815 0
Retail Westminster CA 0 863,040 293,131 0 1,492,357 0
Retail Yorba Linda CA 26,730 199,707 96,861 218,686 601,118 0
Retail Yucaipa CA 0 479,874 162,990 0 829,793 0
Retail Aurora CO 962,269 1,049,838 17,701 320,113 4,448,324 0
Retail Aurora CO 680,095 545,977 487,823 0 3,063,975 0
Retail Littleton CO 1,165,532 1,197,317 587,401 0 4,325,125 0
Retail Bradenton FL 1,146,973 973,826 272,587 0 4,088,639 0
Retail Cape Coral FL 818,260 493,487 175,559 0 2,132,215 0
Retail Casselberry FL 677,399 1,153,446 411,929 0 4,064,226 0
Retail Gainsville FL 924,992 557,856 198,458 0 2,410,337 0
Retail Largo FL 531,570 399,807 278,585 0 2,026,886 0
Retail Largo, 66th FL 712,481 429,692 152,864 0 1,856,576 0
Retail Largo, Keene FL 1,091,184 658,085 245,374 0 2,843,395 0
Retail Orlando FL 0 541,732 14,545 0 2,465,817 0
Retail Pinellas Park FL 890,937 754,092 288,344 0 3,142,532 0
Retail Port Richey FL 458,094 219,162 0 0 1,564,547 0
Retail Tallahassee FL 372,436 272,807 0 0 1,722,653 0
Retail Venice FL 518,320 572,757 141,040 0 3,127,889 0
Retail Atlanta (Dunwoody) GA 0 247,263 0 120,697 813,389 0
Retail Atlanta (Exec Park) GA 0 313,470 0 153,014 1,031,179 0
Retail Atlanta (Ponce de Leon) GA 0 219,714 0 107,249 722,764 0
Retail Cumming GA 0 555,007 0 270,916 1,825,733 0
Retail Duluth GA 0 373,052 0 182,098 1,227,177 0
Retail Forest Park (Clayton) GA 0 558,281 0 272,514 1,836,502 0
Retail Jonesboro GA 0 216,067 0 105,469 710,765 0
Retail Stone Mountain GA 0 266,013 0 129,849 875,068 0
Retail Boise ID 1,464,400 1,160,829 310,501 0 5,283,297 0
Retail Freeport IL 692,561 417,678 148,591 0 1,804,668 0
Retail Rock Falls IL 730,507 440,564 156,731 0 1,903,549 0
Retail Carmel IN 0 511,317 52,033 0 2,358,284 0
Retail Lawrence IN 0 622,854 53,887 0 2,872,714 0
Retail Louisville KY 988,191 695,491 0 460,927 4,118,624 0
Retail Baton Rouge LA 850,854 719,344 232,849 0 3,079,214 0
Retail Minden LA 799,798 416,566 342,304 76,762 1,674,347 0
Retail Billings MT 758,754 692,579 0 324,372 2,805,610 0
Retail Bozeman MT 117,403 140,305 0 0 903,783 0
Retail Charlotte NC 0 184,541 36,078 0 894,095 0
Retail Concord NC 0 365,022 56,439 0 1,768,523 0
Retail Jacksonville NC 0 164,726 64,422 0 726,048 0
Retail Jefferson NC 0 143,562 0 0 632,763 0
Retail Lexinton NC 0 272,829 106,705 0 1,202,518 0
Other Mint Hill NC 0 198,662 37,671 0 962,513 0
Retail Thomasville NC 0 208,722 38,805 0 1,011,250 0
Retail Omaha NE 1,752,461 2,489,632 1,048,748 0 9,936,061 0
Retail Garwood NJ 1,258,093 709,571 607,569 0 3,786,935 0
Retail Albuquerque NM 1,011,185 526,665 292,081 97,050 2,116,876 0
Retail LasCruces NM 690,486 586,250 171,196 0 2,461,388 0
Retail Las Vegas NV 1,502,964 1,099,099 18,299 0 5,566,404 0
As of December 31, 2003
---------------------------------------------------------------------
Land Building and Accumulated Date
Description Land Estates Improvements Total Depreciation Acquired Life
- ---------------------------------------------------------------------------------- -----------------------
Retail 83,350 188,181 517,267 788,797 370,358 4/1/2003 22-40 yrs
Retail 234,049 0 1,191,561 1,425,611 423,527 1/1/2002 20-40 yrs
Retail 325,546 0 1,657,384 1,982,930 589,098 1/1/2002 20-40 yrs
Retail 0 190,365 3,930,655 4,121,020 1,707,280 1/1/2002 22-40 yrs
Retail 480,348 0 13,118,825 13,599,173 5,481,940 1/1/2002 40 yrs
Retail 222,415 0 1,132,329 1,354,743 402,474 1/1/2002 20-40 yrs
Retail 72,890 164,566 452,354 689,810 323,881 4/1/2003 22-40 yrs
Retail 212,368 0 1,081,185 1,293,553 384,295 1/1/2002 20-40 yrs
Retail 241,721 0 1,230,623 1,472,344 437,411 1/1/2002 20-40 yrs
Retail 363,140 0 1,848,776 2,211,916 657,127 1/1/2002 20-40 yrs
Retail 275,811 0 1,333,767 1,609,578 185,649 1/1/2002 38-40 yrs
Retail 0 0 15,656,895 15,656,895 6,657,226 1/1/2002 38-40 yrs
Retail 239,645 0 1,220,051 1,459,697 433,653 1/1/2002 20-40 yrs
Retail 445,955 0 7,050,333 7,496,288 2,414,024 1/1/2002 38-40 yrs
Retail 69,074 0 925,951 995,026 149,326 1/1/2002 38-40 yrs
Retail 15,883 0 2,778,433 2,794,317 922,633 1/1/2002 38-40 yrs
Retail 195,449 0 945,148 1,140,597 131,556 1/1/2002 38-40 yrs
Retail 285,000 0 2,556,557 2,841,557 2,063,970 1/1/2002 38-40 yrs
Retail 93,053 210,089 577,486 880,628 413,475 4/1/2003 22-40 yrs
Retail 0 0 6,870,815 6,870,815 2,754,406 1/1/2002 20-40 yrs
Retail 293,131 0 1,492,357 1,785,488 530,441 1/1/2002 20-40 yrs
Retail 96,861 218,686 601,118 916,665 430,395 4/1/2003 22-40 yrs
Retail 162,990 0 829,793 992,782 294,940 1/1/2002 20-40 yrs
Retail 17,701 320,113 4,448,324 4,786,138 1,620,738 1/1/2002 22-40 yrs
Retail 487,823 0 3,063,975 3,551,798 1,078,778 1/1/2002 40 yrs
Retail 587,401 0 4,325,125 4,912,526 1,026,632 1/1/2002 38-40 yrs
Retail 272,587 0 4,088,639 4,361,226 1,255,020 1/1/2002 38-40 yrs
Retail 175,559 0 2,132,215 2,307,774 761,449 1/1/2002 38-40 yrs
Retail 411,929 0 4,064,226 4,476,154 1,260,736 1/1/2002 38-40 yrs
Retail 198,458 0 2,410,337 2,608,794 860,771 1/1/2002 38-40 yrs
Retail 278,585 0 2,026,886 2,305,471 712,944 1/1/2002 40 yrs
Retail 152,864 0 1,856,576 2,009,440 663,014 1/1/2002 38-40 yrs
Retail 245,374 0 2,843,395 3,088,769 1,015,424 1/1/2002 38-40 yrs
Retail 14,545 0 2,465,817 2,480,363 1,080,997 1/1/2002 38-40 yrs
Retail 288,344 0 3,142,532 3,430,876 681,882 1/1/2002 38-40 yrs
Retail 0 0 1,564,547 1,564,547 465,463 1/1/2002 38-40 yrs
Retail 0 0 1,722,653 1,722,653 705,376 1/1/2002 40 yrs
Retail 141,040 0 3,127,889 3,268,929 1,139,066 1/1/2002 38-40 yrs
Retail 0 120,697 813,389 934,086 339,086 1/1/2002 22-35 yrs
Retail 0 153,014 1,031,179 1,184,193 429,879 1/1/2002 22-35 yrs
Retail 0 107,249 722,764 830,013 301,306 1/1/2002 22-35 yrs
Retail 0 270,916 1,825,733 2,096,648 761,113 1/1/2002 22-35 yrs
Retail 0 182,098 1,227,177 1,409,275 511,586 1/1/2002 22-35 yrs
Retail 0 272,514 1,836,502 2,109,016 765,602 1/1/2002 22-35 yrs
Retail 0 105,469 710,765 816,233 296,304 1/1/2002 22-35 yrs
Retail 0 129,849 875,068 1,004,918 364,799 1/1/2002 22-35 yrs
Retail 310,501 0 5,283,297 5,593,798 1,672,364 1/1/2002 38-40 yrs
Retail 148,591 0 1,804,668 1,953,259 644,477 1/1/2002 38-40 yrs
Retail 156,731 0 1,903,549 2,060,280 679,789 1/1/2002 38-40 yrs
Retail 52,033 0 2,358,284 2,410,317 991,676 1/1/2002 20-40 yrs
Retail 53,887 0 2,872,714 2,926,600 1,207,997 1/1/2002 20-40 yrs
Retail 0 460,927 4,118,624 4,579,551 1,767,301 1/1/2002 22-40 yrs
Retail 232,849 0 3,079,214 3,312,063 615,202 1/1/2002 38-40 yrs
Retail 342,304 76,762 1,674,347 2,093,412 153,321 1/1/2002 22-40 yrs
Retail 0 324,372 2,805,610 3,129,982 1,256,798 1/1/2002 22-40 yrs
Retail 0 0 903,783 903,783 391,181 1/1/2002 40 yrs
Retail 36,078 0 894,095 930,173 213,631 1/1/2002 38-40 yrs
Retail 56,439 0 1,768,523 1,824,962 422,563 1/1/2002 38-40 yrs
Retail 64,422 0 726,048 790,470 157,916 1/1/2002 38-40 yrs
Retail 0 0 632,763 632,763 137,627 1/1/2002 38-40 yrs
Retail 106,705 0 1,202,518 1,309,224 261,549 1/1/2002 38-40 yrs
Other 37,671 0 962,513 1,000,184 229,979 1/1/2002 38-40 yrs
Retail 38,805 0 1,011,250 1,050,056 241,624 1/1/2002 38-40 yrs
Retail 1,048,748 0 9,936,061 10,984,809 3,148,404 1/1/2002 38-40 yrs
Retail 607,569 0 3,786,935 4,394,504 942,117 1/1/2002 38-40 yrs
Retail 292,081 97,050 2,116,876 2,506,006 193,844 1/1/2002 22-40 yrs
Retail 171,196 0 2,461,388 2,632,584 755,530 1/1/2002 38-40 yrs
Retail 18,299 0 5,566,404 5,584,703 1,420,620 1/1/2002 38-40 yrs
THE NEWKIRK MASTER LIMITED PARTNERSHIP
SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION
At December 31, 2003
Cost capitalized
subsequent to
Initial Cost to Registrant acquistion
-------------------------------------------------------
Encumbrances Land Building and Building and
Description Location Mortgage Contract Right Land Estates Improvements Improvements
- ----------------------------------------- -------------------------- -------------------------------------------------------
Retail Las Vegas NV 314,028 275,462 313,727 0 1,733,910 0
Retail Reno NV 534,748 357,176 0 0 1,760,213 0
Retail Portchester NY 1,807,756 1,509,555 0 0 7,308,836 0
Retail Cincinatti OH 474,705 334,099 0 221,419 1,978,498 0
Retail Columbus OH 1,015,634 714,805 0 473,727 4,233,003 0
Retail Franklin OH 0 359,545 37,140 0 1,658,285 0
Retail Lawton OK 898,546 351,904 0 353,712 2,257,659 0
Retail Beaverton OR 709,372 1,076,676 416,452 0 2,819,730 0
Retail Grants Pass OR 812,949 318,381 0 320,017 2,042,592 0
Retail Portland OR 0 568,230 555,800 0 2,586,429 0
Retail Salem OR 525,841 798,116 308,707 0 2,090,202 0
Retail Doylestown PA 463,451 250,926 130,522 0 1,091,131 0
Retail Lansdale PA 365,448 197,864 102,922 0 861,971 0
Retail Lima PA 397,750 215,353 112,019 0 938,162 0
Retail Philadelphia PA 1,136,891 769,776 628,239 0 3,780,770 0
Retail Philadelphia, 52nd PA 437,555 236,904 123,229 0 1,032,048 0
Retail Philadelphia, Broad PA 464,880 251,699 130,925 0 1,096,500 0
Retail Philadelphia, Bustle PA 345,565 187,099 97,322 0 815,075 0
Retail Philadelphia, Cottman PA 492,236 266,510 138,629 0 1,161,022 0
Retail Philadelphia, Frankford PA 382,834 207,277 108,178 0 902,981 0
Retail Philadelphia, Lehigh PA 348,041 188,439 98,020 0 820,915 0
Retail Philadelphia, N 5th PA 104,400 56,525 29,402 0 246,244 0
Retail Philadelphia, N Broad PA 325,683 176,334 91,723 0 768,178 0
Retail Richboro PA 320,706 173,639 90,321 0 756,440 0
Retail Wayne PA 469,852 254,391 131,965 0 1,108,227 0
Retail Moncks Corner SC 0 121,779 0 0 536,751 0
Retail Chattanooga TN 1,175,836 768,909 0 369,150 3,423,616 0
Retail Paris TN 778,169 508,865 0 244,304 2,265,752 0
Retail Carrolton TX 446,535 391,758 0 247,763 1,746,370 0
Retail Dallas TX 706,145 496,986 0 329,371 2,943,101 0
Retail El Paso TX 0 0 91,580 0 1,256,859 0
Retail Fort Worth TX 998,543 911,455 0 426,883 3,692,269 0
Retail Garland TX 1,359,763 708,218 0 130,505 2,846,611 0
Retail Granbury TX 886,054 461,492 0 85,040 1,854,919 0
Retail Grand Prairie TX 1,174,434 459,952 15,130 462,315 2,950,848 0
Retail Greenville TX 0 328,597 0 0 675,961 0
Retail Hillsboro TX 748,525 389,861 0 71,841 1,567,009 0
Retail Houston TX 970,878 683,306 0 452,852 4,046,470 0
Retail Lubbock TX 325,094 238,129 0 0 1,503,678 0
Retail Midland TX 819,207 1,243,383 480,935 0 3,256,323 0
Retail Rockdale TX 174,736 117,727 134,651 0 1,049,237 0
Retail Taylor TX 239,298 166,345 181,808 0 1,266,242 0
Retail Texarkana TX 418,991 387,713 110,394 0 1,709,398 0
Retail Woodville TX 167,653 112,955 129,192 0 1,006,703 0
Retail Bountiful UT 474,372 450,633 0 0 3,363,558 0
Retail Sandy UT 200,592 344,240 0 0 1,578,176 0
Retail Staunton VA 0 326,413 127,681 0 1,438,699 0
Retail Bothell WA 249,454 178,811 0 0 1,128,590 0
Retail Edmonds WA 281,099 205,904 0 0 1,300,189 0
Retail Everett WA 947,536 804,496 228,290 0 3,377,702 0
Retail Federal Way WA 720,661 481,353 210,776 0 2,372,180 0
Retail Graham WA 1,110,818 435,038 0 437,273 2,791,008 0
Retail Kent WA 707,666 1,074,088 415,452 0 2,812,952 0
Retail Milton WA 1,253,738 491,011 0 493,533 3,150,106 0
Retail Port Orchard WA 189,930 136,144 0 0 859,289 0
Retail Redmond WA 1,246,121 488,028 0 490,535 3,130,967 0
Retail Spokane WA 956,907 374,761 0 376,686 2,404,297 0
Retail Spokane WA 560,997 402,129 355,128 0 2,538,088 0
Retail Woodinville WA 172,914 296,741 0 0 1,360,417 0
Retail Cheyenne WY 239,948 222,035 71,549 0 978,937 0
Retail Evanston WY 39,874 415,417 91,876 0 1,224,363 0
Retail Evanston - Cons WY 77,633 808,857 196,869 0 2,383,800 0
------------------------ --------------------------------------------------
85,597,340 87,486,902 22,664,054 13,360,799 362,421,839 0
------------------------ --------------------------------------------------
Other Jonesboro AR 0 0 16,220 0 0 0
Other Little Rock AR 0 0 17,317 0 0 0
Other Pine Bluff AR 0 0 18,332 0 0 0
As of December 31, 2003
---------------------------------------------------------------------
Land Building and Accumulated Date
Description Land Estates Improvements Total Depreciation Acquired Life
- ---------------------------------------------------------------------------------- -----------------------
Retail 313,727 0 1,733,910 2,047,637 611,083 1/1/2002 40 yrs
Retail 0 0 1,760,213 1,760,213 455,752 1/1/2002 38-40 yrs
Retail 0 0 7,308,836 7,308,836 2,505,408 1/1/2002 38-40 yrs
Retail 0 221,419 1,978,498 2,199,918 848,974 1/1/2002 22-40 yrs
Retail 0 473,727 4,233,003 4,706,731 1,816,382 1/1/2002 22-40 yrs
Retail 37,140 0 1,658,285 1,695,425 697,321 1/1/2002 38-40 yrs
Retail 0 353,712 2,257,659 2,611,371 1,044,706 1/1/2002 22-40 yrs
Retail 416,452 0 2,819,730 3,236,182 539,081 1/1/2002 38-40 yrs
Retail 0 320,017 2,042,592 2,362,609 945,186 1/1/2002 22-40 yrs
Retail 555,800 0 2,586,429 3,142,229 1,133,873 1/1/2002 38-40 yrs
Retail 308,707 0 2,090,202 2,398,909 399,609 1/1/2002 38-40 yrs
Retail 130,522 0 1,091,131 1,221,653 255,060 1/1/2002 20-40 yrs
Retail 102,922 0 861,971 964,893 201,123 1/1/2002 20-40 yrs
Retail 112,019 0 938,162 1,050,181 218,901 1/1/2002 20-40 yrs
Retail 628,239 0 3,780,770 4,409,009 1,011,556 1/1/2002 40 yrs
Retail 123,229 0 1,032,048 1,155,277 240,807 1/1/2002 20-40 yrs
Retail 130,925 0 1,096,500 1,227,425 255,846 1/1/2002 20-40 yrs
Retail 97,322 0 815,075 912,397 190,181 1/1/2002 20-40 yrs
Retail 138,629 0 1,161,022 1,299,651 270,901 1/1/2002 20-40 yrs
Retail 108,178 0 902,981 1,011,158 210,692 1/1/2002 20-40 yrs
Retail 98,020 0 820,915 918,935 191,544 1/1/2002 20-40 yrs
Retail 29,402 0 246,244 275,646 57,456 1/1/2002 20-40 yrs
Retail 91,723 0 768,178 859,901 179,239 1/1/2002 20-40 yrs
Retail 90,321 0 756,440 846,760 176,500 1/1/2002 20-40 yrs
Retail 131,965 0 1,108,227 1,240,192 258,582 1/1/2002 20-40 yrs
Retail 0 0 536,751 536,751 116,744 1/1/2002 38-40 yrs
Retail 0 369,150 3,423,616 3,792,766 1,360,735 1/1/2002 22-40 yrs
Retail 0 244,304 2,265,752 2,510,056 900,536 1/1/2002 22-40 yrs
Retail 0 247,763 1,746,370 1,994,133 653,971 1/1/2002 22-40 yrs
Retail 0 329,371 2,943,101 3,272,472 1,262,885 1/1/2002 22-40 yrs
Retail 91,580 0 1,256,859 1,348,439 281,991 1/1/2002 38-40 yrs
Retail 0 426,883 3,692,269 4,119,153 1,653,986 1/1/2002 22-40 yrs
Retail 0 130,505 2,846,611 2,977,116 260,667 1/1/2002 22-40 yrs
Retail 0 85,040 1,854,919 1,939,960 169,857 1/1/2002 22-40 yrs
Retail 15,130 462,315 2,950,848 3,428,293 1,365,472 1/1/2002 22-40 yrs
Retail 0 0 675,961 675,961 289,013 1/1/2002 40 yrs
Retail 0 71,841 1,567,009 1,638,850 143,492 1/1/2002 22-40 yrs
Retail 0 452,852 4,046,470 4,499,322 1,736,340 1/1/2002 22-40 yrs
Retail 0 0 1,503,678 1,503,678 615,712 1/1/2002 40 yrs
Retail 480,935 0 3,256,323 3,737,258 622,550 1/1/2002 38-40 yrs
Retail 134,651 0 1,049,237 1,183,888 310,950 1/1/2002 40 yrs
Retail 181,808 0 1,266,242 1,448,050 596,681 1/1/2002 38-40 yrs
Retail 110,394 0 1,709,398 1,819,793 275,671 1/1/2002 38-40 yrs
Retail 129,192 0 1,006,703 1,135,895 298,345 1/1/2002 40 yrs
Retail 0 0 3,363,558 3,363,558 1,507,638 1/1/2002 40 yrs
Retail 0 0 1,578,176 1,578,176 357,478 1/1/2002 38-40 yrs
Retail 127,681 0 1,438,699 1,566,380 312,918 1/1/2002 38-40 yrs
Retail 0 0 1,128,590 1,128,590 522,858 1/1/2002 40 yrs
Retail 0 0 1,300,189 1,300,189 532,389 1/1/2002 40 yrs
Retail 228,290 0 3,377,702 3,605,992 1,036,796 1/1/2002 38-40 yrs
Retail 210,776 0 2,372,180 2,582,956 614,201 1/1/2002 38-40 yrs
Retail 0 437,273 2,791,008 3,228,281 1,291,508 1/1/2002 22-40 yrs
Retail 415,452 0 2,812,952 3,228,404 537,786 1/1/2002 38-40 yrs
Retail 0 493,533 3,150,106 3,643,639 1,457,676 1/1/2002 22-40 yrs
Retail 0 0 859,289 859,289 398,095 1/1/2002 40 yrs
Retail 0 490,535 3,130,967 3,621,502 1,448,820 1/1/2002 22-40 yrs
Retail 0 376,686 2,404,297 2,780,983 1,112,561 1/1/2002 22-40 yrs
Retail 355,128 0 2,538,088 2,893,216 1,175,857 1/1/2002 40 yrs
Retail 0 0 1,360,417 1,360,417 308,153 1/1/2002 38-40 yrs
Retail 71,549 0 978,937 1,050,486 157,871 1/1/2002 38-40 yrs
Retail 91,876 0 1,224,363 1,316,239 400,965 1/1/2002 20-40 yrs
Retail 196,869 0 2,383,800 2,580,669 780,667 1/1/2002 20-40 yrs
---------------------------------------------------------------------
22,664,054 13,360,799 362,421,839 398,446,693 129,367,512
---------------------------------------------------------------------
Other 16,220 0 0 16,220 0 1/1/2002
Other 17,317 0 0 17,317 0 1/1/2002
Other 18,332 0 0 18,332 0 1/1/2002
THE NEWKIRK MASTER LIMITED PARTNERSHIP
SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION
At December 31, 2003
Cost capitalized
subsequent to
Initial Cost to Registrant acquistion
-------------------------------------------------------
Encumbrances Land Building and Building and
Description Location Mortgage Contract Right Land Estates Improvements Improvements
- ----------------------------------------- -------------------------- -------------------------------------------------------
Other Mesa AZ 0 0 40,335 0 0 0
Other Phoenix AZ 0 0 42,191 0 0 0
Other Sun City AZ 0 0 74,577 0 1,691,595 0
Other Colton CA 0 7,378,431 1,974,116 0 20,756,195 0
Other El Segundo CA 80,826,072 0 1,429,055 0 100,921,238 0
Other Irvine CA 0 0 1,000,000 0 0 0
Other Long Beach CA 25,030,735 3,242,473 0 7,581,442 35,715,658 0
Other Loveland CA 0 0 17,020 0 0 0
Other Palo Alto CA 11,536,762 3,348,434 0 0 26,836,477 0
Other Pasadena CA 0 0 17,203 0 0 0
Other Rialto CA 0 0 13,850 0 0 0
Other San Dimas CA 0 0 14,831 0 0 0
Other Yucca Valley CA 0 0 15,995 0 0 0
Other Colorado Springs CO 0 0 18,447 0 0 0
Other Ft Collins CO 0 0 83,278 0 1,961,118 0
Other Pueblo CO 0 0 14,714 0 0 0
Other Homestead FL 0 0 18,028 0 0 0
Other Orlando FL 1,469,540 1,529,385 0 0 9,128,285 0
Other North Berwick ME 8,736,131 3,092,041 274,873 5,267,663 22,304,939 0
Other Arnold MO 0 0 48,406 0 0 0
Other Independence MO 0 0 14,688 0 0 0
Other St Louis MO 0 0 16,871 0 0 0
Other Mint Hill NC 0 0 2,234 0 0 0
Other Carlsbad NM 0 0 70,342 0 1,554,861 0
Other Saugerties NY 199,796 0 32,120 0 2,100,435 0
Other Ponca City OK 0 0 41,745 0 0 0
Other Stillwater OK 0 0 14,384 0 0 0
Other New Kingston PA 6,589,639 4,111,654 0 0 17,964,482 0
Other N Myrtle Beach SC 0 324,016 0 0 1,569,849 0
Other Franklin TN 3,441,231 0 0 0 8,805,302 0
Other Memphis TN 2,062,672 1,348,834 0 647,569 6,005,767 0
Other Amarillo TX 0 0 14,474 0 0 0
Other Austin TX 0 0 41,473 0 0 0
Other Baytown TX 0 0 16,385 0 0 0
Other Bear Creek TX 0 0 16,857 0 0 0
Other Corpus Christi TX 0 0 81,669 0 1,910,679 0
Other Greenville TX 0 0 1,790 0 0 0
Other Lewisville TX 2,919,337 1,850,276 1,952,216 0 15,502,972 0
Other McAllen TX 0 0 56,850 0 1,131,104 0
Other Round Rock TX 0 0 14,806 0 0 0
Other Victoria TX 0 0 80,816 0 1,883,744 0
Other Herndon VA 0 0 16,746 0 0 0
Other Puyallup WA 0 0 14,268 0 0 0
Other Windsor WI 1,622,994 3,038,259 0 0 13,988,024 0
------------------------ --------------------------------------------------
144,434,909 29,263,803 7,649,521 13,496,675 291,732,727 0
------------------------- --------------------------------------------------
Total from Continuing Operations $602,919,543 $292,955,531 $37,673,623 $45,203,543 $1,619,199,464 $ 0
========================= ==================================================
As of December 31, 2003
---------------------------------------------------------------------
Land Building and Accumulated Date
Description Land Estates Improvements Total Depreciation Acquired Life
- ------------- --------------------------------------------------------------------- -----------------------
Other 40,335 0 0 40,335 0 1/1/2002
Other 42,191 0 0 42,191 0 1/1/2002
Other 74,577 0 1,691,595 1,766,172 379,529 1/1/2002 38-40 yrs
Other 1,974,116 0 20,756,195 22,730,311 10,225,004 1/1/2002 20-40 yrs
Other 1,429,055 0 100,921,238 102,350,293 33,936,368 1/1/2002 38-40 yrs
Other 1,000,000 0 0 1,000,000 0 1/1/2003
Other 0 7,581,442 35,715,658 43,297,100 15,755,841 1/1/2002 22-40 yrs
Other 17,020 0 0 17,020 0 1/1/2002
Other 0 0 26,836,477 26,836,477 8,997,492 1/1/2002 40 yrs
Other 17,203 0 0 17,203 0 1/1/2002
Other 13,850 0 0 13,850 0 1/1/2002
Other 14,831 0 0 14,831 0 1/1/2002
Other 15,995 0 0 15,995 0 1/1/2002
Other 18,447 0 0 18,448 0 1/1/2002
Other 83,278 0 1,961,118 2,044,397 440,000 1/1/2002 38-40 yrs
Other 14,714 0 0 14,714 0 1/1/2002
Other 18,028 0 0 18,028 0 1/1/2002
Other 0 0 9,128,285 9,128,285 3,635,995 1/1/2002 38-40 yrs
Other 274,873 5,267,663 22,304,939 27,847,475 12,775,291 1/1/2002 22-40 yrs
Other 48,406 0 0 48,406 0 12/14/2003
Other 14,688 0 0 14,688 0 1/1/2002
Other 16,871 0 0 16,871 0 1/1/2002
Other 2,234 0 0 2,234 0 1/1/2002
Other 70,342 0 1,554,861 1,625,203 348,851 1/1/2002 38-40 yrs
Other 32,120 0 2,100,435 2,132,555 1,449,981 1/1/2003 38-40 yrs
Other 41,745 0 0 41,745 0 1/1/2002
Other 14,384 0 0 14,384 0 1/1/2002
Other 0 0 17,964,482 17,964,482 2,555,306 1/1/2002 38-40 yrs
Other 0 0 1,569,849 1,569,849 375,093 1/1/2002 38-40 yrs
Other 0 0 8,805,302 8,805,302 2,686,713 1/1/2002 38-40 yrs
Other 0 647,569 6,005,767 6,653,337 2,387,026 1/1/2002 22-40 yrs
Other 14,474 0 0 14,474 0 1/1/2002
Other 41,473 0 0 41,473 0 1/1/2002
Other 16,385 0 0 16,385 0 1/1/2002
Other 16,857 0 0 16,857 0 1/1/2002
Other 81,669 0 1,910,679 1,992,349 428,683 1/1/2002 38-40 yrs
Other 1,790 0 0 1,790 0 1/1/2002
Other 1,952,216 0 15,502,972 17,455,188 6,025,697 1/1/2002 38-40 yrs
Other 56,850 0 1,131,104 1,187,954 253,776 1/1/2002 38-40 yrs
Other 14,806 0 0 14,806 0 1/1/2002
Other 80,816 0 1,883,744 1,964,560 422,640 1/1/2002 38-40 yrs
Other 16,746 0 0 16,746 0 1/1/2002
Other 14,268 0 0 14,268 0 1/1/2002
Other 0 0 13,988,024 13,988,024 5,122,297 1/1/2002 38-40 yrs
----------------------------------------------------------------------
7,649,521 13,496,675 291,732,727 312,878,922 108,201,582
----------------------------------------------------------------------
Total from Continuing Operations $37,673,623 $45,203,543 $1,619,199,464 $1,702,076,629 $572,839,955
======================================================================
* The above table:
A) excludes properties classified as discountinued operations
B) includes land only parcels owned by the partnership
The aggregate cost for Federal income tax purposes was approximately $1.5
billion
NEWKIRK MASTER LIMITED PARTNERSHIP
SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION
(amounts in thousands)
The following is a reconciliation of real estate assets and accumulated
depreciation:
Year ended Year ended
December 31, December 31,
2003 2002
------------ ------------
Real Estate
Balance at beginning of year $1,716,568 $ --
Assets contributed in the exchange 1,890,357
Additions during the year:
Land & land estates 5,611 2,904
Buildings & improvements 91,724 --
---------- ----------
1,813,903 1,893,261
Less: Reclassification to discontinued operations 111,826 176,693
---------- ----------
Balance at end of year $1,702,077 $1,716,568
========== ==========
Accumulated Depreciation
Balance at beginning of year $ 512,678 $ --
Accumulated depreciation contributed in
the exchange -- 542,619
Additions charged to depreciation and
amortization expense 42,983 37,172
Additions for properties acquired 51,474 --
---------- ----------
607,135 579,791
Less: Reclassification to discontinued operations 34,295 67,113
---------- ----------
Balance at end of year $ 572,840 $ 512,678
========== ==========