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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2004
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
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 Identification No.)
incorporation or organization)
7 Bulfinch Place, Suite 500, Boston, MA 02114-9507
- --------------------------------------- ------------------------------------
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code (617) 570-4600
-----------------------------
Indicate by check mark whether 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 whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes |_| No |X|
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practical date. 6,323,327 Limited Partnership
Units Outstanding as of June 30, 2004.
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Table of Contents
Page
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
Unaudited Consolidated Balance Sheet at June 30, 2004 and
Audited Consolidated Balance Sheet at December 31, 2003 ........ 3
Unaudited Consolidated Statements of Operations for the
Three and Six Months Ended June 30, 2004 and June 30, 2003...... 4
Unaudited Consolidated Statement of Partners' Equity for the
Six Months Ended June 30, 2004.................................. 5
Unaudited Consolidated Statements of Cash Flows for the Six
Months Ended June 30, 2004 and June 30, 2003.................... 6
Notes to Consolidated Unaudited Financial Statements............ 9
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.......................................15
Item 3. Quantitative and Qualitative Disclosures about Market Risk......24
Item 4. Controls and Procedures.........................................24
Part II. OTHER INFORMATION
Item 1. Legal Proceedings................................................25
Item 2. Changes in Securities, Use of Proceeds and Issuer Purchase
Of Equity Securities.............................................26
Item 3 Defaults Upon Senior Securities..................................26
Item 4 Submission of Matters to a Vote of Security Holders..............26
Item 5 Other Information................................................27
Item 6 Exhibits and Reports on Form 8-K.................................27
Signatures................................................................28
Exhibit Index.............................................................29
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PART I - FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
THE NEWKIRK MASTER LIMITED PARTNERSHIP
CONSOLIDATED BALANCE SHEETS
(In thousands, except unit data)
June 30, December 31,
2004 2003
----------- ------------
(Unaudited)
ASSETS
Real estate investments:
Land $ 32,558 $ 37,674
Land estates 43,998 45,204
Buildings and improvements 1,568,705 1,619,199
----------- -----------
Total real estate investments 1,645,261 1,702,077
Less accumulated depreciation and amortization (576,359) (572,840)
----------- -----------
Real estate investments, net 1,068,902 1,129,237
Real estate held for sale, net of accumulated depreciation of $21,840 and $19,692 41,577 59,481
Cash and cash equivalents, of which $7,181 and $5,148 is restricted 24,001 37,851
Receivables and deferred rental income (including $7,595 and $7,346
from a related party) 94,433 97,845
Equity investments in limited partnerships 9,532 8,492
Deferred costs, net of accumulated amortization of $32,733 and $29,638 18,843 22,993
Other assets 26,266 27,240
Other assets of discontinued operations 9 955
----------- -----------
Total Assets $ 1,283,563 $ 1,384,094
=========== ===========
LIABILITIES, MINORITY INTERESTS AND PARTNERS' EQUITY
Liabilities:
Mortgage notes and accrued interest payable (including $14,904 and $14,583
to a related party) $ 547,861 $ 615,993
Note payable 190,439 208,356
Contract right mortgage notes and accrued interest payable (including $257,863
and $296,035 to related parties) 364,576 401,132
Accounts payable and accrued expenses 4,940 15,427
Liabilities of discontinued operations 32,255 35,997
----------- -----------
Total Liabilities 1,140,071 1,276,905
Contingencies
Minority interests (33,959) (39,822)
Partners' equity (6,323,327 and 6,319,391 limited partnership units outstanding) 177,451 147,011
----------- -----------
Total Liabilities, Minority Interests and Partners' Equity $ 1,283,563 $ 1,384,094
=========== ===========
See notes to consolidated financial statements.
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THE NEWKIRK MASTER LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2004 AND 2003
(In thousands, except unit and per unit data)
(Unaudited)
For the Three Months Ended For the Six Months Ended
June 30, June 30,
2004 2003 2004 2003
----------- ----------- ----------- -----------
Revenue:
Rental income $ 61,896 $ 66,642 $ 124,923 $ 132,820
Interest income 1,038 723 1,639 1,654
Management fees 86 104 176 209
----------- ----------- ----------- -----------
Total revenue 63,020 67,469 126,738 134,683
----------- ----------- ----------- -----------
Expenses:
Interest 21,934 25,994 45,692 52,591
Depreciation 9,229 9,109 18,374 18,217
General and administrative 1,673 2,404 3,150 3,982
Amortization 696 1,005 1,407 2,011
Ground rent 819 793 1,620 1,613
State income taxes 590 242 911 449
----------- ----------- ----------- -----------
Total expenses 34,941 39,547 71,154 78,863
----------- ----------- ----------- -----------
Income from continuing operations before equity in income
from investments in limited partnerships and minority interest 28,079 27,922 55,584 55,820
Equity in income from investments in limited partnerships 634 417 1,254 981
Minority interest (3,796) (4,419) (7,812) (8,459)
----------- ----------- ----------- -----------
Income from continuing operations 24,917 23,920 49,026 48,342
----------- ----------- ----------- -----------
Discontinued operations:
Income from discontinued operations 2,294 3,939 3,588 18,760
Impairment loss (9,665) -- (9,665) --
Gain from disposal of real estate 1,809 6,238 9,478 32,325
----------- ----------- ----------- -----------
Net (loss) income from discontinued operations (5,562) 10,177 3,401 51,085
----------- ----------- ----------- -----------
Net income $ 19,355 $ 34,097 $ 52,427 $ 99,427
=========== =========== =========== ===========
Income from continuing operations per
limited partnership unit $ 3.94 $ 3.79 $ 7.76 $ 7.62
(Loss) income from discontinued operations per
limited partnership unit (0.88) 1.61 0.54 8.06
----------- ----------- ----------- -----------
Net income per limited partnership unit $ 3.06 $ 5.40 $ 8.30 $ 15.68
=========== =========== =========== ===========
Distributions per limited partnership unit $ 1.80 $ 3.02 $ 3.55 $ 3.77
=========== =========== =========== ===========
Weighted average limited partnership units 6,324,238 6,319,391 6,319,063 6,339,134
=========== =========== =========== ===========
See notes to consolidated financial statements.
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THE NEWKIRK MASTER LIMITED PARTNERSHIP
CONSOLIDATED STATEMENT OF PARTNERS' EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 2004
(In thousands, except unit data)
(Unaudited)
Limited
Partnership Partners'
Units Equity
----------- ----------
Balance at December 31, 2003 6,319,391 $ 147,011
Equity contributions 15,539 836
Distributions -- (22,417)
Limited partner redemptions (11,603) (406)
Net income -- 52,427
---------- ----------
Balance at June 30, 2004 6,323,327 $ 177,451
========== ==========
See notes to consolidated financial statements.
5 of 30
THE NEWKIRK MASTER LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2004 AND 2003
(In thousands)
(Unaudited)
For the Six Months Ended
June 30,
------------------------
2004 2003
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Continuing Operations:
Income from continuing operations $ 49,026 $ 48,342
Adjustments to reconcile income from continuing operations to
net cash provided by continuing operations:
Amortization of deferred costs and land estates 5,380 5,193
Depreciation expense 18,374 18,217
Net (gain) loss from early extinguishment of debt (187) 214
Minority interest expense 7,812 8,459
Equity in income of limited partnerships (1,254) (981)
Changes in operating assets and liabilities:
Decrease (increase) in receivables and deferred rental income 3,378 (4,584)
Decrease in accounts payable and accrued expenses (4,392) (2,174)
Decrease in accrued interest-mortgages and contract rights (4,930) (5,611)
Decrease in other assets 466 1,010
-------- --------
Net cash provided by continuing operations 73,673 68,085
-------- --------
Discontinued Operations:
Income from discontinued operations 3,401 51,085
Adjustments to reconcile income from discontinued
operations to net cash provided by discontinued operations:
Amortization of deferred costs and land estates 29 185
Depreciation expense 312 1,997
Net gain from early extinguishment of debt (660) (8,912)
Gain on disposal of real estate (9,478) (32,325)
Minority interest expense 87 4,882
Impairment loss 9,665 --
Changes in assets and liabilities:
Net decrease in assets and liabilities of discontinued
operations (1,564) (6,513)
-------- --------
Net cash provided by discontinued operations 1,792 10,399
-------- --------
Net cash provided by operating activities 75,465 78,484
-------- --------
(Continued)
See notes to consolidated financial statements.
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THE NEWKIRK MASTER LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2004 AND 2003
(In thousands)
(Unaudited)
For the Six Months Ended
June 30,
-------------------------
2004 2003
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Land additions $ (2,561) $ (2,494)
Net proceeds from disposal of real estate 29,363 56,107
Distributions from limited partnership interests 221 --
Cash related to previously unconsolidated limited partnerships -- 511
Investments in limited partnership interests (303) (711)
--------- ---------
Net cash provided by investing activities 26,720 53,413
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Satisfaction of mortgage notes (10,211) (37,745)
Satisfaction of contract right mortgage notes (1,747) (2,057)
Principal payments of mortgage notes (56,407) (59,359)
Principal payments of note payable (17,916) (20,495)
Principal payments of contract right mortgage notes (2,206) (631)
Proceeds from new debt -- 21,950
Mortgage prepayment penalties (326) (400)
Distributions to partners (22,417) (23,672)
Limited partner redemptions (406) (3,937)
Distributions to minority interests (4,570) (31)
Reimbursement of deferred costs 171 (370)
--------- ---------
Cash used in financing activities (116,035) (126,747)
--------- ---------
Net (decrease) increase in cash and cash equivalents (13,850) 5,150
Cash and Cash Equivalents at Beginning of Period 37,851 33,506
--------- ---------
Cash and Cash Equivalents at End of Period $ 24,001 $ 38,656
========= =========
Supplemental Disclosure of Cash Flow Information:
Cash paid for state income taxes $ 667 $ 733
========= =========
Cash paid for interest $ 49,962 $ 60,789
========= =========
See notes to consolidated financial statements.
7 of 30
THE NEWKIRK MASTER LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2004 AND 2003
(In thousands)
(Unaudited)
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 March 2003, in connection with the disposal of real estate, the purchaser of
a property assumed $94,918 of the Partnership's debt.
In January 2004, in connection with the sale of a property, the purchaser of the
property assumed $28,460 of associated Partnership debt.
In April 2004, the Partnership issued 15,539 units in the Partnership to holders
of minority interests in two partially owned consolidated partnerships.
See notes to consolidated financial statements.
8 of 30
THE NEWKIRK MASTER LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FORM 10-Q JUNE 30, 2004
Note 1 - GENERAL
The Newkirk Master Limited Partnership (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 (the "Newkirk Partnerships"),
each of which owned commercial properties (the "Newkirk properties"), and
the acquisition by the Partnership of various assets, including those
related to the management or capital structure of the Newkirk
Partnerships.
The consolidated financial statements of the Partnership included herein
have been prepared by the Partnership, without audit, pursuant to the
rules and regulations of the Securities and Exchange Commission. Certain
information and footnote disclosures normally included in financial
statements prepared in accordance with accounting principles generally
accepted in the United States of America have been condensed or omitted
pursuant to such rules and regulations, although the Partnership believes
that the disclosures contained herein are adequate to make the information
presented not misleading. These consolidated financial statements should
be read in conjunction with the consolidated financial statements and the
notes thereto included in the Partnership's Annual Report on Form 10-K for
the year ended December 31, 2003.
The consolidated financial statements reflect, in the opinion of the
Partnership, all adjustments (consisting of normal recurring adjustments)
necessary to present fairly the consolidated financial position and
results of operations for the respective periods in conformity with
accounting principles generally accepted in the United States of America
consistently applied.
The results of operations for the six months ended June 30, 2004 and 2003
are not necessarily indicative of the results to be expected for the full
year.
Investments in Partnerships
The Partnership evaluates its investments in partially-owned entities in
accordance with FASB Interpretation No. 46 (revised December 2003),
Consolidation of Variable Interest Entities, or FIN 46R. If the
partially-owned entity is a "variable interest entity," or a "VIE," and
the Partnership is the "primary beneficiary" as defined in FIN 46R, the
Partnership would account for such investment as if it were a consolidated
subsidiary.
For a partnership investment which is not a VIE or in which the
Partnership is not the primary beneficiary, the Partnership follows the
accounting set forth in AICPA Statement of Position No. 78-9 - Accounting
for Investments in Real Estate Ventures (SOP 78-9). In accordance with
this pronouncement, 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. Factors that are
considered in determining whether or not the Partnership exercises control
include important rights of partners in significant business
9 of 30
THE NEWKIRK MASTER LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FORM 10-Q JUNE 30, 2004
Note 1 - GENERAL (Continued)
decisions, including dispositions and acquisitions of assets, financing,
operations and capital budgets, other contractual rights, and ultimate
removal of the general partner in situations where the Partnership is the
general partner. To the extent that the Partnership is deemed to control
these entities, these entities would be consolidated. Determination is
made on a case-by-case basis.
The Partnership accounts for the purchase of minority interests at fair
value utilizing the purchase method of accounting in accordance with SFAS
141.
Note 2 - RELATED PARTY TRANSACTIONS
Winthrop Financial Associates, A Limited Partnership ("WFA"), an affiliate
of the "Newkirk Group," performs asset management services for the
Partnership and received a fee of $0.9 million for the six months ended
June 30, 2004 and 2003. 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, ("Vornado") and senior
executives of WFA.
The Partnership provides certain asset management, investor and
administrative services to partnerships, whose general partners were
controlled by the Newkirk Group, and which were not merged into the
Partnership (the "Other Partnerships"). Control of the general partners of
these partnerships was acquired by the Partnership. The Partnership earned
$0.2 million of management fees for these services for the six months
ended June 30, 2004 and 2003. The Partnership had receivables for
management fees of $0.8 million and $1.1 million due from these
partnerships at June 30, 2004 and December 31, 2003, respectively.
The Partnership has an ownership interest in the three most junior
tranches of a securitized pool of first mortgages with respect to 29 first
mortgage loans encumbering 62 Partnership properties and 1 other property
controlled by affiliates of the general partner. The Partnership had a
loan receivable, net of discount, of $9.9 million and $9.8 million at June
30, 2004 and December 31, 2003, respectively, and earned interest income
of $0.7 million for the six months ended June 30, 2004 and 2003, related
to this ownership interest.
Affiliates and executives of the Newkirk Group owned $17.3 million of a
$156.7 million Real Estate Mortgage Investment Conduit ("REMIC") which was
secured by the contract rights payable at June 30, 2003. The affiliates
and the executives of the Newkirk Group earned $1.2 million of interest
income during the six months ended June 30, 2003. 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 certain 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
10 of 30
THE NEWKIRK MASTER LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FORM 10-Q JUNE 30, 2004
Note 2 - RELATED PARTY TRANSACTIONS (Continued)
as the T-1 Certificate. The Partnership incurred $10.8 million and $4.6
million of interest expense on these contract rights during the six months
ended June 30, 2004 and 2003, respectively. Contract right mortgage notes
and accrued interest payable includes $257.9 million and $296.0 million
due to T-Two Partners at June 30, 2004 and December 31, 2003,
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. In addition, the
purchase price is payable in cash rather than Units.
During November 2003, the Partnership obtained a $208.5 million loan,
which had an outstanding balance of $190.4 million at June 30, 2004. At
the same time that 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 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 to the extent not
reimbursed) 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.
The Partnership has determined that T-Two Partners is a VIE but that the
Partnership is not the primary beneficiary of the VIE. The Partnership's
maximum exposure to loss under the guarantee is $9.9 million at June 30,
2004. The balance of the guarantee relates to the Partnership's contract
rights payable to T-Two Partners. The $9.9 million potential liability is
collateralized by $19.4 of contract rights receivables from other limited
partnerships.
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 $0.2
million during the six months ended June 30, 2004.
An affiliate of the general partner owns a portion of the second mortgage
indebtedness of a property in which the Partnership has an interest. The
second mortgage payable and accrued interest owned by the affiliate
aggregated $14.9 million and $14.6 million at June 30, 2004 and December
31, 2003, respectively. Included in interest expense is $0.4 million
related to this second mortgage payable for the six months ended June 30,
2004 and 2003.
11 of 30
THE NEWKIRK MASTER LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FORM 10-Q JUNE 30, 2004
Note 3 - 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. 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. On April 16, 2004, the Court approved the settlement. 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 April 2004, the Partnership paid out $3.5 million with
respect to this matter.
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. 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 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. The Newkirk Group paid $137,500 with respect to this matter.
12 of 30
THE NEWKIRK MASTER LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FORM 10-Q JUNE 30, 2004
Note 4 - DISCONTINUED OPERATIONS AND SALES OF REAL ESTATE
During the six months ended June 30, 2004, the Partnership sold 20
properties for a combined net sales price of $57.8 million. After
satisfying existing mortgage indebtedness and other costs and adjustments,
the net sales proceeds were approximately $24.7 million of which $17.9
million was applied to a principal payment on the note payable to Bank of
America. The Partnership recognized a net gain on sale of these properties
of $9.5 million. During the six months ended June 30, 2003, the
Partnership sold 9 properties for a combined net sales price of $151.0
million. The Partnership recognized a net gain on sale of these properties
of $32.3 million. The sale and operations of these properties for all
periods presented have been recorded as discontinued operations in
accordance with the provisions of Statement of Financial Accounting
Standards ("SFAS") No. 144, "Accounting for the Impairment or Disposal of
Long-Lived Assets." In addition, the Partnership has classified 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 statement of operations.
Discontinued operations for the six months ended June 30, 2004 and 2003
are summarized as follows (in thousands):
2004 2003
-------- --------
Revenue $ 5,491 $ 16,781
Expenses (2,414) (6,747)
Impairment loss (9,665) --
Net gain from early extinguishment of debt 511 8,726
Gain from disposal of real estate 9,478 32,325
-------- --------
Income from discontinued operations $ 3,401 $ 51,085
======== ========
Expenses include interest expense to related parties of $1.4 million and $1.3
million, for the six months ended June 30, 2004 and 2003, respectively.
Other assets of discontinued operations at June 30, 2004 and December 31, 2003
are summarized as follows (in thousands):
2004 2003
-------- --------
Receivables $ 2 $ 734
Other assets 7 221
-------- --------
$ 9 $ 955
======== ========
13 of 30
THE NEWKIRK MASTER LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FORM 10-Q JUNE 30, 2004
Note 4 - DISCONTINUED OPERATIONS AND SALES OF REAL ESTATE (Continued)
Liabilities of discontinued operations at June 30, 2004 and December 31,
2003 are summarized as follows (in thousands):
2004 2003
------- -------
Mortgage notes and accrued interest payable $ 349 $30,371
Contract right mortgage notes and accrued
interest payable (including $31,906 and
$5,626 to related parties) 31,906 5,626
------- -------
$32,255 $35,997
======= =======
Note 5 - SUBSEQUENT EVENTS
On July 29, 2004, the Partnership sold 25 properties to Vornado for a
sales price of $63.8 million. The Partnership used sales proceeds of $31.5
million to pay off contract right debt and $23.7 million to pay down the
note payable netting approximately $8.6 million of cash. For financial
reporting purposes, the Partnership expects to recognize a net gain on the
sale of the properties of approximately $38.7 million.
Additionally, subsequent to June 30, 2004 the Partnership sold 4
properties in separate transactions to unaffiliated third parties for a
combined net sales price of $1.0 million. The Partnership used sales
proceeds of $0.3 million to pay off contract right debt and $0.1 million
to acquire land parcels netting approximately $0.6 million of cash. For
financial reporting purposes, the Partnership expects to recognize a net
gain on the sale of the properties of approximately $0.4 million.
14 of 30
THE NEWKIRK MASTER LIMITED PARTNERSHIP
FORM 10-Q JUNE 30, 2004
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Certain statements contained herein constitute forward-looking statements.
Forward-looking statements include information relating to the
Partnership's intent, belief or current expectations.
We identify forward-looking statements in this Form 10-Q 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, those set forth in our
Annual Report on Form 10-K for the year ended December 31, 2003 under
"Forward-Looking Statements."
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 Form 10-Q to reflect any change in our expectations or any changes in
events, conditions or circumstances on which any statement is based.
Liquidity and Capital Resources
At June 30, 2004, your partnership owned an interest in 215 Newkirk
properties and limited partnership interests in 7 partnerships which own
33 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
94% of the original lease terms expire between 2005 and 2009. At June 30,
2004, there are 16 properties which are vacant and not leased which
represent approximately 154,000 square feet of your partnership's Newkirk
properties. The remaining 18,751,000 square feet or 99.2% 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
15 of 30
THE NEWKIRK MASTER LIMITED PARTNERSHIP
FORM 10-Q JUNE 30, 2004
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (Continued)
Liquidity and Capital Resources (Continued)
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
$13,850,000 decrease at June 30, 2004 as compared to December 31, 2003.
The decrease was due to net cash used in financing activities of
$116,035,000, which was substantially offset by net cash provided by
operating activities of $75,465,000 and net cash provided by investing
activities of $26,720,000. Cash provided by operating activities consisted
of $73,673,000 from continuing operations, and $1,792,000 provided by
discontinued operations. Cash provided by investing activities included
$29,363,000 of net proceeds from disposal of real estate and $221,000 of
partnership distributions received from your partnerships equity
investments, which were partially offset by land acquisitions of
$2,561,000 and by purchases of minority limited partner positions of
$303,000. Cash used in financing activities consisted primarily of
mortgage loan and contract right mortgage loan payoffs of $11,958,000,
principal payments on mortgage, contract right and notes payable of
$76,529,000, partner distributions of $22,417,000, distributions to
minority interests of $4,570,000 and limited partner buyouts of $406,000.
At June 30, 2004, your partnership had $24,001,000, of which $7,181,000 is
restricted, in cash reserves which were invested primarily in money market
mutual funds.
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. There are no
amounts that have been advanced under the credit line.
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
16 of 30
THE NEWKIRK MASTER LIMITED PARTNERSHIP
FORM 10-Q JUNE 30, 2004
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (Continued)
Off-Balance Sheet Arrangements (Continued)
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 to the extent not reimbursed) 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.
The Partnership has determined that T-Two Partners is a VIE but that the
Partnership is not the primary beneficiary of the VIE. The Partnership's
maximum exposure to loss under the guarantee is $9.9 million at June 30,
2004. The balance of the guarantee relates to the Partnership's contract
rights payable to T-Two Partners. The $9.9 million potential liability is
collateralized by $19.4 of contract rights receivables from other limited
partnerships.
Other Matters
In November 2002, your partnership received a notice from Albertson's,
Inc., 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 in May 2003 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 third quarter of 2004.
Your partnership has also received notice from Albertsons exercising a
purchase option in accordance with their lease on sixteen of your
partnership's properties. Your partnership has rejected all sixteen of the
offers and in April 2004 sold one of the properties where it had rejected
the offer. As a condition of the rejection of the Albertsons' purchase
offer, the Partnership was required to pay off the existing first mortgage
debt 40 days prior to the purchase option sale date. Your partnership has
paid off approximately $3.4 million in first mortgage debt with an
obligation to pay off $0.6 million in August 2004 and $0.7 million in
December 2004. Albertsons has exercised its right to extend its lease on
the fifteen remaining properties owned by your partnership until December
31, 2005 for 10 properties, March 31, 2006 for 3 properties and July 31,
2006 for 2 properties. Rent during this 18 month extension period will
decrease by approximately $3.2 million. Albertsons has a series of five
year renewal options.
17 of 30
THE NEWKIRK MASTER LIMITED PARTNERSHIP
FORM 10-Q JUNE 30, 2004
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (Continued)
Other Matters (Continued)
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
of its intention to exercise its option to purchase the additional limited
partnership interests in two of the partnerships. These additional limited
partnership interests were acquired as of April 1, 2004 in exchange for
15,539 units.
During the second quarter of 2004, your partnership recorded a $9,600,000
impairment loss on a property located in Bedford, Texas. The impairment
loss, which is included in loss from discontinued operations in the
Statement of Operations, was recorded as a result of the existing tenant
notifying us of their intention not to renew their existing lease that
expired June 30, 2004. The Partnership has entered into a contract to sell
the property and anticipates closing in the fourth quarter of 2004.
In June 2004, your partnership acquired for $297,500, pursuant to a tender
offer, approximately 9.85% of the total limited partnership units
outstanding in one partially owned consolidated partnership. You
partnership currently owns approximately 45.2% of the limited partnership.
In July 2004, your partnership acquired for $472,500 and $225,000,
pursuant to two separate tender offers, approximately 7% and 4.5% of the
total limited partnership units outstanding in two partially owned
partnerships. Your partnership currently owns approximately 62.3% and
42.8% in the two partnerships.
On July 29, 2004, your partnership sold 25 properties to Vornado for a
sales price of $63.8 million. The Partnership used sales proceeds of $31.5
million to pay off contract right debt and $23.7 million to pay down the
note payable netting approximately $8.6 million of cash. For financial
reporting purposes, the Partnership expects to recognize a net gain on the
sale of the properties of approximately $38.7 million.
Additionally, subsequent to June 30, 2004 the Partnership sold 4
properties in separate transactions to unaffiliated third parties for a
combined net sales price of $1.0 million. The Partnership used sales
proceeds of $0.3 million to pay off contract right debt and $0.1 million
to acquire land parcels netting approximately $0.6 million of cash. For
financial reporting purposes, the Partnership expects to recognize a net
gain on the sale of the properties of approximately $0.4 million.
18 of 30
THE NEWKIRK MASTER LIMITED PARTNERSHIP
FORM 10-Q JUNE 30, 2004
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (Continued)
Results of Operations
Comparison of the six months ended June 30, 2004 to the six months
ended June 30, 2003.
Income from Continuing Operations
Income from continuing operations increased by $684,000 to $49,026,000 for
the six months ended June 30, 2004 from $48,342,000 for the six months
ended June 30, 2003. As more fully described below, this increase is
attributable to a decrease in total expenses of $7,709,000, an increase in
equity in income from investments in limited partnerships of $273,000 and
a decrease in minority interest expense of $647,000, which was
substantially offset by a decrease in total revenue of $7,945,000.
Rental Income
Rental income decreased by $7,897,000 or approximately 5.9% to
$124,923,000 for the six months ended June 30, 2004 from $132,820,000 for
the six months ended June 30, 2003. The decrease was primarily due to
lease renewals at lower renewal rates, as leased square footage remains at
99%.
Interest Income
Interest income decreased by $15,000 or approximately 0.9% to $1,639,000
for the six months ended June 30, 2004 from $1,654,000 for the six months
ended June 30, 2003. The decrease was due to the payoff of a loan
receivable, partially offset by interest income on an advance to T-2
Partners for loan closing costs.
Management Fees
Management fees decreased by $33,000 or approximately 15.8% to $176,000
for the six months ended June 30, 2004 from $209,000 for the six months
ended June 30, 2003. The decrease is attributable to fewer properties
under management.
Interest Expense
Interest expense decreased by $6,899,000 or approximately 13.1% to
$45,692,000 for the six months ended June 30, 2004 compared to $52,591,000
for the six months ended June 30, 2003. The decrease was primarily due to
loan payoffs of $11,958,000 during the period and normal scheduled
principal payments of $76,529,000.
Depreciation
Depreciation expense increased by $157,000 or approximately 0.9% to
$18,374,000 for the six months ended June 30, 2004 compared to $18,217,000
for the six months ended June 30, 2003. The increase is primarily
attributable to additional depreciation on additional building basis from
purchasing minority interests.
19 of 30
THE NEWKIRK MASTER LIMITED PARTNERSHIP
FORM 10-Q JUNE 30, 2004
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (Continued)
Results of Operations (Continued)
General and Administrative
General and administrative expenses decreased by $832,000 or approximately
20.9% to $3,150,000 for the six months ended June 30, 2004 compared to
$3,982,000 for the six months ended June 30, 2003. The decrease is
primarily the result of lower professional fees incurred related to legal
proceedings and filings with the Securities and Exchange Commission.
Amortization Expense
Amortization expense decreased by $604,000 or approximately 30.0% to
$1,407,000 for the six months ended June 30, 2004 compared to $2,011,000
for the six months ended June 30, 2003. The decrease is the result of the
purchase of remainder interests associated with land estates during 2003
and decreased loan amortization expense related to the note payable. The
deferred loan cost amortization is primarily classified as interest
expense.
Ground Rent
Ground rent expense increased by $7,000 or approximately 0.4% to
$1,620,000 for the six months ended June 30, 2004 compared to $1,613,000
for the six months ended June 30, 2003 as a result of increased rental
charges on ground leases which renewed in the second quarter of 2004.
State Income Taxes
State income tax expense increased by $462,000 or approximately 102.9% to
$911,000 for the six months ended June 30, 2004 compared to $449,000 for
the six months ended June 30, 2003. The increase is the result of higher
taxable income in several states with partnership income tax requirements.
Equity in Income from Investments in Limited Partnerships
Equity in income from investments in limited partnerships increased by
$273,000 or approximately 27.8% to $1,254,000 for the six months ended
June 30, 2004 compared to $981,000 for the six months ended June 30, 2003.
The increase is the result of lower interest expense at the limited
partnerships due to normal debt amortization.
Minority Interest Expense
Minority interest expense decreased by $647,000 or approximately 7.6% to
$7,812,000 for the six months ended June 30, 2004 compared to $8,459,000
for the six months ended June 30, 2003. The decrease was the result of
slightly lower earnings at the non-wholly owned consolidated properties
and the buyout of minority partners.
20 of 30
THE NEWKIRK MASTER LIMITED PARTNERSHIP
FORM 10-Q JUNE 30, 2004
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (Continued)
Results of Operations (Continued)
Discontinued Operations
During the six months ended June 30, 2004, the Partnership sold 20
properties for a combined net sales price of approximately $57,823,000.
The Partnership recognized a net gain on disposal of these properties of
$9,478,000. The sale and operations of these properties for all periods
presented have been recorded as discontinued operations. The income from
discontinued operations includes a $9,600,000 realizability allowance on a
property located in Texas and currently being marketed for sale.
During the six months ended June 30, 2003, the Partnership sold 9
properties for a combined net sales price of $151.0 million. The
Partnership recognized a net gain on sale of these properties of $32.3
million for financial reporting purposes.
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 three months ended June 30, 2004 to the three months
ended June 30, 2003.
Income from Continuing Operations
Income from continuing operations increased by $997,000 to $24,917,000 for
the three months ended June 30, 2004 from $23,920,000 for the three months
ended June 30, 2003. As more fully described below, this increase is
attributable to a decrease in total expenses of $4,606,000, a decrease in
minority interest expense of $623,000 and an increase in equity income
from investments in limited partnerships of $217,000, which was partially
offset by a decrease in total revenue of $4,449,000.
Rental Income
Rental income decreased by $4,746,000 or approximately 7.1% to $61,896,000
for the three months ended June 30, 2004 from $66,642,000 for the three
months ended June 30, 2003. The decrease was due to lower income from
lease renewals and renegotiations, as leased square footage remains at
99%.
Interest Income
Interest income increased by $315,000 or approximately 43.6% to $1,038,000
for the three months ended June 30, 2004 from $723,000 for the three
months ended June 30, 2003. The increase was due to income on new advances
made in December 2003.
21 of 30
THE NEWKIRK MASTER LIMITED PARTNERSHIP
FORM 10-Q JUNE 30, 2004
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (Continued)
Results of Operations (Continued)
Management Fees
Management fees decreased by $18,000 or approximately 17.3% to $86,000 for
the three months ended June 30, 2004 from $104,000 for the three months
ended June 30, 2003. The decrease is attributable to the sale of
properties previously under management.
Interest Expense
Interest expense decreased by $4,060,000 or approximately 15.6% to
$21,934,000 for the three months ended June 30, 2004 compared to
$25,994,000 for the three months ended June 30, 2003.
The decrease was primarily due to loan payoffs during the period and
normal scheduled principal payments.
Depreciation
Depreciation expense increased by $120,000 or approximately 1.3% to
$9,229,000 for the three months ended June 30, 2004 compared to $9,109,000
for the three months ended June 30, 2003. The increase is attributed to
depreciation expense on the newly acquired property basis resulting from
the buyout of minority interest partners in consolidated non-wholly owned
properties.
General and Administrative
General and administrative expenses decreased by $731,000 or approximately
30.4% to $1,673,000 for the three months ended June 30, 2004 compared to
$2,404,000 for the three months ended June 30, 2003. The decrease is
primarily the result of lower professional fees incurred related to legal
proceedings and filings with the Securities and Exchange Commission.
Amortization Expense
Amortization expense decreased by $309,000 or approximately 30.7% to
$696,000 for the three months ended June 30, 2004 compared to $1,005,000
for the three months ended June 30, 2003. The decrease is the result of
the purchase of the remainder interests during 2004 and 2003 and decreased
loan amortization expense related to the note payable. The deferred loan
cost amortization is primarily classified as interest expense.
Ground Rent
Ground rent expense increased by $26,000 or approximately 3.3% to $819,000
for the three months ended June 30, 2004 compared to $793,000 for the
three months ended June 30, 2003. The increase resulted from increased
rent charges on ground leases which renewed in the second quarter of 2004.
22 of 30
THE NEWKIRK MASTER LIMITED PARTNERSHIP
FORM 10-Q JUNE 30, 2004
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (Continued)
Results of Operations (Continued)
State Income Taxes
State income tax expense increased by $348,000 or approximately 143.8% to
$590,000 for the three months ended June 30, 2004 compared to $242,000 for
the three months ended June 30, 2003. The increase is the result of higher
taxable income in several states with partnership income tax requirements.
Equity in Income from Investments in Limited Partnerships
Equity in income from investments in limited partnerships increased by
$217,000 or approximately 52% to $634,000 for the three months ended June
30, 2004 compared to $417,000 for the three months ended June 30, 2003.
The increase is the result of lower interest expense at the limited
partnerships due to normal debt amortization.
Minority Interest Expense
Minority interest expense decreased by $623,000 or approximately 14.1% to
$3,796,000 for the three months ended June 30, 2004 compared to $4,419,000
for the three months ended June 30, 2003. The decrease was the result of
the buyout of minority partners.
Discontinued Operations
During the three months ended June 30, 2004, the Partnership sold 9
properties for a combined net sales price of $6,218,000. The Partnership
recognized a net gain on sale of these properties of $1,809,000. The loss
from discontinued operations includes a $9,600,000 realizability allowance
on a property located in Texas and currently being marketed for sale.
23 of 30
THE NEWKIRK MASTER LIMITED PARTNERSHIP
FORM 10-Q JUNE 30, 2004
Item 3. 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.
At June 30, 2004, your partnership had one loan which had a variable
interest rate. The loan which had an outstanding balance of $190.4 million
at June 30, 2004, 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 June 30, 2004) 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 $1,904 $3,809 $5,713 $7,217
Item 4. CONTROLS AND PROCEDURES
The Partnership's management, with the participation of the Partnership's
Chief Executive Officer and Chief Financial Officer, has evaluated the
effectiveness of the Partnership's disclosure controls and procedures (as
such term is defined in Rule 13a-15(e) under the Securities Exchange Act
of 1934, as amended) as of the end of the period covered by this report.
Based on such evaluation, the Partnership's Chief Executive Officer and
Chief Financial Officer have concluded that, as of the end of such period,
the Partnership's disclosure controls and procedures are effective.
There have not been any changes in the Partnership's internal controls
over financial reporting (as defined in Rule 13a-15(f) under the
Securities and Exchange Act of 1934, as amended) during the fiscal quarter
to which this report relates that have materially affected, or are
reasonably likely to materially affect, the Partnership's internal
controls over financial reporting.
24 of 30
PART II - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
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. 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. On April 16, 2004, the
Court approved the settlement. 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 April 2004, the Partnership paid
out $3.5 million with respect to this matter.
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. 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 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. The Newkirk Group paid
$137,500 with respect to this matter.
25 of 30
THE NEWKIRK MASTER LIMITED PARTNERSHIP
FORM 10-Q JUNE 30, 2004
Item 2. CHANGES IN SECURITIES, USE OF PROCEEDS AND ISSUER PURCHASES OF EQUITY
SECURITIES
A) N/A
B) N/A
C) On April 1, 2004, your partnership issued a total of 15,539 limited
partnership units to members of the Newkirk Group. 13,139 units were
issued to AP-WIN Associates LLC and 2,400 units were issued to
AP3-WEM Win Tender LLC. The units were issued in connection with the
exercise by your partnership of an option to purchase limited
partnership interests in two limited partnerships that own net lease
properties. As a result of the exercise of the option, your
partnership's ownership interest in the two partnerships increased
to 68.68% and 55.28% from 40.68% and 47.52%, respectively. The units
were issued in reliance on an exemption from registration under the
Securities Act provided by Section 4(2) thereof. Reference is made
to Item 7 of Amendment No. 3 to Registrant's Form 10 for additional
information on this transaction which information is incorporated
herein by reference.
D) N/A
E) Attached is information with respect to the purchase of units of
your Partnership for the three months ended June 30, 2004
- ----------------------------------------------------------------------------------------------------------------------
Period (a) Total (b) Average Price (c) Total Number of Units (d) Maximum Number (or approximate
Number of Paid per Unit Purchased as Part of Dollar Value) of Units that May Yet
Units (1) Publicly Announced Plans of Be Purchased Under the Plans or
Programs Programs
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
April 737 35 -- --
- ----------------------------------------------------------------------------------------------------------------------
May 1,373 35 -- --
- ----------------------------------------------------------------------------------------------------------------------
June 614 35 -- --
- ----------------------------------------------------------------------------------------------------------------------
Total 2,724 35 -- --
- ----------------------------------------------------------------------------------------------------------------------
(1) All Units were purchased in private transactions.
Item 3. DEFAULTS UPON SENIOR SECURITIES
N/A
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
N/A
26 of 30
THE NEWKIRK MASTER LIMITED PARTNERSHIP
FORM 10-Q JUNE 30, 2004
Item 5. OTHER INFORMATION
N/A
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
Exhibits required by Item 601 of Regulation S-K are filed herewith or
incorporated herein by reference and are listed in the attached Exhibit Index.
(b) Reports on Form 8-K:
No reports on Form 8-K were filed during the period ended June 30, 2004.
27 of 30
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
THE NEWKIRK MASTER LIMITED PARTNERSHIP
BY: MLP GP LLC
General Partner
BY: NEWKIRK MLP CORP
Manager
BY: /s/ Michael L. Ashner
------------------------------------
Michael L. Ashner
Chief Executive Officer
BY: /s/ Thomas C. Staples
------------------------------------
Thomas C. Staples
Chief Financial Officer
Dated: August 16, 2004
28 of 30
THE NEWKIRK MASTER LIMITED PARTNERSHIP
FORM 10-Q JUNE 30, 2004
Exhibit Index
Exhibit 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 (incorporated by reference to
exhibit 2.1 of the Partnership's Form 10 filed April 30, 2003).
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 (incorporated by
reference to exhibit 2.2 of the Partnership's Form 10 filed April
30, 2003).
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
(incorporated by reference to exhibit 2.3 of the Partnership's Form
10 filed April 30, 2003).
2.4 Assignment and Assumption Agreement by and between Vornado Realty
L.P., Vornado Newkirk LLC, The Newkirk Master Limited Partnership,
and Newkirk MLP Unit LLC, dated as of December 26, 2001
(incorporated by reference to exhibit 2.4 of the Partnership's Form
10 filed April 30, 2003).
2.5 Assignment and Assumption Agreement between Newkirk RE Associates
LLC, The Newkirk Master Limited Partnership, Newkirk RE Holdings and
Vornado Newkirk LLC dated as of December 26, 2001 (incorporated by
reference to exhibit 2.5 of the Partnership's Form 10 filed April
30, 2003).
2.6 Assignment and Assumption Agreement by and between Newkirk
Associates LLC, The Newkirk Master Limited Partnership, Newkirk NL
Holdings LLC and Vornado Newkirk LLC dated as of December 26, 2001
(incorporated by reference to exhibit 2.6 of the Partnership's Form
10 filed April 30, 2003).
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 (incorporated by
reference to exhibit 2.7 of the Partnership's Form 10 filed April
30, 2003).
3. Certificate of Limited Partnership of the Newkirk Master Limited
Partnership (incorporated by reference to exhibit 3 of the
Partnership's Form 10 filed April 30, 2003).
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 (incorporated by reference to exhibit 4.1 of the Partnership's
Form 10 filed April 30, 2003).
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THE NEWKIRK MASTER LIMITED PARTNERSHIP
FORM 10-Q JUNE 30, 2004
Exhibit Index
(Continued)
Exhibit Description
- ------- -----------
4.2 Additional provisions incorporated by reference into the Agreement
of Limited Partnership of the Newkirk Master Limited Partnership
(incorporated by reference to exhibit 4.2 of the Partnership's Form
10 filed April 30, 2003).
4.3 Limited Liability Agreement of MLP GP LLC (incorporated by reference
to exhibit 4.3 of the Partnership's Form 10 filed April 30, 2003).
31.1 Chief Executive Officer's Certificate, pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.
31.2 Chief Financial Officer's Certificate, pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.
32 Certificate of Chief Executive Officer and Chief Financial Officer,
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
906 of the Sarbanes-Oxley Act of 2002.
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