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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 September 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
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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 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 oustanding of each of the issuer's class of common
stock, as of the latest practical date, 6,316,187 Limited Partnership Units
outstanding as of September 30, 2004.
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Table of Contents
Page
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
Unaudited Consolidated Balance Sheet at September 30, 2004 and
Audited Consolidated Balance Sheet at December 31, 2003 ...................................3
Unaudited Consolidated Statements of Operations for the Three and Nine Months
Ended September 30, 2004 and September 30, 2003............................................4
Unaudited Consolidated Statement of Partners' Equity for the
Nine Months Ended September 30, 2004.......................................................5
Unaudited Consolidated Statements of Cash Flows for the Nine Months Ended
September 30, 2004 and September 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. Unregistered Sales of Equity Securities and Use of Proceeds...............................26
Item 3 Defaults Upon Senior Securities...........................................................26
Item 4 Submission of Matters to a Vote of Security Holders.......................................26
Item 5 Other Information.........................................................................26
Item 6 Exhibits..................................................................................26
Signatures..........................................................................................27
Exhibit Index.......................................................................................28
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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)
September 30, December 31,
2004 2003
------------- ------------
(Unaudited)
ASSETS
Real estate investments:
Land $ 32,558 $ 37,674
Land estates 43,997 45,204
Buildings and improvements 1,551,536 1,619,199
----------- -----------
Total real estate investments 1,628,091 1,702,077
Less accumulated depreciation and amortization (583,075) (572,840)
----------- -----------
Real estate investments, net 1,045,016 1,129,237
Real estate held for sale, net of accumulated depreciation of $10,363 and $19,692 27,299 59,481
Cash and cash equivalents, of which $7,190 and $5,148 is restricted 34,266 37,851
Receivables and deferred rental income (including $7,698 and $7,346
from a related party) 75,719 97,845
Equity investments in limited partnerships 10,399 8,492
Deferred costs, net of accumulated amortization of $33,850 and $29,638 16,536 22,993
Other assets 25,508 27,240
Other assets of discontinued operations 261 955
----------- -----------
Total Assets $ 1,235,004 $ 1,384,094
=========== ===========
LIABILITIES, MINORITY INTERESTS AND PARTNERS' EQUITY
Liabilities:
Mortgage notes and accrued interest payable (including $15,052 and $14,583
to a related party) $ 498,572 $ 615,993
Note payable 166,697 208,356
Contract right mortgage notes and accrued interest payable (including $250,384
and $296,035 to related parties) 357,990 401,132
Accounts payable and accrued expenses 4,494 15,427
Liabilities of discontinued operations 18,546 35,997
----------- -----------
Total Liabilities 1,046,299 1,276,905
Contingencies
Minority interests (30,693) (39,822)
Partners' equity (6,316,187 and 6,319,391 limited partnership units outstanding) 219,398 147,011
----------- -----------
Total Liabilities, Minority Interests and Partners' Equity $ 1,235,004 $ 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 NINE MONTHS ENDED SEPTEMBER 30, 2004 AND 2003
(In thousands, except unit and per unit data)
(Unaudited)
For the Three Months Ended For the Nine Months Ended
September 30, September 30,
2004 2003 2004 2003
----------- ----------- ----------- -----------
Revenue:
Rental income $ 62,000 $ 63,826 $ 185,355 $ 194,708
Interest income 769 555 2,410 2,199
Management fees 79 104 255 314
----------- ----------- ----------- -----------
Total revenue 62,848 64,485 188,020 197,221
----------- ----------- ----------- -----------
Expenses:
Interest 22,748 24,088 67,903 75,919
Depreciation 9,150 9,109 27,189 27,325
General and administrative 1,552 1,860 4,705 5,811
Amortization 695 979 2,102 3,033
Ground rent 752 734 2,302 2,270
State income taxes 247 177 1,158 643
----------- ----------- ----------- -----------
Total expenses 35,144 36,947 105,359 115,001
----------- ----------- ----------- -----------
Income from continuing operations before equity in income
from investments in limited partnerships and minority
interest 27,704 27,538 82,661 82,220
Equity in income from investments in limited
partnerships 710 466 1,964 1,447
Minority interest (4,012) (4,240) (11,824) (12,699)
----------- ----------- ----------- -----------
Income from continuing operations 24,402 23,764 72,801 70,968
----------- ----------- ----------- -----------
Discontinued operations:
(Loss) income from discontinued operations (6,028) 4,412 (1,813) 24,310
Impairment loss (3,400) -- (13,065) --
Gain (loss) from disposal of real estate 38,912 (1,996) 48,390 30,329
----------- ----------- ----------- -----------
Net income from discontinued operations 29,484 2,416 33,512 54,639
----------- ----------- ----------- -----------
Net income $ 53,886 $ 26,180 $ 106,313 $ 125,607
=========== =========== =========== ===========
Income from continuing operations per
limited partnership unit $ 3.86 $ 3.76 $ 11.52 $ 11.21
Income from discontinued operations per
limited partnership unit 4.67 0.38 5.31 8.63
----------- ----------- ----------- -----------
Net income per limited partnership unit $ 8.53 $ 4.14 $ 16.83 $ 19.84
=========== =========== =========== ===========
Distributions per limited partnership unit $ 1.85 $ 0.85 $ 5.40 $ 4.62
=========== =========== =========== ===========
Weighted average limited partnership units 6,318,056 6,319,391 6,318,725 6,332,495
=========== =========== =========== ===========
See notes to consolidated financial statements.
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THE NEWKIRK MASTER LIMITED PARTNERSHIP
CONSOLIDATED STATEMENT OF PARTNERS' EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 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 -- (34,106)
Limited partner redemptions (18,743) (656)
Net income -- 106,313
---------- ----------
Balance at September 30, 2004 6,316,187 $ 219,398
========== ==========
See notes to consolidated financial statements.
5 of 34
THE NEWKIRK MASTER LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2004 AND 2003
(In thousands)
(Unaudited)
For the Nine Months Ended
September 30,
-------------------------
2004 2003
---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Continuing Operations:
Income from continuing operations $ 72,801 $ 70,968
Adjustments to reconcile income from continuing operations to
net cash provided by continuing operations:
Amortization of deferred costs and land estates 8,117 7,677
Depreciation expense 27,189 27,325
Net (gain) loss from early extinguishment of debt (187) 28
Minority interest expense 11,824 12,699
Equity in income of limited partnerships (1,964) (1,447)
Changes in operating assets and liabilities:
Decrease in receivables and deferred rental income 22,092 18,023
Decrease in accounts payable and accrued expenses (4,838) (2,558)
(Decrease) increase in accrued interest-mortgages and contract rights (23,812) 1,192
Decrease in other assets 1,159 1,016
--------- ---------
Net cash provided by continuing operations 112,381 134,923
--------- ---------
Discontinued Operations:
Income from discontinued operations 33,512 54,639
Adjustments to reconcile income from discontinued
operations to net cash used in discontinued operations:
Amortization of deferred costs and land estates 35 146
Depreciation expense 690 2,812
Net loss (gain) from early extinguishment of debt 6,180 (8,806)
Gain on disposal of real estate (48,390) (30,329)
Minority interest expense 98 516
Impairment loss 13,065 --
Changes in assets and liabilities:
Net decrease in assets and liabilities of discontinued operations: (9,557) (20,299)
--------- ---------
Net cash used in discontinued operations (4,367) (1,321)
--------- ---------
Net cash provided by operating activities 108,014 133,602
--------- ---------
(Continued)
See notes to consolidated financial statements.
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THE NEWKIRK MASTER LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2004 AND 2003
(In thousands)
(Unaudited)
For the Nine Months Ended
September 30,
-------------------------
2004 2003
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Land additions $ (2,561) $ (2,494)
Net proceeds from disposal of real estate 95,463 59,492
Distributions from limited partnership interests 389 492
Cash related to previously unconsolidated limited partnerships -- 284
Investments in limited partnership interest (1,101) (1,236)
--------- ---------
Net cash provided by investing activities 92,190 56,538
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Satisfaction of mortgage notes $ (11,746) $ (40,129)
Satisfaction of contract right mortgage notes (11,520) (2,554)
Principal payments of mortgage notes (93,125) (98,823)
Principal payments of note payable (41,658) (22,133)
Principal payments of contract right mortgage notes (4,813) (422)
Proceeds from new debt -- 25,365
Mortgage prepayment penalties (326) (400)
Distributions to partners (34,106) (29,044)
Limited partner redemptions (656) (3,937)
Distributions to minority interests (6,010) (6,159)
Deferred costs 171 (1,138)
--------- ---------
Net cash used in financing activities (203,789) (179,374)
--------- ---------
Net (decrease) increase in cash and cash equivalents (3,585) 10,766
Cash and Cash Equivalents at Beginning of Period 37,851 33,580
--------- ---------
Cash and Cash Equivalents at End of Period $ 34,266 $ 44,346
========= =========
Supplemental Disclosure of Cash Flow Information:
Cash paid for state income taxes $ 1,106 $ 909
========= =========
Cash paid for interest $ 84,827 $ 99,662
========= =========
See notes to consolidated financial statements.
7 of 34
THE NEWKIRK MASTER LIMITED PARTNERSHIP
FORM 10-Q SEPTEMBER 30, 2004
THE NEWKIRK MASTER LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2004 AND 2003
(In thousands, except unit data)
(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 34
THE NEWKIRK MASTER LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FORM 10-Q SEPTEMBER 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 nine months ended September 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 Financial Accounting Standards Board ("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 34
THE NEWKIRK MASTER LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FORM 10-Q SEPTEMBER 30, 2004
Note 1 - GENERAL (Continued)
Investments in Partnerships (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
Statement of Financial Accounting Standards ("SFAS") No. 141, "Business
Combinations".
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 $1.4 million for the nine months ended
September 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
$0.3 million of management fees for these services for the nine months
ended September 30, 2004 and 2003. The Partnership had receivables for
management fees of $0.9 million and $1.1 million due from these
partnerships at September 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 28 first
mortgage loans encumbering 61 Partnership properties and one other
property controlled by affiliates of the general partner. The Partnership
had a loan receivable, net of discount, of $10.0 million and $9.8 million
at September 30, 2004 and December 31, 2003, respectively, and earned
interest income of $1.1 million and $0.9 million for the nine months ended
September 30, 2004 and 2003, respectively, 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 at September 30, 2003. The
affiliates and the executives of the Newkirk Group earned $1.9 million of
interest income during the nine months ended September 30, 2003. The
affiliates and executives were repaid when T-Two Partners purchased the
T-1 Certificate as discussed in the following paragraph.
10 of 34
THE NEWKIRK MASTER LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FORM 10-Q SEPTEMBER 30, 2004
Note 2 - RELATED PARTY TRANSACTIONS (Continued)
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 as the T-1
Certificate. The Partnership incurred $19.2 million and $10.2 million
($1.9 million and $2.8 million of which is included in discontinued
operations, respectively) of interest expense on these contract rights
during the nine months ended September 30, 2004 and 2003, respectively.
Contract right mortgage notes and accrued interest payable includes $250.4
million and $296.0 million due to T-Two Partners at September 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 its
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 $166.7 million at September 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.
Currently, the Partnership believes that it has no exposure to loss under
the guarantee since the T-Two Loan is over collateralized. 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.
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 $0.4
million on this obligation during the nine months ended September 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 $15.1 million and $14.6 million at September 30, 2004 and
December 31, 2003, respectively. Included in interest expense is $0.5
million related to this second mortgage payable for the nine months ended
September 30, 2004 and 2003.
11 of 34
THE NEWKIRK MASTER LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FORM 10-Q SEPTEMBER 30, 2004
Note 2 - RELATED PARTY TRANSACTIONS (Continued)
On July 29, 2004 , the Partnership sold 25 properties for a combined net
sales pice of $63.8 million to Vornado, which is a limited partner in the
Partnership and an affiliate of the Partnership's general partner. After
satisfying existing mortgage debt of $31.5 million, the net sales proceeds
were approximately $32.3 million of which $23.7 million was applied to a
principal payment on the note payable. The Partnership recognized a net
gain on the sale of these properties of $38.7 million.
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 were 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 provided for the following material terms: (i) the transfer by
the Newkirk Group to unitholders of the Newkirk Partnerships who are
unaffiliated with the general partner and who received limited partnership
units in the Exchange, of units in the Partnership equal to 1% of the
outstanding units; (ii) the payment by the Partnership of $1.5 million to
an escrow agent for the benefit of unaffiliated unitholders; and (iii) the
payment by the Partnership of $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. The foregoing cash payments were made by the
Partnership in April 2004.
Note 4 - DISCONTINUED OPERATIONS AND SALES OF REAL ESTATE
During the nine months ended September 30, 2004, the Partnership sold 51
properties for a combined net sales price of $123.9 million. After
satisfying existing mortgage indebtedness and other costs and adjustments,
the net sales proceeds were approximately $57.7 million of which $41.7
million was applied to a principal payment on the note payable. The
Partnership recognized a net gain on sale of these properties of $48.4
million. During the nine months ended September 30, 2003, the Partnership
sold 12 properties for a combined net sales price of $154.3 million. The
Partnership recognized a net gain on sale of these properties of $30.3
million. The sale and operations of these properties for all periods
presented have been recorded as discontinued operations in accordance with
the provisions of 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.
12 of 34
THE NEWKIRK MASTER LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FORM 10-Q SEPTEMBER 30, 2004
Note 4 - DISCONTINUED OPERATIONS AND SALES OF REAL ESTATE (Continued)
Discontinued operations for the nine months ended September 30, 2004 and
2003 are summarized as follows (in thousands):
2004 2003
-------- --------
Revenue $ 8,600 $ 26,514
Expenses (4,233) (11,010)
Impairment loss (13,065) --
Net (loss) gain from early extinguishment
of debt (6,180) 8,806
Gain from disposal of real estate 48,390 30,329
-------- --------
Income from discontinued operations $ 33,512 $ 54,639
======== ========
Expenses include interest expense to related parties of $1.9 million and
$2.8 million, for the nine months ended September 30, 2004 and 2003,
respectively.
Other assets of discontinued operations at September 30, 2004 and December
31, 2003 are summarized as follows (in thousands):
2004 2003
---- ----
Receivables $ 88 $734
Other assets 173 221
---- ----
$261 $955
==== ====
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THE NEWKIRK MASTER LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FORM 10-Q SEPTEMBER 30, 2004
Note 4 - DISCONTINUED OPERATIONS AND SALES OF REAL ESTATE (Continued)
Liabilities of discontinued operations at September 30, 2004 and December
31, 2003 are summarized as follows (in thousands):
2004 2003
------- -------
Mortgage notes and accrued interest payable $ 6,333 $30,371
Contract right mortgage notes and accrued
interest payable to related parties 12,213 5,626
------- -------
$18,546 $35,997
======= =======
Note 5 - SUBSEQUENT EVENTS
Additionally, subsequent to September 30, 2004 the Partnership sold six
properties in three separate transactions to unaffiliated third parties
for a combined net sales price of $2.9 million. The Partnership used sales
proceeds of $0.7 million to pay off contract right debt and $0.1 million
to acquire land parcels netting approximately $2.1 million of cash. For
financial reporting purposes, the Partnership expects to recognize a net
gain on the sale of the properties of approximately $1.3 million.
14 of 34
THE NEWKIRK MASTER LIMITED PARTNERSHIP
FORM 10-Q SEPTEMBER 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 September 30, 2004, your partnership owned an interest in 190 Newkirk
properties and limited partnership interests in seven partnerships which
own 27 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 92% of the original lease terms expire between 2005 and
2009. At September 30, 2004, there are 10 properties which are vacant and
not leased which represent approximately 331,000 square feet of your
partnership's Newkirk properties. The remaining 17,791,000 square feet or
98.1% are leased. Subsequent to September 30, 2004, your partnership sold
six of the vacant properties containing 76,000 square feet.
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
15 of 34
THE NEWKIRK MASTER LIMITED PARTNERSHIP
FORM 10-Q SEPTEMBER 30, 2004
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (Continued)
Liquidity and Capital Resources (Continued)
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
$3,585,000 decrease at September 30, 2004 as compared to December 31,
2003. The decrease was due to net cash used in financing activities of
$203,789,000, which was substantially offset by net cash provided by
operating activities of $108,014,000 and net cash provided by investing
activities of $92,190,000. Cash provided by operating activities consisted
of $112,381,000 from continuing operations, partially offset by $4,367,000
used in discontinued operations. Cash provided by investing activities
included $95,463,000 of net proceeds from disposal of real estate and
$389,000 of partnership distributions received from your partnership's
equity investments, which were partially offset by land acquisitions of
$2,561,000 and by purchases of minority limited partner positions of
$1,101,000. Cash used in financing activities consisted primarily of
mortgage loan and contract right mortgage loan payoffs of $23,266,000,
principal payments on mortgage, contract right and notes payable of
$139,596,000, partner distributions of $34,106,000, distributions to
minority interests of $6,010,000 and limited partner buyouts of $656,000.
At September 30, 2004, your partnership had $34,266,000, of which
$7,190,000 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. Currently, the Partnership believes it has no
exposure to loss under the guarantee since the T-Two Loan is over
collateralized. 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
16 of 34
THE NEWKIRK MASTER LIMITED PARTNERSHIP
FORM 10-Q SEPTEMBER 30, 2004
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (Continued)
Off-Balance Sheet Arrangements (Continued)
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 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.
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. On
October 1, 2004, your partnership sold the property for a net sales price
of $1.8 million. The Partnership used sales proceeds of $0.4 million to
pay off contract right debt netting approximately $1.4 million of cash.
Your partnership expects to recognize a net gain on the sale of $0.8
million.
Your partnership has also received notice from Albertson's exercising a
purchase option in accordance with their lease on 16 of your partnership's
properties. Your partnership has rejected all 16 of the offers and in
April 2004 sold one of the properties. As a condition of the rejection of
the Albertson's purchase offer, your 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 $4.0 million in first
mortgage debt with an obligation to pay off $0.7 million in December 2004.
Albertson's has exercised its right to extend its lease on the 15
remaining properties owned by your partnership until December 31, 2005 for
10 properties, March 31, 2006 for three properties and July 31, 2006 for
two properties. Rent during this 18 month extension period will decrease
by approximately $3.2 million. Albertson's has a series of five year
renewal options.
17 of 34
THE NEWKIRK MASTER LIMITED PARTNERSHIP
FORM 10-Q SEPTEMBER 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 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 your partnership of their intention not to renew their existing
lease that expired June 30, 2004. Your partnership has entered into a
contract to sell the property and anticipates closing in the fourth
quarter of 2004.
During the third quarter of 2004, your partnership recorded a $3,200,000
impairment loss on a property located in New Kingston, Pennsylvania. Your
partnership is negotiating 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. Your
partnership currently owns approximately 45.2% of the limited partnership.
In July 2004, your partnership acquired for $472,500 and $325,000,
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% in one
of the partnerships whose operations are consolidated and 45.3% in the
other partnership.
On July 29, 2004, your partnership sold 25 properties to Vornado, a
limited partner in your partnership and an affiliate of your partnership's
general partner, for a sales price of $63.8 million. Your 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, your partnership recognized a net
gain on the sale of the properties of approximately $38.7 million.
Additionally, subsequent to September 30, 2004 your partnership sold six
properties in three separate transactions to unaffiliated third parties
for a combined net sales price of $2.9 million. Your partnership used
sales proceeds of $0.7 million to pay off contract right debt and $0.1
million to acquire land parcels netting approximately $2.1 million of
cash. For financial reporting purposes, your partnership expects to
recognize a net gain on the sale of the properties of approximately $1.3
million.
18 of 34
THE NEWKIRK MASTER LIMITED PARTNERSHIP
FORM 10-Q SEPTEMBER 30, 2004
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (Continued)
Results of Operations
Comparison of the nine months ended September 30, 2004 to the
nine months ended September 30, 2003.
Income from Continuing Operations
Income from continuing operations increased by $1,833,000 to $72,801,000
for the nine months ended September 30, 2004 from $70,968,000 for the nine
months ended September 30, 2003. As more fully described below, this
increase is attributable to a decrease in total expenses of $9,642,000, an
increase in equity in income from investments in limited partnerships of
$517,000 and a decrease in minority interest expense of $875,000, which
was substantially offset by a decrease in total revenue of $9,201,000.
Rental Income
Rental income decreased by $9,353,000 or approximately 5% to $185,355,000
for the nine months ended September 30, 2004 from $194,708,000 for the
nine months ended September 30, 2003. The decrease was primarily due to
lease renewals at lower renewal rates. Leased square footage at September
30, 2004 is approximately 98% compared to 99% at September 30, 2003.
Interest Income
Interest income increased by $211,000 or approximately 10% to $2,410,000
for the nine months ended September 30, 2004 from $2,199,000 for the nine
months ended September 30, 2003. The increase was primarily due to
interest income on an advance of $7,300,000 to T-2 Partners for loan
closing costs.
Management Fees
Management fees decreased by $59,000 or approximately 19% to $255,000 for
the nine months ended September 30, 2004 from $314,000 for the nine months
ended September 30, 2003. The decrease is attributable to fewer properties
under management.
Interest Expense
Interest expense decreased by $8,016,000 or approximately 11% to
$67,903,000 for the nine months ended September 30, 2004 compared to
$75,919,000 for the nine months ended September 30, 2003. The decrease was
primarily due to loan payoffs of $23,266,000, normal scheduled principal
payments of $97,938,000 and payments on the note payable of $41,658,000
and assumption of debt on a sold property of $28,460,000.
Depreciation
Depreciation expense decreased by $136,000 or less than 1% to $27,189,000
for the nine months ended September 30, 2004 compared to $27,325,000 for
the nine months ended September 30, 2003. The decrease is attributable to
depreciation ceasing on certain fully depreciated assets.
19 of 34
THE NEWKIRK MASTER LIMITED PARTNERSHIP
FORM 10-Q SEPTEMBER 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 $1,106,000 or
approximately 19% to $4,705,000 for the nine months ended September 30,
2004 compared to $5,811,000 for the nine months ended September 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 $931,000 or approximately 31% to
$2,102,000 for the nine months ended September 30, 2004 compared to
$3,033,000 for the nine months ended September 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 $32,000 or approximately 1% to $2,302,000
for the nine months ended September 30, 2004 compared to $2,270,000 for
the nine months ended September 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 $515,000 or approximately 80% to
$1,158,000 for the nine months ended September 30, 2004 compared to
$643,000 for the nine months ended September 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
$517,000 or approximately 36% to $1,964,000 for the nine months ended
September 30, 2004 compared to $1,447,000 for the nine months ended
September 30, 2003. The increase in equity earnings is the result of lower
interest expense at the limited partnerships due to normal debt
amortization.
Minority Interest Expense
Minority interest expense decreased by $875,000 or approximately 7% to
$11,824,000 for the nine months ended September 30, 2004 compared to
$12,699,000 for the nine months ended September 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 34
THE NEWKIRK MASTER LIMITED PARTNERSHIP
FORM 10-Q SEPTEMBER 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 nine months ended September 30, 2004, your partnership sold 51
properties for a combined net sales price of approximately $123,900,000.
Your partnership recognized a net gain on disposal of these properties of
$48,400,000. The sale and operations of these properties for all periods
presented have been recorded as discontinued operations. The income from
discontinued operations includes a $13,065,000 impairment loss primarily
on a property located in Texas and a property located in Pennsylvania,
both of which are currently being marketed for sale.
During the nine months ended September 30, 2003, your partnership sold 12
properties for a combined net sales price of $154,300,000. Your
partnership recognized a net gain on sale of these properties of
$30,300,000 for financial reporting purposes.
The sale and operations 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 September 30, 2004 to the
three months ended September 30, 2003.
Income from Continuing Operations
Income from continuing operations increased by $638,000 to $24,402,000 for
the three months ended September 30, 2004 from $23,764,000 for the three
months ended September 30, 2003. As more fully described below, this
increase is attributable to a decrease in total expenses of $1,803,000, a
decrease in minority interest expense of $228,000 and an increase in
equity income from investments in limited partnerships of $244,000, which
was partially offset by a decrease in total revenue of $1,637,000.
Rental Income
Rental income decreased by $1,826,000 or approximately 3% to $62,000,000
for the three months ended September 30, 2004 from $63,826,000 for the
three months ended September 30, 2003. The decrease was due to lower
income from lease renewals and renegotiations, as leased square footage
remains relatively constant at 98% versus 99% in 2003.
Interest Income
Interest income increased by $214,000 or approximately 39% to $769,000 for
the three months ended September 30, 2004 from $555,000 for the three
months ended September 30, 2003. The increase was due to interest income
on an advance of $7.3 million to T-2 Partners for loan closing costs and
an increase in interest rates.
21 of 34
THE NEWKIRK MASTER LIMITED PARTNERSHIP
FORM 10-Q SEPTEMBER 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 $25,000 or approximately 24% to $79,000 for
the three months ended September 30, 2004 from $104,000 for the three
months ended September 30, 2003. The decrease is attributable to the sale
of properties previously under management.
Interest Expense
Interest expense decreased by $1,340,000 or approximately 6% to
$22,748,000 for the three months ended September 30, 2004 compared to
$24,088,000 for the three months ended September 30, 2003. The decrease
was primarily due to loan payoffs and normal scheduled principal payments
during the period.
Depreciation
Depreciation expense increased by $41,000 or less than 1% to $9,150,000
for the three months ended September 30, 2004 compared to $9,109,000 for
the three months ended September 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
partnerships partially offset by decreased expense on fully depreciated
property.
General and Administrative
General and administrative expenses decreased by $308,000 or approximately
17% to $1,552,000 for the three months ended September 30, 2004 compared
to $1,860,000 for the three months ended September 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 $284,000 or approximately 29% to
$695,000 for the three months ended September 30, 2004 compared to
$979,000 for the three months ended September 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 $18,000 or approximately 3% to $752,000
for the three months ended September 30, 2004 compared to $734,000 for the
three months ended September 30, 2003. The increase resulted from
increased rent charges on ground leases which renewed in the second
22 of 34
THE NEWKIRK MASTER LIMITED PARTNERSHIP
FORM 10-Q SEPTEMBER 30, 2004
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (Continued)
Results of Operations (Continued)
Ground Rent (Continued)
quarter of 2004.
State Income Taxes
State income tax expense increased by $70,000 or approximately 40% to
$247,000 for the three months ended September 30, 2004 compared to
$177,000 for the three months ended September 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
$244,000 or approximately 52% to $710,000 for the three months ended
September 30, 2004 compared to $466,000 for the three months ended
September 30, 2003. The increase in equity earnings is the result of lower
interest expense at the limited partnerships due to normal debt
amortization.
Minority Interest Expense
Minority interest expense decreased by $228,000 or approximately 5% to
$4,012,000 for the three months ended September 30, 2004 compared to
$4,240,000 for the three months ended September 30, 2003. The decrease was
the result of the buyout of minority partners.
Discontinued Operations
During the three months ended September 30, 2004, your partnership sold 31
properties for a combined net sales price of $65,098,000. Your partnership
recognized a net gain on sale of these properties of $38,912,000. The loss
from discontinued operations includes a $3,400,000 realizability allowance
primarily related to a property located in Pennsylvania and currently
being marketed for sale.
23 of 34
THE NEWKIRK MASTER LIMITED PARTNERSHIP
FORM 10-Q SEPTEMBER 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 September 30, 2004, your partnership had one loan which had a variable
interest rate. The loan which had an outstanding balance of $166.7 million
at September 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
(1.9325% at September 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% 3.068%
-- -- -- ------
Additional interest expense $1,667 $3,334 $5,001 $5,113
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 34
THE NEWKIRK MASTER LIMITED PARTNERSHIP
FORM 10-Q SEPTEMBER 30, 2004
PART II - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
Legal
Reference is made to the Partnership's Form 10Q for the quarter
ended June 30, 2004 for information about the settlement of (i) an
action commenced in the Connecticut Superior Court and (ii) an
action commenced in the Dallas County Texas District Court.
25 of 34
THE NEWKIRK MASTER LIMITED PARTNERSHIP
FORM 10-Q SEPTEMBER 30, 2004
Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
A) N/A
B) N/A
C) Attached is information with respect to the purchase of units by
your Partnership during the three months ended September 30, 2004
- ----------------------------------------------------------------------------------------------------------------------
Period (a) Total (b) Average Price (c) Total Number of Units (d) Maximum Number (or approximate
Number of Paid per or 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
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
July 4,935.00 $35 -- --
- ----------------------------------------------------------------------------------------------------------------------
August 551.25 $35 -- --
- ----------------------------------------------------------------------------------------------------------------------
Sept 1,653.75 $35 -- --
- ----------------------------------------------------------------------------------------------------------------------
Total 7,140.00 $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
Item 5. OTHER INFORMATION
N/A
Item 6. EXHIBITS
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.
26 of 34
THE NEWKIRK MASTER LIMITED PARTNERSHIP
FORM 10-Q SEPTEMBER 30, 2004
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: November 15, 2004
27 of 34
THE NEWKIRK MASTER LIMITED PARTNERSHIP
FORM 10-Q SEPTEMBER 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).
28 of 34
THE NEWKIRK MASTER LIMITED PARTNERSHIP
FORM 10-Q SEPTEMBER 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.
29 of 34