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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 March 31, 2005
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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
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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. 6,266,434 Limited Partnership
Units Outstanding as of March 31, 2005.
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Table of Contents
Page
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
Unaudited Consolidated Balance Sheet at March 31, 2005 and
Consolidated Balance Sheet at December 31, 2004 ...................3
Unaudited Consolidated Statements of Operations for the Three
Months Ended March 31, 2005 and March 31, 2004.....................4
Unaudited Consolidated Statement of Partners' Equity for the
Three Months Ended March 31, 2005..................................5
Unaudited Consolidated Statements of Cash Flows for the Three
Months Ended March 31, 2005 and March 31, 2004.................6 & 7
Notes to Consolidated Unaudited Financial Statements...............8
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.........................................13
Item 3. Quantitative and Qualitative Disclosures about Market Risk........19
Item 4. Controls and Procedures...........................................19
Part II. OTHER INFORMATION
Item 1. Legal Proceedings.................................................20
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.......20
Item 6. Exhibits..........................................................21
Signatures................................................................22
Exhibit Index........................................................23 & 24
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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)
March 31, December 31,
2005 2004
----------- ------------
(Unaudited)
ASSETS
Real estate investments:
Land $ 31,983 $ 32,172
Land estates 43,997 43,997
Buildings and improvements 1,546,350 1,548,660
----------- -----------
Total real estate investments 1,622,330 1,624,829
Less accumulated depreciation and amortization (600,598) (592,032)
----------- -----------
Real estate investments, net 1,021,732 1,032,797
Real estate held for sale, net of accumulated depreciation of $10,621
and $10,169 25,266 27,536
Cash and cash equivalents, of which $10,255 and $8,216 is restricted 30,940 29,533
Receivables and deferred rental income (including $8,798 and $8,687 from
related parties) 73,417 95,713
Equity investments in limited partnerships 11,703 11,107
Deferred costs, net of accumulated amortization of $36,243 and $34,991 13,995 15,072
Other assets (including $10,199 and $10,111 from related parties) 24,732 25,127
Other assets of discontinued operations 223 244
----------- -----------
Total Assets $ 1,202,008 $ 1,237,129
=========== ===========
LIABILITIES, MINORITY INTERESTS AND PARTNERS' EQUITY
Liabilities:
Mortgage notes and accrued interest payable (including $15,384 and
$15,232 to a related party) $ 448,213 $ 489,955
Note payable 163,708 165,328
Contract right mortgage notes and accrued interest payable
(including $244,729 and $249,447 to related parties) 346,305 354,197
Accounts payable and accrued expenses 3,375 3,758
Liabilities of discontinued operations 18,568 17,497
----------- -----------
Total Liabilities 980,169 1,030,735
Contingencies
Minority interests (24,997) (27,665)
Partners' equity (6,266,434 and 6,314,458 limited partnership
units outstanding) 246,836 234,059
----------- -----------
Total Liabilities, Minority Interests and Partners' Equity $ 1,202,008 $ 1,237,129
=========== ===========
See notes to consolidated financial statements.
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THE NEWKIRK MASTER LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 2005 AND 2004
(In thousands, except unit and per unit data)
(Unaudited)
For the Three Months Ended
March 31,
---------------------------
2005 2004
----------- -----------
Revenue:
Rental income $ 61,766 $ 61,852
Interest income 784 604
Management fees 81 90
----------- -----------
Total revenue 62,631 62,546
----------- -----------
Expenses:
Interest (including $5,453 and $5,474 to related
parties) 19,675 23,459
Depreciation 8,893 8,904
General and administrative (including $482 and $471
to a related party) 1,626 1,482
Amortization 683 711
Ground rent 761 766
State income taxes 271 321
----------- -----------
Total expenses 31,909 35,643
----------- -----------
Income from continuing operations before equity in income
from investments in limited partnerships and minority interest 30,722 26,903
Equity in income from investments in limited partnerships 755 620
Minority interest (4,010) (4,056)
----------- -----------
Income from continuing operations 27,467 23,467
----------- -----------
Discontinued operations:
Income from discontinued operations 1,264 1,936
Impairment loss (2,200) --
Gain from disposal of real estate 600 7,669
----------- -----------
(Loss) income from discontinued operations (336) 9,605
----------- -----------
Net income $ 27,131 $ 33,072
=========== ===========
Income from continuing operations per
limited partnership unit $ 4.36 $ 3.72
(Loss) income from discontinued operations per
limited partnership unit (0.05) 1.52
----------- -----------
Net income per limited partnership unit $ 4.31 $ 5.24
=========== ===========
Distributions per limited partnership unit $ 1.95 $ 1.75
=========== ===========
Weighted average limited partnership units 6,297,917 6,313,888
=========== ===========
See notes to consolidated financial statements.
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THE NEWKIRK MASTER LIMITED PARTNERSHIP
CONSOLIDATED STATEMENT OF PARTNERS' EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 2005
(In thousands, except unit data)
(Unaudited)
Limited
Partnership Partners'
Units Equity
----------- ----------
Balance at December 31, 2004 6,314,458 $ 234,059
Distributions -- (12,313)
Limited partner buyouts (48,024) (2,041)
Net income -- 27,131
---------- ----------
Balance at March 31, 2005 6,266,434 $ 246,836
========== ==========
See notes to consolidated financial statements.
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THE NEWKIRK MASTER LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2005 AND 2004
(In thousands)
(Unaudited)
For the Three Months Ended
March 31,
--------------------------
2005 2004
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Continuing Operations:
Income from continuing operations $ 27,467 $ 23,467
Adjustments to reconcile income from continuing operations to
net cash provided by continuing operations:
Amortization of deferred costs and land estates 1,663 3,361
Depreciation expense 8,893 8,904
Minority interest expense 4,010 4,056
Equity in income of limited partnerships (755) (620)
Changes in operating assets and liabilities:
Decrease in receivables and deferred rental income 22,266 20,548
Decrease in accounts payable and accrued expenses (383) (397)
Decrease in accrued interest-mortgages and contract rights (11,674) (7,730)
Decrease in other assets 393 564
-------- --------
Net cash provided by continuing operations 51,880 52,153
-------- --------
Discontinued Operations:
(Loss) income from discontinued operations (336) 9,605
Adjustments to reconcile (loss) income from discontinued
operations to net cash provided by discontinued operations:
Amortization of deferred costs and land estates 15 55
Depreciation expense -- 561
Net gain from early extinguishment of debt -- (4)
Gain on disposal of real estate (600) (7,669)
Minority interest expense (1) 68
Impairment loss 2,200 --
Changes in assets and liabilities:
Net change in assets and liabilities of discontinued
operations 229 (704)
-------- --------
Net cash provided by discontinued operations 1,507 1,912
-------- --------
Net cash provided by operating activities 53,387 54,065
-------- --------
(Continued)
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THE NEWKIRK MASTER LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2005 AND 2004
(In thousands)
(Unaudited)
For the Three Months Ended
March 31,
--------------------------
2005 2004
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Building improvements and land additions $ (28) $ (51)
Net proceeds from disposal of real estate 2,212 23,184
Distributions from limited partnership interests 168 168
Investments in limited partnership interest (10) --
-------- --------
Net cash provided by investing activities 2,342 23,301
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Satisfaction of mortgage notes (945) --
Satisfaction of contract right mortgage notes and accrued interest -- (1,670)
Principal payments of mortgage notes (36,060) (37,613)
Principal payments of note payable (1,620) (14,603)
Principal payments of contract right mortgage notes (2) (2)
Distributions to partners (12,313) (11,059)
Limited partner buyouts (2,041) (311)
Distributions to minority interests (1,341) (3,439)
-------- --------
Cash used in financing activities (54,322) (68,697)
-------- --------
Net increase in cash and cash equivalents 1,407 8,669
Cash and Cash Equivalents at Beginning of Period 29,533 37,851
-------- --------
Cash and Cash Equivalents at End of Period $ 30,940 $ 46,520
======== ========
Supplemental Disclosure of Cash Flow Information:
Cash paid for state income taxes $ 224 $ 156
======== ========
Cash paid for interest $ 29,082 $ 29,968
======== ========
Supplemental Disclosure of Non-Cash Financing Activities:
Debt assumed by purchaser with sale of property $ -- $ 28,460
======== ========
See notes to consolidated financial statements.
7 of 29
THE NEWKIRK MASTER LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FORM 10-Q MARCH 31, 2005
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, 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, 2004.
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 three months ended March 31, 2005 and 2004 are
not necessarily indicative of the results to be expected for the full year.
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 $0.5 million for the three months ended March 31, 2005 and
2004. 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 $0.1 million of management
fees for these services for the three months ended March 31, 2005 and 2004. The
Partnership had receivables for management fees of $0.9 million due from these
partnerships at March 31, 2005 and December 31, 2004.
The Partnership has an ownership interest in the three most junior tranches of a
securitized
8 of 29
THE NEWKIRK MASTER LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FORM 10-Q MARCH 31, 2005
Note 2 - RELATED PARTY TRANSACTIONS (Continued)
pool of first mortgages which includes 29 first mortgage loans encumbering 61
Partnership properties and one other property controlled by affiliates of the
general partner. The Partnership had a loan receivable which is included in
other assets, net of discount, of $10.2 million and $10.1 million at March 31,
2005 and December 31, 2004, respectively, and earned interest income of $0.4
million and $0.3 million for the three months ended March 31, 2005 and 2004,
respectively, related to this ownership interest.
T-Two Partners, an affiliate of the Newkirk Group, is the 100% beneficial owner
of certain of the contract right mortgage notes. 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 $5.6 million and $6.1 million ($0.3
million and $0.8 million of which is included in discontinued operations,
respectively) of interest expense on these contract rights during the three
months ended March 31, 2005 and 2004, respectively. Contract right mortgage
notes and accrued interest payable includes $244.7 million and $249.4 million
due to T-Two Partners at March 31, 2005 and December 31, 2004, 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, as described below, the
Partnership and the owners of T-Two Partners modified these rights.
The 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 of
the Partnership to be determined at the time of exercise based on an agreed-upon
formula. The Partnership and the owners of T-Two Partners modified the
Partnership's option in certain respects. First, the option can now be exercised
by the Partnership at any time between November 24, 2006 and November 24, 2009,
or any other time as agreed upon by the parties. Second, the purchase price is
payable in cash rather than units of the Partnership. Finally, the formula for
determining the purchase price payable by the Partnership if it exercises the
option has been revised in a manner that the Partnership's general partner
believes to be significantly more favorable to the 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
described below (approximately $7,346,000) and administering the trust that
holds the second mortgage loans, together with interest on the foregoing sum at
the effective rate of interest paid by T-Two Partners on the T-Two Loan, less
all payments made from and after November 24, 2003 on the second mortgage loans.
During November 2003, the Partnership obtained a $208.5 million loan, which had
an outstanding balance of $163.7 million at March 31, 2005. 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. The T-Two Loan is secured by all of the assets of T-Two
Partners,
9 of 29
THE NEWKIRK MASTER LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FORM 10-Q MARCH 31, 2005
Note 2 - RELATED PARTY TRANSACTIONS (Continued)
including the contract right mortgage notes receivable from the Partnership.
T-Two Partners also agreed to provide a credit line to the Partnership bearing
interest at LIBOR plus 450 basis points. The loan balance on the T-Two Loan at
March 31, 2005 was $273.8 million.
The Partnership has determined that T-Two Partners is a Variable Interest
Entity, ("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 $0.1 million on this obligation during
the three months ended March 31, 2005 and 2004.
The Partnership, as well as T-Two Partners, are currently in discussions to
restructure the Partnership's loan and the T-Two Loan in a transaction that
would, among other things, reduce the interest rates on these loans. No
agreement has been reached and there is no assurance that a restructuring will
be consummated.
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 $15.4
million and $15.2 million at March 31, 2005 and December 31, 2004, respectively.
Included in interest expense is $0.2 million related to this second mortgage
payable for the three months ended March 31, 2005 and 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 who were entitled to
receive units in the exchange transaction; 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. At a hearing
in April 2005, the Court approved the allocation of the 1% of outstanding units
for distribution. The units were distributed in the second quarter of 2005.
10 of 29
THE NEWKIRK MASTER LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FORM 10-Q MARCH 31, 2005
Note 4 - DISCONTINUED OPERATIONS AND SALES OF REAL ESTATE
During the three months ended March 31, 2005, the Partnership sold one property
for a sales price of $2.3 million. The net sales proceeds after closing costs
were approximately $2.2 million of which approximately $1.6 million was applied
to a principal payment of the note payable. The Partnership recognized a net
gain on sale of this property of $0.6 million. During the three months ended
March 31, 2004, the Partnership sold 11 properties for a combined net sales
price of $51.7 million. After satisfying existing mortgage indebtedness and
other costs and adjustments, the net sales proceeds were approximately $23.2
million of which $14.6 million was applied to a principal payment on the note
payable. The Partnership recognized a net gain on sale of these properties of
$7.7 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 three months ended March 31, 2005 and 2004 are
summarized as follows (in thousands):
2005 2004
------- -------
Revenue $ 1,697 $ 3,971
Expenses (433) (2,039)
Impairment loss on real estate (2,200) --
Net gain from early extinguishment of debt -- 4
Gain from disposal of real estate 600 7,669
------- -------
(Loss) income from discontinued operations $ (336) $ 9,605
======= =======
Expenses include interest expense to related parties of $0.3 million and $0.8
million, for the three months ended March 31, 2005 and 2004, respectively.
Other assets of discontinued operations at March 31, 2005 and December 31, 2004
are summarized as follows (in thousands):
2005 2004
---- ----
Receivables $ 76 $ 81
Other assets 147 163
---- ----
$223 $244
==== ====
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THE NEWKIRK MASTER LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FORM 10-Q MARCH 31, 2005
Note 4 - DISCONTINUED OPERATIONS AND SALES OF REAL ESTATE (Continued)
Liabilities of discontinued operations at March 31, 2005 and December 31, 2004
are summarized as follows (in thousands):
2005 2004
------- -------
Mortgage notes and accrued interest payable $ 5,661 $ 5,672
Contract right mortgage notes and accrued
interest payable (including $12,907 and
$11,825 to related parties) 12,907 11,825
------- -------
$18,568 $17,497
======= =======
Note 5 - SUBSEQUENT EVENTS
In April 2005, the Partnership entered a contract for the sale of a property
located in Colton, California to an unaffiliated third party for $27.5 million.
The sale is expected to be consummated during the third quarter of 2005. For
financial reporting purposes, the Partnership expects to recognize a net gain on
sale of this property of approximately $14 million during 2005.
12 of 29
THE NEWKIRK MASTER LIMITED PARTNERSHIP
FORM 10-Q MARCH 31, 2005
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, 2004 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 March 31, 2005, your partnership owned an interest in 187 Newkirk properties
and limited partnership interests in seven partnerships which own 22 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.
Approximately 86% of the properties lease terms expire between 2005 and 2009. At
March 31, 2005, there were five properties which are vacant and not leased
containing approximately 344,000 square feet of space. The remaining 17,682,000
square feet or 98% 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.
13 of 29
THE NEWKIRK MASTER LIMITED PARTNERSHIP
FORM 10-Q MARCH 31, 2005
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (Continued)
Liquidity and Capital Resources (Continued)
Your partnership receives rental income from its properties which is its primary
source of liquidity. Pursuant to the terms of the leases, the tenants are
responsible for substantially all of the operating expenses with respect to the
properties, including maintenance, capital improvements, insurance and taxes. If
a tenant fails to exercise its renewal option or exercises its option to
terminate its lease early, your partnership will be required to either sell the
property or procure a new tenant. If your partnership attempts to procure a new
tenant, it will be competing for new tenants in the then current rental markets,
which may not be able to support terms as favorable as those contained in the
original lease options.
The level of liquidity based on cash and cash equivalents experienced a
$1,407,000 increase at March 31, 2005 as compared to December 31, 2004. The
increase was due to net cash provided by operating activities of $53,387,000 and
net cash provided by investing activities of $2,342,000 which were substantially
offset by cash used in financing activities of $54,322,000. Net cash provided by
operating activities consisted of $51,880,000 from continuing operations and
$1,507,000 from discontinued operations. Net cash provided by investing
activities included $2,212,000 of net proceeds from disposal of real estate and
partnership distributions received from your partnership's equity investments of
$168,000, which were partially offset by building improvements of $28,000 and
additional investments in limited partnership interests of $10,000. Cash used in
financing activities consisted primarily of mortgage loan payoffs of $945,000,
principal payments on mortgage, contract right and notes payable of $37,682,000,
partner distributions of $12,313,000, distributions to minority interests of
$1,341,000 and limited partner buyouts of $2,041,000. At March 31, 2005, your
partnership had $30,940,000, of which $10,255,000 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 (the note payable), 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, your 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 with respect to T-Two Partners,
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.
14 of 29
THE NEWKIRK MASTER LIMITED PARTNERSHIP
FORM 10-Q MARCH 31, 2005
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (Continued)
Off-Balance Sheet Arrangements (Continued)
Your partnership's call option, with respect to T-Two Partners, 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, or any other time as agreed upon by the
parties. Second, the purchase price is payable in cash rather than units in your
partnership. Finally, the formula for determining the purchase price payable by
your partnership if it exercises the option has been revised in a manner that
your partnership's general partner believes to be significantly more favorable
to your partnership than the formula previously in effect. Specifically, the
purchase price is calculated as follows: the sum of $316,526,573 plus T-Two
Partners' costs of obtaining the T-Two Loan (approximately $7,346,000) and
administering the trust that holds the second mortgage loans, together with
interest on the foregoing sum at the effective rate of interest paid by T-Two
Partners on the T-Two Loan, less all payments made from and after November 24,
2003 on the second mortgage loans.
Other Matters
In January 2005, your partnership sold a property located in Flagstaff, Arizona
for $2,300,000. After payment of closing costs, the net sales proceeds were
approximately $2,200,000 of which approximately $1,620,000 was used to pay a
portion of the note payable.
In March 2005, your partnership recorded a $2,200,000 impairment loss on a
property located in Evanston, Wyoming. The impairment loss is included in the
loss from discontinued operations in the Statement of Operations. Your
partnership is under contract to sell the property and anticipates closing in
the second quarter of 2005.
In March 2005, your partnership acquired from its limited partners 48,024 of its
units of limited partnership interest at a purchase price of $42.50 per unit.
In April 2005, your partnership entered a contract for the sale of a property
located in Colton, California to an unaffiliated third party for $27.5 million.
The sale is expected to be consummated during the third quarter of 2005.
Your partnership, as well as T-Two Partners, are currently in discussions to
restructure your partnership's note payable and the T-Two Loan in a transaction
that would, among other things, reduce the interest rate on these loans. No
agreement has been reached and there is no assurance that a restructuring will
be consummated.
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THE NEWKIRK MASTER LIMITED PARTNERSHIP
FORM 10-Q MARCH 31, 2005
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (Continued)
Results of Operations
Comparison of the three months ended March 31, 2005 to the three months ended
March 31, 2004
Income from Continuing Operations
Income from continuing operations increased by $4,000,000 to $27,467,000 for the
three months ended March 31, 2005 from $23,467,000 for the three months ended
March 31, 2004. As more fully described below, this increase is attributable to
an increase in total revenue of $85,000, a decrease in total expenses of
$3,734,000, an increase in equity in income from investments in limited
partnerships of $135,000 and a decrease in minority interest expense of $46,000.
Rental Income
Rental income decreased by $86,000 or approximately 0.1% to $61,766,000 for the
three months ended March 31, 2005 from $61,852,000 for the three months ended
March 31, 2004. The decrease was primarily due to lease renewals at lower
renewal rates.
Interest Income
Interest income increased by $180,000 or approximately 30% to $784,000 for the
three months ended March 31, 2005 from $604,000 for the three months ended March
31, 2004. The increase was due to maintenance of higher cash balances and
overall higher interest rates.
Management Fees
Management fees decreased by $9,000 or approximately 10% to $81,000 for the
three months ended March 31, 2005 from $90,000 for the three months ended March
31, 2004. The decrease is attributable to fewer properties under management.
Interest Expense
Interest expense decreased by $3,784,000 or approximately 16% to $19,675,000 for
the three months ended March 31, 2005 compared to $23,459,000 for the three
months ended March 31, 2004. The decrease was primarily due to loan prepayments
during the period and scheduled principal payments.
Depreciation
Depreciation expense decreased by $11,000 or approximately 0.1% to $8,893,000
for the three months ended March 31, 2005 compared to $8,904,000 for the three
months ended March 31, 2004. The decrease is primarily attributable to certain
assets becoming fully depreciated.
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THE NEWKIRK MASTER LIMITED PARTNERSHIP
FORM 10-Q MARCH 31, 2005
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 increased by $144,000 or approximately 10%
to $1,626,000 for the three months ended March 31, 2005 compared to $1,482,000
for the three months ended March 31, 2004. The increase is primarily the result
of increased legal expenses.
Amortization Expense
Amortization expense decreased by $28,000 or approximately 4% to $683,000 for
the three months ended March 31, 2005 compared to $711,000 for the three months
ended March 31, 2004. The decrease is the result of several properties' land
estates maturing during the first quarter of 2005.
Ground Rent
Ground rent expense remained relatively constant at $761,000 for the three
months ended March 31, 2005 compared to $766,000 the three months ended March
31, 2004.
State Income Taxes
State income tax expense decreased by $50,000 or approximately 16% to $271,000
for the three months ended March 31, 2005 compared to $321,000 for the three
months ended March 31, 2004. The decrease is the result of decreases in state
tax estimates.
Equity in Income from Investments in Limited Partnerships
Equity in income from investments in limited partnerships increased by $135,000
or approximately 22% to $755,000 for the three months ended March 31, 2005
compared to $620,000 for the three months ended March 31, 2004. The increase is
primarily the result of lower interest expense at the limited partnerships due
to scheduled debt amortization and additional purchases of equity positions in
limited partnerships.
Minority Interest Expense
Minority interest expense decreased by $46,000 or approximately 1% to $4,010,000
for the three months ended March 31, 2005 compared to $4,056,000 for the three
months ended March 31, 2004. The decrease was the result of slightly lower
earnings at the non-wholly owned consolidated properties.
Discontinued Operations
During the three months ended March 31, 2005, the Partnership sold one property
for a net sales price of approximately $2,200,000. The Partnership recognized a
net gain on disposal of this property of $600,000. The sale and operations of
this property for all periods presented has been recorded as
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THE NEWKIRK MASTER LIMITED PARTNERSHIP
FORM 10-Q MARCH 31, 2005
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (Continued)
Results of Operations (Continued)
Discontinued Operations (Continued)
discontinued operations.
During the three months ended March 31, 2004, the Partnership sold 11 properties
for a combined net sales price of $51,662,000. The Partnership recognized a net
gain on sale of these properties of $7,669,000.
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THE NEWKIRK MASTER LIMITED PARTNERSHIP
FORM 10-Q MARCH 31, 2005
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 March 31, 2005, your partnership had one loan which had a variable interest
rate. The loan which had an outstanding balance of $163.7 million at March 31,
2005, 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 (2.69% at March
31, 2005) 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% 2.31%
-- -- -----
Additional interest expense $1,637 $3,274 $3,782
Item 4. CONTROLS AND PROCEDURES
Your partnership's management, with the participation of your partnership's
chief executive officer and chief financial officer, has evaluated the
effectiveness of your 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, your partnership's chief executive officer and chief financial
officer have concluded that, as of the end of such period, your partnership's
disclosure controls and procedures are effective.
There have not been any changes in your 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, your partnership's internal controls over financial reporting.
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THE NEWKIRK MASTER LIMITED PARTNERSHIP
FORM 10-Q MARCH 31, 2005
PART II - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
Legal
In July 2002, an action was commenced in the Connecticut Superior Court against,
among others, your partnership's general partner and various affiliates of your
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 your partnership equal to 1%
of the outstanding units; (ii) your partnership will pay $1.5 million to an
escrow agent for the benefit of unaffiliated unitholders who were entitled to
receive units in the exchange transaction; and (iii) your 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,
your partnership paid out $3.5 million with respect to this matter. At a hearing
in April 2005, the Court approved the allocation of the 1% of outstanding units
for distribution. The units were distributed in the second quarter of 2005.
Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
(a) N/A
(b) N/A
(c) Issuer Purchases of Equity Securities
Total Number of Maximum Number
Units Purchased of Units That May
Total Number of Average Price As Part of Publicly Yet Be Purchased
Period Units Purchased Paid Per Unit Announced Program Under Program
------ --------------- ------------- ------------------- -----------------
January 1-January 31, 2005 -- -- -- --
February 1-February 28, 2005 -- -- -- --
March 1-March 31, 2005 48,024 (1) $42.50 48,024 (1) --
- ----------
(1) These units were purchased pursuant to a tender offer made by your
partnership to purchase up to 99,455 units at $42.50 per unit. The offer
commenced on February 22, 2005 and expired on March 23, 2005. 48,024 units were
purchased pursuant to the tender offer.
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THE NEWKIRK MASTER LIMITED PARTNERSHIP
FORM 10-Q MARCH 31, 2005
Item 6. 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.
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THE NEWKIRK MASTER LIMITED PARTNERSHIP
FORM 10-Q MARCH 31, 2005
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: May 13, 2005
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THE NEWKIRK MASTER LIMITED PARTNERSHIP
FORM 10-Q MARCH 31, 2005
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 MARCH 31, 2005
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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