10-K/A 1 e500844_10ka-newkirk.txt ANNUAL REPORT UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-K/A AMENDMENT NO. 2 FOR ANNUAL AND TRANSITION REPORTS PUSUANT TO SECTIONS 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (Mark One) |X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2004 OR |_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ____ to ____ Commission file number 0-50268 THE NEWKIRK MASTER LIMITED PARTNERSHIP ------------------------------------------------------ (Exact Name of Registrant as Specified in Its Charter) Delaware 11-3636084 ------------------------------- ------------------- (State or Other Jurisdiction of (I.R.S. Employer Incorporation or Organization) Identification No.) 7 Bulfinch Place, Suite 500, Boston, Massachusetts 02114 -------------------------------------------------- ----- (Address of Principal Executive Offices) (Zip Code) (617) 570-4600 -------------- (Registrant's telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Units of Limited Partnership Interest Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes |X| No |_| Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. |_| Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2). Yes |_| No |X| There is no public market for the Units of Limited Partnership Interest. Accordingly, information with respect to the aggregate market value of Units of Limited Partnership Interest has not been supplied. DOCUMENTS INCORPORATED BY REFERENCE None. EXPLANATORY PARAGRAPH This Form 10-K/A Amendment No. 2 is being filed for the purpose of restating the Partnership's consolidated balance sheets at December 31, 2004 and 2003 and the related consolidated statements of cash flows for the years ended December 31, 2004, 2003 and 2002. Conforming changes have been made to management's discussion and analysis of financial condition and results of operations included in this Form 10-K/A Amendment No. 2. See Note 13 in the notes to the consolidated financial statements for further information relating to the restatement. This Form 10-K/A Amendment No. 2 has not been updated for events or information subsequent to the date of filing of the original Form 10-K and Form 10-K/A Amendment No. 1 except in connection with the foregoing. Accordingly, this Form 10-K/A Amendment No. 2 should be read in conjunction with the Partnership's filings made with the SEC subsequent to the filing of the original Form 10-K and Form 10-K/A Amendment No.1. TABLE OF CONTENTS Page ---- FORWARD-LOOKING STATEMENTS.....................................................1 PART I ITEM 1. BUSINESS.........................................................2 ITEM 2. PROPERTIES......................................................14 ITEM 3. LEGAL PROCEEDINGS...............................................25 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.............25 PART II ITEM 5. MARKET FOR LIMITED PARTNERSHIP UNITS, RELATED SECURITY HOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES............................................26 ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA............................28 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.............................29 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK.....................................................39 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (as restated).......40 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.............................40 ITEM 9A. CONTROLS AND PROCEDURES.........................................41 ITEM 9B. OTHER INFORMATION...............................................41 PART III ITEM 10. MANAGERS AND EXECUTIVE OFFICERS OF THE REGISTRANT...............42 ITEM 11. EXECUTIVE COMPENSATION..........................................44 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED SECURITY HOLDER MATTERS..................44 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS..................45 ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES..........................47 PART IV ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES......................48 FORWARD-LOOKING STATEMENTS In addition to historical information, this document contains forward-looking statements. Forward-looking statements include information relating to our intent, belief or current expectations, primarily, but not exclusively, with respect to: o economic outlook; o capital expenditures; o cash flow; o operating performance; o financing activities; o industry developments, including trends affecting our business; and o financial condition and results of operations. We identify forward-looking statements in this registration statement by using words or phrases such as "anticipate," "believe," "estimate," "expect," "intend," "may be," "objective," "plan," "predict," "project" and "will be" and similar words or phrases (or the negative thereof). The forward-looking information involves important risks and uncertainties that could cause our actual results, performance or achievements to differ materially from our anticipated results, performance or achievements expressed or implied by such forward-looking statements. These risks and uncertainties include, but are not limited to: o occupancy rates and market rents, which may be adversely affected by economic and market conditions which are beyond our control, including the financial condition of our tenants; o uncertainties relating to potential changes in interest rates and the availability of financing; o uncertainties relating to our property portfolio; o uncertainties relating to our operations; o uncertainties relating to unexpected capital expenditures; o uncertainties relating to domestic and international economic and political conditions; and o uncertainties regarding the impact of regulations, changes in government policy, rules or laws and industry competition. Although we believe the expectations reflected in such forward-looking statements are based upon reasonable assumptions, we cannot assure you that such expectations will be attained or that any deviations will not be material. We disclaim any obligation or undertaking to disseminate to you any updates or revisions to any forward-looking statement contained in this registration statement to reflect any change in our expectations or any changes in events, conditions or circumstances on which any statement is based. PART I ITEM 1. BUSINESS General Your partnership is a Delaware limited partnership that owns commercial properties, most of which are net-leased to investment grade corporate tenants, as well as other real estate assets. Your partnership commenced operations on January 1, 2002 following the completion of a transaction that we refer to as the exchange, involving the merger into wholly-owned subsidiaries of your partnership of 90 limited partnerships, each of which owned commercial properties, and the acquisition by your partnership of various assets, including those related to the management or capital structure of those partnerships. See "Structure Chart" below. Each of the 90 partnerships, which we refer to as the "Newkirk partnerships", was organized and sponsored by Integrated Resources, Inc. between 1978 and 1984 and owned one or more commercial properties that we refer to as the "Newkirk properties". Integrated Resources filed for reorganization under Chapter 11 of the U.S. Bankruptcy Code in February 1991 and is no longer in existence. Members of the Newkirk Group, which consists of affiliates of Apollo Real Estate Fund III, L.P., executive officers of Winthrop Financial Associates, and affiliates of Vornado Realty Trust, first acquired interests in the Newkirk partnerships in 1997. Your partnership's initial capital structure consisted of units of limited partnership interest, which we refer to as units, that were issued in the exchange. These units were not registered under the Securities Act of 1933 (the "Securities Act") in reliance on an exemption from registration under that Act. There is no public market for the units, and there are substantial restrictions on the transfer of units. As of March 29, 2005, there were 6,266,388 units outstanding. 6,121,990 units were originally issued in the exchange, 188,908 of which have subsequently been repurchased by your partnership, including 48,024 units repurchased by your partnership in March 2005 upon completion of a tender offer by your partnership. The balance of the outstanding units were issued in transactions completed subsequent to the exchange. Description of Assets General. As of December 31, 2004, your partnership owned an interest in 188 of the Newkirk properties, subordinated interests in a securitized pool of notes evidencing first mortgage indebtedness secured by certain of your partnership's properties as well as other properties, limited partnership interests in various partnerships that own commercial net-leased properties, including 22 properties that are owned by partnerships whose operations are consolidated for financial reporting purposes with those of your partnership, substantially all of the interests in two entities that hold unsecured debt obligations of your partnership, an interest in a management company that provides services for your partnership as well as other real estate partnerships, ground leases, remainder interests or the right to acquire remainder interests in various properties and miscellaneous other assets. In addition, your partnership or an affiliate of your partnership's general partner controls the general partner of the real estate limited partnerships in which your partnership owns limited partnership interests, and your partnership has an option to acquire in the future second mortgage debt secured by a substantial number of your partnership's properties as well as the properties owned by 9 other partnerships. As of December 31, 2004, your partnership's commercial properties including discontinued operations represented approximately 86% of the total value of your partnership's assets. 2 Properties. The table below summarizes as of December 31, 2004, information on the 188 Newkirk properties and 22 properties owned by 7 limited partnerships whose operations are consolidated for financial reporting purposes with those of your partnership. We refer to the partnerships that own the 22 properties as the consolidated partnerships and their properties as the consolidated properties. Property Type Number Square Footage ------------- ------ -------------- Office 37 7,352,000 Retail 152 5,427,000 Other 21 5,257,000 ---- ---------- TOTAL 210 18,036,000 ==== ========== Below is a listing of tenants which accounted for 3% or more of the aggregate rental revenues including discontinued operations in 2004 from the Newkirk properties and the consolidated properties:

---------- (1) Property leased to Raytheon represented approximately 14.3% of your partnership's total assets as of December 31, 2004. Raytheon is a public company subject to the reporting requirements under the Securities Exchange Act of 1934. As of December 31, 2004, no other lessee leased property representing more than 10% of your partnership's total assets. 3 The following chart sets forth certain information as of December 31, 2004 concerning lease expirations on the Newkirk properties and the consolidated properties (assuming no renewals) from 2005 to 2014:

---------- (1) Based on rent from continuing operations for the year ended December 31, 2004. Please see "ITEM 2. PROPERTIES" for more detailed information regarding your partnership's properties. Limited Partnership Interests in Other Partnerships. Your partnership owns between 32.1% and 68.68% of the limited partnerships interests in the consolidated partnerships as well as between .7% and 45.29% of the limited partnerships interests in 9 other partnerships that own commercial net leased properties. We refer to these latter partnerships as the unconsolidated partnerships. General Partner Interests. Your partnership or an affiliate of your general partner controls each of the general partners of (i) the 7 consolidated partnerships, (ii) the 9 unconsolidated partnerships and (iii) 5 other partnerships that own commercial net leased properties. Your partnership has only a negligible economic interest, if at all, in each general partner entity that it controls. The Management Company. Your partnership holds a 50.01% interest in Newkirk Capital LLC ("Newkirk Capital"). Newkirk Capital's wholly-owned subsidiary, Newkirk Asset Management LLC, provides asset management services for your partnership and 9 other limited partnerships, the general partners of which are controlled by your partnership. In 2004 and 2003, approximately $6,738,000 and $7,168,000, respectively, of asset management fees were paid, or accrued for payment, to Newkirk Asset Management. For financial statement purposes, management fees received from the partnerships that own the Newkirk properties and the consolidated properties are eliminated in consolidation. Management fees eliminated in consolidation aggregated approximately $6,406,000 and $6,750,000 in 2004 and 2003, respectively. Newkirk Asset Management also provides services in connection with the sale, refinancing and re-leasing of properties owned by your partnership and other partnerships for additional fees. All of the fees paid to Newkirk Asset Management inure to the benefit of your partnership and its partners. Your partnership realizes the benefits of the fee payments through its ownership interest in Newkirk Capital and through its ownership of Newkirk Finco LLC (discussed below). A substantial portion of these fees are not reflected in your partnership's financial statements as they are eliminated in consolidation. 4 Pursuant to the terms of Newkirk Capital's Limited Liability Company Agreement, Administrator LLC, which holds the 49.99% interest in Newkirk Capital, is entitled to receive 100% of the distributions paid by Newkirk Capital until Administrator LLC receives $2,568,000 annually and thereafter, the balance of the distributions are paid to your partnership. Administrator LLC is owned by former principals and employees of Integrated Resources, Inc. and is not affiliated with the Newkirk Group. Those individuals owned various assets, including interests in the general partners, related to the Newkirk partnerships. In 1997, entities controlled by those individuals sold to members of the Newkirk Group assets related to the Newkirk partnerships which assets were eventually acquired by your partnership in the exchange. As part of the 1997 transaction members of the Newkirk Group made a $40 million loan to Administrator LLC. For financial statement purposes this note is valued at $11.4 million. The priority distribution to Administrator LLC enables Administrator LLC to pay interest on the promissory note evidencing the loan. The note is held by Newkirk Finco LLC which is wholly-owned by your partnership. Accordingly, your partnership effectively receives 100% of the fees paid to Newkirk Capital. The note bears interest at a rate of 6.42% per annum and matures on November 20, 2009. Prior to maturity, the note requires payments of interest only. The note is secured solely by Administrator LLC's 49.99% membership interest in Newkirk Capital and is otherwise non-recourse. Accordingly, if Administrator LLC were to default on the note, Newkirk Finco LLC would have the ability to foreclose on Administrator LLC's interest in Newkirk Capital. To ensure payment of interest on the note, Administrator LLC has directed Newkirk Capital to pay directly to Newkirk Finco LLC all distributions payable to Administrator LLC in respect of its interest in Newkirk Capital. As owner of Newkirk Finco LLC, your partnership will receive as interest payments the amount of any distributions made by Newkirk Capital to Administrator LLC. Your partnership's ownership interest in Newkirk Capital is pledged to Administrator LLC to secure certain obligations owed to Administrator LLC by the Newkirk Group. Creditworthy affiliates of the Newkirk Group have agreed to indemnify your partnership for losses that it may incur as a result of the failure of the Newkirk Group to satisfy such obligations. First Mortgage Interests. Your partnership owns the three most junior classes of interests in a securitized pool of first mortgages which includes 29 first mortgage loans encumbering a total of 59 of the Newkirk properties, 2 of the consolidated properties and 1 other property owned by partnerships that are controlled by affiliates of your partnership's general partner. In general, the classes of interests in the pool of first mortgage loans represent priorities of payments. When a payment is made by your partnership on one of these loans, the first amounts are used to make the required payments to the holders of senior interests. As a result, if the number of loan defaults results in loan payments insufficient to fully satisfy the payments due on all interests, payments will be made in the order of priority until all required payments are made. If there is a default in the payment due on any interest the entire loan is in default. However, in determining whether and when to exercise various remedies upon a default, the servicer (the entity that manages the trust fund into which the loans are pooled) must take into consideration what is best for all interest holders. The interests held by your partnership are subordinate to interests which had an original principal balance of $371,506,000 and a balance at December 31, 2004 of $150,728,533. The following table provides certain information with respect to each of the first mortgage interests held by your partnership. Class E Class F Class G Certificate Certificate Certificate 5 Class E Class F Class G Certificate Certificate Certificate ----------- ----------- ----------- Contractual Principal Amount at December 31, 2004 $4,824,000 $3,859,000 $5,794,000 Interest Rate 8.33% 8.38% 8.33% Rating (Standard & Poor's) BB B Not Rated Unsecured Loans. Your partnership beneficially owns 97.775% of the interests in NK-Leyden Loan, L.P. which holds a $1,905,000 unsecured note of your partnership and 97.324% of the interests in NK-Dautec Loan, L.P., which holds a $1,075,000 unsecured note of your partnership. Your partnership acquired these interests in connection with the exchange in order to substantially reduce debt service costs associated with two properties owned by your partnership and to eliminate potential conflicts relating to the unsecured loans in each case, by owning a significant portion of the entity to which your partnership is indebted. The remaining interests in these two entities are held by unaffiliated third parties. The $1,905,000 note provides for the payment of interest only at a basic rate of 8% per annum until maturity on December 31, 2006. Additional interest, which together with the basic interest can aggregate up to 25% per annum, is payable after the establishment of reserves. Interest is payable solely out of excess cash flow (as defined under the loan) from a property owned by your partnership in Toledo, Ohio. Your partnership has the right to extend the loan for 10 years. In that event the unpaid balance on the loan (including accrued but unpaid interest) will thereafter bear interest at 18% per annum and be required to be self-amortized over the remaining term of the loan. The principal amount outstanding on this note at December 31, 2004 and 2003 was $1,905,000. For financial statement purposes, the principal balance and interest income are eliminated in consolidation. The $1,075,000 note matures on May 1, 2008 and provides for payments of principal and interest solely out of excess cash flow (as defined under the loan) from a property owned by your partnership in New Kingston, Pennsylvania. The basic interest rate is 8% per annum and additional interest, which together with the basic interest can aggregate up to 18% per annum, is payable if excess cash flow exceeds specified levels. The principal amount outstanding on this note at December 31, 2004 and December 31, 2003 was $553,728 and $685,958, respectively. For financial statement purposes, the principal balance and interest income are eliminated in consolidation. See Item 3 for information about a pending lawsuit with respect to this property. The Subordinate Mortgage Interests. In addition to being encumbered by first mortgage loans, 189 of your partnership's Newkirk properties (including properties being marketed for sale that are included in discontinued operations) are encumbered by second mortgage loans which as of December 31, 2004 had an outstanding balance, including accrued interest, of approximately $366,022,000. Prior to the transactions described below, affiliates of your partnership's general partner, through a limited partnership called T-Two Partners, owned subordinated beneficial interests in these and certain other second mortgage loans. Senior beneficial interests in the second mortgage loans were held by an unaffiliated entity and three junior tranches of such senior beneficial interests were held by certain members of the Newkirk Group. Also prior to the transactions described below, the owners of T-Two Partners had an option, which we refer to as the put option, to require your partnership to purchase T-Two Partners in December 2007 in exchange for units in your partnership and your partnership had an option, which we refer to as the call option, to purchase T-Two Partners in January 2008 in exchange for units in your partnership. 6 On November 24, 2003, your partnership obtained a $208,473,427 loan from Bank of America that bears interest at a rate elected by your partnership equal to either (1) LIBOR plus 450 basis points or (2) the prime rate charged by Bank of America plus 250 basis points. The loan was obtained to replace your partnership's existing loan from Bank of America, and effectively reduced the interest rate on such borrowing from a minimum of 8.5% to a floating rate which is presently 7.01% and that will in no event exceed 9.5%, after giving effect to the three-year interest rate protection agreement entered into by your partnership. The loan is scheduled to mature on November 24, 2006, subject to two one-year extensions. The loan requires monthly payments of interest only which in January 2005 was approximately $1,002,000 per month. In addition, mandatory prepayments of principal are required from the proceeds of property sales and refinancings and other asset sales, as well as up to $1,312,500 per quarter to the extent that T-Two Partners does not make the required principal payments on the T-Two Loan that is described below. Your partnership can prepay the loan in whole or in part at any time together with a premium of 1/2% if such prepayment occurs between November 25, 2004 and November 24, 2005 and thereafter with no premium. In addition, your partnership and T-Two Partners may prepay up to $50,000,000 annually of this loan and the T-Two Loan without a premium. The loan is secured by substantially all of the assets of your partnership, and contains customary financial and other covenants consistent with the prior loan from Bank of America. The loan balance at December 31, 2004 was $165,328,277. On November 24, 2003, at the same time as your partnership obtained its loan from Bank of America, T-Two Partners obtained a $316,526,573 loan from Bank of America. We refer to this loan as the T-Two Loan. The interest rate, maturity date and principal terms of the T-Two Loan are the same as your partnership's loan. T-Two Partners used part of the proceeds of the T-Two Loan to purchase the senior beneficial interests in the second mortgage loans encumbering your partnership's and certain other partnerships' properties so that T-Two Partners is now the 100% beneficial owner of these second mortgage loans. We refer to these senior beneficial interests as the T-1 Certificate. The T-Two Loan is secured by all the assets of T-Two Partners, including the second mortgage loans receivable from your partnership. Your partnership guaranteed repayment of the T-Two Loan to Bank of America. In consideration for your partnership's guarantee, the owners of T-Two Partners agreed to the elimination of their put option, and to provide a credit line to your partnership bearing interest at LIBOR plus 450 basis points. Any amounts advanced to your partnership under the credit line would have to be repaid in full before your partnership could purchase the interests in T-Two Partners if your partnership exercises the purchase option described below. The loan balance at December 31, 2004 was $275,191,415. Your partnership's call option had previously provided for the acquisition of the interests in T-Two Partners in January 2008 in exchange for a number of units in your partnership to be determined at the time of exercise based on an agreed-upon formula. Your partnership and the owners of T-Two Partners modified your partnership's option in certain respects. First, the option can now be exercised by your partnership at any time between November 24, 2006 and November 24, 2009. Second, the purchase price is payable in cash rather than units in your partnership. Finally, the formula for determining the purchase price payable by your partnership if it exercises the option has been revised in a manner that your partnership's general partner believes to be significantly more favorable to your partnership than the formula previously in effect. Specifically, the purchase price is calculated as follows: the sum of $316,526,573 plus T-Two Partners' costs of obtaining the T-Two Loan (approximately $7,346,000) and administering the trust that holds the second mortgage loans, together with interest on the foregoing sum at the effective rate of interest paid by T-Two Partners on the T-Two Loan, less all payments made from and after November 24, 2003 on the second mortgage loans. 7 T-Two Partners will reimburse your partnership for approximately $7,346,000 of closing costs incurred in connection with the Bank of America loan and the T-Two Loan, together with interest thereon at a rate equal to LIBOR plus 450 basis points. Your partnership as well as T-Two Partners are currently in discussions to restructure the Bank of America 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. All of the above transactions were entered into in connection with the settlement of an action that had been brought in the Connecticut Superior Court against your partnership's general partner and various of its affiliates. See "ITEM 3. LEGAL PROCEEDINGS." On November 23, 2003, your partnership also acquired from T-Two Partners a second mortgage loan on a property in El Segundo, California in which your partnership has a 53% interest. The mortgage loan was acquired for $6,250,000 which represented its principal balance and accrued interest. The mortgage loan bears interest at 8.0% per annum and matures in December 2023. 8 STRUCTURE CHART Set forth below is a chart setting forth the structure of your partnership. MASTER PARTNERSHIP STRUCTURE ---------------------------- --------------------------- --------------------------- Former Limited Partners of the Newkirk Partnerships (1) MLP GP LLC (2) The Newkirk Group (3) (Other than the Newkirk Group) and other Limited Partners ---------------------------- --------------------------- --------------------------- LIMITED PARTNER \ GENERAL PARTNER | LIMITED PARTNER / \ | / 18.9% \ | / 81.1% \ | / \ | / \ | / ------------------------------------------------------------------------- THE NEWKIRK MASTER LIMITED PARTNERSHIP ------------------------------------------------------------------------- / / | | \ \ / / | | \ \ / / | | \ \ / / | | \ \ / 100% / 100% | | 100% \ 100% \ 50.01% / / | | \ \ ------------------------------- ------------------- | ------------------ --------------------- ----------------------- Subsidiary Limited Partnerships Limited Partnership | Newkirk GP LLC (6) Newkirk Finco LLC (7) Newkirk Capital LLC (8) which hold the Newkirk interests (5) | properties (4) | ------------------------------- ------------------- | ------------------ --------------------- ----------------------- | | |-------------------|------------------|------------------|----------------|----------| | 100% | 100% | 97.775% | 97.324% | | 100% | | | | | | ---------------- ----------------- --------------- --------------- ------------------------------------ NK-Remainder Option to Acquire NK-Leyden NK-Dautec NK First Loan E Certificate LLC Interest LLC (9) Subordinate Loan, L.P. (11) Loan, L.P. (11) NK First Loan F Certificate LLC Mortgage NK First Loan G Certificate LLC (12) Interests (10) ---------------- ----------------- --------------- --------------- ------------------------------------

9 (1) As a result of the exchange, the outstanding limited and general partnership interests in the Newkirk partnerships held by "accredited investors" (as that term is defined pursuant to Regulation D under the Securities Act) were converted into the right to receive units. Limited partners in Newkirk partnerships who were not "accredited investors" received a one-time cash payment in exchange for their limited partnership interests. (2) This entity is the general partner of your partnership, but has no economic interest in your partnership. It is owned by affiliates of Vornado Realty Trust and executives of Winthrop Financial Associates. (3) The Newkirk Group consists of affiliates of Apollo Real Estate Investment Fund III, L.P., executive officers of Winthrop Financial Associates and affiliates of Vornado Realty Trust. See "ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED SECURITY HOLDER MATTERS" for more information on the allocation of units in your partnership among members of The Newkirk Group. (4) As part of the exchange, which took place on January 1, 2002, each Newkirk partnership was merged with and into a separate newly formed limited partnership that is wholly owned by your partnership, as a result of which your partnership became the owner of the properties and other assets previously owned by the Newkirk partnerships, subject to the liabilities of such partnerships. (5) Consists of limited partnership interests in the consolidated partnerships and the unconsolidated partnerships. See "- Description of Assets - Properties" above. (6) Controls the general partner interests in (i) 3 of the consolidated partnerships, (ii) 4 of the unconsolidated partnerships and (iii) 5 additional partnerships that own net leased property. See "- Description of Assets - The Management Company" above. (7) Holds a non-recourse note from the minority partner in Newkirk Capital LLC, your partnership's management company, secured solely by the minority partner's membership interest in Newkirk Capital LLC. See "- Description of Assets - The Management Company" above. (8) Performs management services for your partnership and 9 other affiliated partnerships for which it receives fees. See "- Description of Assets - The Management Company" above. (9) Owns ground leases, or owns or has the right to acquire remainder interests, in the land underlying certain properties owned by your partnership and other real estate limited partnerships. (10) The subordinated mortgage interests are held by T-Two Partners, L.P., which is owned by NK-CR Holdings LLC and Holdings Subsidiary LLC, affiliates of The Newkirk Group. Your partnership has the right to acquire T-Two Partners, L.P. between November 2006 and November 2009. See "- Description of Assets - The Subordinate Mortgage Interests" above. 10 (11) Holds an unsecured debt obligation of your partnership. See "- Description of Assets - Unsecured Loans" above. (12) Own subordinated interests in a securitized pool of first mortgage indebtedness with respect to 29 first mortgage loans encumbering a total of 59 of the Newkirk properties, two of the consolidated properties and one other property owned by affiliated partnerships. See "- Description of Assets - First Mortgage Interests" above. Description of Indebtedness See "- Description of Assets - The Subordinate Mortgage Interests" for a description of your partnership's loan with Bank of America and the related T-Two Loan to T-Two Partners. The loan requires your partnership and T-Two Partners to maintain an aggregate minimum consolidated debt service coverage ratio (i.e., the ratio of your partnership's and T-Two Partners' consolidated net cash revenues from investments, exclusive of debt payable to T-Two Partners, before property-level debt service to their total consolidated debt service) of at least 1.15 during the initial 36 month term and at least 1.25 during the extension periods. Your partnership and T-Two Partners are also required to maintain an aggregate minimum debt service coverage ratio (i.e., the ratio of your partnership's and T-Two Partners' net cash revenue from investments, exclusive of debt payable to T-Two Partners, after property-level debt service to unconsolidated debt service) of at least 1.75 during the initial 36 month term or 2.0 during the extension periods. If your partnership's and T-Two Partners' aggregate debt service coverage ratio falls below 1.75 during the initial 36 month term or 2.0 during the extension periods, then all cash flow of your partnership and T-Two Partners will be deposited into a cash sweep account as additional collateral for the loan and your partnership would be prohibited from making distributions. As of December 31, 2004, your partnership's and T-Two Partners aggregate consolidated debt service coverage ratio was 1.39 and their debt service coverage ratio was 2.85. Your partnership's general partner believes that your partnership will be able to maintain the required ratios and does not anticipate that the maintenance of these ratios will have an adverse impact on your partnership's financial condition. Your partnership is also required to maintain a consolidated leverage ratio (i.e., the ratio of (i) your partnership's and T-Two Partners' allocable share of all indebtedness with respect to investments plus the outstanding balance under the loan and the T-Two Loan, but exclusive of the mortgage indebtedness of your partnership owed to T-Two Partners, to (ii) your partnership's allocable share of its investments, with your partnership's properties being valued based on discounted cash flow, during the first, second and third years of the initial term of the loan and during the extension periods, if any, of not more than 70%, 67%, 65%, 60% and 55%, respectively. In addition, your partnership is required to maintain minimum liquid assets of at least $5,000,000 and a minimum consolidated net worth, with your partnership's properties being valued based on discounted cash flow, equal to $500,000,000 during the initial loan term, $525,000,000 during the first extended term and $550,000,000 during the second extended term. The loan also limits your partnership's ability to incur any direct debt or contingent liabilities. See "ITEM 2. PROPERTIES" for information on your partnership's mortgage indebtedness. 11 Unit Repurchase In 2004, your partnership purchased from its limited partners 20,472 units at a price of $35 per unit, less distributions in some cases. Your partnership had purchased 115,000 units from its limited partners for $35 per unit in February 2003 and 5,412 units in 2002. In February 2005, your partnership commenced a tender offer to purchase up to 99,455 units of limited partnership interest at a price of $42.50 per unit. In March 2005, your partnership acquired 48,024 units pursuant to the tender offer. Business Objectives and Strategies; Future Intentions In general, your partnership seeks to enhance the value of your units by availing itself of investment and development opportunities relating to existing properties as well as by seeking other potential strategic transactions such as the sale of your partnership to a third party. Industry Segments and Seasonality Your partnership's primary business is the ownership and management of commercial net-leased properties. Most of your partnership's tenants are investment-grade corporate tenants. The largest single tenant leased multiple properties and accounted for approximately 15.8% of your partnership's rental revenues from the Newkirk properties and the consolidated properties for 2004. Reference is made to " - Description of Assets - Properties" above for additional information on your partnership's most significant tenants. Our business is not seasonal. Competition Numerous lessors and developers compete with your partnership's properties in attracting tenants and corporate users. The principal means of competition are rent charged, location, services provided and the nature and condition of the facility to be leased. Some of these competing properties may be newer or better located than your partnership's properties. The number of competitive commercial properties in a particular area could have a material effect on your partnership's ability to lease or develop space. In addition, your partnership may not be in a position to materially benefit from any real estate market appreciation for a number of years due to the fixed rate renewal term rates under the various lease agreements encumbering the properties. Likewise, your partnership will remain subject, after the initial lease terms expire, to downturns in the real estate market and general economic conditions. Your partnership does not operate outside of the United States. Environmental Regulations Under various federal, state and local laws and regulations, an owner or operator of real estate may be held liable for the costs of removal or remediation of hazardous or toxic substances located on or in the property. These laws often impose such liability without regard to whether the owner knows of, or was responsible for, the presence of such hazardous or toxic substances. The cost of any required remediation or removal of such substances may be substantial. In addition, the owner's liability as to any property is generally not limited under such laws and regulations and could exceed the value of the property and/or the aggregate assets of the owner. The presence of such substances, or the failure to remediate such substances properly, may also adversely affect the owner's ability to sell or lease the property or to borrow 12 using the property as collateral. Under such laws and regulations, an owner or entity who arranges for the disposal or treatment of hazardous or toxic substances at a disposal or treatment facility may also be liable for the costs of removal or remediation of all such substances at such facility, whether or not such facility is owned or operated by such person. Some laws and regulations impose liability for the release of certain materials into the air or water from a property, including asbestos, and such release can form the basis for liability to third parties for personal injury or other damages. Other laws and regulations can limit the development of and impose liability for the disturbance of wetlands or the habitats of threatened or endangered species. Almost all of your partnership's properties are net-leased, and tenants are therefore generally required to pay all of the expenses relating to the leased property. Accordingly, your partnership's general partner believes that compliance with federal, state and local provisions otherwise relating to the properties or the environment will not have a material effect on the capital expenditures, earnings or competitive position of your partnership. However, no assurance can be given that material environmental liabilities do not exist, that despite the leases in place your partnership will not be held liable for environmental liabilities, that any prior owner or operator of a property or land held for development did not create any material environmental condition not known to your partnership, that a material environmental condition does not otherwise exist as to any one or more of your partnership's properties or land held for development, or that future uses and conditions (including changes in applicable environmental laws and regulations and the uses and conditions of properties in the vicinity, such as leaking underground storage tanks and the activities of the tenants) will not result in the imposition of environmental liability. No material expenditures have been made by your partnership to date relating to environmental matters. Employees Your partnership has no employees. Winthrop Financial Associates, A Limited Partnership, executive officers of which jointly own your partnership's general partner with an affiliate of Vornado Realty Trust, provides the services of some of its employees, including the executive officers of the manager of your partnership's general partner, to perform accounting, asset management and investor relation services for us. Your partnership anticipates that each executive officer of the manager of our general partner will devote a significant portion of his or her time to the business of Winthrop Financial Associates and its other affiliates. Winthrop receives an annual fee which was originally fixed at $1,800,000 (subject to adjustment based on increases in the CPI) for its services to your partnership and to 9 other partnerships, the general partners of which are controlled by your partnership. The CPI adjustment for 2004 was 2.3% bringing the fee to $1,881,952. 13 ITEM 2. PROPERTIES General Substantially all of the Newkirk properties and the consolidated properties are net-leased to investment grade corporate tenants. At December 31, 2004 your partnership had three vacant properties that were not subject to leases. These properties contained an aggregate of 245,000 square feet or approximately 1.4% of the total space of all properties. Your partnership's remaining properties are net leased to various tenants. The leases are similar in many respects and generally: (i) provide for fixed rent payments and obligate the tenant to pay all capital and operating expenses for a property; (ii) obligate the tenant to perform all responsibilities (other than the payment of debt service) relating to the property; (iii) require the tenant to maintain insurance against casualty and liability losses; (iv) permit the tenant to sublet the property; and (v) afford the tenant in many instances the right to terminate the lease at certain points during the primary term if it determines that continued use and occupancy of the property would be uneconomic or unsuitable. Many of the leases grant the tenant an option to purchase the property upon the expiration of the primary term of the lease and at the end of one or more renewal terms for a purchase price equal to the fair market value of such property. Your partnership maintains insurance on properties that are not leased and the general partner believes that your partnership's properties are adequately covered by insurance. The following table sets forth certain information on the Newkirk properties and the consolidated properties as of December 31, 2004, including discontinued operations. Except as otherwise indicated in the table, the ownership interest is a fee interest in the underlying land.

---------- (1) Land held in land estate or pursuant to ground lease. (2) See "- Property Matters" below for information on these properties. (3) 55% interest owned by your partnership. (4) 53% interest owned by your partnership. (5) 99% interest owned by your partnership. (6) 49.9% interest owned by your partnership. (7) 62.2% interest owned by your partnership. (8) 45.19% interest owned by your partnership. (9) 68.68% interest owned by your partnership. (10) 57.75% interest owned by your partnership. (11) 60.5% interest owned by your partnership. (12) 32.1% interest owned by your partnership. (13) Your partnership received notice from Albertson's, Inc. ("Albertsons") exercising a purchase option in accordance with their lease on fifteen of your partnership's properties. Your partnership rejected this offer. The tenant could have elected to terminate the lease on July 1, 2004 for ten properties, October 1, 2004 for 3 properties and February 1, 2005 for 2 properties but extended its lease for eighteen months until December 31, 2005, March 31, 2006 and July 31, 2006, respectively. Rent during the eighteen month period is at the renewal rates. Albertsons still has a series of five year renewal options. As a condition of the rejection of the Albertson's purchase offer, your partnership was required to pay off the existing first mortgage debt of approximately $4,231,000, 40 days prior to the purchase option sale dates of July 1, 2004, October 1, 2004 and February 1, 2005, respectively. (14) The lease on this property expired June 30, 2004 and the property is now vacant. (15) The lease on this property expired March 31, 2004 and the property is now vacant. (16) The tenant has notified your partnership that they will not renew their lease. Annualized base rent per square foot reflects rent through the remaining term of the lease. Property Matters. On January 22, 2002, Kmart Corporation, a tenant at 12 of your partnership's properties, filed for protection under Chapter 11 of the United States Bankruptcy Code. Kmart had the right to either accept or reject the leases. Kmart elected to reject the leases, which caused an immediate termination of such leases. Your partnership re-leased 9 of the properties to Furr's Restaurant Group for 10-year lease terms, one of the properties to Lithia Motors for a 10-year lease term and another property for use as a restaurant for 20 a 5-year lease term. The tenant of the restaurant subsequently defaulted on its lease. Your partnership pursued a claim against Kmart in the Bankruptcy Court. The Bankruptcy Court has ordered that your partnership be awarded a Lease Rejection Claim of $3,000,000. The claim will be satisfied in accordance with the terms of Kmart's confirmed plan of reorganization. As part of this plan, your partnership received 17,830 common shares of Kmart Holding Corporation stock on January 1, 2005 having an estimated value of $1,783,000. Your partnership subsequently sold the stock on February 15, 2005 for $1,767,991. Your partnership anticipates receiving additional stock at a future time to satisfy the remaining balance of the claim. In January 2003, Furr's Restaurant Group filed for protection under Chapter 11 of the Bankruptcy Code and subsequently rejected the lease on 3 sites. The remaining sites continue to be leased to Furr's through 2012, and your partnership pursued a claim against Furr's in the Bankruptcy Court for the 3 rejected sites. On May 14, 2004 your partnership was awarded a net total of $304,967 on this claim by the Bankruptcy Court. Furr's also has the right to reject the lease that now covers the remaining sites. The aggregate annual rent for the 7 sites that are presently leased is approximately $1,269,600 compared to the approximately $1,885,000 that was scheduled to be received from Kmart on the 12 properties during its first renewal term, which would have begun in February 2003. Your partnership has purchased the land underlying all of the 12 original Kmart sites for $250,000. In 2003, your partnership sold two of the vacant sites for $2,525,000. After satisfying existing mortgage indebtedness and closing costs, there were no net proceeds to your partnership. In 2004, your partnership sold two more vacant sites for $2,100,000. There were approximately $1,955,000 of net proceeds to your partnership after paying closing costs. On January 6, 2005, your partnership sold the remaining vacant property and received net proceeds of approximately $2,181,000. In November 2002, your partnership received notice from the tenant of a property located in Stuart, Florida exercising the economic discontinuance provisions of its lease. Under the terms of the notice, the tenant proposed to terminate the lease effective July 11, 2003 and to purchase the property for $631,000, an amount which would have been insufficient to satisfy existing mortgage indebtedness. Your partnership rejected the offer and satisfied the existing first mortgage of approximately $531,000. Your partnership sold the property for a net sales price of approximately $1,800,000 in October 2004. Approximately $1,189,000 of proceeds were used to make principal payments on your partnership's loan with Bank of America and T-Two Partners. In January 2004, your partnership sold the property owned by it in Morristown, New Jersey for $36,500,000. After satisfying existing mortgage indebtedness and closing costs, the net sales proceeds were approximately $7,532,000 which was applied to a principal payment on your partnership's loan with Bank of America. In January 2004, your partnership sold the multi-tenanted office building owned by it in Dallas, Texas for $13,000,000. After closing costs and adjustments, the net sales proceeds were approximately $11,939,000, $8,954,000 of which was applied to a principal payment on your partnership's loan with Bank of America. In 2004, your partnership sold 21 retail properties owned by it and others which were formerly leased to CSK Auto for approximately $4,538,000. After closing costs and adjustments, the net sales proceeds were approximately $4,152,000, approximately $1,459,000 of which was used to pay off debt to T-Two Partners. 21 In March 2004, your partnership sold 3 retail properties formerly leased to Key Bancshares of Wyoming for $1,948,000. After closing costs and adjustments, the net sales proceeds were approximately $1,860,000, approximately $1,351,000 of which was used to pay off debt to T-Two Partners and Bank of America. In April 2004, your partnership sold a property located in Philadelphia, Pennsylvania for $300,000. After payment of closing costs, your partnership used sale proceeds to pay approximately $83,000 of principal owed to T-Two Partners and approximately $138,000 to Bank of America. The lease on this property had been terminated effective July 1, 2003. The tenant made a $276,576 early termination payment, $160,803 of which was applied to payoff the existing first mortgage indebtedness. Also in April 2004, your partnership sold 2 properties owned by it in Aurora, Colorado and Mint Hill, North Carolina for $2,945,000 and $402,000, respectively. After closing costs, your partnership paid approximately $557,000 towards principal on your note owed to T-Two Partners and $1,716,000 on your note to Bank of America. The Aurora, Colorado property had formerly been leased to Alberston's Inc. and your partnership had previously rejected an offer by Alberston's to purchase the property pursuant to the economic discontinuance provisions of the lease. In May 2004, your partnership sold a property located in Champaign, Illinois to Lucky Stores, Inc. Lucky Stores, Inc. was the tenant at the property and exercised their option to purchase the property pursuant to the lease. The purchase price was approximately $879,000. Your partnership also received a $942,189 lease termination payment. Your partnership used approximately $782,000 to pay down your loan with T-Two Partners and $212,000 to pay down your loan with Bank of America. On July 29, 2004, your partnership sold 25 properties to Vornado Realty Trust, a limited partner in your partnership and an affiliate of your partnership's general partner, for a sales price of $63,800,000. The price paid by Vornado Realty Trust was in excess of an offer received from an unaffiliated third party. Your partnership used sales proceeds of $31,541,000 to pay off contract right debt of which approximately $31,016,000 was paid to T-Two Partners and approximately $23,733,000 to pay down the note payable to Bank of America. 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 is attempting to sell the property. During the third quarter of 2004, your partnership recorded a $3,200,000 impairment loss on a property located in New Kingston, Pennsylvania which is included in loss for discontinued operations. Your partnership is negotiating a contract to sell the property and anticipates closing in the second quarter of 2005. Land Estates and Ground Leases. As indicated above, your partnership holds either an estate for years with an option to lease the land upon expiration of the estate for years or leases a number of its properties pursuant to ground leases. Where your partnership holds an estate for years, the arrangement is for a stated period of time, which is typically one day longer 22 than the primary term of the underlying lease. At the expiration of the estate for years, title to the land will automatically vest in a remainderman. Your partnership then has the option to lease the land from the remainderman for a stated period of time, which would in all cases exceed the aggregate number of years that a building lessee could extend its underlying lease by exercising all of its renewal terms. In general, the rentals due under the ground leases are nominal through the last renewal term of the improvements lease and then increase to fair market rent. The remainderman in almost all cases has subordinated its interest in the land to any first mortgage encumbering the property, but has not, in any case, subordinated its interest in the land to the second mortgage encumbering the property. Any second mortgage encumbers your partnership's option to lease the land at the expiration of your partnership's estate for years, and will encumber the leasehold interest in the land created upon any exercise of the option to lease by your partnership. Your partnership is continually seeking to acquire the "remainder" interests in its properties in an effort to acquire fee title to the properties. With respect to those properties subject to a ground lease, your partnership has the right to extend the ground lease for at least as long as the aggregate number of years that a building lessee could extend its underlying lease by exercising all of its renewal terms. In general, the ground rent is passed through to the building lessee under the improvements lease. In June 2004, your partnership acquired the land underlying a property located in Bedford, Texas. The land was acquired from an unrelated third party for approximately $2,600,000. Mortgage Indebtedness of Your Partnership Mortgage Loans. Of your partnership's properties, all but 77 properties are secured by one or more first mortgage loans. As of December 31, 2004, the first mortgage indebtedness (exclusive of indebtedness on properties being marketed for sale that are included in discontinued operations), together with the second mortgage indebtedness on a property in El Segundo, California, in which your partnership has a 53% interest, had an aggregate outstanding principal balance of $478,939,000 with interest at rates ranging from 5.0% per annum to 10.4% per annum and maturities at various dates from March 1, 2005 to January 1, 2024. Most of these mortgage loans are prepayable only with a yield maintenance payment or prepayment penalty. The weighted average interest rate on these loans is 8% per annum, and there were no variable rate loans at December 31, 2004. The following is a summary of scheduled principal maturities, by year, under the mortgage debt described in the previous paragraph. Year Amount ---- ------ 2005............................... $ 98,397,000 2006............................... 131,481,000 2007............................... 91,720,000 2008............................... 68,399,000 2009............................... 34,221,000 Thereafter......................... 54,721,000 ------------- Total.............................. $ 478,939,000 ============= 23 Second Mortgage Loans. A number of your partnership's properties are encumbered by second mortgage loans. As of December 31, 2004, this second mortgage indebtedness, which is referred to in our financial statements as contract right mortgage notes, had an aggregate outstanding principal balance, excluding discontinued operations of $263,072,000, with interest at rates ranging from 8.11% per annum to 13.9% per annum and matured at various dates from January 1, 2008 to January 1, 2025. Each of the loans is prepayable at any time without premium or penalty subject to the prior or simultaneous satisfaction of the underlying first mortgage loans. The weighted average interest rate on these mortgage loans is 10.7% per annum. There are no variable interest rates on these loans. The following is a summary of scheduled principal payable as of December 31, 2004, by year, under the junior mortgage debt described in the previous paragraph. Year Amount ---- ------ 2005............................... $ 9,213,000 2006............................... 10,244,000 2007............................... 17,963,000 2008............................... 21,214,000 2009............................... 19,609,000 Thereafter......................... 184,829,000 ------------- Total.............................. $ 263,072,000 ============= All rights of the mortgagee under each of the second mortgages are fully subject and subordinate to the rights granted the holders of the first mortgages. The second mortgages generally grant the mortgagee a security interest in and include a subordinate assignment of, among other things, your partnership's interest in its underlying lease. Each second mortgage contains an assignment of your partnership's interest in all rents, income, revenues, claims, issues and profits from and in respect of all of the property encumbered by that second mortgage. Substantially all of the second mortgages contain restrictions affecting the ability of the applicable property-owning subsidiary of your partnership to refinance its existing first mortgage loan or incur additional financing during the primary term of the relevant lease. The principal restriction on such first mortgage financing is a debt service coverage test under which the scheduled rental payments from the properties at the time of such financing must be at least 103% of your partnership's aggregate debt service payments due under the second mortgage and such financing (except that if a lease is no longer in effect, the debt service coverage test may be satisfied based on the scheduled rent payments that otherwise would have been payable under the lease for the period that the financing is to be in place). There is also a general risk that a property encumbered by a second mortgage will not generate sufficient cash flow to satisfy the debt service payments on the second mortgage loan after satisfying payments on the first mortgage encumbering the property. However, the combination of the Newkirk properties pursuant to the exchange has lessened this risk to your partnership by substantially increasing the capital resources of your partnership and thereby enhancing your partnership's ability to respond to the capital needs of any particular property. In addition, as described under "ITEM 1. BUSINESS - Description of Assets - The Subordinate Mortgage Interests," your partnership has an option to acquire the interests in T-Two Partners and thereby effectively eliminate substantially all of its subordinate indebtedness. 24 ITEM 3. LEGAL PROCEEDINGS 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. Your partnership accrued $3.5 million with respect to this matter, which is included in general and administrative expense in the consolidated statement of operations for the year ended December 31, 2003. In April 2004, your partnership paid out $3.5 million with respect to this matter. A hearing has been set for April 11, 2005, at which time it is expected that the Court will approve the allocation of the 1% of outstanding units for distribution. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of security holders during the fourth quarter of the fiscal year covered by this report through the solicitation of proxies or otherwise. 25 PART II ITEM 5. MARKET FOR LIMITED PARTNERSHIP UNITS, RELATED SECURITY HOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES General There is no established public trading market for the units. As of December 31, 2004, there were 1,360 holders of record of units. Distributions Since January 1, 2003 your partnership has made the following distributions aggregating approximately $80,837,000. Date Per Unit Distribution ---- --------------------- 2/03 $.75 4/03 $2.22 (1) 5/03 $.80 8/03 $.85 11/03 $.90 2/04 $1.75 5/04 $1.80 9/04 $1.85 11/04 $1.90 ---------- (1) This distribution represents proceeds from the sale of your partnership's property that was leased to Kaiser Aluminum. Your partnership currently anticipates making regular quarterly distributions in respect of your partnership's operations as well as special distributions in respect of future property sales. However, future distributions are dependent upon many factors, including your partnership's earnings, capital requirements, property sales, financial condition and available cash flow. In this regard, your partnership's Bank of America loan requires your partnership to maintain liquid assets of at least $5,000,000 and a minimum consolidated net worth equal to $500,000,000 during the initial loan term and up to $550,000,000 during the last extended term. In addition, under the terms of the loan, your partnership is prohibited from making distributions if its unconsolidated debt service coverage ratio falls below 1.75 during the initial period of the loan or 2.0 during the extension periods. These and other restrictions relating to the Bank of America loan that are discussed above under "ITEM 1. BUSINESS - Description of Indebtedness" could impact your partnership's ability to make distributions in the future. 26 Purchase of Units Your partnership repurchased 1,729 of its units during the fourth quarter of 2004. Units Repurchased Price Per Unit ----------- -------------- October 597 $ 35.00 November 1,132 $ 35.00 December -- -- ----- 1,729 ===== 27 ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA The following financial data are derived from the audited consolidated financial statements of your partnership for the years ended December 31, 2004, 2003 and 2002 and from the combined consolidated financial statements of Newkirk RE Holdings, LLC and Newkirk NL Holdings, LLC ("Predecessor Entity") for the years ended December 31, 2001 and 2000. The financial data set forth below should be read in conjunction with "ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" below and "The Consolidated Financial Statements" and the notes thereto appearing elsewhere in this report. During the years ended December 31, 2001 and 2000 the Predecessor Entity acquired additional limited partnership interests in entities it had recorded on an equity basis. At the point sufficient limited partnership interests were acquired to assert control over the limited partnership the Predecessor Entity consolidated the respective limited partnership resulting in the recognition of cash balances and other assets and liabilities as shown below.

28 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The discussion of cash flows in the Liquidity and Capital Resources section of Management's Discussion and Analysis of Financial Condition and Results of Operations for the years ended December 31, 2004, 2003 and 2002 reflects a restatement for the change in restricted cash of ($3,068,000), $2,961,000 and ($8,109,000) to adjust as provided by investing activities. Liquidity and Capital Resources At December 31, 2004 your partnership owned an interest in 188 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 90% of the original lease terms expire between 2005 and 2009. There are three properties which are vacant and not leased which represent approximately 245,000 square feet of your partnership's Newkirk properties. The remaining 17,791,000 square feet or 98.6% 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 eight other partnerships. Your partnership receives rental income from its properties which is its primary source of liquidity. Pursuant to the terms of the leases, the tenants are responsible for substantially all of the operating expenses with respect to the properties, including maintenance, capital improvements, insurance and taxes. If a tenant fails to exercise its renewal option or exercises its option to terminate its lease early, your partnership will be required to either sell the property or procure a new tenant. If your partnership attempts to procure a new tenant, it will be competing for new tenants in the then current rental markets, which may not be able to support terms as favorable as those contained in the original lease options. The level of liquidity based on cash and cash equivalents experienced a $11,386,000 decrease at December 31, 2004 as compared to December 31, 2003. The decrease was due to net cash provided by operating activities of $154,440,000 and net cash provided by investing activities of $92,035,000, which were more than offset by net cash used in financing activities of $257,861,000. Net cash provided by investing activities included $98,771,000 of net proceeds from disposal of real estate, which were partially offset by land acquisitions of $2,557,000, an increase in restricted cash of $3,068,000 and investments in limited partnership interests of $1,111,000. Net cash used in financing activities consisted primarily of mortgage loan and contract right mortgage loan payoffs of $48,350,000, principal payments on mortgage, contract right and notes payable of $152,813,000 and partner distributions of $46,106,000. At December 31, 2004, your partnership had $29,533,000, of which $8,216,000 is restricted, in cash reserves which were invested primarily in money market mutual funds. 29 A summary of your partnership's obligations excluding discontinued operations is as follows:

Off-Balance Sheet Arrangements On November 24, 2003, at the same time as your partnership obtained its loan from Bank of America, T-Two Partners obtained a $316,526,573 loan from Bank of America. 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 Bank of America. 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, and to provide a credit line to your partnership bearing interest at LIBOR plus 450 basis points. Any amounts advanced to your partnership under the credit line would have to be repaid in full before your partnership could purchase the interests in T-Two Partners if your partnership exercises the purchase option described below. There are no amounts that have been advanced under the credit line. Your partnership's call option had previously provided for the acquisition of the interests in T-Two Partners in January 2008 in exchange for a number of units in your partnership to be determined at the time of exercise based on an agreed-upon formula. Your partnership and the owners of T-Two Partners modified your partnership's option in certain respects. First, the option can now be exercised by your partnership at any time before November 24, 2009 or at any other time mutually 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 30 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. Your partnership has determined that T-Two Parners is a variable interest entity but that your partnership is not the primary beneficiary of the variable interest entity. Other Matters Your partnership received notice from Albertson's indicating that it intended to exercise its right to terminate the lease for the supermarket property located in Stuart, Florida. In accordance with the economic discontinuance provision of its lease, Albertson's made a rejectable offer to purchase the property for an amount stipulated in the lease of approximately $631,000. Your partnership elected to reject the offer. As a result of the rejection, your partnership was required to payoff the first mortgage encumbering the property, which had a balance of approximately $531,000. Your partnership satisfied the first mortgage using its cash reserves. Your partnership sold this property in October 2004 for a sale price of $1,950,000. Your partnership received notice from Albertsons exercising a purchase option in accordance with their lease on fifteen of your partnership's properties. Your partnership rejected this offer. If your partnership accepted the offer, the sale would have been effective July 1, 2004 for 10 properties, October 1, 2004 for 3 properties and February 1, 2005 for 2 properties. Since your partnership rejected this offer, the tenant elected to extend its lease for eighteen months until December 31, 2005, March 31, 2006 or July 31, 2006, respectively. Rent during the eighteen month period is at the renewal rates. Alberstons still has a series of five year renewal options. In January 2004, your partnership sold the property owned by it in Morristown, New Jersey for $36,500,000. After satisfying existing mortgage indebtedness and closing costs, the net sales proceeds were approximately $7,532,000 which was applied to a principal payment on your partnership's loan with Bank of America. In January 2004, your partnership sold the multi-tenanted office building owned by it in Dallas, Texas for $13,000,000. After closing costs and adjustments, the net sales proceeds were approximately $11,939,000, $8,954,000 of which was applied to a principal payment on your partnership's loan with Bank of America. In 2004, your partnership sold 21 retail properties owned by it and others which were formerly leased to CSK Auto for approximately $4,538,000. After closing costs and adjustments, the net sales proceeds were approximately $4,152,000, approximately $1,459,000 of which was used to pay off debt to T-Two Partners. In March 2004, your partnership sold 3 retail properties formerly leased to Key Bancshares of Wyoming for $1,948,000. After closing costs and adjustments, the net sales proceeds were approximately $1,860,000, approximately $1,351,000 of which was used to pay off debt to T-Two Partners and Bank of America. 31 In April 2004, your partnership sold a property located in Philadelphia, Pennsylvania for $300,000. After payment of closing costs, your partnership used sale proceeds to pay approximately $83,000 of principal owed to T-Two Partners and approximately $138,000 to Bank of America. The lease on this property had been terminated effective July 1, 2003. The tenant made a $276,576 early termination payment, $160,803 of which was applied to payoff the existing first mortgage indebtedness. Also in April 2004, your partnership sold 2 properties owned by it in Aurora, Colorado and Mint Hill, North Carolina for $2,945,000 and $402,000, respectively. After closing costs, your partnership paid approximately $557,000 towards principal on your note owed to T-Two Partners and $1,716,000 on your note to Bank of America. The Aurora, Colorado property had formerly been leased to Alberston's Inc. and your partnership had previously rejected an offer by Alberston's to purchase the property pursuant to the economic discontinuance provisions of the lease. In May 2004, your partnership sold a property located in Champaign, Illinois to Lucky Stores, Inc. Lucky Stores, Inc. was the tenant at the property and exercised their option to purchase the property pursuant to the lease. The purchase price was approximately $879,000. Your partnership also received a $942,189 lease termination payment. Your partnership used approximately $782,000 to pay down your loan with T-Two Partners and $212,000 to pay down your loan with Bank of America. 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 tenants' lease expiring June 30, 2004. Your partnership is attempting to sell the property. In June 2004, your partnership acquired the land underlying one of its properties in Bedford, Texas. The land was acquired from an unaffiliated party for $2,555,000. 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. The 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 62.2% in one of the partnerships whose operations are consolidated and 45.3% in the other partnership. During the third quarter of 2004, your partnership recorded a $3,200,000 impairment loss on a property located in New Kingston, Pennsylvania which is included in loss from discontinued operations. Your partnership is negotiating a contract to sell the property and anticipates closing in the second quarter of 2005. 32 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 $63,800,000. The price paid by Vornado Realty Trust was in excess of an offer received from an unaffiliated third party. Your partnership used sales proceeds of $31,500,000 to pay off contract right debt and $23,700,000 to pay down the note payable netting approximately $8,600,000 of cash. For financial reporting purposes, your partnership recognized a net gain on the sale of the properties of approximately $38,700,000. Results of Operations Comparison of the year ended December 31, 2004 to the year ended December 31, 2003. Income from Continuing Operations Income from continuing operations increased by $8,039,000 to $97,942,000 for the year ended December 31, 2004 from $89,903,000 for the year ended December 31, 2003. As more fully described below, this increase is attributable to a decrease in total expenses of $20,205,000 and an increase in equity in income from investments in limited partnerships of $608,000 which was partially offset by an increase in minority interest expense of $149,000 and a decrease in total revenue of $12,625,000. Rental Income Rental income decreased by $12,701,000 or approximately 5% to $246,062,000 for the year ended December 31, 2004 from $258,763,000 for the year ended December 31, 2003. The decrease was primarily due to lower rental income resulting from property sales and lease renewals at rates that are lower than the primary term rates. Leased square footage at December 31, 2004 and 2003 is approximately 99%. Interest Income Interest income increased by $162,000 or approximately 5% to $3,134,000 for the year ended December 31, 2004 from $2,972,000 for the year ended December 31, 2003. The increase was primarily due to interest income of $456,000 on a loan to T-Two Partners, which was partially offset by a decrease in interest income of $107,000 on a note held by Newkirk Finco LLC and decreases in overall invested cash balances. Management Fee Income Management fee income decreased by $86,000 or approximately 21% to $332,000 for the year ended December 31, 2004 from $418,000 for the year ended December 31, 2003. The decrease is attributable to fewer properties under management. Interest Expense and Gain (Loss) from the Early Extinguishment of Debt Interest expense and gain (loss) from the early extinguishment of debt decreased by $13,832,000 or approximately 13% to $88,971,000 for the year ended December 31, 2004 compared to $102,803,000 for the year ended December 31, 2003. The decrease was primarily due to loan payoffs of $48,350,000, normal scheduled principal payments of $109,785,000 and payments on the note payable to Bank of America of $43,028,000 and assumption of debt on a sold property of $28,460,000. 33 Depreciation Depreciation expense remained relatively consistent at $36,044,000 for the year ended December 31, 2004 compared to $36,067,000 for the year ended December 31, 2003. General and Administrative General and administrative expenses decreased by $5,053,000 or approximately 57% to $3,765,000 for the year ended December 31, 2004 compared to $8,818,000 for the year ended December 31, 2003. The decrease is primarily the result of a $4,437,000 decrease in legal costs due to a $3,600,000 legal settlements in 2003. Amortization Expense Amortization expense decreased by $1,934,000 or approximately 41% to $2,796,000 for the year ended December 31, 2004 as compared to $4,730,000 for the year ended December 31, 2003. The decrease in amortization expense is primarily the result of the refinancing of the Bank of America debt. Ground Rent Ground rent expense increased by $16,000 to $3,067,000 for the year ended December 31, 2004 as compared to $3,051,000 for the year ended December 31, 2003. The increase in ground rent expense is primarily the result of increases in ground rent rates for two partnerships. State and Local Taxes State and local tax expense increased by $621,000 or approximately 82% to $1,379,000 for the year ended December 31, 2004 compared to $758,000 for the year ended December 31, 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 $608,000 or approximately 30% to $2,662,000 for the year ended December 31, 2004 compared to $2,054,000 for the year ended December 31, 2003. This increase was due to additional purchases of equity positions in limited partnerships. Minority Interest Expense Minority interest expense increased by $149,000 or approximately 1% to $18,226,000 for the year ended December 31, 2004 compared to $18,077,000 for the year ended December 31, 2003. The increase was the result of increased profitability at the non-wholly owned partnerships. 34 Discontinued Operations During the year ended December 31, 2004, your partnership sold 58 properties for a combined net sales price of $127,231,000. Your partnership recognized a net gain on disposal of these properties of $49,350,000. During the year ended December 31, 2003, your partnership sold fourteen properties for a combined net sales price of $156,409,000. Your partnership recognized a net gain on disposal of these properties of $29,514,000. The sale and 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 year ended December 31, 2003 to the year ended December 31, 2002. Income from Continuing Operations Income from continuing operations decreased by $3,988,000 to $89,903,000 for the year ended December 31, 2003 from $93,891,000 for the year ended December 31, 2002. As more fully described below, this decrease is attributable to an increase in total expenses of $8,927,000 and an increase in minority interest expense of $7,382,000, which was partially offset by an increase in total revenue of $10,267,000 and an increase in equity in income from investments in limited partnerships of $2,054,000. Rental Income Rental income increased by $10,922,000 or approximately 4% to $258,763,000 for the year ended December 31, 2003 from $247,841,000 for the year ended December 31, 2002. The increase was primarily due to five newly acquired consolidated partnerships which contributed approximately $13,810,000 in rental income. This increase was partially offset by lower rental income received from properties previously leased by Kmart of $555,000 and lower rental income on lease renewals or renegotiations of $2,333,000. Interest Income Interest income decreased by $311,000 or approximately 9% to $2,972,000 for the year ended December 31, 2003 from $3,283,000 for the year ended December 31, 2002. The decrease was due to the payoff of a loan receivable and overall lower interest rates on the invested cash balances. Management Fee Income Management fee income decreased by $344,000 or approximately 45% to $418,000 for the year ended December 31, 2003 from $762,000 for the year ended December 31, 2002. The decrease is attributable to fewer properties under management. Interest Expense and Gain (Loss) from the Early Extinguishment of Debt Interest expense and gain (loss) from the early extinguishment of debt decreased by $4,061,000 or approximately 4% to $102,803,000 for the year ended December 31, 2003 compared to $106,864,000 for the year ended December 31, 2002. The decrease was primarily due to loan payoffs of $266,599,000, normal scheduled principal payments of $120,111,000 and payments on the note payable of $34,110,000 and assumption of debt on a sold property of $94,918,000, which were only partially offset with proceeds from new debt of $262,338,000. 35 Depreciation Depreciation expense increased by $10,077,000 or approximately 39% to $36,067,000 for the year ended December 31, 2003 compared to $25,990,000 for the year ended December 31, 2002. The increase is primarily attributable to changing the estimated useful lives of the real estate and additional depreciation expense from five newly acquired consolidated partnerships. A significant percentage of the increase in depreciation expense relating to the change in estimated useful lives is offset by a corresponding decrease in minority interest expense. General and Administrative General and administrative expenses increased by $2,302,000 or approximately 35% to $8,818,000 for the year ended December 31, 2003 compared to $6,516,000 for the year ended December 31, 2002. The increase is the result of $3,600,000 incurred related to legal settlements. This increase was partially offset by one-time organizational expenses relating to the formation of your partnership in 2002. Amortization Expense Amortization expense increased by $635,000 or approximately 16% to $4,730,000 for the year ended December 31, 2003 as compared to $4,095,000 for the year ended December 31, 2002. The increase in amortization expense is the result of the refinancing of the Bank of America debt which was partially offset by savings from loans which have been paid off. Ground Rent Ground rent expense increased by $56,000 to $3,051,000 for the year ended December 31, 2003 as compared to $2,995,000 for the year ended December 31, 2002. The increase in ground rent expense is the result of the addition of new properties in 2003 partially offset by land purchases made in 2003. State and Local Taxes State and local tax expense decreased by $82,000 or approximately 10% to $758,000 for the year ended December 31, 2003 compared to $840,000 for the year ended December 31, 2002. The decrease is the result of tax savings in the State of New Jersey. Equity in Income from Investments in Limited Partnerships Equity in income from investments in limited partnerships is the result of the January 2003 purchase of equity positions in five new partnerships which are not consolidated with your partnership for financial reporting purposes. Minority Interest Expense Minority interest expense increased by $7,382,000 or approximately 69% to $18,077,000 for the year ended December 31, 2003 compared to $10,695,000 for the year ended December 31, 2002. The increase was the result of minority interests in the amount of $5,365,000 related to the five newly consolidated partnerships. The remaining increase of $2,027,000 related to increased profitability at the previous partially owned partnerships. 36 Discontinued Operations During the year ended December 31, 2003, your partnership sold fourteen properties for a combined net sales price of $156,409,000. Your partnership recognized a net gain on disposal of these properties of $29,514,000. During the year ended December 31, 2002, your partnership sold two properties for a combined net sales price of approximately $3,200,000. Your partnership recognized a net loss on disposal of these properties of $983,000. The sale and operations of these properties for all periods presented have been recorded as discontinued operations in compliance with the provisions of SFAS No. 144. Critical Accounting Policies The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions in certain circumstances that affect amounts reported in the accompanying consolidated financial statements and related notes. In preparing these consolidated financial statements, management has made its best estimates and judgments of certain amounts included in the consolidated financial statements, giving due consideration to materiality. Your partnership does not believe there is a great likelihood that materially different amounts would be reported related to the accounting policies described below. However, application of these accounting policies involves the exercise of judgment and use of assumptions as to future uncertainties and, as a result, actual results could differ from these estimates. Impairment of long-lived assets. At December 31, 2004, your partnership had $1,032,797,000 of real estate (net) and $27,536,000 of real estate held for sale (net), which combined, account for approximately 86% of your partnership's total assets. Buildings and improvements are carried at cost net of adjustments for depreciation and amortization. The fair values of your partnership's buildings and improvements are dependent on the performance of the properties. Your partnership evaluates recoverability of the net carrying value of its real estate and related assets at least annually, and more often if circumstances dictate. If there is an indication that the carrying value of a property might not be recoverable, your partnership prepares an estimate of the future undiscounted cash flows expected to result from the use of the property and its eventual disposition, generally over a five-year holding period. In performing this review, management takes into account, among other things, the existing occupancy, the expected leasing prospects of the property and the economic situation in the region where the property is located. If the sum of the expected future undiscounted cash flows is less than the carrying amount of the property, your partnership recognizes an impairment loss and reduces the carrying amount of the asset to its estimated fair value. Fair value is the amount at which the asset could be bought or sold in a current transaction between willing parties, that is, other than in a forced or liquidation sale. Management estimates fair value using discounted cash flows or 37 market comparables, as most appropriate for each property. Independent certified appraisers are utilized to assist management when warranted. During the years ended December 31, 2004 and December 31, 2003, your partnership recorded $13,065,000 and $1,560,000, respectively, in allowances for impairment. Because the cash flows used to evaluate the recoverability of the assets and their fair values are based upon projections of future economic events, such as property occupancy rates, rental rates, operating cost inflation and market capitalization rates, which are inherently subjective, the amounts ultimately realized at disposition may differ materially from the net carrying values at the balance sheet dates. The cash flows and market comparables used in this process are based on good faith estimates and assumptions developed by management. Unanticipated events and circumstances may occur, and some assumptions may not materialize; therefore, actual results may vary from the estimates, and variances may be material. The Partnership may provide additional write-downs, which could be material in subsequent years if real estate markets or local economic conditions change. Useful lives of long-lived assets. Building and improvements and certain other long-lived assets are depreciated or amortized over their useful lives. Depreciation and amortization are computed using the straight-line method over the useful life of the building and improvements. The cost of properties represents the initial cost of the properties to your partnership plus acquisition and closing costs less impairment adjustments. Recently Issued Accounting Standards. In December of 2004, the FASB issued SFAS No.153, "Exchange of Nonmonetary Assets - An Amendment of APB Opinion 29." The amendments made by SFAS No.153 are based on the principle that exchanges of nonmonetary assets should be measured based on the fair value of the assets exchanged. Further, the amendments eliminate the narrow exception for nonmonetary exchanges of similar productive assets and replaced it with a broader exception of exchanges of nonmonetary assets that do not have commercial substance. SFAS No.153 is effective for nonmonetary asset exchanges occurring in fiscal periods beginning after June 15, 2005. Your partnership does not believe the adoption of SFAS No.153 will have a material impact on your partnership's consolidated financial statements. In June 2005, the FASB ratified the EITF's consensus on Issue 04-5, "Determining Whether a General Partner, or the General Partners as a Group, Controls a Limited Partnership or Similar Entity When the Limited Partners Have Certain Rights." Issue 04-5 provides a framework for determining whether a general partner controls, and should consolidate, a limited partnership or a similar entity. It is effective after June 29, 2005, for all newly formed limited partnerships and for any pre-existing limited partnerships that modify their partnership agreements after that date. General partners of all other limited partnerships will apply the consensus no later than the beginning of the first reporting period in fiscal years beginning after December 15, 2005. The Partnership has not completed the process of evaluating the impact that will result from the adoption of the consensus in EITF 04-5 on the Partnership's consolidated financial statements. 38 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Your partnership has both fixed and variable rate debt, as well as one interest rate cap. All financial instruments were entered into for other than trading purposes. A change in interest rates on the fixed rate portion of the debt portfolio or the interest rate cap impacts the net financial instrument position, but has no impact on interest incurred or cash flows. A change in interest rates on the variable portion of the debt portfolio impacts the interest incurred and cash flows, but does not impact the net financial instrument position. The fair value of your partnership's debt, based on discounted cash flows at the current market conditions and interest rates for the remaining term of such debt was less than the aggregate carrying amount by approximately $9,300,000 at December 31, 2004. The change in the fair value of your partnership's debt as of December 31, 2004 reflects the impact of the T-Two Partners refinancing affected by your partnership in November 2003. At December 31, 2004, your partnership had one loan which had a variable interest rate. The loan which had an outstanding balance of $165.3 million at December 31, 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 (2.51% at December 31, 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% 2.49% -- -- ----- Additional interest expense $1,653 $3,307 $4,117 39 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA See "Index to Financial Statements" under "ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES" ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. 40 ITEM 9A. CONTROLS AND PROCEDURES In accordance with Exchange Act Rules 13a-15 and 15d-15, your partnership carried out an evaluation, under the supervision and with the participation of the Chief Executive Officer and Chief Financial Officer of your general partner's manager, as well as other key members of your partnership's management, of the effectiveness of your partnership's disclosure controls and procedures as of the end of the period covered by this report. Based on that evaluation, the Partnership's Chief Executive Officer and Chief Financial Officer concluded that the Partnership's disclosure controls and procedures were not effective, as of the end of the period covered by this report, solely because of the restatement described in Note 13 of the consolidated financial statements. No change occurred in your partnership's internal controls concerning financial reporting during the fourth quarter of the fiscal year ended December 31, 2004 that has materially affected, or is reasonably likely to materially affect, your partnership's internal controls over financial reporting. ITEM 9B. OTHER INFORMATION None. 41 PART III ITEM 10. MANAGERS AND EXECUTIVE OFFICERS OF THE REGISTRANT The general partner of your partnership is MLP GP LLC, a Delaware limited liability company, that is owned by affiliates of Vornado Realty Trust and executive officers of Winthrop Financial Associates. In addition, Winthrop Financial Associates performs asset management services for your partnership. MLP GP LLC has no assets, liabilities or equity and does not have an equity interest in your partnership. The manager of your partnership's general partner is Newkirk MLP Corp., the principal officers of which are Michael L. Ashner, Chief Executive Officer; Peter Braverman, Executive Vice President; Thomas C. Staples, Chief Financial Officer; and Carolyn Tiffany, Chief Operating Officer. Such persons also serve in those capacities for Winthrop Financial Associates. These officers manage and control the day-to-day operations of your partnership on behalf of your partnership's general partner. However, significant transactions, whether by your partnership or any subsidiary partnership, such as sales, acquisitions, debt refinancings and mergers, require the consent of the members of the general partner under the limited liability company agreement of the general partner. The principal occupations and relevant affiliations of the officers of your partnership's general partner are as follows: Michael L. Ashner. Mr. Ashner, age 52, serves as the Chief Executive Officer of Newkirk MLP Corp., the manager of the general partner of your partnership, a position he has held since January 2002 as well as the Chief Executive Officer of Winthrop Financial Associates, a Limited Partnership and its affiliates ("WFA"), a position he has held since January 1996. Mr. Ashner has been the Chief Executive Officer of First Union Real Estate Equity and Mortgage Investments, a publicly traded real estate investment trust which we refer to as First Union, since December 31, 2003 and Chairman since April 2004. Mr. Ashner has also served as the Chief Executive Officer of Shelbourne Properties I, Inc ("Shelbourne I"), Shelbourne Properties II, Inc. ("Shelbourne II") and Shelbourne Properties III, Inc. ("Shelbourne III"), three separate publicly traded real estate investment trusts listed on the American Stock Exchange that were recently liquidated. Since 1981, Mr. Ashner has been Chairman of Exeter Capital Corporation, a firm that has organized and administered real estate limited partnerships. Mr. Ashner also currently serves on the Boards of Directors of the following publicly traded companies: GB Holdings, Inc and Atlantic Entertainment Holdings, Inc., hotel and casino operators, and NBTY Inc., a manufacturer, marketer and retailer of nutritional supplements. Peter Braverman. Mr. Braverman, age 53, has served as the Executive Vice President of Newkirk MLP Corp. since January 2002. Mr. Braverman has also served as the Executive Vice President of WFA since January 1996. Mr. Braverman has been the President of First Union since August 2004 and was the Executive Vice President of First Union from January 2004 to such date. Mr. Braverman has also served as the Executive Vice President of Shelbourne Properties I, II and III. Thomas C. Staples. Mr. Staples, age 49, has been the Chief Financial Officer of Newkirk MLP Corp. since January 2002. Mr. Staples has been with WFA since 1995 and has served as its Chief Financial Officer since January 1999. Mr. Staples has also been the Chief Financial Officer of First Union since January 2004. Since August 2002, Mr. Staples has also served as Assistant Treasurer of Shelbourne I, Shelbourne II and Shelbourne III. Mr. Staples is a certified public accountant. 42 Carolyn Tiffany. Ms. Tiffany, age 38, has been the Chief Operating Officer and Secretary of Newkirk MLP Corp. since January 2002 and First Union since January 2004. Since December 1997, Ms. Tiffany has served as the Chief Operating Officer of WFA. Ms. Tiffany also served as Vice President, Treasurer, Secretary and Chief Financial Officer of Shelbourne I, Shelbourne II and Shelbourne III. One or more of the above persons are also directors or officers of a general partner (or general partners of a general partner) of a number of limited partnerships which either have a class of securities registered pursuant to Section 12(g) of the Securities and Exchange Act of 1934, or are subject to the reporting requirements of Section15(d) of such Act. Except as indicated above, neither your partnership nor your general partner or its manager has any significant employees within the meaning of Item 401(c) of Regulation S-K. There are no family relationships among the officers and directors of the general partner. Compliance with Section 16(a) of the Exchange Act. Based solely upon a review of Forms 3 and 4 and amendments thereto furnished to your partnership under Rule 16a-34(e) during your partnership's most recent fiscal year and Forms 5 and amendments thereto furnished to your partnership with respect to its most recent fiscal year, your partnership is not aware of any manager, officer or beneficial owner of more than ten percent of the units of limited partnership interest in your partnership that failed to file on a timely basis, as disclosed in the above Forms, reports required by Section 16(a) of the Exchange Act during the most recent fiscal year or prior fiscal years. Code of Ethics Your partnership has adopted a Code of Ethics that applies to the chief executive officer and chief financial officer of the manager of your partnership's general partner, who perform functions similar to principal executive officer and principal financial officer, respectively, for the partnership. A copy of the Code of Ethics will be provided without charge to any person who requests it by writing to the attention of Thomas Staples at the address set forth on the cover page to this Form 10-K. Your partnership has no directors and is not a "listed-issuer" under Item 401 to Regulation S-K. Accordingly, your partnership does not have an audit committee or an audit committee financial expert under Item 401 of Regulation S-K. 43 ITEM 11. EXECUTIVE COMPENSATION Your partnership has no employees. Winthrop Financial Associates, an affiliate of your general partner and of the Newkirk Group, provides the services of some of its employees, including the executive officers of the manager of your partnership's general partner, to perform asset management services. Winthrop Financial Associates receives an annual fee which was originally fixed at $1,800,000 (subject to adjustment based on increases in the CPI) for its services to your partnership and 15 other affiliated partnerships. The CPI adjustment for 2004 was 2.3% bringing the fee to $1,881,952. See "ITEM 1. BUSINESS - Employees." ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED SECURITY HOLDER MATTERS Security Ownership. The following table sets forth the number of units held as of March 24, 2005 by (i) each person that, to our knowledge, beneficially owns more than 5% of the total number of units, (ii) each officer or director of Newkirk MLP Corp., the manager of your partnership's general partner, and (iii) the directors and executive officers of Newkirk MLP Corp. as a group.

---------- (1) The address for Apollo Real Estate Investment Fund III, L.P. ("Apollo Fund"), Apollo Real Estate Advisors III, L.P. ("Apollo Advisors"), and Apollo Real Estate Management III, L.P. ("Apollo Management") is 2 Manhattanville Road, Purchase, New York 10577. The address for Mr. Ashner and Mr. Braverman is Two Jericho Plaza, Wing A, Suite 111, Jericho, New York 11753. The address for Mr. Staples and Ms. Tiffany is 7 Bulfinch Place, Suite 500, Boston, Massachusetts 02114. 44 (2) Comprised of units that are held by Newkirk RE Holdings LLC, Newkirk NL Holdings LLC, Newkirk Tender Holdings LLC, Marbax Venture LLC, AP-WIN Associates, L.L.C., AP-III WEM WIN Tender LLC and AP-IV WEM WIN Tender LLC, each of which is directly or indirectly controlled by either WEM-Brynmawr Associates LLC, WEM Fund 1998 Limited Partnership or WEM-WIN Tender Associates (the "WEM Entities") and by Apollo Fund. For purposes of Section 13 of the Securities Exchange Act of 1934 (the "Exchange Act"), as the sole manager of each of the WEM Entities, Mr. Ashner may be deemed to be the beneficial owner of all units beneficially owned by the WEM Entities. In addition, for purposes of Section 13 of the Exchange Act, as the general partner of Apollo Fund, Apollo Advisors may be deemed to be the beneficial owner of all units beneficially owned by Apollo Fund, and all such units may be deemed to be beneficially owned by Apollo Management as the day-to-day manager of Apollo Fund. (3) Due to the relationships between the individual and entities referred to on this chart and in notes (2) and (4) thereto, such individual and entities may be deemed to constitute a "group" for purposes of Section 13d-3 of the Exchange Act. (4) Comprised of units that are held by VNK Corp., Vornado Newkirk L.L.C. and Vornado Realty L.P., each of which is controlled by Vornado Realty Trust. (5) Pursuant to the terms of a court-approved settlement of an action, a total of approximately 61,220 units will be transferred by members of the Newkirk Group to other unitholders. Following such transfer the number of units beneficially owned by Mr. Ashner and the Apollo entities, Vornado Realty Trust and all executive officers and directors as a group will be reduced to approximately 3,608,234 (57.58%), 1,410,156 (22.50%) and 3,608,234 (57.58%), respectively. Changes in Control. There exists no arrangement known to the partnership the operation of which may at a subsequent date result in a change in control of the partnership. Securities Authorized for Issuance under Equity Compensation Plans. The partnership has no securities authorized for issuance under any equity compensation plans. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS ACQUISITION OF LIMITED PARTNERSHIP INTERESTS In April 2004, the Partnership exercised an option to purchase from the Newkirk Group additional limited partnership interests in two partnerships that own net leased properties in exchange for 15,539 units. Additional information on this transaction is contained in Item 7 of Amendment No. 3 to our Form 10 under the heading "Acquisition of Limited Partnership Interests" which is incorporated herein by reference. MORTGAGE INDEBTEDNESS AND OTHER INDEBTEDNESS Members of the Newkirk Group own approximately 53% of the second mortgage indebtedness encumbering properties owned by your partnership in El Segundo, California. During 2004, your partnership incurred approximately $715,000 of interest expense on this 45 mortgage indebtedness, $66,000 of which was paid to members of the Newkirk Group and the balance of which was added to the principal balance of the mortgage indebtedness. At December 31, 2004, your partnership owed approximately $15,232,000 on the second mortgage to members of the Newkirk Group. T-TWO PARTNERS See "ITEM 1. BUSINESS - Description of Assets - The Subordinate Mortgage Interests" for a description of T-Two Partners, its ownership of second mortgage loans on your partnership's properties. During 2004, your partnership incurred approximately $25,041,000 of interest expense payable to T-Two Partners, $20,058,500 of which was applied to make payments on the T-Two Loan that is guaranteed by your partnership. T-Two Partners is owned by NK-CR Holdings and Holdings Subsidiary, both of which are owned by members of the Newkirk Group. MORTGAGE ON PROPERTY OF AFFILIATE See "ITEM 1. BUSINESS - Description of Assets - First Mortgage Interests" for information on a securitized pool of first mortgages held by your partnership that is partially secured by properties owned by partnerships that are controlled by affiliates of your partnership's general partner. ASSET MANAGEMENT AGREEMENT See "ITEM 1. BUSINESS - Description of Assets - The Management Company" for a description of fees paid to Winthrop Financial Associates by Newkirk Asset Management LLC for services rendered for your partnership and certain other partnerships. SALE OF PROPERTY See "ITEM 2. PROPERTIES - Property Matters" for information on the sale in July 2004 of 25 properties to Vornado, an affiliate of your partnership's general partner. 46 ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES The aggregate fees for professional services rendered by Imowitz, Koenig & Co. during 2004 and 2003 were as follows: Audit Fees. Fees for the audit of your partnership's annual financial statements, the reviews of the financial statements in the Partnership's Forms 10-Q, the review of the financial statements in the Partnership's Form 10 and amendments thereto, and other services in connection with statutory and regulatory filings and engagements were $330,000 and $338,000 in 2004 and 2003, respectively. Audit Related Fees. The aggregate audit-related fees billed during 2004 and 2003 for assurance and related services that were reasonably related to the performance of the audit or review of your partnership's financial statements and not reported under "Audit Fees" were in the amount of $0 and $15,000, respectively, billed by Imowitz, Koenig & Co. and covered agreed upon procedures related to a bank financing in 2003. Tax Fees. Fees for tax services relating to tax compliance were $241,000 and $366,000 in 2004 and 2003, respectively. All Other Fees. None. 47 PART IV ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES (a) Financial Statements 1. See "Index to Financial Statements" below. 2. The following financial statement schedule should be read in conjunction with the financial statements included in Item 8 of this Annual Report on Form 10-K. III - Real Estate and Accumulated Depreciation as of December 31, 2004. Schedules other than those listed above are omitted because they are not applicable or the information required is included in the consolidated financial statements or the notes thereto. (b) Exhibits Exhibit No. Description ----------- ----------- * 2.1 Agreement and Plan of Merger between the Newkirk Master Limited Partnership and each of the Merger Partnerships set forth on Schedule A, dated December 6, 2001. * 2.2 Assignment and Assumption Agreement by and between Newkirk Stock LLC, The Newkirk Master Limited Partnership, Newkirk NL Holdings LLC and VNK Corp. dated as of December 26, 2001. * 2.3 Assignment and Assumption Agreement by and between Newkirk Eastgar LLC, Newkirk Partner Interest LLC, The Newkirk Master Limited Partnership and Newkirk MLP Unit LLC dated as of December 26, 2001. * 2.4 Assignment and Assumption Agreement by and between Vornado Realty L.P., Vornado Newkirk L.L.C., The Newkirk Master Limited Partnership, and Newkirk MLP Unit LLC, dated as of December 26, 2001. * 2.5 Assignment and Assumption Agreement between Newkirk RE Associates LLC, The Newkirk Master Limited Partnership, Newkirk RE Holdings and Vornado Newkirk L.L.C. dated as of December 26, 2001. * 2.6 Assignment and Assumption Agreement by and between Newkirk Associates LLC, The Newkirk Master Limited Partnership, Newkirk NL Holdings LLC and Vornado Newkirk L.L.C. dated as of December 26, 2001. * 2.7 Agreement and Plan of Merger by and between The Newkirk Master Limited Partnership, Lanmar Associates Limited Partnership and Newkirk Lanmar L.P., dated as of December 6, 2001. * 3 Certificate of Limited Partnership of the Newkirk Master Limited Partnership. * 4.1 Agreement of Limited Partnership of The Newkirk Master Limited Partnership, by and among MLP GP LLC, Newkirk Manager Corp. and all other persons who shall, pursuant to the Exchange or otherwise become limited partners of the Partnership, dated as of October 23, 2001. * 4.2 Additional provisions incorporated by reference into the Agreement of Limited Partnership of the Newkirk Master Limited Partnership. * 4.3 Limited Liability Agreement of MLP GP LLC. 48 Exhibit No. Description ----------- ----------- * 10.1 Amended and Restated Cash Participation Agreement, dated as of January 1, 2002, by and among Newkirk GP LLC, Newkirk Capital LLC, Newkirk RE Associates LLC, Newkirk Stock LLC, Newkirk Associates LLC, Vornado Realty L.P., Vornado Newkirk L.L.C., VNK Corp., on the one hand, and Administrator LLC, as agent for itself and as agent for the persons listed on Schedule A thereto. * 10.2 Amended and Restated Pledge Agreement, dated as of January 1, 2002, by and between The Newkirk Master Limited Partnership and Administrator LLC, for itself and as agent for the parties listed on Schedule A thereto. * 10.3 Put-Call Option Agreement, dated as of January 1, 2002, by and among The Newkirk Master Limited Partnership,, NK-CR Holdings LLC and Holdings Subsidiary LLC. * 10.4 Asset Management Agreement dated as of January 1, 2002, by and between Newkirk Asset Management LLC and Winthrop Financial Associates. * 10.5 Loan Agreement, dated January 30, 2002, among The Newkirk Master Limited Partnership and Bank of America and the lenders party thereto. * 10.6 Promissory Note, dated as of January 30, 2002, by The Newkirk Master Limited Partnership in favor of Bank of America. * 10.7 Security Agreement, dated as of January 30, 2002, between The Newkirk Master Limited Partnership and Bank of America. * 10.8 Ownership Interest Pledge and Security Agreement, dated as of January 30, 2002, from The Newkirk Master Limited Partnership, Newkirk GP Holding LLC and General Partners of Participating Limited Partnerships to Bank of America. * 10.9 Ownership Interest Pledge and Security Agreement, dated as of January 30, 2002, from The Newkirk Master Limited Partnership to Bank of America. * 10.10 Ownership Interest Pledge and Security Agreement, dated as of January 30, 2002, from The Newkirk Master Limited Partnership to Bank of America. * 10.11 Ownership Interest Pledge and Security Agreement, dated as of January 30, 2002, from The Newkirk Master Limited Partnership to Bank of America. ** 10.12 Indemnity Agreement, dated as of January 30, 2002, among Newkirk NL Holdings, LLC, Newkirk MLP Corp., Vornado Realty, L.P., Vornado Newkirk, LLC, VNK Corp., Apollo Real Estate Fund III, L.P., The Newkirk Master Limited Partnership and Bank of America. *** 10.13 Master Loan Agreement, dated November 24,2003, among The Newkirk Master Limited Partnership, T-Two Partners, L.P., and Bank of America and the lender's party thereto. *** 10.14 Master Promissory Note, dated as of November 24, 2003, by The Newkirk Master Limited Partnership in favor of Bank of America. *** 10.15 Security Agreement, dated as of November 24, 2003, between The Newkirk Master Limited Partnership and Bank of America. *** 10.16 Ownership Interest Pledge and Security Agreement, dated as of November 24, 2003, from The Newkirk Master Limited Partnership, Newkirk GP Holding LLC and General Partners of certain Limited Partnerships Bank of America. 49 Exhibit No. Description ----------- ----------- *** 10.17 Ownership Interest Pledge and Security Agreement (GMAC Partnerships), dated as of November 24, 2003, from The Newkirk Master Limited Partnership to Bank of America. *** 10.18 Ownership Interest Pledge and Security Agreement (Subsidiaries), dated as of November 24, 2003, from The Newkirk Master Limited Partnership to Bank of America. *** 10.19 Ownership Interest Pledge and Security Agreement (Finco and Capital), dated as of November 24, 2003, from The Newkirk Master Limited Partnership to Bank of America. *** 10.20 Amended and Restated Indemnity Agreement, dated as of November 24, 2003, among Newkirk NL Holdings, LLC, Newkirk MLP Corp., Vornado Realty, L.P., Vornado Newkirk, LLC, VNK Corp., Apollo Real Estate Fund III, L.P., The Newkirk Master Limited Partnership and Bank of America. *** 10.21 Guaranty from The Newkirk Master Limited Partnership to Bank of America. **** 10.22 Amended Stipulation of Settlement of Albert McCall, et. al., v. Newkirk Capital LLC, et al. ***** 14 Code of Ethics. * 21 List of subsidiaries of the Registrant. 31.1 Certificates of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 31.2 Certificates of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 32.1 Chief Executive Officer's Certificate, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 32.2 Chief Financial Officer's Certificate, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. ---------- * Previously filed as an Exhibit to Form 10 filed on April 30, 2003. ** Previously filed as an Exhibit to Amendment No. 1 to Form 10 filed on September 10, 2003. *** Incorporated by reference to Exhibits filed with Form 8-K dated November 24, 2003. **** Previously filed as an Exhibit to Amendment No. 2 to Form 10 filed on February 12, 2004. ***** Previously filed as an Exhibit to Form 10-K for the year ended December 31, 2003, filed on April 5, 2004. 50 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Dated: August 4, 2005 THE NEWKIRK MASTER LIMITED PARTNERSHIP By: MLP GP LLC, its General Partner By: Newkirk MLP Corp., its Manager By: /s/ Michael L. Ashner ------------------------------- Name: Michael L. Ashner Title: Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the date indicated:

51 Item 8. Financial Statements and Supplementary Data THE NEWKIRK MASTER LIMITED PARTNERSHIP INDEX TO FINANCIAL STATEMENTS

Report of Independent Registered Public Accounting Firm To the Partners of The Newkirk Master Limited Partnership We have audited the accompanying consolidated balance sheets of The Newkirk Master Limited Partnership (a Delaware limited partnership) (the "Partnership") as of December 31, 2004 and 2003 and the related consolidated statements of operations, partners' equity and cash flows for each of the years in the three-year period ended December 31, 2004. These consolidated financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Partnership as of December 31, 2004 and 2003, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2004, in conformity with accounting principles generally accepted in the United States of America. As discussed in Note 13, the accompanying consolidated balance sheets as of December 31, 2004 and 2003 and the related consolidated statements of cash flows for each of the years in the three-year period ended December 31, 2004 have been restated. In connection with our audits of the consolidated financial statements referred to above, we audited the financial statement schedule listed under Item 15. In our opinion, this financial statement schedule, when considered in relation to the consolidated financial statements taken as a whole, presents fairly, in all material respects, the information stated therein. /s/ Imowitz Koenig & Co., LLP New York, New York January 31, 2005 (July 25, 2005 as to the effects of the restatement discussed in Note 13) F-1 THE NEWKIRK MASTER LIMITED PARTNERSHIP CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 2004 AND DECEMBER 31, 2003 (In thousands, except unit data)

See Notes to Consolidated Financial Statements. F-2 THE NEWKIRK MASTER LIMITED PARTNERSHIP CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002 (In thousands, except per unit data)

See Notes to Consolidated Financial Statements. F-3 THE NEWKIRK MASTER LIMITED PARTNERSHIP CONSOLIDATED STATEMENTS OF PARTNERS' EQUITY FOR THE YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002 (In thousands, except unit data) Limited Partnership Partners' Units Equity ----------- ---------- Equity contributions 6,121,990 $ 61,949 Minority interest charge -- 6,147 Distributions -- (196,880) Limited partner buyouts (5,412) (182) Net income -- 122,862 ---------- ---------- Balance at December 31, 2002 6,116,578 (6,104) Acquisition of entities under common control 317,813 (13,637) Minority interest charge -- 12,109 Distributions -- (34,731) Limited partner buyouts (115,000) (3,937) Net income -- 145,164 ---------- ---------- Balance at December 31, 2003 6,319,391 98,864 Equity contributions 15,539 836 Minority interest charge -- 13,101 Distributions -- (46,106) Limited partner buyouts (20,472) (718) Net income -- 137,808 ---------- ---------- Balance at December 31, 2004 6,314,458 $ 203,785 ========== ========== See Notes to Consolidated Financial Statements. F-4 THE NEWKIRK MASTER LIMITED PARTNERSHIP CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002 (In thousands)

(Continued) See Notes to Consolidated Financial Statements. F-5 THE NEWKIRK MASTER LIMITED PARTNERSHIP CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002 (In thousands) (Continued)

See Notes to Consolidated Financial Statements. F-6 THE NEWKIRK MASTER LIMITED PARTNERSHIP CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002 (CONTINUED) Supplemental Information In March 2003, in connection with the disposal of real estate, the purchaser of a property assumed $94,918,000 of the Partnership's debt. In January 2004, in connection with the sale of a property, the purchaser of the property assumed $28,460,000 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. F-7 THE NEWKIRK MASTER LIMITED PARTNERSHIP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 1 - ORGANIZATION AND BUSINESS The Newkirk Master Limited Partnership (the "Partnership") was organized in October 2001 as a limited partnership under the Delaware Revised Uniform Limited Partnership Act. The Partnership's term is perpetual unless it is otherwise dissolved in accordance with the terms of the Partnership's partnership agreement. The Partnership commenced operations on January 1, 2002 following the completion of a transaction (the "Exchange") involving the merger into wholly-owned subsidiaries of the Partnership of 90 limited partnerships, each of which owned commercial properties (the "Newkirk Partnerships"), and the acquisition by the Partnership of various assets, including those related to the management or capital structure of the Newkirk Partnerships. The Partnership was formed to facilitate and consummate the Exchange and for the purpose of directly or indirectly (whether through a subsidiary or otherwise), investing in, acquiring, owning, holding, managing, operating, selling, exchanging and otherwise disposing of interests in real estate and assets related to real estate and to engage in activities and transactions as the general partner deems necessary or advisable to promote the business of the Partnership. As part of the Exchange, each Newkirk Partnership was merged with and into a separate newly-formed limited partnership that is wholly-owned by the Partnership; the Newkirk Partnerships ceased to exist following completion of the merger. Each Newkirk Partnership owned one or more commercial properties that are generally net leased to a single tenant. As a result of the Exchange, the Partnership owns the properties and other assets formerly owned by the Newkirk Partnerships, subject to the liabilities of such partnerships. In addition, as part of the Exchange, the "Newkirk Group" contributed certain assets to the Partnership. The Newkirk Group, which managed the Newkirk Partnerships, is comprised of certain affiliates of Apollo Real Estate Fund III, L.P., ("Apollo"), Vornado Realty Trust ("Vornado") and senior executives of Winthrop Financial Associates, A Limited Partnership ("WFA"). At December 31, 2004, the Newkirk Group owned approximately 79% of the Partnership. The limited partners of the Partnership consist of former limited partners of the Newkirk Partnerships, former limited partners that elected to participate in the Exchange of an additional limited partnership that was affiliated with the Newkirk Partnerships and affiliates of the Newkirk Group. The general partner of the Partnership is MLP GP LLC, ("General Partner"), a Delaware limited liability company owned by affiliates of the Newkirk Group. MLP GP LLC does not receive any compensation for managing the Partnership. MLP GP LLC has no assets, liabilities or equity and has no economic interest in the Partnership. WFA, F-8 THE NEWKIRK MASTER LIMITED PARTNERSHIP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 1 - ORGANIZATION AND BUSINESS (Continued) which performed asset management services for the Newkirk Partnerships, performs asset management services for the Partnership. As of January 1, 2002, balances related to the exchange of Units in the Partnership for the various assets of the combined entity and other contributing unit holders were as follows: 2002 -------------- (In thousands) Real estate, net $ 1,233,756 Real estate held for sale 113,982 Cash and cash equivalents 10,776 Receivables 78,376 Deferred costs, net 19,957 Other assets 34,377 Other assets of discontinued operations 880 Mortgage notes payable (776,633) Contract right mortgage notes payable (325,264) Accrued interest (188,567) Accounts payable and accrued expenses (15,189) Liabilities of discontinued operations (123,078) Minority interest (1,424) ----------- Partners' equity $ 61,949 =========== At December 31, 2004, the Partnership owned the following: (i) Net-Leased Properties: Ownership of 210 commercial properties located throughout the United States of America, substantially all of which are net-leased to a single tenant. (ii) Other Assets: (a) Limited partnership interests in (i) seven consolidated partnerships ("Consolidated Partnerships") which represent between 32.1% and 68.68% of the partnership's operating interest and (ii) nine unconsolidated partnerships ("Unconsolidated Partnerships") which represent between .7% and 45.29%. F-9 THE NEWKIRK MASTER LIMITED PARTNERSHIP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 1 - ORGANIZATION AND BUSINESS (Continued) (b) The Partnership or an affiliate of the General Partner of the Partnership control general partnership interests in (i) seven Consolidated Partnerships, (ii) nine Unconsolidated Partnerships and (iii) five Other Partnerships that own commercial net leased properties. Other Partnerships are partnerships that were controlled by the Newkirk Group and were not merged into the Partnership. (c) A 50.01% interest in Newkirk Capital LLC whose wholly-owned subsidiary, Newkirk Asset Management LLC, provides asset management and other services to the Partnership and the Other Partnerships. Prior to the Exchange, Newkirk Asset Management LLC provided these services to the Newkirk Partnerships and the Other Partnerships. Newkirk Capital LLC and Newkirk Asset Management LLC have retained WFA to perform certain of the services provided to the Partnership and the Other Partnerships. The fees payable to Newkirk Asset Management LLC and Newkirk Capital LLC are retained by the Partnership. (d) A note receivable from Administrator LLC, a 49.99% owner of Newkirk Capital LLC. F-10 THE NEWKIRK MASTER LIMITED PARTNERSHIP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 1 - ORGANIZATION AND BUSINESS (Continued) (e) The right to acquire T-Two Partners, L.P., ("T-Two Partners") from its current owners, affiliates of the Newkirk Group. (f) Land interests comprised of ground leases, remainder interests or the right to acquire remainder interests in the land underlying certain properties owned by the Partnership and other real estate limited partnerships. (g) An interest in NK-Leyden Loan, L.P. and NK-Dautec Loan, L.P., each of which hold an unsecured note of the Partnership. (h) Interests in entities which hold a securitized pool of 29 first mortgage loans encumbering 61 Partnership properties and 1 property owned by another limited partnership. In 2004, 2003 and 2002, the Partnership acquired from its limited partners 20,472, 115,000 and 5,412, respectively, of its units of limited partnership interest. F-11 THE NEWKIRK MASTER LIMITED PARTNERSHIP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation The accompanying consolidated financial statements present the consolidated financial position, results of operations and cash flows of the Partnership and its controlled subsidiaries. All significant intercompany transactions, receivables and payables have been eliminated in consolidation. Minority interests relate to the interest in certain partnerships not owned by the Partnership. The Partnership accounts for its investments in partnerships and joint ventures, in which it does not have a controlling interest, using the equity method of accounting. Equity investments are recorded initially at cost and subsequently adjusted for the Partnership's share of the net income or loss and cash contributions to and distributions from these partnerships and joint ventures. The Partnership has accounted for the Exchange as an exchange of equity interests between entities under common control and initially recognized the assets and liabilities contributed at the carrying amounts of the contributing entities. Use of Estimates The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. Real Estate Investments in real estate are stated at historical cost basis less accumulated depreciation and amortization. Depreciation of buildings and improvements is computed on a straight-line basis over their estimated useful lives, which range from fourteen to forty years. Amortization of the land estates is computed on a straight-line basis over their estimated useful lives, which range from twenty-two to thirty years. During 2003, the Partnership made a change to its accounting estimates with respect to the depreciable lives of its real estate assets. The change in accounting estimates resulted in a decrease in net income of approximately $6.8 million and a decrease in net income of approximately $1.08 per limited partnership unit for the year ended December 31, 2003. F-12 THE NEWKIRK MASTER LIMITED PARTNERSHIP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Real Estate (Continued) The Partnership's real estate investments are reviewed for impairment if events or changes in circumstances indicate that the carrying amount of the real estate may not be recoverable. In such an event, a comparison is made of the current and projected operating cash flows of such real estate on an undiscounted basis to the carrying amount of such real estate. Such carrying amount would be adjusted, if necessary, to estimated fair value to reflect impairment in the value of the real estate. Real estate assets for which the Partnership has committed to a plan to dispose of the assets, whether by sale or abandonment, are reported at the lower of carrying amount or fair value less cost to sell. Preparation of projected cash flows is inherently subjective and is based on the Partnership's best estimate of assumptions concerning expected future conditions. Upon acquisitions of real estate, the Partnership assesses the fair value of acquired assets (including land, buildings, tenant improvements, and identified intangibles such as above and below market acquired in-place leases) and acquired liabilities, and allocates purchase price based on these assessments. The Partnership accounts for properties as held for sale under the provisions of Statement of Financial Accounting Standards ("SFAS") No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" ("SFAS No. 144"), when all criteria of SFAS No. 144 have been met. Cash and Cash Equivalents The Partnership considers all highly liquid investments with original purchase maturity dates of three months or less to be cash equivalents. Restricted Cash Restricted cash includes reserves for tenant improvements, leasing commissions and related costs established pursuant to the Partnership's note payable agreement. Concentration of Credit Risk Substantially all of the Partnership's cash and cash equivalents consist of money market mutual funds which invest in U.S. Treasury Bills and repurchase agreements with original maturity dates of three months or less. The Partnership maintains cash with one banking institution, which amounts at times exceed federally insured limits. F-13 THE NEWKIRK MASTER LIMITED PARTNERSHIP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Interest Rate Protection Agreements SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," requires the recording of all derivative instruments as either assets or liabilities depending on the rights and obligations under the contracts. Derivative instruments are measured at fair value, with the resulting gain or loss being recognized either in earnings or equity in the period of change, depending on whether the contract is designated as a hedge or not. The Partnership invests in interest rate caps in order to cap the maximum interest rate payable on its variable rate debt. The interest rate caps are not designated as hedging instruments, and are measured at fair value, with the resulting gain or loss being recognized in interest expense in the period of change. Receivables Receivables consist of rent from tenants and other receivables which are deemed collectable by the Partnership. No provision for doubtful accounts was considered necessary based upon the Partnership's evaluation of the collectability of these amounts. Loans Receivable The Partnership evaluates the collectability of both interest and principal of each of its loans, if circumstances warrant, to determine whether it is impaired. A loan is considered to be impaired, when based on current information and events, it is probable that the Partnership will be unable to collect all amounts due according to the existing contractual terms. When a loan is considered to be impaired, the amount of the loss accrual is calculated by comparing the recorded investment to the value determined by discounting the expected future cash flows at the loan's effective interest rate. Interest on impaired loans is recognized on a cash basis. Loans receivable are included with "other assets" in the accompanying consolidated balance sheets. Investments in Debt Securities and Mortgage Loans Investments in debt securities are classified as held-to-maturity and reported at amortized cost. Investment in mortgage loans is included with "other assets" in the accompanying consolidated balance sheets. F-14 THE NEWKIRK MASTER LIMITED PARTNERSHIP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Deferred Financing Costs Deferred financing costs consists primarily of fees paid in connection with the financing of the Partnership's properties and are deferred and amortized over the terms of the related agreements on a straight line basis which approximates the effective interest method as a component of interest expense. 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 decisions, including dispositions and acquisitions of assets, financing, operations and capital budgets, other contractual rights, and ultimate removal of the general partner in situations where the Partnership is the general partner. To the extent that the Partnership is deemed to control these entities, these entities would be consolidated. Determination is made on a case-by-case basis. The Partnership accounts for the purchase of minority interests at fair value utilizing the purchase method of accounting in accordance with SFAS No. 141, "Business Combinations". Revenue Recognition The Partnership's lease agreements are operating leases and generally provide for varying rents over the lease terms. The Partnership records rental income for the full term of each lease on a straight-line basis. Accordingly, deferred rental income is recorded from tenants for the amount that is expected to be collected over the remaining lease term rather than currently. When a property is acquired, the term of existing leases is considered to commence as of the acquisition date for purposes of this calculation. Deferred rental income recorded amounted to $27.1 million and $30.9 million for the Partnership at December 31, 2004 and 2003, respectively. F-15 THE NEWKIRK MASTER LIMITED PARTNERSHIP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Income Taxes Taxable income or loss of the Partnership is reported in the income tax returns of its partners. Accordingly, no provision for income taxes is made in the consolidated financial statements of the Partnership. However, the Partnership is required to pay certain state and local entity level taxes which are expensed as incurred. Net Income per Unit Net income per Unit is computed by dividing net income by 6,317,753, 6,329,204 and 6,119,942 weighted average Units outstanding during the years ended December 31, 2004, 2003 and 2002, respectively. Distributions; Allocations of Income and Loss As provided in the partnership agreement, distributions are allocated to the limited partners based on their ownership of Units. No distributions, or net income or loss allocation, are made to the general partner. Income and loss for financial reporting purposes is allocated to limited partners based on their ownership of Units. Special allocation rules affect the allocation of taxable income and loss. The Partnership paid distributions of $46,106,000 ($7.30 per Unit), $34,731,000 ($5.52 per Unit) and $196,880,000 ($32.16 per Unit) to its limited partners during the years ended December 31, 2004, 2003 and 2002, respectively. Segment Reporting The Partnership has one reportable segment, net-leased commercial real estate. The Partnership evaluates performance based on net operating income, which is income before depreciation, amortization, interest and non-operating items. Fair Value of Financial Instruments Financial instruments held by the Partnership include cash and cash equivalents, receivables, accounts payable and long-term debt. The fair value of cash and cash equivalents, receivables and accounts payable approximates their current carrying amounts due to their short-term nature. The fair value of long-term debt, which has fixed interest rates, was determined based upon current market conditions and interest rates. The fair value of the mortgage notes payable approximates fair value for debt with similar terms and conditions due to yield maintenance requirements and prepayment penalties. The fair value of the Partnership's contract right mortgage notes payable, including those in discontinued operations, is F-16 THE NEWKIRK MASTER LIMITED PARTNERSHIP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) approximately $356.7 million, which is $9.3 million less than the aggregate carrying amount at December 31, 2004. The fair value of the Partnership's interest rate cap is approximately $0.3 million and is included in deferred costs at December 31, 2004. Such fair value estimates are not necessarily indicative of the amounts that would be realized upon disposition of the Partnerships' financial instruments. Reclassifications Certain prior year amounts have been reclassified to conform to the 2004 presentation, including the reporting of discontinued operations for those assets that have been disposed of or classified as held for sale in accordance with SFAS No. 144. Recently Issued Accounting Standards In December of 2004, the FASB issued SFAS No.153, "Exchange of Nonmonetary Assets - An Amendment of APB Opinion 29." The amendments made by SFAS No. 153 are based on the principle that exchanges of nonmonetary assets should be measured based on the fair value of the assets exchanged. Further, the amendments eliminate the narrow exception for nonmonetary exchanges of similar productive assets and replace it with a broader exception of exchanges of nonmonetary assets that do not have commercial substance. SFAS No.153 is effective for nonmonetary asset exchanges occurring in fiscal periods beginning after June 15, 2005. The Partnership does not believe the adoption of SFAS No.153 will have a material impact on the Partnership's consolidated financial statements. In June 2005, the FASB ratified the EITF's consensus on Issue 04-5, "Determining Whether a General Partner, or the General Partners as a Group, Controls a Limited Partnership or Similar Entity When the Limited Partners Have Certain Rights." Issue 04-5 provides a framework for determining whether a general partner controls, and should consolidate, a limited partnership or a similar entity. It is effective after June 29, 2005, for all newly formed limited partnerships and for any pre-existing limited partnerships that modify their partnership agreements after that date. General partners of all other limited partnerships will apply the consensus no later than the beginning of the first reporting period in fiscal years beginning after December 15, 2005. The Partnership has not completed the process of evaluating the impact that will result from the adoption of the consensus in EITF 04-5 on the Partnership's consolidated financial statements. F-17 THE NEWKIRK MASTER LIMITED PARTNERSHIP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 3 - REAL ESTATE INVESTMENTS Most of the Partnership's properties are net-leased to a single commercial tenant. The properties are located throughout the United States. The leases are similar in many respects and generally provide for fixed rent payments and obligate the tenant to pay all capital and operating expenses for a property; obligate the tenant to perform all responsibilities (other than the payment of debt service) relating to the property; require the tenant to maintain insurance against casualty and liability losses; permit the tenant to sublet the property; and afford the tenant in many instances the right to terminate the lease at certain points during the primary term if it determines that its continued use and occupancy of the property would be uneconomic or unsuitable. The Partnership's ability to maintain and operate its properties and satisfy its contractual obligations is dependent upon the performance by the tenants of their obligations under their lease agreements with the Partnership. Under certain conditions (including the destruction of the property), many of the tenants have an option to purchase the property upon the expiration of the primary term of the lease and at the end of one or more renewal terms for a price stated in the lease agreement. The Partnership's properties are encumbered by mortgage notes payable and subordinated contract rights payable. The future minimum lease payments that are scheduled to be received under non-cancellable operating leases are as follows (in thousands): 2005 $ 247,502 2006 236,733 2007 203,245 2008 149,180 2009 50,337 Thereafter 48,804 ------------ $ 935,801 ============ Three tenants accounted for approximately 38%, 36% and 38% of the aggregate rental revenues from continuing operations of the Partnership in 2004, 2003 and 2002, respectively. F-18 THE NEWKIRK MASTER LIMITED PARTNERSHIP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 3 - REAL ESTATE INVESTMENTS (Continued) The Partnership owns the fee interest in the land on which certain of its properties are located, leases the land pursuant to ground leases or holds an estate for years with an option to lease the land upon expiration of the estate for years. Certain land interests held by the Newkirk Group comprised of ground leases, remainder interests or the right to acquire remainder interests in the land underlying certain properties were contributed to the Partnership in connection with the Exchange. The rent payable under the ground leases is as follows (in thousands): 2005 $ 3,013 2006 2,401 2007 1,773 2008 1,147 2009 798 Thereafter 177 --------- $ 9,309 ========= Note 4 - NOTES AND CONTRACT RIGHTS PAYABLE The Partnership, excluding discontinued operations, had outstanding mortgage notes payable and contract right mortgage notes payable with an aggregate principal balance of $742.0 million and $895.9 million at December 31, 2004 and 2003, respectively. The mortgage notes are at fixed interest rates with payments of principal and interest generally due either monthly, quarterly or semi-annually. All the mortgage notes are collateralized by the Partnership's real estate; some of the mortgage notes are cross-collateralized. An aggregate of $478.9 million as of December 31, 2004 in indebtedness under the mortgage notes mature at various dates from 2005 to 2024. Prepayment of most of the mortgage notes is permitted only with a yield maintenance payment or prepayment penalty as defined in the mortgage note agreements. Interest rates on the mortgages ranged from 5.0% to 10.4%, with a weighted average interest rate of 8.1% at December 31, 2004. Interest rates on the mortgages ranged from 4.2% to 11.3% with a weighted average interest rate of 8.0% at December 31, 2003. F-19 THE NEWKIRK MASTER LIMITED PARTNERSHIP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 4 - NOTES AND CONTRACT RIGHTS PAYABLE (Continued) The contract right mortgage notes aggregating $263.1 million as of December 31, 2004 mature at various dates from 2008 to 2024. The Partnership has the option to prepay some of these mortgage notes at a discount. All of the contract right mortgages are prepayable at any time without premium or penalty subject to the prior or simultaneous satisfaction of the underlying first mortgage loans. Interest rates ranged from 8.11% to 13.9%, with a weighted average interest rate of 10.7% at December 31, 2004. Interest rates ranged from 8.11% to 16.25%, with a weighted average interest rate of 10.3% at December 31, 2003. Mortgage notes payable and contract right mortgage notes payable aggregating approximately $1.1 billion and accrued interest thereon were assumed as part of the Exchange. These notes were recorded at their fair value as of the various dates of acquisition. This accounting method resulted in recorded interest expense that was $5.5 million, $3.8 million and $4.0 million greater than the contractual interest expense for the years ended December 31, 2004, 2003 and 2002, respectively. The effect of utilizing this accounting method was to reduce the balance of mortgage and contract rights notes payable. The cumulative reduction in liabilities related to utilizing this accounting method was $38.7 million and $56.1 million at December 31, 2004 and 2003, respectively. During November 2003, the Partnership obtained a $208.5 million loan, which had an outstanding balance of $165.3 million and $208.4 million at December 31, 2004 and 2003, respectively. The note payable bears interest at a rate elected by the Partnership equal to either (1) LIBOR plus 450 basis points or (2) the prime rate charged by the bank plus 250 basis points. The note payable was obtained to replace the Partnership's existing note payable and effectively reduced the interest rate on such borrowing from a minimum of 8.5% to a floating rate which was 7.01% (LIBOR plus 450 basis points) at December 31, 2004 and that will in no event exceed 9.5%, after giving effect to the three-year interest rate protection agreement entered into by the Partnership. The note payable is scheduled to mature on November 24, 2006, subject to two one-year extensions. The note payable requires monthly payments of interest only. In addition, mandatory prepayments of principal are required from the proceeds of property sales and refinancings and other asset sales, as well as up to approximately $1.3 million per quarter to the extent that T-Two Partners does not make the required principal payments on the T-Two Loan that is described in Note 6. The Partnership can prepay the note payable in whole or in part at any time together with a premium of 1/2% if such prepayment occurs on or before November 24, 2005 and with no premium after November 24, 2005. In addition, the Partnership and T-Two Partners may prepay up to $50.0 F-20 THE NEWKIRK MASTER LIMITED PARTNERSHIP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 4 - NOTES AND CONTRACT RIGHTS PAYABLE (Continued) million annually of this Loan and the T-Two Loan without a premium. The note payable is secured by substantially all of the assets of the Partnership, and contains customary financial and other covenants. In connection with the Partnership's refinancings, real estate sales and repayments of mortgage debt during 2004, the Partnership has recognized a net loss from early extinguishment of debt of $6.3 million, which is included in discontinued operations. The net loss from early extinguishment of debt consisted of loss from debt extinguishment of $6.0 million, plus mortgage prepayment penalties of $0.3 million. During 2003, the Partnership recognized a net gain from early extinguishment of debt of $8.7 million, which is included in discontinued operations. The net gain from early extinguishment of debt consisted of gains from debt extinguishment of $9.1 million, net of mortgage prepayment penalties of $0.4 million. During 2002, the Partnership recognized a net gain on the early extinguishment of debt of $6.3 million of which $0.5 million is in discontinued operations. Scheduled payments of principal at December 31, 2004, for the next five years and thereafter through maturity, are as follows (in thousands):

F-21 THE NEWKIRK MASTER LIMITED PARTNERSHIP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 5 - EQUITY INVESTMENTS IN LIMITED PARTNERSHIPS The equity investments in limited partnerships consists of the following (in thousands): 2004 2003 -------- -------- Balance, beginning of year $ 8,492 $ -- Investments in limited partnerships 342 6,930 Equity in income of limited partnerships 2,662 2,054 Distributions from limited partnerships (389) (492) -------- -------- Balance, end of year $ 11,107 $ 8,492 ======== ======== The partnership has paid a premium for its allocable share of the underlying limited partnerships which is being amortized into the equity income of the limited partnerships. The amortization expense amouted to $126, $42 and $0 for the years ended December 31, 2004, 2003 and 2002 respectively. The limited partnerships condensed combined statements of operations for the years ended December 31, 2004 and 2003 and condensed combined balance sheets as of December 31, 2004 and 2003 are as follows (in thousands): Year Ended Year Ended December 31, December 31, 2004 2003 ------------ ------------ (Unaudited) Condensed Statements of Operations: Rental revenue and interest income $26,571 $26,528 Interest expense 11,051 12,052 Administrative expenses 77 54 Depreciation expense 3,501 3,400 Amortization expense 525 525 ------- ------- Net income $11,417 $10,497 ======= ======= F-22 THE NEWKIRK MASTER LIMITED PARTNERSHIP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 5 - INVESTMENT IN LIMITED PARTNERSHIPS (Continued) December 31, December 31, 2004 2003 --------- --------- (Unaudited) Condensed Balance Sheets: Cash $ 1,690 $ 1,681 Real estate, net 84,598 87,066 Other assets 3,318 3,709 --------- --------- Total assets $ 89,606 $ 92,456 ========= ========= Accounts payable and other liabilities $ 1,920 $ 2,355 Mortgages payable 110,399 123,491 Partners' deficit (22,713) (33,390) --------- --------- Total liabilities and partners' deficit $ 89,606 $ 92,456 ========= ========= Note 6 - RELATED PARTY TRANSACTIONS WFA, an affiliate of the Newkirk Group, performs asset management services for the Partnership and received a fee of $1.9 million, $1.8 million and $1.8 million for the years ended December 31, 2004, 2003 and 2002, respectively. The Partnership provides certain asset management, investor and administrative services to some of the Unconsolidated Partnerships and the Other Partnerships. Control of the general partners of these partnerships was acquired by Partnership. The Partnership earned $0.3 million, $0.4 million and $0.8 million of management fees for these services for the years ended December 31, 2004, 2003 and 2002, respectively. The Partnership had receivables for management fees of $0.9 million and $1.1 million due from these partnerships at December 31, 2004 and 2003, respectively. The Partnership had a loan receivable and accrued interest of $0.2 million at December 31, 2002 and earned interest income of $0.2 million for the year ended December 31, 2002 from Cenland Associates Limited Partnership, one of the Other Partnerships. In February 2003, the Partnership received the remaining amount due on this loan. The Partnership has an ownership interest in the three most junior tranches of a securitized pool of first mortgages which includes 29 first mortgage loans encumbering 61 Partnership properties and 1 other property controlled by affiliates F-23 THE NEWKIRK MASTER LIMITED PARTNERSHIP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 6 - RELATED PARTY TRANSACTIONS (Continued) of the general partner. The Partnership's ownership interest, net of discount, ammounted to $10.1 million and $9.8 million at December 31, 2004 and 2003, respectively, and the Partnership earned interest income of $1.2 million per year for the years ended December 31, 2004, 2003 and 2002 related to this ownership interest. Affiliates and executives of the Newkirk Group owned $17.3 million of a $145.2 million Real Estate Mortgage Investment Conduit ("REMIC") which was secured by the contract rights payable. The affiliates and executives of the Newkirk Group earned $2.2 million and $2.5 million of interest income during 2003 and 2002. The affiliates and executives were repaid in 2003 when T-Two Partners purchased the T-1 Certificate as discussed in the following paragraph. T-Two Partners, an affiliate of the Newkirk Group, is the 100% beneficial owner of certain of the contract rights. T-Two Partners owned the portion of the contract rights referred to as the T-2 Certificate and during 2003 purchased the portion of the contract rights referred to as the T-1 Certificate. The Partnership incurred $25.0 million, $13.8 million and $12.5 million ($2.2 million, $3.2 million and $3.9 million of which is included in discontinued operations, respectively) of interest expense on these contract rights during 2004, 2003 and 2002, respectively. Contract right mortgage notes and accrued interest payable includes $249.5 million and $296.0 million due to T-Two Partners at December 31, 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, 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 in 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. Second, the purchase price is payable in cash rather than units in 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 (approximately $7,346,000) and administering the trust that holds the F-24 THE NEWKIRK MASTER LIMITED PARTNERSHIP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 6 - RELATED PARTY TRANSACTIONS (Continued) 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 $165.3 million at December 31, 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 and therefore is not consolidated. 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 $0.5 million and $37,000 on this obligation during 2004 and 2003, respectively. 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 $15.2 million and $14.6 million at December 31, 2004 and December 31, 2003, respectively. Included in interest expense is $0.7 million related to this second mortgage payable for 2004 and 2003. F-25 THE NEWKIRK MASTER LIMITED PARTNERSHIP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 6 - RELATED PARTY TRANSACTIONS (Continued) On July 29, 2004, the Partnership sold 25 properties for a combined net sales price 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. The Partnership recognized a net gain on the sale of these properties of $38.7 million. Also see Note 8 for related party acquisitions. F-26 THE NEWKIRK MASTER LIMITED PARTNERSHIP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 7 - CONTINGENCIES Legal In July 2002, an action was commenced in the Connecticut Superior Court against, among others, the Partnership's general partner and various affiliates of the Partnership's general partner. Plaintiffs are four limited partners of three of the Newkirk Partnerships. 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. The Partnership accrued $3.5 million with respect to this matter, which is included in general and administrative expense in the consolidated statement of operations for the year ended December 31, 2003. In April 2004, the Partnership paid out $3.5 million with respect to this matter. A hearing has been set for April 11, 2005, at which time it is expected that the Court will approve the allocation of the 1% of outstanding units for distribution. Note 8 - ACQUISITIONS On January 1, 2003, the Partnership acquired from an affiliate of the general partner, limited partnership interests in nine limited partnerships that own net-leased commercial properties. The limited partnership interests acquired by the Partnership ranged between 4.9% and 57.75% of each partnership and were acquired in exchange for 317,813 limited partnership units of the Partnership. In August 2003, the Partnership acquired approximately an additional 10.05% interest in one of these limited partnerships for a cash purchase price of $525,000, increasing the partnership interest to 23.55% from 13.5%. These interests were aquired from unaffiliated limited partners. In April 2004, the Partnership exercised an option to purchase additional limited partnership interests in two of the partnerships in exchange for 15,539 units. The values of the net-leased real estate partnerships and the Partnership units were determined without arms-length negotiations. Independent appraisals were obtained on the value of the properties owned by the limited partnerships. The Partnership has accounted for the acquisition on a historical cost basis. Four of the limited partnerships have been F-27 THE NEWKIRK MASTER LIMITED PARTNERSHIP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 8 - ACQUISITIONS (Continued) consolidated into the Partnership's financial statements and five of the limited partnerships are being accounted for under the equity method of accounting. In January 2003, 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) -------- Partners' equity $(13,637) ======== In June 2004, the 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. The Partnership currently owns approximately 45.2% of the limited partnership. In July 2004, the 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. The Partnership currently owns approximately 62.2% in one of the partnerships whose operations are consolidated and 45.3% in the other partnership. In January 2003, the Partnership acquired the land underlying the property owned by one of the partnerships. The land was acquired from a company affiliated with the general partner for $1.0 million, $50,000 of which was paid in cash and the balance in the form of a $950,000 note due September 8, 2008. The note bore interest at the rate of 6.0% per annum, compounded annually, and was payable interest-only until maturity, at which time the full balance of the note was to be due. In October 2003, the note was satisfied by the Partnership from cash reserves. The purchase price for the land sale was determined without arms-length negotiations. An independent appraisal was obtained on the value of the land that was acquired. In April and June 2003, the Partnership acquired 30.6% and 46.1%, respectively, of the outstanding limited partnership interests in two Other Partnerships. The partnership interests were acquired for an aggregate cash purchase price of $711,250. The Partnership previously owned 1.5% and 3.8%, respectively, of the outstanding limited partnership interests in these two partnerships. The Partnership controls the general partners of each of these partnerships. The Partnership has consolidated these partnerships in accordance with the guidance provided by Statement of Position 78-9 "Accounting for Investments in Real Estate Ventures". In May and June 2003, the Partnership purchased the remainder interest in the land underlying 26 properties for an aggregate purchase price of $1.2 million and, as a result, now owns a fee interest in the underlying land. The improvements on 24 of F-28 THE NEWKIRK MASTER LIMITED PARTNERSHIP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 8 - ACQUISITIONS (Continued) the properties are owned by the Partnership and the improvements on the two other properties are owned by one of the Unconsolidated Partnerships in which the Partnership owns limited partnership interests and controls the general partner. In June 2004, the Partnership acquired the land underlying one of its properties in Bedford, Texas. The land was acquired from an unaffiliated party for approximately $2.6 million. Note 9 - DISCONTINUED OPERATIONS AND SALES OF REAL ESTATE During the year ended December 31, 2004, the Partnership sold fifty-eight properties for a combined net sales price of $127.2 million. The Partnership recognized a net gain on sale of these properties of $49.4 million. During the year ended December 31, 2003, the Partnership sold fourteen properties for a combined net sales price of $156.4 million. The Partnership recognized a net gain on sale of these properties of $29.5 million. During the year ended December 31, 2002, the Partnership sold two properties for a combined net sales price of $3.2 million. The Partnership recognized a net loss on sale of these properties of $1.0 million. The sale and operations of these properties for all periods presented have been recorded as discontinued operations in accordance with the provisions of SFAS No. 144. In addition, the Partnership has classified various properties which have met all of the criteria of SFAS No. 144 as real estate held for sale in the accompanying consolidated balance sheets and has classified the operations of the properties and the sold properties as discontinued operations in the accompanying consolidated statements of operations. Discontinued operations for the years ended December 31, 2004, 2003 and 2002 are summarized as follows (in thousands):

F-29 THE NEWKIRK MASTER LIMITED PARTNERSHIP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 9 - DISCONTINUED OPERATIONS AND SALES OF REAL ESTATE (Continued) Expenses include interest expense to related parties of $2.2 million, $3.2 million and $3.9 million for the years ended December 31, 2004, 2003 and 2002, respectively. Other assets of discontinued operations at December 31, 2004 and 2003 are summarized as follows (in thousands): 2004 2003 ---- ---- Receivables $ 81 $734 Other assets 163 221 ---- ---- $244 $955 ==== ==== Liabilities of discontinued operations at December 31, 2004 and 2003 are summarized as follows: 2004 2003 ------- ------- Mortgage notes and accrued interest payable $ 5,672 $30,371 Prepaid rent -- 4,772 Contract right mortgage notes and accrued interest payable (including $11,825 and $5,626 to related parties) 11,825 5,626 ------- ------- $17,497 $40,769 ======= ======= F-30 THE NEWKIRK MASTER LIMITED PARTNERSHIP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 10 - INCOME TAXES The Partnership's taxable income for 2004 and 2003 differs from net income for financial reporting purposes as follows (in thousands):

The net basis of the Partnership's assets and liabilities for tax reporting purposes is approximately $818.0 million and $891.0 million lower than the amount reported for financial statement purposes at December 31, 2004 and 2003, respectively. Note 11 - SUBSEQUENT EVENTS During January 2005, the Partnership sold one property to an unaffiliated third party for a net sales price of $2.3 million. For financial reporting purposes, the Partnership expects to recognize a net gain on sale of this property of approximately $0.6 million during 2005. F-31 THE NEWKIRK MASTER LIMITED PARTNERSHIP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 12 - SUMMARY OF QUARTERLY RESULTS (UNAUDITED) The following summary represents the results of operations for each quarter in 2004 and 2003: (In thousands, except per unit amounts)

(1) Includes gain from disposal of real estate of $7.7 million. (2) Includes gain from disposal of real estate of $1.8 million and an impairment loss of $9.7 million. (3) Includes gain from disposal of real estate of $38.9 million, an impairment loss of $3.4 million and a net loss from early extinguishment of debt of $6.7 million. (4) Includes gain from disposal of real estate of $1.0 million. (5) Includes gain from disposal of real estate of $26.1 million and a net gain from early extinguishment of debt of $8.1 million. (6) Includes gain from disposal of real estate of $6.2 million. (7) Includes loss from disposal of real estate of $2.0 million. (8) Includes loss from disposal of real estate of $0.8 million. F-32 THE NEWKIRK MASTER LIMITED PARTNERSHIP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 13 - RESTATEMENT Subsequent to the issuance of the Partnership's consolidated financial statements for the year ended December 31, 2004, management determined that the Partnership's consolidated balance sheets at December 31, 2004 and 2003 and the related consolidated statements of cash flows for each of the three years in the period ended December 31, 2004 should be restated for the following (in thousands): 1) To reclassify $8,216, $5,148 and $8,109 from cash and cash equivalents to restricted cash, respectively. 2) To reclassify distributions from limited partnerships from investing activities to operating activities in the amount of $389 and $492. Also, the Partnership has changed the presentation of the consolidated statement of cash flows for each of the three years in the period ended and no longer separately discloses the cash flows pertaining to discontinued operations. As Previously Reported As Restated ------------- ----------- Balance Sheet at December 31, 2004 Cash and cash equivalents $29,533 $21,317 Restricted cash -- 8,216 Statement of Cash Flows for the Year Ended December 31, 2004 Net cash provided by operating activities 154,051 154,440 Net cash provided by investing activities 95,492 92,035 As Previously Reported As Restated ------------- ----------- Balance Sheet at December 31, 2003 Cash and cash equivalents $37,851 $32,703 Restricted cash -- 5,148 Statement of Cash Flows for the Year Ended December 31, 2003 Net cash provided by operating activities 160,425 160,917 Net cash provided by investing activities 58,808 61,277 As Previously Reported As Restated ------------- ----------- Statement of Cash Flows for the Year Ended December 31, 2002 Net cash provided by investing activities $11,080 $ 2,971 F-33 THE NEWKIRK LIMITED PARTNERSHIP SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION At December 31, 2004

NEWKIRK MASTER LP 10-K/A