UNITED
  STATES
      
  SECURITIES AND EXCHANGE COMMISSION
  Washington, D.C. 20549

FORM
  10-Q

|(Mark
        One)                                             
|---------------------------------------------------------------
|þ                                                              
|For the quarterly period ended March 31, 2006                  
|                                                               
|OR                                                             
|                                                               
|o                                                              
|For the transition period from ______________ to ______________

Commission
file number 1-32662

NEWKIRK REALTY TRUST, INC.
(Exact name
of Registrant as specified in its charter)

|Maryland                                                                   | 20-3164488                                  
|-------------------------------------------------------------------------- | --------------------------------------------
|(State or other jurisdiction
      of
      incorporation or organization) | (I.R.S. Employer
        Identification No.)

|7 Bulfinch Place, Suite 500, Boston, MA            | 02114-9507    
|-------------------------------------------------- | --------------
|(Address of principal
      executive offices)     | (Zip Code)    
|                                                   |               
|Registrants telephone number, including area code | (617) 570-4600

Indicate
  by check mark whether Registrant (1) has filed all reports required to be filed
  by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
  12 months (or for such shorter period that the Registrant was required to file
  such reports), and (2) has been subject to such filing requirements for the
  past 90 days. 
  Yes þ No o

Indicate  by check  mark  whether  the  Registrant  is a large
accelerated    filer,    an    accelerated    filer,    or   a
non-accelerated  filer  (as  defined  in  Rule  12b-2  of  the
Exchange Act).

Large
Accelerated Filer o   Accelerated filer   o  Non-accelerated
filer  þ

Indicate  by check  mark  whether  the  Registrant  is a shell
company (as defined in Rule 12b-2 of the Exchange Act.) 
Yes o No  þ

Indicate  the
number  of  shares  outstanding  of each of the  issuers  classes of common stock,
as of the latest  practical  date.  19,375,000 Common Shares as of May 1, 2006.



---

TABLE OF
CONTENTS

|                                      |                                                                                                                                            | Page
|------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------ | ----
|                                     
|Part
        I. FINANCIAL INFORMATION
|                                      |                                                                                                                                            |     
|                                      | Item
      1. Financial Statements                                                                                                         |     
|                                      |                                                                                                                                            |     
|                                      |                                                                                                                                            |     
|                                      | Unaudited
      Consolidated Balance Sheet at March 31, 2006 and             Consolidated
      Balance Sheet at December 31, 2005         |     
|                                      |                                                                                                                                            |     
|                                      | Unaudited
      Consolidated Statements of Operations and Comprehensive Income             for
      the Three Months Ended March 31, 2006 |     
|                                      |                                                                                                                                            |     
|                                      | Unaudited
      Consolidated Statement of Partners Equity for the             Three
      Months Ended March 31, 2006                     |     
|                                      |                                                                                                                                            |     
|                                      | Unaudited
      Consolidated Statements of Cash Flows for the Three             Months
      Ended March 31, 2006                          |     
|                                     
|                                      | Notes
      to Unaudited Consolidated Financial Statements                                                                                 |     
|                                      |                                                                                                                                            |     
|                                      | Item
      2. Managements Discussion and Analysis of Financial Condition and
      Results of Operations                                  |     
|                                      |                                                                                                                                            |     
|                                      | Item
      3. Quantitative and Qualitative Disclosures about Market Risk                                                                   |     
|                                      |                                                                                                                                            |     
|                                      | Item
      4. Controls and Procedures                                                                                                      |     
|                                      |                                                                                                                                            |     
|Part
        II. OTHER INFORMATION   
|                                      |                                                                                                                                            |     
|                                      | Item
      6. Exhibits                                                                                                                     |     
|                                      |                                                                                                                                            |     
|                                      | Signatures                                                                                                                                 |     
|                                      |                                                                                                                                            |     
|                                      | Exhibit
      Index                                                                                                                        |     

2



---

PART 1 -
FINANCIAL INFORMATION

|ITEM 1. | FINANCIAL
STATEMENTS
|------- | --------------------

NEWKIRK
REALTY TRUST, INC.  CONSOLIDATED BALANCE SHEETS

(In
thousands, except share and per-share data)

|                                                         |  |  | March 31, 
        2006 
        (Unaudited) |           | December
        31,
        2005 |  
|-------------------------------------------------------- |  |  | -------------------------------------------- | --------- | --------------------------------- | -
|                                                         |  |  |                                              |           |                                   |  
|ASSETS                                                   |  |  |                                              |           |                                   |  
|Real
      estate investments:                           |  |  |                                              |           |                                   |  
|Land                                                     |  |  | $                                            | 50,428    |                                   | $
|Land
      estates                                       |  |  |                                              | 47,785    |                                   |  
|Buildings
      and improvements                         |  |  |                                              | 1,512,995 |                                   |  
|                                                         |  |  |                                              |           |                                   |  
|Total
      real estate investments                      |  |  |                                              | 1,611,208 |                                   |  
|Less
      accumulated depreciation and amortization     |  |  |                                              | (557,730  | )                                 |  
|                                                         |  |  |                                              |           |                                   |  
|Real
      estate investments, net                       |  |  |                                              | 1,053,478 |                                   |  
|Real
      estate held for sale, net of accumulated      |  |  |                                              |           |                                   |  
|depreciation
      of $43,714 and $44,522                |  |  |                                              | 37,891    |                                   |  
|Cash
      and cash equivalents                          |  |  |                                              | 131,056   |                                   |  
|Restricted
      cash                                    |  |  |                                              | 14,602    |                                   |  
|Real
      estate securities available for sale          |  |  |                                              | 6,417     |                                   |  
|Receivables
      (including $929 and $6,078 from        |  |  |                                              |           |                                   |  
|related
      parties)                                   |  |  |                                              | 33,955    |                                   |  
|Deferred
      rental income receivable                  |  |  |                                              | 20,143    |                                   |  
|Loans
      receivable                                   |  |  |                                              | 15,519    |                                   |  
|Equity
      investments in limited partnerships         |  |  |                                              | 7,563     |                                   |  
|Equity
      investment in joint venture                 |  |  |                                              | 11,724    |                                   |  
|Deferred
      costs, net of accumulated amortization of |  |  |                                              |           |                                   |  
|$20,952
      and $17,677                                |  |  |                                              | 13,568    |                                   |  
|Lease
      intangibles, net                             |  |  |                                              | 10,933    |                                   |  
|Other
      assets (including $1,364 and $1,304 from     |  |  |                                              |           |                                   |  
|related
      parties)                                   |  |  |                                              | 30,589    |                                   |  
|Other
      assets of discontinued operations            |  |  |                                              | 3,563     |                                   |  
|                                                         |  |  |                                              |           |                                   |  
|Total
      Assets                                       |  |  | $                                            | 1,391,001 |                                   | $
|                                                         |  |  |                                              |           |                                   |  
|LIABILITIES,
      MINORITY INTEREST AND                 |  |  |                                              |           |                                   |  
|STOCKHOLDERS'
      EQUITY                               |  |  |                                              |           |                                   |  
|Liabilities:                                             |  | 
|Mortgage
      notes payable (including $15,880 and      |  |  |                                              |           |                                   |  
|$15,536
      to a related party)                        |  |  | $                                            | 209,360   |                                   | $
|Note
      payable                                       |  |  |                                              | 580,294   |                                   |  
|Contract
      right mortgage notes payable              |  |  |                                              | 11,397    |                                   |  
|Accrued
      interest payable (including $193 and $378  |  |  |                                              |           |                                   |  
|to
      a related party)                                |  |  |                                              | 5,262     |                                   |  
|Accounts
      payable and accrued expenses              |  |  |                                              | 4,755     |                                   |  
|Below
      market lease intangibles, net                |  |  |                                              | 5,610     |                                   |  
|Dividend
      payable                                   |  |  |                                              | 7,750     |                                   |  
|Other
      liabilities                                  |  |  |                                              | 5,466     |                                   |  
|Liabilities
      of discontinued operations             |  |  |                                              | 38,590    |                                   |  
|                                                         |  |  |                                              |           |                                   |  
|Total
      Liabilities                                  |  |  |                                              | 868,484   |                                   |  
|                                                         |  |  |                                              |           |                                   |  
|Contingencies                                            |  |  |                                              |           |                                   |  
|Minority
      interests                                 |  |  |                                              | 345,828   |                                   |  
|                                                         |  |  |                                              |           |                                   |  
|Stockholders'
      equity:                              |  |  |                                              |           |                                   |  
|Preferred
      stock; $.01 par                          |  |  |                                              |           |                                   |  
|value;
      100,000,000 shares authorized; 1 issued     |  |  |                                              |           |                                   |  
|and
      outstanding                                    |  |  |                                              |          |                                   |  
|Common
      stock; $.01 par                             |  |  |                                              |           |                                   |  
|value;
      400,000,000 shares authorized; 19,375,000   |  |  |                                              |           |                                   |  
|issued
      and outstanding                             |  |  |                                              | 194       |                                   |  
|Additional
      paid-in capital                         |  |  |                                              | 179,871   |                                   |  
|Accumulated
      dividends in excess of net income      |  |  |                                              | (4,492    | )                                 |  
|Accumulated
      other comprehensive income (loss)      |  |  |                                              | 1,116     |                                   |  
|                                                         |  |  |                                              |           |                                   |  
|Total
      Stockholders' Equity                         |  |  |                                              | 176,689   |                                   |  
|                                                         |  |  |                                              |           |                                   |  
|Total
      Liabilities, Minority Interests and          |  |  |                                              |           |                                   |  
|Stockholders'
      Equity                               |  |  | $                                            | 1,391,001 |                                   | $
|                                                         |  |  |                                              |           |                                   |  

See Notes to
Consolidated Financial Statements.

3



---

NEWKIRK
REALTY TRUST, INC. (THE "COMPANY")AND THE NEWKIRK MASTER LIMITED PARTNERSHIP
(THE "PREDECESSOR")

CONSOLIDATED
STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME(Unaudited)(In thousands, except per
share data)

|                                                                   |  |  | THE
        COMPANY                               |         | THE
        PREDECESSOR                   |  
|------------------------------------------------------------------ |  |  | ------------------------------------------------- | ------- | ----------------------------------------- | -
|                                                                   |  |  |                                                   |         |                                           |  
|                                                                   |  |  | Three
        Months Ended
        March 31, 2006 |         | Three Months Ended
        March 31, 2005 |  
|                                                                   |  |  |                                                   |         |                                           |  
|Revenue:                                                           |  |  |                                                   |         |                                           |  
|Rental
      income                                                |  |  | $                                                 | 59,288  |                                           | $
|Interest
      income                                              |  |  |                                                   | 4,224   |                                           |  
|Management
      fees                                              |  |  |                                                   | 64      |                                           |  
|                                                                   |  |  |                                                   |         |                                           |  
|Total
      revenue                                                |  |  |                                                   | 63,576  |                                           |  
|                                                                   |  |  |                                                   |         |                                           |  
|Expenses:                                                          |  |  |                                                   |         |                                           |  
|Interest
      (including $193 and $5,212 to related parties)      |  |  |                                                   | 13,033  |                                           |  
|Depreciation                                                       |  |  |                                                   | 11,923  |                                           |  
|Compensation
      expense for exclusivity rights                  |  |  |                                                   | 833     |                                           |  
|General
      and administrative (including $1,200 and $482        |  |  |                                                   |         |                                           |  
|to
      a related party)                                          |  |  |                                                   | 2,540   |                                           |  
|Operating                                                          |  |  |                                                   | 1,346   |                                           |  
|Impairment
      loss                                              |  |  |                                                   |        |                                           |  
|Amortization                                                       |  |  |                                                   | 1,331   |                                           |  
|Ground
      rent                                                  |  |  |                                                   | 831     |                                           |  
|State
      and local taxes                                        |  |  |                                                   | 846     |                                           |  
|Loss
      from disposal of real estate securities                 |  |  |                                                   |         |                                           |  
|available
      for sale                                           |  |  |                                                   | 21      |                                           |  
|Other
      expense                                                |  |  |                                                   | 5,345   |                                           |  
|                                                                   |  |  |                                                   |         |                                           |  
|Total
      expenses                                               |  |  |                                                   | 38,049  |                                           |  
|                                                                   |  |  |                                                   |         |                                           |  
|Income
      from continuing operations before                     |  |  |                                                   |         |                                           |  
|equity
      in income from investments in limited                 |  |  |                                                   |         |                                           |  
|partnerships
      and minority interest                           |  |  |                                                   | 25,527  |                                           |  
|Equity
      in income from investments in                         |  | 
|limited
      partnerships                                         |  |  |                                                   | 464     |                                           |  
|Minority
      interest                                            |  |  |                                                   | (18,739 | )                                         |  
|                                                                   |  |  |                                                   |         |                                           |  
|Income
      from continuing operations                            |  |  |                                                   | 7,252   |                                           |  
|                                                                   |  |  |                                                   |         |                                           |  
|Discontinued
      operations:                                     |  |  |                                                   |         |                                           |  
|(Loss)
      income before minority interest                       |  |  |                                                   | (374    | )                                         |  
|Gain
      from disposal of real estate                            |  |  |                                                   |        |                                           |  
|Minority
      interest                                            |  |  |                                                   | 262     |                                           |  
|                                                                   |  |  |                                                   |         |                                           |  
|(Loss)
      income from discontinued operations                   |  |  |                                                   | (112    | )                                         |  
|                                                                   |  |  |                                                   |         |                                           |  
|Net income                                                         |  |  | $                                                 | 7,140   |                                           | $
|                                                                   |  |  |                                                   |         |                                           |  
|Comprehensive
      income:                                        |  |  |                                                   |         |                                           |  
|Net
      income                                                   |  |  | $                                                 | 7,140   |                                           | $
|Unrealized
      gain on real estate securities available for sale |  |  |                                                   | 396     |                                           |  
|Unrealized
      gain on interest rate derivative                  |  |  |                                                   | 3,783   |                                           |  
|Minority
      interest in other comprehensive income              |  |  |                                                   | (2,921  | )                                         |  
|                                                                   |  |  |                                                   |         |                                           |  
|Comprehensive
      income                                         |  |  | $                                                 | 8,398   |                                           | $
|                                                                   |  |  |                                                   |         |                                           |  
|Per share
      data:                                              |  | 
|Income
      from continuing operations                            |  |  | $                                                 | 0.38    |                                           |  
|Income
      from discontinued operations                          |  |  |                                                   | (0.01   | )                                         |  
|                                                                   |  |  |                                                   |         |                                           |  
|Net
      income applicable to Common Stock                        |  |  | $                                                 | 0.37    |                                           |  
|                                                                   |  |  |                                                   |         |                                           |  
|Weighted
      average Common Stock                                |  |  |                                                   | 19,375  |                                           |  
|                                                                   |  |  |                                                   |         |                                           |  

See Notes to
Consolidated Financial Statements.

4



---

NEWKIRK
REALTY TRUST, INC.

CONSOLIDATED
STATEMENT OF STOCKHOLDERS EQUITYFOR THE THREE MONTHS ENDED MARCH 31, 2006(Unaudited)
(In thousands)

|                                   |  | Preferred
        Stock |  | Common
        Stock |   | Additonal 
        Paid-in Capital |  | Accumulated
        
        Dividends in Excess
        of Net Income |  | Accumulated 
        Other Comprehensive
        Income (Loss) |     |  |      
|---------------------------------- |  | ----------------------- |  | -------------------- | - | ---------------------------------- |  | ---------------------------------------------------------------------- |  | -------------------------------------------------------------- | --- |  | -----
|                                   |  | Shares                  |  | Amount               |   | Shares                             |  | Amount                                                                 |  |                                                                |     |  | Total
|                                   |  |                         |  |                      |   |                                    |  |                                                                        |  |                                                                |     |  |      
|Balance
      December 31, 2005    |  |                        |  | $                    |  |                                    |  | 19,375                                                                 |  | $                                                              | 194 |  | $    
|Net income                         |  |                        |  |                      |  |                                    |  |                                                                       |  |                                                                |    |  |      
|Dividends
      accrued on         |  |                         |  |                      |   |                                    |  |                                                                        |  |                                                                |     |  |      
|Common
      Stock                 |  |                        |  |                      |  |                                    |  |                                                                       |  |                                                                |    |  |      
|Other
      comprehensive income   |  |                        |  |                      |  |                                    |  |                                                                       |  |                                                                |    |  |      
|                                   |  |                         |  |                      |   |                                    |  |                                                                        |  |                                                                |     |  |      
|Balance
      as of March 31, 2006 |  |                        |  | $                    |  |                                    |  | 19,375                                                                 |  | $                                                              | 194 |  | $    
|                                   |  |                         |  |                      |   |                                    |  |                                                                        |  |                                                                |     |  |      

See Notes to
Consolidated Financial Statements.

5



---

NEWKIRK
REALTY TRUST, INC. (THE "COMPANY")AND THE NEWKIRK MASTER LIMITED PARTNERSHIP
(THE "PREDECESSOR")CONSOLIDATED STATEMENTS OF CASH FLOWS(Unaudited)(In
thousands)

|                                                                          |  |  | THE
        COMPANY                               |         | THE
        PREDECESSOR                           |  
|------------------------------------------------------------------------- |  |  | ------------------------------------------------- | ------- | ------------------------------------------------- | -
|                                                                          |  |  |                                                   |         |                                                   |  
|                                                                          |  |  | Three
        Months Ended
        March 31, 2006 |         | Three
        Months Ended
        March 31, 2005 |  
|                                                                          |  |  |                                                   |         |                                                   |  
|CASH
      FLOWS FROM OPERATING ACTIVITIES:                               |  |  |                                                   |         |                                                   |  
|                                                                          |  |  |                                                   |         |                                                   |  
|Net
      income                                                          |  |  |                                                   |         |                                                   |  
|Adjustments
      to reconcile net income to net cash                     |  |  | $                                                 | 7,140   |                                                   | $
|provided
      by operating activities:                                   |  |  |                                                   |         |                                                   |  
|Amortization
      of deferred costs, land estates and lease intangibles  |  |  |                                                   | 2,124   |                                                   |  
|Amortization
      of loan discounts and origination costs                |  |  |                                                   | (9      | )                                                 |  
|Depreciation
      expense                                                |  |  |                                                   | 11,923  |                                                   |  
|Loss
      from disposal of real estate securities available for sale     |  |  |                                                   | 21      |                                                   |  
|Gain
      from disposal of real estate                                   |  |  |                                                   |        |                                                   |  
|Compensation
      expense for exclusivity rights                         |  |  |                                                   | 833     |                                                   |  
|Impairment
      loss                                                     |  |  |                                                   |        |                                                   |  
|Minority
      interest expense                                           |  |  |                                                   | 18,477  |                                                   |  
|Straight-lining
      of rental income                                    |  |  |                                                   | 1,370   |                                                   |  
|Interest
      earned on restricted cash                                  |  |  |                                                   | (119    | )                                                 |  
|Equity
      in undistributed earnings of limited partnerships            |  |  |                                                   | (255    | )                                                 |  
|Changes
      in operating assets and liabilities:                        |  |  |                                                   |         |                                                   |  
|Receivables                                                               |  |  |                                                   | 16,023  |                                                   |  
|Loans
      receivable                                                    |  |  |                                                   | 547     |                                                   |  
|Accounts
      payable and accrued expenses                               |  |  |                                                   | (27     | )                                                 |  
|Accrued
      interest-mortages and contract rights                       |  |  |                                                   | (1,472  | )                                                 |  
|Other
      assets                                                        |  |  |                                                   | (3,266  | )                                                 |  
|Other
      liabilities                                                   |  |  |                                                   | 5,345   |                                                   |  
|                                                                          |  |  |                                                   |         |                                                   |  
|Net
      cash provided by operating activities                           |  |  |                                                   | 58,655  |                                                   |  
|                                                                          |  |  |                                                   |         |                                                   |  
|CASH
      FLOWS FROM INVESTING ACTIVITIES:                               |  |  |                                                   |         |                                                   |  
|                                                                          |  |  |                                                   |         |                                                   |  
|Land
      and building additions and improvements                        |  |  |                                                   | (69,757 | )                                                 |  
|Change
      in restricted cash                                           |  |  |                                                   | 10,750  |                                                   |  
|Deposits
      for future real estate acquisitions                        |  |  |                                                   | (2,630  | )                                                 |  
|Refund
      of deposits for real estate acquisitions                     |  |  |                                                   | 3,297   |                                                   |  
|Lease
      intangible additions                                          |  |  |                                                   | 805     |                                                   |  
|Investments
      in debt securities                                      |  |  |                                                   | (53,616 | )                                                 |  
|Proceeds
      from disposal of real estate securities available for sale |  |  |                                                   | 1,004   |                                                   |  
|Proceeds
      from real estate available for sale                        |  |  |                                                   | 2,945   |                                                   |  
|Purchase
      of real estate securities held for sale                    |  |  |                                                   | (1,594  | )                                                 |  
|Collection
      of loan receivable                                       |  |  |                                                   | 12      |                                                   |  
|Loan
      origination costs                                              |  |  |                                                   | (21     | )                                                 |  
|Net
      proceeds from disposal of real estate                           |  |  |                                                   |        |                                                   |  
|Leasing
      costs incurred                                              |  |  |                                                   | (800    | )                                                 |  
|Cash
      related to previously unconsolidated limited partnerships      |  |  |                                                   | 417     |                                                   |  
|Investments
      in limited partnerships                                 |  |  |                                                   |        |                                                   |  
|Investment
      in joint venture                                         |  |  |                                                   | (639    | )                                                 |  
|Return
      of capital from investment in joint venture                  |  |  |                                                   | 10,874  |                                                   |  
|                                                                          |  |  |                                                   |         |                                                   |  
|Net
      cash (used in) provided by investing activities                 |  |  |                                                   | (98,953 | )                                                 |  
|                                                                          |  |  |                                                   |         |                                                   |  
|CASH
      FLOWS FROM FINANCING ACTIVITIES:                               |  |  |                                                   |         |                                                   |  
|                                                                          |  |  |                                                   |         |                                                   |  
|Principal
      payments of mortgage notes                                |  |  |                                                   | (20,365 | )                                                 |  
|Principal
      payments of notes payable                                 |  |  |                                                   | (13,169 | )                                                 |  
|Principal
      payments of contract right mortgage notes                 |  |  |                                                   |        |                                                   |  
|Proceeds
      from mortgage notes                                        |  |  |                                                   | 18,305  |                                                   |  
|Proceeds
      from line of credit                                        |  |  |                                                   | 32,025  |                                                   |  
|Dividends
      paid to common stockholders                               |  |  |                                                   | (5,231  | )                                                 |  
|Distributions
      to partners                                           |  |  |                                                   |        |                                                   |  
|Limited
      partner buyouts                                             |  |  |                                                   |        |                                                   |  
|Distributions
      to minority interests                                 |  |  |                                                   | (14,815 | )                                                 |  
|Deferred
      financing costs                                            |  |  |                                                   | (212    | )                                                 |  
|                                                                          |  |  |                                                   |         |                                                   |  
|Net
      cash used in financing activities                               |  |  |                                                   | (3,462  | )                                                 |  
|                                                                          |  |  |                                                   |         |                                                   |  
|Net decrease
      in cash and cash equivalents                           |  |  |                                                   | (43,760 | )                                                 |  
|Cash
      and Cash Equivalents at Beginning of Period                    |  |  |                                                   | 174,816 |                                                   |  
|                                                                          |  |  |                                                   |         |                                                   |  
|Cash
      and Cash Equivalents at End of Period                          |  |  | $                                                 | 131,056 |                                                   | $
|                                                                          |  |  |                                                   |         |                                                   |  
|Supplemental
      Disclosure of Cash Flow Information:                   |  |  |                                                   |         |                                                   |  
|Cash
      paid for state and local taxes                                 |  |  | $                                                 | 660     |                                                   | $
|                                                                          |  |  |                                                   |         |                                                   |  
|Cash
      paid for interest                                              |  |  | $                                                 | 15,396  |                                                   | $
|                                                                          |  |  |                                                   |         |                                                   |  
|Accrued
      dividends                                                   |  |  | $                                                 | 7,750   |                                                   | $
|                                                                          |  |  |                                                   |         |                                                   |  

Supplemental
Information

On March 31,
2006, the Company contributed net assets with a carrying value of approximately $22,000
to a  joint venture.  (See note 4)

See Notes to
Consolidated Financial Statements.

6



---

NEWKIRK
REALTY TRUST, INC. AND THE NEWKIRK MASTER LIMITED  PARTNERSHIPFORM 10-Q MARCH 31, 2006

NOTES TO
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

|Note 1 |  | ORGANIZATION AND BUSINESS
|------ |  | -------------------------

| | Newkirk
Realty  Trust,  Inc.  (NKT)  is a Maryland  corporation  that has  elected
to be taxed as a real  estate  investment  trust or  REIT. NKT was formed  in
July  2005  and  completed  its  initial  public  offering  (the IPO) on
November  7, 2005.  NKT was  formed to  acquire  an  ownership  interest  in,  and
become the general  partner  of, The  Newkirk  Master  Limited  Partnership  (the  Predecessor or
the  Operating  Partnership).  The Operating Partnership  owns  commercial
properties,  most of which  are net  leased to  investment  grade  corporate  tenants
and  owns other real estate assets as well.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | NKT
holds a controlling  30.1% ownership  interest in  the  Operating  Partnership.  All of
NKTs assets are  held  through  the  Operating  Partnership  and  its
subsidiaries.  All  references  to  the  Company refer  to  NKT  and  its
consolidated  subsidiaries,  including the Operating Partnership.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Note 2 |  | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
|------ |  | ------------------------------------------

| | Basis
of Presentation
| | ---------------------

| | The
accompanying  unaudited  consolidated  interim  financial  statements  have  been
prepared  in  accordance  with  accounting  principles  generally  accepted in the United
States  (GAAP)  for interim  financial  statements  and with the
instructions  to  Form  10-Q  and  Rule 10-01  of  Regulation S-X.
Accordingly,  they  do  not  include  all  of  the  information  and  footnotes  required
by  GAAP  for  complete financial  statements,  although  management  believes that the
disclosures  presented  herein are  adequate  to  make  the  accompanying  unaudited
consolidated  interim financial  statements presented  not  misleading.  The
accompanying  unaudited  consolidated  interim financial  statements should be  read in
conjunction  with the  audited  consolidated  annual  financial  statements  and  the
related  Managements  Discussion  and  Analysis of  Financial  Condition and
Results of  Operations  included in the  Companys  Annual  Report  on Form  10-K
for the year  ended  December 31,  2005 filed  with the  Securities  and  Exchange
Commission.  In  the  opinion  of  management,  all  adjustments  (which  include normal
recurring  adjustments)  considered  necessary  for a  fair  presentation  have been
included.  The results  of  operations  for the three  months ended March 31,  2006  are
not  necessarily  indicative  of  the  operating results for the full year.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
accompanying  consolidated  financial  statements  present  the  consolidated  financial
position,  results of  operations  and cash flows of the Company  and  its  controlled
subsidiaries.  All  significant  intercompany  transactions  such as  receivables  and
payables  have  been  eliminated  in  consolidation.  Minority  interests  relate  to
the  interest  in  certain  partnerships  not owned by the Company.  The  Company
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  Companys  share of the net income  or loss and cash  contributions to and
distributions  from these partnerships and joint ventures.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Use
of Estimates
| | ----------------

| | The
preparation  of  financial  statements  in  conformity  with  GAAP  requires  management
to make  estimates  and  assumptions  in  determining  the  reported  amounts  of  assets
and  liabilities  and  disclosure of contingent  assets and  liabilities  at  the  date
of  the  consolidated  interim  financial  statements  and the  reported  amounts of
revenue and  expenses  during the  reporting  period.  Some of the  critical  estimates
made by the Company include,  but  are not limited  to,  estimates  of useful  lives for
long-lived  assets,  reserves  for  collection  on  accounts  and loans  receivable  and
provisions  for  impairment  of  real  estate.  As  a  result  of  the  nature  of
estimates  made  by the  Company,  actual  results could differ.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

7



---

NEWKIRK
REALTY TRUST, INC. AND THE NEWKIRK MASTER LIMITED  PARTNERSHIPFORM 10-Q MARCH 31, 2006

NOTES TO
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

|Note 2 |  | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
|------ |  | ------------------------------------------------------

| | Reclassifications
| | -----------------

| | Certain
prior year  amounts  have been  reclassified  to  conform  to  the  2006  presentation
due  to 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 and Pronouncements
| | -------------------------------------------------------

| | In
June  2005,  the  Financial  Accounting  Standards  Board  (FASB)  ratified
the  consensus  reached by  the  Emerging  Issues  Task Force  (EITF)  on
Issue  No. 04-05,  Determining  Whether a General  Partner,  or General  Partners
as a Group,  Controls a Limited  Partnership  or  Similar  Entity  When  the  Limited
Partners Have Certain  Rights (EITF  04-05).  EITF  04-05  provides a
framework for  determining  whether  a general partner controls,  and should
consolidate,  a  limited  partnership  or a  similar  entity.  EITF  04-05  became
effective  on June 29,  2005,  for all  newly  formed  or  modified  limited  partnership
arrangements  and  January  1, 2006 for all  existing  limited  partnership
arrangements.  The  adoption of  this standard  resulted in the  consolidation  of one
previously unconsolidated partnership.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
impact of the  adoption  on the  January 1, 2006  balance sheet was as follows (in
thousands):
| | --------------------------------------------------------------------------------------------------

|                                               |  |  | Pre-
        Consolidation |       | Consolidated |  
|---------------------------------------------- |  |  | -------------------------- | ----- | ------------ | -
|                                               |  |  |                            |       |              |  
|Assets:                                        |  |  |                            |       |              |  
|                                               |  |  |                            |       |              |  
|Cash                                           |  |  | $                          |      |              | $
|Land                                           |  |  |                            |      |              |  
|Building,
      net                            |  |  |                            |      |              |  
|Equity
      investment in limited partnership |  |  |                            | 6,538 |              |  
|Deferred
      costs, net                      |  |  |                            |      |              |  
|                                               |  |  |                            |       |              |  
|                                               |  |  | $                          | 6,538 |              | $
|                                               |  |  |                            |       |              |  
|Liabilities:                                   |  |  |                            |       |              |  
|                                               |  |  |                            |       |              |  
|Mortgage
      loan                            |  |  | $                          |      |              | $
|                                               |  |  |                            |       |              |  
|                                               |  |  | $                          |      |              | $
|                                               |  |  |                            |       |              |  

| | There
have  been no other new  accounting  standards  or  interpretations  that have been
issued  that the  Company  has not yet  adopted  and that  the  Company  believes  will
have  a  material  impact  on  our  consolidated financial statements upon adoption.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

8



---

NEWKIRK
REALTY TRUST, INC. AND THE NEWKIRK MASTER LIMITED  PARTNERSHIPFORM 10-Q MARCH 31, 2006

NOTES TO
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

|Note 3 |  | REAL ESTATE ACQUISITIONS, DISPOSITIONS AND FINANCINGS
|------ |  | -----------------------------------------------------

| | Acquisitions
| | ------------

| | On
January  18,  2006,  the  Company  acquired  an  approximately  116,000  square foot
office  building  in  Bridgewater,  New Jersey for a purchase  price of  approximately
$21,150,000.  The  property  is  net  leased to Biovail  Pharmaceuticals,  Inc.,  a
company  primarily  engaged  in the  manufacture  and  sale of  generic  pharmaceutical
products.  The  lease  agreement  has a  current  term  scheduled  to expire  October
31,  2014  with  two,  five-year  renewal  terms.  Net  rent  during  the  current  term
is  $1,397,000  per year  through  October  31,  2009 and  $1,686,000 thereafter.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | On
January  26,  2006,  the  Company  acquired  an  approximately  99,000  square foot 100%
leased office  building in Lisle,  Illinois for a purchase  price of  approximately
$15,250,000.  Net  rent  for  the  property,  commencing  January  1, 2007 is  projected
to  be  approximately  $1,225,000  per  year.  The  property is 86% leased to National
Louis  University  with the balance  being  leased to two  tenants.  The  National  Louis
University  lease has a primary term  expiring  December  31,  2019 with  annual  base
rent  during  the  primary  term  commencing  at  $943,000  through  December  31,  2006
(with  a  50%  rent  concession  through  August 31, 2006),  increasing by  approximately
$43,000  on  each  January  1  thereafter.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | On
March  7,  2006,  the  Company  acquired  two  warehouse/distribution  centers
comprising  240,000  square  feet for a  purchase  price of  approximately  $10,550,000.
The  properties  are  currently  leased  on a  long-term  basis to  subsidiaries  of
Jacobsen  Companies,  a  leading  third  party  warehousing  company.  One  lease  has  a
primary  term  expiring  December  31,  2015 with  annual base rent during the  primary
term of  $450,000.  The  other  lease  has a  primary  term  expiring  December  31,
2014  with an  annual base rent of  approximately  $331,000  through  December  31,  2008
increasing  to  approximately  $404,000 through December 31, 2014.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | On
March 29,  2006,  the  Company  acquired a 639,000  square foot property  located in
Statesville,  North  Carolina  for a purchase  price of  $20,500,000.  The  property,
which serves as a  distribution  facility,  is currently  leased to La-Z-Boy  Greensboro
Inc. and  guaranteed  by La-Z-Boy  Incorporated.  The lease has  a primary  term
expiring  April 30, 2010 with annual  base rent  during the primary  term of
approximately  $1,649,000.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Financings
| | ----------

| | On
February  10, 2006,  the Company  obtained a first  mortgage loan from an  unaffiliated
third party,  in  the principal  amount of  $14,800,000  secured by the  Companys
property  located  in  Bridgewater,  New  Jersey.  The  loan  bears  interest  at
5.732%,  requires  monthly  payments of interest  only for the  first 60 months and then
requires  monthly  payments  of  principal  and  interest  of  $86,000  and  is
scheduled  to mature on March 6, 2016,  at which time  the outstanding  principal
balance is expected to be  approximately  $13,730,000.  The  Company  received  net
proceeds  from  this  loan,  after  satisfying  closing costs, of approximately
$14,600,000.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | On
March 6, 2006,  NK-Marc  CAA LLC, a joint  venture  which is  consolidated  by the
Company,  obtained  a  $3,500,000  loan from an  unaffiliated  third  party.  The loan
bears  interest  at 6.5%,  requires  monthly  payments of principal  and interest of
approximately  $24,000 for 60 months and is  scheduled  to mature on  March  1,  2011.
The  loan  is  secured  by a  first  mortgage loan receivable owned by NK-Marc CAA LLC.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Dispositions
| | ------------

| | On
March  14,  2006,  the  Company  entered  into an  agreement  to  sell  its  Toledo,
Ohio  property  currently  leased to  Owens-Illinois  for a  purchase  price  of
$33,000,000,  $1,000,000  in  cash  plus  assumption of the  $32,000,000  of  outstanding
debt  encumbering  the property at September 29, 2006,  the  closing  date.  The
purchaser,  RVI  Group,  is  the  residual  value  insurer  with  respect  to  the
property.  As  previously  disclosed,  Owens-Illinois  has  advised  the  Company  that
it will be  vacating  the  property  at the  expiration  of its lease term,  September
30, 2006.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

9



---

NEWKIRK
REALTY TRUST, INC. AND THE NEWKIRK MASTER LIMITED  PARTNERSHIPFORM 10-Q MARCH 31, 2006

NOTES TO
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

|Note 4 |  | INVESTMENT IN JOINT VENTURE
|------ |  | ---------------------------

| | On
March 31,  2006,  the  Company and WRT Realty L.P.  (Winthrop),  entered into
a 50%/50%  joint  venture  agreement  to acquire and  originate  loans  secured,
directly  and  indirectly,  by  real  estate  assets  through  111  Debt  Holdings,  LLC.
Winthrop  is  a  wholly-owned  subsidiary  of  Winthrop  Realty  Trust  (NYSE:FUR)  which
owns a 6.8%  indirect  interest  in  the  Company  and is managed by an  affiliate  of
NKT  Advisors,  LLC  (NKT  Advisors),  the  Companys  external
advisor.  The  Company  and  Winthrop  committed  to  invest up to  $50,000,000  each in
the  joint  venture.  Prior to the  admission of Winthrop,  111  Debt  Holdings,  LLC
was  a  wholly  owned  subsidiary  of  the  Company,  which,  through  its  wholly owned
subsidiary,  111 Debt Acquisition,  LLC,  owned  the  following  assets:  (i)  a 10
year,  BBB  rated bond  secured by net  leased  properties  owned  by  Kindercare  Real
Estate LLC with a face value of  $11,700,000  and a  projected  unleveraged  yield  to
maturity of 7%,  which was  purchased on February 13,  2006  for  $11,200,000;  (ii)  a
$30,750,000  junior  participation  in  a  first  mortgage  secured  by  a  757,000
square  foot  office  building  in  Dallas,  Texas  presently  net  leased to JP Morgan
Chase and  has an  initial  interest  rate of  8.67%  which  was  acquired on March 20,
2006,  for a purchase  price of  $27,732,000  and  (iii)  a  $3,309,000  participation
interest  in  a  $18,750,000  mezzanine  loan  and  a  $11,691,000  participation
interest in a $66,500,000  mezzanine  loan,  which were  purchased  on March 13,  2006,
both of which  are  secured  by the  ownership  interests  in  entities  owning  fee
title to retail  stores net leased to Toys R Us,  bear  interest  at  a rate
of LIBOR  plus 175 basis  points and mature on  August  9,  2007,  subject  to  three
one  year  extensions.  In addition,  111 Debt  Acquisition  LLC  had  debt  of
$32,025,000  encumbering  such  assets  pursuant  to  a  repurchase  agreement  with
Column  Financial  Inc.  Upon  Winthrops  admission  to  111  Debt  Holdings,  LLC,
Winthrop  paid  the  Company  approximately  $10,900,000,  which represented 50% of  the
cost of the  foregoing  assets plus the  interest  accrued  thereon,  less  the  debt
encumbering  such  assets.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | On
March 30, 2006, 111 Debt  Acquisition  LLC entered  into  a  $300,000,000  repurchase
agreement  with  Column  Financial  Inc.  pursuant  to which  111 Debt  Acquisition  LLC
expects  to  leverage  up to 75% of  the  assets  held  in  the  joint  venture.  It  is
further  anticipated  that  the  joint  venture  will  enter  into a second  repurchase
agreement  enabling  the  joint  venture  to  obtain  an  additional  $200,000,000  in
leverage.  Accordingly,  it  is  presently  contemplated  that the joint  venture will
acquire  and  originate  up  to  an  aggregate  of  approximately  $600,000,000  in  loan
obligations  secured  directly  or  indirectly  by  real  estate  assets.  Upon
acquisition  and  origination  of  a  sufficient  level  of  loan  obligations,  the
joint  venture  may  form  one  or  more  collateral  debt  obligation pools.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Management
of the  joint  venture  is  vested  in an  investment  committee  of  the  joint  venture
that  consists of an equal  number of members  appointed by  each  of  the  Company  and
Winthrop  with  one  additional  member  being  appointed  by  the  common  management
of  the  Company  and  Winthrop.  All  decisions  affecting  the  business  of  the
joint  venture  require  the  affirmative  vote by  three of  the  four  members
appointed  by  the  Company  and  Winthrop.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
Company  accounts for this  investment  using the  equity method.
| | ---------------------------------------------------------------------

| | The
investment  in  joint  venture  consists  of the  following (in thousands):
| | -------------------------------------------------------------------------------

|                                           |  |  | 2006 |        
|------------------------------------------ |  |  | ---- | -------
|                                           |  |  |      |        
|Balance,
      beginning of year           |  |  | $    |       
|Investment
      in joint venture          |  |  |      | 22,598 
|Return
      of capital from joint venture |  |  |      | (10,874
|                                           |  |  |      |        
|Balance,
      March 31, 2006              |  |  | $    | 11,724 
|                                           |  |  |      |        

10



---

NEWKIRK
REALTY TRUST, INC. AND THE NEWKIRK MASTER LIMITED  PARTNERSHIPFORM 10-Q MARCH 31, 2006

NOTES TO
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

|Note 4 |  | INVESTMENT IN JOINT VENTURE (Continued)
|------ |  | ---------------------------------------

| | The
condensed  balance  sheet  of  the  joint  venture as of March 31, 2006 was as follows:
| | -------------------------------------------------------------------------------------------

|                                             |  |  | March
        31, 2006 |       
|-------------------------------------------- |  |  | ---------------------- | ------
|                                             |  |  |                        |       
|Cash
      and restricted cash               |  |  | $                      | 1,139 
|Investment
      in debt securities          |  |  |                        | 53,626
|Other
      assets                           |  |  |                        | 514   
|                                             |  |  |                        |       
|Total
      assets                           |  |  | $                      | 55,279
|                                             |  |  |                        |       
|Accounts
      payable and other liabilities |  |  | $                      | 156   
|Line
      of credit payable                 |  |  |                        | 32,025
|Members
      equity                        |  |  |                        | 23,098
|                                             |  |  |                        |       
|Total
      liabilities and members equity  |  |  | $                      | 55,279
|                                             |  |  |                        |       

| | The
joint venture commenced  operations on March  31, 2006.
| | -----------------------------------------------------------

|Note 5 |  | EQUITY INVESTMENTS IN LIMITED PARTNERSHIPS
|------ |  | ------------------------------------------

| | The
equity  investments  in  limited  partnerships  consist of the following (in thousands):
| | --------------------------------------------------------------------------------------------

|                                                                     |  |  | 2006 |       
|-------------------------------------------------------------------- |  |  | ---- | ------
|                                                                     |  |  |      |       
|Balance,
      beginning of year                                     |  |  | $    | 13,846
|Equity
      in income of limited partnerships                       |  |  |      | 464   
|Distributions
      from limited partnerships                        |  |  |      | (209  
|Consolidation
      of previously unconsolidated limited partnership |  |  |      | (6,538
|                                                                     |  |  |      |       
|Balance,
      March 31, 2006                                        |  |  | $    | 7,563 
|                                                                     |  |  |      |       

| | The
Company  has paid a  premium  for its  allocable  share of the underlying  limited
partnerships  which  resulted  in an excess  of the  carrying  amounts  of  the  Companys
investment  over the  underlying  net  assets of these  limited  partnerships  of
$3,700,000  and  $5,100,000  as of March  31,  2006 and  December  31, 2005,
substantially  all of which relates to the  difference  between  the fair  values  at the
date of  acquisition  of the Companys  underlying  properties  and  historical
carrying  amounts.  Such  premium is  being  amortized as an  adjustment  to the  Companys
equity in earnings of the limited  partnerships  over  the useful lives of the
underlying  properties.  The  amortization  expense  amounted  to  $23,000  and  $32,000
for the three  months  ended  March 31, 2006  and 2005.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

11



---

NEWKIRK
REALTY TRUST, INC. AND THE NEWKIRK MASTER LIMITED  PARTNERSHIPFORM 10-Q MARCH 31, 2006

NOTES TO
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

|Note 5 |  | EQUITY INVESTMENTS IN LIMITED PARTNERSHIPS (Continued)
|------ |  | ------------------------------------------------------

| | The
limited  partnerships  condensed  combined  statements of  operations  for the three
months ended  March  31,  2006  and  2005  and  condensed  combined  balance  sheets  as
of March  31,  2006 and  December  31, 2005 are as follows (in thousands):
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Condensed
      Combined Statements of Operations: |  |  |                                               |         |                           |  
|-------------------------------------------------- |  |  | --------------------------------------------- | ------- | ------------------------- | -
|                                                   |  |  |                                               |         |                           |  
|(Unaudited)                                        |  |  | Three
        Months Ended 
        March 31, |        
|                                                   |  |  |                                               |        
|                                                   |  |  | 2006                                          |         | 2005                      |  
|                                                   |  |  |                                               |         |                           |  
|Rental
      revenue and interest income           |  |  | $                                             | 5,210   |                           | $
|Interest
      expense                             |  |  |                                               | (1,964  | )                         |  
|Administrative
      expenses                      |  |  |                                               | (12     | )                         |  
|Depreciation
      expense                         |  |  |                                               | (723    | )                         |  
|Amortization
      expense                         |  |  |                                               | (66     | )                         |  
|                                                   |  |  |                                               |         |                           |  
|Net income                                         |  |  | $                                             | 2,445   |                           | $
|                                                   |  |  |                                               |         |                           |  
|                                                   |  |  |                                               |         |                           |  
|Condensed
      Combined Balance Sheets:           |  |  |                                               |         |                           |  
|                                                   |  |  |                                               |         |                           |  
|(Unaudited)                                        |  |  |                                               |         |                           |  
|                                                   |  |  | March
        31, 2006                        |         | December
        31, 2005 |  
|                                                   |  |  |                                               |         |                           |  
|Cash                                               |  |  | $                                             | 467     |                           | $
|Real
      estate, net                             |  |  |                                               | 64,022  |                           |  
|Other
      assets                                 |  |  |                                               | 6,308   |                           |  
|                                                   |  |  |                                               |         |                           |  
|Total
      assets                                 |  |  | $                                             | 70,797  |                           | $
|                                                   |  |  |                                               |         |                           |  
|Accounts
      payable and other liabilities       |  |  | $                                             | 2,622   |                           | $
|Mortgages
      payable                            |  |  |                                               | 82,044  |                           |  
|Partners
      deficit                            |  |  |                                               | (13,869 | )                         |  
|                                                   |  |  |                                               |         |                           |  
|Total
      liabilities and partners deficit      |  |  | $                                             | 70,797  |                           | $
|                                                   |  |  |                                               |         |                           |  

|Note 6 |  | VARIABLE INTEREST ENTITIES
|------ |  | --------------------------

| | FASB
issued  FASB  Interpretation  No.  46R,  Consolidation of Variable  Interest
Entities (FIN  46),  which  requires  a  variable  interest  entity  (VIE)
to  be  consolidated  by  its  primary  beneficiary.  The  primary  beneficiary  is the
party  that  absorbs a  majority  of the  VIEs  anticipated  losses  and/or a
majority  of the  expected  returns.  The Company  evaluates its loans and  investments
to  determine  whether they are  variable  interests in a  VIE.  This  evaluation
resulted  in  the  Company  determining  that  its  loans  and  joint  venture  interests
were  potential  variable  interests.  For  each  of  these  investments,  the  Company
has  evaluated  (1) the  sufficiency  of the fair value of  the entities equity
investments  at risk to absorb  losses,  (2)  that  as a  group  the  holders  of the
equity  investments  at risk  have (a) the  direct or  indirect  ability  through  voting
rights  to  make  decisions  about  the  entities significant  activities,  (b)
the  obligation  to  absorb  the  expected  losses of the entity and their  obligations
are not  protected  directly or  indirectly  and, (c)  the right to receive  the
expected  residual  return  of the  entity and their  rights are not capped  and,  (3)
the  voting  rights  of these  investors  are not  proportional  to  their  obligations
to  absorb  the  expected  losses  of  the  entity,  their  rights  to  receive  the
expected  returns  of  the  entity,  or  both,  and that  substantially  all of the
entities activities  do not  involve or are not  conducted  on  behalf  of an
investor  that has  disproportionately  few voting rights.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

12



---

NEWKIRK
REALTY TRUST, INC. AND THE NEWKIRK MASTER LIMITED  PARTNERSHIPFORM 10-Q MARCH 31, 2006

NOTES TO
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

|Note 6 |  | VARIABLE INTEREST ENTITIES (Continued)
|------ |  | --------------------------------------

| | As
of March 31,  2006,  the  Company  has  identified  one loan which was made to a VIE,
Camfex  Associates  Limited  Partnership  (Camfex).  The  Operating
Partnership  has loaned  approximately  $5,300,000 to  Camfex  as of March 31,  2006.
The  Company  did not  consider  Camfex  to be a VIE  prior  to  2006 as the  projected
amount at risk was  expected to be covered  by a  priority  provision  under the loan
agreement.  Due  to  Camfex  undertaking  additional  activities  that will  increase
Camfexs  expected  losses,  the  Company  has  reconsidered  whether  Camfex  is a
VIE  and has  determined  Camfex to be a VIE.  The Company  further  determined  that  it
is  the  primary  beneficiary  of the  VIE  and,  as  such,  the VIE is  consolidated  in
the  Companys  consolidated  financial  statements.  Camfex  owns  two
multi-tenanted  office buildings in California,  with  a carrying  value of  $31,590,000
at March 31, 2006.  Camfex has  additional  mortgage debt of  $28,800,000  as  of  March
31,  2006.  The  lenders  of  the  additional  mortgage  debt hold no  recourse to other
Company  assets.  For  all  other  loans  and  investments,  the  Company  has
determined  they are  not VIEs.  As such,  the  Company  has  continued  to  account  for
these  loans and  investments  as a loan  or equity investment, as appropriate.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Note 7 |  | MORTGAGE NOTES PAYABLE, NOTE PAYABLE AND CONTRACT RIGHT MORTGAGE NOTE PAYABLE
|------ |  | -----------------------------------------------------------------------------

| | Mortgage
Notes Payable
| | ----------------------

| | The
Company,  excluding discontinued operations,  had  outstanding  mortgage  notes  payable
with  an  aggregate  principal  balance  of  $209,360,000  and  $166,195,000  at  March
31,  2006 and  December  31,  2005,  respectively.  The  mortgage  notes  are  at  fixed
interest  rates with payments of principal and  interest  generally  due  either  monthly
or  semi-annually.  All  the  mortgage  notes  are  collateralized  by the  Companys
real estate;  some  of the mortgage notes are cross-collateralized.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
mortgage  notes  mature at  various  dates  from  2006 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  10.25%,  with  a  weighted  average  interest
rate of 5.7% at March 31,  2006.  Interest  rates on the  mortgages  ranged from  5.0% to
9.9% with a weighted  average  interest  rate  of 6.1% at December 31, 2005.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Note
Payable
| | ------------

| | In
August  2005,  the  Operating  Partnership  refinanced  its  then  existing  loan  with
Bank  of  America  with  a  new  loan  from  KeyBank  National  Association  and Bank of
America,  N.A.  The new loan  had  an  outstanding  principal  balance  of  $580,294,000
and  $593,463,000 at March 31, 2006 and  December 31, 2005,  respectively,  and bears
interest  at the  election  of the  Company  at a rate equal to  either  (i) the LIBOR
Rate plus 175 basis  points or  (ii)  the  prime  rate  then  charged  by  KeyBank
National  Association  plus  50  basis  points.  The  loan is  scheduled  to  mature on
August  11,  2008,  subject to two one year  extensions  and will require  monthly
payments  of  interest  only.  In  addition,  the loan  requires  quarterly  principal
payments of  $1,875,000  during  the term of the loan,  increasing  to  $2,500,000  per
quarter  during  the  extension  periods.  The  Company  is  also  required  to  make
principal  payments  from the  proceeds  of  property  sales,  refinancings  and  other
asset  sales  if  proceeds  are  not  reinvested  into  net  leased  properties.  The
required  principal  payments  are  based on a  minimum  release  price  set forth in the
loan  agreement  for  property  sales  and  100%  of  proceeds  from  refinancings,
economic  discontinuance,  insurance  settlements  and  condemnations.  The  loan  is
secured  by a lien  on  the  Companys  assets  and  the  assets  of  the  Companys
subsidiaries,  with certain exceptions such  as direct  liens on most of the real estate
owned by  the  Company  or  the  Companys  subsidiaries.  The  Company  can  prepay
the loan in whole or in part at  any  time  together  with  a  premium  of 1% if  such
prepayment  occurs on or before  August 11,  2006 and  thereafter  with  no  premium.
The  loan  contains  customary financial and other covenants.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

13



---

NEWKIRK
REALTY TRUST, INC. AND THE NEWKIRK MASTER LIMITED  PARTNERSHIPFORM 10-Q MARCH 31, 2006

NOTES TO
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

|Note 7 |  | MORTGAGE NOTES PAYABLE, NOTE PAYABLE AND CONTRACT RIGHT MORTGAGE NOTE PAYABLE
(Continued)
|------ |  | -----------------------------------------------------------------------------------------

| | Note
Payable (Continued)
| | ------------------------

| | The
Company  entered  into the  following  agreements  in order to  limit  the  exposure  to
interest  rate  volatility:  (i)  a  five  year  interest  rate  swap  agreement  with
KeyBank  National  Association  effectively  setting  the LIBOR  rate at  4.642%  for
$250,000,000  of the loan balance;  (ii) a LIBOR rate  cap  agreement  at 5% with Bank of
America,  N.A. for  $295,000,000  through  November  2006;  and  (iii)  a  LIBOR rate cap
agreement at 6% with SMBC  Derivative  Products  Limited for the period from  November
2006  until  August  2008  for  a  notional  amount  of  $290,000,000.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Contract
Right Mortgage Note Payable
| | ------------------------------------

| | The
Company has one  contract  right  mortgage  note  payable with a principal  balance of
$11,397,000  and  $11,128,000  at  March  31,  2006  and  December  31,  2005,
respectively.  The  contract  right  mortgage  note has a fixed  interest  rate of 9.68%
and matures  in January 2009.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Note 8 |  | RELATED PARTY TRANSACTIONS
|------ |  | --------------------------

| | Winthrop
Realty  Partners  L.P.  (WRP)  performed  asset  management,  investor
relations  and  administrative  services  for  the  Operating  Partnership and its
subsidiaries  and received a fee  of  $482,000  for the three  months  ended  March 31,
2005.  Effective  November  7,  2005,  NKT  Advisors  performs  the asset  management,
investor  relations  and  administrative  services  for  the  Company  previously
provided by WRP.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | For
providing  such services,  NKT Advisors  receives  an  annual  base  management  fee
which  is  payable  quarterly  in  arrears  in  cash.  The  annual  base  management  fee
is  equal  to  the  greater  of  (A)  $4,800,000  or  (B)  1.5%  per  annum  of  equity
as  defined.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | In
addition,  NKT  Advisors  is  entitled to receive  incentive  management  fees  each
fiscal  quarter,  payable  quarterly  in arrears,  in an annual  amount  equal  to:  20%
of  the  amount  by  which  adjusted  funds  from  operations  for  the  Company,  before
incentive  management  fees  exceeds  certain  hurdle  amounts as defined in the
agreement.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | NKT
Advisors  received  a  base  management  fee  of  $1,200,000  for the  three  months
ended  March  31,  2006.  No  incentive  management  fee  was  earned  during the period.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
first  $4,200,000  (subject to an annual consumer  price index  increase)  in base
management  fees per  annum  will  be  paid  by NKT  Advisors  to  WRP  for  services  to
the  Company  that  NKT  Advisors  subcontracts to WRP.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
Company  provides  certain  asset  management,  investor  and  administrative  services
to  certain  unconsolidated  partnerships  in  which  it  owns  an  equity  interest  and
to  other  affiliated  partnerships.  The  Company  earned  $64,000  and  $81,000 of
management  fees for these  services  for  the  three  months  ended  March  31,  2006
and 2005,  respectively.  The  Company  had  receivables  for  management  fees of
$877,000  and  $894,000  due from  these  partnerships  at March 31,  2006 and  December
31, 2005, respectively.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
Company has an  ownership  interest in the three  most junior  tranches of a securitized
pool of first  mortgages  which includes  among other assets,  three  first  mortgage
loans  encumbering  three  Company  properties  and one other  property  controlled by an
affiliate.  The  Companys  ownership  interest,  net  of  discount,  amounted  to
$10,595,000  and  $10,493,000  at  March  31,  2006  and  December  31,  2005,
respectively,  and the Company earned interest  income of $400,000  for the three  months
ended March  31,  2006 and  2005,  respectively,  related  to this  ownership interest.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

14



---

NEWKIRK
REALTY TRUST, INC. AND THE NEWKIRK MASTER LIMITED  PARTNERSHIPFORM 10-Q MARCH 31, 2006

NOTES TO
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

|Note 8 |  | RELATED PARTY TRANSACTIONS (Continued)
|------ |  | --------------------------------------

| | An
affiliate  owns a portion of the second  mortgage  indebtedness  of a property  in which
the Company has  an  interest.  The  second  mortgage  payable  and  accrued  interest
owned by the affiliate  aggregated  $16,073,000  and  $15,914,000  at March 31,  2006 and
December  31,  2005,  respectively.  Included  in  interest  expense is $200,000  related
to this second  mortgage  payable  for the three  months  ended March  31, 2006 and 2005,
respectively.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | In
August  2005,  WRP  loaned  $200,000  to  a  partnership  in which the Operating
Partnership  has  an  interest.  The loan  accrues  interest  at a rate  of prime  plus
2%.  The loan was  repaid in the first  quarter of 2006.  Interest  paid on this loan
during  the first quarter of 2006 was approximately $9,000.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Note 9 |  | CONTINGENCIES AND IMPAIRMENTS
|------ |  | -----------------------------

| | In
June  2005,  the  Operating  Partnership  entered  into  an  agreement  with  Honeywell
International,  Inc.,  the tenant of four office  buildings  owned by  the Operating
Partnership  in Morris  Township,  New  Jersey to  restructure  the lease on the
properties.  Under  the  restructuring,  the  tenant  waived  its  right  to  exercise
its  economic  discontinuance  option  and the  Operating  Partnership  granted  the
tenant an option to purchase the  properties  in 2007  for  $41,900,000.  As  a  result
of  this  restructuring,  the Operating Partnership  recognized  a $14,754,000
impairment  loss in the second quarter  of 2005.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
Operating  Partnership  received a notice  dated  August 30,  2005 from  Albertsons,
Inc.  indicating  that it intends to  exercise  its right to  terminate  the lease for
the  property  located  in Rock  Falls,  Illinois as of May 8, 2006.  In  accordance
with the  terms of the  lease,  Albertsons,  Inc.  has made an  offer  to  purchase
the  property  for  an  amount  stipulated  in the lease of  approximately  $861,000.
The  Operating  Partnership  recorded  an  impairment  loss of  $550,000 on this
property  during the third  quarter  of  2005.  The  operations  of the  property  were
placed into  discontinued  operations  effective  August  30,  2005.  The  Company  has
rejected  this  offer  and  the  operations  of  this  property  were  placed  back  into
continuing  operations  effective  January 1, 2006.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Note 10 |  | DISCONTINUED OPERATIONS AND SALES OF REAL ESTATE
|------- |  | ------------------------------------------------

| | The
Company 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.  At March 31, 2006 the  Companys  office  property  located in
Toledo,  Ohio was  included  in  discontinued operations.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Discontinued
operations  for the three  months ended  March 31,  2006 and 2005 are  summarized  as
follows  (in thousands):
| | ---------------------------------------------------------------------------------------------------------------------------

|                                                 |  |  | 2006 |      | 2005 |  
|------------------------------------------------ |  |  | ---- | ---- | ---- | -
|                                                 |  |  |      |      |      |  
|Revenue                                          |  |  | $    | 499  |      | $
|Expenses                                         |  |  |      | (873 | )    |  
|Gain
      from disposal of real estate          |  |  |      |     |      |  
|Minority
      interest                          |  |  |      | (262 | )    |  
|                                                 |  |  |      |      |      |  
|(Loss)
      income from discontinued operations |  |  | $    | (112 | )    | $
|                                                 |  |  |      |      |      |  

15



---

NEWKIRK
REALTY TRUST, INC. AND THE NEWKIRK MASTER LIMITED  PARTNERSHIPFORM 10-Q MARCH 31, 2006

NOTES TO
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

|Note 10 |  | DISCONTINUED OPERATIONS AND SALES OF REAL ESTATE (Continued)
|------- |  | ------------------------------------------------------------

| | Expenses
include  interest  expense  to  related  parties  of $0 and $544 for the  three  months
ended  March 31, 2006 and 2005, respectively.
| | ----------------------------------------------------------------------------------------------------------------------------------------------

| | Other
assets  of  discontinued  operations  at March  31,  2006 and  December  31, 2005 are
summarized  as  follows (in thousands):
| | -----------------------------------------------------------------------------------------------------------------------------------

|                   |  |  | 2006 |       | 2005 |  
|------------------ |  |  | ---- | ----- | ---- | -
|                   |  |  |      |       |      |  
|Receivables        |  |  | $    | 3,342 |      | $
|Other
      assets |  |  |      | 221   |      |  
|                   |  |  |      |       |      |  
|                   |  |  | $    | 3,563 |      | $
|                   |  |  |      |       |      |  

| | Liabilities
of  discontinued  operations  at March 31,  2006 and  December 31, 2005 are  summarized
as follows  (in thousands):
| | -------------------------------------------------------------------------------------------------------------------------------

|                                              |  |  | 2006 |        | 2005 |  
|--------------------------------------------- |  |  | ---- | ------ | ---- | -
|                                              |  |  |      |        |      |  
|Mortgage
      notes accrued interest payable |  |  | $    | 38,586 |      | $
|Other
      liabilities                       |  |  |      | 4      |      |  
|                                              |  |  |      |        |      |  
|                                              |  |  | $    | 38,590 |      | $
|                                              |  |  |      |        |      |  

|Note 11 |  | SUBSEQUENT EVENTS
|------- |  | -----------------

| | On
April 3, 2006,  the Company  entered into a letter  of intent to sell 50 of its  retail
properties  that  are  leased  to  Albertson's  Inc.  to  Kimco  Realty  Corporation  and
Schottenstein  Stores  Corporation  for a  gross  purchase  price  of  $160,000,000.  The
sale is subject to a number of  conditions  including  buyers' due diligence  review of
the  properties  and  the  consummation  by buyers of their  acquisition of  certain
assets of  Albertson's  Inc.  It is expected  that  the  transaction  will  be
consummated,  if at  all,  during the third  quarter of 2006.  The results  of
operations  of  these  properties  have  been  included  in  continuing  operations  for
all periods  presented  as the  Company  did not  meet  all of the  criteria  of SFAS
144 as real  estate  held for sale  as of March 31,  2006.  The Company had not  actively
marketed  these  properties  for sale  prior to being  contacted by the  prospective
purchasers and has not  committed  to a plan to  dispose  of these  assets if  the
transaction is not consummated.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | On
April  7,  2006,  the  Company  entered  into  an  unsecured  revolving  credit
agreement  with KeyBank  National  Association  providing for borrowings of up  to
$50,000,000,  subject  to  increase  up  to  $100,000,000.  The  revolving  credit  line
was  contemplated  by  the  existing  loan  arrangement  between  the  Company  and
KeyBank  National  Association  and Bank of America N.A.  The  revolving  credit
facility  matures  April  7,  2009  with  the  option  on the  part of the  Company  to
extend  the  term  for  an  additional  year.  Amounts  borrowed  under the  revolving
credit  line bear  interest  at  rates based on the Companys  leverage  ratio
ranging  from  LIBOR  plus  1.35%  to  LIBOR  plus  2.00%.  In  addition,  the  Company
is  required to pay a 12.5 or  25  basis  point  fee on the  unused  portion  of the
line, depending on the amount borrowed.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
revolving  credit line requires  monthly payments  of  interest  only.  To the extent
that the  amounts  outstanding  under the  revolving  credit line are in  excess of the
borrowing  base (as  calculated),  the  Company  would  be  required  to  make  a
principal  payment to the  extent of such  excess.  The  Company  may prepay and
reborrow  amounts  prepaid  under the  credit line.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
revolving  credit line is fully  recourse to the  Operating  Partnership  and  the
Company  has  guaranteed  the Operating  Partnerships  obligations  under the
revolving credit line.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

16



---

NEWKIRK
REALTY TRUST, INC. AND THE NEWKIRK MASTER LIMITED  PARTNERSHIPFORM 10-Q MARCH 31, 2006

NOTES TO
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

|Note 11 |  | SUBSEQUENT EVENTS (Continued)
|------- |  | -----------------------------

| | On
April 26,  2006,  the  Company  acquired a 226,000  square foot  office  building
located in  Rochester,  New York for a  purchase  price of  $26,400,000.  The  property
is  currently  leased  through  2014 to The  Frontier  Corporation,  a  communications
company.  The  annual  net  rent  payable  at the  property  is  $2,567,000  through
December 31, 2007,  increasing to  $2,624,000  per annum through 2014.  Upon  expiration
of the  current  lease  term,  the  tenant  has  two,  five-year  renewal  options each
at an annual  rental  rate  equal to the  greater  of  market  value or the  current rent
amount.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | On
May 5, 2006,  the Company  obtained a  $10,450,000  loan from an unaffiliated  third
party lender,  which  is  secured  by the  Companys  property  located  at  850-950
Warrenville  Road,  Lisle,  Illinois.  The  loan  bears  interest  at  6.26%,  requires
monthly  payments  of  interest  only  during  the  first  two  years  of the  loan  term
and  thereafter  principal  (based  on  a  30-year  amortization  schedule)  and
interest  for the  balance  of the term.  The loan is  scheduled  to mature on June 1,
2016,  at which time  the outstanding  principal  balance is expected to be
approximately $9,463,289.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | On
May  5,  2006,  the  Company  acquired  an  approximately  95,500 square foot office
building in  Rockway,  New  Jersey  for  a  purchase  price  of  approximately
$22,000,000.  The  Company  partially  satisfied the purchase  price with the  assumption
of  the  existing  mortgage  loan  of  $14,900,000.  The  property  is  leased to BASF
Corporation,  the North  American  affiliate  of BASF AG. The lease  agreement  has a
current  term  scheduled  to  expire  September  30,  2014  with the  tenants
option  to enter  into  either  two,  five-year  renewal  terms  or  one,  ten-year
renewal  term,  in all cases at fair market  rent.  Net  rent  during  the  current  term
is  $1,489,458.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

17



---

|ITEM 2. |  | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
|------- |  | -------------------------------------------------------------------------------------

Certain
statements  contained  herein  constitute  forward-looking  statements  as  such  term
is  defined  in  Section 27A of the  Securities  Act of 1933,  as amended,  and  Section
21E of  the  Securities  Exchange  Act  of  1934,  as  amended.  Forward-looking
statements  are not  guarantees  of  performance.  They  involve  risks,  uncertainties
and  assumptions.  Our  future  results,  financial  condition  and  business may differ
materially  from those expressed in these  forward-looking  statements.  You  can  find
many  of  these  statements  by  looking  for  words  such  as  approximates, believes, expects, anticipates, intends, plans, would, may or
similar  expressions  in  this  quarterly  report on Form  10-Q.  These  forward-looking
statements  are  subject  to  numerous  assumptions,  risks and  uncertainties.  Many of
the  factors  that  will  determine  these  items  are  beyond our  ability to control or
predict.  Factors  that may  cause  actual  results  to  differ  materially  from  those
contemplated by the forward-looking  statements  include,  but  are not limited to,
those set forth in the  Companys  Annual  Report  on Form  10-K for the year  ended
December  31,  2005  under  Forward  Looking  Statements and Item 1.
Business  Risk  Factors. For these  statements,  the Company claims the
protection of the safe harbor for  forward-looking  statements  contained in the Private
Securities  Litigation Reform Act of  1995.  We  expressly  disclaim  any  responsibility
to update  forward-looking  statements,  whether  as  a  result  of  new  information,
future  events  or  otherwise.  Accordingly,  investors  should use  caution  in relying
on  forward-looking  statements,  which  are  based on  results  and  trends at the  time
they are made, to anticipate future results or trends.

Managements
Discussion  and Analysis of Financial  Condition  and  Results  of  Operations  includes
a  discussion  of  the  Companys  unaudited  consolidated  financial  statements
for  the three  months  ended March 31, 2006.  The  preparation  of  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.

This item
should be read in  conjunction  with the  financial  statements,  footnotes  thereto  and
other  items  contained  elsewhere in the report.

Overview

Newkirk Realty
Trust,  Inc. (NKT) is a Maryland  corporation  that  has  elected  to be
taxed  as a real  estate  investment  trust or  REIT. NKT was  formed in July
2005 and  completed  its  initial  public  offering  (the  IPO)  on  November
7,  2005.  NKT was  formed to acquire an  ownership  interest  in,  and  become  the
general  partner  of,  The  Newkirk  Master  Limited  Partnership  (the  Predecessor or
the  Operating  Partnership).  The  Operating  Partnership  owns  commercial
properties,  most of which are net leased to investment  grade  corporate  tenants,  as
well as other real estate assets.  NKT  holds  a  controlling  30.1%  ownership  interest
in  the  Operating  Partnership.  All of NKTs  assets are held through  the
Operating  Partnership  and  its  subsidiaries.  All  references  to we and
the  Company refer  to NKT and its  consolidated  subsidiaries,  including
the  Operating  Partnership.

At March 31,
2006,  our primary  assets were our  interests in  210 real  properties.  Almost all of
the properties are leased  to one or more  tenants  pursuant to net leases.  We also held
a 50%  interest  in a joint  venture  formed  to  acquire  and  originate  loans
secured,  directly and  indirectly,  by real  estate assets,  subordinated  interests in
a securitized  pool  of notes  evidencing  first mortgage  indebtedness  secured by
certain  of  our  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  to  other  real  estate
partnerships,  ground leases,  remainder  interests or  the  right  to  acquire
remainder  interests  in  various  properties and miscellaneous other assets.

18



---

|ITEM 2. |  | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
|------- |  | -------------------------------------------------------------------------------------

Overview
(Continued)

Our  primary
long-term  business  objectives  are to increase  funds from  operations,  cash flow
available for  distribution  to our  stockholders  and net asset  value  per  share.
Because  our existing  properties  currently have  contractual  primary  term  rental
rates  that are  signifantly  above  market,  we  anticipate  that in the short term,
over the next four years,  as the primary  terms of these  existing  leases  expire,  the
funds  from  operations  and  cash  flow  attributable  to the  existing  properties
will  decline.  Consequently,  for  the  short term,  we will  measure our  performance
by our success  in  replacing  the  built-in  step down in cash flow and funds  from
operations  with new rents derived from the execution of  our  acquisition  program  and
management  of  the  existing  property lease rollover.

Our  strategy
for our  existing  properties  will be to manage  our  properties  through lease
renewals and  extensions  with  existing  tenants,  new  leases  and/or,  if
strategically  warranted,  sales.  Upon expiration of a propertys  lease, we
intend to extend the lease or promptly  re-lease  the property  to a new  tenant.  If we
are  unable  to  extend  a  lease  or  re-lease  the  property on a net lease  basis,  we
will either  sell that  property  or  re-lease  the  property  on a non-net  leased
basis  and  then  sell  it.  However,  depending  on  existing  market  conditions  we
may elect to  retain  non-net  leased  properties  so  as  to  maximize  returns.  In
this  regard,  since  November 7, 2005, the date of our IPO, we have  re-leased,  renewed
or sold  approximately  2,458,000  square  feet.

The primary
risks  associated  with  re-tenanting  properties  are:  (i) the period of time  required
to find a new  tenant;  (ii)  whether  renewal  rental  rates  will  be  lower  than
in-place rental rates;  (iii)  significant  leasing costs such  as commissions  and
tenant  improvement  allowances;  and (iv)  the payment of  operating  costs such as real
estate taxes and  insurance  while there is no  offsetting  revenue.  We address  these
risks by  contacting  tenants  well in advance of their  lease  expirations  to
ascertain  their  occupancy  needs,  visiting the  properties to determine  the physical
condition  of the property  and meeting  with local  brokers to determine  the depth of
the rental market.

In  addition
to  the  strategy  related  to  our  existing  properties,  we intend to employ  our cash
reserves,  as well  as  proceeds  from  future  debt  or  equity  financing  and a
portion of our cash flow from  operations  and property  sales  to engage in
significantly  more  acquisition  and investment  activity than we  historically  have
conducted.  We will look  to:

| | o |  | acquire
individual  net  leased  properties  and  portfolios of net leased properties;
| | - |  | --------------------------------------------------------------------------------------

| | o |  | complete
sale/leaseback  transactions,  through which  we acquire  properties and lease the
properties  back  to the  seller  or  operator  under a net  lease;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------

| | o |  | acquire
controlling  and  non-controlling  interests  in  private  and  public  companies
primarily  engaged  in the  business  of making  net lease  investments;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | o |  | acquire
equity and debt  interests in entities  that  own,  develop,  manage or advise third
parties  with regard to net leased investments;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------

| | o |  | acquire
senior  and  subordinated  loans  secured by  mortgages on net leased  properties,
mezzanine  loans  secured  by  ownership  interests  in  entities  that  own net  leased
properties  as  well as commercial mortgage-backed  securities,  B  Notes  and  bridge
loans,  relating  to net  leased properties;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | o |  | participate
in development  projects  relating to net  lease properties; and
| | - |  | ----------------------------------------------------------------------------

| | o |  | explore
investment  opportunities  in  non-domestic  markets.
| | - |  | -------------------------------------------------------------

| | o |  | where
opportunity  arises,  we intend to enter  into  strategic  alliances  with  entities
that  historically  have  been  leading  sellers  of  net-lease assets.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------

19



---

|ITEM 2. |  | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
|------- |  | -------------------------------------------------------------------------------------

Overview
(Continued)

| | o |  | refinance
our  existing  indebtedness  to the extent  strategically  viable at lower average
interest  rates or on more attractive  terms and increase  our  access  to  capital  to
finance  property  acquisitions and expansions.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Recent
Developments

Financings

| | o |  | On
February  10, 2006,  we obtained a first  mortgage  loan  from  an  unaffiliated  third
party,  in  the  principal  amount  of  $14,800,000  secured  by  our  property  located
in  Bridgewater,  New  Jersey.  See  Property  Acquisitions  and  Other  Investments below.
The loan bears  interest at 5.732%,  requires  monthly  payments of  interest  only for
the first 60  months  and  then  requires  monthly  payments  of  principal and interest
of  approximately  $86,000 and  is  scheduled  to mature on March 6,  2016,  at which
time the  outstanding  principal  balance is expected  to be  approximately  $13,730,000.
We  received  net  proceeds  from this loan,  after  satisfying  closing  costs, of
approximately $14,600,000.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | o |  | On
March 6, 2006,  NK-Marc  CAA LLC, a joint  venture  which  is  consolidated  with  us,
obtained  a  $3,500,000  loan from an  unaffiliated  third  party.  The loan bears
interest  at 6.5%,  requires  monthly  payments of principal  and interest of
approximately  $24,000 for 60 months and is  scheduled  to mature on  March  1,  2011.
The  loan  is  secured  by a  first  mortgage loan receivable owned by NK-Marc CAA LLC.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | o |  | On
April 7, 2006, the Operating  Partnership  entered  into an unsecured  revolving  credit
agreement  with  KeyBank  National  Association  providing  for  borrowings  of  up  to
$50,000,000,  subject  to  increase up to  $100,000,000.  The  revolving  credit  line
was  contemplated  by  the  existing  loan  arrangement  between the  Operating
Partnership  and  KeyBank  National  Association  and  Bank of  America  N.A. The
revolving  credit  facility  matures  April  7,  2009 with the  option  to extend  the
term for an  additional  year.  Amounts  borrowed  under  the  revolving  credit  line
bear  interest at rates based  on our leverage  ratio  ranging from LIBOR plus 1.35%  to
LIBOR plus 2.00%.  In  addition,  we are  required  to pay a 12.5 or 25  basis  point
fee on the  unused  portion  of  the  line,  depending  on  the  amount  borrowed.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
revolving  credit line requires  monthly payments  of  interest  only.  To the extent
that the  amounts  outstanding  under the  revolving  credit line are in  excess  of the
borrowing  base (as  calculated),  we  would be  required  to make a  principal  payment
to  the  extent  of  such  excess.  We  may  prepay  and  reborrow amounts prepaid under
the credit line.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
revolving  credit line is fully  recourse to the  Operating  Partnership,  and NKT has
guaranteed  the  Operating  Partnerships  obligations  under  the  revolving credit
line.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | o |  | On
May 5, 2006, we obtained a  $10,450,000  loan from  an  unaffiliated  third  party
lender,  which  is  secured  by  our  property  located  at  850-950  Warrenville  Road,
Lisle,  Illinois.  The loan bears  interest  at  6.26%,  requires  monthly  payments  of
interest  only  during  the  first  two  years of the  loan  term  and  thereafter
principal  (based  on  a  30-year  amortization  schedule) and interest for the  balance
of  the  term.  The  loan  is  scheduled  to  mature  on  June  1,  2016,  at  which
time  the  outstanding  principal  balance  is  expected  to  be  approximately
$9,463,289.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

20



---

|ITEM
      2. |  | MANAGEMENTS
      DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|------------- |  | -------------------------------------------------------------------------------------------

Recent
Developments (Continued)

Property
Sales

| | o |  | On
March 14,  2006,  we entered  into an agreement to  sell our Toledo,  Ohio property
currently leased to  Owens-Illinois  for  a  purchase  price  of  $33,000,000,
$1,000,000 in cash plus  assumption of  the  $32,000,000  of  outstanding  debt
encumbering  the  property at  September  29,  2006,  the closing  date.  The
purchaser,  RVI Group,  is the  residual  value  insurer  with  respect to the  property.  As
previously  disclosed,  Owens-Illinois  has  advised  us  that it will be  vacating  the
property  at the  expiration of its lease term, September 30, 2006.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | o |  | On
April  3,  2006,  we  entered  into a  letter  of  intent  to sell  50 of our  retail
properties  that  are  leased  to  Albertson's  Inc.  to Kimco  Realty  Corporation  and
Schottenstein  Stores  Corporation  for a gross  purchase  price  of  $160,000,000.  The
sale  is  subject  to  a  number  of  conditions  including  buyers'  due  diligence
review  of  the  properties and the  consummation  by buyers of their  acquisition of
certain  assets of  Albertson's  Inc.  It  is  expected  that  the  transaction  will  be
consummated,  if at all,  during  the third  quarter  of  2006.  The  results  of
operations  of  these  properties  have  been  included  in  continuing  operations  for
all periods  presented as we did not  meet  all of  the  criteria  of  SFAS  144  as
real  estate  held  for  sale at March  31,  2006.  We had  not  actively  marketed
these  properties  for sale  prior  to  being  contacted  by  the  prospective
purchasers  and  have  not  committed  to a plan  to  dispose of these  assets if the
transaction  is not  consummated.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Property
Acquisitions and Other Investments

| | o |  | On
January 18,  2006,  we  acquired an  approximately  116,000  square  foot  office
building  in  Bridgewater,  New  Jersey  for a  purchase  price of  approximately
$21,150,000.  The  property  is  net  leased to Biovail  Pharmaceuticals,  Inc., a
company  primarily  engaged  in the  manufacture  and sale of  generic  pharmaceutical
products.  The  lease  agreement  has a current  term  scheduled  to expire  October  31,
2014  with  two,  five-year  renewal  terms.  Net  rent  during  the  current  term  is
$1,397,000  per year  through  October  31, 2009 and  then $1,686,000 thereafter.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | o |  | On
January 26,  2006,  we  acquired an  approximately  99,000  square foot 100% leased
office  building in  Lisle,  Illinois  for  a  purchase  price  of  approximately
$15,250,000.  Net  rent  for  the  property,  commencing  January 1, 2007 is  projected
to  be  approximately  $1,225,000  per  year.  The  property  is  86%  leased  to
National  Louis  University  with the  balance  being  leased  to two  tenants.  The
National  Louis  University  lease has  a  primary  term  expiring  December  31,  2019
with  annual  lease rent  commencing  at $943,000  through  December  31,  2006  (with  a
50%  rent  concession  through  August 31, 2006),  increasing by $43,000 on  each January
1 thereafter.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | o |  | On
March  7,  2006,  we  acquired  two  warehouse/distribution  centers  comprising  240,000
square  feet for a purchase  price of  approximately  $10,550,000.  The  properties  are
currently  leased  on a  long-term  basis to  subsidiaries  of Jacobson  Companies,  a
leading  third  party  warehousing  company.  One  lease  has a  primary  term  expiring
December  31,  2015 with annual base rent during the  primary  term of  $450,000.  The
other  lease has a  primary  term  expiring  December  31,  2014 with an  annual base
rent of  approximately  $331,000 through  December  31,  2008  increasing  to
approximately  $404,000 through December 31, 2014.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | o |  | On
March 29 2006,  we acquired a 639,000  square foot  property  located  in  Statesville,
North  Carolina  for  a  purchase  price  of  approximately  $20,500,000.  The  property,
which  serves  as  a  distribution  facility,  is  currently  leased  to  La-Z-Boy
Greensboro  Inc.  and  guaranteed  by  La-Z-Boy  Incorporated.  The  lease  has  a
primary  term  expiring  April 30, 2010 with annual base rent  during  the  primary  term
of  approximately  $1,649,000.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | o |  | At
March 31, 2006,  we owned  securities  in publicly  traded  net  lease  REITs  and
partnerships  for an  aggregate cost of approximately $5,800,000.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------

21



---

|ITEM
      2. |  | MANAGEMENTS
      DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|------------- |  | -------------------------------------------------------------------------------------------

Property
Acquisitions and Other Investments (Continued)

| | o |  | On
April 26,  2006,  we  acquired  a  226,000  square  foot office building  located in
Rochester,  New York  for a purchase  price of  $26,400,000.  The  property  is
currently  leased  through  2014 to The  Frontier  Corporation,  a  communications
company.  The annual  net  rent  payable  at  the  property  is  $2,567,000  through
December 31, 2007,  increasing to $2,624,000  per  annum  through  2014.  Upon
expiration  of  the  current  lease  term,  the tenant has two,  five-year  renewal
options each at an annual  rental rate equal  to the greater of market  value or the
current  rent  amount.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | o |  | On
May 5, 2006, we acquired an  approximately  95,500  square  foot office  building in
Rockway,  New Jersey  for a purchase  price of  approximately  $22,000,000.  We partially
satisfied  the purchase  price with the  assumption  of  the  existing  mortgage  loan
of  $14,900,000.  The  property  is  leased  to  BASF  Corporation,  the North  American
affiliate  of BASF  AG.  The  lease  agreement  has  a  current  term  scheduled  to
expire  September  30,  2014  with the  tenants  option to enter into either two,
five-year  renewal terms or one,  ten-year  renewal term, in all  cases  at fair  market
rent.  Net  rent  during  the  current term is $1,489,458.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Leasing

| | o |  | As
of April  15,  2006,  our  properties  were  96.9%  leased.
| | - |  | --------------------------------------------------------------

| | o |  | During
the first  quarter  we  executed  a  ten-year  lease extension with Raytheon  Company
commencing on  January  1,  2009 for  approximately  345,000  square  feet  of  office
space  and  63%  of  the  parking  structure  relating  thereto  located in El  Segundo,
California.  In  connection  with  the  lease  extension,  the  tenant is  obligated  to
pay  annual  rent  of  $4,921,000  from  January  2009  through  December  2013,
increasing  to  $5,267,000  for  the  period  from  January  2014  to  December  2018.
The  property  owner,  which is 53% owned by the Operating  Partnership,  is  required to
provide the tenant with  $21.5 million in tenant  improvement  allowances  and  rent
concessions  over  the  next  forty  months.  Raytheon  retained  its  renewal  option
for  the  remaining  37% of the space  pursuant to its original  lease.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | o |  | During
the first quarter,  excluding the  transaction  with Raytheon Company  described above,
four tenants  representing  leases  at four  properties  containing  approximately
933,000  square feet  exercised  their  renewal option.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | o |  | During
that  same  period,  excluding  the  property  located  in Toledo,  Ohio  discussed
under  Property  Sales above,  one tenant  representing a lease at one  property
containing  approximately  42,000  square  feet  notified us that they would not exercise
their  renewal  options.  We are  currently  marketing  this  property for lease.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | o |  | During
the first quarter,  two properties  containing  approximately  89,000  square  feet have
been  fully  leased,  and one property has been  partially  leased  to a 7,800 square
foot tenant.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Joint Venture
Investment

| | o |  | On
February  13,  2006,  we  acquired a 10 year,  BBB  rated bond  secured by net  leased
properties  owned  by  Kindercare  Real  Estate LLC with a face value of  $11,700,000
and a  projected  unleveraged  yield  to  maturity of 7%.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | o |  | On
March  13,  2006,  we  acquired  a  $3,309,000  participation  interest in an
$18,750,000  mezzanine  loan and a  $11,691,000  participation  interest in a
$66,500,000  mezzanine  loan.  The  loans  underlying  both  participation  interests
are  secured  by  the  ownership  interests in entities  owning fee title to  retail
stores  net  leased  to  Toys  R Us,  bear  interest  at rate of LIBOR plus
175 basis  points and  mature  on  August  9,  2007,  subject  to  three,  one-year
extensions.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

22



---

|ITEM
      2. |  | MANAGEMENTS
      DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|------------- |  | -------------------------------------------------------------------------------------------

Joint Venture
Investment (Continued)

| | o |  | On
March 20, 2006,  we acquired a  $30,750,000 B Note  secured by a 757,000  square foot
office  building in  Dallas,  Texas  presently  net  leased  to JP  Morgan  Chase and has
an initial  interest  rate of 8.67% for  a purchase price of $27,732,000.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | o |  | On
March 31, 2006,  we formed  together with a wholly  owned  subsidiary  of Winthrop
Realty  Trust a joint  venture  to  acquire  and  originate  loans  secured,  directly
and  indirectly,  by real estate  assets and  contributed  the foregoing  loan assets to
such joint  venture.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Critical
Accounting Policies and Estimates

A summary of
our critical  accounting  policies is included in  our  Annual  Report on Form 10-K for
the year  ended  December  31,  2005.  There  have been no  significant  changes to those
policies during 2006.

Recently
Issued Accounting Standards

In June 2005,
the FASB ratified the consensus  reached by the  Emerging  Issues  Task  Force  (EITF)
on Issue  No.  04-05,  Determining  Whether a General  Partner,  or General
Partners  as a Group,  Controls a Limited  Partnership or Similar Entity  When  the
Limited  Partners  Have  Certain  Rights (EITF  04-05).  EITF 04-05
provides  a  framework  for  determining  whether a general partner  controls,  and
should  consolidate,  a  limited  partnership  or  a  similar  entity.  EITF  04-05
became  effective  on June 29,  2005,  for all newly formed or  modified  limited
partnership  arrangements  and  January  1,  2006 for all existing limited  partnership
arrangements.  The  adoption of this  standard  resulted in the  consolidation  of  one
previously unconsolidated partnership.

The impact of
the  adoption  on the  January 1, 2006  balance  sheet was as follows (in thousands):

|Assets:                                        |  |  | Pre-
        Consolidation |       | Consolidated |  
|---------------------------------------------- |  |  | -------------------------- | ----- | ------------ | -
|                                               |  |  |                            |       |              |  
|Cash                                           |  |  | $                          |       |              | $
|Land                                           |  |  |                            |      |              |  
|Building,
      net                            |  |  |                            |      |              |  
|Equity
      investment in limited partnership |  |  |                            | 6,538 |              |  
|Deferred
      costs, net                      |  |  |                            |      |              |  
|                                               |  |  |                            |       |              |  
|                                               |  |  | $                          | 6,538 |              | $
|                                               |  |  |                            |       |              |  
|Liabilities:                                   |  |  |                            |       |              |  
|Mortgage
      loan                            |  |  | $                          |      |              | $
|                                               |  |  |                            |       |              |  
|                                               |  |  | $                          |      |              | $
|                                               |  |  |                            |       |              |  

There  have
been  no  other  new  accounting  standards  or  interpretations  that  have been  issued
that we have not yet  adopted  that we believe  will have a  material  impact on our
consolidated financial statements upon adoption.

Results of
Operations

Comparison
  of the three months ended March 31, 2006 to the three months ended March 31,
  2005

For  purposes
of  the  following  comparison  of  operating  results  for the three  months  ended
March 31, 2006 and 2005,  the results of  operations  for the three  months  ended March
31, 2005 reflect the results of  operations  of the  Operating  Partnership.

23



---

|ITEM
      2. |  | MANAGEMENTS
      DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|------------- |  | -------------------------------------------------------------------------------------------

Results of
Operations (Continued)

Rental Income

Rental income
increased by $1,424,000 or 2.5% to  $59,288,000  for the three  months  ended March 31,
2006 from  $57,864,000  for the three months  ended March 31,  2005.  The increase was
due to  rental  income  of  approximately  $900,000  from  new  acquisitions  and
approximately  $2,400,000  of rental income  from  previously  unconsolidated  entities.
The  increase was  partially  offset by a  decrease  in the amount  received  for  rent
relating  to a  settlement  with Kmart of  approximately  $1,200,000.  The  increase  was
also  partially  offset due to  vacancies  of  certain  properties  previously  leased
to  Albertsons  Inc.  which became vacant on December 31, 2005 and  by a  decrease  due
to  lower  rental  income  resulting  from  lease  renewals at rates that are lower than
the primary  term  rates.  Leased square  footage  increased  from  approximately  96.5%
at  December  31, 2005 to  approximately  96.9% at March  31, 2006.

Interest and
Other Income

Interest
income  increased  by  $3,440,000  or  approximately  438.8% to  $4,224,000  for the
three  months  ended  March 31,  2006  from  $784,000  for the  three  months  ended
March 31,  2005.  The  increase was  primarily  the result of higher cash  balances  due
to  the  IPO.  In  addition,  we  recognized  approximately $1,900,000 of interest from
loans receivable.

Management Fee
Income

Management  fee
income  decreased by $17,000 or  approximately  21.0% to $64,000  for the three  months
ended  March 31, 2006  from $81,000 for the three  months  ended March 31, 2005.  The
decrease  is  attributable  to  fewer  properties  under  management  resulting from the
sale of three  properties owned  by unconsolidated partnerships.

Interest Expense

Interest
expense  decreased by  $5,388,000  or  approximately  29.2% to  $13,033,000  for the
three  months  ended  March 31,  2006  compared  to  $18,421,000  for the  three  months
ended  March  31,  2005.  The  decrease  was  primarily  due to  loan  prepayments
during  the  period  and  scheduled  principal  payments  along  with a  reduced
interest  rate  incurred  in  connection with our August 11, 2005 refinancing.

Depreciation

Depreciation
expense  increased  by  $3,718,000  or  approximately  45.3%  to  $11,923,000  for  the
three  months  ended March 31,  2006  compared  to  $8,205,000  for the three  months
ended  March  31,  2005.  The  increase  is  primarily  attributable  to the  shortening
of the useful life of four of  our  properties.  In June 2005,  we entered  into an
agreement  with  Honeywell  International, Inc.,  the  tenant  of  four  office
buildings owned by us in Morris  Township,  New Jersey  to  restructure  the  lease  on
the  properties.  Under  the  restructuring,  the tenant  waived its right to  exercise
its  economic  discontinuance  option (the ability to terminate its  lease and make an
offer to purchase  the  property for a fixed  price) and we granted  the  tenant an
option to  purchase  the  properties  in  2007.  In light  of  these  circumstances,  we
reduced our carrying  value through an  impairment  charge and  also shortened the
properties useful lives.

General and
Administrative Expense

General and
administrative  expense  increased by  $1,700,000  to  $2,540,000  for the three months
ended March 31, 2006 from  $840,000  for the three  months  ended  March 31,  2005.  This
increase was primarily  due to an increase in  management  fee  expense  of  $718,000
and  an  increase  in  general  and  administrative  expense  resulting  from  our
umbrella  partnership REIT (UPREIT) structure.

24



---

|ITEM
      2. |  | MANAGEMENTS
      DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|------------- |  | -------------------------------------------------------------------------------------------

Results of
Operations (Continued)

Operating
Expenses

Operating
expenses  increased  to  $1,346,000  for the  three  months  ended March 31, 2006 from
$3,000 for the three  months  ended  March  31,  2005.  This  increase  was  primarily
the  result of the  consolidation  of a non-net leased property and  acquisition  of
three  leased  properties  under  which we are  required to bear certain operating costs.

Impairment Loss

An  impairment
loss by  $2,200,000  was  recorded  during the  three  months  ended  March 31,  2005
relating  to a property  located in Evanston, Wyoming.

Amortization
Expense

Amortization
expense  increased  by  $648,000  or  94.9%  to  $1,331,000  for the three months ended
March 31, 2006 compared  to $683,000 for the three  months  ended March 31,  2005.  The
consolidation  of  previously  unconsolidated  entities  increased  amortization  expense
by  approximately  $261,000.  The increase  was also due to  amortization  of
approximately  $374,000 of lease  intangibles  during the three  months ended  March 31,
2006.

Ground Rent

Ground  rent
expense  increased  by $70,000 or  approximately  9.2% to  $831,000  for the three
months  ended March 31, 2006  compared  to  $761,000  for the three  months  ended March
31,  2005.  The increase in ground rent  expense is  primarily  the  result  of  an
increase  in  the  ground  rental  rate  for a  property located in Orlando, Florida.

State and Local
Taxes

State  and
local  tax  expense  increased  by  $575,000  or  approximately  212.2% to $846,000  for
the three  months ended  March 31,  2006  compared  to  $271,000  for the three  months
ended  March 31,  2005.  The  increase is  primarily  due to a  new  entity  level  tax
in  the  state  of  Kentucky.  Also,  additional  state tax  obligations  have been
incurred due to  our UPREIT structure.

Other Expense

Other  expense
for the three  months  ended March 31, 2006 of  $5,345,000  represents  the minority
interest  expense of the  Operating Partnership.

Equity in
Income from Investments in Limited Partnerships

Equity in
income  from  investments  in  limited  partnerships  decreased by $291,000 or
approximately  38.5% to $464,000 for  the three  months  ended March 31,  2006  compared
to $755,000  for the three  months  ended March 31,  2005.  The decrease is  primarily
the  result of the  consolidation  of  Sunset  Park  West in accordance with EITF 04-05.

Minority
Interest Expense

Minority
interest  expense  increased  by  $14,087,000  to  $18,739,000  for  the  three  months
ended  March  31,  2006  compared to  $4,652,000  for the three  months ended March 31,
2005.  The  minority  interest  expense  for the three  months  ended  March  31,  2006
of  $18,739,000  represents  the 69.9%  minority  interest  partners  share  of
the  Operating  Partnership.  The  minority  interest  expense  for the  three  months
ended  March 31,  2005 of  $4,652,000  represents  the  Operating  Partnerships
minority  interest  expense relating  to  partnerships  which are not  wholly-owned by
the Operating  Partnership.  The Operating  Partnerships  minority  interest
expense  for  the  three  months  ended  March  31,  2006  is  classified  as Other
Expense in the March 31, 2006  statement  of operations.

25



---

|ITEM
      2. |  | MANAGEMENTS
      DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|------------- |  | -------------------------------------------------------------------------------------------

Results of
Operations (Continued)

Discontinued
Operations

Included  in
discontinued  operations  are  the  operations  attributed  to our property  located in
Toledo,  Ohio. We have  received  notice  that the  tenant  will not renew its  lease.
While  we  will  attempt  to sell or  re-lease  the  property,  there  is a  substantial
risk  that  we  will  not be able to  satisfy the balloon  payment due on the  mortgage
and that we  will lose this property through foreclosure in 2006.

During the
three  months  ended  March 31,  2005,  we sold one  property  for a net sale  price of
approximately  $2,200,000.  We  recognized  a net gain on  disposal  of this  property
of  $600,000.

Liquidity and
Capital Resources

General

Liquidity is a
measurement  of our ability to meet  potential  cash  requirements,  including  ongoing
commitments  to repay  borrowings,  fund and maintain  investments  and other general
business  needs.  Historically,  our  principal  sources  of  funds  have been  operating
cash  flows,  property  sales and  borrowings.  Operating  cash  flows  have  been,  and
are  expected  to  continue to be,  derived  primarily  from rental  income  received  by
us from our  properties.  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.

Accordingly,
we do not anticipate  significant needs for cash  for  these  costs.  To the  extent
there  is a  vacancy  in a  property,  we would be obligated for all  operating
expenses,  including  real estate  taxes and  insurance.  As of March 31,  2006,  nine
properties  were  not  subject  to  leases,  representing  approximately  3.1%  of  our
total  square  footage.  We  believe  that cash flows  from  operations  will  continue
to provide  adequate  capital to fund our  operating  and  administrative  expenses,
regular  debt  service  obligations  and all  dividend  payments  in  accordance  with
REIT  requirements  in both the short-term  and long-term.  In  addition,  we anticipate
that cash on hand,  borrowings  under  our credit  facility and issuance of equity and
debt,  as well  as other  alternatives;  will  provide the  necessary  capital  required
for our investment activities.

Our UPREIT
structure  will  enable us to  acquire  properties  for  cash  and/or  by  issuing  to
sellers,  as  a  form  of  consideration,  our  limited  partnership  interests.  We
intend to utilize  this  structure to  facilitate  our ability  to  acquire  individual
properties  and  portfolios  of  properties by  structuring  transactions  which will
defer tax  payable by a seller while  preserving  our available  cash for  other
purposes,  including  the  payment  of  dividends  and  distributions.

Cash Flows

We had cash
and cash  equivalents  of  $131,056,000  at March  31, 2006.

Our level of
liquidity  based upon cash and cash  equivalents  decreased  by  approximately
$43,760,000  during  the  three  months  ended  March 31,  2006.  The  decrease  resulted
from  $98,953,000  of cash  used in our  investing  activities  and  $3,462,000  of cash
used in our  financing  activities,  which  was partially  offset by  $58,655,000  of
cash provided by our  operating activities.

Cash  provided
by  operating  activities  of  $58,655,000  was  comprised of: (i) net income of
$7,140,000;  (ii) adjustments  for non-cash  items of  $34,365,000,  and (iii) a
net positive  change in operating  assets and  liabilities of  $17,150,000.  The
adjustments  for non-cash items were primarily  comprised  of  (i) depreciation  and
amortization  of  $14,038,000;  (ii) minority  interest  of  $18,477,000;  (iii)
compensation  expense  related to the exclusivity  rights of $833,000;  (iv)  the  effect
of  straight-lining  of  rental  income  of  $1,370,000;  and  (v)  loss  from  disposal
of  real  estate  securities  available  for sale of $21,000,  partially  offset  by: (i) interest
earned on restricted cash of $119,000 and

26



---

|ITEM
      2. |  | MANAGEMENTS
      DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|------------- |  | -------------------------------------------------------------------------------------------

Liquidity
and Capital Resources

Cash Flows
(Continued)

(ii) equity
in net  income  of  partially-owned  entities  of  $255,000.  See  Results  of
Operations  above for  additional  details on our operations.

Cash  used  in
our  investing  activities  consisted  of:  (i)  $69,757,000  of  new  land  and
building  acquisitions  and  improvements  to our existing  properties;  (ii)  purchases
of  various real estate  securities of $1,594,000;  (iii) costs to  obtain  new  leases
of  $800,000;  (iv)  investment  in joint  venture of  $639,000;  (v) costs  incurred to
originate a loan  of  $21,000;  (vi)  deposits  for  future  real  estate  acquisitions
of  $2,630,000;  and (vii)  investments  in debt  securities  of  $53,616,000  which
were  subsequently  contributed  to a  joint  venture  on  March  31,  2006.  Cash
provided by investing  activities  consisted  of: (i) a change  in  restricted  cash  of
$10,750,000;  (ii)  $1,004,000  in  proceeds  from  the  disposal  of  real  estate
securities  available for sale;  (iii)  deposits  used in the  acquisition  of  land  and
buildings  of  $3,297,000;  (iv)  $12,000  in  collections  of  loans  receivable;  (v)
$417,000  of  cash  related to previously  unconsolidated  entities; (vi) $805,000  of
lease  intangible  additions  which were mainly  related to  below  market  leases;
(vii)  proceeds  from real estate held  for sale of  $2,945,000;  and (viii) a return of
capital  from  an investment in joint venture of $10,874,000.

During the
three  months  ended March 31,  2006 our  financing  activities  used cash primarily for:
(i) principal  payment on  mortgage  notes of  $20,365,000,  (ii)  principal  payments on
notes payable of  $13,169,000,  (iii)  $5,231,000 of dividends  made  to our
stockholders;  (iv)  distributions  to  minority  interest  of  $14,815,000;  and  (v)
financing  costs  of  $212,000.  Cash  provided by  financing  activities  consisted
primarily  of:  (i)  $18,305,000  of  proceeds  from  mortgage  notes  and  (ii)
$32,025,000  of  proceeds  from  a  line  of  credit.  The  line  of  credit  was
contributed  to  a  joint  venture on March 31, 2006.

Dividends

In  connection
with our  intention  to  qualify as a REIT for  Federal  income  tax  purposes,  we
expect  to  pay  regular  dividends to  stockholders.  These  dividends  are expected to
be paid from operating cash flows and/or other sources.

In  December
2005,  we declared a dividend of $0.27 per share  which was paid on  January  17,  2006
to the  stockholders  of  record as of December 31, 2005.

In March  2006
we  declared  a  dividend  of $0.40  per  share  which  was  paid on  April  14,  2006 to
the  stockholders  of  record as of March 31, 2006.

Off-Balance
Sheet Arrangements

We do not  have
any  off-balance  sheet  arrangementas  as of  March 31, 2006.

Capital
Expenditures

Due to the net
lease  nature of our  leases,  we do not incur  significant  expenditures  in the
ordinary  course of business  to maintain its  properties.  However,  as leases  expire,
we  expect to incur costs in extending  the existing  tenant lease  or  re-tenanting  the
properties.  The  amounts  of  these  expenditures  can  vary  significantly  depending
on  tenant  negotiations,  market  conditions  and  rental  rates.  We  incurred
approximately  $4,800,000  of  these  expenditures  during  the  three  months  ended
March  31,  2006.  Future  expenditures  are  expected to be funded from  operating  cash
flows or borrowings.

27



---

|ITEM
      2. |  | MANAGEMENTS
      DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|------------- |  | -------------------------------------------------------------------------------------------

Adjusted
Funds From Operations

We  compute
funds  from  operations  (FFO)  as shown in the  calculation  below.  Funds
from  operations  is  a  non-GAAP  financial  measure which  represents  "funds from
operations"  as defined by NAREIT.  NAREIT  defines  funds from  operations  as  net
income,  computed  in  accordance  with  generally  accepted  accounting  principles or
GAAP,  excluding gains (or  losses) from debt  restructuring  and sales of property,
plus  depreciation  and  amortization  on real  estate  assets,  and  after  adjustments
for  unconsolidated  partnerships and joint  ventures.  We have also  reported our
adjusted FFO (AFFO) as  adjusted for the non-cash  charge  incurred in
connection with  the  issuance of shares to Winthrop  Realty  Trust in exchange  for
certain  exclusivity  rights  with  respect to  net-lease  business  opportunities
offered  to or  generated  by  senior  management.  We consider AFFO a useful  additional
measure of  performance  for an equity  REIT  because  it  facilitates  an  understanding
of the operating  performance of its properties  without  giving  effect  to  real
estate  depreciation  and  amortization,  which  assumes  that the  value of real  estate
assets  diminishes  predictably  over  time.  AFFO  can  also  facilitate  a  comparison
of  current  operating  performance  among  REITs.  AFFO  does  not  represent  cash
generated  by  operating  activities in  accordance  with GAAP and should not  be
considered an  alternative  to net income or cash flow from  operating  activities  as a
measure of  financial  performance  or liquidity.

The  following
presents a  reconciliation  of our income from  operations  to our  adjusted  funds  from
operations  for the  three months ended March 31, 2006 (in thousands):

|                                                           |  |  | For
        the Three Months Ended March 31, 2006 |       
|---------------------------------------------------------- |  |  | ------------------------------------------------- | ------
|                                                           |  |  |                                                   |       
|Net income                                                 |  |  | $                                                 | 7,140 
|Real
      estate depreciation                             |  |  |                                                   | 3,722 
|Amortization
      of capitalized leasing costs            |  |  |                                                   | 669   
|Real
      estate depreciation of unconsolidated interests |  |  |                                                   | 60    
|                                                           |  |  |                                                   |       
|Funds
      from operations                                |  |  |                                                   | 11,591
|Add:
      Compensation expense incurred for               |  |  |                                                   |       
|exclusivity
      rights                                   |  |  |                                                   | 251   
|                                                           |  |  |                                                   |       
|Adjusted
      funds from operations                       |  |  | $                                                 | 11,842
|                                                           |  |  |                                                   |       

Adjusted funds
from operations includes $11,954 of adjusted  funds from continuing operations and $112
of adjusted funds  used in discontinued operations.

28



---

|ITEM 3. |  | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|------- |  | ----------------------------------------------------------

| | Among
our  liabilities  are both  fixed and  variable  rate debt.  To mitigate  the  effects of
fluctations  in interest  rates on the  variable  rate  portion of  this  debt,  we  own
interest  rate  cap  and  swap  agreements.  All financial  instruments  were entered
into  for  purposes  other  than  trading.  For  the  fixed rate  portion of our debt,
changes in interest  rates  have no impact on  interest  incurred  or cash  flows,
however  such  changes  do  impact  the  net  financial  position  of  the  debt
instruments.  For  our  variable  rate debt,  changes in interest  rates  do not  impact
the  net  financial  position  of the  instruments  but do impact the interest  incurred
and  cash flows.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | At
March  31,  2006,  we had one  loan  which  had a  variable  interest  rate.  The  loan,
which  had  an  outstanding  balance  of  $580,294,000  at March  31,  2006,  was
obtained  in  August  2005  and  has  a  three-year  term.  Interest  on  the
outstanding  balance  accrues at a rate  equal to, at our  option,  either  (i) LIBOR
rate (as  defined)  plus 175 basis  points or (ii) the  banks  prime  rate plus 50
basis  points.  As a result of the  acquisition  of interest  rate swap and cap
agreements,  (i) LIBOR on the loan  is effectively  fixed at 4.642% for  $250,000,000  of
this loan for five  years and (ii) the LIBOR  rate on  $295,000,000  of  the  loan
(decreasing  to  $290,000,000  as of  December 1, 2006) will be capped  at  5.0%  through
November  2006  and  6.0%  from  December 2006 until August 2008.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | We
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  (4.83%  at  March  31,
2006)  would  have  on  interest  expense  based upon the balance of the  variable  rate
loan at  March 31, 2006,  and assuming  increases in the LIBOR  rate  up to  the  5.0%
maximum  rate  (based  on the  terms of the interest rate cap).
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                  |  |  | Change
        in LIBOR
        .71% |    
|--------------------------------- |  |  | ------------------------------------ | ---
|                                  |  |  |                                      |    
|                                  |  |  | (in thousands)                       |    
|Additional
      interest expense |  |  | $                                    | 562

| | Any
additional  increase  in  LIBOR  above  the 5.0%  maximum rate would result in
approximately  $353,000  of additional  interest  expense per 1.0% increase in  LIBOR.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------

29



---

|ITEM 4. |  | CONTROLS AND PROCEDURES
|------- |  | -----------------------

| | In
accordance  with  Exchange  Act Rules  13a-15 and  15d-15,  we  carried  out an
evaluation,  under  the  supervision and with the  participation  of the Chief  Executive
Officer  and Chief  Financial  Officer  of  the  Company,  as well as other  key  members
of the  Companys  management,  of the  effectiveness  of our  disclosure  controls
and  procedures as of the end of  the  period  covered  by this  report.  Based on that
evaluation,  the Companys  Chief  Executive  Officer  and  Chief  Financial
Officer  concluded  that  our  disclosure  controls and procedures  were  effective,  as
of the end of the period  covered by this  report,  to  provide  reasonable  assurance
that  information  required  to be  disclosed  in our  reports  filed or  submitted
under  the  Exchange  Act  is  recorded,  processed,  summarized  and reported  within
the time  periods  specified  in the  Securities  and  Exchange  Commissions rules
and forms.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | No
        change occurred in our Companys internal controls concerning financial
        reporting during the period covered by this report that has materially
        affected, or is reasonably likely to materially affect, our internal controls
        over financial reporting.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

30



---

PART II
 OTHER INFORMATION

|ITEM 6. |  | EXHIBITS
|------- |  | --------

| | Exhibits
required by Item 601 of Regulation S-K  are filed herewith or incorporated herein by
reference and are listed in the attached  Exhibit Index.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------

31



---

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.

|                         | NEWKIRK REALTY
      TRUST, INC.
|------------------------ | --------------------------------
|                         |                                 
|Dated:
      May 9, 2006 | By:                             
|                         |                                 
|                         |                                 
|                         |                                 
|                         |                                 
|Dated: May 9,
      2006 | By:                             
|                         |                                 
|                         |                                 
|                         |                                 

32



---

EXHIBIT INDEX

|3.1   |  | Amended and Restated
      Articles of Incorporation of the Company                                                                                                                                                                                                                                                                          |  | (d)
|----- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---
|      |  |                                                                                                                                                                                                                                                                                                                                              |  |    
|3.2   |  | Amended and Restated
      By-laws of the Company                                                                                                                                                                                                                                                                                            |  | (d)
|      |  |                                                                                                                                                                                                                                                                                                                                              |  |    
|4.1   |  | Form of Certificate
      of Common Stock                                                                                                                                                                                                                                                                                                    |  | (c)
|      |  |                                                                                                                                                                                                                                                                                                                                              |  |    
|4.2   |  | Form of Special Voting
      Preferred Stock                                                                                                                                                                                                                                                                                                 |  | (c)
|      |  |                                                                                                                                                                                                                                                                                                                                              |  |    
|10.1  |  | Advisory Agreement,
      dated as of November 7, 2005, by and between the Company, The Newkirk Master
      Limited Partnership and NKT Advisors LLC.                                                                                                                                                                                       |  | (d)
|      |  |                                                                                                                                                                                                                                                                                                                                              |  |    
|10.2  |  | Acquisition Agreement,
      dated as of November 7, 2005, between the Company and First Union Real Estate
      Equity and Mortgage Investments ("First Union") (incorporated by reference
      to Exhibit 10.4 to First Union's Current Report on Form 8-K filed with the
      Securities and Exchange Commission on November 10, 2005). |  | (d)
|      |  |                                                                                                                                                                                                                                                                                                                                              |  |    
|10.3  |  | Amended and Restated
      Agreement of Limited Partnership of The Newkirk Master Limited Partnership
      dated as of November 7, 2005.                                                                                                                                                                                                    |  | (d)
|      |  |                                                                                                                                                                                                                                                                                                                                              |  |    
|10.4  |  | Registration Rights
      Agreement, dated as of November 7, 2005, between the Company and Vornado
      Realty Trust                                                                                                                                                                                                                        |  | (d)
|      |  |                                                                                                                                                                                                                                                                                                                                              |  |    
|10.5  |  | Registration Rights
      Agreement dated as of November 7, 2005, between the Company and Apollo Real
      Estate Investment Fund III, L.P. ("Apollo")                                                                                                                                                                                      |  | (d)
|      |  |                                                                                                                                                                                                                                                                                                                                              |  |    
|10.6  |  | Registration Rights
      Agreement dated as of November 7, 2005, between the Company and First Union.                                                                                                                                                                                                                                       |  | (d)
|      |  |                                                                                                                                                                                                                                                                                                                                              |  |    
|10.7  |  | Unit Purchase Agreement
      between the Company and Apollo.                                                                                                                                                                                                                                                                                |  | (d)
|      |  |                                                                                                                                                                                                                                                                                                                                              |  |    
|10.8  |  | Unit Purchase Agreement
      between the Company and WEM-Brynmawr Associates LLC.                                                                                                                                                                                                                                                           |  | (d)
|      |  |                                                                                                                                                                                                                                                                                                                                              |  |    
|10.9  |  | Securities Purchase
      Agreement between the Registrant and First Union                                                                                                                                                                                                                                                                   |  | (d)
|      |  |                                                                                                                                                                                                                                                                                                                                              |  |    
|10.10 |  | Exclusivity Services
      Agreement between the Company and Michael L. Ashner.                                                                                                                                                                                                                                                              |  | (d)
|      |  |                                                                                                                                                                                                                                                                                                                                              |  |    
|10.11 |  | Lock-Up Agreement
      dated November 7, 2005 among First Union and the Underwriters named therein.                                                                                                                                                                                                                                         |  | (d)
|      |  |                                                                                                                                                                                                                                                                                                                                              |  |    
|10.12 |  | Registrants
      2005 Stock Incentive Plan                                                                                                                                                                                                                                                                                                 |  | (c)
|      |  |                                                                                                                                                                                                                                                                                                                                              |  |    
|10.13 |  | Letter Agreement among
      the Registrant, Apollo Real Estate Investment Fund III, L.P., The Newkirk
      Master Limited Partnership, NKT Advisors LLC, Vornado Realty Trust, VNK
      Corp., Vornado Newkirk LLC, Vornado MLP GP LLC and WEM Bryn Mawr Associates
      LLC                                                             |  | (c)
|      |  |                                                                                                                                                                                                                                                                                                                                              |  |    
|10.14 |  | Master Loan Agreement,
      dated August 11, 2005, among The Newkirk Master Limited Partnership and
      T-Two Partners, L.P., KeyBank National Association, Bank of America, N.A.,
      Lasalle Bank, National Association, and KeyBanc Capital Markets                                                                                  |  | (b)

33



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|10.17 |  | Master Promissory Note, dated as of August 11, 2005, by The Newkirk Master
Limited Partnership in favor of KeyBank National Association                                                                                                                                                        |  | (b)
|----- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---
|      |  |                                                                                                                                                                                                                                                                                                |  |    
|10.18 |  | Form of Mortgage, dated as of August 11, 2005, from The Newkirk Master Limited
Partnership in favor of KeyBank National Association                                                                                                                                                            |  | (b)
|      |  |                                                                                                                                                                                                                                                                                                |  |    
|10.19 |  | Ownership Interest Pledge and Security Agreement, dated as of August 11, 2005,
from The Newkirk Master Limited Partnership to KeyBank National Association                                                                                                                                     |  | (b)
|      |  |                                                                                                                                                                                                                                                                                                |  |    
|10.20 |  | Ownership Interest Pledge and Security Agreement (Subsidiaries), dated as of
August 11, 2005, from The Newkirk Master Limited Partnership to KeyBank National
Association                                                                                                                      |  | (b)
|      |  |                                                                                                                                                                                                                                                                                                |  |    
|10.21 |  | Ownership Interest Pledge and Security Agreement (Finco, GP and Capital), dated
as of August 11, 2005, from The Newkirk Master Limited Partnership to KeyBank
National Association                                                                                                             |  | (b)
|      |  |                                                                                                                                                                                                                                                                                                |  |    
|10.22 |  | Indemnity Agreement, dated as of August 11, 2005, from The Newkirk Master
Limited Partnership to KeyBank National Association                                                                                                                                                                  |  | (b)
|      |  |                                                                                                                                                                                                                                                                                                |  |    
|10.23 |  | Guaranty, dated as of August 11, 2005, from The Newkirk Master Limited
Partnership to KeyBank National Association with respect to the T-Two Loan                                                                                                                                              |  | (b)
|      |  |                                                                                                                                                                                                                                                                                                |  |    
|10.25 |  | Amendment to the Letter Agreement among the Registrant, Apollo Real Estate
Investment Fund III, L.P., The Newkirk Master Limited Partnership, NKT Advisors
LLC, Vornado Realty Trust, Vornado Realty L.P., VNK Corp., Vornado Newkirk LLC,
Vornado MLP GP LLC, and WEM-Brynmawr Associates LLC |  | (c)
|      |  |                                                                                                                                                                                                                                                                                                |  |    
|10.26 |  | Limited Liability Company Agreement of 111 Debt Holdings LLC, dated March 31,
2006, among The Newkirk Master Limited Partnership, WRT Realty, L.P. and FUR
Holdings LLC                                                                                                                        |  | (e)
|      |  |                                                                                                                                                                                                                                                                                                |  |    
|10.27 |  | Master Repurchase Agreement, dated March 30, 2006, among Column Financial Inc.,
111 Debt Acquisition LLC, 111 Debt Acquisition Mezz LLC and Newkirk Realty
Trust, Inc.                                                                                                                         |  | (e)
|      |  |                                                                                                                                                                                                                                                                                                |  |    
|10.28 |  | Loan Agreement, dated as of April 7, 2006, between The Newkirk Master Limited
Partnership and KeyBank, National Association                                                                                                                                                                    |  | (f)
|      |  |                                                                                                                                                                                                                                                                                                |  |    
|10.29 |  | Guaranty from Newkirk Realty Trust, Inc. in favor of KeyBank, National
Association                                                                                                                                                                                                             |  | (f)
|      |  |                                                                                                                                                                                                                                                                                                |  |    
|31.   |  | Certifications Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                                                                       |  | *  
|      |  |                                                                                                                                                                                                                                                                                                |  |    
|31.   |  | Certifications Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                                                                       |  | *  
|      |  |                                                                                                                                                                                                                                                                                                |  |    

* Filed herewith

|(a) |  | Incorporated
by reference to the Registrant's  Registration Statement on Form S-11 (Registration  No.
333-127278), filed on August 8, 2005
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------

34



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|(b) |  | Incorporated
by reference to Amendment No. 1 to the  Registrant's Registration Statement on Form S-11
(Registration No. 333-127278), filed on August 8,  2005) or Form S-11 (Registration No.
333-127278)  filed on September 16, 2005
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(c) |  | Incorporated
by reference to Amendment No. 5 to the  Registrant's Registration Statement on Form S-11
(Registration No. 333-127278) filed on October 28,  2005
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------

|(d) |  | Incorporated
by reference to the Company's Current  Report on 8K filed November 15, 2005
|--- |  | ----------------------------------------------------------------------------------------

|(e) |  | Incorporated
by reference to the Company's Current  Report on 8K filed April 5, 2006
|--- |  | ------------------------------------------------------------------------------------

|(f) |  | Incorporated
by reference to the Company's Current  Report on 8K filed April 12, 2006
|--- |  | -------------------------------------------------------------------------------------

35

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