<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 [Fee required] For the period ended June 30, 1996
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 [Fee required] For the Transition period from
_________________ to ________________
Commission File Number 33-16973
NET 1 L.P.
------------------------------------------------
(Exact name of Registrant as specified in its charter)
Delaware 13-3421566
----------------------------- ----------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
c/o The LCP Group
355 Lexington Avenue 10017
New York, NY -------
- ---------------------------------------- (Zip code)
(Address of principal executive offices)
Registrant's telephone number, including area code (212) 692-7200
--------------
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Units of Limited
Partnership Interests
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes x . No .
--- ---
State the aggregate market value of the voting stock held by non-affiliates of
the Registrant.
Not Applicable.
There is no active public market for the units of limited partnership interests
issued by the Registrant.
<PAGE> 2
PART 1. - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
NET 1 L.P. AND CONSOLIDATED PARTNERSHIPS
CONSOLIDATED BALANCE SHEETS
June 30, 1996 (Unaudited) and December 31, 1995
<TABLE>
<CAPTION>
ASSETS
------
June 30, December 31,
1996 1995
-------------- --------------
<S> <C> <C>
Real estate, at cost
Buildings $ 15,725,091 $ 15,725,091
Land 7,145,912 7,145,912
-------------- --------------
22,871,003 22,871,003
Less: accumulated depreciation 2,100,126 1,903,854
-------------- --------------
20,770,877 20,967,149
Cash 2,115,601 1,816,179
Rent receivable 308,117 299,843
Other assets 328,296 328,907
-------------- --------------
$ 23,522,891 $ 23,412,078
============== ==============
</TABLE>
<TABLE>
<CAPTION>
LIABILITIES AND PARTNERS' CAPITAL
<S> <C> <C>
Mortgage notes payable $ 3,621,542 $ 3,686,942
Accrued interest payable 32,373 33,069
Accounts payable and other liabilities 147,219 159,824
-------------- --------------
3,801,134 3,879,835
-------------- --------------
Partners' capital (deficit):
General Partner (175,977) (179,767)
Limited Partners ($1,000 per Unit,
50,000 Units authorized, 30,772
Units issued and outstanding) 19,897,734 19,712,010
-------------- --------------
Total partners' capital 19,721,757 19,532,243
-------------- --------------
$ 23,522,891 $ 23,412,078
============== ==============
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
<PAGE> 3
NET 1 L.P. AND CONSOLIDATED PARTNERSHIPS
CONSOLIDATED STATEMENTS OF INCOME
Quarters Ended June 30, 1996 and 1995 and
Six Months Ended June 30, 1996 and 1995
(Unaudited)
<TABLE>
<CAPTION>
Six Months Six Months
Quarter Ended Quarter Ended Ended Ended
June 30, June 30, June 30, June 30,
1996 1995 1996 1995
------------- -------------- ------------ -------------
<S> <C> <C> <C> <C>
Revenues:
Rental $ 597,667 $ 459,552 $ 1,469,955 $ 919,104
Interest and other 25,700 69,195 38,834 137,870
------------- -------------- ------------ -------------
623,367 528,747 1,508,789 1,056,974
------------- -------------- ------------ -------------
Expenses:
Interest expense 97,473 - 195,997 -
Depreciation 98,136 65,898 196,272 131,796
General, administrative, and other 82,617 174,729 141,378 252,058
------------- -------------- ------------ -------------
278,226 240,627 533,647 383,854
------------- -------------- ------------ -------------
Income before loss on sale of properties $ 345,141 $ 288,120 $ 975,142 $ 673,120
Loss on sale of properties - - - (324,679)
------------- -------------- ------------ -------------
Net income $ 345,141 $ 288,120 $ 975,142 $ 348,441
------------- -------------- ------------ -------------
Net income per Unit of limited
partnership interest $ 11.00 $ 9.18 $ 31.06 $ 11.10
------------- -------------- ------------ -------------
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
<PAGE> 4
NET 1 L.P. AND CONSOLIDATED PARTNERSHIPS
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six months ended June 30, 1996 and 1995
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended Six Months Ended
June 30, June 30,
1996 1995
---------------- ----------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 975,142 $ 348,441
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation 196,272 131,796
Loss on sale of properties - 324,679
Decrease in accrued interest payable (696) -
Accrued interest added to principal
balance of mortgage notes 18,886 -
Increase in rent receivable (8,274) (8,274)
Decrease (increase) in other assets 5 (148,236)
(Decrease) increase in accounts payable
and other liabilities (12,605) 69,188
---------------- ----------------
Total adjustments 193,588 369,153
---------------- ----------------
Net cash provided by operating activities 1,168,730 717,594
---------------- ----------------
Cash flows from investing activities:
Principal payments received on note receivable 606 554
Proceeds from sale of properties - 2,649,309
---------------- ----------------
Net cash provided by investing activities 606 2,649,863
---------------- ----------------
Cash flows from financing activities:
Principal payments on mortgage notes (84,286) -
Cash distributions to partners (785,628) (2,147,132)
---------------- ----------------
Net cash used in financing activities (869,914) (2,147,132)
---------------- ----------------
Net increase in cash 299,422 1,220,325
Cash at beginning of period 1,816,179 3,571,950
---------------- ----------------
Cash at end of period $ 2,115,601 $ 4,792,275
================ ================
Supplemental disclosure of cash flow information:
Cash payments for interest $ 195,301 $ -
================ ================
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
<PAGE> 5
NET 1 L.P. AND CONSOLIDATED PARTNERSHIPS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1996
(Unaudited)
1. The Partnership and Basis of Presentation
Net 1 L.P. (the "Partnership") was formed as a limited partnership on
August 25, 1987, under the laws of the State of Delaware to invest in
real estate or interests therein to be net leased to corporations or
other entities.
As of June 30, 1996, the Partnership has a total of 30,772 Units issued
and outstanding held by approximately 1,700 limited partners.
The unaudited financial statements reflect all adjustments that are, in
the opinion of the General Partner, necessary to a fair statement of
the results for the interim period presented. For a more complete
understanding of the Partnership's financial position and accounting
policies, reference is made to the financial statements previously
filed with the Securities and Exchange Commission with the
Partnership's Annual Report on Form 10-K for the year ended December
31, 1995.
2. Summary of Significant Accounting Policies
For financial statement reporting purposes all items of income are
allocated in the same proportion as distributions of distributable
cash.
The Partnership has determined that the leases relating to the
properties are operating leases. Rental revenue is recognized on a
straight-line basis over the minimum lease terms. At June 30, 1996, the
Partnership's rent receivable primarily consists of amounts for the
excess of rental revenues recognized on a straight-line basis over the
rents' collectible under the leases.
The net income per Unit amounts were calculated by using the weighted
average number of Units outstanding for each period and allocating the
income attributable for that period to the Limited Partners. The
weighted average number of Units outstanding was 30,772, during each of
the quarters and six months ended June 30, 1996 and 1995.
Certain amounts included in the prior years' financial statements have
been reclassified to conform with the current year's presentation.
The Financial Accounting Standards Board's Statement of Financial
Accounting Standards ("SFAS") No. 107, "Disclosures About Fair Value of
Financial Instruments", defines fair value of a financial instrument as
the amount at which the instrument could be exchanged at a current
transaction between willing parties. The Partnership's cash, mortgage
notes payable and, accounts payable and other liabilities are carried
at cost, which approximates fair value.
On January 1, 1996, the Partnership adopted SFAS No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed of." This SFAS establishes the recognition and measurement
criteria for impairment losses on long-lived assets, certain
identifiable intangibles and goodwill related to those assets to be
held and used and for long-lived assets and certain identifiable
intangibles to be disposed of. This SFAS requires that an impairment
loss be recognized when events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. The
adoption of this SFAS had no effect on the Partnership's results of
operations or its financial condition for the quarter and six months
ended June 30, 1996.
<PAGE> 6
NET 1 L.P. AND CONSOLIDATED PARTNERSHIPS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. Continued
Management of the Partnership has made a number of estimates and
assumptions relating to the reporting of assets and liabilities and the
disclosure of contingent assets and liabilities to prepare these
financial statements in conformity with generally accepted accounting
principles. Actual results could differ from those estimates.
3. The Partnership Agreement
As of June 30, 1996, the Partnership has made cumulative cash
distributions to the Limited Partners totaling $18,361,835. The unpaid
cumulative preferred return at June 30, 1996, totaled $8,088,333
($265.48 to $259.63 per Unit).
On July 31, 1996, the cumulative preferred return that was unpaid at
June 30, 1996, was reduced by a cash distribution for the quarter ended
June 30, 1996, totaling $384,958 or $12.51 per Unit to the Limited
Partners and $7,856 to the General Partner.
4. Mortgage Notes Payable
Principal paydowns of the mortgage notes payable for the succeeding
five years are as follows:
<TABLE>
<CAPTION>
Year Ending
December 31, Amount
--------------- ------
<S> <C>
1996 (6 months) $ 89,298
1997 194,854
1998 218,767
1999 245,657
2000 275,898
2001 309,913
</TABLE>
5. Leases
Minimum total annual future rental payments receivable under the
noncancelable operating leases for the properties as of June 30, 1996,
follow:
<TABLE>
<CAPTION>
Year Ending
December 31, Amount
--------------- -----------
<S> <C>
1996 (6 months) $ 1,189,666
1997 2,389,984
1998 2,422,429
1999 2,467,852
2000 2,467,852
2001 2,469,105
Thereafter 16,819,259
-----------
$30,226,147
===========
</TABLE>
The leases are triple net leases requiring the lessees to pay all taxes,
insurance, maintenance, and all other similar charges and expenses relating to
the properties and their use and occupancy.
<PAGE> 7
6. Related Party Transactions
Leased Properties Management, Inc., an affiliate of the General
Partner, is entitled to receive a fee for managing the Partnership's
properties in the amount of 1% of gross annual rental receipts (or a
greater amount in certain circumstances). As of June 30, 1996, a
property management fee of $14,617 had been paid or accrued to Leased
Properties Management, Inc.
<PAGE> 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Liquidity and Capital Resources
As of June 30, 1996, the Partnership has made cumulative cash distributions to
the Limited Partners totaling $18,361,835. The unpaid cumulative preferred
return at June 30, 1996, totaled $8,088,333 (see note 3 of Notes to Consolidated
Financial Statements).
The Partnership attempts to maintain a working capital reserve in an amount
equal to 3% of the gross proceeds of its offering, an amount that is anticipated
to be sufficient to satisfy liquidity requirements. Liquidity could be adversely
affected by unanticipated costs, particularly costs relating to the vacancy of
properties, tenants experiencing financial difficulties, and greater than
anticipated operating expenses. To the extent that such working capital reserves
are insufficient to satisfy the cost requirements of the Partnership, additional
funds may be obtained through short-term or permanent loans or by reducing
distributions to limited partners.
There are no material restrictions (other than the debt service requirements
under the mortgage notes) upon the Partnership's present or future ability to
make distributions in accordance with the provisions of its Partnership
Agreement.
Results of Operations
The results of operations for the quarter and six months ended June 30, 1996,
(see Consolidated Statements of Income) are attributable to the acquisition and
operation of the twenty-three real property investments purchased from 1988 to
1995, and interest earned on interest-bearing bank investments.
Total revenues for the quarter and six months ended June 30, 1996, increased
$94,620 and $451,815 from the same periods in 1995. Rental revenues for the
quarter and six months ended June 30, 1996, increased $138,115 and $550,851 from
the same periods in 1995. The increases are primarily due to rental revenues
from properties acquired in the fourth quarter of 1995 and percentage rents
received in the first quarter of 1996. Interest and other revenues for the
quarter and six months ended June 30, 1996, decreased $43,495 and $99,036 from
the same periods in 1995. The decreases are primarily due to lower
interest-bearing cash balances maintained in 1996.
Total expenses for the quarter and six months ended June 30, 1996, increased
$37,599 and $149,793 from the same periods in 1995. The increases are due to
interest expense and depreciation on properties acquired (and the related
mortgages assumed) in the fourth quarter of 1995. General and administrative
expenses for the quarter and six months ended June 30, 1996, decreased $92,112
and $110,680 from the same periods in 1995. The decreases are primarily due to
state income taxes incurred in connection with the sale of the Bloomingdale
Property and appraisal expenses, both in the second quarter of 1995.
Net income for the quarter ended June 30, 1996, increased $57,021 from the same
period in 1995, primarily due to the increase in rental revenues discussed
above. Net income for the six months ended June 30, 1996, increased $626,701
from the same period in 1995, primarily due to the loss incurred on the sale of
the Bloomingdale Property in 1995 and the increase in rental revenues discussed
above.
<PAGE> 9
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings - not applicable.
ITEM 2. Changes in Securities - not applicable.
ITEM 3. Defaults under the Senior Securities - not applicable.
ITEM 4. Submission of Matters to a Vote of Security Holders - not applicable.
ITEM 5. Other Information - not applicable.
ITEM 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
Exhibit No. Exhibit
----------- -------
27 Financial Data Schedule
(b) Reports on form 8-K filed during the quarter ended
June 30, 1996.
None.
<PAGE> 10
SIGNATURES
Pursuant to the requirements 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.
NET 1 L.P.
By: Lepercq Net 1 L.P.
its general partner
By: Lepercq Net 1 Inc.
its general partner
Date: August 12, 1996 By: /s/ E. Robert Roskind
----------------------------- -------------------------------------
E. Robert Roskind
President
<PAGE> 11
EXHIBIT INDEX
-------------
Exhibit 27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM (A) THE
INTERIM CONSOLIDATED STATEMENT OF INCOME FOR THE SIX MONTHS ENDED JUNE 30, 1996
AND THE CONSOLIDATED BALANCE SHEET AS OF JUNE 30, 1996 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH (B) FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000821129
<NAME> NET 1 L P
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 2,115,601
<SECURITIES> 0
<RECEIVABLES> 308,117
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 22,871,003
<DEPRECIATION> (2,100,126)
<TOTAL-ASSETS> 23,522,891
<CURRENT-LIABILITIES> 0
<BONDS> 3,621,542
0
0
<COMMON> 0
<OTHER-SE> 19,721,757
<TOTAL-LIABILITY-AND-EQUITY> 23,522,891
<SALES> 0
<TOTAL-REVENUES> 1,508,789
<CGS> 0
<TOTAL-COSTS> 196,272
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 195,997
<INCOME-PRETAX> 975,142
<INCOME-TAX> 0
<INCOME-CONTINUING> 975,142
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 975,142
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
