<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 September 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)
<TABLE>
<S> <C>
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)
</TABLE>
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
September 30, 1996 (Unaudited) and December 31, 1995
<TABLE>
<CAPTION>
ASSETS
------
September 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 2,198,262 1,903,854
----------- -----------
20,672,741 20,967,149
Cash 2,174,382 1,816,179
Rent receivable 312,254 299,843
Other assets 329,247 328,907
----------- -----------
$23,488,624 $23,412,078
=========== ===========
</TABLE>
LIABILITIES AND PARTNERS' CAPITAL
---------------------------------
<TABLE>
<CAPTION>
<S> <C> <C>
Mortgage notes payable $ 3,587,249 $ 3,686,942
Accrued interest payable 32,007 33,069
Accounts payable and other liabilities 145,388 159,824
------------ ------------
3,764,644 3,879,835
------------ ------------
Partners' capital (deficit):
General Partner (175,932) (179,767)
Limited Partners ($1,000 per Unit,
50,000 Units authorized, 30,772
Units issued and outstanding) 19,899,912 19,712,010
------------ ------------
Total partners' capital 19,723,980 19,532,243
------------ ------------
$ 23,488,624 $ 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 September 30, 1996 and 1995 and
Nine Months Ended September 30, 1996 and 1995
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Nine Months
Quarter Ended Quarter Ended Ended Ended
September 30, September 30, September 30, September 30,
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues:
Rental $ 598,438 $ 459,552 $ 2,068,393 $ 1,378,656
Interest and other 42,199 65,867 81,033 203,737
----------- ----------- ----------- -----------
640,637 525,419 2,149,426 1,582,393
----------- ----------- ----------- -----------
Expenses:
Interest expense 96,390 -- 292,387 --
Depreciation 98,136 65,898 294,408 197,694
General, administrative, and other 51,074 178,784 192,452 430,842
----------- ----------- ----------- -----------
245,600 244,682 779,247 628,536
----------- ----------- ----------- -----------
Income before loss on sale of properties $ 395,037 $ 280,737 $ 1,370,179 $ 953,857
Loss on sale of properties -- -- -- (324,679)
----------- ----------- ----------- -----------
Net income $ 395,037 $ 280,737 $ 1,370,179 $ 629,178
=========== =========== =========== ===========
Net income per Unit of limited
partnership interest $ 12.58 $ 8.94 $ 43.64 $ 20.04
=========== =========== =========== ===========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
<PAGE> 4
NET 1 L.P. AND CONSOLIDATED PARTNERSHIPS
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine months ended September 30, 1996 and 1995
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended Nine Months Ended
September 30, September 30,
1996 1995
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $ 1,370,179 $ 629,178
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation 294,408 197,694
Loss on sale of properties -- 324,679
Decrease in accrued interest payable (1,062) --
Accrued interest added to principal
balance of mortgage notes 28,598 --
Increase in rent receivable (12,411) (40,404)
Increase in other assets (1,154) (251,264)
(Decrease) increase in accounts payable
and other liabilities (14,436) 53,760
----------- -----------
Total adjustments 293,943 284,465
----------- -----------
Net cash provided by operating activities 1,664,122 913,643
----------- -----------
Cash flows from investing activities:
Principal payment received on note receivable 814 841
Proceeds from sale of properties -- 2,649,309
----------- -----------
Net cash provided by investing activities 814 2,650,150
----------- -----------
Cash flows from financing activities:
Principal payments on mortgage notes (128,291) --
Cash distributions to partners (1,178,442) (2,539,946)
----------- -----------
Net cash used in financing activities (1,306,733) (2,539,946)
----------- -----------
Net increase in cash 358,203 1,023,847
Cash at beginning of period 1,816,179 3,571,950
----------- -----------
Cash at the end of the period $ 2,174,382 $ 4,595,797
=========== ===========
Supplemental disclosure of cash flow information:
Cash paid during the period for interest $ 264,851 $ -
=========== ===========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
<PAGE> 5
NET 1 L.P. AND CONSOLIDATED PARTNERSHIPS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 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 September 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
The Partnership's financial statements are prepared on the accrual
basis of accounting for financial reporting and Federal income tax
reporting purposes. Real estate is carried at cost less accumulated
depreciation unless declines in the values of properties are considered
other than temporary. Depreciation for financial reporting purposes is
determined by the straight-line method over the estimated economic
useful lives of the properties. The Partnership depreciates buildings
over a 40-year period. Depreciation for tax purposes is determined in
accordance with the Modified Accelerated Cost Recovery System.
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 September 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 nine months ended September 30, 1996 and 1995.
<PAGE> 6
NET 1 L.P. AND CONSOLIDATED PARTNERSHIPS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. Continued
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 nine months
ended September 30, 1996.
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 September 30, 1996, the Partnership has made cumulative cash
distributions to the Limited Partners totaling $18,746,792. The unpaid
cumulative preferred return at September 30, 1996, totaled $8,549,605
($280.47 to $274.62 per Unit).
On October 31, 1996, the cumulative preferred return that was unpaid at
September 30, 1996, was reduced by a cash distribution for the quarter
ended September 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 (3 months) $ 45,293
1997 194,854
1998 218,767
1999 245,657
2000 275,898
2001 309,913
</TABLE>
<PAGE> 7
NET 1 L.P. AND CONSOLIDATED PARTNERSHIPS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. Leases
Minimum total annual future rental payments receivable under the
noncancelable operating leases for the properties as of September 30,
1996, follow:
<TABLE>
<CAPTION>
Year Ending
December 31, Amount
------------ ------
<S> <C>
1996 (3 months) $ 595,365
1997 2,389,984
1998 2,422,429
1999 2,467,852
2000 2,467,852
2001 2,469,105
Thereafter 16,819,259
----------
$ 29,631,846
=============
</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.
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 September 30, 1996, a
property management fee of $20,560 had been paid or accrued to Leased
Properties Management, Inc.
7. Subsequent Events
On October 1, 1996, the Partnership entered into an agreement with
Leased Properties Management, Inc. under which Leased Properties
Management, Inc. assigned its responsibilities as management agent to
Lexington Corporate Properties, Inc. E. Robert Roskind is chairman
of the board of directors of Lexington Corporate Properties, Inc.,
and controls the LCP Group, L.P. with which Leased Properties
Management, Inc. is affiliated.
<PAGE> 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Liquidity and Capital Resources
As of September 30, 1996, the Partnership has made cumulative cash distributions
to the Limited Partners totaling $18,746,792. The unpaid cumulative preferred
return at September 30, 1996, totaled $8,549,605 (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 nine months ended September 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 nine months ended September 30, 1996,
increased $115,218 and $567,033 from the same periods in 1995. Rental revenues
for the quarter and nine months ended September 30, 1996, increased $138,886 and
$689,737 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 nine months ended September 30, 1996, decreased
$23,668 and $122,704 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 ended September 30, 1996, did not materially
change from the same period in 1995. Total expenses for the nine months ended
September 30, 1996, increased $150,711 from the same period in 1995. The
increase is primarily due to interest expense and depreciation on properties
acquired (and the related mortgages assumed) in the fourth quarter of 1995,
offset by a decrease in general and administrative expenses. General and
administrative expenses for the quarter and nine months ended September 30,
1996, decreased $127,710 and $238,390 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 1995.
Net income for the quarter ended September 30, 1996, increased $114,300 from the
same period in 1995, primarily due to the increase in rental revenues discussed
above. Net income for the nine months ended September 30, 1996, increased
$741,001 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
September 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: November 7, 1996 By: /s/ E. Robert Roskind
----------------------
E. Robert Roskind
President
<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 September 30,
1996 and the consolidated balance sheet as of September 30,1996 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH (B) financial statements.
</LEGEND>
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<EXCHANGE-RATE> 1
<CASH> 2,174,382
<SECURITIES> 0
<RECEIVABLES> 312,254
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 22,871,003
<DEPRECIATION> (2,198,262)
<TOTAL-ASSETS> 23,488,624
<CURRENT-LIABILITIES> 0
<BONDS> 3,587,249
0
0
<COMMON> 0
<OTHER-SE> 19,723,980
<TOTAL-LIABILITY-AND-EQUITY> 23,488,624
<SALES> 0
<TOTAL-REVENUES> 2,149,426
<CGS> 0
<TOTAL-COSTS> 294,408
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 292,387
<INCOME-PRETAX> 1,370,179
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,370,179
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,370,179
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
