<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 March 31, 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
March 31, 1996 (Unaudited) and December 31, 1995
<TABLE>
<CAPTION>
ASSETS
March 31, 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 2,001,990 1,903,854
----------- -----------
20,869,013 20,967,149
Cash 2,119,000 1,816,179
Rent receivable 303,980 299,843
Other assets 327,337 328,907
----------- -----------
$23,619,330 $23,412,078
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
Mortgage notes payable $ 3,654,762 $ 3,686,942
Accrued interest payable 32,726 33,069
Accounts payable and other liabilities 162,412 159,824
----------- -----------
3,849,900 3,879,835
----------- -----------
Partners' capital (deficit):
General Partner (175,023) (179,767)
Limited Partners ($1,000 per Unit,
50,000 Units authorized, 30,772
Units issued and outstanding) 19,944,453 19,712,010
----------- -----------
Total partners' capital 19,769,430 19,532,243
----------- -----------
$23,619,330 $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 March 31, 1996 and 1995
(Unaudited)
<TABLE>
<CAPTION>
Quarter Ended Quarter Ended
March 31, March 31,
1996 1995
------ -----
<S> <C> <C>
Revenues:
Rental $872,288 $459,552
Interest and other 13,134 68,675
-------- --------
885,422 528,227
-------- --------
Expenses:
Interest 98,524 -
Depreciation 98,136 65,898
General, administrative, and other 58,761 77,329
-------- --------
255,421 143,227
-------- --------
Income before loss on sale of property 630,001 385,000
Loss on sale of property - (324,679)
-------- --------
Net income $630,001 $ 60,321
======== ========
Net income per Unit of limited
partnership interest $ 20.06 $ 1.92
======== ========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
<PAGE> 4
NET 1 L.P. AND CONSOLIDATED PARTNERSHIPS
CONSOLIDATED STATEMENTS OF CASH FLOWS
Quarters Ended March 31, 1996 and 1995
(Unaudited)
<TABLE>
<CAPTION>
Quarter Ended Quarter Ended
March 31, March 31,
1996 1995
------ -----
<S> <C> <C>
Cash flows from operating activities:
Net income $ 630,001 $ 60,321
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation 98,136 65,898
Loss on sale of property - 324,679
Decrease in accrued interest payable (343) -
Accrued interest added to principal
balance of mortgage notes 9,355 -
Increase in rent receivable (4,137) (4,137)
Decrease (increase) in other assets 1,169 (23,957)
Increase in accounts payable
and other liabilities 2,588 1,614
---------- -----------
Total adjustments 106,768 364,097
---------- -----------
Net cash provided by operating activities 736,769 424,418
---------- -----------
Cash flows from investing activities:
Principal payments received on note 401 274
Proceeds from sale of property - 2,649,309
---------- -----------
Net cash provided by investing activities 401 2,649,583
---------- -----------
Cash flows from financing activities:
Principal payments on mortgage notes (41,535) -
Cash distributions to partners (392,814) (1,754,318)
---------- -----------
Net cash used in financing activities (434,349) (1,754,318)
---------- -----------
Net increase in cash 302,821 1,319,683
Cash at beginning of period 1,816,179 3,571,950
---------- -----------
Cash at end of period $2,119,000 $ 4,891,633
========== ===========
Supplemental cash flow information:
Cash paid during the period for interest $ 98,867 $ -
========== ===========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
<PAGE> 5
NET 1 L.P. AND CONSOLIDATED PARTNERSHIPS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 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 March 31, 1996, the Partnership has a total of 30,772 Units
issued and outstanding held by approximately 1,703 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 March 31, 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 of limited partnership interest was calculated
by using the actual 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 ended March 31, 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.
<PAGE> 6
NET 1 L.P. AND CONSOLIDATED PARTNERSHIPS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. Continued
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 ended March 31,
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 March 31, 1996, the Partnership has made cumulative cash
distributions to the Limited Partners totaling $17,976,877. The unpaid
cumulative preferred return at March 31, 1996 totaled $7,627,061
($250.49 to $244.64 per Unit).
On April 30, 1996, the cumulative preferred return that was unpaid at
March 31, 1996 was reduced by a cash distribution for the quarter ended
March 31, 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 (9 months) $132,049
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 March 31, 1996,
follow:
<TABLE>
<CAPTION>
Year Ending
December 31, Amount
------------ ------
<S> <C>
1996 (9 months) $ 1,783,965
1997 2,389,984
1998 2,422,429
1999 2,467,852
2000 2,467,852
2001 2,469,105
Thereafter 16,819,259
----------
$30,820,446
-----------
</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 March 31, 1996, a
property management fee of $8,674 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 March 31, 1996, the Partnership has made cumulative cash distributions to
the Limited Partners totaling $17,976,877. The unpaid cumulative preferred
return at March 31, 1996 totaled $7,627,061 (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 three months ended March 31, 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 interests earned on interest-bearing bank investments.
Total revenues for the three months ended March 31,1996 increased $357,195 from
the same period in 1995. Rental revenues for the three months ended March 31,
1996 increased $412,736 from the same period in 1995. The increase is primarily
due to rental revenues from properties acquired in the fourth quarter of 1995,
including percentage rents in the amount of $273,080 received in March 1996.
Interest and other revenues decreased $55,541 from the same period in 1995. The
decrease is primarily due to lower interest-bearing cash balances maintained in
1996.
Total expenses for the three months ended March 31, 1996 increased $112,194 from
the same period in 1995. The increase is due to interest expense and
depreciation on properties acquired (and the related mortgages assumed) in the
fourth quarter of 1995.
Net income for the three months ended March 31, 1996, increased $569,680 from
the same period in 1995. The increase is primarily due to the loss incurred in
the amount of $324,679 on the sale of the Bloomingdale Property in 1995 and the
increase in rental revenue 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 March 31,
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: By:
------------------------------- --------------------------------------
E. Robert Roskind
President
<PAGE> 11
EXHIBIT INDEX
Exhibit No. Description
- - ---------- -----------
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the interim
consolidated statement of income for the quarter ended March 31, 1996 and the
consolidated balance sheet as of March 31, 1996 and is qualified in its entirety
by reference to such 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> MAR-31-1996
<EXCHANGE-RATE> 1
<CASH> 2,119,000
<SECURITIES> 0
<RECEIVABLES> 303,980
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 22,871,003
<DEPRECIATION> (2,001,990)
<TOTAL-ASSETS> 23,619,330
<CURRENT-LIABILITIES> 0
<BONDS> 3,654,762
0
0
<COMMON> 0
<OTHER-SE> 19,769,430
<TOTAL-LIABILITY-AND-EQUITY> 23,619,330
<SALES> 0
<TOTAL-REVENUES> 885,422
<CGS> 0
<TOTAL-COSTS> 98,136
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 98,524
<INCOME-PRETAX> 630,001
<INCOME-TAX> 0
<INCOME-CONTINUING> 630,001
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 630,001
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
