<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
For the quarterly period ended June 30, 1997
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Transition period from _________________ to ________________
Commission File Number 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
New York, NY 10017
------------------------------ -----------
(Address of principal executive offices) (Zip code)
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, 1997 (Unaudited) and December 31, 1996
<TABLE>
<CAPTION>
ASSETS
June 30, December 31,
1997 1996
----------- -----------
<S> <C> <C>
Real estate, at cost $ 26,440,197 $ 22,871,003
Less: accumulated depreciation 2,499,315 2,296,399
----------- -----------
23,940,882 20,574,604
Cash and cash equivalents 1,180,440 2,123,011
Rent receivable 357,434 315,325
Other assets 161,383 165,963
----------- -----------
$ 25,640,139 $ 23,178,903
========== ==========
LIABILITIES AND PARTNERS' CAPITAL
Mortgage notes payable $ 5,830,318 $ 3,551,850
Accrued interest payable 30,842 31,631
Accounts payable and other liabilities 53,966 87,007
---------- -----------
5,915,126 3,670,488
--------- ---------
Partners' capital (deficit):
General Partner (175,911) (180,243)
Limited Partners ($1,000 per Unit,
50,000 Units authorized, 30,772
Units issued and outstanding) 19,900,924 19,688,658
---------- ----------
Total partners' capital 19,725,013 19,508,415
---------- ----------
$ 25,640,139 $ 23,178,903
========== ==========
</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, 1997 and 1996 and
Six Months Ended June 30, 1997 and 1996
(Unaudited)
<TABLE>
<CAPTION>
Six Months Six Months
Quarter Ended Quarter Ended Ended Ended
June 30, June 30, June 30, June 30,
1997 1996 1997 1996
-------- -------- -------- ------
<S> <C> <C> <C> <C>
Revenues:
Rental $ 649,355 $ 597,667 $ 1,549,141 $ 1,469,955
Interest and other 24,699 25,700 52,412 38,834
-------- -------- ----------- -----------
674,054 623,367 1,601,553 1,508,789
------- ------- --------- ---------
Expenses:
Interest expense 107,414 97,473 201,532 195,997
Depreciation 104,780 98,136 202,916 196,272
General, administrative, and other 96,612 82,617 194,879 141,378
-------- -------- ---------- -------
308,806 278,226 599,327 533,647
------- ------- ---------- -------
Net income $ 365,248 $ 345,141 $ 1,002,226 $ 975,142
======= ======= ========= =======
Net income per Unit of limited
partnership interest $ 11.63 $ 11.00 $ 31.92 $ 31.06
===== ===== ===== =====
</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, 1997 and 1996
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended Six Months Ended
June 30, June 30,
1997 1996
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 1,002,226 $ 975,142
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation 202,916 196,272
Other, net (72,022) (21,570)
----------- -----------
Total adjustments 130,894 174,702
----------- -----------
Net cash provided by operating activities 1,133,120 1,149,844
----------- -----------
Cash flows from investing activities:
Principal payments received on note receivable 663 606
Acquisition of Texas Property, net of
mortgage liability assumed (1,204,245) --
----------- -----------
Net cash used in investing activities (1,203,582) 606
----------- -----------
Cash flows from financing activities:
Principal payments on mortgage notes (86,481) (65,400)
Cash distributions to partners (785,628) (785,628)
----------- -----------
Net cash used in financing activities (872,109) (851,028)
----------- -----------
Net (decrease) increase in cash and cash equivalents (942,571) 299,422
Cash and cash equivalents at beginning of period 2,123,011 1,816,179
----------- -----------
Cash and cash equivalents at end of period $ 1,180,440 $ 2,115,601
=========== ===========
Supplemental disclosure of cash flow information:
Cash payments for interest $ 188,701 $ 196,693
=========== ===========
</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, 1997
(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, 1997, the Partnership has a total of 30,772 Units issued
and outstanding held by approximately 1,720 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, 1996.
2. Summary of Significant Accounting Policies
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.
For purposes of the statement of cash flows, the Partnership considers
all highly liquid instruments to be cash equivalents. The balance sheet
caption, cash and cash equivalents, includes $1.18 million of money
market instruments at June 30, 1997.
The leases relating to the properties are operating leases in
accordance with SFAS 13. Rental revenue is recognized on a
straight-line basis over the minimum lease terms. At June 30, 1997, 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 June 30, 1997 and 1996.
Certain amounts included in the prior years' financial statements have
been reclassified to conform with the current year's presentation.
<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
For financial statement reporting purposes all items of income are
allocated in the same proportion as distributions of distributable
cash.
As of June 30, 1997, the Partnership has made cumulative cash
distributions to the Limited Partners totaling $19,901,665. The unpaid
cumulative preferred return at June 30, 1997 totaled $9,933,422
($323.39 to $319.59 per Unit).
On July 31, 1997, the cumulative preferred return that was unpaid at
June 30, 1997 was reduced by a cash distribution for the quarter ended
June 30, 1997 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>
1997 (6 months) $ 223,165
1998 377,126
1999 416,056
2000 459,251
2001 507,207
2002 560,475
=======
</TABLE>
5. Properties
On May 30, 1997, the Partnership acquired a property located in
Brownsville, Texas (the "Texas Property") from an unrelated party. The
Texas Property consists of an 85,334 square foot warehouse style retail
store building leased to Wal-Mart Stores, Inc. pursuant to a triple net
lease.
<PAGE> 7
NET 1 L.P. AND CONSOLIDATED PARTNERSHIPS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. Continued
The lease has a remaining term which expires on January 31, 2008. The
lease provides for annual base rental payments of $320,513, or $3.76
per square foot. In addition to net rent, Wal-Mart is required to pay
percentage rent equal to 1% of gross sales in excess of base gross
receipts as defined, during the fiscal year February 1 to January 31,
payable on April 1. The lease has five renewal terms of five years
each.
The purchase price of $3,525,000 and related expenses of approximately
$44,000 was satisfied by a cash payment and by an assumption of an
existing note with a principal balance of $2,364,949. The note bears
interest at a rate of 7.35% per annum, with a monthly debt service
payment of principal and interest in the amount of $26,709 to fully
amortize the note on January 15, 2008.
Minimum total annual future rental payments receivable under the
noncancelable operating leases for the properties as of June 30, 1997,
follow:
<TABLE>
<CAPTION>
Year Ending
December 31, Amount
------------ ------
<S> <C>
1997 (6 months) $ 1,359,991
1998 2,752,426
1999 2,797,849
2000 2,797,849
2001 2,799,102
2002 2,812,875
Thereafter 16,024,144
----------
$ 31,344,236
==========
</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 June 30, 1997, a
property management fee of $15,070 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
On May 30, 1997, the Partnership acquired a property located in Brownsville,
Texas (the "Texas Property") from an unrelated party. The Texas Property
consists of an 85,334 square foot warehouse style retail store building leased
to Wal-Mart Stores, Inc. pursuant to a triple net lease.
The lease has a remaining term which expires on January 31, 2008. The lease
provides for annual base rental payments of $320,513 or $3.76 per square foot.
In addition to net rent, Wal-Mart is required to pay percentage rent equal to 1%
of gross sales in excess of base gross receipts as defined, during the fiscal
year February 1 to January 31, payable on April 1. The lease has five renewal
terms of five years each.
The purchase price of $3,525,000 and related expenses of approximately $44,000
was satisfied by a cash payment and by an assumption of an existing note with a
principal balance of $2,364,949. The note bears interest at a rate of 7.35% per
annum, with a monthly debt service payment of principal and interest in the
amount of $26,709 to fully amortize the note on January 15, 2008.
As of June 30, 1997, the Partnership has made cumulative cash distributions to
the Limited Partners totaling $19,901,665. The unpaid cumulative preferred
return at June 30, 1997 totaled $9,933,422 (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.
<PAGE> 9
Results of Operations
The results of operations for the quarter and six months ended June 30, 1997,
(see Consolidated Statements of Income) are attributable to the acquisition and
operation of the twenty-four real property investments purchased from 1988 to
1997, and interest earned on interest-bearing bank investments.
Total revenues for the quarter and six months ended June 30, 1997, increased
$50,687 and $92,764 from the same periods in 1996. Rental revenues for the six
months ended June 30, 1997 include percentage rent received in the first
quarter, of $278,684 and $273,080, respectively. Rental revenues for the quarter
and six months ended June 30, 1997 did not materially change from 1996. Interest
and other revenues for the quarter and six months ended June 30, 1997 slightly
changed from 1996, due to fluctuating cash balances maintained.
Total expenses for the quarter and six months ended June 30, 1997, increased
$30,580 and $65,680 from the same periods in 1996, primarily due to general and
administrative expenses. General and administrative expenses for the quarter and
six months ended June 30, 1997, increased $13,995 and $53,501 from the same
periods in 1996, primarily due to property appraisals incurred in 1997.
Net income for the quarter and six months ended June 30, 1997, did not
materially change from the same periods in 1996.
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, Earnings Per Share ("SFAS No. 128").
SFAS No. 128 supersedes Accounting Principles Board Opinion No. 15, Earnings Per
Share ("APB 15") and specifies the computation, presentation, and disclosure
requirements for earnings per share ("EPS") for entities with publicly held
common stock or potential common stock. SFAS No. 128 replaces the presentation
of primary EPS with a presentation of basic EPS and fully diluted EPS with
diluted EPS. It also requires dual presentation of basic and diluted EPS on the
face of the income statement for all entities with complex capital structures
and requires a reconciliation of the numerator and denominator of the basic EPS
computation to the numerator and denominator of the diluted EPS computation.
This statement will be adopted for both interim and annual period ending after
December 15, 1997. The adoption of this SFAS has no effect on the Partnership's
net income per unit for the quarter and six months ended June 30, 1997.
<PAGE> 10
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, 1997.
Acquisition of the Texas Property dated June 27,
1997.
<PAGE> 11
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 14, 1997 By: /s/E. Robert Roskind
----------------------------
E. Robert Roskind
President
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
INTERIM CONSOLIDATED STATEMENT OF INCOME FOR THE THREE AND SIX MONTHS ENDED
JUNE 30, 1997 AND THE CONSOLIDATED BALANCE SHEET AS OF JUNE 30, 1997 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 1,180,440
<SECURITIES> 0
<RECEIVABLES> 357,434
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 26,440,197
<DEPRECIATION> (2,499,315)
<TOTAL-ASSETS> 25,640,139
<CURRENT-LIABILITIES> 0
<BONDS> 5,830,318
0
0
<COMMON> 0
<OTHER-SE> 19,725,013
<TOTAL-LIABILITY-AND-EQUITY> 25,640,139
<SALES> 0
<TOTAL-REVENUES> 1,549,141
<CGS> 0
<TOTAL-COSTS> 202,916
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 201,532
<INCOME-PRETAX> 1,002,226
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,002,226
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,002,226
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
