<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
|X| Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 [Fee required]
For the fiscal year ended December 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 Lexington Corporate Properties, Inc.
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 |_|.
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. |X|
State the aggregate market value of the voting stock held by non-affiliates of
the registrant.
There is no active public market for the units of limited partnership interests
issued by the Registrant.
Not Applicable.
Page 1 of 30
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List hereunder the following documents if incorporated by reference and the Part
of the Form 10-K into which the document is incorporated: (1) Any annual report
to security holders; (2) Any proxy or information statement; and (3) Any
prospectus filed pursuant to Rule 424(b) or (c) under the Securities Act of
1933. The listed documents should be clearly described for identification
purposes.
None.
2
<PAGE> 3
PART I.
Forward-Looking Statements
When used in this Form 10-K Report, the words "believes", "expects", "estimates"
and similar expressions are intended to identify forward-looking statements.
Such statements are subject to certain risks and uncertainties which could cause
actual results to differ materially. In particular, among the factors that could
cause actual results to differ materially are continued qualification as a real
estate partnership, general business and economic conditions, competition,
increases in real estate construction costs, interest rates, accessibility of
debt and equity capital markets and other risks inherent in the real estate
business including tenant defaults, potential liability relating to
environmental matters and illiquidity of real estate investments. Readers are
cautioned not to place undue reliance on these forward-looking statements, which
speak only as of the date hereof. The Partnership undertakes no obligation to
publicly release the results of any revisions to these forward-looking
statements which may be made to reflect events or circumstances after the date
hereof or to reflect the occurrence of unanticipated events.
ITEM 1. BUSINESS
The registrant, Net 1 L.P. (the "Partnership") is a limited partnership formed
on August 25, 1987 under the Uniform Limited Partnership Act of the State of
Delaware for the purpose of investing primarily in existing commercial
properties which are then triple net leased to corporations or other entities.
The Partnership Agreement was amended and restated on September 30, 1994, which
enables the Partnership to make additional real estate investments.
The General Partner of the Partnership is Lepercq Net 1 L.P., a Delaware limited
partnership (the "General Partner"). Lepercq Net 1 Inc. is the general partner
of the General Partner. The directors and executive officers of Lepercq Net 1
Inc. are discussed in PART III, Item 10 (Directors and Executive Officers of the
Registrant). Leased Properties Management, Inc., an affiliate of Lepercq Net 1
Inc., performs certain property management services in connection with the
operation of the Partnership's business.
The Partnership commenced an offering to the public of 50,000 units at $1,000
per unit of limited partnership interests (the "Units") on November 20, 1987
pursuant to the Prospectus. The Prospectus was filed with the Securities and
Exchange Commission as part of the Partnership's Registration Statement on Form
S-11 (No. 33-16973). On January 17, 1989, the Partnership held the final
admission of Limited Partners, and the offering was terminated after a total of
31,001 Units had been sold, equaling $31,001,000 in capital contributions. As of
December 31, 1996, the Partnership had invested $30,827,269 of the proceeds of
the offering in the properties, which are described in Item 2 below.
The Partnership invests in net leased real properties (or interests therein)
located throughout the United States, which offer the potential for (i)
preserving and protecting the capital of the limited partners of the
Partnership, (ii) providing increasing cash distributions from operations during
the term of the Partnership, (iii) providing tax benefits so that a portion of
the cash distributions is sheltered from current income taxation, and (iv)
appreciation in value of the Partnership's investments.
3
<PAGE> 4
Investments are made in various types of commercial real properties and
interests therein. Such investments may include, but are not limited to: fitness
centers, warehouses, distribution centers, office buildings, retail stores,
hotels, motels, nursing homes and congregate care facilities. The Partnership
will not invest in restaurant properties. Investments will not be restricted as
to specific geographical areas; however, all of the Partnership's investments
will be made within the United States. The Partnership acquired its original
portfolio of properties without acquisition financing, but it borrowed an amount
through a closing loan sufficient to pay all or a portion of the Partnership's
organization, offering and acquisition expenses. The real estate investments
made during 1995 and 1994 were acquired with a combination of acquisition
financing and cash balances.
Each of the following properties (as hereinafter defined) accounted for 10% or
more of consolidated rental revenues for the years ended December 31, as
follows:
Property 1996 1995 1994
-------- ---- ---- ----
Scandinavian 25% 36% 36%
Autozone 29% 40% 41%
Greyhound 13% 18% 17%
Sumter 18% - -
Gainesville 12% - -
At December 31, 1996, the Scandinavian property accounted for 21%, the AutoZone
properties accounted for 27%, the Greyhound properties accounted for 9%, the
Sumter property accounted for 16% and the Gainesville property accounted for 13%
of total assets.
The Partnership attempts to maintain a working capital cash reserve in an amount
equal to 3% of the gross proceeds of the offering, which is anticipated to be
sufficient to satisfy liquidity requirements. Liquidity of the Partnership 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 cash requirements of the Partnership,
additional funds may be obtained either through short-term or permanent loans or
by reducing distributions to limited partners.
The Partnership operates in one industry segment, investment in net leased real
property.
Competition
The real estate business is highly competitive and the Partnership competes with
numerous established companies having significantly greater resources and
experience. Competition may also come from other partnerships which have been or
may be formed by the General Partner or its affiliates.
Employees
The Partnership has no employees. All necessary personnel are provided by the
General Partner or its affiliates or agents. See Part III Item 10, "Directors
and Executive Officers of the Registrant" and Item 13, "Certain Relationships
and Related Transactions."
4
<PAGE> 5
ITEM 2. PROPERTIES
On July 18, 1988, the Partnership acquired a two-story health and tennis club
facility (the "Scandinavian Property") located on three acres of land. It
encompasses 36,500 gross square feet and is leased solely to Scandinavian U.S.
Swim and Fitness, Inc., an indirect wholly owned subsidiary of Bally's Health
and Tennis Corporation (HTC), under a net lease. The lease has a 20-year base
term expiring July 17, 2008, with two optional five-year renewal terms.
On August 26, 1988, the Partnership acquired 16 Autozone stores (the "Autozone
Properties"). Each of the Autozone Properties encompasses approximately 5,400
square feet in area (except for the 9,366 square-foot property in Florida) and
is leased solely to AutoZone Inc. under 16 net leases. Each of the 16 leases has
a 20-year base term expiring on August 25, 2008, with three optional renewal
terms of five years each.
On February 28, 1989, the Partnership acquired an aggregate 99.9% general
partnership interest in Subnet 1 Partners, a Delaware special purpose general
partnership. On that date, Subnet 1 Partners acquired four bus terminals (the
"Greyhound Properties") located in Barstow, San Bernardino, Stockton, and San
Luis Obispo, California for an aggregate purchase price of $2,674,000. During
1991, all of the assets of Subnet 1 Partners were transferred to the Partnership
and Subnet 1 Partners was dissolved. With the exception of the property in
Barstow, California the Greyhound properties are leased to Greyhound Lines, Inc.
("Greyhound").
On August 22, 1994, the Partnership acquired approximately .835 acres of land
with a building of approximately 9,300 square feet located in the City of
Lynchburg, Virginia for approximately $751,000. The property is leased to
Circuit City Stores, Inc. The lease has a 20-year base term expiring November
30, 2006 with two optional renewal terms of ten years each. The annual base rent
is currently $73,072. The annual base rent is to be increased by 17.5% on the
first day following each five-year period.
On July 14, 1995, the Partnership acquired a 99% limited partnership interest in
Net 1 Sumter L.P., a Delaware special purpose limited partnership. The purpose
of this partnership is to purchase, own, improve, lease, manage and sell a real
property located at 853 Broad Street Sumter, South Carolina. On November 27,
1995, Net 1 Sumter L.P. acquired the Sumter Property for an aggregate purchase
price of approximately $3.85 million. Related acquisition fees of $65,431 were
incurred, of which $37,873 were paid to affiliates of the General Partner. The
total acquisition cost was satisfied by a cash payment of $1,739,542 and an
assumption of a 20-year, 10.375% secured note of $2,110,163. The Sumter Property
is leased to Wal-Mart Stores Inc. The lease has a 25-year base term expiring
January 31, 2008 with five optional renewal terms of five years each. The
annual base rent is $328,113.
On November 14, 1995, the Partnership acquired a 99% limited partnership
interest in Net 1 Gainesville L.P., a Delaware special purpose limited
partnership. The purpose of this partnership is to purchase, own, improve,
lease, manage and sell a real property located at 2275 Brown's Bridge Road,
Gainesville, Georgia. On December 28, 1995, Net 1 Gainesville L.P. acquired the
Gainesville Property for an aggregate purchase price of approximately $2.96
million. Related acquisition fees of $50,982 were incurred, of which $29,090
were paid to affiliates of the General Partner. The total acquisition cost was
satisfied by a cash payment of $1,375,982 and an assumption of a 116-month, 13%
first mortgage note of $1,197,461 and a 176-month, 7.5% second mortgage note of
$440,476. The Gainesville Property is leased to Wal-Mart Stores Inc. The lease
has a 25-year base term expiring January 31, 2009 with five optional renewal
terms of five years each. The annual base rent is $218,188.
5
<PAGE> 6
Minimum future rental payments receivable under the leases during the base terms
for the properties owned by the Partnership at December 31, 1996 are as follows:
<TABLE>
<CAPTION>
Wal-Mart Wal-Mart
Circuit Sumter Gainesville
Year Total Bally's Autozone Greyhound City SC GA
---- ----- ------- -------- --------- ---- -- --
<S> <C> <C> <C> <C> <C> <C> <C>
1997 $ 2,399,476 677,114 735,559 354,643 85,859 328,113 218,188
1998 2,431,921 709,559 735,559 354,643 85,859 328,113 218,188
1999 2,477,344 754,982 735,559 354,643 85,859 328,113 218,188
2000 2,477,344 754,982 735,559 354,643 85,859 328,113 218,188
2001 2,478,597 754,982 735,559 354,643 87,112 328,113 218,188
2002 2,492,370 754,982 735,559 354,643 100,885 328,113 218,188
2003 2,528,546 791,158 735,559 354,643 100,885 328,113 218,188
2004 2,579,193 841,805 735,559 354,643 100,885 328,113 218,188
2005 2,579,193 841,805 735,559 354,643 100,885 328,113 218,188
2006 2,570,786 841,805 735,559 354,643 92,478 328,113 218,188
2007 2,478,308 841,805 735,559 354,643 328,113 218,188
2008 1,581,600 491,053 490,373 354,643 27,343 218,188
2009 77,289 59,107 18,182
------------ ------------ ------------ ----------- ---------- ----------- -----------
$ 29,151,967 9,056,032 8,581,522 4,314,823 926,566 3,636,586 2,636,438
============ ============ ============ =========== ========== =========== ===========
</TABLE>
ITEM 3. LEGAL PROCEEDINGS
Neither the Partnership nor its properties are subject to any pending legal
proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted during the fourth quarter of the fiscal year ended
December 31, 1996 to a vote of Unit holders.
6
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PART II.
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
An established public trading market for the Units does not exist, and it is not
anticipated that such a market will develop in the near future. Further, the
transfer of Units is subject to substantial restrictions. Accordingly,
information as to the market value of a Unit at any given date is not available.
As of December 31, 1996, there were 1,724 investors holding 30,772 limited
partnership units.
The Partnership is a limited partnership and, accordingly, does not pay
dividends. However, the Partnership makes quarterly cash distributions. As of
December 31, 1996, the Partnership has made cumulative cash distributions
totaling $19,131,750 to the Limited Partners and $390,444 to the General
Partner. (See note 3 of Notes to Consolidated Financial Statements.)
7
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ITEM 6. SELECTED FINANCIAL DATA
The following sets forth a summary of selected financial data for the
Partnership for the years ended December 31:
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Rental revenue $ 2,706,557 $ 1,903,066 $ 1,883,659 $ 2,977,101 $ 2,913,205
============= ============= ============ ============ ===========
Income (loss) before
extraordinary item $ 1,547,428 $ 1,093,304 $ 2,591,607 $ (607,806) $ 1,214,204
============= ============= ============ ============ ===========
Income (loss) before
extraordinary item
per Unit of limited
partnership
interest (*) $46.39 to $32.59 to $76.23 to $(20.35) to $34.77 to
51.03 36.16 86.34 (17.71) 41.02
============= ============= ============ ============ ===========
Extraordinary item $ -- $ -- $ 1,200,239 $ -- $ --
============= ============= ============ ============ ===========
Extraordinary item
per Unit of limited
partnership
interest (*) $ -- $ -- $35.31 to $ -- $ --
-- -- 39.98 -- --
============= ============= ============ ============ ===========
Net income (loss) $ 1,547,428 $ 1,093,304 $ 3,791,846 $ (607,806) $ 1,214,204
============= ============= ============ ============ ===========
Net income (loss)
per Unit of limited
partnership
interest (*) $46.39 to $32.59 to $111.54 to $(20.35) to $34.77 to
51.03 36.16 126.32 (17.71) 41.02
============= ============= ============ ============ ===========
Total assets $ 23,178,903 $ 23,412,078 $ 21,419,936 $ 26,323,152 $29,098,088
============= ============= ============ ============ ===========
Mortgage notes payable
and long-term debt
(including accrued
interest added to
principal) $ 3,551,850 $ 3,686,942 $ -- $ 6,994,697 $ 6,735,481
============= ============= ============ ============ ===========
Cash distributions -
limited partners
(per Unit) $ 50.04 $ 93.40 $ 50.04 $ 65.67 $ 72.07
============= ============= ============ ============ ===========
</TABLE>
(*) Amounts allocated to and received by unit holders vary depending on the
dates they became unit holders.
The above financial data should be read in conjunction with the Consolidated
Financial Statements and the related notes appearing elsewhere in this report.
8
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Liquidity and Capital Resources
On November 20, 1987, the Partnership commenced the sale of up to 50,000 Units
of limited partnership interests at $1,000 per Unit with the option to offer an
additional 50,000 Units. As of January 17, 1989, the Partnership had raised a
total of $31,001,000 in capital contributions (31,001 Units) and the offering
was terminated. The net offering proceeds consisting of aggregate gross offering
proceeds of $31,001,000 less related offering costs of $3,781,361, along with
the proceeds from the closing loan and other mortgage debt, have been utilized
by the Partnership to invest in triple net leased real estate properties (or
interests therein); to pay for related property acquisition expenses, financing
and acquisition fees; and to provide for a working capital reserve.
Pursuant to the Partnership Agreement, limited partnership Units may be
repurchased at 90% of the net asset value 60 days after the offer to repurchase
has been made. No Units have been repurchased since 1990.
The Partnership attempts to maintain a working capital reserve in an amount
equal to 3% of the gross proceeds of its offering, an amount which is
anticipated to be sufficient to satisfy liquidity requirements. Liquidity of the
Partnership could be adversely affected by unanticipated costs, additional
lessees 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.
As of December 31, 1996, the Partnership has made cumulative cash distributions
to the Limited Partners totaling $19,131,750. The unpaid cumulative preferred
return at December 31, 1996 totaled $9,010,878 (see note 3 of Notes to
Consolidated Financial Statements). The ability of the Partnership to maintain
or increase cash distributions to limited partners is dependent upon investments
in additional income producing properties.
Except for the debt service requirements under the mortgages, there are no
material restrictions upon the Partnership's present or future ability to make
distributions in accordance with the provisions of its Partnership Agreement.
9
<PAGE> 10
Results of Operations
The results of operations for the years ended December 31, 1996, 1995, and 1994
are primarily attributable to the acquisition and operations of the real
property investments as described in Item 2.
Total revenues for the year ended December 31, 1996, increased $640,093 from
1995, primarily due to a full year effect of rental revenues received on
properties acquired in 1995, offset by lower interest income on investments of
excess cash. Total revenues for the year ended December 31, 1995 increased
$154,117 from 1994, primarily due to higher interest earned on interest bearing
bank investments.
Rental revenues for the year ended December 31, 1996, increased $803,491 from
1995, primarily due to a full year effect of rental income on properties
acquired in 1995. Rental revenues for the year ended December 31, 1995, did not
materially change from 1994.
The Partnership has recorded provisions for losses related to its properties of
$6,113,530 in 1994.
Total expenses for the year ended December 31, 1996, increased $510,648 from
1995, primarily due to interest expense and depreciation on properties acquired
in the fourth quarter of 1995. Total expenses for the year ended December 31,
1995 decreased $6,517,220, primarily due to the provision for losses on
properties in 1994 and decreases in general and administrative expenses and
depreciation.
Interest expense in 1995 was comparable to 1994. General and administrative
expenses for the year ended December 31, 1995 decreased $155,534 from 1994,
primarily due to a decrease in property operating expenses.
Net income for the year ended December 31, 1996, increased $454,124, primarily
due to percentage rent received. Net income for the year ended December 31, 1995
decreased $2,698,542, from 1994, primarily due to proceeds from the lease
termination on the Bloomingdale Property and the gain on the settlement of the
long-term closing loan offset by the provision for losses on properties, all of
which occurred in 1994.
10
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
NET 1 L.P. AND CONSOLIDATED PARTNERSHIPS
INDEX
Page
----
Independent Auditors' Report 12
Consolidated Balance Sheets at December 31, 1996 and 1995 13
Consolidated Statements of Income for the years ended
December 31, 1996, 1995 and 1994 14
Consolidated Statements of Changes in Partners' Capital (Deficit)
for the years ended December 31, 1996, 1995 and 1994 15
Consolidated Statements of Cash Flows for the years ended
December 31, 1996, 1995 and 1994 16
Notes to Consolidated Financial Statements 17 - 23
Consolidated Financial Statement Schedule*
*Real Estate and Accumulated Depreciation Schedule III 24
- ----------
* All other schedules have been omitted because the required financial
information is not applicable or the information is shown in the financial
statements or notes thereto.
11
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Independent Auditors' Report
The Partners
Net 1 L.P.:
We have audited the consolidated financial statements of Net 1 L.P. and
consolidated partnerships as listed in the accompanying index. In connection
with our audits of the consolidated financial statements, we also have audited
the financial statement schedule as listed in the accompanying index. These
consolidated financial statements and the financial statement schedule are the
responsibility of the Partnership's management. Our responsibility is to express
an opinion on these consolidated financial statements and the financial
statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Net 1 L.P. and
consolidated partnerships as of December 31, 1996 and 1995, and the results of
their operations and their cash flows for each of the years in the three-year
period ended December 31, 1996, in conformity with generally accepted accounting
principles. Also in our opinion, the related financial statement schedule, when
considered in relation to the basic consolidated financial statements taken as a
whole, presents fairly, in all material respects, the information set forth
therein.
KPMG Peat Marwick LLP
New York, New York
March 6, 1997
12
<PAGE> 13
NET 1 L.P. AND CONSOLIDATED PARTNERSHIPS
CONSOLIDATED BALANCE SHEETS
December 31, 1996 and 1995
Assets 1996 1995
------------ -----------
Real estate, at cost (notes 4 and 5):
Buildings $ 15,725,091 15,725,091
Land 7,145,912 7,145,912
------------ -----------
22,871,003 22,871,003
Less: accumulated depreciation 2,296,399 1,903,854
------------ -----------
20,574,604 20,967,149
Cash and cash equivalents 2,123,011 1,816,179
Rent receivable 315,325 299,843
Other assets 165,963 328,907
------------ -----------
$ 23,178,903 23,412,078
============ ===========
Liabilities and Partners' Capital
Mortgage notes payable (note 5) 3,551,850 3,686,942
Accrued interest payable (note 5) 31,631 33,069
Accounts payable and other liabilities 87,007 159,824
------------ -----------
3,670,488 3,879,835
Commitments and contingencies (note 5)
Partners' capital (note 3):
General Partner (180,243) (179,767)
Limited Partners ($1,000 per Unit,
50,000 Units authorized, 30,772
Units issued and outstanding) 19,688,658 19,712,010
------------ -----------
Total partners' capital 19,508,415 19,532,243
------------ -----------
$ 23,178,903 23,412,078
============ ===========
See accompanying notes to consolidated financial statements.
13
<PAGE> 14
NET 1 L.P. AND CONSOLIDATED PARTNERSHIPS
CONSOLIDATED STATEMENTS OF INCOME
Years ended December 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Revenues:
Rental (notes 4 and 6) $2,706,557 1,903,066 1,883,659
Interest 101,419 253,441 118,992
Other income 16,067 27,443 27,182
---------- ---------- ----------
2,824,043 2,183,950 2,029,833
---------- ---------- ----------
Expenses:
Interest (note 5) 387,658 26,857 45,206
Depreciation 392,545 275,215 499,234
General, administrative, and other (note 7) 496,412 463,895 619,429
Amortization of deferred expenses -- -- 5,788
Provision for losses on properties (note 4) -- -- 6,113,530
---------- ---------- ----------
1,276,615 765,967 7,283,187
---------- ---------- ----------
Income (loss) before loss on sale of properties,
lease termination proceeds and
extraordinary item 1,547,428 1,417,983 (5,253,354)
Loss on sale of properties, net (note 4) -- (324,679) (55,039)
Proceeds from lease termination (note 4) -- -- 7,900,000
---------- ---------- ----------
Income before extraordinary item 1,547,428 1,093,304 2,591,607
Gain on settlement of long-term
closing loan, net (note 5) -- -- 1,200,239
---------- ---------- ----------
Net income $1,547,428 1,093,304 3,791,846
========== ========== ==========
Income before extraordinary
item per Unit of limited partnership
interest (*) $46.39 to 51.03 32.59 to 36.16 76.23 to 86.34
=============== ============== ==============
Extraordinary item per Unit of limited
partnership interest (*) $ -- -- 35.31 to 39.98
=============== ============== ==============
Net income per Unit of limited
partnership interest (*) $46.39 to 51.03 32.59 to 36.16 111.54 to 126.32
=============== ============== ================
</TABLE>
(*) Amounts allocated to received by unit holders vary depending on the dates
they became unit holders.
See accompanying notes to consolidated financial statements.
14
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NET 1 L.P. AND CONSOLIDATED PARTNERSHIPS
CONSOLIDATED STATEMENTS OF CHANGES IN
PARTNERS' CAPITAL (DEFICIT)
Years ended December 31, 1996, 1995 and 1994
General Limited
Total Partner Partners
------------ -------- -----------
Partners' capital (deficit)
at December 31, 1993 $ 19,151,109 (187,390) 19,338,499
Net income 3,791,846 75,837 3,716,009
Cash distributions (1,571,256) (31,425) (1,539,831)
------------ -------- -----------
Partners' capital (deficit)
at December 31, 1994 21,371,699 (142,978) 21,514,677
Net income 1,093,304 21,866 1,071,438
Cash distributions (2,932,760) (58,655) (2,874,105)
------------ -------- -----------
Partners' capital (deficit)
at December 31, 1995 19,532,243 (179,767) 19,712,010
Net income 1,547,428 30,949 1,516,479
Cash distributions (1,571,256) (31,425) (1,539,831)
------------ -------- -----------
Partners' capital (deficit)
at December 31, 1996 $ 19,508,415 (180,243) 19,688,658
============ ======== ===========
See accompanying notes to consolidated financial statements.
15
<PAGE> 16
NET 1 L.P. AND CONSOLIDATED PARTNERSHIPS
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
1996 1995 1994
----------- ---------- ----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 1,547,428 1,093,304 3,791,846
----------- ---------- ----------
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 392,545 275,215 505,022
Provision for losses on properties -- -- 6,113,530
Loss on sale of properties, net -- 324,679 55,039
(Increase) decrease in rent receivable (15,482) (16,548) 147,171
Decrease (increase) in other assets 161,704 (171,980) (28,375)
(Decrease) increase in accrued interest payable (1,438) 33,069 (43,905)
Gain on settlement of long-term
closing loan, net -- -- (1,200,239)
(Decrease) increase in accounts
payable and other liabilities (72,817) 111,587 (85,204)
----------- ---------- ----------
Total adjustments 464,512 556,022 5,463,039
----------- ---------- ----------
Net cash provided by operating activities 2,011,940 1,649,326 9,254,885
----------- ---------- ----------
Cash flows from investing activities:
Acquisition of real estate -- (6,809,722) (751,217)
Proceeds from sale of properties -- 2,649,309 1,570,353
Principal payment received on note 1,240 1,134 616
----------- ---------- ----------
Net cash provided by (used in)
investing activities 1,240 (4,159,279) 819,752
----------- ---------- ----------
Cash flows from financing activities:
Proceeds of mortgage notes payable -- 3,694,198 --
Principal payments on mortgage notes (135,092) (7,256) --
Cash distributions to partners (1,571,256) (2,932,760) (1,571,256)
Repayment of long-term closing loan -- -- (5,595,758)
----------- ---------- ----------
Net cash (used in) provided by
financing activities (1,706,348) 754,182 (7,167,014)
----------- ---------- ----------
Net increase (decrease) in cash and
cash equivalents 306,832 (1,755,771) 2,907,623
Cash and cash equivalents at beginning of year 1,816,179 3,571,950 664,327
----------- ---------- ----------
Cash and cash equivalents at end of year $ 2,123,011 1,816,179 3,571,950
=========== ========== ==========
Supplemental disclosure of cash flow information:
Cash paid during the year for interest $ 389,096 2,433 89,111
=========== ========== ==========
</TABLE>
Supplemental schedule of non-cash financing and investing activities:
During 1994, $2,973,988 net of provisions for losses on properties of
$6,113,530 was reclassified to properties held for sale.
See accompanying notes to consolidated financial statements.
16
<PAGE> 17
NET 1 L.P. AND CONSOLIDATED PARTNERSHIPS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996, 1995 and 1994
1. The Partnership
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.
On November 20, 1987, the Partnership commenced the sale of up to 50,000
Units of limited partnership interests at $1,000 per Unit with the option
to offer an additional 50,000 Units. As of the last admission of Limited
Partners, which occurred on January 17, 1989, the Partnership had raised
a total of $31,001,000 (31,001 Units) from 1,638 investors and the
offering was terminated.
Pursuant to the partnership agreement, limited partnership units may be
repurchased, beginning in 1990. On September 30, 1990, the Partnership
repurchased 229 limited partnership units for an aggregate purchase price
of $169,930. No additional Units have been repurchased.
As of December 31, 1996 there was a total of 1,724 investors holding
30,772 limited partnership units.
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. On January
1, 1996, the Partnership adopted Statement of Financial Accounting
Standards 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 year December 31, 1996.
Acquisition fees incurred in connection with the properties acquired have
been capitalized as a component of the cost of such properties.
Depreciation for financial reporting and Federal income tax purposes is
determined by the straight-line method over the economic useful life of
the property estimated to be 40 years for depreciable real property.
The financial statements reflect the accounts of the Partnership, Net 1
Sumter L.P. and Net 1 Gainesville L.P., on a consolidated basis. The
Partnership owns a 99% limited partnership interest in each of Net 1
Sumter L.P. and Net 1 Gainesville L.P. The minority interest is not
significant and is included in other liabilities and general,
administrative and other expenses in the accompanying consolidated
financial statements.
(Continued)
17
<PAGE> 18
NET 1 L.P. AND CONSOLIDATED PARTNERSHIPS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996, 1995 and 1994
2., Continued
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 $2.096 million of money market
instruments at December 31, 1996.
The Partnership uses the accrual basis of accounting for Federal income
tax purposes. No provision for income taxes has been made as the
liability for such taxes is that of the partners rather than the
Partnership.
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 December 31, 1996 and 1995, 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.
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 Units outstanding was 30,772 for the years ended December 31,
1996, 1995 and 1994.
The Financial Accounting Standards Board's Statement of Financial
Accounting Standards 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 accrued liabilities are considered to be
financial instruments and are carried at cost, which approximates fair
value.
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
Pursuant to the terms of the Partnership Agreement, the General Partner
is liable for all general obligations of the Partnership to the extent
not paid by the Partnership. The Limited Partners are not and will not be
liable for the debts of the Partnership beyond their contributed capital.
Distributable cash from operations, as defined in the Partnership
Agreement, is generally to be distributed 98% to the Limited Partners and
2% to the General Partner until each Limited Partner has received total
distributions from operations equal to an 11% cumulative non-compounded
preferred return. Thereafter, such distributions are to be made 90% to
the Limited Partners and 10% to the General Partner.
Distributable cash from capital transactions, as defined, is generally to
be distributed 99% to the Limited Partners and 1% to the General Partner
until each Limited Partner has received total distributions from capital
transactions equal to an 11%, cumulative non-compounded preferred return
plus a return of capital contributions. Thereafter, such distributions
are to be made 85% to the Limited Partners and 15% to the General
Partner.
(Continued)
18
<PAGE> 19
NET 1 L.P. AND CONSOLIDATED PARTNERSHIPS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996, 1995 and 1994
3., Continued
For financial statement reporting purposes, all items of income are
allocated in the same proportion as cumulative distributions of
distributable cash.
Distributable cash attributed to a particular limited partner's Unit is
calculated from the date of admission to the Partnership. As of December
31, 1996, the Partnership has made cumulative cash distributions to the
Limited Partners totaling $19,131,750 ($643.73 to $585.19 per unit, per
close). The unpaid cumulative preferred return at December 31, 1996
totaled $9,010,878 ($293.41 to $289.61 per Unit, per close).
Cash distributions paid per Unit of limited partnership interest for each
of the years in the three-year period ended December 31, 1996 were
$50.04, $93.40, and $50.04, respectively.
On January 31, 1997, the unpaid cumulative preferred return at December
31, 1996 was reduced by a cash distribution to the Limited Partners for
the quarter ended December 31, 1996 totaling $384,958 ($12.51 per unit)
(see note 8).
The Partnership Agreement was amended and restated on September 30, 1994,
which enables the Partnership to make additional real estate investments.
Taxable income, as defined, before depreciation, generally is allocated
in the same proportion as cumulative distributions of distributable cash
or cumulative proceeds from capital transactions (other than the portion
of such proceeds constituting a return of capital). Depreciation and
amortization expense, to the extent that it does not exceed income before
depreciation for such year, shall be allocated in the same ratio as
taxable income. Any excess of such depreciation deductions shall be
allocated 98% to the Limited Partners and 2% to the General Partner. For
financial statement reporting purposes all items of income are allocated
in the same proportion as distributions of distributable cash or proceeds
from capital transactions.
4. Investments in Real Estate
On June 28, 1988, the Partnership acquired an office building located in
Bloomingdale, Illinois (the "Bloomingdale Property") for a purchase price
of $10,150,400. The Bloomingdale Property was leased to Policy Management
Systems Corporation ("PMSC"), a company which services health insurance
systems software. On February 14, 1994, the Partnership entered into a
lease termination agreement with PMSC which released PMSC from its
obligation to pay rent in exchange for a cash payment of $7.9 million.
On November 30, 1994, the Partnership entered into an agreement to sell
the property for $3 million. Accordingly, the Partnership wrote down the
carrying value of the property to the amount of estimated net proceeds to
be realized by incurring a provision for loss of $6,113,530 for the year
ended December 31,1994. The Bloomingdale Property was sold on March 15,
1995 for approximately $3 million and with proceeds of $2,649,309. The
Partnership incurred a loss of approximately $325,000 from the sale.
(Continued)
19
<PAGE> 20
NET 1 L.P. AND CONSOLIDATED PARTNERSHIPS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996, 1995 and 1994
4., Continued
On July 18, 1988, the Partnership acquired a health and tennis club
facility located in Phoenix, Arizona (the "Scandinavian Property") for a
purchase price of $5,520,700. The Scandinavian Property is leased to
Scandinavian U.S. Swim and Fitness, Inc., an indirect and wholly owned
subsidiary of Bally Health and Tennis Corporation, a major operator of
fitness centers in the United States. The lease has a 20-year base term
expiring July 17, 2008, with two optional five-year renewal terms. The
minimum net rents to be received during the first five years of the base
term of the lease are $607,277 per annum. The rent payable under the
lease will be increased at the expiration of the first 60 months of the
term of the lease and will increase every 60 months thereafter by 11.5%
of the rent payable during the preceding 60-month period. If the lessee
executes its option, the annual rent amounts will be similarly increased.
On August 26, 1988 the Partnership acquired 16 Autozone stores (the
"Autozone Properties") located in five states for a purchase price of
$6,538,300. The Autozone Properties are leased to AutoZone Inc., a
privately held company which sells automotive parts. The 16 leases each
have a 20-year base term expiring on August 25, 2008 with three optional
renewal terms of five years each. The total annual net rents for all 16
leases during the base term are equal to the greater of $735,559 or 2.25%
of the aggregate gross sales of the Autozone Properties. From inception
of the lease, 2.25% of the aggregate gross sales have not exceeded
$735,559. During the renewal terms, rents are the greater of 2% of the
aggregate gross sales or the average annual rent paid in the last two
years of the term preceding the start of such renewal term.
On February 1, 1989, the Partnership acquired a warehouse distribution
facility located in Warwick Township, Pennsylvania (the "Nichols
Property") for a purchase price of $4,085,000. The Nichols Property was
leased to Schreiber Company, a distributor of nationally advertised
brand-name products. On April 26, 1991, the tenant of the Nichols
Property filed a petition with the United States Bankruptcy Court (the
"Bankruptcy Court") for relief under Chapter 11 of the United States Code
(the "Bankruptcy Code"). The tenant of the Nichols Property liquidated
its assets, discontinued its business operations and vacated the Nichols
Property.
In 1993, the Partnership wrote down the value of the property, to what it
believed was the investment's recoverable value, by charging provisions
for losses on real estate of $1,000,000. On May 4, 1994, the Partnership
sold the property for $1.5 million and realized a loss of approximately
$64,000.
On February 28, 1989, the Partnership acquired an aggregate 99.9% general
partnership interest in Subnet 1 Partners, a Delaware special purpose
general partnership. On that date, Subnet 1 Partners acquired four bus
terminals (the "Greyhound Properties") located in Barstow, San
Bernardino, Stockton, and San Luis Obispo, California for an aggregate
purchase price of $2,756,800. During 1991, all of the assets of Subnet 1
Partners were transferred to the Partnership and Subnet 1 Partners was
dissolved. With the exception of the property in Barstow, California, the
Greyhound Properties are leased to Greyhound Lines, Inc. ("Greyhound").
(Continued)
20
<PAGE> 21
NET 1 L.P. AND CONSOLIDATED PARTNERSHIPS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996, 1995 and 1994
4., Continued
On August 22, 1994, the Partnership acquired approximately .835 acres of
land, with a building of approximately 9,300 square feet located in the
City of Lynchburg, Virginia for approximately $751,000. The property is
net leased to Circuit City Stores, Inc. The lease has a 20-year base term
expiring November 30, 2006 with two optional renewal terms of ten years
each. The annual base rent is $73,072. The annual base rent is to be
increased by 17.5% on the first day following each five-year period.
On July 14, 1995, the Partnership acquired a 99% limited partnership
interest in Net 1 Sumter L.P., a Delaware special purpose limited
partnership. The purpose of this partnership is to purchase, own,
improve, lease, manage and sell a real property located at 853 Broad
Street, Sumter, South Carolina. On November 27, 1995, Net 1 Sumter L.P.
acquired the Sumter Property for an aggregate purchase price of
approximately $3.85 million. Related acquisition fees of $65,431 were
incurred, of which $37,843 were paid to affiliates of the General
Partner. The total acquisition cost was satisfied by a cash payment of
$1,739,542, and an assumption of a 20-year, 10.375% secured note of
$2,110,163. The Sumter Property is leased to Wal-Mart Stores Inc. The
lease has a 20-year base term expiring January 31, 2008 with five
optional renewal terms of five years each. The annual base rent
is $328,113.
On November 14, 1995, the Partnership acquired a 99% limited partnership
interest in Net 1 Gainesville L.P., a Delaware special purpose limited
partnership. The purpose of this partnership is to purchase, own,
improve, lease, manage and sell a real property located at 2275 Brown's
Bridge Road, Gainesville, Georgia. On December 28, 1995, Net 1
Gainesville L.P. acquired the Gainesville Property for an aggregate
purchase price of approximately $2.96 million. Related acquisition fees
of $50,982 were incurred, of which $29,090 were paid to affiliates of the
General Partner. The total acquisition cost was satisfied by a cash
payment of $1,375,982 and assumption of a 116-month, 13% first mortgage
note of $1,197,461 and a 176-month, 7.5% second mortgage note of
$440,476. The Gainesville Property is leased to Wal-Mart Stores Inc. The
lease has a 25-year base term expiring January 31, 2009 with five
optional renewal terms of five years each. The annual base rent is
$218,188.
5. Mortgage Notes Payable and Long-Term Closing Loan
In 1988, an agreement was entered into with a commercial lender to
provide the Partnership with a loan ("closing loan") in an amount up to
$8,500,000. In February 1992, the commercial lender which provided the
closing loan was placed in receivership by the Federal Deposit Insurance
Corporation ("FDIC"). The settlement agreement with the FDIC resulted in
a net gain of $1,200,239 to the Partnership.
On July 14, 1995, the Partnership acquired a 99% limited partnership
interest in Net 1 Sumter L.P. and in Net 1 Gainesville L.P., Delaware
special purpose limited partnerships. On November 27, 1995, Net 1 Sumter
L.P. acquired the Sumter Property for approximately $3.85 million by a
cash payment and by an assumption of a 20-year, 10.375% secured note. The
balance of the note on the date of acquisition was $2,110,163. The debt
service of $25,500 is payable monthly in arrears.
(Continued)
21
<PAGE> 22
NET 1 L.P. AND CONSOLIDATED PARTNERSHIPS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996, 1995 and 1994
5., Continued
On December 28, 1995, Net 1 Gainesville L.P. acquired the Gainesville
Property by a cash payment and assumption of a 116-month, 13% first
mortgage note and a 176-month, 7.5% second mortgage note. The balances of
the mortgage notes on the date of acquisition were $1,197,461 and
$440,476. The first mortgage note provides for debt service payments of
$18,182 and is payable monthly in arrears while interest on the second
note is accruing and being added to principal.
Principal paydowns of the mortgage notes payable for the succeeding five
years are as follows:
Year ending December 31 Amount
----------------------- ------
1997 $194,855
1998 218,767
1999 245,657
2000 275,898
2001 309,914
========
6. Leases
Minimum future rental payments receivable under noncancelable operating
leases for the properties as of December 31, 1996 are as follows:
Year ending December 31 Amount
----------------------- ------
1997 $ 2,399,476
1998 2,431,921
1999 2,477,344
2000 2,477,344
2001 2,478,597
Thereafter 16,887,285
-----------
$29,151,967
===========
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.
(Continued)
22
<PAGE> 23
NET 1 L.P. AND CONSOLIDATED PARTNERSHIPS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996, 1995 and 1994
6., Continued
Each of the following properties (as hereinafter defined) accounted for
10% or more of rental revenues shown for the years ended December 31:
Property 1996 1995 1994
-------- ---- ---- ----
Scandinavian 25% 36% 36%
AutoZone 29% 40% 41%
Greyhound 13% 18% 17%
Sumter 18% - -
Gainesville 12% - -
At December 31, 1996, the Scandinavian property accounted for 21%, the
AutoZone properties accounted for 27%, the Greyhound properties accounted
for 9%, the Sumter property accounted for 16% and the Gainesville
property accounted for 13%, of total assets.
7. Related Parties
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). For the years ended December 31, 1996, 1995 and
1994, management fees totaled $26,911, $18,217, and $19,874,
respectively.
LCP, an affiliate of the General Partner received acquisition fees of
$66,933 for the year ended December 31, 1995.
8. Subsequent Event
On January 31, 1997, the Partnership paid a cash distribution totaling
$384,958 to the Limited Partners and $7,856 to the General Partner.
23
<PAGE> 24
Schedule III
NET 1 L.P. AND CONSOLIDATED PARTNERSHIPS
Real Estate and Accumulated Depreciation
December 31, 1996, 1995 and 1994
Initial cost to Partnership and gross amount at
which carried at end of period (A)
<TABLE>
<CAPTION>
Life on which
depreciation
in latest
income
Accumulated Date Date of statements
Description Encumbrances(B) Land Buildings Total(C) Depreciation(D) Acquired Construction is computed
----------- ------------ ---- --------- -------- ------------ -------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Health and tennis club facility
Phoenix, AZ $ -- 1,117,419 4,742,859 5,860,278 1,002,920 July 1988 July 1988 40 years
Retail stores (E) -- 2,990,403 3,989,183 6,979,586 835,226 Aug. 1988 1986 & 1987(F) 40 years
Bus terminals (G) -- 1,086,426 1,383,774 2,470,200 291,086 Feb. 1989 (G) 40 years
Retail store Lynchburg, VA -- 300,000 451,217 751,217 26,593 Aug. 1994 1986 40 years
Retail store Sumter, SC 2,010,785 850,040 2,999,665 3,849,705 84,366 Nov. 1995 1983 40 years
Retail store Gainesville, GA 1,541,065 801,624 2,158,393 2,960,017 56,208 Dec. 1995 1984 40 years
---------- --------- ---------- ---------- ---------
$3,551,850 7,145,912 15,725,091 22,871,003 2,296,399
========== ========= ========== ========== =========
</TABLE>
(A) The initial cost includes the purchase price paid by the Partnership and
acquisition fees and expenses. There is no difference between the initial
cost for financial reporting purposes and the initial cost for Federal
income tax purposes. The total costs of the properties acquired in 1988
exceed the initial costs due to the Partnership's subsequent incurrence
of other costs related to the acquisitions.
(B) See note 5: Mortgage Notes Payable
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C> <C>
(C) Reconciliation of real estate owned:
Balance at beginning of period $22,871,003 17,650,174 26,417,261
Write-off of accumulated depreciation (1,588,893) (430,786)
Acquisition of properties 6,809,722 751,217
Reclassification of properties to properties
held for sale (2,973,988)
Provision for losses on properties
(6,113,530)
----------- --------- ---------
Balance at end of period $22,871,003 22,871,003 17,650,174
=========== ========== ==========
(D) Reconciliation of accumulated depreciation:
Balance at beginning of period 1,903,854 3,217,532 3,149,084
Write-off of accumulated depreciation (1,588,893) (430,786)
Depreciation expense 392,545 275,215 499,234
----------- --------- ---------
Balance at end of period $ 2,296,399 1,903,854 3,217,532
=========== ========= =========
</TABLE>
(E) These properties consist of 16 retail stores, which are located as
follows: two in Alabama, two in Florida, one in Georgia, five in New
Mexico and six in Texas.
(F) The 16 retail stores were constructed in different years.
(G) These properties consist of three bus terminals, located and constructed
as follows:
San Bernardino, CA, constructed in 1987; Stockton, CA, constructed
in 1967, San Luis Obispo, CA, constructed in 1963.
24
<PAGE> 25
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
25
<PAGE> 26
PART III.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The Partnership is a limited partnership and has no directors or officers.
The General Partner of the Partnership is Lepercq Net 1 L.P., a Delaware limited
partnership. Lepercq Net 1 Inc., a Delaware corporation, is the general partner
of the General Partner. The directors and executive officers of Lepercq Net 1
Inc. are discussed below. The directors and executive officers of Lepercq Net 1
Inc. are responsible for the management of the Partnership's business including,
but not limited to, the acquisition of, sale of, financing or refinancing of,
making certain major capital improvements to or leasing of Partnership
properties.
The directors and executive officers of Lepercq Net 1 Inc. are as follows:
Name Position
---- --------
E. Robert Roskind President and Secretary
Denise E. DeBaun Vice President
Antonia G. Trigiani Vice President and Treasurer
There is no family relationship among any of the foregoing persons.
Certain biographical information relating to the directors and executive
officers of Lepercq Net 1 Inc. is set forth below.
E. Robert Roskind, age 52, has been associated with LCP since 1973 and has been
Chairman of LCP since September 1976. He also serves as Chairman of the Board
and Co-Chief Executive Officer of Lexington Corporate Properties, Inc., a Real
Estate Investment Trust traded on the New York Stock Exchange. Mr. Roskind is a
graduate of the University of Pennsylvania and Columbia Law School, and has been
a member of the New York Bar since 1970.
Antonia G. Trigiani, age 36, has been associated with LCP since 1989 as Vice
President - Asset Management. Ms. Trigiani also serves as Chief Financial
Officer and Treasurer of Lexington Corporate Properties, Inc., a Real Estate
Investment Trust traded on the New York Stock Exchange. Prior to joining LCP,
she was associated with HRE Properties and Merrill Lynch Hubbard, a real estate
division of Merrill Lynch and Company. Ms. Trigiani received her bachelor's
degree from Saint Mary's College at Notre Dame.
Denise E. DeBaun, age 46, has been employed by LCP since 1981. She was a member
of the marketing department from 1986 to 1990, and is currently the manager of
Investor Relations. Ms. DeBaun is a graduate of Hunter College of the City of
New York.
26
<PAGE> 27
ITEM 11. EXECUTIVE COMPENSATION
The General Partner is entitled to receive a share of cash distributions when
and as cash distributions are made to the Limited Partners, and a share of
taxable income or loss. Cash distributions of $31,425 were made to the General
Partner in 1996.
The directors and executive officers of Lepercq Net 1 Inc. received no
remuneration from the Partnership.
The General Partner and its affiliates were paid certain fees and commissions
and reimbursed for certain expenses.
Information concerning the cash distributions to the General Partner, and fees,
commissions and reimbursements paid to it or its affiliates, is contained in the
Consolidated Statements of Changes in Partners' Capital (Deficit) and in notes 7
and 8 of Notes to Consolidated Financial Statements in Item 8 above.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
(a) No person is known to the Partnership to be the beneficial owner of
more than 5% of the Units.
(b) Directors and executive officers of Lepercq Net 1 Inc. and
affiliated entities own 92 Units as of December 31, 1996.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Partnership reimburses the General Partner or its affiliates for expenses
incurred and may pay interest on loans made in connection with acquisitions.
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). Such fees totaled $26,911, $18,217, and $19,874 in 1996, 1995,
and 1994, respectively.
LCP, an affiliate of the General Partner received acquisition fees of $66,933
for the year ended December 31, 1995.
Additional information with respect to the directors and officers and
compensation of the General Partner and affiliates is contained in Items 7, 10
and 11 above.
27
<PAGE> 28
PART IV.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this Annual Report:
1. Financial Statements (see index to Financial Statements filed
as part of Item 8 of this Annual Report).
2. Financial Statement Schedule (see Index to Financial
Statements filed as part of Item 8 of this Annual Report).
3. Exhibits.
(3) Amended and Restated Agreement of Limited Partnership dated as of
November 20, 1987 set forth as Exhibit A to the Prospectus included
in Registration Statement Number 33-16973 is incorporated herein by
reference.
Second Amended and Restated Agreement of Limited Partnership dated
as of September 30, 1994 is incorporated herein by reference.
(10) Material contracts
(i) Sale-Purchase Agreement for the Greyhound Properties dated
February 27, 1989.*
(ii) Lease Agreement for the Greyhound Properties dated February
27, 1989.*
(iii) Sale-Purchase Agreement for the Nichols Property dated
February 1, 1989.**
(iv) Lease Agreement for Nichols Property dated February 1, 1989.**
(v) Loan Modification Agreement with the Dollar Dry Dock Bank
dated September 28, 1990.***
(vi) Purchase Agreement for the Sumter Property dated June 8,
1995.****
(vii) Partnership Agreement for Net 1 Sumter L.P. dated July 14,
1995.****
(viii) Purchase Agreement for Gainesville Property dated October 27,
1995.****
(ix) Partnership Agreement for Net 1 Gainesville L.P. dated
November 14, 1995.****
28
<PAGE> 29
(28) Additional exhibits
(i) Appraisals for the Greyhound Properties dated November 1,
1988.*
(ii) Appraisal for the Nichols Property dated September 7, 1988.*
(b) Reports on Form 8-K. None.
(c) Exhibits. See (a)(3) above.
(d) Financial Statement schedules excluded from the Annual Report to Unit
holders. None.
- ----------
* Filed with the Partnership's Form 10-Q for the quarter ended March 31,
1989. These documents are incorporated herein by reference. ** Filed with
the Partnership's Form 10-Q for the quarter ended June 30, 1989. These
documents are incorporated herein by reference.
*** Filed with the Partnership's Form 10-K for the year ended December 31,
1990. This document is incorporated herein by reference.
**** Filed with the Partnership's Form 10-K for the year ended December 31,
1995. These documents are incorporated herein by reference.
29
<PAGE> 30
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Partnership has duly caused this annual 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
By: ___________________________ By: ________________________________
President Principal Financial & Accounting
Officer
Pursuant to the requirements of the Securities Act of 1934, this annual report
has been signed below by the following persons on behalf of the Partnership and
in the capacities and on the date indicated.
Signature Title
_________________________________ President and Secretary
E. Robert Roskind
_________________________________ Vice President
Denise E. DeBaun
_________________________________ Vice President and Treasurer
Antonia G. Trigiani
Date:
30
<PAGE> 31
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 YEAR ENDED DECEMBER 31, 1996 AND THE
CONSOLIDATED BALANCE SHEET AS OF DECEMBER 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> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<EXCHANGE-RATE> 1
<CASH> 2,123,011
<SECURITIES> 0
<RECEIVABLES> 315,325
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 22,871,003
<DEPRECIATION> (2,296,399)
<TOTAL-ASSETS> 23,178,903
<CURRENT-LIABILITIES> 0
<BONDS> 3,551,850
0
0
<COMMON> 0
<OTHER-SE> 19,508,415
<TOTAL-LIABILITY-AND-EQUITY> 23,178,903
<SALES> 0
<TOTAL-REVENUES> 2,824,043
<CGS> 0
<TOTAL-COSTS> 392,545
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 387,658
<INCOME-PRETAX> 1,547,428
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,547,428
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,547,428
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
