<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 period ended June 30, 1998
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
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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 Trust
355 Lexington Avenue
New York, NY 10017
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(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
($000)
June 30, 1998 (Unaudited) and December 31, 1997
ASSETS
------
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
-------- ------------
<S> <C> <C>
Real estate, at cost $ 26,440 $ 26,440
Less: accumulated depreciation 2,972 2,735
-------- --------
23,468 23,705
Cash and cash equivalents 1,441 1,312
Rent receivable 442 400
Other assets 410 246
-------- --------
$ 25,761 $ 25,663
======== ========
LIABILITIES AND PARTNERS' CAPITAL
---------------------------------
Mortgage notes payable $ 5,514 $ 5,676
Accrued interest payable 29 30
Accounts payable and other liabilities 63 165
-------- --------
5,606 5,871
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Partners' capital (deficit):
General Partner (167) (174)
Limited Partners ($1,000 per Unit,
50,000 Units authorized, 30,772
Units issued and outstanding) 20,322 19,966
-------- --------
Total partners' capital 20,155 19,792
-------- --------
$ 25,761 $ 25,663
======== ========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
<PAGE> 3
NET 1 L. P. AND CONSOLIDATED PARTNERSHIPS
CONSOLIDATED STATEMENTS OF INCOME
($000 EXCEPT PER UNIT AMOUNTS)
Quarters Ended June 30, 1998 and 1997 and
Six Months Ended June 30, 1998 and 1997
(Unaudited)
<TABLE>
<CAPTION>
Six Months Six Months
Quarter Ended Quarter Ended Ended Ended
June 30, June 30, June 30, June 30,
1998 1997 1998 1997
------ ------ ------ ------
Revenues:
<S> <C> <C> <C> <C>
Rental $ 703 $ 649 $1,789 $1,549
Interest and other 21 25 39 53
------ ------ ------ ------
724 674 1,828 1,602
------ ------ ------ ------
Expenses:
Interest expense 128 108 259 202
Depreciation 119 105 237 203
General, administrative
and other 95 96 183 195
------ ------ ------ ------
342 309 679 600
------ ------ ------ ------
Net income $ 382 $ 365 $1,149 $1,002
====== ====== ====== ======
Net income per Unit of limited
partnership interest $12.16 $11.63 $36.59 $31.92
====== ====== ====== ======
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
<PAGE> 4
NET 1 L. P. AND CONSOLIDATED PARTNERSHIPS
CONSOLIDATED STATEMENTS OF CASH FLOWS
($000)
Six months ended June 30, 1998 and 1997
(Unaudited)
<TABLE>
<CAPTION>
Six Months Six Months
Ended Ended
June 30, 1998 June 30, 1997
------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 1,149 $ 1,002
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Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation 237 203
Other, net (309) (72)
------- -------
Total adjustments (72) 131
------- -------
Net cash provided by operating activities 1,077 1,133
------- -------
Cash flows from investing activities:
Acquisition of Texas Property, net of
mortgage liability assumed -- (1,204)
------- -------
Net cash used in investing activities -- (1,204)
------- -------
Cash flows from financing activities:
Principal payments on mortgage notes (162) (86)
Cash distributions to partners (786) (786)
------- -------
Net cash used in financing activities (948) (872)
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Net increase (decrease) in cash and cash equivalents 129 (943)
Cash and cash equivalents at beginning of period 1,312 2,123
------- -------
Cash and cash equivalents at end of period $ 1,441 $ 1,180
======= =======
Supplemental disclosure of cash flow information:
Cash payments for interest $ 260 $ 189
======= =======
</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, 1998
(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, 1998, the Partnership has a total of 30,772 Units issued
and outstanding held by approximately 1,500 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, 1997.
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.
2. Summary of Significant Accounting Policies
------------------------------------------
Net income per Unit amounts were calculated by using the weighted
average number of Units outstanding for each period and allocating the
income attributable for that period to the Limited Partners. The
weighted average number of Units outstanding was 30,772 for all periods
presented.
3. The Partnership Agreement
-------------------------
For financial statement reporting purposes all items of income are
allocated in the same proportion as distributions of distributable
cash.
Distributable cash attributed to a particular limited partner's Unit is
calculated from the date of admission to the Partnership. The unpaid
cumulative preferred return at June 30, 1998 totaled $11.779 million
($379.55 to $385.40 per Unit, per close). On July 31, 1998, the unpaid
cumulative preferred return at June 30, 1998 was reduced by a cash
distribution to the Limited Partners for the quarter ended June 30,
1998 totaling $384,958 ($12.51 per Unit). The General Partner received
a cash distribution of $7,856 on July 31, 1998.
<PAGE> 6
NET 1 L. P. AND CONSOLIDATED PARTNERSHIPS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. 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). For the six months ended June
30, 1998 and 1997, property management fees of $17,000 and $15,000,
respectively had been incurred.
<PAGE> 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
------------------------------------------------
Liquidity and Capital Resources
- -------------------------------
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, 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.
The unpaid cumulative preferred return at June 30, 1998 totaled $11.779 million
($379.55 to $385.40 per Unit, per close), and was reduced by $384,958 ($12.51
per Unit) with the second quarter 1998 distribution paid in July 1998.
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.
Impact of Year 2000
- -------------------
The Partnership is evaluating its computer and communication systems that could
be affected by the "Year 2000" issue. The year 2000 problem is the result of
computer programs being written using two digits rather than four to define the
applicable year. Any of the Partnership's programs that have time-sensitive
software may recognize a date using "00" as the year 1900 rather than the year
2000. This could result in a major system failure or miscalculation. The
Partnership presently believes that the year 2000 problem will not pose
operational problems for the Partnership's computer and communication systems
and will not have a material impact on the operations of the Partnership.
<PAGE> 8
Results of Operations ($000)
- ----------------------------
<TABLE>
<CAPTION>
Increase (Decrease)
Quarters Six months Quarters Six months
ended June 30, ended June 30, ended June 30, ended June 30,
1998 1997 1998 1997 1998 1998
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Total revenues $ 724 $ 674 $1,828 $1,602 $ 50 $ 226
------ ------ ------ ------ ------ ------
Total expenses
Interest 128 108 259 202 20 57
Depreciation 119 105 237 203 14 34
General, administrative
and other 95 96 183 195 (1) (12)
------ ------ ------ ------ ------ ------
342 309 679 600 33 79
------ ------ ------ ------ ------ ------
Net income $ 382 $ 365 $1,149 $1,002 $ 17 $ 147
====== ====== ====== ====== ====== ======
</TABLE>
The changes in results of operations with respect to revenues, interest and
depreciation for the quarter and six months ended June 30, 1998 are primarily
attributable to the operations of real property investment acquired in the
second quarter of 1997.
Accounting Standards Issued but not yet Adopted
- -----------------------------------------------
In June, 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133 ("SFAS 133") "Accounting for Derivative
Instruments and Hedging Activities". The Statement establishes accounting and
reporting standards for derivative instruments and hedging activities. This
Statement is effective for all fiscal quarters of fiscal years beginning after
June 15, 1999. The adoption of SFAS 133 is not expected to have any impact on
the financial position or results of operations of the Partnership.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK
------------------------------------------------
Not applicable.
<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 second quarter
ended June 30, 1998. None.
<PAGE> 10
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NET 1 L. P.
By: Lepercq Net 1 L. P.
--------------------
its general partner
By: Lepercq Net 1 Inc.
--------------------
its general partner
Date: August 13, 1998 By: /s/E. Robert Roskind
--------------- --------------------
E. Robert Roskind
President
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRCATED FROM THE INTERIM
CONSOLIDATED STATEMENTS OF INCOME FOR THE QUARTER AND SIX MONTHS ENDED JUNE 30,
1998 AND THE CONSOLIDATED BALANCE SHEETS AS OF JUNE 30, 1998 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 1,441,491
<SECURITIES> 0
<RECEIVABLES> 441,653
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 26,440,197
<DEPRECIATION> (2,971,592)
<TOTAL-ASSETS> 25,761,649
<CURRENT-LIABILITIES> 0
<BONDS> 5,514,256
0
0
<COMMON> 0
<OTHER-SE> 20,154,961
<TOTAL-LIABILITY-AND-EQUITY> 25,761,649
<SALES> 0
<TOTAL-REVENUES> 1,827,128
<CGS> 0
<TOTAL-COSTS> 236,138
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 259,444
<INCOME-PRETAX> 1,148,906
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,148,906
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,148,906
<EPS-PRIMARY> 36.59
<EPS-DILUTED> 36.59
</TABLE>
