<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 September 30, 1999
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 Lexington Corporate Properties Trust
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
(In thousands, except Units and per Unit amounts)
September 30, 1999 (Unaudited) and December 31, 1998
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
---- ----
Assets
<S> <C> <C>
Real estate, at cost $ 39,837 $ 26,440
Less: accumulated depreciation 2,459 3,211
-------- --------
37,378 23,229
Cash and cash equivalents 1,894 1,688
Rent receivable 459 455
Other assets 16 162
-------- --------
$ 39,747 $ 25,534
======== ========
Liabilities and Partners' Capital
Mortgage notes payable $ 16,433 $ 5,344
Accrued interest payable 27 28
Accounts payable and other liabilities 284 128
-------- --------
16,744 5,500
-------- --------
Partners' capital (deficit):
General Partner (110) (169)
Limited Partners ($1,000 per Unit, 50,000 Units
authorized, 30,772 Units issued and outstanding) 23,113 20,203
-------- --------
23,003 20,034
-------- --------
$ 39,747 $ 25,534
======== ========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
<PAGE> 3
NET 1 L.P. AND CONSOLIDATED PARTNERSHIPS
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per Unit amounts)
Three and Nine Months Ended September 30, 1999 and 1998
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues:
Rental $ 524 $ 702 $ 2,353 $ 2,491
Interest and other 81 21 120 60
---- ---- ------ -------
605 723 2,473 2,551
--- --- ----- -----
Expenses:
Interest expense 118 127 360 386
Depreciation 96 118 307 355
General and administrative 94 77 326 260
---- ---- ------ ------
308 322 993 1,001
--- --- ------ -----
Income before gain on sale
of properties 297 401 1,480 1,550
Gain on sale of properties - - 2,668 -
----- ------ ----- -----
Net income $ 297 $ 401 $ 4,148 $ 1,550
=== === ===== =====
Net income per Unit of limited
partnership interest $ 9.45 $ 12.77 $ 132.10 $ 49.36
==== ===== ====== =====
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
<PAGE> 4
NET 1 L.P. AND CONSOLIDATED PARTNERSHIPS
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Nine Months Ended September 30, 1999 and 1998
(Unaudited)
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Net cash provided by operating activities $ 2,084 $ 1,777
------- -------
Cash flows from investing activities:
Proceeds from sale of properties, net 8,588 -
Acquisition of properties, net of mortgage
liabilities assumed and issued (9,015) -
------- -------
Net cash used in investing activities (427) -
------- -------
Cash flows from financing activities:
Principal payments on mortgage notes (272) (246)
Cash distributions to partners (1,179) (1,179)
------- -------
Net cash used in financing activities (1,451) (1,425)
------- -------
Change in cash and cash equivalents 206 352
Cash and cash equivalents at beginning of period 1,688 1,312
------- -------
Cash and cash equivalents at end of period $ 1,894 $ 1,664
======= =======
Supplemental disclosure of cash flow information:
Cash paid during the period for interest $ 361 $ 387
======= =======
</TABLE>
Supplemental disclosure of non-cash investing and financing activities:
On September 27, 1999, the Partnership assumed approximately $4.6 million of
mortgage financing in connection with the acquisition of the San Diego Property.
On September 29, 1999, the Partnership assumed approximately $5.6 million of
mortgage financing and issued a $1.2 million unsecured note in connection with
the acquisition of the Phoenix Property.
See accompanying notes to unaudited consolidated financial statements.
<PAGE> 5
NET 1 L.P. AND CONSOLIDATED PARTNERSHIPS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1999
(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
net leased real estate properties or interests therein.
As of September 30, 1999, the Partnership has a total of 30,772 Units
issued and outstanding held by approximately 1,400 limited partners.
The unaudited financial statements reflect all adjustments that are, in
the opinion of the General Partner, necessary to present 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, 1998.
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 98%
of the income attributable for that period to the Limited Partners. The
weighted average number of Units outstanding was 30,772 for all periods
presented.
Management of the Partnership has made a number of estimates and
assumptions relating to the reporting of assets and liabilities, the
disclosure of contingent assets and liabilities and the reported
amounts of revenues and expenses to prepare these financial statements
in conformity with generally accepted accounting principles. Actual
results could differ from those estimates.
Certain amounts included in the prior year's financial statements have
been reclassified to conform to the current year's presentation.
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 September 30, 1999 totaled $14.085
million ($454.50 to $460.35 per Unit, per close). On October 29, 1999,
the unpaid cumulative preferred return was reduced by a cash
distribution to the Limited Partners totaling $384,958 ($12.51 per
Unit). The General Partner received a cash distribution of $7,856 on
October 29, 1999.
<PAGE> 6
NET 1 L.P. AND CONSOLIDATED PARTNERSHIPS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. Properties
During the nine months ended September 30, 1999, the Partnership
entered into the following real estate transactions:
<TABLE>
<CAPTION>
Lease Net
Capitalized Annualized Expiration Rentable
Date of Costs Base Rent Date Square
Acquisition Tenant Location ($000's) ($000's) (month/year) Feet
----------- ------ -------- -------- -------- ------------ ----
<S> <C> <C> <C> <C> <C> <C>
September 27 Cymer, Inc. San Diego, CA $ 8,775 778 12/09 65,755
September 29 Bull HN Information
Systems, Inc. Phoenix, AZ 11,601 972 10/05 137,058
------ ------ -------
$ 20,376 $ 1,750 202,813
====== ===== =======
</TABLE>
The San Diego Property was purchased through a cash payment of
approximately $4 million and the assumption of a $4.6 million mortgage
note. The mortgage note bears interest at a rate of 7.5% per annum,
with a monthly debt service payment of principal and interest in the
amount of $34,252. The note matures on January 1, 2011 with a balloon
payment of approximately $3.4 million.
The Phoenix Property was purchased through a cash payment of
approximately $4.8 million, the issuance of a $1.2 million unsecured
note and the assumption of $5.6 million mortgage note. The mortgage
note bears interest at a rate of 8.12% per annum, with an annual debt
service payment of principal and interest in the amount of $621,297.
The mortgage note matures on October 10, 2005 with a balloon payment of
approximately $4.2 million. The $1.2 million unsecured note has a term
of 6 years with interest accruing at 8% per annum, due and payable on
September 30, 2005.
The San Diego Property, the Phoenix Property and the $1.2 million
unsecured note were purchased from Lexington Corporate Properties
Trust, whose chairman is an officer of the General Partner.
On June 30, 1999, the Partnership sold for cash, sixteen properties
(the "AutoZone Properties") to AutoZone, Inc., for net proceeds of
approximately $8.6 million. The AutoZone Properties aggregating 104,600
square feet, consist of retail stores located in Alabama (2), Florida
(2), Georgia (1), New Mexico (5) and Texas (6). The Partnership
realized a gain from the sale of approximately $2.7 million.
<PAGE> 7
NET 1 L.P. AND CONSOLIDATED PARTNERSHIPS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. Continued
The following unaudited pro forma operating information for the nine
months ended
September 30, 1999 and 1998, was prepared as if all acquisitions and
dispositions were consummated as of January 1, 1998. The information
does not purport to be indicative of what the operating results of the
Partnership would have been had the acquisitions and dispositions been
consummated on that date. Pro forma amounts are as follows:
<TABLE>
<CAPTION>
Pro Forma
(In thousands, except per Unit amounts)
Nine months ended September 30,
1999 1998
---- ----
<S> <C> <C>
Revenues $ 3,548 $ 3,440
Expenses 1,968 1,926
----- -----
Net income $ 1,580 $ 1,514
===== =====
Net income per Unit of limited
partnership interest $ 50.32 $ 48.22
===== =====
</TABLE>
5. Related Party Transactions
The LCP Group, L.P., 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 nine months ended September 30, 1999
and 1998, property management fees of $23,000 and $24,000 were
incurred.
During 1999, the Partnership paid Lexington Corporate Properties Trust,
whose chairman is an officer of the General Partner, brokerage fee
relating to the sale of the AutoZone Properties of approximately
$88,000. In addition, the San Diego Property, the Phoenix Property and
the $1.2 million unsecured note were purchased from Lexington Corporate
Properties Trust.
<PAGE> 8
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 that 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 September 30, 1999 totaled $14.085
million ($454.50 to $460.35 per Unit, per close), and was reduced by $384,958
($12.51 per Unit) with the distribution paid in October 1999.
During the nine months ended September 30, 1999, the Partnership entered into
the following real estate transactions:
<TABLE>
<CAPTION>
Lease Net
Capitalized Annualized Expiration Rentable
Date of Costs Base Rent Date Square
Acquisition Tenant Location ($000's) ($000's) (month/year) Feet
----------- ------ -------- -------- -------- ------------ ----
<S> <C> <C> <C> <C> <C> <C>
September 27 Cymer, Inc. San Diego, CA $ 8,775 $ 778 12/09 65,755
September 29 Bull HN Information
Systems, Inc. Phoenix, AZ 11,601 972 10/05 137,058
------ ------ -------
$ 20,376 $ 1,750 202,813
====== ===== =======
</TABLE>
The San Diego Property was purchased through a cash payment of approximately $4
million and the assumption of a $4.6 million mortgage note. The mortgage note
bears interest at a rate of 7.5% per annum, with a monthly debt service payment
of principal and interest in the amount of $34,252. The note matures on January
1, 2011 with a balloon payment of approximately $3.4 million.
The Phoenix Property was purchased through a cash payment of approximately $4.8
million, the issuance of a $1.2 million unsecured note and the assumption of
$5.6 million mortgage note. The mortgage note bears interest at a rate of 8.12%
per annum, with an annual debt service payment of principal and interest in the
amount of $621,297. The mortgage note matures on October 10, 2005 with a balloon
payment of approximately $4.2 million. The $1.2 million unsecured note has a
term of 6 years with interest accruing at 8% per annum, due and payable on
September 30, 2005.
The San Diego Property, the Phoenix Property and the $1.2 million unsecured note
were purchased from Lexington Corporate Properties Trust, whose chairman is an
officer of the General Partner.
On June 30, 1999, the Partnership sold for cash, sixteen properties (the
"AutoZone Properties") to AutoZone, Inc., for net proceeds of approximately $8.6
million. The AutoZone Properties aggregating 104,600 square feet, consist of
retail stores located in Alabama (2), Florida (2), Georgia (1), New Mexico (5)
and Texas (6). The Partnership realized a gain from the sale of approximately
$2.7 million.
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.
<PAGE> 9
Impact of Year 2000
The Year 2000 compliance issue concerns the inability of computer systems to
accurately calculate, store or use a date after 1999. This could result in a
system failure or miscalculations causing disruptions of operations. The Year
2000 issue affects virtually all companies and organizations.
The Partnership has been taking the necessary steps to understand the nature and
extent of the work required to make its core information computer systems and
non-information embedded systems Year 2000 compliant. The Partnership has
determined that it will not be necessary to modify, update or replace its
computer hardware and software applications.
The vendor that provides the Partnership's existing general ledger software has
released a compliant version of its product, which the Partnership is currently
using. The cost of the general ledger system did not have a material effect on
the Partnership's financial condition or results of operations. The
Partnership's properties, which have no scheduled lease expirations prior to
October 10, 2005, are subject to net leases and accordingly the Year 2000
compliance of embedded systems (e.g., security, HVAC, fire and elevator systems)
are the responsibility of the tenants. The Partnership has contacted each of its
tenants asking them to identify and evaluate the changes and modifications
necessary to make these systems compliant for Year 2000 processing. The costs
associated with the effect to make the embedded systems Year 2000 compliant are
the tenant's responsibility. However, no assurances can be given that the
properties' embedded systems will be Year 2000 compliant by December 31, 1999.
Compliance costs, if any, incurred by the Partnership would not be significant.
The Partnership is communicating with significant third-party service providers
and vendors with which it does business to determine the efforts being made on
their part for compliance. The Partnership is attempting to receive compliance
certificates from all third parties that have a material impact on the
Partnership's operations, but no assurance can be given with respect to the cost
or timing of such efforts or the potential effects of any failure to comply.
Management has closely monitored the Partnership's entire Year 2000 compliance
function. At this time, the Partnership has not developed and does not
anticipate developing any contingency plans with respect to the Year 2000 issue.
<PAGE> 10
Results of Operations (in thousands):
<TABLE>
<CAPTION>
Increase (Decrease)
----------------------------------------
Three months ended Nine months ended Three months ended Nine months ended
September 30, September 30, September 30, September 30,
1999 1998 1999 1998 1999 1999
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Total revenues $ 605 $ 723 $ 2,473 $ 2,551 $ (118) $ (78)
--- --- ----- ----- ---- ----
Total expenses:
Interest 118 127 360 386 (9) (26)
Depreciation 96 118 307 355 (22) (48)
General and administrative 94 77 326 260 17 66
---- ---- ------ ------ ----- ----
308 322 993 1,001 (14) (8)
--- --- ------ ----- ----- -----
Income before gain on
sale of properties 297 401 1,480 1,550 104 (70)
=== === ===== ===== ==== ====
</TABLE>
The results of operations for the three and nine months ended September 30,
1999, are primarily attributable to the acquisition and operation of the real
property investments acquired from 1988 to 1999.
The decreases in total revenues and depreciation expense for the three and nine
months ended September 30, 1999 resulted from the sale of the Autozone
Properties.
General and administrative expenses increased in the nine months ended September
30, 1999 due to property appraisals performed on properties.
<PAGE> 11
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK
There is no exposure to market risk since all of the Partnership's
long-term indebtedness is fixed rate.
<PAGE> 12
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.
<TABLE>
<CAPTION>
(a) Exhibits.
Exhibit No. Exhibit
----------- -------
<S> <C>
27 Financial Data Schedule
</TABLE>
(b) Reports on form 8-K filed during the third quarter ended
September 30, 1999.
Form 8-K dated June 30, 1999, filed July 15, 1999.
Provided financial data information for certain sale of
properties located in Alabama (2), Florida (2), Georgia
(1), New Mexico (5) and Texas (6) and pro forma financial
information for the Partnership.
<PAGE> 13
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NET 1 L.P.
By: Lepercq Net 1 L.P.
its general partner
By: Lepercq Net 1 Inc.
its general partner
Date: November 15, 1999 By: /s/ E. Robert Roskind
---------------------- ----------------------------
E. Robert Roskind
President
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AND CONSOLIDATED STATEMENT OF INCOME AS OF AND FOR
THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AS CONTAINED IN THE PARTNERSHIP'S FORM
10-Q FOR SUCH PERIOD. AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FORM 10-Q. DOLLARS ARE IN THOUSANDS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 1,894
<SECURITIES> 0
<RECEIVABLES> 459
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 39,837
<DEPRECIATION> (2,459)
<TOTAL-ASSETS> 39,747
<CURRENT-LIABILITIES> 0
<BONDS> 16,433
0
0
<COMMON> 0
<OTHER-SE> 23,003
<TOTAL-LIABILITY-AND-EQUITY> 39,747
<SALES> 0
<TOTAL-REVENUES> 2,473
<CGS> 0
<TOTAL-COSTS> 307
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 360
<INCOME-PRETAX> 1,480
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,480
<DISCONTINUED> 2,668
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,148
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
