<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported) September 29, 1998
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NET 2 L. P.
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(Exact name of registrant as specified in its charter)
Delaware 33-25984 13-3497738
- ------------------------------- ------------------------ -------------------
(State or other jurisdiction of (Commission File Number) (IRS Employer
incorporation or organization) Identification No.)
c/o Lexington Corporate Properties Trust
355 Lexington Avenue
New York, New York 10017
- ---------------------------------------- ----------
(Address of principal Executive offices) (zip code)
Registrant's telephone number, including area code (212) 692-7200
N/A
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(Former name or former address, if changed since last report)
<PAGE> 2
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
On September 29, 1998, NET 2 L. P. (the "Partnership") sold its property located
in Seattle, Washington (the "Washington Property") to the Art Institute of
Seattle for a cash price of approximately $11.5 million, which will result in an
accounting gain of approximately $5 million. This property was encumbered by a
tenant of lease which provided annual rents of approximately $1.2 million. The
proceeds was used to purchase another property for approximately $13.7 million
from TC Wilsonville Office, Inc. (the "Seller"), a wholly owned subsidiary of
Trammell Crow Company and Subsidiaries. The property is located at 9275 SW
Peyton Lane, Wilsonville, Oregon (the "Oregon Property"). The purchase price of
the Oregon Property was satisfied by a cash payment of approximately $11.6
million and a short-term debt of $2.1 million.
The Oregon Property consists of a 122,853 square foot office building net leased
to Hollywood Entertainment Corporation (the "Tenant"). The lease has a remaining
term of 10 years and expires on September 30, 2008. The annual net rent payable
for the base term is approximately $1.3 million through 2001, $1.5 million from
2001 through 2005, and $1.6 million from 2005 through 2008. The lease provides
for one renewal option of five years.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA INFORMATION AND EXHIBITS
(a) Financial Statements
The Tenant of the Oregon Property, is a publicly held company and is
listed on the Nasdaq National Market. The Tenant files a consolidated
financial statement accordingly, there are no historical financial
statements for the property. As of December 31, 1997, the Tenant had
total consolidated assets, liabilities and stockholders' equity of
approximately $689.1 million, $399.2 million and $289.9 million,
respectively. For the year ended December 31, 1997, the Tenant had
total consolidated revenues and net income of approximately $500.5
million and $5 million, respectively.
(b) Pro Forma Financial Information
Estimated Taxable Operating Results and Cash Available from Operations
of the Oregon Property
Notes to Estimated Taxable Operating Results and Cash Available from
Operations of the Oregon Property
Pro Forma Balance Sheet as of June 30, 1998
Pro Forma Statements of Income for the Year Ended December 31, 1997 and
the Six Months Ended June 30, 1998
Notes to Pro Forma Financial Statements
(c) Exhibits:
None.
<PAGE> 3
NET 2 L. P.
Estimated Taxable Operating Results and
Cash Available from Operations
of the Oregon Property
(Unaudited and in thousands)
The following statement represents estimates of taxable operating results and
cash available from operations of the Oregon Property, based upon rents to be
received in the first year of the lease. These estimated results do not purport
to represent results of operations of the Oregon Property in the future and were
prepared on the basis described in the accompanying notes which should be read
in conjunction herewith. The General Partner is not aware of any material
supportable facts that would cause these estimates to be misleading.
<TABLE>
Estimated Taxable Operating Results:
<S> <C>
Cash rent under net lease $1,345
Less:
Interest expense 176
Depreciation 315
------
Estimated taxable operating results $ 854
======
Estimated Cash Available from Operations:
Estimated taxable operating results $ 854
Add:
Depreciation 315
------
Estimated cash available from operations $1,169
======
</TABLE>
<PAGE> 4
NET 2 L. P.
Notes to Estimated Operating Results and
Cash Available from Operations
of the Oregon Property
Basis of Presentation
Cash rent under the net lease represents the rental payments expected to
be received during the first year of the lease.
Interest expense represents tax deductible interest that is expected to
be incurred on the related short-term debt.
The purchase price was allocated to land (8%) and to buildings (92%),
based on appraisals. Depreciation is computed on a straight-line basis
over 40 years.
<PAGE> 5
NET 2 L. P.
Pro Forma Balance Sheet and Statements of Income
The accompanying Pro Forma Balance Sheet of NET 2 L. P. as of June 30, 1998,
gives effect to the three 1998 property purchases and the sole 1998 property
sale (the "Properties"), as if such occurred on June 30, 1998.
The accompanying Pro Forma Statements of Income for the year ended December 31,
1997 and six months ended June 30, 1998, give effect to all 1998 and 1997 sale
and acquisitions, as if such occurred as of January 1, 1997.
The Pro Forma Balance Sheet and Statements of Income were prepared by the
management of the Partnership. These pro forma statements may not be indicative
of the results that would have actually occurred if such had been in effect on
the dates indicated. Also, they may not be indicative of the results that may be
achieved in the future. The Pro Forma Balance Sheet and Statements of Income
should be read in conjunction with the Partnership's audited financial
statements as of December 31, 1997 and for the year then ended (which are
contained in the Partnership's Form 10-K for the year ended December 31, 1997),
and the unaudited financial statements as of June 30, 1998, and for the six
months then ended (which are contained in the Partnership's Form 10-Q for the
period ended June 30, 1998) and the accompanying notes thereto.
<PAGE> 6
NET 2 L. P.
PRO FORMA BALANCE SHEET
June 30, 1998
(Unaudited and in thousands)
<TABLE>
<CAPTION>
Pro Forma
ASSETS Historical Adjustments Pro Forma
------ ---------- ----------- ---------
<S> <C> <C> <C>
Real estate, net $ 49,158 $ 16,525 $ 65,683
Cash and cash equivalents 2,504 (1,862) 642
Deferred expenses (net of accumulated amortization
of $548 and $480 in 1998 and 1997, respectively) 309 -- 309
Rent receivable 2,069 -- 2,069
Other assets 252 -- 252
-------- -------- --------
Total assets $ 54,292 $ 14,663 $ 68,955
======== ======== ========
LIABILITIES AND PARTNERS' CAPITAL
---------------------------------
Mortgage and notes payable $ 21,149 $ 9,863 $ 31,012
Accrued interest payable 121 -- 121
Accounts payable and other liabilities 361 -- 361
-------- -------- --------
21,631 9,863 31,494
-------- -------- --------
Partners' capital (deficit):
General Partner (360) 96 (264)
Limited Partners ($100 per Unit, 500,000 Units
authorized, 477,167 Units issued
and outstanding) 33,021 4,704 37,725
-------- -------- --------
32,661 4,800 37,461
-------- -------- --------
Total liabilities and partners' capital $ 54,292 $ 14,663 $ 68,955
======== ======== ========
</TABLE>
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NET 2 L. P.
NOTES TO PRO FORMA BALANCE SHEET
(Unaudited)
1. Pro Forma Adjustments
The adjustment to real estate, net reflects the sale and purchase price
of the Properties.
The adjustment to cash and cash equivalents reflects the net cash
outflow resulting from property acquisitions and sale.
The adjustment to mortgage and notes payable reflects the financing of
the acquisitions.
The adjustment to partners' capital reflects the accounting gain
attributable to the sale of one property.
<PAGE> 8
NET 2 L. P.
PRO FORMA STATEMENT OF INCOME
Six months ended June 30, 1998
(Unaudited and in thousands, except per Unit amounts)
<TABLE>
<CAPTION>
Pro Forma
Historical Adjustments Pro Forma
---------- ----------- ---------
Revenue:
<S> <C> <C> <C>
Rental $1,673 $ 589 $2,262
Interest and other 36 -- 36
------ ------ ------
1,709 589 2,298
------ ------ ------
Expenses:
Interest expense 476 370 846
Depreciation 282 143 425
Amortization of deferred expenses 34 -- 34
General and administrative 169 -- 169
------ ------ ------
961 513 1,474
------ ------ ------
Net Income $ 748 $ 76 $ 824
====== ====== ======
Net income per Unit
of limited partnership interest $ 1.54 $ 1.69
====== ======
</TABLE>
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NET 2 L. P.
PRO FORMA STATEMENT OF INCOME
Year ended December 31, 1997
(Unaudited and in thousands, except per Unit amounts)
<TABLE>
<CAPTION>
Pro Forma
Historical Adjustments Pro Forma
---------- ----------- ---------
Revenue:
<S> <C> <C> <C>
Rental $5,934 $1,545 $7,479
Interest and other 149 -- 149
------ ------ ------
6,083 1,545 7,628
------ ------ ------
Expenses:
Interest expense 1,875 914 2,789
Depreciation 1,074 353 1,427
Amortization of deferred expenses 136 -- 136
General and administrative 634 -- 634
------ ------ ------
3,719 1,267 4,986
------ ------ ------
Net Income $2,364 $ 278 $2,642
====== ====== ======
Net income per Unit of
limited partnership interest (*) $4.20 to $5.30 $4.70 to $5.93
============== ==============
</TABLE>
(*) Amounts allocated to unit holders vary depending on the dates they became
unit holders.
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NET 2 L. P.
NOTES TO PRO FORMA STATEMENTS OF INCOME
(Unaudited)
1. Pro Forma Adjustments
The adjustment to rental revenues relates to the net straight-lining of
rent under the remaining lease term.
The adjustment to interest expense relates to the financing of the
acquisitions.
The adjustment to depreciation was based on an estimated useful life of
40 years, using the straight-line method.
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SIGNATURE
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 2 L. P.
By: Lepercq Net 2 L. P.
its general partner
By: Lepercq Net 2 Inc.
its general partner
Date: By: /s/ E. Robert Roskind
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E. Robert Roskind
President
