10-Q 1 e10-q.txt NET 1 L.P. 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, 2000 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. 2 PART 1. - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS NET 1 L.P. AND CONSOLIDATED PARTNERSHIPS CONSOLIDATED BALANCE SHEETS (Dollars in thousands, except per Unit amounts) June 30, 2000 (Unaudited) and December 31, 1999

See accompanying notes to unaudited consolidated financial statements. 3 NET 1 L.P. AND CONSOLIDATED PARTNERSHIPS CONSOLIDATED STATEMENTS OF INCOME (Dollars in thousands, except per Unit amounts) Three and Six Months Ended June 30, 2000 and 1999 (Unaudited)

See accompanying notes to unaudited consolidated financial statements. 4 NET 1 L.P. AND CONSOLIDATED PARTNERSHIPS CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in thousands) Six Months Ended June 30, 2000 and 1999 (Unaudited)

Supplemental disclosure of non-cash investing and financing activities: In 2000, in connection with the acquisition of a property in Henderson, North Carolina, the Partnership assumed approximately $4.68 million of first mortgage financing and issued a promissory note of approximately $3.07 million. See accompanying notes to unaudited consolidated financial statements. 5 NET 1 L.P. AND CONSOLIDATED PARTNERSHIPS NOTES TO CONSOLIDATED FINANCIAL STATEMENTS June 30, 2000 (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 June 30, 2000, the Partnership had owned interests in nine properties. As of June 30, 2000, 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 condition and 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, 1999. 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. 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, 2000 totaled $15.469 million ($499.47 to $505.32 per Unit, per close). On July 31, 2000, 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 in July 2000. 6 NET 1 L.P. AND CONSOLIDATED PARTNERSHIPS NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 4. Properties ---------- During the six months ended June 30, 2000, the Partnership entered into the following real estate transaction:

The following unaudited pro forma operating information for the six months ended June 30, 2000 and 1999, were prepared as if the 2000 and 1999 acquisitions and dispositions were consummated as of January 1, 1999. This 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:

5. Mortgages and Notes Payable --------------------------- On May 31, 2000, in connection with the acquisition of a property located in Henderson, North Carolina, the Partnership assumed approximately $4.68 million of first mortgage financing. The note bears interest at 7.39% per annum and matures on May 1, 2009. The note requires annual debt service payments of principal and interest of approximately $417,000 with a balloon payment of approximately $3.85 million at maturity. The Partnership issued a demand note of approximately $3.07 million to Lexington Corporate Properties Trust, whose chairman and Co-Chief Executive Officer is an officer and a shareholder of the General Partner. The note bears interest at 10% per annum with interest only payments and was fully paid in July 2000. 7 NET 1 L.P. AND CONSOLIDATED PARTNERSHIPS NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 6. Related Party Transactions -------------------------- Leased Properties Management, Inc., an affiliate of the General Partner, is entitled to receive a fee for managing the Partnership's properties in the amount of 1% of gross annual rental receipts (or a greater amount in certain circumstances). For the six months ended June 30, 2000 and 1999, property management fees of $24,000 and $18,000 were incurred. Lexington Corporate Properties Trust ("Lexington"), whose chairman and Co-Chief Executive Officer is an officer and a shareholder of the General Partner, is reimbursed by the Partnership for various administrative services performed. For the six months ended June 30, 2000 and 1999 such reimbursements totaled $77,000 and $85,000, respectively. On May 31, 2000, the Partnership purchased from Lexington a property located in Henderson, North Carolina for approximately $7.9 million net leased to Corporate Express Office Products, Inc. 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 June 30, 2000 totaled $15.469 million ($499.47 to $505.32 per Unit, per close), and was reduced by $384,958 ($12.51 per Unit) with the distribution paid in July 2000. On May 31, 2000, in connection with the acquisition of a property located in Henderson, North Carolina, the Partnership assumed approximately $4.68 million of first mortgage financing. The note bears interest at 7.39% per annum and matures on May 1, 2009. The note requires annual debt service payments of principal and interest of approximately $417,000 with a balloon payment of approximately $3.85 million at maturity. The Partnership issued a demand note of approximately $3.07 million. The note bears interest at 10% per annum with interest only payments and was fully paid in July 2000. The Henderson, North Carolina property was purchased from Lexington Corporate Properties Trust, whose chairman and Co-Chief Executive Officer is an officer and a shareholder of the General Partner. 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. As of June 30, 2000, the restricted cash represents remaining proceeds from the sale of properties under the Internal Revenue Code Section 1031, restricted for payment on the demand note. 9 Results of Operations (in thousands): -------------------------------------

The change in results of operations with respect to revenues, interest and depreciation for the three and six months ended June 30, 2000, are primarily attributable to the acquisition and operation of the real property investments acquired in September 1999 and May 2000. General and administrative expenses decreased in the three and six months ended June 30, 2000 due to property appraisals performed on all properties in the first quarter of 1999. 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. 10 PART II - OTHER INFORMATION ITEM 1. Legal Proceedings - not applicable. ITEM 2. Changes in Securities - not applicable. ITEM 3. Defaults under the Senior Securities - not applicable. ITEM 4. Submission of Matters to a Vote of Security Holders - not applicable. ITEM 5. Other Information - not applicable. ITEM 6. Exhibits and Reports on Form 8-K. (a) Exhibits. Exhibit No. Exhibit ----------- ------- 27 Financial Data Schedule (b) Reports on form 8-K filed during the second quarter ended June 30, 2000. None. 11 SIGNATURES ---------- Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. NET 1 L.P. By: Lepercq Net 1 L.P. its general partner By: Lepercq Net 1 Inc. its general partner Date: August 11, 2000 By: /s/ E. Robert Roskind ------------------------------ ---------------------------- E. Robert Roskind President

NET 1 L P 10-Q