<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the balance
sheet of Commercial Net Lease Realty, Inc. at June 30, 1995, and its statement
of income for the six months then ended and is qualified in its entirety by
reference to the Form 10-Q of Commercial Net Lease Realty, Inc. for the six
months ended June 30, 1995.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1995
<PERIOD-END> JUN-30-1995
<CASH> 2,155,995
<SECURITIES> 0
<RECEIVABLES> 508,040
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 2,992,676
<PP&E> 141,068,585
<DEPRECIATION> 4,548,446
<TOTAL-ASSETS> 194,426,260
<CURRENT-LIABILITIES> 834,044
<BONDS> 0
<COMMON> 116,637
0
0
<OTHER-SE> 135,975,579
<TOTAL-LIABILITY-AND-EQUITY> 194,426,260
<SALES> 0
<TOTAL-REVENUES> 9,161,262
<CGS> 0
<TOTAL-COSTS> 1,878,148
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,090,670
<INCOME-PRETAX> 6,192,444
<INCOME-TAX> 0
<INCOME-CONTINUING> 6,192,444
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,192,444
<EPS-PRIMARY> 0.53
<EPS-DILUTED> 0.53
</TABLE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1995
-----------------------------------
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
0-12989
----------------------
Commercial Net Lease Realty, Inc.
-------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Maryland 56-1431377
----------------------------- -------------------------------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organiza- Identification No.)
tion)
400 E. South Street, #500
Orlando, Florida 32801
----------------------------- -------------------------------
(Address of principal (Zip Code)
executive offices)
Registrant's telephone number
(including area code) (407) 422-1574
-------------------------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Sections 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 the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date.
11,663,672 shares of Common Stock, $.01 par value, outstanding as of August 1,
1995.
CONTENTS
--------
Part I Page
----
Item 1. Financial Statements:
Condensed Balance Sheets 1
Condensed Statements of Earnings 2
Condensed Statements of Stockholders'
Equity 3
Condensed Statements of Cash Flows 4-5
Notes to Condensed Financial Statements 6-10
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations 11-15
Part II
Other Information 16-18
<TABLE>
COMMERCIAL NET LEASE REALTY, INC.
CONDENSED BALANCE SHEETS
<CAPTION>
June 30, December 31,
ASSETS 1995 1994
------------ ------------
<S> <C> <C>
Land and buildings on operating
leases, net of accumulated
depreciation $136,520,139 $106,091,062
Net investment in direct financing
leases 52,003,479 42,551,848
Cash and cash equivalents 2,155,995 1,069,900
Receivables 508,040 389,238
Prepaid expenses 328,641 361,567
Loan costs, net of accumulated
amortization of $221,887 and
$83,058 646,393 441,690
Accrued rental income 1,502,016 960,832
Other assets 761,557 344,571
------------ ------------
$194,426,260 $152,210,708
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Notes payable $ 57,500,000 $ 14,800,000
Accrued interest payable 121,758 35,851
Accounts payable and accrued
expenses 222,918 298,763
Real estate taxes payable 82,927 33,649
Due to related parties 36,523 81,962
Rents paid in advance and tenant
deposits 369,918 295,781
------------ ------------
Total liabilities 58,334,044 15,546,006
------------ ------------
Commitments and contingencies
(Note 7)
Stockholders' equity:
Common stock, $.01 par value.
Authorized 30,000,000 shares;
issued and outstanding
11,663,672 shares 116,637 116,637
Capital in excess of par value 138,629,751 138,629,751
Accumulated dividends in excess
of net earnings (2,654,172) (2,081,686)
------------ ------------
Total stockholders' equity 136,092,216 136,664,702
------------ ------------
$194,426,260 $152,210,708
============ ============
<FN>
See accompanying notes to condensed financial statements.
</FN>
</TABLE>
<TABLE>
COMMERCIAL NET LEASE REALTY, INC.
CONDENSED STATEMENTS OF EARNINGS
<CAPTION>
Quarter Ended Six Months Ended
June 30, June 30,
1995 1994 1995 1994
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Revenues:
Rental income from
operating leases $3,248,021 $1,881,812 $6,257,674 $3,416,633
Earned income from
direct financing
leases 1,267,213 724,261 2,461,401 1,295,318
Contingent rental
income 202,752 224,181 379,964 422,055
Interest and other 27,830 17,360 62,223 129,971
---------- ---------- ---------- ----------
4,745,816 2,847,614 9,161,262 5,263,977
---------- ---------- ---------- ----------
Expenses:
General operating and
administrative 158,462 132,480 403,302 396,601
Advisory fees to
related party 239,737 169,998 478,916 308,261
Interest 675,025 97,958 1,090,670 98,001
Taxes 48,978 59,526 70,024 117,712
Depreciation and
amortization 490,023 352,639 925,906 596,578
---------- ---------- ---------- ----------
1,612,225 812,601 2,968,818 1,517,153
---------- ---------- ---------- ----------
Net earnings $3,133,591 $2,035,013 $6,192,444 $3,746,824
========== ========== ========== ==========
Earnings per share of
common stock $ 0.27 $ 0.27 $ 0.53 $ 0.49
========== ========== ========== ==========
Weighted average number
of shares outstanding 11,663,672 7,663,672 11,663,672 7,663,672
========== ========== ========== ==========
<FN>
See accompanying notes to condensed financial statements.
</FN>
</TABLE>
<TABLE>
COMMERCIAL NET LEASE REALTY, INC.
CONDENSED STATEMENTS OF STOCKHOLDERS' EQUITY
Six Months Ended June 30, 1995
and Year Ended December 31, 1994
<CAPTION>
Accumulated
dividends
Capital in in excess
Number Common excess of of net
of shares stock par value earnings Total
---------- -------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C>
Balance at
December 31,
1993 7,663,672 $ 76,637 $ 92,168,572 $(1,100,473) $ 91,144,736
Net earnings - - - 8,915,373 8,915,373
Dividends
declared
and paid
($1.14 per
share) - - - (9,896,586) (9,896,586)
Issuance of
common stock 4,000,000 40,000 49,960,000 - 50,000,000
Stock issuance
costs - - (3,498,821) - (3,498,821)
---------- -------- ------------ ----------- ------------
Balance at
December 31,
1994 11,663,672 116,637 138,629,751 (2,081,686) 136,664,702
Net earnings - - - 6,192,444 6,192,444
Dividends
declared
and paid
($0.58 per
share) - - - (6,764,930) (6,764,930)
---------- -------- ------------ ----------- ------------
Balance at
June 30,
1995 11,663,672 $116,637 $138,629,751 $(2,654,172) $136,092,216
========== ======== ============ =========== ============
<FN>
See accompanying notes to condensed financial statements.
</FN>
</TABLE>
<TABLE>
COMMERCIAL NET LEASE REALTY, INC.
CONDENSED STATEMENTS OF CASH FLOWS
<CAPTION>
Six Months Ended
June 30,
1995 1994
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 6,192,444 $ 3,746,824
Adjustments to reconcile net earnings
to net cash provided by operating
activities:
Depreciation 787,077 475,295
Amortization 138,829 121,283
Decrease in net investment in
direct financing leases 207,557 100,801
Increase in accrued rental income (541,184) (348,828)
Decrease (increase) in receivables (147,674) 80,371
Decrease (increase) in prepaid
expenses 32,926 (67,774)
Decrease in other assets 8,187 -
Increase in accrued interest payable 85,907 50,894
Increase (decrease) in accounts
payable and accrued expenses (95,048) 9,007
Increase (decrease) in real estate
taxes payable 49,278 (13,954)
Increase (decrease) in due to
related parties (35,084) 38,821
Increase (decrease) in rents paid
in advance and tenant deposits 74,137 (28,034)
------------ ------------
Net cash provided by operating
activities 6,757,352 4,164,706
------------ ------------
Cash flows from investing activities:
Additions to land and buildings on
operating leases (31,052,015) (16,059,138)
Investment in direct financing leases (9,629,688) (9,511,353)
Increase in other assets (566,005) (266,047)
Other 22,636 29,334
------------ ------------
Net cash used in investing
activities (41,225,072) (25,807,204)
------------ ------------
Cash flows from financing activities:
Proceeds from loan 42,700,000 7,600,000
Payment of loan costs (343,532) -
Payment of stock issuance costs (4,069) (48,169)
Payment of dividends (6,764,930) (4,291,656)
Other (33,654) -
------------ ------------
Net cash provided by financing
activities 35,553,815 3,260,175
------------ ------------
Net increase (decrease) in cash and cash
equivalents 1,086,095 (18,382,323)
Cash and cash equivalents at beginning
of period 1,069,900 19,847,120
------------ ------------
Cash and cash equivalents at end of
period $ 2,155,995 $ 1,464,797
============ ============
Supplemental disclosures of non-cash
investing and financing activities:
Land, building and direct financing
lease costs incurred and unpaid at
end of period $ 153,560 $ 424,706
============ ============
Loan costs incurred and unpaid at
end of period $ - $ 20,418
============ ============
Other financing activity costs incurred
and unpaid at end of period $ 24,586 $ -
============ ============
<FN>
See accompanying notes to condensed financial statements.
</FN>
</TABLE>
COMMERCIAL NET LEASE REALTY, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
Quarters and Six Months Ended June 30, 1995 and 1994
1. Basis of Presentation:
---------------------
The accompanying unaudited condensed financial statements have been
prepared in accordance with the instructions to Form 10-Q and do not
include all of the information and note disclosures required by generally
accepted accounting principles. The financial statements reflect all
adjustments, consisting of normal recurring adjustments, which are, in
the opinion of management, necessary to a fair statement of the results
for the interim periods presented. Operating results for the quarter
and six months ended June 30, 1995, may not be indicative of the results
that may be expected for the year ending December 31, 1995. Amounts as
of December 31, 1994, included in the financial statements, have been
derived from audited financial statements as of that date.
These unaudited financial statements should be read in conjunction with
the financial statements and notes thereto included in the Form 10-K of
Commercial Net Lease Realty, Inc. (the "Company") for the year ended
December 31, 1994.
Earnings per share are calculated based upon the weighted average number
of shares outstanding during each period. Stock options outstanding are
not included since their inclusion would not result in a material
dilution of earnings per share.
In March 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 121, Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of. The
Statement, which is effective for fiscal years beginning after December
15, 1995, provides that an entity review long-lived assets and certain
identifiable intangibles to be held and used for impairment whenever
events or changes in circumstances indicate that the carrying amount of
the asset may not be recoverable. The Company plans to adopt this
standard in 1996 and does not expect compliance with such standard to
have a material effect, if any, on the Company's financial position or
results of operations.
2. Leases:
------
The Company generally leases its land and buildings to operators of major
retail businesses. The leases are accounted for under the provisions of
Statement of Financial Accounting Standards No. 13, Accounting for
Leases. As of June 30, 1995, 86 of the leases have been classified as
operating leases and 56 leases have been classified as direct financing
leases. For the leases classified as direct financing leases, the
building portions of the leases are accounted for as direct financing
leases while the land portions of 34 of these leases are accounted for
as operating leases. Substantially all leases have initial terms of 15
to 20 years (expiring between 1997 and 2018) and provide for minimum
rentals. In addition, the majority of the leases provide for contingent
rentals and/or scheduled rent increases over the terms of the leases.
The tenant is also generally required to pay all property taxes and
assessments, substantially maintain the interior and exterior of the
building and carry insurance coverage for public liability, property
damage, fire and extended coverage. The lease options generally allow
tenants to renew the leases for two to four successive five-year periods
subject to substantially the same terms and conditions as the initial
lease.
3. Land and Buildings on Operating Leases:
--------------------------------------
Land and buildings on operating leases consisted of the following at:
June 30, December 31,
1995 1994
------------ ------------
Land $ 70,586,250 $ 52,476,960
Buildings and improve-
ments 70,482,335 57,375,471
------------ ------------
141,068,585 109,852,431
Accumulated deprecia-
tion (4,548,446) (3,761,369)
------------ ------------
$136,520,139 $106,091,062
============ ============
Some leases provide for escalating guaranteed minimum rent to begin in
subsequent lease years. Income from these scheduled rent increases is
recognized on a straight-line basis over the terms of the leases. For
the six months ended June 30, 1995 and 1994, the Company recognized
$541,184 and $348,828, respectively, of such income.
The following is a schedule of future minimum lease payments to be
received on noncancellable operating leases at June 30, 1995:
1995 $ 6,898,560
1996 13,882,580
1997 13,963,491
1998 13,983,807
1999 14,192,569
Thereafter 168,814,720
------------
$231,735,727
============
4. Net Investment in Direct Financing Leases:
-----------------------------------------
The following lists the components of net investment in direct financing
leases at:
June 30, December 31,
1995 1994
------------ ------------
Minimum lease payments
to be received $116,978,986 $ 96,231,285
Estimated residual
values 16,055,858 12,721,338
Less unearned income (81,031,365) (66,400,775)
------------ ------------
Net investment in
direct financing
leases $ 52,003,479 $ 42,551,848
============ ============
The following is a schedule of future minimum lease payments to be
received on direct financing leases at June 30, 1995:
1995 $ 3,034,547
1996 6,069,099
1997 6,069,099
1998 6,072,549
1999 6,119,101
Thereafter 89,614,591
------------
$116,978,986
============
5. Notes Payable:
-------------
On April 13, 1995, the Company entered into an amended and restated
revolving line of credit loan agreement (the "Credit Facility") which
expanded the lending syndicate for the Company's credit facility. The
Credit Facility provides the Company with $100,000,000 of borrowing
capacity under substantially the same terms and conditions as the
original loan agreement. As of June 30, 1995, the outstanding principal
balance was $57,500,000, plus accrued interest of $121,758.
6. Related Party Transactions:
--------------------------
During the six months ended June 30, 1995, the Company acquired five
properties for purchase prices totalling $10,828,581 from an affiliate of
CNL Realty Advisors, Inc. who had developed the properties. The purchase
prices paid by the Company for these five properties equalled the
affiliate's cost including development costs. The affiliate's cost
consisted of the land purchase prices, construction costs, various soft
costs including legal costs, survey fees and architect fees, and
developers fees aggregating $719,546 paid to an affiliate of CNL Realty
Advisors, Inc.
7. Commitments and Contingencies:
-----------------------------
As of June 30, 1995, the Company had entered into agreements to
purchase 12 additional properties for an estimated aggregate amount of
$19,285,752. In addition, the Company was contingently liable for
$2,322,625 related to 11 separate bank letters of credit which guarantee
the Company's obligation under purchase agreements to acquire these
properties from an affiliate of CNL Realty Advisors, Inc. upon completion
of the development of the properties.
As of June 30, 1995, the Company owned five land parcels which are leased
to tenants who are obligated to develop buildings on the respective land
parcels. Pursuant to each lease, the Company has agreed to purchase the
buildings upon completion and occupancy. The Company has agreed to pay
an aggregate amount of up to $12,351,333 upon completion of the
buildings.
8. Subsequent Events:
-----------------
In July 1995, the Company entered into agreements to purchase two
properties for an estimated aggregate amount of $11,825,000. In
connection therewith, the Company also entered into two separate bank
letters of credit for an aggregate amount of $874,000, which guarantee
the Company's obligation under purchase agreements to acquire these
properties from an unrelated third party upon completion of the
development of the properties.
On July 14, 1995, the Company declared dividends of $3,382,465 or $0.29
per share of common stock, payable on August 15, 1995, to stockholders of
record on July 31, 1995.
In July 1995, the Company filed a shelf registration statement with the
Securities and Exchange Commission that will permit the issuance of a
combination of debt and equity securities of up to $200,000,000. The
registration statement has not yet been declared effective by the
Securities and Exchange Commission.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Introduction
------------
Commercial Net Lease Realty, Inc. (the "Company") is an equity real
estate investment trust that acquires, owns and manages high-quality,
freestanding properties leased to major retail businesses under long-term
commercial net leases. As of June 30, 1995, the Company owned 142 properties
(the "Properties") each of which are leased to major retail businesses.
Liquidity and Capital Resources
-------------------------------
General. Historically, the Company's only demand for funds has been for
the payment of operating expenses and dividends, for property acquisitions and
for the payment of interest on its outstanding indebtedness. Generally, cash
needs for items other than property acquisitions have been met from operations
and property acquisitions have been funded by equity offerings, bank borrowings
and, to a lesser extent, from internally generated funds. Potential future
sources of capital include proceeds from the public or private offering of the
Company's debt or equity securities, borrowings under the Company's Credit
Facility or other secured or unsecured borrowings from banks or other lenders,
or the sale of Properties, as well as undistributed funds from operations. For
the six months ended June 30, 1995 and 1994, the Company generated $6,757,352
and $4,164,706, respectively, in net cash provided by operating activities.
The increase in cash from operations for the six months ended June 30, 1995, as
compared to the six months ended June 30, 1994, is primarily a result of
changes in revenues and expenses as discussed in "Results of Operations."
The Company's leases typically provide that the tenant bears
responsibility for substantially all property costs and expenses associated
with ongoing maintenance and operation, including utilities, property taxes and
insurance. In addition, the Company's leases generally provide that the tenant
is responsible for roof and structural repairs. Certain of the Company's
Properties are subject to leases under which the Company retains responsibility
for certain costs and expenses associated with the Property. Because many of
the Properties which are subject to leases that place these responsibilities on
the Company are recently constructed, management anticipates that capital
demands to meet obligations with respect to these Properties will be minimal
for the foreseeable future and can be met with funds from operations and
working capital. The Company may be required to use bank borrowings or other
sources of capital in the event of unforeseen significant capital expenditures.
Indebtedness. In April 1995, the Company entered into an amended and
restated loan agreement (the "Credit Facility") which expanded the lending
syndicate for the Company's credit facility. The Credit Facility allows the
Company to borrow up to $100,000,000 at an interest rate equal to 170 basis
points above LIBOR or the lender's prime rate, whichever the Company selects.
The principal balance is due in full upon termination of the Credit Facility
on June 30, 1997, and interest is payable quarterly. As of June 30, 1995,
$57,500,000 was outstanding under the Credit Facility.
The Credit Facility primarily will be used to invest in freestanding
retail properties, although up to $10,000,000 of the available credit may be
used for the issuance of standby letters of credit or working capital.
Payments of principal on advances outstanding under the Credit Facility are
expected to be met from the proceeds of renewing or refinancing the Credit
Facility, proceeds from the public or private offering of the Company's debt or
equity securities or proceeds from the sale of one or more of its Properties.
As a means to reduce its exposure to rising interest rates on the
Company's variable rate Credit Facility, the Company has entered into an
interest rate cap agreement which provides for a LIBOR rate of 7.25% per annum
on a notional amount of $25,000,000. This agreement is effective through June
1996.
Equity and Debt Securities. In July 1995, the Company filed a shelf
registration statement with the Securities and Exchange Commission that will
permit the issuance of debt and equity securities of up to $200,000,000. The
registration statement has not yet been declared effective by the Securities
and Exchange Commission. Any securities issued under the registration
statement may be offered from time to time in amounts, at prices, and on terms
to be determined at the time of the offering. Proceeds from any offering of
these securities would be used for general corporate purposes, which may
include the repayment of certain indebtedness or the acquisition, expansion or
improvement of properties.
Property Acquisitions and Commitments. During the six months ended June
30, 1995, the Company borrowed $41,300,000 of amounts it has available under
its Credit Facility to acquire 14 Properties and three buildings which were
developed by the tenant on land parcels owned by the Company. The 14
Properties included four Barnes & Nobles bookstores, three Eckerd drugstores,
two Academy sporting good stores, two Scotty's home improvement stores, one
Levitz furniture store, one Borders bookstore and one OfficeMax office supply
store. The three buildings included two Barnes & Nobles bookstores and one
CompUSA computer store. In addition, the Company borrowed $1,400,000 to fund
the acquisition of two Properties acquired during December 1994.
As of June 30, 1995, the Company had entered into agreements to purchase
12 additional properties for an estimated aggregate amount of $19,285,752. In
addition, the Company is contingently liable for $2,322,625 related to 11
separate bank letters of credit which guarantee the Company's obligation under
purchase agreements to acquire these properties from an affiliate upon
completion of the development of the properties. The purchase of these
properties is subject to conditions relating to completion of development
activities, review of title and obtaining title insurance, engineering and
environmental inspections and other matters.
In addition, as of June 30, 1995, the Company owned five land parcels
which are leased to tenants who are obligated to develop buildings on the
respective land parcels. Pursuant to each lease, the Company has agreed to
purchase the buildings upon completion and occupancy for an aggregate amount of
up to $12,351,333.
In July 1995, the Company also entered into agreements to purchase two
properties for an estimated aggregate amount of $11,825,000. In connection
therewith, the Company also entered into two separate bank letters of credit
for an aggregate amount of $874,000, which guarantee the Company's obligation
under purchase agreements to acquire these properties from an unrelated third
party upon completion of the development of the properties.
In addition to the 14 properties under contract and the five buildings
under construction as of July 31, 1995, the Company is currently negotiating
the acquisition of prospective properties. The Company may elect to acquire
these prospective properties or other additional properties (or interests
therein) in the future. Such property acquisitions, if any, are expected to be
the primary demand for additional capital during the next two years. The
Company anticipates that it may engage in equity or debt financing, through
either public or private offerings of its securities for cash, issuance of such
securities in exchange for assets, or a combination of the foregoing. Subject
to the constraints imposed by the Credit Facility, the Company may enter into
additional financing arrangements.
Management believes that the Company's current capital resources
(including cash on hand), coupled with the Company's borrowing capacity, are
sufficient to meet its liquidity needs for the foreseeable future.
Dividends. One of the Company's primary objectives, consistent with its
policy of retaining sufficient cash for reserves and working capital purposes,
is to distribute a substantial portion of its funds available from operations
to its stockholders in the form of dividends. For the six months ended June
30, 1995 and 1994, the Company declared and paid dividends to its stockholders
of $6,764,930 and $4,291,656, respectively, or $.58 and $.56 per share of
common stock, respectively. In July 1995, the Company declared dividends to
its stockholders of $3,382,465 or $.29 per share of common stock, payable in
August 1995.
Results of Operations
---------------------
During the six months ended June 30, 1995 and 1994, the Company owned and
leased 142 and 98 Properties, respectively, to operators of major retail
businesses. In connection therewith, during the six months ended June 30, 1995
and 1994, the Company earned $8,719,075 and $4,711,951, respectively, in rental
income from operating leases and earned income from direct financing leases,
$4,515,234 and $2,606,073 of which was earned during the quarters ended June
30, 1995 and 1994, respectively. The increase in rental and earned income
during the quarter and six months ended June 30, 1995, is primarily
attributable to the income earned on the Properties acquired during 1994 and
the 14 Properties acquired and three buildings upon which construction was
completed during the six months ended June 30, 1995. Rental and earned income
are expected to increase as the Company acquires additional properties and due
to the fact that the 13 Properties and one building acquired during the quarter
ended June 30, 1995 will contribute to the Company's income for a full fiscal
quarter in future quarters.
For the six months ended June 30, 1995 and 1994, the Company also earned
$379,964 and $422,055, respectively, in contingent rental income, $202,752 and
$224,181 of which was earned during the quarters ended June 30, 1995 and 1994,
respectively. Contingent rental income decreased primarily due to a decrease
in the aggregate net sales of restaurants currently paying contingent rent
during the quarter and six months ended June 30, 1995, as compared to the
quarter and six months ended June 30, 1994.
During the six months ended June 30, 1995, two of the Company's lessees
(or group of affiliated lessees), (i) Golden Corral Corporation and (ii)
Denny's, Inc. and Flagstar Enterprises, Inc. (which are affiliated entities
under common control) (hereinafter referred to as Flagstar), each accounted for
more than ten percent of the Company's total rental income. As of June 30,
1995, Golden Corral was the lessee under leases relating to 27 Properties and
Flagstar was the lessee under leases relating to 24 Properties. It is
anticipated that, based on the minimum rental payments required by the leases
and estimated contingent rental income, Flagstar will continue to account for
more than ten percent of the Company's total rental income during the remainder
of 1995. Any failure of these lessees could materially affect the Company's
income.
The Company incurred $1,090,670 and $98,001 in interest expense for the
six months ended June 30, 1995 and 1994, respectively, $675,025 and $97,958 of
which was incurred for the quarters ended June 30, 1995 and 1994, respectively.
Interest expense increased during the quarter and six months ended June 30,
1995, as compared to the quarter and six months ended June 30, 1994, as the
result of higher average borrowing levels during such periods. As a means to
reduce its exposure to variable rate debt, the Company has entered into an
interest rate cap agreement as described above in "Liquidity and Capital
Resources."
During the six months ended June 30, 1995 and 1994, other operating
expenses, including depreciation and amortization expense, were $1,878,148 and
$1,419,152, respectively (20.5% and 27.0%, respectively, of gross operating
revenues), of which $937,200 and $714,643 (19.7% and 25.1%, respectively, of
gross operating revenues) were incurred for the quarters ended June 30, 1995
and 1994, respectively. The increase in the dollar amount of other operating
expenses for the six months ended June 30, 1995, as compared to the six months
ended June 30, 1994, is primarily attributable to the increase in depreciation
as a result of the depreciation of the additional Properties acquired during
1994 and the six months ended June 30, 1995. The increase is also attributable
to increased advisory fees as a result of increased funds from operations for
the six months ended June 30, 1995. In addition, the increase is also
attributable to the commitment fees incurred on the unused portion of the
Company's Credit Facility. However, the increase was partially offset by a
decrease in state tax expense during the six months ended June 30, 1995, as a
result of a state income tax credit received during the first quarter 1995. In
addition, the increase was partially offset by a decrease in legal fees during
the six months ended June 30, 1995, as compared to the six months ended June
30, 1994, as a result of the legal fees and expenses incurred during the six
months ended June 30, 1994, in connection with the Company's reorganization in
the State of Maryland.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
-----------------
No material developments in legal proceedings as previously
reported on Form 10-Q for the quarter ended March 31, 1995.
Item 2. Changes in Securities. Not applicable.
---------------------
Item 3. Defaults Upon Senior Securities. Not applicable.
-------------------------------
Item 4. Submission of Matters to a Vote of Security Holders.
---------------------------------------------------
On April 21, 1995, the Company held its Annual Meeting of
Shareholders (the "Annual Meeting"). At the Annual Meeting, the
following nominees were elected to the Board of Directors of the
Company: Messrs. Robert A. Bourne (9,814,569 voted for and 57,919
abstained), Edward Clark (9,810,769 voted for and 61,719
abstained), Willoughby T. Cox, Jr. (9,809,069 voted for and 63,419
abstained), Clifford R. Hinkle (9,813,069 voted for and 59,419
abstained), Ted B. Lanier (9,812,569 voted for and 59,919
abstained) and James M. Seneff, Jr. (9,813,469 voted for and 59,019
abstained).
Item 5. Other Information. Not applicable.
-----------------
Item 6. Exhibits and Reports on Form 8-K.
--------------------------------
(a) The following exhibits are filed as a part of this report.
3.1 Articles of Incorporation of the Registrant (filed as
Exhibit 3.3(i) to the Registrant's Registration
Statement No. 1-11290 on Form 8-B, and incorporated
herein by reference).
3.2 Bylaws of the Registrant (filed as Exhibit 3.3(ii) to
Amendment No. 2 to the Registrant's Registration
Statement No. 1-11290 on Form 8-B, and incorporated
herein by reference).
4 Specimen Certificate of Common Stock, par value $.01
per share, of the Registrant (filed as Exhibit 3.4 to
the Registrant's Registration Statement No. 1-11290 on
Form 8-B, and incorporated herein by reference).
10.1 Stock Purchase Agreement dated as of January 23, 1992
by and among the Registrant, CNL Group, Inc. and
certain entities affiliated therewith (filed as Exhibit
10.4 to the Registrant's Annual Report on Form 10-K for
the year ended December 31, 1991, and incorporated
herein by reference).
10.2 Letter Agreement dated July 10, 1992, amending Stock
Purchase Agreement dated January 23, 1992 (filed as
Exhibit 10.34 to the Registrant's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1992, and
incorporated herein by reference).
10.3 Advisory Agreement between Registrant and CNL Realty
Advisors, Inc. effective as of April 1, 1993 (filed as
Exhibit 10.04 to Amendment No. 1 to the Registrant's
Registration Statement No. 33-61214 on Form S-2, and
incorporated herein by reference).
10.4 Revolving Line of Credit and Security Agreement, dated
July 25, 1994, among Registrant, certain lenders listed
therein and First Union National Bank of Florida, as
the Agent, relating to a $100,000,000 loan (filed as
Exhibit 10.11 to the Registrant's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1994, and no
longer incorporated by reference).
10.5 1992 Commercial Net Lease Realty, Inc. Stock Option
Plan (filed as Exhibit No. 10(x) to the Registrant's
Registration Statement No. 33-83110 on Form S-3, and
incorporated herein by reference).
10.6 Interest Rate Cap Agreement dated February 28, 1994, by
and between the Registrant and First Union National
Bank of North Carolina (filed as Exhibit No. 10(xi) to
the Registrant's Registration Statement No. 33-83110 on
Form S-3, and no longer incorporated by reference).
10.7 Interest Rate Cap Agreement dated December 23, 1994, by
and between the Registrant and First Union National
Bank of Florida (filed as Exhibit 10.12 to the
Registrant's Annual Report on Form 10-K for the year
ended December 31, 1994, and incorporated herein by
reference).
10.8 Amended and Restated Line of Credit and Security
Agreement, dated April 13, 1995, among Registrant,
certain lenders listed therein and First Union National
Bank of Florida, as the Agent, relating to a
$100,000,000 loan (filed as Exhibit 10.13 to the
Registrant's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1995, and incorporated herein
by reference).
(b) No reports on Form 8-K were filed during the quarter ended
June 30, 1995.
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.
DATED this 4th day of August, 1995.
COMMERCIAL NET LEASE REALTY, INC.
By: /s/ Robert A. Bourne
--------------------
Robert A. Bourne
President
By: /s/ Kevin B. Habicht
--------------------
Kevin B. Habicht
Chief Financial Officer
