<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the balance
sheet of Commercial Net Lease Realty, Inc. at September 30, 1995, and its
statement of income for the nine months then ended and is qualified in its
entirety by reference to the Form 10-Q of Commercial Net Lease Realty, Inc. for
the nine months ended September 30, 1995.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1995
<PERIOD-END> SEP-30-1995
<CASH> 162,672
<SECURITIES> 0
<RECEIVABLES> 499,444
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 953,347
<PP&E> 157,175,858
<DEPRECIATION> 5,002,539
<TOTAL-ASSETS> 209,717,122
<CURRENT-LIABILITIES> 4,264,065
<BONDS> 0
<COMMON> 116,637
0
0
<OTHER-SE> 132,436,420
<TOTAL-LIABILITY-AND-EQUITY> 209,717,122
<SALES> 0
<TOTAL-REVENUES> 14,695,305
<CGS> 0
<TOTAL-COSTS> 2,941,619
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,335,471
<INCOME-PRETAX> 9,418,215
<INCOME-TAX> 0
<INCOME-CONTINUING> 9,418,215
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,418,215
<EPS-PRIMARY> 0.81
<EPS-DILUTED> 0.81
</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 September 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 November 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 16-17
<TABLE>
COMMERCIAL NET LEASE REALTY, INC.
CONDENSED BALANCE SHEETS
<CAPTION>
September 30, December 31,
ASSETS 1995 1994
------------- ------------
<S> <C> <C>
Land and buildings on operating
leases, net of accumulated
depreciation $152,173,319 $106,091,062
Net investment in direct financing
leases 52,512,390 42,551,848
Cash and cash equivalents 162,672 1,069,900
Receivables 499,444 389,238
Prepaid expenses 291,231 361,567
Loan costs, net of accumulated
amortization of $304,520 and
$83,058 586,612 441,690
Accrued rental income 1,823,296 960,832
Other assets 1,668,158 344,571
------------ ------------
$209,717,122 $152,210,708
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Notes payable $ 72,900,000 $ 14,800,000
Accrued interest payable 138,041 35,851
Accounts payable and accrued
expenses 400,473 298,763
Dividends payable 3,382,465 -
Real estate taxes payable 79,767 33,649
Due to related parties 142,417 81,962
Rents paid in advance and tenant
deposits 120,902 295,781
------------ ------------
Total liabilities 77,164,065 15,546,006
------------ ------------
Commitments and contingencies
(Note 8)
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 (6,193,331) (2,081,686)
------------ ------------
Total stockholders' equity 132,553,057 136,664,702
------------ ------------
$209,717,122 $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 Nine Months Ended
September 30, September 30,
1995 1994 1995 1994
---------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues:
Rental income from
operating leases $3,905,354 $2,095,528 $10,163,028 $ 5,512,161
Earned income from
direct financing
leases 1,393,344 833,409 3,854,745 2,128,727
Contingent rental
income 199,091 216,422 579,055 638,477
Interest and other 36,254 21,924 98,477 151,389
---------- ---------- ----------- -----------
5,534,043 3,167,283 14,695,305 8,430,754
---------- ---------- ----------- -----------
Expenses:
General operating
and administrative 147,473 76,249 550,775 472,344
Advisory fees to
related party 261,153 181,579 740,069 489,840
Interest 1,244,801 314,245 2,335,471 412,246
Taxes 118,119 49,520 188,143 167,232
Depreciation and
amortization 536,726 344,350 1,462,632 940,928
---------- ---------- ----------- -----------
2,308,272 965,943 5,277,090 2,482,590
---------- ---------- ----------- -----------
Net earnings $3,225,771 $2,201,340 $ 9,418,215 $ 5,948,164
========== ========== =========== ===========
Earnings per share
of common stock $ 0.28 $ 0.29 $ 0.81 $ 0.78
========== ========== =========== ===========
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
Nine Months Ended September 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 - - - 9,418,215 9,418,215
Dividends
declared
($1.16 per
share) - - - (13,529,860) (13,529,860)
---------- -------- ------------ ------------ ------------
Balance at
September 30,
1995 11,663,672 $116,637 $138,629,751 $ (6,193,331) $132,553,057
========== ======== ============ ============ ============
<FN>
See accompanying notes to condensed financial statements.
</FN>
</TABLE>
<TABLE>
COMMERCIAL NET LEASE REALTY, INC.
CONDENSED STATEMENTS OF CASH FLOWS
<CAPTION>
Nine Months Ended
September 30,
1995 1994
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 9,418,215 $ 5,948,164
Adjustments to reconcile net earnings
to net cash provided by operating
activities:
Depreciation 1,241,170 751,952
Amortization 221,462 188,976
Decrease in net investment in
direct financing leases 332,223 175,160
Increase in accrued rental income (862,464) (547,686)
Decrease (increase) in receivables (70,079) 88,357
Decrease (increase) in prepaid
expenses 70,336 (78,443)
Decrease (increase) in other assets 8,187 (2,928)
Increase in accrued interest payable 102,190 109,901
Increase (decrease) in accounts
payable and accrued expenses (72,927) 37,411
Increase in real estate taxes payable 46,118 22,909
Increase in due to related parties 50,505 57,698
Increase (decrease) in rents paid
in advance and tenant deposits (174,879) 83,193
------------ ------------
Net cash provided by operating
activities 10,310,057 6,834,664
------------ ------------
Cash flows from investing activities:
Additions to land and buildings on
operating leases (46,972,876) (34,175,674)
Investment in direct financing leases (10,263,265) (15,033,921)
Increase in other assets (1,347,358) (574,259)
Other (40,127) (100,408)
------------ ------------
Net cash used in investing
activities (58,623,626) (49,884,262)
------------ ------------
Cash flows from financing activities:
Proceeds from loan 58,100,000 32,105,000
Repayment of loan - (600,000)
Payment of loan costs (366,384) (462,467)
Payment of stock issuance costs (4,069) (3,320)
Payment of deferred offering costs - (352,375)
Payment of dividends (10,147,395) (6,514,121)
Other (175,811) -
------------ ------------
Net cash provided by financing
activities 47,406,341 24,172,717
------------ ------------
Net decrease in cash and cash equivalents (907,228) (18,876,881)
Cash and cash equivalents at beginning
of period 1,069,900 19,847,120
------------ ------------
Cash and cash equivalents at end of
period $ 162,672 $ 970,239
============ ============
Supplemental disclosures of non-cash
investing and financing activities:
Land, building and direct financing
lease costs incurred and unpaid at
end of period $ 332,864 $ 786,039
============ ============
Loan costs incurred and unpaid at
end of period $ - $ 110,283
============ ============
Deferred offering costs incurred
and unpaid at end of period $ - $ 291,694
============ ============
Dividends declared and unpaid at
end of period $ 3,382,465 $ -
============ ============
Other financing activity costs incurred
and unpaid at end of period $ 21,022 $ -
============ ============
<FN>
See accompanying notes to condensed financial statements.
</FN>
</TABLE>
COMMERCIAL NET LEASE REALTY, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
Quarters and Nine Months Ended September 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 nine
months ended September 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 September 30, 1995, 97 of the leases have been classified as
operating leases and 57 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:
September 30, December 31,
1995 1994
------------- ------------
Land $ 79,988,204 $ 52,476,960
Buildings and improve-
ments 77,187,654 57,375,471
------------ ------------
157,175,858 109,852,431
Accumulated deprecia-
tion (5,002,539) (3,761,369)
------------ ------------
$152,173,319 $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
nine months ended September 30, 1995 and 1994, the Company recognized
$862,464 and $547,686, respectively, of such income.
The following is a schedule of future minimum lease payments to be
received on noncancellable operating leases at September 30, 1995:
1995 $ 3,870,540
1996 15,660,915
1997 15,741,827
1998 15,762,144
1999 15,970,907
Thereafter 194,258,474
------------
$261,264,807
============
4. Net Investment in Direct Financing Leases:
-----------------------------------------
The following lists the components of net investment in direct financing
leases at:
September 30, December 31,
1995 1994
------------- ------------
Minimum lease payments
to be received $116,569,311 $ 96,231,285
Estimated residual
values 16,242,383 12,721,338
Less unearned income (80,299,304) (66,400,775)
------------ ------------
Net investment in
direct financing
leases $ 52,512,390 $ 42,551,848
============ ============
The following is a schedule of future minimum lease payments to be
received on direct financing leases at September 30, 1995:
1995 $ 1,534,003
1996 6,136,023
1997 6,136,023
1998 6,139,473
1999 6,186,025
Thereafter 90,437,764
------------
$116,569,311
============
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 September 30, 1995, the outstanding principal
balance was $72,900,000, plus accrued interest of $138,041.
6. Debt and Equity Securities:
--------------------------
On July 20, 1995, the Company filed a shelf registration statement on Form
S-3 with the Securities and Exchange Commission that permits the issuance
of a combination of debt and equity securities of up to $200,000,000.
7. Related Party Transactions:
--------------------------
During the nine months ended September 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.
8. Commitments and Contingencies:
-----------------------------
As of September 30, 1995, the Company had entered into agreements to
purchase 14 additional properties for an estimated aggregate amount of
$39,225,788. In addition, the Company was contingently liable for
$4,153,013 related to bank letters of credit which guarantee the Company's
obligation under purchase agreements to acquire these properties upon
completion of development.
As of September 30, 1995, the Company owned seven 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 $17,267,137 upon completion of the
buildings.
9. Subsequent Event:
----------------
In October 1995, the Company entered into two long-term, fixed rate
mortgage commitments for loans totalling $52,600,000. One loan is a four-
year $13,150,000 mortgage with interest payable monthly and principal
payable at maturity and will bear interest at a rate of 125 basis points
over comparable U.S. Treasuries. The other loan is a ten-year $39,450,000
mortgage with principal and interest payable monthly and will bear
interest at a rate of 175 basis points over U.S. Treasuries. Each
mortgage will be secured by a first lien on and an assignment of rents and
leases of certain of the Company's properties. Consummation of the loans
is subject to consent by the Company's line of credit lenders.
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 September 30, 1995, the Company owned 154 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 nine months ended September 30, 1995 and 1994, the Company generated
$10,310,057 and $6,834,664, respectively, in net cash provided by operating
activities. The increase in cash from operations for the nine months ended
September 30, 1995, as compared to the nine months ended September 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 September 30, 1995,
$72,900,000 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, secured or unsecured borrowings from banks or other lenders 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.
In October 1995, the Company entered into two long-term, fixed rate
mortgage commitments for loans totalling $52,600,000. One loan is a four-year
$13,150,000 mortgage with interest payable monthly and principal payable at
maturity and will bear interest at a rate of 125 basis points over comparable
U.S. Treasuries. The other loan is a ten-year $39,450,000 mortgage with
principal and interest payable monthly and will bear interest at a rate of 175
basis points over U.S. Treasuries. Each mortgage will be secured by a first
lien on and an assignment of rents and leases of certain of the Company's
Properties. Proceeds from the loans will be used to pay down a portion of the
outstanding indebtedness under the Company's Credit Facility. Consummation of
the loans is subject to consent by the Company's line of credit lenders.
Debt and Equity Securities. In July 1995, the Company filed a shelf
registration statement with the Securities and Exchange Commission that permits
the issuance of debt and equity securities of up to $200,000,000. 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 nine months ended
September 30, 1995, the Company borrowed $56,700,000 of amounts it has available
under its Credit Facility to acquire 26 Properties and four buildings which were
developed by the tenant on land parcels owned by the Company. The 26 Properties
included nine Hi-Lo Automotive Stores, five Barnes & Nobles bookstores,
three Eckerd drugstores, three Academy sporting good stores, two Scotty's home
improvement stores, one Levitz furniture store, one Borders bookstore, one
OfficeMax office supply store and one Food 4 Less grocery store. The four
buildings included three 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 September 30, 1995, the Company had entered into agreements to
purchase 14 additional properties for an estimated aggregate amount of
$39,225,788. In addition, the Company is contingently liable for $4,153,013
related to bank letters of credit which guarantee the Company's obligation under
purchase agreements to acquire these properties 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 September 30, 1995, the Company owned seven 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 $17,267,137.
In addition to the 26 properties under contract and the seven buildings
under construction, 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. During the nine months ended
September 30, 1995 and 1994, the Company paid dividends to its stockholders of
$10,147,395 and $6,514,121, respectively, or $.87 and $.85 per share of common
stock, respectively. In September 1995, the Company declared dividends to its
stockholders of $3,382,465 or $.29 per share of common stock, payable in
November 1995.
Results of Operations
- ---------------------
During the nine months ended September 30, 1995 and 1994, the Company
owned and leased 154 and 106 Properties, respectively, to operators of major
retail businesses. In connection therewith, during the nine months ended
September 30, 1995 and 1994, the Company earned $14,017,773 and $7,640,888,
respectively, in rental income from operating leases and earned income from
direct financing leases, $5,298,698 and $2,928,937 of which was earned during
the quarters ended September 30, 1995 and 1994, respectively. The increase in
rental and earned income during the quarter and nine months ended September 30,
1995, is primarily attributable to the income earned on the Properties acquired
during 1994 and the 26 Properties acquired and four buildings upon which
construction was completed during the nine months ended September 30, 1995.
Rental and earned income are expected to increase as the Company acquires
additional properties and due to the fact that the 12 Properties and one
building acquired during the quarter ended September 30, 1995 will contribute to
the Company's income for a full fiscal quarter in future quarters.
For the nine months ended September 30, 1995 and 1994, the Company also
earned $579,055 and $638,477, respectively, in contingent rental income,
$199,091 and $216,422 of which was earned during the quarters ended September
30, 1995 and 1994, respectively. Contingent rental income decreased primarily
as a result of a decrease in the aggregate net sales of restaurants currently
paying contingent rent during the quarter and nine months ended September 30,
1995, as compared to the quarter and nine months ended September 30, 1994.
During the nine months ended September 30, 1995, two of the Company's
lessees (or group of affiliated lessees), (i) Barnes & Noble Superstores, Inc.
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
September 30, 1995, Barnes & Noble Superstores, Inc. was the lessee under leases
relating to nine 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, Barnes & Noble
Superstores, Inc. and 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 $2,335,471 and $412,246 in interest expense for the
nine months ended September 30, 1995 and 1994, respectively, $1,244,801 and
$314,245 of which was incurred for the quarters ended September 30, 1995 and
1994, respectively. Interest expense increased during the quarter and nine
months ended September 30, 1995, as compared to the quarter and nine months
ended September 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 nine months ended September 30, 1995 and 1994, other operating
expenses, including depreciation and amortization expense, were $2,941,619 and
$2,070,344, respectively (20.0% and 24.6%, respectively, of gross operating
revenues), of which $1,063,471 and $651,698 (19.2% and 20.6%, respectively, of
gross operating revenues) were incurred for the quarters ended September 30,
1995 and 1994, respectively. The increase in the dollar amount of other
operating expenses for the nine months ended September 30, 1995, as compared to
the nine months ended September 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 nine months ended September 30, 1995.
The increase is also attributable to increased advisory fees as a result of
increased funds from operations for the nine months ended September 30, 1995.
However, the increase was partially offset by a decrease in legal fees during
the nine months ended September 30, 1995, as compared to the nine months ended
September 30, 1994, as a result of the legal fees and expenses incurred during
the nine months ended September 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.
---------------------------------------------------
Not applicable.
Item 5. Other Information. Not applicable.
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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
September 30, 1995.
SIGNATURES
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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 13th day of November, 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
