<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the balance
sheet of Commercial Net Lease Realty, Inc. and Subsidiaries at March 31, 1996,
and its statement of income for the quarter then ended and is qualified in its
entirety by reference to the Form 10-Q of Commercial Net Lease Realty, Inc. for
the quarter ended March 31, 1996.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 384,477
<SECURITIES> 0
<RECEIVABLES> 271,024
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 794,612
<PP&E> 200,655,664
<DEPRECIATION> 6,080,593
<TOTAL-ASSETS> 263,071,158
<CURRENT-LIABILITIES> 2,150,591
<BONDS> 0
156,887
0
<COMMON> 0
<OTHER-SE> 185,274,531
<TOTAL-LIABILITY-AND-EQUITY> 263,071,158
<SALES> 0
<TOTAL-REVENUES> 6,924,224
<CGS> 0
<TOTAL-COSTS> 1,474,829
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,459,883
<INCOME-PRETAX> 3,989,512
<INCOME-TAX> 0
<INCOME-CONTINUING> 3,989,512
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,989,512
<EPS-PRIMARY> 0.28
<EPS-DILUTED> 0.28
</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 March 31, 1996
-----------------------------------
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.
15,688,672 shares of Common Stock, $.01 par value, outstanding as of May 1,
1996.
COMMERCIAL NET LEASE REALTY, INC.
and SUBSIDIARIES
CONTENTS
--------
Part I Page
----
Item 1. Financial Statements:
Condensed Consolidated Balance Sheets 1
Condensed Consolidated Statements of
Earnings 2
Condensed Consolidated Statements of
Stockholders' Equity 3
Condensed Consolidated Statements of
Cash Flows 4-5
Notes to Condensed Consolidated
Financial Statements 6-11
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations 12-15
Part II
Other Information 16-18
COMMERCIAL NET LEASE REALTY, INC.
and SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
March 31, December 31,
ASSETS 1996 1995
------------ ------------
Land and buildings on operating
leases, net of accumulated
depreciation $194,575,071 $155,956,739
Net investment in direct financing
leases 62,074,035 56,829,126
Cash and cash equivalents 384,477 300,714
Receivables 202,464 394,154
Due from related party 68,560 -
Prepaid expenses 139,111 154,538
Loan costs, net of accumulated
amortization of $540,724 and
$405,179 2,106,013 1,065,149
Accrued rental income 2,667,685 2,194,221
Other assets 853,742 2,362,035
------------ ------------
$263,071,158 $219,256,676
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Notes payable $ 76,705,842 $ 82,600,000
Accrued interest payable 242,072 128,475
Accounts payable and accrued
expenses 311,951 350,632
Real estate taxes payable 47,558 82,932
Due to related parties 194,941 69,038
Rents paid in advance and tenant
deposits 137,376 183,486
------------ ------------
Total liabilities 77,639,740 83,414,563
------------ ------------
Commitments and contingencies
(Notes 9 and 10)
Stockholders' equity:
Common stock, $.01 par value.
Authorized 30,000,000 shares;
issued and outstanding
15,688,672 and 11,663,672
shares, respectively 156,887 116,637
Excess stock, $0.01 par value,
authorized 30,000,000 shares,
none issued and outstanding - -
Capital in excess of par value 187,571,759 138,629,751
Accumulated dividends in excess
of net earnings (2,297,228) (2,904,275)
------------ ------------
Total stockholders' equity 185,431,418 135,842,113
------------ ------------
$263,071,158 $219,256,676
============ ============
See accompanying notes to condensed consolidated
financial statements.
COMMERCIAL NET LEASE REALTY, INC.
and SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
Quarter Ended
March 31,
1996 1995
---------- ----------
Revenues:
Rental income from operating leases $5,046,090 $3,009,653
Earned income from direct financing leases 1,681,820 1,194,188
Contingent rental income 157,791 177,212
Interest and other 38,523 34,393
---------- ----------
6,924,224 4,415,446
---------- ----------
Expenses:
General operating and administrative 383,457 244,840
Advisory fees to related party 308,011 239,179
Interest 1,459,883 415,645
State taxes 35,717 21,046
Depreciation and amortization 747,644 435,883
---------- ----------
2,934,712 1,356,593
---------- ----------
Net earnings $3,989,512 $3,058,853
========== ==========
Earnings per share of common stock $ 0.28 $ 0.26
========== ==========
Weighted average number of shares
outstanding 14,311,749 11,663,672
========== ==========
See accompanying notes to condensed consolidated
financial statements.
COMMERCIAL NET LEASE REALTY, INC.
and SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Quarter Ended March 31, 1996
and Year Ended December 31, 1995
Accumulated
dividends
Capital in in excess
Number Common excess of of net
of shares stock par value earnings Total
---------- -------- ------------ ------------ ------------
Balance at
December 31,
1994 11,663,672 $116,637 $138,629,751 $ (2,081,686) $136,664,702
Net earnings - - - 12,707,271 12,707,271
Dividends
declared
and paid
($1.16 per
share of
common stock) - - - (13,529,860) (13,529,860)
---------- -------- ------------ ------------ ------------
Balance at
December 31,
1995 11,663,672 116,637 138,629,751 (2,904,275) 135,842,113
Net earnings - - - 3,989,512 3,989,512
Dividends
declared
and paid
($0.29 per
share of
common stock) - - - (3,382,465) (3,382,465)
Issuance of
common stock 4,025,000 40,250 52,284,750 - 52,325,000
Stock issuance
costs - - (3,342,742) - (3,342,742)
---------- -------- ------------ ----------- ------------
Balance at
March 31,
1996 15,688,672 $156,887 $187,571,759 $(2,297,228) $185,431,418
========== ======== ============ =========== ============
See accompanying notes to condensed consolidated
financial statements.
COMMERCIAL NET LEASE REALTY, INC.
and SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Quarter Ended
March 31,
1996 1995
------------ ------------
Cash flows from operating activities:
Net earnings $ 3,989,512 $ 3,058,853
Adjustments to reconcile net earnings
to net cash provided by operating
activities:
Depreciation 583,203 385,374
Amortization 164,441 50,509
Decrease in net investment in direct
financing leases 145,141 97,650
Increase in accrued rental income (473,464) (261,920)
Decrease in receivables 192,919 102,340
Increase in due from related party (2,385) -
Decrease (increase) in prepaid expenses 15,427 (62,051)
Decrease in other assets 17,843 6,825
Increase (decrease) in accrued interest
payable 113,597 (26,106)
Increase (decrease) in accounts
payable and accrued expenses 14,641 (45,436)
Increase (decrease) in real estate
taxes payable (35,374) 7,080
Increase (decrease) in due to related
parties 172,589 (48,207)
Decrease in rents paid in advance
and tenant deposits (46,110) (4,316)
------------ ------------
Net cash provided by operating
activities 4,851,980 3,260,595
------------ ------------
Cash flows from investing activities:
Additions to land and buildings on
operating leases (38,631,508) (2,851,052)
Investment in direct financing leases (5,389,971) (2,830,935)
Increase in other assets (37,044) (67,509)
Other 89,310 35,938
------------ ------------
Net cash used in investing
activities (43,969,213) (5,713,558)
------------ ------------
Cash flows from financing activities:
Proceeds from loans 70,550,000 7,300,000
Repayment of loans (76,444,158) -
Payment of loan costs (726,038) (30,556)
Proceeds from issuance of common stock 52,325,000 -
Payment of stock issuance costs (3,118,291) (4,069)
Payment of dividends (3,382,465) (3,382,465)
Other (3,052) (31,751)
------------ ------------
Net cash provided by financing
activities 39,200,996 3,851,159
------------ ------------
Net increase in cash and cash equivalents 83,763 1,398,196
Cash and cash equivalents at beginning
of quarter 300,714 1,069,900
------------ ------------
Cash and cash equivalents at end of quarter $ 384,477 $ 2,468,096
============ ============
See accompanying notes to condensed consolidated
financial statements.
COMMERCIAL NET LEASE REALTY, INC.
and SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Quarter Ended
March 31,
1996 1995
------------ ------------
Supplemental disclosures of non-cash
investing and financing activities:
Land, building and direct financing
lease costs incurred and unpaid at
end of quarter $ - $ 307,655
============ ============
Loan costs incurred and unpaid at
end of quarter $ 465 $ 12,905
============ ============
Offering costs incurred and unpaid at
end of quarter $ 142,497 $ -
============ ============
See accompanying notes to condensed consolidated
financial statements.
COMMERCIAL NET LEASE REALTY, INC.
and SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Quarters Ended March 31, 1996 and 1995
1. Basis of Presentation:
---------------------
The accompanying unaudited 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
ended March 31, 1996, may not be indicative of the results that may be
expected for the year ending December 31, 1996. Amounts as of December
31, 1995, 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, 1995.
The consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiaries. All significant intercompany
accounts and transactions have been eliminated in consolidation.
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.
Effective January 1, 1996, the Company adopted 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
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. Adoption of this standard had no
material effect on the Company's financial position or results of
operations.
Effective January 1, 1996, the Company adopted Statement of Financial
Accounting Standards No. 123, Accounting for Stock-Based Compensation.
The Statement provides that companies must either charge the value of
stock options granted to their income statement or provide pro forma
equivalent information in a footnote disclosure. The Company adopted
this standard and will provide pro forma equivalent information in a
footnote disclosure in its financial statements at December 31, 1996 and
for the year then ended.
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 March 31, 1996, 105 of the leases have
been classified as operating leases and 62 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 39 of these leases
are accounted for as operating leases. Substantially all leases have
initial terms of 15 to 20 years (expiring between 1997 and 2020) 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 Building on Operating Leases:
-------------------------------------
Land and buildings on operating leases consisted of the following at:
March 31, December 31,
1996 1995
------------ ------------
Land $100,770,703 $ 83,356,403
Buildings and
improvements 99,884,961 78,097,726
------------ ------------
200,655,664 161,454,129
Accumulated depreci-
ation (6,080,593) (5,497,390)
------------ ------------
$194,575,071 $155,956,739
============ ============
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 quarters ended March 31, 1996 and 1995, the Company recognized
$473,464 and $261,920, respectively, of such income.
The following is a schedule of future minimum lease payments to be
received on noncancellable operating leases at March 31, 1996:
1996 $ 14,965,764
1997 20,029,838
1998 20,050,155
1999 20,258,918
2000 20,612,440
Thereafter 244,005,131
------------
$339,922,246
============
4. Net Investment in Direct Financing Leases:
-----------------------------------------
The following lists the components of net investment in direct financing
leases at:
March 31, December 31,
1996 1995
------------ ------------
Minimum lease payments
to be received $139,857,728 $126,314,337
Estimated residual
values 18,846,880 17,354,140
Less unearned income (96,630,573) (86,839,351)
------------ ------------
Net investment in
direct financing
leases $ 62,074,035 $ 56,829,126
============ ============
The following is a schedule of future minimum lease payments to be
received on direct financing leases at March 31, 1996:
1996 $ 5,594,460
1997 7,459,282
1998 7,462,732
1999 7,509,284
2000 7,627,417
Thereafter 104,204,553
------------
$139,857,728
============
5. Other Assets:
------------
Other assets consisted of the following at:
March 31, December 31,
1996 1995
---------- ------------
Deposits and miscel-
laneous acquisition
costs $ 698,938 $1,573,668
Deposits for loan
commitments - 526,000
Deferred offering costs 127,195 222,671
Other 27,609 39,696
---------- ----------
$ 853,742 $2,362,035
========== ==========
6. Notes Payable:
-------------
In July 1994, the Company entered into a loan agreement for a three-year
$100,000,000 revolving credit facility (the "Credit Facility") which
expires on June 30, 1997. As of March 31, 1996, and December 31, 1995,
the outstanding principal balance was $24,300,000 and $69,450,000,
respectively, plus accrued interest of $83,476 and $84,094,
respectively.
In January 1996, the Company entered into a long-term, fixed rate
mortgage and security agreement for $39,450,000 (the "Permanent Debt
Financing"). The Permanent Debt Financing provides for a ten-year loan
with principal and interest payable monthly, based on a 17-year
amortization, with the balance due in February 2006 and bears interest
at a rate of 7.435% per annum. The Permanent Debt Financing is secured
by a first lien on and assignment of rents and leases of certain of the
Company's properties. As of March 31, 1996, the outstanding principal
balance was $39,255,842, plus accrued interest of $121,611.
The following is a schedule of annual maturities of the Permanent Debt
Financing for each of the next five years:
1996 $ 904,014
1997 1,286,245
1998 1,385,205
1999 1,491,778
2000 1,606,550
----------
$6,673,792
==========
7. Stock Option Plan:
-----------------
The Company's stock option plan (the "Plan") provides compensation and
incentive to persons ("Key Employees") or entities whose services are
considered essential to the Company's continued growth and success. As
of December 31, 1995, the Plan had 600,000 shares of common stock
reserved for issuance. Pursuant to the Plan, the shares of common stock
reserved for issuance automatically increased to 1,200,000 shares in
connection with the equity offering during the quarter ended March 31,
1996. The Plan provides for an additional automatic increase in the
number of shares issuable under the Plan to 2,000,000 shares at such
time as the Company has 25,000,000 shares of common stock issued and
outstanding. The following summarizes transactions in the plan for the
quarters ended March 31, 1996 and 1995:
Number of Shares
----------------------------
Quarter Ended
March 31,
1996 1995
------------- -------------
Outstanding, January 1 578,100 568,100
Granted at $12.50 to
$13.00 per share 380,000 -
Exercised - -
Surrendered (7,667) -
------- -------
Outstanding, March 31 950,433 568,100
======= =======
Exercisable, March 31 233,733 44,367
======= =======
Available for grant,
March 31 241,900 31,900
======= =======
One-third of the grant to each individual becomes exercisable at the end
of each of the first three years of service following the date of the
grant.
The Company applies Accounting Principles Board Opinion 25, Accounting
for Stock Issued to Employees, in accounting for the Plan. Accordingly,
due to the fact that the Plan requires that the exercise price of the
options equal the market value of the stock on the grant date, no
compensation cost has been recorded with respect to the options for the
quarters ended March 31, 1996 and 1995.
8. Related Party Transactions:
--------------------------
During the quarter ended March 31, 1996, the Company acquired five
properties for purchase prices totalling $11,326,525 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 affiliates cost including development costs. The affiliates cost
consisted of the land purchase prices, construction costs, various soft
costs including legal costs, survey fees and architect fees, and
developers fees aggregating $535,500 paid to an affiliate of CNL Realty
Advisors, Inc.
In addition, during the quarter ended March 31, 1996, the Company
acquired five properties and four buildings which were developed by the
tenant on land parcels owned by the Company from unrelated, third
parties for purchase prices totalling $31,512,745. In connection with
the acquisition of these five properties and four buildings, the Company
paid CNL Realty Advisors, Inc. $630,255 in acquisition fees and expense
reimbursement fees (representing 1.5% and 0.5%, respectively, of the
cost of the properties).
9. Commitments and Contingencies:
-----------------------------
As of March 31, 1996, the Company had entered into agreements to
purchase 11 additional properties for an estimated aggregate amount of
$33,271,658. In connection with the acquisition of these 11 properties,
the Company was contingently liable for $3,252,435 related to 11
separate bank letters of credit which guarantee the Company's obligation
under the purchase agreements to acquire these properties.
As of March 31, 1996, the Company owned and leased four land parcels to
tenants which were obligated to develop a building on the respective
land parcels. The Company has agreed to pay an aggregate amount of up
to $10,087,595 upon completion of the buildings.
10. Subsequent Event:
----------------
In April 1996, the Company declared dividends to its shareholders of
$4,549,715 or $.29 per share of common stock, payable in May 1996.
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 March 31, 1996, the Company owned 167 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, secured or
unsecured borrowings from banks or other lenders, or the sale of Properties,
as well as undistributed funds from operations. For the quarters ended March
31, 1996 and 1995, the Company generated $4,851,980 and $3,260,595,
respectively, in net cash provided by operating activities. The increase in
cash from operations for the quarter ended March 31, 1996, as compared to the
quarter ended March 31, 1995, 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 January 1996, the Company entered into a long-term,
fixed rate mortgage and security agreement for $39,450,000 (the "Permanent
Debt Financing"). The Permanent Debt Financing provides for a ten-year loan
with principal and interest payable monthly, based on a 17-year amortization,
with the balance due in February 2006 and bears interest at a rate of 7.435%
per annum. The Permanent Debt Financing is secured by a first lien on and
assignment of rents and leases of certain of the Company's Properties. As of
March 31, 1996, the outstanding principal balance was $39,255,842. Proceeds
from the Permanent Debt Financing were used to pay down the Company's
$100,000,000 credit facility.
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. In
January 1996, the Company filed a final prospectus supplement to the shelf
registration and issued 4,025,000 shares of common stock and received gross
proceeds of $52,325,000. In connection with the offering, the Company
incurred stock issuance costs totalling $3,342,742, consisting primarily of
underwriters' commissions and fees, legal and accounting fees and printing
expenses. Proceeds from the offering were used to pay down the Company's
$100,000,000 credit facility.
Property Acquisitions and Commitments. During the quarter ended March
31, 1996, the Company borrowed $42,800,000 of amounts under its Credit
Facility to acquire ten Properties (four Eckerd drugstores, two OfficeMax
office supply stores, one Barnes & Noble bookstore, one Academy sporting goods
store, one Borders bookstore and one Computer City computer store) and four
buildings (Barnes and Noble bookstores which were developed by the tenant on
land parcels owned by the Company) for an aggregate amount of approximately
$42,840,000.
As of March 31, 1996, the Company had entered into agreements to
purchase 11 additional properties for an estimated aggregate amount of
$33,271,658. 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 March 31, 1996, the Company owned four 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 $10,087,595.
In addition to the 11 properties under contract and the four buildings
under construction as of March 31, 1996, 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 are expected to be the
primary demand for additional capital in the future. 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 Company's $100,000,000 credit facility and long-
term, fixed rate financing, 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 each of the quarters ended
March 31, 1996 and 1995, the Company declared and paid dividends to its
stockholders of $3,382,465, or $.29 per share of common stock. In April 1996,
the Company declared dividends to its shareholders of $4,549,715 or $.29 per
share of common stock, payable in May 1996.
Results of Operations
- ---------------------
During the quarters ended March 31, 1996 and 1995, the Company owned and
leased 167 and 129 Properties, respectively, to operators of major retail
businesses. In connection therewith, during the quarters ended March 31, 1996
and 1995, the Company earned $6,727,910 and $4,203,841, respectively, in
rental income from operating leases and earned income from direct financing
leases. The increase in rental and earned income during the quarter ended
March 31, 1996, is primarily a result of the facts that (i) the 29 Properties
acquired and four buildings upon which construction was completed during 1995
were operational for a full quarter in 1996 and (ii) the Company acquired ten
Properties and four buildings upon which construction was completed during the
quarter ended March 31, 1996. Rental and earned income are expected to
increase as the Company acquires additional Properties and due to the fact
that the ten Properties and four buildings acquired during the quarter ended
March 31, 1996 will contribute to the Company's income for a full fiscal
quarter in future quarters.
The Company incurred $1,459,883 and $415,645 in interest expense for the
quarters ended March 31, 1996 and 1995, respectively. Interest expense
increased for the quarter ended March 31, 1996, primarily as a result of the
Company's Permanent Debt Financing and higher average borrowing levels on the
Company's $100,000,000 credit facility. However, the increase was partially
offset by a decrease in the average interest rates of the Company's credit
facility and the Company's long-term, fixed rate financing.
During the quarters ended March 31, 1996 and 1995, operating expenses,
including depreciation and amortization, were $1,474,829 and $940,948,
respectively (21.3% of gross operating revenues during each quarter). The
increase in the dollar amount of operating expenses for the quarter ended
March 31, 1996, as compared to the quarter ended March 31, 1995, is primarily
attributable to the increase in depreciation expense as a result of the
additional Properties acquired during the quarter ended March 31, 1996, and a
full quarter of depreciation expense relating to the 29 Properties and four
buildings acquired during 1995. The increase is also attributable to an
increase in amortization expense as a result of the amortization of loan costs
relating to the Company's Permanent Debt Financing. In addition, advisory
fees increased as a result of increased funds from operations for the quarter
ended March 31, 1996.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
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No material developments in legal proceedings as previously
reported in the Form 10-K for the year ended December 31, 1995.
Item 2. Changes in Securities. Not applicable.
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Item 3. Defaults Upon Senior Securities. Not applicable.
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Item 4. Submission of Matters to a Vote of Security Holders.
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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 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).
10.5 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).
10.6 Second Amended and Restated Line of Credit and
Security Agreement, dated December 7, 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 10.14 to the
Registrant's Current Report on Form 8-K dated January
18, 1996, and incorporated herein by reference).
10.7 Secured Promissory Note, dated December 14, 1995,
among Registrant and Principal Mutual Life Insurance
Company relating to a $13,150,000 loan (filed as
Exhibit 10.15 to the Registrant's Current Report on
Form 8-K dated January 18, 1996, and incorporated
herein by reference).
10.8 Mortgage and Security Agreement, dated December 14,
1995, among Registrant and Principal Mutual Life
Insurance Company relating to a $13,150,000 loan
(filed as Exhibit 10.16 to the Registrant's Current
Report on Form 8-K dated January 18, 1996, and
incorporated herein by reference).
10.9 Loan Agreement, dated January 19, 1996, among
Registrant and Principal Mutual Life Insurance Company
relating to a $39,450,000 loan (filed as Exhibit 10.12
to the Registrant's Annual Report on Form 10-K for the
year ended December 31, 1995, and incorporated herein
by reference).
10.10 Secured Promissory Note, dated January 19, 1996, among
Registrant and Principal Mutual Life Insurance Company
relating to a $39,450,000 loan (filed as Exhibit 10.13
to the Registrant's Annual Report on Form 10-K for the
year ended December 31, 1995, and incorporated herein
by reference).
(b) The Company filed one report on Form 8-K, reporting an
equity offering, long-term, fixed rate financing and
property and proposed property acquisitions and to file
certain documents in connection with the equity offering in
January 1996, on January 18, 1996.
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 May, 1996.
COMMERCIAL NET LEASE REALTY, INC.
By: /s/ Gary M. Ralston
-----------------------
Gary M. Ralston
President
By: /s/ Kevin B. Habicht
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Kevin B. Habicht
Chief Financial Officer
