SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
AMENDMENT NO. 1
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): September 11, 1996
COMMERCIAL NET LEASE REALTY, INC.
(Exact Name of Registrant as Specified in Charter)
Maryland 0-12989 56-1431377
(State or other juris- (Commission File Number) (IRS Employer
diction of incorporation) Identification No.)
400 East South Street, Suite 500 32801
Orlando, Florida (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code: (407) 422-1574
On August 19, 1996, Commercial Net Lease Realty, Inc. (the
"Company") filed a Form 8-K dated August 19, 1996, reporting certain
information and the pro forma financial statements relating to the intended
offering of 3 million shares of common stock at $14.00 per share pursuant to a
preliminary prospectus supplement filed on August 19, 1996, as part of a shelf
registration statement on Form S-3, File No. 33-61165, with the Securities and
Exchange Commission. On September 12, 1996, the Company filed a final
prospectus supplement pursuant to Rule 424(b)(2) which offered 4.85 million
shares of common stock from the shelf registration (the "Offering") at an
Offering price of $14.00 per share. The Form 8-K dated August 19, 1996, is
being amended to reflect the actual number of shares offered and the actual
Offering price used in the final prospectus supplement. The change affects
the description of the transaction in Item 5 (Other Events) and the pro forma
financial statements in Item 7 (Financial Statements, Pro Forma Financial
Information and Exhibits); therefore, they are amended to read as follows.
ITEM 5. OTHER EVENTS.
- - -------
On July 20, 1995, Commercial Net Lease Realty, Inc. (the
"Company") filed a shelf registration statement on Form S-3, File No. 33-61165
(the "Registration Statement") with the Securities and Exchange Commission
that permits the issuance of a combination of debt and equity securities of up
to $200 million. Pursuant to a preliminary prospectus supplement filed with
the Commission as part of the Registration Statement on August 19, 1996, the
Company intended to offer 3 million shares of common stock from the
Registration Statement (the "Preliminary Offering"). The net proceeds from
the Preliminary Offering were estimated to be approximately $39.1 million at
an assumed Offering price of $14.00 per share (approximately $45.0 million if
the underwriters' over allotment option to purchase up to 450,000 additional
shares was exercised in full), after deducting estimated offering expenses and
underwriting discounts. On September 12, 1996, the Company filed a final
prospectus supplement with the Commission dated September 11, 1996, pursuant
to Rule 424(b)(2) which offered 4.85 million shares of common stock from the
Registration Statement (the "Final Offering"). The net proceeds from the
Final Offering are estimated to be approximately $63.6 million at an Offering
price of $14.00 per share (approximately $73.2 million if the underwriters'
over allotment option to purchase up to 727,500 additional shares is exercised
in full), after deducting estimated Offering expenses and underwriter
discounts. The pro forma financial statements being filed herewith have been
amended to reflect the actual number of shares offered and the actual Offering
price used in the final prospectus supplement.
To secure long-term fixed rate financing, the Company entered
into a $52.6 million mortgage loan with Principal Mutual Life Insurance
Company (the "Principal Mortgage"), the proceeds of which were used to pay
down the balance on the Company's $100 million credit facility. The Principal
Mortgage is secured by 42 properties designated in the loan documents. The
Principal Mortgage consists of two loans that bear interest at a fixed
weighted average rate of approximately 7.26 percent and have a weighted
average maturity of approximately seven years. The first loan of $13.2
million was closed on December 14, 1995 and the second loan of $39.4 million
was closed on January 29, 1996.
In addition to the Principal Mortgage, in June 1996, the Company
acquired three properties subject to mortgages with an aggregate principal
balance outstanding as of June 30, 1996, of approximately $6.8 million (the
"Acquired Mortgages" and collectively with the Principal Mortgage, the
"Mortgages"). The Acquired Mortgages bear interest at a weighted average rate
of 8.6% and have a weighted average maturity of approximately eight years.
Since July 1, 1996, the Company has purchased four properties.
In addition, the Company intends to purchase five properties which the Company
expects will be acquired periodically through the end of September 1996. These
properties plus the four properties acquired since July 1, 1996, are
hereinafter referred to as the "Acquisition Properties." The total purchase
price of the Acquisition Properties is expected to be approximately $34.6
million. The Company anticipates that the purchase of the Acquisition
Properties will be funded by the net proceeds from the Offering.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
- - -------
INDEX TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS
-------------------------------------------------
Page
----
COMMERCIAL NET LEASE REALTY, INC.
Pro Forma Financial Information (unaudited):
Pro Forma Balance Sheet as of June 30, 1996 4
Pro Forma Statement of Earnings for the six months
ended June 30, 1996 5
Pro Forma Statement of Earnings for the year ended
December 31, 1995 6
Notes to Pro Forma Financial Statements for the
six months ended June 30, 1996 and the year
ended December 31, 1995 7
PRO FORMA FINANCIAL INFORMATION
The pro forma information of the Company gives effect to (i) $49.0
million in net proceeds from the sale of 4,025,000 shares in the prior
offering (the "Prior Offering Transaction"), and (ii) the completion and sale
of 4,850,000 shares of common stock offered hereby at an estimated Offering
Price of $14.00 per share and the application of the net proceeds therefrom,
the receipt of $52.6 million of proceeds from the Principal Mortgage, the
assumption of approximately $6.8 million of Acquired Mortgages, the purchase
of the Acquisition Properties for approximately $34.6 million and the
repayment of approximately $29.0 million previously drawn under the Company's
$150 million credit facility (the "Credit Facility") (collectively, the
"Offering Transactions").
The pro forma statements of earnings for the year ended December 31,
1995 and the six months ended June 30, 1996 give effect to the Prior Offering
Transaction and the Offering Transactions as if such transactions had occurred
on January 1, 1995. Such pro forma statements of earnings also treat all
properties acquired during the year ended December 31, 1995 and the six months
ended June 30, 1996 and the Acquisition Properties as if they had been
acquired and fully leased as of January 1, 1995. The Pro Forma Balance Sheet
as of June 30, 1996, gives effect to the Offering Transactions as if such
transactions had occurred on June 30, 1996.
The pro forma information does not purport to represent what the
Company's financial position or results of operations actually would have been
if the transactions reflected had in fact occurred on the date or at the
beginning of the period indicated, or to project the Company's financial
position or results of operations at any future date or any future period.
COMMERCIAL NET LEASE REALTY, INC.
UNAUDITED PRO FORMA BALANCE SHEET
JUNE 30, 1996
(In thousands, except per share data)
Pro Forma
ASSETS Historical Adjustments Pro Forma
---------- ------------ ---------
Land and buildings on operating
leases, net of accumulated
depreciation (c) $227,551 $ 34,655 (a) $262,206
Net investment in direct financing
leases (c) 83,139 83,139
Cash and cash equivalents 777 77 (a) 854
Receivables 334 334
Prepaid expenses 159 159
Loan costs, net of accumulated
amortization 1,978 1,978
Accrued rental income 3,170 3,170
Other assets 345 (53)(b)
(132)(a) 160
-------- -------- --------
$317,453 $ 34,547 $352,000
======== ======== ========
LIABILITIES AND
STOCKHOLDERS' EQUITY
Liabilities:
Notes payable $ 72,200 $ 34,600 (a)
(63,565)(b) $ 43,235
Long term debt 58,904 58,904
Accrued interest payable 327 327
Accounts payable and accrued
expenses 119 119
Real estate taxes payable 103 103
Due to related parties 222 222
Rents paid in advance and tenant
deposits 162 162
-------- -------- --------
Total liabilities 132,037 (28,965) 103,072
-------- -------- --------
Stockholders' equity:
Common stock 157 48 (b) 205
Capital in excess of par value 187,572 63,464 (b) 251,036
Accumulated dividends in excess
of net earnings (2,313) (2,313)
-------- -------- --------
185,416 63,512 248,928
-------- -------- --------
$317,453 $ 34,547 $352,000
======== ======== ========
See accompanying notes to unaudited pro forma
financial statements.
COMMERCIAL NET LEASE REALTY, INC.
UNAUDITED PRO FORMA STATEMENT OF EARNINGS
SIX MONTHS ENDED JUNE 30, 1996
(In thousands, except per share data)
Pro Forma
Historical Adjustments Pro Forma
---------- ----------- ---------
Revenues:
Rental income from operating
leases (2) $10,649 $ 4,054 (1) $14,703
Earned income from direct
financing leases (2) 3,478 1,005 (1) 4,483
Contingent rental income 357 357
Interest and other income 71 57 (3) 128
------- ------- -------
14,555 5,116 19,671
------- ------- -------
Expenses:
General operating and
administrative 672 46 (4) 718
Advisory fees to related party 650 210 (5) 860
Interest 3,062 768 (6) 3,830
Taxes 93 69 (7) 162
Depreciation and amortization 1,554 482 (8)
8 (9) 2,044
------- ------- -------
6,031 1,583 7,614
------- ------- -------
Net Earnings $ 8,524 $ 3,533 $12,057
======= ======= =======
Earnings per share of common stock $ 0.57 $ 0.59
======= =======
Funds from operations (10) $ 9,764 $13,779
======= =======
Weighted average number of shares
outstanding 15,000 20,539
======= =======
See accompanying notes to unaudited pro forma
financial statements.
COMMERCIAL NET LEASE REALTY, INC.
UNAUDITED PRO FORMA STATEMENT OF EARNINGS
YEAR ENDED DECEMBER 31, 1995
(In thousands, except per share data)
Pro Forma
Historical Adjustments Pro Forma
---------- ----------- ---------
Revenues:
Rental income from operating
leases (2) $14,455 $14,950 (1) $29,405
Earned income from direct
financing leases (2) 5,267 3,700 (1) 8,967
Contingent rental income 746 746
Interest and other income 112 142 (3) 254
------- ------- -------
20,580 18,792 39,372
------- ------- -------
Expenses:
General operating and
administrative 722 152 (4) 874
Advisory fees to related party 1,001 728 (5) 1,729
Interest 3,834 4,054 (6) 7,888
Taxes 258 249 (7) 507
Depreciation and amortization 2,058 1,708 (8)
306 (9) 4,072
------- ------- -------
7,873 7,197 15,070
------- ------- -------
Net Earnings $12,707 $11,595 $24,302
======= ======= =======
Earnings per share of common stock $ 1.09 $ 1.18
======= =======
Funds from operations (10) $14,443 $27,746
======= =======
Weighted average number of shares
outstanding 11,664 20,539
======= =======
See accompanying notes to unaudited pro forma
financial statements.
COMMERCIAL NET LEASE REALTY, INC.
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 1996
AND THE YEAR ENDED DECEMBER 31, 1995
(Dollars in thousands)
Pro Forma Balance Sheet:
- - -----------------------
(a) Represents draw on the Company's Credit Facility used to acquire the
Acquisition Properties for approximately $34,655 (approximately $132 of
which had been paid in miscellaneous acquisition costs and deposits as
of June 30, 1996). Per the Credit Facility agreement, draws must be
made in increments of $100, and as a result, approximately $77 of the
draw was added to working capital.
(b) Represents estimated gross proceeds of $67,900 from the issuance of 4.85
million shares of stock from the Offering used to pay down the Credit
Facility and to pay stock issuance costs of $4,335 ($53 of which had
been paid in deferred offering costs as of June 30, 1996).
(c) In accordance with generally accepted accounting principles, leases in
which the present value of the future minimum lease payments equals or
exceeds 90 percent of the value of the related properties are treated as
direct financing leases rather than as land and buildings. The
categorization of the lease has no effect on the rental revenues
received.
Pro Forma Statements of Earnings:
- - --------------------------------
(1) Represents rental income as if the properties acquired during the year
ended December 31, 1995 and the six months ended June 30, 1996 (the "New
Properties") and the Acquisition Properties had been acquired and fully
leased on January 1, 1995.
(2) See Note (c) under "Pro Forma Balance Sheet" above.
(3) Represents adjustments to interest income due to the increase in the
amount of cash available for investment in interest bearing accounts
from the receipt of rental income before dividends are paid to
shareholders as a result of the Prior Offering Transaction and the
Offering Transactions. The adjusted pro forma interest income does not
include interest income from the investment of offering proceeds.
Interest income on interest bearing accounts is assumed to be earned at
a rate of four percent per annum based on the previous experience of the
Company.
(4) Represents additional expenses due to incremental expenses associated
with additional shares of common stock outstanding.
(5) Represents adjustment to advisory fees due to the increase in rental
revenues and funds from operations (as defined in the Company's advisory
agreement with its advisor).
(6) Represents adjustment in interest expense and other loan costs primarily
as a result of the pro forma increase in indebtedness in connection
with the Offering Transactions. Pro forma interest expense for the six
months ended June 30, 1996 and the year ended December 31, 1995, was
based on the average 30-day LIBOR rates in effect for those periods of
5.443% and 5.969%, respectively, plus 1.70% relating to the Credit
Facility, a weighted average interest rate of approximately 7.26%
relating to the Principal Mortgage and a weighted average interest rate
of 8.6% relating to the Acquired Mortgages.
(7) Represents additional expenses assumed to have been incurred as a result
of additional state income and franchise taxes based on additional
rental revenue.
(8) Represents adjustment to depreciation expense for the New Properties and
the Acquisition Properties as if the properties had been acquired and
fully leased on January 1, 1995. The building portion of the properties
accounted for as operating leases are depreciated using the straight-
line method over their estimated useful lives which is generally 40
years.
(9) Represents adjustment to amortization expense in connection with
amortization of loan costs associated with the Principal Mortgage.
(10) Funds from operations has been calculated in accordance with the
definition of "funds from operations" recently clarified by the National
Association of Real Estate Investment Trusts (NAREIT) defined as net
income, computed in accordance with generally accepted accounting
principles, excluding gains or losses from debt restructurings and sales
of property, plus depreciation and after adjustments for unconsolidated
partnerships and joint ventures. Funds from operations should not be
considered as a substitute for net income as an indication of the
Company's performance or as a substitute for cash flow as a measure of
its liquidity.
EXHIBITS
--------
COMMERCIAL NET LEASE REALTY, INC.
EXHIBIT NO. DESCRIPTION
- - ----------- -----------
1.2 Purchase Agreement, which is being filed pursuant to
Regulation S-K, Item 601(b)(1) in lieu of filing the
otherwise required exhibit to the Registration
Statement on Form S-3 (the "Registration Statement"),
File No. 33-61165, under the Securities Act of 1933,
as amended (the "Securities Act"), and which, since
this Form 8-K filing is incorporated by reference in
such Registration Statement, is set forth in full in
such Registration Statement. (Filed herewith.)
5 Opinion of Shaw, Pittman, Potts & Trowbridge, which is
being filed pursuant to Regulation S-K, Item 601(b)(5)
in lieu of the otherwise required exhibit to the
Registration Statement under the Securities Act, and
which, since this Form 8-K filing is incorporated by
reference in such Registration Statement, is set forth
in full in such Registration Statement. (Filed
herewith.)
8 Opinion of Shaw, Pittman, Potts & Trowbridge, which is
being filed pursuant to Regulation S-K, Item 601(b)(8)
in lieu of the otherwise required exhibit to the
Registration Statement under the Securities Act, and
which, since this Form 8-K filing is incorporated by
reference in such Registration Statement, is set forth
in full in such Registration Statement. (Filed
herewith.)
23 Consents of Shaw, Pittman, Potts & Trowbridge
(contained in the opinions filed as Exhibits 5 and 8
hereto), which is being filed pursuant to Regulation
S-K, Item 601(b)(23) in lieu of the otherwise required
exhibit to the Registration Statement under the
Securities Act, and which, since this Form 8-K filing
is incorporated by reference in such Registration
Statement, is set forth in full in such Registration
Statement. (Filed herewith.)
24.2 Consent of KPMG Peat Marwick LLP. (Filed herewith.)
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the registrant has duly caused this report to be filed on its behalf
by the undersigned thereunto duly authorized.
COMMERCIAL NET LEASE REALTY, INC.
Dated: September 11, 1996 By: /s/ Gary M. Ralston
--------------------------
GARY M. RALSTON, President
EXHIBIT INDEX
-------------
COMMERCIAL NET LEASE REALTY, INC.
EXHIBIT NO. DESCRIPTION PAGE
- - ----------- ----------- ----
1.2 Purchase Agreement, which is being filed
pursuant to Regulation S-K, Item 601(b)(1) in
lieu of filing the otherwise required exhibit to
the Registration Statement on Form S-3 (the
"Registration Statement"), File No. 33-61165,
under the Securities Act of 1933, as amended
(the "Securities Act"), and which, since this
Form 8-K filing is incorporated by reference in
such Registration Statement, is set forth in
full in such Registration Statement. (Filed
herewith.)
5 Opinion of Shaw, Pittman, Potts & Trowbridge,
which is being filed pursuant to Regulation S-K,
Item 601(b)(5) in lieu of the otherwise required
exhibit to the Registration Statement under the
Securities Act, and which, since this Form 8-K
filing is incorporated by reference in such
Registration Statement, is set forth in full in
such Registration Statement. (Filed herewith.)
8 Opinion of Shaw, Pittman, Potts & Trowbridge,
which is being filed pursuant to Regulation S-K,
Item 601(b)(8) in lieu of the otherwise required
exhibit to the Registration Statement under the
Securities Act, and which, since this Form 8-K
filing is incorporated by reference in such
Registration Statement, is set forth in full in
such Registration Statement. (Filed herewith.)
23 Consents of Shaw, Pittman, Potts & Trowbridge
(contained in the opinions filed as Exhibits 5
and 8 hereto), which is being filed pursuant to
Regulation S-K, Item 601(b)(23) in lieu of the
otherwise required exhibit to the Registration
Statement under the Securities Act, and which,
since this Form 8-K filing is incorporated by
reference in such Registration Statement, is set
forth in full in such Registration Statement.
(Filed herewith.)
24.2 Consent of KPMG Peat Marwick LLP. (Filed
herewith.)
EXHIBIT 5
OPINION OF SHAW, PITTMAN, POTTS & TROWBRIDGE
[LETTERHEAD OF SHAW, PITTMAN, POTTS & TROWBRIDGE]
September 11, 1996
Commercial Net Lease Realty, Inc.
400 East South Street
Suite 500
Orlando, Florida 32801
Ladies and Gentlemen:
We have acted as counsel to Commercial Net Lease Realty, Inc., a
Maryland corporation (the "Company"), in connection with the Registration
Statement on Form S-3, Registration No. 33-61165 (the "Registration
Statement"), filed with the Securities and Exchange Commission (the
"Commission") under the Securities Act of 1933, as amended, and declared
effective by the Commission on October 18, 1995. Pursuant to the Registration
Statement, the Company proposes to issue and sell [4,600,000] [4,887,500]
[5,175,000] [5,462,500] shares of common stock, par value $0.01 per share (the
"Common Stock") (including the underwriters' over-allotment option, if
exercised), to the public through certain underwriters pursuant to the terms
set forth in the prospectus supplement dated September 11, 1996 (the
"Prospectus Supplement") to the prospectus filed as part of the Registration
Statement.
Based upon our examination of the originals or copies of such documents,
corporate records, certificates of officers of the Company and other
instruments as we have deemed necessary and upon the laws as presently in
effect, we are of the opinion that the Common Stock has been duly authorized
for issuance by the Company, and that upon issuance and delivery in accordance
with the purchase agreement referred to in the Prospectus Supplement, the
Common Stock will be validly issued, fully paid and nonassessable.
We hereby consent to the filing of this opinion as an exhibit to the
Prospectus Supplement. We also consent to the reference to Shaw, Pittman,
Potts & Trowbridge under the caption "Legal Matters" in the Prospectus
Supplement.
Very truly yours,
SHAW, PITTMAN, POTTS & TROWBRIDGE
EXHIBIT 8
OPINION OF SHAW, PITTMAN, POTTS & TROWBRIDGE
September 11, 1996
Commercial Net Lease Realty, Inc.
400 E. South Street
Suite 500
Orlando, Florida 32801
Smith Barney Inc.
Goldman, Sachs & Co.
J.C. Bradford & Co.
Legg Mason Wood Walker Incorporated
Raymond James & Associates, Inc.
The Robinson-Humphrey Company, Inc.
c/o 388 Greenwich Street
New York, New York 10013
Gentlemen:
On July 20, 1995, Commercial Net Realty, Inc. ("CNL Realty") filed a
registration statement on Form S-3, file number 33-61165 (the "Registration
Statement"), with the Securities and Exchange Commission, which was declared
effective on October 18, 1995. In connection with the filing of a prospectus
supplement on September 11, 1996 (the "Prospectus Supplement") to the
prospectus contained in the Registration Statement (the "Prospectus"), you
have asked us to render an opinion with respect to the qualification of CNL
Realty as a real estate investment trust ("REIT") under sections 856 through
860 of the Internal Revenue Code. (Our references herein to "the Code" are to
the Internal Revenue Code of 1986, as amended, with respect to taxable years
ending on or after January 1, 1987, and to the Internal Revenue Code of 1954,
as amended, with respect to taxable years ending on or before December 31,
1986.) (FN)
We have served as special counsel for CNL Realty in connection with the
filing of the Prospectus and the Prospectus Supplement and from time to time
in the past have represented CNL Realty on specific matters as requested by
CNL Realty. Specifically for the purpose of this opinion, we have examined
and relied upon the following: copies of CNL Realty's Articles of
Incorporation and any amendments thereto; its Federal Forms 1120 for its
taxable years 1984 through 1995 (in which tax returns we observe that CNL
Realty has elected to be treated as a real estate investment trust); the
Registration Statement; the Prospectus; the Prospectus Supplement; copies of
executed leases covering real property owned by CNL Realty; and its Form S-11
Registration Statement as filed with the Securities and Exchange Commission on
August 15, 1984.
We have not served as general counsel to CNL Realty and have not been
involved in decisions regarding the day-to-day operation of CNL Realty and its
properties. We have, however, discussed the mode of operation of CNL Realty
with its officers with a view to learning information relevant to the opinions
expressed herein and have received and relied upon a certificate from CNL
Realty with respect to certain matters. A copy of the certificate is
attached.
We have discussed with management of CNL Realty arrangements relating to
the management of its properties, the relationships of CNL Realty with tenants
of such properties, and certain terms of leases of such properties to tenants,
with a view to assuring that at the close of each quarter of the taxable years
covered by this opinion it met the asset composition requirements set forth in
section 856(c)(5), and with a view to assuring that, with respect to years
covered by this opinion (and as projected by CNL Realty management for all of
1996), it satisfied (or will satisfy for 1996) the 95%, 75%, and 30% gross
income tests set forth in sections 856(c)(2), (3), and (4), respectively. We
have further reviewed with management of CNL Realty the requirements that the
beneficial ownership of a REIT be held by 100 or more persons for at least
335/365ths of each taxable year and that a REIT must satisfy the diversity of
ownership requirements of section 856(h) as such requirements existed in the
years covered by this opinion, and we have been advised by management that at
all times during the years covered by this opinion (and specifically on each
record date for the payment of dividends during 1984 through the date hereof)
CNL Realty has had more than 1,000 shareholders of record, that CNL Realty
maintains the records required by section 1.857-8 of the Treasury Regulations,
that no later than January 30 of each year it sent the demand required by
section 1.857-8(d) of the Treasury Regulations to each shareholder of record
owning one percent or more of the outstanding shares of CNL Realty on the
appropriate date required by said regulation, and that the actual ownership of
CNL Realty shares was such that, to the best knowledge of its management
(based upon responses to the aforesaid demands, any filing of a Schedule 13D
under the Securities Exchange Act of 1934, as amended, or any other sources of
information), CNL Realty satisfied the applicable requirements of section
856(h). Further, we have examined various property leases and lease
supplements relating to the properties that CNL Realty owns, and although
leases relating to certain properties which CNL Realty owns have not been made
available to us, CNL Realty has represented with respect to such leases that
they will conform in all material respects to a form of lease agreement
provided to us. On the basis of discussions with management of CNL Realty, we
are not aware that CNL Realty's election to be a REIT has been terminated or
challenged by the Internal Revenue Service or any other party or that CNL
Realty has revoked its election to be a REIT for any such prior year so as to
make CNL Realty ineligible to qualify as a REIT for the years covered by this
opinion.
In rendering the opinions set forth herein, we are assuming that copies
of documents examined by us are true copies of originals thereof and that the
information concerning CNL Realty set forth in CNL Realty's Federal income tax
returns, and in the Prospectus Supplement, as well as the information provided
us by CNL Realty's management are true and correct. We have no reason to
believe that such assumptions are not warranted.
Based upon the foregoing, we are of the opinion that: (a) CNL Realty was
a "real estate investment trust" as defined by section 856(a) for its taxable
years ended December 31, 1984 through December 31, 1995, and its proposed
method of operation will enable it to meet the requirements for qualification
and taxation as a REIT for its taxable year ending December 31, 1996 and for
all future taxable years, and (b) CNL Realty's wholly owned subsidiaries, Net
Lease Realty I, Inc. and Net Lease Realty II, Inc., were each "qualified REIT
subsidiaries" as defined by section 856(i) for CNL Realty's taxable year
ending December 31, 1995, and their proposed ownership will enable them to
meet the requirements for treatment as qualified REIT subsidiaries for CNL
Realty's taxable year ending December 31, 1996 and for all future taxable
years. However, with respect to the 1996 year and all future years, we note
that CNL Realty's status as a real estate investment trust at any time is
dependent among other things upon its meeting the requirements of section 856
throughout the year and for the year as a whole.
This opinion is based upon the existing provisions of the Code (or
predecessor provisions, as applicable), rules and regulations (including
proposed regulations) promulgated thereunder, and reported administrative and
judicial interpretations thereof, all of which are subject to change, possibly
with retroactive effect. This opinion is limited to the specific matters
covered hereby and should not be interpreted to imply that the undersigned has
offered its opinion on any other matter.
We hereby confirm that the statements set forth in the Prospectus
Supplement under the heading "Federal Income Tax Considerations," to the
extent that they constitute matters of law or legal conclusions with respect
thereto, are correct in all material respects.
We hereby consent to the filing of this opinion as an exhibit to the
Prospectus Supplement. We also consent to the reference to Shaw, Pittman,
Potts & Trowbridge under the captions "Federal Income Tax Considerations" and
"Legal Matters" in the Prospectus Supplement. In giving such consent, we do
not consider that we are "experts," within the meaning of the term used in the
Act or the rules and regulations of the Securities and Exchange Commission
promulgated thereunder, with respect to any part of the Prospectus Supplement,
including this opinion as an exhibit or otherwise.
Very truly yours,
SHAW, PITTMAN, POTTS & TROWBRIDGE
By: /s/Charles B. Temkin, P.C.
-------------------------------
Charles B. Temkin, P.C.
(FN) All section references herein are to the Code or to the regulations
issued thereunder.
COMMERCIAL NET LEASE REALTY, INC.
400 E. South Street, Suite 500
Orlando, Florida 32801-2878
Certificate
-----------
September 11, 1996
Shaw, Pittman, Potts & Trowbridge
2300 N Street, N.W.
Washington, D.C. 20037-1128
Gentlemen:
In connection with the opinion letter to be issued by you with respect
to the qualification of Commercial Net Lease Realty, Inc. (formerly CNL Realty
Investors, Inc.) ("CNL Realty") (FN) as a real estate investment trust
("REIT") under sections 856 through 860 of the Internal Revenue Code of 1954
and the Internal Revenue Code of 1986, as applicable (the "Code"), and with
respect to the matters discussed under the heading "Federal Income Tax
Considerations" in the prospectus to a registration statement on Form S-3
dated October 18, 1995 (the "Prospectus") as supplemented by a prospectus
supplement dated September 11, 1996 (the "Prospectus Supplement"), CNL Realty,
intending that you shall rely on the contents of this Certificate, represents
to you as follows:
1. CNL Realty has been and will be operated in accordance with the
terms and provisions of the Articles of Incorporation of Commercial Net
Realty, Inc., as amended from time to time.
2. CNL Realty has been and will be operated in a manner consistent
with the statements and representations set forth in the Prospectus and the
Prospectus Supplement.
3. The beneficial ownership of CNL Realty has been held by 100 or
more persons for at least 335/365ths of (a) each of CNL Realty's taxable years
from 1984 through 1995 and (b) the current taxable year to date.
4. On each record date for the payment of dividends from 1984 through
September 11, 1996, CNL Realty has had more than 1,000 shareholders of record.
5. CNL Realty has adopted December 31 as its taxable year-end for
U.S. federal income tax purposes.
6. CNL Realty has maintained the records required by section 1.857-
8(d) of the Treasury Regulations, and no later than January 30 of each year
from 1985 through 1995, it sent the demand required by section 1.857-8(d) of
the Treasury Regulations to each shareholder of record owning one percent or
more of the outstanding shares of CNL Realty, and CNL Realty intends to send
such demands by January 30 of its current taxable year.
7. To the best knowledge of CNL Realty's management (based upon any
responses to demands made pursuant to section 1.857-8(d) of the Treasury
Regulations, any filing of a Schedule 13D under the Securities Exchange Act of
1934, as amended, or any other sources of information), the actual ownership
of CNL Realty shares has satisfied the applicable requirements of section
856(h) of the Code during the last half of each of CNL Realty's taxable years
from 1984 through 1995 and throughout the current taxable year.
8. CNL Realty filed an election to be a real estate investment trust
with its tax return for its taxable year ending December 31, 1984, and since
that time, such election has not been terminated, challenged or revoked.
9. All leases, subleases and amendments thereto and other agreements
which were executed as of September 11, 1996, with respect to all of the real
property owned by CNL Realty and all of the real property which CNL Realty
intends to purchase in the near future have been provided to you for your
examination (with certain exceptions noted in paragraphs 10 and 11), and such
leases, subleases and amendments thereto and other agreements represent all
covenants, promises, agreements, warranties, representations and conditions
between CNL Realty and its tenants and subtenants.
10. The terms of the lease executed for the property in Brandon,
Florida that CNL Realty leases for operation as a Barnes and Noble store is
the same in all material respects as those included in the Lease Agreement
between Barnes and Noble Superstore, Inc. and Commercial Net Lease Realty,
Inc., dated July 28, 1994 (covering a property in Lakeland, Florida, leased
for operation as a Barnes and Noble store).
11. The terms of the leases executed for the twenty-four properties
that CNL Realty leases for operation as Hi-Lo Automotive stores are the same
in all material respects as those included in the Lease Agreement between Hi-
Lo Auto Supply, L.P. and Commercial Net Lease Realty, Inc., dated September
27, 1995 (covering a property in San Antonio, Texas, leased for operation as a
Hi-Lo Automotive store).
12. The terms of the leases to be executed for any other properties
that CNL Realty purchases in the future are or will be structured so that
amounts derived from such leases are rents from real property within the
meaning of section 856(d) of the Code.
13. For each taxable year from 1984 through 1995, at least 75 percent
of the gross income derived by CNL Realty consisted of (i) amounts derived
from the rental of the real property held by CNL Realty (collectively the
"Properties") which qualified as rents from real property within the meaning
of section 856(d) of the Code; (ii) interest on obligations secured by
mortgages on real property or on interests in real property; (iii) any gain
realized upon the sale or other disposition of real property which is not
described in section 1221(1) of the Code; and (iv) amounts described in
sections 856(c)(3)(D) through 856(c)(3)(I) of the Code; and CNL Realty will
conduct its business so that at least 75 percent of its gross income will be
derived from such sources in its current and future taxable years.
14. For each taxable year from 1984 through 1995, at least 95 percent
of the gross income derived by CNL Realty consisted of (i) the items of income
described in paragraph 13 above; (ii) gain from the sale or other disposition
of stock or securities which are not property described in section 1221(1) of
the Code; and (iii) interest and dividends; and CNL Realty will conduct its
business so that at least 95 percent of its gross income will be derived from
such sources in its current and future taxable years.
15. For each taxable year from 1984 through 1995, less than 30 percent
of the gross income of CNL Realty was derived from the sale or other
disposition of (i) stock or securities held for less than one year,
(ii) property in a transaction which is a prohibited transaction, as defined
in section 857(b)(6) of the Code, and (iii) real property (including interests
in real property and interests in mortgages on real property) held for less
than four years, other than property compulsorily or involuntarily converted
within the meaning of section 1033 of the Code and property which is
"foreclosure property" within the meaning of section 856(e) of the Code; and
CNL Realty will conduct its business so that less than 30 percent of its gross
income will be derived from the sale or disposition of such assets in its
current and future taxable years.
16. For each taxable year from 1984 through 1995, neither CNL Realty,
nor any person which was not an "independent contractor" within the meaning of
section 856(d)(3) of the Code from which CNL Realty did not derive or receive
any income, furnished or rendered services other than those customarily
furnished or rendered in connection with the rental of real property only
within the meaning of section 856(d)(1)(B) of the Code; and neither CNL
Realty, nor any person which is not an "independent contractor" within the
meaning of section 856(d)(3) of the Code from which CNL Realty does not derive
or receive any income, will furnish or render such services in CNL Realty's
current and future taxable years.
17. For each taxable year from 1984 through 1995, neither CNL Realty,
nor any person which was not an "independent contractor" within the meaning of
section 856(d)(3) of the Code from which CNL Realty did not derive or receive
any income, rendered any services that were primarily for the convenience of
any of the occupants of the Properties, within the meaning of section
1.512(b)-1(c)(5) of the Treasury Regulations; and neither CNL Realty, nor any
person which is not an "independent contractor" within the meaning of section
856(d)(3) of the Code from which CNL Realty does not derive or receive any
income, will render such services in CNL Realty's current and future taxable
years.
18. For each taxable year from 1984 through 1995, CNL Realty did not
receive or accrue rent attributable to personal property in situations where
the average adjusted bases of the personal property leased in connection with
each lease of real property by CNL Realty exceeded 15 percent of the average
adjusted bases of the real property and the personal property together, within
the meaning of section 856(d)(1) of the Code, and CNL Realty will not receive
or accrue such rent in its current and future taxable years.
19. For each taxable year from 1984 through 1995, CNL Realty did not
receive or accrue, directly or indirectly, rent or interest with respect to
real or personal property, where the determination of the amount of rent or
interest depended in whole or in part on the income or profits derived by any
person from the property; and CNL Realty will not receive or accrue such rent
in its current and future taxable years. This paragraph does not apply to (i)
interest or rents based on a fixed percentage or percentages of receipts or
sales within the meaning of sections 856(d)(2)(A) or 856(f)(1)(A) of the Code
or (ii) interest received from a debtor which derives substantially all of its
gross income, with respect to the real property securing the debt obligation
from which the interest is derived, from the leasing of substantially all of
its interests in such property to tenants, where the amounts received from the
debtor as interest are attributable to qualified rents (within the meaning of
section 856(d)(6)(B) of the Code) received by the debtor from such tenants,
within the meaning of section 856(f)(2) of the Code.
20. For each taxable year from 1984 through 1995, CNL Realty did not
receive or accrue, directly or indirectly, rents from any person in which it
owned (a) in the case of a corporation, 10 percent or more of the total
combined voting power of all classes of stock entitled to vote, or 10 percent
or more of the total number of shares of all classes of stock, or (b) in the
case of an entity other than a corporation, an interest of 10 percent or more
in the assets or net profits of such entity; and CNL Realty will not receive
or accrue rent from such persons in its current and future taxable years. For
purposes of this paragraph, ownership is determined by taking into account the
attribution rules of section 318 (as modified by section 856(d)(5)) of the
Code.
21. At the close of each quarter of each taxable year from September
30, 1984, through December 31, 1995, at least 75 percent of the value of CNL
Realty's total assets were represented by real estate assets (as defined by
section 856(c)(6)(B) of the Code), cash and cash items (including receivables)
and government securities; and CNL Realty will conduct its business so that at
least 75 percent of the value of its total assets are represented by real
estate assets (as defined by section 856(c)(6)(B) of the Code), cash and cash
items (including receivables), and government securities, in its current and
all future taxable years.
22. At the close of each quarter of each taxable year from September
30, 1984, through December 31, 1995, not more than 25 percent of the value of
CNL Realty's total assets were represented by securities (other than
government securities or securities treated as real estate assets pursuant to
section 856(c)(6)(B) of the Code), and no such securities of any one issuer
exceeded 5 percent of the value of the total assets of CNL Realty; and CNL
Realty will conduct its business so that not more than 25 percent of the value
of its total assets are represented by securities (other than government
securities or securities treated as real estate assets pursuant to section
856(c)(6)(B) of the Code), and no such securities of any one issuer will
exceed five percent of the value of the total assets of CNL Realty, in its
current and all future taxable years .
23. At the close of each quarter of each taxable year from September
30, 1984, through December 31, 1995, CNL Realty did not hold securities (other
than government securities or securities treated as real estate assets
pursuant to section 856(c)(6)(B) of the Code) that constituted more than 10
percent of the outstanding voting securities of any one issuer, and CNL Realty
will conduct its business so that it does not hold such securities, in its
current and all future taxable years.
24. CNL Realty has made distributions to stockholders in each taxable
year from 1984 through 1995 of at least 95 percent of its "real estate
investment trust taxable income" (determined consistent with section
857(a)(1)(A)(i) of the Code) plus at least 95 percent of the excess of any
"net income from foreclosure property" over the tax imposed by the Code on
such net income, if any, as such terms are defined in sections 857(b)(2) and
857(b)(4)(B), respectively, of the Code, during the taxable year involved or
during the period thereafter as described in section 858 of the Code; and CNL
Realty intends to make such distributions in its current and all future
taxable years.
25. CNL Realty has at all times beneficially held all of its assets
for investment purposes and not as (i) stock in trade or other property of a
kind which would properly be includible in inventory if on hand at the close
of the taxable year or (ii) property held primarily for sale to customers in
the ordinary course of the trade or business of CNL Realty; and CNL Realty
intends to continue to hold its assets in the same manner in its current and
all future taxable years.
26. CNL Realty has not made any distributions to its shareholders with
respect to any class or series of capital stock that was not pro rata with
respect to such class or series, with no preference to any share of stock as
compared with other shares of the same class or series, and has not made any
distributions that give a preference to one class or series of stock as
compared with another class or series except to the extent that the former is
entitled (without reference to waivers of their rights by shareholders) to
such preference, and CNL Realty intends not to make any such distributions in
its current and all future taxable years.
27. Representations herein as to the Properties will also be true with
respect to the properties acquired by CNL Realty after the date hereof.
28. CNL Realty has owned 100 percent of the stock of Net Lease Realty
I, Inc. and Net Lease Realty II, Inc. at all times during the period such
corporations have been in existence and will continue to do so in the future.
29. CNL Realty will use its best efforts to conduct its business so
that it will continue to be organized and operated in a manner that will allow
it to qualify as a REIT pursuant to sections 856 through 860 of the Code.
COMMERCIAL NET LEASE REALTY, INC.
By:/s/Kevin B. Habicht
-------------------------------------
Kevin B. Habicht,
Executive Vice President
(FN) Unless otherwise noted, all references to CNL Realty herein refer to CNL
Realty and its wholly owned subsidiaries Net Lease Realty I, Inc. and
Net Lease Realty II, Inc.
EXHIBIT 24.2
CONSENT OF KPMG PEAT MARWICK LLP
[Letterhead of KPMG Peat Marwick LLP]
To the Board of Directors
Commercial Net Lease Realty, Inc.
We consent to the use of our reports incorporated herein by reference and to
the reference to our firm under the heading "Experts" in the prospectus.
/s/KPMG Peat Marwick
Orlando, Florida
September 12, 1996
