UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
(Mark One)
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 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 of (I.R.S. Employer Identification No.)
incorporation or organization)
400 East South Street, Suite 500
Orlando, Florida 32801
(Address of principal executive offices, including zip code)
Registrant's telephone number, including area code: (407) 422-1574
Securities registered pursuant to Section 12(b) of the Act:
Title of each class: Name of exchange on which registered:
Common Stock, $.01 par value New York Stock Exchange
Securities registered pursuant to section 12(g) of the Act:
None
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or 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 by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of voting stock held by non-affiliates of the
registrant as of March 22, 1996, was $198,624,602.
The number of shares of common stock outstanding as of March 22, 1996,
was 15,688,672.
DOCUMENTS INCORPORATED BY REFERENCE:
1. Registrant incorporates by reference portions of the Commercial
Net Lease Realty, Inc. Annual Report to Shareholders for the year ended
December 31, 1995 (Items 5, 6, 7 and 8 of Part II).
2. Registrant incorporates by reference portions of the Commercial
Net Lease Realty, Inc. Proxy Statement for the 1996 Annual Meeting of
Shareholders (Items 10, 11, 12 and 13 of Part III).
PART I
ITEM 1. BUSINESS
Commercial Net Lease Realty, Inc. (the "Registrant" or the "Company") is
a real estate investment trust (a "REIT") which was incorporated in 1984 in
the State of Delaware. In June 1994, the Company reincorporated in the State
of Maryland. The Company acquires, owns and manages a diversified portfolio
of high-quality, freestanding properties leased to major retail businesses
under long-term commercial net leases.
The Company's strategy is to invest in single-tenant, freestanding
retail properties with purchase prices of generally up to $5 million, which
typically are located along intensive commercial corridors near traffic
generators, such as regional malls, business developments and major
thoroughfares. Management believes that these types of properties when leased
to high-quality tenants with significant market presence provide attractive
opportunities for a stable current return and the potential for capital
appreciation. In management's view, these types of properties also provide
the Company with flexibility in use and tenant selection when the Properties
are re-let upon lease expiration.
The Company will hold its properties until it determines that the sale
or other disposition of the properties is advantageous in view of the
Company's investment objectives. In deciding whether to sell properties, the
Company will consider factors such as potential capital appreciation, net cash
flow and federal income tax considerations.
Properties
During the year ended December 31, 1995, the Company borrowed
$67,400,000 of amounts it has available under its credit facility to acquire
29 properties and four buildings which were developed by the tenant on land
parcels owned by the Company. As of December 31, 1995, the Company owned 157
properties (the "Properties") that are leased to major businesses, including
Academy, Barnes & Noble, Best Buy, Blockbuster Music, Borders, Burger King,
Checkers, CompUSA, Computer City, Denny's, Eckerd, Food 4 Less, Food Lion,
Golden Corral, Good Guys, Hardee's, Hi-Lo Automotive, International House of
Pancakes, Levitz, Linens 'n Things, Marshalls, Office Depot, OfficeMax,
Oshmans, Pier 1 Imports, Pizza Hut, Scotty's, Sears, Waccamaw and Wendy's.
The occupancy rate of the Company's Property portfolio was 100 percent at
December 31, 1995.
All of the Properties are leased under net leases pursuant to which the
tenant typically will bear responsibility for substantially all property costs
and expenses associated with ongoing maintenance and operation. The lease of
each of the Company's Properties require payment of annual base rent plus,
generally, either percentage rent based on the tenant's gross sales or
contractual increases in annual rent.
During 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 December 31, 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. will continue to account for more than ten percent of the Company's total
rental income in 1996. Any failure of this lessee could materially affect the
Company's income.
Investment in Subsidiaries
In November 1995, the Company purchased 100% of the common stock of two
newly-formed entities, Net Lease Realty I, Inc. and Net Lease Realty II, Inc.
to facilitate the acquisition of certain properties. Each of the wholly-owned
subsidiaries is a qualified real estate investment trust subsidiary as defined
under Internal Revenue Code Section 856(i)(2).
Advisory Services
The Company and CNL Realty Advisors, Inc. have entered into an advisory
agreement (the "Advisory Agreement"), which provides for CNL Realty Advisors,
Inc. to receive an annual fee, payable monthly, equal to seven percent of
funds from operations, as defined in the Advisory Agreement, up to
$10,000,000, six percent of funds from operations in excess of $10,000,000 but
less than $20,000,000 and five percent of funds from operations in excess of
$20,000,000. Under the Advisory Agreement, CNL Realty Advisors, Inc.
generally is responsible for administering the day-to-day investment
operations of the Company, including investment analysis and development,
acquisitions, due diligence, and asset management and accounting services.
These duties include collecting rental payments, inspecting and managing the
Properties, assisting the Company in responding to tenant inquiries and
notices, providing information to the Company about the status of the leases
and the Properties, maintaining the Company's accounting books and records,
and preparing and filing various reports, returns or statements with various
regulatory agencies. In addition, CNL Realty Advisors, Inc. serves as the
Company's consultant in connection with policy decisions to be made by the
Board of Directors, manages the Company's Properties and renders other
services as the Board of Directors deems appropriate. CNL Realty Advisors,
Inc. is subject to the supervision of the Company's Board of Directors and has
only such functions as are delegated to it.
The Advisory Agreement was renewed January 1, 1996 and continues until
January 1997, and thereafter may be extended annually upon mutual consent of a
majority of the board of directors of CNL Realty Advisors, Inc. and a majority
of the independent directors of the Company unless terminated at an earlier
date upon 90 days' prior notice by either party.
Competition
The Company generally competes with other REITs, real estate limited
partnerships and other investors, including but not limited to, insurance
companies, pension funds and financial institutions, in the acquisition,
leasing, financing and disposition of investments in net-leased retail
properties.
Employees
Reference is made to Item 10. Directors and Executive Officers of the
Registrant for a listing of the Company's Executive Officers. The Company has
no other employees.
ITEM 2. PROPERTIES
As of December 31, 1995, the Company owned 157 Properties located in 26
states. Reference is made to the Schedule of Real Estate and Accumulated
Depreciation filed with this Report for a listing of the Properties and their
respective costs.
Description of Properties
Land. The Company's Property sites range from approximately 12,000 to
286,000 square feet depending upon building size and local demographic
factors. Sites purchased by the Company are in locations zoned for commercial
use which have been reviewed for traffic patterns and volume. Land costs
range from approximately $36,500 to $3,570,000.
Buildings. The buildings generally are rectangular and are constructed
from various combinations of stucco, steel, wood, brick and tile. Building
sizes range from approximately 1,000 to 56,000 square feet. Building costs
range from approximately $195,000 to $6,062,000 for each Property, depending
upon the size of the building and the site and the area in which the Property
is located. Generally, the Properties owned by the Company are freestanding,
with paved parking areas.
Leases. Although there are variations in the specific terms of the
leases, the following is a summarized description of the general structure of
the Company's leases. Generally, the leases of the Properties owned by the
Company provide for initial terms of 15 to 20 years. As of December 31, 1995,
the average remaining lease term was approximately 14 years. All of the
Properties are leased under net leases pursuant to which the tenant typically
will bear responsibility for substantially all property costs and expenses
associated with ongoing maintenance and operation, including utilities,
property taxes and insurance. In addition, the majority of the Company's
leases provide that the tenant is responsible for roof and structural repairs.
The leases of the Properties provide for annual base rental payments (payable
in monthly installments) ranging from $23,952 to $910,132. Generally, the
leases provide for either percentage rent or contractual increases in annual
rent. Leases which provide for contractual increases in annual rent generally
have increases which range from six to 12 percent after every five years of
the lease term. In addition, for those leases which provide for the payment
of percentage rent, such rent is generally one to eight percent of the
tenants' annual gross sales, less the amount of annual base rent payable in
that lease year. As of December 31, 1995, leases representing approximately
68 percent of annual base rent include contractual increases, leases
representing approximately 44 percent of annual base rent include percentage
rent provisions and leases representing approximately 23 percent of annual
base rent include both contractual and percentage rent provisions.
Generally, the leases of the Properties provide for two, three or four
five-year renewal options subject to the same terms and conditions as the
initial lease. Some of the leases also provide that, in the event the Company
wishes to sell the Property subject to that lease, the Company first must
offer the lessee the right to purchase the Property on the same terms and
conditions, and for the same price, as any offer which the Company has
received for the sale of the Property.
The Company is not aware of any environmental liability with respect to
any of the Properties in the Company Portfolio that it believes would have a
material adverse effect on the Company's assets or financial condition.
The Company's principal executive offices are located at 400 E. South
Street, Suite 500, Orlando, Florida 32801, where it occupies office space
provided to it free of charge by CNL Realty Advisors, Inc., the Company's
advisor.
ITEM 3. LEGAL PROCEEDINGS
The Company is a defendant in a law suit filed on October 26, 1994, in
the Circuit Court, Hamilton County, Tennessee, whereby the plaintiff is
alleging that a flooding problem on the property adjacent to the Company's
Property in Chattanooga, Tennessee, is a result of the construction of the
building and parking lot on the Company's Property and is seeking damages of
$400,000. Management intends to vigorously contest these claims and believes
that, if the Company were to be held liable for any damages, such damages
would be covered by insurance.
The Company is also a defendant in a law suit filed on December 20,
1994, in the Circuit Court, Knox County, Tennessee, and in the Circuit Court,
Greene County, Tennessee, by the surviving spouse of a patron of the Company's
Property in Tusculum, Tennessee. The plaintiff is alleging that the Company
was negligent in the design and control of the parking lot on the Company's
Property and is seeking damages of $2,500,000. Management intends to
vigorously contest these claims and to seek full indemnification from the
tenant. Management believes that, if the Company were to be held liable for
any damages, such damages would be covered by insurance.
The Company is not a party to any other pending legal proceedings which,
in the opinion of the Company and its general counsel, is likely to have a
material adverse effect upon the Company's business or financial condition.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Information responsive to this Item is contained in the section
captioned "Share Price and Dividend Data" on page 21 of the Registrant's
Annual Report to Shareholders for the year ended December 31, 1995; the
information in such section is filed as an exhibit to this report and the
cited portion of which is incorporated herein by reference.
ITEM 6. SELECTED FINANCIAL DATA
Information responsive to this Item is contained in the section
captioned "Historical Financial Highlights" on page one of the Registrant's
Annual Report to Shareholders for the year ended December 31, 1995; the
information in such section is filed as an exhibit to this report and the
cited portion of which is incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Information responsive to this Item is contained in the section
captioned "Management's Discussion and Analysis of Financial Condition and
Results of Operations" on pages six through nine of the Registrant's Annual
Report to Shareholders for the year ended December 31, 1995; the information
in such section is filed as an exhibit to this report and the cited portion of
which is incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Certain information responsive to this Item is contained in the section
captioned "Quarterly Financial Data" on page 21 of the Registrant's Annual
Report to Shareholders for the year ended December 31, 1995; the information
in such section is filed as an exhibit to this report and the cited portion of
which is incorporated herein by reference. The financial statements of the
Registrant, together with the report thereon of KPMG Peat Marwick LLP,
appearing in the Annual Report to Shareholders for the year ended December 31,
1995, are incorporated herein by reference.
ITEM 9. DISAGREEMENTS OF ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Reference is made to the Registrant's definitive proxy statement which
was filed with the Commission on March 28, 1996, pursuant to Regulation 14(a);
information responsive to this Item is contained in the sections thereof
captioned "Proposal I: Election of Directors - Nominees" and "Proposal I:
Election of Directors - Executive Officers" and "Security Ownership," and the
information in such sections is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
Reference is made to the Registrant's definitive proxy statement which
was filed with the Commission on March 28, 1996, pursuant to Regulation 14(a);
information responsive to this Item is contained in the section thereof
captioned "Proposal I: Election of Directors - Compensation of Directors" and
"Proposal I: Executive Compensation," and the information in such sections is
incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Reference is made to the Registrant's definitive proxy statement which
was filed with the Commission on March 28, 1996, pursuant to Regulation 14(a);
information responsive to this Item is contained in the section thereof
captioned "Security Ownership," and the information in such section is
incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Reference is made to the Registrant's definitive proxy statement which
was filed with the Commission on March 28, 1996, pursuant to Regulation 14(a);
information responsive to this Item is contained in the section thereof
captioned "Certain Transactions," and the information in such section is
incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report.
1. Financial Statements
Report of Independent Auditors
Consolidated Balance Sheets at December 31, 1995 and 1994
Consolidated Statements of Earnings for the years ended December 31,
1995, 1994 and 1993
Consolidated Statements of Stockholders' Equity for the years ended
December 31, 1995, 1994 and 1993
Consolidated Statements of Cash Flows for the years ended December 31,
1995, 1994 and 1993
Notes to Consolidated Financial Statements
2. Financial Statement Schedule
Report of Independent Auditors
Schedule III - Real Estate and Accumulated Depreciation at
December 31, 1995
Notes to Schedule III - Real Estate and Accumulated Depreciation at
December 31, 1995
All other schedules are omitted because they are not applicable or
because the required information is shown in the financial
statements or the notes thereto.
3. Exhibits
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(ii) to Amendment No.
2 to the Registrant's Registration No. 33-83110 on Form S-3, 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 Form of Advisory Agreement between the Registrant and CNL Realty
Advisors, Inc. (filed as Exhibit 10.21 to the Registrant's Report
on Form 8 dated April 29, 1992, amending its Annual Report on Form
10-K for the year ended December 31, 1991, and incorporated herein
by reference).
10.4 Advisory Agreement between Registrant and CNL Realty Advisors,
Inc. effective as of April 1, 1993 and renewed January 1, 1995
(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).
10.5 Revolving Line of Credit and Security Agreement, dated as of 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 incorporated herein by reference).
10.6 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).
10.7 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 incorporated
herein by reference).
10.8 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 by
reference).
10.9 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).
10.10 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).
10.11 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).
10.12 Loan Agreement, dated January 19, 1996, among Registrant and
Principal Mutual Life Insurance Company relating to a $39,450,000
loan. Filed herewith.
10.13 Secured Promissory Note, dated January 19, 1996, among Registrant
and Principal Mutual Life Insurance Company relating to a
$39,450,000 loan. Filed herewith.
13 Annual Report to Shareholders for the year ended December 31, 1995
("filed" only to the extent material therefrom is specifically
incorporated herein by reference).
23 Consent of Independent Accountants dated March 22, 1996. Filed
herewith.
(b) The Registrant filed no reports on Form 8-K during the period from
October 1, 1995 through December 31, 1995.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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, on the 29th day
of March, 1996.
COMMERCIAL NET LEASE REALTY, INC.
By: /s/ James M. Seneff, Jr.
----------------------------------
JAMES M. SENEFF, JR.
Chairman of the Board of Directors
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ James M. Seneff, Jr. Chairman of the Board of March 29, 1996
- ------------------------- Directors Chief
James M. Seneff, Jr. Executive Officer
(Principal Executive
Officer)
/s/ Robert A. Bourne Vice Chairman of the March 29, 1996
- ------------------------- Board of Directors,
Robert A. Bourne Secretary and Treasurer
/s/ Edward Clark Director March 29, 1996
- -------------------------
Edward Clark
/s/ Willoughby T. Cox, Jr. Director March 29, 1996
- -------------------------
Willoughby T. Cox, Jr.
/s/ Clifford R. Hinkle Director March 29, 1996
- -------------------------
Clifford R. Hinkle
/s/ Ted B. Lanier Director March 29, 1996
- -------------------------
Ted B. Lanier
/s/ Gary M. Ralston President March 29, 1996
- -------------------------
Gary M. Ralston
/s/ Kevin B. Habicht Chief Financial Officer March 29, 1996
- ------------------------- (Principal Financial and
Kevin B. Habicht Accounting Officer)
REPORT OF INDEPENDENT AUDITOR'S ON SUPPLEMENTARY INFORMATION
----------------------------------------------------------------
The Board of Directors
Commercial Net Lease Realty, Inc.:
Under date of January 20, 1996, except for Note 13 for which the date is
January 30, 1996, we reported on the balance sheets of Commercial Net Lease
Realty, Inc. as of December 31, 1995 and 1994, and the related statements of
earnings, stockholders' equity and cash flows for each of the years in the
three-year period ended December 31, 1995, as contained in Item 14(a)1 of Form
10-K and in the 1995 annual report to stockholders. These financial
statements and our report thereon are both included in Item 14(a)1 of Form 10-
K for the year 1995. In connection with our audits of the aforementioned
financial statements, we also audited the related financial statement schedule
as of December 31, 1995. This financial statement schedule is the
responsibility of the Company's management. Our responsibility is to express
an opinion on this financial statement schedule based on our audits.
In our opinion, such financial statement schedule, when considered in relation
to the basic financial statements taken as a whole, presents fairly, in all
material respects, the information set forth herein.
/s/KPMG Peat Marwick LLP
Orlando, Florida
January 20, 1996, except for Note 13
for which the date is January 30, 1996
COMMERCIAL NET LEASE REALTY, INC.
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
-------------------------------------------------------
December 31, 1995
(A) (B) (C) (D) (E)
Costs Capitalized
Initial Cost Subsequent
To Company To Acquisition
------------------------ ------------------
Buildings
Encum- and Improve- Carrying
brances Land Improvements ments Costs
------- ----------- ------------ -------- --------
Properties the Company
has Invested in Under
Operating Leases:
Academy:
Houston, TX - $ 1,074,232 $ - $ - $ -
Houston, TX - 699,165 - - -
N. Richland
Hills, TX - 1,286,220 - - -
Barnes & Noble:
Lakeland, FL - 1,069,721 1,586,218 - -
Brandon, FL - 1,474,921 1,605,896 - -
Denver, CO - 3,242,338 2,720,034 - -
Houston, TX - 3,307,562 2,396,024 - -
Plantation, FL - 3,570,000 - - -
Cary, NC - 2,754,000 - - -
Lafayette, LA - 1,122,000 - - -
Oklahoma City, OK - 1,662,090 - - -
Daytona, FL - 2,540,511 - - -
Best Buy:
Corpus Christi, TX - 818,448 896,395 - -
Blockbuster Music:
Dallas, TX - 346,548 1,963,773 27,762 -
Borders:
Wilmington, DE - 3,030,769 6,061,538 - -
Richmond, VA - 2,177,310 2,599,587 - -
Burger King
Restaurants:
Asheboro, NC - 420,508 815,190 - -
Galliano, LA - 249,001 1,130,506 - -
John's Island, SC - 385,517 698,309 - -
Lake Charles, LA - 272,381 965,713 - -
Lancaster, OH - 220,846 582,815 - -
Natchez, MS - 206,717 653,530 - -
Tappahannock, VA - 289,840 572,779 - -
Warren, MI - 298,817 785,031 - -
Manchester, NH - 619,037 428,757 - -
Rochester, NH - 216,652 779,450 - -
St. Paul, MN - 225,297 542,847 - -
Columbus, OH - 357,114 407,093 - -
Opelousas, LA - 460,374 824,510 - -
Coon Rapids, MI - 322,658 544,936 - -
Checkers Restaurant:
Orlando, FL - 256,568 - - -
CompUSA:
Mission Viejo, CA - 2,706,352 1,368,966 - -
Computer City:
Miami, FL - 2,713,192 1,866,676 - -
Baton Rouge, LA - 606,715 910,072 - -
Denny's Restaurants:
Greenville, SC - 344,817 400,895 - -
Landrum, SC - 155,429 - - -
Mooresville, NC - 307,299 - - -
Greensboro, NC - 265,915 493,407 - -
Houston, TX - 289,036 572,985 - -
Santee, SC - 244,284 312,045 - -
Duncan, SC - 219,703 - - -
Topeka, KS - 414,686 - - -
Winter Springs, FL - 555,232 - - -
Eckerd:
San Antonio, TX - 440,985 - - -
Dallas, TX - 541,493 - - -
Garland, TX - 239,014 - - -
Arlington, TX - 368,964 - - -
Millville, NJ - 417,603 - - -
Atlanta, GA - 445,593 - - -
Mantua, NJ - 344,022 - - -
Amarillo, TX - 641,439 - - -
Amarillo, TX - 322,200 - - -
Glassboro, NJ - 534,243 - - -
Kissimmee, FL - 718,484 - - -
Colleyville, TX - 755,647 - - -
Tampa, FL - 604,682 - - -
Food 4 Less:
Lemon Grove, CA - 3,454,917 - - -
Golden Corral Family
Steakhouse
Restaurants:
Foley, AL (e) - 101,286 283,991 - -
Edenton, NC - 36,578 318,481 - -
Woodstock, GA - 200,680 328,450 - -
Bonham, TX (e) - 128,451 344,170 - -
Center, TX (e) - 103,187 308,859 - -
Gilmer, TX (e) - 116,815 296,454 - -
Leitchfield,
KY (e) - 73,660 306,642 - -
Marietta, GA (g) - 156,190 346,509 - -
Rockledge, FL - 120,593 340,889 - -
Silsbee, TX (e) - 132,802 302,052 - -
Atlanta, TX - 88,457 368,317 - -
Vernon, TX (e) - 105,798 328,943 - -
Abbeville, LA - 98,577 362,416 - -
Fredericksburg,
TX - 169,984 321,189 - -
Gonzales, TX (e) - 104,833 312,872 - -
Bowie, TX (e) - 57,824 311,544 - -
Clanton, AL (e) - 113,017 296,921 - -
Jacksonville, TX - 115,276 318,196 - -
Lake Placid,
FL (e) - 115,113 305,074 - -
Pleasanton, TX - 139,694 316,070 - -
Marble Falls,
TX (e) - 151,985 338,704 - -
Ennis, TX - 153,700 366,639 - -
Franklin, LA (e) - 105,839 396,831 - -
Melbourne, FL - 193,447 341,351 - -
Franklin, VA - 100,808 424,164 - -
Minden, LA (e) - 86,120 402,364 - -
Durant, OK - 140,862 411,135 - -
Hardee's Restaurants:
Chalkville, AL - 170,834 457,167 - -
Gulf Shores, AL - 348,281 595,164 - -
Mobile, AL - 336,696 - - -
Warrior, AL - 177,659 - - -
Horn Lake, MS - 302,787 - - -
Petal, MS - 277,104 415,193 - -
West Point, MS - 173,386 - - -
Rock Hill, SC - 216,777 466,450 - -
Columbia, TN - 226,300 - - -
Johnson City, TN - 215,567 - - -
Tusculum, TN - 182,349 507,293 - -
Hi-Lo Automotive:
Mesquite, TX - 233,420 513,523 - -
Fort Worth, TX - 197,037 512,296 - -
Houston, TX - 261,318 531,968 - -
Arlington, TX - 295,331 571,609 - -
Garland, TX - 239,570 512,023 - -
Dallas, TX - 281,347 543,937 - -
McAllen, TX - 265,177 605,397 - -
Temple, TX - 177,451 587,755 - -
San Antonio, TX - 200,510 643,741 - -
Universal City, TX - 247,264 570,677 - -
Bastrop, TX - 197,905 383,144 - -
Lake Worth, TX - 252,141 539,510 - -
Nacogdoches, TX - 190,324 522,232 - -
Eagle Pass, TX - 256,745 455,841 - -
International House
of Pancakes
Restaurants:
Stafford, TX - 382,084 - - -
Sunset Hills, MO - 271,853 - - -
Las Vegas, NV - 519,947 - - -
Fort Worth, TX - 430,896 - - -
Arlington, TX - 404,512 - - -
Matthews, NC - 380,043 - - -
Phoenix, AZ - 483,374 - - -
Linens 'n Things:
Freehold, NJ - 1,753,766 2,208,651 - -
Marshalls:
Freehold, NJ - 2,052,946 2,585,432 - -
Office Depot:
Arlington, TX - 596,024 1,411,432 - -
OfficeMax:
Corpus Christi, TX - 893,270 978,344 76,664 -
Dallas, TX - 1,118,500 1,709,891 - -
Cincinnati, OH - 543,489 1,574,551 - -
Evanston, IL - 1,867,831 1,757,618 - -
Pier 1 Imports:
Dallas, TX - 189,010 1,071,054 14,448 -
Pizza Hut Restaurant:
Orlando, FL - 220,632 258,483 - -
Rally's Restaurant:
Toledo, OH - 125,882 319,770 - -
Scotty's:
Orlando, FL - 1,064,260 2,049,431 - -
Orlando, FL - 1,187,730 2,131,807 - -
Sears Homelife
Centers:
Orlando, FL - 820,397 2,184,721 - -
Clearwater, FL - 1,184,438 2,526,207 - -
Oshmans:
Dallas, TX - 1,311,440 - - -
Waccamaw:
Fairfax, VA - 2,156,801 - - -
Wendy's Old Fashioned
Hamburger Restau-
rants:
Fenton, MO - 307,068 496,410 - -
Longwood, FL - 333,335 194,926 - -
----------- ----------- -------- --------
$83,363,492 $77,978,852 $118,874 $ -
=========== =========== ======== ========
Properties the Company
has Invested in Under
Direct Financing
Leases:
Academy:
Houston, TX - $ - $ 1,924,740 $ - $ -
Houston, TX - - 1,867,519 - -
Checkers Restaurant:
Orlando, FL - - 286,910 - -
Denny's Restaurants:
Landrum, SC - - 374,684 - -
Mooresville, NC - - 535,309 - -
Akron, OH - 137,424 733,450 - -
Duncan, SC - - 628,571 - -
Topeka, KS - - 498,921 - -
Winter Springs, FL - - 620,148 - -
Eckerd:
San Antonio, TX - - 783,974 - -
Dallas, TX - - 638,684 - -
Garland, TX - - 710,634 - -
Arlington, TX - - 636,070 - -
Millville, NJ - - 828,942 - -
Atlanta, GA - - 668,390 - -
Mantua, NJ - - 951,795 - -
Vineland, NJ - 286,231 1,063,142 - -
Amarillo, TX - - 857,250 - -
Amarillo, TX - 153,406 826,030 - -
Amarillo, TX - - 830,937 - -
Glassboro, NJ - - 887,497 - -
Kissimmee, FL - - 937,772 - -
Alice, TX - 189,126 804,703 - -
Colleyville, TX - - 1,074,893 - -
Tampa, FL - - 1,090,532 - -
Food Lion Super-
markets:
Keystone Heights,
FL - 88,604 1,845,988 - -
Chattanooga, TN - 336,488 1,701,072 - -
Lynchburg, VA - 128,216 1,674,167 - -
Martinsburg, WV - 448,648 1,543,573 - -
Good Guys:
Stockton, CA - 580,609 2,974,868 - -
Hardee's Restaurants:
Mobile, AL - - 479,107 - -
Warrior, AL - - 470,556 - -
Horn Lake, MS - - 555,975 - -
Iuka, MS - 130,258 505,363 - -
West Point, MS - - 517,424 - -
Biscoe, NC - 60,301 479,984 - -
Aynor, SC - 44,871 521,192 - -
Columbia, TN - - 584,927 - -
Johnson City, TN - - 570,690 - -
Hi-Lo Automotive:
Edinberg, TX - 97,056 418,926 - -
Copperas Cove, TX - 116,637 476,331 - -
Baton Rouge, LA - 89,954 508,146 - -
Lake Jackson, TX - 120,313 609,300 - -
Fort Worth, TX - 92,779 607,971 - -
Pantego, TX - 154,368 505,323 - -
Fort Worth, TX - 91,373 548,238 - -
Pharr, TX - 94,576 472,880 - -
Baton Rouge, LA - 122,349 527,930 - -
Houston, TX - 37,508 596,069 - -
International House
of Pancakes
Restaurants:
Stafford, TX - - 571,832 - -
Sunset Hills, MO - - 736,345 - -
Las Vegas, NV - - 613,582 - -
Fort Worth, TX - - 623,641 - -
Arlington, TX - - 608,132 - -
Matthews, NC - - 655,668 - -
Phoenix, AZ - - 559,307 - -
Levitz:
Tempe, AZ - 634,444 2,225,991 - -
Oshmans:
Dallas, TX - - 2,658,976 - -
Waccamaw:
Fairfax, VA - - 3,356,493 - -
----------- ----------- -------- --------
$ 4,235,539 $53,367,464 $ - $ -
=========== =========== ======== ========
COMMERCIAL NET LEASE REALTY, INC.
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION - CONTINUED
-------------------------------------------------------------------
December 31, 1995
(F) (G) (H) (I)
Gross Amount at Which Carried
at Close of Period (b)
-------------------------------------
Buildings
and Accumulated
Land Improvements Total Depreciation
----------- ------------ ------------ ------------
Properties the Company
has Invested in Under
Operating Leases:
Academy:
Houston, TX $ 1,074,232 (c) $ 1,074,232 $ -
Houston, TX 699,165 (c) 699,165 -
N. Richland
Hills, TX 1,286,220 (f) 1,286,220 -
Barnes & Noble:
Lakeland, FL 1,069,721 $ 1,586,218 2,655,939 36,884
Brandon, FL 1,474,921 1,605,896 3,080,817 37,341
Denver, CO 3,242,338 2,720,034 5,962,372 85,190
Houston, TX 3,307,562 2,396,024 5,703,586 14,983
Plantation, FL 3,570,000 (f) 3,570,000 -
Cary, NC 2,754,000 (f) 2,754,000 -
Lafayette, LA 1,122,000 (f) 1,122,000 -
Oklahoma City, OK 1,662,090 (f) 1,662,090 -
Daytona, FL 2,540,511 (f) 2,540,511 -
Best Buy:
Corpus Christi, TX 818,448 896,395 1,714,843 47,521
Blockbuster Music:
Dallas, TX 346,548 1,991,535 2,338,083 86,358
Borders:
Wilmington, DE 3,030,769 6,061,538 9,092,307 155,612
Richmond, VA 2,177,310 2,599,587 4,776,897 36,465
Burger King
Restaurants:
Asheboro, NC 420,508 815,190 1,235,698 71,329
Galliano, LA 249,001 1,130,506 1,379,507 98,919
John's Island, SC 385,517 698,309 1,083,826 61,102
Lake Charles, LA 272,381 965,713 1,238,094 84,500
Lancaster, OH 220,846 582,815 803,661 50,996
Natchez, MS 206,717 653,530 860,247 57,184
Tappahannock, VA 289,840 572,779 862,619 50,118
Warren, MI 298,817 785,031 1,083,848 68,690
Manchester, NH 619,037 428,757 1,047,794 27,796
Rochester, NH 216,652 779,450 996,102 50,531
St. Paul, MN 225,297 542,847 768,144 33,965
Columbus, OH 357,114 407,093 764,207 25,471
Opelousas, LA 460,374 824,510 1,284,884 51,588
Coon Rapids, MI 322,658 544,936 867,594 34,096
Checkers Restaurant:
Orlando, FL 256,568 (c) 256,568 -
CompUSA:
Mission Viejo, CA 2,706,352 1,368,966 4,075,318 19,962
Computer City:
Miami, FL 2,713,192 1,866,676 4,579,868 79,462
Baton Rouge, LA 606,715 910,072 1,516,787 61
Denny's Restaurants:
Greenville, SC 344,817 400,895 745,712 25,990
Landrum, SC 155,429 (c) 155,429 -
Mooresville, NC 307,299 (c) 307,299 -
Greensboro, NC 265,915 493,407 759,322 31,987
Houston, TX 289,036 572,985 862,021 37,146
Santee, SC 244,284 312,045 556,329 20,229
Duncan, SC 219,703 (c) 219,703 -
Topeka, KS 414,686 (c) 414,686 -
Winter Springs, FL 555,232 (c) 555,232 -
Eckerd:
San Antonio, TX 440,985 (c) 440,985 -
Dallas, TX 541,493 (c) 541,493 -
Garland, TX 239,014 (c) 239,014 -
Arlington, TX 368,964 (c) 368,964 -
Millville, NJ 417,603 (c) 417,603 -
Atlanta, GA 445,593 (c) 445,593 -
Mantua, NJ 344,022 (c) 344,022 -
Amarillo, TX 641,439 (c) 641,439 -
Amarillo, TX 322,200 (c) 322,200 -
Glassboro, NJ 534,243 (c) 534,243 -
Kissimmee, FL 718,484 (c) 718,484 -
Colleyville, TX 755,647 (c) 755,647 -
Tampa, FL 604,682 (c) 604,682 -
Food 4 Less:
Lemon Grove, CA 3,454,917 (f) 3,454,917 -
Golden Corral Family
Steakhouse
Restaurants:
Foley, AL (e) 101,286 283,991 385,277 96,585
Edenton, NC 36,578 318,481 355,059 106,421
Woodstock, GA 200,680 328,450 529,130 109,703
Bonham, TX (e) 128,451 344,170 472,621 113,920
Center, TX (e) 103,187 308,859 412,046 102,244
Gilmer, TX (e) 116,815 296,454 413,269 98,137
Leitchfield,
KY (e) 73,660 306,642 380,302 101,500
Marietta, GA (g) 156,190 346,509 502,699 114,696
Rockledge, FL 120,593 340,889 461,482 112,834
Silsbee, TX (e) 132,802 302,052 434,854 99,994
Atlanta, TX 88,457 368,317 456,774 121,545
Vernon, TX (e) 105,798 328,943 434,741 105,262
Abbeville, LA 98,577 362,416 460,993 115,973
Fredericksburg,
TX 169,984 321,189 491,173 102,781
Gonzales, TX (e) 104,833 312,872 417,705 100,119
Bowie, TX (e) 57,824 311,544 369,368 99,694
Clanton, AL (e) 113,017 296,921 409,938 95,015
Jacksonville, TX 115,276 318,196 433,472 101,823
Lake Placid,
FL (e) 115,113 305,074 420,187 97,624
Pleasanton, TX 139,694 316,070 455,764 101,142
Marble Falls,
TX (e) 151,985 338,704 490,689 108,385
Ennis, TX 153,700 366,639 520,339 113,658
Franklin, LA (e) 105,839 396,831 502,670 123,017
Melbourne, FL 193,447 341,351 534,798 105,819
Franklin, VA 93,719 424,164 517,883 93,569
Minden, LA (e) 86,120 402,364 488,484 68,735
Durant, OK 140,862 411,135 551,997 66,017
Hardee's Restaurants:
Chalkville, AL 170,834 457,167 628,001 24,862
Gulf Shores, AL 348,281 595,164 943,445 32,367
Mobile, AL 336,696 (c) 336,696 -
Warrior, AL 177,659 (c) 177,659 -
Horn Lake, MS 302,787 (c) 302,787 -
Petal, MS 277,104 415,193 692,297 22,580
West Point, MS 173,386 (c) 173,386 -
Rock Hill, SC 216,777 466,450 683,227 25,367
Columbia, TN 226,300 (c) 226,300 -
Johnson City, TN 215,567 (c) 215,567 -
Tusculum, TN 182,349 507,293 689,642 27,588
Hi-Lo Automotive:
Mesquite, TX 233,420 513,523 746,943 15,461
Fort Worth, TX 197,037 512,296 709,333 13,906
Houston, TX 261,318 531,968 793,286 14,444
Arlington, TX 295,331 571,609 866,940 15,518
Garland, TX 239,570 512,023 751,593 13,897
Dallas, TX 281,347 543,937 825,284 13,745
McAllen, TX 265,177 605,397 870,574 3,952
Temple, TX 177,451 587,755 765,206 3,837
San Antonio, TX 200,510 643,741 844,251 4,202
Universal City, TX 247,264 570,677 817,941 3,725
Bastrop, TX 197,905 383,144 581,049 2,501
Lake Worth, TX 252,141 539,510 791,651 3,522
Nacogdoches, TX 190,324 522,232 712,556 3,409
Eagle Pass, TX 256,745 455,841 712,586 2,976
International House
of Pancakes
Restaurants:
Stafford, TX 382,084 (c) 382,084 -
Sunset Hills, MO 271,853 (c) 271,853 -
Las Vegas, NV 519,947 (c) 519,947 -
Fort Worth, TX 430,896 (c) 430,896 -
Arlington, TX 404,512 (c) 404,512 -
Matthews, NC 380,043 (c) 380,043 -
Phoenix, AZ 483,374 (c) 483,374 -
Linens 'n Things:
Freehold, NJ 1,753,766 2,208,651 3,962,417 74,067
Marshalls:
Freehold, NJ 2,052,946 2,585,432 4,638,378 86,702
Office Depot:
Arlington, TX 596,024 1,411,432 2,007,456 67,551
OfficeMax:
Corpus Christi, TX 893,270 1,055,008 1,948,278 55,503
Dallas, TX 1,118,500 1,709,891 2,828,391 85,612
Cincinnati, OH 543,489 1,574,551 2,118,040 58,372
Evanston, IL 1,867,831 1,757,618 3,625,449 24,655
Pier 1 Imports:
Dallas, TX 189,010 1,085,502 1,274,512 47,078
Pizza Hut Restaurant:
Orlando, FL 220,632 258,483 479,115 29,836
Rally's Restaurant:
Toledo, OH 125,882 319,770 445,652 28,851
Scotty's:
Orlando, FL 1,064,260 2,049,431 3,113,691 26,188
Orlando, FL 1,187,730 2,131,807 3,319,537 27,241
Sears Homelife
Centers:
Orlando, FL 820,397 2,184,721 3,005,118 141,782
Clearwater, FL 1,184,438 2,526,207 3,710,645 163,944
Oshmans:
Dallas, TX 1,311,440 (c) 1,311,440 -
Waccamaw:
Fairfax, VA 2,156,801 (c) 2,156,801 -
Wendy's Old Fashioned
Hamburger Restau-
rants:
Fenton, MO 307,068 496,410 803,478 52,716
Longwood, FL 333,335 194,926 528,261 21,745
----------- ----------- ------------ ----------
$83,356,403 $78,097,726 $161,454,129 $5,497,390
=========== =========== ============ ==========
Properties the Company
has Invested in Under
Direct Financing
Leases:
Academy:
Houston, TX - (c) (c) (c)
Houston, TX - (c) (c) (c)
Checkers Restaurant:
Orlando, FL - (c) (c) (c)
Denny's Restaurants:
Landrum, SC - (c) (c) (c)
Mooresville, NC - (c) (c) (c)
Akron, OH (d) (d) (d) (d)
Duncan, SC - (c) (c) (c)
Topeka, KS - (c) (c) (c)
Winter Springs, FL - (c) (c) (c)
Eckerd:
San Antonio, TX - (c) (c) (c)
Dallas, TX - (c) (c) (c)
Garland, TX - (c) (c) (c)
Arlington, TX - (c) (c) (c)
Millville, NJ - (c) (c) (c)
Atlanta, GA - (c) (c) (c)
Mantua, NJ - (c) (c) (c)
Vineland, NJ (d) (d) (d) (d)
Amarillo, TX - (c) (c) (c)
Amarillo, TX (d) (d) (d) (d)
Amarillo, TX - (c) (c) (c)
Glassboro, NJ - (c) (c) (c)
Kissimmee, FL - (c) (c) (c)
Alice, TX (d) (d) (d) (d)
Colleyville, TX - (c) (c) (c)
Tampa, FL - (c) (c) (c)
Food Lion Super-
markets:
Keystone Heights,
FL (d) (d) (d) (d)
Chattanooga, TN (d) (d) (d) (d)
Lynchburg, VA (d) (d) (d) (d)
Martinsburg, WV (d) (d) (d) (d)
Good Guys:
Stockton, CA (d) (d) (d) (d)
Hardee's Restaurants:
Mobile, AL - (c) (c) (c)
Warrior, AL - (c) (c) (c)
Horn Lake, MS - (c) (c) (c)
Iuka, MS (d) (d) (d) (d)
West Point, MS - (c) (c) (c)
Biscoe, NC (d) (d) (d) (d)
Aynor, SC (d) (d) (d) (d)
Columbia, TN - (c) (c) (c)
Johnson City, TN - (c) (c) (c)
Hi-Lo Automotive:
Edinberg, TX (d) (d) (d) (d)
Copperas Cove, TX (d) (d) (d) (d)
Baton Rouge, LA (d) (d) (d) (d)
Lake Jackson, TX (d) (d) (d) (d)
Fort Worth, TX (d) (d) (d) (d)
Pantego, TX (d) (d) (d) (d)
Fort Worth, TX (d) (d) (d) (d)
Pharr, TX (d) (d) (d) (d)
Baton Rouge, LA (d) (d) (d) (d)
Houston, TX (d) (d) (d) (d)
International House
of Pancakes
Restaurants:
Stafford, TX - (c) (c) (c)
Sunset Hills, MO - (c) (c) (c)
Las Vegas, NV - (c) (c) (c)
Fort Worth, TX - (c) (c) (c)
Arlington, TX - (c) (c) (c)
Matthews, NC - (c) (c) (c)
Phoenix, AZ - (c) (c) (c)
Levitz:
Tempe, AZ (d) (d) (d) (d)
Oshmans:
Dallas, TX - (c) (c) (c)
Waccamaw:
Fairfax, VA - (c) (c) (c)
COMMERCIAL NET LEASE REALTY, INC.
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION - CONTINUED
-------------------------------------------------------------------
December 31, 1995
(J) (K) (L)
Life on Which
Depreciation in
Latest Income
Date of Date Statement is
Construction Acquired Computed
------------ -------- ---------------
Properties the Company
has Invested in Under
Operating Leases:
Academy:
Houston, TX 1994 05/95 (c)
Houston, TX 1995 06/95 (c)
N. Richland
Hills, TX (f) 08/95 (f)
Barnes & Noble:
Lakeland, FL 1995 07/94 (h) 40 years
Brandon, FL 1995 08/94 (h) 40 years
Denver, CO 1994 09/94 40 years
Houston, TX 1995 10/94 (h) 40 years
Plantation, FL (f) 05/95 (f)
Cary, NC (f) 05/95 (f)
Lafayette, LA (f) 06/95 (f)
Oklahoma City, OK (f) 06/95 (f)
Daytona, FL (f) 09/95 (f)
Best Buy:
Corpus Christi, TX 1967 11/93 40 years
Blockbuster Music:
Dallas, TX 1980 04/94 40 years
Borders:
Wilmington, DE 1994 12/94 40 years
Richmond, VA 1995 06/95 40 years
Burger King
Restaurants:
Asheboro, NC 1986 07/92 40 years
Galliano, LA 1991 07/92 40 years
John's Island, SC 1988 07/92 40 years
Lake Charles, LA 1988 07/92 40 years
Lancaster, OH 1987 07/92 40 years
Natchez, MS 1986 07/92 40 years
Tappahannock, VA 1987 07/92 40 years
Warren, MI 1987 07/92 40 years
Manchester, NH 1980 05/93 40 years
Rochester, NH 1987 05/93 40 years
St. Paul, MN 1986 06/93 40 years
Columbus, OH 1982 06/93 40 years
Opelousas, LA 1989 06/93 40 years
Coon Rapids, MI 1990 06/93 40 years
Checkers Restaurant:
Orlando, FL 1988 07/92 (c)
CompUSA:
Mission Viejo, CA 1994 02/94 40 years
Computer City:
Miami, FL 1994 04/94 40 years
Baton Rouge, LA 1995 12/95 40 years
Denny's Restaurants:
Greenville, SC 1985 05/93 40 years
Landrum, SC 1992 05/93 (c)
Mooresville, NC 1992 05/93 (c)
Greensboro, NC 1992 05/93 40 years
Houston, TX 1991 05/93 40 years
Santee, SC 1992 05/93 40 years
Duncan, SC 1992 05/93 (c)
Topeka, KS 1990 06/93 (c)
Winter Springs, FL 1994 01/94 (c)
Eckerd:
San Antonio, TX 1993 12/93 (c)
Dallas, TX 1994 01/94 (c)
Garland, TX 1994 02/94 (c)
Arlington, TX 1994 02/94 (c)
Millville, NJ 1994 03/94 (c)
Atlanta, GA 1994 03/94 (c)
Mantua, NJ 1994 06/94 (c)
Amarillo, TX 1994 12/94 (c)
Amarillo, TX 1994 12/94 (c)
Glassboro, NJ 1994 12/94 (c)
Kissimmee, FL 1995 04/95 (c)
Colleyville, TX 1995 06/95 (c)
Tampa, FL 1995 12/95 (c)
Food 4 Less:
Lemon Grove, CA (f) 07/95 (f)
Golden Corral Family
Steakhouse
Restaurants:
Foley, AL (e) 1984 10/84 35 years
Edenton, NC 1984 11/84 35 years
Woodstock, GA 1984 11/84 35 years
Bonham, TX (e) 1984 12/84 35 years
Center, TX (e) 1984 12/84 35 years
Gilmer, TX (e) 1984 12/84 35 years
Leitchfield,
KY (e) 1984 12/84 35 years
Marietta, GA (g) 1984 12/84 35 years
Rockledge, FL 1984 12/84 35 years
Silsbee, TX (e) 1984 12/84 35 years
Atlanta, TX 1985 01/85 35 years
Vernon, TX (e) 1985 03/85 35 years
Abbeville, LA 1985 04/85 35 years
Fredericksburg,
TX 1985 04/85 35 years
Gonzales, TX (e) 1985 04/85 35 years
Bowie, TX (e) 1985 05/85 35 years
Clanton, AL (e) 1985 05/85 35 years
Jacksonville, TX 1985 05/85 35 years
Lake Placid,
FL (e) 1985 05/85 35 years
Pleasanton, TX 1985 05/85 35 years
Marble Falls,
TX (e) 1985 06/85 35 years
Ennis, TX 1985 07/85 35 years
Franklin, LA (e) 1985 07/85 35 years
Melbourne, FL 1985 07/85 35 years
Franklin, VA 1987 02/87 40 years
Minden, LA (e) 1989 03/89 40 years
Durant, OK 1989 08/89 40 years
Hardee's Restaurants:
Chalkville, AL 1992 10/93 40 years
Gulf Shores, AL 1992 10/93 40 years
Mobile, AL 1993 10/93 (c)
Warrior, AL 1992 10/93 (c)
Horn Lake, MS 1993 10/93 (c)
Petal, MS 1993 10/93 40 years
West Point, MS 1993 10/93 (c)
Rock Hill, SC 1993 10/93 40 years
Columbia, TN 1993 10/93 (c)
Johnson City, TN 1993 10/93 (c)
Tusculum, TN 1993 10/93 40 years
Hi-Lo Automotive:
Mesquite, TX 1994 10/94 40 years
Fort Worth, TX 1994 11/94 40 years
Houston, TX 1994 11/94 40 years
Arlington, TX 1993 11/94 40 years
Garland, TX 1993 11/94 40 years
Dallas, TX 1994 12/94 40 years
McAllen, TX 1982 09/95 40 years
Temple, TX 1989 09/95 40 years
San Antonio, TX 1994 09/95 40 years
Universal City, TX 1995 09/95 40 years
Bastrop, TX 1994 09/95 40 years
Lake Worth, TX 1995 09/95 40 years
Nacogdoches, TX 1995 09/95 40 years
Eagle Pass, TX 1994 09/95 40 years
International House
of Pancakes
Restaurants:
Stafford, TX 1992 10/93 (c)
Sunset Hills, MO 1993 10/93 (c)
Las Vegas, NV 1993 12/93 (c)
Fort Worth, TX 1993 12/93 (c)
Arlington, TX 1993 12/93 (c)
Matthews, NC 1993 12/93 (c)
Phoenix, AZ 1993 12/93 (c)
Linens 'n Things:
Freehold, NJ 1994 08/94 40 years
Marshalls:
Freehold, NJ 1994 08/94 40 years
Office Depot:
Arlington, TX 1991 01/94 40 years
OfficeMax:
Corpus Christi, TX 1967 11/93 40 years
Dallas, TX 1993 12/93 40 years
Cincinnati, OH 1994 07/94 40 years
Evanston, IL 1995 06/95 40 years
Pier 1 Imports:
Dallas, TX 1980 04/94 40 years
Pizza Hut Restaurant:
Orlando, FL 1974 08/93 20.9 years
Rally's Restaurant:
Toledo, OH 1989 07/92 38.8 years
Scotty's:
Orlando, FL 1995 06/95 40 years
Orlando, FL 1995 06/95 40 years
Sears Homelife
Centers:
Orlando, FL 1992 05/93 40 years
Clearwater, FL 1992 05/93 40 years
Oshmans:
Dallas, TX 1994 03/94 (c)
Waccamaw:
Fairfax, VA 1995 12/95 (c)
Wendy's Old Fashioned
Hamburger Restau-
rants:
Fenton, MO 1985 07/92 33 years
Longwood, FL 1982 07/92 31.4 years
Properties the Company
has Invested in Under
Direct Financing
Leases:
Academy:
Houston, TX 1994 05/95 (c)
Houston, TX 1995 06/95 (c)
Checkers Restaurant:
Orlando, FL 1988 07/92 (c)
Denny's Restaurants:
Landrum, SC 1992 05/93 (c)
Mooresville, NC 1992 05/93 (c)
Akron, OH 1992 05/93 (d)
Duncan, SC 1992 05/93 (c)
Topeka, KS 1990 06/93 (c)
Winter Springs, FL 1994 01/94 (c)
Eckerd:
San Antonio, TX 1993 12/93 (c)
Dallas, TX 1994 01/94 (c)
Garland, TX 1994 02/94 (c)
Arlington, TX 1994 02/94 (c)
Millville, NJ 1994 03/94 (c)
Atlanta, GA 1994 03/94 (c)
Mantua, NJ 1994 06/94 (c)
Vineland, NJ 1990 11/94 (d)
Amarillo, TX 1994 12/94 (c)
Amarillo, TX 1994 12/94 (d)
Amarillo, TX 1994 12/94 (c)
Glassboro, NJ 1994 12/94 (c)
Kissimmee, FL 1995 04/95 (c)
Alice, TX 1995 06/95 (d)
Colleyville, TX 1995 06/95 (c)
Tampa, FL 1995 12/95 (c)
Food Lion Super-
markets:
Keystone Heights,
FL 1993 05/93 (d)
Chattanooga, TN 1993 10/93 (d)
Lynchburg, VA 1994 01/94 (d)
Martinsburg, WV 1994 08/94 (d)
Good Guys:
Stockton, CA 1991 07/94 (d)
Hardee's Restaurants:
Mobile, AL 1993 10/93 (c)
Warrior, AL 1992 10/93 (c)
Horn Lake, MS 1993 10/93 (c)
Iuka, MS 1993 10/93 (d)
West Point, MS 1993 10/93 (c)
Biscoe, NC 1993 10/93 (d)
Aynor, SC 1993 10/93 (d)
Columbia, TN 1993 10/93 (c)
Johnson City, TN 1993 10/93 (c)
Hi-Lo Automotive:
Edinberg, TX 1993 10/94 (d)
Copperas Cove, TX 1994 10/94 (d)
Baton Rouge, LA 1994 10/94 (d)
Lake Jackson, TX 1994 10/94 (d)
Fort Worth, TX 1993 10/94 (d)
Pantego, TX 1993 10/94 (d)
Fort Worth, TX 1993 11/94 (d)
Pharr, TX 1993 11/94 (d)
Baton Rouge, LA 1994 12/94 (d)
Houston, TX 1982 09/95 (d)
International House
of Pancakes
Restaurants:
Stafford, TX 1992 10/93 (c)
Sunset Hills, MO 1993 10/93 (c)
Las Vegas, NV 1993 12/93 (c)
Fort Worth, TX 1993 12/93 (c)
Arlington, TX 1993 12/93 (c)
Matthews, NC 1993 12/93 (c)
Phoenix, AZ 1993 12/93 (c)
Levitz:
Tempe, AZ 1994 01/95 (d)
Oshmans:
Dallas, TX 1994 03/94 (c)
Waccamaw:
Fairfax, VA 1995 12/95 (c)
COMMERCIAL NET LEASE REALTY, INC.
NOTES TO SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
----------------------------------------------------------------
December 31, 1995
(a) Transactions in real estate and accumulated depreciation during 1995,
1994 and 1993, are summarized as follows:
Accumulated
Cost Depreciation
------------ ------------
Properties the Company
has Invested in Under
Operating Leases:
Balance, December 31, 1992 $ 24,110,390 $2,072,199
Acquisitions 31,748,181 -
Sale of land and buildings (1,225,217) (11,764)
Depreciation expense - 624,341
------------ ----------
Balance, December 31, 1993 54,633,354 2,684,776
Acquisitions 55,219,077 -
Depreciation expense - 1,076,593
------------ ----------
Balance, December 31, 1994 109,852,431 3,761,369
Acquisitions 51,601,698 -
Depreciation expense - 1,736,021
------------ ----------
Balance, December 31, 1995 $161,454,129 $5,497,390
============ ==========
(b) As of December 31, 1995, all of the leases are treated as operating
leases for federal income tax purposes. As of December 31, 1995, the
aggregate cost of the Properties owned by the Company and its
subsidiaries for federal income tax purposes was $219,057,229 and
$152,715,644, respectively.
(c) For financial reporting purposes, the portion of the lease relating to
the building has been recorded as a direct financing lease. The cost of
the building has been included in net investment in direct financing
leases; therefore, depreciation is not applicable.
(d) For financial reporting purposes, the lease for the land and building
has been recorded as a direct financing lease. The cost of the land and
building has been included in net investment in direct financing leases;
therefore, depreciation is not applicable.
(e) The tenant of this Property, Golden Corral Corporation, has subleased
this Property to a separate operator. Golden Corral Corporation
continues to be responsible for complying with all the terms of the
lease agreement and is continuing to pay rent on this Property to the
Company.
(f) The Company owns only land for this Property. Pursuant to the lease
agreement, the Company will purchase the building once construction is
complete.
(g) The tenant of this Property, Golden Corral Corporation, has subleased
this Property to an operator of a Ragazzi's restaurant. Golden Corral
Corporation continues to be responsible for complying with all of the
terms of the lease agreement and is continuing to pay rent on this
Property to the Company.
(h) Date acquired represents acquisition date of land. Pursuant to the
lease agreement, the Company purchased the buildings from the tenants
upon completion of construction, generally within 12 months from the
acquisition of the land.
EXHIBITS
--------
EXHIBIT INDEX
-------------
Exhibit Page
------- ----
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(ii) to Amendment No. 2 to the Registrant's
Registration No. 33-83110 on Form S-3, 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 Form of Advisory Agreement between the
Registrant and CNL Realty Advisors, Inc. (filed
as Exhibit 10.21 to the Registrant's Report on
Form 8 dated April 29, 1992, amending its Annual
Report on Form 10-K for the year ended December
31, 1991, and incorporated herein by reference).
10.4 Advisory Agreement between Registrant and CNL
Realty Advisors, Inc. effective as of April 1,
1993 and renewed January 1, 1995 (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).
10.5 Revolving Line of Credit and Security Agreement,
dated as of 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
incorporated herein by reference).
10.6 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).
10.7 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 incorporated herein by reference).
10.8 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 by reference).
10.9 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).
10.10 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).
10.11 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).
10.12 Loan Agreement, dated January 19, 1996, among
Registrant and Principal Mutual Life Insurance
Company relating to a $39,450,000 loan. Filed
herewith.
10.13 Secured Promissory Note, dated January 19, 1996,
among Registrant and Principal Mutual Life
Insurance Company relating to a $39,450,000
loan. Filed herewith.
13 Annual Report to Shareholders for the year ended
December 31, 1995 ("filed" only to the extent
material therefrom is specifically incorporated
herein by reference).
23 Consent of Independent Accountants dated March
22, 1996. Filed herewith.
EXHIBIT 10.12
LOAN AGREEMENT
LOAN AGREEMENT
----------------
This Loan Agreement is made this 19th day of January, 1996, by and
between COMMERCIAL NET LEASE REALTY, INC., a Maryland corporation ("Borrower")
and PRINCIPAL MUTUAL LIFE INSURANCE COMPANY, an Iowa corporation ("Lender").
RECITALS
A. Borrower is the owner of certain real property, legally described in
Exhibit "A" attached hereto and made a part hereof (the "Premises").
B. Borrower has requested and Lender has agreed to make a loan to Borrower
in the maximum principal amount of Thirty-Nine Million Four Hundred Fifty
Thousand and 00/100 Dollars ($39,450,000.00) ("Loan") pursuant to the terms
and conditions of that certain Mortgage Loan Commitment Application (the
"Commitment") dated October 10, 1995 as amended by Letter Agreement dated
October 30, 1995.
C. The Loan is evidenced by a Secured Promissory Note (the "Note") and is
secured by those certain mortgages, deeds of trust, deeds to secure debt or
other similar instruments (collectively, the "Mortgage") dated this date made
by Borrower in favor of Lender encumbering the Premises, those certain
Assignment of Leases and Rents dated this date made by Borrower in favor of
Lender, and various other documents, each of which evidences or secures the
Loan or evidences such security.
D. The principal balance of the Loan has been allocated by Borrower and
Lender to each of the parcels of real estate comprising the Premises as more
particularly set forth in Exhibit B attached hereto and made a part hereof
(the "Loan Allocation").
E. Notwithstanding certain provisions of the Note or Mortgage to the
contrary, Lender has agreed that Borrower may obtain the release of certain
portions of the Premises in return for the grant of substitute collateral, or
the prepayment of a portion of the Loan in excess of the value of the portion
of the Premises released, all as more particularly set forth below.
NOW, THEREFORE, in consideration of the mutual covenants, conditions,
promises and agreements herein contained, the sufficiency of which is hereby
acknowledged, IT IS HEREBY AGREED AS FOLLOWS:
ARTICLE ONE
-----------
INCORPORATION OF RECITALS; DEFINITIONS
Recitals A. through E., both inclusive, immediately above, are
incorporated into this Article One as though fully set forth herein. Unless
otherwise provided herein, all capitalized terms used shall have the same
meaning as set forth in the Mortgage.
ARTICLE TWO
-------------
SUBSTITUTION OF REAL PROPERTY
---------------------------------
2.01 Notwithstanding anything contained in the Mortgage or the other
Loan Documents to the contrary, so long as no Event of Default exists under
the Note or Mortgage, Lender agrees, upon the request of Borrower, to release
the lien of the Loan Documents from any property which comprises a portion of
the Premises upon the following conditions:
A. Borrower shall grant to Lender a valid, perfected first
mortgage lien on a parcel of real property (a "Substitute Premises")
whose value and net operating income is equal to or greater than the
value and net operating income of the property for which a release is
requested and the tenant of which Substitute Premises has a credit
rating equal to or better than the tenant or guarantor, as applicable,
of the property for which a release is requested, all as determined by
Lender in its sole and absolute discretion.
B. Borrower shall satisfy with respect to the Substitute
Premises all of the conditions of closing for the Premises set forth in
the Commitment, including, without limitation, approval by Lender of the
leases and tenants of such property, plus any other conditions then
being imposed by Lender for mortgage loans on real property with any
underwriting criteria similar to the Substitute Premises.
C. Borrower shall pay to Lender an underwriting fee equal to
the sum of (i) $5,000.00 for each Substitute Premises included in the
substitution transaction, plus (ii) $1,500.00 for each substitution
transaction. In addition, Borrower shall pay for all of Lender s costs
and reasonable fees incurred in connection with such substitution,
including without limitation, appraisals, legal counsel, survey, title
insurance, recording and escrow charges, environmental reports,
documentary stamps or intangible taxes, and property inspection reports.
2.02 Upon the substitution of real property acceptable to Lender, the
Loan Documents shall be amended to add the documents encumbering the
Substitute Premises to the cross-default and cross-collateral provisions
thereof, and Exhibit A hereto shall be automatically adjusted to add such
Substitute Premises and delete any released portion of the Premises, without
any further action by Borrower and Lender.
2.03 In the event Lender from time to time accepts any Substitute
Premises, Lender may, in its sole discretion, reallocate the then outstanding
principal balance of the Note among each property then comprising the
Premises, including the Substitute Premises, and Exhibit B attached hereto and
made a part hereof, shall be deemed to be automatically so adjusted without
any further action by Borrower and Lender.
ARTICLE THREE
---------------
SUBSTITUTION OF U.S. TREASURY SECURITIES
---------------------------------------------
3.01 Notwithstanding anything contained in the Mortgage or the other
Loan Documents to the contrary, so long as no Event of Default exists under
the Note or Mortgage, Lender agrees, upon the request of Borrower, to release
the lien of the Loan Documents from all of the Premises upon the following
conditions:
A. Borrower shall deliver to Lender, and grant a valid,
perfected first security interest in, U.S. Treasury securities in form
and principal amount reasonably satisfactory to Lender. The U.S.
Treasury securities provided to Lender must have a cash flow at least
equal to or greater than the required monthly payments of principal and
interest and the balloon payment at maturity under the terms of the
Note.
B. In connection with a substitution of U.S. Treasury
securities for the Premises, Borrower shall pay Lender a processing fee
of $10,000.00. In addition, Borrower shall pay for all of Lender s
costs and fees incurred in connection with such substitution of
collateral, including without limitation, outside legal counsel fees.
Further, Borrower shall cooperate with Lender in documenting such
transaction, and shall take all actions reasonably required by Lender in
furtherance of the requested substitution of collateral.
ARTICLE FOUR
--------------
PARTIAL PREPAYMENTS; ALLOCATION OF PRINCIPAL PAYMENTS
------------------------------------------------------------
4.01 Notwithstanding anything contained in the Mortgage or the other
Loan Documents to the contrary, so long as no Event of Default exists under
the Note or Mortgage, Lender agrees upon the request of Borrower to release
the lien of the Loan Documents from any property which comprises a portion of
the Premises upon the following conditions:
A. Borrower shall prepay to Lender 125% of the principal
balance of the Loan allocated to such portion of the Premises, as such
amount is originally set forth on Exhibit B as such amount may be
increased or reduced from time to time as herein described, plus a Make
Whole Premium calculated on the amount of such prepayment; and, upon
such prepayment the monthly payment under the Note shall be reduced
accordingly.
B. So long as no Event of Default exists under the Note or the
Mortgage, upon receipt by Lender of monthly installments of principal,
the portion of such principal payment equal to the percentage of the
principal balance of the Note allocated to each property comprising the
Premises as set forth on Exhibit B, and as adjusted from time to time
pursuant to the provision of Section 2.03 above, shall be applied pro
rata to reduce such allocated principal amount of each property.
Similarly, so long as no Event of Default exists under the Note or the
Mortgage, upon receipt of a prepayment pursuant to Section 4.01A, only
the portion of such prepayment in excess of the 100% allocated Loan
amount (exclusive of the Make Whole Premium) shall be allocated pro rata
to all remaining properties in accordance with the ratio of the
percentages contained on Exhibit B, exclusive of the allocation to the
property being released as a result of such prepayment, as the same may
be adjusted from time to time pursuant to the provisions of Section 2.03
above. Upon the written request of Borrower from time to time, Lender
shall confirm the allocated Loan amount of each property.
ARTICLE FIVE
--------------
CONDITIONAL RECOURSE; KMART LEASE GUARANTIES
--------------------------------------------------
5.01. The obligations of each Lessee of portions of the Premises
described as Store Numbers 84 (OfficeMax, Dallas, Texas), 99 (OfficeMax,
Cincinnati, Ohio). 126 (Borders, Wilmington, Delaware) and 134 (Borders,
Richmond, Virginia) are guaranteed by Kmart Corporation ("Kmart"), each
pursuant to the terms of a written Lease Guaranty (each a "Kmart Guaranty" and
collectively, the "Kmart Guaranties").
5.02 Lender required as a condition of funding the Loan that Borrower
provide to Lender the written affirmation of Kmart s obligations pursuant to
the Kmart Guaranties. Borrower has of yet been unable to obtain the written
affirmation of Kmart.
5.03 Notwithstanding any exculpation of Borrower contained herein or in
any of the Loan Documents to the contrary, until such time as Borrower
provides a written affirmation of Kmart reasonably acceptable to Lender with
respect to any of the Kmart Guaranties, at any time following an Event of
Default by the Lessee under any of the leases which is the subject of any
Kmart Guaranty, Kmart denies liability under such Kmart Guaranty on account of
the lack of due execution or delivery thereof, or on account of the release of
Kmart thereunder for any reason whatsoever other than strictly in accordance
with the terms thereof, Borrower, but not its shareholders, officers,
directors, employees or agents, shall be personally liable to Lender for 125%
of the amount set forth on Exhibit B which is allocated to the respective
portion of the Premises which is the subject of such Kmart Guaranty, plus the
Make Whole Premium calculated on such amount had such amount been prepaid as
of the date of the Event of Default. Borrower s liability hereunder shall
continue notwithstanding any action or inaction by Borrower or the Lessee
under the respective lease, whether or not Lender is deemed secure from other
sources, and whether or not Borrower or Lender chooses to pursue any remedies
against the respective Lessee for its default. The provisions of this Article
5 shall terminate as to each particular portion of the Premises subject hereto
upon Lender s receipt of the aforesaid satisfactory evidence of the
affirmation of the applicable Kmart Guaranty.
ARTICLE SIX
-------------
CONDITIONAL RECOURSE; SEARS LEASE
-------------------------------------
6.01 The portion of the Premises described as store Number 40 (Sears,
Orlando, Florida) is occupied by Sears, Roebuck & Co. ("Sears") pursuant to
the terms of a written lease dated December 10, 1990 (the "Sears Lease").
Lender required as a condition of funding the Loan that Borrower provide to
Lender a written ratification of the Sears Lease by Sears. Borrower has of
yet been unable to obtain such a written ratification.
6.02 Notwithstanding any exculpation of Borrower contained herein or in
any of the other Loan Documents to the contrary, until such time as Borrower
provides Lender with a written ratification of the Sears Lease by Sears
reasonably acceptable to Lender, in the event Sears denies liability under the
Sears Lease on account of lack of due execution by the Landlord thereunder,
Borrower, but not its shareholders, officers, directors, employees or agents,
shall be personally liable to Lender for 125% of the amount set forth on
Exhibit B which is allocated to Store Number 40, as such amount may be
modified from time to time, plus the Make Whole Premium calculated on such
amount had such amount been prepaid as of the date Sears claims that the Sears
Lease is unenforceable on account of lack of due execution by the Landlord
thereunder.
ARTICLE SEVEN
---------------
CASUALTY DAMAGE TO WILMINGTON, DELAWARE PROPERTY;
-------------------------------------------------------
RELEASE OF COLORADO SITE
---------------------------
7.01 Lender acknowledges that prior to the date of this Agreement, a
portion of the roof of Store Number 126 (Borders, Wilmington, Delaware) was
damaged as a result of excessive snow and ice build-up on the roof of the
building. A portion of the roof over the rear of the building partially
collapsed. The store is temporarily closed pending reconstruction by Border s
Inc. ("Borders") pursuant to its Lease (the "Borders' Lease"). Borders
remains obligated to pay rent during any period of reconstruction in
accordance with the terms of the Borders Lease.
7.02 Notwithstanding the casualty damage to such portion of the
Premises (the "Delaware Site"), Lender is willing to fund the Loan and include
the Delaware Site as security therefor, provided that Borrower also grant to
Lender as additional security for the Loan, a Deed of Trust or other security
interest in Store Number 106 (Barnes & Noble, Denver, Colorado) (the "Colorado
Site").
7.03 Upon the written request of Borrower, provided Borrower is not
then in default under any obligation of Borrower hereunder or under any of the
Loan Documents, Lender agrees to release the lien of the Loan Documents from
the Colorado Site upon the receipt of Lender of the following:
A. The written certification of an architect reasonably
acceptable to Lender licensed in the State of Delaware that the
improvements on the Delaware Site have been reconstructed substantially
in compliance with the plans and specifications therefor.
B. A certificate of occupancy or other similar permit issued by
each governmental authority having jurisdiction over the Delaware Site
from which such a certificate is required for the operation by Borders
of its store thereon.
C. Written estoppel letter from Borders, in substantially the
same form as was delivered to Lender in connection with the funding of
the Loan, confirming that:
1. its store operated pursuant to the Borders' Lease is
open for business with the public;
2. the reconstruction of the Store has been completed to
Borders' satisfaction; and
3. the Borders Lease remains in full force and effect,
without any amendment or modification and with no
default thereunder by Borders or Borrower.
D. Evidence that the cost of reconstruction of its store has
been fully paid for in the form of either (i) an estoppel letter from
Borders, (ii) title insurance against potential liens for any
reconstruction related work, or (iii) a cash escrow or other reasonable
assurance against mechanics liens reasonably satisfactory to Lender.
E. An endorsement to Lender s title insurance policy updating
the mechanic's lien coverage on the Delaware Site to include the date of
the release of lien on the Colorado Site.
F. A site inspection report of the Delaware Site and its
improvements satisfactory to Lender made by any employee or employees of
Lender, independent contractor or contractors, or any combination
thereof confirming any or all of the foregoing.
G. Payment of all reasonable out-of-pocket expenses incurred by
Lender in connection with any of the foregoing, as well as an
administrative release fee equal to $2,500.00.
H. Such other items as Lender may reasonably request.
ARTICLE EIGHT
---------------
CROSS-COLLATERAL; USE OF PROCEEDS
-------------------------------------
8.01 Borrower intends that each obligation of Borrower pursuant to the
Mortgage be secured by each parcel of real property comprising the Premises.
Upon the occurrence of any Event of Default by Borrower hereunder or under the
Loan Documents, all rents, income or other proceeds of any portion of the
Premises may be applied by Lender, in its sole and absolute discretion, with
respect to any expense incurred related to any portion of the Premises,
regardless of the source thereof.
ARTICLE NINE
--------------
GENERAL
--------
9.01. This Agreement contains the entire agreement and understanding of
the parties in respect to the subject matter hereof, and the same may not be
amended, modified or discharged nor may any of its terms be waived, except by
an instrument in writing signed by the party to be bound thereby. The waiver
of any term or provision of this Agreement shall not constitute a waiver of
any other term or provision of this Agreement, nor shall the right to require
any enforcement of any term or provision of this Agreement be permanently
waived, if a continuing breach of any such term or provision arises. The
parties agree that upon execution of this Agreement the Commitment shall merge
herein and the provisions of the Commitment shall automatically become null
and void.
9.02. The parties each agree to do, execute, acknowledge and deliver all
such further acts, instruments and assurances and to take all such further
action before or after the closing as shall be necessary or desirable to
perform this Agreement and consummate and effect the transactions contemplated
hereby.
9.03. Terms.
A. The terms "hereby," "hereof," "hereto," "herein,"
"hereunder" and any similar terms shall refer to this Agreement, and the
term "hereafter" shall mean after, and the term "heretofore" shall mean
before, the date of this Agreement.
B. Words of the masculine, feminine or neuter gender shall mean
and include the correlative words of other genders, and words importing
the singular number shall mean and include the plural number and vice
versa.
C. Words importing persons shall include firms, associations,
partnerships (including limited partnerships), trusts, corporations and
other legal entities, including public bodies, as well as natural
persons.
D. The terms "include," "including" and similar terms shall be
construed as if followed by the phrase "without being limited to."
E. Whenever under the terms of this Agreement the time for
performance of a covenant or condition falls upon a Saturday, Sunday or
holiday, such time for performance shall be extended to the next
business day. Otherwise, all references herein to "days" shall mean
calendar days.
F. This Agreement shall be governed by and construed in
accordance with the laws of the State of Florida.
G. Time is of the essence of this Agreement.
9.04 The following is added to this Agreement pursuant to the
requirements of Missouri law, more particularly Section 432.045 R.S.Mo.; as
used below "borrower(s)" shall mean Borrower and "creditor" shall mean Lender:
ORAL AGREEMENTS OR COMMITMENTS TO LOAN MONEY, EXTEND CREDIT, OR TO
FOREBEAR FROM ENFORCING REPAYMENT OF A DEBT INCLUDING PROMISES TO EXTEND
OR RENEW SUCH DEBT ARE NOT ENFORCEABLE. TO PROTECT YOU (BORROWER(S))
AND US (CREDITOR) FORM MISUNDERSTANDING OR DISAPPOINTMENT, ANY
AGREEMENTS WE REACH COVERING SUCH MATTERS ARE CONTAINED IN THIS WRITING,
WHICH IS THE COMPLETE AND EXCLUSIVE STATEMENT OF THE AGREEMENT BETWEEN
US, EXCEPT AS WE MAY LATER AGREE IN WRITING TO MODIFY IT.
9.05 Nothing herein constitutes any admission by Borrower of any defect
in, or unenforceability of, the Kmart Guarantees or the Sears Lease.
9.06 Notwithstanding any provisions in any Mortgage or other Loan
Document to the contrary, Lender acknowledges and agrees that the matters
disclosed in the Affidavit of President of Borrower of even date herewith are
hereby accepted by Lender and shall not constitute the basis for a breach of
any representation or warranty contained in any of the Loan Documents.
ARTICLE TEN
-------------
BORROWER EXCULPATION
-----------------------
10.01 Notwithstanding any provision to the contrary in the Note, the
Mortgage, or any other Loan Document, and except as otherwise provided in this
paragraph, the liability of Borrower under the Loan Documents shall be limited
to the interest of Borrower in the Premises and the rents, issues, proceeds
and profits thereof. In the event of foreclosure of the liens evidenced by
the Loan Documents, no judgment for any deficiency upon the indebtedness
evidenced by the Loan Documents shall be sought or obtained by Lender against
Borrower. Nothing contained in this paragraph shall:
(A) prevent the failure of Borrower to make any payment or to perform
any obligation under any of the Loan Documents within the time
periods provided therein from being an Event of Default
thereunder;
(B) be construed as limiting the obligations of Borrower to any lessee
under any lease of the Premises;
(C) in any way limit or impair the lien or enforcement of the Loan
Documents pursuant to the terms thereof; or
(D) limit the obligations of any indemnitor or guarantor, if any, of
obligations of Borrower under the Loan Documents.
10.02 Notwithstanding the foregoing paragraph, Borrower, but not
its shareholders, officers, directors, employees or agents, shall be
personally liable to Lender for:
(A) failure of Borrower to comply with paragraphs 2 (taxes and
assessments) and 3 (insurance) of the Mortgage (or in connection
with the Deed to Secure Debt paragraphs 1.02 (taxes, liens and
other charges) and 1.03 (insurance)) with respect to amounts
accruing prior to a Sale of the Premises, as defined below;
(B) any event or circumstance for which Borrower indemnifies Lender
under paragraph 1(m) (environmental indemnity) of the Mortgage (or
in connection with the Deed to Secure Debt paragraph 1.06(m)
(Environmental Indemnity));
(C) failure of Borrower to pay utilities accruing prior to a Sale of
the Premises, as defined below, on or before the date such
payments are due;
(D) operation and maintenance of the Premises applicable to the time
period prior to a Sale of the Premises, as defined below;
(E) any sums expended by Lender in fulfilling the obligations of
Borrower as lessor under any lease of the Premises prior to a sale
of the Premises pursuant to foreclosure or power of sale, a bona
fide sale (permitted by the terms of paragraph 1(l) of the
Mortgage (or in connection with the Deed to Secure Debt paragraph
1.06(i))or consented to in writing by Lender) to an unrelated
third party or upon conveyance to Lender of the Premises by a deed
acceptable to Lender in form and content (each of which shall be
referred to as a "Sale" for purposes of this paragraph) or
expended by Lender after a Sale of the Premises for obligations of
Borrower which arose prior to a Sale of the Premises;
(F) any rents or other income regardless of type or source of payment
(including, but not limited to, CAM charges, lease termination
payments, refunds of any type, prepayment of rents, settlements of
litigation, or settlements of past due rents) from the Premises
which Borrower has received or has a right to receive after an
Event of Default under the Loan Documents or an event which with
the passage of time, the giving of notice or both would constitute
an Event of Default, either or both of which has occurred and is
continuing, and which are not applied to (A) expenses of operation
and maintenance of the Premises and the taxes, assessments,
utility charges and insurance of the Premises, taking into account
sufficient reserves for the same and for replacements and
recurring items, and (B) payment of principal, interest and other
charges when due under the Loan Documents; provided that any
payments to parties related to Borrower shall be considered
expenses of operation only if they are at market rates or fees
consistent with market rates or fees for the same or similar
services;
(G) any security deposits of tenants not turned over to Lender upon
conveyance of the Premises to Lender pursuant to foreclosure or
power of sale or by a deed acceptable to Lender in form and
content;
(H) misapplication or misappropriation of tax reserve accounts, tenant
improvement reserve accounts, security deposits, prepaid rents or
other similar sums paid to or held by Borrower or any other entity
or person in connection with the operation of the Premises;
(I) any waste committed or allowed by Borrower with respect to the
Premises prior to a Sale of the Premises;
(J) any insurance or condemnation proceeds or other similar funds or
payments with respect to a casualty or condemnation occurring
prior to a Sale of the Premises, applied by Borrower in a manner
other than as expressly provided in the Loan Documents;
(K) any breach or violation of paragraph 1(l) (due on sale or
encumbrance) of the Mortgage (or in connection with the Deed to
Secure Debt paragraph 1.06(i) (due on sale or encumbrance)), other
than the filing of a nonmaterial mechanic's lien affecting the
Premises, the granting of any utility or other nonmaterial
easement or servitude burdening the Premises, or any other
transfer or encumbrance not in the nature of a transfer, reduction
or impairment of any material economic interest in the Premises;
and
(L) any fraud or willful misrepresentation by Borrower regarding the
Premises, the making or delivery of any of the Loan Documents or
in any materials or information provided by Borrower in
connection with the loan.
Notwithstanding anything herein contained to the contrary, Borrower, but
not its shareholders, officers, directors, employees, or agents shall be
personally liable to Lender for 125% of the amount set forth on Exhibit
B, as adjusted from time to time pursuant to Section 2.03 above, which
is allocated to the respective portion of the Premises (the "Applicable
Portion of the Premises"), plus the Make Whole Premium calculated on
such amount had such amount been prepaid as of the date of the
occurrence set forth below:
(a) in the event of any amendment, modification or termination by
Borrower of the particular Lease (as defined in the Mortgage, Deed
to Secure Debt or Deed of Trust with respect to the Applicable
Portion of the Premises) for the Applicable Portion of the
Premises without the prior written consent of Lender;
(b) in the event the Lessee (as defined in the Mortgage, Deed to
Secure Debt or Deed of Trust with respect to the Applicable
Portion of the Premises) under the particular Lease for the
Applicable Portion of the Premises is not obligated to notify
Lender of a default by Borrower and Borrower defaults under said
Lease and Lender does not receive notice of said default following
the occurrence thereof within a reasonable period of time to
effect cure of said default; or
(c) in the event Borrower violates any exclusive use or non-compete
provision granted to the Lessee under the particular Lease for the
Applicable Portion of the Premises.
IN WITNESS WHEREOF, the parties have caused this Loan Agreement to be
duly executed and delivered as of the date first above written.
COMMERCIAL NET LEASE REALTY, INC.,
a Maryland corporation
By: /s/Gary M. Ralston
------------------------------
Its: Executive Vice President
------------------------------
PRINCIPAL MUTUAL LIFE INSURANCE COMPANY,
an Iowa corporation
By: /s/JoEllen J. Watts
------------------------------
Its: Counsel
------------------------------
By: /s/Stephen G. Skrivanek
------------------------------
Its: Counsel
------------------------------
<TABLE>
EXHIBIT B
LOAN AGREEMENT
Loan Allocation Amounts
<CAPTION>
%
ALLOCATION
LOAN TO TOTAL
STORE PROPERTY STREET ADDRESS CITY STATE ALLOCATION AMOUNT
- --------------------------------------------------------------------------------------------------------------------------------
<C> <C> <C> <C> <C> <C> <C>
40 Sears 2000 Principal Row Orlando FL $ 1,676,900.00 4.251
52 Food Lion Route 2, Box 2500 Keystone Heights FL $ 1,079,531.00 2.736
59 Food Lion 3710 Brainard Rd. Chattanooga TN $ 1,136,988.00 2.882
74 Int'l House
of Pancakes 12725 Southwest Freeway Stafford TX $ 532,299.00 1.349
75 Int'l House
of Pancakes 10893 Sunset Hills Plaza Sunset Hills MO $ 562,589.00 1.426
78 Int'l House
of Pancakes 6870 W. Cheyenne Ave. Las Vegas NV $ 632,526.00 1.603
79 Int'l House
of Pancakes 8640 E. Hwy 30 Ft. Worth TX $ 588,447.00 1.492
80 Int'l House
of Pancakes 5920 W. Interstate 20 West Arlington TX $ 565,070.00 1.432
81 Int'l House
of Pancakes 9253 E. Independence Blvd. Matthews NC $ 577,942.00 1.465
82 Int'l House
of Pancakes 1920 Bell Rd. Phoenix AZ $ 581,831.00 1.475
83 Eckerd Drug 2806 Nogalitos Ave. San Antonio TX $ 683,545.00 1.733
84 OfficeMax 15440 Dallas Parkway Dallas TX $ 1,578,284.00 4.001
87 Eckerd Drug 4610 Frankford Road Dallas TX $ 658,556.00 1.669
88 Office Depot Hwy 360 & Randol Mill Rd. Arlington TX $ 1,120,190.00 2.840
89 Eckerd Drug 3141 Broadway Blvd. Garland TX $ 529,918.00 1.343
90 Eckerd Drug 1800 Brown Blvd. Arlington TX $ 560,824.00 1.422
93 Eckerd Drug 47 High St. Millville NJ $ 695,590.00 1.763
94 Eckerd Drug Hicks and Floyd Road Atlanta GA $ 621,619.00 1.576
97 Computer City 7440 SW 88th St. Miami FL $ 2,555,634.00 6.478
98 Eckerd Drug Route 45 and Berkley Road Mantua NJ $ 723,142.00 1.833
99 OfficeMax 4504 Eastgage Blvd. Cincinnatti OH $ 1,181,897.00 2.996
100 Good Guys 646 W. Hammer Lane Stockton CA $ 1,984,009.00 5.029
102 Barnes & Noble Brandon Town Center Brandon FL $ 1,675,832.00 4.248
103 Food Lion 1140 Winchester Ave. Martinsburg WV $ 1,111,689.00 2.818
115 Eckerd Drug 970 N. Main St. Vineland NJ $ 752,970.00 1.909
122 Eckerd Drug 317 Amarillo Blvd. East Amarillo TX $ 643,467.00 1.631
123 Eckerd Drug 2102 W. Washington St. Amarillo TX $ 836,290.00 2.120
124 Eckerd Drug 815 S. Georgia St. Amarillo TX $ 546,540.00 1.385
125 Eckerd Drug 695 N. Delsea Drive Glassboro NJ $ 793,352.00 2.011
126 Borders Books 101 Geoffrey Drive Wilmington DE $ 5,073,641.00 12.861
130 Eckerd Drug 1999 Osceola Pkwy. Kissimmee FL $ 924,215.00 2.343
134 Borders West Broad St. Richmond VA $ 2,665,579.00 6.757
135 OfficeMax 2255 W. Howard Street Evanston IL $ 2,023,054.00 5.128
136 Eckerd Drug 4814 Colleyville Blvd. Colleyville TX $ 1,021,469.00 2.589
137 Eckerd Drug 215 N. Texas Blvd. Alice TX $ 554,571.00 1.406
-------------- -------
TOTALS $39,450,000.00 100.000
=============== =======
106 Barnes & Noble 960-B S. Colorado Boulevard Denver CO $ 3,068,319.00
</TABLE>
EXHIBIT 10.13
SECURED PROMISSORY NOTE
SECURED PROMISSORY NOTE
-----------------------
D-750906
$39,450,000.00 January 19, 1996
Chicago, Illinois
FOR VALUE RECEIVED, the undersigned, COMMERCIAL NET LEASE REALTY, INC.,
a Maryland corporation, hereby promises to pay to the order of PRINCIPAL
MUTUAL LIFE INSURANCE COMPANY, an Iowa corporation, at the Home Office of
Principal Mutual Life Insurance Company at 711 High Street, Des Moines, Iowa
50392, or at such other place as the holder of this Note may designate, the
principal sum of Thirty-Nine Million Four Hundred Fifty Thousand and No/100
Dollars ($39,450,000.00) or so much thereof as shall from time to time have
been advanced, together with interest on the unpaid balance of said sum from
the date of disbursement at the rate of seven and four hundred thirty-five one
thousandths percent (7.435%) per annum, computed on the basis of a 360 day
year composed of twelve 30-day months, in installments as follows:
Beginning on February 15, 1996, principal and interest
shall be due and payable in installments of Three
Hundred Forty-One Thousand Two Hundred Four and
88/100th Dollars ($341,204.88) with an installment in
a like amount due and payable on the same day of each
month thereafter except that all remaining principal
and interest shall be due and payable on February 15,
2006 ("Maturity Date"). All such payments shall be
made by wire transfer of immediately available funds
to the registered holder hereof at Norwest Bank, Iowa,
N.A., 7th and Walnut Streets, Des Moines, Iowa 50304,
for credit to Principal Mutual Life Insurance Company,
General Account No. 014752, RE: D-750906 with
reference to the undersigned. If on the date of the
first installment, interest is accrued for more or
less than one installment period, the amount of said
installment shall be increased or decreased by the
amount that the interest accrued exceeds or is less
than the interest for one installment period based on
the actual number of days elapsed to the date of said
installment. All principal and interest shall be paid
in lawful money of the United States of America.
No privilege is reserved by the undersigned to prepay any principal of
this Note prior to the Maturity Date, except as expressly set forth in
that certain Loan Agreement dated this date (the "Loan Agreement") made
by and between the undersigned and Principal Mutual Life Insurance
Company, and except that anytime after the date hereof, so long as no
default or Event of Default exists under this Note or any instrument by
which it is secured, privilege is reserved, after giving sixty (60)
days' prior written notice to the holder of this Note, to prepay in
full, but not in part, all principal and interest to the date of
payment, along with all sums, amounts, advances, or charges due under
any instrument or agreement by which this Note is secured, upon the
payment of a "Make Whole Premium." From the date hereof up to and
including February 15, 2000, the "Make Whole Premium" shall be the
greater of (a) one percent (1%) of the principal amount to be prepaid,
or (b) the excess, if any, of:
(i) the aggregate present value as of the date of payment or
prepayment noticed as set forth above (hereinafter, the "Payment Date")
of each dollar of principal being paid or prepaid (taking into account
the application of such prepayment as set forth herein) and the amount
of interest (exclusive of interest accrued to the Payment Date) that
would have been payable in respect of such dollar of principal being
paid or prepaid if such payment or prepayment had not been made,
determined by discounting such amounts monthly at a rate which is equal
to the "Treasury Rate" from the due date of this Note, plus fifty (50)
basis points, over
(ii) 100% of the principal amount being paid or prepaid.
From February 16, 2000 through the Maturity Date the Make Whole Premium
shall be the amount, if any, calculated in the immediately preceding
paragraph without regard to the 1% minimum.
The "Treasury Rate" will be equal to the arithmetic mean of the yields
to maturity converted to a monthly equivalent of United States Treasury
obligations with a constant maturity (as compiled by and published in
the United States Federal Reserve Bulletin [H.R. 15] (hereinafter "H.R.
15") or its successor publication for each of the two weeks immediately
preceding the Payment Date) most nearly equal to the remaining "Weighted
Average Life to Maturity" of this Note as of the Payment Date. If the
yields referred to in the preceding sentence shall not have been so
published, the yields corresponding to the Payment Date shall be
calculated on the basis of the arithmetic mean of the arithmetic means
of the secondary market ask rates, as of approximately 3:30 P.M., New
York City time, on the last business days of each of the two weeks
preceding the Payment Date, for the actively traded U.S. Treasury
security or securities with a maturity or maturities most closely
corresponding to the "Weighted Average Life to Maturity", as reported by
three primary United States Government securities dealers in New York
City of national standing selected in good faith by the holder of this
Note. If no maturity exactly corresponding to such remaining "Weighted
Average Life to Maturity" should appear therein, yields for the next
longer and the next shorter published maturities shall be calculated
pursuant to the foregoing sentence and the Treasury Rate shall be
interpolated from such yields on a straight-line basis (rounding to the
nearest month).
The "Weighted Average Life to Maturity" with respect to this Note means,
at the Payment Date, the number of years obtained by dividing the
"Remaining Dollar-years" of this Note by the outstanding principal
amount hereof. "Remaining Dollar-years" means the sum of the product
obtained by multiplying (A) the amount of each then remaining required
principal repayment (including repayment of any principal at the due
date of this Note) by (B) the number of years (rounded to the nearest
one-twelfth) which will elapse between the Payment Date and the date
such required payment is due.
The undersigned agrees that if the holder of this Note accelerates the
whole or any part of the principal sum evidenced hereby, or applies any
proceeds as if such application had been made as a result of such
acceleration, pursuant to the provisions of those certain mortgages and/or
deeds of trust of even date herewith between the undersigned and Principal
Mutual Life Insurance Company (collectively, the "Mortgage"), the undersigned
waives any right to prepay said principal sum in whole or in part without
premium and agrees to pay, as yield maintenance protection and not as a
penalty, the "Make Whole Premium" defined herein.
Time is of the essence with respect to the payment of this Note.
If any payment of principal, interest or premium is not made when due,
damages will be incurred by the holder of this Note, including additional
expense in handling overdue payments, the amount of which is difficult and
impractical to ascertain. The undersigned therefore agrees to pay, upon
demand, the sum of four cents ($.04) for each one dollar ($1.00) of each said
payment which becomes overdue as a reasonable estimate of the amount of said
damages, subject, however, to the limitations contained in the second
immediately succeeding paragraph.
If any payment of principal, interest or premium is not made for a
period exceeding ten (10) days after due, or if any Event of Default has
occurred or is continuing under any instrument by which this Note is, or may
hereafter be, secured, the entire principal balance, interest then accrued,
and premium, whether or not otherwise then due, shall at the option of the
holder of this Note, become immediately due and payable without demand or
notice, and whether or not the holder of this Note has exercised said option,
interest shall accrue on the entire principal balance, interest then accrued,
and any premium then due, at a rate equal to the lesser of (i) four percent
(4%) per annum above the then applicable rate of interest payable under this
Note or (ii) the maximum rate allowed by applicable law until fully paid or if
the holder of this Note has not exercised said option, for the duration of
such Event of Default.
Notwithstanding anything herein or in any of the Loan Documents
(hereinafter defined) to the contrary, no provision contained herein or
therein which purports to obligate the undersigned to pay any amount of
interest or any fees, costs or expenses which are in excess of the maximum
permitted by applicable law, shall be effective to the extent it calls for the
payment of any interest or other amount in excess of such maximum. Any such
excess shall, if inadvertently collected, be credited as a reduction of
principal, effective as of the date inadvertently collected. Any payment of
principal in excess of the then outstanding principal balance resulting from
the inadvertent collection of interest shall be refunded to the undersigned,
effective as of the date inadvertently collected, together with interest at
the rate specified in Subsection 687.04(2) of the Florida Statutes or any
successor statute. All agreements between the undersigned and the holder
hereof, whether now existing or hereafter arising and whether written or oral,
are hereby limited so that in no contingency, whether by reason of demand for
payment or acceleration of the maturity hereof or otherwise, shall the
interest contracted for, charged or received by the holder hereof exceed the
maximum amount permissible under applicable law. If, from any circumstance
whatsoever, interest would otherwise be payable to the holder hereof in excess
of the maximum lawful amount, the interest payable to the holder hereof shall
be reduced to the maximum amount permitted under applicable law; and if from
any circumstance the holder hereof shall ever receive anything of value deemed
interest by applicable law in excess of the maximum lawful amount, an amount
equal to any excessive interest shall, at the option of the holder hereof, be
applied to the reduction of the principal hereof and not to the payment of
interest, or if such excessive interest exceeds the unpaid balance of
principal hereof such excess shall be refunded to the undersigned. This
paragraph shall control all agreements between the undersigned and the holder
hereof.
The undersigned and any endorsers or guarantors waive presentment,
protest and demand, notice of protest, demand and dishonor and nonpayment and
notice of acceleration and notice of intent to accelerate maturity, and agree
the due date of this Note or any installment may be extended without affecting
any liability hereunder, and further promise to pay all reasonable costs and
expenses, including attorney's and paralegal s fees, incurred by the holder
hereof in connection with any default or in any proceeding (whether incurred
in any trial, appellate, bankruptcy, condemnation or any other proceeding) to
interpret and/or enforce any provision of this Note or any instrument by which
it is secured. No release of the undersigned from liability hereunder shall
release any other maker, endorser or guarantor hereof.
This Note is secured by instruments and agreements of even date herewith
executed and delivered by the undersigned to Principal Mutual Life Insurance
Company creating among other things legal and valid encumbrances on and an
assignment of all of the undersigned's interest in any leases of certain
Premises set forth on Exhibit A to the Loan Agreement, as such Exhibit may be
adjusted from time to time in accordance with the terms of the Loan Agreement
(collectively, the "Premises"). Terms used herein which are defined in such
instruments or agreements and not otherwise defined herein have the same
definition as in such instruments and agreements. In no event shall such
documents be construed inconsistently with the terms of this Note, and in the
event of any discrepancy between any such documents and this Note, the terms
hereof shall govern. The proceeds of this Note are to be used for business,
commercial, investment or other similar purposes, and no portion thereof will
be used for any personal, family or household use. This Note shall be
governed by and construed in accordance with the laws of the State of Florida.
Notwithstanding any provision to the contrary in this Note, the Loan
Agreement, the Mortgage, or any other instrument or agreement by which this
Note is secured (collectively referred to herein as the "Loan Documents"), and
except as otherwise provided in this paragraph, the liability of the
undersigned under the Loan Documents shall be limited to the interest of the
undersigned in the Premises and the rents, issues, proceeds and profits
thereof. In the event of foreclosure of the liens evidenced by the Loan
Documents, no judgment for any deficiency upon the indebtedness evidenced by
the Loan Documents shall be sought or obtained by the holder of this Note
against the undersigned . Nothing contained in this paragraph shall:
(a) prevent the failure of the undersigned to make any payment or to
perform any obligation under any of the Loan Documents within the
time periods provided therein from being an Event of Default
thereunder;
(b) be construed as limiting the obligations of the undersigned to any
lessee under any lease of the Premises;
(c) in any way limit or impair the lien or enforcement of the Loan
Documents pursuant to the terms thereof; or
(d) limit the obligations of any indemnitor or guarantor, if any, of
obligations of the undersigned under the Loan Documents.
Notwithstanding the foregoing paragraph, the undersigned, but not its
shareholders, officers, directors, employees or agents, shall be personally
liable to the holder of this Note for:
(a) failure of the undersigned to comply with paragraphs 2 (taxes and
assessments) and 3 (insurance) of the Mortgage [or in connection
with the Georgia Deed to Secure Debt, paragraphs 1.02 (taxes,
liens and other charges) and 1.03 (insurance)] with respect to
amounts accruing prior to a Sale of the Premises, as defined
below;
(b) any event or circumstance for which the undersigned indemnifies
the holder of this Note under paragraph 1(m) (environmental
indemnity) of the Mortgage [or in connection with the Georgia Deed
to Secure Debt, paragraph 1.06(m) (environmental indemnity)];
(c) failure of the undersigned to pay utilities accruing prior to a
Sale of the Premises, as defined below, on or before the date such
payments are due;
(d) operation and maintenance of the Premises applicable to the time
period prior to a Sale of the Premises, as defined below;
(e) any sums expended by the holder of this Note in fulfilling the
obligations of the undersigned as lessor under any lease of the
Premises prior to a sale of the Premises pursuant to foreclosure
or power of sale, a bona fide sale (permitted by the terms of
paragraph 1(l) of the Mortgage [or in connection with the Georgia
Deed to Secure Debt, paragraph 1.06(i)] or consented to in writing
by the holder of this Note) to an unrelated third party or upon
conveyance to the holder of this Note of the Premises by a deed
acceptable to the holder of this Note in form and content (each of
which shall be referred to as a "Sale" for purposes of this
paragraph) or expended by the holder of this Note after a Sale of
the Premises for obligations of the undersigned which arose prior
to a Sale of the Premises;
(f) any rents or other income regardless of type or source of payment
(including, but not limited to, CAM charges, lease termination
payments, refunds of any type, prepayment of rents, settlements of
litigation, or settlements of past due rents) from the Premises
which the undersigned has received or has a right to receive after
an Event of Default under the Loan Documents or an event which
with the passage of time, the giving of notice or both would
constitute an Event of Default, either or both of which has
occurred and is continuing, and which are not applied to (A)
expenses of operation and maintenance of the Premises and the
taxes, assessments, utility charges and insurance of the Premises,
taking into account sufficient reserves for the same and for
replacements and recurring items, and (B) payment of principal,
interest and other charges when due under the Loan Documents;
provided that any payments to parties related to the undersigned
shall be considered expenses of operation only if they are at
market rates or fees consistent with market rates or fees for the
same or similar services;
(g) any security deposits of tenants not turned over to the holder of
this Note upon conveyance of the Premises to the holder of this
Note pursuant to foreclosure or power of sale or by a deed
acceptable to the holder of this Note in form and content;
(h) misapplication or misappropriation of tax reserve accounts, tenant
improvement reserve accounts, security deposits, prepaid rents or
other similar sums paid to or held by the undersigned or any other
entity or person in connection with the operation of the Premises;
(i) any waste committed or allowed by the undersigned with respect to
the Premises prior to a Sale of the Premises,;
(j) any insurance or condemnation proceeds or other similar funds or
payments with respect to a casualty or condemnation occurring
prior to a Sale of the Premises, applied by the undersigned in a
manner other than as expressly provided in the Loan Documents;
(k) any breach or violation of paragraph 1(l) (due on sale or
encumbrance) of the Mortgage [or in connection with the Georgia
Deed to Secure Debt, paragraph 1.06(i) (due on sale or
encumbrance)], other than the filing of a nonmaterial mechanic's
lien affecting the Premises, the granting of any utility or other
nonmaterial easement or servitude burdening the Premises, or any
other transfer or encumbrance not in the nature of a transfer,
reduction or impairment of any material economic interest in the
Premises; and
(l) any fraud or willful misrepresentation by the undersigned
regarding the Premises, the making or delivery of any of the Loan
Documents or in any materials or information provided by the
undersigned in connection with the loan.
Notwithstanding anything herein contained to the contrary, the
undersigned, but not its shareholders, officers, directors, employees,
or agents shall be personally liable to the holder of the Note for 125%
of the amount set forth on Exhibit B to the Loan Agreement, as may be
adjusted from time to time, which is allocated to the respective portion
of the Premises (the Applicable Portion of the Premises ), plus the
Make Whole Premium calculated on such amount had such amount been
prepaid as of the date of the occurrence set forth below:
(a) in the event of any amendment, modification or termination by the
undersigned of the particular Lease (as defined in the Mortgage,
Deed to Secure Debt or Deed of Trust with respect to the
Applicable Portion of the Premises) for the Applicable Portion of
the Premises without the prior written consent of the holder of
the Note;
(b) in the event the Lessee (as defined in the Mortgage, Deed to
Secure Debt or Deed of Trust with respect to the Applicable
Portion of the Premises) under the particular Lease for the
Applicable Portion of the Premises is not obligated to notify the
holder of the Note of a default by the undersigned and the
undersigned defaults under said Lease and the holder of the Note
does not receive notice of said default following the occurrence
thereof within a reasonable period of time to effect cure of said
default; or
(c) in the event the undersigned violates any exclusive use or non-
compete provision granted to the Lessee under the particular Lease
for the Applicable Portion of the Premises.
If more than one, all obligations and agreements of the undersigned are
joint and several.
This Note may not be changed or terminated orally, but only by an
agreement in writing and signed by the party against whom enforcement of any
waiver, change, modification or discharge is sought. All of the rights
privileges and obligations hereunder shall inure to the benefit of the heirs,
successors and assigns of the holder hereof and shall bind the heirs,
successors and assigns of the undersigned.
The parties hereto intend and believe that each provision of this Note
comports with all applicable law. However, if any provision in this Note is
found by a court of law to be in violation of any applicable law, and if such
court should declare such provision of this note to be unlawful, void or
unenforceable as written, then it is the intent of all parties hereto that
such provision shall be given full force and effect to the fullest possible
extent that it is legal, valid and enforceable, that the remainder of this
Note shall be construed as if such unlawful, void or unenforceable provision
were not contained herein, and that the rights, obligations and interests of
the undersigned and the holder hereof under the remainder of this Note shall
continue in full force and effect.
AFTER CONSULTING WITH COUNSEL AND CAREFUL CONSIDERATION, THE UNDERSIGNED
AND THE HOLDER (BY ITS ACCEPTANCE HEREOF) KNOWINGLY, VOLUNTARILY, AND
INTENTIONALLY WAIVE THE RIGHT EITHER OF THEM MAY HAVE TO A TRIAL BY JURY
WITH RESPECT TO ANY LITIGATION ARISING OUT OF THIS NOTE OR ANY OTHER
INSTRUMENT OR AGREEMENT BY WHICH THIS NOTE IS, OR MAY HEREAFTER BE,
SECURED, OR OUT OF ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS
(ORAL OR WRITTEN), OR ACTIONS OF THE UNDERSIGNED OR THE HOLDER. THIS
WAIVER IS A MATERIAL INDUCEMENT TO THE HOLDER'S ACCEPTANCE OF THIS NOTE.
COMMERCIAL NET LEASE REALTY, INC., a
Maryland corporation
By: /s/Robert A. Bourne
-------------------------------
Name: Robert A. Bourne
Title: President
[SEAL]
EXHIBIT 13
ANNUAL REPORT TO SHAREHOLDERS
TABLE OF CONTENTS
- -----------------
Historical Financial Highlights 1
Company Profile 2
1995 Highlights and Recent Developments 3
To Our Stockholders 4-5
Management's Discussion and Analysis of Financial
Condition and Results of Operations 6-9
Report of Independent Auditors 10
Consolidated Balance Sheets 11
Consolidated Statements of Earnings 12
Consolidated Statements of Stockholders' Equity 13
Consolidated Statements of Cash Flows 14-15
Consolidated Notes to Financial Statements 16-20
Quarterly Financial Data 21
Share Price and Dividend Data 21
Stockholder Information 22
Directors and Executive Officers 23
1995 ANNUAL REPORT - PAGE 1
<TABLE>
HISTORICAL FINANCIAL HIGHLIGHTS
-------------------------------
<CAPTION>
1995 1994 1993 1992 1991
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Gross Revenues $ 20,580,380 $ 12,289,367 $ 5,069,365 $ 2,604,261 $ 1,887,721
Net Earnings (1) $ 12,707,271 $ 8,915,373 $ 3,521,914 $ 1,561,682 $ 1,407,199
Total Assets $219,256,676 $152,210,708 $ 91,618,758 $ 23,134,239 $ 12,223,262
Total Long-Term Debt $ 82,600,000 $ 14,800,000 $ - $ 8,500,000 $ -
Total Equity $135,842,113 $136,664,702 $ 91,144,736 $ 14,387,672 $ 12,126,462
Cash Dividends Paid to
Stockholders $ 13,529,860 $ 9,896,586 $ 3,155,701 $ 1,766,177 $ 1,568,800
Funds from Operations (2) $ 14,443,293 $ 9,991,966 $ 3,883,690 $ 1,878,716 $ 1,682,478
Weighted Average Shares 11,663,672 8,606,138 3,711,807 1,635,350 1,480,000
Per Share Information:
Net Earnings (1) $ 1.09 $ 1.04 $ 0.95 $ 0.95 $ 0.95
Funds from Operations (2) $ 1.24 $ 1.16 $ 1.05 $ 1.15 $ 1.14
Dividends $ 1.16 $ 1.14 $ 1.10 $ 1.08 $ 1.06
Equity Market Capitali-
zation ($ mil) $148.7 $142.9 $105.4 $ 21.7 $ 14.4
</TABLE>
- -----------------------------------------------------------------------------
(1) Excludes $152,622 of special nonrecurring expenses in 1991 relating to
the exploration of strategic alternatives for the Company.
(2) The Company has recently adopted the NAREIT definition of funds from
operations and has restated funds from operations for prior years in
accordance with this definition. Funds from operations are net earnings
excluding depreciation, gains and losses on the sale of real estate and
nonrecurring items of income and expense. For purposes of this table,
funds from operations exclude nonrecurring NYSE initial listing expenses
of $111,638 in 1993 and AMEX initial listing expenses of $15,000 in
1992. Additionally, $55,926 of "other" income representing partial
repayment of third quarter 1992 dividends is excluded from funds from
operations. Funds from operations for 1991 exclude $152,622 of special
nonrecurring expenses as discussed in the preceding footnote. Funds
from operations are generally considered by industry analysts to be the
most appropriate measure of performance and do not necessarily represent
cash provided by operating activities in accordance with generally
accepted accounting principles and are not necessarily indicative of
cash available to meet cash needs.
1995 ANNUAL REPORT - PAGE 6
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
INTRODUCTION
Commercial Net Lease Realty, Inc., a Maryland corporation (the "Company"), is
a real estate investment trust ("REIT") formed in 1984 that acquires, owns and
manages high-quality, freestanding properties leased to major retail
businesses under long-term commercial net leases. As of December 31, 1995,
the Company owned 157 properties (the "Properties") that are leased to major
retail businesses, including Academy, Barnes & Noble, Best Buy, Blockbuster
Music, Borders, Burger King, CompUSA, Computer City, Denny's, Eckerd, Food 4
Less, Food Lion, Golden Corral restaurants, Good Guys, Hardee's, Hi-Lo
Automotive, International House of Pancakes, Levitz, Linens 'n Things,
Marshalls, Office Depot, OfficeMax, Oshmans, Pier 1 Imports, Sears Homelife
Centers, Scotty's and Waccamaw.
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 years ended December 31, 1995, 1994 and 1993,
the Company generated $14,139,777, $9,504,596 and $3,750,042, respectively, in
net cash provided by operating activities. The increase in cash from
operations for the year ended December 31, 1995, is primarily a result of
changes in revenues and expenses as discussed in "Results of Operations."
[PICTURE 1]
Eckerd - Colleyville, Texas
[PICTURE 2]
Marshalls - Freehold, New Jersey
Properties acquired by the Company are generally newly constructed as of the
time of acquisition. Accordingly, the average age of the buildings in the
Company portfolio (the "Company Portfolio") is approximately three years. In
addition, the Company acquires only properties that are subject to a lease in
order to avoid the risks inherent in initial leasing. 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 ("triple-net" leases), and
generally also provide that the tenant is responsible for roof and structural
repairs. The Company's leases typically do not limit the Company's recourse
against the tenant and any guarantor in the event of a default, and for this
reason are considered "full-credit" leases. Management of the Company
believes that the Properties are adequately insured.
Indebtedness.
In June 1994, the Company entered into an agreement establishing a $30,000,000
credit facility, which consolidated the Company's previous $10,000,000 credit
facility and $20,000,000 credit facility.
In July 1994, the Company entered into an agreement establishing a
$100,000,000 revolving credit facility (the "Credit Facility"). The Credit
Facility, which replaced the Company's previous $30,000,000 credit facility,
provided for $60,000,000 of credit initially, increasing to $100,000,000
subject to the completion of the Company raising additional equity (which
condition was met on October 7, 1994, upon completion of the Company's equity
offering) and expansion of the lending syndicate (which condition was met on
April 13, 1995, upon execution of an amended and restated revolving line of
credit loan agreement). In addition, the Credit Facility was amended on
December 7, 1995, which included the Company's two wholly-owned subsidiaries
as qualified borrowers of the Credit Facility. The Credit Facility allows the
Company and its subsidiaries to borrow at an interest rate equal to 170 basis
points above LIBOR or the lender's prime rate, whichever the Company selects.
In addition, in connection with the Credit Facility, the Company is required
to pay a commitment fee of 20 basis points per annum on the unused commitment.
Advances under the Credit Facility are collateralized by an assignment of the
rents and leases of certain of the Company's properties. As of December 31,
1995, $69,450,000 was outstanding under the Credit Facility.
To maintain the Credit Facility, the Company must pay a commitment fee,
payable quarterly in arrears, equal to 20 basis points per annum on the unused
commitment. The Credit Facility will be used primarily 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
1995 ANNUAL REPORT - PAGE 7
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 entered into an interest rate cap
agreement which provides for a fixed LIBOR rate of 7.25% per annum on a
notional amount of $25,000,000. This agreement is effective through June
1996.
In December 1995, the Company entered into a long-term, fixed rate mortgage
and security agreement for $13,150,000 (the "Permanent Debt Financing"). The
Permanent Debt Financing provides for a four-year mortgage with interest
payable monthly and principal payable at maturity on December 15, 1999, and
bears interest at a rate of 6.75% 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 December 31, 1995, the outstanding principal
balance was $13,150,000.
On January 30, 1996, the Company entered into a long-term, fixed rate mortgage
and security agreement for $39,450,000. The loan is a ten-year mortgage with
principal and interest payable monthly, based on a 17-year amortization, with
the balance due on the tenth anniversary of the loan and bears interest at a
rate of 7.435% per annum. The mortgage is secured by a first lien on and an
assignment of rents and leases of certain of the Company's properties.
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.
On January 24, 1996, the Company filed a final prospectus supplement to the
shelf registration which offered 3,500,000 shares of common stock at $13.00
per share. The net proceeds of the offering were approximately $42,400,000,
after deducting offering expenses and underwriting discounts. Proceeds from
the offering were used to pay down the Company's Credit Facility.
Qualified REIT Subsidiaries.
In November 1995, the Company purchased 100% of the common stock of two newly-
formed entities, Net Lease Realty I, Inc. and Net Lease Realty II, Inc., to
facilitate the acquisition of certain Properties. Each of the wholly-owned
subsidiaries is a qualified REIT subsidiary as defined in the Internal Revenue
Code Section 856(i)(2).
[PICTURE 3]
Barnes & Noble - Houston, Texas
[PICTURE 4]
Best Buy - Corpus Christi, Texas
Property Acquisitions and Commitments.
During the year ended December 31, 1995, the Company borrowed $67,400,000
under its Credit Facility to acquire 29 Properties and four buildings which
were developed by the tenant on land parcels owned by the Company. The 29
Properties include nine Hi-Lo Automotive Stores, five Barnes & Noble
bookstores, four Eckerd drugstores, three Academy sporting goods stores, two
Scotty's home improvement stores, one Levitz furniture store, one Borders
bookstore, one OfficeMax office supply store, one Food 4 Less grocery store,
one Computer City computer store and one Waccamaw home decorating 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.
In connection with the acquisition and lease relating to the land parcels of
the Food 4 Less Property, one of the Academy Properties and five of the Barnes
& Noble Properties, the tenants are obligated to develop building 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 for the buildings upon their
completion.
As of December 31, 1995, the Company had entered into agreements to purchase
14 additional properties for an estimated aggregate amount of $48,325,323.
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.
1995 ANNUAL REPORT - PAGE 8
In addition to the 14 properties under contract as of December 31, 1995, the
Company may elect to acquire 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
Credit Facility and the Permanent Debt Financing, the Company may enter into
additional financing arrangements.
In January 1996, the Company acquired four of the Properties and four of the
buildings described above that were under contract at December 31, 1995. In
addition, the Company acquired one additional Property during January 1996.
In connection with the acquisition of these Properties and buildings, the
Company borrowed $24,900,000 under its Credit Facility.
During the year ended December 31, 1993, the Company also generated net sales
proceeds of $1,587,657 as a result of the sale of two Properties in Orlando,
Florida. No such sales occurred during 1994 or 1995.
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 years ended December 31,
1995, 1994 and 1993, the Company declared and paid dividends to its
stockholders of $13,529,860, $9,896,586 and $3,155,701, respectively, or
$1.16, $1.14 and $1.10 per share of common stock, respectively. In January
1996, the Company declared dividends to its stockholders of $3,382,465 or $.29
per share of common stock, payable in February 1996.
RESULTS OF OPERATIONS
During the years ended December 31, 1995, 1994 and 1993, the Company and its
consolidated subsidiaries owned and leased 157, 128, and 84 Properties,
respectively, to operators of major retail businesses. All of the Company's
Properties have been 100 percent leased since the Company's formation in 1984.
The Properties are leased on a long-term basis, generally 15 to 20 years, with
renewal options for an additional 10 to 20 years. As of December 31, 1995,
the average remaining initial lease term of the Properties was approximately
14 years. During the years ended December 31, 1995, 1994 and 1993, the
Company and its consolidated subsidiaries earned $19,722,398, $11,239,466 and
$4,052,521, respectively, in rental income from operating leases and earned
income from direct financing leases. The 75% increase in rental and earned
income during 1995, as compared to 1994, is primarily attributable to income
earned on the 29 Properties acquired and the four buildings upon which
construction was completed during 1995. In addition, rental and earned
income increased during 1995 as a result of the fact that the 44 Properties
acquired in 1994 were operational for a full fiscal year in 1995. The 177%
increase in rental and earned income during 1994, as compared to 1993, is
primarily attributable to the income earned on the 44 Properties acquired
during 1994 and the fact that a full year of income was earned on the 45
Properties that the Company acquired during 1993. Rental and earned income is
expected to increase in 1996 as the Company acquires additional properties and
due to the fact that the 29 Properties acquired and four buildings upon which
construction was completed in 1995 will contribute to the Company's income for
a full fiscal year in 1996.
For the years ended December 31, 1995, 1994 and 1993, the Company also earned
$745,545, $828,780 and $853,904, respectively, in contingent rental income.
Contingent rental income decreased primarily as a result of a decrease in the
aggregate net sales of restaurants currently paying contingent rent during
1995, as compared to 1994. Contingent rental income for the year ended
December 31, 1994 decreased primarily as a result of a decrease in the
aggregate net sales from the Golden Corral restaurants during 1994.
During 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 December 31, 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. will continue to account for more than ten percent of the Company's total
rental income in 1996. Any failure of this lessee could materially affect the
Company's income.
Rental income from the Properties is invested in money market accounts or
other short-term, highly liquid investments pending the Company's use of such
funds to acquire properties, to pay Company expenses or to pay dividends to
the stockholders. During the years ended December 31, 1995, 1994 and 1993,
the Company earned $102,559, $217,039 and $161,602, respectively, in interest
income from such investments. The decrease in interest income during 1995, as
compared to 1994, is primarily attributable to less net cash invested in 1995,
as compared to 1994, due to the net offering proceeds invested in 1994 pending
the acquisition of Properties. The increase in interest income during 1994,
as compared to 1993, is primarily attributable to higher invested balances
during the year as a result of uninvested net offering proceeds from the
Company's October 1993 equity offering pending the acquisition of additional
Properties and increased rental income.
The Company incurred $3,834,388, $497,670 and $381,075 in interest expense for
the years ended December 31, 1995, 1994 and 1993, respectively. Interest
expense increased for the years ended December 31, 1995 and 1994, as a result
of higher average borrowing levels. However, the increase in interest expense
in 1995 and 1994 was partially offset by a decrease in the Company's interest
rate under the new Credit Facility. As a means to reduce its exposure to
variable rate debt, the Company had entered into an interest rate cap
agreement as described above in "Liquidity and Capital Resources."
1995 ANNUAL REPORT - PAGE 9
During the years ended December 31, 1995, 1994 and 1993, the Company's
operating expenses, including depreciation and amortization, were $4,038,721,
$2,876,324 and $1,540,579, respectively (19.6%, 23.4% and 30.4%, respectively,
of gross operating revenues). The increase in the dollar amount of operating
expenses for the year ended December 31, 1995, is primarily attributable to
the increase in depreciation as a result of the depreciation of additional
Properties acquired during 1995 and a full year of depreciation during 1995 on
the properties acquired during 1994. The increase is also attributable to
increased advisory fees as a result of increased funds from operations for the
year ended December 31, 1995. However, the increase was partially offset by a
decrease in legal fees during 1995, as compared to 1994, as a result of the
legal fees and expenses incurred during the year ended December 31, 1994, in
connection with the Company's reorganization in the State of Maryland.
The increase in the dollar amount of operating expenses for the year ended
December 31, 1994, is primarily attributable to the increase in depreciation
as a result of the depreciation of additional Properties acquired during 1994.
The increase is also attributable to (i) an increase in advisory fees as a
result of an increase in funds from operations for the year ended December 31,
1994, (ii) an increase in state tax expense primarily as a result of the
acquisition of additional Properties and an increase in capital resulting from
the equity offerings during the year ended December 31, 1994, (iii) an
increase in professional fees related to fees and expenses incurred in
connection with the Company's reorganization in the State of Maryland during
1994 and (iv) the number of outstanding shares of common stock, which
increased expenses associated with stockholder communications and other costs.
In December 1993, the Company sold two of its Properties to an unrelated,
third party for $1,587,657, resulting in an aggregate gain of $374,203. No
such sales occurred during the years ended December 31, 1995 and 1994.
Inflation has had a minimal effect on income from operations. Management
expects that increases in retail sales volumes due to inflation and real sales
growth should result in an increase in rental income over time. Continued
inflation also may cause capital appreciation of the Company's Properties.
Inflation and changing prices, however, also may have an adverse impact on the
operating margins of retail businesses and on potential capital appreciation
of the Properties.
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 will 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.
[PIE CHART 1]
Line of Trade Diversification
[PIE CHART 2]
Tenant Diversification by Name
[MAP 1]
Tenant Diversification by Geographic Location
In October 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 123, Accounting for Stock-Based
Compensation. The Statement, which is effective for fiscal years beginning
after December 15, 1995, 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 will adopt this
standard in 1996 by providing pro forma equivalent information in a footnote
disclosure.
1995 ANNUAL REPORT - PAGE 10
FINANCIAL STATEMENTS
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Commercial Net Lease Realty, Inc.
We have audited the accompanying consolidated balance sheets of Commercial Net
Lease Realty, Inc. and Subsidiaries as of December 31, 1995 and 1994, and the
related consolidated statements of earnings, stockholders' equity, and cash
flows for each of the years in the three-year period ended December 31, 1995.
These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Commercial
Net Lease Realty, Inc. and Subsidiaries as of December 31, 1995 and 1994, and
the results of their operations and their cash flows for each of the years in
the three-year period ended December 31, 1995, in conformity with generally
accepted accounting principles.
/s/ KPMG Peat Marwick LLP
Orlando, Florida
January 20, 1996, except for Note 13
for which the date is January 30, 1996
1995 ANNUAL REPORT - PAGE 11
COMMERCIAL NET LEASE REALTY, INC. and SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31,
ASSETS 1995 1994
------------ ------------
Land and buildings on operating leases,
net of accumulated depreciation $155,956,739 $106,091,062
Net investment in direct financing leases 56,829,126 42,551,848
Cash and cash equivalents 300,714 1,069,900
Receivables 394,154 389,238
Prepaid expenses 154,538 361,567
Loan costs, net of accumulated amorti-
zation of $405,179 and $83,058 1,065,149 441,690
Accrued rental income 2,194,221 960,832
Other assets 2,362,035 344,571
------------ ------------
$219,256,676 $152,210,708
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Notes payable $ 82,600,000 $ 14,800,000
Accrued interest payable 128,475 35,851
Accounts payable and accrued expenses 350,632 298,763
Real estate taxes payable 82,932 33,649
Due to related parties 69,038 81,962
Rents paid in advance and tenant deposits 183,486 295,781
------------ ------------
Total liabilities 83,414,563 15,546,006
------------ ------------
Commitments and contingencies
(Note 12 and 13)
Stockholders' equity:
Common stock, $.01 par value. Authorized
30,000,000 shares; issued and outstand-
ing 11,663,672 shares 116,637 116,637
Excess stock, $0.01 par value, authorized
30,000,000 shares, none issued and
outstanding - -
Capital in excess of par value 138,629,751 138,629,751
Accumulated dividends in excess of net
earnings (2,904,275) (2,081,686)
------------ ------------
Total stockholders' equity 135,842,113 136,664,702
------------ ------------
$219,256,676 $152,210,708
============ ============
See accompanying notes to consolidated financial statements.
1995 ANNUAL REPORT - PAGE 12
COMMERCIAL NET LEASE REALTY, INC. and SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
Year Ended December 31,
1995 1994 1993
----------- ----------- -----------
Revenues:
Rental income from
operating leases $14,454,831 $ 8,116,655 $ 3,542,323
Earned income from
direct financing
leases 5,267,567 3,122,811 510,198
Contingent rental
income 745,545 828,780 853,904
Interest and other 112,437 221,121 162,940
----------- ----------- -----------
20,580,380 12,289,367 5,069,365
----------- ----------- -----------
Expenses:
General operating and
administrative 721,850 605,375 478,617
Management and
advisory fees
to related party 1,001,225 727,513 307,130
Interest 3,834,388 497,670 381,075
State taxes 257,449 212,763 110,070
Depreciation and
amortization 2,058,197 1,330,673 644,762
----------- ----------- -----------
7,873,109 3,373,994 1,921,654
----------- ----------- -----------
Net earnings before
gain on sale of land
and buildings 12,707,271 8,915,373 3,147,711
Gain on sale of land
and buildings - - 374,203
----------- ----------- -----------
Net earnings $12,707,271 $ 8,915,373 $ 3,521,914
=========== =========== ===========
Earnings per share
of common stock $ 1.09 $ 1.04 $ .95
=========== =========== ===========
Weighted average
number of shares
outstanding 11,663,672 8,606,138 3,711,807
=========== =========== ===========
[PICTURE 5]
CHENON CEAUX
LORIE, FRANCE
See accompanying notes to consolidated financial statements.
1995 ANNUAL REPORT - PAGE 13
COMMERCIAL NET LEASE REALTY, INC. and SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years Ended December 31, 1995, 1994 and 1993
Number of Accumulated
shares Capital in dividends
of common Common excess of in excess of
stock stock par value net earnings Total
---------- -------- ------------ ------------ ------------
Balance at
December 31,
1992 1,790,699 $ 17,907 $ 15,836,451 $ (1,466,686) $ 14,387,672
Net earnings - - - 3,521,914 3,521,914
Dividends
declared and
paid($1.10
per share of
common stock) - - - (3,155,701) (3,155,701)
Issuance of
common stock 5,837,500 58,375 81,551,000 - 81,609,375
Stock issuance
costs - - (5,697,410) - (5,697,410)
Issuance of
common stock
in exchange
for property 35,473 355 478,531 - 478,886
---------- -------- ------------ ------------ ------------
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 of
common stock) - - - (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 - - - 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
========== ======== ============ ============ ============
See accompanying notes to consolidated financial statements.
1995 ANNUAL REPORT - PAGE 14
COMMERCIAL NET LEASE REALTY, INC. and SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31,
1995 1994 1993
------------ ------------ ------------
Cash flows from operating
activities:
Net earnings $ 12,707,271 $ 8,915,373 $ 3,521,914
Adjustments to reconcile
net earnings to net
cash provided by
operating activities:
Depreciation 1,736,021 1,076,593 624,341
Amortization 322,176 254,080 20,421
Gain on sale of land
and buildings - - (374,203)
Decrease in net
investment in direct
financing leases 462,512 267,832 42,594
Increase in accrued
rental income (1,233,389) (782,843) (167,807)
Increase in receivables (49,916) (11,222) (152,027)
Decrease (increase)
in prepaid expenses 207,029 (313,578) (23,422)
Increase in other assets (6,813) (9,753) -
Increase (decrease) in
accrued interest payable 92,624 35,851 (138,562)
Increase in accounts
payable and accrued
expenses 11,672 74,446 58,242
Increase (decrease) in
real estate taxes
payable 49,283 (26,943) 60,592
Increase (decrease) in
due to related parties (46,398) (61,970) 73,179
Increase (decrease) in
rents paid in advance
and tenant deposits (112,295) 86,730 204,780
------------ ------------ ------------
Net cash provided
by operating
activities 14,139,777 9,504,596 3,750,042
------------ ------------ ------------
Cash flows from investing
activities:
Proceeds from sale of land
and buildings - - 1,587,657
Additions to land and
buildings on operating
leases (51,401,946) (53,174,715) (31,269,296)
Investment in direct
financing leases (14,710,290) (25,570,232) (16,943,113)
Increase in other assets (1,451,220) (332,377) (1,949,337)
Other 45,000 (4,046) (34,669)
------------ ------------ ------------
Net cash used in
investing
activities (67,518,456) (79,081,370) (48,608,758)
------------ ------------ ------------
Cash flows from financing
activities:
Proceeds from loans 81,950,000 46,905,000 -
Repayment of loans (14,150,000) (32,105,000) (8,500,000)
Payment of loan costs (898,243) (605,788) (110,403)
Proceeds from issuance
of common stock - 50,000,000 81,609,375
Payment of stock
issuance costs (4,069) (3,498,072) (5,607,579)
Payment of dividends (13,529,860) (9,896,586) (3,155,701)
Other (758,335) - -
------------ ------------ ------------
Net cash provided
by financing
activities 52,609,493 50,799,554 64,235,692
------------ ------------ ------------
Net increase (decrease) in cash
and cash equivalents (769,186) (18,777,220) 19,376,976
Cash and cash equivalents at
beginning of year 1,069,900 19,847,120 470,144
------------ ------------ ------------
Cash and cash equivalents at
end of year $ 300,714 $ 1,069,900 $ 19,847,120
============ ============ ============
See accompanying notes to consolidated financial statements.
1995 ANNUAL REPORT - PAGE 15
COMMERCIAL NET LEASE REALTY, INC. and SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
Year Ended December 31,
1995 1994 1993
------------ ------------ ------------
Supplemental disclosure of
cash flow information:
Interest paid $ 3,544,567 $ 489,245 $ 519,637
============ ============ ============
Supplemental disclosure of
non-cash investing and
financing activities:
Property acquired in
exchange for the
issuance of 35,473
shares of common stock $ - $ - $ 478,886
============ ============ ============
Land, building and direct
financing lease costs
incurred and unpaid at
December 31 $ 182,111 $ 165,230 $ -
============ ============ ============
Loan costs incurred and
unpaid at December 31 $ 47,337 $ - $ -
============ ============ ============
Stock issuance costs
incurred and unpaid
at December 31 $ - $ 4,069 $ 3,327
============ ============ ============
[PICTURE 6]
CORRE DE BELINE
LISBON, PORTUGAL
See accompanying notes to condensed financial statements.
1995 ANNUAL REPORT - PAGE 16
COMMERCIAL NET LEASE REALTY, INC. and SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 1995, 1994 and 1993
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
ORGANIZATION AND NATURE OF BUSINESS - Commercial Net Lease Realty, Inc. (the
"Company") is a real estate investment trust which was incorporated in 1984 in
the State of Delaware. In June 1994, the Company reincorporated in the State
of Maryland, as described in Note 2. The Company owns and manages high-
quality, freestanding properties leased to major retail businesses under long-
term commercial net leases.
PRINCIPLES OF CONSOLIDATION - In November 1995, the Company acquired 100% of
the common stock of two newly-formed entities, Net Lease Realty I, Inc. and
Net Lease Realty II, Inc., to facilitate the acquisition of certain
properties. Each of the subsidiaries is a qualified real estate investment
trust subsidiary as defined in the Internal Revenue Code Section 856(i)(2).
The consolidated financial statements include the accounts of the Company and
these wholly-owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated in consolidation.
LAND AND BUILDINGS ON OPERATING LEASES - Land and buildings on operating
leases are stated at cost. Buildings are depreciated on the straight-line
method over their estimated useful lives (generally 35 to 40 years).
LEASE ACCOUNTING - Land and buildings are leased to others on a net lease
basis, whereby the tenant is generally responsible for all operating expenses
relating to the property, including property taxes, insurance, maintenance and
repairs.
The leases are accounted for under either the direct financing or the
operating methods. Such methods are described below:
DIRECT FINANCING METHOD - Leases accounted for under the direct
financing method are recorded at their net investment (Note 5).
Unearned income is deferred and amortized to income over the lease terms
so as to produce a constant periodic rate of return on the Company's net
investment in the lease.
OPERATING METHOD - Land and buildings are recorded at cost, revenue is
recognized as rentals are earned and expenses (including depreciation)
are charged to operations as incurred. When scheduled rentals vary
during the lease term, income is recognized on a straight-line basis so
as to produce a constant periodic rent. Accrued rental income is the
aggregate difference between the scheduled rents which vary during the
lease term and the income recognized on a straight-line basis.
CASH AND CASH EQUIVALENTS - For the purposes of the statements of cash flows,
the Company considers all highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents. Cash and cash
equivalents consist of cash, money market accounts and overnight investments.
Cash equivalents are stated at cost plus accrued interest, which approximates
market value.
LOAN COSTS - Loan costs have been capitalized and are being amortized over the
terms of the loan commitments using the straight-line method which
approximates the effective interest method. The premium paid for the interest
rate cap agreement has been recorded as a prepaid expense and is being
amortized as interest expense over the term of the agreement using the
straight-line method which approximates the effective interest method.
NOTES PAYABLE - Statement of Financial Accounting Standards No. 107,
Disclosures About Fair Value of Financial Instruments, requires disclosure of
the year end fair value of significant financial instruments, including long-
term debt. The Company believes, based upon current terms, that the carrying
value of its notes payable and interest rate cap agreement at December 31,
1995, approximate fair value.
INCOME TAXES - The Company has made an election to be taxed as a real estate
investment trust under Sections 856-860 of the Internal Revenue Code of 1986,
as amended, and related regulations. The Company will not be subject to
federal income taxes on amounts distributed to stockholders, providing it
distributes at least 95 percent of its real estate investment trust taxable
income and meets certain other requirements for qualifying as a real estate
investment trust. For each of the years in the three-year period ended
December 31, 1995, the Company believes it has qualified as a real estate
investment trust; accordingly, no provisions have been made for federal income
taxes in the accompanying financial statements. Not withstanding the
Company's qualification for taxation as a real estate investment trust, the
Company is subject to certain state taxes on its income and property.
EARNINGS PER SHARE - Earnings per share are calculated based upon the weighted
average number of shares outstanding during each year. Stock options
outstanding are not included since their inclusion would not result in a
material dilution of earnings per share.
USE OF ESTIMATES - Management of the Company has made a number of estimates
and assumptions relating to the reporting of assets and liabilities and the
disclosure of contingent assets and liabilities to prepare these financial
statements in conformity with generally accepted accounting principles.
Actual results could differ from those estimates.
NEW ACCOUNTING STANDARDS - 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 will 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.
1995 ANNUAL REPORT - PAGE 17
In October 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 123, Accounting for Stock-Based
Compensation. The Statement, which is effective for fiscal years beginning
after December 15, 1995, 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 will adopt this
standard in 1996 by providing pro forma equivalent information in a footnote
disclosure.
2. REINCORPORATION:
The Company entered into an agreement of merger, effective June 3, 1994, which
provided for the Company's change of domicile from Delaware to Maryland (the
"Reincorporation") following the approval by the stockholders at the Company's
1994 Annual Meeting on April 22, 1994.
The Reincorporation did not result in a change in the Company's name,
business, management, location of the principal executive office,
capitalization of assets, liabilities or net worth (other than due to the
costs of the Reincorporation).
3. 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 December 31, 1995, 98 of the leases have been classified as operating
leases and 59 leases have been classified as direct financing leases. For the
leases classified as direct financing leases, the building portions of the
property leases are accounted for as direct financing leases while the land
portions of 30 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, fully 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.
4. LAND AND BUILDINGS ON OPERATING LEASES:
Land and buildings on operating leases consisted of the following at
December 31:
1995 1994
------------ ------------
Land $ 83,356,403 $ 52,476,960
Buildings and improvements 78,097,726 57,375,471
------------ ------------
161,454,129 109,852,431
Accumulated depreciation (5,497,390) (3,761,369)
------------ ------------
$155,956,739 $106,091,062
============ ============
In December 1993, the Company sold two of its properties for a total of
$1,587,657 and recognized a gain of $374,203.
Some leases provide for escalating guaranteed minimum rent throughout the
lease term. Income from these scheduled rent increases is recognized on a
straight-line basis over the terms of the leases. For the years ended
December 31, 1995, 1994 and 1993, the Company recognized $1,233,389, $782,843
and $167,807, respectively, of such income.
The following is a schedule of future minimum lease payments to be received on
noncancellable operating leases at December 31, 1995:
1996 $ 16,050,567
1997 16,131,479
1998 16,151,795
1999 16,360,559
2000 16,710,047
Thereafter 185,299,459
------------
$266,703,906
============
5. NET INVESTMENT IN DIRECT FINANCING LEASES:
The following lists the components of net investment in direct financing
leases at December 31:
1995 1994
------------ ------------
Future minimum lease
payments to be received $126,314,337 $ 96,231,285
Estimated residual values 17,354,140 12,721,338
Less unearned income (86,839,351) (66,400,775)
------------ ------------
Net investment in direct
financing leases $ 56,829,126 $ 42,551,848
============ ============
1995 ANNUAL REPORT - PAGE 18
The following is a schedule of future minimum lease payments to be received on
direct financing leases at December 31, 1995:
1996 $ 6,704,466
1997 6,704,466
1998 6,707,916
1999 6,754,468
2000 6,872,235
Thereafter 92,570,786
------------
$126,314,337
============
6. OTHER ASSETS:
Other assets consisted of the following at December 31:
1995 1994
---------- ----------
Deposits and miscellaneous
acquisition costs $1,573,668 $ 334,818
Deposits for loan commitments 526,000 -
Deferred offering costs 222,671 -
Other 39,696 9,753
---------- ----------
$2,362,035 $ 344,571
========== ==========
7. NOTES PAYABLE:
In June 1994, the Company entered into an agreement establishing a new
$30,000,000 credit facility which consolidated the Company's previous
$10,000,000 and $20,000,000 credit facilities. Advances under the $30,000,000
credit facility were secured by an assignment of rent from all of the
Company's properties and bore interest at an annual rate equal to the lender's
prime rate.
In July 1994, the Company entered into a loan agreement for a three-year
$100,000,000 revolving credit facility (the "Credit Facility"). The Credit
Facility, which replaced the Company's previous $30,000,000 credit facility,
provided for $60,000,000 of credit initially, increasing to $100,000,000
subject to the Company raising additional equity (which condition was met on
October 7, 1994, upon completion of the Company's common stock offering) and
expansion of the lending syndicate (which condition was met on April 13, 1995,
upon execution of an amended and restated revolving line of credit loan
agreement). In addition, the Credit Facility was amended on December 7, 1995,
which included the Company's two wholly-owned subsidiaries as qualified
borrowers of the Credit Facility. The Credit Facility allows the Company and
its subsidiaries to borrow at an interest rate equal to 170 basis points above
LIBOR or the lender's prime rate, whichever the Company selects. In addition,
in connection with the Credit Facility, the Company is required to pay a
commitment fee of 20 basis points per annum on the unused commitment.
Advances under the Credit Facility are collateralized by an assignment of the
rents and leases of certain of the Company's properties. The principal
balance is due in full upon termination of the Credit Facility on June 30,
1997, and interest is payable quarterly. As of December 31, 1995 and 1994,
the outstanding principal balance was $69,450,000 and $14,800,000,
respectively, plus accrued interest of $84,094 and $35,851, respectively. In
addition, as of December 31, 1995, the Company had incurred $850,887 in loan
costs relating to this loan. The terms of the Credit Facility include
financial covenants which provide for the maintenance of certain financial
ratios. The Company was in compliance with such covenants as of December 31,
1995.
In December 1994, the Company entered into an interest rate cap agreement as a
means to reduce its exposure to rising interest rates on the Company's
variable rate Credit Facility. The interest rate cap agreement provides for a
fixed LIBOR rate of 7.25% per annum on a notional amount of $25,000,000 and is
effective through June 1996.
On December 14, 1995, the Company entered into a long-term, fixed rate
mortgage and security agreement for $13,150,000 (the "Permanent Debt
Financing"). The Permanent Debt Financing provides for a four-year mortgage
with interest payable monthly and principal payable at maturity on December
15, 1999, and bears interest at a rate of 6.75% 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 December 31, 1995, the outstanding
principal balance was $13,150,000, plus accrued interest of $44,381. In
addition, as of December 31, 1995, the Company had incurred $223,530 in loan
costs relating to this mortgage.
8. DIVIDENDS:
The following presents the characterization for tax purposes of dividends paid
to stockholders for the years ended December 31:
1995 1994 1993
----- ----- -----
Ordinary income $ .92 $ .95 $ .97
Capital gain - - .13
Return of capital .24 .19 -
----- ----- -----
$1.16 $1.14 $1.10
===== ===== =====
1995 ANNUAL REPORT - PAGE 19
On January 2, 1996, the Company declared dividends of $3,382,465 or 29 cents
per share of common stock, payable on February 15, 1996, to stockholders of
record on January 15, 1996.
9. 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. During
the year ended December 31, 1994, the Company amended the Plan to increase the
number of shares reserved for issuance from 88,100 shares of common stock to
600,000 shares of common stock and to permit an automatic increase in the
number of shares issuable pursuant to options granted under the Plan to
1,200,000 and 2,000,000 shares at such time as the Company has 15,000,000 and
25,000,000 shares, respectively, of common stock issued and outstanding. The
following summarizes transactions in the Plan for the years ended December 31,
1995, 1994 and 1993:
Number of Shares
-----------------------------
1995 1994 1993
------- ------- -------
Outstanding, January 1 568,100 87,400 45,000
Granted at $11.25 to
$14.125 per share 10,000 480,700 42,400
Exercised - - -
Surrendered - - -
------- ------- -------
Outstanding, December 31 578,100 568,100 87,400
======= ======= =======
Exercisable, December 31 232,000 44,135 14,996
======= ======= =======
Available for grant,
December 31 21,900 31,900 700
======= ======= =======
The Plan requires that the exercise price of the options equals the market
value of the stock on the grant date; therefore, no compensation expense has
been recorded with respect to the options in the accompanying financial
statements. 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.
10. RELATED PARTY TRANSACTIONS:
Certain directors and officers of the Company hold similar positions with CNL
Realty Advisors, Inc., the Company's advisor.
During the year ended December 31, 1993, the Company acquired 26 properties
for purchase prices totalling $20,188,586 from affiliates of CNL Realty
Advisors, Inc. at their cost. In addition, during the year ended December 31,
1994, the Company acquired one property for a purchase price of $548,487 from
an affiliate that had purchased and temporarily held title to the land portion
of this property pending the tenant's completion of construction of the
building located on the property. In connection with the acquisition of these
27 properties, plus the acquisition of 15 other properties in 1993, 37 other
properties in 1994 and 22 properties and four buildings which were developed
by the tenant on land parcels owned by the Company in 1995 from unrelated,
third parties, the Company paid CNL Realty Advisors, Inc. $783,661, $1,436,073
and $937,363, respectively, in acquisition fees and expense reimbursement fees
(representing 1.5% and 0.5%, respectively, of the cost of the properties).
In addition, during the years ended December 31, 1995, 1994 and 1993, the
Company acquired five properties for purchase prices totalling $17,968,518,
six properties for purchase prices totalling $6,712,967 and three properties
for purchase prices totalling $7,867,517, respectively, from affiliates of CNL
Realty Advisors, Inc. who had developed the properties. The purchase prices
paid by the Company for these properties equalled the affiliates' costs
including development costs. The affiliates' costs consisted of the land
purchase prices, construction costs, various soft costs including legal costs,
survey fees and architect fees, and developers fees aggregating $1,105,689 in
1995, $573,753 in 1994 and $782,164 in 1993 paid to an affiliate of CNL Realty
Advisors, Inc. No acquisition fees or expense reimbursement fees were paid to
CNL Realty Advisors, Inc. in connection with the acquisition of these 14
properties.
On August 2, 1993, the Company acquired a property from an affiliate of CNL
Realty Advisors, Inc. under the terms previously agreed to in a stock
purchase agreement dated January 23, 1992, including subsequent modifications.
In connection with the acquisition of this property, the Company issued 35,473
shares of its common stock to the affiliate. The market price of the stock on
August 2, 1993, was $13.50 per share.
During 1993, the Company paid real estate brokerage commissions totalling
$32,811 to an affiliate of CNL Realty Advisors, Inc. in connection with the
sale of two of the Company's properties.
During 1992, the Company and CNL Realty Advisors, Inc. entered into an
advisory agreement pursuant to which CNL Realty Advisors, Inc. received a
monthly management fee equal to one percent of the gross revenues (as defined
in the advisory agreement) and, on a quarterly basis, an advisory fee equal to
six percent of adjusted funds from operations (as defined in the advisory
agreement). Under this agreement with CNL Realty Advisors, Inc., the Company
incurred management and advisory fees in the aggregate amount of $41,384 for
the period January 1, 1993 through March 31, 1993.
1995 ANNUAL REPORT - PAGE 20
Effective April 1, 1993, the Company entered into the current advisory
agreement (the "Advisory Agreement"), which provides for CNL Realty Advisors,
Inc. to receive an annual fee, payable monthly, equal to seven percent of
funds from operations, as defined in the Advisory Agreement, up to
$10,000,000, six percent of funds from operations in excess of $10,000,000 but
less than $20,000,000 and five percent of funds from operations in excess of
$20,000,000. For purposes of the Advisory Agreement, funds from operations
generally include the Company's net earnings excluding the advisory fee,
depreciation and amortization expenses, extraordinary gains and losses and
non-cash lease accounting adjustments. Under the Advisory Agreement, the
Company incurred $1,001,225, $727,513 and $265,746 in advisory fees for the
year ended December 31, 1995, 1994 and the period April 1, 1993 through
December 31, 1993, respectively.
The amounts due to related parties consisted of the following at December 31:
1995 1994
------- -------
Due to CNL Realty Advisors, Inc.:
Advisory fee $20,098 $71,970
Acquisition and expense reimbursement fees 27,458 5,500
Expenditures incurred on behalf of the Company 21,482 4,492
------- -------
$69,038 $81,962
======= =======
11. MAJOR TENANTS:
The following schedule presents rental and earned income, including contingent
rent, from operators and affiliated operators representing more than ten
percent of the Company's total rental and earned income for the years ended
December 31:
1995 1994 1993
---------- ---------- ----------
Barnes & Noble Superstores,
Inc. $2,370,560 $ - $ -
Denny's, Inc. and Flagstar
Enterprises, Inc. 2,074,572 2,082,271 683,421
Golden Corral Corporation - 1,833,469 1,857,872
Burger King Corporation - 1,463,218 1,197,949
12. COMMITMENTS AND CONTINGENCIES:
As of December 31, 1995, the Company had entered into agreements to purchase
14 additional properties for an estimated aggregate amount of $48,325,323. In
addition, in connection with the acquisition of these 14 properties, at
December 31, 1995, the Company was contingently liable for $4,555,013 related
to 14 separate bank letters of credit which guarantee the Company's obligation
under the purchase agreements to acquire ten of these properties from an
affiliate of CNL Realty Advisors, Inc. and four of these properties from an
unrelated third party upon completion of the development of the properties.
The Company acquired seven land parcels during the year ended December 31,
1995, and leased those land parcels to tenants which were 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.
13. SUBSEQUENT EVENTS:
On January 24, 1996, the Company filed a final prospectus supplement with the
Securities and Exchange Commission dated January 23, 1996, which offered
3,500,000 shares of common stock at $13.00 per share from the shelf
registration. Proceeds from the offering were used to pay down the Company's
Credit Facility.
On January 30, 1996, the Company entered into a long-term, fixed rate mortgage
and security agreement for $39,450,000. The mortgage provides for a ten-year
loan with principal and interest payable monthly, based on a 17-year
amortization, with the balance due on the tenth anniversary of the loan and
bears interest at a rate of 7.435% per annum. Proceeds from the loan were
used to pay down the Company's Credit Facility.
In January 1996, the Company acquired four of the buildings described in Note
12 for an aggregate amount of $10,097,284 from unrelated third parties. The
Company also acquired four of the properties described in Note 12 for an
aggregate amount of $9,352,624 during January 1996 from a related party. In
addition, in January 1996, the Company acquired one property for $5,000,000
from an unrelated party. In connection with the acquisition of these five
properties and four buildings, the Company borrowed $24,900,000 of amounts it
has available under its Credit Facility.
1995 ANNUAL REPORT - PAGE 21
QUARTERLY FINANCIAL DATA
1995 Quarter First Second Third Fourth Year
- ------------ ---------- ---------- ---------- ---------- -----------
Rent and other
revenue $4,415,446 $4,745,816 $5,534,043 $5,885,075 $20,580,380
Depreciation
and amorti-
zation expense 435,883 490,023 536,726 595,565 2,058,197
Interest expense 415,645 675,025 1,244,801 1,498,917 3,834,388
Other expenses 505,065 447,177 526,745 501,537 1,980,524
Net earnings 3,058,853 3,133,591 3,225,771 3,289,056 12,707,271
Net earnings
per share (1) 0.26 0.27 0.28 0.28 1.09
1994 Quarter
- ------------
Rent and other
revenue $2,416,363 $2,847,614 $3,167,283 $3,858,107 $12,289,367
Depreciation
and amorti-
zation expense 243,939 352,639 344,350 389,745 1,330,673
Interest expense - 97,958 314,245 85,467 497,670
Other expenses 460,613 362,004 307,348 415,686 1,545,651
Net earnings 1,711,811 2,035,013 2,201,340 2,967,209 8,915,373
Net earnings
per share (1) 0.22 0.27 0.29 0.26 1.04
(1) Calculated independently for each period, and consequently, the sum of
the quarters may differ from the annual amount.
SHARE PRICE AND DIVIDEND DATA
The common stock of the Company currently if traded on the New York Stock
Exchange under the symbol "NNN." Prior to January 7, 1994, the common stock
was traded on the American Stock Exchange. For each calendar quarter
indicated, the following table reflects the respective high, low and closing
sales prices for the common stock in the relevant market and the dividends
paid per share in each such period.
1995 Quarter First Second Third Fourth Year
- ------------ ---------- ---------- ---------- ---------- ----------
High $12.500 $13.750 $13.625 $13.375 $13.750
Low 11.750 11.875 12.125 12.500 11.750
Close 12.125 13.125 13.250 12.750 12.750
Dividends paid
per share 0.29 0.29 0.29 0.29 1.16
1994 Quarter
- ------------
High $14.375 $14.500 $14.000 $12.625 $14.500
Low 13.250 13.250 12.250 11.875 11.875
Close 13.875 13.625 12.250 12.250 12.250
Dividends paid
per share 0.28 0.28 0.29 0.29 1.14
The portion of dividends paid in 1995 and 1994, which was treated as a non-
taxable return of capital, was 20.8% and 16.9%, respectively.
On February 15, 1996, there were approximately 1,500 shareholders of record of
common stock.
APPENDIX
PICTURE 1 1995 ANNUAL REPORT - PAGE 6
PICTURE 2 1995 ANNUAL REPORT - PAGE 6
PICTURE 3 1995 ANNUAL REPORT - PAGE 7
PICTURE 4 1995 ANNUAL REPORT - PAGE 7
PIE CHART 1 1995 ANNUAL REPORT - PAGE 9
PIE CHART 2 1995 ANNUAL REPORT - PAGE 9
MAP 1 1995 ANNUAL REPORT - PAGE 9
PICTURE 5 1995 ANNUAL REPORT - PAGE 13
PICTURE 6 1995 ANNUAL REPORT - PAGE 15
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS DATED MARCH 22, 1996
The Board of Directors
Commercial Net Lease Realty, Inc.:
We consent to the use of our reports dated January 20, 1996, except for Note
13 for which the date is January 30, 1996, incorporated herein by reference.
/s/ KPMG Peat Marwick LLP
Orlando, Florida
March 22, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the balance
sheet of Commercial Net Lease Realty, Inc. at December 31, 1995 and its
statement of income for the year then ended and is qualified in its entirety by
reference to the Form 10-K of Commercial Net Lease Realty, Inc. for the year
ended December 31, 1995.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 300,714
<SECURITIES> 0
<RECEIVABLES> 394,154
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 849,406
<PP&E> 161,454,129
<DEPRECIATION> 5,497,390
<TOTAL-ASSETS> 219,256,676
<CURRENT-LIABILITIES> 814,563
<BONDS> 0
116,637
0
<COMMON> 0
<OTHER-SE> 135,725,476
<TOTAL-LIABILITY-AND-EQUITY> 219,256,676
<SALES> 0
<TOTAL-REVENUES> 20,580,380
<CGS> 0
<TOTAL-COSTS> 4,038,721
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,834,388
<INCOME-PRETAX> 12,707,271
<INCOME-TAX> 0
<INCOME-CONTINUING> 12,707,271
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 12,707,271
<EPS-PRIMARY> 1.09
<EPS-DILUTED> 1.09
</TABLE>
