<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the balance
sheet of Commercial Net Lease Realty, Inc. at June 30, 1996, and its statement
of earnings for the six months then ended and is qualified in its entirety by
reference to the Form 10-Q of Commercial Net Lease Realty, Inc. for the six
months ended June 30, 1996.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 776,773
<SECURITIES> 0
<RECEIVABLES> 334,578
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 234,288,520
<DEPRECIATION> 6,737,544
<TOTAL-ASSETS> 317,452,978
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 0
0
0
<COMMON> 156,887
<OTHER-SE> 185,259,229
<TOTAL-LIABILITY-AND-EQUITY> 317,452,978
<SALES> 0
<TOTAL-REVENUES> 14,555,268
<CGS> 0
<TOTAL-COSTS> 2,969,592
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,061,751
<INCOME-PRETAX> 8,523,925
<INCOME-TAX> 0
<INCOME-CONTINUING> 8,523,925
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,523,925
<EPS-PRIMARY> .57
<EPS-DILUTED> .57
<FN>
<F1>Due to the nature of its industry, Commercial Net Lease Realty, Inc. has an
unclassified balance sheet; therefore, no values are shown above for current
assets and current liabilities.
</FN>
</TABLE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
-----------------------------------
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
--------------- ----------------
Commission file number
0-12989
-----------------------
Commercial Net Lease Realty, Inc.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Maryland 56-1431377
- ---------------------------- -------------------------------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organiza- Identification No.)
tion)
400 E. South Street, #500
Orlando, Florida 32801
- ---------------------------- -------------------------------
(Address of principal (Zip Code)
executive offices)
Registrant's telephone number
(including area code) (407) 422-1574
-------------------------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
------- -------
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date.
15,688,672 shares of Common Stock, $.01 par value, outstanding as of August 1,
1996.<PAGE>
COMMERCIAL NET LEASE REALTY, INC.
and SUBSIDIARIES
CONTENTS
--------
Part I Page
----
Item 1. Financial Statements:
Condensed Consolidated Balance Sheets 1
Condensed Consolidated Statements of
Earnings 2
Condensed Consolidated Statements of
Stockholders' Equity 3
Condensed Consolidated Statements of
Cash Flows 4-5
Notes to Condensed Consolidated
Financial Statements 6-12
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations 13-16
Part II
Other Information 17-19
COMMERCIAL NET LEASE REALTY, INC.
and SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
June 30, December 31,
ASSETS 1996 1995
------------ ------------
Land and buildings on operating
leases, net of accumulated
depreciation $227,550,976 $155,956,739
Net investment in direct financing
leases 83,138,688 56,829,126
Cash and cash equivalents 776,773 300,714
Receivables 334,578 394,154
Prepaid expenses 159,578 154,538
Loan costs, net of accumulated
amortization of $690,071 and
$405,179 1,977,659 1,065,149
Accrued rental income 3,169,800 2,194,221
Other assets 344,926 2,362,035
------------ ------------
$317,452,978 $219,256,676
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Notes payable $131,103,924 $ 82,600,000
Accrued interest payable 327,388 128,475
Accounts payable and accrued
expenses 118,425 350,632
Real estate taxes payable 103,100 82,932
Due to related parties 222,236 69,038
Rents paid in advance and tenant
deposits 161,789 183,486
------------ ------------
Total liabilities 132,036,862 83,414,563
------------ ------------
Commitments and contingencies
(Notes 8 and 9)
Stockholders' equity:
Common stock, $.01 par value.
Authorized 50,000,000 and
30,000,000 shares, respectively;
issued and outstanding
15,688,672 and 11,663,672
shares, respectively 156,887 116,637
Excess stock, $0.01 par value,
authorized 50,000,000 and
30,000,000 shares, respectively;
none issued and outstanding -
Capital in excess of par value 187,571,759 138,629,751
Accumulated dividends in excess
of net earnings (2,312,530) (2,904,275)
------------ ------------
Total stockholders' equity 185,416,116 135,842,113
------------ ------------
$317,452,978 $219,256,676
============ ============
See accompanying notes to condensed consolidated
financial statements.
COMMERCIAL NET LEASE REALTY, INC.
and SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
Quarter Ended Six Months Ended
June 30, June 30,
1996 1995 1996 1995
----------- ----------- ----------- -----------
Revenues:
Rental income from
operating leases $ 5,602,811 $ 3,248,021 $10,648,901 $ 6,257,674
Earned income from
direct financing
leases 1,796,758 1,267,213 3,478,578 2,461,401
Contingent rental
income 199,322 202,752 357,113 379,964
Interest and other 32,153 27,830 70,676 62,223
----------- ----------- ----------- -----------
7,631,044 4,745,816 14,555,268 9,161,262
----------- ----------- ----------- -----------
Expenses:
General operating and
administrative 288,985 158,462 672,442 403,302
Advisory fees to
related party 342,505 239,737 650,516 478,916
Interest 1,601,868 675,025 3,061,751 1,090,670
Taxes 56,803 48,978 92,520 70,024
Depreciation and
amortization 806,470 490,023 1,554,114 925,906
----------- ----------- ----------- -----------
3,096,631 1,612,225 6,031,343 2,968,818
----------- ----------- ----------- -----------
Net earnings $ 4,534,413 $ 3,133,591 $ 8,523,925 $ 6,192,444
=========== =========== =========== ===========
Earnings per share of
common stock $ 0.29 $ 0.27 $ 0.57 $ 0.53
=========== =========== =========== ===========
Weighted average number
of shares outstanding 15,688,672 11,663,672 15,000,210 11,663,672
=========== =========== =========== ===========
See accompanying notes to condensed consolidated
financial statements.
<TABLE>
COMMERCIAL NET LEASE REALTY, INC.
and SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Six Months Ended June 30, 1996
and Year Ended December 31, 1995
<CAPTION>
Accumulated
dividends
Capital in in excess
Number Common excess of of net
of shares stock par value earnings Total
---------- -------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Balance at
December 31, 1994 11,663,672 $116,637 $138,629,751 $ (2,081,686) $136,664,702
Net earnings - - - 12,707,271 12,707,271
Dividends declared
and paid ($1.16
per share of
common stock) - - - (13,529,860) (13,529,860)
---------- -------- ------------ ------------ ------------
Balance at
December 31, 1995 11,663,672 116,637 138,629,751 (2,904,275) 135,842,113
Net earnings - - - 8,523,925 8,523,925
Dividends declared
and paid ($0.58
per share of
common stock) - - - (7,932,180) (7,932,180)
Issuance of common
stock 4,025,000 40,250 52,284,750 - 52,325,000
Stock issuance costs - - (3,342,742) - (3,342,742)
---------- -------- ------------ ----------- ------------
Balance at June 30,
1996 15,688,672 $156,887 $187,571,759 $(2,312,530) $185,416,116
========== ======== ============ =========== ============
See accompanying notes to condensed consolidated
financial statements.
</TABLE>
COMMERCIAL NET LEASE REALTY, INC.
and SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended
June 30,
1996 1995
------------ ------------
Cash flows from operating activities:
Net earnings $ 8,523,925 $ 6,192,444
Adjustments to reconcile net earnings
to net cash provided by operating
activities:
Depreciation 1,240,154 787,077
Amortization 313,960 138,829
Decrease in net investment in
direct financing leases 313,968 207,557
Increase in accrued rental income (975,579) (541,184)
Decrease (increase) in receivables 60,805 (147,674)
Decrease (increase) in prepaid
expenses (5,040) 32,926
Decrease in other assets 21,410 8,187
Increase in accrued interest payable 198,913 85,907
Decrease in accounts payable and
accrued expenses (60,981) (95,048)
Increase in real estate taxes payable 20,168 49,278
Increase (decrease) in due to
related parties 44,508 (35,084)
Increase (decrease) in rents paid
in advance and tenant deposits (21,697) 74,137
------------ ------------
Net cash provided by operating
activities 9,674,514 6,757,352
------------ ------------
Cash flows from investing activities:
Additions to land and buildings on
operating leases (64,696,636) (31,052,015)
Investment in direct financing leases (26,623,451) (9,629,688)
Increase in other assets (91,920) (566,005)
Other 115,627 22,636
------------ ------------
Net cash used in investing
activities (91,296,380) (41,225,072)
------------ ------------
Cash flows from financing activities:
Proceeds from loan 118,450,000 42,700,000
Repayment of loans (76,739,930) -
Payment of loan costs (747,496) (343,532)
Proceeds from issuance of common stock 52,325,000 -
Payment of stock issuance costs (3,253,079) (4,069)
Payment of dividends (7,932,180) (6,764,930)
Other (4,390) (33,654)
------------ ------------
Net cash provided by financing
activities 82,097,925 35,553,815
------------ ------------
Net increase in cash and cash equivalents 476,059 1,086,095
Cash and cash equivalents at beginning
of period 300,714 1,069,900
------------ ------------
Cash and cash equivalents at end of
period $ 776,773 $ 2,155,995
============ ============
Supplemental disclosures of non-cash
investing and financing activities:
Land, building and direct financing
lease costs incurred and unpaid at
end of period $ 188,194 $ 153,560
============ ============
Other financing activity costs incurred
and unpaid at end of period $ - $ 24,586
============ ============
Mortgages assumed in exchange for three
properties $ 6,793,854 $ -
============ ============
See accompanying notes to condensed consolidated
financial statements.
COMMERCIAL NET LEASE REALTY, INC.
and SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Quarters and Six Months Ended June 30, 1996 and 1995
1. Basis of Presentation:
---------------------
The accompanying unaudited financial statements have been prepared in
accordance with the instructions to Form 10-Q and do not include all of
the information and note disclosures required by generally accepted
accounting principles. The financial statements reflect all
adjustments, consisting of normal recurring adjustments, which are, in
the opinion of management, necessary to a fair statement of the results
for the interim periods presented. Operating results for the quarter
and six months ended June 30, 1996, may not be indicative of the results
that may be expected for the year ending December 31, 1996. Amounts as
of December 31, 1995, included in the financial statements, have been
derived from audited financial statements as of that date.
These unaudited financial statements should be read in conjunction with
the financial statements and notes thereto included in the Form 10-K of
Commercial Net Lease Realty, Inc. (the "Company") for the year ended
December 31, 1995.
The consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiaries. All significant intercompany
accounts and transactions have been eliminated in consolidation.
Earnings per share are calculated based upon the weighted average number
of shares outstanding during each period. Stock options outstanding are
not included since their inclusion would not result in a material
dilution of earnings per share.
Effective January 1, 1996, the Company adopted Statement of Financial
Accounting Standards No. 121, Accounting for the Impairment of Long-
Lived Assets and for Long-Lived Assets to Be Disposed Of. The statement
provides that an entity review long-lived assets and certain
identifiable intangibles to be held and used for impairment whenever
events or changes in circumstances indicate that the carrying amount of
the asset may not be recoverable. Adoption of this standard had no
material effect on the Company's financial position or results of
operations.
Effective January 1, 1996, the Company adopted Statement of Financial
Accounting Standards No. 123, Accounting for Stock-Based Compensation.
The Statement provides that companies must either charge the value of
stock options granted to their income statement or provide pro forma
equivalent information in a footnote disclosure. The Company adopted
this standard and will provide pro forma equivalent information in a
footnote disclosure to its financial statements at December 31, 1996 and
for the year then ended.
2. Leases:
------
The Company generally leases its land and buildings to operators of
major retail businesses. The leases are accounted for under the
provisions of Statement of Financial Accounting Standards No. 13,
Accounting for Leases. As of June 30, 1996, 111 of the leases have
been classified as operating leases and 71 leases have been classified
as direct financing leases. For the leases classified as direct
financing leases, the building portions of the leases are accounted for
as direct financing leases while the land portions of 46 of these leases
are accounted for as operating leases. Substantially all leases have
initial terms of 15 to 20 years (expiring between 1997 and 2020) and
provide for minimum rentals. In addition, the majority of the leases
provide for contingent rentals and/or scheduled rent increases over the
terms of the leases. The tenant is also generally required to pay all
property taxes and assessments, substantially maintain the interior and
exterior of the building and carry insurance coverage for public
liability, property damage, fire and extended coverage. The lease
options generally allow tenants to renew the leases for two to four
successive five-year periods subject to substantially the same terms and
conditions as the initial lease.
3. Land and Building on Operating Leases:
-------------------------------------
Land and buildings on operating leases consisted of the following at:
June 30, December 31,
1996 1995
------------ ------------
Land $116,651,332 $ 83,356,403
Buildings and
improvements 117,637,188 78,097,726
------------ ------------
234,288,520 161,454,129
Accumulated depreci-
ation (6,737,544) (5,497,390)
------------ ------------
$227,550,976 $155,956,739
============ ============
Some leases provide for escalating guaranteed minimum rent to begin in
subsequent lease years. Income from these scheduled rent increases is
recognized on a straight-line basis over the terms of the leases. For
the six months ended June 30, 1996 and 1995, the Company recognized
$975,579 and $541,184, respectively, of such income, $502,115 and
$279,264 of which was recognized for the quarters ended June 30, 1996
and 1995, respectively.
The following is a schedule of future minimum lease payments to be
received on noncancellable operating leases at June 30, 1996:
1996 $ 11,528,262
1997 23,177,489
1998 23,208,006
1999 23,446,769
2000 23,836,106
Thereafter 288,672,001
------------
$393,868,633
============
4. Net Investment in Direct Financing Leases:
-----------------------------------------
The following lists the components of net investment in direct financing
leases at:
June 30, December 31,
1996 1995
------------ ------------
Minimum lease payments
to be received $188,392,023 $126,314,337
Estimated residual
values 25,332,902 17,354,140
Less unearned income (130,586,237) (86,839,351)
------------ ------------
Net investment in
direct financing
leases $ 83,138,688 $ 56,829,126
============ ============
The following is a schedule of future minimum lease payments to be
received on direct financing leases at June 30, 1996:
1996 $ 5,019,740
1997 10,039,483
1998 10,042,933
1999 10,089,485
2000 10,207,619
Thereafter 142,992,763
------------
$188,392,023
============
5. Notes Payable:
-------------
In July 1994, the Company entered into a loan agreement for a three-year
$100,000,000 revolving credit facility (the "Credit Facility") which
expires on June 30, 1997. As of June 30, 1996 and December 31, 1995,
the outstanding principal balance was $72,200,000 and $69,450,000,
respectively, plus accrued interest of $127,377 and $84,094,
respectively.
In January 1996, the Company entered into a long-term, fixed rate
mortgage and security agreement for $39,450,000 (the "Permanent Debt
Financing"). The Permanent Debt Financing provides for a ten-year loan
with principal and interest payable monthly, based on a 17-year
amortization, with the balance due in February 2006 and bears interest
at a rate of 7.435% per annum. The Permanent Debt Financing is secured
by a first lien on and assignment of rents and leases of certain of the
Company's properties. As of June 30, 1996, the outstanding principal
balance was $38,960,070, plus accrued interest of $120,695.
In June 1996, the Company acquired three properties each subject to a
mortgage totalling $6,793,854 (collectively, the "Mortgages"). The
Mortgages bear interest at a weighted average rate of 8.6% and have a
weighted average maturity of eight years, with principal and interest
payable monthly. As of June 30, 1996, the outstanding principal
balances for the Mortgages totalled $6,793,854 plus accrued interest of
$42,332.
The following is a schedule of annual maturities of the Company's
outstanding indebtedness for the remaining portion of 1996 and each of
the next four years:
1996 $ 717,923
1997 1,520,219
1998 1,672,434
1999 14,984,294
2000 2,005,074
-----------
$20,899,944
===========
6. Stock Option Plan:
-----------------
The Company's stock option plan (the "Plan") provides compensation and
incentive to persons ("Key Employees") or entities whose services are
considered essential to the Company's continued growth and success. As
of December 31, 1995, the Plan had 600,000 shares of common stock
reserved for issuance. Pursuant to the Plan, the shares of common stock
reserved for issuance automatically increased to 1,200,000 shares in
connection with the equity offering during the six months ended June 30,
1996. The Plan provides for an additional automatic increase in the
number of shares issuable under the Plan to 2,000,000 shares at such
time as the Company has 25,000,000 shares of common stock issued and
outstanding.
The following summarizes transactions in the plan for the six months
ended June 30, 1996 and 1995:
Number of Shares
----------------------------
Six Months Ended
June 30,
1996 1995
------------ ------------
Outstanding, January 1 578,100 568,100
Granted at $12.625 to
$13.25 per share 390,000 10,000
Exercised - -
Surrendered (11,500) -
------- -------
Outstanding, June 30 956,600 578,100
======= =======
Exercisable, June 30 345,033 158,500
======= =======
Available for grant,
June 30 231,900 21,900
======= =======
One-third of the grant to each individual becomes exercisable at the end
of each of the first three years of service following the date of the
grant.
The Company applies Accounting Principles Board Opinion 25, Accounting
for Stock Issued to Employees, in accounting for the Plan. Accordingly,
due to the fact that the Plan requires that the exercise price of the
options equal the market value of the stock on the grant date, no
compensation cost has been recorded with respect to the options for the
six months ended June 30, 1996 and 1995.
7. Related Party Transactions:
--------------------------
During the six months ended June 30, 1996, the Company acquired six
properties for purchase prices totalling $13,278,638 from an affiliate
of CNL Realty Advisors, Inc. who had developed the properties. The
purchase prices paid by the Company for these six properties equalled
the affiliate's cost including development costs. The affiliate's cost
consisted of the land purchase prices, construction costs, various soft
costs including legal costs, survey fees and architect fees, and
developers fees aggregating $608,000 paid to an affiliate of CNL Realty
Advisors, Inc.
In addition, during the six months ended June 30, 1996, the Company
acquired 19 properties and seven buildings which were developed by the
tenant on land parcels owned by the Company from unrelated, third
parties for purchase prices totalling $82,420,261. In connection with
the acquisition of these 19 properties and seven buildings, the Company
paid CNL Realty Advisors, Inc. $1,648,405 in acquisition fees and
expense reimbursement fees (representing 1.5% and 0.5%, respectively, of
the cost of the properties).
During the six months ended June 30, 1996, the Company acquired one
property for a purchase price of $3,400,000 from an affiliate of CNL
Realty Advisors, Inc. The purchase price paid by the Company
represented the costs incurred by the affiliate to acquire the property,
including closing costs.
8. Commitments and Contingencies:
-----------------------------
As of June 30, 1996, the Company had entered into agreements to purchase
14 additional properties for an estimated aggregate amount of
$43,858,662. In connection with the acquisition of these 14 properties,
the Company was contingently liable for $3,895,283 related to 14
separate bank letters of credit which guarantee the Company's obligation
under the purchase agreements to acquire these properties.
As of June 30, 1996, the Company owned and leased two land parcels to
tenants which were obligated to develop a building on the respective
land parcels. The Company has agreed to pay an aggregate amount of up
to $3,950,000 upon completion of the buildings.
9. Subsequent Event:
----------------
In July 1996, the Company declared dividends to its shareholders of
$4,706,602 or $.30 per share of common stock, payable in August 1996.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Introduction
- ------------
Commercial Net Lease Realty, Inc. (the "Company") is an equity real
estate investment trust that acquires, owns and manages high-quality,
freestanding properties leased to major retail businesses under long-term
commercial net leases. As of June 30, 1996, the Company owned 182 properties
(the "Properties") each of which are leased to major retail businesses.
Liquidity and Capital Resources
- -------------------------------
General. Historically, the Company's only demand for funds has been for
the payment of operating expenses and dividends, for property acquisitions and
for the payment of interest on its outstanding indebtedness. Generally, cash
needs for items other than property acquisitions have been met from operations
and property acquisitions have been funded by equity offerings, 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 six months ended June 30, 1996 and 1995, the
Company generated $9,674,514 and $6,757,352, respectively, in net cash
provided by operating activities. The increase in cash from operations for
the six months ended June 30, 1996, as compared to the six months ended June
30, 1995, is primarily a result of changes in revenues and expenses as
discussed in "Results of Operations."
The Company's leases typically provide that the tenant bears
responsibility for substantially all property costs and expenses associated
with ongoing maintenance and operation, including utilities, property taxes
and insurance. In addition, the Company's leases generally provide that the
tenant is responsible for roof and structural repairs. Certain of the
Company's Properties are subject to leases under which the Company retains
responsibility for certain costs and expenses associated with the Property.
Because many of the Properties which are subject to leases that place these
responsibilities on the Company are recently constructed, management
anticipates that capital demands to meet obligations with respect to these
Properties will be minimal for the foreseeable future and can be met with
funds from operations and working capital. The Company may be required to use
bank borrowings or other sources of capital in the event of unforeseen
significant capital expenditures.
Indebtedness. In January 1996, the Company entered into a long-term,
fixed rate mortgage and security agreement for $39,450,000 (the "Permanent
Debt Financing"). The Permanent Debt Financing provides for a ten-year loan
with principal and interest payable monthly, based on a 17-year amortization,
with the balance due in February 2006 and bears interest at a rate of 7.435%
per annum. The Permanent Debt Financing is secured by a first lien on and
assignment of rents and leases of certain of the Company's Properties. As of
June 30, 1996, the outstanding principal balance was $38,960,070. Proceeds
from the Permanent Debt Financing were used to pay down the Company's
$100,000,000 credit facility.
In June 1996, the Company acquired three Properties each subject to a
mortgage totalling $6,793,854 (collectively, the "Mortgages"). The Mortgages
bear interest at a weighted average rate of 8.6% and have a weighted average
maturity of eight years, with principal and interest payable monthly,
commencing in July 1996. As of June 30, 1996, the outstanding principal
balances for the Mortgages totalled $6,793,854.
Debt and Equity Securities. In July 1995, the Company filed a shelf
registration statement with the Securities and Exchange Commission that
permits the issuance of debt and equity securities of up to $200,000,000. In
January 1996, the Company filed a final prospectus supplement to the shelf
registration and issued 4,025,000 shares of common stock and received gross
proceeds of $52,325,000. In connection with the offering, the Company
incurred stock issuance costs totalling $3,342,742, consisting primarily of
underwriters' commissions and fees, legal and accounting fees and printing
expenses. Proceeds from the offering were used to pay down the Company's
$100,000,000 credit facility.
Property Acquisitions and Commitments. During the six months ended
June 30, 1996, the Company borrowed $90,700,000 under its credit facility and
assumed mortgages totalling $6,793,854 to acquire 25 Properties (five Eckerd
drugstores, three OfficeMax office supply stores, one Barnes & Noble
bookstore, three Academy sporting goods stores, two Borders bookstores, two
Computer City computer stores, three Luria's jewelry and giftware stores, one
Good Guys consumer electronics store, one Homeplace home furnishing store, one
Baby Superstore baby products retailer and three Sears Homelife furniture
stores) and seven buildings (five Barnes and Noble bookstores, one Academy
sporting goods store and one Food 4 Less grocery store) which were developed
by the tenant on land parcels owned by the Company for an aggregate amount of
approximately $95,700,000.
As of June 30, 1996, the Company had entered into agreements to purchase
14 additional properties for an estimated aggregate amount of $43,858,662.
The purchase of these properties is subject to conditions relating to
completion of development activities, review of title and obtaining title
insurance, engineering and environmental inspections and other matters.
In addition, as of June 30, 1996, the Company owned two land parcels
which are leased to tenants who are obligated to develop buildings on the
respective land parcels. Pursuant to each lease, the Company has agreed to
purchase the buildings upon completion and occupancy for an aggregate amount
of up to $3,950,000.
In addition to the 14 properties under contract and the two buildings
under construction as of June 30, 1996, the Company is currently negotiating
the acquisition of prospective properties. The Company may elect to acquire
these prospective properties or other additional properties (or interests
therein) in the future. Such property acquisitions are expected to be the
primary demand for additional capital in the future. The Company anticipates
that it may engage in equity or debt financing, through either public or
private offerings of its securities for cash, issuance of such securities in
exchange for assets, or a combination of the foregoing. Subject to the
constraints imposed by the Company's $100,000,000 credit facility and long-
term, fixed rate financing, the Company may enter into additional financing
arrangements.
Management believes that the Company's current capital resources
(including cash on hand), coupled with the Company's borrowing capacity, are
sufficient to meet its liquidity needs for the foreseeable future.
Dividends. One of the Company's primary objectives, consistent with its
policy of retaining sufficient cash for reserves and working capital purposes,
is to distribute a substantial portion of its funds available from operations
to its stockholders in the form of dividends. For the six months ended June
30, 1996 and 1995, the Company declared and paid dividends to its stockholders
of $7,932,180 and $6,764,930, respectively, or $.58 per share of common stock
for each respective period. In July 1996, the Company declared dividends to
its shareholders of $4,706,602 or $.30 per share of common stock, payable in
August 1996.
Results of Operations
- ---------------------
As of June 30, 1996 and 1995, the Company owned and leased 182 and 142
Properties, respectively, to operators of major retail businesses. In
connection therewith, during the six months ended June 30, 1996 and 1995, the
Company earned $14,127,479 and $8,719,075, respectively, in rental income from
operating leases and earned income from direct financing leases, $7,399,569
and $4,515,234 of which was earned during the quarters ended June 30, 1996 and
1995, respectively. The increase in rental and earned income during the
quarter and six months ended June 30, 1996, is primarily a result of the facts
that (i) the 29 Properties acquired and four buildings upon which construction
was completed during 1995 were operational for a full quarter in 1996 and (ii)
the Company acquired 25 Properties and seven buildings upon which construction
was completed during the six months ended June 30, 1996. Rental and earned
income are expected to increase as the Company acquires additional properties
and due to the fact that the 15 Properties and three buildings acquired
during the quarter ended June 30, 1996 will contribute to the Company's income
for a full fiscal quarter in future quarters.
The Company incurred $3,061,751 and $1,090,670 in interest expense for
the six months ended June 30, 1996 and 1995, respectively $1,601,868 and
$675,025 of which was incurred for the quarters ended June 30, 1996 and 1995,
respectively. Interest expense increased during the quarter and six months
ended June 30, 1996, primarily as a result of the Company's Permanent Debt
Financing and higher average borrowing levels on the Company's $100,000,000
credit facility. However, the increase was partially offset by a decrease in
the average interest rates of the Company's credit facility and the Company's
long-term, fixed rate financing.
During the six months ended June 30, 1996 and 1995, operating expenses,
including depreciation and amortization, were $2,969,592 and $1,878,148,
respectively (20.4% and 20.5%, respectively, of gross operating revenues) of
which $1,494,763 and $937,200 (19.6% and 19.7%, respectively, of gross
operating revenues) were incurred for the quarters ended June 30, 1996 and
1995, respectively. The increase in the dollar amount of operating
expenses for the quarter and six months ended June 30, 1996, as compared to
the quarter and six months ended June 30, 1995, is primarily attributable to
the increase in depreciation expense as a result of the additional Properties
acquired during the six months ended June 30, 1996, and a full quarter and six
months of depreciation expense relating to the 29 Properties and four
buildings acquired during 1995. The increase is also attributable to an
increase in amortization expense as a result of the amortization of loan costs
relating to the Company's Permanent Debt Financing. In addition, advisory
fees increased as a result of increased funds from operations for the quarter
and six months ended June 30, 1996.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
-----------------
No material developments in legal proceedings as previously
reported in the Form 10-K for the year ended December 31, 1995.
Item 2. Changes in Securities. Not applicable.
---------------------
Item 3. Defaults Upon Senior Securities. Not applicable.
-------------------------------
Item 4. Submission of Matters to a Vote of Security Holders.
---------------------------------------------------
On May 16, 1996, the Company held its Annual Meeting of
Shareholders (the "Annual Meeting"). At the Annual Meeting, the
following nominees were elected to the Board of Directors of the
Company: Messrs. Robert A. Bourne (13,984,815 voted for and
68,954 abstained), Edward Clark (13,984,065 voted for and 69,704
abstained), Willoughby T. Cox, Jr. (13,984,115 voted for and
69,654 abstained), Clifford R. Hinkle (13,984,515 voted for and
69,254 abstained), Ted B. Lanier (13,984,715 voted for and 69,054
abstained), and James M. Seneff, Jr. (13,984,815 voted for and
68,954 abstained). In addition, the shareholders voted to approve
authorization of 50,000,000 shares of common stock (13,472,089
voted for, 440,132 voted against and 141,548 abstained). The
Company failed to receive the required vote of the shareholders to
approve (1) authorization of 15,000,000 shares of preferred stock
(6,709,798 voted for, 3,366,985 voted against and 218,517
abstained) and (2) amendment of articles of incorporation to
permit simple majority amendments (9,358,116 voted for, 552,237
voted against and 538,828 abstained).
Item 5. Other Information. Not applicable.
-----------------
Item 6. Exhibits and Reports on Form 8-K.
--------------------------------
(a) The following exhibits are filed as a part of this report.
3.1 Articles of Incorporation of the Registrant (filed as
Exhibit 3.3(i) to the Registrant's Registration
Statement No. 1-11290 on Form 8-B, and incorporated
herein by reference).
3.2 Bylaws of the Registrant (filed as Exhibit 3.3(ii) to
Amendment No. 2 to the Registrant's Registration
Statement No. 1-11290 on Form 8-B, and incorporated
herein by reference).
3.3 Articles of Amendment to the Articles of Incorporation
of Registrant (Filed herewith).
4 Specimen Certificate of Common Stock, par value $.01
per share, of the Registrant (filed as Exhibit 3.4 to
the Registrant's Registration Statement No. 1-11290 on
Form 8-B, and incorporated herein by reference).
10.1 Stock Purchase Agreement dated as of January 23, 1992
by and among the Registrant, CNL Group, Inc. and
certain entities affiliated therewith (filed as
Exhibit 10.4 to the Registrant's Annual Report on Form
10-K for the year ended December 31, 1991, and
incorporated herein by reference).
10.2 Letter Agreement dated July 10, 1992, amending Stock
Purchase Agreement dated January 23, 1992 (filed as
Exhibit 10.34 to the Registrant's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1992, and
incorporated herein by reference).
10.3 Advisory Agreement between Registrant and CNL Realty
Advisors, Inc. effective as of April 1, 1993 (filed as
Exhibit 10.04 to Amendment No. 1 to the Registrant's
Registration Statement No. 33-61214 on Form S-2, and
incorporated herein by reference).
10.4 1992 Commercial Net Lease Realty, Inc. Stock Option
Plan (filed as Exhibit No. 10(x) to the Registrant's
Registration Statement No. 33-83110 on Form S-3, and
incorporated herein by reference).
10.5 Interest Rate Cap Agreement dated December 23, 1994,
by and between the Registrant and First Union National
Bank of Florida (filed as Exhibit 10.12 to the
Registrant's Annual Report on Form 10-K for the year
ended December 31, 1994, and incorporated herein by
reference).
10.6 Second Amended and Restated Line of Credit and
Security Agreement, dated December 7, 1995, among
Registrant, certain lenders listed therein and First
Union National Bank of Florida, as the Agent, relating
to a $100,000,000 loan (filed as Exhibit 10.14 to the
Registrant's Current Report on Form 8-K dated January
18, 1996, and incorporated herein by reference).
10.7 Secured Promissory Note, dated December 14, 1995,
among Registrant and Principal Mutual Life Insurance
Company relating to a $13,150,000 loan (filed as
Exhibit 10.15 to the Registrant's Current Report on
Form 8-K dated January 18, 1996, and incorporated
herein by reference).
10.8 Mortgage and Security Agreement, dated December 14,
1995, among Registrant and Principal Mutual Life
Insurance Company relating to a $13,150,000 loan
(filed as Exhibit 10.16 to the Registrant's Current
Report on Form 8-K dated January 18, 1996, and
incorporated herein by reference).
10.9 Loan Agreement, dated January 19, 1996, among
Registrant and Principal Mutual Life Insurance Company
relating to a $39,450,000 loan (filed as Exhibit 10.12
to the Registrant's Annual Report on Form 10-K for the
year ended December 31, 1995, and incorporated herein
by reference).
10.10 Secured Promissory Note, dated January 19, 1996, among
Registrant and Principal Mutual Life Insurance Company
relating to a $39,450,000 loan (filed as Exhibit 10.13
to the Registrant's Annual Report on Form 10-K for the
year ended December 31, 1995, and incorporated herein
by reference).
(b) No reports on Form 8-K were filed during the quarter ended
June 30, 1996.
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DATED this 7th day of August, 1996.
COMMERCIAL NET LEASE REALTY, INC.
By: /s/ Gary M. Ralston
-----------------------
Gary M. Ralston
President
By: /s/ Kevin B. Habicht
-----------------------
Kevin B. Habicht
Chief Financial Officer
EXHIBIT 3.3
ARTICLES OF AMENDMENT
TO
THE ARTICLES OF INCORPORATION
OF
COMMERCIAL NET LEASE REALTY, INC.
COMMERCIAL NET LEASE REALTY, INC. (the "Corporation"), a corporation
organized and existing under the laws of the State of Maryland, does hereby
certify as follows:
FIRST: The name of the Corporation is Commercial Net Lease Realty,
Inc.
SECOND: Section One of Article Seventh of the Articles of
Incorporation of the Corporation is hereby deleted in its entirety and amended
and restated to read as follows:
SECTION 1. TOTAL CAPITALIZATION
The total number of shares of all classes of capital stock that the
Corporation has authority to issue is one hundred million (100,000,000)
shares, consisting of (i) fifty million (50,000,000) shares of common stock,
par value $0.01 per share (the "Common Stock") and (ii) fifty million
(50,000,000) shares of excess stock, par value $0.01 per share (the "Excess
Stock"). The aggregate par value of all of the authorized shares of all
classes of capital stock having a par value is $1,000,000.00.
THIRD: The foregoing amendment to the Corporation's Articles of
Incorporation was advised by a resolution adopted by the Corporation's Board
of Directors at a meeting held on March 19, 1996 and approved by the
Corporation's stockholders at the Corporation's Annual Meeting, held on May
16, 1996.
FOURTH: Prior to this amendment, the Corporation had authority to
issue 60,000,000 shares of capital stock with an aggregate par value of
$600,000.00, consisting of (i) thirty million (30,000,000) shares of common
stock, par value $0.01 per share, and (ii) thirty million (30,000,000) shares
of excess stock, par value of $0.01 per share.
FIFTH: These Articles of Amendment do not change the information
required by subsection (b)(2)(i) of Section 2-607 of the General Corporation
Law of Maryland.
IN WITNESS WHEREOF, these Articles of Amendment are hereby executed by
Kevin B. Habicht, an Executive Vice President of the Corporation, who hereby
acknowledges that the Articles of Amendment are the act of the Corporation,
and who does hereby state under the penalties of perjury that the matters and
facts set forth herein with respect to authorization and approval of such
Articles are true in all material respects to the best of his knowledge,
information and belief.
BY: /s/Kevin B. Habicht
--------------------------
Kevin B. Habicht
Executive Vice President
DATE: August 12, 1996
ATTEST
BY: /s/Robert A. Bourne
-------------------
Robert A. Bourne
Secretary
Date: August 12, 1996
