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PROSPECTUS SUPPLEMENT
(To Prospectus dated April 22, 1997)
[COMMERCIAL NET LEASE REALTY LOGO]
2,570,000 SHARES
COMMERCIAL NET LEASE REALTY, INC.
COMMON STOCK
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Commercial Net Lease Realty, Inc. (the "Company") is a real estate
investment trust that acquires, owns and manages a diversified portfolio of
high-quality, single-tenant, freestanding properties leased to major retail
businesses generally under full-credit, long-term commercial net leases. As of
June 30, 1997, the Company owned 222 net-leased properties located in 36 states
acquired for an aggregate purchase price of approximately $474 million and
containing an aggregate of approximately 4.0 million square feet of gross
leasable area. Such properties have an average remaining lease term of
approximately 14 years. See "Properties."
The 2,570,000 shares of common stock of the Company (the "Common Stock")
offered hereby (the "Offering") are being sold by the Company to clients of
ABKB/LaSalle Securities Limited Partnership at a price of $15.1226 per share.
See "Plan of Distribution" for a description of the determination of the
Offering price. The Common Stock is traded on the New York Stock Exchange under
the symbol "NNN." The last reported sale price of the Common Stock on the New
York Stock Exchange on September 16, 1997 was $16.25. See "Price Range of Common
Stock and Dividends" and "Description of Common Stock" contained in the
accompanying Prospectus.
SEE "RISK FACTORS" FOR CERTAIN FACTORS RELEVANT TO AN INVESTMENT IN THE
COMMON STOCK ON PAGES S-6 TO S-8 OF THIS PROSPECTUS SUPPLEMENT.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS TO WHICH IT
RELATES. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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THE DATE OF THIS PROSPECTUS SUPPLEMENT IS SEPTEMBER 18, 1997
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The following summary is qualified in its entirety by the more detailed
information and financial information appearing elsewhere in this Prospectus
Supplement and the accompanying Prospectus, or incorporated herein or therein by
reference. As used herein, the term "Inclusive Cost" means all costs related to
acquisitions, including but not limited to the purchase price, legal fees and
expenses, commissions and title insurance.
THE COMPANY
GENERAL
Commercial Net Lease Realty, Inc., a Maryland corporation (the "Company"),
is a real estate investment trust (a "REIT") formed in 1984 that acquires, owns
and manages a diversified portfolio (the "Company Portfolio") of high-quality,
single-tenant, freestanding properties leased to major retail businesses
generally under full-credit, long-term commercial net leases. As of June 30,
1997, the Company owned 222 net-leased properties (the "Properties") acquired
for an aggregate purchase price of approximately $474 million and having an
annualized current cash on cost return (on an Inclusive Cost basis) of
approximately 10.5 percent. The Properties are leased to 46 tenants in 36 states
and contain an aggregate of approximately 4.0 million square feet of gross
leasable area ("GLA").
The Company focuses on acquiring freestanding properties that are located
within intensive commercial corridors near traffic generators such as regional
malls, business developments and major thoroughfares. These properties, which
generally have purchase prices of up to $7.5 million, attract a wide array of
established retail tenants, such as Barnes & Noble, Eckerd and OfficeMax.
Consequently, management believes that such properties offer attractive
opportunities for stable current return and potential capital appreciation. In
addition, management believes that the location and design of properties in this
niche provide flexibility in use and tenant selection and an increased
likelihood of advantageous re-lease terms upon expiration or early termination
of the related leases.
Properties acquired by the Company are generally newly constructed as of
the time of acquisition. In addition, the Company generally acquires 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. 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 June 30, 1997, the
average remaining initial lease term of the Properties was approximately 14
years. Leases representing approximately 88 percent of annualized base rental
income from the Properties (the "Base Rent") for the six months ended June 30,
1997, have initial terms extending until at least December 31, 2007.
Approximately 79 percent of Base Rent is derived from leases that provide for
periodic, contractually fixed increases in base rent.
The principal office of the Company is located at 400 East South Street,
Suite 500, Orlando, Florida 32801, and the Company's telephone number is (407)
422-1574.
THE ADVISOR
CNL Realty Advisors, Inc. (the "Advisor") is the Company's advisor. The
Advisor is a majority owned subsidiary of CNL Group, Inc. ("CNL Group"), a
diversified real estate company with expertise in commercial net-leased
investments that currently owns and manages, either directly or through
affiliates (collectively, "CNL Affiliates"), a property portfolio with a cost in
excess of $800 million. Under the direction of the Company's Board of Directors,
the Advisor has responsibility for the day-to-day operations of the Company,
including investment analysis, acquisitions, due diligence, asset management and
accounting services. Management of the Company believes that the Advisor's
extensive experience and long-term relationships throughout the commercial
net-leased property industry benefit the Company in selecting, acquiring and
managing its properties, thereby providing the Company with a competitive
advantage in the
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management and operation of its real estate assets and in the identification of
attractive investments. See "Certain Transactions." At the time the Company
retained the Advisor in July 1992, the Company owned 28 properties leased to one
tenant (four of which were subsequently sold). The aggregate cost of such
properties was approximately $12.8 million. As of June 30, 1997, the Company had
acquired 200 additional properties (two of which were subsequently sold) leased
to 45 new tenants for an aggregate purchase price of approximately $464 million.
Historically, the Company did not have a large enough asset base to provide
the economies of scale needed to support efficiently the extensive general and
administrative expenses of an in-house management team. As a result, the Advisor
has incurred the full expense of a management and acquisition team while
receiving advisory and acquisition fees that have offset this expense. However,
due to the Company's growth, management now believes that it will be more cost
effective to become self-administered. As a result, on May 15, 1997, the Board
of Directors of the Company unanimously approved an agreement and plan of merger
with the Advisor which will result in the Company becoming a self-administered
and self-managed real estate investment trust (the "Advisor Transaction"). The
agreement provides for the merger of the Advisor into a wholly owned subsidiary
of the Company pursuant to which all of the outstanding common stock of the
Advisor will be exchanged for 220,000 shares of Common Stock of the Company and
the right, based upon the Company's continued growth in assets for a period of
up to five years, to receive up to 1,980,000 additional shares of the Company's
Common Stock. In addition, upon consummation of the Advisor Transaction, all
personnel employed by the Advisor will become employees of the Company.
Following the consummation of the Advisor Transaction, the Advisory Agreement
(as defined below) and the obligation of the Company to pay any fees thereunder
shall be terminated. See "Certain Transactions." The consummation of the Advisor
Transaction is subject to stockholder approval, the receipt of favorable tax
opinions and other customary closing conditions. As a result, there can be no
assurance that the Advisor Transaction will be consummated. See "Risk Factors."
Purchasers of shares of Common Stock offered hereby will be entitled to receive
definitive proxy materials regarding the merger and will have the right to vote
for or against the proposed merger.
RECENT DEVELOPMENTS
COMPLETED PROPERTY ACQUISITIONS
Between January 1, 1997 and June 30, 1997, the Company acquired 28
properties (27 land and building parcels plus one land only parcel) and
purchased new buildings constructed by the tenant on three previously acquired
land parcels for an aggregate purchase price of approximately $105 million (on
an Inclusive Cost basis). These 28 properties and three buildings have
approximately 976,000 square feet of GLA, provide approximately $11.0 million in
annualized Base Rent with a resulting annualized cash on cost return (on an
Inclusive Cost basis) of approximately 10.5 percent, and were financed by the
proceeds from the Company's $200 million credit facility (the "Credit
Facility").
MERGER WITH THE ADVISOR
On May 15, 1997, the Board of Directors of the Company unanimously approved
an agreement and plan of merger with the Advisor which will result in the
Company becoming a self-administered and self-managed real estate investment
trust. The agreement provides for the merger of the Advisor into a wholly owned
subsidiary of the Company pursuant to which all of the outstanding common stock
of the Advisor will be exchanged for 220,000 shares of Common Stock of the
Company and the right, based upon the Company's continued growth in assets for a
period of up to five years, to receive up to 1,980,000 additional shares of the
Company's Common Stock. The consummation of the transaction is subject to
stockholder approval, the receipt of favorable tax opinions and other customary
closing conditions. As a result, there can be no assurance that the Advisor
Transaction will be consummated. See "Risk Factors." Assuming the closing
conditions are satisfied, the Company anticipates that the Advisor Transaction
will be consummated during the fourth quarter of 1997.
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AMENDED CREDIT FACILITY FOR ACQUISITIONS
On August 6, 1997, the Company amended its Credit Facility to increase the
maximum borrowing capacity from $150 million to $200 million and reduced the
interest rate from LIBOR plus 1.6 percent to LIBOR plus 1.5 percent. In the
future, the Company intends to draw on the Credit Facility as needed to acquire
additional properties.
PROPERTIES
The Company typically acquires, owns and manages freestanding properties
leased to individual tenants. The properties typically are located within
intensive commercial traffic corridors near traffic generators such as regional
malls, business developments and major thoroughfares. Management believes that
properties with these characteristics are desired by tenants because they offer
high visibility to passing traffic, ease of access, tenant control over the
site's hours of operation and maintenance standards and distinctive building
design which promotes greater customer identification. In addition, management
believes that freestanding properties permit tenants to open new stores quickly
due to the shorter development cycles generally associated with such properties
and provide tenants with flexibility in responding to changing retail trends.
Management also believes that many retailers interested in occupying
freestanding single-tenant properties of the type acquired by the Company prefer
to lease rather than own such properties, which enables them to allocate their
capital to their core businesses rather than real estate. Additionally,
management believes the Company's ability to provide targeted established
retailers with nationwide sale/leaseback financing on a number of properties
adds additional efficiency and value to retailers and the Company. To avoid some
of the risks associated with property ownership, the Company structures its
leases on a triple-net or similar basis under which tenants bear the principal
portion of the financial and operational responsibility for the properties.
Management believes that leases structured on this basis provide the Company
with a stable current return and the potential for capital appreciation of its
assets.
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RISK FACTORS
In addition to the other information contained or incorporated by reference
in this Prospectus Supplement and the accompanying Prospectus, prospective
investors should carefully review the following considerations in determining
whether to acquire the Common Stock offered hereby.
DEPENDENCE ON MAJOR TENANTS
Barnes & Noble accounts for approximately 11.5 percent of Base Rent as of
June 30, 1997. The next five largest tenants (Eckerd, OfficeMax, Borders Books &
Music, Academy and Good Guys), in terms of Base Rent as of June 30, 1997,
account for an aggregate of approximately 31.5 percent of Base Rent. The
default, financial distress or bankruptcy of one or more of these tenants could
cause vacancies among certain of the Properties, which would reduce the revenues
of the Company until the affected Properties are re-let, and could decrease the
ultimate sale value of each such Property. Upon the expiration of the leases
that are currently in place, the Company may not be able to re-lease a vacant
Property at a comparable lease rate or without incurring additional expenditures
in connection with such re-leasing.
CONFLICTS OF INTEREST
Certain officers and directors of the Advisor and of the Company currently
are engaged, and in the future are expected to engage, in the management of
other entities that invest in real estate, and in other business activities.
Competition therefore will exist in the allocation of such directors' and
officers' management time, services and functions among the Company and the
various other entities in which such directors and officers are involved. The
Company's bylaws require that any decision by the Company with respect to the
purchase or sale of real property or the leasing of the Company's real property
is subject to the approval of the Independent Directors and the Board of
Directors. The Company's bylaws also require that transactions between the
Company and its directors or executive officers, or between the Company and any
entity in which one of the Company's directors or executive officers is a
director or executive officer or has a material financial interest, be approved
by a majority of the directors not interested in the transaction.
James M. Seneff, Jr. and Robert A. Bourne, directors and officers of the
Company and of the Advisor, also are associated with various CNL Affiliates that
are involved in the sale of interests in, and management of, entities that
currently invest primarily in triple-net leased properties. One or more of these
CNL Affiliates from time to time may acquire properties that also would be
appropriate investments for the Company. At such time as the Company wishes to
acquire a property that also would be suitable for acquisition by a CNL
Affiliate, a conflict of interest could develop. Messrs. Seneff and Bourne, as
directors of the Company, have a fiduciary obligation to act in the best
interest of the stockholders of the Company and, as principals of the CNL
Affiliates, to act in the best interest of the investors in such CNL Affiliates.
CNL Group, Inc., the majority owner of the Advisor, the Advisor, and
Messrs. Seneff and Bourne have granted the Company a right of first refusal to
consider and acquire any freestanding retail properties (other than restaurant
properties) that become available for acquisition by them or any other CNL
Affiliate. No similar right of first refusal has been requested by or granted to
the Company as to restaurant properties, due primarily to the Company's focus on
diversifying into retail segments other than the restaurant segment. Management
of the Company believes that, to the extent conflicts develop with respect to
particular restaurant properties, such conflicts should not have a material
adverse effect on the Company, although there can be no assurance in this
regard.
In the event that the Advisor Transaction is not consummated, from time to
time the Company may engage in transactions with CNL Affiliates, including the
acquisition of properties developed by such CNL Affiliates. See "Certain
Transactions." The price to the Company of any property that may be developed by
a CNL Affiliate typically includes all direct costs of development, such as land
and construction costs, closing costs and a market-rate development fee which
generally is equal to five to 10 percent of the total cost of the property. This
development fee generally is treated as a cost of the property by the CNL
Affiliate and the tenant, and therefore is included in the calculation of Base
Rent.
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MORTGAGE INDEBTEDNESS; INTEREST RATE FLUCTUATIONS; FINANCING RISKS
All borrowings under the Company's Credit Facility bear interest at
variable rates equal to, at the Company's option, either (i) LIBOR plus 1.5
percent or (ii) the lender's prime rate in effect from time to time. If the
variable rate index associated with such indebtedness increases, interest
payments on this variable rate debt also will increase, which will result in
decreased funds available for distribution to stockholders. In December, 1996,
the Company entered into an agreement to limit interest charged to the Company
to a 30-day LIBOR rate of 6.9 percent per annum on a notional amount of $30
million. This interest rate cap agreement is effective through December 1999. At
this time, management has not entered into other interest rate cap or swap
agreements, although management intends to enter into such agreements in the
future. Management will continue to evaluate the desirability of these
agreements from time to time.
As of June 30, 1997, 45 properties owned by the Company secured the
repayment of approximately $57.5 million of mortgage indebtedness. The Company's
inability to repay such indebtedness at maturity or inability to refinance such
indebtedness on acceptable terms, may force the Company to dispose of properties
upon disadvantageous terms, which could result in losses to the Company and
adversely affect the amount of cash available for distribution to stockholders.
The Company's ability to expand and, to the extent funded with debt, to
maintain the Company Portfolio is dependent upon its access to capital at costs
which permit it to derive positive returns from its investments. There is no
assurance the Company will at all times have such access. Advances under the
Credit Facility are secured by a collateral assignment of rents and leases of
137 properties owned by the Company. The Company has agreed under the Credit
Facility that it will not encumber these properties or incur additional
indebtedness, subject to certain exceptions, without the lenders' consent. These
covenants may limit the Company's ability to obtain additional financing during
the term of the Credit Facility.
The organizational documents of the Company do not contain any substantial
limitation on the amount or percentage of indebtedness the Company may incur.
Accordingly, the Board of Directors could alter or eliminate the Company's
current debt policy. If this policy were changed, the Company could become
highly leveraged, resulting in an increase in debt service that could adversely
affect the Company's revenues and its ability to make distributions to
stockholders.
POTENTIAL EFFECT OF MARKET INTEREST RATES ON PRICE OF COMMON STOCK
The market price of equity securities of publicly-traded companies is
determined in part by the attractiveness of the yield on such securities in
relation to prevailing market interest rates. An increase in market interest
rates generally may lead prospective purchasers of the Common Stock to demand a
higher anticipated annual yield from future dividends, which, in turn, may
adversely affect the market price of the Common Stock. Moreover, the market
value of the Common Stock could be substantially and adversely impacted by
changes in general market conditions or fluctuations in the market for equity
securities.
RISK THAT ADVISOR TRANSACTION MAY NOT BE CONSUMMATED
The consummation of the Advisor Transaction is subject to a number of
conditions, and the related agreement and plan of merger is subject to
termination, as more fully described in that certain Form 8-K, dated May 16,
1997 and incorporated herein by reference. There can be no assurance that the
conditions to the consummation of the Advisor Transaction will be satisfied or
that the agreement and plan of merger will not be terminated in accordance with
its terms.
RELIANCE ON MANAGEMENT
The Company depends upon the services of the Advisor, Mr. Seneff, as
Chairman of the Board of Directors and Chief Executive Officer of the Company.
Loss of the services of the Advisor or Mr. Seneff could have a material adverse
effect on the Company's business and financial condition. In addition, the loan
agreement for the Company's Credit Facility contains a covenant requiring that
no material change in the Company's senior management occur during the term of
the Credit Facility. The Company has not entered
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into an employment agreement with Mr. Seneff and Mr. Seneff does not presently
and is not expected to devote all of his efforts to the Company.
Assuming the Advisor Transaction is approved by the Company's stockholders,
Mr. Seneff, as Chief Executive Officer of the Company, and Mr. Ralston, as
President of the Company, will execute employment agreements with the Company.
Mr. Seneff's employment agreement will not require that he devote all of his
efforts to the Company.
ENVIRONMENTAL MATTERS
It is the Company's policy, as part of its acquisition due diligence
process, to obtain at least a Phase I environmental site assessment for each
property, which generally involves inspection of site conditions without
invasive testing such as sampling or analysis of soil, groundwater or other
media or conditions. Where the Company believes the results of a Phase I
environmental site assessment warrant further investigation, the Company has
undertaken in the past, and will undertake in the future, a Phase II
environmental site assessment, which generally involves testing of soil,
groundwater or other media or conditions. In the event that an environmental
site assessment indicates that a problem or a potential problem exists, the
Company generally would elect not to purchase the property or, if the Company
believes that the problem is not material, may purchase the property and require
the seller to (i) remediate the problem prior to the Company's purchase of the
property, (ii) indemnify the Company for environmental liabilities, or (iii)
agree to other arrangements deemed appropriate by the Company to address
environmental conditions at the property. A number of the Company's leases
provide that the Company retains liability for certain specified environmental
problems, or for all environmental problems, on a property unless such problem
was caused by an act or omission by the tenant. Some of the Company's leases
require the tenant to indemnify the Company for environmental liabilities. There
can be no assurance, however, that such indemnities from the tenant, the seller
or the responsible party, as the case may be, would be available or uncontested
if liabilities arise.
All of the Properties have been subjected to Phase I environmental site
assessments, other than the 28 properties leased to Golden Corral Corporation
(the "Golden Corral Properties") which were acquired under agreements executed
before Phase I environmental site assessments became common practice, four of
which have been sold. In 1994, the Company obtained a review by an environmental
consultant of environmental regulatory databases containing a compilation of
information by federal and state environmental agencies regarding sites reported
to be contaminated to determine the status of the Golden Corral Properties. The
Company was advised by its consultant that none of the Golden Corral Properties
was identified in those databases. There can be no assurance, however, that such
databases contain a complete and total list of all contaminated sites reported
by federal and state environmental agencies.
The Company is not aware of any environmental liability with respect to any
Property in the Company Portfolio that it believes would have a material adverse
effect on the Company's assets or financial condition.
USE OF PROCEEDS
The net proceeds from the Offering are estimated to be approximately $38.8
million, after deducting estimated Offering expenses. The Company intends to use
the net Offering proceeds to repay $38.8 million outstanding under the Credit
Facility.
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PRICE RANGE OF COMMON STOCK AND DIVIDENDS
The Common Stock has been traded on the New York Stock Exchange under the
symbol "NNN" since January 7, 1994. For each calendar quarter indicated, the
following table reflects the respective high and low sales prices for the Common
Stock and the dividends per share paid in each such period.
<TABLE>
<CAPTION>
PRICE
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HIGH LOW DIVIDENDS
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<S> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1995
First Quarter................................................ $12.5000 $11.7500 $0.29
Second Quarter............................................... 13.7500 11.8750 0.29
Third Quarter................................................ 13.6250 12.1250 0.29
Fourth Quarter............................................... 13.3750 12.5000 0.29
YEAR ENDED DECEMBER 31, 1996
First Quarter................................................ $13.3750 $12.7500 $0.29
Second Quarter............................................... 14.0000 12.7500 0.29
Third Quarter................................................ 14.2500 13.3750 0.30
Fourth Quarter............................................... 16.3750 13.3750 0.30
YEAR ENDING DECEMBER 31, 1997
First Quarter................................................ $16.1250 $14.3750 $0.30
Second Quarter............................................... 15.5000 13.8750 0.30
Third Quarter (through September 16, 1997)................... 16.5625 15.0000 0.30
</TABLE>
The last reported sale price of the Common Stock on the New York Stock
Exchange on September 16, 1997 was $16.25. As of September 5, 1997, there were
1,481 stockholders of record of the Common Stock.
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CERTAIN TRANSACTIONS
From January 1, 1997 to June 30, 1997, the Company paid the Advisor
approximately $984,000 in advisory fees, and in 1996 and 1995, the Company paid
the Advisor approximately $1.5 million and $1.0 million, respectively, in
advisory fees. The Advisor is a majority owned subsidiary of CNL Group, of which
James M. Seneff, Jr., Chairman of the Board and Chief Executive Officer of the
Company, and his spouse are the majority stockholders.
Effective January 1, 1997, the Company renewed the advisory agreement with
the Advisor (the "Advisory Agreement"), which provides for the Advisor to
receive an annual fee based on funds from operations, as defined in the Advisory
Agreement, which is payable monthly, equal to
(i) seven percent of annual funds from operations up to $10,000,000,
(ii) six percent of annual funds from operations in excess of $10,000,000
but less than $20,000,000, and
(iii) five percent of annual funds from operations in excess of
$20,000,000.
For purposes of the Advisory Agreement, funds from operations generally
includes the Company's net income, determined in accordance with generally
accepted accounting principles, as adjusted for the following items: (i)
increased by depreciation, amortization and other similar non-cash charges, (ii)
increased by any extraordinary losses, (iii) decreased by any extraordinary
gains, (iv) increased by the amount of any advisory fees and (v) increased or
decreased for any non-cash lease accounting adjustments.
When a CNL Affiliate undertakes the development of a property, it
negotiates with the tenant a "developer's cost," comprised of both "hard" costs
of development and "soft" costs, including reimbursement of certain of the CNL
Affiliate's expenses and a development fee generally equal to five to 10 percent
of the total cost of the property. The rent on the developed property generally
is calculated on the basis of market capitalization rate and the negotiated
developer's cost. The Company purchases properties developed by CNL Affiliates
at prices equal to the negotiated developer's costs, which include reimbursement
of any expenses, as well as any development fees reflected in the developer's
costs. The Company, however, does not directly pay acquisition fees or expense
reimbursement in connection with the purchase of such properties.
Certain CNL Affiliates were issued 346,172 shares of the Company's Common
Stock with respect to the CNL Transaction (as defined in the accompanying
Prospectus) that are subject to piggyback registration rights in certain
circumstances. In connection with the Offering, such piggyback registration
rights have been waived.
During the six months ended June 30, 1997, the Company acquired 20
properties and three buildings which were developed by the tenant on land
parcels owned by the Company for purchase prices (exclusive of transaction fees
and closing costs) totaling $86.9 million from unrelated third parties. In
connection with the acquisition of these 20 properties and three buildings, the
Company paid the Advisor $1.7 million in acquisition fees and expense
reimbursement fees. Also for the six months ended June 30, 1997, the Company
acquired eight properties for an aggregate purchase price (exclusive of
transaction fees and closing costs) of $14.8 million at an annualized cash on
cost return (on an Inclusive Cost basis) of approximately 11.0 percent from CNL
Affiliates who had developed the properties. The purchase prices paid by the
Company for these eight properties equaled the CNL Affiliates' costs, including
development fees to affiliates of $817,500. No acquisition fees or expense
reimbursement fees were paid to the Advisor in connection with the acquisition
of these eight properties.
In the fiscal year ended December 31, 1996, the Company acquired 26
properties and nine buildings which were developed by the tenant on land parcels
owned by the Company for purchase prices (exclusive of transaction fees and
closing costs) totaling $110.5 million from unrelated third parties. In
addition, the Company acquired one property for a purchase price of $3.4 million
from a partnership in which an affiliate of the Advisor is a partner. In
connection with the acquisition of these 27 properties and nine buildings, the
Company paid the Advisor $2.3 million in acquisition fees and expense
reimbursement fees. Also in the fiscal year ended December 31, 1996, the Company
acquired 13 properties for an aggregate purchase price
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(exclusive of transaction fees and closing costs) of $34.3 million at an
annualized cash on cost return (on an Inclusive Cost basis) of approximately
10.8 percent from a CNL Affiliate who had developed the properties. The purchase
prices paid by the Company for these 13 properties equaled the CNL Affiliate's
costs, including development fees to affiliates of $1.5 million. No acquisition
fees or expense reimbursement fees were paid to the Advisor in connection with
the acquisition of these 13 properties.
In the event that the Advisor Transaction is consummated, the Company will
no longer have any obligation to pay fees to any CNL Affiliate, including the
Advisor.
PLAN OF DISTRIBUTION
The Company has agreed, pursuant to a Common Stock Purchase Agreement
between the Company and ABKB/LaSalle Securities Limited Partnership, to sell to
clients of ABKB/LaSalle Securities Limited Partnership 2,570,000 shares of
Common Stock at a price of $15.1226 per share. The price per share was
determined based on 98% of the average closing prices of a share of the
Company's Common Stock as reported on the NYSE over the twenty trading days
immediately preceding August 22, 1997.
LEGAL MATTERS
Legal matters with respect to the shares of Common Stock offered hereby
will be passed upon for the Company by Shaw, Pittman, Potts & Trowbridge,
Washington, D.C., a partnership including professional corporations.
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NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION
OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS SUPPLEMENT AND
THE ACCOMPANYING PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY
OR THE UNDERWRITER. NEITHER THE DELIVERY OF THIS PROSPECTUS SUPPLEMENT OR THE
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCE, CREATE ANY
IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE FACTS SET FORTH IN THIS
PROSPECTUS SUPPLEMENT OR THE PROSPECTUS OR IN THE AFFAIRS OF THE COMPANY SINCE
THE DATE HEREOF. THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS DO NOT CONSTITUTE
AN OFFER TO SELL OR SOLICITATION OF AN OFFER TO BUY THE SECURITIES OFFERED
HEREBY BY ANYONE IN ANY STATE IN WHICH SUCH OFFER OR SOLICITATION IS NOT
AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT
QUALIFIED TO DO SO, OR TO ANYONE TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR
SOLICITATION.
------------------------------
TABLE OF CONTENTS
------------------------------
PROSPECTUS SUPPLEMENT
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
The Company............................. S-3
Recent Developments..................... S-4
Properties.............................. S-5
Risk Factors............................ S-6
Use of Proceeds......................... S-8
Price Range of Common Stock and
Dividends............................. S-9
Certain Transactions.................... S-10
Plan of Distribution.................... S-11
Legal Matters........................... S-11
PROSPECTUS
Available Information................... 2
Incorporation of Certain Documents by
Reference............................. 2
The Company............................. 3
Use of Proceeds......................... 4
Ratios of Earnings to Fixed Charges..... 4
Description of Debt Securities.......... 4
Description of Common Stock............. 14
Description of Common Stock Warrants.... 16
Federal Income Tax Considerations....... 16
ERISA Considerations.................... 21
Plan of Distribution.................... 23
Experts................................. 24
Legal Matters........................... 24
</TABLE>
2,570,000 SHARES
COMMERCIAL NET LEASE
REALTY, INC.
COMMON STOCK
[COMMERCIAL NET LEASE REALTY LOGO]
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PROSPECTUS SUPPLEMENT
SEPTEMBER 18, 1997
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