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, 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 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. [X]
The aggregate market value of voting stock held by non-affiliates of the
registrant as of March 19, 1997, was $336,619,823.
The number of shares of common stock outstanding as of March 19, 1997,
was 23,393,672.
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, 1996 (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 1997 Annual Meeting of
Shareholders (Items 10, 11, 12 and 13 of Part III).
PART I
ITEM 1. BUSINESS
Commercial Net Lease Realty, Inc., a Maryland corporation (the
"Registrant" or the "Company"), is a real estate investment trust (a "REIT")
formed in 1984 that acquires, owns and manages a diversified portfolio of
high-quality, freestanding properties leased to major retail businesses
generally under full-credit, 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 $7.5 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, 1996, the Company borrowed
$144,600,000 of amounts it has available under its credit facility and assumed
mortgages totalling $6,864,000 to acquire 40 properties and nine buildings
which were developed by the tenant on land parcels owned by the Company. As
of December 31, 1996, the Company owned 195 properties (the "Properties") that
are leased to major businesses, including Academy, Baby Superstore, Barnes &
Noble, Best Buy, Blockbuster Music, Borders, Burger King, Checkers, CompUSA,
Computer City, Denny's, Dick's Clothing & Sporting Goods, Eckerd, Food 4 Less,
Food Lion, Golden Corral, Good Guys, Hardee's, Hi-Lo Automotive, HomePlace,
International House of Pancakes, Kash N' Karry, Levitz, Linens 'n Things,
Luria's, Marshalls, Office Depot, OfficeMax, Oshman's, Pier 1 Imports, Pizza
Hut, Scotty's, Sears, Sports Authority, Waccamaw and Wendy's. The occupancy
rate of the Company's Property portfolio was 100 percent at December 31, 1996.
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 1996, one of the Company's lessees, Barnes & Noble Superstores,
Inc., accounted for more than ten percent of the Company's total rental
income. As of December 31, 1996, Barnes & Noble Superstores, Inc. was the
lessee under leases relating to 11 Properties. It is anticipated that, based
on the minimum rental payments required by the leases, Barnes & Noble
Superstores, Inc. will continue to account for more than ten percent of the
Company's total rental income in 1997. 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).
1
Advisory Services
The Company and CNL Realty Advisors, Inc. (the "Advisor") have entered
into an advisory agreement (the "Advisory Agreement"), which provides for the
Advisor to perform to receive an annual fee, payable monthly, equal to (i)
seven percent of funds from operations, as defined in the Advisory Agreement,
up to $10,000,000, (ii) six percent of funds from operations in excess of
$10,000,000 but less than $20,000,000 and (iii) five percent of funds from
operations in excess of $20,000,000. Under the Advisory Agreement, the
Advisor 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, the Advisor 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. The Advisor 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, 1997 and continues until
January 1998, and thereafter may be extended annually upon mutual consent of a
majority of the board of directors of the Advisor and a majority of the
independent directors of the Company unless terminated at an earlier date upon
90 days' prior notice by either party.
Historically, the Company has not had 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 had incurred the full expense of a management and
acquisition team while receiving advisory and acquisition fees that have
offset this expense. However, management believes that the efficiencies
currently experienced by employing a third-party advisor will diminish as the
Company grows and expects that as the Company continues to grow it will be
more cost effective to become self-administered. Management is currently
considering whether it may be appropriate at this time to recommend to the
Board of Directors that the Company become self-administered. Any
recommendation would be evaluated by the Independent Directors, and any
transaction by which the Company would become self-administered would be
submitted to the stockholders for their approval.
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, 1996, the Company owned 195 Properties located in 31
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
583,000 square feet depending upon building size and local demographic
factors. Sites purchased by the Company are in locations zoned for
2
commercial use which have been reviewed for traffic patterns and volume.
Land costs range from approximately $36,500 to $4,600,000.
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 60,000 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, 1996,
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 $21,000 to $910,000. 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, 1996, leases representing approximately
74 percent of annual base rent include contractual increases, leases
representing approximately 33 percent of annual base rent include percentage
rent provisions and leases representing approximately 19 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 its Properties 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 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.
3
PART II
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
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, 1996; 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, 1996; 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, 1996; 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 "Condensed Quarterly Financial Data" on page 21 of the Registrant's
Annual Report to Shareholders for the year ended December 31, 1996; 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, 1996, are incorporated herein by reference.
ITEM 9. DISAGREEMENTS OF ACCOUNTING AND FINANCIAL DISCLOSURE
None.
4
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Reference is made to the Registrant's definitive proxy statement to be
filed with the Commission 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 to be
filed with the Commission 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 to be
filed with the Commission 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 to be
filed with the Commission 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
Independent Auditors' Report
Consolidated Balance Sheets at December 31, 1996 and 1995
Consolidated Statements of Earnings for the years ended
December 31, 1996, 1995 and 1994
Consolidated Statements of Stockholders' Equity for the
years ended December 31, 1996, 1995 and 1994
Consolidated Statements of Cash Flows for the years ended
December 31, 1996, 1995 and 1994
5
Notes to Consolidated Financial Statements
2. Financial Statement Schedule
Report of Independent Auditors' on Supplementary Information
Schedule III - Real Estate and Accumulated Depreciation at
December 31, 1996
Notes to Schedule III - Real Estate and Accumulated
Depreciation at December 31, 1996
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).
3.3 Articles of Amendment to the Articles of Incorporation of
the Registrant (filed as Exhibit 3.3 to the Registrant's
Form 10-Q for the quarter ended June 30, 1996, 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 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).
10.2 Advisory Agreement between Registrant and CNL Realty
Advisors, Inc. effective as of April 1, 1993 and renewed
January 1, 1997 (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).
10.3 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).
10.4 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).
10.5 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).
10.6 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).
10.7 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
6
Registrant's Current Report on Form 8-K dated January
18, 1996, and incorporated herein by reference).
10.8 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).
10.9 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).
10.10 Third Amended and Restated Line of Credit and Security
Agreement, dated September 3, 1996, by and among Registrant,
certain lenders and First Union National Bank of Florida, as
the Agent, relating to a $150,000,000 loan (filed as Exhibit
10.11 to the Registrant's Quarterly Report on Form 10-Q for
the quarter ended September 30, 1996, and incorporated
herein by reference).
10.11 Second Renewal and Modification Promissory Note, dated
September 3, 1996, by and among Registrant and First Union
National Bank of Florida, as the Agent, relating to
$150,000,000 loan (filed as Exhibit 10.12 to the
Registrant's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1996, and incorporated herein by
reference).
13 Annual Report to Shareholders for the year ended December
31, 1996 (filed only to the extent material therefrom is
specifically incorporated herein by reference).
23 Consent of Independent Accountants dated March 19, 1997.
Filed herewith.
(b) The Registrant filed no reports on Form 8-K during the period from
October 1, 1996 through December 31, 1996.
7
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 19th day
of March, 1997.
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 19, 1997
- ------------------------------ Directors and Chief
James M. Seneff, Jr. Executive Officer (Prin-
cipal Executive Officer)
/s/ Robert A. Bourne Vice Chairman of the March 19, 1997
- ----------------------------- Board of Directors,
Robert A. Bourne Secretary and Treasurer
/s/ Edward Clark Director March 19, 1997
- ----------------------------
Edward Clark
/s/ Willoughby T. Cox, Jr. Director March 19, 1997
- ----------------------------
Willoughby T. Cox, Jr.
/s/ Clifford R. Hinkle Director March 19, 1997
- ----------------------------
Clifford R. Hinkle
/s/ Ted B. Lanier Director March 19, 1997
- ----------------------------
Ted B. Lanier
/s/ Gary M. Ralston President March 19, 1997
- ----------------------------
Gary M. Ralston
/s/ Kevin B. Habicht Chief Financial Officer March 19, 1997
- --------------------------- (Principal Financial and
Kevin B. Habicht Accounting Officer)
Report of Independent Auditors' on Supplementary Information
-------------------------------------------------------------
The Board of Directors
Commercial Net Lease Realty, Inc.:
Under date of January 20, 1997, except for Note 12 for which the date is
February 13, 1997, we reported on the consolidated balance sheets of
Commercial Net Lease Realty, Inc. as of December 31, 1996 and 1995, 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, 1996,
as contained in Item 14(a)1 of Form 10-K and in the 1996 annual report to
stockholders. These consolidated financial statements and our report thereon
are both included in Item 14(a)1 of Form 10-K and incorporated by reference in
the annual report on Form 10-K for the year 1996. In connection with our
audit of the aforementioned consolidated financial statements, we also audited
the related consolidated financial statement schedule at December 31, 1996.
This consolidated financial statement schedule is the responsibility of the
Company's management. Our responsibility is to express an opinion on this
consolidated financial statement schedule based on our audits.
In our opinion, such consolidated financial statement schedule, when
considered in relation to the basic consolidated 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, 1997, except for Note 12
for which the date is February 13, 1997
<TABLE>
COMMERCIAL NET LEASE REALTY, INC.
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
-------------------------------------------------------
December 31, 1996
<CAPTION>
Costs Capitalized
Initial Cost Subsequent
To Company To Acquisition
------------------------ ------------------
Buildings
Encum- and Improve- Carrying
brances(l) Land Improvements ments Costs
-------------- ----------- ------------ --------- --------
<S> <C> <C> <C> <C> <C>
Properties the Company has
Invested in Under Operating
Leases:
Academy:
Houston, Texas $ - $ 1,074,232 $ - $ - $ -
Houston, Texas - 699,165 - - -
N. Richland Hills, Texas - 1,307,655 - - -
Houston, Texas - 3,086,610 - - -
Houston, Texas - 795,005 - - -
San Antonio, Texas - 931,478 - - -
Baton Rouge, Louisiana - 1,552,041 - - -
Baby Superstore:
Arlington, Texas - 830,689 2,611,867 - -
Barnes & Noble:
Lakeland, Florida - 1,070,902 1,516,983 - -
Brandon, Florida 1,629,182(k) 1,476,407 1,527,150 - -
Denver, Colorado - 3,244,785 2,722,087 - -
Houston, Texas - 3,307,562 2,396,024 - -
Plantation, Florida - 3,616,357 - - -
Cary, North Carolina - 2,778,458 2,650,008 - -
Lafayette, Louisiana - 1,204,279 2,301,983 - -
Oklahoma City, Oklahoma - 1,688,556 2,311,487 - -
Daytona, Florida - 2,587,451 2,052,643 - -
Freehold, New Jersey - 2,917,219 2,260,663 - -
Memphis, Tennessee - 1,785,157 - - -
Best Buy:
Corpus Christi, Texas 1,268,679(j) 818,448 896,395 12,222 -
Blockbuster Music:
Dallas, Texas - 346,548 1,963,773 39,243 -
Borders:
Wilmington, Delaware 4,932,406(k) 3,030,769 6,061,538 - -
Richmond, Virginia 2,591,377(k) 2,177,310 2,599,587 - -
Ft. Lauderdale, Florida - 3,164,984 3,934,577 - -
Bangor, Maine - 1,546,915 2,486,761 - -
Burger King:
Asheboro, North Carolina - 420,508 815,190 - -
Galliano, Louisiana - 249,001 1,130,506 - -
John's Island, S. Carolina - 385,517 698,309 - -
Lake Charles, Louisiana - 272,381 965,713 - -
Lancaster, Ohio - 220,846 582,815 - -
Natchez, Mississippi - 206,717 653,530 - -
Tappahannock, Virginia - 289,840 572,779 - -
Warren, Michigan - 298,817 785,031 - -
Manchester, New Hampshire - 619,037 428,757 - -
<CAPTION>
Life
on Which
Gross Amount at Which Carried Depreciation
at Close of Period (b) in Latest
Buildings Date Income
and Accumulated of Con- Date Statement is
Land Improvements Total Depreciation struction Acquired Computed
----------- ------------- ------------ ------------ --------- -------- ------------
<C> <C> <C> <C> <C> <C> <C>
$ 1,074,232 (c) $ 1,074,232 $ - 1994 05/95 (c)
699,165 (c) 699,165 - 1995 06/95 (c)
1,307,655 (c) 1,307,655 - 1996 08/95(h) (c)
3,086,610 (c) 3,086,610 - 1996 02/96(h) (c)
795,005 (c) 795,005 - 1996 06/96(h) (c)
931,478 (c) 931,478 - 1996 06/96 (c)
1,552,041 (f) 1,552,041 - (f) 08/96 (f)
830,689 2,611,867 3,442,556 33,192 1996 06/96 40 years
1,070,902 1,516,983 2,587,885 74,808 1995 07/94(h) 40 years
1,476,407 1,527,150 3,003,557 75,520 1995 08/94(h) 40 years
3,244,785 2,722,087 5,966,872 153,229 1994 09/94 40 years
3,307,562 2,396,024 5,703,586 74,884 1995 10/94(h) 40 years
3,616,357 (c) 3,616,357 - 1996 05/95(h) (c)
2,778,458 2,650,008 5,428,466 61,798 1996 05/95(h) 40 years
1,204,279 2,301,983 3,506,262 40,285 1996 06/95(h) 40 years
1,688,556 2,311,487 4,000,043 56,234 1996 06/95(h) 40 years
2,587,451 2,052,643 4,640,094 47,867 1996 09/95(h) 40 years
2,917,219 2,260,663 5,177,882 52,121 1995 01/96 40 years
1,785,157 (f) 1,785,157 - (f) 09/96 (f)
818,448 908,617 1,727,065 70,254 1967 11/93 40 years
346,548 2,003,016 2,349,564 136,345 1985 04/94 40 years
3,030,769 6,061,538 9,092,307 307,151 1994 12/94 40 years
2,177,310 2,599,587 4,776,897 101,456 1995 06/95 40 years
3,164,984 3,934,577 7,099,561 82,536 1995 02/96 40 years
1,546,915 2,486,761 4,033,676 32,811 1996 06/96 40 years
420,508 815,190 1,235,698 91,709 1986 07/92 40 years
249,001 1,130,506 1,379,507 127,182 1991 07/92 40 years
385,517 698,309 1,083,826 78,560 1988 07/92 40 years
272,381 965,713 1,238,094 108,643 1988 07/92 40 years
220,846 582,815 803,661 65,567 1987 07/92 40 years
206,717 653,530 860,247 73,522 1986 07/92 40 years
289,840 572,779 862,619 64,438 1987 07/92 40 years
298,817 785,031 1,083,848 88,316 1987 07/92 40 years
619,037 428,757 1,047,794 38,515 1980 05/93 40 years
F-1
COMMERCIAL NET LEASE REALTY, INC.
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION - CONTINUED
-------------------------------------------------------------------
December 31, 1996
<CAPTION>
Costs Capitalized
Initial Cost Subsequent
To Company To Acquisition
------------------------ -----------------
Buildings
Encum- and Improve- Carrying
brances (l) Land Improvements ments Costs
------------ ---------- ------------ -------- --------
<S> <C> <C> <C> <C> <C>
Rochester, New Hampshire - 216,652 779,450 - -
St. Paul, Minnesota - 225,297 542,847 - -
Columbus, Ohio - 357,114 407,093 - -
Opelousas, Louisiana - 460,374 824,510 - -
Coon Rapids, Minnesota - 322,658 544,936 - -
Checkers:
Orlando, Florida - 256,568 - - -
CompUSA:
Mission Viejo, California - 2,706,352 1,368,966 - -
Computer City:
Miami, Florida 2,484,493(k) 2,713,192 1,866,676 - -
Baton Rouge, Louisiana - 609,069 913,603 - -
Anchorage, Alaska - 928,321 1,662,584 - -
Richmond, Virginia - 888,772 1,948,036 - -
Hartsdale, New York - 4,599,134 2,497,199 - -
Denny's:
Greenville, South Carolina - 344,817 400,895 - -
Landrum, South Carolina - 155,429 - - -
Mooresville, North Carolina - 307,299 - - -
Greensboro, North Carolina - 265,915 493,407 - -
Houston, Texas - 289,036 572,985 - -
Santee, South Carolina - 244,284 312,045 - -
Duncan, South Carolina - 219,703 - - -
Topeka, Kansas - 414,686 - - -
Winter Springs, Florida - 555,232 - - -
Dick's Clothing:
Taylor, Michigan - 1,920,032 3,526,868 - -
White Marsh, Maryland - 2,680,532 3,916,889 - -
Eckerd:
San Antonio, Texas 664,517(k) 440,985 - - -
Dallas, Texas 640,224(k) 541,493 - - -
Garland, Texas 515,167(k) 239,014 - - -
Arlington, Texas 545,212(k) 368,964 - - -
Millville, New Jersey 676,227(k) 417,603 - - -
Atlanta, Georgia 604,315(k) 445,593 - - -
Mantua, New Jersey 703,012(k) 344,022 - - -
Amarillo, Texas 813,010(k) 650,864 - - -
Amarillo, Texas 625,555(k) 329,231 - - -
Glassboro, New Jersey 771,267(k) 534,243 - - -
Kissimmee, Florida 898,488(k) 715,480 - - -
Colleyville, Texas 993,034(k) 756,472 - - -
Tampa, Florida - 604,682 - - -
Lafayette, Louisiana - 967,528 - - -
Moore, Oklahoma - 414,738 - - -
Douglasville, Georgia - 413,439 995,209 - -
<CAPTION>
Life
on Which
Gross Amount at Which Carried Depreciation
at Close of Period (b) in Latest
Buildings Date Income
and Accumulated of Con- Date Statement is
Land Improvements Total Depreciation struction Acquired Computed
---------- ------------- ------------ ------------ --------- -------- ------------
<C> <C> <C> <C> <C> <C> <C>
216,652 779,450 996,102 70,017 1987 05/93 40 years
225,297 542,847 768,144 47,536 1986 06/93 40 years
357,114 407,093 764,207 35,649 1982 06/93 40 years
460,374 824,510 1,284,884 72,201 1989 06/93 40 years
322,658 544,936 867,594 47,719 1990 06/93 40 years
256,568 (c) 256,568 - 1988 07/92 (c)
2,706,352 1,368,966 4,075,318 54,186 1994 02/94(h) 40 years
2,713,192 1,866,676 4,579,868 126,129 1994 04/94 40 years
609,069 913,603 1,522,672 22,901 1995 12/95 40 years
928,321 1,662,584 2,590,905 34,876 1995 02/96 40 years
888,772 1,948,036 2,836,808 28,671 1996 05/96 40 years
4,599,134 2,497,199 7,096,333 19,467 1996 08/96 40 years
344,817 400,895 745,712 36,012 1985 05/93 40 years
155,429 (c) 155,429 - 1992 05/93 (c)
307,299 (c) 307,299 - 1992 05/93 (c)
265,915 493,407 759,322 44,322 1992 05/93 40 years
289,036 572,985 862,021 51,471 1985 05/93 40 years
244,284 312,045 556,329 28,031 1992 05/93 40 years
219,703 (c) 219,703 - 1992 05/93 (c)
414,686 (c) 414,686 - 1989 06/93 (c)
555,232 (c) 555,232 - 1994 01/94 (c)
1,920,032 3,526,868 5,446,900 26,072 1996 08/96 40 years
2,680,532 3,916,889 6,597,421 28,956 1996 08/96 40 years
440,985 (c) 440,985 - 1993 12/93 (c)
541,493 (c) 541,493 - 1994 01/94 (c)
239,014 (c) 239,014 - 1994 02/94 (c)
368,964 (c) 368,964 - 1994 02/94 (c)
417,603 (c) 417,603 - 1994 03/94 (c)
445,593 (c) 445,593 - 1994 03/94 (c)
344,022 (c) 344,022 - 1994 06/94 (c)
650,864 (c) 650,864 - 1994 12/94 (c)
329,231 (c) 329,231 - 1994 12/94 (c)
534,243 (c) 534,243 - 1994 12/94 (c)
715,480 (c) 715,480 - 1995 04/95 (c)
756,472 (c) 756,472 - 1995 06/95 (c)
604,682 (c) 604,682 - 1995 12/95 (c)
967,528 (c) 967,528 - 1995 01/96 (c)
414,738 (c) 414,738 - 1995 01/96 (c)
413,439 995,209 1,408,648 22,945 1996 01/96 40 years
F-2
COMMERCIAL NET LEASE REALTY, INC.
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION - CONTINUED
-------------------------------------------------------------------
December 31, 1996
<CAPTION>
Costs Capitalized
Initial Cost Subsequent
To Company To Acquisition
------------------------ -----------------
Buildings
Encum- and Improve- Carrying
brances (l) Land Improvements ments Costs
------------ ---------- ------------ -------- --------
<S> <C> <C> <C> <C> <C>
Midwest City, Oklahoma - 1,080,637 1,103,351 - -
Tallahassee, Florida - 691,523 - - -
Irving, Texas - 1,000,222 - - -
Snellville, Georgia - 486,272 1,320,087 - -
Food 4 Less:
Lemon Grove, California - 3,695,816 - - -
Golden Corral Family
Steakhouse:
Foley, Alabama - 101,286 283,991 - -
Edenton, North Carolina - 36,578 318,481 - -
Woodstock, Georgia - 200,680 328,450 - -
Bonham, Texas - 128,451 344,170 - -
Center, Texas (e) - 103,187 308,859 - -
Gilmer, Texas (e) - 116,815 296,454 - -
Leitchfield, Kentucky (e) - 73,660 306,642 - -
Marietta, Georgia (g) - 156,190 346,509 - -
Rockledge, Florida - 120,593 340,889 - -
Silsbee, Texas (e) - 132,802 302,052 - -
Atlanta, Texas (e) - 88,457 368,317 - -
Vernon, Texas (e) - 105,798 328,943 - -
Abbeville, Louisiana (e) - 98,577 362,416 - -
Fredericksburg, Texas - 169,984 321,189 - -
Bowie, Texas (e) - 57,824 311,544 - -
Clanton, Alabama (e) - 113,017 296,921 - -
Jacksonville, Texas - 115,276 318,196 - -
Lake Placid, Florida (e) - 115,113 305,074 - -
Pleasanton, Texas (e) - 139,694 316,070 - -
Ennis, Texas - 153,701 366,639 - -
Franklin, Louisiana (e) - 105,840 396,831 - -
Melbourne, Florida (e) - 193,447 341,351 - -
Franklin, Virginia - 100,808 424,164 - -
Minden, Louisiana (e) - 86,120 402,364 - -
Durant, Oklahoma - 140,862 411,135 - -
Good Guys:
Foothill Ranch, California - 1,456,113 2,505,022 - -
Hardee's:
Chalkville, Alabama - 170,834 457,167 - -
Gulf Shores, Alabama - 348,281 595,164 - -
Mobile, Alabama - 336,696 - - -
Warrior, Alabama - 177,659 - - -
Horn Lake, Mississippi - 302,787 - - -
Petal, Mississippi - 277,104 415,193 - -
West Point, Mississippi - 173,386 - - -
Rock Hill, South Carolina - 216,777 466,450 - -
Columbia, Tennessee - 226,300 - - -
Johnson City, Tennessee - 215,567 - - -
Tusculum, Tennessee - 182,349 507,293 - -
<CAPTION>
Life
on Which
Gross Amount at Which Carried Depreciation
at Close of Period (b) in Latest
Buildings Date Income
and Accumulated of Con- Date Statement is
Land Improvements Total Depreciation struction Acquired Computed
---------- ------------ ---------- ------------ --------- -------- ------------
<C> <C> <C> <C> <C> <C> <C>
1,080,637 1,103,351 2,183,988 22,764 1996 03/96 40 years
691,523 (c) 691,523 - 1996 06/96 (c)
1,000,222 (c) 1,000,222 - 1996 12/96 (c)
486,272 1,320,087 1,806,359 177 1996 12/96 40 years
3,695,816 (c) 3,695,816 - 1996 07/95(h) (c)
101,286 283,991 385,277 105,105 1984 10/84 35 years
36,578 318,481 355,059 115,975 1984 11/84 35 years
200,680 328,450 529,130 119,556 1984 11/84 35 years
128,451 344,170 472,621 124,245 1984 12/84 35 years
103,187 308,859 412,046 111,509 1984 12/84 35 years
116,815 296,454 413,269 107,030 1984 12/84 35 years
73,660 306,642 380,302 110,699 1984 12/84 35 years
156,190 346,509 502,699 125,091 1984 12/84 35 years
120,593 340,889 461,482 123,060 1984 12/84 35 years
132,802 302,052 434,854 109,056 1984 12/84 35 years
88,457 368,317 456,774 132,594 1985 01/85 35 years
105,798 328,943 434,741 115,130 1985 03/85 35 years
98,577 362,416 460,993 126,846 1985 04/85 35 years
169,984 321,189 491,173 112,416 1985 04/85 35 years
57,824 311,544 369,368 109,040 1985 05/85 35 years
113,017 296,921 409,938 103,922 1985 05/85 35 years
115,276 318,196 433,472 111,368 1985 05/85 35 years
115,113 305,074 420,187 106,776 1985 05/85 35 years
139,694 316,070 455,764 110,625 1985 05/85 35 years
153,701 366,639 520,340 124,657 1985 07/85 35 years
105,840 396,831 502,671 134,922 1985 07/85 35 years
193,447 341,351 534,798 116,059 1985 07/85 35 years
93,719 424,164 517,883 104,173 1987 02/87 40 years
86,120 402,364 488,484 78,794 1989 03/89 40 years
140,862 411,135 551,997 76,295 1989 08/89 40 years
1,456,113 2,505,022 3,961,135 337 1995 12/96 40 years
170,834 457,167 628,001 36,292 1992 10/93 40 years
348,281 595,164 943,445 47,246 1993 10/93 40 years
336,696 (c) 336,696 - 1993 10/93 (c)
177,659 (c) 177,659 - 1992 10/93 (c)
302,787 (c) 302,787 - 1993 10/93 (c)
277,104 415,193 692,297 32,959 1993 10/93 40 years
173,386 (c) 173,386 - 1993 10/93 (c)
216,777 466,450 683,227 37,028 1993 10/93 40 years
226,300 (c) 226,300 - 1993 10/93 (c)
215,567 (c) 215,567 - 1993 10/93 (c)
182,349 507,293 689,642 40,271 1993 10/93 40 years
F-3
COMMERCIAL NET LEASE REALTY, INC.
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION - CONTINUED
-------------------------------------------------------------------
December 31, 1996
<CAPTION>
Costs Capitalized
Initial Cost Subsequent
To Company To Acquisition
------------------------ -----------------
Buildings
Encum- and Improve- Carrying
brances (l) Land Improvements ments Costs
------------ ---------- ------------ -------- --------
<S> <C> <C> <C> <C> <C> Hi-Lo Automotive:
Mesquite, Texas - 233,420 513,523 - -
Fort Worth, Texas - 197,037 512,296 - -
Houston, Texas - 261,318 531,968 - -
Arlington, Texas - 295,331 571,609 - -
Garland, Texas - 239,570 512,023 - -
Dallas, Texas - 281,347 543,937 - -
McAllen, Texas - 265,177 605,397 - -
Temple, Texas - 177,451 587,755 - -
San Antonio, Texas - 200,510 643,741 - -
Universal City, Texas - 247,264 570,677 - -
Bastrop, Texas - 197,905 383,144 - -
Lake Worth, Texas - 252,141 539,510 - -
Nacogdoches, Texas - 190,324 522,232 - -
Eagle Pass, Texas - 256,745 455,841 - -
International House of
Pancakes:
Stafford, Texas 517,481(k) 382,084 - - -
Sunset Hills, Missouri 546,928(k) 271,853 - - -
Las Vegas, Nevada 614,918(k) 519,947 - - -
Fort Worth, Texas 572,066(k) 430,896 - - -
Arlington, Texas 549,340(k) 404,512 - - -
Matthews, North Carolina 561,854(k) 380,043 - - -
Phoenix, Arizona 565,635(k) 483,374 - - -
Kash N Karry:
Brandon, Florida - 1,234,480 - - -
Linens 'n Things:
Freehold, New Jersey 2,931,484(j) 1,753,766 2,208,651 - -
Luria's:
South Miami, Florida - 1,379,229 - - -
Tampa, Florida - 2,127,503 1,521,730 - -
Coral Gables, Florida - 1,782,346 - - -
Marshalls:
Freehold, New Jersey 3,431,576(j) 2,052,946 2,585,432 - -
Office Depot:
Arlington, Texas 1,089,007(k) 596,024 1,411,432 - -
OfficeMax:
Corpus Christi, Texas 1,439,600(j) 893,270 978,344 76,664 -
Dallas, Texas 1,534,349(k) 1,118,500 1,709,891 - -
Cincinnati, Ohio 1,148,996(k) 543,489 1,574,551 - -
Evanston, Illinois 1,966,738(k) 1,867,831 1,757,618 - -
Altamonte Springs, Florida - 1,650,419 2,979,087 - -
Pompano Beach, Florida - 2,266,908 1,904,803 - -
Cutler Ridge, Florida - 989,370 1,479,119 - -
Sacramento, California - 1,129,077 2,922,150 - -
<CAPTION>
Life
on Which
Gross Amount at Which Carried Depreciation
at Close of Period (b) in Latest
Buildings Date Income
and Accumulated of Con- Date Statement is
Land Improvements Total Depreciation struction Acquired Computed
---------- ------------- ----------- ------------ --------- -------- ------------
<C> <C> <C> <C> <C> <C> <C>
233,420 513,523 746,943 28,299 1994 10/94 40 years
197,037 512,296 709,333 26,713 1993 11/94 40 years
261,318 531,968 793,286 27,744 1994 11/94 40 years
295,331 571,609 866,940 29,808 1993 11/94 40 years
239,570 512,023 751,593 26,698 1993 11/94 40 years
281,347 543,937 825,284 27,343 1994 12/94 40 years
265,177 605,397 870,574 19,087 1995 09/95 40 years
177,451 587,755 765,206 18,531 1989 09/95 40 years
200,510 643,741 844,251 20,296 1994 09/95 40 years
247,264 570,677 817,941 17,992 1995 09/95 40 years
197,905 383,144 581,049 12,080 1994 09/95 40 years
252,141 539,510 791,651 17,010 1995 09/95 40 years
190,324 522,232 712,556 16,465 1995 09/95 40 years
256,745 455,841 712,586 14,372 1994 09/95 40 years
382,084 (c) 382,084 - 1992 10/93 (c)
271,853 (c) 271,853 - 1993 10/93 (c)
519,947 (c) 519,947 - 1993 12/93 (c)
430,896 (c) 430,896 - 1993 12/93 (c)
404,512 (c) 404,512 - 1993 12/93 (c)
380,043 (c) 380,043 - 1993 12/93 (c)
483,374 (c) 483,374 - 1993 12/93 (c)
1,234,480 (f) 1,234,480 - (f) 10/96 (f)
1,753,766 2,208,651 3,962,417 129,283 1994 08/94 40 years
1,379,229 (c) 1,379,229 - 1988 06/96 (c)
2,127,503 1,521,730 3,649,233 19,339 1994 06/96 40 years
1,782,346 (c) 1,782,346 - 1994 06/96 (c)
2,052,946 2,585,432 4,638,378 151,338 1994 08/94 40 years
596,024 1,411,432 2,007,456 102,836 1991 01/94 40 years
893,270 1,055,008 1,948,278 81,889 1967 11/93 40 years
1,118,500 1,709,891 2,828,391 128,359 1993 12/93 40 years
543,489 1,574,551 2,118,040 97,735 1994 07/94 40 years
1,867,831 1,757,618 3,625,449 68,596 1995 06/95 40 years
1,650,419 2,979,087 4,629,506 68,685 1995 01/96 40 years
2,266,908 1,904,803 4,171,711 43,104 1972 02/96 40 years
989,370 1,479,119 2,468,489 18,797 1995 06/96 40 years
1,129,077 2,922,150 4,051,227 196 1996 12/96 40 years
F-4
COMMERCIAL NET LEASE REALTY, INC.
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION - CONTINUED
-------------------------------------------------------------------
December 31, 1996
<CAPTION>
Costs Capitalized
Initial Cost Subsequent
To Company To Acquisition
------------------------ -----------------
Buildings
Encum- and Improve- Carrying
brances (l) Land Improvements ments Costs
------------ ---------- ------------ -------- -------
<S> <C> <C> <C> <C> <C>
Oshman's Sporting Goods:
Dallas, Texas - 1,311,440 - - -
Pier 1 Imports:
Dallas, Texas - 189,010 1,071,054 20,710 -
Memphis, Tennessee - 716,332 - - -
Pizza Hut:
Orlando, Florida - 220,632 258,483 - -
Rally's:
Toledo, Ohio - 125,882 319,770 - -
Scotty's:
Orlando, Florida - 1,044,796 2,011,952 - -
Orlando, Florida - 1,157,268 2,077,131 - -
Sears Homelife Centers:
Orlando, Florida 1,630,220(k) 820,397 2,184,721 - -
Clearwater, Florida 2,745,218(j) 1,184,438 2,526,207 10,555 -
Tampa, Florida 2,511,525 1,454,908 2,045,833 - -
Pensacola, Florida 1,885,394 633,125 1,595,405 - -
Raleigh, North Carolina 2,357,255 1,848,026 1,753,635 - -
Sports Authority:
Sarasota, Florida - 1,403,494 1,963,006 - -
Waccamaw:
Fairfax, Virginia - 2,156,801 - - -
Sarasota, Florida - 2,207,244 3,087,176 - -
Wendy's Old Fashioned
Hamburger:
Fenton, Missouri - 307,068 496,410 - -
Longwood, Florida - 333,335 194,926 - -
----------- ------------ ------------ -------- -------
$49,955,749 $138,527,151 $138,429,902 $159,394 $ -
=========== ============ ============ ======== =======
Properties the Company has
Invested in Under Direct
Financing Leases:
Academy:
Houston, Texas - $ - $ 1,924,740 $ - $ -
Houston, Texas - - 1,867,519 - -
N. Richland Hills, Texas - - 2,253,408 - -
Houston, Texas - - 2,112,335 - -
Houston, Texas - - 1,910,697 - -
San Antonio, Texas - - 1,963,109 - -
Barnes & Noble:
Plantation, Florida - - 3,498,559 - -
<CAPTION>
Life
on Which
Gross Amount at Which Carried Depreciation
at Close of Period (b) in Latest
Buildings Date Income
and Accumulated of Con- Date Statement is
Land Improvements Total Depreciation struction Acquired Computed
---------- ------------ ---------- ------------- --------- -------- ------------
<C> <C> <S> <S> <S> <S> <S>
1,311,440 (c) 1,311,440 - 1994 03/94 (c)
189,010 1,091,764 1,280,774 74,324 1980 04/94 40 years
716,332 (f) 716,332 - (f) 09/96 (f)
220,632 258,483 479,115 42,194 1974 08/93 20.9 years
125,882 319,770 445,652 37,095 1989 07/92 38.8 years
1,044,796 2,011,952 3,056,748 78,296 1995 06/95 40 years
1,157,268 2,077,131 3,234,399 79,168 1995 06/95 40 years
820,397 2,184,721 3,005,118 196,400 1992 05/93 40 years
1,184,438 2,536,762 3,721,200 227,358 1992 05/93 40 years
1,454,908 2,045,833 3,500,741 26,141 1992 06/96 40 years
633,125 1,595,405 2,228,530 20,386 1994 06/96 40 years
1,848,026 1,753,635 3,601,661 22,408 1995 06/96 40 years
1,403,494 1,963,006 3,366,500 132 1988 12/96 40 years
2,156,801 (c) 2,156,801 - 1995 12/95 (c)
2,207,244 3,087,176 5,294,420 207 1988 12/96 40 years
307,068 496,410 803,478 67,778 1985 07/92 33 years
333,335 194,926 528,261 27,959 1982 07/92 31.4 years
- ------------ ------------ ------------ ----------
$138,520,062 $138,589,296 $277,109,358 $8,078,562
============ ============ ============ ==========
- (c) (c) (c) 1994 05/95 (c)
- (c) (c) (c) 1995 06/95 (c)
- (c) (c) (c) 1996 08/95(h) (c)
- (c) (c) (c) 1996 02/96(h) (c)
- (c) (c) (c) 1996 06/96(h) (c)
- (c) (c) (c) 1996 06/96 (c)
- (c) (c) (c) 1996 05/95(h)
F-5
COMMERCIAL NET LEASE REALTY, INC.
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION - CONTINUED
-------------------------------------------------------------------
December 31, 1996
<CAPTION>
Costs Capitalized
Initial Cost Subsequent
To Company To Acquisition
------------------------ -----------------
Buildings
Encum- and Improve- Carrying
brances (l) Land Improvements ments Costs
------------ ---------- ------------ -------- --------
<S> <C> <C> <C> <C> <C>
Checkers:
Orlando, Florida - - 286,910 - -
Denny's:
Landrum, South Carolina - - 374,684 - -
Mooresville,North Carolina - - 535,309 - -
Akron, Ohio - 137,424 733,450 - -
Duncan, South Carolina - - 628,571 - -
Topeka, Kansas - - 498,921 - -
Winter Springs, Florida - - 620,148 - -
Eckerd:
San Antonio, Texas - - 783,974 - -
Dallas, Texas - - 638,684 - -
Garland, Texas - - 710,634 - -
Arlington, Texas - - 636,070 - -
Millville, New Jersey - - 828,942 - -
Atlanta, Georgia - - 668,390 - -
Mantua, New Jersey - - 951,795 - -
Vineland, New Jersey 732,010(k) 286,231 1,063,142 - -
Amarillo, Texas - - 869,846 - -
Amarillo, Texas 531,326(k) 158,851 855,348 - -
Amarillo, Texas - - 849,071 - -
Glassboro, New Jersey - - 887,497 - -
Kissimmee, Florida - - 933,852 - -
Alice, Texas 539,133(k) 189,187 804,963 - -
Colleyville, Texas - - 1,076,066 - -
Tampa, Florida - - 1,090,532 - -
Lafayette, Louisiana - - 949,128 - -
Moore, Oklahoma - - 879,296 - -
Tallahassee, Florida - - 1,274,147 - -
East Point, Georgia - 336,610 1,173,529 - -
Irving, Texas - - 1,228,436 - -
Ft. Worth, Texas - 399,592 2,529,969 - -
Food 4 Less
Lemon Grove, California - - 4,068,179 - -
Food Lion:
Keystone Heights, Florida 1,049,480(k) 88,604 1,845,988 - -
Chattanooga, Tennessee 1,105,338(k) 336,488 1,701,072 - -
Lynchburg, Virginia 1,333,443(j) 128,216 1,674,167 - -
Martinsburg, West Virginia 1,080,743(k) 448,648 1,543,573 - -
Good Guys:
Stockton, California 1,928,780(k) 580,609 2,974,868 - -
Portland, Oregon - 817,574 2,630,652 - -
Hardee's:
Mobile, Alabama - - 479,107 - -
Warrior, Alabama - - 470,556 - -
Horn Lake, Mississippi - - 555,975 - -
<CAPTION>
Life
on Which
Gross Amount at Which Carried Depreciation
at Close of Period (b) in Latest
Buildings Date Income
and Accumulated of Con- Date Statement is
Land Improvements Total Depreciation struction Acquired Computed
---------- ------------- ------------ ------------- --------- -------- ------------
<C> <C> <C> <C> <C> <C> <C>
- (c) (c) (c) 1988 07/92 (c)
- (c) (c) (c) 1992 05/93 (c)
- (c) (c) (c) 1992 05/93 (c)
(d) (d) (d) (d) 1992 05/93 (d)
- (c) (c) (c) 1992 05/93 (c)
- (c) (c) (c) 1989 06/93 (c)
- (c) (c) (c) 1994 01/94 (c)
- (c) (c) (c) 1993 12/93 (c)
- (c) (c) (c) 1994 01/94 (c)
- (c) (c) (c) 1994 02/94 (c)
- (c) (c) (c) 1994 02/94 (c)
- (c) (c) (c) 1994 03/94 (c)
- (c) (c) (c) 1994 03/94 (c)
- (c) (c) (c) 1994 06/94 (c)
(d) (d) (d) (d) 1994 11/94 (d)
- (c) (c) (c) 1994 12/94 (c)
(d) (d) (d) (d) 1994 12/94 (d)
- (c) (c) (c) 1994 12/94 (c)
- (c) (c) (c) 1994 12/94 (c)
- (c) (c) (c) 1995 04/95 (c)
(d) (d) (d) (d) 1995 06/95 (d)
- (c) (c) (c) 1995 06/95 (c)
- (c) (c) (c) 1995 12/95 (c)
- (c) (c) (c) 1995 01/96 (c)
- (c) (c) (c) 1995 01/96 (c)
- (c) (c) (c) 1996 06/96 (c)
(d) (d) (d) (d) 1996 12/96 (d)
- (c) (c) (c) 1996 12/96 (c)
(d) (d) (d) (d) 1996 12/96 (d)
- (c) (c) (c) 1996 07/95(h) (c)
(d) (d) (d) (d) 1993 05/93 (d)
(d) (d) (d) (d) 1993 10/93 (d)
(d) (d) (d) (d) 1994 01/94 (d)
(d) (d) (d) (d) 1994 08/94 (d)
(d) (d) (d) (d) 1991 07/94 (d)
(d) (d) (d) (d) 1996 05/96 (d)
- (c) (c) (c) 1993 10/93 (c)
- (c) (c) (c) 1992 10/93 (c)
- (c) (c) (c) 1993 10/93 (c)
F-6
COMMERCIAL NET LEASE REALTY, INC.
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION - CONTINUED
-------------------------------------------------------------------
December 31, 1996
<CAPTION>
Costs Capitalized
Initial Cost Subsequent
To Company To Acquisition
------------------------ -----------------
Buildings
Encum- and Improve- Carrying
brances (l) Land Improvements ments Costs
----------- ---------- ------------ -------- --------
<S> <C> <C> <C> <C> <C>
Iuka, Mississippi - 130,258 505,363 - -
West Point, Mississippi - - 517,424 - -
Biscoe, North Carolina - 60,301 479,984 - -
Aynor, South Carolina - 44,871 521,192 - -
Columbia, Tennessee - - 584,927 - -
Johnson City, Tennessee - - 570,690 - -
Hi-Lo Automotive:
Edinberg, Texas - 97,056 418,926 - -
Copperas Cove, Texas - 116,637 476,331 - -
Baton Rouge, Louisiana - 89,954 508,146 - -
Lake Jackson, Texas - 120,313 609,300 - -
Fort Worth, Texas - 92,779 607,971 - -
Pantego, Texas - 154,368 505,323 - -
Fort Worth, Texas - 91,373 548,238 - -
Pharr, Texas - 94,576 472,880 - -
Baton Rouge, Louisiana - 122,349 527,930 - -
Houston, Texas - 37,508 596,069 - -
Homeplace:
Arlington, Texas - 752,840 4,045,374 - -
International House of
Pancakes:
Stafford, Texas - - 571,832 - -
Sunset Hills, Missouri - - 736,345 - -
Las Vegas, Nevada - - 613,582 - -
Fort Worth, Texas - - 623,641 - -
Arlington, Texas - - 608,132 - -
Matthews, North Carolina - - 655,668 - -
Phoenix, Arizona - - 559,307 - -
Levitz:
Tempe, Arizona - 634,444 2,225,991 - -
Luria's:
South Miami, Florida - - 1,756,808 - -
Coral Gables, Florida - - 1,692,012 - -
Oshman's Sporting Goods:
Dallas, Texas - - 2,658,976 - -
Waccamaw:
Fairfax, Virginia - - 3,356,493 - -
------------ ----------- ----------- -------- -------
$ 8,300,253 $ 6,547,661 $87,390,663 $ - $ -
============ =========== =========== ======== =======
<CAPTION>
Life
on Which
Gross Amount at Which Carried Depreciation
at Close of Period (b) in Latest
Buildings Date Income
and Accumulated of Con- Date Statement is
Land Improvements Total Depreciation struction Acquired Computed
---------- ------------- ------------ ------------ --------- -------- ------------
<C> <C> <C> <C> <C> <C> <C>
(d) (d) (d) (d) 1993 10/93 (d)
- (c) (c) (c) 1993 10/93 (c)
(d) (d) (d) (d) 1993 10/93 (d)
(d) (d) (d) (d) 1993 10/93 (d)
- (c) (c) (c) 1993 10/93 (c)
- (c) (c) (c) 1993 10/93 (c)
(d) (d) (d) (d) 1993 10/94 (d)
(d) (d) (d) (d) 1994 10/94 (d)
(d) (d) (d) (d) 1994 10/94 (d)
(d) (d) (d) (d) 1994 10/94 (d)
(d) (d) (d) (d) 1993 10/94 (d)
(d) (d) (d) (d) 1993 10/94 (d)
(d) (d) (d) (d) 1993 11/94 (d)
(d) (d) (d) (d) 1993 11/94 (d)
(d) (d) (d) (d) 1994 12/94 (d)
(d) (d) (d) (d) 1982 09/95 (d)
(d) (d) (d) (d) 1996 06/96 (d)
- (c) (c) (c) 1992 10/93 (c)
- (c) (c) (c) 1993 10/93 (c)
- (c) (c) (c) 1993 12/93 (c)
- (c) (c) (c) 1993 12/93 (c)
- (c) (c) (c) 1993 12/93 (c)
- (c) (c) (c) 1993 12/93 (c)
- (c) (c) (c) 1993 12/93 (c)
(d) (d) (d) (d) 1994 01/95 (d)
- (c) (c) (c) 1988 06/96 (c)
- (c) (c) (c) 1994 06/96 (c)
- (c) (c) (c) 1994 03/94 (c)
- (c) (c) (c) 1995 12/95 (c)
F-7
</TABLE>
COMMERCIAL NET LEASE REALTY, INC.
NOTES TO SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
----------------------------------------------------------------
December 31, 1996
(a) Transactions in real estate and accumulated depreciation during 1996,
1995 and 1994, are summarized as follows:
Accumulated
Cost Depreciation
------------ ------------
Land and Buildings:
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
Acquisitions 116,563,622 -
Sale of land and buildings (908,393) (222,940)
Depreciation expense - 2,804,112
------------ ----------
Balance, December 31, 1996 $277,109,358 $8,078,562
============ ==========
(b) As of December 31, 1996, all of the leases are treated as operating
leases for federal income tax purposes. As of December 31, 1996 and
1995, the aggregate cost of the Properties owned by the Company and
its subsidiaries for federal income tax purposes was $371,047,781 and
$219,057,229, respectively.
(c) For financial reporting purposes, the portion of the lease relating to
the building has been recorded as a direct financing lease; 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; 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.
F-8
COMMERCIAL NET LEASE REALTY, INC.
NOTES TO SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION - CONTINUED
----------------------------------------------------------------------------
December 31, 1996
(i) During the years ended December 31, 1996, 1995 and 1994, the Company
(i) incurred acquisition fees and expense reimbursement fees totalling
$2,278,306, $937,363 and $1,436,073, respectively, paid to CNL Realty
Advisors, Inc. and (ii) acquired land and buildings purchased from
affiliates of CNL Realty Advisors, Inc. for an aggregate cost of
$37,712,514, $17,968,518 and $7,261,454, respectively. Such amounts
are included in land and buildings on operating leases and net
investments in direct financing leases.
(j) Property is encumbered as a part of the Company's $13,150,000 long
term, fixed rate mortgage and security agreement.
(k) Property is encumbered as a part of the Company's $39,450,000 long
term, fixed rate mortgage and security agreement.
(l) Encumbered properties for which the portion of the lease relating to
the land is accounted for as an operating lease and the portion of the
lease relating to the building is accounted for as a direct financing
lease, the total amount of the encumbrance is listed with the land
portion of the property.
F-9
EXHIBITS
EXHIBIT INDEX
Exhibit Number 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).
3.3 Articles of Amendment to the Articles of Incorporation
of the Registrant (filed as Exhibit 3.3 to the
Registrant's Form 10-Q for the quarter ended June 30,
1996, 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 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).
10.2 Advisory Agreement between Registrant and CNL Realty
Advisors, Inc. effective as of April 1, 1993 and
renewed January 1, 1997 (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).
10.3 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).
10.4 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).
10.5 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).
10.6 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).
10.7 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).
i
10.8 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).
10.9 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).
10.10 Third Amended and Restated Line of Credit and Security
Agreement, dated September 3, 1996, by and among
Registrant, certain lenders and First Union National
Bank of Florida, as the Agent, relating to a
$150,000,000 loan (filed as Exhibit 10.11 to the
Registrant's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1996, and incorporated
herein by reference).
10.11 Second Renewal and Modification Promissory Note,
dated September 3, 1996, by and among Registrant and
First Union National Bank of Florida, as the Agent,
relating to $150,000,000 loan (filed as Exhibit 10.12
to the Registrant's Quarterly Report on Form 10-Q for
the quarter ended September 30, 1996, and incorporated
herein by reference).
13 Annual Report to Shareholders for the year ended
December 31, 1996 (filed only to the extent material
therefrom is specifically incorporated herein by
reference).
23 Consent of Independent Accountants dated March 19,
1997. Filed herewith.
ii
EXHIBIT 13
ANNUAL REPORT TO SHAREHOLDERS
TABLE OF CONTENTS
- -----------------
Historical Financial Highlights 1
1996 Highlights and Recent Developments 2
Company Profile 3
To Our Stockholders 4
Management's Discussion and Analysis of Financial
Condition and Results of Operations 6
Independent Auditors' Report 10
Consolidated Balance Sheets 11
Consolidated Statements of Earnings 12
Consolidated Statements of Stockholders' Equity 13
Consolidated Statements of Cash Flows 14
Consolidated Notes to Financial Statements 15
Consolidated Quarterly Financial Data 21
Share Price and Dividend Data 21
Stockholder Information 22
Directors and Executive Officers 23
1996 ANNUAL REPORT - PAGE 1
HISTORICAL FINANCIAL HIGHLIGHTS
(DOLLARS IN THOUSANDS, EXCEPT
PER SHARE DATA)
-------------------------------
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
---------- ---------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Gross Revenues $ 33,369 $ 20,580 $ 12,289 $ 5,069 $ 2,604
Net Earnings $ 19,839 $ 12,707 $ 8,915 $ 3,522 $ 1,562
Total Assets $ 370,953 $ 219,257 $ 152,211 $ 91,619 $ 23,134
Total Long-Term
Debt $ 116,956 $ 82,600 $ 14,800 $ - $ 8,500
Total Equity $ 252,574 $ 135,842 $ 136,665 $ 91,145 $ 14,388
Cash Dividends
Paid to Stock-
holders $ 18,868 $ 13,529 $ 9,897 $ 3,156 $ 1,766
Funds from Opera-
tions (1) $ 22,570 $ 14,443 $ 9,992 $ 3,884 $ 1,879
Weighted Average
Shares 16,798,918 11,663,672 8,606,138 3,711,807 1,635,350
Per Share
Information:
Net Earnings $ 1.18 $ 1.09 $ 1.04 $ 0.95 $ 0.95
Funds from
Operations (1) $ 1.34 $ 1.24 $ 1.16 $ 1.05 $ 1.15
Dividends $ 1.18 $ 1.16 $ 1.14 $ 1.10 $ 1.08
Equity Market
Capitalization
($ mil) $329.6 $148.7 $142.9 $105.4 $ 21.7
</TABLE>
- --------------------------------------------------------------------------
(1) 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 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.
1996 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, 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, 1996, Commercial Net Lease
Realty, Inc. and its subsidiaries (the "Company") owned 195 properties (the
"Properties") that are leased to major retail businesses, including Academy,
Baby Superstore, Barnes & Noble, Best Buy, Blockbuster Music, Borders, Burger
King, CompUSA, Computer City, Denny's, Dick's Clothing & Sporting Goods,
Eckerd, Food 4 Less, Food Lion, Golden Corral, Good Guys, Hardee's, Hi-Lo
Automotive, HomePlace, International House of Pancakes, Kash N' Karry, Levitz,
Linens 'n Things, Luria's, Marshalls, Office Depot, OfficeMax, Oshman's, Pier
1 Imports, Scotty's, Sears Homelife Centers, Sports Authority 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, 1996, 1995 and 1994,
the Company generated $22,216,000, $14,140,000 and $9,505,000 respectively,
in net cash provided by operating activities. The increase in cash from
operations for each of the years ended December 31, 1996 and 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 July 1994, the Company entered into an agreement establishing a
$100,000,000 revolving credit facility. In September 1996, the Company
entered into an amended and restated loan agreement for $150,000,000 revolving
credit facility (the "Credit Facility"). The Credit Facility amended the
Company's $100,000,000 credit facility by (i) increasing the borrowing
capacity from $100,000,000 to $150,000,000, (ii) extending the expiration date
to June 30, 1998 (and for up to two additional 12 month periods at the option
of the Company), and (iii) lowering the interest rate from 170 basis points
above LIBOR to 160 basis points above LIBOR or the lender's prime rate,
whichever the Company selects. 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. The Credit Facility is collateralized by an assignment
of the rents and leases of certain of the Company's Properties. As of
December 31, 1996, $58,700,000 was outstanding under the Credit Facility. The
Credit Facility will be used primarily to invest in freestanding, retail
properties, although up to $15,000,000 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 public or private offerings 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 three interest rate
cap agreements during the three years ended December 31, 1996. As of December
31, 1996, two of the interest rate cap agreements had expired and one remained
effective, providing for a fixed LIBOR rate of 6.9% per annum on a notional
amount of $30 million. This agreement is effective through December 1999.
In December 1995, the Company entered into a long-term, fixed rate mortgage
and security agreement for $13,150,000. The loan 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
mortgage is secured by a first lien on and assignment of rents and leases of
certain of the Company's Properties. As of December 31, 1996, the outstanding
principal balance was $13,150,000.
In January 1996, the Company entered into a long-term, fixed rate mortgage and
security agreement for $39,450,000. The loan is 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 loan is secured by a first lien on and an assignment of rents and
leases of certain of the Company's Properties. As of December 31, 1996, the
outstanding principal balance was $38,352,000.
1996 ANNUAL REPORT - PAGE 7
In June 1996, the Company acquired three Properties each subject to a mortgage
totalling $6,864,000 (collectively the "Mortgages"). The Mortgages bear
interest at a weighted average rate of 8.6% and have a weighted average
maturity of eight years. As of December 31, 1996, the outstanding principal
balances for the Mortgages totalled $6,754,000.
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 prospectus supplement to the shelf registration and issued 4,025,000 shares
of common stock, including the underwriters' over-allotment of 525,000 shares,
and received gross proceeds of $52,325,000. In September 1996, the Company
filed a prospectus supplement to the shelf registration and issued 4,850,000
shares of common stock and received gross proceeds of $67,900,000. In
addition, in October 1996, the Company issued an additional 225,000 shares of
common stock in connection with the underwriters' over-allotment option and
received gross proceeds of $3,150,000. In connection with these offerings,
the Company incurred stock issuance costs totalling $7,614,000, consisting
primarily of underwriters' commissions and fees, legal and accounting fees and
printing expenses. Net proceeds from the offerings were generally used to pay
down the outstanding indebtedness under the Company's Credit Facility.
On February 13, 1997, the Company filed a prospectus supplement to the shelf
registration which offered 2,300,000 shares of common stock at $15.125 per
share. The net proceeds of the offering were approximately $32,900,000, after
deducting offering expenses and underwriting discounts. Proceeds of the
offering will be used to pay down the outstanding indebtedness under the
Company's Credit Facility.
Property Acquisitions and Commitments.
During the year ended December 31, 1996, the Company borrowed $144,600,000
under its Credit Facility and assumed mortgages totalling $6,864,000 to
acquire 40 Properties and nine buildings which were developed by the tenant on
land parcels owned by the Company. The 40 Properties include nine Eckerd
drugstores, four OfficeMax office supply stores, four Academy sporting goods
stores, three Computer City computer stores, three Sears Homelife furniture
stores, three Luria's jewelry and giftware stores, two Barnes & Noble
bookstores, two Borders bookstores, two Good Guys consumer electronic stores,
two Dick's Clothing and Sporting Goods stores, one HomePlace home furnishing
store, one Baby Superstore baby products retailer, one Pier 1 Imports home
furnishings store, one Kash N' Karry grocery store, one Waccamaw home
decorating store and one Sports Authority sporting goods store. The nine
buildings included five Barnes & Nobles bookstores, three Academy sporting
goods stores and one Food 4 Less grocery store.
[Picture 1]
Barnes & Noble - Lakeland, FL
[Picture 2]
OfficeMax - Altamonte Springs, FL
[Picture 3]
Eckerd - Colleyville, TX
[Picture 4]
Best Buy - Corpus Christi, TX
1996 ANNUAL REPORT - PAGE 8
In connection with the acquisition and lease relating to the land parcels of
the Kash N' Karry Property, the Pier 1 Imports Property, one of the Academy
Properties and one of the Barnes & Noble Properties, the tenants are obligated
to develop a building on the respective land parcels. The Company has agreed
to acquire the completed buildings for an aggregate amount of up to
$8,583,000, at which time rental income will increase for each of the
Properties.
As of December 31, 1996, the Company had entered into agreements to purchase
12 additional properties for an estimated aggregate amount of $33,521,000.
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 to the 12 properties under contract and the four buildings being
developed by tenants as of December 31, 1996, the Company is currently
negotiating the acquisition of prospective properties. The Company may elect
to acquire these prospective properties or other additional properties (or
interests therein) in the future. Such property acquisitions are expected to
be the primary demand for additional capital in the future. The Company
anticipates that it may engage in equity or debt financing, through either
public or private offerings of its securities for cash, issuance of such
securities in exchange for assets, or a combination of the foregoing. Subject
to the constraints imposed by the Credit Facility and long-term, fixed rate
financing, the Company may enter into additional financing arrangements.
During 1996, the Company sold its properties in Marble Falls and Gonzales,
Texas for a total of $790,000 and received net proceeds of $759,000, resulting
in a gain of $73,000 for financial statement purposes. The Company reinvested
the proceeds to acquire two additional Properties and structured the
transactions to qualify as like-kind exchange transactions for federal income
tax purposes.
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, 1996, 1995 and 1994, the Company declared and paid dividends to its
stockholders of $18,868,000, $13,529,000, and $9,897,000, respectively, or
$1.18, $1.16 and $1.14 per share of common stock, respectively. For the years
ended December 31, 1996, 1995 and 1994, 89.8%, 79.3% and 83.3%, respectively,
of such dividends were considered to be ordinary income and 10.2%, 20.7% and
16.7%, respectively, were considered return of capital for federal income tax
purposes. In January 1997, the Company declared dividends to its
stockholders of $6,229,000 or $.30 per share of common stock, payable in
February 1997.
RESULTS OF OPERATIONS
During the years ended December 31, 1996, 1995 and 1994, the Company owned and
leased 197 (including two properties which were sold during 1996), 157, and
128 Properties, respectively, to operators of major retail businesses. 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, 1996,
the average remaining initial lease term of the Properties was approximately
14 years. During the years ended December 31, 1996, 1995 and 1994, the
Company earned $32,487,000, $19,723,000, and $11,240,000, respectively, in
rental income from operating leases and earned income from direct financing
leases. The 65 percent increase in rental and earned income during 1996, as
compared to 1995, is primarily attributable to income earned on the 40
Properties acquired and the nine buildings upon which construction was
completed during 1996. In addition, rental and earned income increased
during 1996 as a result of the fact that the 29 Properties acquired and four
buildings upon which construction was completed during 1995 were operational
for a full fiscal year in 1996. The increase in rental and earned income
during 1995, as compared to 1994, is primarily attributable to the income
earned on the 29 Properties acquired and four buildings upon which
construction was completed during 1995 and the fact that a full year of income
was earned on the 44 Properties that the Company acquired during 1994. Rental
and earned income is expected to increase in 1997 as the Company acquires
additional properties and due to the fact that the 40 Properties acquired and
nine buildings upon which construction was completed in 1996 will contribute
to the Company's income for a full fiscal year.
During 1996, one of the Company's lessees, Barnes & Noble Superstores, Inc.,
accounted for more than ten percent of the Company's total rental income. As
of December 31, 1996, Barnes & Noble Superstores, Inc. was the lessee under
leases relating to 11 Properties. It is anticipated that, based on the
minimum rental payments required by the lease, Barnes & Noble Superstores,
Inc. will continue to account for more than ten percent of the Company's total
rental income in 1997. Any failure of this lessee could materially affect the
Company's income.
The Company incurred $7,206,000, $3,834,000 and $498,000 in interest expense
for the years ended December 31, 1996, 1995 and 1994, respectively. Interest
expense increased for the years ended December 31, 1996 and 1995, as a result
of higher average borrowing levels. However, the increase in interest expense
in 1996 and 1995 was partially offset by the Company's long-term, fixed rate
financing and a decrease in the average interest rates under the Company's
credit facility. As a means to reduce its exposure to variable rate debt, the
Company entered into interest rate cap agreements as described above in
"Liquidity and Capital Resources."
During the years ended December 31, 1996, 1995 and 1994, the Company's
operating expenses, including depreciation and amorti-zation, were $6,397,000,
$4,039,000 and $2,876,000, respectively (19.2%, 19.6% and 23.4%, respectively,
of gross operating revenues). The increase in the dollar amount of
operating
1996 ANNUAL REPORT - PAGE 9
expenses for each of the years ended December 31, 1996 and 1995, is primarily
attributable to the increase in depreciation as a result of the depreciation
of the additional Properties acquired during 1996 and 1995 and a full year of
depreciation on the Properties acquired during the previous year. 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 long-term
fixed rate financing and amendment to the Company's Credit Facility. In
addition, advisory fees increased as a result of increased funds from
operations for the years ended December 31, 1996 and 1995. However, the
increase in operating expenses for 1995 was partially offset by a decrease in
legal fees, 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.
In December 1996, the Company sold two of its Properties to an unrelated,
third party for $790,000, resulting in an aggregate gain of $73,000. No such
sales occurred during the years ended December 31, 1995 and 1994.
The Company had made an election to be taxed as a real estate investment trust
("REIT") under Sections 856 through 860 of the Internal Revenue Code of 1986,
as amended, and related regulations. As a REIT, for federal income tax
purposes, the Company generally will not be subject to federal income tax on
income that it distributes to its stockholders. If the Company fails to
qualify as a REIT in any taxable year, it will be subject to federal income
tax on its taxable income at regular corporate rates and will not be permitted
to qualify for treatment as a REIT for federal income tax purposes for four
years following the year during which qualification is lost. Such an event
could materially affect the Company's income. However, the Company believes
that it is organized and operates in such a manner as to qualify for
treatment as a REIT for the years ended December 31, 1996, 1995 and 1994, and
intends to continue to operate the Company so as to remain qualified as a REIT
for federal income tax purposes.
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; however, inflation and changing prices also may have an adverse
impact on the operating margins of retail businesses and on potential capital
appreciation of the Properties.
This information contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. Although the Company believes that the expectations
reflected in such forward-looking statements are based upon reasonable
assumptions, the Company's actual results could differ materially from those
set forth in the forward-looking statements. Certain factors that might cause
such a difference include the following: changes in general economic
conditions, changes in real estate market conditions, continued availability
of proceeds from the Company's debt or equity capital, the ability of the
Company to locate suitable tenants for its Properties and the ability of
tenants to make payments under their respective leases.
DIVERSIFICATION OF ASSETS
[PIE CHART 1]
Line of Trade Diversification
TENANT DIVERSIFICATION
----------------------
Barnes & Noble The Good Guys Oshman's
Eckerd Golden Corral CompUSA
OfficeMax Luria's Linens 'n Things
Borders Food & Music Hardee's Baby Superstore
Academy Denny's Sports Authority
Computer City Food Lion Levitz
Hi-Lo Automotive Food 4 Less Blockbuster Music
Sears Homelife IHOP Office Depot
Burger King Scotty's Pier 1 imports
Dick's Sporting Goods HomePlace Kash N' Karry
Waccamaw Marshalls
[MAP 1]
Tenant Diversification by Geographic Location
1996 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, 1996 and 1995, 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, 1996.
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 at December 31, 1996 and 1995, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1996, in conformity with generally
accepted accounting principles.
/S/KPMG Peat Marwick LLP
Orlando, Florida
January 20, 1997, except for Note 12
for which the date is February 13, 1997
1996 ANNUAL REPORT - PAGE 11
COMMERCIAL NET LEASE REALTY, INC. and SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(dollars in thousands, except per share data)
December 31,
ASSETS 1996 1995
--------- ---------
Real estate leased to others:
Accounted for using the operating
method, net of accumulated
depreciation $269,031 $155,957
Accounted for using the direct
financing method 92,413 56,829
Cash and cash equivalents 1,410 301
Receivables 812 394
Prepaid expenses 335 155
Loan costs, net of accumulated
amortization of $1,055 and
$405 2,185 1,065
Accrued rental income 4,421 2,194
Other assets 346 2,362
-------- --------
$370,953 $219,257
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Notes payable $116,956 $ 82,600
Accrued interest payable 390 128
Accounts payable and accrued
expenses 161 351
Real estate taxes payable - 83
Due to related party 93 69
Rents paid in advance 779 184
-------- --------
Total liabilities 118,379 83,415
-------- --------
Commitments and contingencies
(Note 11)
Stockholders' equity:
Common stock, $.01 par value.
Authorized 50,000,000 and
30,000,000 shares, respect-
ively; issued and outstanding
20,763,672 and 11,663,672 shares,
respectively 208 117
Excess stock, $0.01 par value.
Authorized 50,000,000 and
30,000,000 shares, respec-
tively; none issued and out-
standing - -
Capital in excess of par value 254,299 138,629
Accumulated dividends in excess
of net earnings (1,933) (2,904)
-------- --------
Total stockholders' equity 252,574 135,842
-------- --------
$370,953 $219,257
======== ========
See accompanying notes to consolidated financial statements.
1996 ANNUAL REPORT - PAGE 12
COMMERCIAL NET LEASE REALTY, INC. and SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(dollars in thousands, except per share data)
Year Ended December 31,
1996 1995 1994
----------- ----------- -----------
Revenues:
Rental income from
operating leases $ 24,418 $ 14,455 $ 8,117
Earned income from
direct financing
leases 8,069 5,268 3,123
Contingent rental
income 722 745 828
Interest and other 160 112 221
----------- ----------- -----------
33,369 20,580 12,289
----------- ----------- -----------
Expenses:
General operating and
administrative 1,183 722 605
Advisory fees to related
party 1,466 1,001 727
Interest 7,206 3,834 498
State taxes 195 258 213
Depreciation and
amortization 3,553 2,058 1,331
----------- ----------- -----------
13,603 7,873 3,374
----------- ----------- -----------
Net earnings before gain
on sale of land and
buildings 19,766 12,707 8,915
Gain on sale of land and
buildings 73 - -
----------- ----------- -----------
Net earnings $ 19,839 $ 12,707 $ 8,915
=========== =========== ===========
Earnings per share of
common stock $ 1.18 $ 1.09 $ 1.04
=========== =========== ===========
Weighted average number
of shares outstanding 16,798,918 11,663,672 8,606,138
=========== =========== ============
See accompanying notes to consolidated financial statements.
[PICTURE 5] Borders Books & Music - Ft. Lauderdale, FL
[PICTURE 6] The Good Guys! - Stockton, CA
1996 ANNUAL REPORT - PAGE 13
COMMERCIAL NET LEASE REALTY, INC. and SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years Ended December 31, 1996, 1995 and 1994
(dollars in thousands, except per share data)
<TABLE>
<CAPTION>
Number of Accumulated
shares Capital in dividends
of common Common excess of in excess of
stock stock par value net earnings Total
---------- ------- ----------- ------------ ---------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1993 7,663,672 $ 77 $ 92,168 $ (1,100) $ 91,145
Net earnings - - - 8,915 8,915
Dividends declared and paid
($1.14 per share of common stock) - - - (9,897) (9,897)
Issuance of common stock 4,000,000 40 49,960 - 50,000
Stock issuance costs - - (3,499) - (3,499)
---------- ----- --------- -------- --------
Balance at December 31, 1994 11,663,672 117 138,629 (2,082) 136,664
Net earnings - - - 12,707 12,707
Dividends declared and paid
($1.16 per share of common stock) - - - (13,529) (13,529)
---------- ----- -------- ------- --------
Balance at December 31, 1995 11,663,672 117 138,629 (2,904) 135,842
Net earnings - - - 19,839 19,839
Dividends declared and paid
($1.18 per share of common stock) - - - (18,868) (18,868)
Issuance of common stock 9,100,000 91 123,284 - 123,375
Stock issuance costs - - (7,614) - (7,614)
---------- ----- -------- -------- --------
Balance at December 31, 1996 20,763,672 $ 208 $254,299 $ (1,933) $252,574
========== ===== ======== ======== ========
See accompanying notes to consolidated financial statements.
</TABLE>
[PICTURE 7] Pier 1 imports - Dallas, TX
[PICTURE 8] Academy - Houston, TX
1996 ANNUAL REPORT - PAGE 14
COMMERCIAL NET LEASE REALTY, INC. and SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
Year Ended December 31,
1996 1995 1994
-------- -------- --------
Cash flows from operating
activities:
Net earnings $ 19,839 $ 12,707 $ 8,915
Adjustments to reconcile net
earnings to net cash
provided by operating
activities:
Depreciation 2,804 1,736 1,077
Amortization 748 322 254
Gain on sale of land and
buildings (73) - -
Decrease in net investment
in direct financing
leases 751 462 268
Increase in accrued rental
income (2,227) (1,233) (783)
Increase in receivables (279) (50) (11)
Decrease (increase) in
prepaid expenses (180) 207 (314)
Decrease (increase) in
other assets 10 (7) (10)
Increase in accrued
interest payable 262 93 36
Increase (decrease) in
accounts payable and
accrued expenses (12) 12 75
Increase (decrease) in
real estate taxes
payable (83) 49 (27)
Increase (decrease) in due
to related party 60 (46) (62)
Increase (decrease) in
rents paid in advance 596 (112) 87
-------- -------- --------
Net cash provided by
operating activities 22,216 14,140 9,505
-------- -------- --------
Cash flows from investing
activities:
Proceeds from sale of land and
buildings 759 - -
Additions to land and
buildings on operating
leases (108,597) (51,402) (53,175)
Investment in direct financing
leases (36,335) (14,710) (25,570)
Increase in other assets (185) (1,451) (332)
Other 111 45 (4)
-------- -------- --------
Net cash used in
investing activities (144,247) (67,518) (79,081)
-------- -------- --------
Cash flows from financing
activities:
Proceeds from notes payable 168,150 81,950 46,905
Repayment of notes payable (140,658) (14,150) (32,105)
Payment of loan costs (1,389) (899) (606)
Proceeds from issuance of
common stock 123,375 - 50,000
Payment of stock issuance
costs (7,467) (4) (3,498)
Payment of dividends (18,868) (13,529) (9,897)
Other (3) (759) -
-------- -------- --------
Net cash provided by
financing activities 123,140 52,609 50,799
-------- -------- --------
Net increase (decrease) in cash
and cash equivalents 1,109 (769) (18,777)
Cash and cash equivalents at
beginning of year 301 1,070 19,847
-------- -------- --------
Cash and cash equivalents at
end of year $ 1,410 $ 301 $ 1,070
======== ======== ========
Supplemental disclosure of cash
flow information:
Interest paid $ 6,857 $ 3,545 $ 489
======== ======== ========
Supplemental disclosure of
non-cash investing and financing
activities:
Mortgages assumed in
acquisition of three
properties $ 6,864 $ - $ -
======== ======== ========
See accompanying notes to consolidated financial statements.
1996 ANNUAL REPORT - PAGE 15
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 1996, 1995 and 1994
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
ORGANIZATION AND NATURE OF BUSINESS - Commercial Net Lease Realty, Inc.,
a Maryland corporation, is a real estate investment trust formed in 1984.
Commercial Net Lease Realty, Inc. owns and manages high-quality,
freestanding properties leased to major retail businesses under
long-term commercial net leases.
PRINCIPLES OF CONSOLIDATION - In November 1995, Commercial Net Lease Realty,
Inc. 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 Commercial Net Lease Realty, Inc. and these wholly-owned
subsidiaries (hereinafter referred to as the "Company"). All significant
intercompany accounts and transactions have been eliminated in consolidation.
REAL ESTATE AND LEASE ACCOUNTING - The Company records the acquisition of land
and buildings at cost, including acquisition and closing costs. 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 using either the direct financing or the operating
methods. Such methods are described below:
Direct financing method - Leases accounted for using the direct financing
method are recorded at their net investment (which at the time of
acquisition generally represents the cost of the property) (Note 4).
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 leases.
Operating method - Land and building leases accounted for using the
operating method are recorded at cost, revenue is recognized as
rentals are earned and expenses (including depreciation) are charged
to operations as incurred. Buildings are depreciated on the
straight-line method over their estimated useful lives (generally
35 to 40 years). When scheduled rentals vary during the lease term,
income is recognized on a straight-line basis so as to produce a
constant periodic rent over the term of the lease. 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.
When properties are sold, the related cost and accumulated depreciation for
operating leases and the net investment for direct financing leases, plus
any accrued rental income, are removed from the accounts andgains and losses
from the sales are reflected in income.
Management reviews its properties for impairment whenever events or changes
in circumstances indicate that the carrying amount of the assets, including
accrued rental income, may not be recoverable through operations. Management
determines whether an impairment in value occurred by comparing the estimated
future undiscounted cash flows, including the residual value of the property,
with the carrying cost of the individual property. If an impairment is
indicated, a loss will be recorded for the amount by which the carrying value
of the asset exceeds its fair market value.
CASH AND CASH EQUIVALENTS - The Company considers all highly liquid invest-
ments with a maturity of three months or less when purchased to be cash
equivalents. Cash and cash equivalents consist of cash and money market
accounts. 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 of $257,000 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, 1996, approximate fair value.
INCOME TAXES - The Company has made an election to be taxed as a real estate
investment trust under Sections 856 through 860 of the Internal Revenue Code
of 1986, as amended, and related regulations. The Company generally will
not be subject to federal income taxes on amounts distributed to stock-
holders, 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, 1996, 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 consolidated 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 out-
standing 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, revenues and
expenses and disclosure of contingent assets and liabilities to prepare these
consolidated financial statements in conformity with generally accepted
accounting principles. Actual results could differ from those estimates.
1996 ANNUAL REPORT - PAGE 16
NEW ACCOUNTING STANDARDS - 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 earnings or provide pro forma equivalent information in a
footnote disclosure. The Company adopted this standard by providing pro
forma equivalent information in Note 8.
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 December 31, 1996, 121 of the leases have been classified as operating
leases and 74 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 47 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 BUILDINGS ON OPERATING LEASES:
Land and buildings on operating leases consisted of the following at
December 31 (dollars in thousands):
1996 1995
-------- --------
Land $138,520 $ 83,356
Buildings and
improvements 138,589 78,098
-------- --------
277,109 161,454
Less accumulated
depreciation (8,078) (5,497)
-------- --------
$269,031 $155,957
======== ========
Some leases provide for scheduled rent increases throughout the lease term.
Such amounts are recognized on a straight-line basis over the terms of the
leases. For the years ended December 31, 1996, 1995 and 1994, the Company
recognized $2,285,000, $1,233,000 and $783,000, respectively, of such income.
The following is a schedule of future minimum lease payments to be received
on noncancellable operating<PAGE>
leases at December 31, 1996 (dollars in thousands):
1997 $ 27,611
1998 27,667
1999 27,906
2000 28,296
2001 28,936
Thereafter 326,411
--------
$466,827
========
Since lease renewal periods are exercisable at the option of the tenant, the
above table only presents future minimum lease payments due during the
initial lease terms. In addition, this table does not include any amounts
for future contingent rentals which may be received on the leases based on a
percentage of the tenant's gross sales.
4. NET INVESTMENT IN DIRECT FINANCING LEASES:
The following lists the components of net investment in direct financing
leases at December 31 (dollars in thousands):
1996 1995
--------- ---------
Minimum lease payments to
be received $207,838 $126,314
Estimated residual values 28,309 17,354
Less unearned income (143,734) (86,839)
--------- ---------
Net investment in direct
financing leases $ 92,413 $ 56,829
========= =========
1996 ANNUAL REPORT - PAGE 17
The following is a schedule of future minimum lease payments to be received
on direct financing leases at December 31, 1996 (dollars in thousands):
1997 $ 11,250
1998 11,254
1999 11,301
2000 11,419
2001 11,451
Thereafter 151,163
--------
$207,838
========
The above table does not include future minimum lease payments for renewal
periods or for contingent rental payments that may become due in future
periods (See Note 3).
5. OTHER ASSETS:
Other assets consisted of the following at December 31 (dollars in thousands):
1996 1995
-------- --------
Deposits and miscellaneous
acquisition costs $ 237 $1,574
Deposits for loan
commitments - 526
Deferred offering costs 61 223
Other 48 39
------ ------
$ 346 $2,362
====== ======
6. NOTES PAYABLE:
In July 1994, the Company entered into a loan agreement for a three-year
$100,000,000 revolving credit facility. In September 1996, the Company
entered into an amended and restated loan agreement for a $150,000,000
revolving credit facility (the "Credit Facility"). The Credit Facility
amended the Company's $100,000,000 credit facility by (i) increasing the
borrowing capacity from $100,000,000 to $150,000,000, (ii) extending the
expiration date to June 30, 1998, and (iii) lowering the interest rate from
170 basis points above LIBOR to 160 basis points above LIBOR or the lender's
prime rate, whichever the Company selects. 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. The Credit Facility is
collateralized by an assignmentof 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, 1998, which can be extended
for two additional 12 month periods at the option of the Company, and
interest is payable quarterly. As of December 31, 1996 and 1995, the
outstanding principal balance was $58,700,000 and $69,450,000, respectively,
plus accrued interest of $192,000 and $84,000, respectively. 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, 1996.
During the three years ended December 31, 1996, the Company entered into three
interest rate cap agreements as a means to reduce its exposure to rising
interest rates on the Company's variable rate Credit Facility. As of December
31, 1996, two of the interest rate cap agreements had expired and one
remained effective, providing for a fixed LIBOR rate of 6.9% per annum on a
notional amount of $30 million. This agreement is effective through December
1999.
On December 14, 1995, the Company entered into a long-term, fixed rate mortgage
and security agreement for $13,150,000. The loan 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 loan
is secured by a first lien on and assignment of rents and leases of certain
of the Company's properties. As of December 31, 1996, the aggregate carrying
value of these properties totalled $17,067,000. The outstanding principal
balance as of December 31, 1996 and 1995, was $13,150,000, plus accrued
interest of $37,000 and $44,000 respectively.
In January 1996, the Company entered into a long-term, fixed rate mortgage and
security agreement for $39,450,000. The loan provides for a ten-year loan
with principal and interest payable monthly, based on a17-year amortization,
with the balance due in February 2006 and bears interest at a rate of 7.435%
per annum. The loan is secured by a first lien on and assignments of rents
and leases of certain of the Company's properties. As of December 31, 1996,
the aggregate carrying value of these properties totalled $74,706,000. The
outstanding principal balance as of December 31, 1996, was $38,352,000, plus
accrued interest of $119,000.
In June 1996, the Company acquired three properties each subject to a mortgage
totalling $6,864,000 (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
December 31, 1996, the outstanding balances for the Mortgages totalled
$6,754,000, plus accrued interest of $42,000. As of December 31, 1996, the
aggregate carrying value of these three properties totalled $4,950.000.
1996 ANNUAL REPORT - PAGE 18
The following is a schedule of the annual maturities of the Companies
outstanding term indebtedness for each of the next five years
(dollars is thousands):
1997 $ 1,520
1998 1,673
1999 14,984
2000 2,005
2001 2,170
-------
$22,352
=======
7. DIVIDENDS:
The following presents the characterization for tax purposes of dividends paid
to stockholders for the years ended December 31:
1996 1995 1994
----- ------ ------
Ordinary income $1.06 $ .92 $ .95
Capital gain - - -
Return of capital .12 .24 .19
----- ----- -----
$1.18 $1.16 $1.14
===== ===== =====
On January 15, 1997, the Company declared dividends of $6,229,000 or 30 cents
per share of common stock, payable on February 14, 1997, to stockholders of
record on January 31, 1997.
8. STOCK OPTION PLAN:
The Company's stock option plan (the "Plan") provides compensation and incentive
to persons ("Key Employees of the Advisor") 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 January 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
years ended December 31:
1996 1995 1994
---------------- ---------------- -----------------
Weighted Weighted Weighted
Number Average Number Average Number Average
of Exercise of Exercise of Exercise
Shares Price Shares Price Shares Price
------- --------- -------- -------- -------- --------
Outstanding,
January 1 578,100 $13.36 568,100 $13.38 87,400 $12.35
Granted 390,000 13.01 10,000 12.50 480,700 13.56
Exercised - - - - - -
Surrendered (11,500) 13.54 - - - -
-------- -------- --------
Outanding,
December 31 956,600 13.21 578,100 13.36 568,100 13.38
======== ======== ========
Exercisable,
December 31 403,533 13.29 232,000 13.11 44,135 13.20
======== ======== ========
Available for
grant,
December 31 231,900 21,900 31,900
======== ======== ========
The weighted-average remaining contractual life of the 956,600 options
outstanding at December 31, 1996 was 8.1 years, with exercise prices
ranging from $11.25 to $14.125. 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 and the options maximum term is ten years.
1996 ANNUAL REPORT - PAGE 19
The Company applies Accounting Principles Board Opinion No. 25, Accounting for
Stock Issued to Employees, and related Interpretations in accounting for the
Plan. Accordingly, no compensation expense has been recorded with respect to
the options in the accompanying consolidated financial statements. Had
compensation cost for the Plan been determined based upon the fair value at
the grant dates for options under the Plan consistent with the method of
Financial Accounting Standards Board Statement No. 123, Accounting for
Stock-Based Compensation, the Company's net earnings and earnings per share
would have been reduced to the pro forma amounts indicated below for the
years ended December 31 (dollars in thousands, except per share data):
1996 1995 1994
----------- ----------- -----------
Net earnings as reported $ 19,839 $ 12,707 $ 8,915
=========== =========== ===========
Pro forma net earnings $ 19,681 $ 12,596 $ 8,865
=========== =========== ===========
Earnings per share as
reported $ 1.18 $ 1.09 $ 1.04
=========== =========== ===========
Pro forma earnings
per share $ 1.17 $ 1.08 $ 1.03
=========== =========== ===========
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option-pricing model with the following assumptions used for
grants in 1996, 1995 and 1994: (i) risk free rates of 6.17 and 6.95 percent
for 1996 grants, 7.2% for 1995 grants and 6.0, 7.22 and 8.13 percent for 1994
grants, (ii) expected volatility of 12.9% for all years, (iii) dividend
yields of 8.6, 8.8 and 8.6 percent, respectively, and (iv) expected lives of
ten years for grants in 1996, 1995 and 1994.
9. RELATED PARTY TRANSACTIONS:
Certain directors and officers of the Company hold similar positions with CNL
Realty Advisors, Inc. (the "Advisor"), the Company's advisor.
During the year ended December 31, 1994, the Company acquired one property for a
purchase price of $548,000 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 addition, during
the year ended December 31, 1996, the Company acquired one property for a
purchase price of $3,400,000 from a partnership in which an affiliate of the
Advisor is a partner. The purchase price paid by the Company for this
property represented the costs incurred by the affiliate to acquire the
property, including closingcosts. In connection with the acquisition of
these two properties, plus 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 and 26 other properties and nine buildings which were
developed by the tenant on land parcels owned by the Company in 1996 from
unrelated, third parties, the Company paid the Advisor $1,436,000, $937,000 and
$2,278,000, 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, 1996, 1995, and 1994, the
Company acquired 13 properties for purchase prices totalling $34,313,000,
seven properties for purchase prices totalling $17,969,000, and six
properties for purchase prices totalling $6,713,000 respectively, from
affiliates of the Advisor 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
$1,453,000 in 1996, $1,106,000 in 1995, and $574,000 in 1994 paid to an
affiliate of theAdvisor. No acquisition fees or expense reimbursement fees
were paid to the Advisor in connection with the acquisition of these 26
properties.
During 1996, the Company sold its properties in Marble Falls and Gonzales, Texas
for a total of $790,000 and received net proceeds of $759,000, resulting in a
gain of $73,000. In connection with the sale of these properties, the
Company paid the Advisor $16,000 in disposition fees.
The Company and the Advisor have entered into an advisory agreement (the
"Advisory Agreement"), which provides for the Advisor to perform services in
connection with the day to day operations of the Company. In connection
therewith, the Advisor receives an annual fee, payable monthly, equal to (i)
seven percent of funds from operations, as defined in the Advisory Agreement,
up to $10,000,000, (ii) six percent of funds from operations in excess of
$10,000,000 but less than $20,000,000 and (iii) five percent of funds from
operations in excess of $20,000,000. For purposes of the Advisory Agreement,
funds from operations generally includes 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 $1,466,000, $1,001,000, and $727,000 in
advisory fees for the years ended December 31, 1996, 1995, and 1994,
respectively.
1996 ANNUAL REPORT - PAGE 20
The amount due to related party consisted of the following at
December 31 (dollars in thousands):
1996 1995
----- -----
Due to the Advisor:
Advisory fee $76 $20
Acquisition and expense
reimbursement fees - 27
Real estate disposition fee 7 -
Expenditures incurred on
behalf of the Company 10 22
--- ---
$93 $69
=== ===
10. MAJOR TENANTS:
The following schedule presents rental and earned income, including contingent
rent, from operators or affiliated groups of operators representing more than
ten percent of the Company's total rental and earned income for the years
ended December 31 (dollars in thousands):
1996 1995 1994
------ ------ ------
Barnes & Noble
Superstores,
Inc. $5,204 $2,371 (a)
Denny's, Inc.
and Flagstar
Enterprises,
Inc. (a) 2,075 2,082
Golden Corral
Corporation (a) (a) 1,833
Burger King
Corporation (a) (a) 1,463
(a) Rental and earned income from the operator or affiliated
group of operators did not represent more than ten percent
of the Company's total rental and earned income for the
respective year.
11. COMMITMENTS AND CONTINGENCIES:
As of December 31, 1996, the Company had entered into agreements to purchase 12
additional properties for an estimated aggregate amount of $33,521,000. In
connection with the acquisition of 11 of these properties, the Company was
contingently liable for $2,641,000 related to bank letters of credit which
guarantee the Company's obligation under the purchase agreements to acquire
these properties. In addition, the Company was contingently liable for
$1,805,000 relating to its obligation under a purchase agreement to acquire one
property.
As of December 31, 1996, the Company owned and leased four land parcels to
tenants which were obligated to develop a building on the respective land
parcels. The Company has agreed to acquire the completed buildings for an
aggregate amount of up to $8,583,000, at which time rental income will
increase for each of the properties.
12. SUBSEQUENT EVENT:
On February 13, 1997, the Company filed a prospectus supplement with the
Securities and Exchange Commission dated February 12, 1997, which offered
2,300,000 shares of common stock at $15.125 from the shelf registration.
Proceeds from the offering will be used to pay down the outstanding
indebtedness under the Company's Credit Facility.
1996 ANNUAL REPORT - PAGE 21
CONSOLIDATED QUARTERLY FINANCIAL DATA
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
1996 Quarter First Second Third Fourth Year
- ------------ ------- ------- ------- ------- -------
Rent and other revenue $6,924 $7,631 $9,221 $9,666 $33,442
Depreciation and
amortization expense 748 806 944 1,055 3,553
Interest expense 1,460 1,602 2,473 1,671 7,206
Other expense 727 689 690 738 2,844
Net earnings 3,989 4,534 5,114 6,202 19,839
Net earnings per share 0.28 0.29 0.31 0.30 1.18
1995 Quarter
- ------------
Rent and other revenue $4,415 $4,746 $5,534 $5,885 $20,580
Depreciation and
amortization expense 436 490 537 595 2,058
Interest expense 415 675 1,245 1,499 3,834
Other expenses 505 447 527 502 1,981
Net earnings 3,059 3,134 3,225 3,289 12,707
Net earnings per share 0.26 0.27 0.28 0.28 1.09
SHARE PRICE AND DIVIDEND DATA
The common stock of the Company currently is traded on the New York Stock
Exchange ("NYSE") under the symbol "NNN." For each calendar quarter
indicated, the following table reflects the respective high, low and closing
sales prices for the common stock as quoted by the "NYSE" and the dividends
paid per share in each such period.
1996 Quarter First Second Third Fourth Year
- ------------ ------- ------- ------- ------- -------
High $13.375 $14.000 $14.250 $16.375 $16.375
Low 12.750 12.750 13.375 13.375 12.750
Close 13.250 13.875 13.625 15.875 15.875
Dividends paid per share 0.29 0.29 0.30 0.30 1.18
1995 Quarter
- ------------
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
The portion of dividends paid in 1996 and 1995, which was treated as a non-
taxable return of capital, was 9.8% and 20.8%, respectively.
On February 14, 1997, there were approximately 1,500 shareholders of record of
common stock.
APPENDIX
PICTURE 1 1996 ANNUAL REPORT - PAGE 7
PICTURE 2 1996 ANNUAL REPORT - PAGE 7
PICTURE 3 1996 ANNUAL REPORT - PAGE 7
PICTURE 4 1996 ANNUAL REPORT - PAGE 7
PIE CHART 1 1996 ANNUAL REPORT - PAGE 9
MAP 1 1996 ANNUAL REPORT - PAGE 9
PICTURE 5 1996 ANNUAL REPORT - PAGE 12
PICTURE 6 1996 ANNUAL REPORT - PAGE 12
PICTURE 7 1996 ANNUAL REPORT - PAGE 13
PICTURE 8 1996 ANNUAL REPORT - PAGE 13
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS DATED MARCH 19, 1997
The Board of Directors
Commercial Net Lease Realty, Inc.:
We consent to the use of our reports dated January 20, 1997, except for Note 12
for which the date is February 13, 1997, incorporated herein by reference.
/s/ KPMG Peat Marwick LLP
Orlando, Florida
March 19, 1997
<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, 1996, and its
statement of earnings for the year then ended and is qualified in its entirety by
reference for the Form 10-K of Commercial Net Lease Realty, Inc. for the year
ended December 31, 1996.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 1,410,000
<SECURITIES> 0
<RECEIVABLES> 812,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 277,109,000
<DEPRECIATION> 8,078,000
<TOTAL-ASSETS> 370,953,000
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 0
0
0
<COMMON> 208,000
<OTHER-SE> 252,366,000
<TOTAL-LIABILITY-AND-EQUITY> 370,953,000
<SALES> 0
<TOTAL-REVENUES> 33,369,000
<CGS> 0
<TOTAL-COSTS> 6,397,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,206,000
<INCOME-PRETAX> 19,839,000
<INCOME-TAX> 0
<INCOME-CONTINUING> 19,839,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 19,839,000
<EPS-PRIMARY> 1.18
<EPS-DILUTED> 1.18
<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>
