UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998
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
(State or other jurisdiction of incorporation or organization)
56-1431377
(I.R.S. Employment Identification No,)
455 South Orange Avenue, Orlando, Florida 32801
(Address of principal executive offices, including zip code)
(407) 265-7348
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No _____.
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date.
29,363,143 shares of Common Stock, $.01 par value, outstanding as of
November 12, 1998.
<PAGE>
COMMERCIAL NET LEASE REALTY, INC.
and SUBSIDIARIES
CONTENTS
Part I Page
Item 1. Financial Statements:
Condensed Consolidated Balance Sheets........................ 1
Condensed Consolidated Statements of Earnings................ 2
Condensed Consolidated Statements of Cash Flows.............. 3
Notes to Condensed Consolidated Financial Statements......... 5
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................ 12
Part II
Other Information .................................................. 18
<PAGE>
COMMERCIAL NET LEASE REALTY, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(dollars in thousands, except per share data)
<TABLE>
<CAPTION>
ASSETS September 30, December 31,
1998 1997
------------- ---------------
<S> <C> <C>
Real estate:
Accounted for using the operating method,
net of accumulated depreciation $ 469,760 $ 400,977
Accounted for using the direct financing method 114,523 118,747
Investment in partnership 3,910 3,925
Cash and cash equivalents 5,824 2,160
Receivables 1,140 515
Due from related parties 1,401 12
Prepaid expenses 577 287
Debt costs, net of accumulated amortization
of $2,424 and $1,868 2,417 1,762
Accrued rental income 9,389 7,063
Other assets 3,157 1,566
------------ -----------
$ 612,098 $ 537,014
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Line of credit payable $ 68,500 $ 115,100
Mortgages payable 55,493 56,736
Notes payable, net of unamortized discount of $261 99,739 -
Accrued interest payable 769 765
Accounts payable and accrued expenses 5,113 1,392
Rents received in advance 208 877
------------ -----------
Total liabilities 229,822 174,870
------------ -----------
Commitments and contingencies (Note 10)
Stockholders' equity:
Preferred stock, $0.01 par value.
Authorized 15,000,000 shares
none issued and outstanding - -
Common stock, $0.01 par value.
Authorized 90,000,000 shares;
issued and outstanding 29,363,143
and 27,953,627 shares,
respectively 294 280
Excess stock, $0.01 par value.
Authorized 105,000,000 shares;
none issued and outstanding - -
Capital in excess of par value 384,627 361,793
Retained earnings (deficit) (2,645) 71
------------ -----------
Total stockholders' equity 382,276 362,144
------------ -----------
$ 612,098 $ 537,014
============ ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE>
COMMERCIAL NET LEASE REALTY, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(dollars in thousands, except per share data)
<TABLE>
<CAPTION>
Quarter Ended Nine Months Ended
September 30, September 30,
1998 1997 1998 1997
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Revenues:
Rental income from operating leases $ 11,831 $ 9,934 $ 33,944 $ 27,059
Earned income from direct
financing leases 3,127 3,111 9,427 8,623
Contingent rental income 211 191 653 560
Development and asset management
fees from related parties 527 - 1,969 -
Interest and other 125 54 454 131
---------- ---------- ---------- ---------
15,821 13,290 46,447 36,373
---------- ---------- ---------- ---------
Expenses:
General operating and administrative 2,234 399 5,352 1,229
Advisory fees to related party - 523 - 1,507
Interest 3,307 3,509 9,175 8,603
Depreciation and amortization 1,708 1,374 4,935 3,867
Expenses incurred in acquiring
advisor from related party - - 4,692 -
---------- ---------- ---------- ----------
7,249 5,805 24,154 15,206
---------- ---------- ---------- ----------
Earnings before equity in earnings of
unconsolidated partnership and gain
on sale of real estate 8,572 7,485 22,293 21,167
Equity in earnings of unconsolidated
partnership 91 11 273 11
Gain on sale of real estate 1,288 126 1,288 397
---------- ---------- ---------- ----------
Net earnings $ 9,951 $ 7,622 $ 23,854 $ 21,575
========== ========== ========== ==========
Net earnings per share of common stock:
Basic $ 0.34 $ 0.32 $ 0.82 $ 0.94
========== ========== ========== ==========
Diluted $ 0.34 $ 0.32 $ 0.82 $ 0.93
========== ========== ========== ==========
Weighted average number of shares outstanding:
Basic 29,326,745 23,826,352 29,012,455 23,033,721
========== ========== ========== ==========
Diluted 29,463,035 23,990,421 29,202,262 23,179,966
========== ========== ========== ==========
</TABLE>
See accompanying notes to condensed consolidated financial statements
<PAGE>
COMMERCIAL NET LEASE REALTY, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
1998 1997
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 23,854 $ 21,575
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation 4,369 3,243
Amortization 566 624
Amortization of notes payable discount 10 -
Gain on sale of real estate (1,288) (397)
Expenses incurred in acquiring advisor from related party 4,692 -
Distributions from unconsolidated partnership,
net of equity in earnings 7 (11)
Decrease in real estate leased to others using the
direct financing method 996 847
Decrease (increase) in receivables (311) 128
Increase in due from related parties (1,389) -
Increase in prepaid expenses (274) (74)
Increase in accrued rental income (2,340) (1,969)
Decrease (increase) in other assets 45 (108)
Increase in accrued interest payable 4 239
Increase (decrease) in accounts payable and accrued expenses 563 (15)
Increase in real estate taxes payable - 41
Decrease in rents received in advance (669) (111)
--------- ---------
Net cash provided by operating activities 28,835 24,012
--------- ---------
Cash flows from investing activities:
Additions to real estate accounted for using the
operating method (66,038) (118,665)
Additions to real estate accounted for using the direct
financing method (4,889) (25,177)
Proceeds from the sale of real estate 5,570 18,093
Investment in partnership - (855)
Increase in other assets (2,316) (707)
Other 10 (346)
--------- ---------
Net cash used in investing activities (67,663) (127,657)
--------- ---------
Cash flows from financing activities:
Proceeds from line of credit payable 69,400 126,800
Repayment of line of credit payable (116,000) (91,629)
Proceeds from notes payable 99,729 -
Repayment of mortgages payable (1,243) -
Payment of debt costs (1,164) (511)
Proceeds from issuance of common stock 19,858 96,216
Payment of stock issuance costs (1,103) (3,062)
Payment of dividends (26,570) (20,265)
Other (415) 8
--------- ---------
Net cash provided by financing activities 42,492 107,557
--------- ---------
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE>
COMMERCIAL NET LEASE REALTY, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
(dollars in thousands)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
1998 1997
---------- ---------
<S> <C> <C>
Net increase in cash and cash equivalents 3,664 3,912
Cash and cash equivalents at beginning of period 2,160 1,410
--------- --------
Cash and cash equivalents at end of period $ 5,824 $ 5,322
========= ========
Supplemental schedule of non-cash investing and
financing activities:
Issued 220,000 shares of common stock in connection
with acquisition of the Company's advisor $ 3,933 $ -
========= ========
Net assets acquired in connection with the acquisition
of the Company's advisor $ 12 $ -
========= ========
Contribution of land and building to
unconsolidated partnership $ - $ 2,930
========= ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE>
COMMERCIAL NET LEASE REALTY, INC.
And SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Nine months ended September 30, 1998 and 1997
1. Basis of Presentation:
----------------------
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with the instructions to Form 10-Q and
do not include all of the information and note disclosures required by
generally accepted accounting principles. The financial statements
reflect all adjustments, consisting of normal recurring adjustments,
which are, in the opinion of management, necessary for a fair
presentation of the results for the interim periods presented.
Operating results for the quarter and nine months ended September 30,
1998, may not be indicative of the results that may be expected for the
year ending December 31, 1998. Amounts as of December 31, 1997,
included in the financial statements, have been derived from the
audited financial statements as of that date.
These unaudited financial statements should be read in conjunction with
the financial statements and notes thereto included in the Form 10-K of
Commercial Net Lease Realty, Inc. for the year ended December 31, 1997.
The consolidated financial statements include the accounts of
Commercial Net Lease Realty, Inc. and its wholly-owned subsidiaries
(the "Company"). All significant intercompany accounts and transactions
have been eliminated in consolidation.
Basic earnings per share are calculated based upon the weighted average
number of common shares outstanding during each period and diluted
earnings per share are calculated based upon weighted average number of
common shares outstanding plus dilutive potential common shares.
In June 1997, the Financial Accounting Standards Board issued Statement
of Accounting Standard No. 131, "Disclosures about Segments of an
Enterprise and Related Information." The Statement which is effective
for periods beginning after December 15, 1997, requires reporting of
financial and descriptive information about reportable operating
segments. Currently, the Company is not structured in reportable
operating segments, and therefore, disclosures to this statement are
not applicable.
In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities." The Statement, which is effective
for all fiscal quarters of fiscal years beginning after June 1, 1999,
establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts, (collectively referred to as derivatives) and for hedging
activities. The Statement requires that an entity recognize all
derivatives as either assets or liabilities in the balance sheet and
measure those instruments at fair value. The Company is currently
reviewing the Statement to see what impact, if any, it will have on the
Company's consolidated financial statements.
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 September 30, 1998, 166 of the leases
have been classified as operating leases and 85 leases have been
classified as direct financing leases. For the leases classified as
direct financing leases, the building portions of the leases are
accounted for as direct financing leases while the land portions of 56
of these leases are accounted for as operating leases. Substantially
all leases have initial terms of 10 to 20 years (expiring between 2000
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.
<PAGE>
3. Real Estate:
------------
Accounted for Using the Operating Method - Land and buildings on
---------------------------------------------
operating leases consisted of the following at (dollars in thousands):
September 30, December 31,
1998 1997
------------- ------------
Land $ 229,606 $ 199,992
Buildings and improvements 243,420 209,272
---------- ----------
473,026 409,264
Less accumulated depreciation (15,843) (12,297)
---------- ----------
457,183 396,967
Construction in progress 12,577 4,010
---------- ----------
$ 469,760 $ 400,977
========== ==========
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 nine months ended September 30, 1998 and
1997, the Company recognized $2,382,000 and $2,012,000, respectively,
of such income, $836,000 and $727,000 of which was recognized for the
quarters ended September 30, 1998 and 1997, respectively.
The following is a schedule of future minimum lease payments to be
received on non-cancellable operating leases at September 30, 1998
(dollars in thousands):
1998 $ 10,691
1999 45,795
2000 46,218
2001 46,962
2002 46,768
Thereafter 527,380
---------
$ 723,814
=========
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.
Accounted for Using the Direct Financing Method - The following lists
-------------------------------------------------
the components of real estate leased to others using the direct
financing method at (dollars in thousands):
September 30, December 31,
1998 1997
------------ ------------
Minimum lease payments
to be received $ 240,160 $ 258,715
Estimated residual values 34,576 35,981
Less unearned income (160,213) (175,949)
---------- ----------
Real estate leased to others
using the direct financing
method $ 114,523 $ 118,747
========== ==========
The following is a schedule of future minimum lease payments to be
received on direct financing leases at September 30, 1998 (dollars in
thousands):
1998 $ 3,483
1999 13,977
2000 14,097
2001 14,134
2002 14,206
Thereafter 180,263
----------
$ 240,160
==========
The above table does not include future minimum lease payments for
renewal periods or contingent rental payments that may become due in
future periods (see Real Estate: Accounted for Using the Operating
Method).
4. Line of Credit Payable:
-----------------------
In August 1997, the Company entered into an amended and restated loan
agreement for a $200,000,000 revolving credit facility (the "Credit
Facility") which expires on June 30, 1999. As of September 30, 1998 and
December 31, 1997, the outstanding principal balance was $68,500,000
and $115,100,000, respectively, plus accrued interest of $284,000 and
$552,000, respectively.
For the nine months ended September 30, 1998, interest cost incurred on
the Credit Facility was $3,121,000, of which $779,000 was capitalized,
and $2,342,000 which was charged to operations. For the nine months
ended September 30, 1997, interest cost incurred on the Credit Facility
was $5,328,000, all of which was charged to operations.
5. Notes Payable:
--------------
In March 1998, the Company filed a prospectus supplement to its
$300,000,000 shelf registration statement and issued $100,000,000 of
7.125% Notes due 2008 (the "Notes"). The Notes are senior, unsecured
obligations of the Company and are subordinated to all secured
indebtedness of the Company. The Notes were sold at a discount for an
aggregate purchase price of $99,729,000 with interest payable
semiannually commencing on September 15, 1998. The Notes are redeemable
at the option of the Company, in whole or in part, at a redemption
price equal to the sum of (i) the principal amount of the Notes being
redeemed plus accrued interest thereon through the redemption date and
(ii) the Make-Whole Amount, as defined in the Supplemental Indenture
No. 1 dated March 25, 1998 for the Notes.
In connection with the debt offering, the Company incurred debt
issuance costs totaling $1,208,000, consisting primarily of
underwriting discounts and commissions, legal and accounting fees,
rating agency fees and printing expenses. Debt issuance costs have been
deferred and are being amortized over the term of the Notes using the
effective interest method. The net proceeds from the debt offering were
used to pay down outstanding indebtedness of the Company's Credit
Facility.
6. Employee Benefit Plan:
----------------------
Effective January 1, 1998, the Company adopted a defined contribution
plan (the "Retirement Plan") covering substantially all of the
employees of the Company. The Retirement Plan permits participants to
defer up to a maximum of 15% of their Compensation, as defined in the
Retirement Plan, subject to limits established by the Internal Revenue
Code. The Company matches 50% of the participants' contributions up to
a maximum of 6% of a participant's annual compensation. The Company's
contribution to the Retirement Plan for the quarter and nine months
ended September 30, 1998, totaled $21,000 and $49,000, respectively.
<PAGE>
7. Earnings Per Share:
-------------------
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 128, "Earnings Per Share," which provides for
a revised computation of earnings per share effective for fiscal years
ending after December 15, 1997. Pursuant to the Statement, all
comparative earnings per share amounts have been restated.
The following represents the amounts used in computing earnings per
share and the effect on the weighted average number of shares of
dilutive potential common stock for:
<TABLE>
<CAPTION>
The quarter ended The nine months ended
September 30, September 30,
1998 1997 1998 1997
------------ ------------ ------------- --------
<S> <C> <C> <C> <C>
Basic Earnings Per Share:
Net earnings $ 9,951,000 $ 7,622,000 $ 23,854,000 $ 21,575,000
============ ============ ============= ============
Weighted average number of
shares outstanding 29,312,599 23,826,352 29,007,688 23,033,721
Merger contingent shares 14,146 - 4,767 -
------------ ------------ ------------- -------------
Weighted average number of
shares outstanding used in
basic earnings per share 29,326,745 23,826,352 29,012,455 23,033,721
============ ============ ============= =============
Basic earnings per share $ 0.34 $ 0.32 $ 0.82 $ 0.94
============ =========== ============= =============
Diluted Earnings Per Share:
Net earnings $ 9,951,000 $ 7,622,000 $ 23,854,000 $ 21,575,000
============ ============ ============= ============
Weighted average number of
shares outstanding 29,312,599 23,826,352 29,007,688 23,033,721
Effect of dilutive securities:
Stock options 92,623 164,069 175,303 146,245
Merger contingent shares 57,813 - 19,271 -
------------ ------------ ------------- -------------
Weighted average number of
shares outstanding used in
diluted earnings per share 29,463,035 23,990,421 29,202,262 23,179,966
============ ============ ============= =============
Diluted earnings per share $ 0.34 $ 0.32 $ 0.82 $ 0.93
============ =========== ============= =============
</TABLE>
For the quarter and nine months ended September 30, 1998, options on
859,000 shares of common stock were not included in computing diluted
earnings per share because their effects were antidilutive.
8. Merger Transaction:
-------------------
On December 18, 1997, the Company's stockholders voted to approve an
agreement and plan of merger with CNL Realty Advisors, Inc. (the
"Advisor"), whereby the stockholders of the Advisor agreed to exchange
100% of the outstanding shares of common stock of the Advisor for up to
2,200,000 shares (the "Share Consideration") of the Company's common
stock (the "Merger"). As a result, the Company became a fully
integrated, self-administered real estate investment trust ("REIT")
effective January 1, 1998. Ten percent of the Share Consideration
(220,000 shares) was paid January 1, 1998, and the balance (the "Share
Balance") of the Share Consideration is to be paid over time to the
extent the Company expands its operations after the Merger. The market
value of the common shares issued on January 1, 1998 was $3,933,000 of
which $12,000 was allocated to the net tangible assets acquired and the
difference of $3,921,000 was accounted for as expenses incurred in
acquiring the Advisor from a related party. In addition, in connection
with the Merger, the Company incurred costs totaling $771,000
consisting primarily of legal and accounting fees, directors'
compensation and fairness opinions. For accounting purposes, the
Advisor was not considered a "business" for purposes of applying APB
Opinion No. 16, "Business Combinations," and therefore, the market
value of the common shares issued in excess of the fair value of the
net tangible assets acquired was charged to operations rather than
capitalized as goodwill.
In connection with the property acquisitions during the quarter ended
September 30, 1998, on October 1, 1998, 57,813 shares of the Share
Balance became issuable to the stockholders of the Advisor. The market
value of the issuable shares is $809,000, all of which is to be charged
to operations during the quarter ending December 31, 1998. To the
extent the remaining Share Balance is paid over time, the market value
of the common shares issued will also be charged to operations.
Upon consummation of the Merger on January 1, 1998, all employees of
the Advisor became employees of the Company, and any obligation to pay
fees under the advisor agreement between the Company and the Advisor
was terminated.
9. Related Party Transactions:
---------------------------
The Company manages Net Lease Institutional Realty, L.P. (the
"Partnership"), in which the Company holds a 20 percent equity
interest. Pursuant to a management agreement, the Partnership paid the
Company $163,000 in asset management fees during the nine months ended
September 30, 1998.
During the nine months ended September 30, 1998, the Company provided
certain development services for an affiliate of a member of the board
of directors. In connection therewith, the Company received $1,806,000
in development fees relating to these services.
10. Commitments and Contingencies:
------------------------------
As of September 30, 1998, the Company had entered into agreements to
purchase ten additional properties for an estimated aggregate purchase
price of $7,556,000.
As of September 30, 1998, the Company owned and leased two land parcels
to a tenant who is obligated to develop a building on each land parcel.
The Company has agreed to acquire the completed buildings for an amount
of up to $1,469,000, at which time rental income is to increase for
each of the properties.
As of September 30, 1998, the Company owned nine land parcels subject
to lease agreements with tenants whereby the Company has agreed to
construct a building on each of the respective land parcels for
aggregate construction costs of approximately $15,318,000, of which
$9,940,000 of costs had been incurred at September 30, 1998. Pursuant
to the lease agreements, rent is to commence on the properties upon
completion of construction of the buildings.
11. Subsequent Event:
-----------------
In October 1998, the Company declared dividends to its shareholders of
$9,103,000 or $0.31 per share of common stock, payable in November
1998.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Introduction
- ------------
Commercial Net Lease Realty, Inc. (the "Company") is a fully integrated,
self-administered real estate investment trust that acquires, owns, develops and
manages high-quality, freestanding properties leased to major retail businesses
under long-term commercial net leases. As of September 30, 1998, the Company
owned, either directly or through a partnership interest, 263 properties (the
"Properties") substantially all of which are leased to major retail businesses.
Liquidity and Capital Resources
- -------------------------------
General. Historically, the Company's only demand for funds has been for the
payment of operating expenses and dividends, for property acquisitions and for
the payment of interest on its outstanding indebtedness. Generally, cash needs
for items other than property acquisitions have been met from operations and
property acquisitions have been funded by equity and debt offerings, bank
borrowings and, to a lesser extent, from internally generated funds. Potential
future sources of capital include proceeds from public or private offerings 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 nine months ended September 30, 1998 and 1997,
the Company generated $28,835,000 and $24,012,000, respectively, in net cash
provided by operating activities. The increase in cash from operations for the
nine months ended September 30, 1998, as compared to the nine months ended
September 30, 1997, 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 borrowing or other sources of capital in the event of
unforeseen significant capital expenditures.
In January 1998, one of the Company's tenants, HomePlace, filed a voluntary
petition for bankruptcy under Chapter 11 of the U.S. Bankruptcy Code. As a
result, the tenant has the right to reject or affirm its leases with the
Company. In May 1998, HomePlace rejected two of its five leases with the
Company, at which time HomePlace was no longer required to pay rent on these two
leases. As of September 30, 1998, HomePlace continued to lease three Properties
which accounted for four percent of the Company's total rental and earned income
for the nine months ended September 30,1998. In September 1998, one of the
Properties which related to the two leases rejected by HomePlace was re-leased
to Waccamaw Corporation.
The Company also had three vacant Properties relating to the bankruptcy
proceeding of one of the Company's former tenants, Luria's. In August 1998, the
Company re-leased one of the three Properties to The Sports Authority and in
October 1998, the Company re-leased one of the Properties to Ross Dress for
Less.
Indebtedness. In August 1997, the Company entered into an amended and restated
loan agreement for a $200,000,000 revolving credit facility (the "Credit
Facility"). As of September 30, 1998, $68,500,000 was outstanding and
approximately $131,500,000 was available for future borrowings under the Credit
Facility. The Company expects to use the Credit Facility to invest in
freestanding retail properties.
Debt and Equity Securities. In February and March of 1998, the Company issued a
total of 988,172 shares of common stock pursuant to three prospectus supplements
to its $300,000,000 shelf registration statement, and received gross proceeds
totaling $16,962,000. In connection with the three offerings, the Company
incurred stock issuance costs totaling $933,000 consisting primarily of
underwriters' commissions and fees, legal and accounting fees and printing
expenses. Proceeds from the offerings were used to pay down the Company's Credit
Facility.
<PAGE>
During the nine months ended September 30, 1998, the Company received investment
grade ratings from Standard and Poor's, Moody's Investor Service and Fitch IBCA
on its senior, unsecured debt. In March 1998, the Company filed a prospectus
supplement to its $300,000,000 shelf registration and issued $100,000,000 of
7.125% Notes due 2008 (the "Notes"). The Notes are senior, unsecured obligations
of the Company subordinated to all of the Company's secured indebtedness. The
Notes were sold at a discount for an aggregate purchase price of $99,729,000.
In connection with the debt offering, the Company incurred debt issuance costs
totaling $1,208,000, consisting primarily of underwriting discounts and
commissions, legal and accounting fees, rating agency fees and printing
expenses. The net proceeds from the debt offering were used to pay down
outstanding indebtedness of the Company's Credit Facility.
Effective July 10, 1998, the shareholders approved an amendment to the Company's
Articles of Incorporation to authorize the issuance of up to 15,000,000 shares
of preferred stock, par value $0.01 per share, which may be issued in various
classes with different characteristics as determined by the Board of Directors.
On September 29, 1998, the Company filed a shelf registration statement with the
Securities and Exchange Commission which permits the issuance by the Company of
up to $300,000,000 in debt and equity securities (which includes approximately
$112,000,000 of unissued debt and equity securities under the Company's previous
$300,000,000 shelf registration statement).
Property Acquisitions and Commitments. During the nine months ended September
30, 1998, the Company borrowed $69,400,000 under its credit facility (i) to
acquire 23 properties, ten of which are land only parcels currently under
construction, (ii) to purchase one building constructed by the tenant on a land
parcel owned by the Company and (iii) to complete construction of seven
buildings by the Company on previously acquired land parcels. The 23 properties
include nine Eckerd drug stores, three Good Guys consumer electronic stores, two
Pier I Imports home furnishing stores, two OfficeMax office supply stores, one
Best Buy consumer electronics store, one Bed, Bath & Beyond home furnishing
store, one Michael's hobby and craft store, one Wendy's fast food restaurant,
one Sports Authority sporting goods store, one PETsMART pet supply store and one
Dave and Buster's restaurant and entertainment center. The eight buildings
include four Eckerd drug stores, two OfficeMax office supply stores, one Pier 1
Imports home furnishing store and one Waccamaw home furnishing store.
As of September 30, 1998, the Company owned and leased two land parcels to a
tenant who is obligated to develop a building on each land parcel. The Company
has agreed to acquire the completed buildings for an amount of up to $1,469,000,
at which time rental income is to increase for each of the Properties.
As of September 30, 1998, the Company had entered into agreements to purchase
ten additional properties for an estimated aggregate amount of $7,556,000. 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.
As of September 30, 1998, the Company owned nine land parcels subject to lease
agreements with tenants whereby the Company has agreed to construct a building
on each of the land parcels for an aggregate amount of approximately
$15,318,000, of which $9,940,000 of costs had been incurred at September 30,
1998. Pursuant to the lease agreements, rent is to commence on the properties
upon completion of construction of the buildings.
In addition to the ten properties under contract and the 11 buildings under
construction as of September 30, 1998, the Company is currently negotiating the
acquisition of a number of prospective properties. The Company may elect to
acquire these prospective properties or other additional properties (or
interests therein) in the future. Such property acquisitions are expected to be
the primary demand for additional capital in the future. The Company anticipates
that it may engage in equity or debt financing, through either public or private
offerings of its securities for cash, issuance of such securities in exchange
for assets, or a combination of the foregoing. Subject to the constraints
imposed by the Company's $200,000,000 Credit Facility and long-term, fixed rate
financing, the Company may enter into additional financing arrangements.
In September 1998, the Company sold five of its Properties for a total of
$5,740,000 and received net sales proceeds of $5,570,000. The Company recognized
a gain on the sale of these five Properties of $1,288,000 for financial
reporting purposes. The Company plans to reinvest the proceeds to acquire
additional properties and structured the transactions to qualify as tax-free
like-kind exchange transactions for federal income tax purposes.
<PAGE>
Merger Transaction. On December 18, 1997, the Company's stockholders voted to
approve an agreement and plan of merger with CNL Realty Advisors, Inc. (the
"Advisor"), whereby the stockholders of the Advisor to exchange 100% of the
outstanding shares of common stock of the Advisor for up to 2,200,000 shares
(the "Share Consideration") of the Company's common stock (the "Merger"). As a
result, the Company became a fully integrated, self administered real estate
investment trust ("REIT") effective January 1, 1998. Ten percent of the Share
Consideration (220,000 shares) was paid January 1, 1998, and the balance (the
"Share Balance") of the Share Consideration will be paid over time to the extent
the Company expands its operations after the Merger. In connection with the
property acquisitions during the quarter ended September 30, 1998, on October 1,
1998, 57,813 shares of the Share Balance became issuable to the stockholders of
the Advisor. The market value of the issuable shares is $809,000, all of which
is to be charged to operations during the quarter ending December 31, 1998. To
the extent the remaining Share Balance is paid over time, the market value of
the common shares issued will also be charged to operations. Upon consummation
of the Merger on January 1, 1998, all employees of the Advisor became employees
of the Company and any obligation to pay fees under the advisor agreement
between the Company and the Advisor was terminated.
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 and
maintaining its status as a real estate investment trust, is to distribute a
substantial portion of its funds available from operations to its stockholders
in the form of dividends. For the nine months ended September 30, 1998 and 1997,
the Company declared and paid dividends to its stockholders of $26,570,000 and
$20,265,000, respectively, or $0.92 and $0.90, respectively, per share of common
stock. In October 1998, the Company declared dividends to its shareholders of
$9,103,000 or $0.31 per share of common stock, payable in November 1998.
Results of Operations
- ---------------------
As of September 30, 1998 and 1997, the Company owned 254 and 225 wholly-owned
Properties, respectively, 251 and 225, respectively, of which were leased to
operators of major retail businesses. In addition, during the nine months ended
September 30, 1998, the Company leased five Properties which were sold during
1998. During the nine months ended September 30, 1997, the Company leased one
Property which was contributed to a partnership in which the Company holds a 20
percent equity interest and five Properties which were sold during 1997. In
connection therewith, during the nine months ended September 30, 1998 and 1997,
the Company earned $44,024,000 and $36,242,000, respectively, in rental income
from operating leases, earned income from direct financing leases and contingent
rental income ("Rental Income"), $ 15,169,000 and $13,236,000 of which was
earned during the quarters ended September 30, 1998 and 1997, respectively. The
increase in Rental Income during the nine months ended September 30, 1998, is
primarily a result of the facts that (i) the 47 Properties acquired and three
buildings upon which construction was completed during 1997 were operational for
the full nine months in 1998 and (ii) the Company acquired 23 Properties and
eight buildings upon which construction was completed during the nine months
ended September 30, 1998. The increase in Rental Income was partially offset by
a decrease in Rental Income relating to five Properties which became vacant
during the nine months ended September 30, 1998. Rental Income is expected to
increase as the Company acquires additional properties and due to the fact that
the 23 Properties and eight of the buildings acquired during the nine months
ended September 30, 1998, will contribute to the Company's income for a full
fiscal quarter in future quarters. In addition, the Company has re-leased three
of its five vacant Properties.
During the nine months ended September 30, 1998, the Company earned $1,969,000
in development and asset management fees, $527,000 of which was earned during
the quarter ended September 30, 1998. No development and asset management fees
were earned during 1997. The Company began providing development and asset
management services on January 1, 1998 in connection with the Merger of the
Company's Advisor.
During the nine months ended September 30, 1998 and 1997, operating expenses,
excluding interest and including depreciation and amortization, were $14,979,000
and $6,603,000, respectively (32.2% and 18.2%, respectively, of gross operating
revenues) of which $3,942,000 and $2,296,000 (24.9% and 17.3%, respectively, of
gross operating revenues) were incurred for the quarters ended September 30,
1998 and 1997, respectively. The increase in operating expenses for the nine
months ended September 30, 1998, as compared to the nine months ended September
30, 1997, is primarily attributable to a $4,692,000 charge related to the costs
incurred in acquiring the Advisor from a related party. Operating expenses for
the nine months ended September 30, 1998, excluding the costs relating to the
acquisition of the Advisor, were $10,287,000 (22.1 % of gross operating
revenues). The costs relating to the acquisition of the Advisor were incurred
during the quarter ended March 31, 1998 and did not affect operating expenses
for the quarter ended September 30, 1998. The increase for the quarter and nine
months ended September 30, 1998, as compared to the quarter and nine months
ended September 30, 1997, is also attributable to the increase in depreciation
expense as a result of the additional Properties acquired during the nine months
ended September 30, 1998, and a full nine months of depreciation expense
relating to the 47 Properties and three buildings acquired during 1997. In
addition, during the quarter and nine months ended September 30, 1997, the
Company paid an advisory fee to the Advisor. During the quarter and nine months
ended September 30, 1998, the advisory fee was replaced with the actual
personnel and other operating costs associated with being internally managed.
The increase in actual personnel and other operating costs as compared to the
advisory fee is attributable to the increase in the Company's asset size and the
commencement of development, asset management and property management services.
In accordance with generally accepted accounting principles, certain costs
relating to development activities have been capitalized.
The Company recognized $9,175,000 and $8,603,000 in interest expense for the
nine months ended September 30, 1998 and 1997, respectively, $3,307,000 and
$3,509,000 of which was expensed for the quarters ended September 30, 1998 and
1997, respectively. Interest expense increased during the nine months ended
September 30, 1998, primarily as a result of interest expense related to the
Notes issued in March 1998. However, the increase was partially offset by a
decrease in the average interest rates and average borrowing levels of the
Company's Credit Facility. Interest expense decreased for the quarter ended
September 30, 1998 as a result of a decrease in the average interest rates and
average borrowing levels of the Company's Credit Facility. However, the decrease
was partially offset by the interest expense related to the Notes issued in
March 1998.
The Year 2000 problem concerns the inability of information and non-information
technology systems to properly recognize and process date-sensitive information
beyond January 1, 2000. The Company's information technology system consists of
a network of personal computers and servers built using hardware and software
from mainstream suppliers. The Company's non-information technology systems are
primarily facility related and include building security systems, elevators,
fire suppressions, HVAC, electrical systems and other utilities. The Company has
no internally generated programmed software coding to correct, as substantially
all of the software utilized by the Company is purchased or licensed from
external providers.
In early 1998, the Company formed a Year 2000 committee (the "Y2K Team") for the
purpose of identifying, understanding and addressing the various issues
associated with the Year 2000 problems. The Y2K Team consists of members from
the Company and its affiliates, including representatives from senior
management, information systems, telecommunications, legal, office management,
accounting and property management. The Y2K Team's initial step in assessing the
Company's Y2K readiness consists of identifying any systems that are
date-sensitive and, accordingly, could have potential Y2K problems. The Y2K Team
is in the process of conducting inspections, interviews and tests to identify
which of the Company's systems could have a potential Y2K problem.
The Company's information system is comprised of hardware and software
applications from mainstream suppliers; accordingly, the Y2K Team is in the
process of contacting the respective vendors and manufacturers to verify the Y2K
compliance of their products. In addition, the Y2K Team has also requested and
is evaluating documentation from other companies with which the Company has a
material third party relationship, including the Company's tenants, major
vendors, financial institutions and the Company's transfer agent. The Company
depends on its tenants for rents and cash flows, its financial institutions for
availability of cash and financing and its transfer agent to maintain and track
investor information. Although the Company continues to receive positive
responses from its third party relationships regarding their Y2K compliance, the
Company cannot be assured that the tenants, financial institutions, transfer
agent and other vendors have adequately considered the impact of the Year 2000.
The Company has identified and has implemented upgrades for certain hardware
equipment. In addition, the Company has identified certain software applications
which will require upgrades to become Year 2000 compliant. The Company expects
all of these upgrades as well as any other necessary remedial measures on the
information technology systems used in the business activities and operations of
the Company to be completed by September 30, 1999. The Company does not expect
the aggregate cost of the Year 2000 remedial measures to exceed $50,000.
Based upon the progress the Company has made in addressing its Year 2000 issues
and its plan and timeline to complete its compliance program, the Company does
not foresee significant risks associated with its Year 2000 compliance at this
time. The Company plans to address its significant Year 2000 issues prior to
being affected by them; therefore, it has not developed a comprehensive
contingency plan. However, if the Company identifies significant risks related
to its Year 2000 compliance or if its progress deviates from the anticipated
timeline, the Company will develop contingency plans as deemed necessary at that
time.
In June 1997, the Financial Accounting Standards Board issued Statement of
Accounting Standard No. 131, "Disclosures about Segments of an Enterprise and
Related Information." The Statement which is effective for periods beginning
after December 15, 1997, requires reporting of financial and descriptive
information about reportable operating segments. Currently, the Company is not
structured in reportable operating segments, and therefore, disclosures to this
statement are not applicable.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities." The Statement, which is effective for all fiscal
quarters of fiscal years beginning after June 1, 1999 establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, (collectively referred to as
derivatives) and for hedging activities. The Statement requires that an entity
recognize all derivatives as either assets or liabilities in the balance sheet
and measure those instruments at fair value. The Company is currently reviewing
the Statement to see what impact, if any, it will have on the Company.
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.
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
As previously reported in the Form 10-K for the year ended
December 31, 1997, the Company was a defendant in a lawsuit
filed on December 20, 1994, in the Circuit Court, Knox County,
Tennessee and the Circuit Court, Green County, Tennessee, by
the surviving spouse of a patron of the Company's Property in
Tusculum, Tennessee. On August 7, 1998 and August 11, 1998,
the respective judges presiding over the cases filed in Knox
County and Greene County, Tennessee entered orders dismissing
the Company as a defendant.
The Company is not a party to any other pending legal
proceedings, which, in the opinion of the Company and its
general counsel, is likely to have a material adverse effect
upon the Company's business or financial condition.
Item 2. Changes in Securities and Use of Proceeds.
Effective July 10, 1998, the shareholders approved an
amendment to the Company's Articles of Incorporation to
authorize the issuance of up to 15,000,000 shares of preferred
stock, par value $0.01 per share, which may be issued in
various classes with different characteristics as determined
by the Board of Directors.
.
Item 3. Defaults Upon Senior Securities. Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders.
Not applicable.
Item 5. Other Information. Not applicable.
Item 6. Exhibits and Reports on Form 8-K.
(a) The following exhibits are filed as a part of this
report.
3.1 Articles of Incorporation of the Registrant
(filed as Exhibit 3.3(i) to the Registrant's
Registration Statement No. 1-11290 on Form
8-B, and incorporated herein by reference).
3.2 Bylaws of the Registrant(filed as Exhibit
3.3(ii) to Amendment No.2 to the
Registrant's Registration Statement No.
1-11290 on Form 8-B, and incorporated herein
by reference).
3.3 Articles of Amendment to the Articles of
Incorporation of Registrant (filed as
Exhibit 3.3 to the Registrant's Form 10-Q
for the quarter ended September 30, 1996,
and incorporated herein by reference).
3.4 Articles of Amendment to the Articles of
Incorporation of the Registrant (filed as
Exhibit 3.4 to the Registrant's Current
Report on Form 8-K dated February 18, 1998,
and filed with the Securities and Exchange
Commission on February 19, 1998, and
incorporated herein by reference).
3.5 First Amended and Restated Articles of
Incorporation of the Registrant (filed as
Exhibit 3.1 to the Registrant's Registration
Statement No. 333-64511 on Form S-3, and
incorporated herein by reference).
4.1 Specimen Certificate of Common Stock, par
value $0.01 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).
4.2 Form of Indenture dated March 25, 1998, by
and among Registrant and First Union
National Bank, Trustee, relating to
$100,000,00 of 7.125% Notes due 2008 (filed
as Exhibit 4.1 to the Registrant's Current
Report on Form 8-K dated March 20, 1998, and
incorporated herein by reference.)
4.3 Form of Supplement Indenture No. 1 dated
March 25, 1998, by and among Registrant and
First Union National Bank, Trustee, relating
to $100,000,000 of 7.125% Notes due 2008
(filed as Exhibit 4.2 to the Registrant's
Current Report on Form 8-K dated March 20,
1998, and incorporated herein by reference.)
4.4 Form of 7.125% Note due 2008 (filed as
Exhibit 4.3 to the Registrant's Current
Report on Form 8-K dated March 20, 1998, 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 September 30,
1992, and incorporated herein by reference).
10.2 Advisory Agreement between Registrant and
CNL Realty Advisors, Inc. effective as of
April 1, 1993 (filed as Exhibit 10.04
to Amendment No. 1 to the Registrant's
Registration Statement No. 33-61214 on
Form S-2, and incorporated herein by
reference).
10.3 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 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).
10.5 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).
10.6 Mortgage and Security Agreement, dated
December 14, 1995, among Registrant and
Principal Mutual Life Insurance Company
relating to a $13,150,000 loan (filed as
Exhibit 10.16 to the Registrant's Current
Report on Form 8-K dated January 18, 1996,
and incorporated herein by reference).
10.7 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).
10.8 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).
10.9 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).
10.10 Second Renewal and Modification Promissory
Note, date September 3, 1996, by and among
Registrant and First Union National Bank of
Florida, as the Agent, relating to a
$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).
10.11 Agreement and Plan of Merger dated May 15,
1997, by and among Commercial Net Lease
Realty, Inc. and Net Lease Realty II, Inc.
and CNL Realty Advisors, Inc. and the
Stockholders of CNL Realty Advisors, Inc.
(filed as Exhibit 10.1 to the Registrant's
Current Report on Form 8-K dated May 16,
1997, and incorporated herein by reference).
10.12 Fourth Amended and Restated Line of Credit
and Security Agreement, dated August 6,
1997, by and among Registrant, certain
lenders and First Union National Bank, as
the Agent, relating to a $200,000,000 loan
(filed as Exhibit 10 to the Registrant's
Current Report on Form 8-K dated September
12, 1997, and incorporated herein by
reference).
(b) No reports on Form 8-K were filed during the quarter ended
September 30, 1998.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DATED this 16th day of November, 1998.
COMMERCIAL NET LEASE REALTY, INC.
By: /s/ Gary M. Ralston
-------------------
Gary M. Ralston
President
By: /s/ Kevin B. Habicht
--------------------
Kevin B. Habicht
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial informaiton extracted from the balance
sheet of Commercial Net Lease Realty, Inc. at September 30, 1998, and its
statement of earnings for the nine months then ended and is qualified in its
entirety by reference to the Form 10-Q of Commercial Net Lease Realty, Inc. for
the nine months ended September 30, 1998.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 5,824,000
<SECURITIES> 0
<RECEIVABLES> 2,541,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 485,603,000
<DEPRECIATION> 15,843,000
<TOTAL-ASSETS> 612,098,000
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 0
0
0
<COMMON> 294,000
<OTHER-SE> 381,982,000
<TOTAL-LIABILITY-AND-EQUITY> 612,098,000
<SALES> 0
<TOTAL-REVENUES> 46,447,000
<CGS> 0
<TOTAL-COSTS> 14,979,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 9,175,000
<INCOME-PRETAX> 23,854,000
<INCOME-TAX> 0
<INCOME-CONTINUING> 23,854,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 23,854,000
<EPS-PRIMARY> 0.82
<EPS-DILUTED> 0.82
<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>
