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 June 30, 1999
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________.
Commission File Number 0-12989
COMMERCIAL NET LEASE REALTY, INC.
(exact name of registrant as specified in its charter)
Maryland 56-1431377
(State or other jurisdiction (I.R.S. Employment
of incorporation or Identification No.)
organization)
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.
30,331,314 shares of Common Stock, $0.01 par value, outstanding as of August 12,
1999 .
<PAGE>
COMMERCIAL NET LEASE REALTY, INC.
and SUBSIDIARIES
CONTENTS
Part I
Item 1. Financial Statements: Page
----
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.........................................14
Item 3. Quantitative and Qualitative Disclosures About Market Risk .......19
Part II
Other Information.........................................................20
<PAGE>
CONDENSED CONSOLIDATED BALANCE SHEETS
(dollars in thousands, except per share data)
ASSETS June 30, December 31,
1999 1998
------------ ------------
Real estate:
Accounted for using the operating method,
net of accumulated depreciation $ 543,286 $ 519,948
Accounted for using the direct financing
method 130,634 138,809
Investment in unconsolidated subsidiary 5,447 -
Investment in partnership 3,847 3,850
Mortgages receivable 7,460 -
Mortgage receivable from unconsolidated
subsidiary 12,642 -
Cash and cash equivalents 5,416 1,442
Receivables 2,457 3,532
Accrued rental income 11,028 10,395
Debt costs, net of accumulated amortization
of $2,845 and $2,559 2,950 2,282
Other assets 1,848 5,337
------------ ------------
Total assets $ 727,015 $ 685,595
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Line of credit payable $ 71,500 $ 138,100
Mortgages payable 54,164 55,063
Notes payable, net of unamortized
discount of $636 and $256,
respectively, and unamortized interest
rate hedge gain of $2,666 in 1999 202,030 99,744
Accrued interest payable 2,642 2,646
Accounts payable and accrued expenses 3,318 5,343
Rents received in advance 1,150 809
------------ ------------
Total liabilities 334,804 301,705
------------ ------------
Commitments and contingencies (Note 11)
Stockholders' equity:
Preferred stock, $0.01 par value.
Authorized 15,000,000 shares at June
30, 1999 and December 31, 1998; none
issued or outstanding - -
Common stock, $0.01 par value.
Authorized 90,000,000 shares; issued
and outstanding 30,331,314 and
29,521,089 shares at June 30, 1999 and
December 31, 1998, respectively 303 295
Excess stock, $0.01 par value. Authorized
105,000,000 shares at June 30, 1999 and
December 31, 1998; none issued or
outstanding - -
Capital in excess of par value 396,769 386,755
Accumulated dividends in excess of net
earnings (4,861) (3,160)
------------ ------------
Total stockholders' equity 392,211 383,890
------------ ------------
$ 727,015 $ 685,595
============ ============
See accompanying notes to condesnsed consolidated financial statements.
<PAGE>
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(dollars in thousands, except per share data)
Quarter Ended Six Months Ended
June 30, June 30,
1999 1998 1999 1998
---------- --------- ---------- ----------
Revenues:
Rental income from
operating leases $ 14,404 $ 10,775 $ 28,259 $ 22,113
Earned income from direct
financing leases 3,494 3,067 7,138 6,300
Contingent rental income 300 244 433 442
Development and asset
management fees from
related parties 460 1,019 1,504 1,442
Interest and other 494 146 648 329
---------- --------- ---------- ----------
19,152 15,251 37,982 30,626
---------- --------- ---------- ----------
Expenses:
General operating and
administrative 1,865 1,290 4,204 2,859
Real estate expenses 78 66 176 259
Interest 5,357 2,868 10,134 5,868
Depreciation and
amortization 2,060 1,655 4,053 3,227
Expenses incurred in
acquiring advisor from
related party 3,239 - 8,167 4,692
---------- --------- ---------- ----------
12,599 5,879 26,734 16,905
---------- --------- ---------- ----------
Earnings before equity in
earnings of unconsolidated
partnership and
unconsolidated subsidiary,
and gain on sale of
real estate 6,553 9,372 11,248 13,721
Equity in earnings of
unconsolidated partnership 94 91 186 182
Equity in earnings of
unconsolidated subsidiary (253) - (253) -
Gain on sale of real estate 741 - 5,784 -
---------- --------- ---------- ----------
Net earnings $ 7,135 $ 9,463 $ 16,965 $ 13,903
========= ========= ========== ==========
Net earnings per share of
common stock:
Basic $ 0.24 $ 0.32 $ 0.56 $ 0.48
========== ========== ========== ==========
Diluted $ 0.23 $ 0.32 $ 0.56 $ 0.48
========== ========== ========== ==========
Weighted average number of
shares outstanding:
Basic 30,369,539 29,223,522 30,205,092 28,852,704
========== ========== ========== ==========
Diluted 30,398,186 29,416,558 30,326,275 29,069,346
========== ========== ========== ==========
See accompanying notes to condensed consolidated financial statements.
<PAGE>
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
Six Months Ended
June 30,
1999 1998
--------- ---------
Cash flows from operating activities:
Net earnings $ 16,965 $ 13,903
Adjustments to reconcile net earnings to
net cash provided by operating
activities:
Depreciation 3,749 2,799
Amortization 304 428
Amortization of notes payable discount 12 6
Amortization of deferred interest rate
hedge gain (13) -
Gain on sale of real estate (5,784) -
Expenses incurred in acquiring advisor
from related party 8,167 4,692
Distributions from unconsolidated
partnership, net of equity in
earnings 1 5
Equity in earnings of unconsolidated
subsidiary 253 -
Decrease in real estate leased to
others using the direct financing
method 883 640
Decrease (increase) in receivables 1,251 (1,005)
Increase in accrued rental income (1,774) (1,517)
Increase in other assets (244) (162)
Increase in accrued interest payable 89 1,462
Increase in accounts payable and
accrued expenses 463 28
Increase (decrease) in rents received
in advance 341 (92)
--------- ----------
Net cash provided by operating
activities 24,663 21,187
--------- ----------
Cash flows from investing activities:
Proceeds from the sale of real estate 40,103 -
Additions to real estate accounted for
using the operating method (67,324) (46,732)
Additions to real estate accounted for
using the direct financing method (1,901) -
Increase in mortgages receivable (3,952) -
Mortgage payments received 58 -
Increase in mortgage receivable from
unconsolidated subsidiary (4,789) -
Increase in other assets (351) (1,679)
Other 486 9
---------- ----------
Net cash used in investing activities (37,670) (48,402)
---------- ----------
Cash flows from financing activities:
Proceeds from line of credit payable 39,300 42,100
Repayment of line of credit payable (105,900) (113,600)
Repayment of mortgages payable (899) (821)
Proceeds from notes payable 99,608 99,729
Proceeds from termination of interest rate
hedge 2,679 -
Payment of debt costs (735) (1,137)
Proceeds from issuance of common stock 1,863 18,461
Payment of stock issuance costs (40) (1,047)
Payment of dividends (18,666) (17,499)
Other (229) (292)
---------- ----------
Net cash provided by financing
activities 16,981 25,894
---------- ----------
Net increase (decrease) in cash and cash
equivalents 3,974 (1,321)
Cash and cash equivalents at beginning of
period 1,442 2,160
----------- ----------
Cash and cash equivalents at end of period $ 5,416 $ 839
========== ==========
Supplemental schedule of non-cash investing
and financing activities:
Issued 658,222 and 220,000 shares of
common stock in 1999 and 1998,
respectively, in connection with the
acquisition of the Company's advisor $ 8,167 $ 3,933
========== ==========
Net assets acquired in connection with the
acquisition of the Company's advisor $ - $ 12
========== ==========
Mortgage note accepted in connection with
sale of real estate $ 3,538 $ -
========== ==========
Real estate and other assets contributed to
unconsolidated subsidiary in exchange for:
Non-voting common stock $ 5,700 $ -
========== ==========
Mortgage receivable $ 8,064 $ -
========== ==========
See accompanying notes to condensed consolidated financial statements.
<PAGE>
COMMERCIAL NET LEASE REALTY, INC.
and SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Six Months Ended June 30, 1999 and 1998
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 six
months ended June 30, 1999, may not be indicative of the results that may be
expected for the year ending December 31, 1999. Amounts as of December 31,
1998, 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, 1998.
The consolidated financial statements include the accounts of a 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 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities." The Statement 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.
In June 1999, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 137, "Accounting for Derivative
Instruments and Hedging Activities - Deferral of the Effective Date of FASB
Statement No. 133, an Amendment of FASB Statement No. 133." Statement No.
137 defers the effective date of Statement No. 133, "Accounting for
Derivative Instruments and Hedging Activities" for one year. Statement No.
133, as amended, is now effective for all fiscal quarters of all fiscal
years beginning after June 15, 2000.
2. Leases:
------
The Company generally leases its land and buildings to operators of major
retail businesses. As of June 30, 1999, 177 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 property leases are accounted for as direct
financing leases while the land portions of 49 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.
3. Real Estate:
-----------
Accounted for Using the Operating Method - Land and buildings on operating
------------------------------------------
leases consisted of the following at (dollars in thousands):
June 30, December 31,
1999 1998
------------- ------------
Land $ 267,797 $ 258,545
Buildings and improvements 290,367 269,225
------------- ------------
558,164 527,770
Less accumulated depreciation (18,533) (17,335)
------------- ------------
539,361 510,435
Construction in progress 3,655 9,513
------------- ------------
$ 543,286 $ 519,948
============= -===========
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 six months ended June 30, 1999 and 1998, the Company
recognized $1,803,000 and $1,546,000, respectively, of such income, $890,000
and $744,000 of which was recognized for the quarters ended June 30, 1999
and 1998, respectively.
The following is a schedule of future minimum lease payments to be received
on non-cancelable operating leases at June 30, 1999 (dollars in thousands):
1999 $ 26,630
2000 54,709
2001 55,572
2002 55,332
2003 55,349
Thereafter 559,222
--------
$806,814
========
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 net investment in direct financing leases at (dollars in
thousands):
June 30, December 31,
1999 1998
------------ ------------
Minimum lease payments to be received $ 262,414 $ 283,185
Estimated residual values 40,709 43,154
Less unearned income (172,489) (187,530)
----------- -----------
Real estate leased to others using the
direct financing method $ 130,634 $ 138,809
=========== ===========
The following is a schedule of future minimum lease payments to be received
on direct financing leases at June 30, 1999 (dollars in thousands):
1999 $ 7,641
2000 15,349
2001 15,381
2002 15,443
2003 15,456
Thereafter 193,144
---------
$ 262,414
=========
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. Investment in Unconsolidated Subsidiary:
---------------------------------------
In May 1999, the Company transferred its build-to-suit development operation
to a 95%-owned, taxable unconsolidated subsidiary (the "Subsidiary"). The
Company contributed $5.7 million of real estate and other assets to the
Subsidiary in exchange for 5,700 shares of non-voting common stock. The
Company accounts for its investment in the Subsidiary using the equity
method. The Company also entered into a mortgage agreement with the
Subsidiary for a $30,000,000 revolving credit facility. The mortgage is
secured by a first lien on the Subsidiary's properties. During the six
months ended June 30, 1999, the Company received from the Subsidiary
$191,000 in interest and fees relating to the mortgage.
5. 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 July 30, 2000. As of June 30, 1999 and December
31, 1998, the outstanding principal balance was $71,500,000 and
$138,100,000, respectively, plus accrued interest of $176,000 and $361,000,
respectively.
For the six months ended June 30, 1999 and 1998, interest cost incurred on
the Credit Facility was $4,800,000 and $2,188,000, respectively, of which
$477,000 and $434,000, respectively, was capitalized, and $4,323,000 and
$1,754,000, respectively, was charged to operations.
6. Notes Payable:
-------------
In June 1999, the Company filed a prospectus supplement to its $300,000,000
shelf registration statement and issued $100,000,000 of 8.125% Notes due
2004 (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 $99,608,000
with interest payable semi-annually commencing on December 15, 1999. The
discount of $392,000 is being amortized as interest expense over the term of
the debt obligation using the effective interest method. In connection with
the debt offering, the Company entered into a treasury rate lock agreement
which fixed a treasury rate of 5.1854% on a notional amount of $92,000,000.
Upon issuance of the Notes, the Company terminated the treasury rate lock
agreement resulting in a gain of $2,679,000. The gain has been deferred and
is being amortized as an adjustment to interest expense over the term of the
Notes using the effective interest method. The effective rate of the Notes,
including the effects of the discount and the treasury rate lock gain, is
7.547%.
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. 2 dated June 21, 1999 for the Notes.
In connection with the debt offering, the Company incurred debt issuance
costs totaling $944,000, 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 of the debt offering were used to pay down outstanding indebtedness
of the Company's Credit Facility.
7. Earnings Per Share:
------------------
The following details the amounts used in computing earnings per share for
The quarter ended The six months ended
June 30, June 30,
1999 1998 1999 1998
----------- ----------- ----------- -----------
Basic Earnings Per
Share:
Net earnings $ 7,135,000 $ 9,463,000 $16,965,000 $13,903,000
=========== =========== =========== ===========
Weighted average
number of shares
outstanding 29,667,539 29,223,522 29,629,587 28,852,704
Merger contingent
shares 702,000 - 575,505 -
----------- ----------- ----------- -----------
Weighted average
number of shares
outstanding used
in basic
earnings
per share 30,369,539 29,223,522 30,205,092 28,852,704
=========== =========== =========== ===========
Basic earnings
per share $ 0.24 $ 0.32 $ 0.56 $ 0.48
=========== =========== =========== ===========
Diluted Earnings Per
Share:
Net earnings $ 7,135,000 $ 9,463,000 $16,965,000 $13,903,000
=========== =========== =========== ===========
Weighted average
number of shares
outstanding 29,667,539 29,223,522 29,629,587 28,852,704
Effect of dilutive
securities:
Stock options 10,171 193,036 7,339 216,642
Merger contingent
shares 720,476 - 689,349 -
---------- ---------- ---------- -----------
Weighted average
number of shares
outstanding used
in diluted
earning
per share 30,398,186 29,416,558 30,326,275 29,069,346
=========== =========== =========== ===========
Diluted earnings
per share $ 0.23 $ 0.32 $ 0.56 $ 0.48
=========== =========== =========== ===========
For the quarter and six months ended June 30, 1999 and 1998, options on
1,477,755 and 654,000 shares of common stock, respectively, 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 percent 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 effective January 1, 1998.
Since the effective date of the Merger, the Company has issued 936,000
shares incurring expenses of $13,668,000, all of which were charged to
operations. In addition, in connection with the property acquisitions during
the quarter ended June 30, 1999, on July 1, 1999, 62,254 shares became
issuable to the stockholders of the Advisor. The market value of the
issuable shares is $794,000, all of which will be charged to operations
during the quarter ended September 30, 1999.
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
$109,000 in asset management fees in each of the six month periods ended
June 30, 1999 and 1998.
During the six months ended June 30, 1999 and 1998, the Company provided
certain development services for an affiliate of a member of the board of
directors. In connection therewith, the Company received $1,351,000 and
$1,333,000, respectively, in development fees relating to these services.
In March 1999, the Company sold 38 of its properties to an affiliate of a
member of the board of directors for a total of $36,568,000 and received net
proceeds of $36,173,000, resulting in a gain of $5,363,000 for financial
reporting purposes.
10. Segment Information:
-------------------
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, "Disclosures about Segments of an
Enterprise and Related Information." This Statement requires that a public
business enterprise report financial and descriptive information about its
reportable operating segments. Operating segments are components of an
enterprise about which separate financial information is available that is
evaluated regularly by the chief operating decision maker in deciding how to
allocate resources and in assessing performance. While the Company does not
have more than one reportable segment as defined by the Statement, the
Company has identified two primary sources of revenue: (i) rental and earned
income from the triple net leases and (ii) fee income from development,
property management and asset management services.
The following tables represent the revenues, expenses and asset allocation
for the two segments and the Company's consolidated totals at (dollars in
thousands):
Rental and
Earned Fee Consolidated
Income Income Corporate Totals
------------ ------------ ------------ ------------
June 30, 1999 and for
the quarter then ended
----------------------
Revenues $ 18,446 $ 706 $ - $ 19,152
Real estate expenses 78 - - 78
Operating expenses 1,517 226 122 1,865
Interest expense 5,357 - - 5,357
Depreciation and
amortization 2,047 9 4 2,060
Expenses incurred in
acquiring advisor
from related party - - 3,239 3,239
Equity in earnings of
unconsolidated
partnership 94 - - 94
Equity in earnings of
unconsolidated
subsidiary - (253) - (253)
Gain on sale of real
estate 741 - - 741
----------- ---------- ---------- ----------
Net earnings $ 10,282 $ 218 $ (3,365) $ 7,135
=========== ========== ========== ==========
Assets $ 726,843 $ 39 $ 133 $ 727,015
=========== ========== ========== ==========
Additions to
long-lived assets:
Real estate $ 44,586 $ - $ - $ 44,586
=========== ========== ========== ==========
Other $ 23 $ - $ 50 $ 73
=========== ========== ========== ==========
June 30, 1998 and for
the quarter then ended
----------------------
Revenues $ 14,133 $ 1,118 $ - $ 15,251
Real estate expenses 66 - - 66
Operating expenses 570 553 167 1,290
Interest expense 2,868 - - 2,868
Depreciation and
amortization 1,651 2 2 1,655
Expenses incurred in
acquiring advisor
from related party - - - -
Equity in earnings of
unconsolidated
partnership 91 - - 91
Equity in earnings of
unconsolidated
subsidiary - - - -
Gain on sale of real
estate - - - -
---------- ---------- ---------- ----------
Net earnings $ 9,069 $ 563 $ (169) $ 9,463
========== ========== ========== ==========
Assets $ 585,385 $ 161 $ 25 $ 585,571
========== ========== ========== ==========
Additions to
long-lived assets:
Real estate $ 5,926 $ - $ - $ 5,926
========== ========== ========== ==========
Other $ 23 $ 16 $ - $ 39
========== ========== ========== ==========
June 30, 1999 and for
the six months then
ended
--------------------
Revenues $ 36,161 $ 1,821 $ - $ 37,982
Real estate expenses 176 - - 176
Operating expenses 3,056 717 431 4,204
Interest expense 10,134 - - 10,134
Depreciation and
amortization 4,006 35 12 4,053
Expenses incurred in
acquiring advisor
from related party - - 8,167 8,167
Equity in earnings of
unconsolidated
partnership 186 - - 186
Equity in earnings of
unconsolidated
subsidiary - (253) - (253)
Gain on sale of real
estate 5,784 - - 5,784
----------- --------- ---------- ----------
Net earnings $ 24,759 $ 816 $ (8,610 $ 16,965
=========== ========= ========== ==========
Assets $ 726,843 $ 39 $ 133 $ 727,015
=========== ========= ========== ==========
Additions to
long-lived assets:
Real estate $ 69,225 - $ - $ 69,225
=========== ========= ========== ==========
Other $ 92 $ 81 $ 31 $ 204
=========== ========= ========== ==========
June 30, 1998 and for
the six months then
ended
---------------------
Revenues $ 28,998 $ 1,628 $ - $ 30,626
Real estate expenses 259 - - 259
Operating expenses 1,578 747 534 2,859
Interest expense 5,868 - - 5,868
Depreciation and
amortization 3,203 19 5 3,227
Expenses incurred in
acquiring advisor
from related party - - 4,692 4,692
Equity in earnings of
unconsolidated
partnership 182 - - 182
Equity in earnings of
unconsolidated
subsidiary - - - -
Gain on sale of real
estate - - - -
----------- --------- ---------- ----------
Net earnings $ 18,272 $ 862 $ (5,231) $ 13,903
=========== ========= ========== ==========
Assets $ 585,385 $ 161 $ 25 $ 585,571
=========== ========= ========== ==========
Additions to
long-lived assets:
Real estate $ 46,732 $ - $ - $ 46,732
========== ========= ========== ==========
Other $ 118 $ 161 $ 25 $ 304
========== ========= ========== ==========
11. Commitments and Contingencies:
-----------------------------
As of June 30, 1999, the Company owned and leased two land parcels to a
tenant which is obligated to develop a building on the respective land
parcels. The Company has agreed to acquire the completed buildings for an
amount of up to $1,371,000, at which time rental income is to increase for
each of the properties.
As of June 30, 1999, the Company owned three 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 $6,002,000, of which $3,565,000 of costs had been
incurred at June 30, 1999. Pursuant to the lease agreements, rent is to
commence on the properties upon completion of construction of the buildings.
During the six months ended June 30, 1999, the Company entered into a
purchase and sale agreement whereby the Company acquired ten land parcels
leased to major retailers and has agreed to acquire the buildings on each of
the respective land parcels at the expiration of the initial term of the
ground lease for an aggregate amount of approximately $23 million. The
seller of the buildings holds a security interest in each of the land
parcels which secures the Company's obligation to purchase the buildings
under the purchase and sale agreement.
12. Subsequent Event:
----------------
In July 1999, the Company declared dividends to its shareholders of
$9,403,000 or $0.31 per share of common stock, payable in August 1999.
<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-administrated 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 June 30, 1999, the
Company owned, either directly or through a partnership interest, 275 properties
(the "Properties") substantially all of which are leased to major retail
businesses.
Liquidity and Capital Resource
- ------------------------------
General. Historically, the Company's only demand for funds has been for the
payment of operating expenses and dividends, for property acquisitions and
development and for the payment of interest on its outstanding indebtedness.
Generally, cash needs for items other than property acquisitions and development
have been met from operations and property acquisitions and development 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 the public or private offering of the Company's debt or
equity securities, secured or unsecured borrowings from banks or other lenders,
or the sale of Properties, as well as undistributed funds from operations. For
the six months ended June 30, 1999 and 1998, the Company generated $24,663,000
and $21,187,000 respectively, in net cash provided by operating activities. The
increase in cash from operations for the six months ended June 30, 1999, as
compared to the six months ended June 30, 1998, is primarily the 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.
Two of the Company's tenants, HomePlace and Luria's, each filed a voluntary
petition for bankruptcy under Chapter 11 of the U.S. Bankruptcy Code in January
1998 and August 1997, respectively. As a result, the tenants have the right to
reject or affirm their 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. In September 1998, one of the
Properties was re-leased to Waccamaw Corporation. During the six months ended
June 30, 1999, HomePlace emerged from bankruptcy and affirmed three of its
leases with the Company. In March 1998, Luria's rejected its three leases with
the Company, at which time Luria's was no longer required to pay rent on these
three leases. Two of these Properties were re-leased in 1998 and one was sold in
March 1999.
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 June 30, 1999, $71,500,000 was outstanding and approximately
$128,500,000 was available for future borrowings under the Credit Facility. The
Company expects to use the Credit Facility to invest in freestanding retail
properties.
Debt Securities. In June 1999, the Company filed a prospectus supplement to its
$300,000,000 shelf registration statement and issued $100,000,000 of 8.125%
Notes due 2004 (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 $99,608,000
with interest payable semi-annually commencing on December 15, 1999.The discount
of $392,000 is being amortized as interest expense over the term of the debt
obligation using the effective interest method. In connection with the debt
offering, the Company entered into a treasury rate lock agreement which fixed a
treasury rate of 5.1854% on a notional amount of $92,000,000. Upon issuance of
the Notes, the Company terminated the treasury rate lock agreement resulting in
a gain of $2,679,000. The gain has been deferred and is being amortized as an
adjustment to interest expense over the term of the Notes using the effective
interest method. The effective rate of the Notes, including the effects of the
discount and the treasury rate lock gain, is 7.547%.
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. 2 dated June 21,
1999 for the Notes.
In connection with the debt offering, the Company incurred debt issuance costs
totaling $944,000, 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 of
the debt offering were used to pay down outstanding indebtedness of the
Company's Credit Facility.
Property Acquisitions and Commitments. During the six months ended June 30,
1999, the Company borrowed $39,300,000 under its Credit Facility (i) to acquire
29 properties, eight of which are land only parcels currently under
construction, (ii) to purchase three buildings constructed by the tenants on
land parcels owned by the Company and (iii) to complete construction of eight
buildings by the Company on previously acquired land parcels. The 29 properties
include seven Wal-Mart discount stores, four Kash `N Karry grocery stores, three
Academy sporting goods stores, three Lucky grocery stores, five Eckerd drug
stores, three Target discount stores, one OfficeMax office supply store, one
Von's grocery store, one Pier 1 Imports home furnishing store and one excess
adjacent land parcel. The 11 buildings include three Eckerd drug stores, two
7-11 convenience stores, two OfficeMax office supply stores, one Good Guys
consumer electronics store, two Pier 1 Imports home furnishing stores, and one
Party City party supply store.
As of June 30, 1999, the Company owned and leased two land parcels to a tenant
which is obligated to develop a building on the respective land parcels. The
Company has agreed to acquire the completed buildings for an amount of up to
$1,371,000, at which time rental income is to increase for each of the
Properties.
As of June 30, 1999, the Company owned three 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 an aggregate amount of approximately
$6,002,000 of which $3,565,000 of costs had been incurred at June 30, 1999.
Pursuant to the lease agreements, rent is to commence on the properties upon
completion of construction of the buildings.
In addition to the five buildings under construction as of June 30, 1999, 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 Credit Facility and
long-term, fixed rate financing, the Company may enter into additional financing
arrangements.
During the six months ended June 30, 1999, the Company sold 42 of its properties
for a total of $44,231,000 and received net sales proceeds of $43,641,000. The
Company recognized a net gain on the sale of these 42 properties of $5,784,000
for financial reporting purposes. The Company plans to reinvest the proceeds
from 41 of these properties to acquire additional properties and structured the
transactions to qualify as tax-free like-kind exchange transactions for federal
income tax purposes.
Investment in Unconsolidated Subsidiary. In May 1999, the Company transferred
its build-to-suit development operation to a 95%-owned, taxable unconsolidated
subsidiary, (the "Subsidiary"). The Company contributed $5.7 million of real
estate and other assets to the Subsidiary in exchange for 5,700 shares of
non-voting common stock. The Company also entered into a mortgage agreement with
the Subsidiary for a $30,000,000 revolving credit facility. The mortgage is
secured by a first lien on the Subsidiary's properties. During the six months
ended June 30, 1999, the Company received from the Subsidiary $191,193 in
interest and fees relating to the mortgage.
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
percent 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 effective January 1, 1998. Since the effective date
of the Merger, the Company has issued 936,000 shares incurring expenses of
$13,668,000, all of which were charged to operations. In addition, in connection
with the property acquisitions during the quarter ended June 30, 1999, on July
1, 1999, 62,254 shares became issuable to the stockholders of the Advisor. The
market value of the issuable shares is $794,000, all of which will be charged to
operations during the quarter ended September 30, 1999.
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 six months ended June 30, 1999 and 1998, the
Company declared and paid dividends to its stockholders of $18,666,000 and
$17,499,000, respectively, or $0.62 and $0.61, respectively, per share of common
stock. In July 1999, the Company declared dividends to its shareholders of
$9,403,000 or $0.31 per share of common stock, payable in August 1999.
Results of Operations
- ---------------------
As of June 30, 1999 and 1998, the Company owned 266 and 254 wholly-owned
Properties, respectively, 262 and 249, respectively, of which were leased to
operators of major retail businesses. In addition, during the six months ended
June 30, 1999, the Company sold 41 properties which were leased during 1999 and
one property which was vacant. In connection therewith, during the six months
ended June 30, 1999 and 1998, the Company earned $35,830,000 and $28,855,000,
respectively, in rental income from operating leases, earned income from direct
financing leases and contingent rental income ("Rental Income"), $18,198,000 and
$14,086,000 of which was earned during the quarters ended June 30, 1999 and
1998, respectively. The increase in Rental Income during the quarter and six
months ended June 30, 1999, is primarily a result of the facts that (i) the 55
Properties acquired and 15 buildings upon which construction was completed
during 1998 were operational for a full quarter and six months in 1999 and (ii)
the Company acquired 29 Properties and 11 buildings upon which construction was
completed during the six months ended June 30, 1999. The increase in Rental
Income was partially offset by a decrease in Rental Income relating to 41 leased
Properties which were sold during the six months ended June 30, 1999. Rental
Income is expected to increase as the Company acquires additional properties and
due to the fact that the 29 Properties and 11 of the buildings acquired during
the six months ended June 30, 1999, will contribute to the Company's income for
a full fiscal quarter in future quarters.
During the six months ended June 30, 1999 and 1998, the Company earned
$1,504,000 and $1,442,000, respectively, in development and asset management
fees, $460,000 and $1,019,000 of which was earned during the quarters ended June
30, 1999 and 1998, respectively. The Company began providing development and
asset management services on January 1, 1998 in connection with the Merger of
the Company's Advisor. The increase in development and asset management fees
during the quarter and six months ended June 30, 1999 is attributable to an
increase in development services provided.
During the six months ended June 30, 1999 and 1998, operating expenses,
excluding interest and including depreciation and amortization, were $16,600,000
and $11,037,000, respectively, (43.7 % and 36.0%, respectively, of total
revenues) $7,242,000 and $3,011,000 (37.8% and 19.7%, respectively, of total
revenues) of which was incurred during the quarters ended June 30, 1999 and
1998, respectively. The increase in the amount of operating expenses for the
quarter and six months ended June 30, 1999, as compared to the quarter and six
months ended June 30, 1998, is primarily attributable to the charges related to
the costs incurred in acquiring the Company's Advisor from a related party.
Operating expenses for the six months ended June 30, 1999 and 1998, excluding
the costs relating to the acquisition of the Advisor were $8,433,000 and
$6,345,000 (22.2% and 20.7%, respectively, of total revenues), $4,003,000 and
$3,011,000 (20.9% and 19.7%, respectively, of total revenues) of which was
incurred during the quarters ended June 30, 1999 and 1998, respectively. The
increase for the quarter and six months ended June 30, 1999, is also
attributable to an increase in actual personnel and other operating costs as a
result of the increase in the Company's asset size and development services. In
accordance with generally accepted accounting principles, certain costs relating
to development activities have been capitalized. The increase for the six months
and quarter ended June 30, 1999, as compared to the six months and quarter ended
June 30, 1998, is also attributable to the increase in depreciation expense as a
result of the additional Properties acquired during the quarter ended June 30,
1999, and a full quarter of depreciation expense relating to the 55 Properties
and 15 buildings acquired during 1998. The increase in depreciation expense was
partially offset by a decrease in depreciation expense related to the sale of 42
properties during the six months ended June 30, 1999.
The Company recognized $10,134,000 and $5,868,000 in interest expense for the
six months ended June 30, 1999 and 1998, respectively, $5,357,000 and $2,868,000
of which was incurred during the quarters ended June 30, 1999 and 1998,
respectively. Interest expense increased during the quarter and six months ended
June 30, 1999, primarily as a result of interest expense related to the Notes
issued in March 1998 and in June 1999. However, the increase was partially
offset by a decrease in the average interest rates of the Company's Credit
Facility.
Year 2000 Compliance. 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. The Y2K Team has also requested and is evaluating the
documentation from its non-information technology system providers. 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 and system
providers 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.
Investment Considerations. 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 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.
In June 1999, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 137, "Accounting for Derivative Instruments
and Hedging Activities-Deferral of the Effective Date of FASB Statement No. 133,
an Amendment of FASB Statement No. 133." Statement No. 137 defers the effective
date of Statement No. 133, "Accounting for Derivative Instruments and Hedging
Activities" for one year. Statement No. 133, as amended, is now effective for
all fiscal quarters of all fiscal years beginning after June 15, 2000.
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 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 Property and the ability of tenants to make payments
under their respective leases.
<PAGE>
ITEM 3 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no material changes in quantitative and qualitative disclosures
about market risk as previously reported in the Form 10-K for the year ended
December 31, 1998.
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
No material developments in legal proceedings as previously reported on
the Form 10-K for the year ended December 31, 1998.
Item 2. Changes in Securities and Use of Proceeds. Not applicable.
Item 3. Defaults Upon Senior Securities. Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders.
On May 18, 1999, the Company held its Annual Meeting of Shareholders
(the) "Annual Meeting"). At the Annual Meeting, the following nominees
were elected to the Board of Directors of the Company: Messrs. Robert A.
Bourne (23,454,365 voted for and 1,936,961 withheld), Edward Clark
(23,480,847 voted for and 1,910,479 withheld), Clifford R. Hinkle
(23,453,665 voted for and 1,937,661 withheld), Ted B. Lanier (23,463,254
voted for and 1,928,072 withheld) and James M. Seneff, Jr. (23,459,555
voted for and 1,931,771 withheld).
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
$100,000,000 of 7.125% Notes due 2008 and $100,000,000 of
8.125% Notes due 2004 (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 Supplemental 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% Notes 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).
4.5 Form of Supplemental Indenture No. 2 dated June 21, 1999, by
and among Registrant and First Union National Bank, Trustee,
relating to $100,000,000 of 8.125% Notes due 2004 (filed as
Exhibit 4.2 to the Registrant's Current Report on Form 8-K
dated June 17, 1999, and incorporated herein by reference).
4.6 Form of 8.125% Notes due 2004 (filed as Exhibit 4.3 to the
Registrant's Current Report on Form 8-K dated June 17, 1999,
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 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).
10.10Second Renewal and Modification Promissory Note, dated
September 3, 1996, by and among Registrant and First Union
National Bank 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).
10.11Agreement 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).
10.12Fourth 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).
27 Financial Data Schedule (filed herewith).
(b) The Registrant filed one report on Form 8-K on June 17, 1999 for
the purpose of incorporating certain items by reference into its
registration statement on Form S-3.
<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 August, 1999.
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 information extracted
from the balance sheet of Commercial Net Lease Realty, Inc. at
June 30, 1999, and its statement of earnings for the six months
ended and is qualified in its entirety by reference to the Form
10-Q of Commercial Net Lease Realty, Inc. for the six months ended
June 30, 1999.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-1-1999
<PERIOD-END> JUN-30-1999
<CASH> 5,416,000
<SECURITIES> 0
<RECEIVABLES> 2,457,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 561,819,000
<DEPRECIATION> 18,533,000
<TOTAL-ASSETS> 727,015,000
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 0
<COMMON> 303,000
0
0
<OTHER-SE> 391,908,000
<TOTAL-LIABILITY-AND-EQUITY> 727,015,000
<SALES> 0
<TOTAL-REVENUES> 19,152,000
<CGS> 0
<TOTAL-COSTS> 7,242,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,357,000
<INCOME-PRETAX> 7,135,000
<INCOME-TAX> 0
<INCOME-CONTINUING> 7,135,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,135,000
<EPS-BASIC> .24
<EPS-DILUTED> .23
<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>
