UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
(Mark One)
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 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 56-1431377
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
455 South Orange Avenue, Suite 700
Orlando, Florida 32801
(Address of principal executive offices, including zip code)
Registrant's telephone number, including area code: (407) 265-7348
Securities registered pursuant to Section 12(b)(6) of the Act:
Title of each class: Name of exchange on which registered:
Common Stock, $0.01 par value New York Stock Exchange
10 Year 7.125% Notes None
Securities registered pursuant to section 12(g) of the Act:
None
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days: Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of voting stock held by non-affiliates of the
registrant as of March 11, 1999, was $328,260,598.
The number of shares of common stock outstanding as of March 11, 1999, was
30,033,278.
DOCUMENTS INCORPORATED BY REFERENCE:
1. Registrant incorporates by reference portions of the Commercial Net
Lease Realty, Inc. Annual Report to Shareholders for the year ended
December 31, 1998 (Items 5, 6, 7, 7A and 8 of Part II).
2. Registrant incorporates by reference portions of the Commercial Net
Lease Realty, Inc. Proxy Statement for the 1999 Annual Meeting of
Shareholders (Items 10, 11, 12 and 13 of Part III).
PART I
Item 1. Business
Commercial Net Lease Realty, Inc., a Maryland corporation (the "Registrant" or
the "Company"), is a fully integrated, self-administered real estate investment
trust ("REIT") formed in 1984 that acquires, develops, owns and manages a
diversified portfolio of high-quality, freestanding properties that are
generally leased to major retail businesses under full-credit, long-term
commercial net leases.
The Company's strategy is to invest in single-tenant, freestanding retail
properties with purchase prices of generally up to $10 million, which typically
are located along intensive commercial corridors near traffic generators, such
as regional malls, business developments and major thoroughfares. Management
believes that these types of properties when leased to high-quality tenants with
significant market presence provide attractive opportunities for a stable
current return and the potential for capital appreciation. In management's view,
these types of properties also provide the Company with flexibility in use and
tenant selection when the properties are re-let.
The Company will hold its properties until it determines that the sale or other
disposition of the properties is advantageous in view of the Company's
investment objectives. In deciding whether to sell properties, the Company will
consider factors such as potential capital appreciation, net cash flow and
federal income tax considerations.
Properties
During the year ended December 31, 1998, the Company borrowed $143,600,000 under
its credit facility (i) to acquire 55 properties (23 of which were land only
parcels, 14 of which are 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 14 buildings by the Company on five land
parcels acquired by the Company during 1997 and nine land parcels acquired by
the Company in 1998. As of December 31, 1998, the Company owned 285 properties
(the "Properties") that are leased to major businesses, including Academy,
Babies "R" Us, Barnes & Noble, Bed Bath & Beyond, Best Buy, Borders, Burger
King, CompUSA, Computer City, Dave & Buster's, Denny's, Dick's Clothing &
Sporting Goods, Eckerd, Food 4 Less, Food Lion, Golden Corral, Good Guys,
Hardee's, Heilig-Meyers, Hi-Lo Automotive, HomePlace, International House of
Pancakes, Kash N' Karry, Levitz, Linens 'n Things, Marshalls, Michael's, Office
Depot, OfficeMax, Oshman's, PETsMART, Pier 1 Imports, Robb & Stucky, Ross Dress
For Less, Scotty's, Sears Homelife Centers, The Sports Authority, SuperValu and
Waccamaw. The Company's Property portfolio was 99 percent leased at December 31,
1998.
The Properties are generally leased under net leases pursuant to which the
tenant typically will bear responsibility for substantially all property costs
and expenses associated with ongoing maintenance and operation. The leases of
each of the Company's Properties require payment of base rent plus, generally,
either percentage rent based on the tenant's gross sales or contractual
increases in base rent.
During 1998, one of the Company's lessees, Eckerd Corporation, accounted for
more than ten percent of the Company's total rental income (including the
Company's share of rental income from nine properties owned by the Company's
unconsolidated partnership). As of December 31, 1998, Eckerd Corporation leased
52 Properties (including four properties under leases with the Company's
unconsolidated partnership). It is anticipated that, based on the minimum rental
payments required by the leases, Eckerd Corporation will continue to account for
more than ten percent of the Company's total rental income in 1999. Any failure
of this lessee could materially affect the Company's income.
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. In September 1998, one of these Properties was re-leased to Waccamaw
Corporation. The Company is currently marketing the remaining Property, which is
not subject to a lease, for sale or lease. As of December 31, 1998, HomePlace
continued to lease three Properties which accounted for four percent of the
Company's total rental and earned income for the year ended December 31, 1998.
In August 1997, one of the Company's tenants, Luria's, 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 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. In
August 1998, the Company re-leased one of these three Properties to The Sports
Authority and in October 1998, the Company re-leased one of these Properties to
Ross Dress for Less.
Investment in Subsidiaries
In November 1995, the Company formed two wholly owned subsidiaries, Net Lease
Realty I, Inc. and Net Lease Realty II, Inc. In June 1997, the Company formed
two wholly-owned subsidiaries, Net Lease Realty III, Inc. and Net Lease Realty
IV, Inc. and in August 1998, the Company formed one wholly owned subsidiary, Net
Lease Funding, Inc. Net Lease Realty I, Inc. and Net Lease Realty IV, Inc. were
formed to facilitate the acquisition of certain properties. Net Lease Realty II,
Inc. was utilized to facilitate the acquisition of CNL Realty Advisors, Inc.,
the Company's advisor, and Net Lease Realty III, Inc. is the general partner of
and holds a 20 percent interest in Net Lease Institutional Realty, L.P. Net
Lease Funding, Inc. was formed to facilitate the development of certain
properties. Each of the wholly-owned subsidiaries is a qualified real estate
investment trust subsidiary as defined under Internal Revenue Code Section
856(i)(2).
Investment in Partnership
In September 1997, Net Lease Realty III, Inc., a wholly-owned subsidiary of the
Company, formed a limited partnership, Net Lease Institutional Realty L.P. (the
"Partnership"), with The Northern Trust Company, as Trustee of the Retirement
Plan for the Chicago Transit Authority Employees ("CTA") to acquire, own and
manage nine properties. Net Lease Realty III, Inc. is the sole general partner
(the "General Partner") with a 20 percent interest in the Partnership, and CTA
is the sole limited partner (the "Limited Partner") with an 80 percent interest
in the Partnership. Pursuant to the Partnership agreement, the General Partner
is responsible for the management of the Partnership's properties. Net income
and losses of the Partnership are to be allocated to the partners in accordance
with their respective percentage interest in the Partnership. The Partnership
secured a $12 million non-recourse mortgage on the Partnership's nine properties
in September 1997 at 7.37% interest rate.
As of December 31, 1998, the Partnership owned nine properties (the "Partnership
Properties") leased to six major retail tenants. Generally, the leases of the
Partnership Properties provide for initial terms of 15 to 20 years with annual
base rent ranging from $183,000 to $730,000 and building sites ranging from
11,000 to 54,000 square feet. All of the Partnership Properties are leased under
net leases pursuant to which the tenant typically will bear the responsibility
for substantially all property costs and expenses related to on going
maintenance and operation, including utilities, property taxes and insurance.
Advisory Services
From July 10, 1992 through December 31, 1997, the Company and CNL Realty
Advisors, Inc. (the "Advisor") were party to an advisory agreement (the
"Advisory Agreement"), pursuant to which the Advisor provided certain
management, advisory and acquisition services. In accordance with the terms of
the Advisory Agreement, the Advisor received an annual fee, payable monthly,
equal to (i) seven percent of funds from operations, as defined below, up to
$10,000,000, (ii) six percent of funds from operations in excess of $10,000,000
but less than $20,000,000 and (iii) five percent of funds from operations in
excess of $20,000,000. For the purposes of the Advisory Agreement, funds from
operations means net income of the Company before advisory fee excluding
depreciation and amortization expense, extraordinary gains and losses,
nonrecurring items of income and expense and non-cash lease accounting
adjustments. Under the Advisory Agreement, the Advisor generally was responsible
for administering the day-to-day investment operations of the Company, including
investment analysis and development, acquisitions, due diligence, and asset
management and accounting services. These duties included collecting rental
payments, inspecting and managing the Properties, assisting the Company in
responding to tenant inquiries and notices, providing information to the Company
about the status of the leases and the Properties, maintaining the Company's
accounting books and records, and preparing and filing various reports, returns
or statements with various regulatory agencies. In addition, the Advisor served
as the Company's consultant in connection with policy decisions to be made by
the Board of Directors, managed the Company's Properties and rendered other
services as the Board of Directors deemed appropriate.
Historically, the Company did not have a large enough asset base to provide the
economies of scale needed to efficiently support the extensive general and
administrative expenses of an in-house management team. As a result, the Advisor
had incurred the full expense of a management and acquisition team while
receiving advisory and acquisition fees that have offset this expense. In 1997,
however, due to the Company's historical and anticipated growth, management
believed that the efficiencies derived from being externally advised had
diminished and that it would be more cost effective to become self-administered.
The stockholders of the Company approved an agreement and plan of merger with
the Advisor on December 18, 1997 at the 1997 annual meeting of stockholders,
which resulted in the Company becoming a self-administered and self-managed REIT
(the "Advisor Transaction"). The Advisor Transaction was completed on January 1,
1998. The Agreement and Plan of Merger provided for the merger of the Advisor
into a wholly owned subsidiary of the Company pursuant to which all of the
outstanding common stock of the Advisor was exchanged for 220,000 shares of
common stock of the Company and the right, based upon the Company's completed
property acquisitions and completed development projects in accordance with the
Merger agreement to receive up to 1,980,000 additional shares of the Company's
common stock, for a period of up to five years. In connection with the property
acquisitions during the year ended December 31, 1998, the Company issued an
additional 57,813 shares of common stock in December 1998, and 371,938 shares of
common stock in January 1999. Upon the consummation of the Advisor Transaction,
all personnel employed by the Advisor became employees of the Company. Following
consummation of the Advisor Transaction, the Advisory Agreement (as defined
above) and the obligation of the Company to pay any fees thereunder was
terminated. For a complete description of the Advisor Transaction, see the
Company's Proxy Statement dated November 13, 1997 for the Company's 1997 annual
meeting of stockholders.
Competition
The Company generally competes with other REIT's, commercial developers, real
estate limited partnerships and other investors, including but not limited to,
insurance companies, pension funds and financial institutions, in the
acquisition, leasing, financing, development and disposition of investments in
net-leased retail properties.
Employees
As of December 31, 1998, the Company employed 78 full-time persons including
executive, administrative and field personnel. Reference is made to "Item 10.
Directors and Executive Officers of the Registrant" for a listing of the
Company's Executive Officers.
Item 2. Properties
As of December 31, 1998, the Company owned 285 Properties located in 38 states
that are leased to 55 major retail tenants. Reference is made to the Schedule of
Real Estate and Accumulated Depreciation filed with this Report for a listing of
the Properties and their respective carrying costs.
Description of Properties
Land. The Company's Property sites range from approximately 12,000 to 583,000
square feet depending upon building size and local demographic factors. Sites
purchased by the Company are in locations zoned for commercial use which have
been reviewed for traffic patterns and volume. Land costs range from
approximately $37,000 to $6,300,000.
Buildings. The buildings generally are rectangular, single-story structures
constructed from various combinations of stucco, steel, wood, brick and tile.
Building sizes range from approximately 1,000 to 82,000 square feet. Building
costs range from approximately $195,000 to $7,082,000 for each Property,
depending upon the size of the building and the site and the area in which the
Property is located. Generally, the Properties owned by the Company are
freestanding, with paved parking areas.
Leases. Although there are variations in the specific terms of the leases, the
following is a summarized description of the general structure of the Company's
leases. Generally, the leases of the Properties owned by the Company provide for
initial terms of 10 to 20 years. As of December 31, 1998, the weighted average
remaining lease term was approximately 15 years. The Properties are generally
leased under net leases pursuant to which the tenant typically will bear
responsibility for substantially all property costs and expenses associated with
ongoing maintenance and operation, including utilities, property taxes and
insurance. In addition, the majority of the Company's leases provide that the
tenant is responsible for roof and structural repairs. The leases of the
Properties provide for annual base rental payments (payable in monthly
installments) ranging from $21,000 to $1,032,000. Generally, the leases provide
for either percentage rent or contractual increases in annual rent. Leases which
provide for contractual increases in annual rent generally have increases which
range from six to 12 percent after every five years of the lease term. In
addition, for those leases which provide for the payment of percentage rent,
such rent is generally one to eight percent of the tenants' annual gross sales,
less the amount of annual base rent payable in that lease year. As of December
31, 1998, leases representing approximately 84 percent of annual base rent
include contractual increases, leases representing approximately 30 percent of
annual base rent include percentage rent provisions and leases representing
approximately 22 percent of annual base rent include both contractual and
percentage rent provisions.
Generally, the leases of the Properties provide for two, three or four five-year
renewal options subject to the same terms and conditions as the initial lease.
Some of the leases also provide that, in the event the Company wishes to sell
the Property subject to that lease, the Company first must offer the lessee the
right to purchase the Property on the same terms and conditions, and for the
same price, as any offer which the Company has received for the sale of the
Property.
During 1998, one of the Company's lessees, Eckerd Corporation (drugstore)
accounted for more than ten percent of the Company's total rental income
(including the Company's share of rental income from the Partnership
Properties). As of December 31, 1998, Eckerd Corporation leased 52 Properties
(including four properties under leases with the Partnership).
As of December 31, 1998, one of the Company's lessees, Eckerd Corporation,
leased Properties representing 11.7% of total assets. For information regarding
the results of operations and financial condition of this entity, refer to its
Annual Report on Form 10-K as filed with the Securities and Exchange Commission
for the year ended January 31, 1998.
The Company generally competes with other REIT's, commercial developers, real
estate limited partnerships and other investors, including but not limited to,
insurance companies, pension funds and financial institutions in the
acquisition, leasing, financing, development and disposition of investments in
net-leased retail properties.
Investments in real property create a potential for environmental liability on
the part of the owner of such property from the presence or discharge of
hazardous substances on the property. It is the Company's policy, as a part of
its acquisition due diligence process, to obtain a Phase I environmental site
assessment for each property and where warranted, a Phase II environmental site
assessment. Phase I assessments involve site reconnaissance and review of
regulatory files identifying potential areas of concern, whereas Phase II
assessments involve some degree of soil and/or groundwater testing. The Company
may acquire a property whose environmental site assessment indicates that a
problem or potential problem exists, subject to a determination of the level of
risk and potential cost of remediation. In such cases, the Company requires the
seller and/or tenant to (i) remediate the problem prior to the Company's
acquiring the property, (ii) indemnify the Company for environmental liabilities
or (iii) agree to other arrangements deemed appropriate by the Company to
address environmental conditions at the property. The Company has 20 properties
currently under some level of environmental remediation. The seller or the
tenant is contractually responsible for the cost of the environmental
remediation for each of these properties.
The Company's principal executive offices are located at 455 South Orange
Avenue, Suite 700, Orlando, Florida 32801. The Company's telephone number is
(407) 265-7348.
Item 3. Legal Proceedings
The Company is a co-defendant in a lawsuit filed on December 10, 1998 in the
United States District Court for the District of Puerto Rico. The plaintiff is
alleging that the Company is in breach of a ground lease agreement with the
plaintiff regarding a land parcel owned by the plaintiff and is seeking damages
of $7,500,000 and/or specific performance of the execution of the ground lease.
Management believes it will prevail in this suit and intends to vigorously
defend its position. If the Company were to be held liable for these damages, it
could materially affect the Company's earnings.
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.
PART II
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
Information responsive to this Item is contained in the section captioned "Share
Price and Dividend Data" on page 39 of the Registrant's Annual Report to
Shareholders for the year ended December 31, 1998; the information in such
section is filed as an exhibit to this report and the cited portion of which is
incorporated herein by reference.
Item 6. Selected Financial Data
Information responsive to this Item is contained in the section captioned
"Historical Financial Highlights" on page 1 of the Registrant's Annual Report to
Shareholders for the year ended December 31, 1998; the information in such
section is filed as an exhibit to this report and the cited portion of which is
incorporated herein by reference.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Information responsive to this Item is contained in the section captioned
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" on pages 8 through 19 of the Registrant's Annual Report to
Shareholders for the year ended December 31, 1998; the information in such
section is filed as an exhibit to this report and the cited portion of which is
incorporated herein by reference.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Information responsive to this Item is contained in the section captioned
"Management's Discussion and Analysis of Financial Condition and Results of
Operations", subsection "Market Risk", on page 19 of the Registrant's Annual
Report to Shareholders for the year ended December 31, 1998; the information in
such section is filed as an exhibit to this report and the cited portion of
which is incorporated herein by reference.
Item 8. Financial Statements and Supplementary Data
Certain information responsive to this Item is contained in the section
captioned "Consolidated Quarterly Financial Data" on page 38 of the
Registrant's Annual Report to Shareholders for the year ended December 31, 1998;
the information in such section is filed as an exhibit to this report and the
cited portion of which is incorporated herein by reference. The financial
statements of the Registrant, together with the report thereon of KPMG LLP,
appearing in the Annual Report to Shareholders for the year ended December 31,
1998, are incorporated herein by reference.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
PART III
Item 10. Directors and Executive Officers of the Registrant
Reference is made to the Registrant's definitive proxy statement to be filed
with the Commission pursuant to Regulation 14(a); information responsive to this
Item is contained in the sections thereof captioned "Proposal I: Election of
Directors - Nominees" and "Proposal I: Election of Directors - Executive
Officers" and "Security Ownership," and the information in such sections is
incorporated herein by reference.
Item 11. Executive Compensation
Reference is made to the Registrant's definitive proxy statement to be filed
with the Commission pursuant to Regulation 14(a); information responsive to this
Item is contained in the section thereof captioned "Proposal I: Election of
Directors - Compensation of Directors" and "Executive Compensation - Annual
Compensation," and the information in such sections is incorporated herein by
reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management
Reference is made to the Registrant's definitive proxy statement to be filed
with the Commission pursuant to Regulation 14(a); information responsive to this
Item is contained in the section thereof captioned "Security Ownership," and the
information in such section is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions
Reference is made to the Registrant's definitive proxy statement to be filed
with the Commission pursuant to Regulation 14(a); information responsive to this
Item is contained in the section thereof captioned "Certain Transactions," and
the information in such section is incorporated herein by reference.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) The following documents are filed as part of this report.
1.Financial Statements
Independent Auditors' Report
Consolidated Balance Sheets as of December 31, 1998 and 1997
Consolidated Statements of Earnings for the years ended December
31, 1998, 1997 and 1996
Consolidated Statements of Stockholders' Equity for the years
ended December 31, 1998, 1997 and 1996
Consolidated Statements of Cash Flows for the years ended
December 31, 1998,1997 and 1996
Notes to Consolidated Financial Statements
2.Financial Statement Schedule
Report of Independent Auditors' on Supplementary Information
Schedule III - Real Estate and Accumulated Depreciation as of
December 31, 1998
Notes to Schedule III - Real Estate and Accumulated Depreciation
as of December 31, 1998
All other schedules are omitted because they are not applicable
or because the required information is shown in the financial
statements or the notes thereto.
3.Exhibits
3.1 Articles of Incorporation of the Registrant (filed as Exhibit
3.3(i) to the Registrant's Registration Statement No. 1-11290 on
Form 8-B, and incorporated herein by reference).
3.2 Bylaws of the Registrant, (filed as Exhibit 3(ii) to Amendment
No. 2 to the Registrant's Registration No. 33-83110 on Form S-3,
and incorporated herein by reference).
3.3 Articles of Amendment to the Articles of Incorporation of the
Registrant (filed as Exhibit 3.3 to the Registrant's Form 10-Q
for the quarter ended June 30, 1996, and incorporated herein by
reference).
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
June 30, 1992, and incorporated herein by reference).
10.2 Advisory Agreement between Registrant and CNL Realty Advisors,
Inc. effective as of April 1, 1993 and renewed January 1, 1997
(filed as Exhibit 10.04 to Amendment No. 1 to the Registrant's
Registration Statement No. 33-61214 on Form S-2, and incorporated
herein by reference).
10.3 1992 Commercial Net Lease Realty, Inc. Stock Option Plan (filed
as Exhibit No. 10(x) to the Registrant's Registration Statement
No. 33-83110 on Form S-3, and incorporated herein by reference).
10.4 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, dated September
3, 1996, by and among Registrant and First Union National Bank of
Florida, as the Agent, relating to $150,000,000 loan (filed as
Exhibit 10.12 to the Registrant's Quarterly Report on Form 10-Q
for the quarter ended September 30, 1996, and incorporated herein
by reference).
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).
12 Statement of Computation of Ratios of Earnings to Fixed Charges
(filed herewith).
13 Annual Report to Shareholders for the year ended December 31,
1998 (filed herewith).
23 Consent of Independent Accountants dated March 30, 1999 (filed
herewith).
27 Financial Data Schedule (filed herewith).
(b) No reports on Form 8-K were filed during the quarter ended December 31,
1998.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized, on the 30th day of March,
1999.
COMMERCIAL NET LEASE REALTY, INC.
By: /s/ James M. Seneff,Jr.
-----------------------
JAMES M. SENEFF, JR.
Chairman of the Board of Directors
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
Signature Title Date
/s/ James M. Seneff, Jr. Chairman of the Board of Directors March 30, 1999
- ----------------------- Chief Executive Officer (Principal
James M. Seneff, Jr. Executive Officer)
/s/ Robert A. Bourne Vice Chairman of the March 30, 1999
- -------------------- Board ofDirectors
Robert A. Bourne
/s/ Edward Clark Director March 30, 1999
- ----------------
Edward Clark
/s/ Clifford R. Hinkle Director March 30, 1999
- ----------------------
Clifford R. Hinkle
/s/ Ted B. Lanier Director March 30, 1999
- -----------------
Ted B. Lanier
/s/ Gary M. Ralston President March 30, 1999
- -------------------
Gary M. Ralston
/s/ Kevin B. Habicht Chief Financial Officer (Principal March 30, 1999
- -------------------- Financial and Accounting Officer),
Kevin B. Habicht Secretary and Treasurer
<PAGE>
Report of Independent Auditors' on Supplementary Information
The Board of Directors
Commercial Net Lease Realty, Inc.
Under date of January 15, 1999, we reported on the consolidated balance sheets
of Commercial Net Lease Realty, Inc. as of December 31, 1998 and 1997, and the
related consolidated statements of earnings, stockholders' equity and cash flows
for each of the years in the three-year period ended December 31, 1998. These
consolidated financial statements and our report thereon are both included in
Item 14(a)1 of Form 10-K and incorporated by reference in the annual report on
Form 10-K for the year 1998. In connection with our audits of the aforementioned
consolidated financial statements, we also audited the related consolidated
financial statement schedule as of December 31, 1998. This consolidated
financial statement schedule is the responsibility of the Company's management.
Our responsibility is to express an opinion on this consolidated financial
statement schedule based on our audits.
In our opinion, such consolidated financial statement schedule, when considered
in relation to the basic consolidated financial statements taken as a whole,
presents fairly, in all material respects, the information set forth therein.
/s/KPMG LLP
- -------------
Orlando, Florida
January 15, 1999
<PAGE>
<TABLE>
COMMERCIAL NET LEASE REALTY, INC. AND SUBSIDIARIES
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 1998
<CAPTION>
Initial Cost to Company
Encum- ---------------------------
brances Building and
(n) Land Improvements
- --------------------------- -------------- ------------ -------------
<S> <C> <C> <C>
Properties the Company
has Invested in Under
Operating Leases:
Academy:
Houston, TX - 1,074,232 -
Houston, TX - 699,165 -
N. Richland Hills, TX - 1,307,655 -
Houston, TX - 3,086,610 -
Houston, TX - 795,005 -
Baton Rouge, LA - 1,547,501 -
Adjacent Excess Space:
Memphis, TN - 549,309 539,643
Glendale, AZ - 340,753 -
Babies "R" Us:
Arlington, TX - 830,689 2,611,867
Barnes & Noble:
Lakeland, FL - 1,070,902 1,516,983
Brandon, FL 1,515,699 (m) 1,476,407 1,527,150
Denver, CO - 3,244,785 2,722,087
Houston, TX - 3,307,562 2,396,024
Cary, NC - 2,778,458 2,650,008
Plantation, FL - 3,616,357 -
Lafayette, LA - 1,204,279 2,301,983
Oklahoma City, OK - 1,688,556 2,311,487
Daytona, FL - 2,587,451 2,052,643
Freehold, NJ - 2,917,219 2,260,663
Dayton, OH - 1,412,614 3,223,467
Redding, CA - 497,179 1,625,702
Marlton, NJ - 2,831,370 4,318,554
Bed, Bath & Beyond:
Richmond, VA - 1,184,144 3,154,970
Los Angeles, CA - 6,318,023 3,089,396
Glendale, AZ - 1,078,710 -
Best Buy:
Corpus Christi, TX 1,268,679 (l) 818,448 896,395
Brandon, FL - 2,985,156 2,772,137
Evanston, IL - 1,850,996 -
Cuyahoga Falls, OH - 3,708,980 2,359,377
Rockville, MD - 6,233,342 3,418,783
Fairfax, VA - 3,052,477 3,218,018
St. Petersburg, FL - 4,031,744 2,959,316
North Fayette, PA - 2,330,847 2,292,932
Blockbuster:
Conyers, GA - 320,029 556,282
Borders Books & Music:
Wilmington, DE 4,588,832 (m) 3,030,769 6,061,538
Richmond, VA 2,410,871 (m) 2,177,310 2,599,587
Ft. Lauderdale, FL - 3,164,984 3,934,577
Bangor, ME - 1,546,915 2,486,761
Altamonte Spgs, FL - 1,947,198 -
Burger King:
Asheboro, NC - 420,508 815,190
Galliano, LA - 249,001 1,130,506
John's Island, SC - 385,517 698,309
Lake Charles, LA - 272,381 965,713
Lancaster, OH - 220,846 582,815
Natchez, MS - 206,717 653,530
Tappahannock, VA - 289,840 572,779
Warren, MI - 298,817 785,031
Manchester, NH - 619,037 428,757
Rochester, NH - 216,652 779,450
Columbus, OH - 357,114 407,093
Coon Rapids, MN - 322,658 544,936
Opeleousas, LA - 460,374 824,510
St. Paul, MN - 225,297 542,847
Checkers:
Orlando, FL - 256,568 -
CompUSA:
Mission Viejo, CA - 2,706,352 1,368,966
Computer City:
Miami, FL 2,311,432 (m) 2,713,192 1,866,676
Baton Rouge, LA - 609,069 913,603
Anchorage, AK - 928,321 1,662,584
Dave's:
Maple Heights, OH - 1,034,758 2,874,414
Dave & Buster's:
Utica, MI - 3,776,169 -
Denny's:
Duncan, SC - 219,703 -
Greensboro, NC - 265,915 493,407
Greenville, SC - 344,817 400,895
Houston, TX - 289,036 572,985
Landrum, SC - 155,429 -
Mooresville, NC - 307,299 -
Santee, SC - 244,284 312,045
Topeka, KS - 414,686 -
Winter Springs, FL - 555,232 -
Dick's Clothing:
Taylor, MI - 1,920,032 3,526,868
White Marsh, MD - 2,680,532 3,916,889
Eckerd:
San Antonio, TX 618,229 (m) 440,985 -
Dallas, TX 595,628 (m) 541,493 -
Garland, TX 479,282 (m) 239,014 -
Arlington, TX 507,235 (m) 368,964 -
Millville, NJ 629,123 (m) 417,603 -
Atlanta, GA 562,221 (m) 445,593 -
Mantua, NJ 654,043 (m) 344,022 -
Amarillo, TX 581,981 (m) 329,231 -
Amarillo, TX 756,379 (m) 650,864 -
Glassboro, NJ 717,544 (m) 534,243 -
Kissimmee , FL 835,902 (m) 715,480 -
Colleyville, TX 923,863 (m) 756,472 -
Tampa, FL - 604,682 -
Douglasville, GA - 413,439 995,209
Lafayette, LA - 967,528 -
Moore, OK - 414,738 -
Midwest City, OK - 1,080,637 1,103,351
Tallahassee, FL - 691,523 -
Irving, TX - 1,000,222 -
Snellville, GA - 486,272 1,320,087
Jasper, FL - 291,147 -
Williston, FL - 622,403 -
Pantego, TX - 1,016,062 1,448,911
Conyers, GA - 574,666 998,900
Norman, OK - 1,065,562 -
Chattanooga , TN - 474,267 -
Stone Mountain, GA - 638,643 1,111,064
Arlington, TX - 2,078,542 -
Leavenworth, KS - 726,438 -
Augusta, GA - 568,606 1,326,748
Riverdale, GA - 1,088,896 1,707,448
Morrow, GA - 550,457 1,248,422
Warner Robins, GA - 707,488 -
Lewisville, TX - 789,237 -
Forest Hill, TX - 692,165 -
Del City, OK - 1,387,362 (c)
Arlington, TX - 414,568 (c)
Ft. Worth, TX - - -
Land 'O Lakes, FL - 1,455,464 -
Garland, TX - 522,461 -
Garland, TX - 1,476,838 -
Oklahoma City, OK - 1,543,480 -
Vineland, NJ - 725,734 -
Food 4 Less:
Lemon Grove, CA - 3,695,816 -
Chula Vista, CA - 3,568,862 (c)
Golden Corral:
Woodstock, GA (e) - 200,680 328,450
Edenton, NC - 36,578 318,481
Rockledge, FL (e) - 120,593 340,889
Gilmer, TX (e) - 116,815 296,454
Bonham, TX (e) - 128,451 344,170
Leitchfield, KY (e) - 73,660 306,642
Marietta, GA (e) - 156,190 346,509
Atlanta, TX (e) - 88,457 368,317
Vernon, TX (e) - 105,798 328,943
Abbeville, LA (e) - 98,577 362,416
Fredricksburg,TX - 169,984 321,189
Clanton, AL (e) - 113,017 296,921
Pleasanton, TX (e) - 139,694 316,070
Bowie, TX (e) - 57,824 311,544
Lake Placid, FL (e) - 115,113 305,074
Ennis, TX - 153,701 366,639
Melbourne, FL (e) - 193,447 341,351
Franklin, LA (e) - 105,840 396,831
Franklin, VA - 100,808 424,164
Durant, OK - 140,862 411,135
Good Guys, The:
Foothill Ranch, CA - 1,456,113 2,505,022
Valencia,CA - 1,622,252 2,895,298
Riverside, CA - 1,718,892 2,755,059
Clackamas, OR - 1,639,995 1,446,764
Bellingham, WA - 1,732,378 1,764,549
Federal Way, WA - 2,037,392 1,661,577
East Palo Alto, CA - 2,294,449 -
Hardee's:
Chalkville, AL - 170,834 457,167
Columbia, TN - 226,300 -
Gulf Shores, AL - 348,281 595,164
Horn Lake, MS - 302,787 -
Johnson City, TN - 215,567 -
Mobile, AL - 336,696 -
Petal, MS - 277,104 415,193
Rock Hill, SC - 216,777 466,450
Tusculum, TN - 182,349 507,293
Warrior, AL - 177,659 -
West Point, MS - 173,386 -
Heilig-Meyers:
Baltimore, MD - 469,782 813,074
Glen Burnie, MD - 625,588 922,897
Lima, OH - 344,742 1,097,694
Copperas Cove, TX - 445,558 943,339
Nacadoches, TX - 397,074 1,257,402
Hi-Lo Automotive:
Mesquite, TX - 233,420 513,523
Arlington, TX - 295,331 571,609
Ft. Worth, TX - 197,037 512,296
Garland, TX - 239,570 512,023
Houston, TX - 261,318 531,968
Dallas, TX - 281,347 543,937
Bastrop, TX - 197,905 383,144
Eagle Pass, TX - 256,745 455,841
Lake Worth, TX - 252,141 539,510
McAllen, TX - 265,177 605,397
Nacogdoches, TX - 190,324 522,232
San Antonio, TX - 200,510 643,741
Temple, TX - 177,451 587,755
Universal City, TX - 247,264 570,677
HomePlace:
Altamonte Spgs, FL - 2,906,409 4,877,225
Ft. Myers, FL - 1,956,579 4,045,196
Bowie, MD - 1,965,508 -
International House
of Pancakes:
Stafford, TX 481,435 (m) 382,084 -
Sunset Hills, MO 508,831 (m) 271,853 -
Las Vegas, NV 572,085 (m) 519,947 -
Ft. Worth, TX 532,218 (m) 430,896 -
Arlington, TX 511,075 (m) 404,512 -
Matthews, NC 522,717 (m) 380,043 -
Phoenix, AZ 526,235 (m) 483,374 -
Just for Feet:
Albuquerque, NM - 1,441,777 2,335,475
Kroger:
Columbus, OH - 780,838 520,559
Linens 'n Things:
Freehold, NJ 2,931,484 (l) 1,753,766 2,208,651
Marshalls:
Freehold, NJ 3,431,576 (l) 2,052,946 2,585,432
Michael's
Grapevine, TX - 1,017,934 2,066,715
Office Depot:
Arlington, TX 1,013,151 (m) 596,024 1,411,432
Richmond, VA 888,772 1,948,036
OfficeMax:
Corpus Christi, TX 1,439,600 (l) 893,270 978,344
Dallas, TX 1,427,472 (m) 1,118,500 1,709,891
Cincinnati, OH 1,068,962 (m) 543,489 1,574,551
Evanston, IL 1,829,742 (m) 1,867,831 1,757,618
Altamonte Spgs, FL - 1,689,793 3,050,160
Pompano Beach, FL - 2,266,908 1,904,803
Cutler Ridge, FL - 989,370 1,479,119
Sacramento, CA - 1,144,167 2,961,206
Salinas, CA - 1,353,217 1,829,325
Redding, CA - 667,174 2,181,563
Kelso, WA - 868,003 -
Lynchburg, VA - 561,509 -
Leesburg, FL - 640,019 -
Plymouth Meeting, PA - 2,906,424 -
Tigard, OR - 1,539,873 2,247,321
Dover, NJ - 1,138,296 3,238,083
Griffin, GA - 683,747 -
Oshman's Sporting Goods:
Dallas, TX - 1,311,440 -
Party City:
Memphis, TN - 238,229 -
Petco:
Grand Forks, ND - 306,629 909,671
PETsMART:
Chicago - 2,723,463 3,564,837
Pier 1 Imports:
Memphis, TN - 713,319 821,770
Sanford, FL - 738,051 803,082
Knoxville, TN - 466,636 -
Mason, OH - 592,257 -
Harlingen, TX - 315,434 -
Pizza Hut:
Orlando, FL - 220,632 258,483
Rally's:
Toledo, OH - 125,882 319,770
Robb & Stucky:
Ft. Myers, FL - 2,188,440 6,225,401
Roger & Marv's:
Kenosha, WI - 1,917,607 3,431,363
Ro-Jack's Food Store:
Warwick, RI - 1,699,330 -
Ross Dress For Less:
Coral Gables, FL - 1,782,346 1,661,174
Scotty's:
Orlando, FL - 1,157,268 2,077,131
Orlando, FL - 1,044,796 2,011,952
Sears Homelife:
Clearwater, FL 2,745,218 (l) 1,184,438 2,526,207
Orlando, FL 1,516,665 (m) 820,397 2,184,721
Pensacola, FL 1,750,804 633,125 1,595,405
Raleigh, NC 2,205,051 1,848,026 1,753,635
Tampa, FL 2,277,113 1,454,908 2,045,833
7-Eleven:
Land 'O Lakes, FL - 1,076,495 -
Tampa Palms, FL - 1,080,670 -
Shop & Save:
Homestead, PA - 1,139,419 -
Penn Hills, PA - 1,043,297 1,243,131
Sports Authority:
Memphis, TN - 820,340 -
Little Rock, AR - 3,418,875 2,660,206
Tampa, FL - 2,127,503 1,521,730
SuperValu:
Huntington, WV - 1,254,238 760,602
Top's:
Lacey, WA - 2,777,449 7,082,150
Waccamaw:
Fairfax, VA - 2,156,801 -
White Marsh, MD - 3,762,030 -
Waremart:
Eureka, CA - 3,135,036 5,470,607
Wendy's Old Fashioned
Hamburger:
Fenton, MO - 307,068 496,410
Longwood, FL - 333,335 194,926
Sacramento, CA - 585,872 -
Vacant Properties:
Arlington, TX - 752,840 3,980,309
South Miami, FL - 1,379,229 1,723,047
Unallocated costs
relating to con-
struction in progress
=========== ============ =============
47,248,377 259,590,038 249,823,310
=========== ============ =============
Properties the Company has
Invested in Under Direct
Financing Leases:
Academy:
Houston, TX - - 1,924,740
Houston, TX - - 1,867,519
N. Richland Hills, TX - - 2,253,408
Houston, TX - - 2,112,335
Houston, TX - - 1,910,697
Baton Rouge, LA - - 2,405,466
Barnes & Noble:
Plantation, FL - - 3,498,559
Best Buy:
Evanston, IL - - 3,400,057
Borders:
Altamonte Spgs, FL - - 3,267,579
Checkers:
Orlando, FL - - 286,910
Denny's:
Landrum, SC - - 374,684
Mooresville, NC - - 535,309
Duncan, SC - - 628,571
Akron, OH - 137,424 733,450
Topeka, KS - - 498,921
Winter Springs, FL - - 620,148
Dave & Buster's:
Utica, MI - - 4,888,743
Eckerd:
San Antonio, TX - - 783,974
Dallas, TX - - 638,684
Garland, TX - - 710,634
Arlington, TX - - 636,070
Millville, NJ - - 828,942
Atlanta. GA - - 668,390
Mantua, NJ - - 951,795
Vineland, NJ 681,021 (m) 286,231 1,063,142
Amarillo, TX - - 849,071
Amarillo, TX - - 869,846
Amarillo, TX 494,316 (m) 158,851 855,348
Glassboro, NJ - - 887,497
Kissimmee , FL - - 933,852
Colleyville, TX - - 1,076,066
Alice,TX 501,579 (m) 189,187 804,963
Tampa, FL - - 1,090,532
Lafayette, LA - - 949,128
Moore, OK - - 879,296
Tallahassee, FL - - 1,274,147
East Point, GA - 336,610 1,173,529
Irving, TX - - 1,228,436
Ft. Worth, TX - 399,592 2,529,969
Williston, FL - - 355,757
Jasper, FL - - 347,474
Oklahoma City, OK - (o) 1,365,125
Oklahoma City, OK - (o) 1,419,093
Norman, OK - - 1,225,477
Chattanooga , TN - - 1,344,240
Del City, OK - - -
Arlington, TX - - -
Food 4 Less:
Lemon Grove, CA - - 4,068,179
Chula Vista, CA - - 4,266,181
Food Lion:
Keystone Hts, FL 976,377 (m) 88,604 1,845,988
Chattanooga, TN 1,028,344 (m) 336,488 1,701,072
Lynchburg, VA 1,333,443 (l) 128,216 1,674,167
Martinsburg, WV 1,005,462 (m) 448,648 1,543,573
The Good Guys:
Stockton, CA 1,794,428 (m) 580,609 2,974,868
Portland, OR - 817,574 2,630,652
Hardee's:
Mobile, AL - - 479,107
Warrior, AL - - 470,556
Horn Lake, MS - - 555,975
West Point, MS - - 517,424
Columbia, TN - - 584,927
Johnson City, TN - - 570,690
Iuka, MS - 130,258 505,363
Biscoe, NC - 60,301 479,984
Aynor, SC - 44,871 521,192
Heilig-Meyers:
Rincon, GA - 254,320 1,212,349
Bourbonnais, IL - 309,769 1,381,112
Mount Vernon, IL - 235,675 1,128,976
Muskogee, OK - 250,932 1,209,673
Stillwater, OK - 262,779 1,126,116
Everett, PA - 235,548 1,206,879
Lebanon, PA - 220,282 1,168,636
York, PA - 279,312 1,109,609
Marlow Heights, MD - 415,926 1,397,178
Clovis, NM - 237,362 1,151,531
Middletown, OH - 250,284 1,138,639
Conway, SC - 256,893 1,185,517
Hi-Lo Automotive:
Copperas Cove, TX - 116,637 476,331
Ft. Worth, TX - 92,779 607,971
Baton Rouge, LA - 89,954 508,146
Lake Jackson, TX - 120,313 609,300
Edinberg, TX - 97,056 418,926
Pantego, TX - 154,368 505,323
Ft. Worth, TX - 91,373 548,238
Pharr, TX - 94,576 472,880
Baton Rouge, LA - 122,349 527,930
Houston, TX - 37,508 596,069
HomePlace:
Bowie, MD - - 4,262,338
International House
of Pancakes:
Stafford, TX - - 571,832
Sunset Hills, MO - - 736,345
Las Vegas, NV - - 613,582
Ft. Worth, TX - - 623,641
Arlington, TX - - 608,132
Matthews, NC - - 655,668
Phoenix, AZ - - 559,307
Kash N' Karry:
Brandon, FL - 1,234,519 3,255,257
Levitz:
Tempe, AZ - 634,444 2,225,991
Oshman's Sporting Goods:
Dallas, TX - - 2,658,976
Ro-Jack's Food Store:
Warwick, RI - - 2,978,154
Shop & Save:
Homestead, PA - - 2,578,098
Wacammaw:
Fairfax, VA - - 3,356,493
========== ========== ===========
7,814,970 10,238,422 129,708,614
========== ========== ===========
</TABLE>
<TABLE>
<CAPTION>
Costs Capitalized
Subsequent to Gross Amount at Which
Acquisition Carried at Close of Period (b)
------------------- -----------------------------------
Improve- Carrying Building and
ments Costs Land Improvements Total
- ----------------------- -------- ------- --------- ------------ ----------
<S> <C> <C> <C> <C> <C>
Properties the Company
has Invested in Under
Operating Leases:
Academy:
Houston, TX - - 1,074,232 (c) 1,074,232
Houston, TX - - 699,165 (c) 699,165
N. Richland
Hills,TX - - 1,307,655 (c) 1,307,655
Houston, TX - - 2,098,895 (c) 2,098,895
Houston, TX - - 795,005 (c) 795,005
Baton Rouge, LA - - 1,547,501 (c) 1,547,501
Adjacent Excess
Space:
Memphis, TN - - 549,309 539,643 1,088,952
Glendale, AZ 294,706 - 340,753 (g) 340,753
Babies "R" Us:
Arlington, TX - - 830,689 2,611,867 3,442,556
Barnes & Noble:
Lakeland, FL - - 1,070,902 1,516,983 2,587,885
Brandon, FL - - 1,476,407 1,527,150 3,003,557
Denver, CO - - 3,244,785 2,722,087 5,966,872
Houston, TX - - 3,307,562 2,396,024 5,703,586
Cary, NC - - 2,778,458 2,650,008 5,428,466
Plantation, FL - - 3,616,357 (c) 3,616,357
Lafayette, LA - - 1,204,279 2,301,983 3,506,262
Oklahoma City, OK - - 1,688,556 2,311,487 4,000,043
Daytona, FL - - 2,587,451 2,052,643 4,640,094
Freehold, NJ - - 2,917,219 2,260,663 5,177,882
Dayton, OH - - 1,412,614 3,223,467 4,636,081
Redding, CA - - 497,179 1,625,702 2,122,881
Marlton, NJ - - 2,831,370 4,318,554 7,149,924
Bed, Bath & Beyond:
Richmond, VA - - 1,184,144 3,154,970 4,339,114
Los Angeles, CA - - 6,318,023 3,089,396 9,407,419
Glendale, AZ 933,157 - 1,078,710 (g) 1,078,710
Best Buy:
Corpus Christi, TX 12,222 - 818,448 908,617 1,727,065
Brandon, FL - - 2,985,156 2,772,137 5,757,293
Evanston, IL - - 1,850,996 (c) 1,850,996
Cuyahoga Falls, OH - - 3,708,980 2,359,377 6,068,357
Rockville, MD - - 6,233,342 3,418,783 9,652,125
Fairfax, VA - - 3,052,477 3,218,018 6,270,495
St. Petersburg, FL - - 4,031,744 2,959,316 6,991,060
North Fayette, PA - - 2,330,847 2,292,932 4,623,779
Blockbuster:
Conyers, GA - - 320,029 556,282 876,311
Borders Books
& Music:
Wilmington, DE - - 3,030,769 6,061,538 9,092,307
Richmond, VA - - 2,177,310 2,599,587 4,776,897
Ft. Lauderdale, FL - - 3,164,984 3,934,577 7,099,561
Bangor, ME - - 1,546,915 2,486,761 4,033,676
Altamonte Spgs, FL - - 1,947,198 (c) 1,947,198
Burger King:
Asheboro, NC - - 420,508 815,190 1,235,698
Galliano, LA - - 249,001 1,130,506 1,379,507
John's Island, SC - - 385,517 698,309 1,083,826
Lake Charles, LA - - 272,381 965,713 1,238,094
Lancaster, OH - - 220,846 582,815 803,661
Natchez, MS - - 206,717 653,530 860,247
Tappahannock, VA - - 289,840 572,779 862,619
Warren, MI - - 298,817 785,031 1,083,848
Manchester, NH - - 619,037 428,757 1,047,794
Rochester, NH - - 216,652 779,450 996,102
Columbus, OH - - 357,114 407,093 764,207
Coon Rapids, MN - - 322,658 544,936 867,594
Opeleousas, LA - - 460,374 824,510 1,284,884
St. Paul, MN - - 225,297 542,847 768,144
Checkers:
Orlando, FL - - 256,568 (c) 256,568
CompUSA:
Mission Viejo, CA - - 2,706,352 1,368,966 4,075,318
Computer City:
Miami, FL - - 2,713,192 1,866,676 4,579,868
Baton Rouge, LA - - 609,069 913,603 1,522,672
Anchorage, AK - - 928,321 1,662,584 2,590,905
Dave's:
Maple Heights, OH - - 1,034,758 2,874,414 3,909,172
Dave & Buster's:
Utica, MI - - 3,776,169 (c) 3,776,169
Denny's:
Duncan, SC - - 219,703 (c) 219,703
Greensboro, NC - - 265,915 493,407 759,322
Greenville, SC - - 344,817 400,895 745,712
Houston, TX - - 289,036 572,985 862,021
Landrum, SC - - 155,429 (c) 155,429
Mooresville, NC - - 307,299 (c) 307,299
Santee, SC - - 244,284 312,045 556,329
Topeka, KS - - 414,686 (c) 414,686
Winter Springs, FL - - 555,232 (c) 555,232
Dick's Clothing:
Taylor, MI - - 1,920,032 3,526,868 5,446,900
White Marsh, MD - - 2,680,532 3,916,889 6,597,421
Eckerd:
San Antonio, TX - - 440,985 (c) 440,985
Dallas, TX - - 541,493 (c) 541,493
Garland, TX - - 239,014 (c) 239,014
Arlington, TX - - 368,964 (c) 368,964
Millville, NJ - - 417,603 (c) 417,603
Atlanta, GA - - 445,593 (c) 445,593
Mantua, NJ - - 344,022 (c) 344,022
Amarillo, TX - - 329,231 (c) 329,231
Amarillo, TX - - 650,864 (c) 650,864
Glassboro, NJ - - 534,243 (c) 534,243
Kissimmee , FL - - 715,480 (c) 715,480
Colleyville, TX - - 756,472 (c) 756,472
Tampa, FL - - 604,682 (c) 604,682
Douglasville, GA - - 413,439 995,209 1,408,648
Lafayette, LA - - 967,528 (c) 967,528
Moore, OK - - 414,738 (c) 414,738
Midwest City, OK - - 1,080,637 1,103,351 2,183,988
Tallahassee, FL - - 691,523 (c) 691,523
Irving, TX - - 1,000,222 (c) 1,000,222
Snellville, GA - - 486,272 1,320,087 1,806,359
Jasper, FL - - 291,147 (c) 291,147
Williston, FL - - 622,403 (c) 622,403
Pantego, TX - - 1,016,062 1,448,911 2,464,973
Conyers, GA - - 574,666 998,900 1,573,566
Norman, OK - - 1,065,562 (c) 1,065,562
Chattanooga , TN - - 474,267 (c) 474,267
Stone Mountain, GA - - 638,643 1,111,064 1,749,707
Arlington, TX 1,396,508 - 2,078,542 1,396,508 3,475,050
Leavenworth, KS 1,330,830 - 726,438 1,330,830 2,057,268
Augusta, GA - - 568,606 1,326,748 1,895,354
Riverdale, GA - - 1,088,896 1,707,448 2,796,344
Morrow, GA - - 550,457 1,248,422 1,798,879
Warner Robins, GA 1,199,202 - 707,488 (g) 707,488
Lewisville, TX 1,335,426 - 789,237 1,335,426 2,124,663
Forest Hill, TX 1,174,549 - 692,165 1,174,549 1,866,714
Del City, OK - - 1,387,362 (c) 1,387,362
Arlington, TX - - 414,568 (c) 414,568
Ft. Worth, TX 81,167 - - 81,167 81,167
Land 'O Lakes, FL 344,728 - 1,455,464 (g) 1,455,464
Garland, TX 1,418,531 - 522,461 1,418,531 1,940,992
Garland, TX 1,400,278 - 1,476,838 1,400,278 2,877,116
Oklahoma City, OK 1,446,932 - 1,543,480 (g) 1,543,480
Vineland, NJ 1,557,030 - 725,734 (q) 725,734
Food 4 Less:
Lemon Grove, CA - - 3,695,816 (c) 3,695,816
Chula Vista, CA - - 3,568,862 (c) 3,568,862
Golden Corral:
Woodstock, GA (e) - - 200,680 328,450 529,130
Edenton, NC - - 36,578 318,481 355,059
Rockledge, FL (e) - - 120,593 340,889 461,482
Gilmer, TX (e) - - 116,815 296,454 413,269
Bonham, TX (e) - - 128,451 344,170 472,621
Leitchfield, K(e) - - 73,660 306,642 380,302
Marietta, GA (e) - - 156,190 346,509 502,699
Atlanta, TX (e) - - 88,457 368,317 456,774
Vernon, TX (e) - - 105,798 328,943 434,741
Abbeville, LA (e) - - 98,577 362,416 460,993
Fredricksburg, TX - - 169,984 321,189 491,173
Clanton, AL (e) - - 113,017 296,921 409,938
Pleasanton, TX(e) - - 139,694 316,070 455,764
Bowie, TX (e) - - 57,824 311,544 369,368
Lake Placid, F(e) - - 115,113 305,074 420,187
Ennis, TX - - 153,701 366,639 520,340
Melbourne, FL (e) - - 193,447 341,351 534,798
Franklin, LA (e) - - 105,840 396,831 502,671
Franklin, VA - - 93,719 424,164 517,883
Durant, OK - - 140,862 411,135 551,997
Good Guys, The:
Foothill Ranch, CA - - 1,456,113 2,505,022 3,961,135
Valencia,CA - - 1,622,252 2,895,298 4,517,550
Riverside, CA - - 1,718,892 2,755,059 4,473,951
Clackamas, OR - - 1,639,995 1,446,764 3,086,759
Bellingham, WA - - 1,732,378 1,764,549 3,496,927
Federal Way, WA - - 2,037,392 1,661,577 3,698,969
East Palo Alto, CA - - 2,294,449 (f) 2,294,449
Hardee's:
Chalkville, AL - - 170,834 457,167 628,001
Columbia, TN - - 226,300 (c) 226,300
Gulf Shores, AL - - 348,281 595,164 943,445
Horn Lake, MS - - 302,787 (c) 302,787
Johnson City, TN - - 215,567 (c) 215,567
Mobile, AL - - 336,696 (c) 336,696
Petal, MS - - 277,104 415,193 692,297
Rock Hill, SC - - 216,777 466,450 683,227
Tusculum, TN - - 182,349 507,293 689,642
Warrior, AL - - 177,659 (c) 177,659
West Point, MS - - 173,386 (c) 173,386
Heilig-Meyers:
Baltimore, MD - - 469,782 813,074 1,282,856
Glen Burnie, MD - - 625,588 922,897 1,548,485
Lima, OH - - 344,742 1,097,694 1,442,436
Copperas Cove, TX - - 445,558 943,339 1,388,897
Nacadoches, TX - - 397,074 1,257,402 1,654,476
Hi-Lo Automotive:
Mesquite, TX - - 233,420 513,523 746,943
Arlington, TX - - 295,331 571,609 866,940
Ft. Worth, TX - - 197,037 512,296 709,333
Garland, TX - - 239,570 512,023 751,593
Houston, TX - - 261,318 531,968 793,286
Dallas, TX - - 281,347 543,937 825,284
Bastrop, TX - - 197,905 383,144 581,049
Eagle Pass, TX - - 256,745 455,841 712,586
Lake Worth, TX - - 252,141 539,510 791,651
McAllen, TX - - 265,177 605,397 870,574
Nacogdoches, TX - - 190,324 522,232 712,556
San Antonio, TX - - 200,510 643,741 844,251
Temple, TX - - 177,451 587,755 765,206
Universal City, TX - - 247,264 570,677 817,941
HomePlace:
Altamonte Spgs, FL - - 2,906,409 4,877,225 7,783,634
Ft. Myers, FL - - 1,956,579 4,045,196 6,001,775
Bowie, MD - - 1,965,508 (c) 1,965,508
International House
of Pancakes:
Stafford, TX - - 331,756 (c) 331,756
Sunset Hills, MO - - 271,853 (c) 271,853
Las Vegas, NV - - 519,947 (c) 519,947
Ft. Worth, TX - - 430,896 (c) 430,896
Arlington, TX - - 404,512 (c) 404,512
Matthews, NC - - 380,043 (c) 380,043
Phoenix, AZ - - 483,374 (c) 483,374
Just for Feet:
Albuquerque, NM - - 1,441,777 2,335,475 3,777,252
Kroger:
Columbus, OH - - 780,838 520,559 1,301,397
Linens 'n Things:
Freehold, NJ - - 1,753,766 2,208,651 3,962,417
Marshalls:
Freehold, NJ - - 2,052,946 2,585,432 4,638,378
Michael's
Grapevine, TX - - 1,017,934 2,066,715 3,084,649
Office Depot:
Arlington, TX - - 596,024 1,411,432 2,007,456
Richmond, VA - - 888,772 1,948,036 2,836,808
OfficeMax:
Corpus Christi, TX 76,664 - 893,270 1,055,008 1,948,278
Dallas, TX - - 1,118,500 1,709,891 2,828,391
Cincinnati, OH - - 543,489 1,574,551 2,118,040
Evanston, IL - - 1,867,831 1,757,618 3,625,449
Altamonte Spgs, FL - - 1,689,793 3,050,160 4,739,953
Pompano Beach, FL - - 2,266,908 1,904,803 4,171,711
Cutler Ridge, FL - - 989,370 1,479,119 2,468,489
Sacramento, CA - - 1,144,167 2,961,206 4,105,373
Salinas, CA - - 1,353,217 1,829,325 3,182,542
Redding, CA - - 667,174 2,181,563 2,848,737
Kelso, WA 1,805,539 - 868,003 1,805,539 2,673,542
Lynchburg, VA 1,851,326 - 561,509 1,851,326 2,412,835
Leesburg, FL 1,929,028 - 640,019 1,929,028 2,569,047
Plymouth Meeting,
PA 1,275,738 - 2,906,424 (g) 2,906,424
Tigard, OR - - 1,539,873 2,247,321 3,787,194
Dover, NJ - - 1,138,296 3,238,083 4,376,379
Griffin, GA 491,821 - 683,747 (g) 683,747
Oshman's Sporting
Goods:
Dallas, TX - - 1,311,440 (c) 1,311,440
Party City:
Memphis, TN 209,674 - 238,229 (g) 238,229
Petco:
Grand Forks, ND - - 306,629 909,671 1,216,300
PETsMART:
Chicago - - 2,723,463 3,564,837 6,288,300
Pier 1 Imports:
Memphis, TN - - 713,319 821,770 1,535,089
Sanford, FL - - 738,051 803,082 1,541,133
Knoxville, TN - - 466,636 (f) 466,636
Mason, OH - - 592,257 (f) 592,257
Harlingen, TX - - 315,434 (f) 315,434
Pizza Hut:
Orlando, FL - - 220,632 258,483 479,115
Rally's:
Toledo, OH - - 125,882 319,770 445,652
Robb & Stucky:
Ft. Myers, FL - - 2,188,440 6,225,401 8,413,841
Roger & Marv's:
Kenosha, WI - - 1,917,607 3,431,363 5,348,970
Ro-Jack's Food
Store:
Warwick, RI - - 1,699,330 (c) 1,699,330
Ross Dress For
Less:
Coral Gables, FL - - 1,782,346 1,661,174 3,443,520
Scotty's:
Orlando, FL - - 1,157,268 2,077,131 3,234,399
Orlando, FL - - 1,044,796 2,011,952 3,056,748
Sears Homelife:
Clearwater, FL 10,555 - 1,184,438 2,536,762 3,721,200
Orlando, FL - - 820,397 2,184,721 3,005,118
Pensacola, FL - - 633,125 1,595,405 2,228,530
Raleigh, NC - - 1,848,026 1,753,635 3,601,661
Tampa, FL - - 1,454,908 2,045,833 3,500,741
7-Eleven:
Land 'O Lakes, FL 409,606 - 1,076,495 (g) 1,076,495
Tampa Palms, FL 254,450 - 1,080,670 (g) 1,080,670
Shop & Save:
Homestead, PA - - 1,139,419 (c) 1,139,419
Penn Hills, PA - - 1,043,297 1,243,131 2,286,428
Sports Authority:
Memphis, TN 2,573,264 - 820,340 2,573,264 3,393,604
Little Rock, AR - - 3,418,875 2,660,206 6,079,081
Tampa, FL - - 2,127,503 1,521,730 3,649,233
SuperValu:
Huntington, WV - - 1,254,238 760,602 2,014,840
Top's:
Lacey, WA - - 2,777,449 7,082,150 9,859,599
Waccamaw:
Fairfax, VA - - 2,156,801 (c) 2,156,801
White Marsh, MD 3,006,391 - 3,762,030 3,006,391 6,768,421
Waremart:
Eureka, CA - - 3,135,036 5,470,607 8,605,643
Wendy's Old
Fashioned Hamburger:
Fenton, MO - - 307,068 496,410 803,478
Longwood, FL - - 333,335 194,926 528,261
Sacramento, CA - - 585,872 - 585,872
Vacant Properties:
Arlington, TX - - 752,840 3,980,309 4,733,149
South Miami, FL - - 1,379,229 1,723,047 3,102,276
Unallocated costs
relating to
construction
in progress 1,095,703
=========== ===== =========== =========== ===========
28,915,025 - 258,544,906 269,225,588 527,770,494
=========== ===== =========== =========== ===========
Properties the Company
has Invested in
Under Direct
Financing Leases:
Academy:
Houston, TX - - - (c) (c)
Houston, TX - - - (c) (c)
N. Richland Hills,
TX - - - (c) (c)
Houston, TX - - - (c) (c)
Houston, TX - - - (c) (c)
Baton Rouge, LA - - - (c) (c)
Barnes & Noble:
Plantation, FL - - - (c) (c)
Best Buy:
Evanston, IL - - - (c) (c)
Borders:
Altamonte Spgs,
FL - - - (c) (c)
Checkers:
Orlando, FL - - - (c) (c)
Denny's:
Landrum, SC - - - (c) (c)
Mooresville, NC - - - (c) (c)
Duncan, SC - - - (c) (c)
Akron, OH - - (d) (d) (d)
Topeka, KS - - - (c) (c)
Winter Springs,
FL - - - (c) (c)
Dave & Buster's:
Utica, MI - - - (c) (c)
Eckerd:
San Antonio, TX - - - (c) (c)
Dallas, TX - - - (c) (c)
Garland, TX - - - (c) (c)
Arlington, TX - - - (c) (c)
Millville, NJ - - - (c) (c)
Atlanta. GA - - - (c) (c)
Mantua, NJ - - - (c) (c)
Vineland, NJ - - (d) (d) (d)
Amarillo, TX - - - (c) (c)
Amarillo, TX - - - (c) (c)
Amarillo, TX - - (d) (d) (d)
Glassboro, NJ - - - (c) (c)
Kissimmee , FL - - - (c) (c)
Colleyville, TX - - - (c) (c)
Alice,TX - - (d) (d) (d)
Tampa, FL - - - (c) (c)
Lafayette, LA - - - (c) (c)
Moore, OK - - - (c) (c)
Tallahassee, FL - - - (c) (c)
East Point, GA - - (d) (d) (d)
Irving, TX - - - (c) (c)
Ft. Worth, TX - - (d) (d) (d)
Williston, FL - - - (c) (c)
Jasper, FL - - - (c) (c)
Oklahoma City, OK - - (o) (c) (c)
Oklahoma City, OK - - (o) (c) (c)
Norman, OK - - - (c) (c)
Chattanooga , TN - - - (c) (c)
Del City, OK 1,376,025 - - (c) (c)
Arlington, TX 1,416,071 - - (c) (c)
Food 4 Less:
Lemon Grove, CA - - - (c) (c)
Chula Vista, CA - - - (c) (c)
Food Lion:
Keystone Hts, FL - - (d) (d) (d)
Chattanooga, TN - - (d) (d) (d)
Lynchburg, VA - - (d) (d) (d)
Martinsburg, WV - - (d) (d) (d)
The Good Guys:
Stockton, CA - - (d) (d) (d)
Portland, OR - - (d) (d) (d)
Hardee's:
Mobile, AL - - - (c) (c)
Warrior, AL - - - (c) (c)
Horn Lake, MS - - - (c) (c)
West Point, MS - - - (c) (c)
Columbia, TN - - - (c) (c)
Johnson City, TN - - - (c) (c)
Iuka, MS - - (d) (d) (d)
Biscoe, NC - - (d) (d) (d)
Aynor, SC - - (d) (d) (d)
Heilig-Meyers:
Rincon, GA - - (d) (d) (d)
Bourbonnais, IL - - (d) (d) (d)
Mount Vernon, IL - - (d) (d) (d)
Muskogee, OK - - (d) (d) (d)
Stillwater, OK - - (d) (d) (d)
Everett, PA - - (d) (d) (d)
Lebanon, PA - - (d) (d) (d)
York, PA - - (d) (d) (d)
Marlow Heights, MD - - (d) (d) (d)
Clovis, NM - - (d) (d) (d)
Middletown, OH - - (d) (d) (d)
Conway, SC - - (d) (d) (d)
Hi-Lo Automotive:
Copperas Cove, TX - - (d) (d) (d)
Ft. Worth, TX - - (d) (d) (d)
Baton Rouge, LA - - (d) (d) (d)
Lake Jackson, TX - - (d) (d) (d)
Edinberg, TX - - (d) (d) (d)
Pantego, TX - - (d) (d) (d)
Ft. Worth, TX - - (d) (d) (d)
Pharr, TX - - (d) (d) (d)
Baton Rouge, LA - - (d) (d) (d)
Houston, TX - - (d) (d) (d)
HomePlace:
Bowie, MD - - - (c) (c)
International House
of Pancakes:
Stafford, TX - - - (c) (c)
Sunset Hills, MO - - - (c) (c)
Las Vegas, NV - - - (c) (c)
Ft. Worth, TX - - - (c) (c)
Arlington, TX - - - (c) (c)
Matthews, NC - - - (c) (c)
Phoenix, AZ - - - (c) (c)
Kash N' Karry:
Brandon, FL - - (d) (d) (d)
Levitz:
Tempe, AZ - - (d) (d) (d)
Oshman's Sporting
Goods:
Dallas, TX - - - (c) (c)
Ro-Jack's Food
Store:
Warwick, RI - - - (c) (c)
Shop & Save:
Homestead, PA - - - (c) (c)
Wacammaw:
Fairfax, VA - - - (c) (c)
========= ======= =========== ========== ==========
2,792,096 - - - -
========= ======= =========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
Life on Which
Depreciation in
Date Latest Income
Accumulated of Con- Date Statement is
Depreciation struction Acquired Computed
- --------------------------- ------------ --------- -------- ---------------
<S> <C> <C> <C> <C>
Properties the Company
has Invested in Under
Operating Leases:
Academy:
Houston, TX - 1994 05/95 (c)
Houston, TX - 1995 06/95 (c)
N. Richland Hills,
TX - 1996 08/95 (h) (c)
Houston, TX - 1996 02/96 (h) (c)
Houston, TX - 1996 06/96 (h) (c)
Baton Rouge, LA - 1997 08/96 (h) (c)
Adjacent Excess Space:
Memphis, TN 1,686 1998 11/98 40 years
Glendale, AZ - (g) 12/98 (g)
Babies "R" Us:
Arlington, TX 163,786 1996 06/96 40 years
Barnes & Noble:
Lakeland, FL 150,657 1995 07/94 (h) 40 years
Brandon, FL 151,878 1995 08/94 (h) 40 years
Denver, CO 289,334 1994 09/94 40 years
Houston, TX 194,685 1995 10/94 (h) 40 years
Cary, NC 194,298 1996 05/95 (h) 40 years
Plantation, FL - 1996 05/95 (h) (c)
Lafayette, LA 155,384 1996 06/95 (h) 40 years
Oklahoma City, OK 171,808 1996 06/95 (h) 40 years
Daytona, FL 150,500 1996 09/95 (h) 40 years
Freehold, NJ 165,154 1995 01/96 40 years
Dayton, OH 130,953 1996 05/97 40 years
Redding, CA 62,657 1997 06/97 40 years
Marlton, NJ 13,495 1998 11/98 40 years
Bed, Bath & Beyond:
Richmond, VA 42,724 1997 06/98 40 years
Los Angeles, CA 9,654 1975 11/98 40 years
Glendale, AZ - (g) 12/98 (g)
Best Buy:
Corpus Christi, TX 115,720 1967 11/93 40 years
Brandon, FL 129,944 1996 02/97 40 years
Evanston, IL - 1994 02/97 (c)
Cuyahoga Falls, OH 90,934 1970 06/97 40 years
Rockville, MD 124,643 1995 07/97 40 years
Fairfax, VA 110,619 1995 08/97 40 years
St. Petersburg, FL 95,561 1997 09/97 40 years
North Fayette, PA 31,050 1997 06/98 40 years
Blockbuster:
Conyers, GA 21,440 1997 06/97 40 years
Borders Books & Music:
Wilmington, DE 610,227 1994 12/94 40 years
Richmond, VA 231,436 1995 06/95 40 years
Ft. Lauderdale, FL 279,265 1995 02/96 40 years
Bangor, ME 157,150 1996 06/96 40 years
Altamonte Spgs, FL - 1997 09/97 (c)
Burger King:
Asheboro, NC 132,468 1986 07/92 40 years
Galliano, LA 183,707 1991 07/92 40 years
John's Island, SC 113,475 1988 07/92 40 years
Lake Charles, LA 156,928 1988 07/92 40 years
Lancaster, OH 94,707 1987 07/92 40 years
Natchez, MS 106,199 1986 07/92 40 years
Tappahannock, VA 93,077 1987 07/92 40 years
Warren, MI 127,568 1987 07/92 40 years
Manchester, NH 59,953 1980 05/93 40 years
Rochester, NH 108,989 1987 05/93 40 years
Columbus, OH 56,003 1982 06/93 40 years
Coon Rapids, MN 74,966 1990 06/93 40 years
Opeleousas, LA 113,427 1989 06/93 40 years
St. Paul, MN 74,679 1986 06/93 40 years
Checkers:
Orlando, FL - 1988 07/92 (c)
CompUSA:
Mission Viejo, CA 122,634 1994 02/94 (h) 40 years
Computer City:
Miami, FL 219,462 1994 04/94 40 years
Baton Rouge, LA 68,581 1995 12/95 40 years
Anchorage, AK 118,005 1995 02/96 40 years
Dave's:
Maple Heights, OH 134,738 1985 02/97 40 years
Dave & Buster's:
Utica, MI - 1998 06/98 (c)
Denny's:
Duncan, SC - 1992 05/93 (c)
Greensboro, NC 68,993 1992 05/93 40 years
Greenville, SC 56,057 1985 05/93 40 years
Houston, TX 80,120 1985 05/93 40 years
Landrum, SC - 1992 05/93 (c)
Mooresville, NC - 1992 05/93 (c)
Santee, SC 43,633 1992 05/93 40 years
Topeka, KS - 1989 06/93 (c)
Winter Springs, FL - 1994 01/94 (c)
Dick's Clothing:
Taylor, MI 202,416 1996 08/96 40 years
White Marsh, MD 224,800 1996 08/96 40 years
Eckerd:
San Antonio, TX - 1993 12/93 (c)
Dallas, TX - 1994 01/94 (c)
Garland, TX - 1994 02/94 (c)
Arlington, TX - 1994 02/94 (c)
Millville, NJ - 1994 03/94 (c)
Atlanta, GA - 1994 03/94 (c)
Mantua, NJ - 1994 06/94 (c)
Amarillo, TX - 1994 12/94 (c)
Amarillo, TX - 1994 12/94 (c)
Glassboro, NJ - 1994 12/94 (c)
Kissimmee , FL - 1995 04/95 (c)
Colleyville, TX - 1995 06/95 (c)
Tampa, FL - 1995 12/95 (c)
Douglasville, GA 72,706 1996 01/96 40 years
Lafayette, LA - 1995 01/96 (c)
Moore, OK - 1995 01/96 (c)
Midwest City, OK 77,932 1996 03/96 40 years
Tallahassee, FL - 1996 06/96 (c)
Irving, TX - 1996 12/96 (c)
Snellville, GA 66,182 1996 12/96 40 years
Jasper, FL - 1994 01/97 (c)
Williston, FL - 1995 01/97 (c)
Pantego, TX 55,843 1997 06/97 40 years
Conyers, GA 38,499 1997 06/97 40 years
Norman, OK - 1997 06/97 (c)
Chattanooga , TN - 1997 09/97 (c)
Stone Mountain, GA 35,878 1997 09/97 40 years
Arlington, TX 13,092 1998 11/97 (i) 40 years
Leavenworth, KS 18,022 1998 11/97 (i) 40 years
Augusta, GA 34,551 1997 12/97 40 years
Riverdale, GA 44,465 1997 12/97 40 years
Morrow, GA 32,511 1997 12/97 40 years
Warner Robins, GA - (g) 03/98 (g)
Lewisville, TX 9,737 1998 04/98 (i) 40 years
Forest Hill, TX 11,011 1998 04/98 (i) 40 years
Del City, OK - 1998 05/98 (c)
Arlington, TX - 1998 05/98 (c)
Ft. Worth, TX 2,706 1998 06/98 15 years
Land 'O Lakes, FL - (g) 08/98 (g)
Garland, TX 1,478 1998 06/98 (i) 40 years
Garland, TX 4,376 1998 06/98 (i) 40 years
Oklahoma City, OK - (g) 08/98 (g)
Vineland, NJ - (q) 09/98 (q)
Food 4 Less:
Lemon Grove, CA - 1996 07/95 (h) (c)
Chula Vista, CA (c) 1995 11/98 (c)
Golden Corral:
Woodstock, GA (e) 138,325 1984 11/84 35 years
Edenton, NC 134,174 1984 11/84 35 years
Rockledge, FL (e) 142,540 1984 12/84 35 years
Gilmer, TX (e) 123,971 1984 12/84 35 years
Bonham, TX (e) 143,912 1984 12/84 35 years
Leitchfield, KY (e) 128,221 1984 12/84 35 years
Marietta, GA (e) 144,892 1984 12/84 35 years
Atlanta, TX (e) 153,641 1985 01/85 35 years
Vernon, TX (e) 133,927 1985 03/85 35 years
Abbeville, LA (e) 147,555 1985 04/85 35 years
Fredricksburg, TX 130,770 1985 04/85 35 years
Clanton, AL (e) 120,889 1985 05/85 35 years
Pleasanton, TX (e) 128,686 1985 05/85 35 years
Bowie, TX (e) 126,843 1985 05/85 35 years
Lake Placid, FL (e) 124,209 1985 05/85 35 years
Ennis, TX 145,608 1985 07/85 35 years
Melbourne, FL (e) 135,565 1985 07/85 35 years
Franklin, LA (e) 157,598 1985 07/85 35 years
Franklin, VA 125,381 1987 02/87 40 years
Durant, OK 96,852 1989 08/89 40 years
Good Guys, The:
Foothill Ranch, CA 125,588 1995 12/96 40 years
Valencia,CA 135,717 1995 02/97 40 years
Riverside, CA 113,249 1995 05/97 40 years
Clackamas, OR 19,592 1995 06/98 40 years
Bellingham, WA 23,895 1994 06/98 40 years
Federal Way, WA 22,501 1994 06/98 40 years
East Palo Alto, CA - (f) 12/98 (f)
Hardee's:
Chalkville, AL 59,150 1992 10/93 40 years
Columbia, TN - 1993 10/93 (c)
Gulf Shores, AL 77,004 1993 10/93 40 years
Horn Lake, MS - 1993 10/93 (c)
Johnson City, TN - 1993 10/93 (c)
Mobile, AL - 1993 10/93 (c)
Petal, MS 53,719 1993 10/93 40 years
Rock Hill, SC 60,351 1993 10/93 40 years
Tusculum, TN 65,635 1993 10/93 40 years
Warrior, AL - 1992 10/93 (c)
West Point, MS - 1993 10/93 (c)
Heilig-Meyers:
Baltimore, MD 2,541 1968 11/98 40 years
Glen Burnie, MD 2,884 1968 11/98 40 years
Lima, OH 3,430 1997 11/98 40 years
Copperas Cove, TX 2,948 1972 11/98 40 years
Nacadoches, TX 3,929 1997 11/98 40 years
Hi-Lo Automotive:
Mesquite, TX 53,975 1994 10/94 40 years
Arlington, TX 58,389 1993 11/94 40 years
Ft. Worth, TX 52,328 1993 11/94 40 years
Garland, TX 52,299 1993 11/94 40 years
Houston, TX 54,342 1994 11/94 40 years
Dallas, TX 54,540 1994 12/94 40 years
Bastrop, TX 31,237 1994 09/95 40 years
Eagle Pass, TX 37,164 1994 09/95 40 years
Lake Worth, TX 43,985 1995 09/95 40 years
McAllen, TX 49,357 1995 09/95 40 years
Nacogdoches, TX 42,576 1995 09/95 40 years
San Antonio, TX 52,483 1994 09/95 40 years
Temple, TX 47,918 1989 09/95 40 years
Universal City, TX 46,526 1995 09/95 40 years
HomePlace:
Altamonte Spgs, FL 157,494 1997 09/97 40 years
Ft. Myers, FL 105,344 1997 12/97 40 years
Bowie, MD - 1997 12/97 (c)
International House
of Pancakes:
Stafford, TX - 1992 10/93 (c)
Sunset Hills, MO - 1993 10/93 (c)
Las Vegas, NV - 1993 12/93 (c)
Ft. Worth, TX - 1993 12/93 (c)
Arlington, TX - 1993 12/93 (c)
Matthews, NC - 1993 12/93 (c)
Phoenix, AZ - 1993 12/93 (c)
Just for Feet:
Albuquerque, NM 90,013 1997 06/97 40 years
Kroger:
Columbus, OH 24,401 1982 02/97 40 years
Linens 'n Things:
Freehold, NJ 239,716 1994 08/94 40 years
Marshalls:
Freehold, NJ 280,610 1994 08/94 40 years
Michael's
Grapevine, TX 27,987 1998 06/98 40 years
Office Depot:
Arlington, TX 173,408 1991 01/94 40 years
Richmond, VA 126,072 1996 05/96 40 years
OfficeMax:
Corpus Christi, TX 134,664 1967 11/93 40 years
Dallas, TX 213,854 1993 12/93 40 years
Cincinnati, OH 176,463 1994 07/94 40 years
Evanston, IL 156,477 1995 06/95 40 years
Altamonte Spgs, FL 219,490 1995 01/96 40 years
Pompano Beach, FL 138,345 1972 02/96 40 years
Cutler Ridge, FL 92,753 1995 06/96 40 years
Sacramento, CA 148,257 1996 12/96 40 years
Salinas, CA 85,750 1995 02/97 40 years
Redding, CA 84,081 1997 06/97 40 years
Kelso, WA 43,258 1998 09/97 40 years
Lynchburg, VA 13,499 1998 02/98 40 years
Leesburg, FL 2,009 1998 08/98 40 years
Plymouth Meeting, PA - (g) 10/98 (g)
Tigard, OR 7,023 1995 11/98 40 years
Dover, NJ 10,119 1995 11/98 40 years
Griffin, GA - (g) 11/98 (g)
Oshman's Sporting Goods:
Dallas, TX - 1994 03/94 (c)
Party City:
Memphis, TN - (g) 12/98 (g)
Petco:
Grand Forks, ND 23,713 1996 12/97 40 years
PETsMART:
Chicago 25,994 1998 09/98 40 years
Pier 1 Imports:
Memphis, TN 31,672 1997 09/96 (h) 40 years
Sanford, FL 15,894 1998 06/97 (h) 40 years
Knoxville, TN - (f) 01/98 (f)
Mason, OH - (f) 06/98 (f)
Harlingen, TX - (f) 11/98 (f)
Pizza Hut:
Orlando, FL 66,910 1974 08/93 20.9 years
Rally's:
Toledo, OH 53,599 1989 07/92 38.8 years
Robb & Stucky:
Ft. Myers, FL 164,758 1997 12/97 40 years
Roger & Marv's:
Kenosha, WI 156,156 1992 02/97 40 years
Ro-Jack's Food Store:
Warwick, RI - 1992 02/97 (c)
Ross Dress For Less:
Coral Gables, FL 37,836 1994 06/96 40 years
Scotty's:
Orlando, FL 183,025 1995 06/95 40 years
Orlando, FL 178,894 1995 06/95 40 years
Sears Homelife:
Clearwater, FL 354,234 1992 05/93 40 years
Orlando, FL 305,636 1992 05/93 40 years
Pensacola, FL 100,156 1994 06/96 40 years
Raleigh, NC 110,089 1995 06/96 40 years
Tampa, FL 128,433 1992 06/96 40 years
7-Eleven:
Land 'O Lakes, FL - (g) 10/98 (g)
Tampa Palms, FL - (g) 12/98 (g)
Shop & Save:
Homestead, PA - 1994 02/97 (c)
Penn Hills, PA 58,272 1991 02/97 40 years
Sports Authority:
Memphis, TN 13,402 1998 12/97 (i) 40 years
Little Rock, AR 19,397 1998 09/98 40 years
Tampa, FL 95,425 1994 06/96 40 years
SuperValu:
Huntington, WV 35,653 1971 02/97 40 years
Top's:
Lacey, WA 331,976 1992 02/97 40 years
Wacammaw:
Fairfax, VA - 1995 12/95 (c)
White Marsh, MD 59,502 1998 03/98 (i) 40 years
Waremart:
Eureka, CA 256,435 1965 02/97 40 years
Wendy's Old Fashioned
Hamburger:
Fenton, MO 97,939 1985 07/92 33 years
Longwood, FL 40,400 1982 07/92 31.4 years
Sacramento, CA - (p) 02/98 (p)
Vacant Properties:
Arlington, TX 65,321 1996 06/96 38.4 years
South Miami, FL 39,244 1988 06/96 38.1 years
Unallocated costs
relating to con-
struction in progress
===========
17,335,079
===========
Properties the Company has
Invested in Under Direct
Financing Leases:
Academy:
Houston, TX (c) 1994 05/95 (c)
Houston, TX (c) 1995 06/95 (c)
N. Richland Hills, TX (c) 1996 08/95 (h) (c)
Houston, TX (c) 1996 02/96 (h) (c)
Houston, TX (c) 1996 06/96 (h) (c)
Baton Rouge, LA (c) 1997 08/96 (h) (c)
Barnes & Noble:
Plantation, FL (c) 1996 05/95 (h) (c)
Best Buy:
Evanston, IL (c) 1994 02/97 (c)
Borders:
Altamonte Spgs, FL (c) 1997 09/97 (c)
Checkers:
Orlando, FL (c) 1988 07/92 (c)
Denny's:
Landrum, SC (c) 1992 05/93 (c)
Mooresville, NC (c) 1992 05/93 (c)
Duncan, SC (c) 1992 05/93 (c)
Akron, OH (d) 1992 05/93 (d)
Topeka, KS (c) 1989 06/93 (c)
Winter Springs, FL (c) 1994 01/94 (c)
Dave & Buster's:
Utica, MI (c) 1998 06/98 (c)
Eckerd:
San Antonio, TX (c) 1993 12/93 (c)
Dallas, TX (c) 1994 01/94 (c)
Garland, TX (c) 1994 02/94 (c)
Arlington, TX (c) 1994 02/94 (c)
Millville, NJ (c) 1994 03/94 (c)
Atlanta. GA (c) 1994 03/94 (c)
Mantua, NJ (c) 1994 06/94 (c)
Vineland, NJ (d) 1994 11/94 (d)
Amarillo, TX (c) 1994 12/94 (c)
Amarillo, TX (c) 1994 12/94 (c)
Amarillo, TX (d) 1994 12/94 (d)
Glassboro, NJ (c) 1994 12/94 (c)
Kissimmee , FL (c) 1995 04/95 (c)
Colleyville, TX (c) 1995 06/95 (c)
Alice,TX (d) 1995 06/95 (d)
Tampa, FL (c) 1995 12/95 (c)
Lafayette, LA (c) 1995 01/96 (c)
Moore, OK (c) 1995 01/96 (c)
Tallahassee, FL (c) 1996 06/96 (c)
East Point, GA (d) 1996 12/96 (d)
Irving, TX (c) 1996 12/96 (c)
Ft. Worth, TX (d) 1996 12/96 (d)
Williston, FL (c) 1995 01/97 (c)
Jasper, FL (c) 1994 01/97 (c)
Oklahoma City, OK (c) 1997 06/97 (c)
Oklahoma City, OK (c) 1997 06/97 (c)
Norman, OK (c) 1997 06/97 (c)
Chattanooga , TN (c) 1997 09/97 (c)
Del City, OK (c) 1998 10/98 (j) (c)
Arlington, TX (c) 1998 11/98 (j) (c)
Food 4 Less:
Lemon Grove, CA (c) 1996 07/95 (h) (c)
Chula Vista, CA (c) 1995 11/98 (c)
Food Lion:
Keystone Hts, FL (d) 1993 05/93 (d)
Chattanooga, TN (d) 1993 10/93 (d)
Lynchburg, VA (d) 1994 01/94 (d)
Martinsburg, WV (d) 1994 08/94 (d)
The Good Guys:
Stockton, CA (d) 1991 07/94 (d)
Portland, OR (d) 1996 05/96 (d)
Hardee's:
Mobile, AL (c) 1993 10/93 (c)
Warrior, AL (c) 1992 10/93 (c)
Horn Lake, MS (c) 1993 10/93 (c)
West Point, MS (c) 1993 10/93 (c)
Columbia, TN (c) 1993 10/93 (c)
Johnson City, TN (c) 1993 10/93 (c)
Iuka, MS (d) 1993 10/93 (d)
Biscoe, NC (d) 1993 10/93 (d)
Aynor, SC (d) 1993 10/93 (d)
Heilig-Meyers:
Rincon, GA (d) 1997 11/98 (d)
Bourbonnais, IL (d) 1997 11/98 (d)
Mount Vernon, IL (d) 1997 11/98 (d)
Muskogee, OK (d) 1997 11/98 (d)
Stillwater, OK (d) 1998 11/98 (d)
Everett, PA (d) 1998 11/98 (d)
Lebanon, PA (d) 1997 11/98 (d)
York, PA (d) 1997 11/98 (d)
Marlow Heights, MD (d) 1968 11/98 (d)
Clovis, NM (d) 1996 11/98 (d)
Middletown, OH (d) 1997 11/98 (d)
Conway, SC (d) 1997 11/98 (d)
Hi-Lo Automotive:
Copperas Cove, TX (d) 1994 10/94 (d)
Ft. Worth, TX (d) 1993 10/94 (d)
Baton Rouge, LA (d) 1994 10/94 (d)
Lake Jackson, TX (d) 1994 10/94 (d)
Edinberg, TX (d) 1993 10/94 (d)
Pantego, TX (d) 1993 10/94 (d)
Ft. Worth, TX (d) 1993 11/94 (d)
Pharr, TX (d) 1993 11/94 (d)
Baton Rouge, LA (d) 1994 12/94 (d)
Houston, TX (d) 1982 09/95 (d)
HomePlace:
Bowie, MD (c) 1997 12/97 (c)
International House
of Pancakes:
Stafford, TX (c) 1992 10/93 (c)
Sunset Hills, MO (c) 1993 10/93 (c)
Las Vegas, NV (c) 1993 12/93 (c)
Ft. Worth, TX (c) 1993 12/93 (c)
Arlington, TX (c) 1993 12/93 (c)
Matthews, NC (c) 1993 12/93 (c)
Phoenix, AZ (c) 1993 12/93 (c)
Kash N' Karry:
Brandon, FL (d) 1997 10/96 (h) (d)
Levitz:
Tempe, AZ (d) 1994 01/95 (d)
Oshman's Sporting Goods:
Dallas, TX (c) 1994 03/94 (c)
Ro-Jack's Food Store:
Warwick, RI (c) 1992 02/97 (c)
Shop & Save:
Homestead, PA (c) 1994 02/97 (c)
Wacammaw:
Fairfax, VA (c) 1995 12/95 (c)
===========
-
===========
</TABLE>
<TABLE>
COMMERCIAL NET LEASE REALTY, INC.
NOTES TO SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 1998
(a) Transactions in real estate and accumulated depreciation during 1998, 1997
and 1996, are summarized as follows:
<CAPTION>
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Land and Buildings:
Balance at the Beginning of Period 413,274,423 277,109,358 161,454,129
Acquisitions 129,416,817 156,011,944 116,563,622
Sale of land and buildings (5,407,999) (19,846,879) (908,393)
----------- ----------- -----------
Balance at the Close of Period 537,283,241 413,274,423 277,109,358
=========== =========== ===========
Accumulated Depreciation:
Balance at the Beginning of Period 12,296,997 8,078,562 5,497,390
Sale of land and buildings (820,506) (258,942) (222,940)
Depreciation expense 5,858,588 4,477,377 2,804,112
---------- ---------- ----------
Balance at the Close of Period 17,335,079 12,296,997 8,078,562
========== ========== ==========
<FN>
(b) As of December 31, 1998, all of the leases are treated as operating leases
for federal income tax purposes. As of December 31, 1998, the aggregate cost of
the properties owned by the Company and its subsidiaries for federal income tax
purposes was $668,371,927.
(c) For financial reporting purposes, the portion of the lease relating to the
building has been recorded as a direct financing lease; therefore, depreciation
is not applicable.
(d) For financial reporting purposes, the lease for the land and building has
been recorded as a direct financing lease; therefore, depreciation is not
applicable.
(e) The tenant of this property, Golden Corral Corporation, has subleased this
property. Golden Corral Corporation continues to be responsible for complying
with all the terms of the lease agreement and is continuing to pay rent on this
property to the Company. (f) The Company owns only land for this property.
Pursuant to the lease agreement, the Company is to purchase the building once
construction is complete.
(f) The Company owns only land for this property. Pursuant to the lease
agreement, the Company is to purchase the building once construction is
complete.
(g) The Company owns only land for this property. The building is under
construction; therefore, no depreciation was taken.
(h) Date acquired represents acquisition date of land. Pursuant to lease
agreement, the Company purchased the buildings from the tenants upon completion
of construction, generally within 12 months from the acquisition of the land.
(i) Date acquired represents acquisition date of land. The Company developed the
buildings, generally completing construction within 12 months from the
acquisition date of the land.
(j) Date acquired represents date of building construction completion. The land
has been recorded as operating lease.
(k) During the years ended December 31, 1997 and 1996, the Company (i) incurred
acquisition fees and expense reimbursement fees totaling $2,278,306 and
$937,363, respectively, paid to CNL Realty Advisors, Inc. and (ii) acquired land
and buildings purchased from affiliates of CNL Realty Advisors, Inc. for an
aggregate cost of $37,712,514 and $17,968,518, respectively. Such amounts are
included in land and buildings on operating leases and net investments in direct
financing leases. On January 1, 1998, the Company acquired CNL Realty Advisors,
Inc. and became self-administered. As a result, the Company was not a party to
such transactions and began internally performing the services previously
provided by CNL Realty Advisors, Inc. for the year ended December 31, 1998.
(l) Property is encumbered as a part of the Company's $13,150,000 long term,
fixed rate mortgage and security agreement.
(m) Property is encumbered as a part of the Company's $39,450,000 long term,
fixed rate mortgage and security agreement.
(n) Encumbered properties for which the portion of the lease relating to the
land is accounted for as an operating lease and the portion of the lease
relating to the building is accounted for as a direct financing lease, the total
amount of the encumbrance is listed with the land portion of the property.
(o) The Company owns only the building for this property. The land is subject to
a ground lease between the Company and an unrelated third party.
(p) The Company owns only the land for this property, which is subject to a
ground lease between the Company and the tenant. The tenant funded the
improvements on the property.
(q) The Company acquired a land parcel adjacent to its existing Eckerd in
Vineland, New Jersey, and is in the process of replacing the building in order
to increase the gross leaseable area. The original lease is recorded as a direct
financing lease.
</FN>
</TABLE>
<PAGE>
EXHIBITS
EXHIBIT INDEX
Exhibit Number
- --------------
3.1 Articles of Incorporation of the Registrant (filed as Exhibit
3.3(i) to the Registrant's Registration Statement No. 1-11290 on
Form 8-B, and incorporated herein by reference).
3.2 Bylaws of the Registrant, (filed as Exhibit 3(ii) to Amendment
No. 2 to the Registrant's Registration No. 33-83110 on Form S-3,
and incorporated herein by reference).
3.3 Articles of Amendment to the Articles of Incorporation of the
Registrant (filed as Exhibit 3.3 to the Registrant's Form 10-Q
for the quarter ended June 30, 1996, and incorporated herein by
reference).
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, andincorporated
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
June 30, 1992, and incorporated herein by reference).
10.2 Advisory Agreement between Registrant and CNL Realty Advisors,
Inc. effective as of April 1, 1993 and renewed January 1, 1997
(filed as Exhibit 10.04 to Amendment No. 1 to the Registrant's
Registration Statement No. 33-61214 on Form S-2, and incorporated
herein by reference).
10.3 1992 Commercial Net Lease Realty, Inc. Stock Option Plan (filed
as Exhibit No. 10(x) to the Registrant's Registration Statement
No. 33-83110 on Form S-3, and incorporated herein by reference).
10.4 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, dated September
3, 1996, by and among Registrant and First Union National Bank of
Florida, as the Agent, relating to $150,000,000 loan (filed as
Exhibit 10.12 to the Registrant's Quarterly Report on Form 10-Q
for the quarter ended September 30, 1996, and incorporated herein
by reference).
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).
12 Statement of Computation of Ratios of Earnings to Fixed Charges
(filed herewith).
13 Annual Report to Shareholders for the year ended December 31,1998
(filed herewith).
23 Consent of Independent Accountants dated March 30, 1999
(filed herewith).
27 Financial Data Schedule (filed herewith).
(b) No reports on Form 8-K were filed during the quarter ended December 31,
1998.
<TABLE>
<CAPTION>
EXHIBIT 12
1998 1997 1996 1995 1994
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net Earnings Before
Extraordinary Item $ 32,441,198 $ 30,384,643 $ 19,839,374 $ 12,707,271 $ 8,915,373
Plus: Merger Transaction Costs 5,501,343 0 0 0 0
------------ ------------ ------------ ------------ -----------
Net Earnings Before Extraordinary Item and
Merger Transaction Costs 37,942,541 30,384,643 19,839,374 12,707,271 8,915,373
Fixed Charges:
Interest on Indebtedness 13,444,646 11,477,929 7,206,291 3,834,388 497,670
Discount Relating to Indebtedness 15,244 0 0 0 0
Amortization of Loan Costs 710,491 825,014 748,638 322,176 254,080
------------ ------------ ------------ ------------ -----------
14,170,381 12,302,943 7,954,929 4,156,564 751,750
Net Earnings Before Extraordinary
Item, Merger Transaction Costs and
Fixed Charges 52,112,922 42,687,586 27,794,303 16,863,835 9,667,123
Divided by Fixed Charges
Fixed Charges 14,170,381 12,302,943 7,954,929 4,156,564 751,750
Capitalized Interest 1,111,615 133,202 0 0 0
------------ ------------ ------------ ------------ -----------
$ 15,281,996 $ 12,436,145 $ 7,954,929 $ 4,156,564 $ 751,750
------------ ------------ ------------ ------------ -----------
Ratio of Net Earnings to Fixed Charges 3.41 3.43 3.49 4.06 12.86
============ ============ ============ ============ ===========
</TABLE>
Exhibit 13
Annual Report to Shareholders
1998 ANNUAL REPORT - PAGE 1
[Picture 1] Background photograph of a construction site located in East
Ridge, Tennessee.
<TABLE>
HISTORICAL FINANCIAL HIGHLIGHTS
(dollars in thousands, except per share data)
<CAPTION>
1998 1997 1996 1995 1994
----------- ------------ ------------ ----------- -----------
<S> <C> <C> <C> <C> <C>
Gross Revenues $ 64,773 $ 50,135 $ 33,369 $ 20,580 $ 12,289
Net Earnings $ 32,441 $ 30,385 $ 19,839 $ 12,707 $ 8,915
Total Assets $ 685,595 $ 537,014 $ 370,953 $ 219,257 $ 152,211
Total Long-Term Debt $ 292,907 $ 171,836 $ 116,956 $ 82,600 $ 14,800
Total Equity $ 383,890 $ 362,144 $ 252,574 $ 135,842 $ 136,665
Cash Dividends Paid to
Stockholders $ 35,672 $ 28,381 $ 18,868 $ 13,529 $ 9,897
Weighted Average Shares
Basic 29,169,371 24,070,697 16,798,918 11,663,672 8,606,138
Diluted 29,397,154 24,220,792 16,838,719 11,671,197 8,613,672
Per Share Information:
Net Earnings
Basic $ 1.11 $ 1.26 $ 1.18 $ 1.09 $ 1.04
Diluted $ 1.10 $ 1.25 $ 1.18 $ 1.09 $ 1.04
Dividends $ 1.23 $ 1.20 $ 1.18 $ 1.16 $ 1.14
Other Data
Funds from
operations (1) $ 42,517 $ 34,230 $ 22,570 $ 14,443 $ 9,992
Cash flows provided
by (used in):
Operating activities $ 41,260 $ 34,010 $ 22,216 $ 14,140 $ 9,505
Investing activities $ (145,643) $ (167,002) $ (144,247) $ (67,518) $ (79.081)
Financing activities $ 103,665 $ 133,742 $ 123,140 $ 52,609 $ 50,799
Equity Market
Capitalization ($mil) $ 391.2 $ 499.7 $ 329.6 $ 148.7 $ 142.9
<FN>
(1) The Company adopted the NAREIT definition of funds from operations in 1995
and has restated funds from operations for 1994 in accordance with this
definition. Funds from operations are net earnings excluding depreciation, gains
and losses on the sale of real estate and nonrecurring items of income and
expense of the Company, and the Company's share of these items from the
Company's unconsolidated partnership. For purposes of this table, funds from
operations exclude $5,501 of expenses incurred in acquiring CNL Realty Advisors,
Inc. from a related party in 1998. Funds from operations are generally
considered by industry analysts to be the most appropriate measure of
performance and do not necessarily represent cash provided by operating
activities in accordance with generally accepted accounting principles and are
not necessarily indicative of cash available to meet cash needs. Management
considers funds from operations an appropriate measure of performance of an
equity REIT because it is predicated on cash flow analysis. The Company's
computation of funds from operations may differ from the methodology for
calculating funds from operations utilized by other equity REITs, and therefore,
may not be comparable to such other REITs.
</FN>
</TABLE>
1998 ANNUAL REPORT - PAGE 8
[Picture 2] Photograph of a man welding at a construction site located in
East Ridge, Tennessee. Photograph caption reads, "Measure not the
work until the day's out and the labor done, Then bring your gauge."
- Elizabeth Barrett Browning
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
INTRODUCTION
Commercial Net Lease Realty, Inc., a Maryland corporation, is a fully
integrated, self-administered real estate investment trust ("REIT") formed in
1984 that acquires, develops, owns and manages high-quality, freestanding
properties that are generally leased to major retail businesses under long-term
commercial net leases. As of December 31, 1998, Commercial Net Lease Realty,
Inc. and its subsidiaries (the "Company") owned 285 properties (the
"Properties") that are leased to major retail businesses, including Academy,
Babies "R" Us, Barnes & Noble, Bed Bath & Beyond, Best Buy, Borders, Burger
King, CompUSA, Computer City, Dave & Buster's, Denny's, Dick's Clothing &
Sporting Goods, Eckerd, Food 4 Less, Food Lion, Golden Corral, Good Guys,
Hardee's, Heilig-Meyers, Hi-Lo Automotive, HomePlace, International House of
Pancakes, Kash N' Karry, Levitz, Linens 'n Things, Marshalls, Michael's, Office
Depot, OfficeMax, Oshman's, PETsMart, Pier 1 Imports, Robb & Stucky, Ross Dress
For Less, Scotty's, Sears Homelife Centers, The Sports Authority, Waccamaw and
eight independently operated grocery stores leased to or partially guaranteed by
SuperValu, Inc.
LIQUIDITY AND CAPITAL RESOURCES
General. Historically, the Company's only need 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 years ended December 31, 1998, 1997 and 1996, the Company generated
$41,260,000, $34,010,000 and $22,216,000, respectively, in net cash provided by
operating activities. The increase in cash from operations for each of the years
ended December 31, 1998, 1997 and 1996, 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
1998 ANNUAL REPORT - PAGE 9
utilities, property taxes and insurance. In addition, the Company's leases
generally provide that the tenant is responsible for roof and structural
repairs. Certain of the Company's Properties are subject to leases under which
the Company retains responsibility for certain costs and expenses associated
with the Property. Because many of the Properties which are subject to leases
that place these responsibilities on the Company are recently constructed,
management anticipates that capital demands to meet obligations with respect to
these Properties will be minimal for the foreseeable future and can be met with
funds from operations and working capital. The Company may be required to use
bank borrowings or other sources of capital in the event of unforeseen
significant capital expenditures.
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. In September 1998, one of these Properties was re-leased to Waccamaw
Corporation. The Company is currently marketing the remaining Property, which is
not subject to a lease, for sale or lease. As of December 31, 1998, HomePlace
continued to lease three Properties which accounted for four percent of the
Company's total rental and earned income for the year ended December 31,1998.
In August 1997, one of the Company's tenants, Luria's, 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 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. In
August 1998, the Company re-leased one of these three Properties to The Sports
Authority and in October 1998, the Company re-leased one of these Properties to
Ross Dress for Less. The remaining Property, which is not subject to a lease, is
currently under contract for sale.
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") which amended the company's $150,000,000 credit facility by (i)
increasing the borrowing capacity from $150,000,000 to $200,000,000, (ii)
extending the expiration date to July 30, 1999 (and for up to two additional 12
month periods at the option of the Company), and (iii) lowering the interest
rate from 160 basis points above LIBOR to a tiered rate structure with a maximum
rate of 140 basis points above LIBOR (based upon the Company's investment grade
rating) or the lender's prime rate, whichever the Company selects. In connection
with the Credit Facility, the Company is required to pay a commitment fee of 20
basis points per annum on the unused commitment. As of December 31, 1998,
$138,100,000 was outstanding under the Credit Facility. The Company expects to
use the Credit Facility primarily to invest in freestanding, retail properties.
As a means to reduce its exposure to rising interest rates on the Company's
variable rate Credit Facility, the Company was a party to two interest rate cap
agreements during the three years ended December 31, 1998. As of December 31,
1998, one of the interest rate cap agreements had expired and one remained
effective, providing for a fixed LIBOR rate of 6.9% per annum on a notional
amount of $30 million. This agreement is effective through December 1999.
In December 1995, the Company entered into a long-term, fixed rate mortgage and
security agreement for $13,150,000. The loan provides for a four-year mortgage
with interest payable monthly and principal payable at maturity on December 15,
1999, and bears interest at a rate of 6.75% per annum. The mortgage is secured
by a first lien on and assignment of rents and leases of certain of the
Company's Properties. As of December 31, 1998, the outstanding principal balance
was $13,150,000 and the aggregate carrying value of these Properties totaled
$16,539,000. The Company intends to use available funds from its Credit Facility
to pay the $13,150,000 principal balance of this loan upon its maturity in
December 1999.
In January 1996, the Company entered into a long-term, fixed rate mortgage and
security agreement for $39,450,000. The loan is a ten-year loan with principal
and interest payable monthly, based on a 17-year amortization, with the balance
due in February 2006 and bears interest at a rate of 7.435% per annum. The
mortgage is secured by a first lien on and an assignment of rents and leases of
certain of the Company's Properties. As of December 31, 1998, the outstanding
principal balance was $35,680,000 and the aggregate carrying value of the
Properties totaled $72,841,000.
1998 ANNUAL REPORT - PAGE 10
In June 1996, the Company acquired three Properties each subject to a mortgage
totaling $6,864,000 (collectively the "Mortgages"). The Mortgages bear interest
at a weighted average rate of 8.6% and have a weighted average maturity of 6.4
years. As of December 31, 1998, the outstanding principal balances for the
Mortgages totaled $6,233,000 and the aggregate carrying value of these three
properties totaled $8,155,000.
Payments of principal on the mortgage debt and on advances outstanding under the
Credit Facility are expected to be met from the proceeds of renewing or
refinancing the Credit Facility, proceeds from public or private offerings of
the Company's debt or equity securities, secured or unsecured borrowings from
banks or other lenders or proceeds from the sale of one or more of its
Properties.
Debt and Equity Securities. During the year ended December 31, 1996, the Company
issued a total of 9,100,000 shares of common stock pursuant to two prospectus
supplements to its $200,000,000 shelf registration statement and received gross
proceeds totaling $123,375,000. In connection with the two offerings, the
Company incurred stock issuance costs totaling $7,614,000 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.
In April of 1997, 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
$36,846,000 of unissued debt and equity securities under the Company's previous
$200,000,000 shelf registration statement). During the year ended December 31,
1997, the Company issued a total of 7,158,033 shares of common stock pursuant to
four prospectus supplements to these shelf registration statements and received
gross proceeds totaling $111,056,000. In connection with
[Map 1] GEOGRAPHIC DIVERSIFICATION
Alabama
Alaska
Arkansas
Arizona
California
Colorado
Delaware
Florida
Georgia
Illinois
Kansas
Kentucky
Louisiana
Maine
Maryland
Michigan
Minnesota
Mississippi
Missouri
New Hampshire
New Jersey
New Mexico
Nevada
North Carolina
North Dakota
Ohio
Oklahoma
Oregon
Pennsylvania
Rhode Island
South Carolina
Tennessee
Texas
Virginia
Washington
West Virginia
Wisconsin
the four offerings, the Company incurred stock issuance costs totaling
$3,954,000 consisting primarily of underwriters' commissions and fees, legal and
accounting fees and printing expenses. Net proceeds from the offerings, were
used to pay down the Company's Credit Facility.
During the year ended December 31, 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.
During the year ended December 31, 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).
1998 ANNUAL REPORT - PAGE 11
Property Acquisitions and Commitments. During the year ended December 31, 1998,
the Company borrowed $143,600,000 under its Credit Facility (i) to acquire 55
properties (23 of which were land only parcels, 14 of which are 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 14 buildings
by the Company on five land parcels acquired by the Company during 1997 and nine
land parcels acquired by the Company in 1998 (the "Acquisition Properties"). The
Properties acquired during 1998 are leased to tenants including Barnes & Noble,
Bed Bath & Beyond, Best Buy, Dave & Buster's, Eckerd, Food 4 Less, Good Guys,
Heilig-Meyers, Michael's, OfficeMax, PETsMART, Pier I Imports, The Sports
Authority and Wendy's.
The Company generally leases the Acquisition Properties to major retail tenants
and accounts for the leases under the provisions of the Statement of Financial
Accounting Standards No. 13, "Accounting for Leases." Pursuant to the
requirements of this Statement, 39 of the leases relating to the 55 Properties
acquired during 1998 have been classified as operating leases and 14 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 two of these leases are
accounted for as operating leases. Two of the properties are adjacent excess
parcels that are not subject to a lease. Also pursuant to the requirements of
this Statement, the lease relating to the building which was developed by the
tenant on a land parcel owned by the Company and the leases relating to the five
buildings developed by the Company on land parcels owned by the Company have
been classified as operating leases.
In connection with the acquisition and lease relating to the land parcels of the
three Pier 1 Imports Properties and one of the Good Guys Properties, the tenants
are obligated to develop a building on the respective land parcels. The Company
has agreed to acquire the completed buildings for an amount of up to $3,939,000,
at which time rental income will increase for the Properties. The Company owns
11 land parcels subject to lease agreements with tenants whereby the Company has
agreed to construct a building on each respective land parcel for an aggregate
amount of approximately $15,458,000, of which $8,417,000 of costs had been
incurred at December 31, 1998. The lease agreements provide for rent to commence
upon completion of construction of the buildings.
[Picture 3] Photograph of a construction site located in East Ridge, Tennessee.
[Picture 4] Photograph of an exterior view of the Linens 'n Things located in
Freehold, New Jersey.
[Picture 5] Photograph of an exterior view of the Borders Books and Music
located in Ft. Lauderdale, Florida.
[Picture 6] Photograph of an exterior view of The Good Guys! located in
Stockton, California.
1998 ANNUAL REPORT - PAGE 12
As of December 31, 1998, the Company had entered into agreements to purchase 33
additional properties for an estimated aggregate amount of $63,123,000. In
connection with the acquisition of 23 of these properties, the Company was
contingently liable for $5,000,000 related to a bank letter of credit which
guarantees the Company's obligation under the purchase agreements to acquire
these properties. The purchase of these properties is subject to conditions
relating to completion of development activities, review of title and obtaining
title insurance, engineering and environmental inspections and other matters.
In addition to the 33 properties under contract and the 15 buildings under
construction as of December 31, 1998, the Company is currently negotiating the
acquisition of prospective properties. The Company may elect to acquire these
prospective properties or other additional properties (or interests therein) in
the future. Such property acquisitions are expected to be the primary demand for
additional capital in the future. The Company anticipates that it may engage in
equity or debt financing, through either public or private offerings of its
securities for cash, issuance of such securities in exchange for assets, or a
combination of the foregoing. Subject to the constraints imposed by the
Company's Credit Facility and long-term, fixed rate financing, the Company may
enter into additional financing arrangements.
During 1996, the Company sold its properties in Marble Falls and Gonzales, Texas
for a total of $790,000 and received net proceeds of $759,000, resulting in a
gain of $73,000 for financial statement purposes. The Company reinvested the
proceeds to acquire two additional Properties and structured the transactions to
qualify as tax-free like-kind exchange transactions for federal income tax
purposes.
In January 1997, the Company sold its property in Foley, Alabama, for $570,000
and received net sales proceeds of $551,000. In addition, in September 1997, the
Company sold four of its properties to Net Lease Institutional Realty, L.P. (see
"Investment in Partnership") at the Company's original cost of $17,542,000. In
addition, the Company sold an undeveloped portion of land of one of its
Properties for $1,313,000 and received net proceeds of $1,265,000. The Company
recognized a gain on the sale of these five properties and the portion of the
land parcel of $651,000 for financial reporting purposes. The Company reinvested
the proceeds to acquire additional properties and structured the transactions to
qualify as tax-free like-kind exchange transactions for federal income tax
purposes.
During 1998, the Company sold six of its Properties for a total of $6,130,000
and received net sales proceeds of $5,947,000. The Company recognized a gain on
the sale of these six Properties of $1,355,000 for financial reporting purposes.
The Company reinvested the proceeds to acquire three additional properties and
structured the transactions to qualify as tax-free like-kind exchange
transactions for federal income tax purposes.
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 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 based upon the Company's completed
property acquisitions and completed development projects in accordance with the
Merger agreement. In the event of a change in control of the Company, any
remaining Share Balance will be immediately issued and paid to stockholders of
the Advisor. 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. During the year ended December 31, 1998, the Company issued 57,813
shares of the Share Balance in connection with the property acquisitions during
the nine months ended September 30, 1998. The market value of the shares at the
date the shares became issuable totaled $809,000, all of which was charged to
operations during the year ended December 31, 1998. In addition, in connection
with the property acquisitions during the quarter ended December 31, 1998, on
January 1, 1999, an additional 371,938 shares of the Share Balance
1998 ANNUAL REPORT - PAGE 13
became issuable to the stockholders of the Advisor. The market value of the
shares at the date the shares became issuable totaled $4,928,000, all of which
is to be charged to operations during the year ended December 31, 1999. Pursuant
to the agreement and plan of merger, the Company is required to issue the shares
within 90 days after the shares become issuable. 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.
Investment in Partnership. In September 1997, the Company entered into a
partnership arrangement, Net Lease Institutional Realty, L.P. (the
"Partnership"), with the Northern Trust Company, as Trustee of the Retirement
Plan for the Chicago Transit Authority Employees ("CTA"). The Company is the
sole general partner (the "General Partner") with a 20 percent interest in the
Partnership and CTA is the sole limited partner (the "Limited Partner") with an
80 percent limited partnership interest. The Partnership owns and leases nine
properties to major retail tenants under long-term commercial net leases. Net
income and losses of the Partnership are to be allocated to the partners in
accordance with their respective percentage interest in the Partnership. The
Company accounts for its 20 percent interest in the Partnership under the equity
method of accounting.
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. During the years ended December 31, 1998, 1997 and
1996, the Company declared and paid dividends to its stockholders of
$35,672,000, $28,381,000 and $18,868,000, respectively, or $1.23, $1.20, and
$1.18 per share of common stock, respectively. For the years ended December 31,
1998, 1997 and 1996, 88.9%, 91.4% and 90.2%, respectively, of such dividends
were considered to be ordinary income and 11.1%, 8.6% and 9.8%, respectively,
[Picture 7] Photograph of a construction site located in Land O' Lakes, Florida.
[Picture 8] Photograph of an exterior view of the Eckerd located in Snellville,
Georgia.
[Picture 9] Photograph of an exterior view of the Marshalls located in Freehold,
New Jersey.
[Picture10] Photograph of an exterior view of the Academy located in Houston,
Texas.
1998 ANNUAL REPORT - PAGE 14
[Picture 11] Photograph of a construction site located in East Ridge, Tennessee.
were considered return of capital for federal income tax purposes. In January
1999, the Company declared dividends to its stockholders of $9,267,000 or $0.31
per share of common stock, payable in February 1999.
RESULTS OF OPERATIONS
Comparison of Year Ended December 31, 1998 to Year Ended December 31, 1997. As
of December 31, 1998 and 1997, the Company owned 285 and 237 wholly-owned
Properties, respectively, 281 and 237, respectively, of which were leased to
operators of major retail businesses. In addition, during the year ended
December 31, 1998, the Company leased six properties which were sold during
1998. During the year ended December 31, 1997, the Company leased one property
which was contributed to the Partnership during 1997 and five properties which
were sold during 1997. In connection therewith, during the years ended December
31, 1998 and 1997, the Company earned $61,750,000 and $49,922,000, respectively,
in rental income from operating leases, earned income from direct financing
leases and contingent rental income ("Rental Income"). The 23.7 percent increase
in Rental Income during 1998, as compared to 1997, is primarily attributable to
income earned on the 55 Properties acquired and the 15 buildings upon which
construction was completed during 1998. In addition, Rental Income increased
during 1998 as a result of the fact that the 47 Properties acquired and three
buildings upon which construction was completed during 1997 were operational for
a full fiscal year in 1998. The increase in Rental Income was partially offset
by a decrease in Rental Income relating to five Properties which became vacant
during the year ended December 31, 1998. Rental Income is expected to increase
in 1999 as the Company acquires additional properties and due to the fact that
the 55 Properties acquired and 15 buildings upon which construction was
completed in 1998 will contribute to the Company's income for a full fiscal
year. In addition, the Company has re-leased three of its five vacant
Properties. The Properties are leased on a long-term basis, generally 10 to 20
years, with renewal options for an additional 10 to 20 years. As of December 31,
1998, the weighted average remaining lease term of the Properties was
approximately 15 years.
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." The Statement requires that a public
business enterprise report financial and descriptive
1998 ANNUAL REPORT - PAGE 15
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 triple net leases and (ii) fee income from development,
property management and asset management services. During the years ended
December 31, 1998, 1997 and 1996, the Company generated $62,067,000, $50,135,000
and $33,369,000, respectively, from its triple net lease segment. For the year
ended December 31, 1998, the Company generated revenues totaling $2,706,000 from
its fee income segment. Prior to January 1, 1998, the Company did not provide
services for development, property management and asset management.
During 1998, one of the Company's lessees, Eckerd Corporation, accounted for
more than ten percent of the Company's total rental income (including the
Company's share of rental income from nine properties owned by the Company's
unconsolidated partnership). As of December 31, 1998, Eckerd Corporation leased
52 Properties (including four properties under leases with the Company's
unconsolidated partnership). It is anticipated that, based on the minimum rental
payments required by the leases, Eckerd Corporation will continue to account for
more than ten percent of the Company's total rental income in 1999. Any failure
of this lessee could materially affect the Company's earnings.
During the year ended December 31, 1998, the Company earned $2,362,000 in
development and asset management fees from related parties. 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 years ended December 31, 1998 and 1997, the Company's operating
expenses, excluding interest and including depreciation and amortization, were
$20,594,000 and $9,025,000, respectively (31.8% and 18.0%, respectively, of
total revenues). The increase in the dollar amount of operating expenses for the
year ended December 31, 1998, is primarily attributable to a $5,501,000 charge
related to the costs incurred in acquiring the Advisor from a related party.
Operating expenses for the year ended December 31, 1998, excluding the costs
relating to the acquisition of the Advisor, were $15,093,000 (23.3 % of gross
operating revenues). The increase for the year ended December 31, 1998 is also
attributable to the increase in depreciation as a result of the depreciation of
the additional Properties acquired during 1998 and a full year of depreciation
on the Properties acquired during 1997. Real estate expenses also increased
primarily as a result of costs incurred on the five Properties that became
vacant during 1998. In addition, during the year ended December 31, 1997, the
Company paid an advisory fee to the Advisor. The increase in general and
administrative expense for the year ended December 31, 1998, was largely a
result of the administrative overhead assumed in connection with the Merger of
the Company's Advisor on January 1, 1998, (in lieu of paying advisory,
acquisition and development fees to the Advisor) and due to the increase in the
Company's asset size and operations. In accordance with generally accepted
accounting principles, certain costs relating to development of Properties for
the Company's own use have been capitalized.
The Company recognized $13,460,000 and $11,478,000 in interest expense for the
years ended December 31, 1998 and 1997, respectively. Interest expense increased
for the year ended December 31, 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.
During 1998, the Company sold six of its Properties for a total of $6,130,000
and received net sales proceeds of $5,947,000. The Company recognized a gain on
the sale of these six Properties of $1,355,000 for financial reporting purposes.
The Company reinvested the proceeds to acquire three additional properties and
structured the transactions to qualify as tax-free like-kind exchange
transactions for federal income tax purposes.
In January 1997, the Company sold its property in Foley, Alabama, for $570,000
and received net sales proceeds of $551,000. In addition, in September 1997, the
Company sold four of its properties to Net Lease Institutional Realty, L.P. at
the Company's original cost of $17,542,000. In addition, the Company sold an
undeveloped portion of land of one is its Properties for $1,313,000 and received
net proceeds of $1,265,000. The Company recognized a gain on the sale of these
five properties and the portion of the land parcel of $651,000 for
1998 ANNUAL REPORT - PAGE 16
financial reporting purposes. The Company reinvested the proceeds to acquire
additional properties and structured the transactions to qualify as tax-free
like-kind exchange transactions for federal income tax purposes.
Comparison of Year Ended December 31, 1997 to Year Ended December 31, 1996. As
of December 31, 1997 and 1996, the Company owned and leased 237 and 195
Properties, respectively, to operators of major retail businesses. In addition,
during the year ended December 31, 1997, the Company leased one property which
was contributed to the Partnership during 1997 and five properties which were
sold during 1997. During the year ended December 31, 1996, the Company leased
two properties which were sold during 1996. The Properties are leased on a
long-term basis, generally 15 to 20 years, with renewal options for an
additional 10 to 20 years. As of December 31, 1997, the weighted average
remaining lease term of the Properties was approximately 14 years. During the
years ended December 31, 1997 and 1996, the Company earned $49,922,000 and
$33,209,000, respectively, in Rental Income. The 50 percent increase in Rental
Income during 1997, as compared to 1996, was primarily attributable to income
earned on the 47 Properties acquired and the three buildings upon which
construction was completed during 1997. In addition, Rental Income increased
during 1997 as a result of the fact that the 40 Properties acquired and nine
buildings upon which construction was completed during 1996 were operational for
a full fiscal year in 1997.
During 1997, two of the Company's lessees, Eckerd Corporation and Barnes & Noble
Superstores, Inc., each accounted for more than ten percent of the Company's
total rental income (including the Company's share of rental income from nine
properties owned by the Company's unconsolidated partnership). As of December
31, 1997, Eckerd Corporation and Barnes & Noble Superstores, Inc. leased 43
Properties and 13 Properties, respectively (including four properties and one
property, respectively, under leases with the Company's unconsolidated
partnership).
The Company incurred $11,478,000 and $7,206,000, in interest expense for the
years ended December 31, 1997 and 1996, respectively. Interest expense increased
for the year ended December 31, 1997 as a result of higher average borrowing
levels. As a means to reduce its exposure to variable rate debt, the Company
entered into interest rate cap agreements as described above in "Liquidity and
Capital Resources."
During the years ended December 31, 1997 and 1996, the Company's operating
expenses, including depreciation and amortization, were $9,025,000 and
$6,397,000, respectively (18.0% and 19.2%, respectively, of total revenues). The
increase in the dollar amount of operating expenses for the year ended December
31, 1997, was primarily attributable to the increase in depreciation as a result
of the depreciation of the additional Properties acquired during 1997 and a full
year of depreciation on the Properties acquired during 1996. The increase was
also attributable to (i) an increase in amortization expense as a result of the
amortization of loan costs relating to the Company's amendment to the Company's
Credit Facility, (ii) an increase in advisory fees as a result of increased
funds from operations for the year ended December 31, 1997, and (iii) an
increase in state tax expense primarily as a result of the acquisition of
additional Properties and an increase in capital resulting from the equity
offerings during the years ended December 31, 1997 and 1996.
In January 1997, the Company sold its property in Foley, Alabama, for $570,000
and received net sales proceeds of $551,000. In addition, in September 1997, the
Company sold four of its properties to Net Lease Institutional Realty, L.P. at
the Company's original cost of $17,542,000. In addition, the Company sold an
undeveloped portion of land of one is its Properties for $1,313,000 and received
net proceeds of $1,265,000. The Company recognized a gain on the sale of these
five properties and the portion of the land parcel of $651,000 for financial
reporting purposes. The Company reinvested the proceeds to acquire additional
properties and structured the transactions to qualify as tax-free like-kind
exchange transactions for federal income tax purposes.
Investment Considerations. Two of the Company's tenants, HomePlace and Levitz
(the "Tenants"), have each filed a voluntary petition for bankruptcy under
Chapter 11 of the U.S. Bankruptcy Code. As a result, each of the Tenants has the
right to reject or affirm one or more of its leases with the Company. As of
December 31, 1998, HomePlace and Levitz continued to lease three and one
Properties, respectively, which accounted for four percent of the Company's
Rental Income for the year ended December 31, 1998.
The Company had made an election to be taxed as a REIT under Sections 856
through 860 of the Internal Revenue Code of 1986, as amended, and related
regulations. As a REIT, for federal income tax purposes, the Company generally
will not be subject to federal income tax on income that it
1998 ANNUAL REPORT - PAGE 17
distributes to its stockholders. If the Company fails to qualify as a REIT in
any taxable year, it will be subject to federal income tax on its taxable income
at regular corporate rates and will not be permitted to qualify for treatment as
a REIT for federal income tax purposes for four years following the year during
which qualification is lost. Such an event could materially affect the Company's
income. However, the Company believes that it was organized and operated in such
a manner as to qualify for treatment as a REIT for the years ended December 31,
1998, 1997 and 1996, and intends to continue to operate the Company so as to
remain qualified as a REIT for federal income tax purposes.
Inflation has had a minimal effect on income from operations. Management expects
that increases in retail sales volumes due to inflation and real sales growth
should result in an increase in rental income over time. Continued inflation
also may cause capital appreciation of the Company's Properties; however,
inflation and changing prices also may have an adverse impact on the operating
margins of retail businesses, on potential capital appreciation of the
Properties and on operating expenses of the Company.
Management of the Company currently knows of no trends that will have a material
adverse effect on liquidity, capital resources or results of operations.
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
[Picture 12] Photograph of a construction site located in Land O'Lakes, Florida.
[Picture 13] Photograph of an exterior view of the Sears Homelife located in
Clearwater, Florida.
[Picture 14] Photograph of an exterior view of the Pier 1 Imports located in
Memphis, Tennessee.
1998 ANNUAL REPORT - PAGE 18
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 is not able to measure the effect on the Company's operations of any
third party's failure to adequately address 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, although, the Company cannot
be assured that the upgrade solutions provided by the vendors have addressed all
possible Year 2000 issues. 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 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.
[Picture 15] Photograph of an exterior view of the OfficeMax located in
Lynchburg, Virginia.
[Picture 16] Photograph of an exterior view of the PETsMART located in Chicago,
Illinois.
[Picture 17] Photograph of an exterior view of the Shop `n Save located in
Homestead, Pennsylvania.
1998 ANNUAL REPORT - PAGE 19
Investments in real property create a potential for environmental liability on
the part of the owner of such property from the presence or discharge of
hazardous substances on the property. It is the Company's policy, as a part of
its acquisition due diligence process, to obtain a Phase I environmental site
assessment for each property and where warranted, a Phase II environmental site
assessment. Phase I assessments involve site reconnaissance and review of
regulatory files identifying potential areas of concern, whereas Phase II
assessments involve some degree of soil and/or groundwater testing. The Company
may acquire a property whose environmental site assessment indicates that a
problem or potential problem exists, subject to a determination of the level of
risk and potential cost of remediation. In such cases, the Company requires the
seller and/or tenant to (i) remediate the problem prior to the Company's
acquiring the property, (ii) indemnify the Company for environmental liabilities
or (iii) agree to other arrangements deemed appropriate by the Company to
address environmental conditions at the property. The Company has 20 properties
currently under some level of environmental remediation. The seller or the
tenant is contractually responsible for the cost of the environmental
remediation for each of these properties.
Market Risk. The Company is exposed to interest changes primarily as a result of
its variable rate Credit Facility and its long term, fixed-rate debt used to
finance the Company's development and acquisition activities and for general
corporate purposes. The Company's interest rate risk management objective is to
limit the impact of interest rate changes on earnings and cash flows and to
lower its overall borrowing costs. To achieve its objectives, the Company
borrows at both fixed and variable rates on its long-term debt and is currently
a party to an interest rate cap agreement on a portion of its variable rate
Credit Facility, which provides for a fixed LIBOR rate of 6.9% per annum on a
notional amount of $30 million.
The information in the chart summarizes the Company's market risks associated
with its debt obligations outstanding as of December 31, 1998. The table
presents principal cash flows and related interest rates by year of expected
maturity. The variable interest rate shown represents the weighted average rate
for the Credit Facility at the end of the period.
As the table incorporates only those exposures that exist as of December 31,
1998, it does not consider those exposures or positions which could arise after
that date. Moreover, because firm commitments are not presented in the table
below, the information presented therein has limited predictive value. As a
result, the Company's ultimate realized gain or loss with respect to interest
rate fluctuations will depend on the exposures that arise during the period, the
Company's hedging strategies at that time and interest rates.
<TABLE>
MARKET RISK DISCLOSURE TABLE
<CAPTION>
|-------------------Maturity Date------------------------|
Fair
1999 2000 2001 2002 2003 Thereafter Total Value
-------- -------- ------- -------- -------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Variable rate
Credit Facility $138.100 - - - - - $138,100 $138,100
Average interest rate 7.14% - - - - - 7.14%
Fixed rate mortgages $ 14,984 $ 1,980 $ 2,136 $2,306 $ 2,543 $ 31,114 $ 55,063 $ 55,063
Average interest rate 7.40% 7.61% 7.60% 7.60% 7.60% 7.70% 7.60%
Fixed rate Notes - - - - - $100,000 $100,000 $ 92,232
Average interest rate - - - - - 7.163% 7.163%
</TABLE>
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.
1998 ANNUAL REPORT - PAGE 20
FINANCIAL STATEMENTS
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Commercial Net Lease Realty, Inc.:
We have audited the accompanying consolidated balance sheets of Commercial Net
Lease Realty, Inc. and subsidiaries as of December 31, 1998 and 1997, and the
related consolidated statements of earnings, stockholders' equity, and cash
flows for each of the years in the three-year period ended December 31, 1998.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Commercial Net Lease
Realty, Inc. and subsidiaries as of December 31, 1998 and 1997, and the results
of their operations and their cash flows for each of the years in the three-year
period ended December 31, 1998, in conformity with generally accepted accounting
principles.
/s/ KPMG LLP
Orlando, Florida
January 15, 1999
<PAGE>
[Picture 18] Photograph of an exterior view of the Barnes & Noble located in
Lakeland, Florida.
[Picture 19] Photograph of an exterior view of the Best Buy located in Brandon,
Florida.
[Picture 20] Photograph of an exterior view of The Sports Authority located in
Sarasota, Florida.
1998 ANNUAL REPORT - PAGE 21
[Picture 21] Photograph of a construction site located in East Ridge, Tennessee.
<TABLE>
COMMERCIAL NET LEASE REALTY, INC. and SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(dollars in thousands, except per share data)
<CAPTION>
December 31,
ASSETS 1998 1997
- ------ ----------- -----------
<S> <C> <C>
Real estate:
Accounted for using the operating
method, net of accumulated depreciation $ 519,948 $ 400,977
Accounted for using the direct financing
method 138,809 118,747
Investment in partnership 3,850 3,925
Cash and cash equivalents 1,442 2,160
Receivables 3,532 527
Accrued rental income 10,395 7,063
Debt costs, net of accumulated amortization of
$2,559 and $1,868 2,282 1,762
Other assets 5,337 1,853
========== ==========
$ 685,595 $ 537,014
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Line of credit payable $ 138,100 $ 115,100
Mortgages payable 55,063 56,736
Notes payable, net of unamortized discount of
$256 99,744 -
Accrued interest payable 2,646 765
Accounts payable and accrued expenses 5,343 1,392
Rents received in advance 809 877
---------- ----------
Total liabilities 301,705 174,870
---------- ----------
Commitments and contingencies
(Note 16)
Stockholders' equity:
Preferred stock, $0.01 par value. Authorized
15,000,000 shares at December 31, 1998;
none issued and outstanding - -
Common stock, $0.01 par value. Authorized
90,000,000 shares; issued and outstanding
29,521,089 and 27,953,627 shares at
December 31, 1998 and 1997, respectively 295 280
Excess stock, $0.01 par value. Authorized
105,000,000 and 90,000,000 shares at
December 31, 1998 and 1997, respectively;
none issued and outstanding - -
Capital in excess of par value 386,755 361,793
Retained earnings (deficit) (3,160) 71
----------- -----------
Total stockholders' equity 383,890 362,144
----------- -----------
$ 685,595 $ 537,014
=========== ===========
See accompanying notes to consolidated financial statements.
</TABLE>
1998 ANNUAL REPORT - PAGE 22
[Picture 22] Photograph of a construction site located in East Ridge, Tennessee.
<TABLE>
COMMERCIAL NET LEASE REALTY, INC. and SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(dollars in thousands, except per share data)
<CAPTION>
Year Ended December 31,
1998 1997 1996
-------------- -------------- -----------
<S> <C> <C> <C>
Revenues:
Rental income from operating
leases $ 48,127 $ 37,384 $ 24,418
Earned income from direct
financing leases 12,815 11,779 8,069
Contingent rental income 808 759 722
Development and asset management
fees from related parties
2,362 - -
Interest and other 661 213 160
------------ ------------- -------------
64,773 50,135 33,369
------------- ------------- -------------
Expenses:
General operating and
administrative 7,735 1,448 1,191
Real estate expenses 599 165 187
Advisory fees to related party - 2,110 1,466
Interest 13,460 11,478 7,206
Depreciation and amortization 6,759 5,302 3,553
Expenses incurred in acquiring
advisor from related party 5,501 - -
------------ ------------ --------------
34,054 20,503 13,603
------------ ------------ --------------
Earnings before equity in earnings
of unconsolidated partnership and
gain on sale of real estate 30,719 29,632 19,766
Equity in earnings of
unconsolidated partnership 367 102 -
Gain on sale of real estate 1,355 651 73
------------ ------------ -------------
Net earnings $ 32,441 $ 30,385 $ 19,839
============ ============ =============
Net earnings per share of common stock:
Basic $ 1.11 $ 1.26 $ 1.18
============ ============ =============
Diluted $ 1.10 $ 1.25 $ 1.18
============ ============ =============
Weighted average number of shares
outstanding:
Basic 29,169,371 24,070,697 16,798,918
============ ============ =============
Diluted 29,397,154 24,220,792 16,838,917
============ ============ =============
See accompanying notes to consolidated financial statements.
</TABLE>
1998 ANNUAL REPORT - PAGE 23
[Picture 23] Photograph of a construction site located in East Ridge, Tennessee.
<TABLE>
COMMERCIAL NET LEASE REALTY, INC. and SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years Ended December 31, 1998, 1997 and 1996
(dollars in thousands, except per share data)
<CAPTION>
Capital
in excess Retained
Number of Common of par earnings
shares stock value (deficit) Total
------------- --------- ----------- ------------ ---------
<S> <C> <C> <C> <C> <C>
Balance at
December 31, 1995 11,663,672 $ 117 $ 138,629 $ (2,904) $ 135,842
Net earnings - - - 19,839 19,839
Dividends declared and
paid ($1.18 per
share of common
stock) - - - (18,868) (18,868)
Issuance of common
stock 9,100,000 91 123,284 - 123,375
Stock issuance costs - - (7,614) - (7,614)
------------- ------------ ------------ ------------- -----------
Balance at
December 31, 1996 20,763,672 208 254,299 (1,933) 252,574
Net earnings - - - 30,385 30,385
Dividends declared and
paid ($1.20 per
share of common
stock) - - - (28,381) (28,381)
Issuance of common
stock 7,189,955 72 111,448 - 111,520
Stock issuance costs - - (3,954) - (3,954)
------------- ------------ ------------ ------------- -----------
Balance at
December 31, 1997 27,953,627 280 361,793 71 362,144
Net earnings - - - 32,441 32,441
Dividends declared and
paid ($1.23 per
share of common
stock) - - - (35,672) (35,672)
Issuance of common
stock in connection
with acquisition of
advisor 277,813 3 4,739 - 4,742
Issuance of common
stock 1,289,649 12 21,171 - 21,183
Stock issuance costs - - (948) - (948)
------------- ------------ ------------ ------------- -----------
Balance at
December 31, 1998 29,521,089 $ 295 $ 386,755 $ (3,160) $ 383,890
============= ============ ============ ============= ===========
See accompanying notes to consolidated financial statements.
</TABLE>
1998 ANNUAL REPORT - PAGE 24
[Picture 24] Photograph of a construction site located in East Ridge, Tennessee.
<TABLE>
COMMERCIAL NET LEASE REALTY, INC. and SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
<CAPTION>
Year Ended December 31,
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings $ 32,441 $ 30,385 $ 19,839
Adjustments to reconcile net earnings to
net cash provided by operating
activities:
Depreciation 6,049 4,477 2,804
Amortization 710 825 748
Amortization of notes payable discount 15 - -
Gain on sale of real estate (1,355) (651) (73)
Expenses incurred in acquiring advisor
from related party 5,501 - -
Distributions (equity in earnings)
from unconsolidated partnership, net
of equity in earnings (distributions) 9 (102) -
Decrease in real estate accounted for
using the direct financing method 1,393 1,166 751
Decrease (increase) in receivables (2,723) 146 (279)
Increase in accrued rental income (3,346) (2,729) (2,227)
Increase in other assets (2) (5) (170)
Increase in accrued interest payable 1,881 375 262
Increase (decrease) in accounts
payable and accrued expenses 755 25 (35)
Increase (decrease) in rents received
in advance (68) 98 596
---------- ----------- ------------
Net cash provided by operating
activities 41,260 34,010 22,216
---------- ----------- -----------
Cash flows from investing activities:
Proceeds from the sale of real estate 5,947 19,402 759
Additions to real estate accounting for
using the operating method (117,943) (154,688) (108,597)
Additions to real estate accounted for
using the direct financing method (29,572) (29,439) (36,335)
Investment in partnership - (855) -
Increase in other assets (4,084) (660) (185)
Other 9 (762) 111
---------- ---------- ----------
Net cash used in investing activities (145,643) (167,002) (144,247)
---------- ---------- ----------
</TABLE>
1998 ANNUAL REPORT - PAGE 25
[Picture 25] Photograph of a construction site located in East Ridge, Tennessee.
<TABLE>
COMMERCIAL NET LEASE REALTY, INC. and SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS - continued
(dollars in thousands)
<CAPTION>
Year Ended December 31,
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Cash flows from financing activities:
Proceeds from line of credit payable 143,600 152,600 128,700
Repayment of line of credit payable (120,600) (96,200) (139,450)
Proceeds from mortgages payable - - 39,450
Repayment of mortgages payable (1,673) (1,520) (1,208)
Proceeds from notes payable 99,729 - -
Payment of debt costs (1,165) (417) (1,389)
Proceeds from issuance of common stock 21,183 111,520 123,375
Payment of stock issuance costs (1,144) (3,875) (7,467)
Payment of dividends (35,672) (28,381) (18,868)
Other (593) 15 (3)
---------- --------- ---------
Net cash provided by financing
activities 103,665 133,742 123,140
---------- --------- ---------
Net increase (decrease) in cash and cash
equivalents (718) 750 1,109
Cash and cash equivalents at beginning of
year 2,160 1,410 301
---------- ----------- -----------
Cash and cash equivalents at end of year $ 1,442 $ 2,160 $ 1,410
========== =========== ===========
Supplemental disclosure of cash flow information:
Interest paid, net of amount capitalized $ 11,478 $ 11,017 $ 6,857
========== =========== ===========
Supplemental schedule of non-cash investing
and financing activities:
Issued 277,813 shares of common stock
in connection with acquisition of the
Company's advisor $ 4,742 $ - $ -
========== =========== ===========
Net assets acquired in connection with
the acquisition of the Company's
advisor $ 12 $ - $ -
========== =========== ===========
Contribution of land and building to
unconsolidated partnership $ - $ 2,930 $ -
=========== ============ ============
Mortgages assumed in acquisition of
three properties $ - $ - $ 6,864
========== =========== ===========
See accompanying notes to consolidated financial statements.
</TABLE>
1998 ANNUAL REPORT - PAGE 26
[Picture 26] Photograph of a construction site located in East Ridge, Tennessee.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
ORGANIZATION AND NATURE OF BUSINESS - Commercial Net Lease Realty, Inc.,
a Maryland corporation, is a fully integrated real estate investment
trust formed in 1984. Commercial Net Lease Realty, Inc. acquires, owns,
develops and manages high-quality, freestanding properties that are
generally leased to major retail businesses under long-term commercial
net leases.
PRINCIPLES OF CONSOLIDATION - In August 1998, Commercial Net Lease
Realty, Inc. acquired 100% of the common stock of a newly-formed entity,
Net Lease Funding, Inc., to facilitate the development of certain
properties. The consolidated financial statements include the accounts
of Commercial Net Lease Realty, Inc. and its five wholly-owned
subsidiaries (hereinafter referred to as the "Company"). Each of the
subsidiaries is a qualified real estate investment trust subsidiary as
defined in the Internal Revenue Code Section 856(i)(2). All significant
intercompany accounts and transactions have been eliminated in
consolidation.
REAL ESTATE AND LEASE ACCOUNTING - The Company records the acquisition
of land and buildings at cost, including acquisition and closing costs.
The cost of properties developed by the Company includes direct and
indirect costs of construction, property taxes, interest and other
miscellaneous costs incurred during the development period of projects
until such time as the project becomes operational.
Land and buildings are generally leased to others on a net lease basis,
whereby the tenant is responsible for all operating expenses relating to
the property, including property taxes, insurance, maintenance and
repairs. The leases are accounted for using either the direct financing
or the operating method. Such methods are described below:
DIRECT FINANCING METHOD - Leases accounted for using the direct
financing method are recorded at their net investment (which at
the inception of the lease generally represents the cost of the
property) (Note 3). Unearned income is deferred and amortized
into income over the lease terms so as to produce a constant
periodic rate of return on the Company's net investment in the
leases.
OPERATING METHOD - Land and building leases accounted for using
the operating method are recorded at cost, revenue is recognized
as rentals are earned and expenses (including depreciation) are
charged to operations as incurred. Buildings are depreciated on
the straight-line method over their estimated useful lives
(generally 35 to 40 years). When scheduled rentals vary during
the lease term, income is recognized on a straight-line basis so
as to produce a constant periodic rent over the term of the
lease. Accrued rental income is the aggregate difference between
the scheduled rents which vary during the lease term and the
income recognized on a straight-line basis.
When properties are sold, the related cost, accumulated depreciation and
any accrued rental income for operating leases and the net investment
for direct financing leases are removed from the accounts and gains and
losses from the sales are reflected in income.
Management reviews its properties for impairment whenever events or
changes in circumstances indicate that the carrying amount of the
assets, including accrued rental income, may not be recoverable through
operations. Management determines whether an impairment in value
occurred by comparing the estimated future cash flows (undiscounted and
without interest charges), including the residual value of the property,
with the carrying cost of the individual property. If an impairment is
indicated, a loss will be recorded for the amount by which the carrying
value of the asset exceeds its fair value.
INVESTMENT IN PARTNERSHIP - In September 1997, the Company contributed
cash, land and building to Net Lease Institutional Realty, L.P. (the
"Partnership") for a 20 percent interest in the Partnership. The Company
is the sole general partner of the Partnership and accounts for its 20
percent interest in the Partnership under the equity method of
accounting.
1998 ANNUAL REPORT - PAGE 27
CASH AND CASH EQUIVALENTS - The Company considers all highly liquid
investments with a maturity of three months or less when purchased to be
cash equivalents. Cash and cash equivalents consist of cash and money
market accounts. Cash equivalents are stated at cost plus accrued
interest, which approximates fair value.
DEBT COSTS - Debt costs incurred in connection with the Company's
$200,000,000 line of credit and mortgages payable have been deferred and
are being amortized over the terms of the loan commitments using the
straight-line method which approximates the effective interest method.
The premium paid for the interest rate cap agreement of $257,000 has
been recorded as a prepaid expense and is being amortized as interest
expense over the term of the agreement using a method which approximates
the effective interest method. Debt costs incurred in connection with
the issuance of the Company's notes payable have been deferred and are
being amortized over the term of the debt obligation using the effective
interest method.
LINE OF CREDIT, MORTGAGES AND NOTES PAYABLE - Statement of Financial
Accounting Standards No. 107, "Disclosures About Fair Value of Financial
Instruments," requires disclosure of the year end fair value of
significant financial instruments, including long-term debt. The
interest rate on the Company's line of credit is variable; therefore,
the carrying value of the line of credit approximates fair value based
upon its nature, terms and variable interest rate. The Company believes
that the carrying value of its mortgages payable at December 31, 1998,
approximates fair value, based upon current market prices of similar
issues. At December 31, 1998, the fair value of the Company's notes
payable was $92,232,000 based upon the quoted market price.
INCOME TAXES - The Company has made an election to be taxed as a real
estate investment trust under Sections 856 through 860 of the Internal
Revenue Code of 1986, as amended, and related regulations. The Company
generally will not be subject to federal income taxes on amounts
distributed to stockholders, providing it distributes at least 95
percent of its real estate investment trust taxable income and meets
certain other requirements for qualifying as a real estate investment
trust. For each of the years in the three-year period ended December 31,
1998, the Company believes it has qualified as a real estate investment
trust; accordingly, no provisions have been made for federal income
taxes in the accompanying consolidated financial statements. Not
withstanding the Company's qualification for taxation as a real estate
investment trust, the Company is subject to certain state taxes on its
income and property.
EARNINGS PER SHARE - In accordance with Statement of Financial
Accounting Standard No. 128, "Earnings Per Share," basic earnings per
share are calculated based upon the weighted average number of common
shares outstanding during each year and diluted earnings per share are
calculated based upon weighted average number of common shares
outstanding plus dilutive potential common shares (See Note 10).
USE OF ESTIMATES - Management of the Company has made a number of
estimates and assumptions relating to the reporting of assets and
liabilities, revenues and expenses and the disclosure of contingent
assets and liabilities to prepare these consolidated financial
statements in conformity with generally accepted accounting principles.
Actual results could differ from those estimates.
RECLASSIFICATION - Certain items in prior years' financial statements
have been reclassified to conform with the 1998 presentation. These
reclassifications had no effect on stockholders' equity or net earnings.
NEW ACCOUNTING STANDARDS - 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 .
[Picture 27] Photograph of a construction site located in East Ridge, Tennessee.
1998 ANNUAL REPORT - PAGE 28
[Picture 28] Photograph of a construction site located in East Ridge, Tennessee.
2. LEASES:
The Company generally leases its land and buildings to operators of
major retail businesses. As of December 31, 1998, 181 of the leases have
been classified as operating leases and 100 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 59
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:
ACCOUNTING FOR USING THE OPERATING METHOD - Land and buildings on
operating leases consisted of the following at December 31 (dollars in
thousands):
1998 1997
--------- ---------
Land $258,545 $ 199,992
Buildings and improvements 269,225 209,272
--------- ---------
527,770 409,264
Less accumulated depreciation (17,335) (12,297)
--------- ---------
510,435 396,967
Construction in progress 9,513 4,010
--------- ---------
$519,948 $ 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 years ended December 31, 1998, 1997 and
1996, the Company recognized $3,403,000, $2,786,000 and $2,285,000,
respectively, of such income. At December 31, 1998 and 1997, the balance
of accrued rental income was $10,395,000, net of allowance of $515,000,
and $7,063,000, net of allowance of $310,000, respectively.
The following is a schedule of future minimum lease payments to be
received on noncancellable operating leases at December 31, 1998
(dollars in thousands):
1999 $ 50,984
2000 51,517
2001 52,368
2002 52,214
2003 52,486
Thereafter 538,123
---------
$ 797,692
=========
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.
1998 ANNUAL REPORT - PAGE 29
ACCOUNTING FOR USING THE DIRECT FINANCING METHOD - The following lists
the components of net investment in direct financing leases at December
31 (dollars in thousands):
1998 1997
---------- ----------
Minimum lease payments to be received $ 283,185 $ 258,715
Estimated residual values 43,154 35,981
Less unearned income (187,530) (175,949)
---------- ----------
Net investment in direct financing leases $ 138,809 $ 118,747
========== ==========
The following is a schedule of future minimum lease payments to be
received on direct financing leases at December 31, 1998 (dollars in
thousands):
1999 $ 16,653
2000 16,773
2001 16,810
2002 16,882
2003 16,900
Thereafter 199,167
-----------
$ 283,185
===========
The above table does not include future minimum lease payments for
renewal periods or for contingent rental payments that may become due in
future periods (See Real Estate - Accounted for Using the Operating
Method).
4. INVESTMENT IN PARTNERSHIP:
In September 1997, the Company entered into a Partnership arrangement,
Net Lease Institutional Realty, L.P. (the "Partnership"), with the
Northern Trust Company, as Trustee of the Retirement Plan for the
Chicago Transit Authority Employees ("CTA"). The Company is the sole
general partner with a 20 percent interest in the Partnership and CTA is
the sole limited partner with an 80 percent interest in the Partnership.
The Partnership owns and leases nine properties to major retail tenants
under long-term, commercial net leases. The following presents the
Partnership's condensed financial information (dollars in thousands):
December 31,
1998 1997
------- -----------
Real estate leased to others:
Accounted for using the operating
method, net of accumulated
depreciation $ 25,060 $ 25,381
Accounted for using the direct
financing method 5,096 5,155
Other assets 763 793
Note payable 11,536 11,911
Other liabilities 160 154
Partners' capital 19,223 19,264
For the period
September 19, 1997
For the year (date of inception)
ended December 31, through December 31,
1998 1997
----------------- -------------------
Revenues $ 3,276 $ 933
Net income 1,834 514
For the years ended December 31, 1998 and 1997, the Company recognized
income of $367,000 and $102,000, respectively, from the Partnership.
[Picture 29] Photograph of a construction site located in East Ridge, Tennessee.
1998 ANNUAL REPORT - PAGE 30
[Picture 30] Photograph of a construction site located in East Ridge, Tennessee.
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 amended the Company's $150,000,000 credit facility by
(i) increasing the borrowing capacity from $150,000,000 to $200,000,000,
(ii) extending the expiration date to July 30, 1999, and (iii) lowering
the interest rate from 160 basis points above LIBOR to a tiered rate
structure with a maximum rate of 140 basis points above LIBOR (based
upon the Company's investment grade rating) or the lender's prime rate,
whichever the Company selects. In connection with the Credit Facility,
the Company is required to pay a commitment fee of 20 basis points per
annum on the unused commitment. The principal balance is due in full
upon termination of the Credit Facility on July 30, 1999, which can be
extended for two additional 12 month periods at the option of the
Company. Interest incurred on prime rate advances on the Credit Facility
is payable quarterly. LIBOR rate advances have maturity periods of one,
two, three or six months, whichever the Company selects, with interest
payable at the end of the selected maturity period. All unpaid interest
is due in full upon termination of the Credit Facility. As of December
31, 1998 and 1997, the outstanding principal balance was $138,100,000
and, $115,100,000, respectively, plus accrued interest of $361,000 and
$552,000, respectively. The terms of the Credit Facility include
financial covenants which provide for the maintenance of certain
financial ratios. The Company was in compliance with such covenants as
of December 31, 1998.
During the three years ended December 31, 1998, the Company was a party
to two interest rate cap agreements as a means to reduce its exposure to
rising interest rates on the Company's variable rate Credit Facility. As
of December 31, 1998, one of the interest rate cap agreements had
expired and one remained effective, providing for a fixed LIBOR rate of
6.9% per annum on a notional amount of $30 million. This agreement is
effective through December 1999.
The cost of buildings constructed by the Company for its own use
includes capitalized interest on the Credit Facility. For the years
ended December 31, 1998 and 1997, interest cost incurred was $4,886,000
and $7,240,000, respectively, of which $1,112,000 and $133,000,
respectively, was capitalized, and $3,774,000 and $7,107,000,
respectively, which was charged to operations. For the year ended
December 31, 1996, interest cost incurred was $3,278,000, all of which
was charged to operations.
6. MORTGAGES PAYABLE:
In December 1995, the Company entered into a long-term, fixed rate
mortgage and security agreement for $13,150,000. The loan provides for a
four-year mortgage with interest payable monthly and principal payable
at maturity in December 1999, and bears interest at a rate of 6.75% per
annum. The mortgage is secured by a first lien on and assignment of
rents and leases of certain of the Company's properties. As of December
31, 1998, the aggregate carrying value of these properties totaled
$16,539,000. The outstanding principal balance as of December 31, 1998
and 1997, was $13,150,000, plus accrued interest of $42,000. The Company
intends to use available funds from its Credit Facility to pay the
$13,150,000 principal balance of this loan upon its maturity in December
1999.
In January 1996, the Company entered into a long-term, fixed rate
mortgage and security agreement for $39,450,000. The loan provides for a
ten-year mortgage with principal and interest payable monthly, based on
a 17-year amortization, with the balance due in February 2006 and bears
interest at a rate of 7.435% per annum. The mortgage is secured by a
first lien on and assignments of rents and leases of certain of the
Company's properties. As of December 31, 1998, the aggregate carrying
value of these properties totaled $72,841,000. The outstanding principal
balance as of December 31, 1998 and 1997, was $35,680,000 and
$37,066,000, respectively, plus accrued interest of $125,000 and
$130,000, respectively.
In June 1996, the Company acquired three properties each subject to a
mortgage totaling $6,864,000 (collectively, the "Mortgages"). The
Mortgages bear interest at a weighted average rate of 8.6% and have a
weighted average maturity of 6.4 years, with principal and interest
payable monthly. As of December 31, 1998 and 1997, the outstanding
balances for the
1998 ANNUAL REPORT - PAGE 31
Mortgages totaled $6,233,000 and $6,520,000, plus accrued interest of
$39,000 and $41,000, respectively. As of December 31, 1998, the
aggregate carrying value of these three properties totaled $8,155,000.
The following is a schedule of the annual maturities of the Company's
outstanding term indebtedness for each of the next five years (dollars
in thousands):
1999 $ 14,984
2000 2,005
2001 2,170
2002 2,342
2003 2,583
----------
$ 24,084
==========
7. NOTES PAYABALE:
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 (effective interest rate
of 7.163%). The discount of $271,000 is being amortized as interest
expense over the term of the debt obligation using the effective
interest method. 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.
8. EMPLOYEE BENEFIT PLAN:
Effective January 1, 1998, the Company adopted a defined contribution
retirement 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 year ended December 31,
1998, totaled $60,000.
9. DIVIDENDS:
The following presents the characterization for tax purposes of
dividends paid to stockholders for the years ended December 31:
1998 1997 1996
------- ------- --------
Ordinary income $ 1.09 $ 1.10 $ 1.06
Capital gain - - -
Return of capital .14 .10 .12
------- ------- --------
$ 1.23 $ 1.20 $ 1.18
======= ======= ========
On January 15, 1999, the Company declared dividends of $9,267,000 or 31
cents per share of common stock, payable on February 15, 1999 to
stockholders of record on January 29, 1999.
[Picture 31] Photograph of a construction site located in East Ridge, Tennessee.
1998 ANNUAL REPORT - PAGE 32
[Picture 32] Photograph of a construction site located in East Ridge, Tennessee.
10. EARNINGS PER SHARE:
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, "Earnings Per
Share." The Statement, which provides for a revised computation of
earnings per share, was adopted by the Company for the year ended
December 31, 1997. Pursuant to the Statement, all comparative earnings
per share amounts have been restated.
The following represents the calculation of earnings per share and the
weighted average number of shares of dilutive potential common stock for
the years ended December 31:
<TABLE>
<CAPTION>
1998 1997 1996
----------- ---------- -----------
<S> <C> <C> <C>
Basic Earnings Per Share:
Net earnings $32,441,000 $30,385,000 $19,839,000
=========== =========== ===========
Weighted average number of
shares outstanding 29,124,583 24,070,697 16,798,918
Merger contingent shares 44,788 - -
----------- ---------- -----------
Weighted average number of shares
used in basic earnings per share 29,169,371 24,070,697 16,798,918
=========== ========== ===========
Basic earnings per share $ 1.11 $ 1.26 $ 1.18
=========== ========== ===========
Diluted Earnings Per Share:
Net earnings $32,441,000 $30,385,000 $19,839,000
=========== =========== ===========
Weighted average number of
shares outstanding 29,124,583 24,070,697 16,798,918
Effect of dilutive securities:
Stock options 150,679 150,095 39,999
Merger contingent shares 121,892 - -
----------- ---------- -----------
Weighted average number of
shares used in diluted
earnings per share 29,397,154 24,220,792 16,838,917
========== ========== ===========
Diluted earnings per share $ 1.10 $ 1.25 $ 1.18
=========== ========== ===========
</TABLE>
For the year ended December 31, 1998, options on 1,145,700 shares of
common stock were not included in computing diluted earnings per share
because their effects were antidilutive.
11. STOCK OPTION PLAN:
The Company's stock option plan (the "Plan") provides compensation and
incentive to persons ("Key Employees" and "Outside Directors of the
Company") whose services are considered essential to the Company's
continued growth and success. As of December 31, 1996, the Plan had
1,200,000 shares of common stock reserved for issuance. Pursuant to the
Plan, the shares
1998 ANNUAL REPORT - PAGE 33
of common stock reserved for issuance automatically increased to
2,000,000 shares in connection with the equity offering during September
1997. The following summarizes transactions in the Plan for the years
ended December 31:
<TABLE>
<CAPTION>
1998 1997 1996
----------------------- ---------------------- ----------------------
Weighted Weighted Weighted
Number Average Number Average Number Average
of Exercise of Exercise of Exercise
Shares Price Shares Price Shares Price
----------- --------- --------- -------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Outstanding
January 1 1,145,100 $ 13.52 956,600 $ 13.21 578,100 $ 13.36
Granted 654,000 17.38 210,000 14.92 390,000 13.01
Exercised (14,500 12.88 (11,500) 13.52 - -
Surrendered (74,000 16.03 (10,000) 13.94 (11,500) 13.54
----------- ---------- ----------
Outstanding
December 31 1,710,600 14.89 1,145,100 13.52 956,600 13.21
=========== ========== ==========
Exercisable
December 31 855,933 13.38 681,767 13.29 403,533 13.29
=========== =========== ==========
Available for grant
December 31 167,900 821,900 231,900
=========== ========== ==========
</TABLE>
The weighted-average remaining contractual life of the 1,710,600 options
outstanding at December 31, 1998 was 7.5 years, with exercise prices
ranging from $11.25 to $17.875. One third of the grant to each
individual becomes exercisable at the end of each of the first three
years of service following the date of the grant and the options maximum
term is ten years.
The Company applies Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees," and related Interpretations
in accounting for the Plan. Accordingly, no compensation expense has
been recorded with respect to the options in the accompanying
consolidated financial statements. Had compensation cost for the Plan
been determined based upon the fair value at the grant dates for options
granted after December 31, 1994 under the Plan consistent with the
method of Financial Accounting Standards Board Statement No. 123,
"Accounting for Stock-Based Compensation, " the Company's net earnings
and earnings per share would have been reduced to the pro forma amounts
indicated below for the years ended December 31 (dollars in thousands,
except per share data):
<TABLE>
<CAPTION>
1998 1997 1996
------------ ------------ -----------
<S> <C> <C> <C>
Net earnings as reported $ 32,441 $ 30,385 $ 19,839
============ ============ ===========
Pro forma net earnings $ 32,187 $ 30,220 $ 19,681
============ ============ ===========
Earnings per share as reported:
Basic $ 1.11 $ 1.26 $ 1.18
============ ============ ===========
Diluted $ 1.10 $ 1.25 $ 1.18
============ ============ ===========
Pro forma earnings per share:
Basic $ 1.10 $ 1.26 $ 1.17
============ ============ ===========
Diluted $ 1.09 $ 1.25 $ 1.17
============ ============ ===========
</TABLE>
The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option-pricing model with the following
assumptions used for grants in 1998, 1997 and 1996: (i) risk free rates
of 5.73% and 5.90% for 1998 grants, 6.85% and 7.04% for 1997 grants and
6.17% and 6.95% for 1996 grants, (ii) expected volatility of 17.4% for
1998, 13.6% for 1997 and 12.9% for 1996, (iii) dividend yields of 7.9%,
7.7% and 8.6%, respectively, and (iv) expected lives of ten years for
grants in 1998, 1997 and 1996.
[Picture 33] Photograph of a construction site located in East Ridge, Tennessee.
1998 ANNUAL REPORT - PAGE 34
[Picture 34] Photograph of a construction site located in East Ridge, Tennessee.
12. 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 based on
the Company's completed property acquisitions and completed development
projects in accordance with the Merger agreement. 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.
During the year ended December 31, 1998, the Company issued 57,813
shares of the Share Balance in connection with the property acquisitions
during the nine months ended September 30, 1998. The market value of the
shares at the date the shares became issuable totaled $809,000, all of
which was charged to operations during the year ended December 31, 1998.
In addition, in connection with the property acquisitions during the
quarter ended December 31, 1998, on January 1, 1999, an additional
371,938 shares of the Share Balance became issuable to the stockholders
of the Advisor. The market value of the shares at the date the shares
became issuable totaled $4,928,000, all of which is to be charged to
operations during the year ended December 31, 1999. Pursuant to the
agreement and plan of merger, the Company is required to issue the
shares within 90 days after the shares become issuable. 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.
13. 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
$218,000 in asset management fees during the year ended December 31,
1998.
During the year ended December 31, 1998, the Company provided certain
development services for an affiliate of a member of the board of
directors. In connection therewith, the Company received $2,144,000 in
development fees relating to these services.
Prior to the Merger, certain directors and officers of the Company held
similar positions with CNL Realty Advisors, Inc., the Company's advisor.
1998 ANNUAL REPORT - PAGE 35
During the year ended December 31, 1996, the Company acquired one
property for a purchase price of $3,400,000 from a partnership in which
an affiliate of the Advisor was a partner. The purchase price paid by
the Company for this property represented the costs incurred by the
affiliate to acquire the property, including closing costs. In
connection with the acquisition of this property, plus 26 properties and
nine buildings which were developed by the tenant on land parcels owned
by the Company in 1996 and 27 properties and three buildings which were
developed by the tenant on land parcels owned by the Company in 1997,
from unrelated, third parties, the Company paid the Advisor $2,278,000
and $2,552,000, respectively, in acquisition fees and expense
reimbursement fees (representing 1.5% and 0.5%, respectively, of the
cost of the properties).
In addition, during the years ended December 31, 1997 and 1996, the
Company acquired 15 properties for purchase prices totaling $39,323,000
and 13 properties for purchase prices totaling $34,313,000,
respectively, from affiliates of the Advisor who had developed the
properties. The purchase prices paid by the Company for these properties
equaled the affiliates' costs including development costs. The
affiliates' costs consisted of the land purchase prices, construction
costs, various soft costs including legal costs, survey fees and
architect fees, and developers fees aggregating $2,180,000 in 1997 and
$1,453,000 in 1996 paid to an affiliate of the Advisor. In addition,
during 1997, the Company purchased five land parcels from unrelated,
third parties on which buildings were being developed by an affiliate of
the Advisor. The Company paid developers fees totaling $376,000 to an
affiliate of the Advisor who was developing the five properties. No
acquisition fees or expense reimbursement fees were paid to the Advisor
in connection with the acquisition of these 33 properties.
During 1996, the Company sold its properties in Marble Falls and
Gonzales, Texas for a total of $790,000 and received net proceeds of
$759,000, resulting in a gain of $73,000 for financial reporting
purposes. In connection with the sale of these properties, the Company
paid the Advisor $16,000 in disposition fees.
In January 1997, the Company sold its property in Foley, Alabama, for
$570,000 and received net proceeds of $551,000, resulting in a gain of
$271,000 for financial reporting purposes. In connection with the sale
of this property, the Company paid the Advisor $11,400 in disposition
fees.
In September 1997, the Company sold four of its properties to the
Partnership at the Company's original cost of $17,542,000. The Company
recognized a gain for financial reporting purposes on the sale of these
properties of $101,000 after elimination of the Company's 20 percent
interest in the gain on the sale.
Prior to the Merger, the Company and the Advisor had entered into an
advisory agreement (the "Advisory Agreement"), which provided for the
Advisor to perform services in connection with the day to day operations
of the Company. In connection therewith, the Advisor received an annual
fee, payable monthly, equal to (i) seven percent of funds from
operations, as defined in the Advisory Agreement, up to $10,000,000,
(ii) six percent of funds from operations in excess of $10,000,000 but
less than $20,000,000 and (iii) five percent of funds from operations in
excess of $20,000,000. For purposes of the Advisory Agreement, funds
from operations generally includes the Company's net earnings excluding
the advisory fee, depreciation and amortization expenses, extraordinary
gains and losses and non-cash lease accounting adjustments. Under the
Advisory Agreement, the Company incurred $2,110,000 and $1,466,000 in
advisory fees for the years ended December 31, 1997and 1996,
respectively.
[Picture 35] Photograph of a construction site located in East Ridge, Tennessee.
1998 ANNUAL REPORT - PAGE 36
[Picture 36] Photograph of a construction site located in East Ridge, Tennessee.
14. 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. This Statement is effective for fiscal years
beginning after December 15, 1997. 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 table represents the revenues, expenses and asset
allocation for the two segments and the Company's consolidated totals at
December 31, 1998, and for the year then ended.
<TABLE>
<CAPTION>
Rental and
Earned Income Fee Consolidated
Income Corporate Totals
-------------- ------------- ------------- --------------
<S> <C> <C> <C> <C>
Revenues $ 62,067 $ 2,706 $ - $ 64,773
Property expenses 599 - - 599
Operating expenses 5,558 1,137 1,040 7,735
Interest expense 13,460 - - 13,460
Depreciation and 6,730 19 10 6,759
amortization
Expenses incurred in
acquiring advisor from - - 5,501 5,501
related party
Equity in earnings of
unconsolidated 367 - - 367
partnership
Gain on sale of real estate 1,355 - - 1,355
Net earnings 37,442 1,550 (6,551) 32,441
Assets 685,432 108 55 685,595
Additions to long-lived
assets:
Real estate 150,730 - - 150,730
Other 1,133 108 55 1,296
</TABLE>
Prior to 1998, the Company did not provide services generating fee
income from development, property management and asset management
services.
1998 ANNUAL REPORT - PAGE 37
15. MAJOR TENANTS:
The following schedule presents rental and earned income, including
contingent rent, from operators or affiliated groups of operators
representing more than ten percent of the Company's total rental and
earned income for the years ended December 31 (dollars in thousands):
1998 1997 1996
--------- --------- --------
Barnes & Noble Superstores, Inc. $ (a) $ 5,951 $ 5,204
Eckerd Corporation 7,170 5,149 (a)
(a) Rental and earned income from the operator or affiliated
group of operators did not represent more than ten percent of the
Company's total rental and earned income for the respective year.
16. COMMITMENTS AND CONTINGENCIES:
As of December 31, 1998, the Company had entered into agreements to
purchase 33 additional properties for an estimated aggregate purchase
price of $63,123,000. In connection with the acquisition of 23 of these
properties, the Company became contingently liable for $5,000,000
related to a bank letter of credit which guarantees the Company's
obligation under a purchase agreement to acquire these properties.
As of December 31, 1998, the Company owned and leased four land parcels
to tenants which were obligated to develop a building on the respective
land parcels. The Company has agreed to acquire the completed buildings
for an amount of up to $3,939,000, at which time rental income is to
increase for each of the properties.
As of December 31, 1998, the Company owned 11 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 $15,458,000, of which
$8,417,000 of costs had been incurred at December 31, 1998. Pursuant to
the lease agreements, rent is to commence on the properties upon
completion of construction of the buildings.
The Company is a co-defendant in a lawsuit filed by a property owner for
alleged breach of a ground lease. The suit asks for damages of
$7,500,000 and/or specific performance of the ground lease. Management
believes it will prevail in this suit and intends to vigorously defend
its position.
In the ordinary course of its business, the Company is a party to
various other legal actions which the Company believes are routine in
nature and incidental to the operation of the business of the Company.
The Company believes that the outcome of the proceedings will not have a
material adverse effect upon its operations or financial condition.
[Picture 37] Photograph of a construction site located in East Ridge, Tennessee.
1998 ANNUAL REPORT - PAGE 38
[Picture 38] Background photograph of a construction site located in Land O'
Lakes, Florida.
<TABLE>
CONSOLIDATED QUARTERLY FINANCIAL DATA
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<CAPTION>
First Second Third Fourth
1998 Quarter Quarter Quarter Quarter Year
- --------------------------------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Rent and other revenue $ 15,375 $ 15,251 $ 15,821 $ 18,326 $ 64,773
Depreciation and amortization
expense 1,572 1,655 1,708 1,824 6,759
Interest expense 3,000 2,868 3,307 4,285 13,460
Advisor acquisition expense 4,692 - - 809 5,501
Other expenses 1,762 1,356 2,234 2,982 8,334
Net earnings 4,440 9,463 9,951 8,587 32,441
Net earnings per share (1):
Basic 0.16 0.32 0.34 0.29 1.11
Diluted 0.15 0.32 0.34 0.29 1.10
1997
- ---------------------------------
Rent and other revenue $ 11,016 $ 12,067 $ 13,290 $ 13,762 $ 50,135
Depreciation and amortization
expense 1,168 1,325 1,374 1,435 5,302
Interest expense 2,363 2,731 3,509 2,875 11,478
Advisor acquisition expense - - - - -
Other expenses 1,011 803 922 987 3,723
Net earnings 6,745 7,208 7,622 8,810 30,385
Net earnings per share (1):
Basic 0.31 0.31 0.32 0.32 1.26
Diluted 0.31 0.31 0.32 0.32 1.25
<FN>
(1) Calculated independently for each period, and consequently, the sum of the
quarters may differ from the annual amount.
</FN>
</TABLE>
1998 ANNUAL REPORT - PAGE 39
[Picture 39] Background photograph of a construction site located in Land O'
Lakes, Florida.
<TABLE>
SHARE PRICE AND DIVIDEND DATA
The common stock of the Company currently is traded on the New York Stock
Exchange ("NYSE") under the symbol "NNN." For each calendar quarter indicated,
the following table reflects respective high, low and closing sales prices for
the common stock as quoted by the "NYSE" and the dividends paid per share in
each such period.
<CAPTION>
First Second Third Fourth
1998 Quarter Quarter Quarter Quarter Year
- ---------------------------- --------- -------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
High $ 18.0000 $17.7500 $16.7500 $15.6875 $18.0000
Low 16.1250 15.4375 12.7500 12.6250 12.6250
Close 14.7500 16.1875 14.6250 13.2500 13.2500
Dividends paid per share 0.30 0.31 0.31 0.31 1.23
1997
- ----------------------------
High $ 16.1250 $15.3750 $16.7500 $18.1875 $18.1875
Low 14.3750 14.1250 15.0625 15.3125 14.1250
Close 14.7500 15.3125 15.9735 17.8750 17.8750
Dividends paid per share 0.30 0.30 0.30 0.30 1.20
</TABLE>
The portion of dividends paid in 1998 and 1997, which was treated as a
non-taxable return of capital, was 11.1% and 8.6% respectively.
On February 16, 1999, there were approximately 1,457 shareholders of record of
common stock.
APPENDIX
Picture 1 1998 ANNUAL REPORT - PAGE 1
Picture 2 1998 ANNUAL REPORT - PAGE 8
Map 1 1998 ANNUAL REPORT - PAGE 10
Picture 3 1998 ANNUAL REPORT - PAGE 11
Picture 4 1998 ANNUAL REPORT - PAGE 11
Picture 5 1998 ANNUAL REPORT - PAGE 11
Picture 6 1998 ANNUAL REPORT - PAGE 11
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Picture 8 1998 ANNUAL REPORT - PAGE 13
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Picture 10 1998 ANNUAL REPORT - PAGE 13
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Picture 12 1998 ANNUAL REPORT - PAGE 17
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Picture 14 1998 ANNUAL REPORT - PAGE 17
Picture 15 1998 ANNUAL REPORT - PAGE 18
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Picture 20 1998 ANNUAL REPORT - PAGE 20
Picture 21 1998 ANNUAL REPORT - PAGE 21
Picture 22 1998 ANNUAL REPORT - PAGE 22
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Picture 24 1998 ANNUAL REPORT - PAGE 24
Picture 25 1998 ANNUAL REPORT - PAGE 25
Picture 26 1998 ANNUAL REPORT - PAGE 26
Picture 27 1998 ANNUAL REPORT - PAGE 27
Picture 28 1998 ANNUAL REPORT - PAGE 28
Picture 29 1998 ANNUAL REPORT - PAGE 29
Picture 30 1998 ANNUAL REPORT - PAGE 30
Picture 31 1998 ANNUAL REPORT - PAGE 31
Picture 32 1998 ANNUAL REPORT - PAGE 32
Picture 33 1998 ANNUAL REPORT - PAGE 33
Picture 34 1998 ANNUAL REPORT - PAGE 34
Picture 35 1998 ANNUAL REPORT - PAGE 35
Picture 36 1998 ANNUAL REPORT - PAGE 36
Picture 37 1998 ANNUAL REPORT - PAGE 37
Picture 38 1998 ANNUAL REPORT - PAGE 38
Picture 39 1998 ANNUAL REPORT - PAGE 39
Exhibit 23
Consent of Independent Accountants dated March 30, 1999
The Board of Directors
Commercial Net Lease Realty, Inc.
We consent to the incorporation by reference in the registration statement (No.
33-24773) on Form S-3 of Commercial Net Lease Realty, Inc. of our reports dated
January 15, 1999, relating to the consolidated balance sheets of Commercial Net
Lease Realty, Inc. and subsidiaries as of December 31, 1998 and 1997, and the
related consolidated statements of earnings, stockholder's equity, and cash
flows for each of the years in the three-year period ended December 31, 1998,
and the related financial statement schedule, which reports appear in the
December 31, 1998 annual report on Form 10-K of Commercial Net Lease Realty,
Inc.
/s/ KPMG LLP
Orlando, Florida
March 30, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the balance
sheet of Commercial Net Lease Realty. Inc. at December 31, 1998, and its
statement of earnings for the 12 months ended and is quallified in its entirety
by reference to the Form 10-K of Commercial Net Lease Realty, Inc. for the 12
months ended December 31, 1998.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-mos
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 1,442
<SECURITIES> 0
<RECEIVABLES> 3,532
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 537,283
<DEPRECIATION> 17,335
<TOTAL-ASSETS> 685,595
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 0
0
0
<COMMON> 295
<OTHER-SE> 383,595
<TOTAL-LIABILITY-AND-EQUITY> 685,595
<SALES> 0
<TOTAL-REVENUES> 64,773
<CGS> 0
<TOTAL-COSTS> 20,594
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 13,460
<INCOME-PRETAX> 32,441
<INCOME-TAX> 0
<INCOME-CONTINUING> 32,441
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 32,441
<EPS-PRIMARY> 1.11
<EPS-DILUTED> 1.10
<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>
