-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, NOc8I56Mu+29z2NfK3U+u0GWcHJi1rTca/EVZq8bzuLx8jhtiSmZCm/WrWq/1zzb vhWQ+d4Cz7h+nlozeVxM0g== 0000751364-96-000019.txt : 19960517 0000751364-96-000019.hdr.sgml : 19960517 ACCESSION NUMBER: 0000751364-96-000019 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960331 FILED AS OF DATE: 19960515 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: COMMERCIAL NET LEASE REALTY INC CENTRAL INDEX KEY: 0000751364 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE INVESTMENT TRUSTS [6798] IRS NUMBER: 561431377 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-11290 FILM NUMBER: 96565919 BUSINESS ADDRESS: STREET 1: 400 E SOUTH ST STE 500 CITY: ORLANDO STATE: FL ZIP: 32801 BUSINESS PHONE: 4074221574 MAIL ADDRESS: STREET 1: 400 E SOUTH ST STE 500 STREET 2: 400 E SOUTH ST STE 500 CITY: ORLANDO STATE: FL ZIP: 32801 FORMER COMPANY: FORMER CONFORMED NAME: CNL REALTY INVESTORS INC /DE/ DATE OF NAME CHANGE: 19930429 FORMER COMPANY: FORMER CONFORMED NAME: GOLDEN CORRAL REALTY CORP DATE OF NAME CHANGE: 19920703 EX-27 1
5 This schedule contains summary financial information extracted from the balance sheet of Commercial Net Lease Realty, Inc. and Subsidiaries at March 31, 1996, and its statement of income for the quarter then ended and is qualified in its entirety by reference to the Form 10-Q of Commercial Net Lease Realty, Inc. for the quarter ended March 31, 1996. 3-MOS DEC-31-1995 JAN-01-1996 MAR-31-1996 384,477 0 271,024 0 0 794,612 200,655,664 6,080,593 263,071,158 2,150,591 0 156,887 0 0 185,274,531 263,071,158 0 6,924,224 0 1,474,829 0 0 1,459,883 3,989,512 0 3,989,512 0 0 0 3,989,512 0.28 0.28
10-Q 2 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 (X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 1996 ----------------------------------- OR ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to --------------- --------------- Commission file number 0-12989 ---------------------- Commercial Net Lease Realty, Inc. (Exact name of registrant as specified in its charter) ------------------------------------------------------ Maryland 56-1431377 - ---------------------------- ------------------------------- (State or other jurisdiction (I.R.S. Employer of incorporation or organiza- Identification No.) tion) 400 E. South Street, #500 Orlando, Florida 32801 - ---------------------------- ------------------------------- (Address of principal (Zip Code) executive offices) Registrant's telephone number (including area code) (407) 422-1574 ------------------------------- Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --------- --------- Indicate the number of shares outstanding of each of the issuer's classes of common stock as of the latest practicable date. 15,688,672 shares of Common Stock, $.01 par value, outstanding as of May 1, 1996. COMMERCIAL NET LEASE REALTY, INC. and SUBSIDIARIES CONTENTS -------- Part I Page ---- Item 1. Financial Statements: Condensed Consolidated Balance Sheets 1 Condensed Consolidated Statements of Earnings 2 Condensed Consolidated Statements of Stockholders' Equity 3 Condensed Consolidated Statements of Cash Flows 4-5 Notes to Condensed Consolidated Financial Statements 6-11 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 12-15 Part II Other Information 16-18 COMMERCIAL NET LEASE REALTY, INC. and SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS March 31, December 31, ASSETS 1996 1995 ------------ ------------ Land and buildings on operating leases, net of accumulated depreciation $194,575,071 $155,956,739 Net investment in direct financing leases 62,074,035 56,829,126 Cash and cash equivalents 384,477 300,714 Receivables 202,464 394,154 Due from related party 68,560 - Prepaid expenses 139,111 154,538 Loan costs, net of accumulated amortization of $540,724 and $405,179 2,106,013 1,065,149 Accrued rental income 2,667,685 2,194,221 Other assets 853,742 2,362,035 ------------ ------------ $263,071,158 $219,256,676 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY Notes payable $ 76,705,842 $ 82,600,000 Accrued interest payable 242,072 128,475 Accounts payable and accrued expenses 311,951 350,632 Real estate taxes payable 47,558 82,932 Due to related parties 194,941 69,038 Rents paid in advance and tenant deposits 137,376 183,486 ------------ ------------ Total liabilities 77,639,740 83,414,563 ------------ ------------ Commitments and contingencies (Notes 9 and 10) Stockholders' equity: Common stock, $.01 par value. Authorized 30,000,000 shares; issued and outstanding 15,688,672 and 11,663,672 shares, respectively 156,887 116,637 Excess stock, $0.01 par value, authorized 30,000,000 shares, none issued and outstanding - - Capital in excess of par value 187,571,759 138,629,751 Accumulated dividends in excess of net earnings (2,297,228) (2,904,275) ------------ ------------ Total stockholders' equity 185,431,418 135,842,113 ------------ ------------ $263,071,158 $219,256,676 ============ ============ See accompanying notes to condensed consolidated financial statements. COMMERCIAL NET LEASE REALTY, INC. and SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS Quarter Ended March 31, 1996 1995 ---------- ---------- Revenues: Rental income from operating leases $5,046,090 $3,009,653 Earned income from direct financing leases 1,681,820 1,194,188 Contingent rental income 157,791 177,212 Interest and other 38,523 34,393 ---------- ---------- 6,924,224 4,415,446 ---------- ---------- Expenses: General operating and administrative 383,457 244,840 Advisory fees to related party 308,011 239,179 Interest 1,459,883 415,645 State taxes 35,717 21,046 Depreciation and amortization 747,644 435,883 ---------- ---------- 2,934,712 1,356,593 ---------- ---------- Net earnings $3,989,512 $3,058,853 ========== ========== Earnings per share of common stock $ 0.28 $ 0.26 ========== ========== Weighted average number of shares outstanding 14,311,749 11,663,672 ========== ========== See accompanying notes to condensed consolidated financial statements. COMMERCIAL NET LEASE REALTY, INC. and SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY Quarter Ended March 31, 1996 and Year Ended December 31, 1995 Accumulated dividends Capital in in excess Number Common excess of of net of shares stock par value earnings Total ---------- -------- ------------ ------------ ------------ Balance at December 31, 1994 11,663,672 $116,637 $138,629,751 $ (2,081,686) $136,664,702 Net earnings - - - 12,707,271 12,707,271 Dividends declared and paid ($1.16 per share of common stock) - - - (13,529,860) (13,529,860) ---------- -------- ------------ ------------ ------------ Balance at December 31, 1995 11,663,672 116,637 138,629,751 (2,904,275) 135,842,113 Net earnings - - - 3,989,512 3,989,512 Dividends declared and paid ($0.29 per share of common stock) - - - (3,382,465) (3,382,465) Issuance of common stock 4,025,000 40,250 52,284,750 - 52,325,000 Stock issuance costs - - (3,342,742) - (3,342,742) ---------- -------- ------------ ----------- ------------ Balance at March 31, 1996 15,688,672 $156,887 $187,571,759 $(2,297,228) $185,431,418 ========== ======== ============ =========== ============ See accompanying notes to condensed consolidated financial statements. COMMERCIAL NET LEASE REALTY, INC. and SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS Quarter Ended March 31, 1996 1995 ------------ ------------ Cash flows from operating activities: Net earnings $ 3,989,512 $ 3,058,853 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation 583,203 385,374 Amortization 164,441 50,509 Decrease in net investment in direct financing leases 145,141 97,650 Increase in accrued rental income (473,464) (261,920) Decrease in receivables 192,919 102,340 Increase in due from related party (2,385) - Decrease (increase) in prepaid expenses 15,427 (62,051) Decrease in other assets 17,843 6,825 Increase (decrease) in accrued interest payable 113,597 (26,106) Increase (decrease) in accounts payable and accrued expenses 14,641 (45,436) Increase (decrease) in real estate taxes payable (35,374) 7,080 Increase (decrease) in due to related parties 172,589 (48,207) Decrease in rents paid in advance and tenant deposits (46,110) (4,316) ------------ ------------ Net cash provided by operating activities 4,851,980 3,260,595 ------------ ------------ Cash flows from investing activities: Additions to land and buildings on operating leases (38,631,508) (2,851,052) Investment in direct financing leases (5,389,971) (2,830,935) Increase in other assets (37,044) (67,509) Other 89,310 35,938 ------------ ------------ Net cash used in investing activities (43,969,213) (5,713,558) ------------ ------------ Cash flows from financing activities: Proceeds from loans 70,550,000 7,300,000 Repayment of loans (76,444,158) - Payment of loan costs (726,038) (30,556) Proceeds from issuance of common stock 52,325,000 - Payment of stock issuance costs (3,118,291) (4,069) Payment of dividends (3,382,465) (3,382,465) Other (3,052) (31,751) ------------ ------------ Net cash provided by financing activities 39,200,996 3,851,159 ------------ ------------ Net increase in cash and cash equivalents 83,763 1,398,196 Cash and cash equivalents at beginning of quarter 300,714 1,069,900 ------------ ------------ Cash and cash equivalents at end of quarter $ 384,477 $ 2,468,096 ============ ============ See accompanying notes to condensed consolidated financial statements. COMMERCIAL NET LEASE REALTY, INC. and SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS Quarter Ended March 31, 1996 1995 ------------ ------------ Supplemental disclosures of non-cash investing and financing activities: Land, building and direct financing lease costs incurred and unpaid at end of quarter $ - $ 307,655 ============ ============ Loan costs incurred and unpaid at end of quarter $ 465 $ 12,905 ============ ============ Offering costs incurred and unpaid at end of quarter $ 142,497 $ - ============ ============ See accompanying notes to condensed consolidated financial statements. COMMERCIAL NET LEASE REALTY, INC. and SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS Quarters Ended March 31, 1996 and 1995 1. Basis of Presentation: --------------------- The accompanying unaudited financial statements have been prepared in accordance with the instructions to Form 10-Q and do not include all of the information and note disclosures required by generally accepted accounting principles. The financial statements reflect all adjustments, consisting of normal recurring adjustments, which are, in the opinion of management, necessary to a fair statement of the results for the interim periods presented. Operating results for the quarter ended March 31, 1996, may not be indicative of the results that may be expected for the year ending December 31, 1996. Amounts as of December 31, 1995, included in the financial statements, have been derived from audited financial statements as of that date. These unaudited financial statements should be read in conjunction with the financial statements and notes thereto included in the Form 10-K of Commercial Net Lease Realty, Inc. (the "Company") for the year ended December 31, 1995. The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. Earnings per share are calculated based upon the weighted average number of shares outstanding during each period. Stock options outstanding are not included since their inclusion would not result in a material dilution of earnings per share. Effective January 1, 1996, the Company adopted Statement of Financial Accounting Standards No. 121, Accounting for the Impairment of Long- Lived Assets and for Long-Lived Assets to Be Disposed Of. The statement provides that an entity review long-lived assets and certain identifiable intangibles to be held and used for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. Adoption of this standard had no material effect on the Company's financial position or results of operations. Effective January 1, 1996, the Company adopted Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation. The Statement provides that companies must either charge the value of stock options granted to their income statement or provide pro forma equivalent information in a footnote disclosure. The Company adopted this standard and will provide pro forma equivalent information in a footnote disclosure in its financial statements at December 31, 1996 and for the year then ended. 2. Leases: ------ The Company generally leases its land and buildings to operators of major retail businesses. The leases are accounted for under the provisions of Statement of Financial Accounting Standards No. 13, Accounting for Leases. As of March 31, 1996, 105 of the leases have been classified as operating leases and 62 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 39 of these leases are accounted for as operating leases. Substantially all leases have initial terms of 15 to 20 years (expiring between 1997 and 2020) and provide for minimum rentals. In addition, the majority of the leases provide for contingent rentals and/or scheduled rent increases over the terms of the leases. The tenant is also generally required to pay all property taxes and assessments, substantially maintain the interior and exterior of the building and carry insurance coverage for public liability, property damage, fire and extended coverage. The lease options generally allow tenants to renew the leases for two to four successive five-year periods subject to substantially the same terms and conditions as the initial lease. 3. Land and Building on Operating Leases: ------------------------------------- Land and buildings on operating leases consisted of the following at: March 31, December 31, 1996 1995 ------------ ------------ Land $100,770,703 $ 83,356,403 Buildings and improvements 99,884,961 78,097,726 ------------ ------------ 200,655,664 161,454,129 Accumulated depreci- ation (6,080,593) (5,497,390) ------------ ------------ $194,575,071 $155,956,739 ============ ============ Some leases provide for escalating guaranteed minimum rent to begin in subsequent lease years. Income from these scheduled rent increases is recognized on a straight-line basis over the terms of the leases. For the quarters ended March 31, 1996 and 1995, the Company recognized $473,464 and $261,920, respectively, of such income. The following is a schedule of future minimum lease payments to be received on noncancellable operating leases at March 31, 1996: 1996 $ 14,965,764 1997 20,029,838 1998 20,050,155 1999 20,258,918 2000 20,612,440 Thereafter 244,005,131 ------------ $339,922,246 ============ 4. Net Investment in Direct Financing Leases: ----------------------------------------- The following lists the components of net investment in direct financing leases at: March 31, December 31, 1996 1995 ------------ ------------ Minimum lease payments to be received $139,857,728 $126,314,337 Estimated residual values 18,846,880 17,354,140 Less unearned income (96,630,573) (86,839,351) ------------ ------------ Net investment in direct financing leases $ 62,074,035 $ 56,829,126 ============ ============ The following is a schedule of future minimum lease payments to be received on direct financing leases at March 31, 1996: 1996 $ 5,594,460 1997 7,459,282 1998 7,462,732 1999 7,509,284 2000 7,627,417 Thereafter 104,204,553 ------------ $139,857,728 ============ 5. Other Assets: ------------ Other assets consisted of the following at: March 31, December 31, 1996 1995 ---------- ------------ Deposits and miscel- laneous acquisition costs $ 698,938 $1,573,668 Deposits for loan commitments - 526,000 Deferred offering costs 127,195 222,671 Other 27,609 39,696 ---------- ---------- $ 853,742 $2,362,035 ========== ========== 6. Notes Payable: ------------- In July 1994, the Company entered into a loan agreement for a three-year $100,000,000 revolving credit facility (the "Credit Facility") which expires on June 30, 1997. As of March 31, 1996, and December 31, 1995, the outstanding principal balance was $24,300,000 and $69,450,000, respectively, plus accrued interest of $83,476 and $84,094, respectively. In January 1996, the Company entered into a long-term, fixed rate mortgage and security agreement for $39,450,000 (the "Permanent Debt Financing"). The Permanent Debt Financing provides for 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 Permanent Debt Financing is secured by a first lien on and assignment of rents and leases of certain of the Company's properties. As of March 31, 1996, the outstanding principal balance was $39,255,842, plus accrued interest of $121,611. The following is a schedule of annual maturities of the Permanent Debt Financing for each of the next five years: 1996 $ 904,014 1997 1,286,245 1998 1,385,205 1999 1,491,778 2000 1,606,550 ---------- $6,673,792 ========== 7. Stock Option Plan: ----------------- The Company's stock option plan (the "Plan") provides compensation and incentive to persons ("Key Employees") or entities whose services are considered essential to the Company's continued growth and success. As of December 31, 1995, the Plan had 600,000 shares of common stock reserved for issuance. Pursuant to the Plan, the shares of common stock reserved for issuance automatically increased to 1,200,000 shares in connection with the equity offering during the quarter ended March 31, 1996. The Plan provides for an additional automatic increase in the number of shares issuable under the Plan to 2,000,000 shares at such time as the Company has 25,000,000 shares of common stock issued and outstanding. The following summarizes transactions in the plan for the quarters ended March 31, 1996 and 1995: Number of Shares ---------------------------- Quarter Ended March 31, 1996 1995 ------------- ------------- Outstanding, January 1 578,100 568,100 Granted at $12.50 to $13.00 per share 380,000 - Exercised - - Surrendered (7,667) - ------- ------- Outstanding, March 31 950,433 568,100 ======= ======= Exercisable, March 31 233,733 44,367 ======= ======= Available for grant, March 31 241,900 31,900 ======= ======= 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. The Company applies Accounting Principles Board Opinion 25, Accounting for Stock Issued to Employees, in accounting for the Plan. Accordingly, due to the fact that the Plan requires that the exercise price of the options equal the market value of the stock on the grant date, no compensation cost has been recorded with respect to the options for the quarters ended March 31, 1996 and 1995. 8. Related Party Transactions: -------------------------- During the quarter ended March 31, 1996, the Company acquired five properties for purchase prices totalling $11,326,525 from an affiliate of CNL Realty Advisors, Inc. who had developed the properties. The purchase prices paid by the Company for these five properties equalled the affiliates cost including development costs. The affiliates cost consisted of the land purchase prices, construction costs, various soft costs including legal costs, survey fees and architect fees, and developers fees aggregating $535,500 paid to an affiliate of CNL Realty Advisors, Inc. In addition, during the quarter ended March 31, 1996, the Company acquired five properties and four buildings which were developed by the tenant on land parcels owned by the Company from unrelated, third parties for purchase prices totalling $31,512,745. In connection with the acquisition of these five properties and four buildings, the Company paid CNL Realty Advisors, Inc. $630,255 in acquisition fees and expense reimbursement fees (representing 1.5% and 0.5%, respectively, of the cost of the properties). 9. Commitments and Contingencies: ----------------------------- As of March 31, 1996, the Company had entered into agreements to purchase 11 additional properties for an estimated aggregate amount of $33,271,658. In connection with the acquisition of these 11 properties, the Company was contingently liable for $3,252,435 related to 11 separate bank letters of credit which guarantee the Company's obligation under the purchase agreements to acquire these properties. As of March 31, 1996, the Company owned and leased four land parcels to tenants which were obligated to develop a building on the respective land parcels. The Company has agreed to pay an aggregate amount of up to $10,087,595 upon completion of the buildings. 10. Subsequent Event: ---------------- In April 1996, the Company declared dividends to its shareholders of $4,549,715 or $.29 per share of common stock, payable in May 1996. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Introduction - ------------ Commercial Net Lease Realty, Inc. (the "Company") is an equity real estate investment trust that acquires, owns and manages high-quality, freestanding properties leased to major retail businesses under long-term commercial net leases. As of March 31, 1996, the Company owned 167 properties (the "Properties") each of which are leased to major retail businesses. Liquidity and Capital Resources - ------------------------------- General. Historically, the Company's only demand for funds has been for the payment of operating expenses and dividends, for property acquisitions and for the payment of interest on its outstanding indebtedness. Generally, cash needs for items other than property acquisitions have been met from operations and property acquisitions have been funded by equity 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 quarters ended March 31, 1996 and 1995, the Company generated $4,851,980 and $3,260,595, respectively, in net cash provided by operating activities. The increase in cash from operations for the quarter ended March 31, 1996, as compared to the quarter ended March 31, 1995, is primarily a result of changes in revenues and expenses as discussed in "Results of Operations." The Company's leases typically provide that the tenant bears responsibility for substantially all property costs and expenses associated with ongoing maintenance and operation, including utilities, property taxes and insurance. In addition, the Company's leases generally provide that the tenant is responsible for roof and structural repairs. Certain of the Company's Properties are subject to leases under which the Company retains responsibility for certain costs and expenses associated with the Property. Because many of the Properties which are subject to leases that place these responsibilities on the Company are recently constructed, management anticipates that capital demands to meet obligations with respect to these Properties will be minimal for the foreseeable future and can be met with funds from operations and working capital. The Company may be required to use bank borrowings or other sources of capital in the event of unforeseen significant capital expenditures. Indebtedness. In January 1996, the Company entered into a long-term, fixed rate mortgage and security agreement for $39,450,000 (the "Permanent Debt Financing"). The Permanent Debt Financing provides for 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 Permanent Debt Financing is secured by a first lien on and assignment of rents and leases of certain of the Company's Properties. As of March 31, 1996, the outstanding principal balance was $39,255,842. Proceeds from the Permanent Debt Financing were used to pay down the Company's $100,000,000 credit facility. Debt and Equity Securities. In July 1995, the Company filed a shelf registration statement with the Securities and Exchange Commission that permits the issuance of debt and equity securities of up to $200,000,000. In January 1996, the Company filed a final prospectus supplement to the shelf registration and issued 4,025,000 shares of common stock and received gross proceeds of $52,325,000. In connection with the offering, the Company incurred stock issuance costs totalling $3,342,742, consisting primarily of underwriters' commissions and fees, legal and accounting fees and printing expenses. Proceeds from the offering were used to pay down the Company's $100,000,000 credit facility. Property Acquisitions and Commitments. During the quarter ended March 31, 1996, the Company borrowed $42,800,000 of amounts under its Credit Facility to acquire ten Properties (four Eckerd drugstores, two OfficeMax office supply stores, one Barnes & Noble bookstore, one Academy sporting goods store, one Borders bookstore and one Computer City computer store) and four buildings (Barnes and Noble bookstores which were developed by the tenant on land parcels owned by the Company) for an aggregate amount of approximately $42,840,000. As of March 31, 1996, the Company had entered into agreements to purchase 11 additional properties for an estimated aggregate amount of $33,271,658. 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, as of March 31, 1996, the Company owned four land parcels which are leased to tenants who are obligated to develop buildings on the respective land parcels. Pursuant to each lease, the Company has agreed to purchase the buildings upon completion and occupancy for an aggregate amount of up to $10,087,595. In addition to the 11 properties under contract and the four buildings under construction as of March 31, 1996, the Company is currently negotiating the acquisition of prospective properties. The Company may elect to acquire these prospective properties or other additional properties (or interests therein) in the future. Such property acquisitions are expected to be the primary demand for additional capital in the future. The Company anticipates that it may engage in equity or debt financing, through either public or private offerings of its securities for cash, issuance of such securities in exchange for assets, or a combination of the foregoing. Subject to the constraints imposed by the Company's $100,000,000 credit facility and long- term, fixed rate financing, the Company may enter into additional financing arrangements. Management believes that the Company's current capital resources (including cash on hand), coupled with the Company's borrowing capacity, are sufficient to meet its liquidity needs for the foreseeable future. Dividends. One of the Company's primary objectives, consistent with its policy of retaining sufficient cash for reserves and working capital purposes, is to distribute a substantial portion of its funds available from operations to its stockholders in the form of dividends. For each of the quarters ended March 31, 1996 and 1995, the Company declared and paid dividends to its stockholders of $3,382,465, or $.29 per share of common stock. In April 1996, the Company declared dividends to its shareholders of $4,549,715 or $.29 per share of common stock, payable in May 1996. Results of Operations - --------------------- During the quarters ended March 31, 1996 and 1995, the Company owned and leased 167 and 129 Properties, respectively, to operators of major retail businesses. In connection therewith, during the quarters ended March 31, 1996 and 1995, the Company earned $6,727,910 and $4,203,841, respectively, in rental income from operating leases and earned income from direct financing leases. The increase in rental and earned income during the quarter ended March 31, 1996, is primarily a result of the facts that (i) the 29 Properties acquired and four buildings upon which construction was completed during 1995 were operational for a full quarter in 1996 and (ii) the Company acquired ten Properties and four buildings upon which construction was completed during the quarter ended March 31, 1996. Rental and earned income are expected to increase as the Company acquires additional Properties and due to the fact that the ten Properties and four buildings acquired during the quarter ended March 31, 1996 will contribute to the Company's income for a full fiscal quarter in future quarters. The Company incurred $1,459,883 and $415,645 in interest expense for the quarters ended March 31, 1996 and 1995, respectively. Interest expense increased for the quarter ended March 31, 1996, primarily as a result of the Company's Permanent Debt Financing and higher average borrowing levels on the Company's $100,000,000 credit facility. However, the increase was partially offset by a decrease in the average interest rates of the Company's credit facility and the Company's long-term, fixed rate financing. During the quarters ended March 31, 1996 and 1995, operating expenses, including depreciation and amortization, were $1,474,829 and $940,948, respectively (21.3% of gross operating revenues during each quarter). The increase in the dollar amount of operating expenses for the quarter ended March 31, 1996, as compared to the quarter ended March 31, 1995, is primarily attributable to the increase in depreciation expense as a result of the additional Properties acquired during the quarter ended March 31, 1996, and a full quarter of depreciation expense relating to the 29 Properties and four buildings acquired during 1995. The increase is also attributable to an increase in amortization expense as a result of the amortization of loan costs relating to the Company's Permanent Debt Financing. In addition, advisory fees increased as a result of increased funds from operations for the quarter ended March 31, 1996. PART II. OTHER INFORMATION Item 1. Legal Proceedings. ----------------- No material developments in legal proceedings as previously reported in the Form 10-K for the year ended December 31, 1995. Item 2. Changes in Securities. Not applicable. --------------------- Item 3. Defaults Upon Senior Securities. Not applicable. ------------------------------- Item 4. Submission of Matters to a Vote of Security Holders. --------------------------------------------------- Not applicable. Item 5. Other Information. Not applicable. ----------------- Item 6. Exhibits and Reports on Form 8-K. -------------------------------- (a) The following exhibits are filed as a part of this report. 3.1 Articles of Incorporation of the Registrant (filed as Exhibit 3.3(i) to the Registrant's Registration Statement No. 1-11290 on Form 8-B, and incorporated herein by reference). 3.2 Bylaws of the Registrant (filed as Exhibit 3.3(ii) to Amendment No. 2 to the Registrant's Registration Statement No. 1-11290 on Form 8-B, and incorporated herein by reference). 4 Specimen Certificate of Common Stock, par value $.01 per share, of the Registrant (filed as Exhibit 3.4 to the Registrant's Registration Statement No. 1-11290 on Form 8-B, and incorporated herein by reference). 10.1 Stock Purchase Agreement dated as of January 23, 1992 by and among the Registrant, CNL Group, Inc. and certain entities affiliated therewith (filed as Exhibit 10.4 to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1991, and incorporated herein by reference). 10.2 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). 10.3 Advisory Agreement between Registrant and CNL Realty Advisors, Inc. effective as of April 1, 1993 (filed as Exhibit 10.04 to Amendment No. 1 to the Registrant's Registration Statement No. 33-61214 on Form S-2, and incorporated herein by reference). 10.4 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). 10.5 Interest Rate Cap Agreement dated December 23, 1994, by and between the Registrant and First Union National Bank of Florida (filed as Exhibit 10.12 to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1994, and incorporated herein by reference). 10.6 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). 10.7 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). 10.8 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). 10.9 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). 10.10 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). (b) The Company filed one report on Form 8-K, reporting an equity offering, long-term, fixed rate financing and property and proposed property acquisitions and to file certain documents in connection with the equity offering in January 1996, on January 18, 1996. SIGNATURES ---------- Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. DATED this 13th day of May, 1996. COMMERCIAL NET LEASE REALTY, INC. By: /s/ Gary M. Ralston ----------------------- Gary M. Ralston President By: /s/ Kevin B. Habicht ----------------------- Kevin B. Habicht Chief Financial Officer -----END PRIVACY-ENHANCED MESSAGE-----