-----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, O0dys7+4/F+98wsKgv1eCKE+4a5szEDJrUwdkWaFmj9pcfTNzVEAQdIT6rvJVbSU piaNg6wU9mNmKErLtNIiCA== 0000751364-00-000069.txt : 20000516 0000751364-00-000069.hdr.sgml : 20000516 ACCESSION NUMBER: 0000751364-00-000069 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000331 FILED AS OF DATE: 20000515 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: SEC FILE NUMBER: 001-11290 FILM NUMBER: 633597 BUSINESS ADDRESS: STREET 1: 455 S ORANGE AVE STREET 2: SUITE 700 CITY: ORLANDO STATE: FL ZIP: 32801 BUSINESS PHONE: 4074237348 MAIL ADDRESS: STREET 1: 455 S ORANGE AVE STE 700 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 10-Q 1 COMMERCIAL NET LEASE REALTY, INC. UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2000 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. Employment Identification No.) incorporation or organization) 450 South Orange Avenue, Orlando, Florida 32801 (Address of principal executive offices, including zip code) (407) 265-7348 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No . Indicate the number of shares outstanding of each of the issuer's classes of common stock as of the latest practicable date. 30,315,681 shares of Common Stock, $0.01 par value, outstanding as of May 1, 2000. COMMERCIAL NET LEASE REALTY, INC. and SUBSIDIARIES CONTENTS Part I Item 1. Financial Statements: Page Condensed Consolidated Balance Sheets..............................1 Condensed Consolidated Statements of Earnings......................2 Condensed Consolidated Statements of Cash Flows....................3 Notes to Condensed Consolidated Financial Statements...............5 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations..........................................9 Item 3. Quantitative and Qualitative Disclosures About Market Risk........12 Part II Other Information..........................................................13 CONDENSED CONSOLIDATED BALANCE SHEETS (dollars in thousands, except per share data) ASSETS March 31, December 31, 2000 1999 ------------ ------------ Real estate: Accounted for using the operating method, net of accumulated depreciation and amortization of $23,885 and $22,023, respectively $ 541,794 $ 546,193 Accounted for using the direct financing method 123,985 125,491 Investment in unconsolidated subsidiary 2,994 4,502 Investment in unconsolidated partnership 3,842 3,844 Mortgages and accrued interest receivable 17,988 16,241 Mortgages and other receivables from unconsolidated subsidiary 34,115 27,597 Cash and cash equivalents 4,510 3,329 Receivables 1,610 2,119 Accrued rental income 13,871 13,182 Debt costs, net of accumulated amortization of $3,095 and $2,894, respectively 2,763 2,964 Other assets 4,409 4,327 ----------- ----------- Total assets $ 751,881 $ 749,789 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY Line of credit payable $ 111,600 $ 108,700 Mortgages payable 38,842 40,429 Notes payable, net of unamortized discount of $570 and $592, respectively, and unamortized interest rate hedge gain of $2,316 and $2,434, respectively 201,747 201,842 Accrued interest payable 3,349 2,744 Accounts payable and accrued expenses 1,309 1,717 Other liabilities 3,821 2,995 ----------- ----------- Total liabilities 360,668 358,427 ----------- ----------- Stockholders' equity: Preferred stock, $0.01 par value. Authorized 15,000,000 shares; none issued or outstanding - - Common stock, $0.01 par value. Authorized 90,000,000 shares; issued and outstanding 30,315,681 and 30,255,939 shares at March 31, 2000 and December 31, 1999, respectively 303 303 Excess stock, $0.01 par value. Authorized 105,000,000 shares; none issued or outstanding - - Capital in excess of par value 396,988 396,403 Accumulated dividends in excess of net earnings (6,078) (5,344) ----------- ----------- Total stockholders' equity 391,213 391,362 ----------- ----------- $ 751,881 $ 749,789 =========== =========== See accompanying notes to condensed consolidated financial statements. CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS (dollars in thousands, except per share data) Quarter Ended March 31, 2000 1999 ---------- ---------- Revenues: Rental income from operating leases $ 15,727 $ 13,855 Earned income from direct financing leases 3,321 3,644 Contingent rental income 272 133 Development and asset management fees from related parties 96 1,044 Interest 1,077 58 Other 94 96 ---------- ---------- 20,587 18,830 ---------- ---------- Expenses: General operating and administrative 1,250 2,339 Real estate expenses 100 98 Interest 6,646 4,777 Depreciation and amortization 2,288 1,993 Expenses incurred in acquiring advisor from related party 491 4,928 ---------- ---------- 10,775 14,135 ---------- ---------- Earnings before equity in earnings of unconsolidated subsidiary and unconsolidated partnership, and gain on sale of real estate 9,812 4,695 Equity in earnings of unconsolidated subsidiary (1,261) - Equity in earnings of unconsolidated partnership 93 92 Gain on sale of real estate - 5,043 ---------- ---------- Net earnings $ 8,644 $ 9,830 ========== ========== Net earnings per share of common stock: Basic $ 0.29 $ 0.33 ========== ========== Diluted $ 0.28 $ 0.32 ========== ========== Weighted average number of shares outstanding: Basic 30,325,685 30,038,818 ========== ========== Diluted 30,335,622 30,253,944 ========== ========== See accompanying notes to condensed consolidated financial statements. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (dollars in thousands) Quarter Ended March 31, 2000 1999 -------- -------- Cash flows from operating activities: Net earnings $ 8,644 $ 9,830 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization 2,288 1,993 Amortization of notes payable discount 22 5 Amortization of deferred interest rate hedge gain (118) - Gain on sale of real estate - (5,043) Expenses incurred in acquiring advisor from related party 491 4,928 Equity in earnings of unconsolidated subsidiary, net of deferred intercompany profits 1,508 - Distributions from unconsolidated partnership in excess of equity in earnings 1 1 Decrease in real estate leased to others using the direct financing method 492 448 Decrease in leasehold interests 1,455 - Increase in mortgages and accrued interest receivable (5) (38) Decrease in receivables 409 1,016 Increase in accrued rental income (825) (900) Increase in other assets (40) (167) Increase (decrease) in accrued interest payable 605 (1,814) Increase (decrease) in accounts payable and accrued expenses (248) 402 Increase in other liabilities 826 432 -------- -------- Net cash provided by operating activities 15,505 11,093 -------- -------- Cash flows from investing activities: Proceeds from the sale of real estate 838 36,406 Additions to real estate accounted for using the operating method (134) (57,369) Additions to real estate accounted for using the direct financing method - (1,901) Increase in mortgages receivable (309) (3,952) Mortgage payments received 79 - Increase in mortgages and other receivables from unconsolidated subsidiary (6,605) - Increase in other assets (153) (61) Other (63) (64) -------- -------- Net cash used in investing activities (6,347) (26,941) -------- -------- Cash flows from financing activities: Proceeds from line of credit payable 9,100 26,300 Repayment of line of credit payable (6,200) (3,300) Repayment of mortgages payable (1,587) (445) Payment of debt costs - (50) Proceeds from issuance of common stock 143 1,709 Payment of stock issuance costs - 65 Payment of dividends (9,378) (9,267) Other (55) (25) -------- -------- Net cash provided by (used in) financing activities (7,977) 14,987 -------- -------- See accompanying notes to condensed consolidated financial statements. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED (dollars in thousands) Quarter Ended March 31, 2000 1999 -------- -------- Net increase (decrease) in cash and cash equivalents 1,181 (861) Cash and cash equivalents at beginning of quarter 3,329 1,442 -------- -------- Cash and cash equivalents at end of quarter $ 4,510 $ 581 ======== ======== Supplemental schedule of non-cash investing an financing activities: Issued 50,711 and 372,000 shares of common stock in 2000 and 1999, respectively, in connection with the acquisition of the Company's advisor $ 491 $ 4,928 ======== ======== Mortgage note accepted in connection with sale of real estate $ 1,425 $ 2,500 ======== ======== 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, 2000 and 1999 1. Basis of Presentation: --------------------- The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and do not include all of the information and note disclosures required by generally accepted accounting principles. The financial statements reflect all adjustments, consisting of normal recurring adjustments, which are, in the opinion of management, necessary for a fair presentation of the results for the interim periods presented. Operating results for the quarter ended March 31, 2000, may not be indicative of the results that may be expected for the year ending December 31, 2000. Amounts as of December 31, 1999, included in the financial statements, have been derived from the audited financial statements as of that date. These unaudited financial statements should be read in conjunction with the financial statements and notes thereto included in the Form 10-K of Commercial Net Lease Realty, Inc. for the year ended December 31, 1999. The consolidated financial statements include the accounts of Commercial Net Lease Realty, Inc. and its wholly-owned subsidiaries (the "Company"). All significant intercompany accounts and transactions have been eliminated in consolidation. Basic earnings per share are calculated based upon the weighted average number of common shares outstanding during each period and diluted earnings per share are calculated based upon weighted average number of common shares outstanding plus dilutive potential common shares. In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities." The Statement establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts (collectively referred to as derivatives), and for hedging activities. The Statement requires that an entity recognize all derivatives as either assets or liabilities in the balance sheet and measure those instruments at fair value. In June 1999, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 137, "Accounting for Derivative Instruments and Hedging Activities - Deferral of the Effective Date of FASB Statement No. 133, an Amendment of FASB Statement No. 133." Statement No. 137 defers the effective date of Statement No. 133, "Accounting for Derivative Instruments and Hedging Activities" for one year. Statement No. 133, as amended, is now effective for all fiscal quarters of all fiscal years beginning after June 15, 2000. The Company is currently reviewing the Statement, as amended, to see what impact, if any, it will have on the Company's consolidated financial statements. 2. Leases: ------ The Company generally leases its real estate to operators of major retail businesses. As of March 31, 2000, 181 of the leases have been classified as operating leases and 83 leases have been classified as direct financing leases. For the leases classified as direct financing leases, the building portions of the property leases are accounted for as direct financing leases while the land portions of 47 of these leases are accounted for as operating leases. Substantially all leases have initial terms of 10 to 20 years (expiring between 2001 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. Earnings Per Share: ------------------ The following represents the calculations of earnings per share and the weighted average number of shares of dilutive potential common stock for the quarters ended March 31: 2000 1999 ---------- ---------- Basic Earnings Per Share: Net earnings $8,644,00 $9,830,000 ========== ========== Weighted average number of shares outstanding 30,258,141 29,591,214 Merger contingent shares 67,544 447,604 ---------- ---------- Weighted average number of shares used in basic earnings per share 30,325,685 30,038,818 ========== ========== Basic earnings per share $ 0.29 $ 0.33 ========== ========== Diluted Earnings Per Share: Net earnings $8,644,000 $9,830,000 ========== ========== Weighted average number of shares outstanding 30,258,141 29,591,214 Effect of dilutive securities: Stock options 11 4,508 Merger contingent shares 77,470 658,222 ---------- ---------- Weighted average number of shares outstanding used in diluted earnings per share 30,335,622 30,253,944 ========== ========== Diluted earnings per share $ 0.28 $ 0.32 ========== ========== For the quarters ended March 31, 2000 and 1999, options on 1,665,925 and 1,661,269 shares of common stock, respectively, were not included in computing diluted earnings per share because their effects were antidilutive. 4. Related Party Transactions:, ---------------------------- In connection with the mortgages and other receivables from the Company's unconsolidated subsidiary, Commercial Net Lease Realty Services, Inc. ("Services"), the Company received $1,145,000 in interest and fees during the quarter ended March 31, 2000. In addition, Services paid the Company $102,000 in expense reimbursements for accounting services provided by the Company during the quarter ended March 31, 2000. 5. Segment Information: ------------------- In June 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and Related Information." This Statement requires that a public business enterprise report financial and descriptive information about its reportable operating segments. Operating segments are components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance. While the Company does not have more than one reportable segment as defined by the Statement, the Company has identified two primary sources of revenue: (i) rental and earned income from the triple net leases and (ii) fee income from development, property management and asset management services. The following tables represent the revenues, expenses and asset allocation for the two segments and the Company's consolidated totals at March 31, 2000 and 1999, and for the quarters then ended (dollars in thousands): Rental and Earned Fee Consolidated Income Income Corporate Totals ----------- ----------- ----------- ------------ 2000 Revenues $ 19,821 $ 766 $ - $ 20,587 General operating and administrative expenses 948 48 254 1,250 Real estate expenses 100 - - 100 Interest expense 6,646 - - 6,646 Depreciation and amortization 2,260 24 4 2,288 Expenses incurred in acquiring advisor from related party - - 491 491 Equity in earnings of unconsolidated subsidiary - (1,261) - (1,261) Equity in earnings of unconsolidated partnership 93 - - 93 =========== =========== =========== ============ Net earnings $ 9,960 $ (567) $ (749) $ 8,644 =========== =========== =========== ============ Assets $ 751,717 $ 82 $ 82 $ 751,881 =========== =========== =========== ============ Additions to long-lived assets: Real estate $ 134 $ - $ - $ 134 =========== =========== =========== ============ Other $ 29 $ 1 $ - $ 30 =========== =========== =========== ============ 1999 Revenues $ 17,715 $ 1,115 $ - $ 18,830 General operating and administrative expenses 1,539 491 309 2,339 Real estate expenses 98 - - 98 Interest expense 4,777 - - 4,777 Depreciation and amortization 1,959 26 8 1,993 Expenses incurred in acquiring advisor from related party - - 4,928 4,928 Equity in earnings of unconsolidated partnership 92 - - 92 Gain on sale of real estate 5,043 - - 5,043 =========== =========== =========== ============ Net earnings $ 14,477 $ 598 $ (5,245) $ 9,830 =========== =========== =========== ============ Assets $ 713,244 $ 266 $ 83 $ 713,593 =========== =========== =========== ============ Additions to long-lived assets: Real estate $ 24,639 $ - $ - $ 24,639 =========== =========== =========== ============ Other $ 104 $ 158 $ 28 $ 290 =========== =========== =========== ============ 6. Subsequent Event: ---------------- In April 2000, the Company declared dividends to its shareholders of $9,398,000 or $0.31 per share of common stock, payable in May 2000. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Introduction - ------------ Commercial Net Lease Realty, Inc. is a fully integrated, self-administrated real estate investment trust that acquires, owns, manages and indirectly develops high-quality, freestanding properties that are generally leased to major retail businesses under long-term commercial net leases. As of March 31, 2000, Commercial Net Lease Realty, Inc. and its subsidiaries (the "Company") owned, either directly or through a partnership interest, 276 properties (the "Properties") substantially all of which are leased to major retail businesses. Liquidity and Capital Resources - ------------------------------- General. Historically, the Company's only demand for funds has been for the payment of operating expenses and dividends, for property acquisitions and development, either directly or through investment interests, 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, the sale of Properties 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, proceeds from the sale of Properties, as well as undistributed funds from operations. For the quarters ended March 31, 2000 and 1999, the Company generated $15,505,000 and $11,093,000 respectively, in net cash provided by operating activities. The increase in cash from operations for the quarter ended March 31, 2000, as compared to the quarter ended March 31, 1999, is primarily the result of changes in revenues and expenses as discussed in "Results of Operations." The Company's leases typically provide that the tenant bears responsibility for substantially all property costs and expenses associated with ongoing maintenance and operation including utilities, property taxes and insurance. In addition, the Company's leases generally provide that the tenant is responsible for roof and structural repairs. Certain of the Company's Properties are subject to leases under which the Company retains responsibility for certain costs and expenses associated with the Property. Because many of the Properties which are subject to leases that place these responsibilities on the Company are recently constructed, management anticipates that capital demands to meet obligations with respect to these Properties will be minimal for the foreseeable future and can be met with funds from operations and working capital. The Company may be required to use bank borrowings or other sources of capital in the event of unforeseen significant capital expenditures. Management believes that the Company's current capital resources (including cash on hand), coupled with the Company's borrowing capacity, are sufficient to meet its liquidity needs for the foreseeable future. Dividends. One of the Company's primary objectives, consistent with its policy of retaining sufficient cash for reserves and working capital purposes and maintaining its status as a real estate investment trust, is to distribute a substantial portion of its funds available from operations to its stockholders in the form of dividends. For the quarters ended March 31, 2000 and 1999, the Company declared and paid dividends to its stockholders of $9,378,000 and $9,267,000, respectively, or $0.31 per share of common stock. In April 2000, the Company declared dividends to its shareholders of $9,398,000 or $0.31 per share of common stock, payable in May 2000. Results of Operations - --------------------- As of March 31, 2000 and 1999, the Company owned 267 and 272 wholly-owned Properties, respectively, 264 and 268, respectively, of which were leased to operators of major retail businesses. In addition, during the quarter ended March 31, 2000, the Company sold one property which was leased during 2000. During the quarter ended March 31, 1999, the Company sold 38 properties which were leased during 1999 and one property which was vacant. During the quarters ended March 31, 2000 and 1999, the Company earned $19,320,000 and $17,632,000, respectively, in rental income from operating leases, earned income from direct financing leases and contingent rental income ("Rental Income"). The increase in Rental Income during the quarter ended March 31, 2000, is primarily a result of the facts that (i) the 36 Properties acquired and 15 buildings upon which construction was completed during 1999 were operational for a full quarter in 2000 and (ii) the Company received non-recurring additional rental income of $1,096,000 related to the termination of leases on two of its properties. During the quarters ended March 31, 2000 and 1999, the Company earned $96,000 and $1,044,000, respectively, in development and asset management fees. The fees earned during 1999 were primarily earned by the Company's build-to-suit development operation. In May 1999, the Company transferred its build-to-suit development operation to a 95 percent owned, taxable unconsolidated subsidiary, Commercial Net Lease Realty Services, Inc. ("Services"). Development fees earned by Services during the quarter ended March 31, 2000 are included in the Company's equity in earnings of unconsolidated subsidiary. During the quarters ended March 31, 2000 and 1999, the Company earned $1,077,000 and $58,000, respectively, in interest income. The increase in interest earned during 2000 is attributable to the interest earned on the mortgages receivable and the mortgages and other receivables from Services issued during 1999. During the quarters ended March 31, 2000 and 1999, operating expenses, excluding interest and including depreciation and amortization, were $4,129,000 and $9,358,000, respectively, (20.0% and 49.7%, respectively, of total revenues). The decrease in operating expenses for the quarter ended March 31, 2000, as compared to the quarter ended March 31, 1999, is attributable to the decrease in charges related to the costs incurred in acquiring the Company's Advisor from a related party and the decrease in general operating and administrative expenses as a result of the transfer of the Company's build-to-suit development operation to Services. The decrease in operating expenses for the quarter ended March 31, 2000, as compared to the quarter ended March 31, 1999, is also attributable to the increase in depreciation and amortization expense as a result of a full quarter of depreciation and amortization expense relating to the 36 Properties and 15 buildings acquired during 1999. The increase in depreciation and amortization expense was partially offset by a decrease in depreciation and amortization expense related to the sale of 42 properties during the nine months ended September 30, 1999. The Company recognized $6,646,000 and $4,777,000 in interest expense for the quarters ended March 31, 2000 and 1999, respectively. Interest expense increased during the quarter ended March 31, 2000, primarily as a result of the higher average interest rate on the Company's Credit Facility and the interest incurred related to the issuance of the $100,000,000 in notes payable in June 1999. However, the increase was partially offset by a decrease in the average borrowing levels of the Company's Credit Facility and the maturity of a $13,150,000 mortgage payable in December 1999. In May 1999, Services was formed to enable the Company to perform additional development, leasing and disposition services. The Company accounts for its investment in Services under the equity method, and therefore, recognizes 95 percent of the income or loss of Services as equity in earnings of unconsolidated subsidiary. The net losses incurred by Services for the quarter ended March 31, 2000 are primarily due to the nature of the development, leasing and real estate disposition business which provides for revenue recognition upon completion of construction, leasing or disposition of the real estate, while many of the related expenses are recognized as incurred. Investment Considerations. In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities." The Statement establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts (collectively referred to as derivatives), and for hedging activities. The Statement requires that an entity recognize all derivatives as either assets or liabilities in the balance sheet and measure those instruments at fair value In June 1999, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 137, "Accounting for Derivative Instruments and Hedging Activities-Deferral of the Effective Date of FASB Statement No. 133, an Amendment of FASB Statement No. 133." Statement No. 137 defers the effective date of Statement No. 133, "Accounting for Derivative Instruments and Hedging Activities" for one year. Statement No. 133, as amended, is now effective for all fiscal quarters of all fiscal years beginning after June 15, 2000. The Company is currently reviewing the Statement, as amended, to see what impact, if any, it will have on the Company's consolidated financial statements. This information contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Although the Company believes that the expectations reflected in such forward-looking statements are based upon reasonable assumptions, the Company's actual results could differ materially from those set forth in the forward-looking statements. Certain factors that might cause a difference include the following: changes in general economic conditions, changes in real estate market conditions, continued availability of proceeds from the Company's debt or equity capital, the ability of the Company to locate suitable tenants for its Properties and the ability of tenants to make payments under their respective leases. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK There have been no material changes in quantitative and qualitative disclosures about market risk as previously reported in the Form 10-K for the year ended December 31, 1999. PART II. OTHER INFORMATION Item 1. Legal Proceedings. No material developments in legal proceedings as previously reported on the Form 10-K for the year ended December 31, 1999. Item 2. Changes in Securities and Use of Proceeds. Not applicable. Item 3. Defaults Upon Senior Securities. Not applicable. Item 4. Submission of Matters to a Vote of Security Holders. Not applicable. Item 5. Other Information. Not applicable. Item 6. Exhibits and Reports on Form 8-K. (a) The following exhibits are filed as a part of this report. 3.1 Articles of Incorporation of the Registrant (filed as Exhibit 3.3(i) to the Registrant's Registration Statement No. 1-11290 on Form 8-B, and incorporated herein by reference). 3.2 Bylaws of the Registrant (filed as Exhibit 3.3(ii) to Amendment No. 2 to the Registrant's Registration Statement No. 1-11290 on Form 8-B, and incorporated herein by reference). 3.3 Articles of Amendment to the Articles of Incorporation of Registrant (filed as Exhibit 3.3 to the Registrant's Form 10-Q for the quarter ended September 30, 1996, and incorporated herein by reference). 3.4 Articles of Amendment to the Articles of Incorporation of the Registrant (filed as Exhibit 3.4 to the Registrant's Current Report on Form 8-K dated February 18, 1998, and filed with the Securities and Exchange Commission on February 19, 1998, and incorporated herein by reference). 3.5 First Amended and Restated Articles of Incorporation of the Registrant (filed as Exhibit 3.1 to the Registrant's Registration Statement No. 333-64511 on Form S-3, and incorporated herein by reference). 4.1 Specimen Certificate of Common stock, par value $0.01 per share, of the Registrant (filed as Exhibit 3.4 to the Registrant's Registration Statement No. 1-11290 on Form 8-B, and incorporated herein by reference). 4.2 Form of Indenture dated March 25, 1998, by and among Registrant and First Union National Bank, Trustee, relating to $100,000,000 of 7.125% Notes due 2008 and $100,000,000 of 8.125% Notes due 2004 (filed as Exhibit 4.1 to the Registrant's Current Report on Form 8-K dated March 20, 1998, and incorporated herein by reference). 4.3 Form of Supplemental Indenture No. 1 dated March 25, 1998, by and among Registrant and First Union National Bank, Trustee, relating to $100,000,000 of 7.125% Notes due 2008 (filed as Exhibit 4.2 to the Registrant's Current Report on Form 8-K dated March 20, 1998, and incorporated herein by reference). 4.4 Form of 7.125% Notes due 2008 (filed as Exhibit 4.3 to the Registrant's Current Report on Form 8-K dated March 20, 1998, and incorporated herein by reference). 4.5 Form of Supplemental Indenture No. 2 dated June 21, 1999, by and among Registrant and First Union National Bank, Trustee, relating to $100,000,000 of 8.125% Notes due 2004 (filed as Exhibit 4.2 to the Registrant's Current Report on Form 8-K dated June 17, 1999, and incorporated herein by reference). 4.6 Form of 8.125% Notes due 2004 (filed as Exhibit 4.3 to the Registrant's Current Report on Form 8-K dated June 17, 1999, and incorporated herein by reference). 10.1 Letter Agreement dated July 10, 1992, amending Stock Purchase Agreement dated January 23, 1992 (filed as Exhibit 10.34 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 1992, and incorporated herein by reference). 10.2 Advisory Agreement between Registrant and CNL Realty Advisors, Inc. effective as of April 1, 1993 (filed as Exhibit 10.04 to Amendment No. 1 to the Registrant's Registration Statement No. 33-61214 on Form S-2, and incorporated herein by reference). 10.3 1992 Commercial Net Lease Realty, Inc. Stock Option Plan (filed as Exhibit No. 10(x) to the Registrant's Registration Statement No. 33-83110 on Form S-3, and incorporated herein by reference). 10.4 Second Amended and Restated Line of Credit and Security Agreement, dated December 7, 1995, among Registrant, certain lenders listed therein and First Union National Bank of Florida, as the Agent, relating to a $100,000,000 loan (filed as Exhibit 10.14 to the Registrant's Current Report on Form 8-K dated January 18, 1996, and incorporated herein by reference). 10.5 Secured Promissory Note, dated December 14, 1995, among Registrant and Principal Mutual Life Insurance Company relating to a $13,150,000 loan (filed as Exhibit 10.15 to the Registrant's Current Report on Form 8-K dated January 18, 1996, and incorporated herein by reference). 10.6 Mortgage and Security Agreement, dated December 14, 1995, among Registrant and Principal Mutual Life Insurance Company relating to a $13,150,000 loan (filed as Exhibit 10.16 to the Registrant's Current Report on Form 8-K dated January 18, 1996, and incorporated herein by reference). 10.7 Loan Agreement, dated January 19, 1996, among Registrant and Principal Mutual Life Insurance Company relating to a $39,450,000 loan (filed as Exhibit 10.12 to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1995, and incorporated herein by reference). 10.8 Secured Promissory Note, dated January 19, 1996 among Registrant and Principal Mutual Life Insurance Company relating to a $39,450,000 loan (filed as Exhibit 10.13 to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1995, and incorporated herein by reference). 10.9 Third Amended and Restated Line of Credit and Security Agreement, dated September 3, 1996, by and among Registrant, certain lenders and First Union National Bank Florida, as the Agent, relating to a $150,000,000 loan (filed as Exhibit 10.11 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 1996, and incorporated herein by reference). 10.10 Second Renewal and Modification Promissory Note, dated September 3, 1996, by and among Registrant and First Union National Bank Florida, as the Agent, relating to a $150,000,000 loan (filed as Exhibit 10.12 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 1996, and incorporated herein by reference). 10.11 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). 10.13 Fifth Amended and Restated Line of Credit and Security Agreement, dated September 23, 1999, by and among Registrant, certain lenders and First Union National Bank, as the Agent, relating to a $200,000,000 loan (filed herewith). 27 Financial Data Schedule (filed herewith). (b) No reports on Form 8-K were filed during the quarter ended March 31, 2000. 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 15th day of May, 2000. 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 EX-27 2 COMMERCIAL NET LEASE REALTY, INC.
5 This schedule contains summary financial information extracted from the balance sheet of Commercial Net Lease Realty, Inc. at March 31, 2000, and its statement of earnings for the three months ended and is qualified in its entirety by reference to the Form 10-Q of Commercial Net Lease Realty, Inc. for the three months ended March 31, 2000. 3-MOS DEC-31-2000 JAN-1-2000 MAR-31-2000 4,510,000 0 1,610,000 0 0 0 565,679,000 23,885,000 751,881,000 0 0 303,000 0 0 390,910,000 751,881,000 0 20,587,000 0 4,129,000 0 0 6,646,000 8,644,000 0 8,644,000 0 0 0 8,644,000 0.29 0.28 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.
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