-----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, SpMsuh4rPDX053KCdEwb+NE1H8gSUaMikO0Kf8Hl3UfZDhyQ+WeryEMdOS8J0ndM S4yqUNmqpKeErEv6CLdySQ== /in/edgar/work/20000614/0000751364-00-000072/0000751364-00-000072.txt : 20000919 0000751364-00-000072.hdr.sgml : 20000919 ACCESSION NUMBER: 0000751364-00-000072 CONFORMED SUBMISSION TYPE: 10-K405/A PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000613 FILER: COMPANY DATA: COMPANY CONFORMED NAME: COMMERCIAL NET LEASE REALTY INC CENTRAL INDEX KEY: 0000751364 STANDARD INDUSTRIAL CLASSIFICATION: [6798 ] IRS NUMBER: 561431377 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405/A SEC ACT: SEC FILE NUMBER: 001-11290 FILM NUMBER: 654462 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-K405/A 1 0001.txt COMMERCIAL NET LEASE REALTY, INC.10-K UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 FORM 10-K/A Amendment No. 1 (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, 1999 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number 0-12989 COMMERCIAL NET LEASE REALTY, INC. (Exact name of registrant as specified in its charter) Maryland 56-1431377 (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 450 South Orange Avenue, Suite 900 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 7.125% Notes due 2008 None 8.125% Notes due 2004 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 February 10, 2000, was $287,520,840. The number of shares of common stock outstanding as of February 10, 2000, was 30,250,939. The Form 10-K of Commercial Net Lease Realty, Inc. for the year ended December 31, 1999, is being amended to include expanded disclosures in Exhibit 13. 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, 1999 (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 2000 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, owns manages and indirectly develops 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 $7.5 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, 1999, the Company borrowed $59,403,000 under its credit facility (i) to acquire 36 properties (two of which were land only parcels upon which buildings are currently under construction), (ii) to purchase five buildings constructed by tenants on land parcels owned by the Company and (iii) to complete construction of ten buildings by the Company on previously acquired land parcels. As of December 31, 1999, the Company owned 270 properties (the "Properties") that are leased to major businesses, including Academy, Barnes & Noble, Bed Bath & Beyond, Best Buy, Borders, Eckerd, Food 4 Less, Good Guys, Heilig-Meyers, Hi-Lo Automotive, HomePlace/Waccamaw, OfficeMax, Sears Homelife Centers and The Sports Authority. The Company's Property portfolio was 99 percent leased at December 31, 1999. 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 1999, 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, 1999, Eckerd Corporation leased 51 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 2000. Any failure of this lessee to make its lease payments when they are due could materially affect the Company's income. Investment in Consolidated 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., Net Lease Realty IV, Inc. and Net Lease Funding, Inc. were formed to facilitate the acquisition and development 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. 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 Unconsolidated Subsidiary In May 1999, the Company transferred its build-to-suit development operation to a 95 percent owned, taxable unconsolidated subsidiary ("Services"). The Company contributed $5.7 million of real estate and other assets to Services in exchange for 5,700 shares of non-voting common stock. The Company also entered into a secured line of credit agreement with Services for a $30,000,000 revolving credit facility. The credit facility is secured by a first mortgage on Services' properties. In addition, the Company entered into a line of credit agreement with a wholly-owned subsidiary of Services for a $20,000,000 revolving credit facility. Services acquires, develops, leases and sells freestanding retail properties. Investment in Unconsolidated 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 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, 1999, 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 ongoing maintenance and operation, including utilities, property taxes and insurance. Advisory Services On January 1, 1998, the Company acquired its external advisor, CNL Realty Advisors, Inc. (the "Advisor") which resulted in the Company becoming a self-administered and self-managed REIT (the "Advisor Transaction"). Pursuant to an agreement and plan of merger, the Advisor was merged 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 (the "Share Balance") of the Company's common stock, for a period of up to five years. Since the effective date of the Advisor Transaction, the Company has issued 855,922 shares of the Share Balance. On January 1, 2000, in connection with the property acquisitions during the quarter ended December 31, 1999, an additional 50,711 shares of the Share Balance became issuable to the stockholders of the Advisor. 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, 1999, the Company employed 28 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, 1999, the Company owned 270 Properties located in 36 states that are leased to 62 major retail tenants. Reference is made to the Schedule of Real Estate and Accumulated Depreciation and Amortization 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 17,000 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 110,000 square feet. Building costs range from $258,000 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, 1999, the weighted average remaining lease term was approximately 14 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, 1999, leases representing approximately 83 percent of annual base rent include contractual increases, leases representing approximately 31 percent of annual base rent include percentage rent provisions and leases representing approximately 21 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 1999, 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, 1999, Eckerd Corporation leased 51 Properties (including four properties under leases with the Partnership). As of December 31, 1999, one of the Company's lessees, Eckerd Corporation (a wholly-owned subsidiary of the J.C. Penney Company, Inc.), leased Properties representing 11.2% of total assets. For information regarding the results of operations and financial condition of this entity, refer to the Annual Report on Form 10-K of the J.C. Penney Company, Inc., Note 15 (Segment Reporting) of the Notes to the Financial Statements, as filed with the Securities and Exchange Commission for the year ended January 30, 1999. 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 17 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 450 South Orange Avenue, Suite 900, 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. The Company believes, in the unlikely event that the Company were to be held liable, the relief granted by the court would be specific performance of the ground lease or damages in an amount far less than the amount sought by the plaintiff and would not materially affect the Company's operations or financial condition. 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 53 of the Registrant's Annual Report to Shareholders for the year ended December 31, 1999; 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 5 of the Registrant's Annual Report to Shareholders for the year ended December 31, 1999; 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 14 through 30 of the Registrant's Annual Report to Shareholders for the year ended December 31, 1999; 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 "Quantitative and Qualitative Disclosures About Market Risk", on pages 29 and 30 of the Registrant's Annual Report to Shareholders for the year ended December 31, 1999; 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 52 of the Registrant's Annual Report to Shareholders for the year ended December 31, 1999; 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, 1999, 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, 1999 and 1998 Consolidated Statements of Earnings for the years ended December 31, 1999, 1998 and 1997 Consolidated Statements of Stockholders' Equity for the years ended December 31, 1999, 1998 and 1997 Consolidated Statements of Cash Flows for the years ended December 31, 1999, 1998 and 1997 Notes to Consolidated Financial Statements 2. Financial Statement Schedules Report of Independent Auditors' on Supplementary Information Schedule III - Real Estate and Accumulated Depreciation and Amortization as of December 31, 1999 Notes to Schedule III - Real Estate and Accumulated Depreciation and Amortization as of December 31, 1999 Schedule IV - Mortgage Loans on Real Estate as of December 31, 1999 Notes to Schedule IV - Mortgage Loans on Real Estate as of December 31, 1999 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.) 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 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). 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 as Exhibit 10.13 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 1999 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, 1999 filed herewith). 23 Consent of Independent Accountants dated March 30, 2000 (filed herewith). 27 Financial Data Schedule (filed herewith). (b) No reports on Form 8-K were filed during the quarter ended December 31, 1999. 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 13th day of June, 2000. 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 June 13, 2000 - ------------------------ Directors Chief Executive James M. Seneff, Jr. Officer (Principal Executive Officer) /s/ Robert A. Bourne Vice Chairman of the June 13, 2000 - ------------------------ Board of Directors Robert A. Bourne /s/ Edward Clark Director June 13, 2000 - ------------------------ Edward Clark /s/ Clifford R. Hinkle Director June 13, 2000 - ------------------------ Clifford R. Hinkle /s/ Ted B. Lanier Director June 13, 2000 - ------------------------ Ted B. Lanier /s/ Gary M. Ralston President June 13, 2000 - ------------------------ Gary M. Ralston /s/ Kevin B. Habicht Chief Financial Officer June 13, 2000 - ------------------------ (Principal Financial and Kevin B. Habicht Accounting Officer), Secretary and Treasurer Report of Independent Auditors' on Supplementary Information The Board of Directors Commercial Net Lease Realty, Inc.: Under date of January 14, 2000, we reported on the consolidated balance sheets of Commercial Net Lease Realty, Inc. as of December 31, 1999 and 1998, 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, 1999. 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 1999. In connection with our audits of the aforementioned consolidated financial statements, we also audited the related consolidated financial statement schedules as of December 31, 1999. These consolidated financial statement schedules are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statement schedules based on our audits. In our opinion, such consolidated financial statement schedules, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly, in all material respects, the information set forth therein. /s/KPMG LLP - ------------- Orlando, Florida January 14, 2000 COMMERCIAL NET LEASE REALTY, INC. AND SUBSIDIARIES SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION AND AMORTIZATION December 31, 1999
Initial Cost to Company ------------------------------- Building, Improvements Encum- and brances Leasehold (m) Land Interests - ----------------------------- ------------- ------------- ------------- Real Estate 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 - Houston, TX - 2,310,845 1,627,872 Pasadena, TX - 899,768 2,180,574 Beaumont, TX - 1,423,700 2,449,261 Adjacent Excess Space: Memphis, TN - 549,309 539,643 Babies "R" Us: Arlington, TX - 830,689 2,611,867 Barnes & Noble: Lakeland, FL - 1,070,902 1,516,983 Brandon, FL 1,452,328 (l) 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 - 1,082,092 - Best Buy: Corpus Christi, TX - 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 4,396,976 (l) 3,030,769 6,061,538 Richmond, VA 2,310,074 (l) 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 - Boxley Enterprises: Orlando, FL - 220,632 258,483 Checkers: Orlando, FL - 256,568 - CompUSA: Mission Viejo, CA - 2,706,352 1,368,966 Miami, FL 2,214,792 (l) 2,713,192 1,866,676 Computer City: Baton Rouge, LA - 609,069 913,603 Dave & Buster's: Utica, MI - 3,776,169 - Dick's Clothing: Taylor, MI - 1,920,032 3,526,868 White Marsh, MD - 2,680,532 3,916,889 Eckerd: San Antonio, TX 592,381 (l) 440,985 - Dallas, TX 570,725 (l) 541,493 - Garland, TX 459,243 (l) 239,014 - Arlington, TX 486,028 (l) 368,964 - Millville, NJ 602,820 (l) 417,603 - Atlanta, GA 538,714 (l) 445,593 - Mantua, NJ 626,697 (l) 344,022 - Amarillo, TX 557,649 (l) 329,231 - Amarillo, TX 724,755 (l) 650,864 - Glassboro, NJ 687,544 (l) 534,243 - Kissimmee, FL 800,954 (l) 715,480 - Colleyville, TX 885,237 (l) 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 - 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 Warner Robins, GA - 707,488 - Lewisville, TX - 789,237 - Forest Hill, TX - 692,165 - Del City, OK - 1,387,362 - Arlington, TX - 414,568 - Garland, TX - 522,461 - Garland, TX - 1,476,838 - Oklahoma City, OK - 1,581,480 - Vineland, NJ - 2,068,089 - Richardson, TX - 2,549,308 - Gladstone, MO 350,000 1,663,283 - Food 4 Less: Lemon Grove, CA - 3,695,816 - Chula Vista, CA - 3,568,862 - Gateway: Glendale, AZ - 341,713 982,429 Golden Corral: Woodstock, GA (e) - 200,680 328,450 Edenton, NC - 36,578 318,481 Rockledge, FL (e) - 120,593 340,889 Gilmer, TX - 116,815 296,454 Bonham, TX (e) - 128,451 344,170 Leitchfield, KY - 73,660 306,642 Marietta, GA (e) - 156,190 346,509 Atlanta, TX - 88,457 368,317 Vernon, TX - 105,798 328,943 Abbeville, LA - 98,577 362,416 Fredricksburg, TX - 169,984 321,189 Clanton, AL (e) - 113,017 296,921 Pleasanton, TX - 139,694 316,070 Bowie, TX - 57,824 311,544 Lake Placid, FL - 115,113 305,074 Melbourne, FL - 193,447 341,351 Franklin, LA (e) - 105,840 396,831 Franklin, VA - 100,808 424,164 Good Guys, The: Foothill Ranch, CA - 1,456,113 2,505,022 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 - 2,271,634 3,404,843 Heilig-Meyers: Baltimore, MD - 469,782 813,074 Glen Burnie, MD - 631,712 931,931 Lima, OH - 344,742 1,097,694 Copperas Cove, TX - 445,558 943,339 Nacogdoches, 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 4,221,074 International House of Pancakes: Stafford, TX 461,307 (l) 382,084 - Sunset Hills, MO 487,557 (l) 271,853 - Las Vegas, NV 548,167 (l) 519,947 - Ft. Worth, TX 509,967 (l) 430,896 - Arlington, TX 489,707 (l) 404,512 - Matthews, NC 500,863 (l) 380,043 - Phoenix, AZ 504,233 (l) 483,374 - Just for Feet: Albuquerque, NM - 1,441,777 2,335,475 Kash N' Karry: Palm Harbor, FL - 335,851 - Gainesville, FL - 317,386 - Brandon, FL - 322,476 - Sarasota, FL - 470,600 - Kroger: Columbus, OH - 780,838 520,559 Linens 'n Things: Freehold, NJ - 1,753,766 2,208,651 Lucky: Watsonville, CA - 805,056 - Lodi, CA - 613,710 - Sonora, CA - 587,782 - Marshalls: Freehold, NJ - 2,052,946 2,585,432 Michaels: Grapevine, TX - 1,017,934 2,066,715 Office Depot: Arlington, TX 970,792 (l) 596,024 1,411,432 Richmond, VA - 888,772 1,948,036 OfficeMax: Corpus Christi, TX - 893,270 978,344 Dallas, TX 1,367,790 (l) 1,118,500 1,709,891 Cincinnati, OH 1,024,269 (l) 543,489 1,574,551 Evanston, IL 1,753,242 (l) 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 - 2,911,111 - Tigard, OR - 1,539,873 2,247,321 Dover, NJ - 1,138,296 3,238,083 Griffin, GA - 685,470 - Oshman's Sporting Goods: Dallas, TX - 1,311,440 - Party City: Memphis, TN - 266,383 - Petco: Grand Forks, ND - 306,629 909,671 PETsMART: Chicago, IL - 2,724,138 3,565,721 Pier 1 Imports: Anchorage, AK - 928,321 1,662,584 Memphis, TN - 713,319 821,770 Sanford, FL - 738,051 803,082 Knoxville, TN - 467,169 734,833 Mason, OH - 593,571 885,047 Harlingen, TX - 316,640 756,406 Valdosta, GA - 390,838 805,912 Rally's: Toledo, OH - 125,882 319,770 Riser Foods: Maple Heights, OH - 1,034,758 2,874,414 Robb & Stucky: Ft. Myers, FL - 2,188,440 6,225,401 Roger & Marv's: Kenosha, WI - 1,917,607 3,431,363 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 - 1,184,438 2,526,207 Orlando, FL 1,453,254 (l) 820,397 2,184,721 Pensacola, FL 1,645,161 633,125 1,595,405 Raleigh, NC 2,118,240 1,848,026 1,753,635 Tampa, FL 2,127,049 1,454,908 2,045,833 7-Eleven: Land 'O Lakes, FL - 1,076,572 - Tampa Palms, FL - 1,080,670 - Shop & Save: Homestead, PA - 1,139,419 - Penn Hills, PA - 1,043,297 1,243,131 Sports Authority: Tampa, FL - 2,127,503 1,521,730 Memphis, TN - 820,340 - Little Rock, AR - 2,879,781 2,660,206 SuperValu: Huntington, WV - 1,254,238 760,602 Warwick, RI - 1,699,330 - Target: Chico, CA - 1,269,272 - Victorville, CA - 1,908,815 - San Diego, CA - 2,672,390 - 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 Wal-Mart: Sealy, TX - 1,344,244 1,483,362 Aransas Pass, TX - 190,505 2,640,175 Winfield, AL - 419,811 1,684,505 Corpus Christi, TX - 223,998 2,158,955 Beeville, TX - 507,231 2,315,424 Corpus Christi, TX - 630,043 3,131,407 Texarkana, AR - 1,038,451 3,681,781 Wendy's Old Fashioned Hamburger: Fenton, MO - 307,068 496,410 Sacramento, CA - 585,872 - Vacant Land: Little Rock, AR - 539,094 - Vacant Property: Arlington, TX - 752,840 3,980,309 Vons: Moreno Valley, CA - 759,052 1,652,162 Leasehold Interests: - 4,409,652 - ------------- ------------- ------------- $ 34,218,515 $ 272,970,008 $ 264,517,631 ============= ============= ============= Real Estate 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 Books & Music: Altamonte Spgs, FL - - 3,267,579 Checkers: Orlando, FL - - 286,910 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 652,547 (l) - - Amarillo, TX - - 849,071 Amarillo, TX - - 869,846 Amarillo, TX 473,649 (l) 158,851 855,348 Glassboro, NJ - - 887,497 Kissimmee, FL - - 933,852 Colleyville, TX - - 1,076,066 Alice, TX 480,609 (l) 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 - (n) 1,365,125 Oklahoma City, OK - (n) 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 935,555 (l) 88,604 1,845,988 Chattanooga, TN 985,349 (l) 336,488 1,701,072 Lynchburg, VA - 128,216 1,674,167 Martinsburg, WV 963,424 (l) 448,648 1,543,573 Good Guys, The: Stockton, CA 1,719,404 (l) 580,609 2,974,868 Portland, OR - 817,574 2,630,652 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 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 Shop & Save: Homestead, PA - - 2,578,098 SuperValu: Warwick, RI - - 2,978,154 Waccamaw: Fairfax, VA - - 3,356,493 ------------- ------------- ------------- $ 6,210,537 $ 9,579,337 $ 116,306,833 ============= ============= =============
Costs Capitalized Gross Amount at Which Subsequent to Acquisition Carried at Close of Period (b) ------------------------------- ----------------------------------------------- Building, Improvements and Improve- Carrying Leasehold ments Costs Land Interests Total - ---------------------------- ------------- ------------- ------------- ------------- ------------- Real Estate 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 Houston, TX - - 2,310,845 1,627,872 3,938,717 Pasadena, TX - - 899,768 2,180,574 3,080,342 Beaumont, TX - - 1,423,700 2,449,261 3,872,961 Adjacent Excess Space: Memphis, TN - - 549,309 539,643 1,088,952 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 2,758,452 - 1,082,092 2,758,452 3,840,544 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 - - 2,994,400 6,061,538 9,055,938 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 Boxley Enterprises: Orlando, FL - - 220,632 258,483 479,115 Checkers: Orlando, FL - - 256,568 (c) 256,568 CompUSA: Mission Viejo, CA - - 2,706,352 1,368,966 4,075,318 Miami, FL - - 2,713,192 1,866,676 4,579,868 Computer City: Baton Rouge, LA - - 609,069 913,603 1,522,672 Dave & Buster's: Utica, MI - - 3,776,169 (c) 3,776,169 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 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 Warner Robins, GA 1,227,330 - 707,488 1,227,330 1,934,818 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 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 1,471,105 - 1,581,480 1,471,105 3,052,585 Vineland, NJ - - 2,068,089 (c) 2,068,089 Richardson, TX 72,532 - 2,549,308 (g) 2,549,308 Gladstone, MO 36,577 - 1,663,283 (g) 1,663,283 Food 4 Less: Lemon Grove, CA - - 3,695,816 (c) 3,695,816 Chula Vista, CA - - 3,568,862 (c) 3,568,862 Gateway: Glendale, AZ - - 341,713 982,429 1,324,142 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 - - 116,815 296,454 413,269 Bonham, TX (e) - - 128,451 344,170 472,621 Leitchfield, KY - - 73,660 306,642 380,302 Marietta, GA (e) - - 156,190 346,509 502,699 Atlanta, TX - - 88,457 368,317 456,774 Vernon, TX - - 105,798 328,943 434,741 Abbeville, LA - - 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 - - 139,694 316,070 455,764 Bowie, TX - - 57,824 311,544 369,368 Lake Placid, FL - - 115,113 305,074 420,187 Melbourne, FL - - 193,447 341,351 534,798 Franklin, LA (e) - - 105,840 396,831 502,671 Franklin, VA - - 93,719 424,164 517,883 Good Guys, The: Foothill Ranch, CA - - 1,456,113 2,505,022 3,961,135 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 - - 2,271,634 3,404,843 5,676,477 Heilig-Meyers: Baltimore, MD - - 469,782 813,074 1,282,856 Glen Burnie, MD - - 631,712 931,931 1,563,643 Lima, OH - - 344,742 1,097,694 1,442,436 Copperas Cove, TX - - 445,558 943,339 1,388,897 Nacogdoches, 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 4,221,074 6,186,582 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 Kash N' Karry: Palm Harbor, FL - - 335,851 - 335,851 Gainesville, FL - - 317,386 - 317,386 Brandon, FL - - 322,476 - 322,476 Sarasota, FL - - 470,600 - 470,600 Kroger: Columbus, OH - - 780,838 520,559 1,301,397 Linens 'n Things: Freehold, NJ - - 1,753,766 2,208,651 3,962,417 Lucky: Watsonville, CA - - 805,056 - 805,056 Lodi, CA - - 613,710 - 613,710 Sonora, CA - - 587,782 - 587,782 Marshalls: Freehold, NJ - - 2,052,946 2,585,432 4,638,378 Michaels: 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 2,250,620 - 2,911,111 2,250,620 5,161,731 Tigard, OR - - 1,539,873 2,247,321 3,787,194 Dover, NJ - - 1,138,296 3,238,083 4,376,379 Griffin, GA 1,801,905 - 685,470 1,801,905 2,487,375 Oshman's Sporting Goods: Dallas, TX - - 1,311,440 (c) 1,311,440 Party City: Memphis, TN 1,136,334 - 266,383 1,136,334 1,402,717 Petco: Grand Forks, ND - - 306,629 909,671 1,216,300 PETsMART: Chicago, IL - - 2,724,138 3,565,721 6,289,859 Pier 1 Imports: Anchorage, AK - - 928,321 1,662,584 2,590,905 Memphis, TN - - 713,319 821,770 1,535,089 Sanford, FL - - 738,051 803,082 1,541,133 Knoxville, TN - - 467,169 734,833 1,202,002 Mason, OH - - 593,571 885,047 1,478,618 Harlingen, TX - - 316,640 756,406 1,073,046 Valdosta, GA - - 390,838 805,912 1,196,750 Rally's: Toledo, OH - - 125,882 319,770 445,652 Riser Foods: Maple Heights, OH - - 1,034,758 2,874,414 3,909,172 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 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 816,944 - 1,076,572 816,944 1,893,516 Tampa Palms, FL 917,432 - 1,080,670 917,432 1,998,102 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: Tampa, FL - - 2,127,503 1,521,730 3,649,233 Memphis, TN 2,573,264 - 820,340 2,573,264 3,393,604 Little Rock, AR - - 2,879,781 2,660,206 5,539,987 SuperValu: Huntington, WV - - 1,254,238 760,602 2,014,840 Warwick, RI - - 1,699,330 (c) 1,699,330 Target: Chico, CA - - 1,269,272 - 1,269,272 Victorville, CA - - 1,908,815 - 1,908,815 San Diego, CA - - 2,672,390 - 2,672,390 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 Wal-Mart: Sealy, TX - - 1,344,244 1,483,362 2,827,606 Aransas Pass, TX - - 190,505 2,640,175 2,830,680 Winfield, AL - - 419,811 1,684,505 2,104,316 Corpus Christi, TX - - 223,998 2,158,955 2,382,953 Beeville, TX - - 507,231 2,315,424 2,822,655 Corpus Christi, TX - - 630,043 3,131,407 3,761,450 Texarkana, AR - - 1,038,451 3,681,781 4,720,232 Wendy's Old Fashioned Hamburger: Fenton, MO - - 307,068 496,410 803,478 Sacramento, CA - - 585,872 - 585,872 Vacant Land: Little Rock, AR - - 539,094 - 539,094 Vacant Property: Arlington, TX - - 752,840 3,980,309 4,733,149 Vons: Moreno Valley, CA - - 759,052 1,652,162 2,411,214 Leasehold Interests: - - 4,409,652 - 4,409,652 ------------- ------------- ------------- ------------- ------------- $ 31,810,342 $ - $ 271,888,507 $ 296,218,864 $ 568,107,371 ============= ============= ============= ============= ============= Real Estate 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 Books & Music: Altamonte Spgs, FL - - - (c) (c) Checkers: Orlando, 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 1,901,335 - - (c) (c) 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 78,461 - (d) (d) (d) Williston, FL - - - (c) (c) Jasper, FL - - - (c) (c) Oklahoma City, OK - - (n) (c) (c) Oklahoma City, OK - - (n) (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) Good Guys, The: Stockton, CA - - (d) (d) (d) Portland, OR - - (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) 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) Shop & Save: Homestead, PA - - - (c) (c) SuperValu: Warwick, RI - - - (c) (c) Waccamaw: Fairfax, VA - - - (c) (c) ------------- ------------- ------------- ------------- ------------- $ 4,771,892 $ - $ - $ - $ - ============= ============= ============= ============= =============
Life on Which Depreciation and Accumulated Amortization in Depreciation Date Latest Income and of Con- Date Statement is Amortization struction Acquired Computed - --------------------------- ------------ --------- -------- ---------------- Real Estate 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) Houston, TX 32,218 1976 03/99 40 years Pasadena, TX 43,157 1994 03/99 40 years Beaumont, TX 48,475 1992 03/99 40 years Adjacent Excess Space: Memphis, TN 15,177 1998 11/98 40 years Babies "R" Us: Arlington, TX 229,083 1996 06/96 40 years Barnes & Noble: Lakeland, FL 188,582 1995 07/94 (h) 40 years Brandon, FL 190,056 1995 08/94 (h) 40 years Denver, CO 357,386 1994 09/94 40 years Houston, TX 254,586 1995 10/94 (h) 40 years Cary, NC 260,549 1996 05/95 (h) 40 years Plantation, FL - 1996 05/95 (h) (c) Lafayette, LA 212,933 1996 06/95 (h) 40 years Oklahoma City, OK 229,595 1996 06/95 (h) 40 years Daytona, FL 201,816 1996 09/95 (h) 40 years Freehold, NJ 221,671 1995 01/96 40 years Dayton, OH 211,540 1996 05/97 40 years Redding, CA 103,300 1997 06/97 40 years Marlton, NJ 121,459 1998 11/98 40 years Bed Bath & Beyond: Richmond, VA 121,598 1997 06/98 40 years Los Angeles, CA 86,889 1975 11/98 40 years Glendale, AZ 31,607 1999 12/98 (i) 40 years Best Buy: Corpus Christi, TX 138,453 1967 11/93 40 years Brandon, FL 199,247 1996 02/97 40 years Evanston, IL - 1994 02/97 (c) Cuyahoga Falls, OH 149,919 1970 06/97 40 years Rockville, MD 210,113 1995 07/97 40 years Fairfax, VA 191,070 1995 08/97 40 years St. Petersburg, FL 169,544 1997 09/97 40 years North Fayette, PA 88,373 1997 06/98 40 years Blockbuster: Conyers, GA 35,347 1997 06/97 40 years Borders Books & Music: Wilmington, DE 761,766 1994 12/94 40 years Richmond, VA 296,425 1995 06/95 40 years Ft. Lauderdale, FL 377,629 1995 02/96 40 years Bangor, ME 219,319 1996 06/96 40 years Altamonte Spgs, FL - 1997 09/97 (c) Boxley Enterprises: Orlando, FL 79,267 1974 08/93 20.9 years Checkers: Orlando, FL - 1988 07/92 (c) CompUSA: Mission Viejo, CA 156,859 1994 02/94 (h) 40 years Miami, FL 266,129 1994 04/94 40 years Computer City: Baton Rouge, LA 91,421 1995 12/95 40 years Dave & Buster's: Utica, MI - 1998 06/98 (c) Dick's Clothing: Taylor, MI 290,587 1996 08/96 40 years White Marsh, MD 322,722 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 97,586 1996 01/96 40 years Lafayette, LA - 1995 01/96 (c) Moore, OK - 1995 01/96 (c) Midwest City, OK 105,515 1996 03/96 40 years Tallahassee, FL - 1996 06/96 (c) Irving, TX - 1996 12/96 (c) Jasper, FL - 1994 01/97 (c) Williston, FL - 1995 01/97 (c) Pantego, TX 92,066 1997 06/97 40 years Conyers, GA 63,472 1997 06/97 40 years Norman, OK - 1997 06/97 (c) Chattanooga, TN - 1997 09/97 (c) Stone Mountain, GA 63,655 1997 09/97 40 years Arlington, TX 48,005 1998 11/97 (i) 40 years Leavenworth, KS 51,292 1998 11/97 (i) 40 years Augusta, GA 67,719 1997 12/97 40 years Riverdale, GA 87,151 1997 12/97 40 years Warner Robins, GA 29,405 1999 03/98 (i) 40 years Lewisville, TX 43,123 1998 04/98 (i) 40 years Forest Hill, TX 40,375 1998 04/98 (i) 40 years Del City, OK - 1998 05/98 (c) Arlington, TX - 1998 05/98 (c) Garland, TX 36,942 1998 06/98 (i) 40 years Garland, TX 39,383 1998 06/98 (i) 40 years Oklahoma City, OK 35,245 1999 08/98 (i) 40 years Vineland, NJ - 1999 09/98 (c) Richardson, TX - (g) 06/99 (g) Gladstone, MO - (g) 12/99 (g) Food 4 Less: Lemon Grove, CA - 1996 07/95 (h) (c) Chula Vista, CA - 1995 11/98 (c) Gateway: Glendale, AZ 10,815 1999 12/98 (i) 40 years Golden Corral: Woodstock, GA (e) 147,709 1984 11/84 35 years Edenton, NC 143,274 1984 11/84 35 years Rockledge, FL (e) 152,279 1984 12/84 35 years Gilmer, TX 132,441 1984 12/84 35 years Bonham, TX (e) 153,745 1984 12/84 35 years Leitchfield, KY 136,983 1984 12/84 35 years Marietta, GA (e) 154,792 1984 12/84 35 years Atlanta, TX 164,164 1985 01/85 35 years Vernon, TX 143,325 1985 03/85 35 years Abbeville, LA 157,910 1985 04/85 35 years Fredricksburg, TX 139,947 1985 04/85 35 years Clanton, AL (e) 129,373 1985 05/85 35 years Pleasanton, TX 137,716 1985 05/85 35 years Bowie, TX 135,744 1985 05/85 35 years Lake Placid, FL 132,925 1985 05/85 35 years Melbourne, FL 145,318 1985 07/85 35 years Franklin, LA (e) 168,936 1985 07/85 35 years Franklin, VA 135,985 1987 02/87 40 years Good Guys, The: Foothill Ranch, CA 188,213 1995 12/96 40 years Riverside, CA 183,892 1995 05/97 40 years Clackamas, OR 55,761 1995 06/98 40 years Bellingham, WA 68,009 1994 06/98 40 years Federal Way, WA 64,040 1994 06/98 40 years East Palo Alto, CA 67,388 1999 12/98 (h) 40 years Heilig-Meyers: Baltimore, MD 22,868 1968 11/98 40 years Glen Burnie, MD 26,164 1968 11/98 40 years Lima, OH 30,873 1997 11/98 40 years Copperas Cove, TX 26,531 1972 11/98 40 years Nacogdoches, TX 35,364 1997 11/98 40 years Hi-Lo Automotive: Mesquite, TX 66,813 1994 10/94 40 years Arlington, TX 72,679 1993 11/94 40 years Ft. Worth, TX 65,136 1993 11/94 40 years Garland, TX 65,099 1993 11/94 40 years Houston, TX 67,641 1994 11/94 40 years Dallas, TX 68,138 1994 12/94 40 years Bastrop, TX 40,815 1994 09/95 40 years Eagle Pass, TX 48,560 1994 09/95 40 years Lake Worth, TX 57,473 1995 09/95 40 years McAllen, TX 64,492 1995 09/95 40 years Nacogdoches, TX 55,632 1995 09/95 40 years San Antonio, TX 68,576 1994 09/95 40 years Temple, TX 62,612 1989 09/95 40 years Universal City, TX 60,793 1995 09/95 40 years HomePlace: Altamonte Spgs, FL 279,424 1997 09/97 40 years Ft. Myers, FL 206,474 1997 12/97 40 years Bowie, MD 50,251 1997 12/97 38.5 years 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 148,400 1997 06/97 40 years Kash N' Karry: Palm Harbor, FL - (p) 03/99 (p) Gainesville, FL - (p) 03/99 (p) Brandon, FL - (p) 03/99 (p) Sarasota, FL - (p) 03/99 (p) Kroger: Columbus, OH 37,415 1982 02/97 40 years Linens 'n Things: Freehold, NJ 294,932 1994 08/94 40 years Lucky: Watsonville, CA - (p) 03/99 (p) Lodi, CA - (p) 03/99 (p) Sonora, CA - (p) 03/99 (p) Marshalls: Freehold, NJ 345,246 1994 08/94 40 years Michaels: Grapevine, TX 79,655 1998 06/98 40 years Office Depot: Arlington, TX 208,694 1991 01/94 40 years Richmond, VA 174,773 1996 05/96 40 years OfficeMax: Corpus Christi, TX 161,051 1967 11/93 40 years Dallas, TX 256,601 1993 12/93 40 years Cincinnati, OH 215,827 1994 07/94 40 years Evanston, IL 200,417 1995 06/95 40 years Altamonte Spgs, FL 295,744 1995 01/96 40 years Pompano Beach, FL 185,965 1972 02/96 40 years Cutler Ridge, FL 129,731 1995 06/96 40 years Sacramento, CA 222,287 1996 12/96 40 years Salinas, CA 131,483 1995 02/97 40 years Redding, CA 138,620 1997 06/97 40 years Kelso, WA 88,396 1998 09/97 (i) 40 years Lynchburg, VA 59,782 1998 02/98 40 years Leesburg, FL 50,235 1998 08/98 40 years Plymouth Meeting, PA 39,855 1999 10/98 (i) 40 years Tigard, OR 63,206 1995 11/98 40 years Dover, NJ 91,071 1995 11/98 40 years Griffin, GA 31,909 1999 11/98 (i) 40 years Oshman's Sporting Goods: Dallas, TX - 1994 03/94 (c) Party City: Memphis, TN 15,388 1999 12/98 40 years Petco: Grand Forks, ND 46,455 1996 12/97 40 years PETsMART: Chicago, IL 115,135 1998 09/98 40 years Pier 1 Imports: Anchorage, AK 159,570 1995 02/96 40 years Memphis, TN 52,217 1997 09/96 (h) 40 years Sanford, FL 35,971 1998 06/97 (h) 40 years Knoxville, TN 17,605 1999 01/98 (h) 40 years Mason, OH 11,985 1999 06/98 (h) 40 years Harlingen, TX 3,940 1999 11/98 (h) 40 years Valdosta, GA 2,518 1999 01/99 (h) 40 years Rally's: Toledo, OH 61,851 1989 07/92 38.8 years Riser Foods: Maple Heights, OH 206,599 1985 02/97 40 years Robb & Stucky: Ft. Myers, FL 322,031 1997 12/97 40 years Roger & Marv's: Kenosha, WI 241,940 1992 02/97 40 years Ross Dress For Less: Coral Gables, FL 81,077 1994 06/96 40 years Scotty's: Orlando, FL 234,953 1995 06/95 40 years Orlando, FL 229,192 1995 06/95 40 years Sears Homelife: Clearwater, FL 417,672 1992 05/93 40 years Orlando, FL 360,254 1992 05/93 40 years Pensacola, FL 140,041 1994 06/96 40 years Raleigh, NC 153,930 1995 06/96 40 years Tampa, FL 179,579 1992 06/96 40 years 7-Eleven: Land 'O Lakes, FL 19,573 1999 10/98 (i) 40 years Tampa Palms, FL 18,158 1999 12/98 (i) 40 years Shop & Save: Homestead, PA - 1994 02/97 (c) Penn Hills, PA 89,350 1991 02/97 40 years Sports Authority: Tampa, FL 133,468 1994 06/96 40 years Memphis, TN 77,734 1998 12/97 (i) 40 years Little Rock, AR 85,902 1998 09/98 40 years SuperValu: Huntington, WV 54,668 1971 02/97 40 years Warwick, RI - 1992 02/97 (c) Target: Chico, CA - (p) 03/99 (p) Victorville, CA - (p) 03/99 (p) San Diego, CA - (p) 03/99 (p) Top's: Lacey, WA 509,030 1992 02/97 40 years Waccamaw: Fairfax, VA - 1995 12/95 (c) White Marsh, MD 134,661 1998 03/98 (i) 40 years Waremart: Eureka, CA 393,200 1965 02/97 40 years Wal-Mart: Sealy, TX 29,358 1982 03/99 40 years Aransas Pass, TX 52,253 1983 03/99 40 years Winfield, AL 33,339 1983 03/99 40 years Corpus Christi, TX 42,729 1983 03/99 40 years Beeville, TX 45,826 1983 03/99 40 years Corpus Christi, TX 61,976 1983 03/99 40 years Texarkana, AR 72,869 1983 03/99 40 years Wendy's Old Fashioned Hamburger: Fenton, MO 113,022 1985 07/92 33 years Sacramento, CA - (o) 02/98 (o) Vacant Land: Little Rock, AR - - 09/98 - Vacant Property: Arlington, TX 169,838 1996 06/96 40 years Vons: Moreno Valley, CA 32,699 1983 03/99 40 years Leasehold Interests: 212,234 - 08/99 (q) ----------- $22,022,978 =========== Real Estate 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 Books & Music: Altamonte Spgs, FL (c) 1997 09/97 (c) Checkers: Orlando, FL (c) 1988 07/92 (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 (c) 1999 03/99 (j) (c) 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) Good Guys, The: Stockton, CA (d) 1991 07/94 (d) Portland, OR (d) 1996 05/96 (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) 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) Shop & Save: Homestead, PA (c) 1994 02/97 (c) SuperValu: Warwick, RI (c) 1992 02/97 (c) Waccamaw: Fairfax, VA (c) 1995 12/95 (c) ---------- $ - ==========
COMMERCIAL NET LEASE REALTY, INC. AND SUBSIDIARIES NOTES TO SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION AND AMORTIZATION December 31, 1999 (a) Transactions in real estate and accumulated depreciation during 1999, 1998 and 1997, are summarized as follows:
1999 1998 1997 ------------ ------------ ------------ Land, Buildings and Leasehold Interests: Balance at the Beginning of Period $537,283,241 $413,274,423 $277,109,358 Acquisitions 76,165,384 129,416,817 156,011,944 Sale of land, buildings and leasehold (45,232,145) (5,407,999) (19,846,879) ------------ ------------ ------------ Balance at the Close of Period $568,216,480 $537,283,241 $413,274,423 ============ ============ ============ Accumulated Depreciations and Amortization: Balance at the Beginning of Period 17,335,079 12,296,997 8,078,562 Sale of land, buildings and leasehold (2,835,339) (820,506) (258,942) Depreciation and amortization expense 7,523,238 5,858,588 4,477,377 ------------ ------------ ------------ Balance at the Close of Period $ 22,022,987 $ 17,335,079 $ 12,296,997 ============ ============ ============ (b) As of December 31, 1999, all of the leases are treated as operating leases for federal income tax purposes. As of December 31, 1999, the aggregate cost of the properties owned by the Company and its subsidiaries for federal income tax purposes was $673,100,160. (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. (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 year ended December 31, 1997, the Company (i) incurred acquisition fees and expense reimbursement fees totaling $2,278,306, 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. 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 years ended December 31, 1998 and 1999. (l) Property is encumbered as a part of the Company's $39,450,000 long term, fixed rate mortgage and security agreement. (m) 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. (n) 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. (o) 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. (p) The Company owns only the land for this property. (q) The leasehold interests are amortized over the life of the respective leases which range from 4.5 and 12.5 years.
COMMERCIAL NET LEASE REALTY, INC. AND SUBSIDIARIES SCHEDULE IV - MORTGAGE LOANS ON REAL ESTATE December 31, 1999
Principal amount of loans subject Final Periodic Carrying to delinquent Interest maturity payment Prior Face amount amount of principal or Description rate date terms liens of mortgages mortgages(e) interest - ------------------------------------- -------- -------- -------- ----- ------------ ------------ ---------------- First Mortgages on Retail Properties: National City, CA 11.5% 2009 (b) - $ 2,765,000 $ 1,953,414 $ - San Jose, CA 11.5% 2009 (b) - 2,565,000 1,846,125 - Valencia, CA 8.0% - 10.0% 2000 (c) - 3,080,300 3,080,300 - South Miami, FL 9.0% 2001 (d) - 2,500,000 2,500,000 - Lawton and Oklahoma City, OK 8.5% 2000 (d) - 4,399,805 4,399,805 - Burleson, TX 8.5% 2000 (d) - 2,355,279 2,355,279 - Revolving Lines of Credit Secured by Various Properties: Commercial Net Lease Realty Services, Inc. Prime rate + 0.25% 2000 (d) - 19,978,168 19,978,168 - ------------ ------------ ---------------- $ 37,643,552 $ 36,113,091 $ - ============ ============ ================ (a)The following shows the changes in the carrying amounts of mortgage loans during the periods: Balance at December 31, 1998 - New mortgage loans $ 48,917,787 (f)(g) Accrued interest receivable Deductions during the period: Collections of principal (12,804,696) (g) Foreclosures - ------------ Balance at December 31, 1999 $ 36,113,091 ============ (b)Principal and interest is payable at level amounts over the life of the loan. (c)Principal and interest is due monthly, based on a 15 year amortization, at 8% for the first 90 days, at 9% for the second 90 days and at 10% for the third 90 days. (d)Interest only payments are due quarterly. Principal is due at maturity. (e)As of December 31, 1999, the aggregate cost of the mortgages held by the Company and its subsidiaries for federal income tax purposes was $36,113,091. (f)Mortgages totaling $18,634,755 were accepted in connection with the sale of real estate. (g)Mortgages totaling $6,755,084 were accepted as payment towards the principal balance of the revolving line of credit for Commercial Net Lease Realty Services, Inc. (an unconsolidated subsidiary of the Company). The mortgagees are affiliates of certain members of the Company's board of directors.
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, 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.) 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 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). 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 as Exhibit 10.13 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 1999 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, 1999 (filed herewith). 23 Consent of Independent Accountants dated March 30, 2000 (filed herewith). 27 Financial Data Schedule (filed herewith). (b) No reports on Form 8-K were filed during the quarter ended December 31, 1999. EX-12 2 0002.txt STMT OF COMPUTATION OF EARNINGS TO FIXED CHARGES EXHIBIT 12 CONSOLIDATED RATIOS OF EARNINGS TO FIXED CHARGES The following table sets forth the Company's consolidated ratios of earnings to fixed charges for the periods as shown.
1999 1998 1997 1996 1995 ------------ ------------ ------------ ------------ ------------ Net Earnings $ 35,311,517 $ 32,441,198 $ 30,384,643 $ 19,839,374 $ 12,707,271 Fixed Charges: Interest on Indebtedness 21,864,179 13,444,646 11,477,929 7,206,291 3,834,388 Amortization of Discount Relating to Indebtedness 55,758 15,244 - - Amortization of Treasury Lock Gain (245,388) - - - Amortization of Deferred Charges 723,310 710,491 825,014 748,638 322,176 ------------ ------------ ------------ ------------ ------------ 22,397,859 14,170,381 12,302,943 7,954,929 4,156,564 ------------ ------------ ------------ ------------ ------------ Net Earnings Before Fixed Charges $ 57,709,376 $ 46,611,579 $ 42,687,586 $ 27,794,303 $ 16,863,835 ============ ============ ============ ============ ============ Divided by Fixed Charges Fixed Charges $ 22,397,859 $ 14,170,381 $ 12,302,943 $ 7,954,929 $ 4,156,564 Capitalized and Deferred Interest 1,111,165 1,111,615 133,202 - - ------------ ------------ ------------ ------------ ------------ $ 23,509,024 $ 15,281,996 $ 12,436,145 $ 7,954,929 $ 4,156,564 ============ ============ ============ ============ ============ Ratio of Net Earnings to Fixed Charges 2.45 3.05 3.43 3.49 4.06 ============ ============ ============ ============ ============ Advisor Acquisition Costs $ 9,824,172 $ 5,501,343 $ - $ - $ - ============ ============ ============ ============ ============ Net Earnings After Advisor Acquisition Costs and Fixed Charges (1) $ 67,533,548 $ 52,112,922 $ 42,687,586 $ 27,794,303 $ 16,863,835 ============ ============ ============ ============ ============ Ratio of Net Earnings After Advisor Acquisition Costs to Fixed Charges (1) 2.87 3.41 3.43 3.49 4.06 ============ ============ ============ ============ ============ (1)The Company's revolving line of credit and notes payable covenants provide for fixed charge coverage ratio to be calculated before Advisor Acquisiton Costs.
EX-13 3 0003.txt ANNUAL REPORT TO SHAREHOLDERS Exhibit 13 Annual Report to Shareholders 1999 ANNUAL REPORT - PAGE 5 HISTORICAL FINANCIAL HIGHLIGHTS (dollars in thousands, except per share data)
1999 1998 1997 1996 1995 ------------ ------------- ------------ ------------ ------------- Gross Revenues $ 76,543 $ 64,773 $ 50,135 $ 33,369 $ 20,580 Net Earnings $ 35,311 $ 32,441 $ 30,385 $ 19,839 $ 12,707 Total Assets $ 749,789 $ 685,595 $ 537,014 $ 370,953 $ 219,257 Total Long-Term Debt $ 350,971 $ 292,907 $ 171,836 $ 116,956 $ 82,600 Total Equity $ 391,362 $ 383,890 $ 362,144 $ 252,574 $ 135,842 Cash Dividends Paid to Stockholders $ 37,495 $ 35,672 $ 28,381 $ 18,868 $ 13,529 Weighted Average Shares Basic 30,331,327 29,169,371 24,070,697 16,798,918 11,663,672 Diluted 30,408,219 29,397,154 24,220,792 16,838,719 11,671,197 Per Share Information: Net Earnings Basic $ 1.16 $ 1.11 $ 1.26 $ 1.18 $ 1.09 Diluted $ 1.16 $ 1.10 $ 1.25 $ 1.18 $ 1.09 Dividends $ 1.24 $ 1.23 $ 1.20 $ 1.18 $ 1.16 Other Data: Funds from operations (1) $ 46,044 $ 42,517 $ 34,230 $ 22,570 $ 14,443 Cash flows provided by (used in): Operating activities $ 47,876 $ 41,260 $ 34,010 $ 22,216 $ 14,140 Investing activities $ (64,436) $ (145,643) $ (167,002) $ (144,247) $ (67,518) Financing activities $ 18,447 $ 103,665 $ 133,742 $ 123,140 $ 52,609 Equity Market Capitalization ($ mil) $ 300.7 $ 391.2 $ 499.7 $ 329.6 $ 148.7 (1) 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 $9,824 and $5,501 of expenses incurred in acquiring CNL Realty Advisors, Inc. from a related party in 1999 and 1998, respectively, because this transaction is considered to be non-recurring. 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.
[PICTURE 1] Photograph of an exterior view of the Pier 1 Imports located in Sanford, Florida. [PICTURE 2] Photograph of an exterior view of the Sears Homelife located in Clearwater, Florida. 1999 ANNUAL REPORT - PAGE 14 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS [PICTURE 3] Artist's digital rendering based on original blueprints of Ponce Inlet Lighthouse, Ponce Inlet, Florida. 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, 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 December 31, 1999, Commercial Net Lease Realty, Inc. and its subsidiaries (the "Company") owned 270 properties (the "Properties") that are leased to major retail businesses, including Academy, Barnes & Noble, Bed Bath & Beyond, Best Buy, Borders, Eckerd, Food 4 Less, Good Guys, Heilig-Meyers, Hi-Lo Automotive, OfficeMax, Sears Homelife Centers, The Sports Authority and Waccamaw/HomePlace. 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. 1999 ANNUAL REPORT - PAGE 15 For the years ended December 31, 1999, 1998 and 1997, the Company generated $47,876,000, $41,260,000 and $34,010,000, respectively, in net cash provided by operating activities. The increase in cash from operations for each of the years ended December 31, 1999, 1998 and 1997, is primarily a result of changes in revenues and expenses as discussed in "Results of Operations." The Company's leases typically provide that the tenant bears responsibility for substantially all property costs and expenses associated with ongoing maintenance and operation, including utilities, property taxes and insurance. In addition, the Company's leases generally provide that the tenant is responsible for roof and structural repairs. Certain of the Company's Properties are subject to leases under which the Company retains responsibility for certain costs and expenses associated with the Property. Because many of the Properties which are subject to leases that place these responsibilities on the Company are recently constructed, management anticipates that capital demands to meet obligations with respect to these Properties will be minimal for the foreseeable future and can be met with funds from operations and working capital. The Company may be required to use bank borrowings or other sources of capital in the event of unforeseen significant capital expenditures. Indebtedness. In September 1999, the Company entered into an amended and restated loan agreement for a $200,000,000 revolving credit facility (the "Credit Facility") which amended certain provisions of the Company's existing loan agreement. 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 expiration of the Credit Facility on July 30, 2000, which can be extended for an additional 12 month period at the option of the Company. As of December 31, 1999, $108,700,000 was outstanding and approximately $91,300,000 was available for future borrowings under the Credit Facility. The Company expects to use the Credit Facility primarily to invest in the acquisition and development of freestanding, retail properties, either directly or through investment interests. In December 1995, the Company entered into a long-term, fixed rate mortgage and security agreement for $13,150,000. Upon its maturity in December 1999, the Company repaid the outstanding principal balance of $13,150,000 using funds available from its Credit Facility. 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 collateralized by a first lien on and an assignment of rents and leases of certain of the Company's Properties. As of December 31, 1999, the outstanding principal balance was $34,189,000 and the aggregate carrying value of the Properties totaled $74,468,000. 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 five years. As of December 31, 1999, the outstanding principal balances for the Mortgages totaled $5,890,000 and the aggregate carrying value of these three properties totaled $8,020,000. Payments of principal on the mortgage debt and on advances outstanding under the Credit 1999 ANNUAL REPORT - PAGE 16 [PICTURE 4] Artist's digital rendering based on original blueprints of Ponce Inlet Lighthouse, Ponce Inlet, Florida. 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. 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 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 1999 ANNUAL REPORT - PAGE 17 [PICTURE 5] Photograph of an exterior view of the CompUSA located in Miami, Florida. [PICTURE 6] Photograph of an exterior view of the Food Lion located in Keystone Heights, Florida. 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 debt 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 "2008 Notes"). The 2008 Notes are senior obligations of the Company, ranked equally with the Company's other unsecured senior indebtedness and are subordinated to all of the Company's secured indebtedness. The 2008 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. In September 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). In June 1999, the Company filed a prospectus supplement to its $300,000,000 shelf registration statement and issued $100,000,000 of 8.125% Notes due 2004 (the "2004 Notes"). The 2004 Notes are senior obligations of the Company, ranked equally with the Company's other unsecured senior indebtedness and are subordinated to all secured indebtedness of the Company. The 2004 Notes were sold at a discount for an aggregate purchase price of $99,608,000 with interest payable semi-annually commencing on December 15, 1999. The discount of $392,000 is being amortized as interest expense over the term of the debt obligation using the effective interest method. In connection with the debt offering, the Company entered into a treasury rate lock agreement which fixed a treasury rate of 5.1854% on a notional amount of $92,000,000. Upon issuance of the 2004 Notes, the Company terminated the treasury rate lock agreement resulting in a gain of $2,679,000. The gain has been deferred and is being amortized as an adjustment to interest expense over the term of the 2004 Notes using the effective interest method. The effective rate of the 2004 Notes, including the effects of the discount and the 1999 ANNUAL REPORT - PAGE 18 treasury rate lock gain, is 7.547%. In connection with the debt offering, the Company incurred debt issuance costs totaling $970,000, 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 2004 Notes using the effective interest method. The net proceeds of the debt offering were used to pay down outstanding indebtedness of the Company's Credit Facility. During the year ended December 31, 1999, the Company announced the authorization by the Company's board of directors to acquire up to $25,000,000 of the Company's outstanding common stock either through open market transactions or through privately negotiated transactions. As of December 31, 1999, the Company had acquired and retired 244,200 of such shares for a total cost of $2,339,000. The acquisition of these shares was funded primarily through asset disposition. 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. Property Acquisitions and Commitments. During the year ended December 31, 1999, the Company borrowed $40,600,000 under its Credit Facility and used net proceeds of $41,555,000 from the sale of 41 properties (i) to acquire 36 Properties (two of which were land only parcels upon which buildings are currently under construction) at a cost of $60,284,000, (ii) to purchase five buildings constructed by the tenants on land parcels owned by the Company at a cost of $6,537,000 and (iii) to complete construction of ten [PICTURE 7] Photograph of an exterior view of the Linens `N Things located in Freehold, New Jersey. buildings by the Company on previously acquired land parcels (the "Acquisition Properties")at a total cost of $15,323,000. The Acquisition Properties are leased to tenants including Academy, Bed Bath & Beyond, Border's, Eckerd, Good Guys, Jo-Ann Etc., Kash n' Karry, Lucky, OfficeMax, Party City, Pier I Imports, Skytel, Target, Upton's, Vons and Wal-Mart. 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, all of the leases relating to the 36 Properties acquired during 1999 have been classified as operating leases. Also pursuant to the requirements of this Statement, the leases relating to the five buildings which were developed by tenants on land parcels owned by the Company and the leases relating to the ten buildings developed by the Company on land parcels owned by the Company have been classified as operating leases. The Company owns two 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 $4,206,000, of which $109,000 of costs had been incurred at December 31, 1999. The lease agreements provide for rent to commence upon completion of construction of the buildings. In addition to the two buildings under construction as of December 31, 1999, the Company may elect to acquire or develop additional properties, either directly or indirectly through investment interests, in the future. Such property acquisitions and development are expected to be the primary demand for additional capital in the future. The Company 1999 ANNUAL REPORT - PAGE 19 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, disposition of 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 1997, the Company sold one of its properties and an undeveloped portion of land of one of its properties for a total of $1,883,000 and received net sales proceeds of $1,816,000. In addition, 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 on the sale of these five properties and undeveloped portion of land 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 additional Properties and structured the transactions to qualify as tax-free like-kind exchange transactions for federal income tax purposes. During 1999, the Company sold 45 of its properties for a total of $50,541,000 and received net sales proceeds of $49,732,000. The Company recognized a net gain on the sale of these 45 properties of $6,724,000 for financial reporting purposes. The Company reinvested the proceeds from 41 of these properties to acquire additional Properties [PICTURE 8] Artist's digital rendering based on original blueprints of Ponce Inlet Lighthouse, Ponce Inlet, Florida. 1999 ANNUAL REPORT - PAGE 20 and structured the transactions to qualify as tax-free like-kind exchange transactions for federal income tax purposes. Investment in Unconsolidated Subsidiary. In May 1999, the Company transferred its build-to-suit development operation to a 95 percent owned, taxable unconsolidated subsidiary ("Services"). The Company contributed $5.7 million of real estate and other assets to Services in exchange for 5,700 shares of non-voting common stock. The Company also entered into a secured line of credit agreement with Services for a $30,000,000 revolving credit facility. The credit facility is secured by a first mortgage on Services' properties. In addition, the Company entered into a loan agreement with a wholly-owned subsidiary of Services for a $20,000,000 revolving credit facility. The Company borrowed $27,597,000 under its Credit Facility to fund the amounts drawn against under these revolving credit facilities. Investment in Unconsolidated 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 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. Merger Transaction. On December 18, 1997, the Company's stockholders voted to approve an agreement and plan of merger with CNL [PICTURE 9] Photograph of Fresnel Lens in Point Arena Lighthouse, Point Arena, California. Realty Advisors, Inc. (the "Advisor"), whereby the stockholders of the Advisor agreed to exchange 100 percent of the outstanding shares of common stock of the Advisor for up to 2,200,000 shares (the "Share Consideration") of the Company's common stock (the "Merger"). As a result, the Company became a fully integrated, self-administered 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, within five years from the date of the merger, 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 1999ANNUAL REPORT - PAGE 21 [PICTURE 10] Photograph of Fresnel Lens in Point Arena Lighthouse, Point Arena, California. [PICTURE 11] Photograph of an exterior view of the Borders located in Ft. Lauderdale, Florida. 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. Since the effective date of the Merger, the Company has issued 855,922 shares of the Share Balance. The market value of the Share Balance issued was $10,634,000, all of which was charged to operations. In addition, in connection with the property acquisitions during the quarter ended December 31, 1999, on January 1, 2000, an additional 54,308 shares of the Share Balance became issuable to the stockholders of the Advisor. The market value of the 54,308 shares at the date the shares became issuable totaled $526,000, all of which is to be charged to operations during the year ended December 31, 2000. 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. 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 REIT, 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, 1999, 1998 and 1997, the Company declared and paid dividends to its stockholders of $37,495,000, $35,672,000 and $28,381,000, respectively, or $1.24, $1.23 and $1.20 per share of common stock, respectively. For the years ended December 31, 1999, 1998 and 1997, 90.5%, 88.9% and 91.4%, respectively, of such dividends were considered to be ordinary income, 7.5%, 11.1% and 8.6%, respectively, were considered return of capital and 1.96% of the 1999 dividend was considered capital gain (representing 0.55% of capital gain-20% and 1.41% of unrecaptured section 1250 gain) for federal income tax purposes. In January 2000, the Company declared dividends to its stockholders of $9,378,000 or $0.31 per share of common stock, payable in February 2000. 1999 ANNUAL REPORT - PAGE 22 [PICTURE 12] Photograph of an exterior view of the Michaels located in Grapevine, Texas. [PICTURE 13] Photograph of an exterior view of the Marshalls located in Freehold, New Jersey. RESULTS OF OPERATIONS Comparison of Year Ended December 31, 1999 to Year Ended December 31, 1998. As of December 31, 1999 and 1998, the Company owned 270 and 285 wholly-owned Properties, respectively, 267 and 281, respectively, of which were leased to operators of major retail businesses. In addition, during the year ended December 31, 1999, the Company sold 44 properties which were leased during 1999 and one property which was vacant. During the year ended December 31, 1998, the Company sold six properties which were leased during 1998. 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, 1999, the weighted average remaining lease term of the Properties was approximately 14 years. During the years ended December 31, 1999 and 1998, the Company earned $72,275,000 and $61,750,000, respectively, in rental income from operating leases, earned income from direct financing leases and contingent rental income ("Rental Income"). The 17 percent increase in Rental Income during 1999, as compared to 1998, was attributable to income earned on the 36 Properties acquired and the 15 buildings upon which construction was completed during 1999. In addition, Rental Income increased during 1999 as a result of the fact that the 55 Properties acquired and 15 buildings upon which construction was completed during 1998 were operational for a full fiscal year in 1999. The increase in Rental Income was partially offset by a decrease in Rental Income relating to the sale of the 44 leased properties. Due to the fact that the increase in Rental Income from the 36 Properties acquired and the 15 buildings upon which construction was completed in 1999 was offset by the decrease in Rental Income relating to the sale of the 44 leased properties in 1999, the Company expects the Rental Income in 2000 to remain consistent with the Rental Income in 1999. 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 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 1999 ANNUAL REPORT - PAGE 23 December 31, 1999, 1998 and 1997, the Company generated $73,119,000, $62,067,000 and $50,135,000, respectively, from its triple net lease segment. For the years ended December 31, 1999 and 1998, the Company generated revenues totaling $3,174,000 and $2,706,000, respectively, from its fee income segment. Prior to January 1, 1998, the Company did not provide services for development, property management and asset management. During 1999, 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, 1999, Eckerd Corporation leased 51 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 2000. Any failure of this lessee to make its lease payments when they are due could materially affect the Company's earnings. During the years ended December 31, 1999 and 1998, the Company earned $1,883,000 and $2,362,000, respectively, in development and asset management fees from related parties. The decrease in fees earned during 1999 is attributable to the transfer of the Company's build-to-suit development operation to Services in May 1999. During the years ended December 31, 1999 and 1998, the Company's operating expenses, excluding interest and including depreciation and amortization, were $25,070,000 and $20,594,000, respectively (32.8% and 31.8%, respectively, of total revenues). The increase in the dollar amount of operating expenses for the year ended December 31, 1999, was primarily attributable to the increase in the charges related to the costs incurred in acquiring the Company's Advisor from a related party. Operating expenses for the years ended December 31, 1999 and 1998, excluding the costs relating to the acquisition of the Advisor, were $15,246,000 and $15,093,000, respectively, (19.9% and 23.3%, respectively, of total revenues). The increase in the dollar amount of operating expenses for the year ended December 31, 1999, as compared to the year ended December 31, 1998 is also attributable to the increase in depreciation expense as a result of the depreciation of the additional Properties acquired during 1999 and a full year of depreciation on the Properties acquired during 1998. The increase in depreciation expense was partially offset by a decrease in depreciation expense related to the sale of 45 properties during the year ended December 31, 1999. In addition, the increase in the dollar amount of operating expenses for the year ended December 31, 1999 was partially offset by a decrease in general operating and administrative expenses attributable to the transfer of the Company's build-to-suit development operation to Services. In accordance with generally accepted accounting principles, certain costs relating to the development of Properties for the Company's own use have been capitalized. The Company recognized $21,920,000 and $13,460,000, in interest expense for the years ended December 31, 1999 and 1998, respectively. Interest expense increased for the year ended December 31, 1999 primarily as a result of the higher average interest rate and borrowing levels on the Company's Credit Facility and the issuance of the Notes in March 1998 and the 2004 Notes in June 1999. During 1999, the Company sold 45 of its properties for a total of $50,541,000 and received net sales proceeds of $49,732,000. 1999 ANNUAL REPORT - PAGE 24 The Company recognized a net gain on the sale of these 45 properties of $6,724,000 for financial reporting purposes. The Company reinvested the proceeds from 41 of these properties to acquire additional Properties and structured the transactions to qualify as tax-free like-kind exchange transactions for federal income tax purposes. 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 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, 1998 to Year Ended December 31, 1997. As of December 31, 1998 and 1997, the Company owned 285 and 237 wholly-owned Properties, [PICTURE 14] Photograph of an exterior view of The Sports Authority located in Sarasota, Florida. 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. The 23.7 % 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. 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 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 1999 ANNUAL REPORT - PAGE 25 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, 1999, 1998 and 1997, 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). 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. [PICTURE 15] Artist's digital rendering based on original blueprints of Ponce Inlet Lighthouse, Ponce Inlet, Florida. 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 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 1999 ANNUAL REPORT - PAGE 26 [MAP 1] The Company owns properties in each of the dark blue shaded states. Alabama Alaska Arkansas Arizona California Colorado Delaware Florida Georgia Illinois Kansas Kentucky Louisiana Maine Maryland Michigan Mississippi Missouri New Jersey New Mexico Nevada North Carolina North Dakota Ohio Oklahoma Oregon Pennsylvania Rhode Island South Carolina Tennessee Texas Virginia Washington West Virginia Wisconsin [PICTURE 16] Photograph of an exterior view of The Good Guys located in Stockton, California. [PICTURE 17] Photograph of an exterior view of the PETsMART located in Chicago, Illinois. 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 additional properties and structured the transactions to qualify as tax-free like-kind exchange transactions for federal income tax purposes. During 1997, the Company sold one of its properties and an undeveloped portion of land of one of its properties for a total of $1,883,000 and received net sales proceeds of $1,816,000. In addition, 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 on the sale of these five properties and undeveloped portion of land 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. Year 2000 Readiness Disclosure. The Year 2000 compliance issues concern the ability of information and non-information technology systems to properly recognize and process date-sensitive information beyond January 1, 2000. The failure to accurately recognize the year 2000 could result in a variety of problems from data miscalculations to the failure of entire systems. The Company and its affiliates generally provide all services requiring the use of information and some non-information technology systems. The information technology systems of the Company consist of a network of personal computers and servers built using hardware and software from 1999 ANNUAL REPORT - PAGE 27 mainstream suppliers. The non-information technology systems of the Company are primarily facility related and include building security systems, elevators, fire suppressions, HVAC, electrical systems and other utilities. In early 1998, the Company and its affiliates formed a Year 2000 committee (the "Y2K Team") that assessed the readiness of any systems that were date sensitive and completed upgrades for the hardware equipment and software that was not Year 2000 compliant, as necessary. The cost for these upgrades and other remedial measures was the responsibility of the Company. The Company has not incurred, and does not expect that it will incur, any costs in connection with the Year 2000 remedial measures. In addition, the Y2K team requested and received certifications of compliance from other companies with which the Company has material third party relationships. In assessing the risks presented by the Year 2000 compliance issues, the Y2K Team identified potential worst case scenarios involving the failure of the information and non-information technology systems used by the Company's transfer agent, financial institutions and tenants. As of February 28, 2000, the Company did not experience material disruption or other significant problems in its information and non-information technology systems. In addition, as of the same date, the Company is not aware of any material Year 2000 compliance issues relating to information and non-information technology systems of third parties with which the Company maintains material relationships, including those of the Company's transfer agent, financial institutions and tenants. Additionally, the Company's interactions with the systems of its transfer agent, financial institutions and tenants, have functioned normally. The Company continues to monitor its systems and to maintain contact with third parties with which the Company has [PICTURE 18] Photograph of an exterior view of the Barnes & Noble located in Houston, Texas. material relationships with respect to Year 2000 compliance and any Year 2000 issues that may arise at a later date. The Company will develop contingency plans relating to ongoing Year 2000 issues at the time that such issues are identified and such plans are deemed necessary. Based on the information provided to the Y2K Team, the upgrades and remedial measures by the Company and its affiliates, and the normal functioning to date of information and non-information technology systems used by the Company and those third parties, the Company does not foresee significant risks associated with its Year 2000 compliance at this time. In addition, the Company does not expect to incur any material additional costs in connection with the Year 2000 compliance efforts. However, there can be no assurance that the Company or any third parties will not have ongoing Year 2000 compliance issues that may have adverse effects on the Company. Investment Considerations. Two of the Company's tenants, Just For Feet 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 its lease with the Company. As of December 31, 1999, Just For Feet and Levitz continued to lease one Property each, which combined, accounted for one percent of the Company's Rental Income for the year ended December 31, 1999. 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 distributes to its 1999 ANNUAL REPORT - PAGE 28 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, 1999, 1998 and 1997, 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; however, certain factors exist that could contribute to trends that may adversely effect the Company in the future. Such factors include the following: changes in general economic conditions, changes in real estate market conditions, interest rate fluctuations, an increase in internet retailing, the ability of the Company to locate suitable tenants for its Properties and the ability of tenants to make payments under their respective leases. 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. In December 1999, the Securities and Exchange Commission (the "SEC") published Staff Accounting Bulletin 101, "Revenue Recognition." The Bulletin expressed the SEC's position regarding revenue recognition in financial statements, including income statement presentation and disclosures. The implementation date of the Bulletin is no later than the second quarter of fiscal years beginning after December 15, 1999. The Company does not believe the implementation of this Bulletin will have a material effect on the Company's financial position or results of operations. 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 1999 ANNUAL REPORT - PAGE 29 [PICTURE 19] Photograph of an exterior view of the Robb & Stucky located in Ft. Myers, Florida. 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 17 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. Quantitative and Qualitative Disclosures About 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. The information in the table summarizes the Company's market risks associated with its debt obligations outstanding as of December 31, 1999 and 1998. The table presents principal cash flows and related interest rates by year of expected maturity for debt obligations outstanding as of December 31, 1999. The variable interest rates shown represent the weighted average rates for the Credit Facility at the end of the periods. As the table incorporates only those exposures that exist as of December 31, 1999 and 1998, it does not consider those exposures or positions which could arise after those dates. 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. As of December 31, 1999, the Company did not have any interest rate derivative instruments outstanding. 1999 ANNUAL REPORT - PAGE 30 [PICTURE 20] Background photograph of lighthouse and surrounding landscape in Portland, Maine. MARKET RISK DISCLOSURE TABLE
|--------------------------------Maturity Date----------------------------| (dollars in thousands) 2000 2001 2002 2003 2004 Thereafter ---------- ---------- ---------- ---------- ---------- ---------- Variable rate credit facility $ 108,700 $ - $ - $ - $ - $ - Average interest rate 7.29% - - - - - Fixed rate mortgages $ 2,031 $ 2,195 $ 2,369 $ 2,612 $ 2,851 $ 28,371 Average interest rate 7.61% 7.61% 7.61% 7.60% 7.59% 7.71% Fixed rate notes - - - - $ 100,000 $ 100,000 Average interest rate - - - - 7.547% 7.163%
December 31, 1999 December 31, 1998 (dollars in thousands) (dollars in thousands) ------------------------------------ ------------------------------------ Weighted Weighted Average Average Interest Fair Interest Fair Total Rate Value Total Rate Value ---------- ---------- ---------- ---------- ---------- ---------- Variable rate credit facility $ 108,700 7.29% $ 108,700 $ 138,100 7.14% $ 138,100 Fixed rate mortgages $ 40,429 7.62% $ 40,429 $ 55,063 7.60% $ 55,063 Fixed rate notes (1) $ 200,000 7.36% $ 185,840 100,000 7.16% $ 92,232 (1) The Company issued $100,000,000 of notes in June 1999.
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. 1999 ANNUAL REPORT - PAGE 32 [PICTURE 21] Artist's digital rendering based on original blueprints of Ponce Inlet Lighthouse, Ponce Inlet, Florida. 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, 1999 and 1998, 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, 1999. 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, 1999 and 1998, and results of their operations and their cash flows for each of the years in the three-year period ended December 31, 1999, in conformity with generally accepted accounting principles. /s/ KPMG LLP Orlando, Florida January 14, 2000 1999 ANNUAL REPORT - PAGE 33 COMMERCIAL NET LEASE REALTY, INC. and SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (dollars in thousands, except per share data)
December 31, 1999 1998 ----------- ------------ ASSETS - ------ Real estate: Accounted for using the operating method, net of accumulated depreciation and amortization $ 546,193 $ 519,948 Accounted for using the direct financing method 125,491 138,809 Investment in unconsolidated subsidiary 4,502 - Investment in unconsolidated partnership 3,844 3,850 Mortgages receivable 16,241 - Mortgages and other receivables from unconsolidated subsidiary 27,597 - Cash and cash equivalents 3,329 1,442 Receivables 2,119 3,532 Accrued rental income 13,182 10,395 Debt costs, net of accumulated amortization of $2,894 and $2,559 2,964 2,282 Other assets 4,327 5,337 =========== ============ Total assets $ 749,789 $ 685,595 =========== ============ LIABILITIES AND STOCKHOLDERS' EQUITY - ------------------------------------ Line of credit payable $ 108,700 $ 138,100 Mortgages payable 40,429 55,063 Notes payable, net of unamortized discount of $592 and $256, respectively, and unamortized interest rate hedge gain of $2,434 in 1999 201,842 99,744 Accrued interest payable 2,744 2,646 Accounts payable and accrued expenses 1,717 5,343 Other liabilities 2,995 809 ----------- ------------ Total liabilities 358,427 301,705 ----------- ------------ Commitments and contingencies (Note 19) 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 30,255,939 and 29,521,089 shares at December 31, 1999 and 1998, respectively 303 295 Excess stock, $0.01 par value. Authorized 105,000,000 shares; none issued or outstanding - - Capital in excess of par value 396,403 386,755 Accumulated dividends in excess of net earnings (5,344) (3,160) ----------- ------------ Total stockholders' equity 391,362 383,890 ----------- ------------ $ 749,789 $ 685,595 =========== ============ See accompanying notes to consolidated financial statements.
1999 ANNUAL REPORT - PAGE 34 COMMERCIAL NET LEASE REALTY, INC. and SUBSIDIARIES CONSOLIDATED STATEMENTS OF EARNINGS (dollars in thousands, except per share data)
Year Ended December 31, 1999 1998 1997 ---------- ---------- ---------- Revenues: Rental income from operating leases $ 57,514 $ 48,127 37,384 Earned income from direct financing leases 13,858 12,815 11,779 Contingent rental income 903 808 759 Development and asset management fees from related parties 1,883 2,362 - Interest and other 2,385 661 213 ---------- ---------- ---------- 76,543 64,773 50,135 ---------- ---------- ---------- Expenses: General operating and administrative 6,180 7,735 1,448 Real estate expenses 432 599 165 Advisory fees to related party - - 2,110 Interest 21,920 13,460 11,478 Depreciation and amortization 8,634 6,759 5,302 Expenses incurred in acquiring advisor from related party 9,824 5,501 - ---------- ---------- ---------- 46,990 34,054 20,503 ---------- ---------- ---------- Earnings before equity in earnings of unconsolidated subsidiary and unconsolidated partnership, and gain on sale of real estate 29,553 30,719 29,632 Equity in earnings of unconsolidated subsidiary (1,337) - - Equity in earnings of unconsolidated partnership 371 367 102 Gain on sale of real estate 6,724 1,355 651 ---------- ---------- ---------- Net earnings $ 35,311 $ 32,441 $ 30,385 ========== ========== ========== Net earnings per share of common stock: Basic $ 1.16 $ 1.11 $ 1.26 ========== ========== ========== Diluted $ 1.16 $ 1.10 $ 1.25 ========== ========== ========== Weighted average number of shares outstanding: Basic 30,331,327 29,169,371 24,070,697 ========== ========== ========== Diluted 30,408,219 29,397,154 24,220,792 ========== ========== ========== See accompanying notes to consolidated financial statements.
1999 ANNUAL REPORT - PAGE 35 COMMERCIAL NET LEASE REALTY, INC. and SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY Years Ended December 31, 1999, 1998 and 1997 (dollars in thousands, except per share data)
Retained earnings (accumulated dividends Capital in in excess Number of Common excess of of net shares stock par value earnings) Total ---------- ---------- ---------- ----------- ---------- 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 (35,672) share of common stock) - - - (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 Net earnings - - - 35,311 35,311 Dividends declared and paid ($1.24 per share of common stock) - - - (37,495) (37,495) Issuance of common stock in connection with acquisition of advisor 798,109 8 9,816 - 9,824 Issuance of common stock 180,941 2 2,178 - 2,180 Purchase and retirement of common stock (244,200) (2) (2,329) - (2,331) Stock issuance costs - - (17) - (17) ---------- ---------- ---------- ----------- ---------- Balance at December 31, 1999 30,255,939 $ 303 $ 396,403 $ (5,344) $ 391,362 ========== ========== ========== =========== ========== See accompanying notes to consolidated financial statements.
1999 ANNUAL REPORT - PAGE 36 COMMERCIAL NET LEASE REALTY, INC. and SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (dollars in thousands)
Year Ended December 31, 1999 1998 1997 ----------- ----------- ----------- Cash flows from operating activities: Net earnings $ 35,311 $ 32,441 $ 30,385 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization 8,634 6,759 5,302 Amortization of notes payable discount 56 15 - Amortization of deferred interest rate hedge gain (245) - - Gain on sale of real estate (6,724) (1,355) (651) Expenses incurred in acquiring advisor from related party 9,824 5,501 - Equity in earnings of unconsolidated subsidiary, net of deferred intercompany profits 1,198 - - Distributions (equity in earnings) from unconsolidated partnership, net of equity in earnings (distributions) 4 9 (102) Decrease in real estate leased to others using the direct financing method 1,805 1,393 1,166 Decrease in accrued mortgage interest receivable 474 - - Decrease (increase) in receivables 1,508 (2,723) 146 Increase in accrued rental income (3,928) (3,346) (2,729) Increase in other assets (43) (2) (5) Increase in accrued interest payable 98 1,881 375 Increase in accounts payable and accrued expenses 288 755 25 Increase (decrease) in other liabilities (384) (68) 98 ----------- ----------- ----------- Net cash provided by operating activities 47,876 41,260 34,010 ----------- ----------- ----------- Cash flows from investing activities: Proceeds from the sale of real estate 43,125 5,947 19,402 Additions to real estate accounted for using the operating method (76,063) (117,943) (154,688) Additions to real estate accounted for using the direct financing method (1,901) (29,572) (29,439) Investment in unconsolidated partnership - - (855) Increase in mortgages receivable (3,952) - - Mortgage payments received 1,191 - - Increase in mortgages and other receivables from unconsolidated subsidiary (31,728) - - Mortgage payments received from unconsolidated subsidiary 4,859 - - Increase in other assets (148) (4,084) (660) Other 181 9 (762) ----------- ----------- ----------- Net cash used in investing activities (64,436) (145,643) (167,002) ----------- ----------- -----------
1999 ANNUAL REPORT - PAGE 37 COMMERCIAL NET LEASE REALTY, INC. and SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS - continued (dollars in thousands)
Year Ended December 31, 1999 1998 1997 ----------- ----------- ----------- Cash flows from financing activities: Proceeds from line of credit payable 87,000 143,600 152,600 Repayment of line of credit payable (116,400) (120,600) (96,200) Repayment of mortgages payable (14,984) (1,673) (1,520) Proceeds from notes payable 99,608 99,729 - Proceeds from termination of interest rate hedge 2,679 - - Payment of debt costs (1,365) (1,165) (417) Proceeds from issuance of common stock 2,180 21,183 111,520 Payment of stock issuance costs (54) (1,144) (3,875) Repurchase of common stock (2,331) - - Payment of dividends (37,495) (35,672) (28,381) Other (391) (593) 15 ----------- ----------- ----------- Net cash provided by financing activities 18,447 103,665 133,742 ----------- ----------- ----------- Net increase (decrease) in cash and cash equivalents 1,887 (718) 750 Cash and cash equivalents at beginning of year 1,442 2,160 1,410 ----------- ------------ ----------- Cash and cash equivalents at end of year $ 3,329 $ 1,442 $ 2,160 =========== =========== =========== Supplemental disclosure of cash flow information: Interest paid, net of amount capitalized $ 22,553 $ 11,478 $ 11,017 =========== =========== =========== Supplemental schedule of non-cash investing and financing activities: Issued 798,109 and 277,813 shares of common stock in 1999 and 1998, respectively, in connection with the acquisition of the Company's advisor $ 9,824 $ 4,742 $ - =========== =========== =========== Net assets acquired in connection with the acquisition of the Company's advisor $ - $ 12 $ - =========== =========== =========== Mortgage notes accepted in connection with sales of real estate $ 6,618 $ - $ - =========== =========== =========== Mortgage notes accepted as payment for mortgage receivable from unconsolidated subsidiary $ 6,755 $ - $ - =========== =========== =========== Mortgage note issued in connection with the acquisition of real estate $ 350 $ - $ - =========== =========== =========== Real estate and other assets contributed to unconsolidated subsidiary in exchange for: Non-voting common stock $ 5,700 $ - $ - =========== =========== =========== Mortgage receivable $ 8,064 $ - $ - =========== =========== =========== Capital lease obligation incurred for the lease of the Company's office space $ 2,570 $ - $ - =========== =========== =========== Contribution of land and building to unconsolidated partnership $ - $ - $ 2,930 =========== =========== =========== See accompanying notes to consolidated financial statements.
1999 ANNUAL REPORT - PAGE 38 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, manages and indirectly, through an investment in an unconsolidated subsidiary, develops high-quality, freestanding properties that are generally leased to major retail businesses under long-term commercial net leases. PRINCIPLES OF CONSOLIDATION -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 real estate 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. Real estate is 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 - Leases accounted for using the operating method are recorded at the cost of the real estate. 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). Leasehold interests are amortized on the straight-line method over the terms of their respective leases. 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. For tenants required to report sales on a quarterly basis, the Company recognizes contingent rental income based on the tenant's actual gross sales. For tenants required to reports sales on an annual basis, the Company recognizes contingent rental income based on projected gross sales. Effective April 1, 2000, in accordance with the Securities and Exchange Commission's Staff Accounting Bulletin 101, "Revenue Recognition," the Company will recognize contingent rental income for all tenants based on the tenant's actual gross sales. When real estate is sold, the related cost, accumulated depreciation or amortization 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 real estate for impairment whenever events or changes in circumstances indicate that the carrying value 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 real estate, with the carrying cost of the individual real estate. 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 UNCONSOLIDATED SUBSIDIARY - In May 1999, the Company contributed real estate and other assets to Commercial Net Lease Realty Services, Inc. ("Services"), an unconsolidated subsidiary whose officers and directors consist of certain officers and directors of the Company. In connection with the contribution, the Company received a 95 percent, non-controlling interest in Services. The Company accounts for its 95 percent interest in Services under the equity method of accounting. The Company is entitled to receive 95 percent of the dividends paid by Services. INVESTMENT IN UNCONSOLIDATED PARTNERSHIP - In September 1997, the Company contributed cash and real estate to Net Lease Institutional Realty, L.P. (the "Partnership") for a 20 percent interest in the Partnership. 1999 ANNUAL REPORT - PAGE 39 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. 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. Cash accounts maintained on behalf of the Company in demand deposits at commercial banks and money market funds may exceed federally insured levels; however, the Company has not experienced any losses in such accounts. The Company limits investment of temporary cash investments to financial institutions with high credit standing; therefore, management believes it is not exposed to any significant credit risk on cash and cash equivalents. 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. 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 obligations using the effective interest method. 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, 1999, 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 real estate. 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 12). 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. NEW ACCOUNTING STANDARD - 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. 1999 ANNUAL REPORT - PAGE 40 2. LEASES: The Company generally leases its real estate to operators of major retail businesses. As of December 31, 1999, 183 of the leases have been classified as operating leases and 84 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 48 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. REAL ESTATE: ACCOUNTED FOR USING THE OPERATING METHOD - Real estate on operating leases consisted of the following at December 31 (dollars in thousands): 1999 1998 --------- --------- Land $ 267,479 $ 258,545 Buildings and improvements 296,219 269,225 Leasehold interests 4,409 - --------- --------- 568,107 527,770 Less accumulated depreciation and amortization (22,023) (17,335) --------- --------- 546,084 510,435 Construction in progress 109 9,513 --------- --------- $ 546,193 $ 519,948 ========= ========= Some leases provide for scheduled rent increases throughout the lease term. Such amounts are recognized on a straight-line basis over the terms of the leases. For the years ended December 31, 1999, 1998 and 1997, the Company recognized $3,985,000, $3,403,000 and $2,786,000, respectively, of such income. At December 31, 1999 and 1998, the balance of accrued rental income was $13,182,000, net of an allowance of $957,000, and $10,395,000, net of an allowance of $515,000, respectively. The following is a schedule of future minimum lease payments to be received on noncancellable operating leases at December 31, 1999 (dollars in thousands): 2000 $ 55,447 2001 56,353 2002 56,233 2003 56,410 2004 56,193 Thereafter 517,289 ----------- $ 797,925 =========== 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. 1999 ANNUAL REPORT - PAGE 41 Accounted for Using the Direct Financing Method - The following lists the components of net investment in direct financing leases at December 31 (dollars in thousands): 1999 1998 ---------- ---------- Minimum lease payments to be received $ 245,306 $ 283,185 Estimated residual values 39,644 43,154 Less unearned income (159,459) (187,530) ---------- ---------- Net investment in direct financing leases $ 125,491 $ 138,809 ========== ========== The following is a schedule of future minimum lease payments to be received on direct financing leases at December 31, 1999 (dollars in thousands): 2000 $ 15,349 2001 15,382 2002 15,443 2003 15,456 2004 15,634 Thereafter 168,042 --------- $ 245,306 ========= 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 UNCONSOLIDATED SUBSIDIARY: 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. The Company contributed $5.7 million of real estate and other assets to Services in exchange for 5,700 shares of non-voting common stock. In connection with the contribution, the Company received a 95 percent non-controlling interest in Services. The Company accounts for its investment in Services using the equity method. The Company is entitled to received 95 percent of the dividends paid by Services. The Company also entered into a secured line of credit agreement with Services for a $30,000,000 revolving credit facility. The credit facility is secured by a first mortgage on Services' properties. The outstanding principal balance of the mortgage at December 31, 1999 was $19,978,000. In addition, the Company entered into an unsecured line of credit agreement with a wholly-owned subsidiary of Services for a $20,000,000 revolving credit facility. The outstanding principal balance of the line of credit at December 31, 1999 was $7,619,000. The following presents Services' condensed financial information (dollars in thousands): December 31, 1999 ------------------------ Real estate, net of accumulated depreciation $ 30,251 Investment in unconsolidated affiliate 5,531 Cash and cash equivalents 1,396 Other assets 3,576 ---------- Total assets $ 40,754 ========== Mortgage and other payables $ 20,456 Other liabilities 15,705 ---------- Total liabilities 36,161 ---------- Stockholders' equity 4,593 ---------- Total liabilities and stockholders' equity $ 40,754 ========== 1999 ANNUAL REPORT - PAGE 42 Period May 1, 1999 (date of inception) through December 31, 1999 ------------------- Revenues $ 660 Net earnings (1,407) For the year ended December 31, 1999, the Company recognized a loss of $1,337,000 from the Subsidiary. 5. INVESTMENT IN UNCONSOLIDATED 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 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, 1999 1998 ---------- ---------- Real estate leased to others: Accounted for using the operating method, net of accumulated depreciation $ 24,742 $ 25,060 Accounted for using the direct financing method 5,030 5,096 Other assets 698 763 ---------- ---------- Total assets $ 30,470 $ 30,919 ========== ========== Note payable $ 11,133 $ 11,536 Other liabilities 132 160 ---------- ---------- Total liabilities 11,265 11,696 ---------- ---------- Partners' capital 19,205 19,223 ---------- ---------- Total liabilities and partners' capital $ 30,470 $ 30,919 ========== ==========
Period September 19, 1997 For the year For the year (date of inception) ended ended through December 31, December 31, December 31, 1999 1998 1997 ------------- ------------ ------------------- Revenues $ 3,279 $ 3,276 $ 933 Net earnings 1,857 1,834 514 For the years ended December 31, 1999, 1998 and 1997, the Company recognized income of $371,000, $367,000 and $102,000, respectively, from the Partnership. 6. LINE OF CREDIT PAYABLE: In September 1999, the Company entered into an amended and restated loan agreement for a $200,000,000 revolving credit facility (the "Credit Facility") which amended certain provisions of the Company's existing loan agreement and which expires on July 30, 2000. 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, 2000, which can be extended for an additional 12 month period at the option of the Company. Interest incurred on prime rate advances on the 1999 ANNUAL REPORT - PAGE 43 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, 1999 and 1998, the outstanding principal balance was $108,700,000 and $138,100,000, respectively, plus accrued interest of $135,000 and $361,000, 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, 1999. During the three years ended December 31, 1999, the Company was a party to an interest rate cap agreement as a means to reduce its exposure to rising interest rates on the Company's variable rate Credit Facility. As of December 31, 1999, the interest rate cap agreement had expired. 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, 1999, 1998 and 1997, interest cost incurred was $7,740,000, $4,886,000 and $7,240,000, respectively, of which $487,000, $1,112,000 and $133,000, respectively, was capitalized, and $6,619,000, $3,774,000 and $7,107,000, respectively, which was charged to operations. 7. MORTGAGES PAYABLE: In December 1995, the Company entered into a long-term, fixed rate mortgage and security agreement for $13,150,000. The loan provided for a four-year mortgage with interest payable monthly and principal payable at maturity in December 1999, and bore interest at a rate of 6.75% per annum. Upon its maturity in December 1999, the Company repaid the outstanding principal balance of $13,150,000 using funds available from its Credit Facility. 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 collateralized by a first lien on and assignments of rents and leases of certain of the Company's properties. As of December 31, 1999, the aggregate carrying value of these properties totaled $74,468,000. The outstanding principal balance as of December 31, 1999 and 1998, was $34,189,000 and $35,680,000, respectively, plus accrued interest of $123,000 and $125,000, 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 weighted average maturity of five years, with principal and interest payable monthly. As of December 31, 1999 and 1998, the outstanding balances for the Mortgages totaled $5,890,000 and $6,233,000, plus accrued interest of $37,000 and $39,000, respectively. As of December 31, 1999, the aggregate carrying value of these three properties totaled $8,020,000. In December 1999, the Company acquired a property subject to a mortgage of $350,000. The mortgage bears interest at a rate of 8.5% per annum with principal and interest payable monthly and the balance due in December 2009. As of December 31, 1999, the outstanding principal balance of the mortgage was $350,000. The following is a schedule of the annual maturities of the Company's mortgages payable for each of the next five years (dollars in thousands): 2000 $ 2,031 2001 2,195 2002 2,369 2003 2,612 2004 2,851 ---------- $ 12,058 ========== 1999 ANNUAL REPORT - PAGE 44 8. NOTES PAYABLE: In March 1998, the Company filed a prospectus supplement to its $300,000,000 shelf registration statement and issued $100,000,000 of 7.125% Notes due 2008 (the "2008 Notes"). The 2008 Notes are senior obligations of the Company and are ranked equally with the Company's other unsecured senior indebtedness and are subordinated to all secured indebtedness of the Company. The 2008 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 2008 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 2008 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 2008 Notes. The terms of the indenture include financial covenants which provide for the maintenance of certain financial ratios. The Company was in compliance with such covenants as of December 31, 1999. 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 2008 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. In June 1999, the Company filed a prospectus supplement to its $300,000,000 shelf registration statement and issued $100,000,000 of 8.125% Notes due 2004 (the "2004 Notes"). The 2004 Notes are senior obligations of the Company and are ranked equally with the Company's other unsecured senior indebtedness and are subordinated to all secured indebtedness of the Company. The 2004 Notes were sold at a discount for an aggregate purchase price of $99,608,000 with interest payable semi-annually commencing on December 15, 1999. The discount of $392,000 is being amortized as interest expense over the term of the debt obligation using the effective interest method. In connection with the debt offering, the Company entered into a treasury rate lock agreement which fixed a treasury rate of 5.1854% on a notional amount of $92,000,000. Upon issuance of the 2004 Notes, the Company terminated the treasury rate lock agreement resulting in a gain of $2,679,000. The gain has been deferred and is being amortized as an adjustment to interest expense over the term of the 2004 Notes using the effective interest method. The effective rate of the 2004 Notes, including the effects of the discount and the treasury rate lock gain, is 7.547%. The 2004 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 2004 Notes being redeemed plus accrued interest thereon through the redemption date and (ii) the make-whole amount, as defined in the Supplemental Indenture No. 2 dated June 21, 1999 for the 2004 Notes. The terms of the indenture include financial covenants which provide for the maintenance of certain financial ratios. The Company was in compliance with such covenants as of December 31, 1999. In connection with the debt offering, the Company incurred debt issuance costs totaling $970,000, 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 2004 Notes using the effective interest method. The net proceeds of the debt offering were used to pay down outstanding indebtedness of the Company's Credit Facility. 9. COMMON STOCK: In November 1999, the Company announced the authorization by the Company's board of directors to acquire up to $25,000,000 of the Company's outstanding common stock either through open market transactions or through privately negotiated transactions. As of December 31, 1999, the Company had acquired and retired 244,200 of such shares for a total cost of $2,339,000. 10. 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 percent of their Compensation, as defined in the Retirement Plan, subject to limits established by the Internal Revenue Code. The Company matches 50 percent of the participants' contributions up to a maximum of six percent of a participant's annual compensation. The Company's contributions to the Retirement plan for the years ended December 31, 1999 and 1998, totaled $52,000 and $60,000, respectively. 1999 ANNUAL REPORT - PAGE 45 11. DIVIDENDS: The following presents the characterization for tax purposes of dividends paid to stockholders for the years ended December 31: 1999 1998 1997 ------- ------- ------- Ordinary income $ 1.12 $ 1.09 $ 1.10 Capital gain .01 - - Unrecaptured Section 1250 Gain .02 - - Return of capital .09 .14 .10 ------- ------- ------- $ 1.24 $ 1.23 $ 1.20 ======= ======= ======= On January 14, 2000, the Company declared dividends of $9,378,000 or 31 cents per share of common stock, payable on February 15, 2000 to stockholders of record on January 31, 2000. 12. 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 years ended December 31:
1999 1998 1997 ------------- -------------- ------------- Basic Earnings Per Share: Net earnings $ 35,311,000 $ 32,441,000 $ 30,385,000 ============= ============== ============= Weighted average number of shares outstanding 29,650,912 29,124,583 24,070,697 Merger contingent shares 680,415 44,788 - ------------- -------------- ------------- Weighted average number of shares used in basic earnings per share 30,331,327 29,169,371 24,070,697 ============= ============== ============= Basic earnings per share $ 1.16 $ 1.11 $ 1.26 ============= ============== ============= Diluted Earnings Per Share: Net earnings $ 35,311,000 $ 32,441,000 $ 30,385,000 ============= ============== ============== Weighted average number of shares outstanding 29,650,912 29,124,583 24,070,697 Effect of dilutive securities: Stock options - 150,679 150,095 Merger contingent shares 757,307 121,892 - ------------- -------------- ------------- Weighted average number of shares used in diluted earnings per share 30,408,219 29,397,154 24,220,792 ============= ============== ============= Diluted earnings per share $ 1.16 $ 1.10 $ 1.25 ============= ============== =============
For the years ended December 31, 1999 and 1998, options on 1,668,659 and 1,145,700 shares of common stock, respectively, were not included in computing diluted earnings per share because their effects were antidilutive. 1999 ANNUAL REPORT - PAGE 46 13. 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, 1999, the Plan had 2,000,000 shares of common stock reserved for issuance. The following summarizes transactions in the Plan for the years ended December 31:
1999 1998 1997 -------------------------- ------------------------ ------------------------ Weighted Weighted Weighted Number Average Number Average Number Average Of Exercise Of Exercise Of Exercise Shares Price Shares Price Shares Price ----------- ----------- --------- ----------- --------- ----------- Outstanding, January 1 1,710,600 $ 14.89 1,145,100 $ 13.52 956,600 $ 13.21 Granted 10,000 13.69 654,000 17.38 210,000 14.92 Exercised - - (14,500) 12.88 (11,500) 13.52 Surrendered (54,675) 16.55 (74,000) 16.03 (10,000) 13.94 ----------- --------- --------- Outstanding, December 31 1,665,925 14.83 1,710,600 14.89 1,145,100 13.52 =========== ========= ========= Exercisable, December 31 1,208,725 14.03 855,933 13.38 681,767 13.29 =========== ========= ========= Available for grant, December 31 308,075 167,900 821,900 =========== ========= =========
The weighted-average remaining contractual life of the 1,665,925 options outstanding at December 31, 1999 was 6.4 years, 909,325 options which had exercise prices ranging from $11.25 to $14.125 and 756,600 options which had exercise prices ranging from $14.875 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): 1999 1998 1997 ---------- ---------- ---------- Net earnings as reported $ 35,311 $ 32,441 $ 30,385 ========== ========== ========== Pro forma net earnings $ 35,019 $ 32,187 $ 30,220 ========== ========== ========== Earnings per share as reported: Basic $ 1.16 $ 1.11 $ 1.26 ========== =========== ========== Diluted $ 1.16 $ 1.10 $ 1.25 ========== =========== ========== Pro forma earnings per share: Basic $ 1.15 $ 1.10 $ 1.26 ========== =========== ========== Diluted $ 1.15 $ 1.09 $ 1.25 ========== =========== ========== 1999 ANNUAL REPORT - PAGE 47 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 1999, 1998 and 1997: (i) risk free rates of 5.1% for the 1999 grant, 5.7% and 5.9% for 1998 grants and 6.9% and 7.0% for 1997 grants, (ii) expected volatility of 24.6%, 17.4% and 13.6%, respectively, (iii) dividend yields of 10.5% , 7.9% and 7.7%, respectively, and (iv) expected lives of ten years for grants in 1999, 1998 and 1997. 14. MERGER TRANSACTION: On December 18, 1997, the Company's stockholders voted to approve an agreement and plan of merger with CNL Realty Advisors, Inc. (the "Advisor"), whereby the stockholders of the Advisor agreed to exchange 100 percent of the outstanding shares of common stock of the Advisor for up to 2,200,000 shares (the "Share Consideration") of the Company's common stock (the "Merger"). As a result, the Company became a fully integrated, self-administered real estate investment trust effective January 1, 1998. 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, within five years from the date of the Merger, 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. Since the effective date of the Merger, the Company has issued 855,922 shares of the Share Balance. The market value of the Share Balance issued was $10,634,000, all of which was charged to operations. On January 1, 2000, in connection with the property acquisitions during the quarter ended December 31, 1999, an additional 50,711 shares of the Share Balance became issuable to the stockholders of the Advisor. The market value of the 50,711 shares at the date the shares became issuable totaled $491,000, all of which is to be charged to operations during the year ended December 31, 2000. Pursuant to the agreement and the 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. 15. FAIR VALUE OF FINANCIAL INSTRUMENTS: The Company believes the carrying values of its line of credit payable and the lines of credit receivable from Services and a wholly-owned subsidiary of Services approximate fair value based upon their nature, terms and variable interest rates. The Company believes that the carrying value of its mortgages payable and mortgages receivable at December 31, 1999 approximate fair value, based upon current market prices of similar issues. At December 31, 1999, the fair value of the Company's notes payable was $185,840,000 based upon the quoted market price. 16. 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 each of the years ended December 31, 1999 and 1998. A wholly-owned subsidiary of Services holds a 33 1/3 percent equity interest in WXI/SMC Real Estate LLC (the "LLC"). The Company provided certain management services for the LLC on behalf of Services pursuant to the LLC's Limited Liability Company Agreement and Property Management and Development Agreement. The LLC 1999 ANNUAL REPORT - PAGE 48 paid the Company $314,000 in fees and $200,000 in expense reimbursements during the year ended December 31, 1999 relating to these services. During the years ended December 31, 1999 and 1998, the Company provided certain development services for an affiliate of a member of the Company's board of directors. In connection therewith, the Company earned $1,351,000 and $2,144,000, respectively, in development fees relating to these services. The Company's receivables balance at December 31, 1999 and 1998 includes $634,000 and $338,000, respectively, of these development fees. As of December 31, 1999, the Company held two mortgages totaling $6,755,000 with affiliates of certain members of the Company's board of directors. In November 1999, the Company entered into a lease agreement for its office space (the "Lease") with an affiliate of a member of the Company's board of directors. The Lease provides for rent in the amount of $390,000 per year, expiring in October 2014. In connection with the revolving credit facilities between the Company and Services and the Company and a wholly-owned subsidiary of Services, the Company received $1,530,000 in interest and fees during the year ended December 31, 1999. In addition, Services paid the Company $177,000 in expense reimbursements for accounting services provided by the Company during the year ended December 31, 1999. Prior to the Merger, certain directors and officers of the Company held similar positions with the Advisor. During the year ended December 31, 1997, the Company acquired 27 properties and three buildings which were developed by the tenant on land parcels owned by the Company, from unrelated, third parties. In connection with the acquisition of these 27 properties and three buildings, the Company paid the Advisor $2,552,000 in acquisition fees and expense reimbursement fees (representing 1.5% and 0.5%, respectively, of the cost of the properties). In addition, during the year ended December 31, 1997, the Company acquired 15 properties for purchase prices totaling $39,323,000 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 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 20 properties. 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 in advisory fees for the year ended December 31, 1997. 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. In March 1999, the Company sold 38 of its properties to an affiliate of a member of the Company's board of directors for a total of $36,568,000 and received net proceeds of $36,173,000, resulting in a gain of $5,363,000 for financial reporting purposes. 1999 ANNUAL REPORT - PAGE 49 17. 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 was 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, 1999 and 1998, and for the years then ended:
Rental and Earned Fee Income Income Corporate Consolidated ------------ --------- ------------ ------------ 1999 ---- Revenues $ 73,119 $ 3,174 $ 250 $ 76,543 General operating and administrative expenses 4,630 1,345 205 6,180 Real estate expenses 432 - - 432 Interest expense 21,920 - - 21,920 Depreciation and amortization 8,419 185 30 8,634 Expenses incurred in acquiring advisor from related party - - 9,824 9,824 Equity in earnings of unconsolidated subsidiary - (1,337) - (1,337) Equity in earnings of unconsolidated partnership 371 - - 371 Gain on sale of real estate 6,724 - - 6,724 ------------ --------- ------------ ------------ Net earnings $ 44,813 $ 307 $ (9,809) 35,311 ============ ========= ============ ============ Assets $ 749,626 $ 81 $ 82 749,789 ============ ========= ============ ============ Additions to long-lived assets: Real estate $ 77,964 $ - $ - $ 77,964 ============ ========= ============ ============ Other $ 218 $ 192 $ 37 $ 447 ============ ========= ============ ============
1999 ANNUAL REPORT - PAGE 50
Rental and Earned Fee Income Income Corporate Consolidated ------------ --------- ------------ ------------ 1998 ---- Revenues $ 62,067 $ 2,706 $ - $ 64,773 General operating and administrative expenses 5,558 1,137 1,040 7,735 Real estate expenses 599 - - 599 Interest expense 13,460 - - 13,460 Depreciation and amortization 6,730 19 10 6,759 Expenses incurred in acquiring advisor from related party - - 5,501 5,501 Equity in earnings of unconsolidated partnership 367 - - 367 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 ============ ========= ============ ============
Prior to 1998, the Company did not provide services generating fee income from development, property management and asset management services. 18. MAJOR TENANTS: The following schedule presents rental and earned income, including contingent rents, from operators representing more than ten percent of the Company's total rental and earned income for the years ended December 31 (dollars in thousands): 1999 1998 1997 ------ ------ ------ Barnes & Noble Superstores, Inc. $ (a) $ (a) $5,951 Eckerd Corporation $9,048 $7,170 $5,149 (a) Rental and earned income from the operator did not represent more than 10 percent of the Company's total rental and earned income for the respective year. 1999 ANNUAL REPORT - PAGE 51 19. COMMITMENTS AND CONTINGENCIES: As of December 31, 1999, the Company owned two land parcels subject to lease agreement with tenants whereby the Company has agreed to construct a building on each of the respective land parcels for aggregate construction costs of approximately $4,206,000, of which $109,000 of costs had been incurred at December 31, 1999. Pursuant to the lease agreements, rent is to commence on the properties upon completion of construction of the buildings. During the year ended December 31, 1999, the Company entered into a purchase and sale agreement whereby the Company acquired ten land parcels leased to major retailers and has agreed to acquire the buildings on each of the respective land parcels at the expiration of the initial term of the ground lease for an aggregate amount of approximately $23 million. The seller of the buildings holds a security interest in each of the land parcels which secures the Company's obligation to purchase the buildings under the purchase and sale agreement. 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. The Company believes, in the unlikely event that the Company were to be held liable, the relief granted by the court would be specific performance of the ground lease or damages in an amount far less than the amount sought by the plaintiff and would not materially affect the Company's operations or financial condition. 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. 1999 ANNUAL REPORT - PAGE 52 CONSOLIDATED QUARTERLY FINANCIAL DATA (dollars in thousands, except per share data)
First Second Third Fourth 1999 Quarter Quarter Quarter Quarter Year - ------------------------------- -------- -------- -------- -------- -------- Rent and other revenue $ 18,830 $ 19,152 $ 18,983 $ 19,578 $ 76,543 Depreciation and amortization expense 1,993 2,060 2,230 2,351 8,634 Interest expense 4,777 5,357 5,663 6,123 21,920 Advisor acquisition expense 4,928 3,239 794 863 9,824 Other expenses 2,437 1,943 1,294 938 6,612 Net earnings 9,830 7,135 8,796 9,550 35,311 Net earnings per share (1): Basic 0.33 0.24 0.29 0.31 1.16 Diluted 0.32 0.23 0.29 0.31 1.16 1998 - ------------------------------- 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 (1) Calculated independently for each period, and consequently, the sum of the quarters may differ from the annual amount.
1999 ANNUAL REPORT - PAGE 53 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.
First Second Third Fourth 1999 Quarter Quarter Quarter Quarter Year - ----------------------------- --------- --------- --------- --------- --------- High $ 13.9375 $ 13.8125 $ 13.1875 $ 11.5625 $ 13.9375 Low 11.1250 11.0625 10.4375 9.4375 9.4375 Close 11.1875 12.8750 10.6250 9.9375 9.9375 Dividends paid per share 0.31 0.31 0.31 0.31 1.24 1998 - ----------------------------- 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
For federal income tax purposes, 7.5% and 11.1% of dividends paid in 1999 and 1998, respectively, were treated as a non-taxable return of capital and 1.96% of the 1999 dividend was considered capital gain (representing 0.55% of capital gain - 20% and 1.41% of unrecaptured section 1250 gain). The Company intends to pay regular quarterly dividends its stockholders. Future distributions will be declared and paid at the discretion of the board of directors and will depend upon cash generated by operating activities, the Company's financial condition, capital requirements, annual distribution requirements under the REIT provisions of the Internal Revenue Code of 1986 and such other factors as the board of directors deems relevant. On February 18, 2000, there were approximately 1,360 shareholders of record of common stock. APPENDIX Picture 1 1999 ANNUAL REPORT - PAGE 13 Picture 2 1999 ANNUAL REPORT - PAGE 13 Picture 3 1999 ANNUAL REPORT - PAGE 14 Picture 4 1999 ANNUAL REPORT - PAGE 16 Picture 5 1999 ANNUAL REPORT - PAGE 17 Picture 6 1999 ANNUAL REPORT - PAGE 17 Picture 7 1999 ANNUAL REPORT - PAGE 18 Picture 8 1999 ANNUAL REPORT - PAGE 19 Picture 9 1999 ANNUAL REPORT - PAGE 20 Picture 10 1999 ANNUAL REPORT - PAGE 21 Picture 11 1999 ANNUAL REPORT - PAGE 21 Picture 12 1999 ANNUAL REPORT - PAGE 22 Picture 13 1999 ANNUAL REPORT - PAGE 22 Picture 14 1999 ANNUAL REPORT - PAGE 24 Picture 15 1999 ANNUAL REPORT - PAGE 25 Map 1 1999 ANNUAL REPORT - PAGE 26 Picture 16 1999 ANNUAL REPORT - PAGE 26 Picture 17 1999 ANNUAL REPORT - PAGE 26 Picture 18 1999 ANNUAL REPORT - PAGE 27 Picture 19 1999 ANNUAL REPORT - PAGE 29 Picture 20 1999 ANNUAL REPORT - PAGE 30 Picture 21 1999 ANNUAL REPORT - PAGE 32 EX-23 4 0004.txt CONSENT OF INDEPENDENT ACCOUNTANTS Exhibit 23 Consent of Independent Accountants dated March 30, 2000 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 14, 2000, relating to the consolidated balance sheets of Commercial Net Lease Realty, Inc. and subsidiaries as of December 31, 1999 and 1998, 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, 1999, and the related financial statement schedules, which reports appear in the December 31, 1999 annual report on Form 10-K of Commercial Net Lease Realty, Inc. /s/ KPMG LLP Orlando, Florida March 30, 2000 EX-27 5 0005.txt FINANCIAL DATA SCHEDULE
5 This schedule contains summary financial information extracted from the balance sheet of Commercial Net Lease Realty, Inc. at December 31, 1999, and its statement of earnings for the twelve months ended and is qualified in its entirety by reference to the Form 10-K of Commercial Net Lease Realty, Inc. for the twelve months ended December 31, 1999. 12-MOS DEC-31-1999 JAN-1-1999 DEC-31-1999 3,329,000 0 2,119,000 0 0 0 568,216,000 22,023,000 749,789,000 0 0 303,000 0 0 391,059,000 749,789,000 0 76,543,000 0 25,070,000 0 0 21,920,000 35,311,000 0 35,311,000 0 0 0 35,311,000 1.16 1.16 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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