-----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, O3soM+PJ9SPDRONIA2bE99gpVu6j7Hs0rgHkJyK/Fwz/F1Xf/a0wtxPOf+NzcrSD 55xLoZf5CIcfNlsh9NCxZA== /in/edgar/work/20000811/0000751364-00-000106/0000751364-00-000106.txt : 20000921 0000751364-00-000106.hdr.sgml : 20000921 ACCESSION NUMBER: 0000751364-00-000106 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000630 FILED AS OF DATE: 20000811 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-Q SEC ACT: SEC FILE NUMBER: 001-11290 FILM NUMBER: 693902 BUSINESS ADDRESS: STREET 1: 455 S ORANGE AVE STREET 2: SUITE 700 CITY: ORLANDO STATE: FL ZIP: 32801 BUSINESS PHONE: 4074237348 MAIL ADDRESS: STREET 1: 455 S ORANGE AVE STE 700 CITY: ORLANDO STATE: FL ZIP: 32801 FORMER COMPANY: FORMER CONFORMED NAME: CNL REALTY INVESTORS INC /DE/ DATE OF NAME CHANGE: 19930429 FORMER COMPANY: FORMER CONFORMED NAME: GOLDEN CORRAL REALTY CORP DATE OF NAME CHANGE: 19920703 10-Q 1 0001.txt COMMERCIAL NET LEASE REALTY, INC. UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2000 or [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from __________ to __________. Commission File Number 0-12989 COMMERCIAL NET LEASE REALTY, INC. (exact name of registrant as specified in its charter) Maryland 56-1431377 (State or other jurisdiction of (I.R.S. Employment Identification No.) incorporation or organization) 450 South Orange Avenue, Orlando, Florida 32801 (Address of principal executive offices, including zip code) (407) 265-7348 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No . Indicate the number of shares outstanding of each of the issuer's classes of common stock as of the latest practicable date. 30,355,096 shares of Common Stock, $0.01 par value, outstanding as of August 11, 2000. COMMERCIAL NET LEASE REALTY, INC. and SUBSIDIARIES CONTENTS Part I Item 1.Financial Statements: Page Condensed Consolidated Balance Sheets...............................1 Condensed Consolidated Statements of Earnings.......................2 Condensed Consolidated Statements of Cash Flows.....................3 Notes to Condensed Consolidated Financial Statements................5 Item 2.Management's Discussion and Analysis of Financial Condition and Results of Operations......................................10 Item 3.Quantitative and Qualitative Disclosures About Market Risk.........13 Part II Other Information.........................................................14 CONDENSED CONSOLIDATED BALANCE SHEETS (dollars in thousands, except per share data)
ASSETS June 30, December 31, 2000 1999 ------------ ------------ Real estate: Accounted for using the operating method, net of accumulated depreciation and amortization of $25,818 and $22,023, respectively $ 541,741 $ 546,193 Accounted for using the direct financing method 123,482 125,491 Investment in unconsolidated subsidiary 1,928 4,502 Investment in unconsolidated partnership 3,852 3,844 Mortgages and accrued interest receivable 17,553 16,241 Mortgages and other receivables from unconsolidated subsidiary 46,723 27,597 Cash and cash equivalents 2,101 3,329 Receivables 1,959 2,119 Accrued rental income 14,631 13,182 Debt costs, net of accumulated amortization of $3,297 and $2,894, respectively 2,575 2,964 Other assets 4,945 4,327 ------------ ------------ Total assets $ 761,490 $ 749,789 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY Line of credit payable $ 121,500 $ 108,700 Mortgages payable 38,360 40,429 Notes payable, net of unamortized discount of $548 and $592, respectively, and unamortized interest rate hedge gain of $2,199 and $2,434, respectively 201,651 201,842 Accrued interest payable 3,100 2,744 Accounts payable and accrued expenses 2,176 1,717 Other liabilities 3,902 2,995 ------------ ------------ Total liabilities 370,689 358,427 ------------ ------------ Stockholders' equity: Preferred stock, $0.01 par value. Authorized 15,000,000 shares; none issued or outstanding - - Common stock, $0.01 par value. Authorized 90,000,000 shares; issued and outstanding 30,355,096 and 30,255,939 shares at June 30, 2000 and December 31, 1999, respectively 303 303 Excess stock, $0.01 par value. Authorized 105,000,000 shares; none issued or outstanding - - Capital in excess of par value 397,399 396,403 Accumulated dividends in excess of net earnings (6,901) (5,344) ------------ ------------ Total stockholders' equity 390,801 391,362 ------------ ------------ $ 761,490 $ 749,789 ============ ============
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS (dollars in thousands, except per share data)
Quarter Ended Six Months Ended June 30, June 30, ----------------------- ----------------------- 2000 1999 2000 1999 ---------- ---------- ---------- ---------- Revenues: Rental income from operating leases $ 14,486 $ 14,404 $ 30,213 $ 28,259 Earned income from direct financing leases 3,299 3,494 6,620 7,138 Contingent rental income 249 300 521 433 Development and asset management fees from related parties 94 460 190 1,504 Interest from unconsolidated subsidiary 754 184 1,365 184 Interest - other 458 243 924 301 Other 244 67 338 163 ---------- ---------- ---------- ---------- 19,584 19,152 40,171 37,982 ---------- ---------- ---------- ---------- Expenses: General operating and administrative 1,236 1,865 2,486 4,204 Real estate expenses 92 78 192 176 Interest 6,233 5,357 12,879 10,134 Depreciation and amortization 2,254 2,060 4,542 4,053 Expenses incurred in acquiring advisor from related party 275 3,239 766 8,167 ---------- --------- ---------- ---------- 10,090 12,599 20,865 26,734 ---------- ---------- ---------- ---------- Earnings before equity in earnings of unconsolidated subsidiary and unconsolidated partnership, and gain on sale of real estate 9,494 6,553 19,306 11,248 Equity in earnings of unconsolidated subsidiary (1,015) (253) (2,276) (253) Equity in earnings of unconsolidated partnership 95 94 188 186 Gain on sale of real estate - 741 - 5,784 ---------- ---------- ---------- ---------- Net earnings $ 8,574 $ 7,135 $ 17,218 $ 16,965 ========== ========== ========== ========== Net earnings per share of common stock: Basic $ 0.28 $ 0.24 $ 0.57 $ 0.56 ========== ========== ========== ========== Diluted $ 0.28 $ 0.23 $ 0.57 $ 0.56 ========== ========== ========== ========== Weighted average number of shares outstanding: Basic 30,353,348 30,369,539 30,339,649 30,205,092 ========== ========== ========== ========== Diluted 30,377,957 30,398,186 30,356,790 30,326,275 ========== ========== ========== ==========
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (dollars in thousands)
Six Months Ended June 30, ----------------------- 2000 1999 ---------- ---------- Cash flows from operating activities: Net earnings $ 17,218 $ 16,965 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization 4,542 4,053 Amortization of notes payable discount 44 12 Amortization of deferred interest rate hedge gain (235) (13) Gain on sale of real estate - (5,784) Expenses incurred in acquiring advisor from related party 766 8,167 Equity in earnings of unconsolidated subsidiary, net of deferred intercompany profits 2,574 253 Distributions (equity in earnings) from unconsolidated partnership net of equity in earnings (distributions) (10) 1 Decrease in real estate leased to others using the direct financing method 995 883 Decrease in leasehold interests 1,455 - Increase in mortgages and accrued interest receivable 155 183 Decrease in receivables 127 1,068 Increase in accrued rental income (1,585) (1,774) Decrease (increase) in other assets 470 (244) Increase in accrued interest payable 356 89 Increase (decrease) in accounts payable and accrued expenses (288) 463 Increase in other liabilities 20 341 ---------- ---------- Net cash provided by operating activities 26,604 24,663 ---------- ---------- Cash flows from investing activities: Proceeds from the sale of real estate 838 40,103 Additions to real estate accounted for using the operating method (1,223) (67,324) Additions to real estate accounted for using the direct financing method - (1,901) Increase in mortgages receivable (417) (3,952) Mortgage payments received 653 58 Increase in mortgages and other receivables from unconsolidated subsidiary (19,404) (4,789) Increase in other assets (395) (351) Other (53) 486 ---------- ---------- Net cash used in investing activities (20,001) (37,670) ---------- ---------- Cash flows from financing activities: Proceeds from line of credit payable 25,600 39,300 Repayment of line of credit payable (12,800) (105,900) Repayment of mortgages payable (2,069) (899) Proceeds from notes payable - 99,608 Proceeds from termination of interest rate hedge - 2,679 Payment of debt costs (14) (735) Proceeds from issuance of common stock 279 1,863 Payment of stock issuance costs - (40) Payment of dividends (18,775) (18,666) Other (52) (229) ---------- ---------- Net cash provided by (used in) financing activities (7,831) 16,981 ---------- ----------
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED (dollars in thousands)
Six Months Ended June 30, ----------------------- 2000 1999 ---------- ---------- Net increase (decrease) in cash and cash equivalents (1,228) 3,974 Cash and cash equivalents at beginning of period 3,329 1,442 ---------- ---------- Cash and cash equivalents at end of period $ 2,101 $ 5,416 ========== ========== Supplemental schedule of non-cash investing and financing activities: Issued 77,470 and 658,222 shares of common stock, respectively, in connection with the acquisition of the Company's advisor $ 766 $ 8,167 ========== ========== Mortgage note accepted in connection with sale of real estate $ 1,425 $ 3,538 ========== ========== Real estate and other assets contributed to unconsolidate subsidiary in exchange for: Non-voting common stock $ - $ 5,700 ========== ========== Mortgage receivable $ - $ 8,064 ========== ==========
1. Basis of Presentation: --------------------- The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and do not include all of the information and note disclosures required by generally accepted accounting principles. The financial statements reflect all adjustments, consisting of normal recurring adjustments, which are, in the opinion of management, necessary for a fair presentation of the results for the interim periods presented. Operating results for the quarter and six months ended June 30, 2000, may not be indicative of the results that may be expected for the year ending December 31, 2000. Amounts as of December 31, 1999, included in the financial statements, have been derived from the audited financial statements as of that date. These unaudited financial statements should be read in conjunction with the financial statements and notes thereto included in the Form 10-K of Commercial Net Lease Realty, Inc. for the year ended December 31, 1999. The consolidated financial statements include the accounts of Commercial Net Lease Realty, Inc. and its wholly-owned subsidiaries (the "Company"). All significant intercompany accounts and transactions have been eliminated in consolidation. Basic earnings per share are calculated based upon the weighted average number of common shares outstanding during each period and diluted earnings per share are calculated based upon weighted average number of common shares outstanding plus dilutive potential common shares. In 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, as amended, is no later than the fourth 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. 2. Leases: ------ The Company generally leases its real estate to operators of major retail businesses. As of June 30, 2000, 180 of the leases have been classified as operating leases and 83 leases have been classified as direct financing leases. For the leases classified as direct financing leases, the building portions of the property leases are accounted for as direct financing leases while the land portions of 47 of these leases are accounted for as operating leases. Substantially all leases have initial terms of 10 to 20 years (expiring between 2001 and 2020) and provide for minimum rentals. In addition, the majority of the leases provide for contingent rentals and/or scheduled rent increases over the terms of the leases. The tenant is also generally required to pay all property taxes and assessments, substantially maintain the interior and exterior of the building and carry insurance coverage for public liability, property damage, fire and extended coverage. The lease options generally allow tenants to renew the leases for two to four successive five-year periods subject to substantially the same terms and conditions as the initial lease. 3. 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"). In May 2000, the Company exercised its option to extend the revolving credit maturity date to July 30, 2001. As of June 30, 2000 and December 31, 1999, the outstanding principal balance was $121,500,000 and $108,700,000, respectively, plus accrued interest of $448,000 and $135,000, respectively. 4. 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:
Quarter Ended Six Months Ended June 30, June 30, ------------------------- ------------------------- 2000 1999 2000 1999 ----------- ----------- ----------- ------------ Basic Earnings Per Share: Net earnings $ 8,574,000 $ 7,135,000 $17,218,000 $16,965,000 =========== =========== =========== =========== Weighted average number of shares outstanding 30,271,506 29,667,539 30,264,824 29,629,587 Merger contingent shares 81,842 702,000 74,825 575,505 ----------- ----------- ----------- ----------- Weighted average number of shares outstanding used in basic earnings per share 30,353,348 30,369,539 30,339,649 30,205,092 =========== =========== =========== =========== Basic earnings per share $ 0.28 $ 0.24 $ 0.57 $ 0.56 =========== =========== =========== =========== Diluted Earnings Per Share: Net earnings $ 8,574,000 $ 7,135,000 $17,218,000 $16,965,000 =========== =========== =========== =========== Weighted average number of shares outstanding 30,271,506 29,667,539 30,264,824 29,629,587 Effect of dilutive securities: Stock options 1,052 10,171 531 7,339 Merger contingent shares 105,399 720,476 91,435 689,349 ----------- ----------- ----------- ----------- Weighted average number of shares outstanding used in diluted earnings per share 30,377,957 30,398,186 30,356,790 30,326,275 =========== =========== =========== =========== Diluted earnings per share $ 0.28 $ 0.23 $ 0.57 $ 0.56 =========== =========== =========== ===========
The following represents the number of options of common stock which were not included in computing diluted earnings per share because their effects were antidilutive:
Quarter Ended Six Months Ended June 30, June 30, ------------------------- ------------------------- 2000 1999 2000 1999 ----------- ----------- ------------ ----------- Antidilutive potential common stock 1,658,663 1,477,755 1,662,294 1,567,772 =========== =========== =========== ===========
5. Related Party Transactions: -------------------------- In connection with the mortgages and other receivables from the Company's unconsolidated subsidiary, Commercial Net Lease Realty Services, Inc. ("Services"), the Company received $1,384,000 and $191,000 in interest and fees during the six months ended June 30, 2000 and 1999, respectively. In addition, Services paid the Company $204,000 and $37,000 in expense reimbursements for accounting services provided by the Company during the six months ended June 30, 2000 and 1999, respectively. In April 2000, the Company entered into the Modification of Amended and Restated Secured Revolving Line of Credit and Security Agreement with Services, which amended Services' existing credit agreement with the Company by (i) increasing the borrowing capacity from $30,000,000 to $50,000,000, and (ii) extending the expiration date to July 30, 2001. In addition, the Company entered into the Modification of Secured Revolving Line of Credit and Security Agreement with a wholly-owned subsidiary of Services, which amended its existing $20,000,000 revolving credit facility with the Company by extending the expiration date to July 30, 2001. 6. Segment Information: ------------------- In June 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and Related Information." This Statement requires that a public business enterprise report financial and descriptive information about its reportable operating segments. Operating segments are components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance. While the Company does not have more than one reportable segment as defined by the Statement, the Company has identified two primary sources of revenue: (i) rental and earned income from the triple net leases and (ii) fee income from development, property management and asset management services. The following tables represent the revenues, expenses and asset allocation for the two segments and the Company's consolidated totals at (dollars in thousands):
Rental and Earned Fee Consolidated Income Income Corporate Totals ------------ ------------ ------------ ------------ June 30, 2000 and for the quarter then ended - ------------------------- Revenues $ 18,673 $ 911 $ - $ 19,584 General operating and administrative expenses 901 44 291 1,236 Real estate expenses 92 - - 92 Interest expense 6,233 - - 6,233 Depreciation and amortization 2,225 25 4 2,254 Expenses incurred in acquiring advisor from related party - - 275 275 Equity in earnings of unconsolidated subsidiary (1,015) - (1,015) Equity in earnings of unconsolidated partnership 95 - - 95 ------------ ------------ ------------ ------------ Net earnings $ 9,317 $ (173) $ (570) $ 8,574 ============ ============ ============ ============ Assets $ 761,325 $ 83 $ 82 $ 761,490 ============ ============ ============ ============ Additions to long-lived assets: Real estate $ 1,089 $ - $ - $ 1,089 ============ ============ ============ ============ Other $ 39 $ 1 $ - $ 40 ============ ============ ============ ============ June 30, 1999 and for the quarter then ended - ------------------------- Revenues $ 18,446 $ 706 $ - $ 19,152 General operating and administrative expenses 1,517 226 122 1,865 Real estate expenses 78 - - 78 Interest expense 5,357 - - 5,357 Depreciation and amortization 2,047 9 4 2,060 Expenses incurred in acquiring advisor from related party - - 3,239 3,239 Equity in earnings of unconsolidated subsidiary - (253) - (253) Equity in earnings of unconsolidated partnership 94 - - 94 Gain on sale of real estate 741 - - 741 ------------ ------------ ------------ ------------ Net earnings $ 10,282 $ 218 $ (3,365) $ 7,135 ============ ============ =========== ============ Assets $ 726,843 $ 39 $ 133 $ 727,015 ============ ============ ============ ============ Additions to long-lived assets: Real estate $ 44,586 $ - $ - $ 44,586 ============ ============ ============ ============ Other $ 23 $ - $ 50 $ 73 ============ ============ ============ ============ June 30, 2000 and for the six months then ended - ---------------------------- Revenues $ 38,494 $ 1,677 $ - $ 40,171 General operating and administrative expenses 1,849 92 545 2,486 Real estate expenses 192 - - 192 Interest expense 12,879 - - 12,879 Depreciation and amortization 4,485 49 8 4,542 Expenses incurred in acquiring advisor from related party - - 766 766 Equity in earnings of unconsolidated subsidiary - (2,276) - (2,276) Equity in earnings of unconsolidated partnership 188 - - 188 ------------ ------------ ------------ ------------ Net earnings $ 19,277 $ (740) $ (1,319) $ 17,218 ============ ============ ============ ============ Assets $ 761,325 $ 83 $ 82 $ 761,490 ============ ============ ============ ============ Additions to long-lived assets: Real estate $ 1,223 $ - $ - $ 1,223 ============ ============ ============ ============ Other $ 68 $ 2 $ - $ 70 ============ ============ ============ ============ June 30, 1999 and for the six months then ended - ---------------------------- Revenues $ 36,161 $ 1,821 $ - $ 37,982 General operating and administrative expenses 3,056 717 431 4,204 Real estate expenses 176 - - 176 Interest expense 10,134 - - 10,134 Depreciation and amortization 4,006 35 12 4,053 Expenses incurred in acquiring advisor from related party - - 8,167 8,167 Equity in earnings of unconsolidated subsidiary - (253) - (253) Equity in earnings of unconsolidated partnership 186 - - 186 Gain on sale of real estate 5,784 - - 5,784 ------------ ------------ ------------ ------------ Net earnings $ 24,759 $ 816 $ (8,610) $ 16,965 ============ ============ ============ ============ Assets $ 726,843 $ 39 $ 133 $ 727,015 ============ ============ ============ ============ Additions to long-lived assets: Real estate $ 69,225 $ - $ - $ 69,225 ============ ============ ============ ============ Other $ 92 $ 81 $ 31 $ 204 ============ ============ ============ ============
7. Subsequent Event: ---------------- In July 2000, the Company declared dividends to its shareholders of $9,410,000 or $0.31 per share of common stock, payable in August 2000. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Introduction - ------------ Commercial Net Lease Realty, Inc. is a fully integrated, self-administrated real estate investment trust that acquires, owns, manages and indirectly, through investment interests, develops high-quality, freestanding properties that are generally leased to major retail businesses under long-term commercial net leases. As of June 30, 2000, Commercial Net Lease Realty, Inc. and its subsidiaries (the "Company") owned, either directly or through a partnership interest, 276 properties (the "Properties") substantially all of which are leased to major retail businesses. Liquidity and Capital Resources - ------------------------------- General. Historically, the Company's only demand for funds has been for the payment of operating expenses and dividends, for property acquisitions and development, either directly or through investment interests, and for the payment of interest on its outstanding indebtedness. Generally, cash needs for items other than property acquisitions and development have been met from operations and property acquisitions and development have been funded by equity and debt offerings, bank borrowings, the sale of Properties and, to a lesser extent, from internally generated funds. Potential future sources of capital include proceeds from the public or private offering of the Company's debt or equity securities, secured or unsecured borrowings from banks or other lenders, proceeds from the sale of Properties, as well as undistributed funds from operations. For the six months ended June 30, 2000 and 1999, the Company generated $26,604,000 and $24,663,000 respectively, in net cash provided by operating activities. The increase in cash from operations for the six months ended June 30, 2000, as compared to the six months ended June 30, 1999, is primarily the result of changes in revenues and expenses as discussed in "Results of Operations." The Company's leases typically provide that the tenant bears responsibility for substantially all property costs and expenses associated with ongoing maintenance and operation including utilities, property taxes and insurance. In addition, the Company's leases generally provide that the tenant is responsible for roof and structural repairs. Certain of the Company's Properties are subject to leases under which the Company retains responsibility for certain costs and expenses associated with the Property. Because many of the Properties which are subject to leases that place these responsibilities on the Company are recently constructed, management anticipates that capital demands to meet obligations with respect to these Properties will be minimal for the foreseeable future and can be met with funds from operations and working capital. The Company may be required to use bank borrowings or other sources of capital in the event of unforeseen significant capital expenditures. In April 2000, the Company entered into the Modification of Amended and Restated Secured Revolving Line of Credit and Security Agreement with the Company's unconsolidated subsidiary, Commercial Net Lease Realty Services, Inc.("Services"), which amended Services' existing credit agreement with the Company by (i) increasing the borrowing capacity from $30,000,000 to $50,000,000, and (ii) extending the expiration date to July 30, 2001. In addition, the Company entered into the Modification of Secured Revolving Line of Credit and Security Agreement with a wholly-owned subsidiary of Services, which amended its existing $20,000,000 revolving credit facility with the Company by extending the expiration date to July 30, 2001. Management believes that the Company's current capital resources (including cash on hand), coupled with the Company's borrowing capacity, are sufficient to meet its liquidity needs for the foreseeable future. Dividends. One of the Company's primary objectives, consistent with its policy of retaining sufficient cash for reserves and working capital purposes and maintaining its status as a real estate investment trust, is to distribute a substantial portion of its funds available from operations to its stockholders in the form of dividends. For the six months ended June 30, 2000 and 1999, the Company declared and paid dividends to its stockholders of $18,775,000 and $18,666,000, respectively, or $0.62 per share of common stock. In July 2000, the Company declared dividends to its shareholders of $9,410,000 or $0.31 per share of common stock, payable in August 2000. Results of Operations - --------------------- As of June 30, 2000 and 1999, the Company owned 267 and 266 wholly-owned Properties, respectively, 263 and 262, respectively, of which were leased to operators of major retail businesses. In addition, during the six months ended June 30, 2000, the Company sold one property which was leased during 2000. During the six months ended June 30, 1999, the Company sold 41 properties which were leased during 1999 and one property which was vacant. During the six months ended June 30, 2000 and 1999, the Company earned $37,354,000 and $35,830,000, respectively, in rental income from operating leases, earned income from direct financing leases and contingent rental income ("Rental Income"), $18,034,000 and $18,198,000 of which was earned during the quarters ended June 30, 2000 and 1999, respectively. The increase in Rental Income during the six months ended June 30, 2000, is primarily a result of the facts that (i) the 36 Properties acquired and 15 buildings upon which construction was completed during 1999 were operational for a full six months in 2000 and (ii) the Company received non-recurring additional rental income of $1,096,000 related to the termination of leases on two of its properties. The decrease in Rental Income for the quarter ended June 30, 2000, as compared to the quarter ended June 30, 1999, is primarily attributable to the decrease in earned income as a result of the sale of one property accounted for using the direct financing method. During the six months ended June 30, 2000 and 1999, the Company earned $190,000 and $1,504,000, respectively, in development and asset management fees, $94,000 and $460,000 of which was earned during the quarters ended June 30, 2000 and 1999, respectively. The fees earned during 2000 were primarily earned by the Company's build-to-suit development operation. In May 1999, the Company transferred its build-to-suit development operation to Commercial Net Lease Realty Services, Inc., a 95 percent owned taxable unconsolidated subsidiary. Development fees earned by Services during the quarter and six months ended June 30, 2000 are included in the Company's equity in earnings of unconsolidated subsidiary. During the six months ended June 30, 2000 and 1999, the Company earned $2,289,000 and $485,000, respectively, in interest income, $1,212,000 and $427,000 of which was earned during the quarters ended June 30, 2000 and 1999, respectively. The increase in interest earned during 2000 is attributable to the interest earned on the mortgages receivable and the mortgages and other receivables from Services issued during 1999. During the six months ended June 30, 2000 and 1999, operating expenses, excluding interest and including depreciation and amortization, were $7,986,000 and $16,600,000, respectively, (19.9% and 43.7%, respectively, of total revenues) $3,857,000 and $7,242,000 (19.7% and 37.8%, respectively, of total revenues) of which was incurred during the quarters ended June 30, 2000 and 1999, respectively. The decrease in operating expenses for the quarter and six months ended June 30, 2000, as compared to the quarter and six months ended June 30, 1999, is attributable to the decrease in charges related to the costs incurred in acquiring the Company's external advisor from a related party and the decrease in general operating and administrative expenses as a result of the transfer of the Company's build-to-suit development operation to Services. The decrease in operating expenses was partially offset by an increase in depreciation and amortization expense as a result of a full quarter and six months of depreciation and amortization expense relating to the 36 Properties and 15 buildings acquired during 1999. The increase in depreciation and amortization expense was partially offset by a decrease in depreciation and amortization expense related to the sale of 42 properties during the six months ended June 30, 1999. The Company recognized $12,879,000 and $10,134,000 in interest expense for the six months ended June 30, 2000 and 1999, respectively, $6,233,000 and $5,357,000 of which was incurred during the quarters ended June 30, 2000 and 1999, respectively. Interest expense increased during the quarter and six months ended June 30, 2000, primarily as a result of the higher average interest rate on the Company's Credit Facility and the interest incurred related to the issuance of the $100,000,000 in notes payable in June 1999. However, the increase was partially offset by a decrease in the average borrowing levels of the Company's Credit Facility and the maturity of a $13,150,000 mortgage payable in December 1999. In May 1999, Services was formed to enable the Company to perform additional development, leasing and disposition services. The Company accounts for its investment in Services under the equity method, and therefore, recognizes 95 percent of the income or loss of Services as equity in earnings of unconsolidated subsidiary. The net losses incurred by Services for the quarter and six months ended June 30, 2000 are primarily due to the nature of the development, leasing and real estate disposition business which provides for revenue recognition upon completion of construction, leasing or disposition of the real estate, while many of the related expenses are recognized as incurred. Investment Considerations. This information contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Although the Company believes that the expectations reflected in such forward-looking statements are based upon reasonable assumptions, the Company's actual results could differ materially from those set forth in the forward-looking statements. Certain factors that might cause a difference include the following: changes in general economic conditions, changes in real estate market conditions, continued availability of proceeds from the Company's debt or equity capital, the ability of the Company to locate suitable tenants for its Properties and the ability of tenants to make payments under their respective leases. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK There have been no material changes in quantitative and qualitative disclosures about market risk as previously reported in the Form 10-K for the year ended December 31, 1999. PART II. OTHER INFORMATION Item 1. Legal Proceedings. No material developments in legal proceedings as previously reported on the Form 10-K for the year ended December 31, 1999. Item 2. Changes in Securities and Use of Proceeds. Not applicable. Item 3. Defaults Upon Senior Securities. Not applicable. Item 4. Submission of Matters to a Vote of Security Holders. On June 16, 2000, the Company held its Annual Meeting of Shareholders (the "Annual Meeting"). At the Annual Meeting, the following nominees were elected to the Board of Directors of the Company: Messrs. Robert A. Bourne (25,175,064 for and 762,788 withheld), Edward Clark (25,147,194 for and 790,658 withheld), Kevin B. Habicht (25,590,569 for and 347,283 withheld), Clifford R. Hinkle (25,555,662 for and 382,190 withheld), Richard B. Jennings (25,562,160 for and 375,692 withheld), Ted B. Lanier (25,583,914 for and 353,938 withheld), Gary M. Ralston (25,590,171 for and 347,681 withheld) and James M. Seneff, Jr. (24,088,935 for and 1,848,917 withheld). In addition, the shareholders voted to approve the 2000 Performance Incentive Plan (14,060,779 for, 1,542,265 against and 314,735 abstain). Item 5. Other Information. Not applicable. Item 6. Exhibits and Reports on Form 8-K. (a) The following exhibits are filed as a part of this report. 3.1 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). 3.2 Bylaws of the Registrant (filed as Exhibit 3.3(ii) to Amendment No. 2 to the Registrant's Registration Statement No. 1-11290 on Form 8-B, and incorporated herein by reference). 4.1 Specimen Certificate of Common stock, par value $0.01 per share, of the Registrant (filed as Exhibit 3.4 to the Registrant's Registration Statement No. 1-11290 on Form 8-B, and incorporated herein by reference). 4.2 Form of Indenture dated March 25, 1998, by and among Registrant and First Union National Bank, Trustee, relating to $100,000,000 of 7.125% Notes due 2008 and $100,000,000 of 8.125% Notes due 2004 (filed as Exhibit 4.1 to the Registrant's Current Report on Form 8-K dated March 20, 1998, and incorporated herein by reference). 4.3 Form of Supplemental Indenture No. 1 dated March 25, 1998, by and among Registrant and First Union National Bank, Trustee, relating to $100,000,000 of 7.125% Notes due 2008 (filed as Exhibit 4.2 to the Registrant's Current Report on Form 8-K dated March 20, 1998, and incorporated herein by reference). 4.4 Form of 7.125% Notes due 2008 (filed as Exhibit 4.3 to the Registrant's Current Report on Form 8-K dated March 20, 1998, and incorporated herein by reference). 4.5 Form of Supplemental Indenture No. 2 dated June 21, 1999, by and among Registrant and First Union National Bank, Trustee, relating to $100,000,000 of 8.125% Notes due 2004 (filed as Exhibit 4.2 to the Registrant's Current Report on Form 8-K dated June 17, 1999, and incorporated herein by reference). 4.6 Form of 8.125% Notes due 2004 (filed as Exhibit 4.3 to the Registrant's Current Report on Form 8-K dated June 17, 1999, and incorporated herein by reference). 10.1 Letter Agreement dated July 10, 1992, amending Stock Purchase Agreement dated January 23, 1992 (filed as Exhibit 10.34 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 1992, and incorporated herein by reference). 10.2 Advisory Agreement between Registrant and CNL Realty Advisors, Inc. effective as of April 1, 1993 (filed as Exhibit 10.04 to Amendment No. 1 to the Registrant's Registration Statement No. 33-61214 on Form S-2, and incorporated herein by reference). 10.3 1992 Commercial Net Lease Realty, Inc. Stock Option Plan (filed as Exhibit No. 10(x) to the Registrant's Registration Statement No. 33-83110 on Form S-3, and incorporated herein by reference). 10.4 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). 10.5 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). 10.6 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). 10.7 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). 10.8 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). 10.9 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). 10.10 Fifth Amended and Restated Line of Credit and Security Agreement, dated September 23, 1999, by and among Registrant, certain lenders and First Union National Bank, as the Agent, relating to a $200,000,000 loan (filed herewith). 27 Financial Data Schedule (filed herewith). (b) No reports on Form 8-K were filed during the quarter ended June 30, 2000. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. DATED this 11th day of August, 2000. COMMERCIAL NET LEASE REALTY, INC. By: /s/ Gary M. Ralston ------------------- Gary M. Ralston President and Director By: /s/ Kevin B. Habicht -------------------- Kevin B. Habicht Chief Financial Officer and Director EX-27 2 0002.txt COMMERCIAL NET LEASE REALTY, INC.
5 This schedule contains summary financial information extracted from the balance sheet of Commercial Net Lease Realty, Inc. at June 30, 2000, and its statement of earnings for the six months ended and is qualified in its entirety by reference to the Form 10-Q of Commercial Net Lease Realty, Inc. for the six months ended June 30, 2000. 6-MOS DEC-31-2000 JAN-1-2000 JUN-30-2000 2,101,000 0 1,959,000 0 0 0 567,559,000 25,818,000 761,490,000 0 0 303,000 0 0 390,498,000 761,490,000 0 40,171,000 0 0 7,786,000 0 12,879,000 17,218,000 0 17,218,000 0 0 0 17,218,000 0.57 0.57 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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