10-K

UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549 FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934. For the fiscal year ended December 31, 2003. 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 (State or other jurisdiction of incorporation or organization)	56-1431377 (I.R.S. Employer Identification No.)
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 Common Stock, $0.01 par value 9% Non-Voting Series A Preferred Stock 6.70% Non-Voting Series B Preferred Stock 7.125% Notes due 2008 8.125% Notes due 2004 8.500% Notes due 2010 7.750% Notes due 2012	Name of exchange on which registered: New York Stock Exchange New York Stock Exchange None None None None 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. [  ]
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act): Yes    X     No        .
The aggregate market value of voting common stock held by non-affiliates of the registrant as of June 30, 2003 was $635,375,131.
The aggregate market value of voting common stock held by non-affiliates of the registrant as of February 28, 2004 was $918,966,296.
The number of shares of common stock outstanding as of February 28, 2004 was 50,970,914.

DOCUMENTS INCORPORATED BY REFERENCE:

1.	Registrant incorporates by reference portions of the Commercial Net Lease Realty, Inc. Annual Report to Shareholders for the fiscal year ended December 31, 2003 (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 2004 Annual Meeting of Shareholders (Items 10, 11, 12, 13 and 14 of Part III).

PART I

Item 1.    Business

Commercial Net Lease Realty, Inc., a Maryland corporation is a fully integrated, self-administered real estate investment trust (“REIT”) formed in 1984. Commercial Net Lease Realty, Inc. and its wholly-owned subsidiaries (collectively, the “Registrant” or the “Company”), acquires, owns, manages and indirectly, through investment interests, develops primarily single-tenant retail, office and industrial properties that are generally leased under long-term commercial net leases. The Company’s executive offices are located at 450 S. Orange Avenue, Suite 900, Orlando, Florida 32801, and its telephone number is (407) 265-7348. The Company has an internet website at www.nnnreit.com where the Company’s filings with the Securities and Exchange Commission can be downloaded free of charge.

The Company’s strategy is to invest primarily in single-tenant, retail, office and industrial properties 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 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 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, potential use of sale proceeds and federal income tax considerations.

Properties

As of December 31, 2003, the Company owned 339 properties (the “Properties”) that are leased to established tenants, including Academy, Barnes & Noble, Bennigan’s, Best Buy, Borders, Eckerd, Jared Jewelers, OfficeMax, The Sports Authority and the United States of America. Approximately 97 percent of the gross leasable area of the Company’s portfolio of Properties was leased at December 31, 2003.

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. Certain of the Company’s Properties, including the two office buildings acquired during 2003 (see “Item 2. Properties”), are subject to leases under which the Company retains responsibility for certain costs and expenses associated with the Property. 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 2003, one of the Company’s lessees, Eckerd Corporation, accounted for more than 10 percent of the Company’s total rental income (including the Company’s share of rental income from nine properties owned by one of the Company’s unconsolidated affiliates). As of December 31, 2003, Eckerd Corporation leased 52 properties (including three properties under leases with one of the Company’s unconsolidated affiliates). Based on the minimum rental payments required by the leases, Eckerd Corporation may continue to account for more than 10 percent of the Company’s total rental income in 2004. In August 2003, the Company entered into lease agreements with the United States of America, which the Company expects to account for more than 10 percent of the Company’s total rental income in future years. Any failure of these lessees to make the lease payments when they are due could materially affect the Company’s income.

Investments in Consolidated Subsidiaries

During its course of business, the Company has formed or acquired 21 wholly-owned subsidiaries primarily to facilitate the acquisition and development of real estate of certain properties. Some of the subsidiaries were formed to hold an interest in certain of the Company’s unconsolidated affiliates. Each of the wholly-owned subsidiaries is a qualified real estate investment trust subsidiary as defined under the Internal Revenue Code Section 856(i)(2).

Investments in Unconsolidated Affiliates

In May 1999, the Company transferred its build-to-suit development operation to a 95 percent owned, taxable unconsolidated subsidiary, Commercial Net Lease Realty Services, Inc. (“Services”). The Company contributed $5,700,000 of real estate and other assets to Services in exchange for shares of non-voting common stock. In connection with its contribution, the Company received a 95 percent, non-controlling interest in Services and was entitled to receive 95 percent of the dividends paid by Services. On December 31, 2001, the Company contributed an additional $20,042,000 of real estate. As a result of its additional contribution, effective January 1, 2002, the Company holds a 98.7 percent, non-controlling interest in Services and is entitled to receive 98.7 percent of the dividends paid by Services. Gary M. Ralston, James M. Seneff, Jr. and Kevin B. Habicht, each of which are officers and directors of the Company, own the remaining 1.3 percent interest, which is 100 percent of the voting interest in Services. The Company has a secured line of credit agreement with Services for a $35,000,000 revolving credit facility. The credit facility is secured by a first mortgage on Services’ properties. In addition, the Company has lines of credit and security agreements with wholly-owned subsidiaries of Services for an aggregate amount of $115,000,000 of revolving credit facilities and is secured by a pledge of the real estate and/or the other assets owned by the respective borrower. Collectively, these agreements provide an aggregate borrowing capacity of $150,000,000 to Services and its wholly-owned subsidiaries and each agreement has an expiration date of May 9, 2006. Services primarily acquires, develops, leases and sells freestanding net leased properties. The Company accounts for its interest in Services and its wholly-owned subsidiaries under the equity method of accounting.

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, Trustee of the Retirement Plan for the Chicago Transit Authority Employees (“CTA”) to acquire, own and manage nine properties. Net Lease Realty III, Inc. was 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 Limited Partnership Agreement (“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 $12,000,000 non-recourse mortgage on the Partnership’s nine properties in September 1997 at a 7.37% interest rate.

As of December 31, 2003, the Partnership owned nine properties (the “Partnership Properties”) leased to eight tenants. Generally, the leases of the Partnership Properties provide for initial terms of 15 to 20 years with annual base rent ranging from $100,000 to $730,000 and building sites ranging from 11,000 to 70,000 square feet. The Partnership Properties are generally 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.

Under the terms of the Agreement, CTA had the right to convert its 80 percent interest into shares of the Company’s common stock. In October 2003, CTA exercised that right and based on the terms and calculation defined in the Agreement, the Company issued 953,551 shares of common stock to CTA in a private transaction in February 2004.

The Company has entered into five limited liability company (“LLC”) agreements between June 2001 and July 2003, with CNL Commercial Finance, Inc. (“CCF”), a related party. Each of the LLCs holds an interest in mortgage loans and is 100 percent equity financed. The Company holds a non-voting and non-controlling interest in each of the LLCs ranging from 36.7 to 44.0 percent and accounts for its interests under the equity method of accounting. In 2003, in connection with a loan to CCF from an affiliate of James M. Seneff, Jr., an officer and director of the Company, the Company pledged a portion of its interest in two of the LLCs as partial collateral for the loan.

In May 2002, the Company contributed cash to purchase a combined 25 percent partnership interest in CNL Plaza, Ltd. and CNL Plaza Venture, Ltd. (collectively, “Plaza”), which owns a 346,000 square foot office building and an interest in an adjacent parking garage. Affiliates of James M. Seneff, Jr., an officer and director of the Company, and Robert A. Bourne, a member of the Company’s board of directors, own the remaining partnership interests. The Company accounts for its 25 percent interest in the Plaza under the equity method of accounting. Since November 1999, the Company has leased its office space from Plaza. The Company’s lease expires in October 2014. In addition, the Company has severally guaranteed 41.67% of a $15,500,000 promissory note on behalf of Plaza. The maximum obligation to the Company is $6,458,300 plus interest. Interest accrues at a rate of LIBOR plus 200 basis point per annum on the unpaid principal amount. This guarantee shall continue through the loan maturity in November 2004. Plaza intends to renew the promissory note in 2004.

Advisory Services

In January 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. The Company has issued the entire Share Balance as of December 31, 2001. 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 Company’s agreement with its Advisor and the obligation of the Company to pay any fees there under 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.

Merger

In December 2001, the Company acquired 100 percent of Captec Net Lease Realty, Inc. (“Captec”), a publicly traded real estate investment trust, which owned 135 freestanding, net lease properties located in 26 states. Captec shareholders had the right to receive $11,839,000 in cash, 4,349,918 newly issued shares of the Company’s common stock and 1,999,974 newly issued shares of the Company’s 9% Series A Preferred Stock. The merger was accounted for under the purchase method of accounting. Under the purchase method of accounting, the merger acquisition price of $124,722,000 was allocated to the assets acquired and liabilities assumed at their fair values. As a result, the Company did not record goodwill.

In January 2002, beneficial owners of shares of Captec stock held of record by Cede & Co. who alleged that they did not vote for the merger (and who alleged that they caused a written demand for appraisal of their Captec shares to be served on Captec), filed in the Chancery Court of the State of Delaware in and for New Castle County a Petition for Appraisal of Stock (“Appraisal Action”). The Appraisal Action alleged that 1,037,946 shares of Captec dissented from the merger and sought to require the Company to pay to all Captec stockholders who demanded appraisal of their shares the fair value of those shares, with interest from the date of the merger. Appraisal Action also sought to require the Company to pay all costs of the proceeding, including fees and expenses for plaintiff’s attorneys and experts. As a result of this action, the plaintiffs were not entitled to receive the Company’s common and Series A Preferred Stock shares as offered in the original merger consideration. Accordingly, the Company reduced the number of common and Series A Preferred Stock shares issued and outstanding by 474,037 and 217,950, respectively, which represents the number of shares that would have been issued to the plaintiffs had they accepted the original merger consideration. In 2003, the Company further reduced the number of common and Series A Preferred Stock shares issued and outstanding by 824 and 379, respectively. As of December 31, 2002, the Company had recorded the value of these shares at the original consideration share price in addition to the cash portion of the original merger consideration as other liabilities totaling $13,278,000. In February 2003, the Company entered into a settlement agreement with the beneficial owners of the alleged 1,037,946 dissenting shares (including the petitioners in the Appraisal Action) which required the Company to pay $15,569,000, which approximated the value of the original merger consideration (which included cash, common stock and Series A Preferred Stock shares) at the time of the litigation settlement plus the dividends that would have been paid if the shares had been issued at the time of the merger. On February 13, 2003, the parties filed a stipulation and order of dismissal and the Court entered the order of dismissal, dismissing the Appraisal Action with prejudice.

Competition

The Company generally competes with other REITs, 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 properties. Over 60 other publicly traded REITs own, manage or develop retail, office or industrial properties.

Employees

As of December 31, 2003, the Company employed 44 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, 2003, the Company owned 339 Properties located in 39 states, of which 97 percent of the gross leasable area is leased to established retail and office 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 Retail and Office Properties

Retail Properties

Land.     The Company’s retail Property sites range from approximately 15,000 to 774,000 (average of 110,000) 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 $73,000 to $8,882,000 (average of $1,134,000).

Buildings.     The buildings generally are single-story structures constructed from various combinations of stucco, steel, wood, brick and tile. Building sizes range from approximately 1,000 to 135,000 (average of 21,000) square feet. Building costs range from $44,000 to $9,170,000 (average of $1,622,000) for each retail Property, depending upon the size of the building and the site and the area in which the Property is located. Generally, the retail 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, 2003, the weighted average remaining lease term was approximately 11 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 $23,000 to $1,248,000 (average of $264,000). 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 two to 12 percent after every one to 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 for the respective location, less the amount of annual base rent payable in that lease year. As of December 31, 2003, 83 percent of the Company’s annualized base rent was derived from retail Properties, with leases representing approximately: (i) 80 percent of annual base rent include contractual increases, (ii) 25 percent of annual base rent include percentage rent provisions and (iii) 15 percent of annual base rent include both contractual and percentage rent provisions.

Generally, the leases of the Properties provide the tenant with one, 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.

Certain of the Company’s Properties have leases that provide the tenant with a purchase option to acquire the Property from the Company. The purchase price calculations are generally stated in the lease agreement or are based on current market value.

Office Properties

In August 2003, the Company acquired two office buildings and a related parking garage in the Washington, D.C. metropolitan area (“Office Properties”), for $142,800,000. In addition, the Company has agreed to fund an additional $26,544,000 for building and tenant improvements, and other costs related to the lease. As of December 31, 2003, the Company had funded $11,438,000 of these improvements. These properties include two office buildings which have an aggregate of 555,000 rentable square feet (505,000 usable square feet for purposes of calculating rent) and a two-level garage with 1,079 parking spaces. The Office Properties are leased substantially to The United States of America (“USA”) to be used as the headquarters of the Transportation Security Administration. The lease was executed in December 2002 and USA began occupying space in the buildings in phases beginning in January 2003. The lease will expire in 2014. USA executed a modified net lease (i.e., the landlord pays certain property related operating costs), that commenced for a portion of the properties in December 2002. Once fully occupied, USA will pay approximately $18,300,000 in annual rent for the Office Properties. USA is responsible for the actual amount of real estate taxes above the base year amount and increases in operating expenses above an expected base year amount, subject to a consumer price index cap. As landlord, the Company is responsible for property insurance.

General

During 2003, one of the Company’s lessees, Eckerd Corporation (a retail drugstore chain that is a wholly-owned subsidiary of J.C. Penney Company, Inc.) accounted for more than 10 percent of the Company’s total rental income (including the Company’s share of rental income from the Partnership Properties). As of December 31, 2003, Eckerd Corporation leased 52 properties (including three properties under leases with the Partnership), representing nine percent of the Company’s 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 17 (Roll forward of Restructuring Reserves) and Note 20 (Segment Reporting) of the Notes to the Financial Statements, as filed with the Securities and Exchange Commission for the year ended January 25, 2003.

The Company generally competes with other REITs, 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 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, generally 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 contamination or potential contamination 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 18 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 was a defendant in a lawsuit filed in December 1998 in the United States District Court for the District of Puerto Rico. The plaintiff, Ysiem Corporation, alleged that the Company was in breach of a ground lease agreement with the plaintiff regarding a land parcel owned by the plaintiff and was seeking damages of $7,500,000 and/or specific performance of the execution of the ground lease. In January 2002, the District Court Judge granted the Company’s motion for summary judgment of dismissal of the action. The plaintiff subsequently appealed the summary judgment to the U.S. First Circuit Court of Appeals. In May 2003, the U.S. First Circuit Court of Appeals affirmed the dismissal and that dismissal is now final.

In January 2002, Calapasas Investment Partnership No. 1 Limited Partnership (“Calapasas”), a Captec stockholder, filed a class action complaint against Captec, certain former Captec directors, and the Company (as successor in interest to Captec) in the United States District Court for the Northern District of California. In its complaint Calapasas alleged that Captec and certain of its directors violated provisions of the Securities and Exchange Act of 1934 by misrepresenting the value of certain Captec assets on certain of its financial statements in 2000 and 2001 (the “Calapasas Action”). The Calapasas Action asserts that it is brought on behalf of a class consisting of all persons and entities (except insiders) that purchased Captec common stock between August 9, 2000 and prior to July 2, 2001. The Calapasas Action seeks to be certified as a class action and seeks compensatory and punitive damages for the plaintiff and other members of the class, as well as costs and expenses, including fees for plaintiff’s attorneys, accountants and experts. The Calapasas Action could result in damage awards against Captec and/or its directors, damages for which the Company, as successor in interest to Captec, could be responsible. In October 2002, the Calapasas Action was dismissed by the Court with leave to amend. A Second Amended Complaint was filed by Calapasas Investment Partnership No. 1 Limited Partnership in November 2002, which, among other things, reduced the alleged plaintiff class to those persons and entities (except insiders) who purchased common stock of Captec between March 30, 2001 and July 2, 2001. A Motion to Dismiss the Second Amended Complaint was filed by the defendants in December 2002. In August 2003, the Motion to Dismiss the Second Amended Complaint was denied by the court. In October 2003, the parties to the litigation, through their respective counsel, entered into a Memorandum of Understanding which sets out the essential terms of settlement of this claim. Pursuant to the Memorandum of Understanding, the total settlement amount to be paid to the plaintiffs is $225,000, which includes payment of attorneys’ fees and costs to plaintiffs’ counsel. The settlement contemplated by the Memorandum of Understanding is subject to final judicial approval of all settlement terms and a final judgment of dismissal with prejudice of the Calapasas Action.

In the ordinary course of its business, the Company is a party to various other legal actions which management believes is routine in nature and incidental to the operation of the business of the Company. Management believes that the outcome of the proceedings will not have a material adverse effect upon its operations or financial condition.

Item 4.    Submission of Matters to a Vote of Security Holders

None.

PART II

Item 5.    Market for Registrant’s Common Equity and Related Stockholder Matters

Certain information responsive to this Item is contained in the section captioned “Share Price and Dividend Data” on page 73 of the Registrant’s Annual Report to Shareholders for the year ended December 31, 2003; the information in such section is filed as an exhibit to this report and the cited portion of which is incorporated herein by reference.

Reference is made to the Registrant’s definitive proxy statement to be filed with the Commission pursuant to Regulation 14(a); certain information responsive to this Item is contained in the section thereof captioned “Executive Compensation – Equity Compensation Plan Information,” and the information in such section is incorporated herein by reference.

Item 6.    Selected Financial Data

Certain information responsive to this Item is contained in the section captioned “Historical Financial Highlights” on pages 8 and 9 of the Registrant’s Annual Report to Shareholders for the year ended December 31, 2003; the information in such section is filed as an exhibit to this report and the cited portion of which is incorporated herein by reference. For a discussion of material events affecting the comparability of the information reflected in the selected financial data, refer to the section captioned “Management’s Discussion and Analysis of Financial Condition and Results of Operations” on pages 14 through 36 of the Registrant’s Annual Report to Shareholders for the year ended December 31, 2003. 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 36 of the Registrant’s Annual Report to Shareholders for the year ended December 31, 2003; 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 35 and 36 of the Registrant’s Annual Report to Shareholders for the year ended December 31, 2003; 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 72 of the Registrant’s Annual Report to Shareholders for the year ended December 31, 2003; 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, 2003, are incorporated herein by reference.

Item 9.    Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None.

Item 9A.    Controls and Procedures

Quarterly Evaluation. The Company carried out an evaluation as of December 31, 2003 of the effectiveness of the design and operation of its “disclosure controls and procedures,” which the Company refers to as disclosure controls. This evaluation was done under the supervision and with the participation of management, including the Company’s Chief Executive Officer and Chief Financial Officer. Rules adopted by the Commission require the Company present the conclusions of the Chief Executive Officer and Chief Financial Officer about the effectiveness of the Company’s disclosure controls as of the end of the period covered by this annual report.

CEO and CFO Certifications. Included as Exhibits 31.1, 31.2 and 31.3 to this Annual Report on Form 10-K are forms of “Certification” of the Company’s Chief Executive Officer and Chief Financial Officer. The forms of Certification are required in accordance with Section 302 of the Sarbanes-Oxley Act of 2002. This section of the Annual Report on Form 10-K which you are currently reading is the information concerning the evaluation referred to in the Section 302 certifications. This information should be read in conjunction with the Section 302 certifications for a more complete understanding of the topics presented.

Disclosure Controls and Procedures and Internal Control over Financial Reporting. Disclosure controls and procedures are designed with the objective of ensuring that information required to be disclosed in our reports filed or submitted under the Exchange Act, such as this Annual Report on Form 10-K, is recorded, processed, summarized and reported within the time periods specified in the Commission’s rules and forms. Disclosure controls and procedures are also designed with the objective of ensuring that such information is accumulated and communicated to the Company’s management, including the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

Internal control over financial reporting is a process designed by, or under the supervision of, the Company’s Chief Executive Officer and Chief Financial Officer, and effected by the Company’s board of directors (the “Directors”), management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:

• pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the Company’s assets;

• provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that the Company’s receipts and expenditures are being made only in accordance with authorizations of management or the Directors; and

• provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material adverse effect on the Company’s financial statements.

Limitations on the Effectiveness of Controls. Management, including the Company’s Chief Executive Officer and Chief Financial Officer, do not expect that our disclosure controls and procedures or the Company’s internal control over financial reporting will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management’s override of the control. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

Conclusions. Based upon the evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that, as of December 31, 2003 and subject to the limitations noted above, the Company’s disclosure controls and procedures were effective at the reasonable assurance level to ensure that material information relating to the Company and its consolidated subsidiaries is made known to management, including the Chief Executive Officer and Chief Financial Officer.

During the three months ended December 31, 2003, there were no significant changes in the Company’s internal control over financial reporting that has materially affected, or are reasonably likely to materially affect, the Company’s internal control for financial reporting.

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,” “Proposal I: Election of Directors – Executive Officers,” “Proposal I: Election of Directors – Code of Business Conduct” 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,” “Executive Compensation,” “Compensation Committee Report” and “Performance Graph,” 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 “Executive Compensation – Equity Compensation Plan Information,” “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.

Item 14.    Principal Accounting Fees and Services

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 “Audit Committee Report,” and the information in such section is incorporated herein by reference.

PART IV
Item 15.	Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a)	The following documents are filed as a part of this report.
	(1)	Financial Statements
		Independent Auditors' Report
		Consolidated Balance Sheets as of December 31, 2003 and 2002
		Consolidated Statements of Earnings for the years ended December 31, 2003, 2002 and 2001
		Consolidated Statements of Stockholders' Equity for the years ended December 31, 2003, 2002 and 2001
		Consolidated Statements of Cash Flows for the years ended December 31, 2003, 2002 and 2001
		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 and Notes as of December 31, 2003
		Schedule IV - Mortgage Loans on Real Estate and Notes as of December 31, 2003
		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.	Articles of Incorporation and By-laws
			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	Articles Supplementary Establishing and Fixing the Rights and Preferences of a Series of Preferred Stock (9% Series A Non-Voting Preferred Stock, par value $0.01 per share (the “Series A Preferred Stock”) (filed as Exhibit 3 to the Registrant’s Form 8-A dated November 26, 2001 and filed with the Securities and Exchange Commission on November 27, 2001, and incorporated herein by reference).
			3.3	Articles Supplementary Classifying and Designating 10,000 Preferred Shares as the Series B Preferred Stock (filed as Exhibit 3 to the Registrant’s Form 8-A dated August 12, 2003 and filed with the Securities and Exchange Commission on August 13, 2003, and incorporated herein by reference).
			3.4	Amended and Restated Bylaws of the Registrant (filed herewith).
		4.	Instruments defining the rights of security holders, including indentures
			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).
			4.7	Form of Supplemental Indenture No. 3 dated September 20, 2000, by and among Registrant and First Union National Bank, Trustee, relating to $20,000,000 of 8.5% Notes due 2010 (filed as Exhibit 4.2 to the Registrant’s Current Report on Form 8-K dated September 20, 2000, and incorporated herein by reference).
			4.8	Form of 8.5% Notes due 2010 (filed as Exhibit 4.3 to the Registrant’s Current Report on Form 8-K dated September 20, 2000, and incorporated herein by reference).
			4.9	Form of Supplement Indenture No. 4 dated May 30, 2002, by and among Registrant and Wachovia Bank, National Association, Trustee, relating to $50,000,000 of 7.75% Notes due 2012 (filed as Exhibit 4.2 to the Registrant’s Current Report on Form 8-K dated June 4, 2002, and incorporated herein by reference).
			4.10	Form of 7.75% Notes due 2012 (filed as Exhibit 4.3 to the Registrant’s Current Report on Form 8-K dated June 4, 2002 and incorporated herein by reference).
			4.11	Articles Supplementary Establishing and Fixing the Rights and Preferences of a Series of Preferred Stock (the Series A Preferred Stock) (filed as Exhibit 3 to the Registrant’s Form 8-A dated November 26, 2001 and filed with the Securities and Exchange Commission on November 27, 2001, and incorporated herein by reference).
			4.12	Specimen Stock Certificate relating to the Series A Preferred Stock (filed as Exhibit 4 to the Registrant’s Form 8-A dated November 26, 2001 and filed with the Securities and Exchange Commission on November 27, 2001, and incorporated herein by reference).
			4.13	Articles Supplementary Classifying and Designating 10,000 Preferred Shares as the Series B Preferred Stock (filed as Exhibit 3 to the Registrant’s Form 8-A dated August 12, 2003 and filed with the Securities and Exchange Commission on August 13, 2003, and incorporated herein by reference).
			4.14	Investment Agreement between the Registrant and The County Employees’ and Officers’ Annuity & Benefit Fund of Cook County dated August 12, 2003 (filed as Exhibit 2 to the Registrant’s Form 8-A dated August 12, 2003 and filed with the Securities and Exchange Commission on August 13, 2003, and incorporated herein by reference).
			4.15	Specimen Stock Certificate relating to the Series B Preferred Stock (filed as Exhibit 4 to the Registrant’s Form 8-A dated August 12, 2003 and filed with the Securities and Exchange Commission on August 13, 2003,and incorporated herein by reference).
		10.	Material Contracts
			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	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).
			10.3	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).
			10.4	Agreement and Plan of Merger dated May 15, 1997, by and among Commercial Net Lease Realty, Inc., Net Lease Realty II, Inc., 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).
			10.5	2000 Performance Incentive Plan (filed as Exhibit 99 to the Registrant’s Registration Statement No. 333-64794 on Form S-8 and incorporated herein by reference).
			10.6	Third Renewal Promissory Note dated as of April 1, 2001, by Commercial Net Lease Realty Services, Inc. in favor of Registrant relating to an $85,000,000 line of credit (filed as Exhibit 10.13 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2001, and incorporated herein by reference).
			10.7	Third Modification of Amended and Restated Secured Revolving Line of Credit and Security Agreement and Other Loan Documents effective as of April 1, 2001, by and between Registrant as lender and Commercial Net Lease Realty Services, Inc., as borrower, relating to an $85,000,000 line of credit (filed as Exhibit 10.14 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2001, and incorporated herein by reference).
			10.8	Fourth Modification of Amended and Restated Secured Revolving Line of Credit and Security Agreement and Other Loan Documents effective as of July 1, 2001, by and between Registrant as lender and Commercial Net Lease Realty Services, Inc., as borrower, relating to an $85,000,000 line of credit (filed as Exhibit 10.15 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2001, and incorporated herein by reference).
			10.9	Agreement and Plan of Merger, dated as of July 1, 2001, among Commercial Net Lease Realty, Inc. and Captec Net Lease Realty, Inc. (filed as Exhibit 99.1 to the Registrant’s Current Report on Form 8-K dated July 3, 2001, and incorporated herein by reference).
			10.10	Seventh Amended and Restated Line of Credit and Security Agreement, dated May 9, 2003, by and among Registrant, certain lenders and Wachovia Bank, N.A., as the Agent, relating to a $225,000,000 loan (filed as Exhibit 10.11 to the Registrant’s Current Report on Form 8-K dated July 11, 2003, and incorporated herein by reference).
			10.11	Real Estate Purchase Contract, dated as of July 23, 2003, by and between MCI Worldcom Network Services, Inc. and the Company (filed as Exhibit 10.1 to the Registrant’s Current Report on Form 8-K dated July 25, 2003, and incorporated herein by reference).
			10.12	U.S. Government Lease for Real Property, dated as of December 17, 2002, between MCI Worldcom Network Services, Inc. and the United States of America (filed as Exhibit 10.2 to the Registrant’s Current Report on Form 8-K dated July 25, 2003, 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, 2003 (filed herewith).
		23.	Consent of Independent Accountants dated March 10, 2004 (filed herewith).
		31.	Section 302 Certifications
			31.1	Certification of Chief Executive Officer (Craig Macnab - as of February 16, 2004) pursuant to Rule 13a-14, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith).
			31.2	Certification of Chief Executive Officer (James M. Seneff, Jr. - prior to February 16, 2004) pursuant to Rule 13a-14, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith).
			31.3	Certification of Chief Financial Officer pursuant to Rule 13a-14, as adopted pursuantto Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith).
		32.	Section 906 Certifications
			32.1	Certification of Chief Executive Officer (Craig Macnab - as of February 16, 2004) pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith).
			32.2	Certification of Chief Executive Officer (James M. Seneff, Jr. - prior to February 16, 2004) pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith).
			32.3	Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith).
	(b)	The Registrant filed the following reports on Form 8-K during the quarter ended December 31, 2003:
		1.	November 4, 2003 for the purpose of filing under Items 7 (Financial Statements and Exhibits) and 12 (Results of Operations and Financial Condition) a press release announcing its results of operations and financial condition for the quarter and year ended September 30, 2003.
		2.	November 26, 2003 for the purpose of filing under Items 5 (Other Events and Regulation FD Disclosure) and 7 (Financial Statements and Exhibits) announcing entry into a Limited Partnership Agreement by and between Net Lease Realty III, Inc., a wholly-owned subsidiary of the Company and Northern Trust Company.
		3.	December 3, 2003 for the purpose of filing under Item 5 (Other Events) a press release announcing that the Company agreed to issue and sell in an underwritten public offering approximately 3,000,000 shares of its common stock.
		4.	December 3, 2003 for the purpose of filing under Items 5 (Other Events) and 7 (Financial Statements and Exhibits) with respect to an announcement of the filing of a Prospectus Supplement to the Registration Statement on Form S-3, File No. 333-105635, for the offering by the Registrant of 3,250,000 shares of the Registrant’s Common Stock, par value $0.01.
		5.	December 4, 2003 for the purpose of amending the Form 8-K filed on November 26, 2003 for the purpose of filing under Items 5 (Other Events and Regulation FD Disclosure) and 7 (Financial Statements and Exhibits) announcing entry into a Limited Partnership Agreement by and between Net Lease Realty III, Inc., a wholly-owned subsidiary of the Company and Northern Trust Company.

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 12^th day of March, 2004.


COMMERCIAL NET LEASE REALTY, INC.

By: /s/Craig Macnab
Craig Macnab
Chief Executive Officer 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. James M. Seneff, Jr.	Chairman of the Board of Directors	March 12, 2004
/s/Robert A. Bourne Robert A. Bourne	Vice Chairman of the Board of Directors	March 12, 2004
/s/Clifford R. Hinkle Clifford R. Hinkle	Director	March 12, 2004
/s/Richard B. Jennings Richard B. Jennings	Director	March 12, 2004
/s/Ted B. Lanier Ted B. Lanier	Director	March 12, 2004
/s/Robert C. Legler Robert C. Legler	Director	March 12, 2004
/s/Robert Martinez Robert Martinez	Director	March 12, 2004
/s/Gary M. Ralston Gary M. Ralston	Director, President and Chief Operating Officer	March 12, 2004
/s/Kevin B. Habicht Kevin B. Habicht	Director, Chief Financial Officer (Principal Financial and Accounting Officer), Executive Vice President, Assistant Secretary and Treasurer	March 12, 2004

Report of Independent Auditors’ on Supplementary Information

The Board of Directors
Commercial Net Lease Realty, Inc.:

Under date of January 16, 2004, except as to the eighth paragraph of Note 4 to the consolidated financial statements, which is as of February 2, 2004, we reported on the consolidated balance sheets of Commercial Net Lease Realty, Inc. and subsidiaries as of December 31, 2003 and 2002, 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, 2003. These consolidated financial statements and our report thereon are both included in Item 15(a)1 of Form 10-K and incorporated by reference in the annual report on Form 10-K for the year 2003. In connection with our audits of the aforementioned consolidated financial statements, we also audited the related consolidated financial statement schedules as of December 31, 2003. 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.



Orlando, Florida
January 16, 2004

COMMERCIAL NET LEASE REALTY, INC. AND SUBSIDIARIES SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION AND AMORTIZATION December 31, 2003
							Initial Cost to Company
				Encumbrances (k)			Land		Building, Improvements and Leasehold 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
	Ace Hardware and Lighting:
		Bourbonnais, IL			-			298,192		1,329,492
	Adam's Sports Grill:
		Chandler, AZ			-			654,765		765,164
	Albertsons:
		Sonora, CA			-			587,782		1,620,311
	American Signature Home:
		White Marsh, MD			-			3,762,030		-
	Amoco:
		Miami, FL			-			969,156		-
		Sunrise, FL			-			949,185		-
	Applebee's:
		Ballwin, MO			-			1,496,173		1,403,581
	Arby's:
		Colorado Springs, CO			-			205,957		533,540
		Thomson, GA			-			267,842		503,550
		Whitmore Lake, MI			-			170,515		468,916
		Albuquerque, NM			-			442,991		507,790
		Albuquerque, NM			-			250,881		513,970
		Santa Fe, NM			-			450,358		341,960
		Washington Courthouse, OH			-			156,875		545,841
	Ashley Furniture:
		Altamonte Springs, FL			-			2,906,409		4,877,225
	Babies “R” Us:
		Arlington, TX			-			830,689		2,611,867
		Independence, MO			-			1,678,794		2,301,909
	Barnes & Noble:
		Brandon, FL			1,154,893	(j)		1,476,407		1,527,150
		Denver, CO			-			3,244,785		2,722,087
		Houston, TX			-			3,307,562		2,396,024
		Plantation, FL			5,054,673	(p)		3,616,357		-
		Freehold, NJ	(r)		-			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			2,897,190	(p)		1,184,144		3,154,970
		Los Angeles, CA			-			6,318,023		3,089,396
		Glendale, AZ			-			1,082,092		-
	Bedford Furniture:
		Everett, PA			-			226,366		1,159,833
	Bennigan's:
		Aurora, CO			-			1,064,850		1,260,409
		Milford, CT	(r)		-			921,200		697,298
		Altamonte Springs, FL			-			1,088,282		924,425
		Gainsville, FL			-			751,687		848,816
		Jacksonville, FL			-			1,359,559		1,026,095
		Schaumburg, IL			-			2,064,964		1,311,190
		Flint, MI	(r)		-			496,299		895,296
		Raleigh, NC			-			793,017		876,727
		Tulsa, OK	(r)		-			1,013,184		1,290,590
		Wichita Falls, TX			-			818,611		1,107,418
	Best Buy:
		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			4,623,176	(p)		4,031,744		2,959,316
		North Fayette, PA			-			2,330,847		2,292,932
		Denver, CO			-			8,881,890		4,372,684
	Big D’s:
		Eden Prairie, MN			-			64,916		180,538
	Blockbuster:
		Conyers, GA			-			320,029		556,282
		Mobile, AL			-			491,453		498,488
		Mobile, AL			-			843,121		562,498
		Gainesville, GA			-			294,882		611,570
		Glasgow, KY			-			302,859		560,904
		Alice, TX			-			318,285		578,268
		Kingsville, TX			-			498,849		457,695
	BMW:
		Duluth, GA			-			4,433,613		4,080,186
	Bodyworks Unlimited:
		Rincon, GA			-			244,607		1,166,045
	Borders Books & Music:
		Wilmington, DE			3,496,479	(j)		3,030,769		6,061,538
		Richmond, VA			1,836,973	(j)		2,177,310		2,599,587
		Ft. Lauderdale, FL			4,869,746	(p)		3,164,984		3,934,577
		Bangor, ME			-			1,546,915		2,486,761
		Altamonte Springs, FL			-			1,947,198		-
	Boston Market:
		Geneva, IL			-			1,125,347		1,036,952
		Orland Park, IL			-			562,384		556,201
		Wheaton, IL			-			1,115,457		1,014,184
		Burton, MI			-			619,778		707,242
		Novi, MI			-			835,669		651,108
		North Olmsted, OH			-			601,800		460,521
		Warren, OH			-			562,446		467,592
		Dunmore, PA			-			773,882		496,976
	Buffalo Wild Wings:
		Michigan City, IN			-			162,538		492,007
	Burger King:
		Colonial Heights, VA			-			662,345		609,787
	Carino's:
		Beaumont, TX			-			439,076		1,363,447
		Lewisville, TX			-			1,369,836		1,018,659
		Lubbock, TX			-			1,007,432		1,205,512
	Champps:
		Alpharetta, GA			-			3,032,965		1,641,820
		Irving, TX			-			1,760,020		1,724,220
	Checkers:
		Orlando, FL			-			256,568		-
	Claim Jumper:
		Tempe, AZ			-			2,530,892		2,920,575
		Roseville, CA			-			1,556,732		2,013,650
	CompUSA:
		Baton Rouge, LA	(r)		-			609,069		913,603
		Miami, FL			1,761,205	(j)		2,713,192		1,866,676
	Dave’s:
		Maple Heights, OH			-			1,034,758		2,874,414
	Dave & Buster’s:
		Utica, MI			-			3,776,169		-
	Denny's:
		Columbus,TX			-			428,429		816,644
	Dick's Clothing:
		Taylor, MI			-			1,920,032		3,526,868
		White Marsh, MD			-			2,680,532		3,916,889
	Dollar Tree:
		Garland, TX			-			239,014		626,170
		Copperas Cove, TX			-			241,650		511,624
	Donato's:
		Medina, OH			-			405,113		463,582
	East Meets West:
		Southfield, MI			-			366,448		643,759
	Eckerd:
		San Antonio, TX			471,062	(j)		440,985		-
		Dallas, TX			453,841	(j)		541,493		-
		Arlington, TX			386,490	(j)		368,964		-
		Millville, NJ			479,363	(j)		417,603		-
		Atlanta, GA			428,386	(j)		445,593		-
		Mantua, NJ			498,350	(j)		344,022		-
		Amarillo, TX			443,443	(j)		329,231		-
		Amarillo, TX			576,326	(j)		650,864		-
		Glassboro, NJ			546,735	(j)		534,243		-
		Kissimmee, FL			636,919	(j)		715,480		-
		Tampa, FL			-			604,682		-
		Lafayette, LA			-			967,528		-
		Douglasville, GA			-			413,438		995,209
		Moore, OK			-			414,738		-
		Midwest City, OK			-			673,369		1,103,351
		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		-
		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			518,906	(j)		2,068,089		-
		Dallas, TX			-			2,617,656		-
		Gladstone, MO			242,372			1,851,374		-
		Falls Church, VA			-			3,127,139		-
		West Mifflin, PA			-			1,401,632		2,043,862
		Norfolk, PA			-			2,742,194		1,796,508
		Thorndale, PA			-			2,260,618		2,472,039
	Enterprise Rent-A-Car:
		Wilmington, NC			-			218,126		327,329
	Fantastic Sams:
		Eden Prairie, MN			-			64,916		180,538
	Fazoli's Restaurant:
		Bay City, MI			-			647,055		633,899
	Food 4 Less:
		Lemon Grove, CA			-			3,695,816		-
		Chula Vista, CA			-			3,568,862		-
	Gateway:
		Glendale, AZ			-			341,713		982,429
	Gen-X Clothing:
		Federal Way, WA			-			2,037,392		1,661,577
	Golden Corral:
		Leitchfield, KY			-			73,660		306,642
		Atlanta, TX			-			88,457		368,317
		Abbeville, LA			-			98,577		362,416
		Lake Placid, FL			-			115,113		305,074
		Tampa, FL			-			1,187,614		1,339,000
		Brandon, FL			-			1,329,793		1,390,502
		Dallas, TX			-			1,138,129		1,024,747
	Good Guys, The:
		Foothill Ranch, CA			-			1,456,113		2,505,022
		East Palo Alto, CA			-			2,271,634		3,404,843
	GymKix:
		Copperas Cove, TX			-			203,908		431,715
	H&R Block:
		Swansea, IL			-			45,842		132,440
	Hancock Fabrics:
		Arlington, TX			-			317,838		1,680,428
	Hastings:
		Nacogdoches, TX			-			397,074		1,257,402
	Haverty's:
		Clearwater, FL			-			1,184,438		2,526,207
		Orlando, FL	(r)		1,155,629	(j)		820,397		2,184,721
		Pensacola, FL			1,123,972			633,125		1,595,405
		Bowie, MD			-			1,965,508		4,221,074
	Heilig-Meyers:
		Baltimore, MD			-			469,782		813,074
		Glen Burnie, MD			-			631,712		931,931
	Hollywood Video:
		Cincinnati, OH			-			282,200		520,623
		Clifton, CO			-			245,462		732,477
	Home Depot:
		Sunrise, FL			-			5,148,657		-
	HomeGoods:
		Fairfax, VA			-			977,839		1,414,261
	Hooters:
		Tampa, FL			-			783,923		504,768
	Hy-Vee:
		St. Joseph, MO			-			1,579,583		2,849,246
	International House of Pancakes:
		Stafford, TX			366,832	(j)		382,084		-
		Sunset Hills, MO			387,706	(j)		271,853		-
		Las Vegas, NV			435,903	(j)		519,947		-
		Ft. Worth, TX			405,526	(j)		430,896		-
		Arlington, TX			389,416	(j)		404,512		-
		Matthews, NC			398,286	(j)		380,043		-
		Phoenix, AZ			400,966	(j)		483,374		-
		Midwest City, OK			-			407,268		-
	Jared Jewelers:
		Richmond, VA			-			955,134		1,336,152
		Brandon, FL			-			1,196,900		1,182,150
		Lithonia, GA			-			1,270,517		1,215,818
		Houston, TX			-			1,675,739		1,439,597
	Jo-Ann Etc:
		Corpus Christi, TX			-			818,448		896,395
	Just For Feet:
		Albuquerque, NM			-			1,441,777		2,335,475
	Kash N’ Karry:
		Palm Harbor, FL			-			335,851		1,925,276
		Gainesville, FL			-			317,386		1,248,404
		Brandon, FL			-			322,476		1,221,661
		Sarasota, FL			-			470,600		1,343,746
	Keg Steakhouse:
		Gresham, OR			-			817,311		108,294
		Bellingham, WA	(r)		-			397,443		455,605
		Lynnwood, WA			-			1,255,513		649,236
		Tacoma, WA			-			526,792		794,722
	KFC:
		Marysville, WA			-			646,779		545,592
		Erie, PA			-			516,508		496,092
	Lee County:
		Ft. Myers, FL			-			1,956,579		4,046,646
	Lowe’s:
		Memphis, TN			-			3,214,835		9,169,885
	Magic Dollar:
		Memphis, TN			-			549,309		539,643
	MCI:
		Arlington, VA			806,269	(s)		222,721		1,088,680
	Merchant's Square:
		Corpus Christi, TX			-			223,998		2,158,955
	Merryland Chinese Buffet:
		Red Oak, TX			-			73,290		520,950
	Mi Pueblo Foods:
		Watsonville, CA			-			805,056		1,648,934
	Michaels:
		Fairfax, VA			-			986,131		1,426,254
		Grapevine, TX			-			1,017,934		2,066,715
	Mortgage Marketing:
		Swansea, IL			-			91,709		264,956
	Mountain Jack's:
		Centerville, OH			-			850,625		1,059,430
	Office Depot:
		Arlington, TX			771,974	(j)		596,024		1,411,432
		Richmond, VA			-			888,772		1,948,036
	OfficeMax:
		Corpus Christi, TX			-			893,270		978,344
		Dallas, TX			1,087,668	(j)		1,118,500		1,709,891
		Cincinnati, OH			814,499	(j)		543,489		1,574,551
		Evanston, IL			1,394,179	(j)		1,867,831		1,757,618
		Altamonte Springs, FL			-			1,689,793		3,050,160
		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		-
		Tigard, OR			-			1,539,873		2,247,321
		Dover, NJ			-			1,138,296		3,238,083
		Griffin, GA			-			685,470		-
	Party City:
		Memphis, TN			-			266,383		-
	Penn Station Subs:
		Florissant, MO			-			77,726		138,547
	Perfect Teeth:
		Rio Rancho, NM			-			61,517		122,142
	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
	Pizza Hut:
		Monroeville, AL			-			547,300		44,237
	Popeye’s:
		Snellville, GA			-			642,169		436,512
	Print & Pack Plus:
		Eden Prairie, MN			-			75,736		210,628
	Quizno’s:
		Rio Rancho, NM			-			48,566		96,428
	Rally’s:
		Toledo, OH			-			125,882		319,770
	Red Dragon Chinese Restaurant:
		Columbus, OH			-			1,032,008		1,107,250
	Rent-A-Center:
		Rio Rancho, NM			-			145,698		289,284
	Rite Aid:
		Mobile, AL			-			1,136,618		1,694,187
		Orange Beach, AL			-			1,409,980		1,996,043
	Roadhouse Grill:
		Cheektowaga, NY			-			689,040		386,251
	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
		Lodi, CA			-			613,710		1,414,592
	Schlotzsky’s Deli:
		Phoenix, AZ			-			706,306		315,469
		Scottsdale, AZ			-			717,138		310,610
	7-Eleven:
		Land’O Lakes, FL			-			1,076,572		-
		Tampa Palms, FL			-			1,080,670		-
	Shop & Save:
		Homestead, PA			-			1,139,419		-
	Skipper’s Fish & Chips:
		Salem, OR			-			555,951		735,651
		Spokane, WA			-			470,840		530,289
	Sports Authority:
		Dallas, TX			-			1,311,440		-
		Tampa, FL			-			2,127,503		1,521,730
		Memphis, TN			-			820,340		-
		Little Rock, AR			-			3,113,375		2,660,206
		Woodbridge, NJ			-			3,749,990		5,982,660
	Star Cafe:
		Henderson, TX			-			453,329		463,648
	Steak & Ale:
		Jacksonville, FL			-			986,565		855,523
		Indianapolis, IN			-			398,841		1,011,771
		Oklahoma City, OK			-			463,814		927,781
		Richmond, VA			-			712,840		995,148
		Garland, TX			-			366,044		932,988
	Stillwater Medical:
		Stillwater, OK			-			253,603		1,086,792
	Stop & Go:
		Grand Prairie, TX			-			421,254		684,568
		Kennedale, TX			-			399,988		692,190
	Subway:
		Eden Prairie, MN			-			54,097		150,449
	SuperValu:
		Huntington, WV			-			1,254,238		760,602
		Warwick, RI			-			1,699,330		-
	Swansea Quick Cash:
		Swansea, IL			-			45,815		132,365
	Taco Bell:
		Ocala, FL			-			275,023		754,990
		Ormond Beach, FL			-			632,337		525,616
		Brooklyn Park, MN			-			283,782		418,740
		Chanhassen, MN			-			291,317		648,900
		Saint Cloud, MN			-			279,243		301,790
		West Saint Paul, MN			-			476,860		1,292,650
		Phoenix, AZ			-			593,718		282,777
	Taco Bron Restaurant:
		Tucson, AZ			-			827,002		305,209
	Tara Grinna Swimwear:
		Conway, SC			-			247,173		1,140,660
	Target:
		Chico, CA			-			1,269,272		4,213,165
		Victorville, CA			-			1,908,815		4,029,669
		San Diego, CA			-			2,672,390		4,270,693
	Texas Roadhouse:
		Grand Junction, CO			-			584,237		920,143
		Thornton, CO			-			598,556		1,019,164
	TGI Friday’s:
		Corpus Christi, TX			-			1,209,702		1,532,125
	Top’s:
		Lacy, WA			-			2,777,449		7,082,150
	United States of America:
		Arlington, VA			94,193,731	(s)		24,077,279		117,691,770
	United Trust Bank:
		Bridgeview, IL			-			673,238		744,154
	Vacant Property:
		Vernon, TX			-			105,798		328,943
		Raleigh, NC			1,548,625			1,848,026		1,753,635
		Tampa, FL			1,329,548			1,454,908		2,045,833
		Arlington, VA			-			435,002		2,299,881
		Plymouth Meeting, PA			-			2,911,111		-
		Augusta, GA			-			176,656		674,253
		Florissant, MO			-			247,746		441,608
		Hammond, LA			-			247,600		813,514
		Mesa, AZ			-			195,652		512,566
		Indianapolis, IN			-			639,584		1,015,173
		Montgomery, AL			-			1,418,158		1,140,080
	Value City:
		Florissant, MO			-			2,490,210		2,937,449
	Vons:
		Moreno Valley, CA			-			759,052		1,652,164
	Walgreens:
		Sunrise, FL			-			1,957,974		1,400,970
	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
		Beeville, TX			-			507,231		2,315,424
		Corpus Christi, TX			-			630,043		3,131,407
	Waremart:
		Eureka, CA			-			3,135,036		5,470,607
	Washington Bike Center:
		Fairfax, VA			-			192,830		278,892
	Wendy’s Old Fashioned     Hamburger:
		Fenton, MO			-			307,068		496,410
		Sacramento, CA			-			585,872		-
		New Kensington, PA			-			501,136		333,445
	Whataburger:
		Albuquerque, NM			-			624,318		418,975
	Warehouse Music:
		Homewood, AL			-			1,031,974		696,950
	Winn-Dixie:
		Dallas, GA			-			1,287,630		1,952,791
		Woodstock, GA			-			1,937,017		1,284,901
		Columbus, GA			-			1,023,371		1,874,875
	Leasehold Interests:				-			3,380,756		-
				$	138,387,257		$	388,287,778	$	498,123,221
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 Springs, 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
		Arlington, TX			-			-		636,070
		Millville, NJ			-			-		828,942
		Atlanta, GA			-			-		668,390
		Mantua, NJ			-			-		951,795
		Vineland, NJ			-			-		-
		Amarillo, TX			-			-		849,071
		Amarillo, TX			-			-		869,846
		Amarillo, TX			376,646	(j)		158,851		855,348
		Glassboro, NJ			-			-		887,497
		Kissimmee, FL			-			-		933,852
		Alice, TX			382,180	(j)		189,187		804,963
		Tampa, FL			-			-		1,090,532
		Lafayette, LA			-			-		949,128
		Moore, OK			-			-		879,296
		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			-			(l)		1,365,125
		Oklahoma City, OK			-			(l)		1,419,093
		Norman, OK			-			-		1,225,477
		Chattanooga, TN			-			-		1,344,240
		Del City, OK			-			-		-
		Arlington, TX			-			-		-
		Kennett Square, PA			-			(l)		-
		Arlington, TX			-			-		3,201,489
	Food 4 Less:
		Lemon Grove, CA			-			-		4,068,179
		Chula Vista, CA			-			-		4,266,181
	Food Lion:
		Keystone Heights, FL			743,954	(j)		88,604		1,845,988
		Chattanooga, TN			783,551	(j)		336,488		1,701,072
		Lynchburg, VA			-			128,216		1,674,167
		Martinsburg, WV			766,116	(j)		448,648		1,543,573
	Good Guys, The:
		Stockton, CA			1,367,272	(j)		580,609		2,974,868
	Heilig-Meyers:
		York, PA			-			279,312		1,109,609
		Marlow Heights, MD			-			415,926		1,397,178
	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
	Jared Jewelers:
		Aurora, IL			-			(l)		1,928,871
		Glendale, AZ			-			(l)		1,599,105
		Oviedo, FL			594,382			(l)		1,500,145
		Phoenix, AZ			533,748			(l)		1,241,825
		Toledo, OH			-			(l)		1,457,625
		Lewisville, TX			369,300			(l)		1,502,903
	Kash ’N Karry:
		Brandon, FL			3,276,291	(p)		1,234,519		3,255,257
	Levitz:
		Tempe, AZ			-			634,444		2,225,991
	Sports Authority:
		Dallas, TX			-			-		2,658,976
	Shop & Save:
		Homestead, PA			-			-		2,578,098
	SuperValu:
		Warwick, RI			-			-		2,978,154
				$	9,193,440		$	5,231,005	$	102,510,261

COMMERCIAL NET LEASE REALTY, INC. AND SUBSIDIARIES SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION AND AMORTIZATION December 31, 2003
			Costs Capitalized Subsequent to Acquisition				Gross Amount at Which Carried at Close of Period(b)
			Improvements		Carrying Costs		Land		Building, Improvements and Leasehold 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
	Ace Hardware and Lighting:
		Bourbonnais, IL		-		-		298,192		1,329,492			1,627,684
	Adams Sports Grill:
		Chandler, AZ		7,500		-		654,765		772,664			1,427,429
	Albertsons:
		Sonora, CA		-		-		587,782		1,620,311			2,208,093
	American Signature Home:
		White Marsh, MD		3,006,391		-		3,762,030		3,006,391			6,768,421
	Amoco:
		Miami, FL		-		-		969,156		-			969,156
		Sunrise, FL		-		-		949,185		-			949,185
	Applebee's:
		Ballwin, CA		-		-		1,496,173		1,403,581			2,899,754
	Arby's:
		Colorado Springs, CO		-		-		205,957		533,540			739,497
		Thomson, GA		-		-		267,842		503,550			771,392
		Whitmore Lake, MI		-		-		170,515		468,916			639,431
		Albuquerque, NM		-		-		442,991		507,790			950,781
		Albuquerque, NM		-		-		250,881		513,970			764,851
		Santa Fe, NM		-		-		450,358		341,960			792,318
		Washington Courthouse, OH		-		-		156,875		545,841			702,716
	Ashley Furniture:
		Altamonte Springs, FL		315,000		-		2,906,409		5,192,225			8,098,634
	Babies “R” Us:
		Arlington, TX		-		-		830,689		2,611,867			3,442,556
		Independence, MO		-		-		1,678,794		2,301,909			3,980,703
	Barnes & Noble:
		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
		Plantation, FL		-		-		3,616,457		(c)			3,616,457
		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		2,842,759	(o)		4,026,903
		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
	Bedford Furniture:
		Everett, PA		7,830		-		226,366		817,667			1,044,033
	Bennigan's:
		Aurora, CO		-		-		1,064,850		1,260,409			2,325,259
		Milford, CT		-		-		921,200		697,298			1,618,498
		Altamonte Springs, FL		-		-		1,088,282		924,425			2,012,707
		Gainsville, FL		-		-		751,687		848,816			1,600,503
		Jacksonville, FL		-		-		1,359,559		1,026,095			2,385,654
		Schaumburg, IL		-		-		2,064,964		1,311,190			3,376,154
		Flint, MI		-		-		496,299		895,296			1,391,595
		Raleigh, NC		-		-		793,017		876,727			1,669,744
		Tulsa, OK		-		-		1,013,184		1,290,590			2,303,774
		Wichita Falls, TX		-		-		818,611		1,107,418			1,926,029
	Best Buy:
		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		2,610,980	(o)		6,642,724
		North Fayette, PA		-		-		2,330,847		2,292,932			4,623,779
		Denver, CO		-		-		8,881,890		4,372,684			13,254,574
	Big D’s:
		Eden Prairie, MN		80,809		-		64,916		261,347			326,263
	Blockbuster:
		Conyers, GA		-		-		320,029		556,282			876,311
		Mobile, AL		-		-		491,453		498,488			989,941
		Mobile, AL		-		-		843,121		562,498			1,405,619
		Gainesville, GA		-		-		294,882		611,570			906,452
		Glasgow, KY		-		-		302,859		560,904			863,763
		Alice, TX		-		-		318,285		578,268			896,553
		Kingsville, TX		-		-		498,849		457,695			956,544
	BMW:
		Duluth, GA		-		-		4,433,613		4,080,186			8,513,799
	Bodyworks Unlimited:
		Rincon, GA		-		-		244,607		791,808			1,036,415
	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		3,319,234	(o)		6,484,218
		Bangor, ME		-		-		1,546,915		2,486,761			4,033,676
		Altamonte Springs, FL		-		-		1,947,198		(c)			1,947,198
	Boston Market:
		Geneva, IL		-		-		1,125,347		893,485			2,018,832
		Orland Park, IL		-		-		562,384		377,244			939,628
		Wheaton, IL		-		-		1,115,457		872,736			1,988,193
		Burton, MI		-		-		619,778		707,242			1,327,020
		Novi, MI		-		-		835,669		297,567			1,133,236
		North Olmsted, OH		-		-		601,800		389,065			990,865
		Warren, OH		-		-		562,446		467,592			1,030,038
		Dunmore, PA		-		-		773,882		469,434			1,243,316
	Buffalo Wild Wings:
		Michigan City, IN		-		-		162,538		492,007			654,545
	Burger King:
		Colonial Heights, VA		-		-		662,345		609,787			1,272,132
	Carino's:
		Beaumont, TX		-		-		439,076		1,363,447			1,802,523
		Lewisville, TX		-		-		1,369,836		1,018,659			2,388,495
		Lubbock, TX		-		-		1,007,432		1,205,512			2,212,944
	Champps:
		Alpharetta, GA		-		-		3,032,965		1,641,820			4,674,785
		Irving, TX		-		-		1,760,020		1,724,220			3,484,240
	Checkers:
		Orlando, FL		-		-		256,568		(c)			256,568
	Claim Jumper:
		Tempe, AZ		-		-		2,530,892		2,920,575			5,451,467
		Roseville, CA		-		-		1,556,732		2,013,650			3,570,382
	CompUSA:
		Baton Rouge. LA		-		-		609,069		913,603			1,522,672
		Miami, FL		-		-		2,713,192		1,866,676			4,579,868
	Dave's:
		Maple Heights, OH		-		-		1,034,758		2,874,414			3,909,172
	Dave & Buster's:
		Utica, MI		-		-		3,776,169		(c)			3,776,169
	Denny's:
		Columbus, TX		-		-		428,429		816,644			1,245,073
	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
	Dollar Tree:
		Garland, TX		-		-		239,014		626,170			865,184
		Copperas Cove, TX		194,167		-		241,650		705,791			947,441
	Donato's:
		Medina, OH		-		-		405,113		463,582			868,695
	East Meets West:
		Southfiled, MI		38,660		-		405,108		643,759			1,048,867
	Eckerd:
		San Antonio, TX		-		-		440,985		(c)			440,985
		Dallas, TX		-		-		541,493		(c)			541,493
		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
		Tampa, FL		-		-		604,682		(c)			604,682
		Lafayette, LA		-		-		967,528		(c)			967,528
		Douglasville, GA		-		-		413,438		995,209			1,408,647
		Moore, OK		-		-		414,738		(c)			414,738
		Midwest City, OK		-		-		673,369		1,103,351			1,776,720
		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		-		-		457,659		(c)			457,659
		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
		Dallas, TX		2,570,569		-		2,617,656		2,570,569			5,188,225
		Gladstone, MO		1,739,568		-		1,851,374		1,739,568			3,590,942
		Falls Church, VA		2,424,664		-		3,127,139		2,412,036	(q)		5,539,175
		West Mifflin, PA		-		-		1,401,632		2,043,862			3,445,494
		Norfolk, PA		-		-		2,742,194		1,796,508			4,538,702
		Thorndale, PA		-		-		2,260,618		2,472,039			4,732,657
	Enterprise Rent-A-Car:
		Wilmington, NC		-		-		218,126		327,329			545,455
	Fantastic Sams:
		Eden Prairie, MN		80,809		-		64,916		261,347			326,263
	Fazoli's Restaurant:
		Bay City, MI		-		-		647,055		633,899			1,280,954
	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
	Gen-X Clothing:
		Federal Way, WA		257,414		-		2,037,392		1,918,991			3,956,383
	Golden Corral:
		Leitchfield, KY		-		-		73,660		306,642			380,302
		Atlanta, TX		-		-		88,457		368,317			456,774
		Abbeville, LA		-		-		98,577		362,416			460,993
		Lake Placid, FL		-		-		115,113		305,074			420,187
		Tampa, FL		-		-		1,187,614		1,339,000			2,526,614
		Brandon, FL		-		-		1,329,793		1,390,502			2,720,295
		Dallas, TX		-		-		1,138,129		1,024,747			2,162,876
	Good Guys, The:
		Foothill Ranch, CA		-		-		1,456,113		2,505,022			3,961,135
		East Palo Alto, CA		-		-		2,271,634		3,404,843			5,676,477
	GymKix:
		Copperas Cove, TX		171,477		-		203,908		603,192			807,100
	H&R Block:
		Swansea, IL		69,029		-		45,842		201,469			247,311
	Hancock Fabrics:
		Arlington, TX		242,483		-		317,838		1,922,911			2,240,749
	Hastings:
		Nacogdoches, TX		-		-		397,074		1,257,402			1,654,476
	Haverty's:
		Clearwater, FL		44,005		-		1,184,438		2,570,212			3,754,650
		Orlando, FL		-		-		820,397		2,184,721			3,005,118
		Pensacola, FL		-		-		633,125		1,595,405			2,228,530
		Bowie, MD		-		-		1,965,508		4,221,074			6,186,582
	Heilig-Meyers:
		Baltimore, MD		-		-		469,782		813,074			1,282,856
		Glen Burnie, MD		-		-		631,712		931,931			1,563,643
	Hollywood Video:
		Cincinnati, OH		261,237		-		543,437		520,623			1,064,060
		Clifton, CO		-		-		245,462		732,477			977,939
	Home Depot:
		Sunrise, FL		-		-		5,148,657		-			5,148,657
	HomeGoods:
		Fairfax, VA		937,301		-		977,839		2,351,562			3,329,401
	Hooters:
		Tampa, FL		-		-		783,923		504,768			1,288,691
	Hy-Vee:
		St. Joseph, MO		-		-		1,579,583		2,849,246			4,428,829
	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
		Midwest City, OK		-		-		407,268		-			407,268
	Jared Jewelers:
		Richmond, VA		-		-		955,134		1,336,152			2,291,286
		Brandon, FL		-		-		1,196,900		1,182,150			2,379,050
		Lithonia, GA		-		-		1,270,517		1,215,818			2,486,335
		Houston, TX		-		-		1,675,739		1,439,597			3,115,336
	Jo-Ann Etc:
		Corpus Christi, TX		12,222		-		818,448		908,617			1,727,065
	Just For Feet:
		Albuquerque, NM		-		-		1,441,777		2,335,475			3,777,252
	Kash N’ Karry:
		Palm Harbor, FL		-		-		335,851		1,925,276			2,261,127
		Gainesville, FL		-		-		317,386		1,248,404			1,565,790
		Brandon, FL		-		-		322,476		1,221,661			1,544,137
		Sarasota, FL		-		-		470,600		1,343,746			1,814,346
	Keg Steakhouse:
		Gresham, OR		-		-		817,311		108,294			925,605
		Bellingham, WA		-		-		397,443		455,605			853,048
		Lynnwood, WA		-		-		1,255,513		649,236			1,904,749
		Tacoma, WA		-		-		526,792		794,722			1,321,514
	KFC:
		Marysville, WA		-		-		646,779		545,592			1,192,371
		Erie, PA		-		-		516,508		496,092			1,012,600
	Lee County:
		Ft. Myers, FL		3,450		-		1,956,579		4,048,646			6,005,225
	Lowe’s:
		Memphis, TN		-		-		3,214,835		9,169,885			12,384,720
	Magic Dollar:
		Memphis, TN		364,460		-		549,309		904,102			1,453,412
	MCI:
		Arlington, VA		-		-		222,721		1,088,680			1,311,401
	Merchant's Square:
		Corpus Christi, TX		-		-		223,998		2,158,955			2,382,953
	Merryland Chinese Buffet:
		Red Oak, TX		-		-		73,290		520,950			594,240
	Mi Pueblo Foods:
		Watsonville, CA		-		-		805,056		1,648,934			2,453,990
	Michaels:
		Fairfax, VA		706,501		-		986,131		2,132,755			3,118,886
		Grapevine, TX		-		-		1,017,934		2,066,715			3,084,649
	Mortgage Marketing:
		Swansea, IL		-		-		91,709		264,956			356,665
	Mountain Jack's:
		Centerville, OH		-		-		850,625		1,059,430			1,910,055
	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 Springs, FL		-		-		1,689,793		3,050,160			4,739,953
		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
		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
	Party City:
		Memphis, TN		1,136,334		-		266,383		1,136,334			1,402,717
	Penn Station Subs:
		Florissant, MO		-		-		77,726		138,547			216,273
	Perfect Teeth:
		Rio Rancho, NM		-		-		61,517		122,142			183,659
	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
	Pizza Hut:
		Monroeville, AL		-		-		547,300		44,237			591,537
	Popeye’s:
		Snellville, GA		-		-		642,169		436,512			1,078,681
	Print & Pack Plus:
		Eden Prairie, MN		94,277		-		75,736		304,905			380,641
	Quizno’s:
		Rio Rancho, NM		13,398		-		48,566		109,826			158,392
	Rally’s:
		Toledo, OH		-		-		125,882		319,770			445,652
	Red Dragon Chinese Restaurant:
		Columbus, OH		-		-		1,032,008		1,107,250			2,139,258
	Rent-A-Center:
		Rio Rancho, NM		40,193		-		145,698		329,477			475,175
	Rite Aid:
		Mobile, AL		-		-		1,136,618		1,694,187			2,830,805
		Orange Beach, AL		-		-		1,409,980		1,996,043			3,406,023
	Roadhouse Grill:
		Cheektowaga, NY		-		-		689,040		386,251			1,075,291
	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
		Lodi, CA		-		-		613,710		1,414,592			2,028,302
	Schlotzsky’s Deli:
		Phoenix, AZ		-		-		706,306		315,469			1,021,775
		Scottsdale, AZ		-		-		717,138		310,610			1,027,748
	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
	Skipper’s Fish & Chips:
		Salem, OR		-		-		555,951		735,651			1,291,602
		Spokane, WA		-		-		470,840		530,289			1,001,129
	Sports Authority:
		Dallas, TX		-		-		1,311,440		(c)			1,311,440
		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		-		-		3,113,375		2,660,206			5,773,581
		Woodbridge, NJ		-		-		3,749,990		5,982,660			9,732,650
	Star Cafe:
		Henderson, TX		-		-		151,832		149,844			301,676
	Steak & Ale:
		Jacksonville, FL		-		-		986,565		855,523			1,842,088
		Indianpolis, IN		-		-		398,841		1,011,771			1,410,612
		Oklahoma City, OK		-		-		463,814		927,781			1,391,595
		Richmond, VA		-		-		712,840		995,148			1,707,988
		Garland, TX		-		-		366,044		932,988			1,299,032
	Stillwater Medical:
		Stillwater, OK		-		-		253,603		1,086,792			1,340,395
	Stop & Go:
		Grand Prairie, TX		-		-		421,254		684,568			1,105,822
		Kennedale, TX		-		-		399,988		692,190			1,092,178
	Subway:
		Eden Prairie, MN		67,341		-		54,097		217,790			271,887
	SuperValu:
		Huntington, WV		-		-		1,254,238		760,602			2,014,840
		Warwick, RI		-		-		1,699,330		(c)			1,699,330
	Swansea Quick Cash:
		Swansea, IL		-		-		45,815		132,365			178,180
	Taco Bell:
		Ocala, FL		-		-		275,023		754,990			1,030,013
		Ormond Beach, FL		-		-		632,337		525,616			1,157,953
		Brooklyn Park, MN		-		-		283,782		418,740			702,522
		Chanhassen, MN		-		-		291,317		648,900			940,217
		Saint Cloud, MN		-		-		279,243		301,790			581,033
		West Saint Paul, MN		-		-		476,860		1,292,650			1,769,510
		Phoenix, AZ		-		-		593,718		282,777			876,495
	Taco Bron Restaurant:
		Tuscon, AZ		17,814		-		844,816		305,209			1,150,025
	Tara Grinna Restaurant:
		Conway, SC		-		-		247,173		1,140,660			1,387,833
	Target:
		Chico, CA		-		-		1,269,272		4,213,165			5,482,437
		Victorville, CA		-		-		1,908,815		4,029,669			5,938,484
		San Diego, CA		-		-		2,672,390		4,270,693			6,943,083
	Texas Roadhouse:
		Grand Junction, CO		-		-		584,237		920,143			1,504,380
		Thornton, CO		-		-		598,556		1,019,164			1,617,720
	TGI Friday’s:
		Corpus Christi, TX		-		-		1,209,702		1,532,125			2,741,827
	Top’s:
		Lacy, WA		-		-		2,777,449		7,082,150			9,859,599
	United States of America:
		Arlington, VA		11,437,619		-		24,077,279		129,129,389			153,206,668
	United Trust Bank:
		Bridgeview, IL		-		-		673,238		744,154			1,417,392
	Vacant Property:
		Vernon, TX		-		-		105,798		328,943			434,741
		Raleigh, NC		-		-		1,848,026		1,753,635			3,601,661
		Tampa, FL		-		-		1,454,908		2,045,833			3,500,741
		Arlington, TX		334,058		-		435,002		2,633,939			3,068,941
		Plymouth Meeting, PA		2,250,620		-		2,911,111		2,250,620			5,161,731
		Augusta, GA		-		-		176,656		674,253			850,909
		Florissant, MO		-		-		247,746		441,608			689,354
		Hammond, LA		-		-		247,600		813,514			1,061,114
		Mesa, AZ		-		-		195,652		512,566			708,218
		Indianapolis, IN		-		-		639,584		1,015,173			1,654,757
		Montgomery, AL		-		-		1,418,158		1,140,080			2,558,238
	Value City:
		Florissant, MO		-		-		2,490,210		2,937,449			5,427,659
	Vons:
		Moreno Valley, CA		-		-		759,050		1,652,164			2,411,214
	Walgreens:
		Sunrise, FL		-		-		1,957,974		1,400,970			3,358,944
	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
		Beeville, TX		-		-		507,231		2,315,424			2,822,655
		Corpus Christi, TX		-		-		630,043		3,131,407			3,761,450
	Waremart:
		Eureka, CA		-		-		3,135,036		5,470,607			8,605,643
	Washington Bike Center:
		Fairfax, VA		-		-		192,830		278,892			471,722
	Wendy’s Old Fashioned     Hamburger:
		Fenton, MO		-		-		307,068		496,410			803,478
		Sacramento, CA		-		-		585,872		-			585,872
		New Kensington, PA		-		-		501,136		333,445			834,581
	Whataburger:
		Albuquerque, NM		-		-		624,318		418,975			1,043,293
	Warehouse Music:
		Homewood, AL		-		-		1,031,974		696,950			1,728,924
	Winn-Dixie:
		Dallas, GA		-		-		1,287,630		1,952,791			3,240,421
		Woodstock, GA		-		-		1,937,017		1,284,901			3,221,918
		Columbus, GA		-		-		1,023,371		1,874,875			2,898,246
	Leasehold Interests:			-		-		3,380,756		-			3,380,756
			$	54,212,312	$	-	$	387,213,073	$	548,773,407		$	935,986,480
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 Springs, 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)
		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)
		Alice, TX		-		-		(d)		(d)			(d)
		Tampa, FL		-		-		-		(c)			(c)
		Lafayette, LA		-		-		-		(c)			(c)
		Moore, OK		-		-		-		(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		-		-		(l)		(c)			(c)
		Oklahoma City, OK		-		-		(l)		(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)
		Kennett Square, PA		1,984,435		-		(l)		(c)			(c)
		Arlington, TX		-		-		-		(c)			(c)
	Food 4 Less:
		Lemon Grove, CA		-		-		-		(c)			(c)
		Chula Vista, CA		-		-		-		(c)			(c)
	Food Lion:
		Keystone Heights, 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)
	Heilig-Meyers:
		York, PA		-		-		(d)		(d)			(d)
		Marlow Heights, MD		-		-		(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)
	Jared Jewelers:
		Aurora, IL		-		-		(l)		(c)			(c)
		Glendale, AZ		-		-		(l)		(c)			(c)
		Oviedo, FL		-		-		(l)		(c)			(c)
		Phoenix, AZ		-		-		(l)		(c)			(c)
		Toledo, OH		-		-		(l)		(c)			(c)
		Lewisville, TX		-		-		(l)		(c)			(c)
	Kash ’N Karry:
		Brandon, FL		-		-		(d)		(d)			(d)
	Levitz:
		Tempe, AZ		-		-		(d)		(d)			(d)
	Sports Authority:
		Dallas, TX		-		-		-		(c)			(c)
	Shop & Save:
		Homestead, PA		-		-		-		(c)			(c)
	SuperValu:
		Warwick, RI		-		-		-		(c)			(c)
			$	6,756,327	$	-	$	-	$	-		$	-

COMMERCIAL NET LEASE REALTY, INC. AND SUBSIDIARIES SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION AND AMORTIZATION December 31, 2003
			Accumulated Depreciation and Amortization		Date of Construction	Date Acquired		Life on Which Depreciation and Amortization in Latest Income Statement is Computed
Real Estate the Company      has Invested in Under      Operating Leases:
	Academy:
		Houston, TX	$	(c)	1994	05/95		(c)
		Houston, TX		(c)	1995	06/95		(c)
		N. Richland Hills, TX		(c)	1996	08/95	(f)	(c)
		Houston, TX		(c)	1996	02/96	(f)	(c)
		Houston, TX		(c)	1996	06/96	(f)	(c)
		Baton Rouge, LA		(c)	1997	08/96	(f)	(c)
		Houston, TX		195,005	1976	03/99		40 years
		Pasadena, TX		261,215	1994	03/99		40 years
		Beaumont, TX		293,401	1992	03/99		40 years
	Ace Hardware and Lighting:
		Bourbonnais, IL		86,061	1997	11/98		37.4 years
	Adams Sport Grill:
		Chandler, AZ		40,555	1997	12/01		40 years
	Albertsons:
		Sonora, CA		8,439	1984	03/99		40 years
	American Signature Home:
		White Marsh, MD		435,300	1998	03/98	(g)	40 years
	Amoco:
		Miami, FL		-	(e)	05/03		40 years
		Sunrise, FL		-	(e)	05/03		40 years
	Applebee's:
		Ballwin, CA		71,641	1995	12/01		40 years
	Arby's:
		Colorado Springs, CO		27,233	1998	12/01		40 years
		Thomson, GA		25,702	1997	12/01		40 years
		Whitmore Lake, MI		23,934	1993	12/01		40 years
		Albuquerque, NM		25,919	1993	12/01		40 years
		Albuquerque, NM		26,234	1988	12/01		40 years
		Santa Fe, NM		17,454	1998	12/01		40 years
		Washington Courthouse, OH		27,861	1998	12/01		40 years
	Ashley Furniture:
		Altamonte Springs, FL		778,294	1997	09/97		40 years
	Babies “R” Us:
		Arlington, TX		490,269	1996	06/96		40 years
		Independence, MO		117,493	1996	12/01		40 years
	Barnes & Noble:
		Brandon, FL		342,771	1995	08/94	(f)	40 years
		Denver, CO		629,595	1994	09/94		40 years
		Houston, TX		494,188	1995	10/94	(f)	40 years
		Plantation, FL		(c)	1996	05/95	(f)	(c)
		Freehold, NJ		447,737	1995	01/96		40 years
		Dayton, OH		533,887	1996	05/97		40 years
		Redding, CA		265,870	1997	06/97		40 years
		Marlton, NJ		553,315	1998	11/98		40 years
	Bed, Bath & Beyond:
		Richmond, VA		112,526	1997	06/98		33 years
		Los Angeles, CA		395,829	1975	11/98		40 years
		Glendale, AZ		307,452	1999	12/98	(g)	40 years
	Bedford Furniture:
		Everett, PA		62,277	1998	11/98		40 years
	Bennigan's:
		Aurora, CO		64,333	1996	12/01		40 years
		Milford, CT		35,591	1988	12/01		40 years
		Altamonte Springs, FL		47,184	1988	12/01		40 years
		Gainsville, FL		43,325	1993	12/01		40 years
		Jacksonville, FL		52,374	1993	12/01		40 years
		Schaumburg, IL		66,925	1988	12/01		40 years
		Flint, MI		45,697	1993	12/01		40 years
		Raleigh, NC		44,750	1993	12/01		40 years
		Tulsa, OK		65,874	1993	12/01		40 years
		Wichita Falls, TX		56,524	1993	12/01		40 years
	Best Buy:
		Brandon, FL		476,461	1996	02/97		40 years
		Evanston, IL		(c)	1994	02/97		(c)
		Cuyahoga Falls, OH		385,856	1970	06/97		40 years
		Rockville, MD		551,991	1995	07/97		40 years
		Fairfax, VA		512,872	1995	08/97		40 years
		St. Petersburg, FL		118,116	1997	09/97		33 years
		North Fayette, PA		317,667	1997	06/98		40 years
		Denver, CO		277,848	1991	06/01		40 years
	Big D's:
		Eden Prairie, MN		10,005	1997	12/01		40 years
	Blockbuster:
		Conyers, GA		90,975	1997	06/97		40 years
		Mobile, AL		25,444	1997	12/01		40 years
		Mobile, AL		28,711	1997	12/01		40 years
		Gainesville, GA		31,215	1997	12/01		40 years
		Glasgow, KY		28,629	1997	12/01		40 years
		Alice, TX		29,516	1995	12/01		40 years
		Kingsville, TX		23,362	1995	12/01		40 years
	BMW:
		Duluth, GA		208,260	1984	12/01		40 years
	Bodyworks Unlimited:
		Rincon, GA		61,684	1997	11/98		37.4 years
	Borders Books & Music:
		Wilmington, DE		1,367,920	1994	12/94		40 years
		Richmond, VA		556,384	1995	06/95		40 years
		Ft. Lauderdale, FL		159,256	1995	02/96		33 years
		Bangor, ME		467,995	1996	06/96		40 years
		Altamonte Springs, FL		(c)	1997	09/97		(c)
	Boston Market:
		Geneva, IL		48,054	1996	12/01		40 years
		Orland Park, IL		22,310	1995	12/01		40 years
		Wheaton, IL		46,961	1995	12/01		40 years
		Burton, MI		36,099	1997	12/01		40 years
		Novi, MI		21,224	1995	12/01		40 years
		North Olmsted, OH		21,078	1996	12/01		40 years
		Warren, OH		23,867	1997	12/01		40 years
		Dunmore, PA		24,431	1996	12/01		40 years
	Buffalo Wild Wings:
		Michigan City, IN		25,113	1996	12/01		40 years
	Burger King:
		Colonial Heights, VA		31,125	1997	12/01		40 years
	Carino's:
		Beaumont, TX		69,593	2000	12/01		40 years
		Lewisville, TX		51,994	1994	12/01		40 years
		Lubbock, TX		61,531	1995	12/01		40 years
	Champps:
		Alpharetta, GA		83,801	1999	12/01		40 years
		Irving, TX		88,007	2000	12/01		40 years
	Checkers:
		Orlando, FL		(c)	1988	07/92		(c)
	Claim Jumper:
		Tempe, AZ		149,071	2000	12/01		40 years
		Roseville, CA		102,780	2001	12/01		40 years
	CompUSA:
		Baton Rouge, LA		182,782	1995	12/95		40 years
		Miami, FL		452,797	1994	04/94		40 years
	Dave’s:
		Maple Heights, OH		494,040	1985	02/97		40 years
	Dave & Buster's:
		Utica, MI		(c)	1998	06/98		(c)
	Denny's:
		Columbus, TX		41,683	1997	12/01		40 years
	Dick’s Clothing:
		Taylor, MI		643,274	1996	08/96		40 years
		White Marsh, VA		714,411	1996	08/96		40 years
	Dollar Tree:
		Garland, TX		39,136	1994	02/94		40 years
		Copperas Cove, TX		72,485	1972	11/98		40 years
	Donato's:
		Medina, OH		23,662	1996	12/01		40 years
	East Meets West:
		Southfield, MI		34,791	1976	12/01		40 years
	Eckerd:
		San Antonio, TX		(c)	1993	12/93		(c)
		Dallas, TX		(c)	1994	01/94		(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)
		Amarillo, TX		(c)	1994	12/94		(c)
		Amarillo, TX		(c)	1994	12/94		(c)
		Glassboro, NJ		(c)	1994	12/94		(c)
		Kissimmee, FL		(c)	1995	04/95		(c)
		Tampa, FL		(c)	1995	12/95		(c)
		Lafayette, LA		(c)	1995	01/96		(c)
		Douglasville, GA		197,107	1996	01/96		40 years
		Moore, OK		(c)	1995	01/96		(c)
		Midwest City, OK		215,850	1996	03/96		40 years
		Irving, TX		(c)	1996	12/96		(c)
		Jasper, FL		(c)	1994	01/97		(c)
		Williston, FL		(c)	1995	01/97		(c)
		Pantego, TX		236,957	1997	06/97		40 years
		Conyers, GA		163,362	1997	06/97		40 years
		Norman, OK		(c)	1997	06/97		(c)
		Chattanooga, TN		(c)	1997	09/97		(c)
		Arlington, TX		187,656	1998	11/97	(g)	40 years
		Leavenworth, KS		184,375	1998	11/97	(g)	40 years
		Augusta, GA		200,394	1997	12/97		40 years
		Riverdale, GA		257,896	1997	12/97		40 years
		Warner Robins, GA		152,138	1999	3/98	(g)	40 years
		Lewisville, TX		176,666	1998	04/98	(g)	40 years
		Forest Hill, TX		157,830	1998	04/98	(g)	40 years
		Del City, OK		(c)	1998	05/98		(c)
		Arlington, TX		(c)	1998	05/98		(c)
		Garland, TX		178,794	1998	06/98	(g)	40 years
		Garland, TX		179,411	1998	06/98	(g)	40 years
		Oklahoma City, OK		182,356	1999	08/98	(g)	40 years
		Vineland, NJ		(c)	1999	09/98		(c)
		Dallas, TX		13,388	2003	06/99		40 years
		Gladstone, MO		146,776	2000	12/99	(g)	40 years
		Falls Church, VA		105,527	2002	10/01		40 years
		West Mifflin, PA		95,806	2002	02/02		40 years)
		Norfolk, PA		84,211	2002	02/02		40 years
		Thorndale, PA		115,877	2002	02/02		40 years
	Enterprise Rent-A-Car:
		Wilmington, NC		16,707	1995	12/01		40 years
	Fantastic Sams:
		Eden Prairie, MN		10,005	1997	12/01		40 years
	Fazoli’s Restaurant:
		Bay City, MI		32,355	1997	12/01		40 years
	Food 4 Less:
		Lemon Grove, CA		(c)	1996	07/95	(f)	(c)
		Chula Vista, CA		(c)	1995	11/98		(c)
	Gateway:
		Glendale, AZ		109,058	1999	12/98	(g)	40 years
	Gen-X Clothing:
		Federal Way, WA		231,538	1995	12/95		40 years
	Golden Corral:
		Leitchfield, KY		172,027	1984	12/84		35 years
		Atlanta, GA		206,258	1985	01/85		35 years
		Abbeville, LA		199,329	1985	04/85		35 years
		Lake Placid, FL		167,791	1985	05/85		35 years
		Tampa, FL		68,345	1997	12/01		40 years
		Brandon, FL		70,974	1998	12/01		40 years
		Dallas, TX		52,305	1994	12/01		40 years
	Good Guys, The:
		Foothill Ranch, CA		438,716	1995	12/96		40 years
		East Palo Alto, CA		407,872	1999	12/98	(f)	40 years
	GymKix:
		Copperas Cove, TX		61,451	1972	11/98		40 years
	H&R Block:
		Swansea, IL		9,029	1997	12/01		40 years
	Hancock Fabrics:
		Arlington, TX		260,571	1996	06/96		40 years
	Hastings:
		Nacogdoches, TX		161,105	1997	11/98		40 years
	Haverty's:
		Clearwater, FL		672,791	1992	05/93		40 years
		Orlando, FL		578,727	1992	05/93		40 years
		Pensacola, FL		299,582	1994	06/96		40 years
		Bowie, MD		488,804	1997	12/97		38.5 years
	Heilig-Meyers:
		Baltimore, MD		104,175	1968	11/98		40 years
		Glen Burnie, MD		119,357	1968	11/98		40 years
	Hollywood Video:
		Cincinnati, OH		26,573	1998	12/01		40 years
		Clifton, CO		37,387	1998	12/01		40 years
	Home Depot:
		Sunrise, FL		-	(e)	05/03		40 years
	HomeGoods:
		Fairfax, VA		95,231	1995	12/95		40 years
	Hooters:
		Tampa, FL		25,764	1993	12/01		40 years
	Hy-Vee:
		St. Joseph, MO		92,013	2002	09/02		40 years
	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)
		Midwest City, OK		-	(i)	03/96		(i)
	Jared Jewelers:
		Richmond, VA		68,199	1998	12/01		40 years
		Brandon, FL		48,071	2002	05/02		40 years
		Lithonia, GA		49,440	2002	05/02		40 years
		Houston, TX		37,490	2002	12/02		40 years
	Jo-Ann Etc:
		Corpus Christi, TX		229,384	1967	11/93		40 years
	Just For Feet:
		Albuquerque, NM		381,947	1997	06/97		40 years
	Kash N’ Karry:
		Palm Harbor, FL		10,027	1983	03/99		40 years
		Gainesville, FL		6,502	1982	03/99		40 years
		Brandon, FL		6,363	1983	03/99		40 years
		Sarasota, FL		6,999	19833	03/99		40 years
	Keg Steakhouse:
		Gresham, OR		5,527	1993	12/01		40 years
		Bellingham, WA		23,255	1981	12/01		40 years
		Lynnwood, WA		33,138	1992	12/01		40 years
		Tacoma, WA		40,564	1981	12/01		40 years
	KFC:
		Marysville, WA		27,848	1996	12/01		40 years
		Erie, PA		25,321	1996	12/01		40 years
	Lee County:
		Ft. Myers		610,993	1997	12/97		40 years
	Lowe’s:
		Memphis, TN		353,762	06/02	06/02		40 years
	Magic Dollar:
		Memphis, TN		82,175	1998	11/98		40 years
	MCI:
		Arlington, VA		10,206	1982	08/03		40 years
	Merchant's Square:
		Corpus Christi, TX		258,625	1983	03/99		40 years
	Merryland Chinese Buffet:
		Red Oak, TX		26,590	1986	12/01		40 years
	Mi Pueblo Foods:
		Watsonville, CA		8,588	1984	03/99		40 years
	Michaels:
		Fairfax, VA		129,632	1995	12/95		40 years
		Grapevine, TX		286,326	1998	06/98		40 years
	Mortgage Marketing:
		Swansea, IL		13,531	1997	12/01		40 years
	Mountain Jack's:
		Centerville, OH		54,075	1986	12/01		40 years
	Office Depot:
		Arlington, TX		349,837	1991	01/94		40 years
		Richmond, VA		369,577	1996	05/96		40 years
	OfficeMax:
		Corpus Christi, TX		266,600	1967	11/93		40 years
		Dallas, TX		427,590	1993	12/93		40 years
		Cincinnati, OH		373,282	1994	07/94		40 years
		Evanston, IL		376,179	1995	06/95		40 years
		Altamonte Springs, FL		600,760	1995	01/96		40 years
		Cutler Ridge, FL		277,643	1995	06/96		40 years
		Sacramento, CA		518,407	1996	12/96		40 years
		Salinas, CA		314,415	1995	02/97		40 years
		Redding, CA		356,776	1997	06/97		40 years
		Kelso, WA		268,950	1998	09/97	(g)	40 years
		Lynchburg, VA		244,915	1998	02/98		40 years
		Leesburg, FL		243,138	1998	08/98		40 years
		Tigard, OR		287,938	1995	11/98		40 years
		Dover, NJ		414,879	1995	11/98		40 years
		Griffin, GA		212,099	1999	11/98	(g)	40 years
	Party City:
		Memphis, TN		129,021	1999	12/98		40 years
	Penn Station Subs:
		Florissant, MO		7,076	1997	12/01		40 years
	Perfect Teeth:
		Rio Rancho, NM		6,238	1997	12/01		40 years
	Petco:
		Grand Forks, ND		137,422	1996	12/97		40 years
	PETsMART:
		Chicago, IL		471,707	1998	09/98		40 years
	Pier 1 Imports:
		Anchorage, AK		325,828	1995	02/96		40 years
		Memphis, TN		134,394	1997	09/96	(f)	40 years
		Sanford, FL		116,280	1998	06/97	(f)	40 years
		Knoxville, TN		91,089	1999	01/98	(f)	40 years
		Mason, OH		100,490	1999	06/98	(f)	40 years
		Harlingen, TX		79,580	1999	11/98	(f)	40 years
		Valdosta, GA		83,110	1999	01/99	(f)	40 years
	Pizza Hut:
		Monroeville, AL		2,258	1996	12/01		40 years
	Popeye’s:
		Snellville, GA		22,280	1995	12/01		40 years
	Print & Pack Plus:
		Eden Prairie, MN		11,673	1997	12/01		40 years
	Quizno’s:
		Rio Rancho, NM		5,166	1997	12/01		40 years
	Rally’s:
		Toledo, OH		94,860	1989	07/92		38.8 years
	Red Dragon Chinese Restaurant:
		Columbus, OH		56,516	1998	12/01		40 years
	Rent-A-Center:
		Rio Rancho, NM		15,815	1997	12/01		40 years
	Rite Aid:
		Mobile, AL		86,474	2000	12/01		40 years
		Orange Beach, AL		101,881	2000	12/01		40 years
	Roadhouse Grill:
		Cheektowaga, NY		19,715	1994	12/01		40 years
	Robb & Stucky:
		Ft. Myers, FL		951,124	1997	12/97		40 years
	Roger & Marv’s:
		Kenosha, WI		585,077	1992	02/97		40 years
	Ross Dress For Less:
		Coral Gables, FL		254,041	1994	06/96		40 years
		Lodi, CA		7,368	1984	03/99		40 years
	Schlotzsky’s Deli:
		Phoenix, AZ		16,397	1995	12/01		40 years
		Scottsdale, AZ		15,854	1995	12/01		40 years
	7-Eleven:
		Land’O Lakes, FL		101,267	1999	10/98	(g)	40 years
		Tampa Palms, FL		109,901	1999	12/98	(g)	40 years
	Shop & Save:
		Homestead, PA		(c)	1994	02/97		(c)
	Skipper’s Fish & Chips:
		Salem, OR		37,549	1996	12/01		40 years
		Spokane, WA		27,067	1996	12/01		40 years
	Sports Authority:
		Dallas, TX		(c)	1994	03/94		(c)
		Tampa, FL		285,641	1994	06/96		40 years
		Memphis, TN		335,060	1998	12/97	(g)	40 years
		Little Rock, AR		351,923	1998	09/98		40 years
		Woodbridge, NJ		143,335	1994	01/03		40 years
	Star Cafe:
		Henderson, TX		13,005	1995	12/01		40 years
	Steak & Ale:
		Jacksonville, FL		43,667	1996	12/01		40 years
		Indianpolis, IN		51,643	1996	12/01		40 years
		Oklahoma City, OK		47,356	1996	12/01		40 years
		Richmond, VA		50,794	1996	12/01		40 years
		Garland, TX		47,621	1996	12/01		40 years
	Stillwater Medical:
		Stillwater, OK		72,453	1998	11/98		37.5 years
	Stop & Go:
		Grand Prairie, TX		34,941	1986	12/01		40 years
		Kennedale, TX		35,330	1985	12/01		40 years
	Subway:
		Eden Prairie, MN		8,338	1997	12/01		40 years
	SuperValu:
		Huntington, WV		130,729	1971	02/97		40 years
		Warwick, RI		(c)	1992	02/97		(c)
	Swansea Quick Cash:
		Swansea, IL		6,758	1997	12/01		40 years
	Taco Bell:
		Ocala, FL		38,536	2001	12/01		40 years
		Ormond Beach, FL		26,828	2001	12/01		40 years
		Brooklyn Park, MN		21,373	1996	12/01		40 years
		Chanhassen, MN		33,121	1997	12/01		40 years
		Saint Cloud, MN		15,404	1999	12/01		40 years
		West Saint Paul, MN		65,979	1999	12/01		40 years
		Phoenix, AZ		14,139	1999	12/01		40 years
	Taco Bron Restaurant:
		Tuscon, AZ		16,469	1974	12/01		40 years
	Tara Grinna Swimwear:
		Conway, SC		73,837	1997	11/98		37.4 years
	Target:
		Chico, CA		21,944	1983	03/99		40 years
		Victorville, CA		20,988	1983	03/99		40 years
		San Diego, CA		22,243	1984	03/99		40 years
	Texas Roadhouse:
		Grand Junction, CO		46,966	1997	12/01		40 years
		Thornton, CO		52,020	1998	12/01		40 years
	TGI Friday’s:
		Corpus Christi, TX		78,202	1995	12/01		40 years
	Top’s:
		Lacy, WA		1,217,245	1992	02/97		40 years
	United States of America:
		Arlington, VA		1,108,377	1982	08/03		40 years
	United Trust Bank:
		Bridgeview, IL		37,983	1997	12/01		40 years
	Vacant Property:
		Vernon, TX		180,919	1985	03/85		35 years
		Raleigh, NC		329,293	1995	06/96		40 years
		Tampa, FL		384,162	1992	06/96		40 years
		Arlington, TX		352,351	1996	06/96		40 years
		Plymouth Meeting, PA		264,917	1999	10/98	(g)	40 years
		Augusta, GA		34,415	1998	12/01		40 years
		Florissant, MO		22,540	1997	12/01		40 years
		Hammond, LA		41,523	1997	12/01		40 years
		Mesa, AZ		26,162	1997	12/01		40 years
		Indianapolis, IN		51,816	1996	12/01		40 years
		Montgomery, AL		58,191	1999	12/01		40 years
	Value City:
		Florissant, MO		52,017	1996	04/03		40 years
	Von’s:
		Moreno Valley, CA		197,915	1983	03/99		40 years
	Walgreens:
		Sunrise, FL		21,890	1994	05/03		40 years
	Wal-Mart:
		Sealy, TX		177,694	1982	03/99		40 years
		Aransas Pass, TX		316,271	1983	03/99		40 years
		Winfield, AL		201,790	1983	03/99		40 years
		Beeville, TX		277,368	1983	03/99		40 years
		Corpus Christi, TX		375,116	1983	03/99		40 years
	Waremart:
		Eureka, CA		940,261	1965	02/97		40 years
	Washington Bike Center:
		Fairfax, VA		16,951	1995	12/95		40 years
	Wendy’s Old Fashioned     Hamburger:
		Fenton, MO		173,343	1985	07/92		33 years
		Sacramento, CA		-	(i)	02/98		(i)
		New Kensington, PA		17,020	1980	12/01		40 years
	Whataburger:
		Albuquerque, NM		21,385	1995	12/01		40 years
	Warehouse Music:
		Homewood, AL		35,574	1997	12/01		40 years
	Winn-Dixie:
		Dallas, GA		30,512	1997	05/03		40 years
		Woodstock, GA		20,077	1997	05/03		40 years
		Columbus, GA		21,483	1984	07/03		40 years
	Leasehold Interests:			1,302,983	-	(n)		(m)
			$	48,862,786
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	(f)	(c)
		Houston, TX		(c)	1996	02/96	(f)	(c)
		Houston, TX		(c)	1996	06/96	(f)	(c)
		Baton Rouge, LA		(c)	1997	08/96	(f)	(c)
	Barnes & Noble:
		Plantation, FL		(c)	1996	05/95	(f)	(c)
	Best Buy:
		Evanston, IL		(c)	1994	02/97		(c)
	Borders Books & Music:
		Altamonte Springs, 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)
		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	(h)	(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)
		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)
		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	(h)	(c)
		Arlington, TX		(c)	1998	11/98	(h)	(c)
		Kennett Square, PA		(c)	2000	12/00		(c)
		Arlington, TX		(c)	2002	02/02		(c)
	Food 4 Less:
		Lemon Grove, CA		(c)	1996	07/95	(f)	(c)
		Chula Vista, CA		(c)	1995	11/98		(c)
	Food Lion:
		Keystone Heights, 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)
	Heilig-Meyers:
		York, PA		(d)	1997	11/98		(d)
		Marlow Heights, MD		(d)	1968	11/98		(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)
	Jared Jewelers:
		Aurora, IL		(c)	2000	12/01		(c)
		Glendale, AZ		(c)	1998	12/01		(c)
		Oviedo, FL		(c)	1998	12/01		(c)
		Phoenix, AZ		(c)	1998	12/01		(c)
		Toledo, OH		(c)	1998	12/01		(c)
		Lewisville, TX		(c)	1998	12/01		(c)
	Kash ’N Karry:
		Brandon, FL		(d)	1997	10/96	(f)	(d)
	Levitz:
		Tempe, AZ		(d)	1994	01/95		(d)
	Sports Authority:
		Dallas, TX		(c)	1994	03/94		(c)
	Shop & Save:
		Homestead, PA		(c)	1994	02/97		(c)
	SuperValu:
		Warwick, RI		(c)	1992	02/97		(c)
			$	-

COMMERCIAL NET LEASE REALTY, INC. AND SUBSIDIARIES NOTES TO SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION AND AMORTIZATION December 31, 2003
(a)	Transactions in real estate and accumulated depreciation during 2003, 2002 and 2001 are summarized as follows:

	2003			2002			2001
Land, buildings and leasehold interests:
Balance at beginning of year	$	742,136,056		$	737,957,846		$	542,400,536
Acquisitions, completed construction and              tenant improvements		216,643,624			40,106,987			253,240,399
Disposition of land, buildings and              leasehold interests		(22,793,200	)		(32,643,284	)		(57,557,741	)
Provision for loss on impairment              of real estate		-			(3,285,493	)		(125,348	)
Balance at the close of year	$	935,986,480		$	742,136,056		$	737,957,846
Accumulated depreciation and amortization:
Balance at the beginning of year	$	38,671,148		$	31,678,077		$	27,438,288
Disposition of land, building, and              leasehold interests		(1,298,033	)		(3,155,003	)		(3,262,991	)
Depreciation and amortization expense		11,489,671			10,148,074			7,502,780
Balance at the close of year	$	48,862,786		$	38,671,148		$	31,678,077

(b)	As of December 31, 2003, all of the leases are treated as operating leases for federal income tax purposes. As of December 31, 2003, the aggregate cost of the properties owned by the Company and its subsidiaries for federal income tax purposes was $998,750,890.
(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 Company owns only the land for this building.
(f)	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.
(g)	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.
(h)	Date acquired represents date of building construction completion. The land has been recorded as operating lease.
(i)	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.
(j)	Property is encumbered as a part of the Company's $39,450,000 long-term, fixed rate mortgage and security agreement.
(k)	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.
(l)	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.
(m)	The leasehold interests are amortized over the life of the respective leases which range from 4.5 and 12.5 years.
(n)	The leasehold interest sites were acquired between August 1999 and August 2001.
(o)	In 2002, this property was contributed down to a wholly-owned subsidiary of the Company at the property's net book value.
(p)	Property is encumbered as a part of the Company's $21,000,000 long-term, fixed rate mortgage and security agreement.
(q)	In 2002, this property was owned by a wholly-owned limited liability entity that was dissolved into the Company.
(r)	The tenant of this property has subleased the property. The tenant 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.
(s)	Property is encumbered as a part of hte Company's $95,000,000 long-term, fixed rate mortgage and security agreement.
See accompanying report of independent auditors' on supplementary information.

COMMERCIAL NET LEASE REALTY, INC. AND SUBSIDIARIES SCHEDULE IV - MORTGAGE LOANS ON REAL ESTATE December 31, 2003
Description	Interest Rate	Final Maturity Date	Periodic Payment Terms	Prior Liens	Face Amount of Mortgages		Carrying    Amount of   Mortgages		(e)	Principal Amount of Loans Subject to Delinquent Principal or Interest
First mortgages on properties:
National City, CA	11.5%	2009	(b)	-	$	2,765,000	$	1,384,815		$	-
San Jose, CA	11.5%	2009	(b)	-		2,565,000		1,338,400			-
Rockledge, FL	10.0%	2018	(b)	-		400,000		377,432			-
Bonham, TX	10.0%	2013	(b)	-		210,000		190,830			-
Duncanville, TX	10.0%	2007	(d)	-		690,018		406,956			-
Independence, MO	10.0%	2007	(d)	-		1,068,788		474,339			-
Lawton and Oklahoma City, OK(g)	8.5%	2007	(c)	-		4,399,805		1,644,243			-
Burleson, TX(g)	8.5%	2007	(c)	-		2,355,279		409,445			-
Bellingham, WA	7.2%	2013	(b)	-		2,605,000		2,600,883			-
Indianapolis, IN	10.5%	2004	(b)	-		286,000		184,000			-
Lodi, CA	10.5%	2004	(b)	-		93,222		57,439			-
Sonora, CA	10.5%	2004	(b)	-		150,651		95,618			-
Mira Mesa, CA	10.5%	2004	(b)	-		369,447		265,860			-
Revolving lines of credit secured      by various properties:
Commercial Net Lease Realty              Services, Inc.	Prime rate + 0.25%	2006	(c)	-		12,587,705		12,587,705			-
					$	30,545,915	$	22,017,965	(a)	$	-

(a)	The following shows the changes in the carrying amounts of mortgage loans during the years:
		2003			2002			2001
	Balance at beginning of year	$	21,910,551		$	88,111,817		$	69,756,217
	New mortgage loans		35,027,502			30,716,396			43,984,088	(f)
	Deductions during the year:
	Collections of principal		(34,920,088	)		(96,917,662	)		(25,628,488	)
	Balance at the close of year	$	22,017,965		$	21,910,551		$	88,111,817
(b)	Principal and interest is payable at level amounts over the life of the loan.
(c)	Interest only payments are due quarterly.  Principal is due at maturity.
(d)	Interest only payments are due monthly.  Principal is due at maturity.
(e)	Mortgages held by the Company and its subsidiaries for federal income tax purposes for the years ended December 31, 2003, 2002 and 2001 were $22,017,965, $21,910,551, and $88,111,817, respectively.
(f)	Mortgages totaling $3,444,610, $599,252, and $610,000 were accepted in connection with real estate transactions for the years ended December 31, 2003, 2002 and 2001, respectively.
(g)	As of December 31, 1999, 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 affiliate of the Company).  The mortgagees are affiliates of certain members of the Company's board of directors.
See accompanying report of independent auditors’ on supplementary information.

EXHIBITS EXHIBIT INDEX
Exhibit Number
	(3)	Exhibits
		3.	Articles of Incorporation and By-laws
			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	Articles Supplementary Establishing and Fixing the Rights and Preferences of a Series of Preferred Stock (9% Series A Non-Voting Preferred Stock, par value $0.01 per share (the “Series A Preferred Stock”) (filed as Exhibit 3 to the Registrant’s Form 8-A dated November 26, 2001 and filed with the Securities and Exchange Commission on November 27, 2001, and incorporated herein by reference).
			3.3	Articles Supplementary Classifying and Designating 10,000 Preferred Shares as the Series B Preferred Stock (filed as Exhibit 3 to the Registrant’s Form 8-A dated August 12, 2003 and filed with the Securities and Exchange Commission on August 13, 2003, and incorporated herein by reference).
			3.4	Amended and Restated Bylaws of the Registrant (filed herewith).
		4.	Instruments defining the rights of security holders, including indentures
			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).
			4.7	Form of Supplemental Indenture No. 3 dated September 20, 2000, by and among Registrant and First Union National Bank, Trustee, relating to $20,000,000 of 8.5% Notes due 2010 (filed as Exhibit 4.2 to the Registrant’s Current Report on Form 8-K dated September 20, 2000, and incorporated herein by reference).
			4.8	Form of 8.5% Notes due 2010 (filed as Exhibit 4.3 to the Registrant’s Current Report on Form 8-K dated September 20, 2000, and incorporated herein by reference).
			4.9	Form of Supplement Indenture No. 4 dated May 30, 2002, by and among Registrant and Wachovia Bank, National Association, Trustee, relating to $50,000,000 of 7.75% Notes due 2012 (filed as Exhibit 4.2 to the Registrant’s Current Report on Form 8-K dated June 4, 2002, and incorporated herein by reference).
			4.10	Form of 7.75% Notes due 2012 (filed as Exhibit 4.3 to the Registrant’s Current Report on Form 8-K dated June 4, 2002 and incorporated herein by reference).
			4.11	Articles Supplementary Establishing and Fixing the Rights and Preferences of a Series of Preferred Stock (the Series A Preferred Stock) (filed as Exhibit 3 to the Registrant’s Form 8-A dated November 26, 2001 and filed with the Securities and Exchange Commission on November 27, 2001, and incorporated herein by reference).
			4.12	Specimen Stock Certificate relating to the Series A Preferred Stock (filed as Exhibit 4 to the Registrant’s Form 8-A dated November 26, 2001 and filed with the Securities and Exchange Commission on November 27, 2001, and incorporated herein by reference).
			4.13	Articles Supplementary Classifying and Designating 10,000 Preferred Shares as the Series B Preferred Stock (filed as Exhibit 3 to the Registrant’s Form 8-A dated August 12, 2003 and filed with the Securities and Exchange Commission on August 13, 2003, and incorporated herein by reference).
			4.14	Investment Agreement between the Registrant and The County Employees’ and Officers’ Annuity & Benefit Fund of Cook County dated August 12, 2003 (filed as Exhibit 2 to the Registrant’s Form 8-A dated August 12, 2003 and filed with the Securities and Exchange Commission on August 13, 2003, and incorporated herein by reference).
			4.15	Specimen Stock Certificate relating to the Series B Preferred Stock (filed as Exhibit 4 to the Registrant’s Form 8-A dated August 12, 2003 and filed with the Securities and Exchange Commission on August 13, 2003, and incorporated herein by reference).
		10.	Material Contracts
			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	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).
			10.3	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).
			10.4	Agreement and Plan of Merger dated May 15, 1997, by and among Commercial Net Lease Realty, Inc., Net Lease Realty II, Inc., 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).
			10.5	2000 Performance Incentive Plan (filed as Exhibit 99 to the Registrant’s Registration Statement No. 333-64794 on Form S-8 and incorporated herein by reference).
			10.6	Third Renewal Promissory Note dated as of April 1, 2001, by Commercial Net Lease Realty Services, Inc. in favor of Registrant relating to an $85,000,000 line of credit (filed as Exhibit 10.13 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2001, and incorporated herein by reference).
			10.7	Third Modification of Amended and Restated Secured Revolving Line of Credit and Security Agreement and Other Loan Documents effective as of April 1, 2001, by and between Registrant as lender and Commercial Net Lease Realty Services, Inc., as borrower, relating to an $85,000,000 line of credit (filed as Exhibit 10.14 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2001, and incorporated herein by reference).
			10.8	Fourth Modification of Amended and Restated Secured Revolving Line of Credit and Security Agreement and Other Loan Documents effective as of July 1, 2001, by and between Registrant as lender and Commercial Net Lease Realty Services, Inc., as borrower, relating to an $85,000,000 line of credit (filed as Exhibit 10.15 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2001, and incorporated herein by reference).
			10.9	Agreement and Plan of Merger, dated as of July 1, 2001, among Commercial Net Lease Realty, Inc. and Captec Net Lease Realty, Inc. (filed as Exhibit 99.1 to the Registrant’s Current Report on Form 8-K dated July 3, 2001, and incorporated herein by reference).
			10.10	Seventh Amended and Restated Line of Credit and Security Agreement, dated May 9, 2003, by and among Registrant, certain lenders and Wachovia Bank, N.A., as the Agent, relating to a $225,000,000 loan (filed as Exhibit 10.11 to the Registrant’s Current Report on Form 8-K dated July 11, 2003, and incorporated herein by reference).
			10.11	Real Estate Purchase Contract, dated as of July 23, 2003, by and between MCI Worldcom Network Services, Inc. and the Company (filed as Exhibit 10.1 to the Registrant’s Current Report on Form 8-K dated July 25, 2003, and incorporated herein by reference).
			10.12	U.S. Government Lease for Real Property, dated as of December 17, 2002, between MCI Worldcom Network Services, Inc. and the United States of America (filed as Exhibit 10.2 to the Registrant’s Current Report on Form 8-K dated July 25, 2003, 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, 2003 (filed herewith).
		23.	Consent of Independent Accountants dated March 10, 2004 (filed herewith).
		31.	Section 302 Certifications
			31.1	Certification of Chief Executive Officer (Craig Macnab - as of February 16, 2004) pursuant to Rule 13a-14, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith).
			31.2	Certification of Chief Executive Officer (James M. Seneff, Jr. - prior to February 16, 2004) pursuant to Rule 13a-14, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith).
			31.3	Certification of Chief Financial Officer pursuant to Rule 13a-14, as adopted pursuantto Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith).
		32.	Section 906 Certifications
			32.1	Certification of Chief Executive Officer (Craig Macnab - as of February 16, 2004) pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith).
			32.2	Certification of Chief Executive Officer (James M. Seneff, Jr. - prior to February 16, 2004) pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith).
			32.3	Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith).
	(b)	The Registrant filed the following reports on Form 8-K during the quarter ended December 31, 2003:
		1.	November 4, 2003 for the purpose of filing under Items 7 (Financial Statements and Exhibits) and 12 (Results of Operations and Financial Condition) a press release announcing its results of operations and financial condition for the quarter and year ended September 30, 2003.
		2.	November 26, 2003 for the purpose of filing under Items 5 (Other Events and Regulation FD Disclosure) and 7 (Financial Statements and Exhibits) announcing entry into a Limited Partnership Agreement by and between Net Lease Realty III, Inc., a wholly-owned subsidiary of the Company and Northern Trust Company.
		3.	December 3, 2003 for the purpose of filing under Item 5 (Other Events) a press release announcing that the Company agreed to issue and sell in an underwritten public offering approximately 3,000,000 shares of its common stock.
		4.	December 3, 2003 for the purpose of filing under Items 5 (Other Events) and 7 (Financial Statements and Exhibits) with respect to an announcement of the filing of a Prospectus Supplement to the Registration Statement on Form S-3, File No. 333-105635, for the offering by the Registrant of 3,250,000 shares of the Registrant’s Common Stock, par value $0.01.
		5.	December 4, 2003 for the purpose of amending the Form 8-K filed on November 26, 2003 for the purpose of filing under Items 5 (Other Events and Regulation FD Disclosure) and 7 (Financial Statements and Exhibits) announcing entry into a Limited Partnership Agreement by and between Net Lease Realty III, Inc., a wholly-owned subsidiary of the Company and Northern Trust Company.

EX-3.(II)

AMENDED AND RESTATED
BY-LAWS
OF
COMMERCIAL NET LEASE REALTY, INC.

(adopted on November 11, 2003)

ARTICLE I

OFFICES

        Section 1. Registered Office. The registered Office of Commercial Net Lease Realty, Inc. (the “Corporation”) shall be 300 East Lombard Street, Baltimore, Maryland 21202. The registered agent of the Corporation at such address is The Corporation Trust Incorporated.

        Section 2. Additional Offices. The Corporation may also have offices at such other places, both within and without the State of Maryland, as the board of directors of the Corporation (the “Board of Directors”) may from time to time determine or the business of the Corporation may require.

ARTICLE II

MEETING OF STOCKHOLDERS

        Section 1. Time and Place. Meetings of the stockholders of the Corporation (the “Stockholders”) shall be held at such places, either within or without the State of Maryland, as shall be designated from time to time by the Board of Directors and stated in the notice of the meeting or in a duly executed waiver of notice thereof.

        Section 2. Annual Meeting. The Annual Meeting of Stockholders for the election of directors and the transaction of other business shall be held, in each year, commencing with the year 1995, after delivery of the annual report referred to in Section 12 of this Article II, on such date and at such time and location as shall be designated from time to time by the Board of Directors and stated in the notice of the meeting. Failure to hold the Annual Meeting does not invalidate the Corporation’s existence or affect any otherwise valid acts of the Corporation.

        Section 3. Special Meetings. The Chairman of the Board, the Chief Executive Officer or a majority of the members of the Board of Directors may call a Special Meeting of the Stockholders. A Special Meeting shall also be called by the Secretary of the Corporation upon the written request of the Stockholders entitled to cast not less than a majority of all the votes entitled to be cast at such meeting. The Secretary shall inform such shareholders of the reasonably estimated cost of preparing and mailing notice of the meeting and, upon payment by such shareholders to the Corporation of such costs, the Secretary shall give notice to each shareholder entitled to notice of the meeting. Unless requested by shareholders entitled to cast a majority of all votes entitled to be cast at such meeting, a Special Meeting need not be called to consider any matter which is substantially the same as a matter voted on at any meeting of the Stockholders held during the preceding twelve (12) months.

        Section 4. Notice. Written notice of any meeting of Stockholders stating the place, date and hour of the meeting shall be given to each Stockholder entitled to vote thereat, either personally or by mail, not less than ten (10) nor more than ninety (90) days before the date of the meeting, unless a greater period of notice is required by statute in a particular case. In the case of a Special Meeting, the notice shall also state the purpose or purposes for which the meeting is called. If mailed, such notice shall be deemed to have been given when deposited in the United States mail, postage prepaid, directed to the Stockholder at the Stockholder’s address as it appears on the records of the Corporation.

        Section 5. Corporate Records and Stockholder Lists. The officer who has charge of the stock ledger of the Corporation shall prepare and keep, or cause to have prepared and kept, as part of the books and records of the Corporation, a list of the names and addresses of all Stockholders of the Corporation. Inspection of all the books and records of the Corporation by Stockholders shall be permitted to the extent provided by the Maryland General Corporation Law.

        Section 6. Quorum: Adjournments. Unless otherwise provided by statute or the Articles of Incorporation, at a meeting of Stockholders the presence in person or by proxy of Stockholders entitled to cast a majority of all the votes entitled to be cast at a meeting of Stockholders, shall constitute a quorum. If, however, such quorum shall not be present or represented at any meeting of the Stockholders, the Stockholders entitled to vote thereat, present in person or represented by proxy, shall have the power to adjourn the meeting from time to time, without further notice to a date not more than one hundred twenty (120) days after the original record date. At such adjourned meeting at which a quorum shall be present, any business may be transacted which might have been transacted at the meeting as originally notified.

        Section 7. Voting. A plurality of all votes cast at a meeting of Stockholders duly called and at which a quorum is present shall be sufficient to elect a Director. Each share of stock may be voted for as many individuals as there are Directors to be elected and for whose election the shares of stock are entitled to be voted. When a quorum is present at any meeting, the vote of the holders of a majority of the votes cast shall decide any other question brought before such meeting, unless more than a majority of the votes cast is required herein or by statute or by the Articles of Incorporation.

        Section 8. Voting Procedure. Unless otherwise provided in the Articles of Incorporation, each Stockholder shall, at every meeting of the Stockholders, regardless of class, be entitled to one (1) vote in person or by proxy for each share of stock held by such Stockholder.

        Section 9. Proxies. A Stockholder may cast the votes entitled to be cast by the share of stock owned of record by the Stockholder either in person or by proxy executed by the Stockholder or by the Stockholder’s duly authorized agent in any manner allowed by law. Such proxy shall be filed with the Secretary of the Corporation before or at the time of the meeting. No proxy shall be valid after eleven (11) months from the date of its execution, unless otherwise provided in the proxy.

        Section 10. Voting of Stock By Certain Holders. Shares of stock of the Corporation registered in the name of a corporation, partnership, limited liability company, trust or other entity, if entitled to be voted, may be voted by the president or a vice president, a general partner, a manager, a managing member or trustee thereof, as the case may be, or a proxy appointed by any of the foregoing individuals, unless some other person who has been appointed to vote such stock pursuant to a by-law or a resolution of the governing board of such corporation or other entity or agreement of the partners of the partnership or agreement of the members of the limited liability company presents a certified copy of such by-law, resolution or agreement, in which case such person may vote such stock. Any trustee or other fiduciary may vote stock registered in such person’s name as such fiduciary, either in person or by proxy.

        Shares of stock of the Corporation directly or indirectly owned by it shall not be voted at any meeting and shall not be counted in determining the total number of outstanding shares of stock entitled to be voted at any given time, unless they are held by it in a fiduciary capacity, in which case they may be voted and shall be counted in determining the total number of outstanding shares of stock at any given time.

        The Directors may adopt by resolution a procedure by which a Stockholder may certify in writing to the Corporation that any shares of stock registered in the name of the Stockholder are held for the account of a specified person other than the Stockholder. The resolution shall set forth the class of Stockholders who may make the certification, the purpose for which the certification may be made, the form of certification and the information to be contained in it; if the certification is with respect to a record date or closing of the stock transfer books, the time after the record date or closing of the stock transfer books within which the certification must be received by the Corporation; and any other provisions with respect to the procedure which the Directors consider necessary or desirable. On receipt of such certification, the person specified in the certification shall be regarded as, for the purposes set forth in the certification, the stockholder of record of the specified shares of stock in place of the stockholder who makes the certification.

        Section 11. Inspectors. At any meeting of Stockholders, the Chairman of the meeting may appoint one or more persons as inspectors for such meeting. Such inspectors shall ascertain and report the number of shares of stock represented at the meeting based upon their determination of the validity and effect of proxies, count all votes, report the results and perform such other acts as are proper to conduct the election and voting with impartiality and fairness to all the Stockholders.

        Each report of an inspector shall be in writing and signed by the inspector or by a majority of them if there is more than one inspector acting at such meeting. If there is more than one inspector, the report of a majority shall be the report of the inspectors. The report of the inspector or inspectors on the number of shares of stock represented at the meeting and the results of the voting shall be prima facie evidence thereof.

        Section 12. Reports to Stockholders. The Directors shall submit to the Stockholders at or before the Annual Meeting of Stockholders a report of the business and operations of the Corporation during such fiscal year, containing a balance sheet and a statement of income and surplus of the Corporation, accompanied by the certification of an independent certified public accountant, and such further information as the Directors may determine is required pursuant to any law or regulation to which the Corporation is subject. Within the earlier of twenty (20) days after the Annual Meeting of Stockholders or one hundred twenty (120) days after the end of the fiscal year of the Corporation, the Directors shall place the annual report on file at the principal office of the Corporation and with any governmental agencies as may be required by law and as the Directors may deem appropriate.

        Section 13. Nominations and Proposals by Stockholders.

                (a)     Annual Meetings of Stockholders.

                        (i)     Nominations of persons for election to the Board of Directors and the proposal of business to be considered by the Stockholders may be made at an Annual Meeting of Stockholders: (A) pursuant to the Corporation’s notice of meeting; (B) by or at the direction of the Directors; or (C) by any Stockholder of the Corporation who was a stockholder of record both at the time of giving of notice provided for in this Section 13(a) and at the time of the annual meeting, who is entitled to vote at the meeting and who complied with the notice procedures set forth in this Section 13(a).

                        (ii)     For nominations or other business to be properly brought before an Annual Meeting by a Stockholder pursuant to clause (C) of paragraph (a) (i) of this Section 13, the Stockholder must have given timely notice thereof in writing to the Secretary of the Corporation and such other business must otherwise be a proper matter for action by Stockholders. To be timely, a Stockholder’s notice shall be delivered to the Secretary at the principal executive offices of the Corporation not later than the close of business on the 120^th calendar day before the first anniversary of the date of the Corporation’s proxy statement released to Stockholders in connection with the preceding year’s Annual Meeting; provided, however, that in the event that the date of the current year’s Annual Meeting has been changed by more than thirty (30) days from the date of the preceding year’s meeting or if the Corporation did not hold an Annual Meeting the preceding year, notice by the Stockholder to be timely must be so delivered within a reasonable time before the Annual Meeting begins to print and mail its proxy materials. In no event shall the public announcement of a postponement or adjournment of an Annual Meeting to a later date or time commence a new time period for the giving of a Stockholder’s notice as described above. Such Stockholder’s notice shall set forth: (A) as to each person whom the Stockholder proposes to nominate for election or reelection as a Director all information relating to such person that is required to be disclosed in solicitations of proxies for election of Directors in an election contest, or is otherwise required, in each case pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) (including such person’s written consent to being named in the proxy statement as a nominee and to serving as a Director if elected); (B) as to any other business that the Stockholder proposes to bring before the meeting, a brief description of the business desired to be brought before the meeting, the reasons for conducting such business at the meeting and any material interest in such business of such Stockholder and of the beneficial owner, if any, on whose behalf the proposal is made; and (C) as to the Stockholder giving the notice and the beneficial owner, if any, on whose behalf the nomination or proposal is made: (i) the name and address of such Stockholder, as it appears on the Corporation’s books, and of such beneficial owner; and (ii) the number of each class of shares of the Corporation which are owned beneficially and of record by such Stockholder and such beneficial owner.

                        (iii)     Notwithstanding anything in the second sentence of paragraph (a) (ii) of this Section 13 to the contrary, in the event that the number of Directors to be elected to the Board of Directors is increased and there is no public announcement by the Corporation naming all of the nominees for Director or specifying the size of the increased Board of Directors at least seventy (70) days prior to the first anniversary of the preceding year’s annual meeting, a Stockholder’s notice required by this Section 13(a) shall also be considered timely, but only with respect to nominees for any new positions created by such increase, if it shall be delivered to the Secretary at the principal executive offices of the Corporation not later than the close of business on the 10^th day following the day on which such public announcement is first made by the Corporation.

                (b)     Special Meetings of Shareholders. Only such business shall be conducted at a Special Meeting of Stockholders as shall have been brought before the meeting pursuant to the Corporation’s notice of meeting. Nominations of persons for election to the Board of Directors may be made at a Special Meeting of Stockholders at which Directors are to be elected: (i) pursuant to the Corporation’s notice of meeting; (ii) by or at the direction of the Board of Directors; or (iii) provided that the Board of Directors has determined that Directors shall be elected at such Special Meeting, by any Stockholder of the Corporation who was a Stockholder of record both at the time of giving of notice provided for in this Section 13(b) and at the time of the Special Meeting, who is entitled to vote at the meeting and who complied with the notice procedures set forth in this Section 13(b). In the event the Corporation calls a Special Meeting of Stockholders for the purpose of electing one or more Directors to the Board of Directors, any such Stockholder may nominate a person or persons (as the case may be) for election to such position as specified in the Corporation’s notice of meeting, if the Stockholder’s notice containing the information required by paragraph (a) (ii) of this Section 13 shall be delivered to the Secretary at the principal executive offices of the Corporation not earlier than the close of business on the ^120th day prior to such Special Meeting and not later than the close of business on the later of the 90^th day prior to such Special Meeting or the 10^th day following the day on which public announcement is first made of the date of the Special Meeting and of the nominees proposed by the Directors to be elected at such meeting. In no event shall the public announcement of a postponement or adjournment of a Special Meeting to a later date or time commence a new time period for the giving of a Stockholder’s notice as described above.

                (c)     General.

                        (i)     Only such persons who are nominated in accordance with the procedures set forth in this Section 13 shall be eligible to be elected as Directors and only such business shall be conducted at a meeting of Stockholders as shall have been brought before the meeting in accordance with the procedures set forth in this Section 13. The chairman of the meeting shall have the power and duty to determine whether a nomination or any business proposed to be brought before the meeting was made or proposed, as the case may be, in accordance with the procedures set forth in this Section 13 and, if any proposed nomination or business is not in compliance with this Section 13, to declare that such nomination or proposal shall be disregarded.

                        (ii)     For purposes of this Section 13, “public announcement” shall mean disclosure in a press release reported by the Dow Jones News Service, Associated Press or comparable news service or in a document publicly filed by the Corporation with the Securities and Exchange Commission pursuant to Section 13, 14 or 15(d) of the Exchange Act.

                        (iii)     Notwithstanding the foregoing provisions of this Section 13, a Stockholder shall also comply with all applicable requirements of state law and of the Exchange Act and the rules and regulations thereunder with respect to the matters set forth in this Section 13. Nothing in this Section 13 shall be deemed to affect any rights of Stockholders to request inclusion of proposals in, nor the right of the Corporation to omit a proposal from, the Corporation’s proxy statement pursuant to Rule 14a-8 under the Exchange Act.

        Section 14. Informal Action by Stockholders.

                (a)     Any action by Stockholders may be taken without a meeting, if a majority of shares of Stock entitled to vote on the matter (or such larger proportion of shares of Stock as shall be required to take such action) consent to the action in writing and the written consents are filed with the records of the meetings of Stockholders.

                (b)     In order that the Corporation may determine the Stockholders entitled to consent to action in writing without a meeting, the Board of Directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board of Directors, and which date shall not be more than ten (10) days after the date upon which the resolution fixing the record date is adopted by the Board of Directors. Any Stockholder of record seeking to have the Stockholders authorize or take action by written consent shall, by written notice to the Secretary of the Corporation, request the Board of Directors to fix a record date. The Board of Directors shall promptly, but in all events within ten (10) days of the date on which such a request is received, adopt a resolution fixing the record date. If no record date has been fixed by the Board of Directors within ten (10) days of the date on which such a request is received and no prior action by the Board of Directors is required by applicable law, the record date for determining Stockholders entitled to consent to action in writing without a meeting shall be the first date on which a signed written consent setting forth the action taken or proposed to be taken is delivered to the Corporation by delivery to its registered office in the State of Maryland, its principal place of business, or an officer or agent of the Corporation having custody of the book in which proceedings of Stockholders meetings are recorded, in each case to the attention of the Secretary of Corporation. Delivery shall be by hand or by certified or registered mail, return receipt requested. If no record date has been fixed by the Board of Directors within ten (10) days of the date on which such a request is received and prior action by the Board of Directors is required by applicable law, the record date for determining Stockholders entitled to consent to action in writing without a meeting shall be at the close of business on the date on which the Board of Directors adopts the resolution taking such prior action.

        Section 15. Voting by Ballot. Voting on any question or in any election may be by voice unless the presiding officer shall order or any Stockholder shall demand that voting be by ballot.

ARTICLE III

DIRECTORS

        Section 1. Number. The number of directors (“Directors”) which shall constitute the whole Board shall be no fewer than three (3) and no more than twelve (12). Such numbers may be altered (but not to less than three (3)) by amendment to this By-law.

        Section 2. Selection. The Directors shall be elected at the Annual Meeting of the Stockholders, except as provided in Section 5 of this Article, and except that the first Directors of the Corporation were named in the Articles of Incorporation, each Director elected shall hold office until the next Annual Meeting of the Stockholders and until the Director’s successor is elected and qualified, or until the Director’s earlier resignation or removal.

        Section 3. Composition. A majority of the members of the Board of Directors shall, except during the period of a vacancy or vacancies therein, be Independent Directors. Independent Directors are persons who are not affiliated, directly or indirectly, with any person, corporation, association, company, trust, partnership (limited or general) or other organization (any “Manager”) to whom the Board of Directors has delegated management duties as permitted by Section 16 of this Article, whether by ownership of, ownership interest in, employment by, any business or professional relationship with, or service as an officer or director of such Manager or an affiliated business entity of such Manager. A Director also shall not be deemed an Independent Director if the Director performs any services for the Corporation other than as a Director. Any decision by the Corporation with respect to the purchase or sale of any real property, or the leasing of the Corporation’s real property, shall be subject to the approval of (i) the Directors and (ii) the Independent Directors.

        Section 4. Chairman of the Board. The Board of Directors may elect from among the Directors a Chairman of the Board of Directors by affirmative vote of a majority of the full Board of Directors taken at any regular or special meeting of Directors. The Chairman of the Board shall act as chairman at all meetings of the Stockholders at which the Chairman of the Board is present and shall preside at all meetings of the Board of Directors at which the Chairman of the Board is present. In the absence of the Chairman of the Board, the duties of the Chairman of the Board shall be performed and the authority of the Chairman of the Board may be exercised by the Vice Chairman of the Board.

        Section 5. Vice Chairman of the Board. The Board of Directors may elect from among the Directors a Vice Chairman of the Board of Directors by affirmative vote of a majority of the full Board of Directors taken at any regular or special meeting of Directors. The Vice Chairman of the Board shall, in the absence of the Chairman of the Board, act as chairman at all meetings of the Stockholders at which the Vice Chairman of the Board is present and shall preside at all meetings of the Board of Directors at which the Vice Chairman of the Board is present.

        Section 6. Resignation. Removal. Any Director may resign at any time upon written notice to the Corporation. Any Director may be removed, with or without cause, by the vote or written consent of the holders of a majority of the outstanding shares of Common Stock then entitled to vote for the election of Directors.

        Section 7. Vacancies.

                (a)     Vacancies in positions on the Board of Directors held by Independent Directors occurring for any cause other than by reason of an increase in the number of Directors shall be filled by nomination of the remaining Independent Directors and vacancies in positions on the Board of Directors held by Directors who are not Independent Directors occurring for any cause other than by reason of an increase in the number of Directors shall be filled by nomination of the remaining Directors who are not Independent Directors.

                (b)     Any vacancy occurring by reason of any increase in the number of Directors or the removal of a Director shall be filled by the action of a majority of the entire Board of Directors.

                (c)     A Director selected by the Directors to fill a vacancy shall hold office until the next Annual Meeting of Stockholders and until the Director’s successor is elected and qualified.

        Section 8. General Powers. The business and affairs of the Corporation shall be managed by its Board of Directors, which may exercise all such powers of the Corporation and do all such lawful acts and things as are not by statute or by the Articles of Incorporation or by these By-laws directed or required to be exercised or done by the Stockholders. A Director shall be an individual at least twenty-one (21) years of age who is not under legal disability. In case of failure to elect Directors at an Annual Meeting of Stockholders, the Directors holding over shall continue to direct the management of the business and affairs of the Corporation until their successors are elected and qualify.

        Section 9. Place of Meetings. The Board of Directors of the Corporation may hold meetings, both regular and special, either within or without the State of Maryland at such place or places as the Board may from time to time designate (in the case of regular meetings) or as shall be specified in the notice of such meeting (in the case of special meetings).

        Section 10. Regular Meetings. The Directors may provide, by resolution, the time and place, either within or without the State of Maryland, for the holding of regular meetings of the Board of Directors without other notice than such resolution.

        Section 11. Special Meetings. Special meetings of the Board may be called by the Chairman or the Chief Executive Officer; special meetings shall also be called by the Chairman or Secretary pursuant to the written request of a majority of the Directors.

        Section 12. Notice. Notice of any special meeting of the Board shall be given by written notice delivered personally, telegraphed, facsimile-transmitted, mailed electronically or mailed to each Director at the Director’s business or residence address. Personally delivered or telegraphed notices shall be given at least two (2) days prior to the meeting. Notice by mail shall be given at least five (5) days prior to the meeting. Telephone, facsimile-transmitted or electronically mail notice shall be given at least twenty-four (24) hours prior to the meeting. If mailed, such notice shall be deemed to be given when deposited in the United States mail properly addressed, with postage thereon prepaid. If given by telegram, such notice shall be deemed to be given when the telegram is delivered to the telegraph company. Telephone notice shall be deemed given when the Director is personally given such notice in a telephone call to which the Director is a party. Electronic mail notice shall be deemed to be given upon transmission of the message to the electronic mail address previous given by the Director to, and on file with, the Corporation. Facsimile-transmission notice shall be deemed given upon completion of the transmission of the message to the number previous given by the Director to, and on file with, the Corporation and receipt of a completed transmission report confirming delivery. Neither the business to be transacted at, nor the purpose of, any annual, regular or special meeting of the Directors need be stated in the notice, unless specifically required by statute or these By-laws.

        Section 13. Quorum: Voting.

                (a)     At all meetings of the Board, a majority of the total number of Directors shall constitute a quorum for the transaction of business and the act of a majority of the Directors present at any meeting at which a quorum is present shall be the act of the Board of Directors, unless statute, the Articles of Incorporation or these By-laws require a greater proportion.

                (b)     If a quorum shall not be present at any meeting of the Board of Directors, the Directors present thereat may adjourn the meeting from time to time, without notice other than announcement at the meeting of the time and place of the adjourned meeting, until a quorum shall be present.

                (c)     The Directors present at a meeting which has been duly called and convened may continue to transact business until adjournment, notwithstanding the withdrawal of enough Directors to leave less than a quorum.

        Section 14. Telephone Meetings. Directors may participate in a meeting by means of a conference telephone or similar communications equipment if all persons participating in the meeting can hear each other at the same time. Participation in a meeting by these means shall constitute presence in person at the meeting.

        Section 15. Action by Written Consent. Unless otherwise restricted by the Articles of Incorporation or these By-laws, any action required or permitted to be taken at any meeting of the Board of Directors may be taken without a meeting, if all members of the Board consent thereto in writing, and if the writing or writings are filed with the minutes of proceedings of the Board.

        Section 16. Compensation; Financial Assistance. Directors shall not receive any stated salary for their services as Directors but, by resolution of the Directors, may receive compensation per year and/or per meeting and for any service or activity they performed or engaged in as Directors. Directors may be reimbursed for expenses of attendance, if any, at each annual, regular or special meeting of the Directors or of any committee thereof; and for their expenses, if any, in connection with any other service or activity performed or engaged in as Directors; but nothing herein contained shall be construed to preclude any Directors from serving the Corporation in any other capacity and receiving compensation therefor.

        Section 17. Loss of Deposits. No Director shall be liable for any loss which may occur by reason of the failure of the bank, trust company, savings and loan association, or other institution with whom moneys or shares have been deposited.

Section 18. Surety Bonds. Unless required by law, no Director shall be obligated to give any bond or surety or other security for the performance of any of the Director’s duties.

ARTICLE IV

COMMITTEES

        Section 1. Committees. The Board of Directors may, by resolution passed by a majority of the whole Board, designate one or more committees, each committee to consist of two or more of the Directors of the Corporation and the Board may designate one or more Directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee; provided, however, that the majority of the members of the Corporation’s audit committee, and at least one (1) member of each and any other committee, except during the period of a vacancy or vacancies therein, shall be Independent Directors. Any such committee, to the extent provided in the resolution, and subject to any restrictions imposed by statute, shall have and may exercise the powers of the Board of Directors in the management of the business and affairs of the Corporation, except the power to (i) declare dividends or distributions of stock; (ii) issue stock, except in accordance with resolution of the Board or by adoption of a stock option or other plan; (iii) recommend to the Stockholders any action which requires Stockholder approval; (iv) amend these By-laws; (v) approve any merger or share exchange which does not require Stockholder approval; or (vi) take such other action which may be from time to time prohibited by the Maryland General Corporation Law. Such committee or committees may also authorize the seal of the Corporation to be affixed to all papers which may require it.

        Section 2. Meetings. Each committee may designate a chairman of such committee. Meetings of any committee may be called by or at the request of the chairman of the committee, the Chief Executive Officer or by a majority of the members of the committee. The person or persons authorized to call meetings of any committee may fix any place, either within or without the State of Maryland, as the place for holding any meetings of the committee called by them. In the absence or disqualification of any member of such committee or committees, the member or members thereof present at any meeting and not disqualified from voting, whether or not the member or members constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of any such absent or disqualified member.

        Section 3. Notice of Committee Meetings. Notice of committee meetings shall be given in the same manner as notice for special meetings of the Board of Directors.

        Section 4. Quorum for Committee Meetings. The presence of a majority of the total membership of any committee shall constitute a quorum for the transaction of business at any meeting of such committee and the act of a majority of those present shall be necessary and sufficient for the taking of any action at such meeting.

        Section 5. Vacancies, Removal and Dissolution. Subject to the provisions hereof, the Board of Directors shall have the power at any time to change the membership of any committee, to fill all vacancies, to designate alternative members to replace any absent or disqualified member, or to dissolve any such committee.

        Section 6. Telephone Meetings. Members of a committee may participate in a committee meeting by means of a conference telephone or similar communications equipment if all persons participating in the committee meeting can hear each other at the same time. Participation in a committee meeting by these means shall constitute presence in person at the committee meeting.

        Section 7. Informal Action by Committees. Any action required or permitted to be taken at any committee meeting may be taken without a committee meeting, if a consent in writing to such action is signed by each member of the committee and such written consent is filed with the minutes of proceedings of the committee.

        Section 8. Minutes of Committees. Each committee shall keep regular minutes of its meetings and report the same to the Board of Directors when required.

ARTICLE V

WAIVER OF NOTICE

        Section 1. Waiver. Whenever any notice is required to be given under the provisions of any applicable statute or of the Articles of Incorporation or of these By-laws, a waiver thereof in writing, signed by the person or persons entitled to said notice, whether before or after the time stated therein, shall be deemed equivalent thereto. Attendance of a person at a meeting of Stockholders, Directors, or a committee of Directors, shall constitute a waiver of notice of such meeting, except where such person attends a meeting for the express purpose of objecting to the transaction of any business on the ground that the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the Stockholders, Directors, or members of a committee of Directors need to be specified in any written waiver of notice unless so required by the Articles of Incorporation or these By-laws.

ARTICLE VI

OFFICERS

        Section 1. Number: Qualification. The officers of the Corporation shall be chosen by the Board of Directors and shall include a Chief Executive Officer, a President, a Treasurer, and a Secretary. The officers of the Corporation may also include the Chairman of the Board, one or more Vice Presidents and one or more Assistant Treasurers or Assistant Secretaries. In addition, the Directors may from time to time appoint such other officers with such powers and duties as they shall deem necessary or desirable. Any number of offices may be held by the same person unless the Articles of Incorporation or these By-laws provide otherwise, but the President may not serve concurrently as Vice President.

        Section 2. Election. The officers of the Corporation shall be elected annually by the Board of Directors, except that the Chief Executive Officer or President may from time to time appoint one or more Vice Presidents (not designated as Executive Vice President or Senior Vice President), Assistant Treasurers and Assistant Secretaries or other officers. Each officer shall hold office until the officer’s successor is elected and qualifies or until the officer’s death, resignation or removal in the manner hereinafter provided. Election of an officer or agent shall not of itself create contract rights between the Corporation and such officer or agent.

        Section 3. Compensation. The salaries of all officers and agents of the Corporation shall be fixed by or in the manner prescribed by the Board of Directors.

        Section 4. Removal and Resignation. Any officer elected or appointed by the Board of Directors may be removed at any time by the affirmative vote of a majority of the whole Board if, in its judgment, the Board finds that the best interests of the Corporation will be served, but such removal shall be without prejudice to the contractual rights of any person so removed. Any officer may resign at any time upon written notice to the Corporation. Any officer appointed by either the Chief Executive Officer or the President may be removed by either the Chief Executive Officer or the President if, in such officer’s judgment, the officer finds that the best interests of the Corporation will be served, but such removal shall be without prejudice to the contractual rights of any person so removed. Any resignation shall take effect at any time subsequent to the time specified therein or, if the time when it shall become effective is not specified therein, immediately upon its receipt. The acceptance of a resignation shall not be necessary to make it effective unless otherwise stated in resignation. Such resignation shall be without prejudice to the contract rights, if any, of the Corporation.

        Section 5. Vacancy. Any vacancy occurring in any office of the Corporation shall be filled by or in the manner prescribed by the Board of Directors.

        Section 6. Chief Executive Officer. The Directors may designate a Chief Executive Officer from among the elected officers. The Chief Executive Officer shall direct, coordinate and control the Corporation’s business and activities and its operating expenses and capital expenditures, and shall have general authority to exercise all the powers necessary for the chief executive officer of the Corporation, all in accordance with basic policies established by and subject to the control of the Board of Directors. The Chief Executive Officer may employ and discharge employees and agents of the Corporation, except such as shall be appointed by the Board, and the Chief Executive Officer may delegate these powers. The Chief Executive Officer shall have general authority to execute bonds, deeds and contracts in the name and on behalf of the Corporation.

        Section 7. President. In the absence of a designation of a Chief Executive Officer by the Directors, the President shall be the chief executive officer. The President shall have general authority to execute bonds, deeds and contracts in the name and on behalf of the Corporation, except in cases where the execution thereof shall be expressly delegated by the Directors or by these By-laws to some other officer or agent of the Corporation or shall be required by law to be otherwise executed; and in general shall perform all duties incident to the office of President and such other duties as may be prescribed by the Directors from time to time.

        Section 8. Vice President. In the absence of the President, the Vice President (or in the event there be more than one Vice President, the Vice Presidents in the order of seniority designated at the time of their election or, in the absence of any designation, then in the order of their election) shall perform the duties of the President, and when so acting, shall have all the powers of and be subject to all the restrictions upon the president. The Vice President shall generally assist the Chairman of the Board and the President and shall perform such other duties and have such other powers as the Board of Directors may from time to time prescribe. The Directors may designate one or more Vice Presidents as Executive Vice President, Senior Vice President or as Vice President for particular areas of responsibility.

        Section 9. Secretary. The Secretary shall attend all meetings of the Board of Directors and meetings of the Stockholders and shall record all the proceedings of the meetings of the Stockholders and of the Board of Directors in a book to be kept for that purpose. The Secretary shall give, or cause to be given, required notice of all meetings of the Stockholders and the Board of Directors, and shall perform such other duties as may be prescribed by the Board of Directors. The Secretary shall have custody of the stock certificate books and Stockholder records and such other books and records as the Board of Directors may direct. The Secretary shall have custody of the corporate seal of the Corporation and shall have authority to affix the same to any instrument requiring it and when so affixed, it may be attested by the Secretary’s signature. The Board of Directors may give general authority to any other officer to affix the seal of the Corporation and to attest the affixing thereof by the Secretary’s signature.

        Section 10. Treasurer. The Treasurer shall have custody of the corporate funds and securities and shall keep full and accurate accounts of receipts and disbursements in books belonging to the Corporation and shall deposit all monies and other valuable effects in the name and to the credit of the Corporation in such depositories as may be designated by the Board of Directors and shall disburse the funds of the Corporation as may be ordered by the Board of Directors, taking proper vouchers for such disbursements, and shall render to the Chairman of the Board of Directors, at its regular meetings, or when the Board of Directors so requires, an account of all the Treasurer’s transactions as treasurer and of the financial condition of the Corporation. If required by the Directors, the Treasurer shall give the trust a bond in such sum and with such surety or sureties as shall be satisfactory to the Directors for the faithful performance of the duties of the office and for the restoration to the Corporation, in case of the Treasurer’s death, resignation, retirement or removal from office, of all books, papers, vouchers, moneys and other property of whatever kind in the Treasurer’s possession or under the Treasurer’s control belonging to the Corporation. The Treasurer shall perform such other duties and have such other powers as the Board of Directors or Chairman may from time to time prescribe.

        Section 11. Assistant Secretaries and Assistant Treasurers. The Assistant Secretaries and Assistant Treasurers, in general, shall perform such duties as shall be assigned to them by the Secretary or Treasurer, respectively, or by the Chief Executive Officer or the Directors. The Assistant Treasurers shall, if required by the Directors, give bonds for the faithful performance of their duties in such sums and with such surety or sureties as shall be satisfactory to the Directors.

ARTICLE VII

CERTIFICATES OF STOCK

        Section 1. Form and Number. Every holder of Stock in the Corporation shall be entitled to have a certificate signed by, or in the name of the Corporation by the Chairman of the Board, the President or the Vice President and countersigned by the Treasurer, the Secretary or an Assistant Treasurer or Assistant Secretary certifying the number of shares owned by the holder in the Corporation. Any or all of the signatures on the certificate may be facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the Corporation as if the officer, transfer agent or registrar were such officer, transfer agent or registrar at the date of issue. Each certificate representing shares of Stock which are restricted as to their transferability or voting powers, which are preferred or limited as to their dividends or as to their allocable portion of the assets upon liquidation or which are redeemable at the option of the Corporation, shall have a statement of such restriction, limitation, preference or redemption provision, or a summary thereof, plainly stated on the certificate. In lieu of such statement or summary, the Corporation may set forth upon the face or back of the certificate a statement that the Corporation will furnish to any shareholder, upon request and without charge, a full statement of such information.

        Section 2. Lost Certificates. The Board of Directors may direct that a new stock certificate or certificates be issued in place of any certificate or certificates theretofore issued by the Corporation alleged to have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the owner claiming the certificate of stock to be lost, stolen or destroyed. When authorizing such issue of a new certificate, the Board of Directors may, in its discretion and a condition precedent to the issuance thereof, require the owner of such lost, stolen or destroyed certificate or certificates, or the owner’s legal representative, to give the Corporation a bond in such sum as it may direct as Indemnity against any claim that may be made against the Corporation with respect to the certificate alleged to have been lost, stolen or destroyed.

        Section 3. Transfer of Shares. Certificates shall be treated as negotiable, and title thereto and to the shares they represent shall be transferred by delivery thereof to the same extent as those of a Maryland stock corporation. No transfers of shares of the Company shall be made if (i) void ab initio pursuant to any provision of the Articles of Incorporation, (ii) the Board of Directors, pursuant to any provision of the Articles of Incorporation or other written agreement between or among any Stockholder(s) and the Corporation, shall have refused to permit the transfer of such shares, or (iii) the shares have not been registered under the Securities Act of 1933, as amended (the “Act”), or under applicable state blue-sky or securities laws, unless exemptions from the registration requirements of the Act and applicable state blue-sky or securities laws are, in the opinion of counsel, satisfactory to the Corporation, for the transferor, available. Permitted transfers of shares of the Corporation shall be made on the stock records of the Corporation only upon the instruction of the registered holder thereof, or by the registered holder’s attorney thereunto authorized by power of attorney duly executed and filed with the Secretary or with a transfer agent or transfer clerk, and upon surrender of the certificate or certificates, if issued, for such shares properly endorsed or accompanied by a duly executed stock transfer power and the payment of all taxes thereon. Upon surrender to the Corporation or the transfer agent of the Corporation of a certificate for shares accompanied by proper evidence of authority to transfer, as to any transfers not prohibited by any provision of the Articles of Incorporation or by action of the Board of Directors thereunder, the Corporation shall issue a new certificate to the person entitled thereto, cancel the old certificate and record the transaction upon its books.

        Section 4. Fixing Record Date. In order that the Corporation may determine the Stockholders entitled to notice of or to vote at any meeting of Stockholders or any adjournment thereof, to receive payment of any dividend or other distribution or allotment of any rights, to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the Board of Directors may fix a record date, which shall not be more than ninety (90) nor less than ten (10) days before the date of a Stockholders’ meeting, nor more than ninety (90) days prior to the payment of such dividends, the distribution or exercise of such rights or the taking of any other lawful action.

        In lieu of fixing a record date, the Directors may provide that the stock transfer books shall be closed for a stated period but not longer than twenty (20) days. If the stock transfer books are closed for the purpose of determining Stockholders entitled to notice of or to vote at a meeting of Stockholders, such books shall be closed for at least ten (10) days before the date of such meeting.

        If no record date is fixed and the stock transfer books are not closed for the determination of Stockholders, (a) the record date for the determination of Stockholders entitled to notice of or to vote at a meeting of shareholders shall be at the close of business on the day on which the notice of meeting is mailed or the 30^th day before the meeting, whichever is the closer date to the meeting; and (b) the record date for the determination of Stockholders entitled to receive payment of a dividend or an allotment of any other rights shall be the close of business on the day on which the resolution of the Directors, declaring the dividend or allotment of rights, is adopted, but the payment or allotment may not be made more than sixty (60) days after the date on which the resolution is adopted.

        When a determination of shareholders entitled to vote at any meeting of shareholders has been made as provided in this section, such determination shall apply to any adjournment thereof, except when (i) the determination has been made through the closing of the transfer books and the stated period of closing has expired or (ii) the meeting is adjourned to a date more than one hundred twenty (120) days after the record date fixed for the original meeting, in either of which case a new record date shall be determined set forth herein.

        Section 5. Registered Stockholders. The Corporation shall be entitled to treat the record holder of any shares of stock of the Corporation as the owner thereof for all purposes, including all rights deriving from such shares, and except as required by law shall not be bound to recognize any equitable or other claim to, or interest in, such shares or rights deriving from such shares, on the part of any other person, including, but without limiting the generality thereof, a purchaser, assignee or transferee of such shares or rights deriving from such shares, unless and until such purchaser, assignee, transferee or other person becomes the record holder of such shares, whether or not the Corporation shall have either actual or constructive notice of the interest of such purchaser, assignee, transferee or other person. Except as required by law, no such purchaser, assignee, transferee or other person shall be entitled to receive notice of the meetings of Stockholders, to vote at such meetings, to examine a complete list of the Stockholders entitled to vote at meetings, or to own, enjoy, and exercise any other property or rights deriving from such shares against the Corporation, until such purchaser, assignee, transferee or other person has become the record holder of such shares.

        Section 6. Fractional Shares; Issuance of Units. The Directors may issue fractional shares or provide for the issuance of scrip, all on such terms and under such conditions as they may determine. Notwithstanding any other provision of the Articles of Incorporation or these By-laws, the Directors may issue units consisting of different securities of the Corporation. Any security issued in a unit shall have the same characteristics as any identical securities issued by the Corporation, except that the Directors may provide that for a specified period securities of the Corporation issued in such units may be transferred on the books of the Corporation only in such units.

ARTICLE VIII

INDEMNIFICATION OF OFFICERS AND DIRECTORS

        Section 1. Right to Indemnification. To the maximum extent permitted by Maryland law in effect from time to time, the Corporation shall indemnify and, without requiring a preliminary determination of the ultimate entitlement to indemnification, shall pay or reimburse reasonable expenses in advance of final disposition of a proceeding to (a) any individual who is a present or former director or officer of the Corporation and who is made a party to the proceeding by reason of his or her service in that capacity or (b) any individual who, while a director of the Corporation and at the request of the Corporation, serves or has served as a director, officer, partner or trustee of such corporation, real estate investment trust, partnership, joint venture, trust, employee benefit plan or other enterprise and who is made a party to the proceeding by reason of his or her service in that capacity. To the maximum extent permitted by Maryland law in effect from time to time, the Corporation shall provide such indemnification and advance for expenses to a person who served a predecessor of the Corporation in any of the capacities described in (a) or (b) above and to any employee or agent of the Corporation or a predecessor of the Corporation.

        Neither the amendment nor repeal of this Article, nor the adoption or amendment of any other provision of the By-laws or Articles of Incorporation of the Corporation inconsistent with this Article, shall apply to or affect in any respect the applicability of the preceding paragraph with respect to any act or failure to act which occurred prior to such amendment, repeal or adoption.

        Section 2. Indemnification of Employees and Agents of the Corporation. With the approval of the Board of Directors, the Corporation shall, to the maximum extent permitted by the Maryland law in effect from time to time, and to such further extent as it shall deem appropriate under the circumstances, provide such indemnification and advancement of expenses as described in Section 1 above, to any employee or agent of the Corporation or a predecessor of the Corporation.

        Section 3. Insurance. The Corporation shall have the power to purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, partner, manager, member, trustee, employee or agent of another corporation, partnership, limited liability company, joint venture, trust, employee benefit plan or other enterprise, against my liability asserted against such person and incurred by such person in any such capacity, or arising out of such person’s status as such, whether or not the Corporation would have the power to indemnify such person against such liability under the specified statutory authority, the Articles of Incorporation or the provisions of this Article.

        Section 4. Reliance on Certain Information. In performing a Director’s duties, a Director shall be entitled to rely on any information, opinion, report or statement, including any financial statement or other financial data, in each case prepared or presented by any of the following:

                (a)     One or more officers or employees of the Corporation whom the Director reasonably believes to be reliable and competent in the matters presented.

                (b)     A lawyer, certified public accountant or other person as to matters which a Director reasonably believes to be within the person’s professional or expert competence.

                (c)     A committee of the Board of Directors upon which the Director does not serve, as to matters within its designated authority, which the Director reasonably believes to merit confidence; provided however that a Director shall not be considered to be acting in good faith if the Director has any knowledge concerning the matter in question that would cause the Director’s reliance to be unwarranted.

ARTICLE IX

MISCELLANEOUS

        Section 1. Fiscal Year. The fiscal year of the Corporation shall be from January 1 through December 31.

        Section 2. Deposits; Checks. The Corporation shall establish a bank account for deposit of the funds of the Corporation and the drawing of checks or drafts thereon. All checks or drafts drawn on such account shall require the signature of such officer or officers, agent or agents of the Corporation in such manner as shall from time to time be determined by the Directors. . The appointment of additional signatories of the bank account and the opening of additional bank accounts shall require the approval of the Board of Directors or such officers of the Corporation as shall from time to time be determined by the Directors.

        Section 3. Contracts. The Directors may authorize any officer or agent to enter into any contract or to execute and deliver any instrument in the name of and on behalf of the Corporation and such authority may be general or confined to specific instances. Any agreement, deed, mortgage, lease or other document executed by one or more of the Directors or by an authorized person shall be valid and binding upon the Directors and upon the Corporation when authorized or ratified by action of the Directors.

        Section 4. Corporate Seal. The corporate seal shall have inscribed thereon the name of the Corporation, the year of its organization and the words “Corporate Seal, Maryland.” The seal may be used by causing it or a facsimile thereof to be impressed or affixed or reproduced or otherwise.

ARTICLE X

AMENDMENTS

Section 1. Articles of Incorporation. Subject to the terms of the Articles of Incorporation of the Corporation, these By-laws may be repealed or amended, or new By-laws adopted, by the Board of Directors; provided, however that the Board of Directors shall have no power or authority to modify, alter or repeal Section 3 or Section 7(a) of Article III, Section 1 of Article IV or this Article X, and that the affirmative vote of that portion of the then outstanding Common Stock entitled to vote generally in the election of directors necessary to approve an amendment to the Corporation’s Articles of Incorporation pursuant to the Maryland General Corporation Law shall be required to approve such modification, alteration or repeal.

EX-12

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 peirods as shown.
	2003			2002			2001			2000			1999
Net earnings	$	53,472,592		$	48,058,349		$	28,963,548		$	38,250,664		$	35,311,517
Fixed charges:
Interest on indebtedness		28,181,988			27,147,412			25,360,505			26,913,436			22,109,567
Amortization of discount relating          to indebtedness		146,195			127,375			107,200			93,600			55,758
Amortization of treasury lock gain		(596,741	)		(554,527	)		(515,299	)		(478,846	)		(245,388	)
Amortization of deferred charges		1,329,097			960,447			805,707			804,388			723,310
		29,060,539			27,680,707			25,758,113			27,332,578			22,643,247
Net earnings before fixed charges	$	82,533,131		$	75,739,056		$	54,721,661		$	65,583,242		$	57,954,764
Divided by fixed charges
Fixed charges	$	29,060,539		$	27,680,707		$	25,758,113		$	27,332,578		$	22,643,247
Capitalized and deferred interest		102,544			(599,902	)		451,624			646,897			1,111,165
	$	29,163,083		$	27,080,805		$	26,209,737		$	27,979,475		$	23,754,412
Ratio of net earnings to fixed charges		2.83			2.80			2.09			2.34			2.44
Preferred stock dividends
Series A preferred stock	$	4,007,532		$	4,009,554		$	-		$	-		$	-
Series B preferred stock		502,500			-			-			-			-
Total preferred stock dividends	$	4,510,032		$	4,009,554		$	-		$	-		$	-
Combined fixed charges and preferred      stock dividends	$	33,673,115		$	31,090,359		$	26,209,737		$	27,979,475		$	23,754,412
Ratio of net earnings to combined      fixed charges and preferred stock      dividends		2.45			2.44			2.09			2.34			2.44
Advisor acquisition costs	$	-		$	-		$	12,581,769		$	1,521,063		$	9,824,172
Net earnings after advisor acquisition      costs and fixed charges(1)	$	82,533,131		$	75,739,056		$	67,303,430		$	67,104,305		$	67,778,936
Ratio of net earnings after advisor      acquisition costs to fixed charges(1)		2.83			2.80			2.57			2.40			2.85
(1)    The Company's revolving credit facility and notes payable convenants provide for fixed charge coverage ratios to be         calculated before Advisor Acquisition Costs.

EX-13

HISTORICAL FINANCIAL HIGHLIGHTS

Dollars in thousands, except per share data.

	2003			2002			2001			2000			1999
Gross revenues(1)	$	104,656		$	97,510		$	80,526		$	80,891		$	76,543
Earnings from continuing operations before     cumulative effect of change in accounting     principle		51,309			43,078			25,730			35,167			31,941
Net earnings		53,473			48,058			28,963			38,251			35,311
Total assets		1,208,310			954,108			1,006,628			761,611			749,789
Total long-term debt		465,138			384,589			435,333			360,381			350,971
Total equity		730,754			549,141			564,640			393,901			391,362
Cash dividends paid to:
Common stockholders		55,473			51,178			38,637			37,760			37,495
Series A Preferred stockholders		4,008			4,010			-			-			-
Series B Preferred stockholders		502			-			-			-			-
Weighted average common shares:
Basic		43,108,213			40,383,405			31,539,857			30,387,371			30,331,327
Diluted		43,896,800			40,588,957			31,717,043			30,407,507			30,408,219
Per share information:
Earnings from continuing operations before          cumulative effect of change in accounting          principle:
Basic		1.090			0.970			0.820			1.160			1.050
Diluted		1.080			0.970			0.810			1.160			1.050
Net earnings:
Basic		1.140			1.090			0.920			1.260			1.160
Diluted		1.130			1.090			0.910			1.260			1.160
Dividends paid to:
Common stockholders		1.280			1.270			1.260			1.245			1.240
Series A Preferred Stock stockholders		2.250			2.250			-			-			-
Series B Preferred Stock stockholders		50.250			-			-			-			-
Other data:
Cash flows provided by (used in):
Operating activities		54,319			58,705			37,727			50,198			47,876
Investing activities		(257,699	)		39,983			(24,141	)		(22,372	)		(64,436	)
Financing activities		206,007			(103,925	)		(8,802	)		(28,965	)		18,447
Funds from operations - diluted(2)		64,162			57,881			44,616			43,949			46,044

⁽¹⁾ Gross revenues include revenues from the Company's continuing and discontinued operations. The Financial Accounting Standard Board ("FASB") issued Statement Financial Accounting Standards ("SFAS") Statement No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." This statement addresses financial accounting and reporting for the impairment or disposal of long-lived assets and broadens the presentation of discontinued operations in the income statement to include a component of an entity. Accordingly, the results of operations related to these certain properties that have been classified as held for sale or have been disposed of in 2003 and 2002 have been reclassified to earnings from discontinued operations.

8      Strategic Real Estate

⁽²⁾ Funds From Operations, commonly referred to as FFO, is a non-GAAP financial measure of operating performance of an equity REIT in order to recognize that income-producing real estate historically has not depreciated on the basis determined under GAAP. The Company defines FFO as net earnings excluding depreciation, gains and losses on the disposition of real estate and extraordinary items of income and expense of the Company, and the Company's share of these items from the Company's unconsolidated partnerships.

FFO is generally considered by industry analysts to be the most appropriate measure of performance. FFO does not necessarily represent cash provided by operating activities in accordance with accounting principles generally accepted in the United States of America and should not be considered an alternative to net income as an indication of the Company’s performance or to cash flow as a measure of liquidity or ability to make distributions. Management considers FFO an appropriate measure of performance of an equity REIT because it primarily excludes the assumption that the value of the real estate assets diminishes predictably over time, and because industry analysts have accepted it as a performance measure. The Company’s computation of FFO may differ from the methodology for calculating FFO used by other equity REITs, and therefore, may not be comparable to such other REITs.

The following table reconciles FFO to their most directly comparable GAAP measure, net earnings available to common stockholders for the years ended December 31:

	2003			2002		2001			2000			1999
Reconciliation of funds from operations:
Net earnings available to common stockholders - diluted	$	49,465		$	44,048	$	28,963		$	38,251		$	35,311
Real estate depreciation and amortization:
Continuing operations		11,770			9,729		7,182			7,459			7,150
Discontinued operations		102			600		474			379			419
Partnership real estate depreciation		699			479		63			63			64
Expenses incurred in acquisition of advisor		-			-		12,582			1,521			9,824
Loss (gain) on disposition and impairment of real              estate:
Continuing operations		-			2,256		(4,648	)		(4,091	)		(6,724	)
Discontinued operations		(287	)		769		-			-			-
Dissenting shareholders’ settlement		2,413			-		-			-			-
Cumulative effect of change in accounting principle		-			-		-			367			-
Funds from operations - diluted	$	64,162		$	57,881	$	44,616		$	43,949		$	46,044

     Shareholder Value     9

MANAGEMENT’S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION
& RESULTS OF OPERATIONS

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. These statements generally are characterized by the use of terms such as “believe,” “expect” and “may.” Although the management of Commercial Net Lease Realty, Inc. and its wholly-owned subsidiaries (collectively, 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: the ability of the Company to qualify as a real estate investment trust for federal income tax purposes; the ability of tenants to make payments under their respective leases and the ability of the Company to re-lease properties that are currently vacant or that become vacant; the ability of the Company to locate suitable tenants for its properties; changes in real estate market conditions; changes in general economic conditions; the ability of the Company to repay debt financing obligations; the ability of the Company to refinance amounts outstanding under its credit facilities at maturity on terms favorable to the Company; continued availability of proceeds from the Company’s debt or equity capital; the availability of other debt and equity financing alternatives; market conditions affecting the Company’s equity capital; changes in interest rates under the Company’s current credit facilities and under any additional variable rate debt arrangements that the Company may enter into in the future; the ability of the Company to be in compliance with certain debt covenants; the inherent risks associated with owning real estate (including: local real estate market conditions, governing laws and regulations and illiquidity of real estate investments); the ability of the Company to integrate office and industrial properties into existing operations that historically have been primarily focused on retail properties; the loss of any member of the Company’s management team; as of February 2004, James M. Seneff, Jr. no longer serves as chief executive officer of the Company, but continues to serve as chairman of the board of directors; the ability of the Company to successfully implement its selective acquisition strategy or fully realize the anticipated benefits of renovation or development projects; the ability of the Company to integrate acquired properties and operations into existing operations; the recent changes in tax legislation provide favorable treatment for dividends for regular companies, but not generally dividends from real estate investment trusts. Given these uncertainties, readers are cautioned not to place undue reliance on such statements. Management of the Company currently knows of no trends that will have a material adverse effect on liquidity, capital resources or results of operations.

Overview

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, invests in, manages and indirectly, through investment interests, develops primarily single-tenant retail, office and industrial properties that are generally leased to established tenants under long-term commercial net leases. As of December 31, 2003, the Company owned 339 properties (the “Properties”) that are leased to established tenants, including Academy, Barnes & Noble, Bennigan’s, Best Buy, Borders, Eckerd, Jared Jewelers, OfficeMax, The Sports Authority and the United States of America. Approximately 97 percent of the gross leasable area of the Company’s portfolio of Properties was leased at December 31, 2003.

The Company’s management team focuses on certain key indicators to evaluate the financial condition and operating performance of the Company. These key indicators include such items as: the structure of the Company’s portfolio of Properties (such as tenant, geographic and industry classification diversification); the occupancy rate of the Company’s portfolio of Properties; certain financial ratios; and industry trends and performance compared to that of the Company.

14      Strategic Real Estate

Liquidity

General.   Historically, the Company’s demand for funds has been primarily for (i) payment of operating expenses and dividends, (ii) property acquisitions, capital expenditures and development, either directly or through investment interests, (iii) payment of principal and interest on its outstanding indebtedness and (iv) other investments.

Contractual Obligations and Commercial Commitments.  The information in the following table summarizes the Company’s contractual obligations and commercial commitments outstanding as of December 31, 2003. The table presents principal cash flows by year-end of the expected maturity for debt obligations and commercial commitments outstanding as of December 31, 2003. As the table incorporates only those exposures that exist as of December 31, 2003, it does not consider those exposures or positions which arise after that date.

	Expected Maturity Date (dollars in thousands)
	Total		2004		2005		2006		2007		2008		Thereafter
Long-term debt (1)	$	465,380	$	123,158	$	3,415	$	50,731	$	1,281	$	100,956	$	185,839
Operating lease		14,226		1,131		1,165		1,200		1,236		1,273		8,221
Total contractual cash obligations(2)	$	479,606	$	124,289	$	4,580	$	51,931	$	2,517	$	102,229	$	194,060
(1)     Includes amounts outstanding under the revolving credit facility, mortgages and notes payable and         excludes unamortized note discounts and unamortized interest rate hedge gain.
(2)     As of December 31, 2003, the Company does not have any other contractual cash obligations, such as purchase         obligations, capital lease obligations or other long-term liabilities other than those reflected in the table.

Management anticipates satisfying these obligations with a combination of the Company’s current capital resources, cash on hand, its revolving credit facility and debt or equity financings.

In addition to the contractual obligations outlined in the table above, the Company has agreed to fund $26,544,000 for building, tenant improvements and other costs related to the lease, of which $11,438,000 had been funded as of December 31, 2003, in connection with its acquisition of two office buildings and a related parking garage located in Arlington, Virginia (the Washington, D.C. metropolitan area) in August 2003. These costs will be capitalized to building and improvements upon completion which is anticipated to be substantially complete by December 31, 2004. The Company anticipates funding the additional costs from borrowings under the Company’s revolving credit facility. For a description of the acquisition, see “Results of Operations – Property Analysis” below.

The Company has also guaranteed 41.67 percent of a $15,500,000 promissory note on behalf of an unconsolidated affiliate. The maximum obligation to the Company is $6,458,000 plus interest and the guarantee shall continue through the loan maturity in November 2004 (see “Capital Resources – Investments in Unconsolidated Affiliates”.) In the event the Company is required to perform under this guarantee, the Company would potentially use proceeds from its revolving credit facility.

Many of the Properties in the Company’s portfolio are recently constructed and are generally net leased, therefore management anticipates that capital demands to meet obligations with respect to these Properties will be modest for the foreseeable future and can be met with funds from operations and working capital. The Company’s leases

     Shareholder Value     15

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, including the two office buildings acquired during 2003, are subject to leases under which the Company retains responsibility for certain costs and expenses associated with the Property (see “Results of Operations - Property Analysis”). Management anticipates the costs associated with the Company’s vacant Properties or those Properties that become vacant will also 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.

The lost revenues and increased property expenses resulting from the rejection by any bankrupt tenant of any of their respective leases with the Company could have a material adverse effect on the liquidity and results of operations of the Company if the Company is unable to re-lease the Properties at comparable rental rates and in a timely manner. As of February 2004, the Company owns 10 vacant, unleased Properties, which accounts for three percent of the total gross leasable area of the Company’s portfolio. Additionally, two percent of the total gross leasable area of the Company’s portfolio is leased to three tenants, which 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 leases with the Company.

Dividends.   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. The Company generally will not be subject to federal income tax on income that it distributes to its stockholders, providing it distributes at least 90 percent of its real estate investment trust taxable income and meets certain other requirements for qualifying as a REIT. 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, 2003, 2002 and 2001, and intends to continue to operate the Company so as to remain qualified as a REIT for federal income tax purposes.

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, 2003, 2002 and 2001, the Company declared and paid dividends to its common stockholders of $55,473,000, $51,178,000 and $38,637,000, respectively, or $1.28, $1.27 and $1.26 per share, respectively.

16      Strategic Real Estate

The following presents the characterizations for tax purposes of such common stock dividends for the years ended December 31:

	2003	2002	2001
Ordinary income	75.71%	92.41%	97.37%
Capital gain	-	0.47%	-
Qualified 5-year Gain	0.37%	-	-
Unrecaptured Section 125 gain	2.88%	0.41%	2.63%
Return of capital	21.04%	6.71%	-
	100.00%	100.00%	100.00%

In February 2004, the Company paid dividends to its common stockholders of $16,001,000, or $0.32 per share of stock.

Holders of the 9% Non-Voting Series A Preferred Stock (the “Series A Preferred Stock”) are entitled to receive, when and as authorized by the board of directors, cumulative preferential cash distributions at the rate of nine percent of the $25.00 liquidation preference per annum (equivalent to a fixed annual amount of $2.25 per share). For the years ended December 31, 2003 and 2002, the Company declared and paid dividends to its Series A Preferred Stock stockholders of $4,008,000 and $4,010,000, respectively, or $2.25 per share of stock. The Series A Preferred Stock dividends paid during the years ended December 31, 2003 and 2002 were characterized as ordinary income for tax purposes.

In February 2004, the Company declared dividends of $1,002,000 or $0.5625 per share of Series A Preferred Stock, payable in March 2004.

Holders of the 6.70% Non-Voting Series B Preferred Cumulative Convertible Perpetual Preferred Stock (the “Series B Preferred Stock”) are entitled to receive, when and as authorized by the board of directors, cumulative preferential cash distributions at the rate of 6.70 percent of the $2,500.00 liquidation preference per annum (equivalent to a fixed annual amount of $167.50 per share). For the year ended December 31, 2003, the Company declared and paid dividends to its Series B Preferred Stock stockholders of $502,000 or $50.25 per share of stock. The Series B Preferred Stock dividends paid during the year ended December 31, 2003 were characterized as ordinary income for tax purposes.

In February 2004, the Company declared dividends of $419,000 or $41.875 per share of Series B Preferred Stock, payable in March 2004.

Property Environmental Considerations.  The Company may acquire a property whose environmental site assessment indicates that a contamination or potential contamination exists, subject to a determination of the level of risk and potential cost of remediation. 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, generally to obtain a Phase I environmental site assessment for each property and, where warranted, a Phase II environmental site assessment. In such cases that the Company intends to acquire real estate where contamination or potential contamination exists, 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. Phase

     Shareholder Value     17

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 has 18 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.

Capital Resources

Generally, cash needs for property acquisitions, capital expenditures and development and other investments have been funded by equity and debt offerings, bank borrowings, the sale of properties and, to a lesser extent, from internally generated funds. Cash needs for other items have been met from operations. 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 years ended December 31, 2003, 2002 and 2001, the Company generated $54,319,000, $58,705,000 and $37,727,000, respectively, of net cash from operating activities. The change in cash provided by operations for the years ended December 31, 2003, 2002 and 2001, is primarily the result of changes in revenues and expenses as discussed in “Results of Operations.” Cash generated from operations could be expected to fluctuate in the future.

Indebtedness.   The Company expects to use indebtedness primarily to invest in the acquisition and development of single-tenant retail, office and industrial properties, either directly or through investment interests. In May 2003, the Company entered into an amended and restated loan agreement for a $225,000,000 revolving credit facility (the “Credit Facility”) which amended the Company’s existing loan agreement by (i) increasing the borrowing capacity to $225,000,000 from $200,000,000, (ii) lowering the interest rates of the tiered rate structure from a maximum of 150 points above LIBOR to a maximum rate of 135 basis points above LIBOR (based upon the debt rating of the Company, the current interest rate is 100 basis points above LIBOR), (iii) requiring the Company to pay a commitment fee based on a tiered rate structure to a maximum of 30 basis points per annum (based upon the debt rating of the Company), (iv) providing for a competitive bid option for up to 50 percent of the facility amount, (v) extending the expiration date to May 9, 2006 and (vi) amending certain of the financial covenants of the Company. The principal balance is due in full upon expiration of the Credit Facility on May 9, 2006, which the Company may request to be extended for an additional 12-month period with the consent of the lender. As of December 31, 2003, $27,800,000 was outstanding and approximately $197,200,000 was available for future borrowings under the Credit Facility.

In accordance with the terms of the Credit Facility, the Company is required to meet certain restrictive financial covenants, which, among other things, require the Company to maintain certain (i) maximum leverage ratios, (ii) debt service coverage and (iii) cash flow coverage. At December 31, 2003, the Company was in compliance with those covenants. In the event that the Company violates any of the certain restrictive financial covenants, its access to the debt or equity markets may become impaired.

In November 2003, the Company entered into a long-term, fixed rate interest-only loan for $95,000,000. The loan bears interest at a rate of 5.42% per annum with monthly interest payments of $435,000 and the principal balance due in November 2013. Proceeds from the loan were used to pay down outstanding indebtedness of the Company’s Credit Facility. The loan is secured by a first mortgage lien on the two office buildings and related parking garage in the Washington, D.C. metropolitan area acquired in August 2003. As of December 31, 2003, the outstanding principal balance was $95,000,000 and the aggregate carrying value of these properties totaled $153,399,000.

18      Strategic Real Estate

In January 1996, the Company entered into a long-term, fixed rate loan for $39,450,000. The loan bears interest at a rate of 7.435% per annum and provides for a ten-year term with monthly principal and interest payments of $330,000 and the balance due in February 2006. The loan is secured by a first mortgage lien on certain of the Company’s Properties. As of December 31, 2003, the outstanding principal balance was $26,118,000 and the aggregate carrying value of these Properties totaled $61,857,000.

In June 2002, the Company entered into a long-term, fixed rate loan for $21,000,000. The loan bears interest at a rate of 6.9% per annum and provides for a 10-year term, with monthly principal and interest payments of $138,000 and the balance due in July 2012. Proceeds from the loan were used to pay down outstanding indebtedness of the Company’s Credit Facility. The loan is secured by a first mortgage lien on five of the Company’s Properties. As of December 31, 2003, the outstanding principal balance was $20,721,000 and the aggregate carrying value of these Properties totaled $27,543,000.

In November 2001, the Company entered into an unsecured $70,000,000 term note (“Term Note”), due November 30, 2004, to finance the acquisition of Captec Net Lease Realty, Inc. (“Captec”) and for the repayment of indebtedness and related expenses in connection therewith (see “Results of Operations – Merger Transactions”). During 2002, the Company used the proceeds from its $50,000,000 note offering to pay down the Term Note. As of December 31, 2003, the Term Note had an outstanding principal balance of $20,000,000 and bears interest at a rate of 175 basis points above LIBOR or 2.9% per annum at December 31, 2003. The Company has the option to extend the maturity date of the Term Note for two additional 12-month periods.

The Company has acquired four properties subject to mortgages securing loans in the aggregate original principal balance of $7,214,000 (collectively the “Mortgages”) with the maturities between December 2007 and December 2010. The Mortgages bear interest at a weighted average rate of 8.6% per annum and have a weighted average remaining maturity of 3.3 years, with an aggregate monthly payment of principal and interest of $83,000. In addition to the Mortgages, the company has letters of credit that also secure three of the loans, which collectively total $4,794,000. As of December 31, 2003, the outstanding principal balances secured by the Mortgages totaled $4,244,000, and the aggregate carrying value of these Properties and letters of credit totaled $16,556,000.

Payments of principal on the mortgage debt and on advances outstanding under the Credit Facility are expected to be met from the proceeds of renewing or refinancing the Credit Facility, proceeds from public or private offerings of the Company’s debt or equity securities, the Company’s 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.   The Company has used, and expects to use in the future, issuances of debt and equity securities primarily to pay down its outstanding indebtedness and to finance property acquisitions. The Company has maintained investment grade debt ratings from Standard and Poor’s, Moody’s Investor Service and Fitch IBCA on its senior, unsecured debt since 1998. 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 March 2008 (the “2008 Notes”) to pay down outstanding indebtedness of the Company’s Credit Facility. The 2008 Notes are senior, unsecured obligations of the Company, redeemable at the option of the Company, 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 semi-annually commencing on September 15, 1998 (effective interest rate of 7.163%). The discount of $271,000 is being amortized to interest expense over the term of the debt obligation using the effective interest method. In connection with the debt offering, the Company incurred debt issuance

     Shareholder Value     19

costs totaling $1,208,000, consisting primarily of underwriting discounts and commissions, legal and accounting fees, rating agency fees and printing expenses.

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 June 2004 (the “2004 Notes”) to pay down outstanding indebtedness of the Company’s Credit Facility. The 2004 Notes are senior, unsecured obligations of the Company, redeemable at the option of the Company, 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 to 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%. 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. In February 2004, the Company entered into a forward starting interest rate swap agreement with a notional amount of $94,000,000 and a swap rate of 4.606% per annum.

n September 2000, the Company filed a prospectus supplement to its $300,000,000 shelf registration statement and issued $20,000,000 of 8.5% notes due September 2010 (the “2010 Notes”) to pay down outstanding indebtedness of the Company’s Credit Facility. The 2010 Notes are senior, unsecured obligations of the Company, redeemable at the option of the Company, and are subordinate to all secured indebtedness of the Company. The 2010 Notes were sold at a discount for an aggregate purchase price of $19,874,000 with interest payable semi-annually commencing on March 20, 2001 (effective interest rate of 8.595%). The discount of $126,000 is being amortized to interest expense over the term of the debt obligation using the effective interest method. In connection with the debt offering, the Company incurred debt issuance costs totaling $233,000 consisting primarily of underwriter 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 2010 Notes using the effective interest method.

In June 2002, the Company filed a prospectus supplement to its $200,000,000 shelf registration statement and issued $50,000,000 of 7.75% notes due June 2012 (the “2012 Notes”). The 2012 Notes are senior, unsecured obligations of the Company, redeemable at the option of the Company, and are subordinated to all secured indebtedness of the Company. The 2012 Notes were sold at a discount for an aggregate purchase price of $49,713,000 with interest payable semi-annually commencing on December 1, 2002 (effective interest rate of 7.833%). The discount of $287,000 is being amortized to interest expense over the term of the debt obligation using the effective interest method. In connection with the debt offering, the Company incurred debt issuance costs totaling $507,000 consisting primarily of underwriting discounts and commissions, legal and accounting fees and rating agency fees. Debt issuance costs have been deferred and are being amortized over the term of the 2012 Notes using the effective interest method. The net proceeds from the debt offering were used to pay down the Company’s Term Note.

In accordance with the terms of the indenture, pursuant to which the Company’s notes have been issued, the Company is required to meet certain restrictive financial covenants, which, among other things, require the

20      Strategic Real Estate

Company to maintain (i) certain leverage ratios and (ii) certain interest coverage. At December 31, 2003, the Company was in compliance with those covenants. In the event that the Company violates any of the certain restrictive financial covenants, its access to the debt or equity markets may become impaired.

In November 2001, the Company issued 4,000,000 shares of common stock and received gross proceeds of $53,360,000. In addition, in December 2001, the Company issued an additional 525,000 shares of common stock in connection with the underwriters’ over-allotment option and received gross proceeds of $7,004,000. In connection with these offerings, the Company incurred stock issuance costs totaling $3,272,000, consisting primarily of underwriters’ commissions and fees, legal and accounting fees and printing expenses. Net proceeds from the offerings were generally used to pay down the outstanding indebtedness of the Company’s Credit Facility.

In December 2001, the Company issued 4,349,918 shares of common stock and 1,999,974 shares of Series A Preferred Stock in connection with the acquisition of Captec (see “Results of Operations – Merger Transactions”). Holders of the Series A Preferred Stock are entitled to receive, when and as authorized by the board of directors, cumulative preferential cash distributions at the rate of nine percent of the $25.00 liquidation preference per annum (equivalent to a fixed annual amount of $2.25 per share). The Series A Preferred Stock rank senior to the Company’s common stock with respect to distribution rights and rights upon liquidation, dissolution or winding up of the Company. The Company may redeem the Series A Preferred Stock on or after December 31, 2006, in whole or from time to time in part, for cash, at a redemption price of $25.00 per share, plus all accumulated and unpaid distributions.

In 2002, as a result of the appraisal action arising out of the Captec merger (see “Results of Operations – Merger Transactions”), the Company reduced the number of common and Series A Preferred Stock shares issued and outstanding by 474,037 and 217,950, respectively. In 2003, the Company further reduced the number of common and Series A Preferred Stock shares issued and outstanding by 823 and 379, respectively. The reduction in shares represent the number of shares that would have been issued to the plaintiffs had they accepted the original merger consideration. As of December 31, 2002, the Company had recorded the value of these shares at the original consideration share price in addition to the cash portion of the original merger consideration as other liabilities totaling $13,278,000. In 2003, the Company used proceeds from its Credit Facility to fund the settlement of the appraisal action.

In May 2003, the Company filed a shelf registration statement with the Securities and Exchange Commission, which permits the issuance by the Company of up to $600,000,000 in debt and equity securities (which includes approximately $89,637,000 of unissued debt and equity securities under the Company’s previous $200,000,000 shelf registration statement).

In July 2003, the Company filed a prospectus supplement to its $600,000,000 shelf registration statement and issued 5,600,000 shares of common stock and received gross proceeds of $100,800,000. In connection with this offering, the Company incurred stock issuance costs totaling approximately $5,374,000, consisting primarily of underwriters’ commissions and fees, legal and accounting fees and printing expenses. Net proceeds from the offering were used to fund a portion of the acquisition of the two office buildings and a related parking garage in the Washington, D.C. metropolitan area (see “Results of Operations - Property Analysis”).

In August 2003, the Company filed a prospectus supplement to its $600,000,000 shelf registration statement and issued 10,000 shares of Series B Preferred Stock and received gross proceeds of $25,000,000. In connection with this offering, the Company incurred stock issuance costs totaling approximately $687,000, consisting primarily

     Shareholder Value     21

of placement fees and legal and accounting fees. The Series B Preferred Stock is convertible at the option of the holder into 1,293,996 shares of the Company’s common stock on and after the first anniversary from the date on which the shares were issued. Holders of the Series B Preferred Stock are entitled to receive, when and as authorized by the board of directors, cumulative preferential cash distributions at the rate of 6.70 percent of the $2,500.00 liquidation preference per annum (equivalent to a fixed annual amount of $167.50 per share). The Series B Preferred Stock ranks pari passu with the Series A Preferred Stock and senior to the Company’s common stock with respect to distribution rights and rights upon liquidation, dissolution or winding up of the Company. The Company may redeem the Series B Preferred Stock on or after August 13, 2008, in whole or from time to time in part, for cash, at a redemption price of $2,500.00 per share, plus all accumulated and unpaid distributions. Net proceeds from the offering were used to pay down outstanding indebtedness of the Company’s Credit Facility.

In December 2003, the Company filed a prospectus supplement to its $600,000,000 shelf registration statement and issued 3,250,000 shares of common stock and received gross proceeds of $56,517,000. In addition, the Company issued an additional 487,500 shares of common stock in connection with the underwriters’ over-allotment option and received gross proceeds of $8,478,000. In connection with these offerings, the Company incurred stock issuance costs totaling approximately $671,000, consisting primarily of underwriters’ commissions and fees, legal and accounting fees and printing expenses. Net proceeds from these offerings were used to pay down outstanding indebtedness of the Company’s Credit Facility.

Compensation Plan Equity Issuances.    The Company believes that equity-based or equity-related compensation is an important element of overall compensation for the Company. Such compensation advances the interest of the Company by encouraging, and providing for, the acquisition of equity interests in the Company by directors, officers and other key associates, thereby aligning their interests with stockholders and providing them with a substantial motivation to enhance stockholder value. In July 2001, the Company filed a registration statement on Form S-8 with the Securities and Exchange Commission, which permitted the issuance of up to 2,900,000 shares of common stock (which included any shares of common stock represented by options available to be granted under the Company’s previous plan) pursuant to the Company’s 2000 Performance Incentive Plan (the “2000 Plan”). The terms of the 2000 Plan automatically increase the number of shares issuable under the plan to 3,400,000 shares and 3,900,000 shares when the Company has issued and outstanding 35,000,000 shares and 40,000,000 shares, respectively, of its common stock. In connection with the Company’s issuance of additional shares of common stock during the year ended December 31, 2001, pursuant to the terms of the 2000 Plan, the number of shares of common stock reserved for issuance automatically increased to 3,900,000 shares.

22      Strategic Real Estate

Pursuant to the 2000 Plan, the Company has granted and issued shares of restricted stock to certain officers and directors of the Company. The following information is a summary of the various issuances of restricted stock:

	Shares	Annual      Vesting      Rate	Number of Years for Vesting	Shares are 100% Vested on:(1)
Officers:
July 2001	234,000	15% - 30%	5	January 1, 2006
June 2002	58,000	15% - 30%	5	January 1, 2007
March 2003	40,407	25%	4	January 1, 2007
March 2003	30,000	15% - 30%	5	January 1, 2008
Total	362,407
Directors:
July 2001	5,000	50%	2	January 1, 2003
June 2002	6,000	50%	2	January 1, 2004
June 2003	6,000	50%	2	January 1, 2005
Total	17,000
(1)    The restricted stock shares automatically vests upon a change in the         control of the Company.

Investments in Unconsolidated Affiliates.   In May 1999, the Company transferred its build-to-suit development operation to a 95 percent owned, taxable unconsolidated subsidiary, Commercial Net Lease Realty Services, Inc. (“Services”), whose officers and directors consist of certain officers and directors of the Company. The Company contributed $5,700,000 of real estate and other assets to Services in exchange for shares of non-voting common stock. In connection with its contribution, the Company received a 95 percent, non-controlling interest in Services and was entitled to receive 95 percent of the dividends paid by Services. On December 31, 2001, the Company contributed an additional $20,042,000 of real estate. As a result of its additional contribution, effective January 1, 2002 the Company holds a 98.7 percent, non-controlling interest in Services and is entitled to receive 98.7 percent of the dividends paid by Services. Gary M. Ralston, James M. Seneff, Jr. and Kevin B. Habicht, each of which are officers and directors of the Company, own the remaining 1.3 percent interest, which is 100 percent of the voting interest in Services. The Company accounts for its interest in Services under the equity method of accounting.

In May 2003, the Company modified its existing Amended and Restated Secured Revolving Line of Credit and Security Agreement (the “Security Agreement”) with Services to decrease the borrowing capacity from $85,000,000 to $35,000,000. The credit facility is secured by a first mortgage on Services’ properties and bears interest at prime rate plus 0.25% per annum and expires on May 9, 2006. The outstanding principal balance of the mortgage at December 31, 2003 was $12,588,000 and bore interest at a rate of 4.25% per annum. In January 2003, the Company terminated an $11,000,000 secured revolving line of credit and security agreement with a wholly-owned subsidiary of Services. In May 2003, the Company modified an existing secured revolving line of credit and security agreement with another wholly-owned subsidiary of Services to increase the borrowing capacity from $15,000,000 to $45,000,000. All secured revolving lines of credit and security agreements between the Company and any wholly-owned subsidiaries of Services are collectively referred to as the “Subsidiary Agreements.” The Subsidiary Agreements provide for an aggregate borrowing capacity of $115,000,000, each bears interest at prime rate plus 0.25% per annum and expires May 9, 2006 and is secured by a pledge of the real

     Shareholder Value     23

estate and/or the other assets owned by the respective borrower. The aggregate outstanding principal balance of the Subsidiary Agreements at December 31, 2003 was $42,646,000 and bore interest at a rate of 4.25% per annum. The Security Agreement and the Subsidiary Agreements provide for an aggregate borrowing capacity of $150,000,000 to Services and its wholly-owned subsidiaries. As of December 31, 2003, the aggregate outstanding balance of the secured revolving lines of credit and security agreements with Services and its wholly-owned subsidiaries was $55,234,000, resulting in $94,766,000 available for future borrowings under the lines of credit.

In May 2001, Services and certain of its wholly-owned subsidiaries became direct borrowers under the Company’s Credit Facility. During 2003, the Company borrowed $193,670,000 under its Credit Facility to fund the amounts drawn against these revolving credit facilities. The Company received payments on the Security Agreement and Subsidiary Agreements totaling $192,236,000 during the year ended December 31, 2003, which the Company used to pay down outstanding indebtedness of the Company’s Credit Facility.

Absent additional investment by the Company, as of December 31, 2003, the maximum exposure to loss as a result of the Company’s involvement with Services would be approximately $75,280,000, including the investment, revolving lines of credit and other receivables. As of December 31, 2003, the carrying values of Services’ assets and liabilities were $80,945,000 and $60,496,000, respectively.

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 Partnership owns and leases nine properties to eight 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.

Under the terms of the Agreement, CTA had the right to convert its 80 percent limited Partnership interest into shares of the Company’s common stock. In October 2003, CTA exercised that right and based on the terms and calculation defined in the limited partnership agreement, the Company issued 953,551 shares of common stock to CTA in a private transaction in February 2004.

The Company has entered into five limited liability company (“LLC”) agreements between June 2001 and July 2003, with CNL Commercial Finance, Inc. (“CCF”), a related party. Each of the LLCs holds an interest in mortgage loans and is 100 percent equity financed. The Company holds a non-voting and non-controlling interest in each of the LLCs ranging from 36.7 to 44.0 percent and accounts for its interests under the equity method of accounting. In 2003, in connection with a loan to CCF from an affiliate of James M. Seneff, Jr., an officer and director of the Company, the Company pledged a portion of its interest in two of the LLCs as partial collateral for the loan.

In May 2002, the Company purchased a combined 25 percent partnership interest for $750,000 in CNL Plaza, Ltd. and CNL Plaza Venture, Ltd. (collectively, “Plaza”), which owns a 346,000 square foot office building and an interest in an adjacent parking garage. Affiliates of James M. Seneff, Jr., an officer and director of the Company, and Robert A. Bourne, a member of the Company’s board of directors, own the remaining partnership interests. Since November 1999, the Company has leased its office space from Plaza. The Company’s lease expires in October 2014. In addition, the Company has severally guaranteed 41.67 percent of a $15,500,000 promissory note on behalf of Plaza. The maximum obligation of the Company is $6,458,000 plus interest. Interest accrues at a rate of LIBOR plus 200 basis point per annum on the unpaid principal amount. This guarantee shall continue through the loan maturity in November 2004. Plaza intends to renew the promissory note in 2004.

24      Strategic Real Estate

Note Receivable.   In October 2003, the Company entered into a Mezzanine Loan Agreement (“Mezzanine Loan”) with BFSC Holdings, LLC, BFSC Holdings II, LLC, BFSC Holdings III, LLC, BFWV Holdings, LLC (collectively, the “Borrowers”) for $45,200,000. The Mezzanine Loan provided for an initial advance to the Borrowers at the time of closing of $43,433,000 and a second and final advance of $1,767,000 was funded in January 2004. The Mezzanine Loan bears interest at a rate of 13.5% per annum, of which 11% is payable monthly and the remaining 2.5% accrues and is due at maturity. The principal balance is due in full at maturity in November 2007. The Mezzanine Loan is secured by the Borrowers’ pledge of its membership interests in the certain subsidiaries which own real estate.

There are certain inherent risks associated with the Mezzanine Loan, which pose different investment risks than the Company’s investments in single-tenant net leased real property. The Mezzanine Loan is subordinated to senior loans secured by first mortgages. Subordinated positions are subject to special risk, including a greater risk of loss of principal and non-payment of interest, than more senior loans and tend to be more sensitive to changes in economic conditions than more senior loans. The Mezzanine Loan is not secured by a first mortgage on real estate, but rather by the Borrowers’ pledge of membership interests in certain subsidiaries of the borrowers that own the underlying real estate. In the event of a default on a senior loan, the Company may elect to make payments if the Company has the right and the additional funds to do so to prevent foreclosure on a senior loan. In the event of foreclosure of the senior loan and Mezzanine Loan, the Company will be entitled to share in foreclosure proceeds only after satisfaction of the amounts due to the senior lenders, which may result in the Company being unable to recover any amount of the investment, including any additional funds advanced prior to foreclosure.

Results of Operations

Critical Accounting Policies and Estimates

In response to the SEC’s Release Numbers 33-8040 “Cautionary Advice Regarding Disclosure About Critical Accounting Policies” and 33-8056 “Commission Statement About Analysis of Financial Condition and Results of Operations,” the Company’s management has identified the following critical accounting policies that affect the more significant judgments and estimates used in the preparation of the Company’s consolidated financial statements. The preparation of the Company’s consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and judgments on assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. On an ongoing basis, management evaluates its estimates and judgments. A summary of the Company’s accounting policies and procedures are included in Note 1 of the Company’s consolidated financial statements. Management believes the following critical accounting policies among others affect its more significant judgment of estimates used in the preparation of the Company’s consolidated financial statements.

Real Estate and Lease Accounting.  The Company generally leases its real estate pursuant to long-term, net leases, under which the tenants typically pay all operating expenses of a property, including, but not limited to, all real estate taxes, assessments and other government charges, insurance, utilities, repairs and maintenance. The leases are accounted for using the operating or direct financing method as determined by accounting principles generally accepted in the United States of America. Such methods are described below:

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

     Shareholder Value     25

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.

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). 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.

The Company periodically assesses its real estate assets for possible permanent impairment when certain events or changes in circumstances indicate that the carrying value of the asset, including any accrued rental income, may not be recoverable. Management considers current market conditions and tenant credit analysis in determining whether the recoverability of the carrying amount of an asset should be assessed. When an assessment is warranted, management determines whether an impairment in value has 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 asset. 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.

Intangible Assets.   In connection with real estate acquisitions, value is assigned to tangible and other intangible assets. These other intangible assets are computed by valuing the property on an as if vacant basis and subtracting from the total acquisition cost the sum of the (i) as if vacant value, (ii) lease to market value and (iii) value assigned to tenant improvements and leasing costs. These other intangible assets are amortized over the estimated useful lives of the assets; the useful lives of these assets are shorter than the depreciable periods of the buildings. Deferred revenue or deferred assets recorded in connection with the acquired properties are amortized into rental revenue over the life of the leases. The value assigned to tenant improvements and leasing costs are depreciated or amortized over the life of the leases.

Reclassification.   Certain items in prior years’ financial statements and notes to consolidated financial statements have been reclassified to conform with the 2003 presentation. While the reclassification caused some items to vary from that disclosed in prior reports, these reclassifications had no effect on stockholders’ equity or net earnings.

Use of Estimates.   Additional critical accounting policies of the Company include management’s estimates and assumptions relating to the reporting of assets and liabilities, revenues and expenses and the disclosure of contingent assets and liabilities to prepare the consolidated financial statements in conformity with accounting principles generally accepted in the United States of America. Additional critical accounting policies include management’s estimates of the useful lives used in calculating depreciation expense relating to the Company’s real estate assets, the recoverability of the carrying value of long-lived assets and the collectibility of receivables from tenants, including accrued rental income. Actual results could differ from those estimates.

26      Strategic Real Estate

Property Analysis

General.   As of December 31, 2003, the Company owned 339 Properties that are leased to established tenants, including Academy, Barnes & Noble, Bennigan’s, Best Buy, Borders, Eckerd, Jared Jewelers, OfficeMax, The Sports Authority and the United States of America. Approximately 97 percent of the gross leasable area of the Company’s portfolio of Properties was leased at December 31, 2003. The following table summarized the Company’s portfolio of Properties as of December 31:

	2003	2002	2001
Properties Owned:
Number	339	341	351
Total gross leasable area (square feet)	7,668,000	6,416,000	6,552,000
Properties Leased:
Number	328	321	320
Total gross leasable area (square feet)	7,430,000	6,053,000	5,808,000
Percent of total gross leasable area	97%	94%	89%
Weighted average remaining lease term(1) (years)	11	12	13

⁽¹⁾ Properties are leased on a long-term basis, generally 10 to 20 years, with renewal options for an additional five to 20 years.

The Company regularly evaluates its (i) portfolio of Properties, (ii) financial position, (iii) market opportunities and (iv) strategic objectives and, based on certain factors, may determine to acquire or dispose of a given property or portfolio of properties.

Property Acquisitions.   Property acquisitions are typically funded using funds from the Company’s Credit Facility, proceeds for debt or equity offerings and to a lesser extent, proceeds generated from like-kind exchange transactions.

The following table summarizes the property acquisitions during each of the years ended December 31:

		2003		2002		2001
Acquisitions:
Number of properties		23		9		137
Gross leasable area (square feet)		1,439,000		267,000		1,032,000
Construction projects:
Properties completed		1		1		-
Gross leasable area (square feet)		14,000		14,000		-
Land parcels acquired		-		-		1
Tenant improvements:
Number of properties		9		7		-
Total dollars invested in real estate	$	212,317,000	$	45,541,000	$	240,137,000

     Shareholder Value     27

In August 2003, the Company acquired two office buildings and a related parking garage located in Arlington, Virginia (the Washington, D.C. metropolitan area) for $142,800,000 as a part of its strategic objective to diversify the Company’s portfolio into the office sector. The Company used the net proceeds from a common stock offering to fund a portion of the purchase price (see “Debt and Equity Securities”). The remaining portion of the purchase price was funded through borrowings under the Company’s Credit Facility. In addition, pursuant to the lease agreement, the Company has agreed to fund an additional $26,544,000 for building, tenant improvements and other costs related to the lease, of which $11,438,000 had been funded as of December 31, 2003. These costs will be capitalized to building and improvements upon completion which is anticipated to be substantially complete by December 31, 2004. The Company anticipates funding the additional costs from borrowings under the Company’s Credit Facility. The properties include two office buildings containing an aggregate of 555,000 rentable square feet (505,000 usable square feet for purposes of calculating rent) and a two-level garage with 1,079 parking spaces.

In 1999, the Company entered into a purchase and sale agreement whereby the Company acquired 10 land parcels leased to established tenants and agreed to acquire the buildings on each of the respective land parcels at specific dates between February 2003 and April 2004. In October 2003, the Company acquired the interest in each of these buildings for an aggregate purchase price of $23,422,000.

Property Dispositions.   The Company evaluates anticipated property dispositions to determine whether to use anticipated sales proceeds to either (i) pay down the outstanding indebtedness of the Company’s Credit Facility or (ii) acquire additional properties and structure the transactions to qualify as tax-free like-kind exchange transactions for federal income tax purposes. The following table summarizes the properties disposed of during each of the years ended December 31:

	2003		2002		2001
Number of properties		14		19		37
Gross leasable area (square feet)		345,000		408,000		485,000
Net sales proceeds	$	25,023,000	$	29,928,000		45,897,000
Net gain	$	161,000	$	256,000	$	4,648,000

During 2003, the Company used the proceeds from the 14 properties sold to pay down the outstanding indebtedness of the Company’s Credit Facility.

During 2002, the Company reinvested the proceeds from three of the properties sold to acquire additional properties and structured the transactions to qualify as tax-free like-kind exchange transactions for federal income tax purposes. The Company used the proceeds from the sale of the remaining 16 properties to pay down the outstanding indebtedness of the Company’s Credit Facility.

During 2001, the Company reinvested the proceeds from 21 of the properties sold to acquire additional properties and structured the transactions to qualify as tax-free like-kind exchange transactions for federal income tax purposes. The Company used the proceeds from the sale of the remaining 16 properties to pay down the outstanding indebtedness of the Company’s Credit Facility.

In accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” the Company has classified its 14 and 19 properties sold during 2003 and 2002, respectively, as discontinued

28      Strategic Real Estate

operations. Accordingly, the results of operations for 2003, 2002 and 2001 related to these 33 properties have been reclassified to earnings from discontinued operations.

Merger Transactions

In December 2001, the Company acquired 100 percent of Captec, a publicly traded real estate investment trust, which owned 135 freestanding, net lease properties located in 26 states. Captec shareholders received $11,839,000 in cash, 4,349,918 newly issued shares of the Company’s common stock and 1,999,974 newly issued Series A Preferred Stock (see “Debt and Equity Securities”). Under the purchase method of accounting, the acquisition price of $124,722,000 was allocated to the assets acquired and liabilities assumed at their fair values. No goodwill was recorded in connection with the acquisition. The merger was unanimously approved by both the Company’s and Captec’s board of directors and Captec’s shareholders. This transaction increased funds from operations, increased diversification, produced cost savings from opportunities for economies of scale and operating efficiencies and enhanced the Company’s capital markets profile.

In January 2002, beneficial owners of shares of Captec stock held of record by Cede & Co. who alleged that they did not vote for the merger (and who alleged that they caused a written demand for appraisal of their Captec shares to be served on Captec), filed in the Chancery Court of the State of Delaware in and for New Castle County a Petition for Appraisal of Stock (“Appraisal Action”). The Appraisal Action alleged that 1,037,946 shares of Captec dissented from the merger and sought to require the Company to pay to all Captec stockholders who demanded appraisal of their shares the fair value of those shares, with interest from the date of the merger. The Appraisal Action also sought to require the Company to pay all costs of the proceeding, including fees and expenses for plaintiff’s attorneys and experts. As a result of this action, the plaintiffs were not entitled to receive the Company’s common and Series A Preferred Stock as offered in the original merger consideration. Accordingly, the Company reduced the number of common and Series A Preferred Stock shares issued and outstanding by 474,037 and 217,950, respectively, which represents the number of shares that would have been issued to the plaintiffs had they accepted the original merger consideration. In 2003, the Company further reduced the number of common and Series A Preferred Stock shares issued and outstanding by 823 and 379, respectively. As of December 31, 2002, the Company had recorded the value of these shares at the original consideration share price in addition to the cash portion of the original merger consideration as other liabilities totaling $13,278,000. In February 2003, the Company entered into a settlement agreement with the beneficial owners of the alleged 1,037,946 dissenting shares (including the petitioners in the Appraisal Action) which required the Company to pay $15,569,000 which approximated the value of the original merger consideration (which included cash, common stock and Series A Preferred Stock shares) at the time of the litigation settlement plus the dividends that would have been paid if the shares had been issued at the time of the merger. The Company used proceeds from its Credit Facility to fund the settlement of the legal action. In February 2003, the parties filed a stipulation and order of dismissal and the Court entered the order of dismissal, dismissing the Appraisal Action with prejudice.

As of December 31, 2001, the Company had completed all payments due in connection with its merger with CNL Realty Advisors, Inc. (the “Advisor”). 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 was 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. For accounting purposes, the Advisor was not considered a “business” for purposes of applying APB Opinion No. 16, “Business Combinations,” and therefore,

     Shareholder Value     29

the 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. The Company has issued the entire Share Balance as of December 31, 2001. The cumulative market value of the Share Balance issued was $24,736,000, all of which was charged to operations in the respective years in which the shares were issued.

Revenue Analysis

General.   During 2003 the Company’s rental income increased substantially due to new property acquisitions and an increased occupancy rate, continuing the increase in rental income recorded in 2002 resulting from properties acquired in the Captec merger. While interest income decreased over both periods due to lower average outstanding balances and average interest rates, interest income diminished to 4.7 percent of total revenue, minimizing the impact of the decrease. The Company anticipates any significant increase in rental income will continue come primarily from additional property acquisitions over the next several years. In addition to retail properties, the Company anticipates that it will also acquire office and industrial properties.

The following summarizes the Company’s revenues for each of the years ended December 31:

	2003					2002					2001
			Percent of Total					Percent of Total					Percent of Total
Rental Income(1)	$	95,790,000		93	.3%	$	82,392,000		90	.6%	$	65,792,000		86	.0%
Interest(2)		4,866,000		4	.7%		6,955,000		7	.7%		8,791,000		11	.5%
Other		2,002,000		2	.0%		1,544,000		1	.7%		1,875,000		2	.5%
Total Revenue	$	102,658,000		100	.0%	$	90,891,000		100	.0%	$	76,458,000		100	.0%
(1)    Includes rental income from operating leases, earned income from direct financing leases and contingent rental         income from continuing operations ("Rental Income"). (2)    Includes interest from unconsolidated affiliates, including Services, and other mortgages and notes receivable         ("Interest Income").

Revenue Analysis by Source of Income.  Breaking down revenues into the Company’s two primary sources of revenue reveals similar trends. 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 accounting principles generally accepted in the United States of America, the Company has identified two primary sources of revenue: (i) rental and earned income from leased properties (“Leased Properties”), and (ii) interest income from affiliates and fee income from development, property management and asset management services (“Interest and Fee Income”). The Company evaluates its ability to pay dividends to stockholders by considering the combined effect of income from continuing and discontinued operations (see “Results of Operations – Earnings from Discontinued Operations”).

30      Strategic Real Estate

	Revenues by Primary Source
	2003					2002					2001
			Percent of Total					Percent of Total					Percent of Total
Leased Properties	$	98,596,000		96	.0%	$	84,277,000		92	.7%	$	67,986,000		88	.9%
Interest and fee income		4,062,000		4	.0%		6,614,000		7	.3%		8,472,000		11	.1%
Total revenue from continuing     operations	$	102,658,000		100	.0%	$	90,891,000		100	.0%	$	76,458,000		100	.0%

Comparison of Year Ended December 31, 2003 to Year Ended December 31, 2002.

Rental Income increased 16.3 percent for the year ended December 31, 2003 due to a three percent increase in the Company’s portfolio occupancy rate (97 percent at December 31, 2003 versus 94 percent at December 31, 2002) and the addition of an aggregate gross leasable area of 1,453,000 square feet to the Company’s portfolio resulting from the acquisition of 23 Properties and the completed construction of one Property.

During fiscal years 2003 and 2002, one of the Company’s lessees, Eckerd Corporation, accounted for more than 10 percent of the Company’s total rental income (including the Company’s share of rental income from nine properties owned by the one of the Company’s unconsolidated affiliates). As of December 31, 2003, Eckerd Corporation leased 52 Properties (including three properties under leases with one of the Company’s unconsolidated affiliates). Based on the minimum rental payments required by the leases, Eckerd Corporation may continue to account for more than 10 percent of the Company’s total rental income in 2004. In August 2003, the Company entered into a lease agreement with the United States of America, which the Company expects to account for more than 10 percent of the Company’s total rental income in future years. Any failure of these lessees to make the lease payments when they are due could materially affect the Company’s earnings.

Interest Income decreased 30.0 percent for the year ended December 31, 2003. This decrease was primarily attributable to (i) a decrease in the average borrowing levels on the lines of credit with Services and its wholly-owned subsidiaries and (ii) a decline in the average interest rate on the lines of credit. However, the decrease was offset by $1,049,000 of interest earned on the $43,433,000 Mezzanine Loan investment made in October 2003. Excluding this loan, Interest Income would have decreased by 45.1 percent.

Comparison of Year Ended December 31, 2002 to Year Ended December 31, 2001.

Rental Income increased 25.2 percent for the year ended December 31, 2002 due to (i) the Properties acquired in the Captec merger, (ii) a five percent increase in the occupancy rate in the Company’s portfolio to 94 percent at December 31, 2002 from 89 percent at December 31, 2001 and (iii) a 52.7 percent increase in non-recurring additional Rental Income related to the termination of leases on certain properties for the year ended December 31, 2002 ($3,368,000 related to the termination of leases on six properties in comparison to $2,205,000 received during the year ended December 31, 2001 related to the termination of leases on 33 properties.)

Rental Income from Properties acquired in connection with the Captec merger account for 22.9 percent of the 25.2 percent increase in Rental Income. Rental Income includes $16,790,000 and $1,662,000 for the years ended December 31, 2002 and 2001, respectively, of revenues attributable to these certain Properties (see “Results of

     Shareholder Value     31

Operations – Merger Transactions”). The increase in Rental Income for the year ended December 31, 2002, was partially offset by a decrease in contingent rental income. The Company earned $407,000 and $892,000 from contingent rental income for the years ended December 31, 2002 and 2001, respectively, which represented 0.5 and 1.4, respectively, percent of Rental Income.

Interest Income decreased 20.9 percent for the year ended December 31, 2002 from the year ended December 31, 2001, however only decreased 3.8 percent as a percentage of total revenues. This decrease was which was primarily attributable to (i) a decrease in the average borrowing levels on the lines of credit with Services and its wholly-owned subsidiaries and (ii) a decline in the average interest rates on the lines of credit.

Expense Analysis

During 2003 operating expenses increased with the acquisition of additional properties, but remained generally proportionate to the Company’s total revenue. Likewise, general operating and administrative expenses, real estate expenses and depreciation and amortization expenses all increased with the acquisition of additional properties. The following summarizes the Company’s expenses for each of the years ended December 31:

	2003				2002					2001
			Percent of Total				Percent of Total					Percent of Total
General operating and administrative	$	11,486,000		11.2%	$	9,465,000		10.4%		$	6,894,000		9.0%
Real estate		2,406,000		2.2%		1,446,000		1.1%			736,000		1.0%
Depreciation and amortization		13,467,000		13.1%		11,142,000		12.3%			8,737,000		11.4%
Operating expenses (1)	$	27,359,000		26.6%	$	22,053,000		24.3%		$	16,367,000		21.4%
Interest		27,731,000		2730%		26,720,000		29.4%			24,952,000		32.6%
Loss on impairment of real estate		-		-		2,256,000		2.5%			-		-
Other expenses (2)		2,413,000		2.4%		-			-		12,582,000		16.5%
Total expenses from continuing     operations	$	57,503,000		56.0%	$	51,029,000		56.2%		$	53,901,000		70.5%
(1)    Includes operating expenses from continuing operations, excluding interest, the provision for loss on impairment of real        estate and expenses incurred in 2003 in connection with dissenting shareholders' settlement and expenses incurred in        2001 in acquiring the Company's Advisor from a related party and including depreciation and amortization ("Operating        Expenses"). (2)    2003 includes expenses incurred in connection with dissenting shareholders' settlement. 2001 includes expenses        incurred in acquiring the Company's Advisor from a related party.

Comparison of Year Ended December 31, 2003 to Year Ended December 31, 2002.

Operating Expenses increased 24.1 percent for the year ended December 31, 2003 over the year ended December 31, 2002, and increased as a percentage of total revenues by 2.3 percent to 26.6 percent.

General operating and administrative expenses increased 21.4 percent for the year ended December 31, 2003, and increased as a percentage of total revenues by 0.8 percent to 11.2 percent. General operating and administrative expenses increased for the year ended December 31, 2003 primarily as a result of (i) increases in expenses related to personnel, (ii) increases in expenses related to professional services provided to the Company, and (iii) increases in state taxes.

32      Strategic Real Estate

Real estate expenses increased 66.4 percent for the year ended December 31, 2003 primarily due to the August 2003 acquisition of two office buildings and a related parking garage in the Washington D.C. metropolitan area, increasing as a percentage of total revenues by 0.7 percent to 2.3 percent. The increase in real estate expenses was partially offset by an increase in the Company’s occupancy rate to 97 percent at December 31, 2003 from 94 percent at December 31, 2002.

Depreciation and amortization expense increased 20.9 percent for the year ended December 31, 2003, but only increased as a percentage of total revenues by 0.8 percent to 13.1 percent for the year ended December 31, 2003. The increase in depreciation and amortization expense for the year ended December 31, 2003 is primarily attributable to (i) the depreciation on acquisition of and tenant improvements on additional Properties in 2003, (ii) the amortization of loan costs related to the amended Credit Facility and (iii) the amortization of additional lease costs.

Interest expense increased 3.8 percent to 27.0 percent of total revenues for the year ended December 31, 2003 as a result of refinancing a portion of the Company’s Credit Facility and Term Note to long-term fixed rate debt, including the $50,000,000 notes payable and the $21,000,000 fixed rate mortgage loan, both entered into in June 2002 and the addition of the $95,000,000 fixed rate mortgage loan entered into in November 2003, as a means to reduce floating interest rate risk. However, the increase in interest expense was partially offset by a decrease in the average interest rates on the Company’s variable interest rate debt.

The Company recorded no loss on impairment of real estate during 2003. The Company recorded a provision for loss on impairment of real estate of $2,256,000 and $1,029,000 in continuing operations and discontinued operations, respectively, in the year ended December 31, 2002. The Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. Generally, the Company makes a provision for impairment loss if estimated future operating cash flows plus estimated disposition proceeds are less than the current book value. Impairment losses are measured as the amount by which the current book value of the asset exceeds the estimated fair value of the asset.

During the year ended December 31, 2003, the Company recorded a dissenting shareholders’ settlement expense of $2,413,000 related to the Appraisal Action that arose as a result of the merger with Captec in December 2001. For a description of the settlement, see Item 3 of the accompanying Annual Report on Form 10-K.

Comparison of Year Ended December 31, 2002 to Year Ended December 31, 2001.

Operating Expenses increased 34.7 percent for the year ended December 31, 2002 over the year ended December 31, 2001, but only increased as a percentage of total revenues by 2.9 percent to 24.3 percent.

General operating and administrative expenses increased 37.3 percent over the same period, but only increased as a percentage of total revenues by 1.4 percent to 10.4 percent. The increase in general operating and administrative expenses resulted primarily from increased personnel expenses and expenses related to professional services provided to the Company.

Although, real estate expenses nearly doubled for the year ended December 31, 2002 due to real estate taxes, utilities and maintenance related to vacant properties owned by the Company during the period, but only increased as a percentage of total revenues by 0.6 percent to 1.6 percent. As of December 31, 2002 and 2001, the Company’s continuing operations included 15 and 19 vacant Properties, respectively, with an aggregate gross leasable area of 275,000 square feet and 502,000 square feet, respectively.

     Shareholder Value     33

Depreciation and amortization expenses increased 27.5 percent for the year ended December 31, 2002 primarily due to Properties acquired in connection with the Captec merger. Excluding properties acquired during the Captec merger, depreciation and amortization expenses increased 3.4 percent due to expenses connected with 10 properties acquired during the period and amortization attributable to additional debt costs (including the costs related to the Term Note and 2012 Notes) incurred during the year ended December 31, 2002. These expenses were offset by a decrease in depreciation and amortization expense due to the sale of 19 properties sold during 2002 and 35 properties sold during 2001.

Interest expense increased 7.1 percent for the year ended December 31, 2002, primarily as a result of the interest incurred on (i) the Term Note the Company entered into in November 2001 and (ii) $50,000,000 notes payable and the $21,000,000 fixed rate mortgage loan, both entered into in June 2002. However, the increase in interest expense was partially offset by (i) a decrease in the average interest rates and borrowing levels on the Company’s Credit Facility and (ii) the partial repayment of the Term Note in 2002. Although, interest expense increased for the year ended December 31, 2002, interest expense decreased as a percentage of total revenues by 3.2 percent to 29.4 percent.

The Company recorded a provision for loss on impairment of real estate of $2,256,000 (2.5 percent of total revenues) and $1,029,000 in continuing operations and discontinued operations, respectively, in the year ended December 31, 2002. The provision for loss on impairment of real estate in continuing operation includes $1,532,000 related to Properties acquired in connection with the Captec merger. The Company recorded a provision for loss on impairment of real estate of $125,000 that was classified as discontinued operations in the year ended December 31, 2001. The Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. Generally, the Company makes a provision for impairment loss if estimated future operating cash flows plus estimated disposition proceeds are less than the current book value. Impairment losses are measured as the amount by which the current book value of the asset exceeds the estimated fair value of the asset.

The Company recorded $12,582,000 (16.5 percent of total revenues) in expenses incurred in acquiring the Advisor from a related party for the year ended December 31, 2001. As of December 31, 2001, the Company had issued the entire balance of shares required in connection with the acquisition of the Advisor (see “Results of Operations – Merger Transactions”). The Company did not incur any expenses during the year December 31, 2002 related to acquiring the Advisor.

Unconsolidated Affiliates

For details on each of the affiliates, see “Capital Resources – Investments in Unconsolidated Affiliates.” During the years ended December 31, 2003 and 2002, the Company recognized equity in earnings of unconsolidated affiliates of $6,154,000 and $3,216,000, respectively. The increase in equity in earnings of unconsolidated affiliates was primarily attributable to the income earned on the investments in mortgage loans. In addition, the increase was partially attributable to the increase in earnings from Services and its wholly-owned subsidiaries, which was attributable to the gain recognized on real estate dispositions by Services and its subsidiaries.

During the years ended December 31, 2002 and 2001, the Company recognized equity in earnings of unconsolidated affiliates of $3,216,000 and $(1,475,000), respectively. The increase in equity in earnings of unconsolidated affiliates was primarily attributable to (i) the income generated by Services and its wholly-owned

34      Strategic Real Estate

subsidiaries, which was attributable to the increase in the number of real estate dispositions by Services and its subsidiaries and (ii) the income generated from the investments in mortgage loans.

Earnings from Discontinued Operations

In accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” the Company has classified its 14 and 19 properties sold during 2003 and 2002, respectively, as discontinued operations. Accordingly, the results of operations for 2003, 2002 and 2001 related to these 33 properties have been reclassified to earnings from discontinued operations. During the years ended December 31, 2003, 2002 and 2001, the Company recognized earnings from discontinued operations of $2,164,000, $4,980,000 and $3,233,000, respectively. The Company occasionally sells properties and may reinvest the proceeds of the sales to purchase new properties. The Company evaluates its ability to pay dividends to stockholders by considering the combined effect of income from continuing and discontinued operations. See “Results of Operations – Property Dispositions.”

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 Company has no outstanding derivatives as of December 31, 2003 and 2002. The Company does not use derivatives for speculative or trading purposes.

The information in the table below summarizes the Company’s market risks associated with its debt obligations outstanding as of December 31, 2003 and 2002. The table presents principal cash flows and related interest rates by year of expected maturity for debt obligations outstanding as of December 31, 2003. 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, 2003 and 2002, 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.

     Shareholder Value     35

	Expected Maturity Date (dollars in thousands)
	2004			2005		2006			2007		2008		Thereafter
Variable rate Credit Facility	$	-		$	-	$	27,800		$	-	$	-	$	-
Average interest rate		-			-		(1	)		-		-		-
Variable rate Term Note	$	20,000		$	-	$	-		$	-	$	-	$	-
Average interest rate		(2	)		-		-			-		-		-
Fixed rate mortgages	$	3,158		$	3,415	$	22,931		$	1,281	$	956	$	115,839
Average interest rate		6.17%			6.125		5.89%			5.82%		5.81%		7.40%
Fixed rate notes	$	100,000		$	-	$	-		$	-	$	100,000	$	70,000
Average interest rate		7.58%			7.47%		7.47%			7.47%		7.85%		7.86%
(1)    Interest rate varies based upon a tiered rate structure ranging from 70 basis points above LIBOR to 135 basis points        above LIBOR based upon the debt rating of the Company. (2)    Interest rate varies based upon a tiered rate structure ranging from 155 basis points above LIBOR to 225 basis points        above LIBOR based upon the debt rating of the Company.

	December 31, 2003 (dollars in thousands)						December 31, 2002 (dollars in thousands)
	Total		Weighted Average Interest Rate		Fair Value		Total		Weighted Average Interest Rate		Fair Value
Variable rate Credit Facility	$	27,800		2.41%	$	27,800	$	38,900		3.10%	$	38,900
Variable rate Term Note	$	20,000		3.01%	$	20,000	$	20,000		3.64%	$	20,000
Fixed rate mortgages	$	147,580		6.98%	$	147,580	$	55,481		7.52%	$	55,481
Fixed rate notes(1)	$	270,000		7.71%	$	295,488	$	270,000		7.71%	$	287,898
(1)    Excludes unamortized note discount and unamortized interest rate hedge gain.

36      Strategic Real Estate

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, 2003 and 2002, 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, 2003. 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 auditing standards generally accepted in the United States of America. 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, 2003 and 2002, and results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2003, in conformity with accounting principles generally accepted in the United States of America.

Orlando, Florida

January 16, 2004, except as to the eighth paragraph
    of Note 4, which is as of February 2, 2004

     Shareholder Value     37

COMMERCIAL NET LEASE REALTY, INC. & SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (dollars in thousands, except per share data)
ASSETS	December 31,
	2003			2002
Real estate:
Accounted for using the operating method, net of accumulated
depreciation and amortization	$	887,124		$	703,465
Accounted for using the direct financing method		102,970			108,308
Investments in, mortgages and other receivables from unconsolidated
affiliates		114,803			102,633
Mortgages, notes and accrued interest receivable, net of allowance		56,568			11,253
Cash and cash equivalents		4,364			1,737
Receivables, net of allowance of $1,564 and $799, respectively		4,458			1,227
Accrued rental income, net of allowance of $1,320 and $998, respectively		25,322			19,172
Debt costs, net of accumulated amortization of $6,680 and $5,353,
respectively		3,733			3,181
Other assets		8,968			3,132
Total assets	$	1,208,310		$	954,108
LIABILITIES AND STOCKHOLDERS' EQUITY
Line of credit payable	$	27,800		$	38,900
Mortgages payable		147,580			55,481
Notes payable, net of unamortized discount of $530 and $677,
respectively, and unamortized interest rate hedge gain of $288
and $885, respectively		289,758			290,208
Accrued interest payable		3,806			3,560
Other liabilities		8,612			16,818
Total liabilities		477,556			404,967
Commitments and contingencies (Note 22)
Stockholders’ equity:
Preferred stock, $0.01 par value. Authorized 15,000,000 shares
Series A Preferred Stock, 1,781,645 and 1,782,024 shares issued and              outstanding, respectively; stated liquidation value of $25 per share		44,541			44,541
Series B Convertible Preferred Stock, 10,000 shares issued and              outstanding; stated liquidation value of $2,500 per share		25,000			-
Common stock, $0.01 par value. Authorized 90,000,000 shares;          50,001,898 and 40,403,611 shares issued and outstanding; respectively		500			404
Excess stock, $0.01 par value. Authorized 105,000,000 shares; none          issued or outstanding		-			-
Capital in excess of par value		691,704			528,888
Accumulated dividends in excess of net earnings		(28,167	)		(21,657	)
Deferred compensation		(2,824	)		(3,045	)
Total stockholders' equity		730,754			549,141
	$	1,208,310		$	954,108

See accompanying notes to consolidated financial statements.

38      Strategic Real Estate

COMMERCIAL NET LEASE REALTY, INC. & SUBSIDIARIES CONSOLIDATED STATEMENTS OF EARNINGS (dollars in thousands, except per share data)
	Year Ended December 31,
	2003			2002			2001
Revenues:
Rental income from operating leases	$	84,446		$	70,839		$	53,685
Earned income from direct financing leases		10,939			11,146			11,215
Contingent rental income		405			407			892
Interest from unconsolidated affiliates and other mortgages receivable		4,866			6,955			8,791
Other		2,002			1,544			1,875
		102,658			90,891			76,458
Expenses:
General operating and administrative		11,486			9,465			6,894
Real estate		2,406			1,446			736
Interest		27,731			26,720			24,952
Depreciation and amortization		13,467			11,142			8,737
Provision for loss on impairment of real estate		-			2,256			-
Expenses incurred in acquiring advisor from related party		-			-			12,582
Dissenting shareholders' settlement		2,413			-			-
		57,503			51,029			53,901
Earnings from continuing operations before equity in earnings of     unconsolidated affiliates and gain on disposition of real estate		45,155			39,862			22,557
Equity in earnings of unconsolidated affiliates		6,154			3,216			(1,475	)
Gain on disposition of real estate		-			-			4,648
Earnings from continuing operations		51,309			43,078			25,730
Earnings from discontinued operations		2,164			4,980			3,233
Net earnings		53,473			48,058			28,963
Series A Preferred Stock dividends		(4,008	)		(4,010	)		-
Series B Preferred Stock dividends		(502	)		-			-
Net earnings available to common stockholders - basic		48,963			44,048			28,963
Series B Preferred Stock dividends		502			-			-
Net earnings available to common stockholders - diluted	$	49,465		$	44,048		$	28,963
Earnings per share of common stock:
Basic:
Continuing operations	$	1.09		$	0.97		$	0.82
Discontinuing operations		0.05			0.12			0.10
Net earnings	$	1.14		$	1.09		$	0.92
Diluted:
Continuing operations	$	1.08		$	0.97		$	0.81
Discontinuing operations		0.05			0.12			0.10
Net earnings	$	1.13		$	1.09		$	0.91
Weighted average number of common shares outstanding:
Basic	43,108,213			40,383,405			31,539,857
Diluted	43,896,800			40,588,957			31,717,043

See accompanying notes to consolidated financial statements.

     Shareholder Value     39

COMMERCIAL NET LEASE REALTY, INC. & SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY Years Ended December 31, 2003, 2002 and 2001 (dollars in thousands, except per share data)
	Series A Preferred Stock			Series B Preferred Stock		Common Stock			Capital in Excess of Par Value			Accumulated Dividends in Excess of Net Earnings			Deferred Compensation on Restricted Stock			Total
Balances at December 31,     2000	$	-		$	-	$	305		$	398,449		$	(4,853	)	$	-		$	393,901
Net earnings		-			-		-			-			28,963			-			28,963
Dividends declared and     paid ($1.26 per share of     common stock)		-			-		-			-			(38,637	)		-			(38,637	)
Issuance of 1,999,974     shares of preferred     stock and 4,349,918     shares of common     stock in connection     with the merger		50,000			-		43			59,724			-			-			109,767
Issuance of 973,920     shares of common     stock in connection     with acquisition     of advisor		-			-		10			12,572			-			-			12,582
Issuance of 4,579,615     shares of common     stock		-			-		46			61,016			-			-			61,062
Issuance of 239,000     shares of restricted     common stock		-			-		2			3,188			-			(3,190	)		-
Stock issuance costs		-			-		-			(3,272	)		-			-			(3,272	)
Amortization of deferred     compensation		-			-		-			-			-			274			274
Balances at December 31,      2001		50,000			-		406			531,677			(14,527	)		(2,916	)		564,640
Net earnings		-			-		-			-			48,058			-			48,058
Dividends declared and     paid ($2.25 per share     Series A Preferred      Stock)		-			-		-			-			(4,010	)		-			(4,010	)
Dividends declared and     paid ($1.27 per share of      common stock)		-			-		-			-			(51,178	)		-			(51,178	)
Reversal of 217,950     shares of preferred     stock and 474,037     shares of common     stock originally offered     to the dissenting     stockholders in     connection with the     merger in 2001		(5,449	)		-		(5	)		(6,509	)		-			-			(11,963	)
Issuance of 214,490     shares of common      stock		-			-		2			2,752			-			-			2,754
Issuance of 64,000      shares of restricted     common stock		-			-		1			982			-			(983	)		-
Stock issuance costs		-			-		-			(14	)		-			-			(14	)
Amortization of deferred     compensation		-			-		-			-			-			854			854
Balances at December 31,     2002	$	44,551		$	-	$	404		$	528,888		$	(21,657	)	$	(3,045	)	$	549,141

See accompanying notes to consolidated financial statements.

40      Strategic Real Estate

COMMERCIAL NET LEASE REALTY, INC. & SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY - CONTINUED Years Ended December 31, 2003, 2002 and 2001 (dollars in thousands, except per share data)
	Series A Preferred Stock			Series B Preferred Stock		Common Stock		Capital in Excess of Par Value			Accumulated Dividends in Excess of Net Earnings			Deferred Compensation on Restricted Stock			Total
Balances at December 31,     2002	$	44,551		$	-	$	404	$	528,888		$	(21,657	)	$	(3,045	)	$	549,141
Net earnings		-			-		-		-			53,473			-			53,473
Dividends declared and     paid ($2.25 per share     of Series A Preferred     Stock)		-			-		-		-			(4,008	)		-			(4,008	)
Dividends declared and     paid ($50.25 per share     of Series B Preferred     Preferred Stock)		-			-		-		-			(502	)		-			(502	)
Dividends declared and     paid ($1.28 per share of     common stock)		-			-		-		-			(55,473	)		-			(55,473	)
Reversal of 379 shares     of preferred stock and     823 shares of common     stock originally     offered to the     dissenting     stockholders in     connection with the     merger in 2001		(10	)		-		-		(11	)		-			-			(21	)
Issuance of 9,528,653     shares of common     stock		-			-		95		168,512			-			-			168,607
Issuance of 10,000 shares     of preferred stock		-			25,000		-		-			-			-			25,000
Issuance of 76,407 shares     of restricted common     stock		-			-		1		1,140			-			(1,141	)		-
Cancellation of 5,950     shares of restricted     common stock		-			-		-		(91	)		-			91			-
Stock issuance costs		-			-		-		(6,734	)		-			-			(6,734	)
Amortization of deferred     compensation		-			-		-		-			-			1,271			1,271
Balances at December 31,     2003	$	44,541		$	25,000	$	500	$	691,704		$	(28,167	)	$	(2,824	)	$	730,754

See accompanying notes to consolidated financial statements.

     Shareholder Value     41

COMMERCIAL NET LEASE REALTY, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)

	Year Ended December 31,
	2003			2002			2001
Cash flows from operating activities:
Net earnings	$	53,473		$	48,058		$	28,963
Adjustments to reconcile net earnings to net cash provided by operating
activities:
Stock compensation expense		1,155			854			274
Depreciation and amortization		13,569			11,742			9,211
Provision for loss on impairment of real estate		-			3,285			-
Amortization of notes payable discount		147			128			107
Amortization of deferred interest rate hedge gain		(597	)		(555	)		(515	)
Expenses incurred in acquiring advisor from related party		-			-			12,582
Equity in earnings of unconsolidated affiliates, net of deferred
intercompany profits		(6,468	)		(3,914	)		1,657
Gain on disposition of real estate		(287	)		(260	)		(4,648	)
Changes in assets and liabilities net of the effects of the acquisition
of Captec Net Lease Realty, Inc. ("Captec") in December 2001:
Decrease in real estate leased to others using the direct financing
method		2,368			2,165			1,979
Increase in mortgages, notes and accrued interest receivable		(875	)		(685	)		(645	)
Decrease (increase) in receivables		(3,231	)		840			(283	)
Increase in accrued rental income		(6,548	)		(3,172	)		(2,209	)
Increase in other assets		(1,118	)		(379	)		(2,803	)
Increase (decrease) in accrued interest payable		246			427			(1,696	)
Increase (decrease) in other liabilities		2,485			171			(4,247	)
Net cash provided by operating activities		54,319			58,705			37,727
Cash flows from investing activities:
Proceeds from the disposition of real estate		25,024			29,329			45,288
Additions to real estate accounted for using the operating method		(215,730	)		(40,159	)		(19,836	)
Additions to real estate accounted for using the direct financing method		-			(3,201	)		-
Contributions to unconsolidated affiliates		(8,750	)		(14,500	)		(11,750	)
Distributions received from unconsolidated affiliates		4,699			2,810			281
Increase in mortgages and notes receivable		(46,878	)		-			-
Mortgage and notes payments received		1,780			7,637			1,689
Increase in mortgages and other receivables from unconsolidated affiliates		(193,670	)		(120,569	)		(114,888	)
Payments received on mortgages and other receivables from unconsolidated
affiliates		192,236			178,548			82,506
Captec acquisition, net of cash received		-			-			(7,696	)
Consideration paid to the dissenting shareholders in connection
with the merger of Captec		(13,278	)		-			-
Payment of lease costs		(3,127	)		(1,075	)		(32	)
Other		(5	)		1,163			297
Net cash provided by (used in) investing activities		(257,699	)		39,983			(24,141	)

See accompanying notes to consolidated financial statements.

42      Strategic Real Estate

COMMERCIAL NET LEASE REALTY, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
(dollars in thousands)

	Year Ended December 31,
	2003			2002			2001
Cash flows from financing activities:
Proceeds from line of credit payable		352,800			111,500			157,200
Repayment of line of credit payable		(363,900	)		(180,000	)		(151,500	)
Proceeds from mortgages payable		95,000			21,000			-
Repayment of mortgages payable		(2,901	)		(2,530	)		(2,146	)
Proceeds from notes payable		-			49,713			70,000
Repayment of notes payable		-			(50,000	)		(101,213	)
Payment of debt costs		(1,901	)		(1,145	)		(186	)
Proceeds from issuance of Series B Preferred Stock		25,000			-			-
Proceeds from issuance of common stock		168,579			2,725			61,062
Payment of stock issuance costs		(6,686	)		(4	)		(3,272	)
Payment of Series A Preferred Stock dividends		(4,010	)		(4,007	)		-
Payment of Series B Preferred Stock dividends		(502	)		-			-
Payment of common stock dividends		(55,472	)		(51,177	)		(38,637	)
Other		-			-			(110	)
Net cash provided by (used in) financing activities		206,007			(103,925	)		(8,802	)
Net increase (decrease) in cash and cash equivalents		2,627			(5,237	)		4,784
Cash and cash equivalents at beginning of year		1,737			6,974			2,190
Cash and cash equivalents at end of year	$	4,364		$	1,737		$	6,974
Supplemental disclosure of cash flow information - interest paid, net of amount    capitalized	$	28,036		$	26,119		$	27,509
Supplemental disclosure of non-cash investing and financing activities:    Issued 1,999,974 shares of preferred stock and 4,349,918 shares of common    stock in 2001 in connection with the merger of Captec (see Note 17)	$	-		$	-		$	109,767
Issued 973,920 shares of common stock in 2001 in connection with the       acquisition of the Company's advisor	$	-		$	-		$	12,582
Issued 76,407, 64,000 and 239,000 shares of restricted common stock in 2003,       2002 and 2001, respectively, in connection with the Company's 2000       Performance Incentive Plan	$	1,141		$	982		$	3,190
Common and preferred stock dividends for non-dissenting, unexchanged shares       held by the Company in connection with the merger of Captec	$	(1	)	$	4		$	-
Cash consideration for non-dissenting, unexchanged shares held by the       Company in connection with the merger of Captec	$	(2	)	$	3		$	-
Liability for the consideration due to the dissenting stockholders in       connection with the merger of Captec (see Note 17)	$	-		$	13,278		$	-
Note and mortgage notes accepted in connection with real estate transactions	$	3,445		$	599		$	610
Real estate and other assets contributed to unconsolidated affiliate in       exchange for additional equity	$	-		$	-		$	20,042

See accompanying notes to consolidated financial statements.

     Shareholder Value     43

COMMERCIAL NET LEASE REALTY, INC & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 2003, 2002 and 2001

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, invests in, manages and indirectly, through investment interests, develops primarily single-tenant retail, office and industrial properties that are generally leased to established tenants under long-term commercial net leases. As of December 31, 2003, the Company owned 339 properties, located in 39 states, that are leased to established tenants, including Academy, Barnes & Noble, Bennigan’s, Best Buy, Borders, Eckerd, Jared Jewelers, OfficeMax, The Sports Authority and the United States of America.

Principles of Consolidation - The consolidated financial statements include the accounts of Commercial Net Lease Realty, Inc. and its 21 wholly-owned subsidiaries (collectively, 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 until the project is substantially complete and available for occupancy.

Real estate is generally leased to tenants 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 operating or the direct financing method. Such methods are described below:

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.

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). 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.

When real estate is disposed of, 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 dispositions are reflected in income. Gains from disposition of real estate are generally recognized using the full accrual method in accordance with the provisions of Statement of Financial Accounting Standards (“SFAS”) No. 66 “Accounting for Real Estate Sales,” provided that various criteria relating to the terms of the sale and any subsequent involvement by the Company with the real estate sold are met. Lease termination fees are recognized when the related leases are cancelled and the Company no longer has a continuing obligation to provide services to the former tenants.

44      Strategic Real Estate

Management reviews its real estate for impairment whenever events or changes in circumstances indicate that the carrying value of the asset, including accrued rental income, may not be recoverable through operations. Management determines whether an impairment in value has 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 asset. 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.

Purchase Accounting for Acquisition of Real Estate - For purchases of real estate that were consummated subsequent to June 30, 2001, the effective date of SFAS No. 141, Business Combinations, the fair value of the real estate acquired is allocated to the acquired tangible assets, consisting of land, building and tenant improvements, and identified intangible assets and liabilities, consisting of the value of above-market and below-market leases, other value of in-place leases and value of tenant relationships, based in each case on their relative fair values.

The fair value of the tangible assets of an acquired property is determined by valuing the property as if it were vacant, and the “as-if-vacant” value is then allocated to land, building and tenant improvements based on the determination of the relative fair values of these assets. Management uses the as-if-vacant fair value of a property provided by independent appraisers.

In allocating the fair value of the identified intangible assets and liabilities of an acquired property, above-market and below-market in-place lease values are recorded based on the present value (using an interest rate which reflects the risks associated with the leases acquired) of the difference between (i) the contractual amounts to be paid pursuant to the in-place leases and (ii) management’s estimate of fair market lease rates for the corresponding in-place leases, measured over a period equal to the remaining non-cancelable term of the lease. The capitalized above-market lease values (included in other assets in the accompanying combined balance sheet) are amortized as a reduction of rental income over the remaining non-cancelable terms of the respective leases. The capitalized below-market lease values (presented as other assets in the accompanying combined balance sheet) are amortized as an increase to rental income over the initial term and any fixed rate renewal periods in the respective leases. The Company’s leases do not currently include fixed-rate renewal periods.

The aggregate value of other acquired intangible assets, consisting of in-place leases, is measured by the excess of (i) the purchase price paid for a property after adjusting existing in-place leases to market rental rates over (ii) the estimated fair value of the property as if vacant, determined as set forth above. The value of in-place leases exclusive of the value of above-market and below-market in-place leases is amortized to expense over the remaining non-cancelable periods of the respective leases. If a lease were to be terminated prior to its stated expiration, all unamortized amounts relating to that lease would be written off.

Investment in Unconsolidated Affiliates - The Company accounts for each of its investments in an unconsolidated affiliate under the equity method of accounting (see Note 4). The Company exercises significant influence over these unconsolidated affiliates, but not control.

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, money market and escrow deposit accounts. Cash equivalents are stated at cost plus accrued interest, which approximates fair value.

     Shareholder Value     45

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 $225,000,000 line of credit, term note payable and mortgages payable have been deferred and are being amortized over the term of the respective loan commitment 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 respective debt obligation using the effective interest method.

Stock-Based Compensation - At December 31, 2003, the company has one stock-based employee compensation plan, which is described more fully in Note 16. Prior to 2003, the company accounted for those plans under the recognition and measurement provisions of APB Opinion No. 25, Accounting for Stock Issued to Employees, and related Interpretations. No stock-based employee compensation cost is reflected in 2002 or 2001 net earnings, as all options granted under that plan had an exercise price equal to the market value of the underlying common stock on the date of grant. Effective January 1, 2003, the company adopted the fair value recognition provisions of SFAS No. 123, Accounting for Stock-Based Compensation, prospectively to all employee awards granted, modified, or settled after January 1, 2003. Awards under the company’s plans vest over periods ranging from two to five years. Therefore, the cost related to stock-based employee compensation included in the determination of net income for 2003 is less than that which would have been recognized if the fair value based method had been applied to all awards since the original effective date of SFAS No. 123.

46      Strategic Real Estate

The following table illustrates the effect on net earnings available to common stockholders and earnings per share if the fair value based method had been applied to all outstanding and unvested awards in each period (dollars in thousands, except per share data):

	2003			2002			2001
Net earnings available to common stockholders
- basic, as reported:	$	48,963		$	44,048		$	28,963
Add: Stock-based employee compensation    expense included in reported net earnings		3			-			-
Deduct: Total stock-based employee compensation    expense determined under the fair value based    method for all awards		(74	)		(27	)		(64	)
Pro forma net earnings available to common
stockholders - basic	$	48,892		$	44,021		$	28,899
Net earnings available to common stockholders
- diluted, as reported:	$	49,465		$	44,048		$	28,963
Add: Stock-based compensation expense included in
reported net earnings		3			-			-
Deduct: Total stock-based employee compensation
expense determined under the fair value based
method for all awards		(74	)		(27	)		(64	)
Pro forma net earnings available to common    stockholders - diluted	$	49,394		$	44,021		$	28,899
Earnings available to common stockholders per common
share as reported:
Basic	$	1.14		$	1.09		$	0.92
Diluted	$	1.13		$	1.09		$	0.91
Pro forma earnings available to common stockholders
per common share:
Basic	$	1.13		$	1.09		$	0.92
Diluted	$	1.13		$	1.08		$	0.91

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 2003, 2002 and 2001: (i) risk free rates of 5.5% for the 2003 grant, 5.4% and 5.5% for the 2002 grants and 5.1% for the 2001 grant, (ii) expected volatility of 18.0%, 18.0% and 26.4%, respectively, (iii) dividend yields of 9.3%, 9.3% and 11.9%, respectively, and (iv) expected lives of 10 years for grants in 2003, 2002 and 2001.

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 90 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, 2003, the Company believes it has qualified as a real estate investment trust; accordingly, no

     Shareholder Value     47

provisions have been made for federal income taxes in the accompanying consolidated financial statements. Notwithstanding 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.

Income taxes of Commercial Net Lease Realty Services, Inc., an unconsolidated affiliate of the Company, are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carry forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

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 15).

New Accounting Standards - In August 2001, Financial Accounting Standards Board (“FASB”) issued SFAS No. 143, “Accounting for Asset Retirement Obligations.” This statement is effective for the fiscal years beginning after June 15, 2002. This statement addresses financial accounting and reporting obligations associated with the retirement of tangible long-lived assets and for the associated asset retirement costs. It requires an enterprise to record the fair value of an asset retirement obligation as a liability in the period in which it incurs a legal obligation associated with the retirement of tangible long-lived assets that result from the acquisition, construction, development and (or) normal use of the assets. This statement also addresses when to record a corresponding increase to the carrying amount of the related long-lived asset and to depreciate that cost over the life of the asset. The adoption of this statement did not have a significant impact on the financial position or results of operations of the Company.

In November 2002, the FASB issued FASB Interpretation No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others.” This interpretation elaborates on the disclosures to be made by a guarantor in its interim and annual financial statements about its obligations under certain guarantees that it has issued. It also clarifies that a guarantor is required to recognize, at the inception of a guarantee, a liability for the fair value of the obligation undertaken in issuing the guarantee. This interpretation does not prescribe a specific approach for subsequently measuring the guarantor’s recognized liability over the term of the related guarantee. The initial recognition and initial measurement provisions of this interpretation are applicable on a prospective basis to guarantees issued or modified after December 31, 2002, irrespective of the guarantor’s fiscal year-end. The disclosure requirements in this interpretation are effective for financial statements of interim or annual periods ending after December 15, 2002. The interpretive guidance incorporated without change from FASB Interpretation 34 continues to be required for financial statements for fiscal years ending after June 15, 1981 – the effective date of Interpretation 34. The provisions of this interpretation did not have a significant impact on the financial position or results of operations of the Company.

In January 2003, the FASB issued FASB Interpretation No. 46, “Consolidation of Variable Interest Entities.” This Interpretation of Accounting Research Bulletin No. 51, Consolidated Financial Statements, addresses consolidation by business enterprises of variable interest entities. A variable interest entity refers to certain entities subject to consolidation according to the provisions of this interpretation. This interpretation requires existing unconsolidated variable interest entities to be consolidated by their primary beneficiaries if the

48      Strategic Real Estate

variable interest entities do not effectively disperse risks among parties involved. The primary beneficiary of a variable interest entity is the party that absorbs a majority of the entity’s expected losses, receives a majority of its expected residual returns, or both, as a result of holding variable interests, which are the ownership, contractual, or other pecuniary interests in an entity. Certain disclosures are also required by enterprises that hold significant variable interests in a variable interest. A public entity that is not a small business issuer shall apply FASB Interpretation No. 46, as amended, to all entities subject to FASB Interpretation No. 46, as amended, no later than the end of the first reporting period that ends after March 15, 2004. However, prior to the required application of FASB Interpretation No. 46, as amended, a public entity that is not a small business issuer shall apply FASB Interpretation No. 46 or FASB Interpretation No. 46, as amended, to those entities that are considered to be “special-purpose entities” no later than as of the end of the first reporting period that ends after December 15, 2003. If initial application of the requirements of FASB Interpretation No. 46, as amended, results in initial consolidation of an entity created before December 31, 2003, the consolidating enterprise shall initially measure the assets, liabilities, and noncontrolling interests of the variable interest entity at their carrying amounts at the date the requirements of FASB Interpretation No. 46, as amended, first apply. If determining the carrying amounts is not practicable, the assets, liabilities, and noncontrolling interests of the variable interest entity shall be measured at fair value at the date FASB Interpretation No. 46, as amended, first applies. Any differences between the net amount added to the balance sheet of the consolidating enterprise and the amount of any previously recognized interest in the newly consolidated entity shall be recognized as the cumulative effect of an accounting change. FASB Interpretation No. 46, as amended, may be applied by restating previously issued financial statements for one or more years with a cumulative-effect adjustment as of the beginning of the first year restated. Restatement is encouraged but not required. No entities in which the Company held a variable interest were considered to be “special-purpose entities”, as defined in FASB Interpretation No. 46, as amended. At this time, the Company believes that Commercial Net Lease Realty Services, Inc. (“Services”) will be considered a variable interest entity subject to consolidation according to the provisions of this interpretation. Absent additional investment by the Company, as of December 31, 2003, the maximum exposure to loss as a result of the Company’s involvement with Services would be approximately $75,280,000, including the investment, revolving lines of credit and other receivables. As of December 31, 2003, the carrying values of Services’ assets and liabilities were $80,945,000 and $60,496,000, respectively. The adoption of this interpretation is not expected to have a significant impact on the financial position or results of operations of the Company.

In April 2003, FASB issued SFAS No. 149, “Amendment of Statement 133 on Derivative Instruments and Hedging Activities.” This statement amends and clarifies accounting for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities under SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities.” This statement is effective for contracts entered into or modified after June 30, 2003 and for hedging relationships designated after June 30, 2003. The guidance should be applied prospectively. The adoption of this statement did not have a significant impact on the financial position or results of operations of the Company.

In May 2003, FASB issued SFAS No. 150, “Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity.” This statement establishes standards for how a company classifies and measures certain financial instruments with characteristics of both liabilities and equity. This statement requires that a company classify a financial instrument that is within its scope as a liability (or an asset in some circumstances) in statements of financial position. Many of those instruments were previously classified as equity. This statement is effective for financial instruments entered into or modified after May 31, 2003; otherwise effective at the beginning of the first interim period beginning after June 15, 2003. Adoption of this statement did not have a significant impact on the financial position or results of operations of the Company.

     Shareholder Value     49

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 accounting principles generally accepted in the United States of America. Actual results could differ from those estimates.

Reclassification - Certain items in prior years' financial statements and notes to consolidated financial statements have been reclassified to conform with the 2003 presentation. These reclassifications had no effect on stockholders’ equity or net earnings.

2. Leases:

The Company generally leases its real estate to established tenants. As of December 31, 2003, 271 of the leases have been classified as operating leases and 67 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 44 of these leases are accounted for as operating leases. Substantially all leases have initial terms of 10 to 20 years (expiring between 2004 and 2025) 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. Generally, the tenant is also 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, and fire coverage. Certain of the Company’s properties, including the two office buildings acquired during 2003, are subject to leases under which the Company retains responsibility for certain costs and expenses with the property. As of December 31, 2003, the weighted average remaining lease term was approximately 11 years. Any lease options generally allow tenants to renew the leases for one 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 subject to operating leases consisted of the following at December 31 (dollars in thousands):

	2003			2002
Land and improvements	$	384,134		$	349,267
Buildings and improvements		544,246			392,172
Leasehold interests		3,381			3,381
		931,761			744,820
Less accumulated depreciation and amortization		(48,863	)		(38,671	)
		882,898			706,149
Construction in progress		6,482			298
		889,380			706,447
Less provision for loss on impairment of real estate		(2,256	)		(2,982	)
	$	887,124		$	703,465

In August 2003, the Company acquired two office buildings and a related parking garage located in Arlington, Virginia (the Washington, D.C. metropolitan area) for $142,800,000. In addition, pursuant to the lease agreement, the Company has agreed to fund an additional $26,544,000 for building, tenant improvements

50      Strategic Real Estate

and other costs related to the lease, of which $11,438,000 had been funded as of December 31, 2003. These costs will be capitalized to building and improvements upon completion which is anticipated to be substantially complete by December 31, 2004. The properties include two office buildings containing an aggregate of 555,000 rentable square feet (505,000 usable square feet for purposes of calculating rent) and a two-level garage with 1,079 parking spaces.

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, 2003, 2002 and 2001, the Company recognized collectively in continuing and discontinued operations, $6,756,000, $3,223,000 and $2,259,000, respectively, of such income. At December 31, 2003 and 2002, the balance of accrued rental income was $25,322,000 and $19,172,000, net of allowances of $1,320,000 and $998,000, respectively.

The following is a schedule of future minimum lease payments to be received on noncancellable operating leases at December 31, 2003 (dollars in thousands):

2004	$	89,311
2005		93,340
2006		93,548
2007		92,538
2008		90,856
Thereafter		607,261
	$	1,066,854

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 rents which may be received on the leases based on a percentage of the tenant’s gross sales.

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):

	2003				2002
Minimum lease payments to be received	$	175,236		$	191,994
Estimated unguaranteed residual values		32,354			33,829
Less unearned income		(104,620	)		(117,515	)
Net investment in direct financing leases	$	102,970		$	108,308

     Shareholder Value     51

The following is a schedule of future minimum lease payments to be received on direct financing leases at December 31, 2003 (dollars in thousands):

2004	$	13,346
2005		13,424
2006		13,445
2007		13,491
2008		13,495
Thereafter		108,035
	$	175,236

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. Investments in Unconsolidated Affiliates:

In May 1999, the Company transferred its build-to-suit development operation to Services, an unconsolidated affiliate whose officers and directors consist of certain officers and directors of the Company. The Company contributed $5,700,000 of real estate and other assets to Services in exchange for shares of non-voting common stock. In connection with its contribution, the Company received a 95 percent, non-controlling interest in Services and was entitled to receive 95 percent of the dividends paid by Services. On December 31, 2001, the Company contributed an additional $20,042,000 of real estate. As a result of its additional contribution, effective January 1, 2002 the Company holds a 98.7 percent, non-controlling interest in Services and is entitled to receive 98.7 percent of the dividends paid by Services. Gary M. Ralston, James M. Seneff, Jr. and Kevin B. Habicht, each of which are officers and directors of the Company, own the remaining 1.3 percent interest, which is 100 percent of the voting interest in Services. The Company accounts for its interest in Services under the equity method of accounting.

In May 2003, the Company modified its existing Amended and Restated Secured Revolving Line of Credit and Security Agreement (the “Security Agreement”) with Services to decrease the borrowing capacity from $85,000,000 to $35,000,000. The credit facility is secured by a first mortgage on Services’ properties, bears interest at prime rate plus 0.25% per annum and expires on May 9, 2006. The outstanding principal balance of the mortgage at December 31, 2003 and 2002 was $12,588,000 and $14,846,000, respectively, and bore interest at a rate of 4.25% and 4.50%, respectively, per annum. In January 2003, the Company terminated an $11,000,000 secured revolving line of credit and security agreement with a wholly-owned subsidiary of Services. In May 2003, the Company modified an existing secured revolving line of credit and security agreement with another wholly-owned subsidiary of Services to increase the borrowing capacity from $15,000,000 to $45,000,000. All secured revolving lines of credit and security agreements between the Company and any wholly-owned subsidiaries of Services are collectively referred to as the “Subsidiary Agreements.” The Subsidiary Agreements provide for an aggregate borrowing capacity of $115,000,000, each bears interest at prime rate plus 0.25% per annum and expires on May 9, 2006 and is secured by a pledge of the real estate and/or the other assets owned by the respective borrower. The aggregate outstanding principal balance of the Subsidiary Agreements at December 31, 2003 and 2002 were $42,646,000 and $38,722,000, respectively, and bore interest at a rate of 4.25% and 4.50%, respectively, per annum. The Security Agreement and the Subsidiary Agreements provide for an aggregate borrowing capacity of $150,000,000 to Services and its wholly-owned subsidiaries.

52      Strategic Real Estate

In connection with the mortgages and other receivables from Services and its wholly-owned subsidiaries, the Company received $2,958,000, $4,621,000 and $6,999,000 in interest and fees during the years ended December 31, 2003, 2002 and 2001, respectively. In addition, Services paid the Company $1,583,000, $1,007,000 and $998,000 for accounting, executive, technology and office space costs incurred on behalf of Services by the Company during the years ended December 31, 2003, 2002 and 2001, respectively.

In February 2002, the Company acquired four properties from Services at fair market value for an aggregate cost of $15,918,000. In addition, in June 2002, the Company acquired one property from a wholly-owned subsidiary of Services at fair market value for a cost of $12,648,000. No gain was recognized by Services or its wholly-owned subsidiary on these sales.

The following presents Services’ consolidated condensed financial information (dollars in thousands):

	December 31,
	2003		2002
Real estate, net of accumulated depreciation	$	45,843	$	44,940
Investments in unconsolidated affiliates		257		847
Cash and cash equivalents		971		289
Notes receivable from related parties		24,605		23,986
Other assets		9,269		7,258
Total assets	$	80,945	$	77,320
Mortgage and other payables due to related parties	$	55,305	$	53,872
Mortgage payable		2,281		2,323
Other liabilities		2,910		2,530
Total liabilities		60,496		58,725
Minority interest		321		-
Stockholders' equity		20,128		18,595
Total liabilities and stockholders' equity	$	80,945	$	77,320

	Year Ended December 31,
	2003		2002		2001
Revenues	$	6,033	$	7,949	$	9,037
Net earnings (loss)	$	1,535	$	621	$	(2,145	)

For the years ended December 31, 2003, 2002 and 2001, the Company recognized earnings (loss) of $1,515,000, $613,000, and $(2,212,000), respectively, from Services.

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 Company accounts for its

     Shareholder Value     53

20 percent interest in the Partnership under the equity method of accounting. The Partnership owns and leases nine properties to retail tenants under long-term, commercial net leases.

Under the terms of the limited partnership agreement, CTA had the option to convert its 80 percent limited Partnership interest into shares of the Company’s common stock. In October 2003, CTA elected to exercise its option and, based on the terms and calculation defined in the limited partnership agreement, the Company issued 953,551 shares of common stock to CTA in a private transaction in February 2004.

The Company received $116,000 and $66,000 in distributions from Partnership for the years ended December 31, 2003 and 2002, respectively. For the years ended December 31, 2003, 2002 and 2001, the Company recognized income of $280,000, $270,000 and $278,000, respectively, from the Partnership. The Company manages the Partnership and pursuant to a management agreement, the Partnership paid the Company $193,000, $193,000 and $200,000 in asset management fees during the years ended December 31, 2003, 2002 and 2001, respectively.

The Company has entered into five limited liability company (“LLC”) agreements with CNL Commercial Finance, Inc. (“CCF”), a related party: CNL Commercial Mortgage Holdings I, LLC (“CCMH I”) in June 2001; CNL Commercial Mortgage Holdings II, LLC (“CCMH II”) in December 2001; CNL Commercial Mortgage Holdings III, LLC (“CCMH III”) in June 2002; CNL Commercial Mortgage Holdings IV, LLC (“CCMH IV”) in December 2002; and CNL Commercial Mortgage Holdings V, LLC (“CCMH V”) in July 2003. Each of the LLCs holds an interest in mortgage loans and is 100 percent equity financed. The Company holds a non-voting and non-controlling interest in CCMH I, CCMH II, CCMH III, CCMH IV and CCMH V (collectively, “CCMH LLCs”) of 42.7, 44.0, 36.7, 38.3, and 38.4 percent, respectively, in these investments and accounts for its interests under the equity method of accounting. During the years ended December 31, 2003 and 2002, the Company received $4,211,000 and $2,333,000, respectively, in distributions. In 2003, in connection with a loan to CCF from an affiliate of James M. Seneff, Jr., an officer and director of the Company, the Company pledged a portion of its interest in two of the LLCs as partial collateral for the loan.

54      Strategic Real Estate

The following presents the combined condensed financial information of the CCMH LLCs (dollars in thousands):

	December 31,
	2003		2002
Mortgage assets	$	70,472	$	51,950
Receivable from a related party		-		3,814
Other assets		1		1
Total assets	$	70,473	$	55,765
Total liabilities	$	-	$	-
Members' equity		70,473		55,765
Total liabilities and members' equity	$	70,473	$	55,765

	Year Ended December 31,
	2003		2002		2001
Revenues	$	9,110	$	5,035	$	1,097
Net earnings	$	9,110	$	5,035	$	1,097

For the years ended December 31, 2003, 2002 and 2001, the Company recognized earnings of $4,583,000, $2,445,000 and $459,000, respectively, from the CCMH LLCs.

In May 2002, the Company purchased a combined 25 percent partnership interest for $750,000, in CNL Plaza, Ltd. and CNL Plaza Venture, Ltd. (collectively, “Plaza”). The remaining partnership interests in Plaza are owned by affiliates of James M. Seneff, Jr., an officer and director of the Company, and Robert A. Bourne, a member of the Company’s board of directors. Plaza owns a 346,000 square foot office building and an interest in an adjacent parking garage. The Company has severally guaranteed 41.67% of a $15,500,000 unsecured promissory note on behalf of Plaza. The maximum obligation to the Company is $6,458,000, plus interest. Interest accrues at a rate of LIBOR plus 200 basis points per annum on the unpaid principal amount. This guarantee shall continue through the loan maturity in November 2004. The fair value of the Company’s guarantee is $73,000. During the years ended December 31, 2003 and 2002 the Company received $372,000 and $411,000, respectively, in distributions. For the years ended December 31, 2003 and 2002, the Company recognized a loss of $224,000 and $112,000, respectively.

Since November 1999, the Company has leased its office space from Plaza. The Company’s lease expires in October 2014. In addition, other affiliates of James M. Seneff, Jr. also lease office space from Plaza. The Company and other affiliates lease an aggregate of 64 percent of the 346,000 square foot office building. During the years ended December 31, 2003, 2002 and 2001, the Company incurred rental expenses in connection with the lease of $1,083,000, $1,168,000 and $1,173,000, respectively. In May 2000, the Company subleased a portion of its office space to affiliates of James M. Seneff, Jr. During the years ended December 31, 2003, 2002 and 2001, the Company earned $338,000, $270,000 and $442,000, respectively, in rental and accrued rental income from these affiliates.

     Shareholder Value     55

The following is a schedule of the Company’s future minimum lease payments and the future minimum sublease income from the affiliates related to the office space leased from Plaza at December 31, 2003 (dollars in thousands):

	Lease Payments		Sublease Income		Net
2004	$	1,131	$	496	$	635
2005		1,165		522		643
2006		1,200		538		662
2007		1,236		554		682
2008		1,273		571		702
Thereafter		8,221		3,687		4,534
	$	14,226	$	6,368	$	7,858

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. The Company has the option to renew its lease with Plaza for three successive five-year periods subject to similar terms and conditions as the initial lease.

The following presents a reconciliation of investment in unconsolidated affiliates as of December 31 (dollars in thousands):

	2003		2002
Services, consolidated:
Investment	$	20,046	$	18,469
Mortgage receivable		12,588		14,846
Lines of credit receivable		42,646		38,722
CCMH LLCs investments		35,193		26,071
Other:
Investments		4,313		4,508
Receivables		17		17
	$	114,803	$	102,633

The following presents a reconciliation of equity in earnings of unconsolidated affiliates for the years ended December 31 (dollars in thousands):

	2003		2002		2001
Services, consolidated	$	1,515	$	613	$	(2,212	)
CCMH LLCs		4,583		2,445		459
Other		56		158		278
	$	6,154	$	3,216	$	(1,475	)

56      Strategic Real Estate

5. Note Receivable:

In October 2003, the Company entered into a Mezzanine Loan Agreement (“Mezzanine Loan”) with BFSC Holdings, LLC, BFSC Holdings II, LLC, BFSC Holdings III, LLC, BFWV Holdings, LLC (collectively, the “Borrowers”) for $45,200,000. The Mezzanine Loan provided for an initial advance to the Borrowers at the time of closing of $43,433,000 and a second and final advance of $1,767,000 when certain conditions set forth in the Mezzanine Loan have been satisfied by the Borrowers. The Mezzanine Loan bears interest at a rate of 13.5% per annum, of which 11% is payable monthly and the remaining 2.5% accrues and is due at maturity. The principal balance is due in full at maturity in November 2007. The Mezzanine Loan is secured by the Borrowers’ pledge of its membership interests in the certain subsidiaries which own real estate.

6. Line of Credit Payable:

In May 2003, the Company entered into an amended and restated loan agreement for a $225,000,000 revolving credit facility (the “Credit Facility”) which amended the Company’s existing loan agreement by (i) increasing the borrowing capacity to $225,000,000 from $200,000,000, (ii) lowering the interest rates of the tiered rate structure to a maximum rate of 135 basis points above LIBOR (based upon the debt rating of the Company, the current interest rate is 100 basis points above LIBOR), (iii) requiring the Company to pay a commitment fee based on a tiered rate structure to a maximum of 30 basis points per annum (based upon the debt rating of the Company), (iv) providing for a competitive bid option for up to 50 percent of the facility amount, (v) extending the expiration date to May 9, 2006 and (vi) amending certain of the financial covenants of the Company. The principal balance is due in full upon expiration of the Credit Facility on May 9, 2006, which the Company may request to be extended for an additional 12-month period with the consent of the lender. 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, 2003.

For the years ended December 31, 2003, 2002 and 2001, interest cost incurred was $2,103,000, $2,562,000 and $5,762,000, respectively, of which $177,000, $1,000 and $1,000, respectively, was capitalized by the Company as a cost of buildings constructed for its own use, and $2,001,000, $3,162,000 and $5,310,000, respectively, was charged to operations.

7. Mortgages Payable:

In January 1996, the Company entered into a long-term, fixed rate loan for $39,450,000. The loan bears interest at a rate of 7.435% per annum and provides for a ten-year term with monthly principal and interest payments of $330,000 and the balance due in February 2006. The loan is secured by a first mortgage lien on certain of the Company’s properties. As of December 31, 2003, the aggregate carrying value of these properties totaled $61,857,000. The outstanding principal balance as of December 31, 2003 and 2002 was $26,118,000 and $28,059,000, respectively.

The Company has acquired four properties subject to mortgages securing loans in the aggregate original principal balance of $7,214,000 (collectively the “Mortgages”) with the maturities between December 2007 and December 2010. The Mortgages bear interest at a weighted average rate of 8.6% per annum and have a weighted average maturity of 3.3 years, with an aggregate monthly payment of principal and interest of $83,000. In addition to the Mortgages, the company has letters of credit that also secure three of the loans, which collectively total $4,794,000. As of December 31, 2003, the aggregate carrying value of these properties and letters of credit

     Shareholder Value     57

totaled $16,556,000. As of December 31, 2003 and 2002, the outstanding principal balances secured by the Mortgages totaled $4,244,000 and $4,846,000, respectively.

In connection with the acquisition of Captec Net Lease Realty, Inc. (“Captec”) in December 2001, the Company acquired three properties, subject to mortgages securing loans in the aggregate principal balance of $1,806,000 (collectively, the “Captec Mortgages”) with maturities between March 2014 and March 2019. The Captec Mortgages bear interest at a weighted average rate of 9.0% per annum and have a weighted maturity of 7.5 years, with an aggregate monthly payment of principal and interest of $25,000. As of December 31, 2003, the aggregate carrying value of these three properties totaled $4,111,000. As of December 31, 2003 and 2002, the outstanding principal balances of the loans secured by the Captec Mortgages totaled $1,497,000 and $1,653,000, respectively.

In June 2002, the Company entered into a long-term, fixed rate loan for $21,000,000. The loan bears interest at a rate of 6.9% per annum and provides for a 10-year term with monthly principal and interest payments of $138,000 and the balance due in July 2012. The loan is secured by a first mortgage lien on five of the Company’s properties. As of December 31, 2003, the aggregate carrying value of these properties totaled $27,543,000. As of December 31, 2003 and 2002, the outstanding principal balance was $20,721,000 and $20,923,000, respectively.

In November 2003, the Company entered into a long-term, fixed rate interest-only loan for $95,000,000. The loan bears interest at a rate of 5.42% per annum with monthly interest payments of $435,000 and the principal balance due in November 2013. The loan is secured by a first mortgage lien on the two office buildings and related parking garage in the Washington, D.C. metropolitan area acquired in August 2003. As of December 31, 2003, the outstanding principal balance was $95,000,000 and the aggregate carrying value of these properties totaled $153,399,000.

The following is a schedule of the annual maturities of the Company’s mortgages payable (dollars in thousands):

2004	$	3,158
2005		3,415
2006		22,931
2007		1,281
2008		956
Thereafter		115,839
	$	147,580

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 March 2008 (the “2008 Notes”). The 2008 Notes are senior, unsecured obligations of the Company 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 semi-annually commencing on September 15, 1998 (effective interest rate of 7.163%). The discount of $271,000 is being amortized to 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

58      Strategic Real Estate

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, 2003.

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 June 2004 (the “2004 Notes”). The 2004 Notes are senior, unsecured obligations of the Company 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 to 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, 2003.

In September 2000, the Company filed a prospectus supplement to its $300,000,000 shelf registration statement and issued $20,000,000 of 8.5% notes due September 2010 (the “2010 Notes”). The 2010 Notes are senior, unsecured obligations of the Company and are subordinated to all secured indebtedness of the Company. The 2010 Notes were sold at a discount for an aggregate purchase price of $19,874,000 with interest payable semi-annually commencing on March 20, 2001 (effective interest rate of 8.595%). The discount of $126,000 is being amortized to interest expense over the term of the debt obligation using the effective interest method. The 2010 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 2010 Notes being redeemed plus accrued interest thereon through the redemption date and (ii) the Make-Whole Amount, as defined in the Supplemental Indenture No. 3 dated September 20, 2000 for the 2010 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, 2003.

In June 2002, the Company filed a prospectus supplement to its $200,000,000 shelf registration statement and issued $50,000,000 of 7.75% notes due June 2012 (the “2012 Notes”). The 2012 Notes are senior, unsecured obligations of the Company and are subordinated to all secured indebtedness of the Company. The 2012 Notes were sold at a discount for an aggregate purchase price of $49,713,000 with interest payable semi-annually commencing on December 1, 2002 (effective interest rate of 7.833%). The discount of $287,000 is being amortized to interest expense over the term of the debt obligation using the effective interest method. The 2012 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 2012 Notes being redeemed plus accrued interest thereon through the redemption date and (ii) the Make-Whole Amount, as defined in the Supplemental Indenture No. 4 dated May 30, 2002, for the 2012 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, 2003.

In connection with the debt offerings, the Company incurred debt issuance costs totaling $2,918,000 consisting primarily of underwriting discounts and commissions, legal and accounting fees and rating agency fees.

     Shareholder Value     59

Debt issuance costs have been deferred and are being amortized over the term of the respective notes using the effective interest method. The net proceeds from the debt offerings were used to pay down outstanding indebtedness of the Company’s Credit Facility and term note.

In November 2001, the Company entered into an unsecured $70,000,000 term note (“Term Note”), due November 30, 2004, to finance the acquisition of Captec and for the repayment of indebtedness and related expenses in connection therewith (see Note 17). As of December 31, 2003 and 2002, the Term Note had an outstanding principal balance of $20,000,000. The Term Note bears interest at a rate of 175 basis points above LIBOR or 2.90% at December 31, 2003. The Company has the option to extend the maturity date of the Term Note for two additional twelve month periods if (i) the Company pays a fee equal to 0.25% of the outstanding principal balance of the Term Note and (ii) pays at least five percent of the outstanding principal balance of the Term Note immediately prior to the extension.

In connection with the Term Note, the Company incurred debt costs of $376,000 consisting primarily of bank commitment fees. The Term Note costs have been deferred and are being amortized over the term of the loan commitment using the straight-line method which approximates the effective interest method.

9. Preferred Stock:

In December 2001, the Company issued 1,999,974 shares of 9% Non-Voting Series A Preferred Stock (the “Series A Preferred Stock”) in connection with the acquisition of Captec (see Note 17). Holders of the Series A Preferred Stock are entitled to receive, when and as authorized by the board of directors, cumulative preferential cash distributions at a rate of nine percent of the $25.00 liquidation preference per annum (equivalent to a fixed annual amount of $2.25 per share). The Series A Preferred Stock ranks senior to the Company’s common stock with respect to distribution rights and rights upon liquidation, dissolution or winding up of the Company. The Company may redeem the Series A Preferred Stock on or after December 31, 2006, in whole or from time to time in part, for cash, at a redemption price of $25.00 per share, plus all accumulated and unpaid distributions.

In 2003 and 2002, as a result of a legal action in connection with the merger of Captec (see Note 17), the Company reduced the number of Series A Preferred Stock shares issued and outstanding by 379 and 217,950, respectively.

In August 2003, the Company filed a prospectus supplement to its $600,000,000 shelf registration statement and issued 10,000 shares of 6.70% Non-Voting Series B Cumulative Convertible Perpetual Preferred Stock (the “Series B Preferred Stock”) and received gross proceeds of $25,000,000. In connection with this offering, the Company incurred stock issuance costs totaling approximately $687,000, consisting primarily of placement fees and legal and accounting fees. The Series B Preferred Stock is convertible at the option of the holder, into 1,293,996 shares of the Company’s common stock on and after the first anniversary from the date on which the shares were issued. Holders of the Series B Preferred Stock are entitled to receive, when and as authorized by the board of directors, cumulative preferential cash distributions at the rate of 6.70 percent of the $2,500.00 liquidation preference per annum (equivalent to a fixed annual amount of $167.50 per share). The Series B Preferred Stock ranks pari passu with the Series A Preferred Stock and ranks senior to the Company’s common stock with respect to distribution rights and rights upon liquidation, dissolution or winding up of the Company. The Company may redeem the Series B Preferred Stock on or after August 13, 2008, in whole or from time to time in part, for cash, at a redemption price of $2,500.00 per share, plus all accumulated and unpaid distributions.

60      Strategic Real Estate

10. Common Stock:

In 2003 and 2002, as a result of a legal action in connection with the merger of Captec (see Note 17), the Company reduced the number of common stock issued and outstanding by 823 and 474,037, respectively.

In July 2003, the Company filed a prospectus supplement to its $600,000,000 shelf registration statement and issued 5,600,000 shares of common stock and received gross proceeds of $100,800,000. In connection with this offering, the Company incurred stock issuance costs totaling approximately $5,374,000, consisting primarily of underwriters’ commissions and fees, legal and accounting fees and printing expenses.

In December 2003, the Company filed a prospectus supplement to its $600,000,000 shelf registration statement and issued 3,250,000 shares of common stock and received gross proceeds of $56,517,000. Subsequently, the Company issued an additional 487,500 shares in connection with the underwriters’ over-allotment option and received gross proceeds of $8,478,000. In connection with these offerings, the Company incurred stock issuance costs totaling approximately $671,000, consisting primarily of underwriters’ commissions and fees, legal and accounting fees and printing expenses.

11. 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, 2003, 2002 and 2001 totaled $64,000, $51,000 and $46,000, respectively.

12. Dividends:

The following presents the characterization for tax purposes of common stock dividends paid to stockholders for the years ended December 31:

	2003		2002		2001
Ordinary income	$	0.969	$	1.174	$	1.227
Capital gain		-		0.006		-
Qualified 5-year Gain		0.005		-		-
Unrecaptured Section 1250 Gain		0.037		0.005		0.033
Return of capital		0.269		0.085		-
	$	1.280	$	1.270	$	1.260

The Series A Preferred Stock dividends of $2.25 per share paid in each of the years ended December 31, 2003 and 2002, were characterized as ordinary income for tax purposes. The Series B Preferred Stock dividends of $50.25 per share paid during the year ended December 31, 2003 were characterized as ordinary income for tax purposes.

     Shareholder Value     61

13. Dissenting Shareholders' Settlement:

During the year ended December 31, 2003, the Company recorded a dissenting shareholders’ settlement expense of $2,413,000 related to the appraisal rights litigation disclosed in Item 3 of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2002, that arose as a result of the merger with Captec Net Lease Realty, Inc. (“Captec”) in December 2001 (the “Appraisal Action”). In February 2003, the Company entered into a settlement agreement with the beneficial owners of the alleged 1,037,946 dissenting shares (including the petitioners in the Appraisal Action) which required the Company to pay $15,569,000, which approximated the value of the original merger consideration (which included cash, common stock and Series A Preferred Stock shares) at the time of the litigation settlement plus the dividends that would have been paid if the shares had been issued at the time of the merger. In February 2003, the parties filed a stipulation and order of dismissal and the Court entered the order of dismissal, dismissing the Appraisal Action with prejudice.

14. Earnings from Discontinued Operations:

In accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” the Company has classified its 33 properties sold during 2003 and 2002 as discontinued operations. Accordingly, the results of operations related to these 33 properties for 2003, 2002 and 2001 have been reclassified to earnings from discontinued operations. The following is a summary of earnings from discontinued operations for the years ended December 31 (dollars in thousands):

	2003		2002		2001
Revenues:
Rental income from operating leases	$	1,634	$	6,228	$	3,438
Earned income from direct financing leases		187		296		544
Contingent rental income		12		73		77
Interest income from mortgage receivable		54		-		-
Other		111		22		9
		1,998		6,619		4,068
Expenses:
General operating and administrative		15		19		18
Real estate		4		251		218
Depreciation and amortization		102		600		474
Provision for loss on impairment of real estate		-		1,029		125
		121		1,899		835
Earnings before gain on disposition of real estate		1,877		4,720		3,233
Gain on disposition of real estate		287		260		-
Earnings from discontinued operations	$	2,164	$	4,980	$	3,233

62      Strategic Real Estate

15. Earnings Per Share of Common Stock:

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 (dollars in thousands, except per share data):

	2003			2002			2001
Earnings from continuing operations	$	51,309		$	43,078		$	25,730
Series A Preferred Stock dividends		(4,008	)		(4,010	)		-
Series B Preferred Stock dividends		(502	)		-			-
Earnings available to common stockholders from
continuing operations - basic		46,799			39,068			25,730
Earnings from discontinued operations		2,164			4,980			3,233
Net earnings available to common stockholders - basic	$	48,963		$	44,048		$	28,963
Basic earnings per share:
Weighted average number of common shares outstanding		43,108,213			40,383,405			31,226,086
Restricted stock		-			-			104,767
Merger contingent common shares		-			-			209,004
Weighted average number of common shares outstanding
used in basic earnings per common share		43,108,213			40,383,405			31,539,857
Basic earnings per share available to common
stockholders:
Continuing operations	$	1.09		$	0.97		$	0.82
Discontinued operations		0.05			0.12			0.10
Net earnings	$	1.14		$	1.09		$	0.92
Earnings from continuing operations	$	51,309		$	43,078		$	25,730
Series A Preferred Stock dividends		(4,008	)		(4,010	)		-
Earnings available to common stockholders from continuing		47,301			39,068			25,730
operations - diluted
Earnings from discontinued operations		2,164			4,980			3,233
Net earnings available to common stockholders - diluted	$	49,465		$	44,048		$	28,963
Diluted earnings per share:
Weighted average number of common shares outstanding		43,108,213			40,383,405			31,226,086
Effect of dilutive securities:
Common stock options and restricted stock		288,715			205,552			131,822
Assumed conversion of Series B Preferred Stock to
common stock		499,872			-			-
Merger contingent common shares		-			-			359,135
Weighted average number of common shares outstanding used
in diluted earnings per common share		43,896,800			40,588,957			31,717,043
Diluted earnings per share available to common
stockholders:
Continuing operations	$	1.08		$	0.97		$	0.81
Discontinued operations		0.05			0.12			0.10
Net earnings	$	1.13		$	1.09		$	0.91

For the years ended December 31, 2003, 2002 and 2001, options on 398,500, 454,500 and 1,048,892 shares of common stock, respectively, were not included in computing diluted earnings per share because their effects were antidilutive.

     Shareholder Value     63

16. Performance Incentive Plan:

In July 2001, the Company filed a registration statement on Form S-8 with the Securities and Exchange Commission, which permitted the issuance of up to 2,900,000 shares of common stock (which included any shares of common stock represented by options available to be granted under the Company’s previous plan) pursuant to the Company’s 2000 Performance Incentive Plan (the “2000 Plan”). The terms of the 2000 Plan automatically increase the number of shares issuable under the plan to 3,400,000 shares and 3,900,000 shares when the Company has issued and has outstanding 35,000,000 shares and 40,000,000 shares, respectively, of its common stock. In connection with the Company’s issuance of additional shares of common stock during the year ended December 31, 2001, pursuant to the terms of the 2000 Plan, the number of shares of common stock reserved for issuance automatically increased to 3,900,000 shares.

The 2000 Plan allows the Company to award or grant to key employees, directors and persons performing consulting or advisory services for the Company or its affiliates stock options, stock awards, stock appreciation rights, Phantom Stock Awards, Performance Awards and Leveraged Stock Purchase Awards, as defined in the 2000 Plan. The following summarizes the stock-based compensation activity for the years December 31:

	Number of Shares
	2003		2002		2001
Outstanding, January 1	1,747,851		1,692,158		1,881,092
Options granted	15,000		359,300		12,500
Options exercised	(132,357	)	(180,640	)	(9,200	)
Options surrendered	(22,350	)	(122,967	)	(192,234	)
Restricted stock granted	76,407		64,000		239,000
Restricted stock issued	(76,407	)	(64,000	)	(239,000	)
Restricted stock surrendered	(5,950	)	-		-
Restricted stock canceled	5,950		-		-
Outstanding, December 31	1,608,144		1,747,851		1,692,158
Exercisable, December 31	1,372,184		1,293,284		1,581,592
Available for grant, December 31	1,561,192		1,628,809		1,933,642

The 76,407, 64,000 and 239,000 shares of restricted stock granted during the years ended December 31, 2003, 2002 and 2001, respectively, had a weighted average grant price of $14.94, $15.35 and $13.35, respectively, per share. The following represents the weighted average option exercise price information for the years ended December 31:

	2003		2002		2001
Outstanding, January 1	$	14.44	$	15.79	$	14.20
Granted during the year		14.57		15.25		11.15
Exercised during the year		13.51		12.17		10.63
Outstanding, December 31		14.51		14.44		15.79
Exercisable, December 31		14.40		14.58		14.52

64      Strategic Real Estate

The following summarizes the outstanding options and the exercisable options at December 31, 2003:

	Option Price Range
	$10.1875 to $13.8750		$14.1250 to $17.8750		Total
Outstanding options:
Number of shares		587,769		1,020,375		1,608,144
Weighted-average exercise price	$	12.32	$	15.77	$	14.51
Weighted-average remaining contractual         life in years		3.4		4.6		4.2
Exercisable options:
Number of shares		577,759		794,425		1,372,184
Weighted-average exercise price	$	12.32	$	15.91	$	14.40

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 10 years.

Pursuant to the 2000 Plan, The Company has granted and issued shares of restricted stock to certain officers and directors of the Company. The following information is a summary of the various issuances of restricted stock:

	Shares	Annual Vesting Rate	Number of Years for Vesting	Shares are 100% Vested on:(1)
Officers:
July 2001	234,000	15% - 30%	5	January 1, 2006
June 2002	58,000	15% - 30%	5	January 1, 2007
March 2003	40,407	25%	4	January 1, 2007
March 2003	30,000	15% - 30%	5	January 1, 2008
Total	362,407
Directors:
July 2001	5,000	50%	2	January 1, 2003
June 2002	6,000	50%	2	January 1, 2004
June 2003	6,000	50%	2	January 1, 2005
Total	17,000
(1) The restricted stock shares automatically vest upon a change in control of the Company.

Compensation expense for the restricted stock is determined based upon the fair value at the date of grant and is recognized on a straight lined basis over the vesting periods. For the years ended December 31, 2003, 2002 and 2001, the Company recognized $1,241,000, $814,000 and $274,000, respectively, of such expense.

     Shareholder Value     65

17. Mergers:

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 was 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. 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. As of December 31, 2001, the Company had issued the entire Share Balance. The cumulative market value of the Share Balance issued was $24,736,000, all of which was charged to operations in the respective years in which the shares were issued.

On December 1, 2001, the Company acquired 100 percent of Captec, a publicly traded real estate investment trust, which owned 135 freestanding, net lease properties located in 26 states. Results of Captec operations have been included in the consolidated financial statements since that date. Captec shareholders received $11,839,000 in cash, 4,349,918 newly issued shares of the Company's common stock and 1,999,974 newly issued Series A Preferred Stock (see Notes 9, 10 and 13). Under the purchase method of accounting, the acquisition price of $124,722,000 was allocated to the assets acquired and liabilities assumed at their fair values. As a result, the Company did not record goodwill.

The following summarizes the estimated fair values of the assets acquired and liabilities assumed in the Captec acquisition (dollars in thousands):

Real estate:
Accounted for using the operating method	$	215,498
Accounted for using the direct financing method		9,230
Receivables		151
Cash and cash equivalents		4,143
Note receivables		5,852
Other assets		8
Total assets acquired	$	234,882
Note payable	$	101,213
Mortgages payable		1,806
Accounts payable and accrued expenses		6,933
Other liabilities		208
Total liabilities assumed		110,160
Net assets acquired	$	124,722

66      Strategic Real Estate

The merger was unanimously approved by both the Company’s and Captec’s board of directors and Captec’s shareholders. This transaction increased funds from operations, increased diversification, produced costs savings from opportunities for economies of scale and operating efficiencies and enhanced the Company’s capital markets profile.

The unaudited pro forma combined historical results for the year ended December 31, 2001, as if Captec had been acquired as of January 1, 2001, are estimated to be (dollars in thousands):

Revenues	$	101,943
Net income	$	33,663
Diluted earnings per common share	$	0.80

The pro forma results are not necessarily indicative of what actually would have occurred if the acquisition had been completed as of January 1, 2001, nor are they necessarily indicative of future consolidated results.

18. Fair Value of Financial Instruments:

The Company believes the carrying values of its Credit Facility, Term Note and the lines of credit receivable from Services and certain wholly-owned subsidiaries of Services approximate fair value based upon their nature, terms and variable interest rates. The Company believes that the carrying value of its cash and cash equivalents, receivables, mortgages, notes and accrued interest receivable, mortgages payable, accrued interest payable and other liabilities at December 31, 2003 and 2002 approximate fair value, based upon current market prices of similar issues. At December 31, 2003 and 2002, the fair value of the Company’s notes payable was $295,448,000 and $287,898,000, respectively, based upon the quoted market price.

19. Related Party Transactions:

For additional related party disclosures see Note 4.

A wholly-owned subsidiary of Services holds a 33 1/3 percent equity interest in WXI/SMC Real Estate LLC (“WXI”). The Company provides certain management services for WXI on behalf of Services pursuant to WXI’s Limited Liability Company Agreement and Property Management and Development Agreement. WXI paid the Company $52,000, $66,000 and $150,000 in fees during the years ended December 31, 2003, 2002 and 2001, respectively.

In September 2000, a wholly-owned subsidiary of Services entered into a $6,000,000 promissory note with an affiliate in which James M. Seneff, Jr., Gary M. Ralston and Kevin B. Habicht, each of which are officers and directors of the Company, own a majority equity interest. The note was secured by the affiliate’s common stock in CCF, a wholly-owned subsidiary of the affiliate. As of December 31, 2002, the outstanding principal and accrued interest balance was $6,026,000. In July 2003, the promissory note was paid in full. In addition, the wholly-owned subsidiary of Services has an option with the affiliate to purchase up to 80 percent of all the common shares of CCF equal to the purchase price paid by the affiliate for such common stock. The option expires on December 31, 2010.

     Shareholder Value     67

In September 2000, a wholly-owned subsidiary of Services entered into a $15,000,000 line of credit agreement with CCF. Interest is payable monthly and the principal balance is due in full upon termination of the line of credit on March 31, 2004. In December 2003, the line of credit was amended to have a borrowing capacity of $35,000,000. As of December 31, 2003, $16,600,000 was outstanding and $18,400,000 was available for future borrowings on the line of credit. The obligation to repay the line of credit is full recourse to CCF.

An affiliate of James M. Seneff, Jr., an officer and director of the Company, provided certain administrative, tax and technology services to the Company and Services. In connection therewith, the Company and Services paid $1,363,000, $1,258,000 and $853,000 in fees relating to these services during the years ended December 31, 2003, 2002 and 2001, respectively.

In 2002, the Company extended the maturity dates to dates between June and December 2007 on four mortgages securing an original aggregate principal indebtedness totaling $8,514,000 from affiliates of James M. Seneff, Jr., an officer and director of the Company, and Robert A. Bourne, a member of the Company’s board of directors. The mortgage loans bear interest at a weighted average of 8.95%, per annum with interest payable monthly or quarterly. As of December 31, 2003 and 2002, the aggregate principal balance of the four mortgages, included in mortgages, notes and accrued interest receivable on the balance sheet, was $2,935,000 and $3,437,000, respectively. In connection therewith, the Company recorded $281,000, $663,000 and $574,000 as interest from unconsolidated affiliates and other mortgage receivables during the years ended December 31, 2003, 2002 and 2001, respectively.

The Company had guaranteed bank loans to James M. Seneff, Jr., Gary M. Ralston and Dennis Tracy, each of which are officers and directors of the Company or its affiliates, totaling $3,746,000. Each of the loans is full recourse to the respective officer and is collateralized by the common shares of the Company that were purchased with the proceeds from the loan. In July 2003, the Company was released as a guarantor on each of the bank loans.

20. Segment Information:

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 accounting principles generally accepted in the United States of America, the Company has identified two primary sources of revenue: (i) rental and earned income from leased properties (“Leased Properties”) and (ii) interest income from affiliates and fee income from development, property management and asset management services.

68      Strategic Real Estate

The following represents the revenues, expenses and asset allocation for the two segments and the Company’s consolidated totals at December 31, 2003, 2002 and 2001, and for the years then ended:

	Leased Properties		Interest and Fee Income		Corporate			Consolidated
2003
Revenues	$	98,596	$	4,062	$	-		$	102,658
General operating and
administrative expenses		7,925		1,785		1,776			11,486
Real estate expenses		2,406		-		-			2,406
Interest expense		27,731		-		-			27,731
Depreciation and amortization		13,440		18		9			13,467
Dissenting shareholders' settlement		-		-		2,413			2,413
Equity in earnings of
unconsolidated affiliates		56		6,098		-			6,154
Earnings (loss) from continuing
operations		47,150		8,357		(4,198	)		51,309
Earnings from discontinued
operations		2,164		-		-			2,164
Net earnings (loss)	$	49,314	$	8,357	$	(4,198	)	$	53,473
Assets	$	1,097,721	$	110,541	$	48		$	1,208,310
Additions to long-lived assets:
Real estate	$	215,730	$	-	$	-		$	215,730
Other	$	3,312	$	31	$	23		$	3,366
2002
Revenues	$	84,277	$	6,614	$	-		$	90,891
General operating and
administrative expenses		6,250		1,693		1,522			9,465
Real estate expenses		1,446		-		-			1,446
Interest expense		26,720		-		-			26,720
Depreciation and amortization		11,116		17		9			11,142
Provision for loss on impairment of
real estate		2,256		-		-			2,256
Equity in earnings of
unconsolidated affiliates		158		3,058		-			3,216
Earnings (loss) from continuing
operations		36,647		7,962		(1,531	)		43,078
Earnings from discontinued
operations		4,980		-		-			4,980
Net earnings (loss)	$	41,627	$	7,962	$	(1,531	)	$	48,058
Assets	$	855,863	$	98,185	$	60		$	954,108
Additions to long-lived assets:
Real estate	$	43,360	$	-	$	-		$	43,360
Other	$	1,155	$	23	$	9		$	1,187

     Shareholder Value     69

	Leased Properties		Interest and Fee Income			Corporate			Consolidated
2001
Revenues	$	67,986	$	8,472		$	-		$	76,458
General operating and
administrative expenses		4,657		993			1,244			6,894
Real estate expenses		736		-			-			736
Interest expense		24,874		78			-			24,952
Depreciation and amortization		8,636		92			9			8,737
Expenses incurred in acquiring
advisor from related party		-		-			12,582			12,582
Equity in earnings of
unconsolidated affiliates		278		(1,753	)		-			(1,475	)
Gain on disposition of real
estate		4,648		-			-			4,648
Earnings (loss) from continuing		34,009		5,556			(13,835	)		25,730
operations
Earnings from discontinued
operations		3,233		-			-			3,233
Net earnings (loss)	$	37,242	$	5,556		$	(13,835	)	$	28,963
Assets	$	866,201	$	140,342		$	85		$	1,006,628
Additions to long-lived assets:
Real estate	$	19,836	$	-		$	-		$	19,836
Other	$	7,828	$	17		$	12		$	7,857

21. Major Tenants:

For the years ended December 31, 2003, 2002 and 2001, the Company recorded rental and earned income from one of the Company’s lessees, Eckerd Corporation, of $10,581,000, $10,558,000, and $8,790,000, respectively. The rental and earned income from Eckerd Corporation represents more than 10 percent of the Company’s rental and earned income for each of the respective years.

22. Commitments and Contingencies:

The Company was a defendant in a lawsuit filed in December 1998 in the United States District Court for the District of Puerto Rico. The plaintiff, Ysiem Corporation, alleged that the Company was in breach of a ground lease agreement with the plaintiff regarding a land parcel owned by the plaintiff and was seeking damages of $7,500,000 and/or specific performance of the execution of the ground lease. In January 2002, the District Court Judge granted the Company’s motion for summary judgment of dismissal of the action. The plaintiff subsequently appealed the summary judgment to the U.S. First Circuit Court of Appeals. In May 2003, the U.S. First Circuit Court of Appeals affirmed the dismissal and that dismissal is now final.

In January 2002, Calapasas Investment Partnership No. 1 Limited Partnership (“Calapasas”), a Captec stockholder, filed a class action complaint against Captec, certain former Captec directors, and the Company (as successor in interest to Captec) in the United States District Court for the Northern District of California. In its complaint Calapasas alleged that Captec and certain of its directors violated provisions of the Securities and Exchange Act of 1934 by misrepresenting the value of certain Captec assets on certain of its financial statements in 2000 and 2001 (the “Calapasas Action”). The Calapasas Action asserts that it is brought on behalf of a class consisting of all persons and entities (except insiders) that purchased Captec common stock between August 9, 2000 and prior to July 2, 2001. The Calapasas Action seeks to be certified as a class action and seeks compensatory and punitive damages for the plaintiff and other members of the class, as well as costs and expenses, including fees for plaintiff’s attorneys, accountants and experts. The Calapasas Action could result in

70      Strategic Real Estate

damage awards against Captec and/or its directors, damages for which the Company, as successor in interest to Captec, could be responsible. In October 2002, the Calapasas Action was dismissed by the Court with leave to amend. A Second Amended Complaint was filed by Calapasas Investment Partnership No. 1 Limited Partnership in November 2002, which, among other things, reduced the alleged plaintiff class to those persons and entities (except insiders) who purchased common stock of Captec between March 30, 2001 and July 2, 2001. A Motion to Dismiss the Second Amended Complaint was filed by the defendants in December 2002. In August 2003, the Motion to Dismiss the Second Amended Complaint was denied by the court. In October 2003, the parties to the litigation, through their respective counsel, entered into a Memorandum of Understanding which sets out the essential terms of settlement of this claim. Pursuant to the Memorandum of Understanding, the total settlement amount to be paid to the plaintiffs is $225,000, which includes payment of attorneys’ fees and costs to plaintiffs’ counsel. The settlement contemplated by the Memorandum of Understanding is subject to final judicial approval of all settlement terms and a final judgment of dismissal with prejudice of the Calapasas Action.

In the ordinary course of its business, the Company is a party to various other legal actions which management believes is routine in nature and incidental to the operation of the business of the Company. Management believes that the outcome of the proceedings will not have a material adverse effect upon its operations or financial condition.

     Shareholder Value     71

CONSOLIDATED QUARTERLY FINANCIAL DATA
(dollars in thousands, except per share data)

2003	First Quarter		Second Quarter		Third Quarter			Fourth Quarter		Year
Rent and other revenue	$	24,098	$	24,312	$	27,551		$	28,695	$	104,656
Depreciation and amortization expense		2,952		3,054		3,513			4,050		13,569
Interest expense		6,509		6,838		6,771			7,613		27,731
Dissenting shareholders' settlement		2,413		-		-			-		2,413
Other expenses		2,903		2,915		3,478			4,615		13,911
Earnings from discontinued operations		874		158		1,078			54		2,164
Net earnings		10,154		12,344		15,384			15,591		53,473
Net earnings per share(2):
Basic		0.23		0.28		0.32			0.30		1.14
Diluted		0.23		0.28		0.32			0.30		1.13
2002
Rent and other revenue	$	24,376	$	24,040	$	24,672		$	24,422	$	97,510
Depreciation and amortization expense		2,941		2,908		2,953			2,940		11,742
Interest expense		6,567		6,406		6,860			6,887		26,720
Provision for loss on impairment of real estate		-		-		3,285			-		3,285
Other expenses		2,850		3,120		2,437			2,774		11,181
Earnings (loss) from discontinued operations		1,082		2,445		(673	)		2,126		4,980
Net earnings		12,749		13,512		8,575			13,222		48,058
Net earnings per share(2):
Basic		0.29		0.31		0.19			0.30		1.09
Diluted		0.29		0.31		0.19			0.30		1.09

(1)

The consolidated quarterly financial data includes revenues and expenses from the Company’s continuing and discontinued operations. The Financial Accounting Standard Board (“FASB”) issued Financial Accounting Standards (“FAS”) Statement No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.” This statement addresses financial accounting and reporting for the impairment or disposal of long-lived assets and broadens the presentation of discontinued operations in the income statement to include a component of an entity. Accordingly, the results of operations related to these certain properties that have been classified as held for sale or have been disposed of in 2003 and 2002 have been reclassified to earnings from discontinued operations.

(2)

Calculated independently for each period, and consequently, the sum of the quarters may differ from the annual amount.

72      Strategic Real Estate

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.

2003	First Quarter		Second Quarter		Third Quarter		Fourth Quarter		Year
High	$	15.840	$	17.440	$	18.380	$	18.000	$	18.380
Low		14.350		15.100		16.000		17.040		14.350
Close		15.100		17.240		17.030		17.800		17.800
Dividends paid per share		0.320		0.320		0.320		0.320		1.280
2002
High	$	13.9900	$	16.0000	$	16.4000	$	16.3500	$	16.4000
Low		13.0100		13.9000		12.6000		15.0100		12.6000
Close		13.9600		16.0000		16.1200		15.3300		15.3300
Dividends paid per share		0.3150		0.3150		0.3200		0.3200		1.2700

The following presents the characterizations for tax purposes of such common stock dividends for the years ended December 31,:

	2003		2002
Ordinary income		75.71%		92.41%
Capital gain		-		0.47%
Qualified 5-year Gain		0.37%		-
Unrecaptured Section 1250 Gain		2.88%		0.41%
Return of capital		21.04%		6.71%
		100.00%		100.00%

The Company intends to pay regular quarterly dividends to 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 as amended, and such other factors as the board of directors deems relevant.

On February 28, 2004, there were 1,223 stockholders of record of common stock.

     Shareholder Value     73

EX-23

Consent of Independent Accountants

The Board of Directors
Commercial Net Lease Realty, Inc.:

We consent to the incorporation by reference in the registration statements (No. 333-53796) on Form S-3 and (No. 333-64794) on Form S-8 of Commercial Net Lease Realty, Inc. of our reports dated January 16, 2004, except as to the eighth paragraph of Note 4 to the consolidated financial statements, which is as of February 2, 2004, relating to the consolidated balance sheets of Commercial Net Lease Realty, Inc. and subsidiaries as of December 31, 2003 and 2002, 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, 2003, and the related financial statement schedules, which reports appear in the December 31, 2003 annual report on Form 10-K of Commercial Net Lease Realty, Inc.



Orlando, Florida
March 10, 2004

EX-31

CERTIFICATION PURSUANT TO SECTION 302
OF THE SARBANES-OXLEY ACT OF 2002

I, Craig Macnab, Chief Executive Officer of Commercial Net Lease Realty, Inc., as of February 16, 2004, certify that:

1. I have reviewed this annual report on Form 10-K of Commercial Net Lease Realty, Inc.;

2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;

3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operation and cash flows of the registrant as of, and for, the periods presented in this annual report;

4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and we have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;

b) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

c) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

March 12, 2004	/s/ Craig Macnab
	Name:  Craig Macnab Title:  Chief Executive Officer

EX-31

CERTIFICATION PURSUANT TO SECTION 302
OF THE SARBANES-OXLEY ACT OF 2002

I, James M. Seneff, Jr., Chief Executive Officer of Commercial Net Lease Realty, Inc., prior to February 16, 2004, certify that:

1. I have reviewed this annual report on Form 10-K of Commercial Net Lease Realty, Inc.;

2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;

3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operation and cash flows of the registrant as of, and for, the periods presented in this annual report;

4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and we have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;

b) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

c) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

March 12, 2004	/s/ James M. Seneff, Jr.
	Name:  James M. Seneff, Jr. Title:  Chief Executive Officer

EX-31

CERTIFICATION PURSUANT TO SECTION 302
OF THE SARBANES-OXLEY ACT OF 2002

I, Kevin B. Habicht, Chief Financial Officer of Commercial Net Lease Realty, Inc., certify that:

1. I have reviewed this annual report on Form 10-K of Commercial Net Lease Realty, Inc.;

2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;

3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operation and cash flows of the registrant as of, and for, the periods presented in this annual report;

4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and we have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;

b) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

c) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

March 12, 2004	/s/ Kevin B. Habicht
	Name:  Kevin B. Habicht Title:  Chief Financial Officer

EX-32

CERTIFICATION PURSUANT TO SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002

Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned, Craig Macnab, Chief Executive Officer as of February 16, 2004, certifies that (1) this Annual Report of Commercial Net Lease Realty, Inc. (the “Company”) on Form 10-K for the period ended December 31, 2003, as filed with the Securities and Exchange Commission on the date hereof (this “Report”), fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, and (2) the information contained in this Report fairly presents, in all material respects, the financial condition of the Company as of December 31, 2003 and December 31, 2002 and its results of operations for the years ended December 31, 2003, 2002 and 2001.

March 12, 2004	/s/ Craig Macnab
	Name:  Craig Macnab Title:  Chief Executive Officer

EX-32

CERTIFICATION PURSUANT TO SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002

Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned, James M. Seneff, Jr., Chief Executive Officer prior to February 16, 2004, certifies that (1) this Annual Report of Commercial Net Lease Realty, Inc. (the “Company”) on Form 10-K for the period ended December 31, 2003, as filed with the Securities and Exchange Commission on the date hereof (this “Report”), fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, and (2) the information contained in this Report fairly presents, in all material respects, the financial condition of the Company as of December 31, 2003 and December 31, 2002 and its results of operations for the years ended December 31, 2003, 2002 and 2001.

March 12, 2004	/s/ James M. Seneff, Jr.
	Name:  James M. Seneff Title:  Chief Executive Officer

EX-32

CERTIFICATION PURSUANT TO SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002

Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned, Kevin B. Habicht, Chief Financial Officer, certifies that (1) this Annual Report of Commercial Net Lease Realty, Inc. (the “Company”) on Form 10-K for the period ended December 31, 2003, as filed with the Securities and Exchange Commission on the date hereof (this “Report”), fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, and (2) the information contained in this Report fairly presents, in all material respects, the financial condition of the Company as of December 31, 2003 and December 31, 2002 and its results of operations for the years ended December 31, 2003, 2002 and 2001.

March 12, 2004	/s/ Kevin B. Habicht
	Name:  Kevin B. Habicht Title:  Chief Financial Officer