0000751364-95-000011.txt : 19950811 0000751364-95-000011.hdr.sgml : 19950811 ACCESSION NUMBER: 0000751364-95-000011 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19950630 FILED AS OF DATE: 19950810 SROS: AMEX FILER: COMPANY DATA: COMPANY CONFORMED NAME: COMMERCIAL NET LEASE REALTY INC CENTRAL INDEX KEY: 0000751364 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE INVESTMENT TRUSTS [6798] IRS NUMBER: 561431377 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-11290 FILM NUMBER: 95560578 BUSINESS ADDRESS: STREET 1: 400 E SOUTH ST STE 500 CITY: ORLANDO STATE: FL ZIP: 32801 BUSINESS PHONE: 4074221574 MAIL ADDRESS: STREET 1: 400 E SOUTH ST STE 500 STREET 2: 400 E SOUTH ST STE 500 CITY: ORLANDO STATE: FL ZIP: 32801 FORMER COMPANY: FORMER CONFORMED NAME: CNL REALTY INVESTORS INC /DE/ DATE OF NAME CHANGE: 19930429 FORMER COMPANY: FORMER CONFORMED NAME: GOLDEN CORRAL REALTY CORP DATE OF NAME CHANGE: 19920703 EX-27 1
5 This schedule contains summary financial information extracted from the balance sheet of Commercial Net Lease Realty, Inc. at June 30, 1995, and its statement of income for the six months then ended and is qualified in its entirety by reference to the Form 10-Q of Commercial Net Lease Realty, Inc. for the six months ended June 30, 1995. 6-MOS DEC-31-1994 JAN-01-1995 JUN-30-1995 2,155,995 0 508,040 0 0 2,992,676 141,068,585 4,548,446 194,426,260 834,044 0 116,637 0 0 135,975,579 194,426,260 0 9,161,262 0 1,878,148 0 0 1,090,670 6,192,444 0 6,192,444 0 0 0 6,192,444 0.53 0.53
10-Q 2 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 (X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 1995 ----------------------------------- OR ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to --------------- ---------------- Commission file number 0-12989 ---------------------- Commercial Net Lease Realty, Inc. ------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Maryland 56-1431377 ----------------------------- ------------------------------- (State or other jurisdiction (I.R.S. Employer of incorporation or organiza- Identification No.) tion) 400 E. South Street, #500 Orlando, Florida 32801 ----------------------------- ------------------------------- (Address of principal (Zip Code) executive offices) Registrant's telephone number (including area code) (407) 422-1574 ------------------------------- Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --------- --------- Indicate the number of shares outstanding of each of the issuer's classes of common stock as of the latest practicable date. 11,663,672 shares of Common Stock, $.01 par value, outstanding as of August 1, 1995. CONTENTS -------- Part I Page ---- Item 1. Financial Statements: Condensed Balance Sheets 1 Condensed Statements of Earnings 2 Condensed Statements of Stockholders' Equity 3 Condensed Statements of Cash Flows 4-5 Notes to Condensed Financial Statements 6-10 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 11-15 Part II Other Information 16-18 COMMERCIAL NET LEASE REALTY, INC. CONDENSED BALANCE SHEETS
June 30, December 31, ASSETS 1995 1994 ------------ ------------ Land and buildings on operating leases, net of accumulated depreciation $136,520,139 $106,091,062 Net investment in direct financing leases 52,003,479 42,551,848 Cash and cash equivalents 2,155,995 1,069,900 Receivables 508,040 389,238 Prepaid expenses 328,641 361,567 Loan costs, net of accumulated amortization of $221,887 and $83,058 646,393 441,690 Accrued rental income 1,502,016 960,832 Other assets 761,557 344,571 ------------ ------------ $194,426,260 $152,210,708 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY Notes payable $ 57,500,000 $ 14,800,000 Accrued interest payable 121,758 35,851 Accounts payable and accrued expenses 222,918 298,763 Real estate taxes payable 82,927 33,649 Due to related parties 36,523 81,962 Rents paid in advance and tenant deposits 369,918 295,781 ------------ ------------ Total liabilities 58,334,044 15,546,006 ------------ ------------ Commitments and contingencies (Note 7) Stockholders' equity: Common stock, $.01 par value. Authorized 30,000,000 shares; issued and outstanding 11,663,672 shares 116,637 116,637 Capital in excess of par value 138,629,751 138,629,751 Accumulated dividends in excess of net earnings (2,654,172) (2,081,686) ------------ ------------ Total stockholders' equity 136,092,216 136,664,702 ------------ ------------ $194,426,260 $152,210,708 ============ ============ See accompanying notes to condensed financial statements.
COMMERCIAL NET LEASE REALTY, INC. CONDENSED STATEMENTS OF EARNINGS
Quarter Ended Six Months Ended June 30, June 30, 1995 1994 1995 1994 ---------- ---------- ---------- ---------- Revenues: Rental income from operating leases $3,248,021 $1,881,812 $6,257,674 $3,416,633 Earned income from direct financing leases 1,267,213 724,261 2,461,401 1,295,318 Contingent rental income 202,752 224,181 379,964 422,055 Interest and other 27,830 17,360 62,223 129,971 ---------- ---------- ---------- ---------- 4,745,816 2,847,614 9,161,262 5,263,977 ---------- ---------- ---------- ---------- Expenses: General operating and administrative 158,462 132,480 403,302 396,601 Advisory fees to related party 239,737 169,998 478,916 308,261 Interest 675,025 97,958 1,090,670 98,001 Taxes 48,978 59,526 70,024 117,712 Depreciation and amortization 490,023 352,639 925,906 596,578 ---------- ---------- ---------- ---------- 1,612,225 812,601 2,968,818 1,517,153 ---------- ---------- ---------- ---------- Net earnings $3,133,591 $2,035,013 $6,192,444 $3,746,824 ========== ========== ========== ========== Earnings per share of common stock $ 0.27 $ 0.27 $ 0.53 $ 0.49 ========== ========== ========== ========== Weighted average number of shares outstanding 11,663,672 7,663,672 11,663,672 7,663,672 ========== ========== ========== ========== See accompanying notes to condensed financial statements.
COMMERCIAL NET LEASE REALTY, INC. CONDENSED STATEMENTS OF STOCKHOLDERS' EQUITY Six Months Ended June 30, 1995 and Year Ended December 31, 1994
Accumulated dividends Capital in in excess Number Common excess of of net of shares stock par value earnings Total ---------- -------- ------------ ----------- ------------ Balance at December 31, 1993 7,663,672 $ 76,637 $ 92,168,572 $(1,100,473) $ 91,144,736 Net earnings - - - 8,915,373 8,915,373 Dividends declared and paid ($1.14 per share) - - - (9,896,586) (9,896,586) Issuance of common stock 4,000,000 40,000 49,960,000 - 50,000,000 Stock issuance costs - - (3,498,821) - (3,498,821) ---------- -------- ------------ ----------- ------------ Balance at December 31, 1994 11,663,672 116,637 138,629,751 (2,081,686) 136,664,702 Net earnings - - - 6,192,444 6,192,444 Dividends declared and paid ($0.58 per share) - - - (6,764,930) (6,764,930) ---------- -------- ------------ ----------- ------------ Balance at June 30, 1995 11,663,672 $116,637 $138,629,751 $(2,654,172) $136,092,216 ========== ======== ============ =========== ============ See accompanying notes to condensed financial statements.
COMMERCIAL NET LEASE REALTY, INC. CONDENSED STATEMENTS OF CASH FLOWS
Six Months Ended June 30, 1995 1994 ------------ ------------ Cash flows from operating activities: Net earnings $ 6,192,444 $ 3,746,824 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation 787,077 475,295 Amortization 138,829 121,283 Decrease in net investment in direct financing leases 207,557 100,801 Increase in accrued rental income (541,184) (348,828) Decrease (increase) in receivables (147,674) 80,371 Decrease (increase) in prepaid expenses 32,926 (67,774) Decrease in other assets 8,187 - Increase in accrued interest payable 85,907 50,894 Increase (decrease) in accounts payable and accrued expenses (95,048) 9,007 Increase (decrease) in real estate taxes payable 49,278 (13,954) Increase (decrease) in due to related parties (35,084) 38,821 Increase (decrease) in rents paid in advance and tenant deposits 74,137 (28,034) ------------ ------------ Net cash provided by operating activities 6,757,352 4,164,706 ------------ ------------ Cash flows from investing activities: Additions to land and buildings on operating leases (31,052,015) (16,059,138) Investment in direct financing leases (9,629,688) (9,511,353) Increase in other assets (566,005) (266,047) Other 22,636 29,334 ------------ ------------ Net cash used in investing activities (41,225,072) (25,807,204) ------------ ------------ Cash flows from financing activities: Proceeds from loan 42,700,000 7,600,000 Payment of loan costs (343,532) - Payment of stock issuance costs (4,069) (48,169) Payment of dividends (6,764,930) (4,291,656) Other (33,654) - ------------ ------------ Net cash provided by financing activities 35,553,815 3,260,175 ------------ ------------ Net increase (decrease) in cash and cash equivalents 1,086,095 (18,382,323) Cash and cash equivalents at beginning of period 1,069,900 19,847,120 ------------ ------------ Cash and cash equivalents at end of period $ 2,155,995 $ 1,464,797 ============ ============ Supplemental disclosures of non-cash investing and financing activities: Land, building and direct financing lease costs incurred and unpaid at end of period $ 153,560 $ 424,706 ============ ============ Loan costs incurred and unpaid at end of period $ - $ 20,418 ============ ============ Other financing activity costs incurred and unpaid at end of period $ 24,586 $ - ============ ============ See accompanying notes to condensed financial statements.
COMMERCIAL NET LEASE REALTY, INC. NOTES TO CONDENSED FINANCIAL STATEMENTS Quarters and Six Months Ended June 30, 1995 and 1994 1. Basis of Presentation: --------------------- The accompanying unaudited condensed financial statements have been prepared in accordance with the instructions to Form 10-Q and do not include all of the information and note disclosures required by generally accepted accounting principles. The financial statements reflect all adjustments, consisting of normal recurring adjustments, which are, in the opinion of management, necessary to a fair statement of the results for the interim periods presented. Operating results for the quarter and six months ended June 30, 1995, may not be indicative of the results that may be expected for the year ending December 31, 1995. Amounts as of December 31, 1994, included in the financial statements, have been derived from audited financial statements as of that date. These unaudited financial statements should be read in conjunction with the financial statements and notes thereto included in the Form 10-K of Commercial Net Lease Realty, Inc. (the "Company") for the year ended December 31, 1994. Earnings per share are calculated based upon the weighted average number of shares outstanding during each period. Stock options outstanding are not included since their inclusion would not result in a material dilution of earnings per share. In March 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of. The Statement, which is effective for fiscal years beginning after December 15, 1995, provides that an entity review long-lived assets and certain identifiable intangibles to be held and used for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. The Company plans to adopt this standard in 1996 and does not expect compliance with such standard to have a material effect, if any, on the Company's financial position or results of operations. 2. Leases: ------ The Company generally leases its land and buildings to operators of major retail businesses. The leases are accounted for under the provisions of Statement of Financial Accounting Standards No. 13, Accounting for Leases. As of June 30, 1995, 86 of the leases have been classified as operating leases and 56 leases have been classified as direct financing leases. For the leases classified as direct financing leases, the building portions of the leases are accounted for as direct financing leases while the land portions of 34 of these leases are accounted for as operating leases. Substantially all leases have initial terms of 15 to 20 years (expiring between 1997 and 2018) and provide for minimum rentals. In addition, the majority of the leases provide for contingent rentals and/or scheduled rent increases over the terms of the leases. The tenant is also generally required to pay all property taxes and assessments, substantially maintain the interior and exterior of the building and carry insurance coverage for public liability, property damage, fire and extended coverage. The lease options generally allow tenants to renew the leases for two to four successive five-year periods subject to substantially the same terms and conditions as the initial lease. 3. Land and Buildings on Operating Leases: -------------------------------------- Land and buildings on operating leases consisted of the following at: June 30, December 31, 1995 1994 ------------ ------------ Land $ 70,586,250 $ 52,476,960 Buildings and improve- ments 70,482,335 57,375,471 ------------ ------------ 141,068,585 109,852,431 Accumulated deprecia- tion (4,548,446) (3,761,369) ------------ ------------ $136,520,139 $106,091,062 ============ ============ Some leases provide for escalating guaranteed minimum rent to begin in subsequent lease years. Income from these scheduled rent increases is recognized on a straight-line basis over the terms of the leases. For the six months ended June 30, 1995 and 1994, the Company recognized $541,184 and $348,828, respectively, of such income. The following is a schedule of future minimum lease payments to be received on noncancellable operating leases at June 30, 1995: 1995 $ 6,898,560 1996 13,882,580 1997 13,963,491 1998 13,983,807 1999 14,192,569 Thereafter 168,814,720 ------------ $231,735,727 ============ 4. Net Investment in Direct Financing Leases: ----------------------------------------- The following lists the components of net investment in direct financing leases at: June 30, December 31, 1995 1994 ------------ ------------ Minimum lease payments to be received $116,978,986 $ 96,231,285 Estimated residual values 16,055,858 12,721,338 Less unearned income (81,031,365) (66,400,775) ------------ ------------ Net investment in direct financing leases $ 52,003,479 $ 42,551,848 ============ ============ The following is a schedule of future minimum lease payments to be received on direct financing leases at June 30, 1995: 1995 $ 3,034,547 1996 6,069,099 1997 6,069,099 1998 6,072,549 1999 6,119,101 Thereafter 89,614,591 ------------ $116,978,986 ============ 5. Notes Payable: ------------- On April 13, 1995, the Company entered into an amended and restated revolving line of credit loan agreement (the "Credit Facility") which expanded the lending syndicate for the Company's credit facility. The Credit Facility provides the Company with $100,000,000 of borrowing capacity under substantially the same terms and conditions as the original loan agreement. As of June 30, 1995, the outstanding principal balance was $57,500,000, plus accrued interest of $121,758. 6. Related Party Transactions: -------------------------- During the six months ended June 30, 1995, the Company acquired five properties for purchase prices totalling $10,828,581 from an affiliate of CNL Realty Advisors, Inc. who had developed the properties. The purchase prices paid by the Company for these five properties equalled the affiliate's cost including development costs. The affiliate's cost consisted of the land purchase prices, construction costs, various soft costs including legal costs, survey fees and architect fees, and developers fees aggregating $719,546 paid to an affiliate of CNL Realty Advisors, Inc. 7. Commitments and Contingencies: ----------------------------- As of June 30, 1995, the Company had entered into agreements to purchase 12 additional properties for an estimated aggregate amount of $19,285,752. In addition, the Company was contingently liable for $2,322,625 related to 11 separate bank letters of credit which guarantee the Company's obligation under purchase agreements to acquire these properties from an affiliate of CNL Realty Advisors, Inc. upon completion of the development of the properties. As of June 30, 1995, the Company owned five land parcels which are leased to tenants who are obligated to develop buildings on the respective land parcels. Pursuant to each lease, the Company has agreed to purchase the buildings upon completion and occupancy. The Company has agreed to pay an aggregate amount of up to $12,351,333 upon completion of the buildings. 8. Subsequent Events: ----------------- In July 1995, the Company entered into agreements to purchase two properties for an estimated aggregate amount of $11,825,000. In connection therewith, the Company also entered into two separate bank letters of credit for an aggregate amount of $874,000, which guarantee the Company's obligation under purchase agreements to acquire these properties from an unrelated third party upon completion of the development of the properties. On July 14, 1995, the Company declared dividends of $3,382,465 or $0.29 per share of common stock, payable on August 15, 1995, to stockholders of record on July 31, 1995. In July 1995, the Company filed a shelf registration statement with the Securities and Exchange Commission that will permit the issuance of a combination of debt and equity securities of up to $200,000,000. The registration statement has not yet been declared effective by the Securities and Exchange Commission. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Introduction ------------ Commercial Net Lease Realty, Inc. (the "Company") is an equity real estate investment trust that acquires, owns and manages high-quality, freestanding properties leased to major retail businesses under long-term commercial net leases. As of June 30, 1995, the Company owned 142 properties (the "Properties") each of which are leased to major retail businesses. Liquidity and Capital Resources ------------------------------- General. Historically, the Company's only demand for funds has been for the payment of operating expenses and dividends, for property acquisitions and for the payment of interest on its outstanding indebtedness. Generally, cash needs for items other than property acquisitions have been met from operations and property acquisitions have been funded by equity offerings, bank borrowings and, to a lesser extent, from internally generated funds. Potential future sources of capital include proceeds from the public or private offering of the Company's debt or equity securities, borrowings under the Company's Credit Facility or other secured or unsecured borrowings from banks or other lenders, or the sale of Properties, as well as undistributed funds from operations. For the six months ended June 30, 1995 and 1994, the Company generated $6,757,352 and $4,164,706, respectively, in net cash provided by operating activities. The increase in cash from operations for the six months ended June 30, 1995, as compared to the six months ended June 30, 1994, is primarily a result of changes in revenues and expenses as discussed in "Results of Operations." The Company's leases typically provide that the tenant bears responsibility for substantially all property costs and expenses associated with ongoing maintenance and operation, including utilities, property taxes and insurance. In addition, the Company's leases generally provide that the tenant is responsible for roof and structural repairs. Certain of the Company's Properties are subject to leases under which the Company retains responsibility for certain costs and expenses associated with the Property. Because many of the Properties which are subject to leases that place these responsibilities on the Company are recently constructed, management anticipates that capital demands to meet obligations with respect to these Properties will be minimal for the foreseeable future and can be met with funds from operations and working capital. The Company may be required to use bank borrowings or other sources of capital in the event of unforeseen significant capital expenditures. Indebtedness. In April 1995, the Company entered into an amended and restated loan agreement (the "Credit Facility") which expanded the lending syndicate for the Company's credit facility. The Credit Facility allows the Company to borrow up to $100,000,000 at an interest rate equal to 170 basis points above LIBOR or the lender's prime rate, whichever the Company selects. The principal balance is due in full upon termination of the Credit Facility on June 30, 1997, and interest is payable quarterly. As of June 30, 1995, $57,500,000 was outstanding under the Credit Facility. The Credit Facility primarily will be used to invest in freestanding retail properties, although up to $10,000,000 of the available credit may be used for the issuance of standby letters of credit or working capital. Payments of principal on advances outstanding under the Credit Facility are expected to be met from the proceeds of renewing or refinancing the Credit Facility, proceeds from the public or private offering of the Company's debt or equity securities or proceeds from the sale of one or more of its Properties. As a means to reduce its exposure to rising interest rates on the Company's variable rate Credit Facility, the Company has entered into an interest rate cap agreement which provides for a LIBOR rate of 7.25% per annum on a notional amount of $25,000,000. This agreement is effective through June 1996. Equity and Debt Securities. In July 1995, the Company filed a shelf registration statement with the Securities and Exchange Commission that will permit the issuance of debt and equity securities of up to $200,000,000. The registration statement has not yet been declared effective by the Securities and Exchange Commission. Any securities issued under the registration statement may be offered from time to time in amounts, at prices, and on terms to be determined at the time of the offering. Proceeds from any offering of these securities would be used for general corporate purposes, which may include the repayment of certain indebtedness or the acquisition, expansion or improvement of properties. Property Acquisitions and Commitments. During the six months ended June 30, 1995, the Company borrowed $41,300,000 of amounts it has available under its Credit Facility to acquire 14 Properties and three buildings which were developed by the tenant on land parcels owned by the Company. The 14 Properties included four Barnes & Nobles bookstores, three Eckerd drugstores, two Academy sporting good stores, two Scotty's home improvement stores, one Levitz furniture store, one Borders bookstore and one OfficeMax office supply store. The three buildings included two Barnes & Nobles bookstores and one CompUSA computer store. In addition, the Company borrowed $1,400,000 to fund the acquisition of two Properties acquired during December 1994. As of June 30, 1995, the Company had entered into agreements to purchase 12 additional properties for an estimated aggregate amount of $19,285,752. In addition, the Company is contingently liable for $2,322,625 related to 11 separate bank letters of credit which guarantee the Company's obligation under purchase agreements to acquire these properties from an affiliate upon completion of the development of the properties. The purchase of these properties is subject to conditions relating to completion of development activities, review of title and obtaining title insurance, engineering and environmental inspections and other matters. In addition, as of June 30, 1995, the Company owned five land parcels which are leased to tenants who are obligated to develop buildings on the respective land parcels. Pursuant to each lease, the Company has agreed to purchase the buildings upon completion and occupancy for an aggregate amount of up to $12,351,333. In July 1995, the Company also entered into agreements to purchase two properties for an estimated aggregate amount of $11,825,000. In connection therewith, the Company also entered into two separate bank letters of credit for an aggregate amount of $874,000, which guarantee the Company's obligation under purchase agreements to acquire these properties from an unrelated third party upon completion of the development of the properties. In addition to the 14 properties under contract and the five buildings under construction as of July 31, 1995, the Company is currently negotiating the acquisition of prospective properties. The Company may elect to acquire these prospective properties or other additional properties (or interests therein) in the future. Such property acquisitions, if any, are expected to be the primary demand for additional capital during the next two years. The Company anticipates that it may engage in equity or debt financing, through either public or private offerings of its securities for cash, issuance of such securities in exchange for assets, or a combination of the foregoing. Subject to the constraints imposed by the Credit Facility, the Company may enter into additional financing arrangements. Management believes that the Company's current capital resources (including cash on hand), coupled with the Company's borrowing capacity, are sufficient to meet its liquidity needs for the foreseeable future. Dividends. One of the Company's primary objectives, consistent with its policy of retaining sufficient cash for reserves and working capital purposes, is to distribute a substantial portion of its funds available from operations to its stockholders in the form of dividends. For the six months ended June 30, 1995 and 1994, the Company declared and paid dividends to its stockholders of $6,764,930 and $4,291,656, respectively, or $.58 and $.56 per share of common stock, respectively. In July 1995, the Company declared dividends to its stockholders of $3,382,465 or $.29 per share of common stock, payable in August 1995. Results of Operations --------------------- During the six months ended June 30, 1995 and 1994, the Company owned and leased 142 and 98 Properties, respectively, to operators of major retail businesses. In connection therewith, during the six months ended June 30, 1995 and 1994, the Company earned $8,719,075 and $4,711,951, respectively, in rental income from operating leases and earned income from direct financing leases, $4,515,234 and $2,606,073 of which was earned during the quarters ended June 30, 1995 and 1994, respectively. The increase in rental and earned income during the quarter and six months ended June 30, 1995, is primarily attributable to the income earned on the Properties acquired during 1994 and the 14 Properties acquired and three buildings upon which construction was completed during the six months ended June 30, 1995. Rental and earned income are expected to increase as the Company acquires additional properties and due to the fact that the 13 Properties and one building acquired during the quarter ended June 30, 1995 will contribute to the Company's income for a full fiscal quarter in future quarters. For the six months ended June 30, 1995 and 1994, the Company also earned $379,964 and $422,055, respectively, in contingent rental income, $202,752 and $224,181 of which was earned during the quarters ended June 30, 1995 and 1994, respectively. Contingent rental income decreased primarily due to a decrease in the aggregate net sales of restaurants currently paying contingent rent during the quarter and six months ended June 30, 1995, as compared to the quarter and six months ended June 30, 1994. During the six months ended June 30, 1995, two of the Company's lessees (or group of affiliated lessees), (i) Golden Corral Corporation and (ii) Denny's, Inc. and Flagstar Enterprises, Inc. (which are affiliated entities under common control) (hereinafter referred to as Flagstar), each accounted for more than ten percent of the Company's total rental income. As of June 30, 1995, Golden Corral was the lessee under leases relating to 27 Properties and Flagstar was the lessee under leases relating to 24 Properties. It is anticipated that, based on the minimum rental payments required by the leases and estimated contingent rental income, Flagstar will continue to account for more than ten percent of the Company's total rental income during the remainder of 1995. Any failure of these lessees could materially affect the Company's income. The Company incurred $1,090,670 and $98,001 in interest expense for the six months ended June 30, 1995 and 1994, respectively, $675,025 and $97,958 of which was incurred for the quarters ended June 30, 1995 and 1994, respectively. Interest expense increased during the quarter and six months ended June 30, 1995, as compared to the quarter and six months ended June 30, 1994, as the result of higher average borrowing levels during such periods. As a means to reduce its exposure to variable rate debt, the Company has entered into an interest rate cap agreement as described above in "Liquidity and Capital Resources." During the six months ended June 30, 1995 and 1994, other operating expenses, including depreciation and amortization expense, were $1,878,148 and $1,419,152, respectively (20.5% and 27.0%, respectively, of gross operating revenues), of which $937,200 and $714,643 (19.7% and 25.1%, respectively, of gross operating revenues) were incurred for the quarters ended June 30, 1995 and 1994, respectively. The increase in the dollar amount of other operating expenses for the six months ended June 30, 1995, as compared to the six months ended June 30, 1994, is primarily attributable to the increase in depreciation as a result of the depreciation of the additional Properties acquired during 1994 and the six months ended June 30, 1995. The increase is also attributable to increased advisory fees as a result of increased funds from operations for the six months ended June 30, 1995. In addition, the increase is also attributable to the commitment fees incurred on the unused portion of the Company's Credit Facility. However, the increase was partially offset by a decrease in state tax expense during the six months ended June 30, 1995, as a result of a state income tax credit received during the first quarter 1995. In addition, the increase was partially offset by a decrease in legal fees during the six months ended June 30, 1995, as compared to the six months ended June 30, 1994, as a result of the legal fees and expenses incurred during the six months ended June 30, 1994, in connection with the Company's reorganization in the State of Maryland. PART II. OTHER INFORMATION Item 1. Legal Proceedings. ----------------- No material developments in legal proceedings as previously reported on Form 10-Q for the quarter ended March 31, 1995. Item 2. Changes in Securities. Not applicable. --------------------- Item 3. Defaults Upon Senior Securities. Not applicable. ------------------------------- Item 4. Submission of Matters to a Vote of Security Holders. --------------------------------------------------- On April 21, 1995, the Company held its Annual Meeting of Shareholders (the "Annual Meeting"). At the Annual Meeting, the following nominees were elected to the Board of Directors of the Company: Messrs. Robert A. Bourne (9,814,569 voted for and 57,919 abstained), Edward Clark (9,810,769 voted for and 61,719 abstained), Willoughby T. Cox, Jr. (9,809,069 voted for and 63,419 abstained), Clifford R. Hinkle (9,813,069 voted for and 59,419 abstained), Ted B. Lanier (9,812,569 voted for and 59,919 abstained) and James M. Seneff, Jr. (9,813,469 voted for and 59,019 abstained). Item 5. Other Information. Not applicable. ----------------- Item 6. Exhibits and Reports on Form 8-K. -------------------------------- (a) The following exhibits are filed as a part of this report. 3.1 Articles of Incorporation of the Registrant (filed as Exhibit 3.3(i) to the Registrant's Registration Statement No. 1-11290 on Form 8-B, and incorporated herein by reference). 3.2 Bylaws of the Registrant (filed as Exhibit 3.3(ii) to Amendment No. 2 to the Registrant's Registration Statement No. 1-11290 on Form 8-B, and incorporated herein by reference). 4 Specimen Certificate of Common Stock, par value $.01 per share, of the Registrant (filed as Exhibit 3.4 to the Registrant's Registration Statement No. 1-11290 on Form 8-B, and incorporated herein by reference). 10.1 Stock Purchase Agreement dated as of January 23, 1992 by and among the Registrant, CNL Group, Inc. and certain entities affiliated therewith (filed as Exhibit 10.4 to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1991, and incorporated herein by reference). 10.2 Letter Agreement dated July 10, 1992, amending Stock Purchase Agreement dated January 23, 1992 (filed as Exhibit 10.34 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 1992, and incorporated herein by reference). 10.3 Advisory Agreement between Registrant and CNL Realty Advisors, Inc. effective as of April 1, 1993 (filed as Exhibit 10.04 to Amendment No. 1 to the Registrant's Registration Statement No. 33-61214 on Form S-2, and incorporated herein by reference). 10.4 Revolving Line of Credit and Security Agreement, dated July 25, 1994, among Registrant, certain lenders listed therein and First Union National Bank of Florida, as the Agent, relating to a $100,000,000 loan (filed as Exhibit 10.11 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 1994, and no longer incorporated by reference). 10.5 1992 Commercial Net Lease Realty, Inc. Stock Option Plan (filed as Exhibit No. 10(x) to the Registrant's Registration Statement No. 33-83110 on Form S-3, and incorporated herein by reference). 10.6 Interest Rate Cap Agreement dated February 28, 1994, by and between the Registrant and First Union National Bank of North Carolina (filed as Exhibit No. 10(xi) to the Registrant's Registration Statement No. 33-83110 on Form S-3, and no longer incorporated by reference). 10.7 Interest Rate Cap Agreement dated December 23, 1994, by and between the Registrant and First Union National Bank of Florida (filed as Exhibit 10.12 to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1994, and incorporated herein by reference). 10.8 Amended and Restated Line of Credit and Security Agreement, dated April 13, 1995, among Registrant, certain lenders listed therein and First Union National Bank of Florida, as the Agent, relating to a $100,000,000 loan (filed as Exhibit 10.13 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 1995, and incorporated herein by reference). (b) No reports on Form 8-K were filed during the quarter ended June 30, 1995. SIGNATURES ---------- Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. DATED this 4th day of August, 1995. COMMERCIAL NET LEASE REALTY, INC. By: /s/ Robert A. Bourne -------------------- Robert A. Bourne President By: /s/ Kevin B. Habicht -------------------- Kevin B. Habicht Chief Financial Officer