-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, KFjDLvbtz+QPIU950DBnLXnPBgBoE3mR/HX7l12K89RuWm3RAw64kCkBZa2JwI52 6D7k6Ub7jaVvrhvfoJrdgQ== 0000751364-95-000016.txt : 19951119 0000751364-95-000016.hdr.sgml : 19951119 ACCESSION NUMBER: 0000751364-95-000016 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19950930 FILED AS OF DATE: 19951114 SROS: NYSE 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: 95591334 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 September 30, 1995, and its statement of income for the nine months then ended and is qualified in its entirety by reference to the Form 10-Q of Commercial Net Lease Realty, Inc. for the nine months ended September 30, 1995. 9-MOS DEC-31-1994 JAN-01-1995 SEP-30-1995 162,672 0 499,444 0 0 953,347 157,175,858 5,002,539 209,717,122 4,264,065 0 116,637 0 0 132,436,420 209,717,122 0 14,695,305 0 2,941,619 0 0 2,335,471 9,418,215 0 9,418,215 0 0 0 9,418,215 0.81 0.81
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 September 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 November 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 16-17 COMMERCIAL NET LEASE REALTY, INC. CONDENSED BALANCE SHEETS
September 30, December 31, ASSETS 1995 1994 ------------- ------------ Land and buildings on operating leases, net of accumulated depreciation $152,173,319 $106,091,062 Net investment in direct financing leases 52,512,390 42,551,848 Cash and cash equivalents 162,672 1,069,900 Receivables 499,444 389,238 Prepaid expenses 291,231 361,567 Loan costs, net of accumulated amortization of $304,520 and $83,058 586,612 441,690 Accrued rental income 1,823,296 960,832 Other assets 1,668,158 344,571 ------------ ------------ $209,717,122 $152,210,708 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY Notes payable $ 72,900,000 $ 14,800,000 Accrued interest payable 138,041 35,851 Accounts payable and accrued expenses 400,473 298,763 Dividends payable 3,382,465 - Real estate taxes payable 79,767 33,649 Due to related parties 142,417 81,962 Rents paid in advance and tenant deposits 120,902 295,781 ------------ ------------ Total liabilities 77,164,065 15,546,006 ------------ ------------ Commitments and contingencies (Note 8) 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 (6,193,331) (2,081,686) ------------ ------------ Total stockholders' equity 132,553,057 136,664,702 ------------ ------------ $209,717,122 $152,210,708 ============ ============ See accompanying notes to condensed financial statements.
COMMERCIAL NET LEASE REALTY, INC. CONDENSED STATEMENTS OF EARNINGS
Quarter Ended Nine Months Ended September 30, September 30, 1995 1994 1995 1994 ---------- ---------- ----------- ----------- Revenues: Rental income from operating leases $3,905,354 $2,095,528 $10,163,028 $ 5,512,161 Earned income from direct financing leases 1,393,344 833,409 3,854,745 2,128,727 Contingent rental income 199,091 216,422 579,055 638,477 Interest and other 36,254 21,924 98,477 151,389 ---------- ---------- ----------- ----------- 5,534,043 3,167,283 14,695,305 8,430,754 ---------- ---------- ----------- ----------- Expenses: General operating and administrative 147,473 76,249 550,775 472,344 Advisory fees to related party 261,153 181,579 740,069 489,840 Interest 1,244,801 314,245 2,335,471 412,246 Taxes 118,119 49,520 188,143 167,232 Depreciation and amortization 536,726 344,350 1,462,632 940,928 ---------- ---------- ----------- ----------- 2,308,272 965,943 5,277,090 2,482,590 ---------- ---------- ----------- ----------- Net earnings $3,225,771 $2,201,340 $ 9,418,215 $ 5,948,164 ========== ========== =========== =========== Earnings per share of common stock $ 0.28 $ 0.29 $ 0.81 $ 0.78 ========== ========== =========== =========== 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 Nine Months Ended September 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 - - - 9,418,215 9,418,215 Dividends declared ($1.16 per share) - - - (13,529,860) (13,529,860) ---------- -------- ------------ ------------ ------------ Balance at September 30, 1995 11,663,672 $116,637 $138,629,751 $ (6,193,331) $132,553,057 ========== ======== ============ ============ ============ See accompanying notes to condensed financial statements.
COMMERCIAL NET LEASE REALTY, INC. CONDENSED STATEMENTS OF CASH FLOWS
Nine Months Ended September 30, 1995 1994 ------------ ------------ Cash flows from operating activities: Net earnings $ 9,418,215 $ 5,948,164 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation 1,241,170 751,952 Amortization 221,462 188,976 Decrease in net investment in direct financing leases 332,223 175,160 Increase in accrued rental income (862,464) (547,686) Decrease (increase) in receivables (70,079) 88,357 Decrease (increase) in prepaid expenses 70,336 (78,443) Decrease (increase) in other assets 8,187 (2,928) Increase in accrued interest payable 102,190 109,901 Increase (decrease) in accounts payable and accrued expenses (72,927) 37,411 Increase in real estate taxes payable 46,118 22,909 Increase in due to related parties 50,505 57,698 Increase (decrease) in rents paid in advance and tenant deposits (174,879) 83,193 ------------ ------------ Net cash provided by operating activities 10,310,057 6,834,664 ------------ ------------ Cash flows from investing activities: Additions to land and buildings on operating leases (46,972,876) (34,175,674) Investment in direct financing leases (10,263,265) (15,033,921) Increase in other assets (1,347,358) (574,259) Other (40,127) (100,408) ------------ ------------ Net cash used in investing activities (58,623,626) (49,884,262) ------------ ------------ Cash flows from financing activities: Proceeds from loan 58,100,000 32,105,000 Repayment of loan - (600,000) Payment of loan costs (366,384) (462,467) Payment of stock issuance costs (4,069) (3,320) Payment of deferred offering costs - (352,375) Payment of dividends (10,147,395) (6,514,121) Other (175,811) - ------------ ------------ Net cash provided by financing activities 47,406,341 24,172,717 ------------ ------------ Net decrease in cash and cash equivalents (907,228) (18,876,881) Cash and cash equivalents at beginning of period 1,069,900 19,847,120 ------------ ------------ Cash and cash equivalents at end of period $ 162,672 $ 970,239 ============ ============ Supplemental disclosures of non-cash investing and financing activities: Land, building and direct financing lease costs incurred and unpaid at end of period $ 332,864 $ 786,039 ============ ============ Loan costs incurred and unpaid at end of period $ - $ 110,283 ============ ============ Deferred offering costs incurred and unpaid at end of period $ - $ 291,694 ============ ============ Dividends declared and unpaid at end of period $ 3,382,465 $ - ============ ============ Other financing activity costs incurred and unpaid at end of period $ 21,022 $ - ============ ============ See accompanying notes to condensed financial statements.
COMMERCIAL NET LEASE REALTY, INC. NOTES TO CONDENSED FINANCIAL STATEMENTS Quarters and Nine Months Ended September 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 nine months ended September 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 September 30, 1995, 97 of the leases have been classified as operating leases and 57 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: September 30, December 31, 1995 1994 ------------- ------------ Land $ 79,988,204 $ 52,476,960 Buildings and improve- ments 77,187,654 57,375,471 ------------ ------------ 157,175,858 109,852,431 Accumulated deprecia- tion (5,002,539) (3,761,369) ------------ ------------ $152,173,319 $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 nine months ended September 30, 1995 and 1994, the Company recognized $862,464 and $547,686, respectively, of such income. The following is a schedule of future minimum lease payments to be received on noncancellable operating leases at September 30, 1995: 1995 $ 3,870,540 1996 15,660,915 1997 15,741,827 1998 15,762,144 1999 15,970,907 Thereafter 194,258,474 ------------ $261,264,807 ============ 4. Net Investment in Direct Financing Leases: ----------------------------------------- The following lists the components of net investment in direct financing leases at: September 30, December 31, 1995 1994 ------------- ------------ Minimum lease payments to be received $116,569,311 $ 96,231,285 Estimated residual values 16,242,383 12,721,338 Less unearned income (80,299,304) (66,400,775) ------------ ------------ Net investment in direct financing leases $ 52,512,390 $ 42,551,848 ============ ============ The following is a schedule of future minimum lease payments to be received on direct financing leases at September 30, 1995: 1995 $ 1,534,003 1996 6,136,023 1997 6,136,023 1998 6,139,473 1999 6,186,025 Thereafter 90,437,764 ------------ $116,569,311 ============ 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 September 30, 1995, the outstanding principal balance was $72,900,000, plus accrued interest of $138,041. 6. Debt and Equity Securities: -------------------------- On July 20, 1995, the Company filed a shelf registration statement on Form S-3 with the Securities and Exchange Commission that permits the issuance of a combination of debt and equity securities of up to $200,000,000. 7. Related Party Transactions: -------------------------- During the nine months ended September 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. 8. Commitments and Contingencies: ----------------------------- As of September 30, 1995, the Company had entered into agreements to purchase 14 additional properties for an estimated aggregate amount of $39,225,788. In addition, the Company was contingently liable for $4,153,013 related to bank letters of credit which guarantee the Company's obligation under purchase agreements to acquire these properties upon completion of development. As of September 30, 1995, the Company owned seven 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 $17,267,137 upon completion of the buildings. 9. Subsequent Event: ---------------- In October 1995, the Company entered into two long-term, fixed rate mortgage commitments for loans totalling $52,600,000. One loan is a four- year $13,150,000 mortgage with interest payable monthly and principal payable at maturity and will bear interest at a rate of 125 basis points over comparable U.S. Treasuries. The other loan is a ten-year $39,450,000 mortgage with principal and interest payable monthly and will bear interest at a rate of 175 basis points over U.S. Treasuries. Each mortgage will be secured by a first lien on and an assignment of rents and leases of certain of the Company's properties. Consummation of the loans is subject to consent by the Company's line of credit lenders. 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 September 30, 1995, the Company owned 154 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 nine months ended September 30, 1995 and 1994, the Company generated $10,310,057 and $6,834,664, respectively, in net cash provided by operating activities. The increase in cash from operations for the nine months ended September 30, 1995, as compared to the nine months ended September 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 September 30, 1995, $72,900,000 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, secured or unsecured borrowings from banks or other lenders 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. In October 1995, the Company entered into two long-term, fixed rate mortgage commitments for loans totalling $52,600,000. One loan is a four-year $13,150,000 mortgage with interest payable monthly and principal payable at maturity and will bear interest at a rate of 125 basis points over comparable U.S. Treasuries. The other loan is a ten-year $39,450,000 mortgage with principal and interest payable monthly and will bear interest at a rate of 175 basis points over U.S. Treasuries. Each mortgage will be secured by a first lien on and an assignment of rents and leases of certain of the Company's Properties. Proceeds from the loans will be used to pay down a portion of the outstanding indebtedness under the Company's Credit Facility. Consummation of the loans is subject to consent by the Company's line of credit lenders. Debt and Equity Securities. In July 1995, the Company filed a shelf registration statement with the Securities and Exchange Commission that permits the issuance of debt and equity securities of up to $200,000,000. 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 nine months ended September 30, 1995, the Company borrowed $56,700,000 of amounts it has available under its Credit Facility to acquire 26 Properties and four buildings which were developed by the tenant on land parcels owned by the Company. The 26 Properties included nine Hi-Lo Automotive Stores, five Barnes & Nobles bookstores, three Eckerd drugstores, three Academy sporting good stores, two Scotty's home improvement stores, one Levitz furniture store, one Borders bookstore, one OfficeMax office supply store and one Food 4 Less grocery store. The four buildings included three 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 September 30, 1995, the Company had entered into agreements to purchase 14 additional properties for an estimated aggregate amount of $39,225,788. In addition, the Company is contingently liable for $4,153,013 related to bank letters of credit which guarantee the Company's obligation under purchase agreements to acquire these properties 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 September 30, 1995, the Company owned seven 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 $17,267,137. In addition to the 26 properties under contract and the seven buildings under construction, 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. During the nine months ended September 30, 1995 and 1994, the Company paid dividends to its stockholders of $10,147,395 and $6,514,121, respectively, or $.87 and $.85 per share of common stock, respectively. In September 1995, the Company declared dividends to its stockholders of $3,382,465 or $.29 per share of common stock, payable in November 1995. Results of Operations - --------------------- During the nine months ended September 30, 1995 and 1994, the Company owned and leased 154 and 106 Properties, respectively, to operators of major retail businesses. In connection therewith, during the nine months ended September 30, 1995 and 1994, the Company earned $14,017,773 and $7,640,888, respectively, in rental income from operating leases and earned income from direct financing leases, $5,298,698 and $2,928,937 of which was earned during the quarters ended September 30, 1995 and 1994, respectively. The increase in rental and earned income during the quarter and nine months ended September 30, 1995, is primarily attributable to the income earned on the Properties acquired during 1994 and the 26 Properties acquired and four buildings upon which construction was completed during the nine months ended September 30, 1995. Rental and earned income are expected to increase as the Company acquires additional properties and due to the fact that the 12 Properties and one building acquired during the quarter ended September 30, 1995 will contribute to the Company's income for a full fiscal quarter in future quarters. For the nine months ended September 30, 1995 and 1994, the Company also earned $579,055 and $638,477, respectively, in contingent rental income, $199,091 and $216,422 of which was earned during the quarters ended September 30, 1995 and 1994, respectively. Contingent rental income decreased primarily as a result of a decrease in the aggregate net sales of restaurants currently paying contingent rent during the quarter and nine months ended September 30, 1995, as compared to the quarter and nine months ended September 30, 1994. During the nine months ended September 30, 1995, two of the Company's lessees (or group of affiliated lessees), (i) Barnes & Noble Superstores, Inc. 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 September 30, 1995, Barnes & Noble Superstores, Inc. was the lessee under leases relating to nine 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, Barnes & Noble Superstores, Inc. and 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 $2,335,471 and $412,246 in interest expense for the nine months ended September 30, 1995 and 1994, respectively, $1,244,801 and $314,245 of which was incurred for the quarters ended September 30, 1995 and 1994, respectively. Interest expense increased during the quarter and nine months ended September 30, 1995, as compared to the quarter and nine months ended September 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 nine months ended September 30, 1995 and 1994, other operating expenses, including depreciation and amortization expense, were $2,941,619 and $2,070,344, respectively (20.0% and 24.6%, respectively, of gross operating revenues), of which $1,063,471 and $651,698 (19.2% and 20.6%, respectively, of gross operating revenues) were incurred for the quarters ended September 30, 1995 and 1994, respectively. The increase in the dollar amount of other operating expenses for the nine months ended September 30, 1995, as compared to the nine months ended September 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 nine months ended September 30, 1995. The increase is also attributable to increased advisory fees as a result of increased funds from operations for the nine months ended September 30, 1995. However, the increase was partially offset by a decrease in legal fees during the nine months ended September 30, 1995, as compared to the nine months ended September 30, 1994, as a result of the legal fees and expenses incurred during the nine months ended September 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. --------------------------------------------------- Not applicable. Item 5. Other Information. Not applicable. ----------------- Item 6. Exhibits and Reports on Form 8-K. -------------------------------- (a) The following exhibits are filed as a part of this report. 3.1 Articles of Incorporation of the Registrant (filed as Exhibit 3.3(i) to the Registrant's Registration Statement No. 1-11290 on Form 8-B, and incorporated herein by reference). 3.2 Bylaws of the Registrant (filed as Exhibit 3.3(ii) to Amendment No. 2 to the Registrant's Registration Statement No. 1-11290 on Form 8-B, and incorporated herein by reference). 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 September 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 13th day of November, 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 -----END PRIVACY-ENHANCED MESSAGE-----