-----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, V9mFROholJtakAsOsgAJgg1XcQwrqGKz2UuT/2RUJQRtX414fEPVvWY0zKgX1/AA P15zSCTOvuyLJWVL/kkFFg== 0000751364-96-000023.txt : 19960816 0000751364-96-000023.hdr.sgml : 19960816 ACCESSION NUMBER: 0000751364-96-000023 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19960814 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: 96613634 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, 1996, and its statement of earnings 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, 1996. 6-MOS DEC-31-1996 JAN-01-1996 JUN-30-1996 776,773 0 334,578 0 0 0 234,288,520 6,737,544 317,452,978 0 0 0 0 156,887 185,259,229 317,452,978 0 14,555,268 0 2,969,592 0 0 3,061,751 8,523,925 0 8,523,925 0 0 0 8,523,925 .57 .57 Due to the nature of its industry, Commercial Net Lease Realty, Inc. has an unclassified balance sheet; therefore, no values are shown above for current assets and current liabilities.
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, 1996 ----------------------------------- 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. 15,688,672 shares of Common Stock, $.01 par value, outstanding as of August 1, 1996. COMMERCIAL NET LEASE REALTY, INC. and SUBSIDIARIES CONTENTS -------- Part I Page ---- Item 1. Financial Statements: Condensed Consolidated Balance Sheets 1 Condensed Consolidated Statements of Earnings 2 Condensed Consolidated Statements of Stockholders' Equity 3 Condensed Consolidated Statements of Cash Flows 4-5 Notes to Condensed Consolidated Financial Statements 6-12 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 13-16 Part II Other Information 17-19 COMMERCIAL NET LEASE REALTY, INC. and SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS June 30, December 31, ASSETS 1996 1995 ------------ ------------ Land and buildings on operating leases, net of accumulated depreciation $227,550,976 $155,956,739 Net investment in direct financing leases 83,138,688 56,829,126 Cash and cash equivalents 776,773 300,714 Receivables 334,578 394,154 Prepaid expenses 159,578 154,538 Loan costs, net of accumulated amortization of $690,071 and $405,179 1,977,659 1,065,149 Accrued rental income 3,169,800 2,194,221 Other assets 344,926 2,362,035 ------------ ------------ $317,452,978 $219,256,676 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY Notes payable $131,103,924 $ 82,600,000 Accrued interest payable 327,388 128,475 Accounts payable and accrued expenses 118,425 350,632 Real estate taxes payable 103,100 82,932 Due to related parties 222,236 69,038 Rents paid in advance and tenant deposits 161,789 183,486 ------------ ------------ Total liabilities 132,036,862 83,414,563 ------------ ------------ Commitments and contingencies (Notes 8 and 9) Stockholders' equity: Common stock, $.01 par value. Authorized 50,000,000 and 30,000,000 shares, respectively; issued and outstanding 15,688,672 and 11,663,672 shares, respectively 156,887 116,637 Excess stock, $0.01 par value, authorized 50,000,000 and 30,000,000 shares, respectively; none issued and outstanding - Capital in excess of par value 187,571,759 138,629,751 Accumulated dividends in excess of net earnings (2,312,530) (2,904,275) ------------ ------------ Total stockholders' equity 185,416,116 135,842,113 ------------ ------------ $317,452,978 $219,256,676 ============ ============ See accompanying notes to condensed consolidated financial statements. COMMERCIAL NET LEASE REALTY, INC. and SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS Quarter Ended Six Months Ended June 30, June 30, 1996 1995 1996 1995 ----------- ----------- ----------- ----------- Revenues: Rental income from operating leases $ 5,602,811 $ 3,248,021 $10,648,901 $ 6,257,674 Earned income from direct financing leases 1,796,758 1,267,213 3,478,578 2,461,401 Contingent rental income 199,322 202,752 357,113 379,964 Interest and other 32,153 27,830 70,676 62,223 ----------- ----------- ----------- ----------- 7,631,044 4,745,816 14,555,268 9,161,262 ----------- ----------- ----------- ----------- Expenses: General operating and administrative 288,985 158,462 672,442 403,302 Advisory fees to related party 342,505 239,737 650,516 478,916 Interest 1,601,868 675,025 3,061,751 1,090,670 Taxes 56,803 48,978 92,520 70,024 Depreciation and amortization 806,470 490,023 1,554,114 925,906 ----------- ----------- ----------- ----------- 3,096,631 1,612,225 6,031,343 2,968,818 ----------- ----------- ----------- ----------- Net earnings $ 4,534,413 $ 3,133,591 $ 8,523,925 $ 6,192,444 =========== =========== =========== =========== Earnings per share of common stock $ 0.29 $ 0.27 $ 0.57 $ 0.53 =========== =========== =========== =========== Weighted average number of shares outstanding 15,688,672 11,663,672 15,000,210 11,663,672 =========== =========== =========== =========== See accompanying notes to condensed consolidated financial statements. COMMERCIAL NET LEASE REALTY, INC. and SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY Six Months Ended June 30, 1996 and Year Ended December 31, 1995
Accumulated dividends Capital in in excess Number Common excess of of net of shares stock par value earnings Total ---------- -------- ------------ ------------ ------------ Balance at December 31, 1994 11,663,672 $116,637 $138,629,751 $ (2,081,686) $136,664,702 Net earnings - - - 12,707,271 12,707,271 Dividends declared and paid ($1.16 per share of common stock) - - - (13,529,860) (13,529,860) ---------- -------- ------------ ------------ ------------ Balance at December 31, 1995 11,663,672 116,637 138,629,751 (2,904,275) 135,842,113 Net earnings - - - 8,523,925 8,523,925 Dividends declared and paid ($0.58 per share of common stock) - - - (7,932,180) (7,932,180) Issuance of common stock 4,025,000 40,250 52,284,750 - 52,325,000 Stock issuance costs - - (3,342,742) - (3,342,742) ---------- -------- ------------ ----------- ------------ Balance at June 30, 1996 15,688,672 $156,887 $187,571,759 $(2,312,530) $185,416,116 ========== ======== ============ =========== ============ See accompanying notes to condensed consolidated financial statements.
COMMERCIAL NET LEASE REALTY, INC. and SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS Six Months Ended June 30, 1996 1995 ------------ ------------ Cash flows from operating activities: Net earnings $ 8,523,925 $ 6,192,444 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation 1,240,154 787,077 Amortization 313,960 138,829 Decrease in net investment in direct financing leases 313,968 207,557 Increase in accrued rental income (975,579) (541,184) Decrease (increase) in receivables 60,805 (147,674) Decrease (increase) in prepaid expenses (5,040) 32,926 Decrease in other assets 21,410 8,187 Increase in accrued interest payable 198,913 85,907 Decrease in accounts payable and accrued expenses (60,981) (95,048) Increase in real estate taxes payable 20,168 49,278 Increase (decrease) in due to related parties 44,508 (35,084) Increase (decrease) in rents paid in advance and tenant deposits (21,697) 74,137 ------------ ------------ Net cash provided by operating activities 9,674,514 6,757,352 ------------ ------------ Cash flows from investing activities: Additions to land and buildings on operating leases (64,696,636) (31,052,015) Investment in direct financing leases (26,623,451) (9,629,688) Increase in other assets (91,920) (566,005) Other 115,627 22,636 ------------ ------------ Net cash used in investing activities (91,296,380) (41,225,072) ------------ ------------ Cash flows from financing activities: Proceeds from loan 118,450,000 42,700,000 Repayment of loans (76,739,930) - Payment of loan costs (747,496) (343,532) Proceeds from issuance of common stock 52,325,000 - Payment of stock issuance costs (3,253,079) (4,069) Payment of dividends (7,932,180) (6,764,930) Other (4,390) (33,654) ------------ ------------ Net cash provided by financing activities 82,097,925 35,553,815 ------------ ------------ Net increase in cash and cash equivalents 476,059 1,086,095 Cash and cash equivalents at beginning of period 300,714 1,069,900 ------------ ------------ Cash and cash equivalents at end of period $ 776,773 $ 2,155,995 ============ ============ Supplemental disclosures of non-cash investing and financing activities: Land, building and direct financing lease costs incurred and unpaid at end of period $ 188,194 $ 153,560 ============ ============ Other financing activity costs incurred and unpaid at end of period $ - $ 24,586 ============ ============ Mortgages assumed in exchange for three properties $ 6,793,854 $ - ============ ============ See accompanying notes to condensed consolidated financial statements. COMMERCIAL NET LEASE REALTY, INC. and SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS Quarters and Six Months Ended June 30, 1996 and 1995 1. Basis of Presentation: --------------------- The accompanying unaudited 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, 1996, may not be indicative of the results that may be expected for the year ending December 31, 1996. Amounts as of December 31, 1995, 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, 1995. The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. 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. Effective January 1, 1996, the Company adopted 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 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. Adoption of this standard had no material effect on the Company's financial position or results of operations. Effective January 1, 1996, the Company adopted Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation. The Statement provides that companies must either charge the value of stock options granted to their income statement or provide pro forma equivalent information in a footnote disclosure. The Company adopted this standard and will provide pro forma equivalent information in a footnote disclosure to its financial statements at December 31, 1996 and for the year then ended. 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, 1996, 111 of the leases have been classified as operating leases and 71 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 46 of these leases are accounted for as operating leases. Substantially all leases have initial terms of 15 to 20 years (expiring between 1997 and 2020) and provide for minimum rentals. In addition, the majority of the leases provide for contingent rentals and/or scheduled rent increases over the terms of the leases. The tenant is also generally required to pay all property taxes and assessments, substantially maintain the interior and exterior of the building and carry insurance coverage for public liability, property damage, fire and extended coverage. The lease options generally allow tenants to renew the leases for two to four successive five-year periods subject to substantially the same terms and conditions as the initial lease. 3. Land and Building on Operating Leases: ------------------------------------- Land and buildings on operating leases consisted of the following at: June 30, December 31, 1996 1995 ------------ ------------ Land $116,651,332 $ 83,356,403 Buildings and improvements 117,637,188 78,097,726 ------------ ------------ 234,288,520 161,454,129 Accumulated depreci- ation (6,737,544) (5,497,390) ------------ ------------ $227,550,976 $155,956,739 ============ ============ 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, 1996 and 1995, the Company recognized $975,579 and $541,184, respectively, of such income, $502,115 and $279,264 of which was recognized for the quarters ended June 30, 1996 and 1995, respectively. The following is a schedule of future minimum lease payments to be received on noncancellable operating leases at June 30, 1996: 1996 $ 11,528,262 1997 23,177,489 1998 23,208,006 1999 23,446,769 2000 23,836,106 Thereafter 288,672,001 ------------ $393,868,633 ============ 4. Net Investment in Direct Financing Leases: ----------------------------------------- The following lists the components of net investment in direct financing leases at: June 30, December 31, 1996 1995 ------------ ------------ Minimum lease payments to be received $188,392,023 $126,314,337 Estimated residual values 25,332,902 17,354,140 Less unearned income (130,586,237) (86,839,351) ------------ ------------ Net investment in direct financing leases $ 83,138,688 $ 56,829,126 ============ ============ The following is a schedule of future minimum lease payments to be received on direct financing leases at June 30, 1996: 1996 $ 5,019,740 1997 10,039,483 1998 10,042,933 1999 10,089,485 2000 10,207,619 Thereafter 142,992,763 ------------ $188,392,023 ============ 5. Notes Payable: ------------- In July 1994, the Company entered into a loan agreement for a three-year $100,000,000 revolving credit facility (the "Credit Facility") which expires on June 30, 1997. As of June 30, 1996 and December 31, 1995, the outstanding principal balance was $72,200,000 and $69,450,000, respectively, plus accrued interest of $127,377 and $84,094, respectively. In January 1996, the Company entered into a long-term, fixed rate mortgage and security agreement for $39,450,000 (the "Permanent Debt Financing"). The Permanent Debt Financing provides for a ten-year loan with principal and interest payable monthly, based on a 17-year amortization, with the balance due in February 2006 and bears interest at a rate of 7.435% per annum. The Permanent Debt Financing is secured by a first lien on and assignment of rents and leases of certain of the Company's properties. As of June 30, 1996, the outstanding principal balance was $38,960,070, plus accrued interest of $120,695. In June 1996, the Company acquired three properties each subject to a mortgage totalling $6,793,854 (collectively, the "Mortgages"). The Mortgages bear interest at a weighted average rate of 8.6% and have a weighted average maturity of eight years, with principal and interest payable monthly. As of June 30, 1996, the outstanding principal balances for the Mortgages totalled $6,793,854 plus accrued interest of $42,332. The following is a schedule of annual maturities of the Company's outstanding indebtedness for the remaining portion of 1996 and each of the next four years: 1996 $ 717,923 1997 1,520,219 1998 1,672,434 1999 14,984,294 2000 2,005,074 ----------- $20,899,944 =========== 6. Stock Option Plan: ----------------- The Company's stock option plan (the "Plan") provides compensation and incentive to persons ("Key Employees") or entities whose services are considered essential to the Company's continued growth and success. As of December 31, 1995, the Plan had 600,000 shares of common stock reserved for issuance. Pursuant to the Plan, the shares of common stock reserved for issuance automatically increased to 1,200,000 shares in connection with the equity offering during the six months ended June 30, 1996. The Plan provides for an additional automatic increase in the number of shares issuable under the Plan to 2,000,000 shares at such time as the Company has 25,000,000 shares of common stock issued and outstanding. The following summarizes transactions in the plan for the six months ended June 30, 1996 and 1995: Number of Shares ---------------------------- Six Months Ended June 30, 1996 1995 ------------ ------------ Outstanding, January 1 578,100 568,100 Granted at $12.625 to $13.25 per share 390,000 10,000 Exercised - - Surrendered (11,500) - ------- ------- Outstanding, June 30 956,600 578,100 ======= ======= Exercisable, June 30 345,033 158,500 ======= ======= Available for grant, June 30 231,900 21,900 ======= ======= 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. The Company applies Accounting Principles Board Opinion 25, Accounting for Stock Issued to Employees, in accounting for the Plan. Accordingly, due to the fact that the Plan requires that the exercise price of the options equal the market value of the stock on the grant date, no compensation cost has been recorded with respect to the options for the six months ended June 30, 1996 and 1995. 7. Related Party Transactions: -------------------------- During the six months ended June 30, 1996, the Company acquired six properties for purchase prices totalling $13,278,638 from an affiliate of CNL Realty Advisors, Inc. who had developed the properties. The purchase prices paid by the Company for these six 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 $608,000 paid to an affiliate of CNL Realty Advisors, Inc. In addition, during the six months ended June 30, 1996, the Company acquired 19 properties and seven buildings which were developed by the tenant on land parcels owned by the Company from unrelated, third parties for purchase prices totalling $82,420,261. In connection with the acquisition of these 19 properties and seven buildings, the Company paid CNL Realty Advisors, Inc. $1,648,405 in acquisition fees and expense reimbursement fees (representing 1.5% and 0.5%, respectively, of the cost of the properties). During the six months ended June 30, 1996, the Company acquired one property for a purchase price of $3,400,000 from an affiliate of CNL Realty Advisors, Inc. The purchase price paid by the Company represented the costs incurred by the affiliate to acquire the property, including closing costs. 8. Commitments and Contingencies: ----------------------------- As of June 30, 1996, the Company had entered into agreements to purchase 14 additional properties for an estimated aggregate amount of $43,858,662. In connection with the acquisition of these 14 properties, the Company was contingently liable for $3,895,283 related to 14 separate bank letters of credit which guarantee the Company's obligation under the purchase agreements to acquire these properties. As of June 30, 1996, the Company owned and leased two land parcels to tenants which were obligated to develop a building on the respective land parcels. The Company has agreed to pay an aggregate amount of up to $3,950,000 upon completion of the buildings. 9. Subsequent Event: ---------------- In July 1996, the Company declared dividends to its shareholders of $4,706,602 or $.30 per share of common stock, payable in August 1996. 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, 1996, the Company owned 182 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, 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, 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, 1996 and 1995, the Company generated $9,674,514 and $6,757,352, respectively, in net cash provided by operating activities. The increase in cash from operations for the six months ended June 30, 1996, as compared to the six months ended June 30, 1995, 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 January 1996, the Company entered into a long-term, fixed rate mortgage and security agreement for $39,450,000 (the "Permanent Debt Financing"). The Permanent Debt Financing provides for a ten-year loan with principal and interest payable monthly, based on a 17-year amortization, with the balance due in February 2006 and bears interest at a rate of 7.435% per annum. The Permanent Debt Financing is secured by a first lien on and assignment of rents and leases of certain of the Company's Properties. As of June 30, 1996, the outstanding principal balance was $38,960,070. Proceeds from the Permanent Debt Financing were used to pay down the Company's $100,000,000 credit facility. In June 1996, the Company acquired three Properties each subject to a mortgage totalling $6,793,854 (collectively, the "Mortgages"). The Mortgages bear interest at a weighted average rate of 8.6% and have a weighted average maturity of eight years, with principal and interest payable monthly, commencing in July 1996. As of June 30, 1996, the outstanding principal balances for the Mortgages totalled $6,793,854. 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. In January 1996, the Company filed a final prospectus supplement to the shelf registration and issued 4,025,000 shares of common stock and received gross proceeds of $52,325,000. In connection with the offering, the Company incurred stock issuance costs totalling $3,342,742, consisting primarily of underwriters' commissions and fees, legal and accounting fees and printing expenses. Proceeds from the offering were used to pay down the Company's $100,000,000 credit facility. Property Acquisitions and Commitments. During the six months ended June 30, 1996, the Company borrowed $90,700,000 under its credit facility and assumed mortgages totalling $6,793,854 to acquire 25 Properties (five Eckerd drugstores, three OfficeMax office supply stores, one Barnes & Noble bookstore, three Academy sporting goods stores, two Borders bookstores, two Computer City computer stores, three Luria's jewelry and giftware stores, one Good Guys consumer electronics store, one Homeplace home furnishing store, one Baby Superstore baby products retailer and three Sears Homelife furniture stores) and seven buildings (five Barnes and Noble bookstores, one Academy sporting goods store and one Food 4 Less grocery store) which were developed by the tenant on land parcels owned by the Company for an aggregate amount of approximately $95,700,000. As of June 30, 1996, the Company had entered into agreements to purchase 14 additional properties for an estimated aggregate amount of $43,858,662. 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, 1996, the Company owned two 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 $3,950,000. In addition to the 14 properties under contract and the two buildings under construction as of June 30, 1996, 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 are expected to be the primary demand for additional capital in the future. 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 Company's $100,000,000 credit facility and long- term, fixed rate financing, 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, 1996 and 1995, the Company declared and paid dividends to its stockholders of $7,932,180 and $6,764,930, respectively, or $.58 per share of common stock for each respective period. In July 1996, the Company declared dividends to its shareholders of $4,706,602 or $.30 per share of common stock, payable in August 1996. Results of Operations - --------------------- As of June 30, 1996 and 1995, the Company owned and leased 182 and 142 Properties, respectively, to operators of major retail businesses. In connection therewith, during the six months ended June 30, 1996 and 1995, the Company earned $14,127,479 and $8,719,075, respectively, in rental income from operating leases and earned income from direct financing leases, $7,399,569 and $4,515,234 of which was earned during the quarters ended June 30, 1996 and 1995, respectively. The increase in rental and earned income during the quarter and six months ended June 30, 1996, is primarily a result of the facts that (i) the 29 Properties acquired and four buildings upon which construction was completed during 1995 were operational for a full quarter in 1996 and (ii) the Company acquired 25 Properties and seven buildings upon which construction was completed during the six months ended June 30, 1996. Rental and earned income are expected to increase as the Company acquires additional properties and due to the fact that the 15 Properties and three buildings acquired during the quarter ended June 30, 1996 will contribute to the Company's income for a full fiscal quarter in future quarters. The Company incurred $3,061,751 and $1,090,670 in interest expense for the six months ended June 30, 1996 and 1995, respectively $1,601,868 and $675,025 of which was incurred for the quarters ended June 30, 1996 and 1995, respectively. Interest expense increased during the quarter and six months ended June 30, 1996, primarily as a result of the Company's Permanent Debt Financing and higher average borrowing levels on the Company's $100,000,000 credit facility. However, the increase was partially offset by a decrease in the average interest rates of the Company's credit facility and the Company's long-term, fixed rate financing. During the six months ended June 30, 1996 and 1995, operating expenses, including depreciation and amortization, were $2,969,592 and $1,878,148, respectively (20.4% and 20.5%, respectively, of gross operating revenues) of which $1,494,763 and $937,200 (19.6% and 19.7%, respectively, of gross operating revenues) were incurred for the quarters ended June 30, 1996 and 1995, respectively. The increase in the dollar amount of operating expenses for the quarter and six months ended June 30, 1996, as compared to the quarter and six months ended June 30, 1995, is primarily attributable to the increase in depreciation expense as a result of the additional Properties acquired during the six months ended June 30, 1996, and a full quarter and six months of depreciation expense relating to the 29 Properties and four buildings acquired during 1995. The increase is also attributable to an increase in amortization expense as a result of the amortization of loan costs relating to the Company's Permanent Debt Financing. In addition, advisory fees increased as a result of increased funds from operations for the quarter and six months ended June 30, 1996. PART II. OTHER INFORMATION Item 1. Legal Proceedings. ----------------- No material developments in legal proceedings as previously reported in the Form 10-K for the year ended December 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 May 16, 1996, 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 (13,984,815 voted for and 68,954 abstained), Edward Clark (13,984,065 voted for and 69,704 abstained), Willoughby T. Cox, Jr. (13,984,115 voted for and 69,654 abstained), Clifford R. Hinkle (13,984,515 voted for and 69,254 abstained), Ted B. Lanier (13,984,715 voted for and 69,054 abstained), and James M. Seneff, Jr. (13,984,815 voted for and 68,954 abstained). In addition, the shareholders voted to approve authorization of 50,000,000 shares of common stock (13,472,089 voted for, 440,132 voted against and 141,548 abstained). The Company failed to receive the required vote of the shareholders to approve (1) authorization of 15,000,000 shares of preferred stock (6,709,798 voted for, 3,366,985 voted against and 218,517 abstained) and (2) amendment of articles of incorporation to permit simple majority amendments (9,358,116 voted for, 552,237 voted against and 538,828 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). 3.3 Articles of Amendment to the Articles of Incorporation of Registrant (Filed herewith). 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 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). 10.5 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). 10.6 Second Amended and Restated Line of Credit and Security Agreement, dated December 7, 1995, among Registrant, certain lenders listed therein and First Union National Bank of Florida, as the Agent, relating to a $100,000,000 loan (filed as Exhibit 10.14 to the Registrant's Current Report on Form 8-K dated January 18, 1996, and incorporated herein by reference). 10.7 Secured Promissory Note, dated December 14, 1995, among Registrant and Principal Mutual Life Insurance Company relating to a $13,150,000 loan (filed as Exhibit 10.15 to the Registrant's Current Report on Form 8-K dated January 18, 1996, and incorporated herein by reference). 10.8 Mortgage and Security Agreement, dated December 14, 1995, among Registrant and Principal Mutual Life Insurance Company relating to a $13,150,000 loan (filed as Exhibit 10.16 to the Registrant's Current Report on Form 8-K dated January 18, 1996, and incorporated herein by reference). 10.9 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). 10.10 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). (b) No reports on Form 8-K were filed during the quarter ended June 30, 1996. 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 7th day of August, 1996. COMMERCIAL NET LEASE REALTY, INC. By: /s/ Gary M. Ralston ----------------------- Gary M. Ralston President By: /s/ Kevin B. Habicht ----------------------- Kevin B. Habicht Chief Financial Officer EX-1 3 EXHIBIT 3.3 ARTICLES OF AMENDMENT TO THE ARTICLES OF INCORPORATION OF COMMERCIAL NET LEASE REALTY, INC. COMMERCIAL NET LEASE REALTY, INC. (the "Corporation"), a corporation organized and existing under the laws of the State of Maryland, does hereby certify as follows: FIRST: The name of the Corporation is Commercial Net Lease Realty, Inc. SECOND: Section One of Article Seventh of the Articles of Incorporation of the Corporation is hereby deleted in its entirety and amended and restated to read as follows: SECTION 1. TOTAL CAPITALIZATION The total number of shares of all classes of capital stock that the Corporation has authority to issue is one hundred million (100,000,000) shares, consisting of (i) fifty million (50,000,000) shares of common stock, par value $0.01 per share (the "Common Stock") and (ii) fifty million (50,000,000) shares of excess stock, par value $0.01 per share (the "Excess Stock"). The aggregate par value of all of the authorized shares of all classes of capital stock having a par value is $1,000,000.00. THIRD: The foregoing amendment to the Corporation's Articles of Incorporation was advised by a resolution adopted by the Corporation's Board of Directors at a meeting held on March 19, 1996 and approved by the Corporation's stockholders at the Corporation's Annual Meeting, held on May 16, 1996. FOURTH: Prior to this amendment, the Corporation had authority to issue 60,000,000 shares of capital stock with an aggregate par value of $600,000.00, consisting of (i) thirty million (30,000,000) shares of common stock, par value $0.01 per share, and (ii) thirty million (30,000,000) shares of excess stock, par value of $0.01 per share. FIFTH: These Articles of Amendment do not change the information required by subsection (b)(2)(i) of Section 2-607 of the General Corporation Law of Maryland. IN WITNESS WHEREOF, these Articles of Amendment are hereby executed by Kevin B. Habicht, an Executive Vice President of the Corporation, who hereby acknowledges that the Articles of Amendment are the act of the Corporation, and who does hereby state under the penalties of perjury that the matters and facts set forth herein with respect to authorization and approval of such Articles are true in all material respects to the best of his knowledge, information and belief. BY: /s/Kevin B. Habicht -------------------------- Kevin B. Habicht Executive Vice President DATE: August 12, 1996 ATTEST BY: /s/Robert A. Bourne ------------------- Robert A. Bourne Secretary Date: August 12, 1996 -----END PRIVACY-ENHANCED MESSAGE-----