-----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, AlgW4rNd0YFgW07IV40I86oK9wpP3F6+lz/TZGg26MHjzF6MgAfjlLz3jCBlaY1A EzbhGjw9YTZnw9MXLwbRmQ== 0000751364-96-000027.txt : 19960917 0000751364-96-000027.hdr.sgml : 19960917 ACCESSION NUMBER: 0000751364-96-000027 CONFORMED SUBMISSION TYPE: 8-K/A PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19960911 ITEM INFORMATION: Other events FILED AS OF DATE: 19960912 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: COMMERCIAL NET LEASE REALTY INC CENTRAL INDEX KEY: 0000751364 STANDARD INDUSTRIAL CLASSIFICATION: 6798 IRS NUMBER: 561431377 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K/A SEC ACT: 1934 Act SEC FILE NUMBER: 001-11290 FILM NUMBER: 96629058 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 8-K/A 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 8-K/A AMENDMENT NO. 1 CURRENT REPORT Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Date of Report (Date of earliest event reported): September 11, 1996 COMMERCIAL NET LEASE REALTY, INC. (Exact Name of Registrant as Specified in Charter) Maryland 0-12989 56-1431377 (State or other juris- (Commission File Number) (IRS Employer diction of incorporation) Identification No.) 400 East South Street, Suite 500 32801 Orlando, Florida (Zip Code) (Address of principal executive offices) Registrant's telephone number, including area code: (407) 422-1574 On August 19, 1996, Commercial Net Lease Realty, Inc. (the "Company") filed a Form 8-K dated August 19, 1996, reporting certain information and the pro forma financial statements relating to the intended offering of 3 million shares of common stock at $14.00 per share pursuant to a preliminary prospectus supplement filed on August 19, 1996, as part of a shelf registration statement on Form S-3, File No. 33-61165, with the Securities and Exchange Commission. On September 12, 1996, the Company filed a final prospectus supplement pursuant to Rule 424(b)(2) which offered 4.85 million shares of common stock from the shelf registration (the "Offering") at an Offering price of $14.00 per share. The Form 8-K dated August 19, 1996, is being amended to reflect the actual number of shares offered and the actual Offering price used in the final prospectus supplement. The change affects the description of the transaction in Item 5 (Other Events) and the pro forma financial statements in Item 7 (Financial Statements, Pro Forma Financial Information and Exhibits); therefore, they are amended to read as follows. ITEM 5. OTHER EVENTS. - - ------- On July 20, 1995, Commercial Net Lease Realty, Inc. (the "Company") filed a shelf registration statement on Form S-3, File No. 33-61165 (the "Registration Statement") with the Securities and Exchange Commission that permits the issuance of a combination of debt and equity securities of up to $200 million. Pursuant to a preliminary prospectus supplement filed with the Commission as part of the Registration Statement on August 19, 1996, the Company intended to offer 3 million shares of common stock from the Registration Statement (the "Preliminary Offering"). The net proceeds from the Preliminary Offering were estimated to be approximately $39.1 million at an assumed Offering price of $14.00 per share (approximately $45.0 million if the underwriters' over allotment option to purchase up to 450,000 additional shares was exercised in full), after deducting estimated offering expenses and underwriting discounts. On September 12, 1996, the Company filed a final prospectus supplement with the Commission dated September 11, 1996, pursuant to Rule 424(b)(2) which offered 4.85 million shares of common stock from the Registration Statement (the "Final Offering"). The net proceeds from the Final Offering are estimated to be approximately $63.6 million at an Offering price of $14.00 per share (approximately $73.2 million if the underwriters' over allotment option to purchase up to 727,500 additional shares is exercised in full), after deducting estimated Offering expenses and underwriter discounts. The pro forma financial statements being filed herewith have been amended to reflect the actual number of shares offered and the actual Offering price used in the final prospectus supplement. To secure long-term fixed rate financing, the Company entered into a $52.6 million mortgage loan with Principal Mutual Life Insurance Company (the "Principal Mortgage"), the proceeds of which were used to pay down the balance on the Company's $100 million credit facility. The Principal Mortgage is secured by 42 properties designated in the loan documents. The Principal Mortgage consists of two loans that bear interest at a fixed weighted average rate of approximately 7.26 percent and have a weighted average maturity of approximately seven years. The first loan of $13.2 million was closed on December 14, 1995 and the second loan of $39.4 million was closed on January 29, 1996. In addition to the Principal Mortgage, in June 1996, the Company acquired three properties subject to mortgages with an aggregate principal balance outstanding as of June 30, 1996, of approximately $6.8 million (the "Acquired Mortgages" and collectively with the Principal Mortgage, the "Mortgages"). The Acquired Mortgages bear interest at a weighted average rate of 8.6% and have a weighted average maturity of approximately eight years. Since July 1, 1996, the Company has purchased four properties. In addition, the Company intends to purchase five properties which the Company expects will be acquired periodically through the end of September 1996. These properties plus the four properties acquired since July 1, 1996, are hereinafter referred to as the "Acquisition Properties." The total purchase price of the Acquisition Properties is expected to be approximately $34.6 million. The Company anticipates that the purchase of the Acquisition Properties will be funded by the net proceeds from the Offering. ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS. - - ------- INDEX TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS ------------------------------------------------- Page ---- COMMERCIAL NET LEASE REALTY, INC. Pro Forma Financial Information (unaudited): Pro Forma Balance Sheet as of June 30, 1996 4 Pro Forma Statement of Earnings for the six months ended June 30, 1996 5 Pro Forma Statement of Earnings for the year ended December 31, 1995 6 Notes to Pro Forma Financial Statements for the six months ended June 30, 1996 and the year ended December 31, 1995 7 PRO FORMA FINANCIAL INFORMATION The pro forma information of the Company gives effect to (i) $49.0 million in net proceeds from the sale of 4,025,000 shares in the prior offering (the "Prior Offering Transaction"), and (ii) the completion and sale of 4,850,000 shares of common stock offered hereby at an estimated Offering Price of $14.00 per share and the application of the net proceeds therefrom, the receipt of $52.6 million of proceeds from the Principal Mortgage, the assumption of approximately $6.8 million of Acquired Mortgages, the purchase of the Acquisition Properties for approximately $34.6 million and the repayment of approximately $29.0 million previously drawn under the Company's $150 million credit facility (the "Credit Facility") (collectively, the "Offering Transactions"). The pro forma statements of earnings for the year ended December 31, 1995 and the six months ended June 30, 1996 give effect to the Prior Offering Transaction and the Offering Transactions as if such transactions had occurred on January 1, 1995. Such pro forma statements of earnings also treat all properties acquired during the year ended December 31, 1995 and the six months ended June 30, 1996 and the Acquisition Properties as if they had been acquired and fully leased as of January 1, 1995. The Pro Forma Balance Sheet as of June 30, 1996, gives effect to the Offering Transactions as if such transactions had occurred on June 30, 1996. The pro forma information does not purport to represent what the Company's financial position or results of operations actually would have been if the transactions reflected had in fact occurred on the date or at the beginning of the period indicated, or to project the Company's financial position or results of operations at any future date or any future period. COMMERCIAL NET LEASE REALTY, INC. UNAUDITED PRO FORMA BALANCE SHEET JUNE 30, 1996 (In thousands, except per share data) Pro Forma ASSETS Historical Adjustments Pro Forma ---------- ------------ --------- Land and buildings on operating leases, net of accumulated depreciation (c) $227,551 $ 34,655 (a) $262,206 Net investment in direct financing leases (c) 83,139 83,139 Cash and cash equivalents 777 77 (a) 854 Receivables 334 334 Prepaid expenses 159 159 Loan costs, net of accumulated amortization 1,978 1,978 Accrued rental income 3,170 3,170 Other assets 345 (53)(b) (132)(a) 160 -------- -------- -------- $317,453 $ 34,547 $352,000 ======== ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities: Notes payable $ 72,200 $ 34,600 (a) (63,565)(b) $ 43,235 Long term debt 58,904 58,904 Accrued interest payable 327 327 Accounts payable and accrued expenses 119 119 Real estate taxes payable 103 103 Due to related parties 222 222 Rents paid in advance and tenant deposits 162 162 -------- -------- -------- Total liabilities 132,037 (28,965) 103,072 -------- -------- -------- Stockholders' equity: Common stock 157 48 (b) 205 Capital in excess of par value 187,572 63,464 (b) 251,036 Accumulated dividends in excess of net earnings (2,313) (2,313) -------- -------- -------- 185,416 63,512 248,928 -------- -------- -------- $317,453 $ 34,547 $352,000 ======== ======== ======== See accompanying notes to unaudited pro forma financial statements. COMMERCIAL NET LEASE REALTY, INC. UNAUDITED PRO FORMA STATEMENT OF EARNINGS SIX MONTHS ENDED JUNE 30, 1996 (In thousands, except per share data) Pro Forma Historical Adjustments Pro Forma ---------- ----------- --------- Revenues: Rental income from operating leases (2) $10,649 $ 4,054 (1) $14,703 Earned income from direct financing leases (2) 3,478 1,005 (1) 4,483 Contingent rental income 357 357 Interest and other income 71 57 (3) 128 ------- ------- ------- 14,555 5,116 19,671 ------- ------- ------- Expenses: General operating and administrative 672 46 (4) 718 Advisory fees to related party 650 210 (5) 860 Interest 3,062 768 (6) 3,830 Taxes 93 69 (7) 162 Depreciation and amortization 1,554 482 (8) 8 (9) 2,044 ------- ------- ------- 6,031 1,583 7,614 ------- ------- ------- Net Earnings $ 8,524 $ 3,533 $12,057 ======= ======= ======= Earnings per share of common stock $ 0.57 $ 0.59 ======= ======= Funds from operations (10) $ 9,764 $13,779 ======= ======= Weighted average number of shares outstanding 15,000 20,539 ======= ======= See accompanying notes to unaudited pro forma financial statements. COMMERCIAL NET LEASE REALTY, INC. UNAUDITED PRO FORMA STATEMENT OF EARNINGS YEAR ENDED DECEMBER 31, 1995 (In thousands, except per share data) Pro Forma Historical Adjustments Pro Forma ---------- ----------- --------- Revenues: Rental income from operating leases (2) $14,455 $14,950 (1) $29,405 Earned income from direct financing leases (2) 5,267 3,700 (1) 8,967 Contingent rental income 746 746 Interest and other income 112 142 (3) 254 ------- ------- ------- 20,580 18,792 39,372 ------- ------- ------- Expenses: General operating and administrative 722 152 (4) 874 Advisory fees to related party 1,001 728 (5) 1,729 Interest 3,834 4,054 (6) 7,888 Taxes 258 249 (7) 507 Depreciation and amortization 2,058 1,708 (8) 306 (9) 4,072 ------- ------- ------- 7,873 7,197 15,070 ------- ------- ------- Net Earnings $12,707 $11,595 $24,302 ======= ======= ======= Earnings per share of common stock $ 1.09 $ 1.18 ======= ======= Funds from operations (10) $14,443 $27,746 ======= ======= Weighted average number of shares outstanding 11,664 20,539 ======= ======= See accompanying notes to unaudited pro forma financial statements. COMMERCIAL NET LEASE REALTY, INC. NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND THE YEAR ENDED DECEMBER 31, 1995 (Dollars in thousands) Pro Forma Balance Sheet: - - ----------------------- (a) Represents draw on the Company's Credit Facility used to acquire the Acquisition Properties for approximately $34,655 (approximately $132 of which had been paid in miscellaneous acquisition costs and deposits as of June 30, 1996). Per the Credit Facility agreement, draws must be made in increments of $100, and as a result, approximately $77 of the draw was added to working capital. (b) Represents estimated gross proceeds of $67,900 from the issuance of 4.85 million shares of stock from the Offering used to pay down the Credit Facility and to pay stock issuance costs of $4,335 ($53 of which had been paid in deferred offering costs as of June 30, 1996). (c) In accordance with generally accepted accounting principles, leases in which the present value of the future minimum lease payments equals or exceeds 90 percent of the value of the related properties are treated as direct financing leases rather than as land and buildings. The categorization of the lease has no effect on the rental revenues received. Pro Forma Statements of Earnings: - - -------------------------------- (1) Represents rental income as if the properties acquired during the year ended December 31, 1995 and the six months ended June 30, 1996 (the "New Properties") and the Acquisition Properties had been acquired and fully leased on January 1, 1995. (2) See Note (c) under "Pro Forma Balance Sheet" above. (3) Represents adjustments to interest income due to the increase in the amount of cash available for investment in interest bearing accounts from the receipt of rental income before dividends are paid to shareholders as a result of the Prior Offering Transaction and the Offering Transactions. The adjusted pro forma interest income does not include interest income from the investment of offering proceeds. Interest income on interest bearing accounts is assumed to be earned at a rate of four percent per annum based on the previous experience of the Company. (4) Represents additional expenses due to incremental expenses associated with additional shares of common stock outstanding. (5) Represents adjustment to advisory fees due to the increase in rental revenues and funds from operations (as defined in the Company's advisory agreement with its advisor). (6) Represents adjustment in interest expense and other loan costs primarily as a result of the pro forma increase in indebtedness in connection with the Offering Transactions. Pro forma interest expense for the six months ended June 30, 1996 and the year ended December 31, 1995, was based on the average 30-day LIBOR rates in effect for those periods of 5.443% and 5.969%, respectively, plus 1.70% relating to the Credit Facility, a weighted average interest rate of approximately 7.26% relating to the Principal Mortgage and a weighted average interest rate of 8.6% relating to the Acquired Mortgages. (7) Represents additional expenses assumed to have been incurred as a result of additional state income and franchise taxes based on additional rental revenue. (8) Represents adjustment to depreciation expense for the New Properties and the Acquisition Properties as if the properties had been acquired and fully leased on January 1, 1995. The building portion of the properties accounted for as operating leases are depreciated using the straight- line method over their estimated useful lives which is generally 40 years. (9) Represents adjustment to amortization expense in connection with amortization of loan costs associated with the Principal Mortgage. (10) Funds from operations has been calculated in accordance with the definition of "funds from operations" recently clarified by the National Association of Real Estate Investment Trusts (NAREIT) defined as net income, computed in accordance with generally accepted accounting principles, excluding gains or losses from debt restructurings and sales of property, plus depreciation and after adjustments for unconsolidated partnerships and joint ventures. Funds from operations should not be considered as a substitute for net income as an indication of the Company's performance or as a substitute for cash flow as a measure of its liquidity. EXHIBITS -------- COMMERCIAL NET LEASE REALTY, INC. EXHIBIT NO. DESCRIPTION - - ----------- ----------- 1.2 Purchase Agreement, which is being filed pursuant to Regulation S-K, Item 601(b)(1) in lieu of filing the otherwise required exhibit to the Registration Statement on Form S-3 (the "Registration Statement"), File No. 33-61165, under the Securities Act of 1933, as amended (the "Securities Act"), and which, since this Form 8-K filing is incorporated by reference in such Registration Statement, is set forth in full in such Registration Statement. (Filed herewith.) 5 Opinion of Shaw, Pittman, Potts & Trowbridge, which is being filed pursuant to Regulation S-K, Item 601(b)(5) in lieu of the otherwise required exhibit to the Registration Statement under the Securities Act, and which, since this Form 8-K filing is incorporated by reference in such Registration Statement, is set forth in full in such Registration Statement. (Filed herewith.) 8 Opinion of Shaw, Pittman, Potts & Trowbridge, which is being filed pursuant to Regulation S-K, Item 601(b)(8) in lieu of the otherwise required exhibit to the Registration Statement under the Securities Act, and which, since this Form 8-K filing is incorporated by reference in such Registration Statement, is set forth in full in such Registration Statement. (Filed herewith.) 23 Consents of Shaw, Pittman, Potts & Trowbridge (contained in the opinions filed as Exhibits 5 and 8 hereto), which is being filed pursuant to Regulation S-K, Item 601(b)(23) in lieu of the otherwise required exhibit to the Registration Statement under the Securities Act, and which, since this Form 8-K filing is incorporated by reference in such Registration Statement, is set forth in full in such Registration Statement. (Filed herewith.) 24.2 Consent of KPMG Peat Marwick LLP. (Filed herewith.) SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be filed on its behalf by the undersigned thereunto duly authorized. COMMERCIAL NET LEASE REALTY, INC. Dated: September 11, 1996 By: /s/ Gary M. Ralston -------------------------- GARY M. RALSTON, President EXHIBIT INDEX ------------- COMMERCIAL NET LEASE REALTY, INC. EXHIBIT NO. DESCRIPTION PAGE - - ----------- ----------- ---- 1.2 Purchase Agreement, which is being filed pursuant to Regulation S-K, Item 601(b)(1) in lieu of filing the otherwise required exhibit to the Registration Statement on Form S-3 (the "Registration Statement"), File No. 33-61165, under the Securities Act of 1933, as amended (the "Securities Act"), and which, since this Form 8-K filing is incorporated by reference in such Registration Statement, is set forth in full in such Registration Statement. (Filed herewith.) 5 Opinion of Shaw, Pittman, Potts & Trowbridge, which is being filed pursuant to Regulation S-K, Item 601(b)(5) in lieu of the otherwise required exhibit to the Registration Statement under the Securities Act, and which, since this Form 8-K filing is incorporated by reference in such Registration Statement, is set forth in full in such Registration Statement. (Filed herewith.) 8 Opinion of Shaw, Pittman, Potts & Trowbridge, which is being filed pursuant to Regulation S-K, Item 601(b)(8) in lieu of the otherwise required exhibit to the Registration Statement under the Securities Act, and which, since this Form 8-K filing is incorporated by reference in such Registration Statement, is set forth in full in such Registration Statement. (Filed herewith.) 23 Consents of Shaw, Pittman, Potts & Trowbridge (contained in the opinions filed as Exhibits 5 and 8 hereto), which is being filed pursuant to Regulation S-K, Item 601(b)(23) in lieu of the otherwise required exhibit to the Registration Statement under the Securities Act, and which, since this Form 8-K filing is incorporated by reference in such Registration Statement, is set forth in full in such Registration Statement. (Filed herewith.) 24.2 Consent of KPMG Peat Marwick LLP. (Filed herewith.) EX-1 2 EXHIBIT 5 OPINION OF SHAW, PITTMAN, POTTS & TROWBRIDGE [LETTERHEAD OF SHAW, PITTMAN, POTTS & TROWBRIDGE] September 11, 1996 Commercial Net Lease Realty, Inc. 400 East South Street Suite 500 Orlando, Florida 32801 Ladies and Gentlemen: We have acted as counsel to Commercial Net Lease Realty, Inc., a Maryland corporation (the "Company"), in connection with the Registration Statement on Form S-3, Registration No. 33-61165 (the "Registration Statement"), filed with the Securities and Exchange Commission (the "Commission") under the Securities Act of 1933, as amended, and declared effective by the Commission on October 18, 1995. Pursuant to the Registration Statement, the Company proposes to issue and sell [4,600,000] [4,887,500] [5,175,000] [5,462,500] shares of common stock, par value $0.01 per share (the "Common Stock") (including the underwriters' over-allotment option, if exercised), to the public through certain underwriters pursuant to the terms set forth in the prospectus supplement dated September 11, 1996 (the "Prospectus Supplement") to the prospectus filed as part of the Registration Statement. Based upon our examination of the originals or copies of such documents, corporate records, certificates of officers of the Company and other instruments as we have deemed necessary and upon the laws as presently in effect, we are of the opinion that the Common Stock has been duly authorized for issuance by the Company, and that upon issuance and delivery in accordance with the purchase agreement referred to in the Prospectus Supplement, the Common Stock will be validly issued, fully paid and nonassessable. We hereby consent to the filing of this opinion as an exhibit to the Prospectus Supplement. We also consent to the reference to Shaw, Pittman, Potts & Trowbridge under the caption "Legal Matters" in the Prospectus Supplement. Very truly yours, SHAW, PITTMAN, POTTS & TROWBRIDGE EX-2 3 EXHIBIT 8 OPINION OF SHAW, PITTMAN, POTTS & TROWBRIDGE September 11, 1996 Commercial Net Lease Realty, Inc. 400 E. South Street Suite 500 Orlando, Florida 32801 Smith Barney Inc. Goldman, Sachs & Co. J.C. Bradford & Co. Legg Mason Wood Walker Incorporated Raymond James & Associates, Inc. The Robinson-Humphrey Company, Inc. c/o 388 Greenwich Street New York, New York 10013 Gentlemen: On July 20, 1995, Commercial Net Realty, Inc. ("CNL Realty") filed a registration statement on Form S-3, file number 33-61165 (the "Registration Statement"), with the Securities and Exchange Commission, which was declared effective on October 18, 1995. In connection with the filing of a prospectus supplement on September 11, 1996 (the "Prospectus Supplement") to the prospectus contained in the Registration Statement (the "Prospectus"), you have asked us to render an opinion with respect to the qualification of CNL Realty as a real estate investment trust ("REIT") under sections 856 through 860 of the Internal Revenue Code. (Our references herein to "the Code" are to the Internal Revenue Code of 1986, as amended, with respect to taxable years ending on or after January 1, 1987, and to the Internal Revenue Code of 1954, as amended, with respect to taxable years ending on or before December 31, 1986.) (FN) We have served as special counsel for CNL Realty in connection with the filing of the Prospectus and the Prospectus Supplement and from time to time in the past have represented CNL Realty on specific matters as requested by CNL Realty. Specifically for the purpose of this opinion, we have examined and relied upon the following: copies of CNL Realty's Articles of Incorporation and any amendments thereto; its Federal Forms 1120 for its taxable years 1984 through 1995 (in which tax returns we observe that CNL Realty has elected to be treated as a real estate investment trust); the Registration Statement; the Prospectus; the Prospectus Supplement; copies of executed leases covering real property owned by CNL Realty; and its Form S-11 Registration Statement as filed with the Securities and Exchange Commission on August 15, 1984. We have not served as general counsel to CNL Realty and have not been involved in decisions regarding the day-to-day operation of CNL Realty and its properties. We have, however, discussed the mode of operation of CNL Realty with its officers with a view to learning information relevant to the opinions expressed herein and have received and relied upon a certificate from CNL Realty with respect to certain matters. A copy of the certificate is attached. We have discussed with management of CNL Realty arrangements relating to the management of its properties, the relationships of CNL Realty with tenants of such properties, and certain terms of leases of such properties to tenants, with a view to assuring that at the close of each quarter of the taxable years covered by this opinion it met the asset composition requirements set forth in section 856(c)(5), and with a view to assuring that, with respect to years covered by this opinion (and as projected by CNL Realty management for all of 1996), it satisfied (or will satisfy for 1996) the 95%, 75%, and 30% gross income tests set forth in sections 856(c)(2), (3), and (4), respectively. We have further reviewed with management of CNL Realty the requirements that the beneficial ownership of a REIT be held by 100 or more persons for at least 335/365ths of each taxable year and that a REIT must satisfy the diversity of ownership requirements of section 856(h) as such requirements existed in the years covered by this opinion, and we have been advised by management that at all times during the years covered by this opinion (and specifically on each record date for the payment of dividends during 1984 through the date hereof) CNL Realty has had more than 1,000 shareholders of record, that CNL Realty maintains the records required by section 1.857-8 of the Treasury Regulations, that no later than January 30 of each year it sent the demand required by section 1.857-8(d) of the Treasury Regulations to each shareholder of record owning one percent or more of the outstanding shares of CNL Realty on the appropriate date required by said regulation, and that the actual ownership of CNL Realty shares was such that, to the best knowledge of its management (based upon responses to the aforesaid demands, any filing of a Schedule 13D under the Securities Exchange Act of 1934, as amended, or any other sources of information), CNL Realty satisfied the applicable requirements of section 856(h). Further, we have examined various property leases and lease supplements relating to the properties that CNL Realty owns, and although leases relating to certain properties which CNL Realty owns have not been made available to us, CNL Realty has represented with respect to such leases that they will conform in all material respects to a form of lease agreement provided to us. On the basis of discussions with management of CNL Realty, we are not aware that CNL Realty's election to be a REIT has been terminated or challenged by the Internal Revenue Service or any other party or that CNL Realty has revoked its election to be a REIT for any such prior year so as to make CNL Realty ineligible to qualify as a REIT for the years covered by this opinion. In rendering the opinions set forth herein, we are assuming that copies of documents examined by us are true copies of originals thereof and that the information concerning CNL Realty set forth in CNL Realty's Federal income tax returns, and in the Prospectus Supplement, as well as the information provided us by CNL Realty's management are true and correct. We have no reason to believe that such assumptions are not warranted. Based upon the foregoing, we are of the opinion that: (a) CNL Realty was a "real estate investment trust" as defined by section 856(a) for its taxable years ended December 31, 1984 through December 31, 1995, and its proposed method of operation will enable it to meet the requirements for qualification and taxation as a REIT for its taxable year ending December 31, 1996 and for all future taxable years, and (b) CNL Realty's wholly owned subsidiaries, Net Lease Realty I, Inc. and Net Lease Realty II, Inc., were each "qualified REIT subsidiaries" as defined by section 856(i) for CNL Realty's taxable year ending December 31, 1995, and their proposed ownership will enable them to meet the requirements for treatment as qualified REIT subsidiaries for CNL Realty's taxable year ending December 31, 1996 and for all future taxable years. However, with respect to the 1996 year and all future years, we note that CNL Realty's status as a real estate investment trust at any time is dependent among other things upon its meeting the requirements of section 856 throughout the year and for the year as a whole. This opinion is based upon the existing provisions of the Code (or predecessor provisions, as applicable), rules and regulations (including proposed regulations) promulgated thereunder, and reported administrative and judicial interpretations thereof, all of which are subject to change, possibly with retroactive effect. This opinion is limited to the specific matters covered hereby and should not be interpreted to imply that the undersigned has offered its opinion on any other matter. We hereby confirm that the statements set forth in the Prospectus Supplement under the heading "Federal Income Tax Considerations," to the extent that they constitute matters of law or legal conclusions with respect thereto, are correct in all material respects. We hereby consent to the filing of this opinion as an exhibit to the Prospectus Supplement. We also consent to the reference to Shaw, Pittman, Potts & Trowbridge under the captions "Federal Income Tax Considerations" and "Legal Matters" in the Prospectus Supplement. In giving such consent, we do not consider that we are "experts," within the meaning of the term used in the Act or the rules and regulations of the Securities and Exchange Commission promulgated thereunder, with respect to any part of the Prospectus Supplement, including this opinion as an exhibit or otherwise. Very truly yours, SHAW, PITTMAN, POTTS & TROWBRIDGE By: /s/Charles B. Temkin, P.C. ------------------------------- Charles B. Temkin, P.C. (FN) All section references herein are to the Code or to the regulations issued thereunder. COMMERCIAL NET LEASE REALTY, INC. 400 E. South Street, Suite 500 Orlando, Florida 32801-2878 Certificate ----------- September 11, 1996 Shaw, Pittman, Potts & Trowbridge 2300 N Street, N.W. Washington, D.C. 20037-1128 Gentlemen: In connection with the opinion letter to be issued by you with respect to the qualification of Commercial Net Lease Realty, Inc. (formerly CNL Realty Investors, Inc.) ("CNL Realty") (FN) as a real estate investment trust ("REIT") under sections 856 through 860 of the Internal Revenue Code of 1954 and the Internal Revenue Code of 1986, as applicable (the "Code"), and with respect to the matters discussed under the heading "Federal Income Tax Considerations" in the prospectus to a registration statement on Form S-3 dated October 18, 1995 (the "Prospectus") as supplemented by a prospectus supplement dated September 11, 1996 (the "Prospectus Supplement"), CNL Realty, intending that you shall rely on the contents of this Certificate, represents to you as follows: 1. CNL Realty has been and will be operated in accordance with the terms and provisions of the Articles of Incorporation of Commercial Net Realty, Inc., as amended from time to time. 2. CNL Realty has been and will be operated in a manner consistent with the statements and representations set forth in the Prospectus and the Prospectus Supplement. 3. The beneficial ownership of CNL Realty has been held by 100 or more persons for at least 335/365ths of (a) each of CNL Realty's taxable years from 1984 through 1995 and (b) the current taxable year to date. 4. On each record date for the payment of dividends from 1984 through September 11, 1996, CNL Realty has had more than 1,000 shareholders of record. 5. CNL Realty has adopted December 31 as its taxable year-end for U.S. federal income tax purposes. 6. CNL Realty has maintained the records required by section 1.857- 8(d) of the Treasury Regulations, and no later than January 30 of each year from 1985 through 1995, it sent the demand required by section 1.857-8(d) of the Treasury Regulations to each shareholder of record owning one percent or more of the outstanding shares of CNL Realty, and CNL Realty intends to send such demands by January 30 of its current taxable year. 7. To the best knowledge of CNL Realty's management (based upon any responses to demands made pursuant to section 1.857-8(d) of the Treasury Regulations, any filing of a Schedule 13D under the Securities Exchange Act of 1934, as amended, or any other sources of information), the actual ownership of CNL Realty shares has satisfied the applicable requirements of section 856(h) of the Code during the last half of each of CNL Realty's taxable years from 1984 through 1995 and throughout the current taxable year. 8. CNL Realty filed an election to be a real estate investment trust with its tax return for its taxable year ending December 31, 1984, and since that time, such election has not been terminated, challenged or revoked. 9. All leases, subleases and amendments thereto and other agreements which were executed as of September 11, 1996, with respect to all of the real property owned by CNL Realty and all of the real property which CNL Realty intends to purchase in the near future have been provided to you for your examination (with certain exceptions noted in paragraphs 10 and 11), and such leases, subleases and amendments thereto and other agreements represent all covenants, promises, agreements, warranties, representations and conditions between CNL Realty and its tenants and subtenants. 10. The terms of the lease executed for the property in Brandon, Florida that CNL Realty leases for operation as a Barnes and Noble store is the same in all material respects as those included in the Lease Agreement between Barnes and Noble Superstore, Inc. and Commercial Net Lease Realty, Inc., dated July 28, 1994 (covering a property in Lakeland, Florida, leased for operation as a Barnes and Noble store). 11. The terms of the leases executed for the twenty-four properties that CNL Realty leases for operation as Hi-Lo Automotive stores are the same in all material respects as those included in the Lease Agreement between Hi- Lo Auto Supply, L.P. and Commercial Net Lease Realty, Inc., dated September 27, 1995 (covering a property in San Antonio, Texas, leased for operation as a Hi-Lo Automotive store). 12. The terms of the leases to be executed for any other properties that CNL Realty purchases in the future are or will be structured so that amounts derived from such leases are rents from real property within the meaning of section 856(d) of the Code. 13. For each taxable year from 1984 through 1995, at least 75 percent of the gross income derived by CNL Realty consisted of (i) amounts derived from the rental of the real property held by CNL Realty (collectively the "Properties") which qualified as rents from real property within the meaning of section 856(d) of the Code; (ii) interest on obligations secured by mortgages on real property or on interests in real property; (iii) any gain realized upon the sale or other disposition of real property which is not described in section 1221(1) of the Code; and (iv) amounts described in sections 856(c)(3)(D) through 856(c)(3)(I) of the Code; and CNL Realty will conduct its business so that at least 75 percent of its gross income will be derived from such sources in its current and future taxable years. 14. For each taxable year from 1984 through 1995, at least 95 percent of the gross income derived by CNL Realty consisted of (i) the items of income described in paragraph 13 above; (ii) gain from the sale or other disposition of stock or securities which are not property described in section 1221(1) of the Code; and (iii) interest and dividends; and CNL Realty will conduct its business so that at least 95 percent of its gross income will be derived from such sources in its current and future taxable years. 15. For each taxable year from 1984 through 1995, less than 30 percent of the gross income of CNL Realty was derived from the sale or other disposition of (i) stock or securities held for less than one year, (ii) property in a transaction which is a prohibited transaction, as defined in section 857(b)(6) of the Code, and (iii) real property (including interests in real property and interests in mortgages on real property) held for less than four years, other than property compulsorily or involuntarily converted within the meaning of section 1033 of the Code and property which is "foreclosure property" within the meaning of section 856(e) of the Code; and CNL Realty will conduct its business so that less than 30 percent of its gross income will be derived from the sale or disposition of such assets in its current and future taxable years. 16. For each taxable year from 1984 through 1995, neither CNL Realty, nor any person which was not an "independent contractor" within the meaning of section 856(d)(3) of the Code from which CNL Realty did not derive or receive any income, furnished or rendered services other than those customarily furnished or rendered in connection with the rental of real property only within the meaning of section 856(d)(1)(B) of the Code; and neither CNL Realty, nor any person which is not an "independent contractor" within the meaning of section 856(d)(3) of the Code from which CNL Realty does not derive or receive any income, will furnish or render such services in CNL Realty's current and future taxable years. 17. For each taxable year from 1984 through 1995, neither CNL Realty, nor any person which was not an "independent contractor" within the meaning of section 856(d)(3) of the Code from which CNL Realty did not derive or receive any income, rendered any services that were primarily for the convenience of any of the occupants of the Properties, within the meaning of section 1.512(b)-1(c)(5) of the Treasury Regulations; and neither CNL Realty, nor any person which is not an "independent contractor" within the meaning of section 856(d)(3) of the Code from which CNL Realty does not derive or receive any income, will render such services in CNL Realty's current and future taxable years. 18. For each taxable year from 1984 through 1995, CNL Realty did not receive or accrue rent attributable to personal property in situations where the average adjusted bases of the personal property leased in connection with each lease of real property by CNL Realty exceeded 15 percent of the average adjusted bases of the real property and the personal property together, within the meaning of section 856(d)(1) of the Code, and CNL Realty will not receive or accrue such rent in its current and future taxable years. 19. For each taxable year from 1984 through 1995, CNL Realty did not receive or accrue, directly or indirectly, rent or interest with respect to real or personal property, where the determination of the amount of rent or interest depended in whole or in part on the income or profits derived by any person from the property; and CNL Realty will not receive or accrue such rent in its current and future taxable years. This paragraph does not apply to (i) interest or rents based on a fixed percentage or percentages of receipts or sales within the meaning of sections 856(d)(2)(A) or 856(f)(1)(A) of the Code or (ii) interest received from a debtor which derives substantially all of its gross income, with respect to the real property securing the debt obligation from which the interest is derived, from the leasing of substantially all of its interests in such property to tenants, where the amounts received from the debtor as interest are attributable to qualified rents (within the meaning of section 856(d)(6)(B) of the Code) received by the debtor from such tenants, within the meaning of section 856(f)(2) of the Code. 20. For each taxable year from 1984 through 1995, CNL Realty did not receive or accrue, directly or indirectly, rents from any person in which it owned (a) in the case of a corporation, 10 percent or more of the total combined voting power of all classes of stock entitled to vote, or 10 percent or more of the total number of shares of all classes of stock, or (b) in the case of an entity other than a corporation, an interest of 10 percent or more in the assets or net profits of such entity; and CNL Realty will not receive or accrue rent from such persons in its current and future taxable years. For purposes of this paragraph, ownership is determined by taking into account the attribution rules of section 318 (as modified by section 856(d)(5)) of the Code. 21. At the close of each quarter of each taxable year from September 30, 1984, through December 31, 1995, at least 75 percent of the value of CNL Realty's total assets were represented by real estate assets (as defined by section 856(c)(6)(B) of the Code), cash and cash items (including receivables) and government securities; and CNL Realty will conduct its business so that at least 75 percent of the value of its total assets are represented by real estate assets (as defined by section 856(c)(6)(B) of the Code), cash and cash items (including receivables), and government securities, in its current and all future taxable years. 22. At the close of each quarter of each taxable year from September 30, 1984, through December 31, 1995, not more than 25 percent of the value of CNL Realty's total assets were represented by securities (other than government securities or securities treated as real estate assets pursuant to section 856(c)(6)(B) of the Code), and no such securities of any one issuer exceeded 5 percent of the value of the total assets of CNL Realty; and CNL Realty will conduct its business so that not more than 25 percent of the value of its total assets are represented by securities (other than government securities or securities treated as real estate assets pursuant to section 856(c)(6)(B) of the Code), and no such securities of any one issuer will exceed five percent of the value of the total assets of CNL Realty, in its current and all future taxable years . 23. At the close of each quarter of each taxable year from September 30, 1984, through December 31, 1995, CNL Realty did not hold securities (other than government securities or securities treated as real estate assets pursuant to section 856(c)(6)(B) of the Code) that constituted more than 10 percent of the outstanding voting securities of any one issuer, and CNL Realty will conduct its business so that it does not hold such securities, in its current and all future taxable years. 24. CNL Realty has made distributions to stockholders in each taxable year from 1984 through 1995 of at least 95 percent of its "real estate investment trust taxable income" (determined consistent with section 857(a)(1)(A)(i) of the Code) plus at least 95 percent of the excess of any "net income from foreclosure property" over the tax imposed by the Code on such net income, if any, as such terms are defined in sections 857(b)(2) and 857(b)(4)(B), respectively, of the Code, during the taxable year involved or during the period thereafter as described in section 858 of the Code; and CNL Realty intends to make such distributions in its current and all future taxable years. 25. CNL Realty has at all times beneficially held all of its assets for investment purposes and not as (i) stock in trade or other property of a kind which would properly be includible in inventory if on hand at the close of the taxable year or (ii) property held primarily for sale to customers in the ordinary course of the trade or business of CNL Realty; and CNL Realty intends to continue to hold its assets in the same manner in its current and all future taxable years. 26. CNL Realty has not made any distributions to its shareholders with respect to any class or series of capital stock that was not pro rata with respect to such class or series, with no preference to any share of stock as compared with other shares of the same class or series, and has not made any distributions that give a preference to one class or series of stock as compared with another class or series except to the extent that the former is entitled (without reference to waivers of their rights by shareholders) to such preference, and CNL Realty intends not to make any such distributions in its current and all future taxable years. 27. Representations herein as to the Properties will also be true with respect to the properties acquired by CNL Realty after the date hereof. 28. CNL Realty has owned 100 percent of the stock of Net Lease Realty I, Inc. and Net Lease Realty II, Inc. at all times during the period such corporations have been in existence and will continue to do so in the future. 29. CNL Realty will use its best efforts to conduct its business so that it will continue to be organized and operated in a manner that will allow it to qualify as a REIT pursuant to sections 856 through 860 of the Code. COMMERCIAL NET LEASE REALTY, INC. By:/s/Kevin B. Habicht ------------------------------------- Kevin B. Habicht, Executive Vice President (FN) Unless otherwise noted, all references to CNL Realty herein refer to CNL Realty and its wholly owned subsidiaries Net Lease Realty I, Inc. and Net Lease Realty II, Inc. EX-3 4 EXHIBIT 24.2 CONSENT OF KPMG PEAT MARWICK LLP [Letterhead of KPMG Peat Marwick LLP] To the Board of Directors Commercial Net Lease Realty, Inc. We consent to the use of our reports incorporated herein by reference and to the reference to our firm under the heading "Experts" in the prospectus. /s/KPMG Peat Marwick Orlando, Florida September 12, 1996 -----END PRIVACY-ENHANCED MESSAGE-----