-----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, ASdrUyLNMc7elA73YxyIareNkZas60FnJBMp//6SOavzGT2CwRXLdYbGA2qff234 sSz0rKE2aWnRU0CC5G7fmg== 0000751364-97-000008.txt : 19970815 0000751364-97-000008.hdr.sgml : 19970815 ACCESSION NUMBER: 0000751364-97-000008 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970630 FILED AS OF DATE: 19970814 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: 97663980 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 10-Q 1 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, 1997 ------------------------------------ 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. 23,394,456 shares of Common Stock, $.01 par value, outstanding as of August 14, 1997. 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 Notes to Condensed Consolidated Financial Statements 5-9 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 10-13 Part II Other Information 14-16 COMMERCIAL NET LEASE REALTY, INC. and SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (dollars in thousands, except per share data)
June 30, December 31, ASSETS 1997 1996 --------- ---------- Real estate leased to others: Accounted for using the operating method, net of accumulated depreciation $349,473 $269,031 Accounted for using the direct financing method 112,437 92,413 Cash and cash equivalents 807 1,410 Receivables 471 812 Due from related party 90 - Prepaid expenses 397 335 Loan costs, net of accumulated amortization of $1,521 and $1,055 1,788 2,185 Accrued rental income 5,678 4,421 Other assets 2,352 346 -------- -------- $473,493 $370,953 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Notes payable $181,610 $116,956 Accrued interest payable 446 390 Accounts payable and accrued expenses 303 161 Real estate taxes payable 39 - Due to related parties 104 93 Rents paid in advance 29 779 -------- -------- Total liabilities 182,531 118,379 -------- -------- Commitments and contingencies (Notes 6 and 7) Stockholders' equity: Common stock, $.01 par value. Authorized 50,000,000 shares; issued and outstanding 23,394,456 and 20,763,672 shares, respectively 234 208 Excess stock, $0.01 par value. Authorized 50,000,000 shares; none issued and outstanding - - Capital in excess of par value 291,955 254,299 Accumulated dividends in excess of net earnings (1,227) (1,933) -------- -------- Total stockholders' equity 290,962 252,574 -------- -------- $473,493 $370,953 ======== ========
See accompanying notes to condensed consolidated financial statements. 1 COMMERCIAL NET LEASE REALTY, INC. and SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS (dollars in thousands, except per share data)
Quarter Ended Six Months Ended June 30, June 30, 1997 1996 1997 1996 ----------- ----------- ----------- ----------- Revenues: Rental income from operating leases $ 8,986 $ 5,603 $ 17,125 $ 10,649 Earned income from direct financing leases 2,836 1,797 5,512 3,478 Contingent rental income 204 199 369 357 Interest and other 41 32 77 71 ----------- ----------- ----------- ----------- 12,067 7,631 23,083 14,555 ----------- ----------- ----------- ----------- Expenses: General operating and administrative 209 289 664 672 Advisory fees to related party 512 343 984 651 Interest 2,731 1,602 5,094 3,062 State taxes 82 57 166 92 Depreciation and amortization 1,325 806 2,493 1,554 ----------- ----------- ----------- ----------- 4,859 3,097 9,401 6,031 ----------- ----------- ----------- ----------- Net earnings before gain on sale of land and building 7,208 4,534 13,682 8,524 ----------- ----------- ----------- ----------- Gain on sale of land and building - - 271 - ----------- ----------- ----------- ----------- Net earnings $ 7,208 $ 4,534 $ 13,953 $ 8,524 =========== =========== =========== =========== Earnings per share of common stock $ 0.31 $ 0.29 $ 0.62 $ 0.57 =========== =========== =========== =========== Weighted average number of shares outstanding 23,394,077 15,688,672 22,630,837 15,000,210 =========== =========== =========== ===========
See accompanying notes to condensed consolidated financial statements. 2 COMMERCIAL NET LEASE REALTY, INC. and SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY Six Months Ended June 30, 1997 and Year Ended December 31, 1996 (dollars in thousands, except per share data)
Accumulated dividends Capital in in excess Number Common excess of of net of shares stock par value earnings Total ----------- -------- ---------- ---------- ---------- Balance at December 31, 1995 11,663,672 $ 117 $138,629 $ (2,904) $135,842 Net earnings - - - 19,839 19,839 Dividends declared and paid ($1.18 per share of common stock) - - - (18,868) (18,868) Issuance of common stock 9,100,000 91 123,284 - 123,375 Stock issuance costs - - (7,614) - (7,614) ----------- -------- ---------- --------- ---------- Balance at December 31, 1996 20,763,672 208 254,299 (1,933) 252,574 Net earnings - - - 13,953 13,953 Dividends declared and paid ($0.60 per share of common stock) - - - (13,247) (13,247) Issuance of common stock 2,630,784 26 39,764 - 39,790 Stock issuance costs - - (2,108) - (2,108) ----------- -------- ---------- --------- ---------- Balance at June 30, 1997 23,394,456 $ 234 $291,955 $ (1,227) $290,962 =========== ======== ========== ========= ==========
See accompanying notes to condensed consolidated financial statements. 3 COMMERCIAL NET LEASE REALTY, INC. and SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (dollars in thousands)
Six Months Ended June 30, 1997 1996 ------------ ------------ Cash flows from operating activities: Net earnings $ 13,953 $ 8,524 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation 2,045 1,240 Amortization 448 314 Gain on sale of land and building (271) - Decrease in real estate leased to others using the direct financing method 540 314 Increase in accrued rental income (1,257) (976) Decrease in receivables 202 61 Increase in prepaid expenses (62) (5) Decrease in other assets 11 21 Increase in accrued interest payable 56 199 Increase (decrease) in accounts payable and accrued expenses 12 (61) Increase in real estate taxes payable 39 20 Increase (decrease) in due to related party (39) 45 Decrease in rents paid in advance (750) (22) ------------ ------------ Net cash provided by operating activities 14,927 9,674 ------------ ------------ Cash flows from investing activities: Additions to real estate leased to others using the operating method (82,467) (64,697) Additions to real estate leased to others using the direct financing method (20,564) (26,623) Proceeds from sale of land and building 551 - Increase in other assets (1,768) (92) Other (369) 116 ------------ ------------ Net cash used in investing activities (104,617) (91,296) ------------ ------------ Cash flows from financing activities: Proceeds from loans 104,400 118,450 Repayment of loans (39,746) (76,740) Payment of loan costs (68) (748) Proceeds from issuance of common stock 39,869 52,325 Payment of stock issuance costs (2,164) (3,253) Payment of dividends (13,247) (7,932) Other 43 (4) ------------ ------------ Net cash provided by financing activities 89,087 82,098 ------------ ------------ Net increase (decrease) in cash and cash equivalents (603) 476 Cash and cash equivalents at beginning of period 1,410 301 ------------ ------------ Cash and cash equivalents at end of period $ 807 $ 777 ============ ============
See accompanying notes to condensed consolidated financial statements. 4 COMMERCIAL NET LEASE REALTY, INC. and SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS Six Months Ended June 30, 1997 and 1996 1. Basis of Presentation: The accompanying unaudited condensed consolidated 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, 1997, may not be indicative of the results that may be expected for the year ending December 31, 1997. Amounts as of December 31, 1996, 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, 1996. 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. In February 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standard No. 128, Earnings Per Share. The Statement, which is effective for fiscal years ending after December 15, 1997, provides for a revised computation of earnings per share. The Company will adopt this Standard in 1997 and does not expect compliance with such Standard to have a material effect, if any, on the Company's earnings per share. 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, 1997, 138 of the leases have been classified as operating leases and 84 leases have been classified as direct 5 COMMERCIAL NET LEASE REALTY, INC. and SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED Six Months Ended June 30, 1997 and 1996 2. Leases - Continued: 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 54 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. Real Estate Leased to Others: Accounted for Using the Operating Method - Land and buildings on operating leases consisted of the following at (dollars in thousands):
June 30, December 31, 1997 1996 --------- ---------- Land $173,915 $138,520 Buildings and improvements 185,576 138,589 --------- ---------- 359,491 277,109 Accumulated depreci- ation (10,018) (8,078) --------- ---------- $349,473 $269,031 ========= ==========
Some leases provide for scheduled rent increases throughout the lease term. Such amounts are recognized on a straight-line basis over the terms of the leases. For the six months ended June 30, 1997 and 1996, the Company recognized $1,285,000 and $976,000 respectively, of such income, $581 and $502 of which was recognized for the quarters ended June 30, 1997 and 1996, respectively. 6 COMMERCIAL NET LEASE REALTY, INC. and SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED Six Months Ended June 30, 1997 and 1996 3. Real Estate Leased to Others - Continued: The following is a schedule of future minimum lease payments to be received on noncancellable operating leases at June 30, 1997 (dollars in thousands): 1997 $ 18,042 1998 36,102 1999 36,316 2000 36,741 2001 37,427 Thereafter 428,746 -------- $593,374 ======== Since lease renewal periods are exercisable at the option of the tenant, the above table only presents future minimum lease payments due during the initial lease terms. In addition, this table does not include any amounts for future contingent rentals which may be received on the leases based on a percentage of the tenant's gross sales. Accounted for Using the Direct Financing Method - The following lists the components of real estate leased to others using the direct financing method at (dollars in thousands):
June 30, December 31, 1997 1996 --------- ----------- Minimum lease payments to be received $250,007 $207,838 Estimated residual values 34,253 28,309 Less unearned income (171,823) (143,734) -------- ---------- Real estate leased to others using the direct financing method $112,437 $ 92,413 ======== ==========
7 COMMERCIAL NET LEASE REALTY, INC. and SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED Six Months Ended June 30, 1997 and 1996 3. Real Estate Leased to Others - Continued: The following is a schedule of future minimum lease payments to be received on direct financing leases at June 30, 1997 (dollars in thousands): 1997 $ 6,825 1998 13,654 1999 13,703 2000 13,822 2001 13,859 Thereafter 188,144 -------- $250,007 ======== The above table does not include future minimum lease payments for renewal periods or contingent rental payments that may become due in future periods (see Real Estate Leased to Others - Accounted for Using the Operating Method). 4. Notes Payable: In September 1996, the Company entered into an amended and restated loan agreement for a $150,000,000 revolving credit facility (the "Credit Facility") which expires on June 30, 1998 and provides for an interest rate equal to 160 basis points above LIBOR or the lender's prime rate, whichever the Company selects. As of June 30, 1997 and December 31, 1996, the outstanding principal balance was $124,100,000 and $58,700,000, respectively, plus accrued interest of $251,000 and $192,000, respectively. 5. Related Party Transactions: During the six months ended June 30, 1997, the Company acquired 20 properties and three buildings which were developed by the tenant on land parcels owned by the Company from unrelated, third parties for purchase prices totalling $86,907,000. In connection with the acquisition of these 20 properties and three buildings, the Company paid CNL Realty Advisors, Inc. $1,738,000 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, 1997, the Company acquired eight properties for purchase prices totalling $14,808,000 from affiliates of CNL Realty Advisors, Inc. who had developed the properties. The purchase prices paid by the Company for these eight properties equalled the affiliates' cost including development costs. The affiliates' cost 8 COMMERCIAL NET LEASE REALTY, INC. and SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED Six Months Ended June 30, 1997 and 1996 5. Related Party Transactions - Continued: consisted of the land purchase price, construction costs, various soft costs including legal costs, survey fees and architect fees and developer fees aggregating $817,500 paid to affiliates of CNL Realty Advisors, Inc. In January 1997, the Company sold its property in Foley, Alabama, for $570,000 and received net proceeds of $551,000, resulting in a gain of $271,000 for financial reporting purposes. In connection with the sale of this property, the Company paid CNL Realty Advisors, Inc. $11,400 in disposition fees. 6. Commitments and Contingencies: As of June 30, 1997, the Company had entered into agreements to purchase 15 additional properties for an estimated aggregate amount of $49,242,000. In connection with the acquisition of 12 of these properties, the Company was contingently liable for $3,233,000 related to bank letters of credit which guarantee the Company's obligation under the purchase agreements to acquire these properties. In addition, the Company was contingently liable for $1,805,000 relating to its obligations under a purchase agreement to acquire one property. As of June 30, 1997, the Company owned two land parcels which are leased to tenants who are obligated to develop a building on the respective land parcels. The Company has agreed to acquire the completed buildings for an aggregate amount of up to $3,147,000, upon which time rental income will increase for each of the properties. 7. Subsequent Events: In July 1997, the Company declared dividends to its shareholders of $7,018,000 or $.30 per share of common stock, payable in August 1997. In August 1997, the Company entered into an amended and restated loan agreement for a $200,000,000 revolving credit facility (the "Credit Facility"). The Credit Facility amended the Company's $150,000,000 Credit Facility by increasing the borrowing capacity from $150,000,000 to $200,000,000 and lowering the interest rate from 160 basis points above LIBOR to 150 basis points above LIBOR. 9 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, 1997, the Company owned 222 properties (the "Properties") each of which is 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 public or private offerings 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, 1997 and 1996, the Company generated $14,927,000 and $9,674,000, respectively, in net cash provided by operating activities. The increase in cash from operations for the six months ended June 30, 1997, as compared to the six months ended June 30, 1996, 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 August 1997, the company entered into an amended and restated loan agreement for a $200,000,000 revolving credit facility (the "Credit Facility"). The Credit Facility amended the Company's $150,000,000 credit facility by increasing the borrowing capacity from $150,000,000 to $200,000,000 and lowering the interest rate from 160 basis points above LIBOR to 150 10 Liquidity and Capital Resources - Continued basis points above LIBOR. As of June 30, 1997, $124,100,000 was outstanding under the Credit Facility. The Credit Facility will be used primarily to invest in free standing retail properties, although $25,000,000 of the available credit may be used for the issuance of standby letters of credit or working capital. Debt and Equity Securities. In February 1997, the Company filed a prospectus supplement to its $200,000,000 shelf registration and issued 2,300,000 shares of common stock and received gross proceeds of $34,787,000. In addition, in March 1997, the Company issued an additional 330,000 shares of common stock in connection with the underwriters' overallotment option and received gross proceeds of $4,991,000. In connection with the offering, the Company incurred stock issuance costs totalling $2,108,000, 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 credit facility. In April 1997, the Company filed a shelf registration statement with the Securities and Exchange Commission which permits the issuance by the Company of up to $300,000,000 in debt and equity securities (which includes approximately $37,000,000 of unissued debt and equity securities under the Company's existing $200,000,000 shelf registration statement). Property Acquisitions and Commitments. During the six months ended June 30, 1997, the Company borrowed $104,400,000 under its credit facility to acquire 28 Properties (seven Eckerd drugstores, two OfficeMax office supply stores, two Barnes & Noble bookstores, one Pier 1 Imports home furnishings store, one Blockbuster video store, one Just For Feet shoe store, two Good Guys consumer electronics stores, three Best Buy consumer electronics stores, one Kroger grocery store and eight independently operated grocery stores leased to or partially guaranteed by SuperValu, Inc., and three buildings (one Academy sporting goods store, one Kash N' Karry grocery store and one Pier 1 Imports home furnishings store) which were developed by the tenant on land parcels owned by the Company. As of June 30, 1997, the Company owned two land parcels which are leased to tenants who are obligated to develop a building on the respective land parcels. The Company has agreed to acquire the completed buildings for an aggregate amount of up to $3,147,000, at which time rental income will increase for each of the Properties. As of June 30, 1997, the Company had entered into agreements to purchase 15 additional properties for an estimated aggregate amount of $49,242,000. 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. 11 Liquidity and Capital Resources - Continued In addition to the 15 properties under contract and the two buildings under construction as of June 30, 1997, the Company is currently negotiating the acquisition of a number 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 $200,000,000 Credit Facility and long-term, fixed rate financing, the Company may enter into additional financing arrangements. In January 1997, the Company sold its property in Foley, Alabama, for $570,000 and received net sales proceeds of $551,000, resulting in a gain of $271,000 for financial reporting purposes. The Company reinvested the proceeds to acquire an additional property and structured the transaction to qualify as a like-kind exchange transaction for federal income tax purposes. 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, 1997 and 1996, the Company declared and paid dividends to its stockholders of $13,247,000 and $7,932,000, respectively, or $.60 and $58., respectively, per share of common stock. In July 1997, the Company declared dividends to its shareholders of $7,018,000 or $.30 per share of common stock, payable in August 1997. Results of Operations During the six months ended June 30, 1997 and 1996, the Company owned and leased 223 (including one property which was sold during 1997) and 182 Properties, respectively, to operators of major retail businesses. In connection therewith, during the six months ended June 30, 1997 and 1996, the Company earned $22,637,000 and $14,127,000, respectively, in rental income from operating leases and earned income from direct financing leases, $11,822,000 and $7,400,000 of which was earned during the quarters ended June 30, 1997 and 1996, respectively. The increase in rental and earned income during the six months ended June 30, 1997, is primarily a result of the facts that (i) the 40 Properties acquired and nine buildings upon which construction was completed during 1996 were operational for a full quarter in 1997 and (ii) the 12 Results of Operations - Continued Company acquired 28 Properties and three buildings upon which construction was completed during the six months ended June 30, 1997. Rental and earned income are expected to increase as the Company acquires additional properties and due to the fact that the 28 Properties and three buildings acquired during the six months ended June 30, 1997 will contribute to the Company's income for a full fiscal quarter in future quarters. The Company incurred $5,094,000 and $3,062,000 in interest expense for the six months ended June 30, 1997 and 1996, respectively, $2,731,000 and $1,602,000 of which was incurred for the quarters ended June 30, 1997 and 1996. Interest expense increased during the quarter and six months ended June 30, 1997, primarily as a result of higher average borrowing levels on the Company's Credit Facility. However, the increase was partially offset by a decrease in the average interest rates of the Company's Credit Facility. During the six months ended June 30, 1997 and 1996, operating expenses, including depreciation and amortization, were $4,307,000 and $2,969,000, respectively (18.7% and 20.4%, respectively, of gross operating revenues) of which $2,128,000 and $1,495,000 (17.6% and 19.6%, respectively, of gross operating revenues) were incurred for the quarters ended June 30, 1997 and 1996, respectively. The increase in the dollar amount of operating expenses for the six months ended June 30, 1997, as compared to the quarter and six months ended June 30, 1996, is primarily attributable to the increase in depreciation expense as a result of the additional Properties acquired during the six months ended June 30, 1997, and a full quarter of depreciation expense relating to the 40 Properties and nine buildings acquired during 1996. 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 fixed rate financing and amendment to the Company's Credit Facility. In addition, advisory fees increased as a result of increased funds from operations for the six months ended June 30, 1997. In February 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standard No. 128, Earnings Per Share. The Statementwhich is effective for fiscal years ending after December 15, 1997, provides for a revised computation of earnings per share. The Company will adopt this Standard in 1997 and does not expect compliance with such Standard to have a material effect, if any, on the Company's earnings per share. 13 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, 1996. 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). 3.3 Articles of Amendment to the Articles of Incorporation of Registrant (filed as Exhibit 3.3 to the Registrant's Form 10-Q for the quarter ended June 30, 1996, 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). 14 10.1 Letter Agreement dated July 10, 1992, amending Stock Purchase Agreement dated January 23, 1992 (filed as Exhibit 10.34 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 1992, and incorporated herein by reference). 10.2 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). 10.3 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). 10.4 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). 10.5 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). 10.6 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). 10.7 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). 15 PAGE 10.8 Secured Promissory Note, dated January 19, 1996, among Registrant and Principal Mutual Life Insurance Company relating to a $39,450,000 loan (filed as Exhibit 10.13 to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1995, and incorporated herein by reference). 10.9 Third Amended and Restated Line of Credit and Security Agreement, dated September 3, 1996, by and among Registrant, certain lenders and First Union National Bank of Florida, as the Agent, relating to a $150,000,000 loan (filed as Exhibit 10.11 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 1996, and incorporated herein by reference). 10.10 Second Renewal and Modification Promissory Note, date September 3, 1996, by and among Registrant and First Union National Bank of Florida, as the Agent, relating to a $150,000,000 loan (filed as Exhibit 10.12 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 1996, and incorporated here in by reference). 10.11 Agreement and Plan of Merger dated May 15, 1997, by and among Commercial Net Lease Realty, Inc. and Net Lease Realty II, Inc. and CNL Realty Advisors, Inc. and the Stockholders of CNL Realty Advisors, Inc. (filed as Exhibit 10.1 to the Registrant s Current Report on Form 8-K dated May 16, 1997, and incorporated herein by reference). (b) The Registrant filed one report on Form 8-K on April 21, 1997, for the purpose of incorporating certain items by reference into its $300,000,000 shelf registration statement and one report on Form 8-K on May 16, 1997, reporting that the Special Committee of the Board of Directors of the Registrant recommended that the Board of Directors of the Registrant approve the Agreement and Plan of Merger by and among the Registrant, Net Lease Realty II, Inc., CNL Realty Advisors, Inc. and the stockholders of CNL Realty Advisors, Inc. 16 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 14th day of August, 1997. 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-27 2
5 This schedule contains summary financial information extracted from the balance sheet of Commercial Net Lease Realty, Inc. at June 30, 1997, 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, 1997. 6-MOS DEC-31-1997 JAN-01-1997 JUN-30-1997 807,000 0 561,000 0 0 0 359,491,000 10,018,000 473,493,000 0 0 0 0 234,000 290,728,000 473,493,000 0 23,083,000 0 4,307,000 0 0 5,094,000 13,953,000 0 13,953,000 0 0 0 13,953,000 .62 .62 Due to the nature of its industry, commercial Net Lease Reatly, Inc. has an unclassified balance sheet, therefore, no values are shown above for current assets and current liabilities.
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