EX-99.1 2 dex991.htm PRESS RELEASE Press Release

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NEWS RELEASE

 

For information contact:

Kevin B. Habicht

Chief Financial Officer

(407) 265-7348

For Immediate Release

November 1, 2005

 

RECORD THIRD QUARTER OPERATING RESULTS ANNOUNCED BY

COMMERCIAL NET LEASE REALTY, INC.

 

Orlando, Florida, November 1, 2005—Commercial Net Lease Realty, Inc. (NYSE: NNN), a real estate investment trust, today announced operating results for the quarter and nine months ended September 30, 2005. Highlights include:

 

Operating Results:

 

  •   Net earnings available to common shareholders, revenues, funds from operations (“FFO”) available to common shareholders:

 

    

Quarter Ended

September 30,

    

Nine Months Ended

September 30,

  
     2005
    2004
     2005
     2004
  
     (in thousands, except per share data)  

Net earnings available to common shareholders

    $ 15,110    $ 15,585 (2)   $ 68,222 (1)   $ 41,746 (3)

Net earnings per common share (diluted)

    $ 0.28    $ 0.30 (2)   $ 1.26 (1)   $ 0.81 (3)

Revenues

    $ 34,994    $ 32,732     $ 104,267     $ 94,873  

FFO available to common shareholders

    $ 21,375    $ 19,520 (2)   $ 61,825     $ 52,723 (3)

FFO per common share (diluted)

    $ 0.40    $ 0.38 (2)   $ 1.14     $ 1.02 (3)

 

(1) Includes an extraordinary gain on acquisition of Orange Avenue Mortgage Investments, Inc., net of income taxes of $11,805 or $0.22 per share for the nine months ended September 30, 2005.
(2) Includes transition costs of $52 or less than $0.01 per share for the quarter ended September 30, 2004.
(3) Includes transition costs of $3,252 or $0.06 per share for the nine months ended September 30, 2004.

 

  •   Investment Portfolio occupancy increased to 99.2% at September 30, 2005, compared to 96.5% at September 30, 2004

 

Investments and Dispositions for the quarter ended September 30, 2005:

 

  •   Investments:
  o $49.6 million in the Investment Portfolio, including acquiring 40 properties with an aggregate 175,000 square feet of gross leasable area
  o $19.3 million in the Development Inventory Portfolio, including acquiring 7 properties
  o $12.7 million in the Exchange Inventory Portfolio, including acquiring 17 properties
  •   Dispositions:
  o Three Investment properties with an aggregate 44,000 square feet of gross leasable area, with net proceeds of $3.7 million, resulting in a loss of $89,000
  o Three Development Inventory properties with net proceeds of $29.7 million, resulting in a gain of $6.0 million, net of intercompany eliminations and minority interest
  o Two Exchange Inventory properties with net proceeds of $1.1 million, resulting in a gain of $214,000

Investments and Dispositions for the nine months ended September 30, 2005:

  •   Investments:
  o $175.7 million in the Investment Portfolio, including acquiring 110 properties with an aggregate 879,000 square feet of gross leasable area (which includes 43 properties with an aggregate 399,000 square feet of gross leasable area acquired in the National Properties Corporation acquisition)
  o $49.5 million in the Development Inventory Portfolio, including acquiring 13 properties
  o $14.6 million in the Exchange Inventory Portfolio, including acquiring 23 properties
  o $9.4 million to acquire 78.9 percent of Orange Avenue Mortgage Investments, Inc.
  •   Dispositions:
  o Nine Investment properties with an aggregate 449,000 square feet of gross leasable area, with net proceeds of $37.0 million, resulting in a gain of $9.7 million
  o Eight Development Inventory properties with net proceeds of $44.4 million, resulting in a gain of $9.7 million, net of intercompany eliminations and minority interest
  o Ten Exchange Inventory properties with net proceeds of $12.9 million, resulting in a gain of $1.9 million

 

Craig Macnab, Chief Executive Officer and President, said, “We are delighted to announce a record quarter with all of our business units executing according to plan. In the third quarter we successfully sold a development project at a handsome gain and our acquisition group continues to find attractive opportunities for us. We also have a significant pipeline of acquisitions under letter of intent which excites us about the outlook for 2006.”

 

Commercial Net Lease Realty invests primarily in high-quality, retail properties subject generally to long-term, net leases with established tenants, such as Barnes & Noble, Best Buy, CVS, OfficeMax and the United States of America. As of September 30, 2005, the Company owned 464 Investment Properties in 41 states with a gross leasable area of approximately 9.0 million square feet. These Investment Properties are leased to 172 corporations in 60 industry classifications.

 

Management will hold a conference call on November 1, 2005, at 2:00 p.m. EST to review the Company’s results. The call can be accessed on the Company’s web site live at http://www.nnnreit.com. For those unable to listen to the live broadcast, a replay will be available on the Company’s web site. In addition, the Company will post a summary of any earnings guidance given on the call to the Company’s web site.

 

Statements in this press release that are not strictly historical are “forward-looking” statements. Forward-looking statements involve known and unknown risks, which may cause the Company’s actual future results to differ materially from expected results. These risks include, among others, general economic conditions, local real estate conditions, changes in interest rates, increases in operating costs, the availability of capital, and the profitability of the Company’s taxable subsidiary. Additional information concerning these and other factors that could cause actual results to differ materially from those forward-looking statements is contained from time to time in the Company’s SEC filings, including, but not limited to, the Company’s Annual Report on Form 10-K. Copies of each filing may be obtained from the Company or the SEC. Consequently, such forward-looking statements should be regarded solely as reflections of the Company’s current operating plans and estimates. Actual operating results may differ materially from what is expressed or forecast in this press release. The Company undertakes no obligation to publicly release the results of any revisions to these forward-looking statements that may be made to reflect events or circumstances after the date these statements were made.

 

Funds from Operations, commonly referred to as FFO, is a relative non-GAAP financial measure of operating performance of an equity REIT in order to recognize that income-producing real estate historically has not depreciated on the basis determined under GAAP. FFO is defined by the National Association of Real Estate Investment Trusts and is used by the Company as follows: net earnings (computed in accordance with GAAP) plus depreciation and

amortization of assets unique to the real estate industry, excluding gains (or including losses) on the disposition of real estate held for investment and extraordinary items, and the Company’s share of these items from the Company’s unconsolidated partnerships.

 

FFO is generally considered by industry analysts to be the most appropriate measure of performance of real estate companies. FFO does not necessarily represent cash provided by operating activities in accordance with GAAP and should not be considered an alternative to net income as an indication of the Company’s performance or to cash flow as a measure of liquidity or ability to make distributions. Management considers FFO an appropriate measure of performance of an equity REIT because it primarily excludes the assumption that the value of the real estate assets diminishes predictably over time, and because industry analysts have accepted it as a performance measure. The Company’s computation of FFO may differ from the methodology for calculating FFO used by other equity REITs, and therefore, may not be comparable to such other REITs.

 

The Company has determined that there are earnings from discontinued operations in each of its segments, investment assets and inventory assets. All property dispositions from the Company’s held for investment segment are classified as discontinued operations. In addition, certain properties in the Company’s inventory segment that have generated revenues before disposition are classified as discontinued operations. These held for sale properties have not historically been classified as discontinued operations. Prior period comparable condensed consolidated financial statements have been restated to include these properties in its earnings from discontinued operations. These adjustments resulted in a decrease in the Company’s reported total revenues and total and per share income from continuing operations and an increase in the Company’s income from discontinued operations. However, the Company’s total and per share FFO and net income available to common shareholders are not affected.

Commercial Net Lease Realty, Inc.

(in thousands, except per share data)

 

    

Quarter Ended

September 30,

    

Nine Months Ended

September 30,

  
     2005
     2004
     2005
     2004
  

Revenues:

                                 

Rental and earned income

    $ 29,644     $ 27,498     $ 89,679     $ 81,398  

Real estate expense reimbursement from tenants

      1,184       931       4,221       3,926  

Gain (loss) on disposition of real estate, Inventory Portfolio(Note 1)

      (138 )     2,413       708       4,126  

Interest and other income from real estate transactions

      1,507       1,890       4,940       5,423  

Interest income on mortgage residual assets

      2,797       —         4,719       —    
    
 
 
 
       34,994       32,732       104,267       94,873  
    
 
 
 

Operating expenses:

                                 

General and administrative

      6,232       5,847       16,841       17,148  

Real estate

      2,207       2,787       7,683       8,844  

Depreciation and amortization

      6,473       4,267       15,828       12,377  

Transition costs

      —         52       —         3,252  

Impairments

      422       —         1,750       —    
    
 
 
 
       15,334       12,953       42,102       41,621  
    
 
 
 

Other expenses (revenues):

                                 

Interest and other income

      (415 )     (1,238 )     (1,191 )     (3,057 )

Interest expense

      8,496       8,614       25,169       24,042  
    
 
 
 
       8,081       7,376       23,978       20,985  
    
 
 
 

Income tax benefit

      450       660       1,397       1,993  

Minority interest

      233       (1,360 )     250       (1,017 )

Equity in earnings of unconsolidated affiliates

      111       1,155       1,291       3,694  
    
 
 
 

Earnings from continuing operations

      12,373       12,858       41,125       36,937  

Earnings from discontinued operations:

                                 

Real estate, Investment Portfolio

      (28 )     1,355       10,827       3,698  

Real estate, Inventory Portfolio, net of income tax expense and minority interest

      4,185       2,792       7,471       5,373  
    
 
 
 
       4,157       4,147       18,298       9,071  
    
 
 
 

Earnings before extraordinary gain

      16,530       17,005       59,423       46,008  

Extraordinary gain, net of income tax expense

      —         —         11,805       —    
    
 
 
 

Net earnings

      16,530       17,005       71,228       46,008  

Series A Preferred Stock dividends

      (1,002 )     (1,002 )     (3,006 )     (3,006 )

Series B Convertible Preferred Stock dividends

      (418 )     (418 )     (1,256 )     (1,256 )
    
 
 
 

Net earnings available to common stockholders – basic

      15,110       15,585       66,966       41,746  

Series B Convertible Preferred Stock dividends

      —         —         1,256       —    
    
 
 
 

Net earnings available to common stockholders – diluted

    $ 15,110     $ 15,585     $ 68,222     $ 41,746  
    
 
 
 

Weighted average common shares outstanding:

                                 

Basic

      53,652       51,672       52,596       51,289  
    
 
 
 

Diluted

      53,901       51,969       54,122       51,590  
    
 
 
 

Commercial Net Lease Realty, Inc.

(in thousands, except per share data)

    

Quarter Ended

September 30,

   

Nine Months Ended

September 30,

     2005
    2004
    2005
    2004

Net earnings per share available to common stockholders:

                            

Basic:

                            

Continuing operations

    $ 0.20    $ 0.22    $ 0.70    $ 0.64

Discontinued operations

      0.08      0.08      0.35      0.17

Extraordinary gain

      —        —        0.22      —  
    
  
  
  

Net earnings

    $ 0.28    $ 0.30    $ 1.27    $ 0.81
    
  
  
  

Diluted:

                            

Continuing operations

    $ 0.20    $ 0.22    $ 0.70    $ 0.63

Discontinued operations

      0.08      0.08      0.34      0.18

Extraordinary gain

      —        —        0.22      —  
    
  
  
  

Net earnings

    $ 0.28    $ 0.30    $ 1.26    $ 0.81
    
  
  
  

Commercial Net Lease Realty, Inc.

(in thousands)

 

Earnings from Discontinued Operations – Investment Portfolio:

 

In accordance with Statement of Financial Accounting Standards No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets” (“SFAS No. 144”), the Company has classified its investment assets sold and leasehold interests expired subsequent to December 31, 2001, the effective date of SFAS No. 144, as discontinued operations. In addition, the Company has classified any investment asset that was held for sale at September 30, 2005, as discontinued operations. The following is a summary of earnings from discontinued operations from the real estate Investment Portfolio.

 

    

Quarter Ended

September 30,

    

Nine Months Ended

September 30,

  
     2005
     2004
     2005
    2004
  

Revenues:

                                

Rental and earned income

    $ 117     $ 1,322     $ 3,205    $ 3,375  

Real estate expense reimbursements from tenants

      —         1       —        4  

Interest and other income from real estate transactions

      30       50       233      207  
    
 
 
  
       147       1,373       3,438      3,586  
    
 
 
  

Expenses:

                                

General and administrative

      —         (9 )     10      (4 )

Real estate

      66       72       236      282  

Depreciation and amortization

      4       151       42      571  

Impairments

      —         —         1,978      —    

Interest

      16       57       57      177  
    
 
 
  
       86       271       2,323      1,026  
    
 
 
  

Gain (loss) on disposition of real estate (Note 1)

      (89 )     253       9,712      1,138  
    
 
 
  

Earnings (loss) from discontinued operations

    $ (28 )   $ 1,355     $ 10,827    $ 3,698  
    
 
 
  

 

Earnings from Discontinued Operations – Inventory Portfolio:

 

The Company has classified its Inventory Properties that are currently held for sale and generating rental revenues as discontinued operations. The Company has reclassified all held for sale properties that generated rental revenue before disposition which were sold subsequent to December 31, 2001, the effective date of SFAS No. 144, as discontinued operations. The following is a summary of earnings from discontinued operations from the real estate Inventory Portfolio.

 

    

Quarter Ended

September 30,

    

Nine Months Ended

September 30,

  
     2005
     2004
     2005
     2004
  

Revenues:

                                 

Rental income

    $ 250     $ 590     $ 1,394     $ 1,738  

Real estate expense reimbursements from tenants

      1       46       39       168  

Gain on disposition of real estate (Note 1)

      11,718       7,394       16,372       10,804  

Interest and other income from real estate transactions

      614       —         805       81  
    
 
 
 
       12,583       8,030       18,610       12,791  
    
 
 
 

Expenses:

                                 

General and administrative

      20       16       33       23  

Real estate

      34       84       166       242  

Depreciation and amortization

      —         1       21       1  

Interest

      131       73       651       227  
    
 
 
 
       185       174       871       493  
    
 
 
 

Income tax expense

      (2,560 )     (1,709 )     (4,571 )     (3,287 )

Minority interest

      (5,653 )     (3,355 )     (5,697 )     (3,638 )
    
 
 
 

Earnings from discontinued operations

    $ 4,185     $ 2,792     $ 7,471     $ 5,373  
    
 
 
 

Commercial Net Lease Realty, Inc.

(in thousands)

 

    

Quarter Ended

September 30,

    

Nine Months Ended

September 30,

  
     2005
     2004
     2005
     2004
  

Reconciliation of net earnings to FFO and FFO available to common shareholders:

                                 

Net earnings

    $ 16,530     $ 17,005     $ 71,228     $ 46,008  

Real estate depreciation and amortization:

                                 

Continuing operations

      6,024       3,884       14,621       11,078  

Discontinued operations

      4       151       42       571  

Partnership real estate depreciation

      148       153       457       466  

(Gain) loss on disposition of real estate held for investment from discontinued operations

      89       (253 )     (9,712 )     (1,138 )

Extraordinary gain, net of income taxes

      —         —         (11,805 )     —    
    
 
 
 

FFO

      22,795       20,940       64,831       56,985  

Series A Preferred Stock dividends

      (1,002 )     (1,002 )     (3,006 )     (3,006 )

Series B Convertible Preferred Stock dividends

      (418 )     (418 )     (1,256 )     (1,256 )
    
 
 
 

FFO available to common stockholders – basic

      21,375       19,520       60,569       52,723  

Series B Convertible Preferred Stock dividends

      —         —         1,256       —    
    
 
 
 

FFO available to common stockholders – diluted

    $ 21,375     $ 19,520       61,825       52,723  
    
 
 
 

Funds from operations per share:

                                 

Basic

    $ 0.40     $ 0.38     $ 1.15     $ 1.03  
    
 
 
 

Diluted

    $ 0.40     $ 0.38     $ 1.14     $ 1.02  
    
 
 
 

 

Note 1: Real Estate Disposition Summary

 

     Quarter Ended September 30,      Nine Months Ended September 30,  
     2005
     2004
      2005
     2004
  
    

# of

Properties

         

# of

Properties

          

# of

Properties

         

# of

Properties

       

Reconciliation of gain (loss) on disposition between continuing and discontinued operations:

                                                      

Continuing operations

    1    $ (138 )   1    $ 2,413      3    $ 708     6    $ 4,126  

Discontinued operations:

                                                      

Investment Portfolio

    3      (89 )   5      253      9      9,712     14      1,138  

Inventory Portfolio

    4      11,718     5      7,394      15      16,372     8      10,804  

Minority interest, Inventory Portfolio

    —        (5,393 )   —        (4,680 )    —        (5,393 )   —        (4,662 )
    
  
 
  
  
  
 
  
     8    $ 6,098     11    $ 5,380      27    $ 21,399     28    $ 11,406  
    
  
 
  
  
  
 
  

Reconciliation of gain (loss) on disposition of type:

                                                      

Inventory Portfolio:

                                                      

Development

    3    $ 10,940     4    $ 9,087      8    $ 14,562     11    $ 13,943  

Exchange

    2      214     2      250      10      1,953     3      407  

Intercompany eliminations

    —        426     —        470      —        565     —        580  

Minority interest on Development gain

    —        (5,393 )   —        (4,680 )    —        (5,393 )   —        (4,662 )
    
  
 
  
  
  
 
  
     5      6,187     6      5,127      18      11,687     14      10,268  

Investment Portfolio

    3      (89 )   5      253      9      9,712     14      1,138  
    
  
 
  
  
  
 
  
     8    $ 6,098     11    $ 5,380      27    $ 21,399     28    $ 11,406  
    
  
 
  
  
  
 
  

Commercial Net Lease Realty, Inc.

(in thousands)

 

Balance Sheet Summary

 

     September 30,    December 31,
     2005
    2004

Assets:

              

Cash and cash equivalents

    $ 11,856    $ 1,947

Restricted cash

      26,500      —  

Receivables, net of allowance

      12,777      6,636

Mortgages, notes and accrued interest receivable, net of allowance

      51,607      45,564

Real estate, Investment Portfolio:

              

Accounted for using the operating method, net of accumulated depreciation and amortization and impairment

      1,140,481      1,009,397

Accounted for using the direct financing method

      100,445      102,311

Held for sale, net of impairment

      1,600      —  

Real estate, Inventory Portfolio, net of accumulated depreciation

      80,311      58,049

Investment in unconsolidated mortgage residual interests

      —        29,672

Mortgage residual interests

      69,917      —  

Accrued rental income, net of allowance

      27,510      28,619

Other assets

      26,373      17,853
    
  

Total assets

    $ 1,549,377    $ 1,300,048
    
  

Liabilities and stockholders’ equity:

              

Line of credit payable

    $ 120,800    $ 17,900

Mortgages payable

      152,043      157,168

Notes payable – secured

      30,000      —  

Notes payable

      343,765      323,132

Financing lease obligation

      26,041      26,041

Income tax liability

      24,786      702

Other liabilities

      28,866      16,079

Minority interest

      9,360      2,028

Stockholders’ equity

      813,716      756,998
    
  

Total liabilities and equity

    $ 1,549,377    $ 1,300,048
    
  

Common shares outstanding

      54,195      52,078
    
  

Gross leasable area, Investment Portfolio

      8,972      8,542
    
  

 

Commercial Net Lease Realty, Inc.

Investment Portfolio

 

Top 20 Tenants

 

    

Tenant

    % of
Total(1)
            

Tenant

    % of
Total(1)
  
1.    United States of America    14.0 %      11.    Majestic Liquors    2.2 %
2.    CVS    5.8 %      12.    United Rentals    2.2 %
3.    Best Buy    4.4 %      13.    QuikTrip    1.6 %
4.    OfficeMax    3.8 %      14.    Jared Jewelers    1.4 %
5.    Barnes & Noble    3.7 %      15.    Bed Bath & Beyond    1.3 %
6.    Eckerd    3.5 %      16.    Food 4 Less    1.2 %
7.    Academy    3.3 %      17.    CarMax    1.2 %
8.    The Sports Authority    2.8 %      18.    Havertys Furniture    1.1 %
9.    Borders Books    2.3 %      19.    Rite Aid    1.1 %
10.    Uni-Mart    2.3 %      20.    Dick’s Sporting Goods    1.0 %

 

 

Top 10 States

 

    

State

    % of
Total(1)
            

State

    % of
Total(1)
  
1.    Virginia    18.1 %      6.    Pennsylvania    4.1 %
2.    Texas    15.6 %      7.    Missouri    3.5 %
3.    Florida    12.9 %      8.    Ohio    2.8 %
4.    Georgia    5.6 %      9.    Tennessee    2.6 %
5.    California    5.5 %      10.    New Jersey    2.5 %

 

 

Lease Expirations

 

    

% of

Total(1)

   

# of

Properties

   

Gross Leasable
Area (2)

            

% of

Total(1)

   

# of

Properties

   

Gross Leasable
Area (2)

2005

    0.3%      3      30,000      2011        3.5%      17       329,000

2006

    0.5%      6    127,000      2012        4.4%      22       473,000

2007

    1.7%    16    221,000      2013        6.2%      29       688,000

2008

    2.4%    24    471,000      2014      21.8%      37    1,139,000

2009

    2.7%    24    475,000      2015        5.7%      24       670,000

2010

    4.1%    22    351,000      Thereafter      46.7%    232    3,928,000

 

(1) Based on annual base rent of $134,023,000
(2) Square feet