10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.

For the quarterly period ended September 30, 2005.

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 001-11290

COMMERCIAL NET LEASE REALTY, INC.

(Exact name of registrant as specified in its charter)

Maryland	56-1431377
(State of other jurisdiction or incorporation organization)	(I.R.S. Employment Identification No.)

450 South Orange Avenue, Suite 900, Orlando, Florida 32801

(Address of principal executive offices, including zip code)

(407) 265-7348

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Sections 13 or 15(d) for 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 by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).    Yes  x    No  ¨.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x.

Indicate the number of shares outstanding of each of the issuer’s classes of common stock as of the latest practicable date.

54,208,510 shares of Common Stock, $0.01 par value, outstanding as of October 31, 2005.

COMMERCIAL NET LEASE REALTY, INC.

and SUBSIDIARIES

CONTENTS

		Page
Part I – Financial Information
Item 1.	Financial Statements:
	Condensed Consolidated Balance Sheets	1
	Condensed Consolidated Statements of Earnings	2
	Condensed Consolidated Statements of Cash Flows	4
	Notes to Condensed Consolidated Financial Statements	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	23
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	38
Item 4.	Controls and Procedures	39
Part II – Other Information		40
Signatures		44
Exhibit Index		45

COMMERCIAL NET LEASE REALTY, INC.

and SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(dollars in thousands, except per share)

	September 30, 2005			December 31, 2004
	(unaudited)
ASSETS
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 of $576 at September 30		1,600			—
Real estate, Inventory Portfolio, held for sale, net of accumulated depreciation		80,311			58,049
Mortgages, notes and accrued interest receivable, net of allowance of $748 and $896, respectively		51,607			45,564
Investments in unconsolidated mortgage residual interests		—			29,672
Mortgage residual interests		69,917			—
Cash and cash equivalents		11,856			1,947
Restricted cash		26,500			—
Receivables, net of allowance of $697 and $924, respectively		12,777			6,636
Accrued rental income, net of allowance of $2,070 and $1,620, respectively		27,510			28,619
Debt costs, net of accumulated amortization of $8,963 and $8,063, respectively		3,615			3,926
Other assets		22,758			13,927
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, net of unamortized discount of $772 and $847, respectively, and an unamortized interest rate hedge gain of $3,736 and $3,979, respectively		343,765			323,132
Financing lease obligation		26,041			26,041
Accrued interest payable		5,513			4,334
Other liabilities		23,353			11,745
Income tax liability		24,786			702
Total liabilities		726,301			541,022
Minority interest		9,360			2,028
Stockholders’ equity:
Preferred stock, $0.01 par value. Authorized 15,000,000 shares
Series A, 1,781,589 shares issued and outstanding, stated liquidation value of $25 per share		44,540			44,540
Series B Convertible, 10,000 shares issued and outstanding, stated liquidation value of $2,500 per share		25,000			25,000
Common stock, $0.01 par value. Authorized 190,000,000 shares; 54,195,216 and 52,077,825 shares issued and outstanding at September 30 and December 31, respectively		542			521
Excess stock, $0.01 par value. Authorized 205,000,000 shares; none issued or outstanding		—			—
Capital in excess of par value		765,717			725,337
Accumulated dividends in excess of net earnings		(19,623	)		(35,188	)
Other comprehensive income		1,254			—
Deferred compensation		(3,714	)		(3,212	)
Total stockholders’ equity		813,716			756,998
	$	1,549,377		$	1,300,048

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)

(unaudited)

	Quarter Ended September 30,						Nine Months Ended September 30,
	2005			2004			2005			2004
Revenues:
Rental income from operating leases	$	26,996		$	24,781		$	81,687		$	73,236
Earned income from direct financing leases		2,648			2,717			7,992			8,162
Real estate expense reimbursement from tenants		1,184			931			4,221			3,926
Gain (loss) on disposition of real estate, Inventory Portfolio		(138	)		2,413			708			4,126
Interest income from real estate transactions		1,507			1,890			4,940			5,423
Interest income on mortgage residual interests		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
Earnings from operations		19,660			19,779			62,165			53,252
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
Earnings from continuing operations before provision for income taxes, minority interest and equity in earnings of unconsolidated affiliates		11,579			12,403			38,187			32,267
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 (loss) 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 (see Note 12)		—			—			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	)
Earnings available to common stockholders – basic		15,110			15,585			66,966			41,746
Series B Convertible Preferred Stock dividends		—			—			1,256			—
Earnings available to common stockholders – diluted	$	15,110		$	15,585		$	68,222		$	41,746

See accompanying notes to condensed consolidated financial statements.

2

COMMERCIAL NET LEASE REALTY, INC.

and SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS

(dollars in thousands, except per share)

(unaudited)

	Quarter Ended September 30,				Nine Months Ended September 30,
	2005		2004		2005		2004
Net earnings per share of common stock:
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
Weighted average number of common shares outstanding:
Basic		53,651,776		51,672,012		52,596,163		51,288,732
Diluted		53,901,276		51,969,340		54,122,139		51,590,336

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)

(unaudited)

	Nine Months Ended September 30,
	2005			2004
Cash flows from operating activities:
Net earnings	$	71,228		$	46,008
Adjustment to reconcile net earnings to net cash provided by operating activities:
Stock compensation expense		1,017			660
Depreciation and amortization		15,891			13,613
Impairments		3,728			—
Amortization of notes payable discount		76			99
Amortization of deferred interest rate hedge gain		(243	)		(379	)
Equity in earnings of unconsolidated affiliates, net of deferred intercompany profits		(1,291	)		(3,954	)
Distributions received from unconsolidated affiliates		3,293			7,207
Minority interests		(127	)		1,660
Gain on disposition of real estate, Investment Portfolio		(9,712	)		(1,138	)
Extraordinary gain, net of taxes		(11,805	)		—
Deferred income taxes		(1,351	)		1,238
Transition costs		—			3,252
Change in operating assets and liabilities, net of assets acquired and liabilities assumed in business combinations:
Additions to real estate, Inventory Portfolio		(64,033	)		(58,728	)
Proceeds from disposition of real estate, Inventory Portfolio		52,225			56,033
Gain on dispositions of real estate, Inventory Portfolio		(17,080	)		(14,930	)
Decrease in real estate leased to others using the direct financing method		2,176			2,038
Increase in work in progress		(514	)		—
Decrease (increase) in mortgages, notes and accrued interest receivable		110			(1,490	)
Decrease (increase) in receivables		4,356			(1,973	)
Decrease in mortgage residual interests		8,493			—
Decrease (increase) in accrued rental income		1,084			(3,068	)
Increase in other assets		(1,025	)		(938	)
Increase in accrued interest payable		888			1,587
Decrease in other liabilities		(631	)		(1,254	)
Net cash provided by operating activities		56,753			45,543
Cash flows from investing activities:
Proceeds from the disposition of real estate, Investment Portfolio		35,867			19,674
Additions to real estate, Investment Portfolio, accounted for using the operating method		(112,128	)		(80,036	)
Investment in direct financing leases		(310	)		—
Increase in mortgages and notes receivable		(16,028	)		(1,767	)
Mortgage and notes payments received		14,384			9,339
Increase in mortgages and other receivables from unconsolidated affiliates		—			(89,500	)
Payments received on mortgages and other receivables from unconsolidated affiliates		—			79,100
Business combinations, net of cash acquired		19,610			1,068
Restricted cash		(26,500	)		—
Acquisition of 1.3 percent interest in Services		(829	)		—
Payment of lease costs		(599	)		(1,427	)
Other		(134	)		(192	)
Net cash used in investing activities		(86,667	)		(63,741	)

See accompanying notes to condensed consolidated financial statements.

4

COMMERCIAL NET LEASE REALTY, INC.

and SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED

(dollars in thousands)

(unaudited)

	Nine Months Ended September 30,
	2005			2004
Cash flows from financing activities:
Proceeds from line of credit payable		187,200			280,800
Repayment of line of credit payable		(84,300	)		(280,600	)
Repayment of mortgages payable		(5,734	)		(5,180	)
Proceeds from notes payable		—			149,560
Proceeds from forward starting interest rate swap		—			4,148
Repayment of notes payable		(9,400	)		(100,000	)
Proceeds from financing lease obligation		—			26,041
Payment of debt costs		—			(1,450	)
Proceeds from issuance of common stock		7,724			10,251
Payment of Series A Preferred Stock dividends		(3,006	)		(3,006	)
Payment of Series B Convertible Preferred Stock dividends		(1,256	)		(1,256	)
Payment of common stock dividends		(51,399	)		(49,382	)
Stock issuance costs		(6	)		(142	)
Net cash provided by financing activities		39,823			29,784
Net increase in cash and cash equivalents		9,909			11,586
Cash and cash equivalents at beginning of period		1,947			5,335
Cash and cash equivalents at end of period	$	11,856		$	16,921
Supplemental disclosure of cash flow information – interest paid, net of amount capitalized	$	26,217		$	23,856
Supplemental disclosure of non-cash investing and financing activities:
Issued 103,400 and 185,211 shares of restricted common stock in 2005 and 2004, respectively, pursuant to the Company’s 2000 Performance Incentive Plan	$	1,951		$	1,965
Surrender of 28,535 shares of restricted common stock	$	431		$	—
Acquisition of real estate held for investment and assumption of related mortgage payable	$	—		$	6,952
Disposition of real estate and transfer of related mortgage payable	$	406		$	2,251
Note and mortgage notes assumed in connection with real estate transactions	$	1,015		$	—
Mortgage note received in connection with real estate disposition	$	1,400		$	—
Issued 953,551 shares of common stock in 2004 in exchange for partnership interest	$	—		$	17,450
Issued 1,636,532 shares of common stock in connection with the acquisition of National Properties Corporation (“NAPE”)	$	31,160		$	—

See accompanying notes to condensed consolidated financial statements.

5

COMMERCIAL NET LEASE REALTY, INC.

and SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Nine Months Ended September 30, 2005 and 2004

(unaudited)

1. Organization and Summary of Significant Accounting Practices:

Organization and Nature of Business – Commercial Net Lease Realty, Inc., a Maryland corporation, is a fully integrated real estate investment trust (“REIT”) formed in 1984. The term “Company” refers to Commercial Net Lease Realty, Inc. and its majority owned and controlled subsidiaries. These subsidiaries include the wholly owned qualified REIT subsidiaries of Commercial Net Lease Realty, Inc., as well as the taxable REIT subsidiary (“TRS”), Commercial Net Lease Realty Services, Inc. and its majority owned and controlled subsidiaries (collectively, “Services”). Prior to January 1, 2005, the Company held a 98.7 percent, non-controlling interest in Services. Kevin B. Habicht, an officer and director of the Company, James M. Seneff, Jr. and Gary M. Ralston, each a former officer and director of the Company, (collectively, the “Services Investors”), owned the remaining 1.3 percent interest, which was 100 percent of the voting interest in Services. Effective January 1, 2005, the Company acquired the remaining 1.3 percent voting interest in Services increasing the Company’s ownership in Services to 100 percent.

The Company’s operations are divided into two primary business segments: (i) investment assets, including real estate assets, structured finance investments and mortgage residual interest assets (“Investment Assets”), and (ii) inventory real estate assets (“Inventory Assets”). The real estate investment assets and structured finance investments (included in mortgages and notes receivable on the balance sheet), are operated through Commercial Net Lease Realty, Inc. and its wholly owned qualified REIT subsidiaries. The Company, directly and indirectly, through investment interests, acquires, owns, invests in, manages and develops primarily retail properties that are generally leased to established tenants under long-term commercial net leases (the “Investment Properties” or “Investment Portfolio”). As of September 30, 2005, the Company owned 464 Investment Properties, with aggregate gross leasable area of 8,972,000 square feet, located in 41 states and leased to established tenants, including Academy, Barnes & Noble, Best Buy, Borders, CVS, Eckerd, OfficeMax, The Sports Authority, Uni-Mart and the United States of America. In addition to the Investment Properties, as of September 30, 2005, the Company had $26,632,000 and $69,917,000 in structured finance investments and mortgage residual interest assets, respectively. The inventory assets are operated through Services. Services, directly and indirectly, through investment interests, acquires and develops real estate primarily for the purpose of selling the real estate to purchasers who are looking for replacement like-kind exchange property or to other purchasers with different investment objectives (“Inventory Properties” or “Inventory Portfolio”). As of September 30, 2005, Services owned 39 Inventory Properties.

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 accounting principles generally accepted in the United States of America. The unaudited condensed consolidated financial statements reflect all adjustments, consisting of normal recurring adjustments, which are, in the opinion of management, necessary for a fair presentation of the results for the interim periods presented. Operating results for the quarter and nine months ended September 30, 2005, may not be indicative of the results that may be expected for the year ending December 31, 2005. Amounts as of December 31, 2004, included in the condensed consolidated financial statements, have been derived from the audited consolidated financial statements as of that date. These unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Form 10-K of Commercial Net Lease Realty, Inc. for the year ended December 31, 2004.

6

Principles of Consolidation – The Company’s condensed consolidated financial statements include the accounts of each of the respective majority owned and controlled affiliates. All significant intercompany account balances and transactions have been eliminated. The Company applies the equity method of accounting to investments in partnerships and joint ventures that are not subject to control by the Company due to the significance of rights held by other parties.

A TRS subsidiary develops real estate through various joint venture development affiliate agreements. The TRS subsidiary consolidates the joint venture development entities, eliminating significant intercompany balances and transactions and recording a minority interest for its other partners’ ownership percentage. The following table summarizes the investment entered into during the nine months ended September 30, 2005:

Date of Agreement	Entity Name	Agreement Type	Equity Ventures’ Ownership %
March 2005	CNLRS RGI Bloomingdale Exchange LLC	Limited Liability Company	50	%

The Company holds a variable interest in, but is not the primary beneficiary of, CNL Plaza Ltd., a variable interest entity. The Company’s maximum exposure to loss as a result of its involvement with CNL Plaza Ltd. as of September 30, 2005, is $5,169,000. As of September 30, 2005, CNL Plaza, Ltd. had total assets and liabilities of $57,531,000 and $62,305,000, respectively.

In May 2005, the Company (through a wholly owned subsidiary of Services) exercised its option to purchase 78.9 percent of the common shares of Orange Avenue Mortgage Investments, Inc. (“OAMI”) (formerly CNL Commercial Finance, Inc.). As a result, effective May 2005, the Company consolidated OAMI in its condensed consolidated financial statements.

Investment in Unconsolidated Affiliates – The Company accounts for each of its investments in unconsolidated affiliates under the equity method of accounting (see Note 4). The Company exercises influence over these unconsolidated affiliates, but does not control them.

Investment Portfolio Intangible Assets and Liabilities – In connection with real estate acquisitions, values are assigned to the intangible assets or liabilities calculated as the difference between contractual rent and market value rent and value assigned to in-place leases. Deferred revenue/expense or deferred assets/liabilities recorded in connection with the difference between contractual rent and market rent value for acquired properties are amortized into rental revenue over the life of the leases. The value assigned to in-place leases is amortized over the life of the leases. For the nine months ended September 30, 2005, the Company recorded an impairment of intangible assets of $1,328,000. The Company did not recognize an impairment during the quarter ended September 30, 2005 or the quarter and nine months ended September 30, 2004. The Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. Events or circumstances that may occur include changes in real estate market conditions, the ability of the Company to re-lease properties that are currently vacant or become vacant, and the ability to sell properties at an attractive return. The Company determines if an impairment should be recognized if the undiscounted future cash flows expected to result from the use or sale of the long-lived asset are less than the current net book value. Generally, the Company calculates a possible impairment by comparing the future cash flows and the current net book value. Impairments are measured as the amount by which the current book value of the intangible asset exceeds the fair value of the asset.

Restricted Cash – Restricted cash consists of amounts held in restricted escrow accounts in connection with the sale of certain assets of OAMI to a third party (the “Buyer”) in December 2004 (prior to the Company exercising its option) (see Note 12). The use of the cash is restricted pursuant to agreements with the Buyer and will be released to OAMI in December 2007 subject

7

to any pending indemnity claims. The amount held in these accounts at September 30, 2005 was $27,018,000. The carrying value of $26,500,000 is calculated as the present value of the expected release of monies.

Mortgage Residual Interests, at Fair Value – Mortgage residual interests, classified as available for sale, are reported at their market values with unrealized gains and losses reported as other comprehensive income in stockholders’ equity. The residual interests were acquired in connection with the acquisition of 78.9 percent equity interest of OAMI (see Note 12). The Company recognizes the excess of all cash flows attributable to the residual interests estimated at the acquisition/transaction date over the initial investment (the accretable yield) as interest income over the life of the beneficial interest using the effective yield method. Losses are considered permanent if and when there has been a change in the timing or amount of estimated cash flows that leads to a loss in value. Certain of the residual interests have been pledged as security for notes payable (see Note 7). The Company recorded its share of other comprehensive income of $1,254,000 which represents the unrealized gains related to the Company’s previous ownership in the residual interests.

Revenue Recognition – Rental revenues for non-development real estate assets are recognized when earned in accordance with Statement of Financial Accounting Standards (“SFAS”) 13, “Accounting for Leases,” based on the terms of the lease at the time of acquisition of the leased asset. Rental revenues for properties under construction commence upon completion of construction of the leased asset and delivery of the leased asset to the tenant.

Earnings Per Share – Basic net earnings per share is computed by dividing net earnings available to common stockholders by the weighted average number of common shares outstanding during each period. Diluted net earnings per common share is computed by dividing net earnings available to common stockholders for each period by the number of common shares that would have been outstanding assuming the issuance of common shares for all potentially dilutive common shares outstanding during the period.

The following is a reconciliation of the denominator of the basic net earnings per common share computations and the denominator of the diluted net earnings per common share computations:

	Quarter Ended September 30,			Nine Months Ended September 30,
	2005		2004	2005		2004
Weighted average number of common shares outstanding	53,939,449		51,672,012	52,851,636		51,288,732
Restricted common stock	(287,673	)	—	(225,473	)	—
Weighted average number of common shares outstanding used in basic earnings per share	53,651,776		51,672,012	52,596,163		51,288,732
Weighted average number of common shares outstanding used in diluted earnings per share	53,939,449		51,672,012	52,851,636		51,288,732
Effect of dilutive securities:
Common stock options, deferred directors’ compensation and restricted common stock	(38,173	)	297,328	(23,493	)	301,604
Assumed conversion of Series B convertible Preferred Stock to common stock	—		—	1,293,996		—
Weighted average number of common shares outstanding used in diluted earnings per share	53,901,276		51,969,340	54,122,139		51,590,336

8

The following represents shares of potentially dilutive common shares which were not included in computing diluted earnings per common share because their effects were antidilutive:

	Quarter Ended September 30,		Nine Months Ended September 30,
	2005	2004	2005	2004
10,000 shares of Series B convertible preferred stock	1,293,996	1,293,996	—	1,293,996

9

Stock-Based Compensation – Effective January 1, 2003, the Company accounted for the stock-based compensation plan under the fair value recognition provisions of SFAS No. 123, “Accounting for Stock-Based Compensation,” prospectively to all employee and director awards granted, modified, or settled after January 1, 2003. Prior to 2003, the Company accounted for the plan under the recognition and measurement provisions of APB Opinion No. 25, “Accounting for Stock Issued to Employees,” and related interpretations. Therefore, the cost related to stock-based employee compensation included in the determination of net earnings for 2005 and 2004 is less than that which would have been recognized if the fair value based method had been applied to all awards since the original effective date of SFAS No. 123.

In December 2004, Financial Accounting Standards Board (“FASB”) revised SFAS No. 123, “Accounting for Stock-Based Compensation.” This revision, SFAS No. 123R, is effective for the annual reporting period beginning after June 15, 2005. This revision to the statement eliminates the alternative to use APB Opinion No. 25, “Accounting for Stock Issued to Employees,” intrinsic value method of accounting that was provided in SFAS No. 123 as originally issued. An enterprise will initially measure the cost of employee services received in exchange for an award of liability instruments based on its current fair value; the fair value of that award will be re-measured subsequently at each reporting date through the settlement date. Changes in fair value during the requisite service period will be recognized as compensation cost over that period. The adoption of this interpretation is not expected to have a significant impact on the financial position or results of operations of the Company.

The following table illustrates the effect on net earnings available to common stockholders and earnings per share if the fair value based method had been applied to all outstanding and unvested awards in each period (dollars in thousands, except per share data):

	Quarter Ended September 30,						Nine Months Ended September 30,
	2005			2004			2005			2004
Net earnings available to common stockholders – basic, as reported:	$	15,110		$	15,585		$	66,966		$	41,746
Add: Stock-based employee compensation expense included in reported net earnings		1			5			3			15
Deduct: Total stock-based employee compensation expense determined under the fair value based method for all awards		(7	)		(19	)		(21	)		(58	)
Pro forma net earnings available to common stockholders	$	15,104		$	15,571		$	66,948		$	41,703
Net earnings available to common stockholders – diluted, as reported:	$	15,110		$	15,585		$	68,222		$	41,746
Add: Stock-based employee compensation expense included in reported net earnings		1			5			3			15
Deduct: Total stock-based employee compensation expense determined under the fair value based method for all awards		(7	)		(19	)		(21	)		(58	)
Pro forma net earnings available to common stockholders	$	15,104		$	15,571		$	68,204		$	41,703
Net earnings available to common stockholders per common share as reported:
Basic	$	0.28		$	0.30		$	1.27		$	0.81
Diluted	$	0.28		$	0.30		$	1.26		$	0.81
Pro forma earnings available to common stockholders per common share:
Basic	$	0.28		$	0.30		$	1.27		$	0.81
Diluted	$	0.28		$	0.30		$	1.26		$	0.81

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Income Taxes – The Company has made an election to be taxed as a REIT under Sections 856 through 860 of the Internal Revenue Code of 1986, as amended, and related regulations. The Company generally will not be subject to federal income taxes on amounts distributed to stockholders, providing it distributes at least 100 percent of its real estate investment trust taxable income and meets certain other requirements for qualifying as a REIT. Notwithstanding the Company’s qualification for federal taxation as a real estate investment trust, the Company is subject to certain state and local taxes on its income and real estate.

Effective January 1, 2001, Commercial Net Lease Realty, Inc. elected for Services to be treated as a TRS pursuant to the provisions of the REIT Modernization Act. As a TRS, Services is able to engage in activities resulting in income that previously would have been disqualified from being eligible REIT income under the federal income tax regulations. As a result, certain activities of the Company which occur within Services are subject to federal and state income taxes. All provisions for federal income taxes in the accompanying condensed consolidated financial statements are attributable to Services.

Income taxes are accounted for under the asset and liability method as required by SFAS No. 109, “Accounting for Income Taxes.” Deferred tax assets and liabilities are recognized for the temporary differences based on estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carry-forwards. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

New Accounting Standards – In December 2004, FASB issued SFAS No. 153, “Exchanges of Nonmonetary Assets.” This statement is effective for the fiscal years beginning after June 15, 2005. This statement addresses financial accounting and reporting obligations associated with the exchange of nonmonetary assets. The statement eliminates the exception to fair value for exchanges of similar productive assets issued in APB Opinion No. 29, “Accounting for Nonmonetary Transactions,” and replaces it with a general exception for exchange transactions that do not have commercial substance, that is, transactions that are not expected to result in significant changes in the cash flows of the reporting entity. The adoption of this statement is not expected to have a significant impact on the financial position or results of operations of the Company.

In May 2005, FASB issued SFAS No. 154, “Accounting Changes and Error Corrections,” a replacement of APB Opinion No. 20, “Accounting Changes,” and FASB Statement No. 3, “Reporting Accounting Changes in Interim Financial Statements.” This statement applies to all voluntary changes in accounting principle, and changes the requirements for accounting for and reporting of a change in accounting principle. This statement requires retrospective application to prior periods’ financial statements of a voluntary change in accounting principle unless it is impracticable. APB Opinion No. 20 previously required that most voluntary changes in accounting principle be recognized by including in net income of the period of the change the cumulative effect of changing to the new accounting principle. This statement is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005. The adoption of this statement is not expected to have a significant impact on the financial position or results of operations of the Company.

In June 2005, FASB issued an Emerging Issues Task Force (“EITF”) Consensus in Issue No. 04-5, “Determining Whether a General Partner, or the General Partners as a Group, Controls a Limited Partnership or Similar Entity When the Limited Partners Have Certain Rights,” and an amendment to Issue No. 96-16, “Investor’s Accounting for an Investee When the Investor Has a Majority of the Voting Interest but the Minority Shareholders Have Certain Approval or Veto Rights.” The EITF consensus is limited to limited partnerships or similar entities that are not

11

variable interest entities under FASB Interpretation No. 46R, “Consolidation of Variable Interest Entities.” The consensus states that the general partners in a limited partnership should determine whether they control a limited partnership based on certain criteria. The consensus provides a framework that makes it more difficult for a general partner to overcome the presumption that it controls the limited partnership, therefore making it more likely that the general partner would be required to consolidate the limited partnership. For existing limited partnership agreements that have not been modified, the guidance should be applied in financial statements issued for the first reporting period in fiscal years beginning after December 15, 2005. For all new limited partnerships formed and for existing limited partnerships for which the partnership agreements are modified, the guidance is effective after June 29, 2005. The adoption of this consensus is not expected to have a significant impact on the financial position or results of operations of the Company.

Use of Estimates – Management of the Company has made a number of estimates and assumptions relating to the reporting of assets and liabilities, revenues and expenses and the disclosure of contingent assets and liabilities to prepare these condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States of America. Significant estimates include impairments and allowances for certain assets, accruals, useful lives of assets and capitalization of costs. Actual results could differ from those estimates.

Reclassification – Certain items in the prior year’s condensed consolidated financial statements and notes to condensed consolidated financial statements have been reclassified to conform to the 2005 presentation. These reclassifications had no effect on stockholders’ equity or net earnings.

2. Real Estate – Investment Portfolio:

Leases – The Company generally leases its Investment Properties to established tenants. As of September 30, 2005, 409 of the Investment Property leases have been classified as operating leases and 70 leases have been classified as direct financing leases. For the Investment Property leases classified as direct financing leases, the building portions of the property leases are accounted for as direct financing leases while the land portions of 47 of these leases are accounted for as operating leases. Substantially all leases have initial terms of 10 to 20 years (expiring between 2005 and 2025) 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. Generally, the tenant is also required to pay all property taxes and assessments, substantially maintain the interior and exterior of the building and carry property and liability insurance coverage. Certain of the Company’s Investment Properties are subject to leases under which the Company retains responsibility for certain costs and expenses of the property. As of September 30, 2005, the weighted average remaining lease term was approximately 11 years. Generally, the leases of the Investment Properties provide the tenant with one or more multi-year renewal options subject to generally the same terms and conditions as the initial lease.

Accounted for Using the Operating Method – Real estate subject to operating leases consisted of the following (dollars in thousands):

	September 30, 2005			December 31, 2004
Land and improvements	$	494,421		$	431,867
Buildings and improvements		718,513			631,306
Leasehold interests		2,532			2,532
		1,215,466			1,065,705
Less accumulated depreciation and amortization		(74,035	)		(61,720	)
		1,141,431			1,003,985
Construction in progress		1,085			7,025
		1,142,516			1,011,010
Less impairment		(2,035	)		(1,613	)
	$	1,140,481		$	1,009,397

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3. Real Estate – Inventory Portfolio:

As of September 30, 2005, Services owned 39 Inventory Properties: 21 completed inventory, 13 under construction and 5 land parcels. As of December 31, 2004, Services owned 21 Inventory Properties: 10 complete inventory, seven under construction and four land parcels. The real estate Inventory Portfolio consisted of the following (dollars in thousands):

	September 30, 2005			December 31, 2004
Inventory:
Land	$	11,352		$	16,449
Building		15,484			17,660
Accumulated depreciation		(43	)		(81	)
		26,793			34,028
Under construction:
Land		35,972			13,826
Work in process		17,546			10,195
		53,518			24,021
	$	80,311		$	58,049

The following table summarizes the number of Inventory Properties sold and the corresponding gain recognized from the disposition of Inventory Properties included in continuing and discontinued operations (dollars in thousands):

	Quarter Ended September 30,								Nine Months Ended September 30,
	2005				2004				2005				2004
	# of Properties	Gain			# of Properties	Gain			# of Properties	Gain			# of Properties	Gain
Continuing operations	1	$	(138	)	1	$	2,413		3	$	708		6	$	4,126
Minority interest			—				(1,448	)			—				(1,430	)
Total continuing operations			(138	)			965				708				2,696
Discontinued operations	4		11,292		9		6,924		15		15,807		17		10,224
Intersegment eliminations			426				470				565				580
Minority interest			(5,393	)			(3,232	)			(5,393	)			(3,232	)
Total discontinued operations			6,325				4,162				10,979				7,572
	5	$	6,187		10	$	5,127		18	$	11,687		23	$	10,268

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4. Investments in Unconsolidated Affiliates:

For additional investment in unconsolidated affiliate disclosures see Note 12 – Business Combinations.

In May 2002, the Company purchased a combined 25 percent partnership interest in CNL Plaza, Ltd. and CNL Plaza Venture, Ltd. (collectively, “Plaza”) for $750,000. The remaining partnership interests in Plaza are owned by affiliates of James M. Seneff, Jr. and Robert A. Bourne, each a former member of the Company’s board of directors. Plaza owns a 346,000 square foot office building and an interest in an adjacent parking garage. The Company has severally guaranteed 41.67 percent of a $14,000,000 unsecured promissory note on behalf of Plaza. The maximum obligation of the Company under this guarantee is $5,834,000, plus interest. Interest accrues based on a tiered rate structure with a maximum of 300 basis points above LIBOR (the current interest rate is 175 basis points above LIBOR). This guarantee shall continue through the loan maturity in December 2010. The fair value of the Company’s guarantee is $66,000. During the nine months ended September 30, 2005 and 2004, the Company received $396,000 and $248,000 in distributions from Plaza. For the nine months ended September 30, 2005 and 2004, the Company recognized a loss from Plaza of $136,000 and $169,000, respectively, of which a loss of $53,000 and $56,000 was recognized during the quarters ended September 30, 2005 and 2004, respectively.

Since November 1999, the Company has leased its office space from Plaza. The Company’s lease expires in October 2014. The Company has the option to renew its lease with Plaza for three successive five-year periods subject to similar terms and conditions as the initial lease. Other affiliates of James M. Seneff, Jr. also lease office space from Plaza. During the nine months ended September 30, 2005 and 2004, the Company incurred rental expenses in connection with the lease of $775,000 and $760,000, respectively, $258,000 and $254,000 which was incurred during the quarters ended September 30, 2005 and 2004, respectively. In May 2000, the Company subleased a portion of its office space to affiliates of James M. Seneff, Jr. During the nine months ended September 30, 2005 and 2004, the Company earned $298,000 and $266,000, respectively, in rental and accrued rental income from these affiliates, $100,000 and $87,000 of which was earned the quarters ended September 30, 2005 and 2004, respectively.

5. Notes Receivable:

As of September 30, 2005, the structured finance investments bear a weighted average interest rate of 13.7% per annum, of which 11.4% is payable monthly and the remaining 2.3% accrues and is due at maturity. The principal balance of each structured finance investment is due in full at maturity, which range between January and November, 2007. The structured finance investments are secured by the borrowers’ pledge of their respective membership interests in the certain subsidiaries which own real estate. As of September 30, 2005 and December 31, 2004, the outstanding receivable balance of the structured finance investments was $26,632,000 and $29,390,000, respectively.

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6. Mortgage Residual Interests:

OAMI holds the residual interests from seven securitizations. The following table summarizes the investment interests in each of the transactions:

	Investment Interest
Securitization	Company (1)		OAMI (2)		3rd Party
BYL 99-1	—		59.0	%	41.0	%
CCMH I, LLC	42.7	%	57.3	%	—
CCMH II, LLC	44.0	%	56.0	%	—
CCMH III, LLC	36.7	%	63.3	%	—
CCMH IV, LLC	38.3	%	61.7	%	—
CCMH V, LLC	38.4	%	61.6	%	—
CCMH VI, LLC	—		100.0	%	—

⁽¹⁾ The Company owned these investment interests prior to its acquisition of the equity interest in OAMI in May 2005.

⁽²⁾ The Company owns 78.9 percent of OAMI’s investment interest.

Each of the residual interests is recorded at fair market value based upon a discounted cash flow analysis. The Company’s previous investment interest in the residual assets is recorded at fair market value, including other comprehensive income of $1,254,000.

7. Notes Payable – Secured:

The Company’s consolidated financial statements included the following notes payable as a result of the acquisition of OAMI as of September 30, 2005 (see Note 12) (dollars in thousands):

	Principal Balance		Stated Rate		Maturity Date
02-1 Notes (1) (2)	$	14,000	10	%	December 2007
03-1 Notes (2) (3)	$	16,000	10	%	June 2008

⁽¹⁾ Interest is payable quarterly with annual principal payments of $2,000,000 payable June 30 of each year

⁽²⁾ Secured by certain equity investments in mortgage residual interests of the Company

⁽³⁾ Interest is payable quarterly with annual principal payments of $1,750,000 payable December 31 of each year

Each issuance of notes can be prepaid at the option of OAMI, in whole or in part, without premium or penalty after the pre-payment date as defined in each respective private placement memorandum.

8. Note Payable:

In connection with the acquisition of NAPE, the Company assumed a $20,800,000 term note payable (“Term Note”). The principal balance on the Term Note is due in full upon the expiration in June 2009. The Term Note bears interest based on a tiered rate structure to a maximum rate of 165 basis points above LIBOR. Based on the current debt rating of the Company, the current interest rate is 120 basis points above LIBOR or 4.99% at September 30, 2005. In accordance with the terms of Term Note, the Company is required to meet certain restrictive financial covenants, which among other things, require the Company to maintain certain (i) maximum leverage ratios, (ii) debt service coverage and (iii) cash flow coverage.

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9. Income Taxes:

For income tax purposes, the Company has one TRS, Services, in which certain real estate activities are conducted. Services treats depreciation expense and certain other items differently for tax than for financial reporting purposes. The principal differences between Services’ effective tax rates for the quarters and nine months ended September 30, 2005 and 2004 and the statutory rates relate to state taxes and nondeductible expenses such as meals and entertainment expenses.

The components of the net income tax liability consist of the following (dollars in thousands):

	September 30, 2005			December 31, 2004
Temporary differences:
Depreciation	$	(127	)	$	(211	)
Stock based compensation		39			59
Equity investments		139			56
Cost/basis difference		(25,405	)		—
Other		79			(96	)
Net deferred income tax liability	$	(25,275	)	$	(192	)
Current income taxes asset payable		489			(510	)
Income tax liability	$	(24,786	)	$	(702	)

The income tax (expense) benefit consists of the following (dollars in thousands):

	Quarter Ended September 30,						Nine Months Ended September 30,
	2005			2004			2005			2004
Net earnings (loss) of Services before income taxes	$	4,832		$	2,761		$	26,285		$	3,106
Provision for income taxes:
Current:
Federal		(1,438	)		—			(2,135	)		—
State and local		(270	)		—			(401	)		—
Deferred:
Federal		(339	)		(883	)		(537	)		(1,089	)
Extraordinary Gain – Federal		—			—			(6,081	)		—
State and local		(63	)		(165	)		(101	)		(205	)
Extraordinary Gain – State		—			—			(1,142	)		—
Total provision for income taxes		(2,110	)		(1,048	)		(10,397	)		(1,294	)
Total Services’ net earnings	$	2,722		$	1,713		$	15,888		$	1,812

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10. Earnings from Discontinued Operations:

Real Estate – Investment Portfolio – In accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” the Company has classified the revenues and expenses related to (i) all Investment Properties that were sold and expired leasehold interests, and (ii) any Investment Property that was held for sale as of September 30, 2005, as discontinued operations.

	Quarter Ended September 30,						Nine Months Ended September 30,
	2005			2004			2005		2004
Revenues:
Rental income from operating leases	$	117		$	1,259		$	3,205	$	3,184
Earned income from direct financing leases		—			63			—		191
Real estate expense reimbursement 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
Earnings from discontinued operations before gain on disposition of real estate		61			1,102			1,115		2,560
Gain (loss) on disposition of real estate		(89	)		253			9,712		1,138
Earnings (loss) from discontinued operations	$	(28	)	$	1,355		$	10,827	$	3,698

The Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. Events or circumstances that may occur include changes in real estate market conditions, the ability of the Company to re-lease properties that are currently vacant or become vacant, and the ability to sell properties at an attractive return. Generally, the Company makes a provision for impairment loss if estimated future undiscounted operating cash flows plus estimated disposition proceeds are less than the current book value. Impairment losses are measured as the amount by which the current book value of the asset exceeds the estimated fair value of the asset. After such review, the Company recognized an $1,978,000 impairment on its Investment Portfolio during the nine months ended September 30, 2005. The Company did not recognize an impairment in discontinued operations during the quarter ended September 30, 2005 or the quarter and nine months ended September 30, 2004.

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Real Estate – Inventory Portfolio – The Company has classified the revenues and expenses related to (i) its Inventory Properties, which generated rental revenues prior to disposition, and (ii) the Inventory Properties which had generated rental revenues and were held for sale as of September 30, 2005, as discontinued operations.

	Quarter Ended September 30,						Nine Months Ended September 30,
	2005			2004			2005			2004
Revenues:
Rental income from operating leases	$	250		$	590		$	1,394		$	1,738
Real estate expense reimbursement from tenants		1			46			39			168
Gain on disposition of real estate held for sale		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
Earnings from discontinued operations before provision for income taxes and minority interest		12,398			7,856			17,739			12,298
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

11. Performance Incentive Plan:

Pursuant to the Company’s 2000 Performance Incentive Plan, the Company has granted and issued shares of restricted stock to certain officers and directors of the Company. The following information is a summary of the restricted stock grants for the nine months ended September 30, 2005:

	Shares	Annual Vesting Rate	Number of Years for Vesting	Shares are 100% Vested on
Officers:
March 2005	92,900	1/5	5	January 1, 2010
April 2005	7,000	1/7	7	January 1, 2012
July 2005	500	1/7	7	January 1, 2012
	100,400
Directors:
June 2005	3,000	1/2	2	January 1, 2007
	3,000

During the nine months ended September 30, 2005, the Company cancelled 28,535 shares of restricted stock. Compensation expense for the restricted stock is determined based upon fair value at the date of grant and is recognized as the greater of the amount amortized over a straight-line basis or the amount vested over the vesting periods.

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12. Business Combinations:

Orange Avenue Mortgage Investment, Inc. – On May 2, 2005, the Company exercised its option to acquire 78.9 percent of the common shares of OAMI for $9,379,000. In December 2004, OAMI sold its loan origination, securitization and servicing operations and the majority of its assets and liabilities to the Buyer, resulting in OAMI becoming a passive owner in a pool of seven commercial real estate loan securitization residual interests. The loans in each of the securitizations are secured by first mortgages on commercial real estate and generally borrower personal guarantees. As a result of the option exercise, the Company has consolidated OAMI in its condensed consolidated financial statements.

According to SFAS No. 141, “Business Combinations,” under the purchase method of accounting, the Company recorded the assets and liabilities of OAMI at fair value. The Company recognized an extraordinary gain equal to the excess fair value over the option price, as all assets acquired were financial assets, current assets and deferred tax assets. The Company recognized an extraordinary gain of $11,805,000, net of income tax expense of $7,223,000. The following table summarizes the estimated fair values of the assets and liabilities of OAMI on May 2, 2005 (dollars in thousands):

Mortgage residual interests	$	78,410
Notes receivable		3,272
Cash and cash equivalents		10,285
Restricted cash		17,427
Other assets		7,377
Total assets acquired	$	116,771
Notes payable – secured	$	32,000
Other liabilities		1,028
Deferred tax liability		17,383
Total liabilities assumed		50,411
Minority interest		29,644
Net assets	$	36,716

The following table summarizes the extraordinary gain recognized by the Company (dollars in thousands):

Company’s share of net assets acquired	$	28,676
Less option price		(9,379	)
Basis of option		(269	)
Extraordinary gain		19,028
Income tax expense		(7,223	)
Extraordinary gain, net of income tax expense	$	11,805

The Company’s net earnings for the quarter and nine months ended September 30, 2005, includes OAMI’s net earnings since the date of the acquisition of $661,000 and $1,076,000, respectively.

Between June 2001 and July 2003, a wholly-owned subsidiary of the Company, Net Lease Funding, Inc. (“NLF”) entered into five limited liability company (“LLC”) agreements (collectively, “LLCs”) with OAMI. Kevin B. Habicht, an officer and director of the Company is an officer, director and indirect shareholder of OAMI. Craig Macnab, an officer and director of the Company and Julian E. Whitehurst, an officer of the Company, are each an officer and director of OAMI. Each of the LLCs holds an interest in mortgage loans and is 100 percent equity financed. Prior to the acquisition of the 78.9 percent equity interest in OAMI in May 2005, the Company held a non-voting and non-controlling interest in each of the LLCs ranging between 36.7 and 44.0 percent and accounted for its investment under the equity method of accounting (see Note 6).

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As a result of the Company’s acquisition of 78.9 percent equity interest in OAMI in May 2005, OAMI is no longer accounted for as an equity investment and is now included in the Company’s consolidated financial statements. During the nine months ended September 30, 2005 and 2004, the Company received $2,749,000 and $6,959,000, respectively, in distributions from the LLCs. For the nine months ended September 30, 2005 and 2004, the Company recognized $1,467,000 and $3,886,000 of earnings, respectively. The Company recognized $1,235,000 during the quarter ended September 30, 2004 from the LLCs. The Company did not recognize earnings from the LLCs during the quarter ended September 30, 2005.

In 2003, in connection with a loan to OAMI, the Company pledged a portion of its interest in two of the LLCs as partial collateral for the loan (see Note 7).

National Properties Corporation – On June 16, 2005, the Company acquired 100 percent of National Properties Corporation (“NAPE”), a publicly traded company, which owned 43 freestanding properties located in 12 states. Results of NAPE operations have been included in the condensed consolidated financial statements since the date of acquisition. NAPE shareholders received 1,636,532 newly issued shares of the Company’s common stock. According to SFAS No. 141, “Business Combinations,” under the purchase method of accounting, the acquisition price of $32,199,000 was allocated to the assets acquired and liabilities assumed at their fair values. The following table summarizes the estimated fair values of the assets acquired and liabilities assumed in the acquisition (dollars in thousands):

Real estate, Investment Portfolio:
Accounted for using the operating method	$	58,542
Cash and cash equivalents		1,276
Other assets		6,757
Total assets acquired	$	66,575
Note payable	$	28,200
Other liabilities		6,176
Total liabilities assumed		34,376
Net assets acquired	$	32,199

The Company’s net earnings for the quarter and nine months ended September 30, 2005, includes NAPE’s net earnings since the date of acquisition of $849,000 and $1,009,000, respectively.

13. Related Party Transactions:

For additional related party disclosures see Notes 4 and 12.

In June 2005, James M. Seneff, Jr. and Robert A. Bourne each retired from the Board of Directors.

In September 2000, a wholly owned subsidiary of Services entered into a line of credit agreement, as amended in September 2004, for $35,000,000, with OAMI. Interest was payable monthly and the principal balance was due in full upon termination of the line of credit. In December 2004, the credit agreement was terminated. During the nine months ended September 30, 2004, the Company recognized $1,325,000 of interest and fee income related to the line of credit, of which $559,000 was recognized during the quarter ended September 30, 2004.

An affiliate of James M. Seneff, Jr., a former director of the Company, provided certain administrative, tax and technology services to the Company. In connection therewith, the Company incurred $769,000 in fees relating to these services during the nine months ended September 30, 2004, of which $242,000 was incurred during the quarter ended September 30, 2004. The Company did not incur any additional expenses during the quarter or nine months ended September 30, 2005.

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The Company provided disposition and development services to an affiliate of James M. Seneff Jr. and Robert A. Bourne, each a former member of the Company’s board of directors. In connection therewith, during the quarter and nine months ended September 30, 2005 the Company received an aggregate of $180,000 and $886,000, respectively, in fees.

In 2002, the Company extended the maturity dates to dates between June and December 2007 on four mortgages securing an original aggregate principal indebtedness totaling $8,514,000 from affiliates of James M. Seneff, Jr. and Robert A. Bourne, each a former member of the Company’s board of directors. In June 2005, the Company received the outstanding principal balance for three of the mortgage loans. In July 2005, the Company received the entire outstanding principal balance for the remaining mortgage loan. As of December 31, 2004, the aggregate principal balance of the four mortgages, included in mortgages, notes and accrued interest receivable on the balance sheet was $2,482,000. In connection therewith, the Company recorded $96,000 as interest and other income from real estate transactions during the nine months ended September 30, 2005. During the quarter and nine months ended September 30, 2004, the Company recorded $187,000 and $62,000, respectively, as interest and other income from real estate transactions.

Prior to January 2005, the Company held a 98.7 percent, non-controlling interest in Services. In January 2005, the Company entered into a purchase agreement with Services Investors, which provided that the Company would acquire their collective 1.3 percent interest, which was 100 percent of the voting interest in Services. Effective January 1, 2005, the Company acquired the remaining interest in Services increasing the Company’s ownership in Services to 100 percent.

The Company paid Services Investors $870,000 for the 1.3 percent voting interest, as determined by a third-party valuation. The Company allocated the difference between the purchase price, including transaction costs, and the book value of the 1.3 percent interest to the fair market value of the assets and liabilities acquired. The fair value of the assets and liabilities was determined by the third-party valuation, and the excess purchase price was allocated to the acquired assets on a pro rata basis, in accordance with the third-party valuation report.

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14. Segment Information:

The Company has identified two primary financial segments: (i) Investment Assets and (ii) Inventory Assets. The following table represents the segment data and a reconciliation to the Company’s condensed consolidated totals for the quarters ended September 30 (dollars in thousands):

	Investment Assets		Inventory Assets			Eliminations (Intercompany)			Condensed Consolidated Totals
2005
External revenues	$	35,219	$	12,920		$	—		$	48,139
Intersegment revenues	$	1,119	$	(426	)	$	(693	)	$	—
Earnings from continuing operations	$	19,355	$	(4,260	)	$	(2,722	)	$	12,373
Net earnings	$	19,327	$	(75	)	$	(2,722	)	$	16,530
Total assets	$	1,548,845	$	143,072		$	(142,540	)	$	1,549,377
2004
External revenues	$	31,925	$	11,448		$	—		$	43,373
Intersegment revenues	$	1,327	$	(470	)	$	(857	)	$	—
Earnings from continuing operations	$	15,649	$	(1,078	)	$	(1,713	)	$	12,858
Net earnings	$	17,005	$	1,713		$	(1,713	)	$	17,005
Total assets	$	1,323,258	$	113,291		$	(108,717	)	$	1,327,832

The following table represents the segment data and a reconciliation to the Company’s condensed consolidated totals for the nine months ended September 30 (dollars in thousands):

	Investment Assets		Inventory Assets			Eliminations (Intercompany)			Condensed Consolidated Totals
2005
External revenues	$	106,624	$	20,884		$	—		$	127,508
Intersegment revenues	$	2,282	$	(565	)	$	(1,717	)	$	—
Earnings from continuing operations	$	65,119	$	3,699		$	(15,888	)	$	52,930
Net earnings	$	75,946	$	11,170		$	(15,888	)	$	71,228
Total assets	$	1,548,845	$	143,072		$	(142,540	)	$	1,549,377
2004
External revenues	$	95,415	$	18,894		$	—		$	114,309
Intersegment revenues	$	2,663	$	(580	)	$	(2,083	)	$	—
Earnings from continuing operations	$	42,310	$	(3,561	)	$	(1,812	)	$	36,937
Net earnings	$	46,008	$	1,812		$	(1,812	)	$	46,008
Total assets	$	1,323,258	$	113,291		$	(108,717	)	$	1,327,832

15. Subsequent Event:

Effective November 1, 2005, Commercial Net Lease Realty Services, Inc. merged into Commercial Net Lease Realty, Inc. A former TRS subsidiary became the TRS holding company for the Company’s development and exchange activities.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This information contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These statements generally are characterized by the use of terms such as “believe,” “expect” and “may.” The terms “Registrant” or “Company” refer to Commercial Net Lease Realty, Inc. and its majority owned and controlled subsidiaries. These subsidiaries include the wholly owned qualified real estate investment trust (“REIT”) subsidiaries of Commercial Net Lease Realty, Inc., additionally, the taxable REIT subsidiaries and their majority owned and controlled subsidiaries (the “NNN TRS”).

Although management believes that the expectations reflected in the forward-looking statements are based upon reasonable assumptions, the Company’s actual results could differ materially from those set forth in the forward-looking statements. Certain factors that might cause a difference include the following:

• the ability of tenants to make payments under their respective leases, including the Company’s reliance on certain major tenants and the ability of the Company to re-lease properties that are currently vacant or that become vacant;

• the ability of the Company to locate suitable tenants for its properties;

• changes in real estate market conditions;

• the inherent risks associated with owning real estate (including: local real estate market conditions, governing laws and regulations and illiquidity of real estate investments);

• the ability to sell properties at an attractive price;

• the ability of borrowers to make payments of principal and interest under structured finance investments made by the Company to such borrowers;

• the ability of the Company to gain access to the underlying collateral for any structured finance investments made by the Company to borrowers;

• the ability of the Company to repay debt financing obligations;

• the ability of the Company to refinance amounts outstanding under its credit facilities at maturity on terms favorable to the Company;

• the Company’s continued ability to raise capital through the issuance of debt or equity;

• the availability of other debt and equity financing alternatives;

• market conditions affecting the Company’s equity capital;

• changes in interest rates under the Company’s current credit facilities and under any additional variable rate debt arrangements that the Company may enter into in the future;

• the ability of the Company to be in compliance with certain debt covenants;

• changes in the fair value of mortgage residual interests;

• changes in default rates or prepayment rates of mortgage loans underlying mortgage residual interests; or other changes in the assumptions used to determine the value of these interests;

• the reliability of prior loan underwriting documents and acts related to the mortgage loans underlying the mortgage residual interests;

• the loss of any member of the Company’s management team;

• the ability of the Company to successfully implement its selective acquisition strategy or to fully realize the anticipated benefits of renovation or development projects;

• the ability of the Company to integrate acquired properties and operations into existing operations;

• the ability of the Company to maintain internal controls and processes to ensure all transactions are accounted for properly, all relevant disclosures and filings are timely made in accordance with all rules and regulations, and any potential fraud or embezzlement is thwarted or detected;

• changes in general economic conditions;

• changes in federal or state tax rules or regulations that could have adverse tax consequences; and

• the ability of the Company to qualify as a real estate investment trust for federal income tax purposes.

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Given these uncertainties, readers are cautioned not to place undue reliance on such statements. Management of the Company currently knows of no trends that will have a material adverse effect on its liquidity, capital resources or results of operations.

Overview

Commercial Net Lease Realty, Inc., a Maryland corporation, is a fully integrated REIT formed in 1984. The Company’s operations are divided into two primary business segments: (i) investment assets, including real estate assets, structured finance investments and mortgage residual interest assets (“Investment Assets”), and (ii) inventory real estate assets (“Inventory Assets”). The real estate investment assets and structured finance investments (included in mortgages and notes receivable on the balance sheet), are operated through Commercial Net Lease Realty, Inc. and its wholly owned qualified REIT subsidiaries. The Company, directly and indirectly, through investment interests, acquires, owns, invests in, manages and develops primarily retail properties that are generally leased to established tenants under long-term commercial net leases (the “Investment Properties” or “Investment Portfolio”). As of September 30, 2005, the Company owned 464 Investment Properties, with an aggregate gross leasable area of 8,972,000 square feet, located in 41 states and leased to established tenants, including Academy, Barnes & Noble, Best Buy, Borders, CVS, Eckerd, OfficeMax, The Sports Authority, Uni-Mart and the United States of America. In addition to the Investment Properties, as of September 30, 2005, the Company had $26,632,000 and $69,917,000 in structured finance investments and mortgage residual interest assets, respectively.

As of October 31, 2005, the inventory assets were operated through Commercial Net Lease Realty Services, Inc. (“Services”) and its majority owned and controlled subsidiaries. Effective November 1, 2005, Services merged with and into Commercial Net Lease Realty, Inc., and a former Services subsidiary became the holding company for the Company’s development and exchange activities. The inventory assets are operated through the NNN TRS. The NNN TRS, directly and indirectly, through investment interests, owns real estate primarily for the purpose of selling the real estate to purchasers who are looking for replacement like-kind exchange property or to other purchasers with different investment objectives (“Inventory Properties” or “Inventory Portfolio”). The NNN TRS, develops Inventory Properties (“Development Properties” or “Development Portfolio”) and also acquires existing Inventory Properties (“Exchange Properties” or “Exchange Portfolio”). As of September 30, 2005, the NNN TRS owned 39 Inventory Properties: 21 completed inventory, 13 under construction and 5 land parcels. The Company’s management team focuses on certain key indicators to evaluate the financial condition and operating performance of the Company. The key indicators for the Company include items such as, the composition of the Company’s Investment Portfolio and structured finance investments (such as tenant, geographic and industry classification diversification), the occupancy rate of the Company’s Investment Portfolio, certain financial performance ratios and profitability measures, industry trends and performance compared to that of the Company, and returns the Company receives on its invested capital.

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Liquidity

General. Historically, the Company’s demand for funds has been primarily for (i) payment of operating expenses and dividends, (ii) property acquisitions, structured finance investments, capital expenditures and development, either directly or through investment interests, (iii) payment of principal and interest on its outstanding indebtedness, and (iv) other investments.

Contractual Obligations and Commercial Commitments. The information in the following table summarizes the Company’s contractual obligations and commercial commitments outstanding as of September 30, 2005. The table presents principal cash flows by year-end of the expected maturity for debt obligations and commercial commitments outstanding as of September 30, 2005. As the table incorporates only those exposures that exist as of September 30, 2005, it does not consider those exposures or positions which may arise after that date.

	Expected Maturity Date (dollars in thousands)
	Total		2005		2006		2007		2008		2009		Thereafter
Long-term debt (1)	$	548,884	$	2,660	$	23,991	$	20,913	$	113,190	$	21,800	$	366,330
Revolving credit facility		120,800		—		120,800		—		—		—		—
Operating lease		12,226		296		1,200		1,236		1,273		1,311		6,910
Total contractual cash obligations(2)	$	681,910	$	2,956	$	145,991	$	22,149	$	114,463	$	23,111	$	373,240

⁽¹⁾ Includes amounts outstanding under the mortgages payable, secured notes payable, notes payable and financing lease obligation and excludes unamortized note discounts and unamortized interest rate hedge gain.

⁽²⁾ Excludes $5,513,000 of accrued interest payable.

⁽³⁾ As of September 30, 2005, the Company does not have any other contractual cash obligations, such as purchase obligations, financing lease obligations or other long-term liabilities other than those reflected in the table. In addition to items reflected in the table, the Company has two series of preferred stock with cumulative preferential cash distributions (see “Liquidity – Dividends”).

Management anticipates satisfying these obligations with a combination of the Company’s current capital resources, cash on hand, its revolving credit facility and debt or equity financings.

In connection with the development of 13 Inventory Properties, the Company has agreed to fund construction commitments of $51,970,000, of which $31,670,000 has been funded as of September 30, 2005. The Company anticipates funding the additional costs from borrowings under the Company’s revolving credit facility.

The Company has also guaranteed 41.67 percent of a $14,000,000 promissory note on behalf of an unconsolidated affiliate. The maximum obligation to the Company is $5,834,000, plus interest, and the guarantee shall continue through the loan maturity in December 2010. In the event the Company is required to perform under this guarantee, the Company would potentially use proceeds from its revolving credit facility.

Many of the Investment Properties are recently constructed and are generally net leased. Consequently, management anticipates that capital demands to meet obligations with respect to these Investment Properties will be modest for the foreseeable future and can be met with funds from operations and working capital. The 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 Investment Properties, including the DC Office Properties, are subject to leases under which the Company retains responsibility for certain costs and expenses associated with the Investment Property. Management anticipates the costs associated with the Company’s vacant Investment Properties or those Investment Properties that become vacant will also be met with funds from operations and working capital. The Company may be required to borrow under the Company’s revolving credit facility or use other sources of capital in the event of unforeseen significant capital expenditures.

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The lost revenues and increased property expenses resulting from the rejection by any bankrupt tenant of any of their respective leases with the Company could have a material adverse effect on the liquidity and results of operations of the Company if the Company is unable to re-lease the Investment Properties at comparable rental rates and in a timely manner. As of October 31, 2005, the Company owns 10 vacant, unleased Investment Properties, which account for approximately 1.8 percent of the total gross leasable area of the Company’s Investment Portfolio. Additionally, 1.0 percent of the total gross leasable area of the Company’s Investment Portfolio is leased to three tenants that have filed a voluntary petition for bankruptcy under either Chapter 7 or Chapter 11 of the U.S. Bankruptcy Code. As a result, the tenants have the right to reject or affirm its lease with the Company.

Dividends. The Company has made an election to be taxed as a REIT under Sections 856 through 860 of the Internal Revenue Code of 1986, as amended, and related regulations. The Company generally will not be subject to federal income tax on income that it distributes to its stockholders, providing it distributes at least 100 percent of its REIT taxable income and meets certain other requirements for qualifying as a REIT. If the Company fails to qualify as a REIT in any taxable year, it will be subject to federal income tax on its taxable income at regular corporate rates and will not be permitted to qualify for treatment as a REIT for federal income tax purposes for four years following the year during which qualification is lost. Such an event could materially affect the Company’s income and its ability to pay dividends.

One of the Company’s primary objectives, consistent with its policy of retaining sufficient cash for reserves and working capital purposes and maintaining its status as a REIT, is to distribute a substantial portion of its funds available from operations to its stockholders in the form of dividends. During the nine months ended September 30, 2005 and 2004, the Company declared and paid dividends to its common stockholders of $51,399,000 and $49,382,000, respectively, or $0.975 and $0.965 per share, respectively, of common stock.

Holders of the 9% Non-Voting Series A Preferred Stock (the “Series A Preferred Stock”) are entitled to receive, when and as authorized by the board of directors, cumulative preferential cash distributions at the rate of nine percent of the $25.00 liquidation preference per annum (equivalent to a fixed annual amount of $2.25 per share). For each of the nine months ended September 30, 2005 and 2004, the Company declared and paid dividends to its Series A Preferred Stock stockholders of $3,006,000 or $1.6875 per share of stock.

Holders of the 6.70% Non-Voting Series B Preferred Cumulative Convertible Perpetual Preferred Stock (the “Series B Convertible Preferred Stock”), are entitled to receive, when and as authorized by the board of directors, cumulative preferential cash distributions at the rate of 6.70 percent of the $2,500.00 liquidation preference per annum (equivalent to a fixed annual amount of $167.50 per share). For each of the nine months ended September 30, 2005 and 2004, the Company declared and paid dividends to its Series B Convertible Preferred Stock stockholders of $1,256,000, or $125.625 per share of stock.

Restricted Cash. Restricted cash consists of amounts held in restricted escrow accounts in connection with the sale of certain assets of OAMI to a third party (the “Buyer”) (see “Business Combinations”). The use of the cash is restricted pursuant to agreements with the Buyer and will be released to OAMI in December 2007 subject to any pending indemnity claims. The amount held in these accounts at September 30, 2005 was $27,018,000. The carrying value of $26,500,000 is calculated as the present value of the expected release of monies.

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Capital Resources

Generally, cash needs for property acquisitions, structured finance investments, capital expenditures, development and other investments have been funded by equity and debt offerings, bank borrowings, the sale of properties and, to a lesser extent, from internally generated funds. Cash needs for other items have been met from operations. Potential future sources of capital include proceeds from the public or private offering of the Company’s debt or equity securities, secured or unsecured borrowings from banks or other lenders, proceeds from the sale of properties, as well as undistributed funds from operations. For the nine months ended September 30, 2005 and 2004, the Company generated $56,753,000 and $45,543,000, respectively, of net cash from operating activities. The change in cash provided by operations for the nine months ended September 30, 2005 and 2004, is primarily the result of changes in revenues and expenses as discussed in “Results of Operations.” Cash generated from operations could be expected to fluctuate in the future.

Indebtedness. The Company expects to use indebtedness primarily for property acquisitions and development of retail properties, either directly or through investment interests and structured finance investments. As of September 30, 2005, there were no material changes in the Company’s indebtedness other than those discussed below.

In May 2003, the Company entered into an amended and restated loan agreement for a $225,000,000 revolving credit facility (the “Credit Facility”) which amended the Company’s existing loan agreement by (i) increasing the borrowing capacity to $225,000,000 from $200,000,000, (ii) lowering the interest rates of the tiered rate structure from a maximum of 150 points above LIBOR to a maximum rate of 135 basis points above LIBOR (based upon the debt rating of the Company, the current interest rate is 100 basis points above LIBOR), (iii) requiring the Company to pay a commitment fee based on a tiered rate structure to a maximum of 30 basis points per annum (based upon the debt rating of the Company), (iv) providing for a competitive bid option for up to 50 percent of the facility amount, (v) extending the expiration date to May 9, 2006 and (vi) amending certain of the financial covenants of the Company. The principal balance is due in full upon expiration of the Credit Facility in May 2006, which the Company may request to be extended for an additional 12-month period with the consent of the lender. As of September 30, 2005, $120,800,000 was outstanding and approximately $104,200,000 was available for future borrowings under the Credit Facility, excluding undrawn letters of credit. In accordance with the terms of the Credit Facility, the Company is required to meet certain restrictive financial covenants, which, among other things, require the Company to maintain certain (i) maximum leverage ratios, (ii) debt service coverage and (iii) cash flow coverage.

Notes Payable – Secured. The Company’s consolidated financial statements included the following notes payable as of September 30, 2005 as a result of the acquisition of equity interest of Orange Avenue Mortgage Investments, Inc. (“OAMI”) (dollars in thousands) (see “Business Combinations”):

	Principal Balance		Stated Rate		Maturity Date
02-1 Notes (1) (2)	$	14,000	10	%	December 2007
03-1 Notes (2) (3)	$	16,000	10	%	June 2008

⁽¹⁾ Interest is payable quarterly with annual principal payments of $2,000,000 payable June 30 of each year

⁽²⁾ Secured by certain equity investments of the Company

⁽³⁾ Interest is payable quarterly with annual principal payments of $1,750,000 payable December 31 of each year

Each issuance of notes can be prepaid at the option of OAMI, in whole or in part, without premium or penalty after the pre-payment date as defined in each respective private placement memorandum.

Note Payable. In connection with the acquisition of National Properties Corporation (“NAPE”), the Company assumed a $20,800,000 term note payable (“Term Note”), and a line of credit with an outstanding balance of $7,400,000. The line of credit was paid in full with proceeds from the Company’s

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existing line of credit during June 2005. The principal balance on the Term Note is due in full upon the expiration in June 2009. The Term Note bears interest based on a tiered rate structure to a maximum rate of 165 basis points above LIBOR. Based on the current debt rating of the Company, the current interest rate is 120 basis points above LIBOR or 4.99% at September 30, 2005. In accordance with the terms of Term Note, the Company is required to meet certain restrictive financial covenants, which among other things, require the Company to maintain certain (i) maximum leverage ratios, (ii) debt service coverage and (iii) cash flow coverage.

Management anticipates satisfying these obligations with a combination of the Company’s current capital resources, cash on hand, its revolving Credit Facility and debt or equity financings.

Compensation Plan Equity Issuances. The Company believes that equity-based or equity-related compensation is an important element of overall compensation for the Company. Such compensation advances the interest of the Company by encouraging, and providing for, the acquisition of equity interests in the Company by directors, officers and other key associates, thereby aligning their interests with stockholders and providing them with a substantial motivation to enhance stockholder value.

Pursuant to the Company’s 2000 Performance Incentive Plan, the Company has granted and issued shares of restricted stock to certain officers and directors of the Company. The following information is a summary of the restricted stock grants subsequent to December 31, 2004:

	Shares	Annual Vesting Rate	Number of Years for Vesting	Shares are 100% Vested on
Officers:
March 2005	92,900	1/5	5	January 1, 2010
April 2005	7,000	1/7	7	January 1, 2012
July 2005	500	1/7	7	January 1, 2012
Total issued	100,400
Directors:
June 2005	3,000	1/2	2	January 1, 2007
Total issued	3,000

During the nine months ended September 30, 2005, the Company cancelled 28,535 shares of restricted stock.

Notes Receivable. Structured finance agreements are typically loans secured by a pledge of ownership interests in the borrowers (or their subsidiaries) that own the underlying real estate. These agreements are typically subordinated to senior loans secured by first mortgages encumbering the underlying real estate. Subordinated positions are generally subject to a higher risk of nonpayment of principal and interest than the more senior loans.

As of September 30, 2005, the structured finance investments bear a weighted average interest rate of 13.7% per annum, of which 11.4% is payable monthly and the remaining 2.3% accrues and is due at maturity. The principal balance of each structured finance investment is due in full at maturity, which range between January and November, 2007. The structured finance investments are secured by the borrowers’ pledge of their respective membership interests in the certain subsidiaries which own real estate. As of September 30, 2005 and December 31, 2004, the outstanding receivable balance of the structured finance investments was $26,632,000 and $29,390,000, respectively.

Business Combinations.

Orange Avenue Mortgage Investment, Inc. – On May 2, 2005, the Company exercised its option to acquire 78.9 percent of the common shares of OAMI for $9,379,000. In December 2004, OAMI sold its loan origination, securitization and servicing operations and the majority of its assets and liabilities to the Buyer, resulting in OAMI becoming a passive owner in a pool of seven commercial real estate loan

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securitization residual interests. The loans in each of the securitizations are secured by first mortgages on commercial real estate and generally borrower personal guarantees. As a result of the option exercise, the Company has consolidated OAMI in its condensed consolidated financial statements.

According to SFAS No. 141, “Business Combinations,” under the purchase method of accounting, the Company recorded the assets and liabilities of OAMI at fair value. The Company recognized an extraordinary gain equal to the excess fair value over the option price, as all assets acquired were financial assets, current assets and deferred tax assets. The Company recognized an extraordinary gain of $11,805,000, net of income tax expense of $7,223,000. The Company’s management believes this transaction will potentially increase funds from operations and cash distributions.

Between June 2001 and July 2003, a wholly-owned subsidiary of the Company, Net Lease Funding, Inc. (“NLF”) entered into five limited liability company (“LLC”) agreements (collectively, “LLCs”) with OAMI. Kevin B. Habicht, an officer and director of the Company is an officer, director and indirect shareholder of OAMI. Craig Macnab, an officer and director of the Company and Julian E. Whitehurst, an officer of the Company, are each an officer and director of OAMI. Each of the LLCs holds an interest in mortgage loans and is 100 percent equity financed. Prior to May 2005, the Company held a non-voting and non-controlling interest in each of the LLCs ranging between 36.7 and 44.0 percent and accounted for its investment under the equity method of accounting.

National Properties Corporation – On June 16, 2005, the Company acquired 100 percent of NAPE, a publicly traded company, which owned 43 freestanding properties located in 12 states. Results of NAPE operations have been included in the consolidated financial statements from the acquisition date. NAPE shareholders received 1,636,532 newly issued shares of the Company’s common stock. According to FASB No. 141, “Business Combinations,” under the purchase method of accounting, the acquisition price of $32,199,000 was allocated to the assets acquired and liabilities assumed at their fair values. The Company’s management believes this transaction will potentially increase funds from operations, increase diversification, produce cost savings from opportunities for economies of scale and operating efficiencies and enhance its capital markets profile.

Results of Operations

Property Analysis – Investment Portfolio

General. As of September 30, 2005, the Company owned 464 Investment Properties that are leased to established tenants, including Academy, Barnes & Noble, Best Buy, Borders, CVS, Eckerd, OfficeMax, The Sports Authority, Uni-Mart and the United States of America. Approximately 99 percent of the gross leasable area of the Company’s portfolio of Investment Properties was leased at September 30, 2005. The following table summarizes the Company’s portfolio of Investment Properties:

	September 30, 2005		December 31, 2004		September 30, 2004
Investment Properties Owned:
Number	464		362		352
Total gross leasable area (square feet)	8,972,000		8,542,000		8,250,000
Investment Properties Leased:
Number	456		351		337
Total gross leasable area (square feet)	8,902,000		8,322,000		7,965,000
Percent of total gross leasable area	99	%	97	%	97	%
Weighted average remaining lease term (years)	11		10		10

The Company regularly evaluates its (i) Investment Portfolio, (ii) financial position, (iii) market opportunities and (iv) strategic objectives and, based on certain factors, may decide to acquire or dispose of a given property or portfolio of properties.

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Property Acquisitions. Property acquisitions are typically funded using funds from the Company’s revolving Credit Facility, proceeds from debt or equity offerings and, to a lesser extent, proceeds generated from like-kind exchange transactions. The following table summarizes the Investment Property acquisitions:

	Quarter Ended September 30,				Nine Months Ended September 30,
	2005		2004		2005		2004
Acquisitions:
Number of Investment Properties		40		11		110		20
Gross leasable area (square feet)		175,000		130,000		879,000		502,000
Tenant improvements
Number of Investment Properties		1		—		2		1
Total dollars invested	$	49,557,000	$	30,067,000	$	175,712,000	$	84,129,000

Property acquisitions for 2005 include the 43 properties with an aggregate gross leasable area of 399,000 square feet acquired as a result of the merger with NAPE in June 2005.

Property Dispositions. The Company typically uses property sales proceeds to either (i) pay down the outstanding indebtedness of the Company’s Credit Facility or (ii) reinvest in real estate. The following table summarizes the properties held for investment sold by the Company:

	Quarter Ended September 30,					Nine Months Ended September 30,
	2005			2004		2005		2004
Number of properties		3			5		9		14
Gross leasable area		44,000			21,000		449,000		92,000
Net sales proceeds	$	3,744,000		$	5,670,000	$	36,959,000	$	19,674,000
Net gain (loss)	$	(89,000	)	$	253,000	$	9,712,000	$	1,138,000

During the quarter and nine months ended September 30, 2005, the Company used the proceeds from the dispositions to reinvest in real estate and to pay down the outstanding indebtedness under the Company’s Credit Facility. During the quarter and nine months ended September 30, 2004, the Company used the proceeds from the dispositions to pay down the outstanding indebtedness under the Company’s Credit Facility.

In accordance with Statement of Financial Accounting Standards (“SFAS”) No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” the Company has classified all Investment Properties sold and any leasehold interest that expires subsequent to December 31, 2001, as discontinued operations.

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Property Analysis – Inventory Portfolio

General. The Company’s inventory real estate assets are operated through the NNN TRS. The NNN TRS, directly and indirectly, through investment interests, owns real estate primarily for the purpose of selling the real estate to purchasers who are looking for replacement like-kind exchange property or to other purchasers with different investment objectives. The following summarizes the number of properties held for sale in the Company’s Inventory Portfolio:

	September 30, 2005	December 31, 2004	September 30, 2004
Development Portfolio:
Completed Properties	3	4	4
Properties under construction	13	7	6
Land parcels	5	4	3
	21	15	13
Exchange Portfolio	18	6	10
Total Inventory Properties	39	21	23

Property Acquisitions. Inventory Property acquisitions are typically funded using funds from the Company’s Credit Facility and proceeds from debt or equity offerings. The following table summarizes the Inventory Property acquisitions:

	Quarter Ended September 30,				Nine Months Ended September 30,
	2005		2004		2005		2004
Development Portfolio:
Number of properties		7		2		13		11
Dollars invested	$	6,461,000	$	1,198,000	$	25,360,000	$	16,900,000
Exchange Portfolio:
Number of properties		17		8		23		13
Dollars invested	$	12,670,000	$	7,278,000	$	14,636,000	$	18,057,000
Construction:
Dollars invested	$	12,826,000	$	7,448,000	$	24,183,000	$	24,432,000
Total dollars invested	$	31,957,000	$	15,924,000	$	64,178,000	$	59,389,000

Property Dispositions. The following table summarizes the number of Inventory Properties sold and the corresponding gain recognized from the disposition of Inventory Properties included in continuing and discontinued operations for each of the quarters and nine months ended September 30 (dollars in thousands):

	Quarter Ended September 30,								Nine Months Ended September 30,
	2005				2004				2005				2004
	# of Properties	Gain			# of Properties	Gain			# of Properties	Gain			# of Properties	Gain
Development	3	$	10,940		4	$	9,087		8	$	14,562		3	$	13,943
Exchange	2		214		2		250		10		1,953		11		407
Intercompany eliminations	—		426		—		470		—		565		—		580
Minority interest	—		(5,393	)	—		(4,680	)	—		(5,393	)	—		(4,662	)
	5	$	6,187		6	$	5,127		18	$	11,687		14	$	10,268

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Analysis of Revenue From Continuing Operations

General. During the quarter and nine months ended September 30, 2005, the Company’s rental income increased primarily due to the acquisition of Investment Properties (See “Results of Operations – Property Analysis – Investment Portfolio – Property Acquisitions”). The Company anticipates any significant increase in rental income will continue to come primarily from additional property acquisitions.

The following summarizes the Company’s revenues from continuing operations (dollars in thousands):

	Quarter Ended September 30,									Nine Months Ended September 30,
	2005					2004				2005				2004
				Percent of Total				Percent of Total				Percent of Total				Percent of Total
Rental income(1)	$	29,644		84.7	%	$	27,498	84.0	%	$	89,679	86.0	%	$	81,398	85.8	%
Real estate expense reimbursement from tenants		1,184		3.4	%		931	2.8	%		4,221	4.0	%		3,926	4.1	%
Gain (loss) on disposition of real estate, Inventory Portfolio		(138	)	(0.4	)%		2,413	7.4	%		708	0.7	%		4,126	4.4	%
Interest and other income from real estate transactions		1,507		4.3	%		1,890	5.8	%		4,940	4.8	%		5,423	5.7	%
Interest income on mortgage residual interests		2,797		8.0	%		—	—			4,719	4.5	%		—	—
Total revenues from continuing operations	$	34,994		100.0	%	$	32,732	100.0	%	$	104,267	100.0	%	$	94,873	100.0	%

⁽¹⁾ Includes rental income from operating leases and earned income from direct financing leases from continuing operations (“Rental Income”).

During the quarter ended September 30, 2005, the Company capitalized certain overhead costs included in general and administrative, real estate and interest expenses and deferred certain rental income related to the construction of tenant improvements on one of the Company’s Investment Properties related to prior periods. The net effect of the expense capitalization and the deferred revenue (collectively, the “TI Completion”) did not have a material impact on the Company’s condensed consolidated financial statements for the quarter and nine months ended September 30, 2005.

Revenue From Operations Analysis by Source of Income. The Company has identified two primary business segments, and thus, sources of revenue: (i) earnings from the Company’s Investment Assets and (ii) earnings from the Company’s Inventory Assets. Breaking down revenues into the Company’s two primary operating segments of revenue shows that revenues are historically consistent. Operating segments are components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision makers in deciding how to allocate resources and in assessing performance. The following table summarizes the revenues from continuing operations (dollars in thousands):

	Quarter Ended September 30,									Nine Months Ended September 30,
	2005					2004				2005				2004
				Percent of Total				Percent of Total				Percent of Total				Percent of Total
Investment Portfolio	$	35,072		100.2	%	$	30,552	93.3	%	$	103,185	99.0	%	$	91,828	96.8	%
Inventory Portfolio		(78	)	(0.2	)%		2,180	6.7	%		1,082	1.0	%		3,045	3.2	%
Total revenue from continuing operations	$	34,994		100.0	%	$	32,732	100.0	%	$	104,267	100.0	%	$	94,873	100.0	%

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The Company evaluates its ability to pay dividends to stockholders by considering the combined effect of income from continuing and discontinued operations.

Rental Income increased 10.2 percent for the nine months ended September 30, 2005, as compared to the nine months ended September 30, 2004, and Rental Income increased 7.8 percent for the quarter ended September 30, 2005, as compared to the quarter ended September 30, 2004. Increases in Rental Income are primarily attributable to the addition of an aggregate gross leasable area of 879,000 square feet to the Company’s Investment Portfolio resulting from the acquisition of 110 Investment Properties during the nine months ended September 30, 2005, of which 134,000 square feet is attributable to the 40 Investment Properties acquired during the quarter ended September 30, 2005. However, this increase is partially offset by (i) the TI Completion and (ii) the Investment Property dispositions since September 30, 2004.

The gain on disposition of Inventory Properties included in continuing operations decreased for the quarter and nine months ended September 30, 2005, as compared to the quarter and nine months ended September 30, 2004, primarily due to the number of properties sold and the varying gross margin on sales of Inventory Properties. The following table summarizes the property dispositions included in continuing operations:

	Quarter Ended September 30,								Nine Months Ended September 30,
	2005				2004				2005			2004
	# of Properties	Gain			# of Properties	Gain			# of Properties	Gain		# of Properties	Gain
Continuing Operations	1	$	(138	)	1	$	2,413		3	$	708	6	$	4,126
Minority interest	—		—		—		(1,448	)	—		—	—		(1,430	)
Total continuing operations	1	$	(138	)	1	$	965		3	$	708	6	$	2,696

Interest and other income from real estate transactions decreased 20.3 and 8.9 percent for the quarter and nine months ended September 30, 2005, respectively, as compared to the quarter and nine months ended September 30, 2004, primarily due to a decrease in interest earned on the structured finance investments for the quarter and nine months ended September 30, 2005. The outstanding principal balance of the structured finance investments as of September 30, 2005 and 2004, was $26,632,000 and $46,663,000, respectively. However, the decrease was partially offset by the $180,000 and $886,000 of fee income received during the quarter and nine months ended September 30, 2005 in connection with the disposition and development services the Company provided to an affiliate of James M. Seneff, Jr. and Robert A. Bourne, each a former member of the Company’s board of directors.

During the nine months ended September 30, 2005 the Company recorded $4,719,000 in interest income from mortgage residual interests resulting from the acquisition of 78.9 percent of OAMI in May 2005, of which $2,797,000 was recorded during the quarter ended September 30, 2005 (see “Business Combinations”).

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Expense Analysis

General. During the quarters and nine months ended September 30, 2005, operating expenses decreased as a percentage of total revenues from continuing operations compared to the quarter and nine months ended September 30, 2004. The following summarizes the Company’s expenses (dollars in thousands):

	Quarter Ended September 30,								Nine Months Ended September 30,
	2005				2004				2005				2004
			Percent of Total				Percent of Total				Percent of Total				Percent of Total
General and administrative	$	6,232	40.6	%	$	5,847	45.2	%	$	16,841	40.0	%	$	17,148	41.2	%
Real estate		2,207	14.4	%		2,787	21.5	%		7,683	18.2	%		8,844	21.3	%
Depreciation and amortization		6,473	42.2	%		4,267	32.9	%		15,828	37.6	%		12,377	29.7	%
Transition costs		—	—			52	0.4	%		—	—			3,252	7.8	%
Impairments		422	2.8	%		—	—			1,750	4.2	%		—	—
Total operating expenses from continuing operations	$	15,334	100.0	%	$	12,953	100.0	%	$	42,102	100.0	%	$	41,621	100.0	%

General and administrative expenses increased by 6.6 percent for the quarter ended September 30, 2005, and remained proportionate as a percentage of total revenues at 17.8 percent. General and administrative expenses increased for the quarter ended September 30, 2005, primarily as a result of (i) an increase in state taxes, and (ii) increases in expenses related to personnel. The increase in general and administrative expenses was partially offset by the TI Completion.

General and administrative expenses decreased 1.8 percent for the nine months ended September 30, 2005, and decreased as a percentage of total revenues by 1.9 percent to 16.2 percent. General and administrative expenses decreased for the nine months ended September 30, 2005, primarily as a result of (i) decreases in expenses related to professional services provided to the Company, (ii) decreases in pursuit costs, and (iii) an increase in expenses capitalized to properties under construction and the TI Completion. The decrease in general and administrative expenses was partially offset by (i) an increase in state taxes and (ii) increases in expenses related to personnel.

Real estate expenses decreased 13.1 percent for the nine months ended September 30, 2005, and decreased as a percentage of total revenues from 9.3 to 7.4 percent for the nine months ended September 30, 2005. Real estate expenses decreased 20.8 percent for the quarter ended September 30, 2005, percent, and decreased as a percentage of total revenues from 8.5 to 6.3 for the quarter ended September 30, 2005. The decrease for the quarter and nine months ended September 30, 2005 is primarily related to (i) a decrease in tenant reimbursable real estate expenses, (ii) a decrease in property expenses related to vacant properties due to an increased property occupancy rate from 97 as of December 31, 2004 to 99 percent as of September 30, 2005, and (iii) the TI Completion.

Depreciation and amortization expense increased 27.9 percent for the nine months ended September 30, 2005, and increased from 13.0 to 15.2 percent of total revenues for the nine months ended September 30, 2005. Depreciation and amortization expense increased 51.7 percent for the quarter ended September 30, 2005, and increased from 13.0 to 18.5 percent of total revenues for the quarter ended September 30, 2005. The increase in depreciation and amortization expense for the quarter and nine months ended September 30, 2005, is primarily attributable to the depreciation on (i) the 110 Investment Properties with an aggregate gross leasable area of 879,000 square feet acquired during the nine months ended September 30, 2005, (ii) the 36 Investment Properties with an aggregate gross leasable area of 825,000 square feet acquired during the year ended December 31, 2004, and (iii) the TI Completion.

During the quarter and nine months ended September 30, 2004, the Company recorded transition costs of $52,000 and $3,252,000, respectively, including severance, accelerated vesting of restricted stock and recruitment costs in connection with the appointment of Craig Macnab as Chief Executive Officer in February 2004, and the resignation of Gary M. Ralston as President and Chief Operating Officer in May 2004.

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The Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. Events or circumstances that may occur include changes in real estate market conditions, the ability of the Company to re-lease properties that are currently vacant or become vacant, and the ability to sell properties at an attractive return. Generally, the Company calculates a possible impairment by comparing the future cash flows and the current net book value. Impairments are measured as the amount by which the current book value of the asset exceeds the fair value of the asset. After such review, the Company recognized a $422,000 and $1,750,000 impairment on its Investment Portfolio during the quarter and nine months ended September 30, 2005, respectively.

Analysis of Other Expenses and Revenues

General. During the quarter and nine months ended September 30, 2005, interest expense increased as a result of increased borrowing levels in connection the acquisition of additional properties but remained generally proportionate to the Company’s total revenues and expenses. The following summarizes the Company’s other expenses (revenues) from continuing operations (dollars in thousands):

	Quarter Ended September 30,										Nine Months Ended September 30,
	2005					2004					2005					2004
				Percent of Total					Percent of Total					Percent of Total					Percent of Total
Interest and other income	$	(415	)	(5.1	)%	$	(1,238	)	(16.8	)%	$	(1,191	)	(5.0	)%	$	(3,057	)	(14.6	)%
Interest expense		8,496		105.1	%		8,614		116.8	%		25,169		105.0	%		24,042		114.6	%
Total other expenses (revenues) from continuing operations	$	8,081		100.0	%	$	7,376		100.0	%	$	23,978		100.0	%	$	20,985		100.0	%

Compared to prior year amounts, other expenses (revenues) increased 14.3 percent for the nine months ended September 30, 2005 and increased 9.6 percent for the quarter ended September 30, 2005. However other expenses (revenues) remained relatively proportionate to total revenues, ranging between 22.1 and 23.1 percent of total revenues for the each of quarters and nine months ended September 30, 2005 and 2004.

Interest expense decreased 1.4 and increased 4.7 percent for the quarter and nine months ended September 30, 2005, respectively, but remained relatively proportionate as a percentage of total revenues for both the quarter and nine months ended September 30, 2005. For both the quarters and nine months ended September 30, 2005 and 2004, interest expense ranged between 24.1 and 26.3 percent of total revenues.

The increase in interest expense for the nine months ended September 30, 2005 was primarily attributable to (i) an increase to $491,539,000 in the average long-term fixed rate debt outstanding as of September 30, 2005, (ii) the $26,041,000 financing lease obligation entered into in July 2004, and (iii) the $30,000,000 secured notes payable assumed in May 2005, in connection with the 78.9 percent equity interest in OAMI. There was a $768,000 decrease in the average variable rate debt outstanding as of September 30, 2005; however, the weighted average interest rate was approximately 189 basis points higher during the nine months ended September 30, 2005 compared to the nine months ended September 30, 2004. The increase in interest expense was partially offset by (i) the TI Completion, and (ii) the Company refinanced $100,000,000 of notes payable with an effective interest rate of 7.5% in June 2004 with a new issuance of notes payable with an effective interest rate of 5.9% due in June 2014.

The decrease in interest expense for the quarter ended September 30, 2005 was primarily attributable to the TI Completion, however, the decrease was partially offset by the $30,000,000 secured notes payable assumed in connection with the 78.9 percent equity interest in OAMI.

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Unconsolidated Affiliates

During the nine months ended September 30, 2005 and 2004, the Company recognized equity in earnings of unconsolidated affiliates of $1,291,000 and $3,694,000, respectively, $111,000 and $1,155,000 of which was recognized during the quarters ended September 30, 2005 and 2004, respectively. The decrease in equity in earnings of unconsolidated affiliates was primarily attributable to the acquisition of 78.9 percent equity interest in OAMI in May 2005. OAMI is no longer accounted for as an equity investment and is now included in the Company’s consolidated financial statements.

Earnings from Discontinued Operations

The Company records discontinued operations by the Company’s identified segments: (i) Investment Assets and (ii) Inventory Assets. As a result, in accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” the Company classified the revenues and expenses related to its Investment Properties that were sold and expired leasehold interests subsequent to December 31, 2001, as discontinued operations, as well as, the revenues and expenses related to any Investment Property that was held for sale at September 30, 2005. The Company also classified the revenues and expenses of its Inventory Properties that were sold and generated rental revenues as discontinued operations, as well as, the revenues and expenses related to its Inventory Properties held for sale which had generated rental revenues as of September 30, 2005. The following table summarizes the earnings from discontinued operations for the quarters ended September 30 (dollars in thousands):

	2005							2004
	# of Sold Properties	Gain on Disposition			Earnings			# of Sold Properties	Gain on Disposition		Earnings
Investment Portfolio	3	$	(89	)	$	(28	)	5	$	253	$	1,355
Inventory Portfolio, net of minority interest	4		6,325			4,185		5		4,162		2,792
	7	$	6,236		$	4,157		10	$	4,415	$	4,147

The following table summarizes the earnings from discontinued operations for the nine months ended September 30 (dollars in thousands):

	2005					2004
	# of Sold Properties	Gain on Disposition		Earnings		# of Sold Properties	Gain on Disposition		Earnings
Investment Portfolio	9	$	9,712	$	10,827	14	$	1,138	$	3,698
Inventory Portfolio	15		10,979		7,471	8		7,572		5,373
	24	$	20,691	$	18,298	22	$	8,710	$	9,071

The Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. Events or circumstances that may occur include changes in real estate market conditions, the ability of the Company to re-lease properties that are currently vacant or become vacant, and the ability to sell properties at an attractive return. Generally, the Company makes a provision for impairment loss if estimated future undiscounted operating cash flows plus estimated disposition proceeds are less than the current book value. Impairment losses are measured as the amount by which the current book value of the asset exceeds the estimated fair value of the asset. After such review, the Company recognized a $1,978,000 impairment on its Investment Portfolio during nine months ended September 30, 2005. The Company did not recognize an impairment in discontinued operations during the quarter ended September 30, 2005 or the quarter and nine months ended September 30, 2004.

The Company occasionally sells Investment Properties and may reinvest the proceeds of the sales to purchase new properties. The Company evaluates its ability to pay dividends to stockholders by considering the combined effect of income from continuing and discontinued operations.

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Extraordinary Gain

During the nine months ended September 30, 2005, the Company recognized an extraordinary gain of $11,805,000 net of income tax expense of $7,223,000, which is the difference between the Company’s portion of the net assets acquired in the acquisition of 78.9 percent equity interest in OAMI at fair market value and the purchase price (see “Business Combinations”).

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company is exposed to interest rate changes primarily as a result of its variable rate Credit Facility and its long-term, fixed rate debt used to finance the Company’s development and acquisition activities and for general corporate purposes. The Company’s interest rate risk management objective is to limit the impact of interest rate changes on earnings and cash flows and to lower its overall borrowing costs. To achieve its objectives, the Company borrows at both fixed and variable rates on its long-term debt.

The Company had no outstanding derivatives as of September 30, 2005 and December 31, 2004.

The information in the table below summarizes the Company’s market risks associated with its debt obligations outstanding as of September 30, 2005 and December 31, 2004. The table presents principal cash flows and related interest rates by year of expected maturity for debt obligations outstanding as of September 30, 2005. The variable interest rates shown represent the weighted average rates for the Credit Facility and Term Note at the end of the periods. As the table incorporates only those exposures that exist as of September 30, 2005, it does not consider those exposures or positions which could arise after this date. Moreover, because firm commitments are not presented in the table below, the information presented therein has limited predictive value. As a result, the Company’s ultimate realized gain or loss with respect to interest rate fluctuations will depend on the exposures that arise during the period, the Company’s hedging strategies at that time and interest rates.

	Debt Obligations (dollars in thousands)
	Variable Rate Credit Facility & Term Note(1)				Fixed Rate Mortgages				Fixed Rate Notes(3)(4)				Financing Lease Obligation(5)
	Debt Obligation		Weighted Average Interest Rate(2)		Debt Obligation		Weighted Average Interest Rate		Debt Obligation		Weighted Average Interest Rate		Debt Obligation		Weighted Average Interest Rate
2005	$	—	—		$	910	6.15	%	$	1,750	6.96	%	$	—	5.00	%
2006		120,800	4.54	%		20,241	5.99	%		3,750	7.02	%		—	5.00	%
2007		—	—			8,413	5.93	%		12,500	6.99	%		—	5.00	%
2008		—	—			1,190	5.86	%		111,915	6.72	%		—	5.00	%
2009		20,800	4.71	%		1,000	5.84	%		—	6.59	%		—	5.00	%
Thereafter		—	—			120,289	7.12	%		223,050	6.25	%		26,041	5.00	%
Total	$	141,600			$	152,043			$	352,965			$	26,041
Fair Value:
September 30, 2005	$	141,600	4.56	%	$	152,043	6.17	%	$	372,548	6.94	%	$	26,041	5.00	%
December 31, 2004	$	17,900	2.72	%	$	157,168	6.27	%	$	353,647	7.04	%	$	26,041	5.00	%

⁽¹⁾ Includes $20,800 Term Note that was assumed in connection with the acquisition of NAPE in June 2005.

⁽²⁾ The Credit Facility interest rate varies based upon a tiered rate structure ranging from 70 to 135 basis points above LIBOR based upon the debt rating of the Company. The Term Note interest rate varies based upon a tiered rate structure ranging from 85 to 165 basis points above LIBOR based upon the debt rating of the Company.

⁽³⁾ Fixed rate notes include both the Company’s secured and unsecured notes payable.

⁽⁴⁾ Net of unamortized note discounts and unamortized interest rate hedge gain.

⁽⁵⁾ In July 2004, the Company sold five investment properties for $26,041 and subsequently leased back the properties under a 10-year financing lease obligation. The Company may repurchase one or more of the properties subject to put and call options included in the financing lease.

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ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures. An evaluation was performed under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, of the effectiveness as of September 30, 2005 of the design and operation of the Company’s disclosure controls and procedures as defined in Rule 13a-15(e) under the Securities and Exchange Act of 1934, as amended. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the design and operation of these disclosure controls and procedures were effective as of the end of the period covered by this report.

Changes in Internal Control over Financial Reporting. There has been no change in the Company’s internal control over financial reporting during the most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

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PART II. OTHER INFORMATION

Item 1. Legal Proceedings. Not applicable.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds. 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.

The following exhibits are filed as a part of this report.

2.	Plan of Acquisition, Reorganization, Arrangement, Liquidation or Succession.
	2.1	Agreement and Plan of Merger, dated January 14, 2005, among Commercial Net Lease Realty, Inc., NAPE Acquisition, Inc., National Properties Corporation and Raymond Di Paglia (filed as Exhibit 99.1 to the Registrant’s Current Report on Form 8-K dated January 19, 2005, and incorporated herein by reference).
3.	Articles of Incorporation and By-laws
	3.1	First Amended and Restated Articles of Incorporation of the Registrant, as amended and supplemented (filed herewith).
	3.2	Articles Supplementary Establishing and Fixing the Rights and Preferences of a Series of Preferred Stock (9% Series A Non-Voting Preferred Stock, par value $0.01 per share (the “Series A Preferred Stock”) (filed as Exhibit 3 to the Registrant’s Form 8-A dated November 26, 2001 and filed with the Securities and Exchange Commission on November 27, 2001, and incorporated herein by reference).
	3.3	Articles Supplementary Classifying and Designating 10,000 Preferred Shares as the Series B Preferred Stock (filed as Exhibit 3 to the Registrant’s Form 8-A dated August 12, 2003 and filed with the Securities and Exchange Commission on August 13, 2003, and incorporated herein by reference).
	3.4	Third Amended and Restated Bylaws of the Registrant (filed as Exhibit 3.1 to the Registrant’s Form 8-K dated August 18, 2005 and filed with the Securities and Exchange Commission on August 23, 2005, and incorporated therein by reference).

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4.	Instruments Defining the Rights of Security Holders, Including Indentures
	4.1	Specimen Certificate of Common Stock, par value $0.01 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).
	4.2	Form of Indenture dated March 25, 1998, by and among Registrant and First Union National Bank, Trustee, relating to $100,000,000 of 7.125% Notes due 2008 (filed as Exhibit 4.1 to the Registrant’s Current Report on Form 8-K dated March 20, 1998, and incorporated herein by reference).
	4.3	Form of Supplemental Indenture No. 1 dated March 25, 1998, by and among Registrant and First Union National Bank, Trustee, relating to $100,000,000 of 7.125% Notes due 2008 (filed as Exhibit 4.2 to the Registrant’s Current Report on Form 8-K dated March 20, 1998, and incorporated herein by reference).
	4.4	Form of 7.125% Note due 2008 (filed as Exhibit 4.3 to the Registrant’s Current Report on Form 8-K dated March 20, 1998, and incorporated herein by reference).
	4.5	Form of Supplemental Indenture No. 3 dated September 20, 2000, by and among Registrant and First Union National Bank, Trustee, relating to $20,000,000 of 8.5% Notes due 2010 (filed as Exhibit 4.2 to the Registrant’s Current Report on Form 8-K dated September 20, 2000, and incorporated herein by reference).
	4.6	Form of 8.5% Notes due 2010 (filed as Exhibit 4.3 to the Registrant’s Current Report on Form 8-K dated September 20, 2000, and incorporated herein by reference).
	4.7	Form of Supplemental Indenture No. 4 dated as of May 30, 2002, by and among Registrant and Wachovia Bank, National Association, Trustee, relating to $50,000,000 of 7.75% Notes due 2012 (filed as Exhibit 4.2 to the Registrant’s Current Report on Form 8-K dated June 4, 2002, and incorporated herein by reference).
	4.8	Form of 7.75% Notes due 2012 (filed as Exhibit 4.3 to the Registrant’s Current Report on Form 8-K dated June 4, 2002, and incorporated herein by reference).
	4.9	Form of Supplemental Indenture No. 5 dated as of June 18, 2004, by and among Registrant and Wachovia Bank, National Association, Trustee, relating to $150,000,000 of 6.25% Notes due 2014 (filed as Exhibit 4.1 to the Registrant’s Current Report on Form 8-K dated June 15, 2004, and incorporated herein by reference).
	4.10	Form of 6.25% Notes due 2014 (filed as Exhibit 4.2 to the Registrant’s Current Report on Form 8-K dated June 15, 2004, and incorporated herein by reference).
	4.11	Articles Supplementary Establishing and Fixing the Rights and Preferences of a Series of Preferred Stock (the Series A Preferred Stock) (filed as Exhibit 3 to the Registrant’s Form 8-A dated November 26, 2001 and filed with the Securities and Exchange Commission on November 27, 2001, and incorporated herein by reference).

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	4.12	Specimen Stock Certificate relating to the Series A Preferred Stock (filed as Exhibit 4 to the Registrant’s Form 8-A dated November 26, 2001 and filed with the Securities and Exchange Commission on November 27, 2001, and incorporated herein by reference).
	4.13	Articles Supplementary Classifying and Designating 10,000 Preferred Shares as the Series B Preferred Stock (filed as Exhibit 3 to the Registrant’s Form 8-A dated August 12, 2003 and filed with the Securities and Exchange Commission on August 13, 2003, and incorporated herein by reference).
	4.14	Specimen Stock Certificate relating to the Series B Preferred Stock (filed as Exhibit 4 to the Registrant’s Form 8-A dated August 12, 2003 and filed with the Securities and Exchange Commission on August 13, 2003, and incorporated herein by reference).
10.	Material Contracts
	10.1	2000 Performance Incentive Plan (filed as Exhibit 99 to the Registrant’s Registration Statement No. 333-64794 on Form S-8 and incorporated herein by reference).
	10.2	Form of Restricted Stock Agreement between the Company and the Participant of the Company (filed as Exhibit 10.2 to the Registrant’s Form 10-K dated March 14, 2005, and filed with the Securities and Exchange Commission on March 15, 2005, and incorporated herein by reference).
	10.3	Employment Agreement dated February 16, 2004, between the Registrant and Craig Macnab (filed as Exhibit 10.3 to the Registrant’s Form 10-K dated March 14, 2005 and filed with the Securities and Exchange Commission on March 15, 2005, and incorporated herein by reference).
	10.4	Employment Agreement dated February 1, 2003, between the Registrant and Julian E. Whitehurst (filed as Exhibit 10.4 to the Registrant’s Form 10-K dated March 14, 2005 and filed with the Securities and Exchange Commission on March 15, 2005, and incorporated herein by reference).
	10.5	Employment Agreement dated January 1, 2003, as amended, between the Registrant and Kevin B. Habicht (filed as Exhibit 10.5 to the Registrant’s Form 10-K dated March 14, 2005 and filed with the Securities and Exchange Commission on March 15, 2005, and incorporated herein by reference).
	10.6	Employment Agreement dated January 1, 2003, between the Registrant and Dennis E. Tracy (filed as Exhibit 10.6 to the Registrant’s Form 10-K dated March 14, 2005 and filed with the Securities and Exchange Commission on March 15, 2005, and incorporated herein by reference).
	10.7	Separation Agreement and General Release, dated as of April 23, 2004, by and between Gary M. Ralston and the Registrant, as amended (filed as Exhibit 10.8 to the Registrant’s Form 10-K dated March 14, 2005 and filed with the Securities and Exchange Commission on March 15, 2005, and incorporated herein by reference).

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	10.8	Seventh Amended and Restated Line of Credit and Security Agreement, dated May 9, 2003, by and among Registrant, certain lenders and Wachovia Bank, N.A., as the Agent, relating to a $225,000,000 loan (filed as Exhibit 10.11 to the Registrant’s Current Report on Form 8-K dated July 11, 2003, and incorporated herein by reference).
	10.9	Real Estate Purchase Contract, dated as of July 23, 2003, by an between MCI WorldCom Network Services, Inc. and the Company (filed as Exhibit 10.1 to the Registrant’s Current Report on Form 8-K dated July 25, 2003, and incorporated herein by reference).
	10.10	U.S. Government Lease for Real Property, dated as of December 17, 2002, between MCI WorldCom Network Services, Inc. and the United States of America (filed as Exhibit 10.2 to the Registrant’s Current Report on Form 8-K dated July 25, 2003, and incorporated herein by reference).
31.	Section 302 Certifications
	31.1	Certification of Chief Executive Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith).
	31.2	Certification of Chief Financial Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith).
32.	Section 906 Certifications
	32.1	Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith).
	32.2	Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith).

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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 3rd day of November, 2005.
COMMERCIAL NET LEASE REALTY, INC.
By:	/s/ Craig Macnab
	Craig Macnab
	CEO, President, and Director
By:	/s/ Kevin B. Habicht
	Kevin B. Habicht
	CFO, EVP, and Director

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EXHIBIT INDEX

Exhibit

2.	Plan of Acquisition, Reorganization, Arrangement, Liquidation or Succession.
	2.1	Agreement and Plan of Merger, dated January 14, 2005, among Commercial Net Lease Realty, Inc., NAPE Acquisition, Inc., National Properties Corporation and Raymond Di Paglia (filed as Exhibit 99.1 to the Registrant’s Current Report on Form 8-K dated January 19, 2005, and incorporated herein by reference).
3.	Articles of Incorporation and By-laws
	3.1	First Amended and Restated Articles of Incorporation of the Registrant, as amended and supplemented (filed herewith).
	3.2	Articles Supplementary Establishing and Fixing the Rights and Preferences of a Series of Preferred Stock (9% Series A Non-Voting Preferred Stock, par value $0.01 per share (the “Series A Preferred Stock”) (filed as Exhibit 3 to the Registrant’s Form 8-A dated November 26, 2001 and filed with the Securities and Exchange Commission on November 27, 2001, and incorporated herein by reference).
	3.3	Articles Supplementary Classifying and Designating 10,000 Preferred Shares as the Series B Preferred Stock (filed as Exhibit 3 to the Registrant’s Form 8-A dated August 12, 2003 and filed with the Securities and Exchange Commission on August 13, 2003, and incorporated herein by reference).
	3.4	Third Amended and Restated Bylaws of the Registrant (filed as Exhibit 3.1 to the Registrant’s Form 8-K dated August 18, 2005 and filed with the Securities and Exchange Commission on August 23, 2005, and incorporated herein by reference).
4.	Instruments Defining the Rights of Security Holders, Including Indentures
	4.1	Specimen Certificate of Common Stock, par value $0.01 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).
	4.2	Form of Indenture dated March 25, 1998, by and among Registrant and First Union National Bank, Trustee, relating to $100,000,000 of 7.125% Notes due 2008 (filed as Exhibit 4.1 to the Registrant’s Current Report on Form 8-K dated March 20, 1998, and incorporated herein by reference).
	4.3	Form of Supplemental Indenture No. 1 dated March 25, 1998, by and among Registrant and First Union National Bank, Trustee, relating to $100,000,000 of 7.125% Notes due 2008 (filed as Exhibit 4.2 to the Registrant’s Current Report on Form 8-K dated March 20, 1998, and incorporated herein by reference).
	4.4	Form of 7.125% Note due 2008 (filed as Exhibit 4.3 to the Registrant’s Current Report on Form 8-K dated March 20, 1998, and incorporated herein by reference).
	4.5	Form of Supplemental Indenture No. 3 dated September 20, 2000, by and among Registrant and First Union National Bank, Trustee, relating to $20,000,000 of 8.5% Notes due 2010 (filed as Exhibit 4.2 to the Registrant’s Current Report on Form 8-K dated September 20, 2000, and incorporated herein by reference).

45

	4.6	Form of 8.5% Notes due 2010 (filed as Exhibit 4.3 to the Registrant’s Current Report on Form 8-K dated September 20, 2000, and incorporated herein by reference).
	4.7	Form of Supplemental Indenture No. 4 dated as of May 30, 2002, by and among Registrant and Wachovia Bank, National Association, Trustee, relating to $50,000,000 of 7.75% Notes due 2012 (filed as Exhibit 4.2 to the Registrant’s Current Report on Form 8-K dated June 4, 2002, and incorporated herein by reference).
	4.8	Form of 7.75% Notes due 2012 (filed as Exhibit 4.3 to the Registrant’s Current Report on Form 8-K dated June 4, 2002, and incorporated herein by reference).
	4.9	Form of Supplemental Indenture No. 5 dated as of June 18, 2004, by and among Registrant and Wachovia Bank, National Association, Trustee, relating to $150,000,000 of 6.25% Notes due 2014 (filed as Exhibit 4.1 to the Registrant’s Current Report on Form 8-K dated June 15, 2004, and incorporated herein by reference).
	4.10	Form of 6.25% Notes due 2014 (filed as Exhibit 4.2 to the Registrant’s Current Report on Form 8-K dated June 15, 2004, and incorporated herein by reference).
	4.11	Articles Supplementary Establishing and Fixing the Rights and Preferences of a Series of Preferred Stock (the Series A Preferred Stock) (filed as Exhibit 3 to the Registrant’s Form 8-A dated November 26, 2001 and filed with the Securities and Exchange Commission on November 27, 2001, and incorporated herein by reference).
	4.12	Specimen Stock Certificate relating to the Series A Preferred Stock (filed as Exhibit 4 to the Registrant’s Form 8-A dated November 26, 2001 and filed with the Securities and Exchange Commission on November 27, 2001, and incorporated herein by reference).
	4.13	Articles Supplementary Classifying and Designating 10,000 Preferred Shares as the Series B Preferred Stock (filed as Exhibit 3 to the Registrant’s Form 8-A dated August 12, 2003 and filed with the Securities and Exchange Commission on August 13, 2003, and incorporated herein by reference).
	4.14	Specimen Stock Certificate relating to the Series B Preferred Stock (filed as Exhibit 4 to the Registrant’s Form 8-A dated August 12, 2003 and filed with the Securities and Exchange Commission on August 13, 2003, and incorporated herein by reference).
10.	Material Contracts
	10.1	2000 Performance Incentive Plan (filed as Exhibit 99 to the Registrant’s Registration Statement No. 333-64794 on Form S-8 and incorporated herein by reference).
	10.2	Form of Restricted Stock Agreement between the Company and the Participant of the Company (filed as Exhibit 10.2 to the Registrant’s Form 10-K dated March 14, 2005 and filed with the Securities and Exchange Commission on March 15, 2005, and incorporated herein by reference).
	10.3	Employment Agreement dated February 16, 2004, between the Registrant and Craig Macnab (filed as Exhibit 10.3 to the Registrant’s Form 10-K dated March 14, 2005 and filed with the Securities and Exchange Commission on March 15, 2005, and incorporated herein by reference).
	10.4	Employment Agreement dated February 1, 2003, between the Registrant and Julian E. Whitehurst (filed as Exhibit 10.4 to the Registrant’s Form 10-K dated March 14, 2005 and filed with the Securities and Exchange Commission on March 15, 2005, and incorporated herein by reference).

46

	10.5	Employment Agreement dated January 1, 2003, as amended, between the Registrant and Kevin B. Habicht (filed as Exhibit 10.5 to the Registrant’s Form 10-K dated March 14, 2005 and filed with the Securities and Exchange Commission on March 15, 2005, and incorporated herein by reference).
	10.6	Employment Agreement dated January 1, 2003, between the Registrant and Dennis E. Tracy (filed as Exhibit 10.6 to the Registrant’s Form 10-K dated March 14, 2005 and filed with the Securities and Exchange Commission on March 15, 2005, and incorporated herein by reference).
	10.7	Separation Agreement and General Release, dated as of April 23, 2004, by and between Gary M. Ralston and the Registrant, as amended (filed as Exhibit 10.8 to the Registrant’s Form 10-K dated March 14, 2005 and filed with the Securities and Exchange Commission on March 15, 2005, and incorporated herein by reference).
	10.8	Seventh Amended and Restated Line of Credit and Security Agreement, dated May 9, 2003, by and among Registrant, certain lenders and Wachovia Bank, N.A., as the Agent, relating to a $225,000,000 loan (filed as Exhibit 10.11 to the Registrant’s Current Report on Form 8-K dated July 11, 2003, and incorporated herein by reference).
	10.9	Real Estate Purchase Contract, dated as of July 23, 2003, by an between MCI WorldCom Network Services, Inc. and the Company (filed as Exhibit 10.1 to the Registrant’s Current Report on Form 8-K dated July 25, 2003, and incorporated herein by reference).
	10.10	U.S. Government Lease for Real Property, dated as of December 17, 2002, between MCI WorldCom Network Services, Inc. and the United States of America (filed as Exhibit 10.2 to the Registrant’s Current Report on Form 8-K dated July 25, 2003, and incorporated herein by reference).
31.	Section 302 Certifications
	31.1	Certification of Chief Executive Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith).
	31.2	Certification of Chief Financial Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith).
32.	Section 906 Certifications
	32.1	Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith).
	32.2	Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith).

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EX-3.1

Exhibit 3.1

TABLE OF CONTENTS

Part I	First Amended and Restated Articles of Incorporation of Commercial Net Lease Realty, Inc.
Part II	Amendment to First Amended and Restated Articles of Incorporation of Commercial Net Lease Realty, Inc.

Articles of Merger Merging Commercial Net Lease Realty Services, Inc. Into Commercial Net Lease Realty, Inc.

PART I

FIRST AMENDED AND RESTATED

ARTICLES OF INCORPORATION

OF

COMMERCIAL NET LEASE REALTY, INC.

Commercial Net Lease Realty, Inc., a Maryland corporation (hereinafter the “Corporation”), hereby certifies to the Department of Assessments and Taxation of the State of Maryland, that:

FIRST: The Corporation desires to amend and restate its charter as currently in effect.

SECOND: Prior to this amendment and restatement the total number of shares of all classes of capital stock that the Corporation had authority to issue was one 180,000,000 shares, consisting of (i) 90,000,000 shares of common stock, par value $0.01 per share: and (ii) 90,000,000 shares of excess stock, par value $0.01 per share. The aggregate par value of all of the authorized shares of all classes of capital stock having a par value was $1,800,000.00. After this amendment and restatement the total number of shares of all classes of capital stock that the Corporation will have authority to issue will be 210,000,000 shares consisting of (i) 90,000,000 shares of common stock, par value $0.01; (ii) 15,000,000 shares of preferred stock, par value $0.01; and 105,000,000 shares of excess stock, par value $0.01. The aggregate par value of all of the authorized shares of all classes of capital stock having a par value will be $2,100,000.

THIRD: The provisions of the charter which are now in effect and as amended hereby, stated in accordance with the Maryland General Corporation Law are as follows:

ARTICLE I

NAME

The name of the Corporation is Commercial Net Lease Realty, Inc.

ARTICLE II

DURATION

The duration of the Corporation is perpetual.

ARTICLE III

PURPOSES AND POWERS

The purpose for which the Corporation is formed is to engage in any lawful business, act or activity for which corporations may be organized under the laws of the State of Maryland and, in general, to possess and exercise all the purposes, powers, rights and privileges granted to, or conferred upon, corporations by the laws of the State of Maryland now or hereafter in force, and to exercise any powers suitable, convenient or proper for the accomplishment of the purposes herein enumerated, implied or incidental to the powers herein enumerated or which at any time may appear conducive to or expedient for the accomplishment of such purposes. The foregoing shall, except where otherwise expressed, in no way be limited or restricted by reference to or inference from the terms of any other clause of this or any other provision of this Charter or of any amendment hereto or restatement hereof, and shall each be regarded as independent and construed as powers as well as purposes.

ARTICLE IV

PRINCIPLE OFFICE AND RESIDENT AGENT

The post office address of the principal office of the Corporation is c/o The Corporation Trust Incorporated, 300 East Lombard Street, Baltimore, MD 21202. The resident agent of the Corporation is The Corporation Trust Incorporated, 300 E. Lombard Street, Baltimore, Maryland 21202. Said resident agent is a Maryland corporation.

ARTICLE V

BOARD OF DIRECTORS

The number of directors shall be no less than three (3), unless a lesser number is permitted pursuant to the terms of the Maryland General Corporation Law as in effect from time to time or any successor statute thereto (the “MGCL”). Subject to the foregoing, the number of directors of the Corporation shall be fixed by the Bylaws of the Corporation and maybe increased or deceased from time to time in such a manner as may be prescribed by the Bylaws. The following persons will serve as directors of the Corporation until the annual meeting and until their successors are elected and qualify:

Robert A. Bourne	Ted B. Lanier
Edward Clark	James M. Seneff, Jr.
Clifford R. Hinkle

ARTICLE VI

AUTHORIZED STOCK

SECTION 1. TOTAL CAPITALIZATION

The total number of shares of all classes of capital stock that the Corporation has authority to issue is two hundred ten million (210,000,000) shares consisting of (i) ninety million (90,000,000) shares of common stock, par value $0.01 (the “Common Stock”); (ii) fifteen million (15,000,000) shares of preferred stock, par value $0.01 (the “Preferred Stock”); and one hundred five million (105,000,000) shares of excess stock, par value $0.01 (the “Excess Stock”). The aggregate par value of all of the authorized shares of all classes of capital stock having a par value is $2,100,000.

SECTION 2. CAPITAL STOCK

A. COMMON STOCK

(1) COMMON STOCK SUBJECT TO TERMS OF PREFERRED STOCK. The Common Stock shall be subject to the express terms of the Preferred Stock.

(2) DIVIDEND RIGHTS. The holders of shares of Common Stock shall be entitled to receive such dividends as may be declared by the Board of Directors of the Corporation out of funds legally available therefore.

(3) RIGHTS UPON LIQUIDATION. In the event of any voluntary or involuntary liquidation, dissolution or winding up, or any distribution of the assets, of the Corporation, the aggregate amount available for distribution to holders of shares of Common Stock (including, for purposes of this sentence, holders of shares of Excess Stock) shall be determined by applicable law. Except as provided below, each holder of shares of the Common Stock shall be entitled to receive that portion of such aggregate amount, ratably with (i) each other holder of shares of Common Stock and (ii) each holder of shares of Excess Stock, as the number of shares of the Common Stock held by such holder bears to the total number of shares of Common Stock and Excess Stock. Anything herein to the contrary notwithstanding, in no event shall the amount payable to a holder of shares with respect to Excess Stock hereunder exceed (i) the price per share such holder paid for the Common Stock in the purported Transfer (as that term is defined in paragraph A of Section 3 of this Article VI) that resulted in the Excess Stock or (ii) if the holder did not give full value for such Excess Stock (as through a gift, devise or other event or transaction), a price per share equal to the Market Price (as the term is defined in paragraph A of Section 3 of this Article VI) for the shares of the Common Stock on the date of the purported Transfer that resulted in such Excess Stock. Any amount available for distribution in excess of the foregoing limitations shall be paid ratably to holders of Common Stock and other holders of Excess Stock resulting from the exchange of Common Stock to the extent permitted by the foregoing limitations.

(4) VOTING RIGHTS. Except as may be provided in this Charter, and subject to the express terms of any series of Preferred Stock, the holders of shares of the Common Stock shall have the exclusive right to vote on all matters (as to which a common stockholder shall be entitled to vote) at all meetings of the stockholders of the Corporation, and shall be entitled to one (1) vote for each share of the Common Stock entitled to vote at such meetings.

B. PREFERRED STOCK

The Preferred Stock may be issued from time to time in one or more series as authorized by the Board of Directors. Prior to the issuance of shares of each such series, the Board of Directors, by resolution, shall fix the number of shares to be included in each series, and the terms, rights, restrictions and qualifications of the shares of each series. The authority of the Board of Directors with respect to each series shall include, but not be limited to, determination of the following:

(i) The designation of the series, which may be by distinguishing number, letter or title;

(ii) The dividend rate on the shares of the series, if any, whether any dividends shall be cumulative and, if so, from which date or dates, and the relative rights of priority, if any, of payment of dividends on shares of the series;

(iii) The redemption rights, including conditions and the price or prices, if any, for shares of the series;

(iv) The terms and amounts of any sinking fund for the purchase or redemption of shares of the series;

(v) The rights of the shares of the series in the event of any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Corporation, and the relative rights of priority, if any, of payment of shares of the series;

(vi) Whether the shares of the series shall be convertible into shares of any other class or series, or any other security, of the Corporation or any other corporation or other entity, and, if so, the specification of such other class or series of such other security, the conversion price or prices or dates on which such shares shall be convertible and all other terms and conditions upon which such conversion may be made;

(vii) Restrictions on the issuance of shares of the same series or of any other class or series;

(viii) The voting rights, if any, of the holders of shares of the series; and

(ix) Any other relative rights, preferences and limitations on that series.

Subject to the express provisions of any other series of Preferred Stock then outstanding, notwithstanding any other provision of this Charter, the Board of Directors may increase or decrease (but not below the number of shares of such series then outstanding) the number of shares, or alter the designation or classify or reclassify any unissued shares of a particular series of Preferred Stock, by fixing or altering, in one or more respects, from time to time before issuing the shares, the terms, rights, restrictions and qualifications of the shares of any such series of Preferred Stock.

SECTION 3. RESTRICTIONS ON TRANSFER; ACQUISITIONS AND REDEMPTION SHARES

A. DEFINITIONS. For purposes of Sections 3 and 4 of this Article VI, the following terms shall have the following meanings:

“Beneficial Ownership” shall mean ownership of shares of Capital Stock by an individual who would be treated as an owner of such shares under Section 542(a)(2) of the Code, either directly or constructively through the application of Section 544, as modified by Section 856(h)(1)(B). For purposes of this definition, the term “individual” also shall include any organization, trust or other entity that is treated as an individual for purposes of Section 542(a)(2) of the Code. The terms “Beneficial Owner,” “Beneficially Own,” “Beneficially Owns” and “Beneficially Owned” shall have correlative meanings.

“Beneficiary” shall mean a beneficiary of the Trust as determined pursuant to paragraph A of Section 4 of this Article VI.

“Board of Directors” shall mean the Board of Directors of the Corporation.

“Bylaws” shall mean the Bylaws of the Corporation.

“Capital Stock” shall mean collectively the stock of the Corporation that is either Common Stock and Preferred Stock.

“Code” shall mean the Internal Revenue Code of 1986, as amended from time to time, or any successor statute thereto. Reference to any provision of the Code shall mean such provision as in effect from time to time, as the same may be amended, and any successor thereto, as interpreted by any applicable regulations thereto and judicial decisions as in effect from time to time.

“Constructive Ownership” shall mean ownership of shares of Capital Stock by a Person who would be treated as an owner of such shares, either actually or constructively, through the application of Section 318 of the Code, as modified by Section 856(d)(5) thereof. The terms “Constructive Owner,” “Constructively Own,” “Constructively Owns” and “Constructively Owned” shall have correlative meanings.

“Market Price” on any day shall mean the average of the Closing Prices for the ten (10) consecutive Trading Days immediately preceding such day (or those days during such 10-day period for which Closing Prices are available). The “Closing Price” on any day shall mean the last sale price, regular way, on such day or if no such sale takes place on that day, the average of the closing bid and asked prices, regular way, in either case as reported on the principal consolidated transaction reporting system with respect to securities listed or admitted to trading on the New York Stock Exchange or the American Stock Exchange, or if the Capital Stock is not so listed or admitted to trading, as reported in the principal consolidated transaction reporting system with respect to securities listed on the principal national securities exchange (including the National Market System of the National Association of Securities Dealers, Inc. Automated Quotation System) on which the Capital Stock is listed or admitted to trading or, if the Capital Stock is not so listed or admitted to trading, the last quoted price, or if not quoted, the average of the high bid and low asked prices in the over-the-counter market, as reported by the National Association of Securities Dealers, Inc. Automated Quotation System or, if such system is no longer in use, the principal automated quotation system then in use or, if the Capital Stock is not so quoted by any such system, the average of the closing bid and asked prices as furnished by a professional market maker selected by the Board of Directors making a market in the Capital Stock or, if there is no such market maker or such closing prices otherwise are not available, the fair market value of the Capital Stock as of such day, as determined by the Board of Directors in its discretion.

“Ownership Limit” shall mean 9.8 percent of the Value of the outstanding Capital Stock.

“Person” shall mean an individual, corporation, partnership, estate, trust (including a trust qualified under Section 401(a) or 501(c)(17) of the Code), a portion of a trust permanently set aside for or to be used exclusively for the purposes described in Section 642(c) of the Code, association, private foundation within the meaning of Section 509(a) of the Code, joint stock company or other entity, or a group as that term is used for purposes of Section 13(d)(3) of the Securities Exchange Act of 1934, as amended; but does not include an underwriter which participated in a public offering of Capital Stock for a period of sixty (60) days following the purchase by such underwriter of Capital Stock therein, provided that the foregoing exclusion shall apply in an underwriting only if the ownership of such Capital Stock by such underwriter would not cause the Corporation to fail to qualify as a REIT by reason of being “closely held” within the meaning of Section 856(a) of the Code or otherwise cause the Corporation to fail to qualify as a REIT.

“Purported Beneficial Transferee” shall mean, with respect to any purported Transfer which results in Excess Stock, the purported beneficial transferee for whom the Purported Record Transferee would have acquired shares of Capital Stock if such Transfer had been valid under paragraph B of this Section 3.

“Purported Record Transferee” shall mean, with respect to any purported Transfer which results in Excess Stock, the record holder of the Capital Stock if such Transfer had been valid under paragraph B of this Section 3.

“REIT” shall mean a real estate investment trust under Sections 856 through 860 of the Code.

“Restriction Termination Date” shall mean the first day on which the Board of Directors and the stockholders of the Corporation determine that it is no longer in the best interests of the Corporation to attempt, or continue, to qualify as a REIT.

“Trading Day” shall mean a day on which the principal national securities exchange on which the Capital Stock is listed or admitted to trading is open for the transaction of business or, if the Capital Stock is not listed or admitted to trading, shall mean any day other than a Saturday, Sunday or other day on which banking institutions in the State of New York are authorized or obligated by law or executive order to close.

“Transfer” shall mean any sale, transfer, gift, hypothecation, assignment, devise or other disposition of Capital Stock (including (i) the granting of any option (including any option to acquire any option or any series of such options) or entering into any agreement for the sale, transfer or other disposition of Capital Stock or (ii) the sale, transfer assignment or other disposition of any securities or rights convertible into or exchangeable for Capital Stock), whether voluntary or involuntary, of record, constructively or beneficially, and whether by operation of law or otherwise. The terms “Transfers” and “Transferred” shall have correlative meanings.

“Trust” shall mean the trust created pursuant to paragraph A of Section 4 of this Article VI.

“Trustee” shall mean the Corporation as trustee for the Trust, and any successor trustee appointed by the Corporation.

“Value” shall mean, as of any given date, the Market Price per share of each class of Capital Stock then outstanding, multiplied by the number of shares of such class then outstanding.

B. OWNERSHIP AND TRANSFER LIMITATION

(1) Notwithstanding any other provision of this Charter, except as provided in paragraph I of this Section 3 and Section 5 of this Article VI, prior to the Restriction Termination Date, no Person shall Beneficially or Constructively Own shares of Capital Stock in excess of the Ownership Limit.

(2) Notwithstanding any other provision of this Charter, except as provided in paragraph I of this Section 3 and Section 5 of this Article VI, prior to the Restriction Termination Date, any Transfer, change in the capital structure of the Corporation, or other purported change in Beneficial or Constructive Ownership of Capital Stock that, if effective, would result in any Person Beneficially or Constructively Owning Capital Stock in excess of the Ownership Limit shall be void ab initio as to the Transfer, change in the capital structure of the Corporation, or other purported change in Beneficial or Constructive Ownership with respect to that number of shares of Capital Stock which would otherwise be Beneficially or Constructively Owned by Such Person in excess of the Ownership Limit, and neither the Purported Beneficial Transferee nor the Purported Record Transferee shall acquire any rights in that number of shares of Capital Stock.

(3) Notwithstanding any other provision of this Charter, except as provided in Section 5 of this Article VI, prior to the Restriction Termination Date, any Transfer, change in the capital structure of the Corporation, or other purported change in ownership of Capital Stock that, if effective, would result in the Capital Stock being owned by fewer than 100 Persons (determined without reference to any rules of attribution) shall be void ab initio as to the Transfer, change in the capital structure of the Corporation, or other purported change in ownership with respect to that number of shares which otherwise would be owned by the transferee, and the intended transferee or subsequent owner (including a Beneficial Owner) shall acquire no rights in that number of shares of Capital Stock.

(4) Notwithstanding any other provisions of this Charter except Section 5 of this Article VI, prior to the Restriction Termination Date, any Transfer, change in the capital structure of the Corporation, or other purported change in Beneficial Ownership of shares of Capital Stock that, if effective, would cause the Corporation to fail to qualify as a REIT by reason of being “closely held” within the meaning of Section 856(h) of the Code or otherwise, directly or indirectly, would cause the Corporation to fail to qualify as a REIT shall be void ab initio as to the Transfer, change in the capital structure of the Corporation, or other purported change in Beneficial Ownership with respect to that number of shares of Capital Stock which would cause the Corporation to be “closely held” within the meaning of Section 856(h) of the Code or otherwise, directly or indirectly, would cause the Corporation to fail to qualify as a REIT, and the intended transferee or subsequent Beneficial Owner shall acquire no rights in that number of shares of Capital Stock.

C. EXCHANGE FOR EXCESS STOCK.

(1) If, notwithstanding the other provisions contained in this Article VI, at any time prior to the Restriction Termination Date, there is a purported Transfer, change in the capital structure of the Corporation or other purported change in the Beneficial or Constructive Ownership of Capital Stock such that any person would either Beneficially or Constructively Own Capital Stock in excess of the Ownership Limit, then, except as otherwise provided in paragraph I of this Section 3, such shares of Capital Stock (rounded up to the next whole number of shares) in excess of the Ownership Limit automatically shall be exchanged for an equal number of shares of Excess Stock having terms, rights, restrictions and qualifications identical thereto, except to the extent that this Article VI requires different terms. Such exchange shall be effective as of the close of business on the business day next preceding the date of the purported Transfer, change in capital structure or other change in purported Beneficial or Constructive Ownership of Capital Stock.

(2) If, notwithstanding the other provisions contained in this Article VI, prior to the Restriction Termination Date, there is a purported Transfer, change in the capital structure of the Corporation or other purported change in Beneficial Ownership of Capital Stock which, if effective, would cause the Corporation to fail to qualify as a REIT by reason of being “closely held” within the meaning of Section 856(h) of the Code, or otherwise, directly or indirectly would cause the Corporation to fail to qualify as a REIT, then the shares of Capital Stock (rounded up to the next whole number of shares), being Transferred or which are otherwise affected by the change in capital structure or other purported change in Beneficial Ownership and which, in any case, would cause the Corporation to be “closely held” within the meaning of such Section 856(h) or otherwise would cause the Corporation to fail to qualify as a REIT automatically shall be exchanged for an equal number of shares of Excess Stock having terms, rights, restrictions and qualifications identical thereto, except to the extent that this Article VI requires different terms. Such exchange shall be effective as of the close of business on the business day next preceding the date of the purported Transfer, change in capital structure or other purported change in Beneficial Ownership.

D. REMEDIES FOR BREACH. If the Board of Directors or its designee shall at any time determine in good faith that a Transfer or change in the capital structure of the Corporation has taken place in violation of paragraph B of this Section 3 or that a Person intends to acquire or has attempted to acquire Beneficial or Constructive Ownership of any shares of Capital Stock in violation of paragraph B of this Section 3, the Board of Directors or its designee shall take such actions as it deems advisable to refuse to give effect to or to prevent such Transfer, change in capital structure of the Corporation or other attempt to acquire Beneficial or Constructive Ownership of any shares of Capital Stock, including, but not limited to, refusing to give effect thereto on the books of the Corporation or instituting injunctive proceedings with respect thereto; provided, however, that any Transfer, change in the capital structure of the Corporation, attempted Transfer or other attempt to acquire Beneficial or Constructive Ownership of any shares of Capital Stock in violation of subparagraphs (2), (3) and (4) of paragraph B of this Section 3 (as applicable) shall be void ab initio and where applicable automatically shall result in the exchange described in paragraph C of this Section 3, irrespective of any action (or inaction) by the Board of Directors or its designee.

E. NOTICE OF RESTRICTED TRANSFER. Any Person who acquires or attempts to acquire Beneficial or Constructive Ownership of shares of Capital Stock in violation of paragraph B of this Section 3 and any Person who Beneficially or Constructively owns Excess Stock pursuant to paragraph C of this Section 3 shall immediately give written notice to the Corporation, or, in the event of a proposed or attempted Transfer or purported change in Beneficial Ownership, shall give at least fifteen (15) days prior written notice to the Corporation, of such event and shall promptly provide to the Corporation such other information as the Corporation may request in order to determine the effect, if any, of such Transfer, attempted Transfer or purported change in Beneficial Ownership on the Corporation’s status as a REIT.

F. OWNERS REQUIRED TO PROVIDE INFORMATION. Prior to the Restriction Termination Date:

(1) Every Beneficial or Constructive Owner of more than 5.0 percent, or such lower percentages as required pursuant to regulations under the Code or as may be requested by the Board of Directors, of the Value of the outstanding Capital Stock of the Corporation shall annually, no later than January 31 of each calendar year, give written notice to the Corporation stating (i) the name and address of such Beneficial or Constructive Owner; (ii) the number of shares of Capital Stock Beneficially or Constructively Owned and (iii) a description of how such shares are held. Each such Beneficial or Constructive Owner promptly shall provide to the Corporation such additional information as the Corporation, in its sole discretion, may request in order to determine the effect, if any, of such Beneficial or Constructive Ownership on the Corporation’s status as a REIT and to ensure compliance with the Ownership Limit.

(2) Each person who is a Beneficial or Constructive Owner of Capital Stock and each Person (including the stockholder of record) who is holding Capital Stock for a Beneficial or Constructive Owner promptly shall provide to the Corporation such information as the Corporation, in its sole discretion, may request in order to determine the Corporation’s status as a REIT, to comply with the requirements of any taxing authority or other governmental agency, to determine any such compliance or to ensure compliance with the Ownership Limit.

G. REMEDIES NOT LIMITED. Noting contained in this Article VI except Section 5 hereof shall limit scope or application of the provisions of this Section 3, the ability of the Corporation to implement or enforce compliance with the terms thereof or the authority of the Board of Directors to take any such other action or actions as it may deem necessary or advisable to protect the Corporation and the interests of its stockholders by preservation of the Corporation’s status as a REIT and to ensure compliance with the Ownership Limit, including, without limitation, refusal to give effect to a transaction on the books of the Corporation.

H. AMBIGUITY. In the case of an ambiguity in the application of any of the provisions of this Section 3, including any definition contained in paragraph A hereof, the Board of Directors shall have the power and authority, in its sole discretion, to determine the application of the provisions of this Section 3 with respect to any situation based on the facts known to it.

I. EXCEPTION. The Board of Directors, upon receipt of a ruling from the Internal Revenue Service, an opinion of counsel, or other evidence satisfactory to the Board of Directors, in its sole discretion, in each case to the effect that the restrictions contained in subparagraph 3 and subparagraph 4 of paragraph B of this Section 3 will not be violated, may waive, in whole or in part, the application of the Ownership Limit with respect to any Person. In connection with any exemption, the Board of Directors may require such representations and undertakings from such Person and may impose such other conditions as the Board deems necessary, in its sole discretion, to determine the effect, if any, of the proposed Transfer on the Corporation’s status as a REIT.

J. LIMITATIONS ON MODIFICATIONS.

(1) The Ownership Limit may not be increased (nor may any additional ownership limitations be created) if, after giving effect to such increase or creation, the Corporation would be “closely held” within the meaning of Section 856(h) of the Code (assuming ownership of shares of Capital Stock by all Persons equal to the greater of the Beneficial Ownership of Capital Stock by such Person or the Ownership Limit,

(2) Prior to any modification of the Ownership Limit, the Board of Directors may require such opinions of counsel, affidavits, undertakings or agreements as it may deem necessary, advisable or prudent in order to determine or ensure the Corporation’s status a REIT.

K. LEGEND. Each certificate for shares of Capital Stock shall bear substantially the following legend:

“The securities represented by this certificate are subject to restrictions on transfer for the purpose of maintenance of the Corporation’s status as a real estate investment trust under the Internal Revenue Code of 1986, as mended (the “Code”). Except as otherwise provided pursuant to he Charter of the Corporation, no Person may (i) Beneficially or Constructively Own shares of Capital Stock in excess of 9.8 percent of the Value of the outstanding shares of Capital Stock of the Corporation; or (ii) Beneficially Own Capital Stock which could result in the Corporation being “closely held” under Section 856(h) of the Code or otherwise would cause the Corporation to fail to qualify as a REIT. Any Person who attempts or proposes to Beneficially or Constructively Own shares of Capital Stock in excess of the above limitations must notify the Corporation in writing at least fifteen (15) days prior to the proposed or attempted transfer. If the transfer restrictions referred to herein are violated, the shares of Capital Stock represented hereby automatically will be exchanged for shares of Excess Stock and will be held in trust by the Corporation, all as provided in the Charter of the Corporation. All capitalized terms in this legend have the meanings identified in the Corporation’s Charter, as the same may be amended or restated from time to time, a copy of which, including the restrictions on transfer, will be sent without charge to each stockholder who so requests.”

SECTION 4. EXCESS STOCK.

A. OWNERSHIP IN TRUST. Upon any purported Transfer, change in the capital structure of the Corporation or other purported change in Beneficial Ownership that results in Excess Stock pursuant to paragraph C of Section 3 of this Article VI, such Excess Stock shall be deemed to have been transferred to the Corporation as Trustee of a Trust for the benefit of such Beneficiary or Beneficiaries to whom an interest in such Excess Stock may later be transferred pursuant to paragraph E of this Section 4. Shares of Excess Stock so held in trust shall be issued and outstanding stock of the Corporation. The Purported Record Transferee shall have no rights in such Excess Stock except the right to designate a transferee of such Excess Stock upon the terms specified in paragraph E of this Section 4. The Purported Beneficial Transferee shall have no rights in such Excess Stock except as provided in paragraph C of this Section 4.

B. DIVIDEND RIGHTS. Excess Stock shall not be entitled to any dividends. Any dividend or distribution paid prior to the discovery by the Corporation that the shares of Capital Stock have been exchanged for Excess Stock shall be repaid to the Corporation upon demand, and any dividend or distribution declared but unpaid at the time of such discovery shall be rescinded as void ab initio with respect to such shares of Excess Stock.

C. RIGHTS UPON LIQUIDATION.

(1) Except as provided below, in the event of any voluntary or involuntary liquidation, dissolution or winding up, or any other distribution of the assets, of the Corporation, each holder of shares of Excess Stock resulting from the exchange of Preferred Stock of any specified series shall be entitled to receive, ratably with each other holder of shares of Excess Stock resulting from the exchange of shares of Preferred Stock of such series and each holder of shares of Preferred Stock of such series, such accrued and unpaid dividends, liquidation preferences and other preferential payments, if any, as are due to holders of shares of Preferred Stock of such series. In the event that holders of shares of any series of Preferred stock are entitled to participate in the Corporation’s distribution of its residual assets, each holder of shares of Excess Stock resulting from the exchange of Preferred Stock of any such series shall be entitled to participate, ratably with (i) each other holder of shares of Excess stock resulting from the exchange of shares of Preferred Stock of all series entitled to so participate; (ii) each holder of shares of Preferred Stock of all series entitled to so participate; and (iii) each holder of shares of Common Stock and Excess Stock resulting from the exchange of shares of Common Stock (to the extent permitted by paragraph C of Section 3 of Article VI hereof), that portion of the aggregate assets available for distribution (determined in accordance with applicable law) as the number of shares of such Excess Stock held by such holder bears to the total number of (i) outstanding shares of Excess Stock resulting from the exchange of Preferred Stock of all series entitled to so participate; (ii) outstanding shares of Preferred Stock of all series entitled to so participate; and (iii) outstanding shares of Common Stock and shares of Excess Stock resulting from the exchange of shares of Common Stock. The Corporation, as holder of the Excess Stock in trust, or, if the Corporation shall have been dissolved, any trustee appointed by the Corporation prior to its dissolution, shall distribute ratably to the Beneficiaries of the Trust, when determined, any such assets received in respect of the Excess Stock in any liquidation, dissolution or winding up, or any distribution of the assets, of the Corporation. Anything to the contrary herein notwithstanding, in no event shall the amount payable to a holder with respect to shares of Excess Stock resulting from the exchange of shares of Preferred Stock exceed (i) the price per share such holder paid for the Preferred Stock in the purported Transfer that resulted in the Excess Stock or (ii) if the holder did not give full value for such Excess Stock (as through a gift, devise or other event or transaction), a price per share equal to the Market Price for the shares of Preferred Stock on the date of the purported Transfer that resulted in such Excess Stock. Any amount available for distribution in excess of the foregoing limitations shall be paid ratably to the holders of shares of Preferred Stock and other holders of Excess Stock resulting from the exchange of Preferred Stock to the extent permitted by the foregoing limitations.

(2) Except as provided below, in the event of any voluntary of involuntary liquidation, dissolution or winding up, or any other distribution of the assets, of the Corporation, each holder of shares of Excess Stock resulting from the exchange of Common Stock shall be entitled to receive, ratably with (i) each other holder of shares of such Excess Stock and (ii) each holder of Common Stock, that portion of the aggregate assets available for distribution to holders of shares of Common Stock (including holders of Excess Stock resulting from the exchange of Common Stock pursuant to paragraph C of Section 3 of Article VI hereof), determined in accordance with applicable law, as the number of shares of such Excess Stock held by such holder bears to the total number of shares of outstanding Common Stock and outstanding Excess Stock resulting from the exchange of Common Stock then outstanding. The Corporation, as holder of the Excess Stock in trust, or, if the Corporation shall have been dissolved, any trustee appointed by the Corporation prior to its dissolution, shall distribute ratably to the Beneficiaries of the Trust, when determined, any such assets received in respect of the Excess Stock in any liquidation, dissolution or winding up, or any distribution of the assets, of the

Corporation. Anything herein to the contrary notwithstanding, in no event shall the amount payable to a holder with respect to shares of Excess Stock exceed (i) the price per share such holder paid for the Common Stock in the purported Transfer that resulted in the Excess Stock or (ii) if the holder did not give full value for such Excess Stock (as through a gift, devise or other event or transaction), a price per share equal to the Market Price for the shares of Common Stock on the date of the purported Transfer that resulted in such Excess Stock. Any amount available for distribution in excess of the foregoing limitations shall be paid ratably to the holders of shares of Common Stock and other holders of Excess Stock resulting from the exchange of Common Stock to the extent permitted by the foregoing limitations.

D. VOTING RIGHTS. The holders of shares of Excess Stock shall not be entitled to vote on any matters (except as required by MGCL).

E. RESTRICTIONS ON TRANSFER; DESIGNATION OF BENEFICIARY.

(1) Excess Stock shall not be transferable. The Purported Record Transferee may freely designate a Beneficiary of its interest in the Trust (representing the number of shares of Excess Stock held by the Trust attributable to a purported Transfer that resulted in the Excess Stock, if (i) the shares of Excess Stock held in the Trust would not be Excess Stock in the hands of such Beneficiary and (ii) the Purported Beneficial Transferee does not receive a price for designating such Beneficiary that reflects a price per share for such Excess Stock that exceeds (x) the price per share such Purported Beneficial Transferee paid for the Capital Stock in the purported Transfer that resulted in the Excess Stock or (y) if the Purported Beneficial Transferee did not give value for such shares of Excess Stock (as through a gift, device or other event or transaction), a price per share equal to the Market Price for the shares of Capital Stock on the date of the purported Transfer that resulted in the Excess Stock. Upon such transfer of an interest in the Trust, the corresponding shares of Excess Stock in the Trust automatically shall be exchanged for an equal number of shares of Capital Stock and such shares of Capital Stock shall be transferred of record to the Beneficiary of the interest in the Trust designated by the Purported Record Transferee, as described above, if such Capital Stock would not be Excess Stock in the hands of such Beneficiary. Prior to any transfer of any interest in the Trust, the Purported Record Transferee must give advance notice to the Corporation of the intended transfer and the Corporation must have waived in writing its purchase rights under paragraph F of this Section 4.

(2) Notwithstanding the foregoing, if a Purported Beneficial Transferee receives a price for designating a Beneficiary of an interest in the Trust that exceeds the amounts allowable under subparagraph (1) of this paragraph E, such Purported Beneficial Transferee shall pay, or cause the Beneficiary of the interest in the Trust to pay, such excess to the Corporation.

(3) If any of the transfer restrictions set forth in this paragraph E, or any application thereof, is determined to be void, invalid or unenforceable by any court having jurisdiction over the issue, the Purported Record Transferee may be deemed, at the option of the Corporation, to have acted as the agent of the Corporation in acquiring the Excess Stock as to which such restrictions would, by their terms, apply, and to hold such Excess Stock on behalf of the Corporation.

F. PURCHASE RIGHT IN EXCESS STOCK. Shares of Excess Stock shall be deemed to have been offered for sale to the Corporation, or its designee, at a price per share equal to the lesser of (i) the price per share in the transaction that created such Excess Stock (or, in the case of devise or gift, the Market Price at the time of such devise or gift) and (ii) the Market Price of the Capital Stock exchanged for such Excess Stock on the date the Corporation, or its designee, accepts such offer. The Corporation shall have the right to accept such offer for a period of ninety (90) days after the later of (i) the date of the purported Transfer, change in capital structure of the Corporation or purported change in Beneficial Ownership which resulted in such Excess Stock and (ii) the date on which the Board of Directors determines in good faith that a Transfer, change in capital structure of the Corporation or purported change in Beneficial Ownership resulting in Excess Stock has occurred, if the Corporation does not receive a notice pursuant to paragraph E of Section 3 of this Article VI, but in no event later than a permitted Transfer pursuant to and in compliance with the terms of paragraph E of this Section 4.

G. REMEDIES NOT LIMITED. Nothing contained in this Article VI except Section 5 hereof shall limit scope or application of the provisions of this Section 4, the ability of the Corporation to implement or enforce compliance with the terms thereof or the authority of the Board of Directors to take any such other action or actions as it may deem necessary or advisable to protect the Corporation and the interests of its stockholders by preservation of the Corporation’s status as a REIT and to ensure compliance with the Ownership Limit, including, without limitation, refusal to give effect to a transaction on the books of the Corporation.

SECTION 5. SETTLEMENTS.

Nothing in Sections 3 and 4 of this Article VI shall preclude the settlement of any transaction with respect to the Capital Stock entered into through the facilities of the New York Stock Exchange or other national securities exchange on which the Capital Stock is listed.

SECTION 6. SEVERABILITY

If any provision of this Article VI or any application of any such provision is determined to be void, invalid or unenforceable by any court having jurisdiction over the issue,

the validity and enforceability of the remainder of this Article VI shall not be affected and other applications of such provision shall be affected only to the extent necessary to comply with the determination of such court.

ARTICLE VII

MATTERS RELATING TO THE POWERS OF THE CORPORATION AND ITS

DIRECTORS AND STOCKHOLDERS

The following provisions are hereby adopted for the purpose of defining, limiting and regulating the powers of the Corporation and of the directors and stockholders thereof:

SECTION 1. MATTERS RELATING TO THE BOARD OF DIRECTORS.

A. AUTHORITY AS TO BYLAWS. Except as otherwise provided herein, in furtherance and not in limitation of the powers conferred by statute, the Board of Directors is expressly authorized to make, alter, amend or repeal the Bylaws of the Corporation and the Corporation may, in its Bylaws, confer powers on the Board of Directors in addition to these contained herein or conferred by applicable law.

B. AUTHORITY AS TO STOCK ISSUANCES. The Board of Directors of the Corporation may authorize the issuance from time to time of shares of its stock of any class, whether now or hereafter authorized, or securities convertible into shares now or hereafter authorized, for such consideration as the Board of Directors may deem advisable, subject to such restrictions or limitations, if any, as may be set forth in the Charter or the Bylaws of the Corporation or in the general laws of the State of Maryland.

C. MANNER OF ELECTION. Unless and except to the extent that the Bylaws of the Corporation shall so require, the election of directors of the Corporation need not be by written ballot.

D. REMOVAL OF DIRECTORS. Any director may be removed from office at any time, with or without cause, by the affirmative vote of the holders of a majority of the then outstanding Capital Stock entitled to vote generally in the election of directors.

E. PERMISSIBLE CRITERIA FOR CONSIDERATION OF BEST INTERESTS. In determining what is in the best interest of the Corporation, a director of the Corporation shall consider the interests of the stockholders of the Corporation and, in his or her discretion, may consider the interests of the Corporation’s employees, suppliers, creditors and tenants and the long-term as well as short-term interests of the Corporation and its stockholders, including the possibility that these interests may be best served by the continued independence of the Corporation.

F. DETERMINATIONS BY BOARD. The determination as to any of the following matters, made in good faith by or pursuant to the direction of the Board of Directors consistent with the Charter of the Corporation and in the absence of actual receipt of an improper benefit in money, property or services or active and deliberate dishonesty established by a court, shall be final and conclusive and shall be binding upon the Corporation and every holder of shares of its stock: (i) the amount of the net income of the Corporation for any period and the amount of assets at any time legally available for the payment of dividends, redemption of its stock or the payment of other distributions on its stock; (ii) the amount of paid-in surplus, net assets, other surplus, annual or other net profit, net assets in excess of capital, undivided profits or excess of profits over losses on sales of assets; the amount, purpose, time of creation, increase or decrease, alteration or cancellation of any reserves or charges and the propriety thereof (whether or not any obligation or liability for which such reserves shall have been created shall have been paid or discharged); (iii) the fair value, or any sale, bid or asked priced to be applied in determining the fair value, of any asset owned or held by the Corporation; and (iv) any matters relating to the acquisition, holding and disposition of any assets by the Corporation.

G. RESERVED POWERS OF BOARD. The enumeration and definition of particular powers of the Board of Directors included in this Article VII shall in no way be limited or restricted by reference to or inference from the terms of any other clause of this or any other provision of the Charter of the Corporation, or construed or deemed by inference or otherwise in any manner to exclude or limit the powers conferred upon the Board of Directors under the laws of the State of Maryland as now or hereafter in force.

H. ALTERATION OF AUTHORITY GRANTED TO THE BOARD OF DIRECTORS. The affirmative vote of that proportion of the then-outstanding Capital Stock necessary to approve an amendment to this Charter pursuant to the MGCL and Article XI hereof shall be required to amend, repeal or adopt any provision inconsistent with Section 1 of this Article VII or with Section 3.12 of the Bylaws of the Corporation (including defined terms therein).

I. REIT QUALIFICATION. The Board of Directors shall use its best efforts to cause the Corporation and its stockholders to qualify for U.S. federal income tax treatment in accordance with the provisions of the Code applicable to REITs. In furtherance of the foregoing, the Board of Directors shall use its best efforts to take such actions as are necessary, and may take such actions as it deems desirable (in its sole judgment and discretion) to preserve the status of the Corporation as a REIT (as that term is defined in paragraph A of Section 3 of Article VI hereof); provided, however, that in the event that the Board of Directors determines, in its sole judgment and discretion, that it is no longer in the best interests of the Corporation to qualify as a REIT, the Board of Directors shall take such actions as are required by the Code (as that term is defined in paragraph A of Section 3 of Article VI hereof), the MGCL and other applicable law, to cause the matter of termination of qualification as a REIT to be submitted to a vote of the stockholders of the Corporation pursuant to paragraph A of Section 2 of this Article VII.

SECTION 2. MATTERS RELATING TO THE STOCKHOLDERS.

A. TERMINATION OF REIT STATUS. Notwithstanding anything contained in this Charter to the contrary, the affirmative vote of the holders of a majority of the then-outstanding Capital Stock entitled to vote generally in the election of directors and the approval of the Board of Directors shall be required to terminate voluntarily the Corporation’s status as a REIT (as that term is defined in paragraph A of Section 3 of Article VI).

B. NO CUMULATIVE RIGHTS. Stockholders of the Corporation shall not have cumulative voting rights in the election of directors.

C. NO PREEMPTIVE RIGHTS. No holders of stock of the Corporation, of whatever class, shall have any preferential right of subscription to any shares of stock of any class or to any securities convertible into shares of stock of any class of the Corporation, nor any right of subscription to any thereof.

ARTICLE VIII

DIRECTORS’ LIABILITY

To the maximum extent that Maryland law in effect from time to time permits limitation of the liability of directors and officers, no director or officer of the Corporation shall be liable to the Corporation or its stockholders for money damages. Neither the amendment nor repeal of this Article VIII, nor the adoption or amendment of any provision of the Charter or Bylaws of the Corporation inconsistent with this Article VIII, shall apply to or affect in any respect the applicability of the preceding sentence with respect to any act or failure to act which occurred prior to such amendment, repeal or adoption.

ARTICLE IX

INDEMNIFICATION

Each person who is or was or who agrees to become a director or officer of the Corporation, or each person who, while a director of the Corporation, is or was serving or who agrees to serve, at the request of the Corporation, as a director, officer, partner, joint venture, employee or trustee of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise (including the heirs, executor, administrators or estate of such person), shall be indemnified by the Corporation, and shall be entitled to have paid on his behalf or be reimbursed for reasonable expenses in advance of final disposition of a proceeding, in accordance with the Bylaws of the Corporation, to the full extent permitted from time to time by the Maryland General Corporation Law as the same exists or may hereafter be amended (but, in the case of any such amendment, only to the extent that such amendment permits the Corporation to provide broader indemnification rights than said law permitted the Corporation to provide prior to such amendment) or any other applicable laws presently or hereafter in effect. The Corporation shall have the power, with the approval of the Board of Directors, to provide such indemnification and advancement of expenses to any employee or agent of the Corporation, in accordance with the Bylaws of the Corporation. Without limiting the generality or the effect of the foregoing, the Corporation may enter into one or more agreements with any person which provide for indemnification greater or different than that provided in this Article IX. Any amendment or repeal of this Article IX shall not adversely affect any right or protection existing hereunder immediately prior to such amendment or repeal.

ARTICLE X

APPLICATION OF CERTAIN PROVISIONS OF LAW

SECTION 1. BUSINESS COMBINATIONS.

Notwithstanding any other provision of this Charter or any contrary provision of law, Title 3, subtitle 6 of the Corporations and Associations Article of the Annotated Code of Maryland, as

amended from time to time, or any successor statute thereto, shall not apply to any “business combination” (as defined in Section 3.601(d) of the Corporations and Associations Article of the Annotated Code of Maryland, as amended from time to time, or any successor statute thereto) involving the Corporation.

SECTION 2. CONTROL SHARE TRANSACTIONS.

Notwithstanding any other provision of this Charter or any contrary provision of law, Title 3, subtitle 7 of the Corporations and Associations Article of the Annotated Code of Maryland, as amended from time to time, or any successor statute thereto shall not apply to any acquisition of shares of stock of the Corporation.

ARTICLE XI

AMENDMENT

The Corporation reserves the right at any time and from time to time to amend, alter, change or repeal any provision contained in its Charter and any other provisions authorized by the laws of the State of Maryland at the time in force may be added or inserted in the manner now or hereafter prescribed herein or by applicable law, and all rights, preferences and privileges of whatsoever nature conferred upon stockholder, directors or any other persons whomsoever by and pursuant to this Charter in its present form or as hereafter amended are granted subject to the rights reserved in this Article XI; provided, however, that any amendment or repeal of Articles VIII, IX or this Article XI of this Charter shall not adversely affect any right or protection existing hereunder immediately prior to such amendment or repeal.

IN WITNESS WHEREOF, these First Amended and Restated Articles of Incorporation are hereby executed by Gary M. Ralston, the President of the Corporation, who hereby acknowledges that the First Amended and Restated Articles of Incorporation are the act of the Corporation, and who does hereby state under the penalties of perjury that the matters and facts set forth herein with respect to authorization and approval of such Articles are true in all material respects to the best of his knowledge, information and belief.

Dated: August 10, 1998

By:	/s/ Gary M. Ralston
	Gary M. Ralston, President
ATTEST
By:	/s/ Kevin B. Habicht
	Kevin B. Habicht, Secretary

PART II

ARTICLES OF AMENDMENT

TO

FIRST AMENDED AND RESTATED ARTICLES OF INCORPORATION

OF

COMMERCIAL NET LEASE REALTY, INC.

Commercial Net Lease Realty, Inc., a Maryland corporation having its principal office in Baltimore, Maryland (hereinafter, the “Corporation”), hereby certifies to the State Department of Assessments and Taxation of Maryland that:

FIRST: The First Amended and Restated Articles of Incorporation (the “Articles of Incorporation”) are hereby amended by renaming Article XI “AMENDMENT AND CERTAIN EXTRAORDINARY ACTIONS” and deleting Article XI in its entirety and inserting the following new Article XI:

Section 1. Amendment

The Corporation reserves the right at any time and from time to time to amend, alter, change or repeal any provision contained in its Charter and any other provisions authorized by the laws of the State of Maryland at the time in force may be added or inserted in the manner now or hereafter prescribed herein or by applicable law, and all rights, preferences and privileges of whatsoever nature conferred upon stockholders, directors or any other person whomsoever by and pursuant to this Charter in its present form or as hereafter amended are granted subject to the rights reserved in this Article XI, provided, however, that any amendment or repeal of Articles VIII, IX or this Article XI of this Charter shall not adversely affect any right or protection existing hereunder immediately prior to such amendment or repeal. Subject to the provisions of any class or series of Preferred Stock at the time outstanding, this Charter may be amended by the affirmative vote of the holders of not less than a majority of the Common Stock then outstanding and entitled to vote thereon.

Section 2. Consolidation, Merger, Share Exchange or Transfer of Assets

Subject to the provisions of any class or series of Preferred Stock at the time outstanding, the Board of Directors shall have the power to (i) consolidate the Corporation with one or more other entities into a new entity, (ii) merge the Corporation into another entity, (iii) effect a share exchange with another domestic or foreign corporation or other entity or (iv) sell or otherwise dispose of all or substantially all of the Corporation’s assets; provided, however, that such action shall have been approved by the holders of not less than a majority of the Common Stock then outstanding and entitled to vote thereon.

SECOND: The total number of all classes of capital stock which the Corporation has authority to issue immediately prior to this amendment is two hundred ten million (210,000,000) shares consisting of (i) ninety million (90,000,000) shares of common stock, par value $0.01 (the “Common Stock”); (ii) fifteen million (15,000,000) shares of preferred stock, par value $0.01 (the “Preferred Stock”); and one hundred five million (105,000,000) shares of excess stock, par value $0.01 (the “Excess Stock”). The aggregate par value of all of the authorized shares of all classes of capital stock having a par value is $2,100,000.

THIRD: The Articles of Incorporation are hereby amended by deleting Article VI, Section 1 in its entirety and inserting the following new Article VI, Section 1:

The total number of shares of all classes of capital stock that the Corporation has authority to issue is four hundred ten million (410,000,000) shares consisting of (i) one hundred ninety million (190,000,000) shares of common stock, par value $0.01 (the “Common Stock”); (ii) fifteen million (15,000,000) shares of preferred stock, par value $0.01 (the “Preferred Stock”); and (iii) two hundred five million (205,000,000) shares of excess stock, par value $0.01 (the “Excess Stock”). The aggregate par value of all of the authorized shares of all classes of capital stock having a par value is $4,100,000.

FOURTH: The information required by subsection (b)(2)(i) of Section 2-607 of the Maryland General Corporation Law will not be changed by these Articles of Amendment; and

FIFTH: The amendments to the Articles of Incorporation as hereinabove set forth have been duly advised by the Board of Directors and approved by the stockholders of the Corporation.

IN WITNESS WHEREOF, Commercial Net Lease Realty, Inc. has caused these presents to be signed in its name and on its behalf by its Executive Vice President and Chief Operating Officer and attested by its Assistant Secretary on September 23, 2004.

THE UNDERSIGNED, Executive Vice President and Chief Operating Officer of Commercial Net Lease Realty, Inc., who executed on behalf of said corporation, the foregoing Articles of Amendment, of which this certificate is made a part, hereby acknowledges, in the name and on behalf of said corporation, the foregoing Articles of Amendment to be the corporate act of said corporation and further certifies that, to the best of his knowledge, information, and belief, the matters and facts set forth therein with respect to the approval thereof are true in all material respects, under the penalties of perjury.

ATTEST:	Commercial Net Lease Realty, Inc.
/s/ Kella W. Schaible	/s/ Julian E. Whitehurst
Kella W. Schaible	Julian E. Whitehurst
Assistant Secretary	Executive Vice President and Chief Operating officer

ARTICLES OF MERGER

MERGING

COMMERCIAL NET LEASE REALTY SERVICES, INC.

(a Maryland corporation)

INTO

COMMERCIAL NET LEASE REALTY, INC.

(a Maryland corporation)

The undersigned corporations, in accordance with the Annotated Code of Maryland, Corporations and Associations, Section 3-101 et seq. (the “Code”) hereby adopt and execute the following Articles of Merger:

ARTICLE I

The names of the corporations proposing to merge are: (i) Commercial Net Lease Realty Services, Inc., a corporation organized and existing under the laws of the State of Maryland (hereinafter sometimes referred to as the “Merged Corporation”), and (ii) Commercial Net Lease Realty, Inc., a corporation organized and existing under the laws of the State of Maryland (hereinafter sometimes referred to as the “Surviving Corporation”), both of which corporations agree to effect such merger (the “Merger”) upon the terms and subject to the conditions set forth herein.

Pursuant to these Articles of Merger, Commercial Net Lease Realty Services, Inc. will merge with and into Commercial Net Lease Realty, Inc., its sole stockholder, with Commercial Net Lease Realty, Inc. being the Surviving Corporation.

ARTICLE II

The principal office of the Merged Corporation, organized under the laws of the State of Maryland, is located in Baltimore City, State of Maryland.

The principal office of the Surviving Corporation, organized under the laws of the State of Maryland, is located in Baltimore City, State of Maryland.

ARTICLE III

The Merged Corporation does not own real property or any other interest in land in the State of Maryland.

ARTICLE IV

The terms and conditions of the transaction set forth in these Articles of Merger (“Articles”) were advised, authorized, and approved by each corporation party to the Articles in the manner and by the vote required by its charter and the laws of the State of Maryland.

(i) The Merger was duly advised, authorized and approved by the Board of Directors of the Merged Corporation by a Unanimous Written Consent of the Board of Directors of the Merged Corporation dated October 31, 2005, declaring that the Merger herein proposed is advisable and in the best interests of the Merged Corporation substantially upon the terms and conditions set forth in these Articles. Pursuant to Section 3-106(c)(1) of the Code, a meeting of the sole shareholder of the Merged Corporation was not necessary.

(ii) The Merger was duly advised, authorized and approved by the Board of Directors of the Surviving Corporation by a Unanimous Written Consent of the Board of Directors of the Surviving Corporation dated October 31, 2005, declaring that the Merger herein proposed is advisable and in the best interests of the Surviving Corporation substantially upon the terms and conditions set forth in these Articles.

ARTICLE V

The total number of shares of stock that the Merged Corporation has authority to issue is 40,000 shares consisting of (i) 30,000 shares of Common Stock, with a par value $0.01 per share, 29,500 shares of which are designated as Non-Voting Common Stock and 500 shares of which are designated as Voting Common Stock; and (ii) 10,000 shares of Preferred Stock, with a par value of $0.01 per share. The aggregate par value of all such shares is Four Hundred Dollars ($400.00).

The total number of shares of stock that the Surviving Corporation has authority to issue is 410,000,000 shares consisting of (i) 190,000,000 shares of Common Stock, with a par value of $0.01 per share; (ii) 15,000,000 shares of Preferred Stock, with a par value of $0.01 per share; and (iii) 205,000,000 shares of Excess Stock, with a par value of $0.01 per share. The aggregate par value of all such shares is Four Million One Hundred Thousand Dollars ($4,100,000.00).

ARTICLE VI

The Merger shall not effect any amendment changing the foregoing information in this Article VI with respect to the Surviving Corporation.

ARTICLE VII

The manner and basis of converting or exchanging the shares of the Merged Corporation into shares of the Surviving Corporation shall be as follows: upon the effective time of the Merger, each share of stock of the Merged Corporation held by Commercial Net Lease Realty, Inc., the sole stockholder of the Merged Corporation, shall cease to be outstanding, shall be cancelled and retired and shall cease to exist.

ARTICLE VIII

The Merger shall be effective as of 9:05 a.m. EST on November 1, 2005.

IN WITNESS WHEREOF, these Articles of Merger are hereby signed for and on behalf of the Merged Corporation by its Executive Vice President, who does hereby acknowledge that said Articles of Merger are the corporate act of said corporation, and who does hereby state under the penalties for perjury that the matters and facts stated therein with respect to the authorization and approval of said merger are true in all material respects to the best of his knowledge, information, and belief, and attested to by the Secretary.

COMMERCIAL NET LEASE REALTY
SERVICES, INC., a Maryland corporation
By:	/s/ Kevin B. Habicht
Name:	Kevin B. Habicht
Title:	Executive Vice President

ATTEST:
/s/ Julian E. Whitehurst
Name:	Julian E. Whitehurst
Title:	Secretary

Dated: October 31, 2005

IN WITNESS WHEREOF, these Articles of Merger are hereby signed for and on behalf of the Surviving Corporation by its Executive Vice President, who does hereby acknowledge that said Articles of Merger are the corporate act of said corporation, and who does hereby state under the penalties for perjury that the matters and facts stated therein with respect to the authorization and approval of said merger are true in all material respects to the best of his knowledge, information, and belief, and attested to by the Assistant Secretary.

COMMERCIAL NET LEASE REALTY, INC., a
Maryland corporation
By:	/s/ Julian E. Whitehurst
Name:	Julian E. Whitehurst
Title:	Executive Vice President

ATTEST:
/s/ Kevin B. Habicht
Name:	Kevin B. Habicht
Title:	Assistant Secretary

Dated: October 31, 2005

EX-31.1

Exhibit 31.1

CERTIFICATION PURSUANT TO SECTION 302

OF THE SARBANES-OXLEY ACT OF 2002

I, Craig Macnab, Chief Executive Officer of Commercial Net Lease Realty, Inc., certify that:

1. I have reviewed this quarterly report on Form 10-Q of Commercial Net Lease Realty, Inc.;

2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operation and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent first fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

November 3, 2005		/s/ Craig Macnab
Date	Name:	Craig Macnab
	Title:	Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATION PURSUANT TO SECTION 302

OF THE SARBANES-OXLEY ACT OF 2002

I, Kevin B. Habicht, Chief Financial Officer of Commercial Net Lease Realty, Inc., certify that:

1. I have reviewed this quarterly report on Form 10-Q of Commercial Net Lease Realty, Inc.;

2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operation and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent first fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

November 3, 2005		/s/ Kevin B. Habicht
Date	Name:	Kevin B. Habicht
	Title:	Chief Financial Officer

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO SECTION 906

OF THE SARBANES-OXLEY ACT OF 2002

Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned, Craig Macnab, Chief Executive Officer, certifies that (1) this Quarterly Report of Commercial Net Lease Realty, Inc. (the “Company”) on Form 10-Q for the period ended September 30, 2005, as filed with the Securities and Exchange Commission on the date hereof (this “Report”), fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, and (2) the information contained in this Report fairly presents, in all material respects, the financial condition of the Company as of September 30, 2005 and December 31, 2004 and its results of operations for the quarters and nine months ended September 30, 2005 and 2004.

November 3, 2005		/s/ Craig Macnab
Date	Name:	Craig Macnab
	Title:	Chief Executive Officer

A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

EX-32.2

Exhibit 32.2

CERTIFICATION PURSUANT TO SECTION 906

OF THE SARBANES-OXLEY ACT OF 2002

Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned, Kevin B. Habicht, Chief Financial Officer, certifies that (1) this Quarterly Report of Commercial Net Lease Realty, Inc. (the “Company”) on Form 10-Q for the period ended September 30, 2005, as filed with the Securities and Exchange Commission on the date hereof (this “Report”), fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, and (2) the information contained in this Report fairly presents, in all material respects, the financial condition of the Company as of September 30, 2005 and December 31, 2004 and its results of operations for the quarters and nine months ended September 30, 2005 and 2004.

November 3, 2005		/s/ Kevin B. Habicht
Date	Name:	Kevin B. Habicht
	Title:	Chief Financial Officer

A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.