SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): January 18, 1996
COMMERCIAL NET LEASE REALTY, INC.
(Exact Name of Registrant as Specified in Charter)
Maryland 0-12989 56-1431377
(State or other jurisdiction (Commission File Number) (IRS Employer
of incorporation) Identification No.)
400 East South Street, Suite 500 32801
Orlando, Florida (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code: (407) 422-1574
ITEM 1. CHANGES IN CONTROL OF REGISTRANT.
Not applicable.
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
Not applicable.
ITEM 3. BANKRUPTCY OR RECEIVERSHIP.
Not applicable.
ITEM 4. CHANGES IN REGISTRANT'S CERTIFYING ACCOUNTANT.
Not applicable.
ITEM 5. OTHER EVENTS.
On July 20, 1995, Commercial Net Lease Realty, Inc. (the
"Company") filed a shelf registration statement on Form S-3, File No. 33-61165,
with the Securities and Exchange Commission that permits the issuance of a
combination of debt and equity securities of up to $200 million. Pursuant to a
prospectus supplement filed as part of this registration statement on January 5,
1995, the Company intends to offer 3 million shares of common stock from the
shelf registration (the "Offering"). The net proceeds from the Offering are
estimated to be approximately $36.6 million at an assumed Offering price of
$13.125 per share (approximately $42.2 million if the underwriters' over
allotment option to purchase up to 450,000 additional shares is exercised in
full), after deducting estimated offering expenses and underwriting discounts.
To secure long-term fixed rate financing, the Company has entered
into a $52.6 million mortgage loan commitment (the "Commitment") dated October
30, 1995 with Principal Mutual Life Insurance Company, the proceeds of which
will be used to pay down the balance on the Company's $100 million credit
facility. The permanent debt financing (the "Permanent Debt Financing") to be
made pursuant to the Commitment is secured by 42 properties designated in the
Commitment. The Permanent Debt Financing consists of two loans that will bear
interest at a fixed weighted average rate of approximately 7.26 percent and will
have a weighted average maturity of 7.2 years. The first loan of $13.2 million
was closed on December 14, 1995 and the second loan of $39.4 million is expected
to close in late January 1996.
During the period October 1, 1995 through December 31, 1995, the
Company purchased three properties. During January 1996, the Company intends to
purchase six properties and newly constructed buildings on seven land parcels it
currently owns. The acquisition of these properties plus the properties
acquired in December 1995 are hereinafter referred to as the "Acquisition
Properties." The total purchase price of the Acquisition Properties is expected
to be approximately $50.0 million. The Company anticipates that the purchase of
the Acquisition Properties will be funded by a combination of net proceeds from
the Offering, the Permanent Debt Financing and the Company's $100 million credit
facility.
ITEM 6. RESIGNATION OF REGISTRANT'S DIRECTORS.
Not applicable.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
INDEX TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS
Page
COMMERCIAL NET LEASE REALTY, INC.
Pro Forma Financial Information (unaudited):
Pro Forma Balance Sheet as of September 30, 1995 4
Pro Forma Statement of Earnings for the nine months ended
September 30, 1995 5
Pro Forma Statement of Earnings for the year ended
December 31, 1994 6
Notes to Pro Forma Financial Statements for the nine months
ended September 30, 1995 and the year ended December 31, 1994 7
PRO FORMA FINANCIAL INFORMATION
The pro forma information of the Company gives effect to (i) $46.7 million
in net proceeds from the sale of 4,000,000 shares in the prior offering (the
"Prior Offering Transaction"), and (ii) the completion and sale of 3,000,000
shares of common stock offered hereby at an Offering Price of $13.125 per share
and the application of the net proceeds therefrom, the receipt of $52.6 million
of proceeds from the Permanent Debt Financing, the purchase of the Acquisition
Properties for approximately $50.0 million and the repayment of approximately
$39.3 million previously drawn under the Company's $100 million credit facility
(the "Credit Facility") (collectively, the "Offering Transactions").
The pro forma statements of earnings for the year ended December 31, 1994
and the nine months ended September 30, 1995 give effect to the Prior Offering
Transaction and the Offering Transactions as if such transactions had occurred
on January 1, 1994. Such pro forma statements of earnings also treat all
properties acquired during the year ended December 31, 1994 and the nine months
ended September 30, 1995 and the Acquisition Properties as if they had been
acquired and fully leased as of January 1, 1994. The Pro Forma Balance Sheet as
of September 30, 1995, gives effect to the Offering Transactions as if such
transactions had occurred on September 30, 1995.
The pro forma information does not purport to represent what the Company's
financial position or results of operations actually would have been if the
transactions reflected had in fact occurred on the date or at the beginning of
the period indicated, or to project the Company's financial position or results
of operations at any future date or any future period.
COMMERCIAL NET LEASE REALTY, INC.
UNAUDITED PRO FORMA BALANCE SHEET
SEPTEMBER 30, 1995
(In thousands, except per share data)
Pro Forma
ASSETS Historical Adjustments Pro Forma
---------- ------------ ---------
Land and buildings on operating
leases, net of accumulated
depreciation (c) $152,174 $ 50,744 (a) $202,918
Net investment in direct financing
leases (c) 52,512 52,512
Cash and cash equivalents 162 115 (a)
(84)(b) 193
Receivables 500 500
Prepaid expenses 291 291
Loan costs, net of accumulated
amortization 587 1,059 (b) 1,646
Accrued rental income 1,823 1,823
Deferred offering costs 165 (165)(b) -
Other assets 1,503 (1,159)(a) 344
-------- -------- --------
$209,717 $ 50,510 $260,227
======== ======== ========
LIABILITIES AND
STOCKHOLDERS' EQUITY
Liabilities:
Notes payable $ 72,900 $ 49,700 (a)
(36,409)(b) $ 86,191
Accrued interest payable 138 138
Accounts payable and accrued
expenses 401 609 (b) 1,010
Dividends payable 3,382 3,382
Real estate taxes payable 80 80
Due to related parties 142 142
Rents paid in advance and tenant
deposits 121 121
-------- -------- --------
Total liabilities 77,164 13,900 91,064
-------- -------- --------
Stockholders' equity:
Common stock 117 30 (b) 147
Capital in excess of par value 138,629 36,580 (b) 175,209
Accumulated dividends in excess
of net earnings (6,193) (6,193)
-------- -------- --------
132,553 36,610 169,163
-------- -------- --------
$209,717 $ 50,510 $260,227
======== ======== ========
COMMERCIAL NET LEASE REALTY, INC.
UNAUDITED PRO FORMA STATEMENT OF EARNINGS
NINE MONTHS ENDED SEPTEMBER 30, 1995
(In thousands, except per share data)
Pro Forma
Historical Adjustments Pro Forma
---------- ----------- ---------
Revenues:
Rental income from operating
leases (2) $10,163 $ 6,767 (1) $16,930
Earned income from direct
financing leases (2) 3,855 334 (1) 4,189
Contingent rental income 579 579
Interest and other income 98 44 (3) 142
------- ------- -------
14,695 7,145 21,840
------- ------- -------
Expenses:
General operating and
administrative 551 45 (4) 596
Advisory fees to related party 740 248 (5) 988
Interest 2,335 2,502 (6) 4,837
Taxes 188 96 (7) 284
Depreciation and amortization 1,463 936 (8)
101 (9) 2,500
------- ------- -------
5,277 3,928 9,205
------- ------- -------
Net Earnings $ 9,418 $ 3,217 $12,635
======= ======= =======
Earnings per share of common stock $ 0.81 $ 0.86
======= =======
Funds from operations (10) $10,659 $14,812
======= =======
Weighted average number of shares
outstanding 11,664 14,664
======= =======
COMMERCIAL NET LEASE REALTY, INC.
UNAUDITED PRO FORMA STATEMENT OF EARNINGS
YEAR ENDED DECEMBER 31, 1994
(In thousands, except per share data)
Pro Forma
Historical Adjustments Pro Forma
---------- ----------- ---------
Revenues:
Rental income from operating
leases (2) $ 8,116 $14,457 (1) $22,573
Earned income from direct
financing leases (2) 3,123 2,463 (1) 5,586
Contingent rental income 829 829
Interest and other income 221 (37)(3) 184
------- ------- -------
12,289 16,883 29,172
------- ------- -------
Expenses:
General operating and
administrative 605 153 (4) 758
Advisory fees to related party 728 615 (5) 1,343
Interest 498 5,421 (6) 5,919
Taxes 213 269 (7) 482
Depreciation and amortization 1,330 1,828 (8)
193 (9) 3,351
------- ------- -------
3,374 8,479 11,853
------- ------- -------
Net Earnings $ 8,915 $ 8,404 $17,319
======= ======= =======
Earnings per share of common stock $ 1.04 $ 1.18
======= =======
Funds from operations (10) $ 9,992 $20,222
======= =======
Weighted average number of shares
outstanding 8,606 14,664
======= =======
COMMERCIAL NET LEASE REALTY, INC.
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995
AND THE YEAR ENDED DECEMBER 31, 1994
(Dollars in thousands)
Pro Forma Balance Sheet:
- -----------------------
(a) Represents draw on the Company's Credit Facility used to acquire the
Acquisition Properties for approximately $50,744 (approximately $1,059 of
which had been paid in miscellaneous acquisition costs as of September 30,
1995). Per the Credit Facility agreement, draws must be made in
increments of $100, and as a result, approximately $15 of the draw was
added to working capital. Approximately $100 of the Credit Facility was
used to reimburse working capital for previously paid deposits on
Acquisition Properties.
(b) Represents estimated gross proceeds of $39,375 from the issuance of 3
million shares of stock from the Offering and loan proceeds of $52,600
from the Permanent Debt Financing used to pay down approximately $89,009
of the Credit Facility, to pay stock issuance costs of $2,765 ($165 of
which had been paid in deferred offering costs as of September 30, 1995)
and loan costs of $1,059. In connection with the above, it is assumed the
Company used $84 of its working capital reserve and incurred $609 in loan
costs payable.
(c) In accordance with generally accepted accounting principles, leases in
which the present value of the future minimum lease payments equals or
exceeds 90 percent of the value of the related properties are treated as
direct financing leases rather than as land and buildings. The
categorization of the lease has no effect on the rental revenues received.
Pro Forma Statements of Earnings:
- --------------------------------
(1) Represents rental income as if the properties acquired during the year
ended December 31, 1994 and the nine months ended September 30, 1995 (the
"New Properties") and the Acquisition Properties had been acquired and
fully leased on January 1, 1994.
(2) See Note (c) under "Pro Forma Balance Sheet" above.
(3) Represents adjustments to interest income due to the change in the amount
of cash available for investment in interest bearing accounts from the
receipt of rental income before dividends are paid to shareholders as a
result of the Prior Offering Transaction and the Offering Transactions.
The adjusted pro forma interest income does not include interest income
from the investment of offering proceeds. Pro forma interest income
decreased for the year ended December 31, 1994 due to a decrease in the
amount of cash available for investment in interest bearing accounts as a
result of the acquisition of the New Properties and the Acquisition
Properties. Interest income on interest bearing accounts is assumed to be
earned at a rate of four percent per annum based on the previous
experience of the Company.
(4) Represents additional expenses due to incremental expenses associated with
additional shares of common stock outstanding and due to increased unused
commitment fees under the Credit Facility.
(5) Represents adjustment to advisory fees due to the increase in rental
revenues and funds from operations (as defined in the Company's advisory
agreement with its advisor).
(6) Represents adjustment in interest expense and other loan costs primarily
as a result of the pro forma increase in indebtedness in connection with
the Offering Transactions. Pro forma interest expense for the nine months
ended September 30, 1995 and the year ended December 31, 1994, was based
on the average 30-day LIBOR rates in effect for those periods of 6.01
percent and 4.47 percent, respectively, plus 1.70 percent relating to the
Credit Facility and a weighted average interest rate of approximately 7.26
percent relating to the Permanent Debt Financing.
COMMERCIAL NET LEASE REALTY, INC.
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS - CONTINUED
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995
AND THE YEAR ENDED DECEMBER 31, 1994
(Dollars in thousands)
Pro Forma Statements of Earnings - Continued
- --------------------------------------------
(7) Represents additional expenses assumed to have been incurred as a result
of additional state taxes based on additional rental revenue. Due to the
fact that the Company's leases are on a net-lease basis, the Company has
not included any amounts for real estate taxes in the pro forma statements
of earnings.
(8) Represents adjustment to depreciation expense for the New Properties and
the Acquisition Properties as if the properties had been acquired and
fully leased on January 1, 1994. The building portion of the properties
accounted for as operating leases are depreciated using the straight-line
method over their estimated useful lives which is generally 40 years.
(9) Represents adjustment to amortization expense as the result of the
amortization of estimated loan costs incurred in connection with the
Company's Permanent Debt Financing and additional amortization of the loan
costs relating to the Company's Credit Facility as if the Credit Facility
was available as of January 1, 1994.
(10) Funds from operations has been calculated in accordance with the
definition of "funds from operations" recently clarified by the National
Association of Real Estate Investment Trusts (NAREIT) defined as net
income, computed in accordance with generally accepted accounting
principles, excluding gains or losses from debt restructurings and sales
of property, plus depreciation and after adjustments for unconsolidated
partnerships and joint ventures. Under the method previously used by the
Company which included adjustments to net income for amortization of
deferred financing costs and non-cash lease accounting adjustments, funds
from operations would have been $14,273 and $10,351 for the pro forma nine
months ended September 30, 1995 and the historical nine months ended
September 30, 1995, respectively, and would have been $19,521 and $9,731
for the pro forma year ended December 31, 1994 and the historical year
ended December 31, 1994, respectively. Non-cash lease accounting
adjustments for the pro forma nine months ended September 30, 1995 and for
the historical nine months ended September 30, 1995 were $862 and $530,
respectively. Non-cash lease accounting adjustments for the pro forma
year ended December 31, 1994 and the historical year ended December 31,
1994 were $1,149 and $515, respectively. Funds from operations should not
be considered as a substitute for net income as an indication of the
Company's performance or as a substitute for cash flow as a measure of its
liquidity.
EXHIBITS
--------
COMMERCIAL NET LEASE REALTY, INC.
EXHIBIT NO. DESCRIPTION
- ----------- -----------
1.2 Purchase Agreement, which is being filed pursuant to
Regulation S-K, Item 601(b)(1) in lieu of filing the
otherwise required exhibit to the Registration Statement
on Form S-3 (the "Registration Statement"), File No. 33-
61165, under the Securities Act of 1933, as amended (the
"Securities Act"), and which, since this Form 8-K filing
is incorporated by reference in such Registration
Statement, is set forth in full in such Registration
Statement. (Filed herewith.)
5 Opinion of Shaw, Pittman, Potts & Trowbridge, which is
being filed pursuant to Regulation S-K, Item 601(b)(5)
in lieu of the otherwise required exhibit to the
Registration Statement under the Securities Act, and
which, since this Form 8-K filing is incorporated by
reference in such Registration Statement, is set forth
in full in such Registration Statement. (Filed
herewith.)
8 Opinion of Shaw, Pittman, Potts & Trowbridge, which is
being filed pursuant to Regulation S-K, Item 601(b)(8)
in lieu of the otherwise required exhibit to the
Registration Statement under the Securities Act, and
which, since this Form 8-K filing is incorporated by
reference in such Registration Statement, is set forth
in full in such Registration Statement. (Filed
herewith.)
10.14 Second Amended and Restated Line of Credit and Security
Agreement, dated December 7, 1995, among Registrant,
certain lenders listed therein and First Union National
Bank of Florida, as the Agent relating to a $100,000,000
loan. (Filed herewith.)
10.15 Secured Promissory Note, dated December 14, 1995, among
Registrant and Principal Mutual Life Insurance Company
relating to a $13,150,000 loan. (Filed herewith.)
10.16 Mortgage and Security Agreement, dated December 14,
1995, among Registrant and Principal Mutual Life
Insurance Company relating to a $13,150,000 loan.
(Filed herewith.)
10.17 The Annual Report to Shareholders for the year ended
December 31, 1994 (File No. 0-12989) (Incorporated
herein by reference.)
10.18 The Proxy Statement relating to the 1994 Annual Meeting
of Stockholders (File No. 0-12989) (Incorporated herein
by reference.)
23 Consents of Shaw, Pittman, Potts & Trowbridge (contained
in the opinions filed as Exhibits 5 and 8 hereto), which
is being filed pursuant to Regulation S-K, Item
601(b)(23) in lieu of the otherwise required exhibit to
the Registration Statement under the Securities Act, and
which, since this Form 8-K filing is incorporated by
reference in such Registration Statement, is set forth
in full in such Registration Statement. (Filed
herewith.)
24.2 Consent of KPMG Peat Marwick LLP. (Filed herewith.)
ITEM 8. CHANGE IN FISCAL YEAR.
Not applicable.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the registrant has duly caused this report to be filed on its behalf by
the undersigned thereunto duly authorized.
COMMERCIAL NET LEASE REALTY, INC.
Dated: January 18, 1996 By: /s/ Robert A. Bourne
------------------------
ROBERT A. BOURNE, President
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION PAGE
- ----------- ----------- ----
1.2 Purchase Agreement, which is being filed pursuant
to Regulation S-K, Item 601(b)(1) in lieu of
filing the otherwise required exhibit to the
Registration Statement on Form S-3 (the
"Registration Statement"), File No. 33-61165,
under the Securities Act of 1933, as amended (the
"Securities Act"), and which, since this Form 8-K
filing is incorporated by reference in such
Registration Statement, is set forth in full in
such Registration Statement. (Filed herewith.)
5 Opinion of Shaw, Pittman, Potts & Trowbridge,
which is being filed pursuant to Regulation S-K,
Item 601(b)(5) in lieu of the otherwise required
exhibit to the Registration Statement under the
Securities Act, and which, since this Form 8-K
filing is incorporated by reference in such
Registration Statement, is set forth in full in
such Registration Statement. (Filed herewith.)
8 Opinion of Shaw, Pittman, Potts & Trowbridge,
which is being filed pursuant to Regulation S-K,
Item 601(b)(8) in lieu of the otherwise required
exhibit to the Registration Statement under the
Securities Act, and which, since this Form 8-K
filing is incorporated by reference in such
Registration Statement, is set forth in full in
such Registration Statement. (Filed herewith.)
10.14 Second Amended and Restated Line of Credit and
Security Agreement, dated December 7, 1995, among
Registrant, certain lenders listed therein and
First Union National Bank of Florida, as the Agent
relating to a $100,000,000 loan. (Filed
herewith.)
10.15 Secured Promissory Note, dated December 14, 1995,
among Registrant and Principal Mutual Life
Insurance Company relating to a $13,150,000 loan.
(Filed herewith.)
10.16 Mortgage and Security Agreement, dated December
14, 1995, among Registrant and Principal Mutual
Life Insurance Company relating to a $13,150,000
loan. (Filed herewith.)
10.17 The Annual Report to Shareholders for the year
ended December 31, 1994 (File No. 0-12989)
(Incorporated herein by reference.)
10.18 The Proxy Statement relating to the 1994 Annual
Meeting of Stockholders (File No. 0-12989)
(Incorporated herein by reference.)
23 Consents of Shaw, Pittman, Potts & Trowbridge
(contained in the opinions filed as Exhibits 5 and
8 hereto), which is being filed pursuant to
Regulation S-K, Item 601(b)(23) in lieu of the
otherwise required exhibit to the Registration
Statement under the Securities Act, and which,
since this Form 8-K filing is incorporated by
reference in such Registration Statement, is set
forth in full in such Registration Statement.
(Filed herewith.)
24.2 Consent of KPMG Peat Marwick LLP. (Filed
herewith.)