Business Context and Reporting Period
Company: Commercial Net Lease Realty, Inc. (NNN REIT, INC.)
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: June 30, 1995
Business Overview: An equity real estate investment trust (REIT) acquiring, owning, and managing high-quality freestanding properties leased to major retail businesses under long-term commercial net leases. As of June 30, 1995, the portfolio consisted of 142 properties.
Key Financial Metrics
| Metric | Quarter Ended June 30, 1995 | Six Months Ended June 30, 1995 |
|---|---|---|
| Total Revenues | $4,745,816 | $9,161,262 |
| Net Earnings | $3,133,591 | $6,192,444 |
| Earnings Per Share (EPS) | $0.27 | $0.53 |
| Net Cash from Operating Activities | N/A | $6,757,352 |
| Cash and Cash Equivalents | $2,155,995 | $2,155,995 |
| Total Assets | $194,426,260 | $194,426,260 |
| Total Liabilities | $58,334,044 | $58,334,044 |
| Notes Payable (Debt) | $57,500,000 | $57,500,000 |
| Stockholders' Equity | $136,092,216 | $136,092,216 |
Dividends: $0.58 per share declared and paid for the six months ended June 30, 1995. A subsequent dividend of $0.29 per share was declared in July 1995.
Material Changes vs. Prior Period
- Revenue Growth: Total revenues increased 66.7% for the quarter and 74.0% for the six-month period compared to the same periods in 1994. This is primarily due to income from properties acquired in 1994 and 14 new properties acquired in the first half of 1995.
- Profitability: Net earnings rose 54.0% for the quarter and 65.3% for the six-month period year-over-year.
- Interest Expense: Interest expense surged to $1,090,670 for the six months ended June 30, 1995, compared to $98,001 in the prior year period, reflecting higher average borrowing levels to fund acquisitions.
- Debt Levels: Notes payable increased from $14.8 million at December 31, 1994, to $57.5 million at June 30, 1995, utilizing the expanded $100 million credit facility.
- Contingent Rent: Contingent rental income decreased slightly ($379,964 vs. $422,055 for the six months) due to lower aggregate net sales from restaurant tenants.
Outlook, Risks, and Management Commentary
- Capital Resources: Management believes current cash and borrowing capacity are sufficient for foreseeable liquidity needs. A shelf registration statement for up to $200 million in debt and equity securities was filed in July 1995.
- Acquisition Pipeline: The company has agreements to purchase 12 additional properties for approximately $19.3 million and is negotiating further acquisitions. Future capital demands will primarily be for property acquisitions.
- Concentration Risk: Two lessees, Golden Corral Corporation (27 properties) and Flagstar Enterprises (24 properties), each accounted for more than 10% of total rental income. Failure of these lessees could materially affect income.
- Interest Rate Risk: To mitigate exposure to rising rates on its variable-rate credit facility, the company holds an interest rate cap agreement on $25 million of notional debt through June 1996.
- Commitments: The company is contingently liable for $2.3 million in letters of credit guaranteeing property purchases and has agreed to purchase buildings upon completion for up to $12.4 million.
Investor Verification Checklist
- Debt Servicing: Verify the impact of the $57.5 million outstanding debt on future cash flows, given the significant increase in interest expense.
- Tenant Concentration: Assess the financial health of Golden Corral and Flagstar Enterprises, as they represent a significant portion of rental income.
- Acquisition Execution: Monitor the completion of the 12 properties under contract and the 5 buildings under construction to ensure expected revenue growth materializes.
- Dividend Sustainability: Confirm that net cash provided by operating activities ($6.76 million for six months) remains sufficient to cover dividend payments ($6.76 million for six months) and capital expenditures.
- Regulatory Status: Track the effectiveness of the $200 million shelf registration statement filed in July 1995 for future capital raising.