Business Context and Reporting Period
Company: Commercial Net Lease Realty, Inc. (NNN REIT, Inc.)
Filing Type: Form 10-K (Annual Report)
Period Ended: December 31, 2003
Business Overview: A fully integrated, self-administered Real Estate Investment Trust (REIT) formed in 1984. The Company acquires, owns, and manages single-tenant retail, office, and industrial properties leased under long-term commercial net leases. As of December 31, 2003, the portfolio consisted of 339 properties located in 39 states, with approximately 97% of gross leasable area leased.
Key Financial Metrics
Note: Specific revenue, net income, and cash flow figures are incorporated by reference from the Annual Report to Shareholders and are not explicitly detailed in the provided text. The following metrics are derived from the Schedule III and Schedule IV data included in the filing.
- Total Real Estate Carrying Value: $935,986,480 (Operating Leases) + $102,510,261 (Direct Financing Leases) = $1,038,496,741.
- Accumulated Depreciation: $48,862,786.
- Real Estate Acquisitions (2003): $216,643,624 (including completed construction and tenant improvements).
- Real Estate Dispositions (2003): $22,793,200.
- Mortgage Loans Carrying Amount: $22,017,965.
- Debt Instruments Outstanding:
- 7.125% Notes due 2008: $100,000,000
- 8.125% Notes due 2004: $100,000,000
- 8.500% Notes due 2010: $20,000,000
- 7.750% Notes due 2012: $50,000,000
- Revolving Credit Facility: $225,000,000 capacity (Seventh Amended and Restated Line of Credit).
- Shares Outstanding (as of Feb 28, 2004): 50,970,914.
Material Changes and Portfolio Activity
- Major Acquisition: In August 2003, the Company acquired two office buildings and a parking garage in the Washington, D.C. metropolitan area for $142,800,000. The properties are leased to the United States of America (Transportation Security Administration) with an expected annual rent of approximately $18,300,000 once fully occupied. The Company funded $11,438,000 of improvements by year-end.
- Portfolio Composition: 83% of annualized base rent is derived from retail properties. The weighted average remaining lease term was approximately 11 years.
- Concentration Risk: Eckerd Corporation accounted for more than 10% of total rental income in 2003, leasing 52 properties. The U.S. Government lease is also expected to account for more than 10% of rental income in future years.
- Legal Settlement: Settled a class action lawsuit (Calapasas Action) regarding the 2001 Captec merger for $225,000, including legal fees.
Outlook, Risks, and Contingencies
- Capital Markets Activity: In December 2003, the Company announced an underwritten public offering of approximately 3,250,000 shares of common stock.
- Unconsolidated Affiliates: The Company holds significant interests in unconsolidated affiliates, including Commercial Net Lease Realty Services, Inc. (98.7% interest) and Net Lease Institutional Realty L.P. (20% interest). These entities provide additional borrowing capacity and development opportunities.
- Environmental Liabilities: The Company has 18 properties currently under environmental remediation. Costs are contractually the responsibility of the seller or tenant.
- Legal Proceedings:
- Ysiem Corporation: Dismissed with prejudice; appeal affirmed in May 2003.
- Calapasas Action: Settlement agreement reached in October 2003 for $225,000, pending judicial approval.
- Guarantees: The Company has guaranteed 41.67% of a $15,500,000 promissory note for CNL Plaza, Ltd., with a maximum obligation of $6,458,300 plus interest, maturing in November 2004.
Investor Verification Checklist
- Revenue and Earnings: Verify total rental income, net income, and Funds From Operations (FFO) in the incorporated Annual Report to Shareholders, as these specific figures are not in the provided text.
- Debt Maturities: Confirm the status of the $100,000,000 8.125% Notes due 2004 and the $15,500,000 Plaza note guarantee maturing in 2004.
- Tenant Concentration: Monitor the financial health of Eckerd Corporation (a subsidiary of J.C. Penney) and the occupancy status of the new U.S. Government office properties.
- Capital Raise: Confirm the closing and proceeds of the 3,250,000 share common stock offering announced in December 2003.
- Environmental Status: Review updates on the 18 properties undergoing environmental remediation to ensure no unexpected costs are assumed by the Company.