



                                                    EXHIBIT 13

                                           ANNUAL REPORT TO SHAREHOLDERS


1997 ANNUAL REPORT - PAGE 4

TABLE OF CONTENTS
-----------------

Company Profile                                                       1

To Our Shareholders                                                   2

Historical Financial Highlights                                       4

Management's Discussion and Analysis of
  Financial Condition and Results of Operations                       6

Diversification of Assets                                             11

Independent Auditors' Report                                          12

Consolidated Balance Sheets                                           13

Consolidated Statements of Earnings                                   14

Consolidated Statements of Stockholders' Equity                       15

Consolidated Statements of Cash Flows                                 16

Consolidated Notes to Financial Statements                            17

Consolidated Quarterly Financial Data                                 26

Share Price and Dividend Data                                         27

People - Service - Relationships                                      28

Directors and Executive Officers                                      32

Shareholder Information                                               31



1996 ANNUAL REPORT - PAGE 1

<TABLE>

                                                      HISTORICAL FINANCIAL HIGHLIGHTS
                                                       (DOLLARS IN THOUSANDS, EXCEPT
                                                              PER SHARE DATA)
                                                      -------------------------------
<CAPTION>
[Picture 1]   Candid photograph of Denise Reyes, employee of the Company


                            1997                  1996                  1995                  1994                 1993
                          ----------            ----------             ---------             ---------            ---------
<S>                       <C>                   <C>                   <C>                    <C>                   <C>
Gross Revenues            $   50,135            $   33,369            $   20,580             $  12,289             $   5,069

Net Earnings              $   30,385            $   19,839            $   12,707             $   8,915             $   3,522

Total Assets              $  537,014            $  370,953            $  219,257             $ 152,211             $  91,619

Total Long-Term
  Debt                    $  171,836            $  116,956            $   82,600             $  14,800             $      -

Total Equity              $  362,144            $  252,574            $  135,842             $ 136,665             $  91,145

Cash Dividends
  Paid to Stock-
  holders                 $   28,381            $   18,868            $   13,529             $   9,897             $   3,156

Weighted Average
  Shares
      Basic               24,070,697            16,798,918            11,663,672             8,606,138              3,711,807
      Diluted             24,220,792            16,838,719            11,693,772             8,613,672

Per Share
  Information:
    Net Earnings
      Basic                   $ 1.26                $ 1.18                $ 1.09                $ 1.04                $ 0.95
      Diluted                 $ 1.25                $ 1.18                $ 1.09                $ 1.04

    Dividends                 $ 1.20                $ 1.18                $ 1.16                $ 1.14                $ 1.10

Other Data
  Funds from oper-
    ations (1)            $   34,230             $  22,570             $  14,443             $   9,992              $  3,884
  Cash Flows from:
    Operating
      activities          $   34,010             $  22,216             $  14,140             $   9,505              $  3,750
    Investing
      activities          $ (167,002)            $(144,247)            $ (67,518)            $ (79,081)             $(48,609)
    Financing
      activities          $  133,742             $ 123,140             $  52,609             $  50,799              $ 64,236

Equity Market
  Capitalization
  ($ mil)                     $499.7                $329.6                $148.7                $142.9                $105.4

</TABLE>


--------------------------------------------------------------------------------
(1)     The Company has recently adopted the NAREIT definition of funds from 
        operations and has restated funds from operations for prior years in 
        accordance with this definition.  Funds from operations are net earnings
        excluding depreciation, gains and losses on the sale of real estate and 
        nonrecurring items of income and expense of the Company, and the
        Company's share of these items from the Company's unconsolidated 
        partnership.  For



         purposes of this table, funds from operations exclude nonrecurring NYSE
         initial listing expenses of $111,638 in 1993. Funds from operations are
         generally  considered by industry  analysts to be the most  appropriate
         measure of performance and do not  necessarily  represent cash provided
         by  operating   activities  in  accordance   with  generally   accepted
         accounting  principles  and  are  not  necessarily  indicative  of cash
         available  to  meet  cash  needs.   Management   considers  funds  from
         operations  an  appropriate  measure of  performance  of an equity REIT
         because  it  is  predicated  on  cash  flow  analysis.   The  Company's
         computation of funds from  operations  may differ from the  methodology
         for calculating  funds from operations  utilized by other equity REIT's
         and, therefore, may not be comparable to such other REIT's.



1997 ANNUAL REPORT - PAGE 6

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS

INTRODUCTION

Commercial Net Lease Realty, Inc., a Maryland corporation, is a real estate
investment trust ("REIT") formed in 1984 that acquires, develops, owns and
manages high-quality, freestanding properties leased to major retail
businesses under long-term commercial net leases.  As of December 31, 1997,
Commercial Net Lease Realty, Inc. and its subsidiaries (the "Company") owned
236 properties (the "Properties") that are leased to major retail businesses,
including Academy, Babies "R" Us, Barnes & Noble, Best Buy, Borders, Burger
King, CompUSA, Computer City, Denny's, Dick's Clothing & Sporting Goods,
Eckerd, Food 4 Less, Food Lion, Golden Corral, Good Guys, Hardee's, Hi-Lo
Automotive, HomePlace, International House of Pancakes, Kash N' Karry, Levitz,
Linens 'n Things, Luria's, Marshalls, Office Depot, OfficeMax, Oshman's, Pier
1 Imports, Robb & Stucky, Scotty's, Sears Homelife Centers, Sports Authority,
Waccamaw and eight independently operated grocery stores leased to or
partially guaranteed by SuperValu, Inc.

LIQUIDITY AND CAPITAL RESOURCES

General.
Historically, the Company's only need for funds has been for the payment of
operating expenses and dividends, for property acquisitions and for the
payment of interest on its outstanding indebtedness.  Generally, cash needs
for items other than property acquisitions have been met from operations and
property acquisitions have been funded by equity offerings, bank borrowings
and, to a lesser extent, from internally generated funds.  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

[Picture 2]   Candid photograph of a meeting between James M. Seneff and Gary M.
              Ralston, employees of the Company

from banks or other lenders, or the sale of Properties, as well as
undistributed funds from operations.  For the years ended December 31, 1997,
1996 and 1995, the Company generated $34,010,000, $22,216,000 and $14,140,000,
respectively, in net cash provided by operating activities.  The increase in
cash from operations for each of the years ended December 31, 1997, 1996 and
1995, is primarily a result of changes in revenues and expenses as discussed
in "Results of Operations."

The Company's 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
Properties are subject to leases under which the Company retains
responsibility for certain costs and expenses associated with the Property.
Because many of the Properties which are subject to leases  that  place  these
responsibilities  on  the  Company  are recently constructed, management
anticipates that capital demands to meet obligations with respect to these
Properties will be minimal for the foreseeable future  and can be  met with
funds from operations and working capital.  The Company may be required to use
bank borrowings or other sources of capital in the event of unforeseen
significant capital expenditures.

Indebtedness.
In September 1996, the Company entered into an amended and restated loan
agreement for a $150,000,000 revolving credit facility. The credit facility
amended the Company's $100,000,000 credit facility by (i) increasing the



borrowing capacity from $100,000,000 to $150,000,000, (ii) extending the
expiration date to June 30, 1998 (and for up to two additional 12 month
periods at the option of the Company), and (iii) lowering the interest rate
from 170 basis points above LIBOR to 160 basis points above LIBOR or the
lender's prime rate, whichever the Company selects.  In August 1997, the
Company entered into an amended and restated loan agreement for a $200,000,000
revolving credit facility (the "Credit Facility") which amended the company's
$150,000,000 credit facility by (i) increasing the borrowing capacity from
$150,000,000 to $200,000,000, (ii) extending the expiration date to June 30,
1999 (and for up to two additional 12 month periods at the option of the
Company), and (iii) lowering the interest rate from 160 basis points above
LIBOR to 150 points above LIBOR or the lender's prime rate, whichever the
Company selects.

[Picture 3]       Candid photograph of Kevin Habicht, employee of the Company


In connection with the Credit Facility, the Company is required to pay a
commitment fee of 20 basis points per annum on the unused commitment.  The
Credit Facility is collateralized by an assignment of the rents and leases of
certain of the Company's Properties.  As of December 31, 1997, $115,100,000
was outstanding under the Credit Facility.  The Company expects to use the
Credit Facility primarily to invest in freestanding, retail properties,
although up to $25,000,000 of the available credit may be used for working
capital ($15,000,000 of which may be used for the issuance of standby letters
of credit).

As a means to reduce its exposure to rising interest rates on the Company's
variable rate Credit Facility, the Company was a party to three interest rate
cap agreements during the three years ended December 31, 1997.  As of December
31, 1997, two of the interest rate cap agreements had expired and one remained
effective, providing for a fixed LIBOR rate of 6.9% per annum on a notional
amount of $30 million.  This agreement is effective through December 1999.

In December 1995, the Company entered into a long-term, fixed rate mortgage
and security agreement for $13,150,000.  The loan provides for a four-year
mortgage with interest payable monthly and principal payable at maturity on
December 15, 1999, and bears interest at a rate of 6.75% per annum.  The
mortgage is secured by a first lien on and assignment of rents and leases of
certain of the Company's Properties.  As of December 31, 1997, the outstanding
principal balance was $13,150,000.

In January 1996, the Company entered into a long-term, fixed rate mortgage and
security agreement for  $39,450,000.  The loan is a ten-year loan with
principal and interest payable monthly, based on a 17-year amortization, with
the balance due in February 2006 and bears interest at a rate of 7.435% per
annum.  The loan is secured by a first lien on and an assignment of rents and
leases of



1997 ANNUAL REPORT - PAGE 7

certain of the Company's Properties.  As of December 31, 1997, the outstanding
principal balance was $37,066,000.

In June 1996, the Company acquired three Properties each subject to a mortgage
totalling $6,864,000 (collectively the "Mortgages").  The Mortgages bear
interest at a weighted average rate of 8.6% and have a weighted average
maturity of 7.3 years.  As of December 31, 1997, the outstanding principal
balances for the Mortgages totalled $6,520,000.

Payments of principal on the mortgage debt and on advances outstanding under
the Credit Facility are expected to be met from the proceeds of renewing or
refinancing the Credit Facility, proceeds from public or private offerings of
the Company's debt or equity securities, secured or unsecured borrowings from
banks or other lenders or proceeds from the sale of one or more of its
Properties.

Debt and Equity Securities.
In July 1995, the Company filed a shelf registration statement with the
Securities and Exchange Commission that permits the issuance of debt and
equity securities of up to $200,000,000.   In January 1996, the Company filed
a prospectus supplement to the shelf registration and issued 4,025,000 shares
of common stock, including the underwriters' over- allotment of 525,000
shares, and received gross proceeds of $52,325,000.  In September 1996, the
Company filed a prospectus supplement to the shelf registration and issued
4,850,000 shares of common stock and received gross proceeds of $67,900,000.
In addition, in October 1996, the Company issued an additional 225,000 shares
of common stock in connection with the underwriters' over- allotment option
and received gross proceeds of $3,150,000.  In connection with these
offerings, the Company incurred stock issuance costs totalling $7,614,000,
consisting primarily of underwriters' commissions and fees, legal and
accounting fees and printing expenses.  In February 1997, the Company filed a
prospectus supplement to its $200,000,000 shelf registration and issued
2,300,000 shares of common stock and received gross proceeds of $34,787,000.
In addition, in March 1997, the Company issued an additional 330,000 shares of
common stock in connection with the underwriters' overallotment option and
received gross proceeds of $4,991,000.  In April 1997, the Company filed a
shelf registration statement with the Securities and Exchange Commission which
permits the issuance by the Company of up to $300,000,000 in debt and equity
securities.   In  September  1997,  the  Company  filed two prospectus
supplements to its $300,000,000 shelf registration and issued 3,645,680 shares
of common stock and received gross proceeds of $56,278,000.  In December 1997,
the Company filed a prospectus supplement to the shelf registration and issued
882,353 shares of common stock and received gross proceeds of $15,000,000.  In
connection with the four 1997 offerings, the Company incurred stock issuance
costs totalling $3,953,000 consisting primarily of underwriters' commissions
and fees, legal and accounting fees and printing expenses.  Net proceeds from
the offerings were generally used to pay down the outstanding indebtedness
under the Company's Credit Facility.

In February 1998, the Company filed a prospectus supplement to the shelf
registration and issued 688,172 shares of common stock at $14.4375 per share.
Net proceeds of the offering were approximately $11,350,000, after deducting
offering expenses and underwriter's discounts.  Proceeds of the offering were
used to pay down the outstanding indebtedness of the Company's Credit
Facility.  Subsequent to the February 1998 offering, the Company had
$216,722,000 remaining on its shelf registration.

Property Acquisitions and Commitments.
During the year ended December 31, 1997, the Company borrowed $152,600,000
under its Credit Facility to acquire 47 Properties and three buildings (the
"Acquisition Properties") which were developed by the tenant on land parcels
owned by the Company.  The Acquisition Properties include 14 Eckerd



drugstores, six Best Buy consumer electronic stores, three OfficeMax office
supply stores, two Barnes & Noble bookstores, one Borders  bookstore, two Good
Guys  consumer electronic stores, four HomePlace home furnishing stores, one
Pier 1 Imports home furnishings store, one Robb & Stucky furniture store, one
Blockbuster video store, one Just For Feet shoe store, one Kroger grocery
store, one Petco pet supply store, one Sports Authority sporting goods store
and eight independently operated grocery stores leased to or partially
guaranteed by SuperValu, Inc.  The three buildings included one Academy
sporting goods store, one Pier 1 Imports home furnishings store and one Kash
N' Karry grocery store.

[Picture 4]       Portrait photograph of Mez Birdie, employee of the Company

[Sidebar 1]

SERVICE

BUILDING RELATIONSHIPS THROUGH SERVICE
--------------------------------------

"To serve people through Commercial Net Lease Realty is an opportunity that
comes once in a lifetime, and we don't take it lightly," says Mez Birdie, his
voice filled with pride and determination.  "As vice president of asset
management, my job is to ensure that we are the consummated Land Servant, by
providing services above and beyond our customers' expectations.  We care
about building a relationship before we care about making a transaction.

Mez's responsibilities include property management, lease administration and
leasing and disposition.  While most retailers expect Commercial Net Lease
Realty to own and build stores within budgets and timeframes, Mez points out
that most don't' expect the additional services that have earned the company
its national reputation for going the extra mile.

For example, when the company bought properties leased to Sears, Mez assisted
Sears in reducing their store insurance premiums by 25 percent.  "We did this
because we wanted to serve the tenant in the best possible way," says Mez.

"We don't just collect rent," says Mez.  "We also provide service, and the end
result is always positive for our shareholders.  When retailers want to
expand, why wouldn't they come to us and say, 'Be our Land Servant for more
stores.'  Satisfied customers are a key part of creating value for
shareholders," says Mez.

Mez, like his fellow associates, owns stock in the company.  "What better way
to show commitment than by putting your money where your mouth is," says Mez.


1997 ANNUAL REPORT - PAGE 8

[Picture 5]       Strip of three candid photographs, each of John Awsumb, 
                  employee of the Company

[Picture 6]       Photograph of an exterior view of the OfficeMax located in
                  Altamonte Springs, Florida

The Company leases the Acquisition Properties to major retail tenants and
accounts for the leases under the provisions of the Statement of Financial
Accounting Standards No. 13, "Accounting for Leases."  Pursuant to the
requirements of this provision, 37 of the leases relating to the 47 Properties
acquired during 1997 have been classified as operating leases and 10 leases
have been classified as direct financing leases.  For the leases classified as
direct financing leases, the building portions of the leases are accounted for
as direct financing leases while the land portions of eight of these leases
are accounted for as operating leases.  Also pursuant to the requirements of
this provision, one of the leases relating to the three buildings which were
developed by the tenant on land parcels  owned  by  the  Company  have been
classified as operating leases and two leases have been classified as direct
financing leases.

In connection with the acquisition and lease relating to the land  parcel of
the Pier 1 Imports Property, the tenant is obligated to develop a building on
the respective land parcel.  The Company has agreed to acquire the completed
building for an amount of up to $798,000, at which time rental income will
increase for the Property.  The Company owns five land parcels subject to
lease agreements with tenants whereby the Company has agreed to construct a
building on each respective land parcel for an aggregate amount of
approximately $10,000,000 for the five buildings. Pursuant  to  the lease
agreements, rent is to commence on the properties upon completion of
construction of the buildings.

As of December 31, 1997, the Company had entered into agreements to purchase
three additional properties for an estimated aggregate amount of $7,847,000.
In connection with the acquisition of two of these properties, the Company was
contingently liable for $350,000 related to bank letters of credit which
guarantee the Company's obligation under the purchase agreements to acquire
these properties.  The purchase of these properties is subject to conditions
relating to completion of development activities, review of title and
obtaining title insurance, engineering and environmental inspections and other
matters.

In addition to the three properties under contract and the building being
developed by the tenant as of December 31, 1997, the Company is currently
negotiating the acquisition of prospective properties.  The Company may elect
to acquire these prospective properties or other additional properties (or
interests therein) in the future. Such property acquisitions are expected to
be the primary demand for additional capital in the future.  The Company
anticipates that it may engage in equity or debt financing, through either
public or private offerings of its securities for cash, issuance of such
securities in exchange for assets, or a combination of the foregoing.  Subject
to the constraints imposed by the Credit Facility and long-term, fixed rate
financing, the Company may enter into additional financing arrangements.

During 1996, the Company sold its properties in Marble Falls and Gonzales,
Texas for a total of $790,000 and received net proceeds of $759,000, resulting
in a gain of $73,000 for financial statement purposes.  The Company reinvested
the proceeds to acquire two  additional  Properties  and  structured  the
transactions  to qualify as like-kind exchange transactions for federal income
tax purposes.

In January 1997, the company sold its property in Foley, Alabama, for $570,000
and received net sales proceeds of $551,000.  In addition, in September 1997,



the Company sold four of its properties to Net Lease Institutional Realty,
L.P. (see "Investment in Partnership") at the Company's original cost of
$17,542,000.  In addition, the Company sold an undeveloped portion of land of
one of its Properties  for  $1,313,000  and  received  net  proceeds  of
$1,265,000.  The Company recognized a gain on the sale of these five
properties and the portion of the land parcel of $651,000 for financial
reporting purposes.  The Company reinvested the proceeds to acquire additional
properties and structured the transactions to qualify as like-kind exchange
transactions for federal income tax purposes.

Management believes that the Company's current capital resources  (including
cash  on  hand),  coupled with the Company's borrowing capacity, are
sufficient to meet its liquidity needs for the foreseeable future.

Investment in Partnership.
In September 1997, the Company entered into a partnership arrangement, Net
Lease Institutional Realty, L.P. (the "Partnership"), with the Northern Trust
Company, as Trustee of the Retirement Plan for the Chicago Transit Authority
Employees ("CTA").  The Company is the sole general partner (the "General
Partner") with a 20 percent interest in the Partnership and CTA is the sole
limited partner (the "Limited Partner") with an 80 percent limited partnership
interest.  The Partnership owns and leases nine properties to major retail
tenants under long-term commercial net leases.  Net income and losses of the
Partnership are to be allocated to the partners in accordance with their
respective percentage interest in the Partnership.  The Company accounts for
its 20 percent interest in the Partnership under the equity method of
accounting.

Dividends.
One of the Company's primary objectives, consistent with its policy of
retaining sufficient cash for reserves and working capital purposes, is to
distribute a



1997 ANNUAL REPORT - PAGE 9

substantial portion of its funds available from operations to its stockholders
in the  form of  dividends.    During the years ended December 31, 1997, 1996
and 1995, the Company declared and paid  dividends to its stockholders of
$28,381,000, $18,868,000, and $13,529,000, respectively, or $1.20, $1.18 and
$1.16 per share of common stock, respectively.  For the years ended December
31, 1997, 1996 and 1995, 91.4%, 89.8% and 79.3%, respectively, of such
dividends were considered to be ordinary income and 8.6%, 10.2% and 20.7%,
respectively, were considered return of capital for federal income tax
purposes.   In January 1998, the Company declared dividends to its
stockholders of $8,452,000 or $.30 per share of common stock, payable in
February 1998.

RESULTS OF OPERATIONS

Comparison of Year Ended December 31, 1997 to Year Ended December 31, 1996.
During the years ended December 31, 1997 and 1996, the Company owned and
leased 242 (including five properties which  were  sold  and  one  property
which was contributed to the Partnership during 1997) and 197 (including two
properties which were sold during 1996) Properties, respectively, to operators
of major retail businesses.   The Properties are leased on a long-term basis,
generally 15 to 20 years, with renewal options for an additional 10 to 20
years.  As of December 31, 1997, the average remaining initial lease term of
the Properties was approximately 14 years.  During the years ended December
31, 1997 and 1996, the Company earned $49,163,000 and $32,487,000,
respectively, in rental income from operating leases and earned income from
direct financing leases.  The 51 percent increase in rental and earned income
during 1997, as compared to 1996, is primarily attributable to  income  earned
on  the  47  Properties  acquired and the three buildings upon which
construction was completed during 1997.  In addition,  rental and earned
income increased during 1997 as a result of the fact that the 40 Properties
acquired and nine buildings upon which construction was completed during 1996
were operational for a full fiscal year in 1997.  Rental and earned income is
expected to increase in 1998 as the Company acquires additional properties and
due to the fact that the 47 Properties acquired and three buildings upon which
construction was completed in 1997 will contribute to the Company's income for
a full fiscal year.

During 1997, two of the Company's lessees, Eckerd Corporation and Barnes &
Noble Superstores, Inc., each accounted for more than ten percent of the
Company's total rental income (including the Company's share of rental income
from nine properties owned by the Company's unconsolidated partnership).  As
of December 31, 1997, Eckerd Corporation and Barnes & Noble Superstores, Inc.
leased 43 Properties and 13 Properties, respectively (including four
properties and one property, respectively, under leases with the Company's
unconsolidated partnership).   It is anticipated that, based on the minimum
rental payments required by the leases, Eckerd Corporation and Barnes & Noble
Superstores, Inc. will each continue to account for more than ten percent of
the Company's total rental income in 1998.  Any failure of these lessees could
materially affect the Company's earnings.

The Company incurred $11,478,000 and $7,206,000, in interest expense for the
years ended December 31, 1997 and 1996, respectively.  Interest expense
increased for the year ended December 31, 1997 as a result of higher average
borrowing levels. As a means to reduce its exposure to variable rate debt, the
Company entered into interest rate cap agreements as described above in
"Liquidity and Capital Resources."

During the years ended December 31, 1997 and 1996, the Company's operating
expenses, including depreciation and amortization, were $9,025,000 and
$6,397,000, respectively (18.0% and 19.2%, respectively, of gross operating
revenues).  The increase in the dollar amount of operating expenses for the
year ended  December 31, 1997, is primarily attributable to the increase in



depreciation as a result of the depreciation of the additional Properties
acquired during 1997 and a full year of depreciation on the  Properties
acquired  during  1996.  The increase is also attributable to (i) an increase
in amortization expense as a result of the amortization of loan costs relating
to the Company's amendment to the Company's Credit Facility, (ii) an increase
in advisory fees as a result of increased funds from operations for the year
ended December 31, 1997, and (iii) an increase in state tax expense primarily
as a result of the acquisition of additional Properties and an increase in
capital resulting from the equity offerings during the year ended December 31,
1996 and 1997.

[Picture 7]       Portrait and strip of two candid photographs of Yvonne Adams,
                  employee of the Company

[Sidebar 2]

PEOPLE

GOING THE EXTRA MILE WITH A SMILE
---------------------------------

When asked what contribution she brings to the Commercial Net Lease Realty
team, Yvonne Adams - without a moment's hesitation - says, "A smile.  The more
you smile, the easier life is."  As she says this, she is, of course, smiling.

A member of the team since 1994, Yvonne is an administrative assistant
responsible for distribution of site information and closing documents.  She
is also responsible for training new administrative assistants.  "I joined the
Commercial Net Lease Realty team because I wanted to be where the action is,"
she says.  "I see plenty of action and also interaction.  We've assembled a
great group of people who know how to serve.  This is really a team effort."

Yvonne especially appreciates the affirmation she receives from her manager,
even for her daily tasks:  "When you hear 'good job!', you strive harder to do
an even better job," she says.  Also inspiring her efforts is the fact that
she is an employee/owner.  Her plans are to grow and reinvest her dividends
over time.  In the meantime, she'll grow her investment through simple hard
work: "I'm no longer working just for Commercial Net Lease Realty, but also
for myself.  When I do a good job, it's great to know that all shareholders
will benefit."



1997 ANNUAL REPORT - PAGE 10

[Picture 8]        Photograph of an exterior view of The Good Guys! located in
                   Stockton, California

[Picture 9]        Photograph of an exterior view of Linens 'n Things located in
                   Freehold, New Jersey

In January 1997, the company sold its property in Foley, Alabama, for $570,000
and received net sales proceeds of $551,000.  In addition, in September 1997,
the Company sold four of its properties to Net Lease Institutional Realty,
L.P. at the Company's original cost of $17,542,000.  In addition, the Company
sold an undeveloped portion of land of one is its Properties for $1,313,000
and received net proceeds of $1,265,000.  The Company recognized a gain on the
sale of these five properties and the portion of the land parcel of $651,000
for financial reporting purposes.  The Company reinvested the proceeds to
acquire additional properties and structured the transactions to qualify as
like-kind exchange transactions for federal income tax purposes.

Comparison of Year Ended December 31, 1996 to Year Ended December 31, 1995.
During the years ended December 31, 1996 and 1995, the Company owned and
leased 197 (including two properties which were sold during 1996) and 157
Properties, respectively, to operators of major retail businesses.  The
Properties are leased on a long-term basis, generally 15 to 20 years, with
renewal options for an additional 10 to 20 years.  As of December 31, 1996,
the average remaining initial lease term of the Properties was approximately
14 years.  During the years ended December 31, 1996 and 1995 the Company
earned $32,487,000 and $19,723,000, respectively, in rental income from
operating leases and earned income from direct financing leases.  The 65
percent increase in rental and earned income during 1996, as compared to 1995,
is primarily attributable to income earned on the 40 Properties acquired and
the nine buildings upon which construction was completed during 1996.  In
addition,  rental and earned income increased during 1996 as a result of the
fact that the 29 Properties acquired and four buildings upon which
construction was completed during 1995 were operational for a full fiscal year
in 1996.  Rental and earned income is expected to increase in 1997 as the
Company acquires additional properties and due to the fact that the 40
Properties acquired and nine buildings upon which construction was completed
in 1996 will contribute to the Company's income for a full fiscal year.

During 1996, one of the Company's lessees, Barnes & Noble Superstores,  Inc.,
accounted  for  more  than  ten percent of the Company's total rental income.
As of December 31, 1996, Barnes & Noble Superstores, Inc. was the lessee under
leases relating to 11 Properties.    It  is anticipated that, based on the
minimum rental payments required by the lease, Barnes & Noble Superstores,
Inc. will continue to account for more than ten percent of the Company's total
rental income in 1997.  Any failure of this lessee could materially affect the
Company's income.

The Company incurred $7,206,000 and $3,834,000 in interest expense for the
years ended December 31, 1996 and 1995, respectively.  Interest expense
increased for the year ended December 31, 1996, as a result of higher average
borrowing levels. However, the increase in interest expense in 1996 was
partially offset by the Company's long-term, fixed rate financing and a
decrease in the average interest rates under the Company's credit facility.
As a means to reduce its exposure to variable rate debt, the Company entered
into interest rate cap agreements as described above in "Liquidity and Capital
Resources."

During the years ended December 31, 1996 and 1995, the Company's operating
expenses, including depreciation and amortization, were $6,397,000 and
$4,039,000, respectively (19.2% and 19.6%, respectively, of gross operating
revenues).  The increase in the  dollar amount of operating expenses for the
year ended December 31, 1996, is primarily attributable to the increase in



depreciation as a result of the depreciation of the additional Properties
acquired during 1996 and a full year of depreciation on the Properties
acquired during 1995.  The increase is also attributable  to an increase in
amortization expense as a result of the amortization of loan costs relating to
the Company's long-term fixed rate financing and amendment to the Company's
Credit Facility.  In addition, advisory fees increased as a result of
increased funds from operations for the year ended December 31, 1996.

In December 1996, the Company sold two of its Properties to an unrelated,
third party for $790,000, resulting in an aggregate gain of $73,000.  No such
sales occurred during the year ended December 31, 1995.

Investment Considerations.
Three of the Company's tenants, HomePlace, Luria's and Levitz (the "Tenants"),
have each filed a voluntary petition for bankruptcy under Chapter 11 of the
U.S. Bankruptcy Code.  As a result, each of the Tenants has the right to
reject or affirm one or more of its leases with the Company.  As of December
31, 1997, HomePlace, Luria's and Levitz leased five, three and one Properties,
respectively, which accounted for 4.5 percent of the Company's rental, earned
and contingent rental income for the year ended December 31, 1997.

The Company had made an election to be taxed as a real estate investment
trust  ("REIT")  under  Sections 856 through 860 of the Internal Revenue Code
of 1986, as amended, and related regulations.  As a REIT, for  federal  income
tax purposes, the Company generally will  not  be  subject  to  federal
income  tax  on income that it distributes to its stockholders.  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.  However, the
Company believes that it was organized and operated in such a manner as to
qualify for treatment as a REIT for the years ended December 31, 1997, 1996
and 1995, and intends to continue to operate the Company so as to remain
qualified as a REIT for federal income tax purposes.

Inflation has had a minimal effect on income from operations.  Management
expects that increases in retail sales volumes due to inflation  and  real
sales  growth  should result in an increase in rental  income  over  time.
Continued  inflation  also may cause capital appreciation of the Company's
Properties; however, inflation and changing prices also may have an adverse
impact on the operating margins of retail businesses and on potential capital
appreciation of the Properties.

Management of the Company currently knows of no trends that will have a
material adverse effect on liquidity, capital resources or results of
operations.



1997 ANNUAL REPORT - PAGE 11

The Company is in the process of assessing and addressing the impact of the
Year 2000 on its computer software packages.  The Company's hardware and
software are believed to be Year 2000 compliant.  Accordingly, the Company
does not expect this matter to materially impact how it conducts business nor
its future results of operations or financial position.  However, the Company
cannot be assured that all of its tenants and vendors have considered the
impact of the Year 2000.

Investments in real property create a potential for environmental liability on
the part of the owner of such property from the presence or discharge of
hazardous substances on the property.  It is the Company's policy, as a part
of its acquisition due diligence process, to obtain a Phase I environmental
site assessment for each property and where warranted, a Phase II
environmental site assessment.  Phase I assessments involve site
reconnaissance and review of regulatory files identifying potential areas of
concern, whereas Phase II assessments involve some degree of soil and/or
groundwater testing.  The Company may acquire a property whose environmental
site assessment indicates that a problem or potential problem exists, subject
to a determination of the level of risk and potential cost of remediation.  In
such cases, the Company requires the seller and/or tenant to (i) remediate
the problem prior to the Company's acquiring the property, (ii) indemnify the
Company for environmental liabilities or (iii)  agree  to  other  arrangements
deemed appropriate by the Company to address environmental conditions at the
property.  The Company has 14 properties currently under some level of
environmental remediation.  The seller or the tenant is generally
contractually responsible for the cost of the environmental remediation for
each of these properties.

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.  Although the Company believes that the expectations
reflected in such 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 such a difference include the following: changes in general economic
conditions, changes in real estate market conditions, continued availability
of proceeds from the Company's debt or equity capital, the ability of the
Company to locate suitable tenants for its Properties and the ability of
tenants to make payments under their respective leases.

DIVERSIFICATION OF ASSETS

[Pie Chart 1]

LINE OF TRADE DIVERSIFICATION
-----------------------------
                                    Percentage of
Line of Trade                       Pie Chart
-------------                       -------------

Apparel                                 0.9%
Auto Supply                             3.3%
Computer/Computer Software              2.9%
Home Furnishings                        7.0%
Sporting Goods                          7.0%
Restaurant                             10.0%
Furniture                               6.1%
Office Supply                           6.5%
Grocers                                12.1%
Consumer Electronics                   11.4%
Drug Stores                            11.6%
Books                                  15.8%



Catalog and Mail Order                  2.0%
Building Materials and Hardware         1.3%
Shoes                                   0.6%
Music                                   0.7%
Miscellaneous Retail                    0.8%
                                      --------
                                      100.0%
                                      ========


                             TENANT DIVERSIFICATION
                             ----------------------

   Academy               Babies "R" Us                 Barnes & Noble
   Best Buy              Borders Books & Music         Blockbuster Music
   Burger King           CompUSA                       Computer City
   Denny's               Dick's Sporting Goods         Eckerd
   Food 4 Less           Food Lion                     Golden Coral
   The Good Guys!        Hardees                       Hi-Lo Automotive
   HomePlace             IHOP                          Kash N' Karry
   Levitz                Linens 'n Things              Luria's
   Marshalls             OfficeMax                     Office Depot
   Oshman's              Pier 1 imports                Robb & Stucky
   Scotty's              Sears Homelife                The Sports Authority
   SuperValu             Waccamaw

[Map 1]

GEOGRAPHICAL DIVERSIFICATION
----------------------------

State                                                    # of Properties
-------                                                  ---------------
Alabama                                                           5
Alaska                                                            1
Arizona                                                           2
California                                                       11
Colorado                                                          1
Delaware                                                          1
Florida                                                          39
Georgia                                                          12
Illinois                                                          2
Kansas                                                            2
Kentucky                                                          1
Louisiana                                                        12
Maine                                                             1
Maryland                                                          4
Michigan                                                          2
Minnesota                                                         2
Mississippi                                                       5
Missouri                                                          2
New Hampshire                                                     2
New Jersey                                                        7
New Mexico                                                        1
Nevada                                                            1
North Carolina                                                    8
North Dakota                                                      1
Ohio                                                              9
Oklahoma                                                          7
Oregon                                                            1
Pennsylvania                                                      2
Rhode Island                                                      1
South Carolina                                                    7
Tennessee                                                         7



Texas                                                            65
Virginia                                                          7
Washington                                                        2
West Virginia                                                     2
Wisconsin                                                         1



1997 ANNUAL REPORT - PAGE 12

FINANCIAL STATEMENTS








                          INDEPENDENT AUDITOR'S REPORT




The Board of Directors
Commercial Net Lease Realty, Inc.:


We have audited the accompanying consolidated balance sheets of Commercial Net
Lease Realty, Inc. and subsidiaries as of December 31, 1997 and 1996, and the
related consolidated statements of earnings, stockholders' equity, and cash
flows for each of the years in the three-year period ended December 31, 1997.
These consolidated financial statements are the responsibility of the
Company's management.  Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards.  Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement.  An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements.  An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation.  We believe that our audits provide a reasonable basis
for our opinion.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Commercial
Net Lease Realty, Inc. and subsidiaries as of December 31, 1997 and 1996, and
the results of their operations and their cash flows for each of the years in
the three-year period ended December 31, 1997, in conformity with generally
accepted accounting principles.

/s/ KPMG Peat Marwick LLP

Orlando, Florida
January 16, 1998


[Picture 10]   Photograph of an exterior view of the Eckerd located in
               Snellville, Georgia

[Picture 11]   Photograph of an exterior view of the Sears Homelife located in
               Clearwater, Florida



1997 ANNUAL REPORT - PAGE 13

                        COMMERCIAL NET LEASE REALTY, INC.
                                and SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEETS
                  (dollars in thousands, except per share data)

                                                       December 31,
Assets                                         1997                     1996
------                                      ---------                ---------
Real estate leased to others:
  Accounted for using the operating
    method, net of accumulated
    depreciation                             $400,977                 $269,031
  Accounted for using the direct
    financing method                          118,747                   92,413
Investment in partnership                       3,925                       -
Cash and cash equivalents                       2,160                    1,410
Receivables                                       527                      812
Prepaid expenses                                  287                      335
Loan costs, net of accumulated
  amortization of $1,868 and $1,055             1,762                    2,185
Accrued rental income                           7,063                    4,421
Other assets                                    1,566                      346
                                             --------                 --------
                                             $537,014                 $370,953
                                             ========                 ========
Liabilities and Stockholders' Equity
------------------------------------

Line of credit                               $115,100                 $ 58,700
Mortgages payable                              56,736                   58,256
Accrued interest payable                          765                      390
Accounts payable and accrued expenses           1,392                      254
Rents paid in advance                             877                      779
                                             --------                 --------
      Total liabilities                       174,870                  118,379
                                             --------                 --------
Commitments and contingencies
  (Note 13)

Stockholders' equity:
  Common stock, $.01 par value.
    Authorized 90,000,000 and
    50,000,000 shares, respect-
    ively; issued and outstanding
    27,953,627 and 20,763,672 shares,
    respectively                                  280                      208
  Excess stock, $0.01 par value.
    Authorized 90,000,000 and
    50,000,000 shares, respec-
    tively; none issued and out-
    standing                                       -                        -
  Capital in excess of par value              361,793                  254,299
  Retained earnings (deficit)                      71                   (1,933)
                                             --------                 --------
      Total stockholders' equity              362,144                  252,574
                                             --------                 --------



                                             $537,014                 $370,953
                                             ========                 ========


          See accompanying notes to consolidated financial statements.


1997 ANNUAL REPORT - PAGE 14

                        COMMERCIAL NET LEASE REALTY, INC.
                                and SUBSIDIARIES

                       CONSOLIDATED STATEMENTS OF EARNINGS
                  (dollars in thousands, except per share data)

                                             Year Ended December 31,

                                   1997                1996             1995
                                ------------       ------------     ------------

Revenues:
  Rental income from
    operating leases            $    37,384        $    24,418     $    14,455
  Earned income from
    direct financing
    leases                           11,779              8,069           5,268
  Contingent rental
    income                              759                722             745
  Interest and other                    213                160             112
                                -----------        -----------     -----------
                                     50,135             33,369          20,580
                                -----------        -----------     -----------
Expenses:
  General operating and
    administrative                    1,216              1,183             722
  Advisory fees to related
    party                             2,110              1,466           1,001
  Interest                           11,478              7,206           3,834
  State taxes                           397                195             258
  Depreciation and
    amortization                      5,302              3,553           2,058
                                -----------        -----------     -----------
                                     20,503             13,603           7,873
                                -----------        -----------     -----------
Earnings before equity
  in earnings of unconsol-
  idated partnership and
  gain on sale of real estate        29,632             19,766          12,707

Equity in earnings of
  unconsolidated partner-
  ship                                  102                 -               -

Gain on sale of real estate             651                 73              -
                                -----------        -----------     -----------
Net earnings                    $    30,385        $    19,839     $    12,707
                                ===========        ===========     ===========
Net earnings per share of
  common stock:
    Basic                       $      1.26        $      1.18     $      1.09
                                ===========        ===========     ===========
    Diluted                     $      1.25        $      1.18     $      1.09
                                ===========        ===========     ===========
Weighted average number
  of shares outstanding:



    Basic                        24,070,697         16,798,918      11,663,672
                                ===========        ===========     ===========
    Diluted                      24,220,792         16,838,917      11,671,197
                                ===========        ===========     ===========

          See accompanying notes to consolidated financial statements.



1997 ANNUAL REPORT - PAGE 15

<TABLE>

                        COMMERCIAL NET LEASE REALTY, INC.
                                and SUBSIDIARIES

            CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                  Years Ended December 31, 1997, 1996 and 1995
                  (dollars in thousands, except per share data)


<CAPTION>
 
 
                                                           Capital in        Retained
                             Number        Common          excess of         arnings
                           of shares       stock           par value         deficit)            Total
                          ----------     ---------       ------------      ------------         ----------
<S>                       <C>            <C>             <C>               <C>                  <C>
Balance at
  December 31, 1994       11,663,672      $117             $138,629           $(2,082)            $136,664

Net earnings                      -         -                    -             12,707               12,707

Dividends declared
  and paid ($1.16
  per share of
  common stock)                   -         -                    -            (13,529)             (13,529)
                          ----------      ----             --------          --------             --------
Balance at
  December 31, 1995       11,663,672       117              138,629            (2,904)             135,842

Net earnings                      -         -                    -             19,839               19,839

Dividends declared
  and paid ($1.18
  per share of
  common stock)                   -         -                    -            (18,868)             (18,868)

Issuance of common
  stock                    9,100,000        91              123,284                -               123,375

Stock issuance costs              -         -                (7,614)               -                (7,614)
                          ----------     -----              -------           -------             --------
Balance at
  December 31, 1996       20,763,672       208              254,299            (1,933)             252,574

Net earnings                      -         -                    -             30,385               30,385

Dividends declared
  and paid ($1.20
  per share of
  common stock)                   -         -                    -            (28,381)             (28,381)

Issuance of common
  stock                    7,189,955        72              111,448                -               111,520

Stock issuance costs              -         -                (3,954)               -                (3,954)
                          ----------      ----             --------           -------             --------
Balance at
  December 31, 1997       27,953,627      $280             $361,793           $    71             $362,144
                          ==========      ====             ========           =======             ========

</TABLE>


          See accompanying notes to consolidated financial statements.



1997 ANNUAL REPORT - PAGE 16

                        COMMERCIAL NET LEASE REALTY, INC.
                                and SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                             (dollars in thousands)

                                                  Year Ended December 31,

                                          1997           1996             1995
                                         --------      --------        ---------
Cash flows from operating
  activities:
    Net earnings                         $ 30,385      $ 19,839        $ 12,707
    Adjustments to reconcile net
      earnings to net cash
      provided by operating
      activities:
        Depreciation                        4,477         2,804           1,736
        Amortization                          825           748             322
        Gain on sale of real estate          (651)          (73)          -
        Equity in earnings of
          unconsolidated partnership         (102)           -               -
        Decrease in net investment
          in direct financing
          leases                            1,166           751             462
        Increase in accrued rental
          income                           (2,729)       (2,227)         (1,233)
        Decrease (increase) in
          receivables                         146          (279)            (50)
        Decrease (increase) in
          prepaid expenses                     48          (180)            207
        Decrease (increase) in
          other assets                        (53)           10              (7)
        Increase in accrued
          interest payable                    375           262              93
        Increase (decrease) in
          accounts payable and
          accrued expenses                     25            48             (34)
        Increase (decrease) in
          real estate taxes
          payable                              -            (83)             49
        Increase (decrease) in
          rents paid in advance                98           596            (112)
                                         --------      --------        --------
            Net cash provided by
              operating activities         34,010        22,216          14,140
                                         --------      --------        --------
Cash flows from investing
  activities:
    Proceeds from sale of real
      estate                               19,402           759              -
    Additions to land and
      buildings on operating
      leases                             (154,688)     (108,597)        (51,402)
    Investment in direct financing
      leases                              (29,439)      (36,335)        (14,710)
    Contribution to unconsolidated
      partnership                            (855)           -               -
    Increase in other assets                 (660)         (185)         (1,451)
    Other                                    (762)          111              45
                                         --------      --------        --------
            Net cash used in
              investing activities       (167,002)     (144,247)        (67,518)
                                         --------      --------        --------
Cash flows from financing
  activities:
    Proceeds from line of credit          152,600       128,700          68,800
    Repayment of line of credit           (96,200)     (139,450)        (14,150)
    Proceeds from mortgages payable            -         39,450          13,150
    Repayment of mortgages payable         (1,520)       (1,208)             -
    Payment of loan costs                    (417)       (1,389)           (899)
    Proceeds from issuance of
      common stock                        111,520       123,375              -
    Payment of stock issuance
      costs                                (3,875)       (7,467)             (4)
    Payment of dividends                  (28,381)      (18,868)        (13,529)
    Other                                      15            (3)           (759)
                                         --------      --------        --------
            Net cash provided by
              financing activities        133,742       123,140          52,609
                                         --------      --------        --------
Net increase (decrease) in cash
  and cash equivalents                        750         1,109            (769)

Cash and cash equivalents at
  beginning of year                         1,410           301           1,070
                                         --------      --------        --------
Cash and cash equivalents at
  end of year                            $  2,160      $  1,410        $    301
                                         ========      ========        ========
Supplemental disclosure of
  non-cash investing and financing
  activities:
    Contribution of land and
      building to unconsolidated
      partnership                        $  2,930      $     -         $     -
                                         ========      ========        ========
    Mortgages assumed in
      acquisition of three
      properties                         $     -       $  6,864        $     -
                                         ========      ========        ========

          See accompanying notes to consolidated financial statements.



1997 ANNUAL REPORT - PAGE 17


                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                  Years Ended December 31, 1997, 1996 and 1995


1.       Organization and Summary of Significant Accounting Policies:

Organization and Nature of Business - Commercial Net Lease
Realty, Inc., a Maryland corporation, is a real estate investment
trust formed in 1984.  Commercial Net Lease Realty, Inc. owns and
manages high-quality, freestanding properties leased to major
retail businesses under long-term commercial net leases.

Principles of Consolidation -  The consolidated financial
statements include the accounts of Commercial Net Lease Realty,
Inc. and its four wholly-owned subsidiaries (hereinafter referred
to as the "Company").  Each of the subsidiaries is a qualified
real estate investment trust subsidiary as defined in the
Internal Revenue Code Section 856(i)(2).  All significant
intercompany accounts and transactions have been eliminated in
consolidation.

Real Estate and Lease Accounting - The Company records the
acquisition of land and buildings at cost, including acquisition
and closing costs.  Land and buildings are leased to others on a
net lease basis, whereby the tenant is generally responsible for
all operating expenses relating to the property, including
property taxes, insurance, maintenance and repairs.

The leases are accounted for using either the direct financing or
the operating methods.  Such methods are described below:

         Direct financing method - Leases accounted for using
         the direct financing method are recorded at their net
         investment (which at the time of acquisition generally
         represents the cost of the property) (Note 3).
         Unearned income is deferred and amortized to income
         over the lease terms so as to produce a constant
         periodic rate of return on the Company's net investment
         in the leases.

         Operating method - Land and building leases accounted
         for using the operating method are recorded at cost,
         revenue is recognized as rentals are earned and
         expenses (including depreciation) are charged to
         operations as incurred.  Buildings are  depreciated  on
         the  straight-line method over their estimated  useful
         lives  (generally 35  to 40 years).  When scheduled
         rentals vary during the lease term,  income is
         recognized  on  a  straight- line  basis  so  as  to
         produce a constant periodic rent over the term of the
         lease.  Accrued rental income is the aggregate
         difference between the scheduled rents which vary
         during the lease term and the income recognized on a
         straight-line basis.





When properties are sold, the related cost and accumulated
depreciation for operating leases and the net investment for
direct financing leases, plus any accrued rental income, are
removed from the accounts and gains and losses from the sales are
reflected in income.

Management reviews its properties for impairment whenever events
or changes in circumstances indicate that the carrying amount of
the assets, including accrued rental income, may not be
recoverable through operations.  Management determines whether an
impairment in value occurred by comparing the estimated future
cash flows (undiscounted and without interest charges), including
the residual value of the property, with the carrying cost of the
individual property.  If an impairment is indicated, a loss will
be recorded for the amount by which the carrying value of the
asset exceeds its fair value.

Investment in Partnership - In September 1997, the Company
contributed cash, land and building to Net Lease Institutional
Realty, L.P. (the "Partnership") for a 20 percent interest in the
Partnership.  The Company is the sole general partner of the
Partnership and accounts for its 20 percent interest in the
Partnership under the equity method of accounting.

Cash and Cash Equivalents - The Company considers all highly
liquid investments with a maturity of three months or less when
purchased to be cash equivalents.  Cash and cash equivalents
consist of cash and money market accounts.  Cash equivalents are
stated at cost plus accrued interest, which approximates market
value.

Loan Costs - Loan costs have been deferred and are being
amortized over the terms of the loan commitments using the
straight-line method.  The premium paid for the interest rate cap
agreement of $257,000 has been recorded as a prepaid

[Picture 12]               Strip of three candid photographs: Jim Seneff,
                           employee of the Company, Dawn Peterson, employee
                           of the Company; and Kolleen Kubik and Dennis
                           Tracy, employees of the Company



1997 ANNUAL REPORT - PAGE 18

[Picture 13]               Strip of two photographs: an exterior view of the
                           Barnes and Noble located in Freehold, New Jersey
                           and an exterior view of the Sports Authority
                           located in Sarasota, Florida

expense and is being  amortized  as  interest  expense  over  the
term of the agreement using a method which approximates the
effective interest method.

Line of Credit and Mortgages Payable - Statement of Financial
Accounting Standards No. 107, "Disclosures About Fair Value of
Financial Instruments," requires disclosure of the year end fair
value of significant financial instruments, including long-term
debt.  The interest rate on the Company's line of credit is
variable; therefore, the carrying value of the line of credit
approximates fair value.  The Company believes that the carrying
value of its mortgages payable at December 31, 1997, approximates
fair value, based upon current market prices of similar issues.

Income Taxes - The Company has made an election to be taxed as a
real estate investment trust 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 95 percent of its real estate
investment trust taxable income and meets certain other
requirements for qualifying as a real estate investment trust.
For each of the years in the three-year period ended December 31,
1997, the Company believes it has qualified as a real estate
investment trust; accordingly, no provisions have been made for
federal income taxes in the accompanying consolidated financial
statements.  Not withstanding the Company's qualification for
taxation as a real estate investment trust, the Company is
subject to certain state taxes on its income and property.

Earnings Per Share - In accordance with Statement of Financial
Accounting Standard No. 128, "Earnings Per Share," basic earnings
per share are calculated based upon the weighted average number
of common shares outstanding during each year and diluted
earnings per share are calculated based upon weighted average
number of common shares outstanding and potential dilutive common
stock (See Note 9).

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 consolidated
financial statements in conformity with generally accepted
accounting principles.  Actual results could differ from those
estimates.

Reclassification - Certain items in prior years' financial
statements have been reclassified to conform with the 1997
presentation.

New Accounting Standards - In June 1997, the Financial Accounting



Standards Board issued Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income."  The
Statement, which is effective for fiscal years beginning after
December 15, 1997, requires the reporting of net earnings and all
other changes to equity during the period, except those resulting
from investments by owners and distributions to owners, in a
separate statement that begins with net earnings or in the
consolidated statement of operations below net earnings.
Currently, the Company's only component of comprehensive income
is its net earnings.  The Company does not believe that adoption
of this Statement will have a material effect on the Company's
financial position or results of operations.

In June 1997, the Financial Accounting Standards Board issued
Statement of Accounting Standard No. 131, "Disclosures about
Segments of an Enterprise and Related Information," which is
effective for periods beginning after December 15, 1997, requires
reporting of financial and descriptive information about
reportable operating segments.  Currently, the Company is not
structured in reportable operating segments, and therefore,
disclosures to this statement are not applicable.

2.  Leases:

The Company generally leases its land and buildings to operators
of major retail businesses.  The leases are accounted for under
the provisions of Statement of Financial Accounting Standards No.
13, "Accounting for Leases."  As of December 31, 1997, 149 of the
leases have been classified as operating leases and 87 leases
have been classified as direct financing leases.  For the 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 57 of these leases are
accounted for as operating leases.  Substantially all leases have
initial terms of 15 to 20 years (expiring between 2000 and 2020)
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.  The tenant is also



1997 ANNUAL REPORT - PAGE 19

generally required to pay all property taxes and assessments,
substantially maintain the interior and exterior of the building
and carry insurance coverage for public liability, property
damage, fire and extended coverage.  The lease options generally
allow tenants to renew the leases for two to four successive
five-year periods subject to substantially the same terms and
conditions as the initial lease.

3.       Real Estate Leased to Others:

Accounted for Using the Operating Method - Land and buildings on
operating leases consisted of the following at December 31
(dollars in thousands):

                                                 1997                 1996
                                               --------             --------
                  Land                         $199,992             $138,520
                  Buildings and
                    improvements                209,272              138,589
                                               --------             --------
                                                409,264              277,109
                  Less accumulated
            depreciation                        (12,297)              (8,078)
                                               --------             --------
                                                396,967              269,031
                  Construction in
                    progress                      4,010                   -
                                               --------             --------
                                               $400,977             $269,031
                                               ========             ========

Some leases provide for scheduled rent increases throughout the
lease term.  Such amounts are recognized on a straight-line basis
over the terms of the leases.   For the years ended December 31,
1997, 1996 and 1995, the Company recognized $2,786,000,
$2,285,000 and $1,233,000, respectively, of such income.  At
December 31, 1997 and 1996, the balance of accrued rental income
was $7,063,000, net of allowance of $310,000, and $4,421,000,
respectively.

The following is a schedule of future minimum lease payments to
be received on noncancellable operating leases at December 31,
1997 (dollars in thousands):

                  1998                           $ 40,244
                  1999                             40,494
                  2000                             40,919
                  2001                             41,593
                  2002                             41,305
                  Thereafter                      457,294
                                                 --------
                                                 $661,849
                                                 ========
Since lease renewal periods are exercisable at the option of the
tenant, the above table only presents future minimum lease
payments due during the initial lease terms.  In addition, this
table does not include any amounts for future contingent rentals
which may be received on the leases based on a percentage of the
tenant's gross sales.

Accounted for Using the Direct Financing Method - The following
lists the components of net investment in direct financing leases
at December 31 (dollars in thousands):

                                                       1997             1996
                                                    ---------        ---------
                  Minimum lease payments
                    to be received                  $ 258,715         $207,838
                  Estimated residual
                    values                             35,981           28,309
                  Less unearned income               (175,949)        (143,734)
                                                    ---------        ---------
                  Net investment in
                    direct financing
                    leases                          $ 118,747         $ 92,413
                                                    =========        =========



1997 ANNUAL REPORT - PAGE 20

The following is a schedule of future minimum lease payments to
be received on direct financing leases at December 31, 1997
(dollars in thousands):

                  1998                                        $ 14,385
                  1999                                          14,463
                  2000                                          14,581
                  2001                                          14,618
                  2002                                          14,690
                  Thereafter                                   185,978
                                                              --------
                                                              $258,715
                                                              ========
The above table does not include future minimum lease payments
for renewal periods or for contingent rental payments that may
become due in future periods (See Real Estate Leased to Others -
Accounted for Using the Operating Method).

4.       Investment in Partnership:

In September 1997, the Company entered into a Partnership
arrangement, Net Lease Institutional Realty, L.P. (the
"Partnership"), with the Northern Trust Company, as Trustee of
the Retirement Plan for the Chicago Transit Authority Employees
("CTA").  The Company is the sole general partner with a 20
percent interest in the Partnership and CTA is the sole limited
partner with an 80 percent interest in the Partnership.

The Partnership owns and leases nine properties to major retail
tenants under long-term, commercial net leases.  The following
presents the Partnership's condensed financial information at
December 31, 1997 and for the period September 19, 1997 (date of
inception) through December 31, 1997 (dollars in thousands).

                  Real estate leased to others:
                    Accounted for using the operating
                      method, net of accumulated
                      depreciation                                  $25,381
                    Accounted for using the direct
                      financing method                                5,155
                  Other assets                                          793
                  Note payable                                       11,911
                  Other liabilities                                     154
                  Partners' capital                                  19,264
                  Revenues                                              933
                  Net income                                            514

For the year ended December 31, 1997, the Company recognized
income of $102,000 from the Partnership.

5.       Other Assets:

Other assets consisted of the following at December 31 (dollars
in thousands):
                                                       1997           1996 
                                                       ----           -----



                  Deposits and miscellaneous
                    acquisition costs                 $  596         $  237
                  Self administration costs              764             -
                  Deferred offering costs                 97             61
                  Other                                  109             48

                                                      $1,566         $  346



1997 ANNUAL REPORT - PAGE 21

6.       Line of Credit:

In September 1996, the Company entered into an amended and
restated loan agreement for a $150,000,000 revolving credit
facility.  The credit facility amended the Company's $100,000,000
credit facility by (i) increasing the borrowing capacity from
$100,000,000 to $150,000,000, (ii) extending the expiration date
to June 30, 1998, and (iii) lowering the interest  rate from 170
basis points above LIBOR to 160 basis points  above  LIBOR or the
lender's prime rate, whichever the Company selects.  In August
1997, the Company entered into an amended and restated loan
agreement for a $200,000,000 revolving credit facility (the
"Credit Facility") which amended the Company's $150,000,000
credit facility by (i) increasing the borrowing capacity from
$150,000,000 to $200,000,000, (ii) extending the expiration date
to June 30, 1999, and (iii) lowering the interest rate from 160
basis points above LIBOR to 150 basis points above LIBOR or the
lender's prime rate, whichever the Company selects. In connection
with  the Credit Facility, the Company is required to pay a
commitment  fee of 20 basis  points  per  annum on the unused
commitment.  The Credit Facility is collateralized by an
assignment of rents and leases of certain of the Company's
properties.  The principal balance is due in full upon
termination of the Credit Facility on June 30, 1999, which can be
extended for two additional 12 month periods at the option of the
Company, and interest is payable quarterly.  As of December 31,
1997 and 1996, the outstanding principal balance was $115,100,000
and, $58,700,000  respectively, plus accrued interest of $552,000
and $192,000, respectively.   The terms of the Credit Facility
include financial covenants which provide for the maintenance of
certain financial ratios.  The Company was in compliance with
such covenants as of December 31, 1997.

During the three years ended December 31, 1997, the Company was a
party to three interest rate cap agreements as a means to reduce
its exposure to rising interest rates on the Company's variable
rate Credit Facility.  As of December 31, 1997, two of the
interest rate cap agreements had expired and one remained
effective, providing for a fixed LIBOR rate of 6.9% per annum on
a notional amount of $30 million. This agreement is effective
through December 1999.

The Company capitalizes interest as a part of the cost of land
and buildings constructed for its own use.  For the year ended
December 31, 1997, interest cost incurred was $11,150,000, of
which $133,000 was capitalized, and $11,017,000 which was charged
to operations.  For the years ended December 31, 1996 and 1995,
interest cost incurred was $6,857,000 and $3,545,000,
respectively, all of which was charged to operations.

7.       Mortgages Payable:

On December 14, 1995, the Company entered into a long-term, fixed
rate mortgage and security agreement for $13,150,000.  The loan
provides for a four-year mortgage with interest payable monthly
and principal payable at maturity on December 15, 1999, and bears



interest at a rate of 6.75% per annum.  The loan is secured by a
first lien on and assignment of rents and  leases of  certain  of
the Company's  properties. As of December 31, 1997 the aggregate
carrying value of these properties totalled $16,805,000.  The
outstanding principal balance as of December 31, 1997 and 1996,
was $13,150,000, plus accrued interest of $42,000 and $37,000 and
respectively.  In January 1996, the Company entered into a long-
term, fixed rate mortgage and security agreement for $39,450,000.
The loan provides for a ten-year loan with principal and interest
payable monthly, based on a 17-year amortization, with the
balance due in February 2006 and bears interest at a rate of
7.435% per annum.  The loan is secured by a first lien on and
assignments of rents and leases of certain of the Company's
properties.  As of December 31, 1997, the aggregate carrying
value of these properties totalled $73,772,000. The outstanding
principal balance as of December 31, 1997 and 1996, was
$37,066,000 and $38,352,000 respectively, plus accrued interest
of $130,000 and $119,000, respectively.

In June 1996, the Company acquired three properties each subject
to a mortgage totalling $6,864,000 (collectively, the
"Mortgages").  The Mortgages bear interest at a weighted average
rate of 8.6% and have a weighted average maturity of  7.3 years,
with principal and interest payable monthly.  As of December 31,
1997 and 1996, the outstanding balances for the Mortgages
totalled $6,520,000 and $6,754,000, plus accrued interest of
$41,000 and $42,000, respectively.  As of December 31, 1997, the
aggregate carrying value of these three properties totalled
$8,290,000.

The following is a schedule of the annual maturities of the
Company's outstanding term indebtedness for each of the next five
years (dollars in thousands):

                  1998                          $ 1,673
                  1999                           14,984
                  2000                            2,005
                  2001                            2,170
                  2002                            2,342
                                                -------
                                                $23,174
                                                =======


1997 ANNUAL REPORT - PAGE 22

8.       Dividends:

The following presents the characterization for tax purposes of
dividends paid to stockholders for the years ended December 31:

                                          1997          1996          1995
                                         -----         -----         -----
                  Ordinary income        $1.10         $1.06         $ .92
                  Capital gain              -             -             -
                  Return of capital        .10           .12           .24
                                         -----         -----         -----
                                         $1.20         $1.18         $1.16
                                         =====         =====         =====

On January 16, 1998, the Company declared dividends of $8,452,000
or 30 cents per share of common stock, payable on February 13,
1998, to stockholders of record on January 30, 1998.

9.       Earnings Per Share:

In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, "Earnings
Per Share."  The Statement, which provides for a revised
computation of earnings per share was adopted by the Company for
the year ended December 31, 1997.  Pursuant to the Statement, all
comparative earnings per share amounts have been restated.

The following represents the calculation of earnings per share
and the weighted average number of shares of dilutive potential
common stock for the years ended December 31:
 
<TABLE>

<CAPTION>
                                                            1997                 1996                 1995
                                                        -----------          -----------          -----------
                  <S>                                   <C>                  <C>                  <C>
                  Net earnings-basic
                    and diluted                         $30,385,000          $19,839,000          $12,707,000
                                                        ===========          ===========          ===========
                  Weighted average
                    number of shares
                    outstanding used
                    in basic EPS                         24,070,697           16,798,918           11,663,672

                  Effect of dilutive
                    securities:
                      Stock options                         150,095               39,999                7,525
                                                        -----------          -----------          -----------
                  Weighted average
                    number of shares
               and dilutive
               potential shares
               used in diluted EPS                       24,220,792           16,838,917           11,671,197
                                                        ===========          ===========          ===========
 
</TABLE>

For the year ended December 31, 1995, options on 343,100 shares
of common stock were not included in computing diluted earnings
per share because their effects were antidilutive.



1997 ANNUAL REPORT - PAGE 23

10.      Stock Option Plan:

The Company's stock option plan (the "Plan") provides
compensation and incentive to persons ("Key Employees of the
Advisor" and "Outside Directors of the Company") whose services
are considered essential to the Company's continued growth and
success.  As of December 31, 1995, the Plan had 600,000 shares of
common stock reserved for issuance. Pursuant to the Plan, the
shares of common stock reserved  for  issuance  automatically
increased to 1,200,000 and 2,000,000 shares in connection with
the equity offerings during January 1996 and September 1997,
respectively. The following summarizes transactions in the Plan
for the years ended December 31:

<TABLE>


<CAPTION>

                                           1997                         1996                       1995
                                    ----------------------      ---------------------     ----------------------
                                                 Weighted                    Weighted                    Weighted
                                    Number       Average        Number       Average        Number       Average
                                      of         Exercise         of         Exercise         of         Exercise
                                    Shares        Price         Shares        Price         Shares        Price
                                   --------     ---------      --------     ---------      --------     ---------
              <S>                  <C>          <C>            <C>          <C>            <C>          <C>
              Outstanding,
                January 1           956,600       13.21         578,100      $13.36         568,100      $13.38

              Granted               210,000       14.92         390,000       13.01          10,000       12.50
              Exercised             (11,500)      13.52              -           -               -           -
              Surrendered           (10,000)      13.94         (11,500)      13.54              -           -
                                   --------                    --------                    --------
              Outstanding,
                December 31       1,145,100       13.52         956,600       13.21         578,100       13.36
                                  =========                    ========                    ========
              Exercisable,
                December 31         681,767       13.29         403,533       13.29         232,000       13.11
                                  =========                    ========                    ========
              Available for
                grant,
                December 31         821,900                     231,900                      21,900
                                  =========                    ========                    ========

</TABLE>


The weighted-average remaining contractual life of the 1,145,100
options outstanding at December 31, 1997 was 7.5 years, with
exercise prices ranging from $11.25 to $15.875.  One third of the
grant to each individual becomes exercisable at the end of each
of the first three years of service following the date of the
grant and the options maximum term is ten years.

The Company applies Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees," and related
Interpretations in accounting for the Plan.  Accordingly, no
compensation expense has been recorded with respect to the
options in the accompanying consolidated financial statements.
Had compensation cost for the Plan been determined based upon the
fair value at the grant dates for options granted after December
31, 1994 under the Plan consistent with the method of Financial
Accounting  Standards  Board   Statement No.  123, "Accounting
for Stock-Based Compensation," the Company's net earnings and
earnings per share would have been reduced to the pro forma
amounts indicated below for the years ended December 31 (dollars
in thousands, except per share data):

<TABLE>


<CAPTION>
                                                          1997                 1996                 1995
                                                      -----------           -----------          -----------

                  <S>                                 <C>                  <C>                  <C>
                  Net earnings as reported            $    30,385          $    19,839          $    12,707
                                                      ===========           ===========          ===========
                  Pro forma net earnings              $    30,220          $    19,681          $    12,596
                                                      ===========           ===========          ===========
                  Earnings per share as
                    reported:
                      Basic                           $      1.26          $      1.18          $      1.09
                                                      ===========          ===========          ===========
                      Diluted                         $      1.25          $      1.18          $      1.09
                                                      ===========          ===========          ===========
                  Pro forma earnings
                    per share:
                      Basic                           $      1.26          $      1.17          $      1.08
                                                      ===========          ===========          ===========
                      Diluted                         $      1.25          $      1.17          $      1.08
                                                      ===========          ===========          ===========

</TABLE>


1997 ANNUAL REPORT - PAGE 24

[Picture 14]           Photograph of an exterior view of the Borders Books
                       and Music located in Ft. Lauderdale, Florida

The fair value of each option grant is estimated on the date of
grant using the Black-Scholes option-pricing model with the
following assumptions used for grants in 1997, 1996 and 1995: (i)
risk free rates of 6.85 and 7.04 percent for 1997 grants, 6.17
and 6.95 percent for 1996 grants and 7.2% for 1995 grants, (ii)
expected volatility of 13.6% for 1997 and 12.9% for 1996 and 1995
(iii) dividend yields of 7.7, 8.6 and 8.8 percent, respectively,
and (iv) expected lives of ten years for grants in 1997, 1996 and
1995.
 
11.      Related Party Transactions:

Certain directors and officers of the Company hold similar
positions with CNL Realty Advisors, Inc. (the "Advisor"), the
Company's advisor.

During the year ended December 31, 1996, the Company acquired one
property for a purchase price of $3,400,000 from a partnership in
which  an affiliate of the Advisor is a partner.  The purchase
price paid by the Company for this property represented the costs
incurred by the affiliate to acquire the property, including
closing costs. In connection with the acquisition of this
property, plus 22 properties and four buildings which were
developed by the tenant on land parcels owned by the Company in
1995, 26 properties and nine buildings which were  developed  by
the tenant on land parcels owned by the Company in 1996 and 27
properties and three buildings which were developed by tenant on
land parcels owned  by  the Company in 1997, from unrelated,
third parties, the Company paid the Advisor $937,000, $2,278,000
and $2,552,000,  respectively,  in  acquisition  fees  and
expense reimbursement fees (representing 1.5% and 0.5%,
respectively, of the cost of the properties).

In addition, during the years ended December 31, 1997, 1996, and
1995, the Company acquired 15 properties  for purchase prices
totalling $39,323,000, 13 properties for purchase prices
totalling $34,313,000, and seven properties for purchase prices
totalling $17,969,000 respectively, from affiliates of the
Advisor who had developed the properties.  The purchase prices
paid by the Company for these properties equalled the affiliates'
costs including development costs.  The affiliates' costs
consisted of the land purchase prices, construction costs,
various soft costs including legal costs, survey fees and
architect fees, and developers fees aggregating $2,180,000 in
1997, $1,453,000 in 1996 and $1,106,000 in 1995 paid to an
affiliate of the Advisor. In addition, during 1997, the Company
purchased five land parcels from unrelated, third parties on
which buildings are being developed by an affiliate of the
Advisor.  The Company paid developers fees totalling $376,000 to
an affiliate of the Advisor who is developing the five
properties.  No acquisition fees or expense reimbursement fees
were paid to the Advisor in connection with the acquisition of
these 40 properties.



During 1996, the Company sold its properties in Marble Falls and
Gonzales, Texas for a total of $790,000 and received net proceeds
of $759,000, resulting in a gain of $73,000 for financial
reporting purposes.  In connection with the sale of these
properties, the Company paid the Advisor $16,000 in disposition
fees.

In January 1997, the Company sold its property in Foley, Alabama,
for $570,000 and received net proceeds of $551,000, resulting in
a gain of $271,000 for financial reporting purposes.  In
connection with the sale of this property, the Company paid the
Advisor $11,400 in disposition fees.

In addition, the Company sold four of its properties to the
Partnership at the Company's original cost of $17,542,000.  The
Company recognized a gain for financial reporting purposes on the
sale of these properties of $101,000 after elimination of the
Company's 20 percent interest in the gain on the sale.

The Company and the Advisor have entered into an advisory
agreement (the "Advisory Agreement"), which provides for the
Advisor to perform services in connection with the day to day
operations  of  the  Company.    In  connection therewith, the
Advisor receives an annual fee, payable monthly, equal to (i)
seven percent of funds from operations, as defined in the
Advisory Agreement, up to $10,000,000, (ii) six percent of funds
from operations in excess of $10,000,000 but less than
$20,000,000 and (iii) five percent of funds from operations in
excess of $20,000,000.  For purposes of the Advisory Agreement,
funds from operations generally includes the Company's net
earnings excluding the advisory fee, depreciation and
amortization expenses, extraordinary gains and  losses and non-
cash lease  accounting adjustments.  Under the Advisory
Agreement, the Company incurred $2,110,000, $1,466,000 and
$1,001,000 in advisory fees for the years ended December 31,
1997, 1996, and 1995, respectively (See Note 14).



1997 ANNUAL REPORT- PAGE 25

12.      Major Tenants:

The following schedule presents rental and earned income,
including contingent rent, from operators or affiliated groups of
operators representing more than ten percent of the Company's
total rental and earned income for the years ended December 31
(dollars in thousands):

                              1997                 1996                 1995
                            -------              -------              -------
     Barnes & Noble
       Superstores,
       Inc.                 $5,951               $5,204               $2,371
     Denny's, Inc.
       and Flagstar
       Enterprises,
       Inc.                   (a)                    (a)               2,075
     Eckerd Corporation      5,149                   (a)                 (a)


                  (a)      Rental and earned income from the operator or
                           affiliated group of operators did not represent
                           more than ten percent of the Company's total
                           rental and earned income for the respective year.


13.      Commitments and Contingencies:

As of December 31, 1997, the Company had entered into agreements
to purchase three additional properties for an estimated
aggregate amount of $7,847,000.  In connection with the
acquisition of two of these properties, the Company was
contingently  liable for $350,000 related to bank letters of
credit which guarantee the Company's obligation under the
purchase agreements to acquire these properties.

As of December 31, 1997, the Company owned and leased one land
parcel to a tenant which was obligated to develop a building on
the respective land parcel.  The Company has agreed to acquire
the completed building for an amount of up to $798,000, at which
time rental income will increase for the property.  In addition,
the Company owns five land parcels subject to lease agreements
with tenants whereby the Company has agreed to construct a
building on each of the respective land parcels for approximately
$10,000,000, of which $3,802,000 of costs had been incurred at
December 31, 1997.  Pursuant to the lease agreements, rental
income is to commence on the properties upon completion of
construction of the buildings.

14.      Subsequent Events:

On December 18, 1997, the Company's stockholders voted to approve
an agreement with CNL Realty Advisors, Inc. and the stockholders
of CNL Realty Advisors, Inc. to exchange 100% of the outstanding
shares of common stock of the Advisor for up to 2,200,000 shares
(the "Share Consideration") of the Company's common stock (the



"Merger").  As a result, the Company became an internally managed
real estate investment trust (REIT) effective January 1, 1998.
Ten percent of the Share Consideration (220,000 shares) was paid
on January 1, 1998, and the balance (the "Share Balance") of the
Share Consideration will be paid over time to the extent the
Company expands its operations after the Merger.  The market
value of the common shares issued on January 1, 1998 was
$3,933,000 of which $12,000 was allocated to the net tangible
assets acquired and the difference of $3,921,000 was accounted
for as costs incurred in acquiring the Advisor from a related
party.  For accounting purposes, the Advisor was not considered a
"business" for purposes of applying APB Opinion No. 16, "Business
Combinations," and therefore, the market value of the common
shares issued in excess of the fair value of the net tangible
assets acquired was charged to operations rather  than
capitalized as goodwill.  To the extent the Share Balance is paid
over time, the market value of the common shares issued will also
be charged to operations.  Upon consummation of the Merger on
January 1, 1998, all personnel employed by the Advisor became
employees of the Company, and any obligation to pay fees under
the Advisory Agreement was terminated.

In February 1998, the Company filed a prospectus supplement to
its $300,000,000 shelf registration and issued 688,172 shares of
common stock and received gross proceeds of $12,000,000.
Proceeds from the offering were used to pay down the outstanding
indebtedness under the Company's Credit Facility.



1997 ANNUAL REPORT - PAGE 26



                                       CONSOLIDATED QUARTERLY FINANCIAL DATA
                                   (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>



                                            First         Second           Third         Fourth          
 1997                                       Quarter       Quarter          Quarter       Quarter         Year
------------                               --------       --------        --------       --------       --------
  <S>                                       <C>            <C>             <C>           <C>            <C>       
  Rent and other revenue                    $11,287        $12,067         $13,416        $14,016        $50,786
  Depreciation and
    amortization expense                      1,168          1,325           1,374          1,435          5,302
  Interest expense                            2,363          2,731           3,509          2,875         11,478
  Other expenses                              1,011            803             922            987          3,723
  Net earnings                                6,745          7,208           7,622          8,810         30,385
  Net earnings per share:
    Basic                                      0.31           0.31            0.32           0.32           1.26
    Diluted (1)                                0.31           0.31            0.32           0.32           1.25

1996 
------------
  Rent and other revenue                     $6,924         $7,631          $9,221         $9,666        $33,442
  Depreciation and
    amortization expense                        748            806             944          1,055          3,553
  Interest expense                            1,460          1,602           2,473          1,671          7,206
  Other expense                                 727            689             690            738          2,844
  Net earnings                                3,989          4,534           5,114          6,202         19,839
  Net earnings per share:
    Basic                                      0.28           0.29            0.31           0.30           1.18
    Diluted (1)                                0.28           0.32            0.31           0.30           1.18

</TABLE>


(1)    Calculated independently for each period, and consequently, the sum of 
       the quarters may differ from the annual amount.

[Picture 15]             Photograph of an exterior view of the Academy
                         located in Houston, Texas

[Picture 16]             Candid photograph of a meeting between Alex
                         Dmyterko, Jim Seneff, and Gary Ralston, employees
                         of the Company

[Picture 17]             Candid photograph of Haingo Rasolofonjoa, employee
                         of the Company

[Picture 18]             Candid photograph of Joe Ciardiello, employee of
                         the Company


1997 ANNUAL REPORT - PAGE 27


 

                                          SHARE PRICE AND DIVIDEND DATA
<TABLE>
<CAPTION>


The common stock of the Company currently is traded on the New York Stock Exchange ("NYSE") under
the symbol "NNN."  For each calendar quarter indicated, the following table reflects the
respective high, low and closing sales prices for the common stock as quoted by the "NYSE" and
the dividends paid per share in each such period.

                                            First         Second           Third         Fourth          
 1997                                       Quarter       Quarter          Quarter       Quarter         Year
------------                               --------      ---------       ---------       --------      ---------
  <S>                                      <C>           <C>             <C>             <C>            <C>
  High                                     $16.1250      $ 15.3750       $ 16.7500       $18.1875       $18.1875
  Low                                       14.3750        14.1250         15.0625        15.3125        14.1250
  Close                                     14.7500        15.3125         15.9735        17.8750        17.8750

  Dividends paid per share                     0.30           0.30            0.30           0.30           1.20


1996 
------------
  High                                     $13.3750       $14.0000       $14.2500       $16.3750       $16.3750
  Low                                       12.7500        12.7500        13.3750        13.3750        12.7500
  Close                                     13.2500        13.8750        13.6250        15.8750        15.8750

  Dividends paid per share                     0.29           0.29            0.30           0.30           1.18


</TABLE>
 
The portion of dividends paid in 1997 and 1996, which was treated as a non-
taxable return of capital, was 8.6% and 9.8%, respectively.

On February 13, 1998, there were approximately 1,537 shareholders of record of 
common stock.

[Picture 19]             Candid photograph of Chris Barry, employee of the
                         Company

[Picture 20]             Candid photograph of Mez Birdie, employee of the
                         Company

[Picture 21]             A strip of three candid photographs:  Courtney
                         Hubbard, employee of the Company; Dennis Tracy,
                         employee of the Company; and Heather O'Brien and
                         Carole Jones, employees of the Company

[Picture 22]             Photograph of an exterior view of the Pier 1
                         imports located in Memphis, Tennessee


                                                     APPENDIX

PICTURE           1                         1997 ANNUAL REPORT - PAGE 6

PICTURE           2                         1997 ANNUAL REPORT - PAGE 6

PICTURE           3                         1997 ANNUAL REPORT - PAGE 6

PICTURE           4                         1997 ANNUAL REPORT - PAGE 7

SIDEBAR           1                         1997 ANNUAL REPORT - PAGE 7

PICTURE           5                         1997 ANNUAL REPORT - PAGE 8

PICTURE           6                         1997 ANNUAL REPORT - PAGE 8

PICTURE           7                         1997 ANNUAL REPORT - PAGE 9

SIDEBAR           2                         1997 ANNUAL REPORT - PAGE 9

PICTURE           8                         1997 ANNUAL REPORT - PAGE 10

PICTURE           9                         1997 ANNUAL REPORT - PAGE 10

PIE CHART 1                                 1997 ANNUAL REPORT - PAGE 11

MAP 1                                       1997 ANNUAL REPORT - PAGE 11

PICTURE           10                        1997 ANNUAL REPORT - PAGE 12

PICTURE           11                        1997 ANNUAL REPORT - PAGE 12

PICTURE           12                        1997 ANNUAL REPORT - PAGE 17

PICTURE           13                        1997 ANNUAL REPORT - PAGE 18

PICTURE           14                        1997 ANNUAL REPORT - PAGE 24

PICTURE           15                        1997 ANNUAL REPORT - PAGE 26

PICTURE           16                        1997 ANNUAL REPORT - PAGE 26

PICTURE           17                        1997 ANNUAL REPORT - PAGE 26

PICTURE           18                        1997 ANNUAL REPORT - PAGE 26

PICTURE           19                        1997 ANNUAL REPORT - PAGE 27

PICTURE           20                        1997 ANNUAL REPORT - PAGE 27

PICTURE           21                        1997 ANNUAL REPORT - PAGE 27

PICTURE           22                        1997 ANNUAL REPORT - PAGE 27


