UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to .
Commission File Number 1-9496
BNP RESIDENTIAL PROPERTIES, INC.
(Exact name of registrant as specified in its charter)
Maryland 56-1574675
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
3850 One First Union Center, Charlotte, NC 28202-6032
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 704/944-0100
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered:
Common Stock, par value $.01 per share American Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of the Form 10-K or any
amendment to this Form 10-K. [ X ]
The aggregate market value of the voting stock held by non-affiliates
of the Registrant at March 19, 2001, was approximately $54,100,000.
The number of shares of Registrant's Common Stock outstanding on March
19, 2001, was 5,706,950.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the 2001 Proxy Statement for the Registrant's Annual
Meeting of Shareholders, to be filed with the Securities and Exchange Commission
within 120 days after the end of the year covered by this Form 10-K, are
incorporated by reference in Part III, Items 10, 11, 12 and 13 of this Form
10-K.
Index to exhibits at page 48
BNP RESIDENTIAL PROPERTIES, INC.
TABLE OF CONTENTS
Item No. FINANCIAL INFORMATION Page No.
PART I
1 Business 3
2 Properties 6
3 Legal Proceedings 10
4 Submission of Matters to a Vote of Security Holders 10
X Executive Officers of the Registrant 10
PART II
5 Market for Registrant's Common Equity and Related Stockholder 11
Matters
6 Selected Financial Data 12
7 Management's Discussion and Analysis of Financial Condition 14
and Results of Operations
7A Quantitative and Qualitative Disclosures About Market Risk 23
8 Financial Statements and Supplementary Data 24
9 Changes in and Disagreements With Accountants on Accounting 24
and Financial Disclosure
PART III
10 Directors and Executive Officers of the Registrant 24
11 Executive Compensation 24
12 Security Ownership of Certain Beneficial Owners and Management 24
13 Certain Relationships and Related Transactions 24
PART IV
14 Exhibits, Financial Statement Schedules, and Reports on Form 25
8-K
PART I
ITEM 1. BUSINESS
Company Profile
BNP Residential Properties, Inc., formerly Boddie-Noell Properties,
Inc., is a self-administered and self-managed real estate investment trust that
owns and operates apartment communities in North Carolina and Virginia. We
currently own and operate 15 apartment communities containing 3,680 units, and
have the right to acquire one additional apartment community containing 108
units. We also own 43 restaurant properties, which we lease to a third party
under a master lease on a triple-net basis. We manage four other apartment
communities through BNP Management, Inc., an unconsolidated subsidiary. We refer
to BNP Management, Inc. as the Management Company.
BNP Residential Properties, Inc. is structured as an UpREIT, or
"umbrella partnership real estate investment trust." We are the sole general
partner and own a controlling interest in BNP Residential Properties Limited
Partnership, through which we conduct all of our operations. We refer to this
partnership as the Operating Partnership. We refer to the limited partners of
the Operating Partnership as "minority unitholders" or "minority interest."
As of March 5, 2001, we have 5,706,950 shares of common stock and
1,707,480 Operating Partnership minority units outstanding. We have 1,513
shareholders of record. We estimate that there are approximately 8,000
beneficial owners of our common stock. Our shares are listed on the American
Stock Exchange, trading under the symbol "BNP."
Our executive offices are located at 3850 One First Union Center,
Charlotte, North Carolina 28202-6032, and our telephone number is 704/944-0100.
History and Development of BNP Residential Properties, Inc.
The company was originally incorporated in the state of Delaware in
1987. Beginning in 1987, we elected to be taxed as a REIT under the Internal
Revenue Code. As such, we generally are not, and will not be, subject to federal
or state income taxes on net income. As a REIT, we are subject to a number of
organizational and operational requirements, including a requirement that we
currently distribute at least 95% (90% beginning in 2001) of our REIT taxable
income as dividends.
In 1987, we purchased 47 existing restaurant properties located in
North Carolina and Virginia for an aggregate purchase price of $43.2 million.
From 1987 through 1992, our assets primarily consisted of these 47 restaurant
properties. During this period we operated as an externally administered and
externally managed REIT. We leased the restaurants to Boddie-Noell Enterprises,
Inc. ("Enterprises"), a Hardee's franchisee, under a master lease on a
triple-net basis. A master lease is a single lease that covers multiple
properties, while a triple-net lease is one where the lessee pays all operating
expenses, maintenance, property insurance and real estate taxes.
In 1993, we began to change our focus from restaurant properties to
apartment communities, with the objective of increasing funds from operations
and enhancing shareholder value. During 1993 through 1996, we acquired five
apartment communities. Four of these apartment communities are located in North
Carolina, and one is located in Virginia. In 1994 we acquired BT Venture
Corporation, an integrated real estate management, development and acquisition
company, and began operating as a self-administered and self-managed REIT.
3
In 1997, we reincorporated in the state of Maryland and reorganized to
our present UpREIT structure. Prior to the reorganization, most property owners
who sold us properties recognized gain on their sale. However, through our
UpREIT structure, we can acquire properties in exchange for Operating
Partnership units and trigger no immediate tax obligation for certain sellers.
We believe that our conversion to an UpREIT enables us to acquire properties not
otherwise available or at lower prices because of the tax advantages to certain
property sellers of receiving limited partnership interests instead of cash as
consideration. Minority unitholders will generally be able to redeem their units
for cash or, at our option as general partner, for shares of common stock of the
company on a one-for-one basis. Distributions of cash from the Operating
Partnership are allocated between the REIT and the minority unitholders based on
their respective unit ownership.
In September 1997, we signed an agreement to acquire a portfolio of
seven apartment communities located in North Carolina by issuing Operating
Partnership units. We refer to this acquisition as the "Chrysson acquisition,"
and to the sellers as the "Chrysson Parties." Under the terms of the acquisition
agreement, we will have a right of first refusal to purchase any project
developed in the future by the development entity owned by the Chrysson Parties.
During 1997 and 1998, we acquired nine apartment communities by issuing
Operating Partnership units. We acquired six of these communities from the
Chrysson Parties. In January 1999, we acquired one additional apartment
community in a direct purchase by paying cash and assuming long-term debt.
In December 1997, we completed a common stock offering and issued 2.7
million shares of common stock. We used proceeds of this offering to retire long
term debt. This common stock offering almost doubled the number of the company's
common shares outstanding.
Restaurant sales and restaurant rental income have been declining since
1992, reflecting the increased competition and widespread price discounting in
the fast food industry. In August 1997, CKE Restaurants, Inc. purchased Hardee's
Food Systems, Inc., the restaurant franchisor. CKE operates, franchises, or owns
interests in approximately 3,800 restaurants, including Hardee's and Carl's Jr.
restaurants. While the rate of decline in restaurant sales has slowed in recent
years, we have not seen improvement in restaurant sales to date. In June 1999,
we sold three restaurants to Enterprises, the lessee, under an agreement that
allows Enterprises to close up to seven restaurants and buy them back for no
less than net carrying value.
Recent Developments
Effective April 24, 2000, we changed the name of the company to BNP
Residential Properties, Inc. We believe the new name more clearly reflects our
business activities and will eliminate the confusion that has existed because of
the similarity of our former name to that of Boddie-Noell Enterprises.
In June 2000, we sold one additional restaurant to Enterprises, the
lessee, under the agreement that allows Enterprises to close up to seven
restaurants and buy them back for no less than net carrying value.
In late December 2000, we acquired one additional apartment community,
located in Cary, North Carolina, in a direct purchase. We have combined this
community, formerly known as Page Mill Apartments, with our Oak Hollow
Apartments, and will operate the combined properties as one community.
4
Current Operations
We conduct all of our operations through the Operating Partnership. We
currently own approximately 77% of the outstanding Operating Partnership units.
We currently own and operate 15 apartment communities. These
communities are located in North Carolina and Virginia, and contain 3,680
apartment units. Under the terms of the Chrysson acquisition agreement, we have
the right to acquire an additional apartment community with 108 apartment units.
We plan to exercise our option to acquire this community when it reaches certain
performance targets specified in the agreement. We also own the 43 restaurant
properties that we lease to Enterprises under a triple-net master lease. In
addition, we manage four other apartment communities through an unconsolidated
subsidiary.
We have 135 employees, including management, accounting, legal,
acquisitions, development, property management, leasing, maintenance and
administrative personnel.
Business Strategy
Our principal investment objectives are to provide our shareholders
with current income and to increase the value of the company's common stock. We
focus on increasing long term growth in funds from operations and funds
available for distribution per share, and on increasing the value of our
portfolio through effective management, growth, financing, and investment
strategies. We expect to implement our strategies primarily through the
acquisition, operation, leasing and management of apartment communities.
We seek to acquire apartment properties in areas within the
southeastern United States exhibiting substantial economic growth and an
expanding job base in which we can establish a significant market presence in
the apartment community marketplace. Through our UpREIT structure, we have the
ability to acquire apartment communities by issuing Operating Partnership units
in tax-deferred exchanges with owners of such properties. We expect that we will
finance future acquisitions of apartment communities principally with Operating
Partnership units as well as loans and funds from additional offerings of common
stock, preferred stock, or joint venture arrangements.
We will selectively consider opportunities to develop new apartment
communities, to add additional units to existing communities, and to acquire and
rehabilitate older apartment communities. Members of our management team have
directed over $115 million of development or redevelopment projects, including
13 apartment communities containing over 2,500 apartment units. This development
and redevelopment experience will enable us to build additional apartment
communities and to rehabilitate existing communities when economic conditions
and available capital make such opportunities attractive.
Our residents are typically mid- to high-end "residents by
necessity"--individuals or families with moderate to high incomes that live in
apartments by necessity. They include retirees, young professionals,
manager-level white-collar workers, medical personnel, teachers, members of the
military and young families.
We strongly emphasize on-site property management. We seek
opportunities and have developed internal programs to increase average occupancy
rates, reduce resident turnover, raise rents and control costs. On-site
community managers report directly to regional managers who are locally based.
This flat organization provides for efficient staffing levels, reduces overhead
expenses, and enables us to respond to the needs of residents and on-site
employees. In an effort to reduce long term operating costs, we regularly review
each apartment community and promptly attend to maintenance and recurring
capital
5
needs. Our employees supervise all renovation and repair activities, which are
generally completed by outside contractors.
We continue to seek additional sources of revenue at our existing
apartment communities. These may include water submetering and marketing of
cable television, high-speed internet service, and long distance telephone
services.
As a consequence of our focus on apartments, we may elect to sell our
restaurant properties and reinvest the proceeds in additional apartment
communities. However, no sale of the restaurants is pending, and we intend to
divest the restaurants only when we believe such a transaction will enhance
shareholder value.
ITEM 2. PROPERTIES
Apartment Communities
Through the Operating Partnership, we own and manage 15 apartment
communities consisting of 3,680 apartment units. For the fourth quarter of 2000,
our average economic occupancy rate was 94.7%, and average monthly revenue per
occupied unit was $748. The average age of the apartment communities is
approximately 9.5 years. Our apartment communities are generally wood framed,
two and three story buildings, with exterior entrances, individually metered gas
and electric service, and individual heating and cooling systems.
In late 1999, we began to install individual water and sewer submeters
at all of our apartment communities. At the end of 2000, this work had been
completed at approximately two-thirds of our apartment communities.
Our apartment units are comprised of 35.4% one-bedroom units, 57.7%
two-bedroom units, and 6.9% three-bedroom units. The units average 986 square
feet in area and are well equipped with modern appliances and other
conveniences. Our communities generally include swimming pools, tennis courts
and clubrooms, and most have exercise facilities. The communities are held
subject to loans, discussed in the notes to the financial statements.
The table on page 8 summarizes information about each of our apartment
communities.
Restaurant Properties
We lease the 43 restaurant properties on a triple-net basis to
Enterprises under a master lease. The master lease, as amended in 1995, has a
primary term expiring in December 2007, but grants Enterprises three five-year
renewal options. Enterprises pays annual rent equal to the greater of the
specified minimum rent or 9.875% of food sales from the restaurants. Under
certain conditions, and subject to our approval, Enterprises has the right to
substitute another restaurant property for a property covered by the lease.
After December 31, 2007, Enterprises has the right to terminate the lease on up
to five restaurant properties per year by offering to purchase them under
specified terms. In addition, we entered into a separate agreement that allows
Enterprises to purchase, under specified terms, up to seven restaurant
properties deemed non-economic for no less than net carrying value.
In 1999 and 2000, we sold four restaurants deemed non-economic to
Enterprises. With the sale of these properties, the annual minimum rent on the
remaining restaurants was approximately $4.2 million in 2000, compared to $4.5
million minimum rent on 47 restaurants in previous years.
6
The average acquisition cost of the original 47 restaurant properties
was approximately $920,000 per property. At December 31, 2000, the net carrying
value of the 43 restaurant properties was $29.9 million (an average of $695,000
per property).
The restaurant properties are operated by Enterprises as Hardee's
restaurants pursuant to franchise agreements with Hardee's Food Systems, Inc.
These agreements require that the properties conform to a standard design
specified by Hardee's. The current design consists of a one-story brick, stucco
or wood building that embodies a contemporary style with substantial plate glass
window areas. The buildings average 3,400 square feet and are located on sites
averaging 1.2 acres. The buildings are suitable for conversion to a number of
uses, but the exteriors would have to be substantially modified prior to their
use in non-restaurant applications. Hardee's owns a design patent on certain
elements of the building and requires franchisees to make certain exterior
modifications if the location is discontinued as a Hardee's restaurant.
Enterprises is responsible for all aspects of the operation,
maintenance and upkeep of the restaurant properties. In addition, Enterprises is
responsible for the cost of any improvement, expansion, remodeling or
replacement required to keep the properties competitive or in conformity with
Hardee's building standards. During 1999, Hardee's developed a new concept
referred to as "Star Hardee's." This concept involves the implementation of a
new menu and substantial renovation of the stores. The required renovation
includes new signage, exterior and interior color schemes, kitchen equipment,
furniture, decorations and lighting. The estimated cost to complete the required
modification is between $100,000 and $150,000 per store. To date, Enterprises
has completed the renovation of 16 of our stores to the Star Hardee's concept.
The decision to modify a particular restaurant property is based on a number of
factors, including the date of its last modification and the number, age and
design features of competing restaurants located in the market area of the
particular property. All of the costs of the conversion of a store to the Star
Hardee's concept are borne by Enterprises.
The locations of our restaurant properties are listed on page 9 of this
Annual Report.
7
INFORMATION ABOUT APARTMENT COMMUNITIES
No. Total Apartment Weighted
of Rentable Unit Type Average
Apt. Year Date Total Area 1 2 3 Apt. Size
Community Location Units Compl Acquired Acreage (Sq. Ft.) BR BR BR (Sq. Ft.)
------------------- ------------------ ------ -------- ---------- --------- ---------- ----- ----- ----- ----------
Abbington Place Greensboro, NC 360 1997 12/97 37.4 400,728 96 216 48 1,113
Allerton Place Greensboro, NC 228 1998 9/98 19.2 241,842 54 126 48 1,061
Chason Ridge Fayetteville, NC 252 1994 1/99 21.9 246,886 56 164 32 980
Harris Hill Charlotte, NC 184 1988 12/94 18.4 167,920 67 117 - 912
Latitudes Virginia Beach, 448 1989 10/94 24.9 358,700 269 159 20 800
VA
Madison Hall Clemmons, NC 128 1997 8/98 10.5 110,352 42 86 - 862
Oak Hollow Cary, NC 220 1983 7/98 30.0 215,960 56 164 - 982
Oakbrook Charlotte, NC 162 1985 6/94 16.4 178,668 32 120 10 1,100
Paces Commons Charlotte, NC 336 1988 6/93 24.8 322,046 154 142 40 958
Paces Village Greensboro, NC 198 1988 4/96 15.5 167,886 88 110 - 848
Pepperstone Greensboro, NC 108 1992 12/97 10.1 113,076 - 108 - 1,047
Savannah Place Winston-Salem, NC 172 1991 12/97 15.4 182,196 44 128 - 1,059
Summerlyn Place Burlington, NC 140 1998 9/98 12.1 156,756 48 84 8 1,120
Waterford Place Greensboro, NC 240 1997 12/97 20.6 277,296 72 120 48 1,155
Woods Edge Durham, NC 264 1985 6/98 32.4 268,620 66 198 - 1,018
Community acquired December 2000 (2):
Oak Hollow Ph 2 Cary, NC 240 1986 12/00 26.8 220,840 160 80 - 920
Chrysson Community under purchase option (3):
Brookford Place Winston-Salem, NC 108 2000 - 6.3 103,392 36 72 - 957
No. Average
of Average Economic Monthly Revenue
Apt. Occupancy Percent(1) per Occupied Unit
Community Location Units 2000 1999 1998 2000 1999 1998
------------------- ------------------ ------ ------- ------- ------ ------ ------- ------
Abbington Place Greensboro, NC 360 96.3 92.9 93.6 $764 $757 $781
Allerton Place Greensboro, NC 228 95.3 94.9 94.8 778 788 804
Chason Ridge Fayetteville, NC 252 96.2 95.8 - 659 659 -
Harris Hill Charlotte, NC 184 94.5 96.7 96.0 728 733 720
Latitudes Virginia Beach, 448 97.5 97.8 95.5 732 684 665
VA
Madison Hall Clemmons, NC 128 94.4 92.6 91.7 612 645 650
Oak Hollow Cary, NC 220 96.6 95.5 95.9 722 717 728
Oakbrook Charlotte, NC 162 95.6 95.3 95.9 783 779 775
Paces Commons Charlotte, NC 336 94.8 95.9 93.2 717 710 705
Paces Village Greensboro, NC 198 96.2 93.1 93.8 666 656 672
Pepperstone Greensboro, NC 108 96.5 96.9 97.1 681 681 682
Savannah Place Winston-Salem, NC 172 93.3 92.8 97.6 749 768 777
Summerlyn Place Burlington, NC 140 96.1 93.2 94.0 798 804 846
Waterford Place Greensboro, NC 240 95.9 95.3 92.4 857 846 867
Woods Edge Durham, NC 264 97.2 94.4 95.6 751 731 742
Community acquired December 2000 (2):
Oak Hollow Ph 2 Cary, NC 240 - - - - - -
Chrysson Community under purchase option (3):
Brookford Place Winston-Salem, NC 108 - - - - - -
(1) Average economic occupancy is calculated as gross potential rent less vacancy, divided by gross potential rent.
(2) Formerly known as Page Mill Apartments, acquired December 28, 2000.
(3) To be acquired upon attainment of certain performance targets.
8
RESTAURANT PROPERTIES LOCATIONS
Virginia (28 properties)
Ashland
106 North Washington
Blackstone
North Main Street
Bluefield
701 South College Street
Chester
12401 Jefferson Davis Hwy.
Clarksville
916 Virginia Avenue
Clintwood
U.S. Highway 83
Dublin
208 College Avenue
Franklin
105 North Mechanic Street
Galax
425 Main Street
Hopewell
East City Point Road
Lebanon
Route 1
Lynchburg
8411 Timberlake Road
2231 Langhorne road
Norfolk
3908 Princess Anne Road
Orange
200 Madison Road
Petersburg
1865 Crater Road, South
Richmond
921 Myers Street
6850 Forest Hill Avenue
7917 Midlothian Pike
Roanoke
4407 Abenham Avenue SW
3401 Hollins Road
Rocky Mount
322 Tanyard Road, NE
Smithfield
Smithfield Shopping Center
Staunton
1201 Greenville Avenue
Verona
160 East Route 612
Virginia Beach
4261 Holland Road
1951 Lynnhaven Parkway
Wise
US Highway 23, Business
North Carolina
(15 properties)
Bessemer City
Route 1
Burlington
2712 Alamance Road
Denver
Route 1
Eden
202 West Kings Highway
Fayetteville
3505 Ramsey Street
360 North Eastern Blvd.
Gastonia
816 East Franklin Street
Hillsborough
380 S. Churton Street
Kinston
200 West Vernon Street
1404 Richlands Street
Newton
South Ashe & North "D"
Siler City
Chatham Shopping Center
Spring Lake
400 South Main Street
Thomasville
1116 East Main Street
Randolph Street
9
ITEM 3. LEGAL PROCEEDINGS
We are a party to a variety of legal proceedings arising in the
ordinary course of business. We do not expect any of these matters, individually
and in aggregate, to have a material adverse impact on the company.
In the event a claim was successful, we believe that we are adequately
covered by insurance and indemnification agreements. We have insurance coverage
on each of our apartment communities. Our restaurant properties are subject to
an indemnification agreement whereby Enterprises, the lessee, is responsible for
all claims arising from a restaurant property. In addition, Enterprises is
required to provide insurance, which identifies the company as a named insured,
on each restaurant property. Each apartment property that we manage but do not
own is covered by an insurance policy under which we are a named insured.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the
fourth quarter of fiscal year 2000.
ITEM X. EXECUTIVE OFFICERS OF THE REGISTRANT
We have set forth below a listing and brief biography of each of the
executive officers of the company.
Name Age Position Officer Since
------------------------------ ------- --------------------------------------------------- ------------------
D. Scott Wilkerson 43 Director, President and October 1994
Chief Executive Officer
Philip S. Payne 49 Director, Executive Vice President, October 1994
Treasurer and Chief Financial Officer
Pamela B. Bruno 47 Vice President, Controller and October 1994
Chief Accounting Officer
Douglas E. Anderson 53 Vice President, Secretary April 1987
D. Scott Wilkerson--Director, President and Chief Executive Officer.
Mr. Wilkerson joined BT Venture Corporation in 1987 and served in various
officer level positions, including Vice President of Administration and Finance
and Vice President for Acquisitions and Development, before becoming President
of BT Venture in January 1994. He was named our Chief Executive Officer in April
1995 and a Director in December 1997. From 1980 to 1986, Mr. Wilkerson was with
Arthur Andersen LLP, in Charlotte, North Carolina, serving as tax manager from
1985 to 1986. His specialization was in the representation of real estate
syndicators, developers and management companies. Mr. Wilkerson received a BS
degree in accounting from the University of North Carolina at Charlotte in 1980.
He is a licensed certified public accountant and licensed real estate broker. He
serves on the boards of directors of the National Multifamily Housing Council
and the Apartment Association of North Carolina, and he is the immediate past
president of the Charlotte Apartment Association. He is active in various
professional, civic and charitable activities.
Philip S. Payne--Director, Executive Vice President, Treasurer and
Chief Financial Officer. Mr. Payne joined BT Venture Corporation in 1990 as Vice
President of Capital Market Activities and became Executive Vice President and
Chief Financial Officer of BT Venture in January 1993. He was named our
Treasurer in April 1995 and a Director in December 1997. From 1987 to 1990, he
was a principal in
10
Payne Knowles Investment Group, a financial planning firm. From 1983 to 1987, he
was a registered representative with Legg Mason Wood Walker. From 1978 to 1983,
Mr. Payne practiced law, and he currently maintains his license to practice law
in Virginia. He received a BS degree from the College of William and Mary in
1973 and a JD degree in 1978 from the same institution. Mr. Payne is a member of
the Editorial Board of Real Estate Portfolio, a publication of the National
Association of Real Estate Investment Trusts. He serves on the board of
directors of the National Multifamily Housing Council.
Pamela B. Bruno--Vice President, Controller and Chief Accounting
Officer. Ms. Bruno joined BT Venture Corporation in 1993 as Controller and
became our Vice President and Chief Accounting Officer in October 1994. From
1984 to 1993, Ms. Bruno was with Ernst & Young LLP, in Charlotte, North
Carolina, and Anchorage, Alaska, serving as audit manager from 1987 through
1993. She received a BS degree in accounting from the University of North
Carolina at Charlotte in 1984. She is a licensed certified public accountant.
Douglas E. Anderson--Vice President and Secretary. Mr. Anderson has
served as Vice President and Secretary since our inception in 1987. He has been
with Enterprises since 1977 and is currently a director, executive vice
president and secretary of Enterprises. Mr. Anderson is also president of BNE
Land and Development Company, the real estate development division of
Enterprises. He serves as a director of Wachovia Bank of Rocky Mount, North
Carolina. In addition, he serves on the Board of Visitors of the Lineberger
Comprehensive Cancer Center in Chapel Hill, North Carolina. He received a BS
degree in finance and accounting from the University of North Carolina at Chapel
Hill in 1970.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Market Information and Dividends
Our common stock is traded on the American Stock Exchange under the
symbol "BNP." There were approximately 1,500 shareholders of record on March 19,
2001. The table below shows, for the periods indicated, the range of high, low,
and closing sale prices of our common stock as reported by the American Stock
Exchange and the dividends paid per share. As of March 19, 2001, the closing
price of the company's common stock was $9.95 per share.
Dividends
Stock Price Paid
High Low Close Per Share
----------------- ----------------- ----------------- -----------------
2000
Fourth quarter $ 8.75 $ 7.25 $ 7.50 $0.31
Third quarter 9.125 8.00 8.50 0.31
Second quarter 9.25 7.875 8.375 0.31
First quarter 10.625 7.75 7.75 0.31
11
Dividends
Stock Price Paid
High Low Close Per Share
----------------- ----------------- ----------------- -----------------
1999
Fourth quarter $10.00 $ 8.00 $ 8.375 $0.31
Third quarter 11.6875 9.50 10.00 0.31
Second quarter 11.75 10.875 11.50 0.31
First quarter 11.875 10.50 11.375 0.31
We have paid regular quarterly dividends to holders of our common stock
since our inception, and we intend to continue to do so. We anticipate that we
will pay all dividends from current funds from operations. We expect
distributions to substantially exceed the 90% annual distribution requirement
for a REIT.
We have a dividend reinvestment plan that is available to all
shareholders of record. Under this plan, as amended in July 1996, the plan
administrator, First Union National Bank of North Carolina, reinvests dividends
on behalf of plan participants in our common stock. First Union will either
issue new shares or purchase shares on the open market, at our direction. In
addition, shareholders who participate in the plan may elect to make direct cash
investments or supplement their reinvestment program with additional cash
investments of any amount from $25 to $10,000 per quarter. Participants do not
pay any commissions on stock purchased under the plan.
Sales of Unregistered Securities
There were no sales of unregistered securities in 2000.
ITEM 6. SELECTED FINANCIAL DATA
We present below selected financial information. We encourage you to
read the financial statements and the notes accompanying the financial
statements in this Annual Report. This information is not intended to be a
replacement for the financial statements.
This financial information includes all apartment communities and
restaurant properties that we owned. While the number of restaurant properties
has generally remained constant, you should note in reviewing this information
that we acquired apartment properties throughout the periods presented.
Therefore, the information is not comparable between periods.
Year ended December 31
2000 1999 1998 1997 1996
------------- -------------- ------------- -------------- -------------
(in thousands, except per share and property data)
Operating data:
Revenue:
Apartment rental income $ 29,269 $ 28,608 $ 21,925 $ 11,197 $ 9,791
Restaurant rental income 4,162 4,339 4,500 4,500 4,500
Equity and other income 427 510 715 555 217
------------- -------------- ------------- -------------- -------------
Total revenue 33,858 33,457 27,140 16,251 14,508
Expenses:
Depreciation 7,156 6,956 5,406 2,686 2,440
Amortization 579 569 531 580 535
Apartment operations 9,766 9,423 6,817 3,415 2,852
12
Year ended December 31
2000 1999 1998 1997 1996
------------- -------------- ------------- -------------- -------------
(in thousands, except per share and property data)
Corporate administration 2,391 2,352 1,697 1,131 1,019
Costs of terminated
equity transaction 237 - - - -
Interest 11,151 10,703 8,209 6,487 5,946
------------- -------------- ------------- -------------- -------------
Total expenses 31,280 30,003 22,660 14,299 12,792
------------- -------------- ------------- -------------- -------------
Income before minority
interest of Unitholders 2,578 3,454 4,480 1,953 1,716
Minority interest in
Operating Partnership 595 728 742 39 -
------------- -------------- ------------- -------------- -------------
Income before
extraordinary item $ 1,983 $ 2,726 $ 3,738 $ 1,913 $ 1,716
============= ============== ============= ============== =============
Net income $ 1,983 $ 2,726 $ 3,686 $ 1,730 $ 1,716
============= ============== ============= ============== =============
Basic earnings per share (1) $ 0.35 $ 0.46 $ 0.62 $ 0.54 $ 0.57
============= ============== ============= ============== =============
Diluted earnings per share (1) $ 0.35 $ 0.46 $ 0.62 $ 0.52 $ 0.56
============= ============== ============= ============== =============
Dividends per share $ 1.24 $ 1.24 $ 1.24 $ 1.24 $ 1.24
============= ============== ============= ============== =============
Balance Sheet data:
Real estate assets (before
accumulated depreciation)
Apartment communities $ 217,818 $ 203,365 $ 188,539 $ 128,050 $ 66,610
Restaurant properties 39,702 40,545 43,205 43,205 43,205
Real estate assets, net 224,705 217,984 212,192 157,108 98,354
Total assets 230,691 224,270 221,121 166,112 103,436
Total debt 163,612 150,883 140,524 93,436 77,352
Minority interest 19,737 21,317 20,681 12,346 -
Shareholders' equity 44,548 49,896 56,749 55,785 24,902
Apartment Property data:
Apartment communities
owned at year end 15 15 14 9 5
Apartment units owned
at year end 3,680 3,440 3,188 2,208 1,328
Average apartment
economic occupancy 95.9% 95.1% 94.7% 95.3% 94.1%
Average monthly revenue
per occupied unit $ 737 $ 729 $ 737 $ 698 $ 684
Other data:
EBITDA $ 21,463 $ 21,682 $ 18,626 $ 11,706 $ 10,637
Funds from operations (2) 10,139 10,816 10,292 4,916 4,472
Funds available
for distribution (2) 9,243 9,868 9,660 4,844 4,295
Net cash provided by
(used in):
Operating activities $ 10,854 $ 10,919 $ 9,420 $ 5,007 $ 4,800
Investing activities (13,407) 111 (43,862) (48,095) (11,020)
Financing activities 3,177 (11,089) 32,473 44,705 6,361
13
Year ended December 31
2000 1999 1998 1997 1996
------------- -------------- ------------- -------------- -------------
(in thousands, except per share and property data)
Weighted average number of
shares outstanding 5,708 5,973 5,924 3,180 3,027
Weighted average number of
Operating Partnership minority
units outstanding 1,711 1,601 1,192 81 -
(1) Earnings per share amounts for 1996 have been restated to comply with
Statement of Financial Accounting Standards No. 128, Earnings Per Share.
(2) Funds from operations and funds available for distribution amounts for
1997 through 2000 reflect measurements for the Operating Partnership
(before deduction for minority interest).
Funds from operations is defined by the National Association of Real
Estate Investment Trusts ("NAREIT") as "net income (computed in accordance
with generally accepted accounting principles), excluding gains (or
losses) from sales of property, plus depreciation and amortization, and
after adjustments for unconsolidated partnerships and joint ventures."
We calculate funds available for distribution as funds from operations
plus non-cash expense for amortization of loan costs, less recurring
capital expenditures.
We consider funds from operations and funds available for distribution to
be useful in evaluating potential property acquisitions and measuring the
operating performance of an equity REIT. Together with net income and cash
flows, funds from operations and funds available for distribution provide
investors with additional measures to evaluate the ability of the REIT to
incur and service debt and to fund acquisitions and other capital
expenditures. Funds from operations and funds available for distribution
do not represent net income or cash flows from operations as defined by
generally accepted accounting principles. You should not consider funds
from operations or funds available for distribution:
o to be alternatives to net income as reliable measures of the
company's operating performance, or
o to be alternatives to cash flows as measures of liquidity.
Funds from operations and funds available for distribution do not measure
whether cash flow is sufficient to fund all of our cash needs, including
principal amortization, capital improvements and distributions to
shareholders. Funds from operations and funds available for distribution
do not represent cash flows from operating, investing or financing
activities as defined by generally accepted accounting principles.
Further, funds from operations and funds available for distribution as
disclosed by other REITs might not be comparable to our calculation of
funds from operations or funds available for distribution.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion contains forward-looking statements within the
meaning of federal securities law. You can identify such statements by the use
of forward-looking terminology, such as "may," "will," "expect," "anticipate,"
"estimate," "continue" or other similar words. These statements discuss future
expectations, contain projections of results of operations or of financial
condition or state other "forward-looking" information.
14
Although we believe that our plans, intentions, and expectations
reflected in or suggested by these forward-looking statements are reasonable, we
cannot assure you that we will achieve our plans, intentions or expectations.
When you consider such forward-looking statements, you should keep in mind the
following important factors that could cause our actual results to differ
materially from those contained in any forward-looking statement:
o our markets could suffer unexpected increases in the development of
apartment, other rental, or competitive housing alternatives;
o general economic conditions could cause the financial condition of a
large number of our tenants to deteriorate;
o we may not be able to complete development, acquisition or joint venture
projects as quickly or on as favorable terms as anticipated;
o we may not be able to lease or re-lease apartments quickly or on as
favorable terms as under existing leases;
o we may have incorrectly assessed the environmental condition of our
properties;
o an unexpected increase in interest rates could increase our debt
service costs;
o we may not be able to meet our long term liquidity requirements on
favorable terms;
o we could lose key executive officers; and
o our concentrated markets may suffer an unexpected decline in economic
growth or increase in unemployment rates.
Given these uncertainties, we caution you not to place undue reliance
on forward-looking statements. We undertake no obligation to publicly release
the results of any revision to these forward-looking statements that may be made
to reflect any future events or circumstances or to reflect the occurrence of
unanticipated events.
You should read the discussion in conjunction with the financial
statements and notes thereto included in this Annual Report.
Results of Operations
2000 Compared to 1999
Revenues
Total revenue in 2000 was $33.9 million, an increase of 1.2% compared
to 1999. Apartment rental income accounted for 86.4% of our total revenue in
2000 compared to 85.5% in 1999.
Apartment rental income in 2000 was $29.3 million, an increase of 2.3%
compared to 1999. This increase reflects improvements in both occupancy and
average rental rates in 2000. Average economic occupancy for all apartments was
95.9% in 2000 compared to 95.1% in 1999. Average monthly revenue per occupied
unit for all apartments was $737 in 2000 compared to $729 in 1999. These
comparisons reflect the results for all 3,440 apartments in operation through
the entire 12 months of both
15
2000 and 1999. (Our acquisition of Oak Hollow Apartments - Phase 2 took place in
late December 2000.)
Apartment rental income was consistent with our expectations in 2000.
Our apartment communities continue to show improved occupancy and rental rates
despite the fact that we operate in some of the most competitive apartment
markets in the United States.
With the exception of Virginia Beach, Virginia, significant new
apartment construction over the past few years has resulted in an oversupply of
apartments in our markets. While the majority of the new apartment communities
are asking for rents that are higher than those we receive at our communities,
the discounting and specials offered by these new communities as they compete
for occupancy limits our ability to significantly raise rents at our
communities.
As a result, we do not expect any significant improvement in our
apartment markets in 2001. In light of this, we will continue to emphasize
occupancy as a means of maximizing cash flow from our apartment communities. We
will also strive to maintain our competitive position by keeping the apartment
communities in an excellent state of repair and by making selective
improvements. We believe that we have good properties in excellent locations,
and that we are well positioned to compete effectively in our markets.
Restaurant rental income in 2000 was $4.2 million, a decrease of 4.1%
compared to 1999. Restaurant rental income accounted for 12.3% of our total
revenue in 2000 compared to 13.0% in 1999. The decrease in restaurant rental
income is due to the sales of three restaurant properties in June 1999 and one
restaurant property in June 2000. The four restaurants were sold to Enterprises,
the lessee, under the non-economic clause of an agreement that allows
Enterprises to close up to seven restaurants and buy them back for no less than
net carrying value. We received approximately $644,000 as a result of the June
2000 restaurant closing. In January 2001, Enterprises notified us of its
intention to close and buy back one additional restaurant in May 2001.
Under the lease, restaurant rental payments are the greater of a
specified minimum rent or 9.875% of food sales. Prior to the sales of the four
restaurants, the minimum rent was $4,500,000 per year. The minimum rent is
reduced by approximately $96,000 per year for each restaurant that is sold.
Restaurant rental income in both 2000 and 1999 was the minimum rent specified in
the lease agreement.
"Same store" sales (for our 43 restaurants that were open through the
entire 12 months of both 2000 and 1999) declined by 3.6% in 2000 compared to
1999. Sales at these stores would have to increase by approximately 8% before we
would receive rent exceeding the minimum rent.
Interest and other income decreased by 16.3% to $427,000 in 2000 as
compared to 1999. This decrease is primarily attributable to a $47,000 reduction
in interest income due to repayment in February 2000 of $525,000 in principal on
a note receivable from a joint venture partnership. Our interest in the net
income of the Management Company was $131,000 in 2000 compared to $123,000 in
1999.
Effective January 1, 2001, we acquired the minority 5% economic
interest and 99% voting interest in the Management Company. Going forward, we
will include the revenues and expenses of our third-party management activities
in our consolidated revenue and expense amounts. We do not expect this change to
have a significant effect on our financial position, operating results or cash
flows in future periods.
Expenses
Total expenses, including non-cash charges for depreciation and
amortization, in 2000 were $31.3 million, an increase of 4.3% compared to 1999.
16
Apartment operations expense was $9.8 million in 2000, an increase of
3.6% compared to 1999. Apartment operations expense represented 33.4% of related
apartment rental income, compared to 32.9% in 1999. This increase is primarily
attributable to higher costs for compensation of on-site staff, taxes, and
property insurance.
We reclassified certain 1999 and 1998 expenses from Apartment
operations expense to Administrative expense to conform to our current
classification. Amounts included in Apartment operations expense in this Annual
Report represent only direct costs of on-site operations for all years
presented. The amounts we reclassified were approximately $600,000 for 1999 and
$364,000 for 1998.
Operating expenses for restaurant properties are insignificant because
the restaurant properties' triple-net lease arrangement requires the lessee to
pay virtually all of the expenses associated with the restaurant properties.
Administrative expense was $2.4 million in 2000, an increase of 1.7%
compared to 1999. We include our apartment property management costs as well as
corporate expenses in this line item. Administrative costs were in line with
management's expectations.
During 2000, we entered into negotiations for a private equity
transaction. The company terminated those negotiations during the fourth quarter
of 2000, and we recorded a charge of $237,000 for those costs. Because this is a
significant and non-recurring charge, we have reported this charge as a separate
line item in our statement of operations.
Depreciation and amortization totaled $7.7 million in 2000, an increase
of 2.8% compared to 1999. These increases reflect the impact of additions and
replacements at apartment communities.
Interest expense was $11.2 million in 2000, an increase of 4.2%
compared to 1999. This increase is primarily attributable to the approximate
0.75% increase in variable interest rates during the first half of 2000.
Overall, weighted average interest rates were 7.3% in 2000 compared to 7.2% in
1999.
Net income
Net income available to common shareholders in 2000 was $2.0 million, a
decrease of 27.3% compared to 1999. Operating Partnership earnings before
depreciation and amortization in 2000 were $10.3 million, a decrease of 6.1%,
while non-cash charges for depreciation and amortization totaled $7.7 million,
an increase of 2.8%, compared to 1999. The minority interest in Operating
Partnership earnings in 2000 was $595,000, a decrease of 18.3% compared to 1999.
Net income per share for the year 2000 was $0.35 compared to $0.46 for
1999. The decline in net income was primarily due to increases in interest
expense, decrease in restaurant rental income, increases in non-cash charges for
depreciation and amortization, and the significant non-recurring charge for the
terminated equity transaction.
1999 Compared to 1998
Revenues
Total revenue in 1999 was $33.5 million, an increase of 23.3% over
1998. This increase is primarily attributable to apartment community
acquisitions in 1998 and January 1999. Apartment rental income accounted for
85.5% of our total revenue in 1999 compared to 80.8% in 1998.
Apartment rental income in 1999 was $28.6 million, an increase of 30.5%
over 1998. This increase is primarily the result of apartment community
acquisitions. Average economic occupancy for all
17
apartments was 95.1% in 1999 and 94.7% in 1998. Average monthly revenue per
occupied unit for all apartments was $729 in 1999 and $737 in 1998.
On a same-units basis, rental income for apartments owned throughout
both years increased 0.3%. Average economic occupancy for these units was 95.3%
for 1999 and 94.6% in 1998. Average monthly revenue per occupied unit for these
units was $732 in 1999 and $735 in 1998.
Restaurant rental income in 1999 was $4.3 million, a decrease of 3.6%
compared to 1998. Restaurant rental income was the minimum rent for both 1999
and 1998. The decline in rental income was the result of the sale of three
restaurants in 1999. Excluding the three restaurants that were sold during 1999,
restaurant food sales declined 3.1% for the year.
Interest and other income decreased by 28.7% to $510,000 in 1999 as
compared to 1998. This decrease is primarily attributable to a $210,000
reduction in interest income due to repayment in February 1999 of $2.0 million
in principal on a note receivable from a joint venture partnership. Our interest
in the net income of the Management Company was $123,000 in 1999 compared to
$115,000 in 1998.
Expenses
Total expenses in 1999 were $30.0 million, an increase of 32.4% over
1998. This increase is primarily due to apartment community acquisitions in 1998
and early 1999.
Apartment operations expense was $9.4 million in 1999, an increase of
38.2% compared to 1998. This increase reflects the impact of apartment
acquisitions in 1998 and early 1999 as well as higher operating costs. Apartment
operations expense totaled 32.9% of related rental income in 1999 compared to
31.1% in 1998. On a same-units basis, operations expense for apartments owned
throughout both years increased 3.9% in 1999 compared to 1998.
We reclassified certain 1999 and 1998 expenses from Apartment
operations expense to Administrative expense to conform to our current
classification. Amounts included in Apartment operations expense in this Annual
Report represent only direct costs of on-site operations for all years
presented. The amounts we reclassified were approximately $600,000 for 1999 and
$364,000 for 1998.
Apartment operations expenses were generally in line with management's
expectations. The increase in apartment operations expense as a percent of
related income is primarily attributable to shortfalls in rental income.
Increases in on-site personnel compensation, taxes and insurance further
increased apartment operations expense as a percent of related income.
Operating expenses for restaurant properties are insignificant because
the restaurant properties' triple-net lease arrangement requires the lessee to
pay virtually all of the expenses associated with the restaurant properties.
Administrative expense was $2.4 million in 1999, a 38.6% increase
compared to 1998. We include our apartment property management costs as well as
corporate expenses in this line item. The increase in administrative costs is
generally attributable to additional management and administrative staff and
overhead costs corresponding to the addition of apartment communities. In
addition, legal and professional fees expense totaled $269,000 in 1999 compared
to $198,000 in 1998, reflecting the increased complexity and costs associated
with administration of our UpREIT structure.
The increases in depreciation and amortization expense are primarily
attributable to the addition of apartment communities. Depreciation expense was
$7.0 million in 1999, an increase of 28.7% compared to 1998. For apartment
communities owned throughout both years, depreciation expense increased 3.8%,
reflecting the impact of additions and replacements at those communities.
18
Interest expense was $10.7 million in 1999, an increase of 30.4%
compared to 1998. This increase reflects the effect of increased debt related to
apartment acquisitions in 1998 and early 1999. We were able to obtain favorable
rates, fixed at rates ranging from 6.345% to 6.650% on new debt issues in the
second half of 1998, which resulted in weighted average interest rates of 7.2%
in 1999 compared to 7.5% in 1998.
Net income
Net income available to common shareholders in 1999 was $2.7 million, a
decrease of 26.0% compared to 1998. Operating Partnership earnings before
depreciation and amortization in 1999 were $11.0 million, an increase of 5.4%,
while non-cash charges for depreciation and amortization totaled $7.5 million,
an increase of 26.8% compared to 1998. The minority interest in Operating
Partnership earnings in 1999 was $728,000, a decrease of 1.9% compared to 1998.
Funds from Operations
Funds from operations and funds available for distribution are defined
in footnote 2 on page 14. We calculated funds from operations as follows (all
amounts in thousands):
2000 1999 1998
--------------- -------------- --------------
Income before minority interest
and extraordinary item $ 2,577 $ 3,454 $ 4,480
Depreciation 7,156 6,956 5,406
Amortization of management intangible 406 406 406
--------------- -------------- --------------
Funds from operations - Operating Partnership $ 10,139 $ 10,816 $ 10,292
=============== ============== ==============
A reconciliation of funds from operations to funds available for
distribution follows (all amounts in thousands):
2000 1999 1998
--------------- -------------- --------------
Funds from operations - Operating Partnership $10,139 $10,816 $10,292
Amortization of loan costs 173 163 124
Recurring capital expenditures (1,070) (1,111) (757)
--------------- -------------- --------------
Funds available for distribution $ 9,243 $ 9,868 $ 9,660
=============== ============== ==============
A further reconciliation of funds from operations of the Operating
Partnership to basic funds from operations available to common shareholders
follows (all amounts in thousands):
2000 1999 1998
--------------- -------------- --------------
Funds from operations - Operating Partnership $10,139 $10,816 $10,292
Minority interest in funds from operations (2,339) (2,280) (1,708)
--------------- -------------- --------------
Basic funds from operations
available to common shareholders $ 7,801 $ 8,537 $ 8,584
=============== ============== ==============
Other information about our historical cash flows follows (all amounts
in thousands):
19
2000 1999 1998
--------------- -------------- --------------
Net cash provided by (used in)
Operating activities $ 10,854 $ 10,919 $ 9,420
Investing activities (13,407) 111 (43,862)
Financing activities 3,177 (11,089) 32,473
Dividends and distributions paid to
Shareholders $ 7,077 $ 7,421 $ 7,340
Minority unitholders in Operating Partnership 2,102 1,942 1,105
Scheduled debt principal payments $ 332 $ 547 $ 482
Non-recurring capital expenditures
Acquisition improvements and replacements 297 819 426
Other apartment property improvements 755 486 179
Weighted average common shares outstanding 5,708 5,973 5,924
Weighted average Operating Partnership
minority units outstanding 1,711 1,601 1,192
Funds from operations in 2000 (before deduction for minority interest)
totaled $10.1 million, a decrease of 6.3% compared to $10.8 million in 1999. The
modest increase in contribution from apartment operations was not adequate to
offset increases in interest expense, decrease in restaurant rental income, or
the significant non-recurring costs of a terminated equity transaction. We
operated the same 3,440 apartment units throughout both 2000 and 1999. Funds
from operations in 1999 (before deduction for minority interest) increased 5.1%
compared to 1998, reflecting the impact of 1998 additions to our apartment
portfolio.
Funds available for distribution totaled $9.2 million in 2000, a
decrease of 6.3% compared to 1999. Funds available for distribution totaled $9.9
million in 1999, an increase of 2.2% compared to 1998. The variance in increases
in funds available for distribution compared to increases in funds from
operations reflects the impact of recurring capital expenditures for major
capital maintenance costs at our older communities. Recurring capital
expenditures averaged $311 per apartment unit in 2000, $323 per unit in 1999,
and $290 per unit in 1998.
Capital Resources and Liquidity
Capital Resources
In December 2000, we acquired an apartment community for a total cost
of approximately $12.4 million, paid in cash. We financed this acquisition with
a $9.7 million draw on a variable-rate loan secured by a deed of trust on the
community and $2.7 million draws on our lines of credit. In addition, during
2000, we made draws totaling $1.2 million on our lines of credit to fund capital
improvements at our apartment properties and to redeem common stock and
Operating Partnership minority units.
In June 2000, we received approximately $644,000 proceeds from the sale
of a restaurant. We applied this cash to fund capital improvements at our
apartment properties.
In January 1999, we acquired an apartment community for a total cost of
approximately $12.5 million. In conjunction with this acquisition, we made cash
payments totaling approximately $1.8 million, and assumed long term debt and
related liabilities totaling $10.7 million. We financed this acquisition through
draws on our line of credit.
20
In December 1998, we established a share buy-back program that
authorized the repurchase and retirement of up to 300,000 shares of our common
stock. During the fourth quarter of 1999, we repurchased and retired
approximately 272,000 shares of our common stock at a cost of approximately $2.5
million. In early 2000, we repurchased and retired approximately 28,000 shares
of our common stock at a cost of approximately $255,000.
During 1999, we made draws totaling $9.0 million on our line of credit
that is secured by our restaurant properties. We applied these funds toward our
apartment acquisition, the buyback of common stock, and to retire a $6.1 million
note payable to an affiliate.
During 1999, we also entered into a line of credit arrangement that is
secured by a deed of trust on Latitudes Apartments. We applied a $12.7 million
draw against this line of credit to retire a fixed rate deed of trust loan
secured by Latitudes Apartments.
During June through September 1998, we acquired five apartment
communities for a total cost of approximately $59.3 million. In conjunction with
these acquisitions, we issued Operating Partnership units with an imputed value
of approximately $8.0 million. We financed these acquisitions through assumption
or issue of fixed rate deed of trust loans totaling $39.3 million and draws on
our line of credit totaling $12.0 million.
In December 1997 and January 1998, we issued 2.7 million shares of our
common stock through a common stock offering. In January 1998, we received $2.6
million over-allotment proceeds from this offering, which we applied to pay down
existing debt.
During 1999 and 1998, we issued 67,000 shares of our common stock
through our Dividend Reinvestment and Stock Purchase Plan. In addition, during
1998, we issued 109,000 shares of our common stock to affiliates for additional
consideration and to retire debt related to previous acquisitions.
During 1999, 1998 and 1997, we issued 1.7 million Operating Partnership
units in conjunction with acquisitions of apartment communities. Holders of
Operating Partnership units will generally be able to redeem their units for
cash or, at our option, for shares of our common stock on a one-for-one basis
after one year following issuance.
We intend to pursue our growth strategy through the utilization of our
flexible capital structure. This may include the issuance of Operating
Partnership units, common stock and/or preferred stock, additional debt, and
joint venture investments. We may use our lines of credit or fixed rate,
long-term debt to acquire apartment communities.
Cash Flows and Liquidity
Net cash flows from operating activities were $10.9 million in 2000 and
1999, and $9.4 million in 1998. Investing and financing activities focused
primarily on apartment acquisitions and capital expenditures at apartment
communities, along with payments of dividends and distributions.
We capitalize expenditures to acquire new assets, to materially enhance
the value of existing assets, or to substantially extend the useful life of
existing assets. All floor covering, appliance, and HVAC replacements, as well
as major capital maintenance expenditures are capitalized. We have generally
funded recurring capital expenditures for apartment properties from cash
provided by operating activities.
We paid dividends of $0.31 per share per quarter in each quarter of
2000, 1999, and 1998. Our dividend payout ratio (the ratio of dividends plus
distributions paid to Operating Partnership funds from operations) was 90.5% in
2000, 86.6% in 1999, and 85.5% in 1998. We intend to pay dividends
21
quarterly, expect that these dividends will substantially exceed the 90%
distribution requirement for REITs, and anticipate that all dividends will be
paid from current funds from operations.
Short- and Long-term Liquidity Requirements
At December 31, 2000, total long-term debt was $163.6 million,
including $116.4 million of notes payable at fixed interest rates ranging from
6.345% to 8.55%, and $47.2 million at variable rates indexed on 30-day LIBOR
rates. The weighted average interest rate on debt outstanding was 7.5%. A 1%
fluctuation in variable interest rates would increase or decrease our annual
interest expense by approximately $480,000.
A summary of scheduled principal payments on long-term debt is included
in the notes to the financial statements in this Annual Report. Significant
scheduled balloon payments include maturities of:
o Our line of credit secured by deeds of trust and assignment of rents of
43 restaurants, due January 2002 ($23.3 million outstanding at
December 31, 2000);
o Our lines of credit secured by a deed of trust and assignment of rents of
Latitudes Apartments, due December 2004 (up to $19.6 million, $14.2 million
outstanding at December 31, 2000);
o Our deed of trust loan for Oak Hollow Apartments - Phase 2, due December
2004 (up to $11.7 million for acquisition and renovation construction,
$9.7 million outstanding at December 31, 2000).
We continue to produce sufficient cash flow to fund our regular
dividend. However, any number of unforeseen events, or a combination of such
events (for example, a substantial decline in apartment operations, a
substantial increase in short-term interest rates, or the sale of the restaurant
properties or other assets), might necessitate a reduction in the current
dividend.
We generally expect to meet our short-term liquidity requirements
through net cash provided by operations and utilization of credit facilities. We
believe that net cash provided by operations is, and will continue to be,
adequate to meet the REIT operating requirements in both the short and the long
term. We anticipate funding our future acquisition activities primarily by using
short-term credit facilities as an interim measure, to be replaced by funds from
equity offerings, long-term debt, or joint venture investments. We expect to
meet our long-term liquidity requirements, such as scheduled debt maturities and
repayment of short term financing of possible property acquisitions, through
long term secured and unsecured borrowings and the issuance of debt securities
or additional equity securities. We believe we have sufficient resources to meet
our short-term liquidity requirements.
We received approximately 12.3% of our revenue in 2000, compared to
13.0% in 1999 and 16.6% in 1998, from Enterprises' payment of rent for the use
of our restaurant properties. In addition, Enterprises is responsible for all of
the costs associated with the maintenance and operations of these properties.
Over time, we expect that restaurant rental income will continue to represent a
decreasing percentage of our total revenue.
Under our current line of credit agreement, Enterprises has the right
to purchase, under specified terms, up to three additional restaurants deemed
"non-economic" for no less than net carrying value. The annual minimum rent
would be reduced by approximately $96,000 for each restaurant. We would receive
sale proceeds of the greater of net carrying value or fair value. As of December
31, 2000, the average net book value of the restaurant properties was
approximately $695,000. We would most likely apply sale proceeds to reduce
outstanding debt on our line of credit. In January 2001, we received
notification of Enterprises' intention to purchase one additional restaurant
property in May 2001.
Enterprises is a privately owned company with total assets exceeding
$230 million and net equity exceeding $75 million. Enterprises' principal line
of business is the operation of approximately 330 Hardee's restaurants. In
addition to its Hardee's operations, Enterprises is the franchisor of Texas
22
Steakhouse and Saloon, a casual dining concept with 25 restaurants. Of these,
Enterprises owns and operates 13 restaurants, and 12 are owned and operated by
franchisees. Enterprises also conducts extensive real estate investment and
development activities through BNE Land and Development. These activities
involve a full range of property types, including land, commercial, retail,
office, apartment and single-family properties. We have had extensive
discussions with management of Enterprises and have reviewed Enterprises'
financial statements, cash flow analysis, restaurant contribution analysis,
sales trend analysis and projections. We believe that Enterprises will have
sufficient liquidity and capital resources to meet its obligations under the
master lease as well as its general corporate operating needs.
Inflation
We do not believe that inflation poses a material risk to the company.
The leases at our apartment properties are short term in nature. None are longer
than two years. The restaurant properties are leased on a triple-net basis,
which places the risk of rising operating and maintenance costs on the lessee.
Environmental Matters
Phase I environmental studies performed on the apartment communities
when we acquired each of them did not identify any problems that we believe
would have a material adverse effect on our results of operations, liquidity or
capital resources. Environmental transaction screens for each of the restaurant
properties in 1995 did not indicate existence of any environmental problems that
warranted further investigation. Enterprises has indemnified us for
environmental problems associated with the restaurant properties under the
master lease.
Recently Issued Accounting Standards
In June 1998, the Financial Accounting Standards Board issued Statement
No. 133, Accounting for Derivative Instruments and Hedging Activities. This
Statement, as amended by Statement No. 137 and Statement No. 138, must be
adopted in years beginning after June 15, 2000. The Statement will require the
recognition of all derivatives on our consolidated balance sheet at fair value.
We do not anticipate that the adoption of this Statement will have a material
impact on our results of operations or financial position.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
A summary of long-term debt as of December 31, 2000 and 1999, is
included in the notes to the financial statements in this Annual Report. At
December 31, 2000, total long-term debt was $163.6 million, including $116.4
million notes payable at fixed interest rates ranging from 6.35% to 8.55%, and
$47.2 million at variable rates indexed on 30-day LIBOR rates. The weighted
average interest rate on debt outstanding was 7.5% at December 31, 2000, and
7.2% at December 31, 1999. A 1% change in variable interest rates would increase
or decrease our annual interest expense by approximately $480,000.
The table below provides information about our long-term debt
instruments and presents expected principal maturities and related weighted
average interest rates on those instruments (all amounts in thousands):
Expected maturity dates
2001 2002 2003 2004 2005 Later Total
----------- ----------- ----------- ----------- ----------- ----------- -----------
Fixed rate notes $ 380 $ 414 $ 449 $ 487 $5,952 $108,680 $116,362
Average interest rate 7.98% 7.98% 7.98% 7.98% 8.50% 7.00% 7.09%
23
Expected maturity dates
2001 2002 2003 2004 2005 Later Total
----------- ----------- ----------- ----------- ----------- ----------- -----------
Variable rate notes - 23,330 - 23,919 - - 47,249
Average interest rate 8.41% 8.61% 8.51%
We estimate the fair value of fixed rate and variable rate notes using
discounted cash flow analysis, based on our current incremental borrowing rates
for similar types of borrowing arrangements. The fair value of our notes payable
at December 31, 2000, totaled approximately $163.3 million.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and supplementary data are listed under Item
14(a) and filed as part of this Annual Report on the pages indicated.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The section under the heading "Election of Directors" of the Proxy
Statement for Annual Meeting of Shareholders to be held May 24, 2001, (the
"Proxy Statement") is incorporated herein by reference for information on
Directors of the Registrant. See Item X in Part I of this Annual Report for
information regarding Executive Officers of the Registrant.
ITEM 11. EXECUTIVE COMPENSATION
The section under the heading "Election of Directors" entitled
"Compensation of Directors" of the Proxy Statement and the section entitled
"Executive Compensation" of the Proxy Statement are incorporated herein by
reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The section under the heading "Security Ownership of Certain Beneficial
Owners and Management" of the Proxy Statement is incorporated herein by
reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The section entitled "Certain Relationships and Related Transactions"
of the Proxy Statement is incorporated herein by reference.
24
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS
ON FORM 8-K
(a) 1. and 2. Financial Statements and Schedules
The financial statements and schedules listed below are filed as part
of this Annual Report on the pages indicated.
Index to Financial Statements
Page
Financial Statements and Notes:
Report of Independent Auditors 28
Consolidated Balance Sheets as of December 31, 2000 and 1999 29
Consolidated Statements of Operations for the Years Ended 30
December 31, 2000, 1999, and 1998
Consolidated Statements of Shareholders' Equity for the Years Ended 31
December 31, 2000, 1999, and 1998
Consolidated Statements of Cash Flows for the Years Ended 32
December 31, 2000, 1999, and 1998
Notes to Consolidated Financial Statements 33
Schedules:
Schedule III - Real Estate and Accumulated Depreciation 44
The financial statements and schedules are filed as part of this
report. All other schedules are omitted because they are not applicable or the
required information is included in the financial statements or notes thereto.
(a) 3. Exhibits
The Registrant agrees to furnish a copy of all agreements related to
long-term debt upon request of the Commission.
Exhibit No.
2.1* Master Agreement of Merger and Acquisition by and among BNP
Residential Properties, Inc., BNP Residential Properties Limited
Partnership, Paul G. Chrysson, James G. Chrysson, W. Michael
Gilley, Matthew G. Gallins, James D. Yopp, and the partnerships
and limited liability companies listed therein, dated September
22, 1997 (filed as Exhibit 2.1 to Registration Statement No.
333-39803 on Form S-2, December 16, 1997, and incorporated
herein by reference)
2.2* Amendment to Master Agreement of Merger and Acquisition dated
September 22, 1997, by and among BNP Residential Properties,
Inc., BNP Residential Properties Limited Partnership,
Paul G. Chrysson, James G. Chrysson, W. Michael Gilley,
Matthew G. Gallins, James D. Yopp, and the partnerships and
limited liability companies listed therein, dated November 3,
1997 (filed as Exhibit 2.3 to BNP Residential Properties, Inc.
Current Report on Form 8-K dated December 1, 1997, and
incorporated herein by reference)
3.1* Articles of Incorporation (filed as Exhibit 3.1 to BNP
Residential Properties, Inc., Current Report on Form 8-K dated
March 17, 1999, and incorporated herein by reference)
3.2* By-Laws (filed as Exhibit 3.2 to BNP Residential Properties,
Inc., Current Report on Form
25
8-K dated March 17, 1999, and incorporated herein by reference)
4* Rights Agreement, dated March 18, 1999, between the Company and
First Union National Bank (filed as Exhibit 4 to BNP Residential
Properties, Inc. Current Report on Form 8-K dated March 17,
1999, and incorporated herein by reference)
10.1* Amended and Restated Agreement of Limited Partnership of BNP
Residential Properties Limited Partnership (filed as Exhibit
10.1 to BNP Residential Properties, Inc. Annual Report on Form
10-K dated December 31, 1998, and incorporated herein by
reference)
10.2* Amended and Restated Master Lease Agreement dated December 21,
1995, between BNP Residential Properties, Inc. and Boddie-Noell
Enterprises, Inc. (filed as Exhibit 10.1 to BNP Residential
Properties, Inc. Annual Report on Form 10-K dated December 31,
1995, and incorporated herein by reference)
10.3* BNP Residential Properties, Inc. 1994 Stock Option and Incentive
Plan effective August 4, 1994, and amended effective May 15,
1998 (filed as an exhibit in Schedule 14A of Proxy Statement
dated April 13, 1998, and incorporated herein by reference)
10.4* Form and description of Employment Agreements dated July 15,
1997, between BNP Residential Properties, Inc. and certain
officers (filed as Exhibit 10 to BNP Residential Properties,
Inc. Quarterly Report on Form 10-Q for the quarter ended
September 30, 1997, and incorporated herein by reference)
21 Subsidiaries of the Registrant
23 Consent of Ernst & Young LLP
* Incorporated herein by reference
(b) Reports on Form 8-K - None.
26
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
BNP RESIDENTIAL PROPERTIES, INC.
Date: March 28, 2001 /s/ Philip S. Payne
Philip S. Payne
Executive Vice President and
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.
Signature: Title: Date:
/s/ D. Scott Wilkerson President and Chief Executive March 28, 2001
D. Scott Wilkerson Officer, Director
/s/ Philip S. Payne Executive Vice President, Treasurer March 28, 2001
Philip S. Payne and Chief Financial Officer, Director
/s/ Pamela B. Bruno Vice President, Controller March 28, 2001
Pamela B. Bruno and Chief Accounting Officer
/s/ B. Mayo Boddie Chairman of the Board of Directors March 28, 2001
B. Mayo Boddie
/s/ Stephen R. Blank Director March 28, 2001
Stephen R. Blank
/s/ Paul G. Chrysson Director March 28, 2001
Paul G. Chrysson
/s/ W. Michael Gilley Director March 28, 2001
W. Michael Gilley
/s/ William H. Stanley Director March 28, 2001
William H. Stanley
27
Report of Independent Auditors
Board of Directors and Stockholders
BNP Residential Properties, Inc.
We have audited the accompanying consolidated balance sheets of BNP Residential
Properties, Inc. as of December 31, 2000 and 1999, and the related consolidated
statements of income, shareholders' equity, and cash flows for each of the three
years in the period ended December 31, 2000. Our audits also included the
financial statement schedule listed in the Index at Item 14(a). These financial
statements and schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedule based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. 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 financial statements referred to above present fairly, in
all material respects, the consolidated financial position of BNP Residential
Properties, Inc. at December 31, 2000 and 1999, and the consolidated results of
its operations and its cash flows for each of the three years in the period
ended December 31, 2000, in conformity with accounting principles generally
accepted in the United States. Also, in our opinion, the related financial
statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.
/s/ ERNST & YOUNG LLP
Raleigh, North Carolina
January 5, 2001
28
BNP RESIDENTIAL PROPERTIES, INC.
Consolidated Balance Sheets
December 31
2000 1999
------------------- ------------------
Assets
Real estate investments at cost:
Apartment properties $217,818,208 $203,365,405
Restaurant properties 39,702,060 40,544,741
------------------- ------------------
257,520,268 243,910,146
Less accumulated depreciation (32,815,205) (25,926,208)
------------------- ------------------
224,705,063 217,983,938
Cash and cash equivalents 1,056,052 431,531
Prepaid expenses and other assets 1,510,541 1,638,199
Investment in and advances to Management Company 714,892 452,489
Notes receivable 100,000 625,000
Other assets, net of accumulated amortization:
Intangible related to acquisition of management operations 1,521,288 1,927,488
Deferred financing costs 1,083,560 1,210,990
------------------- ------------------
Total assets $230,691,396 $224,269,635
=================== ==================
Liabilities and Shareholders' Equity
Mortgage and other notes payable $163,611,737 $150,883,348
Accounts payable and accrued expenses 149,412 110,581
Accrued interest on mortgage and other notes payable 794,836 742,413
Escrowed security deposits and deferred revenue 383,626 486,748
Deferred cable equipment rental revenue 800,000 -
Deferred credit for interest defeasance 666,688 833,344
------------------- ------------------
166,406,299 153,056,434
Minority interest in Operating Partnership 19,737,035 21,316,760
Shareholders' equity:
Common stock, $.01 par value, 100,000,000 shares authorized,
5,706,950 shares issued and outstanding at December 31, 2000
5,734,906 shares issued and outstanding at December 31, 1999 57,069 57,349
Additional paid-in capital 69,707,155 69,961,625
Dividend distributions in excess of net income (25,216,162) (20,122,533)
------------------- ------------------
Total shareholders' equity 44,548,062 49,896,441
------------------- ------------------
Total liabilities and shareholders' equity $230,691,396 $224,269,635
=================== ==================
See accompanying notes.
29
BNP RESIDENTIAL PROPERTIES, INC.
Consolidated Statements of Operations
Years ended December 31
2000 1999 1998
----------------- ----------------- ----------------
Revenues
Apartment rental income $29,269,100 $28,608,487 $21,924,722
Restaurant rental income 4,161,968 4,338,830 4,500,000
Interest and other income 426,897 510,166 715,365
----------------- ----------------- ----------------
33,857,965 33,457,483 27,140,087
Expenses
Apartment operations 9,766,085 9,422,842 6,817,305
Administrative expenses 2,391,429 2,352,326 1,697,020
Costs of terminated equity transaction 237,450 - -
Depreciation 7,155,697 6,955,955 5,406,005
Amortization 579,216 569,086 530,688
Interest on notes payable to affiliates - 131,599 460,112
Interest - other 11,150,565 10,571,415 7,749,277
----------------- ----------------- ----------------
31,280,442 30,003,223 22,660,407
----------------- ----------------- ----------------
Income before minority interest and extraordinary item 2,577,523 3,454,260 4,479,680
Minority interest in Operating Partnership 594,534 727,999 741,961
----------------- ----------------- ----------------
Income before extraordinary item 1,982,989 2,726,261 3,737,719
Extraordinary item - loss on early extinguishment of debt - - 51,335
----------------- ----------------- ----------------
Net income $ 1,982,989 $ 2,726,261 $ 3,686,384
================= ================= ================
Per share data:
Basic earnings per share --
Income before extraordinary item $0.35 $0.46 $0.63
Extraordinary item - - (0.01)
----------------- ----------------- ----------------
Net income $0.35 $0.46 $0.62
================= ================= ================
Diluted earnings per share --
Income before extraordinary item $0.35 $0.46 $0.63
Extraordinary item - - (0.01)
----------------- ----------------- ----------------
Net income $0.35 $0.46 $0.62
================= ================= ================
Dividends declared $1.24 $1.24 $1.24
================= ================= ================
Weighted average shares outstanding 5,707,561 5,972,576 5,923,798
================= ================= ================
See accompanying notes.
30
BNP RESIDENTIAL PROPERTIES, INC.
Consolidated Statements of Shareholders' Equity
Dividend
Additional distributions
Common Stock paid-in in excess of
Shares Amount capital net income Total
------------- ---------------- ---------------- ---------------- ---------------
Balance at December 31, 1997 5,630,775 $56,308 $67,503,012 $(11,774,351) $55,784,969
Common stock issued 347,155 3,471 4,614,624 - 4,618,095
Dividends paid - - - (7,340,187) (7,340,187)
Net income - - - 3,686,384 3,686,384
------------- ---------------- ---------------- ---------------- ---------------
Balance at December 31, 1998 5,977,930 59,779 72,117,636 (15,428,154) 56,749,261
Common stock issued 29,020 290 324,090 - 324,380
Common stock retired (272,044) (2,720) (2,480,101) - (2,482,821)
Dividends paid - - - (7,420,640) (7,420,640)
Net income - - - 2,726,261 2,726,261
------------- ---------------- ---------------- ---------------- ---------------
Balance at December 31, 1999 5,734,906 57,349 69,961,625 (20,122,533) 49,896,441
Common stock retired (27,956) (280) (254,470) - (254,750)
Dividends paid - - - (7,076,618) (7,076,618)
Net income - - - 1,982,989 1,982,989
------------- ---------------- ---------------- ---------------- ---------------
Balance at December 31, 2000 5,706,950 $57,069 $69,707,155 $(25,216,162) $44,548,062
============= ================ ================ ================ ===============
See accompanying notes.
31
BNP RESIDENTIAL PROPERTIES, INC.
Consolidated Statements of Cash Flows
Years ended December 31
2000 1999 1998
--------------- ----------------- ----------------
Operating activities
Net income $ 1,982,989 $ 2,726,261 $ 3,686,384
Adjustments to reconcile net income to
net cash provided by operating activities:
Extraordinary item - loss on early extinguishment of debt - - 51,335
Minority interest in Operating Partnership 594,534 727,999 741,961
Equity in income of Management Company (131,295) (122,774) (114,954)
Depreciation and amortization of intangibles 7,734,913 7,525,041 5,936,693
Amortization of defeasance credit (166,656) (166,656) -
Changes in operating assets and liabilities:
Prepaid expenses and other assets 170,854 180,487 (567,439)
Accounts payable and accrued expenses 18,004 (111,543) (280,812)
Security deposits and deferred revenue 651,028 160,538 (33,443)
--------------- ----------------- ----------------
Net cash provided by operating activities 10,854,371 10,919,353 9,419,725
Investing activities
Acquisitions of apartment communities (12,324,599) (1,796,746) (41,545,571)
Additions to apartment communities (2,119,917) (2,413,597) (1,358,143)
Sale of restaurant properties 643,598 2,079,719 -
Investment in and advances to Management Company (131,108) 330,000 (330,000)
Investment in notes receivable 525,000 1,911,812 (627,805)
--------------- ----------------- ----------------
Net cash (used in) provided by investing activities (13,407,026) 111,188 (43,861,519)
Financing activities
Net proceeds from issuance of common stock - 324,380 3,089,960
Redemption of Operating Partnership minority units (72,527) - -
Repurchase of common stock (254,750) (2,482,821) -
Distributions to Operating Partnership minority unitholders (2,101,732) (1,942,381) (1,105,286)
Payment of dividends to shareholders (7,076,618) (7,420,640) (7,340,187)
Proceeds from notes payable 13,686,984 17,807,519 49,122,805
Principal payments on notes payable (958,595) (17,140,109) (10,829,662)
Payment of deferred financing costs (45,586) (234,652) (464,707)
--------------- ----------------- ----------------
Net cash provided by (used in) financing activities 3,177,176 (11,088,704) 32,472,923
--------------- ----------------- ----------------
Net increase (decrease) in cash and cash equivalents 624,521 (58,163) (1,968,871)
Cash and cash equivalents at beginning of year 431,531 489,694 2,458,565
--------------- ----------------- ----------------
Cash and cash equivalents at end of year $ 1,056,052 $ 431,531 $ 489,694
=============== ================= ================
See accompanying notes.
32
BNP RESIDENTIAL PROPERTIES, INC.
Notes to Consolidated Financial Statements
December 31, 2000
Note 1. Summary of Significant Accounting Policies
Basis of presentation
The consolidated financial statements include the accounts of BNP Residential
Properties, Inc. (the "company"), formerly Boddie-Noell Properties, Inc., and
BNP Residential Properties Limited Partnership (the "Operating Partnership"),
formerly Boddie-Noell Properties Limited Partnership. The company is the general
partner and owns a majority interest in the Operating Partnership. All
significant intercompany balances and transactions have been eliminated in the
consolidated financial statements.
We are a self-administered and self-managed real estate investment trust
("REIT") that owns and operates apartment communities in North Carolina and
Virginia. On December 31, 2000, we owned 15 apartment communities containing
3,680 apartments and had the right to acquire one additional apartment community
containing 108 apartment units. We also own 43 restaurant properties, which we
lease to Boddie-Noell Enterprises, Inc. ("Enterprises") under a master lease on
a triple-net basis.
The Operating Partnership has a 1% voting interest and 95% economic interest in
BNP Management, Inc. (the "Management Company"). We use the equity method to
account for this investment. The Management Company currently manages four
apartment communities, containing 891 apartment units, which are owned by other
parties. We do not expect the operations of the Management Company to have a
significant impact on our financial position, operating results or cash flows.
UpREIT Structure
In 1997, we converted to an UpREIT structure where the company is the Operating
Partnership's sole general partner. UpREIT stands for "umbrella partnership real
estate investment trust." We contributed our real estate properties and all
other assets and liabilities to a limited liability company wholly owned by the
Operating Partnership in exchange for ownership units of the Operating
Partnership. We currently own approximately 77% of the units. Other unitholders
will generally be able to redeem their units for cash or, at our option as
general partner, for shares of common stock of the company on a one-for-one
basis. UpREITs are generally structured so that distributions of cash from the
Operating Partnership are allocated between the REIT and the limited partners
based on their respective unit ownership.
Segment Reporting
Operating segments are revenue-producing components of the company for which
separate financial information is produced internally for our management. Under
this definition, we operated, for all periods presented, as a single segment
(apartment operations). Operating expenses for restaurant properties are
insignificant because the lessee pays virtually all of the expenses associated
with those properties.
Real Estate Investments
Real estate investments are stated at the lower of cost, less accumulated
depreciation, or fair value. We compute depreciation using the straight-line
method over the estimated useful lives of the related assets, generally 40 years
for buildings, 20 years for land improvements, 10 years for fixtures and
equipment, and five years for carpet and vinyl replacements. We expense ordinary
repairs and maintenance costs at apartment communities. We capitalize
significant improvements, renovations and replacements at apartment communities.
Costs of repairs and maintenance and capital improvements at restaurant
properties are borne by Enterprises.
33
We evaluate our real estate assets from time to time, or upon occurrence of
significant adverse changes in operations, to assess whether any impairment
indicators are present that affect the recovery of the recorded value. If we
considered any real estate assets to be impaired, we would record a loss to
reduce the carrying value of the property to its estimated fair value. At
December 31, 2000 and 1999, none of our assets were considered impaired.
Cash and Cash Equivalents
We consider all highly liquid investments with maturities of three months or
less when purchased to be cash equivalents.
Deferred Costs
We amortize the intangible asset related to the 1994 acquisition of management
operations using the straight-line method over ten years. Accumulated
amortization on this asset was approximately $2.2 million at December 31, 2000,
and $1.8 million at December 31, 1999.
We defer costs incurred in connection with proposed acquisition of properties
and stock offerings until the proposed transactions are consummated. If we
determine that the proposed transaction is not probable, we charge these costs
to expense. During 2000, we recorded a charge of $237,000 for costs of an equity
transaction that was terminated by the company during the fourth quarter.
We defer financing costs and amortize them using the straight-line method over
the terms of the related notes. If we pay down or pay off notes prior to their
maturity, we write off the related unamortized financing costs. Accumulated
amortization on these assets was $430,000 at December 31, 2000, and $257,000 at
December 31, 1999.
Fair Values of Financial Instruments
The carrying amount reported on the balance sheet for cash and cash equivalents
approximates fair value.
We estimate the fair value of fixed rate notes and variable rate notes payable
using discounted cash flow analysis, based on our current incremental borrowing
rates for similar types of borrowing arrangements. At December 31, 2000, the
fair value of our mortgage and other notes payable approximated the carrying
value.
Use of Estimates
We are required to make estimates and assumptions that affect the amounts
reported in the financial statements and accompanying notes in order to prepare
them in accordance with generally accepted accounting principles. Depreciation
amounts included in these financial statements reflect our estimate of the life
and related depreciation rates for rental properties. In addition, the carrying
amount of the intangible asset related to acquisition of management operations
reflects our evaluation of the continuing value and useful life of this asset.
Actual results could differ from these estimates.
Revenue Recognition
We record rental and other revenue as they are earned. In December 2000, we
received $800,000 advance payment for use of our cable equipment at five
apartment communities. At December 31, 2000, we have included this amount in
deferred revenue, and we plan to recognize this rental revenue over ten years
beginning in 2001.
Advertising Costs
We expense advertising costs as they are incurred. Advertising expense totaled
$296,000 in 2000, $270,000 in 1999, and $211,000 in 1998.
Stock-Based Compensation
We measure compensation cost for stock option plans in accordance with
Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to
Employees. Accordingly, no compensation cost has been recognized for our fixed
stock option plans.
34
Income Taxes
We operate as, and elect to be taxed as, a REIT under the Internal Revenue Code.
Accordingly, we were not subject to federal or state income taxes on amounts
distributed to shareholders, provided we distributed at least 95% of our REIT
taxable income and met certain other requirements for qualifying as a REIT. We
have made no provision for federal or state income taxes. For federal and state
income tax purposes, we reported real estate investments with a total cost basis
of $232.5 million and accumulated depreciation of $45.9 million.
Earnings Per Share
We calculate earnings per share based on the weighted average number of shares
outstanding during each year.
Comprehensive Income
Comprehensive income is defined as changes in shareholders' equity exclusive of
transactions with owners (such as capital contributions and dividends). We did
not have any comprehensive income items in 2000, 1999, or 1998, other than net
income as reported.
New Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued Statement No. 133,
Accounting for Derivative Instruments and Hedging Activities. This statement, as
amended by Statement No. 137 and Statement No. 138, must be adopted in years
beginning after June 15, 2000. The Statement will require the recognition of all
derivatives on our consolidated balance sheet at fair value. We do not
anticipate that the adoption of this Statement will have a material impact on
our results of operations or financial position.
Reclassifications
Certain amounts in the 1999 and 1998 financial statements have been reclassified
to conform to the 2000 presentation. These reclassifications had no effect on
net income, shareholders' equity or cash flows as previously reported.
Note 2. Real Estate Investments
Real estate investments consist of the following:
2000 1999
----------------- -----------------
Apartment properties
Land $ 20,758,291 $ 18,844,291
Buildings and improvements 197,038,755 184,521,114
Other equipment 21,162 -
less accumulated depreciation (23,008,923) (16,642,517)
----------------- -----------------
194,809,285 186,722,888
Restaurant properties
Land 11,087,892 11,323,843
Buildings and improvements 28,614,168 29,220,898
less accumulated depreciation (9,806,282) (9,283,691)
----------------- -----------------
29,895,778 31,261,050
----------------- -----------------
$224,705,063 $217,983,938
================= =================
The results of operations of the following apartment communities are included in
the financial statements from the dates of acquisition, as follows:
35
2000 acquisition:
o Oak Hollow Apartments - Phase 2 (formerly known as Page Mill Apartments)
acquired effective December 28, 2000, for a total cost of approximately
$12.4 million, paid in cash.
1999 acquisition:
o Chason Ridge Apartments acquired effective January 1, 1999, for a total
cost of approximately $12.5 million, including cash payments totaling
approximately $1.8 million and assumption of debt.
1998 acquisitions:
o Woods Edge Apartments acquired effective June 1, 1998, for a total cost of
approximately $14.1 million, including cash payments totaling approximately
$2.4 million, issuance of Operating Partnership units with an imputed value
of $2.7 million, and assumption of debt.
o Oak Hollow Apartments acquired effective July 27, 1998, for a total cost of
approximately $12.3 million, including cash payments totaling approximately
$2.4 million, issuance of Operating Partnership units with an imputed value
of $1.5 million, and assumption of debt.
o Madison Hall Apartments acquired effective August 22, 1998, for a total
cost of approximately $6.4 million, including cash payments totaling
approximately $5.3 million and issuance of Operating Partnership units with
an imputed value of $1.1 million
o Summerlyn Place Apartments acquired effective September 2, 1998, for a
total cost of approximately $10.4 million, including cash payments of
approximately $9.1 million and issuance of Operating Partnership units with
an imputed value of $1.3 million.
o Allerton Place Apartments acquired effective September 9, 1998, for a total
cost of approximately $16.0 million, including cash payments totaling
approximately $14.7 million and issuance of Operating Partnership units
with an imputed value of $1.3 million.
In June 2000, we sold one restaurant property to the lessee (who is an
affiliate) for its net carrying value of approximately $644,000. In June 1999,
we sold three restaurant properties to the lessee for their net carrying value
of approximately $2.1 million. We applied the proceeds from these sales to
improvements at apartment communities and to reduce our line of credit that is
secured by the restaurant properties.
The following unaudited pro forma summary information does not include the
operations, depreciation, or financing expense for Madison Hall, Summerlyn
Place, or Allerton Place until their respective acquisition dates in 1998
because these communities were acquired immediately upon their attainment of
"stabilized" status. An apartment community is considered stabilized when
construction of all buildings has been completed and the community has attained
90% occupancy for 90 days. Under the terms of the acquisition agreements for
these properties and the financing for their purchases, these conditions must be
met before purchase of the property. Otherwise, the unaudited pro forma summary
information presents the results of operations as if the acquisitions described
above had occurred on January 1, 1998. These pro forma amounts may not represent
how we would have performed if these purchases had really occurred on that date.
In addition, they do not purport to project our results of operations for any
future period.
1998
-----------------
Total revenue $31,083,000
Income before extraordinary item 3,779,000
Net income 3,730,000
Earnings per share 0.63
36
Note 3. Notes Payable
Notes payable at December 31 consist of the following:
2000 1999
------------------ ------------------
Revolving lines of credit with a bank:
Principal sum of up to $23.3 million, due January 2002,
secured by deeds of trust and assignment of rents of 43
restaurant properties. Interest-only payments on the
outstanding balance due monthly at a variable interest
rate of 30-day LIBOR plus 1.75% (8.43% at December 31, 2000). $ 23,329,787 $ 20,950,000
Principal sum of up to $17.6 million, due December 2004,
secured by a deed of trust and assignment of rents of
Latitudes Apartments. Interest-only payments on the
outstanding balance due monthly at a variable interest
rate of 30-day LIBOR plus 2.0% (8.68% at December 31, 2000).
At December 31, 2000, $1.4 million of funds were available
under this revolving line of credit, with $2.0 million
reserved subject to available draws against a variable rate
note payable to the same lender. 14,219,331 12,719,331
Principal sum of up to $2.0 million, due January 2002,
secured by a deed of trust and assignment of rents of
Latitudes Apartments. Interest-only payments on the
outstanding balance due monthly at a variable interest
rate of 30-day LIBOR plus 2.0% (8.68% at December 31, 2000).
At December 31, 2000, this entire line of credit was available. - -
Variable rate notes payable:
Note payable to a bank in the principal amount of up to
$11.7 million due December 2004, secured by a deed of
trust and assignment of rents of Oak Hollow Apartments -
Phase 2. Interest-only payments on the outstanding principal
balance due monthly at a variable interest rate of 30-day
LIBOR plus 1.85% (8.53% at December 31, 2000). At December
31, 2000, $2.0 million is available to fund renovations at this
community. 9,700,000 -
Note payable to a bank in the principal amount of up to $2,625,000
due February 2000, interest on the outstanding principal balance at
30-day LIBOR plus 2.25% payable monthly. - 625,000
Fixed rate notes payable:
Notes payable comprised of four loans, payable in monthly
installments totaling approximately $248,000 including principal
and interest at rates ranging from 7.66% to 8.55%, with
maturities in 2005 through 2034. Secured by deeds of trust
and assignment of rents of four apartment communities. 31,891,381 32,223,517
37
2000 1999
------------------ ------------------
Notes payable comprised of 10 loans, interest rates ranging
from 6.35% to 6.97%, payable in interest-only monthly
installments totaling approximately $478,000, with maturities
in 2007 and 2008. Secured by deeds of trust and assignment of
rents of 10 apartment communities. 84,365,500 84,365,500
Notes payable, comprised of 10 loans, payable in monthly
installments totaling approximately $2,200 including
principal and interest at 7.99%, with maturity in 2005.
Secured by 10 trucks. 105,738 -
------------------ ------------------
$163,611,737 $150,883,348
================== ==================
As of December 31, 2000, scheduled principal payments were approximately as
follows: 2001 - $380,000; 2002 - $23,744,000; 2003 - $449,000; 2004 -
$24,407,000; 2005 - $5,952,000; thereafter - $108,680,000.
During 2000, in conjunction with the sale of a restaurant property, we reduced
our line of credit secured by our restaurant properties to a maximum of $23.3
million. This line of credit matures in January 2002.
We financed the acquisition of Oak Hollow Apartments - Phase 2 in December 2000
with a $9.7 million draw on a variable rate deed of trust loan for up to $11.7
million. The note is payable at maturity in December 2004, and provides for
monthly interest payments on the outstanding balance at 30-day LIBOR plus 1.85%.
Additional draws totaling $2.0 million are available through December 2002 to
fund renovations to the apartment community. In conjunction with this financing,
we paid and recorded $46,000 in deferred loan costs in 2000.
In conjunction with the acquisition of Chason Ridge Apartments in January 1999,
we assumed a HUD-insured loan in the amount of $9.7 million, payable in monthly
installments of $72,000 including principal and interest at 8.5%. In addition,
the note provides for payment of mortgage insurance with a premium of 0.5% of
the loan balance. A deed of trust and assignment of rents of Chason Ridge
Apartments secure the loan. The interest rate on this loan exceeded current
market rates at the time of the acquisition, and the note may not be prepaid
until January 2005. Accordingly, the seller gave a $1.0 million credit for
defeasance of above-market interest, which we will apply to reduce recorded
interest expense monthly through 2004.
In January 1998, we applied $1.9 million proceeds from a common stock offering
to pay off the outstanding balance of a line of credit with a bank. In
conjunction with this payoff, we wrote off unamortized loan costs of $17,000. In
March 1998, we applied $7.0 million proceeds from a fixed rate deed of trust
loan and operating cash to retire an $8.5 million variable rate mortgage note
secured by deeds of trust on and assignment of rents of three apartment
communities. In conjunction with this refinancing, we wrote off unamortized loan
costs of $43,000. We have reflected these write-offs, net of minority interests'
share, in the financial statements as an extraordinary item.
Interest payments were as follows:
2000 1999 1998
----------------- ----------------- -----------------
Payments to affiliates $ - $ 239,484 $ 482,750
Payments to other lenders 11,264,798 10,730,979 7,579,941
----------------- ----------------- -----------------
$11,264,798 $10,970,463 $8,062,691
================= ================= =================
38
The loan agreements related to the lines of credit include covenants and
restrictions relating to, among other things, specified levels of debt service
coverage, leverage and net worth. To date, we have met all applicable
requirements.
Note 4. Shareholders' Equity
Authorized Capital Stock
Our bylaws and certificate of incorporation allow the Board of Directors to
authorize the issuance of up to 100 million shares of common stock and 10
million shares of preferred stock, issuable in series whose characteristics
would be set by the Board of Directors. No preferred shares have been issued.
Approximately 2.6 million authorized shares of common stock are reserved for
future issuance under the company's Stock Option and Incentive Plan, Dividend
Reinvestment and Stock Purchase Plan, and for conversion of Operating
Partnership units issued for acquisitions of apartment communities.
Common Stock Offering
In December 1997, we completed a common stock offering and issued 2,500,000
shares of common stock at a price of $14.125 per share. Net proceeds of the
offering were approximately $32.3 million. In January 1998, the underwriters
exercised their over-allotment option for 200,000 shares, and we received
additional proceeds of $2.6 million.
Dividend Reinvestment and Stock Purchase Plan
Our Dividend Reinvestment and Stock Purchase Plan ("DRIP Plan") allows the
company, at its option, to issue shares directly to Plan participants. We issued
29,020 shares in 1999 and 38,069 shares in 1998 through the Plan.
Dividend Payments
We paid dividend distributions totaling $1.24 per share each year during 2000,
1999, and 1998. The allocation between non-taxable return of capital and taxable
ordinary dividend income to shareholders was as follows.
2000 1999 1998
------------ --------------- ---------------
Non-taxable return of capital 50.1% 49.7% 44.8%
Taxable ordinary dividend income 49.9% 50.3% 55.2%
Earnings per Common Share
We calculated basic and diluted earnings per share using the following amounts.
2000 1999 1998
----------------- ----------------- -----------------
Numerators:
Numerator for basic earnings per share -
Income before extraordinary item $1,982,989 $2,726,261 $3,737,719
Extraordinary item - - (51,335)
----------------- ----------------- -----------------
Net income $1,982,989 $2,726,261 $3,686,384
================= ================= =================
Numerator for diluted earnings per share -
Income before extraordinary item (1) $2,577,523 $3,454,260 $4,479,680
Extraordinary item (1) - - (59,682)
----------------- ----------------- -----------------
Net income (1) $2,577,523 $3,454,260 $4,419,998
================= ================= =================
39
2000 1999 1998
----------------- ----------------- -----------------
Denominators:
Denominator for basic earnings per share -
Weighted average shares outstanding 5,707,561 5,972,576 5,923,798
Effect of dilutive securities:
Contingent stock - acquisition - - 1,785
Convertible Operating Partnership units 1,710,788 1,600,780 1,191,312
Stock options (2) - - 15,430
----------------- ----------------- -----------------
Dilutive potential common stock 1,710,788 1,600,780 1,208,527
----------------- ----------------- -----------------
Denominator for diluted earnings per share -
Adjusted weighted average shares and
assumed conversions 7,418,349 7,573,356 7,132,325
================= ================= =================
(1) Assumes conversion of Operating Partnership units to common shares; minority
interest in income before extraordinary item and minority interest in
extraordinary item have been eliminated.
(2) We did not include any of the options outstanding during 2000 and 1999 in
the calculation of diluted earnings per share for these years. In addition, we
excluded options to purchase 120,000 shares of common stock at $13.125, and
options to purchase 60,000 shares of common stock at $11.25, that were
outstanding during 1998, from the calculation of diluted earnings per share for
1998. The exercise price of these options was greater than the average market
price of the common shares for these periods, and the effect would be
anti-dilutive.
Stock Option and Incentive Plan
We have reserved 570,000 shares of the company's common stock for issuance under
our employee Stock Option and Incentive Plan. Options have been granted to
employees at prices equal to the fair market value of the stock on the dates the
options were granted or repriced. Options are generally exercisable in four
annual installments beginning one year after the date of grant, and expire 10
years after the date of grant.
The following table summarizes information about stock options outstanding at
December 31, 2000.
Weighted Average
Remaining Number of Number of
Contractual Options Options
Life (Years) Outstanding Exercisable
----------------- ----------------- -----------------
Exercise price $9.25 per share 9.15 47,500 -
Exercise price $11.25 per share 7.83 60,000 30,000
Exercise price $13.125 per share 7.50 120,000 60,000
Exercise price $12.25 per share 6.33 110,000 82,500
Exercise price $12.50 per share 3.88 140,000 140,000
----------------- -----------------
All options outstanding 6.37 477,500 312,500
================= =================
We calculated the fair value of each option grant on the date of grant using the
Black-Scholes option-pricing model. We used the following assumptions to
estimate the fair value of options granted:
2000 1999 1998
--------------- -------------- ---------------
Weighted average fair value $ 0.02 $ 0.17 $ 0.17
Weighted average exercise price 9.25 12.50 12.50
Weighted average dividend yield 13.41% 9.97% 9.97%
40
2000 1999 1998
--------------- -------------- ---------------
Expected volatility 0.163 0.152 0.152
Weighted average risk-free interest rate 5.18% 4.88% 4.88%
Expected vesting period 4 years 4 years 4 years
Had we determined compensation cost for our fixed stock option plans consistent
with the fair value method outlined in Financial Accounting Standards Board
Statement No. 123, the impact on our net income and earnings per share would not
have been material.
Changes in outstanding stock options were as follows:
2000 1999 1998
-------------------------- -------------------------- --------------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
------------ ------------- ------------ ------------- ------------ -------------
Beginning balance 430,000 $12.44 430,000 $12.44 250,000 $12.39
Granted 47,500 9.25 - - 180,000 12.50
Exercised - - - - - -
Repurchased - - - - - -
Forfeited - - - - - -
------------- ------------ ------------- ------------ ------------- ------------
Ending balance 477,500 $12.12 430,000 $12.44 430,000 $12.44
============= ============ ============= ============ ============= ============
Exercisable at the end of
the year 312,500 $12.43 240,000 $12.44 167,500 $12.46
============= ============ ============= ============ ============= ============
Note 5. Rental Operations
Apartment Properties
We lease our residential apartments under operating leases with monthly payments
due in advance. Terms of the apartment leases are generally one year or less,
with none longer than two years.
Restaurant Properties - Master Lease Agreement
The lease agreement with Enterprises has a primary term expiring in December
2007, but grants Enterprises three five-year renewal options. Enterprises pays
annual rent equal to the greater of the specified minimum rent or 9.875% of food
sales from the restaurants. Under certain conditions as defined in the
agreement, both Enterprises and the company have the right to substitute another
restaurant property for a property covered by the lease. After December 31,
2007, Enterprises has the right to terminate the lease on up to five restaurant
properties per year by offering to purchase them under specified terms. In
addition, we entered into a separate agreement with Enterprises that, after
December 31, 1997, allows Enterprises to purchase, under specified terms, up to
seven restaurant properties deemed non-economic.
In June 2000, we sold one restaurant, and in June 1999, we sold three
restaurants to Enterprises, the lessee, under the non-economic clause of the
restaurant master lease. Under the terms of this clause, the lessee may close up
to seven restaurants and buy them back for no less than net carrying value.
The lease requires Enterprises to pay monthly installments of minimum rent and
quarterly payments calculated based on the percentage rent, subject to an annual
calculation of the greater of minimum or percentage rent. We received the
minimum rent in 2000, 1999, and 1998. After the anticipated sale of one
additional restaurant property in 2001 (see Note 10), the expected annual
minimum rent will be approximately $4,053,000 in 2001 and $4,021,000 in years
2002 through 2007.
41
Note 6. Related Party Transactions
Certain directors and officers of the company hold similar positions with
Enterprises and Boddie Investment Company. We purchased 47 restaurant properties
from BNE Realty Partners, Limited Partnership (an affiliate of Enterprises) for
$43.2 million in 1987. We derived approximately 12.3% of our revenue in 2000
from Enterprises' payment of rent for the use of our restaurant properties. In
addition, Enterprises is responsible for all taxes, utilities, renovations,
insurance and maintenance expenses relating to the operation of the restaurant
properties.
Certain current and former directors of the company were the sole shareholders
and directors of BT Venture Corporation, which we acquired in 1994.
In connection with the acquisition of BT Venture Corporation, we assumed a note
payable to Enterprises in the amount of $6,100,000 and a note payable to Boddie
Investment Company in the amount of $956,000. In May 1998, we issued 65,648
shares of our common stock to retire the note payable to Boddie Investment
Company. In May 1999, we retired the note payable to Enterprises with a cash
payment.
In September 1997, we signed an agreement to acquire a portfolio of seven
apartment communities. We refer to these acquisitions as the "Chrysson
acquisitions" and to the former owners as the "Chrysson Parties." Certain
current directors of the company were shareholders and officers in the Chrysson
Parties. We have issued 1,349,954 Operating Partnership units through December
31, 2000, in conjunction with acquisitions of six of the apartment communities.
We will issue approximately 139,000 units to acquire one remaining Chrysson
apartment community when it has reached certain performance standards specified
in the agreement.
In February 1997, we signed a participating loan agreement with The Villages of
Chapel Hill Limited Partnership, a limited partnership whose general partner is
Boddie Investment Company. Under the terms of the agreement, we committed to
loan The Villages up to $2,625,000 to fund a substantial rehabilitation of its
apartment community. We also guaranteed a $1,500,000 bank loan. In exchange, we
receive minimum interest on our loan at the greater of 12.5% or the 30-day LIBOR
rate plus 6.125% and an annual loan guarantee fee. We also receive 25%
participation in increased rental revenue for seven years and 25% participation
in the increase in value of the property at the end of seven years or upon its
sale. Through December 31, 1998, we advanced $2.5 million under the loan
agreement. In February 1999, The Villages reduced the outstanding principal
balance of its note payable to us to $625,000. In February 2000, The Villages
further reduced the outstanding principal balance of its note payable to us to
$100,000. We received interest and participation income of $103,000 in 2000,
$151,000 in 1999, and $323,000 in 1998. In addition, we received guarantee fees
of $37,500 in 2000, 1999, and 1998.
We have made loans totaling $180,000 to certain officers of the company. In
addition, the company has guaranteed a note payable to a bank by one officer by
agreeing to redeem up to 39,570 shares of our common stock at an imputed value
of approximately $435,000 in the event of a default.
Certain officers of the company are also officers of the Management Company and
own a 5% economic interest and a 99% voting interest in it. The Management
Company provides fee management for four limited partnerships whose general
partner is Boddie Investment Company.
Note 7. Profit Sharing Plan
The employees of the company are participants in a profit sharing plan pursuant
to Section 401 of the Internal Revenue Code. We make limited matching
contributions through the Management Company based on the level of employee
participation as defined in the plan.
42
Note 8. Commitments and Contingencies
We have agreements with three of our executive officers that provide for cash
compensation and other benefits if we terminate them without cause or if a
change in control of the company occurs.
The company is a party to a variety of legal proceedings arising in the ordinary
course of its business. We believe that such matters will not have a material
effect on the financial position of the company.
Note 9. Quarterly Financial Data (Unaudited)
We present below selected financial data (unaudited) for the years ended
December 31, 2000 and 1999:
Income before
Extraordinary Item
Revenues Total Per Share Net Income
----------------- ----------------- ----------------- -----------------
2000
First quarter $ 8,480,489 $ 690,789 $0.12 $ 690,789
Second quarter 8,456,528 379,653 0.07 379,653
Third quarter 8,454,495 566,749 0.10 566,749
Fourth quarter (1) 8,466,453 345,798 0.06 345,798
----------------- ----------------- ----------------- -----------------
$33,857,965 $1,982,989 $0.35 $1,982,989
================= ================= ================= =================
1999
First quarter $ 8,360,466 $ 810,486 $0.14 $ 810,486
Second quarter 8,540,797 654,609 0.10 654,609
Third quarter 8,287,560 674,426 0.12 674,426
Fourth quarter 8,268,660 586,740 0.10 586,740
----------------- ----------------- ----------------- -----------------
$33,457,483 $2,726,261 $0.46 $2,726,261
================= ================= ================= =================
(1) During the fourth quarter of 2000, we recorded a charge of $237,000 for
costs of an equity transaction that was terminated by the company during this
quarter.
Note 10. Subsequent Events
The Board of Directors declared a regular quarterly dividend of $0.31 per share
on January 22, 2001, payable on February 15, 2001, to shareholders of record on
February 1, 2001.
In January 2001, Enterprises notified us of its intention to purchase one
additional restaurant. We expect to receive approximately $400,000 proceeds from
this property sale in May 2001, which we will apply to reduce the line of credit
secured by it. After sale of this restaurant property, the annual minimum rent
will be reduced to $4.0 million in 2001 and subsequent years. In addition, in
conjunction with this sale, our line of credit secured by restaurant properties
will be reduced to $22.8 million.
Effective January 1, 2001, we acquired the minority 5% economic interest and 99%
voting interest in BNP Management, Inc. for cash payments totaling $16,000.
43
BNP RESIDENTIAL PROPERTIES, INC.
-------------------------------------------------------------------------------
Schedule III - Real Estate and Accumulated Depreciation
Year ended December 31, 2000
Costs Gross Amount at Which
Description Encumb. Initial Costs Capitalized Carried at Close of Period (2)
Buildings & Subsequent Buildings &
Land Improvem'ts to Acquisition Land Improvem'ts Total
Apartment Properties:
North Carolina:
Abbington Place, Greensboro $ 15,785,250 $2,302,000 $ 23,598,676 $ 440,197 $2,302,000 $ 24,038,873 $26,340,873
Allerton Place, Greensboro 10,270,000 1,384,000 14,650,428 178,036 1,384,000 14,828,464 16,212,464
Chason Ridge, Fayetteville 9,603,300 624,000 11,790,472 249,730 624,000 12,040,202 12,664,202
Harris Hill, Charlotte 5,864,390 1,003,298 7,867,857 759,553 1,003,298 8,627,410 9,630,708
Madison Hall, Clemmons 4,245,000 303,000 6,054,307 155,696 303,000 6,210,003 6,513,003
Oak Hollow, Cary 8,385,000 1,480,000 10,808,689 369,799 1,480,000 11,178,488 12,658,488
Oak Hollow - Phase 2, Cary 9,700,000 1,914,000 10,485,239 - 1,914,000 10,485,239 12,399,239
Oakbrook, Charlotte 6,186,889 848,835 8,523,384 803,680 848,835 9,325,405 10,174,240
Paces Commons, Charlotte 10,236,803 1,430,158 12,871,424 1,127,277 1,430,158 13,998,701 15,428,859
Paces Village, Greensboro 7,000,000 1,250,000 9,416,580 472,389 1,250,000 9,888,969 11,138,969
Pepperstone, Greensboro 3,883,750 552,000 5,015,153 283,016 552,000 5,298,169 5,850,169
Savannah Place, Winston-Salem 7,312,500 790,000 10,032,721 293,229 790,000 10,325,950 11,115,950
Summerlyn Place, Burlington 6,645,000 837,000 9,559,115 101,785 837,000 9,660,900 10,497,900
Waterford Place, Greensboro 11,089,000 1,686,000 16,745,972 207,238 1,686,000 16,953,210 18,639,210
Woods Edge, Durham 9,750,000 994,000 13,061,195 1,207,906 994,000 14,269,101 15,263,101
-------------------------------------------------------------------------------------------
125,956,882 17,398,291 170,481,211 6,649,532 17,398,291 177,129,084 194,527,375
Virginia:
Latitudes, Virginia Beach 14,219,331 3,360,000 18,606,667 1,305,823 3,360,000 19,909,671 23,269,671
-------------------------------------------------------------------------------------------
Total Apartment Properties 140,176,213 20,758,291 189,087,878 7,955,355 20,758,291 197,038,755 217,797,046
Restaurant Properties:
North Carolina:
Bessemer City (1) 152,079 391,060 - 152,079 391,060 543,139
Burlington (1) 162,411 417,629 - 162,411 417,629 580,040
Denver (1) 275,484 708,387 - 275,484 708,387 983,871
Eden (1) 253,282 651,296 - 253,282 651,296 904,578
Fayetteville (Ramsey) (1) 260,135 668,919 - 260,135 668,919 929,054
Fayetteville (N.Eastern) (1) 308,271 792,696 - 308,271 792,696 1,100,967
Fayetteville (Bragg) 235,951 606,730 - - - -
Description
Accumulated Date of Date Life
DepreciationConstr. Acquired (Years)
Apartment Properties:
North Carolina:
Abbington Place, Greensboro $2,859,223 1997 Dec-97 40
Allerton Place, Greensboro 1,205,625 1998 Sep-98 40
Chason Ridge, Fayetteville 752,948 1994 Jan-99 40
Harris Hill, Charlotte 1,595,884 1988 Dec-94 40
Madison Hall, Clemmons 466,380 1997 Aug-98 40
Oak Hollow, Cary 787,499 1983 Jul-98 40
Oak Hollow - Phase 2, Cary - 1986 Dec-00 40
Oakbrook, Charlotte 1,714,433 1985 Jun-94 40
Paces Commons, Charlotte 2,956,109 1988 Jun-93 40
Paces Village, Greensboro 1,426,632 1988 Apr-96 40
Pepperstone, Greensboro 588,812 1992 Dec-97 40
Savannah Place, Winston-Salem 1,104,630 1991 Dec-97 40
Summerlyn Place, Burlington 705,755 1998 Sep-98 40
Waterford Place, Greensboro 1,993,488 1997 Dec-97 40
Woods Edge, Durham 1,070,897 1985 Jun-98 40
------------
19,228,315
Virginia:
Latitudes, Virginia Beach 3,780,608 1989 Oct-94 38
------------
Total Apartment Properties 23,008,923
Restaurant Properties:
North Carolina:
Bessemer City 134,020 Nov-77 Apr-87 40
Burlington 143,124 Oct-85 Apr-87 40
Denver 242,770 Jul-83 Apr-87 40
Eden 223,204 Jun-73 Apr-87 40
Fayetteville (Ramsey) 229,244 Oct-73 Apr-87 40
Fayetteville (N.Eastern) 271,663 Sep-83 Apr-87 40
Fayetteville (Bragg) - Jan-85 Apr-87 40
44
Costs Gross Amount at Which
Description Encumb. Initial Costs Capitalized Carried at Close of Period (2)
Buildings & Subsequent Buildings &
Land Improvem'ts to Acquisition Land Improvem'ts Total
Gastonia (E. Franklin) (1) 230,421 592,511 - 230,421 592,511 822,932
Hillsborough (1) 290,868 747,948 - 290,868 747,948 1,038,816
Kinston (W. Vernon) (1) 237,135 609,777 - 237,135 609,777 846,912
Kinston (Richlands) (1) 231,678 595,743 - 231,678 595,743 827,421
Newton (1) 223,453 574,594 - 223,453 574,594 798,047
Siler City (1) 268,312 689,945 - 268,312 689,945 958,257
Spring Lake (1) 218,925 562,949 - 218,925 562,949 781,874
Thomasville (E. Main) (1) 253,716 652,411 - 253,716 652,411 906,127
Thomasville (Randolph) (1) 327,727 842,726 - 327,727 842,726 1,170,453
------------------------------------------------------------------------------
3,929,848 10,105,321 - 3,693,897 9,498,591 13,192,488
Virginia:
Ashland (1) 296,509 762,452 - 296,509 762,452 1,058,961
Blackstone (1) 275,565 708,596 - 275,565 708,596 984,161
Bluefield (1) 205,700 528,947 - 205,700 528,947 734,647
Chester (1) 300,165 771,852 - 300,165 771,852 1,072,017
Clarksville (1) 211,545 543,972 - 211,545 543,972 755,517
Clintwood (1) 222,673 572,588 - 222,673 572,588 795,261
Dublin (1) 364,065 936,168 - 364,065 936,168 1,300,233
Franklin (1) 287,867 740,230 - 287,867 740,230 1,028,097
Galax (1) 309,578 796,057 - 309,578 796,057 1,105,635
Hopewell (1) 263,939 678,701 - 263,939 678,701 942,640
Lebanon (1) 266,340 684,876 - 266,340 684,876 951,216
Lynchburg (Langhorne) (1) 249,865 642,509 - 249,865 642,509 892,374
Lynchburg (Timberlake) (1) 276,153 710,107 - 276,153 710,107 986,260
Norfolk (1) 325,822 837,829 - 325,822 837,829 1,163,651
Orange (1) 244,883 629,699 - 244,883 629,699 874,582
Petersburg (1) 357,984 920,531 - 357,984 920,531 1,278,515
Richmond (Forest Hill) (1) 196,084 504,216 - 196,084 504,216 700,300
Richmond (Midlothian) (1) 270,736 696,179 - 270,736 696,179 966,915
Richmond (Myers) (1) 321,946 827,861 - 321,946 827,861 1,149,807
Roanoke (Hollins) (1) 257,863 663,076 - 257,863 663,076 920,939
Roanoke (Abenham) (1) 235,864 606,507 - 235,864 606,507 842,371
Description
Accumulated Date of Date Life
DepreciationConstr. Acquired (Years)
Gastonia (E. Franklin) 203,057 Apr-63 Apr-87 40
Hillsborough 256,327 Mar-78 Apr-87 40
Kinston (W. Vernon) 208,975 Jul-62 Apr-87 40
Kinston (Richlands) 204,165 Dec-81 Apr-87 40
Newton 196,918 Mar-76 Apr-87 40
Siler City 236,450 May-79 Apr-87 40
Spring Lake 192,927 Mar-76 Apr-87 40
Thomasville (E. Main) 223,586 Feb-66 Apr-87 40
Thomasville (Randolph) 288,808 Apr-74 Apr-87 40
-------------
3,255,238
Virginia:
Ashland 261,298 Apr-87 Apr-87 40
Blackstone 242,842 Sep-79 Apr-87 40
Bluefield 181,274 Feb-85 Apr-87 40
Chester 264,519 May-73 Apr-87 40
Clarksville 186,423 Oct-85 Apr-87 40
Clintwood 196,230 Jan-81 Apr-87 40
Dublin 320,832 Jul-83 Apr-87 40
Franklin 253,682 Feb-75 Apr-87 40
Galax 272,814 Jun-74 Apr-87 40
Hopewell 232,596 Jun-78 Apr-87 40
Lebanon 234,713 Jun-83 Apr-87 40
Lynchburg (Langhorne) 220,192 Sep-82 Apr-87 40
Lynchburg (Timberlake) 243,359 Aug-83 Apr-87 40
Norfolk 287,130 Aug-84 Apr-87 40
Orange 215,802 Aug-74 Apr-87 40
Petersburg 315,473 Mar-74 Apr-87 40
Richmond (Forest Hill) 172,799 Nov-74 Apr-87 40
Richmond (Midlothian) 238,585 Jan-74 Apr-87 40
Richmond (Myers) 283,714 Apr-83 Apr-87 40
Roanoke (Hollins) 227,242 Feb-73 Apr-87 40
Roanoke (Abenham) 207,855 Nov-82 Apr-87 40
45
Costs Gross Amount at Which
Description Encumb. Initial Costs Capitalized Carried at Close of Period (2)
Buildings & Subsequent Buildings &
Land Improvem'ts to Acquisition Land Improvem'ts Total
Rocky Mount (1) 248,434 638,829 - 248,434 638,829 887,263
Smithfield (1) 223,070 573,608 - 223,070 573,608 796,678
Staunton (1) 260,569 670,035 - 260,569 670,035 930,604
Verona (1) 191,631 492,765 - 191,631 492,765 684,396
Virginia Beach (Lynnhaven) (1) 271,570 698,322 - 231,731 698,322 930,053
Virginia Beach (Holland) (1) 277,943 714,710 - 277,943 714,710 992,653
Wise (1) 219,471 564,355 - 219,471 564,355 783,826
------------------------------------------------------------------------------
7,433,834 19,115,577 - 7,393,995 19,115,577 26,509,572
-------------------------------------------------------------------------------------------
Total Restaurant Properties 23,329,787 11,363,682 29,220,898 - 11,087,892 28,614,168 39,702,060
-------------------------------------------------------------------------------------------
Total Real Estate $ 163,506,000$32,121,973 $ 218,308,776 $ 7,955,355 $31,846,183 $ 225,652,923$257,499,106
===========================================================================================
Description
Accumulated Date of Date Life
DepreciationConstr. Acquired (Years)
Rocky Mount 218,931 May-80 Apr-87 40
Smithfield 196,580 Apr-77 Apr-87 40
Staunton 229,627 Sep-83 Apr-87 40
Verona 168,873 Jan-85 Apr-87 40
Virginia Beach (Lynnhaven) 239,320 Jun-80 Apr-87 40
Virginia Beach (Holland) 244,936 Aug-83 Apr-87 40
Wise 193,403 Jun-80 Apr-87 40
------------
6,551,044
------------
Total Restaurant Properties 9,806,282
------------
Total Real Estate $32,815,205
============
(1) Indicates the 43 restaurants encumbered by the bank term loan of up to
$23,329,787; $23,329,787 outstanding at 12/31/00 (2) Aggregate cost at December
31, 2000, for federal income tax purposes was approximately $232.5 million
46
BNP RESIDENTIAL PROPERTIES, INC.
-------------------------------------------------------------------------------
Schedule III - Real Estate and Accumulated Depreciation
2000 1999 1998
-------------------------------------------------------------------
Real estate investments:
Balance at beginning of year $ 243,910,146 $ 231,743,720 $ 171,254,604
Additions during year
Acquisitions by merger - - -
Other acquisitions 12,399,239 12,414,472 59,131,734
Improvements, etc. 2,099,992 2,415,495 1,361,940
Deductions during year (910,271) (2,663,541) (4,558)
--------------------- --------------------- ---------------------
Balance at close of year $ 257,499,106 $ 243,910,146 $ 231,743,720
===================== ===================== =====================
Accumulated depreciation:
Balance at beginning of year $ 25,926,208 $ 19,552,177 $ 14,146,933
Provision for depreciation 7,155,697 6,955,955 5,406,005
Deductions during year (266,700) (581,924) (761)
--------------------- --------------------- ---------------------
Balance at close of year $ 32,815,205 $ 25,926,208 $ 19,552,177
===================== ===================== =====================
47
INDEX TO EXHIBITS
Exhibit No.
Page
2.1* Master Agreement of Merger and Acquisition by and among BNP Residential Properties, -
Inc., BNP Residential Properties Limited Partnership, Paul G. Chrysson, James G.
Chrysson, W. Michael Gilley, Matthew G. Gallins, James D. Yopp, and the partnerships
and limited liability companies listed therein, dated September 22, 1997 (filed as
Exhibit 2.1 to Registration Statement No. 333-39803 on Form S-2, December 16, 1997,
and incorporated herein by reference)
2.2* Amendment to Master Agreement of Merger and Acquisition dated September 22, 1997, by -
and among BNP Residential Properties, Inc., BNP Residential Properties Limited
Partnership, Paul G. Chrysson, James G. Chrysson, W. Michael Gilley, Matthew G.
Gallins, James D. Yopp, and the partnerships and limited liability companies listed
therein, dated November 3, 1997 (filed as Exhibit 2.3 to BNP Residential Properties,
Inc. Current Report on Form 8-K dated December 1, 1997, and incorporated herein by
reference)
3.1* Articles of Incorporation (filed as Exhibit 3.1 to BNP Residential Properties, Inc., -
Current Report on Form 8-K dated March 17, 1999, and incorporated herein by
reference)
3.2* By-Laws (filed as Exhibit 3.2 to BNP Residential Properties, Inc., Current Report on -
Form 8-K dated March 17, 1999, and incorporated herein by reference)
4* Rights Agreement, dated March 18, 1999, between the Company and First Union National -
Bank (filed as Exhibit 4 to BNP Residential Properties, Inc. Current Report on Form
8-K dated March 17, 1999, and incorporated herein by reference)
10.1* Amended and Restated Agreement of Limited Partnership of BNP Residential Properties -
Limited Partnership (filed as Exhibit 10.1 to BNP Residential Properties, Inc.
Annual Report on Form 10-K dated December 31, 1998, and incorporated herein by
reference)
10.2* Amended and Restated Master Lease Agreement dated December 21, 1995, between BNP -
Residential Properties, Inc. and Boddie-Noell Enterprises, Inc. (filed as Exhibit
10.1 to BNP Residential Properties, Inc. Annual Report on Form 10-K dated December
31, 1995, and incorporated herein by reference)
10.3* BNP Residential Properties, Inc. 1994 Stock Option and Incentive Plan effective -
August 4, 1994, and amended effective May 15, 1998 (filed as an exhibit in Schedule
14A of Proxy Statement dated April 13, 1998, and incorporated herein by reference)
10.4* Form and description of Employment Agreements dated July 15, 1997, between BNP -
Residential Properties, Inc. and certain officers (filed as Exhibit 10 to BNP
Residential Properties, Inc. Quarterly Report on Form 10-Q for the quarter ended
September 30, 1997, and incorporated herein by reference)
21 Subsidiaries of the Registrant 49
23 Consent of Ernst & Young LLP 50
* Incorporated herein by reference
48