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, 2001
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)
301 S. College St., Suite 3850, 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 15, 2002, was approximately $62,600,000.
The number of shares of Registrant's Common Stock outstanding on March
15, 2002, was 5,761,131.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the 2002 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 51
BNP RESIDENTIAL PROPERTIES, INC.
TABLE OF CONTENTS
Item No. FINANCIAL INFORMATION Page No.
PART I
1 Business 3
2 Properties 5
3 Legal Proceedings 9
4 Submission of Matters to a Vote of Security Holders 9
X Executive Officers of the Registrant 9
PART II
5 Market for Registrant's Common Equity and Related Stockholder 10
Matters
6 Selected Financial Data 11
7 Management's Discussion and Analysis of Financial Condition 13
and Results of Operations
7A Quantitative and Qualitative Disclosures About Market Risk 24
8 Financial Statements and Supplementary Data 25
9 Changes in and Disagreements With Accountants on Accounting 25
and Financial Disclosure
PART III
10 Directors and Executive Officers of the Registrant 25
11 Executive Compensation 25
12 Security Ownership of Certain Beneficial Owners and Management 25
13 Certain Relationships and Related Transactions 26
PART IV
14 Exhibits, Financial Statement Schedules, and Reports on Form 26
8-K
PART I
ITEM 1. BUSINESS
Company Profile
BNP Residential Properties, Inc. is a self-administered and
self-managed real estate investment trust with operations in North Carolina,
South Carolina and Virginia. Our primary activity is the ownership and operation
of apartment communities. We currently manage 31 multi-family communities
containing 6,969 units. Of these, we own 15 apartment communities containing
3,681 units. Third parties own the remaining 16 communities, containing 3,288
units, and we manage them on a contract basis. In addition to our apartment
communities, we own 42 restaurant properties that we lease to a third party
under a master lease on a triple-net basis.
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." We
currently own approximately 77% of the outstanding Operating Partnership units.
As of March 15, 2002, we have 5,761,131 shares of common stock and
1,705,897 Operating Partnership minority units outstanding. We have
approximately 1,500 shareholders of record. We estimate that there are
approximately 6,000 beneficial owners of our common stock. Our shares are listed
on the American Stock Exchange, trading under the symbol "BNP." We also have
227,273 shares of preferred stock outstanding, held by one investor.
We have 185 employees, including management, accounting, legal,
acquisitions, development, property management, leasing, maintenance and
administrative personnel. Our executive offices are located at 301 South College
Street, Suite 3850, 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 90% 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. 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 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.
During 1997 and 1998, we acquired nine apartment communities, located
in North Carolina, by issuing Operating Partnership units. In January 1999, we
acquired an apartment community, located in North Carolina, in a direct purchase
by paying cash and assuming long-term debt. In late December 2000, we acquired
one additional apartment community, located in North Carolina, in a direct
purchase. We combined this community with our Oak Hollow Apartments, and operate
the combined properties as one community
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. During 1999
through 2001, we sold five 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.
In April 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 eliminates the confusion that existed because of the similarity
of our former name to that of Boddie-Noell Enterprises.
Recent Developments
Overall, the results for 2001 were quite positive. However, it is
important to note that, during the year, lower interest rates and a substantial
increase in fee income masked lackluster apartment performance. The impact of
over-building, a general economic slowdown, and surprisingly strong sales of
modestly priced homes all combined to put persistent pressure on our apartment
markets. While we were able to achieve small increases in rental rates during
2001, our economic occupancy declined from near 96% to slightly over 94%.
During the fourth quarter of 2001, we expanded our third-party
management activities by entering into contracts to manage 12 multi-family
communities. On January 1, 2002, we added a contract to manage one additional
community.
In late December 2001, we issued 227,273 shares of Series B Cumulative
Preferred Stock for proceeds of $2.5 million.
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
4
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 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 include water submetering and marketing of cable
television, high-speed Internet service, and telephone services.
ITEM 2. PROPERTIES
Apartment Communities
Through the Operating Partnership, we own and operate 15 apartment
communities consisting of 3,681 apartment units. For the fourth quarter of 2001,
our average economic occupancy rate was 93.1%, and average monthly revenue per
occupied unit was $741. The average age of the apartment communities is
approximately 10.5 years. Our apartment communities are generally wood framed,
two and three story buildings, with exterior entrances, individually metered gas
and electric service, submetered water service, and individual heating and
cooling systems.
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 7 summarizes information about each of our apartment
communities.
5
Restaurant Properties
We lease the 42 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.
Since 1999, we have sold five restaurants deemed non-economic to
Enterprises. After the sale of the fifth such property in April 2001, the
minimum rent on the remaining 42 restaurants is approximately $4.0 million per
year.
The average acquisition cost of the original 47 restaurant properties
was approximately $920,000 per property. At December 31, 2001, the net carrying
value of the 42 restaurant properties was $28.8 million (an average of $685,000
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.
The locations of our restaurant properties are listed on page 8 of this
Annual Report.
Property Insurance
We carry insurance coverage on our properties of types and in amounts
that we believe are in line with coverage customarily obtained by owners of
similar properties. In addition, properties that we manage but do not own are
covered by insurance policies under which we are a named insured. Our restaurant
properties are subject to an indemnification agreement whereby Enterprises, the
lessee, is responsible for all claims, including those relating to environmental
matters, arising from a restaurant property. Enterprises is required to provide
insurance, which identifies the company as a named insured, on each restaurant
property.
We believe all of our properties are adequately insured. There are
types of losses, however, such as from wars, acts of terrorism or catastrophic
acts of nature, for which we cannot obtain insurance at all or at a reasonable
cost. In the event of an uninsured loss or a loss in excess of our insurance
limits, we could lose both the revenues generated from the affected property and
the capital we have invested in the affected property. It is possible, depending
on the specific circumstances of the affected property, that we could be liable
for any mortgage indebtedness or other obligations related to the property. Any
such loss could materially and adversely affect our business and financial
condition and results of operations.
6
INFORMATION ABOUT APARTMENT COMMUNITIES
Total Apartment Weighted
No. 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 29.1 246,886 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 221 1983 7/98 30.0 215,960 56 165 - 982
Oak Hollow Ph 2 Cary, NC 240 1986 12/00 26.8 220,840 160 80 - 920
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
Chrysson Community under purchase option(2):
Brookford Place Winston-Salem, NC 108 2000 - 6.3 103,392 36 72 - 957
(1) Average economic occupancy is calculated as gross potential rent less vacancy, divided by gross potential rent.
(2) To be acquired upon attainment of certain performance targets.
INFORMATION ABOUT APARTMENT COMMUNITIES
Average
Average Economic Monthly Revenue
Occupancy Percent per Occupied Unit
(1)
Community 2001 2000 1999 2001 2000 1999
- ------------------- ------ ------- ------ ------ ------- ------
Abbington Place 95.9 96.3 92.9 $785 $764 $757
Allerton Place 95.4 95.3 94.9 773 778 788
Chason Ridge 96.0 96.2 95.8 682 659 659
Harris Hill 93.9 94.5 96.7 716 728 733
Latitudes 97.1 97.5 97.8 774 732 684
Madison Hall 92.9 94.4 92.6 605 612 645
Oak Hollow 89.2 96.6 95.5 732 722 717
Oak Hollow Ph 2 89.3 - - 689 - -
Oakbrook 92.3 95.6 95.3 783 783 779
Paces Commons 91.1 94.8 95.9 709 717 710
Paces Village 93.0 96.2 93.1 689 666 656
Pepperstone 97.3 96.5 96.9 695 681 681
Savannah Place 93.8 93.3 92.8 712 749 768
Summerlyn Place 93.6 96.1 93.2 803 798 804
Waterford Place 94.2 95.9 95.3 861 857 846
Woods Edge 95.3 97.2 94.4 776 751 731
Chrysson Community under purchase option(2):
Brookford Place - - - - -
(1) Average economic occupancy is calculated as gross potential rent less vacancy, divided by gross potential rent.
(2) To be acquired upon attainment of certain performance targets.
7
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
(14 properties)
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
8
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
or 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 2001.
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 44 Director, President and October 1994
Chief Executive Officer
Philip S. Payne 50 Director, Executive Vice President, October 1994
Treasurer and Chief Financial Officer
Pamela B. Bruno 48 Vice President, Controller and October 1994
Chief Accounting Officer
Douglas E. Anderson 54 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 Multi Housing Council and the
Apartment Association of North Carolina, and he is a 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 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
9
William and Mary in 1973 and a JD degree in 1978 from the same institution. He
serves on the board of directors of the National Multi Housing Council and is a
member of the Urban Land Institute.
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,
and is a member of the North Carolina Association of Certified Public
Accountants.
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 15,
2002. 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 15, 2002, the closing
price of the company's common stock was $11.40 per share.
Dividends
Stock Price Paid
High Low Close Per Share
----------------- ----------------- ----------------- -----------------
2001
Fourth quarter $10.88 $9.75 $10.31 $0.31
Third quarter 11.30 9.15 10.00 0.31
Second quarter 10.65 8.75 10.02 0.31
First quarter 9.95 7.75 9.10 0.31
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
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,
10
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
In December 2001, we issued 227,273 shares of our Series B Preferred
Stock to a single investor. These shares were issued pursuant to the exemption
from the registration requirements of the Securities Act of 1933 set forth in
Section 4(2) of the Act. The purchaser was an accredited investor, and offers
were not accompanied by any form of general solicitation.
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.
Year ended December 31
2001 2000 1999 1998 1997
------------- -------------- ------------- -------------- -------------
(in thousands, except per share and property data)
Operating data:
Revenue:
Apartment rental income $ 30,867 $ 29,269 $ 28,608 $ 21,925 $ 11,197
Restaurant rental income 4,053 4,162 4,339 4,500 4,500
Equity and other income 1,342 427 510 715 555
------------- -------------- ------------- -------------- -------------
Total revenue 36,262 33,858 33,457 27,140 16,251
Expenses:
Depreciation 7,828 7,156 6,956 5,406 2,686
Amortization 596 579 569 531 580
Apartment operations 11,182 9,766 9,395 6,817 3,415
Administrative costs 2,956 2,391 2,380 1,697 1,131
Costs of terminated
equity transaction - 237 - - -
Interest 11,100 11,151 10,703 8,209 6,487
------------- -------------- ------------- -------------- -------------
Total expenses 33,663 31,280 30,003 22,660 14,299
------------- -------------- ------------- -------------- -------------
Income before minority
interest of Unitholders 2,599 2,578 3,454 4,480 1,953
Minority interest in
Operating Partnership 597 595 728 742 39
------------- -------------- ------------- -------------- -------------
Income before
extraordinary item $ 2,002 $ 1,983 $ 2,726 $ 3,738 $ 1,913
============= ============== ============= ============== =============
Net income $ 1,902 $ 1,983 $ 2,726 $ 3,686 $ 1,730
============= ============== ============= ============== =============
Income available to
common shareholders $ 1,900 $ 1,983 $ 2,726 $ 3,686 $ 1,730
============= ============== ============= ============== =============
Basic earnings per share $ 0.33 $ 0.35 $ 0.46 $ 0.62 $ 0.54
============= ============== ============= ============== =============
Diluted earnings per share $ 0.33 $ 0.35 $ 0.46 $ 0.62 $ 0.52
============= ============== ============= ============== =============
Dividends per share $ 1.24 $ 1.24 $ 1.24 $ 1.24 $ 1.24
============= ============== ============= ============== =============
11
Year ended December 31
2001 2000 1999 1998 1997
------------- -------------- ------------- -------------- -------------
(in thousands, except per share and property data)
Balance Sheet data:
Real estate assets (before
accumulated depreciation)
Apartment communities $ 221,589 $ 217,818 $ 203,365 $ 188,539 $ 128,050
Restaurant properties 39,159 39,702 40,545 43,205 43,205
Real estate assets, net 219,997 224,705 217,984 212,192 157,108
Total assets 225,385 230,691 224,270 221,121 166,112
Total debt 162,330 163,612 150,883 140,524 93,436
Minority interest 18,174 19,737 21,317 20,681 12,346
Shareholders' equity 42,034 44,548 49,896 56,749 55,785
Apartment Property data:
Apartment communities
owned at year end 15 15 15 14 9
Apartment units owned
at year end 3,681 3,680 3,440 3,188 2,208
Average apartment
economic occupancy 93.9% 95.9% 95.1% 94.7% 95.3%
Average monthly revenue
per occupied unit $ 744 $ 737 $ 729 $ 737 $ 698
Other data:
Earnings before interest, taxes,
depreciation and
amortization (1) $ 22,123 $ 21,463 $ 21,682 $ 18,626 $ 11,706
Funds from operations (1) 10,831 10,139 10,816 10,292 4,916
Funds available
for distribution (1) 9,696 9,243 9,868 9,660 4,844
Net cash provided by
(used in):
Operating activities $ 10,729 $ 10,854 $ 10,919 $ 9,420 $ 5,007
Investing activities (2,401) (13,407) 111 (43,862) (48,095)
Financing activities (7,966) 3,177 (11,089) 32,473 44,705
Weighted average number of
common shares outstanding 5,717 5,708 5,973 5,924 3,180
Weighted average number of
Operating Partnership minority
units outstanding 1,706 1,711 1,601 1,192 81
(1) Earnings before interest, taxes, depreciation and amortization, Funds from
operations, and Funds available for distribution amounts reflect
measurements for the Operating Partnership (before deduction for minority
interest).
Earnings before interest, taxes, depreciation and amortization is
frequently referred to as "EBITDA." This measurement is derived directly
from amounts included in the Statement of Operations. We consider EBITDA
to be a useful measurement of operations performance before the impact of
financial structure and significant non-cash charges.
Funds from operations is frequently referred to as "FFO." FFO 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
12
and amortization, and after adjustments for unconsolidated
partnerships and joint ventures."
Funds available for distribution is frequently referred to as "FAD." We
calculate FAD 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, FFO and FAD 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. FFO and FAD 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. FFO and FAD do not represent cash flows from operating,
investing or financing activities as defined by generally accepted
accounting principles. Further, FFO and FAD as disclosed by other REITs
might not be comparable to our calculation of FFO or FAD.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
This Annual Report 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.
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 our markets could suffer unexpected declines in economic growth or an
increase in unemployment rates;
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 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 revenues from our third-party apartment property management activities
could decline, or we could incur unexpected costs in performing these
activities;
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; and
o we could lose key executive officers.
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-
13
looking statements that may be made to reflect any future events or
circumstances or to reflect the occurrence of unanticipated events.
You should read this discussion in conjunction with the financial
statements and notes thereto included in this Annual Report.
Results of Operations
2001 Compared to 2000
Revenues
Total revenue in 2001 was $36.3 million, an increase of 7.1% compared
to 2000. Apartment rental income accounted for 85.1% of our total revenue in
2001 compared to 86.4% in 2000.
Apartment rental income in 2001 was $30.9 million, an increase of 5.5%,
or $1.6 million, compared to 2000. This increase is attributable to $1.8 million
rental income at Oak Hollow Apartments Phase 2, which we acquired in December
2000. On a same units basis (for the 3,441 units that we owned throughout all of
both years), apartment rental income declined by 0.5% in 2001 compared to 2000.
On a same units basis, average economic occupancy was 94.2% in 2001
compared to 95.9% in 2000, and average monthly revenue per occupied apartment
was $748 compared to $737 in 2000. Average economic occupancy for all apartments
(including Oak Hollow Apartments Phase 2, which we acquired in December 2000)
was 93.9% in 2001 compared to 95.9% in 2000, and average monthly revenue per
occupied apartment was $744 in 2001 compared to $737 in 2000.
With the exception of Virginia Beach, Virginia, our apartment markets
weakened during 2001, and remain weak. Slight increases in revenue per occupied
apartment were insufficient to overcome the impact of declines in occupancy.
While we remain confident in the long-term prospects for our markets and our
properties, we do not foresee any significant improvement in apartment
operations over the near term. The weakness in the markets is largely the result
of overbuilding. While construction activity has slowed recently, it will take
some time for the excess supply of new apartments to be absorbed. Until then,
the competition for residents will remain intense.
Declining interest rates and, more recently, a general economic
slowdown have also had an impact on apartment occupancy and rental rates. For
those with jobs, lower interest rates have made single-family home ownership far
more affordable. On the other hand, the general economic slowdown has led to
significant job losses. While the underlying explanation as to why declining
interest rates or a general economic slowdown impact apartment operations is
quite different, both have the effect of reducing the pool of potential
apartment residents, which, in turn, puts negative pressure on occupancy and
rental rates.
Restaurant rental income in 2001 was $4.1 million, a decrease of 2.6%
compared to 2000. Restaurant rental income accounted for 11.2% of our total
revenue in 2001 compared to 12.3% in 2000. The decrease in restaurant rental
income is due to the sales of one restaurant property in April 2001 and one
restaurant property in June 2000. Through 2001, we have sold five of the
original 47 restaurants to Boddie-Noell Enterprises, Inc., 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.
Restaurant rental income during both 2001 and 2000 was the minimum rent
specified in the lease agreement. Under our master lease with Enterprises,
restaurant rental income payments are the greater of specified minimum rent or
9.875% of food sales. Minimum rent is currently set at $335,000 per month, and
is reduced by approximately $8,000 per month, or $96,000 per year, for each
restaurant that is sold. "Same store" sales (for the 42 restaurants that were
open through all of both years) declined by 3.5% in 2001 compared to 2000. Sales
at these restaurants would have to increase by approximately 11% before we
14
would receive rent exceeding the minimum rent. We do not expect restaurant
rental income to exceed the minimum in 2002.
As we discussed in the notes to our financial statements, effective
January 1, 2001, we acquired the minority interest in BNP Management, Inc. (the
"Management Company"). For 2001, we included the revenues from management
services for three third-party owned properties in our consolidated revenue
amounts. In 2000, we reported (net) equity income related to activities of the
Management Company. This change in basis of presentation has not had a
significant impact on our financial position, overall operating results or cash
flows.
During the fourth quarter of 2001, we expanded our third-party
management activities by entering into contracts to manage 12 multi-family
communities. On January 1, 2002, we added a contract to manage one additional
community. We expect that third-party management contracts will generate
approximately $1 million in management fee income in 2002.
Management fee income totaled $529,000 in 2001, including $123,000
generated from new contracts during the fourth quarter. If the former Management
Company activities had been reflected on a consolidated basis in our 2000
financial statements, equity income as reported would have been replaced with
management fee income of approximately $457,000 in 2000.
Interest and other income includes approximately $562,000 non-routine
income in 2001. Recurring interest and other income was generally comparable to
2000 amounts. The non-routine income items in 2001 are as follows:
o $351,000 shared appreciation related to our participating loan agreement
with The Villages of Chapel Hill Limited Partnership, discussed below;
o $70,000 fee income for arranging refinancing at The Villages of Chapel Hill
and The Villages of Chapel Hill - Phase 5, two managed apartment
properties; and
o $141,000 miscellaneous income, for the refund of 1997 and 1998 state
franchise taxes.
Effective July 1, 2001, we modified our participating loan agreement
with The Villages of Chapel Hill Limited Partnership. This modification
established a $950,000 "fixed portion" of our participation in the increase in
value of the property and extended the period for our 25% participation in
increased rental revenue and increase in value of the property to the earlier of
July 2011 or sale or refinance of the property. We received an initial payment
of $325,883 of the fixed portion in July 2001, which we reflected in the
financial statements as other income. Required payment of the fixed portion is
subject to cash flow from The Villages property, calculated every six months, as
defined in the agreement. At December 31, 2001, payment of $25,681 was currently
due and was received in January 2002. Interest on the outstanding fixed portion
accrues at the greater of a prime rate or 8%, payable monthly. Because the
timing of payment of the remaining fixed portion is subject to cash flow and
therefore uncertain, we have provided a reserve for collection of this
receivable, and we will recognize revenue as it is realized.
Expenses
Total expenses, including non-cash charges for depreciation and
amortization, in 2001 were $33.7 million, an increase of 7.6% compared to 2000.
Apartment operations expense was $11.2 million in 2001, an increase of
14.5%, or $1.4 million, compared to 2000. This increase is attributable to the
addition of Oak Hollow Apartments Phase 2 ($760,000 in 2001), along with the
impact of higher costs for on-site compensation, property taxes and insurance,
and property administration and turnover costs.
Apartment operations expense includes only direct costs of on-site
operations. Apartment operations expense in 2001 represented 36.2% of related
apartment rental income, compared to 33.4% in
15
2000. During the second half of 2001, we experienced a significant increase in
redecoration and turnover expense at our apartment communities. Intense
competition due to overbuilding, home purchases, and job losses due to the
current economic slowdown have all contributed to higher turnover of residents.
As a result, we have spent more in turnover and redecoration, as well as leasing
and promotion expense, in an effort to attract and retain residents. We expect
that these costs will remain at relatively high levels for as long as current
market conditions persist.
We incur no operating expenses for restaurant properties, because the
triple-net lease arrangement requires the lessee to pay virtually all of the
costs and expenses associated with the restaurant properties.
We are now able to identify and compare apartment administration
expenses for 2001 and 2000. These costs include our property management
activities as well as accounting and support activities directly related to
apartment management. Prior to 2001, these costs were included in our line item
for administrative expenses that included both apartment and corporate
administrative costs, and we have reclassified these amounts in the 2000 and
1999 financial statements to conform to the 2001 presentation. In addition, we
now include the expenses of our third-party management activities in these
consolidated expense amounts.
Apartment administration expense totaled $1.1 million in 2001,
including approximately $86,000 in costs directly related to servicing
third-party management contracts acquired during the fourth quarter of the year.
If the activities of the Management Company had been reflected on a consolidated
basis in our 2000 financial statements, apartment administration expense would
have been approximately $910,000 in 2000. The increase in apartment
administration expense in 2001 is attributable to the impact of the increase in
the number of units under management, as well as increased property management
supervisory compensation and travel expenditures.
Corporate administration expense totaled $1.8 million in 2001. If the
activities of the Management Company had been reflected on a consolidated basis
in our 2000 financial statements, corporate administration expense would have
been approximately $1.7 million in 2000. The increase in corporate
administration expense in 2001 is attributable to increased executive and
corporate office staff compensation.
Depreciation expense totaled $7.8 million in 2001, an increase of 9.4%,
or $670,000, compared to 2000. This increase is attributable to the addition of
Oak Hollow Apartments Phase 2 ($402,000 in 2001) along with the impact of
additions and replacements at other apartment communities. We have generally
assigned shorter lives to these specifically identifiable assets than the
composite lives initially assigned at acquisitions. Amortization expense was
essentially the same in 2001 and 2000.
Interest expense totaled $11.1 million in 2001, a decline of 0.5%
compared to 2000. This decline is primarily attributable to the decline in
interest rates during 2001. Overall, weighted average interest rates were 6.8%
in 2001, compared to 7.3% in 2000.
In conjunction with a refinance of long-term debt in September 2001, we
wrote off unamortized loan costs of $129,000. We have reflected this write-off,
net of minority interests' share, with a charge of $100,000 as an extraordinary
item in the financial statements.
In late December 2001, we issued 227,273 shares of Series B Cumulative
Convertible Preferred Stock. Because preferred shareholders have priority over
common shareholders for receipt of dividends, we deduct the amount of net income
that has been or will be paid to preferred shareholders in calculating net
income available to common shareholders. The cumulative preferred dividend, for
four days in the fourth quarter of 2001, totals $2,740. This amount will
increase in future periods; the dividend on the Series B shares is $1.10 per
share per year.
16
Net income
Income available to common shareholders in 2001 was $1.9 million, a
decrease of 4.2% compared to 2000. Operating Partnership earnings before
non-cash charges for depreciation, amortization, and extraordinary item totaled
$11.0 million, a 6.9% increase compared to 2000. The minority interest in
Operating Partnership earnings in 2001 was $597,000, a 0.4% increase compared to
2000.
Income available to common shareholders was $0.33 per share in 2001
compared to $0.35 in 2000. The $0.02 decline in per share amounts resulted from
a number of factors, including an increase in non-cash charges for depreciation
expense and a non-cash extraordinary charge for write-off of loan costs.
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 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 continued 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.
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 was due to the sales of three restaurant properties in June 1999 and one
restaurant property in June 2000. The four restaurants were sold to Boddie-Noell
Enterprises, the lessee, under the non-economic clause of an agreement that
allows the lessee to close up to seven restaurants and buy them back for no less
than net carrying value.
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.
Interest and other income decreased by 23.7% to $296,000 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.
17
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.
We have reclassified amounts for apartment operations, apartment administration,
and corporate administration expenses to conform to our 2001 presentation.
Apartment operations expense was $9.8 million in 2000, an increase of
3.9% compared to 1999. Apartment operations expense represented 33.4% of related
apartment rental income, compared to 32.8% in 1999. This increase was primarily
attributable to higher costs for compensation of on-site staff, taxes, and
property insurance.
Apartment administration expense was $801,000 in 2000, a decline of
7.6% compared to 1999. Corporate administration expense was $1.6 million in
2000, an increase of 5.1% compared to 1999. These costs were in line with
management's expectations.
We incur no operating expenses for restaurant properties, because the
restaurant properties' triple-net lease arrangement requires the lessee to pay
virtually all of the costs and expenses associated with the restaurant
properties.
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 was
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 was 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
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.
Income available to common shareholders was $0.35 per share in 2000
compared to $0.46 in 1999. The decline in per share amounts was primarily due to
increases in interest expense, decrease in restaurant rental income, a
significant non-recurring charge for a terminated equity transaction, and
increases in non-cash charges for depreciation and amortization.
Funds from Operations
Funds from operations and funds available for distribution are defined
in footnote 1 on pages 12 and 13. We calculated funds from operations as follows
(all amounts in thousands):
2001 2000 1999
--------------- -------------- --------------
Income before minority interest
and extraordinary item $ 2,599 $ 2,578 $ 3,454
Cumulative preferred dividend (3) - -
Depreciation 7,828 7,156 6,956
18
2001 2000 1999
--------------- -------------- --------------
Amortization of management intangible 406 406 406
--------------- -------------- --------------
Funds from operations - Operating Partnership $10,831 $10,139 $10,816
=============== ============== ==============
A reconciliation of funds from operations to funds available for
distribution follows (all amounts in thousands):
2001 2000 1999
--------------- -------------- --------------
Funds from operations - Operating Partnership $10,831 $10,139 $10,816
Amortization of loan costs 189 173 163
Recurring capital expenditures (1,324) (1,070) (1,111)
--------------- -------------- --------------
Funds available for distribution $ 9,696 $ 9,243 $ 9,868
=============== ============== ==============
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):
2001 2000 1999
--------------- -------------- --------------
Funds from operations - Operating Partnership $10,831 $10,139 $10,816
Minority interest in funds from operations (2,490) (2,339) (2,280)
--------------- -------------- --------------
Basic funds from operations
available to common shareholders $ 8,341 $ 7,801 $ 8,537
=============== ============== ==============
Other information about our historical cash flows follows (all amounts
in thousands):
2001 2000 1999
--------------- -------------- --------------
Net cash provided by (used in)
Operating activities $ 10,729 $ 10,854 $ 10,919
Investing activities (2,401) (13,407) 111
Financing activities (7,966) 3,177 (11,089)
Dividends and distributions paid to
Common shareholders $ 7,082 $ 7,077 $ 7,421
Minority unitholders in Operating Partnership 2,116 2,102 1,942
Scheduled debt principal payments $ 348 $ 332 $ 547
Non-recurring capital expenditures
Acquisition improvements and replacements 936 297 819
Apartment property additions and betterments 553 755 486
Weighted average common shares outstanding 5,717 5,708 5,973
Weighted average Operating Partnership
minority units outstanding 1,706 1,711 1,601
Funds from operations in 2001 (before deduction for minority interest)
totaled $10.8 million, an increase of 6.8% compared to $10.1 million in 2000.
The increase is primarily attributable to non-routine revenue received in 2001,
while operating results for the two years were essentially flat. Funds from
operations in 2000 (before deduction for minority interest) declined 6.3%
compared to $10.8 million in 1999. The modest increase in contribution from
apartment operations in 2000 was not adequate to offset the increase in interest
expense, the decrease in restaurant rental income, or the significant
non-recurring costs of a terminated equity transaction.
19
Funds available for distribution totaled $9.7 million in 2001, an
increase of 4.9% compared to 2000. Funds available for distribution totaled $9.2
million in 2000, a decline of 6.3% compared to $9.9 million in 1999. The
variance in comparison of funds available for distribution and funds from
operations reflects the impact of recurring capital expenditures for major
capital maintenance costs at our older communities. Recurring capital
expenditures averaged $360 per apartment unit in 2001, $311 per apartment unit
in 2000, and $323 per unit in 1999.
Capital Resources and Liquidity
Capital Resources
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.
Long-term Debt
As of December 31, 2001, all of our properties were encumbered by or
served as collateral for debt. As of December 31, 2001, total long-term debt was
$162.3 million, including $122.2 million of notes payable at fixed interest
rates ranging from 6.35% to 8.55%, and $40.1 million at variable rates indexed
on 30-day LIBOR rates. The weighted average interest rate on debt outstanding at
December 31, 2001, was 6.2%, compared to 7.5% at December 31, 2000. This
reduction is primarily due to declines in variable rates during 2001. At our
current level of variable-rate debt, a 1% fluctuation in variable interest rates
would increase or decrease our annual interest expense by approximately
$390,000.
In November 2001, we modified our previously established revolving
lines of credit with a bank for lines secured by Latitudes Apartments and our
restaurant properties. These line of credit arrangements are now as follows:
o $23.0 million, secured by a deed of trust and assignment of rents of
Latitudes Apartments, due November 2004. Interest-only payments on the
outstanding balance are due monthly at a variable interest rate of 30-day
LIBOR plus 1.75%. At December 31, 2001, the outstanding balance on this
line was $12.0 million. Of this line, $2.0 million is reserved, subject to
available draws against a variable rate note payable, for acquisition
improvements at Oak Hollow Apartments Phase 2, and approximately $9.0
million is available under this revolving line of credit.
o $18.0 million, secured by a deed of trust and assignment of rents of 42
restaurant properties, due January 2004. Interest-only payments on the
outstanding balance are due monthly at a variable interest rate of 30-day
LIBOR plus 1.80%. The available line of credit declines to $17.2 million
effective January 2003. At December 31, 2001, the outstanding balance on
this line was $18.0 million.
In September 2001, we issued a $16.25 million note payable, secured by
a deed of trust and assignment of rents of Paces Commons Apartments. The note
provides for interest at 6.96%, payable in monthly installments, with maturity
in October 2011. We applied approximately $10.1 million of these proceeds to
retire an existing 8.125% deed of trust note for the same property, and $5.0
million of proceeds to reduce our Latitudes line of credit. Paces Commons was
our first apartment community, acquired in June 1993 for an initial acquisition
cost of $14.3 million.
In February 2002, we completed refinancing for Oakbrook Apartments,
with a $7.9 million note payable with interest at 7.1% and maturity in February
2012. This deed of trust note replaced an existing 7.7% note with a balance of
$6.1 million, with the balance of proceeds applied to reduce our Latitudes line
of credit. Oakbrook was our second apartment community, acquired in June 1994
for an initial acquisition cost of $9.4 million.
20
In replacing the financing on Paces Commons and Oakbrook Apartments, we
were able to substantially increase loan amounts based on the lender's estimates
of the appreciated fair market values of the properties. We applied excess
proceeds of these fixed rate loans to reduce outstanding balances on our
variable rate lines of credit.
We utilized long-term debt, along with draws on our lines of credit, to
finance acquisitions of apartment communities in 2000 and 1999 as follows:
o In December 2000, we acquired Oak Hollow Apartments Phase 2 for a total
cost of approximately $12.4 million. We financed this acquisition with a
$9.7 million initial draw on an $11.7 million variable-rate loan secured by
a deed of trust on the community and $2.7 million draws on our lines of
credit. We have subsequently drawn approximately $400,000 against this
loan, and approximately $1.6 million remains available to fund renovations
at this community.
o In January 1999, we acquired Chason Ridge Apartments for a total cost of
approximately $12.5 million. We financed this acquisition by assuming
long-term debt of $10.7 million and $1.8 million draws on our lines of
credit.
We have also utilized our lines of credit to repurchase and retire
approximately 300,000 shares of our common stock in 1999 and 2000, to retire a
$6.1 million note payable to an affiliate in 1999, and to fund capital
improvements at our apartment communities.
A summary of scheduled principal payments on long-term debt is included
in Item 7A, Quantitative and Qualitative Disclosures about Market Risk, and 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
42 restaurants, due January 2004 ($18.0 million outstanding at
December 31, 2001);
o our line of credit secured by a deed of trust and assignment of rents of
Latitudes Apartments, due November 2004 (up to $23.0 million, $12.0 million
outstanding at December 31, 2001);
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, $10.1
million outstanding at December 31, 2001); and
o our deed of trust loan for Harris Hill Apartments, due June 2005 ($5.9
million outstanding at December 31, 2001).
Capital Stock and Operating Partnership Units
At December 31, 2001, we had approximately 5.7 million common shares
and approximately 227,000 preferred shares outstanding. In addition, there were
approximately 1.7 million Operating Partnership units, or approximately 23%,
held by minority interest owners.
In December 2001, our Board of Directors authorized the issuance of up
to 454,545 shares of Series B Cumulative Convertible Preferred Stock, and we
issued 227,273 shares to a single investor for proceeds of $2.5 million. We
utilized these proceeds to reduce the outstanding balance on our Latitudes line
of credit. Under the terms of the investment agreement for this placement, we
must issue the remaining 227,272 shares for an additional $2.5 million by
December 2002, and the offering may be expanded to $10.0 million on the same
terms and conditions through December 2002. The preferred shares have a purchase
price and liquidation preference of $11.00 per share, an initial dividend yield
of 10% through December 2009, and may be converted to our common stock on a
one-for-one basis after three years.
During 1999 through 2001, we issued approximately 67,000 shares of our
common stock through our Dividend Reinvestment and Stock Purchase Plan. We
generally applied these proceeds to capital expenditures at apartment
communities.
21
All of the Operating Partnership units held by minority interest owners
were issued in 1997 through 1999 in conjunction with acquisitions of apartment
communities. Holders of Operating Partnership units generally are 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 from issuance.
Cash Flows and Liquidity
Net cash flows from operating activities were $10.7 million in 2001,
and $10.9 million in 2000 and 1999. Investing and financing activities focused
primarily on apartment acquisitions and capital expenditures at apartment
communities, along with payments of dividends and distributions.
We paid dividends of $0.31 per share per quarter in each quarter of
2001, 2000, and 1999. Our payout ratio (the ratio of dividends plus
distributions paid to Operating Partnership funds from operations) was 84.9% in
2001, 90.5% in 2000, and 86.6% in 1999. We intend to pay dividends 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.
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 11.2% of our revenue in 2001, compared to
12.3% in 2000 and 13.0% in 1999, from rent received from Boddie-Noell
Enterprises 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 two 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 sold. We would
receive sale proceeds of the greater of net carrying value or fair value. As of
December 31, 2001, the average net book value of the restaurant properties was
approximately $685,000. As in the past, we would most likely apply sale proceeds
to reduce outstanding debt on our line of credit.
Enterprises is a privately owned company with total assets exceeding
$224 million and net equity exceeding $73 million. Its principal line of
business is the operation of approximately 330 Hardee's restaurants. In addition
to its Hardee's operations, Enterprises is the owner of Texas Steakhouse and
Saloon, a casual dining concept with 26 restaurants. 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
their financial statements, cash flow analysis, restaurant contribution
analysis, sales trend analysis and projections. We
22
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.
Capital expenditures and depreciation
For acquired apartment properties, we compute depreciation using the
straight-line method over composite 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 floor coverings.
We generally complete and capitalize acquisition improvements
(expenditures that have been identified at the time the property is acquired,
and which are intended to position the property consistent with our physical
standards) within one to two years of acquisition. We capitalize non-recurring
expenditures for additions and betterments to buildings and land improvements.
In addition, we generally capitalize recurring capital expenditures for exterior
painting, roofing, and other major maintenance projects that substantially
extend the useful life of existing assets. For financial reporting purposes, we
depreciate these additions and replacements on a straight-line basis over
estimated useful lives of 5-20 years. We capitalize all floor covering,
appliance, and HVAC replacements, and depreciate them using a straight-line,
group method over estimated useful lives of 5-10 years.
We expense ordinary repairs and maintenance costs at apartment
communities.
During 2001, we capitalized additions and replacements as follows (all
amounts in thousands):
Recurring capital expenditures $1,324
Acquisition improvements 936
Non-recurring additions and betterments 553
Repairs and maintenance at our apartment communities totaled
approximately $4.1 million, including $1.5 million in compensation of service
staff and $2.6 million in payments for materials and contracted services.
Costs of repairs, maintenance, and capital replacements and
improvements at restaurant properties are borne by the lessee.
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 under the master
lease for environmental problems associated with the restaurant properties.
Recently Issued Accounting Standards
In June 2001, the Financial Accounting Standards Board issued
Statements of Financial Accounting Standards No. 141, Business Combinations, and
No. 142, Goodwill and Other Intangible Assets, effective for fiscal years
beginning after December 15, 2001. Under the new rules, goodwill and intangible
assets deemed to have indefinite lives will no longer be amortized but will be
subject to annual
23
impairment tests in accordance with the Statements. Other intangible assets will
continue to be amortized over their useful lives. We will apply the new rules on
accounting for goodwill and other intangible assets beginning in the first
quarter of 2002. We expect that application of the nonamortization provisions of
the Statements will result in an increase in net income of approximately
$400,000 per year. During 2002, we will perform the first of the required
impairments tests of the intangible related to acquisition of management
operations, as of January 1, 2002. We do not believe that the effect of these
tests will have a significant impact on the earnings and financial position of
the company.
In August 2001, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets, effective for years beginning after
December 15, 2001. This Statement addresses financial accounting and reporting
for the impairment or disposal of long-lived assets and supersedes Statement No.
121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of, and the accounting and reporting provisions of APB
Opinion No. 30, Reporting the Results of Operations for a Disposal of a Segment
of a Business. We expect to adopt Statement No. 144 as of January 1, 2002, and
we do not expect this adoption to have a significant impact on our financial
position and results of operations.
Additional Information
We provide the following information to analysts and other members of
the financial community for use in their detailed analysis. This information has
not been included in our Annual Report to Shareholders.
A summary of capital expenditures, in aggregate and per apartment unit,
follows:
2001 2000 1999
Total Per unit Total Per unit Total Per unit
--------- ----------- ---------- ------------ --------- ------------
(000's) (000's) (000's)
Recurring capital expenditures:
Floor coverings $ 662 $180 $ 464 $135 $ 627 $182
Appliances/HVAC 197 54 164 48 165 48
Exterior paint - - - - 63 18
Computer/support equipment 54 15 21 6 - -
Other 411 112 420 122 256 74
--------- ----------- ---------- ------------ --------- ------------
$1,324 $360 $1,070 $311 $1,111 $323
========= =========== ========== ============ ========= ============
Non-recurring capital
expenditures:
Acquisition improvements $ 936 $ 297 $ 819
Additions and betterments 502 754 486
Computer/support equipment 50 - -
--------- ---------- ---------
$1,489 $1,052 $1,305
========= ========== =========
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
A summary of long-term debt as of December 31, 2001 and 2000 is
included in the notes to the financial statements in this Annual Report. At
December 31, 2001, adjusted to reflect the subsequent refinancing related to
Oakbrook Apartments, total long-term debt was $162.3 million, including $123.9
million notes payable at fixed interest rates ranging from 6.35% to 8.55%, and
$38.4 million at variable rates indexed on 30-day LIBOR rates. The weighted
average interest rate on debt outstanding was 6.2% at December 31, 2001, and
7.5% at December 31, 2000. At our current level of variable-rate debt, a 1%
24
change in variable interest rates would increase or decrease our annual interest
expense by approximately $390,000.
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
2002 2003 2004 2005 2006 Later Total
----------- ----------- ----------- ----------- ----------- ----------- -----------
Fixed rate notes $ 248 $ 409 $ 441 $ 5,899 $ 365 $116,590 $123,952
Average interest rate 7.69% 7.44% 7.45% 8.46% 7.06% 6.88% 6.96%
Variable rate notes - 833 37,545 - - - 38,378
Average interest rate 3.71% 3.71% 3.71%
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, 2001, totaled approximately $161.8 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 23, 2002, (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.
25
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The section entitled "Certain Relationships and Related Transactions"
of the Proxy Statement is incorporated herein by reference.
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 29
Consolidated Balance Sheets as of December 31, 2001 and 2000 30
Consolidated Statements of Operations for the Years Ended 31
December 31, 2001, 2000, and 1999
Consolidated Statements of Shareholders' Equity for the Years Ended 32
December 31, 2001, 2000, and 1999
Consolidated Statements of Cash Flows for the Years Ended 33
December 31, 2001, 2000, and 1999
Notes to Consolidated Financial Statements 34
Schedules:
Schedule III - Real Estate and Accumulated Depreciation 47
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
26
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* Articles Supplementary, Classifying and Designating 909,090
Shares of Series B Cumulative Convertible Preferred Stock, dated
December 28, 2001 (filed as Exhibit 3.1 to BNP Residential
Properties, Inc. Current Report on Form 8-K dated December 28,
2001, and incorporated herein by reference)
3.3* Amended and Restated By-Laws (filed as Exhibit 3.2 to BNP Residential
Properties, Inc., Current Report on Form 8-K dated December 28, 2001,
and incorporated herein by reference)
4.1* 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)
4.2* Registration Rights Agreement By and Among BNP Residential Properties,
Inc. and Preferred Investment I, LLC, dated December 28, 2001 (filed
as Exhibit 4 to BNP Residential Properties, Inc. Current Report on
Form 8-K dated December 28, 2001, 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* Amendment to Second Amended and Restated Agreement of Limited
Partnership of BNP Residential Properties Limited Partnership,
dated December 28, 2001 (filed as Exhibit 10.1 to BNP
Residential Properties, Inc. Current Report on Form 8-K dated
December 28, 2001, and incorporated herein by reference)
10.3* Investment Agreement By and Between BNP Residential Properties, Inc.
and Preferred Investment I, LLC, dated December 28, 2001 (filed as
Exhibit 10.2 to BNP Residential Properties, Inc. Current Report on
Form 8-K dated December 28, 2001, and incorporated herein by
reference)
10.4* 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)
10.5* 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)
10.6* 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
We filed a Current Report on Form 8-K as of December 28, 2001, to report the
initial closing of an investment agreement to sell 454,545 shares of Series B
Cumulative Convertible Preferred Stock.
27
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.
(Registrant)
Date: March 26, 2002 /s/ Philip S. Payne
Philip S. Payne
Executive Vice President and
Chief Financial Officer
Date: March 26, 2002 /s/ Pamela B. Bruno
Pamela B. Bruno
Vice President, Controller and
Chief Accounting 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 26, 2002
D. Scott Wilkerson Officer, Director
/s/ Philip S. Payne Executive Vice President, Treasurer March 26, 2002
Philip S. Payne and Chief Financial Officer, Director
/s/ Pamela B. Bruno Vice President, Controller March 26, 2002
Pamela B. Bruno and Chief Accounting Officer
/s/ B. Mayo Boddie Chairman of the Board of Directors March 26, 2002
B. Mayo Boddie
/s/ Stephen R. Blank Director March 26, 2002
Stephen R. Blank
/s/ Paul G. Chrysson Director March 26, 2002
Paul G. Chrysson
/s/ W. Michael Gilley Director March 26, 2002
W. Michael Gilley
/s/ Peter J. Weidhorn Director March 26, 2002
Peter J. Weidhorn
28
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, 2001 and 2000, and the related consolidated
statements of income, shareholders' equity, and cash flows for each of the three
years in the period ended December 31, 2001. 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, 2001 and 2000, and the consolidated results of
its operations and its cash flows for each of the three years in the period
ended December 31, 2001, 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 8, 2002, except for Notes 3 and 11 as to which
the date is February 4, 2002
29
BNP RESIDENTIAL PROPERTIES, INC.
Consolidated Balance Sheets
December 31
2001 2000
------------------- ------------------
Assets
Real estate investments at cost:
Apartment properties $221,218,864 $217,818,208
Restaurant properties 39,529,527 39,702,060
------------------- ------------------
260,748,391 257,520,268
Less accumulated depreciation (40,751,890) (32,815,205)
------------------- ------------------
219,996,501 224,705,063
Cash and cash equivalents 1,417,616 1,056,052
Prepaid expenses and other current assets 1,693,374 1,510,541
Investment in and advances to Management Company - 714,892
Notes receivable 100,000 100,000
Other assets, net of accumulated amortization:
Intangible related to acquisition of management operations 1,115,088 1,521,288
Deferred financing costs 1,062,069 1,083,560
------------------- ------------------
Total assets $225,384,648 $230,691,396
=================== ==================
Liabilities and Shareholders' Equity
Deed of trust and other notes payable $162,330,222 $163,611,737
Accounts payable and accrued expenses 237,182 149,412
Accrued interest on deed of trust and other notes payable 760,586 794,836
Prepaid rents and security deposits 648,831 383,626
Deferred cable equipment rental revenue 700,324 800,000
Deferred credit for interest defeasance 500,032 666,688
------------------- ------------------
165,177,177 166,406,299
Minority interest in Operating Partnership 18,173,557 19,737,035
Shareholders' equity:
Preferred stock, $.01 par value, 10,000,000 shares authorized,
227,273 shares issued and outstanding at December 31, 2001 2,500,000 -
Common stock, $.01 par value, 100,000,000 shares authorized,
5,744,873 shares issued and outstanding at December 31, 2001,
5,706,950 shares issued and outstanding at December 31, 2000 57,449 57,069
Additional paid-in capital 69,872,958 69,707,155
Dividend distributions in excess of net income (30,396,493) (25,216,162)
------------------- ------------------
Total shareholders' equity 42,033,914 44,548,062
------------------- ------------------
Total liabilities and shareholders' equity $225,384,648 $230,691,396
=================== ==================
See accompanying notes.
30
BNP RESIDENTIAL PROPERTIES, INC.
Consolidated Statements of Operations
Years ended December 31
2001 2000 1999
----------------- ----------------- ----------------
Revenues
Apartment rental income $30,866,890 $29,269,100 $28,608,487
Restaurant rental income 4,053,192 4,161,968 4,338,830
Management fee income 528,754 - -
Equity in income of Management Company - 131,295 122,774
Interest and other income 812,937 295,602 387,392
----------------- ----------------- ----------------
36,261,773 33,857,965 33,457,483
Expenses
Apartment operations 11,182,449 9,766,085 9,395,272
Apartment administration 1,106,881 801,440 867,535
Corporate administration 1,849,273 1,589,989 1,512,361
Costs of terminated equity transaction - 237,450 -
Depreciation 7,828,457 7,155,697 6,955,955
Amortization 595,603 579,216 569,086
Interest on notes payable to affiliates - - 131,599
Interest - other 11,100,269 11,150,565 10,571,415
----------------- ----------------- ----------------
33,662,932 31,280,442 30,003,223
----------------- ----------------- ----------------
Income before minority interest and extraordinary item 2,598,841 2,577,523 3,454,260
Minority interest in Operating Partnership 596,854 594,534 727,999
----------------- ----------------- ----------------
Income before extraordinary item 2,001,987 1,982,989 2,726,261
Extraordinary item - loss on early extinguishment of debt 99,577 - -
----------------- ----------------- ----------------
Net income 1,902,410 1,982,989 2,726,261
Cumulative preferred dividend 2,740 - -
----------------- ----------------- ----------------
Income available to Common Shareholders $ 1,899,670 $ 1,982,989 $ 2,726,261
================= ================= ================
Per share data:
Basic and diluted earnings per share --
Income before extraordinary item $0.35 $0.35 $0.46
Extraordinary item (0.02) - -
----------------- ----------------- ----------------
Income available to common shareholders $0.33 $0.35 $0.46
================= ================= ================
Dividends declared $1.24 $1.24 $1.24
================= ================= ================
Weighted average common shares outstanding 5,716,811 5,707,561 5,972,576
================= ================= ================
See accompanying notes.
31
BNP RESIDENTIAL PROPERTIES, INC.
Consolidated Statements of Shareholders' Equity
Dividend
Additional distributions
Preferred Stock Common Stock paid-in in excess of
Shares Amount Shares Amount capital net income Total
--------- ------------ ----------- ---------- ------------- --------------- ------------
Balance 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 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 December 31, 2000 5,706,950 57,069