UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996
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
BODDIE-NOELL PROPERTIES, INC.
(Exact name of Registrant as specified in its charter)
Delaware 56-1574675
State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification No.)
3710 One First Union Center, Charlotte, NC 28202-6032
(Address of principal executive offices) (Zip Code)
704/333-1367
(Registrant's telephone number)
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 ____
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of May 1, 1996 (the latest practicable date)..
Common Stock, $.01 par value 3,016,740
(Class) (Number of shares)
Index to exhibits at page 10 Total number of pages: 13
1
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Item No. Page No.
<S> <C> <C>
PART I - Financial Information
1 Financial Statements 3
2 Management's Discussion and Analysis of Financial Condition
and Results of Operations 7
PART II - Other Information
6 Exhibits and Reports on Form 8-K 10
</TABLE>
2
<PAGE>
PART I - Financial Information
Item 1. Financial Statements.
BODDIE-NOELL PROPERTIES, INC.
- -------------------------------------------------------------------------------
Balance Sheets
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
------------------- ------------------
(Unaudited)
<S> <C> <C>
Assets
Real estate investments at cost:
Restaurant properties $43,205,075 $43,205,075
Apartment properties 55,461,350 55,315,686
---------- ----------
98,666,425 98,520,761
Less accumulated depreciation (9,576,929) (9,020,948)
---------- ----------
89,089,496 89,499,813
Cash and cash equivalents 497,052 700,863
Rent and other receivables 9,668 244,817
Prepaid expenses and other assets 368,509 293,549
Deferred acquisition costs 169,669 -
Investment in and advances to Management Company 292,091 326,767
Intangible related to acquisition of management operations, net 2,612,051 2,560,254
Deferred financing costs, net 828,828 725,713
------- -------
Total assets $93,867,364 $94,351,776
=========== ===========
Liabilities and Shareholders' Equity
Mortgage and other notes payable $59,990,095 $60,105,485
Notes payable to affiliates 7,056,300 7,056,300
Accounts payable and accrued expenses 593,484 531,512
Additional consideration due to former BTVC shareholders 425,001 283,334
Escrowed security deposits and deferred revenue 158,561 175,207
------- -------
Total liabilities 68,223,441 68,151,838
---------- ----------
Shareholders' equity:
Common stock, $.01 par value, 10,000,000 shares authorized,
3,016,740 shares issued and outstanding 30,167 30,167
Additional paid-in capital 33,785,335 33,785,335
Dividends distributed in excess of net income (8,171,579) (7,615,564)
---------- ----------
Total shareholders' equity 25,643,923 26,199,938
---------- ----------
Total liabilities and shareholders' equity $93,867,364 $94,351,776
=========== ===========
</TABLE>
3
<PAGE>
BODDIE-NOELL PROPERTIES, INC.
- -------------------------------------------------------------------------------
Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
Three months ended
March 31,
1996 1995
---------------- -----------------
<S> <C> <C>
Revenues
Restaurant rental income $1,125,000 $1,074,371
Apartment rental income 2,142,742 2,061,429
Management fees - 210,603
Equity in income of Management Company 27,418 -
Interest and other income 12,345 6,779
------ -----
3,307,505 3,353,182
--------- ---------
Expenses
Depreciation 555,981 547,296
Amortization 122,289 110,121
Apartment operations 666,047 617,351
Administrative 232,226 363,752
Interest on notes payable to affiliates 125,819 138,777
Interest - other 1,225,969 1,187,779
--------- ---------
2,928,331 2,965,076
--------- ---------
Net income $ 379,174 $ 388,106
========== ==========
Net income per share $ 0.13 $ 0.13
========== ==========
Weighted average number of shares outstanding
3,016,740 2,991,031
========= =========
</TABLE>
BODDIE-NOELL PROPERTIES, INC.
- -------------------------------------------------------------------------------
Statement of Shareholders' Equity
(Unaudited)
<TABLE>
<CAPTION>
Dividends
Additional distributed
Common Stock paid-in in excess of
Shares Amount capital net income Total
---------------- ---------------- ---------------- --------------- ----------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1995 3,016,740 $30,167 $33,785,335 $(7,615,564) $26,199,938
Net income - - - 379,174 379,174
Dividends paid
($1.24 per share) - - - (935,189) (935,189)
--------- ------- ----------- ----------- -----------
Balance at March 31, 1996 3,016,740 $30,167 $33,785,335 $(8,171,579) $25,643,923
========= ======= =========== =========== ===========
</TABLE>
4
<PAGE>
BODDIE-NOELL PROPERTIES, INC.
- -------------------------------------------------------------------------------
Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Three months ended
March 31,
1996 1995
---------------- -----------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 379,174 $ 388,106
Adjustments to reconcile net income to
net cash provided by operations:
Equity in income of Management Company (27,418) -
Depreciation and amortization 678,270 657,417
Changes in operating assets and liabilities:
Rent and other receivables 235,149 155,369
Prepaid expenses and other assets (76,581) (234,056)
Accounts payable and accrued expenses 61,972 (31,708)
Security deposits and deferred revenue (9,789) (5,752)
------ ------
Net cash provided by operating activities 1,240,777 929,376
--------- -------
Cash flows from investing activities:
Additions to apartment properties (128,997) (108,018)
Payment of deferred acquisition costs (169,669) (126,075)
Investment in and advances to
Management Company (165) -
Dividends received from
Management Company 57,023 -
------ -------
Net cash used in investing activities (241,808) (234,093)
-------- --------
Cash flows from financing activities:
Payment of dividends (935,189) (927,207)
Principal payments on notes payable (115,390) (89,141)
Payment of deferred financing costs (152,201) (48,886)
-------- -------
Net cash used in financing activities (1,202,780) (1,065,234)
---------- ----------
Decrease in cash and cash equivalents (203,811) (369,951)
Cash and cash equivalents at
beginning of period 700,863 952,363
------- -------
Cash and cash equivalents at
end of period $ 497,052 $ 582,412
=========== ===========
</TABLE>
5
<PAGE>
BODDIE-NOELL PROPERTIES, INC.
- -------------------------------------------------------------------------------
Notes to Financial Statements - March 31, 1996
(Unaudited)
Note 1. Interim financial statements
The accompanying financial statements of Boddie-Noell Properties, Inc. (the
"Company") have not been audited by independent accountants, except for the
balance sheet at December 31, 1995. In the opinion of the Company's management,
all adjustments (consisting of normal recurring accruals) necessary for a fair
presentation of the financial position and results of operations for the periods
presented have been included.
Certain notes and other information have been condensed or omitted from the
interim financial statements presented in this Quarterly Report on Form 10-Q.
These financial statements should be read in conjunction with the Company's 1995
Annual Report on Form 10-K.
The results of the first quarter of 1996 are not necessarily indicative of
future financial results.
Note 2. Subsequent declaration of dividend
On April 19, 1996, the Company declared a cash dividend of $0.31 per share,
which will be paid on May 15, 1996, to shareholders of record on May 1, 1996.
Note 3. Subsequent acquisition of Paces Village Apartments
On April 29, 1996, the Company acquired Paces Village Apartments for a contract
purchase price of $10,625,000. Transaction costs related to the acquisition,
including costs associated with financing the purchase, are estimated at
$170,000. The Company financed the purchase through first and second deed of
trust loans totaling $10,000,000 along with a draw of $650,000 from the
Company's existing credit facility. A more detailed description of the
acquisition has been included in the Company's Current Report on Form 8-K as of
April 29, 1996.
6
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operation.
Overview
Boddie-Noell Properties, Inc. (the "Company") is a self-managed, self-advised
real estate investment trust ("REIT"). As of March 31, 1996, the Company owned
47 net-lease restaurant properties and four apartment properties containing
1,130 apartments. In April 1996 the Company acquired an additional apartment
community containing 198 apartments. Through its management subsidiary, the
Company manages an additional nine apartment properties containing 1,713
apartments and two shopping centers. All of the Company's operations are in the
states of North Carolina and Virginia.
The following discussion should be read in conjunction with the financial
statements and notes thereto included in this Quarterly Report on Form 10-Q, the
Company's audited financial statements and notes thereto included in the
Company's 1995 Annual Report on Form 10-K and the Company's Current Report on
Form 8-K as of April 29, 1996.
Results of Operations
Revenues. For the quarter ended March 31, 1996, the Company's revenues decreased
by 1.4 percent from the same period in 1995, primarily attributable to the
transfer of all of the Company's third-party property management contracts to an
unconsolidated management subsidiary which was formed in May 1995. The Company
received no third-party management fees in first quarter 1996, compared to
$211,000 in first quarter 1995. The Company has a 95 percent economic interest
in the unconsolidated management subsidiary and, during the first quarter of
1996, recorded equity in the subsidiary's net income of approximately $27,000.
Because the Company receives significantly all net income of the subsidiary,
management does not expect that the formation or operation of the management
subsidiary will have a significant effect on the Company's financial position or
operating results.
Apartment rental income improved by 3.9 percent in first quarter 1996 compared
to first quarter 1995. The increase in apartment income resulted from a 6.8
percent increase in average revenue received per apartment, offset somewhat by a
2.5 percent decline in economic occupancy. Summary amounts related to apartment
properties occupancy are as follows:
<TABLE>
<CAPTION>
1996 1995
------------------------------------------------------- ------
Harris Paces
Hill Latitudes Oakbrook Commons Overall Overall
---- --------- -------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Number of units 184 448 162 336 1,130 1,130
Quarter ended March 31--
Average physical occupancy 94.5% 91.9% 95.1% 93.4% 93.2% 95.1%
Average economic occupancy 93.7% 92.9% 95.6% 93.0% 93.5% 96.0%
Average monthly revenue/unit $713 $629 $766 $676 $677 $634
</TABLE>
Restaurant rental income increased by 4.7 percent for the first quarter of 1996
over the first quarter of 1995, despite a continued decline in restaurant sales.
In December 1995, the Company entered into a modified lease agreement with the
operator of its restaurant properties which increased the minimum rental payment
from $3.46 million per year to $4.5 million per year. During the first quarter
of 1996, the new minimum resulted in higher restaurant rental payments than were
received in the first quarter of 1995. Same-store restaurant sales declined by
9.4 percent for first quarter 1996 compared to first quarter 1995, attributed to
the combined effect of severe weather in the Company's markets, continued
widespread price discounting in the quick-service restaurant industry, and the
lack of a strong hamburger product on the Hardee's menu. Boddie-Noell
Enterprises ("BNE"), the restaurant operator, and Hardee's Food Systems, the
restaurant franchisor, are taking aggressive steps to improve restaurant sales,
including a new advertising campaign and a return to the charbroil cooking
method for hamburger products.
7
<PAGE>
In March 1996, BNE began to convert the Company's restaurants to the charbroil
cooking system. At March 31, 1996, six of the Company's restaurants in
southeastern Virginia had been converted; by June 30, 1996, all 28 of the
Company's restaurants located in Virginia will be converted to the charbroil
system. The entire cost of the conversion is being borne by the restaurant
operator.
Expenses. First quarter 1996 expenses were generally consistent with
management's expectations. A nominal increase in depreciation compared to first
quarter of 1995 reflects improvements planned as part of the 1993 and 1994
acquisitions of apartment properties. The 11 percent increase in amortization
expense is primarily attributable to quarterly additions to the intangible
related to the 1994 acquisition of management operations pursuant to the
earn-out provision of that acquisition agreement.
Apartment operations expense increased primarily as a result of timing
differences and normalization of operations at Harris Hill Apartments (which was
acquired in late December 1994). Operating expenses related to restaurant rental
are insignificant because of the restaurants' triple net lease arrangement. The
decline in administrative expense reflects the transfer of expenses related to
third-party management operations to the unconsolidated management subsidiary.
The increase in interest expense in 1996 compared to 1995 is primarily
attributable to the conversion of the Company's line of credit to a fixed
interest rate loan in December 1995. The weighted average interest rate in first
quarter of 1996 was 8.1 percent compared to 7.9 percent in first quarter of
1995, with no significant change in outstanding debt balance.
Summary results of operations. Funds from operations ("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 (losses) from debt restructuring and sales of property, plus
depreciation and amortization, and after adjustments for unconsolidated
partnerships and joint ventures." In 1995 NAREIT provided additional guidance
for interpretation of this definition which specifies that only depreciation and
amortization of real estate assets should be added back to net income in
calculating FFO. At December 31, 1995, the Company adopted this interpretation
and restated FFO amounts previously reported.
The Company considers FFO in evaluating property acquisitions and its operating
performance and believes that FFO should be considered along with, but not as an
alternative to, net income and cash flows as a measure of the Company's
operating performance and liquidity. FFO does not represent cash generated from
operating activities in accordance with generally accepted accounting principles
and is not necessarily indicative of cash available to fund cash needs.
A reconciliation of net income, funds from operations, and net cash provided by
operating activities is as follows (all amounts in thousands):
<TABLE>
<CAPTION>
Three months ended
March 31,
1996 1995
-------------- ---------------
<S> <C> <C>
Net income $ 379 $ 388
Depreciation 556 547
Amortization of management intangible 73 56
-- --
Funds from operations 1,008 991
Equity in income of Management Company (27) -
Amortization of deferred financing costs 49 54
Changes in operating assets and liabilities 211 (116)
--- ----
Net cash provided by operating activities $1,241 $ 929
====== =======
</TABLE>
8
<PAGE>
Net income and funds from operations were virtually unchanged for the first
quarters of 1996 and 1995. Changes in operating assets and liabilities reflect
timing of rent receipts and payments for trade payables, taxes, and escrow funds
and other prepaid items.
Liquidity and Capital Resources
Capital resources. As of March 31, 1996, the Company's total book capitalization
was $92,690,000, comprised of $25,644,000 of shareholders' equity and
$67,046,000 of debt. There were no changes in debt or equity structures during
the first quarter of 1996.
During 1995 the Company issued a total of 25,750 shares of common stock to the
former BT Venture Corporation ("BTVC") shareholders in conjunction with an
earn-out provision of that acquisition agreement. Under the terms of the
acquisition agreement, at March 31, 1996, the former BTVC shareholders are due
additional consideration totaling $425,000, payable at the Company's option in
up to 33,281 shares of common stock or cash.
Cash flows and liquidity. Net cash provided by operating activities totaled
$1,241,000 and $929,000 in first quarter of 1996 and 1995, respectively. As
discussed above, net income and funds from operations were generally consistent
in the two periods. Changes in operating assets and liabilities arise from
timing of rent receipts and payments for trade payables, taxes, escrow funds and
other prepaid items. In first quarter of 1995, the Company paid a $187,000
refundable deposit which was classified as a current operating asset.
There were no significant unusual investing or financing activities during the
first three months of 1996 or 1995. Net cash used in investing activities
totaled $242,000 in 1996 compared to $234,000 in 1995. Net cash used in
financing activities totaled $1,203,000 in 1996 and $1,065,000 in 1995,
including payments of dividends totaling $935,000 and $927,000, respectively.
Short- and long-term liquidity requirements. The Company continues to produce
sufficient cash flow to fund its regular dividend. The Company has announced
that it will pay a regular quarterly dividend of $0.31 per share on May 15,
1996, to shareholders of record on May 1, 1996.
On April 29, 1996, the Company acquired Paces Village Apartments for a contract
purchase price of $10,625,000. Total cost of the acquisition and related
financing is estimated at $10,800,000. The Company financed the purchase through
loans totaling $10,000,000 along with a draw of $650,000 from the Company's
existing credit facility. In conjunction with execution of the new loans, the
Company modified existing loans for Paces Commons and Oakbrook Apartments to
extend the terms of these loans from 25 to 30 years and to increase interest
rate lock periods by two years for each loan. A more detailed description of the
acquisition and related financing transactions has been included in the
Company's Current Report on Form 8-K as of April 29, 1996.
As discussed above, interest expense increased by approximately $25,000 in first
quarter 1996 compared to first quarter 1995. However, with refinancing of its
credit facility in December 1995 the Company has further reduced its exposure to
increases in variable interest rates. At March 31, 1996, the weighted average
interest rate on outstanding debt was 8.1 percent; a 1 percent increase in
variable rates would increase annual interest expense by approximately $68,000,
while a 1 percent decrease in variable rates would decrease annual interest
expense by approximately $71,000.
The Company expects to meet its short-term liquidity requirements generally
through net cash provided by operations and utilization of credit facilities.
Management believes that net cash provided by operations will be adequate and
anticipates that it will continue to be adequate to meet both operating
requirements and payment of dividends in accordance with Internal Revenue
Service REIT requirements in both the short- and long term. The Company
anticipates funding acquisition activities, if any, primarily by using secured
debt, and expects to meet certain of its long-term liquidity requirements
through long-term secured and unsecured borrowings and the issuance of debt
securities or additional equity securities of the Company. Management believes
that it has sufficient resources to meet its short- and long-term liquidity
requirements.
9
<PAGE>
Capitalization of fixed assets and property improvements. The Company has
established a policy of capitalizing those expenditures relating to acquiring
new assets, materially enhancing the value of an existing asset, or
substantially extending the useful life of an existing asset. Apartment property
carpet, vinyl and wallpaper are capitalized and depreciated over five years.
Capitalized property additions, replacements and improvements are summarized as
follows (amounts in thousands):
<TABLE>
<CAPTION>
Three months ended
March 31,
1996 1995
--------------- ----------------
<S> <C> <C>
Capitalized carpet, vinyl and wallpaper
replacements $ 43 $ 33*
Exterior painting - 75
Other property additions 86 16
-- --
129 124
Allocation of BTVC purchase price
additional consideration 17 17
-- --
$146 $140
==== ====
<FN>
*Includes approximately $16,000 originally charged to period expense and
subsequently capitalized through a fourth quarter adjustment.
</FN>
</TABLE>
Inflation. Management does not believe that inflation poses a material risk to
the Company. The leases at the Company's apartment properties are short-term in
nature. The majority of the apartment leases are for terms of one year or less,
with none longer than two years. All apartment leases allow, at the time of
renewal, for adjustments in the rent payable thereunder and thus enable the
Company to seek increases in rents to compensate for increases in expenses
brought about by inflation. In addition, the apartment lease agreements give the
Company the right to terminate any lease at the end of its term on 60 days
notice. The restaurant properties are leased on a triple-net basis, which places
the risk of rising operating and maintenance cost on the lessee.
PART II - Other Information
Item 6. Exhibits and Reports on Form 8-K.
a) Exhibits:
Exhibit 11 Computation of per share earnings Page 12
Exhibit 27 Financial data schedule (electronic filing) Page 13
b) Reports on Form 8-K: None
10
<PAGE>
SIGNATURES
Pursuant to the requirements 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.
BODDIE-NOELL PROPERTIES, INC.
(Registrant)
May 14, 1996 /s/ Philip S. Payne
Philip S. Payne
Executive Vice President and
Chief Financial Officer
(Duly authorized officer)
May 14, 1996 /s/ Pamela B. Novak
Pamela B. Novak
Vice President - Controller
(Chief accounting officer)
11
<PAGE>
BODDIE-NOELL PROPERTIES, INC.
- ------------------------------------------------------------------------------
EXHIBIT 11: COMPUTATION OF PER SHARE EARNINGS
THREE MONTHS ENDED MARCH 31, 1996
<TABLE>
<CAPTION>
Price # SHARES Total Amt.
<S> <C> <C> <C>
Common shares outstanding:
January 1 - March 31 3,016,740
==============
Weighted average 3,016,740
==============
Common stock equivalents:
Options granted October 17, 1994,
as repriced January, 1996 $ 12.50 160,000
==============
Other potentially dilutive securities: none
==============
Assumed exercise of options @ January 1 12.50 160,000 $2,000,000
Assumed purchase of treasury stock w/proceeds
Average price of stock (per AMEX reports)
January 12.59
February 12.95
March 13.05
Overall average 12.86 (155,481) (2,000,000)
-------------- ================
Assumed increase(decrease) in # shares/equity $ 4,519 $ -
================
Weighted average # shares outstanding 3,016,740
Assumed # shares for calculation of
--------------
earnings per common and common equivalent share 3,021,259
==============
Net income, three months ended March 31, 1996 $ 379,174
================
Earnings per share, weighted average common shares outstanding $ 0.1257
================
Earnings per common and common equivalent share $ 0.1255
================
Dilution percentage 0.15% *
==============
<FN>
*Reduction of less than 3% in the aggregate is not considered dilution;
financial statement presentation of fully diluted earnings per share is not
required. Primary earnings per share is presented based on weighted average
number of common shares outstanding.
</FN>
</TABLE>
12
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM BODDIE-NOELL
PROPERTIES, INC. FINANCIAL STATEMENTS AS OF AND FOR THE THREE MONTHS ENDED MARCH
31, 1996, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 497,052
<SECURITIES> 0
<RECEIVABLES> 9,668
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 875,229
<PP&E> 98,666,425
<DEPRECIATION> (9,576,929)
<TOTAL-ASSETS> 93,867,364
<CURRENT-LIABILITIES> 1,177,046
<BONDS> 67,046,395
<COMMON> 30,167
0
0
<OTHER-SE> 25,613,756
<TOTAL-LIABILITY-AND-EQUITY> 93,867,364
<SALES> 0
<TOTAL-REVENUES> 3,307,505
<CGS> 0
<TOTAL-COSTS> 1,222,028
<OTHER-EXPENSES> 354,515
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,351,788
<INCOME-PRETAX> 379,174
<INCOME-TAX> 0
<INCOME-CONTINUING> 379,174
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 379,174
<EPS-PRIMARY> 0.13
<EPS-DILUTED> 0
</TABLE>
