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 September 30, 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 November 1, 1996 (the latest practicable date)..
Common Stock, $.01 par value 3,050,991
(Class) (Number of shares)
Index to exhibits at page 14 Total number of pages: 17
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 9
PART II - Other Information
6 Exhibits and Reports on Form 8-K 14
</TABLE>
2
<PAGE>
PART I - Financial Information
Item 1. Financial Statements.
BODDIE-NOELL PROPERTIES, INC.
- -------------------------------------------------------------------------------
Balance Sheets
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
------------------- ------------------
(Unaudited)
<S> <C> <C>
Assets
Real estate investments at cost:
Restaurant properties $ 43,205,075 $43,205,075
Apartment properties 66,458,302 55,315,686
-------------- ------------
109,663,377 98,520,761
Less accumulated depreciation (10,807,719) (9,020,948)
-------------- --------------
98,855,658 89,499,813
Cash and cash equivalents 952,312 700,863
Rent and other receivables 7,472 244,817
Prepaid expenses and other assets 472,532 293,549
Investment in and advances to Management Company 306,151 326,767
Intangible related to acquisition of management operations, net 2,704,491 2,560,254
Deferred financing costs, net 884,183 725,713
---------------- --------------
Total assets $104,182,799 $94,351,776
============ ===========
Liabilities and Shareholders' Equity
Mortgage and other notes payable $ 70,414,507 $60,105,485
Notes payable to affiliates 7,056,300 7,056,300
Accounts payable and accrued expenses 909,866 531,512
Additional consideration due to former BTVC shareholders 708,335 283,334
Escrowed security deposits and deferred revenue 315,865 175,207
---------------- --------------
Total liabilities 79,404,873 68,151,838
-------------- ------------
Shareholders' equity:
Common stock, $.01 par value, 10,000,000 shares authorized, 3,024,991 shares
issued and outstanding at September 30, 1996,
3,016,740 shares issued and outstanding at December 31, 1995 30,250 30,167
Additional paid-in capital 33,891,278 33,785,335
Dividends distributed in excess of net income (9,143,602) (7,615,564)
--------------- -------------
Total shareholders' equity 24,777,926 26,199,938
-------------- ------------
Total liabilities and shareholders' equity $104,182,799 $94,351,776
============ ===========
</TABLE>
3
<PAGE>
BODDIE-NOELL PROPERTIES, INC.
- -------------------------------------------------------------------------------
Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
1996 1995 1996 1995
----------------- ----------------- ---------------- -----------------
<S> <C> <C> <C> <C>
Revenues
Apartment rental income $2,627,038 $2,178,661 $ 7,209,401 $ 6,322,226
Restaurant rental income 1,125,000 1,211,546 3,375,000 3,548,270
Management fees - 127,119 - 514,419
Equity in income of Management Company 35,144 2,710 111,432 2,710
Interest and other income 26,029 10,338 48,875 23,959
------------- ------------- ------------- -------------
3,813,211 3,530,374 10,744,708 10,411,584
----------- ----------- ---------- ----------
Expenses
Depreciation 627,330 544,299 1,786,771 1,639,167
Amortization 138,507 95,306 394,014 303,064
Apartment operations 829,507 724,659 2,189,679 1,947,240
Administrative 203,497 339,507 701,577 1,087,097
Interest 1,551,352 1,359,463 4,395,137 4,031,506
Write-off of deferred loan costs
at refinancing - - - 22,139
----------- ----------- ------------ ------------
3,350,193 3,063,234 9,467,178 9,030,213
----------- ----------- ------------ ------------
Net income $ 463,018 $ 467,140 $ 1,277,530 $ 1,381,371
=========== =========== =========== ===========
Net income per share $ 0.15 $ 0.16 $ 0.42 $ 0.46
=========== =========== =========== ===========
Weighted average number of shares outstanding
3,020,955 3,012,990 3,018,155 3,002,125
=========== =========== =========== ===========
</TABLE>
4
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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) $26,199,938
Net income 379,174 379,174
Dividends paid
($.31 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
Net income 435,338 435,338
Dividends paid
($.31 per share) - - - (935,190) (935,190)
--------------- ------------- ------------- ----------- --------------
Balance at June 30, 1996 3,106,740 30,167 33,785,335 (8,671,431) 25,144,071
Net income 463,018 463,018
Common stock issued 8,251 83 105,943 106,026
Dividends paid
($.31 per share) - - - (935,189) (935,189)
--------------- ------------- ------------- ----------- -------------
Balance at September 30, 1996 3,024,991 $30,250 $33,891,278 $(9,143,602) $24,777,926
=============== ============= ============= =========== ===========
</TABLE>
5
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BODDIE-NOELL PROPERTIES, INC.
- -------------------------------------------------------------------------------
Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Nine months ended
September 30,
1996 1995
---------------- -----------------
<S> <C> <C>
Cash flows from operating activities:
Net income $1,277,530 $1,381,371
Adjustments to reconcile net income to
net cash provided by operations:
Equity in income of Management Company (111,432) (2,710)
Depreciation and amortization 2,180,785 1,942,231
Write-off of deferred loan costs - 22,139
Changes in operating assets and liabilities:
Rent and other receivables 237,345 73,613
Prepaid expenses and other assets (130,466) (160,113)
Accounts payable and accrued expenses 378,354 181,972
Security deposits and deferred revenue 97,377 (25,117)
----------- -----------
Net cash provided by operating activities 3,929,493 3,413,386
----------- -----------
Cash flows from investing activities:
Acquisitions of apartment properties (10,666,580) -
Additions to apartment properties (426,035) (259,403)
Payment of deferred acquisition costs - (156,402)
Investment in and advances to Management Company (165) (150,000)
Dividends received from Management Company 126,977 -
------------- -------------
Net cash used in investing activities (10,965,803) (565,805)
------------- ------------
Cash flows from financing activities:
Proceeds of common stock issued through
dividend reinvestment plan 106,026 -
Payment of dividends (2,805,568) (2,794,030)
Proceeds from notes payable 10,650,000 10,675,000
Principal payments on notes payable (340,978) (10,783,730)
Payment of deferred financing costs (321,721) (178,305)
----------- -----------
Net cash provided by (used in) financing activities 7,287,759 (3,081,065)
----------- -----------
Increase (decrease) in cash and cash equivalents 251,449 (233,484)
Cash and cash equivalents at beginning of period 700,863 952,363
----------- -----------
Cash and cash equivalents at end of period $ 952,312 $ 718,879
=========== ===========
</TABLE>
6
<PAGE>
BODDIE-NOELL PROPERTIES, INC.
- -------------------------------------------------------------------------------
Notes to Financial Statements - September 30, 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, which was derived from the financial
statements included in the Company's 1995 Annual Report on Form 10-K. 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.
Certain amounts in the 1995 financial statements have been reclassified to
conform to the 1996 presentation.
The results of the first three quarters of 1996 are not necessarily indicative
of future financial results.
Note 2. 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,
excluding costs associated with financing the purchase, are estimated at
$40,000. 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.
Note 3. Notes payable
During the quarter ended June 30, 1996, the Company financed the purchase of
Paces Village Apartments 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. In addition, deeds of trust related to Paces Commons Apartments and
Oakbrook Apartments were modified to extend the terms of each note by five
years. In conjunction with these transactions, the Company paid and recorded
$139,000 in deferred loan costs.
Notes payable consist of the following at September 30, 1996, and December 31,
1995:
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
---------------- ----------------
<S> <C> <C>
Note payable to a bank in the principal sum of up to $25,500,000 due December
1998, interest on the outstanding principal balance payable monthly at an
effective rate of 8.11%, secured by deeds of trust on 47 restaurant properties
and assignment of rents under the Amended and Restated Master Lease Agreement
for those restaurants. The principal balance of the loan may be prepaid, in
whole or part, subject to certain restrictions and penalties. $23,900,000 $23,250,000
7
<PAGE>
Fixed rate notes payable, comprised of four loans payable in monthly
installments totaling approximately $285,000 including principal and interest at
rates ranging from 7.86% to 8.55%, with maturities in 2000 (balloon of
approximately $12,500,000) through 2025. The notes are secured by deeds of
trust and assignments of rents of four apartment properties. 36,540,551 36,855,485
Variable rate notes payable comprised of two loans ($8,600,000 and $1,400,000,
respectively), payable in monthly installments of $6,511 applied to the
principal balance of the $8,600,000 loan and interest at 30-day LIBOR plus 1.75%
and 2.25% (7.32% and 7.82% at September 30, 1996), respectively, with maturities
in 2002 and 1999, respectively. The notes are secured by deeds of trust and
assignments of rents of three apartment properties.
9,973,956 -
Variable rate notes payable to affiliates comprised of two loans due May 1999,
interest at the lower of 30-day LIBOR plus 1.5% (7.07% at September 30, 1996) or
8%, payable quarterly. Liability for these notes was assumed at the
acquisition of BTVC. 7,056,300 7,056,300
------------ ------------
$77,470,807 $67,161,785
============ ============
</TABLE>
As of September 30, 1996, scheduled principal payments are approximately as
follows: 1996 - $119,000; 1997 - $495,000; 1998 - $24,431,000; 1999 -
$9,026,000; 2000 - $12,858,000; 2001 - $389,000; thereafter - $30,153,000.
Note 4. Common stock issued through dividend reinvestment plan
In July 1996 the Company's Dividend Reinvestment and Stock Purchase Plan (the
"Plan") was amended to allow the Company, at its option, to issue shares
directly to Plan participants. On August 15, 1996, the Company issued 8,251
shares of common stock through the Plan.
Note 5. Subsequent declaration of dividend
On October 15, 1996, the Company declared a cash dividend of $0.31 per share,
which will be paid on November 15, 1996, to shareholders of record on November
1, 1996.
8
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operation.
This discussion contains forward-looking statements including, without
limitation, statements relating to development activities of the Company within
the meaning of federal securities laws. Although management believes that the
expectations reflected in such forward-looking statements are based on
reasonable assumptions, there are certain factors such as general economic
conditions, local real estate conditions, or weather conditions that might cause
a difference between actual results and those forward-looking statements.
Overview
Boddie-Noell Properties, Inc. (the "Company") is a self-managed, self-advised
real estate investment trust ("REIT"). As of September 30, 1996, the Company
owned 47 net-lease restaurant properties and five apartment properties
containing 1,328 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. The Company's revenues increased by 8 percent for the quarter ended
September 30, 1996, and 3 percent for the nine months ended September 30, 1996,
compared to the same prior year periods, reflecting significant increases in
apartment rental income offset by declines in restaurant rental income and the
transfer of all of the Company's third-party management contracts to BNP
Management, Inc. ("BNP Management"), an unconsolidated management subsidiary
which was formed in May 1995.
Apartment rental income increased by 21 percent in third quarter 1996 and 14
percent through nine months of 1996 compared to 1995. Paces Village Apartments,
acquired April 29, 1996, contributed $391,000 to third quarter 1996 and $657,000
in five months to 1996 apartment rental revenues. Revenues at apartments owned
and operated for the full period in both 1996 and 1995 increased by 3 percent
for the quarter ended September 30 and 4 percent for the nine months ended
September 30 in 1996 and 1995, respectively. For apartment properties owned
throughout the first nine months of both 1996 and 1995, increases in apartment
income resulted from a 5 percent increase in average revenue received per
apartment, offset somewhat by a 1 percent decline in economic occupancy. Summary
amounts related to apartment properties occupancy are as follows:
<TABLE>
<CAPTION>
1996 1995
---------------------------------------------------------------------
Harris Paces Paces
Hill Latitudes Oakbrook Commons Village Overall Overall
<S> <C> <C> <C> <C> <C> <C> <C>
Number of units 184 448 162 336 198 1,328 1,130
Quarter ended September 30--
Average physical occupancy 95.3% 95.3% 92.9% 95.2% 94.1% 94.8% 96.2%
Average economic occupancy 95.3% 96.0% 94.3% 96.4% 94.0% 95.5% 96.8%
Average monthly revenue/unit $714 $639 $783 $698 $701 $691 $664
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
1996 1995
---------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Nine months ended
September 30*--
Average physical occupancy 94.2% 93.3% 93.8% 94.7% 94.1% 93.9% 95.1%
Average economic occupancy 93.9% 94.1% 94.6% 95.0% 93.7% 94.3% 95.5%
Average monthly revenue/unit $711 $636 $777 $684 $699 $684 $651
<FN>
*Paces Village amounts reflect five months activity
</FN>
</TABLE>
In December 1995, the Company entered into a modified lease agreement with
Boddie-Noell Enterprises, Inc. ("BNE"), the operator of its restaurant
properties, which increased the minimum annual rental from $3.46 million to $4.5
million. Percentage rent remains at 9.875% of gross food sales, payable
quarterly to the extent that percentage rent exceeds minimum rent, but subject
to a year-end adjustment to the greater of percentage or minimum rent for the
calendar 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. Management expects that the Company will receive the minimum rent for the
year 1996 (a 3.2 percent decline from 1995) and has elected to record the
minimum rent for the second and third quarters, even though the percentage rent
calculation provides for approximately $45,000 and $77,000, respectively, in
additional rental receipts.
While the modification of the master lease and increase in the minimum rent are
expected to limit the impact of any further decline in restaurant sales,
management is optimistic that the steps being taken by its restaurant operator
to remediate the decline in sales are beginning to take hold. Since 1992, food
sales have consistently declined. While this trend continued into the third
quarter of 1996, the rate of decline has moderated. For the third quarter of
1996, same-store sales were 1 percent less than those reported for the third
quarter of 1995. This compares favorably to the 9 percent and 7 percent declines
experienced in the first and second quarters of 1996. For the first nine months
of 1996, same-store sales were 6 percent less than in the first nine months of
1995. The decline in restaurant sales appears to be the result of 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. BNE 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 chargrill cooking
method, the introduction of several new hamburger sandwiches and the
reintroduction of hot dogs to the menu. In March 1996, BNE began to convert the
Company's restaurants to the chargrill cooking system, and at June 30, 1996, all
28 of the Company's restaurants located in Virginia had been converted to the
chargrill system. The entire cost of the conversion is being borne by BNE.
The Company received no third-party management fees in 1996, compared to
$127,000 in third quarter and $514,000 year to date in 1995. The Company has a
95 percent economic interest in BNP Management, which now performs all
third-party management activities, and recorded equity in BNP Management's net
income of approximately $35,000 in third quarter and $111,000 through nine
months of 1996. Because the Company receives most of the 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.
Expenses. Third quarter and year to date 1996 expenses were generally consistent
with management's expectations. The increase in depreciation compared to 1995
amounts reflects the acquisition of Paces Village Apartments ($10.7 million in
apartment property assets) in late April along with improvements at other
apartment properties. The increase in amortization expense is primarily
attributable to quarterly additions to the intangible asset related to the
earn-out provision of the acquisition agreement pursuant to which the Company
acquired BT Venture Corporation ("BTVC") along with the addition of
approximately $320,000 in deferred financing costs, primarily during the first
six months of 1996.
10
<PAGE>
Increases in apartment operations expense in third quarter and year to date 1996
were consistent with related apartment rental income. Operating expenses related
to restaurant rental properties 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 BNP
Management.
The increase in interest expense in 1996 compared to 1995 is primarily
attributable to the addition of $10,650,000 of debt related to the acquisition
of Paces Village in the second quarter of 1996. Weighted average interest rates
were 8.0 percent in third quarter and through nine months of 1996 compared to
8.1 percent and 8.0 percent during the same periods in 1995.
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 issued additional guidance for
interpretation of this definition which provides 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.
Management considers FFO to be useful in evaluating potential property
acquisitions and measuring the operating performance of an equity REIT because,
together with net income and cash flows, FFO provides investors with an
additional basis to evaluate the ability of a REIT to incur and service debt and
to fund acquisitions and other capital expenditures. FFO does not represent net
income or cash flows from operations as defined by generally accepted accounting
principles ("GAAP"), and FFO should not be considered as an alternative to net
income as an indicator of the Company's operating performance or as an
alternative to cash flows as a measure of liquidity. FFO does not measure
whether cash flow is sufficient to fund all of the Company's cash needs,
including principal amortization, capital improvements and distributions to
shareholders. FFO does not represent cash flows from operating, investing or
financing activities as defined by GAAP. Further, FFO as disclosed by other
REITs may not be comparable to the Company's calculation of FFO, as described
above.
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 Nine months ended
September 30, September 30,
1996 1995 1996 1995
--------------- -------------- -------------- ---------------
<S> <C> <C> <C> <C>
Net income $ 463 $ 467 $ 1,278 $ 1,381
Depreciation 627 544 1,787 1,639
Amortization of management intangible 81 66 231 185
Write-off of deferred costs - - - 22
---------- ----------- ------------- -----------
Funds from operations 1,171 1,078 3,295 3,228
Equity in income of Management Company (35) (3) (111) (3)
Amortization of deferred financing costs 58 30 163 118
Changes in operating assets and liabilities 170 241 582 70
-------- -------- ----------- -----------
Net cash provided by operating activities $1,364 $ 1,345 $ 3,929 $ 3,413
====== ======= ========= ========
Net cash used in investing activities $ (140) $ (135) $(10,966) $ (566)
======= ======== ======== ========
Net cash provided by (used in) financing
activities $ (956) $(1,061) $ 7,288 $(3,081)
======== ======= ========= =======
</TABLE>
Funds from operations increased by 9 percent during third quarter and 2 percent
year to date in 1996 compared to the same periods in 1995, attributable to
improved operations at the Company's apartment properties and acquisition of
Paces Village Apartments in April 1996, partially offset by declines in
restaurant rental income.
11
<PAGE>
Declines in net income for comparable periods further
reflect the impact of increased non-cash charges for depreciation and
amortization. Changes in operating assets and liabilities reflect timing of rent
receipts and payments for trade payables, taxes, escrow funds and other prepaid
items.
Liquidity and Capital Resources
Capital resources. At September 30, 1996, the Company's total book
capitalization was $102,249,000, comprised of $24,778,000 of shareholders'
equity and $77,471,000 of debt. There were no significant changes to these
components during the third quarter of 1996.
On April 29, 1996, the Company acquired Paces Village Apartments for a contract
purchase price of $10,625,000. The Company financed the purchase with loans
totaling $10,000,000 along with a draw of $650,000 from the Company's existing
credit facility. The loans used to acquire Paces Village include a first deed of
trust loan of $8,600,000 payable in monthly installments of $6,511 plus interest
at 30-day LIBOR plus 1.75 percent, maturing in 2002, and a second deed of trust
loan of $1,400,000 which is due in full in 1999 and provides for interest only
payments monthly at 30-day LIBOR plus 2.25 percent. In conjunction with the
execution of the new loans, the Company modified existing loans on 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. Total
cost of the acquisition and related financing is estimated at $10,805,000. 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.
During 1995 the Company issued a total of 25,750 shares of common stock to the
former BTVC shareholders to satisfy an earn-out provision in the BTVC
acquisition agreement. Under the terms of the acquisition agreement, at
September 30, 1996, the former BTVC shareholders were due additional
consideration totaling $708,000, payable at the Company's option in up to 55,379
shares of common stock or cash. By agreement, the Company is prohibited from
issuing such shares of common stock if such issuance would cause the Company to
become disqualified as a REIT. On October 30, 1996, the Company issued 26,000
such shares of common stock valued at $328,000 to the former BTVC shareholders.
On July 2, 1996, the Company announced the amendment of its Dividend
Reinvestment and Stock Purchase Plan (the "Plan") effective July 26, 1996. The
Plan will continue to provide a simple and convenient method for shareholders to
invest cash dividends and optional cash payments in shares of the Company's
common stock. Under the amended Plan, the Company will now pay all costs,
including brokerage commissions, incurred in connection with purchases under the
Plan. In addition, the Plan has been amended to give the Company the option of
issuing shares directly to Plan participants rather than causing all purchases
under the Plan to be made on the open market. A more detailed description of the
Plan, as amended, has been included in the Company's Registration Statement on
Form S-3 filed on July 2, 1996. On August 15, 1996, the Company issued 8,251
shares of common stock to Plan participants.
Cash flows and liquidity. Net cash provided by operating activities totaled
$3,929,000 and $3,413,000 through nine months of 1996 and 1995, respectively. As
discussed above, funds from operations increased in third quarter and year to
date in 1996 compared to 1995. Changes in operating assets and liabilities arise
from timing of rental receipts and payments for trade payables, taxes, escrow
funds and other prepaid items.
Net cash used in investing activities totaled $10,966,000 through nine months in
1996, including approximately $10,500,000 expended during the second quarter in
the Paces Village acquisition. No significant investing activities occurred
during the third quarter of 1996 or during the first nine months of 1995.
Significant financing activities in 1996 include financing the Paces Village
Apartments acquisition with debt totaling $10,650,000 and payments of regular
quarterly dividends totaling $2,806,000 (compared to $2,794,000 paid through
nine months in 1995). The Company has consistently paid quarterly dividends of
$0.31 per share every quarter since 1992.
12
<PAGE>
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 November 15,
1996, to shareholders of record on November 1, 1996.
At September 30, 1996, the weighted average interest rate on outstanding debt
was 8.0 percent compared to 8.1 percent at March 31, 1996, reflecting the
favorable impact of new variable rate debt related to the Paces Village
acquisition. A 1 percent increase in variable rates would increase annual
interest expense by approximately $166,000, while a 1 percent decrease in
variable rates would decrease annual interest expense by approximately $170,000.
Additional discussion of notes payable and related maturities has been included
in the notes to the financial statements at September 30, 1996.
The Company expects to meet its short-term liquidity requirements with net cash
provided by operations and utilization of credit facilities. Management believes
that net cash provided by operations will be adequate to meet both operating
requirements and payment of dividends to satisfy Internal Revenue Service REIT
requirements in both the short- and long term.
The Company remains committed to its growth and diversification plan. Management
is actively seeking to add to the Company's portfolio of apartment properties.
The Company anticipates funding acquisition activities, if any, primarily by
using secured debt, and expects to meet certain of its long-term liquidity
requirements with 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.
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 Nine months ended
September 30, September 30,
1996 1995 1996 1995
---------------- ---------------- --------------- ----------------
<S> <C> <C> <C> <C>
Capitalized carpet, vinyl and wallpaper
replacements $ 62 $ 69* $ 145 $ 155*
Exterior painting 81 11 81 86
Other property additions 48 42 200 104
------ ------ ------ ------
191 122 426 345
Allocation of BTVC purchase price
additional consideration 17 17 50 50
------ ------ ------ ------
$208 $138 $476 $395
==== ==== ==== ====
<FN>
*Includes approximately $42,000 and $85,000 for the three months and nine
months, respectively, which was originally expensed 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
13
<PAGE>
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 costs on the lessee.
PART II - Other Information
Item 6. Exhibits and Reports on Form 8-K.
<TABLE>
<S> <C> <C>
a) Exhibits:
Exhibit 4 Boddie-Noell Properties, Inc. Dividend Reinvestment and Stock Purchase *
Plan, as amended effective July 26, 1996 (Form S-3, File No. 333-07415,
dated July 2, 1996, and incorporated herein by reference).
Exhibit 11 Computation of per share earnings Page 16
Exhibit 27 Financial data schedule (electronic filing) Page 17
*Incorporated herein by reference
b) Reports on Form 8-K:
The Company filed a Current Report on Form 8-K dated October 15, 1996,
relating to the change in its certifying accountant as of that date.
</TABLE>
14
<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)
November 12, 1996 /s/ Philip S. Payne
-----------------------
Philip S. Payne
Executive Vice President and
Chief Financial Officer
(Duly authorized officer)
November 12, 1996 /s/ Pamela B. Novak
-----------------------
Pamela B. Novak
Vice President - Controller
(Chief accounting officer)
15
<PAGE>
BODDIE-NOELL PROPERTIES, INC.
- ------------------------------------------------------------------------------
EXHIBIT 11: COMPUTATION OF PER SHARE EARNINGS
NINE MONTHS ENDED SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
Price # SHARES Total Amt.
<S> <C> <C> <C>
Common shares outstanding:
January 1 - August 14 3,016,740
August 15 - September 30 3,024,991
===============
Weighted average 3,018,155
===============
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
April 12.44
May 12.48
June 12.71
July 12.66
August 12.82
September 12.79
Overall average 12.72 (157,219) (2,000,000)
--------------- -------------------
Assumed increase(decrease) in # shares/equity $ 2,781 $ -
===================
Weighted average # shares outstanding 3,018,155
Assumed # shares for calculation of ---------------
earnings per common and common equivalent share 3,020,936
===============
Net income, nine months ended September 30, 1996 $ 1,277,530
===================
Earnings per share, weighted average common shares outstanding $ 0.4233
===================
Earnings per common and common equivalent share $ 0.4229
===================
Dilution percentage 0.09% *
===============
<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>
<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 NINE MONTHS ENDED
SEPTEMBER 30, 1996, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 952,312
<SECURITIES> 0
<RECEIVABLES> 7,472
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,432,316
<PP&E> 109,663,377
<DEPRECIATION> (10,807,719)
<TOTAL-ASSETS> 104,182,799
<CURRENT-LIABILITIES> 1,934,066
<BONDS> 77,470,807
<COMMON> 30,250
0
0
<OTHER-SE> 24,747,676
<TOTAL-LIABILITY-AND-EQUITY> 104,182,799
<SALES> 0
<TOTAL-REVENUES> 10,744,708
<CGS> 0
<TOTAL-COSTS> 3,976,450
<OTHER-EXPENSES> 1,095,591
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,395,137
<INCOME-PRETAX> 1,277,530
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,277,530
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,277,530
<EPS-PRIMARY> 0.42
<EPS-DILUTED> 0
</TABLE>
