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, 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 Identification No.)
incorporation or organization)
3710 One First Union Center, Charlotte, NC 28202-6032
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 704/333-1367
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 14, 1997 was approximately $35,328,000.
The number of shares of Registrant's Common Stock outstanding on March
14, 1997 was 3,102,983.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the 1997 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 41 Total number of Pages 44
Filed via EDGAR ___
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BODDIE NOELL PROPERTIES, INC.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Item No. FINANCIAL INFORMATION Page No.
<S> <C> <C>
PART I
1 Business 3
2 Properties 5
3 Legal Proceedings 7
4 Submission of Matters to a Vote of Security Holders 7
X Executive Officers of the Registrant 7
PART II
5 Market for Registrant's Common Equity and Related Stockholder 9
Matters
6 Selected Financial Data 10
7 Management's Discussion and Analysis of Financial Condition 11
and Results of Operations
8 Financial Statements and Supplementary Data 17
9 Changes in and Disagreements With Accountants on Accounting 17
and Financial Disclosure
PART III
10 Directors and Executive Officers of the Registrant 18
11 Executive Compensation 18
12 Security Ownership of Certain Beneficial Owners and Management 18
13 Certain Relationships and Related Transactions 18
PART IV
14 Exhibits, Financial Statement Schedules, and Reports on Form 19
8-K
</TABLE>
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PART I
ITEM 1. BUSINESS
Company Profile
Boddie-Noell Properties, Inc. (the "Company") is a self-advised and self-managed
equity real estate investment trust ("REIT"). The Company, formerly known as
Boddie-Noell Restaurant Properties, Inc., was formed in 1987 and currently has
3,102,983 shares of common stock outstanding and approximately 5,000
shareholders (including beneficial owners). The Company's shares are listed on
the American Stock Exchange, trading under the symbol "BNP". Its executive
offices are located at 3710 One First Union Center, Charlotte, North Carolina
28202-6032 (704-333-1367).
History and Development of Boddie-Noell Properties, Inc.
From its inception through 1992 the Company's investment strategy was limited to
the ownership of 47 restaurant properties leased on a triple net basis to
Boddie-Noell Enterprises, Inc. ("Enterprises"), a Hardee's franchisee. During
this period the Company operated as an externally advised REIT with all
management and administrative functions being performed by an affiliate of
Enterprises under an advisory contract. These investments provided for a
relatively stable record of revenue and cash flow. In order to enhance
shareholder value and provide for growth in funds from operations ("FFO"), the
Company began in 1993 to diversify its investments into multi-family residential
properties.
In June 1993 the Company purchased its first apartment property, Paces Commons,
a 336-unit apartment community in Matthews, North Carolina (a suburb of
Charlotte). In June 1994 the Company acquired Oakbrook, a 162-unit apartment
community in Charlotte, North Carolina. In October 1994 it acquired BT Venture
Corporation ("BTVC"), an integrated real estate management, development and
acquisition company that owned one apartment community (Latitudes) and managed
12 additional apartment communities (including two owned by the Company) and
three retail shopping centers. Latitudes is a 448-unit apartment community
located in Virginia Beach, Virginia. In December 1994 the Company acquired
Harris Hill, a 184-unit apartment community in Charlotte, North Carolina. In
April 1996 the Company acquired Paces Village, a 198-unit apartment community in
Greensboro, North Carolina.
Current Operations
The Company now owns five apartment communities containing a total of 1,328
apartments and 47 restaurant properties. Through its unconsolidated subsidiary,
BNP Management, Inc., the Company manages an additional nine apartment
communities containing a total of 1,713 apartments and two shopping centers
containing a total of 113,800 square feet. All of the properties presently owned
or managed by the Company are located in the states of North Carolina and
Virginia, with multi-family residential operations in the North Carolina cities
of Raleigh, Durham, Cary, Chapel Hill, Greensboro and Charlotte, as well as
Virginia Beach, Virginia.
The Company has 86 employees, including administrative, management, accounting,
legal, acquisitions, development, property management, leasing and maintenance
personnel, and operates as a self-advised and self-managed REIT.
Each apartment community is operated by an on-site manager assisted by staff
trained by the Company in sales, management, accounting, maintenance and other
procedures. On-site managers report directly to property managers who operate
from the Company's corporate offices. This flat organization provides for
efficient staffing levels, reduces overhead expenses and enables the Company to
be responsive to the needs of residents and on-site employees. Employees of the
Company supervise all renovation and repair activities, which are generally
completed by outside contractors.
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Restaurant properties are leased on a triple net basis to Enterprises, a
privately held company, which is the second largest Hardee's franchisee in the
United States with approximately 360 stores. The Company's lease agreement with
Enterprises (the "master lease"), as amended in December 1995, has a primary
term expiring December 2007, grants Enterprises three five-year renewal options
and provides for rent equal to 9.875 percent of restaurant sales as defined,
subject to a minimum annual rent of $4,500,000 per year. Under the terms of the
master lease, Enterprises is responsible for all aspects of the operation,
maintenance and upkeep of the restaurant properties.
Business Strategy
Building upon the acquisition of its five apartment communities and BTVC, the
Company intends to continue to invest in additional apartment communities in the
southeastern United States. The Company will selectively consider opportunities
for development of new apartment communities and the acquisition and
rehabilitation of older apartment communities. Management believes that its
development and redevelopment experience will enable it to build additional
apartment communities and to rehabilitate existing communities when economic
conditions and available capital make such opportunities attractive.
In evaluating potential properties for acquisition, the Company will consider
such factors as:
- - the current and anticipated cash flow of the property, its adequacy to meet
operational needs and other obligations, and its impact on the Company's ability
to pay dividends;
- - the geographic area and demographic profile;
- - the location, construction quality, condition and design of the property;
- - the potential for increasing cash flow by means of increasing rental rates and
reducing operating expenses;
- - the potential for capital appreciation;
- - the growth, tax and regulatory environment of the community in which the
property is located;
- - occupancy and demand for the property;
- - and prospects for eventual sale or refinancing.
Generally an apartment property will be acquired only where the operating
history indicates that the property will contribute immediately to the cash flow
of the Company and there is a strong likelihood of increasing cash flow.
Prior to acquiring its first apartment community, the Company's capital
requirements were minimal as all capital expenses related to the restaurants
were borne by Enterprises under the terms of the master lease. In order to
acquire BTVC and its five apartment communities, the Company has incurred
additional debt and issued additional common stock. The additional debt consists
of mortgages secured by the acquired apartment communities and draws against the
Company's credit lines. In order for the Company to continue to acquire
apartment properties, it is essential that it obtain additional equity capital.
The Company is actively exploring available sources of equity capital. It is
likely that the Company will incur additional long-term debt as part of any
apartment acquisitions. While short-term variable rate debt may be used to
facilitate an acquisition, the preferred permanent financing will be long-term
and fixed rate.
The Company has elected to be taxed as a REIT under Sections 856 through 860 of
the Internal Revenue Code of 1986, as amended. As such the Company generally
will not be subject to federal or state income taxes on net income. REITs are
subject to a number of organizational and operational requirements, including a
requirement that they currently distribute at least 95 percent of their ordinary
taxable income as dividends. The Company intends to pay dividends quarterly,
expects that these dividends will substantially exceed the 95 percent taxable
income test, and anticipates that all dividends will be paid from current funds
from operations.
In addition to the 95 percent taxable income test, the Company is subject to a
"non-qualifying" income test which requires that no more than 5 percent of total
revenue come from sources deemed to be "non-qualifying." Failure to comply with
this requirement may result in the loss of the Company's REIT status. Revenue
from third-party property management contracts assumed at the acquisition of
BTVC in 1994 is considered to be non-qualifying income. To ensure that
non-qualifying income did not exceed 5 percent of its total revenue, in May 1995
the Company transferred the third-party management contracts to a newly formed
unconsolidated taxable subsidiary, BNP Management, Inc. This structure is
currently being used by a number of other REITs.
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The Company generally expects to meet its short-term liquidity requirements
through net cash provided by operations and utilization of credit facilities.
Management believes that net cash provided by operations is, and will continue
to be, adequate to meet both operating requirements and payment of dividends by
the Company in accordance with REIT requirements in both the short- and the long
term. The Company anticipates funding its acquisition activities, if any,
primarily by using short-term credit facilities or secured long-term debt. The
Company expects to meet certain of its 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 of the Company.
The Company believes that it has sufficient resources to meet its short- and
long-term liquidity requirements.
ITEM 2. PROPERTIES
The Company owns five apartment communities and 47 restaurant properties. All of
the Company's properties are located in the states of North Carolina and
Virginia. The properties are held subject to loans, discussed in Notes to the
Financial Statements included in Item 14 of this Annual Report.
Apartment Properties
The Company owns five apartment properties containing a total of 1,328 units.
Three properties containing a total of 682 apartments are located in Charlotte,
North Carolina; one property with 448 apartments is located in Virginia Beach,
Virginia; and one property with 198 units is located in Greensboro, North
Carolina. Summary information concerning each apartment property follows:
Paces Commons Apartments. Located in Charlotte, North Carolina, Paces Commons
was constructed in 1988 on 24.8 acres. The property consists of 18 two and three
story masonry and wood frame buildings containing 336 garden type apartments.
The community offers eight different one, two and three bedroom floor plans with
an average size of 862 square feet. The property was acquired by the Company on
June 8, 1993, for a contract price of $14,250,000.
Oakbrook Apartments. Located in Charlotte, North Carolina, Oakbrook was
constructed in 1985 on a 16.4 acre site. The property consists of 17 two story
wood frame buildings with cedar siding and brick veneer containing 162 garden
and townhouse style apartment units. The property offers eight different one,
two and three bedroom floor plans averaging 1,100 square feet. The property was
acquired by the Company on June 7, 1994, for a contract price of $9,250,000.
Latitudes Apartments. Located in Virginia Beach, Virginia, Latitudes was
constructed in 1989 on a 24.9 acre site. The property consists of 20 two and
three story wood frame buildings with vinyl siding containing 448 garden style
apartment units. The property offers six different one, two and three bedroom
floor plans averaging 800 square feet. The property was acquired by the Company
on October 1, 1994, as part of the acquisition of BTVC. The property was
purchased by BTVC on December 3, 1992, for a contract price of $19,000,000.
Harris Hill Apartments. Located in Charlotte, North Carolina, Harris Hill was
constructed in 1988 on a 18.4 acre site. The property consists of 19 two and
three story wood frame buildings with wood siding containing 184 garden style
apartment units. The property offers four different one and two bedroom floor
plans averaging 912 square feet. The property was acquired by the Company on
December 28, 1994, at a contract price of $8,900,000.
Paces Village Apartments. Located in Greensboro, North Carolina, Paces Village
was constructed in 1988 on a 15.5 acre site. The property consists of 10 two and
three story masonry and wood frame buildings containing 198 apartment units. The
property offers four different one and two bedroom floor plans averaging 848
square feet. The property was acquired by the Company on April 29, 1996, at a
contract price of $10,625,000.
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APARTMENT OCCUPANCY AND REVENUE STATISTICS
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Average Economic Average Monthly
Occupancy* Revenue per
Occupied Unit
--------------------- ---------------------
<S> <C> <C>
Paces Commons:
Year ended December 31, 1996 95.4% $685
Year ended December 31, 1995 93.8% $655
Year ended December 31, 1994 94.7% $611
Oakbrook:
Year ended December 31, 1996 93.8% $780
Year ended December 31, 1995 97.6% $750
June 7 thru December 31, 1994 97.9% $711
Latitudes:
Year ended December 31, 1996 93.8% $637
Year ended December 31, 1995 95.3% $613
Year ended December 31, 1994 92.7% $606
Harris Hill:
Year ended December 31, 1996 93.4% $717
Year ended December 31, 1995 95.7% $683
Paces Village:
April 29 thru December 31, 1996 93.5% $693
<FN>
*Average Economic Occupancy is defined as gross potential rent less vacancy
divided by gross potential rent.
</FN>
</TABLE>
Restaurant Properties
The locations of the Company's 47 restaurant properties are listed in Schedule
III included in Item 14 of this Annual Report. The restaurant properties are
leased on a triple net basis to Enterprises pursuant to a master lease. The
master lease, as amended in December 1995, provides for a primary term expiring
December 2007, grants Enterprises three five-year renewal options, and provides
for rent equal to 9.875 percent of restaurant sales as defined, subject to a
minimum annual rent of $4,500,000. The average price for the restaurant
properties was approximately $920,000 per property.
The restaurant properties are operated by Enterprises as Hardee's restaurants
pursuant to franchise agreements. These agreements require that the properties
conform to a standard design specified by Hardee's Food Systems, Inc.
("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 3,300 square feet and are located on sites ranging
from 1 to 1.3 acres. The buildings are suitable for conversion to a number of
uses, but the interiors must be substantially modified prior to utilization 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.
Under the terms of the master lease, 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 decision to modify a particular
restaurant property is based on a number of factors, including the date of its
last modification and the number, age and design features of competing
restaurants located in the market area of the particular property. All
renovations are made at Enterprises' expense.
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ITEM 3. LEGAL PROCEEDINGS
The Company is a party to a variety of legal proceedings arising in the ordinary
course of its business. In addition, the Company has become a successor
party-in-interest to certain legal proceedings as a result of its acquisition of
BTVC. These matters arose in the ordinary course of BTVC's business either as an
owner of an apartment community or as a property management company. All of
these matters, individually and in aggregate, are not expected to have a
material adverse impact on the Company.
In the event a claim were successful, the Company believes that it is adequately
covered by insurance and indemnification agreements. The Company has insurance
coverage on each of its apartment properties. The Company's 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 on each restaurant
property which identifies the Company as a named insured. Each apartment
property which is managed, but not owned, by the Company is covered by an
insurance policy under which the Company is a named insured. As to claims to
which the Company has become a successor party-in-interest to BTVC, the Company
received, as part of the acquisition of BTVC, an indemnification agreement from
the shareholders of BTVC whereby the Company is, subject to certain limitations,
indemnified from loss arising out of a claim against BTVC.
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 1996.
ITEM X. EXECUTIVE OFFICERS OF THE REGISTRANT
Set forth below is a listing and brief biography of each of the executive
officers of the Company at March 14, 1997.
<TABLE>
<CAPTION>
Name Age Position Officer Since
<S> <C> <C> <C>
D. Scott Wilkerson 39 President and Chief Executive Officer October, 1994
Philip S. Payne 45 Executive Vice President, Treasurer and Chief October, 1994
Financial Officer
Douglas E. Anderson 49 Vice President, Secretary 1987
W. Craig Worthy 44 Vice President 1987
Pamela B. Novak 43 Vice President, Controller October, 1994
</TABLE>
D. Scott Wilkerson - President and Chief Executive Officer. Mr. Wilkerson joined
BTVC 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 in January 1994. He was named Chief
Executive Officer of the Company in April 1995. From 1980 to 1986, Mr. Wilkerson
was with Arthur Andersen LLP, 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 CPA and licensed real estate broker. He is active in various
professional, civic and charitable activities.
Philip S. Payne - Executive Vice President, Treasurer and Chief Financial
Officer. Mr. Payne joined BTVC in 1990 as vice president of capital market
activities and became executive vice president and chief financial officer in
January 1993. He was named Treasurer of the Company in April 1995. 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
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representative with Legg Mason Wood Walker. From 1978 to 1983, Mr. Payne
practiced law. He received a BS degree from the College of William and Mary in
1973 and a JD degree in 1978 from the same institution.
Douglas E. Anderson - Vice President and Secretary. Mr. Anderson has served as
Vice President and Secretary of the Company since its 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, and is a former director of Golden Corral Realty Corporation. He
received a BS degree in finance and accounting from the University of North
Carolina at Chapel Hill in 1970.
W. Craig Worthy - Vice President. Mr. Worthy has served as Vice President of the
Company since its inception in 1987 and served as Treasurer of the Company from
its inception until April 1995. He is a licensed certified public accountant and
has been employed by Enterprises since 1979. Mr. Worthy is currently senior vice
president and chief financial officer of Enterprises. He serves as a director of
First Union Bank of Rocky Mount, North Carolina. He received a BA degree from
the University of Virginia in 1974 and a Master of Accountancy and of Business
Administration from the University of South Carolina in 1977.
Pamela B. Novak - Vice President and Controller. A licensed certified public
accountant, Ms. Novak joined BTVC in 1993 as controller. From 1984 to 1993, she
was employed by Ernst & Young LLP and served as an audit manager from 1987
through 1993. She received a BS in accounting from the University of North
Carolina at Charlotte in 1984.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Market Information and Dividends
The Company's Common Stock is traded on the American Stock Exchange under the
symbol "BNP". There were approximately 1,700 shareholders of record at March 14,
1997. The table below sets forth, for the periods indicated, the range of high,
low and closing sale prices of the Common Stock as reported by the American
Stock Exchange. As of March 14, 1997, the closing price of the Company's Common
Stock was $12.75 per share.
<TABLE>
<CAPTION>
Stock Price Dividends
High Low Close Paid Per Share
-------------------- --------------------- --------------------- --------------------
<S> <C> <C> <C> <C>
1996
First quarter $13 3/4 $12 1/4 $13 1/4 $ .31
Second quarter 13 3/8 11 1/2 12 5/8 .31
Third quarter 13 1/4 12 3/8 12 7/8 .31
Fourth quarter 13 1/4 12 1/8 12 1/2 .31
------
$ 1.24
1995
First quarter $13 7/8 $12 1/8 $13 3/8 $ .31
Second quarter 13 5/8 11 1/4 12 7/8 .31
Third quarter 13 5/8 12 1/4 12 7/8 .31
Fourth quarter 13 1/8 12 1/8 12 1/2 .31
------
$ 1.24
</TABLE>
The Company has a dividend reinvestment plan which is available to all
shareholders of record. Under this plan as amended in July 1996, the plan
administrator, First Union National Bank of North Carolina, reinvests dividends
on behalf of plan participants through issue of new shares of the Company's
common stock or by purchasing shares of the Company's stock on the open market,
at the Company's option. 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.
Sales of Unregistered Securities
The Company issued 38,700 shares of common stock in 1996 pursuant to the BTVC
acquisition agreement, which provides for quarterly payments of stock or cash if
certain financial targets are attained. (See Item 7, Management's Discussion and
Analysis of Financial Condition and Results of Operations - Liquidity and
Capital Resources.)
The shares were issued to the former shareholders of BT Venture Corporation
("BTVC"), B. Mayo Boddie and Nicholas B. Boddie, who are also directors of the
Company. The share were issued pursuant to an exemption from the registration
requirements of the Securities Act of 1933 set forth at Section 4(2) thereof.
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ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
For the years ended December 31
1996 1995 1994 1993 1992
---------------- -------------- --------------- --------------- --------------
<S> <C> <C> <C> <C> <C>
Operating Data
Revenues $14,507,824 $13,725,638 $9,258,246 $6,425,852 $5,373,305
Net income (1) 1,715,815 1,628,268 2,301,919 2,455,451 3,158,521
Net income per share $.57 $.54 $.80 $.86 $1.11
Weighted average number of shares
3,026,901 3,005,809 2,885,248 2,850,000 2,850,000
Distributions per share:
Ordinary income $.70 $ .60 $ .63 $1.09 $1.11
Return of capital .54 .64 .61 .15 .13
Total $1.24 $1.24 $1.24 $1.24 $1.24
Balance Sheet Data (at year end)
Total assets $103,435,982 $94,351,776 $95,954,214 $54,642,613 $40,465,345
Notes payable 77,352,257 67,161,785 66,883,556 26,894,378 12,000,000
Shareholders' equity 24,902,438 26,199,938 27,967,909 27,251,996 28,330,545
Other Data
Funds from operations (2) $4,471,574 $4,449,671 $4,291,439 $4,028,885 $3,943,175
Net cash provided by (used in):
Operating activities 4,800,303 4,475,728 4,496,461 4,066,224 3,854,446
Investing activities (11,019,566) (831,917) (18,729,121) (16,156,995) (133,764)
Financing activities 6,361,004 (3,895,311) 15,063,493 11,151,689 (3,534,000)
</TABLE>
From its inception through 1992 the Company's investment strategy was limited to
the purchase and ownership of 47 restaurant properties leased on a triple net
basis. In June 1993 the Company acquired Paces Commons Apartments, a 336-unit
apartment community. In June 1994 the Company acquired Oakbrook Apartments, a
162-unit apartment community. In October 1994 the Company acquired by merger BT
Venture Corporation ("BTVC"), including a fully integrated apartment management
and development operation and Latitudes Apartments, a 448-unit apartment
community. In December 1994 the Company acquired Harris Hill Apartments, a
184-unit apartment community. In April 1996 the Company acquired Paces Village
Apartments, a 198-unit apartment community. (See discussion of History and
Development of Boddie-Noell Properties, Inc. included in Item 1 of this Annual
Report.)
(1) 1995, 1994 and 1993 net income includes a special charge of $321,000,
$377,000 and $600,000, respectively, to write off certain acquisition costs.
Significantly all of these costs arose in 1992 and 1993 in conjunction with the
"roll-up" transaction the Company began in 1993 and ultimately abandoned in
December 1995.
(2) 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."
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 the 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
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<PAGE>
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.
In 1995 NAREIT issued additional guidance for interpretation of the definition
of FFO 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. The following table reflects the effect of this change in
definition and reconciles FFO as previously defined to FFO amounts identified
above.
<TABLE>
<CAPTION>
FFO, as FFO, as
previously Effect of currently
defined revision defined
<S> <C> <C> <C>
1996 - - $4,471,574
1995 $4,596,772 $(147,101) 4,449,671
1994 4,468,055 (176,616) 4,291,439
1993 4,121,286 (92,401) 4,028,885
1992 3,957,023 (13,848) 3,943,175
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion contains forward-looking statements within the meaning
of federal securities law. 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. This
discussion should be read in conjunction with the Balance Sheets, Statements of
Operations and Statements of Cash Flows included in Item 14 of this Annual
Report.
Results of Operations
Revenues. The Company's revenues come from two primary sources - apartment
rental income and restaurant rental income. Revenues in 1996 were $14.5 million,
an increase of 6 percent over 1995, primarily attributable to the impact of the
acquisition of Paces Village Apartments in April 1996. (Paces Village generated
apartment rental income of $1.0 million in eight months of 1996.) Revenues in
1995 were $13.7 million, an increase of 48 percent over 1994, again primarily
attributable to the impact of 1994 apartment acquisitions and continued
improvements in apartment operations. Apartment rental income accounted for 67
percent of total revenues in 1996 compared to 62 percent and 42 percent in 1995
and 1994, respectively, indicative of the Company's focus on growth and
improvement in apartment operations. Increases in income attributable to
apartment operations were offset somewhat by declines in restaurant rental
income in 1996 and 1995 and the creation of a property management subsidiary in
May 1995.
Income from Company-owned apartments increased 16 percent in 1996 compared to
1995. While these increases are primarily attributable to the acquisition of
Paces Village in April 1996, apartment operations reflect continued improvement.
Income from apartments owned for the full year in both 1996 and 1995 increased
by 3 percent in 1996, reflecting a 1 percent decline in average occupancy at
these apartments which was more than offset by a 4 percent increase in average
rental revenue per occupied unit. Average economic occupancy for the four
properties owned for the full year in both 1996 and 1995 was 94 percent for 1996
and 95 percent for 1995; average rental revenue per occupied unit was $684 in
1996 and $657 in 1995. From its acquisition in April 1996 through year end,
Paces Village had average economic occupancy of 93 percent and average revenue
per occupied unit of $693.
11
<PAGE>
The 118 percent increase in apartment rental income in 1995 compared to 1994 is
primarily attributable to the impact of acquisitions of three apartment
properties (Harris Hill, Latitudes and Oakbrook) during 1994. (See discussion of
apartment properties included in Item 2 of this Annual Report.)
The Company owns apartment properties in Charlotte, North Carolina; Greensboro,
North Carolina; and Virginia Beach, Virginia. The Company's apartments are
priced in the moderate to moderately high range for apartments available within
these markets. Despite a substantial amount of new construction, especially in
Charlotte and Greensboro, these markets have remained relatively strong. This
strength is primarily attributable to demand for apartments created by continued
population and job growth. The Company has experienced a nominal reduction in
its average economic occupancy, but average monthly rent has continued to rise
at a moderate rate. While the Company expects some continued weakness in its
markets through 1997, management does not expect this will have a material
adverse effect on the Company's operations.
Increases in apartment rental income in 1996 and 1995 were partially offset by
declines in restaurant rental income in those same periods. In 1996 restaurant
rental income declined by 3 percent compared to 1995. Related restaurant food
sales declined by 4 percent in the same period. All stores were open throughout
1996 and 1995. The difference in restaurant rental revenue and related sales is
the result of the minimum rent provision of the restaurant lease. Under the
lease, as modified in December 1995, restaurant rental is the greater of minimum
rent ($4.5 million per year) or 9.875 percent of food sales. For 1996 the rental
was the $4.5 million minimum rent.
Restaurant sales and related rental income have been in decline since 1992,
attributed to an increasingly competitive environment in the fast food industry
marked by widespread price discounting and the lack of a strong hamburger
product on the Hardee's menu. Severe weather in January 1996 also contributed to
the decline. Boddie-Noell Enterprises, Inc. ("Enterprises"), the restaurant
operator, and Hardee's Food Systems, the restaurant franchisor, are taking
aggressive steps to improve restaurant sales. This includes a new advertising
campaign, the introduction of several new food items and a return to the
charbroil cooking method. There are signs that these actions are beginning to
take effect. During 1996 the quarterly sales comparisons to the same periods in
1995 were: first quarter - down 9.4 percent; second quarter - down 7.5 percent;
third quarter - down 0.8 percent; and fourth quarter - down 0.4 percent.
In 1995 restaurant rental income declined by 8 percent compared to 1994.
"Same-store" restaurant sales for locations open for the full periods in both
years declined by 9 percent for the year. The difference in trends for rental
income and "same-store" sales can be attributed to 1994 closings for scheduled
remodeling (all stores were open throughout 1995). Effective December 22, 1995,
the Company and Enterprises entered into a modified and restated master lease
which increased the required minimum rent from $3.46 million per year to $4.5
million per year and extended the primary term from May 2002 to December 2007.
The percentage rent remained set at 9.875 percent of gross food sales.
Also offsetting the increase in apartment rental income was the elimination of
property management fee income in 1996, reflecting the formation of BNP
Management, Inc. ("Management Company") in May 1995. (The Company accounts for
its investment in the Management Company using the equity method of accounting,
and 95 percent of the net income of the Management Company flows through to the
Company's financial statements as a single line item.) Throughout 1996 all
third-party management activities were conducted by the Management Company,
which currently provides property management services for nine apartment
properties and two shopping centers. Equity in the income of this subsidiary
totaled approximately $149,000 for 1996 and $48,000 for 1995. Management fee
income earned prior to the formation of the Management Company totaled $515,000
in eight months of 1995 and $276,000 in three months of 1994. Management does
not expect the formation or operation of the Management Company to have a
significant effect on the financial position, operating results, or cash flows
of the Company.
Expenses. Increases in expenses generally reflect the impact of apartment
acquisitions in 1996 and 1994 along with acquisition of management operations in
1994. Total expenses in 1996 were $12.8 million, an increase of 6 percent over
1995, primarily attributable to the impact of the acquisition of Paces Village
Apartments in April
12
<PAGE>
1996. Total expenses in 1995 were $12.1 million, an increase of 74 percent over
1994, reflecting a full year's operations of four apartment communities (of
which three were acquired in 1994) and administrative functions.
Increases in depreciation and amortization over the three-year period are
directly attributable to the impact of acquisitions of apartment properties in
1996 and 1994 and an intangible asset recorded in conjunction with acquisition
of management operations in October 1994. Restaurant rental property ($43.2
million) and related depreciation charges ($778,000 per year) were unchanged
throughout the three-year period, while apartment rental property grew from
$14.4 million at the end of 1993 to $66.6 million by the end of 1996, with
related depreciation increasing from approximately $637,000 in 1994 to
approximately $1,662,000 in 1996. Amortization of the intangible related to
management operations totaled $315,000 in 1996 and $258,000 in 1995. The balance
of amortization expense relates to loan costs.
Operating expenses were generally in line with management's expectations.
Apartment operations expense totaled 30.4 percent, 29.3 percent, and 28.3
percent of apartment rental income in 1996, 1995 and 1994, respectively.
Increases in apartment operating expenses are primarily attributable to
increased costs associated with attracting and retaining residents in a
softening apartment market as well as an increased emphasis on preventative
maintenance. Operating expenses relating to restaurant properties are
insignificant because of the restaurant properties' triple net lease
arrangement.
The 30 percent decrease in administrative expense in 1996 compared to 1995
reflects the impact of transfer of third-party property management operations to
the Management Company in 1995. These costs declined in the last half of 1995
($538,000 during the last six months compared to $748,000 during the first six
months). The 106 percent increase in administrative expense in 1995 compared to
1994 reflects the impact of assumption of management activities in October 1994.
Through third quarter of 1994, the Company paid property management fees (5
percent of rental revenues collected) to BTVC for management of its apartment
properties and advisory fees (4.65 percent of net cash available for
distribution as defined by the advisory agreement) to an affiliate of
Enterprises. With the acquisition of BTVC, the Company terminated its advisory
contract and became self-advised and self-managed, thereby eliminating future
property management and advisory fees.
Increases in interest expense are primarily attributable to increases in
outstanding indebtedness incurred in connection with acquisitions of Paces
Village in 1996 ($10.7 million) and BTVC's management operations, Oakbrook,
Latitudes, and Harris Hill in 1994 ($40.0 million). During fourth quarter of
1994 and second quarter of 1995 the Company refinanced all variable rate debt
related to apartment properties to fixed rate loans, and in December 1995 the
Company refinanced its variable rate credit facility to a fixed rate loan. With
the exception of approximately $10.0 million in debt related to the 1996 Paces
Village acquisition, all notes payable secured by rental properties are at fixed
rates. (See further discussion below included in discussion of Liquidity and
Capital Resources.)
During the fourth quarters of 1995 and 1994 the Company recorded non-cash
write-offs of $321,000 and $377,000, respectively, related to deferred
acquisition costs. Significantly all of these costs arose in 1992 and 1993 in
conjunction with the "roll-up" transaction the Company began in 1993 and
ultimately abandoned in December 1995.
13
<PAGE>
Liquidity and Capital Resources
Capitalization. Prior to acquiring its first apartment community, the Company's
capital requirements were minimal, as all capital expenses related to the
restaurants were borne by Enterprises under the terms of the master lease. In
order to acquire Paces Commons, Oakbrook, BTVC, Latitudes, Harris Hill and Paces
Village, the Company incurred additional debt and issued additional common
stock. The additional debt consists of first and second mortgages, secured by
the acquired apartment communities, and draws against the Company's credit
lines. As the Company continues to acquire apartment properties, it is likely
that the Company will incur additional long-term debt and seek additional equity
capital.
From its inception in 1987 through September 1994 the Company had 2,850,000
shares of common stock outstanding. On October 1, 1994, an additional 140,990
shares were issued in conjunction with the acquisition of BTVC. During 1995 and
1996 the Company issued a total of 64,450 shares of common stock to the former
BTVC shareholders in conjunction with an earn-out provision of that acquisition
agreement. Under the terms of the acquisition agreement, the former BTVC
shareholders are due additional consideration totaling 27,950 shares of common
stock valued at $356,000 as of December 31, 1996. Assuming the full contingent
purchase price is earned and paid in common stock, it is anticipated that the
Company would issue approximately 62,000 additional shares of common stock in
conjunction with the acquisition (including shares earned, but not issued, at
December 31, 1996).
In July 1996 the Company's Dividend Reinvestment and Stock Purchase Plan ("DRIP
Plan") was amended to allow the Company, at its option, to issue shares directly
to Plan participants. As amended, the Plan provides for optional additional
investment by participants of $25 to $10,000 (previously $3,000) per quarter.
During 1996 the Company issued 19,207 shares through the DRIP Plan, including
11,151 shares for reinvested dividends and 8,056 shares for optional additional
investment.
Consistent with management's plan to reduce the Company's exposure to variable
rate debt, during fourth quarter of 1994 and second quarter of 1995 the Company
refinanced $37.6 million in variable rate debt related to apartment properties
to fixed rate loans with maturities ranging from 2000 through 2020. In December
1995 the Company established a credit line with SouthTrust Bank of Alabama in
the amount of $25.5 million at a fixed rate of 8.0 percent for a term of three
years. The Company used an initial draw of $23.25 million to retire its existing
short-term variable rate credit facility. During 1996 the Company financed the
purchase of Paces Village Apartments through variable rate debt totaling $10
million along with a draw of $650,000 from its existing credit facility. In
addition, deeds of trust related to two apartment properties were modified to
extend the terms of each note by five years. The balance of the credit line is
available for general corporate purposes.
A summary of long-term debt as of December 31, 1996 and 1995 has been included
in the Notes to the Financial Statements included in Item 14 of this Annual
Report. At December 31, 1996, total long-term debt was $77.3 million, including
$60.3 million notes payable at fixed interest rates ranging from 7.86 percent to
8.55 percent, and $17.0 million at variable rates. The weighted average interest
rate on debt outstanding was 8.0 percent at December 31, 1996, compared to 8.1
percent at December 31, 1995. A 1 percent increase in variable interest rates
would impact the Company by increasing interest expense by approximately
$164,000 on an annual basis; conversely, a 1 percent decrease in variable
interest rates would impact the Company by decreasing interest expense by
approximately $170,000 on an annual basis.
Cash Flow and Liquidity Requirements. 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.
14
<PAGE>
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 the 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.
A reconciliation of net income to FFO is as follows (all amounts in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
-------------- --------------- --------------
<S> <C> <C> <C>
Net income $ 1,716 $ 1,628 $ 2,301
Depreciation 2,440 2,204 1,415
Amortization of management intangible 315 258 56
Write-off of deferred costs - 359 519
-------------- --------------- --------------
Funds from operations $ 4,472 $ 4,450 $ 4,291
============== =============== ==============
</TABLE>
Funds available for distribution ("FAD") is defined by the Company as FFO plus
non-cash expense for amortization of loan costs, less payments for scheduled
amortization of debt principal and recurring capital expenditures.
A reconciliation of FFO to FAD, along with summary cash flow information, is as
follows (all amounts in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
-------------- --------------- --------------
<S> <C> <C> <C>
Funds from operations $ 4,472 $ 4,450 $ 4,291
Amortization of loan costs 219 147 177
Scheduled debt principal payments (460) (397) (167)
Recurring capital expenditures (396) (239) (49)
-------------- --------------- --------------
Funds available for distribution $ 3,835 $ 3,961 $ 4,253
============== =============== ==============
Net cash provided by (used in):
Operating activities $ 4,800 $ 4,476 $ 4,496
Investing activities (11,020) (832) (18,729)
Financing activities 6,361 (3,895) 15,063
Dividends and distributions paid to shareholders $ 3,751 $ 3,729 $ 3,578
Nonrecurring capital expenditures:
Acquisition improvements and replacements $ 143 $ 285 $ 113
Other apartment property improvements 22 2 -
</TABLE>
As discussed above, the addition of apartment properties and improvement in
apartment operations have offset the decline in restaurant rental income,
producing increases in FFO of 0.5 percent in 1996 and 3.7 percent in 1995. Net
income for 1996 increased by 5.4 percent compared to 1995. This increase is
attributable to the fact that during 1995 the Company recorded write-offs
totaling $359,000--otherwise, net income for 1996 compared to 1995
15
<PAGE>
would have declined and reflected the effect of depreciation and amortization of
assets related to apartment property acquisitions. As expected, net income
declined 29.3 percent in 1995 compared to 1994, reflecting the effect of
non-cash charges for depreciation and amortization of assets related to
apartment property acquisitions in 1993 and 1994. As seen in the past, future
additions to the apartment properties portfolio would likely result in a decline
in net income due to significant non-cash charges for depreciation and
amortization; however, management anticipates that such additions would generate
favorable increases in FFO.
The Company capitalizes 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. In 1996 and 1995 the Company capitalized
all carpet and vinyl replacements (including $29,000 in 1996 and $120,000 in
1995 included in acquisition improvements and replacements). In 1994 apartment
carpet and vinyl replacements were generally expensed as incurred ($23,000
expensed in 1994), except when those replacements were made in conjunction with
a plan of acquisition ($91,000 in 1994 included in acquisition improvements and
replacements). Additions to apartment properties were generally funded from cash
provided by operating activities.
In 1996 the Company applied $10.7 million proceeds of new debt to the
acquisition of Paces Village Apartments and related loan costs totaling $10.8
million. In 1994 the Company applied $18.6 million net proceeds of financing
transactions to $19.2 million in acquisition activities and related loan costs.
Dividends paid per share remained stable at $1.24 in 1996, 1995 and 1994, while
weighted average number of common shares outstanding increased by 142,000, or
4.9 percent, over the three-year period. The Company's dividend payout ratio
(the ratio of dividends paid to FFO on a per share basis) was 83.8 percent in
1996 and 1995, and 83.2 percent in 1994. REITs are subject to a number of
organizational and operational requirements, including a requirement that they
currently distribute at least 95 percent of their ordinary taxable income as
dividends. The Company intends to pay dividends quarterly, expects that these
dividends will substantially exceed the 95 percent taxable income test, and
anticipates that all dividends will be paid from current FFO.
A summary of scheduled principal payments on long-term debt is included in the
Notes to the Financial Statements included in Item 14 of this Annual Report.
Significant scheduled balloon payments include maturities of the Company's
credit line in December, 1998 ($23.9 million outstanding at December 31, 1996);
two loans payable to affiliates in May, 1999 ($7.1 million); and the note
payable secured by a deed of trust for Latitudes Apartments in January, 2000
(balloon of approximately $12.5 million).
The Company continues to produce sufficient cash flow to fund its regular
dividend and has positioned itself for future growth. The Company generally
expects to meet its short-term liquidity requirements through net cash provided
by operations and utilization of credit facilities. Management believes that net
cash provided by operations is, and will continue to be, adequate to meet both
operating requirements and payment of dividends by the Company in accordance
with REIT requirements in both the short- and the long term. The Company
anticipates funding its acquisition activities, if any, primarily by using
short-term credit facilities or secured long-term debt. The Company expects to
meet certain of its 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 of the Company. The
Company believes that it has sufficient resources to meet its short- and
long-term liquidity requirements.
Approximately 31 percent of the Company's 1996 revenue was derived from
Enterprises' payment of rent for the use of the Company's restaurant properties.
In addition, Enterprises is responsible for all of the costs associated with the
maintenance and operations of these properties. As a result, the financial well
being of the Company is, to a large extent, dependent on Enterprises' ability to
meet its obligations under the terms of the master lease. The ability of
Enterprises to satisfy the requirements of the master lease depends on its
liquidity and capital resources. Historically, Enterprises has been able to meet
its liquidity needs through cash flow generated from operations and through
reliance on its credit facility.
Enterprises' principal line of business is the operation of approximately 360
Hardee's restaurants, 47 of which are owned by the Company. The continued
decline in its restaurant sales (see "Revenues" above) has had a material
16
<PAGE>
negative impact on Enterprises' operating cash flow. Management has had
extensive discussions with management of Enterprises and has reviewed
Enterprises' unaudited financial statements, cash flow analysis, restaurant
contribution analysis, sales trend analysis and projections, and believes that
Enterprises will have sufficient liquidity and capital resources to meet its
obligations under the master lease and credit facility as well as its general
corporate operating needs.
The table below sets forth certain information with respect to the liquidity and
capital resources of Enterprises. The information is derived from Enterprises'
unaudited financial statements for the fiscal year ended December 31, 1996,
available as of March 14, 1997. Enterprises is an S Corporation for federal and
state income tax purposes; therefore, its cash flow generated from operations
does not include a deduction for corporate income tax payments.
Current assets $ 10,298,000
Total assets 269,482,000
Current liabilities 39,644,000
Total debt, including current portion of $11,401,000 117,115,000
Shareholders' equity 87,657,000
Net cash provided by operating activities 11,585,000
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, generally for terms of one year or less, with none 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 Company's
apartment properties did not identify any problems that management believes
would have a material adverse effect on the Company's results of operations,
liquidity or capital resources. Environmental transaction screens obtained for
each of the restaurant properties in 1995 did not indicate existence of any
environmental problems that warranted further investigation. Enterprises has
indemnified the Company for environmental problems associated with the
restaurant properties under its master lease with the Company.
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
Not applicable.
17
<PAGE>
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 21, 1997, (the "Proxy Statement")
is incorporated herein by reference for information on Directors of the
Registrant. See Item X in Part I of this Annual Report for information regarding
Executive Officers of the Registrant.
ITEM 11. EXECUTIVE COMPENSATION
The section under the heading "Election of Directors" entitled "Compensation of
Directors" of the Proxy Statement and the section entitled "Executive
Compensation" of the Proxy Statement are incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The section under the heading "Security Ownership of Certain Beneficial Owners
and Management" of the Proxy Statement is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The section entitled "Certain Relationships and Related Transactions" of the
Proxy Statement is incorporated herein by reference.
18
<PAGE>
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
<TABLE>
<CAPTION>
PAGE
<S> <C>
Financial Statements and Notes:
Reports of Independent Auditors 22
Balance Sheets as of December 31, 1996 and 1995 24
Statements of Operations for the Years Ended December 31, 1996, 1995, and 1994 25
Statements of Shareholders' Equity for the Years Ended 26
December 31, 1996, 1995, and 1994
Statements of Cash Flows for the Years Ended December 31, 1996, 1995, and 1994 27
Notes to Financial Statements 28
Schedules:
Schedule III - Real Estate and Accumulated Depreciation 38
</TABLE>
The financial statements and schedule 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* Agreement and Plan of Merger between BT Venture Corporation and
Boddie-Noell Restaurant Properties, Inc. (filed as Exhibit (2)-2 to
Boddie-Noell Properties, Inc. Current Report on Form 8-K dated
October 1, 1994, and incorporated herein by reference)
3.1* Articles of Incorporation (filed as Exhibit 3(a) to Registration
Statement No. 33-13155 on Form S-11 and incorporated herein by
reference)
3.2* By-Laws (filed as Exhibit 3.2 to Boddie-Noell Properties, Inc.
Annual Report on Form 10-K dated December 31, 1995, and
Incorporated herein by reference)
10.1* Amended and Restated Master Lease Agreement dated December 21,
1995, between Boddie-Noell Properties, Inc. and Boddie-Noell
Enterprises, Inc. (filed as Exhibit 10.1 to Boddie-Noell
Properties, Inc. Annual Report on Form 10-K dated December 31,
1995, and incorporated herein by reference)
10.2* Loan Agreement dated December 27, 1995, between Boddie-Noell
Properties, Inc. and SouthTrust Bank of Alabama, N.A. (filed as
Exhibit 10.2 to Boddie-Noell Properties, Inc. Annual Report on Form
10-K dated December 31, 1995, and incorporated herein by reference)
10.3* Acquisition Agreement by and among Boddie-Noell Restaurant
Properties, Inc., BT Venture Corporation and Related Entities dated
June 7, 1994 (filed as an exhibit in Schedule 14A of Proxy
Statement dated June 15, 1994, and incorporated herein by
reference)
10.4* Boddie-Noell Restaurant Properties, Inc. 1994 Stock Option and
Incentive Plan effective
19
<PAGE>
August 4, 1994 (filed as an exhibit in
Schedule 14A of Proxy Statement dated June 15, 1994 and
incorporated herein by reference)
10.5* Form and description of Incentive Stock Option Agreements dated
October 17, 1994 between the Company and certain officers (filed as
Exhibit 10.8 to Boddie-Noell Properties, Inc. Annual Report on Form
10-K dated December 31, 1994 and incorporated herein by reference)
10.6* Form and description of Nonqualified Stock Option Agreements dated
October 17, 1994 between the Company and certain officers (filed as
Exhibit 10.9 to Boddie-Noell Properties, Inc. Annual Report on Form
10-K dated December 31, 1994 and incorporated herein by reference)
10.7* Form and description of Employment Agreements dated October 1, 1994
between the Company and certain officers (filed as Exhibit 10.10 to
Boddie-Noell Properties, Inc. Annual Report on Form 10-K dated
December 31, 1994 and incorporated herein by reference)
21 Subsidiaries of the Registrant
23.1 Consent of Ernst & Young LLP
23.2 Consent of Arthur Andersen LLP
27 Financial Data Schedule (electronic filing)
* Incorporated herein by reference
Exhibits 10.4 through 10.7 are management contracts or compensatory plans.
(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.
20
<PAGE>
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.
BODDIE-NOELL PROPERTIES, INC.
Date: March 26, 1997 /s/ Philip S. Payne
Philip S. Payne
Executive Vice President
and Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.
Signature: Title: Date:
/s/ D. Scott Wilkerson President and March 26, 1997
D. Scott Wilkerson Chief Executive Officer
/s/ Philip S. Payne Executive Vice President and March 26, 1997
Philip S. Payne Chief Financial Officer
/s/ Pamela B. Novak Vice President and Controller March 26, 1997
Pamela B. Novak (Chief Accounting Officer)
/s/ B. Mayo Boddie Chairman of the Board March 26, 1997
B. Mayo Boddie
/s/ Nicholas B. Boddie Vice Chairman of the Board and March 26, 1997
Nicholas B. Boddie Director
/s/ Donald R. Pesta, Jr. Director March 26, 1997
Donald R. Pesta, Jr.
/s/ William H. Stanley Director March 26, 1997
William H. Stanley
/s/ Richard A. Urquhart, Jr. Director March 26, 1997
Richard A. Urquhart, Jr.
21
<PAGE>
Report of Independent Auditors
To the Shareholders of
Boddie-Noell Properties, Inc.
We have audited the accompanying balance sheet of Boddie-Noell Properties, Inc.
(a Delaware corporation) as of December 31, 1996, and the related statements of
operations, shareholders' equity, and cash flows for the year then ended. Our
audit also includes 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 audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Boddie-Noell Properties, Inc.
at December 31, 1996, and the results of its operations and its cash flows for
the year then ended in conformity with generally accepted accounting principles.
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
Ernst & Young LLP
Charlotte, North Carolina
January 9, 1997
22
<PAGE>
Report of Independent Public Accountants
To the Shareholders of
Boddie-Noell Properties, Inc.:
We have audited the accompanying balance sheet of Boddie-Noell Properties, Inc.
(a Delaware corporation) as of December 31, 1995, and the related statements of
operations, shareholders' equity and cash flows for the years ended December 31,
1995 and 1994. These financial statements and the schedule referred to below 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 generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Boddie-Noell Properties, Inc.
as of December 31, 1995, and the results of its operations and its cash flows
for the years ended December 31, 1995 and 1994, in conformity with generally
accepted accounting principles.
/s/ Arthur Andersen LLP
Arthur Andersen LLP
Charlotte, North Carolina
January 31, 1996.
23
<PAGE>
BODDIE-NOELL PROPERTIES, INC.
- -------------------------------------------------------------------------------
Balance Sheets
<TABLE>
<CAPTION>
December 31
1996 1995
------------------- ------------------
<S> <C> <C>
Assets
Real estate investments at cost:
Apartment properties $ 66,610,048 $ 55,315,686
Restaurant properties 43,205,075 43,205,075
------------------- ------------------
109,815,123 98,520,761
Less accumulated depreciation (11,461,365) (9,020,948)
------------------- ------------------
98,353,758 89,499,813
Cash and cash equivalents 842,604 700,863
Rent and other receivables 12,695 244,817
Prepaid expenses and other assets 392,302 293,549
Investment in and advances to Management Company 261,598 326,767
Other assets, net of applicable amortization:
Intangible related to acquisition of management operations 2,744,912 2,560,254
Deferred financing costs 828,113 725,713
------------------- ------------------
Total assets $ 103,435,982 $ 94,351,776
=================== ==================
Liabilities and Shareholders' Equity
Mortgage and other notes payable $ 70,295,957 $ 60,105,485
Notes payable to affiliates 7,056,300 7,056,300
Accounts payable and accrued expenses 15,549 129,908
Accrued interest on mortgage and other notes payable 335,871 269,373
Accrued interest on notes payable to affiliates 125,518 132,231
Additional consideration due to former BTVC shareholders 355,570 283,334
Escrowed security deposits and deferred revenue 348,779 175,207
------------------- ------------------
78,533,544 68,151,838
Shareholders' equity:
Common stock, $.01 par value, 10,000,000 shares authorized, 3,074,647 shares
issued and outstanding at December 31, 1996,
3,016,740 shares issued and outstanding at December 31, 1995 30,746 30,167
Additional paid-in capital 34,522,816 33,785,335
Dividend distributions in excess of net income (9,651,124) (7,615,564)
------------------- ------------------
Total shareholders' equity 24,902,438 26,199,938
------------------- ------------------
Total liabilities and shareholders' equity $ 103,435,982 $ 94,351,776
=================== ==================
</TABLE>
See accompanying notes.
24
<PAGE>
BODDIE-NOELL PROPERTIES, INC.
- ------------------------------------------------------------------------------
Statements of Operations
<TABLE>
<CAPTION>
Years ended December 31
1996 1995 1994
----------------- ---------------- -----------------
<S> <C> <C> <C>
Revenues
Apartment rental income $ 9,790,713 $ 8,476,268 $ 3,889,277
Restaurant rental income 4,500,000 4,649,250 5,046,837
Management fees - 514,872 276,157
Equity in income of Management Company 149,298 48,063 -
Interest and other income 67,813 37,185 45,975
----------------- ---------------- -----------------
14,507,824 13,725,638 9,258,246
Expenses
Depreciation 2,440,417 2,204,199 1,414,800
Amortization 534,663 405,182 232,856
Apartment operations 2,976,876 2,480,920 1,101,370
Administrative 894,360 1,285,509 622,605
Property management and advisory fees - - 264,322
Interest on notes payable to affiliates 499,676 540,572 139,973
Interest - other 5,446,017 4,821,865 2,661,921
Write-off of deferred loan costs upon refinancing - 37,723 141,582
Write-off of deferred acquisition costs - 321,400 376,898
----------------- ---------------- -----------------
12,792,009 12,097,370 6,956,327
----------------- ---------------- -----------------
Net income $ 1,715,815 $ 1,628,268 $ 2,301,919
================= ================ =================
Per share data:
Net income $0.57 $0.54 $0.80
================= ================ =================
Dividends declared $1.24 $1.24 $1.24
================= ================ =================
Weighted average shares outstanding 3,026,901 3,005,809 2,885,248
================= ================ =================
</TABLE>
See accompanying notes.
25
<PAGE>
BODDIE-NOELL PROPERTIES, INC.
- ------------------------------------------------------------------------------
Statements of Shareholders' Equity
<TABLE>
<CAPTION>
Dividend
Additional distributions
Common Stock paid-in in excess of
Shares Amount capital net income Total
------------- ---------------- ---------------- --------------- ----------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1993 2,850,000 $28,500 $31,462,322 $(4,238,826) $27,251,996
Common stock issued 140,990 1,410 1,990,289 - 1,991,699
Dividends paid - - - (3,577,705) (3,577,705)
Net income - - - 2,301,919 2,301,919
------------- ---------------- ---------------- --------------- ----------------
Balance at December 31, 1994 2,990,990 29,910 33,452,611 (5,514,612) 27,967,909
Common stock issued 25,750 257 332,724 - 332,981
Dividends paid - - - (3,729,220) (3,729,220)
Net income - - - 1,628,268 1,628,268
------------- ---------------- ---------------- --------------- ----------------
Balance at December 31, 1995 3,016,740 30,167 33,785,335 (7,615,564) 26,199,938
Common stock issued 57,907 579 737,481 - 738,060
Dividends paid - - - (3,751,375) (3,751,375)
Net income - - - 1,715,815 1,715,815
------------- ---------------- ---------------- --------------- ----------------
Balance at December 31, 1996 3,074,647 $30,746 $34,522,816 $(9,651,124) $24,902,438
============= ================ ================ =============== ================
</TABLE>
See accompanying notes.
26
<PAGE>
BODDIE-NOELL PROPERTIES, INC.
- -------------------------------------------------------------------------------
Statements of Cash Flows
<TABLE>
<CAPTION>
Years ended December 31
1996 1995 1994
---------------- ---------------- -----------------
<S> <C> <C> <C>
Operating activities
Net income $ 1,715,815 $ 1,628,268 $ 2,301,919
Adjustments to reconcile net income to
net cash provided by operating activities:
Equity in income of Management Company (149,298) (48,063) -
Depreciation and amortization 2,975,080 2,609,381 1,647,656
Write-off of deferred costs - 359,123 518,480
Changes in operating assets and liabilities:
Rent and other receivables 232,122 248,489 (78,046)
Prepaid expenses and other assets (58,783) (66,088) (5,584)
Accounts payable and accrued expenses (54,574) (204,726) 150,443
Security deposits and deferred revenue 139,941 (50,656) (38,407)
---------------- ---------------- -----------------
Net cash provided by operating activities 4,800,303 4,475,728 4,496,461
Investing activities
Acquisitions of apartment properties (10,666,580) - (18,055,659)
Acquisition of BT Venture Corp., net of cash payment - - 164,838
Additions to apartment properties (561,114) (525,516) (161,294)
Payment of deferred acquisition costs - (156,401) (677,006)
Investment in Management Company (165) - -
Dividends received from Management Company 158,293 - -
Repayment from (advances to) Management Company 50,000 (150,000) -
---------------- ---------------- -----------------
Net cash used in investing activities (11,019,566) (831,917) (18,729,121)
Financing activities
Proceeds from common stock issued through
dividend reinvestment plan 243,628 - -
Payment of dividends (3,751,375) (3,729,220) (3,577,705)
Proceeds from notes payable 10,650,000 33,925,000 53,600,000
Principal payments on notes payable (459,528) (33,646,771) (34,449,203)
Payment of deferred financing costs (321,721) (444,320) (509,599)
---------------- ---------------- -----------------
Net cash provided by (used in) financing activities 6,361,004 (3,895,311) 15,063,493
---------------- ---------------- -----------------
Net increase (decrease) in cash and cash equivalents 141,741 (251,500) 830,833
Cash and cash equivalents at beginning of year 700,863 952,363 121,530
---------------- ---------------- -----------------
Cash and cash equivalents at end of year $ 842,604 $ 700,863 $ 952,363
================ ================ =================
</TABLE>
See accompanying notes.
27
<PAGE>
BODDIE-NOELL PROPERTIES, INC.
- -------------------------------------------------------------------------------
Notes to Financial Statements
December 31, 1996
Note 1. Organization and Summary of Significant Accounting and Reporting
Policies
Organization and History. Boddie-Noell Restaurant Properties, Inc. (the
"Company") was incorporated on April 1, 1987. On October 1, 1994, the Company
changed its name to Boddie-Noell Properties, Inc.
In April 1987, the Company acquired 47 existing Hardee's restaurant properties
located in Virginia and North Carolina, operated by Boddie-Noell Enterprises,
Inc. ("Enterprises") under franchise agreements with Hardee's Food Systems, Inc.
Simultaneously with their purchase, the properties were leased to Enterprises
under a master lease agreement.
In June 1993 the Company acquired Paces Commons Apartments, a 336-unit apartment
property in Charlotte, North Carolina. In June 1994 the Company acquired
Oakbrook Apartments, a 162-unit apartment property in Charlotte, North Carolina.
Effective October 1, 1994, the Company acquired by merger BT Venture Corporation
("BTVC"), an integrated real estate management, development and acquisition
company and owner of the Latitudes Apartments, a 448-unit apartment property in
Virginia Beach, Virginia. As of October 1, 1994, the Company succeeded to BTVC's
third-party management business, terminated its advisory agreement with BNE
Advisory Group, Inc., and began operations as a self-administered and
self-managed real estate investment trust. In December 1994 the Company acquired
Harris Hill Apartments, a 184-unit apartment property in Charlotte, North
Carolina. In June 1996 the Company acquired Paces Village Apartments, a 198-unit
apartment property in Greensboro, North Carolina.
In May 1995 the Company formed BNP Management, Inc. (the "Management Company").
The Company has a 1 percent voting interest and 95 percent economic interest.
This investment is recorded using the equity method of accounting.
Capital Stock. In June 1995 the Company's shareholders approved amendments to
the Company's bylaws and certificate of incorporation to allow the Board of
Directors to authorize the issuance of up to an additional 90,000,000 shares of
Common Stock and 10,000,000 shares of Preferred Stock, issuable in series the
characteristics of which would be set by the Board of Directors. As of December
31, 1996, no such shares have been authorized or issued.
As of December 31, 1996, approximately 655,000 authorized shares of Common Stock
are reserved for future issuance under the Company's Stock Option and Incentive
Plan, Dividend Reinvestment and Stock Purchase Plan, and for contingent purchase
price payments related to the acquisition of BTVC.
Real Estate Investments. Apartment properties are carried at cost. Ordinary
repairs and maintenance costs are expensed as incurred while significant
improvements, renovations and replacements are capitalized. Depreciation is
computed using the straight-line method over the estimated useful lives of the
related assets, which are 40 years for buildings, 20 years for land
improvements, 10 years for fixtures and equipment, and five years for carpet,
vinyl, and wallpaper replacements. Restaurant properties, which include only
real property, are carried at cost. Cost of repairs and maintenance and capital
improvements are borne by Enterprises. Depreciation of the buildings is computed
using the straight-line method over the estimated useful lives (40 years) of the
respective properties.
Cash and Cash Equivalents. The Company considers all highly liquid investments
with maturities of three months or less when purchased to be cash equivalents.
28
<PAGE>
Deferred Costs. The intangible asset related to the acquisition of management
operations acquired by merger is amortized using the straight-line method over a
period of ten years. Accumulated amortization on this asset totaled $630,000 and
$314,000 at December 31, 1996 and 1995, respectively.
Deferred acquisition costs represent costs incurred in connection with the
proposed acquisition of properties and the associated offering costs. Such costs
are deferred until the acquisition is consummated. Upon completion of the
acquisition, the costs will be capitalized to the underlying assets and/or
charged to shareholders' equity.
When an acquisition is deemed not probable, the costs are charged to expense.
Financing costs are deferred and amortized using the straight-line method over
the terms of the related notes. Accumulated amortization on these assets totaled
$280,000 and $61,000 at December 31, 1996 and 1995, respectively.
Income Taxes. The Company operates as and elects to be taxed as a Real Estate
Investment Trust ("REIT") under the Internal Revenue Code. Accordingly, the
Company will not be subject to federal or state income taxes on amounts
distributed to shareholders, provided it distributes at least 95 percent of its
REIT taxable income and meets certain other requirements for qualifying as a
REIT. Accordingly, no provision has been made for federal or state income taxes.
Net Income Per Share. Net income per share is calculated based on the weighted
average number of shares outstanding during each year. The potential dilutive
effect of stock options in the computation of earnings per share is not
material.
Fair Values of Financial Instruments. The following methods and assumptions are
used by the Company in estimating its fair value disclosures for financial
instruments.
Cash and cash equivalents: The carrying amount reported on the balance sheet for
cash and cash equivalents approximates fair value.
Notes payable: The fair value of the Company's fixed rate mortgage notes and
variable rate notes payable is estimated using discounted cash flow analysis,
based on the Company's current incremental borrowing rates. The carrying amounts
of the Company's borrowings under notes payable approximate fair value.
Use of Estimates. The preparation of financial statements in accordance with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Depreciation amounts included in these financial statements
reflect management's estimate of the life and related depreciation rates for
rental properties. In addition, the carrying amount of the intangible asset
related to acquisition of management operations reflects management's evaluation
of the continuing value and useful life of this asset. Actual results could
differ from these estimates.
Reclassifications. Certain amounts in the 1995 and 1994 financial statements
have been reclassified to conform to the 1996 presentation. These
reclassifications had no effect on net income or shareholders' equity as
previously reported.
29
<PAGE>
Note 2. Real Estate Investments
Real estate investments consist of the following:
<TABLE>
<CAPTION>
1996 1995
----------------- -----------------
<S> <C> <C>
Apartment properties
Land $ 7,892,291 $ 6,642,291
Buildings and land improvements 56,152,512 46,517,150
Fixtures, equipment and other personal property 2,565,245 2,156,245
less accumulated depreciation (3,904,353) (2,242,344)
----------------- -----------------
62,705,695 53,073,342
Restaurant properties
Land 12,068,737 12,068,737
Buildings and land improvements 31,136,338 31,136,338
less accumulated depreciation (7,557,012) (6,778,604)
----------------- -----------------
35,648,063 36,426,471
----------------- -----------------
$ 98,353,758 $ 89,499,813
================= =================
</TABLE>
The Company's policy is to capitalize 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. Capitalized
apartment property additions, replacements and improvements are summarized as
follows:
<TABLE>
<CAPTION>
1996 1995 1994
----------------- ----------------- ---------------
<S> <C> <C> <C>
Property acquisitions through purchase $10,666,580 $ - $18,243,374
Property acquisitions through merger - - 21,950,000
Allocation of additional consideration for property
acquisitions through merger 66,668 66,668 16,667
Capitalized carpet, vinyl and wallpaper 201,776 210,430 91,434
Other property additions and improvements 359,338 315,085 53,193
----------------- ----------------- ---------------
$11,294,362 $ 592,183 $40,354,668
================= ================= ===============
</TABLE>
Note 3. Investment in and Advances to Management Company
In May 1995 the Management Company was formed to provide management services to
non-Company owned properties. The Company contributed approximately $119,000,
primarily in office equipment, to the formation of the Management Company, and
transferred the rights to certain third-party property leasing and management
contracts to the Management Company for a 1 percent voting interest and 95
percent economic interest. The remaining interest in the Management Company is
held by certain officers of the Company. Because the Company exercises
significant influence over, but does not control the financial and operating
policies of, the Management Company, the investment and related income are
reflected in the accompanying financial statements using the equity method. At
December 31, 1996, the Management Company provides leasing and property
management services to nine apartment properties and two shopping centers owned
by limited partnerships of which Boddie Investment Company ("BIC") is the
general partner.
During 1995 the Company advanced a total of $150,000 to the Management Company,
of which $50,000 was repaid in 1996. These advances accrue interest at 12
percent. Interest on these advances totaled $16,900 and $9,700 in 1996 and 1995,
respectively.
30
<PAGE>
Summary financial information of the Management Company at December 31 and for
the twelve months and eight months ended December 31, 1996 and 1995,
respectively, is as follows:
<TABLE>
<CAPTION>
1996 1995
----------------- -----------------
<S> <C> <C>
Current assets $181,583 $221,758
Property and equipment, net 98,139 122,430
Other assets 5,432 7,028
----------------- -----------------
Total assets $285,154 $351,216
================= =================
Current liabilities $ 13,168 $ 21,919
Advances and accrued interest due to the Company 103,397 159,736
Shareholders' equity 168,589 169,561
----------------- -----------------
Total liabilities and shareholders' equity $285,154 $351,216
================= =================
Revenues $862,368 $327,488
Operating expenses (588,815) (254,659)
Interest (16,897) (9,736)
----------------- -----------------
Net income before income taxes 256,656 63,093
Provision for income taxes (99,500) (12,500)
----------------- -----------------
Net income $157,156 $ 50,593
================= =================
</TABLE>
Note 4. Notes Payable
Notes payable consist of the following:
<TABLE>
<CAPTION>
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
Fixed rate notes payable comprised of four loans, payable in monthly
installments totaling approximately $287,000 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. 36,441,534 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% (7.3% and 7.8% at December 31, 1996), respectively, with maturities in
2002 and 1999, respectively. The notes are secured by deeds of trust and
assignment of rents of
three apartment properties. 9,954,423 -
31
<PAGE>
Variable rate notes payable to affiliates comprised of two loans due May 1999,
interest at the lower of 30-day LIBOR plus 1.5% (7.1% at December 31, 1996) or
8%, payable quarterly. Liability for these
notes was assumed at the acquisition of BTVC. 7,056,300 7,056,300
----------- -----------
$77,352,257 $67,161,785
=========== ===========
</TABLE>
As of December 31, 1996, scheduled principal payments are approximately as
follows: 1997 - $495,000; 1998 - $24,431,000; 1999 - $9,026,000; 2000 -
$12,858,000; 2001 - $389,000; thereafter - $30,153,000.
The loan agreement related to the $25,500,000 note payable to a bank includes
covenants and restrictions relating to, among other things, specified levels of
debt service coverage, leverage and net worth.
During 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
in 1996.
During December, 1995, the Company applied $29,425,000 proceeds from fixed rate
loans to retire a fixed rate mortgage note and pay off variable rate notes
payable and a variable rate revolving line of credit totaling approximately
$29,250,000. In conjunction with these refinancing transactions, unamortized
loan costs of approximately $38,000 were charged to expense. In conjunction with
these transactions the Company paid and recorded $183,000 and $266,000 in
deferred loan costs in 1996 and 1995, respectively.
Interest payments were as follows:
<TABLE>
<CAPTION>
1996 1995 1994
----------------- ----------------- -----------------
<S> <C> <C> <C>
Payments to affiliates $ 506,389 $ 530,733 $ 17,581
Payments to other lenders 5,379,519 4,810,067 2,539,445
----------------- ----------------- -----------------
$5,885,908 $5,340,800 $2,557,026
================= ================= =================
</TABLE>
Note 5. Dividend Distributions
Dividend distributions totaling $1.24 per share were paid during 1996, 1995 and
1994. The allocation between non-taxable return of capital and taxable ordinary
dividend income to shareholders was as follows.
1996 1995 1994
--------- -------- --------
Non-taxable return of capital 43.7% 51.8% 49.3%
Taxable ordinary dividend income 56.3% 48.2% 50.7%
A regular quarterly dividend of $.31 per share was declared by the Board of
Directors on January 14, 1997, payable on February 14, 1997, to shareholders of
record on January 31, 1997.
32
<PAGE>
Note 6. Rental Operations
Apartment Properties. The Company leases its residential apartments under
operating leases with monthly payments due in advance. The majority of the
apartment leases are for terms of one year or less, with none longer than two
years. Rental and other revenues are recorded as earned.
Restaurant Properties - Master Lease Agreement. In conjunction with the
$25,500,000 loan agreement with a bank, in December 1995 the Company entered
into an Amended and Restated Master Lease Agreement with Enterprises which
extended the term of the original lease to an initial term ending in December
2007 and increased minimum annual rent to $4,500,000. Prior to amendment, the
master lease required the lessee to pay minimum annual rent equal to an
annualized rate of 8.0 percent of the aggregate purchase price of the properties
($3,459,433 in 1995 and 1994, respectively), and percentage rent of 9.875
percent of the quarterly aggregate net sales from restaurant operations on the
properties less the aggregate minimum rent payable for such calendar quarter.
As amended, the lease requires Enterprises to pay monthly installments of
minimum annual rent equal to $4,500,000 and percentage rent at 9.875 percent of
quarterly aggregate net sales from restaurant operations on the properties less
minimum rent paid for such calendar quarter, subject to an annual calculation of
the greater of minimum or percentage rent. In 1996 the Company received
approximately $122,000 of excess rental payments, which have been recorded as
deferred revenue at December 31, 1996.
Enterprises is responsible for all taxes, utilities, renovations, insurance and
maintenance expenses relating to the operation of the restaurant properties. The
lessee may extend the lease for a maximum of three five-year renewal terms.
Under certain conditions as defined in the agreement, Enterprises and the
Company each have the right to substitute another restaurant property for a
property covered by the lease. The master lease provides that after December 31,
2007 (the beginning of the first renewal period), 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, the Company and Enterprises
have entered into a separate agreement which, after December 31, 1997, allows
Enterprises to purchase under specified terms up to seven restaurant properties
deemed to be uneconomic.
The components of restaurant rental income were as follows:
1996 1995 1994
----------------- ----------------- -----------------
Minimum rent $4,500,000 $3,459,433 $3,459,433
Percentage rent - 1,189,817 1,587,404
----------------- ----------------- -----------------
$4,500,000 $4,649,250 $5,046,837
================= ================= =================
Future minimum rental payments to be received by the Company under the master
lease agreement are $4,500,000 per year through 2007. This annual amount does
not include percentage rent which may be earned in addition to minimum rent.
Approximately 31 percent of the Company's revenue in 1996 was derived from
Enterprises' payment of rent for the use of the Company's restaurant properties.
In addition, Enterprises is responsible for all of the costs associated with the
maintenance and operation of these properties. As a result, the financial well
being of the Company is, to a large extent, dependent on Enterprises' ability to
meet its obligations under the terms of the master lease. The ability of
Enterprises to satisfy the requirements of the master lease depends on its
liquidity and capital resources. Historically, Enterprises has been able to meet
its liquidity needs through cash flow generated from operations and through
reliance on its credit facility.
Enterprises' principal line of business is the operation of approximately 360
Hardee's restaurants, 47 of which are owned by the Company. The continued
decline in its restaurant sales has had a material negative impact on
Enterprises' operating cash flow. Management has reviewed Enterprises' unaudited
financial statements, cash
33
<PAGE>
flow analysis, restaurant contribution analysis, sales trend analysis and
projections, and believes that Enterprises will have sufficient liquidity and
capital resources to meet its obligations under the master lease and credit
facility as well as its general corporate operating needs.
Note 7. Related Party Transactions
Certain directors and officers of the Company hold similar positions with
Enterprises and BNE Advisory Group, Inc. (an affiliate of Enterprises), and held
similar positions with BTVC.
The Company purchased the 47 Hardee's restaurant properties from BNE Realty
Partners, Limited Partnership (an affiliate of Enterprises) for $43,243,000 in
1987.
The Company had an agreement through September 30, 1994, under which BNE
Advisory Group, Inc. provided all administrative services and was responsible
for the day-to-day operations of the Company. The agreement provided for
compensation to BNE Advisory Group, Inc. at an annual fee equal to 4.65 percent
of the Company's net cash available for distribution (as defined in the
agreement) before the advisory fee. Advisory fee expense totaled $153,000 in
1994. Effective with the merger of BTVC on October 1, 1994, the agreement with
BNE Advisory Group, Inc. was terminated.
Prior to the Company's acquisition of BTVC, the Company paid BTVC $112,000 for
property management services in 1994.
Enterprises had extended to the Company an unsecured revolving line of credit up
to $2,000,000. Draws totaling $1,100,000 were made and repaid in full during
1994. At December 31, 1994, there was no obligation outstanding. In conjunction
with modification of the master lease agreement (see Note 6), this line of
credit was terminated in December 1995.
Note 8. Acquisitions
On June 7, 1994, the Company acquired Oakbrook Apartments, a residential
apartment community located in Charlotte, North Carolina for a total purchase
cost of $9,372,000. The purchase was financed primarily through bank and
mortgage borrowings. The results of operations of Oakbrook are included in the
financial statements from June 7, 1994.
On October 1, 1994, the Company acquired by merger BTVC, including Latitudes
Apartments, for an initial purchase price including $91,000 in cash, $21,251,000
through assumption of liabilities, and 134,610 shares of the Company's common
stock valued at $1,899,000. The acquisition agreement provides for contingent
purchase price payments ("additional consideration") of up to $1,700,000 if
certain future financial targets are attained. The additional consideration is
payable in shares of common stock or cash, at the option of the Company, on a
quarterly basis over a period of up to 14 quarters commencing with the quarter
ended December 31, 1994. The acquisition was accounted for by the purchase
method of accounting, and the total acquisition cost of $26,326,000 (assuming
full earn-out of additional consideration and including approximately $1,385,000
in acquisition costs) approximates the fair value of assets acquired.
Significant assets acquired include the Latitudes Apartments and an intangible
related to management operations, initially recorded at $21,950,000 and
$2,250,000, respectively. Additional consideration payments will be allocated
primarily to the intangible related to management operations and amortized over
ten years. The results of operations of Latitudes and management operations are
included in the financial statements from October 1, 1994.
On December 28, 1994, the Company acquired Harris Hill Apartments, a residential
apartment community located in Charlotte, North Carolina for a total purchase
cost of $8,871,000. The purchase was financed primarily through
34
<PAGE>
bank and mortgage borrowings. The results of operations of Harris Hill are
included in the financial statements from December 28, 1994.
On April 29, 1996, the Company acquired Paces Village Apartments, a residential
apartment community located in Greensboro, North Carolina for a total purchase
cost of $10,667,000. The purchase was financed primarily through bank and
mortgage borrowings. The results of operations of Paces Village are included in
the financial statements from April 29, 1996.
In conjunction with the BTVC acquisition and based on an earlier estimate, the
Company issued 140,990 shares, including 6,380 "excess shares" to the BTVC
shareholders in October 1994. During the fourth quarter of 1994 and in each
quarter of 1995 and 1996 the financial targets for additional consideration were
met; the Company recorded additional consideration totaling approximately
$1,275,000, paid in part by issuance of 81,129 shares of common stock. At
December 31, 1996, the BTVC shareholders are due additional consideration
totaling approximately $356,000.
At December 31, 1996, assuming the full contingent purchase price is earned and
paid in common stock, it is anticipated that the Company would issue
approximately 62,000 additional shares of common stock in conjunction with the
acquisition.
The following unaudited pro forma summary presents the results of operations as
if the acquisition of Paces Village Apartments in 1996 had occurred at the
beginning of periods presented and does not purport to be indicative of what
would have occurred had the acquisitions been made as of those dates or of
results which may occur in the future.
1996 1995
----------------- -----------------
Total revenue $15,006,000 $15,193,000
Net income 1,690,000 1,489,000
Net income per common share 0.56 0.50
Note 9. Profit Sharing Plan
The employees of the Company are participants in a profit sharing plan pursuant
to Section 401 of the Internal Revenue Code. The Company makes limited matching
contributions based on the level of employee participation as defined.
Note 10. Stock Option and Incentive Plan
In 1994 the Company established an employee Stock Option and Incentive Plan
("Stock Option Plan") under which 280,000 shares of the Company's common stock
are reserved for issuance. On October 17, 1994, options to purchase 160,000
shares were granted to certain eligible employees at $13.75 per share, the fair
value of the Company's stock on the date the options were granted. The options
vest and are exercisable one-fourth per year beginning October 17, 1995, and
expire October 17, 2004. During 1996 options for 10,000 shares were forfeited.
In January 1996 the options were repriced at $12.50, the fair value of the
Company's common stock on the date of repricing. At December 31, 1996, options
for 75,000 shares have vested, and no options have been exercised. The remaining
contractual life of all options outstanding is 8.75 years.
In October 1995, the Financial Accounting Standards Board issued SFAS No. 123,
"Accounting for Stock-Based Compensation" ("FAS 123"), which establishes
financial accounting and reporting standards for stock-based compensation plans.
FAS 123 defines a fair value based method of accounting for an employee stock
option or similar equity instrument and encourages the adoption of that method
of accounting. However, FAS 123 also
35
<PAGE>
allows entities to continue to account for such plans under Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees"
("APB 25"). Entities electing to remain with the accounting in APB 25 must make
pro forma disclosures of net income and earnings per share as if the fair value
based method of accounting defined in FAS 123 had been applied.
The Company has elected to follow APB 25 and related Interpretations in
accounting for its employee stock options because, as discussed below, the
alternative fair value accounting provided for under FAS 123 requires use of
option valuation models that were not developed for use in valuing employee
stock options. Under APB 25, because the exercise price of the Company's
employee stock options equals the market price of the underlying stock on the
date of repricing, no compensation expense is recognized.
Pro forma information regarding net income and earnings per share is required by
FAS 123, and has been determined as if the Company had accounted for its
employee stock options under the fair value method of that Statement. The fair
value of these options was estimated at the date of repricing using a
Black-Scholes option pricing model with the following weighted-average
assumptions for 1996: risk-free interest rate of 6.5 percent; dividend yield of
9.9 percent; volatility factor of the expected market price of the Company's
common stock of .09; and a weighted-average expected life of the option of 8.75
years. The weighted average fair value of options as repriced in 1996 was $.06.
No options were granted in 1995.
The effect of applying the FAS 123 fair value method to the Company's
stock-based compensation results in net income and net income per share that is
not materially different from the amounts reported.
Note 11. Dividend Reinvestment and Stock Purchase Plan
In July 1996 the Company's Dividend Reinvestment and Stock Purchase Plan ("DRIP
Plan") was amended to allow the Company, at its option, to issue shares directly
to Plan participants. During 1996 the Company issued 19,207 shares through the
DRIP Plan.
Note 12. Commitments and Contingencies
The Company has agreements with two of its executive officers which provide for
cash compensation and other benefits in the event that a change in control of
the Company occurs.
The Company is a party to a variety of legal proceedings arising in the ordinary
course of its business. Management believes that such matters will not have a
material effect on the financial position of the Company.
On December 29, 1996, the Company experienced a fire which destroyed 20 units at
the Latitudes Apartments. The Company believes that it has adequate insurance
coverage and does not expect this event to have a material adverse effect on the
Company's financial condition, results of operations, or cash flows.
36
<PAGE>
Note 13. Quarterly Financial Data (Unaudited)
Set forth below is selected financial data (unaudited) for the years ended
December 31, 1996 and 1995:
<TABLE>
<CAPTION>
Net income
Revenues Net income per share
----------------- ----------------- ---------------
<S> <C> <C> <C>
1996
First quarter $ 3,307,505 $ 379,174 $0.13
Second quarter 3,623,992 435,338 0.14
Third quarter 3,813,211 463,018 0.15
Fourth quarter 3,763,116 438,285 0.14
----------------- ----------------- ---------------
$14,507,824 $1,715,815 $0.57
================= ================= ===============
1995
First quarter $ 3,353,182 $ 388,106 $0.13
Second quarter 3,528,028 526,125 0.18
Third quarter 3,530,374 467,140 0.16
Fourth quarter (1) 3,314,054 246,897 0.08
----------------- ----------------- ---------------
$13,725,638 $1,628,268 $0.54
================= ================= ===============
<FN>
(1) Net income includes a special charge of $321,000 to write off certain
deferred acquisition costs and an adjustment to capitalize approximately $85,000
of expenditures for carpet, vinyl and wallpaper previously charged to expense in
the first three quarters.
</FN>
</TABLE>
37
<PAGE>
BODDIE-NOELL PROPERTIES, INC.
- -----------------------------------------------------------------------------
Schedule III - Real Estate and Accumulated Depreciation
Year Ended December 31, 1996
<TABLE>
<CAPTION>
Costs Gross Amount at Which
Description Encumb. Initial Costs Capitalized Carried at Close of Period (2)
----------- ------- ------------- ------------------------------
Buildings & Subsequent Buildings &
Land Improvem'ts to Acquisition Land Improvem'ts Total
<S> <C> <C> <C> <C> <C> <C> <C>
Apartment Properties:
North Carolina:
Paces Commons, Charlotte $ 10,717,740 $ 1,430,157 $ 12,871,424 $ 435,611 $1,430,157 $ 13,307,035 $ 14,737,192
Oakbrook, Charlotte 6,496,448 848,835 8,523,384 262,909 848,835 8,786,293 9,635,128
Harris Hill, Charlotte 6,104,161 1,003,298 7,867,857 291,284 1,003,298 8,159,141 9,162,439
Paces Village, Greensboro 9,954,423 1,250,000 9,416,580 56,408 1,250,000 9,472,988 10,722,988
--------------------------------------------------------------------------------------
4,532,290 38,679,245 1,046,212 4,532,290 39,725,457 44,257,747
Virginia:
Latitudes, Virginia Beach 13,123,185 3,360,000 18,606,667 385,634 3,360,000 18,992,301 22,352,301
----------------------------------------------------------------------------------------------------
Total Apartment Properties 46,395,957 7,892,290 57,285,912 1,431,846 7,892,290 58,717,758 66,610,048
Hardee's Restaurant Properties:
North Carolina:
Bessemer City (1) 152,079 391,060 - 152,079 391,060 543,139
Burlington (1) 162,411 417,629 - 162,411 417,629 580,040
Chapel Hill (1) 273,556 703,430 - 273,556 703,430 976,986
Denver (1) 275,484 708,387 - 275,484 708,387 983,871
Eden (1) 253,282 651,296 - 253,282 651,296 904,578
Fayetteville (Ramsey) (1) 260,135 668,919 - 260,135 668,919 929,054
Fayetteville (N.Eastern) (1) 308,271 792,696 - 308,271 792,696 1,100,967
Fayetteville (Bragg) (1) 235,951 606,730 - 235,951 606,730 842,681
Gastonia (E. Franklin) (1) 230,421 592,511 - 230,421 592,511 822,932
Gastonia (N. Chester) (1) 199,133 512,055 - 199,133 512,055 711,188
Hillsborough (1) 290,868 747,948 - 290,868 747,948 1,038,816
Kinston (W. Vernon) (1) 237,135 609,777 - 237,135 609,777 846,912
Kinston (Richlands) (1) 231,678 595,743 - 231,678 595,743 827,421
Mt. Airy (1) 272,205 699,955 - 272,205 699,955 972,160
Newton (1) 223,453 574,594 - 223,453 574,594 798,047
Siler City (1) 268,312 689,945 - 268,312 689,945 958,257
Spring Lake (1) 218,925 562,949 - 218,925 562,949 781,874
Thomasville (E. Main) (1) 253,716 652,411 - 253,716 652,411 906,127
Thomasville (Randolph) (1) 327,727 842,726 - 327,727 842,726 1,170,453
--------------------------------------------------------------------------------------
4,674,742 12,020,761 - 4,674,742 12,020,761 16,695,503
<FN>
(1) Indicates the 47 restaurants encumbered by the bank term loan of up to
$25,500,000; $23,900,000 outstanding at 12/31/96
(2) Aggregate cost at December 31, 1996, for Federal income tax purposes was
$106,878,323
</FN>
</TABLE>
<TABLE>
<CAPTION>
Description
-----------
Accumulated Date of Date Life
Depreciation Constr. Acquired (Years)
<S> <C> <C> <C> <C>
Apartment Properties:
North Carolina:
Paces Commons, Charlotte $1,285,494 1988 Jun-93 40
Oakbrook, Charlotte 614,332 1985 Jun-94 40
Harris Hill, Charlotte 499,924 1988 Dec-94 40
Paces Village, Greensboro 193,187 1988 Apr-96 40
---------------
2,592,937
Virginia:
Latitudes, Virginia Beach 1,311,416 1989 Oct-94 38
---------------
Total Apartment Properties 3,904,353
Hardee's Restaurant Properties:
North Carolina:
Bessemer City 94,914 Nov-77 Apr-87 40
Burlington 101,361 Oct-85 Apr-87 40
Chapel Hill 170,728 Aug-64 Apr-87 40
Denver 171,931 Jul-83 Apr-87 40
Eden 158,074 Jun-73 Apr-87 40
Fayetteville (Ramsey) 162,352 Oct-73 Apr-87 40
Fayetteville (N.Eastern) 192,393 Sep-83 Apr-87 40
Fayetteville (Bragg) 147,258 Jan-85 Apr-87 40
Gastonia (E. Franklin) 143,807 Apr-63 Apr-87 40
Gastonia (N. Chester) 124,279 Jan-78 Apr-87 40
Hillsborough 181,532 Mar-78 Apr-87 40
Kinston (W. Vernon) 147,997 Jul-62 Apr-87 40
Kinston (Richlands) 144,591 Dec-81 Apr-87 40
Mt. Airy 169,884 May-73 Apr-87 40
Newton 139,459 Mar-76 Apr-87 40
Siler City 167,455 May-79 Apr-87 40
Spring Lake 136,632 Mar-76 Apr-87 40
Thomasville (E. Main) 158,345 Feb-66 Apr-87 40
Thomasville (Randolph) 204,535 Apr-74 Apr-87 40
--------------
2,917,526
</TABLE>
38
<PAGE>
BODDIE-NOELL PROPERTIES, INC.
- -----------------------------------------------------------------------------
Schedule III - Real Estate and Accumulated Depreciation
Year Ended December 31, 1996
<TABLE>
<CAPTION>
Costs Gross Amount at Which
Description Encumb. Initial Costs Capitalized Carried at Close of Period (2)
----------- ------- ------------- ------------------------------
Buildings & Subsequent Buildings &
Land Improvem'ts to Acquisition Land Improvem'ts Total
<S> <C> <C> <C> <C> <C> <C> <C>
Virginia:
Ashland (1) 296,509 762,452 - 296,509 762,452 1,058,961
Blackstone (1) 275,565 708,596 - 275,565 708,596 984,161
Bluefield (1) 205,700 528,947 - 205,700 528,947 734,647
Chester (1) 300,165 771,852 - 300,165 771,852 1,072,017
Clarksville (1) 211,545 543,972 - 211,545 543,972 755,517
Clintwood (1) 222,673 572,588 - 222,673 572,588 795,261
Dublin (1) 364,065 936,168 - 364,065 936,168 1,300,233
Franklin (1) 287,867 740,230 - 287,867 740,230 1,028,097
Galax (1) 309,578 796,057 - 309,578 796,057 1,105,635
Hopewell (1) 263,939 678,701 - 263,939 678,701 942,640
Lebanon (1) 266,340 684,876 - 266,340 684,876 951,216
Lynchburg (Langhorne) (1) 249,865 642,509 - 249,865 642,509 892,374
Lynchburg (Timberlake) (1) 276,153 710,107 - 276,153 710,107 986,260
Norfolk (1) 325,822 837,829 - 325,822 837,829 1,163,651
Orange (1) 244,883 629,699 - 244,883 629,699 874,582
Petersburg (1) 357,984 920,531 - 357,984 920,531 1,278,515
Richmond (Forest Hill) (1) 196,084 504,216 - 196,084 504,216 700,300
Richmond (Midlothian) (1) 270,736 696,179 - 270,736 696,179 966,915
Richmond (Myers) (1) 321,946 827,861 - 321,946 827,861 1,149,807
Roanoke (Hollins) (1) 257,863 663,076 - 257,863 663,076 920,939
Roanoke (Abenham) (1) 235,864 606,507 - 235,864 606,507 842,371
Rocky Mount (1) 248,434 638,829 - 248,434 638,829 887,263
Smithfield (1) 223,070 573,608 - 223,070 573,608 796,678
Staunton (1) 260,569 670,035 - 260,569 670,035 930,604
Verona (1) 191,631 492,765 - 191,631 492,765 684,396
Virginia Beach (Lynnhaven) (1) 271,570 698,322 - 231,731 698,322 930,053
Virginia Beach (Holland) (1) 277,943 714,710 - 277,943 714,710 992,653
Wise (1) 219,471 564,355 - 219,471 564,355 783,826
--------------------------------------------------------------------------------------
7,433,834 19,115,577 - 7,393,995 19,115,577 26,509,572
----------------------------------------------------------------------------------------------------
Total Restaurant Properties 23,900,000 12,108,576 31,136,338 - 12,068,737 31,136,338 43,205,075
----------------------------------------------------------------------------------------------------
Total Real Estate $ 70,295,957 $ 20,000,866 $ 88,422,250 $ 1,431,846 $ 19,961,027 $ 89,854,096 $ 109,815,123
====================================================================================================
<FN>
(1) Indicates the 47 restaurants encumbered by the bank term loan of up to
$25,500,000; $23,900,000 outstanding at 12/31/96
(2) Aggregate cost at December 31, 1996, for Federal income tax purposes was
$106,878,323
</FN>
</TABLE>
<TABLE>
<CAPTION>
Description
-----------
Accumulated Date of Date Life
Depreciation Constr. Acquired (Years)
<S> <C> <C> <C> <C>
Virginia:
Ashland 185,053 Apr-87 Apr-87 40
Blackstone 171,982 Sep-79 Apr-87 40
Bluefield 128,379 Feb-85 Apr-87 40
Chester 187,334 May-73 Apr-87 40
Clarksville 132,026 Oct-85 Apr-87 40
Clintwood 138,971 Jan-81 Apr-87 40
Dublin 227,214 Jul-83 Apr-87 40
Franklin 179,660 Feb-75 Apr-87 40
Galax 193,208 Jun-74 Apr-87 40
Hopewell 164,726 Jun-78 Apr-87 40
Lebanon 166,225 Jun-83 Apr-87 40
Lynchburg (Langhorne) 155,941 Sep-82 Apr-87 40
Lynchburg (Timberlake) 172,348 Aug-83 Apr-87 40
Norfolk 203,347 Aug-84 Apr-87 40
Orange 152,832 Aug-74 Apr-87 40
Petersburg 223,420 Mar-74 Apr-87 40
Richmond (Forest Hill) 122,377 Nov-74 Apr-87 40
Richmond (Midlothian) 168,967 Jan-74 Apr-87 40
Richmond (Myers) 200,928 Apr-83 Apr-87 40
Roanoke (Hollins) 160,934 Feb-73 Apr-87 40
Roanoke (Abenham) 147,204 Nov-82 Apr-87 40
Rocky Mount 155,048 May-80 Apr-87 40
Smithfield 139,218 Apr-77 Apr-87 40
Staunton 162,623 Sep-83 Apr-87 40
Verona 119,597 Jan-85 Apr-87 40
Virginia Beach (Lynnhaven) 169,488 Jun-80 Apr-87 40
Virginia Beach (Holland) 173,466 Aug-83 Apr-87 40
Wise 136,971 Jun-80 Apr-87 40
---------------
4,639,486
---------------
Total Restaurant Properties 7,557,012
---------------
Total Real Estate $ 11,461,365
===============
</TABLE>
39
<PAGE>
BODDIE-NOELL PROPERTIES, INC.
- -----------------------------------------------------------------------------
Schedule III - Real Estate and Accumulated Depreciation
<TABLE>
<CAPTION>
Years ended December 31
1996 1995 1994
------------------- --------------------- ---------------------
<S> <C> <C> <C>
Real estate investments:
Balance at beginning of year $ 98,520,761 $ 97,928,578 $ 57,557,243
Additions during year
Acquisitions by merger - - 21,966,667
Other acquisitions 10,666,580 - 18,243,374
Improvements, etc. 627,782 592,183 161,294
Deductions during year - - -
------------------- --------------------- ---------------------
Balance at close of year $ 109,815,123 $ 98,520,761 $ 97,928,578
=================== ===================== =====================
Accumulated depreciation:
Balance at beginning of year $ 9,020,948 $ 6,827,337 $ 5,416,818
Provision for depreciation 2,440,417 2,193,611 1,410,519
Deductions during year - - -
------------------- --------------------- ---------------------
Balance at close of year $ 11,461,365 $ 9,020,948 $ 6,827,337
=================== ===================== =====================
</TABLE>
40
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
No. Page
<S> <C> <C>
2* Agreement and Plan of Merger between BT Venture Corporation and
Boddie-Noell Restaurant Properties, Inc. (filed as Exhibit (2)-2 to
Boddie-Noell Properties, Inc. Current Report on Form 8-K dated
October 1, 1994, and incorporated herein by reference)
3.1* Articles of Incorporation (filed as Exhibit 3(a) to Registration
Statement No. 33-13155 on Form S-11 and incorporated herein by
reference)
3.2* By-Laws (filed as Exhibit 3.2 to Boddie-Noell Properties, Inc.
Annual Report on Form 10-K dated December 31, 1995, and
incorporated herein by reference)
10.1* Amended and Restated Master Lease Agreement dated December 21,
1995, between Boddie-Noell Properties, Inc. and Boddie-Noell
Enterprises, Inc. (filed as Exhibit 10.1 to Boddie-Noell
Properties, Inc. Annual Report on Form 10-K dated December 31,
1995, and incorporated herein by reference)
10.2* Loan Agreement dated December 27, 1995, between Boddie-Noell
Properties, Inc. and SouthTrust Bank of Alabama, N.A. (filed as
Exhibit 10.2 to Boddie-Noell Properties, Inc. Annual Report on
Form 10-K dated December 31, 1995, and incorporated herein by
reference)
10.3* Acquisition Agreement by and among Boddie-Noell Restaurant
Properties, Inc., BT Venture Corporation and Related Entities dated
June 7, 1994 (filed as an exhibit in Schedule 14A of Proxy
Statement dated June 15, 1994, and incorporated herein by
reference)
10.4* Boddie-Noell Restaurant Properties, Inc. 1994 Stock Option and
Incentive Plan effective August 4, 1994 (filed as an exhibit in
Schedule 14A of Proxy Statement dated June 15, 1994, and
incorporated herein by reference)
10.5* Form and description of Incentive Stock Option Agreements dated
October 17, 1994 between the Company and certain officers (filed as
Exhibit 10.8 to Boddie-Noell Properties, Inc. Annual Report on Form
10-K dated December 31, 1994, and incorporated herein by reference)
10.6* Form and description of Nonqualified Stock Option Agreements dated
October 17, 1994 between the Company and certain officers (filed as
Exhibit 10.9 to Boddie-Noell Properties, Inc. Annual Report on Form
10-K dated December 31, 1994, and incorporated herein by reference)
10.7* Form and description of Employment Agreements dated October 1, 1994
between the Company and certain officers (filed as Exhibit 10.10 to
Boddie-Noell Properties, Inc. Annual Report on Form 10-K dated
December 31, 1994, and incorporated herein by reference)
21 Subsidiaries of the Registrant 42
23.1 Consent of Ernst & Young LLP 43
23.2 Consent of Arthur Andersen LLP 44
27 Financial Data Schedule (electronic filing)
</TABLE>
* Incorporated herein by reference
41
<PAGE>
BODDIE-NOELL PROPERTIES, INC.
- ------------------------------------------------------------------------------
EXHIBIT 21: SUBSIDIARIES OF THE REGISTRANT
YEAR ENDED DECEMBER 31, 1996
Subsidiary name: BNP Management, Inc.
State of incorporation: North Carolina
Business name: BNP Management, Inc.
42
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement (Form
S-3 No. 333-07415) of Boddie-Noell Properties, Inc. and in the related
Prospectus of our report dated January 9, 1997, with respect to the financial
statements and schedule of Boddie-Noell Properties, Inc. included in this Annual
Report (Form 10-K) for the year ended December 31, 1996.
/s/ Ernst & Young LLP
Ernst & Young LLP
Charlotte, North Carolina
March 26, 1997
43
<PAGE>
Exhibit 23.2
Consent of Independent Public Accountants
As independent public accountants, we hereby consent to the incorporation of our
reports included in this Form 10-K, into the Company's previously filed
Registration Statement File No. 333-07415.
/s/ Arthur Andersen LLP
Arthur Andersen LLP
Charlotte, North Carolina
March 26, 1997.
44
<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 TWELVE MONTHS ENDED
DECEMBER 31, 1996, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 842,604
<SECURITIES> 0
<RECEIVABLES> 12,695
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,247,601
<PP&E> 109,815,123
<DEPRECIATION> (11,461,365)
<TOTAL-ASSETS> 103,435,982
<CURRENT-LIABILITIES> 1,181,287
<BONDS> 77,352,257
<COMMON> 30,746
0
0
<OTHER-SE> 24,871,692
<TOTAL-LIABILITY-AND-EQUITY> 103,435,982
<SALES> 0
<TOTAL-REVENUES> 14,507,824
<CGS> 0
<TOTAL-COSTS> 5,951,956
<OTHER-EXPENSES> 894,360
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,945,693
<INCOME-PRETAX> 1,715,815
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,715,815
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,715,815
<EPS-PRIMARY> 0.57
<EPS-DILUTED> 0.57
</TABLE>
