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, 1997
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)
Maryland 56-1574675
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
3850 One First Union Center, Charlotte, NC 28202-6032
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 704/944-0100
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered:
Common Stock, par value $.01 per share American Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of the Form 10-K or any amendment to this
Form 10-K. [ X ]
The aggregate market value of the voting stock held by non-affiliates of
the Registrant at March 12, 1998 was approximately $83,580,000.
The number of shares of Registrant's Common Stock outstanding on March 12,
1998, was 5,882,374.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the 1998 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 53 Total number of pages: 67
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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 6
3 Legal Proceedings 9
4 Submission of Matters to a Vote of Security Holders 9
X Executive Officers of the Registrant 9
PART II
5 Market for Registrant's Common Equity and Related Stockholder 11
Matters
6 Selected Financial Data 12
7 Management's Discussion and Analysis of Financial Condition 14
and Results of Operations
8 Financial Statements and Supplementary Data 25
9 Changes in and Disagreements With Accountants on Accounting 25
and Financial Disclosure
PART III
10 Directors and Executive Officers of the Registrant 26
11 Executive Compensation 26
12 Security Ownership of Certain Beneficial Owners and Management 26
13 Certain Relationships and Related Transactions 26
PART IV
14 Exhibits, Financial Statement Schedules, and Reports on Form 27
8-K
</TABLE>
2
<PAGE>
PART I
ITEM 1. BUSINESS
Company Profile
Boddie-Noell Properties, Inc. (the "Company") is a self-administered and
self-managed real estate investment trust that owns and operates apartment
communities in North Carolina and Virginia. We currently own and operate nine
apartment communities containing 2,208 units, and have the right to acquire
three additional apartment communities containing 476 units. We also own 47
restaurant properties, which we lease to a third party under a master lease on a
triple-net basis. We also manage seven other apartment communities through an
unconsolidated subsidiary.
We currently have 5,882,374 shares of common stock outstanding and
approximately 7,900 shareholders (including beneficial owners). Our shares are
listed on the American Stock Exchange, trading under the symbol "BNP."
Our executive offices are located at 3850 One First Union Center,
Charlotte, North Carolina 28202-6032, telephone 704/944-0100.
History and Development of Boddie-Noell Properties, Inc.
The Company was originally incorporated in the state of Delaware in 1987.
Beginning in 1987, we elected to be taxed as a REIT under the Internal Revenue
Code. As such, the Company generally is not, and will not be, subject to federal
or state income taxes on net income. As a REIT, we are subject to a number of
organizational and operational requirements, including a requirement that we
currently distribute at least 95% of our REIT taxable income as dividends.
In 1987 we purchased 47 existing restaurant properties for an aggregate
purchase price of $43.2 million. From 1987 through 1992, our investment strategy
was limited to the ownership of these 47 restaurant properties. During this
period we operated as an externally administered and externally managed REIT. We
leased the restaurants to Boddie-Noell Enterprises, Inc. ("Enterprises"), a
Hardee's franchisee, under a master lease on a triple-net basis. A master lease
is a single lease that covers multiple properties, while a triple-net lease is
one where the lessee pays all operating expenses, maintenance, property
insurance and real estate taxes.
In order to provide for growth in funds from operations and enhance
shareholder value, we began in 1993 to diversify our investments into apartment
communities. We acquired the 336-unit Paces Commons in June 1993, followed by
the 162-unit Oakbrook in June 1994. Both of these apartment communities are
located in Charlotte, North Carolina.
We continued our diversification with our acquisition in October 1994 of
BT Venture Corporation, an integrated real estate management, development and
acquisition company, which we acquired from two of our affiliates. With this
acquisition, we became a self-administered and self-managed REIT. BT Venture
Corporation owned the 448-unit Latitudes in Virginia Beach, Virginia, and
managed 12 apartment communities (including Latitudes and the two that we owned)
and three retail shopping centers.
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After the acquisition of BT Venture Corporation, we also acquired the
184-unit Harris Hill in Charlotte in December 1994, and the 198-unit Paces
Village, located in Greensboro, North Carolina, in May 1996.
In May 1995, we reorganized our third-party management operations to
better enable us to comply with certain IRS regulations that limit the amount of
revenues that a REIT can earn from third-party property management contracts. In
the reorganization we transferred all of our third-party management contracts to
our newly formed management company, BNP Management, Inc., an unconsolidated
taxable subsidiary of the Company. In exchange we received a 95% economic
interest in BNP Management, represented by 100% of the non-voting equity and 1%
of the voting equity of BNP Management.
Recent Developments
In 1997, we reincorporated in the state of Maryland and converted to an
UPREIT structure. UPREIT stands for "umbrella partnership real estate investment
trust." Under this structure, the Company is the sole general partner of
Boddie-Noell Properties Limited Partnership (the "Operating Partnership"). We
contributed our properties and all other assets and liabilities to a limited
liability company wholly owned by the Operating Partnership in exchange for
ownership units of the Operating Partnership. We currently own a majority of the
Operating Partnership units. Other unitholders will generally be able to redeem
their units for cash or, at our option as general partner, for shares of common
stock of the Company on a one-for-one basis. Distributions of cash from the
Operating Partnership are allocated between the REIT and the other limited
partners based on their respective unit ownership. We organized the Operating
Partnership as a Delaware limited partnership in September 1997.
In September 1997, we signed an agreement to acquire a portfolio of seven
apartment communities. On December 1, 1997, we acquired four of these
communities containing 880 apartment units. These properties are located in
Greensboro and Winston-Salem, North Carolina. We refer to this acquisition as
the "Chrysson acquisition," and to the sellers as the "Chrysson Parties." Under
the terms of the Chrysson acquisition agreement, we will issue up to 1.7 million
units in the Operating Partnership. We issued 950,032 units in December 1997 in
relation to the first four communities, and have deferred issuing an additional
100,000 units until December 1998, and 100,000 units until December 1999. We
will issue the remainder of the 1.7 million units upon the acquisition of each
of the remaining three apartment communities that are currently under
construction. Under the terms of the acquisition agreement, we will have a right
of first refusal to purchase any project developed in the future by any of
Chrysson Parties or their affiliates.
In December 1997, we completed a common stock offering and issued
2,500,000 shares of common stock. In January 1998, we issued an additional
200,000 shares for the underwriters' over-allotment in this offering. We used
proceeds of this offering to retire long-term debt.
Current Operations
We currently own and operate nine apartment communities. These communities
are located in Charlotte, Greensboro and Winston-Salem, North Carolina and
Virginia Beach, Virginia, and contain a total of 2,208 apartment units. Upon
completion of our acquisition of all of the Chrysson properties, we will also
own an additional three apartment communities with 476
4
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apartment units in Greensboro, Winston-Salem and Burlington, North Carolina. We
also own the 47 restaurant properties that we lease to Enterprises under a
triple-net master lease.
We have 105 employees, including management, accounting, legal,
acquisitions, development, property management, leasing, maintenance and
administrative personnel. We operate as a self-advised and self-managed REIT.
An on-site community manager, assisted by staff trained in marketing,
management, record keeping, maintenance and other procedures, operates each
apartment community. On-site community managers report directly to regional
property managers who are based at one of the locations for which they are
responsible. This flat organization provides for efficient staffing levels,
reduces overhead expenses, and enables us to respond to the needs of residents
and on-site employees. Our employees supervise all renovation and repair
activities, which are generally completed by outside contractors.
Business Strategy
Our principal investment objectives are to provide our shareholders with
current income and to increase the value of the Company's common stock. We focus
on increasing long-term growth in funds from operations and funds available for
distribution per share, and on increasing the value of our portfolio through
effective management, growth, financing, and investment strategies. We expect to
implement our strategies primarily through the acquisition, operation, leasing
and management of apartment communities.
We seek to acquire apartment properties in areas within the southeastern
United States exhibiting substantial economic growth and an expanding job base
in which we can establish a significant market presence in the apartment
community marketplace. Through our UPREIT structure, we have the ability to
acquire apartment communities by issuing Operating Partnership units in
tax-deferred exchanges with owners of such properties. We expect that we will
finance future acquisitions of apartment communities principally with such units
as well as loans and funds from additional offerings of common stock, preferred
stock or debt.
Our residents are typically mid- to high-end "residents by
necessity"--individuals or families with moderate to high-income levels that
live in apartments by necessity. They typically include retirees, young
professionals, manager-level white-collar workers, medical personnel, teachers,
members of the military and young families.
We strongly emphasize on-site property management. We seek opportunities
and have developed internal programs to increase rents, reduce resident
turnover, raise average occupancy rates and control costs. In an effort to
reduce long-term operating costs, we annually review each apartment community
and promptly attend to maintenance and recurring capital needs.
As a consequence of our focus on apartments, we may elect to sell our
restaurant properties and reinvest the proceeds in additional apartment
communities. However, no sale of the restaurants is pending, and we intend to
divest the restaurants only when we believe such a transaction will enhance
shareholder value.
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ITEM 2. PROPERTIES
Apartment Communities
Through the Operating Partnership, we own and manage nine apartment
communities consisting of 2,208 apartment units. The average age of the
apartment communities is approximately 6.7 years. The average economic occupancy
rate for all 2,208 units for the month of December 1997 was 94.7%. The buildings
in our apartment communities are generally wood-framed, two- and three-story
buildings, with exterior entrances, individually metered gas and electric
service, and individual heating and cooling systems. Our combined apartment
units are comprised of 37.2% one bedroom units, 55.3% two bedroom units, and
7.5% three bedroom units. The units average 996 square feet in area and are well
equipped with modern appliances and other conveniences. All communities include
swimming pools, tennis courts and clubrooms, and most have exercise facilities.
The communities are held subject to loans, discussed in the notes to the
financial statements.
The table on page 7 summarizes information about each of our apartment
communities.
Restaurant Properties
The 47 restaurant properties are leased on a triple net basis to
Enterprises under a master lease. The master lease, as amended in December 1995,
has a primary term expiring in December 2007, but grants Enterprises three
five-year renewal options. Under the amended lease, Enterprises pays annual rent
equal to the greater of $4.5 million or 9.875% of food sales from the
restaurants. The average price of the restaurant properties was approximately
$920,000 per property.
The restaurant properties are operated by Enterprises as Hardee's
restaurants pursuant to franchise agreements with Hardee's Food Systems, Inc.
These agreements require that the properties conform to a standard design
specified by Hardee's. The current design consists of a one-story brick, stucco
or wood building that embodies a contemporary style with substantial plate glass
window areas. The buildings average 3,400 square feet and are located on sites
ranging from 1 to 1.3 acres. The buildings are suitable for conversion to a
number of uses, but the exteriors would have to be substantially modified prior
to their use in non-restaurant applications. Hardee's owns a design patent on
certain elements of the building and requires franchisees to make certain
exterior modifications if the location is discontinued as a Hardee's restaurant.
Enterprises is responsible for all aspects of the operation, maintenance
and upkeep of the restaurant properties. In addition, Enterprises is responsible
for the cost of any improvement, expansion, remodeling or replacement required
to keep the properties competitive or in conformity with Hardee's building
standards. The 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.
The locations of the Company's 47 restaurant properties are listed on page
8 of this Annual Report.
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INFORMATION ABOUT APARTMENT COMMUNITIES
<TABLE>
<CAPTION>
Total Apartment Weighted
No. of Rentable Unit Type Average
Apt. Year Date Total Area 1 2 3 Apt. Size
Community Location Units Completed Acquired Acreage (Sq. Ft.) BR BR BR (Sq. Ft.)
- ---------------- ----------------- ------- ----------- ---------- --------- ---------- ----- ----- ----- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Communities owned through 1997:
Harris Hill Charlotte, NC 184 1988 12/94 18.4 167,920 67 117 - 912
Latitudes Virginia Beach, 448 1989 10/94 24.9 358,700 269 159 20 800
VA
Oakbrook Charlotte, NC 162 1985 6/94 16.4 178,668 32 120 10 1,100
Paces Commons Charlotte, NC 336 1988 6/93 24.8 322,046 154 142 40 958
Paces Village Greensboro, NC 198 1988 4/96 15.5 167,886 88 110 - 848
Communities acquired December 1997 (2):
Abbington
Place (3) Greensboro, NC 360 1997 12/97 37.4 400,728 96 216 48 1,113
Pepperstone Greensboro, NC 108 1992 12/97 10.1 113,076 - 108 - 1,047
Savannah Place Winston-Salem, 172 1991 12/97 15.4 182,196 44 128 - 1,059
NC
Waterford Place Greensboro, NC 240 1997 12/97 20.6 277,296 72 120 48 1,155
Chrysson Communities under construction (4):
Allerton Place Greensboro, NC 228 - - 19.2 241,530 54 126 48 1,064
Summerlyn
Place Burlington, NC 140 - - 12.1 154,116 48 84 8 1,101
Brookford Place Winston-Salem, 108 - - 6.3 103,392 36 72 - 957
NC
</TABLE>
<TABLE>
<CAPTION>
Average
Average Economic Monthly Revenue
Occupancy Percent per Occupied Unit
(1)
Community Location 1997 1996 1995 1997 1996 1995
- ---------------- ----------------- ------ ------- ------ ------ ------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
Communities owned through 1997:
Harris Hill Charlotte, NC 95.5 93.4 95.7 $708 $717 $683
Latitudes Virginia Beach, 94.6 93.8 95.3 659 637 613
VA
Oakbrook Charlotte, NC 95.6 93.8 97.6 768 780 750
Paces Commons Charlotte, NC 97.0 95.4 93.8 706 685 655
Paces Village Greensboro, NC 93.5 93.5 - 684 693 -
Communities acquired December 1997 (2):
Abbington
Place (3) Greensboro, NC 91.8 - - 785 - -
Pepperstone Greensboro, NC 92.4 - - 675 - -
Savannah Place Winston-Salem, 96.9 - - 782 - -
NC
Waterford Place Greensboro, NC 93.7 - - 878 - -
Chrysson Communities under construction (4):
Allerton Place Greensboro, NC - - - - - -
Summerlyn
Place Burlington, NC - - - - - -
Brookford Place Winston-Salem, - - - - - -
NC
<FN>
(1) Average economic occupancy is calculated as gross potential rent less
vacancy, divided by gross potential rent.
(2) Added as Phase I of the Chrysson acquisition. Average economic occupancy and
average monthly rental per occupied unit for December 1997. (3) Phase I of this
community, containing 240 units, was completed in 1994. Phase II, containing 120
units, was completed in 1997.
(4) To be acquired upon completion and lease up.
</FN>
</TABLE>
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RESTAURANT PROPERTIES LOCATIONS
<TABLE>
<S> <C> <C>
Virginia (28 properties) Orange Chapel Hill
200 Madison Road 213 West Franklin Street
Ashland
106 North Washington Hwy. Petersburg Denver
1865 Crater Road, South Route 1
Blackstone
North Main Street Richmond Eden
921 Myers Street 202 West Kings Highway
Bluefield 6850 Forest Hill Avenue
701 South College Street 7917 Midlothian Pike Fayetteville
3505 Ramsey Street
Chester Roanoke 360 North Eastern Boulevard
12401 Jefferson Davis Hwy. 4407 Abenham Avenue, SW 5224 Bragg Boulevard
3401 Hollins Road
Clarksville Gastonia
916 Virginia Avenue Rocky Mount 816 East Franklin Street
322 Tanyard Road, NE 1525 North Chester Street
Clintwood
U.S. Highway 83 Smithfield Hillsborough
Smithfield Shopping Center 380 S. Churton Street
Dublin
208 College Avenue Staunton Kinston
1201 Greenville Avenue 200 West Vernon Street
Franklin 1404 Richlands Street
105 North Mechanic Street Verona
160 East Route 612 Mt. Airy
Galax 507 Willow Street
425 Main Street Virginia Beach
4261 Holland Road Newton
Hopewell 1951 Lynnhaven Parkway South Ashe & North "D" St.
East City Point Road
Wise Siler City
Lebanon US Highway 23, Business Chatham Shopping Center
Route 1
Spring Lake
Lynchburg North Carolina 400 South Main Street
8411 Timberlake Road (19 properties)
2231 Langhorne road Thomasville
Bessemer City 1116 East Main Street
Norfolk Route 1 Randolph Street
3908 Princess Anne Road
Burlington
2712 Alamance Road
</TABLE>
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ITEM 3. LEGAL PROCEEDINGS
We are a party to a variety of legal proceedings arising in the ordinary
course of business. We do not expect any of these matters, individually and in
aggregate, to have a material adverse impact on the Company.
In the event a claim were successful, we believe that we are adequately
covered by insurance and indemnification agreements. We have insurance coverage
on each of our apartment communities. Our restaurant properties are subject to
an indemnification agreement whereby Enterprises, the lessee, is responsible for
all claims arising from a restaurant property. In addition, Enterprises is
required to provide insurance, which identifies the Company as a named insured,
on each restaurant property. Each apartment property that is managed but not
owned by us is covered by an insurance policy under which we are a named
insured. As to claims to which we have become a successor party-in-interest to
BT Venture Corporation, we received, as part of the acquisition of BT Venture
Corporation, an indemnification agreement from the shareholders of BT Venture
Corporation which, subject to certain limitations, indemnifies us from loss
arising out of a claim against BT Venture Corporation.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of fiscal year 1997.
ITEM X. EXECUTIVE OFFICERS OF THE REGISTRANT
We have set forth below a listing and brief biography of each of the executive
officers of the Company.
<TABLE>
<CAPTION>
Name Age Position Officer Since
- ----------------------------- ------- -------------------------------------------------- -------------------
<S> <C> <C> <C>
D. Scott Wilkerson 40 Director, President and October 1994
Chief Executive Officer
Philip S. Payne 46 Director, Executive Vice President, October 1994
Treasurer and Chief Financial Officer
Pamela B. Novak 44 Vice President, Controller and October 1994
Chief Accounting Officer
Douglas E. Anderson 50 Vice President, Secretary April 1987
</TABLE>
D. Scott Wilkerson--Director, President and Chief Executive Officer. Mr.
Wilkerson joined BT Venture Corporation in 1987 and served in various officer
level positions, including Vice President of Administration and Finance and Vice
President for Acquisitions and Development, before becoming President in January
1994. He was named Chief Executive Officer in April 1995, and a Director in
December 1997. From 1980 to 1986, Mr. Wilkerson was with Arthur Andersen LLP, in
Charlotte, North Carolina, serving as tax manager from 1985 to 1986. His
specialization was in the representation of real estate syndicators, developers
and management companies. Mr. Wilkerson received a B.S. degree in accounting
from the University of North Carolina at Charlotte in 1980. He is a licensed
certified public accountant and licensed real
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estate broker. He is a member of the Board of Directors of the Apartment
Association of North Carolina and the Charlotte Apartment Association. He is
active in various professional, civic and charitable activities.
Philip S. Payne--Director, Executive Vice President, Treasurer and Chief
Financial Officer. Mr. Payne joined BT Venture Corporation in 1990 as Vice
President of Capital Market Activities and became Executive Vice President and
Chief Financial Officer in January 1993. He was named Treasurer in April 1995
and a Director in December 1997. From 1987 to 1990 he was a principal in Payne
Knowles Investment Group, a financial planning firm. From 1983 to 1987 he was a
registered representative with Legg Mason Wood Walker. From 1978 to 1983, Mr.
Payne practiced law, and he currently maintains his license to practice law in
Virginia. He received a B.S. degree from the College of William and Mary in 1973
and a J.D. degree in 1978 from the same institution. Mr. Payne is a member of
the Editorial Board of The REIT Report, a publication of the National
Association of Real Estate Investment Trusts.
Pamela B. Novak--Vice President, Controller and Chief Accounting Officer.
Ms. Novak joined BT Venture Corporation in 1993 as Controller and became Vice
President and Chief Accounting Officer in October 1994. From 1984 to 1993, Ms.
Novak was with Ernst & Young LLP, in Charlotte, North Carolina, and Anchorage,
Alaska, serving as audit manager from 1987 through 1993. She received a B.S.
degree in accounting from the University of North Carolina at Charlotte in 1984.
She is a licensed certified public accountant.
Douglas E. Anderson--Vice President and Secretary. Mr. Anderson has served
as Vice President and Secretary since our inception in 1987. He has been with
Enterprises since 1977 and is currently a director, executive vice president and
secretary of Enterprises. Mr. Anderson is also president of BNE Land and
Development Company, the real estate development division of Enterprises. He
serves as a director of Wachovia Bank of Rocky Mount, North Carolina. He
received a B.S. degree in finance and accounting from the University of North
Carolina at Chapel Hill in 1970.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Market Information and Dividends
Our common stock is traded on the American Stock Exchange under the symbol
"BNP." There were approximately 1,700 shareholders of record on March 12, 1998.
The table below shows, for the periods indicated, the range of high, low, and
closing sale prices of our common stock as reported by the American Stock
Exchange and the dividends paid per share. As of March 12, 1998, the closing
price of the Company's common stock was $14 3/4 per share.
Dividends
Stock Price Paid
High Low Close Per Share
-------------- ------------- ------------- -------------
1997
Fourth quarter $17 1/8 $13 3/4 $13 7/8 $0.31
Third quarter 16 1/2 12 1/2 16 1/2 0.31
Second quarter 13 11 7/8 12 7/8 0.31
First quarter 13 1/8 12 3/8 12 5/8 0.31
1996
Fourth quarter 13 1/4 12 1/8 12 1/2 0.31
Third quarter 13 1/4 12 3/8 12 7/8 0.31
Second quarter 13 3/8 11 1/2 12 5/8 0.31
First quarter 13 3/4 12 1/4 13 1/4 0.31
We have paid regular quarterly dividends to holders of our common stock
since our inception, and we intend to continue to do so. We anticipate that we
will pay all dividends from current funds from operations. We expect to continue
to pay a dividend of $0.31 per quarter. On an annualized basis, this would be
$1.24 per share. We expect distributions to substantially exceed the 95% annual
distribution requirement for a REIT.
We have a dividend reinvestment plan that is available to all shareholders
of record. Under this plan, as amended in July 1996, the plan administrator,
First Union National Bank of North Carolina, reinvests dividends on behalf of
plan participants in our common stock. First Union will either issue new shares
or purchase shares on the open market, at our direction. In addition,
shareholders who participate in the plan may elect to make direct cash
investments or supplement their reinvestment program with additional cash
investments of any amount from $25 to $10,000 per quarter. Participants do not
pay any commissions on stock purchased under the plan.
Sales of Unregistered Securities
We issued 16,300 shares of common stock in 1997 pursuant to the BT Venture
Corporation acquisition agreement, which provided for quarterly payments of
stock or cash if certain financial targets were attained. The shares were issued
to the former shareholders of BT Venture
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Corporation, B. Mayo Boddie and Nicholas B. Boddie. B. Mayo Boddie is a director
of the Company. The shares were issued pursuant to an exemption from the
registration requirements of Section 4(2) of the Securities Act of 1933.
In January 1998, we issued an additional 43,438 shares of common stock to
the former shareholders of BT Venture Corporation in final payment for
additional consideration related to that acquisition.
ITEM 6. SELECTED FINANCIAL DATA
We present below selected financial information. We encourage you to read
the financial statements and the notes accompanying the financial statements in
this Annual Report. This information is not intended to be a replacement for the
financial statements.
This financial information includes all apartment communities and
restaurant properties that we owned. While the number of restaurant properties
has remained constant, you should note in reviewing this information that we
acquired apartment properties throughout the periods presented. Therefore, the
information is not comparable between periods.
<TABLE>
<CAPTION>
Year ended December 31
1997 1996 1995 1994 1993
------------- ------------- -------------- ------------- --------------
(in thousands, except per share and property data)
<S> <C> <C> <C> <C> <C>
Operating data:
Revenue:
Apartment rental income $ 11,197 $ 9,791 $ 8,476 $ 3,889 $ 1,245
Restaurant rental income 4,500 4,500 4,649 5,047 5,165
Equity and other income 555 217 600 322 16
------------- ------------- -------------- ------------- --------------
Total revenue 16,251 14,508 13,726 9,258 6,426
Expenses:
Depreciation 2,686 2,440 2,204 1,415 973
Amortization 580 535 405 233 92
Apartment operations 3,546 2,977 2,481 1,101 360
Corporate administration 1,000 894 1,286 887 502
Interest 6,487 5,946 5,362 2,802 1,442
Write-off of deferred costs - - 359 518 600
------------- ------------- -------------- ------------- --------------
Total expenses 14,299 12,792 12,097 6,956 3,970
------------- ------------- -------------- ------------- --------------
Income before minority
interest of Unitholders 1,953 1,716 1,628 2,302 2,455
Minority interest in
Operating Partnership 39 - - - -
------------- ------------- -------------- ------------- --------------
Income before
extraordinary item $ 1,913 $ 1,716 $ 1,628 $ 2,302 $ 2,455
============= ============= ============== ============= ==============
Net income $ 1,730 $ 1,716 $ 1,628 $ 2,302 $ 2,455
============= ============= ============== ============= ==============
Basic earnings per share (1) $ 0.54 $ 0.57 $ 0.54 $ 0.80 $ 0.86
============= ============= ============== ============= ==============
Diluted earnings per share (1) $ 0.52 $ 0.56 $ 0.54 $ 0.80 $ 0.86
============= ============= ============== ============= ==============
</TABLE>
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<TABLE>
<CAPTION>
Year ended December 31
1997 1996 1995 1994 1993
------------- ------------- -------------- ------------- --------------
(in thousands, except per share and property data)
<S> <C> <C> <C> <C> <C>
Balance Sheet data:
Real estate assets (before
accumulated depreciation)
Apartment communities $ 128,050 $ 66,610 $ 55,316 $ 54,724 $ 14,352
Restaurant properties 43,205 43,205 43,205 43,205 43,205
Real estate assets, net 157,108 98,354 89,500 91,101 52,140
Total assets 166,112 103,436 94,352 95,954 54,643
Total debt 93,436 77,352 67,162 66,884 26,894
Minority interest 12,346 - - - -
Shareholders' equity 55,785 24,902 26,200 27,968 27,252
Apartment Property data:
Apartment communities
owned at year end 9 5 4 3 1
Apartment units owned
at year end 2,208 1,328 1,130 946 336
Average apartment
economic occupancy 95.3% 94.1% 95.3% 94.6% 94.4%
Average monthly revenue
per occupied unit $ 698 $ 684 $ 657 $ 624 $ 576
Other data:
EBITDA $ 11,706 $ 10,637 $ 9,600 $ 6,751 $ 4,963
Funds from operations (2) 4,804 4,472 4,450 4,291 4,029
Funds available
for distribution (2) 4,349 3,835 3,961 4,253 4,055
Net cash provided by
(used in):
Operating activities $ 5,007 $ 4,800 $ 4,476 $ 4,496 $ 4,066
Investing activities (48,095) (11,020) (832) (18,729) (16,157)
Financing activities 44,705 6,361 (3,895) 15,063 11,152
Weighted average number of
shares outstanding 3,180 3,027 3,006 2,855 2,850
<FN>
(1) Earnings per share amounts prior to 1997 have been restated to comply with
Statement of Financial Accounting Standards No. 128, Earnings Per Share.
For further discussion of earnings per share and the impact of Statement
128, see the notes to the financial statements.
(2) Funds from operations is defined by the National Association of Real
Estate Investment Trusts ("NAREIT") as "net income (computed in accordance
with generally accepted accounting principles), excluding gains (losses)
from debt restructuring and sales of property, plus depreciation and
amortization, and after adjustments for unconsolidated partnerships and
joint ventures."
We define funds available for distribution as funds from operations plus
non-cash expense for amortization of loan costs, less scheduled principal
payments on our debt and less recurring capital expenditures.
We consider funds from operations and funds available for distribution to
be useful in
13
<PAGE>
evaluating potential property acquisitions and measuring the
operating performance of an equity REIT because, together with net income
and cash flows, funds from operations and funds available for distribution
provide investors with additional measures to evaluate the ability of the
REIT to incur and service debt and to fund acquisitions and other capital
expenditures. Funds from operations and funds available for distribution
do not represent net income or cash flows from operations as defined by
generally accepted accounting principles. You should not consider funds
from operations or funds available for distribution:
-- to be alternatives to net income as reliable measures of the
Company's operating performance, or
-- to be alternatives to cash flows as measures of liquidity.
Funds from operations and funds available for distribution do not measure
whether cash flow is sufficient to fund all of our cash needs, including
principal amortization, capital improvements and distributions to
shareholders. Funds from operations and funds available for distribution
do not represent cash flows from operating, investing or financing
activities as defined by generally accepted accounting principles.
Further, funds from operations and funds available for distribution as
disclosed by other REITs may not be comparable to our calculation of funds
from operations or funds available for distribution.
</FN>
</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. Such statements can be identified by the use
of forward-looking terminology such as "may," "will," "expect," "anticipate,"
"estimate," "continue" or other similar words. These statements discuss future
expectations, contain projections of results of operations or of financial
condition or state other "forward-looking" information. Although we believe that
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. You
should read the following discussion in conjunction with the financial
statements and notes thereto included in this Annual Report.
Overview
This discussion analyzes our operations for the full years of 1997, 1996,
and 1995. During the time period covered by this discussion, we have undergone a
number of significant changes. These changes have resulted in a marked increase
in our total assets, revenues, expenses and debt. In reading this discussion, it
might help if you keep certain key events and general trends in mind:
14
<PAGE>
-From our inception in 1987 to 1992, our assets primarily consisted of 47
restaurant properties. In 1993, we began to change our focus from
restaurant properties to apartment communities. We purchased our first
apartment community in 1993 and purchased a total of eight more apartment
communities during 1994 through 1997. As of December 31, 1997, we owned
nine apartment communities and the original 47 restaurant properties.
-Prior to 1994, we operated as an externally administered and externally
managed REIT. A paid advisor provided day-to-day management and
operations. We had no paid employees and minimal corporate overhead
expenses. Essentially, our only management expense was the fee paid to the
advisor. In October 1994, we purchased BT Venture Corporation and its
apartment management business. We terminated our relationship with the
advisor and became a self-administered and self-managed REIT.
-As part of the purchase of BT Venture Corporation in 1994, we acquired
its apartment management business. We began to receive management fee
income from, and incur the expenses associated with, the property
management business. In May 1995, we formed BNP Management, Inc. (the
"Management Company") and transferred all of the third-party apartment
management business we had acquired from BT Venture Corporation to the
Management Company. All of our third-party property management activities
are now conducted through the Management Company. The Management Company
currently manages seven apartment communities and two shopping centers
owned by other parties.
As a result of the creation of the Management Company, we no longer
receive property management fees, nor do we incur expenses associated with
providing these services. Because we do not control the voting stock of
the Management Company, we account for our investment in the Management
Company using the equity method of accounting. This means that instead of
adding the Management Company's revenues, expenses, assets and liabilities
to our revenues, expenses, assets and liabilities, we show our portion of
the net income of the Management Company as a line item on our income
statement, and the amount we have invested in the Management Company as a
line item on our balance sheet. Because of our substantial economic
ownership interest, our portion of the net income of the Management
Company represents substantially all of the Management Company's net
income.
-Restaurant sales and restaurant rental income have been declining since
1992. The decline in restaurant sales appears to be the result of
increasing competition and widespread price discounting in the fast food
industry. Also contributing to the decline has been the lack of a strong
hamburger product on the Hardee's menu. Enterprises, the restaurant
operator, and Hardee's Food Systems, Inc., the restaurant franchisor, are
taking steps to improve restaurant sales. These steps include a new
advertising campaign, the introduction of several new food items, and a
return to the charbroil cooking method. To date, we have not seen
improvement in restaurant sales. In August 1997, CKE Restaurants, Inc.
purchased Hardee's Food Systems. CKE is the owner and operator of "Carl's
Jr.," a fast food hamburger chain with approximately 680 restaurants.
-Our acquisition of four apartment communities, a common stock offering,
and retirement of substantial debt in December 1997 had, and will have, a
significant impact on our financial position and operating results. In
addition, we have already committed to acquire three additional apartment
communities that are currently under construction.
15
<PAGE>
We receive revenue from two principal sources--apartment rents and
restaurant rents. In addition, we have other income that consists primarily of
revenue from the Management Company and interest income. As a result of our
apartment acquisitions, our total revenue has increased significantly. In
addition, the percentage of our total revenue that comes from apartments has
increased.
Results of Operations
1997 Compared to 1996
Revenues
Total revenue for 1997 was $16.3 million, an increase of 12.0% over 1996.
This increase is primarily due to the acquisition of four apartment communities
in December 1997 and the acquisition of one apartment community in April 1996.
Apartment rental income accounted for 68.9% of our total revenue in 1997 as
compared to 67.5% in 1996.
Apartment rental income for 1997 was $11.2 million, an increase of 14.4%
over 1996. While this increase is primarily the result of apartment community
acquisitions, apartment operations also showed improvement. For the four
apartment communities owned for the full year in both 1997 and 1996, apartment
rental income increased by 3.1%. On a same-units basis, average economic
occupancy improved by 1.3%, while average monthly revenue per occupied unit
increased by 1.5%. For 1997, overall average economic occupancy at our apartment
communities was 95.3% and average monthly revenue per occupied unit was $698.
As of December 31, 1997, we owned apartment communities in Charlotte,
Greensboro and Winston-Salem, North Carolina and Virginia Beach, Virginia. Our
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, we believe these markets
have remained relatively strong. This strength is primarily attributable to
demand for apartments created by continued population and job growth. While we
experienced a nominal reduction in our average economic occupancy in 1996, we
have successfully maintained a slight increase in average monthly revenue per
unit, and we increased average physical occupancy to 94.8% in 1997 compared to
93.7% in 1996.
We utilized three techniques to achieve these results:
-monitoring and managing lease expiration dates;
-encouraging residents to sign longer term leases, up to 24 months; and
-providing incentives for residents who renew their leases.
At December 31, 1997, approximately one-third of our leases in effect were
for a duration of 13 months or more. While we expect some competitive pressure
in our markets in 1998, we do not expect this will have a material adverse
effect on our operations or cash flows.
Restaurant rental income was the minimum rent for 1997 and 1996. Under the
terms of the lease agreement, restaurant rental income is the greater of the
minimum rent of $4.5 million per year or 9.875% of food sales. For 1997, sales
at our restaurant properties totaled $44.2 million, a
16
<PAGE>
decrease of 1.7% compared to 1996. For rent payments based on percentage rent to
resume, sales would have to increase by 3.0% over 1997 sales levels.
Our interest in the net income of the Management Company increased by
40.6% to $210,000 in 1997 as compared to 1996. This increase was primarily due
to the Management Company's receipt during the first quarter of 1997 of
refinancing fees from two managed properties and certain one-time sales
commissions from two managed properties. Also contributing to the increase were
fees the Management Company received for its planning and supervision of a
substantial rehabilitation project at The Villages of Chapel Hill, one of its
managed properties. We do not expect the operations of the Management Company to
have a significant effect on our financial position, operating results or cash
flows in future periods.
Interest and other income increased by 408.8% to $345,000 in 1997 as
compared to 1996. This increase was primarily due to approximately $120,000
interest and $44,000 fees earned on loans made to facilitate the rehabilitation
of The Villages of Chapel Hill, for which we advanced approximately $1.9 million
in 1997. During 1997, we incurred interest expense of approximately $71,000 on
the borrowings we used to fund these advances. In addition, we earned fees of
$98,000 in 1997 for arranging refinancing for Woods Edge Apartments, a property
managed by our Management Company.
Expenses
Total expenses for 1997 were $14.3 million, an increase of 11.8% over
1996. This increase is due to the acquisition of four apartment communities in
December 1997 and the acquisition of one apartment community in April 1996,
along with an overall increase in apartment operations expense.
Apartment operations expense was $3.5 million in 1997, an increase of
19.1% over 1996. This increase reflects the impact of apartment acquisitions in
1997 and 1996, as well as increased costs associated with attracting and
retaining residents in a more competitive apartment market. In order to increase
the visibility of our apartment communities, we have substantially increased the
amount we spend on advertising. We have also increased our spending on
preventive maintenance. We believe that, in order to preserve our competitive
position, it is essential to maintain our apartment communities in the best
possible condition. Apartment operations expense totaled 31.7% of related income
in 1997 as compared to 30.4% in 1996.
Operating expenses for restaurant properties are insignificant because of
the restaurant properties' triple-net lease arrangement that requires
Enterprises to pay virtually all of the expenses associated with the restaurant
properties.
Depreciation expense was $2.7 million in 1997, an increase of 10.1% over
1996. The increase in depreciation expense is primarily attributable to
apartment community acquisitions of $60.7 million in December 1997 and $10.6
million in April 1996.
Amortization expense was $580,000 in 1997, an increase of 8.5% over 1996.
The increase in amortization expense is primarily attributable to quarterly
additions to the intangible asset related to the earn-out provision of the 1994
BT Venture Corporation acquisition agreement. The earn-out period related to
this acquisition agreement ended September 1997, and there will be no further
additions to this intangible asset.
17
<PAGE>
Administrative expense was $1.0 million in 1997, an increase of 11.8% over
1996. This increase reflects additions to property management corporate staff
along with a one-time charge of approximately $50,000 related to our
reincorporation in Maryland in 1997.
Interest expense totaled $6.5 million in 1997, an increase of 9.1% over
1996. The increase in interest expense is primarily due to the addition of $38.1
million of debt related to the acquisition of four apartment communities in
December 1997 and the addition of $10.7 million of debt related to the
acquisition of one apartment community in April 1996. Weighted average interest
rates were 8.0% in 1997 and 1996.
Net income
Net income before an extraordinary item for early extinguishment of debt
in 1997 was $1.9 million, an increase of 11.5% over 1996. The increase was
primarily the result of improved apartment revenues and the substantial increase
in equity and other income.
In December 1997, we applied proceeds of a common stock offering to prepay
approximately $32.2 million in debt. In conjunction with these prepayments, we
wrote off unamortized loan costs of $227,000. We have reported our net write-off
(after minority interest) of $183,000 as an extraordinary item in the 1997
financial statements.
1996 compared to 1995
Revenues
Total revenue for 1996 was $14.5 million, an increase of 5.7% over 1995.
This increase is primarily due to the acquisition of Paces Village in April 1996
and continued improvement in apartment operations. Apartment rental income
accounted for 67.5% of our total revenue in 1996 as compared to 61.8% in 1995.
Apartment rental income for 1996 was $9.8 million, an increase of 15.5%
over 1995. This increase reflects the acquisition of Paces Village in April 1996
along with improvements in apartment operations. For the four apartment
communities owned for the full year in both 1996 and 1995, apartment rental
income increased by 3.3%. On a same-units basis, average economic occupancy
declined by 0.7%, but was more than offset by an increase in average monthly
revenue per occupied unit of 4.1%. For 1996, overall average economic occupancy
at our apartment communities was 94.1% and average monthly revenue per occupied
unit was $685. For 1995, overall average economic occupancy at our apartment
communities was 95.3% and average monthly revenue per occupied unit was $657.
The increase in apartment rental income in 1996 was partially offset by a
decrease in restaurant rental income. In 1996, restaurant rental income was $4.5
million, a decrease of 3.2% as compared to 1995. For 1996, sales at our
restaurant properties totaled $45.0 million, a decrease of 4.4% compared to
1995. The difference in comparisons of restaurant rental income and related
sales was the result of the minimum rent provision of the restaurant lease. In
December 1995, we entered into a modification of the lease with Enterprises that
increased the minimum rent from $3.46 million per year to $4.5 million per year.
Under the restaurant lease, annual restaurant rent is the greater of the minimum
rent or 9.875% of food sales. The decline in restaurant sales appeared to be a
continuation of the trend that began in 1993, along with the impact of severe
weather in January 1996.
18
<PAGE>
Also offsetting the increase in apartment rental income in 1996 was the
elimination of property management fee income in 1996, reflecting the creation
of the Management Company in May 1995. As a result of creation of the Management
Company in 1995, we did not receive any property management fees in 1996
compared to $515,000 in 1995. We did, however, receive equity income from the
Management Company of approximately $149,000 in 1996 as compared to $48,000 in
1995.
Expenses
Total expenses in 1996 were $12.8 million, an increase of 5.7% over 1995.
This increase was primarily due to the acquisition of Paces Village in April
1996.
Apartment operations expense was $3.0 million in 1996, an increase of
20.0% over 1995. The increase reflects the impact of the Paces Village
acquisition in 1996, as well as increased operating expenses. Apartment
operations expense totaled 30.4% of related income in 1996 as compared to 29.3%
in 1995. The increases in apartment operating expenses in 1996 were primarily
attributable to increased costs associated with attracting and retaining
residents as well as an increased emphasis on preventive maintenance.
Operating expenses for restaurant properties are insignificant because the
restaurant properties' triple-net lease arrangement requires Enterprises to pay
virtually all of the expenses associated with the restaurant properties.
Depreciation expense was $2.4 million in 1996, an increase of 10.7% over
1995. This increase was due primarily to the acquisition of Paces Village ($10.6
million) in April 1996.
Amortization expense was $535,000 in 1996, an increase of 32.0% over 1995.
The increase in amortization expense is attributable to the acquisition of Paces
Village and to quarterly additions to the intangible asset related to the
earn-out provision of the 1994 BT Venture Corporation acquisition agreement.
Administrative expense was $894,000 in 1996, a decrease of 32.4% from
1995. This decrease reflects the transfer of our property management activities
to the Management Company in May 1995.
Interest expense totaled $5.9 million in 1996, an increase of 10.9% over
1995. This increase was primarily due to an additional $10.7 million of
indebtedness incurred in connection with the acquisition of Paces Village in
1996.
Net income
Net income for 1996 was $1.7 million, an increase of 5.4% over 1995. This
increase was due to the write-off of $359,000 in deferred costs in 1995. If the
write-off had not occurred in 1995, our net income for 1996 as compared to 1995
would have declined, primarily as the result of increased depreciation and
amortization related to apartment property acquisitions.
19
<PAGE>
Funds from Operations
Funds from operations and funds available for distribution are defined in
footnote 2 on page 13. We calculated funds from operations as follows (all
amounts in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
-------------- --------------- --------------
<S> <C> <C> <C>
Income before minority interest
and extraordinary item $ 1,953 $ 1,716 $ 1,628
Depreciation 2,686 2,440 2,204
Amortization of management intangible 380 315 258
Write-off of deferred costs - - 359
Non-recurring equity income items (103) - -
-------------- --------------- --------------
Funds from operations before minority interest
in Operating Partnership 4,916 4,472 4,450
Minority interest in funds from operations
of Operating Partnership (111) - -
-------------- --------------- --------------
Funds from operations $ 4,804 $ 4,472 $ 4,450
============== =============== ==============
</TABLE>
A reconciliation of funds from operations to funds available for
distribution follows (all amounts in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
-------------- --------------- --------------
<S> <C> <C> <C>
Funds from operations before minority interest
in Operating Partnership $ 4,916 $ 4,472 $ 4,450
Amortization of loan costs 200 219 147
Scheduled debt principal payments (495) (460) (397)
Recurring capital expenditures (375) (396) (239)
Non-recurring equity income items 103 - -
-------------- --------------- --------------
Funds available for distribution $ 4,349 $ 3,835 $ 3,961
============== =============== ==============
</TABLE>
Other information about our historical cash flows follows (all amounts in
thousands):
<TABLE>
<CAPTION>
1997 1996 1995
-------------- --------------- --------------
<S> <C> <C> <C>
Net cash provided by (used in):
Operating activities $ 5,006 $ 4,800 $ 4,476
Investing activities (48,095) (11,020) (832)
Financing activities 44,705 6,361 (3,895)
Dividends and distributions paid to:
Shareholders $ 3,854 $ 3,751 $ 3,729
Minority unitholders in Operating Partnership - na na
Non-recurring capital expenditures:
Acquisition improvements and replacements $ 71 $ 143 $ 285
Other apartment property improvements 221 22 2
</TABLE>
20
<PAGE>
<TABLE>
<CAPTION>
1997 1996 1995
-------------- --------------- --------------
<S> <C> <C> <C>
Weighted average common shares outstanding 3,180 3,027 3,006
Weighted average Operating Partnership
minority units outstanding 81 na na
</TABLE>
The additions of apartment communities and improvement in apartment
operations have more than offset the decline in restaurant rental income,
producing increases in funds from operations. Funds from operations in 1997
(before minority interest) totaled $4.9 million, an increase of 9.9% over 1996.
Funds from operations in 1996 totaled $4.5 million, an increase of 0.5% over
1995 funds from operations of $4.4 million.
Capital Resources and Liquidity
Capital Resources
Prior to acquiring our first apartment community, our capital requirements
were minimal, as all capital costs related to the restaurant properties were
borne by Enterprises under the terms of the master lease. In order to acquire
our apartment communities and management operations, we 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 our credit lines.
In 1997, we reorganized to an UPREIT structure, a structure that many
REITs currently use. UPREIT stands for "umbrella partnership real estate
investment trust." An UPREIT is a real estate investment trust that controls and
holds most of its properties through an umbrella limited partnership. The
umbrella limited partnership in our UPREIT is the Operating Partnership,
Boddie-Noell Properties Limited Partnership.
Prior to the reorganization, most property owners who sold us properties
recognized gain on their sale. However, through our UPREIT structure, we can
acquire properties in exchange for Operating Partnership units and trigger no
immediate tax obligations for certain sellers. We believe that our conversion to
an UPREIT will therefore enable us to acquire properties not otherwise available
or at lower prices because of the tax advantages to certain property sellers of
receiving limited partnership interests instead of cash as consideration.
In December 1997, we completed a common stock offering and issued
2,500,000 shares of common stock. In January 1998, we issued an additional
200,000 shares for the underwriters' over-allotment in this offering. We used
proceeds of this offering to retire long-term debt (discussed below).
We issued 950,032 Operating Partnership units in December 1997 in
conjunction with the acquisition of four apartment communities, and have
deferred issuing an additional 100,000 units until December 1998, and 100,000
units until December 1999 related to this acquisition. Under the terms of the
acquisition agreement for these four communities and three communities that are
currently under construction, we will issue up to 1.7 million units. Holders of
these units will generally be able to redeem their units for cash or, at our
option, for shares of our common stock on a one-for-one basis after one year
following issuance.
21
<PAGE>
In July 1996, we amended our Dividend Reinvestment and Stock Purchase Plan
("DRIP Plan") to give us the option of issuing new shares directly to Plan
participants. The Plan allows shareholders to reinvest their dividends in
additional shares of our common stock and to make additional investments of $25
to $10,000 per quarter directly with us. During 1997 we issued 39,828 shares
through the DRIP Plan. During 1996 we issued 19,207 shares through the Plan.
During 1997, 1996 and 1995, we issued 80,750 shares of common stock as
additional consideration for the 1994 acquisition of BT Venture Corporation. The
earn-out period for this acquisition ended in September 1997. In January 1998,
we issued 43,438 shares of our common stock to the former shareholders of BT
Venture Corporation in final payment for additional consideration.
In December 1997, we financed the purchase of four apartment communities
with fixed rate first deed of trust loans totaling $38.1 million and an
unsecured loan of $8.8 million. We applied proceeds of the common stock offering
to retire the $8.8 million unsecured loan, to retire a $1.4 million variable
rate second deed of trust, and to pay down $22.0 million of a fixed rate line of
credit with a bank. In January 1998, we applied $1.9 million proceeds of the
common stock offering underwriters' over-allotment proceeds to pay off the
outstanding balance of the line of credit. We are currently negotiating to
increase our line of credit and to convert the loan to a revolving line of
credit.
In February 1997, we entered into a participating loan agreement with The
Villages of Chapel Hill Limited Partnership. Under the terms of the agreement,
we have committed to loan The Villages up to $2.6 million to fund a substantial
rehabilitation of its apartment community. We also guaranteed a $1.5 million
bank loan. In exchange, we received or will receive the following:
-control over selection of the property management provider (which
currently is the Management Company);
-interest on our loan at the greater of 12.5% or the 30 day LIBOR rate
plus 6.125%;
-25% of the increase in gross revenue in excess of $146,333 per month from
the property over the next seven years; and
-25% of the value of the property in excess of $10.0 million at the earlier
of the end of seven years or upon its sale.
We will fund advances to the Villages through draws on an existing credit
facility, which currently bears interest at the 30 day LIBOR rate plus 2.25% and
is secured by deeds of trust on three of our apartment communities. Through
December 31, 1997, we had advanced The Villages $1.9 million. Under this
arrangement, we will earn interest at a rate higher than we could otherwise
obtain from the investment of funds in the ownership of apartment communities
and at a rate in excess of our borrowing rate under our credit facility.
During 1996, we financed the purchase of an apartment community with
variable rate first and second deed of trust loans totaling $10.0 million (the
$1.4 million second deed of trust loan was retired in 1997) and a $650,000 draw
from our line of credit.
During 1995, we applied $29.4 million proceeds from fixed rate loans to
retire a mortgage note and pay off variable rate notes and a variable rate
revolving line of credit totaling $29.3 million.
22
<PAGE>
A summary of long-term debt as of December 31, 1997 and 1996, is included
in the notes to the financial statements in this Annual Report. At December 31,
1997, total long-term debt was $93.4 million, including $76.0 million notes
payable at fixed interest rates ranging from 6.97% to 8.55%, and $17.4 million
at variable rates indexed on 30 day LIBOR rates. The weighted average interest
rate on debt outstanding was 7.6% at December 31, 1997, compared to 8.0% at
December 31, 1996. A 1% increase in variable interest rates would increase our
annual interest expense by approximately $153,000, while a 1% decrease in
variable rates would decrease our annual interest expense by $174,000.
At December 31, 1997, we had a debt-to-total market capitalization ratio
of 50.6% compared to 66.8% at December 31, 1996. The debt-to-total market
capitalization ratio is defined as total debt divided by the sum of our total
debt and the market value of our outstanding shares of common stock and
Operating Partnership units.
We intend to pursue our growth strategy through the utilization of our
flexible capital structure. This may include the issuance of units, common stock
and/or preferred stock, and additional debt. We may use our line or credit or
fixed-rate, long-term debt to acquire apartment communities.
Cash Flows and Liquidity
We capitalize expenditures if we make them to acquire a new asset, to
materially enhance the value of an existing asset, or to substantially extend
the useful life of an existing asset. We generally funded additions to apartment
properties from cash provided by operating activities and proceeds of common
stock issued through our DRIP Plan.
We paid dividends of $0.31 per share per quarter in each quarter of 1997,
1996 and 1995. Our dividend payout ratio (the ratio of dividends paid to funds
from operations) was 80.2% in 1997, 83.9% in 1996, and 83.8% in 1995. We intend
to pay dividends quarterly, expect that these dividends will substantially
exceed the 95% distribution requirement for REITs, and anticipate that all
dividends will be paid from current funds from operations.
Short- and Long-Term Liquidity Requirements
A summary of scheduled principal payments on long-term debt is included in
the notes to the financial statements in this Annual Report. Significant
scheduled balloon payments include maturities of:
-two loans payable to affiliates in May 1999 ($7.1 million);
-our credit line in December 1999 ($1.9 million at December 31, 1997;
subsequently reduced to $0 outstanding in January 1998); and
-the note payable secured by a deed of trust on Latitudes in January 2000
(balloon of approximately $12.5 million).
We continue to produce sufficient cash flow to fund our regular dividend
and have positioned the Company for future growth. We generally expect to meet
our short-term liquidity requirements through net cash provided by operations
and utilization of credit facilities. We believe that net cash provided by
operations is, and will continue to be, adequate to meet the
23
<PAGE>
REIT operating requirements in both the short- and the long-term. We anticipate
funding our future acquisition activities primarily by using short-term credit
facilities as an interim measure, to be replaced by funds from equity offerings
or long-term debt. We expect to meet our long-term liquidity requirements, such
as scheduled debt maturities and repayment of short-term financing of possible
property acquisitions, through long-term secured and unsecured borrowings and
the issuance of debt securities or additional equity securities. We believe we
have sufficient resources to meet our short-term liquidity requirements.
We received approximately 27.7% of our revenue in 1997 from Enterprises'
payment of rent for the use of our restaurant properties. In addition,
Enterprises is responsible for all of the costs associated with the maintenance
and operations of these properties.
Over time, we expect that restaurant rental income will represent a
decreasing percent of our total revenue. However, until we are able to
substantially increase our apartment portfolio or dispose of the restaurant
properties, restaurant rent will remain a significant portion of our revenue. As
a result, Enterprises' ability to meet its obligations under the master lease
will have a meaningful impact on our financial well being. The ability of
Enterprises to satisfy the requirements of the master lease depends on its
liquidity and capital resources. Historically, Enterprises has met 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
365 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. We have had extensive discussions with
management of Enterprises and have reviewed Enterprises' financial statements,
cash flow analysis, restaurant contribution analysis, sales trend analysis and
projections. We believe that Enterprises will have sufficient liquidity and
capital resources to meet its obligations under the master lease and credit
facility as well as its general corporate operating needs.
The table below shows 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, 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 expense.
Current assets $ 27,284,000
Total assets 265,172,000
Current liabilities 30,771,000
Total debt, including current portion of $5,400,000 116,895,000
Shareholders' equity 89,392,000
Net cash provided by operating activities 15,753,000
Inflation
We do not believe that inflation poses a material risk to the Company. The
leases at our apartment properties are short-term in nature. None are longer
than two years. The restaurant properties are leased on a triple-net basis,
which places the risk of rising operating and maintenance costs on the lessee.
24
<PAGE>
Environmental Matters
Phase I environmental studies performed on the apartment communities did
not identify any problems that we believe would have a material adverse effect
on our results of operations, liquidity or capital resources. Environmental
transaction screens for each of the restaurant properties in 1995 did not
indicate existence of any environmental problems that warranted further
investigation. Enterprises has indemnified us for environmental problems
associated with the restaurant properties under the master lease.
Recently Issued Accounting Standards
In 1997 the Financial Accounting Standards Board issued Statements No.
130, Reporting Comprehensive Income, and No. 131, "Disclosures About Segments of
an Enterprise and Related Information." These Statements are effective for
periods beginning after December 15, 1997. Statement 130 establishes
requirements for reporting and displaying comprehensive income and its
components. Statement 131 establishes standards for the way that public
companies report information about operating segments and related information in
interim and annual financial statements. We expect that adoption of these
statements will not have a material impact on our financial statements.
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.
25
<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 15, 1998, (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.
26
<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 31
Consolidated Balance Sheets as of December 31, 1997 and 1996 33
Consolidated Statements of Operations for the Years Ended 34
December 31, 1997, 1996 and 1995
Consolidated Statements of Shareholders' Equity for the Years Ended 35
December 31, 1997, 1996 and 1995
Consolidated Statements of Cash Flows for the Years Ended 36
December 31, 1997, 1996 and 1995
Notes to Consolidated Financial Statements 37
Schedules:
Schedule III - Real Estate and Accumulated Depreciation 49
</TABLE>
The financial statements and schedules are filed as part of this report.
All other schedules are omitted because they are not applicable or the required
information is included in the financial statements or notes thereto.
(a) 3. Exhibits
The Registrant agrees to furnish a copy of all agreements related to
long-term debt upon request of the Commission.
Exhibit No.
2.1* Master Agreement of Merger and Acquisition by and among
Boddie-Noell Properties, Inc., Boddie-Noell Properties Limited
Partnership, Paul G. Chrysson, James G. Chrysson, W. Michael
Gilley, Matthews G. Gallins, James D. Yopp, and the partnerships
and limited liability companies listed therein, dated September
22, 1997 (filed as Exhibit 2.1 to Registration Statement No.
333-39803 on Form S-2, December 16, 1997, and incorporated herein
by reference)
2.2* Exchange Option Agreement by and among Boddie-Noell Properties
Limited Partnership, Boddie-Noell Properties, Inc., and the
owners of the Chrysson affiliates listed therein, dated as of
September 22, 1997 (filed as Exhibit 2.2 to Registration
Statement No. 333-39803 on Form S-2, December 16, 1997, and
incorporated herein by reference)
27
<PAGE>
2.3* Amendment to Master Agreement of Merger and Acquisition dated
September 22, 1997, by and among Boddie-Noell Properties, Inc.,
Boddie-Noell Properties Limited Partnership, Paul G. Chrysson,
James G. Chrysson, W. Michael Gilley, Matthew G. Gallins, James
D. Yopp, and the partnerships and limited liability companies
listed therein, dated November 3, 1997 (filed as Exhibit 2.3 to
Boddie-Noell Properties, Inc. Current Report on Form 8-K dated
December 1, 1997, and incorporated herein by reference)
3.1* Articles of Incorporation (filed as Exhibit 3.1 to Boddie-Noell
Properties, Inc. Quarterly Report on Form 10-Q for the quarter
ended June 30, 1997, and incorporated herein by reference)
3.2* By-Laws (filed as Exhibit 3.2 to Registration Statement No.
333-39803 on Form S-2, December 16, 1997, and incorporated herein
by reference)
10.1* 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)
10.2* 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)
10.3* Loan Agreement dated December 27, 1995, between Boddie-Noell
Properties, Inc. and SouthTrust Bank of Alabama, NA (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)
10.4* Loan Agreement as of February 27, 1997, by and between The
Villages of Chapel Hill Limited Partnership and Boddie-Noell
Properties, Inc. (filed as Exhibit 10 to Boddie-Noell Properties,
Inc. Quarterly Report on Form 10-Q for the quarter ended March
31, 1997, and incorporated herein by reference)
10.5* Modification to Loan Agreement, dated August 1, 1997, between
Boddie-Noell Properties, Inc. and SouthTrust Bank of Alabama, NA
(filed as Exhibit 10.8 to Registration Statement No. 333-39803 on
Form S-2, December 16, 1997, and incorporated herein by
reference)
10.6* Form of Agreement of Limited Partnership of Boddie-Noell
Properties Limited Partnership (filed as Exhibit 10.9 to
Registration Statement No. 333-39803 on Form S-2, December 16,
1997, and incorporated herein by reference)
10.7* Form of Registration Rights Agreement (filed as Exhibit 10.11 to
Registration Statement No. 333-39803 on Form S-2, December 16,
1997, and incorporated herein by reference)
10.8* 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)
10.9* 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)
10.10* 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-
28
<PAGE>
Noell Properties, Inc. Annual Report on Form 10-K dated
December 31, 1994, and incorporated herein by reference)
10.11 Form and description of Incentive Stock Option Agreements dated
April 1, 1997, between the Company and certain officers
10.12 Form and description of Nonqualified Stock Option Agreements
dated April 1, 1997, between the Company and certain officers
10.13 Amendment to Incentive Stock Option Agreement between the Company
and W. Craig Worthy dated June 5, 1997
10.14 Amendment to Nonqualified Stock Option Agreement between the
Company and W. Craig Worthy dated June 5, 1997
10.15* Form and description of Employment Agreements dated July 15,
1997, between the Company and certain officers (filed as Exhibit
10 to Boddie-Noell Properties, Inc. Quarterly Report on Form 10-Q
for the quarter ended September 30, 1997, and incorporated herein
by reference)
21 Subsidiaries of the Registrant
23.1 Consent of Ernst & Young LLP
23.2 Consent of Arthur Andersen LLP
27 Financial Data Schedule (electronic filing)
* Incorporated herein by reference
Exhibits 10.8 through 10.15 are management contracts or compensatory plans.
(b) Reports on Form 8-K.
We filed a Current Report on Form 8-K dated December 1, 1997, relating to
the acquisition of four apartment communities.
29
<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 24, 1998 /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.
<TABLE>
<CAPTION>
Signature: Title: Date:
<S> <C> <C>
/s/ D. Scott Wilkerson President and Chief Executive March 24, 1998
D. Scott Wilkerson Officer, Director
/s/ Philip S. Payne Executive Vice President, Treasurer March 24, 1998
Philip S. Payne and Chief Financial Officer, Director
/s/ Pamela B. Novak Vice President, Controller March 24, 1998
Pamela B. Novak and Chief Accounting Officer
/s/ B. Mayo Boddie Chairman of the Board of Directors March 24, 1998
B. Mayo Boddie
/s/ Paul G. Chrysson Director March 24, 1998
Paul G. Chrysson
/s/ W. Michael Gilley Director March 24, 1998
W. Michael Gilley
/s/ Donald R. Pesta, Jr. Director March 24, 1998
Donald R. Pesta, Jr.
/s/ William H. Stanley Director March 24, 1998
William H. Stanley
</TABLE>
30
<PAGE>
Report of Independent Auditors
Board of Directors and Stockholders
Boddie-Noell Properties, Inc.
We have audited the accompanying consolidated balance sheets of Boddie-Noell
Properties, Inc. as of December 31, 1997 and 1996, and the related consolidated
statements of operations, shareholders' equity and cash flows for the years then
ended. Our audits also included the financial statement schedule as of and for
the years ended December 31, 1997 and 1996 listed in the Index at Item 14(a).
These financial statements and schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and schedule based on our audits.
We conducted our audits in accordance with 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 consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Boddie-Noell
Properties, Inc. as of December 31, 1997 and 1996 and the results of its
operations and its cash flows for the years then ended in conformity with
generally accepted accounting principles. Also, in our opinion, the related
financial statement schedule as of and for the years ended December 31, 1997 and
1996 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
Raleigh, North Carolina
January 9, 1998
31
<PAGE>
Report of Independent Public Accountants
To the Shareholders of
Boddie-Noell Properties, Inc.:
We have audited the accompanying statements of operations, shareholders' equity
and cash flows of Boddie-Noell Properties, Inc. (a Delaware corporation) for the
year ended December 31, 1995. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements 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 results of operations and cash flows of Boddie-Noell
Properties, Inc. for the year ended December 31, 1995, in conformity with
generally accepted accounting principles.
/s/ Arthur Andersen LLP
Charlotte, North Carolina,
January 31, 1996.
32
<PAGE>
BODDIE-NOELL PROPERTIES, INC.
- -------------------------------------------------------------------------------
Consolidated Balance Sheets
<TABLE>
<CAPTION>
December 31
1997 1996
------------------- ------------------
<S> <C> <C>
Assets
Real estate investments at cost:
Apartment properties $128,049,529 $ 66,610,048
Restaurant properties 43,205,075 43,205,075
------------------- ------------------
171,254,604 109,815,123
Less accumulated depreciation (14,146,933) (11,461,365)
------------------- ------------------
157,107,671 98,353,758
Cash and cash equivalents 2,458,565 842,604
Rent and other receivables 65,537 12,695
Prepaid expenses and other assets 757,567 392,302
Investment in and advances to Management Company 214,761 261,598
Notes receivable 1,909,007 -
Other assets, net of accumulated amortization:
Intangible related to acquisition of management operations 2,739,888 2,744,912
Deferred financing costs 858,687 828,113
------------------- ------------------
Total assets $166,111,683 $103,435,982
=================== ==================
Liabilities and Shareholders' Equity
Mortgage and other notes payable $ 86,380,177 $ 70,295,957
Notes payable to affiliates 7,056,300 7,056,300
Accounts payable and accrued expenses 290,303 15,549
Accrued interest on mortgage and other notes payable 509,517 335,871
Accrued interest on notes payable to affiliates 130,522 125,518
Additional consideration due for acquisitions 3,172,136 355,570
Escrowed security deposits and deferred revenue 442,096 348,779
------------------- ------------------
97,981,051 78,533,544
Minority interest in operating partnership 12,345,663 -
Shareholders' equity:
Common stock, $.01 par value, 100,000,000 shares authorized, 5,630,775 shares
issued and outstanding at December 31, 1997,
3,074,647 shares issued and outstanding at December 31, 1996 56,308 30,746
Additional paid-in capital 67,503,012 34,522,816
Dividend distributions in excess of net income (11,774,351) (9,651,124)
------------------- ------------------
Total shareholders' equity 55,784,969 24,902,438
------------------- ------------------
Total liabilities and shareholders' equity $166,111,683 $103,435,982
=================== ==================
</TABLE>
See accompanying notes.
33
<PAGE>
BODDIE-NOELL PROPERTIES, INC.
- -------------------------------------------------------------------------------
Consolidated Statements of Operations
<TABLE>
<CAPTION>
Years ended December 31
1997 1996 1995
----------------- ---------------- -----------------
<S> <C> <C> <C>
Revenues
Apartment rental income $11,196,762 $ 9,790,713 $ 8,476,268
Restaurant rental income 4,500,000 4,500,000 4,649,250
Management fees - - 514,872
Equity in income of Management Company 209,867 149,298 48,063
Interest and other income 345,002 67,813 37,185
----------------- ---------------- -----------------
16,251,631 14,507,824 13,725,638
Expenses
Depreciation 2,685,718 2,440,417 2,204,199
Amortization 580,344 534,663 405,182
Apartment operations 3,545,555 2,976,876 2,480,920
Administrative 1,000,302 894,360 1,323,232
Interest on notes payable to affiliates 510,731 499,676 540,572
Interest - other 5,976,127 5,446,017 4,821,865
Write-off of deferred acquisition costs - - 321,400
----------------- ---------------- -----------------
14,298,777 12,792,009 12,097,370
----------------- ---------------- -----------------
Income before minority interest and extraordinary item 1,952,854 1,715,815 1,628,268
Minority interest in operating partnership 39,407 - -
----------------- ---------------- -----------------
Income before extraordinary item 1,913,447 1,715,815 1,628,268
Extraordinary item - loss on early extinguishment of debt 182,999 - -
----------------- ---------------- -----------------
Net income $ 1,730,448 $ 1,715,815 $ 1,628,268
================= ================ =================
Per share data:
Basic earnings per share --
Income before extraordinary item $ 0.60 $ 0.57 $ 0.54
Extraordinary item (0.06) - -
----------------- ---------------- -----------------
Net income $ 0.54 $ 0.57 $ 0.54
================= ================ =================
Diluted earnings per share --
Income before extraordinary item $ 0.59 $ 0.56 $ 0.54
Extraordinary item (0.07) - -
----------------- ---------------- -----------------
Net income $ 0.52 $ 0.56 $ 0.54
================= ================ =================
Dividends declared $ 1.24 $ 1.24 $ 1.24
================= ================ =================
Weighted average shares outstanding 3,180,266 3,026,901 3,005,809
================= ================ =================
</TABLE>
See accompanying notes.
34
<PAGE>
BODDIE-NOELL PROPERTIES, INC.
- -------------------------------------------------------------------------------
Consolidated 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, 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
Common stock issued 2,556,128 25,562 32,980,196 - 33,005,758
Dividends paid - - - (3,853,675) (3,853,675)
Net income - - - 1,730,448 1,730,448
------------- ---------------- ---------------- --------------- ----------------
Balance at December 31, 1997 5,630,775 $56,308 $67,503,012 $(11,774,351) $55,784,969
============= ================ ================ =============== ================
</TABLE>
See accompanying notes.
35
<PAGE>
BODDIE-NOELL PROPERTIES, INC.
- -------------------------------------------------------------------------------
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Years ended December 31
1997 1996 1995
---------------- ---------------- -----------------
<S> <C> <C> <C>
Operating activities
Net income $ 1,730,448 $ 1,715,815 $ 1,628,268
Adjustments to reconcile net income to
net cash provided by operating activities:
Extraordinary item - loss on early extinguishment of debt 182,999 - -
Minority interest in operating partnership 39,407 - -
Equity in income of Management Company (209,867) (149,298) (48,063)
Depreciation and amortization 3,266,062 2,975,080 2,609,381
Write-off of deferred costs - - 359,123
Changes in operating assets and liabilities:
Rent and other receivables (52,842) 232,122 248,489
Prepaid expenses and other assets (193,270) (58,783) (66,088)
Accounts payable and accrued expenses 318,405 (54,574) (204,726)
Security deposits and deferred revenue (75,281) 139,941 (50,656)
---------------- ---------------- -----------------
Net cash provided by operating activities 5,006,061 4,800,303 4,475,728
Investing activities
Acquisitions of apartment properties (45,772,106) (10,666,580) -
Additions to apartment properties (667,108) (561,114) (525,516)
Payment of deferred acquisition costs - - (156,401)
Investment in Management Company - (165) -
Dividends received from Management Company 153,307 158,293 -
Repayment from (advances to) Management Company 100,000 50,000 (150,000)
Investment in notes receivable (1,909,007) - -
---------------- ---------------- -----------------
Net cash used in investing activities (48,094,914) (11,019,566) (831,917)
Financing activities
Net proceeds from issue of common stock 32,932,322 243,628 -
Payment of dividends (3,853,675) (3,751,375) (3,729,220)
Proceeds from notes payable 48,765,007 10,650,000 33,925,000
Principal payments on notes payable (32,680,787) (459,528) (33,646,771)
Payment of deferred financing costs (458,053) (321,721) (444,320)
---------------- ---------------- -----------------
Net cash provided by (used in) financing activities 44,704,814 6,361,004 (3,895,311)
---------------- ---------------- -----------------
Net increase (decrease) in cash and cash equivalents 1,615,961 141,741 (251,500)
Cash and cash equivalents at beginning of year 842,604 700,863 952,363
---------------- ---------------- -----------------
Cash and cash equivalents at end of year $ 2,458,565 $ 842,604 $ 700,863
================ ================ =================
</TABLE>
See accompanying notes.
36
<PAGE>
BODDIE-NOELL PROPERTIES, INC.
- -------------------------------------------------------------------------------
Notes to Consolidated Financial Statements
December 31, 1997
Note 1. Summary of Significant Accounting Policies
Basis of presentation
The consolidated financial statements include the accounts of Boddie-Noell
Properties, Inc. (the "Company") and Boddie-Noell Properties Limited Partnership
(the "Operating Partnership"). The Company is the general partner and owns a
majority interest in the Operating Partnership. All significant intercompany
balances and transactions have been eliminated in the consolidated financial
statements.
We are a self-administered and self-managed real estate investment trust
("REIT") that owns and operates apartment communities in North Carolina and
Virginia. We own nine apartment communities containing 2,208 apartments and have
the right to acquire three additional apartment communities, containing 476
apartment units, which are currently under construction. We also own 47
restaurant properties, which we lease to Boddie-Noell Enterprises, Inc.
("Enterprises") under a master lease on a triple-net basis.
The Company has a 1% voting interest and 95% economic interest in BNP
Management, Inc. (the "Management Company"). We use the equity method to record
this investment. The Management Company manages seven apartment communities,
containing 1,495 apartment units, and two shopping centers that are owned by
other parties.
UPREIT Structure
In 1997 we converted to an UPREIT structure where the Company is the
Operating Partnership's sole general partner. UPREIT stands for "umbrella
partnership real estate investment trust." We contributed our real estate
properties and all other assets and liabilities to a limited liability company
wholly owned by the Operating Partnership in exchange for ownership units of the
Operating Partnership. We currently own approximately 85% of the units. Other
unitholders will generally be able to redeem their units for cash or, at our
option as general partner, for shares of common stock of the Company on a
one-for-one basis. UPREITs are structured so that distributions of cash from the
Operating Partnership are allocated between the REIT and the other limited
partners based on their respective unit ownership.
Real Estate Investments
Real estate investments are stated at cost less accumulated depreciation.
We compute depreciation using the straight-line method over the estimated useful
lives of the related assets, generally 40 years for buildings, 20 years for land
improvements, 10 years for fixtures and equipment, and five years for carpet and
vinyl replacements. We expense ordinary repairs and maintenance costs at
apartment communities. We capitalize significant improvements, renovations and
replacements at apartment communities. Costs of repairs and maintenance and
capital improvements at restaurant properties are borne by Enterprises.
Cash and Cash Equivalents
We consider all highly liquid investments with maturities of three months
or less when purchased to be cash equivalents.
37
<PAGE>
Deferred Costs
We amortize the intangible asset related to the acquisition of management
operations using the straight-line method over ten years. Accumulated
amortization on this asset was $1,010,000 at December 31, 1997, and $630,000 at
December 31, 1996.
We defer costs incurred in connection with proposed acquisition of
properties and stock offerings until the proposed transactions are consummated.
If we determine that the proposed transaction is not probable, we charge these
costs to expense.
We defer financing costs and amortize them using the straight-line method
over the terms of the related notes. If we pay down or pay off notes prior to
their maturity, we write off the related unamortized financing costs.
Accumulated amortization on these assets was $221,000 at December 31, 1997, and
$280,000 at December 31, 1996.
Advertising Costs
We expense advertising costs as they are incurred. Advertising expense
totaled $101,000 in 1997, $61,000 in 1996, and $43,000 in 1995.
Income Taxes
We operate as, and elect to be taxed as, a REIT under the Internal Revenue
Code. Accordingly, we will not be subject to federal or state income taxes on
amounts distributed to shareholders, provided we distribute at least 95% of our
REIT taxable income and meet certain other requirements for qualifying as a
REIT. We have made no provision for federal or state income taxes.
Earnings Per Share
We calculate earnings per share based on the weighted average number of
shares outstanding during each year.
New Accounting Pronouncements
In 1997 the Financial Accounting Standards Board issued Statement No. 128,
Earnings Per Share. Statement 128 replaced the calculation of primary and fully
diluted earnings per share with basic and diluted earnings per share. Basic
earnings per share, unlike primary earnings per share, excludes any dilutive
effects of options, warrants and convertible securities. Diluted earnings per
share is calculated using the weighted average number of shares of common stock
and the dilutive effect of options, warrants and convertible securities
outstanding, using the treasury stock method. We have presented all earnings per
share amounts for 1997, 1996 and 1995, and we have restated the 1996 and 1995
earnings per share amounts to conform to the Statement 128 requirements.
In 1997 the Financial Accounting Standards Board also issued Statement No.
129, Disclosure of Information about Capital Structure. Statement 129
establishes standards for disclosing information about an entity's capital
structure. Adoption of this Statement did not impact our capital structure
disclosures.
In 1997 the Financial Accounting Standards Board issued Statements No.
130, Reporting Comprehensive Income, and No. 131, "Disclosures About Segments of
an Enterprise and Related Information." These Statements are effective for
periods beginning after December 15, 1997. Statement 130 establishes
requirements for reporting and displaying comprehensive income and its
components. Statement 131 establishes standards for the way that public
companies report information about operating segments and related information in
interim and annual financial statements. We expect that adoption of these
statements will not have a material impact on our financial statements.
38
<PAGE>
Fair Values of Financial Instruments
The carrying amount reported on the balance sheet for cash and cash
equivalents approximates fair value. We estimate the fair value of fixed rate
mortgage notes and variable rate notes using discounted cash flow analysis,
based on our current incremental borrowing rates. The carrying amounts reported
on the balance sheet for notes receivable and notes payable approximate fair
value.
Use of Estimates
We are required to make estimates and assumptions that affect the amounts
reported in the financial statements and accompanying notes in order to prepare
them in accordance with generally accepted accounting principles. Depreciation
amounts included in these financial statements reflect our estimate of the life
and related depreciation rates for rental properties. In addition, the carrying
amount of the intangible asset related to acquisition of management operations
reflects our evaluation of the continuing value and useful life of this asset.
Actual results could differ from these estimates.
Reclassifications
Certain amounts in the 1995 financial statements have been reclassified to
conform to the 1997 and 1996 presentation. These reclassifications had no effect
on net income or shareholders' equity as previously reported.
Note 2. Real Estate Investments
Real estate investments consist of the following:
<TABLE>
<CAPTION>
1997 1996
----------------- -----------------
<S> <C> <C>
Apartment properties
Land $ 13,222,291 $ 7,892,291
Buildings and land improvements 105,493,497 56,152,512
Fixtures, equipment and other personal property 9,333,741 2,565,245
less accumulated depreciation (5,811,512) (3,904,353)
----------------- -----------------
122,238,017 62,705,695
Restaurant properties
Land 12,068,737 12,068,737
Buildings and land improvements 31,136,338 31,136,338
less accumulated depreciation (8,335,421) (7,557,012)
----------------- -----------------
34,869,654 35,648,063
----------------- -----------------
$ 157,107,671 $ 98,353,758
================= =================
</TABLE>
On April 29, 1996, we acquired Paces Village Apartments for a total
purchase cost of $10,667,000. We financed the purchase primarily through bank
and mortgage borrowings. The results of operations of Paces Village are included
in the financial statements from April 29, 1996.
On December 1, 1997, we acquired Abbington Place Apartments, Pepperstone
Apartments, Savannah Place Apartments, and Waterford Place Apartments for a
total purchase cost of $60,723,000. These properties are part of a contract to
acquire a portfolio of seven multifamily properties. We acquired the four
apartment communities through issuance of Operating Partnership units and cash
payments to retire existing debt. We financed the purchase through mortgage
borrowings. The results of
39
<PAGE>
operations of these four apartment communities are included in the financial
statements from December 1, 1997.
The following unaudited pro forma summary information does not include the
operations, depreciation, or financing expense for Waterford Place Apartments
and the second phase of Abbington Place Apartments until these properties
reached "stabilized" status in October 1997. An apartment community is
considered stabilized when construction of all buildings has been completed and
the community has attained 90% occupancy for 90 days. Under the terms of the
acquisition agreement for these properties and the financing for their purchase,
these conditions must be met before purchase of the property. Otherwise, the
unaudited pro forma summary information presents the results of operations as if
the acquisitions described above had occurred on January 1 of each year
presented. These pro forma amounts may not represent how we would have performed
if these purchases had really occurred on those dates. In addition, they do not
purport to project our results of operations for any future period.
1997 1996
----------------- -----------------
Total revenue $20,788,000 $19,445,000
Income before extraordinary item 2,249,000 1,898,000
Net income 2,066,000 1,898,000
Earnings per share 0.68 0.63
Note 3. Notes Payable
Notes payable consist of the following:
<TABLE>
<CAPTION>
1997 1996
----------------- -----------------
<S> <C> <C>
Note payable to a bank in the principal sum of up to $25,500,000 due December
1999, 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 for those restaurants. The principal balance of the loan
may be prepaid, in whole or part, subject to certain restrictions and penalties.
In December 1997 we prepaid $22,000,000 of the outstanding balance. At December
31, 1997, up to $1,600,000 additional funds were available. $ 1,900,000 $23,900,000
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. Secured by deeds of trust and
assignments of rents of four apartment communities. 36,024,379 36,441,534
Fixed rate notes payable comprised of four loans, interest at 6.97% payable in
monthly installments totaling approximately $243,000, with maturity in 2007.
Secured by deeds of trust and assignments of rents of four apartment communities. 38,070,500 -
40
<PAGE>
Variable rate note payable to a bank in the principal amount of up to $2,625,000
due May 1999, interest on the outstanding principal balance at 30-day LIBOR plus
2.25% (8.15% at December 31, 1997) payable monthly. Secured by deeds of trust
and assignments of rents of three apartment communities. 1,909,007 -
Variable rate note payable due in 2002, payable in monthly installments of
$6,511 principal plus interest at 30-day LIBOR plus 1.75% (7.65% at December 31,
1997). Secured by deeds of trust and assignment of rents of three apartment
communities. 8,476,291 8,554,423
Variable rate note payable, interest at 30-day LIBOR plus 2.25% payable monthly,
principal due in 1999, repaid in full December 1997. - 1,400,000
Variable rate notes payable to affiliates comprised of two loans due May 1999,
interest at the lower of 30-day LIBOR plus 1.50% (7.25% at December 31, 1997)
or 8%, payable quarterly. 7,056,300 7,056,300
----------------- -----------------
$93,436,477 $77,352,257
================= =================
</TABLE>
As of December 31, 1997, scheduled principal payments were approximately
as follows: 1998 - $531,000; 1999 - $11,436,000; 2000 - $12,857,000; 2001 -
$389,000; 2002 - $415,000; thereafter - $67,808,000.
In August 1997, we modified the loan agreement for the $25,500,000 fixed
rate note payable to extend its maturity to December 1999. In conjunction with
this modification, we paid and recorded $42,000 in deferred loan costs. In
December 1997, we financed the purchase of Abbington Place, Pepperstone,
Savannah Place, and Waterford Place Apartments through first deed of trust loans
totaling $38,070,500 and an unsecured loan in the amount of $8,785,500. In
conjunction with these transactions, we paid and recorded $416,000 in deferred
loan costs in 1997.
Also in December 1997, we applied proceeds of a common stock offering to
retire the $8,785,500 unsecured loan, to retire a $1,400,000 variable rate
second deed of trust, and to pay down $22,000,000 of the $25,500,000 fixed rate
note payable to a bank. In conjunction with these prepayments, we wrote off
unamortized loan costs of $227,000 in 1997. We have reflected this write-off,
net of minority interests' share, in the financial statements as an
extraordinary item.
In January 1998, we applied $1,900,000 proceeds of the common stock
offering underwriters' over-allotment option to pay off the outstanding balance
of the $25,500,000 fixed rate note payable to a bank.
During 1996, we financed the purchase of Paces Village Apartments through
variable rate first and second deed of trust loans totaling $10,000,000 and a
draw of $650,000 from our 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, we paid and recorded $139,000 in deferred loan costs in 1996.
During December 1995, we 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 transactions, we paid and recorded
deferred loan
41
<PAGE>
costs of $183,000 in 1996 and $266,000 in 1995. Also, in conjunction with these
refinancing transactions, we wrote off unamortized loan costs of approximately
$38,000 in 1995.
Interest payments were as follows:
1997 1996 1995
--------------- --------------- ---------------
Payments to affiliates $ 505,728 $ 506,389 $ 530,733
Payments to other lenders 5,799,841 5,379,519 4,810,067
--------------- --------------- ---------------
$6,305,569 $5,885,908 $5,340,800
=============== =============== ===============
The loan agreement related to the note payable to a bank includes
covenants and restrictions relating to, among other things, specified levels of
debt service coverage, leverage and net worth. To date, we have met all
applicable requirements.
Note 4. Shareholders' Equity
Authorized Capital Stock
Our bylaws and certificate of incorporation allow the Board of Directors
to authorize the issuance of up to 100,000,000 shares of common stock and
10,000,000 shares of preferred stock, issuable in series whose characteristics
would be set by the Board of Directors. No preferred shares have been authorized
or issued.
Approximately 2,300,000 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 conversion of Operating
Partnership units issued for acquisitions of apartment communities.
Common Stock Offering
In December 1997, we completed a common stock offering and issued
2,500,000 shares of common stock at a price of $14.125 per share. Net proceeds
of the offering were approximately $32,261,000. In January 1998, the
underwriters exercised their over-allotment option for 200,000 shares, and we
received additional proceeds of $2,627,000.
Earnings per Common Share
We calculated basic and diluted earnings per share using the following
amounts:
<TABLE>
<CAPTION>
1997 1996 1995
----------------- ----------------- -----------------
<S> <C> <C> <C>
Numerators:
Numerator for basic earnings per share -
Income before extraordinary item $1,913,447 $1,715,815 $1,628,268
Extraordinary item (182,999) - -
----------------- ----------------- -----------------
Net income $1,730,448 $1,715,815 $1,628,268
================= ================= =================
Numerator for diluted earnings per share -
Income before extraordinary item (1) $1,952,854 $1,715,815 $1,628,268
Extraordinary item (1) (227,000) - -
----------------- ----------------- -----------------
Net income (1) $1,725,854 $1,715,815 $1,628,268
================= ================= =================
42
<PAGE>
Denominators:
Denominator for basic earnings per share -
weighted average shares outstanding 3,180,266 3,026,901 3,005,809
Effect of dilutive securities:
Contingent stock - acquisition 29,234 33,519 3,459
Convertible Operating Partnership units 80,688 - -
Stock options (2) 24,968 2,362 -
----------------- ----------------- -----------------
Dilutive potential common stock 134,890 35,881 3,459
----------------- ----------------- -----------------
Denominator for diluted earnings per share -
adjusted weighted average shares and
assumed conversions 3,315,156 3,062,782 3,009,268
================= ================= =================
<FN>
(1) Assumes conversion of Operating Partnership units to common shares; minority
interest in income before extraordinary item and minority interest in
extraordinary item have been eliminated.
(2) Options to purchase 160,000 shares of common stock at $13.75 were
outstanding during 1995 but were not included in the calculation of diluted
earnings per share because the options' exercise price was greater than the
average market price of the common shares, and the effect would be
anti-dilutive.
</FN>
</TABLE>
Dividend Payments
We paid dividend distributions totaling $1.24 per share during 1997, 1996
and 1995. The allocation between non-taxable return of capital and taxable
ordinary dividend income to shareholders was as follows.
1997 1996 1995
--------- --------- ----------
Non-taxable return of capital 45.8% 43.7% 51.8%
Taxable ordinary dividend income 54.2% 56.3% 48.2%
The Board of Directors declared a regular quarterly dividend of $.31 per
share on January 13, 1998, payable on February 16, 1998, to shareholders of
record on January 30, 1998.
Dividend Reinvestment and Stock Purchase Plan
In July 1996, we amended the Company's Dividend Reinvestment and Stock
Purchase Plan ("DRIP Plan") to allow the Company, at its option, to issue shares
directly to Plan participants. We issued 39,828 shares through the DRIP Plan in
1997. We issued 19,207 shares through the DRIP plan in 1996.
Stock Option and Incentive Plan
In 1995, the Financial Accounting Standards Board issued Statement No.
123, Accounting for Stock-Based Compensation, which established financial
accounting and reporting standards for stock-based compensation plans. As
permitted by the statement, we continue to measure compensation cost for stock
option plans in accordance with Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees. Accordingly, no compensation cost has
been recognized for our fixed stock option plans. Had we determined compensation
cost for our fixed stock option plans consistent with the fair value method
outlined in Statement No. 123, the impact on our net income and earnings per
share would not have been material.
43
<PAGE>
In 1994, we established an employee Stock Option and Incentive Plan under
which 280,000 shares of the Company's common stock are reserved for issuance.
Options have been granted to employees at prices equal to the fair market value
of the stock on the dates the options were granted or repriced. Options are
generally exercisable in four annual installments beginning one year after the
date of grant, and expire 10 years after the date of grant.
The following table summarizes information about stock options outstanding
at December 31, 1997:
<TABLE>
<CAPTION>
Weighted Average
Remaining
Contractual Number of Number of
Life (Years) Options Options
Outstanding Exercisable
----------------- ----------------- -----------------
<S> <C> <C> <C>
Exercise price $12.25 per share 9.3 110,000 -
Exercise price $12.50 per share 6.8 140,000 112,500
----------------- -----------------
7.9 250,000 112,500
================= =================
</TABLE>
We calculated the fair value of each option grant on the date of grant
using the Black-Scholes option-pricing model. We used the following assumptions
to estimate the fair value of options granted. No options were granted in 1995.
1997 1996*
----------------- -----------------
Exercise price $12.25 $12.50
Dividend yield 10.12% 9.92%
Expected volatility 0.144 0.088
Risk-free interest rate 6.76% 6.55%
Expected life of options 10 years 8.75 years
*Options originally granted in 1994 at $13.75 per share, repriced in 1996
Changes in outstanding stock options were as follows:
<TABLE>
<CAPTION>
1997 1996
Weighted Weighted
Average Average
Exercise Exercise
Shares Price Shares Price
------------- ------------ ------------- ------------
<S> <C> <C> <C> <C>
Beginning balance 150,000 $12.50 160,000 $12.50
Granted 110,000 12.25 - -
Exercised - - - -
Repurchased (10,000) 12.50 - -
Forfeited - - (10,000) -
------------- ------------ ------------- ------------
Ending balance 250,000 $12.39 150,000 $12.50
============= ============ ============= ============
Exercisable at the end of
the year 112,500 $12.50 75,000 $12.50
============= ============ ============= ============
</TABLE>
44
<PAGE>
Note 5. Rental Operations
Apartment Properties
We lease our residential apartments under operating leases with monthly
payments due in advance. Terms of the apartment leases are generally one year or
less, with none longer than two years. We record rental and other revenues as
they are earned.
Restaurant Properties - Master Lease Agreement
The lease agreement with Enterprises has a primary term expiring in
December 2007, but grants Enterprises three five-year renewal options.
Enterprises pays annual rent equal to the greater of $4,500,000 or 9.875% of
food sales from the restaurants. We renegotiated and amended the lease agreement
with Enterprises in December 1995. Prior to the amendment, the minimum annual
rent amount was $3,459,433.
As amended, the lease requires Enterprises to pay monthly installments of
minimum rent and quarterly payments calculated based on the percentage rent,
subject to an annual calculation of the greater of minimum or percentage rent.
In 1997, we received approximately $27,000 of excess rental payments, which we
recorded as deferred revenue at December 31, 1997. In 1996 we received
approximately $122,000 of excess rental payments, which we recorded as deferred
revenue at December 31, 1996.
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. After December 31, 2007, Enterprises has the
right to terminate the lease on up to five restaurant properties per year by
offering to purchase them under specified terms. In addition, we have entered
into a separate agreement with Enterprises 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:
1997 1996 1995
----------------- ----------------- ---------------
Minimum rent $4,500,000 $4,500,000 $3,459,433
Percentage rent - - 1,189,817
----------------- ----------------- ---------------
$4,500,000 $4,500,000 $4,649,250
================= ================= ===============
We will receive future minimum rental payments under the master lease
agreement of $4,500,000 per year through 2007. This annual amount does not
include percentage rent which may be earned in addition to minimum rent.
Note 6. Management Company
In May 1995, we formed the Management Company to provide management
services to non-Company owned properties. We 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. In exchange we received a 95% economic
interest and a 1% voting interest in the Management Company. Officers of the
Management Company, who are also officers of the Company or its affiliates, own
the remaining equity interests.
45
<PAGE>
During 1995, we advanced a total of $150,000 to the Management Company,
which was repaid in 1996 and 1997. These advances accrued interest at 12%.
Interest on these advances totaled $3,600 in 1997 and $9,700 in 1996.
Summary financial information of the Management Company is as follows:
<TABLE>
<CAPTION>
8 Months
Ended
Year ended December 31 December 31
1997 1996 1995
----------------- ----------------- -----------------
<S> <C> <C> <C>
Revenues $ 1,087,877 $862,368 $327,488
Operating expenses (713,405) (588,815) (254,659)
Interest (3,559) (16,897) (9,736)
----------------- ----------------- -----------------
Net income before income taxes 370,913 256,656 63,093
Provision for income taxes (150,000) (99,500) (12,500)
----------------- ----------------- -----------------
Net income $ 220,913 $157,156 $ 50,593
================= ================= =================
</TABLE>
Note 7. Related Party Transactions
Certain directors and officers of the Company hold similar positions with
Enterprises and Boddie Investment Company and held similar positions with BT
Venture Corporation. We purchased the 47 restaurant properties from BNE Realty
Partners, Limited Partnership (an affiliate of Enterprises) for $43,243,000 in
1987.
Enterprises extended to us an unsecured revolving line of credit up to
$2,000,000 that was terminated in December 1995. There was no obligation
outstanding at any time in 1995.
We derived approximately 27.7% of our revenue in 1997 from Enterprises'
payment of rent for the use of our restaurant properties. In addition,
Enterprises is responsible for all taxes, utilities, renovations, insurance and
maintenance expenses relating to the operation of the restaurant properties.
Certain current and former directors of the Company were the sole
shareholders and directors of BT Venture Corporation. In October 1994, we
acquired BT Venture Corporation for cash, 134,610 shares of our common stock and
relief from certain debt and other obligations, for a total value of
approximately $23,200,000. In addition, we recorded additional consideration
totaling $425,000 in 1997, $567,000 in 1996, and $567,000 in 1995 related to the
BT Venture Corporation acquisition. Through December 31, 1997, we issued a total
of 80,750 shares of common stock in payment of the additional consideration. At
December 31, 1997, we owed these individuals additional consideration totaling
$572,000, which we subsequently paid by issuing 43,438 shares of our common
stock to them in January 1998.
In connection with the acquisition of BT Venture Corporation, we assumed a
note payable to Enterprises in the amount of $6,100,000 and a note payable to
Boddie Investment Company in the amount of $956,000. These notes are described
in Note 3.
In September 1997, we signed an agreement to acquire a portfolio of seven
apartment communities, four of which were acquired on December 1, 1997. We refer
to this transaction as the "Chrysson acquisition" and to the former owners as
the "Chrysson Parties." Certain current directors of the Company were
shareholders and officers in the Chrysson Parties. Under the terms of the
Chrysson
46
<PAGE>
acquisition agreement, we will issue up to 1,700,000 units in the Operating
Partnership. We issued 950,032 units on December 1, 1997. We will issue 100,000
units on December 1, 1998, and 100,000 units on December 1, 1999. We will issue
the remaining units upon the acquisition of each of the remaining three
apartment communities that are currently under construction.
In February 1997, we signed a participating loan agreement with The
Villages of Chapel Hill Limited Partnership, a limited partnership whose general
partner is Boddie Investment Company. Under the terms of the agreement, we have
committed to loan The Villages up to $2,625,000 to fund a substantial
rehabilitation of its apartment community. We also guaranteed a $1,500,000 bank
loan. In exchange we received or will receive interest on our loan at the
greater of 12.5% or the 30 day LIBOR rate plus 6.125%, 25% of the increase in
gross revenue in excess of $146,333 per month from the property over the next
seven years, 25% of the value of the property in excess of $10 million at the
earlier of the end of seven years or upon its sale, and control over selection
of the property management provider (which is currently the Management Company).
During 1997 we advanced $1,909,000 under the loan agreement and recorded
interest income of $120,000.
The Management Company provides fee management of seven limited
partnerships and the apartment communities and shopping centers owned by those
partnerships. The general partner of these partnerships is Boddie Investment
Company.
Note 8. Profit Sharing Plan
The employees of the Company are participants in a profit sharing plan
pursuant to Section 401 of the Internal Revenue Code. We make limited matching
contributions based on the level of employee participation as defined.
Note 9. Commitments and Contingencies
We have agreements with three of our executive officers that provide for
cash compensation and other benefits in the event of termination without cause
or 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. We believe that such matters will not have a
material effect on the financial position of the Company.
47
<PAGE>
Note 10. Quarterly Financial Data (Unaudited)
We present below selected financial data (unaudited) for the years ended
December 31, 1997 and 1996:
<TABLE>
<CAPTION>
Income before
Extraordinary Item
Revenues Total Per Share Net Income
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
1997
First quarter $ 3,852,615 $ 470,783 $0.16 $ 470,783
Second quarter 3,866,339 382,805 0.12 382,805
Third quarter 3,890,301 438,882 0.14 438,882
Fourth quarter 4,642,376 620,977 0.18 437,978
----------------- ----------------- ----------------- -----------------
$ 16,251,631 $ 1,913,447 $0.60 $ 1,730,448
================= ================= ================= =================
1996
First quarter $ 3,307,505 $ 379,174 $0.13 $ 379,174
Second quarter 3,623,992 435,338 0.14 435,338
Third quarter 3,813,211 463,018 0.15 463,018
Fourth quarter 3,763,116 438,285 0.14 438,285
----------------- ----------------- ----------------- -----------------
$ 14,507,824 $ 1,715,815 $0.57 $ 1,715,815
================= ================= ================= =================
</TABLE>
48
<PAGE>
BODDIE-NOELL PROPERTIES, INC.
- -------------------------------------------------------------------------------
Schedule III - Real Estate and Accumulated Depreciation
Year Ended December 31, 1997
<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 $10,611,693 $ 1,430,158 $ 12,871,424 $ 567,637 $ 1,430,158 $ 13,439,061 $ 14,869,219
Oakbrook, Charlotte 6,430,491 848,835 8,523,384 385,688 848,835 8,909,072 9,757,907
Harris Hill, Charlotte 6,051,648 1,003,298 7,867,857 390,166 1,003,298 8,258,023 9,261,321
Paces Village, Greensboro 8,476,291 1,250,000 9,416,580 141,638 1,250,000 9,558,218 10,808,218
Abbington Place, Greensboro 15,785,250 2,302,000 23,598,676 996 2,302,000 23,599,672 25,901,672
Pepperstone, Greensboro 3,883,750 552,000 5,015,153 - 552,000 5,015,153 5,567,153
Savannah Place, Winston-Salem 7,312,500 790,000 10,032,721 2,284 790,000 10,035,005 10,825,005
Waterford Place, Greensboro 11,089,000 1,686,000 16,745,972 - 1,686,000 16,745,972 18,431,972
------------------------------------------------------------------------------
9,862,291 94,071,767 1,488,409 9,862,291 95,560,176 105,422,467
Virginia:
Latitudes, Virginia Beach 12,930,547 3,360,000 18,606,667 660,395 3,360,000 19,267,062 22,627,062
-------------------------------------------------------------------------------------------
Total Apartment Properties 82,571,170 13,222,291 112,678,434 2,148,804 13,222,291 114,827,238 128,049,529
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
</TABLE>
Description
Accumulated Date of Date Life
Depreciation Constr. Acquired(Years)
Apartment Properties:
North Carolina:
Paces Commons, Charlotte $ 1,675,330 1988 Jun-93 40
Oakbrook, Charlotte 871,895 1985 Jun-94 40
Harris Hill, Charlotte 757,470 1988 Dec-94 40
Paces Village, Greensboro 479,207 1988 Apr-96 40
Abbington Place, Greensboro 53,165 1997 Dec-97 40
Pepperstone, Greensboro 9,583 1992 Dec-97 40
Savannah Place, Winston-Salem 18,396 1991 Dec-97 40
Waterford Place, Greensboro 36,990 1997 Dec-97 40
-------------
3,902,036
Virginia:
Latitudes, Virginia Beach 1,909,476 1989 Oct-94 38
-------------
Total Apartment Properties 5,811,512
Restaurant Properties:
North Carolina:
Bessemer City 104,691 Nov-77 Apr-87 40
Burlington 111,802 Oct-85 Apr-87 40
Chapel Hill 188,313 Aug-64 Apr-87 40
Denver 189,641 Jul-83 Apr-87 40
Eden 174,356 Jun-73 Apr-87 40
Fayetteville (Ramsey) 179,075 Oct-73 Apr-87 40
Fayetteville (N.Eastern) 212,210 Sep-83 Apr-87 40
Fayetteville (Bragg) 162,426 Jan-85 Apr-87 40
Gastonia (E. Franklin) 158,619 Apr-63 Apr-87 40
Gastonia (N. Chester) 137,080 Jan-78 Apr-87 40
Hillsborough 200,231 Mar-78 Apr-87 40
Kinston (W. Vernon) 163,241 Jul-62 Apr-87 40
Kinston (Richlands) 159,485 Dec-81 Apr-87 40
Mt. Airy 187,383 May-73 Apr-87 40
Newton 153,824 Mar-76 Apr-87 40
49
<PAGE>
BODDIE-NOELL PROPERTIES, INC.
- -------------------------------------------------------------------------------
Schedule III - Real Estate and Accumulated Depreciation
Year Ended December 31, 1997
<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>
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
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
</TABLE>
Description
Accumulated Date of Date Life
Depreciation Constr. Acquired(Years)
Siler City 184,704 May-79 Apr-87 40
Spring Lake 150,706 Mar-76 Apr-87 40
Thomasville (E. Main) 174,655 Feb-66 Apr-87 40
Thomasville (Randolph) 225,602 Apr-74 Apr-87 40
-------------
3,218,044
Virginia:
Ashland 204,114 Apr-87 Apr-87 40
Blackstone 189,697 Sep-79 Apr-87 40
Bluefield 141,603 Feb-85 Apr-87 40
Chester 206,630 May-73 Apr-87 40
Clarksville 145,625 Oct-85 Apr-87 40
Clintwood 153,286 Jan-81 Apr-87 40
Dublin 250,619 Jul-83 Apr-87 40
Franklin 198,165 Feb-75 Apr-87 40
Galax 213,109 Jun-74 Apr-87 40
Hopewell 181,694 Jun-78 Apr-87 40
Lebanon 183,347 Jun-83 Apr-87 40
Lynchburg (Langhorne) 172,004 Sep-82 Apr-87 40
Lynchburg (Timberlake) 190,101 Aug-83 Apr-87 40
Norfolk 224,293 Aug-84 Apr-87 40
Orange 168,574 Aug-74 Apr-87 40
Petersburg 246,433 Mar-74 Apr-87 40
Richmond (Forest Hill) 134,982 Nov-74 Apr-87 40
Richmond (Midlothian) 186,371 Jan-74 Apr-87 40
Richmond (Myers) 221,625 Apr-83 Apr-87 40
Roanoke (Hollins) 177,511 Feb-73 Apr-87 40
Roanoke (Abenham) 162,367 Nov-82 Apr-87 40
Rocky Mount 171,019 May-80 Apr-87 40
Smithfield 153,559 Apr-77 Apr-87 40
Staunton 179,374 Sep-83 Apr-87 40
Verona 131,916 Jan-85 Apr-87 40
Virginia Beach (Lynnhaven) 186,946 Jun-80 Apr-87 40
50
<PAGE>
BODDIE-NOELL PROPERTIES, INC.
- -------------------------------------------------------------------------------
Schedule III - Real Estate and Accumulated Depreciation
Year Ended December 31, 1997
<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 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 1,900,000 12,108,576 31,136,338 - 12,068,737 31,136,338 43,205,075
-------------------------------------------------------------------------------------------
Total Real Estate $84,471,170 $25,330,867 $ 143,814,772 $ 2,148,804 $25,291,028 $ 145,963,576 $171,254,604
===========================================================================================
<FN>
(1) Indicates the 47 restaurants encumbered by the bank term loan of up to
$25,500,000; $1,900,000 outstanding at 12/31/97
(2) Aggregate cost at December 31, 1997, for federal income tax purposes was
approximately $152,000,000.
</FN>
</TABLE>
Description
Accumulated Date of Date Life
Depreciation Constr. Acquired (Years)
Virginia Beach (Holland) 191,333 Aug-83 Apr-87 40
Wise 151,080 Jun-80 Apr-87 40
-------------
5,117,377
-------------
Total Restaurant Properties 8,335,421
-------------
Total Real Estate $14,146,933
=============
51
<PAGE>
BODDIE-NOELL PROPERTIES, INC.
- -------------------------------------------------------------------------------
Schedule III - Real Estate and Accumulated Depreciation
<TABLE>
<CAPTION>
1997 1996 1995
-----------------------------------------------------------
<S> <C> <C> <C>
Real estate investments:
Balance at beginning of year $ 109,815,123 $ 98,520,761 $ 97,928,578
Additions during year
Acquisitions by merger - - -
Other acquisitions 60,722,522 10,666,580 -
Improvements, etc. 718,459 627,782 592,183
Deductions during year (1,500) - -
===========================================================
Balance at close of year $ 171,254,604 $ 109,815,123 $ 98,520,761
===========================================================
Accumulated depreciation:
Balance at beginning of year $ 11,461,365 $ 9,020,948 $ 6,827,337
Provision for depreciation 2,685,718 2,440,417 2,193,611
Deductions during year (150) - -
===========================================================
Balance at close of year $ 14,146,933 $ 11,461,365 $ 9,020,948
===========================================================
</TABLE>
52
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
No. Page
<S> <C> <C>
2.1* Master Agreement of Merger and Acquisition by and among Boddie-Noell Properties, -
Inc., Boddie-Noell Properties Limited Partnership, Paul G. Chrysson, James G.
Chrysson, W. Michael Gilley, Matthews G. Gallins, James D. Yopp, and the partnerships
and limited liability companies listed therein, dated September 22, 1997 (filed as
Exhibit 2.1 to Registration Statement No. 333-39803 on Form S-2, December 16, 1997,
and incorporated herein by reference)
2.2* Exchange Option Agreement by and among Boddie-Noell Properties Limited Partnership, -
Boddie-Noell Properties, Inc., and the owners of the Chrysson affiliates listed
therein, dated as of September 22, 1997 (filed as Exhibit 2.2 to Registration
Statement No. 333-39803 on Form S-2, December 16, 1997, and incorporated herein by
reference)
2.3* Amendment to Master Agreement of Merger and Acquisition dated September 22, 1997, by -
and among Boddie-Noell Properties, Inc., Boddie-Noell Properties Limited Partnership,
Paul G. Chrysson, James G. Chrysson, W. Michael Gilley, Matthew G. Gallins, James D.
Yopp, and the partnerships and limited liability companies listed therein, dated
November 3, 1997 (filed as Exhibit 2.3 to Boddie-Noell Properties, Inc. Current
Report on Form 8-K dated December 1, 1997, and incorporated herein by reference)
3.1* Articles of Incorporation (filed as Exhibit 3.1 to Boddie-Noell Properties, Inc. -
Quarterly Report on Form 10-Q for the quarter ended June 30, 1997, and incorporated
herein by reference)
3.2* By-Laws (filed as Exhibit 3.2 to Registration Statement No. 333-39803 on Form S-2, -
December 16, 1997, and incorporated herein by reference)
10.1* 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)
10.2* 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)
10.3* Loan Agreement dated December 27, 1995, between Boddie-Noell Properties, Inc. and -
SouthTrust Bank of Alabama, NA (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)
10.4* Loan Agreement as of February 27, 1997, by and between The Villages of Chapel Hill -
Limited Partnership and Boddie-Noell Properties, Inc. (filed as Exhibit 10 to
Boddie-Noell Properties, Inc. Quarterly Report on Form 10-Q for the quarter ended
March 31, 1997, and incorporated herein by reference)
10.5* Modification to Loan Agreement, dated August 1, 1997, between Boddie-Noell -
Properties, Inc. and SouthTrust Bank of Alabama, NA (filed as Exhibit 10.8 to
Registration Statement No. 333-39803 on Form S-2, December 16, 1997, and incorporated
herein by reference)
53
<PAGE>
10.6* Form of Agreement of Limited Partnership of Boddie-Noell Properties Limited -
Partnership (filed as Exhibit 10.9 to Registration Statement No. 333-39803 on Form
S-2, December 16, 1997, and incorporated herein by reference)
10.7* Form of Registration Rights Agreement (filed as Exhibit 10.11 to Registration -
Statement No. 333-39803 on Form S-2, December 16, 1997, and incorporated herein by
reference)
10.8* 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)
10.9* 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)
10.10* 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)
10.11 Form and description of Incentive Stock Option Agreements dated April 1, 1997, 55
between the Company and certain officers
10.12 Form and description of Nonqualified Stock Option Agreements dated April 1, 1997, 59
between the Company and certain officers
10.13 Amendment to Incentive Stock Option Agreement between the Company and W. Craig Worthy 63
dated June 5, 1997
10.14 Amendment to Nonqualified Stock Option Agreement between the Company and W. Craig 64
Worthy dated June 5, 1997
10.15* Form and description of Employment Agreements dated July 15, 1997, between the -
Company and certain officers (filed as Exhibit 10 to Boddie-Noell Properties, Inc.
Quarterly Report on Form 10-Q for the quarter ended September 30, 1997, and
incorporated herein by reference)
21 Subsidiaries of the Registrant 65
23.1 Consent of Ernst & Young LLP 66
23.2 Consent of Arthur Andersen LLP 67
27 Financial Data Schedule (electronic filing) -
</TABLE>
* Incorporated herein by reference
54
<PAGE>
EXHIBIT 10.11
Form and Description of Incentive Stock Option Agreements dated April 30, 1997
Agreements between the Company and the following individuals are substantially
identical in all material respects except as identified below:
<TABLE>
<CAPTION>
D. Scott Wilkerson Philip S. Payne Pamela B. Novak
<S> <C> <C> <C>
Vesting schedule:
April 30, 1998 300 300 2,500
April 30, 1999 8,150 8,150 2,500
April 30, 2000 8,150 8,150 2,500
April 30, 2001 8,150 8,150 2,500
Total shares subject to
option 24,750 24,750 10,000
</TABLE>
55
<PAGE>
BODDIE-NOELL PROPERTIES INC.
INCENTIVE STOCK OPTION AGREEMENT
An incentive stock option, as defined in Section 422 of the Internal
Revenue Code of 1986, as amended (the "Option") is hereby granted by
Boddie-Noell Properties, Inc., a Delaware corporation (the "Company"), to the
employee named below (the "Employee'), with respect to common stock of the
Company, $.01 par value per share ("Common Stock"), subject to the following
terms and conditions:
1. Subject to the provisions set forth herein and the terms and
conditions of the Boddie-Noell Properties, Inc. 1994 Stock Option and Incentive
Plan (the "Plan"), the terms of which are hereby incorporated by reference, and
in consideration of the agreements of Employee herein provided, the Company
hereby grants to Employee an Option to purchase from the Company the number of
shares of Common Stock, at the purchase price per share, and on the schedule,
all as set forth below. Any capitalized term not otherwise defined in this
Agreement shall have the meaning given to such term in the Plan. The terms and
conditions of exercise of the Option and the payment of the Purchase price are
as provided at Section 5 of the Plan. Upon the exercise of an Option, the
Committee shall have the right to require the Employee to remit to the Company,
in any such manner or combination of manners permitted under the term of the
Plan, an amount sufficient to satisfy all federal, state and local withholding
tax requirements prior to the delivery by the Company of any certificate for
shares of Common Stock.
Name of Employee: Scott Wilkerson
Date of Grant: April 30, 1997
Number of Shares Subject to Option: 24,750
Exercise Price Per Share: $12.25
Reload Option: (Yes) or (No)
Vesting and Exercise Schedule:
Exercise Period
Number of Vesting Expiration
Shares Date Date
300 April 30, 1998 April 30, 2007
8,150 April 30, 1999 April 30, 2007
8,150 April 30, 2000 April 30, 2007
9,150 April 30, 2001 April 30, 2007
The Expiration Date of the Exercise Period for the Option hereby
granted may not be more than ten (10) years after the Date of Grant of the
Option; and further provided, that if the Employee
56
<PAGE>
owns or is deemed to own (by reason of the attribution rules of Section 424(d)
of the Code) more than 10% of the combined voting power of all classes of stock
of the Company or any Subsidiary or parent corporation, the term of the Option
shall be no more than five (5) years from the Date of Grant; and further
provided, that the aggregate Fair Market Value (determined as of the Date of
Grant) of the shares of the Common Stock with respect to which incentive stock
options, as defined in Section 422 of the Code, have been granted either under
the Plan or under any other plan of the Company or its Subsidiaries become
exercisable for the first time by Employee during any calendar year shall not
exceed $100,000.00.
2. The exercise of the Option is conditioned upon the acceptance by
Employee of the terms hereof and the Plan as evidenced by his or her execution
of this Agreement and the return of an executed copy to the Secretary of the
Company no later than May 30, 1997.
If Employee's employment with the Company and all Subsidiaries is
terminated by reason of death or Disability, as that term is defined in Section
22(e)(3) of the Code or as may be otherwise determined by the Committee, the
vested portion of the Option shall remain exercisable for a period of six months
following the date of such termination of employment (or such longer period as
the Committee shall specify at any time) or until the expiration of the stated
term of the Option as set forth in paragraph 1 hereof (the "Expiration Date"),
if earlier. If Employee's employment with the Company and all Subsidiaries is
terminated under any circumstance other than for Cause, the vested portion of
the Option shall remain exercisable for a period of three months from the date
of such termination of employment (or such longer period as the Committee shall
specify at any time) or until the Expiration Date, if earlier. If Employee's
employment with the Company and all Subsidiaries is terminated for Cause, the
Option shall terminate immediately and be of no further force and effect;
provided, however, that the Committee may, in its sole discretion, provide that
the Option can be exercised for up to thirty (30) days from the date of
termination of employment or until the Expiration Date, if earlier.
Written notice of an election to exercise any portion of the Option,
specifying the portion thereof being exercised and the exercise date, shall be
given by Employee, or his personal representative in the event of Employee's
death, (i) by delivering such notice to the Secretary of the Company at the
principal executive offices of the Company or (ii) by delivering such notice to
a broker-dealer with a copy to the Secretary of the Company.
If expressly permitted in the schedule set forth in paragraph 1 above,
the Option set forth herein shall include a so-called "reload" feature pursuant
to which the Employee exercising an Option pursuant to this paragraph 2 shall
automatically be granted an additional Option with an exercise price equal to
the Fair Market Value of the Common Stock on the date the additional Option is
granted and with the same expiration date as the original Option being
exercised, and with such other terms as the Committee may provide, to purchase
that number of shares of the Common Stock equal to the number delivered to
exercise the original Option. If not expressly permitted in the schedule set
forth in paragraph 1 above, the Option granted in this Agreement shall not
include such a "reload" feature.
57
<PAGE>
3. In the event of a Change in Control as defined in the Plan, the
Option shall automatically become fully exercisable, notwithstanding any
provision in the Plan or herein to the contrary.
4. The Option may be exercised only by Employee during his lifetime and
may not be transferred other than by will or the applicable laws of descent or
distribution. The Option shall not otherwise be transferred, assigned, pledged
or hypothecated for any purpose whatsoever and is not subject, in whole or in
park to execution, attachment, or similar process. Any attempted assignment
transfer, pledge or hypothecation or other disposition of the Option, other than
in accordance with the terms set forth herein, shall be void and of no effect.
5. Neither Employee nor any other person entitled to exercise the
Option under the terms hereof shall be, or have any of the rights or privileges
of, a shareholder of the Company in respect of any of the shares of Common Stock
issuable on exercise of the Option, unless and until the purchase price for such
shares shall have been paid in full.
6. In the event the Option shall be exercised in whole, this Agreement
shall be surrendered to the Company for cancellation. In the event the Option
shall be exercised in part, or a change in the number or designation of the
Common Stock shall be made, this Agreement shall. be delivered by Employee to
the Company for the purpose of making appropriate notation thereon, or of
otherwise reflecting, in such manner as the Company shall determine, the partial
exercise or the change in the number of designation of the Common Stock.
7. The Option shall be exercised in accordance with such administrative
regulations as the Committee shall from time to time adopt.
8. The Option and this Agreement shall be construed, administered and
governed in all respects under and by the laws of the State of North Carolina.
BODDIE-NOELL PROPERTIES, INC.
BY: /s/ Douglas E. Anderson
Title: Vice President
The undersigned hereby accepts the foregoing Option and the terms and
conditions hereof.
/s/ D. Scott Wilkerson
Scott Wilkerson
58
<PAGE>
EXHIBIT 10.12
Form and Description of Nonqualified Stock Option Agreements dated April 30,
1997
Agreements between the Company and the following individuals are identical:
D. Scott Wilkerson Philip S. Payne
59
<PAGE>
BODDIE-NOELL PROPERTIES, INC.
NONQUALIFIED STOCK OPTION AGREEMENT
A nonstatutory stock option (the "Option") is hereby granted by
Boddie-Noell Properties, Inc.,, a Delaware corporation (the "Company"), to the
employee named below (the "Employee"), with respect to common stock of the
Company, $.01 par value per share ("Common Stock"), subject to the following
terms and conditions:
1 . Subject to the provisions set forth herein and the terms and
conditions of the Boddie-Noell Properties, Inc. 1994 Stock Option and Incentive
Plan (the "Plan"), the terms of which are hereby incorporated by reference, and
in consideration of the agreements of Employee herein provided, the Company
hereby grants to Employee an Option to purchase from the Company the number of
shares of Common Stock, at the purchase price per share, and on the schedule,
all as set forth below. Any capitalized term not otherwise defined in this
Agreement shall have the meaning given to such term in the Plan. The terms and
conditions of exercise of the Option and the payment of the Purchase price are
as provided at Section 5 of the Plan. Upon the exercise of an Option, the
Committee shall have the right to require the Employee to remit to the Company,
in any such manner or combination of manners permitted under the terms of the
Plan, an amount sufficient to satisfy all federal state and local withholding
tax requirements prior to the delivery by the Company of any certificate for
shares of Common Stock.
Name of Employee: Scott Wilkerson
Date of Grant: April 30, 1997
Number of Shares Subject to Option: 25,250
Exercise Price Per Share: $12.25
Reload Option: (Yes) or (No)
Vesting and Exercise Schedule:
Exercise Period
Number of Vesting Expiration
Shares Date Date
12,200 April 30, 1998 April 30, 2007
4,350 April 30, 1999 April 30, 2007
4,350 April 30, 2000 April 30, 2007
4,350 April 30, 2001 April 30, 2007
60
<PAGE>
2. The exercise of the Option is conditioned upon the acceptance by
Employee of the terms hereof and the Plan as evidenced by his or her execution
of this Agreement and the return of an executed copy to the Secretary of the
Company no later than May 30, 1997.
If Employee's employment with the Company and all Subsidiaries is
terminated by reason of death or Disability, as that term is defined in Section
22(e)(3) of the Code or as may be otherwise by the Committee, the vested portion
of the Option shall remain exercisable for a period of six months following the
date of such termination of employment (or such longer period as the Committee
shall specify at any time) or until the expiration of the stated term of the
Option as set forth in paragraph 1 hereof (the "Expiration Date") if earlier. If
Employee's employment with the Company and all Subsidiaries is terminated under
any circumstance other than for Cause, the vested portion of the Option shall
remain exercisable for a period of three months from the date of such
termination of employment (or such longer period as the Committee shall specify
at any time) or until the Expiration Date, if earlier. If Employee's employment
with the Company and all Subsidiaries is terminated for Cause, the Option shall
terminate immediately and be of no further force and effect; provided, however,
that the Committee may, in its sole discretion, provide that the Option can be
exercised for up to thirty (30) days from the date of termination of employment
or until the Expiration Date, if earlier.
Written notice of an election to exercise any portion of the Option,
specifying the portion thereof being exercised and the exercise date, shall be
given by Employee, or his personal representative in the event of Employee's
death, (i) by delivering such notice to the Secretary of the Company at the
principal executive offices of the Company or (ii) by delivering such notice to
a broker-dealer with a copy to the Secretary of the Company.
If expressly permitted in the schedule set forth in paragraph 1 above,
the Option set forth herein shall include a so-called "reload" feature pursuant
to which the Employee exercising an Option pursuant to this paragraph 2 shall
automatically be granted an additional Option with an exercise price equal to
the Fair Market Value of the Common Stock on the date the additional Option is
granted and with the same expiration date as the original Option being
exercised, and with such other term as the Committee may provide, to purchase
that number of shares of the Common Stock equal to the number delivered to
exercise the original Option. If not expressly permitted in the schedule set
forth in paragraph I above, the Option granted in this Agreement shall not
include such a "reload" feature.
3. In the event of a Change in Control as defined in the Plan, the
Option shall automatically become fully exercisable, notwithstanding any
provision in the Plan or herein to the contrary.
4. The Option may be exercised only by Employee during his lifetime and
may not be transferred other than by will or the applicable laws of descent or
distribution. The Option shall not otherwise be transferred, assigned, pledged
or hypothecated for any purpose whatsoever and is not subject, in whole or in
part, to execution, attachment, or similar process. Any attempted assignment,
transfer, pledge or hypothecation or other disposition of the Option, other than
in accordance with the terms set forth herein, shall be void and of no effect.
61
<PAGE>
5. Neither Employee nor any other person entitled to exercise the
Option under the terms hereof shall be, or have any of the rights or privileges
of, a shareholder of the Company in respect of any of the shares of Common Stock
issuable on exercise of the Option, unless and until the purchase price for such
shares shall have been paid in full.
6. In the event the Option shall be exercised in whole, this Agreement
shall be surrendered to the Company for cancellation. In the event the Option
shall be exercised in part, or a change in the number or designation of the
Common Stock shall be made, this Agreement shall be delivered by Employee to the
Company for the purpose of making appropriate notation thereon, or of otherwise
reflecting, in such manner as the Company shall determine, the partial exercise
or the change in the number of designation of the Common Stock.
7. The Option shall be exercised in accordance with such administrative
regulations as the Committee shall from time to time adopt.
8. The Option and this Agreement shall be construed, administered and
governed in all respects under and by the laws of the State of North Carolina.
BODDIE-NOELL PROPERTIES, INC.
By: /s/ Douglas E. Anderson
Title: Vice President
The undersigned hereby accepts the foregoing Option and the terms and
conditions hereof.
/s/ D. Scott Wilkerson
Scott Wilkerson
62
<PAGE>
EXHIBIT 10.13
BODDIE-NOELL PROPERTIES, INC.
AMENDMENT TO INCENTIVE STOCK OPTION AGREEMENT
WHEREAS, the Company, as approved by the Committee of the Board of
Directors, has accelerated the vesting of 28,000 options (the "Options") granted
to W. CRAIG WORTHY pursuant to an Incentive Stock Option Agreement under the
1994 Stock Option and Incentive Plan to be effective as of June 5, 1997 and
extended the exercise date of such Options to June 16, 2004.
NOW, THERFORE, the Incentive Stock Option Agreement with W. CRAIG
WORTHY (the "Agreement") is hereby amended in the following respects effective
as of June 5, 1997:
1. The Vesting and Exercise Schedule of Section 1 is restated
such that all of the 28,000 Shares shall have vested as of
June 5, 1997.
2. The second sentence of the second paragraph in Section 2 is
restated to read as follows: "If Employee's employment with
the Company and all Subsidiaries is terminated under any other
circumstance other than for Cause, the vested portion of the
Option shall remain exercisable until June 16, 2004."
3. All other terms and conditions of the Plan and the Agreement
shall remain in full force and effect.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment to
the Agreement as of June 5, 1997.
BODDIE-NOELL PROPERTIES, INC.
By: /s/ Douglas E. Anderson
Title: Vice President
The undersigned hereby accepts the foregoing Amendment to the Incentive
Stock Option Agreement and the terms and conditions hereof.
/s/ W. Craig Worthy
W. Craig Worthy
63
<PAGE>
EXHIBIT 10.14
BODDIE-NOELL PROPERTIES, INC.
AMENDMENT TO NONQUALIFIED STOCK OPTION AGREEMENT
WHEREAS, the Company, as approved by the Committee of the Board of
Directors, has accelerated the vesting of 2,000 options (the "Options") granted
to W. CRAIG WORTHY pursuant to a Nonqualified Stock Option Agreement under the
1994 Stock Option and Incentive Plan to be effective as of June 5, 1997 and
extended the exercise date of such Options to June 16, 2004.
NOW, THEREFORE the Nonqualified Stock Option Agreement with W. CRAIG
WORTHY (the "Agreement") is hereby amended in the following respects effective
as of June 5, 1997:
1. The Vesting and Exercise Schedule of Section 1 is restated
such that all of the 2,000 Shares shall have vested as of
June 5, 1997.
2. The second sentence of the second paragraph in Section 2 is
restated to read as follows: "If Employee's employment with
the Company and all Subsidiaries is terminated under any other
circumstance other than for Cause, the vested portion of the
Option shall remain exercisable until June 16, 2004."
3. All other terms and conditions of the Plan and the Agreement
shall remain in full force and effect.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment to
the Agreement as of June 5, 1997.
BODDIE-NOELL PROPERTIES, INC.
By: /s/ Douglas E. Anderson
Title: Vice President
The undersigned hereby accepts the foregoing Amendment to the
Nonqualified Stock Option Agreement and the terms and conditions hereof
/s/ W. Craig Worthy
W. Craig Worthy
64
<PAGE>
BODDIE-NOELL PROPERTIES, INC.
- -------------------------------------------------------------------------------
EXHIBIT 21: SUBSIDIARIES OF THE REGISTRANT
YEAR ENDED DECEMBER 31, 1997
Subsidiary of Boddie-Noell Properties, Inc.:
Subsidiary name: Boddie-Noell Properties Limited Partnership
State of organization: Delaware
Business name: Boddie-Noell Properties Limited Partnership
Subsidiaries of Boddie-Noell Properties Limited Partnership:
Subsidiary name: BNP Realty, LLC
State of organization: North Carolina
Business name: BNP Realty, LLC
Subsidiary name: BNP/Chrysson Phase I, LLC
State of organization: North Carolina
Business name: BNP/Chrysson Phase I, LLC
Subsidiary of BNP Realty, LLC:
Subsidiary name: BNP Management, Inc.
State of organization: North Carolina
Business name: BNP Management, Inc.
65
<PAGE>
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. of our report dated January
9, 1998, with respect to the consolidated financial statements and schedule of
Boddie-Noell Properties, Inc. included in this Annual Report (Form 10-K) for the
year ended December 31, 1997.
/s/ Ernst & Young LLP
Raleigh, North Carolina
March 23,1998
66
<PAGE>
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
Charlotte, North Carolina
March 24, 1998.
67
<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 YEAR ENDED DECEMBER 31,
1997, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 2,458,565
<SECURITIES> 0
<RECEIVABLES> 65,537
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 3,281,669
<PP&E> 157,107,671
<DEPRECIATION> (14,146,933)
<TOTAL-ASSETS> 166,111,683
<CURRENT-LIABILITIES> 1,372,438
<BONDS> 93,436,477
0
0
<COMMON> 67,559,320
<OTHER-SE> (11,774,351)
<TOTAL-LIABILITY-AND-EQUITY> 166,111,683
<SALES> 0
<TOTAL-REVENUES> 16,251,631
<CGS> 0
<TOTAL-COSTS> 6,231,273
<OTHER-EXPENSES> 1,580,646
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,486,858
<INCOME-PRETAX> 1,913,447
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,913,447
<DISCONTINUED> 0
<EXTRAORDINARY> 182,999
<CHANGES> 0
<NET-INCOME> 1,730,448
<EPS-PRIMARY> 0.54
<EPS-DILUTED> 0.52
</TABLE>
