As filed with the Securities and Exchange Commission on December 15, 1998
File No. 333-_________
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM S-3
REGISTRATION STATEMENT
UNDER THE
SECURITIES ACT OF 1933
BODDIE-NOELL PROPERTIES, INC.
(Exact name of registrant as specified in its charter)
Maryland 56-1574675
(State of incorporation) (I.R.S. Employer
Identification No.)
3850 One First Union Center
Charlotte, North Carolina 28202-6032
(704) 944-0100
(Address, including zip code, and telephone number, including area
code, of registrant's principal executive offices)
With Copies to:
D. Scott Wilkerson, President Brad S. Markoff, Esq.
Boddie-Noell Properties, Inc. Alston & Bird LLP
3850 One First Union Center 3605 Glenwood Avenue, Suite 310
Charlotte, North Carolina 28202-6032 Raleigh, North Carolina 27612
(704) 944-0100 (919) 420-2210
(Address, including zip code, and telephone number,
including area code, of agent for service)
Approximate date of commencement of proposed sale to the public: From time to
time after the effective date of this registration statement. [ ]
If the only securities being registered on this Form are being offered pursuant
to dividend or interest reinvestment plans, please check the following box. [ ]
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [X]
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
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Calculation of Registration Fee
<TABLE>
<CAPTION>
Proposed Proposed
Title of each class of Amount maximum offering maximum aggregate Amount of
securities to be registered to be registered price per unit offering price registration fee
<S> <C> <C> <C> <C>
Common Stock 950,032 $11.375 (1) $10,806,614 $3,005
<FN>
(1) Calculated pursuant to Rule 457(c) of the Securities Act of 1933, based on
the average of the high and low prices reported on the American Stock
Exchange on December 10, 1998.
</FN>
</TABLE>
The registrant hereby amends this registration statement on such date or dates
as may be necessary to delay its effective date until the registrant shall file
a further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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950,032 SHARES
BODDIE-NOELL PROPERTIES, INC.
COMMON STOCK
Boddie-Noell Properties, Inc. is a real estate investment trust focused
on owning and operating apartment communities. We currently own 14 apartment
communities containing 3,188 apartment units and have the right to acquire an
additional 108 apartment units in one apartment community currently under
construction. We also own 47 restaurant properties and manage five other
apartment communities owned by other parties.
Our mailing address and telephone number are:
Boddie-Noell Properties, Inc.
3850 One First Union Center
Charlotte, North Carolina 28202-6032
(704) 944-0100.
We are offering and selling 950,032 shares of common stock with this
prospectus in exchange for the same number of units in Boddie-Noell Properties
Limited Partnership, which is the operating partnership through which we conduct
substantially all of our business. The company's shares are listed for trading
on the American Stock Exchange under the symbol "BNP." On December 10, 1998, the
last reported sale price of our common stock on the American Stock Exchange was
$11 9/16 per share.
Investing in our common stock involves certain risks. See "Risk
Factors" beginning on page 4.
The information in this prospectus is not complete and may be changed.
We may not sell these securities until the registration statement filed with the
securities and exchange commission is effective. This prospectus is not an offer
to sell these securities and is not soliciting an offer to buy these securities
in any state where the offer or sale is not permitted.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. It is illegal for any person to tell you
otherwise.
This prospectus is dated ____________________.
<PAGE>
We have not authorized any person to make a statement that differs from
this prospectus. If any person does make a statement that differs from this
prospectus, you should not rely on it. This prospectus is not an offer to sell,
nor is it seeking an offer to buy, these securities in any state where the offer
or sale is not permitted. The information in this prospectus is complete and
accurate as of its date, but the information may change after that date.
THE COMPANY
Boddie-Noell Properties, Inc. is a corporation organized under the laws
of the State of Maryland.
We currently own 14 apartment communities in Charlotte, Greensboro and
Winston-Salem, North Carolina and Virginia Beach, Virginia, containing a total
of 3,188 apartment units. Our apartments' rental rates are in the moderate to
moderately high range for apartments available within these markets. We also
have the right to acquire an additional apartment community in Winsto n-Salem,
North Carolina, that is currently under construction.
We also manage an additional five apartment communities owned by third
parties containing a total of 995 apartment units through an unconsolidated
subsidiary, BNP Management, Inc. All of the managed properties are located in
North Carolina and Virginia. To avoid confusion with Boddie-Noell Properties,
Inc., we refer to BNP Management, Inc. in this prospectus as the Management
Company. We own 95% of the economic interest and a 1% voting interest in the
Management Company, but we do not consolidate the Management Company for
financial statement purposes.
We also own 47 Hardee's restaurant properties, which we lease to
Boddie- Noell Enterprises, Inc. under a triple-net master lease. Because the
name of this company is similar to our own, we refer to it simply as Enterprises
throughout this prospectus. In addition to all operating expenses, Enterprises
is responsible for the cost of any improvement, expansion, remodeling or
replacement required to keep the properties competitive or in conformity with
the franchisor'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. Enterprises
is required to make any renovations at its own expense.
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We employ approximately 135 persons, including management, accounting,
legal, acquisitions, development, property management, leasing, maintenance and
administrative personnel.
We currently operate as a self-administered and self-managed REIT in
accordance with the provisions of Sections 856 through 860 of the Internal
Revenue Code. Qualifying as a real estate investment trust for federal income
tax purposes means that we substantially eliminate the federal "double taxation"
that usually results from investment in a corporation. The impact of failing to
qualify as a REIT is discussed in the "Risk Factors -- Tax Risks -- Consequences
of the Failure to Qualify as a REIT" section. See also "Federal Income Tax
Considerations."
We are organized as an UPREIT, 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 Boddie-Noell Properties Limited Partnership, which
was organized as a Delaware limited partnership. An UPREIT's limited partnership
interests are generally referred to as "Units," and the limited partnership in
an UPREIT is generally referred to as the "Operating Partnership." In keeping
with industry convention and to help avoid confusion between Boddie-Noell
Properties, Inc. and Boddie-Noell Properties Limited Partnership, we have
adopted those terms for use in this prospectus. Unless the context indicates
otherwise, when we write about the Company, we are including the Operating
Partnership and the Management Company.
The Company is the Operating Partnership's sole general partner and
currently owns 79% of the Units. With the exception of the general partner (us),
Unit holders 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 (i.e., the Company) and the
other limited partners based upon their respective Unit ownership.
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RISK FACTORS
Before you invest in our common stock, you should be aware that there
are various risks, including those described below. You should consider
carefully these risk factors together with all of the other information included
in this prospectus before you decide to purchase shares of our common stock.
Some of the information in this prospectus may contain forward-looking
statements. 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. When considering such forward-looking
statements, you should keep in mind the risk factors and other cautionary
statements in this prospectus. The risk factors noted in this section and other
factors noted throughout this prospectus, including certain risks and
uncertainties, could cause our actual results to differ materially from those
contained in any forward-looking statement.
Tax Consequences of Redemption of Units
The exercise by a Unit holder of the right to require redemption of his
or her Units that is effected either as a sale of Units to the Company or as a
redemption of all of the Units holder's Units by the Operating Partnership will
be treated for tax purposes as a taxable sale or exchange of the Units by the
holder. A redemption by the Operating Partnership of less than all of the Units
of a holder would result in the holder not recognizing any loss, and gain would
result to the extent cash plus the amount of the liabilities relieved was more
than the entire adjusted basis in the holder's Units. The holder will be treated
as realizing proceeds in an amount equal to the sum of the cash (or the value of
the common stock) received upon redemption, plus the amount of the reduction in
any Operating Partnership liabilities allocable to the holder. It is possible
that the amount of gain recognized or even the tax liability resulting from such
gain could exceed the amount of cash or the value of common stock that the
holder received upon redemption. See "Federal Income Tax Considerations -- Tax
Consequences of Redemption" beginning on page 48. In addition, the Unit holder
may not be able to raise sufficient cash through the sale of the common stock he
or she received to pay tax liabilities associated with the redemption of the
Units because, as a result of stock price fluctuations, the price the holder
receives for the common stock may not equal the value of his or her Units at the
time of redemption.
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Potential Change in Investment upon Redemption of Units
If a Unit holder exercises the right to require redemption of his or
her Units, the holder may receive, at the Company's option, cash or common stock
in exchange for the Units. If the holder receives cash, he or she will no longer
have any interest in the Company and will not benefit from any subsequent
increases in the common stock price and will not receive any subsequent
distributions from the Company (unless the holder owns or acquires additional
common stock or Units). If the holder receives common stock, he or she will
become a shareholder in the Company, rather than a limited partner in the
Operating Partnership. See "Redemption of Units -- Comparison of Units and
Shares of Common Stock" beginning on page 25.
Possible Inability to Meet and Manage Growth Objectives
Our ability to integrate successfully a large number of new properties
into our portfolio depends upon our ability to:
o identify, acquire and finance new properties;
o effectively manage properties;
o attract and retain quality personnel;
o develop procedures and practices necessary to generate high
occupancy levels and rental rates; and
o operate such new properties in a cost effective manner.
We can provide no assurances that we will be able to accomplish these
necessary prerequisites for the successful integration of any acquired
properties.
Uncertainty with Respect to Restaurant Properties
Since our inception in 1987, we have had a large portion of our assets
invested in 47 Hardee's restaurant properties that are leased to Enterprises.
Under the master lease for these properties, we are paid annual rent equal to
the greater of $4.5 million or 9.875% of food sales. From 1987 through 1995,
Enterprises paid us more than $4.5 million per year. However, restaurant sales
have declined each year since 1992 when our restaurant related revenues peaked
at $5.3 million. Accordingly, the revenue we have received from them has
declined since that time as well. In 1996 and 1997, the revenues of those
Hardee's restaurants were below the level requiring payments in excess of the
minimum.
In order to protect our shareholders from these declining revenues, in
1993 we began to acquire apartment communities. We believe that we can more
effectively enhance the value of our common stock by acquiring and operating
apartment communities. Accordingly, we focused our business primarily on the
ownership and
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operation of apartment communities.
As a consequence of this refocused strategy, we may elect to sell our
restaurant properties and reinvest the proceeds in additional apartment
communities. No sale of the restaurants is pending, and we will only divest the
restaurants if we believe doing so will enhance shareholder value.
If we do dispose of the restaurant properties, it is possible that we
may incur a loss on the disposition of the properties. It is also possible that
we may invest such sale proceeds in properties that yield significantly less
than the $4.5 million we received from Enterprises in 1997.
Further, in the event we were to find a buyer, Enterprises has the
right to purchase the restaurants from us on the same terms as that offer. This
right may make it more difficult to find a suitable buyer or could adversely
affect the price we might realize on any such sale.
For the nine-month period ended September 30, 1998, the restaurant
properties accounted for 18% of our total revenues. All of the restaurant
property revenue comes from Enterprises. The inability of Enterprises to pay us
rent would adversely affect funds from operations and funds available for
distribution. Until we are able to increase our apartment portfolio
significantly or dispose of the restaurant properties, they will continue to
account for a sizeable portion of our revenues.
Real Estate Investment Risks
General Risks
Our ability to make distributions to you depends on our ability to
generate funds from operations in excess of scheduled principal payments on debt
and capital expenditure requirements. Funds from operations and the value of our
properties may be adversely affected by events or conditions which are beyond
our control. Such events or conditions could include:
o competition from other apartment communities and alternative
housing due in part to low interest rates, both nationally and
in our principal markets, which may make home purchasing an
attractive alternative to renting;
o new construction of comparable properties which might adversely
affect apartment occupancy or rental rates;
o increases in operating costs (including real estate taxes) due to
inflation and other factors, which may not necessarily
be offset by increased rents;
o the inability to rent properties on favorable economic
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terms;
o changes in governmental regulations and the related costs
of compliance;
o changes in tax laws and housing laws including the enactment
of rent control laws or other laws regulating multifamily
housing;
o changes in interest rate levels and the availability of
financing; and the relative illiquidity of real estate
investments.
Lack of Geographic Diversification
All of our properties are located in Virginia and North Carolina.
Adverse economic developments in these states could adversely impact the
operations of our properties and therefore our profitability. The concentration
of properties in a limited number of markets may expose us to risks of adverse
economic developments which are greater than the risks of owning properties in
more markets.
Financing Risks
Risks Associated with Debt Financing
At September 30, 1998, we had $140.1 million in long-term debt.
Payments of principal and interest on borrowings may leave us with insufficient
cash resources to operate the apartment communities or pay distributions
required to be paid in order for us to maintain our qualification as a REIT.
Further, a high debt level creates an increased risk that we may
default on our obligations. If we default, the banks who lent us funds could
foreclose on the properties securing their loans. As of September 30, 1998, our
debt-to-total market capitalization ratio (debt divided by the sum of debt and
the market value of our outstanding Units and shares of common stock) was 61.6%.
Variable Interest Rates
At September 30, 1998, $20.1 million of our long-term debt bore
interest at a variable rate. In addition, we may incur additional debt in the
future that also bears interest at variable rates. Variable-rate debt creates
higher debt service requirements if market interest rates increase, which would
adversely affect our cash flow and the amounts available to pay dividends.
Possible Inability to Refinance Debt
We may obtain financing with "due-on-encumbrance" or "due-on-sale"
clauses in
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which future refinancing or sale of properties could cause the maturity dates of
the mortgages to accelerate and the financing to become due immediately. Thus,
we could be required to sell properties on an all-cash basis, or the purchaser
might be required to obtain new financing in connection with a sale.
Alternatively or additionally, we may obtain mortgages that have balloon
payments. Such mortgages involve greater risks than mortgages with principal
amounts amortized over the term of the loan since our ability to repay the
outstanding principal amount at maturity may depend on obtaining adequate
refinancing or selling the property. The efficacy of either option would depend
on economic conditions in general and the value of the underlying properties in
particular. We cannot guarantee that we could refinance or repay any such
mortgages at maturity. Further, a significant decline in the value of the
underlying property could result in a loss of the property through foreclosure.
Regulatory Matters
Environmental Matters
Various federal, state and local laws subject property owners or
operators to liability for the costs of removal or remediation of certain
hazardous substances released on a property. Such laws often impose liability
without regard to whether the owner or operator knew of, or was responsible for,
the release of the hazardous substances. The presence of, or the failure to
remediate properly, hazardous substances may adversely affect occupancy of any
contaminated apartment communities, the ability of Enterprises to operate
restaurants, and our ability to sell or borrow against contaminated properties.
In addition to the costs associated with investigation and remediation actions
brought by governmental agencies, the presence of hazardous wastes on a property
could result in personal injury or similar claims by private plaintiffs.
Various laws also impose, on persons who arrange for the disposal or
treatment of hazardous or toxic substances, liability for the cost of removal or
remediation of hazardous substances at the disposal or treatment facility. These
laws often impose liability whether or not the person arranging for the disposal
ever owned or operated the disposal facility.
Enterprises has agreed to pay for the costs of complying with
applicable environmental laws, ordinances and regulations on the restaurant
properties. However, the obligation to pay for such costs with respect to our
other properties, or Enterprises' inability to pay for such costs on the
restaurant properties, may adversely affect our operating costs and the value of
our properties.
Phase I environmental site assessments have been obtained on all of our
owned apartment communities. The purpose of Phase I environmental site
assessments is to identify potential sources of contamination for which a
company may be responsible and to assess the status of environmental regulatory
compliance. All of the restaurant properties were subjected to transaction
screens in December 1995. A transaction screen involves a review of a property
for the purpose of recommending whether we should
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perform a Phase I environmental site assessment. A transaction screen is
significantly less thorough in scope than a Phase I environmental site
assessment.
Neither the transaction screens nor the environmental site assessments
revealed any environmental condition, liability or compliance concern that we
believe would have a material adverse affect on our business, assets or results
of operations. Nor are we aware of any such condition, liability or concern by
any other means. However, it is possible that the transaction screens and the
environmental site assessments relating to any one of the properties did not
reveal all environmental conditions, liabilities or compliance concerns. It is
also possible that there are material environmental conditions, liabilities or
compliance concerns that arose at a property after the related review was
completed.
Compliance with the Americans with Disabilities Act and Other Laws
Under the Americans with Disabilities Act of 1990 (the "ADA"), all
public accommodations and commercial facilities must meet certain federal
requirements related to access and use by disabled persons. Compliance with the
ADA requirements could require removal of access barriers. Additional federal,
state and local laws exist that are related to access by disabled persons. These
laws also may require modifications to our properties or restrict renovations of
our properties. For example, the Fair Housing Amendments Act of 1988 (the
"FHAA") requires apartment communities first occupied after March 13, 1991 to be
accessible to the handicapped. Non-compliance with the ADA, FHAA and similar
laws could result in the imposition of fines or an award of damages to private
litigants. We believe that our properties are substantially in compliance with
these requirements. Further, under the terms of the master lease agreement with
Enterprises, Enterprises is financially responsible for upgrading the restaurant
properties should such properties not be in compliance with the ADA. However, in
the event Enterprises fails to upgrade properly the restaurants and there is a
determination that the restaurant properties are not in compliance with the ADA,
we could still face the imposition of fines or an award of damages to private
litigants. If we were required to make unanticipated expenditures to comply with
the ADA or other laws, our cash flow and the amounts available for distributions
to you may be adversely affected.
The Federal Fair Housing Act and state fair housing laws prohibit
discrimination on the basis of certain protected classes. We have a policy
against these kinds of discriminatory behaviors and train our employees to avoid
discrimination or the appearance of discrimination. We cannot assure you that an
employee will not violate our policy against discrimination and violate the fair
housing laws. Such a violation could subject us to legal action and awards of
damages.
Conflicts of Interest
We have been, and continue to be, involved in various transactions with
a number of our affiliates, including executive officers, directors, major
shareholders and entities
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sharing common ownership with us.
Enterprises' Option to Close Poorly Performing Restaurants
Under certain agreements with Enterprises and the bank holding the
mortgage on the restaurant properties, Enterprises has the option to close
restaurants that are performing poorly, as defined in such agreements.
Under the master lease, Enterprises has the option to close a poorly
performing location by offering us a choice of three of its own restaurants that
meet certain performance criteria as a substitute for the restaurant Enterprises
wishes to close. In our sole discretion, we may accept or reject any one of the
three alternatives they propose. If we reject all three, at our option, we may
(i) keep the property and cancel the portion of the master lease relating to
that property or (ii) sell the property to Enterprises for $920,000. Beginning
on January 1, 2008, Enterprises may close up to five poorly performing locations
per year. We will have the option to keep the property and cancel the portion of
the master lease relating to that property or sell the property to Enterprises
for cash equal in amount to the property's net book value (our original cost of
$920,000 less the depreciation we have recorded since 1987).
Under the terms of a tri-party agreement among the Company, Enterprises
and the bank holding the mortgage on the restaurant properties, beginning on
January 1, 1998, Enterprises can close up to seven poorly performing locations
(but no more than five in any year) under the same terms and conditions
available to Enterprises beginning on January 1, 2008 under the master lease. If
the mortgage is canceled, the tri-party agreement terminates, and Enterprises
can only close restaurants in accordance with the provisions of the master
lease.
We cannot predict whether Enterprises will exercise its option to close
restaurants in accordance with the master lease and the tri-party agreement, and
we cannot accurately predict what impact such closures would have on our
financial condition or results of operations.
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Tax Risks
Consequences of the Failure to Qualify as a REIT
We believe that we operate in a manner that enables us to meet the
requirements for qualification as a REIT for federal income tax purposes. We
have not requested, and do not plan to request, a ruling from the Internal
Revenue Service that we qualify as a REIT. We have, however, received an opinion
from the law firm of Alston & Bird LLP that we met the requirements for
qualification as a REIT for the taxable years ended December 31, 1987 through
1997, and that we are in a position to continue such qualification if we meet
certain conditions throughout the year and for the year as a whole.
You should be aware that opinions of counsel are not binding on the IRS
or any court. Furthermore, the conclusions stated in the opinion are conditioned
on, and our continued qualification as a REIT will depend on, our meeting
various requirements. Such requirements are discussed in more detail under the
heading "Federal Income Tax Considerations -- Requirements for Qualification"
beginning on page 36. Finally, the opinion is based on certain representations
by us to Alston & Bird LLP, which has not independently verified or investigated
the correctness of those representations.
If we fail to qualify as a REIT, we would not be allowed a deduction
for distributions to shareholders in computing our taxable income and would be
subject to federal income tax at regular corporate rates. We also could be
subject to the federal alternative minimum tax. Unless we are entitled to relief
under specific statutory provisions, we could not elect to be taxed as a REIT
for four taxable years following the year during which we were disqualified.
Therefore, if we lose our REIT status, the funds available for distribution to
you would be reduced substantially for each of the years involved. See "Federal
Income Tax Considerations -- Failure to Qualify" on page 42.
Effect of Distribution Requirements
As a REIT, we are subject to annual distribution requirements, which
limit the amount of cash we have available for other business purposes,
including amounts to fund our growth. See "Federal Income Tax Considerations --
Annual Distribution Requirements" on page 40.
Other Tax Liabilities
Even if we qualify as a REIT, we and our subsidiaries will be subject
to certain federal, state, and local taxes on our income and property that could
reduce operating cash flow.
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Possible Adverse Consequences of Limits on Ownership of Shares
Our Articles of Incorporation limit ownership of our capital stock by
any single shareholder to 9.8% of the outstanding shares. The Articles also
prohibit anyone from buying shares if the purchase would result in us losing our
REIT status. This could happen if a share transaction results in fewer than 100
persons owning all of our shares or in five or fewer persons, applying certain
broad attribution rules of the Internal Revenue Code, owning 50% or more of our
shares. If you or anyone else acquires shares in excess of the ownership limit
or in violation of the ownership requirements of the Internal Revenue Code for
REITs, we:
o will consider the transfer to be null and void;
o will not reflect the transaction on our books;
o may institute legal action to enjoin the transaction;
o will not pay dividends or other distributions with respect to
those shares;
o will not recognize any voting rights for those shares;
o will consider the shares held in trust for the benefit of the
Company; and
o will either direct the affected person to sell the shares and
turn over any profit to us, or we will redeem the shares. If
we redeem the shares, it will be at a price equal to the
lesser of:
(a) the price paid by the transferee of the shares or
(b) the average of the last reported sales prices on
the American Stock Exchange on the 10 trading
days immediately preceding the date fixed for
redemption by our Board of Directors.
An individual who acquires shares that violate the above rules bears
the risk that (i) he may lose control over the power to dispose of the shares,
(ii) he may not recognize profit from the sale of such shares if the market
price of the shares increases and (iii) he may be required to recognize a loss
from the sale of such shares if the market price decreases.
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Limitations on Acquisition and Change in Control
Ownership Limit
The 9.8% ownership limit discussed above may have the effect of
precluding acquisition of control of us by a third party without the consent of
our Board of Directors. See "Description of Capital Stock -- Ownership
Limitations and Restrictions on Transfer" on page 18.
Required Consent of the Operating Partnership for Significant Corporate Action
A provision in the Operating Partnership agreement prohibits us from
engaging in certain transactions which could result in a change of control
without the approval of the holders of a majority of the outstanding Units,
including Units that we own. While we expect that we will always hold a majority
of the outstanding Units, we cannot guarantee that this will be the case. If we
ever own less than a majority of the outstanding Units, this voting requirement
might limit the possibility for an acquisition or change in control of the
Company, even if such acquisition or change in control would be in your (the
shareholders') best interests. As of September 30, 1998, we owned approximately
80% of the Operating Partnership Units.
Operating Partnership Agreement
The Operating Partnership agreement contains provisions relating to
limited partners' redemption rights in the event of certain changes of control
of the Company. These provisions require an acquiror to maintain the Operating
Partnership structure and to maintain a limited partner's right to continue to
hold Units with future redemption rights. Such provision could have the effect
of discouraging a third party from making an acquisition proposal, even if such
proposal were in our shareholders' best interests.
Preferred Stock
Our Articles of Incorporation authorize our Board of Directors to issue
up to 10.0 million shares of preferred stock. The Board of Directors may
establish the preferences and rights of any preferred shares issued. The
issuance of preferred stock could have the effect of delaying or preventing
someone from taking control of us, even if a change in control were in our
shareholders' best interests. As of the date of this prospectus, we have not yet
issued any preferred stock. See "Description of Capital Stock -- Preferred
Stock" on page 17.
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Maryland Business Combination Statute
The Maryland General Corporation Law establishes special requirements
for "business combinations" between a Maryland corporation and "interested
shareholders" unless exemptions are applicable. An interested shareholder is any
person who beneficially owns 10% or more of the voting power of our
then-outstanding voting stock. Among other things, the law prohibits for a
period of five years a merger and other similar transactions between us and an
interested shareholder unless the Board approved the transaction prior to the
party becoming an interested shareholder. The five year period runs from the
most recent date on which the interested shareholder became an interested
shareholder. The law also requires a supermajority shareholder vote for such
transactions after the end of the five-year period. This means that the
transaction must be approved by at least:
o 80% of the votes entitled to be cast by holders of outstanding
voting shares and
o 66% of the votes entitled to be cast by holders of outstanding
voting shares other than shares held by the interested
shareholder with whom the business combination is to be
effected.
The business combination statute could have the effect of discouraging
offers to acquire us and of increasing the difficulty of consummating any such
offers, even if our acquisition would be in our shareholders' best interests.
Maryland Control Share Acquisition Statute
Maryland law provides that "control shares" of a Maryland corporation
acquired in a "control share acquisition" have no voting rights except to the
extent approved by a shareholder vote. Two-thirds of the shares eligible to vote
must vote in favor of granting the "control shares" voting rights. "Control
shares" are shares of stock that, taken together with all other shares of stock
the acquiror previously acquired, would entitle the acquiror to exercise at
least 20% of the voting power in electing directors. Control shares do not
include shares of stock the acquiring person is entitled to vote as a result of
having previously obtained shareholder approval. A "control share acquisition"
means the acquisition of control shares, subject to certain exceptions.
If a person who has made (or proposes to make) a control share
acquisition satisfies certain conditions (including agreeing to pay expenses),
he may compel the Board of Directors to call a special meeting of shareholders
to be held within 50 days to consider the voting rights of the shares. If such a
person makes no request for a meeting, we have the option to present the
question at any shareholders' meeting.
If voting rights are not approved at a meeting of shareholders, then we
may redeem any or all of the control shares (except those for which voting
rights have
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previously been approved) for fair value. We will determine the fair
value of the shares, without regard to voting rights, as of the date of either:
o the last control share acquisition or
o any meeting where shareholders considered and did not
approve voting rights of the control shares.
If voting rights for control shares are approved at a shareholders'
meeting and the acquiror becomes entitled to vote a majority of the shares of
stock entitled to vote, all other shareholders may exercise appraisal rights.
This means that you would be able to redeem your stock back to us for fair
value. Under Maryland law, the fair value may not be less than the highest price
per share paid in the control share acquisition. Furthermore, certain
limitations otherwise applicable to the exercise of dissenters' rights would not
apply in the context of a control share acquisition.
The control share acquisition statute would not apply to shares
acquired in a merger, consolidation or share exchange if we were a party to the
transaction.
The control share acquisition statute could have the effect of
discouraging offers to acquire us and of increasing the difficulty of
consummating any such offers, even if our acquisition would be in our
shareholders' best interests.
Dependence on Key Personnel
We are dependent on the efforts of our executive officers, particularly
D. Scott Wilkerson, Philip S. Payne and Pamela B. Novak. While we believe that
we could find replacements for these key personnel, if necessary, the loss of
their services could have an adverse effect on our operations. Messrs. Wilkerson
and Payne and Ms. Novak have entered into employment contracts with us.
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USE OF PROCEEDS
In connection with the issuance of the common stock offered by us
through this prospectus, we will generally receive one Unit in the Operating
Partnership for each share of common stock.
DESCRIPTION OF CAPITAL STOCK
General
Our Articles of Incorporation give us the authority to issue up to
100.0 million shares of common stock and 10.0 million shares of preferred stock.
The par value of both the common and preferred stock is $.01 per share. Under
Maryland law, shareholders generally are not responsible for a corporation's
debts or obligations. At September 30, 1998, we had 5,965,505 shares of common
stock issued and oustanding. This does not include shares issuable upon the
redemption of any Units or shares issuable under currently outstanding options
or warrants held by officers and directors or shares which may be issued under
our Dividend Reinvestment and Stock Purchase Plan. No shares of preferred stock
are issued or outstanding.
Common Stock
Our Board of Directors previously authorized us to issue all of the
currently outstanding common stock. The Board has also authorized the issuance
of the stock issuable upon redemption of outstanding Units. The common stock we
have previously sold has been fully paid for and is non-assessable. When we
issue stock upon redemption of Units, we will also consider such common stock to
be fully paid for and non-assessable. Non-assessable means that we cannot ask
you for more money for the stock after you have purchased it.
As a holder of common stock, you will be entitled to receive
distributions based on common stock if our Board of Directors declares such
distributions. However, because we have the authority under our Articles of
Incorporation to issue preferred stock, your rights to receive distributions may
be subordinated to the rights of any preferred stock we issue in the future. In
any liquidation, each outstanding common share entitles its holder to share
(based on the percentage of shares held) in the assets that remain after we pay
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our liabilities and any preferential distributions owed to preferred
shareholders. We have paid quarterly distributions on our common stock since the
period ending June 30, 1987, and we intend to continue to pay quarterly
distributions.
Holders of common stock are entitled to one vote for each share on all
matters submitted to a shareholder vote. Unless a law requires otherwise, or as
our Articles of Incorporation may provide with respect to preferred stock, the
holders of common stock will possess exclusive voting power. See " -- Ownership
Limitations and Restrictions on Transfers." There is no cumulative voting in the
election of directors. This means that the holders of a majority of the common
stock can elect all of the directors and the holders of the remaining common
stock could not elect any director.
As a common shareholder in the Company, you will have no conversion,
sinking fund or redemption rights, or preemptive rights. A conversion feature is
one where a shareholder has the option to convert his shares to a different
security, such as debt or preferred stock. A sinking fund or redemption right is
one where a shareholder will have the right to redeem his shares (for cash or
other securities) at some point in the future. Sometimes a redemption right is
paired with an obligation of the company to create an account into which such
company must deposit money into to fund the redemption (i.e., a sinking fund).
Preemptive rights are rights granted to shareholders to subscribe for a
percentage of any other securities we may offer in the future based on the
percentage of shares owned.
We will furnish you with annual reports containing audited consolidated
financial statements. The financial statements will contain an opinion of our
independent public accountants. We will also furnish you quarterly reports for
the first three quarters of each year. These reports will contain unaudited
financial information.
All common stock will have equal distribution, liquidation and voting
rights.
The Maryland General Corporate Law generally prohibits us from merging
with another corporation if we will not be the surviving entity in the merger.
Maryland law also generally prohibits us from selling all or most of our assets.
We can enter into these transactions, however, if our Board of Directors adopts
a resolution declaring the proposed transaction advisable and a majority of
shareholders entitled to vote approves the transaction.
The common stock is listed on the American Stock Exchange. The transfer
agent and registrar for the common stock is First Union National Bank of North
Carolina.
Preferred Stock
Under our Articles of Incorporation, our Board of Directors has the
authority to issue one or more series of preferred stock. Prior to issuing
shares of each series, the Maryland General Corporate Law and our Articles of
Incorporation require the Board of Directors to fix the terms for each series.
Such terms could include the right to receive
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distributions and liquidation payments before such can be made on the common
stock. The Board of Directors could authorize terms that could discourage a
takeover or other transaction that might be in the common shareholders' best
interests. As of the date of this prospectus, we have not issued any preferred
stock, and we have no present plans to do so.
Ownership Limitations and Restrictions on Transfers
To maintain our REIT qualification, no less than six persons can own
50% or more in value of our outstanding common stock during the last half of a
taxable year. Additionally, at least 100 persons must own the common stock
during at least 335 days per year. See "Federal Income Tax Considerations --
Requirements for Qualification." To help ensure we meet these tests, our
Articles of Incorporation provide that no person may own more than 9.8% of our
issued and outstanding capital stock. For purposes of this provision, the
Company treats corporations, partnerships, groups within Section 13(d)(3) of the
Securities Exchange Act of 1934 and other entities as single persons. The Board
of Directors has discretion to waive this ownership limit if they receive
evidence that the changes in ownership will not jeopardize our REIT status. The
consequences of violating these limits are spelled out under the heading "Risk
Factors -- Possible Adverse Consequences of Limits on Ownership of Shares."
The restrictions on transferability and ownership will not apply if the
Board of Directors and the shareholders holding two-thirds of our outstanding
shares of capital stock determine that it is no longer in our best interest to
be a REIT. We have no intention to seek to change our REIT status.
All certificates representing shares of common stock bear a legend
referring to the restrictions described above.
If you own more than 5% of our common stock or preferred stock, you
must file a written notice with us no later than January 30 of each year. This
notice should contain your name and address, the number of shares of common
stock or preferred stock you own and a description of how you hold the shares.
In addition, you will be required, if we ask, to disclose to us in writing any
information we need in order to determine the effect of your ownership of such
shares on our status as a REIT.
These ownership limitations could have the effect of precluding a third
party from obtaining control over the Company unless the Board of Directors and
the shareholders determine that maintaining REIT status is no longer desirable.
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Limitations of Liability and Indemnification of Directors and Officers
Maryland corporation law and our Articles of Incorporation exculpate
each director and officer in actions by the Company or by shareholders in
derivative actions from liability unless the director or officer has received an
improper personal benefit in money, property or service or he has acted
dishonestly, as established by a final judgment of a court.
The Articles of Incorporation also provide that we will indemnify a
present or former director or officer against expense or liability in an action
to the fullest extent permitted by Maryland law. Maryland law permits a
corporation to indemnify its present and former directors and officers, among
others, against judgments, penalties, fines, settlements and reasonable expenses
they incur in connection with any proceeding to which they are a party because
of their service as an officer, director or other similar capacity. However,
Maryland law prohibits indemnification if it is established that:
o the act or omission of the director or officer was material to
the matter giving rise to the proceeding and was committed in
bad faith or was the result of active and deliberate
dishonesty;
o the director or officer actually received an improper personal
benefit in money, property or services; or
o in the case of any criminal proceeding, the director or
officer had reasonable cause to believe that the act or
omission was unlawful.
In addition, under Maryland law, to indemnify a director or officer we would
also have to obtain (i) a written affirmation by the director or officer of his
or her good faith belief that he or she has met the standard of conduct
necessary for indemnification and (ii) a written statement that he will repay
the amounts we advance if it shall ultimately be determined that the standard of
conduct was not met.
The exculpation and indemnification provisions in the Articles of
Incorporation have been adopted to help induce qualified individuals to agree to
serve on behalf of the Company by providing a degree of protection from
liability for alleged mistakes in making decisions and taking actions. Such
exculpation and indemnification provisions have been adopted, in part, in
response to a perceived increase in shareholders' litigation alleging director
and officer misconduct. You should be aware, however, that these provisions in
our Articles of Incorporation and Maryland law give you a more limited right of
action than you otherwise would have in the absence of such provisions.
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The above indemnification provisions could operate to indemnify
directors, officers or other persons who exert control over us against
liabilities arising under the Securities Act of 1933. Insofar as the above
provisions may allow that type of indemnification, the Securities and Exchange
Commission has informed us that, in their opinion, such indemnification is
against public policy as expressed in the Securities Act of 1933 and is
therefore unenforceable.
PARTNERSHIP AGREEMENT OF THE OPERATING PARTNERSHIP
We organized the Operating Partnership under the Delaware Revised
Uniform Limited Partnership Act, as amended. The following summary of the
partnership agreement is qualified by reference to the actual partnership
agreement. We have filed a copy of the partnership agreement as an exhibit to
the registration statement of which this prospectus is a part.
General
We conduct substantially all of our activities through the Operating
Partnership. The Operating Partnership is a Delaware limited partnership.
Boddie-Noell Properties, Inc., as the sole general partner, has the exclusive
power to manage and conduct the business of the Operating Partnership, and has
the rights and powers permitted to the general partner of a Delaware limited
partnership. In addition to other rights, investors who hold Units in the
Operating Partnership have such rights and powers as are reserved to limited
partners under Delaware law, but have no authority to transact business for, or
participate in the management activities or decisions of, the Operating
Partnership. The limited partners do not have the right to remove us as the
general partner.
The Operating Partnership agreement provides that we shall not, without
the consent of a majority of the holders of Units, sell or otherwise dispose of
all or substantially all of the Operating Partnership's assets (including
through a merger or other combination with another entity). We must hold
substantially all of our property through the Operating Partnership.
Allocation of Distributions, Profits and Losses
The Operating Partnership agreement provides, except as noted below,
that the net operating cash of the Operating Partnership available for
distribution, as well as net sales and refinancing proceeds, will be distributed
from time to time as determined by the Company (but not less frequently than
quarterly), pro rata in accordance with the partners' percentage interests.
Profits and losses for tax purposes will also generally be
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allocated among the partners in accordance with their percentage interests,
subject to compliance with applicable laws, such as those noted under "Federal
Income Tax Considerations -- Other Tax Considerations -- Tax Allocations With
Respect To Our Properties."
Transferability of Interests
The Operating Partnership agreement generally provides that we may not
withdraw from the Operating Partnership, or transfer or assign our interest in
the Operating Partnership. The limited partners, on the other hand, generally
may transfer all or a portion of their interests in the Operating Partnership to
a transferee. No person receiving such a transfer, however, will be admitted to
the Operating Partnership as a substitute limited partner having the rights of a
limited partner without our consent. Additionally, the transferee must meet
certain other conditions, including agreeing to be bound by the terms and
conditions of the Operating Partnership agreement.
Additional Capital Contributions; Issuance of Additional Partnership Interests
The Operating Partnership agreement does not require any limited
partner to make additional capital contributions to the Operating Partnership.
We, however, are obligated to make certain additional capital contributions to
the Operating Partnership in connection with the issuance of additional Units to
the Company.
The Operating Partnership agreement authorizes us to issue additional
Units for any partnership purpose and for such capital contributions and other
considerations as we shall determine. The issuance of additional Units to us,
however, is subject to certain limitations. First, we may not issue additional
Units to ourselves unless we issue the additional Units to all partners in
proportion to their respective partnership interests. Alternatively, we may
issue additional Units to ourselves in connection with our issuing capital
stock, provided that the proceeds of the capital stock issuance are contributed
to the Operating Partnership as an additional capital contribution.
If we issue additional capital stock and make a capital contribution to
the Operating Partnership, the capital contribution must be in an amount equal
to the proceeds we receive from the issuance of the additional capital stock.
The Operating Partnership will then issue additional Units with similar
designations, preferences and rights to the capital stock we issued. For
example, if we issue 6% preferred stock, the Operating Partnership must issue 6%
preferred Units. If additional partnership interests are issued, the partnership
interests of all existing partners of the Operating Partnership will be diluted
proportionately.
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Redemption of Operating Partnership Units
The Operating Partnership is obligated to redeem each Unit at the
request of the holder after a period of at least one year from issuance for cash
equal to the then fair market value of each share of common stock at the time of
such redemption. The Company may, however, elect to acquire such Unit for one
share of common stock or an amount of cash of the same value. We presently
anticipate that we will elect to issue common stock in connection with each such
redemption, rather than having the Company or the Operating Partnership pay
cash. If, however, Units are redeemed for cash, such redemption will be at the
fair market value of the Units. With each such redemption, our percentage
ownership interest in the Operating Partnership will increase.
Indemnifications and Limitation of Liability
The Operating Partnership agreement provides that the general partner,
and each person designated or delegated by the general partner, will be
indemnified and held harmless by the Operating Partnership for any liabilities
or expenses from any claim or proceeding that relates to the operations of the
Operating Partnership, unless it is established that:
o the act or omission of the person was material to the matter
giving rise to the proceeding and was committed in bad faith
or was the result of active and deliberate dishonesty;
o the person actually received an improper personal benefit in
money, property or services; or
o in the case of any criminal proceeding, the person had reasonable
cause to believe that the act or omission was unlawful.
The Operating Partnership agreement also provides that the general partner will
have no personal liability to the Operating Partnership and its partners for
monetary damages for any act or omission if the general partner acted in good
faith and with due care and loyalty.
Tax Matters Partner
As provided in the Operating Partnership agreement, the Company is the
tax matters partner of the Operating Partnership. This means that we make
whatever tax elections must be made under the Internal Revenue Code.
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Operations
The Operating Partnership agreement requires the partnership to be
operated in a manner that will enable the Company to satisfy the requirements
for being classified as a REIT and to avoid any federal income tax liability.
Under the Operating Partnership agreement, the Operating Partnership
will assume and pay, or reimburse us for payment of, all expenses incurred
relating to the ownership and operation of, or for the benefit of, the Operating
Partnership, including all expenses of the Company.
Term
The term of the Operating Partnership continues until December 31,
2097, or until sooner dissolved pursuant to the terms of the Operating
Partnership agreement.
Exercises of Stock Options
If options to acquire common stock that we have granted are exercised,
the Operating Partnership agreement requires us to contribute to the Operating
Partnership as an additional contribution the exercise price we receive. For any
given number of shares, we will thus receive less than their fair value
(assuming the option holder exercises when the fair value exceeds the option
price). We will receive from the Operating Partnership, in exchange for the
proceeds we contribute, additional Units equal to the number of shares we
issued, even though we will not be paying the full fair value for those Units.
Under the terms of the Operating Partnership agreement, we will be deemed to
have contributed the fair value of the Units.
Other
The Operating Partnership agreement provides that substantially all of
our business activities must be conducted through the Operating Partnership or
subsidiary partnerships or corporations.
The Operating Partnership is authorized to enter into transactions with
partners or their affiliates, as long as the terms of such transactions are fair
and reasonable, and no less favorable to the Operating Partnership than would be
obtained from an unaffiliated third party.
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REDEMPTION OF UNITS
General
Each limited partner of the Operating Partnership may, subject to
certain limitations, require that the Operating Partnership redeem all or a
portion of such partner's Units after expiration of a lock-up period of at least
one year. Upon redemption, a limited partner will receive, at the option of the
Company, as general partner of the Operating Partnership, either (i) a number of
shares of common stock equal to the number of Units redeemed or (ii) cash in an
amount equal to market value of the number of shares of common stock the limited
partner would have received pursuant to (i) above. The market value of the
common stock for this purpose will be equal to the average of the closing
trading price of the Company's common stock for the 10 trading days before the
day on which the redemption notice was received by the Operating Partnership.
We anticipate that we generally will elect to satisfy any redemption
right exercised by a limited partner through the issuance of shares of common
stock, whereupon we will acquire the Units being redeemed and will become the
owner of the Units. See "Partnership Agreement of the Operating Partnership --
Redemption of Operating Partnership Units." This acquisition by us will be
treated as a sale of the Units to us for federal income tax purposes. See
"Federal Income Tax Considerations -- Tax Consequences of Redemption." Upon
redemption, such limited partner's right to receive distributions with respect
to the Units redeemed will cease. However, the limited partner will then have
rights as a shareholder of the Company from the time of his or her acquisition
of common stock, including the payment of dividends.
A limited partner must notify us, as general partner of the Operating
Partnership, of his or her desire to require the Operating Partnership to redeem
Units by sending a notice in the form attached as an exhibit to the Operating
Partnership agreement, a copy of which is available from us. A limited partner
must request the redemption of at least 1,000 Units (or all of the Units held by
such holder, if less). A redemption generally will occur on the tenth business
day after the notice is delivered by the limited partner, except that no
redemption can occur if the delivery of shares of common stock would be
prohibited under the provisions of the Articles of Incorporation. This condition
protects our qualification as a REIT.
For a summary discussion of certain federal income tax considerations
relevant to the redemption of Units, see "Federal Income Tax Considerations --
Tax Consequences of Redemption."
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Comparison of Ownership of Units and Shares of Common Stock
In general, the nature of any investment in shares of common stock of
the Company is substantially equivalent economically to an investment in Units
in the Operating Partnership. A holder of a share of common stock receives the
same distribution that a holder of a Unit receives, and shareholders and Unit
holders generally share in the risks and rewards of ownership in the enterprise
being conducted by the Company (through the Operating Partnership). However,
there are differences between ownership of Units and ownership of common stock,
some of which may be material to you.
The information below highlights some significant differences between
the Operating Partnership and the Company and compares certain legal rights
associated with the ownership of Units and common stock. These comparisons are
intended to assist limited partners of the Operating Partnership in
understanding how their investment will be changed if their Units are redeemed
for common stock. This discussion is summary in nature and does not constitute a
complete discussion of these matters, and holders of Units should carefully
review the balance of this prospectus and the registration statement, including
the exhibits thereto, of which this prospectus is a part for additional
important information about us.
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Form of Organization and Assets Owned
The Operating Partnership
The Operating Partnership is organized as a Delaware limited partnership.
Substantially all of the Company's operatins are conducted through the Operating
Partnership.
The Company
The Company is a Maryland corporation. The Company has elected to be taxed as a
REIT under the Internal Revenue Code and intends to maintain its qualification
as a REIT. The Company's interest in the Operating Partnership, which gives the
Company an indirect investment in the properties and other assets owned by the
Operating Partnership, represents substantially all of its assets.
Length of Investment
The Operating Partnership
The Operating Partnership terminates December 31, 2097, although it may be
terminated earlier under certain circumstances.
The Company
The Company has a perpetual term and intends to continue its operations for an
indefinite time period.
Purpose and Permitted Investments
The Operating Partnership
The purpose of the Operating Partnership includes the conduct of any business
that may be lawfully conducted by a limited partnership formed under Delaware
law, except that the Operating Partnership agreement requires the business of
the Operating Partnership to be conducted in such a manner that will permit the
Company to be classified as a REIT for federal income tax purposes. The
Operating Partnership may, subject to the foregoing limitation, invest or enter
into partnerships, joint ventures or similar arrangements and may own interests
in any other entity.
The Company
Under its Articles of Incorporation, the Company may engage in any lawful
activity permitted under Maryland law. Under the Operating Partnership
agreement, however, the Company must conduct substantially all of its business
and own substantially all of its assets through the Operating Partnership.
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Additional Equity
The Operating Partnership
The Operating Partnership is authorized to issue Units and other partnership
interests to the partners or to other persons for such consideration and on such
terms and conditions as the Company, in its sole discretion, determines. In
addition, the Company, as general partner, may cause the Operating Partnership
to issue to the Company additional Units or other partnership interests in
different series or classes that may be senior to the Units in conjunction with
the offering of securities of the Company having substantially similar rights,
in which the proceeds thereof are contributed to the Operating Partnership. No
limited partner has any preemptive, preferential or similar rights with respect
to additional capital contributions to the Operating Partnership or the issuance
or sale of any interests therein.
The Company
The Board of Directors of the Company may issue, in its discretion, additional
equity securities consisting of common stock or preferred stock. However, the
total number of shares issued may not exceed the authorized number of shares of
capital stock set forth in the Company's Articles of Incorporation. As long as
the Operating Partnership is in existence, the proceeds (or a portion thereof)
of all equity capital raised by the Company will be contributed to the Operating
Partnership in exchange for Units or other interests in the Operating
Partnership. The general partner's contribution will be deemed to be an amount
equal to the net proceeds of any such offering.
Management Control
The Operating Partnership
All management powers over the business and affairs of the Operating Partnership
are vested in the general partner of the Operating Partnership, and no limited
partner of the Operating Partnership has any right to participate in or exercise
control or management power over the business and affairs of the Operating
Partnership. The limited partners may not remove the general partner for any
reason.
The Company
The Board of Directors has exclusive control over the Company's business and
affairs, subject to the restructions in the Articles of Incorporation, the
bylaws and the Operating Partnership agreement. The policies adopted by the
Board of Directors may be altered or eliminated without advice from
shareholders. Except for their vote in the elections of directors, shareholders
have no control over the ordinary business policy of the Company. The Company's
shareholders may remove a director for cause by the affirmative vote of the
holders of two-thirds of the shares of capital stock outstanding and entitled to
vote.
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Fiduciary Duties
The Operating Partnership
Under Delaware law, the general partner of the Operating Partnership is
accountable to the Operating Partnership as a fiduciary and, consequently, is
required to exercise good faith in all of its dealings with respect to
partnership affairs. However, under the Operating Partnership agreement, the
general partner is under no obligation to take into account the tax consequences
to any partner of any action taken by it. The Operating Partnership agreement
provides that the general partner will not be liable for any act or omission if
the general partner acted in good faith and with due care and loyalty. See
"Partnership Agreement of the Operating Partnership -- Indemnifications and
Limitation of Liability."
The Company
Under Maryland law, the directors must perform their duties in good faith, in a
manner that they believe to be in the best interests of the Company and with the
care an ordinarily prudent person would exercise under similar circumstances.
Directors of the Company who act in such a manner generally will not be liable
by reason of being or having been a director of the Company.
Limitation of Liability and Indemnification
The Operating Partnership
The Operating Partnership agreement limits the liability of the general partner
and others and also provides for indemnification of the same persons by the
Operating Partnership. See "Partnership Agreement of the Operating Partnership
- -- Indemnifications and Limitation of Liability."
The Company
The Articles of Incorporation limit the liability of the Company's directors and
officers and provide for indemnification of such individuals. See "Description
of Capital Stock -- Limitations of Liability and Indemnifications of Directors
and Officers."
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Anti-Takeover Provisions
The Operating Partnership
Except in limited circumstances, the general partner of the Operating
Partnership has exclusive management power over the business and affairs of the
Operating Partnership. The general partner may not be removed by the limited
partners with or without cause. Under the Operating Partnership agreement, the
general partner may, in its sole discretion, prevent a limited partner from
transferring his interest or any rights as a limited partner except in certain
limited circumstances. The general partner may exercise this right of approval
to thwart attempts by persons to acquire an interest in the Operating
Partnership.
The Company
Maryland law, the Articles of Incorporation and the Operating Partnership
agreement contain provisions that could have the effect of delaying or
discouraging a change in control of the Company and other transactions. See
"Risk Factors-- Limitations on Acquisitions and Change of Control."
Voting Rights
The Operating Partnership
Under the Operating Partnership agreement, the limited partners generally do not
have voting rights relating to the operation and management of the Operating
Partnership. Limited partners do have the right to vote on certain amendments to
the Operating Partnership agreement. The ownership of Units does not entitle the
holder thereof to vote on any matter to be voted upon by the shareholders of the
Company.
The Company
Shareholders of the Company have the right to vote on, among other things, a
merger or sale of all or substantially all of the assets of the Company,
amendments to the Articles of Incorporation, certain amendments to the bylaws
and dissolution of the Company. All shares of common stock have one vote, and
the Articles of Incorporation permit the Board of Directors to classify and
issue preferred stock in one or more series having voting power that may differ
from that of the common stock.
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Amendment of the Operating Partnership Agreement
or the Articles of Incorporation
The Operating Partnership
Amendments to the Operating Partnership agreement may be proposed by the general
partner or by any limited partners holding 10% or more of the partnership
interests. Approval of such an amendment requires the vote of the general
partner and the holders of a majority of the Units, including those Units held
by the general partner. Certain amendments may be approved solely by the general
partner, including amendments that would add to the obligations of the general
partner, reflect the admission, substitution, termination or withdrawal of
partners, or satisfy any legal requirements. Certain amendments that affect
fundamental rights of a limited partner must be approved by each affected
limited partner and certain other amendments must be approved by holders of 75%
of the limited partnership interests (including interests held by the general
partner).
The Company
The Company's Articles of Incorporation may be amended with the affirmative vote
of at least a majority of the shares of capital stock outstanding and entitled
to vote thereon voting together as a single class. Certain provisions of the
Articles of Incorporation may not, however, be amended without the approval of
the holders of two-thirds of the shares of capital stock of the Company
outstanding and entitled to vote thereon voting together as a single class. The
Company's bylaws may be amended by the Board of Directors or the shareholders.
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Vote Required to Dissolve the Operating Partnership or the Company
The Operating Partnership
Until January 1, 2044, the general partner may elect to dissolve the Operating
Partnership, unless the limited partners who were limited partners on December
1,1997 then own at least 10% of the outstanding Units and those same limited
partners who own a majority of the Units outstanding on December 1, 1997
(excluding any Units owned by the general partner) object to the dissolution
within 30 days of receiving notice of the general partner's election. Beginning
January 1, 2044, the general partner may choose to dissolve the Operating
Partnership in its discretion. The Operating Partnership will also dissolve
under other conditions listed in the Operating Partnership agreement.
The Company
Under Maryland law and the Articles of Incorporation, the Company may be
dissolved by (i) the affirmative vote of a majority of the entire Board of
Directors declaring such dissolution to be advisable and directing that the
proposed dissolution be submitted for consideration at an annual or special
meeting of shareholders, and (ii) upon proper notice, shareholder approval by
the affirmative vote of the holders of at least a majority of the total number
of shares outstanding and entitled to vote thereon voting as a single class.
Vote Required to Sell Assets or Merge
The Operating Partnership
Under the Operating Partnership agreement, the sale, exchange, transfer or other
disposition of all or substantially all of the Operating Partnership's assets or
the merger or consolidation of the Operating Partnership requires the consent of
the general partner and holders of one-half of the outstanding Units (including
Units held by the general partner).
The Company
Under Maryland law and the Articles of Incorporation, the Company cannot sell
substantially all of its assets or merge without the approval of the holders of
a majority of the shares entitles to vote on the matter. Maryland law
establishes special requirements generally applicable to "business combinations"
between Maryland corporations and "interested shareholders." Among other things,
the law prohibits for a period of five years a merger and other specified or
similar transactions between a corporation and an interested shareholder and
requires a super majority vote for such transactions after the end of the
five-year period. See "Risk Factors -- Limitations on Acquisition and Change in
Control -- Maryland Business Combination Statute."
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Compensation, Fees and Distributions
The Operating Partnership
The Company does not receive any compensation for its
services as general partner of the Operating Partnership.
As a partner in the Operating Partnership, however, the
general partner has the same right to allocations and
distributions as other partners of the Operating
Partnership. In addition, the Operating Partnership
reimburses the general partner for substantially all
expenses incurred relating to the ongoing operation of the
Company and any offering of partnership interests in the
Operating Partnership or capital stock of the Company.
The Company
Officers and directors that are not officers of the
Company or Enterprises receive compensation for their
services.
Liability of Investors
The Operating Partnership
Under the Operating Partnership agreement and Delaware law, the liability of the
limited partners for the Operating Partnership's debts and obligations is
generally limited to the amount of their investment in the Operating
Partnership.
The Company
Under Maryland law, shareholders are not personally liable for the debts or
obligations of the Company.
Nature of Investment
The Operating Partnership
The Units constitute equity interests entitling each limited partner to a pro
rata share of cash distributions made to the limited partners of the Operating
Partnership. The Operating Partnership generally intends to retain and reinvest
proceeds of the sale of property or excess refinancing proceeds in its business.
The Company
The shares of common stock constitute equity interests in the Company. The
Company is entitled to receive its pro rata share of distributions made by the
Operating Partnership with respect to the Units, and each shareholder will be
entitled to his pro rata share of any dividends or distributions paid with
respect to the common stock. The dividends payable to the shareholders are not
fixed in amount and are only paid if, when and as declared by the Board of
Directors. In order to qualify as a REIT, the Company must distribute 95% of its
taxable income (excluding capital gains), and any taxable income (including
capital gains) not distributed will be subject to corporate income tax.
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Potential Dilution of Rights
The Operating Partnership
The general partner of the Operating Partnership is authorized, in its sole
discretion and without limited partner approval, to cause the Operating
Partnership to issue additional limited partnership interests and other equity
securities for any partnership purpose at any time to the limited partners or to
other persons on terms established by the general partner.
The Company
The Board of Directors of the Company may issue, in its discretion, additional
shares of common stock and has the authority to issue from the authorized
capital stock a variety of other equity securities of the Company, with such
powers, preferences and rights as the Board of Directors may designate at the
time. The issuance of additional shares of either common stock or other similar
equity securities may result in the dilution of the interests of the
shareholders.
Liquidity
The Operating Partnership
The limited partners generally may transfer all or a portion of their interests
in the Operating Partnership to a transferee, subject to a minimum one-year
lock-up and certain limitations imposed by federal and state securities laws. No
transferee, however, will be admitted to the Operating Partnership as a
substitute limited partner having the rights of a limited partner without the
consent of the Company as the general partner and satisfaction of certain other
conditions, including an agreement to be bound by the terms and conditions of
the Operating Partnership agreement.
The Company
Upon the effectiveness of the registration statement of which this prospectus is
a part, the shares to be issued by the Company, upon issuance (except when
issued to an investor who is an affiliate of the Company or who otherwise may be
deemed to be an underwriter) will be freely transferable as registered
securities under the Securities Act of 1933. The common stock is listed on the
American Stock Exchange. The breadth and strength of this market will depend,
among other things, upon the number of shares outstanding, the Company's
financial results and prospects, the general interest in the Company's and other
real estate investments and the Company's dividend yield compared to that of
other debt and equity securities.
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FEDERAL INCOME TAX CONSIDERATIONS
The following summary of material federal income tax considerations to
Boddie-Noell Properties, Inc. and its shareholders relating to this Registration
Statement and the treatment of Boddie-Noell Properties, Inc. as a REIT is based
on current law, is for general purposes only, and is not tax advice. The summary
is not intended to represent a detailed description of the federal income tax
consequences applicable to a particular shareholder in view of such
shareholder's particular circumstances nor is it intended to represent a
detailed description of the federal income tax consequences applicable to
certain types of shareholders subject to special treatment under the federal
income tax laws (such as insurance companies, tax-exempt organizations,
financial institutions, broker-dealers, foreign corporations, and persons who
are not citizens or residents of the United States).
For purposes of reading this section only, when we refer to
Boddie-Noell Properties, Inc. or to ourselves in the first person, we are
referring to the REIT entity incorporated in Maryland and not the Operating
Partnership and the Management Company.
Each investor is advised to consult his or her own tax advisor
regarding the tax consequences to him or her of the purchase, ownership, and
sale of the offered stock, including the federal, state, local, foreign, and
other tax consequences of such purchase, ownership, or sale and of potential
changes in applicable tax laws.
General
Beginning with our taxable year ended December 31, 1987, we have
elected to be taxed as a REIT under Sections 856 through 860 of the Internal
Revenue Code ("Code"). We believe that beginning with such taxable year we have
been organized and have operated in a manner to qualify for taxation as a REIT
under the Code, and we intend to continue to operate in such a manner, though no
assurance can be given that we have operated or will operate in a manner so as
to qualify or remain qualified as a REIT.
The sections of the Code relating to the qualification and operation as
a REIT are highly technical and complex. The following discussion sets forth the
material aspects of the Code sections that govern the federal income tax
treatment of a REIT and its shareholders. This summary is qualified in its
entirety by the applicable Code provisions, relevant rules and regulations, and
administrative and judicial interpretations of Code provisions and regulations.
We have not requested a ruling from the Internal Revenue Service ("IRS") with
respect to any issues relating to our qualification as a REIT, and therefore, we
can provide no assurance that the IRS will not challenge our REIT status.
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Alston & Bird LLP has acted as tax counsel to us in connection with
this offering and our election to be taxed as a REIT. Alston & Bird LLP is of
the opinion that we have been organized and operated in conformity with the
requirements for qualification and taxation as a REIT under the Code for our
taxable years ended December 31, 1987 through 1997, and that, based on our
proposed method of operation, we are in a position to continue our qualification
and taxation as a REIT within the definition of Section 856(a) of the Code for
the taxable year that will end December 31, 1998. This opinion is based solely
on our representations with respect to factual matters concerning our business
operations and our properties and Alston & Bird LLP has not independently
verified these facts. In addition, our qualification as a REIT at any time
during 1998 is dependent, among other things, upon our meeting the requirements
of Section 856(a) of the Code throughout the year and for the year as a whole.
Accordingly, because our satisfaction of such requirements will depend upon
future events, including the final determination of operational results, no
assurance can be given that our actual results of operations will satisfy the
REIT requirements during the taxable year that will end December 31, 1998 or any
further year.
Federal Income Taxation of Boddie-Noell Properties, Inc.
If we qualify for taxation as a REIT, we generally will not be subject
to federal corporate income tax on that portion of our ordinary income or
capital gain that is currently distributed to our shareholders. The REIT
provisions of the Code generally allow a REIT to deduct distributions paid to
its shareholders, substantially eliminating the federal "double taxation" on
earnings (once at the corporate level when earned and once again at the
shareholder level when distributed) that usually results from investments in a
corporation. Nevertheless, we will be subject to federal income tax as follows:
First, we will be taxed at regular corporate rates on our undistributed
REIT taxable income, including undistributed net capital gains.
Second, we may be subject to the "alternative minimum tax" as a
consequence of our items of tax preference under certain circumstances.
Third, if we have net income from "foreclosure property" held primarily
for sale to customers in the ordinary course of business, including income from
the sale or other disposition of such property, we will be subject to tax at the
highest corporate rate on such income to the extent that it does not constitute
qualifying income for purposes of the 75% income test (discussed below).
Fourth, if we have net income from prohibited transactions (which are,
in general, certain sales or other dispositions of property that is held
primarily for sale to customers in the ordinary course of business but that is
not foreclosure property), we will be subject to a 100% tax on such income.
Fifth, if we fail to satisfy either the 75% or 95% gross income test
(discussed
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below) but have nonetheless maintained our qualification as a REIT because
certain other safe harbor requirements have been met, we will be subject to a
100% tax on the net income attributable to the greater of the amount by which we
fail either the 75% or 95% test multiplied by a fraction intended to reflect our
profitability.
Sixth, if we fail to distribute each year at least the sum of:
(i) 85% of our ordinary income for such year;
(ii) 95% of our capital gain net income for such year; and
(iii) any undistributed taxable income from prior periods,
then we will be subject to a 4% excise tax on the excess of the required
distribution over the amounts actually distributed.
Seventh, if we acquire any asset from a corporation generally subject
to full corporate-level tax in a carryover-basis transaction and we subsequently
recognize gain on the disposition of such asset during the 10-year period
beginning on the date on which we acquired the asset, then to the extent of the
excess of (i) the fair market value of the asset at the time we acquired it over
(ii) our adjusted basis in the asset at the time we acquired it, we will be
subject to tax at the highest regular corporate rate, pursuant to guidelines
issued by the IRS (the "Built-In Gain Rules").
Requirements for Qualification
To qualify as a REIT, we must elect to be treated as a REIT and must
meet the requirements, discussed below, relating to our organization, sources of
income, and nature of assets.
Organizational Requirements
The Code defines a REIT as a corporation, trust or association that:
(i) is managed by one or more trustees or directors;
(ii) uses transferable shares or transferable certificates
to evidence beneficial ownership;
(iii) would be taxable as a domestic corporation but for
Sections 856 through 860 of the Code;
(iv) is neither a financial institution nor an insurance
company within the meaning of the applicable provisions
of the Code;
(v) has at least 100 persons as beneficial owners;
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(vi) during the last half of each taxable year, is not
closely held, i.e., not more than 50% of the value
of the outstanding stock is owned, directly or
indirectly, by five or fewer shareholders;
(vii) files an election or continues such election to be
taxed as a REIT on its return for each taxable year;
and
(viii) satisfies the 95% and 75% income assets and the 75%,
25%, 10%, and 5% asset tests, all of which are
described below.
The Code provides that conditions (i) through (iv) must be met during the entire
taxable year and that condition (v) must be met during at least 335 days of a
taxable year of 12 months, or during a proportionate part of a taxable year of
less than 12 months. For purposes of condition (v), certain pension funds and
other tax-exempt entities are treated as persons. For purposes of condition
(vi), on the other hand, the beneficiaries of a pension or profit-sharing trust
under Section 401(a) of the Code are treated as REIT shareholders. In addition,
our Articles of Incorporation currently include certain restrictions regarding
transfer of our common stock, which are intended (among other things) to assist
us in continuing to satisfy conditions (v) and (vi) noted above.
In the case of a REIT that is a partner in a partnership, Treasury
Regulations provide that the REIT will be deemed to own its proportionate share
of the assets of the partnership and will be deemed to be entitled to the income
of the partnership attributable to such share. In addition, the character of the
assets and gross income of the partnership retain the same character in the
hands of the REIT for purposes of satisfying the REIT criteria of Section 856 of
the Code, including the gross income tests and asset tests. Thus, our
proportionate share of the assets, liabilities, and items of income of the
Operating Partnership will be treated as our assets, liabilities, and items of
income for purposes of applying and meeting the various REIT requirements. In
addition, the Operating Partnership's proportionate share of the assets,
liabilities, and items of income with respect to any partnership (including any
limited liability company treated as a partnership) in which it holds an
interest would be considered assets, liabilities, and items of income of the
Operating Partnership for purposes of applying and meeting the various REIT
requirements.
Income Tests
To maintain qualification as a REIT, we must meet two gross income
requirements annually. First, we must derive directly or indirectly at least 75%
of our gross income (excluding gross income from prohibited transactions) from
investments relating to real property, including investments in other REITs or
mortgages on real property (including "rents from real property" and, in certain
circumstances, interest). Second, we must derive at least 95% of our gross
income (excluding gross income from prohibited transactions) from the real
property investments described in the preceding sentence or from dividends,
interest, or gain from the sale or disposition of stock or securities (or from
any combination of the foregoing). In addition, for taxable years
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ended prior to the current taxable year, short term gain from the sale or other
disposition of stock or securities, gain from prohibited transactions and gain
from the sale or other disposition of real property held for less than four
years (other than involuntary conversions and sales of foreclosure property)
must have represented less than 30% of our gross income (including gain from
prohibited transactions).
Rents we receive or that we are deemed to receive will qualify as
"rents from real property" in satisfying the gross income requirements for a
REIT described above only if several conditions are met. First, the amount of
rent must not be based in whole or in part on the income or profits of any
person but can be based on a fixed percentage of gross receipts or gross sales.
Second, "rents from real property" excludes any amount received directly or
indirectly from any corporation in which we own 10% or more of the total
combined voting power of all classes of voting stock or 10% or more of the total
number of shares of all classes of stock and from any other person in which we
own an interest of 10% or more in the assets or net profits of such person.
Third, rent attributable to personal property is generally excluded from "rents
from real property," except where such personal property is leased in connection
with such real property and the rent attributable to such personal property is
less than or equal to 15% of the total rent received under the lease. Finally,
amounts that are attributable to services furnished or rendered in connection
with the rental of real property, whether or not separately stated, will not
constitute "rents from real property" unless such services are customarily
provided in the geographic area. Customary services that are not provided to a
particular tenant (e.g., furnishing heat and light, the cleaning of public
entrances, and the collection of trash) can be provided directly by the REIT.
Where, however, such services are provided primarily for the convenience of the
tenants or are provided to such tenants, such services must be provided by an
independent contractor. In the event that an independent contractor provides
such services, the REIT must adequately compensate any such independent
contractor, the REIT must not derive any income from the independent contractor,
and neither the independent contractor nor certain of its shareholders may,
directly or indirectly, own more than 35% of the REIT, taking into consideration
the applicable attributed ownership. Pursuant to the Taxpayer Relief Act and
beginning with our taxable year ending December 31, 1998, our rental income will
not cease to qualify as "rents from real property" merely because we perform a
de minimis amount of services to tenants of a property that are not usually and
customarily provided and are considered rendered to the occupant. The income
from these services will be considered de minimis if the value of such services
(valued at not less than 150% of our direct cost of performing such services) is
less than 1% of the total income derived from such property.
We do not anticipate deriving rent attributable to personal property
leased in connection with real property that exceeds 15% of the total rent
attributable to such lease or receiving rent from related party tenants.
The Operating Partnership provides certain services with respect to our
properties. We believe that these services are usually or customarily rendered
in connection with the rental of space for occupancy only and are not otherwise
rendered to the tenants.
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Therefore, we believe that the provision of such customary services will not
cause rents received with respect to our properties to fail to qualify as "rents
from real property." Noncustomary services and services rendered primarily for
the tenants' convenience will be provided by an independent contractor to avoid
jeopardizing the qualification of rent as "rents from real property."
Fees to perform property management services for apartment properties
that we do not own will not qualify under the 75% or the 95% gross income tests.
BNP Management, Inc., our unconsolidated subsidiary, receives these fees. Either
the REIT or the Operating Partnership also may receive certain other types of
income with respect to our properties that will not qualify for either of these
tests. In addition, dividends on the Operating Partnership's stock in BNP
Management, Inc. will not qualify under the 75% gross income test. We, however,
believe that the aggregate amount of such fees and other non-qualifying income
in any taxable year will not cause us to exceed the limits for non-qualifying
income under the 75% and 95% gross income tests.
If we fail one or both of the 75% or 95% gross income tests for any
taxable year, we may nevertheless qualify as a REIT for that year if we are
eligible for relief under a certain provision of the Code. This relief provision
generally will be available if: (i) our failure to meet such gross income tests
is due to reasonable cause and not due to willful neglect; (ii) we attach a
schedule of the nature and amount of each item of income to our federal income
tax return; and (iii) the inclusion of any incorrect information on such
schedule is not due to fraud with the intent to evade tax. We, however, cannot
state whether in all circumstances we would be entitled to the benefit of this
relief provision. For example, if we fail to satisfy the gross income tests
because non-qualifying income that we intentionally receive exceeds the limits
on such income, the IRS could conclude that our failure to satisfy the tests was
not due to reasonable cause. As discussed above in "Federal Income Taxation of
Boddie-Noell Properties, Inc.," even if this relief provision applies, a 100%
tax would be imposed with respect to the part of our taxable income that fails
the 75% or 95% tests.
Asset Tests
At the close of each quarter of our taxable year, we also must satisfy
four tests relating to the nature and diversification of our assets. First, at
least 75% of the value of our total assets must be represented by real estate
assets, cash and cash items (including receivables), and government securities.
Second, not more than 25% of the value of our total assets may consist of
securities (other than those securities includible in the 75% asset test).
Third, not more than 5% of the value of our total assets may consist of
securities of any one issuer (other than those securities includible in the 75%
asset test).
Fourth, not more than 10% of the outstanding voting securities of any one issuer
may be held by us (other than those securities includible under the 75% asset
test).
Based on the foregoing, the 5% asset test generally must be met for any
quarter in which we acquire securities of an issuer. Thus, this requirement must
be satisfied not only on the date we, through the Operating Partnership,
acquired securities of BNP
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Management, Inc., but also each time we increase our ownership of securities of
BNP Management, Inc. (including as a result of increasing our interest in the
Operating Partnership as limited partners exercise their redemption rights).
Although we plan to take steps to ensure that we will satisfy the 5% value test
for any quarter with respect to which retesting is to occur, there can be no
assurance that such steps always will be successful or will not require a
reduction in the Operating Partnership's overall interest in BNP Management,
Inc.
Through BNP Realty, LLC, the Operating Partnership owns all of the
nonvoting stock and 1% of the voting stock of BNP Management, Inc., which
represents 95% of the equity of BNP Management, Inc., with the remaining equity
interests currently owned by certain officers of Boddie-Noell Properties, Inc.
or affiliates thereof. We are considered to own our pro rata share of the assets
of the Operating Partnership, including the securities of BNP Management, Inc.
The Operating Partnership will not own more than 10% of the voting securities of
BNP Management, Inc. and, therefore, the Company will not own more than 10% of
the voting securities of BNP Management, Inc. In addition, we believe that our
pro rata share of the value of the securities of BNP Management, Inc will not
exceed 5% of the total value of our assets. Our belief is based in part upon our
analysis of the estimated value of the securities of BNP Management, Inc.
indirectly owned by the Operating Partnership relative to the estimated value of
the other assets of the Operating Partnership. No independent appraisals will be
obtained to support this conclusion, and Alston & Bird LLP, in rendering its
opinion regarding our qualification as a REIT, will rely on a representation by
us with respect to the value of the securities of BNP Management, Inc. There,
however, can be no assurance that the IRS will not contend that the value of the
securities of BNP Management, Inc. exceeds the 5% value limitation.
After initially meeting the asset tests at the close of each quarter,
we will not lose our REIT status if we fail to satisfy the asset tests at the
end of a later quarter solely because of changes in the market values of our
assets. If we fail to satisfy the asset tests because of an acquisition of
securities or other property during a quarter, we have the opportunity to cure
the failure by disposition of sufficient securities (other than those securities
includible in the 75% asset test) within 30 days after the close of that
quarter. We intend to maintain adequate records of the value of our assets to
ensure compliance with the asset tests. We also will take any other actions
within 30 days after the close of any quarter as may be required to cure any
noncompliance.
Annual Distribution Requirements
To qualify for taxation as a REIT, we must meet the following annual
distribution requirements.
First, we must make distributions (other than capital gain
distributions) to our shareholders in an amount at least equal to (a) the sum of
(i) 95% of our "REIT taxable income" (computed without regard to the dividends
paid deduction and by excluding our net capital gain) and (ii) 95% of the net
income, if any, from foreclosure property in
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excess of the excise tax on income from foreclosure property, minus (b) the sum
of certain items of non-cash income. We must pay these distributions in the
taxable year to which they relate. Dividends paid in the subsequent year,
however, will be treated as if paid in the prior year for purposes of such prior
year's 95% distribution requirement if one of the following two sets of criteria
are satisfied: (i) the dividends were declared in October, November, or
December, the dividends were payable to shareholders of record on a specified
date in such a month, and the dividends were actually paid during January of the
subsequent year; or (ii) the dividends were declared before we timely file our
federal income tax return for such year, the dividends were distributed in the
twelve month period following the close of the prior year and not later than the
first regular dividend payment after such declaration, and we elected on our tax
return for the prior year to have a specified amount of the subsequent dividend
treated as if paid in the prior year. Even if we satisfy this annual
distribution requirement, we will be subject to tax at regular capital gains or
ordinary corporate tax rates to the extent that we do not distribute all of our
net capital gain or "REIT taxable income" as adjusted.
Second, we must distribute during each calendar year at least the sum
of (i) 85% of our ordinary income for that year, (ii) 95% of our capital gain
net income for that year, and (iii) any undistributed taxable income from prior
periods. In the event that we do not satisfy this distribution requirement, we
will be subject to a 4% excise tax on the excess of such required distribution
over the amounts actually distributed.
Third, if we dispose of any asset, which is subject to the Built-In
Gain Rules, during the 10-year period beginning on the date on which we acquired
the asset, we will be required to distribute at least 95% of the Built-In Gain
(after tax), if any, recognized on the disposition of the asset.
We intend to make timely distributions sufficient to satisfy the annual
distribution requirements. In this regard, the Operating Partnership agreement
authorizes us, as general partner, to take such steps as may be necessary to
cause the Operating Partnership to distribute to its partners an amount
sufficient to permit us to meet these distribution requirements.
We expect that our REIT taxable income will be less than our cash flow
due to the allowance of depreciation and other non-cash charges in computing
REIT taxable income. Accordingly, we anticipate that we generally will have
sufficient cash or liquid assets to enable us to satisfy the 95% distribution
requirement. It is possible, however, that we may not have sufficient cash or
other liquid assets to meet the 95% distribution requirement or to distribute
such greater amount as may be necessary to avoid income and excise taxation. In
such event, we may find it necessary to borrow funds to pay the required
distribution or, if possible, pay taxable stock dividends in order to meet the
distribution requirement.
In the event that we are subject to an adjustment to our REIT taxable
income (as defined in Section 860(d)(2) of the Code) resulting from an adverse
determination by either a final court decision, a closing agreement between us
and the IRS under Section
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7121 of the Code, or any agreement as to tax liability between us and an IRS
district director, we may be able to correct any resulting failure to meet the
95% annual distribution requirement by paying "deficiency dividends" to our
shareholders that relate to the adjusted year but that are paid in the
subsequent year. To qualify as a deficiency dividend, the distribution must be
made within 90 days of the adverse determination and we also must satisfy
certain other procedural requirements. If the statutory requirements of Section
860 of the Code are satisfied, a deduction is allowed for any deficiency
dividend subsequently paid by us to offset an increase in our REIT taxable
income resulting from the adverse determination. We, however, will be required
to pay statutory interest on the amount of any deduction taken for deficiency
dividends to compensate for the deferral of the tax liability.
Earnings and Profits
Throughout the remainder of this discussion, we frequently will refer
to "earnings and profits." Earnings and profits is a concept used extensively
throughout corporate tax law, but it is undefined in the Code. Each corporation
maintains an "earnings and profits" account that helps to measure whether a
distribution originates from corporate earnings or from other sources.
Distributions generally decrease the earnings and profits while income generally
increases earnings and profits. If a corporation has positive earnings and
profits, the distributions generally will be considered to come from corporate
earnings. If a corporation has no earnings and profits, distributions generally
will be considered a return of capital and then capital gain.
A REIT cannot have, at the close of any taxable year, accumulated
earnings and profits attributable to any non-REIT year and remain qualified as a
REIT. Therefore, in rendering their opinion regarding our qualification as a
REIT, Alston & Bird LLP is relying on our representation that, when we acquired
BT Venture Corporation in October 1994, BT Venture Corporation did not have any
accumulated earnings and profits. In the event that BT Venture Corporation did
have accumulated earnings and profits and such earnings and profits were not
distributed in accordance with the applicable REIT provisions, we would have
ceased to qualify as a REIT upon our acquisition of BT Venture Corporation.
Failure to Qualify
If we fail to qualify as a REIT in any year and the relief provisions
do not apply, we will be subject to tax (including any applicable alternative
minimum tax) on our taxable income at regular corporate rates. Distributions to
shareholders in any year in which we fail to qualify will not be deductible by
us nor will they be required to be made. In such event, to the extent of
positive current or accumulated earnings and profits, all distributions to
shareholders will be dividends, taxable as ordinary income, except that, subject
to certain limitations of the Code, corporate distributees may be eligible for
the dividends-received deduction. Unless we are entitled to relief under
specific statutory provisions, we also will be disqualified from taxation as a
REIT for the four taxable years following the year during which qualification
was lost. It is not possible to state whether
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in all circumstances we would be entitled to such statutory relief.
Taxation of U.S. Shareholders
When we use the term "U.S. Shareholder," we mean a holder of common
stock that, for federal income tax purposes: (i) is a citizen or resident of the
United States; (ii) is a corporation or partnership (including an entity treated
as a corporation or partnership for United States federal income tax purposes)
created or organized in or under the laws of the United States or of any of its
political subdivisions; (iii) is an estate the income of which is subject to
federal income taxation regardless of its source, or (iv) is a trust if a court
within the United States is able to exercise primary supervision over the
administration of the trust, and one or more United States persons have the
authority to control all substantial decisions of the trust. For any taxable
year for which we qualify for taxation as a REIT, amounts distributed to taxable
U.S. Shareholders will be taxed as discussed below.
Distributions Generally
Distributions to U.S. Shareholders, other than capital gain dividends discussed
below, will constitute dividends up to the amount of our positive current or
accumulated earnings and profits and, to that extent, will be taxable to
shareholders as ordinary income. Because a REIT is not subject to tax on income
distributed to its shareholders, the distributions made to corporate
shareholders are not eligible for the dividends-received deduction. To the
extent that we make a distribution in excess of our positive current or
accumulated earnings and profits, the distribution will be treated first as a
tax-free return of capital, reducing the tax basis in the U.S. Shareholder's
shares of common stock, and then the distribution in excess of the tax basis
will be taxable as gain realized from the sale of the common stock. Dividends we
declare in October, November, or December of any year payable to a shareholder
of record on a specified date in any such month shall be treated as both paid by
us and received by the shareholders on December 31 of the year, provided that we
actually pay the dividends during January of the following calendar year.
Shareholders are not allowed to include on their own federal income tax returns
any of our tax losses.
We will be treated as having sufficient earnings and profits to treat
as a dividend any distribution we make up to the amount required to be
distributed in order to avoid imposition of the 4% excise tax discussed in " --
Federal Income Taxation of Boddie-Noell Properties, Inc." above.
Capital Gain Distributions
Distributions to U.S. Shareholders that we properly designated as
capital gain distributions will be treated as long-term capital gains (to the
extent they do not exceed our actual net capital gain) for the taxable year
without regard to the period for which the shareholder has held the stock.
However, corporate shareholders may be required to treat up to 20% of certain
capital gain dividends as ordinary income. Capital gain dividends
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are not eligible for the dividends-received deduction for corporations.
Pursuant to the Taxpayer Relief Act and beginning with our taxable year
ending December 31, 1998, we may elect to retain and pay income tax on any net
long-term capital gain. In this instance, U.S. Shareholders will include in
their income their proportionate share of the undistributed long-term capital
gain. The U.S. Shareholders also will be deemed to have paid their proportionate
share of tax on such long-term capital gain and, therefore, will receive a
credit or refund for the amount of such tax. In addition, the basis of the U.S.
Shareholders' shares will be increased in an amount equal to the difference
between the undistributed long-term capital gain and the amount of tax paid by
us that is included in such shareholders' long-term capital gains.
As a result of changes made to the capital gains rates by the Taxpayer
Relief Act (See -- Certain Disposition of Shares"), the IRS issued Notice 97-64
outlining when a REIT may designate its dividends as captial gain dividends.
This Notice is effective until Treasury Regulations are issued. When a REIT
designates a distribution as a capital gain dividend, which is attributable to a
taxable year ending after May 7, 1997, for purposes of the annual distribution
requirement, the REIT also may designate such dividend as a 20% rate gain
distribution or as unrecaptured Section 1250 gain distribution. These additional
designations by the REIT are effective only to the extent that they do not
exceed certain limitations. For example, the maximum amount of each distribution
that can be classified as a particular type of distribution must be calculated
in accordance with the Code and the IRS Notice. The additional 28% tax rate
group identified by IRS Notice 97-64 has effectively been eliminated by the
Internal Revenue Restructuring Act of 1998 (the "IRS Restructuring Act").
Certain Dispositions of Shares
In general, you will realize capital gain or loss on the disposition of
common stock equal to the difference between (i) the amount of cash and the fair
market value of any property received on such disposition, and (ii) your
adjusted basis of such common stock. Losses incurred on the sale or exchange of
our common stock that you held for less than six months (after applying certain
holding company rules) will be treated as a long-term capital loss to the extent
of any capital gain dividend received by the selling U.S. Shareholder from those
shares.
As a result of the Taxpayer Relief Act and the IRS Restructuring Act,
the maximum rate of tax on net capital gains on individuals, trusts, and estates
from the sale or exchange of assets held for more than one year has been reduced
to 20%, and such maximum rate is further reduced to 18% for assets acquired
after December 31, 2000, and held for more than five years. For 15% bracket
taxpayers, the maximum rate on net capital gains is reduced to 10%, and such
maximum rate is further reduced to 8% for assets sold after December 31, 2000,
and held for more than five years. The maximum rate for net capital gains
attributable to the sale of depreciable real property held for more than one
year is 25% to the extent of the deductions for depreciation with respect to
such property. Long-term capital gain that we allocate to U.S. Shareholders will
be subject to
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the 25% rate to the extent that the gain does not exceed depreciation on real
property that we sold. The taxation of capital gains of corporations was not
changed by the Taxpayer Relief Act or the IRS Restructuring Act.
Passive Activity Loss and Investment Interest Limitations
You may not treat distributions we make to you or any gain from
disposing of our common stock as passive activity income. Therefore, you will
not be able to apply any "passive losses" against such income. Dividends we pay
(to the extent they do not constitute a return of capital) generally will be
treated as investment income for purposes of the investment interest limitation.
Net capital gain from the disposition of our common stock (or capital gain
dividends) generally will be excluded from investment income unless you elect to
have such gain taxed at ordinary income rates.
Treatment of Tax-Exempt Shareholders
Distributions we make to a tax-exempt employee pension trust or other
domestic tax-exempt shareholder generally will not constitute "unrelated
business taxable income" ("UBTI") unless the shareholder has borrowed to acquire
or carry our shares of common stock. Qualified trusts that hold more than 10%
(by value) of the shares of pension-held REITs may be required to treat a
certain percentage of such REIT's distributions as UBTI. The restriction on
ownership of common stock in our Articles of Incorporation generally will
prevent application of the provisions treating a portion of REIT distributions
as UBTI to tax-exempt entities purchasing common stock.
Special Tax Considerations for Non-U.S. Shareholders
The rules governing United States income taxation of nonresident alien
individuals, foreign corporations, foreign partnerships, and foreign trusts and
estates (collectively, "Non-U.S. Shareholders") are complex. We intend the
following discussion to be only a summary of these rules. This discussion is
based on current law, which is subject to change, and assumes we will qualify
for taxation as a REIT. Prospective Non-U.S. Shareholders should consult with
their own tax advisors to determine the impact of federal, state, local and
foreign income tax laws on an investment in our common stock, including any
reporting requirements.
In general, Non-U.S. Shareholders will be subject to regular United
States federal income tax with respect to their investment in us if the income
from such investment is "effectively connected" with the Non-U.S. Shareholder's
conduct of a trade or business in the United States. A corporate Non-U.S.
Shareholder that receives income that is (or is treated as) effectively
connected with a U.S. trade or business also may be subject to the branch
profits tax under Section 884 of the Code, which is imposed in addition to
regular United States federal income tax and which generally is at the rate of
30%, subject to reduction under a tax treaty, if applicable. Certain
certification requirements must be met in order for effectively connected income
to be exempt from withholding. The following discussion will apply to Non-U.S.
Shareholders whose income from their investments in
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us is not effectively connected (except to the extent that the FIRPTA rules
discussed below treat such income as effectively connected).
If we make a distribution that is not attributable to gain from the
sale or exchange by us of a United States real property interest and that we do
not designate as a capital gain distribution, then a Non-U.S. Shareholder must
treat the distribution as an ordinary income dividend to the extent that it is
made out of current or accumulated earnings and profits. Generally, any ordinary
income dividend will be subject to a federal income tax equal to 30% of the
gross amount of the dividend unless this tax is reduced by an applicable tax
treaty. Such a distribution in excess of our earnings and profits will be
treated first as a return of capital that will reduce a Non-U.S. Shareholder's
basis in its common stock (but not below zero) and then as gain from the
disposition of such shares, the tax treatment of which is described under the
rules discussed below with respect to dispositions of common stock.
Distributions by us that are attributable to gain from the sale or
exchange of a United States real property interest will be taxed to a Non-U.S.
Shareholder under the Foreign Investment in Real Property Tax Act of 1980
("FIRPTA"). Under FIRPTA, such distributions are taxed to a Non-U.S. Shareholder
as if the distributions were gains "effectively connected" with a United States
trade or business. Accordingly, a Non-U.S. Shareholder will be taxed at the
normal capital gain rates applicable to a U.S. Shareholder (subject to any
applicable alternative minimum tax and a special alternative minimum tax in the
case of nonresident alien individuals). Distributions that are taxable under
FIRPTA also may be subject to a 30% branch profits tax when made to a foreign
corporation that is not entitled to an exemption or reduced branch profits tax
under an income tax treaty.
Although tax treaties may reduce our withholding obligations, we
generally will be required to withhold from distributions to Non-U.S.
Shareholders, and remit to the IRS, (i) 35% of designated capital gain dividends
(or, if greater, 35% of the amount of any distributions that could be designated
as capital gain dividends) and (ii) 30% of ordinary dividends paid out of
earnings and profits. In addition, if we designate prior distributions as
capital gain dividends, subsequent distributions, up to the amount of such prior
distributions that were designated as capital gains dividends, will be treated
as capital gain dividends for withholding purposes. We may be required to
withhold 10% of distributions in excess of our current and accumulated earnings
and profits. If the amount of tax withheld by us with respect to a distribution
to a Non-U.S. Shareholder exceeds the shareholder's United States tax liability
with respect to such distribution, the Non-U.S. Shareholder may file for a
refund of the excess from the IRS.
Unless the common stock constitutes a "United States real property
interest" within the meaning of FIRPTA, a sale of common stock by a Non-U.S.
Shareholder generally will not be subject to federal income taxation. The common
stock will not constitute a United States real property interest if we are a
"domestically controlled REIT." A domestically-controlled REIT is a REIT in
which at all times during a specified testing period Non-U.S. Shareholders held,
directly or indirectly, less than 50% in value of the REIT's shares. We
anticipate that we will be a domestically-controlled REIT and,
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therefore, that a sale of common stock will not be subject to taxation under
FIRPTA. However, because the common stock will be publicly traded, we cannot
give assurance that we will continue to be a domestically-controlled REIT. If we
were not a domestically-controlled REIT, a Non-U.S. Shareholder's sale of our
common stock would be subject to tax under FIRPTA as a sale of a United States
real property interest unless the common stock were "regularly traded" on an
established securities market (such as the American Stock Exchange) on which the
common stock will be listed and the seller owned no more than 5% of the common
stock throughout the applicable testing period. If the gain on the sale of
common stock were subject to taxation under FIRPTA, the Non-U.S. Shareholder
would be subject to the same treatment as a U.S. Shareholder with respect to the
gain (subject to applicable alternative minimum tax or a special alternative
minimum tax in the case of nonresident alien individuals). Notwithstanding the
foregoing, capital gains not subject to FIRPTA will be taxable to a nonresident
alien individual who is present in the United States for 183 days or more during
the taxable year and if certain other conditions apply, in which case the
nonresident alien individual will be subject to a 30% tax on his or her U.S.
source capital gains.
A purchaser of common stock from a Non-U.S. Shareholder will not be
required to withhold under FIRPTA on the purchase price if our common stock is
"regularly traded" on an established securities market or if we are a
domestically-controlled REIT. Otherwise, a purchaser of common stock from a
Non-U.S. Shareholder may be required to withhold 10% of the purchase price and
remit this amount to the IRS. Our common stock is currently a "regularly traded"
security on the American Stock Exchange. We believe that we qualify under both
the "regularly traded" and the domestically-controlled REIT exceptions to
withholding but cannot provide any assurance to that effect.
Upon the death of a nonresident alien individual, such individual's
common stock will be treated as part of such individual's U.S. estate for
purposes of the United States estate tax, except as may be otherwise provided in
an applicable estate tax treaty.
Information Reporting Requirements and Backup Withholding Tax
Under certain circumstances, U.S. Shareholders may be subject to backup
withholding at a rate of 31% on payments made with respect to, or cash proceeds
of a sale or exchange of, our common stock. Backup withholding will apply only
if: (i) the payee fails to furnish his or her taxpayer identification number
(which, for an individual, would be his or her Social Security Number) to the
payor as required; (ii) the IRS notifies the payor that the taxpayer
identification number furnished by the payee is incorrect; (iii) the IRS has
notified the payee that such payee has failed to properly include reportable
interest and dividends in the payee's return or has failed to file the
appropriate return and the IRS has assessed a deficiency with respect to such
underreporting; or (iv) the payee has failed to certify to the payor, under
penalties of perjury, that the payee is not subject to withholding. In addition,
backup withholding will not apply with respect to payments made to certain
exempt recipients, such as corporations and tax-exempt organizations. U.S.
Shareholders should consult their own tax advisors regarding their
qualifications for exemption from backup withholding and the procedure for
obtaining such an exemption.
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Backup withholding is not an additional tax. Rather, the amount of any
backup withholding with respect to a payment to a U.S. Shareholder will be
allowed as a credit against the U.S. Shareholder's federal income tax liability.
Additional issues may arise pertaining to information reporting and
backup withholding for Non-U.S. Shareholders. For example, on October 7, 1997,
the Treasury Department issued new regulations (the "New Regulations") that make
certain modifications to the withholding, backup withholding, and information
reporting rules. On March 27, 1998, the Treasury Department and the IRS released
Notice 98-16, which announced that the effective date of the New Regulations
will be extended to apply generally to payments made to foreign persons after
December 31, 1999. Non-U.S. Shareholders should consult their tax advisors with
regard to U.S.
information reporting and backup withholding.
Tax Consequences of Redemption
The following discussion summarizes certain federal income tax
considerations that may be relevant to a limited partner who exercises his or
her right to require the redemption of his or her Units.
Tax Treatment of Redemption of Units.
If a limited partner exercises his or her right to require the
redemption of Units and the Company elects to acquire the Units in exchange for
common stock and/or cash, the acquisition will be treated by the Company, the
Operating Partnership, and the redeeming limited partner as a sale of Units for
federal income tax purposes. Such sale will be fully taxable to the limited
partner. Such limited partner generally will be treated as realizing for tax
purposes an amount equal to the sum of either the cash or the fair market value
of the common stock received and the amount of any Operating Partnership
liabilities allocable to the sold Units at the time of the sale. The
determination of the amount of gain or loss is discussed more fully below.
If we do not elect to acquire the Units and instead the Operating
Partnership redeems the limited partner's Units for cash, the tax consequences
would be as described in the previous paragraph. However, if the Operating
Partnership redeems less than all of a limited partner's Units, the limited
partner would not recognize any loss occurring on the transaction and would
recognize taxable gain only to the extent that the cash plus the amount of any
Operating Partnership liabilities allocable to the redeemed Units exceeded the
limited partner's adjusted basis in all of such limited partner's Units
immediately before the redemption.
The methodology used by the Operating Partnership to allocate its
liabilities to its partners will likely result in varying amounts of such
liabilities being allocated to different partners. Under that methodology, which
is based on principles set forth in Treasury Regulations, it is possible that
partners who hold an identical number of Units
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are allocated different amounts of liabilities of the Operating Partnership for
federal income tax purposes and, accordingly, could have differing tax
consequences from a sale or redemption of Units.
Tax Treatment of Disposition of Common Units by Limited Partner Generally.
If a Unit is redeemed or a limited partner otherwise disposes of a
Unit, the determination of gain or loss from the redemption or other disposition
will be based on the difference between the amount realized for tax purposes and
the tax basis in such Unit. See "-- Basis of Units" below. Upon the sale of a
Unit, the "amount realized" will be the sum of the cash or fair market value of
common stock or other property received plus the reduction in the amount of any
Operating Partnership liabilities allocable to the Unit holder. To the extent
that the amount of cash or property received plus the reduction in the allocable
share of any Operating Partnership liabilities exceeds the limited partner's
basis in his or her interest in the Operating Partnership, such limited partner
will recognize gain. It is possible that the amount of gain recognized or even
the tax liability resulting from such gain could exceed the amount of cash or
the value of common stock received upon such disposition.
Except as described below, any gain recognized upon a sale or other
disposition of Units will be treated as gain attributable to the sale or
disposition of a capital asset. To the extent that the amount realized upon the
sale or other disposition of a Unit attributable to a limited partner's share of
"unrealized receivables" of the Operating Partnership (as defined in Section 751
of the Code) exceeds the basis attributable to those assets, however, such
excess will be treated as ordinary income. Unrealized receivables include, to
the extent not previously included in Operating Partnership income, any rights
to payment for services rendered or to be rendered. Unrealized receivables also
include amounts that would be subject to recapture as ordinary income if the
Operating Partnership had sold its assets at their fair market value at the time
of the transfer of a Unit.
Basis of Units
In general, a limited partner who was deemed to have received his or
her Units upon liquidation of a partnership had an initial tax basis in the
Units ("Initial Basis") equal to his or her basis in the partnership interest at
the time of such liquidation. Similarly, in general a limited partner who
contributed a partnership interest in exchange for his or her Units had an
Initial Basis in the Units equal to his or her basis in the contributed
partnership interest. A limited partner's Initial Basis in his or her Units
generally is increased by (i) such limited partner's share of Operating
Partnership taxable and tax-exempt income and (ii) increases in such partner's
share of the liabilities of the Operating Partnership (including any increase in
his or her share of liabilities occurring in connection with the transaction in
which he or she received Units). Generally, such partner's basis in his or her
Units is decreased (but not below zero) by (a) his or her share of Operating
Partnership distributions, (b) decreases in his or her share of liabilities of
the Operating Partnership (including any decrease in his or her share of
liabilities of the
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Operating Partnership occurring in connection with the transaction in which he
or she received Units), (c) his or her share of losses of the Operating
Partnership, and (d) his or her share of nondeductible expenditures of the
Operating Partnership that are not chargeable to capital account.
Potential Application of the Disguised Sale Regulations to a Redemption of Units
There is a risk that a redemption of Units, which were issued in a
transaction where a limited partner received Units, may cause the original
transfer of property to the Operating Partnership in exchange for Units to be
treated as a "disguised sale" of property. Section 707 of the Code and the
Treasury Regulations thereunder (the "Disguised Sale Regulations") generally
provide that a partner's contribution of property to a partnership and the
partnership's simultaneous or subsequent transfer of money or other
consideration (including the assumption of or taking subject to a liability) to
the partner, which would not have been made but for the transfer of property,
will be presumed to be a sale, in whole or in part, of such property by the
partner to the partnership unless one of the prescribed exceptions is
applicable. Further, the Disguised Sale Regulations generally provide that, if a
partner's transfer of property to the partnership is within two years of the
partnership's transfer of money or other consideration to a partner, the
transfers are presumed to be a sale of the property unless the facts and
circumstances clearly establish that the transfers do not constitute a sale. The
Disguised Sale Regulations also provide that if the transfers are made more than
two years apart, the transfers are presumed not to be a sale unless the facts
and circumstances clearly establish that the transfers do constitute a sale.
Accordingly, if a Unit is redeemed, the IRS could contend that the
Disguised Sale Regulations apply because the limited partner will receive
consideration subsequent to his or her previous contribution of property to the
Operating Partnership. In that event, the IRS could contend that any of the
transactions where limited partners received Units that may be redeemed for
shares of common stock that may in turn be sold are taxable as a disguised sale
under the Disguised Sale Regulations. Any gain recognized as a result of the
disguised sale treatment may be eligible for installment reporting under Section
453 of the Code, subject to certain limitations.
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Tax Aspects of the Operating Partnership
General
Substantially all of our investments are held through the Operating
Partnership. In general, partnerships are "pass-through" entities that are not
subject to federal income tax. Rather, partners are allocated their
proportionate share of the items of income, gain, loss, deduction, and credit of
a partnership, and are potentially subject to tax thereon, without regard to
whether the partners receive a distribution from the partnership. We include in
our income our proportionate share of the Operating Partnership's income, gain,
loss, deduction, and credit for purposes of the various REIT income tests and in
the computation of our REIT taxable income. In addition, we include our
proportionate share of assets held by the Operating Partnership in the REIT
asset tests.
Tax Allocations with Respect to our Properties
When property is contributed to a partnership in exchange for an
interest in the partnership, the partnership generally takes a carryover basis
in that property for tax purposes. That carryover basis is equal to the
contributing partner's adjusted basis in the property rather than the fair
market value of the property at the time of contribution. Pursuant to Section
704(c) of the Code, income, gain, loss and deduction attributable to such
contributed property must be allocated in a manner such that the contributing
partner is charged with or benefits from the unrealized gain or unrealized loss
associated with the property at the time of the contribution. The amount of such
unrealized gain or unrealized loss generally is equal to the difference between
the fair market value of the contributed property at the time of contribution
and the adjusted tax basis of such property at the time of contribution (a
"Book-Tax difference"). Such allocations are solely for federal income tax
purposes and do not affect the book capital accounts or other economic or legal
arrangements among the partners.
The Operating Partnership has been formed by way of contributions of
appreciated property, and we expect that future contributions to the Operating
Partnership also will take the form of appreciated property. Consequently, the
Operating Partnership agreement requires tax allocations to be made in a manner
consistent with Section 704(c) of the Code.
In general, the partners who have contributed their interests in
properties to the Operating Partnership (the "Contributing Partners") will be
allocated lower amounts of depreciation deductions for tax purposes than such
deductions would be if determined on a pro rata basis. In addition, in the event
of the disposition of any of the contributed assets that have a Book-Tax
Difference, all taxable income attributable to such Book-Tax Difference
generally will be allocated to the Contributing Partners, and the Company
generally will be allocated only its share of capital gains attributable to
appreciation, if any, occurring after the closing of the acquisition of such
properties. This will tend to eliminate the Book-Tax Difference over the life of
the Operating Partnership. However, the special allocation rules of Section
704(c) of the Code do not always entirely eliminate
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the Book-Tax Difference on an annual basis or with respect to a specific taxable
transaction such as a sale. Thus, the carryover basis of the contributed assets
in the hands of the Operating Partnership may cause the Company to be allocated
lower depreciation and other deductions and cause Contributing Partners to be
allocated less taxable income. As a result, the Company could recognize taxable
income in excess of distributed amounts, which might adversely affect our
ability to comply with the REIT distribution requirements and Contributing
Partners may realize income on the distribution of cash because their basis has
not been increased sufficiently from income allocations. See " -- Annual
Distribution Requirements."
With respect to any property purchased by the Operating Partnership,
such property initially will have a tax basis equal to its fair market value and
Section 704(c) of the Code will not apply.
Basis in Operating Partnership Interest.
Our adjusted tax basis in our interest in the Operating Partnership
generally (i) will be equal to the amount of cash and the basis of any other
property that we contributed to the Operating Partnership, (ii) will be
increased by (a) our allocable share of the Operating Partnership's income and
(b) our allocable share of indebtedness of the Operating Partnership and (iii)
will be reduced, but not below zero, by our allocable share of (a) losses
suffered by the Operating Partnership, (b) the amount of cash distributed to the
Company, and (c) constructive distributions resulting from a reduction in our
share of indebtedness of the Operating Partnership.
If the allocation of the Company's distributive share of the Operating
Partnership's loss exceeds the adjusted tax basis of its partnership interest in
the Operating Partnership, the recognition of such excess loss will be deferred
until such time and to the extent that it has an adjusted tax basis in our
partnership interest. To the extent that the Operating Partnership's
distributions, or any decrease in our share of the indebtedness of the Operating
Partnership (such decreases being considered a cash distribution to the
partners) exceed our adjusted tax basis, such excess distributions (including
such constructive distributions) constitute taxable income to the Company. Such
taxable income normally will be characterized as a capital gain if the interest
in the Operating Partnership has been held for longer than one year, subject to
reduced tax rates described above (See " -- Taxation of U.S. Shareholders --
Capital Gain Distributions"). Under current law, capital gains and ordinary
income of corporations generally are taxed at the same marginal rates.
Sale of the Properties.
The Company's share of gain realized by the Operating Partnership on
the sale of any property held by the Operating Partnership as inventory or other
property held primarily for sale to customers in the ordinary course of the
Operating Partnership's trade or business will be treated as income from a
prohibited transaction that is subject to a 100% penalty tax. See " --
Requirements for Qualification -- Income Tests." Such
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prohibited transaction income also may have an adverse effect upon its ability
to satisfy the income tests for qualification as a REIT. Under existing law,
whether property is held as inventory or primarily for sale to customers in the
ordinary course of the Operating Partnership's trade or business is a question
of fact that depends on all the facts and circumstances with respect to the
particular transaction. The Operating Partnership intends to hold the properties
for investment with a view to long-term appreciation, to engage in the business
of acquiring, developing, owning, and operating the properties (and other
properties) and to make such occasional sales of the properties, including
peripheral land, as are consistent with the Operating Partnership's investment
objectives.
Other Tax Considerations
BNP Management, Inc.
We expect a portion of the amounts we will use to fund distributions to
come from distributions on the stock of BNP Management, Inc. BNP Management,
Inc. does not qualify as a REIT, and it will pay federal, state, and local
income taxes on its taxable income at normal corporate rates. Any federal,
state, or local income taxes that BNP Management, Inc. pays will reduce the cash
available for distribution.
As described above, the value of the stock of BNP Management, Inc. that
is attributed to the Company cannot exceed 5% of the value of its assets at any
time when a Unit holder in the Operating Partnership exercises his or her
redemption right. See " -- Requirements for Qualification -- Asset Tests." We
believe that we currently satisfy this limit though this limitation may restrict
the ability of BNP Management, Inc. to increase the size of its business unless
the value of our assets is also increasing.
State and Local Tax
We may be subject to state and local tax in various states and
localities. Our shareholders also may be subject to state and local tax in
various states and localities. The tax treatment to us and to our shareholders
in such jurisdictions may differ from the federal income tax treatment described
above. Consequently, before you buy our common stock, you should consult your
own tax advisor regarding the effect of state and local tax laws on an
investment in our common stock.
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PLAN OF DISTRIBUTION
This prospectus relates to the issuance of 950,032 shares of common
stock by us. The 950,032 shares are offered for an equal number of Units in
Operating Partnership, which is the partnership through which we conduct
substantially all of our business. The holders of Units generally have the right
to redeem them for the market value of an equal number of shares of common
stock. At the time the Units are presented for redemption, we have an option to
purchase such Units for an equal number of shares of common stock or the cash
value thereof.
EXPERTS
The following financial statements have been audited by Ernst & Young
LLP, independent auditors, as set forth in their reports thereon included
therein and incorporated herein by reference. The following financial statements
are incorporated herein by reference in reliance upon such reports given upon
the authority of such firm as experts in accounting and auditing:
o the consolidated financial statements and schedule of
Boddie-Noell Properties, Inc. at December 31, 1997, and for
the year then ended, incorporated by reference from the
Boddie-Noell Properties, Inc. Annual Report on Form 10-K for
the year ended December 31, 1997,
o the financial statements of Woods Edge Apartments Limited
Partnership at December 31, 1997, and for the year then ended,
incorporated by reference from the Boddie-Noell Properties,
Inc. Current Report on Form 8-K dated July 27, 1998, as
amended September 21, 1998,
o the financial statements of Oak Hollow Apartments, Limited
Partnership at December 31, 1997 and 1996, and for the years
then ended, incorporated by reference from the Boddie-Noell
Properties, Inc. Current Report on Form 8-K dated July 27,
1998, as amended September 21, 1998,
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o the Statement of Revenue and Certain Operating Expenses of
Madison Hall Property for the year ended December 31, 1997,
incorporated by reference from the Boddie-Noell Properties,
Inc. Current Report on Form 8-K dated September 2, 1998, as
amended October 29, 1998,
o the Statement of Revenue and Certain Operating Expenses of
Summerlyn Place Property for the year ended December 31, 1997,
incorporated by reference from the Boddie-Noell Properties,
Inc. Current Report on Form 8-K dated September 2, 1998, as
amended October 29, 1998,
o the Statement of Revenue and Certain Operating Expenses of
Allerton Place Property for the seven-month period ended
December 31, 1997, incorporated by reference from the
Boddie-Noell Properties, Inc. Current Report on Form 8-K dated
September 2, 1998, as amended October 29, 1998, and
o the Combined Statement of Revenue and Certain Operating
Expenses of the Acquired Properties for the year ended
December 31, 1996, incorporated by reference from the
Boddie-Noell Properties, Inc. Current Report on Form 8-K dated
December 1, 1997.
The following financial statements, which are incorporated by reference
into this prospectus and registration statement, have been audited by Reznick
Fedder & Silverman, independent auditors, as set forth in their reports thereon
included in the financial statements, and are incorporated in this prospectus
and registration statement in reliance upon such reports given upon the
authority of such firm as experts in accounting and auditing:
o the financial statements of Woods Edge Apartments Limited
Partnership at December 31, 1996 and 1995, and for the years
then ended, incorporated by reference from the Boddie-Noell
Properties, Inc. Current Report on Form 8-K dated July 27,
1998, as amended September 21, 1998.
The following financial statements incorporated by reference in this
prospectus and elsewhere in the registration statement have been audited by
Arthur Andersen LLP, independent public accountants, as indicated in their
reports with respect thereto, and are incorporated in this prospectus and
registration statement in reliance upon the authority of such firm as experts in
accounting and auditing in giving such reports:
o the financial statements of Oak Hollow Apartments
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Limited Partnership at December 31, 1995 and 1994, and
for the years then ended, incorporated by reference from
the Boddie-Noell Properties, Inc. Current Report on Form
8-K dated July 27, 1998, as amended September 21, 1998, and
o the financial statements of Boddie-Noell Properties, Inc. at
December 31, 1995, and for the year then ended, incorporated
by reference from the Boddie-Noell Properties, Inc. Annual
Report on Form 10-K for the year ended December 31, 1997.
LEGAL OPINIONS
Alston & Bird LLP, Raleigh, North Carolina, will issue an opinion to us
regarding certain legal matters. Alston & Bird LLP, Atlanta, will issue an
opinion to us regarding certain tax matters.
AVAILABLE INFORMATION
We file annual, quarterly and current reports, proxy statements and
other information with the SEC. You may read and copy the reports, statements or
other information we file at the SEC's Public Reference Room at 450 Fifth
Street, N.W., in Washington, D.C. 20549. You can request copies of these
documents, upon payment of photocopying fees, by writing to the SEC. Please call
the SEC at 1-800-SEC-0330 for further information on the operation of the Public
Reference Room. In addition, the SEC maintains an Internet site
(http://www.sec.gov) that contains reports, proxy and information statements and
other information regarding issuers like the Company that file electronically.
These documents are also available for viewing at the offices of the American
Stock Exchange in New York. For more information, you may call the viewing room
of the American Stock Exchange at (212) 306-1292.
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INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
We have filed certain documents with the SEC, as required by the
Securities Exchange Act of 1934, and are incorporating them by reference into
this prospectus. Incorporating by reference means that we are making the
documents listed below a part of this prospectus by referring to these documents
and declaring that you should consider them to be part of this prospectus as if
they were fully copied in this prospectus.
A. Our Annual Report on Form 10-K for the year ended
December 31, 1997;
B. Our Quarterly Reports on Form 10-Q for the quarters ended
March 31, 1998, June 30, 1998 and September 30, 1998;
C. Our Current Reports on Form 8-K, dated July 27, 1998, as amended on
September 21, 1998, dated September 2, 1998, as amended on October 29, 1998 and
dated December 1, 1997; and
D. The description of our common stock included in our registration
statement on Form 8-A, dated April 27, 1987.
In addition, all documents subsequently filed by us pursuant to Section
13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934, prior to the
termination of this offering, shall be deemed to be incorporated by reference
into this prospectus. Any statement that is incorporated by reference into this
prospectus is automatically updated and superseded if information contained in
this prospectus, or information that we later filed with the SEC, modifies or
replaces the statement.
We will furnish without charge upon written or oral request to each
person to whom a copy of this prospectus is delivered, including any beneficial
owner, a copy of any or all of the documents specifically incorporated by
reference in this prospectus (not including the exhibits to such documents,
unless the exhibits are specifically incorporated by reference in such
documents). Requests should be made to: Boddie-Noell Properties, Inc., 3850 One
First Union Center, Charlotte, North Carolina 28202-6032. Our telephone number
is (704) 944-0100.
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PART II. INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth estimates of the various expenses to be
paid by the Company in connection with the registration of the common stock
offered pursuant to this registration statement.
Securities and Exchange Commission Registration Fee.................$ 3,005
Legal Fees...........................................................15,000
Accounting Fees......................................................10,000
Miscellaneous.........................................................1,995
-------
Total......................................................$30,000
=======
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company's officers and directors are and will be indemnified
against certain liabilities in accordance with the Maryland General Corporation
Law ("MGCL"), the Articles of Incorporation and bylaws of the Company and the
Operating Partnership agreement. The Articles of Incorporation require the
Company to indemnify its directors and officers to the fullest extent permitted
from time to time by the MGCL. The MGCL permits a corporation to indemnify its
directors and officers, among others, against judgments, penalties, fines,
settlements and reasonable expenses actually incurred by them in connection with
any proceeding to which they may be made a party by reasons of their service in
those or other capacities unless it is established that the act or omission of
the director or officer was material to the matter giving rise to the proceeding
and was committed in bad faith or was the result of active and deliberate
dishonesty, or the director or officer actually received an improper personal
benefit in money, property or services, or in the case of any criminal
proceeding, the director or officer had reasonable cause to believe that the act
or omission was unlawful.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers or persons controlling the Company
pursuant to the foregoing provisions, the Company has been informed that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act and is therefore
unenforceable.
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ITEM 16. EXHIBITS
EXHIBIT NO. DESCRIPTION
4.1 * Articles of Incorporation of Registrant (filed as exhibit 3.1 to
the Boddie-Noell Properties, Inc. Quarterly Report on Form 10-Q
for the quarter ended June 30, 1997)
4.2 * Bylaws of Registrant (filed as exhibit 3.1 to the Boddie-Noell
Properties, Inc. Registration Statement on Form S-2
filed with the SEC on December 16, 1997 (Reg. No. 333-39803))
5.1** Opinion of Alston & Bird LLP regarding the legality of the shares
being registered 8.1** Opinion of Alston & Bird LLP regarding tax
matters 23.1** Consent of Alston & Bird LLP (included as part of
exhibit 5.1)
23.2 Consent of Ernst & Young LLP
23.3 Consent of Reznick Fedder & Silverman
23.4 Consent of Arthur Andersen LLP
24.1 Power of Attorney (included on the signature page hereof)
99.1* Form of Agreement of Limited Partnership of Boddie-Noell
Properties Limited Partnership (filed as exhibit 10.9 to the
Boddie-Noell Properties, Inc. Registration Statement on Form
S-2 filed with the SEC on December 16, 1997 (Reg.
No. 333-39803))
99.2* Form of Registration Rights Agreement (filed as exhibit 10.11 to the
Boddie-Noell Properties, Inc. Registration Statement on Form S-2
filed with the SEC on December 16, 1997 (Reg. No. 333-39803))
* Incorporated herein by reference.
** To be filed by amendment.
ITEM 17. UNDERTAKINGS
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to the registration statement:
(i) To include any prospectus required by Section
10(a)(3) of the Securities Act;
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(ii) To reflect in the prospectus any facts or events
arising after the effective date of the registration statement (or the
most recent post-effective amendment thereof) which, individually or in
the aggregate, represent a fundamental change in the information set
forth in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20% change in the
maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement; and
(iii) To include any material information with respect to
the plan of distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement.
Provided, however, that the undertakings set forth in paragraphs
(a)(1)(i) and (a)(1)(ii) do not apply if the information required to be
included in a post-effective amendment by those paragraphs is contained
in periodic reports filed with or furnished to the Commission by the
registrant pursuant to Section 13 or Section 15(d) of the Securities
Exchange Act of 1934 that are incorporated by reference in the
registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall
be deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold
at the termination of the offering.
(b) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
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(c) Insofar as indemnification for liability arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions described under Item 15 above,
or otherwise, the registrant has been advised that in the opinion of the
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
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SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-3 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Charlotte, State of North Carolina, on December 14,
1998.
KNOW ALL MEN BY THESE PRESENTS, that we, the undersigned officers and
directors of Boddie-Noell Properties, Inc. hereby severally constitute D. Scott
Wilkerson and Philip S. Payne and each of them singly, our true and lawful
attorney with full power to them, and each of them singly, to sign for us and in
our names in the capacities indicated below, the registration statement filed
herewith and any and all amendments to said registration statement, and
generally to do all such things in our names and our capacities as officers and
directors to enable Boddie-Noell Properties, Inc. to comply with the provisions
of the Securities Act of 1933, and all requirements of the Securities and
Exchange Commission, hereby ratifying and confirming our signature as they may
be signed by our said attorneys, or any of them, to said registration statement
and any and all amendments thereto.
BODDIE-NOELL PROPERTIES, INC.
/s/ D. Scott Wilkerson
------------------------------
D. Scott Wilkerson
President and Chief Executive Officer
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Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following person in the capacities
and on the dates indicated.
<TABLE>
<CAPTION>
Name Title Date
- ------------------------- ---------------------------------- ------------------
<S> <C> <C>
/s/ B. Mayo Boddie Chairman of the Board and Director December 14, 1998
B. Mayo Boddie
/s/ D. Scott Wilkerson President and Chief Executive Officer December 14, 1998
D. Scott Wilkerson and Director
/s/ Philip S. Payne Executive Vice-President, Treasurer December 14, 1998
Philip S. Payne and Chief Financial Officer and
Director
/s/ Paul G. Chrysson Director December 14, 1998
Paul G. Chrysson
/s/ W. Michael Gilley Director December 14, 1998
W. Michael Gilley
/s/ Donald R. Pesta, Jr. Director December 14, 1998
Donald R. Pesta, Jr.
/s/ William H. Stanley Director December 14, 1998
William H. Stanley
/s/ Pamela B. Novak Vice-President, Controller and Chief December 14, 1998
Pamela B. Novak Accounting Officer
</TABLE>
63
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EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
4.1 * Articles of Incorporation of Registrant (filed as exhibit 3.1 to
the Boddie-Noell Properties, Inc. Quarterly Report on Form 10-Q
for the quarter ended June 30, 1997)
4.2 * Bylaws of Registrant (filed as exhibit 3.1 to the Boddie-Noell
Properties, Inc. Registration Statement on Form S-2 filed with
the SEC on December 16, 1997 (Reg. No. 333-39803))
5.1** Opinion of Alston & Bird LLP regarding the legality of the
shares being registered
8.1** Opinion of Alston & Bird LLP regarding tax matters
23.1** Consent of Alston & Bird LLP (included as part of exhibit 5.1)
23.2 Consent of Ernst & Young LLP
23.3 Consent of Reznick Fedder & Silverman
23.4 Consent of Arthur Andersen LLP
24.1 Power of Attorney (included on the signature page hereof)
99.1* Form of Agreement of Limited Partnership of Boddie-Noell
Properties Limited Partnership (filed as exhibit 10.9 to the
Boddie-Noell Properties, Inc. Registration Statement on Form S-2
filed with the SEC on December 16, 1997 (Reg. No. 333-39803))
99.2* Form of Registration Rights Agreement (filed as exhibit 10.11 to
the Boddie-Noell Properties, Inc. Registration Statement on
Form S-2 filed with the SEC on December 16, 1997
(Reg. No. 333-39803))
* Incorporated herein by reference.
** To be filed by amendment.
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ERNST & YOUNG LLP
Consent of Independent Auditors
We consent to the reference to our firm under the caption "Experts" in
the Registration Statement (Form S-3, No. 333-__________) and related Prospectus
of Boddie-Noell Properties, Inc. for the registration of 950,032 shares of its
common stock. We also consent to the incorporation by reference therein of our
reports (a) dated January 9, 1998, with respect to the consolidated financial
statements and schedule of Boddie-Noell Properties, Inc. included in its Annual
Report on Form 10-K for the year ended December 31, 1997, (b) dated February 4,
1998 and February 6, 1998, with respect to the financial statements of Woods
Edge Apartments Limited Partnership and Oak Hollow Apartments, Limited
Partnership, respectively for the year ended December 31, 1997, included in the
Current Report on Form 8-K of Boddie-Noell Properties, Inc. dated July 27, 1998
(as amended on Form 8-K/A on September 21, 1998), (c) dated August 21, 1998,
August 20, 1998 and August 24, 1998, with respect to the Statements of Revenues
and Certain Operating Expenses of Madison Hall Property, Summerlyn Place
Property and Allerton Place Property, respectively, for the year ended December
31, 1997 included in the Current Report on Form 8-K of Boddie-Noell Properties,
Inc. dated September 2, 1998 (as amended on Form 8-K/A on October 29, 1998), and
(d) dated September 12, 1997, with respect to the Combined Statement of Revenue
and Certain Operating Expenses of Acquired Properties for the year ended
December 31, 1996 included in the Current Report on Form 8-K of Boddie-Noell
Properties, Inc. dated December 1, 1997, all filed with the Securities and
Exchange Commission.
Ernst & Young LLP
/s/ Ernst & Young LLP
Raleigh, North Carolina
December 11, 1998
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REZNICK FEDDER & SILVERMAN
Consent of Independent Auditors
We consent to the reference to our firm under the caption "Experts" in
the Boddie-Noell Properties, Inc. registration statement on Form S-3 (No.
333-________) and the related prospectus registering 950,032 shares of common
stock. We also consent to the incorporation by reference therein of our reports
dated January 29, 1997 and January 26, 1996 with respect to the financial
statements of Woods Edge Apartments Limited Partnership at December 31, 1996 and
1995, and for the years then ended, incorporated by reference from the
Boddie-Noell Properties, Inc. Current Report on Form 8-K dated July 27, 1998, as
amended September 21, 1998.
Reznick Fedder & Silverman
/s/ Reznick Fedder & Silverman
Charlotte, North Carolina
December 14, 1998
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ARTHUR ANDERSEN LLP
Consent of Independent Auditors
As independent public accountants, we hereby consent to the
incorporation by reference in this registration statement of our reports dated
January 31, 1996, included in Boddie-Noell Properties, Inc.'s Form 10-K for the
year ended December 31, 1997, and dated January 26, 1996, included in
Boddie-Noell Properties, Inc.'s Form 8-K dated July 27, 1998, as amended
September 21, 1998, and to all references to our firm included in this
registration statement.
Arthur Andersen LLP
/s/ Arthur Andersen LLP
Raleigh, North Carolina
December 14, 1998
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