UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2001
-------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to ___________
Commission file number: 1-9496
------
BNP RESIDENTIAL PROPERTIES, INC.
--------------------------------
(Exact name of Registrant as specified in its charter)
Maryland 56-1574675
-------- ----------
State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification No.)
3850 One First Union Center, Charlotte, NC 28202-6032
-----------------------------------------------------
(Address of principal executive offices) (Zip Code)
704/944-0100
------------
(Registrant's telephone number)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No ____
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of August 6, 2001 (the latest practicable date).
Common Stock, $.01 par value 5,706,950
---------------------------- ---------
(Class) (Number of shares)
TABLE OF CONTENTS
Item No. Page No.
PART I - Financial Information
1 Financial Statements 3
2 Management's Discussion and Analysis of
Financial Condition and Results of Operations 9
3 Quantitative and Qualitative Disclosures
About Market Risk 17
PART II - Other Information
4 Submission of Matters to a Vote of Security
Holders 17
5 Other Information 18
6 Exhibits and Reports on Form 8-K 18
2
PART I - Financial Information
Item 1. Financial Statements.
BNP RESIDENTIAL PROPERTIES, INC.
-------------------------------------------------------------------------------
Consolidated Balance Sheets
June 30 December 31
2001 2000
------------------ ------------------
(Unaudited)
Assets
Real estate investments at cost:
Apartment properties $219,704,033 $217,818,208
Restaurant properties 39,158,921 39,702,060
------------------ ------------------
258,862,954 257,520,268
Less accumulated depreciation (36,806,770) (32,815,205)
------------------ ------------------
222,056,184 224,705,063
Cash and cash equivalents 665,323 1,056,052
Other current assets 2,538,718 1,510,541
Investment in and advances to Management Company - 714,892
Notes receivable 100,000 100,000
Intangible assets, net of accumulated amortization:
Intangible related to acquisition of management operations 1,318,188 1,521,288
Deferred financing costs 992,051 1,083,560
------------------ ------------------
Total assets $227,670,464 $230,691,396
================== ==================
Liabilities and Shareholders' Equity
Mortgage and other notes payable $163,058,314 $163,611,737
Accounts payable and accrued expenses 1,943,376 944,248
Escrowed security deposits and deferred revenue 1,175,373 1,183,626
Deferred credit for defeasance of interest,
net of accumulated amortization 583,360 666,688
------------------ ------------------
Total liabilities 166,760,423 166,406,299
Minority interest in Operating Partnership 18,948,649 19,737,035
Shareholders' equity:
Common stock, $.01 par value, 100,000,000 shares
authorized; issued and outstanding shares--
5,706,950 at June 30, 2001
and at December 31, 2000 57,069 57,069
Additional paid-in capital 69,707,155 69,707,155
Dividend distributions in excess of net income (27,802,832) (25,216,162)
------------------ ------------------
Total shareholders' equity 41,961,392 44,548,062
------------------ ------------------
Total liabilities and shareholders' equity $227,670,464 $230,691,396
================== ==================
3
BNP RESIDENTIAL PROPERTIES, INC.
-------------------------------------------------------------------------------
Consolidated Statements of Operations
(Unaudited)
Three months ended Six months ended
June 30 June 30
2001 2000 2001 2000
----------------- ---------------- ----------------- ----------------
Revenues
Apartment rental income $7,814,957 $7,346,100 $15,555,937 $14,620,321
Restaurant rental income 1,013,298 1,050,266 2,042,553 2,103,457
Management fee income 104,380 - 217,097 -
Equity in income of
Management Company - 1,643 - 66,929
Interest and other income 306,698 58,519 381,016 146,310
----------------- ---------------- ----------------- ----------------
9,239,333 8,456,528 18,196,603 16,937,017
Expenses
Apartment operations 2,887,312 2,576,666 5,459,903 4,857,334
Apartment administration 296,431 211,242 511,651 424,242
Corporate administration 492,260 474,284 1,016,166 902,027
Depreciation 1,974,179 1,794,124 3,880,817 3,563,605
Amortization of intangibles 150,643 144,804 295,401 289,608
Interest 2,813,069 2,761,989 5,796,399 5,508,707
----------------- ---------------- ----------------- ----------------
8,613,894 7,963,109 16,960,337 15,545,523
----------------- ---------------- ----------------- ----------------
Income before
minority interest 625,439 493,419 1,236,266 1,391,494
Minority interest in
Operating Partnership 143,959 113,766 284,627 321,052
----------------- ---------------- ----------------- ----------------
Net income $ 481,480 $ 379,653 $ 951,639 $ 1,070,442
================= ================ ================= ================
Per share data:
Basic earnings per share $0.09 $0.07 $0.17 $0.19
================= ================ ================= ================
Diluted earnings per share $0.09 $0.07 $0.17 $0.19
================= ================ ================= ================
Dividends declared $0.31 $0.31 $0.62 $0.62
================= ================ ================= ================
Weighted average shares
outstanding 5,706,950 5,706,950 5,706,950 5,708,179
================= ================ ================= ================
4
BNP RESIDENTIAL PROPERTIES, INC.
-------------------------------------------------------------------------------
Consolidated Statement of Shareholders' Equity
(Unaudited)
Dividends
Additional Distributed
Common Stock paid-in in excess of
Shares Amount capital net income Total
------------ ----------- --------------- --------------- ---------------
Balance at December 31, 2000 5,706,950 $57,069 $69,707,155 $(25,216,162) $44,548,062
Dividends paid ($0.31) - - - (1,769,155) (1,769,155)
Net income - - - 470,159 470,159
------------ ----------- --------------- --------------- ---------------
Balance at March 31, 2001 5,706,950 57,069 69,707,155 (26,515,158) 43,249,066
Dividends paid ($0.31) - - - (1,769,154) (1,769,154)
Net income - - - 481,480 481,480
------------ ----------- --------------- --------------- ---------------
Balance at June 30, 2001 5,706,950 $57,069 $69,707,155 $(27,802,832) $41,961,392
============ =========== =============== =============== ===============
5
BNP RESIDENTIAL PROPERTIES, INC.
-------------------------------------------------------------------------------
Consolidated Statements of Cash Flows
(Unaudited)
Six months ended
June 30
2001 2000
----------------- ----------------
Operating activities:
Net income $ 951,639 $ 1,070,442
Adjustments to reconcile net income to
net cash provided by operations:
Minority interest in Operating Partnership 284,627 321,052
Equity in income of Management Company - (66,929)
Depreciation and amortization of intangibles 4,176,218 3,853,213
Amortization of defeasance credit (83,328) (83,328)
Changes in operating assets and liabilities:
Other current assets (1,038,447) (628,946)
Accounts payable and accrued expenses 972,033 932,098
Security deposits and deferred revenue 25,259 (36,364)
----------------- ----------------
Net cash provided by operating activities 5,288,001 5,361,238
Investing activities:
Additions to apartment properties (1,291,992) (1,209,849)
Proceeds from sale of restaurant properties 405,860 643,598
Investment in/advances to
Management Company 372,939 -
Reduction in notes receivable - 525,000
----------------- ----------------
Net cash used in investing activities (513,193) (41,251)
Financing activities:
Redemption of Operating Partnership
minority units (14,864) (52,214)
Repurchase of common stock - (254,750)
Distributions to Operating Partnership
minority unitholders (1,058,149) (1,041,451)
Dividends paid to common shareholders (3,538,309) (3,538,309)
Proceeds from notes payable 176,304 850,000
Principal payments on notes payable (729,727) (788,239)
(Payment) refund of deferred financing costs (792) 732
----------------- ----------------
Net cash used in financing activities (5,165,537) (4,824,231)
----------------- ----------------
Net (decrease) increase in
cash and cash equivalents (390,729) 495,756
Cash and cash equivalents at
beginning of period 1,056,052 431,531
----------------- ----------------
Cash and cash equivalents at end of period $ 665,323 $ 927,287
================= ================
6
BNP RESIDENTIAL PROPERTIES, INC.
-------------------------------------------------------------------------------
Notes to Consolidated Financial Statements - June 30, 2001
(Unaudited)
Note 1. Interim financial statements
Our independent accountants have not audited the accompanying financial
statements of BNP Residential Properties, Inc., except for the balance sheet at
December 31, 2000. We derived the amounts in the balance sheet at December 31,
2000, from the financial statements included in our 2000 Annual Report on Form
10-K. We believe that we have included all adjustments (consisting of normal
recurring accruals) necessary for a fair presentation of the financial position
and results of operations for the periods presented.
We have condensed or omitted certain notes and other information from the
interim financial statements presented in this Quarterly Report on Form 10-Q.
You should read these financial statements in conjunction with our 2000 Annual
Report on Form 10-K.
We have reclassified amounts for apartment administration and corporate
administration expense in the 2000 financial statements to conform to our 2001
presentation of these amounts.
Note 2. Basis of Presentation
The consolidated financial statements include the accounts of BNP Residential
Properties, Inc. (the "company"), and BNP Residential Properties Limited
Partnership (the "Operating Partnership"). The company is the general partner
and owns a majority interest in the Operating Partnership. All significant
intercompany balances and transactions have been eliminated in the consolidated
financial statements.
Effective January 2001, the consolidated financial statements include the
accounts of BNP Management, Inc. (the "Management Company"). Prior to January
2001, the Operating Partnership had a 1% voting interest and 95% economic
interest in the Management Company, and used the equity method to account for
this investment. In January 2001, the Operating Partnership acquired the
outstanding 99% voting interest and 5% economic interest in the Management
Company for approximately $16,000.
The impact of this change in basis of presentation on the balance sheet was to
increase cash by approximately $373,000 and net apartment properties equipment
by approximately $346,000, and to eliminate approximately $715,000 investment in
and advances to the Management Company previously reflected in our balance
sheets.
In addition, we now reflect our third-party management operations, including
management fee income and related administration expenses, directly in our
statements of operations rather than reporting equity in the net income of the
Management Company.
We do not expect this change in basis of presentation to have a significant
impact on our financial position, operating results or cash flows.
7
Note 3. Shareholders' Equity
We calculated basic and diluted earnings per share using the following amounts:
Three months ended Six months ended
June 30 June 30
2001 2000 2001 2000
----------------- ---------------- ----------------- ----------------
Numerators:
-----------
Numerator for basic earnings
per share - net income $481,480 $379,653 $ 951,639 $1,070,442
Add minority interest in
Operating Partnership (1) 143,959 113,766 284,627 321,052
----------------- ---------------- ----------------- ----------------
Numerator for diluted earnings
per share - net income
before minority interest (1) $625,439 $493,419 $1,236,266 $1,391,494
================= ================ ================= ================
Denominators:
Denominator for basic
earnings per share -
weighted average shares
outstanding 5,706,950 5,706,950 5,706,950 5,708,179
Effect of dilutive securities:
Convertible Operating
Partnership units 1,706,193 1,710,131 1,706,833 1,711,759
Stock options (2) 3,060 - 1,347 -
----------------- ---------------- ----------------- ----------------
Denominator for diluted
earnings per share - adjusted
weighted average shares and
assumed conversions 7,416,203 7,417,081 7,415,130 7,419,938
================= ================ ================= ================
(1) Assumes conversion of Operating Partnership units to common shares.
(2) We excluded 140,000 options granted in 1994 (exercise price $12.50),
110,000 options granted in 1997 (exercise price $12.25), and 180,000
options granted in 1998 (exercise price $13.125 and $11.25) from the above
calculations for 2001 and 2000 because these options were antidilutive for
these periods. In addition, we excluded 47,500 options granted in February
2000 (exercise price $9.25) from the above calculations for 2000 because
these options were antidilutive for these periods.
Note 4. Subsequent events
On July 19, 2001, we declared a regular quarterly cash dividend of $0.31 per
share, which we will pay on August 15, 2001, to shareholders of record on August
1, 2001.
8
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
The following discussion contains forward-looking statements within the
meaning of federal securities law. You can identify such statements by the use
of forward-looking terminology, such as "may," "will," "expect," "anticipate,"
"estimate," "continue" or other similar words. These statements discuss future
expectations, contain projections of results of operations or of financial
condition or state other "forward-looking" information.
Although we believe that our plans, intentions, and expectations reflected in or
suggested by these forward-looking statements are reasonable, we cannot assure
you that we will achieve our plans, intentions or expectations. When you
consider such forward-looking statements, you should keep in mind the following
important factors that could cause our actual results to differ materially from
those contained in any forward-looking statement:
o our markets could suffer unexpected increases in the development of
apartment, other rental, or competitive housing alternatives;
o general economic conditions could cause the financial condition of a
large number of our tenants to deteriorate;
o we may not be able to complete development, acquisition or joint
venture projects as quickly or on as favorable terms as anticipated;
o we may not be able to lease or re-lease apartments quickly or on as
favorable terms as under existing leases;
o we may have incorrectly assessed the environmental condition of
our properties;
o an unexpected increase in interest rates could increase our debt
service costs;
o we may not be able to meet our long term liquidity requirements
on favorable terms;
o we could lose key executive officers; and
o our concentrated markets may suffer an unexpected decline in economic
growth or increase in unemployment rates.
Given these uncertainties, we caution you not to place undue reliance
on forward-looking statements. We undertake no obligation to publicly release
the results of any revision to these forward-looking statements that may be made
to reflect any future events or circumstances or to reflect the occurrence of
unanticipated events.
You should read the discussion in conjunction with the financial
statements and notes thereto included in this Quarterly Report and our Annual
Report on Form 10-K.
Company Profile
BNP Residential Properties, Inc. is a self-administered and self-managed
real estate investment trust that owns and operates apartment communities in
North Carolina and Virginia.
9
We currently own and operate 15 apartment communities containing 3,681 units and
have the right to acquire one additional apartment community containing 108
units. We also own 42 restaurant properties, which we lease to a third party
under a master lease on a triple-net basis. In addition, we manage three other
apartment communities for a third-party owner.
We are structured as an UpREIT, or umbrella partnership real estate
investment trust. The company is the sole general partner and owns a controlling
interest in BNP Residential Properties Limited Partnership, through which we
conduct all of our operations. We refer to this partnership as the Operating
Partnership. We refer to the limited partners of the Operating Partnership as
minority unitholders or as the minority interest.
Our executive offices are located at 3850 One First Union Center,
Charlotte, North Carolina 28202-6032, telephone 704/944-0100.
Results of Operations
Revenues
Total revenues for the second quarter of 2001 were $9.2 million, a 9.3%
increase compared to the second quarter of 2000. For the first six months of
2001, total revenues were $18.2 million, a 7.4% increase compared to the first
six months of 2000. Our primary source of revenue is apartment rental income,
which generated approximately 84.6% of our total revenues in the second quarter
of 2001, and 85.5% of our total revenues in the first six months of 2001.
Apartment rental income totaled $7.8 million in the second quarter of
2001, a 6.4% increase compared to the second quarter of 2000. For the first six
months of 2001, apartment rental income totaled $15.6 million, a 6.4% increase
compared to the first six months of 2000. This increase is primarily
attributable to rental income at Oak Hollow Apartments Phase 2 ($456,000 in the
second quarter, and $914,000 in the first six months of 2001), which we acquired
in December 2000.
For the second quarter of 2001, overall average economic occupancy
declined by 2.0% while average monthly revenue per occupied unit increased by
1.9%, compared to the second quarter of 2000. For the first six months of 2001,
overall average economic occupancy declined by 1.5% while average monthly
revenue per occupied unit increased by 1.4%, compared to the first six months of
2000. On a same units basis (those units that we owned throughout the first six
months of both years), comparisons of average economic occupancy and average
revenue per occupied unit were slightly more favorable for both the quarter and
first six months.
Summary amounts for our apartment communities' occupancy and revenue per
occupied unit for the second quarter and first six months of 2001 follow:
Three months ended June 30 Six months ended June 30
------------------------------------ -----------------------------------
Average Average
monthly monthly
Number revenue revenue
of Average Average per Average Average per
apartment physical economic occupied physical economic occupied
units occupancy occupancy unit occupancy occupancy unit
----------- ------------ ----------- ----------- ----------- ----------- -----------
Abbington Place 360 95.2% 96.1% $787 95.4% 96.4% $775
Allerton Place 228 94.4% 96.2% 760 94.4% 95.6% 769
10
Three months ended June 30 Six months ended June 30
------------------------------------ -----------------------------------
Average Average
monthly monthly
Number revenue revenue
of Average Average per Average Average per
apartment physical economic occupied physical economic occupied
units occupancy occupancy unit occupancy occupancy unit
----------- ------------ ----------- ----------- ----------- ----------- -----------
Chason Ridge 252 94.0% 95.3% 683 94.5% 95.6% 677
Harris Hill 184 93.0% 94.3% 748 94.2% 95.9% 731
Latitudes 448 96.1% 97.0% 776 96.2% 97.2% 768
Madison Hall 128 92.8% 94.8% 591 93.5% 95.1% 599
Oakbrook 162 91.4% 92.2% 794 93.1% 93.9% 783
Oak Hollow 221 87.3% 89.4% 744 90.4% 92.0% 742
Oak Hollow Ph2* 240 89.7% 89.7% 706 89.8% 89.9% 706
Paces Commons 336 91.4% 92.2% 719 91.6% 92.5% 710
Paces Village 198 95.4% 95.7% 687 93.0% 93.5% 684
Pepperstone 108 97.4% 97.5% 701 98.1% 98.7% 691
Savannah Place 172 93.6% 95.2% 723 93.0% 94.6% 710
Summerlyn Place 140 93.6% 95.1% 800 92.1% 93.6% 794
Waterford Place 240 92.9% 94.8% 860 93.5% 95.0% 856
Woods Edge 264 95.4% 96.5% 779 96.4% 97.3% 773
All apartments 3,681
- 2001 93.5% 94.5% 749 93.8% 94.9% 742
- 2000 95.5% 96.5% 735 95.6% 96.4% 732
Same units 3,440
- 2001 93.7% 94.9% 751 94.1% 95.2% 745
- 2000 95.5% 96.5% 735 95.6% 96.4% 732
*Acquired December 2000
Apartment rental income was consistent with our expectations in the second
quarter and first six months of 2001, reflecting intense competition with new
construction throughout our markets. We do not expect any significant
improvement in our apartment markets in 2001. We continue to emphasize occupancy
as a means of maximizing cash flow from our apartment communities. We also
strive to maintain our competitive position by keeping the apartment communities
in an excellent state of repair and by making selective improvements.
Restaurant rental income was $1.0 million in the second quarter of 2001, a
3.5% decrease compared to the second quarter of 2000. For the first six months
of 2001, restaurant rental income was $2.0 million, a 2.9% decrease compared to
the first six months of 2000. This decrease is due to the sale of one restaurant
property in June 2000, and another in April 2001. Through June 30, 2001, we have
sold five of the original 47 restaurants to Boddie-Noell Enterprises, Inc.
("Enterprises"), the lessee, under the non-economic clause of the agreement that
allows Enterprises to close up to seven restaurants and buy them back for no
less than net carrying value.
Restaurant rental income during the first six months of both 2001 and 2000
was the minimum rent specified in the lease agreement. Under our master lease
with Enterprises, restaurant rental income payments are the greater of a
specified minimum rent or 9.875% of food
11
sales. The minimum rent is reduced by approximately $8,000 per month, or $96,000
per year, for each restaurant that is sold.
"Same store" sales (for the 42 restaurants that were open throughout the
first six months of both 2001 and 2000) declined by 2.7% in the second quarter,
and 4.7% in the first six months, of 2001 compared to 2000. Sales at these
restaurants would have to increase by approximately 12% before we would receive
rent exceeding the minimum rent.
As we discussed in the notes to our financial statements, effective
January 1, 2001, we acquired the minority 5% economic interest and 99% voting
interest in BNP Management, Inc. (the "Management Company"). We now include the
revenues from our third-party management activities in our consolidated revenue
amounts. In 2000, we reported (net) equity income related to activities of the
Management Company. We do not expect this change in basis of presentation to
have a significant impact on our financial position, overall operating results
or cash flows.
Management fee income totaled $104,000 for the second quarter and $217,000
for the first six months of 2001. If these activities had been reflected on a
consolidated basis in our 2000 financial statements, equity income would have
been replaced with management fee income of approximately $112,000 for the
second quarter and $229,000 for the first six months of 2000.
Interest and other income includes two non-routine income items totaling
approximately $210,000 that were recorded in June 2001--approximately $70,000
fee income for arranging refinancing at two managed apartment properties, and
approximately $140,000 for refund of 1997 and 1998 state franchise taxes.
Receivables for these amounts were included in other current assets at June 30,
2001, and payments were received in early July.
Expenses
Total expenses for the second quarter of 2001 were $8.6 million, an 8.2%
increase compared to the second quarter of 2000. For the first six months of
2001, total expenses were $17.0 million, a 9.1% increase compared to the first
six months of 2000.
Apartment operations expense for the second quarter of 2001 totaled $2.9
million, a 12.1% increase compared to the second quarter of 2000. For the first
six months of 2001, apartment operations expense totaled $5.5 million, a 12.4%
increase compared to the first six months of 2000. These increases are primarily
attributable to the addition of Oak Hollow Apartments Phase 2 ($180,000 for the
second quarter of 2001 and $337,000 for the first six months of 2001), along
with the impact of higher costs for on-site compensation, property taxes and
insurance.
Apartment operations expense includes only direct costs of on-site
operations. Apartment operations expense for the second quarter of 2001
represented 36.9% of related apartment rental income, compared to 35.1% in the
second quarter of 2000. For the first six months of 2001, apartment operations
expense represented 35.1% of related apartment rental income, compared to 33.2%
in the first six months of 2000.
Operating expenses for restaurant properties are insignificant because the
triple-net lease arrangement requires the lessee to pay virtually all of the
expenses associated with the restaurant properties.
We are now able to identify and compare apartment administration expenses
for 2001 and 2000. These costs include our property management activities as
well as accounting and support
12
activities directly related to apartment management, and were previously
included in our line item for administrative expenses that included both
apartment and corporate administration costs. In addition, we now include the
expenses of our third-party management activities in our consolidated expense
amounts.
Apartment administration expense totaled $296,000 for the second quarter
of 2001 and $512,000 for the first six months of 2001. If these activities had
been reflected on a consolidated basis in our 2000 financial statements,
apartment administration expense would have been approximately $275,000 for the
second quarter and $450,000 for the first six months of 2000. Increases in
apartment administration expense are primarily attributable to increased
property management supervisory compensation and travel and entertainment
expenditures.
Corporate administration expense totaled $492,000 for the second quarter
of 2001 and $1,016,000 for the first six months of 2001. If these activities had
been reflected on a consolidated basis in our 2000 financial statements,
corporate administration expense would have been approximately $500,000 for the
second quarter and $990,000 for the first six months of 2000.
Depreciation expense totaled $2.0 million in the second quarter of 2001, a
10.0% increase compared to the second quarter of 2000. For the first six months
of 2001, depreciation expense totaled $3.9 million, an 8.9% increase compared to
the first six months of 2000. This increase is attributable to the addition of
Oak Hollow Apartments Phase 2 ($104,000 for the second quarter and $190,000 for
the first six months of 2001) along with the impact of additions and
replacements at other apartment communities. Amortization expense was
essentially the same in the first six months of 2001 compared to the first six
months of 2000.
Interest expense was $2.8 million in the second quarter of 2001, a 1.8%
increase compared to the second quarter of 2000. For the first six months of
2001, interest expense totaled $5.8 million, a 5.2% increase compared to the
first six months of 2000. While long-term debt increased by approximately $12
million, or 8%, between the second quarters of 2000 and 2001, variable interest
rates have declined approximately 2.7% during the last six months. Overall,
weighted average interest rates were 6.9% for the second quarter and 7.1% for
the first six months of 2001, compared to 7.3% for the second quarter and 7.3%
for the first six months of 2000.
Net income
Net income available to common shareholders in the second quarter of 2001
was $481,000, a 26.8% increase compared to the second quarter of 2000. For the
first six months of 2001, net income available to common shareholders was
$952,000, an 11.1% decrease compared to the first six months of 2000. These
comparisons reflect the favorable effects of non-routine revenue and declining
interest rates in the second quarter discussed above, as well as the impact of
increased interest expense and non-cash charges for depreciation and
amortization. Operating Partnership earnings before interest, depreciation and
amortization, and excluding non-routine revenue, increased 3.0% for the second
quarter, and 2.2% for the first six months, of 2001 compared to 2000.
Funds from Operations
Funds from operations is defined by the National Association of Real
Estate Investment Trusts ("NAREIT") as "net income (computed in accordance with
generally accepted accounting principles), excluding gains (losses) from sales
of property, plus depreciation and amortization,
13
and after adjustments for unconsolidated partnerships and joint ventures."
We calculate funds available for distribution as funds from operations
plus non-cash expense for amortization of loan costs, less recurring capital
expenditures.
We consider funds from operations and funds available for distribution to
be useful in evaluating potential property acquisitions and measuring the
operating performance of an equity REIT. We believe that, together with net
income and cash flows, funds from operations and funds available for
distribution provide investors with additional measures to evaluate the ability
of the REIT to incur and service debt and to fund acquisitions and other capital
expenditures. Funds from operations and funds available for distribution do not
represent net income or cash flows from operations as defined by generally
accepted accounting principles. You should not consider funds from operations or
funds available for distribution:
o to be alternatives to net income as reliable measures of our
operating performance, or
o to be alternatives to cash flows as measures of liquidity.
Funds from operations and funds available for distribution do not measure
whether cash flow is sufficient to fund all of our cash needs, including
principal amortization, capital improvements and distributions to shareholders.
Funds from operations and funds available for distribution do not represent cash
flows from operating, investing or financing activities as defined by generally
accepted accounting principles. Further, funds from operations and funds
available for distribution as disclosed by other REITs might not be comparable
to our calculation of funds from operations or funds available for distribution.
Funds from operations of the Operating Partnership increased by 13.1% for
the second quarter, and by 3.1% for the first six months, of 2001 compared to
2000. These increases are primarily attributable to non-routine revenue and
declines in variable interest rates during the second quarter of 2001.
We calculated funds from operations of the Operating Partnership as
follows (all amounts in thousands):
Three months ended Six months ended
June 30 June 30
2001 2000 2001 2000
--------------- --------------- --------------- ---------------
Income before minority interest $ 625 $ 493 $ 1,236 $ 1,391
Depreciation 1,974 1,794 3,881 3,564
Amortization of
management intangible 102 102 203 203
--------------- --------------- --------------- ---------------
Funds from operations -
Operating Partnership $ 2,701 $ 2,389 $ 5,320 $ 5,158
=============== =============== =============== ===============
14
A reconciliation of funds from operations to funds available for
distribution follows (all amounts in thousands):
Three months ended Six months ended
June 30 June 30
2001 2000 2001 2000
--------------- --------------- --------------- ---------------
Funds from operations -
Operating Partnership $ 2,701 $ 2,389 $ 5,320 $ 5,158
Amortization of loan costs 49 43 92 87
Recurring capital expenditures (303) (263) (554) (423)
--------------- --------------- --------------- ---------------
Funds available for distribution $ 2,447 $ 2,169 $ 4,859 $ 4,822
=============== =============== =============== ===============
A further reconciliation of funds from operations of the Operating
Partnership to basic funds from operations available to common shareholders
follows (all amounts in thousands):
Three months ended Six months ended
June 30 June 30
2001 2000 2001 2000
--------------- --------------- --------------- ---------------
Funds from operations -
Operating Partnership $ 2,701 $ 2,389 $ 5,320 $ 5,158
Minority interest in
funds from operations (622) (551) (1,225) (1,190)
--------------- --------------- --------------- ---------------
Basic funds from operations
available to common shareholders $ 2,079 $ 1,838 $ 4,095 $ 3,968
=============== =============== =============== ===============
Other information about our historical cash flows follows (all amounts in
thousands):
Three months ended Six months ended
June 30 June 30
2001 2000 2001 2000
--------------- --------------- --------------- ---------------
Net cash provided by (used in):
Operating activities $ 2,578 $ 2,308 $ 5,288 $ 5,361
Investing activities (264) (204) (513) (41)
Financing activities (2,815) (2,031) (5,166) (4,824)
Dividends and distributions paid to:
Shareholders $ 1,769 $ 1,769 $ 3,538 $ 3,538
Minority unitholders in
Operating Partnership 529 530 1,058 1,041
Scheduled debt principal payments $ 96 $ 82 $ 187 $ 163
Non-recurring capital expenditures 370 484 741 787
15
Three months ended Six months ended
June 30 June 30
2001 2000 2001 2000
--------------- --------------- --------------- ---------------
Weighted average common
shares outstanding 5,707 5,707 5,707 5,708
Weighted average Operating
Partnership minority units
outstanding 1,706 1,710 1,707 1,712
Capital Resources and Liquidity
Capital Resources
At June 30, 2001, total long-term debt was $163.1 million, including
$116.2 million of notes payable at fixed interest rates ranging from 6.345% to
8.55%, and $46.8 million at variable rates indexed on 30-day LIBOR rates.
Approximately $1 million additional borrowings are available under our line of
credit arrangements.
The weighted average interest rate on debt outstanding at June 30, 2001,
was 6.7%, compared to 7.5% at December 31, 2000, and 7.5% at June 30, 2000.
(This reduction in weighted average interest rate is attributable to an
approximate 2.7% decline in variable rates during the last six months; there has
been no significant change in our fixed-rate debt.) A 1% fluctuation in variable
interest rates would increase or decrease our annual interest expense by
approximately $475,000.
Cash flows and liquidity
Net cash flows from operating activities were $5.3 million during the
first six months of 2001, a 1.4% decrease compared to 2000.
Effective January 1, 2001, we acquired the minority 5% economic interest
and 99% voting interest in BNP Management, Inc. (the "Management Company"). We
now include the assets and liabilities related to our third-party management
operations in our consolidated balance sheet. The effect of this transaction and
change in basis of presentation was to increase cash by approximately $373,000
and net apartment properties equipment by approximately $346,000.
Effective April 30, 2001, we sold a restaurant property for its net book
value of approximately $406,000. We applied these proceeds, along with a draw of
$137,000 against our line of credit secured by Latitudes Apartments, to pay down
approximately $543,000 of our line of credit secured by restaurant properties.
During the first six months of 2001, we have expended approximately
$439,000 for renovations at Oak Hollow Apartments Phase 2. As we continue this
renovation project, we expect to draw against the $2.0 million available under a
variable rate note secured by Oak Hollow Apartments Phase 2.
Other investing and financing activities during 2001 focused on capital
expenditures at apartment communities, along with payments of dividends and
distributions.
16
To date we have produced sufficient cash flow to fund our regular dividend
and recurring capital expenditures. We have announced that the company will pay
a regular quarterly dividend of $0.31 per share on August 15, 2001, to
shareholders of record on August 1, 2001.
We capitalize our expenditures to acquire new assets, to materially
enhance the value of existing assets, or to substantially extend the useful life
of existing assets. We record all floor covering, appliance, and HVAC
replacements, as well as major capital maintenance projects, as capital
expenditures.
We generally expect to meet our short-term liquidity requirements through
net cash provided by operations and utilization of credit facilities. We believe
that net cash provided by operations is, and will continue to be, adequate to
meet the REIT operating requirements in both the short term and the long term.
We anticipate funding our future acquisition activities primarily by using
short-term credit facilities as an interim measure, to be replaced by funds from
equity offerings, long-term debt, or joint venture investments. We expect to
meet our long-term liquidity requirements, such as scheduled debt maturities and
repayment of short-term financing of possible property acquisitions, through
long-term secured and unsecured borrowings and the issuance of debt securities
or additional equity securities. We believe we have sufficient resources to meet
our short-term liquidity requirements.
We do not believe that inflation poses a material risk to the company. The
leases at our apartment properties are short term in nature; none are longer
than two years. The restaurant properties are leased on a triple-net basis,
which places the risk of rising operating and maintenance costs on the lessee.
Recently Issued Accounting Standards
We adopted Financial Accounting Standards Board Statement No. 133,
Accounting for Derivative Instruments and Hedging Activities, as amended by
Statements No. 137 and No. 138, effective January 2001. This Statement requires
the recognition of all derivatives on our consolidated balance sheet at fair
value. This adoption had no impact on our results of operations or financial
position.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
There have been no material changes in information that would be provided
under Item 305 of Regulation S-K since December 31, 2000. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Capital Resources and Liquidity" above.
Part II - Other Information
Item 4. Submission of Matters to a Vote of Security Holders
We held our Annual Meeting of Shareholders on May 24, 2001. Of the
5,706,950 shares of common stock issued, outstanding, and entitled to vote at
this meeting, 5,241,234, or 91.8%, were present in person or by proxy. The
following proposal was approved:
17
Withheld/ Broker
For Against Abstained Non-votes
---------------- ----------- ------------- -------------
Election of directors to serve until the 2004 annual meeting:
Stephen R. Blank 5,196,447 - 44,787 159,478
Philip S. Payne 5,189,042 - 52,192 159,478
Other directors, whose terms of office as directors continued after the
meeting, are as follows:
Serving until the 2002 annual meeting:
B. Mayo Boddie
D. Scott Wilkerson
Paul G. Chrysson
Serving until the 2003 annual meeting:
W. Michael Gilley
William H. Stanley
Item 5. Other Information
Re-election of officers
The Company has announced the re-election of the following officers:
D. Scott Wilkerson President and Chief Executive Officer
Philip S. Payne Executive Vice President, Treasurer, Chief
Financial Officer, and Assistant Secretary
Douglas E. Anderson Vice President, Secretary
Pamela B. Bruno Vice President, Controller, Chief Accounting
Officer, and Assistant Secretary
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits:
None
b) Reports on Form 8-K:
None
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
BNP RESIDENTIAL PROPERTIES, INC.
(Registrant)
August 9, 2001 /s/ Philip S. Payne
-------------------------------------------
Philip S. Payne
Executive Vice President and
Chief Financial Officer
(Duly authorized officer)
August 9, 2001 /s/ Pamela B. Bruno
-------------------------------------------
Pamela B. Bruno
Vice President, Controller and
Chief Accounting Officer
19