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 March 31, 2002
--------------
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.)
301 S. College Street, Suite 3850, 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 May 9, 2002 (the latest practicable date).
Common Stock, $.01 par value 5,766,693
---------------------------- -----------------------
(Class) (Number of shares)
Total number of pages: 19
TABLE OF CONTENTS
Item No. Page No.
PART I - Financial Information
1 Financial Statements 3
2 Management's Discussion and Analysis of Financial Condition 10
and Results of Operations
3 Quantitative and Qualitative Disclosures 18
About Market Risk
PART II - Other Information
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
March 31 December 31
2002 2001
------------------ ------------------
(Unaudited)
Assets
Real estate investments at cost:
Apartment properties $221,762,565 $221,218,864
Restaurant properties 39,529,527 39,529,527
------------------ ------------------
261,292,092 260,748,391
Less accumulated depreciation (42,697,810) (40,751,890)
------------------ ------------------
218,594,282 219,996,501
Cash and cash equivalents 548,574 1,417,616
Other current assets 2,512,107 1,693,374
Notes receivable, net of reserve 100,000 100,000
Intangible assets, net of accumulated amortization:
Intangible related to acquisition of management operations 1,115,088 1,115,088
Deferred financing costs 1,008,806 1,062,069
------------------ ------------------
Total assets $223,878,857 $225,384,648
================== ==================
Liabilities and Shareholders' Equity
Mortgage and other notes payable $162,143,411 $162,330,222
Accounts payable and accrued expenses 1,429,158 997,768
Escrowed security deposits and deferred revenue 1,149,240 1,349,155
Deferred credit for defeasance of interest,
net of accumulated amortization 458,368 500,032
------------------ ------------------
Total liabilities 165,180,177 165,177,177
Minority interest in Operating Partnership 17,709,381 18,173,557
Shareholders' equity:
Preferred stock, $.01 par value, 10,000,000 shares
authorized, 227,273 shares issued and outstanding 2,500,000 2,500,000
Common stock, $.01 par value, 100,000,000 shares
authorized; issued and outstanding shares--
5,766,693 at March 31, 2002,
5,744,873 at December 31, 2001 57,667 57,449
Additional paid-in capital 70,119,201 69,872,958
Dividend distributions in excess of net income (31,687,569) (30,396,493)
------------------ ------------------
Total shareholders' equity 40,989,299 42,033,914
------------------ ------------------
Total liabilities and shareholders' equity $223,878,857 $225,384,648
================== ==================
3
BNP RESIDENTIAL PROPERTIES, INC.
-------------------------------------------------------------------------------
Consolidated Statements of Operations
(Unaudited)
Three months ended
March 31
2002 2001
----------------- ----------------
(Adjusted)
Revenues
Apartment rental income $ 7,489,296 $ 7,740,980
Restaurant rental income 1,005,319 1,029,255
Management fee income 294,188 112,717
Interest and other income 37,199 74,318
----------------- ----------------
8,826,002 8,957,270
Expenses
Apartment operations 2,692,276 2,572,591
Apartment administration 325,434 215,220
Corporate administration 593,394 523,906
Depreciation 1,946,534 1,906,638
Amortization of intangibles 47,925 43,208
Interest 2,504,997 2,983,330
----------------- ----------------
8,110,560 8,244,893
----------------- ----------------
Income before
minority interest and
extraordinary item 715,442 712,377
Minority interest in
Operating Partnership 149,570 164,054
----------------- ----------------
Income before
extraordinary item 565,872 548,323
Extraordinary item - loss on
early extinguishment
of debt 73,297 -
----------------- ----------------
Net income 492,575 548,323
Cumulative preferred dividend 61,644 -
----------------- ----------------
Income available to
common shareholders $ 430,931 $ 548,323
================= ================
Per common share:
Basic earnings per share -
Before extraordinary item $0.10 $0.10
Extraordinary item (0.01) -
Available to shareholders 0.08 0.10
Diluted earnings per share -
Before extraordinary item 0.09 0.10
Extraordinary item (0.01) -
Available to shareholders 0.08 0.10
Dividends declared 0.31 0.31
Weighted average common
shares outstanding 5,754,918 5,706,950
4
BNP RESIDENTIAL PROPERTIES, INC.
-------------------------------------------------------------------------------
Consolidated Statement of Shareholders' Equity
(Unaudited)
Dividend
Additional distributions
Preferred Stock Common Stock paid-in in excess of
Shares Amount Shares Amount capital net income Total
--------- ------------ ----------- ---------- ------------- --------------- -----------
Balance December 31, 2001 227,273 $2,500,000 5,744,873 $57,449 $69,872,958 $(30,396,493) $42,033,914
Common stock issued - - 21,820 218 251,556 - 251,774
Costs of preferred stock - - - - (5,313) - (5,313)
issue
Dividends paid - preferred - - - - - (2,740) (2,740)
Dividends paid - common - - - - - (1,780,911) (1,780,911)
Net income - - - - - 492,575 492,575
--------- ------------ ----------- ---------- ------------- --------------- ------------
Balance March 31, 2002 227,273 $2,500,000 5,766,693 $57,667 $70,119,201 $(31,687,569) $40,989,299
========= ============ =========== ========== ============= =============== ============
5
BNP RESIDENTIAL PROPERTIES, INC.
-------------------------------------------------------------------------------
Consolidated Statements of Cash Flows
(Unaudited)
Three months ended
March 31
2002 2001
----------------- ----------------
(Adjusted)
Operating activities:
Net income $ 492,575 $ 548,323
Adjustments to reconcile net income to
net cash provided by operations:
Extraordinary item - loss on early extinguishment of debt 73,297 -
Minority interest in Operating Partnership 149,570 164,054
Depreciation and amortization of intangibles 1,994,459 1,949,846
Amortization of defeasance credit (41,664) (41,664)
Changes in operating assets and liabilities:
Prepaid expenses and other current assets (803,842) (608,501)
Accounts payable and accrued expenses 431,390 695,118
Security deposits and deferred revenue (214,806) 2,919
----------------- ----------------
Net cash provided by operating activities 2,080,979 2,710,095
Investing activities:
Additions to apartment properties, net (544,315) (622,176)
Acquisition of minority interest in Management Company - 372,939
----------------- ----------------
Net cash used in investing activities (544,315) (249,237)
Financing activities:
Costs of issuance of preferred stock (5,313) -
Issuance of common stock 188,589 -
Distributions to Operating Partnership minority unitholders (528,827) (529,320)
Dividends paid to preferred shareholder (2,740) -
Dividends paid to common shareholders (1,780,911) (1,769,155)
Proceeds from notes payable 13,870,000 39,611
Principal payments on notes payable (14,056,811) (91,019)
Payment of deferred financing costs (89,693) (792)
----------------- ----------------
Net cash used in financing activities (2,405,706) (2,350,675)
----------------- ----------------
Net (decrease) increase in cash
and cash equivalents (869,042) 110,183
Cash and cash equivalents at beginning of period 1,417,616 1,056,052
----------------- ----------------
Cash and cash equivalents at end of period $ 548,574 $ 1,166,235
================= ================
6
BNP RESIDENTIAL PROPERTIES, INC.
-------------------------------------------------------------------------------
Notes to Consolidated Financial Statements - March 31, 2002
(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, 2001. We derived the amounts in the balance sheet at December 31,
2001, from the financial statements included in our 2001 Annual Report on Form
10-K. We believe that we have included all adjustments (consisting of normal
recurring accruals, except as discussed below) 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 2001 Annual
Report on Form 10-K.
We adopted Statement of Financial Accounting Standards No. 142, Goodwill and
Other Intangible Assets, effective January 1, 2002. Under the new rules,
goodwill and intangible assets deemed to have indefinite lives are no longer
amortized after December 31, 2001, but are subject to annual impairment tests in
accordance with the Statement. We determined that the intangible related to our
1994 acquisition of management operations, net of accumulated amortization, as
of January 1, 2002, is not impaired, and we plan to perform future annual tests
as of October 1 of each year. We have adjusted the 2001 comparative amounts in
our consolidated financial statements to exclude this amortization expense and
conform to the 2002 presentation as follows:
2001 as 2001 as
Currently Previously
Presented Adjustments Reported
----------------- ----------------- -----------------
Revenues $8,957,270 $8,957,270
$ -
Expenses 8,244,893 (101,550) 8,346,443
----------------- ----------------- -----------------
Income before minority interest and
extraordinary item 712,377 101,550 610,827
Minority interest in Operating Partnership 164,054 23,386 140,668
----------------- ----------------- -----------------
Income before extraordinary item 548,323 78,164 470,159
Extraordinary item - loss on early
extinguishment of debt - - -
----------------- ----------------- -----------------
Net income $ 548,323 $ 78,164 $ 470,159
================= ================= =================
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.
7
Effective January 2001, the accounts of the Operating Partnership include 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. This transaction
resulted in a net increase in cash included on our consolidated balance sheet of
approximately $373,000.
Note 3. Long-term debt transactions
In January 2002, we applied a $6.0 million draw on our line of credit secured by
Latitudes Apartments to retire a note payable in the amount of $6,094,000,
secured by a deed of trust and assignment of rents of Oakbrook Apartments. In
February 2002, we subsequently issued a note payable in the amount of $7,870,000
secured by a deed of trust and assignment of rents of Oakbrook Apartments. The
note provides for interest at an effective rate of 7.09% and monthly payments
including principal and interest of approximately $52,000, with maturity in
February 2012. We applied the proceeds of the Oakbrook note to reduce our
Latitudes line of credit.
In conjunction with the January retirement, we wrote off unamortized loan costs
of approximately $95,000. We have reflected this write-off, net of minority
interests' share, in the financial statements as an extraordinary item. In
conjunction with the February refinance transaction, we paid and recorded
deferred loan costs of approximately $90,000.
Note 4. Shareholders' Equity
In February 2002, we issued 16,258 shares of our common stock through our
Dividend Reinvestment and Stock Purchase Plan for proceeds of approximately
$189,000. In addition, we issued 5,562 shares of our common stock, in a non-cash
transaction, to acquire the same number of Operating Partnership units from a
former minority unitholder.
We calculated basic and diluted earnings per share using the following amounts:
Three months ended
March 31
2002 2001
----------------- -----------------
(Adjusted)
Numerators:
Numerator for basic
earnings per share -
Income before
extraordinary item $565,872 $548,323
Extraordinary item (73,297) -
Cumulative preferred dividend (61,644) -
----------------- -----------------
Income available to
common shareholders $430,931 $548,323
================= =================
Numerator for diluted
earnings per share -
Income before
extraordinary item (1) $715,442 $712,377
8
Three months ended
March 31
2002 2001
----------------- -----------------
(Adjusted)
Extraordinary item (1) (95,032) -
----------------- -----------------
Income available to
common shareholders (1) $620,410 $712,377
================= =================
Denominators:
Denominator for basic
earnings per share -
weighted average shares
outstanding 5,754,918 5,706,950
Effect of dilutive securities:
Convertible preferred shares 227,273 -
Convertible Operating
Partnership units 1,703,981 1,707,480
Stock options (2) 9,115 -
----------------- -----------------
Denominator for diluted
earnings per share - adjusted
weighted average shares and
assumed conversions 7,965,287 7,414,430
================= =================
(1) Assumes conversion of Series B Preferred shares and Operating Partnership
units to common shares; minority interest in income before extraordinary
item and minority interest in extraordinary item have been eliminated.
(2) We excluded options to purchase 140,000 shares of common stock at $12.50,
110,000 shares at $12.25, and 120,000 shares at $13.125 from the
calculation of diluted earnings per share for 2002. We did not include any
of the options outstanding during 2001 in the calculation of earnings
diluted earnings per share for 2001. The exercise price of these options
was greater than the average market price of the common shares for these
periods, and the effect would be anti-dilutive.
Note 5. Subsequent events
On April 18, 2002, the Board of Directors declared a regular quarterly cash
dividend of $0.31 per share to be paid on May 15, 2002, to shareholders of
record on May 1, 2002. The Board of Directors also authorized the payment of
dividends totaling $61,644 to Series B Preferred shareholders in accordance with
the investment agreement for those shares.
9
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
This Quarterly Report 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 our markets could suffer unexpected declines in economic growth or an increase
in unemployment rates;
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 lease or re-lease apartments quickly or on as favorable
terms as under existing leases;
o revenues from our third-party apartment property management activities could
decline, or we could incur unexpected costs in performing these activities;
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; and
o we could lose key executive officers.
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 with operations in North Carolina,
South Carolina and Virginia. Our primary activity is the ownership and operation
of apartment communities. We currently manage 31 multi-family communities
containing 6,969 units. Of these, we own 15 apartment communities containing
3,681 units. Third parties own the remaining 16 communities, containing 3,288
units, and we manage them on a contract basis. In addition to our apartment
communities, we own 42 restaurant properties that we lease to a third party
under a master lease on a triple-net basis.
10
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 301 South College Street, Suite
3850, Charlotte, North Carolina 28202-6032, telephone 704/944-0100.
Results of Operations
Revenues
Total revenues in the first quarter of 2002 were $8.8 million, a
decrease of 1.5% compared to the first quarter of 2001. Apartment related income
(apartment rental income plus income from apartment management and investment
activities) accounted for 88.6% of total revenues in the first quarter of 2002
compared to 88.5% in the first quarter of 2001. Restaurant rental income was
11.4% of total revenues in the first quarter of 2002, compared to 11.5% in the
first quarter of 2001.
Apartment rental income totaled $7.5 million in the first quarter of
2002, a decrease of 3.3% compared to the first quarter of 2001. This decrease
was the result of a 2.9% decline in average economic occupancy. For the first
quarter, average economic occupancy for all apartments was 92.3% in 2002
compared to 95.2% in 2001. Average monthly revenue per occupied unit for all
apartments was essentially flat for the first quarter, at $735 in 2002 compared
to $736 in 2001. All of our apartment properties were operating for the full
periods in both 2002 and 2001.
Summary amounts for our apartment communities' occupancy and revenue
per occupied unit for the first quarter of 2002 follow:
Average
monthly
Number revenue
of Average Average per
apartment physical economic occupied
units occupancy occupancy unit
----------- ------------ ----------- -----------
Abbington Place 360 92.3% 92.4% $784
Allerton Place 228 93.6% 93.3% 772
Chason Ridge 252 96.7% 96.2% 702
Harris Hill 184 89.1% 90.8% 697
Latitudes 448 96.2% 96.5% 801
Madison Hall 128 93.4% 95.2% 584
Oakbrook 162 92.8% 92.4% 785
Oak Hollow 461 90.3% 90.4% 634
Paces Commons 336 87.5% 87.9% 681
Paces Village 198 87.2% 85.0% 683
Pepperstone 108 92.5% 92.6% 695
Savannah Place 172 94.2% 94.0% 718
Summerlyn Place 140 95.5% 95.9% 795
Waterford Place 240 92.1% 92.5% 858
Woods Edge 264 92.4% 91.5% 773
11
Average
monthly
Number revenue
of Average Average per
apartment physical economic occupied
units occupancy occupancy unit
----------- ------------ ----------- -----------
All apartments 3,681
- 2002 92.1% 92.3% 735
- 2001 94.2% 95.2% 736
Overall, our apartment markets remain weak. A slow economy combined
with the impact of extensive overbuilding has resulted in lower economic
occupancy and stagnant rental rates at our apartment communities. While a number
of factors such as a slowing of new construction activity and signs of an
improving economy indicate that the current situation may be improving, we do
not believe there will be any significant improvement in our apartment markets
until late 2002 at the earliest. In the meantime, we remain confident in the
long-term prospects for our apartment communities and our markets. We own a
portfolio of high-quality, well-maintained, well-located apartment communities.
We believe that the best course of action for us at this time is to work
diligently to improve occupancy and to continue to maintain and improve our
apartment properties to ensure that they are as competitive as possible.
Restaurant rental income was $1.0 million in the first quarter of 2002,
a 2.3% decrease compared to the first quarter of 2001. This decrease was the
result of the sale of one restaurant property in the second quarter of 2001.
Restaurant rental income for both 2002 and 2001 was the minimum rent. "Same
store" sales at our restaurant properties decreased by 2.6% in the first quarter
of 2002 compared to 2001.
Through March 31, 2002, 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 which allows Enterprises to close up to
seven restaurants and buy them back for no less than net carrying value. Under
our master lease with Enterprises, restaurant rental income payments are the
greater of a specified minimum rent or 9.875% of food sales. The minimum rent is
reduced by approximately $8,000 per month, or $96,000 per year, for each
restaurant that is sold.
Management fee income totaled $294,000 in the first quarter of 2002,
compared to $113,000 in the first quarter of 2001. This increase is primarily
attributable to the addition of 13 managed properties in the fourth quarter of
2001 and early 2002.
Expenses
Total expenses, including non-cash charges for depreciation and
amortization, were $8.1 million in the first quarter of 2002, a decrease of 1.6%
compared to the first quarter of 2001.
Effective January 1, 2002, in accordance with current accounting
guidance, we no longer amortize the intangible related to our 1994 acquisition
of management operations. We have adjusted the 2001 comparative amounts to
exclude this amortization expense and conform to the 2002 presentation in our
financial statements. This adjustment decreases our first quarter 2001
amortization expense by approximately $102,000.
12
Apartment operations expense (the direct costs of on-site operations at
our apartment communities) in the first quarter of 2002 totaled $2.7 million, an
increase of 4.7% compared to the first quarter of 2001. This increase reflects a
significant increase in property insurance, as well as higher costs associated
with marketing, maintenance and resident turnover. Apartment operations expense
represented 35.9% of related apartment rental income in the first quarter of
2002 compared to 33.2% in the first quarter of 2001.
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.
Apartment administration expense (the costs associated with oversight,
accounting and support of our apartment management activities for both owned and
third party properties) was $325,000 in the first quarter of 2002, compared to
$215,000 in the first quarter of 2001. This increase was primarily attributable
to the addition of 13 managed properties to our management portfolio in the
fourth quarter of 2001 and early 2002.
Corporate administration expense was $593,000 in the first quarter of
2002, an increase of 13.3% compared to the first quarter of 2001. This increase
was primarily attributable to the timing of certain expenses and an increase in
compensation expense.
Depreciation expense totaled $1.9 million in the first quarter of 2002,
a 2.1% increase compared to the first quarter of 2001. Amortization expense (of
deferred loan costs) was $48,000 in the first quarter of 2002, compared to
$43,000 in the first quarter of 2001. As discussed above, we no longer amortize
the intangible related to acquisition of management operations, and we have
adjusted the 2001 comparative financial statements to exclude this amortization.
Interest expense totaled $2.5 million in the first quarter of 2002, a
16.0% decrease compared to the first quarter of 2001. The decrease in interest
expense was the result of the combined effect of lower interest rates on our
lines of credit and the impact of refinancing two fixed-rate loans at lower
rates during 2001. Variable interest rates have declined approximately 3.3%
since March of 2001. Overall, weighted average interest rates were 6.2% for the
first quarter of 2002, compared to 7.3% for the first quarter of 2001.
During the first quarter of 2002, we refinanced long-term debt related
to Oakbrook Apartments. This refinance is described below in our discussion of
Capital Resources and Liquidity. In conjunction with this transaction, we wrote
off unamortized loan costs of $95,000. We have reflected this write-off, net of
minority interests' share, with a charge of $73,000 as an extraordinary item in
the financial statements.
In late December 2001, we issued 227,273 shares of Series B Cumulative
Convertible Preferred Stock. Because preferred shareholders have priority over
common shareholders for receipt of dividends, we deduct the amount of net income
that will be paid to preferred shareholders in calculating net income available
to common shareholders. The dividend on the Series B shares is $1.10 per year
per share. The cumulative preferred dividend for the first quarter of 2002
totals approximately $62,000.
13
Net income
Income available to common shareholders, after the extraordinary item
and cumulative preferred dividend, was $431,000, a decrease of 21.4% compared to
the first quarter of 2001. Income before the extraordinary item and cumulative
preferred dividend was $566,000 for the first quarter of 2002, an increase of
3.2% compared to the first quarter of 2001. These comparisons reflect the
favorable impact of lower interest rates, offset by the effect of declines in
apartment operations, the extraordinary charge to earnings, and the cumulative
preferred dividend. Operating Partnership earnings before interest, depreciation
and amortization, and the extraordinary item decreased by 7.6% in the first
quarter of 2002 compared to the first quarter of 2001.
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, 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 were essentially
flat for the first quarter of 2002 compared to the first quarter of 2001. We
calculated funds from operations of the Operating Partnership as follows (all
amounts in thousands):
14
Three months ended
March 31
2002 2001
--------------- ---------------
(Adjusted)
Income before minority interest
and extraordinary item $ 715 $ 712
Cumulative preferred dividend (62) -
Depreciation 1,947 1,907
--------------- ---------------
Funds from operations -
Operating Partnership $ 2,600 $ 2,619
=============== ===============
A reconciliation of funds from operations to funds available for
distribution follows (all amounts in thousands):
Three months ended
March 31
2002 2001
--------------- ---------------
Funds from operations -
Operating Partnership $ 2,600 $ 2,619
Amortization of loan costs 48 43
Recurring capital expenditures (282) (251)
--------------- ---------------
Funds available for distribution $ 2,366 $ 2,412
=============== ===============
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
March 31
2002 2001
--------------- ---------------
Funds from operations -
Operating Partnership $ 2,600 $ 2,619
Minority interest in
funds from operations (594) (603)
--------------- ---------------
Basic funds from operations
available to common shareholders $ 2,006 $ 2,016
=============== ===============
Other information about our historical cash flows follows (all amounts
in thousands):
Three months ended
March 31
2002 2001
--------------- ---------------
Net cash provided by (used in):
Operating activities $ 2,081 $ 2,710
Investing activities (544) (249)
Financing activities (2,406) (2,351)
15
Three months ended
March 31
2002 2001
--------------- ---------------
Dividends and distributions paid to:
Preferred shareholders $ 3 $ -
Common shareholders 1,781 1,769
Minority unitholders in
Operating Partnership 529 529
Scheduled debt principal payments $ 49 $ 91
Non-recurring capital expenditures 262 371
Weighted average shares outstanding
Preferred shares 227 -
Common shares 5,755 5,707
Weighted average Operating
Partnership minority units
outstanding 1,704 1,707
Capital Resources and Liquidity
Capital Resources
In February 2002, we completed refinancing for Oakbrook Apartments,
with a $7.9 million note payable with interest at 7.1% and maturity in February
2012. This deed of trust replaced an existing 7.7% note with a balance of $6.1
million, with the balance of proceeds applied to reduce our line of credit
secured by Latitudes Apartments. Oakbrook was our second apartment community,
acquired in June 1994 for an initial acquisition cost of $9.4 million.
As of March 31, 2002, total long-term debt was $162.1 million,
including $123.9 million of notes payable at fixed interest rates ranging from
6.35% to 8.55%, and $38.2 million at variable rates indexed on 30-day LIBOR
rates. The weighted average interest rate on debt outstanding was 6.2% at March
31, 2002, and December 31, 2001, and 7.1% at March 31, 2001. At our current
level of variable-rate debt, a 1% fluctuation in variable interest rates would
increase or decrease our annual interest expense by approximately $390,000.
In February 2002, we issued 16,258 shares of our common stock through
our Dividend Reinvestment and Stock Purchase Plan for proceeds of approximately
$189,000. In addition, we issued 5,562 shares of our common stock, in a non-cash
transaction, to acquire the same number of Operating Partnership units from a
former minority unitholder.
Cash flows and liquidity
Net cash flows from operating activities were $2.1 million in the first
quarter of 2002, compared to $2.7 million in the first quarter of 2001. The
fluctuation in these amounts arises from timing of payments for expenses and
receipts of prepaid rents from residents. Investing and financing activities
focused on capital expenditures at apartment communities, along with payments of
dividends and distributions.
16
We have announced that the company will pay a regular quarterly
dividend of $0.31 per share on May 15, 2002, to shareholders of record on May 1,
2002. We continue to produce sufficient cash flow to fund our regular dividend
and recurring capital expenditures. However, any number of unforeseen events, or
a combination of such events (for example, a substantial decline in apartment
operations, a substantial increase in short-term interest rates, or the sale of
the restaurant properties or other assets), might necessitate a reduction in the
current dividend.
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.
Capital expenditures and depreciation
For acquired apartment properties, we compute depreciation using the
straight-line method over composite estimated useful lives of the related
assets, generally 40 years for buildings, 20 years for land improvements, 10
years for fixtures and equipment, and five years for floor coverings.
We generally complete and capitalize acquisition improvements
(expenditures that have been identified at the time the property is acquired,
and which are intended to position the property consistent with our physical
standards) within one to two years of acquisition. We capitalize non-recurring
expenditures for additions and betterments to buildings and land improvements.
In addition, we generally capitalize recurring capital expenditures for exterior
painting, roofing, and other major maintenance projects that substantially
extend the useful life of existing assets. For financial reporting purposes, we
depreciate these additions and replacements on a straight-line basis over
estimated useful lives of 5-20 years. We capitalize all floor covering,
appliance, and HVAC replacements, and depreciate them using a straight-line,
group method over estimated useful lives of 5-10 years. We expense ordinary
repairs and maintenance costs at apartment communities.
Through March 31, 2002, repairs and maintenance at our apartment
communities totaled approximately $1.0 million, including $438,000 in
compensation of service staff and $596,000 in payments for materials and
contracted services.
A summary of capital expenditures at our apartment communities through
March 31, 2002, in aggregate and per apartment unit, follows:
Total Per unit
--------------- ----------------
(000's)
Recurring capital expenditures:
Floor coverings $126 $ 35
Appliances/HVAC 45 12
17
Total Per unit
--------------- ----------------
(000's)
Exterior paint - -
Computer/support equipment 28 8
Other 83 22
--------------- ----------------
$282 $ 77
=============== ================
Non-recurring capital expenditures:
Acquisition improvements $175
Additions and betterments 72
Computer/support equipment 15
---------------
$262
===============
Costs of repairs, maintenance, and capital replacements and
improvements at restaurant properties are borne by the lessee.
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, 2001. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Capital Resources and Liquidity" above.
Part II - Other Information
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits:
None
b) Reports on Form 8-K:
None
18
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)
May 9, 2002 /s/ Philip S. Payne
-------------------------------------------
Philip S. Payne
Executive Vice President and
Chief Financial Officer
(Duly authorized officer)
May 9, 2002 /s/ Pamela B. Bruno
-------------------------------------------
Pamela B. Bruno
Vice President, Controller and
Chief Accounting Officer
19