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, 2004
-------------
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 28202-6024
(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
Indicate by check mark whether the registrant is an accelerated filer
(as defined in Rule 12b-2 of the Exchange Act). Yes No X
-- -
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of August 2, 2004 (the latest practicable date).
Common Stock, $.01 par value 8,560,049
- ---------------------------- -----------------------
(Class) (Number of shares)
Exhibit index: Page 28
TABLE OF CONTENTS
Item No. Page No.
PART I - Financial Information
1 Financial Statements 3
2 Management's Discussion and Analysis of 12
Financial Condition and Results of Operations
3 Quantitative and Qualitative Disclosures 23
About Market Risk
4 Controls and Procedures 24
PART II - Other Information
4 Submission of Matters to a Vote of Security Holders 24
5 Other Information 25
6 Exhibits and Reports on Form 8-K 25
Signatures 27
2
PART I - Financial Information
Item 1. Financial Statements.
BNP RESIDENTIAL PROPERTIES, INC.
- -------------------------------------------------------------------------------
Consolidated Balance Sheets
June 30 December 31
2004 2003
------------------ ------------------
(Unaudited)
Assets
Real estate investments at cost:
Apartment properties $345,718,648 $299,661,224
Restaurant properties 37,405,385 37,405,385
------------------ ------------------
383,124,033 337,066,609
Less accumulated depreciation (61,022,918) (56,052,569)
------------------ ------------------
322,101,115 281,014,040
Cash and cash equivalents 4,995,954 564,426
Prepaid expenses and other assets 5,338,578 3,408,127
Intangible assets, net of accumulated amortization:
Intangible related to acquisition of management operations 1,115,088 1,115,088
Deferred financing costs 1,507,505 1,098,025
------------------ ------------------
Total assets $335,058,240 $287,199,706
================== ==================
Liabilities and Shareholders' Equity
Deed of trust and other notes payable $265,839,006 $229,714,263
Accounts payable and accrued expenses 3,355,966 1,408,659
Deferred revenue and security deposits 1,379,173 1,343,999
Deferred credit for defeasance of interest,
net of accumulated amortization - 104,960
------------------ ------------------
Total liabilities 270,574,145 232,571,881
Minority interest in operating partnership 15,260,166 15,894,909
Shareholders' equity:
Preferred stock, $.01 par value, 10,000,000 shares
authorized; issued and outstanding shares--
909,090 at June 30, 2004, and December 31, 2003 10,000,000 10,000,000
Common stock, $.01 par value, 100,000,000 shares
authorized; issued and outstanding shares--
7,135,431 at June 30, 2004,
5,907,133 at December 31, 2003 71,354 59,071
Additional paid-in capital 85,113,968 71,473,473
Dividend distributions in excess of net income (45,961,393) (42,799,628)
------------------ ------------------
Total shareholders' equity 49,223,929 38,732,916
------------------ ------------------
Total liabilities and shareholders' equity $335,058,240 $287,199,706
================== ==================
3
BNP RESIDENTIAL PROPERTIES, INC.
- -------------------------------------------------------------------------------
Consolidated Statements of Operations
(Unaudited)
Three months ended Six months ended
June 30 June 30
2004 2003 2004 2003
----------------- ---------------- ----------------- ----------------
Revenues
Apartment rental income $10,579,186 $ 8,951,665 $20,632,246 $17,837,949
Restaurant rental income 957,447 981,383 1,914,894 1,980,709
Management fee income 207,860 222,534 405,401 449,894
Interest and other income 113,195 24,538 136,335 154,348
----------------- ---------------- ----------------- ----------------
11,857,688 10,180,120 23,088,876 20,422,900
Expenses
Apartment operations 4,387,815 3,851,990 8,249,942 7,325,887
Apartment administration 614,046 413,110 1,040,422 740,170
Corporate administration 560,742 657,275 1,226,913 1,344,340
Depreciation 2,689,967 2,489,079 5,229,555 4,822,397
Amortization of deferred
loan costs 67,604 81,812 155,609 154,783
Interest 3,329,553 3,242,092 6,570,047 6,438,148
----------------- ----------------
11,649,727 10,735,358 22,472,488 20,825,725
----------------- ---------------- ----------------- ----------------
Income (loss) before
minority interest 207,961 (555,238) 616,388 (402,825)
Minority interest in
operating partnership (8,673) (162,716) 26,695 (156,093)
----------------- ---------------- ----------------- ----------------
Net income (loss) 216,634 (392,522) 589,693 (246,732)
Cumulative preferred dividend 250,000 125,000 500,000 250,000
----------------- ---------------- ----------------- ----------------
Income (loss) available to
common shareholders $ (33,366) $ (517,522) $ 89,693 $ (496,732)
================= ================ ================= ================
Per share amounts:
Basic earnings per share -
Net income (loss) $ 0.03 $(0.06) $0.09 $(0.04)
================= ================ ================= ================
Income (loss) available to
common shareholders $(0.01) $(0.08) $0.01 $(0.08)
================= ================ ================= ================
Diluted earnings per share -
Net income $ 0.02 $(0.07) $0.07 $(0.05)
================= ================ ================= ================
Income (loss) available to
common shareholders $(0.01) $(0.08) $0.01 $(0.08)
================= ================ ================= ================
Dividends declared $ 0.25 $ 0.25 $0.50 $ 0.50
================= ================ ================= ================
Weighted average common
shares outstanding 7,119,280 5,857,298 6,762,612 5,848,435
================= ================ ================= ================
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, 2003 909,090 $10,000,000 5,907,133 $59,071 $71,473,473 $(42,799,628) $38,732,916
Common stock issued - - 1,191,565 11,916 13,233,713 - 13,245,629
Dividends paid - preferred - - - - - (250,000) (250,000)
Dividends paid - common - - - - - (1,476,783) (1,476,783)
Net income - - - - - 373,059 373,059
--------- ------------ ----------- ---------- ------------- --------------- ------------
Balance March 31, 2004 909,090 10,000,000 7,098,698 70,987 84,707,186 (44,153,352) 50,624,821
Common stock issued - - 36,733 367 463,081 - 463,448
Costs of stock issues - - - - (56,299) - (56,299)
Dividends paid - preferred - - - - - (250,000) (250,000)
Dividends paid - common - - - - - (1,774,675) (1,774,675)
Net income - - - - - 216,634 216,634
--------- ------------ ----------- ---------- ------------- --------------- ------------
Balance June 30, 2004 909,090 $10,000,000 7,135,431 $71,354 $85,113,968 $(45,961,393) $49,223,929
========= ============ =========== ========== ============= =============== ============
5
BNP RESIDENTIAL PROPERTIES, INC.
- -------------------------------------------------------------------------------
Consolidated Statements of Cash Flows
(Unaudited)
Six months ended
June 30
2004 2003
----------------- ----------------
Operating activities:
Net income (loss) $ 589,693 $ (246,732)
Adjustments to reconcile net income (loss) to
net cash provided by operations:
Minority interest in operating partnership 26,695 (156,093)
Depreciation and amortization of loan costs 5,385,164 4,977,180
Amortization of defeasance credit (104,960) (83,328)
Changes in operating assets and liabilities:
Prepaid expenses and other assets (1,761,313) (1,700,938)
Accounts payable and accrued expenses 1,746,347 1,467,775
Deferred revenue and security deposits (123,906) (68,148)
----------------- ----------------
Net cash provided by operating activities 5,757,720 4,189,716
Investing activities:
Acquisitions of apartment properties (19,512,573) (5,697,761)
Additions to apartment properties, net (1,543,467) (1,353,253)
Sale of restaurant property - 587,761
----------------- ----------------
Net cash used in investing activities (21,056,040) (6,463,253)
Financing activities:
Net proceeds from issuance of common stock 13,401,378 351,938
Distributions to operating partnership minority unitholders (920,548) (924,479)
Dividends paid to preferred shareholder (500,000) (251,027)
Dividends paid to common shareholders (3,251,458) (2,919,933)
Proceeds from notes payable 59,155,790 7,685,610
Principal payments on notes payable (47,590,236) (1,817,669)
Payment of deferred financing costs (565,078) (122,144)
----------------- ----------------
Net cash provided by financing activities 19,729,848 2,002,296
----------------- ----------------
Net increase (decrease) in cash and cash equivalents 4,431,528 (271,241)
Cash and cash equivalents at beginning of period 564,426 884,316
----------------- ----------------
Cash and cash equivalents at end of period $ 4,995,954 $ 613,075
================= ================
6
BNP RESIDENTIAL PROPERTIES, INC.
- -------------------------------------------------------------------------------
Notes to Consolidated Financial Statements - June 30, 2004
(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, 2003. We derived the amounts in the balance sheet at December 31,
2003, from the financial statements included in our 2003 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 2003 Annual
Report on Form 10-K.
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.
Stock-based compensation
The company has one employee Stock Option and Incentive Plan in place. We
account for this plan using the intrinsic value method, under the recognition
and measurement principles of APB Opinion No. 25, Accounting for Stock Issued to
Employees, and related Interpretations. No stock-based employee compensation
cost is reflected in net income, as all options granted under this plan had an
exercise price equal to the market value of the underlying common stock on the
date of grant. If we had applied the fair value recognition provisions of FASB
Statement No. 123, Accounting for Stock-Based Compensation, to this significant
estimate for stock-based employee compensation, the effect would have been to
reduce net income as reported by less than $100 for the six months ended June
30, 2004 and 2003, respectively, with no impact on basic and diluted earnings
per share amounts as reported.
Note 3. Apartment property acquisitions
During the second quarter of 2004, we completed the following apartment
acquisitions:
o Bridges at Wind River Apartments (formerly named Oakwood Raleigh
Apartments) - 346-unit property located in Durham, North Carolina, acquired
May 12, 2004, for a contract price of $25.0 million, including issuance of
operating partnership units with an imputed value of approximately
$511,000, assumption of approximately $24.3 million debt, and assumption of
estimated $0.2 million net operating liabilities in excess of operating
assets acquired. We received approximately $105,000 cash in this
transaction.
o Carriage Club Apartments - 268-unit property located in Mooresville, North
Carolina, acquired June 29, 2004, for a contract price of $19.65 million,
paid in cash.
7
Note 4. Financing transactions
During the second quarter of 2004, we completed the following financing
transactions:
o $11.5 million variable-rate note payable, effective April 30, 2004, secured
by a deed of trust and assignment of rents of Chason Ridge Apartments. The
note provides for interest at 30-day LIBOR plus 1.75%, payable monthly, and
principal due May 2007, subject to an optional 24-month extension. If the
loan is extended, principal payments of approximately $27,000 will be
payable monthly beginning June 2007, with the remaining principal balance
of approximately $10.9 million due April 2009. In conjunction with this
transaction, we paid and recorded deferred loan costs of approximately
$95,000. We applied approximately $9.4 million of these proceeds to retire
an existing 8.5% deed of trust note related to Chason Ridge.
o $19.7 million fixed-rate note payable, effective May 12, 2004, secured by a
deed of trust and assignment of rents of Bridges at Wind River Apartments.
The note provides for interest at 5.57% payable in monthly installments of
principal and interest of approximately $113,000, with a balloon payment of
approximately $16.5 million at maturity in June 2014, subject to an
optional extension for one year with interest at a variable rate. In
conjunction with this transaction, we paid and recorded deferred loan costs
of approximately $160,000. We applied the proceeds of this note, along with
additional funds drawn on our revolving line of credit, to retire the
existing $24.3 million loan obligation related to Bridges at Wind River.
o $14.9 million fixed-rate note payable, effective June 29, 2004, secured by
a deed of trust and assignment of rents of Carriage Club Apartments. The
note provides for interest at 5.15% payable in monthly installments of
approximately $65,000 through July 2005, then principal and interest
payable in monthly installments of approximately $81,000 August 2005
through June 2009, with a balloon payment of approximately $14.0 million at
maturity in July 2009. In conjunction with this transaction, we paid and
recorded deferred loan costs of approximately $90,000 through June 30,
2004.
In June 2004, we modified our revolving line of credit with a bank secured by
the Latitudes Apartments to increase the maximum loan amount to $30.0 million,
extend the term of the loan through November 2007, and to reduce the variable
interest rate on outstanding amounts to 30-day LIBOR plus 1.65%. In conjunction
with this modification, we paid and recorded deferred loan costs of
approximately $185,000.
During the second quarter of 2004, we made draws on this line of credit totaling
$9.6 million in conjunction with the acquisitions of Bridges at Wind River and
Carriage Club. We also made a draw of $3.4 million on June 30, 2004, in
conjunction with the July 1, 2004, acquisition of Savannah Shores Apartments
(discussed in Note 6 below).
We estimate future scheduled principal payments will be as follows. This
schedule includes maturities of debt in place as of July 31, 2004.
2004 (remainder) $ 11,064,000
2005 7,649,000
2006 17,082,000
2007 73,034,000
2008 38,337,000
8
2009 and thereafter 111,144,000
------------------
$258,310,000
==================
Note 5. Shareholders' equity
On February 23, 2004, we issued 1,175,519 shares of common stock at a price of
$11.75 per share, to a number of institutional investors and mutual funds
pursuant to a private placement, for a total purchase price of approximately
$13,812,000. Through June 30, 2004, we incurred costs associated with this
placement totaling approximately $800,000. We expect to use the net proceeds to
fund future acquisitions, repay bank debt, and for general corporate purposes.
We immediately applied $13.0 million of the net proceeds to reduce our revolving
line of credit secured by Latitudes Apartments.
In May 2004, we issued 16,733 shares of our common stock through our Dividend
Reinvestment and Stock Purchase Plan ("DRIP") for proceeds of approximately
$212,000. In February 2004, we issued 16,046 shares of our common stock through
our DRIP for proceeds of approximately $195,000.
Also in May 2004, we issued 20,000 shares of our common stock with an imputed
value of $251,000 in exchange for operating partnership units formerly held by a
minority unitholder. We issued these shares to Paul Chrysson, a member of our
Board of Directors.
We calculated basic and diluted earnings per common share using the following
amounts:
Three months ended Six months ended
June 30 June 30
2004 2003 2004 2003
----------------- ---------------- ----------------- -----------------
Numerators:
Numerator for basic
earnings per share -
Net income (loss) $ 216,634 $ (392,522) $ 589,693 $ (246,732)
Cumulative preferred dividend (250,000) (125,000) (500,000) (250,000)
----------------- ---------------- ----------------- -----------------
Income (loss) available to
common shareholders $ (33,366) $ (517,522) $ 89,693 $ (496,732)
================= ================ ================= =================
Numerator for diluted
earnings per share -
Net income (1) $ 207,961 $ (555,238) $ 616,388 $ (402,825)
Cumulative preferred dividend (250,000) (125,000) (500,000) (250,000)
----------------- ---------------- ----------------- -----------------
Income available to
common shareholders (1) $ (42,039) $ (680,238) $ 116,388 $ (652,825)
================= ================ ================= =================
9
Three months ended Six months ended
June 30 June 30
2004 2003 2004 2003
----------------- ---------------- ----------------- -----------------
Denominators:
Denominator for basic
earnings per share -
weighted average common
shares outstanding 7,119,280 5,857,298 6,762,612 5,848,435
Effect of dilutive securities:
Convertible Operating
Partnership units 1,850,367 1,844,264 1,845,733 1,844,264
Stock options (2) 24,283 5,360 19,183 4,422
----------------- ---------------- ----------------- -----------------
Denominator for diluted
earnings per share - adjusted
weighted average shares and
assumed conversions 8,993,930 7,706,922 8,627,528 7,697,121
================= ================ ================= =================
<FN>
(1) Assumes conversion of operating partnership units to common shares;
minority interest in operating partnership income has been eliminated.
(2) We excluded options to purchase 120,000 shares at $13.125 from the
calculation of diluted earnings per share for the three and six months
ended June 30, 2004. We also excluded additional options to purchase
140,000 shares of common stock at $12.50, 110,000 shares of common stock at
$12.25 and 60,000 shares at $11.25 from the calculation of diluted earnings
per share for the three and six months ended June 30, 2003. The exercise
price of these options was greater than the average market price of the
common shares for those periods, and the effect would be anti-dilutive.
</FN>
Note 6. Subsequent events
Dividend declaration
On July 20, 2004, the Board of Directors declared a regular quarterly cash
dividend of $0.25 per share to be paid on August 16, 2004, to common
shareholders of record on August 2, 2004. The Board of Directors also authorized
the payment of dividends totaling $250,000 to the Series B Preferred shareholder
in accordance with the investment agreement for those shares.
Apartment acquisitions and related financing transactions
Effective July 1, 2004, we acquired Savannah Shores Apartments, a 198-unit
apartment property located in Myrtle Beach, South Carolina, for an initial
purchase price of $12.5 million. The acquisition agreement provides for
potential earn-out of additional purchase price of up to $1.7 million within a
three-year period; this would be funded through the issuance of operating
partnership units with a total imputed value of $13.00 per unit to the
contributors. We paid the initial purchase price through issuance of operating
partnership units with an imputed value of approximately $0.1 million,
assumption of $12.1 million in debt, and assumption of approximately $0.3
million net operating liabilities in excess of operating assets acquired. Two
members of the contributor group in this transaction serve on our Board of
Directors. Prior to this transaction, we managed the property under a
third-party management contract.
Also effective July 1, 2004, we issued a $9.0 million variable-rate note
payable, secured by a deed of trust and assignment of rents of Savannah Shores
Apartments. The three-year note provides for interest at 30-day LIBOR plus 1.8%,
payable monthly, and principal due July 2007,
10
subject to an optional 24-month extension. If the loan is extended, principal
payments of approximately $16,000 will be payable monthly beginning August 2007,
with the remaining principal balance of approximately $8.6 million due July
2009. We applied proceeds of this loan, along with additional funds drawn on our
revolving line of credit, to retire the existing $12.1 million loan obligation
related to Savannah Shores.
Effective August 5, 2004, we acquired the Fairington Apartments, a 250-unit
apartment property located in Charlotte, North Carolina, for a contract price of
$18.5 million, paid in cash. In conjunction with this acquisition, we issued a
$13.4 million variable-rate note payable, secured by a deed of trust and
assignment of rents of Fairington. The note provides for interest at 30-day
LIBOR plus 1.75%, payable monthly, with principal due August 2007, subject to an
optional 24-month extension.
Other financing transactions
Effective July 13, 2004, we issued a $15.0 million fixed-rate note payable,
secured by a deed of trust and assignment of rents of The Harrington Apartments.
The note provides for interest at 5.15% payable in monthly installments of
approximately $65,000 through August 2005, then principal and interest payable
in monthly installments of approximately $82,000 September 2005 through July
2009, with a balloon payment of approximately $14.1 million at maturity in
August 2009. In conjunction with this transaction, we paid and initially
recorded deferred loan costs of approximately $82,000. We applied the proceeds
to retire a $14.4 million variable-rate note payable.
Common stock issue
On July 19, 2004, we issued 1,420,000 shares of common stock at a price of
$12.50 per share, to a number of institutional investors and mutual funds
pursuant to a registered direct placement, for a total purchase price of
approximately $17.75 million. We estimate costs associated with this placement
will total approximately $0.8 million. We expect to use the net proceeds to fund
future acquisitions, repay bank debt, and for general corporate purposes. We
immediately applied $17.0 million of the net proceeds to reduce our revolving
line of credit secured by Latitudes Apartments.
11
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 cause our debt service costs to
exceed expectations;
o we may not be able to meet our long-term liquidity requirements on favorable
terms; and
o we could lose the services of key executive officers.
Given these uncertainties, we caution you not to place undue reliance
on forward-looking statements. We undertake no obligation to disclose 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. As of August 2, 2004, we currently own 23 apartment
communities containing 5,671 units and provide third-party management services
for seven communities containing a total of 1,799 units. In addition to our
apartment communities, we own 40 properties that we lease on a triple-net basis
to a restaurant operator.
12
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 28202-6024, telephone 704/944-0100.
Results of Operations
Summary
At the end of the first quarter of 2004, we reported improvement in
apartment operating results, attributed primarily to a 4.5% increase in
same-units occupancy at our apartment communities. We indicated that while we
were confident that we would be able to sustain the gains in occupancy, we were
somewhat apprehensive about our ability to raise rents.
In the second quarter of 2004, we are pleased to report that we were in
fact able to maintain occupancy at acceptable levels while obtaining meaningful
increases in rental rates. For the second quarter, average economic occupancy
for our apartments owned for the full six months in both 2003 and 2004 increased
by 3.7%, while revenue per occupied unit increased by 2.4%, as compared to the
second quarter of 2003.
We are optimistic about the long-term prospects for our apartment
properties, our apartment markets and the outlook for the company, and are
actively working to increase the size and scope of the company. We are
continuing to build our apartment portfolio. During the second quarter we
acquired two apartment communities, and subsequent to quarter end we completed
the acquisition of two additional communities. We have expanded our equity and
investor base through two placements of common stock with institutional
investors and mutual funds: $13.8 million in the first quarter and $17.75
million early in the third quarter.
It is important to note that our optimism is tempered somewhat by
uncertainty over a number of factors, including the strength of the current
economic recovery, the outlook for changes in interest rates, the impact of
rapidly expanding state and federal deficits, and the threat of terrorism. While
these issues make it extremely difficult to predict with any certainty the
outlook for the near-term future, we are confident that we are well positioned
for the long term.
Revenues
Total revenues in the second quarter of 2004 were $11.9 million, an
increase of 16.5% compared to the second quarter of 2003. Total revenues through
the first six months of 2004 were $23.1 million, a 13.1% increase compared to
the first six months of 2003.
Apartment rental income totaled $10.6 million in the second quarter of
2004, an increase of 18.2% compared to the second quarter of 2003. Through the
first six months of 2004, apartment rental income totaled $20.6 million, a 15.7%
increase compared to the first six months of 2003. These increases are primarily
attributable to apartment acquisitions in 2003 and 2004 - The Place, acquired
March 2003; The Harrington, acquired August 2003; Bridges at Wind River,
acquired May 2004. These acquisitions contributed approximately $1.2 million in
revenue in the
13
second quarter of 2004 and approximately $2.1 million in revenue through the
first six months of 2004.
On a "same-units" basis (the 18 apartment communities that we owned
through the first six months of both 2004 and 2003), apartment rental income
increased by 6.5% in the second quarter of 2004 compared to the second quarter
of 2003, and by 5.5% for the first six months of 2004 compared to the first six
months of 2003. This increase was the result of improvements in occupancy as
well as revenue per occupied unit. On a same-units basis, average economic
occupancy was 95.2% for the second quarter of 2004, compared to 91.5% for the
second quarter of 2003; and 95.2% for the first six months of 2004, compared to
91.2% for the first six months of 2003. On a same-units basis, average revenue
per occupied unit was $737 for the second quarter of 2004, compared to $720 for
the second quarter of 2003; and $734 for the first six months of 2004, compared
to $726 for the first six months of 2003.
Summary amounts for our apartment communities' occupancy and revenue
per occupied unit for the second quarter and first six months of 2004 follow:
Three months ended Six months ended
June 30 June 30
Average Average
monthly monthly
Number revenue revenue
of Average per Average per
apartment economic occupied economic occupied
units occupancy unit occupancy unit
----------- ----------- ----------- ----------- -----------
Abbington Place 360 92.8% $759 93.1% $757
Allerton Place 228 95.5% 776 94.3% 773
Barrington Place 348 94.1% 756 94.8% 756
Brookford Place 108 97.1% 679 97.5% 676
Carriage Club (2) 268
Chason Ridge 252 98.7% 793 98.2% 790
The Harrington (1) 288 94.2% 749 92.2% 742
Harris Hill 184 96.2% 640 95.5% 647
Latitudes 448 97.8% 913 97.0% 906
Madison Hall 128 96.0% 592 94.8% 597
Marina Shores Waterfront 290 95.5% 766 94.2% 756
Oakbrook 162 94.4% 693 96.2% 692
Oak Hollow 461 93.0% 611 94.0% 607
Paces Commons 336 96.6% 630 96.4% 631
Paces Village 198 92.7% 669 93.4% 675
Pepperstone 108 96.1% 673 97.1% 666
Savannah Place 172 93.7% 709 93.4% 704
Summerlyn Place 140 93.8% 842 94.4% 837
The Place (1) 144 97.3% 557 97.5% 560
Waterford Place 240 95.5% 876 94.8% 874
Woods Edge 264 95.0% 712 95.7% 705
Bridges at Wind River (1) 346 90.9% 843
All apartments
- 2004 5,473 95.0% 735 95.0% 731
- 2003 4,571 91.4% 715 91.1% 723
14
Three months ended Six months ended
June 30 June 30
Average Average
monthly monthly
Number revenue revenue
of Average per Average per
apartment economic occupied economic occupied
units occupancy unit occupancy unit
----------- ----------- ----------- ----------- -----------
Same units (1) 4,427
- 2004 95.2% 737 95.2% 734
- 2003 91.5% 720 91.2% 726
<FN>
(1) We acquired The Place Apartments in March 2003, The Harrington Apartments
in August 2003, and Bridges at Wind River in May 2004. We have excluded
these communities from same-units calculations as of June 30.
(2) We acquired Carriage Club Apartments in late June 2004. We have excluded
this community from calculations of occupancy and revenue per occupied
unit.
</FN>
Restaurant rental income was $1.0 million in the second quarters of
both 2004 and 2003. Through the first six months of 2004, restaurant rental
income was $1.9 million, compared to $2.0 million through the first six months
of 2003. A slight decline in 2004 restaurant rental income as compared to 2003
is attributable to the sale of two restaurant properties during 2003.
"Same-store" (those 40 restaurant properties that operated through the first six
months of both 2004 and 2003) sales at our restaurant properties increased by
15.8% compared to the second quarter of 2003, and by 15.9% compared to the first
six months of 2003. For the first time in almost nine years, during the second
quarter of 2004, sales at our restaurant properties exceeded the threshold for
percentage rent; however, on a year-to-date basis, sales would have to increase
by 2.3% before we would earn rent exceeding the minimum rent for 2004. Under the
master lease for these 40 restaurant properties, annual rent is the greater of
$3,829,787 or 9.875% of food sales.
Management fee income totaled $208,000 in the second quarter of 2004,
compared to $223,000 in the second quarter of 2003. Through the first six months
of 2004, management fee income totaled $405,000, compared to $450,000 through
the first six months of 2003. This decrease is attributable to the termination
of management contracts for several properties in 2003. We expect that
management fee income will further decline following the July 1, 2004,
acquisition of Savannah Shores Apartments, which we previously managed, and
termination of the management contract for another property. Management fees for
these two properties totaled approximately $65,000 through the first six months
of 2004.
Expenses
Total expenses, including non-cash charges for depreciation and
amortization, were $11.6 million in the second quarter of 2004, an increase of
8.5% compared to the second quarter of 2003. Through the first six months of
2004, total expenses were $22.5 million, an increase of 7.9% compared to the
first six months of 2003.
Apartment operations expense (the direct costs of on-site operations at
our apartment communities) in the second quarter of 2004 totaled $4.4 million, a
13.9% increase compared to the second quarter of 2003. Through the first six
months of 2004, apartment operations expense totaled $8.2 million, an increase
of 12.6% compared to the first six months of 2003. These increases are primarily
attributable to apartment acquisitions in 2003 and 2004; these
15
communities generated apartment operations expense of $548,000 in the second
quarter and $937,000 through the first six months of 2004. On a same-units
basis, apartment operations expense increased by 3.6% for the second quarter,
and 1.9% through the first six months, of 2004 as compared to 2003.
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 (the costs associated with oversight,
accounting and support of our apartment management activities for both owned and
third-party properties) and corporate administration expense totaled $1.2
million in the second quarter of 2004, a 9.8% increase compared to the second
quarter of 2003. Through the first six months of 2004, administrative expenses
totaled $2.3 million, an 8.8% increase compared to the first six months of 2003.
These increases are attributable to additional corporate support staff, software
and insurance costs.
Depreciation expense totaled $2.7 million in the second quarter of
2004, an 8.1% increase compared to the second quarter of 2003. Through the first
six months of 2004, depreciation expense totaled $5.2 million, an 8.4% increase
compared to the first six months of 2003. These increases are primarily
attributable to the addition of apartment communities.
Interest expense totaled $3.3 million in the second quarter of 2004, an
increase of 2.7% compared to the second quarter of 2003. Through the first six
months of 2004, interest expense totaled $6.6 million, an increase of 2.0%
compared to the first six months of 2003. Overall, weighted average interest
rates were 5.7% for the second quarter and first six months of 2004, compared to
6.0% for the same periods in 2003. (See further discussion in "Capital Resources
and Liquidity - Capital Resources" below.)
Net Income
Operating partnership earnings before non-cash charges for depreciation
and amortization totaled $3.0 million for the second quarter of 2004, a 47.1%
increase compared to $2.0 million for the second quarter of 2003. Through the
first six months of 2004, operating partnership earnings before depreciation and
amortization totaled $6.0 million, a 31.2% increase compared to $4.6 million
through the first six months of 2003. These increases are attributable to the
positive impact of new apartment communities, as well as improvement in
apartments operating results, particularly in apartment revenues.
Income before minority interest (operating partnership income, before
deductions for the minority interest in the operating partnership and the
cumulative preferred dividend) was $208,000 for the second quarter of 2004,
compared to a loss of $555,000 for the second quarter of 2003. Through the first
six months of 2004, income before minority interest totaled $616,000, compared
to a loss of $403,000 through the first six months of 2003. Net income (after
deduction for the minority interest, but before the cumulative preferred
dividend) was $217,000 for the second quarter of 2004, compared to a loss of
$393,000 for the second quarter of 2003. Through the first six months of 2004,
net income was $590,000, compared to a loss of $247,000 through the first six
months of 2003. These comparisons again reflect the improvement in apartments
operating results.
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
16
calculating net income available to common shareholders. In September 2003, we
issued 454,545 shares of cumulative preferred stock, which doubled the number of
preferred shares outstanding. The cumulative preferred dividend totaled $250,000
for each of the first two quarters of 2004, compared to $125,000 for each of the
first two quarters of 2003.
Funds from Operations
Funds from operations is frequently referred to as "FFO." FFO is
defined by the National Association of Real Estate Investment Trusts ("NAREIT")
as "net income (computed in accordance with generally accepted accounting
principles), excluding gains (losses) from sales of property, plus depreciation
and amortization, and after adjustments for unconsolidated partnerships and
joint ventures." Our calculation of FFO is consistent with FFO as defined by
NAREIT. Because we hold all of our assets in and conduct all of our operations
through the operating partnership, we measure FFO at the operating partnership
level (i.e., before minority interest).
Historical cost accounting for real estate assets implicitly assumes
that the value of real estate assets diminishes predictably over time. In fact,
real estate values have historically risen or fallen with market conditions. FFO
is intended to be a standard supplemental measure of operating performance that
excludes historical cost depreciation from - or "adds it back" to - GAAP net
income. We consider FFO to be useful in evaluating potential property
acquisitions and measuring operating performance.
Funds available for distribution is frequently referred to as "FAD." We
calculate FAD as FFO plus non-cash expense for amortization and write-off of
unamortized loan costs, less recurring capital expenditures. We believe that,
together with net income and cash flows from operating activities, FAD provides
investors with an additional measure to evaluate the ability of the operating
partnership to incur and service debt, to fund acquisitions and other capital
expenditures, and to fund distributions to shareholders and minority
unitholders.
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 FFO or FAD to be
alternatives to net income as reliable measures of the company's operating
performance; nor should you consider FFO or FAD 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.
FFO and FAD do not represent cash flows from operating, investing or financing
activities as defined by generally accepted accounting principles. Further, FFO
and FAD as disclosed by other REITs might not be comparable to our calculation
of FFO or FAD.
Funds from operations totaled $2.6 million in the second quarter of
2004, a 46.4% increase compared to the second quarter of 2003. Through the first
six months of 2004, funds from operations totaled $5.3 million, a 28.2% increase
compared to the first six months of 2003. This comparison reflects the
improvement in apartments operating results.
17
We calculated funds from operations as follows (all amounts in
thousands):
Three months ended Six months ended
June 30 June 30
2004 2003 2004 2003
--------------- --------------- --------------- ---------------
Income before minority interest $ 208 $ (555) $ 616 $ (403)
Cumulative preferred dividend (250) (125) (500) (250)
Depreciation 2,690 2,489 5,230 4,822
--------------- --------------- --------------- ---------------
Funds from operations $2,648 $1,809 $5,346 $4,170
=============== =============== =============== ===============
A reconciliation of FFO to FAD follows (all amounts in thousands):
Three months ended Six months ended
June 30 June 30
2004 2003 2004 2003
--------------- --------------- --------------- ---------------
Funds from operations $2,648 $1,809 $5,346 $4,170
Amortization of loan costs 68 82 156 155
Recurring capital expenditures (626) (408) (901) (690)
--------------- --------------- --------------- ---------------
Funds available for distribution $2,089 $1,483 $4,600 $3,635
=============== =============== =============== ===============
A further reconciliation of FAD to net cash provided by operating activities
follows (all amounts in thousands):
Three months ended Six months ended
June 30 June 30
2004 2003 2004 2003
--------------- --------------- --------------- ---------------
Funds available for distribution $2,089 $1,483 $4,600 $3,635
Cumulative preferred dividend 250 125 500 250
Recurring capital expenditures 626 408 901 690
Amortization of deferred
interest defeasance (26) (42) (105) (83)
Changes in operating
assets and liabilities (626) (4) (139) (301)
--------------- --------------- --------------- ---------------
Net cash provided by
operating activities $2,313 $1,970 $5,758 $4,190
=============== =============== =============== ===============
18
Other information about our historical cash flows follows (all amounts
in thousands):
Three months ended Six months ended
June 30 June 30
2004 2003 2004 2003
--------------- --------------- --------------- ---------------
Net cash provided by (used in):
Operating activities $ 2,313 $ 1,970 $ 5,758 $ 4,190
Investing activities (20,498) (600) (21,056) (6,463)
Financing activities 21,988 (1,171) 19,730 2,002
Dividends and distributions paid to:
Preferred shareholders $ 250 $ 125 $ 500 $ 251
Common shareholders 1,775 1,462 3,251 2,920
Minority unitholders in
operating partnership 460 462 921 924
Scheduled debt principal payments $ 297 $ 285 $ 614 $ 559
Non-recurring capital expenditures 359 193 642 664
Weighted average shares outstanding
Preferred shares 909 455 909 455
Common shares 7,119 5,857 6,763 5,848
Weighted average Operating
Partnership minority units
outstanding 1,850 1,844 1,846 1,844
By virtually any measure, we had a very good first six months in 2004.
As a result of continued improvement in apartment operations, funds from
operations, funds available for distribution and earnings per share all
increased by significant amounts as compared to the first six months of 2003.
Capital Resources and Liquidity
Capital Resources
We completed a number of significant investing and financing
transactions during the second quarter of 2004 and in July of 2004. We completed
the following apartment community acquisitions:
o Bridges at Wind River Apartments, effective May 12, 2004 - We acquired
this 346-unit property located in Durham, North Carolina, for a
contract price of $25.0 million, including issuance of 39,270 operating
partnership units at an imputed value of $13.00 per unit, or
approximately $511,000, assumption of approximately $24.3 million debt,
and assumption of approximately $0.2 million net operating liabilities
in excess of operating assets acquired. We received approximately
$105,000 cash in this acquisition.
19
o Carriage Club Apartments, effective June 29, 2004 - We acquired this
268-unit property located in Mooresville, North Carolina, for a
contract price of $19.65 million, paid in cash.
o Savannah Shores Apartments, effective July 1, 2004 - We acquired this
198-unit property located in Myrtle Beach, South Carolina, for an
initial purchase price of $12.5 million. The acquisition agreement
provides for potential earn-out of additional purchase price of up to
$1.7 million within a three-year period, which would be funded through
the issuance of up to 130,769 operating partnership units at an imputed
value of $13.00 per unit to the contributors. Prior to this
acquisition, we managed this property under a third-party management
contract. In conjunction with this acquisition, we issued 7,695
operating partnership units at an imputed value of $13.00 per unit, or
approximately $100,000, assumed approximately $12.1 million in debt;
and assumed approximately $0.3 million net operating liabilities in
excess of operating assets acquired.
During the second quarter and in July of 2004, we completed the following
financing transactions:
o $11.5 million variable-rate loan, effective April 30, 2004, proceeds
applied to retire the $9.4 million balance on the existing deed of
trust note at 8.5% related to Chason Ridge Apartments. The three-year
note payable is secured by a deed of trust and assignment of rents of
Chason Ridge, and provides for interest at 30-day LIBOR plus 1.75%,
payable monthly, with the principal balance due May 2007, subject to an
optional 24-month extension.
o $19.7 million fixed-rate loan, effective May 12, 2004, proceeds applied
to retire the existing $24.3 million loan obligation related to Bridges
at Wind River Apartments. The ten-year note payable is secured by a
deed of trust and assignment of rents of Bridges at Wind River, and
provides for interest at 5.57% payable in monthly installments of
principal and interest of approximately $113,000 per month through May
2014, with a balloon payment of approximately $16.5 million at maturity
in June 2014.
o $14.9 million fixed-rate loan, effective June 29, 2004, secured by a
deed of trust and assignment of rents of Carriage Club Apartments. The
five-year note provides for interest at 5.15% payable in monthly
installments of approximately $65,000 through July 2005, then principal
and interest installments of approximately $81,000 per month through
June 2009, with a balloon payment of approximately $14.0 million at
maturity in July 2009.
o $9.0 million variable-rate loan, effective July 1, 2004, proceeds
applied to retire the existing $12.1 million loan obligation related to
Savannah Shores Apartments. The three-year note is secured by a deed of
trust and assignment of rents of Savannah Shores Apartments, and
provides for interest at 30-day LIBOR plus 1.8% payable monthly, with
the principal balance due July 2007, subject to an optional 24-month
extension.
o $15.0 million fixed-rate note payable, effective July 13, 2004,
proceeds applied to retire the existing variable-rate $14.4 million
deed of trust note related to The Harrington Apartments. The five-year
note is secured by a deed of trust and assignment of rents of The
Harrington, and provides for interest at 5.15% payable in monthly
installments of approximately $65,000 through August 2005, then
principal and interest payable in
20
monthly installments of approximately $82,000 September 2005 through
July 2009, with a balloon payment of approximately $14.1 million at
maturity in August 2009.
o In conjunction with the financing transactions related to acquisitions,
we made draws of $13.0 million on our line of credit secured by
Latitudes Apartments during the quarter ended June 30, 2004.
In May 2004 we issued 20,000 shares of our common stock with an imputed
value of $251,000 in exchange for operating partnership units formerly held by a
minority unitholder. We issued these shares to Paul Chrysson, a member of our
Board of Directors.
Effective July 19, 2004, we completed the placement of 1.42 million
shares of common stock at a price of $12.50 per share to a number of
institutional investors and mutual funds pursuant to a registered direct
placement. We expect that net proceeds of this placement will be approximately
$16.9 million. We expect to use the net proceeds to fund future acquisitions,
repay bank debt, and for general corporate purposes. We immediately applied
proceeds of the stock issue to reduce our revolving line of credit secured by
Latitudes Apartments by $17.0 million.
During the first quarter of 2004, we issued 1.18 million shares of
common stock at a price of $11.75 per share to a number of institutional
investors and mutual funds pursuant to a private placement, for net proceeds of
approximately $13.0 million. We immediately applied $13.0 million of the net
proceeds to reduce our revolving line of credit secured by Latitudes Apartments.
As of June 30, 2004, total long-term debt was $265.8 million, including
$193.0 million of notes payable at fixed interest rates ranging from 5.06% to
8.55%, and $72.8 million at variable rates indexed on 30-day LIBOR rates. The
weighted average interest rate on debt outstanding was 5.5% at June 30, 2004,
down from 5.9% at March 1, 2004.
As of July 31, 2004, total long-term debt was $258.3 million, including
$207.9 million of notes payable at fixed interest rates ranging from 5.06% to
8.55%, and $50.4 million at variable rates indexed on 30-day LIBOR rates. The
weighted average interest rate on debt outstanding at July 31, 2004, was 5.8%. A
1% fluctuation in variable interest rates would increase or decrease our annual
interest expense by approximately $510,000.
Cash Flows and Liquidity
Net cash flows from operating activities were $2.3 million in the
second quarter of 2004, compared to $2.0 million in the second quarter of 2003.
Through the first six months of 2004, net cash flows from operating activities
were $5.8 million, compared to $4.2 million through the first six months of
2003. Improvements in operating results produced approximately $1.0 million of
the increase in second quarter comparisons and $1.4 million of the increase in
six month comparisons; remaining differences are attributable to timing of cash
receipts and disbursements.
Investing and financing activities, other than those described under
"Capital Resources" above, focused on capital expenditures at apartment
communities, along with payment of dividends and distributions.
We have announced that the company will pay a regular quarterly
dividend of $0.25 per share (approximately $2.1 million) on August 16, 2004, to
shareholders of record of our common stock as of August 2, 2004, as well as
$250,000 dividends to the preferred shareholder.
21
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.
Critical Accounting Policies - Capital expenditures and depreciation
We identify and discuss our significant accounting policies in the
notes to our financial statements included in our Annual Report on Form 10-K.
Our policy and practice regarding capital expenditures and depreciation, which
may be of particular interest to readers of this Quarterly Report, are further
discussed below.
In general, for the 15 apartment properties acquired before 2002, 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.
For apartment properties acquired in 2002 and later, we have or will
perform analyses of components of the real estate assets acquired. For these
properties, we assign estimated useful lives as follows: base building
structure, 45-60 years; land improvements, 7-20 years; short-lived building
components, 5-20 years; and fixtures, equipment and floor coverings, 5-10 years.
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 retire replaced assets with a charge to
depreciation for any remaining carrying value. 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.
Capital expenditures at our apartment communities during the first six
months of 2004 totaled approximately $1.5 million, including approximately
$251,000 for acquisition improvements, $391,000 for additions and betterments,
and $901,000 for recurring capital expenditures.
We expense ordinary repairs and maintenance costs at apartment
communities. Repairs and maintenance at our apartment communities during the
first six months of 2004 totaled approximately $2.9 million, including $1.2
million in compensation of service staff and $1.7 million in payments for
materials and contracted services.
22
A summary of capital expenditures at our apartment communities through
June 30, 2004, in aggregate and per apartment unit, follows:
Total Per unit
------------ ------------
(000's)
Recurring capital expenditures:
Floor coverings $374 $ 76
Appliances/HVAC 161 33
Exterior paint - -
Computer/support equipment 31 6
Other 335 68
------------ ------------
$901 $183
============ ============
Non-recurring capital expenditures:
Acquisition improvements at apartment properties $251
Additions and betterments at apartment properties 360
Computer/support equipment 31
------------
$642
============
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
We completed a number of significant acquisition and financing
transactions during the second quarter of 2004 and during the month of July,
2004.
As of June 30, 2004, total long-term debt was $265.8 million, including
$193.0 million of notes payable at fixed interest rates ranging from 5.06% to
8.55%, and $72.8 million at variable rates indexed on 30-day LIBOR rates. The
weighted average interest rate on debt outstanding was 5.5% at June 30, 2004,
down from 5.9% at March 1, 2004.
As of July 31, 2004, total long-term debt was $258.3 million, including
$207.9 million of notes payable at fixed interest rates ranging from 5.06% to
8.55%, and $50.4 million at variable rates indexed on 30-day LIBOR rates. The
weighted average interest rate on debt outstanding at July 31, 2004, was 5.8%. A
1% fluctuation in variable interest rates would increase or decrease our annual
interest expense by approximately $510,000.
The table below provides information about our long-term debt
instruments and presents expected principal maturities and related weighted
average interest rates on instruments in place as of July 31, 2004 (all amounts
in thousands).
Expected maturity dates
2004 2005 2006 2007 2008 Later Total
----------- ----------- ----------- ----------- ----------- ----------- -----------
Fixed rate notes $ 489 $ 6,816 $ 1,599 $49,518 $38,337 $111,144 $207,903
Average interest rate 5.43% 8.12% 6.06% 6.94% 6.56% 6.10% 6.45%
23
Expected maturity dates
2004 2005 2006 2007 2008 Later Total
----------- ----------- ----------- ----------- ----------- ----------- -----------
Variable rate notes $ 10,575 $ 833 $15,483 $23,516 - - $ 50,407
Average interest rate 3.01% 2.97% 2.97% 2.92% 2.96%
Item 4. Controls and Procedures
We maintain disclosure controls and procedures designed to ensure that
information disclosed in our annual and periodic reports is recorded, processed,
summarized and reported within the time periods specified in the SEC's rules and
forms. In addition, we designed these disclosure controls and procedures to
ensure that this information is accumulated and communicated to our management,
including our chief executive officer and chief financial officer, to allow
timely decisions regarding required disclosures.
Based on our most recent evaluation, which was completed as of the end
of the second quarter of 2004, our chief executive officer and chief financial
officer believe that our disclosure controls and procedures are effective. There
have been no significant changes in our internal controls or in other factors
that could significantly affect the internal controls subsequent to the
completion of this evaluation.
Part II - Other Information
Item 4. Submission of Matters to a Vote of Security Holders
We held our Annual Meeting of Shareholders on May 20, 2004. Of the
7,098,698 shares of common stock issued, outstanding, and entitled to vote at
this meeting, 5,994,594, or 84.45%, were present in person or by proxy. The
following proposal was approved:
Withheld/ Broker
For Against Abstained Non-votes
-------------- --------------- -------------- --------------
Election of directors to serve until the 2007 annual meeting:
Stephen R. Blank 5,755,948 -0- 238,646 -0-
Philip S. Payne 5,762,268 -0- 232,326 -0-
Election of a Series B director to serve until
the 2005 annual meeting:
Peter J. Weidhorn (elected by the holders
of Series B Cumulative Preferred Stock)
909,090 -0- -0- -0-
Other directors, whose terms of office as directors continue after the
meeting, are as follows:
Serving until the 2005 annual meeting:
D. Scott Wilkerson
Paul G. Chrysson
24
Serving until the 2006 annual meeting:
W. Michael Gilley
Item 5. Other Information
Re-appointment of officers
The Company has announced the re-appointment of the following officers:
D. Scott Wilkerson President and Chief Executive Officer
Philip S. Payne Chairman, Chief Financial Officer, and Assistant Secretary
Pamela B. Bruno Vice President, Treasurer, Chief Accounting Officer, and
Assistant Secretary
Eric S. Rohm Vice President, Secretary, and General Counsel
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits:
The Registrant agrees to furnish a copy of all agreements related to
long-term debt upon request of the Commission.
Exhibit No.
3.1* Amended and Restated Bylaws of BNP Residential Properties, Inc.,
adopted May 20, 2004 (filed as Exhibit 3.1 to the BNP
Residential Properties, Inc. Current Report on Form 8-K
dated July 14, 2004, and incorporated by reference herein).
31.1 Section 302 Certification by Chief Executive Officer
31.2 Section 302 Certification by Chief Financial Officer
32.1 Section 906 Certification by Chief Executive Officer
32.2 Section 906 Certification by Chief Financial Officer
*Incorporated herein by reference
b) Reports on Form 8-K
We issued the following current reports on Form 8-K during the quarter ended
June 30, 2004:
o Current report on Form 8-K dated May 4, 2004, to furnish under
Item 12 a press release announcing the results of operations and
financial condition of the company as of and for the quarter ended
March 31, 2004.
o Current report on Form 8-K dated May 12, 2004, to report under
Item 5 the acquisition of Page Park Holdings, LLC, and its primary
asset, Bridges at Wind River Apartments (formerly named Oakwood
Raleigh Apartments).
25
o Current report on Form 8-K dated May 17, 2004, to report under
Item 12 our report to shareholders announcing the results of
operations and financial condition of the company as of and for
the quarter ended March 31, 2004.
o Current report on Form 8-K dated June 1, 2004, to report under
Item 5 a press release announcing the resignation and retirement
of B. Mayo Boddie from our Board of Directors.
26
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, 2004 /s/ Philip S. Payne
-----------------------------------------
Philip S. Payne
Chairman and
Chief Financial Officer
(Duly authorized officer)
August 9, 2004 /s/ Pamela B. Bruno
-----------------------------------------
Pamela B. Bruno
Vice President, Treasurer and
Chief Accounting Officer
27
INDEX TO EXHIBITS
Exhibit No.
Page
3.1* Amended and Restated Bylaws of BNP Residential -
Properties, Inc., adopted May 20, 2004 (filed
as Exhibit 3.1 to the BNP Residential Properties,
Inc. Current Report on Form 8-K dated July 14, 2004,
and incorporated by reference herein).
31.1 Section 302 Certification by Chief Executive Officer 29
31.2 Section 302 Certification by Chief Financial Officer 30
32.1 Section 906 Certification by Chief Executive Officer 31
32.2 Section 906 Certification by Chief Financial Officer 32
*Incorporated herein by reference
28