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 September 30, 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
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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 November 4, 2002 (the latest practicable date).
Common Stock, $.01 par value 5,807,988
- ---------------------------- -----------------------
(Class) (Number of shares)
Exhibit Index: Page 30
TABLE OF CONTENTS
Item No. Page No.
PART I - Financial Information
1 Financial Statements 3
2 Management's Discussion and Analysis of Financial
Condition and Results of Operations 13
3 Quantitative and Qualitative Disclosures
About Market Risk 23
4 Controls and Procedures 24
PART II - Other Information
6 Exhibits and Reports on Form 8-K 24
2
PART I - Financial Information
Item 1. Financial Statements.
BNP RESIDENTIAL PROPERTIES, INC.
- -------------------------------------------------------------------------------
Consolidated Balance Sheets
September 30 December 31
2002 2001
------------------ ------------------
(Unaudited)
Assets
Real estate investments at cost:
Apartment properties $275,174,759 $221,589,470
Restaurant properties 39,158,921 39,158,921
------------------ ------------------
314,333,680 260,748,391
Less accumulated depreciation (47,071,017) (40,751,890)
------------------ ------------------
267,262,663 219,996,501
Cash and cash equivalents 667,944 1,417,616
Other current assets 5,168,055 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 1,248,855 1,062,069
------------------ ------------------
Total assets $275,562,605 $225,384,648
================== ==================
Liabilities and Shareholders' Equity
Deed of trust and other notes payable $211,092,488 $162,330,222
Accounts payable and accrued expenses 3,176,801 997,768
Deferred revenue and security deposits 1,291,113 1,349,155
Deferred credit for defeasance of interest,
net of accumulated amortization 375,040 500,032
------------------ ------------------
Total liabilities 215,935,442 165,177,177
Minority interest in Operating Partnership 18,597,747 18,173,557
Shareholders' equity:
Preferred stock, $.01 par value, 10,000,000 shares
authorized; issued and outstanding shares--
454,545 at September 30, 2002,
227,273 at December 31, 2001 5,000,000 2,500,000
Common stock, $.01 par value, 100,000,000 shares
authorized; issued and outstanding shares--
5,807,988 at September 30, 2002,
5,744,873 at December 31, 2001 58,080 57,449
Additional paid-in capital 70,493,644 69,872,958
Dividend distributions in excess of net income (34,522,308) (30,396,493)
------------------ ------------------
Total shareholders' equity 41,029,416 42,033,914
------------------ ------------------
Total liabilities and shareholders' equity $275,562,605 $225,384,648
================== ==================
3
BNP RESIDENTIAL PROPERTIES, INC.
- -------------------------------------------------------------------------------
Consolidated Statements of Operations
(Unaudited)
Three months ended Nine months ended
September 30 September 30
2002 2001 2002 2001
----------------- ---------------- ----------------- ----------------
(Adjusted) (Adjusted)
Revenues
Apartment rental income $ 8,648,684 $ 7,690,482 $23,993,542 $23,246,419
Restaurant rental income 1,005,320 1,005,319 3,015,958 3,047,872
Management fee income 258,297 93,863 839,091 310,960
Interest and other income 24,143 362,871 130,337 743,887
----------------- ---------------- ----------------- ----------------
9,936,444 9,152,535 27,978,928 27,349,138
Expenses
Apartment operations 3,304,638 2,850,283 9,040,369 8,310,186
Apartment administration 311,272 227,764 930,692 739,415
Corporate administration 399,602 437,441 1,488,762 1,453,607
Depreciation 2,345,959 1,946,325 6,313,099 5,827,142
Amortization of deferred
loan costs 82,427 46,128 180,377 138,429
Interest 3,049,032 2,769,358 8,211,104 8,565,757
----------------- ---------------- ----------------- ----------------
9,492,930 8,277,299 26,164,403 25,034,536
----------------- ---------------- ----------------- ----------------
Income before
minority interest and
extraordinary item 443,514 875,236 1,814,525 2,314,602
Minority interest in
Operating Partnership 89,710 201,173 376,921 532,558
----------------- ---------------- ----------------- ----------------
Income before
extraordinary item 353,804 674,063 1,437,604 1,782,044
Extraordinary item - loss on
early extinguishment
of debt - 99,577 73,297 99,577
----------------- ---------------- ----------------- ----------------
Net income 353,804 574,486 1,364,307 1,682,467
Cumulative preferred dividend 72,603 - 196,576 -
----------------- ---------------- ----------------- ----------------
Income available to
common shareholders $ 281,201 $ 574,486 $ 1,167,731 $ 1,682,467
================= ================ ================= ================
Per common share:
Basic earnings per share -
Before extraordinary item $0.06 $0.12 $0.25 $0.31
Extraordinary item - (0.02) (0.01) (0.02)
Available to shareholders 0.05 0.10 0.20 0.29
Diluted earnings per share -
Before extraordinary item $0.06 $0.12 $0.24 $0.31
Extraordinary item - (0.02) (0.01) (0.02)
Available to shareholders 0.05 0.10 0.20 0.29
Dividends declared 0.31 0.31 0.93 0.93
Weighted average common
shares outstanding 5,797,197 5,717,040 5,776,158 5,710,350
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
issue - - - - (5,313) - (5,313)
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
Common stock issued - - 17,817 178 215,234 - 215,412
Dividends paid - preferred - - - - - (61,644) (61,644)
Dividends paid - common - - - - - (1,787,675) (1,787,675)
Net income - - - - - 517,928 517,928
--------- ------------ ----------- ---------- ------------- --------------- ------------
Balance June 30, 2002 227,273 2,500,000 5,784,510 57,845 70,334,435 (33,018,960) 39,873,320
Common stock issued - - 23,478 235 260,265 - 260,500
Preferred stock issued 227,272 2,500,000 - - (101,056) - 2,398,944
Dividends paid - preferred - - - - - (63,013) (63,013)
Dividends paid - common - - - - - (1,794,139) (1,794,139)
Net income - - - - - 353,804 353,804
--------- ------------ ----------- ---------- ------------- --------------- ------------
Balance September 30, 2002 454,545 $5,000,000 5,807,988 $58,080 $70,493,644 $(34,522,308) $41,029,416
========= ============ =========== ========== ============= =============== ============
5
BNP RESIDENTIAL PROPERTIES, INC.
- -------------------------------------------------------------------------------
Consolidated Statements of Cash Flows
(Unaudited)
Nine months ended
September 30
2002 2001
----------------- ----------------
(Adjusted)
Operating activities:
Net income $ 1,364,307 $ 1,682,467
Adjustments to reconcile net income to
net cash provided by operations:
Extraordinary item - loss on early extinguishment of debt 73,297 99,577
Minority interest in Operating Partnership 376,921 532,558
Depreciation and amortization of intangibles 6,493,476 5,965,571
Amortization of defeasance credit (124,992) (124,992)
Changes in operating assets and liabilities:
Prepaid expenses and other current assets (2,383,799) (967,944)
Accounts payable and accrued expenses 1,581,389 953,323
Deferred revenue and security deposits (239,877) 45,934
----------------- ----------------
Net cash provided by operating activities 7,140,722 8,186,494
Investing activities:
Acquisition of apartment properties (29,768,057) -
Additions to apartment properties, net (2,125,720) (2,121,151)
Sale of restaurant property - 405,860
Acquisition of minority interest in Management Company - 372,939
----------------- ----------------
Net cash used in investing activities (31,893,777) (1,342,352)
Financing activities:
Issuance of preferred stock 2,493,631 -
Issuance of common stock 630,570 205,529
Redemption of Operating Partnership minority units - (14,864)
Distributions to Operating Partnership minority unitholders (1,597,446) (1,586,976)
Dividends paid to preferred shareholder (127,397) -
Dividends paid to common shareholders (5,362,725) (5,307,464)
Proceeds from notes payable 42,674,194 16,847,999
Principal payments on notes payable (14,245,250) (10,955,975)
Payment of deferred financing costs (462,194) (133,083)
----------------- ----------------
Net cash provided by (used in) financing activities 24,003,383 (944,834)
----------------- ----------------
Net (decrease) increase in cash and cash equivalents (749,672) 5,899,308
Cash and cash equivalents at beginning of period 1,417,616 1,056,052
----------------- ----------------
Cash and cash equivalents at end of period $ 667,944 $ 6,955,360
================= ================
6
BNP RESIDENTIAL PROPERTIES, INC.
- -------------------------------------------------------------------------------
Notes to Consolidated Financial Statements - September 30, 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
----------------- ----------------- -----------------
Three months ended September 30, 2001
Revenues $9,152,535 $ - $9,152,535
Expenses 8,277,299 (101,550) 8,378,849
----------------- ----------------- -----------------
Income before minority interest and
extraordinary item 875,236 101,550 773,686
Minority interest in Operating Partnership 201,173 23,338 177,835
----------------- ----------------- -----------------
Income before extraordinary item 674,063 78,212 595,851
Extraordinary item - loss on early
extinguishment of debt 99,577 - 99,577
----------------- ----------------- -----------------
Net income $ 574,486 $ 78,212 $ 496,274
================= ================= =================
7
2001 as 2001 as
Currently Previously
Presented Adjustments Reported
----------------- ----------------- -----------------
Nine months ended September 30, 2001
Revenues $27,349,138 $ - $27,349,138
Expenses 25,034,536 (304,650) 25,339,186
----------------- ----------------- -----------------
Income before minority interest and
extraordinary item 2,314,602 304,650 2,009,952
Minority interest in Operating Partnership 532,558 70,096 462,462
----------------- ----------------- -----------------
Income before extraordinary item 1,782,044 234,554 1,547,490
Extraordinary item - loss on early
extinguishment of debt 99,577 - 99,577
----------------- ----------------- -----------------
Net income $ 1,682,467 $ 234,554 $ 1,447,913
================= ================= =================
Note 2. Basis of Presentation
The consolidated financial statements include the accounts of BNP Residential
Properties, Inc. (the "company") and BNP Residential Properties Limited
Partnership (the "Operating Partnership"). The company is the general partner
and owns a majority interest in the Operating Partnership. All significant
intercompany balances and transactions have been eliminated in the consolidated
financial statements.
Effective January 2001, the 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. Apartment properties acquisitions
Effective September 18, 2002, we acquired Alta Harbour Apartments for a contract
price of $19.3 million, less approximately $130,000 in credits given by the
seller. Through September 30, 2002, we have incurred and capitalized other
direct costs of approximately $30,000.
Effective May 31, 2002, we acquired Barrington Place Apartments and Brookford
Place Apartments for a contract price of approximately $32.1 million.
Consideration for this acquisition consisted of the following:
o We assumed a first deed of trust loan secured by the assets and assignment
of rents of Barrington Place Apartments with a balance of approximately
$20.3 million.
o We assumed and retired existing liabilities of the former owners totaling
approximately $10.0 million.
o We issued approximately 147,000 Operating Partnership units with an
imputed value of $12.00 per unit, or approximately $1.8 million.
8
Through September 30, 2002, we have incurred and capitalized other direct costs
of approximately $90,000 related to this acquisition.
Note 4. Long-term debt transactions
In conjunction with the acquisition of Alta Harbour Apartments, we executed a
$15.9 million first deed of trust note payable, secured by the assets and
assignment of rents of Alta Harbour Apartments. This loan provides for interest
at 5.85% and monthly payments including principal and interest of approximately
$94,000, with maturity in September 2012. We paid and recorded deferred loan
costs of approximately $150,000 related to this loan.
In conjunction with the acquisition of Barrington Place Apartments and Brookford
Place Apartments, we assumed a first deed of trust loan secured by the assets
and assignment of rents of Barrington Place Apartments with a balance of
approximately $20.3 million. This loan provides for interest at an effective
rate of approximately 7.0% and monthly payments including principal and interest
of approximately $136,000, with maturity in November 2010. We paid and recorded
deferred loan costs of approximately $160,000 related to this loan assumption.
In June 2002, we applied $4.9 million proceeds from a fixed-rate loan to retire
existing loan obligations of the former owners of Barrington Place Apartments
and Brookford Place Apartments. A deed of trust and assignment of rents of
Brookford Place Apartments secure this loan. This loan provides for interest at
an effective rate of approximately 7.1% and monthly payments including principal
and interest of approximately $32,000, with maturity in August 2012. We paid and
recorded deferred loan costs of approximately $60,000 related to this loan
transaction.
In conjunction with the Alta Harbour acquisition, we issued $2.5 million in
preferred stock (discussed in Note 5). The balance of funds required for the
Alta Harbour and Barrington Place/Brookford Place acquisitions came from
operating cash and $7.0 million in draws on our revolving line of credit secured
by Latitudes Apartments. We also drew an additional $0.5 million on this
revolving line of credit to fund improvements at apartment properties.
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 $6.1 million,
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 $7.9
million secured by a deed of trust and assignment of rents of Oakbrook
Apartments. The note provides for interest at an effective rate of approximately
7.1% 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 February
refinance transaction, we paid and recorded deferred loan costs of approximately
$90,000.
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.
9
Note 5. Shareholders' Equity
In September 2002, we issued 227,272 shares of our preferred stock to a single
investor for proceeds of $2.5 million. We issued these shares under the terms of
the December 2001 investment agreement with that investor for the purchase of up
to 454,545 share of Series B Cumulative Convertible Preferred Stock at $11.00
per share.
In August 2002, we issued 20,443 shares of our common stock through our Dividend
Reinvestment and Stock Purchase Plan for proceeds of approximately $227,000.
During the first and second quarters of 2002, we issued approximately 34,000
shares of our common stock through this Plan.
In addition, during the third quarter of 2002, we issued 3,035 shares of our
common stock, in a non-cash transaction, to acquire the same number of Operating
Partnership units from a former minority unitholder. During the first quarter of
2002, we issued 5,562 shares of our common stock in a similar transaction.
We calculated basic and diluted earnings per share using the following amounts:
Three months ended Nine months ended
September 30 September 30
2002 2001 2002 2001
----------------- ---------------- ----------------- -----------------
(Adjusted) (Adjusted)
Numerators:
Numerator for basic
earnings per share -
Income before
extraordinary item $353,804 $ 674,063 $1,437,604 $1,782,044
Extraordinary item - (99,577) (73,297) (99,577)
Cumulative preferred dividend (72,603) - (196,576) -
----------------- ---------------- ----------------- -----------------
Income available to
common shareholders $281,201 $ 574,486 $1,167,731 $1,682,467
================= ================ ================= =================
Numerator for diluted
earnings per share -
Income before
extraordinary item (1) $443,514 $ 875,236 $1,814,525 $2,314,602
Extraordinary item (1) - (129,239) (95,032) (129,239)
Cumulative preferred dividend (72,603) - (196,576) -
----------------- ---------------- ----------------- -----------------
Income available to
common shareholders (1) $370,911 $ 745,997 $1,522,917 $2,185,363
================= ================ ================= =================
10
Three months ended Nine months ended
September 30 September 30
2002 2001 2002 2001
----------------- ---------------- ----------------- -----------------
(Adjusted) (Adjusted)
Denominators:
Denominator for basic
earnings per share -
weighted average shares
outstanding 5,797,197 5,717,040 5,776,158 5,710,350
Effect of dilutive securities:
Convertible Operating
Partnership units 1,845,056 1,705,897 1,766,457 1,706,517
Stock options (2) 7,484 4,301 10,971 2,376
----------------- ---------------- ----------------- -----------------
Denominator for diluted
earnings per share - adjusted
weighted average shares and
assumed conversions 7,649,737 7,427,238 7,553,586 7,419,243
================= ================ ================= =================
(1) Assumes conversion of Operating Partnership units to common shares;
minority interest in income before extraordinary item and minority interest
in extraordinary item have been eliminated.
(2) 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 all periods in 2002 and 2001.
We also excluded additional options to purchase 60,000 shares of common
stock at $11.25 from the calculation of diluted earnings per share for all
periods except the nine months ended September 30, 2002. 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.
During the third quarter of 2002, we identified an error in our calculation of
diluted earnings per share as previously reported for the first and second
quarters of 2002. The convertible preferred shares outstanding are
antidilutive--the cumulative preferred dividend should have been deducted, and
the preferred shares should not have been added back, for calculation of diluted
earnings per common share. Corrected amounts for earnings per common share are
as follows:
Six Months
Ended Three months ended
June 30, 2002 June 30, 2002 March 31, 2002
-------------------- --------------------- --------------------
Basic earnings per share -
Before extraordinary item $0.19 $0.09 $0.10
Extraordinary item (0.01) - (0.01)
Available to shareholders 0.15 0.07 .08
Diluted earnings per share -
Before extraordinary item 0.18 0.09 0.09
Extraordinary item (0.01) - (0.01)
Available to shareholders 0.15 0.08 0.07
11
Note 6. Subsequent events
On October 17, 2002, the Board of Directors declared a regular quarterly cash
dividend of $0.31 per share to be paid on November 15, 2002, to common
shareholders of record on November 1, 2002. The Board of Directors also
authorized the payment of dividends totaling $72,603 to the Series B Preferred
shareholder in accordance with the investment agreement for those shares.
12
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 32 multi-family communities
containing 7,392 units. Of these, we own 18 apartment communities containing
4,427 units. Third parties own the remaining 14 communities, containing 2,965
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.
13
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 third quarter of 2002 were $9.9 million, an
increase of 8.6% compared to the third quarter of 2001. Total revenues through
the first nine months of 2002 were $28.0 million, an increase of 2.3% compared
to the first nine months of 2001. Apartment related income (apartment rental
income plus income from apartment management and investment activities)
accounted for approximately 90% of total revenues in the third quarter and 89%
through the first nine months of 2002.
Apartment rental income totaled $8.6 million in the third quarter of
2002, an increase of 12.5% compared to the third quarter of 2001. Through the
first nine months of 2002, apartment rental income totaled $24.0 million, an
increase of 3.2% compared to the first nine months of 2001. These increases are
primarily due to apartment property acquisitions in second and third quarter of
2002, which contributed approximately $1.0 million to apartment rental income in
the third quarter, and $1.4 million to apartment rental income in the first nine
months of 2002.
On a "same units" basis (those apartment units that we owned throughout
the first nine months of both years), apartment rental income decreased by 1.3%
for the third quarter of 2002 compared to the third quarter of 2001, and by 2.8%
for the first nine months of 2002 compared to the first nine months of 2001.
These decreases were the result of generally consistent occupancy and slight
declines in average revenue per occupied unit.
For the third quarter of 2002, overall average economic occupancy
increased by 0.8%, while average revenue per occupied unit declined by 1.7%,
compared to the third quarter of 2001. For the first nine months of 2002,
overall average economic occupancy declined by 1.3%, while average revenue per
occupied unit declined by 1.3%, compared to the first nine months of 2001. These
comparisons are generally consistent between overall results and same units
results.
For the third quarter of 2002, same units average economic occupancy
increased by 1.0%, while average revenue per occupied unit declined by 2.1%,
compared to the third quarter of 2001. For the first nine months of 2002, same
units average economic occupancy declined by 1.2%, while average revenue per
occupied unit declined by 1.6%, compared to the first nine months of 2001.
Summary amounts for our apartment communities' occupancy and revenue
per occupied unit for the third quarter and first nine months of 2002 follow:
14
Three months ended Nine months ended
September 30, 2002 September 30, 2002
-------------------------------------------------------
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 95.1% $758 93.2% $774
Allerton Place 228 92.8% 774 92.3% 771
Alta Harbour (1) 290
Barrington Place (2) 348 92.2% 784 91.5% 801
Brookford Place (2) 108 92.6% 710 91.8% 708
Chason Ridge 252 96.5% 737 96.5% 713
Harris Hill 184 93.1% 683 92.1% 692
Latitudes 448 97.3% 836 97.2% 816
Madison Hall 128 91.4% 614 94.4% 600
Oakbrook 162 90.3% 758 91.6% 773
Oak Hollow 461 88.4% 635 90.7% 632
Paces Commons 336 94.1% 655 90.5% 672
Paces Village 198 93.5% 671 88.7% 674
Pepperstone 108 97.2% 682 94.9% 685
Savannah Place 172 93.0% 733 92.5% 724
Summerlyn Place 140 93.3% 815 94.7% 802
Waterford Place 240 96.5% 844 94.8% 849
Woods Edge 264 92.5% 748 92.3% 760
All apartments (1) 4,137
- 2002 93.5% 737 93.0% 735
- 2001 92.8% 750 94.2% 745
Same units 3,681
- 2002 93.7% 734 93.1% 733
- 2001 92.8% 750 94.2% 745
(1) We acquired Alta Harbour Apartments effective September 18, 2002. We have
excluded Alta Harbour from these calculations as of September 30.
(2) We acquired Barrington Place and Brookford Place effective May 31, 2002.
Overbuilding of apartment properties, a weak economy and extremely low
home mortgage rates have led to intense competition for residents in our
apartment markets during the last two years. While we believe we are beginning
to see some signs of strengthening in our apartment markets, we cannot predict
this with any level of certainty at this time.
We remain committed to our markets and our focus on the middle market
apartment properties. We have continued to add to and improve our apartment
portfolio by acquiring three apartment properties so far this year. With these
additions, we now own 18 apartment properties containing 4,427 apartment units.
Our portfolio consists of good quality middle market apartments in excellent
locations. Our goal in operating our properties is to provide the nicest
apartment available in our price range. We provide a quality apartment for a
reasonable price. With our locations and emphasis on value, we believe we can
compete effectively with the newer, more highly priced properties. In addition,
we believe that our choice to operate in middle market apartments has somewhat
mitigated the impact of the competitive conditions we currently face.
15
Restaurant rental income was $1.0 million in the third quarters of both
2002 and 2001. Through the first nine months of 2002, restaurant rental income
was $3.0 million, a 1.0% decrease compared to the first nine months 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" (those restaurant properties that operated throughout
the first nine months of both 2002 and 2001) sales at our restaurant properties
decreased by 4.7% for the third quarter and 2.2% for the first nine months of
2002 compared to the same periods in 2001.
Through September 30, 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 $258,000 in the third quarter of 2002
compared to $94,000 in the third quarter of 2001. Through the first nine months
of 2002, management fee income totaled $839,000, compared to $311,000 through
the first nine months of 2001. This increase is primarily attributable to a
significant increase in the number of managed properties in the fourth quarter
of 2001 and early 2002. We expect these comparisons to decline slightly due to
our acquisition of Barrington Place and Brookford Place, which we previously
managed under third-party management contracts from October 2001 through May
2002. Management fee income related to these two properties totaled $68,000 for
the first five months of 2002.
Interest and other income totaled $24,000 in the third quarter of 2002
compared to $363,000 in the third quarter of 2001. Through the first nine months
of 2002, interest and other income totaled $130,000, compared to $744,000
through the first nine months of 2001. These comparisons reflect the impact of
non-routine income totaling approximately $326,000 in the third quarter of 2001,
and $539,000 in the first nine months of 2001, as well as a decline in interest
income during the first nine months of 2002.
Expenses
Total expenses, including non-cash charges for depreciation and
amortization, were $9.5 million in the third quarter of 2002, an increase of
14.7% compared to the third quarter of 2001. Through the first nine months of
2002, total expenses were $26.2 million, an increase of 4.5% compared to the
first nine months 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 amortization expense by
approximately $102,000 for the third quarter of 2001 and $305,000 for the first
nine months of 2001 from the amounts that we previously reported.
Apartment operations expense (the direct costs of on-site operations at
our apartment communities) in the third quarter of 2002 totaled $3.3 million, a
15.9% increase compared to the third quarter of 2001. For the first nine months
of 2002, apartment operations expense totaled $9.0 million, an 8.8% increase
compared to the first nine months of 2001. These amounts include
16
approximately $386,000 for the quarter, and $449,000 for the first nine months,
in apartment operations expenses for properties we acquired in 2002.
On a same units basis, apartment operations expense increased 2.4% in
the third quarter and 3.4% in the first nine months of 2002 compared to 2001.
These increases reflect a significant increase in property insurance expense, as
well as higher costs associated with marketing and maintenance.
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 $311,000 in the third quarter of 2002, a 36.7%
increase compared to the third quarter of 2001. Through the first nine months of
2002, apartment administration expense was $931,000, a 25.9% increase compared
to the first nine months of 2001. These increases are attributable to a
significant increase in the number of managed properties in the fourth quarter
of 2001 and early 2002.
Corporate administration expense was $400,000 in the third quarter of
2002, a decrease of 8.7% compared to the third quarter of 2001. Through the
first nine months of 2002, corporate administration expense was $1.5 million, an
increase of 2.4% compared to the first nine months of 2001.
Depreciation expense totaled $2.3 million in the third quarter of 2002,
a 20.5% increase compared to the third quarter of 2001. Through the first nine
months of 2002, depreciation expense totaled $6.3 million, an 8.3% increase
compared to the first nine months of 2001. These increases are attributable to
the addition of apartment communities, as well as the impact of additions and
replacements at other apartment communities.
Amortization expense (of deferred loan costs) was $82,000 in the third
quarter, and $180,000 through the first nine months, of 2002. Increases in these
amounts compared to 2001 reflect the impact of loan costs associated with
financing transactions in 2002. 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 $3.0 million in the third quarter of 2002, a
10.1% increase compared to the third quarter of 2001. This increase reflects the
impact of approximately $49 million in new debt related to apartment
acquisitions in the second and third quarters of 2002. For the first nine months
of 2002, interest expense was $8.2 million, a 4.1% decrease compared to the
first nine months 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 and early
2002. Variable interest rates have declined almost 5% since the beginning of
2001. Overall, weighted average interest rates were 6.2% for the third quarter
and first nine months of 2002, compared to 6.8% for the third quarter and 7.0%
for the first nine months 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.
17
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. In September 2002, we issued an additional 227,272
shares of this 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 totals approximately
$73,000 for the third quarter of 2002, and approximately $197,000 for the first
nine months of 2002.
Net income
Income available to common shareholders, after the cumulative preferred
dividend, was $281,000 for the third quarter of 2002, a decrease of 51.1%
compared to the third quarter of 2001. For the first nine months of 2002, income
available to common shareholders, after the extraordinary item recorded in the
first quarter and cumulative preferred dividend for three quarters, was
$1,168,000, a 30.6% decrease compared to the first nine months of 2001.
Income before extraordinary items and cumulative preferred dividend was
$354,000 for the third quarter of 2002, a 47.5% decrease compared to the third
quarter of 2001. For the first nine months of 2002, income before extraordinary
items and cumulative preferred dividend was $1.4 million, a 19.3% decrease
compared to the first nine months of 2001.
These comparisons reflect the favorable impact of lower interest rates,
offset by the effect of declines in revenues from apartment operations, further
impacted by the effect of non-routine and non-recurring revenues totaling
approximately $326,000 in the third quarter of 2001, and $539,000 in the first
nine months 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.
18
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 totaled $2.7 million
for the third quarter of 2002, a 3.7% decrease compared to the third quarter of
2001. For the first nine months of 2002, funds from operations of the Operating
Partnership totaled $7.9 million, a 2.6% decrease compared to the first nine
months of 2001. These comparisons reflect the favorable impact of lower interest
rates, offset by declines in revenues from apartment operations and the
cumulative preferred dividend, and further impacted by non-routine and
non-recurring revenues of $326,000 in the third quarter of 2001, and $539,000 in
the first nine months of 2001
We calculated funds from operations of the Operating Partnership as
follows (all amounts in thousands):
Three months ended Nine months ended
September 30 September 30
2002 2001 2002 2001
--------------- --------------- --------------- ---------------
(Adjusted) (Adjusted)
Income before minority interest
and extraordinary item $ 444 $ 875 $1,815 $2,315
Cumulative preferred dividend (73) - (197) -
Depreciation 2,346 1,946 6,313 5,827
--------------- --------------- --------------- ---------------
Funds from operations -
Operating Partnership $2,717 $2,822 $7,931 $8,142
=============== =============== =============== ===============
A reconciliation of funds from operations to funds available for
distribution follows (all amounts in thousands):
Three months ended Nine months ended
September 30 September 30
2002 2001 2002 2001
--------------- --------------- --------------- ---------------
Funds from operations -
Operating Partnership $2,717 $2,822 $7,931 $8,142
Amortization of loan costs 82 46 180 138
Recurring capital expenditures (542) (416) (1,277) (967)
--------------- --------------- --------------- ---------------
Funds available for distribution $2,258 $2,451 $6,835 $7,313
=============== =============== =============== ===============
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):
19
Three months ended Nine months ended
September 30 September 30
2002 2001 2002 2001
--------------- --------------- --------------- ---------------
Funds from operations -
Operating Partnership $2,717 $2,822 $7,931 $8,142
Minority interest in
funds from operations (656) (648) (1,857) (1,873)
--------------- --------------- --------------- ---------------
Basic funds from operations
available to common shareholders $2,061 $2,173 $6,074 $6,268
=============== =============== =============== ===============
Other information about our historical cash flows follows (all amounts
in thousands):
Three months ended Nine months ended
September 30 September 30
2002 2001 2002 2001
--------------- --------------- --------------- ---------------
Net cash provided by (used in):
Operating activities $ 2,722 $2,898 $ 7,141 $8,186
Investing activities (20,660) (829) (31,894) (1,342)
Financing activities 18,202 4,221 24,003 (945)
Dividends and distributions paid to:
Preferred shareholders $ 63 $ - $ 127 $
-
Common shareholders 1,794 1,769 5,363 5,307
Minority unitholders in
Operating Partnership 542 529 1,597 1,587
Scheduled debt principal payments $ 117 $ 98 $ 237 $ 285
Non-recurring capital expenditures 340 413 849 1,154
Weighted average shares outstanding
Preferred shares 262 - 239 -
Common shares 5,797 5,717 5,776 5,710
Weighted average Operating
Partnership minority units
outstanding 1,845 1,706 1,766 1,707
Capital Resources and Liquidity
Capital Resources
Effective September 18, 2002, we acquired Alta Harbour Apartments at a
cost of approximately $19.2 million, paid in cash. We financed this acquisition
primarily through issuance of a first deed of trust note in the amount of $15.9
million. This fixed-rate loan provides for interest at 5.85% and monthly
payments including principal and interest of approximately $94,000, with
maturity in September 2012. In conjunction with this financing closing, we
funded repair escrows of approximately $600,000 and paid lender fees and costs
totaling approximately $150,000.
20
Additional funding for the Alta Harbour acquisition came from a $2.5
million placement of 227,272 shares of our Series B Cumulative Convertible
Preferred Stock, and a $1.5 million draw on our revolving line of credit secured
by Latitudes Apartments.
Effective May 31, 2002, we acquired Barrington Place Apartments and
Brookford Place Apartments at a cost of approximately $32.2 million. In
addition, we paid deferred loan costs of approximately $220,000 related to this
acquisition. A summary of funding for this acquisition is as follows:
o We assumed a first deed of trust loan secured by the assets and assignment of
rents of Barrington Place Apartments with a balance of approximately $20.3
million. This fixed-rate loan provides for interest at an effective rate of
approximately 7.0% and monthly payments including principal and interest of
approximately $136,000, with a balloon payment of approximately $18.0 million
due in November 2010.
o We applied approximately $4.9 million proceeds from a fixed-rate loan to
retire existing obligations of the former owners. A deed of trust and assignment
of rents of Brookford Place Apartments secure this loan. The loan provides for
interest at an effective rate of approximately 7.1% and monthly payments
including principal and interest of approximately $32,000, with a balloon
payment of approximately $4.2 million due in August 2012.
o We applied $5.5 million in draws on our revolving line of credit secured by
Latitudes Apartments.
o We issued approximately 147,000 Operating Partnership units with an imputed
value of $12.00 per unit, or approximately $1.8 million.
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 September 30, 2002, total long-term debt totaled $211.1 million,
including $164.8 million of notes payable at fixed interest rates ranging from
5.85% to 8.55%, and $46.3 million at variable rates indexed on 30-day LIBOR
rates. The weighted average interest rate on debt outstanding was 6.2% at
September 30, 2002, and December 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 $470,000.
Through the third quarter of 2002, we have issued approximately 55,000
shares of our common stock through our Dividend Reinvestment and Stock Purchase
Plan for proceeds of approximately $630,000. In addition, we issued
approximately 8,000 shares of our common stock in non-cash transactions to
acquire the same number of Operating Partnership units from former minority
unitholders.
Cash flows and liquidity
Net cash flows from operating activities were $2.7 million in the third
quarter of 2002, compared to $2.9 million in the third quarter of 2001. Through
the first nine months of 2002, net
21
cash flows from operating activities were $7.1 million, compared to $8.2 million
in the first nine months of 2001.
We have announced that the company will pay a regular quarterly
dividend of $0.31 per share on November 15, 2002, to shareholders of record of
our common stock on November 1, 2002. As we have stated in past reports, we are
committed to paying the highest dividend that is reasonably prudent. However,
any number of unforeseen events or circumstances (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) could
necessitate a reduction in dividend. While we generate a substantial amount of
cash flow after expenses, we have chosen to pay out virtually all of it as
dividends. Currently available cash flow and the outlook for future cash flow
determine the amount of dividend paid. Ultimately, the decision as to the amount
of dividend paid is a judgment call in which we attempt to balance our desire to
maximize the dividends paid to our shareholders with the cash needed to properly
operate the company.
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
In general, 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.
For the acquisition of Barrington Place and Brookford Place, we
performed a detailed analysis of components of the real estate assets acquired.
For these properties, we assigned estimated useful lives as follows: land
improvements, 7-20 years; short-lived building components, 5-20 years; base
building structure, 60 years; and fixtures, equipment and floor coverings, 5-10
years. We expect to complete a detailed analysis of components for Alta Harbour
in the near future.
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.
22
Through September 30, 2002, repairs and maintenance at our apartment
communities totaled approximately $3.3 million, including $1.2 million in
compensation of service staff and $2.1 million in payments for materials and
contracted services.
A summary of capital expenditures at our apartment communities through
September 30, 2002, in aggregate and per apartment unit, follows:
Total Per unit
------------------- ------------------
(000's)
Recurring capital expenditures:
Floor coverings $ 496 $128
Appliances/HVAC 162 42
Exterior paint 176 45
Computer/support equipment 140 36
Other 303 78
------------------- ------------------
$1,277 $329
=================== ==================
Non-recurring capital expenditures:
Acquisition improvements $545
Additions and betterments 269
Computer/support equipment 35
-------------------
$849
===================
Costs of repairs, maintenance, and capital replacements and
improvements at restaurant properties are borne by the lessee.
Recently Issued Accounting Standards
In April 2002, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 145, "Rescission of FASB
Statements No. 4, 44, and 62, Amendment of FASB Statement No. 13, and Technical
Corrections." Statement 145 will generally require gains and losses on
extinguishments of debt to be classified as income or loss from continuing
operations, rather than as extraordinary items as previously required under
Statement 4. We plan to adopt Statement 145 effective January 1, 2003. Upon
adoption, the extraordinary items for loss on early extinguishment of debt that
we have reported in 2002 and earlier will be reclassified to conform to
Statement 145. While adoption of Statement 145 will have no impact on net
income, it will tend to reduce funds from operations and income before
extraordinary items and eliminate extraordinary items as previously reported.
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.
23
Item 4. Controls and Procedures
We maintain disclosure controls and procedures that are designed to
ensure that information required to be disclosed in our annual and periodic
reports filed with the SEC is recorded, processed, summarized and reported
within the time periods specified in the SEC's rules and forms. These disclosure
controls and procedures are further designed 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 third quarter of 2002, 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 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.
99.1 Section 906 Certification by Chief Executive Officer
99.2 Section 906 Certification by Chief Financial Officer
b) Reports on Form 8-K:
We filed a Current Report on Form 8-K on June 11, 2002, to report the
acquisition of Barrington Place and Brookford Place Apartments as of May 31,
2002. We subsequently filed an amendment to this Current Report on Form 8-K/A on
July 30, 2002, to provide required audited financial statements and pro forma
financial information for this acquisition.
We filed a Current Report on Form 8-K on September 30, 2002, to report the
acquisition of Alta Harbour Apartments as of September 18, 2002. We subsequently
filed an amendment to this Current Report on Form 8-K/A on November 12, 2002, to
provide required audited financial statements and pro forma financial
information for this acquisition.
24
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)
November 12, 2002 /s/ Philip S. Payne
----------------------------------------
Philip S. Payne
Executive Vice President and
Chief Financial Officer
(Duly authorized officer)
November 12, 2002 /s/ Pamela B. Bruno
----------------------------------------
Pamela B. Bruno
Vice President, Controller and
Chief Accounting Officer
25
CERTIFICATION BY CHIEF EXECUTIVE OFFICER
I, D. Scott Wilkerson, certify that:
1. I have reviewed this quarterly report on Form 10-Q of BNP Residential
Properties, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
are made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
(a)designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly report is
being prepared;
(b)evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
(c)presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and audit committee of the
registrant's board of directors:
(a)all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
(b)any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
26
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
/s/ D. Scott Wilkerson
- --------------------------------------------
D. Scott Wilkerson
President and Chief Executive Officer
November 11, 2002
27
CERTIFICATION BY CHIEF FINANCIAL OFFICER
I, Philip S. Payne, certify that:
1. I have reviewed this quarterly report on Form 10-Q of BNP Residential
Properties, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
are made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
(a)designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly report is
being prepared;
(b)evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
(c)presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and audit committee of the
registrant's board of directors:
(a)all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
(b)any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
28
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
/s/ Philip S. Payne
- --------------------------------------------
Philip S. Payne
Executive Vice President and
Chief Financial Officer
November 11, 2002
29
INDEX TO EXHIBITS
Exhibit No.
Page
99.1 Section 906 Certification by Chief Executive Officer 31
99.2 Section 906 Certification by Chief Financial Officer 32
30