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, 1996

                                       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


                          BODDIE-NOELL PROPERTIES, INC.
             (Exact name of Registrant as specified in its charter)

Delaware                                                     56-1574675
State or other jurisdiction of                               (I.R.S. Employer
incorporation or organization                                Identification No.)

              3710 One First Union Center, Charlotte, NC 28202-6032
               (Address of principal executive offices) (Zip Code)

                                                   704/333-1367
                         (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 1, 1996 (the latest practicable date)..

Common Stock, $.01 par value                                 3,050,991
(Class)                                                      (Number of shares)

Index to exhibits at page 14                         Total number of pages:  17


                                       1
<PAGE>


                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
  Item No.                                                                               Page No.

<S>            <C>                                                                       <C>
                PART I - Financial Information
   1            Financial Statements                                                        3
   2            Management's Discussion and Analysis of Financial Condition
                and Results of Operations                                                   9

                PART II - Other Information
   6            Exhibits and Reports on Form 8-K                                           14

</TABLE>


                                       2
<PAGE>



                         PART I - Financial Information

Item 1. Financial Statements.

BODDIE-NOELL PROPERTIES, INC.
-------------------------------------------------------------------------------
Balance Sheets
<TABLE>
<CAPTION>

                                                                                 September 30,       December 31,
                                                                                      1996               1995
                                                                               ------------------- ------------------
                                                                                  (Unaudited)
<S>                                                                             <C>                   <C>
Assets
Real estate investments at cost:
   Restaurant properties                                                          $  43,205,075         $43,205,075
   Apartment properties                                                              66,458,302          55,315,686
                                                                                 --------------        ------------
                                                                                    109,663,377          98,520,761
   Less accumulated depreciation                                                    (10,807,719)         (9,020,948)
                                                                                 --------------       --------------
                                                                                     98,855,658          89,499,813
Cash and cash equivalents                                                               952,312             700,863
Rent and other receivables                                                                7,472             244,817
Prepaid expenses and other assets                                                       472,532             293,549
Investment in and advances to Management Company                                        306,151             326,767
Intangible related to acquisition of management operations, net                       2,704,491           2,560,254
Deferred financing costs, net                                                           884,183             725,713
                                                                               ----------------      --------------
         Total assets                                                              $104,182,799         $94,351,776
                                                                                   ============         ===========

Liabilities and Shareholders' Equity
Mortgage and other notes payable                                                  $  70,414,507         $60,105,485
Notes payable to affiliates                                                           7,056,300           7,056,300
Accounts payable and accrued expenses                                                   909,866             531,512
Additional consideration due to former BTVC shareholders                                708,335             283,334
Escrowed security deposits and deferred revenue                                         315,865             175,207
                                                                               ----------------      --------------
      Total liabilities                                                              79,404,873          68,151,838
                                                                                 --------------        ------------

Shareholders' equity:
Common stock,  $.01 par value,  10,000,000 shares  authorized,  3,024,991 shares
   issued and outstanding at September 30, 1996,
   3,016,740 shares issued and outstanding at December 31, 1995                          30,250              30,167
Additional paid-in capital                                                           33,891,278          33,785,335
Dividends distributed in excess of net income                                        (9,143,602)         (7,615,564)
                                                                                ---------------       -------------
      Total shareholders' equity                                                     24,777,926          26,199,938
                                                                                 --------------        ------------
         Total liabilities and shareholders' equity                                $104,182,799         $94,351,776
                                                                                   ============         ===========

</TABLE>



                                       3
<PAGE>


BODDIE-NOELL PROPERTIES, INC.
-------------------------------------------------------------------------------
Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>

                                                       Three months ended                  Nine months ended
                                                         September 30,                       September 30,
                                                     1996              1995             1996              1995
                                               ----------------- ----------------- ---------------- -----------------
<S>                                                <C>               <C>              <C>              <C>
Revenues
Apartment rental income                             $2,627,038        $2,178,661       $ 7,209,401      $ 6,322,226
Restaurant rental income                             1,125,000         1,211,546         3,375,000        3,548,270
Management fees                                              -           127,119                 -          514,419
Equity in income of Management Company                  35,144             2,710           111,432            2,710
Interest and other income                               26,029            10,338            48,875           23,959
                                                 -------------     -------------     -------------    -------------
                                                     3,813,211         3,530,374        10,744,708       10,411,584
                                                   -----------       -----------        ----------       ----------

Expenses
Depreciation                                           627,330           544,299         1,786,771        1,639,167
Amortization                                           138,507            95,306           394,014          303,064
Apartment operations                                   829,507           724,659         2,189,679        1,947,240
Administrative                                         203,497           339,507           701,577        1,087,097
Interest                                             1,551,352         1,359,463         4,395,137        4,031,506
Write-off of deferred loan costs
   at refinancing                                            -                 -                 -           22,139
                                                   -----------       -----------      ------------     ------------
                                                     3,350,193         3,063,234         9,467,178        9,030,213
                                                   -----------       -----------      ------------     ------------
Net income                                         $   463,018       $   467,140       $ 1,277,530      $ 1,381,371
                                                   ===========       ===========       ===========      ===========

Net income per share                               $      0.15       $      0.16       $      0.42      $      0.46
                                                   ===========       ===========       ===========      ===========

Weighted average number of shares outstanding
                                                     3,020,955         3,012,990         3,018,155        3,002,125
                                                   ===========       ===========       ===========      ===========

</TABLE>

                                       4
<PAGE>




BODDIE-NOELL PROPERTIES, INC.
-------------------------------------------------------------------------------
Statement of Shareholders' Equity
(Unaudited)
<TABLE>
<CAPTION>

                                                                                       Dividends
                                                                      Additional      distributed
                                            Common Stock                paid-in       in excess of
                                       Shares          Amount           capital        net income         Total
                                   --------------- ---------------- -------------    --------------- ----------------
<S>                                   <C>               <C>          <C>              <C>             <C>
Balance at December 31, 1995           3,016,740         $30,167      $33,785,335      $(7,615,564)    $26,199,938

Net income                                                                                 379,174         379,174
Dividends paid
   ($.31 per share)                            -               -                -         (935,189)       (935,189)
                                   ---------------  ------------    -------------      -----------   --------------
Balance at March 31, 1996              3,016,740          30,167       33,785,335       (8,171,579)     25,643,923

Net income                                                                                 435,338         435,338
Dividends paid
   ($.31 per share)                            -               -                -         (935,190)       (935,190)
                                   --------------- -------------    -------------      -----------   --------------
Balance at June 30, 1996               3,106,740          30,167       33,785,335       (8,671,431)     25,144,071

Net income                                                                                 463,018         463,018
Common stock issued                        8,251              83          105,943                          106,026
Dividends paid
   ($.31 per share)                            -               -                -         (935,189)       (935,189)
                                   --------------- -------------    -------------      -----------    -------------
Balance at September 30, 1996          3,024,991         $30,250      $33,891,278      $(9,143,602)    $24,777,926
                                   =============== =============    =============      ===========     ===========
</TABLE>

                                       5
<PAGE>



BODDIE-NOELL PROPERTIES, INC.
-------------------------------------------------------------------------------
Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>

                                                                                            Nine months ended
                                                                                              September 30,
                                                                                         1996              1995
                                                                                    ---------------- -----------------
<S>                                                                                     <C>              <C>
Cash flows from operating activities:
Net income                                                                               $1,277,530       $1,381,371
Adjustments to reconcile net income to
   net cash provided by operations:
   Equity in income of Management Company                                                  (111,432)          (2,710)
   Depreciation and amortization                                                          2,180,785        1,942,231
   Write-off of deferred loan costs                                                               -           22,139
   Changes in operating assets and liabilities:
      Rent and other receivables                                                            237,345           73,613
      Prepaid expenses and other assets                                                    (130,466)        (160,113)
      Accounts payable and accrued expenses                                                 378,354          181,972
      Security deposits and deferred revenue                                                 97,377          (25,117)
                                                                                        -----------      -----------
Net cash provided by operating activities                                                 3,929,493        3,413,386
                                                                                        -----------      -----------

Cash flows from investing activities:
Acquisitions of apartment properties                                                    (10,666,580)               -
Additions to apartment properties                                                          (426,035)        (259,403)
Payment of deferred acquisition costs                                                             -         (156,402)
Investment in and advances to Management Company                                               (165)        (150,000)
Dividends received from Management Company                                                  126,977                -
                                                                                      -------------     -------------
Net cash used in investing activities                                                   (10,965,803)        (565,805)
                                                                                      -------------     ------------

Cash flows from financing activities:
Proceeds of common stock issued through
   dividend reinvestment plan                                                               106,026                -
Payment of dividends                                                                     (2,805,568)      (2,794,030)
Proceeds from notes payable                                                              10,650,000       10,675,000
Principal payments on notes payable                                                        (340,978)     (10,783,730)
Payment of deferred financing costs                                                        (321,721)        (178,305)
                                                                                        -----------      -----------
Net cash provided by (used in) financing activities                                       7,287,759       (3,081,065)
                                                                                        -----------      -----------

Increase (decrease) in cash and cash equivalents                                            251,449         (233,484)
Cash and cash equivalents at beginning of period                                            700,863          952,363
                                                                                        -----------      -----------

Cash and cash equivalents at end of period                                              $   952,312      $   718,879
                                                                                        ===========      ===========
</TABLE>

                                       6
<PAGE>





BODDIE-NOELL PROPERTIES, INC.
-------------------------------------------------------------------------------
Notes to Financial Statements - September 30, 1996
(Unaudited)

Note 1.  Interim financial statements

The  accompanying  financial  statements of Boddie-Noell  Properties,  Inc. (the
"Company")  have not been  audited by  independent  accountants,  except for the
balance  sheet at  December  31,  1995,  which was  derived  from the  financial
statements  included in the  Company's  1995 Annual  Report on Form 10-K. In the
opinion of the  Company's  management,  all  adjustments  (consisting  of normal
recurring  accruals) necessary for a fair presentation of the financial position
and results of operations for the periods presented have been included.

Certain  notes and other  information  have been  condensed  or omitted from the
interim  financial  statements  presented in this Quarterly Report on Form 10-Q.
These financial statements should be read in conjunction with the Company's 1995
Annual Report on Form 10-K.

Certain  amounts in the 1995  financial  statements  have been  reclassified  to
conform to the 1996 presentation.

The results of the first three quarters of 1996 are not  necessarily  indicative
of future financial results.

Note 2.  Acquisition of Paces Village Apartments

On April 29, 1996, the Company acquired Paces Village  Apartments for a contract
purchase price of  $10,625,000.  Transaction  costs related to the  acquisition,
excluding  costs  associated  with  financing  the  purchase,  are  estimated at
$40,000. A more detailed description of the acquisition has been included in the
Company's Current Report on Form 8-K as of April 29, 1996.

Note 3.  Notes payable

During the quarter  ended June 30,  1996,  the Company  financed the purchase of
Paces Village  Apartments  through first and second deed of trust loans totaling
$10,000,000  along with a draw of $650,000  from the Company's  existing  credit
facility.  In addition,  deeds of trust related to Paces Commons  Apartments and
Oakbrook  Apartments  were  modified  to  extend  the terms of each note by five
years.  In conjunction  with these  transactions,  the Company paid and recorded
$139,000 in deferred loan costs.

Notes payable  consist of the following at September 30, 1996,  and December 31,
1995:
<TABLE>
<CAPTION>

                                                                                   September 30,    December 31,
                                                                                       1996             1995
                                                                                  ---------------- ----------------
<S>                                                                                  <C>              <C>
Note payable to a bank in the principal sum of up to $25,500,000 due December
1998,  interest  on the  outstanding  principal  balance  payable  monthly at an
effective rate of 8.11%,  secured by deeds of trust on 47 restaurant  properties
and  assignment of rents under the Amended and Restated  Master Lease  Agreement
for those  restaurants.  The  principal  balance of the loan may be prepaid,  in
whole or part, subject to certain restrictions and penalties.                         $23,900,000      $23,250,000



                                       7
<PAGE>

Fixed  rate  notes   payable,   comprised  of  four  loans  payable  in  monthly
installments totaling approximately $285,000 including principal and interest at
rates  ranging  from  7.86%  to  8.55%,  with  maturities  in 2000  (balloon  of
approximately $12,500,000) through 2025. The notes are secured by deeds of
trust and assignments of rents of four apartment properties.                           36,540,551       36,855,485

Variable rate notes payable  comprised of two loans  ($8,600,000 and $1,400,000,
respectively),  payable  in  monthly  installments  of  $6,511  applied  to  the
principal balance of the $8,600,000 loan and interest at 30-day LIBOR plus 1.75%
and 2.25% (7.32% and 7.82% at September 30, 1996), respectively, with maturities
in 2002 and 1999,  respectively.  The notes  are  secured  by deeds of trust and
assignments of rents of three apartment properties.
                                                                                        9,973,956                -

Variable rate notes  payable to affiliates  comprised of two loans due May 1999,
interest at the lower of 30-day LIBOR plus 1.5% (7.07% at September 30, 1996) or
8%, payable quarterly. Liability for these notes was assumed at the
acquisition of BTVC.                                                                    7,056,300        7,056,300
                                                                                     ------------     ------------
                                                                                      $77,470,807      $67,161,785
                                                                                     ============     ============
</TABLE>

As of September 30, 1996,  scheduled  principal  payments are  approximately  as
follows:  1996  -  $119,000;  1997  -  $495,000;  1998  -  $24,431,000;  1999  -
$9,026,000; 2000 - $12,858,000; 2001 - $389,000; thereafter - $30,153,000.

Note 4.  Common stock issued through dividend reinvestment plan

In July 1996 the Company's  Dividend  Reinvestment  and Stock Purchase Plan (the
"Plan")  was  amended  to allow the  Company,  at its  option,  to issue  shares
directly to Plan  participants.  On August 15,  1996,  the Company  issued 8,251
shares of common stock through the Plan.

Note 5.  Subsequent declaration of dividend

On October 15, 1996,  the Company  declared a cash  dividend of $0.31 per share,
which will be paid on November 15, 1996, to  shareholders  of record on November
1, 1996.


                                       8
<PAGE>


Item 2. Management's  Discussion and Analysis of Financial Condition and Results
of Operation.

This  discussion  contains   forward-looking   statements   including,   without
limitation,  statements relating to development activities of the Company within
the meaning of federal securities laws.  Although  management  believes that the
expectations   reflected  in  such  forward-looking   statements  are  based  on
reasonable  assumptions,  there are  certain  factors  such as general  economic
conditions, local real estate conditions, or weather conditions that might cause
a difference between actual results and those forward-looking statements.

Overview

Boddie-Noell  Properties,  Inc. (the "Company") is a self-managed,  self-advised
real estate  investment  trust  ("REIT").  As of September 30, 1996, the Company
owned  47  net-lease   restaurant   properties  and  five  apartment  properties
containing  1,328  apartments.  Through its management  subsidiary,  the Company
manages an additional nine apartment properties  containing 1,713 apartments and
two shopping centers. All of the Company's operations are in the states of North
Carolina and Virginia.

The  following  discussion  should  be read in  conjunction  with the  financial
statements and notes thereto included in this Quarterly Report on Form 10-Q, the
Company's  audited  financial  statements  and  notes  thereto  included  in the
Company's  1995 Annual Report on Form 10-K and the Company's  Current  Report on
Form 8-K as of April 29, 1996.

Results of Operations

Revenues.  The Company's  revenues  increased by 8 percent for the quarter ended
September 30, 1996, and 3 percent for the nine months ended  September 30, 1996,
compared to the same prior year  periods,  reflecting  significant  increases in
apartment  rental income offset by declines in restaurant  rental income and the
transfer  of  all of  the  Company's  third-party  management  contracts  to BNP
Management,  Inc. ("BNP Management"),  an unconsolidated  management  subsidiary
which was formed in May 1995.

Apartment  rental  income  increased by 21 percent in third  quarter 1996 and 14
percent through nine months of 1996 compared to 1995. Paces Village  Apartments,
acquired April 29, 1996, contributed $391,000 to third quarter 1996 and $657,000
in five months to 1996 apartment rental  revenues.  Revenues at apartments owned
and  operated  for the full period in both 1996 and 1995  increased by 3 percent
for the quarter  ended  September  30 and 4 percent  for the nine  months  ended
September 30 in 1996 and 1995,  respectively.  For  apartment  properties  owned
throughout  the first nine months of both 1996 and 1995,  increases in apartment
income  resulted  from a 5 percent  increase  in average  revenue  received  per
apartment, offset somewhat by a 1 percent decline in economic occupancy. Summary
amounts related to apartment properties occupancy are as follows:

<TABLE>
<CAPTION>

                                                                    1996                                    1995
                                    ---------------------------------------------------------------------
                                      Harris                             Paces       Paces
                                       Hill     Latitudes   Oakbrook    Commons     Village    Overall     Overall
<S>                                    <C>        <C>         <C>        <C>         <C>        <C>        <C>
Number of units                          184        448         162        336         198       1,328      1,130

Quarter ended September 30--
Average physical occupancy              95.3%      95.3%       92.9%      95.2%       94.1%       94.8%      96.2%
Average economic occupancy              95.3%      96.0%       94.3%      96.4%       94.0%       95.5%      96.8%
Average monthly revenue/unit            $714        $639        $783       $698        $701        $691       $664
</TABLE>

                                       9
<PAGE>

<TABLE>
<CAPTION>

                                                                    1996                                    1995
                                    ---------------------------------------------------------------------
<S>                                    <C>        <C>         <C>        <C>         <C>        <C>        <C>
Nine months ended
September 30*--
Average physical occupancy              94.2%      93.3%       93.8%      94.7%       94.1%       93.9%      95.1%
Average economic occupancy              93.9%      94.1%       94.6%      95.0%       93.7%       94.3%      95.5%
Average monthly revenue/unit            $711        $636        $777       $684        $699        $684       $651
<FN>
*Paces Village amounts reflect five months activity
</FN>
</TABLE>

In December  1995,  the Company  entered into a modified  lease  agreement  with
Boddie-Noell   Enterprises,   Inc.  ("BNE"),  the  operator  of  its  restaurant
properties, which increased the minimum annual rental from $3.46 million to $4.5
million.  Percentage  rent  remains  at  9.875%  of gross  food  sales,  payable
quarterly to the extent that  percentage  rent exceeds minimum rent, but subject
to a year-end  adjustment  to the greater of  percentage or minimum rent for the
calendar  year.  During the first quarter of 1996,  the new minimum  resulted in
higher  restaurant  rental  payments  than were received in the first quarter of
1995.  Management expects that the Company will receive the minimum rent for the
year 1996 (a 3.2  percent  decline  from  1995) and has  elected  to record  the
minimum rent for the second and third quarters,  even though the percentage rent
calculation  provides for approximately  $45,000 and $77,000,  respectively,  in
additional rental receipts.

While the  modification of the master lease and increase in the minimum rent are
expected  to limit the  impact  of any  further  decline  in  restaurant  sales,
management is optimistic  that the steps being taken by its restaurant  operator
to remediate the decline in sales are beginning to take hold.  Since 1992,  food
sales have  consistently  declined.  While this trend  continued  into the third
quarter of 1996,  the rate of decline has  moderated.  For the third  quarter of
1996,  same-store  sales were 1 percent  less than those  reported for the third
quarter of 1995. This compares favorably to the 9 percent and 7 percent declines
experienced in the first and second  quarters of 1996. For the first nine months
of 1996,  same-store  sales were 6 percent less than in the first nine months of
1995.  The decline in restaurant  sales appears to be the result of the combined
effect of severe weather in the Company's  markets,  continued  widespread price
discounting in the quick-service  restaurant industry,  and the lack of a strong
hamburger  product on the Hardee's  menu.  BNE and Hardee's  Food  Systems,  the
restaurant franchisor,  are taking aggressive steps to improve restaurant sales,
including  a new  advertising  campaign  and a return to the  chargrill  cooking
method,   the   introduction  of  several  new  hamburger   sandwiches  and  the
reintroduction  of hot dogs to the menu. In March 1996, BNE began to convert the
Company's restaurants to the chargrill cooking system, and at June 30, 1996, all
28 of the Company's  restaurants  located in Virginia had been  converted to the
chargrill system. The entire cost of the conversion is being borne by BNE.

The  Company  received  no  third-party  management  fees in 1996,  compared  to
$127,000 in third quarter and $514,000  year to date in 1995.  The Company has a
95  percent  economic  interest  in  BNP  Management,  which  now  performs  all
third-party management  activities,  and recorded equity in BNP Management's net
income of  approximately  $35,000 in third  quarter and  $111,000  through  nine
months of 1996.  Because  the  Company  receives  most of the net  income of the
subsidiary,  management  does not expect that the  formation or operation of the
management  subsidiary will have a significant effect on the Company's financial
position or operating results.

Expenses. Third quarter and year to date 1996 expenses were generally consistent
with management's  expectations.  The increase in depreciation  compared to 1995
amounts reflects the acquisition of Paces Village  Apartments  ($10.7 million in
apartment  property  assets) in late  April  along  with  improvements  at other
apartment  properties.   The  increase  in  amortization  expense  is  primarily
attributable  to quarterly  additions  to the  intangible  asset  related to the
earn-out  provision of the acquisition  agreement  pursuant to which the Company
acquired  BT  Venture   Corporation   ("BTVC")   along  with  the   addition  of
approximately  $320,000 in deferred financing costs,  primarily during the first
six months of 1996.

                                       10
<PAGE>

Increases in apartment operations expense in third quarter and year to date 1996
were consistent with related apartment rental income. Operating expenses related
to restaurant rental  properties are  insignificant  because of the restaurants'
triple net lease arrangement. The decline in administrative expense reflects the
transfer  of  expenses  related  to  third-party  management  operations  to BNP
Management.

The  increase  in  interest  expense  in 1996  compared  to  1995  is  primarily
attributable  to the addition of $10,650,000 of debt related to the  acquisition
of Paces Village in the second quarter of 1996.  Weighted average interest rates
were 8.0 percent in third  quarter and through  nine months of 1996  compared to
8.1 percent and 8.0 percent during the same periods in 1995.

Summary results of operations.  Funds from operations  ("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 debt  restructuring  and sales of property,  plus
depreciation  and  amortization,   and  after  adjustments  for   unconsolidated
partnerships and joint ventures." In 1995 NAREIT issued additional  guidance for
interpretation  of this  definition  which provides that only  depreciation  and
amortization  of real  estate  assets  should  be added  back to net  income  in
calculating  FFO. At December 31, 1995, the Company adopted this  interpretation
and restated FFO amounts previously reported.

Management   considers  FFO  to  be  useful  in  evaluating  potential  property
acquisitions and measuring the operating  performance of an equity REIT because,
together  with net  income  and  cash  flows,  FFO  provides  investors  with an
additional basis to evaluate the ability of a REIT to incur and service debt and
to fund acquisitions and other capital expenditures.  FFO does not represent net
income or cash flows from operations as defined by generally accepted accounting
principles  ("GAAP"),  and FFO should not be considered as an alternative to net
income  as  an  indicator  of  the  Company's  operating  performance  or  as an
alternative  to cash  flows as a  measure  of  liquidity.  FFO does not  measure
whether  cash  flow is  sufficient  to fund  all of the  Company's  cash  needs,
including  principal  amortization,  capital  improvements and  distributions to
shareholders.  FFO does not represent  cash flows from  operating,  investing or
financing  activities  as defined by GAAP.  Further,  FFO as  disclosed by other
REITs may not be comparable to the  Company's  calculation  of FFO, as described
above.

A reconciliation of net income, funds from operations,  and net cash provided by
operating activities is as follows (all amounts in thousands):
<TABLE>
<CAPTION>

                                                           Three months ended              Nine months ended
                                                              September 30,                  September 30,
                                                           1996           1995           1996            1995
                                                      --------------- -------------- -------------- ---------------
<S>                                                      <C>            <C>           <C>            <C> 
Net income                                                $   463        $    467      $   1,278      $   1,381
Depreciation                                                  627             544          1,787          1,639
Amortization of management intangible                          81              66            231            185
Write-off of deferred costs                                     -               -              -             22
                                                       ----------     -----------    -------------  -----------
   Funds from operations                                    1,171           1,078          3,295          3,228
Equity in income of Management Company                        (35)             (3)          (111)            (3)
Amortization of deferred financing costs                       58              30            163            118
Changes in operating assets and liabilities                   170             241            582             70
                                                         --------        --------    -----------    -----------
   Net cash provided by operating activities               $1,364         $ 1,345      $   3,929       $  3,413
                                                           ======         =======      =========       ========

   Net cash used in investing activities                  $  (140)       $   (135)      $(10,966)      $   (566)
                                                          =======        ========       ========       ========
   Net cash provided by (used in) financing
      activities                                          $  (956)        $(1,061)     $   7,288        $(3,081)
                                                          ========        =======      =========        =======
</TABLE>

Funds from operations  increased by 9 percent during third quarter and 2 percent
year to date in 1996  compared  to the same  periods  in 1995,  attributable  to
improved  operations at the Company's  apartment  properties and  acquisition of
Paces  Village  Apartments  in April  1996,  partially  offset  by  declines  in
restaurant rental income.

                                       11
<PAGE>

Declines in net income for comparable periods further
reflect  the  impact  of  increased   non-cash   charges  for  depreciation  and
amortization. Changes in operating assets and liabilities reflect timing of rent
receipts and payments for trade payables,  taxes, escrow funds and other prepaid
items.

Liquidity and Capital Resources

Capital   resources.   At  September  30,  1996,   the   Company's   total  book
capitalization  was  $102,249,000,  comprised of  $24,778,000  of  shareholders'
equity  and  $77,471,000  of debt.  There were no  significant  changes to these
components during the third quarter of 1996.

On April 29, 1996, the Company acquired Paces Village  Apartments for a contract
purchase  price of  $10,625,000.  The Company  financed the purchase  with loans
totaling  $10,000,000 along with a draw of $650,000 from the Company's  existing
credit facility. The loans used to acquire Paces Village include a first deed of
trust loan of $8,600,000 payable in monthly installments of $6,511 plus interest
at 30-day LIBOR plus 1.75 percent,  maturing in 2002, and a second deed of trust
loan of  $1,400,000  which is due in full in 1999 and provides for interest only
payments  monthly at 30-day LIBOR plus 2.25  percent.  In  conjunction  with the
execution of the new loans, the Company modified existing loans on Paces Commons
and Oakbrook  Apartments  to extend the terms of these loans from 25 to 30 years
and to increase  interest  rate lock  periods by two years for each loan.  Total
cost of the  acquisition and related  financing is estimated at  $10,805,000.  A
more detailed description of the acquisition and related financing  transactions
has been  included in the Company's  Current  Report on Form 8-K as of April 29,
1996.

During 1995 the Company  issued a total of 25,750  shares of common stock to the
former  BTVC  shareholders  to  satisfy  an  earn-out   provision  in  the  BTVC
acquisition  agreement.  Under  the  terms  of  the  acquisition  agreement,  at
September  30,  1996,   the  former  BTVC   shareholders   were  due  additional
consideration totaling $708,000, payable at the Company's option in up to 55,379
shares of common stock or cash.  By agreement,  the Company is  prohibited  from
issuing such shares of common stock if such issuance  would cause the Company to
become  disqualified  as a REIT. On October 30, 1996,  the Company issued 26,000
such shares of common stock valued at $328,000 to the former BTVC shareholders.

On  July  2,  1996,  the  Company   announced  the  amendment  of  its  Dividend
Reinvestment  and Stock Purchase Plan (the "Plan")  effective July 26, 1996. The
Plan will continue to provide a simple and convenient method for shareholders to
invest cash  dividends  and optional  cash  payments in shares of the  Company's
common  stock.  Under the  amended  Plan,  the  Company  will now pay all costs,
including brokerage commissions, incurred in connection with purchases under the
Plan.  In addition,  the Plan has been amended to give the Company the option of
issuing shares directly to Plan  participants  rather than causing all purchases
under the Plan to be made on the open market. A more detailed description of the
Plan, as amended, has been included in the Company's  Registration  Statement on
Form S-3 filed on July 2, 1996.  On August 15,  1996,  the Company  issued 8,251
shares of common stock to Plan participants.

Cash flows and  liquidity.  Net cash  provided by operating  activities  totaled
$3,929,000 and $3,413,000 through nine months of 1996 and 1995, respectively. As
discussed  above,  funds from operations  increased in third quarter and year to
date in 1996 compared to 1995. Changes in operating assets and liabilities arise
from timing of rental  receipts and payments for trade payables,  taxes,  escrow
funds and other prepaid items.

Net cash used in investing activities totaled $10,966,000 through nine months in
1996, including approximately  $10,500,000 expended during the second quarter in
the Paces Village  acquisition.  No significant  investing  activities  occurred
during the third quarter of 1996 or during the first nine months of 1995.

Significant  financing  activities  in 1996 include  financing the Paces Village
Apartments  acquisition  with debt totaling  $10,650,000 and payments of regular
quarterly  dividends  totaling  $2,806,000  (compared to $2,794,000 paid through
nine months in 1995). The Company has consistently  paid quarterly  dividends of
$0.31 per share every quarter since 1992.

                                       12
<PAGE>

Short- and long-term  liquidity  requirements.  The Company continues to produce
sufficient  cash flow to fund its regular  dividend.  The Company has  announced
that it will pay a regular quarterly dividend of $0.31 per share on November 15,
1996, to shareholders of record on November 1, 1996.

At September 30, 1996, the weighted  average  interest rate on outstanding  debt
was 8.0  percent  compared  to 8.1  percent at March 31,  1996,  reflecting  the
favorable  impact  of new  variable  rate  debt  related  to the  Paces  Village
acquisition.  A 1 percent  increase in  variable  rates  would  increase  annual
interest  expense  by  approximately  $166,000,  while a 1 percent  decrease  in
variable rates would decrease annual interest expense by approximately $170,000.
Additional  discussion of notes payable and related maturities has been included
in the notes to the financial statements at September 30, 1996.

The Company expects to meet its short-term liquidity  requirements with net cash
provided by operations and utilization of credit facilities. Management believes
that net cash  provided by  operations  will be adequate to meet both  operating
requirements  and payment of dividends to satisfy  Internal Revenue Service REIT
requirements in both the short- and long term.

The Company remains committed to its growth and diversification plan. Management
is actively seeking to add to the Company's  portfolio of apartment  properties.
The Company  anticipates funding  acquisition  activities,  if any, primarily by
using  secured  debt,  and expects to meet  certain of its  long-term  liquidity
requirements with long-term secured and unsecured borrowings and the issuance of
debt  securities or  additional  equity  securities  of the Company.  Management
believes  that it has  sufficient  resources  to meet its short-  and  long-term
liquidity requirements.

Capitalization  of fixed  assets and  property  improvements.  The  Company  has
established a policy of capitalizing  those  expenditures  relating to acquiring
new  assets,   materially   enhancing  the  value  of  an  existing   asset,  or
substantially extending the useful life of an existing asset. Apartment property
carpet, vinyl and wallpaper are capitalized and depreciated over five years.

Capitalized property additions,  replacements and improvements are summarized as
follows (amounts in thousands):
<TABLE>
<CAPTION>

                                                          Three months ended                Nine months ended
                                                            September 30,                     September 30,
                                                        1996             1995             1996            1995
                                                   ---------------- ---------------- --------------- ----------------
<S>                                                       <C>              <C>              <C>             <C>
Capitalized carpet, vinyl and wallpaper
   replacements                                            $  62            $  69*           $ 145           $ 155*
Exterior painting                                             81               11               81              86
Other property additions                                      48               42              200             104
                                                          ------           ------           ------          ------
                                                             191              122              426             345
Allocation of BTVC purchase price
   additional consideration                                   17               17               50              50
                                                          ------           ------           ------          ------
                                                            $208             $138             $476            $395
                                                            ====             ====             ====            ====

<FN>
*Includes  approximately  $42,000  and  $85,000  for the three  months  and nine
months, respectively, which was originally expensed and subsequently capitalized
through a fourth quarter adjustment.
</FN>
</TABLE>

Inflation.  Management  does not believe that inflation poses a material risk to
the Company.  The leases at the Company's apartment properties are short-term in
nature.  The majority of the apartment leases are for terms of one year or less,
with none longer than two years.  All  apartment  leases  allow,  at the time of
renewal,  for  adjustments  in the rent payable  thereunder  and thus enable the
Company to seek  increases  in rents to  compensate  for  increases  in expenses
brought about by inflation. In addition, the apartment lease agreements give the



                                       13
<PAGE>

Company  the  right  to  terminate  any  lease at the end of its term on 60 days
notice. The restaurant properties are leased on a triple-net basis, which places
the risk of rising operating and maintenance costs on the lessee.


                           PART II - Other Information

Item 6. Exhibits and Reports on Form 8-K.
<TABLE>

<S> <C>                                                                                           <C>
a)   Exhibits:

     Exhibit 4        Boddie-Noell Properties, Inc. Dividend Reinvestment and Stock Purchase       *
                      Plan, as amended effective July 26, 1996 (Form S-3, File No. 333-07415,
                      dated July 2, 1996, and incorporated herein by reference).
     Exhibit 11       Computation of per share earnings                                            Page 16
     Exhibit 27       Financial data schedule (electronic filing)                                  Page 17

     *Incorporated herein by reference

b)   Reports on Form 8-K:

     The Company  filed a Current  Report on Form 8-K dated  October  15,  1996,
     relating to the change in its certifying accountant as of that date.
</TABLE>


                                       14
<PAGE>


                                   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.

                                                BODDIE-NOELL PROPERTIES, INC.
                                                (Registrant)




November 12, 1996                                   /s/ Philip S. Payne
                                                -----------------------
                                                Philip S. Payne
                                                Executive Vice President and
                                                Chief Financial Officer
                                                (Duly authorized officer)



November 12, 1996                                   /s/ Pamela B. Novak
                                                -----------------------
                                                Pamela B. Novak
                                                Vice President - Controller
                                                (Chief accounting officer)



                                       15
<PAGE>