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, 2005
                               ------------------

                                       OR

[  ]   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
       OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ________ to ___________

Commission file number: 1-9496


                        BNP RESIDENTIAL PROPERTIES, INC.
             (Exact name of Registrant as specified in its charter)

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

           301 S. College Street, Suite 3850, Charlotte, NC 28202-6024
               (Address of principal executive offices) (Zip Code)

                                  704/944-0100
                         (Registrant's telephone number)


      Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No

      Indicate by check mark whether the registrant is an accelerated filer
(as defined in Rule 12b-2 of the Exchange Act).  Yes 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 October 31, 2005 (the latest practicable date).

Common Stock, $.01 par value                    9,458,071
----------------------------                    -----------------------
(Class)                                         (Number of shares)


                                                        Exhibit index:  page 49

<PAGE>



                                TABLE OF CONTENTS


  Item No.                                                              Page No.

                 PART I - Financial Information (Unaudited)


    1      Financial Statements                                               3
    2      Management's Discussion and Analysis of Financial Condition       23
           and Results of Operations
    3      Quantitative and Qualitative Disclosures                          46
           About Market Risk
    4      Controls and Procedures                                           46


           PART II - Other Information

    6      Exhibits                                                          47

           Signatures                                                        48



                                       2
<PAGE>






Item 1.  Financial Statements.

BNP RESIDENTIAL PROPERTIES, INC.
-------------------------------------------------------------------------------
Consolidated Balance Sheets
(all amounts in thousands except share amounts)
<TABLE>
<CAPTION>

                                                                         September 30        December 31
                                                                             2005               2004
                                                                       ------------------ ------------------
                                                                          (Unaudited)
<S>                                                                          <C>                <C>
Assets
Real estate investments at cost:
   Apartment properties                                                       $ 518,170          $ 389,119
   Restaurant properties                                                         37,405             37,405
                                                                       ------------------ ------------------
                                                                                555,575            426,525
   Less accumulated depreciation                                                (83,457)           (66,454)
                                                                       ------------------ ------------------
                                                                                472,118            360,071
   Real estate assets held for sale, net                                         14,076                  -
                                                                       ------------------ ------------------
                                                                                486,194            360,071
Cash and cash equivalents                                                         2,097                517
Prepaid expenses and other assets                                                 9,559              4,516
Deferred financing costs, net                                                     2,257              1,545
Intangible assets, net                                                            1,189              1,115
                                                                       ------------------ ------------------
         Total assets                                                         $ 501,296          $ 367,764
                                                                       ================== ==================

Liabilities and Shareholders' Equity
Deed of trust and other notes payable                                         $ 404,620          $ 286,425
Note payable related to real estate assets held for sale                          9,000                  -
Accounts payable and accrued expenses                                             4,435                897
Accrued interest on notes payable                                                 1,812              1,264
Consideration due for acquisitions                                                2,700                  -
Deferred revenue and security deposits                                            1,997              1,787
                                                                       ------------------ ------------------
      Total liabilities                                                         424,565            290,373

Minority interest in consolidated limited partnerships                               83                  -
Minority interest in operating partnership                                       18,928             14,394

Shareholders' equity:
Preferred stock, $.01 par value, 10,000,000 shares
   authorized; issued and outstanding shares--
   909,090 at September 30, 2005, and December 31, 2004                          10,000             10,000
Common stock, $.01 par value, 100,000,000 shares
   authorized; issued and outstanding shares--
   9,458,071 at September 30, 2005, (including
   200,000 nonvested shares), and
   8,652,740 at December 31, 2004                                                    93                 87
Additional paid-in capital                                                      112,159            103,221
Dividend distributions in excess of net income                                  (64,531)           (50,311)
                                                                       ------------------ ------------------
      Total shareholders' equity                                                 57,720             62,996
                                                                       ------------------ ------------------
         Total liabilities and shareholders' equity                           $ 501,296          $ 367,764
                                                                       ================== ==================
</TABLE>

See accompanying notes

                                       3
<PAGE>


BNP RESIDENTIAL PROPERTIES, INC.
-------------------------------------------------------------------------------
Consolidated Statements of Operations - Unaudited
(all amounts in thousands except per share amounts)
<TABLE>
<CAPTION>


                                                      Three months ended            Nine months ended
                                                         September 30                  September 30
                                                      2005          2004           2005            2004
                                                  ------------- ------------- --------------- ---------------
<S>                                                <C>           <C>             <C>             <C>
Revenues
Apartment rental income                             $ 17,701      $ 11,839        $ 48,619        $ 32,471
Restaurant rental income                                 957           957           2,872           2,872
Management fee income                                      6           177             122             582
Interest and other income                                228           295             480             431
                                                  ------------- ------------- --------------- ---------------
                                                      18,892        13,268          52,093          36,357
Expenses
Apartment operations                                   7,079         4,872          19,031          13,122
Apartment administration                                 799           564           2,210           1,604
Corporate administration                                 683           497           2,205           1,724
Interest                                               6,034         3,834          16,211          10,404
Penalties paid at debt refinance                           -             -             519               -
Depreciation                                           4,534         3,083          12,079           8,313
Amortization of deferred loan costs                      112           103             330             259
Write-off of unamortized loan costs
   at debt refinance                                       -            85             223              85
Deficit distributions to minority partners               150             -           7,771               -
                                                  ------------- ------------- --------------- ---------------
                                                      19,392        13,039          60,580          35,512
                                                  ------------- ------------- --------------- ---------------
                                                        (500)          228          (8,487)            845
Loss (income) attributed to minority interests
   - Consolidated limited partnerships                   191             -             267               -
   - Operating partnership                               114             4           1,594             (23)
                                                  ------------- ------------- --------------- ---------------
(Loss) income from continuing operations                (195)          232          (6,626)            822

Discontinued operations:
Income from discontinued operations                       56            82             121              82
Loss (income) attributed to minority interests           (12)          (15)            (24)            (15)
                                                  ------------- ------------- --------------- ---------------
Income from discontinued operations, net                  45            67              97              67
                                                  ------------- ------------- --------------- ---------------
Net (loss) income                                       (150)          299          (6,529)            889
Less cumulative preferred dividend                      (250)         (250)           (750)           (750)
                                                  ------------- ------------- --------------- ---------------
(Loss) income attributed to
   common shareholders                              $   (400)     $     49        $ (7,279)       $    139
                                                  ============= ============= =============== ===============
</TABLE>

                                                                  (continued)

                                       4
<PAGE>

BNP RESIDENTIAL PROPERTIES, INC.
-------------------------------------------------------------------------------
Consolidated Statements of Operations - Unaudited - continued
(all amounts in thousands except per share amounts)

<TABLE>
<CAPTION>

                                                      Three months ended            Nine months ended
                                                         September 30                  September 30
                                                      2005          2004           2005            2004
                                                  ------------- ------------- --------------- ---------------
<S>                                              <C>            <C>            <C>            <C>
Weighted average
   common shares outstanding                           9,384         8,289           9,203           7,275

Earnings per common share - basic:
   (Loss) income from
     - Continuing operations                      $    (0.01)    $    0.02      $   (0.72)     $      0.11
     - Discontinued operations                          0.00          0.01           0.01             0.01
                                                  ------------- ------------- --------------- ---------------
   Net (loss) income                                   (0.01)         0.03          (0.71)            0.12
   (Loss) income attributed to
     common shareholders                               (0.04)         0.01          (0.79)            0.02

Earnings per common share - diluted:
   (Loss) income from
     - Continuing operations                      $    (0.01)    $    0.02      $   (0.72)     $      0.09
     - Discontinued operations                          0.00          0.01           0.01             0.01
                                                  ------------- ------------- --------------- ---------------
   Net (loss) income                                   (0.01)         0.03          (0.71)            0.10
   (Loss) income attributed to
     common shareholders                               (0.04)         0.01          (0.79)            0.02

Dividends declared per common share               $     0.25     $    0.25      $    0.75      $      0.75

</TABLE>


See accompanying notes

                                       5
<PAGE>

BNP RESIDENTIAL PROPERTIES, INC.
-------------------------------------------------------------------------------
Consolidated Statement of Shareholders' Equity - Unaudited
(all amounts in thousands)
<TABLE>
<CAPTION>


                                                                                            Dividend
                                                                            Additional   distributions
                                Preferred Stock         Common Stock         paid-in      in excess of
                              Shares     Amount       Shares     Amount      capital       net income       Total
                             --------- ------------ ----------- ---------- ------------- --------------- -----------
<S>                            <C>      <C>           <C>          <C>      <C>            <C>            <C>
Balance December 31, 2004        909     $ 10,000       8,653       $ 87     $ 103,221      $ (50,311)     $ 62,996
Common stock issued                -            -         580          6         8,596              -         8,602
Dividends paid - preferred         -            -           -          -             -           (250)         (250)
Dividends paid - common            -            -           -          -             -         (2,272)       (2,272)
Net loss, first quarter            -            -           -          -             -         (5,957)       (5,957)
                             --------- ------------ ----------- ---------- ------------- --------------- ------------
Balance March 31, 2005           909       10,000       9,233         92       111,817        (58,790)       63,120
Common stock issued                -            -          12          -           194              -           194
Dividends paid - preferred         -            -           -          -             -           (250)         (250)
Dividends paid - common            -            -           -          -             -         (2,308)       (2,308)
Net loss, second quarter           -            -           -          -             -           (406)         (406)
                             --------- ------------ ----------- ---------- ------------- --------------- ------------
Balance June 30, 2005            909       10,000       9,245         92       112,012        (61,754)       60,350
Common stock issued                -            -         213          -           199              -           199
Common stock
   registration costs              -            -           -          -          (109)             -          (109)
Compensation expense
   related to nonvested
   common stock                    -            -           -          -            57              -            57
Dividends paid - preferred         -            -           -          -             -           (250)         (250)
Dividends paid - common            -            -           -          -             -         (2,361)       (2,361)
Retrospective adjustment
   for consolidation of
   Villages - Phase 5 LP           -            -           -          -             -            (16)          (16)
Net loss, third quarter            -            -           -          -             -           (150)         (150)
                             --------- ------------ ----------- ---------- ------------- --------------- ------------
Balance September 30, 2005       909     $ 10,000       9,458       $ 93     $ 112,159      $ (64,531)     $ 57,720
                             ========= ============ =========== ========== ============= =============== ============
</TABLE>

See accompanying notes

                                       6
<PAGE>


BNP RESIDENTIAL PROPERTIES, INC.
-------------------------------------------------------------------------------
Consolidated Statements of Cash Flows - Unaudited
(all amounts in thousands)
<TABLE>
<CAPTION>

                                                                                  Nine months ended
                                                                                    September 30
                                                                                2005             2004
                                                                          ----------------- ----------------
<S>                                                                            <C>                <C>
Operating activities:
Apartment rental receipts, net                                                  $  49,676          $ 32,942
Restaurant rental receipts                                                          2,872             2,872
Management fee receipts                                                               122               556
Interest and other income receipts                                                    329               162
Operating and administrative expense payments                                     (24,624)          (16,729)
Interest payments                                                                 (17,016)          (10,444)
                                                                          ----------------- ----------------
Net cash provided by operating activities                                          11,360             9,360

Investing activities:
Acquisitions of apartment properties                                              (35,576)          (48,305)
Acquisition of Boddie Investment Company, net of cash included in
   accounts of consolidated limited partnerships                                      368                 -
Additions to apartment properties, net                                             (6,086)           (3,028)
Net release (funding) of lender reserves                                              (89)             (416)
Casualty proceeds                                                                     533               895
                                                                          ----------------- ----------------
Net cash used in investing activities                                             (40,851)          (50,854)

Financing activities:
Net proceeds from issuance of common stock                                          1,229            30,556
Distributions to minority partners in consolidated limited partnerships            (7,771)                -
Distributions to operating partnership minority unitholders                        (1,518)           (1,380)
Dividends paid to preferred shareholder                                              (750)             (740)
Dividends paid to common shareholders                                              (6,942)           (5,391)
Proceeds from notes payable                                                        95,938           111,906
Principal payments on notes payable                                               (47,552)          (91,563)
Deposits for pending financing transactions                                          (600)                -
Payment of deferred financing costs                                                  (963)             (854)
                                                                          ----------------- ----------------
Net cash provided by financing activities                                          31,071            42,523
                                                                          ----------------- ----------------

Net increase in cash and cash equivalents                                           1,580             1,028
Cash and cash equivalents at beginning of period                                      517               564
                                                                          ----------------- ----------------

Cash and cash equivalents at end of period                                      $   2,097          $  1,593
                                                                          ================= ================
</TABLE>

                                                                  (continued)


                                       7
<PAGE>



BNP RESIDENTIAL PROPERTIES, INC.
-------------------------------------------------------------------------------
Consolidated Statements of Cash Flows - Unaudited - continued
(all amounts in thousands)
<TABLE>
<CAPTION>


                                                                                  Nine months ended
                                                                                    September 30
                                                                                2005             2004
                                                                          ----------------- ----------------
<S>                                                                            <C>             <C>
Reconciliation of net (loss) income to
   net cash provided by operating activities:
Net (loss) income                                                               $  (6,529)      $       889
Amortization of intangible for in-place leases at acquisitions                        136                 -
Casualty gains                                                                       (168)             (269)
Amortization of debt premium                                                         (122)             (105)
Depreciation and amortization of deferred loan costs                               12,409             8,572
Depreciation and amortization
   from discontinued operations                                                       268                82
Write off of unamortized loan costs at debt refinancing                               223                85
Deficit distributions to minority partners in
   consolidated limited partnerships                                                7,771                 -
Minority interest in consolidated limited partnerships                               (267)                -
Minority interest in operating partnership                                         (1,570)               38
Changes in operating assets and liabilities:
   Prepaid expenses and other assets                                               (3,633)           (2,890)
   Accounts payable and accrued expenses                                            3,202             3,015
   Deferred revenue, prepaid rent and security deposits                              (361)              (57)
                                                                          ----------------- ----------------
Net cash provided by operating activities                                       $  11,360        $    9,360
                                                                          ================= ================
</TABLE>

See accompanying notes

                                       8
<PAGE>

BNP RESIDENTIAL PROPERTIES, INC.
-------------------------------------------------------------------------------
Notes to Consolidated Financial Statements - September 30, 2005
(Unaudited)

Note 1.  Interim financial statements

We prepared the accompanying condensed consolidated financial statements in
accordance with accounting principles generally accepted in the United States
for interim financial information and with the instructions to Form 10-Q and
Rule 10-01 of Regulation S-X. These interim financial statements do not include
all information and notes required by generally accepted accounting principles
for complete financial statements. However, except as disclosed herein, there
has been no material change in the information disclosed in the notes to the
consolidated financial statements included in the Annual Report on Form 10-K of
BNP Residential Properties, Inc. for the year ended December 31, 2004. You
should read these financial statements in conjunction with our 2004 Annual
Report on Form 10-K. When we use the terms "we," "us," or "our," we mean BNP
Residential Properties, Inc. and all entities included in our consolidated
financial statements. We believe that we have included all adjustments
(including normal recurring accruals) necessary for a fair presentation.
Operating results for the three and nine months ending September 30, 2005, are
not necessarily indicative of the results that may be expected for the year
ending December 31, 2005.

We have reclassified certain amounts in our prior period consolidated financial
statements and notes to conform to the current period presentation.

Note 2.  Basis of presentation

These 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.

Effective January 26, 2005, in connection with an acquisition on that date, the
consolidated financial statements also include the accounts of three real estate
limited partnerships (the "limited partnerships") in which we have general
partner interests. The assets of consolidated limited partnerships controlled by
the operating partnership generally are not available to pay creditors of the
company or the operating partnership.

All significant intercompany balances and transactions have been eliminated in
the consolidated financial statements.

Accounting for VIEs
In January 2003, the Financial Accounting Standards Board ("FASB") issued FASB
Interpretation 46, "Consolidation of Variable Interest Entities" ("FIN 46"). In
December 2003, the FASB modified FIN 46 to make certain technical corrections
and address certain implementation issues that had arisen. FIN 46 provided a new
framework for identifying variable interest entities ("VIEs") and determining
when a company should include the assets, liabilities, noncontrolling interests
and results of activities of a VIE in its consolidated financial statements.

In general, a VIE is an entity or other legal structure used to conduct
activities or hold assets that either (1) has an insufficient amount of equity
to carry out its principal activities without

                                       9
<PAGE>


additional  subordinated  financial  support,  (2) has equity  owners that, as a
group, are unable to make significant decisions about its activities, or (3) has
equity owners that, as a group,  do not have the  obligation to absorb losses or
the right to receive returns generated by its operations.

FIN 46, as modified, requires that a VIE be consolidated if a party with an
ownership, contractual or other financial interest in the VIE (a "variable
interest holder") is obligated to absorb a majority of the risk of loss from the
VIE's activities, is entitled to receive a majority of the VIE's residual
returns (if no party absorbs a majority of the VIE's losses), or both. A
variable interest holder that consolidates the VIE is called the "primary
beneficiary." Upon consolidation, the primary beneficiary generally must
initially record all of the VIE's assets, liabilities and noncontrolling
interests at fair value and subsequently account for the VIE as if it were
consolidated based on majority voting interest.

Accounting for general partner interests in limited partnerships
As managing general partner in three real estate limited partnerships, we have
the ability to exercise significant influence over operating and financial
policies. This influence is evident in the terms of the respective partnership
agreements. In acting as the general partner in these limited partnerships, we
are committed to providing additional levels of funding to meet partnership
operating deficits as may be needed.

If we, as general partner, control a partnership that is not a VIE, generally
accepted accounting principles require that we consolidate the partnership in
our financial statements. Upon consolidation, we record our prorata interest in
the partnership's assets and liabilities at the lower of our cost or fair value,
and subsequently account for the partnership based on our prorata interest; the
non-controlling interests are reflected in our financial statements at their
historical costs.

Accounting for discontinued operations
FASB Statement 144, "Accounting for the Impairment or Disposal of Long-Lived
Assets," requires that the assets and liabilities and the results of operations
of any communities that have been sold, or otherwise qualify as held for sale,
be presented as discontinued operations in our consolidated financial
statements, for both current and prior periods presented. In addition, the net
gain or loss on the eventual disposal of communities held for sale will be
presented as discontinued operations when recognized. A change in presentation
for discontinued operations does not have any impact on our financial condition
or results of operations. We measure real estate assets held for sale at the
lower of the carrying value or the fair value less cost to sell, and we present
those assets separately in our balance sheet. We record no depreciation for the
community assets once the community is classified as held for sale.

Note 3.  Accounting for consolidated limited partnerships

Effective  January 26, 2005, we acquired  Boddie  Investment  Company ("BIC") in
exchange for shares of our common  stock.  As a result of this  acquisition,  in
addition to other significant  assets, we acquired certain economic interests in
the following limited partnerships:

o    Marina Shores Associates One, Limited Partnership - 50% interest as general
partner
o    The Villages of Chapel Hill Limited  Partnership - 1% interest as general
partner
o    The Villages of Chapel Hill - Phase 5 Limited Partnership - 1% interest
as general partner

                                       10
<PAGE>

Prior to this acquisition, we managed, on a fee basis, the properties owned by
these limited partnerships. Following our acquisition of BIC, a wholly owned
subsidiary of the operating partnership acts as the managing general partner of
these limited partnerships and continues to manage the properties. These limited
partnerships are primarily funded with financing from third party lenders, which
is secured by first deed of trust loans on the rental properties of the
partnerships. The creditors of the limited partnerships generally do not have
recourse to the operating partnership.

We determined that the Marina Shores Associates One, Limited Partnership
("Marina Shores Partnership") is not a VIE. However, under the terms of the
partnership agreement for the Marina Shores Partnership, the general partner
controls the activities of the partnership; we have therefore included the
accounts of this partnership in our consolidated financial statements effective
January 26, 2005. Our initial net investment in this general partnership
interest was $5.9 million. The initial inclusion of the Marina Shores
Partnership in our consolidated financial statements resulted in an increase in
real estate investments of $26.3 million, an increase in net operating assets of
$1.0 million and an increase in deed of trust notes payable of approximately
$21.4 million. In our initial consolidation of the Marina Shores Partnership, we
reset the noncontrolling limited partner's capital account to $-0-.

We determined that The Villages of Chapel Hill Limited Partnership ("Villages
Partnership") is a VIE because the limited partnership does not have sufficient
equity to carry out its principal activities without additional subordinated
financial support from the general partner. We also determined that we are the
primary beneficiary of the Villages Partnership. We have therefore included the
accounts of this partnership in our consolidated financial statements effective
January 26, 2005. Our initial net investment in this general partnership
interest was $2,000. The initial inclusion of the Villages Partnership in our
consolidated financial statements resulted in an increase in real estate
investments of $14.2 million, an increase in net operating assets of $0.1
million and an increase in deed of trust notes payable of $12.1 million. In
addition, we hold $2.0 million in notes and other receivables from The Villages
Partnership, which have been eliminated in consolidation. In our initial
consolidation of the Villages Partnership, we recorded the noncontrolling
limited partners' capital accounts at $350,000.

We determined that The Villages of Chapel Hill - Phase 5 Limited Partnership
("Villages - Phase 5 Partnership") is not a VIE. We initially accounted for our
investment in this partnership effective January 26, 2005, by applying the
equity method. Our initial investment in the Villages - Phase 5 Partnership was
$7,000, and we initially included this investment in "other assets" on our
balance sheet. This treatment followed guidance in the AICPA Statement of
Position 78-9, "Accounting for Investments in Real Estate Ventures," ("SOP
78-9"), which indicated that certain voting rights of the limited partners under
the terms of the partnership agreement precluded control by the general partner.

In late June 2005, the FASB ratified its Emerging Issues Task Force consensus in
Issue No. 04-5, "Determining Whether a General Partner, or the General Partners
as a Group, Controls a Limited Partnership or Similar Entity When the Limited
Partners Have Certain Rights." In July 2005, the FASB issued Staff Position
(FSP) SOP 78-9-1, "Interaction of AICPA Statement of Position 78-9 and EITF
Issue No. 04-5." This guidance amended SOP 78-9 such that the voting rights of
the limited partners under the terms of the Villages - Phase 5 Partnership
agreement no longer overcome a presumption of control by the general partner;
therefore, we, as general partner, are deemed to control the partnership and
should consolidate its accounts and activities in our consolidated financial
statements. For existing partnerships, FSP SOP 78-9-1 must be adopted no later
than January 1, 2006. We have elected to adopt FSP SOP 78-9-1 effective July 1,
2005,

                                       11
<PAGE>

through  retrospective  application  of this new guidance (as if we had included
the  accounts  of this  partnership  in our  consolidated  financial  statements
effective January 26, 2005); we have included supplemental  financial statements
reflecting  this  retrospective  restatement  following these notes to financial
statements.

If we had included the accounts of the Villages - Phase 5 Partnership in our
consolidated financial statements effective January 26, 2005, such treatment
would have resulted in an increase in real estate investments of $2.6 million,
an increase in net operating assets of $0.2 million and an increase in deed of
trust notes payable of $2.8 million. We would also have reset the noncontrolling
limited partners' capital accounts to $-0-. There has been no subsequent
material change in these amounts.

If we had consolidated the activities of the Villages - Phase 5 Partnership in
our first and second quarter interim financial statements, such treatment would
have resulted in a change in previously reported interim financial results as
follows:
<TABLE>
<CAPTION>

                                                Six months ended               Three months ended
                                                 June 30, 2005        June 30, 2005        March 31, 2005
                                              -------------------- --------------------- --------------------
                                                    (000's)              (000's)                 (000's)
<S>                                                   <C>                    <C>                 <C>
Loss before minority interests,
   as previously reported                              $(7,902)               $(591)              $(7,311)
Effect of consolidating
   Villages - Phase 5                                      (20)                  (4)                  (16)
                                              -------------------- --------------------- --------------------
Loss before minority interests, revised                $(7,922)               $(595)              $(7,328)
                                              ==================== ===================== ====================

Net loss, as previously reported                       $(6,363)               $(406)              $(5,957)
Effect of consolidated
   Villages - Phase 5                                      (16)                  (3)                  (13)
                                              -------------------- --------------------- --------------------
Net loss, revised                                      $(6,379)               $(409)              $(5,970)
                                              ==================== ===================== ====================
</TABLE>

These amounts are insignificant to the consolidated statements of operations and
would not change reported earnings per share amounts.

We reflect the unaffiliated partners' interests in the Marina Shores
Partnership, the Villages Partnership and the Villages - Phase 5 Partnership as
minority interest in consolidated limited partnerships. Minority interest in
consolidated limited partnerships represents the minority partners' share of the
underlying net assets of these consolidated limited partnerships. When these
consolidated limited partnerships make cash distributions to partners in excess
of the carrying amounts of their minority interests, we record a charge equal to
the amount of such excess distributions as deficit distributions to minority
partners. While these charges decrease our net income (or increase our net
loss), there is no economic effect or cost to the company or the operating
partnership for these distributions. The economic cost of these distributions is
borne by the limited partnership making the distributions.

During 2005, we recorded charges for deficit distributions to the minority
partner in the Marina Shores Partnership as follows (in thousands):

                                       12
<PAGE>

         First quarter                                $ 6,821
         Second quarter                                   800
         Third quarter                                    150
                                                ----------------
                                                      $ 7,771
                                                ================

We allocate proportional income and losses of the consolidated limited
partnerships, measured on a year-to-date basis, to minority partners. However,
we may allocate losses to a minority partner only to the extent of the carrying
amount of the interest of that minority partner. When losses attributable to the
minority limited partners of a consolidated limited partnership exceed the
carrying amount of the minority interest, we record a charge, even though there
is no economic effect or cost to the operating partnership.

During 2005, we recorded interim charges (reduction) for consolidated limited
partnership losses, resulting primarily from depreciation, along with costs
related to refinance of the Marina Shores Partnership's first deed of trust
loan, as follows:

<TABLE>
<CAPTION>
                                                                                                Villages -
                                                            Marina Shores       Villages          Phase 5
                                               Total         Partnership      Partnership      Partnership*
                                          ---------------- ----------------- ---------------- -----------------
                                              (000's)           (000's)          (000's)          (000's)
        <S>                                   <C>                 <C>                <C>              <C>
         First quarter                         $ 631               $ 621               $ -             $ 10
         Second quarter                         (209)               (203)                -               (6)
         Third quarter                          (131)               (145)                -               14
                                          ---------------- ----------------- ---------------- -----------------
                                               $ 291               $ 274               $ -             $ 17
                                          ================ ================= ================ =================
</TABLE>

 *retrospective for first and second quarters

Note 4.  Discontinued operations - Real estate assets held for sale

As of September 30, 2005, the company had one apartment community, Savannah
Shores Apartments, which qualified as assets held for sale under the provisions
of FASB Statement 144. We have presented the operations of this community as
discontinued operations in the statements of operations for all periods
presented. Operating results of this community were as follows:
<TABLE>
<CAPTION>

                                                 Three months ended                  Nine months ended
                                                    September 30                       September 30
                                               2005              2004             2005              2004
                                          ---------------- ----------------- ---------------- -----------------
                                              (000's)           (000's)          (000's)           (000's)
<S>                                            <C>                 <C>             <C>                <C>
Apartment rental income                         $482                $459            $1,378             $459
Apartment operations expense                    (215)               (218)             (656)            (218)
Interest                                        (123)                (76)             (332)             (76)
Depreciation                                     (84)                (78)             (255)             (78)
Amortization of
   deferred loan costs                            (5)                 (5)              (14)              (5)
                                          ---------------- ----------------- ---------------- -----------------
                                                $ 56                $ 82            $  121             $ 82
                                          ================ ================= ================ =================
</TABLE>

                                       13
<PAGE>

The consolidated balance sheet as of September 30, 2005, includes other
operating assets (excluding net real estate assets) of $286,000, and other
operating liabilities (excluding the note payable related to the real estate
assets) of $207,000 related to this community.

We acquired Savannah Shores Apartments in July 2004 for an initial purchase
price of $12.5 million, paid through issuance of operating partnership units
with total imputed value of $0.1 million, assumption of $12.2 million in debt
obligations, and assumption of $0.2 million net operating liabilities in excess
of operating assets acquired. The acquisition agreement provided for potential
earn-out of additional purchase consideration of up to $1.7 million within a
three-year period upon attainment of certain performance standards or upon sale
of the property, to be funded through issuance of additional operating
partnership units with an imputed value of $13.00 per unit to the contributors.
Accordingly, we have recorded $1.7 million additional consideration due for this
acquisition in our balance sheet as of September 30, 2005.

Note 5.  Stock-based compensation

The company has one employee Stock Option and Incentive Plan in place. The plan,
as amended May 2005, provides for issuance of up to 1,260,000 shares, with a
630,000-share limit on restricted stock, phantom stock, and other full value
stock-based awards combined.

Prior to July 1, 2005, we accounted for this plan using the intrinsic value
method under the recognition and measurements principles of APB Opinion 25,
"Accounting for Stock I23ssued to Employees," and related interpretations, as
permitted by FASB Statement 123, "Accounting for Stock-Based Compensation." No
stock-based employee compensation cost was reflected in net income, as all
options granted under this plan had an exercise price equal to the market value
of the underlying common stock on the date of grant. All outstanding options
were fully vested prior to the end of 2004.

Effective July 1, 2005, we adopted the fair value recognition provisions of FASB
Statement 123(R), "Share Based Payment," ("FAS 123(R)") using the
modified-prospective transition method. Under this transition method,
compensation cost recognized in the second half of 2005 includes compensation
cost for all share-based payments granted subsequent to July 1, 2005, based on
the grant-date fair value estimated in accordance with the provisions of FAS
123(R).

If we had applied the fair value recognition provisions of FAS 123 to
outstanding options, the effect would have been to reduce net income as reported
by less than $200 for the nine months ended September 30, 2004, with no impact
on net income as reported for the nine months ended September 30, 2005, and no
impact on basic and diluted earnings per share amounts as reported.

Nonvested common stock
Effective August 1, 2005, the Board of Directors granted and issued 200,000
restricted shares of the company's common stock to four of our executive
officers. All of the shares were unvested on the date of grant, and will vest
10% per year beginning on July 1, 2006, and on each July 1 thereafter until
fully vested. Once vested, the shares will be fully transferable without
restriction. All shares carry dividend and voting rights.

Because grantees fully participate in dividends, the fair value of the nonvested
shares is equal to the market value at the grant date, $15.70 per share, or a
total of $3,140,000. Because the grantee group is limited to four key
executives, we estimate that 100% of these shares will vest. We will recognize
the cost of these awards on a straight-line basis for each annual vesting period
ending June 30 through 2015.

                                       14
<PAGE>

During the quarter ended September 30, 2005, we recorded $57,000 in compensation
cost related to nonvested common stock, included in corporate administration
expense in our statement of operations and as an increase to additional paid-in
capital. As of September 30, 2005, unrecognized service cost related to
nonvested common stock totaled $3.1 million.

Stock options
Options have been granted to employees at prices equal to the fair market value
of the stock on the dates the options were granted or repriced. We calculated
the fair value of each option grant on the date of grant using the Black-Scholes
option-pricing model. Options are generally exercisable in four annual
installments beginning one year after the date of grant, and expire ten years
after the date of grant.

The following table summarizes information about stock options outstanding at
September 30, 2005:

<TABLE>
<CAPTION>
                                                        Weighted Average
                                                           Remaining         Number of         Number of
                                                          Contractual         Options           Options
                                                          Life (Years)     Outstanding       Exercisable
                                                        ----------------- ----------------- -----------------
<S>                                                             <C>            <C>               <C>
Exercise price $9.25 per share                                   4.4             30,000            30,000
Exercise price $11.25 per share                                  3.1             60,000            60,000
Exercise price $13.125 per share                                 2.8            120,000           120,000
Exercise price $12.25 per share                                  1.6             60,000            60,000
                                                                          ----------------- -----------------
   All options outstanding, fully vested                         2.8            270,000           270,000
                                                                          ================= =================
</TABLE>

There were no grants of options during the first nine months of 2005 or during
2004. As of December 31, 2004, all outstanding options were fully vested and
exercisable. Changes in outstanding stock options during the first nine months
of 2005 were as follows:

                                                    Weighted Average
                                 Shares              Exercise Price
                             ---------------- -----------------------------

Beginning balance                 327,500                $ 12.04
Exercised                         (57,500)                 11.86
                             ---------------- -----------------------------
Ending balance                    270,000                $ 12.08
                             ================ =============================
Exercisable at
   September 30, 2005             270,000                $ 12.08
                             ================ =============================

Note 6.  Apartment property acquisitions

During the first quarter of 2005, we completed the acquisition of a portfolio of
four apartment properties from entities associated with Grover F. Shugart, Jr.
and/or Brian D. Shugart, whom we call the "Shugart Parties." The four properties
contain an aggregate of 1,086 apartment units. The aggregate purchase price for
the properties totaled $52.1 million (including approximately $0.3 million in
net operating assets acquired), paid by the assumption or refinancing of $42.8
million of debt on the properties and issuance of $9.3 million in operating
partnership units with an imputed value of $13.50 per unit. Under the terms of
the exchange agreements, we issued

                                       15
<PAGE>


689,000 operating  partnership units at closing, and we will issue an additional
74,000 units in March 2006.  The  preliminary  allocation of the purchase  price
includes the following significant components:
<TABLE>
<CAPTION>

                                                                                              Value of
                                        Apt.                                                 Operating
              Property                 Units      Contract Price       Debt Assumed      Partnership Units
------------------------------------- --------- ------------------- -------------------- -------------------
                                                     (000's)              (000's)               (000's)
<S>                                     <C>         <C>                  <C>                  <C>
Canterbury Apartments                    630         $ 25,750             $ 22,992             $ 3,070
Laurel Springs Apartments                240           14,610               11,320               3,329
Laurel Springs II Apartments              96            7,090                5,850               1,209
Salem Ridge Apartments                   120            4,360                2,610               1,706
</TABLE>

We operate Laurel Springs and Laurel Springs II Apartments as one community.

During the second quarter of 2005, we completed two additional apartment
property acquisitions in separate cash transactions. Both properties are located
in the Charleston, South Carolina area.

                                        Apt.
              Property                 Units      Contract Price
------------------------------------- --------- -------------------
                                                     (000's)

Waverly Place Apartments                 240          $13,100
Paces Watch Apartments                   232          $20,450

In addition, during the second quarter of 2005, we acquired approximately 40
acres of undeveloped land adjacent to our Canterbury Apartments property for a
contract price of $2.7 million, paid by $0.6 million in cash and the assumption
of $2.1 million in debt with interest at the lender's prime rate and principal
due September 2005. (This note was subsequently modified to extend the maturity
to September 2006, with interest at 30-day LIBOR plus 1.98%.)

Note 7.  Financing transactions

Shortly after we acquired BIC (see Note 3 above) in January 2005, we completed
the refinancing of debt related to the Marina Shores Partnership. The Marina
Shores Partnership issued a $33.9 million fixed-rate note payable, secured by a
deed of trust and assignment of rents of Marina Shores Apartments. This loan
provides for interest at 5.075% (5.145% effective rate), payable in monthly
installments of principal and interest of $184,000 through January 2015, with a
balloon payment of $28.2 million in February 2015. The Marina Shores Partnership
first applied proceeds of this loan to retire the existing $20.7 million deed of
trust loan balance along with $1.2 million in interest and prepayment penalties,
then distributed $6.8 million to the minority limited partner and $3.7 million
to the operating partnership.

In conjunction with our acquisition of the four apartment properties from the
Shugart Parties in March 2005, we assumed the following long-term debt:

o        $21.5 million balance, fixed-rate note payable, secured by a mortgage
         and assignment of rents of Canterbury Apartments. This loan provides
         for interest at 5.4% (5.48% effective


                                       16
<PAGE>

         rate), payable in monthly installments of principal and interest of
         $124,000 through July 2013, with a balloon payment of $18.4 million
         at maturity in August 2013.

o        $1.5 million variable rate unsecured note related to Canterbury
         Apartments, which we immediately retired.

o        $11.3 million balance, fixed-rate note payable, secured by a deed of
         trust and assignment of rents of Laurel Springs Apartments. This loan
         provides for interest at 4.91% (4.98% effective rate), payable in
         monthly installments of principal and interest of $62,000 through June
         2013, with a balloon payment of $9.6 million at maturity in July 2013.

o        $5.9 million variable rate note payable, secured by a deed of trust and
         assignment of rents of Laurel Springs II Apartments. This loan provides
         for interest at 30-day LIBOR plus 1.9%, payable monthly. Beginning July
         2005, principal payments of $7,000 are due monthly in addition to
         interest, with a balloon payment of $5.8 million at maturity in June
         2006. At our option, we may extend the loan maturity to June 2008.

o        $2.6 million fixed-rate note payable, secured by a deed of trust and
         assignment of rents of Salem Ridge Apartments. This loan provides for
         interest at 6.76%, payable in monthly installments of $15,000 through
         September 2008, with principal due in full at that date.

In conjunction with our acquisitions during the second quarter of 2005, we
issued the following debt:

o        $10.2 million fixed-rate note payable, secured by a mortgage and
         assignment of rents of Waverly Place Apartments. This loan provides for
         interest at 5.31% (5.38% effective rate), with interest only monthly
         payments of $46,000 through May 2008. Beginning June 2008, scheduled
         monthly installments of principal and interest will be $56,000, with a
         balloon payment of $9.1 million at maturity in June 2015.

o        $14.9 million fixed-rate note payable, secured by a mortgage and
         assignment of rents of Paces Watch Apartments. This loan provides for
         interest at 5.31% (5.38% effective rate), with interest only monthly
         payments of $67,000 through June 2008. Beginning July 2008, scheduled
         monthly installments of principal and interest will be $83,000, with a
         balloon payment of $13.3 million at maturity in June 2015.

Also, during the second quarter of 2005, we issued the following debt in
refinancing transactions for two of our apartment properties:

o        $15.5 million fixed-rate note payable, secured by a deed of trust and
         assignment of rents of Chason Ridge Apartments. This loan provides for
         interest at 5.21% (5.28% effective rate), with interest only monthly
         payments of $68,000 through June 2008. Beginning July 2008, scheduled
         monthly installments of principal and interest will be $85,000, with a
         balloon payment of $13.9 million at maturity in June 2015.

         We applied proceeds of this loan to retire an $11.5 million
         variable-rate note payable. In conjunction with this retirement, we
         wrote off $63,000 of unamortized loan costs.

o        $7.1 million fixed-rate note payable, secured by a deed of trust and
         assignment of rents of Harris Hill Apartments. This loan provides for
         interest at 5.21% (5.28% effective rate),

                                       17
<PAGE>


         with interest only monthly payments of $31,000 through June 2008.
         Beginning July 2008, scheduled monthly installments of principal and
         interest will be $39,000, with a balloon payment of $6.4 million at
         maturity in June 2015.

         We applied proceeds of this loan to retire an 8.55% fixed-rate note
         payable with a balance of $5.5 million.

In conjunction with the various acquisition and financing transactions described
above, we made net draws on our lines of credit secured by Latitudes Apartments
and our restaurant properties totaling $6.0 million. In June 2005, we modified
our line of credit secured by our 40 restaurant properties to extend the
maturity date to January 2008.

Note 8.  Shareholders' equity

In January 2005, we issued 508,578 shares of our common stock, valued at $8.2
million, in conjunction with the BIC acquisition (see Note 3 above). As part of
the acquisition, BIC surrendered, and we cancelled, 72,399 shares of our common
stock, valued at $1.2 million.

In March 2005, we issued 57,500 shares of our common stock upon exercise of
options by two employees for proceeds of $0.7 million.

Also in March 2005, we redeemed operating partnership units from a minority
unitholder by issuing 73,333 shares of our common stock on a one-for-one basis.

In August, 2005, we issued 200,000 shares of our common stock for grants of
restricted (nonvested) stock to four of our executive officers (see Note 4
above).

Through the first nine months of 2005, we have issued 38,318 shares of our
common stock through our Dividend Reinvestment and Stock Purchase Plan for
proceeds of $0.6 million.

We calculated basic and diluted earnings per common share using the following
amounts (in thousands):
<TABLE>
<CAPTION>

                                                    Three months ended               Nine months ended
                                                       September 30                    September 30
                                                   2005            2004            2005            2004
                                              --------------- --------------- --------------- ----------------
                                                 (000's)          (000's)         (000's)         (000's)
<S>                                                <C>            <C>            <C>              <C>
Numerators:
For basic per common
   share amounts -
   Net (loss) income                                $ (150)        $   299        $ (6,529)        $   889
   Cumulative preferred dividend                      (250)           (250)           (750)           (750)
                                              --------------- --------------- --------------- ----------------
   (Loss) income attributed to common
     shareholders - basic                           $ (400)        $    49        $ (7,279)        $   139
                                              =============== =============== =============== ================


</TABLE>

                                       18
<PAGE>

<TABLE>
<CAPTION>

                                                    Three months ended               Nine months ended
                                                       September 30                    September 30
                                                   2005            2004            2005            2004
                                              --------------- --------------- --------------- ----------------
                                                 (000's)          (000's)         (000's)         (000's)
<S>                                                <C>            <C>            <C>              <C>
For diluted per common
   share amounts -
   Net (loss) income                                $ (150)        $   299        $ (6,529)        $   889
   Income (loss) attributed to
     minority interest in operating
     partnership (1)                                     -              11               -              38
   Cumulative preferred dividend                      (250)           (250)           (750)           (750)
                                               --------------- --------------- --------------- ----------------
   (Loss) income attributed to common
     shareholders - diluted                         $ (400)       $     60        $ (7,279)        $   177
                                              =============== =============== =============== ================

Denominators:
For basic per common
   share amounts -
   Weighted average
     common shares outstanding                       9,384           8,289           9,203           7,275
   Less weighted average nonvested common
     shares outstanding                               (133)              -             (45)              -
                                              --------------- --------------- --------------- ----------------
   Weighted average
     common shares - basic                           9,252           8,289           9,159           7,275

   Effect of dilutive securities:
   Convertible
     operating partnership units (1)                     -           1,865               -           1,852
   Nonvested common shares (2)                           -               -               -               -
   Stock options (3)                                     -              36               -              25
                                              --------------- --------------- --------------- ----------------
For diluted earnings per share amounts - adjusted weighted average shares and
   assumed conversions
                                                     9,252          10,190           9,159           9,152
                                              =============== =============== =============== ================
</TABLE>

(1)  Including operating partnership units would serve to reduce the net loss
     per share in calculation of 2005 amounts, and they have been excluded from
     the calculation.
(2)  Including nonvested common shares would serve to reduce the net loss per
     share in calculation of 2005 amounts, and they have been excluded from the
     calculation.
(3)  We excluded options to purchase 60,000 shares of common stock at $12.25,
     120,000 shares of common stock at $13.125, 60,000 shares of common stock at
     $11.25, and 30,000 shares of common stock at $9.25 from the calculation of
     diluted earnings per share for the three and nine months ended September
     30, 2005, because inclusion of these options would serve to reduce the net
     loss per share.
     We also excluded options to purchase 120,000 shares of common stock at
     $13.125 from the calculation of diluted earnings per share for the nine
     months ended September 30, 2004; the exercise price of these options was
     greater than the average market price of the common shares for that period,
     and the effect would have been anti-dilutive.

                                       19
<PAGE>

Note 9.  Subsequent events

The Board of Directors declared a regular quarterly dividend of $0.25 per common
share on October 20, 2005, payable on November 15, 2005, to shareholders of
record as of November 1, 2005. The Board of Directors also authorized the
payment of dividends totaling $250,000 to the Series B Preferred shareholder.

Effective October 21, 2005, we sold Savannah Shores Apartments for a contract
price of $22.75 million to an unaffiliated third party. In conjunction with this
disposition, we retired a $9.0 million variable rate note payable, secured by a
mortgage and assignment of rents of the apartment community. We also issued
130,770 operating partnership units with a total imputed value of $1.7 million
for payment of the earn-out of additional purchase price on the property.

Effective October 27, 2005, we acquired the Hamptons at Quail Hollow Apartments,
located in Charlotte, North Carolina, for a contract purchase price of $17.5
million, from an unaffiliated third party. In conjunction with this acquisition,
we made an initial draw of $9.4 million on a newly established $13.0 million
line of credit that carries a variable interest rate of 30-day LIBOR plus 1.65%
and matures in November 2008.

Effective October 31, 2005, we acquired the Timbers Apartments, located in
Richmond, Virginia, for a contract price of $22.45 million, from an unaffiliated
third party. In conjunction with this acquisition, we issued a $17.3 million
note payable. This note bears interest at a fixed rate of 5.45%, with interest
only payable for ten years, and matures in November 2015.

In October 2005, we notified the holder of our Series B Cumulative Convertible
Preferred Stock ("preferred stock") that the company is exercising its option to
redeem all 909,090 shares of such preferred stock effective December 20, 2005.
The holder may elect to convert some or all of the shares of preferred stock to
shares of the company's common stock on a one-for-one basis; or we will redeem
the preferred stock for cash, priced by reference to the average daily closing
price of the company's common stock for the 30 trading days prior to the
redemption closing.


                                       20
<PAGE>







BNP RESIDENTIAL PROPERTIES, INC.
-------------------------------------------------------------------------------
Consolidated Statements of Operations - Unaudited
Retrospective Restatement for Consolidation of Villages - Phase 5 Partnership
(all amounts in thousands except per share amounts)
<TABLE>
<CAPTION>


                                                                                  Three months ended
                                                                                    March 31, 2005
                                                                          ------------------------------------
                                                                                       Effect
                                                                                        of
                                                                                      Villages     Previously
                                                                           Restated   - Phase 5     Reported
                                                                          ----------- ----------- ------------
<S>                                                                        <C>            <C>      <C>
Revenues
Apartment rental income                                                     $14,175        $ 84     $14,092
Restaurant rental income                                                        957           -         957
Management fee income                                                           111          (4)        115
Interest and other income                                                       226           1         225
                                                                          ----------- ----------- ------------
                                                                             15,470          80      15,390
Expenses
Apartment operations                                                          5,489          46       5,443
Apartment administration                                                        673           -         673
Corporate administration                                                        885           -         885
Interest and prepayment penalties                                             5,124          34       5,090
Depreciation                                                                  3,536          15       3,522
Amortization of deferred loan costs                                             108           1         107
Write-off of unamortized loan costs at debt refinance                           160           -         160
Deficit distributions to minority partners                                    6,821           -       6,821
                                                                          ----------- ----------- ------------
                                                                             22,798          96      22,701
                                                                          ----------- ----------- ------------
(Loss) income before minority interests                                      (7,328)        (16)     (7,311)
Loss (income) attributed to minority interests -
   - Consolidated limited partnerships                                           62           -          62
   - Operating partnership                                                    1,296           3       1,292
                                                                          ----------- ----------- ------------
Net (loss) income                                                            (5,970)        (13)     (5,957)
Less cumulative preferred dividend                                             (250)          -        (250)
                                                                          ----------- ----------- ------------
(Loss) income attributed to common shareholders                             $(6,220)       $(13)    $(6,207)
                                                                          =========== =========== ============

Weighted average common shares outstanding                                    8,983           -       8,983
Earnings per common share, basic and diluted:
   Net (loss) income                                                        $ (0.66)          -     $ (0.66)
   (Loss) income attributed to common shareholders                            (0.69)          -       (0.69)
Dividends declared per common share                                            0.25           -        0.25
</TABLE>


                                       21
<PAGE>


BNP RESIDENTIAL PROPERTIES, INC.
-------------------------------------------------------------------------------
Consolidated Statements of Operations - Unaudited
Retrospective Restatement for Consolidation of Villages - Phase 5 Partnership
(all amounts in thousands except per share amounts)
<TABLE>
<CAPTION>

                                          Three months ended                       Six months ended
                                             June 30, 2005                           June 30, 2005
                                  ------------------------------------    ------------------------------------
                                               Effect of                              Effect of
                                              Villages -   Previously                 Villages -  Previously
                                   Restated     Phase 5     Reported       Restated   Phase 5      Reported
                                  ----------- ------------ -----------    ----------- ----------- ------------
<S>                                <C>            <C>       <C>            <C>            <C>      <C>
Revenues
Apartment rental income             $17,638        $130      $17,508        $31,813        $214     $31,600
Restaurant rental income                957           -          957          1,915           -       1,915
Management fee income                     5          (6)          11            116         (11)        127
Interest and other income                26           -           26            252           1         251
                                  ----------- ------------ -----------    ----------- ----------- ------------
                                     18,626         124       18,502         34,096         204      33,892
Expenses
Apartment operations                  6,904          51        6,853         12,393          97      12,296
Apartment administration                738           -          738          1,412           -       1,412
Corporate administration                637           -          637          1,522           -       1,522
Interest and
   prepayment penalties               5,781          53        5,728         10,905          86      10,818
Depreciation                          4,179          22        4,157          7,716          37       7,678
Amortization of
   deferred loan costs                  119           2          117            227           3         224
Write-off of unamortized loan
   costs at debt refinance               63           -           63            223           -         223
Deficit distributions to
   minority partners                    800           -          800          7,621           -       7,621
                                  ----------- ------------ -----------    ----------- ----------- ------------
                                     19,221         128       19,093         42,018         224      41,794
                                  ----------- ------------ -----------    ----------- ----------- ------------
(Loss) income before minority
   interests                           (595)         (4)        (591)        (7,922)        (20)     (7,902)
Loss (income) attributed to
   minority interests -
   - Consolidated
     limited partnerships                14           -           14             76           -          76
   - Operating partnership              172           1          171          1,467           4       1,463
                                  ----------- ------------ -----------    ----------- ----------- ------------
Net (loss) income                      (409)         (3)        (406)        (6,379)        (16)     (6,363)
Less cumulative
   preferred dividend                  (250)          -         (250)          (500)          -        (500)
                                  ----------- ------------ -----------    ----------- ----------- ------------
(Loss) income attributed to
   common shareholders              $  (659)       $ (3)     $  (656)       $(6,879)       $(16)    $(6,863)
                                  =========== ============ ===========    =========== =========== ============

Weighted average common shares
   outstanding                        9,239           -        9,239          9,111           -       9,111
Earnings per common share, basic and diluted:
   Net (loss) income                $ (0.04)          -      $ (0.04)       $ (0.70)          -     $ (0.70)
   (Loss) income attributed to
     common shareholders
                                      (0.06)          -        (0.06)         (0.75)          -       (0.75)
Dividends declared per common
   share                               0.25           -         0.25           0.50           -        0.50

</TABLE>


                                       22
<PAGE>

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     we could incur unexpected costs in performing our third-party apartment
      property management activities;
o     we may have incorrectly assessed the environmental condition of our
      properties;
o     an unexpected increase in interest rates could cause our debt service
      costs to exceed expectations;
o     we may not be able to meet our long-term liquidity requirements on
      favorable terms; and
o     we could lose the services of key executive officers.

         Given these uncertainties, we caution you not to place undue reliance
on forward-looking statements. We undertake no obligation to disclose the
results of any revision to these forward-looking statements we may make to
reflect any future events or circumstances or to reflect the occurrence of
unanticipated events.

         You should read the discussion in conjunction with the financial
statements and notes thereto included in this Quarterly Report and our Annual
Report on Form 10-K.

Company Profile

         BNP Residential Properties, Inc. is a self-administered and
self-managed real estate investment trust with operations in North Carolina,
South Carolina and Virginia. Our primary activity is the ownership and operation
of apartment communities. As of September 30, 2005, we owned and managed 29
apartment communities containing 7,671 units, and served as general partner of
limited partnerships that owned three properties with 713 units. In addition to
our apartment communities, we own 40 properties that we lease on a triple-net
basis to a restaurant operator.

                                       23
<PAGE>

         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 in the operating partnership.

         Our executive offices are located at 301 South College Street, Suite
3850, Charlotte, North Carolina 28202-6024, telephone 704/944-0100.

Results of Operations

Summary

         With good growth in funds from operations, apartment revenue, and
apartment level operating income, we were pleased with the results from the
third quarter of 2005. Underlying these results was improving performance at our
apartment properties. During the quarter, we were able to maintain occupancy at
relatively high levels while achieving good increases in revenue per occupied
unit. Going forward we believe we are positioned to continue this improvement.

         We own and operate a portfolio of extremely well located, well
maintained middle-market apartment properties that provide exceptional value at
rental rates that a wide range of potential residents can afford. Over the past
few years, strong single-family sales, ultra-low home mortgage rates and
abundant new apartment construction have hampered our ability to increase rental
revenue. Significant increases in the cost of building materials and rising
interest rates for both home mortgages and construction loans now appear to be
alleviating the situation. As a result, we are becoming increasingly more
positive in our outlook for continued improvement in the performance of our
apartment properties.

         In January 2005, we acquired the general partner interest in three
limited partnerships. The activities of these limited partnerships (and the
apartment properties owned by those partnerships) are included in our
consolidated financial statements. We describe this acquisition in more detail
under the heading "Capital Resources" as well as in the notes to our financial
statements included in this Current Report on Form 10-Q.

         In late March 2005, we acquired a portfolio of four apartment
properties that we had previously managed under third-party contracts. (We will
operate these as three apartment communities.) We subsequently acquired one
apartment property in April 2005 and another property in May 2005. The
activities of these owned properties have been included in our consolidated
financial statements as of their respective acquisition dates.

         Results of operations for the third quarter and first nine months of
2005, compared to the same periods in 2004, reflect significant growth in our
company and increased complexity in our financial reporting. We provide the
following supplemental consolidating information, in response to requests from
members of the investment community, for use in comparing our operating results
for 2005 and 2004:

                                       24
<PAGE>

<TABLE>
<CAPTION>



                                                              2005                                 2004
                                      -----------------------------------------------------    -------------
                                                                Consolidated     Owned            (Owned
                                      Consolidated     Elim       LPs (1)      Properties      Properties)
                                      ------------- ----------- ------------- -------------    -------------
                                        (000's)       (000's)      (000's)       (000's)          (000's)
<S>                                    <C>         <C>           <C>           <C>              <C>
Operating Results - 3 months ended September 30:
Revenues:
Apartment rental income                 $ 17,702    $       -     $  1,926      $ 15,776         $ 11,839
Restaurant rental income                     957            -            -           957              957
Management fee income                          6          (95)           -           101              177
Casualty gains                               168            -            -           168              269
Interest and other income                     59          (31)           5            85               26
                                      ------------- ----------- ------------- -------------    -------------
                                          18,892         (126)       1,931        17,087           13,268
Expenses:
Apartment operations                       7,079          (95)         897         6,277            4,872
Administration expenses                    1,482            -            -         1,482            1,061
Interest                                   6,034          (31)         677         5,389            3,834
Depreciation                               4,634            -          412         4,122            3,083
Amortization,  loan costs                    112            -           19            93              103
Write-off of unamortized loan costs
   at debt refinance                           -            -            -             -               85
Deficit distributions to minority
   partners of consolidated limited
   partnerships(2)                           150            -          150             -                -
                                      ------------- ----------- ------------- -------------    -------------
                                          19,392         (126)       2,155        17,363           13,039
                                      ------------- ----------- ------------- -------------    -------------
(Loss) income from
   continuing operations                    (500)           -         (224)         (275)             228
Income from
   discontinued operations                    56            -            0            56               82
                                      ------------- ----------- ------------- -------------    -------------
(Loss) income before
   minority interests                       (443)    $      -     $   (224)     $   (219)             310
                                                     =========== ============= =============
Minority interests -
 - Consolidated limited partnerships
                                             191                                                        -
 - Operating partnership                     103                                                      (11)
                                      -------------                                            -------------
Net (loss) income                       $   (150)                                                $    299
                                      =============                                            =============

 (Loss) income before minority
   interest                             $   (443)    $      -     $   (224)     $   (219)        $    310
Casualty gains                              (168)           -            -          (168)            (269)
Cumulative preferred dividend               (250)           -            -          (250)            (250)
Amortization, lease intangible                62            -            -            62                -
Depreciation                               4,534            -          412         4,122            3,083
Depreciation related to
   discontinued operations                    84            -            -            84               78
Deficit distributions to minority
   partners of consolidated limited
   partnerships(2)                           150            -          150             -                -
                                      ------------- ----------- ------------- -------------    -------------
                                           3,968            -          338         3,631            2,952
Minority interest in FFO of
   consolidated limited partnerships         (94)           -          (94)            -                -
                                      ------------- ----------- ------------- -------------    -------------
Funds from operations(3)                $  3,875     $      -    $     244      $  3,631         $  2,952
                                      ============= =========== ============= =============    =============

</TABLE>

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<PAGE>

<TABLE>
<CAPTION>


                                                              2005                                 2004
                                      -----------------------------------------------------    -------------
                                                                Consolidated     Owned            (Owned
                                      Consolidated     Elim       LPs (1)      Properties      Properties)
                                      ------------- ----------- ------------- -------------    -------------
                                        (000's)       (000's)      (000's)       (000's)          (000's)
<S>                                    <C>         <C>            <C>          <C>              <C>
Operating Results - 9 months ended September 30:
Revenues:
Apartment rental income                 $ 48,619    $       -      $ 5,152      $ 43,467         $ 32,471
Restaurant rental income                   2,872            -            -         2,872            2,872
Management fee income                        122         (256)           -           378              582
Casualty gains                               168            -            -           168              269
Interest and other income                    311          (87)          11           387              162
                                      ------------- ----------- ------------- -------------    -------------
                                          52,093         (343)       5,163        47,273           36,357
Expenses:
Apartment operations                      19,031         (256)       2,222        17,065           13,122
Administration expenses                    4,415            -            -         4,415            3,328
Interest                                  16,211          (87)       1,793        14,505           10,404
Prepayment penalties                         519            -          519             -                -
Depreciation                              12,079            -          993        11,086            8,313
Amortization, loan costs                     330            -           51           279              259
Write-off of unamortized loan costs
   at debt refinance                         223            -          160            63               85
Deficit distributions to minority
   partners of consolidated limited
   partnerships(2)                         7,771            -        7,771             -                -
                                      ------------- ----------- ------------- -------------    -------------
                                          60,580         (343)      13,508        47,414           35,512
                                      ------------- ----------- ------------- -------------    -------------
(Loss) income from
   continuing operations                  (8,487)           -       (8,345)         (141)             845
Income from
   discontinued operations                   121            -            -           121               82
                                      ------------- ----------- ------------- -------------    -------------
(Loss) income before
   minority interests                     (8,366)   $       -      $(8,345)     $    (20)             927
                                                    =========== ============= =============
Minority interests -
 - Consolidated limited partnerships         267                                                        -
 - Operating partnership                   1,570                                                      (38)
                                      -------------                                            -------------
Net (loss) income                       $ (6,529)                                                $    889
                                      =============                                            =============

 (Loss) income before
   minority interest                    $ (8,366)   $       -      $(8,345)     $    (20)        $    927
Casualty gains                              (168)           -            -          (168)            (269)
Cumulative preferred dividend               (750)           -            -          (750)            (750)
Amortization, lease intangible               136            -            -           136                -
Depreciation                              12,079            -          993        11,086            8,313
Depreciation related to
   discontinued operations                   255            -            -           255               78
Deficit distributions to minority
   partners of consolidated limited
   partnerships(2)                         7,771            -        7,771             -                -
                                      ------------- ----------- ------------- -------------    -------------
                                          10,957            -          419        10,538            8,298
Minority interest in FFO of
   consolidated limited partnerships
                                             228            -          228             -                -
                                      ------------- ----------- ------------- -------------    -------------
Funds from operations(3)                $ 11,185    $       -      $   647      $ 10,538         $  8,298
                                      ============= =========== ============= =============    =============

</TABLE>


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<PAGE>


<TABLE>
<CAPTION>



                                                              2005                                 2004
                                      -----------------------------------------------------    -------------
                                                                Consolidated     Owned            (Owned
                                      Consolidated     Elim       LPs (1)      Properties      Properties)
                                      ------------- ----------- ------------- -------------    -------------
                                        (000's)       (000's)       (000's)      (000's)          (000's)
<S>                                    <C>          <C>           <C>          <C>              <C>
Balance Sheet at September 30, 2005, compared to December 31, 2004:
Real estate investments
   Continuing operations                $472,118     $             $42,297      $429,822         $360,071
                                                            -
   Assets held for sale                   14,076            -            -        14,076                -
Cash and cash equivalents                  2,097            -          626         1,471              517
Prepaid expenses and
   other assets                            9,559       (3,588)       1,128        12,019            4,516
Deferred financing costs, net              2,257            -          623         1,634            1,545
Intangible assets, net                     1,189            -            -         1,189            1,115
                                      ------------- ----------- ------------- -------------    -------------
                                        $501,296      $(3,588)     $44,674      $460,210         $367,764
                                      ============= =========== ============= =============    =============
Notes payable
   Continuing operations                $404,620      $(2,090)     $50,427      $356,284         $286,425
   Assets held for sale                    9,000            -            -         9,000                -
Accounts payable and
   accrued expenses                        4,435         (200)         615         4,020              897
Accrued interest                           1,812            -          202         1,611            1,264
Consideration due for acquisitions
                                           2,700            -            -         2,700                -
Deferred revenue and
   security deposits                       1,997            -          128         1,869            1,787
                                      ------------- ----------- ------------- -------------    -------------
                                         424,565       (2,290)      51,371       375,484          290,373
Minority interests -
- Consolidated limited partnerships
                                              83            -           83             -                -
- Operating partnership                   18,928            -            -        18,928           14,394
Shareholders' equity                      57,720       (1,298)      (6,781)       65,799           62,997
                                      ------------- ----------- ------------- -------------    -------------
                                        $501,296      $(3,588)     $44,674      $460,210         $367,764
                                      ============= =========== ============= =============    =============
</TABLE>

(1)  Effective January 26, 2005, we include the accounts of three real estate
     limited partnerships in our consolidated financial statements.
(2)  In accordance with generally accepted accounting principles ("GAAP"),
     deficit distributions to minority partners are charges recognized in our
     statement of operations when cash is distributed to a non-controlling
     partner in a consolidated limited partnership in excess of the positive
     balance in such partner's capital account (which is classified as minority
     interest in our consolidated balance sheet). We are required to record
     these charges for GAAP purposes even though there is no economic effect or
     cost to the company or the operating partnership.
(3)  See discussion of funds from operations under the caption "Funds from
     Operations" below in this Item 2.

Discontinued operations

         In accordance with GAAP, we present the assets and liabilities and the
results of operations of any communities that qualify as held for sale, or that
have been sold, as discontinued operations in our statements of operations, for
both the current and prior periods shown. In addition, the net gain or loss on
the eventual disposal of communities held for sale will be presented as
discontinued operations when recognized. A change in presentation for
discontinued operations does not have any impact on our financial condition or
overall results of operations.

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<PAGE>

         As of September 30, 2005, we had one apartment community, Savannah
Shores Apartments, which qualified under GAAP as assets held for sale. We have
presented the operations of this community as discontinued operations in the
financial statements. We subsequently completed the sale of this community in
October 2005.

         We typically purchase apartment communities with the expectation of
holding and operating them for the long term. In this case, we received an
unsolicited offer for Savannah Shores (which we had acquired in July 2004), and
we believe that accepting that offer was in the best interest of our
shareholders. (See further discussion under the caption "Capital Resources and
Liquidity - Impending sale of apartment community" below.)

         Unless noted otherwise, the following discussion of operating results
relates to our continuing operations.

Revenues

         Total revenues in the third quarter of 2005 were $18.9 million,
compared to $13.3 million in the third quarter of 2004. Total revenues in the
first nine months of 2005 were $52.1 million, compared to $36.4 million in the
first nine months of 2004. These increases are primarily attributable to
increases in apartment rental income.

         Apartment rental income totaled $17.7 million in the third quarter of
2005, an increase of $5.9 million, or 49.5%, compared to the third quarter of
2004. Apartment rental income in the first nine months of 2005 totaled $48.6
million, an increase of $16.1 million, or 49.7%, compared to the first nine
months of 2004. These increases are attributable to:

o         Apartment acquisitions in 2004 and 2005 - these nine communities
          contributed $5.3 million in third quarter 2005 and $12.4 million in
          the first nine months of 2005, compared to $1.6 million in the third
          quarter and $2.0 million in the first nine months of 2004. The first
          of these communities was acquired in May 2004.
o         Apartment communities that we consolidate effective January 2005 -
          these three communities contributed $1.9 million in third quarter 2005
          and $5.2 million in the first nine months of 2005.

         On a "same-units" basis (the 19 apartment communities that we owned as
of January 1, 2004), apartment rental income increased by 2.2% in the third
quarter and by 2.2% in the first nine months of 2005 compared to 2004. These
increases are consistent with increases in average revenue per occupied unit,
while average economic occupancy for these units declined slightly from
comparable periods in 2004.

         On a same-units basis, apartment NOI (apartment rental income less
apartment operating expenses) for the third quarter of 2005 increased by 4.9%
compared to the third quarter of 2004. For the first nine months of 2005,
same-units NOI increased by 4.8% compared to the first nine months of 2004.

         Summary amounts for our apartment communities' occupancy and revenue
per occupied unit for the third quarter and first nine months of 2005 follow:


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<PAGE>

<TABLE>
<CAPTION>

                                                            Three months ended          Nine months ended
                                                            September 30, 2005          September 30, 2005
                                                          -----------------------     -----------------------
                                                                        Average                    Average
                                                                        monthly                    monthly
                                             Number                     revenue                    revenue
                                               of           Average       per          Average       per
                                           apartment       economic    occupied        economic    occupied
                                             units         occupancy     unit         occupancy      unit
                                           -----------    ------------ ----------     ----------- -----------
<S>                                            <C>            <C>        <C>             <C>          <C>
Owned apartment communities:
Same-units communities:
   Abbington Place                                360           92.5%      $ 779           93.8%        $782
   Allerton Place                                 228           96.6%        823           95.3%         804
   Barrington Place                               348           97.5%        770           94.7%         767
   Brookford Place                                108           93.7%        682           95.6%         680
   Chason Ridge                                   252           89.4%        767           91.2%         782
   The Harrington (1)                             288           93.0%        789           92.7%         776
   Harris Hill (1)                                184           94.4%        650           95.3%         641
   Latitudes                                      448           97.5%        989           96.8%         977
   Madison Hall                                   128           95.4%        597           95.7%         596
   Marina Shores Waterfront                       290           96.2%        876           94.9%         839
   Oakbrook                                       162           94.1%        729           94.9%         724
   Oak Hollow                                     461           92.8%        618           95.2%         612
   Paces Commons                                  336           92.9%        673           94.6%         657
   Paces Village                                  198           96.5%        681           96.7%         675
   Pepperstone                                    108           94.5%        708           96.8%         693
   Savannah Place                                 172           92.8%        734           94.2%         727
   Summerlyn Place                                140           96.2%        830           95.1%         822
   The Place (2)                                  144           94.8%        562           94.6%         564
   Waterford Place                                240           96.2%        907           94.4%         904
   Woods Edge                                     264           91.6%        708           93.9%         690

Acquired in 2004:
   Carriage Club                                  268           96.3%        758           95.5%         750
   Fairington                                     250           94.8%        734           95.6%         724
   Savannah Shores (3)                            198           96.7%        840           95.1%         813
   Bridges at Southpoint                          192           96.1%        703           95.9%         700
   Bridges at Wind River                          346           96.9%        798           94.4%         795

Acquired in 2005:
   Canterbury (3/31/05)                           630           97.1%        631           97.4%         619
   Laurel Springs (3/31/05)                       336           93.7%        696           94.5%         692
   Paces Watch (5/12/05)                          232           96.4%        848           96.6%         839
   Salem Ridge (3/31/05)                          120           97.2%        543           97.5%         537
   Waverly Place (4/21/05)                        240           94.5%        642           94.1%         653

All apartments
   - 2005                                       7,671           95.0%        744           95.0%         740
   - 2004                                       5,921           94.5%        745           94.8%         735

Same units                                      4,859
   - 2005                                                       94.5%        761           94.8%         751
   - 2004                                                       95.2%        737           95.1%         732
</TABLE>

                                       29
<PAGE>
<TABLE>
<CAPTION>

                                                            Three months ended          Nine months ended
                                                            September 30, 2005          September 30, 2005
                                                          -----------------------     -----------------------
                                                                        Average                    Average
                                                                        monthly                    monthly
                                             Number                     revenue                    revenue
                                               of           Average       per          Average       per
                                           apartment       economic    occupied        economic    occupied
                                             units         occupancy     unit         occupancy      unit
                                           -----------    ------------ ----------     ----------- -----------
<S>                                            <C>            <C>        <C>             <C>          <C>

Consolidated limited partnerships:
Marina Shores                                     392           98.1%      1,194           96.4%       1,165
Villages of Chapel Hill                           264           78.5%        642           89.1%         668
Villages - Phase 5                                 57           89.7%        743           94.6%         768
</TABLE>

(1) In October 2005, we combined these adjacent communities under the name
Bridges at Mallard Creek.
(2) In October 2005, we renamed this community Bridges at Pelham.
(3) Savannah  Shores was held for sale at September 30, 2005,  and  subsequently
sold in October 2005.

         Restaurant rental income was $957,000 in third quarter, and $2.9
million through the first nine months of both 2005 and 2004. We received the
minimum rent specified in the lease agreement in the first three quarters of
both 2005 and 2004. We currently hold 40 restaurant properties under this lease,
and minimum rent is currently set at $319,000 per month, or $3.8 million per
year.

         Management fee income totaled $6,000 in the third quarter of 2005,
compared to $177,000 in the third quarter of 2004. Management fee income totaled
$122,000 in the first nine months of 2005, compared to $582,000 in the first
nine months of 2004. These decreases are consistent with expectations, and are
attributable to the elimination of management fees for consolidated limited
partnerships and our acquisition of four managed properties in the first quarter
of 2005. Going forward, we expect that management fees will be insignificant.

           Interest and other income totaled $228,000 in the third quarter of
2005, compared to $295,000 in the third quarter of 2004. Interest and other
income totaled $480,000 in the first nine months of 2005, compared to $431,000
in the first nine months of 2004. These amounts include casualty gains of
$168,000 recorded in the third quarter of 2005 and $269,000 recorded in the
third quarter of 2004. In both cases, the recorded casualty gains relate to
insurance settlements for fires that occurred at apartment communities.
Generally accepted accounting principles require us to recognize these gains on
the insurance proceeds for assets destroyed. However, the economic reality is
that we have or will invest all of the insurance proceeds to replace the assets
that were destroyed.

Expenses

         Total expenses were $19.4 million in the third quarter of 2005,
compared to $13.0 million in the third quarter of 2004. Total expenses were
$60.6 million in the first nine months of 2005, compared to $35.5 million in the
first nine months of 2004. These increases are primarily attributable to growth
in the size of our apartment operations, along with charges for deficit
distributions to a minority partner.

         We reflect the unaffiliated partners' interests in Marina Shores
Associates One Limited Partnership ("Marina Shores Partnership"), The Villages
of Chapel Hill Limited Partnership

                                       30
<PAGE>

("Villages  Partnership"),  and The  Villages  of Chapel  Hill - Phase 5 Limited
Partnership   ("Villages  -  Phase  5  Partnership")  as  minority  interest  in
consolidated  limited  partnerships.  Minority interest in consolidated  limited
partnerships  represents  the minority  partners'  share of the  underlying  net
assets of these  consolidated  limited  partnerships.  When  these  consolidated
limited  partnerships  make  cash  distributions  to  partners  in excess of the
carrying amount of the minority interest, we record a charge equal to the amount
of such excess distributions, even though there is no economic effect or cost to
the operating partnership.  We report this charge in our consolidated statements
of operations as deficit distributions to minority partners. We recorded charges
for  deficit  distributions  to  the  minority  partner  in  the  Marina  Shores
Partnership  totaling $0.2 million in the third quarter and $7.8 million through
the first nine months of 2005.

         Apartment operations expense (the direct costs of on-site operations at
our apartment communities) totaled $7.1 million in the third quarter of 2005, an
increase of $2.2 million, or 45.3%, compared to the third quarter of 2004.
Apartment operations expense in the first nine months of 2005 totaled $19.0
million, an increase of $5.9 million, or 45.0%, compared to the first nine
months of 2004. These increases are primarily attributable to:

o         Apartment acquisitions in 2004 and 2005 - apartment operations expense
          for these nine communities was $2.1 million in third quarter 2005 and
          $4.9 million in the first nine months of 2005, compared to $0.7
          million in the third quarter and $0.8 million in the first nine months
          of 2004.
o         Apartment communities that we consolidate effective January 2005 -
          apartment operations expense for these three communities was $0.8
          million in third quarter 2005 and $2.0 million in the first nine
          months of 2005.

On a same-units basis, apartment operations expense declined by 1.5% in the
third quarter and 1.7% in the first nine months of 2005 compared to 2004, due
primarily to reductions in compensation and property insurance costs.

         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 costs (the costs associated with oversight,
accounting and support of our apartment management activities) totaled $0.8
million in the third quarter of 2005, a 41.7 % increase compared to the third
quarter of 2004. Apartment administration costs totaled $2.2 million in the
first nine months of 2005, a 37.8% increase compared to the first nine months of
2004. These increases are primarily attributable to additional corporate support
staff.

         Corporate administration expense totaled $0.7 million in the third
quarter of 2005, an increase of 37.4% compared to the third quarter of 2004.
Corporate administration costs totaled $2.2 million in the first nine months of
2005, an increase of 27.9% compared to the first nine months of 2004. These
increases are primarily attributable to a $0.2 million increase in professional
fees associated with requirements of Section 404 of the Sarbanes-Oxley Act of
2002 and late audit fee billings, along with increases in executive
compensation.

         Effective August 1, 2005, the Board of Directors granted and issued
200,000 restricted shares of the company's common stock to four of our executive
officers. We refer to these shares as "nonvested shares" in our consolidated
financial statements. All of the shares were unvested on the date of grant, and
will vest 10% per year beginning July 1, 2006, and on each July 1 thereafter
until fully vested. Because grantees fully participate in dividends, the fair
value of the

                                       31
<PAGE>

nonvested  shares is equal to the  market  value at the grant  date,  $15.70 per
share, or a total of $3.1 million.  During the quarter ended September 30, 2005,
we recorded  $57,000 in  compensation  expense  related to the nonvested  common
stock. We will continue to recognize the cost of these awards on a straight-line
basis for each annual vesting period ending June 30 through 2015.

         Depreciation expense totaled $4.5 million in the third quarter of 2005,
an increase of $1.5 million, or 47.1%, compared to the third quarter of 2004.
Depreciation expense totaled $12.1 million in the first nine months of 2005, an
increase of $3.8 million, or 45.3%, compared to the first nine months of 2005.
These increases are primarily attributable to acquisitions of apartment
communities ($3.3 million in the first nine months of 2005, compared to $0.5
million in the first nine months of 2004), along with depreciation expense for
the apartment communities we consolidate effective January 2005 ($1.0 million in
the first nine months of 2005).

         Interest expense totaled $6.0 million in the third quarter of 2005, an
increase of $2.2 million, or 57.4%, compared to the third quarter of 2004.
Interest expense (excluding $0.5 million in prepayment penalties paid by Marina
Shores in first quarter of 2005) totaled $16.2 million in the first nine months
of 2005, an increase of $5.8 million, or 55.8%, compared to the first nine
months of 2004. This increase is primarily attributable to new debt issued in
conjunction with acquisitions of apartment properties during 2004 and 2005,
along with the impact of consolidating three limited partnerships in 2005.
Overall, weighted average interest rates were 6.0% for the third quarter and
5.9% for the first nine months of 2005, compared to 5.7% for the third quarter
and first nine months of 2004, reflecting the impact of steady increases in
variable interest rates over the last twelve months.

Net Income

         Consolidated earnings from continuing operations before non-cash
charges (for depreciation, amortization and write-off of unamortized loan costs
at refinance) and before the $0.2 million charge for deficit distributions to a
minority partner (which has no economic effect or cost to the operating
partnership) totaled $4.3 million, an increase of $0.8 million, or 22.8 %,
compared to the third quarter of 2004. Consolidated earnings from continuing
operations before non-cash charges and before the $7.8 million charge for
deficit distributions to a minority partner in the first nine months of 2005
totaled $11.9 million, a $2.4 million, or 25.4%, increase compared to the first
nine months of 2004. These increases reflect the positive impact of new
apartment communities and improvements in apartment revenues, offset by a $0.5
million charge for prepayment penalties paid at loan refinance by a consolidated
limited partnership during the first quarter of 2005.

         On a consolidated basis, before minority interests in the consolidated
limited partnerships and the minority interest in the operating partnership, the
net loss from continuing operations for the third quarter of 2005 totaled $0.5
million, compared to $0.2 million in income before minority interests in the
third quarter of 2004. The net loss from continuing operations, before minority
interests, in the first nine months of 2005 totaled $8.5 million, compared to
$0.8 million in income before minority interest in the first nine months of
2004. The 2005 losses again reflect the impact of charges for deficit
distributions to a minority partner ($0.2 million in the third quarter and $7.8
million in the first nine months), a first quarter 2005 charge of $0.5 million
for penalties paid at loan refinance by a consolidated limited partnership,
along with additional $0.2 million charges to write off unamortized loan costs
at refinance.

         Amounts for discontinued operations reflect the operating results of
Savannah Shores Apartments through the first nine months of 2005 and from July
through September of 2004.

                                       32
<PAGE>

Savannah  Shores  generated  $56,000 of income in the third  quarter of 2005 and
$121,000 through the first nine months of 2005, compared to $82,000 in 2004.

         We allocate proportional income and losses of the consolidated limited
partnerships, measured on a year-to-date basis, to minority partners. However,
we may allocate losses to a minority partner only to the extent of the carrying
amount of the interest of that minority partner. When losses attributable to the
minority limited partners of a consolidated limited partnership exceed the
carrying amount of the minority interest, we record a charge, even though there
is no economic effect or cost to the operating partnership. After recovering
$0.1 million of previous such charges during the third quarter of 2005, we have
recorded year-to-date charges of $0.3 million for losses that could not be
allocated to minority partners' accounts.

         Minority interests in the consolidated limited partnerships and the
operating partnership absorbed $0.3 million in the third quarter and $1.8
million in the first nine months of 2005, of the consolidated losses. After
allocating those losses to minority interests, the net loss was $0.1 million in
the third quarter of 2005 and $6.5 million in the first nine months of 2005.

         Because the preferred shareholder has priority over common shareholders
for receipt of dividends, we deduct the amount of net income that will be paid
to the preferred shareholder in calculating net income available to common
shareholders. After deducting $250,000 for the cumulative preferred dividend in
each of the first three quarters of both 2005 and 2004, the net loss attributed
to common shareholders was $0.4 million for the third quarter and $7.3 million
for the first nine months of 2005, compared to essentially break-even amounts
for the third quarter and first nine months of 2004.

Funds from Operations

         Funds from operations is frequently referred to as "FFO." FFO is
defined by the National Association of Real Estate Investment Trusts ("NAREIT")
as "net income (computed in accordance with generally accepted accounting
principles), excluding gains (losses) from sales of property, plus depreciation
and amortization, and after adjustments for unconsolidated partnerships and
joint ventures." Our calculation of FFO is consistent with FFO as defined by
NAREIT. Because we hold all of our assets in and conduct all of our operations
through the operating partnership, we measure FFO at the operating partnership
level (i.e., after deducting the minority interests in FFO of the consolidated
limited partnerships, but before deducting the minority interest in the
operating partnership).

         Historical cost accounting for real estate assets implicitly assumes
that the value of real estate assets diminishes predictably over time. In fact,
real estate values have historically risen or fallen with market conditions. FFO
is intended to be a standard supplemental measure of operating performance that
excludes historical cost depreciation from - or "adds it back" to - GAAP net
income. We consider FFO to be useful in evaluating potential property
acquisitions and measuring operating performance.

         Funds available for distribution is frequently referred to as "FAD." We
define FAD as FFO plus non-cash expense for amortization and write-off of
unamortized loan costs, plus (less) gains (losses) from sales of property, less
recurring capital expenditures. We believe that, together with net income and
cash flows from operating activities, FAD provides investors with an additional
measure to evaluate the ability of the operating partnership to incur and
service debt, to fund acquisitions and other capital expenditures, and to fund
distributions to shareholders and minority unitholders.

                                       33
<PAGE>

         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. Nor do FFO or FAD measure whether cash flow is
sufficient to fund all of our cash needs, including principal amortization,
capital improvements and distributions to shareholders and unitholders. You
should not consider FFO or FAD to be alternatives to net income as reliable
measures of the company's operating performance; nor should you consider FFO or
FAD to be alternatives to cash flows from operating, investing or financing
activities (as defined by generally accepted accounting principles) as measures
of liquidity. Further, FFO and FAD as disclosed by other REITs might not be
comparable to our calculation of FFO or FAD.

         Funds from operations totaled $3.9 million in the third quarter of
2005, an increase of 31.2% compared to the third quarter of 2004. Funds from
operations in the first nine months of 2005 totaled $11.2 million, an increase
of 34.8% compared to the first nine months of 2004. These comparisons reflect
the positive impact of apartment additions and the improvement in apartment
operating results.

         Funds available for distribution totaled $3.2 million in the third
quarter of 2005, an increase of 17.0% compared to the third quarter of 2004.
Funds available for distribution in the first nine months of 2005 totaled $9.5
million, an increase of 30.1% compared to the first nine months of 2004. The
disparity between comparisons of FFO and FAD against prior year periods arises
from the impact of timing of recurring capital expenditures, which we deduct in
our measurement of FAD. Recurring capital expenditures include operating
replacements such as floor coverings, appliances and HVAC, as well as
expenditures for capital replacements such as roofs and exterior paint.

         We calculated FFO of the operating partnership as follows:
<TABLE>
<CAPTION>

                                                   Three months ended              Nine months ended
                                                      September 30                    September 30
                                                  2005            2004            2005            2004
                                             --------------- --------------- --------------- ---------------
                                                 (000's)         (000's)         (000's)         (000's)
<S>                                            <C>             <C>             <C>             <C>
Net (loss) income                               $   (150)       $    299        $ (6,529)       $    889
Income (loss) attributed to
  minority interests                                (293)             11          (1,837)             38
Less cumulative preferred dividend                  (250)           (250)           (750)           (750)
Less casualty gains                                 (168)           (269)           (168)           (269)
Add amortization of
  in-place lease intangibles                          62               -             136               -
Add depreciation                                   4,534           3,083          12,079           8,313
Add depreciation related to
  discontinued operations                             84              78             255              78
Add deficit distributions to minority
  partners of consolidated limited
  partnerships(1)                                    150               -           7,771               -
Add (less) minority interest in
  FFO of consolidated
  limited partnerships                               (94)              -             228               -
                                              --------------- --------------- --------------- ---------------
Funds from operations                           $  3,875        $  2,952        $ 11,185        $  8,298
                                              =============== =============== =============== ===============
</TABLE>

                                       34
<PAGE>

(1)  In accordance with GAAP, deficit distributions to minority partners are
     charges recognized in our statement of operations when cash is distributed
     to a non-controlling partner in a consolidated limited partnership in
     excess of the positive balance in such partner's capital account (which is
     classified as minority interest in our consolidated balance sheet). We are
     required to record these charges for GAAP purposes even though there is no
     economic effect or cost to the operating partnership. The economic cost of
     these distributions is borne by the limited partnership making the
     distributions.

     Deficit distributions to minority partners may occur when the fair value of
     the underlying real estate exceeds its depreciated net book value because
     the underlying real estate has appreciated or maintained its value. As a
     result, deficit distributions to minority partners represent, in substance,
     either our recognition of depreciation previously allocated to the
     non-controlling partner or a cost related to the non-controlling partner's
     share of real estate appreciation. Based on NAREIT guidance that requires
     that real estate depreciation and gains be excluded from FFO, we add back
     deficit distributions and subtract related recoveries in our reconciliation
     of net income to FFO.

         A reconciliation of net cash provided by operating activities (as
defined by generally accepted accounting principles and reflected in our
consolidated statements of cash flows) to FAD follows:
<TABLE>
<CAPTION>

                                                   Three months ended              Nine months ended
                                                      September 30                    September 30
                                                  2005            2004            2005            2004
                                             --------------- --------------- --------------- ---------------
                                                 (000's)         (000's)         (000's)         (000's)
<S>                                             <C>             <C>             <C>              <C>
Net cash provided by
  operating activities                           $ 4,311         $ 3,637         $11,360          $9,360
Less recurring capital expenditures                 (902)           (438)         (2,204)         (1,339)
Less cumulative preferred dividend                  (250)           (250)           (750)           (750)
Add (less) change in
  net operating assets and liabilities                (2)           (241)            792             (68)
Add amortization of deferred
  interest defeasance                                 46               -             122             105
Add (less) minority interest in
  consolidated limited partnerships' share
  of reconciling items                               (35)              -             187               -
                                             --------------- --------------- --------------- ---------------
Funds available for distribution                 $ 3,169         $ 2,708         $ 9,507         $ 7,308
                                             =============== =============== =============== ===============
</TABLE>

                                       35
<PAGE>

         Other information about our historical cash flows follows (all amounts
in thousands):
<TABLE>
<CAPTION>

                                                   Three months ended              Nine months ended
                                                      September 30                    September 30
                                                  2005            2004            2005            2004
                                             --------------- --------------- --------------- ---------------
                                                 (000's)         (000's)         (000's)        (000's)
<S>                                           <C>             <C>              <C>            <C>
Net cash provided by (used in):
  Operating activities                         $   4,311       $   3,637        $ 11,360       $   9,360
  Investing activities                            (1,287)        (29,833)        (40,851)        (50,084)
  Financing activities                            (3,461)         22,793          31,071          42,523

Dividends and distributions paid to:
  Preferred shareholders                       $     250       $     250        $    750       $     750
  Common shareholders                              2,361           2,140           6,942           5,391
  Minority partners in consolidated
     limited partnerships                            150               -           7,771               -
  Minority unitholders in operating
     partnership                                     602             460           1,518           1,380

Scheduled debt principal payments                    643             386           1,663           1,000
Non-recurring capital expenditures                 1,087           1,046           3,882           1,689

Weighted average shares outstanding
  Preferred shares                                   909             909             909             909
  Common shares                                    9,384           8,289           9,203           7,275
Weighted average operating partnership
  minority units outstanding
                                                   2,408           1,865           2,231           1,852
</TABLE>

Capital Resources and Liquidity

Capital Resources

         We completed a number of significant investing and financing
transactions during the first nine months of 2005. (Most of the transactions in
the following discussion took place during the first and second quarters.) In
addition, during the third quarter and for the first time in our history, we
entered into a contract for sale of an apartment community.

Acquisition of Boddie Investment Company

         In January 2005, we acquired Boddie Investment Company ("BIC") through
a merger. We issued 508,578 shares of our common stock, and cancelled 72,399
shares of common stock that BIC held immediately before the merger. The value of
this transaction was $8.2 million. Direct costs (out-of-pocket cash costs)
related to this acquisition were approximately $150,000. As a result of this
acquisition, we assumed the role of general partner and acquired economic
interests in three limited partnerships. Prior to this acquisition, we managed
the apartment communities owned by these partnerships on a contract basis; we
will continue to manage these partnerships.

                                       36
<PAGE>

         A summary of assets acquired in the BIC acquisition, along with our
preliminary allocation of costs assigned to those assets, follows (amounts in
thousands):

  Investments in limited partnerships:
    Marina Shores Associates One, Limited Partnership                   $5,940
    The Villages of Chapel Hill Limited Partnership                          2
    The Villages of Chapel Hill - Phase 5 Limited Partnership                7
  BNP common stock held by BIC (which we immediately retired)            1,166
  Receivables from the Villages Partnership for general partners'
  advances and accrued interest thereon                                  1,220
                                                                     -----------
                                                                        $8,335
                                                                     ===========

         Although the amounts related to this acquisition seem relatively
insignificant at first glance, the accounting for the investments in limited
partnerships is complex, and the impact on presentation of our consolidated
financial statements is rather significant. We have included a detailed
discussion of our accounting treatment for each of the investments in limited
partnerships in Note 2 of our financial statements included in this Current
Report on Form 10-Q. A summary of that discussion for each limited partnership
follows:

BIC Acquisition - Marina Shores Partnership

         We acquired a 50% general partner interest in the Marina Shores
Partnership. Under the terms of the partnership agreement for the Marina Shores
Partnership, the general partner controls the activities of the partnership. We
have therefore included the accounts of this partnership in our consolidated
financial statements effective January 26, 2005. The initial inclusion of the
Marina Shores Partnership in our consolidated financial statements resulted in
(amounts in thousands):

  Increase in real estate investments - 392 apartment units       $26,254
  Increase in cash and cash equivalents                               252
  Increase in other assets                                          1,251
                                                               --------------
                                                                   27,757

  Increase in long-term debt                                       20,745
  Increase in other liabilities                                     1,072
                                                               --------------
                                                                   21,817
                                                               --------------
  Increase in net assets                                          $ 5,940
                                                               ==============

         Very shortly after our acquisition of BIC, the Marina Shores
Partnership completed a refinancing of its long-term debt. The Marina Shores
Partnership issued a $33.9 million fixed-rate note payable. This 10-year loan
provides for interest at an effective rate of 5.1%. The Marina Shores
Partnership first applied proceeds of this loan to retire the existing $20.7
million deed of trust loan balance along with $1.2 million interest and
prepayment penalties, then distributed $6.8 million to its limited partner and
$3.7 million to the operating partnership. Through September 30, 2005, the
Marina Shores Partnership has made distributions totaling $7.7 million to its
limited partner and $4.6 million to the operating partnership.

         Prior to consolidation in our financial statements, the fair value of
the real estate held by the Marina Shores Partnership significantly exceeded its
depreciated net book value because the underlying real estate had appreciated
significantly since the Marina Shores Partnership's original

                                       37
<PAGE>

formation in the late 1980s. In our initial  consolidation of this  partnership,
we  reset  the  noncontrolling   limited  partner's  capital  account  to  $-0-.
Distributions  to the limited  partner  subsequent  to  inclusion  of the Marina
Shores  Partnership  in our  consolidated  financial  statements  are,  and will
generally be, reflected as charges against income in our consolidated  financial
statements as "deficit distributions to minority partners."

         In accordance with GAAP, deficit distributions to minority partners are
charges recognized in our income statement when cash is distributed to a
non-controlling partner in a consolidated limited partnership in excess of the
positive balance in such partner's capital account (which is classified as
minority interest in our consolidated balance sheet). Deficit distributions to
minority partners represent, in substance, either (a) our recognition of
depreciation previously allocated to the non-controlling partner or (b) a cost
related to the non-controlling partner's share of real estate appreciation. We
record these charges for GAAP purposes even though there is no economic effect
or cost to the company or the operating partnership.

BIC Acquisition - The Villages Partnership

         We acquired a 1% general partner interest in the Villages Partnership.
We determined that, in accordance with GAAP, the Villages Partnership is a
"variable interest entity" ("VIE") because it does not have sufficient equity to
carry out its principal activities without additional subordinated financial
support, and that we are the "primary beneficiary" of the Partnership. We have
therefore included the accounts of this partnership in our consolidated
financial statements effective January 26, 2005. The initial inclusion of the
Villages Partnership in our consolidated financial statements resulted in
(amounts in thousands):

  Increase in real estate investments - 264 apartment units         $14,188
  Increase in cash and cash equivalents                                  87
  Increase in other assets                                              318
                                                                ----------------
                                                                     14,594

  Increase in long-term debt - first deed of trust                   12,094
  Increase in subordinated long-term debt to BNP*                     1,888
  Increase in other liabilities                                         260
  Minority interest in consolidated limited partnerships                350
                                                                ----------------
                                                                     14,592
                                                                ----------------
  Increase in net assets                                            $     2
                                                                ================

         *The subordinated long-term debt to BNP is eliminated in consolidation
against related receivable balances.

BIC Acquisition - The Villages of Chapel Hill - Phase 5 Limited Partnership

         We acquired a 1% general partner interest in The Villages of Chapel
Hill - Phase 5 Limited Partnership ("Villages - Phase 5 Partnership"). Under the
terms of the partnership agreement for the Villages - Phase 5 Partnership, and
consistent with new accounting guidance issued in July 2005, the general partner
controls the activities of the partnership. Therefore, commencing in the third
quarter of 2005, we have included the accounts of this partnership in our
consolidated financial statements retroactively to January 26, 2005.

                                       38
<PAGE>

         Based on accounting guidance in place in January 2005, we initially
accounted for our investment in this partnership by applying the equity method.
Our initial investment in the Villages - Phase 5 Partnership was $7,000, and we
initially included this amount in "other assets" on our consolidated balance
sheet. During the third quarter of 2005, we applied the guidance of FASB Staff
Position SOP 78-9-1 ("FSP SOP 78-9-1"), "Interaction of AICPA Statement of
Position 78-9 and EITF Issue No. 04-5," on a "retrospective" basis to amounts
reflected in our Current Reports on Form 10-Q for the periods ended March 31 and
June 30, 2005 - in other words, we have reflected the accounts and activities of
the Villages - Phase 5 Partnership in this Current Report on Form 10-Q as if we
had initially consolidated the Villages - Phase 5 Partnership in January 2005.
We have discussed this retrospective treatment in more detail in the notes to
the financial statements included in this Current Report on Form 10-Q and have
included supplemental financial statements, reflecting the retrospective changes
to our statements of operations previously provided, following the notes to the
financial statements.

         The retrospective inclusion of the Villages - Phase 5 Partnership in
our consolidated financial statements resulted in (amounts in thousands):

   Increase in real estate investments - 57 apartment units          $2,596
   Increase in cash and cash equivalents                                173
   Increase in other assets                                             105
                                                                ----------------
                                                                      2,874

   Increase in long-term debt                                         2,840
   Increase in other liabilities                                         27
                                                                ----------------
                                                                      2,867
                                                                ----------------
   Increase in net assets                                            $    7
                                                                ================

Acquisition of Shugart Properties

         On March 31, 2005, we completed the acquisition of a portfolio of four
apartment properties from entities that we call the "Shugart Parties." The
aggregate purchase price for the properties totaled $52.1 million, including
approximately $0.3 million in net operating assets, paid through assumption or
refinancing of $42.8 million of debt on the properties and $9.3 million paid in
operating partnership units with an imputed value of $13.50 per unit. Under the
terms of the exchange agreements, we issued 689,000 operating partnership units
at closing, and will issue an additional 74,000 deferred units in March 2006.
The preliminary allocation of the purchase price includes the following
significant components:
<TABLE>
<CAPTION>


                                                                                              Value of
                                       Apt.                                                  Operating
              Property                 Units      Contract Price       Debt Assumed       Partnership Units
------------------------------------- --------- ------------------- -------------------- -------------------
                                                     (000's)             (000's)               (000's)
<S>                                     <C>         <C>                  <C>                  <C>
Canterbury Apartments                    630         $ 25,750             $ 22,992             $ 3,070
Laurel Springs Apartments                240           14,610               11,320               3,329
Laurel Springs II Apartments              96            7,090                5,850               1,209
Salem Ridge Apartments                   120            4,360                2,610               1,706
</TABLE>

                                       39
<PAGE>

         We operate Laurel Springs and Laurel Springs II Apartments as one
community. The assets and liabilities of these apartment communities are
included in our consolidated financial statements as of March 31, 2005. However,
no operating results for these communities are reflected in our consolidated
statement of operations for the first quarter of 2005.

         Immediately upon completion of this acquisition, we retired a $1.5
million variable rate note related to Canterbury Apartments. The remaining
assumed debt includes three fixed-rate notes totaling $35.4 million at interest
rates ranging from 5.0% to 6.8% and a $5.9 million variable-rate note with
interest at 30-day LIBOR plus 1.9%. We have included a more detailed description
of these notes payable in Note 4 of our financial statements in this Current
Report on Form 10-Q.

Other acquisitions

         During the second quarter of 2005, we completed two additional
apartment property acquisitions in separate cash transactions. Both properties
are located in the Charleston, South Carolina, area.

                                        Apt.
              Property                 Units      Contract Price
------------------------------------- --------- -------------------
                                                     (000's)

Waverly Place Apartments                 240          $13,100
Paces Watch Apartments                   232          $20,450

         In conjunction with these acquisitions, we issued two fixed-rate notes
payable totaling $25.0 million. Both notes provide for interest at 5.31% (5.38%
effective rate), interest-only payments through mid-2008, and then amortizing
payments through mid-2015. A more detailed description of these notes payable is
included in Note 4 of our financial statements in this Current Report on Form
10-Q.

         In addition, during the second quarter of 2005, we acquired
approximately 40 acres of undeveloped land adjacent to our Canterbury Apartments
property for a contract price of $2.7 million, paid by $0.6 million in cash and
the assumption of $2.1 million in debt, which bears interest at the lender's
prime rate and matures in September 2005. In September 2005, we modified the
note to extend maturity to September 2006 with interest at 30-day LIBOR plus
1.98%.

Sale of apartment community pending at September 30, 2005

         During the third quarter of 2005, we received and accepted an
unsolicited offer for Savannah Shores Apartments, located in Myrtle Beach, South
Carolina. We typically purchase apartment properties with the expectation of
holding and operating them for the long term; however, we believe that accepting
that offer is in the best interest of our shareholders.

         We acquired Savannah Shores Apartments in July 2004 for an initial
purchase price of $12.5 million, paid through issuance of operating partnership
units with total imputed value of $0.1 million, assumption of $12.2 million in
debt obligations, and assumption of $0.2 million net operating liabilities in
excess of operating assets acquired. The acquisition agreement provided for
potential earn-out of additional purchase consideration of up to $1.7 million
within a three-year period upon attainment of certain performance standards or
upon sale of the property, to be


                                       40
<PAGE>

funded  through  issuance  of  additional  operating  partnership  units with an
imputed  value of  $13.00  per unit to the  contributors.  Accordingly,  we have
recorded $1.7 million  additional  consideration due for this acquisition in our
balance sheet as of September 30, 2005.

         In accordance with GAAP, we have reflected the real estate assets and
related note payable related to Savannah Shores as assets held for sale on our
balance sheet at September 30, 2005, and we have presented the operating results
of the community as discontinued operations in our statements of operations for
all periods presented. The change in presentation for this community does not
have any impact on our financial condition or overall results of operations for
the periods presented in the financial statements.

Debt refinancing transactions

         During the second quarter of 2005, in conjunction with refinancing of
existing debt, we issued two fixed-rate notes payable totaling $22.6 million.
The new notes provide for interest at 5.21% (5.28% effective rate),
interest-only payments through mid-2008, and then amortizing payments through
mid-2015. We applied proceeds of these notes to retire an $11.5 million
variable-rate note payable, to retire a $5.5 million 8.55% fixed-rate note
payable, and to reduce the outstanding balance on our line of credit. A more
detailed description of these transactions is included in Note 4 of our
financial statements in this Current Report on Form 10-Q.

Line of credit facilities

         In conjunction with the various acquisition and financing transactions
described above, we made net draws on our lines of credit secured by Latitudes
Apartments and our restaurant properties totaling $6.0 million during the first
nine months of 2005. In June 2005, we modified our line of credit secured by 40
restaurant properties to extend the maturity date to January 2008. At September
30, 2005, we have $11.0 million available under our revolving line of credit
secured by Latitudes Apartments.

Other equity transactions

         Effective August 1, 2005, the Board of Directors granted and issued
200,000 restricted shares of the company's common stock to four of our executive
officers. We refer to these shares as "nonvested shares" in our consolidated
financial statements. All of the shares were unvested on the date of grant, and
will vest 10% per year beginning July 1, 2006, and on each July 1 thereafter
until fully vested. Because grantees fully participate in dividends, the fair
value of the nonvested shares is equal to the market value at the grant date,
$15.70 per share, or a total of $3.1 million. We will account for the nonvested
shares under the fair value and compensation expense recognition provisions of
FASB Statement 123(R) - see our discussion below under the caption "Critical
Accounting Policies - Accounting for stock compensation."

         During the first three quarters of 2005, we also:

o    Issued 57,500 shares of our common stock upon exercise of options by two
employees for proceeds of $0.7 million; and

o    Issued 73,000 shares of our common stock to redeem the same number of
operating partnership units from a minority unitholder.

o    Issued 38,000 shares of our common stock through our Dividend Reinvestment
and Stock Purchase Plan for proceeds of $0.6 million;

                                       41
<PAGE>

         At September 30, 2005, we had 9.5 million common shares and 0.9 million
preferred shares outstanding. In addition, there were 2.4 million operating
partnership minority common units outstanding.

Cash Flows and Liquidity

         Net cash flows from operating activities were $3.9 million in the third
quarter of 2005, compared to $3.0 million in the third quarter of 2004. Net cash
flows from operating activities were $11.2 million in the first nine months of
2005, compared to $8.3 million in the first nine months of 2004. The amounts for
2005 include a $0.5 million prepayment penalty paid by the Marina Shores
Partnership in conjunction with refinance of its long-term debt in first
quarter. The increases in comparative amounts reflect the growth in size of our
apartment operations.

         Investing and financing activities, other than those described under
"Capital Resources" above, focused on capital expenditures at apartment
communities, along with payment of dividends and distributions.

         We have announced that the company will pay a regular quarterly
dividend of $0.25 per share (approximately $2.4 million) on November 15, 2005,
to shareholders of record of our common stock as of November 1, 2005, as well as
$250,000 of dividends to the preferred shareholder.

         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 future 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.

Investing and financing transactions subsequent to September 30, 2005

         In October 2005, we sold Savannah Shores for a contract price of $22.75
million to an unaffiliated third party. In conjunction with this disposition, we
retired a $9.0 million variable rate note payable secured by a mortgage and
assignment of rents of the apartment community. We also issued 130,770 operating
partnership units with a total imputed value of $1.7 million for payment of the
earn-out of additional purchase price consideration on the property. We
reinvested the net proceeds of approximately $13.0 million in two apartment
properties through tax-deferred exchanges under Section 1031 of the Internal
Revenue Code, as follows:

o        We acquired the Hamptons at Quail Hollow Apartments for a contract
         price of $17.5 million, from an unaffiliated third party. In
         conjunction with this acquisition, we made an initial draw of $9.4
         million on a newly established $13.0 million line of credit that
         carries a variable interest rate of 30-day LIBOR plus 1.65% and matures
         in November 2008; and

o        We acquired the Timbers Apartments for a contract price of $22.45
         million, from an unaffiliated third party. In conjunction with this
         acquisition, we issued a $17.3 million


                                       42
<PAGE>

         note payable. This note bears interest at a fixed rate of 5.45%, with
         interest only payable for ten years, and matures in November 2015.

         In October 2005, we notified the holder of our Series B Cumulative
Convertible Preferred Stock ("preferred stock") that the company is exercising
its option to redeem all 909,090 shares of such preferred stock effective
December 20, 2005. The holder may elect to convert some or all of the shares of
preferred stock to shares of the company's common stock on a one-for-one basis;
or we will redeem the preferred stock for cash, priced by reference to the
average daily closing price of the company's common stock for the 30 trading
days prior to the redemption closing.

Critical Accounting Policies

         We identify and discuss our significant accounting policies in the
notes to our financial statements included in our Annual Report on Form 10-K.
Our policies and practice regarding our accounting for our general partner
interests in limited partnerships, for acquisitions, capital expenditures and
depreciation, and for stock compensation, which may be of particular interest to
readers of this Quarterly Report, are further discussed below.

Accounting for VIEs

         In January 2003, the Financial Accounting Standards Board ("FASB")
issued FASB Interpretation 46, "Consolidation of Variable Interest Entities,"
("FIN 46"). In December 2003, the FASB modified FIN 46 to make certain technical
corrections and address certain implementation issues that had arisen. FIN 46
provided a new framework for identifying VIEs and determining when a company
should include the assets, liabilities, noncontrolling interests and results of
activities of a VIE in its consolidated financial statements.

         In general, a VIE is an entity or other legal structure used to conduct
activities or hold assets that either (1) has an insufficient amount of equity
to carry out its principal activities without additional subordinated financial
support, (2) has equity owners that, as a group, are unable to make significant
decisions about its activities, or (3) has equity owners that, as a group, do
not have the obligation to absorb losses or the right to receive returns
generated by its operations.

         FIN 46, as modified, requires a VIE to be consolidated if a party with
an ownership, contractual or other financial interest in the VIE (a "variable
interest holder") is obligated to absorb a majority of the risk of loss from the
VIE's activities, is entitled to receive a majority of the VIE's residual
returns (if no party absorbs a majority of the VIE's losses), or both. A
variable interest holder that consolidates the VIE is called the "primary
beneficiary." Upon consolidation, the primary beneficiary generally must
initially record all of the VIE's assets, liabilities and noncontrolling
interests at fair value and subsequently account for the VIE as if it were
consolidated based on majority voting interest. FIN 46 also requires disclosures
about VIEs that the variable interest holder is not required to consolidate but
in which it has a significant variable interest.

         We determined that the Villages Partnership is a VIE, because the
limited partnership does not have sufficient equity to carry out its principal
activities without additional subordinated financial support from the general
partner. We also determined that we are the primary beneficiary of the Villages
Partnership. We have therefore included the accounts of this partnership in our
consolidated financial statements effective January 26, 2005.

                                       43
<PAGE>

Accounting for general partner interests in limited partnerships

         As managing general partner in three real estate limited partnerships,
we have the ability to exercise significant influence over operating and
financial policies. This influence is evident in the terms of the respective
partnership agreements. In acting as the general partner in these limited
partnerships, we are committed to providing additional levels of funding to meet
partnership operating deficits as may be needed.

         If we, as general partner, control a partnership that is not considered
a VIE, generally accepted accounting principles require that the partnership be
consolidated in our financial statements. Upon consolidation, we initially
record our interest in the partnership's assets and liabilities at the lower of
our cost or fair value, and subsequently account for the partnership based on
our percentage interest; the non-controlling interests are reflected in our
financial statements at their historical costs.

         We determined that the Marina Shores Partnership is not a VIE. However,
under the terms of the partnership agreement for the Marina Shores Partnership,
the general partner controls the activities of partnership; we have therefore
included the accounts of this partnership in our consolidated financial
statements effective January 26, 2005.

          We determined that the Villages - Phase 5 Partnership is not a VIE.
Under the terms of the partnership agreement for the Villages - Phase 5
Partnership, and in accordance with FSP SOP 78-9-1 issued in July 2005, the
general partner controls the activities of the partnership. We have included the
accounts of this partnership in our consolidated financial statements effective
July 2005, and have applied a retrospective application of guidance in FSP SOP
78-9-1 as if we had consolidated this partnership effective January 26, 2005.
(See Note 3 to our financial statements included in this Current Report on Form
10-Q.)

Purchase price allocation for apartment community acquisitions

         In connection with the acquisition of an apartment community, we
perform a valuation and allocation to each significant asset and liability in
such transaction, based on their estimated fair values at the date of
acquisition. The valuation of assets acquired includes both tangible and
intangible assets. Significant tangible asset values include real estate
investments, which we subsequently depreciated over their estimated useful
lives. We include an estimate of intangible asset values, consisting of
at-market, in-place leases, in intangible assets and amortize these amounts over
the remaining lease terms. In general, the average remaining life of in-place
leases at acquisition date ranged from five to nine months, and intangible
assets represented approximately 0.1% to 0.3% of contract prices.

Capital expenditures and depreciation

         In general, for the 15 apartment properties acquired before 2002, we
compute depreciation using the straight-line method over composite estimated
useful lives of the related assets, generally 40 years for buildings, 20 years
for land improvements, 10 years for fixtures and equipment, and five years for
floor coverings.

         For apartment properties acquired in 2002 and later, we have or will
perform analyses of components of the real estate assets acquired. For these
properties, we assign estimated useful lives as follows: base building
structure, 43-60 years; land improvements, 7-20 years; short-lived building
components, 5-20 years; and fixtures, equipment and floor coverings, 5-10 years.

                                       44
<PAGE>

         We generally complete and capitalize acquisition improvements
(expenditures that have been identified at the time the property is acquired,
and which are intended to position the property consistent with our physical
standards) within one to two years of acquisition. We capitalize non-recurring
expenditures for additions and betterments to buildings and land improvements.
In addition, we generally capitalize recurring capital expenditures for exterior
painting, roofing, and other major maintenance projects that substantially
extend the useful life of existing assets. For financial reporting purposes, we
depreciate these additions and replacements on a straight-line basis over
estimated useful lives of 5-20 years. We retire replaced assets with a charge to
depreciation for any remaining carrying value. We capitalize all floor covering,
appliance and HVAC replacements, and depreciate them using a straight-line,
group method over estimated useful lives of 5-10 years.

         Capital expenditures at our owned apartment communities during the
first nine months of 2005 totaled $5.8 million, including $1.5 million for
acquisition improvements, $0.7 million for casualty replacements, $1.6 million
for additions and betterments, and $2.0 million for recurring capital
expenditures.

         We expense ordinary repairs and maintenance costs at apartment
communities. Repairs and maintenance at our owned apartment communities during
the first nine months of 2005 totaled $6.4 million, including $2.4 million in
compensation of service staff and $4.0 million in payments for material and
contracted services.

         A summary of capital expenditures at our owned apartment communities
through September 30, 2005, in aggregate and per apartment unit, follows:
<TABLE>
<CAPTION>

                                                                          Total               Per unit
                                                                   --------------------- --------------------
                                                                         (000's)
<S>                                                                       <C>                     <C>
Recurring capital expenditures:
   Floor coverings                                                         $   882                 $ 125
   Appliances/HVAC                                                             367                    52
   Computer/support equipment                                                   64                     9
   Other                                                                       675                    95
                                                                   --------------------- --------------------
                                                                           $ 1,988                 $ 281
                                                                   ===================== ====================

Non-recurring capital expenditures:
   Acquisition improvements at apartment properties                        $ 1,465
   Casualty replacements                                                       665
   Additions and betterments at apartment properties                         1,450
   Computer/support equipment                                                  242
                                                                   ---------------------
                                                                           $ 3,822
                                                                   =====================
</TABLE>

         Costs of repairs, maintenance, and capital replacements and
improvements at restaurant properties are borne by the lessee.

Accounting for stock compensation

         The company has one employee Stock Option and Incentive Plan in place,
which is described more fully in Note 5 to the financial statements included in
this Current Report.

                                       45
<PAGE>

         Prior to July 1, 2005, we accounted for this plan using the intrinsic
value method under the recognition and measurements principles of APB Opinion
25, "Accounting for Stock Issued to Employees," and related interpretations, as
permitted by FASB Statement 123, "Accounting for Stock-Based Compensation." No
stock-based employee compensation cost was reflected in net income, as all
options granted under this plan had an exercise price equal to the market value
of the underlying common stock on the date of grant. All outstanding options
were fully vested prior to the end of 2004.

         Effective July 1, 2005, we adopted the fair value recognition
provisions of FASB Statement 123(R), "Share Based Payment," ("FAS 123(R)") using
the modified-prospective transition method. Under this transition method,
compensation cost recognized in the second half of 2005 includes compensation
cost for all share-based payments granted subsequent to July 1, 2005, based on
the grant-date fair value estimated in accordance with the provisions of FAS
123(R). If any outstanding options had not been fully vested as of July 1, 2005,
we would also record compensation cost for all such share-based payments granted
prior to that date based on grant date fair values estimated in accordance with
the original provisions of Statement 123.

Item 3.  Quantitative and Qualitative Disclosures About Market Risk

         We completed a number of significant acquisition and financing
transactions during the first nine months of 2005.

         As of September 30, 2005, long-term debt, on a consolidated basis,
totaled $413.6 million, including $340.5 million of notes payable at fixed rates
ranging from 5.0% to 7.4%, and $73.1 million at variable rates indexed primarily
on 30-day LIBOR rates. The weighted average interest rate on debt outstanding
was 5.9% at September 30, 2005, compared to 5.9% at December 31, 2004. A 1%
fluctuation in variable interest rates would increase or decrease our annual
interest expense by approximately $0.7 million.

         The table below provides information about our long-term debt
instruments and presents expected principal maturities and related weighted
average interest rates on instruments in place as of September 30, 2005 (all
amounts in thousands).
<TABLE>
<CAPTION>

                             Expected maturity dates
                             2005        2006        2007        2008        2009       Later       Total
                          ----------- ----------- ----------- ----------- ----------- ----------- -----------
<S>                        <C>        <C>         <C>         <C>         <C>        <C>         <C>
Fixed rate notes            $  713     $ 2,914     $50,922     $42,827     $32,173    $210,925    $340,474
   Average interest rate       5.8%        5.8%        6.9%        6.5%        5.2%        6.1%        6.0%

Variable rate notes         $   46     $ 8,026     $27,328     $15,863     $21,883           -    $ 73,146
   Average interest rate       5.8%        5.8%        5.6%        5.7%        5.7%        -           5.7%
</TABLE>


Item 4.  Controls and Procedures

         We maintain disclosure controls and procedures designed to ensure that
information disclosed in our annual and periodic reports is recorded, processed,
summarized and reported within the time periods specified in the SEC's rules and
forms. In addition, we designed these disclosure controls and procedures to
ensure that this information is accumulated and communicated to our management,
including our chairman, chief executive officer and chief financial officer, to
allow timely decisions regarding required disclosures.

                                       46
<PAGE>

         Based on our most recent evaluation, which was completed as of the end
of the third quarter of 2005, our chairman, 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

         The Registrant agrees to furnish a copy of all agreements related to
long-term debt upon request of the Commission.

 Exhibit No.

    10.1     Description of Employment Agreements with Executive Officers
             effective August 1, 2005
    31.1     Rule 13a-14(a)/15d-14(a) Certification by Chairman
    31.2     Rule 13a-14(a)/15d-14(a) Certification by Chief Executive Officer
    31.3     Rule 13a-14(a)/15d-14(a) Certification by Chief Financial Officer
    32.1     Section 1350 Certification by Chairman, Chief Executive Officer,
             and Chief Financial Officer



                                       47
<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.

                                     BNP RESIDENTIAL PROPERTIES, INC.
                                     (Registrant)




November 4, 2005                          /s/ Philip S. Payne
                                     ---------------------------------------
                                     Philip S. Payne
                                     Chairman



November 4, 2005                          /s/ Pamela B. Bruno
                                     ---------------------------------------
                                     Pamela B. Bruno
                                     Vice President, Treasurer and
                                     Chief Financial Officer





                                       48
<PAGE>



                                INDEX TO EXHIBITS


Exhibit No.
                                                                            Page

 10.1    Description of Employment Agreements with Executive Officers
         effective August 2, 2005                                            50
 31.1    Rule 13a-14(a)/15d-14(a) Certification by Chairman                  52
 31.2    Rule 13a-14(a)/15d-14(a) Certification by Chief Executive Officer   53
 31.3    Rule 13a-14(a)/15d-14(a) Certification by Chief Financial Officer   54
 32.1    Section 1350 Certification by Chairman, Chief Executive Officer,
         and Chief Financial Officer                                         55




                                       49
<PAGE>