UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-K

[ X ]  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
       OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1997
                                       OR

[   ]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
       OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from               to               .

                          Commission File Number 1-9496

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

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

3850 One First Union Center, Charlotte, NC                    28202-6032
(Address of principal executive offices)                      (Zip Code)

Registrant's telephone number, including area code  704/944-0100

Securities registered pursuant to Section 12(b) of the Act:

           Title of each class        Name of each exchange on which registered:
Common Stock, par value $.01 per share             American Stock Exchange

Securities registered pursuant to Section 12(g) of the Act:  None

      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 if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's  knowledge,  in definitive proxy or information  statements
incorporated  by reference in Part III of the Form 10-K or any amendment to this
Form 10-K. [ X ]
      The aggregate market value of the voting stock held by  non-affiliates  of
the Registrant at March 12, 1998 was approximately $83,580,000.
      The number of shares of Registrant's Common Stock outstanding on March 12,
1998, was 5,882,374.

                       DOCUMENTS INCORPORATED BY REFERENCE
         Portions  of the  1998  Proxy  Statement  for the  Registrant's  Annual
Meeting of Shareholders, to be filed with the Securities and Exchange Commission
within  120 days  after  the end of the year  covered  by this  Form  10-K,  are
incorporated  by  reference  in Part III,  Items 10,  11, 12 and 13 of this Form
10-K.

Index to exhibits at page 53                        Total number of pages:  67

                                       1
<PAGE>

                          BODDIE NOELL PROPERTIES, INC.
                                TABLE OF CONTENTS

<TABLE>
<CAPTION>

  Item No.             FINANCIAL INFORMATION                                                 Page No.
        <S>           <C>                                                                        <C>
                       PART I
          1            Business                                                                    3
          2            Properties                                                                  6
          3            Legal Proceedings                                                           9
          4            Submission of Matters to a Vote of Security Holders                         9
          X            Executive Officers of the Registrant                                        9

                       PART II
          5            Market for Registrant's Common Equity and Related Stockholder              11
                       Matters
          6            Selected Financial Data                                                    12
          7            Management's Discussion and Analysis of Financial Condition                14
                       and Results of Operations
          8            Financial Statements and Supplementary Data                                25
          9            Changes in and Disagreements With Accountants on Accounting                25
                       and Financial Disclosure

                       PART III
         10            Directors and Executive Officers of the Registrant                         26
         11            Executive Compensation                                                     26
         12            Security Ownership of Certain Beneficial Owners and Management             26

         13            Certain Relationships and Related Transactions                             26

                       PART IV
         14            Exhibits, Financial Statement Schedules, and Reports on Form               27
                       8-K

</TABLE>

                                       2
<PAGE>



                                     PART I


ITEM 1.  BUSINESS

Company Profile

      Boddie-Noell  Properties,  Inc. (the "Company") is a self-administered and
self-managed  real  estate  investment  trust that owns and  operates  apartment
communities  in North  Carolina and Virginia.  We currently own and operate nine
apartment  communities  containing  2,208  units,  and have the right to acquire
three  additional  apartment  communities  containing 476 units.  We also own 47
restaurant properties, which we lease to a third party under a master lease on a
triple-net  basis. We also manage seven other apartment  communities  through an
unconsolidated subsidiary.

      We  currently  have  5,882,374  shares of  common  stock  outstanding  and
approximately 7,900 shareholders  (including  beneficial owners). Our shares are
listed on the American Stock Exchange, trading under the symbol "BNP."

      Our  executive  offices  are  located  at 3850  One  First  Union  Center,
Charlotte, North Carolina 28202-6032, telephone 704/944-0100.

History and Development of Boddie-Noell Properties, Inc.

      The Company was originally  incorporated in the state of Delaware in 1987.
Beginning in 1987,  we elected to be taxed as a REIT under the Internal  Revenue
Code. As such, the Company generally is not, and will not be, subject to federal
or state  income taxes on net income.  As a REIT,  we are subject to a number of
organizational  and operational  requirements,  including a requirement  that we
currently distribute at least 95% of our REIT taxable income as dividends.

      In 1987 we purchased 47 existing  restaurant  properties  for an aggregate
purchase price of $43.2 million. From 1987 through 1992, our investment strategy
was limited to the  ownership  of these 47  restaurant  properties.  During this
period we operated as an externally administered and externally managed REIT. We
leased the  restaurants to Boddie-Noell  Enterprises,  Inc.  ("Enterprises"),  a
Hardee's franchisee,  under a master lease on a triple-net basis. A master lease
is a single lease that covers multiple  properties,  while a triple-net lease is
one  where  the  lessee  pays  all  operating  expenses,  maintenance,  property
insurance and real estate taxes.

      In order to  provide  for  growth in funds  from  operations  and  enhance
shareholder  value, we began in 1993 to diversify our investments into apartment
communities.  We acquired the 336-unit  Paces Commons in June 1993,  followed by
the 162-unit  Oakbrook in June 1994.  Both of these  apartment  communities  are
located in Charlotte, North Carolina.

      We continued our  diversification  with our acquisition in October 1994 of
BT Venture  Corporation,  an integrated real estate management,  development and
acquisition  company,  which we acquired from two of our  affiliates.  With this
acquisition,  we became a  self-administered  and self-managed  REIT. BT Venture
Corporation  owned the  448-unit  Latitudes  in Virginia  Beach,  Virginia,  and
managed 12 apartment communities (including Latitudes and the two that we owned)
and three retail shopping centers.

                                       3
<PAGE>

      After the  acquisition  of BT Venture  Corporation,  we also  acquired the
184-unit  Harris Hill in Charlotte  in December  1994,  and the  198-unit  Paces
Village, located in Greensboro, North Carolina, in May 1996.

      In May 1995,  we  reorganized  our  third-party  management  operations to
better enable us to comply with certain IRS regulations that limit the amount of
revenues that a REIT can earn from third-party property management contracts. In
the reorganization we transferred all of our third-party management contracts to
our newly formed  management  company,  BNP Management,  Inc., an unconsolidated
taxable  subsidiary  of the  Company.  In exchange  we  received a 95%  economic
interest in BNP Management,  represented by 100% of the non-voting equity and 1%
of the voting equity of BNP Management.

Recent Developments

      In 1997,  we  reincorporated  in the state of Maryland and converted to an
UPREIT structure. UPREIT stands for "umbrella partnership real estate investment
trust."  Under  this  structure,  the  Company  is the sole  general  partner of
Boddie-Noell  Properties Limited Partnership (the "Operating  Partnership").  We
contributed  our  properties  and all other assets and  liabilities to a limited
liability  company  wholly owned by the  Operating  Partnership  in exchange for
ownership units of the Operating Partnership. We currently own a majority of the
Operating  Partnership units. Other unitholders will generally be able to redeem
their units for cash or, at our option as general partner,  for shares of common
stock of the  Company on a  one-for-one  basis.  Distributions  of cash from the
Operating  Partnership  are  allocated  between  the REIT and the other  limited
partners based on their  respective unit  ownership.  We organized the Operating
Partnership as a Delaware limited partnership in September 1997.

      In September  1997, we signed an agreement to acquire a portfolio of seven
apartment  communities.   On  December  1,  1997,  we  acquired  four  of  these
communities  containing  880 apartment  units.  These  properties are located in
Greensboro and  Winston-Salem,  North Carolina.  We refer to this acquisition as
the "Chrysson  acquisition," and to the sellers as the "Chrysson Parties." Under
the terms of the Chrysson acquisition agreement, we will issue up to 1.7 million
units in the Operating Partnership.  We issued 950,032 units in December 1997 in
relation to the first four communities,  and have deferred issuing an additional
100,000 units until  December  1998,  and 100,000 units until  December 1999. We
will issue the remainder of the 1.7 million units upon the  acquisition  of each
of  the  remaining  three  apartment   communities   that  are  currently  under
construction. Under the terms of the acquisition agreement, we will have a right
of first  refusal to  purchase  any  project  developed  in the future by any of
Chrysson Parties or their affiliates.

      In  December  1997,  we  completed  a common  stock  offering  and  issued
2,500,000  shares of common  stock.  In January  1998,  we issued an  additional
200,000 shares for the underwriters'  over-allotment  in this offering.  We used
proceeds of this offering to retire long-term debt.

Current Operations

      We currently own and operate nine apartment communities. These communities
are located in  Charlotte,  Greensboro  and  Winston-Salem,  North  Carolina and
Virginia Beach,  Virginia,  and contain a total of 2,208 apartment  units.  Upon
completion of our  acquisition of all of the Chrysson  properties,  we will also
own an  additional  three  apartment  communities  with 476



                                       4
<PAGE>

apartment units in Greensboro,  Winston-Salem and Burlington, North Carolina. We
also own the 47  restaurant  properties  that we lease  to  Enterprises  under a
triple-net master lease.

      We  have  105  employees,   including   management,   accounting,   legal,
acquisitions,   development,   property  management,  leasing,  maintenance  and
administrative personnel. We operate as a self-advised and self-managed REIT.

      An on-site  community  manager,  assisted by staff  trained in  marketing,
management,  record  keeping,  maintenance and other  procedures,  operates each
apartment  community.  On-site  community  managers  report directly to regional
property  managers  who are based at one of the  locations  for  which  they are
responsible.  This flat  organization  provides for efficient  staffing  levels,
reduces overhead  expenses,  and enables us to respond to the needs of residents
and  on-site  employees.  Our  employees  supervise  all  renovation  and repair
activities, which are generally completed by outside contractors.

Business Strategy

      Our principal  investment  objectives are to provide our shareholders with
current income and to increase the value of the Company's common stock. We focus
on increasing  long-term growth in funds from operations and funds available for
distribution  per share,  and on increasing  the value of our portfolio  through
effective management, growth, financing, and investment strategies. We expect to
implement our strategies primarily through the acquisition,  operation,  leasing
and management of apartment communities.

      We seek to acquire  apartment  properties in areas within the southeastern
United States exhibiting  substantial  economic growth and an expanding job base
in which  we can  establish  a  significant  market  presence  in the  apartment
community  marketplace.  Through  our UPREIT  structure,  we have the ability to
acquire  apartment   communities  by  issuing  Operating  Partnership  units  in
tax-deferred  exchanges with owners of such  properties.  We expect that we will
finance future acquisitions of apartment communities principally with such units
as well as loans and funds from additional offerings of common stock,  preferred
stock or debt.

      Our   residents   are   typically   mid-   to   high-end   "residents   by
necessity"--individuals  or families  with moderate to  high-income  levels that
live  in  apartments  by  necessity.  They  typically  include  retirees,  young
professionals,  manager-level white-collar workers, medical personnel, teachers,
members of the military and young families.

      We strongly emphasize on-site property  management.  We seek opportunities
and  have  developed  internal  programs  to  increase  rents,  reduce  resident
turnover,  raise  average  occupancy  rates and control  costs.  In an effort to
reduce long-term  operating  costs, we annually review each apartment  community
and promptly attend to maintenance and recurring capital needs.

      As a  consequence  of our  focus on  apartments,  we may elect to sell our
restaurant   properties  and  reinvest  the  proceeds  in  additional  apartment
communities.  However,  no sale of the restaurants is pending,  and we intend to
divest the  restaurants  only when we believe  such a  transaction  will enhance
shareholder value.

                                       5
<PAGE>


ITEM 2.  PROPERTIES

Apartment Communities

      Through  the  Operating  Partnership,  we own and  manage  nine  apartment
communities  consisting  of  2,208  apartment  units.  The  average  age  of the
apartment communities is approximately 6.7 years. The average economic occupancy
rate for all 2,208 units for the month of December 1997 was 94.7%. The buildings
in our apartment  communities  are generally  wood-framed,  two- and three-story
buildings,  with  exterior  entrances,  individually  metered  gas and  electric
service,  and individual  heating and cooling  systems.  Our combined  apartment
units are comprised of 37.2% one bedroom  units,  55.3% two bedroom  units,  and
7.5% three bedroom units. The units average 996 square feet in area and are well
equipped with modern appliances and other conveniences.  All communities include
swimming pools, tennis courts and clubrooms,  and most have exercise facilities.
The  communities  are held  subject  to  loans,  discussed  in the  notes to the
financial statements.

      The table on page 7  summarizes  information  about each of our  apartment
communities.

Restaurant Properties

      The  47  restaurant  properties  are  leased  on a  triple  net  basis  to
Enterprises under a master lease. The master lease, as amended in December 1995,
has a primary  term  expiring in December  2007,  but grants  Enterprises  three
five-year renewal options. Under the amended lease, Enterprises pays annual rent
equal  to the  greater  of $4.5  million  or  9.875%  of  food  sales  from  the
restaurants.  The average price of the restaurant  properties was  approximately
$920,000 per property.

      The  restaurant   properties  are  operated  by  Enterprises  as  Hardee's
restaurants  pursuant to franchise  agreements with Hardee's Food Systems,  Inc.
These  agreements  require  that the  properties  conform to a  standard  design
specified by Hardee's.  The current design consists of a one-story brick, stucco
or wood building that embodies a contemporary style with substantial plate glass
window areas.  The buildings  average 3,400 square feet and are located on sites
ranging from 1 to 1.3 acres.  The  buildings  are suitable for  conversion  to a
number of uses, but the exteriors would have to be substantially  modified prior
to their use in  non-restaurant  applications.  Hardee's owns a design patent on
certain  elements of the  building  and  requires  franchisees  to make  certain
exterior modifications if the location is discontinued as a Hardee's restaurant.

      Enterprises is responsible  for all aspects of the operation,  maintenance
and upkeep of the restaurant properties. In addition, Enterprises is responsible
for the cost of any improvement,  expansion,  remodeling or replacement required
to keep the  properties  competitive  or in conformity  with  Hardee's  building
standards. The decision to modify a particular restaurant property is based on a
number of factors,  including the date of its last  modification and the number,
age and design features of competing  restaurants  located in the market area of
the particular property. All renovations are made at Enterprises' expense.

      The locations of the Company's 47 restaurant properties are listed on page
8 of this Annual Report.

                                       6
<PAGE>


                     INFORMATION ABOUT APARTMENT COMMUNITIES
<TABLE>
<CAPTION>



                                                                              Total       Apartment      Weighted   
                                   No. of                                   Rentable      Unit Type       Average   
                                    Apt.      Year       Date      Total      Area      1     2     3    Apt. Size  
                                                                                                                    
   Community         Location      Units   Completed   Acquired   Acreage   (Sq. Ft.)   BR    BR    BR   (Sq. Ft.)  
---------------- ----------------- ------- ----------- ---------- --------- ---------- ----- ----- ----- ---------- 

<S>             <C>                  <C>         <C>      <C>        <C>     <C>       <C>   <C>    <C>     <C>       
Communities owned through 1997:
Harris Hill      Charlotte, NC        184         1988     12/94      18.4    167,920    67   117     -        912  
Latitudes        Virginia Beach,      448         1989     10/94      24.9    358,700   269   159    20        800  
                 VA
Oakbrook         Charlotte, NC        162         1985      6/94      16.4    178,668    32   120    10      1,100  
Paces Commons    Charlotte, NC        336         1988      6/93      24.8    322,046   154   142    40        958  
Paces Village    Greensboro, NC       198         1988      4/96      15.5    167,886    88   110     -        848  


Communities acquired December 1997 (2):
Abbington
   Place (3)     Greensboro, NC       360         1997     12/97      37.4    400,728    96   216    48      1,113  
Pepperstone      Greensboro, NC       108         1992     12/97      10.1    113,076     -   108     -      1,047  
Savannah Place   Winston-Salem,       172         1991     12/97      15.4    182,196    44   128     -      1,059  
                 NC
Waterford Place  Greensboro, NC       240         1997     12/97      20.6    277,296    72   120    48      1,155  


Chrysson Communities under construction (4):
Allerton Place   Greensboro, NC       228            -         -      19.2    241,530    54   126    48      1,064  
Summerlyn
   Place         Burlington, NC       140            -         -      12.1    154,116    48    84     8      1,101  
Brookford Place  Winston-Salem,       108            -         -       6.3    103,392    36    72     -        957  
                 NC


</TABLE>
<TABLE>
<CAPTION>

                                                               Average          
                                     Average Economic      Monthly Revenue      
                                    Occupancy Percent     per Occupied Unit     
                                           (1)                                  
   Community         Location      1997    1996   1995   1997    1996   1995    
---------------- ----------------- ------ ------- ------ ------ ------- ------  
                                                                                
<S>             <C>                <C>     <C>    <C>    <C>     <C>    <C>     
Communities owned through 1997:                                                 
Harris Hill      Charlotte, NC      95.5    93.4   95.7   $708    $717   $683   
Latitudes        Virginia Beach,    94.6    93.8   95.3    659     637    613   
                 VA                                                             
Oakbrook         Charlotte, NC      95.6    93.8   97.6    768     780    750   
Paces Commons    Charlotte, NC      97.0    95.4   93.8    706     685    655   
Paces Village    Greensboro, NC     93.5    93.5      -    684     693      -   
                                                                                
                                                                                
Communities acquired December 1997 (2):                                             
Abbington                                                                       
   Place (3)     Greensboro, NC     91.8       -      -    785       -      -   
Pepperstone      Greensboro, NC     92.4       -      -    675       -      -   
Savannah Place   Winston-Salem,     96.9       -      -    782       -      -   
                 NC                                                             
Waterford Place  Greensboro, NC     93.7       -      -    878       -      -   
                                                                                
                                                                                
Chrysson Communities under construction (4):                                             
Allerton Place   Greensboro, NC        -       -      -      -       -      -   
Summerlyn                                                                       
   Place         Burlington, NC        -       -      -      -       -      -   
Brookford Place  Winston-Salem,        -       -      -      -       -      -   
                 NC                                                             


<FN>
(1) Average  economic  occupancy  is  calculated  as gross  potential  rent less
vacancy, divided by gross potential rent.
(2) Added as Phase I of the Chrysson acquisition. Average economic occupancy and
average  monthly rental per occupied unit for December 1997. (3) Phase I of this
community, containing 240 units, was completed in 1994. Phase II, containing 120
units, was completed in 1997.
(4) To be acquired upon completion and lease up.
</FN>
</TABLE>

                                       7
<PAGE>

                         RESTAURANT PROPERTIES LOCATIONS


<TABLE>
<S>                               <C>                            <C> 
Virginia (28 properties)           Orange                         Chapel Hill                     
                                     200 Madison Road               213 West Franklin Street      
Ashland                                                                                           
  106 North Washington Hwy.        Petersburg                     Denver                          
                                     1865 Crater Road, South        Route 1                       
Blackstone                                                                                        
  North Main Street                Richmond                       Eden                            
                                     921 Myers Street               202 West Kings Highway        
Bluefield                            6850 Forest Hill Avenue                                      
  701 South College Street           7917 Midlothian Pike         Fayetteville                    
                                                                    3505 Ramsey Street            
Chester                            Roanoke                          360 North Eastern Boulevard   
  12401 Jefferson Davis Hwy.         4407 Abenham Avenue, SW        5224 Bragg Boulevard          
                                     3401 Hollins Road                                            
Clarksville                                                       Gastonia                        
  916 Virginia Avenue              Rocky Mount                      816 East Franklin Street      
                                     322 Tanyard Road, NE           1525 North Chester Street     
Clintwood                                                                                         
  U.S. Highway 83                  Smithfield                     Hillsborough                    
                                     Smithfield Shopping Center     380 S. Churton Street         
Dublin                                                                                            
  208 College Avenue               Staunton                       Kinston                         
                                     1201 Greenville Avenue         200 West Vernon Street        
Franklin                                                            1404 Richlands Street         
  105 North Mechanic Street        Verona                                                         
                                     160 East Route 612           Mt. Airy                        
Galax                                                               507 Willow Street             
  425 Main Street                  Virginia Beach                                                 
                                     4261 Holland Road            Newton                          
Hopewell                             1951 Lynnhaven Parkway         South Ashe & North "D" St.    
  East City Point Road                                                                            
                                   Wise                           Siler City                      
Lebanon                              US Highway 23, Business        Chatham Shopping Center       
  Route 1                                                                                         
                                                                  Spring Lake                     
Lynchburg                          North Carolina                   400 South Main Street         
  8411 Timberlake Road             (19 properties)                                                
  2231 Langhorne road                                             Thomasville                     
                                   Bessemer City                    1116 East Main Street         
Norfolk                              Route 1                        Randolph Street               
  3908 Princess Anne Road                                                                         
                                   Burlington                     
                                     2712 Alamance Road         
                                      
</TABLE>

                                       8
<PAGE>

ITEM 3.  LEGAL PROCEEDINGS

      We are a party to a variety of legal  proceedings  arising in the ordinary
course of business.  We do not expect any of these matters,  individually and in
aggregate, to have a material adverse impact on the Company.

      In the event a claim were  successful,  we believe that we are  adequately
covered by insurance and indemnification  agreements. We have insurance coverage
on each of our apartment  communities.  Our restaurant properties are subject to
an indemnification agreement whereby Enterprises, the lessee, is responsible for
all claims  arising from a restaurant  property.  In  addition,  Enterprises  is
required to provide insurance,  which identifies the Company as a named insured,
on each  restaurant  property.  Each apartment  property that is managed but not
owned  by us is  covered  by an  insurance  policy  under  which  we are a named
insured. As to claims to which we have become a successor  party-in-interest  to
BT Venture  Corporation,  we received,  as part of the acquisition of BT Venture
Corporation,  an  indemnification  agreement from the shareholders of BT Venture
Corporation  which,  subject to certain  limitations,  indemnifies  us from loss
arising out of a claim against BT Venture Corporation.


ITEM 4.  SUBMISSION OF MATTERS TO A VOTE SECURITY HOLDERS

      No matters were submitted to a vote of security  holders during the fourth
quarter of fiscal year 1997.


ITEM X.  EXECUTIVE OFFICERS OF THE REGISTRANT

We have set forth below a listing and brief  biography of each of the  executive
officers of the Company.
<TABLE>
<CAPTION>

            Name               Age                        Position                         Officer Since
----------------------------- ------- -------------------------------------------------- -------------------
<S>                          <C>     <C>                                                <C>  
D. Scott Wilkerson            40      Director, President and                            October 1994
                                      Chief Executive Officer
Philip S. Payne               46      Director, Executive Vice President,                October 1994
                                      Treasurer and Chief Financial Officer
Pamela B. Novak               44      Vice President, Controller and                     October 1994
                                      Chief Accounting Officer
Douglas E. Anderson           50      Vice President, Secretary                          April 1987
</TABLE>

      D. Scott  Wilkerson--Director,  President and Chief Executive Officer. Mr.
Wilkerson  joined BT Venture  Corporation in 1987 and served in various  officer
level positions, including Vice President of Administration and Finance and Vice
President for Acquisitions and Development, before becoming President in January
1994.  He was named Chief  Executive  Officer in April  1995,  and a Director in
December 1997. From 1980 to 1986, Mr. Wilkerson was with Arthur Andersen LLP, in
Charlotte,  North  Carolina,  serving  as tax  manager  from  1985 to 1986.  His
specialization was in the representation of real estate syndicators,  developers
and management  companies.  Mr.  Wilkerson  received a B.S. degree in accounting
from the  University  of North  Carolina at Charlotte in 1980.  He is a licensed
certified public  accountant and licensed real



                                       9
<PAGE>

estate  broker.  He is a member  of the  Board  of  Directors  of the  Apartment
Association of North  Carolina and the Charlotte  Apartment  Association.  He is
active in various professional, civic and charitable activities.

      Philip S. Payne--Director,  Executive Vice President,  Treasurer and Chief
Financial  Officer.  Mr.  Payne  joined BT Venture  Corporation  in 1990 as Vice
President of Capital Market  Activities and became  Executive Vice President and
Chief  Financial  Officer in January 1993. He was named  Treasurer in April 1995
and a Director in December  1997.  From 1987 to 1990 he was a principal in Payne
Knowles  Investment Group, a financial planning firm. From 1983 to 1987 he was a
registered  representative  with Legg Mason Wood Walker.  From 1978 to 1983, Mr.
Payne  practiced law, and he currently  maintains his license to practice law in
Virginia. He received a B.S. degree from the College of William and Mary in 1973
and a J.D.  degree in 1978 from the same  institution.  Mr. Payne is a member of
the  Editorial  Board  of  The  REIT  Report,  a  publication  of  the  National
Association of Real Estate Investment Trusts.

      Pamela B. Novak--Vice President,  Controller and Chief Accounting Officer.
Ms. Novak joined BT Venture  Corporation  in 1993 as Controller  and became Vice
President and Chief  Accounting  Officer in October 1994. From 1984 to 1993, Ms.
Novak was with Ernst & Young LLP, in Charlotte,  North Carolina,  and Anchorage,
Alaska,  serving as audit  manager from 1987 through  1993.  She received a B.S.
degree in accounting from the University of North Carolina at Charlotte in 1984.
She is a licensed certified public accountant.

      Douglas E. Anderson--Vice President and Secretary. Mr. Anderson has served
as Vice  President and  Secretary  since our inception in 1987. He has been with
Enterprises since 1977 and is currently a director, executive vice president and
secretary  of  Enterprises.  Mr.  Anderson  is also  president  of BNE  Land and
Development  Company,  the real estate development  division of Enterprises.  He
serves as a  director  of  Wachovia  Bank of Rocky  Mount,  North  Carolina.  He
received a B.S.  degree in finance and  accounting  from the University of North
Carolina at Chapel Hill in 1970.

                                       10
<PAGE>


                                     PART II


ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Market Information and Dividends

      Our common stock is traded on the American Stock Exchange under the symbol
"BNP." There were approximately  1,700 shareholders of record on March 12, 1998.
The table below shows,  for the periods  indicated,  the range of high, low, and
closing  sale  prices of our common  stock as  reported  by the  American  Stock
Exchange and the  dividends  paid per share.  As of March 12, 1998,  the closing
price of the Company's common stock was $14 3/4 per share.

                                                                     Dividends
                                       Stock Price                     Paid
                            High           Low          Close        Per Share
                        -------------- ------------- ------------- -------------

1997
   Fourth quarter           $17 1/8        $13 3/4       $13 7/8         $0.31
   Third quarter             16 1/2         12 1/2        16 1/2          0.31
   Second quarter            13             11 7/8        12 7/8          0.31
   First quarter             13 1/8         12 3/8        12 5/8          0.31

1996
   Fourth quarter            13 1/4         12 1/8        12 1/2          0.31
   Third quarter             13 1/4         12 3/8        12 7/8          0.31
   Second quarter            13 3/8         11 1/2        12 5/8          0.31
   First quarter             13 3/4         12 1/4        13 1/4          0.31

      We have paid  regular  quarterly  dividends to holders of our common stock
since our inception,  and we intend to continue to do so. We anticipate  that we
will pay all dividends from current funds from operations. We expect to continue
to pay a dividend of $0.31 per quarter.  On an annualized  basis,  this would be
$1.24 per share. We expect  distributions to substantially exceed the 95% annual
distribution requirement for a REIT.

      We have a dividend reinvestment plan that is available to all shareholders
of record.  Under this plan,  as amended in July 1996,  the plan  administrator,
First Union National Bank of North  Carolina,  reinvests  dividends on behalf of
plan participants in our common stock.  First Union will either issue new shares
or  purchase  shares  on  the  open  market,  at  our  direction.  In  addition,
shareholders  who  participate  in the  plan  may  elect  to  make  direct  cash
investments  or  supplement  their  reinvestment  program with  additional  cash
investments of any amount from $25 to $10,000 per quarter.  Participants  do not
pay any commissions on stock purchased under the plan.

Sales of Unregistered Securities

      We issued 16,300 shares of common stock in 1997 pursuant to the BT Venture
Corporation  acquisition  agreement,  which  provided for quarterly  payments of
stock or cash if certain financial targets were attained. The shares were issued
to the  former  shareholders  of BT  Venture

                                       11
<PAGE>

Corporation, B. Mayo Boddie and Nicholas B. Boddie. B. Mayo Boddie is a director
of the  Company.  The shares  were  issued  pursuant  to an  exemption  from the
registration requirements of Section 4(2) of the Securities Act of 1933.

      In January 1998, we issued an additional  43,438 shares of common stock to
the  former  shareholders  of  BT  Venture  Corporation  in  final  payment  for
additional consideration related to that acquisition.


ITEM 6.  SELECTED FINANCIAL DATA

      We present below selected financial information.  We encourage you to read
the financial  statements and the notes accompanying the financial statements in
this Annual Report. This information is not intended to be a replacement for the
financial statements.

      This  financial   information  includes  all  apartment   communities  and
restaurant  properties that we owned. While the number of restaurant  properties
has remained  constant,  you should note in reviewing this  information  that we
acquired apartment properties throughout the periods presented.  Therefore,  the
information is not comparable between periods.
<TABLE>
<CAPTION>

                                                             Year ended December 31
                                         1997          1996          1995           1994          1993
                                     ------------- ------------- -------------- ------------- --------------
                                               (in thousands, except per share and property data)
<S>                                  <C>          <C>           <C>            <C>           <C>
Operating data:
Revenue:
  Apartment rental income            $   11,197    $    9,791    $    8,476     $    3,889    $    1,245
  Restaurant rental income                4,500         4,500         4,649          5,047         5,165
  Equity and other income                   555           217           600            322            16
                                     ------------- ------------- -------------- ------------- --------------
Total revenue                            16,251        14,508        13,726          9,258         6,426
Expenses:
  Depreciation                            2,686         2,440         2,204          1,415           973
  Amortization                              580           535           405            233            92
  Apartment operations                    3,546         2,977         2,481          1,101           360
  Corporate administration                1,000           894         1,286            887           502
  Interest                                6,487         5,946         5,362          2,802         1,442
  Write-off of deferred costs                 -             -           359            518           600
                                     ------------- ------------- -------------- ------------- --------------
Total expenses                           14,299        12,792        12,097          6,956         3,970
                                     ------------- ------------- -------------- ------------- --------------
Income before minority
  interest of Unitholders                 1,953         1,716         1,628          2,302         2,455
Minority interest in
  Operating Partnership                      39             -             -              -             -
                                     ------------- ------------- -------------- ------------- --------------
 Income before
  extraordinary item                 $    1,913    $    1,716    $    1,628     $    2,302    $    2,455
                                     ============= ============= ============== ============= ==============
Net income                           $    1,730    $    1,716    $    1,628     $    2,302    $    2,455
                                     ============= ============= ============== ============= ==============
Basic earnings per share (1)         $     0.54    $     0.57    $     0.54     $     0.80    $     0.86
                                     ============= ============= ============== ============= ==============
Diluted earnings per share (1)       $     0.52    $     0.56    $     0.54     $     0.80    $     0.86
                                     ============= ============= ============== ============= ==============
</TABLE>

                                       12
<PAGE>
<TABLE>
<CAPTION>

                                                             Year ended December 31                          
                                         1997          1996          1995           1994          1993       
                                     ------------- ------------- -------------- ------------- -------------- 
                                               (in thousands, except per share and property data)            
<S>                                 <C>            <C>           <C>            <C>           <C>       
Balance Sheet data:
Real estate assets (before
  accumulated depreciation)
  Apartment communities              $  128,050     $  66,610     $  55,316      $  54,724     $  14,352
  Restaurant properties                  43,205        43,205        43,205         43,205        43,205
Real estate assets, net                 157,108        98,354        89,500         91,101        52,140
Total assets                            166,112       103,436        94,352         95,954        54,643
Total debt                               93,436        77,352        67,162         66,884        26,894
Minority interest                        12,346             -             -              -             -
Shareholders' equity                     55,785        24,902        26,200         27,968        27,252

Apartment Property data:
Apartment communities
  owned at year end                           9             5             4              3             1
Apartment units owned
  at year end                             2,208         1,328         1,130            946           336
Average apartment
  economic occupancy                       95.3%         94.1%         95.3%          94.6%         94.4%
Average monthly revenue
  per occupied unit                  $      698     $     684     $     657      $     624     $     576

Other data:
EBITDA                               $   11,706     $  10,637     $   9,600      $   6,751     $   4,963
Funds from operations (2)                 4,804         4,472         4,450          4,291         4,029
Funds available
  for distribution (2)                    4,349         3,835         3,961          4,253         4,055
Net cash provided by
  (used in):
  Operating activities               $    5,007     $   4,800     $   4,476      $   4,496     $   4,066
  Investing activities                  (48,095)      (11,020)         (832)       (18,729)      (16,157)
  Financing activities                   44,705         6,361        (3,895)        15,063        11,152
Weighted average number of
  shares outstanding                      3,180         3,027         3,006          2,855         2,850
<FN>
(1)   Earnings per share amounts prior to 1997 have been restated to comply with
      Statement of Financial  Accounting  Standards No. 128, Earnings Per Share.
      For further  discussion  of earnings per share and the impact of Statement
      128, see the notes to the financial statements.

(2)   Funds  from  operations  is defined by the  National  Association  of Real
      Estate Investment Trusts ("NAREIT") as "net income (computed in accordance
      with generally accepted accounting  principles),  excluding gains (losses)
      from debt  restructuring  and sales of  property,  plus  depreciation  and
      amortization,  and after adjustments for  unconsolidated  partnerships and
      joint ventures."

      We define funds  available for  distribution as funds from operations plus
      non-cash expense for amortization of loan costs, less scheduled  principal
      payments on our debt and less recurring capital expenditures.

      We consider funds from operations and funds available for  distribution to
      be useful in 

                                       13
<PAGE>


      evaluating potential property  acquisitions and measuring the
      operating performance of an equity REIT because,  together with net income
      and cash flows, funds from operations and funds available for distribution
      provide investors with additional  measures to evaluate the ability of the
      REIT to incur and service debt and to fund  acquisitions and other capital
      expenditures.  Funds from operations and funds available for  distribution
      do not  represent  net income or cash flows from  operations as defined by
      generally accepted  accounting  principles.  You should not consider funds
      from operations or funds available for distribution:

      --   to be  alternatives  to  net  income  as  reliable  measures  of  the
           Company's operating performance,  or
      --   to be alternatives to cash flows as measures of liquidity.

      Funds from operations and funds available for  distribution do not measure
      whether cash flow is sufficient  to fund all of our cash needs,  including
      principal   amortization,   capital   improvements  and  distributions  to
      shareholders.  Funds from operations and funds available for  distribution
      do not  represent  cash  flows  from  operating,  investing  or  financing
      activities  as  defined  by  generally  accepted  accounting   principles.
      Further,  funds from  operations and funds  available for  distribution as
      disclosed by other REITs may not be comparable to our calculation of funds
      from operations or funds available for distribution.
</FN>
</TABLE>


ITEM 7. MANAGEMENT'S  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

      The following  discussion contains  forward-looking  statements within the
meaning of federal  securities law. Such statements can be identified 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
the  expectations  reflected  in such  forward-looking  statements  are based on
reasonable  assumptions,  there are  certain  factors  such as general  economic
conditions, local real estate conditions, or weather conditions that might cause
a difference between actual results and those  forward-looking  statements.  You
should  read  the  following   discussion  in  conjunction  with  the  financial
statements and notes thereto included in this Annual Report.

Overview

      This discussion  analyzes our operations for the full years of 1997, 1996,
and 1995. During the time period covered by this discussion, we have undergone a
number of significant changes.  These changes have resulted in a marked increase
in our total assets, revenues, expenses and debt. In reading this discussion, it
might help if you keep certain key events and general trends in mind:

                                       14
<PAGE>

      -From our inception in 1987 to 1992, our assets primarily  consisted of 47
      restaurant  properties.  In 1993,  we  began  to  change  our  focus  from
      restaurant  properties  to apartment  communities.  We purchased our first
      apartment  community in 1993 and purchased a total of eight more apartment
      communities  during 1994 through  1997.  As of December 31, 1997, we owned
      nine apartment communities and the original 47 restaurant properties.

      -Prior to 1994, we operated as an externally  administered  and externally
      managed  REIT.  A  paid  advisor   provided   day-to-day   management  and
      operations.  We had no  paid  employees  and  minimal  corporate  overhead
      expenses. Essentially, our only management expense was the fee paid to the
      advisor.  In October  1994,  we purchased BT Venture  Corporation  and its
      apartment  management  business.  We terminated our relationship  with the
      advisor and became a self-administered and self-managed REIT.

      -As part of the purchase of BT Venture  Corporation  in 1994,  we acquired
      its apartment  management  business.  We began to receive  management  fee
      income  from,  and  incur  the  expenses  associated  with,  the  property
      management  business.  In May 1995,  we formed BNP  Management,  Inc. (the
      "Management  Company") and transferred  all of the  third-party  apartment
      management  business we had acquired  from BT Venture  Corporation  to the
      Management Company. All of our third-party property management  activities
      are now conducted through the Management  Company.  The Management Company
      currently  manages seven apartment  communities  and two shopping  centers
      owned by other parties.

      As a result  of the  creation  of the  Management  Company,  we no  longer
      receive property management fees, nor do we incur expenses associated with
      providing  these  services.  Because we do not control the voting stock of
      the  Management  Company,  we account for our investment in the Management
      Company using the equity method of accounting.  This means that instead of
      adding the Management Company's revenues, expenses, assets and liabilities
      to our revenues,  expenses, assets and liabilities, we show our portion of
      the net  income of the  Management  Company  as a line item on our  income
      statement,  and the amount we have invested in the Management Company as a
      line  item on our  balance  sheet.  Because  of our  substantial  economic
      ownership  interest,  our  portion  of the net  income  of the  Management
      Company  represents  substantially  all of the  Management  Company's  net
      income.

      -Restaurant  sales and restaurant  rental income have been declining since
      1992.  The  decline  in  restaurant  sales  appears  to be the  result  of
      increasing  competition and widespread price  discounting in the fast food
      industry.  Also  contributing to the decline has been the lack of a strong
      hamburger  product  on the  Hardee's  menu.  Enterprises,  the  restaurant
      operator, and Hardee's Food Systems, Inc., the restaurant franchisor,  are
      taking  steps to  improve  restaurant  sales.  These  steps  include a new
      advertising  campaign,  the  introduction of several new food items, and a
      return  to the  charbroil  cooking  method.  To  date,  we have  not  seen
      improvement in restaurant  sales.  In August 1997, CKE  Restaurants,  Inc.
      purchased Hardee's Food Systems.  CKE is the owner and operator of "Carl's
      Jr.," a fast food hamburger chain with approximately 680 restaurants.

      -Our acquisition of four apartment  communities,  a common stock offering,
      and retirement of substantial  debt in December 1997 had, and will have, a
      significant  impact on our financial  position and operating  results.  In
      addition,  we have already committed to acquire three additional apartment
      communities that are currently under construction.

                                       15
<PAGE>

      We  receive  revenue  from  two  principal  sources--apartment  rents  and
restaurant rents. In addition,  we have other income that consists  primarily of
revenue  from the  Management  Company and interest  income.  As a result of our
apartment  acquisitions,  our total  revenue  has  increased  significantly.  In
addition,  the  percentage of our total revenue that comes from  apartments  has
increased.


Results of Operations

1997 Compared to 1996

Revenues

      Total revenue for 1997 was $16.3 million,  an increase of 12.0% over 1996.
This increase is primarily due to the acquisition of four apartment  communities
in December 1997 and the  acquisition of one apartment  community in April 1996.
Apartment  rental  income  accounted  for 68.9% of our total  revenue in 1997 as
compared to 67.5% in 1996.

      Apartment  rental income for 1997 was $11.2 million,  an increase of 14.4%
over 1996.  While this increase is primarily  the result of apartment  community
acquisitions,  apartment  operations  also  showed  improvement.  For  the  four
apartment  communities owned for the full year in both 1997 and 1996,  apartment
rental  income  increased  by 3.1%.  On a  same-units  basis,  average  economic
occupancy  improved by 1.3%,  while  average  monthly  revenue per occupied unit
increased by 1.5%. For 1997, overall average economic occupancy at our apartment
communities was 95.3% and average monthly revenue per occupied unit was $698.

      As of December 31, 1997,  we owned  apartment  communities  in  Charlotte,
Greensboro and Winston-Salem,  North Carolina and Virginia Beach,  Virginia. Our
apartments  are priced in the moderate to moderately  high range for  apartments
available   within  these   markets.   Despite  a  substantial   amount  of  new
construction,  especially in Charlotte and Greensboro,  we believe these markets
have remained  relatively  strong.  This strength is primarily  attributable  to
demand for apartments created by continued  population and job growth.  While we
experienced a nominal  reduction in our average  economic  occupancy in 1996, we
have  successfully  maintained a slight  increase in average monthly revenue per
unit, and we increased  average physical  occupancy to 94.8% in 1997 compared to
93.7% in 1996.

      We utilized three techniques to achieve these results:

      -monitoring and managing lease expiration dates;
      -encouraging  residents  to sign longer term leases,  up to 24 months; and
      -providing incentives for residents who renew their leases.

     At December 31, 1997,  approximately one-third of our leases in effect were
for a duration of 13 months or more. While we expect some  competitive  pressure
in our  markets  in 1998,  we do not expect  this will have a  material  adverse
effect on our operations or cash flows.

      Restaurant rental income was the minimum rent for 1997 and 1996. Under the
terms of the lease  agreement,  restaurant  rental  income is the greater of the
minimum rent of $4.5 million per year or 9.875% of food sales.  For 1997,  sales
at our restaurant  properties totaled $44.2 million, a 

                                       16
<PAGE>

decrease of 1.7% compared to 1996. For rent payments based on percentage rent to
resume, sales would have to increase by 3.0% over 1997 sales levels.

      Our  interest in the net income of the  Management  Company  increased  by
40.6% to $210,000 in 1997 as compared to 1996.  This  increase was primarily due
to the  Management  Company's  receipt  during  the  first  quarter  of  1997 of
refinancing  fees  from  two  managed  properties  and  certain  one-time  sales
commissions from two managed properties.  Also contributing to the increase were
fees the  Management  Company  received for its planning  and  supervision  of a
substantial  rehabilitation  project at The Villages of Chapel Hill,  one of its
managed properties. We do not expect the operations of the Management Company to
have a significant effect on our financial  position,  operating results or cash
flows in future periods.

      Interest  and other  income  increased  by 408.8% to  $345,000  in 1997 as
compared to 1996.  This  increase was primarily  due to  approximately  $120,000
interest and $44,000 fees earned on loans made to facilitate the  rehabilitation
of The Villages of Chapel Hill, for which we advanced approximately $1.9 million
in 1997. During 1997, we incurred  interest expense of approximately  $71,000 on
the borrowings we used to fund these  advances.  In addition,  we earned fees of
$98,000 in 1997 for arranging refinancing for Woods Edge Apartments,  a property
managed by our Management Company.

Expenses

      Total  expenses  for 1997 were $14.3  million,  an  increase of 11.8% over
1996. This increase is due to the  acquisition of four apartment  communities in
December  1997 and the  acquisition  of one  apartment  community in April 1996,
along with an overall increase in apartment operations expense.

      Apartment  operations  expense  was $3.5  million in 1997,  an increase of
19.1% over 1996. This increase reflects the impact of apartment  acquisitions in
1997 and  1996,  as well as  increased  costs  associated  with  attracting  and
retaining residents in a more competitive apartment market. In order to increase
the visibility of our apartment communities, we have substantially increased the
amount  we  spend  on  advertising.  We have  also  increased  our  spending  on
preventive  maintenance.  We believe that, in order to preserve our  competitive
position,  it is  essential to maintain our  apartment  communities  in the best
possible condition. Apartment operations expense totaled 31.7% of related income
in 1997 as compared to 30.4% in 1996.

      Operating expenses for restaurant  properties are insignificant because of
the  restaurant   properties'   triple-net   lease   arrangement  that  requires
Enterprises to pay virtually all of the expenses  associated with the restaurant
properties.

      Depreciation  expense was $2.7 million in 1997,  an increase of 10.1% over
1996.  The  increase  in  depreciation  expense  is  primarily  attributable  to
apartment  community  acquisitions  of $60.7  million in December 1997 and $10.6
million in April 1996.

      Amortization  expense was $580,000 in 1997, an increase of 8.5% over 1996.
The  increase in  amortization  expense is primarily  attributable  to quarterly
additions to the intangible asset related to the earn-out  provision of the 1994
BT Venture  Corporation  acquisition  agreement.  The earn-out period related to
this  acquisition  agreement  ended September 1997, and there will be no further
additions to this intangible asset.

                                       17
<PAGE>

      Administrative expense was $1.0 million in 1997, an increase of 11.8% over
1996. This increase reflects  additions to property  management  corporate staff
along  with  a  one-time  charge  of   approximately   $50,000  related  to  our
reincorporation in Maryland in 1997.

      Interest  expense  totaled $6.5 million in 1997,  an increase of 9.1% over
1996. The increase in interest expense is primarily due to the addition of $38.1
million of debt related to the  acquisition  of four  apartment  communities  in
December  1997  and  the  addition  of  $10.7  million  of debt  related  to the
acquisition of one apartment  community in April 1996. Weighted average interest
rates were 8.0% in 1997 and 1996.

Net income

      Net income before an extraordinary  item for early  extinguishment of debt
in 1997 was $1.9  million,  an increase  of 11.5% over 1996.  The  increase  was
primarily the result of improved apartment revenues and the substantial increase
in equity and other income.

      In December 1997, we applied proceeds of a common stock offering to prepay
approximately  $32.2 million in debt. In conjunction with these prepayments,  we
wrote off unamortized loan costs of $227,000. We have reported our net write-off
(after  minority  interest)  of  $183,000 as an  extraordinary  item in the 1997
financial statements.

1996 compared to 1995

Revenues

      Total revenue for 1996 was $14.5  million,  an increase of 5.7% over 1995.
This increase is primarily due to the acquisition of Paces Village in April 1996
and  continued  improvement  in apartment  operations.  Apartment  rental income
accounted for 67.5% of our total revenue in 1996 as compared to 61.8% in 1995.

      Apartment  rental income for 1996 was $9.8  million,  an increase of 15.5%
over 1995. This increase reflects the acquisition of Paces Village in April 1996
along  with  improvements  in  apartment  operations.  For  the  four  apartment
communities  owned for the full year in both  1996 and  1995,  apartment  rental
income  increased by 3.3%. On a same-units  basis,  average  economic  occupancy
declined by 0.7%,  but was more than  offset by an  increase in average  monthly
revenue per occupied unit of 4.1%. For 1996,  overall average economic occupancy
at our apartment  communities was 94.1% and average monthly revenue per occupied
unit was $685. For 1995,  overall  average  economic  occupancy at our apartment
communities was 95.3% and average monthly revenue per occupied unit was $657.

      The increase in apartment  rental income in 1996 was partially offset by a
decrease in restaurant rental income. In 1996, restaurant rental income was $4.5
million,  a  decrease  of 3.2% as  compared  to  1995.  For  1996,  sales at our
restaurant  properties  totaled  $45.0  million,  a decrease of 4.4% compared to
1995.  The  difference in  comparisons  of restaurant  rental income and related
sales was the result of the minimum rent provision of the restaurant  lease.  In
December 1995, we entered into a modification of the lease with Enterprises that
increased the minimum rent from $3.46 million per year to $4.5 million per year.
Under the restaurant lease, annual restaurant rent is the greater of the minimum
rent or 9.875% of food sales.  The decline in restaurant  sales appeared to be a
continuation  of the trend that  began in 1993,  along with the impact of severe
weather in January 1996.

                                       18
<PAGE>

      Also  offsetting  the increase in apartment  rental income in 1996 was the
elimination of property  management fee income in 1996,  reflecting the creation
of the Management Company in May 1995. As a result of creation of the Management
Company  in  1995,  we did not  receive  any  property  management  fees in 1996
compared to $515,000 in 1995. We did,  however,  receive  equity income from the
Management  Company of approximately  $149,000 in 1996 as compared to $48,000 in
1995.

Expenses

      Total expenses in 1996 were $12.8 million,  an increase of 5.7% over 1995.
This  increase was primarily  due to the  acquisition  of Paces Village in April
1996.

      Apartment  operations  expense  was $3.0  million in 1996,  an increase of
20.0%  over  1995.  The  increase  reflects  the  impact  of the  Paces  Village
acquisition  in  1996,  as  well  as  increased  operating  expenses.  Apartment
operations  expense totaled 30.4% of related income in 1996 as compared to 29.3%
in 1995.  The increases in apartment  operating  expenses in 1996 were primarily
attributable  to  increased  costs  associated  with  attracting  and  retaining
residents as well as an increased emphasis on preventive maintenance.

      Operating expenses for restaurant properties are insignificant because the
restaurant  properties' triple-net lease arrangement requires Enterprises to pay
virtually all of the expenses associated with the restaurant properties.

      Depreciation  expense was $2.4 million in 1996,  an increase of 10.7% over
1995. This increase was due primarily to the acquisition of Paces Village ($10.6
million) in April 1996.

      Amortization expense was $535,000 in 1996, an increase of 32.0% over 1995.
The increase in amortization expense is attributable to the acquisition of Paces
Village  and to  quarterly  additions  to the  intangible  asset  related to the
earn-out provision of the 1994 BT Venture Corporation acquisition agreement.

      Administrative  expense  was  $894,000  in 1996,  a decrease of 32.4% from
1995. This decrease reflects the transfer of our property management  activities
to the Management Company in May 1995.

      Interest  expense  totaled $5.9 million in 1996, an increase of 10.9% over
1995.  This  increase  was  primarily  due to an  additional  $10.7  million  of
indebtedness  incurred in connection  with the  acquisition  of Paces Village in
1996.

Net income

      Net income for 1996 was $1.7 million,  an increase of 5.4% over 1995. This
increase was due to the write-off of $359,000 in deferred  costs in 1995. If the
write-off had not occurred in 1995,  our net income for 1996 as compared to 1995
would have  declined,  primarily  as the result of  increased  depreciation  and
amortization related to apartment property acquisitions.

                                       19
<PAGE>


Funds from Operations

      Funds from operations and funds available for  distribution are defined in
footnote 2 on page 13. We  calculated  funds  from  operations  as follows  (all
amounts in thousands):
<TABLE>
<CAPTION>

                                                                   1997            1996           1995
                                                               -------------- --------------- --------------
<S>                                                             <C>            <C>             <C>
Income before minority interest
   and extraordinary item                                        $  1,953       $  1,716        $  1,628
Depreciation                                                        2,686          2,440           2,204
Amortization of management intangible                                 380            315             258
Write-off of deferred costs                                             -              -             359
Non-recurring equity income items                                    (103)             -               -
                                                               -------------- --------------- --------------
Funds from operations before minority interest
   in Operating Partnership                                         4,916          4,472           4,450
Minority interest in funds from operations
   of Operating Partnership                                          (111)             -               -
                                                               -------------- --------------- --------------
Funds from operations                                            $  4,804       $  4,472        $  4,450
                                                               ============== =============== ==============
</TABLE>

      A  reconciliation   of  funds  from  operations  to  funds  available  for
distribution follows (all amounts in thousands):
<TABLE>
<CAPTION>

                                                                   1997            1996           1995
                                                               -------------- --------------- --------------
<S>                                                             <C>            <C>             <C>
Funds from operations before minority interest
   in Operating Partnership                                      $  4,916       $  4,472        $  4,450
Amortization of loan costs                                            200            219             147
Scheduled debt principal payments                                    (495)          (460)           (397)
Recurring capital expenditures                                       (375)          (396)           (239)
Non-recurring equity income items                                     103              -               -
                                                               -------------- --------------- --------------
Funds available for distribution                                 $  4,349       $  3,835        $  3,961
                                                               ============== =============== ==============
</TABLE>

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

                                                                   1997            1996           1995
                                                               -------------- --------------- --------------
<S>                                                            <C>            <C>             <C>
Net cash provided by (used in):
   Operating activities                                         $   5,006      $   4,800       $   4,476
   Investing activities                                           (48,095)       (11,020)           (832)
   Financing activities                                            44,705          6,361          (3,895)

Dividends and distributions paid to:
   Shareholders                                                 $   3,854      $   3,751       $   3,729
   Minority unitholders in Operating Partnership                        -             na              na

Non-recurring capital expenditures:
   Acquisition improvements and replacements                    $      71      $     143       $     285
   Other apartment property improvements                              221             22               2
</TABLE>


                                       20
<PAGE>
<TABLE>
<CAPTION>
                                                                                                           
                                                                   1997            1996           1995       
                                                               -------------- --------------- -------------- 
<S>                                                               <C>            <C>             <C>
Weighted average common shares outstanding                          3,180          3,027           3,006
Weighted average Operating Partnership
   minority units outstanding                                          81             na              na
</TABLE>

      The  additions  of  apartment  communities  and  improvement  in apartment
operations  have more than  offset the  decline  in  restaurant  rental  income,
producing  increases in funds from  operations.  Funds from  operations  in 1997
(before minority interest) totaled $4.9 million,  an increase of 9.9% over 1996.
Funds from  operations  in 1996 totaled $4.5  million,  an increase of 0.5% over
1995 funds from operations of $4.4 million.

Capital Resources and Liquidity

Capital Resources

      Prior to acquiring our first apartment community, our capital requirements
were minimal,  as all capital costs related to the  restaurant  properties  were
borne by  Enterprises  under the terms of the master lease.  In order to acquire
our apartment communities and management operations, we incurred additional debt
and issued  additional  common stock.  The additional debt consists of first and
second  mortgages,  secured by the  acquired  apartment  communities,  and draws
against our credit lines.

      In 1997, we  reorganized  to an UPREIT  structure,  a structure  that many
REITs  currently  use.  UPREIT  stands for  "umbrella  partnership  real  estate
investment trust." An UPREIT is a real estate investment trust that controls and
holds  most of its  properties  through an  umbrella  limited  partnership.  The
umbrella  limited  partnership  in  our  UPREIT  is the  Operating  Partnership,
Boddie-Noell Properties Limited Partnership.

      Prior to the  reorganization,  most property owners who sold us properties
recognized gain on their sale.  However,  through our UPREIT  structure,  we can
acquire  properties in exchange for Operating  Partnership  units and trigger no
immediate tax obligations for certain sellers. We believe that our conversion to
an UPREIT will therefore enable us to acquire properties not otherwise available
or at lower prices because of the tax advantages to certain  property sellers of
receiving limited partnership interests instead of cash as consideration.

      In  December  1997,  we  completed  a common  stock  offering  and  issued
2,500,000  shares of common  stock.  In January  1998,  we issued an  additional
200,000 shares for the underwriters'  over-allotment  in this offering.  We used
proceeds of this offering to retire long-term debt (discussed below).

      We  issued  950,032  Operating  Partnership  units  in  December  1997  in
conjunction  with  the  acquisition  of four  apartment  communities,  and  have
deferred  issuing an additional  100,000 units until  December 1998, and 100,000
units until  December 1999 related to this  acquisition.  Under the terms of the
acquisition  agreement for these four communities and three communities that are
currently under construction,  we will issue up to 1.7 million units. Holders of
these  units will  generally  be able to redeem  their units for cash or, at our
option,  for shares of our common  stock on a  one-for-one  basis after one year
following issuance.

                                       21
<PAGE>

      In July 1996, we amended our Dividend Reinvestment and Stock Purchase Plan
("DRIP  Plan") to give us the option of  issuing  new  shares  directly  to Plan
participants.  The Plan allows  shareholders  to  reinvest  their  dividends  in
additional shares of our common stock and to make additional  investments of $25
to $10,000 per quarter  directly  with us.  During 1997 we issued  39,828 shares
through the DRIP Plan. During 1996 we issued 19,207 shares through the Plan.

      During 1997,  1996 and 1995,  we issued  80,750  shares of common stock as
additional consideration for the 1994 acquisition of BT Venture Corporation. The
earn-out period for this  acquisition  ended in September 1997. In January 1998,
we issued  43,438  shares of our common stock to the former  shareholders  of BT
Venture Corporation in final payment for additional consideration.

      In December 1997, we financed the purchase of four  apartment  communities
with  fixed  rate  first  deed of trust  loans  totaling  $38.1  million  and an
unsecured loan of $8.8 million. We applied proceeds of the common stock offering
to retire the $8.8 million  unsecured  loan,  to retire a $1.4 million  variable
rate second deed of trust, and to pay down $22.0 million of a fixed rate line of
credit with a bank.  In January  1998,  we applied $1.9 million  proceeds of the
common  stock  offering  underwriters'  over-allotment  proceeds  to pay off the
outstanding  balance  of the line of credit.  We are  currently  negotiating  to
increase  our line of credit  and to  convert  the loan to a  revolving  line of
credit.

      In February 1997, we entered into a participating  loan agreement with The
Villages of Chapel Hill Limited  Partnership.  Under the terms of the agreement,
we have  committed to loan The Villages up to $2.6 million to fund a substantial
rehabilitation  of its apartment  community.  We also  guaranteed a $1.5 million
bank loan. In exchange, we received or will receive the following:

     -control  over  selection  of  the  property   management  provider  (which
      currently is the Management Company);  
     -interest on our loan at the greater of 12.5% or the 30 day LIBOR rate 
      plus 6.125%;
     -25% of the increase in gross revenue in excess of $146,333 per month from 
      the property over the next seven years; and
     -25% of the value of the property in excess of $10.0 million at the earlier
      of the end of seven years or upon its sale.

      We will fund advances to the Villages  through draws on an existing credit
facility, which currently bears interest at the 30 day LIBOR rate plus 2.25% and
is  secured  by deeds of trust on three of our  apartment  communities.  Through
December  31,  1997,  we had advanced  The  Villages  $1.9  million.  Under this
arrangement,  we will earn  interest at a rate  higher  than we could  otherwise
obtain from the  investment of funds in the  ownership of apartment  communities
and at a rate in excess of our borrowing rate under our credit facility.

      During  1996,  we financed the  purchase of an  apartment  community  with
variable rate first and second deed of trust loans  totaling  $10.0 million (the
$1.4 million  second deed of trust loan was retired in 1997) and a $650,000 draw
from our line of credit.

      During 1995, we applied  $29.4  million  proceeds from fixed rate loans to
retire a mortgage  note and pay off  variable  rate  notes and a  variable  rate
revolving line of credit totaling $29.3 million.

                                       22
<PAGE>

      A summary of long-term  debt as of December 31, 1997 and 1996, is included
in the notes to the financial  statements in this Annual Report. At December 31,
1997,  total  long-term  debt was $93.4 million,  including  $76.0 million notes
payable at fixed interest  rates ranging from 6.97% to 8.55%,  and $17.4 million
at variable rates indexed on 30 day LIBOR rates.  The weighted  average interest
rate on debt  outstanding  was 7.6% at December  31,  1997,  compared to 8.0% at
December 31, 1996. A 1% increase in variable  interest  rates would increase our
annual  interest  expense by  approximately  $153,000,  while a 1%  decrease  in
variable rates would decrease our annual interest expense by $174,000.

      At December 31, 1997, we had a debt-to-total  market  capitalization ratio
of 50.6%  compared to 66.8% at  December  31,  1996.  The  debt-to-total  market
capitalization  ratio is defined  as total debt  divided by the sum of our total
debt  and the  market  value of our  outstanding  shares  of  common  stock  and
Operating Partnership units.

      We intend to pursue our growth  strategy  through the  utilization  of our
flexible capital structure. This may include the issuance of units, common stock
and/or  preferred  stock,  and additional debt. We may use our line or credit or
fixed-rate, long-term debt to acquire apartment communities.

Cash Flows and Liquidity

      We  capitalize  expenditures  if we make them to acquire a new  asset,  to
materially  enhance the value of an existing asset, or to  substantially  extend
the useful life of an existing asset. We generally funded additions to apartment
properties  from cash  provided by operating  activities  and proceeds of common
stock issued through our DRIP Plan.

      We paid  dividends of $0.31 per share per quarter in each quarter of 1997,
1996 and 1995.  Our dividend  payout ratio (the ratio of dividends paid to funds
from  operations) was 80.2% in 1997, 83.9% in 1996, and 83.8% in 1995. We intend
to pay  dividends  quarterly,  expect that these  dividends  will  substantially
exceed the 95%  distribution  requirement  for REITs,  and  anticipate  that all
dividends will be paid from current funds from operations.

Short- and Long-Term Liquidity Requirements

      A summary of scheduled principal payments on long-term debt is included in
the  notes  to the  financial  statements  in this  Annual  Report.  Significant
scheduled balloon payments include maturities of:

      -two loans payable to affiliates in May 1999 ($7.1 million);
      -our credit line in December 1999 ($1.9 million at December 31, 1997;
      subsequently reduced to $0 outstanding in January 1998); and
      -the note payable secured by a deed of trust on Latitudes in January 2000
      (balloon of approximately $12.5 million).

      We continue to produce  sufficient cash flow to fund our regular  dividend
and have positioned the Company for future growth.  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 



                                       23
<PAGE>

REIT operating requirements in both the short- 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
or long-term debt. We expect to meet our long-term liquidity requirements,  such
as scheduled debt  maturities and repayment of short-term  financing of possible
property  acquisitions,  through long-term secured and unsecured  borrowings and
the issuance of debt securities or additional equity  securities.  We believe we
have sufficient resources to meet our short-term liquidity requirements.

      We received  approximately  27.7% of our revenue in 1997 from Enterprises'
payment  of  rent  for  the  use  of our  restaurant  properties.  In  addition,
Enterprises is responsible for all of the costs  associated with the maintenance
and operations of these properties.

      Over time,  we expect  that  restaurant  rental  income  will  represent a
decreasing  percent  of  our  total  revenue.  However,  until  we are  able  to
substantially  increase our  apartment  portfolio  or dispose of the  restaurant
properties, restaurant rent will remain a significant portion of our revenue. As
a result,  Enterprises'  ability to meet its obligations  under the master lease
will have a  meaningful  impact on our  financial  well  being.  The  ability of
Enterprises  to satisfy  the  requirements  of the master  lease  depends on its
liquidity and capital resources. Historically, Enterprises has met its liquidity
needs through cash flow  generated from  operations and through  reliance on its
credit facility.

      Enterprises'  principal line of business is the operation of approximately
365 Hardee's  restaurants,  47 of which are owned by the Company.  The continued
decline  in  its  restaurant  sales  has  had  a  material  negative  impact  on
Enterprises'  operating  cash  flow.  We have  had  extensive  discussions  with
management of Enterprises and have reviewed  Enterprises'  financial statements,
cash flow analysis,  restaurant contribution analysis,  sales trend analysis and
projections.  We believe that  Enterprises  will have  sufficient  liquidity and
capital  resources  to meet its  obligations  under the master  lease and credit
facility as well as its general corporate operating needs.

      The table below shows  certain  information  with respect to the liquidity
and  capital   resources  of  Enterprises.   The  information  is  derived  from
Enterprises'  unaudited financial  statements for the fiscal year ended December
31,  1997.  Enterprises  is an S  Corporation  for federal and state  income tax
purposes;  therefore, its cash flow generated from operations does not include a
deduction for corporate income tax expense.

  Current assets                                               $  27,284,000
  Total assets                                                   265,172,000
  Current liabilities                                             30,771,000
  Total debt, including current portion of $5,400,000            116,895,000
  Shareholders' equity                                            89,392,000
  Net cash provided by operating activities                       15,753,000

Inflation

      We do not believe that inflation poses a material risk to the Company. The
leases at our apartment  properties  are  short-term in nature.  None are longer
than two years.  The  restaurant  properties  are leased on a triple-net  basis,
which places the risk of rising operating and maintenance costs on the lessee.

                                       24
<PAGE>

Environmental Matters

      Phase I environmental  studies performed on the apartment  communities did
not identify any problems that we believe would have a material  adverse  effect
on our results of  operations,  liquidity  or capital  resources.  Environmental
transaction  screens  for  each of the  restaurant  properties  in 1995  did not
indicate  existence  of  any  environmental   problems  that  warranted  further
investigation.   Enterprises  has  indemnified  us  for  environmental  problems
associated with the restaurant properties under the master lease.

Recently Issued Accounting Standards

      In 1997 the Financial  Accounting  Standards  Board issued  Statements No.
130, Reporting Comprehensive Income, and No. 131, "Disclosures About Segments of
an  Enterprise  and Related  Information."  These  Statements  are effective for
periods   beginning   after  December  15,  1997.   Statement  130   establishes
requirements  for  reporting  and  displaying   comprehensive   income  and  its
components.  Statement  131  establishes  standards  for  the  way  that  public
companies report information about operating segments and related information in
interim  and annual  financial  statements.  We expect  that  adoption  of these
statements will not have a material impact on our financial statements.


ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

      The  financial  statements  and  supplementary  data are listed under Item
14(a) and filed as part of this Annual Report on the pages indicated.


ITEM  9.  CHANGES  IN AND  DISAGREEMENTS  WITH  ACCOUNTANTS  ON  ACCOUNTING  AND
FINANCIAL DISCLOSURE

      Not applicable.

                                       25
<PAGE>


                                    PART III


ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

      The  section  under  the  heading  "Election  of  Directors"  of the Proxy
Statement  for Annual  Meeting of  Shareholders  to be held May 15,  1998,  (the
"Proxy  Statement")  is  incorporated  herein by reference  for  information  on
Directors  of the  Registrant.  See Item X in Part I of this  Annual  Report for
information regarding Executive Officers of the Registrant.


ITEM 11.  EXECUTIVE COMPENSATION

      The  section   under  the  heading   "Election  of   Directors"   entitled
"Compensation  of  Directors" of the Proxy  Statement  and the section  entitled
"Executive  Compensation"  of the Proxy  Statement  are  incorporated  herein by
reference.


ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

      The section under the heading  "Security  Ownership of Certain  Beneficial
Owners  and  Management"  of the  Proxy  Statement  is  incorporated  herein  by
reference.


ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

      The section entitled "Certain  Relationships and Related  Transactions" of
the Proxy Statement is incorporated herein by reference.


                                       26
<PAGE>

                                     PART IV


ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

(a) 1. and 2.  Financial Statements and Schedules

      The financial  statements and schedules  listed below are filed as part of
this Annual Report on the pages indicated.

                                       Index to Financial Statements
<TABLE>
<CAPTION>
                                                                                     Page
<S>                                                                                   <C>
Financial Statements and Notes:
   Reports of Independent Auditors                                                     31
   Consolidated Balance Sheets as of December 31, 1997 and 1996                        33
   Consolidated Statements of Operations for the Years Ended                           34
      December 31, 1997, 1996 and 1995
   Consolidated Statements of Shareholders' Equity for the Years Ended                 35
      December 31, 1997, 1996 and 1995
   Consolidated Statements of Cash Flows for the Years Ended                           36
      December 31, 1997, 1996 and 1995
   Notes to Consolidated Financial Statements                                          37
Schedules:
   Schedule III - Real Estate and Accumulated Depreciation                             49
</TABLE>

      The financial  statements  and schedules are filed as part of this report.
All other  schedules are omitted because they are not applicable or the required
information is included in the financial statements or notes thereto.

(a) 3.  Exhibits

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

 Exhibit No.

     2.1*      Master   Agreement  of  Merger  and   Acquisition  by  and  among
               Boddie-Noell  Properties,  Inc.,  Boddie-Noell Properties Limited
               Partnership,  Paul G.  Chrysson,  James G.  Chrysson,  W. Michael
               Gilley,  Matthews G. Gallins, James D. Yopp, and the partnerships
               and limited liability  companies listed therein,  dated September
               22,  1997  (filed as Exhibit 2.1 to  Registration  Statement  No.
               333-39803 on Form S-2, December 16, 1997, and incorporated herein
               by reference)
     2.2*      Exchange Option  Agreement by and among  Boddie-Noell  Properties
               Limited  Partnership,  Boddie-Noell  Properties,  Inc.,  and  the
               owners of the Chrysson  affiliates  listed  therein,  dated as of
               September  22,  1997  (filed  as  Exhibit  2.2  to   Registration
               Statement  No.  333-39803 on Form S-2,  December  16,  1997,  and
               incorporated herein by reference)

                                       27
<PAGE>


     2.3*      Amendment  to Master  Agreement of Merger and  Acquisition  dated
               September 22, 1997, by and among Boddie-Noell  Properties,  Inc.,
               Boddie-Noell  Properties Limited  Partnership,  Paul G. Chrysson,
               James G. Chrysson, W. Michael Gilley,  Matthew G. Gallins,  James
               D. Yopp, and the  partnerships  and limited  liability  companies
               listed  therein,  dated November 3, 1997 (filed as Exhibit 2.3 to
               Boddie-Noell  Properties,  Inc.  Current Report on Form 8-K dated
               December 1, 1997, and incorporated herein by reference)
     3.1*      Articles of  Incorporation  (filed as Exhibit 3.1 to Boddie-Noell
               Properties,  Inc.  Quarterly  Report on Form 10-Q for the quarter
               ended June 30, 1997, and incorporated herein by reference)
     3.2*      By-Laws (filed as Exhibit 3.2 to Registration Statement No. 
               333-39803 on Form S-2, December 16, 1997, and incorporated herein
               by reference)
    10.1*      Acquisition  Agreement  by  and  among  Boddie-Noell   Restaurant
               Properties,  Inc., BT Venture  Corporation  and Related  Entities
               dated June 7, 1994 (filed as an exhibit in Schedule  14A of Proxy
               Statement  dated  June  15,  1994,  and  incorporated  herein  by
               reference)
    10.2*      Amended and Restated Master Lease Agreement dated December 21, 
               1995, between Boddie-Noell Properties, Inc. and Boddie-Noell 
               Enterprises, Inc. (filed as Exhibit 10.1 to Boddie-Noell
               Properties, Inc. Annual Report on Form 10-K dated December 31,
               1995, and incorporated herein by reference)
    10.3*      Loan  Agreement  dated  December 27, 1995,  between  Boddie-Noell
               Properties,  Inc. and  SouthTrust  Bank of Alabama,  NA (filed as
               Exhibit 10.2 to  Boddie-Noell  Properties,  Inc. Annual Report on
               Form 10-K dated  December 31, 1995,  and  incorporated  herein by
               reference)
    10.4*      Loan  Agreement  as of  February  27,  1997,  by and  between The
               Villages  of Chapel Hill  Limited  Partnership  and  Boddie-Noell
               Properties, Inc. (filed as Exhibit 10 to Boddie-Noell Properties,
               Inc.  Quarterly  Report on Form 10-Q for the quarter  ended March
               31, 1997, and incorporated herein by reference)
    10.5*      Modification  to Loan  Agreement,  dated August 1, 1997,  between
               Boddie-Noell Properties,  Inc. and SouthTrust Bank of Alabama, NA
               (filed as Exhibit 10.8 to Registration Statement No. 333-39803 on
               Form  S-2,   December  16,  1997,  and  incorporated   herein  by
               reference)
    10.6*      Form of Agreement of Limited Partnership of Boddie-Noell
               Properties Limited Partnership (filed as Exhibit 10.9 to 
               Registration Statement No. 333-39803 on Form S-2, December 16,
               1997, and incorporated herein by reference)
    10.7*      Form of Registration Rights Agreement (filed as Exhibit 10.11 to
               Registration Statement No. 333-39803 on Form S-2, December 16, 
               1997, and incorporated herein by reference)
    10.8*      Boddie-Noell  Restaurant  Properties,  Inc. 1994 Stock Option and
               Incentive Plan  effective  August 4, 1994 (filed as an exhibit in
               Schedule  14A  of  Proxy  Statement  dated  June  15,  1994,  and
               incorporated herein by reference)
    10.9*      Form and description of Incentive Stock Option  Agreements  dated
               October 17, 1994, between the Company and certain officers (filed
               as Exhibit 10.8 to Boddie-Noell Properties, Inc. Annual Report on
               Form 10-K dated  December 31, 1994,  and  incorporated  herein by
               reference)
    10.10*     Form and  description  of  Nonqualified  Stock Option  Agreements
               dated October 17, 1994,  between the Company and certain officers
               (filed as Exhibit 10.9 to  Boddie-

                                       28
<PAGE>


               Noell  Properties,  Inc. Annual Report on Form 10-K dated 
               December  31, 1994,  and  incorporated herein by reference)
    10.11      Form and description of Incentive Stock Option  Agreements  dated
               April 1, 1997, between the Company and certain officers
    10.12      Form and  description  of  Nonqualified  Stock Option  Agreements
               dated April 1, 1997, between the Company and certain officers
    10.13      Amendment to Incentive Stock Option Agreement between the Company
               and W. Craig Worthy dated June 5, 1997
    10.14      Amendment to Nonqualified Stock Option Agreement between the 
               Company and W. Craig Worthy dated June 5, 1997
    10.15*     Form and  description  of  Employment  Agreements  dated July 15,
               1997,  between the Company and certain officers (filed as Exhibit
               10 to Boddie-Noell Properties, Inc. Quarterly Report on Form 10-Q
               for the quarter ended September 30, 1997, and incorporated herein
               by reference)
    21         Subsidiaries of the Registrant
    23.1       Consent of Ernst & Young LLP
    23.2       Consent of Arthur Andersen LLP
    27         Financial Data Schedule (electronic filing)

* Incorporated herein by reference

Exhibits 10.8 through 10.15 are management contracts or compensatory plans.

(b) Reports on Form 8-K.

      We filed a Current Report on Form 8-K dated December 1, 1997,  relating to
the acquisition of four apartment communities.


                                       29
<PAGE>

                                   SIGNATURES


Pursuant to the  requirements of Section 13 or 15(d) of the Securities  Exchange
Act of 1934,  the  Registrant  has duly  caused  this report to be signed on its
behalf by the undersigned, thereunto duly authorized.

                                            BODDIE-NOELL PROPERTIES, INC.



Date:  March 24, 1998                       /s/ Philip S. Payne
                                            Philip S. Payne
                                            Executive Vice President and
                                            Chief Financial Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed by the following  persons on behalf of the registrant and in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>

Signature:                          Title:                                      Date:
<S>                                <C>                                         <C>
/s/ D. Scott Wilkerson              President and Chief Executive               March 24, 1998
D. Scott Wilkerson                  Officer, Director

/s/ Philip S. Payne                 Executive Vice President, Treasurer         March 24, 1998
Philip S. Payne                     and Chief Financial Officer, Director

/s/ Pamela B. Novak                 Vice President, Controller                  March 24, 1998
Pamela B. Novak                     and Chief Accounting Officer

/s/ B. Mayo Boddie                  Chairman of the Board of Directors          March 24, 1998
B. Mayo Boddie

/s/ Paul G. Chrysson                Director                                    March 24, 1998
Paul G. Chrysson

/s/ W. Michael Gilley               Director                                    March 24, 1998
W. Michael Gilley

/s/ Donald R. Pesta, Jr.            Director                                    March 24, 1998
Donald R. Pesta, Jr.

/s/ William H. Stanley              Director                                    March 24, 1998
William H. Stanley
</TABLE>

                                       30
<PAGE>










                         Report of Independent Auditors



Board of Directors and Stockholders
Boddie-Noell Properties, Inc.


We have audited the  accompanying  consolidated  balance sheets of  Boddie-Noell
Properties,  Inc. as of December 31, 1997 and 1996, and the related consolidated
statements of operations, shareholders' equity and cash flows for the years then
ended. Our audits also included the financial  statement  schedule as of and for
the years  ended  December  31, 1997 and 1996 listed in the Index at Item 14(a).
These financial  statements and schedule are the responsibility of the Company's
management.  Our  responsibility  is to express  an  opinion on these  financial
statements and schedule based on our audits.

We  conducted  our  audits  in  accordance  with  generally   accepted  auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management as well as evaluating the overall financial  statement  presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated  financial statements referred to above present
fairly,  in all  material  respects,  the  financial  position  of  Boddie-Noell
Properties,  Inc.  as of  December  31,  1997 and 1996  and the  results  of its
operations  and its cash  flows  for the years  then  ended in  conformity  with
generally  accepted  accounting  principles.  Also, in our opinion,  the related
financial statement schedule as of and for the years ended December 31, 1997 and
1996 when  considered in relation to the basic financial  statements  taken as a
whole, presents  fairly  in all  material  respects  the  information  set forth
therein.


                                                   /s/ Ernst & Young LLP
                                                   ERNST & YOUNG LLP

Raleigh, North Carolina
January 9, 1998



                                       31
<PAGE>





Report of Independent Public Accountants



To the Shareholders of
Boddie-Noell Properties, Inc.:

We have audited the accompanying statements of operations, shareholders' equity
and cash flows of Boddie-Noell Properties, Inc. (a Delaware corporation) for the
year ended December 31, 1995. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audit.

We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the results of operations and cash flows of Boddie-Noell
Properties, Inc. for the year ended December 31, 1995, in conformity with
generally accepted accounting principles.



                                                      /s/ Arthur Andersen LLP


Charlotte, North Carolina,
   January 31, 1996.



                                       32
<PAGE>


BODDIE-NOELL PROPERTIES, INC.
-------------------------------------------------------------------------------
Consolidated Balance Sheets

<TABLE>
<CAPTION>
                                                                                            December 31
                                                                                      1997               1996
                                                                               ------------------- ------------------
<S>                                                                               <C>                <C>   
Assets
Real estate investments at cost:
   Apartment properties                                                            $128,049,529        $ 66,610,048
   Restaurant properties                                                             43,205,075          43,205,075
                                                                               ------------------- ------------------
                                                                                    171,254,604         109,815,123
   Less accumulated depreciation                                                    (14,146,933)        (11,461,365)
                                                                               ------------------- ------------------
                                                                                    157,107,671          98,353,758
Cash and cash equivalents                                                             2,458,565             842,604
Rent and other receivables                                                               65,537              12,695
Prepaid expenses and other assets                                                       757,567             392,302
Investment in and advances to Management Company                                        214,761             261,598
Notes receivable                                                                      1,909,007                   -
Other assets, net of accumulated amortization:
   Intangible related to acquisition of management operations                         2,739,888           2,744,912
   Deferred financing costs                                                             858,687             828,113
                                                                               ------------------- ------------------
Total assets                                                                       $166,111,683        $103,435,982
                                                                               =================== ==================

Liabilities and Shareholders' Equity
Mortgage and other notes payable                                                   $ 86,380,177        $ 70,295,957
Notes payable to affiliates                                                           7,056,300           7,056,300
Accounts payable and accrued expenses                                                   290,303              15,549
Accrued interest on mortgage and other notes payable                                    509,517             335,871
Accrued interest on notes payable to affiliates                                         130,522             125,518
Additional consideration due for acquisitions                                         3,172,136             355,570
Escrowed security deposits and deferred revenue                                         442,096             348,779
                                                                               ------------------- ------------------
                                                                                     97,981,051          78,533,544
Minority interest in operating partnership                                           12,345,663                   -
Shareholders' equity:
Common stock, $.01 par value,  100,000,000 shares  authorized,  5,630,775 shares
   issued and outstanding at December 31, 1997,
   3,074,647 shares issued and outstanding at December 31, 1996                          56,308              30,746
Additional paid-in capital                                                           67,503,012          34,522,816
Dividend distributions in excess of net income                                      (11,774,351)         (9,651,124)
                                                                               ------------------- ------------------
Total shareholders' equity                                                           55,784,969          24,902,438
                                                                               ------------------- ------------------
Total liabilities and shareholders' equity                                         $166,111,683        $103,435,982
                                                                               =================== ==================
</TABLE>


See accompanying notes.


                                       33
<PAGE>

BODDIE-NOELL PROPERTIES, INC.
-------------------------------------------------------------------------------
Consolidated Statements of Operations
<TABLE>
<CAPTION>

                                                                               Years ended December 31
                                                                       1997             1996              1995
                                                                 ----------------- ---------------- -----------------
<S>                                                                 <C>               <C>              <C>
Revenues
Apartment rental income                                              $11,196,762       $ 9,790,713      $ 8,476,268
Restaurant rental income                                               4,500,000         4,500,000        4,649,250
Management fees                                                                -                 -          514,872
Equity in income of Management Company                                   209,867           149,298           48,063
Interest and other income                                                345,002            67,813           37,185
                                                                 ----------------- ---------------- -----------------
                                                                      16,251,631        14,507,824       13,725,638

Expenses
Depreciation                                                           2,685,718         2,440,417        2,204,199
Amortization                                                             580,344           534,663          405,182
Apartment operations                                                   3,545,555         2,976,876        2,480,920
Administrative                                                         1,000,302           894,360        1,323,232
Interest on notes payable to affiliates                                  510,731           499,676          540,572
Interest - other                                                       5,976,127         5,446,017        4,821,865
Write-off of deferred acquisition costs                                        -                 -          321,400
                                                                 ----------------- ---------------- -----------------
                                                                      14,298,777        12,792,009       12,097,370
                                                                 ----------------- ---------------- -----------------
Income before minority interest and extraordinary item                 1,952,854         1,715,815        1,628,268
Minority interest in operating partnership                                39,407                 -                -
                                                                 ----------------- ---------------- -----------------
Income before extraordinary item                                       1,913,447         1,715,815        1,628,268
Extraordinary item - loss on early extinguishment of debt                182,999                 -                -
                                                                 ----------------- ---------------- -----------------
Net income                                                           $ 1,730,448       $ 1,715,815      $ 1,628,268
                                                                 ================= ================ =================

Per share data:
Basic earnings per share --
   Income before extraordinary item                                  $      0.60       $      0.57      $      0.54
   Extraordinary item                                                      (0.06)                -                -
                                                                 ----------------- ---------------- -----------------
   Net income                                                        $      0.54       $      0.57      $      0.54
                                                                 ================= ================ =================
Diluted earnings per share --
   Income before extraordinary item                                  $      0.59       $      0.56      $      0.54
   Extraordinary item                                                      (0.07)                -                -
                                                                 ----------------- ---------------- -----------------
   Net income                                                        $      0.52       $      0.56      $      0.54
                                                                 ================= ================ =================
Dividends declared                                                   $      1.24       $      1.24      $      1.24
                                                                 ================= ================ =================
Weighted average shares outstanding                                    3,180,266         3,026,901        3,005,809
                                                                 ================= ================ =================

</TABLE>

See accompanying notes.



                                       34
<PAGE>

BODDIE-NOELL PROPERTIES, INC.
-------------------------------------------------------------------------------
Consolidated Statements of Shareholders' Equity
<TABLE>
<CAPTION>

                                                                                        Dividend
                                                                      Additional     distributions
                                             Common Stock               paid-in       in excess of
                                        Shares         Amount           capital        net income         Total
                                     ------------- ---------------- ---------------- --------------- ----------------
<S>                                     <C>             <C>          <C>             <C>              <C>
Balance at December 31, 1994             2,990,990       $29,910      $33,452,611     $ (5,514,612)    $27,967,909
Common stock issued                         25,750           257          332,724                -         332,981
Dividends paid                                   -             -                -       (3,729,220)     (3,729,220)
Net income                                       -             -                -        1,628,268       1,628,268
                                     ------------- ---------------- ---------------- --------------- ----------------
Balance at December 31, 1995             3,016,740        30,167       33,785,335       (7,615,564)     26,199,938
Common stock issued                         57,907           579          737,481                -         738,060
Dividends paid                                   -             -                -       (3,751,375)     (3,751,375)
Net income                                       -             -                -        1,715,815       1,715,815
                                     ------------- ---------------- ---------------- --------------- ----------------
Balance at December 31, 1996             3,074,647        30,746       34,522,816       (9,651,124)     24,902,438
Common stock issued                      2,556,128        25,562       32,980,196                -      33,005,758
Dividends paid                                   -             -                -       (3,853,675)     (3,853,675)
Net income                                       -             -                -        1,730,448       1,730,448
                                     ------------- ---------------- ---------------- --------------- ----------------
Balance at December 31, 1997             5,630,775       $56,308      $67,503,012     $(11,774,351)    $55,784,969
                                     ============= ================ ================ =============== ================
</TABLE>

See accompanying notes.


                                       35
<PAGE>


BODDIE-NOELL PROPERTIES, INC.
-------------------------------------------------------------------------------
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>

                                                                                Years ended December 31
                                                                        1997             1996              1995
                                                                   ---------------- ---------------- -----------------
<S>                                                                <C>             <C>                <C>
Operating activities
Net income                                                          $  1,730,448    $   1,715,815      $   1,628,268
Adjustments to reconcile net income to
   net cash provided by operating activities:
   Extraordinary item - loss on early extinguishment of debt             182,999                -                  -
   Minority interest in operating partnership                             39,407                -                  -
   Equity in income of Management Company                               (209,867)        (149,298)           (48,063)
   Depreciation and amortization                                       3,266,062        2,975,080          2,609,381
   Write-off of deferred costs                                                 -                -            359,123
   Changes in operating assets and liabilities:
      Rent and other receivables                                         (52,842)         232,122            248,489
      Prepaid expenses and other assets                                 (193,270)         (58,783)           (66,088)
      Accounts payable and accrued expenses                              318,405          (54,574)          (204,726)
      Security deposits and deferred revenue                             (75,281)         139,941            (50,656)
                                                                   ---------------- ---------------- -----------------
Net cash provided by operating activities                              5,006,061        4,800,303          4,475,728

Investing activities
Acquisitions of apartment properties                                 (45,772,106)     (10,666,580)                 -
Additions to apartment properties                                       (667,108)        (561,114)          (525,516)
Payment of deferred acquisition costs                                          -                -           (156,401)
Investment in Management Company                                               -             (165)                 -
Dividends received from Management Company                               153,307          158,293                  -
Repayment from (advances to) Management Company                          100,000           50,000           (150,000)
Investment in notes receivable                                        (1,909,007)               -                  -
                                                                   ---------------- ---------------- -----------------
Net cash used in investing activities                                (48,094,914)     (11,019,566)          (831,917)

Financing activities
Net proceeds from issue of common stock                               32,932,322          243,628                  -
Payment of dividends                                                  (3,853,675)      (3,751,375)        (3,729,220)
Proceeds from notes payable                                           48,765,007       10,650,000         33,925,000
Principal payments on notes payable                                  (32,680,787)        (459,528)       (33,646,771)
Payment of deferred financing costs                                     (458,053)        (321,721)          (444,320)
                                                                   ---------------- ---------------- -----------------
Net cash provided by (used in) financing activities                   44,704,814        6,361,004         (3,895,311)
                                                                   ---------------- ---------------- -----------------

Net increase (decrease) in cash and cash equivalents                   1,615,961          141,741           (251,500)
Cash and cash equivalents at beginning of year                           842,604          700,863            952,363
                                                                   ---------------- ---------------- -----------------

Cash and cash equivalents at end of year                            $  2,458,565    $      842,604     $     700,863
                                                                   ================ ================ =================
</TABLE>

See accompanying notes.

                                       36
<PAGE>


BODDIE-NOELL PROPERTIES, INC.
-------------------------------------------------------------------------------
Notes to Consolidated Financial Statements
December 31, 1997


Note 1.  Summary of Significant Accounting Policies

Basis of presentation
      The consolidated financial statements include the accounts of Boddie-Noell
Properties, Inc. (the "Company") and Boddie-Noell Properties Limited Partnership
(the  "Operating  Partnership").  The Company is the general  partner and owns a
majority  interest in the Operating  Partnership.  All significant  intercompany
balances and  transactions  have been eliminated in the  consolidated  financial
statements.

      We are a  self-administered  and self-managed real estate investment trust
("REIT")  that owns and operates  apartment  communities  in North  Carolina and
Virginia. We own nine apartment communities containing 2,208 apartments and have
the right to acquire three  additional  apartment  communities,  containing  476
apartment  units,  which  are  currently  under  construction.  We  also  own 47
restaurant  properties,  which  we  lease  to  Boddie-Noell  Enterprises,   Inc.
("Enterprises") under a master lease on a triple-net basis.

      The  Company has a 1% voting  interest  and 95%  economic  interest in BNP
Management,  Inc. (the "Management Company"). We use the equity method to record
this  investment.  The Management  Company manages seven apartment  communities,
containing  1,495 apartment  units,  and two shopping  centers that are owned by
other parties.

UPREIT Structure
      In 1997 we  converted  to an UPREIT  structure  where the  Company  is the
Operating  Partnership's  sole  general  partner.  UPREIT  stands for  "umbrella
partnership  real  estate  investment  trust." We  contributed  our real  estate
properties and all other assets and liabilities to a limited  liability  company
wholly owned by the Operating Partnership in exchange for ownership units of the
Operating  Partnership.  We currently own approximately 85% of the units.  Other
unitholders  will  generally  be able to redeem  their units for cash or, at our
option as  general  partner,  for  shares of common  stock of the  Company  on a
one-for-one basis. UPREITs are structured so that distributions of cash from the
Operating  Partnership  are  allocated  between  the REIT and the other  limited
partners based on their respective unit ownership.

Real Estate Investments
      Real estate investments are stated at cost less accumulated  depreciation.
We compute depreciation using the straight-line method over the 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 carpet and
vinyl  replacements.  We  expense  ordinary  repairs  and  maintenance  costs at
apartment communities.  We capitalize significant improvements,  renovations and
replacements  at apartment  communities.  Costs of repairs and  maintenance  and
capital improvements at restaurant properties are borne by Enterprises.

Cash and Cash Equivalents
      We consider all highly liquid  investments with maturities of three months
or less when purchased to be cash equivalents.

                                       37
<PAGE>

Deferred Costs
      We amortize the intangible  asset related to the acquisition of management
operations  using  the   straight-line   method  over  ten  years.   Accumulated
amortization  on this asset was $1,010,000 at December 31, 1997, and $630,000 at
December 31, 1996.

      We defer  costs  incurred  in  connection  with  proposed  acquisition  of
properties and stock offerings until the proposed  transactions are consummated.
If we determine that the proposed  transaction is not probable,  we charge these
costs to expense.

      We defer financing costs and amortize them using the straight-line  method
over the terms of the  related  notes.  If we pay down or pay off notes prior to
their  maturity,   we  write  off  the  related  unamortized   financing  costs.
Accumulated  amortization on these assets was $221,000 at December 31, 1997, and
$280,000 at December 31, 1996.

Advertising Costs
      We expense  advertising  costs as they are incurred.  Advertising  expense
totaled $101,000 in 1997, $61,000 in 1996, and $43,000 in 1995.

Income Taxes
      We operate as, and elect to be taxed as, a REIT under the Internal Revenue
Code.  Accordingly,  we will not be subject to federal or state  income taxes on
amounts distributed to shareholders,  provided we distribute at least 95% of our
REIT taxable  income and meet certain  other  requirements  for  qualifying as a
REIT. We have made no provision for federal or state income taxes.

Earnings Per Share
      We calculate  earnings per share based on the weighted  average  number of
shares outstanding during each year.

New Accounting Pronouncements
      In 1997 the Financial Accounting Standards Board issued Statement No. 128,
Earnings Per Share.  Statement 128 replaced the calculation of primary and fully
diluted  earnings  per share with basic and diluted  earnings  per share.  Basic
earnings per share,  unlike  primary  earnings per share,  excludes any dilutive
effects of options,  warrants and convertible  securities.  Diluted earnings per
share is calculated  using the weighted average number of shares of common stock
and  the  dilutive  effect  of  options,  warrants  and  convertible  securities
outstanding, using the treasury stock method. We have presented all earnings per
share  amounts for 1997,  1996 and 1995,  and we have restated the 1996 and 1995
earnings per share amounts to conform to the Statement 128 requirements.

      In 1997 the Financial Accounting Standards Board also issued Statement No.
129,   Disclosure  of  Information  about  Capital   Structure.   Statement  129
establishes  standards  for  disclosing  information  about an entity's  capital
structure.  Adoption  of this  Statement  did not impact our  capital  structure
disclosures.

      In 1997 the Financial  Accounting  Standards  Board issued  Statements No.
130, Reporting Comprehensive Income, and No. 131, "Disclosures About Segments of
an  Enterprise  and Related  Information."  These  Statements  are effective for
periods   beginning   after  December  15,  1997.   Statement  130   establishes
requirements  for  reporting  and  displaying   comprehensive   income  and  its
components.  Statement  131  establishes  standards  for  the  way  that  public
companies report information about operating segments and related information in
interim  and annual  financial  statements.  We expect  that  adoption  of these
statements will not have a material impact on our financial statements.

                                       38
<PAGE>

Fair Values of Financial Instruments
      The  carrying  amount  reported  on the  balance  sheet  for cash and cash
equivalents  approximates  fair value.  We estimate the fair value of fixed rate
mortgage  notes and variable  rate notes using  discounted  cash flow  analysis,
based on our current incremental  borrowing rates. The carrying amounts reported
on the balance sheet for notes  receivable  and notes payable  approximate  fair
value.

Use of Estimates
      We are required to make estimates and assumptions  that affect the amounts
reported in the financial  statements and accompanying notes in order to prepare
them in accordance with generally accepted accounting  principles.  Depreciation
amounts included in these financial  statements reflect our estimate of the life
and related depreciation rates for rental properties.  In addition, the carrying
amount of the intangible  asset related to acquisition of management  operations
reflects our evaluation of the  continuing  value and useful life of this asset.
Actual results could differ from these estimates.

Reclassifications
      Certain amounts in the 1995 financial statements have been reclassified to
conform to the 1997 and 1996 presentation. These reclassifications had no effect
on net income or shareholders' equity as previously reported.

Note 2.  Real Estate Investments

      Real estate investments consist of the following:
<TABLE>
<CAPTION>

                                                                               1997              1996
                                                                         ----------------- -----------------
<S>                                                                      <C>                <C>
Apartment properties
   Land                                                                   $  13,222,291      $  7,892,291
   Buildings and land improvements                                          105,493,497        56,152,512
   Fixtures, equipment and other personal property                            9,333,741         2,565,245
   less accumulated depreciation                                             (5,811,512)       (3,904,353)
                                                                         ----------------- -----------------
                                                                            122,238,017        62,705,695
Restaurant properties
   Land                                                                      12,068,737        12,068,737
   Buildings and land improvements                                           31,136,338        31,136,338
   less accumulated depreciation                                             (8,335,421)       (7,557,012)
                                                                         ----------------- -----------------
                                                                             34,869,654        35,648,063
                                                                         ----------------- -----------------
                                                                          $ 157,107,671      $ 98,353,758
                                                                         ================= =================
</TABLE>

      On April 29,  1996,  we  acquired  Paces  Village  Apartments  for a total
purchase cost of $10,667,000.  We financed the purchase  primarily  through bank
and mortgage borrowings. The results of operations of Paces Village are included
in the financial statements from April 29, 1996.

      On December 1, 1997, we acquired  Abbington Place Apartments,  Pepperstone
Apartments,  Savannah Place  Apartments,  and Waterford  Place  Apartments for a
total purchase cost of $60,723,000.  These  properties are part of a contract to
acquire a  portfolio  of seven  multifamily  properties.  We  acquired  the four
apartment  communities through issuance of Operating  Partnership units and cash
payments to retire  existing  debt.  We financed the purchase  through  mortgage
borrowings.  The results of 



                                       39
<PAGE>

operations  of these four  apartment  communities  are included in the financial
statements from December 1, 1997.

      The following unaudited pro forma summary information does not include the
operations,  depreciation,  or financing  expense for Waterford Place Apartments
and the second  phase of  Abbington  Place  Apartments  until  these  properties
reached   "stabilized"  status  in  October  1997.  An  apartment  community  is
considered  stabilized when construction of all buildings has been completed and
the community  has attained 90%  occupancy  for 90 days.  Under the terms of the
acquisition agreement for these properties and the financing for their purchase,
these  conditions  must be met before purchase of the property.  Otherwise,  the
unaudited pro forma summary information presents the results of operations as if
the  acquisitions  described  above  had  occurred  on  January  1 of each  year
presented. These pro forma amounts may not represent how we would have performed
if these purchases had really occurred on those dates. In addition,  they do not
purport to project our results of operations for any future period.

                                               1997              1996
                                         ----------------- -----------------

Total revenue                                 $20,788,000       $19,445,000
Income before extraordinary item                2,249,000         1,898,000
Net income                                      2,066,000         1,898,000
Earnings per share                                   0.68              0.63

Note 3.  Notes Payable

      Notes payable consist of the following:
<TABLE>
<CAPTION>

                                                                                         1997              1996
                                                                                   ----------------- -----------------
<S>                                                                                  <C>               <C>
Note payable to a bank in the  principal sum of up to  $25,500,000  due December
1999,  interest  on the  outstanding  principal  balance  payable  monthly at an
effective rate of 8.11%,  secured by deeds of trust on 47 restaurant  properties
and assignment of rents for those restaurants. The principal balance of the loan
may be prepaid, in whole or part, subject to certain restrictions and penalties.
In December 1997 we prepaid $22,000,000 of the outstanding  balance. At December
31, 1997, up to $1,600,000 additional funds were available.                           $ 1,900,000       $23,900,000

Fixed  rate  notes  payable   comprised  of  four  loans,   payable  in  monthly
installments totaling approximately $287,000 including principal and interest at
rates  ranging  from  7.86%  to  8.55%,  with  maturities  in 2000  (balloon  of
approximately   $12,500,000)  through  2025.  Secured  by  deeds  of  trust  and
assignments of rents of four apartment communities.                                    36,024,379        36,441,534

Fixed rate notes payable  comprised of four loans,  interest at 6.97% payable in
monthly installments  totaling  approximately  $243,000,  with maturity in 2007.
Secured by deeds of trust and assignments of rents of four apartment communities.      38,070,500                 -

                                       40
<PAGE>

Variable rate note payable to a bank in the principal amount of up to $2,625,000
due May 1999, interest on the outstanding principal balance at 30-day LIBOR plus
2.25% (8.15% at December 31, 1997)  payable  monthly.  Secured by deeds of trust
and assignments of rents of three apartment communities.                                1,909,007                 -

Variable  rate note  payable  due in 2002,  payable in monthly  installments  of
$6,511 principal plus interest at 30-day LIBOR plus 1.75% (7.65% at December 31,
1997). Secured by deeds of trust and assignment of rents of three apartment 
communities.                                                                            8,476,291         8,554,423

Variable rate note payable, interest at 30-day LIBOR plus 2.25% payable monthly,
principal due in 1999, repaid in full December 1997.                                            -         1,400,000

Variable rate notes  payable to affiliates  comprised of two loans due May 1999,
interest at the lower of 30-day LIBOR plus 1.50% (7.25% at December 31, 1997) 
or 8%, payable quarterly.                                                                7,056,300         7,056,300
                                                                                    ----------------- -----------------
                                                                                       $93,436,477       $77,352,257
                                                                                    ================= =================
</TABLE>

      As of December 31, 1997,  scheduled  principal payments were approximately
as follows:  1998 - $531,000;  1999 - $11,436,000;  2000 -  $12,857,000;  2001 -
$389,000; 2002 - $415,000; thereafter - $67,808,000.

      In August 1997, we modified the loan agreement for the  $25,500,000  fixed
rate note payable to extend its maturity to December 1999. In  conjunction  with
this  modification,  we paid and  recorded  $42,000 in deferred  loan costs.  In
December  1997,  we financed  the  purchase  of  Abbington  Place,  Pepperstone,
Savannah Place, and Waterford Place Apartments through first deed of trust loans
totaling  $38,070,500  and an  unsecured  loan in the amount of  $8,785,500.  In
conjunction with these  transactions,  we paid and recorded $416,000 in deferred
loan costs in 1997.

      Also in December  1997, we applied  proceeds of a common stock offering to
retire the  $8,785,500  unsecured  loan,  to retire a $1,400,000  variable  rate
second deed of trust, and to pay down $22,000,000 of the $25,500,000  fixed rate
note payable to a bank.  In  conjunction  with these  prepayments,  we wrote off
unamortized  loan costs of $227,000 in 1997. We have reflected  this  write-off,
net  of  minority   interests'   share,  in  the  financial   statements  as  an
extraordinary item.

      In  January  1998,  we applied  $1,900,000  proceeds  of the common  stock
offering underwriters'  over-allotment option to pay off the outstanding balance
of the $25,500,000 fixed rate note payable to a bank.

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

      During  December  1995,  we applied  $29,425,000  proceeds from fixed rate
loans to retire a fixed  rate  mortgage  note and pay off  variable  rate  notes
payable and a variable  rate  revolving  line of credit  totaling  approximately
$29,250,000.  In  conjunction  with  these  transactions,  we paid and  recorded
deferred  loan 



                                       41
<PAGE>

costs of $183,000 in 1996 and $266,000 in 1995.  Also, in conjunction with these
refinancing  transactions,  we wrote off unamortized loan costs of approximately
$38,000 in 1995.

      Interest payments were as follows:

                                       1997            1996            1995
                                 --------------- --------------- ---------------

Payments to affiliates             $   505,728     $   506,389     $   530,733
Payments to other lenders            5,799,841       5,379,519       4,810,067
                                 --------------- --------------- ---------------
                                    $6,305,569      $5,885,908      $5,340,800
                                 =============== =============== ===============

      The  loan  agreement  related  to the  note  payable  to a  bank  includes
covenants and restrictions relating to, among other things,  specified levels of
debt  service  coverage,  leverage  and net  worth.  To  date,  we have  met all
applicable requirements.

Note 4.  Shareholders' Equity

Authorized Capital Stock
      Our bylaws and certificate of  incorporation  allow the Board of Directors
to  authorize  the  issuance  of up to  100,000,000  shares of common  stock and
10,000,000 shares of preferred stock,  issuable in series whose  characteristics
would be set by the Board of Directors. No preferred shares have been authorized
or issued.

      Approximately 2,300,000 authorized shares of common stock are reserved for
future issuance under the Company's  Stock Option and Incentive  Plan,  Dividend
Reinvestment   and  Stock   Purchase  Plan,  and  for  conversion  of  Operating
Partnership units issued for acquisitions of apartment communities.

Common Stock Offering
      In  December  1997,  we  completed  a common  stock  offering  and  issued
2,500,000  shares of common stock at a price of $14.125 per share.  Net proceeds
of  the  offering  were   approximately   $32,261,000.   In  January  1998,  the
underwriters  exercised their  over-allotment  option for 200,000 shares, and we
received additional proceeds of $2,627,000.

Earnings per Common Share
      We  calculated  basic and diluted  earnings per share using the  following
amounts:
<TABLE>
<CAPTION>

                                                             1997              1996              1995
                                                       ----------------- ----------------- -----------------
<S>                                                      <C>               <C>               <C>
Numerators:
Numerator for basic earnings per share -
   Income before extraordinary item                       $1,913,447        $1,715,815        $1,628,268
   Extraordinary item                                       (182,999)                -                 -
                                                       ----------------- ----------------- -----------------
   Net income                                             $1,730,448        $1,715,815        $1,628,268
                                                       ================= ================= =================
Numerator for diluted earnings per share -
   Income before extraordinary item (1)                   $1,952,854        $1,715,815        $1,628,268
   Extraordinary item (1)                                   (227,000)                -                 -
                                                       ----------------- ----------------- -----------------
   Net income (1)                                         $1,725,854        $1,715,815        $1,628,268
                                                       ================= ================= =================

                                       42
<PAGE>

Denominators:
Denominator for basic earnings per share -
   weighted average shares outstanding                     3,180,266         3,026,901         3,005,809
Effect of dilutive securities:
   Contingent stock - acquisition                             29,234            33,519             3,459
   Convertible Operating Partnership units                    80,688                 -                 -
   Stock options (2)                                          24,968             2,362                 -
                                                       ----------------- ----------------- -----------------
   Dilutive potential common stock                           134,890            35,881             3,459
                                                       ----------------- ----------------- -----------------
Denominator for diluted earnings per share -
   adjusted weighted average shares and
   assumed conversions                                     3,315,156         3,062,782         3,009,268
                                                       ================= ================= =================
<FN>
(1) Assumes conversion of Operating Partnership units to common shares; minority
interest  in  income  before   extraordinary   item  and  minority  interest  in
extraordinary item have been eliminated.  
(2)  Options  to  purchase  160,000  shares  of  common  stock  at  $13.75  were
outstanding  during  1995 but were not  included in the  calculation  of diluted
earnings  per share  because the  options'  exercise  price was greater than the
average   market  price  of  the  common   shares,   and  the  effect  would  be
anti-dilutive.
</FN>
</TABLE>

Dividend Payments
      We paid dividend  distributions totaling $1.24 per share during 1997, 1996
and 1995.  The  allocation  between  non-taxable  return of capital  and taxable
ordinary dividend income to shareholders was as follows.

                                             1997      1996      1995
                                          --------- --------- ----------

Non-taxable return of capital                45.8%     43.7%     51.8%
Taxable ordinary dividend income             54.2%     56.3%     48.2%

      The Board of Directors  declared a regular quarterly  dividend of $.31 per
share on January 13,  1998,  payable on February 16, 1998,  to  shareholders  of
record on January 30, 1998.

Dividend Reinvestment and Stock Purchase Plan
      In July 1996, we amended the  Company's  Dividend  Reinvestment  and Stock
Purchase Plan ("DRIP Plan") to allow the Company, at its option, to issue shares
directly to Plan participants.  We issued 39,828 shares through the DRIP Plan in
1997. We issued 19,207 shares through the DRIP plan in 1996.

Stock Option and Incentive Plan
      In 1995, the Financial  Accounting  Standards  Board issued  Statement No.
123,  Accounting  for  Stock-Based  Compensation,  which  established  financial
accounting  and  reporting  standards for  stock-based  compensation  plans.  As
permitted by the statement,  we continue to measure  compensation cost for stock
option plans in  accordance  with  Accounting  Principles  Board Opinion No. 25,
Accounting for Stock Issued to Employees.  Accordingly, no compensation cost has
been recognized for our fixed stock option plans. Had we determined compensation
cost for our fixed stock  option  plans  consistent  with the fair value  method
outlined in  Statement  No. 123,  the impact on our net income and  earnings per
share would not have been material.

                                       43
<PAGE>

      In 1994, we  established an employee Stock Option and Incentive Plan under
which 280,000  shares of the  Company's  common stock are reserved for issuance.
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.  Options are
generally  exercisable in four annual installments  beginning one year after the
date of grant, and expire 10 years after the date of grant.

      The following table summarizes information about stock options outstanding
at December 31, 1997:
<TABLE>
<CAPTION>

                                          Weighted Average
                                             Remaining
                                            Contractual        Number of         Number of
                                            Life (Years)        Options           Options
                                                              Outstanding       Exercisable
                                          ----------------- ----------------- -----------------
<S>                                               <C>            <C>               <C>
Exercise price $12.25 per share                    9.3            110,000                 -
Exercise price $12.50 per share                    6.8            140,000           112,500
                                                            ----------------- -----------------
                                                   7.9            250,000           112,500
                                                            ================= =================
</TABLE>

      We  calculated  the fair value of each  option  grant on the date of grant
using the Black-Scholes  option-pricing model. We used the following assumptions
to estimate the fair value of options granted. No options were granted in 1995.

                                                   1997             1996*
                                             ----------------- -----------------

Exercise price                                      $12.25             $12.50
Dividend yield                                       10.12%              9.92%
Expected volatility                                   0.144              0.088
Risk-free interest rate                               6.76%              6.55%
Expected life of options                         10 years         8.75 years

*Options originally granted in 1994 at $13.75 per share, repriced in 1996

      Changes in outstanding stock options were as follows:
<TABLE>
<CAPTION>

                                                  1997                       1996
                                                       Weighted                   Weighted
                                                        Average                    Average
                                                       Exercise                   Exercise
                                           Shares        Price        Shares        Price
                                        ------------- ------------ ------------- ------------
<S>                                       <C>            <C>          <C>           <C>
Beginning balance                          150,000        $12.50       160,000       $12.50
Granted                                    110,000         12.25             -         -
Exercised                                        -          -                -         -
Repurchased                                (10,000)        12.50             -         -
Forfeited                                        -          -          (10,000)        -
                                        ------------- ------------ ------------- ------------
Ending balance                             250,000        $12.39       150,000       $12.50
                                        ============= ============ ============= ============
Exercisable at the end of
the year                                   112,500        $12.50        75,000       $12.50
                                        ============= ============ ============= ============
</TABLE>

                                       44
<PAGE>

Note 5.  Rental Operations

Apartment Properties
      We lease our residential  apartments  under operating  leases with monthly
payments due in advance. Terms of the apartment leases are generally one year or
less,  with none longer than two years.  We record rental and other  revenues as
they are earned.

Restaurant Properties - Master Lease Agreement
      The lease  agreement  with  Enterprises  has a primary  term  expiring  in
December  2007,  but  grants   Enterprises   three  five-year  renewal  options.
Enterprises  pays annual rent equal to the  greater of  $4,500,000  or 9.875% of
food sales from the restaurants. We renegotiated and amended the lease agreement
with  Enterprises in December 1995.  Prior to the amendment,  the minimum annual
rent amount was $3,459,433.

      As amended,  the lease requires Enterprises to pay monthly installments of
minimum rent and quarterly  payments  calculated  based on the percentage  rent,
subject to an annual  calculation of the greater of minimum or percentage  rent.
In 1997, we received  approximately $27,000 of excess rental payments,  which we
recorded  as  deferred  revenue  at  December  31,  1997.  In 1996  we  received
approximately $122,000 of excess rental payments,  which we recorded as deferred
revenue at December 31, 1996.

      Under certain conditions as defined in the agreement,  Enterprises and the
Company  each have the right to  substitute  another  restaurant  property for a
property  covered by the lease.  After  December 31, 2007,  Enterprises  has the
right to terminate  the lease on up to five  restaurant  properties  per year by
offering to purchase them under specified  terms.  In addition,  we have entered
into a separate  agreement  with  Enterprises  which,  after  December 31, 1997,
allows  Enterprises to purchase,  under specified  terms, up to seven restaurant
properties deemed to be uneconomic.

      The components of restaurant rental income were as follows:

                                  1997              1996              1995
                            ----------------- ----------------- ---------------

Minimum rent                   $4,500,000        $4,500,000        $3,459,433
Percentage rent                         -                 -         1,189,817
                            ----------------- ----------------- ---------------
                               $4,500,000        $4,500,000        $4,649,250
                            ================= ================= ===============

      We will receive  future  minimum  rental  payments  under the master lease
agreement of  $4,500,000  per year  through  2007.  This annual  amount does not
include percentage rent which may be earned in addition to minimum rent.

Note 6.  Management Company

      In May 1995,  we formed  the  Management  Company  to  provide  management
services to non-Company owned properties. We contributed approximately $119,000,
primarily in office equipment,  to the formation of the Management Company,  and
transferred the rights to certain  third-party  property  leasing and management
contracts  to the  Management  Company.  In exchange we received a 95%  economic
interest and a 1% voting  interest in the  Management  Company.  Officers of the
Management Company, who are also officers of the Company or its affiliates,  own
the remaining equity interests.

                                       45
<PAGE>

      During 1995,  we advanced a total of $150,000 to the  Management  Company,
which was  repaid in 1996 and 1997.  These  advances  accrued  interest  at 12%.
Interest on these advances totaled $3,600 in 1997 and $9,700 in 1996.

      Summary financial information of the Management Company is as follows:
<TABLE>
<CAPTION>

                                                                              8 Months
                                                                                Ended
                                             Year ended December 31          December 31
                                             1997              1996              1995
                                       ----------------- ----------------- -----------------
<S>                                     <C>                  <C>               <C>
Revenues                                 $ 1,087,877          $862,368          $327,488
Operating expenses                          (713,405)         (588,815)         (254,659)
Interest                                      (3,559)          (16,897)           (9,736)
                                       ----------------- ----------------- -----------------
Net income before income taxes               370,913           256,656            63,093
Provision for income taxes                  (150,000)          (99,500)          (12,500)
                                       ----------------- ----------------- -----------------
Net income                               $   220,913          $157,156          $ 50,593
                                       ================= ================= =================
</TABLE>

Note 7.  Related Party Transactions

      Certain  directors and officers of the Company hold similar positions with
Enterprises  and Boddie  Investment  Company and held similar  positions with BT
Venture Corporation.  We purchased the 47 restaurant  properties from BNE Realty
Partners,  Limited  Partnership (an affiliate of Enterprises) for $43,243,000 in
1987.

      Enterprises  extended to us an  unsecured  revolving  line of credit up to
$2,000,000  that was  terminated  in  December  1995.  There  was no  obligation
outstanding at any time in 1995.

      We derived  approximately  27.7% of our revenue in 1997 from  Enterprises'
payment  of  rent  for  the  use  of our  restaurant  properties.  In  addition,
Enterprises is responsible for all taxes, utilities, renovations,  insurance and
maintenance expenses relating to the operation of the restaurant properties.

      Certain  current  and  former  directors  of the  Company  were  the  sole
shareholders  and  directors  of BT Venture  Corporation.  In October  1994,  we
acquired BT Venture Corporation for cash, 134,610 shares of our common stock and
relief  from  certain  debt  and  other  obligations,   for  a  total  value  of
approximately  $23,200,000.  In addition,  we recorded additional  consideration
totaling $425,000 in 1997, $567,000 in 1996, and $567,000 in 1995 related to the
BT Venture Corporation acquisition. Through December 31, 1997, we issued a total
of 80,750 shares of common stock in payment of the additional consideration.  At
December 31, 1997, we owed these individuals  additional  consideration totaling
$572,000,  which we  subsequently  paid by issuing  43,438  shares of our common
stock to them in January 1998.

      In connection with the acquisition of BT Venture Corporation, we assumed a
note payable to  Enterprises  in the amount of $6,100,000  and a note payable to
Boddie Investment  Company in the amount of $956,000.  These notes are described
in Note 3.

      In September  1997, we signed an agreement to acquire a portfolio of seven
apartment communities, four of which were acquired on December 1, 1997. We refer
to this  transaction as the "Chrysson  acquisition"  and to the former owners as
the  "Chrysson   Parties."   Certain  current  directors  of  the  Company  were
shareholders  and  officers  in the  Chrysson  Parties.  Under  the terms of the
Chrysson  



                                       46
<PAGE>

acquisition  agreement,  we will issue up to  1,700,000  units in the  Operating
Partnership.  We issued 950,032 units on December 1, 1997. We will issue 100,000
units on December 1, 1998,  and 100,000 units on December 1, 1999. We will issue
the  remaining  units  upon  the  acquisition  of  each of the  remaining  three
apartment communities that are currently under construction.

      In  February  1997,  we signed a  participating  loan  agreement  with The
Villages of Chapel Hill Limited Partnership, a limited partnership whose general
partner is Boddie Investment Company. Under the terms of the agreement,  we have
committed  to  loan  The  Villages  up  to  $2,625,000  to  fund  a  substantial
rehabilitation of its apartment community.  We also guaranteed a $1,500,000 bank
loan.  In  exchange  we  received  or will  receive  interest on our loan at the
greater of 12.5% or the 30 day LIBOR rate plus  6.125%,  25% of the  increase in
gross  revenue in excess of $146,333 per month from the  property  over the next
seven  years,  25% of the value of the  property in excess of $10 million at the
earlier of the end of seven years or upon its sale,  and control over  selection
of the property management provider (which is currently the Management Company).
During  1997 we  advanced  $1,909,000  under  the loan  agreement  and  recorded
interest income of $120,000.

      The   Management   Company   provides  fee  management  of  seven  limited
partnerships  and the apartment  communities and shopping centers owned by those
partnerships.  The general partner of these  partnerships  is Boddie  Investment
Company.

Note 8.  Profit Sharing Plan

      The  employees of the Company are  participants  in a profit  sharing plan
pursuant to Section 401 of the Internal  Revenue Code. We make limited  matching
contributions based on the level of employee participation as defined.

Note 9.  Commitments and Contingencies

      We have agreements  with three of our executive  officers that provide for
cash  compensation and other benefits in the event of termination  without cause
or that a change in control of the Company occurs.

      The  Company is a party to a variety of legal  proceedings  arising in the
ordinary  course of its  business.  We believe that such matters will not have a
material effect on the financial position of the Company.

                                       47
<PAGE>

Note 10.  Quarterly Financial Data (Unaudited)

      We present below selected  financial data  (unaudited) for the years ended
December 31, 1997 and 1996:
<TABLE>
<CAPTION>

                                                     Income before
                                                   Extraordinary Item
                             Revenues           Total           Per Share         Net Income
                         ----------------- ----------------- ----------------- -----------------
<S>                       <C>               <C>                     <C>         <C>
1997
First quarter              $  3,852,615      $   470,783             $0.16       $   470,783
Second quarter                3,866,339          382,805              0.12           382,805
Third quarter                 3,890,301          438,882              0.14           438,882
Fourth quarter                4,642,376          620,977              0.18           437,978
                         ----------------- ----------------- ----------------- -----------------
                           $ 16,251,631      $ 1,913,447             $0.60       $ 1,730,448
                         ================= ================= ================= =================

1996
First quarter              $  3,307,505      $   379,174             $0.13       $   379,174
Second quarter                3,623,992          435,338              0.14           435,338
Third quarter                 3,813,211          463,018              0.15           463,018
Fourth quarter                3,763,116          438,285              0.14           438,285
                         ----------------- ----------------- ----------------- -----------------
                           $ 14,507,824      $ 1,715,815             $0.57       $ 1,715,815
                         ================= ================= ================= =================
</TABLE>

                                       48
<PAGE>

BODDIE-NOELL PROPERTIES, INC.
-------------------------------------------------------------------------------
Schedule III - Real Estate and Accumulated Depreciation
Year Ended December 31, 1997
<TABLE>
<CAPTION>
                                                                         Costs             Gross Amount at Which
         Description             Encumb.          Initial Costs       Capitalized     Carried at Close of Period (2)
         -----------             -------          -------------                       ------------------------------
                                                         Buildings &  Subsequent                Buildings &
                                               Land      Improvem'ts  to Acquisition  Land      Improvem'ts     Total
<S>                            <C>         <C>          <C>            <C>        <C>          <C>          <C>          
Apartment Properties:
North Carolina:
Paces Commons, Charlotte        $10,611,693 $ 1,430,158  $ 12,871,424   $ 567,637  $ 1,430,158  $ 13,439,061 $ 14,869,219
Oakbrook, Charlotte               6,430,491     848,835     8,523,384     385,688      848,835     8,909,072    9,757,907
Harris Hill, Charlotte            6,051,648   1,003,298     7,867,857     390,166    1,003,298     8,258,023    9,261,321
Paces Village, Greensboro         8,476,291   1,250,000     9,416,580     141,638    1,250,000     9,558,218   10,808,218
Abbington Place, Greensboro      15,785,250   2,302,000    23,598,676         996    2,302,000    23,599,672   25,901,672
Pepperstone, Greensboro           3,883,750     552,000     5,015,153           -      552,000     5,015,153    5,567,153
Savannah Place, Winston-Salem     7,312,500     790,000    10,032,721       2,284      790,000    10,035,005   10,825,005
Waterford Place, Greensboro      11,089,000   1,686,000    16,745,972           -    1,686,000    16,745,972   18,431,972
                                            ------------------------------------------------------------------------------
                                              9,862,291    94,071,767   1,488,409    9,862,291    95,560,176  105,422,467
Virginia:
Latitudes, Virginia Beach        12,930,547   3,360,000    18,606,667     660,395    3,360,000    19,267,062   22,627,062
                               -------------------------------------------------------------------------------------------
Total Apartment Properties       82,571,170  13,222,291   112,678,434   2,148,804   13,222,291   114,827,238  128,049,529

Restaurant Properties:
North Carolina:
Bessemer City                      (1)          152,079       391,060           -      152,079       391,060      543,139
Burlington                         (1)          162,411       417,629           -      162,411       417,629      580,040
Chapel Hill                        (1)          273,556       703,430           -      273,556       703,430      976,986
Denver                             (1)          275,484       708,387           -      275,484       708,387      983,871
Eden                               (1)          253,282       651,296           -      253,282       651,296      904,578
Fayetteville (Ramsey)              (1)          260,135       668,919           -      260,135       668,919      929,054
Fayetteville (N.Eastern)           (1)          308,271       792,696           -      308,271       792,696    1,100,967
Fayetteville (Bragg)               (1)          235,951       606,730           -      235,951       606,730      842,681
Gastonia (E. Franklin)             (1)          230,421       592,511           -      230,421       592,511      822,932
Gastonia (N. Chester)              (1)          199,133       512,055           -      199,133       512,055      711,188
Hillsborough                       (1)          290,868       747,948           -      290,868       747,948    1,038,816
Kinston (W. Vernon)                (1)          237,135       609,777           -      237,135       609,777      846,912
Kinston (Richlands)                (1)          231,678       595,743           -      231,678       595,743      827,421
Mt. Airy                           (1)          272,205       699,955           -      272,205       699,955      972,160
Newton                             (1)          223,453       574,594           -      223,453       574,594      798,047

</TABLE>

         Description
                               Accumulated  Date of  Date    Life
                               Depreciation Constr. Acquired(Years)

Apartment Properties:
North Carolina:
Paces Commons, Charlotte        $ 1,675,330    1988  Jun-93     40
Oakbrook, Charlotte                 871,895    1985  Jun-94     40
Harris Hill, Charlotte              757,470    1988  Dec-94     40
Paces Village, Greensboro           479,207    1988  Apr-96     40
Abbington Place, Greensboro          53,165    1997  Dec-97     40
Pepperstone, Greensboro               9,583    1992  Dec-97     40
Savannah Place, Winston-Salem        18,396    1991  Dec-97     40
Waterford Place, Greensboro          36,990    1997  Dec-97     40
                               -------------
                                  3,902,036
Virginia:
Latitudes, Virginia Beach         1,909,476    1989  Oct-94     38
                               -------------
Total Apartment Properties        5,811,512

Restaurant Properties:
North Carolina:
Bessemer City                       104,691  Nov-77  Apr-87     40
Burlington                          111,802  Oct-85  Apr-87     40
Chapel Hill                         188,313  Aug-64  Apr-87     40
Denver                              189,641  Jul-83  Apr-87     40
Eden                                174,356  Jun-73  Apr-87     40
Fayetteville (Ramsey)               179,075  Oct-73  Apr-87     40
Fayetteville (N.Eastern)            212,210  Sep-83  Apr-87     40
Fayetteville (Bragg)                162,426  Jan-85  Apr-87     40
Gastonia (E. Franklin)              158,619  Apr-63  Apr-87     40
Gastonia (N. Chester)               137,080  Jan-78  Apr-87     40
Hillsborough                        200,231  Mar-78  Apr-87     40
Kinston (W. Vernon)                 163,241  Jul-62  Apr-87     40
Kinston (Richlands)                 159,485  Dec-81  Apr-87     40
Mt. Airy                            187,383  May-73  Apr-87     40
Newton                              153,824  Mar-76  Apr-87     40


                                       49
<PAGE>


BODDIE-NOELL PROPERTIES, INC.
-------------------------------------------------------------------------------
Schedule III - Real Estate and Accumulated Depreciation
Year Ended December 31, 1997
<TABLE>
<CAPTION>
                                                                         Costs             Gross Amount at Which
         Description             Encumb.          Initial Costs       Capitalized      Carried at Close of Period (2)
         -----------             -------          -------------                        ------------------------------
                                                         Buildings &  Subsequent                Buildings &
                                               Land      Improvem'ts  to Acquisition  Land      Improvem'ts     Total
                                                                                  
<S>                               <C>        <C>          <C>                 <C>   <C>          <C>          <C>             
Siler City                         (1)          268,312       689,945           -      268,312       689,945      958,257
Spring Lake                        (1)          218,925       562,949           -      218,925       562,949      781,874
Thomasville (E. Main)              (1)          253,716       652,411           -      253,716       652,411      906,127
Thomasville (Randolph)             (1)          327,727       842,726           -      327,727       842,726    1,170,453
                                            ------------------------------------------------------------------------------
                                              4,674,742    12,020,761           -    4,674,742    12,020,761   16,695,503
Virginia:
Ashland                            (1)          296,509       762,452           -      296,509       762,452    1,058,961
Blackstone                         (1)          275,565       708,596           -      275,565       708,596      984,161
Bluefield                          (1)          205,700       528,947           -      205,700       528,947      734,647
Chester                            (1)          300,165       771,852           -      300,165       771,852    1,072,017
Clarksville                        (1)          211,545       543,972           -      211,545       543,972      755,517
Clintwood                          (1)          222,673       572,588           -      222,673       572,588      795,261
Dublin                             (1)          364,065       936,168           -      364,065       936,168    1,300,233
Franklin                           (1)          287,867       740,230           -      287,867       740,230    1,028,097
Galax                              (1)          309,578       796,057           -      309,578       796,057    1,105,635
Hopewell                           (1)          263,939       678,701           -      263,939       678,701      942,640
Lebanon                            (1)          266,340       684,876           -      266,340       684,876      951,216
Lynchburg (Langhorne)              (1)          249,865       642,509           -      249,865       642,509      892,374
Lynchburg (Timberlake)             (1)          276,153       710,107           -      276,153       710,107      986,260
Norfolk                            (1)          325,822       837,829           -      325,822       837,829    1,163,651
Orange                             (1)          244,883       629,699           -      244,883       629,699      874,582
Petersburg                         (1)          357,984       920,531           -      357,984       920,531    1,278,515
Richmond (Forest Hill)             (1)          196,084       504,216           -      196,084       504,216      700,300
Richmond (Midlothian)              (1)          270,736       696,179           -      270,736       696,179      966,915
Richmond (Myers)                   (1)          321,946       827,861           -      321,946       827,861    1,149,807
Roanoke (Hollins)                  (1)          257,863       663,076           -      257,863       663,076      920,939
Roanoke (Abenham)                  (1)          235,864       606,507           -      235,864       606,507      842,371
Rocky Mount                        (1)          248,434       638,829           -      248,434       638,829      887,263
Smithfield                         (1)          223,070       573,608           -      223,070       573,608      796,678
Staunton                           (1)          260,569       670,035           -      260,569       670,035      930,604
Verona                             (1)          191,631       492,765           -      191,631       492,765      684,396
Virginia Beach (Lynnhaven)         (1)          271,570       698,322           -      231,731       698,322      930,053
</TABLE>




         Description
                               Accumulated  Date of  Date    Life
                               Depreciation Constr. Acquired(Years)

Siler City                          184,704  May-79  Apr-87     40
Spring Lake                         150,706  Mar-76  Apr-87     40
Thomasville (E. Main)               174,655  Feb-66  Apr-87     40
Thomasville (Randolph)              225,602  Apr-74  Apr-87     40
                               -------------
                                  3,218,044
Virginia:
Ashland                             204,114  Apr-87  Apr-87     40
Blackstone                          189,697  Sep-79  Apr-87     40
Bluefield                           141,603  Feb-85  Apr-87     40
Chester                             206,630  May-73  Apr-87     40
Clarksville                         145,625  Oct-85  Apr-87     40
Clintwood                           153,286  Jan-81  Apr-87     40
Dublin                              250,619  Jul-83  Apr-87     40
Franklin                            198,165  Feb-75  Apr-87     40
Galax                               213,109  Jun-74  Apr-87     40
Hopewell                            181,694  Jun-78  Apr-87     40
Lebanon                             183,347  Jun-83  Apr-87     40
Lynchburg (Langhorne)               172,004  Sep-82  Apr-87     40
Lynchburg (Timberlake)              190,101  Aug-83  Apr-87     40
Norfolk                             224,293  Aug-84  Apr-87     40
Orange                              168,574  Aug-74  Apr-87     40
Petersburg                          246,433  Mar-74  Apr-87     40
Richmond (Forest Hill)              134,982  Nov-74  Apr-87     40
Richmond (Midlothian)               186,371  Jan-74  Apr-87     40
Richmond (Myers)                    221,625  Apr-83  Apr-87     40
Roanoke (Hollins)                   177,511  Feb-73  Apr-87     40
Roanoke (Abenham)                   162,367  Nov-82  Apr-87     40
Rocky Mount                         171,019  May-80  Apr-87     40
Smithfield                          153,559  Apr-77  Apr-87     40
Staunton                            179,374  Sep-83  Apr-87     40
Verona                              131,916  Jan-85  Apr-87     40
Virginia Beach (Lynnhaven)          186,946  Jun-80  Apr-87     40

                                       50
<PAGE>

BODDIE-NOELL PROPERTIES, INC.
-------------------------------------------------------------------------------
Schedule III - Real Estate and Accumulated Depreciation
Year Ended December 31, 1997
<TABLE>
<CAPTION>
                                                                         Costs             Gross Amount at Which
         Description             Encumb.          Initial Costs       Capitalized     Carried at Close of Period (2)
         -----------             -------          -------------                       ------------------------------
                                                         Buildings &  Subsequent                Buildings &
                                               Land      Improvem'ts  to Acquisition  Land      Improvem'ts     Total
<S>                            <C>         <C>          <C>          <C>          <C>         <C>           <C>        
Virginia Beach (Holland)           (1)          277,943       714,710           -      277,943       714,710      992,653
Wise                               (1)          219,471       564,355           -      219,471       564,355      783,826
                                            ------------------------------------------------------------------------------
                                              7,433,834    19,115,577           -    7,393,995    19,115,577   26,509,572
                               -------------------------------------------------------------------------------------------
Total Restaurant Properties       1,900,000  12,108,576    31,136,338           -   12,068,737    31,136,338   43,205,075
                               -------------------------------------------------------------------------------------------
 Total Real Estate              $84,471,170 $25,330,867 $ 143,814,772 $ 2,148,804  $25,291,028 $ 145,963,576 $171,254,604
                               ===========================================================================================
<FN>
(1)  Indicates  the 47  restaurants  encumbered  by the bank  term loan of up to
$25,500,000;  $1,900,000  outstanding at 12/31/97 
(2) Aggregate cost at December 31, 1997, for federal income tax purposes was 
approximately $152,000,000.
</FN>
</TABLE>




         Description
                               Accumulated  Date of  Date    Life
                               Depreciation Constr. Acquired    (Years)

Virginia Beach (Holland)            191,333  Aug-83  Apr-87     40
Wise                                151,080  Jun-80  Apr-87     40
                               -------------
                                  5,117,377
                               -------------
Total Restaurant Properties       8,335,421
                               -------------
 Total Real Estate              $14,146,933
                               =============

                                       51
<PAGE>


BODDIE-NOELL PROPERTIES, INC.
-------------------------------------------------------------------------------
Schedule III - Real Estate and Accumulated Depreciation
<TABLE>
<CAPTION>




                                                   1997                 1996                1995
                                            -----------------------------------------------------------
<S>                                             <C>                 <C>                  <C>
Real estate investments:
     Balance at beginning of year                $ 109,815,123       $  98,520,761        $ 97,928,578
     Additions during year
        Acquisitions by merger                               -                   -                   -
        Other acquisitions                          60,722,522          10,666,580                   -
        Improvements, etc.                             718,459             627,782             592,183
     Deductions during year                             (1,500)                  -                   -
                                            ===========================================================
     Balance at close of year                    $ 171,254,604       $ 109,815,123        $ 98,520,761
                                            ===========================================================


Accumulated depreciation:
     Balance at beginning of year                $  11,461,365       $   9,020,948        $  6,827,337
     Provision for depreciation                      2,685,718           2,440,417           2,193,611
     Deductions during year                               (150)                  -                   -
                                            ===========================================================
     Balance at close of year                    $  14,146,933       $  11,461,365        $  9,020,948
                                            ===========================================================
</TABLE>


                                       52
<PAGE>

                                INDEX TO EXHIBITS

<TABLE>
<CAPTION>

Exhibit
   No.                                                                                              Page
 <S>       <C>                                                                                       <C>
   2.1*     Master Agreement of Merger and Acquisition by and among Boddie-Noell Properties,            -
            Inc., Boddie-Noell Properties Limited Partnership, Paul G. Chrysson, James G.
            Chrysson, W. Michael Gilley, Matthews G. Gallins, James D. Yopp, and the partnerships
            and limited liability companies listed therein, dated September 22, 1997 (filed as
            Exhibit 2.1 to Registration Statement No. 333-39803 on Form S-2, December 16, 1997,
            and incorporated herein by reference)
   2.2*     Exchange Option Agreement by and among Boddie-Noell Properties Limited Partnership,         -
            Boddie-Noell Properties, Inc., and the owners of the Chrysson affiliates listed
            therein, dated as of September 22, 1997 (filed as Exhibit 2.2 to Registration
            Statement No. 333-39803 on Form S-2, December 16, 1997, and incorporated herein by
            reference)
   2.3*     Amendment to Master Agreement of Merger and Acquisition dated September 22, 1997, by        -
            and among Boddie-Noell Properties, Inc., Boddie-Noell Properties Limited Partnership,
            Paul G. Chrysson, James G. Chrysson, W. Michael Gilley, Matthew G. Gallins, James D.
            Yopp, and the partnerships and limited liability companies listed therein, dated
            November 3, 1997 (filed as Exhibit 2.3 to Boddie-Noell Properties, Inc. Current
            Report on Form 8-K dated December 1, 1997, and incorporated herein by reference)
   3.1*     Articles of Incorporation (filed as Exhibit 3.1 to Boddie-Noell Properties, Inc.            -
            Quarterly Report on Form 10-Q for the quarter ended June 30, 1997, and incorporated
            herein by reference)
   3.2*     By-Laws (filed as Exhibit 3.2 to Registration Statement No. 333-39803 on Form S-2,          -
            December 16, 1997, and incorporated herein by reference)
  10.1*     Acquisition Agreement by and among Boddie-Noell Restaurant Properties, Inc., BT             -
            Venture Corporation and Related Entities dated June 7, 1994 (filed as an exhibit in
            Schedule 14A of Proxy Statement dated June 15, 1994, and incorporated herein by
            reference)
  10.2*     Amended and Restated Master Lease Agreement dated December 21, 1995, between                -
            Boddie-Noell Properties, Inc. and Boddie-Noell Enterprises, Inc. (filed as Exhibit
            10.1 to Boddie-Noell Properties, Inc. Annual Report on Form 10-K dated December 31,
            1995, and incorporated herein by reference)
  10.3*     Loan Agreement dated December 27, 1995, between Boddie-Noell Properties, Inc. and           -
            SouthTrust Bank of Alabama, NA (filed as Exhibit 10.2 to Boddie-Noell Properties,
            Inc. Annual Report on Form 10-K dated December 31, 1995, and incorporated herein by
            reference)
  10.4*     Loan Agreement as of February 27, 1997, by and between The Villages of Chapel Hill          -
            Limited Partnership and Boddie-Noell Properties, Inc. (filed as Exhibit 10 to
            Boddie-Noell Properties, Inc. Quarterly Report on Form 10-Q for the quarter ended
            March 31, 1997, and incorporated herein by reference)
  10.5*     Modification to Loan Agreement, dated August 1, 1997, between Boddie-Noell                  -
            Properties, Inc. and SouthTrust Bank of Alabama, NA (filed as Exhibit 10.8 to
            Registration Statement No. 333-39803 on Form S-2, December 16, 1997, and incorporated
            herein by reference)


                                       53
<PAGE>

  10.6*     Form of Agreement of Limited Partnership of Boddie-Noell Properties Limited                 -
            Partnership (filed as Exhibit 10.9 to Registration Statement No. 333-39803 on Form
            S-2, December 16, 1997, and incorporated herein by reference)
  10.7*     Form of Registration Rights Agreement (filed as Exhibit 10.11 to Registration               -
            Statement No. 333-39803 on Form S-2, December 16, 1997, and incorporated herein by
            reference)
  10.8*     Boddie-Noell Restaurant Properties, Inc. 1994 Stock Option and Incentive Plan               -
            effective August 4, 1994 (filed as an exhibit in Schedule 14A of Proxy Statement
            dated June 15, 1994, and incorporated herein by reference)
  10.9*     Form and description of Incentive Stock Option Agreements dated October 17, 1994,           -
            between the Company and certain officers (filed as Exhibit 10.8 to Boddie-Noell
            Properties, Inc. Annual Report on Form 10-K dated December 31, 1994, and incorporated
            herein by reference)
  10.10*    Form and description of Nonqualified Stock Option Agreements dated October 17, 1994,        -
            between the Company and certain officers (filed as Exhibit 10.9 to Boddie-Noell
            Properties, Inc. Annual Report on Form 10-K dated December 31, 1994, and incorporated
            herein by reference)
  10.11     Form and description of Incentive Stock Option Agreements dated April 1, 1997,             55
            between the Company and certain officers
  10.12     Form and description of Nonqualified Stock Option Agreements dated April 1, 1997,          59
            between the Company and certain officers
  10.13     Amendment to Incentive Stock Option Agreement between the Company and W. Craig Worthy      63
            dated June 5, 1997
  10.14     Amendment to Nonqualified Stock Option Agreement between the Company and W. Craig          64
            Worthy dated June 5, 1997
  10.15*    Form and description of Employment Agreements dated July 15, 1997, between the              -
            Company and certain officers (filed as Exhibit 10 to Boddie-Noell Properties, Inc.
            Quarterly Report on Form 10-Q for the quarter ended September 30, 1997, and
            incorporated herein by reference)
  21        Subsidiaries of the Registrant                                                             65
  23.1      Consent of Ernst & Young LLP                                                               66
  23.2      Consent of Arthur Andersen LLP                                                             67
  27        Financial Data Schedule (electronic filing)                                                 -
</TABLE>


* Incorporated herein by reference


                                       54
<PAGE>