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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
(Mark One)
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the fiscal year ended December 31, 2000.
|_| 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 001-13183
ROBERTS REALTY INVESTORS, INC.
-------------------------------------
(Name of small business issuer in its charter)
GEORGIA 58-2122873
- -------------------------------------- --------------------------------
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
8010 ROSWELL ROAD, SUITE 120
ATLANTA, GA 30350
- ------------------------------------------------------- --------
(Address of Principal Executive Offices) (Zip Code)
Issuer's telephone number: (770) 394-6000
Securities registered under Section 12(b) of the Act: NONE
Title of each class: Name of each exchange on which registered:
------------------- ------------------------------------------
N/A N/A
Securities registered under Section 12(g) of the Exchange Act:
Common Stock
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(Title of Class)
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 this Form 10-K or any
amendment to this Form 10-K. |_|
State the aggregate market value of the voting common equity held by
non-affiliates of the registrant. The aggregate market value shall be computed
by reference to the price at which the common equity was sold, or the average
bid and asked prices of such common equity, as of a specified date within 60
days prior to the date of the filing of the Form 10-K/A. (See definition of
affiliate in Rule 405.)
$27,584,976
Note: If a determination as to whether a particular person or entity is
an affiliate cannot be made without involving unreasonable effort and expense,
the aggregate market value of the common stock held by non-affiliates may be
calculated on the basis of assumptions reasonable under the circumstances,
provided that the assumptions are set forth in this Form.
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date. 4,846,228 shares of
common stock (as of March 23, 2001).
Documents Incorporated by Reference. None
TABLE OF CONTENTS
PAGE
PART I............................................................... 2
ITEM 1. BUSINESS....................................... 2
ITEM 2. PROPERTIES..................................... 9
ITEM 3. LEGAL PROCEEDINGS.............................. 21
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF
SECURITY HOLDERS............................... 21
PART II.............................................................. 22
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS.................... 22
ITEM 6. SELECTED FINANCIAL DATA........................ 23
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS.. 25
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK.............................. 37
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.... 38
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH
ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE..................................... 38
PART III............................................................. 39
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT 39
ITEM 11. EXECUTIVE COMPENSATION......................... 41
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT.......................... 42
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS................................... 44
PART IV.............................................................. 47
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES,
AND REPORTS ON FORM 8-K........................ 47
PART I
ITEM 1. DESCRIPTION OF BUSINESS.
GENERAL
Roberts Realty Investors, Inc. owns and operates multifamily
residential properties as a self-administered, self-managed equity real estate
investment trust, or REIT. We conduct our business through Roberts Properties
Residential, L.P., which we refer to as the operating partnership. The operating
partnership owns all our properties. As of March 23, 2001, Roberts Realty owns a
66.9% interest in the operating partnership and is its sole general partner. We
expect to continue to conduct our business in this organizational structure,
which is sometimes called an "umbrella partnership" or "UPREIT."
As of March 23, 2001, we own seven existing multifamily apartment
communities containing a total of 1,481 apartment homes and three communities
under construction that will contain approximately 854 apartment homes. Seven of
our communities - River Oaks, Plantation Trace, Preston Oaks, Highland Park,
Crestmark, Addison Place phase one, and Bradford Creek - containing a total of
1,481 apartment units, are stabilized. Addison Place's second phase, totaling
285 apartment homes, Ballantyne, totaling 319 apartment homes, and Old Norcross,
totaling 250 apartment homes, are under construction. All of our communities are
located in metropolitan Atlanta, Georgia, except the Ballantyne community, which
is located in Charlotte, North Carolina.
We consider a community to have achieved stabilized occupancy on the
earlier of (a) attainment of 95% occupancy as of the first day of any month, or
(b) one year after completion of construction. As of December 31, 2000, we owned
eight stabilized communities containing a total of 1,633 apartment homes that
had a physical occupancy rate of 95.9%. We sold the 152-unit Rosewood Plantation
Community on January 4, 2001.
Roberts Realty is a Georgia corporation formed in July 1994. We expect
to continue to qualify as a REIT for federal income tax purposes. A REIT is a
legal entity that holds real estate interests and, through its payment of
distributions, is able to reduce or avoid incurring federal income tax at the
corporate level. This structure allows shareholders to participate in real
estate investments without the "double taxation" of income - i.e., at both the
corporate and shareholder levels - that generally results from an investment in
shares of a corporation. To maintain our qualification as a REIT, we must, among
other things, distribute annually to our shareholders at least 95% (90% for 2001
and thereafter) of our taxable income. Our common stock is traded on the
American Stock Exchange under the symbol "RPI."
We have engaged two entities owned by Mr. Charles S. Roberts, our
Chairman of the Board, Chief Executive Officer, and President, to perform
services for the operating partnership. These entities are Roberts Properties,
Inc. and Roberts Properties Construction, Inc., which we sometimes refer to as
the Roberts Companies. The Roberts Companies developed and constructed each of
our seven existing communities, except the 24-unit second phase of Preston Oaks,
which was constructed by an independent contractor. We expect that affiliates of
Mr. Roberts will continue to develop future properties and construct properties
where feasible. Roberts Construction started construction of the Ballantyne
community, is currently acting as the general contractor, and will oversee
construction of the community.
Our executive offices are located at 8010 Roswell Road, Suite 120,
Atlanta, Georgia 30350, and our telephone number is (770) 394-6000. As of March
23, 2001, we have 45 full-time employees.
THE OPERATING PARTNERSHIP
We conduct our business and own all of our real estate assets through
the operating partnership. We control the operating partnership as its sole
general partner. Our ownership interest in the operating partnership entitles us
to share in cash distributions from, and in the profits and losses of, the
operating partnership generally in proportion to our ownership percentage. In
this report we refer to units of limited partnership interest in the operating
partnership
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as "units." The holders of units are: former limited partners in the limited
partnerships that were merged into the operating partnership, Mr. Roberts, and
the former owner of one of the retail centers we formerly owned.
Holders of units in the operating partnership, sometimes referred to in
this report as unitholders, generally have the right to require the operating
partnership to redeem their units. A unitholder who submits units for redemption
will receive, at our election, either an equal number of shares or cash in the
amount of the average of the daily market prices of the common stock for the 10
consecutive trading days before the date of submission multiplied by the number
of units submitted. We have adopted a policy of acquiring units in exchange for
shares. We also have the right, at our election, to issue shares in exchange for
all outstanding units. Our articles of incorporation limit ownership by any one
holder to 6% of the outstanding shares of our common stock, par value $0.01 per
share, other than by Mr. Roberts, who is limited to 25%. As a result,
unitholders cannot redeem their units if doing so would violate those ownership
limits. Shares issued for units are registered with the SEC and are freely
transferable, other than by affiliates.
Whenever we issue shares, we are obligated to contribute the net
proceeds from that issuance to the operating partnership, and the operating
partnership is obligated to issue the same number of units to us. The operating
partnership agreement permits the operating partnership, without the consent of
the unitholders, to sell additional units and add limited partners.
GROWTH STRATEGIES
Our business plan and growth strategy are focused on creating cash flow
and capital appreciation by building and managing new apartment homes of the
highest quality and value in excellent high-growth neighborhoods. Our business
objectives are:
o to maximize the current return to our shareholders in the form of
quarterly dividends through increases in cash flow; and
o to increase long-term total returns to our shareholders through
appreciation in the value of the common stock.
To achieve these objectives, we intend to pursue the following growth
strategies:
(a) maximize cash flow from operations by seeking through intensive
management to maintain high occupancy levels, obtain regular rent
increases, manage resident turnover efficiently and control
operating expenses; and
(b) develop new multifamily apartment communities in metropolitan
Atlanta, North Carolina, Florida and other parts of the Southeast.
We will engage others, including the Roberts Companies, to help us pursue these
strategies, which are described in more detail below.
PROPERTY MANAGEMENT STRATEGY. We believe that managing our communities
intensively is a fundamental element of our growth strategy. As of March 23,
2001, we employ 44 property management personnel, including property managers,
leasing managers, leasing consultants, maintenance supervisors and technicians,
and accounting personnel. We believe our property management expertise will
enable us to continue to deliver quality services, thereby promoting resident
satisfaction, maintaining high resident retention, and enhancing the value of
each of the communities. Our property management strategy will continue to be:
o to increase the average occupancy and rental rates as market
conditions permit;
3
o to minimize resident turnover and delinquent rental payments
through strict review of each applicant's creditworthiness; and
o to control operating expenses to increase net operating income at
each of the communities.
DEVELOPMENT STRATEGY. We intend to continue to develop high quality
apartment communities for long-term ownership. During the past 16 years, the
Roberts Companies have developed, constructed, and/or managed over 4,200
residential units. We believe that the number and quality of the apartment units
developed by the Roberts Companies, the relationships Mr. Roberts and employees
of the Roberts Companies have developed with local permitting and governmental
authorities, and the Roberts Companies' experience with the development,
construction and financing process will minimize the barriers to new development
often faced by less experienced developers and national developers attempting to
enter the Atlanta market. These barriers include governmental growth control, a
difficult rezoning and permitting process, and the limited availability of
well-located sites. We believe that these restraints on construction, coupled
with the predicted continued growth in population, job growth, and household
formations, present an excellent opportunity for us to achieve favorable returns
on the development of well-located, high quality apartment home communities.
Roberts Properties is developing the Addison Place phase two,
Ballantyne and Old Norcross communities. We expect that Roberts Properties will
continue to develop communities for us in the future, including a 220 - unit
apartment community on a 10.7 acre property located on Northridge Parkway that
we plan to acquire from Roberts Properties. Although the experience of the
Roberts Companies will be most helpful to us in the Atlanta area, we believe
that experience will enable us to develop multifamily apartment communities in
other areas in the Southeast, including Charlotte.
Although we presently intend to engage the Roberts Companies in our
development and construction activities, we may hire other development or
construction companies in Atlanta and elsewhere if we deem it to be in our best
interests to do so. The most likely development scenario for the operating
partnership is for it to acquire properties already under development from
Roberts Properties and/or an entity formed by Mr. Roberts or his affiliates. We
may engage the Roberts Companies to develop properties on a fee basis, we may
enter into joint venture agreements with the Roberts Companies, or we may
acquire communities developed by the Roberts Companies and owned by other
affiliates of Mr. Roberts. We may also enter into similar arrangements with
others who are independent of Mr. Roberts.
In analyzing the potential development of a particular community, we
will evaluate geographic, demographic, economic, and financial data, including:
o households, population and employment growth;
o prevailing rental and occupancy rates in the immediate market area
and the perceived potential for growth in those rates;
o costs that affect profitability of the investment, including
construction, financing, operating and maintenance costs;
o income levels in the area;
o existing employment bases;
o traffic volume, transportation access, proximity to commercial
centers and regional malls; and
o proximity to and quality of the area's schools.
We will also consider physical elements regarding a particular site, including
the probability of zoning approval (if required), availability of utilities and
infrastructure, and other physical characteristics of the site.
4
For information regarding the development and construction of Addison
Place phase two, Ballantyne, and Old Norcross, see Part I, Item 2, Properties.
ENVIRONMENTAL AND OTHER REGULATORY MATTERS
Under various federal, state, and local laws and regulations, an owner
of real estate is liable for the costs of removal or remediation of hazardous or
toxic substances on the property. Those laws often impose liability without
regard to whether the owner knew of, or was responsible for, the presence of the
hazardous or toxic substances. The costs of remediation or removal of the
substances may be substantial, and the presence of the substances, or the
failure to promptly remediate the substances, may adversely affect the owner's
ability to sell the real estate or to borrow using the real estate as
collateral. In connection with its ownership and operation of the communities
and its other real estate assets, the operating partnership may be potentially
liable for:
(a) those remediation and removal costs; and
(b) damages to persons or property arising from the existence or
maintenance of those hazardous or toxic substances.
We have conducted preliminary evaluations of the environmental
condition of our communities and surrounding properties.
In April 1998, Wallace Enterprises, Inc., an adjacent landowner,
notified us that a petroleum product release had been discovered on the property
adjacent to our Crestmark community. Wallace repaired the source of the release
and the Georgia Environmental Protection Division, or EPD, has approved its
corrective action plan. Our environmental attorneys and consultants have advised
us that Wallace is responsible for cleaning up the release to the extent
required by the EPD regulations. Our environmental consultants have informed us
that despite a possible groundwater impact at Crestmark, no threat to human
health or safety is suggested. We and our environmental consultants are
monitoring the EPD files to ensure Wallace's compliance with the EPD
regulations.
The preliminary environmental assessments of our other communities and
other real estate assets have not revealed any environmental liability that we
believe would have a material adverse effect on our business, assets, or results
of operations, nor are we aware of any liability of that type. Nevertheless,
these assessments may not have revealed all environmental liabilities, and we
may have material environmental liabilities that we do not know about. Future
uses or conditions - including changes in applicable environmental laws and
regulations - may cause us to have environmental liability.
COSTS OF COMPLIANCE WITH AMERICANS WITH DISABILITIES ACT AND SIMILAR LAWS
Under the American with Disabilities Act of 1990, or the ADA, all
places of public accommodation are required to meet federal requirements related
to access and use by disabled persons. Although we believe that the communities
are substantially in compliance with present requirements of the ADA, we may
incur additional costs of complying with the ADA. A number of additional
federal, state and local laws may also require modifications to the communities,
or restrict further renovations to them, with respect to access by disabled
persons. For example, the Fair Housing Amendments Act of 1988 requires apartment
communities first occupied after March 13, 1990 to be accessible to the
handicapped. Noncompliance with this Act could result in the imposition of fines
or an award of damages to private litigants. We believe that the communities
that are subject to the Act comply with that law.
Additional legislation may impose further burdens or restrictions on
owners with respect to access by disabled persons. We cannot estimate the
ultimate amount of the cost of compliance with the ADA or that legislation, and,
while those costs are not expected to have a material adverse effect on us,
those costs could be substantial. Limitations or restrictions on the completion
of renovations may limit application of our investment strategy in some
instances or reduce overall returns on our investments.
5
INSURANCE
We carry comprehensive general liability, fire, extended coverage and
rental loss insurance on all of our existing communities, with policy
specifications, insured limits and deductibles customarily carried for similar
properties. We carry similar insurance with respect to our properties under
development or properties under construction, but with appropriate exceptions
given the nature of these properties. We believe that our communities are
adequately covered by insurance. There are, however, some types of losses (such
as losses arising from acts of war) that are not generally insured because they
are either uninsurable or not economically insurable. If an uninsured loss or a
loss in excess of insured limits occurs, we could lose our capital invested in a
property, as well as the anticipated future revenues from the property, and
would continue to be obligated on any mortgage indebtedness or other obligations
related to the property. Any loss of that kind would adversely affect us.
INVESTMENT, FINANCING, AND CONFLICT OF INTEREST POLICIES
The investment policies, financing policies and conflict of interest
policies set by our board of directors are summarized below. Our board may amend
or revise them from time to time without a vote of our shareholders or any vote
of the partners of the operating partnership, except that:
(a) we cannot change our policy of holding our assets and
conducting our business exclusively through the operating
partnership without amending the operating partnership
agreement, which will generally require the consent of the
holders of a majority in interest of the limited partners in
the operating partnership including, if applicable, Roberts
Realty; and
(b) changes in our conflicts of interest policies must be approved
by a majority of the independent directors and otherwise be
consistent with legal requirements.
INVESTMENT POLICIES
INVESTMENTS IN REAL ESTATE OR INTERESTS IN REAL ESTATE. We conduct all
of our investment activities through the operating partnership and will do so
for so long as the operating partnership exists. (The agreement of limited
partnership of the operating partnership provides that it is not required to be
dissolved until 2093.) Our investment objectives are to achieve stable cash flow
available for distributions and, over time, to increase cash flow and portfolio
value by continuing to develop multifamily apartment communities for long-term
ownership.
Our policy is to develop assets where we believe that favorable
investment opportunities exist based on market conditions at the time of the
investment.
We expect to pursue our investment objectives primarily through the
direct ownership of properties by the operating partnership, although, as
discussed below, we may also pursue indirect property ownership opportunities.
We intend to develop multifamily apartment communities primarily in the Atlanta
and Charlotte metropolitan areas, Florida, and other parts of the Southeast.
Future development or investment activities will not be limited by our governing
documents to any geographic area, product type, or specified percentage of our
assets.
POSSIBLE ACQUISITION OF COMMUNITIES DEVELOPED BY MR. ROBERTS OR HIS
AFFILIATES. Mr. Roberts and Roberts Properties have been engaged in the
development of residential and commercial real estate since the early 1970s, and
Mr. Roberts expects that he and Roberts Properties will continue to engage in
real estate development. Provided that any transaction or agreement must comply
with the policies discussed under "Conflict of Interest Policies," we and/or the
operating partnership may engage in transactions of various types with Mr.
Roberts, Roberts Properties, and/or other affiliates of Mr. Roberts to develop
or acquire real estate. Those transactions may include:
o hiring Mr. Roberts or Roberts Properties to develop real estate
under a fee arrangement;
6
o acquiring undeveloped property from Mr. Roberts or his affiliates
for future development; or
o acquiring from Mr. Roberts or his affiliates partially or
completely constructed properties, whether in their lease-up phase
or already leased-up.
No particular arrangements have been determined, other than the communities now
under construction and development as described elsewhere in this report.
SECURITIES OF OR INTEREST IN PERSONS PRIMARILY ENGAGED IN REAL ESTATE
ACTIVITIES AND OTHER ISSUERS. We and the operating partnership also may invest
in securities of other entities engaged in real estate activities or invest in
securities of other issuers, including investments by us and the operating
partnership for the purpose of exercising control over those entities. We or the
operating partnership may acquire all or substantially all of the securities or
assets of other REITs or similar entities where those investments would be
consistent with our investment policies. We do not currently intend to invest in
the securities of other issuers. In making any of the investments described in
this paragraph we intend to comply with the percentage of ownership limitations
and gross income tests necessary for REIT qualification under the Internal
Revenue Code. Also, we will not make any investments if the proposed investment
would cause us or the operating partnership to be an "investment company" under
the Investment Company Act of 1940.
NO INVESTMENTS IN MORTGAGES. We do not own any mortgages and do not
currently intend to invest in mortgages or to engage in originating, servicing,
or warehousing mortgages.
FINANCING POLICIES
Our organizational documents do not limit the amount of indebtedness we
may incur. We have an informal policy that we will not incur indebtedness in
excess of 75% of what the board of directors believes is the fair market value
of our assets at any given time. We may, however, from time to time re-evaluate
our borrowing policies in light of then current economic conditions, relative
costs of debt and equity capital, market value of the operating partnership's
real estate assets, growth and acquisition opportunities and other factors.
Modification of this policy may adversely affect the interests of our
shareholders.
To the extent that the board of directors determines to seek additional
capital, we may raise capital through additional equity offerings, debt
financing, or retention of cash flow, or a combination of these methods. Our
retention of cash flow is subject to provisions in the Internal Revenue Code
requiring a REIT to distribute a specified percentage of taxable income, and we
must also take into account taxes that would be imposed on undistributed taxable
income. As long as the operating partnership is in existence, we will contribute
the net proceeds of all equity capital we raise to the operating partnership in
exchange for units or other interests in the operating partnership.
We have not established any limit on the number or amount of mortgages
on any single property or on the operating partnership's portfolio as a whole.
CONFLICT OF INTEREST POLICIES
The board of directors is subject to provisions of Georgia law that are
designed to eliminate or minimize potential conflicts of interest. We can give
no assurances, however, that these policies will always eliminate the influence
of those conflicts. If these policies are not successful, the board could make
decisions that might fail to reflect fully the interests of all shareholders.
Under Georgia law, a director may not misappropriate corporate
opportunities that he learns of solely by serving as a member of the board of
directors. In addition, under Georgia law, a transaction effected by us or any
entity we control (including the operating partnership) in which a director, or
specified related persons and entities of the director, have a conflicting
interest of such financial significance that it would reasonably be expected to
exert an
7
influence on the director's judgment may not be enjoined, set aside or give rise
to damages on the grounds of that interest if either:
o the transaction is approved, after disclosure of the interest,
by the affirmative vote of a majority of the disinterested
directors, or by the affirmative vote of a majority of the
votes cast by disinterested shareholders; or
o the transaction is established to have been fair to us.
The board of directors has adopted a policy that all conflicting interest
transactions must be authorized by a majority of the disinterested directors,
but only if there are at least two directors who are disinterested with respect
to the matter at issue.
OTHER POLICIES
We and the operating partnership have authority to offer our securities
and to repurchase and otherwise reacquire our securities, and we may engage in
those activities in the future. We have adopted a policy that we will issue
shares to unitholders who exercise their rights of redemption. In the future, we
may make loans to joint ventures in which we participate to meet working capital
needs. We have not engaged in trading, underwriting, agency distribution, or
sale of securities of other issuers, and we do not intend to do so. We intend to
make investments in a manner so that we will not be treated as an investment
company under the Investment Company Act of 1940.
We announced our intention to repurchase up to 300,000 shares of our
outstanding common stock on September 3, 1998. We repurchased 152,588 shares in
2000 for $1,156,000; 121,200 shares in 1999 for $909,000; and 19,300 shares in
1998 for $145,000. During 1999, we paid $28,000 to redeem 3,917 units from
unitholders who resided outside the state of Georgia. We did not redeem any
shares in the year ended December 31, 2000. In October 2000, we announced our
intention to repurchase another 50,000 shares.
At all times, we intend to make investments in a manner to be
consistent with the requirements of the Internal Revenue Code for us to qualify
as a REIT unless, because of changing circumstances or changes in the Internal
Revenue Code or in applicable regulations, the board of directors decides that
it is no longer in our best interests to qualify as a REIT.
For a description of the competition we face, see Part 1, Item 2,
Properties - Competition.
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ITEM 2. PROPERTIES.
GENERAL
As of March 23, 2001, we own seven existing multifamily apartment
communities containing a total of 1,481 apartment homes, and three communities
under development or construction that will contain approximately 854 apartment
homes. Seven of our existing communities - River Oaks, Plantation Trace, Preston
Oaks, Highland Park, Crestmark, Addison Place phase one, and Bradford Creek -
containing a total of 1,481 apartment units, are stabilized. Addison Place's
second phase, totaling 285 apartment homes, Old Norcross, totaling 250 apartment
homes, and Ballantyne, totaling 319 apartment homes, are under construction. All
of our communities are located in metropolitan Atlanta, Georgia, except the
Ballantyne community, which is located in Charlotte, North Carolina.
As of December 31, 2000, we owned eight stabilized communities
containing a total of 1,633 apartment homes that had a physical occupancy rate
of 95.9%. We sold the 146-unit Ivey Brook community on June 23, 2000 and the
152-unit Rosewood Plantation community on January 4, 2001.
We believe that the demand for multifamily housing in Atlanta will
increase due to Atlanta's growing population. According to the Atlanta Regional
Commission, which we refer to as the ARC, both population and job growth in
Atlanta are projected to be above the national average for the foreseeable
future. The ARC is the regional planning and governmental coordination agency
for the 10-county Atlanta Region, which is comprised of Fulton, DeKalb,
Gwinnett, Cobb, Clayton, Rockdale, Henry, Douglas, Cherokee, and Fayette
counties.
The following information is based on statistical estimates published
by the ARC. The population of the Atlanta Region is projected to grow 40.9% for
the period from 1990 to 2010, from 2,557,800 persons in 1990 to 3,603,000
persons in 2010. The estimated population of the Atlanta Region increased by
29.2% from 2,557,800 persons in 1990 to 3,304,000 persons in 2000, making it one
of the largest metropolitan areas in the country and the largest in the
Southeast.
Employment of the Atlanta Region is projected to grow 54.7% for the
period from 1990 to 2010, from 1,426,000 jobs in 1990 to 2,206,000 jobs in 2010.
Estimated employment of the Atlanta Region increased by 34.5% from 1,426,000
jobs in 1990 to 1,918,500 jobs in 1999. According to the Georgia Department of
Labor, the estimated December 2000 unemployment rate of the Atlanta Region was
2.4%, which was below the estimated December 2000 Georgia unemployment rate of
3.0% and the estimated December 2000 U.S. unemployment rate of 3.7%.
Housing units in the Atlanta Region increased an estimated 30.5%, from
1,052,430 units in 1990 to 1,373,058 units in 2000. Multifamily homes in the
Atlanta Region increased 21.7% from 342,441 units in 1990 to 416,682 units in
2000.
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The following table summarizes basic information about our communities.
THE COMMUNITIES
Year December 2000 Average Physical
Completed Number Approximate Average Average Rental Rates Occupancy for the
or to be of Rentable Area Unit Size Per Square 12 Months Ended
Community Location Completed Units (Square Feet) (Square Feet) Per Unit Foot Dec. 31, 2000
--------- -------- -------- ----- ------------- ------------- --------------------- -------------
Existing Communities:
Plantation Trace (1) Atlanta 1990/1998 232 310,956 1,340 $ 994 $0.74 93.7%
Plantation Trace 1990 182 229,202 1,259
River Oaks Atlanta 1992 216 276,046 1,278 953 0.75 97.3
Crestmark (2) Atlanta 1993/1997 334 360,284 1,079 845 0.78 94.6
Preston Oaks (3) Atlanta 1995/1998 213 257,180 1,207 1,038 0.86 98.2
Highland Park Atlanta 1995 188 231,634 1,232 986 0.80 97.7
Bradford Creek Atlanta 1998 180 243,941 1,355 987 0.73 93.6
Addison Place
Phase I Atlanta 1999 118 200,194 1,697 $1,288 $0.76 N/A (4)
----- --------
Subtotal/Average 1,481 1,880,235 1,270
===== =========
Communities Under
Construction:
Addison Place 2001 285 403,312 1,415 N/A N/A N/A
Phase II Atlanta
Ballantyne Charlotte 2001 319 413,538 1,296 N/A N/A N/A
Old Norcross Atlanta 2001 250 330,196 1,321 N/A N/A N/A
---- -------
Subtotal/Average 854 1,147,046
==== =========
(1) Plantation Trace was completed in two phases. The 182-unit first phase was
completed in 1990 and the 50-unit second phase was completed in 1998.
(2) Crestmark was completed in two phases. The 248-unit first phase was
completed in 1993 and the 86-unit second phase was completed in 1997.
(3) Preston Oaks was completed in two phases. The 189-unit first phase was
completed in 1995 and the 24-unit second phase was completed in 1998.
(4) The 118-unit first phase of Addison Place completed its lease-up phase in
May 2000, and its 12-month historical occupancy percentage is not
comparable.
10
Annual operating data regarding our stabilized communities at December
31, 2000 are summarized in the following table. The second phases of Crestmark,
Preston Oaks, and Plantation Trace are described separately for this purpose.
(Ivey Brook and Rosewood Plantation are omitted due to their sales in June 2000
and January 2001, respectively.) Except for those figures noted with an
asterisk, the occupancy rates shown represent the average physical occupancy of
the applicable community calculated by dividing the total number of vacant days
by the total possible number of vacant days for each year and then subtracting
the resulting number from 100%. The figures noted with asterisks reflect the
applicable data on December 31 of the specified year and are not annualized
because the applicable community was under construction and in its initial
lease-up period during at least a portion of that year. During lease-up, units
are leased as they are constructed and made ready for occupancy building by
building, thus annualization of data is not possible during that period.
Throughout this table, "N/A" means "not applicable," i.e., no unit in the
community was available to be occupied during the relevant year.
Physical Occupancy Rate Average Effective Annual Rental Rates
----------------------- -------------------------------------
Month 1996 1997 1998 1999 2000
Completed ---- ---- ---- ---- ----
Initial Per Per Per Per Per Per Per Per Per Per
Community Leaseup 1996 1997 1998 1999 2000 Unit Sq. Ft. Unit Sq. Ft. Unit Sq. Ft. Unit Sq. Ft. Unit Sq. Ft.
--------- -------- ---- ---- ---- ---- ---- ---- ------- ---- ------- ---- ------- ---- ------- ---- ------
Plantation 9/90 99% 93% 94% 90% 93.7% $821 $0.65 $867 $0.69 $867 $0.69 $956 $0.71 $994 $0.74
Trace
Plantation 11/98 N/A N/A 92%* N/A N/A N/A N/A $1,171* $0.72* $1,171* $0.72* N/A N/A N/A N/A
Trace
Phase II (1)
River Oaks 2/93 98% 96% 98% 93% 97.3% $859 $0.67 $910 $0.71 $910 $0.71 $930 $0.73 $953 $0.75
Preston Oaks 8/95 99% 97% 98% 98% 98.2% $892 $0.72 $981 $0.79 $981 $0.79 $994 $0.82 $1,038 $0.86
Highland Park 3/96 96%* 96% 97% 97% 97.7% $805 $0.65 $920 $0.75 $920 $0.75 $950 $0.77 $986 $0.80
Crestmark 4/94 98% 87% 91% 95% 94.6% $736 $0.72 $787 $0.73 $787 $0.73 $807 $0.75 $845 $0.78
Crestmark 9/97 N/A 96%* N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A
Phase II (2)
Preston Oaks 7/98 N/A N/A 100%* N/A N/A N/A N/A $799* $0.83* $799* $0.83* N/A N/A N/A N/A
Phase II (1)
Bradford 8/98 N/A N/A 94%* 93% 93.6% N/A N/A $926* $0.68* $926* $0.68* $949 $0.70 $987 $0.73
Creek
Addison Place 5/00 N/A N/A N/A N/A 97.4%* N/A N/A N/A N/A N/A N/A N/A N/A $1,288* $0.76*
Phase I
(1) Plantation Trace Phase II completed its lease-up phase in November 1998 and
Preston Oaks Phase II completed its lease-up in August 1998. Beginning with
1999, both phases of Plantation Trace and Preston Oaks are combined.
(2) We acquired Crestmark in June 1996. Phase II of Crestmark completed its
lease-up in September 1997. Beginning with 1998, both phases of Crestmark
are combined.
11
As described below, our Atlanta communities are located in Gwinnett,
Fulton and Douglas Counties and six submarkets, or geographic areas, within
these counties. We also have one community in Charlotte. The Ballantyne
community now under construction in Charlotte is described after the Georgia
properties. Each heading identifies the community or communities within the
specified county and submarket. We obtained population and employment data for
each Atlanta submarket from the ARC. Multiple communities are located in each of
the Duluth and Perimeter Center/North Springs submarkets; thus those communities
compete not only with unaffiliated apartment communities but also with each
other. Please see "Summary of Debt Secured by the Communities," which follows
the description of the individual communities, for an explanation of the terms
of our secured indebtedness.
GWINNETT COUNTY
Gwinnett County was one of the fastest growing counties in the U.S. in
the 1980's, and from 1985 until 1990 it ranked first in the nation in growth
among counties with a population of more than 100,000. Since 1990, Gwinnett's
population has increased 59% to a current level of 562,300. Gwinnett's strong
employment base, transportation networks, excellent public education system, and
affordable home prices contribute to the county's remarkable growth. Gwinnett is
home to approximately 235 international firms, over 750 manufacturing and 758
high technology firms that generate many of its 339,060 jobs. Since 1990,
Gwinnett has added 187,060 jobs, which is second only to Fulton County in the
Atlanta region. The average household income of the county is approximately
$78,000. Gwinnett County is home to communities located in the City of Duluth
and unincorporated Gwinnett.
Duluth Area - Plantation Trace, River Oaks, and Bradford Creek Communities
DULUTH. The City of Duluth is located in central Gwinnett County and is
home to the Plantation Trace, River Oaks, and Bradford Creek communities. Duluth
has exceeded even Gwinnett County as a whole in percentage of population growth;
based on estimates, its population has increased more than 200% since 1990.
Duluth is located near I-85 and Gwinnett Place Mall, a 1,100,000 square foot
regional mall.
PLANTATION TRACE. Plantation Trace is a 232-unit garden apartment
community that was completed in two phases: a 182-unit first phase in 1990 and a
50-unit second phase in 1998, sometimes referred to below as Phase II.
Plantation Trace consists of 31 two and three story Nantucket-style stone and
wood sided buildings located on a 29.2-acre site on Pleasant Hill Road
approximately one-half mile west of its intersection with Peachtree Industrial
Boulevard. In 1990, the 182-unit first phase received the Aurora Award from the
Southeast Builders' Conference for "Best Rental Apartment Community in the
Southeast."
The Plantation Trace community, with its award-winning traditional
architecture and landscaped grounds, features a clubhouse, a modern fitness and
exercise facility, two lighted tennis courts, sand volleyball court,
multi-station playground, two free-form swimming pools, a small wading pool, a
stone paver pool deck and a covered whirlpool spa. In addition to upscale
amenities, Plantation Trace offers such interior features as nine foot ceilings,
crown molding, pickled wood cabinetry in the kitchen and bath, marble vanity
tops, fireplaces, vaulted ceilings and Palladian windows in select units,
designer wallcoverings and full laundry rooms with washer and dryer connections.
Phase II provides the Plantation Trace community direct access to the
Chattahoochee River, as well as to jogging trails around the existing lake and
nature areas along the river.
Plantation Trace has a variety of floor plans, including 28 one bedroom
units ranging from 901 to 929 square feet, 48 two bedroom standard and 66 two
bedroom roommate units ranging from 1,228 to 1,298 square feet, and 40 three
bedroom units ranging from 1,471 to 1,494 square feet. Phase II contains 7 one
bedroom units of approximately 966 square feet each, 6 two bedroom units of
approximately 1,433 square feet each, 18 two bedroom townhouses of approximately
1,490 square feet each, 12 three bedroom townhouses of approximately 1,948
square feet each, 7 four bedroom townhouses of approximately 2,314 square feet
each, and 33 garages of 200 square feet each. The weighted average unit size is
1,340 square feet. As of December 31, 2000, rental rates ranged from $785 to
$1,790 per month, with a weighted average monthly rent of $994 per unit and
$0.74 per square foot. Local real estate taxes were $222,000 in 2000. The
physical occupancy rate for the entire Plantation Trace community as of December
31, 2000 was 98.3%.
12
RIVER OAKS. River Oaks, which was completed in 1992, consists of 22 two
and three story Charleston-style brick and wood sided buildings located on a
31.6 acre site on Pleasant Hill Road adjacent to the Chattahoochee River to the
west and the Plantation Trace community to the east. The River Oaks community,
with its traditional architecture and landscaped grounds, features a large
clubhouse with a fitness center, two lighted tennis courts, sand volleyball
court, multi-station playground, free-form swimming pool, stone paver pool deck,
and whirlpool spa. In addition to upscale amenities, River Oaks offers such
interior features as nine foot ceilings, crown molding, garden tubs, pickled
pine cabinetry in the kitchen and bath, marble vanity tops, fireplaces and
vaulted ceilings in select units, designer wallcoverings, and full laundry rooms
with washer and dryer connections.
River Oaks has a variety of floor plans, including 40 one bedroom units
at approximately 907 square feet, 32 two bedroom roommate units, 24 two bedroom
deluxe units, and 48 two bedroom standard units ranging from 1,276 to 1,309
square feet, and 72 three bedroom units with approximately 1,457 square feet.
The weighted average unit size is 1,278 square feet. As of December 31, 2000,
the community was 98.5% occupied, and rental rates ranged from $830 to $1,075
per month, with a weighted average monthly rent of $953 per unit and $0.75 per
square foot. Local real estate taxes were $199,000 in 2000.
BRADFORD CREEK. Bradford Creek, which was completed in 1998, consists
of 9 two and three story buildings located on an approximately 22.5 acre
property near the southeast corner of Peachtree Industrial Boulevard and Howell
Ferry Road in Duluth, approximately one-mile southeast of Plantation Trace and
River Oaks. The Bradford Creek community, with its unique mountain lodge
architecture and traditional landscaping, features a large clubhouse with a
fitness center, clubroom, laundry room, two lighted tennis courts, free-form
swimming pool, stone paver pool deck, a 12-acre nature area, a courtyard
highlighted by a water fountain, and a gated entrance. In addition to the
upscale amenities, Bradford Creek offers such interior features as nine foot
ceilings and a computer room in select units, crown moldings, garden tubs, white
raised-panel cabinetry in the kitchen and bath, marble vanity tops, breakfast
bars, designer wallcoverings, and full laundry rooms with washer and dryer
connections. Each building was constructed using cobblestone and vinyl siding
and offers private patios or balconies along with gables and varying paint
colors.
Bradford Creek contains 28 one bedroom units of approximately 1,001
square feet each, 46 two bedroom standard units of approximately 1,302 square
feet each, 47 two bedroom roommate units of approximately 1,344 square feet
each, and 59 three bedroom units of approximately 1,589 square feet each. The
weighted average unit size is 1,355 square feet. As of December 31, 2000, the
community was 95.8% occupied, and rental rates ranged from $840 to $1,130 per
month, resulting in a weighted average monthly rent of $987 per unit and $0.73
per square foot. Local real estate taxes were $175,000 in 2000.
Unincorporated Gwinnett - Old Norcross
The Old Norcross community will be located on a 35.3 acre site at the
intersection of Old Norcross Road and Herrington Road in unincorporated Gwinnett
County near the western Lawrenceville area. This community will have
approximately 250 garden-style apartments. The site for the community is located
near I-85, GA-316, and Gwinnett Place Mall, an 1,100,000 square foot regional
mall. We estimate the total construction cost of this project to be
approximately $16,000,000, which we plan to finance by obtaining a construction
loan.
Old Norcross will have 73 one-bedroom units with 970 square feet, 45
two bedroom standard units with 1,340 square feet, 66 two-bedroom units with
1,385 square feet, 46 three-bedroom units with 1,636 square feet and 20
three-bedroom units with a bay window with 1,621 square feet.
Old Norcross' amenities include a clubhouse offering an exercise room
with weight equipment. The recreational area includes a swimming pool, lighted
tennis court, children's playground, walking trails through the nature area, and
a lake.
13
FULTON COUNTY
Fulton County is the largest county in the Atlanta Region in terms of
population, employment, housing units, and land area. Between 1990 and 1999,
Fulton's net population increase, 96,000 persons, ranked third in the region
behind Gwinnett and Cobb Counties. Unemployment in Fulton County was 3.7% in
2000, which was below the national rate of 4.0%.
Perimeter Center/North Springs Area - Preston Oaks and Highland Park Communities
PERIMETER CENTER/NORTH SPRINGS. The Perimeter Center/North Springs area
offers convenient proximity and access to both urban and suburban employment
bases and retail conveniences. Georgia 400 and I-285 provide direct access
within minutes to major regional malls such as North Point Mall and Perimeter
Center Mall. The Phipps Plaza/Lenox Mall/Buckhead area and downtown Atlanta's
Central Business District are readily accessible via the Georgia 400 extension,
which connects to I-85 South near downtown Atlanta.
Within this corridor is a large base of residential, commercial and
office developments. The south quadrant of the area includes medical facilities
such as Northside Hospital, St. Joseph's Hospital, and Egleston Scottish Rite
Children's Hospital. Perimeter Center encompasses office developments that
exceed 18,500,000 square feet of space, with such upscale facilities as Ravinia,
Northpark Town Center, Concourse, and Perimeter Center Office Park. Several
prominent companies such as Holiday Inn, UPS, and Hewlett-Packard have located
their worldwide or regional headquarters within the Perimeter Center area.
This area, which includes portions of Fulton and DeKalb Counties, has
an average household income of approximately $99,000, which is considerably
higher than the metropolitan Atlanta average of $44,913. The median value of a
single-family home in this area exceeds $200,000.
PRESTON OAKS. Preston Oaks is a 213-unit garden apartment community
that was completed in two phases: a 189-unit first phase in August 1995, and a
24-unit second phase in 1998. Preston Oaks consists of nine two and three story
buildings located on Mt. Vernon Highway in the Perimeter Center area. The
traditional architecture consists of stacked stone and vinyl siding
incorporating details of gabled roofs, Palladian windows, columns, and bay
windows.
The community is located on an 11.5-acre site and features extensive
landscaping. The amenities are similar to those of the other existing
communities, with custom swimming pool, lighted tennis court, fitness center
with individual workout stations, and a large clubhouse. Interior features
include garden tubs, oversized walk-in closets, pickled pine cabinetry in the
kitchen and bath, crown molding, mirrored walls, and chair railing in the dining
rooms. Phase one consists of 36 one-bedroom units, 92 two-bedroom units, and 61
three-bedroom units. Phase two consists of 24 one bedroom apartment units with
959 square feet each.
Preston Oaks is conveniently located less than one mile from Perimeter
Mall, a 1,200,000 square foot regional mall, and in close proximity to the
area's numerous office developments. Several stand-alone restaurants and major
retail centers either exist or are being developed near the community.
As of December 31, 2000, Preston Oaks was 99.1% occupied, and its
rental rates ranged from $885 to $1,255 per month, resulting in a weighted
average monthly rent of $1,038 per unit and $0.86 per square foot. Local real
estate taxes were $235,000 in 2000.
HIGHLAND PARK. This community consists of 188 upscale apartment units
in a total of eight buildings on a 10.9-acre site. Located on Dunwoody Place in
the North Springs area of Sandy Springs, Highland Park benefits from its close
proximity to Georgia 400, which provides direct access within minutes to major
retail and employment areas to the north such as North Point Mall and the
Windward mixed use project, and to the south such as Perimeter Mall and
Perimeter Center.
14
Highland Park has 42 one-bedroom units with 902 square feet, 32 two
bedroom standard units with 1,225 square feet, 62 two-bedroom roommate units
with 1,285 square feet, and 52 three bedroom units with 1,440 square feet. The
weighted average unit size is 1,232 square feet.
The buildings are of a traditional design with stacked stone accents
and vinyl siding with the facades varying from building to building. Exterior
features include gables, bay windows, various paint colors with white trim, and
private patios or balconies. Extensive landscaping includes mature trees,
flowers, and shrubbery. The interiors feature crown molding in the living/dining
rooms, designer wallcoverings, separate laundry rooms, breakfast bars, garden
tubs, and private balconies. Recreational amenities include a swimming pool,
tennis court, and fitness center.
As of December 31, 2000, Highland Park was 98.3% occupied and its
monthly rental rates ranged from $855 to $1,165 per month, resulting in a
weighted average monthly rent of $986 per unit and $0.80 per square foot. Local
real estate taxes were $194,000 in 2000.
Alpharetta Area - Addison Place Community
Alpharetta. The Alpharetta area offers convenient proximity and access
to both urban and suburban employment bases and retail conveniences. Georgia 400
provides direct access within minutes to major regional malls such as North
Point Mall and Perimeter Center Mall. The Phipps Plaza/Lenox Mall/Buckhead area
and downtown Atlanta's Central Business District are readily accessible via the
Georgia 400 extension, which connects to I-85 South near downtown Atlanta.
Within this corridor is a large base of residential, commercial and
office developments. North Point Mall's success accelerated the already high
rate of residential development, which caters to the upscale consumer. North
Fulton's prestigious neighborhoods have been a major factor in the emergence of
the Georgia 400 corridor as a center for corporate headquarters. Between 1990
and 2000, North Fulton added approximately 124,100 residents and 41,401 housing
units. The average household income of North Fulton County in 1999 was $117,000.
The Windward project, which straddles Georgia 400, is the region's largest
mixed-use development.
ADDISON PLACE PHASE I. The 118-unit first phase of Addison Place is
located on 19.2 acres on Abbotts Bridge Road near the intersection of Abbotts
Bridge and Jones Bridge roads. This first phase contains 60 two bedroom
townhouses of approximately 1,497 square feet each and 58 three bedroom
townhouses of approximately 1,903 square feet each. As of December 31, 2000, the
first phase of Addison Place was 97.5% occupied and rental rates ranged from
$1,185 to $1,450 per month, with a weighted average monthly rent of $1,288 per
unit and $0.76 per square foot. The architectural style, land planning,
landscaping, and amenities of this first phase are similar to those of our other
communities. Local real estate taxes were $196,000 in 2000.
The construction of this first phase was completed under a cost-plus
10% construction contract with Roberts Properties Construction providing for 5%
profit and 5% overhead. The total cost of construction, including the fee to
Roberts Properties Construction, was approximately $9,647,000. We anticipate
that there was approximately $874,000 in net profit to Roberts Properties
Construction on the construction contract. We funded the development and
construction of this first phase from our working capital and a $9,500,000
construction loan.
ADDISON PLACE PHASE II. The second phase of Addison Place will contain
285 garden-style apartment homes. It will include 11 different floor plans,
including 60 one bedroom ranging from 765 to 1,034 square feet, 147 two bedroom
units ranging from 1,150 to 1,550 square feet, 58 three bedroom units at
approximately 1,706 square feet, and 20 four bedroom units at approximately
2,074 square feet, along with 40 direct-entry garages. The weighted average unit
size will be 1,415 square feet. The architectural style, land planning, and
landscaping of Phase II will be similar to Phase I. The amenities in Phase II
will feature a free-form swimming pool, 2 tennis courts, a modern fitness and
exercise facility, a business center, men's and women's saunas, and a
playground.
We estimate the total construction cost for the second phase of Addison
Place to be approximately $20,605,000, which we plan to finance by obtaining a
permanent loan.
15
DOUGLAS COUNTY
Douglas County, one of the 10 counties in the Atlanta Region, is
located west of Atlanta and encompasses 202 square miles. The county is
surrounded by Fulton, Cobb, Carroll, and Paulding Counties, with the
Chattahoochee River as its southeastern border. Its population was estimated at
93,500 in 1999, an increase of 30% since 1990. Between 1990 and 1998, Douglas
County added 9,150 jobs and between 1990 and 1999, the county added 21,800
persons and 8,300 housing units. Douglas County benefits from its accessibility
to downtown Atlanta to the east via I-20 and to Hartsfield International Airport
to the southeast via Thornton Road/Camp Creek Parkway. Just across the county
line to the east lies the Fulton Industrial District, the Southeast's largest
contiguous industrial park. The Fulton Industrial District consists of more than
50,000,000 square feet of both manufacturing and warehouse space and stretches
six miles north and south along Fulton Industrial Boulevard. It represents 20%
of Atlanta's total inventory of warehouse/industrial space, and an additional
1,000,000 square feet is under construction. Numerous Fortune 500 companies are
represented in the Fulton Industrial District, employing more than 100,000
people.
Thornton Road/I-20 Area - Crestmark Community
THORNTON ROAD/I-20 AREA. Thornton Road is the third exit west of I-285
on I-20 and connects I-20 with Hartsfield International Airport to the southeast
and the significant residential base of Douglas, West Cobb, and Paulding
counties to the north and east. Several office and business parks that total
more than 2,000,000 square feet of space and house corporations such as
BellSouth, Mitsubishi, Robert Bosch Corporation, TDK Electronics, and
Saab-Scania contribute to a large employment base of approximately 20,000 people
within the Thornton Road area. Restaurant, hospitality and retail conveniences
support the existing employment and residential base in the Thornton Road
corridor. The area also benefits from its close proximity to the Fulton
Industrial District as well as the Six Flags Over Georgia amusement park, both
of which are less than three miles away. At the northwest corner of the Thornton
Road/I-20 interchange is the Columbia/HCA Parkway Medical Center, a 320-bed
acute care medical facility that employs approximately 600 people.
CRESTMARK. Crestmark is a 334-unit garden apartment community that was
completed in two phases: a 248-unit first phase in 1993 and an 86-unit second
phase in 1997. Crestmark consists of 16 three and four story stacked stone and
wood sided buildings, 17 garages and 24 storage units located on a 32.2 acre
site on Thornton Road, approximately one-half mile north of its intersection
with I-20 in Douglas County. In 1993, Crestmark received two Aurora Awards from
the Southeast Builders' Conference, one for "Best Landscape Design in the
Southeast" and another for "Best Recreational Facility in the Southeast."
The Crestmark community, with its award-winning traditional
architecture and landscaped grounds, features a large 14,000 square foot
clubhouse with a club room, full kitchen, fitness center and aerobics room, a
business center and conference room, two lighted tennis courts, multi-station
playground, walking and jogging trail, two free-form swimming pools, stone paver
pool decks, and a whirlpool spa. In addition to the upscale amenities, Crestmark
offers such interior features as nine foot ceilings, crown and chair-rail
molding, pickled wood cabinetry in the kitchen and baths, marble vanity tops,
fireplaces, vaulted and trey ceilings, Palladian and bay windows in select
units, designer wallcoverings, and full laundry rooms with washer and dryer
connections.
Crestmark has a variety of floorplans including 29 one bedroom standard
units with 704 square feet, 50 one bedroom deluxe units with 816 square feet, 19
one bedroom units of 901 square feet in the second phase, 33 two bedroom
standard units with 1,005 square feet, 86 two bedroom deluxe units with 1,110
square feet, 21 two bedroom standard units of 1,223 square feet in the second
phase, 22 two bedroom roommate units of 1,285 square feet in the second phase,
50 three bedroom units with 1,295 square feet and 24 three bedroom units of
1,437 square feet in the second phase. The weighted average unit size is 1,079
square feet. As of December 31, 2000, the community was 97.9% occupied, and
rental rates ranged from $775 to $1,015 per month, with a weighted average
monthly rent of $845 per unit and $0.78 per square foot. Local real estate taxes
were $215,000 in 2000.
16
CHARLOTTE, NORTH CAROLINA - BALLANTYNE
The following information is based on statistics and estimates
published by the Charlotte Chamber of Commerce. Between 1990 and 2000,
Charlotte's population grew by 33.2%, which was well above the national
estimated growth rate of 10%. Since 1988, employment in Charlotte has grown 24%.
Nine of the nation's top 200 banks operate in Charlotte, including Bank of
America, N.A. and First Union Corporation. Other major employers include
Carolinas Healthcare System, Charlotte-Mecklenburg School System, Duke Energy
Corporation, and USAirways. Additionally, nearly 300 of the nation's largest
industrial and service corporations listed by FORTUNE magazine have facilities
in the area.
The Ballantyne community will be located on a 23.8-acre site at the
intersection of Lancaster Highway (old NC-521) and John J. Delaney Drive. The
Ballantyne area is the largest mixed-use development in Mecklenburg County. This
community will have 319 garden-style apartments. The Ballantyne community will
consist of 110 one-bedroom units ranging from 765 square feet to 1,034 square
feet, 143 two-bedroom units ranging from 1,150 square feet to 1,550 square feet,
48 three-bedroom units at 1,706 square feet, and 18 four-bedroom units at 2,074
square feet, along with 36 direct-entry garages. We estimate the cost of
construction on this development to be $23,100,000. The community is located
near I-485 and I-77, which offers convenient access to downtown Charlotte and
I-85.
The table on the following page summarizes the amenities of each of the
existing communities and Addison Place Phase II, Old Norcross, and Ballantyne,
which are now under construction.
17
SUMMARY OF AMENITIES OF THE COMMUNITIES
CLUB-
PATIO, WASHER HOUSE SAND
PORCH & DRYER GARDEN FIRE- VAULTED SWIMMING FITNESS WHIRL- CAR TENNIS VOLLEY- PLAY- LAUNDRY
COMMUNITY BALCONY HOOK-UPS TUBS PLACES* CEILINGS* POOL CENTER POOL WASH COURT(S) BALL GROUND ROOM OTHER
--------- ------- -------- ---- ------ --------- ---- ------ ---- ---- -------- ---- ------ ---- -----
Existing
Communities:
Plantation Yes Yes Yes(1) Yes(2) Yes Yes Yes Yes(2) Yes Yes-2 Yes Yes Yes Riverfront.
Trace Lake, Nature
Preserve
River Oaks Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes-2 Yes Yes Yes Riverfront,
Nature Preserve
Preston Oaks Yes Yes Yes No Yes Yes Yes No Yes Yes-1 No No Yes
Highland Yes Yes Yes No Yes Yes Yes No Yes Yes-1 No Yes Yes
Park
Crestmark Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes-2 No Yes Yes Nature Preserve,
Jogging Trail
Bradford Creek Yes Yes Yes No Yes Yes Yes No Yes Yes-2 No Yes Yes Nature Preserve
Addison Place Yes Yes Yes No No Yes No No Yes Yes-1 No No Yes Lake,
Phase I Nature Trail
Communities
Under
Construction:
Addison Place Yes Yes Yes Yes No Yes Yes No Yes Yes-2 No Yes Yes Lake,
Phase II Nature Trail
Ballantyne Yes Yes Yes Yes No Yes Yes No Yes Yes-2 No No Yes Walking Trail,
Lakes - 2
Old Norcross Yes Yes Yes No Yes Yes Yes No Yes Yes-2 No Yes Yes Nature Trail
* In select units
(1) Phase II only
(2) Phase I only
18
COMPETITION
All of the communities are located in developed areas, and numerous
other apartment projects are located within the market area of each community.
The number of competitive apartment communities in the area could have a
material adverse effect on our ability to lease our apartments at the rental
rates anticipated, and we can give no assurances regarding the development of
additional competing multifamily communities in the future. The remainder of
this section summarizes the competition for each of the communities. The
following information reflects our study of apartment communities in each
submarket that we believe to be closely competitive with our community or
communities within that submarket. This section includes summary information we
obtained from various sources - including developers and real estate brokers, as
well as on-site visits - regarding those apartment communities. Although we have
attempted to verify the information and believe that it is substantially
accurate on the whole, information regarding a particular community may be
incorrect due to the sources relied upon or erroneous information supplied by
competitors.
PLANTATION TRACE, RIVER OAKS, AND BRADFORD CREEK. The Duluth submarket,
which we consider to include the area within a two mile radius from these
communities, currently consists of approximately 17 multifamily communities,
including River Oaks, Plantation Trace, and Bradford Creek. Although the
Bridgewater apartment community - which was previously developed and sold by an
affiliate of Mr. Roberts - is located more than two miles from Plantation Trace,
it is also included in the Duluth market area because it offers units with
attached garages and its architecture and amenities are similar to Plantation
Trace. Of the approximately 17 existing communities in the area, five were
completed in the last three years, including Bradford Creek and the second phase
of Plantation Trace. Due to the quality of construction, age of the communities,
type of amenities, resident profiles and rental rates, we believe that only nine
of the other 14 communities are in direct competition with Plantation Trace,
River Oaks and Bradford Creek.
PRESTON OAKS. We believe that the north central Perimeter multifamily
submarket includes the area within a two-mile radius around this community. It
is generally bounded by Roswell Road to the west, Ashford Dunwoody Road to the
east, Spalding Drive to the north and Glenridge Drive to the south, and it
currently consists of approximately 26 multifamily communities, including
Preston Oaks. Of the 25 other existing communities in the market area, only six
were built before 1983. The remaining 19 communities range from approximately
two to nine years of age. We believe that Preston Oaks competes with all 25 of
these communities.
HIGHLAND PARK. We believe the North Springs multifamily submarket
includes the area within an approximately two-mile radius around this community.
It is generally bounded by the Chattahoochee River to the north and west,
Georgia 400 to the east and Dalrymple Road to the south, and currently consists
of 34 communities, including Highland Park. Of the approximately 34 existing
communities in the market area, only five have been built since 1989. The
remaining communities range in age from 13 years to over 20 years. We believe
Highland Park will draw residents from all of the other 33 communities located
in the market area, but only 11 of the 33 communities will compete closely with
Highland Park.
CRESTMARK. We consider the Thornton Road multifamily submarket to be
the area within an approximately two-mile radius around the Crestmark community.
It is generally bounded by I-20 to the south, Blairs Bridge Road to the east,
and Georgia Highway 78 to the north and west, and it currently consists of
approximately nine communities, including Crestmark. Of the approximately nine
existing communities in the market area, four have been built since 1990. We
believe that Crestmark will draw residents from all of the approximately eight
other communities located in the market area, but due to their amenities,
quality of construction and resident profile, only five of the eight other
communities will compete closely with Crestmark.
ADDISON PLACE. We believe the Alpharetta multifamily submarket includes
the area within an approximately two-mile radius around the Abbotts Bridge
community. It is generally bounded by the Chattahoochee River to the east, Old
Alabama to the south, Georgia 400 to the west, and Windward Parkway to the
north, and it currently consists of approximately 15 communities, including
Addison Place. We believe that Addison Place will draw residents from
19
all of the approximately 14 other communities located in the market area, but
due to their amenities, quality of construction and resident profile, only 13 of
the 14 other communities will compete closely with Addison Place.
BALLANTYNE. We consider the Ballantyne multifamily submarket to include
the area within an approximately two-mile radius around the community. It is
generally bounded by the Providence Road to the east, Providence Road West to
the south, Lancaster Highway (old NC-521) to the west, and I-485 to the north,
and it currently consists of approximately nine communities, including
Ballantyne. We believe that once construction of Ballantyne is complete, it will
draw residents from all of the approximately eight other existing communities
located in the market area and will compete with the four communities under
construction in the market area.
OLD NORCROSS. We believe the Old Norcross multifamily submarket
includes the area within an approximately two-mile radius around the Old
Norcross community. It is generally bounded by Herrington Road to the east, Club
Drive to the south, Steve Reynolds Boulevard to the west, and Sugarloaf to the
north and east, and it currently consists of approximately 24 communities,
including Old Norcross. We believe that Old Norcross will draw residents from
all of the approximately 23 other communities located in the market area, but
due to their amenities, quality of construction and resident profile, only 15 of
the 23 other communities will compete closely with Old Norcross.
SUMMARY OF DEBT SECURED BY THE COMMUNITIES
Information regarding our indebtedness secured by the communities at
December 31, 2001 is as follows (excluding the Ivey Brook and Rosewood
Plantation communities because the properties were sold in June 2000 and January
2001, respectively, and the mortgage debts repaid):
Principal Principal Fixed Monthly
Balance at Maturity Balance at Interest Amortization Principal and
Community Dec. 31, 2000 Date Maturity Rate Schedule Interest Payment
--------- ------------- ---------- ------------ ---------- --------------- ----------------
Plantation Trace $11,632,000 10-15-08 $10,313,000(1) 7.09% 30-year $ 79,892
River Oaks 8,833,000 11-15-03 8,513,000(2) 7.15 30-year 62,475
Preston Oaks 8,198,000 10-15-02 8,025,000(2) 7.21 30-year 59,188
Highland Park 7,740,000 02-15-03 7,544,000(2) 7.30 30-year 56,066
Crestmark 15,586,000 10-01-08 13,690,000(3) 6.57 30-year 101,869
Bradford Creek 8,181,000 06-15-08 7,290,000(2) 7.15 30-year 56,734
Addison Place Ph. I 9,492,000 11-15-09 8,387,000(1) 6.95 30-year 62,885
- ------------------
(1) Each of the loans secured by the Plantation Trace and Addison Place
Phase I communities may be prepaid upon payment of a premium equal to
the greater of (a) 1% multiplied by a fraction having as its numerator
the number of months to maturity and its denominator the number of
months in the full term of the loan, or (b) the present value of the
loan less the amount of principal and accrued interest being repaid.
Each loan may be prepaid in full during the last 30 days before its
maturity date without any prepayment premium.
(2) Each of the loans secured by the River Oaks, Preston Oaks, Highland
Park and Bradford Creek communities may be prepaid in full upon payment
of a premium equal to the greater of (a) 1% of the outstanding
principal balance of the loan, or (b) the sum of the present value of
the scheduled monthly payments to the maturity date and the present
value of the balloon payment due on the maturity date, less the
outstanding principal balance of the loan on the date of prepayment.
Each loan may be prepaid in full during the last 90 days before its
maturity date without any prepayment premium.
(3) The loan secured by the Crestmark community may be prepaid upon the
payment of a premium equal to the greater of (a) 1% of the outstanding
principal balance, or (b) the product obtained by multiplying the
amount of principal being prepaid by the excess (if any) of the monthly
note rate over the assumed reinvestment rate by the present value
factor. If the loan is prepaid after expiration of the yield
maintenance period, but more than 90 days before the maturity date, the
prepayment premium shall be 1% of the unpaid principal balance of the
note. The loan may be prepaid in full during the last 90 days before
its maturity date without any prepayment premium.
20
POSSIBLE ADDITIONAL COMMUNITIES TO BE DEVELOPED
From time to time Roberts Properties plans the development of other
apartment communities to be located on property owned by Roberts Properties or
other affiliates of Mr. Roberts, or on property that one of those entities is
interested in acquiring. Mr. Roberts may elect to raise the required equity by
syndicating a limited partnership or limited liability company. Alternatively,
we may seek to raise the equity required to purchase and develop the community
by selling shares. If Mr. Roberts elects to raise equity through a limited
partnership or limited liability company, Mr. Roberts may seek to cause the
partnership to be merged into the operating partnership at a later date. A
transaction of that nature would require the consent of a majority in interest
of the limited partners of the partnership and of a majority of the
disinterested members of our board of directors, and we can give no assurances
regarding whether Mr. Roberts will ultimately determine to seek a merger in that
manner, or whether such a merger would in fact be approved by the requisite
majority in interest of limited partners in the partnership and by a majority of
the disinterested members of the Board.
As described above in Part I, Item 1, Description of Business - Growth
Strategies - Development Strategy, three other multifamily apartment communities
that are anticipated to total 854 apartment homes are in the development or
construction stage. We also plan to acquire a 10.7 acre parcel on Northridge
Parkway in north Atlanta from Roberts Properties for the development and
construction of a 220-unit community. See Part III, Item 13, Certain
Relationships and Related Transactions - Payments to the Roberts Companies -
Pending Transactions with Affiliates of Mr. Roberts for more information about
this transaction.
OTHER REAL ESTATE ASSETS
The operating partnership sold its two retail centers totaling 15,698
square feet on July 17, 1998 for $2,400,000 in cash resulting in a gain, net of
minority interest, of $300,000. Net sales proceeds were $2,182,000, after
deducting for closing costs and prorations of $218,000. We reinvested the net
proceeds in new apartment communities. The purchaser was unaffiliated with us,
and the transaction was negotiated at arms-length. The net book value of the
property was $1,715,000 at June 30, 1998. We paid Roberts Properties $92,500 for
consulting fees in connection with the sale. The retail centers together
composed less than 1% of our assets and generated less than 2% of our gross
revenues for 1998.
As noted in Part III, Item 13, Certain Relationships and Related
Transactions - Payments to the Roberts Companies - Pending Transactions with
Affiliates of Mr. Roberts, we intend to develop a 47,200 square foot retail
center near our Addison Place community.
ITEM 3. LEGAL PROCEEDINGS.
Neither Roberts Realty, the operating partnership, nor the communities
are presently subject to any material litigation nor, to our knowledge, is any
material litigation threatened against any of them. Routine litigation arising
in the ordinary course of business is not expected to result in any material
losses to us or the operating partnership.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matter was submitted to a vote of security holders during the fourth
quarter of 2000.
21
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The common stock trades on the American Stock Exchange, or AMEX, under
the symbol "RPI." The following table sets forth the quarterly high and low
closing sales prices per share reported on the AMEX, as well as the quarterly
dividends declared per share:
Dividends
Quarter Ended High Low Declared
------------- ---- --- --------
2000
First Quarter 7.6875 6.5625 $0.1350
Second Quarter 7.1250 6.5625 0.3850*
Third Quarter 7.7500 7.1250 0.1100
Fourth Quarter 7.9375 7.6875 0.1100
1999
First Quarter $7.6250 $7.1250 $0.1500
Second Quarter 7.7500 7.2500 0.1500
Third Quarter 8.5000 7.5000 0.6500**
Fourth Quarter 7.8125 7.3125 0.1350
* Includes a special dividend of $0.25 per share.
** Includes a special dividend of $0.50 per share.
On March 23, 2001 there were approximately 479 holders of record of the
common stock.
As of March 23, 2001, we had 4,846,228 shares outstanding. In addition,
2,381,728 shares are reserved for issuance to unitholders from time to time upon
their exercise of redemption rights as explained in Part I, Item 1, Description
of Business - The Operating Partnership. There is no established public trading
market for the units. As of March 1, 2001, the operating partnership had 281
unitholders of record.
We depend upon distributions from the operating partnership to fund our
distributions to shareholders. Distributions by the operating partnership, and
thus distributions by us, will continue to be at the discretion of the board of
directors and will be equal in amount for each unit and share. We and the
operating partnership declared quarterly distributions for 1999 that totaled
$1.085 per share/unit per annum, including a special distribution of $0.50 per
share/unit in August 1999 as a result of the sale of our Bentley Place
community. We and the operating partnership declared quarterly distributions for
2000 that totaled $0.7400 per share/unit per annum, including a special
distribution of $0.25 per share/unit in June 2000 as a result of the sale of our
Ivey Brook community. Approximately 23.85% of those 2000 distributions
represented ordinary income, 57.14% represented capital gain, and the remaining
19.01% represented a return of capital.
We elected to become a REIT beginning with the partial year ended
December 31, 1994. To maintain our qualification as a REIT under the Internal
Revenue Code, we must make annual distributions to shareholders of at least 95%
of our taxable income, which does not include net capital gains. Under some
circumstances, we may be required to make distributions in excess of cash
available for distribution to meet those distribution requirements.
During the fourth quarter of 2000, we issued a total of 5,745 shares of
restricted common stock to seven employees as incentive compensation. The
restrictions on transfer lapse at specified dates ranging between three and four
years after the respective grant date. The grants were exempt from registration
as private placements under section 4(2) of the Securities Act. We affixed
appropriate legends to the share certificates we issued in these transactions.
All recipients of these securities had adequate access, through their
relationships with us, to information about us. All of these securities are
deemed to be restricted securities for purposes of the Securities Act.
22
ITEM 6. SELECTED FINANCIAL DATA.
OPERATING DATA:
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
- ------------------------------------------------------------------------------------------------------------------------------------
YEARS ENDED DECEMBER 31,
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
OPERATING DATA:
- --------------
Revenues:
Rental operations $18,768 $ 18,163 $ 16,521 $ 16,831 $ 14,651
Other operating income 1,410 1,221 833 741 546
------- ------- -------- ------- --------
Total revenues 20,178 19,384 17,354 17,572 15,197
------- ------- -------- ------- --------
Expenses:
Property operating and maintenance expense (exclusive of
depreciation and amortization) (1) 6,759 6,688 6,192 5,504 5,091
Depreciation of real estate assets 5,463 5,529 5,017 5,708 4,974
Management fees to related party (2) 0 0 0 211 760
Interest expense 4,951 5,244 4,555 4,670 3,724
Interest income (214) (159) (384) (395) (353)
Amortization of deferred financing costs 209 219 139 122 141
Other amortization expense 0 11 52 65 67
General and administrative 2,197 1,964 1,727 1,714 926
Acquisition of Roberts Properties Management, LLC (3) 0 0 0 5,900 0
Loss on disposal of assets 83 81 94 156 0
------- ------- -------- ------- --------
Total expenses 19,448 19,577 17,392 23,655 15,330
------- ------- -------- ------- --------
INCOME (LOSS) BEFORE MINORITY INTEREST, GAINS ON SALE OF
REAL ESTATE ASSETS, AND EXTRAORDINARY ITEMS 730 (193) (38) (6,083) (133)
MINORITY INTEREST OF UNITHOLDERS
IN THE OPERATING PARTNERSHIP (246) 70 15 2,646 52
-------- ------- -------- ------- --------
INCOME (LOSS) BEFORE GAINS ON SALE OF REAL ESTATE
ASSETS AND EXTRAORDINARY ITEMS 484 (123) (23) (3,437) (81)
GAINS ON SALE OF REAL ESTATE ASSETS, net of minority interest
of unitholders in the operating partnership 2,416 1,023 1,218 1,012 0
------- ------- -------- ------- --------
INCOME (LOSS) BEFORE EXTRAORDINARY ITEMS 2,900 900 1,195 (2,425) (81)
EXTRAORDINARY ITEMS, loss on early extinguishments of debt, net
of minority interest of unitholders in the operating partnership(4) (68) (184) (487) (184) (99)
-------- ------- -------- ------- --------
Net income (loss) $2,832 $ 716 $ 708 $(2,609) $ (180)
====== ====== ========= ====== ========
INCOME (LOSS) PER COMMON SHARE - BASIC AND DILUTED:
Income (loss) before extraordinary items $0.59 $ 0.19 $ 0.26 $ (0.58) $ (0.02)
Extraordinary items (0.01) (0.04) (0.11) (0.04) (0.03)
------ ------ -------- ------- -------
Net income (loss) $0.58 $ 0.15 $ 0.15 $ (0.62) $ (0.05)
===== ======= ======== ======= ========
Dividends declared (5) $0.7400 $1.0850 $ 0.5775 $0.5760 $ 0.4813
======= ======= ======== ======= ========
23
DECEMBER 31,
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
BALANCE SHEET DATA:
------------------
Real estate assets, before accumulated depreciation $123,680 $ 128,898 $ 122,830 $111,778 $ 110,800
Real estate assets, net of accumulated depreciation 99,619 107,869 105,916 98,337 101,885
Total assets 131,529 127,078 125,090 118,350 116,815
Total debt 93,690 88,850 79,973 67,951 63,342
Minority interest of unitholders in the operating partnership 10,607 12,013 15,579 18,861 19,322
Shareholders' equity 21,437 22,310 26,526 26,697 29,226
OTHER DATA:
----------
Cash flow provided from (used in):
Operating activities $ 6,485 $ 5,917 $ 5,295 $ 5,469 $ 5,567
Investing activities (4,896) (7,003) (18,235) (1,537) (16,309)
Financing activities (1,767) (1,347) 9,929 23 12,500
------- --------- --------- -------- ---------
Net increase (decrease) in cash and cash equivalents (178) (2,433) (3,011) 3,955 1,758
Cash and cash equivalents, beginning of year 1,673 4,106 7,117 3,162 1,404
Cash and cash equivalents, end of year 1,495 1,673 4,106 7,117 3,162
Funds from operations (6) $ 6,276 $ 5,417 $ 5,114 $ 5,746 $ 4,908
Weighted average common shares outstanding - basic 4,881,601 4,737,008 4,638,265 4,187,013 3,799,567
Weighted average common shares outstanding - diluted 7,367,068 7,448,757 7,547,978 7,404,323 6,244,513
Total stabilized communities (at end of year) 8 9 9 9 9
Total stabilized apartments (at end of year) 1,633 1,779 1,778 1,756 1,731
Average physical occupancy (stabilized communities) (7) 95.9% 93.7% 96.3% 95.4% 97.2%
(1) Property operating expenses include personnel, utilities, real
estate taxes, insurance, maintenance, landscaping, marketing, and
property administration expenses (real estate taxes include an
adjustment of $588,000 in 1997 to reduce estimated property tax
accruals for two properties that received favorable tax
assessments).
(2) Because we acquired Roberts Properties Management, LLC on April 1,
1997, we paid no management fees to a related party after April 1,
1997; however, we incurred additional general and administrative
expenses as a result of managing our properties internally.
(3) On April 1, 1997, we acquired Roberts Management, the property
management company that managed our multifamily apartment
communities since our inception. The operating partnership issued
590,000 units valued at $10.00 per unit or $5,900,000 to purchase
Roberts Management. We manage our own properties using Roberts
Management's property management systems and the property
management personnel formerly employed by Roberts Management.
Although we no longer pay 5% of gross property revenues to Roberts
Management for property management services, we do bear the actual
overhead cost of managing the properties internally. Because
Roberts Management, a related party, managed only properties we
owned, the transaction was accounted for as the settlement of a
contract and expensed for the year ended December 31, 1997.
(4) The extraordinary items resulted from costs associated with the
early extinguishment of indebtedness. The extraordinary items have
been reduced by the portion related to the minority interest of the
unitholders.
(5) We began paying dividends and distributions on our common stock and
units beginning on April 15, 1996.
(6) Funds from Operations, or FFO, is defined by the National
Association of Real Estate Investment Trusts as net income (loss),
computed in accordance with generally accepted accounting
principles, excluding gains (or losses) from debt restructuring and
sales of property and non-recurring items, plus real estate related
depreciation and amortization. We use the current NAREIT definition
of FFO. Effective January 1, 2000, NAREIT amended its definition of
FFO to include all non-recurring items, except those defined as
extraordinary items under GAAP and gains and losses from sales of
depreciable operating property. We consider FFO to be an important
measure of our operating performance; however, FFO does not
represent amounts available for management's discretionary use for
payment of capital replacement or expansion, debt service
obligations, property acquisitions, development and distributions,
or other commitments and uncertainties. FFO should not be
considered as an alternative to net income (determined in
accordance with GAAP) as an indication of our financial performance
or cash flows from operating activities (determined in accordance
with GAAP) as a measure of our liquidity, nor is it indicative of
funds available to fund our cash needs, including our ability to
make distributions. We consider FFO to be an important measure of
our operating performance. While FFO does not represent cash flows
from operating, investing or financing activities as defined by
GAAP, FFO does provide investors with additional information with
which to evaluate the ability of a REIT to pay dividends, meet
required debt service payments and fund capital expenditures. We
believe that to gain a clear understanding of our operating
results, FFO should be evaluated in conjunction with net income
(determined in accordance with GAAP). FFO represents funds from
operations available for shareholders and unitholders. We did not
use the current NAREIT definition of FFO to compute the 1997
figure. The 1997 figure was calculated using the old NAREIT
definition of FFO which excluded non-recurring items.
(7) Represents the average physical occupancy of the stabilized
communities calculated by dividing the total number of vacant days
by the total possible number of vacant days for each period and
subtracting the resulting number from 100%.
24
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION.
This report contains "forward-looking statements" within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. These statements relate to future economic performance,
plans and objectives of management for future operations and projections of
revenues and other financial items that are based on the beliefs of our
management, as well as assumptions made by, and information currently available
to, our management. The words "expect," "estimate," "anticipate," "believe" and
similar expressions are intended to identify forward-looking statements. Those
statements involve risks, uncertainties and assumptions, including industry and
economic conditions, competition and other factors discussed in this and our
other filings with the SEC. If one or more of these risks or uncertainties
materialize or underlying assumptions prove incorrect, actual outcomes may vary
materially from those indicated. See "Disclosure Regarding Forward-Looking
Statements" at the end of this Item for a description of some of the important
factors that may affect actual outcomes.
OVERVIEW
We own multifamily residential properties as a self-administered and
self-managed equity real estate investment trust. At December 31, 2000, we owned
eight completed and stabilized multifamily apartment communities, consisting of
1,633 apartment homes.
As part of our business plan and growth strategy, we sold our 117-unit
Bentley Place community in August 1999 and our 232-unit Windsong community in
January 1998. Our decision to sell these two communities was based on their age
and locations in markets that are not included in our long-term growth strategy.
In July 1998, we sold our two small retail centers because we decided to exit
all businesses not related to the long-term ownership of high quality apartment
homes. We sold our 146-unit Ivey Brook community in June 2000 and our 152-unit
Rosewood Plantation community in January 2001. Our decision to sell these two
communities was based on their small size and our decision to redeploy the net
cash proceeds into new properties where we expect the yield and long-term growth
to be greater.
In June 1998, we used the equity from the sale of Windsong and cash to
purchase three separate parcels of land for $11.3 million. We are developing and
building three new multifamily communities totaling 854 apartment homes, which
will increase the size of our portfolio 58% from 1,481 to 2,335 apartment homes.
One of our communities under construction is located in Charlotte, North
Carolina, and is the first step in our diversification strategy. The other two
communities are located in north Atlanta. We began construction of the 285-unit
second phase of Addison Place Phase II during the third quarter of 1999, and we
commenced construction of a 250-unit apartment home community located in north
Atlanta during the July 2000.
RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2000, 1999, AND 1998
For the year ended December 31, 2000, we recorded net income of
$2,832,000 or $0.58 per share compared to net income of $716,000 or $0.15 per
share for the year ended December 31, 1999 and net income of $708,000 or $0.15
per share for the year ended December 31, 1998. The $2,116,000 increase in net
income from $716,000 in 1999 to $2,832,000 in 2000 is due primarily to the
following:
(a) Addison Place Phase I becoming stabilized on July 1, 2000;
(b) a $161,000 increase in water revenue from $357,000 in 1999 to
$518,000 in 2000;
(c) lower interest expense as a result of a decrease in total debt
due to the sale of Ivey Brook and an increase in construction
period interest due to having more properties under
construction in 2000 than in 1999;
25
(d) the increase in the gain on sale of real estate assets due to
the sale of Ivey Brook in June 2000 compared to the gain on
the sale of Bentley Place in August 1999; and
(e) the increase in average stabilized occupancy from 93.7% in
1999 to 95.9% in 2000;
offset by:
(f) higher general and administrative costs; and
(g) a $135,000 increase in personnel costs from $1,785,000 in
1999 to $1,920,000 in 2000.
The $8,000 increase in net income from $708,000 in 1998 to $716,000 in 1999 is
due primarily to the following:
(a) the start of leasing operations at Addison Place Phase I in
April 1999;
(b) the completion of the initial lease-up phase at Bradford Creek
in August 1998 and the second phases of Preston Oaks in July
1998 and Plantation Trace in November 1998; and
(c) a $307,000 increase in water revenue from $50,000 in 1998 to
$357,000 in 1999;
offset by:
(d) higher interest expense due to:
o the permanent financing of Bradford Creek in June 1998;
o the refinancing of Rosewood Plantation for a higher loan
amount in June 1998;
o the refinancing of Plantation Trace for a higher loan
amount in September 1998;
o the refinancing of Crestmark for a higher loan amount in
September 1998;
o construction loan interest on Addison Place Phase I in 1999
1999; and
o the permanent financing of Addison Place Phase I in October
1999;
(e) higher general and administrative costs;
(f) increased depreciation expense; and
(g) the decline in average stabilized occupancy from 96.3% in
1998 to 93.7% in 1999.
Our operating performance for all communities is summarized in the following
table:
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
---------------------- ----------------------
(dollars in thousands)
% %
2000 1999 CHANGE 1999 1998 CHANGE
---- ---- ------ ---- ---- ------
Total operating revenues $ 20,178 $ 19,384 4.1% $ 19,384 $ 17,354 11.7%
Property operating expenses (1) $ 6,759 $ 6,688 1.1% $ 6,688 $ 6,192 8.0%
General and administrative expenses $ 2,197 $ 1,964 11.9% $ 1,964 $ 1,727 13.7%
Net operating income (2) $ 13,419 $ 12,696 5.7% $ 12,696 $ 11,162 13.7%
Depreciation of real estate assets $ 5,463 $ 5,529 (1.2)% $ 5,529 $ 5,017 10.2%
Average stabilized occupancy (3) 95.9% 93.7% 2.2% 93.7% 96.3% (2.6)%
Operating expense ratio (4) 33.5% 34.5% (1.0)% 34.5% 35.7% (1.2)%
(footnotes begin on following page)
26
(1) Property operating expenses include personnel, utilities, real estate
taxes, insurance, maintenance, landscaping, marketing, and property
administration expenses.
(2) Net operating income is equal to total operating revenues minus
property operating expenses.
(3) Represents the average physical occupancy of our stabilized
properties calculated by dividing the total number of vacant days by
the total possible number of vacant days for each period and
subtracting the resulting number from 100%. The calculation includes
the following: (a) the second phase of Preston Oaks beginning August
1, 1998, Bradford Creek beginning September 1, 1998, and the second
phase of Plantation Trace beginning December 1, 1998, which are the
dates each community achieved stabilized occupancy; (b) Windsong only
through January 9, 1998, which is the date the property was sold, (c)
Ivey Brook only through June 23, 2000, which is the date the property
was sold; and (d) Bentley Place only through August 23, 1999, which
is the date the property was sold.
(4) Represents the total of property operating expenses divided by
property operating revenues, expressed as a percentage.
Our 2000 same-property operating performance, when compared to 1999,
includes a 7.1% increase in operating revenues, an 8.8% increase in net
operating income, a 1.4% increase in average occupancy from 94.4% to 95.8%, and
a 2.8% decline in our lease renewal percentage. Same-property results for the
seven communities that were fully stabilized during both years ended December
31, 2000 and 1999 (Crestmark, Bradford Creek, Highland Park, River Oaks,
Rosewood Plantation, and the first phases of Plantation Trace and Preston Oaks)
are summarized in the table below.
Our 1999 same-property operating performance, when compared to 1998,
included a 4.2% increase in operating revenues, a 5.6% increase in net operating
income, a 0.6% decrease in average occupancy from 94.9% to 95.5%, and a 3.6%
decrease in our lease renewal percentage. Same-property results for the seven
communities that were fully stabilized during both years ended December 31, 1999
and 1998 (Bentley Place, Highland Park, River Oaks, Rosewood Plantation, and the
first phases of Crestmark, Plantation Trace, and Preston Oaks) are summarized in
the following table:
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
----------------------- -----------------------
(dollars in thousands) % %
2000 1999 CHANGE 1999 1998 CHANGE
---- ---- ------ ---- ---- ------
Rental income $ 16,406 $ 15,450 6.2% $ 14,441 $ 14,149 2.1%
Total operating revenues $ 17,621 $ 16,450 7.1% $ 15,402 $ 14,785 4.2%
Property operating expenses (1) $ 5,760 $ 5,548 3.8% $ 5,255 $ 5,180 1.4%
Net operating income (2) $ 11,861 $ 10,902 8.8% $ 10,147 $ 9,605 5.6%
Average stabilized occupancy (3) 95.8% 94.4% 1.4% 94.9% 95.5% (0.6)%
Operating expense ratio (4) 32.7% 33.7% (1.0)% 34.1% 35.0% (0.9)%
Average monthly rent per apartment home $ 959 $ 922 4.0% $ 920 $ 895 2.8%
Lease renewal percentage (5) 53.6% 56.4% (2.8)% 55.7% 59.3% (3.6)%
(1) Property operating expenses include personnel, utilities, real estate
taxes, insurance, maintenance, landscaping, marketing, and property
administration expenses.
(2) Net operating income is equal to total operating revenues minus
property operating expenses.
(3) Represents the average physical occupancy of the stabilized
communities calculated by dividing the total number of vacant days by
the total possible number of vacant days for each period and
subtracting the resulting number from 100%.
(4) Represents the total of property operating expenses divided by
property operating revenues expressed as a percentage.
(5) Represents the number of leases renewed divided by the number of
leases expired during the period presented, expressed as a
percentage.
27
The following discussion compares our statements of operations for the
years ended December 31, 2000, 1999 and 1998.
Property operating revenue increased $794,000 or 4.1% from $19,384,000
for the year ended December 31, 1999 to $20,178,000 for the year ended December
31, 2000. The increase in operating revenue is due primarily to the following:
(a) the stabilization of Addison Place Phase I;
(b) a 2.2% increase in the average stabilized occupancy rate;
(c) a $161,000 increase in water revenue from $357,000 in 1999 to
$518,000 in 2000; and
(d) a $1,171,000 or 7.1% increase in same-property operating
revenue;
offset by:
(e) the sale of Ivey Brook in 2000 compared to the sale of Bentley
Place in 1999.
Property operating revenue increased $2,030,000 or 11.7% from
$17,354,000 for the year ended December 31, 1998 to $19,384,000 for the year
ended December 31, 1999. The increase in operating revenue is due primarily to
the following:
(a) the start of leasing operations at Addison Place Phase I in
April 1999;
(b) the completion of the initial lease-up phase at Bradford Creek
in August 1998 and the second phases of Preston Oaks in July
1998 and Plantation Trace in November 1998;
(c) a $617,000 or 4.2% increase in same-property operating
revenue; and
(d) a $307,000 increase in water revenue from $50,000 in 1998 to
$357,000 in 1999, with $255,000 of the $307,000 increase being
attributable to the seven properties that were stabilized
during both 1998 and 1999;
offset by:
(e) the sale of the two retail centers in 1998 compared to the
sale of Bentley Place in 1999; and
(f) decreased average physical occupancy from 96.3% in 1998 to
93.7% in 1999.
During 1998, we implemented a program to bill residents for their
individual water consumption. We completed the installation of water-metering
equipment in the fourth quarter of 1998 at a total cost of $377,000. Water
revenues were $518,000 during 2000, $357,000 during 1999 and $50,000 during
1998. We expect to install water-metering equipment in all new apartment homes
we develop.
Property operating expenses (excluding depreciation and general and
administrative expenses) increased $71,000 or 1.1% from $6,688,000 for the year
ended December 31, 1999 to $6,759,000 for the year ended December 31, 2000. The
increase in property operating expenses is due primarily to the following:
(a) Addison Place Phase I operating for 12 months in 2000 while
operating only 9 months in 1999; and
(b) same property operating expenses increasing 3.8% or $212,000
from $5,548,000 in 1999 to $5,760,000 in 2000;
28
offset by the sales of Ivey Brook in 2000 and Bentley Place in
1999.
Property operating expenses (excluding depreciation and general and
administrative expenses) increased $496,000 or 8.0% from $6,192,000 for the year
ended December 31, 1998 to $6,688,000 for the year ended December 31, 1999. The
increase in property operating expenses is due primarily to the following:
(a) the start of leasing operations at Addison Place Phase I in
April 1999;
(b) the completion of the initial lease-up phase at Bradford Creek
in August 1998 and the second phases of Preston Oaks in July
1998 and Plantation Trace in November 1998; and
(c) a $75,000, or 1.4% increase in same-property operating
expenses;
offset by the sales of Bentley Place in 1999 and the two
retail centers in 1998.
General and administrative expenses increased $233,000 or 11.9% from
$1,964,000 for the year ended December 31, 1999 to $2,197,000 for the year ended
December 31, 2000 and include legal accounting and tax fees, marketing and
printing fees, salaries, director fees and other costs. This increase is due
primarily to increased legal costs and incentive based