ROBERTS REALTY INVESTORS INC - 10-Q Quarterly Report

U.S. SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

Form 10-Q

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

For the quarterly period ended March 31, 2004

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

For the transition period from to

Commission File No. 001-13183

Roberts Realty Investors, Inc.

(Exact Name of Registrant as Specified in Its Charter)


Georgia		58-2122873

(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification Number)


8010 Roswell Road, Suite 280, Atlanta, Georgia		30350

(Address of Principal Executive Offices)		(Zip Code)

Registrant’s telephone number, Including Area Code: (770) 394-6000

Indicate by check whether the registrant: (1) has filed all reports 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		þ		No		o

Indicate by check whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).


Yes		o		No		þ

The number of outstanding shares of the registrant’s Common Stock on May 3, 2004 was 5,270,531 (net of shares held in treasury).

PART I

ITEM 1. FINANCIAL STATEMENTS.

ROBERTS REALTY INVESTORS, INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)


	March 31,			December 31,
	2004			2003
	(Unaudited)
ASSETS
REAL ESTATE ASSETS – At cost:
Land	$	20,411		$	20,411
Buildings and improvements		118,866			118,694
Furniture, fixtures and equipment		13,458			13,448

		152,735			152,553
Less accumulated depreciation		(32,221	)		(30,871	)

Operating real estate assets		120,514			121,682
Construction in progress and real estate under development		48,224			45,510

Net real estate assets		168,738			167,192
CASH AND CASH EQUIVALENTS		8,745			8,583
RESTRICTED CASH		343			342
DEFERRED FINANCING COSTS – Net of accumulated amortization of $786 and $716 at March 31, 2004 and December 31, 2003, respectively		1,075			1,146
OTHER ASSETS – Net		508			476

	$	179,409		$	177,739

LIABILITIES AND SHAREHOLDERS’ EQUITY
LIABILITIES:
Mortgage notes payable	$	110,778		$	94,052
Construction notes payable		25,984			40,458
Land notes payable		3,000			3,000
Swap contract liability		3,021			3,255
Accounts payable and accrued expenses		1,760			1,372
Due to Roberts Construction (including retainage payable of $1,004 and $952 at March 31, 2004 and December 31, 2003, respectively)		1,778			1,878
Security deposits and prepaid rents		423			461

Total liabilities		146,744			144,476

COMMITMENTS AND CONTINGENCIES (Note 8)
MINORITY INTEREST OF UNITHOLDERS IN THE OPERATING PARTNERSHIP		8,918			9,214

SHAREHOLDERS’ EQUITY:
Preferred shares, $.01 par value, 20,000,000 shares authorized, no shares issued and outstanding		0			0
Common shares, $.01 par value, 100,000,000 shares authorized, 5,612,481 and 5,585,206 shares issued at March 31, 2004 and December 31, 2003, respectively		56			56
Additional paid-in capital		26,167			26,050
Less treasury shares, at cost (362,588 shares at March 31, 2004 and December 31, 2003)		(2,764	)		(2,764	)
Unamortized restricted stock compensation		(75	)		(93	)
Retained earnings		2,559			3,153
Accumulated other comprehensive loss		(2,196	)		(2,353	)

Total shareholders’ equity		23,747			24,049

	$	179,409		$	177,739

See notes to the consolidated financial statements.

ROBERTS REALTY INVESTORS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in Thousands, Except Per Share Amounts)


	Three Months Ended
	March 31,
	2004			2003
	(Unaudited)			(Unaudited)
OPERATING REVENUES:
Rental operations	$	4,597		$	4,340
Other operating income		290			284

Total operating revenues		4,887			4,624

OPERATING EXPENSES:
Personnel		522			468
Utilities		304			293
Repairs, maintenance and landscaping		285			243
Real estate taxes		493			518
Marketing, insurance and other		295			267
General and administrative expenses		394			539
Depreciation of real estate assets		1,444			1,778

Total operating expenses		3,737			4,106

INCOME FROM OPERATIONS		1,150			518

OTHER INCOME (EXPENSE):
Interest income		22			16
Interest expense		(1,914	)		(1,907	)
Loss on disposal of assets		(6	)		0
Amortization of deferred financing costs		(71	)		(71	)

Total other expense		(1,969	)		(1,962	)

LOSS FROM CONTINUING OPERATIONS BEFORE MINORITY INTEREST AND GAIN ON SALE OF REAL ESTATE ASSETS		(819	)		(1,444	)
MINORITY INTEREST OF UNITHOLDERS IN THE OPERATING PARTNERSHIP		225			422

LOSS FROM CONTINUING OPERATIONS BEFORE GAIN ON SALE OF REAL ESTATE ASSETS		(594	)		(1,022	)
GAIN ON SALE OF REAL ESTATE ASSETS, net of minority interest of unitholders in the operating partnership		0			77

LOSS FROM CONTINUING OPERATIONS		(594	)		(945	)
INCOME FROM DISCONTINUED OPERATIONS, net of minority interest of unitholders in the operating partnership (Note 4)		0			58

NET LOSS	$	(594	)	$	(887	)

LOSS PER COMMON SHARE – BASIC AND DILUTED:
Loss from continuing operations	$	(0.11	)	$	(0.18	)
Income from discontinued operations		0.00			0.01

Net loss	$	(0.11	)		(0.17	)

Weighted average common shares – basic		5,239,067			5,117,425
Weighted average common shares – diluted (effect of operating partnership units)		7,223,060			7,223,610

See notes to the consolidated financial statements.

ROBERTS REALTY INVESTORS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)


	Three Months Ended
	March 31,
	2004			2003
	(Unaudited)			(Unaudited)
OPERATING ACTIVITIES:
Net loss	$	(594	)	$	(887	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Income from discontinued operations		0			(58	)
Minority interest of unitholders in the operating partnership		(225	)		(422	)
Gain on sale of real estate assets		0			(77	)
Loss on disposal of assets		6			0
Depreciation and amortization		1,515			1,849
Amortization of deferred compensation		(12	)		5
Change in assets and liabilities:
Increase in restricted cash		(1	)		(20	)
Increase in other assets		(32	)		(34	)
Increase (decrease) in accounts payable and accrued expenses relating to operations		535			(149	)
(Decrease) increase in security deposits and prepaid rent		(38	)		95

Net cash provided by operating activities from continuing operations		1,154			302

Net cash provided by operating activities from discontinued operations		0			224

Net cash provided by operating activities		1,154			526
INVESTING ACTIVITIES:
Proceeds from sale of real estate assets		0			381
Construction of real estate assets		(3,244	)		(3,046	)

Net cash used in investing activities		(3,244	)		(2,665	)

FINANCING ACTIVITIES:
Principal repayments on mortgage notes payable		(274	)		(288	)
Payment of loan costs		0			(2	)
Proceeds from construction loans		2,526			2,412

Net cash provided by financing activities		2,252			2,122

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		162			(17	)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD		8,583			5,542

CASH AND CASH EQUIVALENTS, END OF PERIOD	$	8,745		$	5,525

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest	$	2,234		$	2,511

See notes to the consolidated financial statements.

ROBERTS REALTY INVESTORS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. BUSINESS AND ORGANIZATION

Roberts Realty Investors, Inc., a Georgia corporation, was formed July 22, 1994 to serve as a vehicle for investments in, and ownership of, a professionally managed real estate portfolio consisting primarily of multifamily apartment communities. Roberts Realty owns and operates multifamily residential properties as a self-administered, self-managed equity real estate investment trust (a “REIT”). Six of Roberts Realty’s completed apartment communities are located in the Atlanta metropolitan area, with the seventh located in Palm Beach County, Florida.

Roberts Realty conducts all of its operations and owns all of its assets in and through Roberts Properties Residential, L.P., a Georgia limited partnership (the “operating partnership”), of which Roberts Realty is the sole general partner and had a 72.7% and 72.3% ownership interest at March 31, 2004 and December 31, 2003, respectively. As the sole general partner and owner of a majority interest of the operating partnership, Roberts Realty controls the operating partnership.

At March 31, 2004, Roberts Realty owned seven completed multifamily apartment communities totaling 1,694 apartment homes (1,494 in the Atlanta metropolitan area and 200 in Palm Beach County, Florida); an additional 319 apartment homes were under construction in Charlotte, North Carolina; and a 220-unit apartment community in Atlanta was in the planning and design phase. In addition, Roberts Realty has under construction a 39,907 square foot commercial office building and a 42,090 square foot retail center, along with two undeveloped commercial sites adjacent to the retail center.

Roberts Realty elected to be taxed as a REIT under the Internal Revenue Code of 1986, as amended, beginning with the taxable year ended December 31, 1994. As a result, Roberts Realty generally will not be subject to federal and state income taxation at the corporate level to the extent it distributes annually to its shareholders at least 90% of its taxable income, as defined in the Internal Revenue Code, and satisfies certain other requirements. Accordingly, the accompanying consolidated financial statements include no provision for federal and state income taxes.

Roberts Realty enters into contractual commitments in the normal course of business with Roberts Properties, Inc. (“Roberts Properties”) and Roberts Properties Construction, Inc. (“Roberts Construction”), which are affiliates of Roberts Realty that are wholly owned by Mr. Charles S. Roberts, the President, Chief Executive Officer, and Chairman of the Board of Roberts Realty. These contracts relate to the development and construction of real estate assets. (See Note 7.)

2. BASIS OF PRESENTATION

The accompanying consolidated financial statements include the consolidated accounts of Roberts Realty and the operating partnership. All significant intercompany accounts and transactions have been eliminated in consolidation. The financial statements of Roberts Realty have been adjusted for the minority interest of the unitholders in the operating partnership.

The minority interest of the unitholders in the operating partnership on the accompanying balance sheets is calculated based on the minority interest ownership percentage multiplied by the operating partnership’s net assets (total assets less total liabilities). The minority interest percentage reflects the number of shares and units outstanding and changes as additional shares and units are issued and redeemed. The minority interest of the unitholders in the earnings or loss of the operating partnership on the accompanying statements of operations is calculated based on the weighted average number of

units outstanding during the period, which was 27.5% and 29.2% for the three months ended March 31, 2004 and 2003, respectively. The minority interest of the unitholders was $8,918,000 at March 31, 2004 and $9,214,000 at December 31, 2003.

Holders of partnership units generally have the right to require the operating partnership to redeem their units for shares. Upon submittal of units for redemption, the operating partnership has the option either (a) to acquire those units in exchange for shares, on a one-for-one basis, or (b) to pay cash for those units at their fair market value, based upon the then current trading price of the shares. Roberts Realty has adopted a policy that it will issue shares in exchange for all future units submitted.

Roberts Realty’s management has prepared the accompanying interim unaudited financial statements in accordance with generally accepted accounting principles for interim financial information and in conformity with the rules and regulations of the Securities and Exchange Commission. In the opinion of management, the interim financial statements reflect all adjustments of a normal and recurring nature that are necessary to fairly state the interim financial statements. The results of operations for the interim periods do not necessarily indicate the results that may be expected for the year ending December 31, 2004. These financial statements should be read in conjunction with Roberts Realty’s audited financial statements and the notes to them included in Roberts Realty’s Annual Report on Form 10-K for the year ended December 31, 2003.

3. ACQUISITIONS AND DISPOSITIONS

On February 27, 2001, Roberts Realty signed an exchange agreement with an intermediary to acquire land previously owned by Roberts Properties Jones Bridge, LLC, of which Mr. Roberts owned a 90% interest. Roberts Realty is constructing a 42,090 square foot retail center on the 6.84-acre property, which is located at the intersection of Abbotts Bridge Road and Jones Bridge Road in front of its Addison Place community in Alpharetta, Georgia. Roberts Realty acquired the property on June 20, 2001 for approximately $4,470,000. In connection with these transactions, Roberts Properties Jones Bridge, LLC received $3,498,000 for the property. Through March 31, 2004, Roberts Realty paid Roberts Construction approximately $2,508,000 for construction-related work on the property. Roberts Realty entered into a cost plus 5% contract with Roberts Construction to complete the retail center. See Note 7 – Related Party Transactions.

On June 28, 2001, Roberts Realty purchased approximately 10.9 acres from Roberts Properties to construct a 220-unit upscale apartment community located adjacent to its former Highland Park community. The purchase price was $5,376,000 including closing costs, and the transaction was part of a Section 1031 tax-deferred exchange partially funded by sales proceeds from the sale of Rosewood Plantation. The total cost of the project is estimated to be $24,000,000. Roberts Realty paid Roberts Properties to complete the design and development work for a fee of $2,500 per unit, or $550,000. Roberts Realty entered into a cost plus 10% contract with Roberts Construction to build the 220 apartment units. See Note 7 – Related Party Transactions.

On June 28, 2001, Roberts Realty purchased a partially constructed office building and approximately 3.9 acres of land from Roberts Properties for $2,147,000, including closing costs. Roberts Realty intends to complete construction and estimates total project costs of $6,300,000, including the amount paid at closing. Roberts Construction will complete construction of the building at cost and will perform tenant finish work for approximately $600,000. Roberts Realty did not pay Roberts Properties a development fee for this project. Roberts Realty will use a portion of one floor of the building as its corporate headquarters and expects to occupy the space beginning on May 10. Roberts Realty will lease the remaining space on that floor to Roberts Properties and Roberts Construction and plans to lease the other two floors to unaffiliated tenants.

On February 28, 2003, Roberts Realty received an aggregate of $381,000 in connection with the sale of land, reimbursement for land improvements and conveyances of temporary construction easements to Fulton County, Georgia for road right-of-way projects at the Addison Place community, which resulted in a gain of $77,000, net of minority interest of unitholders in the operating partnership.

On August 6, 2003, Roberts Realty completed the sale of its Highland Park community for $17,988,000, resulting in a gain of approximately $6,070,000, net of minority interest of $2,432,000. Net sales proceeds were approximately $6,932,000 after deduction of $9,930,000 for the mortgage note payable, which was assumed by the buyer, closing costs and prorations totaling $227,000, and a partnership profits interest of $899,000 paid to Roberts Properties under the amended partnership agreement of the operating partnership.

4. DISCONTINUED OPERATIONS

For the three months ended March 31, 2003, income from discontinued operations relates to Roberts Realty’s 188-unit Highland Park community that Roberts Realty sold on August 6, 2003. The following table summarizes revenue and expense information for Highland Park for the three month periods ended March 31, 2003 (dollars in thousands, unaudited):


OPERATING REVENUES:
Rental operations	$	508
Other operating income		21

Total operating revenues		529
OPERATING EXPENSES:
Personnel		44
Utilities		27
Repairs, maintenance and landscaping		24
Real estate taxes		48
Marketing, insurance and other		26
Depreciation of real estate assets		105

Total operating expenses		274
INCOME FROM OPERATIONS		255
OTHER EXPENSE:
Interest expense		(169	)
Gain (loss) on disposal of assets		—
Amortization of deferred financing costs		(4	)

Total other expense		(173	)
Income before minority interest		82
MINORITY INTEREST OF UNITHOLDERS IN THE OPERATING PARTNERSHIP		(24	)

INCOME FROM DISCONTINUED OPERATIONS	$	58

5. NOTES PAYABLE

Roberts Realty has four types of debt: unsecured lines of credit; mortgage notes secured by some of its apartment communities; construction/permanent loans secured by other apartment communities and properties; and land loans incurred to purchase undeveloped land. These loans are summarized below.

Lines of Credit. Roberts Realty has unsecured lines of credit with two banks, aggregating $3,000,000, to provide funds for short-term working capital needs. One facility, in the amount of $1,000,000, expires June 1, 2004. The other facility, in the amount of $2,000,000, expires August 1, 2004. At March 31, 2004, there were no borrowings under either line of credit.

Mortgage Notes. The permanent mortgage notes payable secured by Roberts Realty’s completed apartment communities at March 31, 2004 and December 31, 2003 were as follows:




			Fixed Interest Rate as of			Principal Outstanding
Property Securing Mortgage	Maturity		3/31/04			3/31/04		12/31/03
Addison Place – Phase I		11/15/09		6.95	%	$	9,147,000	$	9,177,000
Addison Place – Phase II ⁽¹⁾		5/10/05		8.62	%		22,243,000		22,282,000
Bradford Creek		6/15/08		7.15	%		7,832,000		7,861,000
Plantation Trace		10/15/08		7.09	%		11,143,000		11,185,000
Preston Oaks		2/01/08		7.18	%		12,273,000		12,310,000
River Oaks		09/01/13		5.54	%		10,667,000		10,703,000
St. Andrews at the Polo Club		12/01/11		6.95	%		20,473,000		20,534,000
Veranda Chase ⁽¹⁾⁽²⁾		04/25/08		7.38	%		17,000,000		0

						$	110,778,000	$	94,052,000

(1)		The interest rate on this loan has been synthetically fixed at the rate shown. See Note 6.

(2)		Prior to 2004, the debt instrument was classified as a construction loan.

Construction Loans. On June 28, 2001, Roberts Realty closed a $5,280,000 loan to fund the construction of the Northridge commercial office building. The loan is secured by the land and improvements, has a 35-month term, and bears interest at the 30-day LIBOR plus 200 basis points. At March 31, 2004, $4,208,000 was drawn on the loan. Roberts Realty intends to extend the construction loan on this property prior to the maturity date on this loan of June 1, 2004.

On February 21, 2002, Roberts Realty closed a $24,000,000 construction/permanent loan to fund the construction of its 319-unit apartment community in Charlotte, North Carolina. The loan is secured by the land and improvements and matures on March 10, 2006, with Roberts Realty having the option to exercise two additional one-year extensions. Monthly payments are interest only through March 10, 2005 at the 30-day LIBOR plus 200 basis points; thereafter, interest will be payable monthly on the same basis but principal will also be payable in monthly installments calculated using a 30-year amortization schedule and an assumed interest rate of 7.0%. At March 31, 2004, $18,101,000 was drawn on the loan.

On May 30, 2003, Roberts Realty closed a $6,500,000 construction loan to fund the construction of the Addison Place retail center. The loan is secured by the land and improvements and matures on April 30, 2006. Monthly payments are interest only at the 30-day LIBOR plus 185 basis points. At March 31, 2004, $3,675,000 was drawn on the loan.

Land Loans. On June 28, 2001, Roberts Realty closed a $3,000,000 land loan to fund the initial construction of the Northridge apartment community. The loan matures on July 10, 2004, is secured by the Northridge land, and bears an interest rate of the 30-day LIBOR plus 175 basis points. At March 31, 2004, $3,000,000 was drawn on the loan. Roberts Realty intends to roll the loan into a construction loan upon starting construction of the project.

Interest capitalized was $326,000 and $334,000 for the three months ended March 31, 2004 and 2003, respectively.

Real estate assets having a combined depreciated cost of $120,513,000 served as collateral for the outstanding mortgage debt at March 31, 2004.

6. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES.

Effective January 1, 2001, Roberts Realty adopted Statement of Financial Accounting Standards (“SFAS”) No. 133, “Accounting for Derivative Instruments and Hedging Activities,” as amended. SFAS No. 133 establishes accounting and reporting standards for derivative instruments and for hedging activities by requiring that all derivatives be recognized on the balance sheet and measured at fair value. Gains or losses resulting from changes in the fair value of derivatives are recognized in earnings or recorded in other comprehensive income, and recognized in the income statement when the hedged item affects earnings, depending on the purpose of the derivatives and whether they qualify for hedge accounting treatment.

Roberts Realty generally enters into fixed rate debt instruments. In certain situations, Roberts Realty may utilize derivative financial instruments in the form of interest rate swaps to hedge interest rate exposure on variable-rate debt. Roberts Realty does not use these instruments for trading or speculative purposes. Roberts Realty has entered into interest rate swap agreements to effectively fix the interest rates on its Addison Place – Phase II mortgage loan and its Veranda Chase construction/permanent loan (see Note 5 – Notes Payable). The swap agreements expire May 10, 2005 and May 5, 2006, respectively. The swap agreements have been designated as cash flow hedges and, accordingly, are recorded at fair value in the consolidated balance sheets, and the related gains or losses are deferred in shareholders’ equity, net of minority interest, as a component of other comprehensive income. Amounts received or paid in connection with the swap agreements are recognized as adjustments to interest related to the designated debt. Any ineffective portion of cash flow hedges are recognized immediately in earnings. Roberts Realty intends to hold the interest rate swap arrangement and related debt agreement for the Addison Place – Phase II mortgage loan until maturity. In the event the interest rate swap agreement is terminated, Roberts Realty would discontinue prospectively reclassifying amounts in accumulated other comprehensive income to earnings based upon when the hedged transactions are recognized in earnings.

At March 31, 2004, Roberts Realty recorded a liability of $3,021,000 relating to the estimated fair value of the swaps as a result of lower market interest rates. This resulted in a decrease in shareholders’ equity of $2,196,000 (accumulated other comprehensive income), net of minority interest of $825,000. At December 31, 2003, the liability relating to the estimated fair value of the swaps was $3,255,000, which resulted in a decrease in shareholders’ equity of $2,353,000 (accumulated other comprehensive income), net of minority interest of $902,000. Provided that Roberts Realty holds these instruments until maturity, it will not pay any interest other than that stated in the loan and swap agreements. The liability recorded at March 31, 2004 will be reduced as Roberts Realty performs under these instruments, as the difference between the market interest rate and the fixed rates decreases, and as these obligations mature.

7. RELATED PARTY TRANSACTIONS

Roberts Realty has engaged the Roberts Companies, which are owned by Mr. Charles S. Roberts, its Chairman of the Board, Chief Executive Officer, and President, to perform services for the operating partnership. The Roberts Companies developed and constructed all of Roberts Realty’s existing communities, except (a) the 24-unit second phase of Preston Oaks, which was constructed by an independent contractor, and (b) the 200-unit St. Andrews at the Polo Club apartment community, which Roberts Realty acquired on November 6, 2001 while still in the lease-up phase. Roberts Construction is the general contractor of Roberts Realty’s Charlotte community and will oversee the completion of its construction. Roberts Construction began construction on the Addison Place retail center and the corporate office building before Roberts Realty purchased these properties, and Roberts Realty has retained Roberts Construction to finish construction. Roberts Realty retained Roberts Properties to develop the Northridge community and entered into a cost plus 10% contract with Roberts Construction to build the 220 apartment units.

Roberts Construction constructed Addison Place – Phase II and Veranda Chase under a cost plus 10% contract and is constructing the Charlotte apartment community under a cost plus 10% arrangement. In 2001, Roberts Realty entered into a cost plus 5% contract with Roberts Construction related to the construction of the 39,205 square foot Addison Place retail center. Also in 2001, Roberts Realty entered into a fixed price contract with Roberts Construction related to the construction of the Northridge corporate office building. At March 31, 2004, the remaining commitments under construction contracts were $5,301,000 as summarized in the following table:


	Actual/Estimated				Estimated
	Total				Remaining
	Contract		Amount		Contractual
	Amount		Incurred		Commitment
Addison Place retail center	$	3,460,000	$	2,508,000	$	952,000
Northridge Office Building		5,587,000		5,013,000		574,000
Charlotte		23,193,000		19,478,000		3,715,000
Veranda Chase		15,608,000		15,608,000		0
Addison Place – Phase II		21,876,000		21,816,000		60,000

	$	69,724,000	$	64,423,000	$	5,301,000

Roberts Realty plans to fund the remaining contractual commitments for the Addison Place retail center, Northridge Office Building and Charlotte commitments from the remaining amounts available to be borrowed under the construction loans secured by those properties. Roberts Realty plans to fund the remaining contractual commitment for Addison Place – Phase II from working capital.

At March 31, 2004 and December 31, 2003, the amounts due to Roberts Construction are summarized in the following table:


	March 31,		December 31,
	2004		2003
Addison Place retail center	$	105,000	$	95,000
Northridge apartment land		5,000		4,000
Northridge Office Building		315,000		251,000
Charlotte		1,342,000		1,517,000
Veranda Chase		11,000		11,000

Total	$	1,778,000	$	1,878,000

8. COMMITMENTS AND CONTINGENCIES

Roberts Realty and the operating partnership are subject to various legal proceedings and claims that arise in the ordinary course of business. While the resolution of these matters cannot be predicted with certainty, management believes the final outcome of such matters will not have a material adverse effect on Roberts Realty’s financial position or results of operations.

Under Roberts Realty’s bylaws, it is obligated to indemnify its officers and directors for certain events or occurrences arising as a result of the officer or director’s serving in such capacity. The maximum potential amount of future payments Roberts Realty could be required to make under this indemnification arrangement is unlimited. Roberts Realty currently has a directors and officers liability insurance policy that may limit its exposure and enable it to recover a portion of any future amounts paid. As a result of the insurance policy coverage, Roberts Realty believes the estimated fair value of this indemnification arrangement is minimal, and Roberts Realty has recorded no liabilities for this indemnification arrangement as of March 31, 2004.

See Note 7 for information about commitments under construction contracts with Roberts Construction.

On April 26, 2004, we announced that we signed a definitive agreement to sell five Atlanta apartment communities totaling 1,091 units for $109,600,000, which net of mortgage debt and closing-related expenses is estimated to be $6.38 per share. The purchase price for our Bradford Creek, Plantation Trace, Preston Oaks, River Oaks, and Veranda Chase communities is equal to $100,458 per apartment unit or $77.30 per square foot. The transaction is expected to close in June 2004.

9. SHAREHOLDERS’ EQUITY

Exchanges of Units for Shares. During the three months ended March 31, 2004 and 2003, a total of 31,114 and 38,325 partnership units, respectively, were exchanged for an equal number of shares. Each exchange was reflected in the accompanying consolidated financial statements at book value.

Restricted Share Awards. During the three months ended March 31, 2003, Roberts Realty granted 827 shares of restricted stock to certain employees. The market value of these restricted stock grants totaled $5,000. During the three months ended March 31, 2004, Roberts Realty granted no shares of restricted stock. These transactions have been recorded as unamortized deferred compensation and are shown as a separate component of shareholders’ equity. These restricted shares vest 100% at the end of a three-year vesting period and are being amortized to compensation expense ratably over the vesting period. During the three months ended March 31, 2004, and 2003, employees who terminated employment before vesting forfeited 3,839 and 3,980 shares, respectively, of restricted stock with original market values of $30,000 and $30,000, respectively.

Dividends and Distributions. On August 27, 2003, Roberts Realty paid a special distribution of $0.55 per share/unit to shareholders/unitholders in the operating partnership of record on August 18, 2003. Roberts Realty has not paid regular quarterly dividends since the third quarter of 2001. Of the dividends declared for 2003 totaling $0.55 per share, approximately $0.52 per share represents capital gain and $0.03 per share represents a return of capital to the shareholders.


	PAGE
PART I FINANCIAL INFORMATION		2
ITEM 1. FINANCIAL STATEMENTS		2
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS		15
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK		29
ITEM 4. CONTROLS AND PROCEDURES		30
PART II OTHER INFORMATION		31
ITEM 1. LEGAL PROCEEDINGS		31
ITEM 2. CHANGES IN SECURITIES, USE OF PROCEEDS AND ISSUER PURCHASES OF EQUITY SECURITIES		31
ITEM 3. DEFAULTS UPON SENIOR SECURITIES		31
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS		31
ITEM 5. OTHER INFORMATION		31
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K		31
EX-31 SECTION 302 CERTIFICATION OF THE CEO AND CFO
EX-32 SECTION 906 CERTIFICATION OF THE CEO AND CFO


	Three Months
	Ended March 31,
	2004			2003
Net loss – basic	$	(594	)	$	(887	)
Minority interest of unitholders in the operating partnership in loss		(225	)		(366	)

Net loss – diluted	$	(819	)	$	(1,253	)

Weighted average shares – basic		5,239,067			5,117,425
Dilutive securities – weighted average units		1,983,993

Table of Contents

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Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

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Table of Contents

1.		BUSINESS AND ORGANIZATION

		Roberts Realty Investors, Inc., a Georgia corporation, was formed July 22, 1994 to serve as a vehicle for investments in, and ownership of, a professionally managed real estate portfolio consisting primarily of multifamily apartment communities. Roberts Realty owns and operates multifamily residential properties as a self-administered, self-managed equity real estate investment trust (a “REIT”). Six of Roberts Realty’s completed apartment communities are located in the Atlanta metropolitan area, with the seventh located in Palm Beach County, Florida.

		Roberts Realty conducts all of its operations and owns all of its assets in and through Roberts Properties Residential, L.P., a Georgia limited partnership (the “operating partnership”), of which Roberts Realty is the sole general partner and had a 72.7% and 72.3% ownership interest at March 31, 2004 and December 31, 2003, respectively. As the sole general partner and owner of a majority interest of the operating partnership, Roberts Realty controls the operating partnership.

		At March 31, 2004, Roberts Realty owned seven completed multifamily apartment communities totaling 1,694 apartment homes (1,494 in the Atlanta metropolitan area and 200 in Palm Beach County, Florida); an additional 319 apartment homes were under construction in Charlotte, North Carolina; and a 220-unit apartment community in Atlanta was in the planning and design phase. In addition, Roberts Realty has under construction a 39,907 square foot commercial office building and a 42,090 square foot retail center, along with two undeveloped commercial sites adjacent to the retail center.

		Roberts Realty elected to be taxed as a REIT under the Internal Revenue Code of 1986, as amended, beginning with the taxable year ended December 31, 1994. As a result, Roberts Realty generally will not be subject to federal and state income taxation at the corporate level to the extent it distributes annually to its shareholders at least 90% of its taxable income, as defined in the Internal Revenue Code, and satisfies certain other requirements. Accordingly, the accompanying consolidated financial statements include no provision for federal and state income taxes.

		Roberts Realty enters into contractual commitments in the normal course of business with Roberts Properties, Inc. (“Roberts Properties”) and Roberts Properties Construction, Inc. (“Roberts Construction”), which are affiliates of Roberts Realty that are wholly owned by Mr. Charles S. Roberts, the President, Chief Executive Officer, and Chairman of the Board of Roberts Realty. These contracts relate to the development and construction of real estate assets. (See Note 7.)

2.		BASIS OF PRESENTATION

		The accompanying consolidated financial statements include the consolidated accounts of Roberts Realty and the operating partnership. All significant intercompany accounts and transactions have been eliminated in consolidation. The financial statements of Roberts Realty have been adjusted for the minority interest of the unitholders in the operating partnership.

		The minority interest of the unitholders in the operating partnership on the accompanying balance sheets is calculated based on the minority interest ownership percentage multiplied by the operating partnership’s net assets (total assets less total liabilities). The minority interest percentage reflects the number of shares and units outstanding and changes as additional shares and units are issued and redeemed. The minority interest of the unitholders in the earnings or loss of the operating partnership on the accompanying statements of operations is calculated based on the weighted average number of

		units outstanding during the period, which was 27.5% and 29.2% for the three months ended March 31, 2004 and 2003, respectively. The minority interest of the unitholders was $8,918,000 at March 31, 2004 and $9,214,000 at December 31, 2003.

		Holders of partnership units generally have the right to require the operating partnership to redeem their units for shares. Upon submittal of units for redemption, the operating partnership has the option either (a) to acquire those units in exchange for shares, on a one-for-one basis, or (b) to pay cash for those units at their fair market value, based upon the then current trading price of the shares. Roberts Realty has adopted a policy that it will issue shares in exchange for all future units submitted.

		Roberts Realty’s management has prepared the accompanying interim unaudited financial statements in accordance with generally accepted accounting principles for interim financial information and in conformity with the rules and regulations of the Securities and Exchange Commission. In the opinion of management, the interim financial statements reflect all adjustments of a normal and recurring nature that are necessary to fairly state the interim financial statements. The results of operations for the interim periods do not necessarily indicate the results that may be expected for the year ending December 31, 2004. These financial statements should be read in conjunction with Roberts Realty’s audited financial statements and the notes to them included in Roberts Realty’s Annual Report on Form 10-K for the year ended December 31, 2003.

3.		ACQUISITIONS AND DISPOSITIONS

		On February 27, 2001, Roberts Realty signed an exchange agreement with an intermediary to acquire land previously owned by Roberts Properties Jones Bridge, LLC, of which Mr. Roberts owned a 90% interest. Roberts Realty is constructing a 42,090 square foot retail center on the 6.84-acre property, which is located at the intersection of Abbotts Bridge Road and Jones Bridge Road in front of its Addison Place community in Alpharetta, Georgia. Roberts Realty acquired the property on June 20, 2001 for approximately $4,470,000. In connection with these transactions, Roberts Properties Jones Bridge, LLC received $3,498,000 for the property. Through March 31, 2004, Roberts Realty paid Roberts Construction approximately $2,508,000 for construction-related work on the property. Roberts Realty entered into a cost plus 5% contract with Roberts Construction to complete the retail center. See Note 7 – Related Party Transactions.

		On June 28, 2001, Roberts Realty purchased approximately 10.9 acres from Roberts Properties to construct a 220-unit upscale apartment community located adjacent to its former Highland Park community. The purchase price was $5,376,000 including closing costs, and the transaction was part of a Section 1031 tax-deferred exchange partially funded by sales proceeds from the sale of Rosewood Plantation. The total cost of the project is estimated to be $24,000,000. Roberts Realty paid Roberts Properties to complete the design and development work for a fee of $2,500 per unit, or $550,000. Roberts Realty entered into a cost plus 10% contract with Roberts Construction to build the 220 apartment units. See Note 7 – Related Party Transactions.

		On June 28, 2001, Roberts Realty purchased a partially constructed office building and approximately 3.9 acres of land from Roberts Properties for $2,147,000, including closing costs. Roberts Realty intends to complete construction and estimates total project costs of $6,300,000, including the amount paid at closing. Roberts Construction will complete construction of the building at cost and will perform tenant finish work for approximately $600,000. Roberts Realty did not pay Roberts Properties a development fee for this project. Roberts Realty will use a portion of one floor of the building as its corporate headquarters and expects to occupy the space beginning on May 10. Roberts Realty will lease the remaining space on that floor to Roberts Properties and Roberts Construction and plans to lease the other two floors to unaffiliated tenants.

		On February 28, 2003, Roberts Realty received an aggregate of $381,000 in connection with the sale of land, reimbursement for land improvements and conveyances of temporary construction easements to Fulton County, Georgia for road right-of-way projects at the Addison Place community, which resulted in a gain of $77,000, net of minority interest of unitholders in the operating partnership.

		On August 6, 2003, Roberts Realty completed the sale of its Highland Park community for $17,988,000, resulting in a gain of approximately $6,070,000, net of minority interest of $2,432,000. Net sales proceeds were approximately $6,932,000 after deduction of $9,930,000 for the mortgage note payable, which was assumed by the buyer, closing costs and prorations totaling $227,000, and a partnership profits interest of $899,000 paid to Roberts Properties under the amended partnership agreement of the operating partnership.

4.		DISCONTINUED OPERATIONS

		For the three months ended March 31, 2003, income from discontinued operations relates to Roberts Realty’s 188-unit Highland Park community that Roberts Realty sold on August 6, 2003. The following table summarizes revenue and expense information for Highland Park for the three month periods ended March 31, 2003 (dollars in thousands, unaudited):

5.		NOTES PAYABLE

		Roberts Realty has four types of debt: unsecured lines of credit; mortgage notes secured by some of its apartment communities; construction/permanent loans secured by other apartment communities and properties; and land loans incurred to purchase undeveloped land. These loans are summarized below.

		Lines of Credit. Roberts Realty has unsecured lines of credit with two banks, aggregating $3,000,000, to provide funds for short-term working capital needs. One facility, in the amount of $1,000,000, expires June 1, 2004. The other facility, in the amount of $2,000,000, expires August 1, 2004. At March 31, 2004, there were no borrowings under either line of credit.

		Mortgage Notes. The permanent mortgage notes payable secured by Roberts Realty’s completed apartment communities at March 31, 2004 and December 31, 2003 were as follows:

		Construction Loans. On June 28, 2001, Roberts Realty closed a $5,280,000 loan to fund the construction of the Northridge commercial office building. The loan is secured by the land and improvements, has a 35-month term, and bears interest at the 30-day LIBOR plus 200 basis points. At March 31, 2004, $4,208,000 was drawn on the loan. Roberts Realty intends to extend the construction loan on this property prior to the maturity date on this loan of June 1, 2004.

		On February 21, 2002, Roberts Realty closed a $24,000,000 construction/permanent loan to fund the construction of its 319-unit apartment community in Charlotte, North Carolina. The loan is secured by the land and improvements and matures on March 10, 2006, with Roberts Realty having the option to exercise two additional one-year extensions. Monthly payments are interest only through March 10, 2005 at the 30-day LIBOR plus 200 basis points; thereafter, interest will be payable monthly on the same basis but principal will also be payable in monthly installments calculated using a 30-year amortization schedule and an assumed interest rate of 7.0%. At March 31, 2004, $18,101,000 was drawn on the loan.

		On May 30, 2003, Roberts Realty closed a $6,500,000 construction loan to fund the construction of the Addison Place retail center. The loan is secured by the land and improvements and matures on April 30, 2006. Monthly payments are interest only at the 30-day LIBOR plus 185 basis points. At March 31, 2004, $3,675,000 was drawn on the loan.

		Land Loans. On June 28, 2001, Roberts Realty closed a $3,000,000 land loan to fund the initial construction of the Northridge apartment community. The loan matures on July 10, 2004, is secured by the Northridge land, and bears an interest rate of the 30-day LIBOR plus 175 basis points. At March 31, 2004, $3,000,000 was drawn on the loan. Roberts Realty intends to roll the loan into a construction loan upon starting construction of the project.

		Interest capitalized was $326,000 and $334,000 for the three months ended March 31, 2004 and 2003, respectively.

		Real estate assets having a combined depreciated cost of $120,513,000 served as collateral for the outstanding mortgage debt at March 31, 2004.

6.		DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES.

		Effective January 1, 2001, Roberts Realty adopted Statement of Financial Accounting Standards (“SFAS”) No. 133, “Accounting for Derivative Instruments and Hedging Activities,” as amended. SFAS No. 133 establishes accounting and reporting standards for derivative instruments and for hedging activities by requiring that all derivatives be recognized on the balance sheet and measured at fair value. Gains or losses resulting from changes in the fair value of derivatives are recognized in earnings or recorded in other comprehensive income, and recognized in the income statement when the hedged item affects earnings, depending on the purpose of the derivatives and whether they qualify for hedge accounting treatment.

		Roberts Realty generally enters into fixed rate debt instruments. In certain situations, Roberts Realty may utilize derivative financial instruments in the form of interest rate swaps to hedge interest rate exposure on variable-rate debt. Roberts Realty does not use these instruments for trading or speculative purposes. Roberts Realty has entered into interest rate swap agreements to effectively fix the interest rates on its Addison Place – Phase II mortgage loan and its Veranda Chase construction/permanent loan (see Note 5 – Notes Payable). The swap agreements expire May 10, 2005 and May 5, 2006, respectively. The swap agreements have been designated as cash flow hedges and, accordingly, are recorded at fair value in the consolidated balance sheets, and the related gains or losses are deferred in shareholders’ equity, net of minority interest, as a component of other comprehensive income. Amounts received or paid in connection with the swap agreements are recognized as adjustments to interest related to the designated debt. Any ineffective portion of cash flow hedges are recognized immediately in earnings. Roberts Realty intends to hold the interest rate swap arrangement and related debt agreement for the Addison Place – Phase II mortgage loan until maturity. In the event the interest rate swap agreement is terminated, Roberts Realty would discontinue prospectively reclassifying amounts in accumulated other comprehensive income to earnings based upon when the hedged transactions are recognized in earnings.

		At March 31, 2004, Roberts Realty recorded a liability of $3,021,000 relating to the estimated fair value of the swaps as a result of lower market interest rates. This resulted in a decrease in shareholders’ equity of $2,196,000 (accumulated other comprehensive income), net of minority interest of $825,000. At December 31, 2003, the liability relating to the estimated fair value of the swaps was $3,255,000, which resulted in a decrease in shareholders’ equity of $2,353,000 (accumulated other comprehensive income), net of minority interest of $902,000. Provided that Roberts Realty holds these instruments until maturity, it will not pay any interest other than that stated in the loan and swap agreements. The liability recorded at March 31, 2004 will be reduced as Roberts Realty performs under these instruments, as the difference between the market interest rate and the fixed rates decreases, and as these obligations mature.

7.		RELATED PARTY TRANSACTIONS

		Roberts Realty has engaged the Roberts Companies, which are owned by Mr. Charles S. Roberts, its Chairman of the Board, Chief Executive Officer, and President, to perform services for the operating partnership. The Roberts Companies developed and constructed all of Roberts Realty’s existing communities, except (a) the 24-unit second phase of Preston Oaks, which was constructed by an independent contractor, and (b) the 200-unit St. Andrews at the Polo Club apartment community, which Roberts Realty acquired on November 6, 2001 while still in the lease-up phase. Roberts Construction is the general contractor of Roberts Realty’s Charlotte community and will oversee the completion of its construction. Roberts Construction began construction on the Addison Place retail center and the corporate office building before Roberts Realty purchased these properties, and Roberts Realty has retained Roberts Construction to finish construction. Roberts Realty retained Roberts Properties to develop the Northridge community and entered into a cost plus 10% contract with Roberts Construction to build the 220 apartment units.

		Roberts Construction constructed Addison Place – Phase II and Veranda Chase under a cost plus 10% contract and is constructing the Charlotte apartment community under a cost plus 10% arrangement. In 2001, Roberts Realty entered into a cost plus 5% contract with Roberts Construction related to the construction of the 39,205 square foot Addison Place retail center. Also in 2001, Roberts Realty entered into a fixed price contract with Roberts Construction related to the construction of the Northridge corporate office building. At March 31, 2004, the remaining commitments under construction contracts were $5,301,000 as summarized in the following table:

8.		COMMITMENTS AND CONTINGENCIES

		Roberts Realty and the operating partnership are subject to various legal proceedings and claims that arise in the ordinary course of business. While the resolution of these matters cannot be predicted with certainty, management believes the final outcome of such matters will not have a material adverse effect on Roberts Realty’s financial position or results of operations.

		Under Roberts Realty’s bylaws, it is obligated to indemnify its officers and directors for certain events or occurrences arising as a result of the officer or director’s serving in such capacity. The maximum potential amount of future payments Roberts Realty could be required to make under this indemnification arrangement is unlimited. Roberts Realty currently has a directors and officers liability insurance policy that may limit its exposure and enable it to recover a portion of any future amounts paid. As a result of the insurance policy coverage, Roberts Realty believes the estimated fair value of this indemnification arrangement is minimal, and Roberts Realty has recorded no liabilities for this indemnification arrangement as of March 31, 2004.

		See Note 7 for information about commitments under construction contracts with Roberts Construction.

		On April 26, 2004, we announced that we signed a definitive agreement to sell five Atlanta apartment communities totaling 1,091 units for $109,600,000, which net of mortgage debt and closing-related expenses is estimated to be $6.38 per share. The purchase price for our Bradford Creek, Plantation Trace, Preston Oaks, River Oaks, and Veranda Chase communities is equal to $100,458 per apartment unit or $77.30 per square foot. The transaction is expected to close in June 2004.

9.		SHAREHOLDERS’ EQUITY

		Exchanges of Units for Shares. During the three months ended March 31, 2004 and 2003, a total of 31,114 and 38,325 partnership units, respectively, were exchanged for an equal number of shares. Each exchange was reflected in the accompanying consolidated financial statements at book value.

		Restricted Share Awards. During the three months ended March 31, 2003, Roberts Realty granted 827 shares of restricted stock to certain employees. The market value of these restricted stock grants totaled $5,000. During the three months ended March 31, 2004, Roberts Realty granted no shares of restricted stock. These transactions have been recorded as unamortized deferred compensation and are shown as a separate component of shareholders’ equity. These restricted shares vest 100% at the end of a three-year vesting period and are being amortized to compensation expense ratably over the vesting period. During the three months ended March 31, 2004, and 2003, employees who terminated employment before vesting forfeited 3,839 and 3,980 shares, respectively, of restricted stock with original market values of $30,000 and $30,000, respectively.

		Dividends and Distributions. On August 27, 2003, Roberts Realty paid a special distribution of $0.55 per share/unit to shareholders/unitholders in the operating partnership of record on August 18, 2003. Roberts Realty has not paid regular quarterly dividends since the third quarter of 2001. Of the dividends declared for 2003 totaling $0.55 per share, approximately $0.52 per share represents capital gain and $0.03 per share represents a return of capital to the shareholders.