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EX-31 - EXHIBIT 31 - ACRE REALTY INVESTORS INC | c16706exv31.htm |
EX-32 - EXHIBIT 32 - ACRE REALTY INVESTORS INC | c16706exv32.htm |
Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
þ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31, 2011
OR
o | 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.
(Exact name of registrant as specified in its charter)
Georgia | 58-2122873 | |
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
|
450 Northridge Parkway, Suite 302 Atlanta, Georgia |
30350 | |
(Address of principal executive offices) | (Zip Code) |
(770) 394-6000
(Registrants telephone number, including area code)
(Former name, former address and former fiscal year, if changed since last report)
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 þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period
that the registrant was required to submit and post such files).
Yes o No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, a non-accelerated filer or a smaller reporting company. See the definitions of large
accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the
Exchange Act.
Large accelerated filer o | Accelerated filer o | Non-accelerated filer o (Do not check if a smaller reporting company) |
Smaller reporting company þ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the Exchange Act). Yes o No þ
Indicate the number of shares outstanding of each of the issuers classes of common stock, as
of the latest practicable date.
Class | Outstanding at April 27, 2011 | |
Common Stock, $.01 par value per share | 10,357,831 shares |
Table of Contents
NOTE REGARDING FORWARD-LOOKING STATEMENTS
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, as amended (the
Exchange Act). 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, intend, estimate, anticipate, believe,
and similar expressions are intended to identify forward-looking statements. We make
forward-looking statements in the notes to the unaudited condensed consolidated financial
statements included in this report and in Part I, Item 2 of this report.
Some of the forward-looking statements relate to our intent, belief, or expectations regarding
our strategies and business plan, including development and construction of new multifamily
communities, the possible sale of properties, the ways we may finance our future development and
construction activities, and the extensions of our loans that mature in the next 12 months. Other
forward-looking statements relate to trends affecting our financial condition and results of
operations, our anticipated capital needs and expenditures, and how we may address these needs.
These statements involve risks, uncertainties, and assumptions, including the financing environment
for construction loans for new multifamily communities; our possible inability to negotiate
extensions of our short-term debt; whether the employment rate in Atlanta will rebound as we
expect; the challenging conditions for retail shopping centers and office buildings in our market
area; uncertainties regarding the performance of upscale multifamily communities in our Atlanta
submarket; and other factors discussed in this report and in our other filings with the SEC. These
forward-looking statements are not guarantees of future performance and involve risks and
uncertainties. Actual results may differ materially from those that are anticipated in the
forward-looking statements. See Item 1A, Risk Factors, in our Annual Report on Form 10-K for the
year ended December 31, 2010, as well as Part II, Item 1A, Risk Factors, below, for a description
of some of the important factors that may affect actual outcomes.
For these forward-looking statements, we claim the protection of the safe harbor for
forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. You
should not place undue reliance on the forward-looking statements, which speak only as of the date
of this report. All subsequent written and oral forward-looking statements attributable to us or
any person acting on our behalf are expressly qualified in their entirety by the cautionary
statements contained or referred to in this section. We undertake no obligation to publicly update
or revise any forward-looking statements, whether as a result of new information, future events, or
otherwise.
* * * * * * * *
Unless the context indicates otherwise, all references in this report to Roberts Realty,
we, us and our refer to Roberts Realty Investors, Inc. and our subsidiary, Roberts Properties
Residential, L.P., which we refer to as the operating partnership, except that in the discussion of
our capital stock and related matters, these terms refer solely to Roberts Realty Investors, Inc.
and not to the operating partnership. All references to the the operating partnership refer to
Roberts Properties Residential, L.P. only.
2
Table of Contents
PART I FINANCIAL INFORMATION
ITEM 1. | FINANCIAL STATEMENTS. |
ROBERTS REALTY INVESTORS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
CONDENSED CONSOLIDATED BALANCE SHEETS
March 31, | December 31, | |||||||
2011 | 2010 | |||||||
(Unaudited) | (Unaudited) | |||||||
ASSETS |
||||||||
REAL ESTATE ASSETS: |
||||||||
Land |
$ | 9,268,326 | $ | 9,268,326 | ||||
Buildings and improvements |
14,163,327 | 14,163,327 | ||||||
Furniture, fixtures and equipment |
466,364 | 460,909 | ||||||
23,898,017 | 23,892,562 | |||||||
Less: accumulated depreciation |
(4,276,793 | ) | (4,136,145 | ) | ||||
Operating real estate assets |
19,621,224 | 19,756,417 | ||||||
Construction in progress and real estate under development |
43,231,070 | 42,936,767 | ||||||
Net real estate assets |
62,852,294 | 62,693,184 | ||||||
CASH AND CASH EQUIVALENTS |
3,110,162 | 3,716,393 | ||||||
RESTRICTED CASH |
1,139,220 | 1,229,040 | ||||||
DEFERRED FINANCING & LEASING COSTS Net of accumulated amortization
of $218,753 and $190,193 at March 31, 2011 and December 31, 2010, respectively |
151,999 | 180,559 | ||||||
LEASE INTANGIBLES Net of accumulated amortization
of $340,384 and $324,847 at March 31, 2011 and December 31, 2010, respectively |
112,789 | 128,326 | ||||||
OTHER ASSETS Net |
195,655 | 231,831 | ||||||
$ | 67,562,119 | $ | 68,179,333 | |||||
LIABILITIES AND SHAREHOLDERS EQUITY |
||||||||
LIABILITIES: |
||||||||
Mortgage notes payable |
$ | 16,620,697 | $ | 16,697,509 | ||||
Land notes payable |
14,310,000 | 14,400,000 | ||||||
Accounts payable and accrued expenses |
717,445 | 484,853 | ||||||
Due to affiliates |
47,806 | 38,305 | ||||||
Security deposits and prepaid rents |
69,460 | 80,036 | ||||||
Total liabilities |
31,765,408 | 31,700,703 | ||||||
COMMITMENTS AND CONTINGENCIES (Note 10) |
||||||||
NONCONTROLLING INTEREST OPERATING PARTNERSHIP |
6,228,628 | 6,372,817 | ||||||
SHAREHOLDERS EQUITY: |
||||||||
Preferred shares, $.01 par value, 20,000,000 shares authorized, no shares issued and outstanding |
||||||||
Common shares, $.01 par value, 100,000,000 shares authorized, 10,357,831 and 10,349,065 shares
issued and outstanding at March 31, 2011 and December 31, 2010, respectively |
103,579 | 103,491 | ||||||
Additional paid-in capital |
31,338,154 | 31,305,781 | ||||||
Treasury shares, at cost |
(71,332 | ) | (71,332 | ) | ||||
Accumulated deficit |
(1,802,318 | ) | (1,232,127 | ) | ||||
Total shareholders equity |
29,568,083 | 30,105,813 | ||||||
$ | 67,562,119 | $ | 68,179,333 | |||||
See notes to the condensed consolidated financial statements.
3
Table of Contents
ROBERTS REALTY INVESTORS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended March 31, | ||||||||
2011 | 2010 | |||||||
(Unaudited) | (Unaudited) | |||||||
OPERATING REVENUES: |
||||||||
Rental operations |
$ | 342,505 | $ | 425,412 | ||||
Other operating income |
55,870 | 69,523 | ||||||
Total operating revenues |
398,375 | 494,935 | ||||||
OPERATING EXPENSES: |
||||||||
Personnel |
312 | 11,265 | ||||||
Utilities |
62,890 | 57,460 | ||||||
Repairs and maintenance |
38,202 | 20,071 | ||||||
Real estate taxes |
101,823 | 138,725 | ||||||
Marketing, insurance and other |
18,120 | 21,678 | ||||||
General and administrative expenses |
351,847 | 423,459 | ||||||
Gain on disposal of asset |
(3,350 | ) | (1,250 | ) | ||||
Depreciation and amortization |
156,235 | 151,816 | ||||||
Total operating expenses |
726,079 | 823,224 | ||||||
LOSS FROM OPERATIONS |
(327,704 | ) | (328,289 | ) | ||||
OTHER INCOME (EXPENSE): |
||||||||
Interest income |
5,297 | 14,877 | ||||||
Interest expense |
(339,755 | ) | (329,344 | ) | ||||
Amortization of deferred financing & leasing costs |
(28,560 | ) | (32,905 | ) | ||||
Total other expense |
(363,018 | ) | (347,372 | ) | ||||
LOSS FROM CONTINUING OPERATIONS |
(690,722 | ) | (675,661 | ) | ||||
LOSS FROM DISCONTINUED OPERATIONS |
| (204,091 | ) | |||||
NET LOSS |
(690,722 | ) | (879,752 | ) | ||||
LOSS ATTRIBUTABLE TO NONCONTROLLING INTEREST |
(120,531 | ) | (157,388 | ) | ||||
LOSS AVAILABLE FOR COMMON SHAREHOLDERS |
$ | (570,191 | ) | $ | (722,364 | ) | ||
LOSS PER COMMON SHARE BASIC AND DILUTED (Note 5): |
||||||||
Loss from continuing operations basic and diluted |
$ | (.06 | ) | $ | (.05 | ) | ||
Loss from discontinued operations basic and diluted |
| (.02 | ) | |||||
Net loss basic and diluted |
$ | (.06 | ) | $ | (.07 | ) | ||
See notes to the condensed consolidated financial statements.
4
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ROBERTS REALTY INVESTORS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended March 31, | ||||||||
2011 | 2010 | |||||||
(Unaudited) | (Unaudited) | |||||||
OPERATING ACTIVITIES: |
||||||||
Net loss |
$ | (690,722 | ) | $ | (879,752 | ) | ||
Adjustments to reconcile net loss to net cash used in operating activities: |
||||||||
Loss from discontinued operations |
| 204,091 | ||||||
Depreciation and amortization |
184,795 | 184,721 | ||||||
Amortization of deferred compensation |
8,803 | | ||||||
Amortization of above and below market leases |
(2,975 | ) | (2,870 | ) | ||||
(Gain) loss on disposal of assets |
(7,200 | ) | 2,677 | |||||
Decrease (increase) in other assets |
46,300 | (6,757 | ) | |||||
Decrease in due to affiliates |
(2,867 | ) | (3,663 | ) | ||||
Increase in accounts payable, accrued expenses and other liabilities relating to operations |
236,646 | 275 | ||||||
Net cash used in operating activities from continuing operations |
(227,220 | ) | (501,278 | ) | ||||
Net cash used in operating activities from discontinued operations |
| (32,489 | ) | |||||
Net cash used in operating activities |
(227,220 | ) | (533,767 | ) | ||||
INVESTING ACTIVITIES: |
||||||||
Payment of leasing costs |
(5,455 | ) | | |||||
Decrease (increase) in restricted cash |
89,820 | (320,282 | ) | |||||
Decrease (increase) in accounts payable, accrued expenses
and other liabilities relating to investing activities |
(2,261 | ) | 5,385 | |||||
Development and construction of real estate assets |
(294,303 | ) | (430,457 | ) | ||||
Net cash used in investing activities |
(212,199 | ) | (745,354 | ) | ||||
FINANCING ACTIVITIES: |
||||||||
Principal repayments on mortgage notes payable |
(76,812 | ) | (108,192 | ) | ||||
Payment of loan costs |
| (14,977 | ) | |||||
Principal repayments of land notes payable |
(90,000 | ) | | |||||
Decrease in accounts payable, accrued expenses
and other liabilities relating to financing activities |
| (12,944 | ) | |||||
Net cash used in financing activities |
(166,812 | ) | (136,113 | ) | ||||
NET DECREASE IN CASH AND CASH EQUIVALENTS |
(606,231 | ) | (1,415,234 | ) | ||||
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD |
$ | 3,716,393 | $ | 7,905,771 | ||||
CASH AND CASH EQUIVALENTS, END OF PERIOD |
$ | 3,110,162 | $ | 6,490,537 | ||||
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: |
||||||||
Cash paid for interest, net of capitalized interest of $81,940 and $156,609 for the
three months ended March 31, 2011 and March 31, 2010, respectively |
$ | 253,176 | $ | 387,804 | ||||
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING ACTIVITIES AND FINANCING ACTIVITIES: |
||||||||
Development and construction of real estate assets due to but not paid to affiliates |
$ | 17,387 | $ | 42,622 | ||||
Conversion of operating partnership units to common shares |
$ | 17,970 | $ | 97,699 | ||||
Adjustments to noncontrolling interest in the operating partnership |
$ | (5,688 | ) | $ | (135,647 | ) | ||
Unrealized gain on available-for-sale securities |
$ | | $ | 3,424 | ||||
See notes to the condensed consolidated financial statements.
.
.
5
Table of Contents
ROBERTS REALTY INVESTORS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BUSINESS AND ORGANIZATION
Roberts Realty Investors, Inc. (Roberts Realty), a Georgia corporation, was formed on July
22, 1994 to serve as a vehicle for investments in, and ownership of, a professionally
managed real estate portfolio of multifamily residential communities. Roberts Realty owns
and manages its real estate assets as a self-administered, self-managed equity real estate
investment trust (REIT). |
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), or the operating partnerships three wholly owned subsidiaries, which are
Delaware limited liability companies. Roberts Realty controls the operating partnership as
its sole general partner and owner of a majority interest. Roberts Realty had an 82.60%
ownership interest in the operating partnership at March 31, 2011 and an 82.21% ownership
interest in the operating partnership at March 31, 2010. |
At March 31, 2011, Roberts Realty owned the following real estate assets, all of which are
located in the north Atlanta metropolitan area: |
| three neighborhood retail centers totaling 112,322 square feet; |
| one commercial office building totaling 37,864 square feet, part of which
serves as Roberts Realtys corporate headquarters; and |
| five tracts of land totaling 106 acres in various phases of development and
construction. |
2. | BASIS OF PRESENTATION |
Roberts Realtys management has prepared the accompanying interim unaudited financial
statements in accordance with generally accepted accounting principles in the United States
(GAAP) for interim financial information and in conformity with the rules and regulations
of the SEC. 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, 2011. These
financial statements should be read in conjunction with Roberts Realtys audited financial
statements and the accompanying notes in Roberts Realtys Annual Report on Form 10-K for the
year ended December 31, 2010. Roberts Realty has omitted disclosures from these notes to
condensed consolidated financial statements that substantially duplicate the disclosures
contained in the notes to the audited financial statements included in the annual report.
In the condensed consolidated financial statements included in this report, Roberts Realty
has made certain reclassifications of prior years balances with respect to discontinued
operations to conform to the current format. |
Holders of operating partnership units generally have the right to require the operating
partnership to redeem their units for shares of Roberts Realty common stock. Upon submittal
of units for redemption, the operating partnership has the option either (a) to acquire
those units in exchange for shares, currently on the basis of 1.647 shares for each unit
submitted for redemption, or (b) to pay cash for those units at their fair market value,
based upon the then current trading price of the shares and using the same exchange ratio.
Roberts Realty has adopted a policy of issuing shares in exchange for all units submitted
for redemption. |
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Table of Contents
The noncontrolling interest of the unitholders in the operating partnership on the
accompanying balance sheets is calculated by multiplying the noncontrolling interest
ownership percentage at the balance sheet date by the operating partnerships net assets
(total assets less total liabilities). The noncontrolling interest ownership percentage is
calculated at any point in time by dividing (x) (the number of units outstanding multiplied
by 1.647) by (y) the total number of shares plus (the number of units outstanding multiplied
by 1.647). The noncontrolling interest ownership percentage will change as additional shares and/or units are issued or as units are redeemed for shares of Roberts Realty common
stock. The noncontrolling interest of the unitholders in the income or loss of the
operating partnership on the accompanying condensed consolidated statements of operations is
calculated based on the weighted average percentage of units outstanding during the period,
which was 17.45% for the three months ended March 31, 2011 and 17.89% for the three months
ended March 31, 2010. There were 1,324,416 units outstanding as of March 31, 2011 and
1,329,738 units outstanding as of December 31, 2010. The noncontrolling interest of the
unitholders was $6,228,628 at March 31, 2011 and $6,372,817 at December 31, 2010. |
Under Financial Accounting Standards Board (FASB) Accounting Standards Codification
(ASC) Topic 810, Consolidation, Roberts Realty records noncontrolling interest in the
operating partnership on its condensed consolidated balance sheets at the greater of its
carrying amount or redemption value at the end of each reporting period. Any changes in the
value from period to period are charged to additional paid-in-capital in Roberts Realtys
condensed consolidated statements of shareholders equity. The following table details the
components of noncontrolling interest related to unitholders in the operating partnership
for the three months ended March 31, 2011 and 2010: |
Three Months Ended March 31, | ||||||||
2011 | 2010 | |||||||
Beginning balance |
$ | 6,372,817 | $ | 8,760,795 | ||||
Net loss attributable to noncontrolling interest |
(120,531 | ) | (157,388 | ) | ||||
Redemptions of noncontrolling partnership units |
(17,970 | ) | (97,699 | ) | ||||
Adjustments to noncontrolling interest in
operating partnership |
(5,688 | ) | (135,647 | ) | ||||
Ending balance |
$ | 6,228,628 | $ | 8,370,061 | ||||
3. | DISCONTINUED OPERATIONS |
On June 30, 2010, Roberts Realty sold its 44,293 square foot Addison Place Shops retail
center to the lender for the $6,000,000 of debt secured by the property. As a result of
this sale, Roberts Realty has no further obligations to the lender for the Addison Place
retail center loan. Accordingly, the operations of the Addison Place retail center have
been accounted for as discontinued operations. |
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The following table summarizes the discontinued operations for the three months ended March
31, 2010 (unaudited): |
Discontinued Operations
Three Months Ended | ||||
March 31, 2010 | ||||
(Unaudited) | ||||
OPERATING REVENUES: |
||||
Rental operations |
$ | 71,387 | ||
Other operating income |
14,884 | |||
Total operating revenues |
86,271 | |||
OPERATING EXPENSES: |
||||
Personnel |
2,135 | |||
Utilities |
12,886 | |||
Repairs and maintenance |
2,993 | |||
Real estate taxes |
32,143 | |||
Marketing, insurance and other |
5,670 | |||
General and administrative expenses |
52,612 | |||
Loss on leasehold improvements and leasing costs |
83,557 | |||
Depreciation and amortization |
43,315 | |||
Total operating expenses |
235,311 | |||
LOSS FROM OPERATIONS |
(149,040 | ) | ||
OTHER EXPENSE: |
||||
Interest expense |
(52,500 | ) | ||
Amortization of deferred financing & leasing costs |
(2,551 | ) | ||
Total other expense |
(55,051 | ) | ||
LOSS FROM DISCONTINUED OPERATIONS |
$ | (204,091 | ) | |
4. | NOTES PAYABLE |
Roberts Realty has two types of debt: |
1. | Mortgage notes secured by its operating properties; and |
2. | Land loans used to purchase undeveloped land. |
The details of each of the two types of debt are summarized below. For the land loans and
the Northridge Office Building loan, the operating partnership is the borrower, and Roberts
Realty is the guarantor. The other permanent mortgage notes are nonrecourse, and a wholly
owned subsidiary of the operating partnership is the borrower. |
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Mortgage Notes. The permanent mortgage notes payable secured by Roberts Realtys operating
properties at March 31, 2011 and December 31, 2010 were as follows (in order of maturity
date): |
Interest | ||||||||||||||||
Rate as of | Principal Outstanding | |||||||||||||||
Property Securing Mortgage | Maturity | 3/31/11 | 3/31/11 | 12/31/10 | ||||||||||||
Grand Pavilion Retail Center |
7/11/13 | 5.43 | % | $ | 6,433,286 | $ | 6,433,286 | |||||||||
Northridge Office Building |
8/10/13 | 4.50 | % | 2,818,333 | 2,858,333 | |||||||||||
Spectrum at the Mall of Georgia |
5/01/14 | 5.68 | % | 4,856,968 | 4,881,585 | |||||||||||
Bassett Retail Center |
10/01/19 | 8.47 | % | 2,512,110 | 2,524,305 | |||||||||||
Totals |
$ | 16,620,697 | $ | 16,697,509 | ||||||||||||
As Roberts Realty has previously stated in its annual and quarterly reports, its objective
is to exit the retail business to focus exclusively on developing, constructing, and
managing multifamily apartment communities. Given that objective and Grand Pavilions
approximately $625,000 in annual negative cash flow, Roberts Realty has elected not to make
debt service payments since July 2010 on that retail center and has allowed the loan to go
into default. In August 2010, Roberts Realty asked the lender to place the Grand Pavilion
loan with the special servicer. On December 16, 2010, Roberts Realty received a formal
notice of default from counsel for the special servicer of the loan. Roberts Realty is
seeking to transfer the Grand Pavilion retail center to the lender as soon as possible in
satisfaction of the approximately $6,433,286 principal amount of debt (plus associated fees
and costs) secured by the property. Because the loan is nonrecourse, Roberts Realty would
have no further obligations to the lender for this loan. |
Land Loans. The loans secured by Roberts Realtys land parcels at March 31, 2011 and
December 31, 2010 were as follows (in order of maturity date): |
Interest | ||||||||||||||||
Land Parcel | Rate as of | Principal Outstanding | ||||||||||||||
Securing Mortgage | Maturity | 3/31/11 | 3/31/11 | 12/31/10 | ||||||||||||
Peachtree Parkway |
07/31/11 | 5.00 | % | $ | 8,175,000 | $ | 8,175,000 | |||||||||
Highway 20 |
04/08/12 | 5.50 | % | 3,135,000 | 3,225,000 | |||||||||||
Bradley Park |
04/30/12 | 4.50 | % | 3,000,000 | 3,000,000 | |||||||||||
Total |
$ | 14,310,000 | $ | 14,400,000 | ||||||||||||
Maturing Short-Term Debt. As listed in the table above, Roberts Realty has three loans with
a total principal balance of $14,310,000 that mature within the next 12 months. For an
explanation of managements plan to address Roberts Realtys maturing short-term debt, see
Note 10 Commitments and Contingencies Managements Business Plan. |
5. | SHAREHOLDERS EQUITY |
Exchanges of Units for Shares. During the three months ended March 31, 2011, a total of
5,322 operating partnership units were exchanged for 8,766 shares. During the three months
ended March 31, 2010, a total of 37,324 operating partnership units were exchanged for
61,474 shares. Each redemption was reflected in the accompanying condensed consolidated
financial statements based on the closing price of Roberts Realtys stock price on the date
of conversion. |
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Table of Contents
Treasury Stock. Roberts Realty did not repurchase any shares during the three month periods
ended March 31, 2011 and 2010. |
Restricted Stock. Shareholders of Roberts Realty approved and adopted the 2006 Roberts
Realty Investors, Inc. Restricted Stock Plan (the Plan) in August 2006. The Plan provides
for the grant of stock awards to employees, directors, consultants, and advisors, including
employees of Roberts Properties, Inc. (Roberts Properties) and Roberts Properties
Construction, Inc. (Roberts Construction, and together with Roberts Properties, the
Roberts Companies). Mr. Charles S. Roberts, the President, Chief Executive Officer, and
Chairman of the Board of Roberts Realty, owns all of the outstanding stock of the Roberts
Companies. Under the Plan as amended, Roberts Realty may grant up to 654,000 shares of
restricted common stock, subject to the anti-dilution provisions of the Plan. The maximum
number of shares of restricted stock that may be granted to any one individual during the
term of the Plan may not exceed 20% of the aggregate number of shares of restricted stock
that may be issued. The Plan is administered by the compensation committee of Roberts
Realtys board of directors. |
FASB ASC Topic 718, Compensation Stock Compensation, requires share-based compensation
cost to be measured at the date of grant based on the fair value of the award and to be
recognized in the statements of operations as an expense on a straight line basis over the
requisite service period, which is the vesting period. |
There was no restricted stock activity for the three months ended March 31, 2011. There
were 50,000 unvested shares of restricted stock outstanding at March 31, 2011. During 2010,
Roberts Realty granted 50,000 shares under the Plan to an employee of Roberts Properties.
The grant includes a service based vesting period of two years. Compensation expense
related to the restricted stock grant was $8,803 in the three months ended March 31, 2011. |
Earnings Per Share. The following table shows the reconciliations of loss available for
common shareholders and the weighted average number of shares and units used in Roberts
Realtys basic and diluted earnings per share computations. |
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Three Months Ended | ||||||||
March 31, | ||||||||
2011 | 2010 | |||||||
Loss from continuing operations
available for common shareholders basic |
$ | (570,191 | ) | $ | (554,785 | ) | ||
Loss from continuing operations
attributable to noncontrolling interest |
(120,531 | ) | (120,876 | ) | ||||
Loss from continuing operations diluted |
$ | (690,722 | ) | $ | (675,661 | ) | ||
Loss from discontinued operations
for common shareholders basic |
| (167,579 | ) | |||||
Loss from discontinued operations
attributable to noncontrolling interest |
| (36,512 | ) | |||||
Loss from discontinued operations diluted |
$ | | $ | (204,091 | ) | |||
Net loss diluted |
$ | (690,722 | ) | $ | (879,752 | ) | ||
Weighted average number of shares basic |
10,351,500 | 10,255,463 | ||||||
Dilutive securities weighted average
number of units |
2,187,687 | 2,233,724 | ||||||
Weighted average number of shares diluted |
12,539,187 | 12,489,187 | ||||||
6. | SEGMENT REPORTING |
FASB ASC Topic 280-10, Segment Reporting Overall, established standards for reporting
financial and descriptive information about operating segments in annual financial
statements. Operating segments are defined as components of an enterprise about which
separate financial information is available that is evaluated regularly by the chief
operating decision maker in deciding how to allocate resources and in assessing performance.
Roberts Realtys chief operating decision maker is Mr. Roberts, its Chief Executive
Officer. |
Roberts Realty develops, constructs, owns, and manages multifamily apartment communities;
owns land; and owns and manages retail centers and one office building. (Roberts Realty
does not currently own any operating multifamily communities and did not own any operating
multifamily communities in 2011 or 2010.) All of Roberts Realtys properties are located in
Atlanta, Georgia. Roberts Realty has the following three reportable operating segments: |
1. | the retail/office segment, which consists of operating retail centers
and an office building; |
2. | the land segment, which consists of various tracts of land; and |
3. | the corporate segment, which consists primarily of operating cash, cash
equivalents, and miscellaneous other assets. |
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The following tables summarize the operating results of Roberts Realtys reportable segments
for the three months ended March 31, 2011 and 2010. The retail/office segment is composed
of the Grand Pavilion, Bassett, and Spectrum at the Mall of Georgia retail centers, along
with the Northridge office building. Roberts Realtys Addison Place Shops retail center,
which it sold on June 30, 2010, is reflected as discontinued operations within the
retail/office segment. The land segment is composed of five tracts of land totaling 106 acres that are in various phases of
development and construction. The corporate segment consists primarily of cash and cash
equivalents, miscellaneous other assets, and general and administrative expenses. |
Three Months Ended March 31, 2011
Retail/Office | Land | Corporate | Total | |||||||||||||
Rental operations |
$ | 339,336 | $ | 3,169 | $ | | $ | 342,505 | ||||||||
Other operating income |
55,828 | | 42 | 55,870 | ||||||||||||
Total operating revenues from consolidated entities |
395,164 | 3,169 | 42 | 398,375 | ||||||||||||
Operating expenses |
237,887 | 43,712 | 288,245 | 569,844 | ||||||||||||
Depreciation and amortization expense |
156,185 | | 50 | 156,235 | ||||||||||||
Total operating expenses from consolidated entities |
394,072 | 43,712 | 288,295 | 726,079 | ||||||||||||
Other (expense) income |
(253,644 | ) | (114,671 | ) | 5,297 | (363,018 | ) | |||||||||
Consolidated loss from continuing operations |
(252,552 | ) | (155,214 | ) | (282,956 | ) | (690,722 | ) | ||||||||
Consolidated loss from discontinued operations (Note 3) |
| | | | ||||||||||||
Consolidated net loss |
(252,552 | ) | (155,214 | ) | (282,956 | ) | (690,722 | ) | ||||||||
Consolidated loss attributable to noncontrolling interest |
(44,070 | ) | (27,085 | ) | (49,376 | ) | (120,531 | ) | ||||||||
Consolidated loss available for common shareholders |
$ | (208,482 | ) | (128,129 | ) | (233,580 | ) | (570,191 | ) | |||||||
Total assets at March 31, 2011 |
$ | 20,423,845 | $ | 43,272,117 | $ | 3,866,157 | $ | 67,562,119 | ||||||||
Three Months Ended March 31, 2010
Retail/Office | Land | Corporate | Total | |||||||||||||
Rental operations |
$ | 422,243 | $ | 3,169 | $ | | $ | 425,412 | ||||||||
Other operating income |
64,831 | | 4,692 | 69,523 | ||||||||||||
Total operating revenues from consolidated entities |
487,074 | 3,169 | 4,692 | 494,935 | ||||||||||||
Operating expenses |
272,484 | 57,504 | 341,420 | 671,408 | ||||||||||||
Depreciation and amortization expense |
151,645 | | 171 | 151,816 | ||||||||||||
Total operating expenses from consolidated entities |
424,129 | 57,504 | 341,591 | 823,224 | ||||||||||||
Other (expense) income |
(250,967 | ) | (111,282 | ) | 14,877 | (347,372 | ) | |||||||||
Consolidated loss from continuing operations |
(188,022 | ) | (165,617 | ) | (322,022 | ) | (675,661 | ) | ||||||||
Consolidated loss from discontinued operations (Note 3) |
(204,091 | ) | | | (204,091 | ) | ||||||||||
Consolidated net loss |
(392,113 | ) | (165,617 | ) | (322,022 | ) | (879,752 | ) | ||||||||
Consolidated loss attributable to noncontrolling interest |
(70,149 | ) | (29,629 | ) | (57,610 | ) | (157,388 | ) | ||||||||
Consolidated loss available for common shareholders |
$ | (321,964 | ) | $ | (135,988 | ) | $ | (264,412 | ) | $ | (722,364 | ) | ||||
Total assets at March 31, 2010 |
$ | 29,872,000 | $ | 53,935,807 | $ | 7,605,077 | $ | 91,412,884 | ||||||||
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7. RELATED PARTY TRANSACTIONS
Transactions with Mr. Charles S. Roberts and His Affiliates
Roberts Realty enters into contractual commitments in the normal course of business with the
Roberts Companies. The contracts between Roberts Realty and the Roberts Companies relate to
the development and construction of real estate assets, and from time to time, the
acquisition of real estate. 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. Under the charter for the audit committee of Roberts Realtys board
of directors, related party transactions are also subject to review and oversight by the
audit committee. |
Roberts Realty, its predecessor limited partnerships, and other limited partnerships
sponsored by Mr. Roberts have previously entered into agreements with Roberts Properties and
Roberts Construction to provide these services for 23 apartment communities with a total of
4,648 units that were sold for a total sales price of $431,701,143. All of these
communities were sold for a substantial profit. |
Design and Development Agreements with Roberts Properties. Roberts Properties provides
various development services that include market studies; business plans; assistance with
permitting, land use and zoning issues, easements, and utility issues; as well as exterior
design, finish selection, interior design, and construction administration. Roberts Realty
has entered into a design and development agreement with Roberts Properties for the project
listed in the following table, for which we made payments to Roberts Properties in 2011. |
Total | Amounts | Remaining | ||||||||||
Contract | Incurred from | Contractual | ||||||||||
Amount | 1/1/11 to 3/31/11 | Commitment | ||||||||||
Highway 20 |
$ | 1,050,000 | $ | 175,000 | $ | 550,000 | ||||||
Construction Contracts with Roberts Construction. Roberts Realty has entered into cost plus
10% (5% for overhead and 5% for profit) contracts with Roberts Construction for the Bradley
Park, Northridge, Peachtree Parkway, North Springs, and Highway 20 properties. Progress
payments are paid monthly to Roberts Construction based on the work that has been completed.
The following table lists the amounts incurred on these contracts during the three months
ended March 31, 2011. |
Amounts Incurred for | Amounts Incurred for | |||||||
Labor and Materials | 5% Profit and | |||||||
Costs from | 5% Overhead from | |||||||
1/1/11 to 3/31/11 | 1/1/11 to 3/31/11 | |||||||
Bradley Park |
$ | 6,415 | $ | 641 | ||||
Northridge |
3,589 | 359 | ||||||
Peachtree Parkway |
4,179 | 418 | ||||||
North Springs |
958 | 96 | ||||||
Highway 20 |
3,167 | 317 | ||||||
Totals |
$ | 18,308 | $ | 1,831 | ||||
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Other Payments. At the request of Roberts Realty, Roberts Construction performed repairs
and tenant improvements for new leases at the retail centers and office building. For the
three months ended March 31, 2011, Roberts Realty paid Roberts Construction $16,035 for
labor and materials costs plus $1,652 (5% for profit and 5% for overhead). Other affiliates
of Mr. Roberts received cost reimbursements of $58,274 for the three months ended March 31,
2011. |
Office Leases. Roberts Realty leases office space in the Northridge office building to the
Roberts Companies. Effective as of January 1, 2011, Roberts Realty renewed its leases with
the Roberts Companies. Under the renewed leases, Roberts Properties leases 4,431 rentable
square feet, and Roberts Construction leases 1,920 rentable square feet. Both leases are
for a one-year term with a new rental rate of $17.50 per rentable square foot. Roberts
Realty recognized total rental income from Roberts Properties and Roberts Construction of
$27,786 for the three months ended March 31, 2011. |
8. | IMPAIRMENT LOSS ON REAL ESTATE ASSETS |
Roberts Realty periodically evaluates its real estate assets, on a property-by-property
basis, for impairment when events or changes in circumstances indicate the carrying amount
of an asset may not be recoverable in accordance with FASB ASC Topic 360-10, Property,
Plant, and Equipment Overall. |
FASB ASC Topic 360-10 requires impairment losses to be recorded on long-lived assets used in
operations and land parcels when indicators of impairment are present and the undiscounted
cash flows estimated to be generated by those assets are less than the assets carrying
amounts. The expected future cash flows depend on estimates made by management, including
(1) changes in the national, regional, and/or local economic climates, (2) rental rates, (3)
competition, (4) operating costs, (5) tenant occupancy, (6) holding period, and (7) an
estimated construction budget. A change in the assumptions used to determine future
economic events could result in an adverse change in the value of a property and cause an
impairment to be recorded. Due to uncertainties in the estimation process, actual results
could differ materially from those estimates. Roberts Realtys determination of fair value
is based on a discounted future cash flow analysis, which incorporates available market
information as well as other assumptions made by Roberts Realtys management. Because the
factors Roberts Realtys management uses in generating these cash flows are difficult to
predict and are subject to future events that may alter its assumptions, Roberts Realty may
not achieve the discounted or undiscounted future operating and residual cash flows it
estimates in its impairment analyses or those established by appraisals, and Roberts Realty
may be required to recognize future impairment losses on its properties held for use. |
Non-Cash Impairments on Operating Real Estate Assets. During the three months ended March
31, 2011 and 2010, Roberts Realty determined that the carrying amounts on its operating real
estate assets were recoverable. Accordingly, Roberts Realty did not record an impairment
loss during the 2011 and 2010 periods. |
Non-Cash Impairments on Land Parcels. During the three months ended March 31, 2011 and
2010, Roberts Realty determined that the carrying amounts on its land parcels were
recoverable. Accordingly, Roberts Realty did not record an impairment loss during the 2011
and 2010 periods. |
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9. | FAIR VALUE MEASUREMENTS |
FASB ASC Topic 820, Fair Value Measurement and Disclosures, defines fair value and
establishes a framework for measuring fair value. The objective of fair value is to
determine the price that would be received upon the sale of an asset. FASB ASC Topic 820
establishes a fair value hierarchy that prioritizes observable and unobservable inputs used
to measure fair value into three levels: |
| Level 1 quoted prices (unadjusted) in active markets that are accessible at
the measurement date for assets or liabilities; |
| Level 2 observable prices that are based on inputs not quoted in active
markets, but corroborated by market data; and |
| Level 3 unobservable inputs that are used when little or no market data is
available. |
The fair value hierarchy gives the highest priority to Level 1 inputs and the lowest
priority to Level 3 inputs. In determining fair value, Roberts Realty uses valuation
techniques that maximize the use of observable inputs and minimize the use of unobservable
inputs to the extent possible. Considerable judgment is necessary to interpret Level 2 and
3 inputs in determining fair value of financial and non-financial assets and liabilities.
Accordingly, the fair values presented in the financial statements may not reflect the
amounts ultimately realized on a sale or other disposition of these assets. |
Roberts Realty held no assets required to be measured at fair value on a recurring basis as
of March 31, 2011. |
10. | COMMITMENTS AND CONTINGENCIES |
Roberts Realty has entered into various contracts for the development and construction of
its projects. The contracts with Roberts Properties and Roberts Construction are described
in Note 7 Related Party Transactions. The construction contracts require Roberts Realty
to pay Roberts Construction the labor and materials costs plus 10% (5% overhead and 5%
profit). |
In addition to the construction contracts with Roberts Construction, Roberts Realty has
entered into architectural and engineering contracts with third parties for the Northridge,
Bradley Park, Peachtree Parkway, and Highway 20 projects. At March 31, 2011, outstanding
commitments on these contracts totaled $231,315. |
At March 31, 2011, Roberts Realty had a $500,000 letter of credit outstanding. The letter
of credit is required by the lender for Roberts Realtys Spectrum retail center and is held
as a reserve fund for the payment of leasing costs. Roberts Realty assumed this obligation
when it acquired the Spectrum retail center in October 2005. The letter of credit expires
on September 26, 2011. |
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 that the final outcome of these
matters will not have a material adverse effect on Roberts Realtys financial position or
results of operations. Roberts Realty has a disputed claim related to its Bradley Park
property in the amount of $127,174 by an architect that has gone out of business. Roberts
Realty disputes the amount and quality of the work performed and believes this dispute will
more than likely lead to litigation. |
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As a result of the mergers of various predecessor limited partnerships into the operating
partnership, the former partners of those predecessor limited partnerships received
operating partnership units. Holders of units have the right to require the operating
partnership to redeem their units for shares, subject to certain conditions. Upon submittal
of units for redemption, the operating partnership will have the option either (a) to pay
cash for those units at their fair market value, which will be based upon the then current
trading price of the shares, or (b) to acquire those units in exchange for shares (on a
1.647-for-one basis). Roberts Realty has adopted a policy that it will issue shares in
exchange for all future units submitted. At March 31, 2011, there were 1,324,416 units
outstanding that could be exchanged for shares, subject to the conditions described above. |
Under Roberts Realtys bylaws, it is obligated to indemnify its officers and directors for
certain events or occurrences arising as a result of its officers and directors serving in
these capacities. 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. Because 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, 2011. |
Under various federal, state, and local environmental laws and regulations, Roberts Realty
may be required to investigate and clean up the effects of hazardous or toxic substances at
its properties, including properties that have previously been sold. The preliminary
environmental assessments of Roberts Realtys operating properties and development projects
have not revealed any environmental liability that Roberts Realty believes would have a
material adverse effect on its business, assets, or results of operations, nor is Roberts
Realty aware of any such environmental liability. |
Managements Business Plan. Management continues to focus on improving Roberts Realtys
liquidity and balance sheet. Roberts Realtys primary liquidity requirements are related to
its continuing negative operating cash flow and maturing short-term debt. Roberts Realtys
negative cash flow is primarily due to its five tracts of land and low occupancy rates at
two of its retail centers and its office building. Roberts Realty has three loans with a
total principal balance of $14,310,000 that mature within the next 12 months. Managements
plan is to renew these loans as they come due and extend their maturity dates at least 12
months. Management believes that its long history of operating and developing real estate
and its current plans for developing its existing land holdings will allow it to
successfully extend its maturing loans or find alternative funding and raise additional
capital for development. However, current economic conditions and the tight lending
environment create uncertainty regarding whether the maturing loans will be extended or
refinanced as planned. If Roberts Realty were required to use its current cash balances to
pay down existing loans, those repayments and the corresponding reductions in Roberts
Realtys cash could adversely affect Roberts Realtys ability to execute its plans as
described further below. Management believes that the most important uses of Roberts
Realtys capital resources will be: |
(a) | to provide working capital to cover its negative operating cash
flow; and |
(b) | to invest in the development of its land parcels to enable it
to raise the required equity to construct these new multifamily communities. |
Management is focusing on its core business of developing, constructing, managing, and
selling high quality multifamily communities for cash flow and long-term appreciation.
Management has significantly reduced Roberts Realtys debt and decreased its negative cash flow and
intends to continue these efforts. |
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Retail Centers and Office Building. Because the retail sector took the brunt of the severe
recession, Roberts Realtys retail centers have struggled with occupancy as tenants have
failed. Management anticipates that the performance of the retail centers will continue to
be weak for the foreseeable future. Similarly, the market for office space in Atlanta is
overbuilt and continues to be very challenging. In spite of this difficult environment,
however, management is committed to increasing the occupancy of both the retail centers and
office building so they can be positioned for sale. In addition to considering the sale of
the Bassett and Spectrum retail centers and the office building, Roberts Realty may form a
joint venture with a company that specializes in retail or office properties to use their
expertise in leasing these property types. Roberts Realty also intends to pursue joint
ventures with potential partners that include local investors, pension funds, life insurance
companies, hedge funds, and foreign investors. |
As Roberts Realty has previously stated in its annual and quarterly reports, its objective
is to exit the retail business to focus exclusively on developing, constructing and managing
multifamily apartment communities. Given that objective and the approximately $625,000 in
annual negative cash flow from its Grand Pavilion retail center, Roberts Realty has elected
not to make debt service payments since July 2010 on that retail center and has allowed the
loan to go into default. In August 2010, Roberts Realty asked the lender to place the Grand
Pavilion loan with the special servicer. On December 16, 2010, Roberts Realty received a
formal notice of default from the special servicer of the loan. Roberts Realty is seeking
to transfer the Grand Pavilion retail center to the lender as soon as possible in
satisfaction of the approximately $6,433,286 principal amount of debt secured by the
property. Because the loan is nonrecourse, Roberts Realty would have no further obligations
to the lender for this loan. This transaction would move Roberts Realty closer to exiting
the retail business, reduce the principal amount of its debt by $6,433,286, and reduce its
annual negative operating cash flow by approximately $625,000. |
Land Parcels Held for Development and Construction. Roberts Realty intends to move forward
with the development and construction of its next two multifamily communities: Bradley Park
and Northridge. Despite the very challenging economic conditions, management believes this
is an opportune time to create new multifamily assets. Management believes that in this
difficult economic climate, Roberts Realty can build at lower construction costs and create
value for shareholders as Roberts Realty has historically done during economic downturns and
recessions. Roberts Realty is currently seeking to raise the equity and obtain the
construction loans for the Bradley Park and Northridge communities. Roberts Realty
currently estimates that it will need approximately $35,715,000 in debt and equity to
complete the construction of its Northridge and Bradley Park multifamily communities. |
To provide the equity for construction, Roberts Realty may sell one or more of its land
parcels to independent purchasers. Roberts Realty is also considering forming joint
ventures and partnerships, and raising private equity. Roberts Realty is also in
discussions with possible joint venture participants such as pension funds, life insurance
companies, hedge funds, foreign investors, and local investors. Roberts Realty may also
sell one or more land parcels to Roberts Properties or to a newly formed affiliate of
Roberts Properties or of Roberts Realty that would raise private equity for the specific
purpose of funding the purchase of the land parcel and constructing a multifamily community. |
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Possible Sale, Merger, or Business Combination. In an effort to maximize shareholder value,
Roberts Realty is open to any transaction that would be in the best interests of its
shareholders. Roberts Realty has engaged in discussions with both private companies and individuals
regarding a possible sale, merger, or other business combination. Roberts Realty has
entered into mutual confidentiality agreements with six different entities and discussions
are ongoing with several of them. To date, Roberts Realty has not entered into any letter
of intent or definitive agreement for such a transaction. Management remains open to any
reasonable proposal for a sale, merger, or other business combination that would reward
shareholders and maximize their value. |
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ITEM 2. | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS. |
Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995.The
statements in this report that are not historical facts are forward-looking statements that involve
a number of known and unknown risks, uncertainties, and other factors, all of which are difficult
or impossible to predict and many of which are beyond our control, that may cause our actual
results, performance, or achievements to be materially different from any future results,
performance, or achievements expressed or implied by those forward-looking statements. These risks
are detailed in (a) Part I, Item 1A, Risk Factors, in our Annual Report on Form 10-K for the year
ended December 31, 2010; (b) Part II, Item 1A, Risk Factors, in this report; and (c) our other SEC
filings. Please also see the cautionary statements included in the Note Regarding Forward-Looking
Statements at the beginning of this report.
Overview
We are a self-administered, self-managed equity real estate investment trust, or REIT. Our
primary business is to develop, construct, own, and manage multifamily apartment communities. The
operating partnership, either directly or through one of its wholly owned subsidiaries, owns all of
our properties. At March 31, 2011, we were its sole general partner and owned an 82.60% interest
in the operating partnership. We expect to continue to conduct our business in this organizational
structure. We currently own the following properties, all of which are located in metropolitan
Atlanta, Georgia:
| five tracts of land totaling 106 acres that are zoned for 1,232 multifamily units; |
| three retail shopping centers; and |
| one office building, part of which serves as our corporate headquarters. |
As we have done in the past, we are focusing on our core business of developing, constructing, and
managing high quality multifamily apartment communities for cash flow and long-term appreciation.
We plan to exit the retail business. We have significantly reduced our debt and our negative cash
flow in the past year, and we intend to continue these efforts.
Continuing Negative Operating Cash Flow and Maturing Short-Term Debt
Our primary liquidity requirements relate to (a) our continuing negative operating cash flow
and (b) our maturing short-term debt. The primary reason for our negative operating cash flow is
that we have five tracts of land totaling 106 acres that do not produce revenue but incur carrying
costs of interest expense and real estate taxes. These five tracts have a combined carrying value
of $43,231,070 and are encumbered with land loans totaling $14,310,000. We have substantial equity
in these tracts of land, which are an integral part of our multifamily community development and
construction program. Because the performance of our retail centers and office building is
insufficient to cover our operating expenses, including the carrying costs of our land, we expect
to continue to generate negative operating cash flow and to operate at a loss until we raise the
equity and obtain the construction loans we need to make substantial progress in constructing and
leasing up our planned multifamily communities as described in Liquidity and Capital Resources
Business Plan below.
To address these issues, we made substantial progress during the past year in improving our
liquidity and balance sheet, and we intend to continue to do so. The June 2010 sale of the Addison
Place retail center and Westside land reduced our debt by $12,000,000 and reduced our annual
negative operating cash flow by approximately $800,000, and our decision not to make any more
payments on the Grand Pavilion retail center loan further reduced our annual negative operating
cash flow by approximately $625,000. Additionally, the transfer of the Grand Pavilion retail center to the
lender as we intend would further reduce the principal amount of our debt by $6,433,286. Because
the loan is nonrecourse, we would have no further obligations to the lender for this loan.
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We had total debt of $30,930,697 as of March 31, 2011 and have three loans with a total
principal balance of $14,310,000 that mature within the next 12 months: (a) the $8,175,000
Peachtree Parkway loan that matures on July 31, 2011; (b) the $3,135,000 Highway 20 loan that
matures on April 8, 2012; and (c) the $3,000,000 Bradley Park loan that matures on April 30, 2012.
If we are unable to renew these loans, we may repay all or part of it from the funds we are seeking
to raise as described in Liquidity and Capital Resources Business Plan below.
Results of Operations
Comparison of Three Months Ended March 31, 2011 to Three Months Ended March 31, 2010
The following table highlights our operating results and should be read with the condensed
consolidated financial statements and the accompanying notes included in this report.
Three Months Ended | ||||||||||||
March 31, | $(Decrease) | |||||||||||
2011 | 2010 | Increase | ||||||||||
(Unaudited) | (Unaudited) | |||||||||||
TOTAL OPERATING REVENUES |
$ | 398,375 | $ | 494,935 | $ | (96,560 | ) | |||||
OPERATING EXPENSES: |
||||||||||||
Property operating expenses |
217,997 | 247,949 | (29,952 | ) | ||||||||
General and administrative expenses |
351,847 | 423,459 | (71,612 | ) | ||||||||
Depreciation and amortization |
156,235 | 151,816 | 4,419 | |||||||||
Total operating expenses |
726,079 | 823,224 | (97,145 | ) | ||||||||
LOSS FROM OPERATIONS |
(327,704 | ) | (328,289 | ) | (585 | ) | ||||||
OTHER EXPENSE |
(363,018 | ) | (347,372 | ) | 15,646 | |||||||
LOSS FROM CONTINUING OPERATIONS |
$ | (690,722 | ) | $ | (675,661 | ) | $ | 15,061 | ||||
LOSS FROM DISCONTINUED OPERATIONS |
$ | | $ | (204,091 | ) | $ | (204,091 | ) | ||||
NET LOSS |
$ | (690,722 | ) | $ | (879,752 | ) | $ | (189,030 | ) | |||
Net loss decreased $189,030 when compared to the 2010 period. This was primarily due to
the $204,091 loss from discontinued operations at the Addison Place retail center. We explain
below the major variances between the 2011 and 2010 periods.
Total operating revenues decreased by $96,560 from $494,935 in the 2010 period to $398,375 in
the current period primarily as a result of a lower occupancy level at the Grand Pavilion and
Spectrum retail centers and overall lower rental rates on new leases and renewals.
Property operating expenses consisting of personnel, utilities, repairs and maintenance,
real estate taxes, and marketing and insurance expense decreased $29,952 from $247,949 in the
2010 period to $217,997 in the current period. This decrease was due primarily to a $36,902
decrease in property taxes resulting from successful property tax appeals and a $10,953 decrease in
personnel expense offset by an $18,131 increase in repairs and maintenance.
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General and administrative expenses decreased by $71,612 from $423,459 in the 2010 period to
$351,847 in the current period primarily due to lower salaries expense, professional services, and
bad debt expenses.
Other expense increased $15,646 from $347,372 in the 2010 period to $363,018 in the current
period. This increase was primarily due to the reduction of $9,580 in interest income due to lower
cash balances and an increase of $10,411 of interest expense because less interest was capitalized
on construction in progress and real estate under development in the current period.
Liquidity and Capital Resources
Overview
At March 31, 2011, we had $67,562,119 in total assets, of which $3,110,162 was cash and cash
equivalents. In addition, we held $1,139,220 in restricted cash. Of our restricted cash at March
31, 2011, $300,532 was reserved for the payment of interest and certain other costs on specific
outstanding loans, and $508,011 was a certificate of deposit pledged to secure a letter of credit
for tenant improvements at the Spectrum retail center. As of April 27, 2011, we held $2,847,170 in
cash and cash equivalents and $1,127,595 in restricted cash. Of our restricted cash balance,
$288,907 was reserved for the payment of interest and certain other costs on specific outstanding
loans, and $508,011 is included in the Spectrum certificate of deposit.
We believe that the most important uses of our capital resources will be to provide working
capital to enable us to cover our negative operating cash flow as we pursue our business plan; and
to invest in the development of two new multifamily communities (Northridge and Bradley Park) to
enable us to raise the required debt and equity to construct these communities. We currently
estimate that we will need approximately $35,715,000 in debt and equity to complete the
construction of our Northridge and Bradley Park multifamily communities. Our current cash
resources are inadequate to meet these needs. To address these needs, we are considering the
alternatives described in Business Plan below.
We continue to focus on improving our liquidity and balance sheet. In that regard, the sale
of the Addison Place retail center and Westside land on June 30, 2010 reduced our debt by
$12,000,000 and reduced our annual negative operating cash flow by approximately $800,000, and our
decision not to make any more payments on the Grand Pavilion loan reduced our annual negative
operating cash flow by approximately $625,000. Additionally, the transfer of the Grand Pavilion
retail center to the lender would further reduce the principal amount of our debt by $6,433,286.
Our primary liquidity requirements are related to our continuing negative operating cash flow
and our maturing short-term debt. We have three loans with a current aggregate principal balance
of $14,310,000 that mature within the next 12 months, as listed in the following table in their
order of maturity:
Principal Payments | ||||||||
Due Within | ||||||||
Property Securing Loan | Maturity Date | 12 Months | ||||||
Peachtree Parkway |
7/31/11 | $ | 8,175,000 | |||||
Highway 20 |
4/08/12 | 3,135,000 | ||||||
Bradley Park |
4/30/12 | 3,000,000 | ||||||
Total |
$ | 14,310,000 | ||||||
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We are currently generating negative operating cash flow, and we expect to continue to
generate negative operating cash flow and to operate at a loss for the foreseeable future. The
three primary reasons for our negative operating cash flow are:
| We own five tracts of land totaling 106 acres with an aggregate carrying value of
$43,231,070 that secure land loans totaling $14,310,000. Because land does not
generate revenue, a substantial portion of our negative cash flow is a result of the
carrying costs (interest expense and real estate taxes) on our land. |
| Due to the continued weakness in the national and local economy, two of our three
retail centers and our office building are producing negative cash flow, and the other
retail center is positively cash flowing. |
| Our general and administrative expenses were $1,866,594 for 2010 and $351,847 for
the three months ended March 31, 2011; these expenses included the costs of being an
SEC reporting company and having our shares listed on the NYSE Amex Equities exchange.
These costs include accounting and related fees to our independent auditor as well as
to another accounting firm required for our compliance with Section 404(a) of the
Sarbanes-Oxley Act, legal fees, listing fees, director compensation, and directors and
officers insurance premiums. We estimate that these additional costs related to being
a publicly traded company are approximately $515,000 per year. |
Short- and Long-Term Liquidity Outlook
Our operating revenues are not adequate to provide short-term (12 months) liquidity for the
payment of all direct rental operating expenses, interest, and scheduled amortization of principal
on our mortgage debt. We are currently using our cash balance of $2,847,170 to meet our short-term
liquidity requirements, including general and administrative expenses, principal reductions on our
debt, and improvements at our existing properties. With respect to the $14,310,000 in debt that
matures in the next 12 months, we intend to refinance each of these loans with the same lender or
with another lender. We may be required to repay part of the outstanding principal of one or more
of these loans in connection with that refinancing. To fund these repayments, we may use cash from
one or more of the following sources: our existing cash, contributions from a joint venture
partner, net proceeds from the sale of another property, or equity we raise in a private offering.
We expect to meet our long-term liquidity requirements, including future developments and debt
maturities, from the proceeds of construction and permanent loans, the sale of properties, or the
equity we raise in a private offering.
Business Plan
Overview and Outlook
We intend to maximize shareholder value and to address our needs for liquidity and capital
resources by executing our business plan. As we have done in the past, we are focusing on our core
business of developing, constructing, and managing high quality multifamily apartment communities
for cash flow and long-term appreciation. We plan to exit the retail business. We significantly
reduced our debt and our negative cash flow in 2010, and we intend to continue these efforts. We
explain below our strategies for each type of property we own.
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Development and Construction of Multifamily Communities
We are now optimistic about the market for new apartments in the metro Atlanta submarkets
where our land is located. We believe the economic climate for our business in these markets is
improving for the following reasons:
| Rents for the Class A or upscale apartments communities of the type that we build
should increase appreciably during 2011, and the current high level of rental
concessions should decrease over time as the market continues to improve. |
| Occupancy rates for Class A apartments in Atlanta should continue to increase in
2011. |
| The number of new apartments constructed in Atlanta was substantially lower in 2010
than in recent years and is expected to remain low in 2011. |
| Employment in metro Atlanta is expected to grow, although slowly compared to
historical levels. |
| Nationally, home ownership rates are declining, and we believe that this trend,
coupled with rising interest rates and larger required down payments for single-family
home loans, will lead to higher demand for apartments generally and in our market
areas. |
We believe that these favorable trends will increase the availability of debt and equity
capital for the construction of new apartments in our market areas, particularly for companies like
ours that have weathered the recession, own tracts of land in areas we believe are well-suited for
upscale apartments, and have a long history of developing, constructing, leasing up, and selling
upscale multifamily communities at substantial profits. For the reasons explained in Item 1A, Risk
Factors, in our Annual Report on Form 10-K for the year ended December 31, 2010, as well as Part
II, Item 1A, Risk Factors, below, however, our beliefs and expectations about these favorable
trends may not prove to be accurate.
We are currently holding five land parcels for development and construction:
1. | Northridge, an 11-acre site located close to the GA 400 and Northridge
Road interchange in Sandy Springs zoned for 220 multifamily units. We have
purchased the land disturbance permit, completed clearing, and commenced grading
the site. |
2. | Bradley Park, a 22-acre site located in Forsyth County zoned for 154
multifamily units. We have completed our architectural drawings, purchased our
land disturbance permit, and are ready to begin grading the site. |
3. | Peachtree Parkway, a 25-acre site fronting Peachtree Parkway (Highway
141) in Gwinnett County zoned for 292 multifamily units that is located across the
street from The Forum, a 580,000 square foot upscale shopping center. |
4. | Highway 20, a 38-acre site located in Cumming zoned for 210 multifamily
units. We have started the necessary design and development work for this
community. |
5. | North Springs, a 10-acre site located on Peachtree Dunwoody Road in
Sandy Springs across from the North Springs commuter rail station; the property is
zoned for 356 multifamily units, 210,000 square feet of office space, and 56,000
square feet of retail space. |
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Now that the Atlanta apartment market is beginning to recover from the recession, we believe
this is an opportune time to create new multifamily assets. We believe that we can build at lower
construction costs and create value for our shareholders as we have historically done during
economic downturns and recessions and as the economy recovers. We intend to move forward with the
development and construction of our next two multifamily communities Northridge and Bradley
Park. Although we cannot make substantial progress on constructing these projects until we raise
the required equity and obtain construction financing, we believe that the market for construction
financing is improving in light of the positive factors noted above. We currently estimate that we
will need approximately $35,715,000 in debt and equity to complete the construction of our
Northridge and Bradley Park multifamily communities.
To provide the equity we need for construction of one or more of these communities as well as
to repay or partially extend our Peachtree Parkway loan, we may sell one or more of our land
parcels to independent purchasers. Potential buyers have recently expressed interest in purchasing
some of our properties, and we believe that they have the financial resources to do so. We are
also considering forming joint ventures and partnerships, and raising private equity. We are in
discussions with possible joint venture participants such as pension funds, life insurance
companies, hedge funds, foreign investors, and local investors.
We may also sell one or more land parcels to Roberts Properties, Inc. (Roberts Properties),
which is owned by Mr. Charles S. Roberts, our President, Chief Executive Officer, and Chairman of
the Board, or to a newly formed affiliate of either Roberts Properties or Roberts Realty that would
raise equity in a private offering for the specific purpose of funding the purchase of the land
parcel and constructing a multifamily community. Under our Code of Business Conduct and Ethics,
the terms of any sale of a property to Mr. Roberts or his affiliates would be negotiated and
approved by our audit committee, which is composed of the two independent members of our board of
directors.
Retail Centers and Office Building
We currently own three retail centers and an office building, which have the occupancy
percentages provided below:
1. | Bassett Shopping Center, a 19,949 square foot retail center located
directly across from the Mall of Georgia in Gwinnett County that is 82.9% occupied. |
2. | Spectrum at the Mall of Georgia, a 30,050 square foot retail center
located directly across from the Mall of Georgia in Gwinnett County that is 56.8%
occupied. |
3. | Grand Pavilion, a 62,323 square foot retail center located in Johns
Creek that is 15.0% occupied. As previously explained, we are no longer making
payments on the nonrecourse loan secured by this retail center, and we are seeking
to transfer it to the lender as soon as possible in satisfaction of the $6,433,286
principal amount of debt secured by the property. |
4. | Northridge Office Building, a 37,864 square foot building located in
Sandy Springs that is 64.5% occupied. We occupy a portion of the building as our
corporate headquarters. |
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Because the retail sector took the brunt of the severe recession, our retail centers have
struggled with occupancy as tenants have failed. The risks of owning retail centers have
dramatically increased since we purchased these retail centers, and we anticipate that the
performance of our retail centers will continue to be weak for the foreseeable future. As a result, we are focusing on our core
business of developing, constructing, and managing high quality multifamily apartment communities,
and we intend to exit the retail business. In spite of this difficult environment, however, we are
committed to increasing the occupancy of our Spectrum retail center, which is operating at a loss,
and our Bassett retail center, which is positively cash flowing. In addition to considering the
sale of the Bassett and Spectrum retail centers, we may form a joint venture with a company that
specializes in retail properties to use their leasing expertise. We also may pursue joint ventures
with potential partners that include local investors, pension funds, life insurance companies,
hedge funds, and foreign investors.
Like the conduit loan secured by the Grand Pavilion retail center, the conduit loans secured
by the Bassett and Spectrum retail centers are nonrecourse. If we are unable to improve the
financial performance of one or both of these centers, particularly if the retail sector fails to
improve or worsens, we may seek to modify these loans. As a last resort, we may transfer one or
both of these retail centers to the lender in satisfaction of the debt to avoid any further
negative operating cash flow from these assets.
Similar to the retail market, the market for office space in suburban Atlanta is overbuilt and
continues to be very challenging. We are considering the sale of our Northridge office building
and may also pursue joint ventures with potential partners that include local investors, pension
funds, life insurance companies, hedge funds, and foreign investors.
Possible Sale, Merger, or Business Combination of the Entire Company
In our efforts to maximize shareholder value, we are open to any transaction that would be in
the best interests of our shareholders. During the past two years, we have engaged in discussions
with both private companies and individuals regarding a possible sale, merger, or other business
combination. We have entered into mutual confidentiality agreements with six different entities,
and discussions are ongoing with several of them. To date, however, we have not entered into a
letter of intent or definitive agreement for such a transaction. We remain open to any reasonable
proposal for a sale, merger, or other business combination that would reward our shareholders and
maximize their value.
Comparison of Three Months Ended March 31, 2011 to Three Months Ended March 31, 2010
Cash and cash equivalents decreased $606,231 during the first three months of 2011 compared to
a decrease of $1,415,234 during the 2010 period. The respective changes in cash are described
below.
Net cash used in operating activities in the 2011 period was $227,220 compared to $533,767
used during the 2010 period. This change was primarily the result of an increase in the change of
accounts payable, accrued expenses, and other liabilities in the amount of $236,371 coupled with
the $32,489 of cash used by the discontinued operations of the Addison Place retail center in the
2010 period.
Net cash used in investing activities was $212,199 during the 2011 period compared to $745,354
of cash used during the 2010 period. This decrease was primarily due to:
| a $410,102 decrease in the change in restricted cash that resulted from the
establishment and use of our required interest reserve and other costs on our Bradley
Park and Peachtree Parkway loans; and |
| a $136,154 decrease in development and construction of real estate assets. |
Net cash used in financing activities was $166,812 for the 2011 period compared to $136,113 of
cash used during the 2010 period. The increase in cash used in financing activities primarily
resulted from our principal repayments on our Highway 20 land loan.
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Debt Maturities
Our existing loans will be amortized with scheduled monthly payments, as well as balloon
payments at maturity, through 2019 as summarized below:
Debt Maturity Schedule
Remaining | Principal | Nonrecourse | Principal | Recourse | ||||||||||||||||
Principal | Payments on | Loans with | Payments | Loans with | ||||||||||||||||
Payments | Nonrecourse | Balloon | on Recourse | Balloon | ||||||||||||||||
Year | Per Year | (CMBS) Loans | Payments | Loans | Payments | |||||||||||||||
2011 |
$ | 8,771,905 | $ | 296,905 | $ | 8,475,000 | Peachtree Pkwy | |||||||||||||
2012 |
6,412,738 | 297,738 | 6,115,000 | Bradley Park, Highway 20 | ||||||||||||||||
2013 |
8,795,313 | 6,256,980 | Grand Pavilion(1) | 2,538,333 | Northridge Office | |||||||||||||||
2014 |
4,644,299 | 4,644,299 | Spectrum | |||||||||||||||||
2015 |
66,125 | 66,125 | ||||||||||||||||||
Thereafter |
2,240,317 | 2,240,317 | Bassett | |||||||||||||||||
Total |
$ | 30,930,697 | ||||||||||||||||||
(1) | As discussed elsewhere in this report, the Grand Pavilion loan is in default, and we are
seeking to transfer the property securing the loan to the lender in satisfaction of the loan.
The loan is nonrecourse, and we do not intend to make any further payments on this loan. The
table above reflects the original July 11, 2013 maturity date of the Grand Pavilion loan. If
this loan were shown as payable as of March 31, 2011, the principal payments in 2011 would
increase by $6,239,318, while principal payments would decrease by $145,992 in 2012 and
$6,093,326 in 2013. |
Short-Term Debt
We have a total of $14,310,000 in debt that matures within the next 12 months. All of that
debt matures on or before April 30, 2012. See Short- and Long-Term Liquidity Outlook above for how
we intend to refinance or repay these loans.
Long-Term Debt
With respect to the debt that matures after April 30, 2012, we anticipate that we will
refinance the principal balance of that debt at maturity and that we will not have funds on hand
sufficient to repay it at maturity. See Short- and Long-Term Liquidity Outlook above for how we
intend to refinance or repay these long-term loans when they mature.
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Effect of Floating Rate Debt
We have four loans that bear interest at floating rates. These loans had an aggregate
outstanding balance of $17,128,333 at March 31, 2011. Loans totaling $13,993,333 bear interest at
300 basis points over the 30-day LIBOR with interest rate floors of 4.50% to 5.00%, and a
$3,135,000 loan bears interest at the prime rate with an interest rate floor of 5.50%. Changes in LIBOR and the prime rate
that increase the interest rates on these loans above their respective interest rate floors will
increase our interest expense. For example, a 1.0% increase in the interest rates on these loans
above their respective interest rate floors would increase our interest expense by approximately
$171,283 per year and reduce our liquidity and capital resources by that amount.
Contractual Commitments
Roberts Properties provides us with various development services that include market studies,
business plans, design, finish selection, interior design, and construction administration. We
enter into construction contracts in the normal course of business with Roberts Properties
Construction, Inc. (Roberts Construction), which is owned by Mr. Charles S. Roberts, our
President, Chief Executive Officer, and Chairman of the Board. We currently have five ongoing
construction contracts with Roberts Construction. The terms of the construction contracts are cost
plus 10% (5% profit and 5% overhead).
No Quarterly Dividends
We have not paid regular quarterly dividends since the third quarter of 2001, and we have no
plans to resume paying regular quarterly dividends for the foreseeable future. We will make
distributions, however, to the extent required to maintain our status as a REIT for federal income
tax purposes. We made cash distributions of $2,360,397 in 2009 for this purpose following the sale
of our 403-unit Addison Place multifamily community for $60,000,000 in June 2008.
Critical Accounting Policies and Estimates
We prepare our financial statements in accordance with U.S. generally accepted accounting
principles. A critical accounting policy is one that requires significant judgment or difficult
estimates, and is important to the presentation of our financial condition or results of
operations. Because we are in the business of owning, operating, and developing multifamily
communities, retail centers, and other commercial properties, our critical accounting policies
relate to cost capitalization and asset impairment evaluation. The following is a summary of our
overall accounting policy in these areas.
Cost Capitalization
We state our real estate assets at the lower of depreciated cost or fair value, if deemed
impaired. We expense ordinary repairs and maintenance as incurred. We capitalize and depreciate
major replacements and betterments over their estimated useful lives. Depreciation expense is
computed on a straight line basis over the estimated useful lives of 27.5 years for buildings and
improvements, 15 years for land improvements, and five to seven years for furniture, fixtures, and
equipment.
We capitalize direct costs associated with the development and construction of our real estate
assets. We expense all internal costs associated with the acquisition and operation of these
assets to general and administrative expense in the period we incur these costs. For our real
estate assets, we capitalize interest on qualifying construction expenditures in accordance with
FASB Accounting Standards Codification (ASC) Topic 835-20, Interest Capitalization of Interest.
During the development and construction of a property, we capitalize related interest costs, as
well as other carrying costs such as real estate taxes and insurance. We begin to expense these
items as the property becomes substantially complete and available for initial occupancy. During
the lease-up period, as a property transitions from initial occupancy to stabilized occupancy,
revenues are generally insufficient to cover interest, carrying costs and operating expenses,
resulting in an operating deficit. The size and duration of this lease-up deficit depends on the rate at which construction is completed, the pace at
which we lease the property, and what rent levels we achieve.
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Asset Impairment Evaluation
We periodically evaluate our real estate assets, on a property-by-property basis, for
impairment when events or changes in circumstances indicate the carrying amount of an asset may not
be recoverable in accordance with FASB ASC Topic 360-10, Property, Plant, and Equipment Overall.
FASB ASC Topic 360-10 requires impairment losses to be recorded on long-lived assets used in
operations and land parcels held for use when indicators of impairment are present and the
undiscounted cash flows estimated to be generated by those assets are less than the assets
carrying amounts. The expected future cash flows depend on estimates made by management, including
(1) changes in the national, regional, and/or local economic climates, (2) rental rates, (3)
competition, (4) operating costs, (5) tenant occupancy, (6) holding period, and (7) an estimated
construction budget. A change in the assumptions used to determine future economic events could
result in an adverse change in the value of a property and cause an impairment to be recorded. Due
to uncertainties in the estimation process, actual results could differ from those estimates. Our
determination of fair value is based on a discounted future cash flow analysis, which incorporates
available market information as well as other assumptions made by our management. Because the
factors we use in generating these cash flows are difficult to predict and are subject to future
events that may alter our assumptions, we may not achieve the discounted or undiscounted future
operating and residual cash flows we estimate in our impairment analyses or those established by
appraisals, and we may be required to recognize future impairment losses on our properties held for
use.
During the three months ended March 31, 2011 and 2010, we determined that the carrying amounts
on our operating real estate assets and our land parcels were recoverable. Accordingly, we did not
record any impairment losses on those assets during these periods.
ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. |
Not required for smaller reporting companies. |
ITEM 4. | CONTROLS AND PROCEDURES. |
Disclosure Controls and Procedures
Based on our managements evaluation, with the participation of our Chief Executive Officer
and Chief Financial Officer, as of March 31, 2011, the end of the period covered by this report,
our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls
and procedures (as defined in Rule 13a-15(e) under the Exchange Act) were effective to ensure that
information required to be disclosed by us in reports that we file or submit under the Exchange Act
is recorded, processed, summarized, and reported within the time periods specified in the rules and
forms of the SEC and is accumulated and communicated to our management, including our Chief
Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding
required disclosure.
Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over
financial reporting and for the assessment of the effectiveness of internal control over financial
reporting. As disclosed in our Annual Report on Form 10-K for the year ended December 31, 2010,
management concluded that our internal control over financial reporting was effective as of
December 31, 2010.
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Changes in Internal Controls
There was no change in our internal control over financial reporting that occurred during the
quarter ended March 31, 2011 that has materially affected, or is reasonably likely to materially
affect, our internal control over financial reporting.
The design of any system of controls and procedures is based in part upon certain assumptions
about the likelihood of future events. There can be no assurance that any design will succeed in
achieving its stated goals under all potential future conditions, regardless of how remote.
PART II OTHER INFORMATION
ITEM 1. | LEGAL PROCEEDINGS. |
None of Roberts Realty, the operating partnership, or our properties is 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. We have a disputed claim related to our
Bradley Park property in the amount of $127,174 by an architect that has gone out of business. We
dispute the amount and quality of the work performed and believe this dispute will more than likely
lead to litigation.
ITEM 1A. | RISK FACTORS |
In addition to the other information set forth in this quarterly report, you should carefully
consider the factors discussed in Part I, Item 1A, Risk Factors, of our Annual Report on Form
10-K for the year ended December 31, 2010, as well as the risk factor described below. These risk
factors could materially affect our business, financial condition, or future results. Additional
risks and uncertainties not currently known to us or that we currently deem to be immaterial also
may materially adversely affect our business, financial condition, and/or operating results.
We face the maturity of our short-term debt, and we may be unable to repay, extend, or refinance
this debt.
We have three loans with a total principal balance of $14,310,000 that mature within the next
12 months. Our $8,175,000 Peachtree Parkway loan matures on July 31, 2011; our $3,135,000 Highway
20 loan matures on April 8, 2012; and our $3,000,000 Bradley Park loan matures on April 30, 2012.
If we are unable to refinance our debt at maturity on acceptable terms, or at all, or if we are
unable to pursue successfully the strategies to reduce negative cash flow described elsewhere in
this report, we might be forced to dispose of one or more of our properties on disadvantageous
terms, which might result in losses to us. Those losses could have a materially adverse effect on
our ability to pay amounts due on our debt and to pay distributions to our investors. Further, if
we are unable to meet mortgage payments on any mortgaged property, the mortgagee could foreclose
upon the property, appoint a receiver and receive an assignment of rents and leases or pursue other
remedies, all with a consequent loss of our revenues and asset value. Foreclosures could also
create taxable income without accompanying cash proceeds, thereby hindering our ability to meet the
REIT distribution requirements of the Internal Revenue Code.
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ITEM 2. | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS. |
Stock Repurchase Plan
Our board of directors has established a stock repurchase plan under which the company is
authorized to repurchase up to 600,000 shares of our outstanding common stock from time to time by
means of open market purchases and in solicited and unsolicited privately negotiated transactions,
depending on availability, our cash position, and purchase price. As of April 27, 2011, we have
repurchased 59,638 shares and have the authority to repurchase an additional 540,362 shares under
the plan. We did not repurchase any shares in 2010 or 2011. The plan does not have an expiration
date.
ITEM 3. | DEFAULTS UPON SENIOR SECURITIES. |
None.
ITEM 4. | (REMOVED AND RESERVED). |
ITEM 5. | OTHER INFORMATION. |
None.
ITEM 6. | EXHIBITS. |
The exhibits described in the following Index to Exhibits are filed as part of this report on
Form 10-Q.
Exhibit No. | Description of Exhibit | |||
31 | Certifications of Charles S. Roberts and Charles R. Elliott pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002. |
|||
32 | Certifications of Charles S. Roberts and Charles R. Elliott pursuant to 10 U.S.C. Section
1350, Section 906 of the Sarbanes-Oxley Act of 2002. This exhibit is not filed for purposes
of Section 18 of the Securities Exchange Act of 1934 but is instead furnished as provided by
applicable rules of the Securities and Exchange Commission. |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Date: May 6, 2011
ROBERTS REALTY INVESTORS, INC. |
||||
By: | /s/ Charles R. Elliott | |||
Charles R. Elliott, Chief Financial Officer | ||||
(the registrants principal financial and accounting officer, who is duly authorized to sign this report) |
||||
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