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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

x

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

 

For the quarterly period ended March 31, 2012

 

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

 

(I.R.S. Employer

incorporation or organization)

 

Identification No.)

 

450 Northridge Parkway, Suite 302

Atlanta, Georgia

 

30350

(Address of principal executive offices)

 

(Zip Code)

 

 

(770) 394-6000

 

 

(Registrant’s 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 x  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 x  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

Smaller reporting company x

 

(Do not check if a smaller reporting company)

 

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes o  No x

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

 

Class

 

Outstanding at April 19, 2012

Common Stock, $.01 par value per share

 

10,424,518 shares

 

 

 




 

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 a possible business combination, development and construction of a new multifamily community, the pending sale of one of our properties and the possible sale of other properties, and the ways we may finance our future development and construction activities.  Other forward-looking statements relate to loan extensions, 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 loans; 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 with respect to the closing of the sale of our Northridge property; our evaluation of strategic alternatives with the advice of Sandler O’Neill + Partners, L.P.; 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, 2011, 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,” “the company,” 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



 

PART I — FINANCIAL INFORMATION

 

ITEM 1.          FINANCIAL STATEMENTS.

 

ROBERTS REALTY INVESTORS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

 

 

 

March 31,

 

December 31,

 

 

 

2012

 

2011

 

 

 

(Unaudited)

 

(Unaudited)

 

 

 

 

 

 

 

ASSETS

 

 

 

 

 

REAL ESTATE ASSETS:

 

 

 

 

 

Land

 

$

6,148,325

 

$

6,148,325

 

Buildings and improvements

 

10,717,563

 

10,717,563

 

Furniture, fixtures and equipment

 

516,907

 

445,696

 

 

 

17,382,795

 

17,311,584

 

Less: accumulated depreciation

 

(3,490,592

)

(3,383,321

)

Operating real estate assets

 

13,892,203

 

13,928,263

 

Construction in progress and real estate under development

 

29,628,595

 

29,628,000

 

Real estate assets held for sale

 

4,373,789

 

4,373,789

 

 

 

 

 

 

 

Net real estate assets

 

47,894,587

 

47,930,052

 

 

 

 

 

 

 

CASH AND CASH EQUIVALENTS

 

1,709,791

 

568,191

 

 

 

 

 

 

 

RESTRICTED CASH

 

1,103,542

 

1,014,989

 

 

 

 

 

 

 

DEFERRED FINANCING & LEASING COSTS — Net of accumulated amortization of $203,283 and $177,600 at March 31, 2012 and December 31, 2011, respectively

 

179,591

 

96,475

 

 

 

 

 

 

 

LEASE INTANGIBLES — Net of accumulated amortization of $402,533 and $386,996 at March 31, 2012 and December 31, 2011, respectively

 

50,640

 

66,177

 

 

 

 

 

 

 

DUE FROM AFFILIATES

 

274,418

 

242,182

 

 

 

 

 

 

 

OTHER ASSETS — Net

 

121,288

 

130,678

 

 

 

 

 

 

 

ASSETS RELATED TO DISCONTINUED OPERATIONS

 

2,678

 

7,553

 

 

 

 

 

 

 

 

 

$

51,336,535

 

$

50,056,297

 

 

 

 

 

 

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

 

 

 

LIABILITIES:

 

 

 

 

 

Mortgage notes payable

 

$

9,882,290

 

$

9,960,148

 

Land notes payable

 

14,130,000

 

14,130,000

 

Accounts payable and accrued expenses

 

361,434

 

336,044

 

Due to affiliates

 

62,879

 

27,420

 

Security deposits and prepaid rents

 

60,773

 

66,296

 

Liabilities related to real estate assets held for sale

 

2,017,417

 

 

Liabilities related to discontinued operations

 

9,032

 

7,665

 

 

 

 

 

 

 

Total liabilities

 

26,523,825

 

24,527,573

 

 

 

 

 

 

 

COMMITMENTS AND CONTINGENCIES (Note 10)

 

 

 

 

 

 

 

 

 

 

 

NONCONTROLLING INTEREST — OPERATING PARTNERSHIP

 

4,282,674

 

4,406,258

 

 

 

 

 

 

 

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, 10,374,518 shares issued and outstanding at March 31, 2012 and December 31, 2011

 

103,745

 

103,745

 

Additional paid-in capital

 

31,404,756

 

31,397,390

 

Treasury shares, at cost

 

(71,332

)

(71,332

)

Accumulated deficit

 

(10,907,133

)

(10,307,337

)

 

 

 

 

 

 

Total shareholders’ equity

 

20,530,036

 

21,122,466

 

 

 

 

 

 

 

 

 

$

51,336,535

 

$

50,056,297

 

 

See notes to the condensed consolidated financial statements.

 

3



 

ROBERTS REALTY INVESTORS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

 

 

 

Three Months Ended March 31,

 

 

 

2012

 

2011

 

 

 

(Unaudited)

 

(Unaudited)

 

 

 

 

 

 

 

OPERATING REVENUES:

 

 

 

 

 

Rental operations

 

$

273,862

 

$

298,693

 

Other operating income

 

39,091

 

47,324

 

 

 

 

 

 

 

Total operating revenues

 

312,953

 

346,017

 

 

 

 

 

 

 

OPERATING EXPENSES:

 

 

 

 

 

Utilities

 

34,478

 

35,229

 

Repairs and maintenance

 

30,861

 

33,733

 

Real estate taxes

 

70,571

 

67,038

 

Marketing, insurance and other

 

13,169

 

12,601

 

General and administrative expenses

 

374,639

 

330,478

 

Gain on disposal of assets

 

 

(3,350

)

Depreciation and amortization

 

122,809

 

130,410

 

 

 

 

 

 

 

Total operating expenses

 

646,527

 

606,139

 

 

 

 

 

 

 

LOSS FROM OPERATIONS

 

(333,574

)

(260,122

)

 

 

 

 

 

 

OTHER INCOME (EXPENSE):

 

 

 

 

 

Interest income

 

1,188

 

5,297

 

Interest expense

 

(357,148

)

(252,423

)

Amortization of deferred financing & leasing costs

 

(30,683

)

(25,311

)

 

 

 

 

 

 

Total other expense

 

(386,643

)

(272,437

)

 

 

 

 

 

 

LOSS FROM CONTINUING OPERATIONS

 

(720,217

)

(532,559

)

 

 

 

 

 

 

LOSS FROM DISCONTINUED OPERATIONS

 

(4,699

)

(158,163

)

 

 

 

 

 

 

NET LOSS

 

(724,916

)

(690,722

)

 

 

 

 

 

 

LOSS ATTRIBUTABLE TO NONCONTROLLING INTEREST

 

(125,120

)

(120,531

)

 

 

 

 

 

 

LOSS AVAILABLE FOR COMMON SHAREHOLDERS

 

$

(599,796

)

$

(570,191

)

 

 

 

 

 

 

LOSS PER COMMON SHARE — BASIC AND DILUTED (Note 5):

 

 

 

 

 

 

 

 

 

 

 

Loss from continuing operations — basic and diluted

 

$

(0.06

)

$

(0.04

)

Loss from discontinued operations — basic and diluted

 

 

(0.02

)

Net loss — basic and diluted

 

$

(0.06

)

$

(0.06

)

 

See notes to the condensed consolidated financial statements.

 

4



 

ROBERTS REALTY INVESTORS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

 

 

 

Three Months Ended March 31,

 

 

 

2012

 

2011

 

 

 

(Unaudited)

 

(Unaudited)

 

OPERATING ACTIVITIES:

 

 

 

 

 

Net loss

 

$

(724,916

)

$

(690,722

)

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

Loss from discontinued operations

 

4,699

 

158,163

 

Depreciation and amortization

 

153,492

 

155,721

 

Amortization of deferred compensation

 

8,901

 

8,803

 

Amortization of above and below market leases

 

(2,975

)

(2,975

)

Gain on disposal of assets

 

 

(7,200

)

Increase in due from affiliates

 

(32,236

)

 

Decrease in other assets

 

12,365

 

42,637

 

Decrease in due to affiliates

 

(1,372

)

(4,089

)

Increase in accounts payable, accrued expenses and other liabilities relating to operations

 

34,034

 

105,551

 

 

 

 

 

 

 

Net cash used in operating activities from continuing operations

 

(548,008

)

(234,111

)

Net cash provided by operating activities from discontinued operations

 

1,542

 

6,891

 

 

 

 

 

 

 

Net cash used in operating activities

 

(546,466

)

(227,220

)

 

 

 

 

 

 

INVESTING ACTIVITIES:

 

 

 

 

 

(Increase) decrease in restricted cash

 

(88,553

)

89,820

 

Increase (decrease) in accounts payable, accrued expenses and other liabilities relating to investing activities

 

40,081

 

(2,261

)

Development and construction of real estate assets

 

(71,806

)

(294,303

)

 

 

 

 

 

 

Net cash used in investing activities from continuing operations

 

(120,278

)

(206,744

)

Net cash used in investing activities from discontinued operations

 

 

(5,455

)

 

 

 

 

 

 

Net cash used in investing activities

 

(120,278

)

(212,199

)

 

 

 

 

 

 

FINANCING ACTIVITIES:

 

 

 

 

 

Principal repayments on mortgage notes payable

 

(77,858

)

(76,812

)

Principal repayments on land notes payable

 

 

(90,000

)

Payment of loan costs

 

(113,798

)

 

Proceeds from land note payable related to real estate assets held for sale

 

2,000,000

 

 

 

 

 

 

 

 

Net cash provided by (used in) financing activities

 

1,808,344

 

(166,812

)

 

 

 

 

 

 

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

 

1,141,600

 

(606,231

)

 

 

 

 

 

 

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD

 

$

568,191

 

$

3,716,393

 

 

 

 

 

 

 

CASH AND CASH EQUIVALENTS, END OF PERIOD

 

$

1,709,791

 

$

3,110,162

 

 

 

 

 

 

 

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:

 

 

 

 

 

Cash paid for interest, net of capitalized interest of $0 and $81,940 for the three months ended March 31, 2012 and March 31, 2011, respectively

 

$

350,591

 

$

253,176

 

 

 

 

 

 

 

SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING ACTIVITIES AND FINANCING ACTIVITIES:

 

 

 

 

 

 

 

 

 

 

 

Development and construction of real estate assets due to but not paid to affiliates

 

$

36,831

 

$

17,387

 

 

 

 

 

 

 

Conversion of operating partnership units to common shares

 

$

 

$

17,970

 

 

 

 

 

 

 

Adjustments to noncontrolling interest in the operating partnership

 

$

1,536

 

$

(5,688

)

 

See notes to the condensed consolidated financial statements.

 

5



 

ROBERTS REALTY INVESTORS, INC.

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 partnership’s four wholly owned subsidiaries, three of which are Delaware limited liability companies and one is a Georgia limited liability company.  Roberts Realty controls the operating partnership as its sole general partner and had an 82.74% ownership interest in the operating partnership at March 31, 2012 and an 82.60% ownership interest in the operating partnership at March 31, 2011.

 

At March 31, 2012, Roberts Realty owned the following real estate assets, all of which are located in the north Atlanta metropolitan area:

 

·      two neighborhood retail centers totaling 49,999 square feet;

·     one commercial office building totaling 37,864 square feet, part of which serves as Roberts Realty’s corporate headquarters;

·      four tracts of land totaling 95 acres in various phases of development and construction; and

·      one 11-acre tract of land currently under contract to be sold (see Note 7 — Related Party Transactions).

 

Management’s Business Plan.  Management continues to focus on improving Roberts Realty’s liquidity and balance sheet.  Roberts Realty’s primary liquidity requirements are related to its continuing negative operating cash flow and maturing short-term debt.  Roberts Realty’s negative cash flow is primarily due to its five tracts of land and low occupancy rates at its retail centers and office building.  As of the filing date of this report, Roberts Realty has three loans with a total principal balance of $13,130,000 that are scheduled to mature within the next 12 months.  Management plans 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 these loans or find alternative funding and raise additional capital for development.  However, current economic conditions and the tight lending environment create uncertainty regarding whether these maturing loans will be extended or refinanced as planned.  If Roberts Realty were required to use its current cash balances to pay down these loans, those repayments and the corresponding reductions in Roberts Realty’s cash could adversely affect Roberts Realty’s ability to execute its plans as described further below.

 

Management believes that the most important uses of Roberts Realty’s capital resources will be:

 

(a)      to provide working capital to cover its negative operating cash flow; and

 

6



 

(b)     to invest in the development of its land parcels to enable it to raise the required equity to construct 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 Realty’s debt and decreased its negative cash flow and intends to continue these efforts.

 

Retail Centers and Office Building.  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.  The retail sector took the brunt of the severe recession, and as a result, Roberts Realty’s retail centers have struggled with occupancy.  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 the office building so they can be positioned for sale.  In addition to considering the sale of the Bassett and Spectrum retail centers and the Northridge 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.

 

Land Parcels Held for Development and Construction.  Roberts Realty intends to move forward with the development and construction of its Bradley Park multifamily community.  Despite the 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 community.  Roberts Realty currently estimates the remaining construction costs to construct this community to be approximately $14,695,000.

 

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 as it has agreed to do with the Northridge land parcel.  Roberts Realty may also form a new affiliate that would raise private equity for the specific purpose of funding the purchase of one of the remaining land parcels and constructing a multifamily community.

 

Sales Contract for the Sale of Northridge.  As a part of Roberts Realty’s strategy to address its needs for liquidity and capital resources, the operating partnership entered into a contract on June 30, 2011 to sell its 11-acre Northridge land parcel to Roberts Properties.  Under the terms of the contract as amended, the purchase price is $4,070,000, plus the reimbursement of $303,789 in development and construction expenses, and the closing is scheduled to occur on or before June 29, 2012.

 

7



 

Possible Sale, Merger, or Business Combination.  In June 2011, in an effort to maximize shareholder value, Roberts Realty retained the services of Sandler O’Neill + Partners, L.P. to explore potential strategic alternatives for the company.  In 2010 and 2011, 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 53 different entities, and discussions are ongoing with several of them.  To date, Roberts Realty has not entered into any 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.

 

2.             BASIS OF PRESENTATION

 

Roberts Realty’s 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, 2012.  These financial statements should be read in conjunction with Roberts Realty’s audited financial statements and the accompanying notes in Roberts Realty’s Annual Report on Form 10-K for the year ended December 31, 2011.  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 year’s 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.

 

The noncontrolling interest of the unitholders in the operating partnership on the accompanying condensed consolidated balance sheets is calculated by multiplying the noncontrolling interest ownership percentage at the balance sheet date by the operating partnership’s 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 17.26% and 17.45% for the three months ended March 31, 2012 and 2011, respectively.  There were 1,314,285 units outstanding as of March 31, 2012 and December 31, 2011.  The noncontrolling interest of the unitholders was $4,282,674 at March 31, 2012 and $4,406,258 at December 31, 2011.

 

8



 

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 Realty’s 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, 2012 and 2011:

 

 

 

Three Months Ended March 31,

 

 

 

2012

 

2011

 

 

 

 

 

 

 

Beginning balance

 

$

4,406,258

 

$

6,372,817

 

Net loss attributable to noncontrolling interest

 

(125,120

)

(120,531

)

Redemptions of noncontrolling partnership units

 

 

(17,970

)

Adjustments to noncontrolling interest in operating partnership

 

1,536

 

(5,688

)

 

 

 

 

 

 

Ending balance

 

$

4,282,674

 

$

6,228,628

 

 

Recent Accounting PronouncementsASU No. 2011-04; Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs (“ASU 2011-04”).  In May 2011, the FASB issued Accounting Standards Update (“ASU”) No. 2011-04.  The objective of this ASU is to align fair value measurements and related disclosure requirements under GAAP and International Financial Reporting Standards (“IFRSs”), thus improving the comparability of fair value measurements presented and disclosed in financial statements prepared in accordance with U.S. GAAP and IFRSs.  The guidance in this ASU requires retrospective application, and Roberts Realty implemented this ASU beginning January 1, 2012.  The implementation of this pronouncement did not have a material effect on Roberts Realty’s financial statements.

 

ASU No. 2011-05; Amendments to Topic 220, Comprehensive Income.  In June 2011, the FASB issued Accounting Standards Update (“ASU”) No. 2011-05.  Under the amendments in this ASU, an entity has the option to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements.  In both choices, an entity is required to present each component of net income along with total net income, each component of other comprehensive income along with a total for other comprehensive income, and a total amount for comprehensive income.  This ASU eliminates the option to present the components of other comprehensive income as part of the statement of changes in stockholders’ equity.  The amendments in this ASU do not change the items that must be reported in other comprehensive income or when an item of other comprehensive income must be reclassified to net income.  The guidance in this ASU requires retrospective application, and Roberts Realty implemented this ASU beginning January 1, 2012.  The implementation of this pronouncement did not have a material effect on Roberts Realty’s financial statements.

 

9



 

3.             DISCONTINUED OPERATIONS

 

In July 2010, Roberts Realty elected to suspend debt service payments on the Grand Pavilion retail center and allowed the nonrecourse loan to go into default.  On October 4, 2011, the lender foreclosed on Grand Pavilion, thereby extinguishing Roberts Realty’s nonrecourse mortgage debt.  Accordingly, the operations of the Grand Pavilion retail center have been accounted for as discontinued operations.

 

The following table summarizes the discontinued operations for the three months ended March 31, 2012 and 2011 (unaudited):

 

Discontinued Operations

 

 

 

Three Months Ended March 31,

 

 

 

2012

 

2011

 

 

 

(Unaudited)

 

(Unaudited)

 

 

 

 

 

 

 

OPERATING REVENUES:

 

 

 

 

 

Rental operations

 

$

 

$

43,812

 

Other operating income

 

 

8,546

 

 

 

 

 

 

 

Total operating revenues

 

 

52,358

 

 

 

 

 

 

 

OPERATING EXPENSES:

 

 

 

 

 

Personnel

 

 

312

 

Utilities

 

 

27,661

 

Repairs and maintenance

 

584

 

4,469

 

Real estate taxes

 

 

34,785

 

Marketing, insurance and other

 

250

 

5,519

 

General and administrative expenses

 

3,865

 

21,369

 

Depreciation and amortization

 

 

25,825

 

 

 

 

 

 

 

Total operating expenses

 

4,699

 

119,940

 

 

 

 

 

 

 

LOSS FROM OPERATIONS

 

(4,699

)

(67,582

)

 

 

 

 

 

 

OTHER EXPENSE:

 

 

 

 

 

Interest expense

 

 

(87,332

)

Amortization of deferred financing & leasing costs

 

 

(3,249

)

 

 

 

 

 

 

Total other expense

 

 

(90,581

)

 

 

 

 

 

 

LOSS FROM DISCONTINUED OPERATIONS

 

$

(4,699

)

$

(158,163

)

 

4.             NOTES PAYABLE

 

Roberts Realty has two types of debt:

 

1.               Mortgage notes secured by its operating properties; and

 

2.               Land loans.

 

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.  For the Northridge land loan which is classified as liabilities related to real estate assets held for

 

10



 

sale in the condensed consolidated balance sheets, a wholly owned subsidiary of 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.

 

Mortgage Notes.  The mortgage notes payable secured by Roberts Realty’s operating properties at March 31, 2012 and December 31, 2011 were as follows (in order of maturity date):

 

 

 

 

 

Interest
Rate as of

 

Principal Outstanding

 

Property Securing Mortgage

 

Maturity

 

3/31/12

 

3/31/12

 

12/31/11

 

 

 

 

 

 

 

 

 

 

 

Northridge Office Building

 

8/10/13

 

4.50

%

$

2,658,333

 

$

2,698,333

 

Spectrum at the Mall of Georgia

 

5/01/14

 

5.68

%

4,759,618

 

4,784,858

 

Bassett Retail Center

 

10/01/19

 

8.47

%

2,464,339

 

2,476,957

 

 

 

 

 

 

 

 

 

 

 

Totals

 

 

 

 

 

$

9,882,290

 

$

9,960,148

 

 

Land Loans.  The loans secured by Roberts Realty’s land parcels at March 31, 2012 and December 31, 2011 were as follows (in order of maturity date):

 

 

 

 

 

Interest
Rate as of

 

Principal Outstanding

 

Land Parcel Securing Loan

 

Maturity

 

3/31/12

 

3/31/12

 

12/31/11

 

 

 

 

 

 

 

 

 

 

 

Peachtree Parkway

 

07/31/12

 

5.00

%

$

8,175,000

 

$

8,175,000

 

Highway 20(1)

 

04/08/13

 

5.50

%

2,955,000

 

2,955,000

 

Bradley Park

 

10/31/13

 

4.50

%

3,000,000

 

3,000,000

 

 

 

 

 

 

 

 

 

 

 

Total Land Loans

 

 

 

 

 

14,130,000

 

14,130,000

 

 

 

 

 

 

 

 

 

 

 

Northridge (2)

 

02/21/13

 

12.00

%

2,000,000

 

 

 

 

 

 

 

 

 

 

 

 

Totals

 

 

 

 

 

$

16,130,000

 

$

14,130,000

 

 


(1)          See Note 11 — Subsequent Events.

(2)        The Northridge land loan is classified as liabilities related to real estate assets held for sale in the condensed consolidated balance sheets.

 

On February 28, 2012, Roberts Realty renewed and extended its $3,000,000 Bradley Park land loan to October 31, 2013.  The renewed loan requires monthly interest only payments and removes the interest rate floor of 4.50%.  The new interest rate, effective as of April 30, 2012, is 350 basis points over the 30-day LIBOR.

 

On February 21, 2012, Northridge Parkway, LLC, a wholly owned subsidiary of the operating partnership, closed a $2,000,000 loan.  The loan is secured by Roberts Realty’s Northridge property, which is under contract to be sold.  The loan has a maturity date of February 21, 2013.

 

11



 

Roberts Realty established a $240,000 interest reserve to pay the monthly interest only payments at an interest rate of 12% per annum.

 

Maturing Short-Term Debt.  As of the date of this report, Roberts Realty has three loans with a total principal balance of $13,130,000 that mature within the next 12 months.  For an explanation of management’s plan to address Roberts Realty’s maturing short-term debt, see Note 1 — Business and Organization — Management’s Business Plan.

 

5.             SHAREHOLDERS’ EQUITY

 

Exchanges of Units for Shares.  During the three months ended March 31, 2012, no operating partnership units were exchanged for shares, and during the three months ended March 31, 2011, a total of 5,322 operating partnership units were exchanged for 8,766 shares.  Each redemption was reflected in the accompanying condensed consolidated financial statements based on the closing price of Roberts Realty’s stock price on the date of conversion.

 

Treasury Stock.  Roberts Realty did not repurchase any shares during the three month periods ended March 31, 2012 and 2011.

 

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 Realty’s 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 month periods ended March 31, 2012 and March 31, 2011.  There were 50,000 unvested shares of restricted stock outstanding at March 31, 2012.  During 2010, Roberts Realty granted 50,000 shares under the Plan to an employee of Roberts Properties.  The grant included a service based vesting period of two years.  Compensation expense related to the restricted stock grant was $8,901 for the three month period ended March 31, 2012.  See Note 11 — Subsequent Events.

 

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 Realty’s basic and diluted earnings per share computations.

 

12



 

 

 

Three Months Ended March 31,

 

 

 

2012

 

2011

 

 

 

 

 

 

 

Loss from continuing operations available for common shareholders — basic

 

$

(595,908

)

$

(439,627

)

 

 

 

 

 

 

Loss from continuing operations attributable to noncontrolling interest

 

(124,309

)

(92,932

)

 

 

 

 

 

 

Loss from continuing operations — diluted

 

$

(720,217

)

$

(532,559

)

 

 

 

 

 

 

Loss from discontinued operations for common shareholders — basic

 

(3,888

)

(130,564

)

 

 

 

 

 

 

Loss from discontinued operations attributable to noncontrolling interest

 

(811

)

(27,599

)

 

 

 

 

 

 

Loss from discontinued operations — diluted

 

$

(4,699

)

$

(158,163

)

 

 

 

 

 

 

Net loss — diluted

 

$

(724,916

)

$

(690,722

)

 

 

 

 

 

 

Weighted average number of shares — basic

 

10,374,518

 

10,351,500

 

 

 

 

 

 

 

Dilutive securities — weighted average number of units

 

2,164,669

 

2,187,687

 

 

 

 

 

 

 

Weighted average number of shares — diluted

 

12,539,187

 

12,539,187

 

 

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 Realty’s 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 2012 or 2011.)  All of Roberts Realty’s properties are located in metropolitan 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.

 

13



 

The following tables summarize the operating results of Roberts Realty’s reportable segments for the three months ended March 31, 2012 and 2011.  The retail/office segment is composed of the Bassett and Spectrum at the Mall of Georgia retail centers, along with the Northridge office building.  Roberts Realty’s Grand Pavilion retail center, on which the lender foreclosed on October 4, 2011, 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 land segment includes the 11-acre Northridge land parcel, which is under contract to be sold and is classified as real estate assets held for sale in the condensed consolidated balance sheets.  The corporate segment consists primarily of cash and cash equivalents, miscellaneous other assets, and general and administrative expenses.

 

14



 

Three Months Ended March 31, 2012

 

 

 

Retail/Office

 

Land

 

Corporate

 

Total

 

 

 

 

 

 

 

 

 

 

 

Rental operations

 

$

270,693

 

$

3,169

 

$

 

$

273,862

 

Other operating income

 

39,086

 

 

5

 

39,091

 

 

 

 

 

 

 

 

 

 

 

Total operating revenues from consolidated entities

 

309,779

 

3,169

 

5

 

312,953

 

 

 

 

 

 

 

 

 

 

 

Operating expenses

 

114,736

 

43,764

 

365,218

 

523,718

 

Depreciation and amortization expense

 

122,809

 

 

 

122,809

 

 

 

 

 

 

 

 

 

 

 

Total operating expenses from consolidated entities

 

237,545

 

43,764

 

365,218

 

646,527

 

 

 

 

 

 

 

 

 

 

 

Other (expense) income

 

(160,739

)

(227,074

)

1,170

 

(386,643

)

 

 

 

 

 

 

 

 

 

 

Consolidated loss from continuing operations

 

(88,505

)

(267,669

)

(364,043

)

(720,217

)

 

 

 

 

 

 

 

 

 

 

Consolidated loss from discontinued operations (Note 3)

 

(4,699

)

 

 

(4,699

)

 

 

 

 

 

 

 

 

 

 

Consolidated net loss

 

(93,204

)

(267,669

)

(364,043

)

(724,916

)

 

 

 

 

 

 

 

 

 

 

Consolidated loss attributable to noncontrolling interest

 

(16,087

)

(46,200

)

(62,833

)

(125,120

)

 

 

 

 

 

 

 

 

 

 

Consolidated loss available for common shareholders

 

$

(77,117

)

$

(221,469

)

$

(301,210

)

$

(599,796

)

 

 

 

 

 

 

 

 

 

 

Total assets at March 31, 2012

 

$

13,565,699

 

$

34,397,581

 

$

3,373,255

 

$

51,336,535

 

 

Three Months Ended March 31, 2011

 

 

 

Retail/Office

 

Land

 

Corporate

 

Total

 

 

 

 

 

 

 

 

 

 

 

Rental operations

 

$

295,524

 

$

3,169

 

$

 

$

298,693

 

Other operating income

 

47,282

 

 

42

 

47,324

 

 

 

 

 

 

 

 

 

 

 

Total operating revenues from consolidated entities

 

342,806

 

3,169

 

42

 

346,017

 

 

 

 

 

 

 

 

 

 

 

Operating expenses

 

140,912

 

43,712

 

291,105

 

475,729

 

Depreciation and amortization expense

 

130,360

 

 

50

 

130,410

 

 

 

 

 

 

 

 

 

 

 

Total operating expenses from consolidated entities

 

271,272

 

43,712

 

291,155

 

606,139

 

 

 

 

 

 

 

 

 

 

 

Other (expense) income

 

(163,063

)

(114,671

)

5,297

 

(272,437

)

 

 

 

 

 

 

 

 

 

 

Consolidated loss from continuing operations

 

(91,529

)

(155,214

)

(285,816

)

(532,559

)

 

 

 

 

 

 

 

 

 

 

Consolidated loss from discontinued operations (Note 3)

 

(158,163

)

 

 

(158,163

)

 

 

 

 

 

 

 

 

 

 

Consolidated net loss

 

(249,692

)

(155,214

)

(285,816

)

(690,722

)

 

 

 

 

 

 

 

 

 

 

Consolidated loss attributable to noncontrolling interest

 

(43,571

)

(27,085

)

(49,875

)

(120,531

)

 

 

 

 

 

 

 

 

 

 

Consolidated loss available for common shareholders

 

$

(206,121

)

$

(128,129

)

$

(235,941

)

$

(570,191

)

 

 

 

 

 

 

 

 

 

 

Total assets at March 31, 2011

 

$

19,547,896

 

$

43,272,117

 

$

4,742,106

 

$

67,562,119

 

 

15



 

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 Realty’s 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.

 

Sales Contract to Sell Northridge Property to Roberts Properties.  On June 30, 2011, Roberts Realty entered into a contract to sell its 11 acre Northridge property to Roberts Properties.  On March 26, 2012, Roberts Realty amended the sales contract to extend the closing date to June 29, 2012.  Under the terms of the sales contract as amended, the sales price is $4,070,000, plus the reimbursement of $303,789 of development and construction expenses incurred before June 30, 2011.  Additionally, Roberts Properties is obligated to reimburse Roberts Realty for any development and construction expenses incurred from June 30, 2011 until the closing.

 

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.

 

 

 

Total
Contract
Amount

 

Amounts
Incurred from
1/1/12 to 3/31/12

 

Remaining
Contractual
Commitment

 

 

 

 

 

 

 

 

 

Highway 20

 

$

1,050,000

 

$

0

 

$

425,000

 

 

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, 2012.

 

16



 

 

 

Amounts Incurred for
Labor and Materials
Costs from
1/1/12 to 3/31/12

 

Amounts Incurred for
5% Profit and
5% Overhead from
1/1/12 to 3/31/12

 

 

 

 

 

 

 

Bradley Park

 

$

43

 

$

4

 

Northridge

 

15,521

 

1,552

 

Peachtree Parkway

 

783

 

78

 

North Springs

 

286

 

29

 

 

 

 

 

 

 

Totals

 

$

16,633

 

$

1,663

 

 

Other Payments.  At the request of Roberts Realty, Roberts Construction performed repairs and maintenance, as well as tenant improvements for new leases, at the retail centers and office building.  For the three months ended March 31, 2012, Roberts Realty paid Roberts Construction $41,340 for labor and materials costs plus $4,134 (5% for profit and 5% for overhead).  Roberts Properties received cost reimbursements of $58,650 for the three months ended March 31, 2012.

 

Office Leases.  Roberts Realty leases office space in the Northridge office building to the Roberts Companies.  Effective as of January 1, 2012, 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 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, 2012.

 

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 EquipmentOverall.

 

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 Realty’s 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 Realty’s management.  Because the factors Roberts Realty’s 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.

 

17



 

Non-Cash Impairments on Operating Real Estate Assets.  During the three months ended March 31, 2012 and 2011, Roberts Realty determined that the carrying amounts of its operating real estate assets were recoverable.  Accordingly, Roberts Realty did not record an impairment loss on its operating assets during the 2012 and 2011 periods.

 

Non-Cash Impairments on Land Parcels.  During the three months ended March 31, 2012 and 2011, Roberts Realty determined that the carrying amount of its land parcels was recoverable.  Accordingly, Roberts Realty did not record an impairment loss on its real estate assets during the 2012 and 2011 periods.

 

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, when a fair value measurement is used and presented in the financial statements these amounts may not reflect the amounts ultimately realized upon 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, 2012.

 

10.          COMMITMENTS AND CONTINGENCIES

 

Roberts Realty has entered into various contracts for the development and construction of its properties.  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 engineering contracts with third parties for the Northridge property.  At March 31, 2012, outstanding commitments on these contracts totaled $16,250.

 

At March 31, 2012, Roberts Realty had a $500,000 letter of credit outstanding.  The letter of credit is required by the lender for Roberts Realty’s Spectrum retail center and is held as a reserve

 

18



 

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 October 26, 2012.

 

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 Realty’s financial position or results of operations.

 

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 of Roberts Realty common stock, 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, 2012, there were 1,314,285 units outstanding that could be exchanged for shares, subject to the conditions described above.

 

Under Roberts Realty’s 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, 2012.

 

Under various federal, state, and local environmental laws and regulations, Roberts Realty may be required to investigate and mitigate the effects of hazardous or toxic substances at its properties, including properties that have previously been sold.  The preliminary environmental assessments of Roberts Realty’s current 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.

 

11.          SUBSEQUENT EVENTS

 

Restricted Stock.  On April 10, 2012, Roberts Realty granted 50,000 shares of restricted stock to an employee of Roberts Properties under the 2006 Roberts Realty Investors, Inc. Restricted Stock Plan.  The grant included a service-based vesting period of one year.

 

Renewal of Highway 20 Land Loan.  On April 19, 2012, Roberts Realty renewed and extended its $2,955,000 Highway 20 land loan to April 8, 2013.  Roberts Realty established a $165,000 interest reserve to pay the monthly interest payments at the prime rate with a floor of 5.5% per annum.  Roberts Realty will also make fixed principal payments of $5,000 per month, with a one-time principal reduction of $240,000 prior to October 15, 2012.

 

19



 

ITEM 2.  MANAGEMENT’S 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, 2011; (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, 2012, we were its sole general partner and owned an 82.74% interest in the operating partnership.  We expect to continue to conduct our business in this organizational structure.  As of the filing date of this report, we 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, including an 11-acre tract of land that is under contract to be sold;

 

·                  two retail shopping centers; and

 

·                  one office building, part of which serves as our corporate headquarters.

 

We plan to continue exiting the retail business and focus on our core business of developing, constructing, and managing high quality multifamily apartment communities for cash flow and long-term appreciation.  We have significantly reduced our debt and our negative cash flow in the past year, and we intend to continue these efforts.

 

Recent Developments

 

Renewal of Highway 20 Loan

 

On April 19, 2012, we renewed and extended our $2,955,000 Highway 20 land loan to April 8, 2013.  The loan is secured by the Highway 20 property, which is located in Cumming, Georgia and is zoned for 210 multifamily units.  We established a $165,000 interest reserve to pay the monthly interest payments at the prime rate with a floor of 5.5% per annum.  We will also make fixed principal payments of $5,000 per month, with a one-time principal reduction of $240,000 prior to October 15, 2012.

 

Extension of Closing Date for the Sale of the Northridge Land to Roberts Properties, Inc.

 

As part of our strategy to address our needs for liquidity and capital resources, on June 30, 2011, we entered into a contract to sell the 11-acre Northridge property to Roberts Properties.  On March 26, 2012, we amended the sales contract to extend the closing date to June 29, 2012.  Under the terms of the

 

20



 

sales contract as amended, the sales price is $4,070,000, plus the reimbursement of $303,789 for development and construction expenses incurred before June 30, 2011.  Roberts Properties is obligated to reimburse us for any development and construction expenses incurred from June 30, 2011 until the closing.

 

Renewal of Bradley Park Loan

 

On February 28, 2012, we renewed and extended our $3,000,000 Bradley Park land loan to October 31, 2013.  The loan is secured by our Bradley Park property, which is located in Cumming, Georgia and is zoned for 154 multifamily units.  The renewed loan requires monthly interest only payments and removes the interest rate floor of 4.50%.  The new interest rate is 350 basis points over the 30-day LIBOR and under that formula, the effective interest rate would be 3.74% per annum.

 

Northridge Property Loan

 

On February 21, 2012, Northridge Parkway, LLC, a wholly owned subsidiary of the operating partnership, closed a $2,000,000 loan from Paul J. A. van Hessen, the lender.  The loan is secured by our Northridge property, which is located in Sandy Springs; is zoned for 220 multifamily apartment units; and is under contract to be sold for $4,070,000 plus the reimbursement of certain development and construction expenses.  The loan has a maturity date of February 21, 2013, and at closing, we paid a 2.0% origination fee to the lender and a 1.0% underwriting and management fee to Dutch American Finance, LLC.  We established a $240,000 interest reserve to pay the monthly interest only payments at an interest rate of 12% per annum.

 

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 of land have a combined carrying value of $34,002,384, and are encumbered with land loans totaling $16,130,000.  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 loan we need to make substantial progress in constructing and leasing up our planned Bradley Park multifamily community 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.  Further, if we close the sale of our Northridge property as we expect, the proceeds of that sale would be approximately $4,648,207, which we would use to retire our $2,000,000 loan secured by the property and use the remaining proceeds of $2,648,207 to address our liquidity and capital resources needs.

 

We had total debt of $26,012,290 as of March 31, 2012.  As of the date of this report, we have three loans with a total principal balance of $13,130,000 that mature within the next 12 months: (a) the $8,175,000 Peachtree Parkway loan that matures on July 31, 2012; (b) the $2,000,000 Northridge loan that matures on February 21, 2013; and (c) the $2,955,000 Highway 20 loan that matures on April 8, 2013.  If we are unable to renew these loans, we may repay all or part of them from the funds we expect to receive from the sale of the Northridge property or are seeking to raise as described in Liquidity and Capital Resources — Business Plan below.

 

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Results of Operations

 

Comparison of Three Months Ended March 31, 2012 to Three Months Ended March 31, 2011

 

The following table highlights our operating results for the periods presented and should be read along with the condensed consolidated financial statements and the accompanying notes included in this report.

 

 

 

Three Months Ended
March 31,

 

 

 

 

 

2012

 

2011

 

$(Decrease)

 

 

 

(Unaudited)

 

(Unaudited)

 

Increase

 

 

 

 

 

 

 

 

 

TOTAL OPERATING REVENUES

 

$

312,953

 

$

346,017

 

$

(33,064

)

 

 

 

 

 

 

 

 

OPERATING EXPENSES:

 

 

 

 

 

 

 

Property operating expenses

 

149,079

 

148,601

 

478

 

General and administrative expenses

 

374,639

 

330,478

 

44,161

 

Gain on disposal of assets

 

 

(3,350

)

3,350

 

Depreciation and amortization

 

122,809

 

130,410

 

(7,601

)

 

 

 

 

 

 

 

 

Total operating expenses

 

646,527

 

606,139

 

40,388

 

 

 

 

 

 

 

 

 

LOSS FROM OPERATIONS

 

(333,574

)

(260,122

)

73,452

 

 

 

 

 

 

 

 

 

OTHER EXPENSE

 

(386,643

)

(272,437

)

114,206

 

 

 

 

 

 

 

 

 

LOSS FROM CONTINUING OPERATIONS

 

(720,217

)

(532,559

)

187,658

 

 

 

 

 

 

 

 

 

LOSS FROM DISCONTINUED OPERATIONS

 

(4,699

)

(158,163

)

(153,464

)

 

 

 

 

 

 

 

 

NET LOSS

 

$

(724,916

)

$

(690,722

)

$

34,194

 

 

Net loss increased $34,194 when compared to the 2011 period.  This increase was primarily due to a $33,064 decrease in operating revenues, a $40,388 increase in operating expenses, and a $114,206 increase in other expense, offset by a $153,464 decrease in loss from discontinued operations.  We explain below the major variances between the 2012 and 2011 periods.

 

Total operating revenues decreased by $33,064 from $346,017 in the 2011 period to $312,953 in the current period primarily as a result of a slightly lower occupancy level at our retail centers and overall lower rental rates on new leases and renewals.

 

Property operating expenses — consisting of utilities, repairs and maintenance, real estate taxes, and marketing and insurance expense — increased by $478 from $148,601 in the 2011 period to $149,079 in the current period.

 

General and administrative expenses increased by $44,161 from $330,478 in the 2011 period to $374,639 in the current period, primarily due to higher professional service fees partially offset by lower salaries.

 

Other expense increased $114,206 from $272,437 in the 2011 period to $386,643 in the current period.  This increase was primarily due to a $104,725 increase in interest expense because (a) $81,940 of interest was capitalized in the 2011 period and all interest was expensed in the 2012 period and (b) starting in February 2012, the interest on the Northridge land loan began.

 

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Liquidity and Capital Resources

 

Overview

 

At March 31, 2012, we had $51,336,535 in total assets, of which $1,709,791 was cash and cash equivalents.  In addition, we held $1,103,542 in restricted cash.  Of our restricted cash at March 31, 2012, $542,649 was reserved for the payment of interest and certain other costs on specific outstanding loans, and $501,176 was a certificate of deposit pledged to secure a letter of credit for tenant improvements at the Spectrum retail center.  As of April 19, 2012, we held $1,523,739 in cash and cash equivalents and $1,213,344 in restricted cash.  Of our restricted cash balance, $652,451 was reserved for the payment of interest and certain other costs on specific outstanding loans, and $501,176 is 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 the Bradley Park multifamily community to enable us to raise the required debt and equity to construct that community.  We currently estimate that we will need approximately $14,695,000 in debt and equity to complete the construction of Bradley Park.  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.  Further, if we close the sale of our Northridge property as we expect, the net proceeds of that sale would be approximately $2,648,207, which we would use to address our liquidity and capital resources needs.

 

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 $13,130,000 that mature within the next 12 months, as listed in the following table in their order of maturity:

 

Property Securing Loan

 

Maturity Date

 

Principal Payments Due
Within 12 Months

 

 

 

 

 

 

 

Peachtree Parkway

 

7/31/12

 

$

8,175,000

 

Northridge

 

2/21/13

 

2,000,000

 

Highway 20

 

4/08/13

 

2,955,000

 

 

 

 

 

 

 

Total

 

 

 

$

13,130,000

 

 

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 as follows:

 

·                  We own five tracts of land totaling 106 acres with an aggregate carrying value of $34,002,384 that secure land loans totaling $16,130,000.  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 retail and office sectors, one of our retail centers and our office building are producing negative cash flow, and the other retail center is positively cash flowing.

 

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·                  Our general and administrative expenses were $1,357,252 for the calendar year 2011 and $374,639 for the three months ended March 31, 2012; 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 auditors 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 public reporting company are approximately $665,000 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 unrestricted cash balance of $1,709,791 to meet our short-term liquidity requirements, including general and administrative expenses, principal reductions on our debt, and improvements at our existing properties.

 

As noted above, we have three loans with a total principal balance of $13,130,000 that mature within the next 12 months.  We plan to renew these loans as they come due and extend their maturity dates at least 12 months or find alternative funding and raise additional capital for the development of the properties securing the loans.  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, the proceeds from the sale of the Northridge property, contributions from a joint venture partner, the net proceeds from the sale of one or more of our remaining properties, or equity we raise in a private offering.

 

Current economic conditions and the tight lending environment create uncertainty regarding whether we can extend or refinance the maturing loans as planned or find alternative funding and raise additional capital for the development of the properties securing the loans.  If we were required to use our current cash balances to pay down existing loans, those repayments and the corresponding reductions in our cash could adversely affect our ability to execute our plans as described further below.

 

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.  We plan to continue exiting the retail business and focusing on our core business of developing, constructing, and managing high quality multifamily apartment communities for cash flow and long-term appreciation.  During the past year, we have significantly reduced our debt and decreased our negative cash flow and we intend to continue these efforts.  As explained above in Recent Developments, we have recently closed a $2,000,000 loan secured by our Northridge property, renewed and extended our $3,000,000 Bradley Park land loan to October 30, 2013, and renewed and extended our $2,955,000 Highway 20 land loan to April 8, 2013.

 

We explain below our strategies and plans for each type of property we own.

 

24



 

Development and Construction of Multifamily Communities

 

We are 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 2012, and the level of rental concessions should continue to decrease as the market continues to improve.

 

·                  Occupancy rates for Class A apartments in Atlanta should continue to increase in 2012.

 

·                  The number of new apartments constructed in Atlanta was substantially lower in 2011 than in recent years and is expected to remain low in 2012.

 

·                  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 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 for 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, 2011, 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 four land parcels for development and construction:

 

1.               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.

 

2.               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.

 

3.               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.

 

4.               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.

 

We also own 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 entered into a contract, as

 

25



 

amended, to sell Northridge to Roberts Properties for a sales price of $4,070,000, plus certain cost reimbursements.  Under the amended terms of the contract, the closing is scheduled to occur on or before June 29, 2012.

 

If the sale of the Northridge property closes as anticipated, we expect to use the proceeds of the sale to address our liquidity and capital resources needs.  If the sale of the Northridge property does not close as expected, we may seek to sell one or more of our remaining land parcels to independent purchasers.  Potential buyers have recently expressed interest in purchasing some of our properties and we believe they have the financial resources to do so.  We may raise private equity and 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 of our remaining land parcels to Roberts Properties as we have agreed to do with the Northridge land parcel. We may also form a new affiliate that would raise private equity for the specific purpose of funding the purchase of one of the remaining land parcels and constructing a multifamily community.

 

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, as the economy recovers.  We intend to move forward with the development and construction of our next multifamily community at Bradley Park.  Although we cannot make substantial progress on constructing this project 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 $14,695,000 in debt and equity to complete the construction of our Bradley Park multifamily community.

 

To provide the equity we need for the construction of Bradley Park as well as to repay or partially extend our maturing loans, we may seek to sell one or more of our land parcels to independent purchasers or to raise debt and equity through the other means described above.

 

Retail Centers and Office Building

 

We currently own two 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 52.5% occupied.

 

3.               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.

 

The retail sector took the brunt of the severe recession, and as a result our retail centers have struggled to increase their occupancy.  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 intend to exit the retail business and focus on our core business of developing, constructing, and managing high quality multifamily apartment communities. In spite of this difficult environment, however, we are committed to increasing the occupancy of our Spectrum and Bassett retail centers so they can be positioned for sale.  In addition to considering the sale of the Bassett and Spectrum retail centers, we may form a joint venture with a

 

26



 

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.

 

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.  In 2011, we retained the services of Sandler O’Neill + Partners, L.P. to explore potential strategic alternatives for us.  We have entered into mutual confidentiality agreements with 53 different entities, and discussions are ongoing with several of them.  To date, however, we have not entered into a definitive agreement for such a transaction. We currently 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, 2012 to Three Months ended March 31, 2011

 

Cash and cash equivalents increased $1,141,600 during the first three months of 2012 compared to a decrease of $606,231 during the 2011 period.  The respective changes in cash are described below.

 

Net cash used in operating activities in the 2012 period was $546,466 compared to $227,220 used during the 2011 period. This increase was primarily the result of lower rental revenues, increased general and administrative and interest expense related to operations coupled with a $71,517 decrease in the change of accounts payable, accrued expenses, and other liabilities, and an increase of $32,236 in due to affiliates.

 

Net cash used in investing activities was $120,278 during the 2012 period compared to $212,199 used during the 2011 period.  This decrease was primarily due to a $222,497 decrease in development and construction of real estate assets, and a $42,342 increase in the change of accounts payable, accrued expenses and other liabilities related to investing activities offset by a $178,373 increase in the change in restricted cash.

 

Net cash provided by financing activities was $1,808,344 for the 2012 period compared to net cash used in financing activities of $166,812 during the 2011 period.  The increase in cash provided by financing activities primarily resulted from the $2,000,000 of proceeds from the Northridge land loan offset by the loan costs for the Northridge land loan and renewal of the Bradley Park land loan.

 

27



 

Debt Maturities

 

Our existing loans will be amortized with scheduled monthly payments, as well as balloon payments at maturity, through 2019 as summarized in the following table:

 

Debt Maturity Schedule

 

Year

 

Remaining
Principal
Payments
Per Year

 

Principal
Payments on
Nonrecourse
(CMBS) Loans

 

Nonrecourse
Loans with
Balloon
Payments

 

Principal
Payments on

Recourse Loans

 

Recourse
Loans with
Balloon
Payments

 

 

 

 

 

 

 

 

 

 

 

 

 

2012

 

$

 8,682,296

 

$

  102,296

 

 

 

$

  8,580,000

 

Peachtree Parkway

 

 

 

 

 

 

 

 

 

 

 

 

 

2013

 

10,371,987

 

163,654

 

 

 

10,208,333

 

Bradley Park,

Northridge Office

Northridge

Highway 20

 

 

 

 

 

 

 

 

 

 

 

 

 

2014

 

4,644,299

 

4,644,299

 

Spectrum

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2015

 

66,125

 

66,125

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2016

 

71,471

 

71,471

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Thereafter

 

  2,176,112

 

2,176,112

 

Bassett

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

$

26,012,290

 

 

 

 

 

 

 

 

 

 

Short-Term Debt

 

We have a total of $13,130,000 in debt that matures within the next 12 months.  All of that debt matures before April 30, 2013.  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, 2013, 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.

 

Effect of Floating Rate Debt

 

We have four loans that bear interest at floating rates.  These loans had an aggregate outstanding balance of $16,788,333 at March 31, 2012.  Loans totaling $13,833,333 bear interest at 300 to 350 basis points over the 30-day LIBOR with interest rate floors ranging from 4.50% to 5.00%, and a $2,955,000 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 or increase the interest rate above their respective interest rate floors will increase our interest expense.  For example, a 1.0% increase in the interest rates on these loans or an increase in the interest rate above their respective interest rate floors would increase our interest expense by approximately $167,883 per year and reduce our liquidity and capital resources by that amount.

 

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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.

 

Critical Accounting Policies and Estimates

 

We prepare our financial statements in accordance with U.S. generally accepted accounting principles.  See “Recent Accounting Pronouncements” below for a summary of recent accounting pronouncements and the expected impact on our financial statements.  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, and we own retail centers and an office building, 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, 2012 and 2011, we determined that the carrying amounts on our operating real estate assets and our land parcels were recoverable.  Accordingly, we did not record an impairment loss on those assets during these periods.

 

Recent Accounting Pronouncements

 

Please refer to Note 2, Basis of Presentation — Recent Accounting Pronouncements in the notes to the condensed consolidated financial statements included in this report for a discussion of recent accounting standards and pronouncements.

 

ITEM 3.   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

 

Not required for smaller reporting companies.

 

ITEM 4.                             CONTROLS AND PROCEDURES.

 

Based on our management’s evaluation, with the participation of our Chief Executive Officer and Chief Financial Officer, as of March 31, 2012, 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.

 

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.

 

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There has been no change in our internal control over financial reporting during our most recent fiscal quarter 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.

 

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, 2011, as well as the risk factors 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 $13,130,000 that mature within the next 12 months.  Our $8,175,000 Peachtree Parkway loan matures on July 31, 2012; our $2,000,000 Northridge loan matures on February 21, 2013; and our $2,955,000 Highway 20 loan matures on April 8, 2013.  If we do not sell the Northridge property as we expect; we are unable to extend or refinance our debt at maturity on acceptable terms, or at all; we are unable to find alternative funding and raise additional capital for the development of the Peachtree Parkway and Highway 20 properties; or 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 could 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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Our exploration of potential strategic alternatives may be unsuccessful.

 

We retained Sandler O’Neill + Partners, L.P. on June 30, 2011 to explore potential strategic alternatives for the company.  These alternatives could include a sale, merger, or other business combination.  We caution that there can be no assurance that the exploration of strategic alternatives will result in any transaction, or that, if completed, any transaction will be on attractive terms.

 

We may be unable to sell our Northridge property as we expect.

 

We have entered into a contract to sell our 11-acre Northridge property to Roberts Properties for a cash sales price of $4,070,000, plus the reimbursements of certain costs.  Under the amended terms of the contract, the closing is scheduled to occur on or before June 29, 2012.  We can provide no assurances that Roberts Properties will be able to close on the purchase by that date.  If we do not sell the Northridge property as we expect, we could suffer the consequences described in the first risk factor above.

 

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 the filing date of this report, we have repurchased 59,638 shares and have the authority to repurchase an additional 540,362 shares under the plan.  We have not repurchased any shares in 2012 or 2011.  The plan does not have an expiration date.

 

ITEM 3.          DEFAULTS UPON SENIOR SECURITIES.

 

None.

 

ITEM 4.          MINE SAFETY DISCLOSURES.

 

Not applicable.

 

ITEM 5.          OTHER INFORMATION.

 

None.

 

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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

 

 

 

10.1

 

Loan Agreement dated February 21, 2012 by and between Northridge Parkway, LLC (a wholly owned subsidiary) and Paul J. A. van Hessen (Northridge). [Incorporated by reference to Exhibit 10.1 in our current report on Form 8-K dated February 21, 2012.]

 

 

 

10.2

 

Promissory Note in the principal amount of $2,000,000 dated February 21, 2012 by and between Northridge Parkway, LLC and Paul J. A. van Hessen (Northridge). [Incorporated by reference to Exhibit 10.2 in our current report on Form 8-K dated February 21, 2012.]

 

 

 

10.3

 

Deed to Secure Debt and Security Agreement dated February 21, 2012 by and between Northridge Parkway, LLC and Paul J. A. van Hessen (Northridge). [Incorporated by reference to Exhibit 10.3 in our current report on Form 8-K dated February 21, 2012.]

 

 

 

10.4

 

Guaranty dated February 21, 2012 by Roberts Properties Residential, L.P. and Roberts Realty Investors, Inc. in favor of Paul J. A. van Hessen (Northridge). [Incorporated by reference to Exhibit 10.4 in our current report on Form 8-K dated February 21, 2012.]

 

 

 

10.5

 

Third Amendment to Sales Contract dated March 26, 2012 by and between Northridge Parkway, LLC and Roberts Properties, Inc. (Northridge land parcel). [Incorporated by reference to Exhibit 10.1 in our current report on Form 8-K dated March 26, 2012.]

 

 

 

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 18 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.

 

 

 

101

 

The following financial statements from Roberts Realty Investors, Inc.’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2012 formatted in XBRL (eXtensible Business Reporting Language): (i) the Condensed Consolidated Balance Sheets (unaudited); (ii) the Condensed Consolidated Statements of Operations (unaudited); (iii) the Condensed Consolidated Statements of Cash Flows (unaudited); and (iv) the Notes to Condensed Consolidated Financial Statements, tagged as blocks of text.

 

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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:  April 27, 2012

 

 

ROBERTS REALTY INVESTORS, INC.

 

 

 

 

 

By:

/s/ Charles R. Elliott

 

 

Charles R. Elliott, Chief Financial Officer

 

 

(the registrant’s principal financial and accounting officer,

 

 

who is duly authorized to sign this report)

 

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