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EX-31 - EX-31 - ACRE REALTY INVESTORS INCa12-13973_1ex31.htm
EX-32 - EX-32 - ACRE REALTY INVESTORS INCa12-13973_1ex32.htm

 

 

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 June 30, 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 July 23, 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; 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, in this report, 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

 

 

 

June 30,

 

December 31,

 

 

 

2012

 

2011

 

 

 

(Unaudited)

 

(Unaudited)

 

 

 

 

 

 

 

ASSETS

 

 

 

 

 

REAL ESTATE ASSETS:

 

 

 

 

 

Land

 

$

  5,272,376

 

$

  5,272,376

 

Buildings and improvements

 

10,717,563

 

10,717,563

 

Furniture, fixtures and equipment

 

562,899

 

445,696

 

 

 

16,552,838

 

16,435,635

 

Less: accumulated depreciation

 

(3,583,743

)

(3,383,321

)

Operating real estate assets

 

12,969,095

 

13,052,314

 

Construction in progress and real estate under development

 

22,088,000

 

22,088,000

 

Real estate assets held for sale

 

12,514,953

 

12,789,738

 

 

 

 

 

 

 

Net real estate assets

 

47,572,048

 

47,930,052

 

 

 

 

 

 

 

CASH AND CASH EQUIVALENTS

 

1,091,486

 

568,191

 

 

 

 

 

 

 

RESTRICTED CASH

 

1,044,574

 

1,014,989

 

 

 

 

 

 

 

DEFERRED FINANCING & LEASING COSTS — Net of accumulated amortization of $219,760 and $177,600 at June 30, 2012 and December 31, 2011, respectively

 

144,559

 

96,475

 

 

 

 

 

 

 

LEASE INTANGIBLES — Net of accumulated amortization of $418,071 and $386,996 at June 30, 2012 and December 31, 2011, respectively

 

35,102

 

66,177

 

 

 

 

 

 

 

DUE FROM AFFILIATES

 

300,106

 

242,182

 

 

 

 

 

 

 

OTHER ASSETS — Net

 

72,697

 

130,678

 

 

 

 

 

 

 

ASSETS RELATED TO DISCONTINUED OPERATIONS

 

123,000

 

7,553

 

 

 

 

 

 

 

 

 

$

50,383,572

 

$

50,056,297

 

 

 

 

 

 

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

 

 

 

LIABILITIES:

 

 

 

 

 

Mortgage notes payable

 

$

 9,803,796

 

$

 9,960,148

 

Land notes payable

 

5,935,000

 

5,955,000

 

Accounts payable and accrued expenses

 

389,379

 

306,523

 

Due to affiliates

 

37,353

 

27,420

 

Security deposits and prepaid rents

 

49,393

 

66,296

 

Liabilities related to real estate assets held for sale

 

10,247,805

 

8,204,521

 

Liabilities related to discontinued operations

 

7,382

 

7,665

 

 

 

 

 

 

 

Total liabilities

 

26,470,108

 

24,527,573

 

 

 

 

 

 

 

COMMITMENTS AND CONTINGENCIES (Note 10)

 

 

 

 

 

 

 

 

 

 

 

NONCONTROLLING INTEREST — OPERATING PARTNERSHIP

 

4,110,724

 

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, 10,424,518 and 10,374,518 shares issued and outstanding at June 30, 2012 and December 31, 2011, respectively

 

104,245

 

103,745

 

Additional paid-in capital

 

31,441,413

 

31,397,390

 

Treasury shares, at cost

 

(71,332

)

(71,332

)

Accumulated deficit

 

(11,671,586

)

(10,307,337

)

 

 

 

 

 

 

Total shareholders’ equity

 

19,802,740

 

21,122,466

 

 

 

 

 

 

 

 

 

$

50,383,572

 

$

50,056,297

 

 

See notes to the condensed consolidated financial statements.

 

3



 

ROBERTS REALTY INVESTORS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

 

 

 

Three Months Ended June 30,

 

Six Months Ended June 30,

 

 

 

2012

 

2011

 

2012

 

2011

 

 

 

(Unaudited)

 

(Unaudited)

 

(Unaudited)

 

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

OPERATING REVENUES:

 

 

 

 

 

 

 

 

 

Rental operations

 

$

279,845

 

$

272,682

 

$

553,707

 

$

571,375

 

Other operating income

 

39,747

 

42,218

 

78,838

 

89,542

 

 

 

 

 

 

 

 

 

 

 

Total operating revenues

 

319,592

 

314,900

 

632,545

 

660,917

 

 

 

 

 

 

 

 

 

 

 

OPERATING EXPENSES:

 

 

 

 

 

 

 

 

 

Utilities

 

32,840

 

27,205

 

67,318

 

62,434

 

Repairs and maintenance

 

43,011

 

44,909

 

73,872

 

78,642

 

Real estate taxes

 

71,046

 

77,702

 

141,617

 

144,740

 

Marketing, insurance and other

 

12,576

 

11,800

 

25,745

 

24,401

 

General and administrative expenses

 

382,486

 

370,197

 

757,125

 

700,675

 

Impairment loss on real estate assets

 

275,949

 

1,386,480

 

275,949

 

1,386,480

 

Gain on disposal of assets

 

 

(1,200

)

 

(4,550

)

Depreciation and amortization

 

128,124

 

130,410

 

250,933

 

260,820

 

 

 

 

 

 

 

 

 

 

 

Total operating expenses

 

946,032

 

2,047,503

 

1,592,559

 

2,653,642

 

 

 

 

 

 

 

 

 

 

 

LOSS FROM OPERATIONS

 

(626,440

)

(1,732,603

)

(960,014

)

(1,992,725

)

 

 

 

 

 

 

 

 

 

 

OTHER INCOME (EXPENSE):

 

 

 

 

 

 

 

 

 

Interest income

 

1,258

 

4,078

 

2,446

 

9,375

 

Interest expense

 

(385,362

)

(308,215

)

(742,510

)

(560,638

)

Amortization of deferred financing & leasing costs

 

(46,131

)

(29,195

)

(76,814

)

(54,506

)

 

 

 

 

 

 

 

 

 

 

Total other expense

 

(430,235

)

(333,332

)

(816,878

)

(605,769

)

 

 

 

 

 

 

 

 

 

 

LOSS FROM CONTINUING OPERATIONS

 

(1,056,675

)

(2,065,935

)

(1,776,892

)

(2,598,494

)

 

 

 

 

 

 

 

 

 

 

INCOME (LOSS) FROM DISCONTINUED OPERATIONS

 

133,351

 

(157,044

)

128,652

 

(315,207

)

 

 

 

 

 

 

 

 

 

 

NET LOSS

 

(923,324

)

(2,222,979

)

(1,648,240

)

(2,913,701

)

 

 

 

 

 

 

 

 

 

 

LOSS ATTRIBUTABLE TO NONCONTROLLING INTEREST

 

(158,812

)

(386,798

)

(283,991

)

(507,567

)

 

 

 

 

 

 

 

 

 

 

LOSS AVAILABLE FOR COMMON SHAREHOLDERS

 

$

(764,512

)

$

(1,836,181

)

$

(1,364,249

)

$

(2,406,134

)

 

 

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss from continuing operations — basic and diluted

 

$

(0.08

)

$

(0.16

)

$

(0.14

)

$

(0.20

)

Income (loss) from discontinued operations — basic and diluted

 

0.01

 

(0.01

)

0.01

 

(0.03

)

Net loss — basic and diluted

 

$

(0.07

)

$

(0.17

)

$

(0.13

)

$

(0.23

)

 

See notes to the condensed consolidated financial statements.

 

4



 

ROBERTS REALTY INVESTORS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

 

 

 

Six Months Ended June 30,

 

 

 

2012

 

2011

 

 

 

(Unaudited)

 

(Unaudited)

 

OPERATING ACTIVITIES:

 

 

 

 

 

Net loss

 

$

(1,648,240

)

$

(2,913,701

)

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

 

 

 

 

 

(Income) loss from discontinued operations

 

(128,652

)

315,207

 

Depreciation and amortization

 

327,747

 

315,326

 

Impairment loss on real estate assets

 

275,949

 

1,386,480

 

Amortization of deferred compensation

 

32,980

 

17,704

 

Amortization of above and below market leases

 

(5,950

)

(5,950

)

Increase in due from affiliates

 

(57,924

)

 

Decrease in other assets

 

64,549

 

85,070

 

Increase (decrease) in due to affiliates

 

3,749

 

(12,072

)

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

 

109,236

 

231,081

 

Net cash used in operating activities from continuing operations

 

(1,026,556

)

(580,855

)

Net cash provided by operating activities from discontinued operations

 

12,922

 

33,219

 

 

 

 

 

 

 

Net cash used in operating activities

 

(1,013,634

)

(547,636

)

 

 

 

 

 

 

INVESTING ACTIVITIES:

 

 

 

 

 

Increase in restricted cash

 

(29,585

)

(250,300

)

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

 

6,185

 

40,987

 

Development and construction of real estate assets

 

(138,421

)

(508,475

)

 

 

 

 

 

 

Net cash used in investing activities from continuing operations

 

(161,821

)

(717,788

)

Net cash used in investing activities from discontinued operations

 

 

(5,455

)

 

 

 

 

 

 

Net cash used in investing activities

 

(161,821

)

(723,243

)

 

 

 

 

 

 

FINANCING ACTIVITIES:

 

 

 

 

 

Principal repayments on mortgage notes payable

 

(156,352

)

(166,205

)

Principal repayments on land notes payable

 

(20,000

)

(180,000

)

Payment of loan costs

 

(124,898

)

(35,071

)

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

 

2,000,000

 

 

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

 

 

779

 

 

 

 

 

 

 

Net cash provided by (used in) financing activities

 

1,698,750

 

(380,497

)

 

 

 

 

 

 

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

 

523,295

 

(1,651,376

)

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD

 

$

568,191

 

$

3,716,393

 

 

 

 

 

 

 

CASH AND CASH EQUIVALENTS, END OF PERIOD

 

$

1,091,486

 

$

2,065,017

 

 

See notes to the condensed consolidated financial statements.

 

5



 

ROBERTS REALTY INVESTORS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)

 

 

 

Six Months Ended June 30,

 

 

 

2012

 

2011

 

 

 

(Unaudited)

 

(Unaudited)

 

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:

 

 

 

 

 

Cash paid for interest, net of capitalized interest of $0 and $81,940 for the six months ended June 30, 2012 and June 30, 2011, respectively

 

$

726,036

 

$

601,232

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

 

 

 

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

 

$

6,185

 

$

20,360

 

 

 

 

 

 

 

Conversion of operating partnership units to common shares

 

$

 

$

17,970

 

 

 

 

 

 

 

Adjustments to noncontrolling interest in the operating partnership

 

$

(11,543

)

$

(3,901

)

 

See notes to the condensed consolidated financial statements.

 

6



 

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 82.81% ownership interest in the operating partnership at June 30, 2012 and an 82.60% ownership interest in the operating partnership at June 30, 2011.

 

At June 30, 2012, Roberts Realty owned the following real estate assets, all of which are located in the north Atlanta metropolitan area:

 

·                  three tracts of land totaling 70 acres in various phases of development and construction;

·                  three tracts of land totaling 37 acres held for sale; one of these tracts is currently under contract to be sold (see Note 7 — Related Party Transactions);

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

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

 

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 six tracts of land and low occupancy rates at one of its retail centers and the office building.  As of the filing date of this report, Roberts Realty has three loans with a total principal balance of $13,110,000 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 some of its existing land and selling its land classified as real estate assets held for sale will allow it to successfully extend these loans or find alternative funding and raise additional capital for development.  However, the tight lending environment creates 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 balances 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 to provide working capital to enable it to cover its negative operating cash flow as it pursues its business plan and to invest in the development of the Bradley Park multifamily community to enable Roberts Realty to raise the required debt and equity to construct that community.

 

7



 

Management is focusing on its core business of developing, constructing, managing, and selling high quality multifamily apartment communities for cash flow and long-term capital 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 may also 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 apartment community.  Management believes this is an opportune time to create new multifamily assets and that Roberts Realty can create value for shareholders as it has historically done following economic downturns and recessions.  Roberts Realty is currently seeking to raise the equity and obtain the construction loan 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 apartment community.

 

Sales Contract for the Sale of Northridge Land.  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 October 30, 2012.

 

Peachtree Parkway Land and Other Real Estate Asset Held for Sale.  Additionally, to further Roberts Realty’s efforts to improve liquidity and provide capital resources, Roberts Realty has begun to actively market for sale the Peachtree Parkway land and an approximately one-acre commercial site in Johns Creek.  The two land parcels have been classified in the condensed consolidated balance sheets as real estate assets held for sale as of June 30, 2012.

 

8



 

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.  During the past two years, 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 59 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 and real estate assets held for sale in order 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 applicable period, which was 17.20% and 17.40% for the three months ended June 30, 2012 and 2011, respectively.  There were 1,314,285 units outstanding as of June 30, 2012 and December 31, 2011.  The noncontrolling interest of the unitholders was $4,110,724 at June 30, 2012 and $4,406,258 at December 31, 2011.

 

9



 

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 six months ended June 30, 2012 and 2011:

 

 

 

Six Months Ended June 30,

 

 

 

2012

 

2011

 

 

 

 

 

 

 

Beginning balance

 

$

4,406,258

 

$

6,372,817

 

Net loss attributable to noncontrolling interest

 

(283,991

)

(507,567

)

Redemptions of noncontrolling partnership units

 

 

(17,970

)

Adjustments to noncontrolling interest in operating partnership

 

(11,543

)

(3,901

)

 

 

 

 

 

 

Ending balance

 

$

4,110,724

 

$

5,843,379

 

 

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.

 

10



 

3.                                      REAL ESTATE ASSETS HELD FOR SALE AND DISCONTINUED OPERATIONS

 

FASB ASC Topic 360-10, Property, Plant and Equipment - Overall requires a long-lived asset to be classified as “held for sale” in the period in which certain criteria are met.  Roberts Realty classifies real estate assets as held for sale after the following conditions have been satisfied; (1) receipt of approval from its board of directors to sell the asset, (2) the initiation of an active program to sell the asset, and (3) the asset is available for immediate sale and it is probable that the sale of the asset will be completed within one year.  When assets are classified as held for sale, they are recorded at the lower of the assets’ carrying amount or fair value, less the estimated selling costs.

 

Roberts Realty periodically classifies real estate assets as held for sale, and these assets and their liabilities are stated separately on the accompanying condensed consolidated balance sheets.  The real estate assets held for sale and the liabilities related to real estate assets held for sale as of June 30, 2012 and December 31, 2011, were as follows:

 

 

 

Real Estate Assets Held for Sale

 

Land Parcel

 

6/30/12

 

12/31/11

 

 

 

 

 

 

 

Northridge

 

$

 4,373,789

 

$

 4,373,789

 

Peachtree Parkway

 

7,541,164

 

7,540,000

 

Commercial Site in Johns Creek

 

600,000

 

875,949

 

 

 

 

 

 

 

Total Real Estate Assets Held for Sale

 

$

12,514,953

 

$

12,789,738

 

 

 

 

Liabilities Related to Real
Estate Assets Held for Sale

 

Land Loans

 

6/30/12

 

12/31/11

 

 

 

 

 

 

 

Northridge

 

$

 2,000,000

 

$

 

Peachtree Parkway

 

8,175,000

 

8,175,000

 

Commercial Site in Johns Creek

 

 

 

 

 

 

 

 

 

Total Land Loans for Real Estate Assets Held for Sale

 

$

10,175,000

 

$

8,175,000

 

Other Liabilities

 

72,805

 

29,521

 

 

 

 

 

 

 

Total Liabilities Related to Real Estate Assets Held for Sale

 

$

10,247,805

 

$

8,204,521

 

 

Roberts Realty reports the results of operations and the gains or losses from properties that are sold in accordance with FASB ASC Topic 360-10, Property, Plant and Equipment — Overall.  Gains and losses, the results of operations, interest expense and all expenses related to the retirement of debt from properties that are sold are included in discontinued operations in the period incurred and are shown separately in the condensed consolidated statements of operations as income or loss from 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 the Grand Pavilion retail center, thereby extinguishing Roberts Realty’s nonrecourse mortgage debt.  Accordingly, the operations of the Grand Pavilion retail center have been accounted for as discontinued operations.

 

11



 

The following table summarizes the discontinued operations for the three and six months ended June 30, 2012 and 2011 (unaudited):

 

 

 

Three Months Ended June 30,

 

Six Months Ended June 30,

 

 

 

2012

 

2011

 

2012

 

2011

 

 

 

(Unaudited)

 

(Unaudited)

 

(Unaudited)

 

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

OPERATING REVENUES:

 

 

 

 

 

 

 

 

 

Rental operations

 

$

 

$

43,813

 

$

 

$

87,625

 

Other operating income

 

132,000

 

8,142

 

132,000

 

16,688

 

 

 

 

 

 

 

 

 

 

 

Total operating revenues

 

132,000

 

51,955

 

132,000

 

104,313

 

 

 

 

 

 

 

 

 

 

 

OPERATING EXPENSES:

 

 

 

 

 

 

 

 

 

Personnel

 

 

 

 

312

 

Utilities

 

 

10,122

 

 

37,783

 

Repairs and maintenance

 

(1,400

)

27,005

 

(816

)

31,474

 

Real estate taxes

 

 

34,785

 

 

69,570

 

Marketing, insurance and other

 

 

7,002

 

250

 

12,521

 

General and administrative expenses

 

 49

 

 12,707

 

 3,914

 

 34,076

 

Depreciation and amortization

 

 

25,825

 

 

51,650

 

 

 

 

 

 

 

 

 

 

 

Total operating expenses

 

(1,351

)

117,446

 

3,348

 

237,386

 

 

 

 

 

 

 

 

 

 

 

INCOME (LOSS) FROM OPERATIONS

 

 133,351

 

 (65,491

)

 128,652

 

 (133,073

)

 

 

 

 

 

 

 

 

 

 

OTHER EXPENSE:

 

 

 

 

 

 

 

 

 

Interest expense

 

 

(88,302

)

 

(175,634

)

Amortization of deferred financing & leasing costs

 

 

 

 (3,251

)

 

 

(6,500

)

 

 

 

 

 

 

 

 

 

 

Total other expense

 

 

(91,553

)

 

(182,134

)

 

 

 

 

 

 

 

 

 

 

INCOME (LOSS) FROM DISCONTINUED OPERATIONS

 

$

133,351

 

$

(157,044

)

$

128,652

 

$

(315,207

)

 

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 or one of its wholly owned subsidiaries 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.

 

12



 

Mortgage Notes.  The mortgage notes payable secured by Roberts Realty’s operating properties at June 30, 2012 and December 31, 2011 were as follows (in order of maturity date):

 

 

 

 

 

Interest
Rate as of

 

Principal Outstanding

 

Property Securing Mortgage

 

Maturity

 

6/30/12

 

6/30/12

 

12/31/11

 

 

 

 

 

 

 

 

 

 

 

Northridge Office Building

 

8/10/13

 

4.50

%

$

2,618,334

 

$

2,698,333

 

Spectrum at the Mall of Georgia

 

5/01/14

 

5.68

%

4,734,013

 

4,784,858

 

Bassett Retail Center

 

10/01/19

 

8.47

%

2,451,449

 

2,476,957

 

 

 

 

 

 

 

 

 

 

 

Totals

 

 

 

 

 

$

9,803,796

 

$

9,960,148

 

 

Land Loans.  The loans secured by Roberts Realty’s land parcels at June 30, 2012 and December 31, 2011 were as follows (in order of maturity date):

 

Land Parcel

 

 

 

Interest
Rate as of

 

Principal Outstanding

 

Securing Loan

 

Maturity

 

6/30/12

 

6/30/12

 

12/31/11

 

 

 

 

 

 

 

 

 

 

 

Highway 20

 

04/08/13

 

5.50

%

$

2,935,000

 

$

2,955,000

 

Bradley Park

 

10/31/13

 

3.74

%

3,000,000

 

3,000,000

 

 

 

 

 

 

 

 

 

 

 

Total Land Loans

 

 

 

 

 

5,935,000

 

5,955,000

 

Peachtree Parkway(1) (2)

 

10/31/12

 

5.00

%

8,175,000

 

8,175,000

 

Northridge (2)

 

02/21/13

 

12.00

%

2,000,000

 

 

 

 

 

 

 

 

 

 

 

 

Total Loans for Real Estate Assets Held for Sale

 

 

 

 

 

10,175,000

 

8,175,000

 

 

 

 

 

 

 

 

 

 

 

Totals

 

 

 

 

 

$

16,110,000

 

$

14,130,000

 

 


(1)          See Note 11 — Subsequent Events, for information about the extension of the Peachtree Parkway loan.

(2)          The Peachtree Parkway and Northridge land loans are classified as liabilities related to real estate assets held for sale in the condensed consolidated balance sheets.

 

On April 19, 2012, Roberts Realty renewed and extended its 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.

 

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

 

13



 

Maturing Short-Term Debt.  As of the date of this report, Roberts Realty has three loans with a total principal balance of $13,110,000 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 six months ended June 30, 2012, no operating partnership units were exchanged for shares, and during the six months ended June 30, 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 six months ended June 30, 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.

 

During the three and six months ended June 30, 2012, Roberts Realty granted 50,000 shares of restricted stock to an employee of Roberts Properties under the Plan.  The grant included a service based vesting period of one year.  There were no restricted stock grants for the three and six months ended June 30, 2011.  There were 100,000 unvested shares of restricted stock outstanding at June 30, 2012.  Compensation expense related to restricted stock grants was $24,079 and $32,980 for the three and six months ended June 30, 2012, respectively.  Compensation expense related to the restricted stock grants was $8,803 and $17,704 for the three and six months ended June 30, 2011, respectively.

 

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.

 

14



 

 

 

Three Months Ended June 30,

 

Six Months Ended June 30,

 

 

 

2012

 

2011

 

2012

 

2011

 

 

 

 

 

 

 

 

 

 

 

Loss from continuing operations available for common shareholders — basic

 

$

(874,927

)

$

(1,706,463

)

$

(1,470,734

)

$

(2,145,836

)

 

 

 

 

 

 

 

 

 

 

Loss from continuing operations attributable to noncontrolling interest

 

(181,748

)

(359,472

)

(306,158

)

(452,658

)

 

 

 

 

 

 

 

 

 

 

Loss from continuing operations — diluted

 

$

(1,056,675

)

$

(2,065,935

)

$

(1,776,892

)

$

(2,598,494

)

 

 

 

 

 

 

 

 

 

 

Income (loss) from discontinued operations for common shareholders — basic

 

110,415

 

(129,718

)

106,485

 

(260,298

)

 

 

 

 

 

 

 

 

 

 

Income (loss) from discontinued operations attributable to noncontrolling interest

 

22,936

 

(27,326

)

22,167

 

(54,909

)

 

 

 

 

 

 

 

 

 

 

Income (loss) from discontinued operations — diluted

 

$

133,351

 

$

(157,044

)

$

128,652

 

$

(315,207

)

 

 

 

 

 

 

 

 

 

 

Net loss — diluted

 

$

(923,324

)

$

(2,222,979

)

$

(1,648,240

)

$

(2,913,701

)

 

 

 

 

 

 

 

 

 

 

Weighted average number of shares — basic

 

10,419,573

 

10,357,831

 

10,397,045

 

10,354,683

 

 

 

 

 

 

 

 

 

 

 

Dilutive securities — weighted average number of units

 

2,164,669

 

2,181,356

 

2,164,669

 

2,184,504

 

 

 

 

 

 

 

 

 

 

 

Weighted average number of shares — diluted

 

12,584,242

 

12,539,187

 

12,561,714

 

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 apartment communities and did not own any operating multifamily apartment 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.

 

15



 

The following tables summarize the operating results of Roberts Realty’s reportable segments for the three and six months ended June 30, 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 three tracts of land totaling 70 acres that are in various phases of development and construction and three tracts of land held for sale totaling 37 acres, one of which is under contract to be sold.  The corporate segment consists primarily of cash and cash equivalents, miscellaneous other assets, and general and administrative expenses.

 

16



 

Three Months Ended June 30, 2012

 

 

 

Retail/Office

 

Land

 

Corporate

 

Total

 

 

 

 

 

 

 

 

 

 

 

Rental operations

 

$

276,677

 

$

3,168

 

$

 

$

279,845

 

Other operating income

 

39,734

 

 

13

 

39,747

 

 

 

 

 

 

 

 

 

 

 

Total operating revenues from consolidated entities

 

316,411

 

3,168

 

13

 

319,592

 

 

 

 

 

 

 

 

 

 

 

Operating expenses

 

114,785

 

335,686

 

367,437

 

817,908

 

Depreciation and amortization expense

 

128,106

 

 

18

 

128,124

 

 

 

 

 

 

 

 

 

 

 

Total operating expenses from consolidated entities

 

242,891

 

335,686

 

367,455

 

946,032

 

 

 

 

 

 

 

 

 

 

 

Other (expense) income

 

(159,415

)

(272,059

)

1,239

 

(430,235

)

 

 

 

 

 

 

 

 

 

 

Consolidated loss from continuing operations

 

(85,895

)

(604,577

)

(366,203

)

(1,056,675

)

 

 

 

 

 

 

 

 

 

 

Consolidated income from discontinued operations (Note 3)

 

133,351

 

 

 

133,351

 

 

 

 

 

 

 

 

 

 

 

Consolidated net income (loss)

 

47,456

 

(604,577

)

(366,203

)

(923,324

)

 

 

 

 

 

 

 

 

 

 

Consolidated income (loss) attributable to noncontrolling interest

 

8,162

 

(103,987

)

(62,987

)

(158,812

)

 

 

 

 

 

 

 

 

 

 

Consolidated income (loss) available for common shareholders

 

$

39,294

 

$

(500,590

)

$

(303,216

)

$

(764,512

)

 

 

 

 

 

 

 

 

 

 

Total assets at June 30, 2012

 

$

13,229,518

 

$

34,995,513

 

$

2,158,541

 

$

50,383,572

 

 

Three Months Ended June 30, 2011

 

 

 

Retail/Office

 

Land

 

Corporate

 

Total

 

 

 

 

 

 

 

 

 

 

 

Rental operations

 

$

269,514

 

$

3,168

 

$

 

$

272,682

 

Other operating income

 

42,214

 

 

4

 

42,218

 

 

 

 

 

 

 

 

 

 

 

Total operating revenues from consolidated entities

 

311,728

 

3,168

 

4

 

314,900

 

 

 

 

 

 

 

 

 

 

 

Operating expenses

 

117,372

 

1,455,276

 

344,445

 

1,917,093

 

Depreciation and amortization expense

 

130,360

 

 

50

 

130,410

 

 

 

 

 

 

 

 

 

 

 

Total operating expenses from consolidated entities

 

247,732

 

1,455,276

 

344,495

 

2,047,503

 

 

 

 

 

 

 

 

 

 

 

Other (expense) income

 

(164,025

)

(173,377

)

4,070

 

(333,332

)

 

 

 

 

 

 

 

 

 

 

Consolidated loss from continuing operations

 

(100,029

)

(1,625,485

)

(340,421

)

(2,065,935

)

 

 

 

 

 

 

 

 

 

 

Consolidated loss from discontinued operations (Note 3)

 

(157,044

)

 

 

(157,044

)

 

 

 

 

 

 

 

 

 

 

Consolidated net loss

 

(257,073

)

(1,625,485

)

(340,421

)

(2,222,979

)

 

 

 

 

 

 

 

 

 

 

Consolidated loss attributable to noncontrolling interest

 

(44,731

)

(282,834

)

(59,233

)

(386,798

)

 

 

 

 

 

 

 

 

 

 

Consolidated loss available for common shareholders

 

$

(212,342

)

$

(1,342,651

)

$

(281,188

)

$

(1,836,181

)

 

 

 

 

 

 

 

 

 

 

Total assets at June 30, 2011

 

$

18,924,974

 

$

42,988,980

 

$

3,566,763

 

$

65,480,717

 

 

17



 

Six Months Ended June 30, 2012

 

 

 

Retail/Office

 

Land

 

Corporate

 

Total

 

 

 

 

 

 

 

 

 

 

 

Rental operations

 

$

547,370

 

$

6,337

 

$

 

$

553,707

 

Other operating income

 

78,820

 

 

18

 

78,838

 

 

 

 

 

 

 

 

 

 

 

Total operating revenues from consolidated entities

 

626,190

 

6,337

 

18

 

632,545

 

 

 

 

 

 

 

 

 

 

 

Operating expenses

 

229,521

 

381,469

 

730,636

 

1,341,626

 

Depreciation and amortization expense

 

250,915

 

 

18

 

250,933

 

 

 

 

 

 

 

 

 

 

 

Total operating expenses from consolidated entities

 

480,436

 

381,469

 

730,654

 

1,592,559

 

 

 

 

 

 

 

 

 

 

 

Other (expense) income

 

(320,154

)

(499,133

)

2,409

 

(816,878

)

 

 

 

 

 

 

 

 

 

 

Consolidated loss from continuing operations

 

(174,400

)

(874,265

)

(728,227

)

(1,776,892

)

 

 

 

 

 

 

 

 

 

 

Consolidated income from discontinued operations (Note 3)

 

128,652

 

 

 

128,652

 

 

 

 

 

 

 

 

 

 

 

Consolidated net loss

 

(45,748

)

(874,265

)

(728,227

)

(1,648,240

)

 

 

 

 

 

 

 

 

 

 

Consolidated loss attributable to noncontrolling interest

 

(7,882

)

(150,636

)

(125,473

)

(283,991

)

 

 

 

 

 

 

 

 

 

 

Consolidated loss available for common shareholders

 

$

(37,866

)

$

(723,629

)

$

(602,754

)

$

(1,364,249

)

 

 

 

 

 

 

 

 

 

 

Total assets at June 30, 2012

 

$

13,229,518

 

$

34,995,513

 

$

2,158,541

 

$

50,383,572

 

 

Six Months Ended June 30, 2011

 

 

 

Retail/Office

 

Land

 

Corporate

 

Total

 

 

 

 

 

 

 

 

 

 

 

Rental operations

 

$

565,038

 

$

6,337

 

$

 

$

571,375

 

Other operating income

 

89,496

 

 

46

 

89,542

 

 

 

 

 

 

 

 

 

 

 

Total operating revenues from consolidated entities

 

654,534

 

6,337

 

46

 

660,917

 

 

 

 

 

 

 

 

 

 

 

Operating expenses

 

258,284

 

1,501,848

 

632,690

 

2,392,822

 

Depreciation and amortization expense

 

260,720

 

 

100

 

260,820

 

 

 

 

 

 

 

 

 

 

 

Total operating expenses from consolidated entities

 

519,004

 

1,501,848

 

632,790

 

2,653,642

 

 

 

 

 

 

 

 

 

 

 

Other (expense) income

 

(327,088

)

(288,048

)

9,367

 

(605,769

)

 

 

 

 

 

 

 

 

 

 

Consolidated loss from continuing operations

 

(191,558

)

(1,783,559

)

(623,377

)

(2,598,494

)

 

 

 

 

 

 

 

 

 

 

Consolidated loss from discontinued operations (Note 3)

 

(315,207

)

 

 

(315,207

)

 

 

 

 

 

 

 

 

 

 

Consolidated net loss

 

(506,765

)

(1,783,559

)

(623,377

)

(2,913,701

)

 

 

 

 

 

 

 

 

 

 

Consolidated loss attributable to noncontrolling interest

 

(88,279

)

(310,696

)

(108,592

)

(507,567

)

 

 

 

 

 

 

 

 

 

 

Consolidated loss available for common shareholders

 

$

(418,486

)

$

(1,472,863

)

$

(514,785

)

$

(2,406,134

)

 

 

 

 

 

 

 

 

 

 

Total assets at June 30, 2011

 

$

18,924,974

 

$

42,988,980

 

$

3,566,763

 

$

65,480,717

 

 

18



 

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 and disposition 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 22 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 June 25, 2012, Roberts Realty amended the sales contract to extend the closing date to October 30, 2012 provided that the land disturbance permit for the Northridge property was obtained before August 1, 2012.  See Note 11 — Subsequent Events.  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 date.  These amounts are shown as Due from Affiliates on the accompanying condensed consolidated balance sheets.

 

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, and interior design. Roberts Realty has entered into a design and development agreement with Roberts Properties for the property listed in the following table.

 

 

 

Total
Contract
Amount

 

Amounts
Incurred from
1/1/12 to 6/30/12

 

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 six months ended June 30, 2012.

 

19



 

 

 

Amounts Incurred for
Labor and Materials
Costs from
1/1/12 to 6/30/12

 

Amounts Incurred for
5% Profit and
5% Overhead from
1/1/12 to 6/30/12

 

 

 

 

 

 

 

Bradley Park

 

$

923

 

$

92

 

Northridge

 

46,815

 

4,682

 

Peachtree Parkway

 

1,834

 

183

 

North Springs

 

286

 

29

 

Highway 20

 

622

 

62

 

 

 

 

 

 

 

Totals

 

$

50,480

 

$

5,048

 

 

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 six months ended June 30, 2012, Roberts Realty paid Roberts Construction $136,901 for labor and materials costs plus $13,690 (5% for profit and 5% for overhead).  Roberts Properties and Roberts Construction received cost reimbursements of $91,438 and $10,240, respectively, for the six months ended June 30, 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 $55,571 for the six months ended June 30, 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,

 

20



 

and Roberts Realty may be required to recognize future impairment losses on its properties held for use.

 

Non-Cash Impairments on Operating Real Estate Assets.  During the six months ended June 30, 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 six months ended June 30, 2012 and 2011.

 

Non-Cash Impairments on Land Parcels.  During the six months ended June 30, 2012, Roberts Realty classified its approximately one-acre commercial site in Johns Creek as a real estate asset held for sale and determined that its carrying amount was not recoverable.  The determination of fair value was based on offers and expressions of interest from unrelated purchasers and market participants.  As a result of this analysis, Roberts Realty recorded a fair value adjustment of $275,949 on the Johns Creek property.  Roberts Realty determined that the carrying amounts of its other land parcels were recoverable at June 30, 2012.

 

During the six months ended June 30, 2011, Roberts Realty determined that the carrying amount of the Northridge property was not recoverable, and the determination of fair value was based on the sales contract for the property and the appraised values of the property.  As a result of this analysis, Roberts Realty recorded a fair value adjustment of $1,386,480 on the Northridge property, which is classified as a real estate asset held for sale.  Roberts Realty determined that the carrying amounts of its other land parcels were recoverable at June 30, 2011.

 

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 June 30, 2012.

 

21



 

Assets measured at fair value on a nonrecurring basis consist of real estate assets that have incurred non-cash impairment losses so that their carrying value is equal to or less than their estimated fair value.

 

These real estate assets, including land held for sale, were valued using sales activity for similar assets, current offers and contracts and using inputs management believes are consistent with those that market participants would use. The fair values of these assets are determined using widely accepted valuation techniques, including (1) discounted cash flow analysis, which considers, among other things, sales assumptions, cost structure and discount rates and (2) comparable sales activity. The valuation technique and related inputs vary with the specific facts and circumstances of each real estate asset. The following tables provide the balances for those assets required to be measured at fair value on a nonrecurring basis as of June 30, 2012 and December 31, 2011.

 

 

 

As of June 30, 2012

 

Description

 

Total

 

Level 1

 

Level 2

 

Level 3

 

 

 

 

 

 

 

 

 

 

 

Real estate assets held for sale

 

$

600,000

 

$

 

$

 

$

600,000

 

 

 

 

Year Ended December 31, 2011

 

Description

 

Total

 

Level 1

 

Level 2

 

Level 3

 

 

 

 

 

 

 

 

 

 

 

Real estate under development

 

$

8,988,000

 

$

 

$

 

$

8,988,000

 

Real estate assets held for sale

 

11,913,789

 

 

 

11,913,789

 

Assets related to discontinued operations

 

5,415,104

 

 

 

5,415,104

 

 

 

 

 

 

 

 

 

 

 

Total assets

 

$

26,316,893

 

$

 

$

 

$

26,316,893

 

 

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 an engineering contract with a third party for the Northridge property.  At June 30, 2012, outstanding commitments on this contract totaled $7,890.

 

At June 30, 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 for the payment of tenant improvements and 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.

 

22



 

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 June 30, 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 June 30, 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

 

Extension of Peachtree Parkway Land Loan.  On July 16, 2012, Roberts Realty extended the maturity date of its $8,175,000 land loan to October 31, 2012 on substantially the same terms and conditions.  At the closing, Roberts Realty deposited $153,000 as an interest and real estate tax reserve to fund these payments through the maturity date.  Under the terms of the loan, Roberts Realty will make monthly payments of interest only at the 1-month LIBOR index rate plus 300 basis points, with an interest rate floor of 5.00% per annum.

 

Sales Contract and Land Disturbance Permit for the Northridge Property.  On July 23, 2012, the City of Sandy Springs issued the land disturbance permit for the Northridge property, and in accordance with the terms of the sales contract for the Northridge property, the closing date was extended to October 30, 2012.

 

23



 

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 June 30, 2012, we were its sole general partner and owned an 82.81% 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:

 

·                  three tracts of land totaling 70 acres that are zoned for 720 multifamily units and are in various phases of development and construction;

 

·                  three tracts of land totaling 37 acres that are zoned for 512 multifamily units and are classified as real estate assets held for sale, including an 11-acre tract zoned for 220 multifamily units 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 capital appreciation.  We have significantly reduced our debt and our negative cash flow during the past year, and we intend to continue these efforts.

 

Recent Developments

 

Extension of Peachtree Parkway Land Loan

 

On July 16, 2012, we extended the maturity date of our $8,175,000 land loan to October 31, 2012 on substantially the same terms and conditions.  At the closing, we deposited $153,000 as an interest and real estate tax reserve to fund these payments through the maturity date.  Under the terms of the loan, we will make monthly payments of interest only at the 1-month LIBOR index rate plus 300 basis points, with an interest rate floor of 5.00% per annum.

 

24



 

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 June 25, 2012, we amended the sales contract to extend the closing date to October 30, 2012, provided that Roberts Properties received the land disturbance permit for the Northridge land on or before August 1, 2012.  The City of Sandy Springs issued the land disturbance permit on July 23, 2012.  Under the terms of the 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 Highway 20 Land Loan

 

On April 19, 2012, we renewed and extended our Highway 20 land loan to April 8, 2013.  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 also agreed to make fixed principal payments of $5,000 per month, with a one-time principal reduction of $240,000 prior to October 15, 2012.

 

Peachtree Parkway and Other Real Estate Asset Held for Sale

 

To further our efforts to improve liquidity and provide capital resources, we have begun to actively market for sale our 25-acre Peachtree Parkway land and our approximately one-acre commercial site in Johns Creek and have classified those assets in the condensed consolidated balance sheets as real estate assets held for sale.

 

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 six tracts of land totaling 107 acres that do not produce revenue but incur carrying costs of interest expense and real estate taxes.  These six tracts of land have a combined carrying value of $34,602,953, and are encumbered with land loans totaling $16,110,000.  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 capital resources, 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 $4,673,895, which we would use to retire our $2,000,000 loan secured by the property and use the remaining proceeds of $2,673,895 to address our liquidity and capital resources needs.  We are also actively marketing our Peachtree Parkway property and our Johns Creek commercial site for sale and would use the net proceeds of the sale of one or both of those properties to address our liquidity and capital resources needs.

 

We had total debt of $25,913,796 as of June 30, 2012.  As of the date of this report, we have three loans with a total principal balance of $13,110,000 that mature within the next 12 months: (a) the $8,175,000 Peachtree Parkway loan that matures on October 31, 2012; (b) the $2,000,000 Northridge loan

 

25



 

that matures on February 21, 2013; and (c) the $2,935,000 Highway 20 loan that matures on April 8, 2013.  If we are unable to renew these loans, we may repay all or part of these loans from the funds we expect to receive from the sale of the Northridge property or the funds we are seeking to raise as described in Liquidity and Capital Resources — Business Plan below.

 

Results of Operations

 

Comparison of Three Months Ended June 30, 2012 to Three Months Ended June 30, 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
June 30,

 

 

 

 

 

2012

 

2011

 

$Increase

 

 

 

(Unaudited)

 

(Unaudited)

 

(Decrease)

 

 

 

 

 

 

 

 

 

TOTAL OPERATING REVENUES

 

$

319,592

 

$

314,900

 

$

4,692

 

 

 

 

 

 

 

 

 

OPERATING EXPENSES:

 

 

 

 

 

 

 

Property operating expenses

 

159,473

 

161,616

 

(2,143

)

General and administrative expenses

 

382,486

 

370,197

 

12,289

 

Gain on disposal of assets

 

 

(1,200

)

1,200

 

Impairment loss on real estate assets

 

275,949

 

1,386,480

 

(1,110,531

)

Depreciation and amortization

 

128,124

 

130,410

 

(2,286

)

 

 

 

 

 

 

 

 

Total operating expenses

 

946,032

 

2,047,503

 

(1,101,471

)

 

 

 

 

 

 

 

 

LOSS FROM OPERATIONS

 

(626,440

)

(1,732,603

)

(1,106,163

)

 

 

 

 

 

 

 

 

OTHER EXPENSE

 

(430,235

)

(333,332

)

96,903

 

 

 

 

 

 

 

 

 

LOSS FROM CONTINUING OPERATIONS

 

(1,056,675

)

(2,065,935

)

(1,009,260

)

 

 

 

 

 

 

 

 

INCOME (LOSS) FROM DISCONTINUED OPERATIONS

 

133,351

 

(157,044

)

(290,395

)

 

 

 

 

 

 

 

 

NET LOSS

 

$

(923,324

)

$

(2,222,979

)

$

(1,299,655

)

 

Net loss decreased $1,299,655 when compared to the 2011 period.  This decrease was the result of a $4,692 increase in operating revenues, a $1,101,471 decrease in operating expenses (primarily due to a substantially lower non-cash impairment loss on real estate assets in the 2012 period when compared to the 2011 period), and a $290,395 decrease in loss from discontinued operations, offset by a $96,903 increase in other expense.  We explain below the major variances between the 2012 and 2011 periods.

 

Total operating revenues increased by $4,692 from $314,900 in the 2011 period to $319,592 in the current period, primarily as a result of an increase in rental revenue.

 

Property operating expenses — consisting of utilities, repairs and maintenance, real estate taxes, and marketing and insurance expense — decreased by $2,143 from $161,616 in the 2011 period to $159,473 in the current period.

 

General and administrative expenses increased by $12,289 from $370,197 in the 2011 period to $382,486 in the current period, primarily due to higher salaries expense.

 

26



 

The 2011 period included a $1,386,480 non-cash impairment loss on the Northridge land parcel, while the 2012 period included a $275,949 non-cash impairment loss on our Johns Creek commercial site.

 

Other expense increased $96,903 from $333,332 in the 2011 period to $430,235 in the current period.  This increase was primarily due to a $16,936 increase in the amortization of deferred financing and leasing costs and a $77,147 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) the interest on the Northridge land loan, which began in February 2012.

 

Comparison of Six Months Ended June 30, 2012 to Six Months Ended June 30, 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.

 

 

 

Six Months Ended
June 30,

 

 

 

 

 

2012

 

2011

 

$(Decrease)

 

 

 

(Unaudited)

 

(Unaudited)

 

Increase

 

 

 

 

 

 

 

 

 

TOTAL OPERATING REVENUES

 

$

632,545

 

$

660,917

 

$

(28,372

)

 

 

 

 

 

 

 

 

OPERATING EXPENSES:

 

 

 

 

 

 

 

Property operating expenses

 

308,552

 

310,217

 

(1,665

)

General and administrative expenses

 

757,125

 

700,675

 

56,450

 

Gain on disposal of assets

 

 

(4,550

)

4,550

 

Impairment loss on real estate assets

 

275,949

 

1,386,480

 

(1,110,531

)

Depreciation and amortization

 

250,933

 

260,820

 

(9,887

)

 

 

 

 

 

 

 

 

Total operating expenses

 

1,592,559

 

2,653,642

 

(1,061,083

)

 

 

 

 

 

 

 

 

LOSS FROM OPERATIONS

 

(960,014

)

(1,992,725

)

(1,032,711

)

 

 

 

 

 

 

 

 

OTHER EXPENSE

 

(816,878

)

(605,769

)

211,109

 

 

 

 

 

 

 

 

 

LOSS FROM CONTINUING OPERATIONS

 

(1,776,892

)

(2,598,494

)

(821,602

)

 

 

 

 

 

 

 

 

INCOME (LOSS) FROM DISCONTINUED OPERATIONS

 

128,652

 

(315,207

)

(443,859

)

 

 

 

 

 

 

 

 

NET LOSS

 

$

(1,648,240

)

$

(2,913,701

)

$

(1,265,461

)

 

Net loss decreased $1,265,461 when compared to the 2011 period.  This decrease was primarily due to a $1,061,083 decrease in operating expenses (primarily due to a substantially lower non-cash impairment loss on real estate assets in the 2012 period when compared to the 2011 period) and a $443,859 decrease in loss from discontinued operations, offset by a $28,372 decrease in operating revenues and a $211,109 increase in other expense.  We explain below the major variances between the 2012 and 2011 periods.

 

Total operating revenues decreased by $28,372 from $660,917 in the 2011 period to $632,545 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 — decreased by $1,665 from $310,217 in the 2011 period to $308,552 in the current period.

 

27



 

General and administrative expenses increased by $56,450 from $700,675 in the 2011 period to $757,125 in the current period, primarily due to higher professional service fees.

 

The 2011 period included a $1,386,480 non-cash impairment loss on the Northridge land parcel, while the 2012 period included a $275,949 non-cash impairment loss on our Johns Creek commercial site.

 

Other expense increased $211,109 from $605,769 in the 2011 period to $816,878 in the current period.  This increase was primarily due to a $22,308 increase in amortization of deferred financing and leasing costs and a $181,872 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) the interest on the Northridge land loan, which began in February 2012.

 

Liquidity and Capital Resources

 

Overview

 

At June 30, 2012, we had $50,383,572 in total assets, of which $1,091,486 was cash and cash equivalents.  In addition, we held $1,044,574 in restricted cash.  Of our restricted cash at June 30, 2012, $494,564 was reserved for the payment of interest and certain other costs on specific outstanding loans, and $501,673 was a certificate of deposit pledged to secure a letter of credit for tenant improvements and leasing costs at the Spectrum retail center.  As of July 23, 2012, we held $955,357 in cash and cash equivalents and $1,140,190 in restricted cash.  Of our restricted cash balance, $593,245 was reserved for the payment of interest and certain other costs on specific outstanding loans, and $501,673 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 apartment 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 capital resources.  Further, if we close the sale of our Northridge property as we expect, the net proceeds of that sale would be approximately $2,673,895, which we would use to address our liquidity and capital resources needs.  We are also actively marketing our Peachtree Parkway property and our Johns Creek commercial site for sale and would use the net proceeds of the sale of one or both of those properties 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 $13,110,000 that mature within the next 12 months, as listed in the following table in their order of maturity:

 

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Property Securing Loan

 

Maturity Date

 

Principal Payments Due
Within 12 Months

 

 

 

 

 

 

 

Peachtree Parkway

 

10/31/12

 

$

8,175,000

 

Northridge

 

2/21/13

 

2,000,000

 

Highway 20

 

4/08/13

 

2,935,000

 

 

 

 

 

 

 

Total

 

 

 

$

13,110,000

 

 

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 six tracts of land totaling 107 acres with an aggregate carrying value of $34,602,953 that secure land loans totaling $16,110,000.  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, although the other retail center is positively cash flowing.

 

·                  Our general and administrative expenses were $1,357,252 for the calendar year 2011 and $757,125 for the six months ended June 30, 2012; these expenses include the costs of being an SEC reporting company and having our shares listed on the NYSE MKT stock exchange (formerly NYSE Amex Equities).  These costs also 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 $625,000 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 $1,091,486 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 $13,110,000 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:  (a) our existing cash; (b) the net proceeds from the sale of one or more of our Northridge property, our Peachtree Parkway property, or our Johns Creek commercial site; (c) contributions from a joint venture partner; or (d) 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

 

29



 

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 balances 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 capital 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 extended our $8,175,000 Peachtree Parkway land loan to October 31, 2012 and our $2,935,000 Highway 20 land loan to April 8, 2013, and we have begun to actively market for sale our Peachtree Parkway land and our Johns Creek commercial site.

 

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

 

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 apartment 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

 

30



 

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 three 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.               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.

 

3.               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 are currently holding three land parcels for sale:

 

1.               Northridge, an 11-acre site located close to the GA 400 and Northridge Road interchange in Sandy Springs zoned for 220 multifamily units.  We have entered into a contract to sell Northridge to Roberts Properties for a total cash sales price of $4,070,000 plus certain cost reimbursements.  The closing is scheduled to occur on or before October 30, 2012.

 

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.               Johns Creek, an approximately one-acre commercial site located in Johns Creek, Georgia.

 

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.  Whether or not the sale of the Northridge property closes as expected, we will continue to market for sale the Peachtree Parkway property and the Johns Creek commercial site, and we may also 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 apartment community.

 

Now that the Atlanta apartment market is recovering from the recession, we believe this is an opportune time to create new multifamily assets.  We believe that we can create value for our shareholders as we have historically done following economic downturns and recessions.  We intend to move forward with the development and construction of our next multifamily apartment community at Bradley Park.  Although we cannot make substantial progress on constructing this apartment community 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

 

31



 

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 are seeking to sell one or more of our land parcels, including the Peachtree Parkway property and the Johns Creek commercial site, to independent purchasers or to raise the required 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 53.0% 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 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 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

 

32



 

alternatives for us.  We have entered into mutual confidentiality agreements with 59 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 Six Months ended June 30, 2012 to Six Months ended June 30, 2011

 

Cash and cash equivalents increased $523,295 during the first six months of 2012 compared to a decrease of $1,651,376 during the 2011 period.  The respective changes in cash are described below.

 

Net cash used in operating activities in the 2012 period was $1,013,634 compared to $547,636 of cash used in operating activities 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 $121,845 decrease in the change of accounts payable, accrued expenses, and other liabilities, and a $57,924 increase in due from affiliates.

 

Net cash used in investing activities was $161,821 during the 2012 period compared to $723,243 used during the 2011 period.  This decrease was primarily due to a $370,054 decrease in development and construction of real estate assets, and a $34,802 decrease in the change of accounts payable, accrued expenses and other liabilities related to investing activities, and a $220,715 decrease in the change in restricted cash.

 

Net cash provided by financing activities was $1,698,750 for the 2012 period compared to net cash used in financing activities of $380,497 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 the renewal of the Bradley Park and Highway 20 land loans.

 

33



 

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

 

$

8,583,801

 

$

63,801

 

 

 

$

8,520,000

 

Peachtree Parkway

 

 

 

 

 

 

 

 

 

 

 

 

 

2013

 

10,371,988

 

163,654

 

 

 

10,208,334

 

Northridge Land
Highway 20
Northridge Office
Bradley Park

 

 

 

 

 

 

 

 

 

 

 

 

 

2014

 

4,644,298

 

4,644,298

 

Spectrum

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2015

 

66,125

 

66,125

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2016

 

71,471

 

71,471

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Thereafter

 

2,176,113

 

2,176,113

 

Bassett

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

$

25,913,796

 

 

 

 

 

 

 

 

 

 

Short-Term Debt

 

We have a total of $13,110,000 in debt that matures within the next 12 months.  All of that debt matures on or before April 8, 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 July 31, 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 $16,728,334 at June 30, 2012.  Three loans totaling $13,793,334 bear interest at 300 to 350 basis points over the 30-day LIBOR with interest rate floors for two of the loans ranging from 4.50% to 5.00%, and a $2,935,000 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 rates 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 rates above their respective interest rate floors would increase our interest expense by approximately $167,283 per year and reduce our liquidity and capital resources by that amount.

 

34



 

Contractual Commitments

 

Roberts Properties provides us with various development services that include market studies, business plans, design, finish selection, and interior design.  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 apartment 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 three 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.

 

35



 

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.

 

Non-Cash Impairments on Operating Real Estate Assets.

 

During the six months ended June 30, 2012 and 2011, we determined that the carrying amounts of our operating real estate assets were recoverable.  Accordingly, we did not record an impairment loss on our operating assets during the six months ended June 30, 2012 and 2011.

 

Non-Cash Impairments on Land Parcels.

 

During the six months ended June 30, 2012, we classified our Johns Creek commercial site as a real estate asset held for sale and determined that its carrying amount was not recoverable.  The determination of fair value was based on offers and expressions of interest from unrelated purchasers and market participants.  As a result of this analysis, we recorded a fair value adjustment of $275,949 on the Johns Creek property.  We determined that the carrying amounts of our other land parcels were recoverable at June 30, 2012.

 

During the six months ended June 30, 2011, we determined that the carrying amount of the Northridge property was not recoverable, and the determination of fair value was based on the sales contract for the property and the appraised values of the property.  As a result of this analysis, we recorded a fair value adjustment of $1,386,480 on the Northridge property, which is classified as a real estate asset held for sale.  We determined that the carrying amounts of our other land parcels were recoverable at June 30, 2011.

 

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.

 

36



 

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 June 30, 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.  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.

 

Neither Roberts Realty, the operating partnership, nor any of 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 may also have a material adverse effect on 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 $13,110,000 that mature within the next 12 months.  Our $8,175,000 Peachtree Parkway loan matures on October 31, 2012; our $2,000,000 Northridge loan matures on February 21, 2013; and our $2,935,000 Highway 20 loan matures on

 

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April 8, 2013.  If we do not sell the Northridge property as we expect; or we do not sell the Peachtree Parkway property; or we are unable to extend or refinance our debt at maturity on acceptable terms, or at all; or we are unable to find alternative funding and raise additional capital for the development of the Bradley Park property; 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 material 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.

 

Our exploration of potential strategic alternatives may be unsuccessful.

 

We retained Sandler O’Neill + Partners, L.P. in 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 October 30, 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.

 

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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

 

Fourth Amendment to Sales Contract dated June 25, 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 June 25, 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 June 30, 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. Pursuant to Rule 406T of Regulation S-T, the Interactive Data Files on Exhibit 101 hereto are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities and Exchange Act of 1934, as amended, and otherwise are not subject to liability under those sections.

 


* Pursuant to Rule 405(a)(2) of Regulation S-T, the Company will furnish the XBRL Interactive Data Files with detailed tagging as Exhibit 101 in an amendment to this Form 10-Q within the permitted 30 days from the filing of this report.

 

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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:  July 31, 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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