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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 10-KSB
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31,1997
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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(Commission File No. 0-28048)
Roberts Realty Investors, Inc.
(Name of small business issuer in its charter)
Georgia 58-2122873
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
8010 Roswell Road, Suite 120, Atlanta, Georgia 30350
(Address of principal executive offices) (Zip Code)
Issuer's telephone number:(770) 394-6000
Securities registered under Section 12(b) of the Act: None
Title of each class: Name of each exchange on which registered:
N/A N/A
Securities registered under Section 12(g) of the Exchange Act:
Common Stock
(Title of Class)
(Title of Class)
Check whether the issuer: (1) filed all reports required to filed by
Section 13 or 15(d) of the Exchange Act during the past 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
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Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [|X|]
State issuer's revenues for its most recent fiscal year. $17,508,000
State the aggregate market value of the voting common equity held by
non-affiliates computed by reference to the price at which the common equity was
sold, or the average bid and asked prices of such common equity, as of a
specified date within the past 60 days. (See definition of affiliate in Rule
12b-2 of the Exchange Act.) $33,453,205
Note: If determining whether a person is an affiliate will involve
an unreasonable effort and expense, the issuer may calculate the
aggregate market value of the common equity held by non-affiliates on
the basis of reasonable assumptions, if the assumptions are stated.
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date. 4,533,565 (as of March 20,
1998)
Transitional Small Business Disclosure Format (Check One):
Yes No X
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Documents Incorporated by Reference. Certain information required by
Part III is omitted from this report and will be incorporated by reference from
the registrant's definitive proxy statement to be filed not later than 120 days
after the end of the financial year covered by this report pursuant to
Regulation 14A promulgated under the Securities Exchange Act of 1934.
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TABLE OF CONTENTS
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PAGE
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PART I................................................................. 1
ITEM 1. DESCRIPTION OF BUSINESS.......................... 1
ITEM 2. DESCRIPTION OF PROPERTY.......................... 6
ITEM 3. LEGAL PROCEEDINGS................................ 24
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF
SECURITY HOLDERS................................. 24
PART II................................................................ 25
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS.............................. 25
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR
PLAN OF OPERATION................................ 26
ITEM 7. FINANCIAL STATEMENTS............................. 34
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH
ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE....................................... 34
PART III............................................................... 34
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS
AND CONTROL PERSONS; COMPLIANCE WITH
SECTION 16(a) OF THE EXCHANGE ACT ............... 34
ITEM 10. EXECUTIVE COMPENSATION........................... 34
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT............................ 34
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS..................................... 35
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K................. 35
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This report contains "forward-looking statements" within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. 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 the Company's management, as well as assumptions made by, and
information currently available to, the Company's management. The words
"expect," "estimate," "anticipate," "believe" and similar expressions are
intended to identify forward-looking statements. Such statements involve risks,
uncertainties and assumptions, including industry and economic conditions,
competition and other factors discussed in this and the Company's other filings
with the Securities and Exchange Commission, including the "Risk Factors"
section of the prospectus included in the Company's Registration Statement on
Form S-3 (Registration number 333-31117), as declared effective by the
Securities and Exchange Commission on December 8, 1997 (the "S-3 Registration
Statement"). If one or more of these risks or uncertainties materialize or
underlying assumptions prove incorrect, actual outcomes may vary materially from
those indicated. See "Part II, Item 6. Management's Discussion and Analysis or
Plan of Operation - Disclosure Regarding Forward-Looking Statements."
PART I
ITEM 1. DESCRIPTION OF BUSINESS.
General
Roberts Realty Investors, Inc. (the "Company") owns and operates
multifamily residential properties as a self-administered, self-managed equity
real estate investment trust (a "REIT"). The Company conducts its business
through Roberts Properties Residential, L.P. (the "Operating Partnership"), a
Georgia limited partnership. The Company owns a 60.0% interest in the Operating
Partnership and is its sole general partner. References in this report to the
Company's strategies or intentions assume that the Company will continue to
conduct its business in this organizational structure, which is sometimes called
an "umbrella partnership" or "UPREIT."
At March 25, 1998 the Company owns nine multifamily apartment
communities (the "Communities") containing a total of 1,778 apartment homes. The
eight existing Communities of River Oaks, Rosewood Plantation, Plantation Trace,
Preston Oaks, Highland Park, Bentley Place, Crestmark and Ivey Brook, containing
a total of 1,524 apartment units, are stabilized; and the 180-unit Bradford
Creek Community, a 24-unit second phase of Preston Oaks and a 50-unit second
phase of Plantation Trace are now under construction. (The Company considers a
Community to have achieved stabilized occupancy on the earlier of (a) attainment
of 95% occupancy as of the first day of any month, or (b) one year after
completion of construction.) Three additional multifamily apartment communities
anticipated to total 875 apartment homes are in the development stage.
As of December 31, 1997, the Company owned nine stabilized Communities
containing a total of 1,756 apartment homes that had a physical occupancy rate
of 94.6%. The Company sold the 232-unit Windsong Community on January 9, 1998.
All of the Communities are located in metropolitan Atlanta, and all
(other than the 24-unit second phase of Preston Oaks) were or are to be
developed and constructed by affiliates of Mr. Charles S. Roberts, the Chairman
of the Board, Chief Executive Officer and President of the Company. The
Operating Partnership also owns two retail centers totaling 15,698 square feet.
The Company is a Georgia corporation formed in July 1994 and expects to
continue to qualify as a REIT for federal income tax purposes. A REIT is a legal
entity that holds real estate interests and, through its payment of
distributions, is able to reduce or avoid incurring federal income tax at the
corporate level, allowing shareholders to participate in real estate investments
without the "double taxation" of income (i.e., at both the corporate and
shareholder levels) that generally results from investment in shares of a
corporation. To maintain its qualification as a REIT, the Company must, among
other things, distribute annually to its shareholders at least 95% of its
taxable income, subject to certain deductions, exclusions and additions. The
Company's Common Stock is traded on the American Stock Exchange under the symbol
"RPI."
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The Company has engaged and expects to engage certain entities owned by
Mr. Roberts to perform services for the Operating Partnership. These entities
are Roberts Properties, Inc. ("Roberts Properties"), Roberts Properties Group,
L.L.C. ("Roberts Group"), and Roberts Properties Construction, Inc. ("Roberts
Construction"), which are sometimes hereinafter collectively referred to as the
"Roberts Companies."
The Company's executive offices are located at 8010 Roswell Road, Suite
120, Atlanta, Georgia 30350, and its telephone number is (770) 394-6000. At
March 23, 1998, the Company had 44 employees, all of whom are full-time
employees.
History
October 1994 Consolidation - River Oaks, Rosewood Plantation, Preston
Oaks and Highland Park Communities. The Company assembled its initial portfolio
of four Communities in October 1994 in the simultaneous mergers of four limited
partnerships into the Operating Partnership (the "October 1994 consolidation").
All four partnerships were originally sponsored by Mr. Charles S. Roberts. Upon
consummation of the October 1994 consolidation, which received the consent of at
least 92% in interest of the limited partners in each of the four partnerships,
the Company's assets consisted of a 53.8% general partner interest in the
Operating Partnership, which acquired the four Communities. The partners of the
four limited partnerships received a total of 1,043,647 shares of the Company's
Common Stock, par value $.01 per share (the "Shares" or the "Common Stock"), and
1,035,553 units of limited partnership interest in the Operating Partnership
("Units") valued at $8.50 per Share/Unit, or $17,673,200 in the aggregate.
Ivey Brook Community. In March 1995 after receiving the consent of 98%
in interest of the limited partners of Roberts Properties Holcomb Bridge, L.P.,
the Operating Partnership acquired the assets of such partnership, which had
previously acquired 11.8 acres of undeveloped land and raised the equity to
develop and construct a 146-unit apartment community - now named Ivey Brook -in
Gwinnett County, Georgia. The Company issued 609,873 Shares valued at $8.50 per
Share, or $5,183,921 in the aggregate, to the partners of Roberts Properties
Holcomb Bridge, L.P.
Plantation Trace Community. In May 1995 after receiving the consent of
96% in interest of the limited partners of Roberts Properties Plantation Trace,
L.P., the Operating Partnership acquired the 182-unit Plantation Trace
Community, along with a 7,350 square foot retail center located in front of it,
by issuing 597,741 Units valued at $9.00 per Unit, or $5,379,669 in the
aggregate, to the partners of Roberts Properties Plantation Trace, L.P.
June-August 1995 Offering of Shares for Cash. In an offering conducted
from June 12, 1995 through August 25, 1995, the Company sold through Spalding &
Company an aggregate of 736,000 Shares at a price of $9.00 per Share. Aggregate
net proceeds of the offering were $5,988,080. On July 21, 1995 at the initial
closing of the offering, the Operating Partnership purchased 12.33 acres of land
adjacent to Plantation Trace from Roberts Properties. Construction of a 50-unit
second phase of Plantation Trace on such land is anticipated to be completed in
1998. The remaining offering proceeds were used in December 1995 to fund the
acquisition of the Autumn Ridge Community as described below.
Windsong. In September 1995 after receiving the consent of 98% in
interest of the limited partners of Roberts Properties-St. Simons, Ltd., the
Operating Partnership acquired Windsong, a 232-unit apartment community located
on St. Simons Island, Georgia, in exchange for 476,931 Units valued at $9.25 per
Unit, or $4,411,612 in the aggregate, issued to the partners of Roberts
Properties-St. Simons, Ltd. The Company sold Windsong on January 9, 1998 for
$9,750,000, which resulted in net sales proceeds of $5,194,000.
Autumn Ridge. On December 15, 1995, the Operating Partnership acquired
Laurelwood, a 207-unit apartment community that the Company renamed Autumn
Ridge, from an independent third party for $7,775,000 in cash. The Operating
Partnership funded the acquisition out of its available cash and did not assume
or obtain any debt in connection with the acquisition. The Company completed a
$1,668,000 redevelopment program at Autumn Ridge in 1997 that included new
carpet, appliances, HVAC units, kitchen flooring and other interior finishes, as
well as new roofs,
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landscaping and other exterior improvements. The Company sold Autumn Ridge on
August 26, 1997 for $10,601,000, which resulted in net sale proceeds of
$5,045,000.
Offering of Shares for Cash. On May 7, 1996 the Company closed an
"intrastate" offering in which it sold 699,175 Shares for $9.50 per Share (the
"Cash Offering"). Upon the initial closing of the offering on March 29, 1996,
the Operating Partnership paid Roberts Properties, Inc. $1,628,000 to purchase
approximately 22.5 acres of land in northeast metropolitan Atlanta and to
develop and construct the 180-unit Bradford Creek Community (formerly referred
to as the Howell Ferry community) on such property. The Company used the
remaining net offering proceeds of approximately $4,426,000 for general
corporate purposes.
Bentley Place Community. In March 1996 after receiving the consent of
87% in interest of the limited partners of Roberts Properties Bentley Place,
L.P. ("Bentley Place, L.P."), the Operating Partnership acquired the 117-unit
Bentley Place Community by merger in consideration of the issuance of 744,940
Shares valued by the Company at $9.50 per Share, or $7,076,930 in the aggregate,
to the partners of Bentley Place, L.P. No debt was assumed or obtained in
connection with the acquisition.
Crestmark. In June 1996 after receiving the consent of 85% in interest
of the limited partners of The Crestmark Club, L.P. ("Crestmark, L.P."), the
Operating Partnership acquired the 248-unit Crestmark Community and 8.8 acres of
adjacent undeveloped property on which the Company subsequently constructed an
86-unit second phase of Crestmark. Crestmark, L.P. was merged into the Operating
Partnership in consideration of the issuance of 746,715 Units valued at $9.75
per Unit, or $7,280,471 in the aggregate, to the partners of Crestmark, L.P.
Retail Centers. In addition to the 7,350 square foot Shoppes of
Plantation retail center acquired along with Plantation Trace as described
above, in December 1994 the Operating Partnership acquired a .86 acre parcel of
property located in front of the River Oaks Community for $296,693 in cash, and
the construction of an 8,348 square foot, one story office/retail building was
completed in August 1995. In December 1995 the Operating Partnership sold The
Shoppes of Crestmark, a 7,078 square foot retail shopping center in Douglas
County, Georgia, for $940,000. The Company used the net proceeds of
approximately $903,000 for general corporate purposes. The Operating Partnership
had exchanged 104,478 Units valued at $8.50 per Unit, or $888,063 in the
aggregate, for The Shoppes of Crestmark in January 1995.
The October 1994 consolidation and the Ivey Brook, Plantation Trace,
Windsong, Bentley Place, and Crestmark acquisitions were all structured as
statutory mergers under Georgia law in which the applicable limited partnerships
were merged into the Operating Partnership in exchange for Shares or Units that
were disbursed to the partners of such partnerships pursuant to the terms of the
merger agreements. (Out-of-state limited partners received cash in lieu of
Shares or Units.)
The Operating Partnership
The Company conducts its business and owns all of its real estate
assets through Roberts Properties Residential, L.P., referred to in this report
as the Operating Partnership. The Company controls the Operating Partnership as
its sole general partner. The Board of Directors of the Company manages the
affairs of the Operating Partnership by directing the affairs of the Company.
The Company's ownership interest in the Operating Partnership entitles it to
share in cash distributions from, and in the profits and losses of, the
Operating Partnership generally in proportion to its ownership percentage. The
holders of Units (other than the Company) are: the former limited partners in
the limited partnerships that were merged into the Operating Partnership; Mr.
Roberts; and the former owner of The Shoppes of Crestmark.
Holders of Units in the Operating Partnership (sometimes referred to in
this report as "Unitholders") have the right to require the Operating
Partnership to redeem their Units, provided that the Company's articles of
incorporation limit ownership by any one holder to 6% of the outstanding Shares
(other than by Mr. Roberts, who is limited to 25%). Unitholders cannot redeem if
doing so would violate such ownership limits. A Unitholder who submits Units for
redemption will receive, at the election of the Company, either an equal number
of Units or cash in the amount of the
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average of the daily market prices of the Common Stock for the 10 consecutive
trading days prior to the date of submission multiplied by the number of Units
submitted. The Company has adopted a policy of acquiring Units in exchange for
Shares rather than cash except as required to comply with federal and state
securities laws. The Company also has the right at its election to purchase all
outstanding Units from Unitholders in exchange for Shares.
Whenever the Company issues Shares of Common Stock (or Preferred
Stock), the Company is obligated to contribute the net proceeds from such
issuance to the Operating Partnership, and the Operating Partnership is
obligated to issue the same number of Units, or other interests, to the Company.
The Operating Partnership Agreement permits the Operating Partnership, without
the consent of the Unitholders, to sell additional Units or other partnership
interests and add limited partners.
Growth Strategies
The Company's business objectives are to maximize the current return to
its shareholders through increases in cash flow and to increase long-term total
returns to its shareholders through appreciation in the value of the Common
Stock. The Company intends to manage its Communities intensively to seek to
maximize current and long-term income and to increase the value of its assets,
to develop high quality apartment communities for long-term ownership and to
acquire existing apartment communities where opportunities for favorable
investment returns exist. The Company is committed to achieving these objectives
by pursuing the following growth strategies and by engaging third parties,
including the Roberts Companies, for assistance as appropriate:
- Maximize cash flow from operations of the Communities - by seeking
through intensive management to maintain high occupancy levels, obtain
regular rent increases, manage resident turnover efficiently and control
operating expenses.
- Develop new multifamily apartment communities in Georgia, North Carolina,
Florida and other locations in the Southeast consistent with management's
historical policies of constructing and effectively managing high quality
multifamily communities for long-term income and value enhancement.
- Acquire additional multifamily communities in Georgia, North Carolina,
Florida and other locations in the Southeast where, in the judgment of
the Board of Directors, the Company's business strengths have the
potential to increase property values and opportunities exist for
enhanced investment returns.
- Pursue additional offerings of debt or equity securities to raise funds
to pursue the foregoing management, development and acquisition growth
strategies, each of which is discussed in more detail below.
Property Management Strategy. The Company believes that managing its
Communities intensively is a fundamental element of its growth strategy. As of
March 23, 1998, Roberts Properties Management ("Roberts Management," the
Company's management division) employed 41 property management personnel,
including property managers, leasing managers, leasing consultants, maintenance
supervisors and technicians, and accounting personnel. In April 1995, the
predecessor of Roberts Management was selected as the Property Management
Company of the Year by the National Association of Home Builders' National
Council of the Multifamily Industry. The Company believes that Roberts
Management's depth will enable it to deliver quality services, thereby promoting
resident satisfaction, maintaining high resident retention, and enhancing the
value of each of the Communities. Roberts Management's strategy will continue to
be (i) to increase the average occupancy and rental rates as market conditions
permit, (ii) to minimize resident turnover through strict review of
creditworthiness and ability to meet lease obligations and (iii) to continue to
monitor operating expenses to increase net operating income at each of the
Communities.
Development Strategy. The Company currently intends to continue to
develop high quality apartment communities for long-term ownership. The Company
believes that the barriers to new development in the Atlanta market will
continue to constrain the rate of apartment community construction in Atlanta.
These barriers include governmental growth control; a difficult rezoning and
permitting process; and the limited availability of well-located sites. The
Company believes that these restraints on construction, coupled with the
predicted continued growth in
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population and household formations, present an excellent opportunity for the
Company to achieve favorable returns on the development of well-located high
quality apartment communities.
Roberts Properties has traditionally performed the development function
for limited partnerships sponsored by Mr. Roberts. Roberts Properties is
performing that function for the Operating Partnership with respect to the
Bradford Creek Community and the second phases of Plantation Trace and Preston
Oaks. Roberts Properties is also performing development work on three
multifamily apartment communities totaling 875 apartment homes to be constructed
in Fulton and Gwinnett Counties in north metropolitan Atlanta. The properties on
which those communities are to be constructed are currently owned by Roberts
Properties or an entity formed by Mr. Roberts or his affiliates, and the Company
has not yet purchased those properties. No assurances can be given that the
Company will ultimately acquire those properties and develop and construct the
three communities. The Company expects that Roberts Properties will continue to
perform development work for the Company for additional projects in the future.
The Company may seek to perform its own development activities by engaging its
own employees or by acquiring Roberts Properties.
During the past 13 years, the Roberts Companies have developed,
constructed and/or managed over 3,300 residential units. The Company believes
that the number and quality of the apartment units developed by the Roberts
Companies, the relationships Mr. Roberts and employees of the Roberts Companies
have developed with local permitting and governmental authorities, and the
Roberts Companies' experience with the development, construction and financing
process will minimize the barriers to new development often faced by less
experienced developers and national developers attempting to enter the Atlanta
market. Although the experience of the Roberts Companies will be most helpful to
the Company in the Atlanta area, the Company believes that such experience will
also enable the Company to develop multifamily apartment communities in other
areas in the Southeast. In such event the Company may, however, seek experienced
local real estate professionals to assist in developing communities with the
standards and features developed in the competitive Atlanta market.
Although the Company presently intends to engage the Roberts Companies
in its development activities, the Company may hire other development or
construction companies in Atlanta and elsewhere if it deems it to be in the
Company's best interests to do so. The most likely development scenario for the
Operating Partnership is for it to acquire properties already under development
from Roberts Properties and/or an entity formed by Mr. Roberts or his
affiliates. As noted above, the Company expects to follow this procedure in
connection with the three apartment communities that are now in the development
stage. The Company may engage the Roberts Companies to develop properties on a
fee basis; the Company may enter into joint venture agreements with the Roberts
Companies; or the Company may acquire communities developed by the Roberts
Companies and owned by other affiliates of Mr. Roberts. The Company may also
enter into any such arrangements with independent third parties.
In analyzing the potential development of a particular community, the
Company will evaluate certain geographic, demographic, economic and financial
data including household, population and employment growth; prevailing rental
and occupancy rates in the immediate market area and the perceived potential for
growth in those rates; costs that affect profitability of the investment,
including construction, financing, operating and maintenance costs; income
levels in the area; existing employment bases; traffic volume, transportation
access, proximity to commercial centers and regional malls; and proximity to and
quality of the area's schools. The Company will also consider certain physical
elements regarding a particular site, including the probability of zoning
approval (if required), availability of utilities and infrastructure, and other
physical characteristics of the site.
For information regarding the development and construction of Bradford
Creek and second phases of Plantation Trace and Preston Oaks, see "Part I, Item
2, Description of Property."
Acquisition Strategy. In addition to its management and development
strategies, the Company also intends to grow externally by selectively acquiring
existing apartment communities from third parties in Atlanta and the Southeast.
The Company will selectively seek to acquire well-located apartment communities
that can be improved, through capital improvement programs and intensive
management, to meet the quality and performance standards of the existing
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Communities. Such communities may fall into one or both of the following
categories: (i) communities that are in need of physical improvements, or (ii)
communities that, although well-located, have a history of poor management
and/or experience occupancy and financial problems that, in either event, the
Company believes it will be able to solve.
The Company believes that a suitable acquisition target should furnish
the Company with significant opportunity for increasing property value through
rent increases, reduction of expenses, or a combination of both through
effective property management or repositioning. Prior to acquiring an existing
property from a third party, the Operating Partnership (or Roberts Properties on
its behalf) will conduct a detailed market survey consisting of a study of the
specific market area in which the apartment community is located, to assure that
local demographics and economics are within the parameters desired by the
Company. The Operating Partnership will also undertake a study of the
competitive rental market to ascertain the strength and depth of the market area
through rental rate, occupancy level, and unit mix analysis. Finally, the
Operating Partnership will perform a physical inspection, a review of resident
mix, an assessment of current vacancies, and a complete rental analysis for the
target property. Capital improvement alternatives will also be examined,
including the economic feasibility of leaving the property "as-is" compared to
the benefits of investing in site redevelopment such as landscaping, signage,
exterior architectural redesign and construction, and modernization of the unit
interior.
Summary. Consistent with the Company's overall growth strategies, the
Company intends to continue to evaluate and initiate development and acquisition
opportunities. Although acquisition and development activities are presently
concentrated in the Atlanta metropolitan area, the Company intends to grow its
investment grade portfolio by developing, constructing and acquiring high
quality, well-located apartment communities in Georgia, North Carolina, Florida
and other locations in the Southeast.
ITEM 2. DESCRIPTION OF PROPERTY.
General
At March 25, 1998 the Company owns nine multifamily apartment
communities (the "Communities") containing a total of 1,778 apartment homes. The
eight existing Communities of River Oaks, Rosewood Plantation, Plantation Trace,
Preston Oaks, Highland Park, Bentley Place, Crestmark and Ivey Brook, containing
a total of 1,524 apartment units, are stabilized; and the 180-unit Bradford
Creek Community, a 24-unit second phase of Preston Oaks and a 50-unit second
phase of Plantation Trace are now under construction or development. (The
Company considers a Community to have achieved stabilized occupancy on the
earlier of (a) attainment of 95% occupancy as of the first day of any month, or
(b) one year after completion of construction.) As described above in "Part I,
Item 1, Description of Business - Growth Strategies - Development Strategy,"
three additional multifamily apartment communities in north metropolitan Atlanta
that are anticipated to total 875 apartment homes are in the development stage.
The properties on which those communities are to be constructed are currently
owned by Roberts Properties or an entity formed by Mr. Roberts or his
affiliates, and the Company has not yet purchased those properties.
As of December 31, 1997, the Company owned nine stabilized Communities
containing a total of 1,756 apartment homes that had a physical occupancy rate
of 94.6%. The Company sold the 232-unit Windsong Community on January 9, 1998.
The Company believes that the demand for multifamily housing in Atlanta
will increase due to Atlanta's growing population. According to the Atlanta
Regional Commission (the "ARC"), both population and job growth in Atlanta are
projected to be above the national average for the foreseeable future. (The ARC
is the regional planning and governmental coordination agency for the 10-county
Atlanta Region.) Based upon information provided by the ARC and the U.S. Census
Bureau, the population of the Atlanta metropolitan area is projected to grow
40.9% for the period from 1990 to 2010. According to the Georgia Department of
Labor, as of January 1, 1998, the metropolitan Atlanta unemployment rate was
3.0%, which is below the Georgia unemployment rate of 3.7% and the U.S.
unemployment rate of 5.2%.
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According to the ARC, the population of metropolitan Atlanta increased
by 50.14% from 1980 to 1995, and nine metropolitan Atlanta counties rank among
the nation's top 50 fastest growing counties. As reported by the ARC, the
Atlanta metropolitan area currently has a population of approximately 3,033,400,
making it one of the largest metropolitan areas in the country and the largest
in the Southeast.
Certain basic information regarding the Communities and the retail
centers is summarized in the table on following page.
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The Communities
<TABLE>
<CAPTION>
December 1997
Year Average Rental Rates Average Physical
Completed Number Approximate Average -------------------- Occupancy for the
or to be Of Rentable Area Unit Size Per Square 12 Months Ended
Community Location Completed Units (Square Feet) (Square Feet) Per Unit Foot Dec. 31, 1997
--------- -------- --------- ----- ------------- ------------- -------- ---- ----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Existing Communities:
Plantation Trace Atlanta, GA 1990 182 229,202 1,259 $861 $0.68 93.0%
River Oaks Atlanta, GA 1992 216 276,046 1,278 $899 $0.70 95.9%
Bentley Place Atlanta, GA 1993 117 108,328 926 $749 $0.81 96.9%
Crestmark Atlanta, GA 1993 334 360,284 1,079 $802 $0.74 N/A(1)
Rosewood Plantation Atlanta, GA 1994 152 192,352 1,265 $900 $0.71 97.3%
Preston Oaks Atlanta, GA 1995 189 235,532 1,246 $965 $0.77 97.5%
Highland Park Atlanta, GA 1995 188 231,634 1,232 $905 $0.73 95.7%
Ivey Brook Atlanta, GA 1997 146 197,067 1,350 $963 $0.71 N/A(2)
Communities Under Construction:
Second Phase of
Preston Oaks Atlanta, GA 1998 24 23,016 959 N/A N/A N/A
Second Phase of
Plantation Trace Atlanta, GA 1998 50 81,754 1,635 N/A N/A N/A
Bradford Creek Atlanta, GA 1998 180 244,889 1,360 N/A N/A N/A
--- --------- -----
Total/Average 1,778 2,180,104 1,226
===== ========= =====
</TABLE>
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<TABLE>
<CAPTION>
Retail Centers Average
Occupancy
Approximate December 1997 for the 12
Year Rentable Area Average Rental Rates Months Ended
Retail Center Location Completed (Square Feet) Per Square Foot Dec. 31, 1997
------------- -------- --------- ------------- --------------- -------------
<S> <C> <C> <C> <C> <C>
Shoppes of
Plantation Atlanta, GA 1992 7,350 $16.61 78.7%
Shoppes of
River Oaks Atlanta, GA 1995 8,348 $16.00 76.3%
------
Total 15,698
======
</TABLE>
(1) The 86-unit second phase of Crestmark completed its lease-up phase in
September 1997, and its 12 month historical occupancy percentage is not
comparable. The physical occupancy rate for the entire Crestmark
Community as of December 31, 1997 was 86.5%.
(2) Ivey Brook completed its lease-up phase in August 1997, and its 12
month historical occupancy percentage is not comparable. Its physical
occupancy rate as of December 31, 1997 was 98.6%.
8
<PAGE> 12
Certain annual operating data regarding the Company's stabilized
Communities at December 31, 1997 are summarized in the following table (with the
second phase of Crestmark described separately for this purpose and Windsong
omitted due to its sale in January 1998). Except for those figures noted with an
asterisk, the occupancy rates shown represent the average physical occupancy of
the applicable Community calculated by dividing the total number of vacant days
by the total possible number of vacant days for each year and then subtracting
the resulting number from 100%. The figures noted with asterisks reflect the
applicable data on December 31 of the specified year and are not annualized,
because the applicable Community was under construction and in its initial
lease-up period during at least a portion of that year. During lease-up, units
are leased as they are constructed and made ready for occupancy building by
building, thus annualization of data is not possible during that period.
Throughout this table, "N/A" means "not applicable," i.e., no unit in the
Community was available to be occupied during the relevant year.
<TABLE>
<CAPTION>
Physical Occupancy Rate Average Effective Annual Rental Rates
1993 1994 1995 1996 1997
Month ---- ---- ---- ---- ----
Completed Per
Initial --- Per Per Per Per Per Per Per Per Per
Community Leaseup 1993 1994 1995 1996 1997 Unit Sq. Ft. Unit Sq. Ft. Unit Sq. Ft. Unit Sq. Ft. Unit Sq. Ft.
- --------- -------- ---- ---- ---- ---- ---- ---- ------- ---- ------ ---- ------- ---- ------- ---- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Plantation 9/90 98% 98% 98% 99% 93% $750 $0.59 $775 $0.61 $786 $0.62 $821 $0.65 $850 $0.67
Trace
River 2/93 100%* 98% 99% 98% 96% $772* $0.61* $787* $0.62 $820 $0.64 $859 $0.67 $886 $0.69
Oaks
Rosewood 5/94 22% 100%* 99% 99% 97% N/A $0.62* $796* $0.63* $814 $0.64 $858 $0.68 $887 $0.70
Plantation
Preston 8/95 N/A N/A 100%* 99% 97% N/A N/A N/A N/A $885 $0.71* $892 $0.72 $945 $0.76
Oaks
Highland 3/96 N/A N/A 68% 96%* 96% N/A N/A N/A N/A $819* $0.67* $805 $0.65 $887 $0.72
Park
Bentley 9/93 N/A N/A 99% 99% 97% N/A N/A $684 $0.74* $675 $0.73 $709 $0.77 $740 $0.80
Place (1)
Crestmark(2) 4/94 75% 98%* 99% 98% 87% N/A N/A $688 $0.67* $688 $0.67 $736 $0.72 $782 $0.76
Ivey 8/97 N/A N/A N/A 27%* 98%* N/A N/A N/A N/A N/A N/A $925* $0.69* $955 $0.71
Brook(3)
Second
Phase of 9/97 N/A N/A N/A N/A 96%* N/A N/A N/A N/A N/A N/A N/A N/A $845* $0.69*
Crestmark(4)
</TABLE>
- ------------------
(1) The Company acquired Bentley Place in March 1996 as described elsewhere
in this report.
(2) The Company acquired Crestmark in June 1996 as described elsewhere in
this report.
(3) Ivey Brook completed its lease-up phase in August 1997, and its
occupancy as of December 31, 1997 was 98%.
(4) Phase II of Crestmark completed its lease-up phase in September 1997,
and its occupancy as of December 31, 1997 was 96%.
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<PAGE> 13
As described below, the Communities are located in five submarkets of
the Atlanta metropolitan area. Each heading identifies the Community or
Communities within the specified submarket. Population and employment data
provided for each submarket were in each case obtained from the ARC. Multiple
Communities are located in each of the Duluth, Peachtree Corners and Perimeter
Center/North Springs submarkets, thus those Communities compete not only with
unaffiliated apartment communities but also with each other. Please see "Summary
of Debt Secured by the Communities," which follows the description of the
individual Communities, for an explanation of the terms of the Company's secured
indebtedness.
Duluth Area - Plantation Trace, River Oaks, and Bradford Creek Communities
Duluth. The City of Duluth is located in northwest Gwinnett County,
which from 1985 until 1990 ranked first in the nation in growth among counties
with a population of more than 100,000. Since 1980, Gwinnett's population has
increased 118% to a current level of 362,800. Gwinnett's strong employment base,
transportation networks, excellent public education system and affordable home
prices are factors that contribute to the county's remarkable growth. Home to
more than 247 international firms and over 700 manufacturing and high technology
firms that generate many of its 182,300 jobs, Gwinnett leads all metropolitan
Atlanta counties in percentage employment growth, increasing 181% since 1980.
Duluth has exceeded even Gwinnett County as a whole in percentage of population
growth; its population has increased 223% since 1980. Duluth is located near
I-85 and Gwinnett Place Mall, a 1,100,000 square foot regional mall.
Plantation Trace. Plantation Trace, which was completed in 1990,
consists of 20 two and three story Nantucket-style stone and wood sided
buildings located on a 16.9 acre site on Pleasant Hill Road approximately
one-half mile west of its intersection with Peachtree Industrial Boulevard. In
1990, this 182-unit garden apartment community received the Aurora Award from
the Southeast Builders' Conference for "Best Rental Apartment Community in the
Southeast."
The Plantation Trace Community, with its traditional award-winning
architecture and landscaped grounds, features a large clubhouse with a fitness
center, two lighted tennis courts, sand volleyball court, multi-station
playground, free-form swimming pool, small wading pool, stone paver pool deck
and a covered whirlpool spa. In addition to upscale amenities, Plantation Trace
offers such interior features as nine foot ceilings, crown molding, pickled wood
cabinetry in the kitchen and bath, marble vanity tops, fireplaces, vaulted
ceilings and Palladian windows in select units, designer wallcoverings and full
laundry rooms with washer and dryer connections.
Plantation Trace has a variety of floorplans, including 28 one bedroom
units ranging from 901 to 929 square feet, 48 two bedroom standard and 66 two
bedroom roommate units ranging from 1,228 to 1,298 square feet, and 40 three
bedroom units ranging from 1,471 to 1,494 square feet. The weighted average unit
size is 1,259 square feet. As of December 31, 1997, the Community was 94%
occupied and rental rates ranged from $690 to $1,010 per month, with a weighted
average monthly rent of $861 per unit and $0.68 per square foot. Local real
estate taxes were $161,000 in 1997.
50-Unit Second Phase of Plantation Trace. A second phase of 50
apartment units ("Phase II") now under construction on 12.33 acres adjacent to
Plantation Trace is expected to be completed in 1998. Phase II will contain 7
one bedroom units of approximately 966 square feet each, 6 two bedroom units of
approximately 1,433 square feet each, 18 two bedroom townhouses of approximately
1,490 square feet each, 12 three bedroom townhouses of approximately 1,948
square feet each, 7 four bedroom townhouses of approximately 2,314 square feet
each, and 33 garages of 200 square feet each. The anticipated monthly rental
rates are $775 for a one bedroom apartment, $950 for a two bedroom apartment,
$975 for a two bedroom townhouse, $1,250 for a three bedroom townhouse, and
$1,350 for a four bedroom townhouse, resulting in a weighted average monthly
rent of $1,063 per unit and $0.65 per square foot. Roberts Properties is
developing Phase II for the Operating Partnership and may, at its discretion,
change the unit mix or site plan, provided that any material change must be
approved by the Company's Board of Directors.
The architectural style, land planning, landscaping and amenities of
Phase II are expected to be similar to those of the Company's other Communities.
A modern fitness and exercise facility and a second free-form swimming pool will
be added to the existing amenities at Plantation Trace. The fitness facility to
be located on the Phase II property will
10
<PAGE> 14
be approximately 1,088 square feet in size, with individual aerobics equipment
and workout stations similar to the exercise facilities at the Company's other
Communities. Phase II will also provide the Plantation Trace Community direct
access to the Chattahoochee River, as well as to jogging trails and nature areas
to be developed around the existing lake and along the river.
The construction of Phase II will be completed pursuant to a cost-plus
10% construction contract with Roberts Construction providing for 5% profit and
5% overhead. The total cost of construction including the fee to Roberts
Construction is estimated to be approximately $4,770,000. The Company
anticipates that there will be approximately $217,000 in net profit to Roberts
Construction on the construction contract.
The land on which Phase II will be constructed is presently
unencumbered. The development and construction of Phase II will be funded from
the Company's working capital and from the proceeds of the $8,400,000 mortgage
loan to be secured by Bradford Creek that the Company expects to close in May
1998.
River Oaks. River Oaks, which was completed in 1992, consists of 22 two
and three story Charleston-style brick and wood sided buildings located on a
31.6 acre site on Pleasant Hill Road adjacent to the Chattahoochee River to the
west and the Plantation Trace Community to the east. The River Oaks Community,
with its traditional architecture and landscaped grounds, features a large
clubhouse with a fitness center, two lighted tennis courts, sand volleyball
court, multi-station playground, free-form swimming pool, stone paver pool deck,
and whirlpool spa. In addition to upscale amenities, River Oaks offers such
interior features as nine foot ceilings, crown molding, garden tubs, pickled
pine cabinetry in the kitchen and bath, marble vanity tops, fireplaces and
vaulted ceilings in select units, designer wallcoverings, and full laundry rooms
with washer and dryer connections.
River Oaks has a variety of floor plans, including 40 one bedroom units
at approximately 907 square feet, 32 two bedroom roommate, 24 two bedroom deluxe
and 48 two bedroom standard units ranging from 1,276 to 1,309 square feet, and
72 three bedroom units with approximately 1,457 square feet. The weighted
average unit size is 1,278 square feet. As of December 31, 1997, the Community
was 95% occupied and rental rates ranged from $720 to $1,030 per month, with a
weighted average monthly rent of $899 per unit and $0.70 per square foot. Local
real estate taxes were $193,000 in 1997.
Bradford Creek. The 180-unit Bradford Creek Community is located on an
approximately 22.5 acre property near the southeast corner of Peachtree
Industrial Boulevard and Howell Ferry Road in Duluth, approximately one mile
southeast of Plantation Trace and River Oaks. Bradford Creek is nearing
completion of construction and will contain 28 one bedroom units of
approximately 1,001 square feet each, 46 two bedroom standard units of
approximately 1,302 square feet each, 47 two bedroom roommate units of
approximately 1,344 square feet each, and 59 three bedroom units of
approximately 1,589 square feet each. Leasing started in January 1998, and the
Company anticipates that Bradford Creek will complete its lease-up phase in
August 1998. Anticipated monthly rental rates range from $765 to $1,040 per
month, resulting in a weighted average monthly rent of $898 per unit and $0.69
per square foot. The Company anticipates that local real estate taxes will be
approximately $173,000 in 1999, the first year the Community will be taxed as a
completed and stabilized property.
The Bradford Creek Community, with its unique mountain lodge
architecture and traditional landscaping, features a large clubhouse with a
fitness center, clubroom, laundry room, two lighted tennis courts, free-form
swimming pool, stone paver pool deck, a 12 acre nature area, and a gated
entrance. In addition to the upscale amenities, Bradford Creek offers such
interior features as nine foot ceilings and a computer room in select units,
crown moldings, garden
11
<PAGE> 15
tubs, white raised-panel cabinetry in the kitchen and bath, marble vanity tops,
breakfast bars, designer wallcoverings, and full laundry rooms with washer and
dryer connections. Each building was constructed using cobblestone and vinyl
siding and offers private patios or balconies along with gables and varying
paint colors.
The total estimated acquisition, development, and construction cost for
the Bradford Creek Community is $13,800,000. The Company acquired the site for
Bradford Creek on March 29, 1996 from Roberts Properties for $1,628,000. The
Company is paying the costs of developing and constructing Bradford Creek out
of its working capital.
The construction of Bradford Creek will be completed pursuant to a
fixed price construction contract with Roberts Construction in the amount of
$10,529,000 (as amended by approved change orders to date). Assuming that
Bradford Creek is built to the initial contract specifications, any excess
construction costs not approved by the Operating Partnership as a change order
will be borne by Roberts Construction, and if Roberts Construction's costs are
lower than anticipated, its savings will constitute additional profit. If,
during the construction of Bradford Creek, the Operating Partnership upgrades
the contract plans and specifications from those agreed to initially, such
change orders may increase the amount paid to Roberts Construction. The Company
anticipates that there will be approximately $950,000, or approximately 9% of
the contract price, in net profit to Roberts Construction on the construction
contract.
Peachtree Corners Area - Rosewood Plantation and Ivey Brook Communities
Peachtree Corners. Located in west Gwinnett County, Peachtree Corners
benefits from the existing and improving transportation networks, employment
resources and consumer conveniences in the area. Over 400 firms are located in
the Peachtree Corners area, occupying more than 4,500,000 square feet of office
and distribution space and providing Gwinnett County with approximately 35% of
its total jobs. Peachtree Corners' most prominent office/institutional
development is Technology Park/Atlanta, which has become the premier location in
Georgia for national and international high tech companies. With over 2,100,000
square feet of space occupied by more than 70 firms, approximately 4,500 people
are employed at Technology Park/Atlanta. Almost equidistant within eight miles
of three regional shopping malls, each containing over 1,000,000 square feet of
retail space, the area is conveniently accessible to major retail activity
centers.
Rosewood Plantation. This Community, which was completed in May 1994,
targets the upper tier of the apartment resident market. The 152-unit Community
is located on Spalding Drive just southwest of Holcomb Bridge Road on a 21 acre
site. Since 1989 each of the elementary, middle and high schools serving the
Community has been designated as the Gwinnett County School of Excellence by the
Gwinnett County Board of Education for at least one year, and the middle school
has been designated as a Georgia School of Excellence by the Georgia Department
of Education and a National Blue Ribbon School of Excellence by the U.S.
Department of Education. Due partly to the highly-regarded public school system
in the area, Rosewood Plantation is an attractive choice for white collar
professionals and families who choose the rental lifestyle. Rosewood Plantation
is composed of 7 two and three story buildings with brick accents and wood
siding.
Rosewood Plantation has 29 one bedroom units with 914 square feet, 45
two bedroom standard units with 1,247 to 1,276 square feet, 43 two bedroom
roommate units with 1,310 square feet, and 35 three bedroom units with 1,510
square feet. The weighted average unit size is 1,265 square feet. As of December
31, 1997, the Community was 95% occupied and rental rates ranged from $740 to
$1,055, resulting in a weighted average monthly rent of $900 per unit and $0.71
per square foot. Local real estate taxes were $117,000 in 1997.
Rosewood Plantation's amenities include a clubhouse offering an
exercise room with weight equipment, and a clubroom with a big screen television
and bar with kitchen facilities. The recreational area includes a free-form
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<PAGE> 16
swimming pool with stone paver deck, lighted tennis court, children's
playground, walking trails through the nature area, and a two acre lake.
Each building is patterned after the architecture of Charleston,
featuring columned porches, transom windows, and distinctive gables. The
interior of each apartment home offers high-end finishes such as crown molding,
garden tubs, marble vanity tops, bay windows, and large walk-in closets.
Ivey Brook. The Ivey Brook Community consists of 146 upscale apartment
units comprising approximately 197,067 square feet in a total of 12 buildings
located on an 11.8 acre site at the intersection of Holcomb Bridge Road and
Peachtree Corners Circle in the Peachtree Corners area. Ivey Brook benefits from
its excellent location at a major intersection amidst an established multifamily
market area in close proximity to Gwinnett County's largest employment base.
Ivey Brook has 13 one bedroom units with approximately 956 square feet,
36 two bedroom standard units with approximately 1,231 square feet, 50 two
bedroom roommate units with approximately 1,321 square feet, and 47 three
bedroom units with approximately 1,546 square feet. The weighted average unit
size is approximately 1,350 square feet. As of December 31, 1997, Ivey Brook was
99% occupied and its rental rates ranged from $765 to $1,155, resulting in a
weighted average monthly rent of $963 per unit and $0.71 per square foot. Local
real estate taxes were $114,000 in 1997.
The buildings are of traditional design with either stacked stone or
brick accents and wood or vinyl siding with the facades varying from building to
building. Exterior features include gables, bay windows, varying paint colors
with white trim, and private patios or balconies. Extensive landscaping includes
mature trees, flowers, and shrubbery. The interior features include crown
molding in the living/dining rooms, designer wallcoverings, separate laundry
rooms, breakfast bars, garden tubs, and private balconies, and the three bedroom
units feature a computer room. Recreational amenities include a swimming pool
and fitness center.
Perimeter Center/North Springs Area - Preston Oaks and Highland Park Communities
Perimeter Center/North Springs. The Perimeter Center/North Springs area
offers convenient proximity and access to both urban and suburban employment
bases and retail conveniences. Georgia 400 and I-285 provide direct access
within minutes to major regional malls such as North Point Mall and Perimeter
Center Mall. The Phipps Plaza/Lenox Mall/Buckhead area and downtown Atlanta's
Central Business District are readily accessible via the Georgia 400 extension,
which connects to I-85 South near downtown Atlanta.
Within this corridor is a large base of residential, commercial and
office developments. The south quadrant of the area includes medical facilities
such as Northside Hospital, St. Joseph's Hospital and Scottish Rite Children's
Hospital. Perimeter Center encompasses office developments that exceed
18,500,000 square feet of space, with such Class A facilities as Ravinia,
Northpark Town Center, Concourse and Perimeter Center Office Park. Several
prominent companies such as Holiday Inn, UPS and Hewlett-Packard have located
their worldwide or regional headquarters within the Perimeter Center area.
This area, which includes portions of Fulton and DeKalb Counties, has
an average household income of approximately $73,000, which is considerably
higher than the metropolitan Atlanta average of $44,913. The median value of a
single family home in this area exceeds $200,000.
Preston Oaks. This Community, which was completed in August 1995, is a
two and three story mid-density multifamily residential community consisting of
8 two and three story buildings located on Mt. Vernon Highway in the Perimeter
Center area. The traditional architecture consists of stacked stone and vinyl
siding incorporating details of gabled roofs, Palladian windows, columns, and
bay windows. The Community consists of 36 one bedroom units, 92 two
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<PAGE> 17
bedroom units, and 61 three bedroom units. The 189 units range in size from 902
to 1,440 square feet, with a weighted average unit size of 1,246 square feet.
Preston Oaks is conveniently located less than one mile from Perimeter
Mall, a 1,200,000 square foot regional mall, and in close proximity to the
area's numerous office developments. Several stand-alone restaurants and major
retail centers either exist or are being developed near the Community.
The Community is located on a 10.4 acre site and features extensive
landscaping. The amenities are similar to those of the other existing
Communities, with custom swimming pool, lighted tennis court, fitness center
with individual work-out stations, and a large clubhouse. Interior features
include garden tubs, oversized walk-in closets, pickled pine cabinetry in the
kitchen and bath, crown molding, mirrored walls, and chair-railing in the dining
rooms.
As of December 31, 1997, Preston Oaks was 99% occupied and its rental
rates ranged from $750 to $1,120 per month, resulting in a weighted average
monthly rent of $965 per unit and $0.77 per square foot. Local real estate taxes
were $8,000 in 1997 because the Community was assessed as undeveloped property.
The Company anticipates that local real estate taxes will be approximately
$166,000 in 1998.
24-Unit Second Phase of Preston Oaks. A second phase of 24 apartment
units ("Phase II") now under construction on 1.1 acres next to Preston Oaks is
expected to be completed in 1998. Phase II will contain 24 one bedroom apartment
units with 959 square feet each. The anticipated monthly rental rate is $750.
The architectural style and landscaping of Phase II will be identical to Preston
Oaks.
The construction of Phase II will be completed pursuant to a fixed
price construction contract with a third party construction company in the
amount of $1,300,000. The land on which Phase II will be constructed is
presently unencumbered. The development and construction of Phase II will be
funded from the Company's working capital.
Highland Park. This Community consists of 188 upscale apartment units
in a total of eight buildings on a 10.9 acre site. Located on Dunwoody Place in
the North Springs area of north Fulton County, Highland Park benefits from its
close proximity to Georgia 400, which provides direct access within minutes to
major retail and employment areas to the north such as North Point Mall and
Windward, and to the south such as Perimeter Mall and Perimeter Center.
Highland Park has 42 one bedroom units with 902 square feet, 32 two
bedroom standard units with 1,225 square feet, 62 two bedroom roommate units
with 1,285 square feet, and 52 three bedroom units with 1,440 square feet. The
weighted average unit size is 1,232 square feet.
The buildings are of a traditional design with stacked stone accents
and vinyl siding with the facades varying from building to building. Exterior
features include gables, bay windows, various paint colors with white trim, and
private patios or balconies. Extensive landscaping includes mature trees,
flowers and shrubbery. The interiors feature crown molding in the living/dining
rooms, designer wallcoverings, separate laundry rooms, breakfast bars, garden
tubs and private balconies. Recreational amenities include a swimming pool,
tennis court, and fitness center.
As of December 31, 1997, Highland Park was 98% occupied and its monthly
rental rates ranged from $730 to $1,080 per month, resulting in a weighted
average monthly rent of $905 per unit and $0.73 per square foot. Local real
estate taxes were $18,000 in 1997 because the Community was assessed as
undeveloped property. The Company anticipates that local real estate taxes will
be approximately $166,000 in 1998.
Pleasantdale Area - Bentley Place Community
DeKalb County. As one of Atlanta's core counties at the heart of the 18
county metropolitan statistical area, DeKalb County benefits not only from its
location but also from its mature infrastructure. DeKalb boasts an excellent
transportation network composed of three interstate highways: I-285, I-85 and
I-20. An established network of state and
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<PAGE> 18
local secondary roads, including the Stone Mountain Freeway, crosses the county,
providing convenient accessibility to all parts of the metropolitan area.
As metropolitan Atlanta's population recently surpassed 2,800,000,
DeKalb County's population topped 585,400, increasing by more than 102,300 or
21% since 1990. An estimated 25% of the metropolitan Atlanta populace resides in
DeKalb County. The average household income in DeKalb County is $35,721. Home to
over 300 international companies and more than 240 Fortune 500 firms,
DeKalb-based businesses provide approximately 340,000 jobs.
Pleasantdale Area. The area in which Bentley Place is located is
referred to as Pleasantdale, which is a developed area convenient to I-85 and
I-285 in northwest DeKalb County and southeast Gwinnett County. Pleasantdale is
home to major employers such as UPS, Scientific-Atlanta, Kraft Foodservice,
Rockwell International and Westinghouse. The Pleasantdale area also includes the
Norfolk-Southern Industrial District, which contains more than 5,000,000 square
feet of warehouse/distribution space, including Lucent Technology's 1,300,000
square foot cable and fiber-optics manufacturing facility, which employs
approximately 3,500 people.
Bentley Place. Bentley Place, a 117-unit garden apartment community
that was completed in 1993, consists of 5 three story stacked stone and
wood-sided buildings located on a 4.6 acre site at the intersection of
Pleasantdale Road and Tucker-Norcross Road, approximately 1.7 miles southeast of
the intersection of Pleasantdale Road and I-85. The Company acquired Bentley
Place in March 1996.
The Bentley Place Community, with its traditional award-winning
architecture and landscaped grounds, features a large clubroom with a fitness
center, free-form swimming pool, stone paver pool deck and a whirlpool spa. In
addition to upscale amenities, Bentley Place offers such interior features as
crown molding, pickled wood cabinetry in the kitchen and bath, marble vanity
tops, vaulted and trey ceilings in select units, Palladian windows, designer
wallcoverings, and full laundry room with washer and dryer connections.
Bentley Place has a variety of floor plans, including 41 one bedroom
units of approximately 700 square feet, 40 two bedroom standard units of
approximately 1,016 square feet, and 36 two bedroom roommate units of
approximately 1,083 square feet. The weighted average unit size is 926 square
feet. As of December 31, 1997, Bentley Place was 97% occupied and rental rates
ranged from $630 to $840 per month, with a weighted average monthly rent of $749
per unit and $0.81 per square foot. Local real estate taxes were $90,000 in
1997.
Thornton Road/I-20 Area - Crestmark Community
Douglas County. Douglas County, one of the 18 counties in the Atlanta
metropolitan statistical area, is located west of Atlanta and encompasses 202
square miles. The county is surrounded by Fulton, Cobb, Carroll and Paulding
Counties, with the Chattahoochee River as its southeastern border. Its
population was estimated at 85,000 in 1995, an increase of 20% since 1990.
Douglas County's economic base is diversified, having generated approximately
28,000 jobs in 1995. Employment has been growing at an annual rate of nearly 12%
over the last 10 years. Douglas County benefits from its accessibility to
downtown Atlanta to the east via I-20 and to Hartsfield International Airport to
the southeast via Thornton Road/Camp Creek Parkway. Just across the county line
to the east lies the Fulton Industrial District, the Southeast's largest
contiguous industrial park. The Fulton Industrial District consists of
54,400,000 square feet of both manufacturing and warehouse space and stretches
six miles north and south along Fulton Industrial Boulevard. It represents 20%
of Atlanta's total inventory of warehouse/industrial space, and an additional
1,000,000 square feet is under construction. Numerous Fortune 500 companies are
represented in the Fulton Industrial District, employing more than 100,000
people.
Thornton Road/I-20 Area. Thornton Road is the third exit west of I-285
on I-20 and connects I-20 with Hartsfield International Airport to the southeast
and the significant residential base of West Cobb and Paulding counties to the
north and east. Several office and business parks that total more than 2,000,000
square feet of space and house
15
<PAGE> 19
corporations such as BellSouth, Mitsubishi, Robert Bosch Corporation, TDK
Electronics, and Saab-Scania contribute to a large employment base of
approximately 20,000 people within the Thornton Road area. Restaurant,
hospitality and retail conveniences support the existing employment and
residential base in the Thornton Road corridor. The area also benefits from its
close proximity to the Fulton Industrial District as well as the Six Flags Over
Georgia amusement park, both of which are less than three miles away. At the
northwest corner of the Thornton Road/I-20 interchange is the Columbia/HCA
Parkway Medical Center, a 320-bed acute care medical facility that employs
approximately 600 people.
Crestmark. Crestmark is a garden apartment community that was completed
in two phases: a 248-unit first phase in 1993 and an 86-unit second phase in
1997. Crestmark consists of 16 three and four story stacked stone and wood sided
buildings located on a 32.2 acre site on Thornton Road, approximately one-half
mile north of its intersection with I-20 in Douglas County. In 1993, Crestmark
received two Aurora Awards from the Southeast Builders' Conference, one for
"Best Landscape Design in the Southeast" and another for "Best Recreational
Facility in the Southeast."
The Crestmark Community, with its traditional award-winning
architecture and landscaped grounds, features a large 14,000 square foot
clubhouse with a club room, full kitchen, fitness center and aerobics room, a
business center and conference room, two lighted tennis courts, multi-station
playground, walking and jogging trail, free-form swimming pool, stone paver pool
deck and a whirlpool spa. In addition to the upscale amenities, Crestmark offers
such interior features as nine foot ceilings, crown and chair-rail molding,
pickled wood cabinetry in the kitchen and baths, marble vanity tops, fireplaces,
vaulted and trey ceilings, Palladian and bay windows in select units, designer
wallcoverings and full laundry rooms with washer and dryer connections. The
second phase added a second free-form swimming pool, 17 garages and 24 storage
units to Crestmark's amenities.
Crestmark has a variety of floorplans including 29 one bedroom standard
units with 704 square feet, 50 one bedroom deluxe units with 816 square feet, 19
one bedroom units of 901 square feet in the second phase, 33 two bedroom
standard units with 1,005 square feet, 86 two bedroom deluxe units with 1,110
square feet, 21 two bedroom standard units of 1,223 square feet in the second
phase, 22 two bedroom roommate units of 1,285 square feet in the second phase,
50 three bedroom units with 1,295 square feet and 24 three bedroom units of
1,437 square feet in the second phase. The weighted average unit size is 1,079
square feet. As of December 31, 1997, the Community was 87% occupied and rental
rates ranged from $610 to $1,000 per month, with a weighted average monthly rent
of $802 per unit and $0.74 per square foot. Local real estate taxes were
$188,000 in 1997.
The 8.8 acre tract of undeveloped land for the second phase was
encumbered by the following secured loans that the Company repaid in full
shortly after the closing of the Crestmark, L.P. merger: a first priority
secured loan owed to NationsBank, N.A. (South) in the amount of $324,778; and a
second priority secured loan owed to Mr. Roberts in the amount of $1,410,092.
The Company also repaid, shortly after the closing, $121,423 owed to Roberts
Construction for change orders from the original construction and $28,077 owed
to another company affiliated with Mr. Roberts for management start-up costs.
Construction of the second phase of Crestmark was completed pursuant to
a fixed price construction contract with Roberts Construction in the amount of
$4,816,764, as amended to include charge orders approved by the Company. Roberts
Construction received approximately $356,000, or approximately 8% of the
contract price, in net profit on the construction contract. The Company used its
working capital to fund the development and construction of the second phase.
The table on the following page summarizes the amenities of each of the
Communities.
16
<PAGE> 20
Summary of Amenities of the Communities
<TABLE>
<CAPTION>
Club-
Patio, Washer House
Porch & Dryer Garden Fire- Vaulted Swimming Fitness
Community Balcony Hook-ups Tubs places* Ceilings* Pool Center
--------- ------- -------- ---- ------ --------- ---- ------
<S> <C> <C> <C> <C> <C> <C> <C>
Existing Communities:
Plantation Yes Yes No Yes Yes Yes Yes
Trace
River Oaks Yes Yes Yes Yes Yes Yes Yes
Rosewood Yes Yes Yes No No Yes Yes
Plantation
Preston Oaks Yes Yes Yes No Yes Yes Yes
Highland Yes Yes Yes No Yes Yes Yes
Park
Bentley Place Yes Yes Yes No Yes Yes Yes
Crestmark Yes Yes Yes Yes Yes Yes Yes
Ivey Brook Yes Yes Yes No Yes Yes Yes
Communities Under Construction:
Second Phase Yes Yes Yes No Yes Yes Yes(1)
of Plantation
Trace
Bradford Creek Yes Yes Yes No Yes Yes Yes
- -------------------
<CAPTION>
Sand
Whirl- Car Tennis Volley- Play- Laundry
Community pool Wash Court(s) ball ground Room Other
--------- ---- ---- -------- ---- ------ ---- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Existing Communities:
Plantation Yes Yes Yes-2 Yes Yes Yes lake
Trace
River Oaks Yes Yes Yes-2 Yes Yes Yes riverfront,
nature preserve
Rosewood No Yes Yes-1 No Yes Yes Lake,
Plantation nature preserve
Preston Oaks No Yes Yes-1 No No Yes
Highland No Yes Yes-1 No Yes Yes
Park
Bentley Place Yes No No No No Yes
Crestmark Yes Yes Yes-2 No Yes Yes nature preserve,
jogging trail
Ivey Brook No Yes No No No Yes
Communities Under Construction:
Second Phase No No No No No No riverfront,
of Plantation lake,
Trace nature preserve
Bradford Creek No Yes Yes-2 No Yes Yes nature preserve
</TABLE>
- -------------------
* In select units
(1) Activity/fitness center only.
17
<PAGE> 21
Summary of Debt Secured by the Communities
Certain information regarding the Company's indebtedness secured by the
Communities is as follows (excluding the Windsong Community because the property
was sold in January 1998 and the mortgage debt repaid):
<TABLE>
<CAPTION>
Monthly
Principal Principal Fixed Principal and
Balance at Maturity Balance at Interest Amortization Interest
Community Dec. 31, 1997 Date Maturity Rate Schedule Payment
--------- ------------- ---------- ------------ -------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Plantation Trace $7,775,141 09-15-00 $7,481,501(1) 7.75% 28-year $59,860
River Oaks $9,150,816 11-15-03 $8,513,092(2) 7.15% 30-year $62,475
Rosewood Plantation $6.356,757 06-01-01 $6,042,040(3) 7.38% 28-year $46,849
Preston Oaks $8,518,869 10-15-02 $8,024,627(2) 7.21% 30-year $59,188
Highland Park $8,029,790 02-15-03 $7,544,223(2) 7.30% 30-year $56,066
Ivey Brook $6,367,420 02-15-07 $5,570,481(2) 7.14% 30-year $43,318
Bentley Place $4,044,875 08-15-06 $3,554,094(2) 7.10% 30-year $27,553
Crestmark - Phase I $9,652,145 05-01-01 $9,195,508(4) 7.50% 28-year $72,000
Crestmark - Phase II $3,985,413 05-01-01 $3,878,801(2) 7.65% 30-year $28,381
</TABLE>
- ------------------
(1) The loan secured by the Plantation Trace Community may be prepaid upon
payment of a premium equal to the greater of (a) 1% multiplied by a
fraction having as its numerator the number of months to maturity and
its denominator the number of months in the full term of the loan, or
(b) the present value of the loan less the amount of principal and
accrued interest being repaid.
(2) Each of the loans secured by the River Oaks, Preston Oaks, Highland
Park, Bentley Place and Ivey Brook Communities and Phase II of the
Crestmark Community may be prepaid in full upon payment of a premium
equal to the greater of (a) 1% of the outstanding principal balance of
the loan, or (b) the sum of the present value of the scheduled monthly
payments to the maturity date and the present value of the balloon
payment due on the maturity date, less the outstanding principal
balance of the loan on the date of prepayment. Each such loan may be
prepaid in full during the last 90 days prior to its maturity date
without any prepayment premium.
(3) The loan secured by the Rosewood Plantation Community may be prepaid
upon the payment of a premium of 4% of the amount prepaid in the loan
year June 1, 1997 through May 31, 1998; such prepayment premium will be
reduced by 1% each loan year until March 2, 2001, after which date no
prepayment premium will be due.
(4) The loan secured by the first phase of the Crestmark Community may be
prepaid upon the payment of a premium of 4% of the amount prepaid in
the loan year May 1, 1997 through April 30, 1998; such prepayment
premium will be reduced by 1% each loan year until January 31, 2001,
after which date no prepayment premium will be due.
18
<PAGE> 22
Possible Additional Communities to Be Developed
From time to time Roberts Properties plans the development of other
apartment communities to be located on property owned by Roberts Properties or
other affiliates of Mr. Roberts, or on property that one of such entities is
interested in acquiring. Mr. Roberts may elect to raise the required equity for
any such community by syndicating a limited partnership. Alternatively, the
Company may seek to raise the equity required to purchase and develop the
community by selling Shares. If Mr. Roberts elects to raise equity through a
limited partnership, Mr. Roberts may seek to cause such partnership to be merged
into the Operating Partnership at a later date. Such a transaction would require
the consent of a majority in interest of the limited partners of such
partnership and of a majority of the disinterested members of the Company's
Board of Directors, and no assurances can be given regarding whether Mr. Roberts
will ultimately determine to seek a merger in that manner, or whether such a
merger would in fact be approved by the requisite majority in interest of
limited partners in such partnership and by a majority of the disinterested
members of the Board.
As described above in "Part I, Item 1, Description of Business - Growth
Strategies - Development Strategy," three other multifamily apartment
communities in north metropolitan Atlanta that are anticipated to total 875
apartment homes are in the development stage. The properties on which those
communities are to be constructed are currently owned by Roberts Properties or
an entity formed by Mr. Roberts or his affiliates, and the Company has not yet
purchased those properties and develop and construct the communities.
Competition
All of the Communities are located in developed areas, and numerous
other apartment projects are located within the market area of each Community.
The number of competitive apartment communities in the area could have a
material adverse effect on the Company's ability to lease its apartments at the
rental rates anticipated, and no assurances can be given regarding the
development of additional competing multifamily communities in the future. The
remainder of this section summarizes the competition for each of the
Communities. The following information reflects the study by Roberts Properties
of apartment communities in each submarket that are believed by the Company to
be closely competitive with the Community or Communities within such submarket.
This section includes certain summary information obtained from various sources
- - including developers and real estate brokers, as well as on-site visits -
regarding those apartment communities. Although Roberts Properties has attempted
to verify such information and believes that it is substantially accurate on the
whole, information regarding a particular community may be incorrect due to the
sources relied upon or erroneous information supplied by competitors.
Plantation Trace, River Oaks, and Bradford Creek. The Duluth market
area, which the Company considers to be a two mile radius from these
Communities, currently consists of 17 multifamily communities (including River
Oaks and Plantation Trace) containing approximately 5,100 existing apartment
units. (Although the Bridgewater apartment community - which was previously
developed and sold by an affiliate of Mr. Roberts - is located more than two
miles from Plantation Trace, it is also included in the Duluth market area
described herein because it offers units with attached garages and its
architecture and amenities are similar to Plantation Trace and its Phase II.) Of
the 17 existing communities in the area, six were built between 1983 and 1988.
The remaining eleven communities - including Plantation Trace and River Oaks -
have been built since 1988. Due to the quality of construction, age of the
communities, type of amenities, resident profiles and rental rates, the Company
believes that only the other nine communities built since 1988 - Wesley
Plantation (both Highlands and Meadows), Tree Summit, Bridgewater, Bristol Park,
Aylesbury Farm, AMLI at Pleasant Hill, Summit on the River, and Jefferson on the
River - are in direct competition with Plantation Trace and River Oaks and will
be in direct competition with Bradford Creek.
In addition, two multifamily communities totaling approximately 650
units are either planned or currently under construction in the Duluth market
area. The Company believes that as these 650 new units are completed, they will
19
<PAGE> 23
compete directly with Plantation Trace, River Oaks, and Bradford Creek, which
could adversely affect the operating results for those Communities.
Rosewood Plantation and Ivey Brook. The Peachtree Corners multifamily
market area, which is a three mile radius from these two Communities, currently
consists of 23 multifamily communities (including Rosewood Plantation and Ivey
Brook) totaling approximately 6,600 apartment units. Of the 23 existing
communities in the market area, only four - Rosewood Plantation, Wynfield Trace,
Ivey Brook, and AMLI at River Park - have been built since 1988. The remaining
communities range from approximately eight to 23 years old. The Company believes
that Rosewood Plantation and Ivey Brook draw residents from all of the other 21
communities located in the market area but that only six of the 21 communities
compete closely with Rosewood Plantation and Ivey Brook.
Preston Oaks. The Company believes that the north central Perimeter
multifamily market area is a two mile radius around this Community. It is
generally bounded by Roswell Road to the west, Ashford Dunwoody Road to the
east, Spalding Drive to the north and Glenridge Drive to the south, and it
currently consists of 24 multifamily communities (excluding Preston Oaks)
totaling approximately 6,500 apartment units. Of the 24 existing communities in
the market area, only four were built prior to 1983, totaling 756 apartment
units. The remaining 20 communities range from approximately two to six years of
age. The Company believes that Preston Oaks competes with all 24 existing
communities. In addition to the approximately 6,500 existing apartment units, a
200-unit apartment community that will compete with Preston Oaks is now under
development.
Highland Park. The North Springs multifamily market area is an
approximately two mile radius around this Community. It is generally bounded by
the Chattahoochee River to the north and west, Georgia 400 to the east and
Dalrymple Road to the south, and currently consists of 34 communities (excluding
Highland Park) totaling 10,550 apartment units. Of the 34 existing communities
in the market area, only five have been built since 1989. The remaining
communities range in age from six years to over 20 years. The Company believes
that Highland Park will draw residents from all of the 34 communities located in
the market area, but that only 11 of the 34 communities will compete closely
with Highland Park.
Bentley Place. The Pleasantdale multifamily market area, which is a two
mile radius around Bentley Place, currently consists of 27 multifamily
communities (including Bentley Place) totaling 7,097 apartment units. Of the 27
existing communities in the market area, only four (Bentley Place, Arbor Mill,
Shadow Lake, and Gwinnett Station) have been built since 1989, totaling 799
apartment units. The remaining properties range from approximately five to 21
years old. The Company believes that Bentley Place draws residents from all of
the other 26 properties located in the market area. However, based upon a
comparison of factors such as quality of features, architecture, number and type
of amenities, construction quality and age of community, the Company believes
that only eight of the 26 communities compete closely with Bentley Place. Each
of these eight properties was constructed between 1986 and 1995.
Crestmark. The Thornton Road multifamily market area is an
approximately two mile radius around the Crestmark Community. It is generally
bounded by I-20 to the south, Blairs Bridge Road to the east, and Georgia
Highway 78 to the north and west, and it currently consists of six communities
(including Crestmark) totaling 2,032 apartment units. Of the six existing
communities in the market area, only three have been built since 1990. The
remaining communities range in age from seven years to 10 years. The Company
believes that Crestmark will draw residents from all of the five other
communities located in the market area, but due to their amenities, quality of
construction and resident profile, only three of the five other communities will
compete closely with Crestmark.
Other Real Estate Assets
In addition to the Communities, the Operating Partnership owns two
retail centers totaling 15,698 square feet. The Shoppes of Plantation is a 7,350
square foot retail center located on Pleasant Hill Road in front of Plantation
Trace on a .85 acre parcel. The Shoppes of River Oaks is a 8,348 square foot,
one story office/retail building located on a .86
20
<PAGE> 24
acre parcel on Pleasant Hill Road in front of River Oaks. The retail centers
together compose less than 2% of the Company's assets and generated less than 2%
of its gross revenues for 1997.
Environmental and Other Regulatory Matters
Under various federal, state and local laws and regulations, an owner
of real estate is liable for the costs of removal or remediation of certain
hazardous or toxic substances on such property. Such laws often impose such
liability without regard to whether the owner knew of, or was responsible for,
the presence of such hazardous or toxic substances. The costs of remediation or
removal of such substances may be substantial, and the presence of such
substances, or the failure to promptly remediate such substances, may adversely
affect the owner's ability to sell such real estate or to borrow using such real
estate as collateral. In connection with its ownership and operation of the
Communities and its other real estate assets, the Operating Partnership may be
potentially liable for (a) such remediation and removal costs, and (b) damages
to persons or property arising from the existence or maintenance of such
hazardous or toxic substances.
All of the Communities and the other real estate assets have been
subject to Phase I or similar environmental assessments that are intended to
discover information regarding, and to make a preliminary evaluation of the
environmental condition of, the surveyed properties and surrounding properties.
The Phase I assessment of Bentley Place revealed an adjacent site that was
listed on the regulatory lists of the Georgia Environmental Protection Division
("EPD"). The Phase I assessment recommended, and the Company performed,
additional environmental investigation which determined that a petroleum product
release was discovered in 1990 on property adjacent to Bentley Place. Fina Oil &
Chemical Company ("Fina"), the adjacent property owner, repaired the source of
the release in 1990. Since that time, Fina has submitted a proposed corrective
action plan to the EPD. The corrective action plan, together with other
submittals by Fina to the EPD, indicate that Fina has begun to remove the
released product. The semi-annual monitoring reports on file at the EPD reveal
the possibility that petroleum constituents have migrated via groundwater onto
Bentley Place. The Company has been advised by its attorneys and environmental
consultants that Fina is responsible for cleaning up the release to the extent
required by the EPD regulations. Also, the Company's environmental consultants
have informed the Company that despite a possible groundwater impact at Bentley
Place, no threat to human health or safety is suggested. The Company and its
environmental consultants are monitoring the EPD files to ensure compliance by
Fina with the EPD regulations.
The Phase I assessments of the other Communities and other real estate
assets have not revealed any environmental liability that the Company believes
would have material adverse effect on the Operating Partnership's business,
assets or results of operations, nor is the Company aware of any such liability.
Nevertheless, it is possible that these assessments did not reveal all
environmental liabilities or that there are material environmental liabilities
of which the Company is unaware. No assurance can be given that environmental
assessments will reveal all potential environmental liabilities, or that future
uses or conditions (including, without limitation, changes in applicable
environmental laws and regulations) will not result in imposition of
environmental liability.
Costs of Compliance with Americans with Disabilities Act and Similar Laws
Under the American with Disabilities Act of 1990 (the "ADA"), all
places of public accommodation are required to meet certain federal requirements
related to access and use by disabled persons. These requirements became
effective in 1992. Although management of the Company believes that the
Communities are substantially in compliance with present requirements of the
ADA, final regulations under the ADA have not yet been promulgated and the
Company may incur additional costs of complying with the ADA. A number of
additional federal, state and local laws exist which also may require
modifications to the Communities, or restrict certain further renovations to
them, with respect to access by disabled persons. For example, the Fair Housing
Amendments Act of 1988 (the "FHAA") requires apartment communities first
occupied after March 13, 1990 to be accessible to the handicapped. Noncompliance
with the FHAA could result in the imposition of fines or an award of damages to
private litigants. The Company believes that the Communities that are subject to
the FHAA are in compliance with such law.
21
<PAGE> 25
Additional legislation may impose further burdens or restrictions on
owners with respect to access by disabled persons. The ultimate amount of the
cost of compliance with the ADA or such legislation is not currently
ascertainable, and, while such costs are not expected to have a material adverse
effect on the Company, such costs could be substantial. Limitations or
restrictions on the completion of certain renovations may limit application of
the Company's investment strategy in certain instances or reduce overall returns
on the Company's investments.
Insurance
The Company carries comprehensive liability, fire, extended coverage
and rental loss insurance with respect to all of its existing Communities, with
policy specifications, insured limits and deductibles customarily carried for
similar properties. The Company carries similar insurance with respect to its
other properties, but with such exceptions as are appropriate given the
undeveloped nature of certain of these properties. In the opinion of management,
the Communities and the Company's other properties are adequately covered by
insurance. There are, however, certain types of losses (such as losses arising
from acts of war) that are not generally insured because they are either
uninsurable or not economically insurable. Should an uninsured loss or a loss in
excess of insured limits occur, the Company could lose its capital invested in a
property, as well as the anticipated future revenues from such property, and
would continue to be obligated on any mortgage indebtedness or other obligations
related to the property. Any such loss would adversely affect the Company.
Policies With Respect to Certain Activities
The following is a discussion of investment policies, financing
policies, conflict of interest policies and policies with respect to certain
other activities of the Company and the Operating Partnership. The policies with
respect to these activities have been determined by the Company's Board of
Directors and may be amended or revised from time to time at the discretion of
the Board without a vote of the shareholders of the Company or any vote of the
partners of the Operating Partnership, except that (i) the Company cannot change
its policy of holding its assets and conducting its business exclusively through
the Operating Partnership without amending the Operating Partnership Agreement
(which will generally require the consent of the holders of a majority in
interest of the limited partners in the Operating Partnership including, if
applicable, the Company), and (ii) changes in certain policies with respect to
conflicts of interest must be approved by a majority of the independent
directors and otherwise be consistent with legal requirements.
Investment Policies
Investments in Real Estate or Interests in Real Estate. The Company
conducts all of its investment activities through the Operating Partnership and
will do so for so long as the Operating Partnership exists. (The Agreement of
Limited Partnership of the Operating Partnership provides that it is not
required to be dissolved until 2093.) The Company's investment objectives are to
achieve stable cash flow available for distributions and, over time, to increase
cash flow and portfolio value by (i) continuing to develop multifamily apartment
communities for long-term ownership; (ii) acquiring additional multifamily
apartment communities that will produce additional cash flow; and (iii) to a
significantly lesser degree, acquiring and/or developing retail centers and
other income-producing real estate. The Company's policy is to acquire or
develop assets where the Company believes that favorable investment
opportunities exist based on market conditions at the time of the investment.
The Company expects to pursue its investment objectives primarily
through the direct ownership of properties by the Operating Partnership,
although, as discussed below, the Company may also pursue indirect property
ownership opportunities. The Company intends to acquire or develop multifamily
apartment communities primarily in the Atlanta metropolitan area and the
Southeast. Future development or investment activities will not be limited by
the governing documents of the Company and the Operating Partnership to any
geographic area, product type or specified percentage of the Company's assets.
22
<PAGE> 26
Possible Acquisition of Communities Developed by Mr. Roberts or His
Affiliates. Mr. Roberts and Roberts Properties have been engaged in the
development of residential and commercial real estate since the early 1970s, and
Mr. Roberts expects that he and Roberts Properties will continue to engage in
real estate development. Provided that any transaction or agreement must comply
with the policies discussed under "Conflict of Interest Policies," the Company
and/or the Operating Partnership may engage in transactions of various types
with Mr. Roberts, Roberts Properties and/or other affiliates of Mr. Roberts in
connection with the development or acquisition of real estate. Such transactions
may include: hiring Mr. Roberts or Roberts Properties to develop real estate
under a fee arrangement; acquiring undeveloped property from Mr. Roberts or his
affiliates for future development; or acquiring from Mr. Roberts or his
affiliates partially or completely constructed properties, whether in their
lease-up phase or already leased-up. The particular terms of any arrangement
have not been determined, other than the Communities now under construction and
development as described above. See "Part I, Item 1, Description of Business -
Growth Strategies - Development Strategy" and "Part I, Item 2, Description of
Property."
Securities of or Interest in Persons Primarily Engaged in Real Estate
Activities and Other Issuers. Subject to the percentage of ownership limitations
and gross income tests necessary for REIT qualification under the Internal
Revenue Code, the Company and the Operating Partnership also may invest in
securities of other entities engaged in real estate activities or invest in
securities of other issuers, including investments by the Company and the
Operating Partnership for the purpose of exercising control over such entities.
No such investments will be made, however, unless the Board of Directors
determines that the proposed investment would not cause the Company or the
Operating Partnership to be an "investment company" within the meaning of the
Investment Company Act of 1940, as amended. The Company or the Operating
Partnership may acquire all or substantially all of the securities or assets of
other REITs or similar entities where such investments would be consistent with
the Company's investment policies. The Company does not currently intend to
invest in the securities of other issuers except in connection with acquisitions
of indirect interests in properties, such as the acquisition of limited
partnership interests in a single asset limited partnership.
No Investments in Mortgages. The Company does not own any mortgages and
does not currently intend to invest in mortgages or to engage in originating,
servicing, or warehousing mortgages.
Financing Policies
The organizational documents of the Company and the Operating
Partnership impose no limits on the amount of indebtedness they may incur. The
Company has an informal policy that the Company and the Operating Partnership
will not incur indebtedness in excess of 75% of what the Board of Directors
believes is the fair market value of the Operating Partnership's assets at any
given time. The Company may, however, from time to time re-evaluate its
borrowing policies in light of then current economic conditions, relative costs
of debt and equity capital, market value of the Operating Partnership's real
estate assets, growth and acquisition opportunities and other factors.
Modification of such policy may adversely affect the interests of the
shareholders of the Company.
To the extent that the Board of Directors determines to seek additional
capital, the Company may raise such capital through additional equity offerings,
debt financing or retention of cash flow (subject to provisions in the Internal
Revenue Code requiring the distribution by a REIT of a certain percentage of
taxable income and taking into account taxes that would be imposed on
undistributed taxable income), or a combination of these methods. As long as the
Operating Partnership is in existence, the net proceeds of all equity capital
raised by the Company will be contributed to the Operating Partnership in
exchange for Units or other interests in the Operating Partnership.
The Company has not established any limit on the number or amount of
mortgages that may be placed on any single property or on the Operating
Partnership's portfolio as a whole.
Conflict of Interest Policies
The Board of Directors is subject to certain provisions of Georgia law
that are designed to eliminate or minimize certain potential conflicts of
interest. The Company cannot assure, however, that these policies will always be
successful
23
<PAGE> 27
in eliminating the influence of such conflicts. If these policies are not
successful, the Board could make decisions that might fail to reflect fully the
interests of all shareholders.
Pursuant to Georgia law, each director will be subject to restrictions
on misappropriation of corporate opportunities to himself or his affiliates
learned of solely as a result of his service as a member of the Board of
Directors. In addition, under Georgia law, a transaction effected by the Company
or any entity controlled by the Company (including the Operating Partnership) in
which a director or certain related persons and entities of the director has a
conflicting interest of such financial significance that it would reasonably be
expected to exert an influence on the director's judgment may not be enjoined,
set aside or give rise to damages on the grounds of such interest if (a) the
transaction is approved, after disclosure of the interest, by the affirmative
vote of a majority of the disinterested directors, or by the affirmative vote of
a majority of the votes cast by disinterested shareholders, or (b) the
transaction is established to have been fair to the Company. The Board of
Directors has adopted a policy that all such 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.
Certain Policies With Respect to Other Activities
The Company and the Operating Partnership have authority to offer their
securities and to repurchase and otherwise reacquire their securities, and they
may engage in such activities in the future. The Company has adopted a policy
that it will issue Shares to holders of Units in the Operating Partnership upon
the exercise of the Unitholders' rights of redemption (except in instances in
which it is required to acquire Units for cash to comply with federal and state
securities laws). In the future, the Company and the Operating Partnership may
make loans to joint ventures in which they participate in order to meet working
capital needs. The Company and the Operating Partnership have not engaged in
trading, underwriting, agency distribution or sale of securities of other
issuers and do not intend to do so. The Company and the Operating Partnership
intend to make investments in a manner such that they will not be treated as an
investment company under the Investment Company Act of 1940, as amended.
At all times, the Company intends to make investments in a manner so as
to be consistent with the requirements of the Internal Revenue Code for the
Company to qualify as a REIT unless, because of changing circumstances or
changes in the Internal Revenue Code (or in Treasury Regulations), the Board of
Directors decides that it is no longer in the best interests of the Company to
qualify as a REIT.
ITEM 3. LEGAL PROCEEDINGS.
Neither the Company, the Operating Partnership, nor the Communities are
presently subject to any material litigation nor, to the Company's 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 the Company and the Operating Partnership.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matter was submitted to a vote of security holders during the fourth
quarter of 1997.
24
<PAGE> 28
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
Market Information and Holders of Record
The Common Stock began trading on the American Stock Exchange on
December 9, 1997 under the symbol "RPI." From such date through December 31,
1997, the high and low sales prices of the Common Stock were $9.50 and $8.125,
respectively. On March 20, 1998 there were 757 holders of record of the Common
Stock.
As of March 20, 1998, the Company has 4,533,565 Shares outstanding. In
addition, 3,016,363 Shares are reserved for issuance to Unitholders from time to
time upon their exercise of certain redemption rights as explained in "Part I,
Item 1, Description of Business - The Operating Partnership."
Distributions
The Company depends upon distributions from the Operating Partnership
to fund its distributions to shareholders. Distributions by the Operating
Partnership, and thus distributions by the Company, will continue to be at the
discretion of the Board of Directors and will be equal in amount for each Unit
or Share. Until 1996 the Company had paid no distributions on the Common Stock
since its inception in 1994. The Company and the Operating Partnership declared
quarterly distributions for 1996 that totaled $0.48125 per Share/Unit per annum
and for 1997 that totaled $0.576 per Share/Unit per annum (including a special
distribution of $0.051 per Share/Unit in October 1997 as a result of the sale of
Autumn Ridge). Approximately 32.7% of such 1997 distributions represents
ordinary income, 37.0% represents capital gain and the remaining 30.3%
represents a return of capital.
The Company elected to become a REIT beginning with the partial year
ended December 31, 1994. To maintain its qualification as a REIT under the
Internal Revenue Code, the Company must make annual distributions to
shareholders of at least 95% of its taxable income (which does not include net
capital gains). Under certain circumstances, the Company may be required to make
distributions in excess of cash available for distribution in order to meet such
distribution requirements.
Sales of Unregistered Securities in 1997
Unitholders have the right to require the Operating Partnership to
redeem their Units subject to certain limits in the Company's articles of
incorporation. A Unitholder who submits Units for redemption will receive, at
the election of the Company, either an equal number of Units or cash in the
amount of the average of the daily market prices of the Common Stock for the 10
consecutive trading days prior to the date of submission multiplied by the
number of Units submitted. The Company has adopted a policy of acquiring Units
in exchange for Shares rather than cash except as required to comply with
federal and state securities laws. In 1997 the Company issued a total of 234,179
Shares in exchange for Units submitted for redemption by a total of 24
Unitholders. In each sale the Company relied upon the "intrastate" exemption
from securities registration provided under Section 3(a)(11) of the Securities
Act of 1933 and Rule 147 promulgated by the Securities and Exchange Commission
regarding intrastate offerings. The Company believes that it has satisfied the
conditions of Rule 147 for each sale. Because Unitholders who no longer reside
in the State of Georgia will receive cash in lieu of Shares, no security was or
will be offered or sold to such persons. The certificates evidencing the Shares
issued in exchange for Units have a Rule 147 "legend" describing the applicable
restrictions on transfer printed on them, and the Company has issued stop
transfer instructions to its transfer agent with respect to such Shares.
Further, the offerees were notified that the applicable restrictions on transfer
and procedures will apply in connection with the issuance of new certificates
for any of the Shares that are presented for transfer during the nine month
period from the end of the offering during which transfer of the Shares is
restricted to residents of the State of Georgia (provided that such Shares may
be resold in ordinary transactions on the American Stock Exchange pursuant to
the S-3 Registration Statement).
25
<PAGE> 29
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
This Item 6 contains "forward-looking statements" within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. 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 the Company's management, as well as assumptions made by, and
information currently available to, the Company's management. If one or more of
these risks or uncertainties materialize or underlying assumptions prove
incorrect, actual outcomes may vary materially from those indicated. See
"Disclosure Regarding Forward-Looking Statements" at the end of this Item for a
description of some of the important factors that may affect actual outcomes.
Overview
The following discussion should be read in conjunction with the
Consolidated Financial Statements of the Company and the Notes thereto appearing
elsewhere herein.
The Company owns multifamily residential properties as a
self-administered and self-managed equity real estate investment trust. In
addition to its development and construction activities, the Company's 1997
accomplishments were highlighted by the following: (1) the acquisition of
Roberts Properties Management, L.L.C. ("Roberts Management") on April 1, 1997
which means the Company now manages its own properties, (2) the sale of the
207-unit Autumn Ridge Community on August 26, 1997 for $10,601,000 resulting in
a gain of $1,792,000, and (3) the listing of the Company's stock on the American
Stock Exchange ("AMEX") on December 9, 1997.
Results of Operations
Comparison of Year Ended December 31, 1997 to Year Ended December 31,
1996. For the year ended December 31, 1997, the Company recorded a net loss of
$2,609,000 or $0.62 per share (after minority interest and extraordinary item)
compared to a net loss of $180,000 or $0.05 per share (after minority interest
and extraordinary item) for the year ended December 31, 1996. The change in
operating results is due primarily to (1) the acquisition of Roberts Management
on April 1, 1997, (2) the decrease in average stabilized occupancy from 97.2% to
95.4%, and (3) higher interest expense due to the financing of Bentley Place,
Ivey Brook and the second phase of Crestmark in August 1996, January 1997 and
July 1997, respectively, and the assumption of mortgage debt included with the
acquisition of Crestmark in June 1996, which were counterbalanced in part by (1)
the gain from the sale of Autumn Ridge, (2) the acquisition of Bentley Place and
Crestmark in March 1996 and June 1996, respectively, and (3) the completion of
leasing at Ivey Brook and the second phase of Crestmark in July 1997 and August
1997, respectively. The Company's operating performance for all Communities is
summarized in the following table:
<TABLE>
<CAPTION>
Percentage Year Ended December 31,
Change from -----------------------
1996 to 1997 1997 1996
------------ ---- ----
<S> <C> <C> <C>
Total operating revenues 15.2% $17,508,000 $15,197,000
Property operating expenses (1) 18.4% $ 6,028,000 $ 5,091,000
Management fees paid to related party (2) (72.2%) $ 211,000 $ 760,000
General and administrative expenses 85.1% $ 1,714,000 $ 926,000
Depreciation of real estate assets 14.8% $ 5,708,000 $ 4,974,000
Average stabilized occupancy (3) (1.8%) 95.4% 97.2%
Operating expense ratio (4) 0.9% 34.4% 33.5%
</TABLE>
- -------------------------
(Footnotes begin on following page)
26
<PAGE> 30
(1) Property operating expenses include personnel, utilities, real estate
taxes, insurance, maintenance, landscaping, marketing, and property
administration expenses (real estate taxes exclude an adjustment of
$588,000 in 1997 to reduce estimated property tax accruals for two
properties that received favorable tax assessments).
(2) Because the Company acquired Roberts Management on April 1, 1997, no
management fees were paid to a related party subsequent to April 1,
1997.
(3) Represents the average physical occupancy of the Company's stabilized
properties calculated by dividing the total number of vacant days by
the total possible number of vacant days for each year and subtracting
the resulting number from 100%. The calculation includes the following:
(1) Highland Park beginning March 1, 1996, Ivey Brook beginning August
1, 1997 and the second phase of Crestmark beginning September 1, 1997,
which are the dates each Community achieved stabilized occupancy; (2)
Bentley Place beginning March 1, 1996 and Crestmark beginning June 1,
1996, which are the dates each Community was acquired by the Company;
and (3) Autumn Ridge only through August 26, 1997, which is the date
the property was sold. (4) Represents the total of property operating
expenses divided by property operating revenues expressed as a
percentage.
Operating results for the five Communities that were fully stabilized
during both 1997 and 1996 (the Plantation Trace, Preston Oaks, River Oaks,
Rosewood Plantation and Windsong Communities) are summarized as follows:
<TABLE>
<CAPTION>
Percentage Year Ended December 31,
Change from ------------------------
1996 to 1997 1997 1996
------------ ---- ----
<S> <C> <C> <C>
Rental income (0.3%) $9,084,000 $9,114,000
Total operating revenues (0.5%) $9,364,000 $9,412,000
Property operating expenses (1) 1.2% $3,019,000 $2,983,000
Management fees paid to related party (75.2%) $ 117,000 $ 471,000
Net operating income (2) (1.3%) $6,345,000 $6,429,000
Average stabilized occupancy (3) (2.7%) 96.2% 98.9%
Operating expense ratio (4) 0.5% 32.2% 31.7%
Average monthly rent per apartment home 4.2% $ 828 $ 795
</TABLE>
- --------------------------
(1) Property operating expenses include personnel, utilities, real estate
taxes, insurance, maintenance, landscaping, marketing, and property
administration expenses (real estate taxes exclude an adjustment of
$306,000 in 1997 to reduce estimated property tax accruals for a
property that received favorable tax assessments for the 1996 and 1997
tax years).
(2) Net operating income is equal to total operating revenues minus
property operating expenses.
(3) Represents the average physical occupancy of the stabilized Communities
calculated by dividing the total number of vacant days by the total
possible number of vacant days for each period and subtracting the
resulting number from 100%.
(4) Represents the total of property operating expenses divided by property
operating revenues expressed as a percentage.
27
<PAGE> 31
The following discussion compares the Company's statements of
operations for the years ended December 31, 1997 and 1996.
Rental income increased $2,180,000 or 14.9% from $14,651,000 for the
year ended December 31, 1996 to $16,831,000 for the year ended December 31,
1997. The increase in rental income is due primarily to the acquisition of
Bentley Place and Crestmark in March 1996 and June 1996, respectively, and the
lease-up of Ivey Brook and the second phase of Crestmark in July 1997 and August
1997, respectively. Rental income from the five Communities that were fully
stabilized during both 1997 and 1996 decreased $30,000 due to a 2.7% decline in
occupancy. The effect of the lower occupancy was partially offset by a 4.2%
increase in the average monthly rent per apartment home from $795 during 1996 to
$828 during 1997.
Property operating expenses (excluding depreciation, general and
administrative expenses and management fees) increased $937,000 or 18.4% from
$5,091,000 for the year ended December 31, 1996 to $6,028,000 for the year ended
December 31, 1997. The increase is due primarily to the following: (1) the
acquisition of Bentley Place and Crestmark in March 1996 and June 1996,
respectively, and (2) the commencement of property operations at Ivey Brook and
the second phase of Crestmark beginning in the fourth quarter of 1996 and the
first quarter of 1997, respectively. Property operating expenses as a percentage
of operating revenues increased from 33.5% for the year ended December 31, 1996
to 34.4% for the year ended December 31, 1997.
General and administrative expenses increased $788,000 or 85.1% from
$926,000 for the year ended December 31, 1996 to $1,714,000 for the year ended
December 31, 1997 and include legal, accounting and tax fees, marketing and
printing fees, salaries, director fees and other costs. The increase is due
primarily to the following: (1) the overhead cost of managing the Company's
properties internally as a result of acquiring Roberts Management on April 1,
1997, (2) legal, accounting and listing fees associated with the listing of the
Company's stock on the AMEX, (3) the directors and officers liability insurance
policy obtained by the Company in September 1996, and (4) the reclassification
of certain expenses (including payroll processing fees, uniforms, professional
service fees, and legal and recruiting fees) from the property level to general
and administrative. General and administrative expenses as a percentage of
operating revenues increased from 6.1% for the year ended December 31, 1996 to
9.8% for the year ended December 31, 1997. The Company expects that as it
continues to grow, such expenses will decline as a percentage of operating
revenues, even though general and administrative expenses will increase in
absolute terms.
Depreciation expense increased $734,000 or 14.8% from $4,974,000 for
the year ended December 31, 1996 to $5,708,000 for the year ended December 31,
1997. The increase is due primarily to the following: (1) the acquisition of
Bentley Place and Crestmark in March 1996 and June 1996, respectively, and (2)
the completion of construction of Ivey Brook and the second phase of Crestmark
(because depreciation expense is recorded as apartment homes are completed and
available for occupancy).
On April 1, 1997, the Company acquired Roberts Management, the property
management company that managed the Company's multifamily apartment Communities
since the Company's inception. The Operating Partnership issued a total of
590,000 Units valued at $10.00 per Unit or $5,900,000 to purchase Roberts
Management. The Company manages its own properties using Roberts Management's
property management systems and the property management personnel formerly
employed by Roberts Management. Although the Company no longer pays 5% of gross
property revenues to Roberts Management for property management services, it
does bear the actual overhead cost of managing the properties internally.
Because Roberts Management, a related party, managed only the properties owned
by the Company, the transaction has been accounted for as the settlement of a
contract and shown as an expense for the year ended December 31, 1997.
Interest expense increased $946,000 or 25.4% from $3,724,000 for the
year ended December 31, 1996 to $4,670,000 for the year ended December 31, 1997.
The increase is due primarily to the following: (1) the financing of
28
<PAGE> 32
Bentley Place, Ivey Brook and the second phase of Crestmark in August 1996,
January 1997 and July 1997, respectively, and (2) the mortgage debt assumed by
the Company with the acquisition of Crestmark in June 1996.
On August 26, 1997, the Company completed the sale of the 207-unit
Autumn Ridge Community for $10,601,000 in cash. The sale resulted in a gain of
$1,792,000. Net sale proceeds were $5,045,000 after deduction for loan payment,
closing costs and prorations. The purchaser, Benchmark Autumn Ridge Associates,
L.P., is not affiliated with the Company and the transaction was negotiated at
arms-length. The Company paid Roberts Properties a consulting fee of $150,000 at
closing.
The mortgage note payable secured by Autumn Ridge was paid in full at
the closing of the sale of Autumn Ridge in August 1997, prior to its contractual
maturity. Unamortized loan costs of $73,000 and a yield maintenance fee of
$252,000 payable at the closing of the sale were charged to expense as an
extraordinary item. The extraordinary item (early extinguishment of a debt) for
the year ended December 31, 1997 was $325,000 (including the minority interests'
share of $141,000). The mortgage note payable secured by the Highland Park
Community was refinanced in January 1996, prior to its contractual maturity. The
unamortized loan costs related to the mortgage note payable at the time of the
refinancing were charged to expense as an extraordinary item. The extraordinary
item (early extinguishment of a debt) for the year ended December 31, 1996 was
$163,000 (including the minority interests' share of $64,000).
Liquidity and Capital Resources
Comparison of Year Ended December 31, 1997 to Year Ended December 31,
1996. Cash and cash equivalents increased $3,955,000 during 1997 compared to an
increase of $1,758,000 during 1996. The increase is due to the excess of cash
flow provided by operating and financing activities over cash used in investing
activities.
A primary source of liquidity to the Company is cash flow from
operations. Operating cash flows have historically been determined by the number
of apartment homes, rental rates and operating expenses with respect to such
apartment homes. Net cash provided by operating activities decreased $98,000
from $5,567,000 during 1996 to $5,469,000 during 1997. The additional cash flow
from the operations of Bentley Place and Crestmark, which were acquired in March
1996 and June 1996, respectively, and from the recently completed Ivey Brook and
Crestmark phase II Communities, was offset by lower occupancy rates and rent
concessions from the Company's stabilized Communities. The highly competitive
Atlanta apartment market experienced weaker market conditions during 1997
compared to 1996 due to overbuilding. The Company expects the current softness
in the Atlanta apartment market to continue through 1998. The Company's average
stabilized occupancy during 1997 decreased 1.8% from 97.2% during 1996 to 95.4%
during 1997. The effects of revenue and expense accruals are not material in
understanding the Company's cash flow from operations. Generally, depreciation
and amortization expenses are the most significant adjustments to net income
(loss) in arriving at cash provided by operating activities.
Net cash used in investing activities decreased $14,772,000 from
$16,309,000 during 1996 to $1,537,000 during 1997. This decrease is due
primarily to the $10,330,000 in gross sales proceeds from the sale of Autumn
Ridge in August 1997. The Company invested $11,867,000 in the construction of
new Communities and the purchase of furniture and equipment during 1997 compared
to $16,473,000 during 1996. The Company made no acquisitions for cash of
existing apartment communities during these periods.
Net cash provided by financing activities decreased $12,477,000 from
$12,500,000 during 1996 to $23,000 during 1997. This decrease is due primarily
to: (1) the payoff of the mortgage note secured by Autumn Ridge in August 1997,
(2) net proceeds of approximately $6,000,000 from the sale of 443,675 Shares in
March 1996 and an additional 255,500 Shares in May 1996, (3) the payment of four
quarterly distributions plus a special distribution on Shares and Units in 1997
compared to the payment of three quarterly distributions in 1996, offset by: (4)
the payment of $1,403,000 to an affiliate of a note payable assumed in the
acquisition of Crestmark in June 1996, and (5) an increase in net borrowings
during 1997 associated with the financing of Ivey Brook for $6,420,000 in
January 1997 and the second phase of Crestmark for $4,000,000 in July 1997
compared to the financing of Autumn Ridge for $5,000,000 in March
29
<PAGE> 33
1996 and the financing of Bentley Place for $4,100,000 in August 1996.
The Operating Partnership acquired (1) the fully operating Bentley
Place Community in March 1996 by issuing Shares, and (2) the fully operating
Crestmark Community and its 8.8 acres of adjacent undeveloped land in June 1996
by issuing Units. Similarly, the Company issued Shares in March 1996 in an
offering of Shares for cash to acquire the land for and fund the development and
construction of the 180-unit Bradford Creek Community which began in April 1997.
The total estimated acquisition, development and construction cost for Bradford
Creek is $13,800,000, including the land acquisition cost of $1,628,000. The
Company is paying the costs of constructing Bradford Creek out of its working
capital.
In addition to Bradford Creek, the Operating Partnership is
constructing a 50-unit second phase to Plantation Trace and a 24-unit second
phase to Preston Oaks. Construction of the second phase of both Plantation Trace
($4,770,000) and Preston Oaks ($1,300,000) will be funded from the Company's
working capital and the proceeds from an $8,400,000 mortgage loan on Bradford
Creek that is expected to close in May 1998.
The Company anticipates that each Community's rental and other
operating revenues will be adequate to provide short-term (less than 12 months)
liquidity for the payment of direct rental operating expenses, interest and
amortization of principal on related mortgage notes payable and capital
expenditures. The Company expects to meet its other short-term liquidity
requirements generally through its net cash provided by operations, which it
believes will be adequate to meet its operating requirements in both the
short-term and in the long-term (greater than 12 months). Improvements and
renovations at existing Communities are also expected to be funded from property
operations. The Company expects to meet its long-term liquidity requirements
including future developments, debt maturities and possible acquisitions through
the issuance of additional equity securities of the Company and the proceeds
from future mortgage financings and property sales.
In January 1996, the Company received a commitment from Nationwide Life
Insurance Company for a permanent loan to refinance the debt on the River Oaks
Community, which was scheduled to mature with a principal balance of $8,827,000
in November 1996. The refinancing was completed on October 17, 1996. The
principal amount of the note is $9,250,000 at a fixed interest rate of 7.15% per
annum for a seven-year term. Based on a 30-year amortization schedule, the
monthly payment of principal and interest on the loan is $62,475.
In February 1996, the Company received a commitment from Nationwide
Life Insurance Company for a permanent loan secured by the Ivey Brook Community.
The financing was completed on January 30, 1997. The principal amount of the
note is $6,420,000 at a fixed interest rate of 7.14% per annum for a ten-year
term. Based on a 30-year amortization schedule, the monthly payment of principal
and interest on the loan is $43,318.
In April 1996, the Company received a commitment from Nationwide Life
Insurance Company for a permanent loan secured by the Bentley Place Community.
The financing was completed on August 14, 1996. The principal amount of the note
is $4,100,000 at a fixed interest rate of 7.10% per annum for a ten-year term.
Based on a 30-year amortization schedule, the monthly payment of principal and
interest on the loan is $27,553.
On May 7, 1996 the Company closed an "intrastate" offering (the "Cash
Offering") in which it sold 699,175 Shares in the aggregate for $9.50 per Share.
Upon the initial closing of the offering on March 29, 1996 at which 443,675
Shares were issued, the Operating Partnership paid Roberts Properties, Inc.
$1,628,000 to purchase approximately 22.5 acres of land for the development and
construction of the 180-unit Bradford Creek Community on such property. Upon the
final closing of the Cash Offering on May 7, 1996, the Company issued 255,500
Shares and received additional net proceeds of $2,257,000 which were used to
fund current renovation and rehabilitation projects at Autumn Ridge and
Windsong.
30
<PAGE> 34
In March 1997, the Company received a commitment from Canada Life
Assurance Company for a permanent loan secured by the second phase of Crestmark.
The financing was completed on July 17, 1997. The principal amount of the note
is $4,000,000 at a fixed interest rate of 7.65% per annum and a maturity date of
May 1, 2001. Based on a 30-year amortization schedule, the monthly payment of
principal and interest on the loan is $28,381.
In March 1997, the Company and certain non-owned affiliates of the
Company established a $35,000,000 Advised Guidance Line (the "Guidance Line")
with NationsBank N.A. (South) (the "Bank") for the purpose of providing
financing for the acquisition or development of multifamily communities.
Financing under the Guidance Line is available on a revolving basis and bears
interest at LIBOR plus 1.80% or Prime plus 0%, at the option of the Company,
payable monthly. The Guidance Line is not a commitment to lend, and each loan
under the Guidance Line will be made at the Bank's discretion in accordance with
normal loan approval procedures.
The Company's existing mortgage indebtedness will require balloon
payments (in addition to monthly principal amortization) coming due over the
years 2000 to 2007 as summarized below (excludes the Windsong Community because
the property was sold on January 9, 1998 and the mortgage debt was repaid):
<TABLE>
<S> <C>
2000 $ 7,482,000
2001 19,116,000
2002 8,025,000
2003 16,057,000
2006 3,554,000
2007 5,570,000
-----------
Total $59,804,000
===========
</TABLE>
Because the Company anticipates that only a small portion of the
principal of such indebtedness will be repaid prior to maturity and that the
Company may not have funds on hand sufficient to repay such indebtedness, it
will be necessary for the Company to refinance such debt through (a) debt
financing collateralized by mortgages on individual Communities or groups of
Communities or uncollateralized private or public debt offerings, and/or (b)
additional equity offerings.
Management believes that these sources of debt financing, equity
capital, operating cash flow and working capital of the Company will provide the
liquidity and adequate capital resources to begin and complete its planned
development and construction activities. The Company expects liquidity and
capital resources for additional acquisition and development activities to be
provided by a combination of secured long-term borrowing and issuance of equity
securities.
Supplemental Disclosure of Funds From Operations
Funds from Operations ("FFO") is defined by the National Association of
Real Estate Investment Trusts ("NAREIT") as net income (loss), computed in
accordance with generally accepted accounting principles ("GAAP"), excluding
gains (or losses) from debt restructuring and sales of property and
non-recurring items, plus real estate related depreciation and amortization. The
Company computes FFO in accordance with the current NAREIT definition, which may
differ from the methodology for calculating FFO utilized by other equity REITs,
and accordingly, may not be comparable to such other REITs. FFO does not
represent amounts available for management's discretionary use because of needed
capital replacement or expansion, debt service obligations, property
acquisitions, development and distributions, or other commitments and
uncertainties. FFO should not be considered as an alternative to net income
(determined in accordance with GAAP) as an indication of the Company's financial
performance or cash flows from operating activities (determined in accordance
with GAAP) as a measure of the Company's liquidity, nor is it indicative of
funds available to fund the Company's cash needs, including its ability to make
distributions. The Company considers FFO to be an important measure of its
operating performance. While FFO does not represent cash flows from operating,
31
<PAGE> 35
investing or financing activities as defined by GAAP, FFO does provide investors
with additional information with which to evaluate the ability of a REIT to pay
dividends, meet required debt service payments and fund capital expenditures.
The Company believes that in order to gain a clear understanding of its
operating results, FFO should be evaluated in conjunction with net income
(determined in accordance with GAAP). The following table reconciles net loss to
FFO.
<TABLE>
<CAPTION>
Twelve Months Ended December 31,
--------------------------------
1997 1996
---- ----
<S> <C> <C>
Net loss $ (2,609) $ (180)
Minority interest of Unitholders in the Operating Partnership (1,866) (52)
Extraordinary item 184 99
Amortization (real estate related) 65 67
Acquisition of Roberts Properties Management, L.L.C. 5,900 0
Loss on disposal of assets 156 0
Gain on sale of real estate asset (1,792) 0
Depreciation expense 5,708 4,974
--------- ---------
Funds From Operations $ 5,746 $4,908
========= =========
Weighted average Shares and Units
outstanding during the period 7,404,323 6,244,513
</TABLE>
Impact of Recently Issued Accounting Standards
Effective for the quarter and year ended December 31, 1997, the Company
computes earnings per share under the provisions of Statement of Financial
Accounting Standards ("SFAS") No. 128, "Earnings per Share." As prescribed by
SFAS No. 128, all prior period earnings per share data has been restated to
conform with the provisions of SFAS No. 128. Under SFAS No. 128, basic earnings
per share is computed based upon the weighted average number of common shares
outstanding during the period. Diluted earnings per share is computed to reflect
the potential dilution of all instruments or securities which are convertible
into shares of common stock. Previously reported earnings per share under prior
accounting standards were equal to basic and diluted earnings per share under
SFAS No. 128.
Inflation
Substantially all apartment leases are for an initial term of not more than
12 months and thus may enable the Company to seek increases in rents after the
expiration of each lease. Additionally, the construction contracts for Bradford
Creek and the second phase of Preston Oaks are or will be at fixed prices and
equal substantially all of the anticipated construction costs. The short-term
nature of these leases and the fixed price construction contracts serve to
reduce the risk to the Company of the adverse effects of inflation.
Year 2000 Computer Issues
Year 2000 computer issues are not expected to have a material adverse
impact on the Company's financial position, results of operations or cash flows
in future periods. The Company's software systems are either currently year 2000
compliant or will be compliant well in advance of January 1, 2000.
32
<PAGE> 36
Disclosure Regarding Forward-Looking Statements
This report contains "forward-looking statements" within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. These statements appear in a number
of places in this report and include all statements that are not historical
facts. Some of the forward-looking statements relate to the intent, belief or
expectations of the Company and its management regarding the Company's
strategies and plans for operations and growth, including construction and
development of new multifamily apartment communities in its existing markets and
elsewhere in the Southeast. Other forward-looking statements relate to trends
affecting the Company's financial condition and results of operations, and the
Company's anticipated capital needs and expenditures.
Investors are cautioned that such forward-looking statements are not
guarantees of future performance and involve risks and uncertainties, and that
actual results may differ materially from those that are anticipated in the
forward-looking statements as a result of:
- conflicts of interest involving Mr. Charles S. Roberts and his
affiliates, including conflicts arising out of the purchase of
properties from Mr. Charles S. Roberts and his affiliates; the
development and construction of Communities by the Roberts Companies;
and consulting fees payable to the Roberts Companies upon the sale of
certain Communities;
- tax risks including the possible effects of changes in tax law and
regulation;
- risks related to the national and local economic climate;
- competition and overbuilding in the Company's markets;
- increasing operating cost that cannot be passed along to residents
through rental rate increases;
- construction risks due to factors that include unexpected weather
problems, shortages in materials and supplies, and labor strikes;
- acquisition risks, particularly if acquisitions are made in new
markets;
- the Company's dependence upon the Atlanta market;
- possible environmental liability;
- costs of compliance with the Americans with Disabilities Act and
similar laws; and
- financing risks, including risks of substantial indebtedness of not
being able to obtain debt or equity financing to fund the Company's
growth strategy.
In addition, the market price of the Common Stock may from time to time
be significantly volatile as a result of, among other things:
- the Company's operating results;
- the operating results of other REITs, particularly apartment REITs;
and
- changes in the performance of the stock market in general.
Investors should review the more detailed description of these and
other possible risks contained in the "Risk Factors" section of the prospectus
included in the S-3 Registration Statement.
33
<PAGE> 37
ITEM 7. FINANCIAL STATEMENTS.
The financial statements listed below are filed as part of this annual
report on Form 10-KSB on the pages indicated.
<TABLE>
<S> <C>
Report of Independent Public Accountants (Arthur Andersen LLP) F-1
Independent Auditor's Report (Deloitte & Touche L.L.P.) F-2
Consolidated Financial Statements as of and for
the Years Ended December 31, 1997 and 1996:
Balance Sheets F-3
Statements of Operations F-4
Statements of Shareholders' Equity F-5
Statements of Cash Flows F-6
Notes to Financial Statements F-7
</TABLE>
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Effective December 19, 1997, the Company dismissed Deloitte & Touche
L.L.P., the independent accounting firm which had previously been engaged as the
principal accountant to audit the Company's financial statements. Effective that
same day, the Company retained the services of Arthur Andersen LLP as the
principal accountant to audit the Company's financial statements. See the
Company's current report on Form 8-K dated December 19, 1997 for additional
information regarding this change.
PART III
As permitted by applicable rules of the Securities and Exchange
Commission, certain information required by Part III is omitted from this report
because the Company will file a definitive proxy statement for the Company's
1998 annual shareholders meeting pursuant to Regulation 14A (the "Proxy
Statement") not later than April 30, 1998.
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.
The information required by this item is incorporated by reference from
the Proxy Statement.
ITEM 10. EXECUTIVE COMPENSATION.
The information required by this item is incorporated by reference from
the Proxy Statement.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information required by this item is incorporated by reference from
the Proxy Statement.
34
<PAGE> 38
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required by this item is incorporated by reference from
the Proxy Statement.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
The Company has filed certain of the exhibits required by Item 601 of
Regulation S-B with previous registration statements or reports. As specifically
noted in the following Index to Exhibits, such previously filed exhibits are
incorporated into this annual report on Form 10-KSB by reference thereto. All
exhibits contained in the following Index to Exhibits that are designated with
an asterisk are incorporated into this annual report by reference from the
Company's initial Registration Statement on Form 10-SB filed with the Securities
and Exchange Commission on March 22, 1996; the applicable exhibit number in such
Registration Statement is provided beside the asterisk.
<TABLE>
<CAPTION>
Exhibit
No. Description
- -------- -----------
<S> <C>
3.1 Articles of Incorporation of Roberts Realty Investors, Inc.
filed with the Georgia Secretary of State on July 22, 1994.
[* 2.1]
3.2 Bylaws of Roberts Realty Investors, Inc. [* 2.2]
4.1 Agreement of Limited Partnership of Roberts Properties
Residential, L.P., dated as of July 22, 1994. [* 3.1]
4.1.1 First Amended and Restated Agreement of Limited Partnership of
Roberts Properties Residential, L.P., dated as of October 1,
1994. [* 3.1.1]
4.1.2 Amendment #1 to First Amended and Restated Agreement of
Limited Partnership of Roberts Properties Residential, L.P.,
dated as of October 13, 1994. [* 3.1.2]
4.2 Certificate of Limited Partnership of Roberts Properties
Residential, L.P. filed with the Georgia Secretary of State on
July 22, 1994. [* 3.2]
4.2.1 Certificate of Merger filed with the Georgia Secretary of
State on October 13, 1994, merging Roberts Properties River
Oaks, L.P.; Roberts Properties Rosewood Plantation, L.P.;
Roberts Properties Preston Oaks, L.P.; and Roberts Properties
Highland Park, L.P. with and into Roberts Properties
Residential, L.P. (1994 Consolidation). [* 3.2.1]
4.2.2 Certificate of Merger filed with the Georgia Secretary of
State on March 24, 1995, merging Roberts Properties Holcomb
Bridge, L.P. with and into Roberts Properties Residential,
L.P. (Holcomb Bridge Merger). [* 3.2.2]
4.2.3 Certificate of Merger filed with the Georgia Secretary of
State on May 16, 1995, merging Roberts Properties Plantation
Trace, L.P. with and into Roberts Properties Residential, L.P.
(Plantation Trace Merger). [* 3.2.3]
4.2.4 Certificate of Merger filed with the Georgia Secretary of
State on September 27, 1995, merging Roberts Properties-St.
Simons, L.P. with and into Roberts Properties Residential,
L.P. (Windsong Merger). [* 3.2.4]
</TABLE>
35
<PAGE> 39
<TABLE>
<S> <C>
4.2.5 Certificate of Merger filed with the Georgia Secretary of
State on March 21, 1996, merging Roberts Properties Bentley
Place, L.P. with and into Roberts Properties Residential, L.P.
(Bentley Place Merger). [Incorporated by reference to Exhibit
4.2.5 from the Company's quarterly report on Form 10-QSB for
the quarter ended June 30, 1996.]
4.2.6 Certificate of Merger filed with the Georgia Secretary of
State on June 26, 1996, merging The Crestmark Club, L.P. with
and into Roberts Properties Residential, L.P. (Crestmark
Merger). [Incorporated by reference to Exhibit 4.2.6 from the
Company's quarterly report on Form 10-QSB for the quarter
ended June 30, 1996.]
4.2.7 Certificate and Articles of Merger filed with the Georgia
Secretary of State on April __, 1997 merging Roberts
Properties Management, L.L.C. with and into Roberts Properties
Residential, L.P. [Incorporated by reference to Exhibit 4.2.7
from the Company's current report on Form 8-K dated April 1,
1997.]
10.1.2 Real Estate Note executed by Roberts Properties Residential,
L.P. in favor of Nationwide Life Insurance Company, dated
September 20, 1995, in the original principal amount of
$8,711,000.00 (Preston Oaks). [* 6.11.1]
10.1.3 Deed to Secure Debt and Security Agreement executed by Roberts
Properties Residential, L.P. in favor of Nationwide Life
Insurance Company, dated September 20, 1995, and related
collateral documents (Preston Oaks). [* 6.11.2]
10.2.1 Real Estate Note A executed by Roberts Properties Residential,
L.P. in favor of Nationwide Life Insurance Company, dated
January 31, 1996, in the original principal amount of
$6,678,000.00 (Highland Park). [* 6.18.1]
10.2.2 Real Estate Note B executed by Roberts Properties Residential,
L.P. in favor of Employers Life Insurance Company of Wausau,
dated January 31, 1996, in the original principal amount of
$1,500,000.00 (Highland Park). [* 6.18.2]
10.2.3 Deed to Secure Debt and Security Agreement executed by Roberts
Properties Residential, L.P. in favor of Nationwide Life
Insurance Company and Employers Life Insurance Company of
Wausau, dated January 31, 1996, and related collateral
documents (Highland Park). [* 6.18.3]
10.3.1 Real Estate Note A executed by Roberts Properties Residential,
L.P. in favor of Nationwide Life Insurance Company, dated
October 17, 1996, in the original principal amount of
$7,250,000.00 (River Oaks). [Incorporated by reference to
Exhibit 10.3.3 from the Company's annual report on Form 10-KSB
for the year ended December 31, 1996.]
10.3.2 Real Estate Note B executed by Roberts Properties Residential,
L.P. in favor of Nationwide Life & Annuity Insurance Company,
dated October 17, 1996, in the original principal amount of
$2,000,000.00 (River Oaks). [Incorporated by reference to
Exhibit 10.3.4 from the Company's annual report on Form 10-KSB
for the year ended December 31, 1996.]
10.3.3 Deed to Secure Debt and Security Agreement executed by Roberts
Properties Residential, L.P. in favor of Nationwide Life
Insurance Company and Nationwide Life & Annuity Insurance
Company, dated October 17, 1996, and related collateral
documents (River Oaks). [Incorporated by reference to Exhibit
10.3.5 from the Company's annual report on Form 10-KSB for the
year ended December 31, 1996.]
</TABLE>
36
<PAGE> 40
<TABLE>
<S> <C>
10.4.1 Real Estate Note executed by Roberts Properties Rosewood
Plantation, L.P. in favor of Commonwealth of Pennsylvania
State Employes' [sic] Retirement Board, dated May 25, 1994,
in the original principal amount of $6,650,000.00, as
assigned to Legg Mason Real Estate Services South, Inc., as
further assigned to Federal Home Loan Mortgage Corporation
(Rosewood). [* 6.3.12]
10.4.2 Deed to Secure Debt and Security Agreement executed by
Roberts Properties Rosewood Plantation, L.P. in favor of
Commonwealth of Pennsylvania State Employes' [sic]
Retirement Board, dated May 25, 1994, and related collateral
documents, as assigned to Legg Mason Real Estate Services
South, Inc. by instruments dated August 23, 1995, as further
assigned to Federal Home Loan Mortgage Corporation by
instruments dated August 24, 1995 (Rosewood).
[* 6.3.13]
10.4.3 First Amendment to Deed to Secure Debt and Security
Agreement between Roberts Properties Rosewood Plantation,
L.P. and Commonwealth of Pennsylvania State Employes' [sic]
Retirement Board, dated August 1, 1994, as assigned to Legg
Mason Real Estate Services South, Inc. by instruments dated
August 23, 1995, as further assigned to Federal Home Loan
Mortgage Corporation by instruments dated August 24, 1995
(Rosewood). [* 6.3.14]
10.4.4 A ssumption Agreement between Roberts Properties
Residential, L.P. and Commonwealth of Pennsylvania State
Employes' [sic] Retirement Board, dated October 13, 1994
(1994 Consolidation/ Rosewood). [* 6.3.15]
10.5.1 Real Estate Note A executed by Roberts Properties
Residential, L.P. in favor of Nationwide Life Insurance
Company, dated January 30, 1997, in the original principal
amount of $5,670,000.00 (Ivey Brook - formerly Holcomb
Bridge). [Incorporated by reference to Exhibit 10.5.12 from
the Company's annual report on Form 10-KSB for the year
ended December 31, 1996.]
10.5.2 Real Estate Note B executed by Roberts Properties
Residential, L.P. in favor of West Coast Life Insurance
Company, dated January 30, 1997, in the original principal
amount of $750,000.00 (Ivey Brook). [Incorporated by
reference to Exhibit 10.5.13 from the Company's annual
report on Form 10-KSB for the year ended December 31, 1996.]
10.5.3 Deed to Secure Debt and Security Agreement executed by
Roberts Properties Residential, L.P. in favor of Nationwide
Life Insurance Company and West Coast Life Insurance
Company, dated January 30, 1997, and related collateral
documents (Ivey Brook). [Incorporated by reference to
Exhibit 10.5.14 from the Company's annual report on Form
10-KSB for the year ended December 31, 1996.]
10.6 Design and Development Agreement between Roberts Properties
Residential, L.P. and Roberts Properties, Inc. dated July
21, 1995 (Summer 1995 Cash Offering, for Phase II of
Plantation Trace). [* 6.10.3]
10.7.1 Promissory Note executed by Roberts Properties-Plantation
Trace, L.P. in favor of The Prudential Insurance Company of
America, dated August 12, 1993, in the original principal
amount of $8,200,000.00 (Plantation Trace). [* 6.9.5]
10.7.2 Deed to Secure Debt and Security Agreement from Roberts
Properties-Plantation Trace, L.P. to The Prudential
Insurance Company of America, dated August 12, 1993
(Plantation Trace). [* 6.9.6]
10.7.3 Assumption of Liability Agreement among The Prudential
Insurance Company of America, Roberts Properties-Plantation
Trace, L.P. and Roberts Properties Residential, L.P., dated
May 16, 1995 (Plantation Trace Merger). [* 6.9.7]
</TABLE>
37
<PAGE> 41
<TABLE>
<S> <C>
10.8.1 Design Agreement between Roberts Properties Residential,
L.P. and Roberts Properties, Inc., dated March 29, 1996
(Bradford Creek - formerly Howell Ferry). [Incorporated by
reference to Exhibit 10.14.4 from the Company's quarterly
report on Form 10-QSB for the quarter ended June 30, 1996.]
10.8.2 Development Agreement between Roberts Properties
Residential, L.P. and Roberts Properties, Inc., dated March
29, 1996 (Bradford Creek). [Incorporated by reference to
Exhibit 10.14.5 from the Company's quarterly report on Form
10-QSB for the quarter ended June 30, 1996.]
10.8.3 Finish Selection and Interior Design Agreement between
Roberts Properties Residential, L.P. and Roberts Properties,
Inc., dated March 29, 1996 (Bradford Creek). [Incorporated
by reference to Exhibit 10.14.6 from the Company's quarterly
report on Form 10-QSB for the quarter ended June 30, 1996.]
10.8.4 Construction Administration Agreement between Roberts
Properties Residential, L.P. and Roberts Properties, Inc.,
dated March 29, 1996 (Bradford Creek). [Incorporated by
reference to Exhibit 10.14.7 from the Company's quarterly
report on Form 10-QSB for the quarter ended June 30, 1996.]
10.8.5 Application/Contract for Mortgage Loan between Roberts
Properties Residential, L.P. and Nationwide Life Insurance
Company, dated December 19, 1997 (Bradford Creek).
10.9.1 Real Estate Note A executed by Roberts Properties
Residential, L.P. in favor of Nationwide Life Insurance
Company, dated August 14, 1996, in the original principal
amount of $3,350,000.00 (Bentley Place). [Incorporated by
reference to Exhibit 10.17.4.1 from the Company's quarterly
report on Form 10-QSB for the quarter ended September 30,
1996.]
10.9.2 Real Estate Note B executed by Roberts Properties
Residential, L.P. in favor of West Coast Life Insurance
Company, dated August 14, 1996, in the original principal
amount of $750,000.00 (Bentley Place). [Incorporated by
reference to Exhibit 10.17.4.2 from the Company's quarterly
report on Form 10-QSB for the quarter ended September 30,
1996.]
10.9.3 Deed to Secure Debt and Security Agreement executed by
Roberts Properties Residential, L.P. in favor of Nationwide
Life Insurance Company and West Coast Life Insurance
Company, dated August 14, 1996, and related collateral
documents (Bentley Place). [Incorporated by reference to
Exhibit 10.17.4.3 from the Company's quarterly report on
Form 10-QSB for the quarter ended September 30, 1996.]
10.10.1 Assumption and Modification Agreement by and among The
Crestmark Club, L.P., Roberts Properties Residential, L.P.,
and Federal Home Loan Mortgage Corporation dated as of June
26, 1996 (Crestmark Merger). [Incorporated by reference to
Exhibit 10.22.5 from the Company's quarterly report on Form
10-QSB for the quarter ended June 30, 1996.]
10.10.2 Real Estate Note executed by The Crestmark Club, L.P. in
favor of Commonwealth of Pennsylvania State Employes' [sic]
Retirement Board, dated April 27, 1994, in the original
principal amount of $10,100,000.00, along with a replacement
Real Estate Note having identical terms (the original having
been lost), and related collateral documents, as assigned to
Legg Mason Real Estate Services South, Inc. by instrument
dated August 23, 1995, as further assigned to Federal Home
Loan Mortgage Corporation by instrument dated August 24,
1995, as amended by that certain Amendment to Assignment of
Assignment of Occupancy Agreement and Rents dated September
1, 1995 (Crestmark). [Incorporated by reference to Exhibit
10.15.7 from the Company's annual report on Form 10-KSB for
the year ended December 31, 1996.]
</TABLE>
38
<PAGE> 42
<TABLE>
<S> <C>
10.10.3 First Amendment to Deed to Secure Debt and Security
Agreement between The Crestmark Club, L.P. and Commonwealth
of Pennsylvania State Employes' [sic] Retirement Board,
dated August 1, 1994 (Crestmark). [Incorporated by reference
to Exhibit 10.15.7.1 from the Company's annual report on
Form 10-KSB for the year ended December 31, 1996.]
10.10.4 Real Estate Note in the amount of $4,000,000 dated July 17,
1997 (Crestmark Phase II). [Incorporated by reference to
Exhibit 10.3 from the Company's quarterly report on Form
10-QSB for the quarter ended September 30, 1997.]
10.10.5 Deed to Secure Debt, Assignment of Leases and Rent and
Security Agreement dated July 17, 1997 by and between
Roberts Properties Residential, L.P. and The Canada Life
Assurance Company (Crestmark Phase II). [Incorporated by
reference to Exhibit 10.2 from the Company's quarterly
report on Form 10-QSB for the quarter ended September 30,
1997.]
10.11.1 Amended and Restated Consulting Agreement between Roberts
Properties Residential, L.P. and Roberts Properties, Inc.,
dated June 26, 1996. [Incorporated by reference to Exhibit
10.23.1 from the Company's quarterly report on Form 10-QSB
for the quarter ended June 30, 1996.]
10.11.2 Amended and Restated Consulting Agreement between Roberts
Properties Residential, L.P. and Roberts Properties Group,
Inc., dated June 26, 1996. [Incorporated by reference to
Exhibit 10.23.2 from the Company's quarterly report on Form
10-QSB for the quarter ended June 30, 1996.]
10.12 Letter Agreement between NationsBank, N.A. (South), Charles
S. Roberts, Roberts Properties Residential, L.P., Roberts
Properties, Inc., and Roberts Realty Investors, Inc. dated
March 6, 1997 regarding the establishment of an Advised
Guidance Line in the amount of up to $35,000.000.
[Incorporated by reference to Exhibit 10.17 from the
Company's quarterly report on Form 10-QSB for the quarter
ended March 31, 1997.]
10.13 Agreement and Plan of Merger by and between Roberts
Properties Residential, L.P. and Roberts Properties
Management, L.L.C., dated April 1, 1997 [Incorporated by
reference to Exhibit 2.1 from the Company's current report
on Form 8-K dated April 1, 1997.]
21 Subsidiaries of the Small Business Issuer. [Incorporated by
reference to Exhibit 21 from the Company's annual report on
Form 10-KSB for the year ended December 31, 1996.]
23.1 Consent of Arthur Andersen LLP
23.2 Consent of Deloitte & Touche L.L.P.
27 Financial Data Schedule.
</TABLE>
(b) Current Reports on Form 8-K during the quarter ended
December 31, 1997.
On October 8, 1997, the Company filed a current report on Form 8-K
reporting an event under Item 2, Acquisition or Disposition of Assets, relating
to its sale on August 26, 1997 of its Autumn Ridge apartment community.
Financial statements under Item 7, Financial Statements and Exhibits, included a
pro forma condensed consolidated balance sheet dated June 30, 1997 (unaudited)
and pro forma consolidated statements of operations for the year ended December
31, 1996 (unaudited) and the six months ended June 30, 1997 (unaudited). The
report was subsequently amended by filings made on October 24, 1997 and November
4, 1997 that included revised versions of those financial
39
<PAGE> 43
statements. On November 24, 1997 the Company filed its final amendment (number
3) to such report. That amendment included a pro forma condensed consolidated
balance sheet as of September 30, 1997 (unaudited) and pro forma consolidated
statements of operations for the year ended December 31, 1996 (unaudited) and
for the nine months ended September 30, 1997 (unaudited).
On December 23, 1997, the Company filed a current report on Form 8-K
dated December 19, 1997 in which it reported an event under Item 4, Change in
Registrant's Certifying Accountant. No financial statements were filed with such
report.
40
<PAGE> 44
ROBERTS REALTY INVESTORS, INC.
INDEX TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Page
<S> <C>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS (ARTHUR ANDERSEN LLP) F-1
INDEPENDENT AUDITOR'S REPORT (DELOITTE & TOUCHE L.L.P.) F-2
CONSOLIDATED FINANCIAL STATEMENTS AS OF AND
FOR THE YEARS ENDED DECEMBER 31,
1997 AND 1996:
Balance Sheets F-3
Statements of Operations F-4
Statements of Shareholders' Equity F-5
Statements of Cash Flows F-6
Notes to Financial Statements F-7
</TABLE>
F-i
<PAGE> 45
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Roberts Realty Investors, Inc.:
We have audited the accompanying consolidated balance sheet of Roberts Realty
Investors, Inc. (the "Company," a Georgia corporation) and its subsidiary as of
December 31, 1997 and the related consolidated statements of operations,
shareholders' equity, and cash flows for the year then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Roberts Realty
Investors, Inc. and its subsidiary as of December 31, 1997 and the results of
their operations and their cash flows for the year then ended in conformity with
generally accepted accounting principles.
/s/ ARTHUR ANDERSEN LLP
Atlanta, Georgia
February 27, 1998
F-1
<PAGE> 46
INDEPENDENT AUDITORS' REPORT
Board of Directors and Shareholders
Roberts Realty Investors, Inc.:
We have audited the accompanying consolidated balance sheet of Roberts Realty
Investors, Inc. (the "Company") as of December 31, 1996 and the related
consolidated statements of operations, shareholders' equity, and cash flows for
the year then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides reasonable basis for
our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Roberts Realty Investors, Inc. as
of December 31, 1996 and the results of its operations and its cash flows for
the year then ended, in conformity with generally accepted accounting
principles.
/s/ DELOITTE & TOUCHE LLP
Atlanta, Georgia
February 28, 1997
F-2
<PAGE> 47
ROBERTS REALTY INVESTORS, INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands, Except Per Share Amounts)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
December 31,
------------
1997 1996
-------- -------
<S> <C> <C>
ASSETS
REAL ESTATE ASSETS - At cost:
Land $ 20,151 $ 19,937
Buildings and improvements 81,485 80,441
Furniture, fixtures and equipment 10,150 10,429
--------- ---------
111,786 110,807
Less accumulated depreciation (13,405) (8,915)
--------- ---------
Operating real estate assets 98,381 101,892
Construction-in-progress and real estate under development 11,320 10,230
--------- ---------
Net real estate assets 109,701 112,122
CASH AND CASH EQUIVALENTS 7,117 3,162
RESTRICTED CASH AND CASH EQUIVALENTS 468 532
DEFERRED FINANCING COSTS - Net of accumulated amortization of
$221 and $111 at December 31, 1997 and 1996, respectively 708 658
OTHER ASSETS - Net 356 341
--------- ---------
$ 118,350 $ 116,815
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES:
Mortgage notes payable $ 67,951 $ 63,342
Accounts payable and accrued expenses 959 1,053
Dividends and distributions payable 1,057 870
Due to affiliates (including retainage payable of $226 and $316 at
December 31, 1997 and 1996, respectively) 2,411 2,540
Security deposits and prepaid rents 414 462
--------- ---------
Total liabilities 72,792 68,267
--------- ---------
COMMITMENTS AND CONTINGENCIES
MINORITY INTEREST OF UNITHOLDERS IN THE OPERATING PARTNERSHIP 18,861 19,322
--------- ---------
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, 4,420,508 and
4,186,329 shares issued and outstanding at December 31, 1997 and 1996,
respectively 44 42
Additional paid-in-capital 29,980 29,902
Accumulated deficit (3,327) (718)
--------- ---------
Total shareholders' equity 26,697 29,226
--------- ---------
$ 118,350 $ 116,815
========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
F-3
<PAGE> 48
ROBERTS REALTY INVESTORS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in Thousands, Except Per Share Amounts)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------
1997 1996
---- ----
<S> <C> <C>
OPERATING REVENUES:
Rental operations $ 16,831 $ 14,651
Other operating income 677 546
----------- -----------
Total operating revenues 17,508 15,197
----------- -----------
OPERATING EXPENSES:
Personnel 1,694 1,365
Utilities 1,131 932
Repairs, maintenance and landscaping 1,090 956
Real estate taxes 724 1,149
Management fees to related party 211 760
Marketing, insurance and other 801 689
General and administrative expenses 1,714 926
Depreciation of real estate assets 5,708 4,974
----------- -----------
Total operating expenses 13,073 11,751
----------- -----------
INCOME FROM OPERATIONS 4,435 3,446
----------- -----------
OTHER INCOME (EXPENSE):
Acquisition of Roberts Properties Management, L.L.C (5,900) 0
Interest income 395 353
Interest expense (4,670) (3,724)
Loss on disposal of assets (156) 0
Amortization of deferred financing costs (122) (141)
Other amortization expense (65) (67)
----------- -----------
Total other income (expense) (10,518) (3,579)
----------- -----------
LOSS BEFORE GAIN ON SALE OF REAL ESTATE ASSET, MINORITY INTEREST
AND EXTRAORDINARY ITEM (6,083) (133)
GAIN ON SALE OF REAL ESTATE ASSET 1,792 0
----------- -----------
LOSS BEFORE MINORITY INTEREST AND EXTRAORDINARY ITEM (4,291) (133)
MINORITY INTEREST OF UNITHOLDERS IN THE OPERATING PARTNERSHIP 1,866 52
----------- -----------
LOSS BEFORE EXTRAORDINARY ITEM (2,425) (81)
EXTRAORDINARY ITEM - Loss on early extinguishment of debt, net of
minority interest of unitholders in the Operating Partnership (184) (99)
----------- -----------
NET LOSS $ (2,609) $ (180)
=========== ===========
LOSS PER COMMON SHARE - BASIC AND DILUTED:
Loss before extraordinary item $ (0.58) $ (0.02)
Extraordinary item (0.04) (0.03)
----------- -----------
Net loss $ (0.62) $ (0.05)
=========== ===========
Weighted average common shares - basic 4,187,013 3,799,567
Weighted average common shares - diluted 7,404,323 6,244,513
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
F-4
<PAGE> 49
ROBERTS REALTY INVESTORS, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(Dollars in Thousands, Except Per Share Amounts)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Common Shares
------------- Additional Total
Number Paid-in Accumulated Shareholders'
Of Shares Amount Capital Deficit Equity
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
BALANCE AS OF DECEMBER 31, 1995 2,676,381 $26 $18,240 $ (538) $17,728
Proceeds of share offering, net 699,175 7 6,045 6,052
Conversion of units to shares 65,833 1 447 448
Issuance of common shares in the
acquisition of partnerships 744,940 8 7,068 7,076
Dividends declared ($0.48125
per share) (1,834) (1,834)
Adjustment for minority interest
in the Operating Partnership (64) (64)
Net loss (180) (180)
-------------------------------------------------------------------------
BALANCE AS OF DECEMBER 31, 1996 4,186,329 42 29,902 (718) 29,226
Conversion of units to shares 234,179 2 1,410 1,412
Dividends declared ($0.576
per share) (2,444) (2,444)
Adjustment for minority
interest in the
Operating Partnership 1,112 1,112
Net loss (2,609) (2,609)
--------------------------------------------------------------------------
BALANCE AS OF DECEMBER 31, 1997 4,420,508 $44 $29,980 $(3,327) $26,697
==========================================================================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE> 50
ROBERTS REALTY INVESTORS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------
1997 1996
-------- -------
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss $ (2,609) $ (180)
Adjustments to reconcile net loss to net cash provided
operating activities:
Minority interest of unitholders in the Operating Partnership (1,866) (52)
Gain on sale of real estate asset (1,792) 0
Loss on disposal of assets 156 0
Depreciation and amortization 5,895 5,182
Non-cash interest (55) (55)
Acquisition of Roberts Properties Management, L.L.C 5,900 0
Extraordinary item 184 99
Change in assets and liabilities net of amounts acquired:
Decrease (increase) in restricted cash and cash equivalents 64 85
Decrease (increase) in other assets (15) 247
Increase (decrease) in accounts payable and
accrued expenses relating to operations (94) 471
Increase (decrease) in due to affiliates relating to operations (251) (225)
Increase (decrease) in security deposits and prepaid rent (48) (5)
-------- --------
Net cash provided by operating activities 5,469 5,567
-------- --------
INVESTING ACTIVITIES:
Proceeds from sale of real estate asset 10,330 0
Acquisition and construction of real estate assets (11,867) (16,473)
Cash acquired in mergers 0 164
-------- --------
Net cash used in investing activities (1,537) (16,309)
-------- --------
FINANCING ACTIVITIES:
Proceeds from mortgage notes payable 10,420 26,528
Payoff of mortgage note on sale of property including prepayment fee (5,151) 0
Principal reductions on mortgage notes payable (913) (17,334)
Payment of loan costs (245) (451)
Proceeds from issuance of shares 0 6,589
Payment of share and unit issuance costs 0 (613)
Payment of dividends and distributions (4,088) (2,219)
-------- --------
Net cash provided by financing activities 23 12,500
-------- --------
NET INCREASE IN CASH AND CASH EQUIVALENTS 3,955 1,758
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 3,162 1,404
-------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 7,117 $ 3,162
======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest, net of capitalized interest $ 4,722 $ 4,347
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE> 51
ROBERTS REALTY INVESTORS, INC.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. BUSINESS AND ORGANIZATION OF THE COMPANY
Roberts Realty Investors, Inc. (the "Company"), a Georgia corporation,
was formed July 22, 1994 to serve as a vehicle for investments in, and
ownership of, a professionally managed real estate portfolio of
multifamily apartment communities. The Company owns and operates
multifamily residential properties as a self-administered, self-managed
equity real estate investment trust (a "REIT"). As of December 31,
1997, approximately 88% of the Company's total apartment homes are
located in the Atlanta metropolitan area (100% as of January 9, 1998 -
see Note 10).
The Company conducts all of its operations and owns all of its assets
in and through Roberts Properties Residential, L.P., a Georgia limited
partnership (the "Operating Partnership"), of which the Company is the
sole general partner and has a 58.6% ownership interest at December 31,
1997. As the sole general partner and owner of a majority interest of
the Operating Partnership, the Company controls the Operating
Partnership.
The Company, as the general partner of the Operating Partnership, does
not hold any limited partner interests in the Operating Partnership.
The Company's general partner interest was 58.6% and 60.2% at December
31, 1997 and 1996, respectively. Units of limited partnership interest
("Units") in the Operating Partnership outstanding at December 31, 1997
and 1996 were 3,129,420 and 2,773,430, respectively. Units held by the
minority interest as a percentage of total Units and shares of common
stock ("Shares") of the Company outstanding was 41.4% and 39.8% at
December 31, 1997 and 1996, respectively. The minority interest
percentage reflects the number of Shares and Units outstanding and will
change as additional Shares and Units are issued.
Effective October 1, 1994, the Company began operations through a
business combination (the "Consolidation") of four limited partnerships
(the "Predecessors") sponsored by Charles S. Roberts, the Chairman,
President and Chief Executive Officer of the Company ("Mr. Roberts").
The Consolidation was accounted for as a reorganization of entities
under common ownership and control. As a result of the Consolidation,
the partners of the Predecessors received Shares and/or Units. Purchase
accounting has been applied to all acquisitions subsequent to the
Consolidation.
At December 31, 1997, the Company owned nine completed multifamily
apartment communities totaling 1,756 apartment homes and an additional
254 apartment homes were under construction. On January 9, 1998, the
Company sold a 232-unit apartment community located on St. Simons
Island, Georgia. In addition, the Company owns two retail centers
totaling 15,698 square feet located at the entrance to two of its
multifamily apartment communities.
On April 1, 1997, the Company acquired Roberts Properties Management,
L.L.C. ("Roberts Management") from Mr. Roberts and certain of its key
employees. Roberts Management is the property management company that
managed the Company's multifamily apartment communities since the
Company's inception. The Company now manages its own properties using
Roberts Management's property management systems and the property
management personnel formerly employed by Roberts Management. Although
the Company no longer pays 5% of gross property revenues to Roberts
Management for property management services, it does bear the actual
overhead cost of managing the properties internally.
F-7
<PAGE> 52
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION The accompanying consolidated financial
statements include the consolidated accounts of the Company and the
Operating Partnership. All significant intercompany accounts and
transactions have been eliminated in consolidation. The financial
statements of the Company have been adjusted for the minority interest
of the unitholders in the Operating Partnership. Subject to certain
conditions, Units are exchangeable for Shares on a one-for-one basis,
or at the option of the Company, redeemable for cash. The minority
interest of the unitholders in the Operating Partnership on the
accompanying balance sheets is calculated based on the minority
interest ownership percentage multiplied by the Operating Partnership's
net assets (total assets less total liabilities). The minority interest
of the unitholders in the earnings or loss of the Operating Partnership
on the accompanying statements of operations is calculated based on the
weighted average number of Shares and Units outstanding during the
period.
USE OF ESTIMATES The preparation of financial statements in conformity
with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
REAL ESTATE ASSETS AND DEPRECIATION All real estate assets are to be
held and used and are recorded at depreciated cost less reductions for
impairment, if any. In identifying potential impairment, management
considers such factors as declines in a property's operating
performance or market value, a change in use, or adverse changes in
general market conditions. In determining whether an asset is impaired,
management estimates the future cash flows expected to be generated
from the asset's use and its eventual disposition. If the sum of these
estimated future cash flows on an undiscounted basis is less than the
asset's carrying cost, the asset is written down to its fair value.
None of the Company's real estate assets have required write-downs.
Expenditures directly related to the development, acquisition and
improvement of real estate assets are capitalized at cost as land,
buildings and improvements. Ordinary repairs and maintenance are
expensed as incurred. Major replacements and betterments are
capitalized and depreciated over their estimated useful lives.
Buildings are generally depreciated over 27.5 years. Land improvements
are depreciated over 15 years, and furniture, fixtures and equipment
are depreciated over 5 to 7 years.
REVENUE RECOGNITION The Company leases its residential properties under
operating leases with terms generally one year or less. Rental income
is recognized when earned, which is not materially different than
revenue recognition on a straight-line basis.
CASH AND CASH EQUIVALENTS All investments purchased with an original
maturity of three months or less are considered to be cash equivalents.
RESTRICTED CASH Restricted cash consists of resident security deposits
and monies held by lenders for the payment of real estate taxes and
insurance.
DEFERRED FINANCING COSTS Deferred financing costs include fees and
costs incurred to obtain financings and are amortized on the
straight-line method over the terms of the related debt.
F-8
<PAGE> 53
INTEREST AND REAL ESTATE TAXES Interest and real estate taxes incurred
during the construction period are capitalized and depreciated over the
estimated useful lives of the constructed assets. Interest capitalized
was $388,000 and $527,000 for the years ended December 31, 1997 and
1996, respectively.
INCOME TAXES The Company elected to be taxed as a REIT under the
Internal Revenue Code of 1986, as amended (the "Code"), commencing with
the taxable year ended December 31, 1994. As a result, the Company
generally will not be subject to federal and state income taxation at
the corporate level to the extent it distributes annually at least 95%
of its taxable income, as defined in the Code, to its shareholders and
satisfies certain other requirements. Accordingly, no provision has
been made for federal and state income taxes in the accompanying
consolidated financial statements.
EARNINGS PER SHARE Effective for the quarter and year ended December
31, 1997, the Company computes earnings per share under the provisions
of Statement of Financial Accounting Standards ("SFAS") No. 128,
"Earnings per Share". As prescribed by SFAS No. 128, all prior period
earnings per share data has been restated to conform with the
provisions of SFAS No. 128. Under SFAS No. 128, basic earnings per
share is computed based upon the weighted average number of common
shares outstanding during the period. Diluted earnings per share is
computed to reflect the potential dilution of all instruments or
securities which are convertible into shares of common stock.
Previously reported earnings per share under prior accounting standards
were equal to basic and diluted earnings per share under SFAS No.
128.
RECLASSIFICATIONS Certain prior period amounts have been reclassified
to conform with the 1997 presentation.
3. MORTGAGE NOTES PAYABLE
Mortgage notes payable were secured by the following communities at
December 31, as follows:
<TABLE>
<CAPTION>
FIXED INTEREST PRINCIPAL OUTSTANDING
RATE AS OF DECEMBER 31,
MATURITY 12/31/97 1997 1996
-------- -------- ---- ----
<S> <C> <C> <C> <C>
Autumn Ridge 04/15/06 7.13% $ 0 $ 4,950,000
Bentley Place 08/15/06 7.10% 4,045,000 4,087,000
Crestmark Club - phase I 05/01/01 7.50% 9,652,000 9,787,000
Crestmark Club - phase II 05/01/01 7.65% 3,985,000 0
Highland Park 02/15/03 7.30% 8,030,000 8,113,000
Ivey Brook 02/15/07 7.14% 6,367,000 0
Plantation Trace 09/15/00 7.75% 7,775,000 7,886,000
Preston Oaks 10/15/02 7.21% 8,519,000 8,611,000
River Oaks 11/15/03 7.15% 9,151,000 9,243,000
Rosewood Plantation 06/01/01 7.38% 6,357,000 6,446,000
Windsong 02/01/00 9.00% 4,070,000 4,219,000
----------- -----------
$67,951,000 $63,342,000
=========== ===========
</TABLE>
Fixed interest rates on mortgage debt outstanding at December 31, 1996
ranged from 7.10% to 9.00%.
F-9
<PAGE> 54
The December 31, 1997 and 1996 principal balances of the Windsong
mortgage include unamortized premiums of $110,436 and $165,656,
respectively. Amortization of this premium of $55,220 in 1997 and
$55,220 in 1996 is included as a reduction of interest expense. On
January 9, 1998, the Company sold the Windsong community and the
mortgage note was repaid in full. The Company will recognize an
extraordinary gain of $110,000 in the first quarter of 1998 in
connection with the early extinguishment of this debt.
On January 31, 1996, the Company completed the refinancing of the
mortgage note secured by the Highland Park community. The new mortgage
note is in the amount of $8,178,000 at a fixed interest rate of 7.30%
payable in monthly installments of $56,066 based on a 30-year
amortization schedule. The note matures on February 15, 2003. The
previous note had an interest rate of 8.50%.
On March 28, 1996, the Company completed the financing of the Autumn
Ridge community. The new mortgage note was in the amount of $5,000,000
at a fixed interest rate of 7.13% payable in monthly installments of
$35,739 based on a 25-year amortization schedule. On August 26, 1997,
the Company completed the sale of Autumn Ridge at which time the
mortgage note balance of $4,899,000 was repaid in full.
In June 1996, in connection with the acquisition of The Crestmark Club,
L.P., the Operating Partnership assumed a mortgage note in the amount
of $9,850,000 secured by the Crestmark community. The mortgage note
includes a fixed interest rate of 7.50% payable in monthly installments
of $72,000 based on a 28-year amortization schedule. The note matures
on May 1, 2001.
On August 14, 1996, the Company completed the financing of the Bentley
Place community. The new mortgage note is in the amount of $4,100,000
at a fixed interest rate of 7.10% payable in monthly installments of
$27,553 based on a 30-year amortization schedule. The note matures on
August 15, 2006.
On October 17, 1996, the Company completed the refinancing of the
mortgage note secured by the River Oaks community. The new mortgage
note is in the amount of $9,250,000 at a fixed interest rate of 7.15%
payable in monthly installments of $62,475 based on a 30-year
amortization schedule. The note matures on November 15, 2003.
On January 30, 1997, the Company completed the financing of the Ivey
Brook community. The new mortgage note is in the amount of $6,420,000
at a fixed interest rate of 7.14% payable in monthly installments of
$43,318 based on a 30-year amortization schedule. The note matures on
February 15, 2007. In connection with the financing, a letter of credit
was issued to the lender in the amount of $1,140,000. The letter of
credit expired on January 30, 1998 and it was not renewed.
In March 1997, the Company and certain non-owned affiliates of the
Company established a $35,000,000 Advised Guidance Line (the "Guidance
Line") with NationsBank N.A. (South) (the "Bank") for the purpose of
providing financing for the acquisition or development of multifamily
communities. Financing under the Guidance Line is available on a
revolving basis and bears interest at LIBOR plus 1.80% or Prime plus
0%, at the option of the borrower, payable monthly. The Guidance Line
is not a commitment to lend and each loan under the Guidance Line will
be made at the Bank's discretion in accordance with normal loan
approval procedures. At December 31, 1997, there was no balance
outstanding under the Guidance Line.
On July 17, 1997, the Company completed the financing of the second
phase of the Crestmark community. The new mortgage note is in the
amount of $4,000,000 at a fixed interest rate of 7.65%
F-10
<PAGE> 55
payable in monthly installments of $28,381 based on a 30-year
amortization schedule. The note matures on May 1, 2001.
On December 19, 1997, the Company received a commitment to provide
financing in the amount of $8,400,000 secured by the Bradford Creek
community. The terms of the commitment include a 10-year term with a
fixed interest rate of 7.15% payable in monthly installments of $56,734
based on a 30-year amortization schedule. Bradford Creek is under
construction and was unencumbered at December 31, 1997. The financing
is expected to close in May 1998.
The scheduled principal maturities of all debt outstanding at December
31, 1997 for each of the years ending December 31, are as follows:
<TABLE>
<S> <C>
1998 $ 956,000
1999 1,027,000
2000 12,054,000
2001 19,588,000
2002 8,475,000
Thereafter 25,851,000
-----------
Mortgage notes payable $67,951,000
===========
</TABLE>
Real estate assets having a combined depreciated cost of approximately
$97,307,000 serve as collateral for the outstanding debt at December
31, 1997.
EXTRAORDINARY ITEMS The 1997 extraordinary item resulted from the
write-off of unamortized deferred financing costs and debt prepayment
associated with the August 26, 1997 pay-off of the mortgage note
secured by the Autumn Ridge community upon the sale of the property.
The extraordinary item is net of $140,000 which was allocated to the
minority interest of the unitholders in the Operating Partnership,
calculated on the weighted average number of Units outstanding during
1997. The 1996 extraordinary item resulted from the write-off of
unamortized deferred financing costs associated with the January 31,
1996 refinancing of the mortgage note secured by the Highland Park
community. The extraordinary item is net of $64,000 which was allocated
to the minority interest of the unitholders in the Operating
Partnership, calculated on the weighted average number of Units
outstanding during 1996.
4. FAIR VALUE DISCLOSURE OF FINANCIAL INSTRUMENTS
The following disclosures of estimated fair value were determined by
management using available market information and appropriate valuation
methodologies. Because considerable judgment is necessary to interpret
market data and develop the related estimates of fair value, the
estimates presented herein are not necessarily indicative of the
amounts that could be realized upon disposition of the financial
instruments. The use of different market assumptions and/or estimation
methodologies may have a material effect on the estimated fair value
amounts.
Cash and cash equivalents, accounts payable, accrued expenses, security
deposits and other liabilities, due to their short-term nature, are
carried at amounts which reasonably approximate their fair values at
December 31, 1997 and 1996. Fixed rate mortgage debt with carrying
values of $67,951,000 and $63,342,000 at December 31, 1997 and 1996,
respectively, is estimated by management to approximate fair value
based upon interest rates available to the Company for debt with
similar terms and maturities.
F-11
<PAGE> 56
5. RELATED PARTY TRANSACTIONS
LAND ACQUISITION On March 29, 1996, the Operating Partnership acquired
a 22.5 acre tract of land for the development of a 180-unit apartment
community located in Gwinnett County, Georgia from Roberts Properties,
Inc., an affiliate of Mr. Roberts, for $1,628,000.
CONSTRUCTION CONTRACTS The Company enters into contractual commitments
in the normal course of business related to the development and
construction of real estate assets with Roberts Properties
Construction, Inc., an affiliate of Mr. Roberts. These contract amounts
from inception through December 31, 1997 are summarized in the
following table:
<TABLE>
<CAPTION>
TOTAL REMAINING
CONTRACT AMOUNT CONTRACTUAL
AMOUNT INCURRED COMMITMENT
--------------------------------------------------------------------------------------------
<S> <C> <C> <C>
River Oaks $ 8,532,000 $ 8,532,000
Rosewood Plantation 6,083,000 6,083,000
Preston Oaks 7,806,000 7,806,000
Highland Park 8,021,000 8,021,000
Ivey Brook 6,420,000 6,420,000
Crestmark Club - Phase II 3,795,000 3,795,000
Bradford Creek 8,829,000 5,779,000 $3,050,000
--------------------------------------------------------------------------------------------
$49,486,000 $46,436,000 $3,050,000
============================================================================================
</TABLE>
At December 31, 1997, the 50-unit second phase of Plantation Trace is
under construction subject to a cost plus 10% contract with Roberts
Properties Construction, Inc. The cost to construct the second phase of
Plantation Trace is estimated to be $4,770,000. In addition, certain of
the Predecessors and partnerships acquired subsequent to the
Consolidation have paid or will pay Roberts Properties Construction,
Inc. for change-orders which include purchases made on their behalf and
for additional features added or built on their property that are not
part of the original construction contracts. These amounts aggregated
$1,695,000 and $2,250,000 during 1997 and 1996, respectively. The
Predecessors and partnerships acquired subsequent to the Consolidation
also paid Roberts Properties Construction, Inc. for labor and materials
to perform repairs and maintenance for the communities in the amount of
$513,000 and $2,174,000 in 1997 and 1996, respectively.
DEVELOPMENT FEES Roberts Properties, Inc. received fees for various
development services including market studies, business plans, design,
finish selection, interior design and construction administration. Fees
incurred totaled $990,000 and $430,000 for the years ended December 31,
1997 and 1996, respectively.
MANAGEMENT FEES Roberts Management, an affiliate of Mr. Roberts,
provided property management services to the Company through March 31,
1997 for a fee of 5% of gross income. On April 1, 1997, the Company
acquired Roberts Management and, as a result, no longer pays 5% of
gross property revenues to Roberts Management, although it does bear
the actual overhead cost of managing the properties internally.
Property management fees incurred totaled $211,000 and $760,000 for the
years ended December 31, 1997 and 1996, respectively. In addition, the
Company reimbursed Roberts Management for the salaries of the on-site
property management personnel through March 31, 1997.
F-12
<PAGE> 57
CONSULTING FEES Affiliates of Mr. Roberts have contracted with each of
the Predecessors and partnerships acquired subsequent to the
Consolidation to provide consulting services in the event of a sale of
the community, with consulting fees ranging from 3% to 6% of the gross
sales proceeds of the property sold. These consulting fees as of
December 31, 1997 are summarized in the following table:
<TABLE>
<S> <C>
Bentley Place 3%
River Oaks 5%
Rosewood Plantation 5%
Preston Oaks 5%
Highland Park 5%
Ivey Brook 5%
Windsong 3%
Crestmark 5%
Plantation Trace 6%
Shoppes of Plantation Trace 6%
</TABLE>
Although the consulting fee was waived at the time of the Consolidation
and upon subsequent acquisitions of partnerships, the Company and the
Operating Partnership have assumed these contracts as a term of each
merger. The sale of the Windsong community closed on January 9, 1998 at
which time a 3% consulting fee ($288,000) was paid to an affiliate of
Mr. Roberts (See Note 10). Other than Windsong, there have been no
sales of any of the apartment communities.
OTHER FEES During 1997 and 1996, affiliates of Mr. Roberts received
fees and cost reimbursements for services related to (1) leasing
administration services at the Shoppes of River Oaks and Shoppes of
Plantation Trace ($31,000), (2) the merger of Bentley Place, L.P. into
the Operating Partnership ($50,000), (3) the merger of Crestmark, L.P.
into the Operating Partnership ($65,000), (4) the acquisition and
rezoning of a 1.1 acre parcel of undeveloped land located adjacent to
the existing Preston Oaks community ($46,000), (5) the sale of Autumn
Ridge in August 1997 ($150,000), and (5) miscellaneous fees and cost
reimbursements ($167,000). These fees and costs incurred totaled
$283,000 and $226,000 for the years ended December 31, 1997 and 1996,
respectively.
BROKER-DEALER FEES A director of the Company owns all of the
outstanding stock of an NASD member broker-dealer that has participated
as the distributor or solicitation agent in numerous offerings by the
Company and the Operating Partnership. Fees incurred for these services
totaled $0 and $487,000 for the years ended December 31, 1997 and 1996,
respectively.
LOAN ORIGINATION FEES A director of the Company is president of a
commercial mortgage banking firm that has originated loans for the
Company and its Predecessors. Loan origination fees incurred totaled
$48,150 and $184,000 for the years ended December 31, 1997 and 1996,
respectively. Additional fees will be paid as additional communities
are financed during 1998, as more fully described in Note 3.
F-13
<PAGE> 58
6. COMMITMENTS AND CONTINGENCIES
The Company and the Operating Partnership are subject to various legal
proceedings and claims that arise in the ordinary course of business.
While the resolution of these matters cannot be predicted with
certainty, management believes the final outcome of such matters will
not have a material adverse effect on the Company's financial position
or results of operations.
As a result of the mergers of various limited partnerships into the
Operating Partnership, the former partners of these limited
partnerships received Units. Holders of Units have the right to require
the Operating Partnership to redeem their Units for Shares, subject to
certain conditions. Upon submittal of Units for redemption, the
Operating Partnership will have the option either (a) to pay cash for
such Units at their fair market value, which will be based upon the
then current trading price of the Shares, or (b) to acquire such Units
in exchange for Shares (on a one-for-one basis). The Company has
adopted a policy that it will issue Shares in exchange for all such
Units submitted. There were 3,129,420 Units outstanding at December 31,
1997 that could be exchanged for Shares, subject to the conditions
described above.
The Company enters into contractual commitments in the normal course of
business related to the development of real estate assets. Management
does not believe that the completion of these commitments will result
in a material adverse effect on the Company's financial position or
results of operations. See Notes 5 and 10 where construction
commitments are further discussed.
7. SHAREHOLDERS' EQUITY
ISSUANCE AND CONVERSION OF SHARES AND UNITS In May 1996, the Company
completed an offering of 699,175 Shares at a price of $9.50 per Share
and received net proceeds of $6,052,000. The Company used the proceeds
to fund the development and construction of the 180-unit Bradford Creek
apartment community. Additionally, in 1997 and 1996, a total of 234,179
and 65,833 Units in the Operating Partnership, respectively, were
converted into the same number of Shares of the Company. The conversion
was reflected in the accompanying consolidated financial statements at
book value.
DIVIDENDS On December 16, 1997, the Company's Board of Directors
declared a quarterly distribution in the amount of $0.14 per common
Share and Unit payable on January 15, 1998 to shareholders and
unitholders of record on December 31, 1997. Of the total dividends
declared for 1997 totaling $0.576 per share, approximately $0.19 per
share represents ordinary income, $0.21 per share represents capital
gain and $0.18 per share represents a return of capital to the
shareholders. On December 17, 1996, the Company's Board of Directors
declared a quarterly distribution in the amount of $0.125 per common
Share and Unit payable on January 15, 1997 to shareholders and
unitholders of record on December 17, 1996. Of the total dividends
declared for 1996 totaling $0.48125 per share, approximately $0.39 per
share represents ordinary income and $0.09 per share represents a
return of capital to the shareholders.
F-14
<PAGE> 59
EARNINGS PER SHARE The Company adopted the provisions of SFAS No. 128
in the year ended December 31, 1997. Reconciliations of income
available to common shareholders and weighted average Shares and Units
used in the Company's basic and diluted earnings per share computations
are detailed below (dollars in thousands).
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Loss before extraordinary item $ (2,425) $ (81)
Minority interest in loss before extraordinary
item of the Operating Partnership (1,866) (52)
----------- -----------
Loss before extraordinary item - diluted $ (4,291) $ (133)
=========== ===========
Net loss - basic $ (2,609) $ (180)
Minority interest in net loss of the Operating Partnership (2,006) (116)
----------- -----------
Net loss - diluted $ (4,615) $ (296)
=========== ===========
Weighted average Shares - basic 4,187,013 3,799,567
Dilutive Securities - weighted average Units 3,217,310 2,444,946
----------- -----------
Weighted average Shares - diluted 7,404,323 6,244,513
=========== ===========
</TABLE>
8. ACQUISITIONS AND DISPOSITIONS
On March 29, 1996, the Operating Partnership purchased 22.5 acres of
land for $1,628,000 from an affiliate of Mr. Roberts for the
development and construction of the 180-unit Bradford Creek apartment
community.
In March 1996, the Company acquired the assets and liabilities of
Roberts Properties Bentley Place, L.P. ("Bentley Place, L.P."), which
included a 117-unit apartment community. In connection with the
acquisition, the Company issued 744,940 Shares valued at $9.50 per
Share (totaling $7,076,000, net of issuance costs) in exchange for the
assets and liabilities of Bentley Place, L.P.
In June 1996, the Company acquired the assets and liabilities of The
Crestmark Club, L.P. ("Crestmark, L.P."), which included a 248-unit
apartment community and 8.8 acres of adjoining land for the development
of an 86-unit second phase to the Crestmark community. In connection
with the acquisition, the Operating Partnership issued 746,715 Units
valued at $9.75 per Unit (totaling $7,280,000 net of issuance costs) in
exchange for the assets and liabilities of Crestmark, L.P.
The Bentley Place, L.P. and Crestmark, L.P. acquisitions were accounted
for as purchases and the related acquisition costs were allocated to
the assets acquired and liabilities assumed based on their fair values.
On April 1, 1997, the Company acquired Roberts Management, the property
management company that managed the Company's multifamily apartment
communities since the Company's inception. The Operating Partnership
issued a total of 590,000 Units valued at $10.00 per Unit or
F-15
<PAGE> 60
$5,900,000 to purchase Roberts Management. Because Roberts Management,
a related party, managed only the properties owned by the Company, the
transaction has been accounted for as the settlement of a contract and
expensed in the year ended December 31, 1997.
On August 26, 1997, the Company completed the sale of the Autumn Ridge
community for $10,601,000 in cash. The sale resulted in a net gain of
$1,792,000. The Company acquired Autumn Ridge in December 1995. Autumn
Ridge is a 207-unit apartment home community located in Cobb County in
the Atlanta metropolitan area. Net sale proceeds were $5,045,000 after
deduction for loan repayment of $5,162,000 and closing costs and
prorations of $394,000. The purchaser, Benchmark Autumn Ridge
Associates, L.P., is not affiliated with the Company and the
transaction was negotiated at arms-length. Roberts Properties, Inc., an
affiliate of Mr. Roberts, was paid a consulting fee of $150,000 upon
the closing of the sale of Autumn Ridge.
Unaudited pro forma amounts for the twelve months ended December 31,
1997 and 1996, assuming the sale of Autumn Ridge and the acquisition of
Roberts Management, Bentley Place, L.P. and Crestmark, L.P. had taken
place as of January 1 for the periods presented, are presented below
(dollars in thousands, except per share amounts). The unaudited pro
forma information is not necessarily indicative of the results of
operations of the Company had the acquisitions and sale occurred at the
beginning of the periods presented, nor is it indicative of future
results.
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Total operating revenues $16,420 $14,845
Income (loss) before extraordinary items (93) 7
Net income (loss) (274) (83)
PER SHARE DATA - BASIC AND DILUTED
Income (loss) before extraordinary items $(0.02) $0.00
Net income (loss) (0.07) (0.02)
</TABLE>
9. SUPPLEMENTAL CASH FLOW INFORMATION
Non-cash investing and financing activities for the years ended
December 31, 1997 and 1996 were as follows:
A. On March 21, 1996, the Company issued 744,940 Shares in
exchange for the assets and liabilities of Bentley Place, L.P.
valued at $7,076,000 including cash of $165,000. No mortgage
debt was assumed in connection with this acquisition.
B. On June 26, 1996, the Operating Partnership issued 746,715
Units in exchange for the assets and liabilities of Crestmark,
L.P. valued at $7,280,000 including cash of $117,000. Mortgage
debt of $10,184,000 and a note payable to Mr. Roberts in the
amount of $1,403,000 were assumed in connection with this
acquisition. The note to Mr. Roberts was repaid in full
immediately following the Crestmark closing.
C. On April 1, 1997, the Operating Partnership issued 590,000
Units in exchange for the assets and liabilities of Roberts
Management valued at $5,900,000.
F-16
<PAGE> 61
10. SUBSEQUENT EVENTS
On January 9, 1998, the Company completed the sale of the Windsong
community for $9,750,000 in cash resulting in a gain of $1,544,000 on
the sale of the real estate assets and an extraordinary gain of
$110,000 on the buyer's assumption of the related mortgage
indebtedness. Net sales proceeds were $5,194,000 after deduction for
loan repayment of $3,959,000 and closing costs and prorations totaling
$597,000. The Company intends to reinvest the net sales proceeds in a
replacement property in connection with a Section 1031 tax-deferred
exchange. The purchaser is unaffiliated with the Company and the
transaction was negotiated at arms-length. The net book value of the
property at December 31, 1997 is approximately $7,749,000.
On January 27, 1998, the Company signed a contract for $1,300,000 with
an independent general contractor, not affiliated with either the
Company or Mr. Roberts, for construction of a 24-unit second phase on
1.1 acres located adjacent to the existing Preston Oaks community.
On February 12, 1998, the Company signed a mortgage loan commitment in
the amount of $11,900,000 in connection with the refinancing of the
Plantation Trace community. The loan commitment, which is being
reviewed by the lender, includes a 10-year term with a fixed interest
rate of 7.09% payable in monthly installments of $79,892 based on a
30-year amortization schedule. The loan is expected to close in July
1998 upon the completion of construction and leasing of the second
phase of Plantation Trace. At December 31, 1997, Plantation Trace was
encumbered with a mortgage loan in the amount of $7,775,000 at a fixed
interest rate of 7.75%.
F-17
<PAGE> 62
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
ROBERTS REALTY INVESTORS, INC.
By: /s/ Charles S. Roberts
-----------------------------------------------
Charles S. Roberts, Chairman of the Board,
Chief Executive Officer and President
Date: March 27, 1998
In accordance with the Exchange Act, this report has been signed by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Charles S. Roberts Chairman of the Board, Chief
- --------------------------- Executive Officer and President March 27, 1998
Charles S. Roberts
/s/ Charles R. Elliott Secretary, Treasurer and Chief March 27, 1998
- --------------------------- Financial Officer (Principal Financial
Charles R. Elliott Officer and Principal Accounting Officer)
/s/ James M. Goodrich Director March 30, 1998
- ---------------------------
James M. Goodrich
/s/ Dennis H. James Director March 26, 1998
- ---------------------------
Dennis H. James
/s/ Wm. Jarell Jones Director March 26, 1998
- ---------------------------
Wm. Jarell Jones
/s/ Ben A. Spalding Director March 27, 1998
- ---------------------------
Ben A. Spalding
/s/ George W. Wray, Jr. Director March 27, 1998
- ---------------------------
George W. Wray, Jr.
/s/ Weldon R. Humphries Director March 27, 1998
- ---------------------------
Weldon R. Humphries
</TABLE>
41
<PAGE> 63
EXHIBIT INDEX
The Company has filed certain of the exhibits required by Item 601 of
Regulation S-B with previous registration statements or reports. As specifically
noted in the following Index to Exhibits, such previously filed exhibits are
incorporated into this annual report on Form 10-KSB by reference thereto. All
exhibits contained in the following Index to Exhibits that are designated with
an asterisk are incorporated into this annual report by reference from the
Company's initial Registration Statement on Form 10-SB filed with the Securities
and Exchange Commission on March 22, 1996; the applicable exhibit number in such
Registration Statement is provided beside the asterisk.
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
<S> <C>
3.1 Articles of Incorporation of Roberts Realty Investors, Inc.
filed with the Georgia Secretary of State on July 22, 1994.
[* 2.1]
3.2 Bylaws of Roberts Realty Investors, Inc. [* 2.2]
4.1 Agreement of Limited Partnership of Roberts Properties
Residential, L.P., dated as of July 22, 1994. [* 3.1]
4.1.1 First Amended and Restated Agreement of Limited Partnership
of Roberts Properties Residential, L.P., dated as of October
1, 1994. [* 3.1.1]
4.1.2 Amendment #1 to First Amended and Restated Agreement of
Limited Partnership of Roberts Properties Residential, L.P.,
dated as of October 13, 1994. [* 3.1.2]
4.2 Certificate of Limited Partnership of Roberts Properties
Residential, L.P. filed with the Georgia Secretary of State
on July 22, 1994. [* 3.2]
4.2.1 Certificate of Merger filed with the Georgia Secretary of
State on October 13, 1994, merging Roberts Properties River
Oaks, L.P.; Roberts Properties Rosewood Plantation, L.P.;
Roberts Properties Preston Oaks, L.P.; and Roberts
Properties Highland Park, L.P. with and into Roberts
Properties Residential, L.P. (1994 Consolidation). [* 3.2.1]
4.2.2 Certificate of Merger filed with the Georgia Secretary of
State on March 24, 1995, merging Roberts Properties Holcomb
Bridge, L.P. with and into Roberts Properties Residential,
L.P. (Holcomb Bridge Merger). [* 3.2.2]
4.2.3 Certificate of Merger filed with the Georgia Secretary of
State on May 16, 1995, merging Roberts Properties Plantation
Trace, L.P. with and into Roberts Properties Residential,
L.P. (Plantation Trace Merger). [* 3.2.3]
4.2.4 Certificate of Merger filed with the Georgia Secretary of
State on September 27, 1995, merging Roberts Properties-St.
Simons, L.P. with and into Roberts Properties Residential,
L.P. (Windsong Merger). [* 3.2.4]
4.2.5 Certificate of Merger filed with the Georgia Secretary of
State on March 21, 1996, merging Roberts Properties Bentley
Place, L.P. with and into Roberts Properties Residential,
L.P. (Bentley Place Merger). [Incorporated by reference to
Exhibit 4.2.5 from the Company's quarterly report on Form
10-QSB for the quarter ended June 30, 1996.]
</TABLE>
42
<PAGE> 64
<TABLE>
<S> <C>
4.2.6 Certificate of Merger filed with the Georgia Secretary of
State on June 26, 1996, merging The Crestmark Club, L.P.
with and into Roberts Properties Residential, L.P.
(Crestmark Merger). [Incorporated by reference to Exhibit
4.2.6 from the Company's quarterly report on Form 10-QSB for
the quarter ended June 30, 1996.]
4.2.7 Certificate and Articles of Merger filed with the Georgia
Secretary of State on April __, 1997 merging Roberts
Properties Management, L.L.C. with and into Roberts
Properties Residential, L.P. [Incorporated by reference to
Exhibit 4.2.7 from the Company's current report on Form 8-K
dated April 1, 1997.]
10.1.2 Real Estate Note executed by Roberts Properties Residential,
L.P. in favor of Nationwide Life Insurance Company, dated
September 20, 1995, in the original principal amount of
$8,711,000.00 (Preston Oaks). [* 6.11.1]
10.1.3 Deed to Secure Debt and Security Agreement executed by
Roberts Properties Residential, L.P. in favor of Nationwide
Life Insurance Company, dated September 20, 1995, and
related collateral documents (Preston Oaks).
[* 6.11.2]
10.2.1 Real Estate Note A executed by Roberts Properties
Residential, L.P. in favor of Nationwide Life Insurance
Company, dated January 31, 1996, in the original principal
amount of $6,678,000.00 (Highland Park). [* 6.18.1]
10.2.2 Real Estate Note B executed by Roberts Properties
Residential, L.P. in favor of Employers Life Insurance
Company of Wausau, dated January 31, 1996, in the original
principal amount of $1,500,000.00 (Highland Park).
[* 6.18.2]
10.2.3 Deed to Secure Debt and Security Agreement executed by
Roberts Properties Residential, L.P. in favor of Nationwide
Life Insurance Company and Employers Life Insurance Company
of Wausau, dated January 31, 1996, and related collateral
documents (Highland Park). [* 6.18.3]
10.3.1 Real Estate Note A executed by Roberts Properties
Residential, L.P. in favor of Nationwide Life Insurance
Company, dated October 17, 1996, in the original principal
amount of $7,250,000.00 (River Oaks). [Incorporated by
reference to Exhibit 10.3.3 from the Company's annual report
on Form 10-KSB for the year ended December 31, 1996.]
10.3.2 Real Estate Note B executed by Roberts Properties
Residential, L.P. in favor of Nationwide Life & Annuity
Insurance Company, dated October 17, 1996, in the original
principal amount of $2,000,000.00 (River Oaks).
[Incorporated by reference to Exhibit 10.3.4 from the
Company's annual report on Form 10-KSB for the year ended
December 31, 1996.]
10.3.3 Deed to Secure Debt and Security Agreement executed by
Roberts Properties Residential, L.P. in favor of Nationwide
Life Insurance Company and Nationwide Life & Annuity
Insurance Company, dated October 17, 1996, and related
collateral documents (River Oaks). [Incorporated by
reference to Exhibit 10.3.5 from the Company's annual report
on Form 10-KSB for the year ended December 31, 1996.]
10.4.1 Real Estate Note executed by Roberts Properties Rosewood
Plantation, L.P. in favor of Commonwealth of Pennsylvania
State Employes' [sic] Retirement Board, dated May 25, 1994,
in the original principal amount of $6,650,000.00, as
assigned to Legg Mason Real Estate Services South, Inc., as
further assigned to Federal Home Loan Mortgage Corporation
(Rosewood). [* 6.3.12]
</TABLE>
43
<PAGE> 65
<TABLE>
<S> <C>
10.4.2 Deed to Secure Debt and Security Agreement executed by
Roberts Properties Rosewood Plantation, L.P. in favor of
Commonwealth of Pennsylvania State Employes' [sic]
Retirement Board, dated May 25, 1994, and related collateral
documents, as assigned to Legg Mason Real Estate Services
South, Inc. by instruments dated August 23, 1995, as further
assigned to Federal Home Loan Mortgage Corporation by
instruments dated August 24, 1995 (Rosewood).
[* 6.3.13]
10.4.3 First Amendment to Deed to Secure Debt and Security
Agreement between Roberts Properties Rosewood Plantation,
L.P. and Commonwealth of Pennsylvania State Employes' [sic]
Retirement Board, dated August 1, 1994, as assigned to Legg
Mason Real Estate Services South, Inc. by instruments dated
August 23, 1995, as further assigned to Federal Home Loan
Mortgage Corporation by instruments dated August 24, 1995
(Rosewood). [* 6.3.14]
10.4.4 Assumption Agreement between Roberts Properties Residential,
L.P. and Commonwealth of Pennsylvania State Employes' [sic]
Retirement Board, dated October 13, 1994 (1994
Consolidation/ Rosewood). [* 6.3.15]
10.5.1 Real Estate Note A executed by Roberts Properties
Residential, L.P. in favor of Nationwide Life Insurance
Company, dated January 30, 1997, in the original principal
amount of $5,670,000.00 (Ivey Brook - formerly Holcomb
Bridge). [Incorporated by reference to Exhibit 10.5.12 from
the Company's annual report on Form 10-KSB for the year
ended December 31, 1996.]
10.5.2 Real Estate Note B executed by Roberts Properties
Residential, L.P. in favor of West Coast Life Insurance
Company, dated January 30, 1997, in the original principal
amount of $750,000.00 (Ivey Brook). [Incorporated by
reference to Exhibit 10.5.13 from the Company's annual
report on Form 10-KSB for the year ended December 31, 1996.]
10.5.3 Deed to Secure Debt and Security Agreement executed by
Roberts Properties Residential, L.P. in favor of Nationwide
Life Insurance Company and West Coast Life Insurance
Company, dated January 30, 1997, and related collateral
documents (Ivey Brook). [Incorporated by reference to
Exhibit 10.5.14 from the Company's annual report on Form
10-KSB for the year ended December 31, 1996.]
10.6 Design and Development Agreement between Roberts Properties
Residential, L.P. and Roberts Properties, Inc. dated July
21, 1995 (Summer 1995 Cash Offering, for Phase II of
Plantation Trace). [* 6.10.3]
10.7.1 Promissory Note executed by Roberts Properties-Plantation
Trace, L.P. in favor of The Prudential Insurance Company of
America, dated August 12, 1993, in the original principal
amount of $8,200,000.00 (Plantation Trace). [* 6.9.5]
10.7.2 Deed to Secure Debt and Security Agreement from Roberts
Properties-Plantation Trace, L.P. to The Prudential
Insurance Company of America, dated August 12, 1993
(Plantation Trace). [* 6.9.6]
10.7.3 Assumption of Liability Agreement among The Prudential
Insurance Company of America, Roberts Properties-Plantation
Trace, L.P. and Roberts Properties Residential, L.P., dated
May 16, 1995 (Plantation Trace Merger). [* 6.9.7]
10.8.1 Design Agreement between Roberts Properties Residential,
L.P. and Roberts Properties, Inc., dated March 29, 1996
(Bradford Creek - formerly Howell Ferry). [Incorporated by
reference to Exhibit 10.14.4 from the Company's quarterly
report on Form 10-QSB for the quarter ended June 30, 1996.]
</TABLE>
44
<PAGE> 66
<TABLE>
<S> <C>
10.8.2 Development Agreement between Roberts Properties
Residential, L.P. and Roberts Properties, Inc., dated March
29, 1996 (Bradford Creek). [Incorporated by reference to
Exhibit 10.14.5 from the Company's quarterly report on Form
10-QSB for the quarter ended June 30, 1996.]
10.8.3 Finish Selection and Interior Design Agreement between
Roberts Properties Residential, L.P. and Roberts Properties,
Inc., dated March 29, 1996 (Bradford Creek). [Incorporated
by reference to Exhibit 10.14.6 from the Company's quarterly
report on Form 10-QSB for the quarter ended June 30, 1996.]
10.8.4 Construction Administration Agreement between Roberts
Properties Residential, L.P. and Roberts Properties, Inc.,
dated March 29, 1996 (Bradford Creek). [Incorporated by
reference to Exhibit 10.14.7 from the Company's quarterly
report on Form 10-QSB for the quarter ended June 30, 1996.]
10.8.5 Application/Contract for Mortgage Loan between Roberts
Properties Residential, L.P. and Nationwide Life Insurance
Company, dated December 19, 1997 (Bradford Creek).
10.9.1 Real Estate Note A executed by Roberts Properties
Residential, L.P. in favor of Nationwide Life Insurance
Company, dated August 14, 1996, in the original principal
amount of $3,350,000.00 (Bentley Place). [Incorporated by
reference to Exhibit 10.17.4.1 from the Company's quarterly
report on Form 10-QSB for the quarter ended September 30,
1996.]
10.9.2 Real Estate Note B executed by Roberts Properties
Residential, L.P. in favor of West Coast Life Insurance
Company, dated August 14, 1996, in the original principal
amount of $750,000.00 (Bentley Place). [Incorporated by
reference to Exhibit 10.17.4.2 from the Company's quarterly
report on Form 10-QSB for the quarter ended September 30,
1996.]
10.9.3 Deed to Secure Debt and Security Agreement executed by
Roberts Properties Residential, L.P. in favor of Nationwide
Life Insurance Company and West Coast Life Insurance
Company, dated August 14, 1996, and related collateral
documents (Bentley Place). [Incorporated by reference to
Exhibit 10.17.4.3 from the Company's quarterly report on
Form 10-QSB for the quarter ended September 30, 1996.]
10.10.1 Assumption and Modification Agreement by and among The
Crestmark Club, L.P., Roberts Properties Residential, L.P.,
and Federal Home Loan Mortgage Corporation dated as of June
26, 1996 (Crestmark Merger). [Incorporated by reference to
Exhibit 10.22.5 from the Company's quarterly report on Form
10-QSB for the quarter ended June 30, 1996.]
10.10.2 Real Estate Note executed by The Crestmark Club, L.P. in
favor of Commonwealth of Pennsylvania State Employes' [sic]
Retirement Board, dated April 27, 1994, in the original
principal amount of $10,100,000.00, along with a replacement
Real Estate Note having identical terms (the original having
been lost), and related collateral documents, as assigned to
Legg Mason Real Estate Services South, Inc. by instrument
dated August 23, 1995, as further assigned to Federal Home
Loan Mortgage Corporation by instrument dated August 24,
1995, as amended by that certain Amendment to Assignment of
Assignment of Occupancy Agreement and Rents dated September
1, 1995 (Crestmark). [Incorporated by reference to Exhibit
10.15.7 from the Company's annual report on Form 10-KSB for
the year ended December 31, 1996.]
10.10.3 First Amendment to Deed to Secure Debt and Security
Agreement between The Crestmark Club, L.P. and Commonwealth
of Pennsylvania State Employes' [sic] Retirement Board,
dated August 1, 1994 (Crestmark). [Incorporated by reference
to Exhibit 10.15.7.1 from the Company's annual report on
Form 10-KSB for the year ended December 31, 1996.]
</TABLE>
45
<PAGE> 67
<TABLE>
<S> <C>
10.10.4 Real Estate Note in the amount of $4,000,000 dated July 17,
1997 (Crestmark Phase II). [Incorporated by reference to
Exhibit 10.3 from the Company's quarterly report on Form
10-QSB for the quarter ended September 30, 1997.]
10.10.5 Deed to Secure Debt, Assignment of Leases and Rent and
Security Agreement dated July 17, 1997 by and between
Roberts Properties Residential, L.P. and The Canada Life
Assurance Company (Crestmark Phase II). [Incorporated by
reference to Exhibit 10.2 from the Company's quarterly
report on Form 10-QSB for the quarter ended September 30,
1997.]
10.11.1 Amended and Restated Consulting Agreement between Roberts
Properties Residential, L.P. and Roberts Properties, Inc.,
dated June 26, 1996. [Incorporated by reference to Exhibit
10.23.1 from the Company's quarterly report on Form 10-QSB
for the quarter ended June 30, 1996.]
10.11.2 Amended and Restated Consulting Agreement between Roberts
Properties Residential, L.P. and Roberts Properties Group,
Inc., dated June 26, 1996. [Incorporated by reference to
Exhibit 10.23.2 from the Company's quarterly report on Form
10-QSB for the quarter ended June 30, 1996.]
10.12 Letter Agreement between NationsBank, N.A. (South), Charles
S. Roberts, Roberts Properties Residential, L.P., Roberts
Properties, Inc., and Roberts Realty Investors, Inc. dated
March 6, 1997 regarding the establishment of an Advised
Guidance Line in the amount of up to $35,000.000.
[Incorporated by reference to Exhibit 10.17 from the
Company's quarterly report on Form 10-QSB for the quarter
ended March 31, 1997.]
10.13 Agreement and Plan of Merger by and between Roberts
Properties Residential, L.P. and Roberts Properties
Management, L.L.C., dated April 1, 1997 [Incorporated by
reference to Exhibit 2.1 from the Company's current report
on Form 8-K dated April 1, 1997.]
21 Subsidiaries of the Small Business Issuer. [Incorporated by
reference to Exhibit 21 from the Company's annual report on
Form 10-KSB for the year ended December 31, 1996.]
23.1 Consent of Arthur Andersen LLP
23.2 Consent of Deloitte & Touche L.L.P.
27 Financial Data Schedule.
</TABLE>
46
<PAGE> 1
EXHIBIT 10.8.5
[LOGO] NATIONWIDE
INSURANCE
DO NOT MAKE ANY MODIFICATIONS IN THE BODY OF
THIS APPLICATION/CONTRACT. ANY MODIFICATIONS
ARE TO BE ENUMERATED IN EXHIBIT "B" ATTACHED
HERETO.
PART I
Application/Contract For Mortgage Loan With
Nationwide Life Insurance Company
1. APPLICATION/CONTRACT: This application is an offer made by Applicant (as
defined in Section 3 below) to Nationwide Life Insurance Company
(hereinafter "Nationwide) to enter into a contract for the mortgage loan
described herein (hereinafter "Mortgage Loan). This Application/Contract
for Mortgage Loan (hereinafter "Application/Contract") is collectively
comprised of PART I, PART II, Exhibit A, and Exhibit B. PART II, Exhibit A,
and Exhibit B are attached hereto and incorporated herein by reference.
Upon Nationwide's written acceptance hereof, or upon Applicant's written
acceptance of any counteroffer made by Nationwide in response hereto, this
Application/Contract together with any accepted counteroffer, will
constitute a Contract for Mortgage Loan, whereby Nationwide agrees to loan
to Borrower (as defined in Section 4 below) upon Applicant/Borrower's full
and timely compliance with the terms and conditions of this
Application/Contract, and whereby Borrower agrees to accept the Mortgage
Loan from Nationwide.
2. LOAN CORRESPONDENT: This Application/Contract is issued through
SHOPTAW-JAMES, INC., (hereinafter "Loan Correspondent"). Applicant agrees
to deal with the Loan Correspondent on any matter arising from issuance of
this Application/Contract, or in respect to the loan closing.
Applicant/Borrower and its legal counsel will be receiving specific closing
instructions from the Loan Correspondent, Nationwide, and/or Nationwide's
legal counsel.
3. APPLICANT: State the name(s) of the person(s) or entity(ies) applying for
the Mortgage Loan (hereinafter "Applicants"):
ROBERTS PROPERTIES RESIDENTIAL, L.P.
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4. BORROWER: State the name of the borrowing entity as it will appear on the
record of title (hereinafter "Borrower"); and (a) if Borrower is a
partnership, list the partners and percentage of ownership interest of each
partner, (b) if a corporation, list the state of incorporation and the
principal shareholders; or (c) if a trust, list the beneficiaries and
trustees. Please also list all underlying entities of the Borrower. Any of
the general partners or beneficiaries of Borrower are general partnerships,
list the partners of these general partnerships also.
ROBERTS PROPERTIES RESIDENTIAL, L.P.
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Nationwide is to receive from the Applicant/Borrower for its review and
approval copies of all partnership and/or trust agreements, and copies of
articles of incorporation, corporate bylaws, and certificates of good
standing (from the state of incorporation and from the state where the
Security Property, as herein defined, is located) as well as copies of the
same for all underlying entities of the Borrower.
Page 1 of 19
<PAGE> 2
5. RESPONSIBLE INDIVIDUALS: State the name(s) of that (those) individual(s)
who will be assuming personal liability for those items enumerated in the
"Exculpation" section of this Application/Contract and who will be signing
the indemnifications called for in the "ENVIRONMENTAL AUDIT AND
INDEMNIFICATION" and "ACCESSIBILITY INSPECTION AND INDEMNIFICATION"
sections of the Application/Contract (hereinafter "Responsible
Individuals"):
ROBERTS REALTY INVESTORS, INC.
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--------------------------------------------------------------------------
--------------------------------------------------------------------------
--------------------------------------------------------------------------
--------------------------------------------------------------------------
6. GUARANTORS: If a guarantee of the Mortgage Loan is required under Paragraph
b. of Exhibit "A" of this Application/Contract, or is required pursuant to
other provisions of this Application/Contract, state below those
individuals who will unconditionally, jointly, and severally guarantee the
Mortgage Loan (hereinafter "Guarantors"):
ROBERTS REALTY INVESTORS, INC.
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7. MAJOR TENANTS: State below the major tenants that occupy space in or
adjacent to the Security Property (hereinafter "Major Tenants"):
N/A
--------------------------------------------------------------------------
--------------------------------------------------------------------------
--------------------------------------------------------------------------
--------------------------------------------------------------------------
--------------------------------------------------------------------------
8. FINANCIAL STATEMENTS: Please attach hereto current financial statements,
which have been signed and dated, for the Applicant, for the Borrower, for
all principals of the Borrower, for any Guarantors of the Mortgage Loan
required pursuant to the terms of this Application/Contract, and for all
Responsible Individuals. Current financial statements shall include a
balance sheet, income tax returns, and cash flow statements for all real
estate projects owned by the aforementioned individuals and/or entities.
9. LOAN TERMS:
(a) Maximum Loan Amount: $8,400,000.
(b) Interest Rate: 7.15% percent per annum.
(c) Term and Amortization: The Mortgage Loan will be for a 10-year term,
with any unpaid principal balance due at the end of the term. Payments
are to be based upon a 30-year amortization schedule.
(d) Monthly Payment: $56,734.17 due by the 15th day of each month
(hereinafter "Due Date").
Monthly payments shall be calculated on the basis of a 360-day year
composed of twelve 30-day months.
Page 2 of 19
<PAGE> 3
10. DESCRIPTION OF SECURITY: Describe the property that will secure the
Mortgage Loan (hereinafter "Security Property"): (Please complete all parts
of this section.)
HOWELL FERRY APARTMENTS
--------------------------------------------------------------------------
Name of Property
<TABLE>
<CAPTION>
<S> <C>
APARTMENTS 3640 PEACHTREE INDUSTRIAL BOULEVARD
---------------------------------------- -----------------------------------
Type of Property Street and Number
(office, retail, apt., industrial, etc.)
DULUTH GWINNETT GA 30136
------------------------------- ------------------------ ------------- -----------
City County State Zip Code
22.5 ACRES 180 UNITS APPROXIMATELY 244,839 NRA
------------------------------- ---------------------- ------------------------------------
Land (acres/sq.ft.) Building Improvements On-site (hereinafter "Improvements")
APPROXIMATELY 360 SPACES
------------------------
Parking Spaces
*(Gross building area, net rentable area, number units/rooms, etc.)
PEACHTREE INDUSTRIAL FEE SIMPLE TO BE BUILT
------------------------- --------------------- -------------------------------
- Abutting dedicated ways Fee Improvements
simple/leasehold estate Existing/Proposed
</TABLE>
* (Public or private roadways which provide access to the Security
Property. If roadways are private, any agreements setting forth use
and maintenance of such roadways are subject to the review and
approval of Nationwide)
Is the Security Property a separate parcel and does it comply with all
applicable subdivision ordinances and plat acts?
X
-------------------------------- -------------------------------
YES NO
If NO, please explain what is being done to plat the Security Property or
to bring the Security Property into compliance:
---------------------------------------------------------------------------
---------------------------------------------------------------------------
11. CLOSING DATE AND FUNDING REQUIREMENTS: The loan disbursement shall take
place at the closing on OR BEFORE 6/1/98 (hereinafter "Closing Date"), upon
completion of the Improvements in accordance with the approved final plans,
specifications, and soils report and in compliance with the terms and
conditions of this Application/Contract. This Application/Contract shall
expire on the Closing Date and thereafter Nationwide shall have no further
obligation to fund the Mortgage Loan. Nationwide may, in its sole
discretion, unilaterally extend the Closing Date. Time is of the essence
with respect to this Application/Contract. Exhibit "A" attached hereto
outlines any other conditions or specific requirements that must be
satisfied for funding to occur.
12. SITE INSPECTION: Nationwide will make a site inspection of the Security
Property to substantiate the loan amount and projected feasibility.
Applicant/Borrower will pay to Nationwide $2,500 to defray its cost of
making such inspection (hereinafter "Site Inspection Fee"). This Site
Inspection Fee is to be paid at the time this Application/Contract is
submitted to Nationwide for its review. Under no circumstances will the
Site Inspection Fee be refunded by Nationwide.
13. LETTER OF CREDIT: Any letter of credit required by this
Application/Contract shall mean an irrevocable and unconditional letter of
credit issued by a commercial bank acceptable to Nationwide having minimum
total assets of $500,000,000, and tangible capital and surplus equal to no
less than six (6) percent of total assets (hereinafter "Letter of
Credits"). Borrower, any Guarantors, and the Responsible Individuals shall
personally, jointly, severally, and unconditionally guarantee payment of
any Letter of Credit and any renewals and/or replacements thereof, in the
event the bank issuing the Letter of Credit becomes insolvent, files, or
has filed against it, any bankruptcy or similar proceeding, is closed
(either temporarily or permanently), placed in receivership,
conservatorship, or liquidation by the Federal Deposit Insurance
Corporation, the Resolution Trust Corporation, or any other local, state,
or federal governmental agency, or if the bank refuses or fails to honor
the Letter of Credit when presented by Nationwide. In addition, in the
event any of the aforementioned events take place, Nationwide, in its sole
discretion, may require that Borrower obtain a replacement Letter of Credit
from a bank or other financial institution acceptable to Nationwide, in its
sole discretion, or that Borrower pledge other security acceptable to
Nationwide, in its sole discretion, with respect to the obligation secured
by the Letter of Credit.
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<PAGE> 4
14. APPLICATION DEPOSIT: Applicant/Borrower shall deposit with Nationwide the
sum of $84,000 as an application deposit (hereinafter "Application
Deposit") in connection with this Application/Contract. Nationwide may
deposit this Application Deposit into its bank account. The deposit by
Nationwide of such Application Deposit shall not constitute acceptance or
approval of the Application/Contract. In the event Nationwide denies the
Application/Contract, the Application Deposit shall be refunded to the
Applicant without interest. Conversely, if the Application/Contract is
approved by Nationwide, the Application Deposit shall be credited to the
Commitment Fee required under the COMMITMENT FEE section herein and shall
be retained by Nationwide or resumed to Applicant in accordance with this
COMMITMENT FEE section.
15. COMMITMENT FEE: As partial consideration for Nationwide's agreement to loan
funds in the amounts and on the terns set forth herein, Applicant/Borrower
shall deliver to Nationwide upon Nationwide's acceptance of this
Application/Contract $84,000 in cash and a Letter of Credit in the amount
of $168,000 with an expiration date of no earlier than six (6) months after
the Closing Date of this Application/Contract (the cash and Letter of
Credit are collectively hereinafter referred to as the "Commitment Fee").
The Commitment Fee shall be returned to Applicant/Borrower after the
Mortgage Loan has closed in accordance with the terms and conditions of
this Application/Contract and Nationwide has received the original executed
note; but should the Mortgage Loan not close as provided for in this
Application/Contract due to a failure of the Borrower to fulfill the terms
and conditions of this Application/Contract, or if this
Application/Contract shall be cancelled as set forth in sub-paragraphs (a)
through (c) of the FINANCIAL RESPONSIBILITY paragraph herein, in each case
strictly according to the terms thereof, then Nationwide shall have the
option, without giving prior notice to Applicant/Borrower and without
incurring liability of any kind, to cancel this Application/Contract and
terminate all Nationwide's obligations hereunder. Upon cancellation of this
Application/Contract, Nationwide shall have the right to retain the
Commitment Fee in full and in addition, to pursue all legal and equitable
remedies available to Nationwide, including without limitation, suit to
collect provable damages (including loss of bargain) in excess of the
Commitment Fee.
In the event, however, that the Mortgage Loan does not close because
Nationwide has not approved the inspecting architect's report, the soils
report, the plans and specifications, the environmental report, the leases,
or the Security Property, or because one of the events outlined in
sub-paragraphs (d) or (e) of the FINANCIAL RESPONSIBILITY section herein
has occurred, then the Commitment Fee, less Nationwide's out-of-pocket
expenses, shall be refunded to the Applicant/Borrower, provided, however,
that Applicant/Borrower shall use its best efforts to correct any
deficiencies in such reports, leases or the Security Property. If
Applicant/Borrower does not use its best efforts to correct any such
deficiencies to Nationwide's satisfaction, then Nationwide may cancel this
Application/Contract and terminate all Nationwide's obligations hereunder.
Upon cancellation of this Application/Contract, Nationwide shall have the
right to retain the Commitment Fee and, in addition, to pursue all legal
and equitable remedies available to Nationwide, including without
limitation, suit to collect provable damages (including loss of bargain) in
excess of the Commitment Fee.
Election of any remedy by Nationwide shall not be deemed a waiver of any
alternative remedy set forth herein or available to Nationwide at law or
equity.
16. SUBMISSION INFORMATION: Upon delivery of this Application/Contract or
shortly thereafter, Applicant and/or the Loan Correspondent shall provide
Nationwide with any documentation and information requested by Nationwide
that is reasonably necessary for Nationwide to evaluate the feasibility of
the Mortgage Loan, including, but not limited to, such items as an
appraisal, site plan (showing the location of Improvements, parking, means
of ingress and egress and other easements), operating statements, leasing
information, a current rent roll, leases, plans and specifications for the
building(s), surveys, legal description of the Security Property, copies of
restrictive covenants and easements affecting the Security Property, credit
reports, bank references, information about pending litigation affecting
the Security Property, the Borrower, Guarantors, or Responsible
Individuals, and partnership agreements, trust agreements, articles of
incorporation, or other organizational documents.
17. MODIFICATIONS: This Application/Contract shall be deemed to contain all the
terms, conditions, and understandings between Nationwide and
Applicant/Borrower with respect to the Mortgage Loan and shall supersede
any and all prior understandings and agreements, written or oral, relating
thereto. The terms and conditions of this Application/Contract shall be
waived or modified only by written instrument signed by the parties hereto
except that extensions for the period for acceptance of the
Application/Contract or for extension of the Closing Date may be executed
by Nationwide unilaterally. Any modifications made to this
Application/Contract are not to be made in the body of the
Application/Contract but are to be enumerated in Exhibit B attached hereto.
Modifications should specifically reference that section of the
Application/Contract that is being modified.
18. APPLICANT/BORROWER: This Application/Contract is made by the undersigned
Applicant. Applicant shall be obligated to form Borrower (if Borrower has
not yet been formed as a legal entity) and shall cause the Borrower to
perform its obligations under this Application/Contract. Upon its legal
formation, Borrower shall be deemed to be bound and liable hereunder to the
same degree as Applicant.
19. ASSIGNMENT: This Application/Contract, the proceeds of the Mortgage Loan,
and any rights hereunder shall not be assignable by Applicant or Borrower
without Nationwide's prior written consent. Any attempted assignment
without such prior written consent shall be null and void and, at
Nationwide's option, shall constitute a default hereunder and shall result
in this Application/Contract being terminated and of no further force and
effect. Further, no third party shall rely upon the existence of this
Application/Contract without written confirmation from Nationwide that the
Application/Contract remains unchanged, that it has not been terminated,
and that the Applicant/Borrower is not in default hereunder. Nationwide, at
its option, may assign all or a portion of the Mortgage Loan to an
affiliated company or companies. If a portion of the Mortgage Loan is so
assigned, Borrower shall be asked to execute more than one promissory note
secured by one security instrument. All legal documentation for the
Mortgage Loan shall show both Nationwide and its affiliate(s), as the
lender. All ancillary documents, including, but not limited to, the survey,
environmental report, hazard insurance, and title insurance, must be
certified to and show the insured as both Nationwide and its affiliate(s).
Page 4 of 19
<PAGE> 5
Applicant has reviewed this Application/Contract, and understands that this
Application/Contract is subject to the terms and conditions of PART I, PART
II, Exhibit A, and Exhibit B of this Application/Contract, unless amended in
writing and signed by both Applicant and Nationwide.
ROBERTS PROPERTIES RESIDENTIAL, L.P.
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NAME OF APPLICANT
By: Roberts Realty Investors, Inc., Its General Partner
Charles R. Elliott, CFO
/s/ Charles R. Elliott
------------------------------------------------------------------
Signature(s)
PLEASE USE A PEN WITH OTHER THAN BLACK INK TO SIGN THIS
APPLICATION/CONTRACT AND DO NOT FORGET TO FILL IN THE DATE OF
SIGNATURE BELOW.
Applicant's Mailing Address:
ROBERTS PROPERTIES RESIDENTIAL, L.P.
------------------------------------------------------------------
8010 ROSWELL ROAD
------------------------------------------------------------------
SUITE 120
------------------------------------------------------------------
ATLANTA, GA 30350
------------------------------------------------------------------
DATE OF SIGNATURE: 11/4/97
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================================================================================
================================================================================
NATIONWIDE HEREBY ACCEPTS THE ABOVE APPLICATION/CONTRACT FOR
MORTGAGE LOAN SUBJECT TO NATIONSWIDE'S LETTER DATED
N/A , 19 .
------------------ --
NATIONWIDE LIFE INSURANCE COMPANY
By: /s/ ROBERT H. MCNAGHTEN DATE: DECEMBER 19, 1997
------------------------------------ --------------- --
Name ROBERT H. MCNAGHTEN
Vice President
- -------------------------------------------
Title
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THIS PAGE INTENTIONALLY LEFT BLANK
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<PAGE> 7
[LOGO] NATIONWIDE
INSURANCE
Nationwide is on your side
NATIONWIDE LIFE INSURANCE COMPANY
HOME OFFICE: ONE NATIONWIDE PLAZA - COLUMBUS, OHIO 43216
PART II
STANDARD TERMS AND CONDITIONS
APPLICATION/CONTRACT FOR MORTGAGE LOAN WITH
NATIONWIDE LIFE INSURANCE COMPANY
1. SECURITY: The Mortgage Loan shall be evidenced by a promissory note
(hereinafter "Note") and shall be secured by:
(a) A duly recorded mortgage or deed of trust and security agreement
(hereinafter "Mortgage or Deed of Trust") which constitutes a valid
first lien upon the fee simple estate (or leasehold estate, if
applicable) of the Security Property as identified in PART I of this
Application/Contract and the Improvements located (or to be
constructed) thereon.
(b) A first lien on all of the Borrower's furnishings, fixtures, and
equipment located on or used in the operation of the Security Property
(hereinafter the "Personal Property") as evidenced by a security
agreement and UCC-1 financing statements in recordable form. Borrower
may not sell, lease, or otherwise transfer the Personal Property
without Nationwide's prior written consent.
(c) An unconditional present assignment to Nationwide of all present and
future leases for space in the Security Property, and all rents,
issues, and profits arising from the leasing of the Security Property.
Such assignment shall include an assignment of any fees that permit
the tenant to terminate its lease which fees are payable to the
landlord under the terms and conditions of any of the Security
Property's leases.
(d) Such other documentation evidencing and securing the Mortgage Loan as
may be required by Nationwide or Nationwide's counsel.
2. PREPAYMENT PRIVILEGE:
(a) VOLUNTARY: During the term of the Mortgage Loan, full prepayment of
the Note shall be permitted upon the Borrower delivering to Nationwide
thirty (30) days prior written notice of the Borrower's intent to
prepay the Mortgage Loan in full, together with a premium equal to the
greater of
(i) The sum of (a) the present value of the scheduled monthly
payments on the Mortgage Loan from the date of prepayment to the
maturity date and (b) the present value of the amount of
principal and interest due on the maturity date of the Mortgage
Loan (assuming all scheduled monthly payments due prior to the
maturity date were made when due); minus (c) the outstanding
principal balance of the Mortgage Loan as of the date of
prepayment. The present values described in (a) and (b) are to be
computed on a monthly basis as of the date of prepayment,
discounted at the yield to maturity of the U.S. Treasury Note or
Bond that is closest in maturity to the maturity date of the
Mortgage Loan as reported in the Wall Street Journal on the fifth
business day preceding the date of prepayment; or
(ii) One percent of the outstanding principal balance of the Mortgage
Loan.
(b) INVOLUNTARY: In the event the Mortgage Loan is declared due and
payable in full due to a default in the repayment of the Note, or in
the event the Mortgage Loan is declared due and payable due to a
default in any of the terms, covenants and conditions contained in the
Mortgage or Deed of Trust or in any of the other loan documents
executed as evidence of or as further security for the Mortgage Loan,
there shall be paid therewith an involuntary prepayment premium equal
to the voluntary prepayment premium then payable.
(c) APPLICATION OF INSURANCE PROCEEDS OR CONDEMNATION AWARDS: The
application of any insurance proceeds or condemnation awards to the
reduction of the outstanding principal balance of the Mortgage Loan
shall be at par with no prepayment premium due and payable and the
monthly payment shall be reduced accordingly.
(d) PREPAYMENT DURING LAST NINETY DAYS: During the last ninety (90) days
of the term of the Mortgage Loan, the Borrower may prepay at par the
full outstanding principal balance of the Mortgage Loan.
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<PAGE> 8
3. ADDITIONAL LOAN TERMS:
(a) DEFAULT INTEREST RATE: The lesser of (i) the highest rate of interest
allowable under the laws of the state in which the Security Property
is located, or (ii) the then applicable rate of interest of the Note
plus five (5) percent per annum. The default rate of interest shall
apply only if the entire outstanding principal balance of the Mortgage
Loan shall become due and payable, whether at maturity, by
acceleration or otherwise.
(b) LATE PAYMENT CHARGE: Prior to acceleration, a late payment charge of
five cents ($.05) for each dollar of principal and/or interest not
paid by the Due Date shall accrue to the benefit of Nationwide each
month the payment is delinquent as reimbursement for additional
administrative costs incurred by Nationwide as a result of the late
payment. A payment of principal and/or interest shall be deemed to
have been paid on the Due Date if the envelope bearing said payment is
postmarked by the U.S. Postal Service on or before said Due Date, is
correctly addressed, and bears adequate first-class postage.
(c) TAX AND INSURANCE ESCROW: On the Closing Date, a tax and insurance
escrow shall be established and adequate funds shall be deposited with
Nationwide to bring the tax and insurance escrow into balance at that
time. Thereafter, in addition to and concurrent with each monthly
installment of principal and interest, a tax and insurance escrow
deposit shall be made by Borrower. The amount of the escrow deposit
shall be set by Nationwide based upon the latest available data and
the funds shall be deposited with Nationwide so that the tax and
insurance escrow account equals an amount sufficient to pay one year's
taxes and one year's insurance premiums at least thirty (30) days
prior to the due dates for the payment of taxes and insurance
premiums.
(d) LOAN YEAR: A "Loan Year" shall mean each twelve (12)-month period
beginning with the first full monthly installment of principal and/or
interest due under the terms of the Note and each anniversary thereof.
(e) CURE PERIODS: Borrower shall have no period in which to cure a
monetary default. A non-monetary default is any default which is not a
monetary default or an incurable default as defined in the Note.
Borrower shall have thirty (30) days after written notice thereof from
Nationwide to cure a non-monetary default, unless the non-monetary
default cannot be cured within said thirty (30) day period in which
event Borrower shall have a reasonable period of time to complete
cure, provided that action to cure such non-monetary default is
commenced within said thirty (30) day period and Borrower is, in
Nationwide's sole judgment, diligently pursuing a cure to completion.
4. PLANS, SPECIFICATIONS, AND SOILS REPORT: Applicant/Borrower shall submit to
Nationwide within thirty (30) days of Nationwide's acceptance of this
Application/Contract a complete set of final (or "as-built" if the
Improvements are completed as of the date of this Application/Contract)
plans and specifications for the Improvements constructed or to be
constructed on the Security Property (hereinafter "Plans and
Specifications"); each sheet of said plans is to be dated and signed by the
project architect and bear his seal. Nationwide shall also receive a copy
of the professional soils engineer's report on the site along with his
recommendations (hereinafter "Soils Reporting"). The Plans and
Specifications and the Soils Report are subject to the review and approval
of Nationwide.
5. INSPECTING ARCHITECT: Nationwide shall appoint an architect of its choice
(hereinafter "Inspecting Architect") to review, at Applicant/Borrower's
expense, the Plans and Specifications, and the Soils Report. If the
Improvements are under construction, the Inspecting Architect shall make
monthly inspections of the Improvements being constructed on the Security
Property during the construction period and shall issue written reports to
Nationwide indicating that the Improvements are being constructed in
accordance with the final Plans and Specifications and in accordance with
the recommendations of the Soils Report. If the Improvements are complete
as of the date of this Application/Contract, the Inspecting Architect shall
inspect the Security Property and shall issue a written report stating that
the Improvements were, to the best of his/her knowledge, completed in
accordance with the Plans and Specifications submitted to Nationwide and in
accordance with the recommendations of the Soils Report. The Inspecting
Architect shall also comment on the structural and operational integrity of
the Improvements, specifically referencing the construction detail, the
HVAC system, and the roofing system. Any deficiencies disclosed by any of
the Inspecting Architect's reports must be corrected to Nationwide's
satisfaction prior to the Closing Date of the Mortgage Loan.
6. ENVIRONMENTAL AUDIT AND INDEMNIFICATION: Prior to the Closing Date of the
Mortgage Loan, an environmental engineer, satisfactory to Nationwide, shall
perform, at Applicant/Borrower's expense, an environmental audit of the
Security Property, which audit shall be subject to the review and approval
of Nationwide. The environmental audit shall be addressed to Nationwide and
shall include reports and investigations of any current or past use of the
Security Property, as well as of other properties contiguous to the
Security Property, and shall demonstrate that the Security Property
(including the ground water of the Security Property)
(a) is in compliance with all laws, rules, and regulations of any federal,
state, county, or local governmental authority relating to
environmental matters within the jurisdiction of such governmental
authority, and
(b) does not contain any chemical, material, or substance in excess of
legal limits exposure to which is prohibited, limited, or regulated by
any federal, state, county, or local governmental authority, or which
is known to pose a hazard to the health and safety of the occupants of
the Security Property, and
(c) does not contain asbestos in any form, and
(d) does not contain an underground storage tank of any kind, and
(e) has not been used, and is not currently being used for any activities
involving, directly or indirectly, the use, generation, treatment,
storage, or disposal of any hazardous or toxic chemical, material,
substance or waste.
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<PAGE> 9
Nationwide reserves the right to retain, also at Applicant/Borrower's expense, a
consultant to review any report prepared by the environmental engineer and/or to
conduct its own investigation of the Security Property. If any hazardous or
toxic chemical, material substance or waste is revealed in such audit,
Applicant/Borrower shall remove same or otherwise adequately dispose of same and
restore the Security Property to a condition acceptable to Nationwide, in its
sole discretion, prior to the Closing Date.
Further, the Borrower and the Responsible Individuals shall indemnify and hold
Nationwide harmless from and against any and all losses, liabilities, damages,
injuries, costs, expenses, and claims of any and every kind whatsoever, incurred
or suffered by, or asserted against Nationwide with respect to, or as a direct
or indirect result of, the presence on, under, or about the Security Property,
or the escape, seepage, leakage, spillage, discharge, emission, or release from,
the Security Property of any hazardous materials, including, without limitation,
any losses, liabilities, damages, injuries, costs, expenses, or claims asserted
or arising under any hazardous waste laws, regardless of whether or not caused
by, or within the control of Borrower. The indemnification shall survive the
repayment and satisfaction of the Mortgage Loan unless at such time Borrower
provides Nationwide an environmental report acceptable to Nationwide showing the
Security Property to be free of hazardous materials and not in violation of
hazardous waste laws; however, the Borrower shall not be liable under the
indemnity if the Security Property becomes contaminated subsequent to
Nationwide's acquisition of the Security Property by foreclosure or by
acceptance of a deed in lieu thereof, or subsequent to any transfer of ownership
which was approved or authorized by Nationwide. The burden of proof under this
subparagraph with regard to establishing the date upon which such chemical,
material or substance was placed or appeared in, on, or under the Security
Property shall be upon Borrower.
7. ACCESSIBILITY INSPECTION AND INDEMNIFICATION: The Inspecting Architect
shall also provide a written opinion as to whether the Improvements are in
compliance with all provisions governing accessibility for the disabled
under The Fair Housing Act of 1988, The Americans With Disabilities Act and
any amendments thereto or any other accessibility laws. Further, the
Borrower and the Responsible Individuals shall indemnify and hold
Nationwide harmless from and against any and all losses, liabilities,
damages, injuries, costs, expenses, and claims of any and every kind
whatsoever, incurred or suffered by, or asserted against Nationwide with
respect to, or as a direct or indirect result of, noncompliance with the
foregoing laws, as amended, or any other similar, present or future laws
applicable to the Security Property. The indemnification shall survive the
repayment and satisfaction of the Mortgage Loan; provided, however,
Borrower shall not be liable for compliance with any accessibility laws
that first become effective, or for any violation of any accessibility laws
resulting from alterations or improvements to the Security Property that
are performed, subsequent to Nationwide's actually acquiring title to the
Security Property pursuant to foreclosure or acceptance of deed in lieu
thereof, or subsequent to any transfer of ownership of the Security
Property that has the prior written approval of Nationwide; provided that
such transferee assumes in writing all obligations of Borrower with respect
to compliance with accessibility laws under the Deed of Trust/Mortgage and
Accessibility Indemnity Agreement.
8. COMMENCEMENT OF CONSTRUCTION: If the Improvements are to be constructed,
this Application/Contract may be cancelled at Nationwide's option and all
fees retained if construction of the Improvements has not commenced within
ninety (90) days of the date that this Application/Contract is accepted by
Nationwide.
9. LEASES: All existing leases, or any other leases hereinafter created, shall
be subject to the review and approval of Nationwide, shall be for a minimum
term of three (3) years (not applicable if Security Property is an
apartment project) and shall be assigned, in form and content acceptable to
Nationwide, as additional security for the Mortgage Loan. At Nationwide's
option, any lease may be made superior or subordinate to the Mortgage or
Deed of Trust.
As an accommodation to the Borrower, Nationwide will approve a standard
lease form. Notwithstanding the approval of a standard lease form,
Nationwide specifically reserves the right to approve each lease wherein
the tenant occupies more than ten (10) percent of the net leasable area of
the Improvements, or the lease term, excluding renewal options, exceeds
five (5) years; said review shall include a review of the prospective
tenant's current financial statements and the most recent Dun & Bradstreet
credit report on said tenant, all to be provided through
Applicant/Borrower. Borrower may deal with smaller tenants (those taking
3,000 square feet of space or less) in the ordinary course of business
without Nationwide's consent.
10. TENANT FINISH AND CONSTRUCTION ESCROW ACCOUNT: There shall be an escrow
account established on the Closing Date in an amount equal to one hundred
twenty-five (125) percent of the total estimated cost of completing all
unleased, unoccupied, and unfinished leasable space in the Improvements and
the cost of completing any other construction items, including, but not
limited to, landscaping and paving. The Inspecting Architect shall estimate
the costs of completion in writing within ten days prior to the Closing
Date. The funds shall be placed in an interest-bearing escrow account, with
interest earned payable to the Borrower, and will be made available to the
Borrower as the construction is completed and the unfinished leasable space
is actually finished and occupied by tenants under leases approved by
Nationwide without default of either party. The space shall be deemed
"actually finished and occupied by tenants" when the tenant(s)" has(have)
provided Nationwide with estoppel certificate(s), acceptable to Nationwide
in its sole discretion, the Inspecting Architect has inspected the finished
space and provided Nationwide with a written report stating that the tenant
finish has been completed, the governmental entity having jurisdiction over
the Security Property has issued unconditional Certificates of Occupancy
for the subject space, and Nationwide has received a title update showing
no new liens of record. Any funds escrowed for tenant finish and other
construction work which are not disbursed within twelve (12) months of the
Closing Date shall be applied at par against the then outstanding principal
balance of the Mortgage Loan, and the monthly payment shall be reduced
accordingly. Nationwide, at its option, may unilaterally extend the
expiration date for the completion of the space and the completion of other
construction items and for the release of escrowed funds.
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<PAGE> 10
11. MORTGAGE OR DEED OF TRUST COVENANTS: The Mortgage or Deed of Trust shall
contain those items customarily found in such documents including, but not
limited to, the following provisions:
(a) TRANSFER: The entire outstanding principal balance of the Mortgage
Loan, together with accrued unpaid interest and other sums required by
the loan documents, shall become immediately due and payable upon the
Borrower assigning, mortgaging, or otherwise conveying any interest in
the Security Property, or if there is a change in the controlling
interest of Borrower, without the prior written consent of Nationwide.
Notwithstanding the above, if Nationwide approves a transfer of the
Security Property or a change in the controlling interest in the
Borrower, Nationwide reserves the right to charge an assumption fee
and/or to change the monthly payment to reflect a change in the
Mortgage Loan's interest rate, an initiation of amortization or a
modification of the existing amortization schedule. Notwithstanding
the foregoing, there will be no change in the maturity date of the
Note.
If a transfer of the Security Property or a controlling interest in
Borrower is approved by Nationwide, Nationwide must receive, for its
review and approval, copies of all transfer and other related
documents, such transferee must assume in writing all obligations of
the Borrower under the loan documents, and Borrower must pay all costs
and expenses in connection with such transfer and assumption,
including, without limitation, all fees and expenses incurred by
Nationwide.
(b) INSURANCE: Borrower shall furnish insurance policies to Nationwide
evidencing the following coverages and amounts, properly assigned to
Nationwide by a standard mortgagee clause:
(i) Fire, extended coverage, and other hazards as requested from
time to time by Nationwide, covering all Improvements for their
full replacement cost, less excavating and foundation costs,
provided, however, in no case shall the amount of insurance be
less than the difference between the amount of the Mortgage Loan
and eighty (80) percent of appraised land value of the Security
Property.
(ii) Rent loss insurance, without a co-insurance provision, in an
amount equal to not less than twelve (12) months of scheduled
rental income from the Security Property; or, if applicable,
business interruption insurance in an amount sufficient to pay
debt service, operating expenses, taxes, and insurance for the
Security Property for a period of twelve (12) months.
(iii) Comprehensive public liability insurance in an adequate amount,
taking into consideration the property type being insured and
the corresponding liability exposure. The amount of liability
insurance shall be subject to the approval of Nationwide.
(iv) Flood insurance, if the Security Property lies within a Special
Flood Hazard Area as designated on the Department of Housing and
Urban Development's Maps, or another flood prone area. If the
Security Property is not in a Special Flood Hazard Area,
Nationwide must receive a certification from a registered land
surveyor or a licensed engineer to this effect.
(v) Any other insurance coverage deemed necessary by Nationwide.
(c) INSURANCE PROCEEDS: Borrower shall assign all insurance proceeds relating
to damage or destruction of the Security Property to Nationwide. Nationwide
shall release the insurance proceeds to the Borrower as restoration
progresses, if the loss or damage from fire or other casualty is in an
amount less than fifty (50) percent of the outstanding principal balance of
the Mortgage Loan, subject to the following conditions:
(i) Borrower is not in default under the terms, covenants, and
conditions of the loan documents or any other agreements between
Borrower and Nationwide.
(ii) The Improvements shall be at least eighty (80) percent leased after
restoration pursuant to leases approved in writing by Nationwide.
(iii) Nationwide approves in writing the plans and specifications for
restoration.
(iv) There are sufficient funds on deposit at all times with Nationwide
to complete the rebuilding, as certified by an architect approved by
Nationwide.
(v) Borrower provides suitable completion, payment and performance
bonds, and builder's all risk insurance in form and amount
acceptable to Nationwide.
(vi) The insurer does not assert any defense to payment under such
policies against the Borrower or any tenant of the Security
Property pursuant to the insurance policy covering the
Improvements of the Security Property.
(vii) Nationwide shall have the option of applying, at par, any surplus
insurance proceeds which remain after rebuilding to the reduction of
the outstanding principal balance of the Mortgage Loan.
(viii) Funds shall be disbursed not more often than once each month and in
not more than five (5) increments of not less than $50,000 each,
except for the last disbursement.
(ix) Prior to any disbursement, an inspecting engineer/architect of
Nationwide's choice, whose fees shall be paid by Borrower, shall
certify completion of work in place in accordance with approved
plans and specifications, and in accordance with all applicable
building codes, zoning ordinances, and all other local or federal
governmental regulations.
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<PAGE> 11
(x) Such other conditions as would customarily be required by a local
construction or are otherwise reasonable.
In the event of loss or damage by fire or other casualty in an amount
greater than fifty (50) percent of the outstanding principal balance of the
Mortgage Loan, Nationwide, at its sole option, may require the Borrower to
use any insurance proceeds to either immediately rebuild any portion or all
of the Improvements or Nationwide shall apply the insurance proceeds to the
outstanding principal balance of the Mortgage Loan. Any reduction of the
outstanding principal balance of the Mortgage Loan as a result of the
application of the casualty insurance proceeds shall be at par and the
monthly payment shall be reduced accordingly.
(d) ADDITIONAL INSURANCE REQUIREMENTS: All policies required of
Applicant/Borrower shall be written with companies which have a rating as
published in the current issue of Best's Key Rating Guide of at least
A:VIII, shall be in forms satisfactory to Nationwide, shall cite
Nationwide's interest as mortgagee in standard non-contributory mortgagee
clauses effective as of the Closing Date, shall be maintained throughout
the term of the Mortgage Loan without cost to Nationwide, shall be
deposited with Nationwide, and shall contain such provisions as Nationwide
deems necessary or desirable to protect its interest, including, without
limitation, a provision for thirty (30) days prior written notice to
Nationwide of the insurance company's intent to cancel the policy. Said
insurance requirements shall specifically be set forth in the Mortgage or
Deed of Trust. If a blanket policy is issued, a certified copy of said
policy shall be furnished together with an Evidence of Insurance (Acord
Form 27) for property insurance and a Certificate of Insurance (Acord Form
25-S) for liability insurance indicating that Nationwide is the insured
under said policies with regard to the Security Property and that coverages
with respect thereto are in the required amounts.
(e) CONDEMNATION: Nationwide shall receive an assignment of all claims, awards,
proceeds, or rights of action in connection with any condemnation of or
eminent domain proceeding affecting the Security Property. Nationwide
reserves the right, at its sole option, to apply any condemnation awards to
the reduction of the outstanding principal balance of the Mortgage Loan at
par or to hold the awards in an escrow account to be used for the cost of
restoring the Security Property. Notwithstanding the above, if any part of
the Improvements shall be condemned by any governmental authority having
jurisdiction over the Security Property or if so much of the Security
Property shall be condemned by any governmental authority having
jurisdiction over the Security Property that the Security Property is in
violation of applicable parking, zoning, platting or other ordinances, or
fails to comply with the terms of the Major Tenant leases, in each case,
Nationwide shall be entitled to apply all condemnation proceeds to the
repayment of the outstanding principal balance of the Mortgage Loan, at
par, and Nationwide shall have the further right to call the Mortgage Loan
due and payable in full without the imposition of a prepayment premium.
(f) MANAGEMENT AND LEASING RESTRICTION: During the term of the Mortgage Loan,
Borrower, or its designee who shall be approved by Nationwide, shall be the
exclusive manager and leasing agent of the Security Property. Any
management or leasing agreement shall be subordinate to the Mortgage or
Deed of Trust and shall be subject to the review and approval of
Nationwide. If there is no formal management agreement, Borrower shall
provide Nationwide with a letter so stating and further stating the name of
the person or entity charged with the responsibility of managing the
Security Property.
(g) SECONDARY FINANCING: There shall be no secondary financing of the Security
Property.
(h) MAINTENANCE OF THE SECURITY PROPERTY: Borrower shall not commit, suffer, or
permit any waste or deterioration of the Security Property in any respect
nor alter the Improvements nor erect any additional improvements or make
additions to the existing Improvements on the Security Property without the
prior written consent of Nationwide. The foregoing restriction shall not
apply to erection or removal of non-load-bearing interior walls or
alterations required by the terms of tenant leases which have been approved
by Nationwide. Borrower shall cause the Security Property to comply at all
times with all applicable federal, state, and local laws related thereto.
Borrower shall not use, generate, treat, store, or dispose of any hazardous
chemical, material, substance, or waste on the Security Property, nor will
Borrower knowingly allow any tenant of the Security Property to use,
generate, treat, store, or dispose of any hazardous chemical, material,
substance, or waste on the Security Property. Nationwide shall have the
right to inspect the Security Property at any time during normal business
hours.
(i) ANNUAL STATEMENTS: Borrower shall furnish to Nationwide, within one hundred
twenty (120) days of the end of the Borrower's fiscal year, annual
statements (income statements and balance sheets) for the Borrower and the
Security Property. These statements shall be in form acceptable to
Nationwide and shall be prepared in accordance with generally accepted
accounting principles and shall include a rent roll certified as true and
correct by the Borrower and current annual sales figures for all Major
Tenants if required under their respective leases or otherwise available.
If the Mortgage Loan is in default at any time, for any reason, Nationwide
shall have the right to require that these financial statements be audited
and certified by a certified public accountant approved by Nationwide, the
cost of which shall be paid by the Borrower. In addition, Nationwide may,
upon prior notice, inspect and make copies of all books and records
relating to the Security Property during normal business hours. A charge of
$200 per month for administrative expenses shall be assessed for each
successive month that financial statements are not delivered to Nationwide
after the expiration of the one hundred twenty (120)-day period.
(j) Leases: The Borrower agrees to keep and perform all terms, conditions, and
covenants of all leases affecting the Security Property on its part to be
kept and performed.
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<PAGE> 12
(k) EXCULPATION: The liability of Borrower with respect to the payment of
principal and interest under the Note shall be "non-recourse", and
Nationwide's source of satisfaction of said indebtedness and Borrower's
other obligations under the Note and under any of the other loan documents
shall be limited to the Security Property and Nationwide's receipt of the
rents, issues, and profits from the Security Property. Nationwide shall not
seek to procure payment out of other assets of the Borrower or any person
or entity comprising the Borrower, or to seek any judgment (except as
hereinafter provided) for any sums which are or may be payable under the
Note, Mortgage/Deed of Trust, or any of the other loan documents, as well
as any claim or judgment (except as hereinafter provided) for any
deficiency remaining after foreclosure of the Mortgage/Deed of Trust.
Notwithstanding the foregoing, nothing herein contained shall be deemed to
be a release or impairment of the indebtedness evidenced by the Note or the
security therefor intended by the other loan documents or be deemed to
preclude Nationwide from exercising its rights to foreclose the
Mortgage/Deed of Trust or to enforce any of its other rights or remedies
under the loan documents. It is expressly understood and agreed that the
aforementioned limitation on liability shall in no way affect or apply to
Borrower's or Responsible Individuals' continued liability for the
following items:
(i) fraud or misrepresentation made in connection with the Note or
any of the other loan documents governing, securing, or
pertaining to the payment thereof;
(ii) failure to pay taxes prior to delinquency or to pay assessments,
charges for labor or materials, or any other charges which may
create liens on any portion of the Security Property;
(iii) the misapplication of (a) proceeds of insurance covering any
portion of the Security Property, or (b) proceeds of the sale or
condemnation of any portion of the Security Property, or (c)
rentals received by or on behalf of the Borrower subsequent to
the date on which Nationwide makes written demand therefor
pursuant to any instrument governing, securing, or pertaining to
the payment of the Note;
(iv) causing or permitting waste to occur in, on, or about the
Security Property and failure to maintain the Security Property,
excepting ordinary wear and tear;
(v) the return to Nationwide of all unearned advance rentals and
security deposits paid by tenants of the Security Property and
not refunded to or forfeited by such tenants;
(vi) the return to Nationwide of any and all fees paid to Borrower by
tenants of the Security Property which fees permit tenants to
terminate their leases;
(vii) loss by fire or casualty to the extent not compensated by
insurance proceeds collected by Nationwide;
(viii) the return of, or reimbursement for all Personal Property owned
by the Borrower taken from the Security Property by or on behalf
of the Borrower, out of the ordinary course of business, and not
replaced by items of equal or greater value than the original
value of the Personal Property so removed;
(ix) all court costs and reasonable attorneys' fees actually incurred
which are provided for in the Note or in any other loan documents
governing, securing, or pertaining to the payment of the Note;
(x) (a) removal of any chemical, material, or substance in excess of
legal limits to which exposure is prohibited, limited, or
regulated by any federal, state, county, or local authority which
may or could pose a hazard to the health and safety of the
occupants of the Security Property, regardless of the source of
origination, (b) the restoration of the Security Property to
comply with all governmental regulations pertaining to hazardous
waste found in, on, or under the Security Property, regardless of
the source of origination, and (c) any indemnity or other
agreement to hold Nationwide harmless from and against any and
all losses, liabilities, damages, injuries, costs, and expenses
of any and every kind arising as a result of the existence and/or
removal of hazardous materials, toxic substances, or hazardous
waste and from the violation of hazardous waste laws. The
Borrower shall not be liable hereunder if the Security Property
became contaminated subsequent to Nationwide's acquisition of the
Security Property by foreclosure or acceptance of a deed in lieu
thereof or subsequent to any transfer of ownership of the
Security Property which was approved or authorized by Nationwide;
provided that such transferee assumes in writing all obligations
of Borrower with respect to compliance with environmental laws
under the Deed of Trust/Mortgage and Environmental Indemnity.
Liability under this section shall extend beyond repayment of the
Note and compliance with the terms of the Mortgage or Deed of
Trust unless at such time Borrower provides Nationwide an
environmental assessment report acceptable to Nationwide showing
the Security Property to be free of hazardous materials and not
in violation of hazardous waste laws. The burden of proof under
this subparagraph with regard to establishing the date upon which
such chemical, material, or substance was placed or appeared in,
on, or under the Security Property shall be upon Borrower;
(xi) (a) any and all costs incurred in order to cause the Improvements
to comply with the accessibility provisions of The Fair Housing
Act of 1988, The Americans With Disabilities Act, and any other
accessibility laws, and (b) any indemnity or other agreement to
hold Nationwide harmless from and against any and all losses,
liabilities, damages, injuries, costs, or expenses of any kind
arising as a result of non-compliance with any accessibility
laws; provided, however, Borrower shall not be liable for
compliance with any accessibility laws that first become
effective, or for any violation of any accessibility laws
resulting from alterations or improvements to the Security
Property that are performed, subsequent to Nationwide's actually
taking possession of the Security Property pursuant to
foreclosure of the Mortgage/Deed of Trust or acceptance of deed
in lieu thereof, or subsequent to any transfer of ownership of
the Security Property that has the prior written approval of
Nationwide; provided that such transferee assumes in writing all
obligations of Borrower with respect to compliance with
accessibility laws under the Deed of Trust/Mortgage and
Accessibility Indemnity Agreement.
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<PAGE> 13
(xii) Obligations under any Letter(s) of Credit held by Nationwide as
outlined in the LETTER OF CREDIT section of this
Application/Contract;
The Responsible Individuals will be required to execute a separate
indemnity agreement wherein they agree to personally, jointly, severally,
and unconditionally indemnify Nationwide for all sums due Nationwide under
items (i) through (xii) above. Moreover, the Borrower and said Responsible
Individuals shall become personally liable, jointly and severally, for the
entire amount of the Mortgage Loan (including all principal, interest, and
other charges) in the that the Borrower (1) violates the covenant governing
the placing of subordinate financing on the Security Property or (2)
violates the covenant restricting transfers of interest in the Security
Property or transfers of ownership interests in the Borrower.
The obligations of the Borrower in subparagraphs (i) through (xii) above,
except as provided herein, shall survive the repayment and satisfaction of
the Mortgage Loan.
So long as a guaranty with respect to repayment of principal and interest
is in force and effect, the "non-recourse" nature of the Mortgage Loan as
to repayment of principal and interest as expressed above shall be
suspended and of no force or effect.
12. FINANCIAL RESPONSIBILITY: Nationwide may terminate this
Application/Contract and retain the Commitment Fee and pursue other
remedies reserved herein if at any time prior to the Closing Date, any of
the following events occur:
(a) Borrower, any Guarantor, or any of the Responsible Individuals has
made a general assignment for the benefit of creditors, or there is
filed by or against the Borrower, any Guarantor or any of the
Responsible Individuals, a petition in bankruptcy or for the
appointment of a receiver, or there commences under any bankruptcy or
insolvency law, proceedings for the Borrower's, Guarantor's, or any of
the Responsible Individual's relief, or for the compromise, extension,
arrangement, or adjustment of the Responsible Individual's
obligations, or there is an outstanding money judgment against the
Borrower, Guarantor, or any of the Responsible Individuals.
(b) There has been more than a ten (10) percent decline in Borrower's,
Guarantor's, or any of the Responsible Individual's tangible net worth
from that represented to Nationwide in the financial statements
provided to Nationwide at the time this Application/Contract was
submitted to Nationwide. Current financial statements shall be
presented to Nationwide no later than ten (10) days prior to the
Closing Date.
(c) There is filed by or against the Borrower, any general partner of
Borrower, any Guarantor, or any of the Responsible Individuals pending
litigation which, in Nationwide's sole discretion, would have a
materially adverse impact on the financial condition of any of the
aforementioned parties or their ability to repay the loan. Any such
litigation must be disclosed in writing to Nationwide which disclosure
must include the nature and status of the litigation.
(d) There has been a material adverse change in the financial condition
and/or operating results of any of the Major Tenants. Current
financial statements for the latest period available showing balance
sheets and operating results shall be presented to Nationwide no later
than ten (10) days prior to the Closing Date.
(e) Any of the Major Tenants makes a general assignment for the benefit of
creditors, or there is filed by or against any such Major Tenants a
petition in bankruptcy or for the appointment of a receiver, or there
commences under any bankruptcy or insolvency law proceedings for the
Major Tenant's relief, or for the compromise, extension, arrangement,
rearrangement, reorganization, or adjustment of any of the Major
Tenant's obligations.
13. CLOSING:
(a) At least thirty (30) days prior written notice shall be given by
Applicant/Borrower to Nationwide of Applicant's/Borrower's readiness
to close the Mortgage Loan. Nationwide and Nationwide's counsel shall
have the full thirty (30)-day period to review and/or prepare all
legal documents and all other documents required under the terms of
this Application/Contract. The burden of assembling and presenting all
materials and of curing all matters determined to be objections or
title defects is the responsibility of the Applicant/Borrower. Federal
Reserve Funds for the closing will be wired to the entity charged with
closing the Mortgage Loan and disbursing funds on the Closing Date,
provided that Nationwide receives at least twenty-four (24) hours
notice thereof. The Closing Date shall not be on a Friday or the last
business day of the month unless the Borrower agrees in writing to
assume responsibility for the payment of interest on the Mortgage Loan
in the event of a delay in the receipt of funds caused by a delay
within the Federal Reserve System or the receiving bank.
Interest shall accrue from the date of wiring.
The following shall be furnished to Nationwide prior to the Closing
Date and any subsequent disbursements, if any:
(i) Photographs of the completed Improvements.
(ii) Certificates of occupancy and all necessary licenses from
appropriate governmental authorities and evidence satisfactory to
Nationwide that all utilities necessary for the operation of the
Security Property have been installed and the installation fees
have been paid.
Page 13 of 19
<PAGE> 14
(iii) Legal opinions dated as of the Closing Date, in form and substance
satisfactory to Nationwide, from Borrower's counsel who shall be licensed
to practice law in the state in which the Security Property is located,
and to the extent Nationwide requests, from Nationwide's outside counsel,
which Nationwide deems necessary or appropriate in a project of this
kind, including, but not limited to, the following: that all documents
evidencing and securing the Mortgage Loan contemplated hereby have been
duly authorized, executed, and delivered by the Borrower and are legal,
valid, binding obligations of the Borrower enforceable in accordance with
their respective terms; that the partnership/corporation/trust (as the
case may be) and all entities comprising the Borrower are duly organized,
validly existing, and in good standing, pursuant to all applicable laws
and are authorized to do business in the state in which the Security
Property is located; that the partnership/corporation/trust (as the case
may be) has the authority to borrow money and to own the Security
Property and to carry on its operations as conducted and as proposed to
be conducted; that the Mortgage Loan does not violate the usury laws of
the state where the Security Property is located; that there is no
action, suit, or legal proceeding pending, or to the knowledge of such
counsel, after due inquiry of Borrower, threatened against or affecting
the partnership/corporation/trust, its partners, officers, or trustees
(as the case may be) any Guarantor or any Responsible Individual or the
Security Property before or by any court, administrative agency or other
governmental authority or any arbitrator; that neither the execution nor
the delivery of this Application/Contract or the documents evidencing and
securing the Mortgage Loan, nor compliance with the provisions of the
loan documents will conflict with or result in a breach of any of the
provisions of, or constitute a default under the partnership
agreement/corporate by-laws, articles of incorporation, and
regulations/trust indenture (as the case may be) or of any applicable
law, judgment, order, writ, injunction, decree, rule, or regulation of
any court, administrative agency, or other governmental authority, or any
determination or award of any arbitrator, or of any agreement or other
instrument to which the Borrower is a party or by which the Borrower is
bound; that no reports have come to the attention of such counsel
indicating that the Security Property is in violation of any
environmental laws, rules or regulations enacted by federal, state, or
local authorities having jurisdiction over the Security Property; and as
to such other matters incidental to the transaction herein contemplated
as Nationwide may reasonably request. If the borrowing entity has been
formed in a state other than the state in which the Security Property is
located, Nationwide shall require a legal opinion from an attorney
licensed to practice law in the state of formation opining to the
Borrower's due formation and good standing within the state of formation.
(iv) Copy of all title company closing statements.
(v) AIA Certificate of Substantial Completion executed by the Borrower, the
project general contractor, and the project architect indicating that the
Improvements have been completed in accordance with the final plans and
specifications, including any grading, seeding, landscaping, paving, and
all other on-site and off-site improvements impacting the operation of
the Security Property.
(vi) Estoppel certificates executed by each tenant occupying any portion of
the Security Property in the form currently required by Nationwide (not
applicable if the Security Property is an apartment project).
(vii) A rent roll that is certified as true and complete by the Borrower and
showing all tenants in occupancy, the address or suite number (or
apartment number for apartments) taken by each tenant, the square footage
being occupied by each tenant (except on apartment projects), the date of
lease expiration for each tenant, and the minimum annual rent (or monthly
rent for apartments) paid by each tenant.
(viii) Borrower's certificate executed by the Borrower on the Closing Date
stating that no part of the Security Property has been damaged and not
repaired to Nationwide's satisfaction, nor taken in condemnation or other
similar proceeding, nor that such proceeding is pending, or to the best
of the Borrower's knowledge, threatened; that direct connections have
been made to abutting public water, sewer, gas, electrical, and telephone
facilities and that the Improvements are ready for occupancy; that the
original building permit and an unconditional certificate of occupancy or
other unconditional certificate of appropriate governmental authorities
evidencing compliance with all zoning, building, and other applicable
regulations, have been issued. The Borrower's certificate shall also
state that there are no lawsuits pending, or, to the best of the
Borrower's knowledge, threatened against the Borrower, the Guarantors,
any of the Responsible Individuals or the Security Property, nor are
there any judgments outstanding against the Borrower, the Guarantors, or
any of the Responsible Individuals. Borrower shall also represent and
warrant to Nationwide that Borrower is not engaged, and has not at any
time since Borrower's acquisition of the Security Property, engaged in a
"pattern of racketeering activity" within the meaning of 18 U.S.C. ss.
1961, as amended, or within the meaning of any similar local, state, or
federal law, nor has Borrower committed any other act or engaged in any
other pattern of actions, the potential results of which might include
forfeiture of Borrower's interest in the Security Property.
(ix) Mortgagee's title insurance policy with mechanic's lien protection and
without survey exception issued by a title company acceptable to
Nationwide. Said policy shall also include ALTA Form 3.1 zoning and ALTA
Form 9 comprehensive endorsements, or their equivalents if permissible by
state law, and such other endorsements as required by Nationwide or
Nationwide's counsel. If a 3.1 zoning endorsement or similar endorsement
is not available under state law, Nationwide shall be furnished with
other documentary evidence satisfactory to Nationwide that the Security
Property complies with all applicable zoning requirements. Furthermore,
Nationwide shall require evidence satisfactory to Nationwide that the
Security Property currently complies and, upon foreclosure, will comply
with all applicable subdivision ordinances and plat acts.
Page 14 of 19
<PAGE> 15
(x) A current certified as-built survey of the property disclosing all
improvements, encroachments, easements and rights-of-way, abutting
streets, and the number of parking spaces (including those reserved for
the handicapped). The survey must meet the minimum standard detail
requirements as adopted in 1992 by The American Land Title Association
and American Congress On Surveying & Mapping (and any subsequent
requirements), must show a state of facts acceptable to Nationwide and
the title company issuing the required title policy, be prepared and
certified by a duly registered land surveyor or licensed engineer, and be
revised and recertified upon completion of construction least two (2)
weeks prior to the Closing Date showing the Improvements as constructed
on the site. The legal description of the Security Property shall be
shown on the face of the survey and a flood hazard certification attached
if applicable. The certification must also state whether abutting streets
and other means of ingress and egress have been publicly dedicated and
accepted for maintenance by the local governmental authority having
jurisdiction over the Security Property. If abutting streets or other
means of ingress and egress are privately owned, the certification must
specifically state this fact and an agreement for maintenance and repair
must be provided to Nationwide for its review and approval.
(xi) Certification by Borrower of the total cost of construction of the
Security Property. If said costs are less than the loan amount, the loan
amount shall be reduced to an amount no greater than this total certified
cost. (Applicable only if Improvements have been completed within the
last thirty-six (36) months.) For purposes of this paragraph, the date of
completion of construction of the Security Property shall be May 1998.
(b) Whether or not a closing occurs, Applicant/Borrower agrees to pay or
reimburse Nationwide for all fees and expenses incidental to the Mortgage
Loan herein contemplated, including, but not limited to, legal fees,
Commitment Fee, Inspecting Architect fee, survey fee, Site Inspection
Fee, title fee, environmental engineer and/or consultant fee, and closing
costs.
(c) The Mortgage Loan shall also be subject to all legal requirements
Nationwide's counsel may reasonably assert in order to assure that
Nationwide's lien constitutes a valid first priority encumbrance against
the Security Property. Further, the Mortgage Loan shall be subject to
evidence satisfactory to Nationwide and Nationwide's counsel, in their
sole discretion, that the Security Property complies in all respect with
all federal, state, county, or municipal laws, ordinances, rules and
regulations applicable thereto. In addition, the Mortgage Loan is further
subject to the Borrower providing Nationwide or Nationwide's counsel with
such additional documentation as Nationwide's counsel may reasonably
require or which is customarily required by institutional mortgage
lenders.
14. PARTNERSHIP AGREEMENT/TRUST INDENTURE/ARTICLES OF INCORPORATION: The
partnership agreement/trust indenture/articles of incorporation (as the
case may be) establishing and governing the operation of Borrower and the
same for all underlying entities comprising Borrower and for the
Guarantors and/or Responsible Individuals (if Guarantors and/or
Responsible Individuals are not individuals) shall be subject to review
and approval by Nationwide.
15. ADVERTISING: Applicant/Borrower hereby authorizes Nationwide to
publicize, without divulging the specific terms thereof, in advertising,
press releases, or other material the fact that Nationwide has provided
the permanent financing for the Security Property. Subject to local code
requirements, Nationwide is authorized to display a sign on the Security
Property during the construction period (only applicable if Improvements
are to be built) referring to Nationwide as the provider of permanent
financing.
16. LIMITATION OF INTEREST: In no event shall Nationwide be entitled to
receive, nor shall Borrower be obligated to pay, or contract to pay any
amount as interest or as a charge for the use of money which exceeds the
maximum rate of interest that may be charged or contracted for under the
laws of the state in which the Security Property is located. If
Nationwide receives or contracts to receive an amount which exceeds such
maximum rate, said amount shall be applied to reduce the outstanding
principal balance of the Mortgage Loan, or otherwise credited to the
Borrower and not computed or received by Nationwide as interest. This
provision shall prevail in any agreement between Nationwide and
Applicant/Borrower.
17. SEPARATE AGREEMENT: A separate agreement executed by the appropriate
parties, providing for the maintenance and operation of all common access
ways, parking facilities, and other common areas or facilities, including
a party wall agreement between parties in interest in contiguous
buildings, shall be executed and placed of record prior to the recording
of the loan documents. Any such agreement shall be subject to
Nationwide's prior review and approval.
If there are outparcels that are not part of the Security Property or
that may be released from the Security Property after the Closing Date,
said outparcels shall be legally subdivided from the balance of the
Security Property and the subdivision map shall be in appropriate form
for recording with the county clerk's office. This replat shall comply
with all applicable requirements, and said replat shall be executed and
acknowledged by the appropriate governmental entities. Covenants
governing the outparcel(s) shall include cross easements for ingress,
egress, and parking, and restrictions limiting the height and square
footage of any improvements constructed or to be constructed on the
outparcel(s).
Said covenants shall (i) comply with all provisions in the leases for
space in the Security Property; (ii) be subject to Nationwide's prior
written approval; (iii) comply with all zoning ordinances of record; and
(iv) be filed of record.
18. SURVIVAL OF TERMS: All the terms and conditions of this
Application/Contract not expressly set forth in the loan documents or
other instruments executed and delivered by the Borrower with respect to
the Mortgage Loan shall survive the closing of the Mortgage Loan and
shall remain in full force and effect. If there is a conflict between the
terms of this Application/Contract and the loan documents, the loan
documents shall govern.
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Page 16 of 19
<PAGE> 17
EXHIBIT "A"
The funding of the Mortgage Loan is further conditioned upon the following:
a. The following leases (which are subject to the review and approval by
Nationwide) are to be in full force and effect as of the Closing Date of
the Mortgage Loan and the tenant(s) shall be in occupancy, open for
business, and paying rent in accordance with the terms of their lease,
without default of either party:
<TABLE>
<CAPTION>
DATE OF AREA TERM MINIMUM
TENANT LEASE (SO. FT.) (YRS.) ANNUAL RENT
------ ----- --------- ------ -----------
<S> <C> <C> <C> <C>
</TABLE>
AS A CONDITION OF CLOSING, THE SECURITY PROPERTY SHALL BE AT LEAST 50% OCCUPIED
(90 UNITS) AT AN AVERAGE LEASE RENT OF NOT LESS THAN $0.65 PER SQUARE FOOT.
b. Execution of a guarantee (hereinafter called "Guarantees") by the
Borrower and Guarantors whereby the Mortgage Loan as to both payment and
performance is unconditionally, jointly, and severally guaranteed for the
full amount of the Mortgage Loan. This Guarantee shall be in full force
and effect on the Closing Date. The Guarantee shall be released when the
Net Operating Income generated by the Security Property is at least equal
to 1.25 times the annual debt service payments due under the terms of the
loan documents ("Guarantee Coverage Tests") for a period of at least
three consecutive months. For purposes of this paragraph, "Net Operating
Income" shall mean the annualized rents and expense reimbursements to be
received from tenants pursuant to leases approved by Nationwide where the
tenants are paying rent (i.e., any free rent periods must have expired),
are in occupancy and open for business, minus Operating Expenses, all of
which are to be calculated as of the time of the requested release of the
Guarantee. Operating Expenses for purposes hereof shall be the annualized
expenses of the Security Property, including, but not limited to, a
management fee equal to 4 percent of the annualized rental income and
also including other operating expenses of $3,259 per unit; provided,
however, that annualized Operating Expenses for purposes hereof shall not
be less than $659,227. Property tax expenses shall be calculated assuming
the completed Improvements are fully assessed and using the most recent
tax rate available (whether certified or not).
c. Borrower shall deliver to Nationwide a Letter of Credit with an
expiration date of no earlier than 12 months after the Closing Date in
form and substance satisfactory to Nationwide in an amount equal to 2
times the annualized deficit that exists at closing between the Net
Operating Income being generated by the Security Property and 1.10 times
the annual debt service payments due under the terms of the loan
documents. For purposes of this paragraph, "Net Operating Income" shall
mean the annualized rents and expense reimbursements to be received from
tenants of the Security Property pursuant to leases approved by
Nationwide where the tenants are paying rent (i.e., any free rent periods
must have expired), are in occupancy, and open for business, minus
Operating Expenses, all of which are to be calculated as of the Closing
Date. Operating Expenses for purposes hereof shall be the annualized
expenses of the Security Property, including, but not limited to, a
management fee equal to 4 percent of the annualized rental income and
other operating expenses of $3,259 per UNIT; provided, however, that
annualized Operating Expenses for purposes hereof shall not be less than
$659,227. Property tax expenses shall be calculated assuming the
completed Improvements are fully assessed and using the most recent tax
rate available (whether certified or not). This Letter of Credit shall be
released by Nationwide when Net Operating Income received is at least
1.10 times ("Shortfall Coverage Tests") as great as the annual debt
service on the Mortgage Loan for a period of three consecutive months. If
the Shortfall Coverage Test is not satisfied within 9 months of the
Closing Date or, if at any time during the existence of the Letter of
Credit, there is a default by the Borrower under the terms of the loan
documents, Nationwide may redeem the Letter of Credit and apply the cash
proceeds therefrom to the reduction of the outstanding principal balance
of the Mortgage Loan at par, or to the payment of any other amounts owed
by Borrower to Nationwide under the terms of the loan documents. In the
event Nationwide is unable to collect the full amount of said Letter of
Credit for any reason, the Borrower, any Guarantors, and the Responsible
Individuals shall remain unconditionally liable for the face amount of
said Letter of Credit.
d. To determine whether Borrower qualifies for a release of the Guarantee
and/or Letter of Credit, Borrower shall deliver to Nationwide such
information as Nationwide may reasonably request including, without
limitation (i) a current rent roll certified to be true and correct by
Borrower, (ii) a true and complete copy of all fully executed leases
entered into which are being used to satisfy the criteria for release,
(iii) unconditional certificates of occupancy for the completed tenant
spaces, (iv) an unqualified estoppel certificate on Nationwide's standard
form (or such other form as may be acceptable to Nationwide) from each
tenant whose lease is being used to satisfy the criteria for release, and
(v) actual operating statements for the Security Property which will
identify all operating expenses associated with the Security Property.
(Estoppel certificates are not necessary for apartment projects.) Rental
income from any Major Tenant shall not be included in these calculations
if such Major Tenant makes a general assignment for the benefit of
creditors, or there is filed by or against any such Major Tenant a
petition in bankruptcy or for the appointment of a receiver, or there
commences under any bankruptcy or insolvency law proceedings for the
Major Tenant's relief, or for the compromise, extension, arrangement,
rearrangement, reorganization, or adjustment of any of the Major Tenant's
obligations.
Page 17 of 19
<PAGE> 18
THIS PAGE INTENTIONALLY LEFT BLANK
Page 18 of 19
<PAGE> 19
EXHIBIT "B"
Below are the only modifications made to the Application/Contract. If there are
no modifications, so state.
SEE ATTACHED EXHIBIT "B"
Page 19 of 19
<PAGE> 20
EXHIBIT "B"
APPLICATION/CONTRACT BY AND BETWEEN
NATIONWIDE LIFE INSURANCE COMPANY AND
ROBERTS PROPERTIES RESIDENTIAL, L.P.
Below are the only modifications made to the Application/Contract on the Howell
Ferry Apartments.
1. In Part II, Paragraph 3(e), add the following at the end of the
paragraph: "For a monetary default, Nationwide will give notice and a
five-day right-to-cure (defined as a "Monetary Cure Period). Such
Monetary Cure Period shall be limited to one per loan year for the term
of the loan. It is understood and agreed a monetary default does not
waive Nationwide's right to the late payment charge described in Part II,
Paragraph 3(b)."
2. In Part II, Paragraph 3(c), add the following: "Notwithstanding the
foregoing, Nationwide will waive the above requirements by separate
letter so long as title to the Security Property remains with Borrower or
with an affiliate or subsidiary of Borrower, there is no default under
the Mortgage/Deed of Trust, the Standard Lease form has not changed, and
paid tax receipts and evidence of payment of insurance premiums, prior to
their applicable due dates, are received by Nationwide in a timely
manner."
3. In Part II, Paragraph 5, delete the last sentence and replace with the
following sentence, "In the event Nationwide does not approve Inspecting
Architect's report, Borrower may terminate this Application/Contract and
the Commitment Fee less Nationwide's out of pocket expenses shall be
refunded to the Borrower."
4. In Part II, Paragraph 9, insert the following after the words
"hereinafter created" in the first line: "and not on the standard lease
form approved by Nationwide."
5. In Part II, Paragraph 10 should be deleted in its entirety.
6. In Part II, Paragraph 11(a), add the following to the end of the first
paragraph: "Notwithstanding the foregoing, Borrower shall have the
one-time right to transfer the Security Property to another party,
provided the transferee is acceptable to Nationwide, in its sole
discretion, without a change in the loan terms, so long as Borrower pays
Nationwide a cash assumption fee equal to 1% of the outstanding principal
balance of the loan. This one-time right of transfer shall apply only to
Borrower and not to any subsequent transferee. It is understood and
agreed that upon such transfer, Borrower shall be relieved from all
liability under the loan documents for events occurring subsequent to the
date of the approved transfer.
"It is also understood and agreed that Nationwide will allow the transfer
of the Security Property without Nationwide's consent and without change
in the loan terms or payment of a transfer fee provided (i) the transfer
is made to the general partner of the Borrower; (ii) there is no change
in the ownership interests of the general partner of the Borrower other
than in the ordinary course of business; and (iii) Nationwide shall be
given prompt notice and documentation of such transfer, and Borrower
shall pay all of Nationwide's out of pocket expenses associated with such
transfer."
7. In Part II, Paragraph 11(b), Subsection (v), insert the word "reasonably"
before the word "deemed."
8. In Part II, Paragraph 1l(c), Subparagraph (ii) should be deleted.
9. In Part II, Paragraph 1l(d), in the fourth line, before the words "shall
be deposited with Nationwide" insert "a certified copy of which."
10. In Part II, Paragraph 11(f), insert the following: "Nationwide
acknowledges that Roberts Properties Residential, L.P. is an approved
manager and leasing agent subject to Nationwide's review and approval of
the management and leasing agreements."
1 of 2
<PAGE> 21
EXHIBIT "B"
CONTINUED
11. In Part II, Paragraph 13(ix), insert the following at the end of the
paragraph: "Notwithstanding the foregoing, Nationwide will waive the
aforementioned zoning endorsement provided it receives satisfactory
evidence and assurances regarding zoning compliance from the local
municipality."
12. In Exhibit "A", after Paragraph (d), insert the following: "Nationwide
acknowledges that Paragraphs (b), (c), and (d) in this Exhibit shall be
applicable in the event that the debt coverage ratio of the Security
Property on the Closing Date is less than 1.25, and if on the Closing
Date the debt coverage ratio is 1.25 or greater, Paragraphs (b), (c), and
(d) shall be of no force or effect."
13. In Part II, Paragraph 11 (i), insert the following: "Nationwide
acknowledges that the Borrower is Roberts Properties Residential, L.P.
which is the entity through which the Company, Roberts Realty Investors,
Inc. conducts business and owns all of its real estate assets. As the
sole general partner of Roberts Properties Residential, L.P., the Company
controls the Borrower. Therefore, the audited financial statements to be
furnished to Nationwide are those of the Company, Roberts Realty
Investors, Inc. It is understood that the Borrower will furnish the
Security Property's operating statements to Nationwide within 120 days of
each calendar year end."
14. In Part I, Paragraph 15, second paragraph, second line, after the words
"Security Property," insert the following: "including without
limitations, all title and survey matters relating to the Security
Property."
15. In Part II, Paragraph 4, in the first line, "thirty (30) days" is changed
to "ninety (90) days."
16. Part I, Paragraph 9(b): Insert at the end of the paragraph the following:
"Notwithstanding the foregoing, Borrower may extend the expiration date
for no more than two consecutive 30-day periods, provided however, that
in any event, the Closing Date of the Application/Contract shall not be
later than July 31, 1998. As a condition to each 30-day extension, the
Borrower will pay to Nationwide a non-refundable extension fee in an
amount equal to the following: The loan amount times the difference
between the current Application/Contract interest rate and the then
current corresponding 30-day U.S. Treasury Bill Rate as published in the
Wall Street Journal on the fifth business day preceding the Closing Date
for the applicable extension divided by 12. For example, if the 30-day
U.S. Treasury Bill Rate is 5.30%, then the non-refundable extension fee
for a 30-day period is calculated as follows: ($8,400,000 times (7.15%
less 5.30%) divided by 12 = $12,950). Borrower must give Nationwide
written notice of its intention to exercise each extension option at
least seven business days prior to expiration of the Closing Date or
extended Closing Date."
2 of 2
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference of our report dated February 27, 1998 and to all references to our
Firm, included in this Form 10-KSB, into Roberts Realty Investors, Inc.'s
previously filed Registration Statement on Form S-3 (file No. 333-31117).
/s/ ARTHUR ANDERSEN LLP
Atlanta, Georgia
March 27, 1998
<PAGE> 1
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement No.
333-31117 of Roberts Realty Investors, Inc. (the "Company") on Form S-3 of our
audit report dated February 28, 1997 (on the Company's financial statements for
the year ended December 31, 1996) appearing in the Company's Annual Report on
Form 10-KSB for the year ended December 31, 1997.
We also consent to the reference to us under the heading "Experts" in the
Prospectus, which is a part of the Registration Statement.
/s/ DELOITTE & TOUCHE LLP
Atlanta, Georgia
March 30, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 7,585,000
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 7,585,000
<PP&E> 123,106,000
<DEPRECIATION> 13,405,000
<TOTAL-ASSETS> 118,350,000
<CURRENT-LIABILITIES> 4,841,000
<BONDS> 67,951,000
0
0
<COMMON> 44,000
<OTHER-SE> 36,653,000
<TOTAL-LIABILITY-AND-EQUITY> 118,350,000
<SALES> 0
<TOTAL-REVENUES> 17,508,000
<CGS> 0
<TOTAL-COSTS> 13,073,000
<OTHER-EXPENSES> 4,056,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,670,000
<INCOME-PRETAX> (2,425,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,425,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 184,000
<CHANGES> 0
<NET-INCOME> (2,609,000)
<EPS-PRIMARY> (0.62)
<EPS-DILUTED> (0.62)
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