<PAGE> 1
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31,1998
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the transition period from to
--------- -----------
(Commission File No. 0-28048)
ROBERTS REALTY INVESTORS, INC.
(Exact Name of Registrant as Specified in Its Charter)
GEORGIA 58-2122873
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
8010 ROSWELL ROAD, SUITE 120, ATLANTA, GEORGIA 30350
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, Including Area Code: (770) 394-6000
Indicate by check (MARK) whether the registrant: (1) has filed all
reports to be filed by Section 13 of 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
----- -----
The number of outstanding shares of the registrant's Common Stock on April 30,
1998 was 4,592,751.
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
PART I FINANCIAL INFORMATION ............................................. 3
ITEM 1. FINANCIAL STATEMENTS ..................................... 3
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS ............ 11
PART II OTHER INFORMATION ................................................. 18
ITEM 1. LEGAL PROCEEDINGS ........................................ 18
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS ................ 18
ITEM 3. DEFAULTS UPON SENIOR SECURITIES .......................... 18
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF
SECURITY HOLDERS ......................................... 18
ITEM 5. OTHER INFORMATION ........................................ 18
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K ......................... 18
</TABLE>
-------------------
2
<PAGE> 3
PART I
ITEM 1. FINANCIAL STATEMENTS
ROBERTS REALTY INVESTORS, INC.
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1998 1997
----------- ------------
ASSETS (UNAUDITED)
<S> <C> <C>
REAL ESTATE ASSETS -- At cost:
Land $ 18,184 $ 20,151
Buildings and improvements 75,415 81,485
Furniture, fixtures and equipment 9,372 10,150
----------- ------------
102,971 111,786
Less accumulated depreciation (13,303) (13,405)
----------- ------------
Operating real estate assets 89,668 98,381
Construction-in-progress and real estate under development 14,631 11,320
----------- ------------
Net real estate assets 104,299 109,701
CASH AND CASH EQUIVALENTS 8,457 7,117
RESTRICTED CASH AND CASH EQUIVALENTS 511 468
DEFERRED FINANCING COSTS -- Net of accumulated amortization of
$254 and $221 at March 31, 1998 and December 31, 1997, respectively 675 708
OTHER ASSETS -- Net 344 356
----------- ------------
$ 114,286 $ 118,350
=========== ============
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES:
Mortgage notes payable $ 63,687 $ 67,951
Accounts payable and accrued expenses 1,411 959
Dividends and distributions payable 1,076 1,057
Due to affiliates (including retainage payable of $317 and $226 at
March 31, 1998 and December 31, 1997, respectively) 1,523 2,411
Security deposits and prepaid rents 367 414
----------- ------------
Total liabilities 68,064 72,792
----------- ------------
COMMITMENTS AND CONTINGENCIES
MINORITY INTEREST OF UNITHOLDERS IN THE OPERATING PARTNERSHIP 18,350 18,861
----------- ------------
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, 4,554,412 and
4,420,508 shares issued and outstanding at March 31, 1998 and 46 44
December 31, 1997, respectively
Additional paid-in-capital 30,130 29,980
Accumulated deficit (2,304) (3,327)
----------- ------------
Total shareholders' equity 27,872 26,697
----------- ------------
$ 114,286 $ 118,350
=========== ============
</TABLE>
The accompanying notes are an integral
part of these consolidated financial statements
3
<PAGE> 4
ROBERTS REALTY INVESTORS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
1998 1997
--------------------------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
OPERATING REVENUES:
Rental operations $ 3,801 $ 4,107
Other operating income 119 144
----------- ------------
Total operating revenues 3,920 4,251
----------- ------------
OPERATING EXPENSES:
Personnel 372 429
Utilities 244 275
Repairs, maintenance and landscaping 243 277
Real estate taxes 344 365
Management fees to related party 0 211
Marketing, insurance and other 185 212
General and administrative expenses 404 290
Depreciation of real estate assets 1,131 1,414
----------- ------------
Total operating expenses 2,923 3,473
----------- ------------
INCOME FROM OPERATIONS 997 778
----------- ------------
OTHER INCOME (EXPENSE):
Interest income 132 74
Interest expense (986) (1,141)
Loss on disposal of assets (24) 0
Amortization of deferred financing costs (33) (27)
Other amortization expense (2) (8)
----------- ------------
Total other income (expense) (913) (1,102)
----------- ------------
INCOME (LOSS) BEFORE GAIN ON SALE OF REAL ESTATE ASSET, MINORITY
INTEREST AND EXTRAORDINARY ITEM 84 (324)
GAIN ON SALE OF REAL ESTATE ASSET 1,544 0
----------- ------------
INCOME (LOSS) BEFORE MINORITY INTEREST AND EXTRAORDINARY ITEM 1,628 (324)
MINORITY INTEREST OF UNITHOLDERS IN THE OPERATING PARTNERSHIP (670) 129
----------- ------------
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM 958 (195)
EXTRAORDINARY ITEM -- Gain on early extinguishment of debt, net of
minority interest of unitholders in the Operating Partnership 65 0
----------- ------------
NET INCOME (LOSS) $ 1,023 $ (195)
=========== ============
LOSS PER COMMON SHARE -- BASIC AND DILUTED:
Income (loss) before extraordinary item $ 0.21 $ (0.05)
Extraordinary item 0.02 0
----------- ------------
Net income (loss) $ 0.23 $ (0.05)
=========== ============
Weighted average common shares - basic 4,488,969 4,186,329
Weighted average common shares -- diluted 7,549,928 6,959,759
</TABLE>
The accompanying notes are an integral
part of these consolidated financial statements
4
<PAGE> 5
ROBERTS REALTY INVESTORS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
1998 1997
--------- ---------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss $ 1,023 $ (195)
Adjustments to reconcile net loss to net cash provided by operating activities:
Minority interest of unitholders in the Operating Partnership 670 (129)
Gain on sale of real estate asset (1,544) 0
Loss on disposal of assets 24 0
Depreciation and amortization 1,166 1,436
Extraordinary item (65) 0
Change in assets and liabilities:
Decrease (increase) in restricted cash and cash equivalents (43) (90)
Decrease (increase) in other assets 12 48
Increase (decrease) in accounts payable and accrued expenses relating to operations 452 383
Increase (decrease) in due to affiliates relating to operations 4 (282)
Increase (decrease) in security deposits and prepaid rent (47) 11
------- -------
Net cash provided by operating activities 1,652 1,182
------- -------
INVESTING ACTIVITIES:
Proceeds from sale of real estate asset 9,292 0
Acquisition and construction of real estate assets (4,394) (3,588)
------- -------
Net cash provided (used) in investing activities 4,898 (3,588)
------- -------
FINANCING ACTIVITIES:
Proceeds from mortgage notes payable 0 6,420
Payoff of mortgage note on sale of property (3,959) 0
Principal reductions on mortgage notes payable (194) (203)
Payment of loan costs 0 (151)
Payment of dividends and distributions (1,057) (870)
------- -------
Net cash (used) provided by financing activities (5,210) 5,196
------- -------
NET INCREASE IN CASH AND CASH EQUIVALENTS 1,340 2,790
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 7,117 3,162
------- -------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 8,457 $ 5,952
======= =======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest, net of capitalized interest $ 1,181 $ 1,230
</TABLE>
The accompanying notes are an integral
part of these consolidated financial statements.
5
<PAGE> 6
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"). All of the Company's total apartment
homes are located in the Atlanta metropolitan area.
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 had a 60.3% and 58.6% ownership interest at March 31,
1998 and December 31, 1997, respectively. As the sole general partner and
owner of a majority interest of the Operating Partnership, the Company
controls the Operating Partnership.
At March 31, 1998, the Company owned eight completed multifamily apartment
communities totaling 1,524 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.
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.
2. 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.
The minority interest of the unitholders in the Operating Partnership on
the accompanying balance sheets is calculated based on the minority
interest ownership percentage multiplied by the Operating Partnership's net
assets (total assets less total liabilities). The minority interest
percentage reflects the number of shares of the Company's Common Stock
("Shares") and partnership units ("Units") outstanding and will change as
additional Shares and Units are issued. The minority interest of the
unitholders in the earnings or loss of the Operating Partnership on the
accompanying statements of operations is calculated based on the weighted
average number of Units outstanding during the period, which was 41.1% at
March 31, 1998 and 39.8% at March 31, 1997. The minority interest of the
unitholders in the Operating Partnership was $18,350,000 and $18,861,000 at
March 31, 1998 and December 31, 1997, respectively.
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 has the option
either (a) to pay cash for such Units at their fair market value, based
upon the then current trading price of the Shares, or (b) to
6
<PAGE> 7
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 except as otherwise required by applicable securities
laws.
The accompanying interim unaudited financial statements have been prepared
by the Company's management in accordance with generally accepted
accounting principles for interim financial information and in conformity
with the rules and regulations of the Securities and Exchange Commission.
In the opinion of management, the interim financial statements presented
herein reflect all adjustments of a normal and recurring nature which are
necessary to fairly state the interim financial statements. The results of
operations for the interim periods are not necessarily indicative of the
results that may be expected for the year ending December 31, 1998. Certain
prior period amounts have been reclassified to conform with the 1998
presentation. These financial statements should be read in conjunction with
the Company's audited financial statements and the notes thereto included
in the Company's Annual Report on Form 10-K for the year ended December 31,
1997.
3. MORTGAGE NOTES PAYABLE
Mortgage notes payable were secured by the following Communities at March
31, 1998 and December 31, 1997, as follows:
<TABLE>
<CAPTION>
FIXED INTEREST PRINCIPAL OUTSTANDING
RATE AS OF
MATURITY 03/31/98 03/31/98 12/31/97
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Bentley Place 08/15/06 7.10% $ 4,034,000 $ 4,045,000
Crestmark Club -- phase I 05/01/01 7.50% 9,617,000 9,652,000
Crestmark Club -- phase II 05/01/01 7.65% 3,976,000 3,985,000
Highland Park 02/15/03 7.30% 8,008,000 8,030,000
Ivey Brook 02/15/07 7.14% 6,351,000 6,367,000
Plantation Trace 09/15/00 7.75% 7,746,000 7,775,000
Preston Oaks 10/15/02 7.21% 8,495,000 8,519,000
River Oaks 11/15/03 7.15% 9,127,000 9,151,000
Rosewood Plantation 06/01/01 7.38% 6,333,000 6,357,000
Windsong 02/01/00 9.00% 0 4,070,000
----------- -----------
$63,687,000 $67,951,000
=========== ===========
</TABLE>
The Company and certain non-owned affiliates of the Company have 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 March 31, 1998, there was no balance
outstanding under the Guidance Line.
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 March 31, 1998. The financing is expected to close in
May 1998.
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 includes a 10-year term
7
<PAGE> 8
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 March 31, 1998, Plantation Trace was
encumbered with a mortgage loan in the amount of $7,746,000 at a fixed
interest rate of 7.75%.
Interest capitalized was $82,000 for the three months ended March 31, 1998
compared to $87,000 for the three months ended March 31, 1997.
Real estate assets having a combined depreciated cost of approximately
$87,853,000 serve as collateral for the outstanding debt at March 31, 1998.
4. EXTRAORDINARY ITEMS
The 1998 extraordinary item resulted from the write-off of unamortized debt
premium associated with the January 9, 1998 repayment of the mortgage note
secured by the Windsong Community upon sale of the property. The
extraordinary item is net of $45,000 which was allocated to the minority
interest of the unitholders in the Operating Partnership, calculated on the
weighted average number of Units outstanding.
5. 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.
The Company enters into contractual commitments in the normal course of
business related to the development of real estate assets. At March 31,
1998, these remaining commitments totaled $5,228,000 as summarized in the
following table:
<TABLE>
<CAPTION>
CONTRACT CONTRACTUAL
TOTAL AMOUNT REMAINING
AMOUNT INCURRED COMMITMENT
------ -------- ----------
<S> <C> <C> <C>
Bradford Creek $ 8,829,000 $ 8,105,000 $ 724,000
Plantation Trace -- phase II 4,770,000 1,369,000 3,401,000
Preston Oaks -- phase II 1,300,000 197,000 1,103,000
------------ ----------- -----------
Total $ 14,899,000 $ 9,671,000 $ 5,228,000
============ =========== ===========
</TABLE>
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.
6. SHAREHOLDERS' EQUITY
EXCHANGES OF UNITS FOR SHARES. During the three months ended March 31, 1998
a total of 133,904 Units were exchanged for the same number of Shares. The
conversion was reflected in the accompanying consolidated financial
statements at book value. No Units were converted during the three months
ended March 31, 1997.
DIVIDENDS. On February 17, 1998, the Company's Board of Directors declared
a quarterly distribution in the amount of $0.1425 per common Share and Unit
payable on April 15, 1998 to shareholders and unitholders of
8
<PAGE> 9
record on March 31, 1998. The first quarter 1997 dividend was $0.125, and
was paid to shareholders and unitholders as of March 18, 1997.
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>
3/31/98 3/31/97
------- -------
<S> <C> <C>
Income (loss) before extraordinary item $ 958 $ (195)
Minority interest in loss before extraordinary
item of the Operating Partnership 670 (129)
---------- -----------
Income (loss) before extraordinary item -- diluted $ 1,628 $ (324)
========== ===========
Net income (loss) -- basic $ 1,023 $ (195)
Minority interest in net loss of the Operating Partnership 715 (129)
---------- -----------
Net loss -- diluted $ 1,738 $ (324)
========== ===========
Weighted average Shares -- basic 4,488,969 4,186,329
Dilutive securities -- weighted average Units 3,060,959 2,773,430
---------- -----------
Weighted average Shares -- diluted 7,549,928 6,959,759
========== ===========
</TABLE>
The adoption of SFAS No. 128 had no impact on 1997 earnings per share data.
7. SIGNIFICANT 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 real estate assets and an extraordinary gain of $110,000 on the
buyer's assumption of 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 or properties 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 was
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.
8. SUPPLEMENTAL CASH FLOW INFORMATION
No non-cash investing and financing activities occurred in the quarter
ended March 31, 1998. 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.
9
<PAGE> 10
9. SUBSEQUENT EVENTS
The following sections contain "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. Acquisitions that are pursued by the Company may not
be consummated for a variety of reasons, including but not limited to the
failure of either party to meet the required closing conditions.
Pending Acquisition -- Charlotte. On April 17, 1998, the Company entered
into an agreement to purchase approximately 17 acres of undeveloped land in
the Ballantyne area of south Charlotte, North Carolina for $2,700,000 from
a local Charlotte investment group. The Company intends to initially
construct a 270-unit multifamily apartment community on the property and is
in negotiations to purchase an adjacent parcel for a 60-unit second phase.
The Operating Partnership will pay Roberts Properties an acquisition fee
equal to $135,000 or 5% of the purchase price for finding the property,
negotiating the sales contract, conducting due diligence and closing the
transaction. In addition, the Operating Partnership will pay Roberts
Properties a fee of $1,350,000 or $5,000 per unit for designing,
developing, and overseeing construction for a period of eighteen months.
The independent members of the Board of Directors approved the foregoing
arrangements with Roberts Properties.
Pending Acquisitions -- Atlanta. On April 21, 1998, the Company's Board of
Directors approved the acquisition of two tracts of undeveloped land
located in north Atlanta. The first tract, containing approximately 49.1
acres, is located in north Fulton County along Abbotts Bridge Road. On May
4, 1998, the Company entered into an agreement to purchase this tract of
land for $5,000,000 from Roberts Properties. The Company intends to
construct a 405-unit multifamily apartment community on the property. The
Operating Partnership will pay Roberts Properties an acquisition fee equal
to $250,000 or 5% of the purchase price related to finding the property,
negotiating the sales contract, conducting due diligence and closing the
transaction. In addition, the Operating Partnership will pay Roberts
Properties a fee of $2,025,000 or $5,000 per unit for designing,
developing, and overseeing construction for a period of eighteen months.
The independent members of the Board of Directors approved the foregoing
arrangements with Roberts Properties after reviewing two independent
appraisals. Roberts Properties acquired the property for $4,343,000 on
March 6, 1997.
The second tract of approximately 35.5 acres is located in Gwinnett County
on Old Norcross Road. On May 4, 1998, the Operating Partnership entered
into an agreement to purchase this tract of land for $2,385,000 from
Roberts Properties Old Norcross, Ltd. ("Old Norcross, Ltd.") for
$2,385,000. (Mr. Roberts, who is the general partner of Old Norcross, Ltd.,
will receive none of the sale proceeds as general partner or otherwise.)
The Company intends to construct a 249-unit multifamily apartment community
on the property. The Operating Partnership will pay Roberts Properties an
acquisition fee equal to $119,250 or 5% of the purchase price for finding
the property, negotiating the sales contract, conducting due diligence and
closing the transaction. In addition, the Operating Partnership will pay
Roberts Properties a fee of $1,245,000 or $5,000 per unit for designing,
developing, and overseeing construction for a period of eighteen months.
The independent members of the Board of Directors approved the foregoing
arrangements with Roberts Properties after reviewing two independent
appraisals
The closing of these transactions will be subject to customary closing
conditions. There can be no assurances that they will close as
contemplated, that the required conditions to closing will be met, or that
the agreements will not be amended or terminated.
10
<PAGE> 11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
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 "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. At March 31, 1998, the
Company owned eight multifamily apartment communities consisting of 1,524
apartment homes with an additional 254 apartment homes under construction. On
January 9, 1998, the Company completed the sale of the 232-unit Windsong
Community for $9,750,000 in cash, resulting in a gain of $1,544,000 on the sale
of real estate assets and an extraordinary gain of $110,000 on the buyer's
assumption of related mortgage indebtedness.
RESULTS OF OPERATIONS
Comparison of Three Months Ended March 31, 1998 to Three Months Ended March
31, 1997. For the three months ended March 31, 1998, the Company recorded net
income of $1,023,000 or $0.23 per share, compared to a net loss of $195,000 or
$0.05 per share for the three months ended March 31, 1997. The change in
operating results is due primarily to (1) the sale of the Windsong Community on
January 9, 1997, (2) the sale of Autumn Ridge on August 26, 1997, (3) the
completion of the initial lease-up phase at Ivey Brook and the second phase of
Crestmark in July 1997 and August 1997, respectively, and (4) the decrease in
average stabilized occupancy from 95.9% to 94.0%. The Company's operating
performance for all Communities is summarized in the following table:
<TABLE>
<CAPTION>
Percentage Three Months Ended March 31,
Change from ----------------------------
1997 to 1998 1998 1997
------------ ---- ----
<S> <C> <C> <C>
Total operating revenues (7.8%) $3,920,000 $4,251,000
Property operating expenses (1) (10.9%) $1,388,000 $1,558,000
Management fees paid to related party (2) (100.0%) $ 0 $ 211,000
General and administrative expenses 39.3% $ 404,000 $ 290,000
Depreciation of real estate assets (20.0%) $1,131,000 $1,414,000
Average stabilized occupancy (3) (1.9%) 94.0% 95.9%
Operating expense ratio (4) (1.3%) 35.4% 36.7%
</TABLE>
(Footnotes begin on following page)
11
<PAGE> 12
- -----------------------------------
(1) Property operating expenses include personnel, utilities, real estate
taxes, insurance, maintenance, landscaping, marketing, and property
administration expenses.
(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;
however, the Company did incur additional general and administrative
expenses of $104,000.
(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)
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) Autumn Ridge only through August 26, 1997, which
is the date the property was sold, and (3) Windsong only through January 9,
1998, 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 seven Communities that were fully stabilized
during both the three month periods ended March 31, 1998 and 1997 (the Bentley
Place, Crestmark, Highland Park, Plantation Trace, Preston Oaks, River Oaks, and
Rosewood Plantation Communities) are summarized as follows:
<TABLE>
<CAPTION>
Percentage Three Months Ended March 31,
Change from ----------------------------
1997 to 1998 1998 1997
------------ ---- ----
<S> <C> <C> <C>
Rental income (0.0%) $3,111,000 $3,112,000
Total operating revenues (1.6%) $3,191,000 $3,243,000
Property operating expenses (1) 9.6% $1,141,000 $1,041,000
Management fees paid to related party (100.0%) $ 0 $ 160,000
Net operating income (2) 0.4% $2,050,000 $2,042,000
Average stabilized occupancy (3) 0% 96.2% 96.2%
Operating expense ratio (4) 3.7% 35.8% 32.1%
Average monthly rent per apartment home 2.6% $ 862 $ 840
</TABLE>
- -----------------------------------
(1) Property operating expenses include personnel, utilities, real estate
taxes, insurance, maintenance, landscaping, marketing, and property
administration expenses.
(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.
The following discussion compares the Company's statements of operations
for the three month periods ended March 31, 1998 and 1997.
Rental income decreased $306,000 or 7.5% from $4,107,000 for the three
months ended March 31, 1997 to $3,801,000 for the three months ended March 31,
1998. The decrease in rental income is due primarily to the sales of Autumn
Ridge and Windsong in August 1997 and January 1998, respectively, offset by the
lease-up of Ivey Brook and the second phase of Crestmark in July 1997 and August
1997, respectively. Rental income from the seven Communities that were fully
stabilized during both the three months ended March 31, 1998 and 1997 decreased
$1,000, while the average stabilized occupancy remained constant at 96.2%. The
effect of the average stabilized occupancy mix of the seven Communities was
generally offset by a 2.6% increase in the average monthly rent per apartment
home from $840 during the three months ended March 31, 1997 to $862 during the
three months ended March 31, 1998.
12
<PAGE> 13
Property operating expenses (excluding depreciation, general and
administrative expenses and management fees) decreased $170,000 or 10.9% from
$1,558,000 for the three months ended March 31, 1997 to $1,388,000 for the three
months ended March 31, 1998. The decrease is due primarily to the following: (1)
the sale of Autumn Ridge and Windsong in August 1997 and January 1998,
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 decreased from 36.7% for the three months ended March 31,
1997 to 35.4% for the three months ended March 31, 1998.
General and administrative expenses increased $114,000 or 39.3% from
$290,000 for the three months ended March 31, 1997 to $404,000 for the three
months ended March 31, 1998 and include legal, accounting and tax fees,
marketing and printing fees, salaries, director fees and other costs. The
increase is due primarily to the overhead cost of managing the Company's
properties internally as a result of acquiring Roberts Management on April 1,
1997. General and administrative expenses as a percentage of operating revenues
increased from 6.8% for the three months ended March 31, 1997 to 10.3% for the
three months ended March 31, 1998. 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 decreased $283,000 or 20.0% from $1,414,000 for the
three months ended March 31, 1997 to $1,131,000 for the three months ended March
31, 1998. The decrease is due primarily to the following: (1) the sale of Autumn
Ridge and Windsong in August 1997 and January 1998, 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 decreased $155,000 or 13.6% from $1,141,000 for the three
months ended March 31, 1997 to $986,000 for the three months ended March 31,
1998. The decrease is due primarily to the sale of Autumn Ridge and Windsong in
August 1997 and January 1998, respectively, and offset by the financing of Ivey
Brook and the second phase of Crestmark in, January 1997 and July 1997,
respectively.
LIQUIDITY AND CAPITAL RESOURCES
Comparison of Three Months Ended March 31, 1998 to Three Months Ended March
31, 1997. Cash and cash equivalents increased $1,340,000 during the three months
ended March 31, 1998 compared to an increase of $2,790,000 during the three
months ended March 31, 1997. The increase is due to the excess of cash flow
provided by operating and investing activities over cash used in financing
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 for the three months
ended March 31, 1998 was $1,652,000 compared to $1,182,000 during the three
months ended March 31, 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
13
<PAGE> 14
Company's stabilized Communities. The highly competitive Atlanta apartment
market experienced weak market conditions during 1997 and the Company expects
the current softness in the Atlanta apartment market to continue through 1998.
The Company's average stabilized occupancy during the three months ended March
31, 1998 and 1997 was 96.2%. 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 provided by investing activities increased $8,484,000 from a net
cash use of $3,588,000 for the three months ended March 31, 1997 to a net cash
provision of $4,898,000 for the three months ended March 31, 1998. The net cash
provided in 1998 is due primarily to the $9,292,000 in sales proceeds from the
sale of Windsong in January 1998. The Company intends to use this cash for
purchasing like-kind replacement property under Section 1031 of the Internal
Revenue Code. The Company invested $4,394,000 in the construction of new
Communities and the purchase of furniture and equipment during the three months
ended March 31, 1998 compared to $3,588,000 during the three months ended March
31, 1997. The Company made no acquisitions for cash of existing apartment
communities during these periods.
Net cash used by financing activities increased $10,406,000 from a
provision of net cash of $5,196,000 during the three months ended March 31, 1997
compared to a net cash use of $5,210,000 during the three months ended March 31,
1998. This use is due primarily to: (1) the payoff of $3,959,000 for the
mortgage note secured by Windsong in January 1998, (2) the payment of $1,057,000
for the fourth quarter 1997 quarterly distribution in January 1998 versus a
payment of $870,000 in January 1997 for the fourth quarter 1996 quarterly
distribution, and (3) net proceeds from mortgage notes payable of $6,420,000 in
the first quarter of 1997 versus no refinancings in the first quarter of 1998.
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.
The Company and certain non-owned affiliates of the Company have 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.
14
<PAGE> 15
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.
15
<PAGE> 16
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,
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 income
(loss) to FFO.
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------
1998 1997
---- ----
<S> <C> <C>
Net income (loss) $ 1,023 $ (195)
Minority interest of Unitholders in the Operating Partnership 670 (129)
Extraordinary item (65) 0
Amortization (real estate related) 2 8
Loss on disposal of assets 24 0
Gain on sale of real estate asset (1,544) 0
Depreciation expense 1,131 1,414
----------- -----------
Funds From Operations $ 1,241 $ 1,098
=========== ===========
Weighted average Shares and Units
outstanding during the period 7,549,928 6,959,759
</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.
16
<PAGE> 17
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.
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.
17
<PAGE> 18
PART II
ITEM 1. 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 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
The Company did not modify, limit or qualify the rights of the holders of
Common Stock during the quarter ended March 31, 1998.
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 has 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 except as
otherwise required by applicable securities laws.
During the three months ended March 31, 1998, the Company issued a total of
133,904 Shares in exchange for Units submitted for redemption by unitholders.
The Company issued the Shares in redemption of Units in reliance 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 of the
issuances of Shares to unitholders. The Company has delivered a prospectus to
all unitholders that is designed to satisfy the conditions of Rule 147.
Unitholders who reside outside of the state of Georgia are offered and receive
only cash instead of Shares. All of the Communities are located in the State of
Georgia. 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.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
No securities were defaulted upon during the first quarter of 1998.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matter was submitted to a vote of security holders during the first
quarter of 1998.
ITEM 5. OTHER INFORMATION.
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The exhibits required by Item 601 of Regulation SB are described in
the following Index to Exhibits and are filed as part of this report on Form
10-Q.
18
<PAGE> 19
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
<S> <C>
10.7.4 Mortgage Placement Agreement made and entered onto by and between
Alliance Realty Advisors, Inc. and Roberts Properties Residential,
L.P., dated February 12, 1998, in the original principal amount of
$11,900,000.
27 Financial Data Schedule (for SEC use only).
</TABLE>
(b) No reports on Form 8-K were filed during the quarter ended March 31,
1998.
19
<PAGE> 20
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 R. Elliott
-------------------------------------------
Charles R. Elliott, Chief Financial Officer
(The Registrant's Principal Financial and Chief Accounting
Officer, who is duly authorized to sign this report)
Date: May 13, 1998
20
<PAGE> 21
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
<S> <C>
10.7.4 Mortgage Placement Agreement made and entered onto by and between
Alliance Realty Advisors, Inc. and Roberts Properties Residential,
L.P., dated February 12, 1998, in the original principal amount of
$11,900,000.
27 Financial Data Schedule (for SEC use only).
</TABLE>
<PAGE> 1
EXHIBIT 10.7.4
PRUEXPRESS(R) FIRST MORTGAGE LOAN APPLICATION
<TABLE>
<S> <C>
The Prudential Insurance Company Application No. {6 102 639} Date {2-12-98}
of America ------------------ --------------
Property Located at:
------------------------------------
Ravinia Drive Street Address: 4130 Plantation Trace
---------------------------------------
Suite 1400 City: Duluth County: Fulton State: GA
----------- --------------- -----
Atlanta, Georgia 30346 Deal Name: Plantation Trace Apartments
----------------------------------------------
</TABLE>
The undersigned (borrowers) hereby applies to The Prudential Insurance
Company of America ("Lender") for a first mortgage loan (the "Loan") upon the
following terms and conditions including the attached Exhibits and The
Prudential Guidelines and Report Requirements (the "Guidelines") separately
delivered to Borrower and hereby made a part of this Application (collectively,
the "Conditions"):
1. BORROWER
(a) Name: Roberts Properties Residential, L.P.
----------------------------------------------------------
(b) Address: c/o Roberts Properties, Inc.
----------------------------------------------------------
8010 Roswell Road, Suite 120
----------------------------------------------------------
Atlanta, Georgia 30350
----------------------------------------------------------
(c) Type of Entity: Limited Partnership
---------------------------------------------------
(d) Taxpayer Identification Number: {58-2122875}
------------------------------------
(e) State of Organization: Georgia
---------------------------------------------
(f) Foreign Person: Borrower represents and warrants to Lender that
Borrower is not a "foreign person" within the meaning of Sections 1445 and 7701
of the Internal Revenue Code of 1986.
2. LOAN TERMS
(a) Principal Amount: $11,900,000
----------------
(b) Term: 120 months
----
(c) Interest Rate:{7.09}% per annum
------
(d) Payments: ( X ) Monthly payments of principal and interest of
${79,891.58} each; or
------------
( ) Monthly payments of interest only of $___________
each for _______ months and then monthly payments
of principal and interest of $________ each.
(e) All payments shall be payable on the 15th day of each month
("Monthly Due Date"). Interest shall be calculated on a 30-day month and a
360-day year. Annual Loan Constant: {8.056}% based on a 360 month amortization
schedule. Prepayment Privilege: See Exhibit A entitled "Prepayment Privilege".
{(f) Upon closing and funding of the Loan, Lender agrees to accept
payment in full for Prudential Loan Number 6 100 389 (secured by Plantation
Trace Apartments) no earlier than July 16, 1998 with no cash pre-payment premium
(any accrued interest or other sums owing would be due and payable) required, so
long as the funding of the Loan actually occurs no earlier than July 16, 1998.
It is understood that the cost of pre-payment for Prudential Loan Number 6 100
389 has been factored into the interest rate in paragraph 2(c).}
3. CLOSING AND LOAN DISBURSEMENT
The disbursement of the Loan by Lender (the enclosings) shall occur by
no later than July 31, 1998 (the Closing Date") in accordance with the
Conditions, time being of the essence. Borrower may extend the Closing Date for
up to two thirty-day extension period(s) by paying Lender a fee for each period
calculated as set form in Exhibit B.
-1-
<PAGE> 2
4. SECURITY FOR THE LOAN
The Loan shall be evidenced by a promissory note (the "Note") and
secured by documents (which shall include the provisions in Exhibit C)
satisfactory to Lender (collectively, the "Loan Documents") including (a) a
first mortgage, deed of trust, or similar instrument creating a first lien (the
"Mortgager") upon the fee simple estate in the property described in Exhibit D,
including all improvements thereon (the"Improvements"), and all rents, issues,
profits and proceeds therefrom (collectively, with the Personal Property
(defined below), the "Property"); (b) a present first priority absolute
assignment of all present and future leases (the "Leases"), all guaranties
thereof, and all rents and other sums payable by the tenants; (c) a security
agreement creating a first lien and perfected security interest upon all
personal property (tangible and intangible), furnishings, fixtures and equipment
used in connection with the Property, except personally owned by tenants, and
all rents, issues, profits, insurance and condemnation proceeds (collectively,
the "Personal Property"); (d) a present first priority absolute assignment of
all agreements and documents relating to the ownership, operation, construction
or use of the Property; and (e) such other documents as Lender may require.
5. DUE DILIGENCE MATERIALS
All instruments, reports, evidence, estoppels, subordination
agreements, Reports (defined below), Leases, papers, information and other
documents and agreements required by the Conditions or items subject to Lender's
approval (collectively, the "Due Diligence Materials") must be satisfactory in
form and substance to Lender, in its sole discretion, and must be delivered to
Lender no later than the date specified or thirty days before the Closing Date,
if none is specified.
6. TITLE AND SURVEY
Title to the Property and all documentation pertaining thereto shall be
satisfactory to Lender and without exceptions or defects which are not
acceptable to Lender. Borrower shall furnish an original title insurance
commitment (or at Lender's option, a preliminary title report) together with
complete copies of all exceptions and any estoppels relating to tide required by
Lender. At Closing, Borrower shall furnish a 1970 Form ALTA mortgagee's title
insurance policy, issued by a title insurance company acceptable to Lender in
the amount of the Loan, and with such affirmative title insurance and
endorsements as Lender may require. Within ten days after the date of this
Application, Borrower shall furnish copies of the most recent title policy
(owner's and loan), all documents identified in these policies, and the most
recent survey. Borrower shall furnish a UCC or chattel search certificate (or
other evidence satisfactory to Lender) showing that Lender will have a first
lien on all Personal Property. Borrower shall furnish a current survey of the
Property in compliance with the Guidelines.
7. FINANCIAL AND OTHER INFORMATION
Within ten days after the date of this Application, Borrower shall
furnish (i) financial statements of Borrower, and if applicable, Borrower's
general partners, guarantors, and Major Tenants (defined below), for the most
current fiscal year sworn (by an authorized person, partner, or officer) or
C.P.A. audited or C.P.A. prepared and (ii) annual operating statements for the
Property. Borrower agrees to provide additional financial or management
information as Lender may request. Exhibit E sets forth the ownership
structure of the Borrower [, which shall be satisfactory to Lender]. Borrower
shall furnish evidence that Borrower and the persons signing the Loan Documents
have the legal capacity and authority to enter into the Loan transaction. Within
ten days after the date of this Application, Borrower shall also furnish a
certified statement setting forth any of the following matters (or certifying
that there have been none) involving Borrower, any general partners of Borrower,
any guarantors [, or any entities related to or affiliated with these parties],
within the ten-year period before this Application: (i) litigation involving any
lenders or financial institutions, including, without limitation, foreclosure
actions; (ii) deeds (or conveyances) in lieu of foreclosure or sales (pursuant
to power of sale); (iii) petitions in bankruptcy or insolvency, or for
reorganization, liquidation, dissolution, or for the appointment of a receiver;
or (iv) workouts or modifications of any loan in which the interest rate was
changed, the principal amount was reduced or the loan term was extended.
8. COMPLIANCE WITH ZONING, BUILDING, ENVIRONMENTAL AND LAND USE LAWS
Borrower shall furnish evidence that the Property and the uses thereof
comply with all applicable zoning, building, environmental and land use laws,
ordinances, rules, regulations and other similar restrictions (including,
without limitation, the Fair Housing Act of 1988, as amended, and the Americans
with Disabilities Act) or copies of plans to bring the Property into compliance
within a time frame acceptable to Lender. Borrower shall also furnish evidence
that there is no action pending before any court, quasi-judicial or
administrative agency relative to compliance. Lender may require governmental
certifications and/or an opinion of counsel, engineer or architect acceptable to
Lender to evidence such compliance.
-2-
<PAGE> 3
9. CONSTRUCTION, ENVIRONMENTAL AND ENGINEERING REQUIREMENTS
Borrower shall furnish the [asbestos report,] environmental report, and
architect and engineering reports (collectively, the "Reports") described in the
Guidelines. All drafts and the final Reports shall be addressed and delivered to
Borrower and Lender simultaneously and shall acknowledge that Lender will be
relying on the Reports. Lender may contact and confer with any consultant
preparing the Reports without Borrower's approval. At its option, Lender may
engage, at Borrower's expense, its own consultants to prepare some or all of the
Reports. Lender's reviews, inspections and approvals, if given, are for loan
underwriting purposes only and shall not constitute an assumption of liability
by Lender with respect to Borrower, Borrower's contractors, architects,
engineers, present or future tenants, occupants or owner of the Property, or any
other party. {The cost for a Phase I environmental report shall not exceed
$2,500.}
10. INSURANCE AND REAL ESTATE TAXES
Borrower shall furnish originals of the insurance policies,
certificates, and/or endorsements described in the Guidelines and any other
insurance Lender may reasonably require. Borrower shall furnish evidence that
the Property is separately assessed and taxed. If Lender does not require
monthly escrows for real estate taxes, Lender will retain a firm to monitor
payment of taxes and Borrower shall pay Lender a one-time fee at Closing to
cover the cost of this service. {Monthly escrows for taxes and insurance will
not be required so long as there is no default.}
11. LEASES
(a) Borrower hereby certifies that the rent roll (the "Rent Roll")
attached as Exhibit F lists all Leases affecting the Property [which will be
in full force and effect at Closing] any guaranties of the Leases. Borrower
shall furnish a copy of Borrower's standard lease form and (except in the case
of apartment projects unless requested) true and complete copies of all Leases
(including all amendments and agreements relating thereto), guaranties,
subleases and assignments of the Leases. If the Property is an apartment
project, all non-residential leases and all leases covering multiple units shall
be submitted and Borrower hereby certifies that the apartment Leases listed in
the Rent Roll contain no {material} changes from the standard form.
(b) All Leases shall (i) have original terms of not less than 6 months,
(ii) cover in the aggregate at least [rentable square feet] (191 units for
apartment projects), (iii) produce at least $2,069,500 in annualized base rent
from tenants in occupancy, open for business, paying full rent, and not
otherwise in default, but excluding tenant payments for operating and fixed
expenses, percentage rents, and any other non-rental items, and (iv) include the
following tenants: N/A (the "Major Tenants"). [Lender reserves the right to
reject any Leases which are not acceptable to Lender or which include asbestos,
environmental, or hazardous substances representations, warranties, or
indemnifications, purchase options, rights of first refusal to purchase, or
expansion options in favor of tenants unless these provisions would not be
applicable to Lender and/or would be extinguished by foreclosure or similar
transfer of the Property.]
(c) Fifteen days prior to Closing, Borrower shall furnish an updated
Rent Roll and a collections report showing actual rent collected and tenants in
default, both certified as true and correct by Borrower. At least fifteen days
prior to Closing, Borrower shall furnish tenant estoppel certificates from all
the tenants under the Leases, but none shall be required for apartment Leases.
[Lender may require that any Leases be made either subject and subordinate or
superior to the Mortgage. Any subordination agreements required shall be
furnished at least fifteen days before Closing].
12. CLOSING AND OTHER COSTS
Whether or not the Loan closes, Borrower shall pay directly (or
reimburse Lender for) all costs and expenses relating to the Loan and the
Closing, including, without limitation, all charges by architects, engineers,
consultants or other persons, all title insurance and survey charges, all
recording fees, and all mortgage or similar taxes. Lender may retain special
counsel in connection with this transaction, and Borrower shall pay the fees and
expenses of that counsel. All of these costs and expenses (collectively, the
Expenses) will be paid at Closing or upon demand by Lender (whether or not the
Loan closes) if invoices are not available at Closing or expenses are incurred
after the Closing.
Legal Fees and expenses for Lender's counsel through Closing shall not exceed
$9,000 (the Legal Fee Amounts) except that the legal fees and expenses
attributable to (i) overly protracted negotiations, (ii) preparation and
negotiations of special or unusual agreements outside of ordinary and customary
loan documentation, and/or (iii) closing postponements shall be the obligation
of Borrower in addition to the Legal Fee Amount and shall be paid by Borrower.
-3-
<PAGE> 4
13. ADDITIONAL CLOSING DOCUMENTS
Borrower shall furnish any other documents as Lender may reasonably
require, including, without limitation, a legal opinion of Borrower's counsel,
satisfactory to Lender, opining that the Loan is not usurious, that the Loan and
the execution of the Loan Documents have been duly authorized by all necessary
parties (other than Lender), that the Loan Documents are binding and enforceable
in accordance with their terms, and any other matters as Lender may reasonably
require. This opinion shall be provided by counsel acceptable to Lender, shall
state that it shall unsure to the benefit of any successor, assignee or
transferee of Lender's interest in the Loan (or any participant therein), and
shall be delivered at least ten days before Closing.
14. ACCEPTANCE BY LENDER OF THIS APPLICATION
Borrower understands and agrees that (i) this Application constitutes
an offer to borrow and (ii) Lender is not obligated to make the Loan unless
Lender accepts this Application by a separate commitment letter (the
"Commitment") and all of the Conditions are fulfilled to Lender's satisfaction.
If Lender issues the Commitment, then Lender agrees to make the Loan and
Borrower agrees to borrow the full amount of the Loan upon and subject to the
Conditions. The issuance of the Commitment shall not in itself constitute
approval by Lender of any Leases, any Reports, other Due Diligence Materials,
any of the Conditions, or any other items furnished by Borrower or requiring
Lender's approval pursuant to this Application.
15. ASSIGNMENT
This Application (and the Commitment, if issued) shall not be
assignable by Borrower, by operation of law or otherwise, and any purported
assignment by Borrower shall be null and void. Lender shall have the right to
assign this Application (and the Commitment, if issued) to any affiliate or
subsidiary of Lender.
16. TERMINATION
Notwithstanding Lender's issuance of a Commitment, Lender may terminate
its obligations hereunder, at its option and in such manner as it may determine,
in the event that (i) Borrower shall fail to fully satisfy (in a timely fashion)
or comply with any of the Conditions or the Loan shall not have been closed by
the Closing Date (other than due to Lender's breach of the terms of the
Commitment), (ii) the form or substance of any of the Leases, Reports, Due
Diligence Materials or other items subject to Lender's approval is not
satisfactory to Lender, in its sole discretion; (iii) Lender determines, in its
sole discretion, that a condition exists as of the Closing Date which currently
or, with the giving of notice or passage of time, and or both, would constitute
a breach of any representation, warranty, covenant or agreement in any of the
Loan Documents; (iv) there is filed by or against Borrower, any general partner
of Borrower, [any guarantor of the Loan, or any of the Major Tenants]
(collectively, the "Key Parties"), a petition in bankruptcy or insolvency or for
reorganization, liquidation, dissolution, or for the appointment of a receiver,
trustee or liquidator, or if any of the Key Parties makes an assignment for the
benefit of creditors or files a petition for arrangement; (v) there shall occur
a material and adverse change in the financial condition of any of the Key
Parties; (vi) [there shall occur a material default by any of the Major Tenants
under its Lease]; (vii) the Property shall suffer any material damage or
destruction which is not restored prior to the Closing Date; provided, however,
Lender shall extend the Closing Date for up to sixty (60) days to permit
restoration upon receipt by Lender of an extension fee calculated as set forth
in Exhibit B; (viii) any part of the Property shall be the subject of any
condemnation action or proceeding or any exercise of the power of eminent
domain; (ix) any part of the Improvements are located within a 100-year flood
plain (unless flood insurance acceptable to Lender is obtained); or (x) a
default occurs on any other real estate loan between Lender and Borrower, any
general partner of Borrower, any affiliate of Borrower, or any affiliate of a
general partner of Borrower. In the event of termination by Lender, Borrower
shall remain liable for the Expenses. Delay in the exercise of Lender's right of
termination shall not be construed as a waiver of the right to terminate with
respect to any of the events specified above and Lender's failure to act as to
any particular event shall not be construed as a waiver of its rights as to any
subsequent event of a similar or dissimilar nature.
17. LOAN FEES
(a) In consideration of Lender's initial review of the Loan and
preparation of this Application, Borrower has or does now pay to Lender $2,500
as a non-refundable administrative fee (the "Administrative Fee"). Borrower
acknowledges that the Administrative Fee has been fully earned by Lender and
will not be returned to Borrower in any event.
(b) In consideration of Lender's evaluation, preparation and processing
of this Application and reviews performed in connection with the Loan, Borrower
has or does now pay to Lender $ none as an application fee (the "Application
Fee").
-4-
<PAGE> 5
(c) In consideration of Lender's Suing the interest rate on the Loan
which Borrower agrees has significant commercial value, Borrower has delivered
$238,000 as an interest rate standby fee (the "Interest Rate Standby Fee"),
which may be paid by an irrevocable and unconditional letter of credit in form,
substance, and from a bank or other institution satisfactory to Lender. {At}
[Upon] Closing, the Interest Rate Standby Fee shall be returned to Borrower,
without interest.
(d) In consideration of Lender's reservation until Closing of the funds
required for the Loan, Borrower does now pay to Lender $ none as a forward
commitment fee (the "Forward Commitment Fee").
(e) Lender shall hold the Application Fee, Interest Rate Standby Fee,
and Forward Commitment Fee, if any (collectively, the "Fees") for its own
account and may commingle the Fees with other funds of Lender. The Fees shall
not earn interest.
(f) If Lender terminates its obligations hereunder pursuant to Section
16 above for any reason and Borrower has made good faith and reasonable efforts
(i) to satisfy or comply with the Conditions and (ii) to correct any
deficiencies or problems raised by Lender, then the Fees, less the Expenses,
shall be returned to Borrower. Upon such termination, Lender may draw upon any
letter of credit given to Lender for the Fees to pay (or reimburse itself) for
the Expenses. If (i) Lender terminates its obligations hereunder pursuant to
Section 16 above for any reason and Borrower has failed to make good faith and
reasonable efforts (A) to satisfy or comply with the Conditions and (B) to
correct any deficiencies or problems raised by Lender or (ii) Borrower, at any
time, withdraws or revokes this Application or the Commitment, if issued, then
Lender shall be entitled to retain the Fees as liquidated damages. Borrower
agrees that in such event the Fees shall have been fully earned by Lender to
compensate Lender for damages which may be difficult to quantify. Borrower shall
also remain liable for the Expenses.
18. BROKER AND FINDER FEES
Borrower shall indemnify and hold Lender harmless from the payment of
any brokerage commissions or fees of any kind with respect to this Application,
the Loan, and for any legal fees or expenses incurred by Lender in connection
with any claims for such commissions or fees. This indemnity shall not be
subject to the limitations on personal liability set forth in Section 2 of
Exhibit C.
19. MISCELLANEOUS
Any notices given hereunder Shawnee delivered to the addresses
specified on page one of this Application (with a copy to the Advisor if this is
a PruExpress(R) loan) and shall be deemed properly given (i) upon delivery, if
delivered in person or by fax transmission with receipt acknowledged, (ii) one
business day after having been deposited for overnight delivery with a reputable
overnight courier service, or (iii) three business days after having been sent
by U.S. registered or certified mail, postage prepaid. The rights and
obligations of Borrower and Lender with respect to this Application and the
Commitment, if issued, shall be determined in accordance with the laws of the
state in which the Property is located.
20. REPRESENTATION AND WARRANTY OF ACCURACY
Borrower hereby represents that all of the information submitted or to
be submitted by Borrower to Lender in connection with this Application and the
Loan is, and as of the Closing Date will be, true, correct and complete, and
that the person executing this Application on behalf of Borrower has full
authority to bind Borrower.
21. MORTGAGE MART ADVISOR FOR PRUEXPRESS(R) LOANS
If this is a PruExpress(R) loan, Borrower acknowledges and agrees that
the Advisor (identified below) is acting solely as Lender's mortgage marketing
advisor in connection with this Application and Loan, and that Lender has
reserved to itself sole and exclusive authority to accept, reject or modify this
Application, to enter into any agreements relating to the Loan, and to exercise
all rights of approval, consent, extension and waiver with respect to this
Application and all matters relating to the Loan. No acts performed by Advisor
in connection with this Application and the Loan shall be binding on Lender. The
name and address of the Advisor is:
Advisor's Name: Alliance Realty Advisors, Inc.
---------------------------------------------
Address: 53 Perimeter Center East
---------------------------------------------
Suite 320
---------------------------------------------
Atlanta, Georgia 30346
---------------------------------------------
Attention: Kin Heyward
---------------------------------------------
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<PAGE> 6
22. WAIVER OF TRIAL BY JURY
BORROWER HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, THE
RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM FILED BY
BORROWER OR LENDER, WHETHER IN CONTRACT, TORT OR OTHERWISE, RELATING DIRECTLY OR
INDIRECTLY TO THIS APPLICATION, THE LOAN, THE COMMITMENT (IF ISSUED), THE LOAN
DOCUMENTS OR ANY ACTS OR OMISSIONS OF LENDER IN CONNECTION THEREWITH.
-----------------------------------------------
(Borrower) Roberts Properties Residential, L.P.
Dated: {2/12/98}
-------------------
By: {/s/ Charles R. Elliot}
--------------------------------------------
Printed: {CHARLES R. ELLIOT}
Title: {CFO}
The name, address, telephone number and fax number of Borrower's counsel is:
Sanford "Sandy" H. Zatcoff
----------------------------------------------------------------
Holt, Ney, Zatcoff and Wasserman
----------------------------------------------------------------
100 Galleria Parkway, Suite 600, Atlanta, Georgia 30339
----------------------------------------------------------------
----------------------------------------------------------------
EXHIBIT LIST
------------
Exhibit A Prepayment Privilege
---------
Exhibit B Extension Fee Calculation
---------
Exhibit C Special Loan Document Provisions
---------
Exhibit D Description of Real Estate Security
---------
Exhibit E Ownership Structure of Borrower
---------
Exhibit F Rent Roll
---------
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<PAGE> 7
EXHIBIT A
---------
PREPAYMENT PRIVILEGE
--------------------
Subject to payment of the premium referred to below and all accrued interest and
other sums due under the Loan, if any, Borrower shall have the right to prepay
all or part of the outstanding principal balance of the Loan on any date, upon
giving not less than thirty (30) days' prior written notice to Lender of its
intention to prepay.
If the Loan is prepaid for any reason, whether voluntarily or involuntarily,
including any prepayment after acceleration by Lender upon a default by Borrower
under the Loan Documents, but excluding any prepayment from casualty or
condemnation proceeds pursuant to the Loan Documents, Borrower shall pay a
prepayment premium (the "Prepayment Premium") equal to the greater of:
(1) the product of (a) 1% of the principal amount of the Loan being
prepaid multiplied by (b) the quotient of (i) the number of full months
remaining to maturity of the Loan as of the date on which prepayment
will be made (hereinafter called the "Prepayment Date") divided by (ii)
the number of full months comprising the term of the Loan; and
(2) an amount equal to the Present Value of the Loan (as hereinafter
defined) less the amount of principal being prepaid including accrued
interest, if any, calculated as of the Prepayment Date.
Lender shall notify Borrower of the amount (to be determined as of the
Prepayment Date) and basis of determination of the Prepayment Premium. On the
Prepayment Date, Borrower shall pay to Lender the Prepayment Premium together
with the amount of the principal being prepaid and all accrued interest and
other sums due under the Loan. Lender shall not be obligated to accept any
prepayment of the principal balance of the Loan unless such prepayment is
accompanied by the Prepayment Premium and all accrued interest and other sums
due under the Loan.
For the purposes of determining the Prepayment Premium, the following terms
shall have the following meanings:
The "Treasury Rate" is the semi-annual yield on the Treasury Constant
Maturity Series with maturity equal to the remaining weighted average
life of the Loan, for the week prior to the Prepayment Date, as
reported in Federal Reserve Statistical Release H.15 - Selected
Interest Rates, conclusively determined by the Lender on the Prepayment
Date. The rate will be determined by linear interpolation between the
yields reported in Release H.15, if necessary. (In the event Release
H.15 is no longer published, Lender shall select a comparable
publication to determine the Treasury Rate.)
The "Discount Rate" is the rate which, when compounded monthly, is
equivalent to the Treasury Rate, when compounded semi-annually.
The "Present Value of the Loan" shall be determined by discounting all
scheduled payments of principal and interest remaining to maturity of
the Loan, attributed to the amount being prepaid, at the Discount Rate.
If prepayment occurs on a date other than a Monthly Due Date, the
actual, number of days remaining from the Prepayment Date to the next
Monthly Due Date will be used to discount within this period.
Borrower agrees that Lender shall not be obligated actually to reinvest the
amount prepaid in any Treasury obligations as a condition precedent to receiving
the Prepayment Premium.
Notwithstanding the foregoing, no Prepayment Premium will be due if the Loan is
prepaid during the last [fourteen (14)]{thirty (30)} days of Loan term.
-1-
<PAGE> 8
EXHIBIT B
---------
EXTENSION FEE CALCULATION
-------------------------
In the event of any extension of this Application (or the Commitment,
if issued), Borrower shall pay to Lender, at least one (l) business day prior to
the beginning of any thirty (30) day extension period, a non-refundable
extension fee (the Extension Fee) to be determined as follows:
Extension Fee = a - d x e
-----
12
Where:
a = The interest rate per annum as stated in section 2(c) herein
(expressed as a decimal).
b = The discount yield (expressed as a decimal) which appears on page 5
of the Telerate System, Incorporated Terminal, entitled "U.S.
Treasury and Money Market", under the column entitled "30-day
Dealer Commercial Paper" as of the time of day two (2) business
days prior to the beginning of each thirty (30) day extension
period when such yield is quoted by Lender to Borrower. (In the
event that this particular data is no longer available under the
above description, Lender shall select a comparable data source to
determine the discount yield of the appropriate thirty (30) day
commercial paper).
c = 365 x b
----------------------
(360 - (b x 30))
d = [(1 + (c/2)) (1/6) - 1] x 12
e = Loan amount indicated in section 2(a) herein.
In the event that the Extension Fee as determined above shall be zero or a
negative amount, no Extension Fee will be owed to Lender for such thirty (30)
day extension period.
-1-
<PAGE> 9
EXHIBIT C
---------
SPECIAL LOAN DOCUMENT PROVISIONS
--------------------------------
1. DUE ON SALE OR ENCUMBRANCE
In the event that Borrower, without the prior written consent of Lender
(which consent may be given or withheld for any reason (or for no reason) or
given conditionally, in Lender's sole discretion), (i) shall sell, convey,
assign, transfer or otherwise be divested of its title to the Property; (ii)
shall mortgage, convey security title to, or otherwise encumber the Property or
any interest therein in any manner or way (whether direct or indirect, voluntary
or involuntary); or (iii) in the event of (a) any merger, consolidation or
dissolution involving, or the sale or transfer of all or substantially all of
the assets of, Borrower or of any general partner of Borrower; (b) the transfer
(at one time or over any period of time) of 10% or more of (1) the voting stock
of (A) a corporate Borrower, (B) any corporate general partner of Borrower, or
(C) any corporation which is the direct or indirect owner of 10% or more of the
voting stock of a corporate Borrower or of any corporate general partner of
Borrower, (2) the beneficial interest in Borrower, or the interest in any owner
of 50% or more of the beneficial interest in Borrower, if a trust, or (3) the
ownership interests of Borrower if it is a limited liability company; (c) the
transfer of any general partnership interest in Borrower or in any partnership
which is a direct or indirect general partner of Borrower; or (d) the conversion
of any general partnership interest in Borrower, or any general partner of
Borrower, to a limited partnership interest; then such event shall constitute an
Event of Default under the Loan Documents and the entire balance of the Loan,
plus the Prepayment Premium, shall become due and payable. This provision shall
not apply to transfers of title or interest under any will (or applicable law of
descent) or transfers of limited partnership interests.
2. LIMITATION ON PERSONAL LIABILITY
Neither the Borrower nor any general partner(s) of Borrower (singularly
or collectively, the "Exculpated Parties") shall have any personal liability for
the Loan or any obligations set forth in the Loan Documents. Notwithstanding the
preceding sentence, Lender may bring a foreclosure action or other appropriate
action to enforce the Loan Documents or realize upon and protect the Property
(including, without limitation, naming the Exculpated Parties in the actions)
and in addition THE EXCULPATED PARTIES SHALL HAVE PERSONAL LIABILITY FOR:
(a) any indemnity, guaranty, master lease or similar instrument
furnished in connection with the Loan (including, without limitation, the
hazardous substances and ERISA provisions of the Loan Documents);
(b) any assessments and taxes (accrued and/or payable) with respect to
the Property {which are not paid and applicable to Borrower's period of
ownership};
(c) any security deposits of tenants (i) not turned over to Lender upon
foreclosure, sale (pursuant to power of sale), or conveyance in lieu thereof, or
(ii) not turned over to a receiver or trustee for the Property after his/her
appointment;
(d) any insurance proceeds or condemnation awards neither turned over
to Lender nor used in compliance with the Loan Documents;
[(e) if any of the Exculpated Parties executes an amendment or
termination of any Lease (other than a Lease with a Major Tenant which is
addressed in subsection 2(D) below) without Lender's prior written consent (and
Lender's consent was required under the Loan Documents), the Exculpated Parties
shall have personal liability for the greater of:]
[(i) the present value (calculated at the Discount Rate as
defined in Exhibit A above) of the aggregate total dollar amount (if any) by
which (A) rental income and/or other tenant obligations prior to the amendment
of such Lease exceeds (B) rental income and/or other tenant obligations after
the amendment of such Lease; or]
[(ii) any termination fee or other consideration paid;]
(f) waste of the Property;
-1-
<PAGE> 10
(g) any rents or other income from the Property received by any of the
Exculpated Parties after a default under the Loan Documents and not otherwise
applied to the indebtedness under the Note or to the current (not deferred)
operating expenses of the Property; PROVIDED, HOWEVER, THAT THE EXCULPATED
PARTIES SHALL HAVE PERSONAL LIABILITY for amounts paid as expenses to a person
or entity related to or affiliated with any of the Exculpated Parties unless the
payments are expressly permitted in the Loan Documents;
(h) Borrower's failure to maintain any letter of credit required under
the Loan Documents or otherwise in connection with the Loan; or
(i) all {actual} legal fees, including allocated costs of Lender's
staff attorneys, and other expenses incurred by Lender in enforcing the Loan
Documents if Borrower contests, delays, or otherwise hinders or opposes
(including, without limitation, the filing of a bankruptcy) any of Lender's
enforcement actions.
Notwithstanding the foregoing, the EXCULPATED PARTIES SHALL HAVE PERSONAL
LIABILITY for all indebtedness evidenced by the Note and all obligations set
forth in the Loan Documents if:
(A) {losses suffered by Lender in the event} there shall be any breach
or violation of the Due on Sale or Encumbrance section of the Mortgage; or
(B) there shall be any {actual, but not constructive} fraud [or an
intentional, material misrepresentation] {in connection with this Loan} by any
of the Exculpated Parties in connection with the Property, the Loan Documents,
the Loan Application, or any other aspect of the Loan; or
(C) the Property or any part thereof shall become an asset in (i) a
voluntary bankruptcy or insolvency proceeding or (ii) an involuntary bankruptcy
or insolvency proceeding which is not dismissed within ninety (90) days of
filing {(which Borrower has participated in causing to be filed or respecting
which Borrower has colluded with a creditor or a principal in Borrower to cause
such involuntary proceeding to be filed)}; provided, however, that this
subsection 2(C) shall not apply if an involuntary bankruptcy is filed by Lender;
or
[(D) any of the Exculpated Parties executes an amendment or termination
of any Lease with a Major Tenant without Lender's prior written consent (and
Lender's consent was acquired under the Loan Documents).]
3. LATE CHARGE AND DEFAULT RATE
A late charge of $ 100 per day (the "Daily Charges") shall be due for
each day that a payment under the Note is not paid (including the day upon which
the payment is made); provided, however, that if the payment and the Daily
Charges are not paid by the fourteenth day after the payment due date, a late
charge equal to 4% of the payment (the "Late Charge") shall be due and payable
in lieu of all Daily Charges. Upon maturity or a default under any of the Loan
Documents, the interest rate shall be the lesser of (i) the maximum rate allowed
by law or (ii) the greater of (1) the Interest Rate plus five percent or (2) the
Prime Rate plus five percent. Prime Rates shall mean the prime rate published in
the Wall Street Journal on the date the default occurs.
4. ANNUAL OPERATING STATEMENTS
Borrower shall furnish Lender annual financial statements for the Key
Parties (as defined in Section 16(iv)) and annual operating statements for the
Property prepared in accordance with generally accepted accounting principles
and certified by an authorized person, partner or official, together with such
additional information as Lender may request.
[5. PAYMENT BY ELECTRONIC FUNDS TRANSFER
[All payments due under the Note shall be paid by electronic funds
transfer from a bank account established for this purpose. Borrower agrees to
maintain an account with a bank satisfactory to Lender, in Lender's sole
discretion, and to direct the bank in writing to transfer these payments on
their due dates to Lender's designated account. Lender's approval and
designation of the bank (or banks) shall be confirmed in writing. Lender shall
have the right, after thirty days written notice, to require Borrower to use a
different bank or to select a different bank for Lender's account. All costs of
establishing and maintaining these accounts and all costs of these electronic
funds transfers shall be paid by Borrower.]
-2-
<PAGE> 11
6. HAZARDOUS SUBSTANCES
With respect to hazardous substances and asbestos and the Property.
Borrower and Roberts Realty Investors, Inc., jointly and severally, shall (i)
{based solely upon environmental reports prepared solely for Lender} make
representations and warranties regarding history, current condition, use, and
compliance with all applicable laws; (ii) make covenants, including, without
limitation, obligations to comply (and to cause all occupants to comply) with
all applicable laws, regulations, and orders; obligations to provide full and
prompt disclosure; and obligations to conduct all appropriate remediation; all
at Borrower's sole cost and expense; (iii) grant licenses enabling Lender to
conduct any testing and remediation; and (iv) indemnify Lender from all costs
and risks relating to hazardous substances and asbestos; provided, however, that
this indemnity shall not apply if Borrower can conclusively prove that (A) the
contamination of the Property was caused solely by actions, conditions, or
events that occurred after the date that Lender (or any purchaser at a
foreclosure sale) actually acquired title to the Property and (B) the
contamination of the Property was not caused by the direct or indirect actions
of Borrower, any partner(s) of Borrower, any member(s) of Borrower, or any agent
of Borrower. These provisions shall survive any termination, satisfaction or
foreclosure of the Mortgage and shall not be subject to the limitations on
personal liability described in Section 2 of this Exhibit C.
7. ERISA
Borrower and Roberts Realty Investors, Inc., jointly and severally,
shall make the representations and provide the indemnities concerning ERISA set
forth in the Guidelines. These provisions shall survive any termination,
satisfaction or foreclosure of the Mortgage and shall not be subject to the
limitations on personal liability described in Section 2 of this Exhibit C.
8. LEASING RESTRICTIONS
(a) [Borrower may do the following with respect to existing Leases and
new Leases affecting the Property: (a) Borrower may terminate any Lease (other
than the Lease of a Major Tenant or tenant leasing more than square
feet) which is in default; (b) Borrower may amend any Lease (other than the
Lease of a Major Tenant or tenant leasing more than square feet)
provided the amendment does not (i) increase the obligations of the landlord,
(ii) decrease or accelerate the rent, or (iii) decrease the term; and (c)
Borrower may enter into new Leases (or renew existing Leases) for premises of
square feet or less provided each Lease satisfies the minimum
leasing requirements in Section 8(b) of this Exhibit C and is on Borrower's
standard form lease (approved by Lender) with no modifications that increase the
obligations of the landlord. Except as expressly provided in this Section 8 of
Exhibit C (or after obtaining Lender's prior written consent), Borrower shall
not (i) amend or modify any Lease, (ii) extend or renew (except in accordance
with the existing Lease provisions, if any) any Lease (iii) terminate or accept
the surrender of any Lease, (iv) enter into any new Lease of the Property, or
(v) accept any prepayment of rent, termination fee, or any similar payment.]
(b) Minimum Leasing Requirements: All leases covering the Property
shall be third-party, arms-length leases, and shall satisfy the following
conditions:
(i) Minimum Term of Leases (original or renewal): 6 months. [(For
apartments only, up to 30 units at any one time may be leased
to holdover tenants on a month-to-month basis.)]
(ii) Rental Basis (check applicable provision):
( ) Net Rent for Single Tenant: Net rental basis with monthly
payments, with tenant to pay for all structural repairs,
taxes, insurance, utilities, operating and maintenance
costs.
( ) Net Rent for Multiple Tenants: Net rental basis with
monthly payments, with all utilities separately metered
to tenants, and with tenants to pay for all nonstructural
repairs to their premises and their pro rata share of all
taxes, insurance, and common area operating and
maintenance costs.
( ) Gross Rent: Gross rental basis with monthly payments,
with tenants to pay for all nonstructural repairs to
their premises and their pro rata share of all operating
expenses, utilities, taxes, insurance and common area
maintenance costs in excess of (i) the amount of such
costs for the base year or (ii) a dollar stop of at least
$________ per square foot per year.
(X) Apartments: Monthly rent with electricity and, if
applicable; water, gas heating and cooking separately
metered to tenants.
( ) Other: __________________________________________________
__________________________________________________
(iii) Minimum Rentals (without offsets, deductions, or concessions)
(check applicable provisions):
( ) Commercial: Not less than $________ per square foot per
year (and, for gross rental, not less than $________ per
square foot per year in excess of the base year amount or
dollar stop).
(X) Apartments: Not less than the following: Market rents; in
no event will average per square foot rental of the
Property be less than $.65 per square foot, per month.
-3-
<PAGE> 12
RIDER TO EXHIBIT C
------------------
9. ONE-TIME TRANSFER
{Beginning six months from Closing, and} notwithstanding Section 1 of
Exhibit C and so long as there is no default under the Loan Documents (or event
which with the passage of time or the giving of notice or both would be a
default), Lender agrees, upon thirty days prior written request, to consent to
one transfer of the entire Property {(with all terms and conditions of the Loan
Documents remaining the same)} if:
(i) the proposed transferee of the Property is a person which, in
the judgment of Lender, has financial capability and creditworthiness,
reputation and experience in the ownership, operation, management, and leasing
of similar properties, equal to or greater than Borrower;
(ii) at the time of transfer the Loan to Value Ratio (defined below)
does not exceed 63%;
(iii) Borrower pays Lender a non-refundable servicing fee of $2,500
[(as Specified by Lender)] at the time of the request and an additional fee
equal to 1% of the outstanding principal balance of the Loan at the time of the
transfer;
(iv) at Lender's option, Lender's title policy is endorsed to verify
the first priority of the Loan Documents at Borrower's expense;
(v) the Debt Service Coverage Ratio (defined below) is at least 1.65
to 1.00 for the preceding {six} month period and Lender receives satisfactory
evidence that this Debt Service Coverage Ratio will be maintained for the next
succeeding twelve (12) months;
(vi) the transferee expressly assumes all obligations under the Loan
Documents and executes any documents reasonably required by Lender, and all of
these documents are satisfactory in form and substance to Lender;
(vii) Lender reasonably approves the form and content of all transfer
documents, and Lender is furnished with a certified copy of the recorded
transfer documents;
(viii) the transferee complies with and delivers the ERISA
certification and indemnification agreement described in the Guidelines; and
(ix) Borrower or the transferee pays all reasonable fees, costs, and
expenses incurred by Lender in connection with the proposed transfer, including,
without limitation, all legal (for both outside counsel and Lender's staff
attorneys), accounting, title insurance, documentary stamps taxes, intangible
taxes, mortgage taxes, recording fees, and appraisal fees, whether or not the
transfer is actually consummated.
The term "Loan to Value Ratio" shall mean the ratio, as reasonably
determined by Lender, of (i) the aggregate principal balance of all encumbrances
against the Property to (ii) the fair market value of the Property. The term
"Debt Service Coverage Ratio" shall mean the ratio, as reasonably determined by
Lender, calculated by dividing (i) net operating income ("NOI") by (ii) total
annual debt service ("TADS"). NOI is the gross annual income realized from
operations of the Property for the applicable twelve (12) month period after
subtracting all necessary and ordinary operating expenses (both fixed and
variable) for that twelve (12) month period (assuming for expense purposes only
that the Property is 95% leased and occupied if actual leasing is less than
95%), including, without limitation, utilities, administrative, cleaning,
landscaping, security, repairs, and maintenance, ground rent payments,
management fees, reserves for replacements, real estate and other taxes,
assessments and insurance, but excluding deduction for federal, state and other
income taxes, debt service expense, depreciation or amortization of capital
expenditures, and other similar non-cash items. Gross income shall not be
anticipated for any greater time period than that approved by generally accepted
accounting principles and ordinary operating expenses shall not be prepaid.
Documentation of NOI and expenses shall be certified by an officer of Borrower
with detail satisfactory to Lender and shall be subject to the approval of
Lender. TADS shall mean the aggregate debt service payments for any given
calendar year on the Loan and on all other indebtedness secured, or to be
secured, by any part of the Property.
-1-
<PAGE> 13
RIDER TO EXHIBIT C
------------------
10. PERMITTED TRANSFERS WITHOUT FEE
Notwithstanding Section 1 of Exhibit C, the original Borrower, and any
transferee of the original Borrower permitted below, may engage in the
transactions described below after at least fifteen days' prior written notice
to Lender, provided that all of the following conditions are met: (i) there is
no default under the Loan Documents (or event which with the passage of time or
the giving of notice or both would be a default); (ii) the proposed transferee
complies with and delivers the ERISA certification and indemnification agreement
described in the Guidelines (or, if the statements required by the certification
are not true with respect to the proposed transferee, Lender shall have received
such evidence as it may require in its sole discretion to determine that the
proposed transfer is not and would not render the Loan a prohibited transaction
under ERISA); (iii) if the entire Property is transferred, the proposed
transferee shall have signed an assumption agreement acceptable to Lender with
respect to the Loan Documents; (iv) the proposed transferee shall have provided
such information about the proposed transferee as requested by Lender, and
Lender shall have approved the proposed transferee, including, but not limited
to, a review of the proposed transferee's creditworthiness, good character and
reputation, and demonstrated ability and experience (by itself or through its
manager) in the ownership, operation, and leasing of property similar to the
Property; and (v) payment by Borrower or the proposed transferee of (1) all
costs and expenses incurred by Lender for the processing of said transfer
including a processing fee, (2) any documentary stamp taxes, intangibles taxes,
recording fees, and other costs and expenses required in connection with the
assumption agreement and any modification of the Loan Documents, and (3) all
other costs and expenses (including attorneys' fees and expenses for Lender's
staff attorneys and outside counsel) of the preparation of the assumption
agreement and any modification of the Loan Documents. Provided all of the
foregoing conditions are fulfilled with respect to each such transfer, Borrower
may engage in the following transaction:
1. Borrower may transfer the entire Property (or all the ownership interests
in Borrower) to Roberts Realty Investors, Inc. ("RRII"), a real estate
investment trust. Lender shall not be entitled to accelerate the indebtedness
evidenced by the Note nor change the Loan terms in the event of a conveyance
to RRII.
-2-
<PAGE> 14
EXHIBIT D
---------
DESCRIPTION OF REAL ESTATE SECURITY
-----------------------------------
Location: Street Address: 4130 Plantation Trace
- -------- ------------------------------------------------------
City: Duluth County: Gwinnett State: GA
-------------------- ----------------- ------
Land Area: +/- 28 acres
- --------- -----------------
Use of Property: Multi-family Apartments
- --------------- ---------------------------------------------------------------
Improvements: Year Construction Completed: 1993/1998
- ------------ --------------------
Gross Building Area: square feet
----------------
Net Rentable Area: 310,956 square feet
----------------
Number of Apartment Units: 232
-----------------------
Description of Improvements: Presently, Phase I contains 20
-------------------------------------
buildings and 1 Clubhouse/leasing
-------------------------------------
office, with average unit size of
-------------------------------------
1,259. Unit sizes range from 913 to
-------------------------------------
1,483 square feet. Apartments contain
-------------------------------------
9-foot ceilings and amenities such as
-------------------------------------
swimming pool, tennis courts and
-------------------------------------
fitness facility.
-------------------------------------
Current On-Site Parking Provided for 364 cars: 364 surface parking
0 Free standing parking structure
Additional parking information (if applicable):An additional 19 free
standing garages, 14 attached garages, and 95 surface spaces will be built with
the second phase. Total spaces at completion will be 492.
Additional Percent Information: An additional 50 units (Phase II) are
being constructed that will average 1,635 square feet per
unit. A new Clubhouse will be built that v/ill also house a
new fitness facility and swimming pool. The new construction
is anticipated to add 81,754 square feet for a total of
310,956 square feet and 232 units.
Legal Description: [Attach Legal Description as Exhibit D-I]
- ----------------- -----------
Title: (X) Fee Simple ( ) Leasehold ( ) Other
- ------ --------------------------
The Legal Description may be modified and amended, at Lender's option, upon
recent by Lender of the survey and title insurance commitment described herein.
-1-
<PAGE> 15
Exhibit E
---------
OWNERSHIP STRUCTURE OF BORROWER
-------------------------------
I. General Partner(s) of Borrower (if none, so state):
<TABLE>
<CAPTION>
Name Address Percentage Interest
---- ------- -------------------
<S> <C> <C>
Roberts Realty Investors, Inc. 8010 Roswell Road 60%
Suite 120
Atlanta, GA 30350
</TABLE>
II. General Partner(s) of General Partner(s) of Borrower (if none, so
state):
<TABLE>
<CAPTION>
Name Address Percentage Interest
---- ------- -------------------
<S> <C> <C>
None
</TABLE>
III. Limited Partner(s) of Borrower holding ten percent (10%) or greater
ownership interest (if none, so state):
<TABLE>
<CAPTION>
Name Address Percentage Interest
---- ------- -------------------
<S> <C> <C>
</TABLE>
IV. If Borrower is a corporation, or if Borrower is a general partnership
whose general partner(s) is a corporation, list shareholders holding
ten percent (10%) or greater ownership interest in such corporation(s)
(if none, so state):
<TABLE>
<CAPTION>
Name Address Percentage Interest
---- ------- -------------------
<S> <C> <C>
None
</TABLE>
V. Other Information
-1-
<PAGE> 16
EXHIBIT F
---------
RENT ROLL
---------
The Rent Roll shall include the following items:
Name of Tenant
Date of Lease
[Rentable Square Footage (except apartments)]
[Percentage of Office Buildout (warehouses and industrial properties
only)]
Space or Unit Number
[Commencement and Expiration Dates]
[Commencement Date of Rental Payments]
[Date Rent Paid Through]
[Annual Base Rent (except apartments)]
[Annual Base Rent per square foot (except apartments)]
[Cost of Tenant Improvements (except apartments)]
Current Monthly Base Rent (apartments only)
[All Other Rent Items (i.e., escalations, steps, stops, annual
reimbursements, etc.)]
Tenant Concessions or Obligations of Tenants Assumed by Borrower (both
the original amount and the unextinguished amount of each concession)
(Any abatement of or offsets to rental obligations whether
inside or outside the Lease term, and any other direct or
indirect concessions to tenants including but not limited to
allowances for greater than standard tenant improvements,
moving and/or decorating allowances, cash payments to tenants,
lease assumptions, property title assumptions, debt
assumptions and tenant ownership in the Property)
Deposits
Guarantor (if any)
Date of Guaranty (if any)
[Options to Purchase, Expand, Extend, Renew and/or Terminate]
[Rights of First Refusal to Purchase or Lease Additional Space]
The Rent Roll shall include all leases, whether or not evidenced by written
instruments, and shall be dated and certified by Borrower as true, correct and
complete.
ATTACH RENT ROLL TO THIS EXHIBIT F.
----------
-1-
<PAGE> 17
THE PRUDENTIAL GUIDELINES AND REPORT REQUIREMENTS
This document (the "Guidelines") outlines due guidelines and report
requirements for captain reporting information required to be produced by any
party who has applied (the "Borrower") to The Prudential Insurance Company of
America ("Lender") for a first mortgage loan pursuant to a Prudential first
Mortgage Loan Application (the "Application"). The Guidelines form a part of the
Application, and all capitalized terms used in the Guidelines without definition
shall have tile respective meanings ascribed to them in the Application.
The Guidelines are attached in a schedule format for convenience of
reference and are as follows:
SCHEDULE 1 Survey
----------
SCHEDULE 2 Asbestos Report
----------
SCHEDULE 3 Environmental Report
----------
SCHEDULE 4 Engineering and Physical Inspection Requirements
----------
SCHEDULE 5 Insurance Requirements
----------
SCHEDULE 6 ERISA Certifications and Indemnities
----------
- 1 -
<PAGE> 18
SCHEDULE 1
----------
SURVEY
------
Improvements are to be constructed within the title lines of the
Collateral and appurtenant easements as established by a survey which shall be
furnished with plats of survey of the Collateral and appurtenant easements in
triplicate, prepared for and certified to Lender and the title company issuing
the title insurance by a registered land surveyor approved by Lender.
1. The survey shall be made by a surveyor who is duly licensed and
registered in the state where the property is located.
2. The survey should bear the surveyor's stamp, seal and registration
rubber.
3. The survey shall be made at least in accordance with the minimum
detail requirements for ALTA/ASCM Land Title Surveys, jointly
established and adopted by ALTA and ASCM in 1992, and shall contain a
legal description.
4. The survey should note the date of the survey and the date(s) of any
revisions to such survey and shall not be dated any later than sixty
(60) days prior to closing.
5. The survey should indicate the location of the property relative to
magnetic north.
6. The survey shall correctly show:
(a) The boundaries of the property and evidence of the location of
all corners thereof by an indication of physical evidence
found in the field or markers placed by the surveyor at
locations where such physical evidence is absent, showing also
all conflicts and discrepancies between such boundary Lines
and the legal description of record;
(b) The location of all buildings, structures and other
improvements situated on the property;
(c) The dimensions of each building located on the property (or a
typical detail of each building type), the number of
square feet contained within each building on the property;
(d) Encroachments, conflicts or protrusions onto adjoining
premises, streets or alleys by any of such buildings,
structures or other improvements;
(e) Encroachments, conflicts or protrusions onto the property by
buildings, structures or other improvements situated on
adjoining premises;
(f) If improved property, the location of parking areas and a
notation of the tote number of parking spaces, striped as
such, on the property, including the number of parking spaces
reserved for handicapped persons and marked such;
(g) Joint driveways, access means, shared facilities and party
walls, if any;
(h) If readily apparent, approximate location and arrangement of
underground utilities and underground structures, based upon
visible evidence such as manholes, storm drains and similar
physical evidence. and upon information obtained from
independent sources (i.e., utility companies, utility
locating services, municipalities and the like), when
necessary;
(i) If the real estate constitutes an assemblage or subdivision.
interior Lines and lot numbers and facts sufficient co insure
contiguity and a certification chat there are no gaps within
the property;
(j) Lee location of telephone or electric power poles. wires or
lines and guy wire anchors;
- 1-
<PAGE> 19
(k) All easements or rights-of-way, including the width of such
easements or rights-of-way abutting the property (with
notations indicating whether such are dedicated or private)
shown by courses and distances and the names and width of
rights-of-way with the distance from the nearest intersection
to the beginning point of property surveyed;
(1) The location and recording data for all easements and
rights-of-way located on or affecting the property and the
location and source of all building setback lines, buffer
zones, etc., located on the property (and if of record, each
must be identified by reference to the applicable recording
information);
(m) The location of creeks, streams, rivers, lakes, ponds
(retention or otherwise) or other waterways that cross or form
a boundary line of the property, including the location of
high and low water marks established by the U.S. Army Corps of
Engineers, where applicable;
(n) The location of access roads or streets, sidewalks, curbs,
driveways, fences, railroad tracks and railroad rights-of-way;
(o) The location of cemeteries or family burial sites, if any;
(p) An acreage calculation to the nearest 1/1,000th of an acre or,
if requested by Lender, a calculation of the number of square
feet contained within the boundaries of the property;
(q) A Point of Beginning to form the basis for, or as used in, the
legal description of record of the property,
(r) Notations of the names of adjoining owners whenever possible;
(s) The political subdivision, county, state and such other
notations as will accurately locate the property surveyed;
(t) A scale of measurement;
(u) A calculation for closure;
(v) A legend to explain any symbols or abbreviations appearing on
the survey;
(w) A certification that the real estate as described on the plat
does not constitute an illegal subdivision of land under
applicable county or city ordinances;
(x) A certification as to the current zoning of the property;
(y) A certification as to whether or not the real estate lies
within a flood hazard area. If the real estate lies within a
flood hazard area, the certification should reflect the flood
zone classification and give a map reference; and
(z) Any wetlands area(s), if known.
7. A certification on the face of the survey to the proposed owner, the
title insurance company and The Prudential Insurance Company of America
in the following form
I hereby certify to The Prudential Insurance Company of
America and _________________(Name of Title Insurance Co.) that this is
a true and correct survey of __________________(land lot, etc. and
street address) and shows the true and correct location of the
buildings and improvements situated on such land and all easements,
rights-of-way, setback lines, and similar restrictions of record
affecting the property surveyed. The buildings and improvements do not
overhang or encroach upon any easement or rights-of-way of others, and
there are no encroachments either way across the property lines. The
property surveyed contains________ acres and____ parking spaces, and is
not located within a flood plain area.
- 2-
<PAGE> 20
I hereby certify that this Survey was prepared by
______________ (state name of surveyor and qualification) and was made
in accordance with the "minimum" detail requirements for ALTA/ACSM
Land Title Surveys," jointly established and adopted by ALTA and ACSM
in 1992; and meets the accuracy requirements of an Urban Survey, as
defined therein and any and all requirements of the state wherein the
property surveyed is located.
By:
-----------------------------------------
(SEAL) Registration
No.
-----------------------------------------
Dated:
--------------------------------------
- 3 -
<PAGE> 21
SCHEDULE 2
----------
ASBESTOS REPORT
---------------
APPLICABILITY
(a) If construction of all the Improvements was commenced after
January 1, 1986, Borrower shall not have to comply with any of the requirements
of this Schedule 2 unless Borrower knows that there are there are any asbestos
containing materials ("ACM") present on or in the Collateral.
(b) If construction of all the Improvements was commenced between
December 31, 1982 and January 1, 1986, Borrower may furnish, in lieu of the
Asbestos Report described below, certifications from the architect of record and
the contractor there is no ACM present on or in the Collateral.
(c) If construction of any of the Improvements was commenced before
December 31, 1982, Borrower shall furnish the Asbestos Report defined below.
ASBESTOS REPORT AND ASBESTOS BULK SURVEY SCOPE OF WORK GUIDELINES
The Collateral will be surveyed by a qualified asbestos consultant
approved by Lender. The objective of the survey is to determine whether ACM is
present on or in the Collateral. The survey should indicate the extent of such
materials and describe possible remedial measures. In addition, the consultant
shall address its report to The Prudential Insurance Company of America, and
shall acknowledge in its report that The Prudential Insurance Company of America
win be relying on the survey in consideration of financing the Collateral.
I. SAMPLING
A. The inspector conducting the sampling shall be identified, and
the details of his training and experience shall be submitted
to Lender. The inspector must be accredited by all agencies
asserting jurisdiction.
B. Define homogeneous areas for purposes of sampling. In defining
a homogeneous area, uniformity in color and texture are key
criteria. The consultant may consider functional space as a
criteria but this may not always be necessary or appropriate.
Discretion shall be exercised when defining homogeneous areas,
giving consideration to all factors which could reduce the
number of samples required. This might include construction
practices utilized, available building specifications and
as-built drawings, and the type of materials under
consideration.
C. Areas or specific items not accessible for bulk sampling
because of limited access or requirements for destructive
sampling shall be explained in the survey report.
D. Surfacing material (including sprayed-on fireproofing and
textured paint) shall be sampled in a statistically random
manner that is representative of each homogeneous area, as
follows:
1. At least 3 bulk samples shall be collected from each
homogeneous area that is 1,000 sq. ft. or less.
2. At least 5 bunk samples shall be collected from each
homogeneous area that is greater than 1,000 sq. ft.
but less than or equal to 5,000 sq. ft.
3. At least 7 bulk samples shall be collected from each
homogeneous area that is greater than 5,000 sq. ft.
E. Thermal system insulation shall be sampled as follows:
1. Except as provided in sections 2 through 4 below,
collect, in a randomly distributed manner, at least
3 bulk samples from each homogeneous area of thermal
system insulation.
- 1 -
<PAGE> 22
2. Collect at least I bulk sample from each homogeneous
area of patched thermal system insulation, if the
patched section is less than 6 linear or square feet
(patched areas greater than 6 feet should be treated
as separate homogeneous areas).
3. In a manner sufficient to determine whether the
material is ACM or not ACM, collect bulk samples from
each insulated mechanical system where cement or
plaster is used on fittings, such as tees, elbows, or
valves.
4. Bulk samples are not required to be collected from
any homogeneous area where the accredited inspector
has determined that the thermal system insulation is
fiberglass, rubber, or other material which does not
contain asbestos.
F. Miscellaneous material suspected of containing asbestos shall
be sampled as follows:
In a manner sufficient to determine whether material is ACM or
not ACM, collect bulk samples from each homogeneous area of
miscellaneous material suspected of containing asbestos. The
sampling protocol used must be justified.
G. If it is anticipated that more than 250 samples will be
required, the sampling plan must be reviewed with Lender.
H. If there is evidence of significant disturbance to suspected
ACM, or if ACM is located in the air handling system,
representative airborne asbestos concentrations may be
required after consultation with Lender.
I. Unless specifically directed by Lender, sampling of roofing
material is not included in this scope of work.
II. ANALYSIS
A. A portion of the samples can be retained for a second round of
analysis to reduce costs. This should only be done if the
material within a homogeneous area is expected to be ACM. A
final determination that any material is not ACM requires
analysis of all samples.
B. Bulls samples shall be analyzed for asbestos using NVLAP
certified laboratories. AIHA certification is recommended.
C. Bulk samples shall be analyzed by PLM (polarized light
microscopy), using the "Interim Method for the Determination
of Asbestos in Bulk Insulation Samples" found at Appendix A to
Subpart F in 40 CFR Part 763. Samples shall not be composited
for analysis.
D. Use TEM analysis for 10% (but at least 1) of the samples from
each homogeneous area of vinyl tile, if otherwise indicated by
PLM not to contain greater than 1% asbestos. The analysis of
vinyl tile shall be done using the Chatfield method currently
under consideration by ASTM. No other bulk sampling shall be
conducted by TEM or SEM without the approval of Lender.
E. Provide quantitative results of analyses for samples found to
be ACM (i.e., greater than 1% asbestos by weight). Results
of analyses for other samples shall be reported as "less than
1%" unless the state or local regulatory requirements in the
project area require otherwise.
F. The name and address of each laboratory performing an
analysis, the date of analysis, and the name and signature of
the person performing the analysis shall be submitted.
III. ASSESSMENT
Provide a written assessment of all ACM on the Collateral indicating
A. Location, description and results of all samples and the
assumptions made regarding homogeneous areas.
- 2 -
<PAGE> 23
B. Delineation of survey limitations including inaccessible
areas, and an evaluation of the significance of these
uncertainties to the overall assessment.
C. Location, type and amount of the ACM.
D. Condition of the material, specifying:
1. Friability,
2. Type of damage (i.e., flaking, blistering, water
damage, or other signs of physical damage);
3. Severity of damage (i.e., major flaking, severely
torn jackets, as opposed to occasional flaking, minor
tears to jackets);
4. Extent or spread of damage over large areas or a
large percentage of the homogeneous area.
E. Whether the material is accessible for removal.
F. The potential that the material may be disturbed. If
possible, this should reference a discussion with building
management regarding maintenance practices and possible
renovations.
G. Known or suspected causes of damage (i.e., air erosion,
vandalism, vibration, water).
H. Preventive measures which might eliminate the reasonable
likelihood that undamaged ACM might become damaged.
I. Any immediate hazard preserved by the ACM.
J. Any hazards that might result from the continued presence of
any ACM.
K Results of air sampling, if available.
L. The estimated costs for removal and an Operation and
Maintenance ("O&M") plan. For properties that have ACM, and
are proposed to be subject to a program of encapsulation,
enclosure or other acceptable form of abatement, the
recommended method of removal or abatement and the cost of
that program should also be provided. Cost estimates should be
qualified with regard to level of detail and margin of error.
M. Estimated Costs should also be provided (separately) for
restoration to pre-removal conditions. Cost estimates should
be qualified with regard to level of detail and margin of
error.
N. Estimated time required for abatement.
O. State or local asbestos requirements affecting decisions
regarding abatement.
IV. DEVIATIONS
All deviations from this scope of work must have prior approval of Lender.
- 3 -
<PAGE> 24
SCHEDULE 3
----------
ENVIRONMENTAL REPORT
--------------------
ENVIRONMENTAL SITE ASSESSMENT SCOPE OF WORK (10/5/94)
The Collateral must be surveyed by an environmental consulting firm
(the "Consulting Firm" approved by The Prudential Insurance Company of America
("Lender"), Prudential Real Estate Investors ("PREI"), and/or The Prudential.
Capital Group (collectively or individually, "Prudential"). It is the intent of
this document to outline the Scope of Work (the "Scope of Work") for the
Environmental Site Assessment (the "ESA") conducted for Prudential activities,
including but not limited to equity properties, mortgage loans, acquisitions,
and potential foreclosures. The objective of the ESA is to determine whether
there is any environmental contamination present on the Collateral, or whether
such contamination is likely to occur in the future because of on-site or nearby
activities or problems. The assessment should describe the extent of any
problems and the possible remedial options, including a range of costs.
MODIFICATIONS TO THE SCOPE OF WORK
If the environmental professional of the Consulting Firm (the
"Environmental Professional") conducting an assessment believes that a
modification to this Scope of Work may be appropriate, such modification should
be discussed with the designated "Prudential Coordinator" for Prudential
activity for that consulting firm (the "Coordinator"). Final approval of the
modification should then be obtained from a Prudential environmental engineer.
If the ESA is for PREI, the Environments Professional shall check
whether the investment is being made for another investor that has different
environmental requirements. If the requirements are contradictory, it should be
brought to the attention of a Prudential environmental engineer for resolution.
PHASE I - ENVIRONMENTAL SITE ASSESSMENT
1. USE OF ASTM STANDARD (ASTM E 1527-93 SECTION 1)
The Phase I ESA conducted for Prudential shall implement the scope of
work defined by the African Society for Testing and Materials (the "ASTM")
Standard Practice Designation E 1527-93 (the "Practice Designation"), with
clarifications and modifications as described in this document. The
Environmental Professional shall meet all the qualifications and requirements of
an "environmental professional" as defined in the Practice Designation. All
parenthetical Section references in this document refer to the particular
Section of the Practice Designation listed.
2. REGULATORY REQUIREMENTS FOR CONDUCTING AN ESA (SECTION 1.1)
The ESA must consider other federal, state or local environmental laws,
in addition to the CERCLA considerations incorporated into the Practice
Designation. The Environmental Professional is expected to identify and address
all other applicable regulatory requirements for environmental review of
property transactions.
3. IDENTIFICATION AND DISCUSSION OF OTHER ENVIRONMENTAL FACTORS (SECTION
7.2.2)
The Environmental Professional is also expected to identify and address
other significant environmental programs or issues that could affect the market
value or environmental condition of the Collateral, particularly if
noncompliance might result in significant contamination.
4. CONCLUSIONS AND RECOMMENDATIONS (SECTIONS 4.7.2 AND 8.3)
The Environmental Professional conducting the current review must take
responsibility for the conclusions and recommendations preserved in the ESA.
Under no circumstances shall a Environmental Professional simply pass along
someone else's conclusions without comment. The conclusions and recommendations
of prior reports must be evaluated, and concurrence must be indicated if
applicable.
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5. USE OF INTERVIEWS (SECTION 6.5.2.1)
Information from interviews should be verified if information from
another source is "reasonably ascertainable". The reliability of each source
shall be qualified.
6. REGULATORY SEARCH DISTANCES (SECTION 7.1.2.1)
The approximate minimum search distances specified within the Practice
Designation are generally accepted as presented by ASTM. Reductions of the
search distances, as might be appropriate for certain central business
districts, should be addressed as described in "Modifications to the Scope of
Work" on page l of this document
If there is reason to believe that an extensive or area-wide problem
exists, the Environmental Professional should extend the file search as
appropriate to identify the potential sources of that contamination. Searches of
"adjoining" properties should include any property which is located in any part
within a one-hundred foot (100') distance of any portion of the Collateral's
property lines. This is a minor modification of the ASTM definition of
"adjoining" which also includes the width of a public thoroughfare.
7. TIME FOR FILE REVIEW (SECTION 7.1.4.2)
Information that is not obtainable within twenty (20) days of request
is not "reasonably ascertainable" within the Practice Design definitions.
However, the reality is that many political jurisdictions require more than
twenty (20) days to schedule a file review. If such information may impact the
conclusions and recommendations of the ESA, including a determination regarding
the advisability of a Phase II investigation, the deficiency should be noted
along with the estimated time and methods utilized to obtain access. The
Environmental Professional is expected to take all reasonable measures to
expedite the process.
8. PHYSICAL SETTING SOURCES (SECTION 7.2.3)
Although the Practice Designation standard allows discretion to the
Environmental Professional for reviewing other specific physical setting sources
besides the mandated USGS 7.5 Minute Topographic Map, it should be emphasized
that such information may be essential to the review, such as for the evaluation
of potential off-site sources. This Scope of Work applies a performance standard
to establish geological and groundwater conditions (including flow direction)
from other reasonably ascertainable sources for the general area of the
Collateral, if such information is relevant to the assessment.
9. HISTORICAL REVIEW (SECTION 7.3.4)
The historical review of the Collateral and the surrounding area is
critical to the successful execution of an environmental assessment. It often
refines the advisability of, or the nature of, any suggested Phase II work (test
locations and suite of chemicals analyzed). ASTM mandates the use of only one
historical source, with the use of additional historical sources being
discretionary based on certain factors described in the Practice Designation.
For purposes of a site assessment conducted pursuant to this Scope of
Work, aerial photographs and fire insurance maps must be reviewed whenever such
resources are reasonably ascertainable. The total number of historical sources
searched by the Environmental Professional conducting a review pursuant to this
Scope of Work is governed by a performance standard to establish the historical
details of the Collateral that might be relevant to the assessment, subject also
to a determination that the information is reasonably ascertainable.
10. PRIOR USE OF COLLATERAL (SECTIONS 7.3.4 AND 8.4.1.2)
The uses of the Collateral by prior occupants (past tenants) must be
established to the extent that the information (eg. prior rent logs) is
reasonably accessible. This is particularly important for industrial or
commercial properties where past tenants may have handled hazardous materials.
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11. PRIOR USE OF ADJOINING PROPERTIES (SECTIONS 7.3.4 AND 8.4.1.2)
The past uses of adjoining properties (see comment 5) must be
established to the extent that the information is reasonably ascertainable. This
is particularly important for industrial or commercial properties where past
uses may have included handling of hazardous materials.
12. HAZARDOUS MATERIAL HANDLING - CURRENT (SECTIONS 8.4.1.1)
If the use of the Collateral being assessed involves a business (eg.
manufacturing) or process that handles hazardous materials, the Environmental
Professional shall describe the processes and the hazardous materials utilized
or produced.
13. HAZARDOUS MATERIAL HANDLING - PAST (SECTIONS 8.4.1.2 & 8.4.2.3)
The Environmental Professional shall determine if the historical use of
the Collateral is generally recognized as involving the handling of hazardous
materials. If the Environmental Professional cannot evaluate the use by current
readily ascertainable sources (i.e., the use has been discontinued or has
changed with the passage of time), the Environmental Professional should
describe the typical practice for that use during that operating period and the
typical hazardous materials that were utilized or produced. The Environmental
Professional should discuss whether such activity could potentially result in a
significant environmental problem.
14. REMOVAL OR REPAIR OF TANKS (SECTION 8.4.2.4)
The prior removal or repair of tanks should be determined and reported
to the extent reasonably ascertainable. The reason for the removal or repair
should be explained, and a determination made whether any soil or groundwater
testing was conducted and any condemnation was removed or remediated. The
absence of post-excavation sampling may indicate the advisability of a Phase II
investigation.
15. REGULATORY COMPLIANCE OF TANKS (SECTION 8.4.2.4)
Evaluate the status of storage tanks for compliance with regulatory
requirements such as testing, construction standards, overfill protection and
leak detection.
16. PCBS (SECTION 8.4.2.10)
With regard to Polychlorinated Biphenyls (PCBs), the Environmental
Professional should:
a. Document the location and owner of all transformers or
capacitors that contain PCBs; and
b. Evaluate all PCB equipment (i.e., contains any PCBs),
including all transformers present on the Collateral, for
compliance with all federal, state and local laws and
regulations; and
c. Visually inspect PCB equipment and determine whether there are
any leaks or other hazards; and
d. Determine whether all oil-filled transformers have been
classified by PCB testing (mandatory for non-utility owned
transformers) or other acceptable alternative; and
e. Evaluate PCB transformers located near (on the Collateral or
adjoining property - provide distance) commercial buildings
for registration with the building owner and implementation of
an appropriate inspection program.
17. OTHER ENVIRONMENTAL CONSTRAINTS (SECTION 12)
The Phase I ESA Report should describe potential environmental
constraints on the use of the Collateral including but not limited to:
a. Known or potential wetlands (any survey must be authorized and
conducted pursuant to a different scope of work); and
b. Floodplain; and
c. Coastal zone; and
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d. Sole source aquifer, and
e. Aquifer recharge area; and
f. Nearby environmentally sensitive sites (including drinking
water wells).
18. ASBESTOS (SECTION 12.1.4.1)
As part of the assessment, the Environmental Professional shall conduct
a preliminary review of the potential that asbestos may be an issue at the
Collateral. This would include the review of any existing asbestos survey or
building records which suggest the presence of asbestos-containing materials.
An asbestos survey is not included within the Scope of Work. If an
asbestos bulk survey is required it shall be conducted consistent with the
Asbestos Report described in Schedule 2 (authorized separately). A "PHASE I" OR
"LIMITED" SURVEY IS NOT ACCEPTABLE. If an Asbestos Report has been authorized
at the time the ESA is initiated, the asbestos activities described above are
preempted.
19. RADON (SECTION 12.1.4.2)
Radon testing shall be conducted at all residential properties unless
this requirement is waived pursuant to documented radon measurements in the
subject area below 4 pc/liter, regulatory agency interviews, and the absence of
any geological factors that would be expected to contribute to such readings.
Approved Environmental Professionals can submit requests for waiver of radon
testing to a Prudential environmental engineer for evaluation prior to
conducting a specific ESA in that geographic area.
Other types of properties shall be tested as appropriate, based on the
likelihood that significant radon levels may be present. This will be determined
using the same factors described above.
20. LEAD PAINT (SECTION 12.1.4.3)
A Phase I ESA conducted for any residential property constructed
through the end of 1978 should evaluate the condition of the paint and the
potential for disturbance. If painted areas are deteriorated, or if there is a
likelihood that a significant disturbance will occur, the paint should be
evaluated for lead. To the extent feasible, testing for lead content should be
integrated with the asbestos survey conducted pursuant to a separate Prudential
scope of work. A proposal must be submitted to a Prudential environmental
engineer for approval.
Any ESA conducted in a jurisdiction which applies specific requirements
for testing for lead should implement those requirements consistent with the
direction provided in section 2 of this Scope of Work.
21. THE REPORT (APPENDIX X2)
The report format and table of contents should follow the
recommendation contained in Appendix X2 of the Practice Designation with the
following additions:
a. The Environmental Professional shall acknowledge that
Prudential will be relying on this report in consideration of
financing of the Collateral. Alternatively, the survey report
shall be addressed to Prudential, as well as the Borrower; and
b. The report must include site plans and location maps
INDICATING ALL REFERENCED LOCATIONS AND FEATURES including
potential off-site sources. Copies of any Sanborn maps that
were reviewed should also be provided; and
c. The report must include COLOR site photographs. Photographs
should be provided for all storage areas and equipment where
hazardous materials are handled; and
d. The report must include a description of all applicable state
and local regulatory requirements; and
e. If the Environmental Professional concludes that a subsurface
investigation (a "Phase II") is advisable, that recommendation
should accompany, but may be separate from, the Phase I ESA
report. The recommendation should include as a minimum:
1) Reasons leading to the recommendation; and
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2) Recommended method(s) of subsurface exploration;
and
3) Number, depth, and location of borings and wells
recommended; and
4) Any remote sensing techniques (i.e., soil gas survey,
ground penetrating radar, etc.) to be utilized, and
potential limitations of results so obtained;
and
5) Substances and parameters to be tested for by
laboratory analysis and the rationale for this
decision (e.g., products handled on this or adjacent
property); and
6) Projected time schedule for submission of the Phase
II results; and
7) Cost estimate for all work recommended.
f. The report shall be signed by the Environmental Professional
responsible for the report and by the Coordinator or his/her
designee for technical quality review at the Consulting Firm.
If constraints present difficulties in obtaining the signature
of the Coordinator, a statement that the Coordinator has
reviewed the report will be accepted.
g. An ORIGINAL version of the report shall be provided to a
Prudential environmental engineer for review.
PHASE II-SUBSURFACE INVESTIGATION
A. GENERAL COMMENTS
1. The requirement for a subsurface investigation shall be
established by Prudential's environmental engineering staff. A
Phase II investigation should not be conducted without a
Prudential environmental engineer's concurrence.
2. The suite of analyses of groundwater samples conducted for any
Phase II assessment shall be based on the Phase I results, but
at least one sample shall normally be analyzed for priority
pollutants with the exception of dioxin and asbestos, but with
the addition of TPH (Total Petroleum Hydrocarbons), Xylene,
MTBE and a library search. There shall be no deviation from
this requirement without concurrence of a Prudential
environmental engineer.
3. All analyses of metals will provide both total and dissolved
results unless otherwise authorized by a Prudential
environmental engineer.
4. The use of composite sampling must be specifically authorized
by a Prudential environmental engineer.
5. The laboratory used for sample analysis shall be certified by
each applicable regulatory agency having jurisdiction.
6. If the Phase I ESA indicates that phthalates or methylene
chloride or other substances that might show up as laboratory
contaminants are suspected to be present as a contaminant at
the site, the Environmental Professional must take appropriate
precautions to ensure the validity of the Phase II analyses
for these substances.
7. The installation of all wells must follow applicable
regulatory protocols. Use of temporary wells or other
alternate ground water sampling procedures must be
specifically approved by a Prudential environmental engineer.
8. All wells must be installed with appropriate security measures
to minimize damage from site activity (eg. flush mounted if
subjected to traffic) and prevent tampering (locking caps or
well covers). In addition, all below-grade connections and
casing joints must be water tight. This shall be coordinated
with the Borrower.
9. Once the ESA is completed and accepted by Prudential, the
future need for each well shall be discussed with the
Borrower. A determination shall be made about possible
decommissioning of the well.
10. Borrower is responsible for the disposal of all residual
materials developed in the course of a subsurface
investigation at, on, or under the Collateral and is
responsible for compliance with all regulatory requirements.
The Environmental Professional is responsible for determining
what advice and assistance it
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\
should or ought to provide to the Borrower in connection with
such disposal of materials, consistent with the Borrower's
legal responsibilities and the terms of the agreement between
to Environmental Professional and the Borrower.
B. THE ENVIRONMENTAL PROFESSIONAL'S FINAL PHASE II REPORT SHALL INCLUDE:
1. Conclusions about the environmental condition of the
Collateral; and
2. Site plans and location maps indicating all referenced
locations, including soil borings and monitoring wells; and
3. Site photographs if not provided in the Phase I report; and
4. Documentation and supporting data; and
5. Evaluation of all data. THIS SHALL BE RELATED TO STATE AND
LOCAL REGULATORY REQUIREMENTS AND ANY ACTUAL, "SUGGESTED", OR
"GUIDANCE" ACTION LEVELS FOR REPORTING OR CLEANING UP SOIL AND
GROUND WATER CONTAMINATION. ANY STATE GROUND WATER QUALITY
STANDARDS MUST BE SPECIFICALLY REFERENCED; AND
6. Ground water level and direction of flow if available; and
7. Uncertainties relating to available data; and
8. Recommendations for additional site investigation with
projected costs; and
9. Recommendations for remedial measures, if recommended; and
10. Estimated length of time and cost of remediation (both range
of costs and worst case).
C. The Environmental Professional shall acknowledge that Prudential will
be relying on this report in consideration of financing of the
Collateral. The report shall be addressed to Prudential as well as the
Borrower.
D. The report shall be signed by the Environmental Professional
responsible for the report and by the Coordinator or his/her designee
for technical quality review at the Consulting Firm. If constraints
present difficulties in obtaining the signature of the Coordinator, a
statement that the Coordinator has reviewed the report will be
accepted.
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SCHEDULE 4
ENGINEERING AND PHYSICAL INSPECTION REQUIREMENTS
REQUIREMENTS FOR COMPLETED IMPROVEMENTS
If the Improvements are fully complete at the date of this Application,
Borrower shall furnish:
(i) Within ten days of the date of this Application, complete final
working plans and specifications ("Plans and Specifications") for the
Improvements.
(ii) A report with respect to the physical condition of the Improvements
(the "A&E Report") prepared by an architect and/or engineer acceptable to
Lender. Such architect and/or engineer shall review the Plans and Specifications
and perform an on-site inspection of the Improvements. The A&E Report shall
contain the results of such review of the Plans and Specifications and on-site
inspection of the Improvements, shall certify that the Improvements were
constructed in compliance with the Plans and Specifications, shall describe the
physical condition of the Improvements, and shall contain information as to the
adequacy of subsurface soil conditions and drainage, field soil compaction,
soil reports, building materials, concrete compression tests, any similar
geotechnical items, and all elevator installations, if any, necessary to
service the Improvements. The A&E Report shall also contain a general
engineering inspection and review of the Improvements including roofing,
pavement, mechanical systems, electrical systems (including a description of
the type of wiring), plumbing systems, life safety systems, seismic conditions
(if applicable), and the presence of polybutylene piping and fire retardant
plywood. All drafts and the final version of the A&E Report shall be addressed
to and delivered to both Borrower and Lender simultaneously, and shall
acknowledge that Lender will be relying on the reports in consideration of
making the Loan. Lender may contact and confer with any such architect and/or
engineer without Borrower's approval or consent. Lender shall have the right to
inspect the Improvements from time to time, with reasonable prior notice.
If construction of the Collateral was completed no earlier than twelve (12)
months prior to the date of this Application, Borrower may furnish, in lieu of
portions of the A&E Report, a certificate from each of the architect of record,
the general contractor, and the Borrower, that the improvements, as
constructed, (a) have been fully completed in compliance with the Plans and
Specifications, and (b) comply with all applicable building and zoning codes,
ordinances, rules, regulations, and other similar specifications. The
architect's certificate shall also state that the architect regularly inspected
the Improvements during construction, and that the architect has inspected the
Improvements no more than sixty (60) days prior to Closing and has determined
that the physical condition of the Improvements is satisfactory in all respects.
(iii) At least fifteen (15) days prior to Closing, if the Improvements
are an apartment project, hotel or motel, a sound transmission evaluation
addressed to Lender from a licensed architect or engineer acceptable to Lender
(the "Sound Report"), certifying that the interior walls and partitions of the
units are designed to achieve a sound transmission classification ("STC")
rating, when rated in accordance with the A.S.T.M. designation E90-85 Tentative
Recommended Practice for the Laboratory Measurement of Airborne Sound
Transmission Laws of Building Floors and Walls, of not less than fifty (50)
decibels for walls and floors between units, core walls and corridor walls, and
not less than thirty-five (35) decibels for partitions within units.
REQUIREMENTS FOR UNCOMPLETED IMPROVEMENTS
If the Improvements are not fully complete at the date of this
Application, Borrower shall comply with the following conditions:
(i) Within ten days after the date of this Application, Borrower shall
furnished Lender with the following, all of which (including the identity of the
preparers of all required reports) shall be subject to Lender's approval:
(A) the final plans and specifications for the Improvements (which
shall not be materially changed without the prior written approval of Lender);
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(B) a report of subsurface soil conditions and test borings,
prepared by a licensed engineer or a recognized test laboratory, certifying that
the soil condition will adequately support the Improvements with the foundation
as designed;
(C) a report from a recognized manufacturer or a licensed
engineer as to the adequacy of all elevator installations (if any), including
recommended size, capacity, travel and speed necessary to adequately service the
Improvements, as well as percentage of population that can be moved within a
five minute waiting period for riders; and
(D) if the Improvements are an apartment project, hotel or
motel, a sound transmission evaluation from a licensed architect or engineer,
acceptable to Lender, certifying that the interior walls and partitions of the
units are designed to achieve a sound transmission classification (S.T.C.)
rating, when rated in accordance with the A.S.T.M. designation E90-61T Tentative
Recommended Practice for the Laboratory Measurement of Airborne Sound
Transmission Loss of Building Floors and Walls, of not less than 45 decibels for
walls and floors between units, core walls and corridor walls, and not less than
35 decibels for partitions within units.
{from the inspecting not be required for the existing phase I units and the
rating for phase II can be obtained with the review of plans and specifications
of phase II}
(ii) The general contractor for the construction of the Improvements
shall be {Roberts Properties Construction}, and shall not be changed without
Lender's prior written consent.
(iii) Lender shall have the right to retain an architect or engineer
of its choice to review the plans and specifications and required reports, and
to make periodic inspections and reports to ensure that construction of the
Improvements is progressing, is being completed in a satisfactory manner, and is
in compliance with the approved final plans and specifications. Borrower shall
pay the fees and expenses of said architect or engineer.
(iv) Lender and its architect or engineer shall have the right to
inspect the Collateral at any time and from time to time during construction.
(v) [Within thirty (30) days commencement of construction and if so
requested by Lender, Borrower shall erect on the Collateral a financing sign
prepared and paid for by Borrower to the specifications and satisfaction of
Lender.] Borrower agrees that Lender may release publicity articles concerning
the financing of the project.
(vi) Borrower shall submit to Lender final and complete working plans
and specifications, signed by Borrower, at least fifteen (15) business days
prior to Closing. Such plans and specifications shall be subject to Lender's
approval.
(viii) Upon completion of the Improvements, Borrower shall furnish to
Lender a certification from a licensed architect or engineer nominated and paid
by Borrower and approved by Lender, certifying that: (A) he has regularly
inspected the Improvements during construction, (B) the Improvements have been
fully completed in compliance with the final plans and specifications approved
by Lender, and (C) the Improvements, as constructed, comply with all applicable
building and zoning codes, ordinances, rules, regulations, and other similar
restrictions, including the Americans with Disabilities Act. In addition, such
architect or engineer shall furnish to Lender inspection reports at least once a
month during construction.
(ix) Prior to Closing, the Collateral shall be inspected by Lender to
verify that the Improvements have been fully equipped and satisfactorily
completed in compliance with the approved final plans and specifications
approved by Lender.
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SCHEDULE 5
INSURANCE REQUIREMENTS
Borrower shall furnish the following insurance policies or
endorsements, which shall be subject to the approval of Lender as to insurance
companies, amounts, forms, deductibles, loss payees and insureds and such other
insurance as Lender may reasonably require.
I. Coverage Amounts
A. All risk property insurance: Not less than 100% replacement Cost
unless a different amount is approved by Lender in its sole discretion. The
deductible amount may not exceed $10,000. Any provision for coinsurance is
unacceptable. All property insurance coverage must be on a replacement Cost
basis.
B. Rent loss, business interruption or use and occupancy insurance: Not
less than an amount equal to twelve (12) months' total income from the
Collateral, including but not limited to the sum of the aggregate annual net
effective rental required by section 13(b) of the Application plus Lender's
estimate of all other pro forma annual income such as tenant reimbursements of
fixed and operating expenses.
C. Flood insurance: In the amount approved by Lender's Risk Management
Department, if the Collateral is located in an HUD designated special flood
hazard area.
D. Commercial general liability insurance: Not less than $1,000,000
bodily injury and property damage combined single limit, with an umbrella/excess
liability policy(ies) of not less than $10,000,000, and shall include operations
and blanket contractual liability coverages. All public liability insurance must
be on an occurrence basis.
E. Boiler and machinery insurance, if applicable, covering boilers and
other pressure vessels, the heating and air conditioning system, and high
pressure piping, machinery and equipment.
II. Items to be Delivered Fifteen Days Prior to Closing
A. All risk property insurance, rent loss insurance, flood
insurance (if required):
1. A duplicate original or certified copy of the policy, with
agent's original signature on the certification, must be provided. The entire
policy must be submitted, including all forms and endorsements. If the policy is
a blanket policy, those endorsements which apply only to properties other than
the Collateral may be omitted.
2. Borrower (i.e., the exact legal entity constituting the
Borrower) must be a Named Insured. Lender must be a named insured.
3. The Collateral must be identified as the insured property.
4. The proper amounts of coverage must be indicated.
5. If the policy is a blanket policy, the agent must inform
Lender in writing that the full amount of the blanket policy is available for
any insured loss and that no sublimits apply to the Collateral.
6. Lender must be named in a standard mortgagee clause at the
address set forth in section 7 below.
7. The policy must be endorsed to include the following notice
provision for the benefit of Lender:
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<PAGE> 33
It is hereby agreed that the Company will give
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
P.O. Box 10082
Van Nuys, California 91410-0082
Attention: Mortgage Loan Insurance and Tax Division
with a copy to
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
One Ravinia Drive, Suite 1400
Atlanta, Georgia 30346
Attention: Vice President, Mortgage Loan Servicing
at least 30 days' written notice prior to material change in or cancellation of
this policy.
8. The policy must include a waiver of subrogation clause
substantially equivalent to the following:
The Company may require from the Insured an assignment of all rights of recovery
against any party for loss to the extent that payment therefor is made by the
Company, but the Company shall not acquire any rights of recovery which the
Insured has expressly waived prior to loss, nor shall such waiver affect the
Insured's rights under this policy.
B. Commercial general public liability insurance
1. An original certificate of insurance must be provided.
2. Borrower (i.e., the exact legal entity constituting the
Borrower) must be a Named Insured.
3. The Collateral must be identified as an insured location.
4. The proper amounts of coverage must be indicated.
5. The certificate must indicate that contractual liability is
covered.
6. Lender must also be shown as the Certificate Holder, with the
following address:
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
P.O. Box 10082
Van Nuys, California 91410-0082
Attention: Mortgage Loan Insurance and Tax Division
with a copy to
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
One Ravinia Drive, Suite 1400
Atlanta, Georgia 30346
Attention: Vice President, Mortgage Loan Servicing
7. The insurance company must agree unconditionally to provide Lender
with 30 days' prior written notice of material change in or cancellation of the
policy. If the standard "ACORD" certificate form or equivalent is used, the
printed notice of cancellation clause must be modified in the following manner
Should any of the above described policies be canceled or materially
changed before the expiration date thereof, the issuing Company will
mail 30 days' written notice to the certificate holder named to the
left.
III. Insurance Carriers - Any insurance carrier must have a Best Rating of
B+ XII or higher.
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SCHEDULE 6
ERISA CERTIFICATIONS AND INDEMNITIES
FOR GENERAL ACCOUNT LOANS ONLY
Compliance with ERISA and State Statutes on Governmental Plans
At Closing, Borrower agrees that it will provide an ERISA Certification and
Indemnification Agreement, in form and substance satisfactory to Lender,
including, without limitation, the following provisions:
(i) Borrower understands and acknowledges that, at Closing, the
source of funds from which Lender extends the Loan is its General Account, which
is subject to the claims of its general creditors under state law.
(ii) Borrower represents and warrants to Lender that, as of the date
of the Loan Documents and throughout the of the Loan, (a) Borrower is not an
"employee benefit plan" as defined in Section 3(3) of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"), which is subject to Title I
of ERISA, and (b) the assets of the Borrower do not constitute "plan assets" of
one or more such plans within the meaning of 29 C.F.R. ss.2510.3-101.
(iii) Borrower represents and warrants to Lender that, as of the date
of the Loan Documents and throughout the term of the Loan, (a) Borrower is not a
"governmental plan" within the meaning of Section 3(32) of ERISA, and (b)
transactions by or with Borrower are not subject to state statutes regulating
investments of and fiduciary obligations with respect to governmental plans.
(iv) Borrower covenants and agrees to deliver to Lender such
certifications or other evidence at Closing and from time to time throughout the
term of the Loan, as requested by Lender in its sole discretion, that (a)
Borrower is not an "employee benefit plan" or a "governmental plan"; and (b)
Borrower is not subject to state statutes regulating investments and fiduciary
obligations with respect to governmental plans; and (c) one or more of the
following circumstances is true:
(A) Equity interests in Borrower are publicly offered securities,
within the meaning of 29 C.F.R. ss2510.3-101(b)(2);
(B) Less than twenty-five percent (25%) of all equity interests in
Borrower are held by "benefit plan investors" within the meaning of 29 C.F.R.
ss2510.3-101(f)(2); or
(C) Borrower qualifies as an "operating company" or a "real estate
operating company" within the meaning of 29 C.F.R. ss2510.3-101(c) or (e).
(v) Any of the following shall constitute a default under the Loan
Documents, entitling Lender to exercise any and all remedies to which it may be
entitled under the Loan Documents: (a) the failure of any representation or
warranty made by Borrower under this section to be true and correct in all
respects, (b) the failure of Borrower to provide Lender with the written
certifications and evidence referred to above, or (c) the consummation by
Borrower of a transaction which would cause the Loan or any exercise of Lender's
rights under the Loan Documents to constitute a non-exempt prohibited
transaction under ERISA or a violation of a state statute regulating
governmental plans, subjecting Lender to liability for violation of ERISA or
such state statute.
(vi) Borrower hereby indemnifies, defends and holds Lender harmless
from and against all loss, cost, damage and expense (including, without
limitation, attorneys' fees and costs incurred in the investigation, defense and
settlement of claims and losses incurred in correcting any prohibited
transaction or in the sale of a prohibited loan, and in obtaining any individual
prohibited transaction exemption under ERISA that may be required, in Lender's
sole discretion) that Lender may incur, directly or indirectly, as a result of a
default under the immediately preceding section. This indemnity shall survive
any termination, satisfaction or foreclosure of the Loan Documents and shall not
be subject to the limitation on personal liability described in Section 2 of
Exhibit D to the Application.
- 1 -
<PAGE> 35
(vii) (a) Anything in the Application, Commitment, or the Loan
Documents to the contrary notwithstanding, no sale, assignment or
transfer of any direct or indirect interest in the Borrower shall be permitted
which would negate Borrower's representations in this section or cause
the Loan Documents (or any exercise of Lender's rights under the Loan Documents)
to constitute a violation of any provision of ERISA or of any applicable state
statute regulating a governmental plan, as determined in the sole discretion of
Lender.
(b) Anything in the Application, the Commitment, or the Loan
Documents to the contrary notwithstanding, no direct or indirect transfer of the
Collateral or any interest therein including, without limitation, a junior lien
or leasehold interest, shall be permitted which would cause the Loan Documents
(or any exercise of Lender's rights under the Loan Documents) to constitute a
violation of ERISA or any applicable state statute regulating a governmental
plan, as determined in the sole discretion of Lender.
(c) Anything in the Application, the Commitment or the Loan
Documents to the contrary notwithstanding, no less than fifteen (15) days before
consummation of any permitted transfer of title to the Collateral or of an
interest in Borrower, or of any direct or indirect right, title or interest in
either of them, or of the placing of any lien or encumbrance on the Collateral,
Borrower shall obtain from the proposed transferee or lienholder a
representation to Lender in form and substance satisfactory to Lender that the
provisions of section (iv) above will be true after the transfer, or in the case
of a lien or encumbrance, would remain true following any foreclosure or
conveyance in lieu thereof, and further provided that any proposed lienholder
agrees that any direct or indirect transfer of its lien or any interest therein
will be governed by this section.
FOR SEPARATE ACCOUNT LOANS ONLY
Compliance with ERISA and State Statutes on Governmental Plans
At Closing, Borrower agrees that it will provide an ERISA Certification and
Indemnification Agreement, in form and substance satisfactory to Lender,
including, without limitation, the following provisions:
(i) Borrower understands and acknowledges that, at Closing, the
source of funds from which Lender extends the Loan is a separate account, which
is subject to the provisions of the Employee Retirement Income Security Act of
1974, as amended ("ERISA").
(ii) Borrower represents and warrants to Lender that, as of the date
of the Loan Documents and throughout the term of the Loan Documents, (a)
Borrower is not a "party in interest", as defined in Section 3(14) of ERISA, to
any employee benefit plan that has invested in the separate account from which
funds have been derived to make the Loan Documents, or if so, the Loan Documents
does not constitute a nonexempt prohibited transaction under ERISA, and (b)
transactions by or with Borrower are not subject to state statutes regulating
investments of and fiduciary obligations with respect to "governmental plans,"
as defined in Section 3(32) of ERISA, or if so subject, the Loan Documents do
not constitute a nonexempt prohibited transaction under such statutes.
(iii) Borrower covenants and agrees to deliver to Lender such
certifications or other evidence at Closing and from time to time throughout the
term of the Loan Documents, as requested by Lender in its sole discretion,
confirming the representations and warranties made in section (ii) above.
(iv) Any of the following shall constitute a default under the Loan
Documents, entitling Lender to exercise any and all remedies to which it may be
entitled under the Loan Documents: (a) the failure of any representation or
warranty made by Borrower under this section to be true and correct in all
respects, (b) the failure of Borrower to provide Lender with written
certifications and evidence referred to above, or (c) the consummation by
Borrower of a transaction which would cause the Loan or any exercise of Lender's
rights under the Loan Documents to constitute a nonexempt prohibited transaction
under ERISA or state statutes regulating governmental plans, subjecting Lender
to liability for violation of ERISA or such state statute.
(v) Borrower hereby indemnifies, defends and holds Lender harmless
from and against all loss, cost, damage and expense (including without
limitation, attorneys' fees and costs incurred in the investigation, defense and
settlement of claims and losses incurred in correcting any prohibited
transaction or in the sale of a prohibited loan, and in obtaining any individual
prohibited transaction exemption under ERISA that may be required, in Lender's
sole discretion) that Lender may
- 2 -
<PAGE> 36
incur, directly or indirectly, as a result of a default under the immediately
preceding section. This indemnity shall survive any termination, satisfaction
or foreclosure of the Loan Documents and shall not be subject to the limitation
on personal liability described in Section 2 of Exhibit D to the Application.
(vi) (a) Anything in the Application, the Commitment or the Loan
Documents to the contrary notwithstanding, no sale, assignment or transfer of
any direct or indirect interest in the Borrower shall be permitted which would
negate Borrower's representations in this section or cause the Loan Documents
(or any exercise of Lender's rights under the Loan Documents) to constitute a
violation of any provision of ERISA or of any applicable state statute
regulating a governmental plan, as determined in the sole discretion of Lender.
(b) Anything in the Application, the Commitment or the Loan
Documents to the contrary notwithstanding, no direct or indirect transfer of the
Collateral or any interest therein including, without limitation, a junior lien
or leasehold interest, shall be permitted which would cause the Loan Documents
(or any exercise of Lender's rights under the Loan Documents) to constitute a
violation of ERISA or any applicable state statute regulating a governmental
plan, as determined in the sole discretion of Lender.
(c) Anything in the Application, the Commitment or the Loan
Documents to the contrary notwithstanding, no less than fifteen (15) days before
consummation of any permitted transfer of title to the Collateral or of an
interest in Borrower, or of any direct or indirect right, title or interest in
either of them, or of the placing of any lien or encumbrance on the Collateral,
Borrower shall obtain from the proposed transferee or lienholder a
representation to Lender in form and substance satisfactory to Lender that the
representations and warranties section (ii) above will be true after the
transfer, or in the case of a lien or encumbrance, would remain true following
any foreclosure or conveyance in lieu thereof, and further provided that any
proposed lienholder agrees that any direct or indirect transfer of its lien or
any interest therein will be governed by this section.
- 3 -
<PAGE> 37
APPENDIX
Language indicated as being shown by strike out in the typeset document is
enclosed in brackets "["and"]" in the electronic format
Language indicated as being shown by additions in the typeset document is
enclosed in braces "{"and"}" in the electronic format
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<EXCHANGE-RATE> 1
<CASH> 8,718,000
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 8,718,000
<PP&E> 117,602,000
<DEPRECIATION> 13,303,000
<TOTAL-ASSETS> 114,286,000
<CURRENT-LIABILITIES> 4,377,000
<BONDS> 63,687,000
0
0
<COMMON> 46,000
<OTHER-SE> 46,176,000
<TOTAL-LIABILITY-AND-EQUITY> 114,286,000
<SALES> 0
<TOTAL-REVENUES> 3,920,000
<CGS> 0
<TOTAL-COSTS> 2,923,000
<OTHER-EXPENSES> (157,000)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 986,000
<INCOME-PRETAX> 963,000
<INCOME-TAX> 0
<INCOME-CONTINUING> 963,000
<DISCONTINUED> 0
<EXTRAORDINARY> 65,000
<CHANGES> 0
<NET-INCOME> 1,028,000
<EPS-PRIMARY> 0.23
<EPS-DILUTED> 0.23
</TABLE>
