<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 September 30, 1999
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the transition period from to
(Commission File No. 001-13183)
ROBERTS REALTY INVESTORS, INC.
(Exact Name of Registrant as Specified in Its Charter)
<TABLE>
<CAPTION>
GEORGIA 58-2122873
<S> <C>
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
</TABLE>
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 [X] 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 November 1,
1999 was 4,818,156.
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PART I FINANCIAL INFORMATION........................................................................ 1
ITEM 1. FINANCIAL STATEMENTS........................................................... 1
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS.................................. 11
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK.............................................................. 23
PART II OTHER INFORMATION........................................................................... 23
ITEM 1. LEGAL PROCEEDINGS.............................................................. 23
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS...................................... 23
ITEM 4. SUBMISSION OF MATTERS TO A
VOTE OF SECURITY HOLDERS....................................................... 23
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K............................................... 24
</TABLE>
-------------------
i
<PAGE> 3
PART I
ITEM 1. FINANCIAL STATEMENTS.
ROBERTS REALTY INVESTORS, INC.
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
ASSETS 1999 1998
------------- -------------
(UNAUDITED)
<S> <C> <C>
REAL ESTATE ASSETS - At cost:
Land $ 20,697 $ 20,239
Buildings and improvements 94,151 91,407
Furniture, fixtures and equipment 11,514 11,184
------------- -------------
126,362 122,830
Less accumulated depreciation (19,672) (16,914)
------------- -------------
Operating real estate assets 106,690 105,916
Land held for future development 6,106 6,065
Construction in progress and real estate under development 8,489 7,035
------------- -------------
Net real estate assets 121,285 119,016
CASH AND CASH EQUIVALENTS 2,307 4,106
RESTRICTED CASH 340 470
DEFERRED FINANCING COSTS - Net of accumulated amortization of
$356 and $246 at September 30, 1999 and December 31, 1998, respectively 943 1,095
OTHER ASSETS - Net 394 403
------------- -------------
$ 125,269 $ 125,090
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES:
Mortgage notes payable $ 75,335 $ 79,973
Construction loan payable 7,866 --
Line of credit 1,850 --
Accounts payable and accrued expenses 2,131 1,187
Dividends and distributions payable 1,139 1,092
Due to affiliates 1,039 398
Security deposits and prepaid rents 402 335
------------- -------------
Total liabilities 89,762 82,985
------------- -------------
COMMITMENTS AND CONTINGENCIES
MINORITY INTEREST OF UNITHOLDERS IN THE OPERATING PARTNERSHIP 12,747 15,579
------------- -------------
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, 4,878,596
and 4,764,037 shares issued at September 30, 1999 48 47
and December 31, 1998, respectively
Additional paid-in capital 25,475 29,335
Less treasury stock, at cost (112,500 and 19,300 shares at
September 30, 1999 and December 31, 1998, respectively) (841) (145)
Unamortized restricted stock compensation (55) (92)
Accumulated deficit (1,867) (2,619)
------------- -------------
Total shareholders' equity 22,760 26,526
------------- -------------
$ 125,269 $ 125,090
============= =============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
1
<PAGE> 4
ROBERTS REALTY INVESTORS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30,
1999 1998
----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
OPERATING REVENUES:
Rental operations $ 4,560 $ 4,270
Other operating income 301 229
----------- -----------
Total operating revenues 4,861 4,499
----------- -----------
OPERATING EXPENSES:
Personnel 496 520
Utilities 350 328
Repairs, maintenance and landscaping 311 288
Real estate taxes 381 365
Marketing, insurance and other 196 183
General and administrative expenses 490 469
Depreciation of real estate assets 1,434 1,246
----------- -----------
Total operating expenses 3,658 3,399
----------- -----------
INCOME FROM OPERATIONS 1,203 1,100
----------- -----------
OTHER INCOME (EXPENSE):
Interest income 35 55
Interest expense (1,357) (1,224)
Loss on disposal of assets (19) (28)
Amortization of deferred financing costs (47) (36)
Other amortization expense (3) (39)
----------- -----------
Total other expense (1,391) (1,272)
----------- -----------
LOSS BEFORE MINORITY INTEREST, GAINS ON SALES OF
REAL ESTATE ASSETS AND EXTRAORDINARY ITEMS (188) (172)
MINORITY INTEREST OF UNITHOLDERS IN THE OPERATING PARTNERSHIP 69 64
----------- -----------
LOSS BEFORE GAINS ON SALES OF REAL ESTATE ASSETS
AND EXTRAORDINARY ITEMS (119) (108)
GAINS ON SALES OF REAL ESTATE ASSETS, net of minority interest
of unitholders in the Operating Partnership 1,023 313
----------- -----------
INCOME BEFORE EXTRAORDINARY ITEMS 904 205
EXTRAORDINARY ITEMS - Losses on early extinguishment of debt, net of
minority interest of unitholders in the Operating Partnership (184) (404)
----------- -----------
NET INCOME (LOSS) $ 720 $ (199)
=========== ===========
INCOME PER COMMON SHARE - BASIC AND DILUTED:
Income before extraordinary items $ 0.19 $ 0.04
Extraordinary items (0.04) (0.08)
----------- -----------
Net income (loss) $ 0.15 $ (0.04)
=========== ===========
Weighted average common shares - basic 4,712,487 4,711,325
Weighted average common shares - diluted 7,432,748 7,550,607
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
2
<PAGE> 5
ROBERTS REALTY INVESTORS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
1999 1998
----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
OPERATING REVENUES:
Rental operations $ 13,607 $ 12,007
Other operating income 866 598
----------- -----------
Total operating revenues 14,473 12,605
----------- -----------
OPERATING EXPENSES:
Personnel 1,382 1,304
Utilities 958 885
Repairs, maintenance and landscaping 880 824
Real estate taxes 1,240 1,045
Marketing, insurance and other 603 567
General and administrative expenses 1,510 1,280
Depreciation of real estate assets 4,077 3,484
----------- -----------
Total operating expenses 10,650 9,389
----------- -----------
INCOME FROM OPERATIONS 3,823 3,216
----------- -----------
OTHER INCOME (EXPENSE):
Interest income 115 305
Interest expense (3,870) (3,281)
Loss on disposal of assets (47) (79)
Amortization of deferred financing costs (149) (102)
Other amortization expense (9) (50)
----------- -----------
Total other expense (3,960) (3,207)
----------- -----------
INCOME (LOSS) BEFORE MINORITY INTEREST, GAINS ON SALES OF
REAL ESTATE ASSETS AND EXTRAORDINARY ITEMS (137) 9
MINORITY INTEREST OF UNITHOLDERS IN THE OPERATING PARTNERSHIP 50 (17)
----------- -----------
LOSS BEFORE GAINS ON SALES OF REAL ESTATE ASSETS
AND EXTRAORDINARY ITEMS (87) (8)
GAINS ON SALES OF REAL ESTATE ASSETS, net of minority interest
of unitholders in the Operating Partnership 1,023 1,231
----------- -----------
INCOME BEFORE EXTRAORDINARY ITEMS 936 1,223
EXTRAORDINARY ITEMS - Losses on early extinguishments of debt, net of
minority interest of unitholders in the Operating Partnership (184) (497)
----------- -----------
NET INCOME $ 752 $ 726
=========== ===========
INCOME PER COMMON SHARE - BASIC AND DILUTED:
Income before extraordinary items $ 0.20 $ 0.26
Extraordinary items (0.04) (0.10)
----------- -----------
Net income $ 0.16 $ 0.16
=========== ===========
Weighted average common shares - basic 4,712,728 4,603,281
Weighted average common shares - diluted 7,457,009 7,550,384
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
3
<PAGE> 6
ROBERTS REALTY INVESTORS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
1999 1998
----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 752 $ 726
Adjustments to reconcile net income to net cash provided by operating activities:
Minority interest of unitholders in the Operating Partnership (50) 17
Gains on sales of real estate assets, net of minority interest of unitholders in
the Operating Partnership (1,023) (1,231)
Loss on disposal of assets 47 79
Depreciation and amortization 4,235 3,636
Extraordinary items, net of minority interest of unitholders in
the Operating Partnership 184 497
Amortization of deferred compensation 22 --
Change in assets and liabilities:
Increase in restricted cash and cash equivalents (20) (62)
Decrease in other assets 9 75
Increase in accounts payable and accrued expenses relating to operations 878 153
Increase in due to affiliates relating to operations -- 3
Increase (decrease) in security deposits and prepaid rent 67 (50)
----------- -----------
Net cash provided by operating activities 5,101 3,843
----------- -----------
INVESTING ACTIVITIES:
Proceeds from sale of real estate assets 8,160 7,550
Construction of real estate assets (12,002) (23,076)
----------- -----------
Net cash used in investing activities (3,842) (15,526)
----------- -----------
FINANCING ACTIVITIES:
Proceeds from mortgage notes payable -- 44,400
Proceeds from mortgage notes payable held in escrow 150 (1,713)
Payoff of mortgage notes, including prepayment penalty (4,166) (28,291)
Principal repayments on mortgage notes payable (670) (581)
Payment of loan costs (91) (628)
Proceeds from construction loan 7,866 --
Proceeds from line of credit 1,850 350
Payoff of line of credit -- (350)
Repurchase of partnership units (28) (122)
Repurchase of treasury stock (696) --
Payment of partnership profits interests (242) --
Payment of dividends and distributions (7,031) (3,228)
----------- -----------
Net cash (used in) provided by financing activities (3,058) 9,837
----------- -----------
NET DECREASE IN CASH AND CASH EQUIVALENTS (1,799) (1,846)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 4,106 7,117
----------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 2,307 $ 5,271
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest $ 4,351 $ 3,615
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
4
<PAGE> 7
ROBERTS REALTY INVESTORS, INC.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. BUSINESS AND ORGANIZATION OF ROBERTS REALTY
Roberts Realty Investors, Inc., 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. Roberts Realty owns and operates multifamily residential
properties as a self-administered, self-managed equity real estate
investment trust, sometimes called a REIT. All of Roberts Realty's
completed apartment homes are located in the Atlanta metropolitan area.
Roberts Realty conducts all of its operations and owns all of its
assets in and through Roberts Properties Residential, L.P., a Georgia
limited partnership, sometimes referred to as the Operating
Partnership. Given that Roberts Realty is the sole general partner of
the Operating Partnership and had a 64.1% and 63.0% ownership interest
in it at September 30, 1999 and December 31, 1998, respectively,
Roberts Realty controls the Operating Partnership.
At September 30, 1999, Roberts Realty owned nine completed multifamily
apartment communities totaling 1,779 apartment homes. An additional 285
apartment homes were under construction and 581 apartment homes were in
the development stage.
Roberts Realty elected to be taxed as a REIT under the Internal Revenue
Code of 1986, as amended, beginning with the taxable year ended
December 31, 1994. As a result, Roberts Realty 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 Internal Revenue Code, to its shareholders and
satisfies certain other requirements. Accordingly, the accompanying
consolidated financial statements include no provision for federal and
state income taxes.
2. BASIS OF PRESENTATION
The accompanying consolidated financial statements include the
consolidated accounts of Roberts Realty and the Operating Partnership.
All significant intercompany accounts and transactions have been
eliminated in consolidation. The financial statements of Roberts Realty
have been adjusted for the minority interest of the unitholders in the
Operating Partnership.
The minority interests of the unitholders in the Operating Partnership
on the accompanying balance sheets are 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 Roberts Realty's common
stock and partnership units outstanding and will change as additional
shares and partnership 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 partnership units outstanding during the
period, which was 36.6% and 37.6% for the three months ended September
30, 1999 and 1998, respectively, and 36.8% and 39.0% for the nine
months ended September 30, 1999 and 1998, respectively. The minority
interest of the unitholders in the Operating Partnership was
$12,747,000 and $15,579,000 at September 30, 1999 and December 31,
1998, respectively.
Holders of partnership units generally have the right to require the
Operating Partnership to redeem their partnership units for shares.
Upon submittal of partnership units for redemption, the Operating
Partnership has the option either (a) to acquire those partnership
units in exchange for shares, on a one-for-one basis, or (b) to pay
cash for those partnership units at their fair market value, based upon
the
5
<PAGE> 8
then current trading price of the shares. Roberts Realty has
adopted a policy that it will issue shares in exchange for all
partnership units submitted.
Roberts Realty's management has prepared the accompanying interim
unaudited financial statements 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 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 do not
necessarily indicate the results that may be expected for the year
ending December 31, 1999. Certain prior period amounts have been
reclassified to conform to the 1999 presentation. These financial
statements should be read in conjunction with Roberts Realty's audited
financial statements and the notes to them included in Roberts Realty's
Annual Report on Form 10-K for the year ended December 31, 1998.
3. NOTES PAYABLE
LINE OF CREDIT. Roberts Realty obtained a $2,000,000 revolving
unsecured line of credit in June of 1999 to provide funds for
short-term working capital purposes. This line of credit has a one year
term and bears an interest rate of LIBOR + 150 basis points. At
September 30, 1999, $1,850,000 was outstanding on the line.
MORTGAGE NOTES. Mortgage notes payable were secured by the following
apartment communities at September 30, 1999 and December 31, 1998, as
follows:
<TABLE>
<CAPTION>
FIXED INTEREST PRINCIPAL OUTSTANDING
RATE AS OF
MATURITY 09/30/99 09/30/99 12/31/98
-------- -------------- ----------- ------------
<S> <C> <C> <C> <C>
Bentley Place 08/15/06 7.10% $ 0 $ 4,000,000
Bradford Creek 06/15/08 7.15 8,295,000 8,359,000
Crestmark 10/01/08 6.57 15,824,000 15,957,000
Highland Park 02/15/03 7.30 7,869,000 7,940,000
Ivey Brook 02/15/07 7.14 6,246,000 6,300,000
Plantation Trace 10/15/08 7.09 11,791,000 11,881,000
Preston Oaks 10/15/02 7.21 8,340,000 8,420,000
River Oaks 11/15/03 7.15 8,974,000 9,052,000
Rosewood Plantation 07/15/08 6.62 7,996,000 8,064,000
----------- -----------
$75,335,000 $79,973,000
=========== ===========
</TABLE>
Roberts Realty and Roberts Properties, Inc. have a $35,000,000 advised
guidance line with Bank of America, N.A. for the purpose of providing
financing for the acquisition or development of multifamily
communities. (Roberts Properties is owned by Charles S. Roberts, the
President, Chief Executive Officer, and Chairman of the Board of
Directors of Roberts Realty.) 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 Bank of America's discretion in
accordance with normal loan approval procedures. At September 30, 1999,
there was no balance outstanding under the guidance line.
On April 13, 1999, Roberts Realty closed a $9,500,000 construction loan
to complete phase one of Addison Place (formerly referred to as Abbotts
Bridge). The loan has a nine-month term and bears an
6
<PAGE> 9
interest rate of LIBOR plus 160 basis points. At September 30, 1999,
$7,866,000 was outstanding under the construction loan.
In October 1999, Roberts Realty closed a $9,500,000 permanent loan
secured by the first phase of Addison Place. Roberts Realty used
$8,057,000,000 of the proceeds of the permanent loan to repay the
construction loan and will use the balance of the proceeds to pay the
remaining construction costs. The permanent loan has a 10-year term
with a fixed interest rate of 6.95% payable in monthly installments of
$62,885 based on a 30-year amortization schedule. Because the
property was less than 95% occupied at closing, the lender required
Roberts Realty to obtain an $843,000 letter of credit secured by an
equal amount of cash.
In October 1999, Roberts Realty closed a $3,000,000 land loan to fund
the initial construction of the second phase of Addison Place. The loan
is secured by the second phase land, has a six-month term, and bears an
interest rate of LIBOR plus 150 basis points.
Interest capitalized was $134,000 and $111,000 for the three months
ended September 30, 1999 and 1998, respectively, and $469,000 and
$454,000 for the nine months ended September 30, 1999 and 1998,
respectively.
Real estate assets having a combined depreciated cost of approximately
$104,791,000 served as collateral for the outstanding debt at September
30, 1999.
4. EXTRAORDINARY ITEMS
The 1999 extraordinary item is the write-off of unamortized loan costs
and prepayment fee to the lender for the extinguishment of the mortgage
loan secured by the Bentley Place community, which Roberts Realty sold
on August 23, 1999. For the three and nine month periods ended
September 30, 1999, this extraordinary item is net of $107,000, which
was allocated to the minority interest of the unitholders in the
Operating Partnership, and calculated based on the weighted average
number of partnership units outstanding during the period.
The 1998 extraordinary items are comprised of (1) 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, (2) the write-off of unamortized loan costs and prepayment
fee to the lender for the refinancing of the mortgage note secured by
the Rosewood Plantation community on June 23, 1998, and (3) the
write-off of unamortized loan costs and prepayment fee to the lender
for the refinancing of the mortgage notes secured by the Crestmark
community on September 30, 1998. For the three and nine month periods
ended September 30, 1998, these extraordinary items are net of $242,000
and $295,000, respectively, which was allocated to the minority
interest of the unitholders in the Operating Partnership, and
calculated based on the weighted average number of partnership units
outstanding during the periods presented.
5. COMMITMENTS AND CONTINGENCIES
Roberts Realty and the Operating Partnership are subject to various
legal proceedings and claims that arise in the ordinary course of
business. While the resolution of these matters cannot be predicted
with certainty, management believes the final outcome of such matters
will not have a material adverse effect on Roberts Realty's financial
position or results of operations.
Roberts Realty enters into contractual commitments in the normal course
of business with Roberts Properties Construction, Inc., an affiliate of
Roberts Realty owned by Mr. Charles S. Roberts, the President, Chief
Executive Officer, and Chairman of the Board. These contracts relate to
the construction of real estate assets. Roberts Construction is
currently constructing the first and second
7
<PAGE> 10
phases of Addison Place, consisting of 118 townhomes and 285 apartment
homes, pursuant to a cost plus 10% arrangement. At September 30, 1999,
the remaining commitments totaled $480,000 as summarized in the
following table:
<TABLE>
<CAPTION>
ESTIMATED ESTIMATED
TOTAL REMAINING
CONTRACT AMOUNT CONTRACTUAL
AMOUNT INCURRED COMMITMENT
----------- ----------- -----------
<S> <C> <C> <C>
Addison Place - phase I $ 9,538,000 $ 9,058,000 $ 480,000
</TABLE>
6. SHAREHOLDERS' EQUITY
EXCHANGES OF PARTNERSHIP UNITS FOR SHARES. During the three months
ended September 30, 1999 and 1998, a total of 85,421 and 44,521
partnership units, respectively, were exchanged for the same number of
shares. During the nine months ended September 30, 1999 and 1998, a
total of 112,328 and 305,311 partnership units, respectively, were
exchanged for the same number of shares. Each conversion was reflected
in the accompanying consolidated financial statements at book value.
REDEMPTIONS OF PARTNERSHIP UNITS FOR CASH. During the three months
ended September 30, 1999, no partnership units were redeemed for cash.
During the nine months ended September 30, 1999, a total of 3,917
partnership units were redeemed for cash of $28,000. During the three
and nine months ended September 30, 1998, a total of 8,286 and 14,341
units, respectively, were redeemed for cash of $70,000 and $122,000,
respectively.
TREASURY STOCK REPURCHASES. During the three months ended September 30,
1999, Roberts Realty repurchased 9,000 shares at a total cost of
$70,000. During the nine months ended September 30, 1999, Roberts
Realty repurchased 93,200 shares at a total cost of $696,000. No shares
were repurchased during the three or nine months ended September 30,
1998.
RESTRICTED STOCK AWARDS. During the three months ended September 30,
1999, Roberts Realty granted 3,996 shares of restricted stock to
certain employees and cancelled 1,765 shares of restricted stock as a
result of an employee leaving Roberts Realty's employment. The
umamortized book value of these restricted stock grants totaled
$33,500, and the unamortized book value of the cancelled grants equaled
$15,000. During the three and nine months ended September 30, 1998,
Roberts Realty granted 1,765 and 12,355 shares, respectively, of
restricted stock to certain employees. The unamortized book value of
these restricted stock grants totaled $15,000 and $105,000,
respectively. These transactions have been recorded as unamortized
restricted stock compensation and are shown as a separate component of
stockholders' equity. This restricted stock vests 100% at the end of a
two-and-a-half to three-year vesting period and is being amortized to
compensation expense ratably over the vesting period.
DIVIDENDS. On August 17, 1999, Roberts Realty's Board of Directors
declared a special distribution in the amount of $0.50 per common share
and partnership unit payable on August 30, 1999 to shareholders and
unitholders of record on August 23, 1999. On September 23, 1999,
Roberts Realty's Board of Directors declared a quarterly distribution
in the amount of $0.15 per common share and partnership unit payable on
October 15, 1999 to shareholders and unitholders of record on September
30, 1999. The third quarter 1998 dividend was $0.145 and was paid to
shareholders and unitholders of record as of September 30, 1998.
EARNINGS PER SHARE. Reconciliations of income available to common
shareholders and weighted average shares and partnership units used in
Roberts Realty's basic and diluted earnings per share computations are
detailed below (dollars in thousands).
8
<PAGE> 11
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
------------------------ -----------------------
9/30/99 9/30/98 9/30/99 9/30/98
----------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Income (loss) before extraordinary items $ 904 $ 205 $ 936 $ 1,223
Minority interest in income (loss) before
extraordinary items of the
Operating Partnership 522 124 541 831
----------- ---------- ---------- ----------
Income (loss) before extraordinary items - diluted $ 1,426 $ 329 $ 1,477 $ 2,054
=========== ========== ========== ==========
Net income (loss) - basic $ 720 $ (199) $ 752 $ 726
Minority interest in income (loss) of the
Operating Partnership 415 (117) 433 536
----------- ---------- ---------- ----------
Net income (loss) - diluted $ 1,135 $ (316) $ 1,185 $ 1,262
=========== ========== ========== ==========
Weighted average shares - basic 4,712,487 4,711,325 4,712,728 4,603,281
Dilutive securities - weighted average partnership units 2,720,261 2,839,282 2,744,281 2,947,103
----------- ---------- ---------- ----------
Weighted average shares - diluted 7,432,748 7,550,607 7,457,009 7,550,384
=========== ========== ========== ==========
</TABLE>
7. ACQUISITIONS AND DISPOSITIONS
On January 9, 1998, Roberts Realty completed the sale of the Windsong
community for $9,750,000 in cash resulting in a gain, net of minority
interest, of $918,000 on the sale of real estate assets and an
extraordinary gain, net of minority interest, of $68,000 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. Roberts Realty reinvested the
net sales proceeds in a replacement property in connection with a
Section 1031 tax-deferred exchange. The purchaser was unaffiliated with
Roberts Realty and the transaction was negotiated at arm's-length.
On June 22, 1998, Roberts Realty purchased approximately 23.8 acres of
undeveloped land in the Ballantyne area of Charlotte, North Carolina
for $3,540,000 from a local Charlotte investment group. Roberts Realty
intends to construct a 319-unit multifamily apartment community on the
property. Construction is anticipated to begin in the fourth quarter of
1999. As part of the closing costs, the Operating Partnership paid
Roberts Properties an acquisition fee of $166,000 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 $1,595,000, or $5,000 per unit, for
designing, developing, and overseeing construction of the Ballantyne
project. Through September 30, 1999, Roberts Realty has paid $830,000
of the $1,595,000 in fees to Roberts Properties. The independent
members of Roberts Realty's Board of Directors approved the foregoing
arrangements with Roberts Properties.
On June 24, 1998, Roberts Realty purchased approximately 49.1 acres of
undeveloped land located in north Fulton County, Georgia for $5,294,000
from Roberts Properties. Roberts Realty intends to construct a 403-unit
multifamily apartment community on the property. Construction of the
118-unit first phase began in the third quarter of 1998 and was
substantially complete at September 30, 1999. Construction of the
285-unit second phase began in the second quarter of 1999. As part of
the closing costs, the Operating Partnership paid Roberts Properties an
acquisition fee of $250,000 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 $2,015,000, or $5,000 per unit, for designing, developing, and
overseeing construction of the Addison Place project.
9
<PAGE> 12
Through September 30, 1999, Roberts Realty has paid $1,013,000 of the
$2,015,000 in fees to Roberts Properties. The independent members of
Roberts Realty's 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.
On June 25, 1998, Roberts Realty purchased approximately 35.3 acres of
undeveloped land located in Gwinnett County, Georgia for $2,525,000
from Roberts Properties Old Norcross, Ltd. (Mr. Roberts, who is the
general partner of Roberts Properties Old Norcross, Ltd., received none
of the sale proceeds as general partner or otherwise.) Roberts Realty
intends to construct a 249-unit multifamily apartment community on the
property, which is anticipated to begin in the first quarter of 2000.
As part of the closing costs, the Operating Partnership paid Roberts
Properties an acquisition fee of $119,250 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 of the Old Norcross
project. Through September 30, 1999, Roberts Realty has paid $0 of the
$1,245,000 in fees to Roberts Properties. The independent members of
Roberts Realty's Board of Directors approved the foregoing arrangements
with Roberts Properties after reviewing two independent appraisals.
On July 17, 1998, Roberts Realty sold its two retail centers for
$2,400,000 in cash resulting in a gain, net of minority interest, of
$313,000. Net sales proceeds were $2,196,000, after deducting for
closing costs and prorations of $204,000. The purchaser is unaffiliated
with Roberts Realty and the transaction was negotiated at arm's-length.
The net book value of the property was $1,715,000 at June 30, 1998.
Roberts Realty paid Roberts Properties $93,000 for consulting fees in
connection with the sale.
On August 23, 1999, Roberts Realty sold the Bentley Place community for
$8,273,000 in cash resulting in a gain, net of minority interest, of
$1,023,000. Net sales proceeds were $3,726,000 after deduction for loan
repayment of $3,968,000, prepayment fee of $198,000, accrued interest
of $7,000, and closing costs and prorations totaling $374,000.
Partnership profits interests of $242,000 were paid to Roberts
Properties pursuant to the amended partnership agreement of the
Operating Partnership. Roberts Realty used the remaining net sales
proceeds of $3,484,000 to fund a special distribution to shareholders
and unitholders on August 30, 1999 as described in Note 6 above.
10
<PAGE> 13
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION.
This report contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. These statements relate to future economic performance,
plans and objectives of our management for future operations and projections of
revenues and other financial items that are based on the beliefs of our
management, as well as assumptions made by, and information currently available
to, our management. The words expect, estimate, anticipate, believe and similar
expressions identify forward-looking statements. Those statements involve risks,
uncertainties and assumptions, including industry and economic conditions,
competition and other factors discussed in this and our other filings with the
SEC, including the "Risk Factors" section of the prospectus included in our
registration statement on Form S-3, registration number 333-82453, as declared
effective by the SEC on August 2, 1999. 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
We own multifamily residential properties as a self-administered and
self-managed equity real estate investment trust. At September 30, 1999, we
owned nine completed multifamily apartment communities consisting of 1,779
apartment homes. Eight of these communities were stabilized, with the 118-unit
first phase of Addison Place in lease-up. We consider a community to have
achieved stabilized occupancy on the earlier of (a) attainment of 95% occupancy
as of the first day of any month, or (b) one year after completion of
construction. As part of our business plan, we sold our 117-unit Bentley Place
community in August 1999 and returned the net proceeds to our shareholders and
unitholders. We previously sold our 232-unit Windsong community in January 1998.
We based our decision to sell Bentley Place and Windsong on their ages and
locations in markets that are not included in our long-term growth strategy. In
July 1998, we sold our two small retail centers because we decided to exit all
businesses not related to the long-term ownership of high quality apartment
homes. In June 1998, we used the equity from our property sales to purchase
three separate parcels of land for $11.3 million, on which we are developing and
constructing three new multifamily communities totaling 971 apartment homes. One
of the three new communities is located in Charlotte and is the first step in
our diversification strategy. This 319-unit community is expected to be under
construction during the fourth quarter of 1999. The other two communities are
Addison Place and Old Norcross located in north Atlanta. We completed
construction of our 118-unit first phase of Addison Place in September 1999, and
our 285-unit second phase is under construction. We intend to start construction
of our 249-unit Old Norcross community in the first quarter of 2000.
RESULTS OF OPERATIONS
Comparison of Three Months Ended September 30, 1999 to Three Months
Ended September 30, 1998
For the three months ended September 30, 1999, we recorded net income
of $720,000 or $0.15 per share, compared to a net loss of $199,000 or $0.04 per
share for the three months ended September 30, 1998. The change in operating
results is due primarily to the following:
(1) the sale of the Bentley Place community in August 1999, which resulted
in a gain, net of minority interest, of $1,023,000 compared to the sale
of the two retail centers in the third quarter of 1998, which resulted
in a gain, net of minority interest, of $313,000;
11
<PAGE> 14
(2) the completion of the initial lease-up phases at Bradford Creek in
August 1998, and the second phases of Preston Oaks in July 1998 and
Plantation Trace in November 1998, and the start of leasing operations
at the first phase of Addison Place in April 1999 - for convenience we
refer to these communities as the "Lease-Up Communities";
offset by
(3) the sale of two retail centers in the third quarter of 1998; and
(4) a reduction in operating revenues due to the sale of Bentley Place.
Our operating performance for all apartment communities is summarized in the
following table:
<TABLE>
<CAPTION>
PERCENTAGE THREE MONTHS ENDED SEPTEMBER 30,
CHANGE FROM --------------------------------
1998 TO 1999 1999 1998
------------ ------------ -------------
<S> <C> <C> <C>
Total operating revenues 8.0% $ 4,861,000 $ 4,499,000
Property operating expenses (1) 3.0% $ 1,734,000 $ 1,684,000
Net operating income (2) 11.1% $ 3,127,000 $ 2,815,000
General and administrative expenses 4.5% $ 490,000 $ 469,000
Depreciation of real estate assets 15.1% $ 1,434,000 $ 1,246,000
Average stabilized occupancy (3) (1.8%) 95.2% 97.0%
Operating expense ratio (4) (1.7%) 35.7% 37.4%
</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 our stabilized properties
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%. The calculation includes (a) the second
phase of Preston Oaks beginning August 1, 1998, (b) Bradford Creek
beginning September 1, 1998, (c) the second phase of Plantation Trace
beginning December 1, 1998, which are the dates each community achieved
stabilized occupancy, and (d) Bentley Place only through August 23,
1999, 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.
Our same-property operating performance was highlighted by a 3.4%
increase in operating revenues, a 3.1% increase in average monthly rent per
apartment home, and a 6.4% increase in net operating income. Our property
management team focused on implementing rent increases, achieving high occupancy
levels, and providing quality customer service to residents, which contributed
to our lease renewal rate of 52.7% during the third quarter of 1999. Seven of
our communities were fully stabilized during both the three-month periods ended
September 30, 1999 and 1998: Crestmark, Highland Park, Ivey Brook, River Oaks,
Rosewood Plantation, and the first phases of Plantation Trace and Preston Oaks.
Same-property operating results for these communities are summarized in the
following table:
12
<PAGE> 15
<TABLE>
<CAPTION>
PERCENTAGE THREE MONTHS ENDED SEPTEMBER 30,
CHANGE FROM --------------------------------
1998 TO 1999 1999 1998
------------ ------------ -------------
<S> <C> <C> <C>
Rental income 1.7% $ 3,651,000 $ 3,590,000
Total operating revenues 3.4% $ 3,888,000 $ 3,760,000
Property operating expenses (1) (1.7%) $ 1,360,000 $ 1,384,000
Net operating income (2) 6.4% $ 2,528,000 $ 2,376,000
Average stabilized occupancy (3) (1.6%) 95.3% 96.9%
Operating expense ratio (4) (1.8%) 35.0% 36.8%
Average monthly rent per apartment home 3.1% $ 929 $ 901
Lease renewal percentage (5) (9.4%) 52.7% 62.1%
</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 properties
identified above 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.
(5) Represents the number of leases renewed divided by the number of leases
expired during the period presented, expressed as a percentage.
The following discussion compares our statements of operations for the
three months ended September 30, 1999 and 1998.
Total operating revenues increased $362,000 or 8.0% from $4,499,000 for
the three months ended September 30, 1998 to $4,861,000 for the three months
ended September 30, 1999. The increase in operating revenues is due to the
following:
(1) a $356,000 increase in revenue from the Lease-Up Communities;
(2) a $128,000 increase in same-property revenue, which is due to
an increase in the average monthly rent per apartment home
from $901 to $929 and a $62,000 increase in water sub-metering
revenue;
offset by
(3) a decrease in revenue of approximately $122,000 due primarily
to the sales of Bentley Place and our two retail centers.
In the fourth quarter of 1998 we completed the installation of
water-metering equipment in each of our existing apartment homes and implemented
a program to bill residents for their individual water consumption. We expect
that billing residents for their water usage will increase our operating
revenues by approximately $425,000 per year based on our nine existing
communities. We expect that all new apartment communities we develop in the
future will have water-metering equipment installed in each apartment home
during construction.
Property operating expenses, excluding depreciation and general and
administrative expenses, increased $50,000 or 3.0% from $1,684,000 for the three
months ended September 30, 1998 to $1,734,000 for the three months ended
September 30, 1999. The increase in operating expenses is due to the following:
(1) a $127,000 increase in expenses from the Lease-Up Communities;
13
<PAGE> 16
offset by
(2) a $24,000 decrease in same-property expenses, which resulted
from lower personnel costs ($25,000), utilities ($14,000), and
marketing costs ($14,000) offset by higher repairs,
maintenance and landscaping ($10,000), insurance ($7,000), and
property taxes ($10,000);
(3) a $30,000 decrease in expenses due to the sale of Bentley
Place on August 23, 1999; and
(4) a $23,000 reversal of an accrual for debris removal related to
the April 9, 1999 windstorms.
General and administrative expenses increased $21,000 or 4.5% from
$469,000 for the three months ended September 30, 1998 to $490,000 for the three
months ended September 30, 1999. These expenses include legal, accounting and
tax fees, marketing and printing fees, salaries, director fees and other costs.
The increase is due primarily to higher personnel and associated costs, rent,
and legal and marketing costs. General and administrative expenses as a
percentage of operating revenues decreased from 10.4% for the three months ended
September 30, 1998 to 10.0% for the three months ended September 30, 1999. We
expect that as we continue to grow, those expenses will continue to decline as a
percentage of operating revenues, even though general and administrative
expenses will increase in absolute terms.
Depreciation expense increased $188,000 or 15.1% from $1,246,000 for
the three months ended September 30, 1998 to $1,434,000 for the three months
ended September 30, 1999. The increase is due to the depreciation expense from
the Lease-Up Communities, offset by a decrease due to the sales of Bentley Place
and our two retail centers. We record depreciation expense on our Lease-Up
Communities as apartment homes are completed and available for occupancy.
Interest expense increased $133,000 or 10.9% from $1,224,000 for the
three months ended September 30, 1998 to $1,357,000 for the three months ended
September 30, 1999. The increase is due primarily to the refinancing of the
mortgage loan secured by Plantation Trace in September 1998 for a higher loan
amount; offset by higher capitalized interest on communities under construction,
and the sale of Bentley Place.
Comparison of Nine Months Ended September 30, 1999 to Nine Months Ended
September 30, 1998
For the nine months ended September 30, 1999, we recorded net income of
$752,000 or $0.16 per share, compared to net income of $726,000 or $0.16 per
share for the nine months ended September 30, 1998. The change in operating
results is due to the following:
(1) the completion of the initial lease-up phases at Bradford
Creek in August 1998, and the second phases of Preston Oaks in
July 1998 and Plantation Trace in November 1998;
(2) the start of leasing operations at the first phase of Addison
Place in April 1999;
(3) the sale of Bentley Place, which resulted in a gain, net of
minority interest, of $1,177,000;
(4) a decrease in extraordinary items, loss on early
extinguishment of debt, associated with the sale of Bentley
Place of $184,000, net of minority interest, compared to
extraordinary items, loss on early extinguishment of debt of
$497,000, net of minority interest, associated with (1) the
repayment of the mortgage note secured by Windsong on its
sale, (2) the write-off of unamortized loan costs and
prepayment fee to the lender for the refinancing of the
mortgage note secured by Rosewood Plantation, and (3) the
write-off of unamortized loan costs and prepayment fee to the
lender for the refinancing of the mortgage notes secured by
Crestmark;
offset by
14
<PAGE> 17
(5) the sale of Windsong in the first quarter of 1998, which
resulted in a gain, net of minority interest, of $918,000; and
(6) the sale of two retail centers in the third quarter of 1998,
which resulted in a gain, net of minority interest, of
$313,000; and
(7) a decrease in average stabilized occupancy from 95.4% to
95.2%.
Our operating performance for all apartment communities is summarized in the
following table:
<TABLE>
<CAPTION>
PERCENTAGE NINE MONTHS ENDED SEPTEMBER 30,
CHANGE FROM -------------------------------
1998 TO 1999 1999 1998
------------ ------------ ------------
<S> <C> <C> <C>
Total operating revenues 14.8% $14,473,000 $12,605,000
Property operating expenses (1) 9.5% $ 5,063,000 $ 4,625,000
Net operating income (2) 17.9% $ 9,410,000 $ 7,980,000
General and administrative expenses 18.0% $ 1,510,000 $ 1,280,000
Depreciation of real estate assets 17.0% $ 4,077,000 $ 3,484,000
Average stabilized occupancy (3) (0.2%) 95.2% 95.4%
Operating expense ratio (4) (1.7%) 35.0% 36.7%
</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 our stabilized properties
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%. The calculation includes (a) the second
phase of Preston Oaks beginning August 1, 1998, (b) Bradford Creek
beginning September 1, 1998, (c) the second phase of Plantation Trace
beginning December 1, 1998, which are the dates each community achieved
stabilized occupancy, and (d) Bentley Place only through August 23,
1999, 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.
Highlights of our same-property operating performance include a 4.4%
increase in operating revenues and a 5.8% increase in net operating income. Our
property management team focused on implementing rent increases, achieving high
occupancy levels, and providing quality customer service to residents, which
contributed to our lease renewal rate of 55.0% during the nine months ended
September 30, 1999. Seven of our communities were fully stabilized during both
the nine-month periods ended September 30, 1999 and 1998: Crestmark, Highland
Park, Ivey Brook, River Oaks, Rosewood Plantation, and the first phases of
Plantation Trace and Preston Oaks. Same-property operating results for these
communities are summarized in the following table:
15
<PAGE> 18
<TABLE>
<CAPTION>
PERCENTAGE NINE MONTHS ENDED SEPTEMBER 30,
CHANGE FROM -------------------------------
1998 TO 1999 1999 1998
------------ ------------ -------------
<S> <C> <C> <C>
Rental income 2.4% $ 10,788,000 $ 10,538,000
Total operating revenues 4.4% $ 11,470,000 $ 10,986,000
Property operating expenses (1) 1.9% $ 3,963,000 $ 3,888,000
Net operating income (2) 5.8% $ 7,507,000 $ 7,098,000
Average stabilized occupancy (3) 0.0% 95.1% 95.1%
Operating expense ratio (4) (0.8%) 34.6% 35.4%
Average monthly rent per apartment home 2.7% $ 915 $ 891
Lease renewal percentage (5) (4.9%) 55.0% 59.9%
</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 properties
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.
(5) Represents the number of leases renewed divided by the number of leases
expired during the period presented, expressed as a percentage.
The following discussion compares our statements of operations for the
nine months ended September 30, 1999 and 1998.
Total operating revenues increased $1,868,000 or 14.8% from $12,605,000
for the nine months ended September 30, 1998 to $14,473,000 for the nine months
ended September 30, 1999. The increase in operating revenue is due to the
following:
(1) a $1,660,000 increase in revenue from the Lease-Up
Communities;
(2) a $484,000 increase in same-property revenue, which is due to
a 2.7% increase in the average monthly rent per apartment home
from $891 to $915 and a $131,000 increase in water
sub-metering revenue;
offset by
(3) a decrease in revenue of approximately $276,000 due primarily
to the sales of Bentley Place, Windsong and the two retail
centers.
In the fourth quarter of 1998 we completed the installation of
water-metering equipment in each of our existing apartment homes and implemented
a program to bill residents for their individual water consumption. We expect
that billing residents for their water usage will increase our operating
revenues by approximately $425,000 per year based on our nine existing
communities. We expect that all new apartment communities we develop in the
future will have water-metering equipment installed in each apartment home
during construction.
Property operating expenses, excluding depreciation and general and
administrative expenses, increased $438,000 or 9.5% from $4,625,000 for the nine
months ended September 30, 1998 to $5,063,000 for the nine months ended
September 30, 1999. The increase in operating expenses is due to the following:
(1) a $416,000 increase in expenses from the Lease-Up Communities;
and
16
<PAGE> 19
(2) a $75,000 increase in same-property expenses primarily due to
higher personnel costs ($60,000) and property taxes ($52,000),
offset by lower administrative costs ($28,000) and marketing
costs ($18,000);
offset by
(3) a $30,000 decrease in expenses due to the sales of Bentley
Place, Windsong, and our two retail centers; and
(4) a $23,000 reversal of an accrual for debris removal related to
the April 9, 1999 windstorms.
General and administrative expenses increased $230,000 or 18.0% from
$1,280,000 for the nine months ended September 30, 1998 to $1,510,000 for the
nine months ended September 30, 1999. These expenses include legal, accounting
and tax fees, marketing and printing fees, salaries, director fees and other
costs. The increase is due primarily to higher personnel and associated costs,
rent, and legal and marketing costs. General and administrative expenses as a
percentage of operating revenues increased from 10.2% for the nine months ended
September 30, 1998 to 10.4% for the nine months ended September 30, 1999. We
expect that as we continue to grow, those expenses will decline as a percentage
of operating revenues, even though general and administrative expenses will
increase in absolute terms.
Depreciation expense increased $593,000 or 17.0% from $3,484,000 for
the nine months ended September 30, 1998 to $4,077,000 for the nine months ended
September 30, 1999. The increase is due to the depreciation expense from the
Lease-Up Communities, offset by a decrease due to the sales of Bentley Place and
our two retail centers.
Interest expense increased $589,000 or 18.0% from $3,281,000 for the
nine months ended September 30, 1998 to $3,870,000 for the nine months ended
September 30, 1999. The increase is due primarily to the financing of Bradford
Creek in June 1998, the refinancing of the mortgage loan secured by Rosewood
Plantation in June 1998 for a higher loan amount, the refinancing of the
mortgage loans secured by Crestmark in September 1998 for a higher loan amount,
the refinancing of the mortgage loan secured by Plantation Trace in September
1998 for a higher loan amount, and decreased capitalized interest on our
communities under construction.
On January 9, 1998, we sold Windsong for $9,750,000 in cash resulting
in a gain, net of minority interest, of $918,000 on the sale of real estate
assets and an extraordinary gain, net of minority interest, of $68,000 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, closing costs of
$458,000, and prorations of $139,000. The net cash proceeds from the sale of
Windsong were reinvested in undeveloped land in June 1998 as part of a Section
1031 tax-deferred exchange.
On July 17, 1998, we sold two retail centers for $2,400,000 in cash
resulting in a gain, net of minority interest, of $313,000. Net sales proceeds
were $2,196,000, after deducting closing costs of $169,000 and prorations of
$35,000.
On August 23, 1999, we completed the sale of Bentley Place for
$8,273,000 in cash resulting in a gain, net of minority interest, of $1,023,000.
Net sales proceeds were $3,726,000 after deduction for loan repayment of
$3,968,000, prepayment fee of $198,000, accrued interest of $7,000, and closing
costs and prorations totaling $374,000. Partnership profits interests of
$242,000 were paid to Roberts Properties pursuant to the amended partnership
agreement of the Operating Partnership Agreement. (Roberts Properties is owned
by Charles S. Roberts, the President, Chief Executive Officer, and Chairman of
the Board of Directors of Roberts Realty.) We used the remaining net sales
proceeds of $3,484,000 to fund a special distribution of $0.50 per common share
and partnership unit to shareholders and unitholders on August 30, 1999.
17
<PAGE> 20
LIQUIDITY AND CAPITAL RESOURCES
Comparison of Nine Months Ended September 30, 1999 to Nine Months Ended
September 30, 1998
A primary source of our liquidity is cash flow from operations.
Operating cash flows have historically been determined by the number of
apartment homes, rental rates and operating expenses for those apartment homes.
Net cash provided by operating activities increased $1,258,000 from $3,843,000
during the nine months ended September 30, 1998 to $5,101,000 during the nine
months ended September 30, 1999. The increase in cash flow from operations is
due primarily to the additional cash flow from the Lease-Up Communities and
stabilized communities, offset by the sales of Bentley Place, Windsong and the
two retail centers. The effects of revenue and expense accruals, except property
tax accruals, are not material in understanding our cash flow from operations.
Generally, depreciation and amortization expenses are the most significant
adjustments to net income (loss) in arriving at cash provided by operating
activities.
Net cash used in investing activities decreased $11,684,000 from net
cash used of $15,526,000 during the nine months ended September 30, 1998
compared to net cash used of $3,842,000 during the nine months ended September
30, 1999. This decrease is due primarily to the following:
(1) net cash proceeds from the sale of Bentley Place totaling
$8,160,000 during the nine months ended September 30, 1999
reduced by construction costs at Addison Place, Ballantyne,
Old Norcross and the second phase of Plantation Trace of
$12,002,000 during the nine months ended September 30, 1999;
compared to
(2) net cash proceeds from the sale of Windsong and the two retail
centers totaling $7,550,000 during the nine months ended
September 30, 1998; reduced by
(3) the purchase of three separate parcels of land for $11,355,000
in June 1998; and
(4) construction costs at Bradford Creek and the second phases of
Preston Oaks and Plantation Trace of $11,721,000 during the
nine months ended September 30, 1998.
We acquired no existing apartment communities during these periods.
Net cash provided by financing activities decreased $12,895,000 from
$9,837,000 during the nine months ended September 30, 1998 to net cash used of
$3,058,000 during the nine months ended September 30, 1999. This decrease is due
primarily to the following:
(1) the permanent financing of Bradford Creek for net cash of
$7,200,000 in June 1998;
(2) the refinancing of the mortgage loan secured by the Rosewood
Plantation community that resulted in cash provided of
$1,594,000 in June 1998;
(3) the refinancing of the two mortgage loans secured by the
Crestmark community that resulted in cash provided of
$1,538,000 in September 1998;
(4) the refinancing of the mortgage loan secured by the Plantation
Trace community that resulted in cash provided of $4,064,000
in September 1998;
(5) an increase of $89,000 in principal repayments on mortgage
notes payable due to the financing of Bradford Creek in June
1998, the refinancing of Rosewood Plantation for a higher loan
amount in June 1998, the refinancing of Crestmark for a higher
loan amount in September 1998, and the refinancing of
Plantation Trace for a higher loan amount in September 1998;
18
<PAGE> 21
offset by the payoff of the mortgage note secured by Bentley
Place, which was sold on August 23, 1999;
(6) a $537,000 reduction in loan costs due to the financing of
Bradford Creek in June 1998, the refinancing of Rosewood
Plantation in June 1998, the refinancing of Crestmark in
September 1998, and the refinancing of Plantation Trace in
September 1998; offset by loan costs on the construction loan
on the first phase of Addison Place in April 1999 and loan
costs on the permanent loan on the first phase of Addison
Place;
(7) proceeds from a construction loan in the amount of $7,866,000
compared to no construction loan in 1998;
(8) proceeds from the line of credit in the amount of $1,850,000
compared to no amounts outstanding on the line of credit in
1998;
(9) the purchase of 3,917 partnership units for $28,000 during the
nine months ended September 30, 1999 compared to the purchase
of 14,341 partnership units for $122,000 during the nine
months ended September 30, 1998;
(10) the repurchase of 93,200 shares of treasury stock for $696,000
during the nine months ended September 30, 1999 compared to no
treasury shares purchased during the nine months ended
September 30, 1998; and
(11) the payment of a special dividend of $3,708,000 and
partnership profits interests of $242,000 in August 1999 due
to the sale of Bentley Place on August 23, 1999 and an
increase of $95,000 in quarterly distributions paid, from
$3,228,000 for the nine months ended September 30, 1998 to
$3,323,000 for the nine months ended September 30, 1999.
The following facts highlight our existing debt structure at September 30, 1999:
- Each of our eight stabilized communities is financed
with fixed-rate debt;
- The average interest rate for all eight communities
is 6.98% per annum;
- No debt is scheduled to mature prior to October 2002;
- The average term to maturity is seven years; and
- Debt principal will amortize at a rate of
approximately $858,000 per year.
The following table summarizes the debt for each of our eight stabilized
communities:
<TABLE>
<CAPTION>
FIXED INTEREST PRINCIPAL
RATE AS OF OUTSTANDING
09/30/99 MATURITY 09/30/99
-------------- -------- ------------
<S> <C> <C> <C>
Bradford Creek 7.15% 06/15/08 $ 8,295,000
Crestmark 6.57 10/01/08 15,824,000
Highland Park 7.30 02/15/03 7,869,000
Ivey Brook 7.14 02/15/07 6,246,000
Plantation Trace 7.09 10/15/08 11,791,000
Preston Oaks 7.21 10/15/02 8,340,000
River Oaks 7.15 11/15/03 8,974,000
Rosewood Plantation 6.62 07/15/08 7,996,000
------------
$ 75,335,000
============
</TABLE>
19
<PAGE> 22
Each of our existing mortgage loans will require balloon payments (in addition
to monthly principal amortization) coming due over the years 2002 to 2008 as
summarized below:
<TABLE>
<S> <C>
2002 $ 8,025,000
2003 16,057,000
2007 5,570,000
2008 38,233,000
------------
Total $ 67,885,000
============
</TABLE>
Because we anticipate that we will repay only a small portion of the
principal of our indebtedness before its maturity and that we will not have
funds on hand sufficient to repay our indebtedness when it matures, we will have
to refinance our debt through:
- debt financing collateralized by mortgages on individual
communities or groups of communities,
- uncollateralized private or public debt offerings, and/or
- equity offerings.
Roberts Realty and Roberts Properties have a $35,000,000 advised
guidance line with Bank of America, N.A. to help us finance 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 our option, payable monthly. The guidance line is not a commitment
to lend, and each loan under the guidance line will be made at Bank of America's
discretion in accordance with normal loan approval procedures.
During the quarter ended September 30, 1999, we completed construction
on the first phase of Addison Place, which is located in north Atlanta. This
first phase consists of 118 rental townhomes and occupancies began in June of
1999. We funded this first phase with the proceeds from recent mortgage loan
financings, operating cash, and a $9,500,000 construction loan that we obtained
on April 12, 1999. At September 30, 1999, $7,866,000 was outstanding under the
construction loan.
In October 1999, we closed a $9,500,000 permanent loan secured by the
first phase of Addison Place. We used $8,057,000 of the proceeds of the
permanent loan to repay the construction loan and will use the balance of the
proceeds to pay the remaining construction costs. The permanent loan has a
10-year term with a fixed interest rate of 6.95% payable in monthly installments
of $62,885 based on a 30-year amortization schedule. Because the property was
less than 95% occupied at closing, the lender required us to obtain an $843,000
letter of credit secured by an equal amount of cash.
In October 1999, we closed a $3,000,000 land loan to fund the initial
construction of the second phase of Addison Place. The loan is secured by the
second phase land, has a six-month term, and bears an interest rate of LIBOR
plus 150 basis points.
During the quarter ended June 30, 1999, we started construction on the
second phase of Addison Place. This second phase will consist of 285 apartment
homes and we expect occupancies to begin in the second quarter of 2000. We
expect to begin construction on a 319-unit community in Charlotte in the fourth
quarter of 1999 and a 249-unit community located in north Atlanta in the first
quarter of 2000. We paid cash for the land for these three new communities, and
we expect to fund the cost of construction with construction loans. We are in
the process of obtaining construction loans, and we do not expect to begin
substantial construction until we close the loans.
We anticipate 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. We expect
to meet our other short-term liquidity requirements generally through our net
cash provided by operations, which we believe will be adequate to meet our
operating requirements in both the short-term and in the long-term - greater
than 12 months. We also expect to fund improvements and renovations at existing
communities from net cash provided by operations. We expect to meet our
long-term liquidity requirements, including future apartment
20
<PAGE> 23
development and debt maturities, by obtaining construction loans, refinancing
existing mortgage debt, and issuing additional equity securities if we believe
market conditions are attractive.
STOCK REPURCHASE PLAN
On September 3, 1998, we issued a press release announcing our board of
directors had authorized the repurchase of up to 300,000 shares of our
outstanding common stock. We intend to repurchase our shares from time to time
by means of open market purchases depending on availability, our cash position
and price per share. We repurchased 93,200 treasury shares for $696,000 during
the nine months ended September 30, 1999. We repurchased no treasury shares
during the nine months ended September 30, 1998. From October 1, 1998 through
September 30, 1999, we have repurchased 112,500 shares for $841,000.
SUPPLEMENTAL DISCLOSURE OF FUNDS FROM OPERATIONS
Funds from operations, commonly referred to as FFO, is defined by the
National Association of Real Estate Investment Trusts as net income (loss),
computed in accordance with generally accepted accounting principles, excluding
gains (or losses) from debt restructuring and sales of property and
non-recurring items, plus real estate related depreciation and amortization. We
compute FFO in accordance with the current NAREIT definition, which may differ
from the methodology for calculating FFO used by other equity REITs, and
accordingly, may not be comparable to those 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 our financial performance or cash flows
from operating activities determined in accordance with GAAP as a measure of our
liquidity, nor is it indicative of funds available to fund our cash needs,
including our ability to make distributions. However, we do consider FFO to be
an important measure of our 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. We believe that to gain a clear understanding of our
operating results, you should evaluate FFO along with net income determined in
accordance with GAAP. The following table reconciles net income (loss) to FFO.
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------- -------------------------------
1999 1998 1999 1998
----------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
Net income (loss) $ 720 $ (199) $ 752 $ 726
Minority interest of unitholders (69) (64) (50) 17
Extraordinary items 184 404 184 497
Amortization (real estate related) 3 39 9 50
Loss on disposal of assets 19 28 47 79
Gain on sale of real estate asset (1,023) (313) (1,023) (1,231)
Depreciation expense 1,434 1,246 4,077 3,484
----------- ----------- ----------- -----------
Funds From Operations $ 1,268 $ 1,141 $ 3,996 $ 3,622
=========== =========== =========== ===========
Weighted average shares and units
outstanding during the period 7,432,748 7,550,607 7,457,009 7,550,384
</TABLE>
INFLATION
Substantially all apartment leases are for an initial term of not more
than 12 months and thus may enable us to seek increases in rents after the
expiration of each lease. We believe the short-term nature of these leases
reduces our risks of the adverse effects of inflation.
21
<PAGE> 24
YEAR 2000 COMPUTER ISSUES
The "Year 2000 problem" is a general term used to identify those
computer programs or applications that are programmed to use a two-digit field,
instead of a four-digit field, for the year component of a date. Those programs
or applications which are programmed in this manner may, for example, recognize
the year 2000 as the year 1900, thereby causing potential system failures or
miscalculations, which could result in disruptions of normal business
operations. We have evaluated our state of readiness, the costs involved to
become compliant, the risks involved, and our contingency plans. Our primary
uses of software systems are our corporate accounting and property management
software.
We have completed an initial assessment of our core computer
information systems and are now undertaking the necessary steps to make our
systems Year 2000 compliant. Our property management software is Year 2000
compliant. We are in the process of upgrading our accounting software, and we
expect to complete the upgrade in the fourth quarter of 1999 to make it Year
2000 compliant. We do not expect the cost to upgrade our accounting software to
be material. We have evaluated and assessed those computer systems that do not
relate to information systems, such as telecommunications, HVAC, and fire and
safety systems, which typically include embedded technology such as
microcontrollers, and we have determined that these systems are Year 2000
compliant.
We have contacted all significant vendors, including banks, mortgage
loan service companies, and our third party payroll vendor, to verify that those
vendors are also addressing the problem. We have developed contingency plans
where necessary. Certain Year 2000 issues that are beyond our control, such as
the failure of a utility company to provide power to residents, may adversely
affect our operations. At this time, we cannot estimate the potential adverse
impact that may result from the failure of any of our vendors to become Year
2000 compliant, although we continue to believe that there will be no direct
material effect on our operating performance or results of operations.
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
This report contains forward-looking statements within the meaning of
Section 27A of the Securities Act and Section 21E of the Exchange Act. 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 our intent, belief or expectations regarding our
strategies and plans for operations and growth, including development and
construction of new multifamily apartment communities in our existing markets
and elsewhere in the Southeast. Other forward-looking statements relate to
trends affecting our financial condition and results of operations, and our
anticipated capital needs and expenditures.
Our forward-looking statements are not guarantees of future performance
and involve risks and uncertainties, and actual results may differ materially
from those anticipated in the forward-looking statements, as a result of:
- competition and overbuilding in our markets, currently Atlanta and
Charlotte;
- increasing operating costs that cannot be passed along to residents
through rental rate increases;
- construction risks for our development pipeline due to factors that
include unexpected weather problems, shortages in materials and supplies,
and labor strikes;
- risks related to the national and local economic climate;
- our dependence upon the Atlanta market;
- risks of entering new markets outside the Atlanta area;
- financing risks including risks of substantial indebtedness, not being
able to obtain debt or equity financing to fund our growth strategy, or
not being able to refinance our existing mortgage debt beginning in 2002;
- tax risks including the possible effects of changes in tax law and
regulation;
- possible environmental liability; and
- costs of compliance with the Americans With Disabilities Act and similar
laws.
22
<PAGE> 25
In addition, the market price of the common stock may from time to time
fluctuate as a result of, among other things:
- our 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 our registration statement on Form S-3, registration number
333-82453, as declared effective by the SEC on August 2, 1999.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
We are exposed to market risk from changes in interest rates, which may
adversely affect our financial position, results of operations and cash flows.
In seeking to minimize the risks from interest rate fluctuations, we manage
exposures through our regular operating and financing activities. We do not use
financial instruments for trading or other speculative purposes. We are exposed
to interest rate risk primarily through our borrowing activities, which are
described in Note 3 to our consolidated financial statements. All of our
long-term borrowings are under fixed rate instruments, and our line of credit
rate is 150 basis points over the three-month LIBOR and our construction loan
rate is 160 basis points over the 30-day LIBOR. We have determined there is no
material market risk exposure to our consolidated financial position, results of
operations or cash flows.
PART II
ITEM 1. LEGAL PROCEEDINGS.
Neither Roberts Realty, the Operating Partnership, nor our apartment
communities are presently subject to any material litigation nor, to our
knowledge, is any material litigation threatened against any of them. Routine
litigation arising in the ordinary course of business is not expected to result
in any material losses to us and the Operating Partnership.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
We did not modify, limit or qualify the rights of the holders of common
stock during the quarter ended September 30, 1999.
During the third quarter of 1999, we issued a total of 3,996 shares of
restricted common stock to five employees as incentive compensation. The
restrictions on transfer lapse at specified dates ranging between two-and-a-half
and three years after the respective grant date. The grants were exempt from
registration as private placements under section 4(2) of the Securities Act. We
affixed appropriate legends to the share certificates we issued in these
transactions. All recipients of these securities had adequate access, through
their relationships with us, to information about us. All of these securities
are deemed to be restricted securities for purposes of the Securities Act.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
As previously reported in our Form 10-Q for the quarter ended June 30,
1999, we held our annual meeting on July 14, 1999, for the purpose of electing
two members of our Board of Directors. Proxies for the meeting were solicited
pursuant to Section 14(a) of the Securities Act, and there was no solicitation
in opposition to management's solicitations.
23
<PAGE> 26
Both of management's nominees for directors as listed in the proxy
statement were elected with the following vote:
<TABLE>
<CAPTION>
VOTES VOTES
FOR WITHHELD
--------- --------
<S> <C> <C>
Wm. Jarell Jones 3,497,120 26,804
Dennis H. James 3,497,075 26,849
</TABLE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) The exhibits described in the following Index to Exhibits are
filed as part of this report on Form 10-Q.
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<S> <C>
27 Financial Data Schedule.
(b) Reports on Form 8-K
Form 8-K (No. 001-13183) filed with SEC on August 3, 1999 to
file with the SEC Roberts Realty's second quarter 1999 letter
to shareholders.
Form 8-K (No. 001-13183) filed with SEC on August 17, 1999 to
file with the SEC a press release concerning the scheduled
sale of Roberts Realty's Bentley Place apartment SEC and the
declaration of a special distribution to shareholders of the
net proceeds of that sale.
Form 8-K (No. 001-13183) filed with SEC on September 24, 1999
to file with the SEC a press release concerning the
declaration of the third quarter 1999 quarterly distribution
to shareholders.
</TABLE>
24
<PAGE> 27
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: November 12, 1999 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)
25
<PAGE> 28
EXHIBIT INDEX
EXHIBIT
NO. DESCRIPTION
------- -----------
27 Financial Data Schedule. (for SEC use only)
26
<TABLE> <S> <C>
<ARTICLE> 5
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<EXCHANGE-RATE> 1
<CASH> 2,647,000
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 2,647,000
<PP&E> 140,957,000
<DEPRECIATION> 19,672,000
<TOTAL-ASSETS> 125,269,000
<CURRENT-LIABILITIES> 14,427,000
<BONDS> 75,335,000
0
0
<COMMON> 48,000
<OTHER-SE> 22,712,000
<TOTAL-LIABILITY-AND-EQUITY> 125,269,000
<SALES> 0
<TOTAL-REVENUES> 14,473,000
<CGS> 0
<TOTAL-COSTS> 10,650,000
<OTHER-EXPENSES> 90,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,870,000
<INCOME-PRETAX> 936,000
<INCOME-TAX> 0
<INCOME-CONTINUING> 936,000
<DISCONTINUED> 0
<EXTRAORDINARY> (184,000)
<CHANGES> 0
<NET-INCOME> 752,000
<EPS-BASIC> .16
<EPS-DILUTED> .16
<FN>
<F1>MINORITY INTEREST OF UNITHOLDERS IN THE OPERATING PARTNERSHIP EQUALS
$12,747,000.
</FN>
</TABLE>
