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 June 30, 2000
OR
[ ] 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)
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 [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 August 1,
2000 was 4,910,443 (net of shares held in treasury).
<PAGE>
TABLE OF CONTENTS
PAGE
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............................................ 24
ITEM 1. LEGAL PROCEEDINGS............................... 24
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS....... 24
ITEM 4. SUBMISSION OF MATTERS TO A
VOTE OF SECURITY HOLDERS........................ 24
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K................ 25
-------------------
i
<PAGE>
PART I
ITEM 1. FINANCIAL STATEMENTS.
ROBERTS REALTY INVESTORS, INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
<TABLE>
----------------------------------------------------------------------------------------------------------------------------
JUNE 30, DECEMBER 31,
ASSETS 2000 1999
---------- --------
(Unaudited)
REAL ESTATE ASSETS - At cost:
<S> <C> <C>
Land $ 18,048 $ 21,120
Buildings and improvements 88,447 96,124
Furniture, fixtures and equipment 10,874 11,654
--------- ---------
117,369 128,898
Less accumulated depreciation (21,580) (21,029)
--------- ----------
Operating real estate assets 95,789 107,869
Land held for future development 0 2,559
Construction in progress and real estate under development 21,622 12,393
--------- ---------
Net real estate assets 117,411 122,821
CASH AND CASH EQUIVALENTS 6,959 1,673
RESTRICTED CASH 1,181 1,202
DEFERRED FINANCING COSTS - Net of accumulated amortization of
$403 and $425 at June 30, 2000 and December 31, 1999, respectively 974 1,031
OTHER ASSETS - Net 270 351
--------- ---------
$ 126,795 $ 127,078
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES:
Mortgage notes payable $ 77,974 $ 84,615
Construction note payable 5,294 0
Land note payable 2,000 3,000
Line of credit 0 1,235
Accounts payable and accrued expenses 2,165 1,238
Dividends and distributions payable 1,007 1,010
Due to affiliates (including retainage payable of $348 and $216 at
June 30, 2000 and December 31, 1999, respectively) 2,189 1,214
Security deposits and prepaid rents 464 443
--------- ---------
Total liabilities 91,093 92,755
--------- ---------
COMMITMENTS AND CONTINGENCIES (Note 6)
MINORITY INTEREST OF UNITHOLDERS IN THE OPERATING PARTNERSHIP 11,889 12,013
--------- ---------
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, 5,096,101
and 4,959,697 shares issued at June 30, 2000 50 49
and December 31, 1999, respectively
Additional paid-in capital 24,690 25,354
Less treasury shares, at cost (166,000 and 140,500 shares at
June 30, 2000 and December 31, 1999, respectively) (1,237) (1,054)
Unamortized restricted stock compensation (127) (136)
Retained earnings (accumulated deficit) 437 (1,903)
--------- ---------
Total shareholders' equity 23,813 22,310
--------- ---------
$ 126,795 $ 127,078
========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
1
<PAGE>
ROBERTS REALTY INVESTORS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in Thousands, Except Per Share Amounts)
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED JUNE 30,
2000 1999
(Unaudited) (Unaudited)
OPERATING REVENUES:
<S> <C> <C>
Rental operations $ 4,790 $ 4,547
Other operating income 374 309
------ -------
Total operating revenues 5,164 4,856
------ -------
OPERATING EXPENSES:
Personnel 495 454
Utilities 311 302
Repairs, maintenance and landscaping 316 272
Real estate taxes 424 437
Marketing, insurance and other 217 214
General and administrative expenses 522 512
Depreciation of real estate assets 1,342 1,326
------ -------
Total operating expenses 3,627 3,517
------ -------
INCOME FROM OPERATIONS 1,537 1,339
------ -------
OTHER INCOME (EXPENSE):
Interest income 49 35
Interest expense (1,306) (1,252)
Loss on disposal of assets (21) (19)
Amortization of deferred financing costs (54) (64)
Other amortization expense 0 (3)
------ ---------
Total other expense (1,332) (1,303)
------ -------
INCOME BEFORE MINORITY INTEREST, GAIN ON SALE OF
REAL ESTATE ASSET AND EXTRAORDINARY ITEM 205 36
MINORITY INTEREST OF UNITHOLDERS IN THE OPERATING PARTNERSHIP (69) (13)
------ -------
INCOME BEFORE GAIN ON SALE OF REAL ESTATE ASSET
AND EXTRAORDINARY ITEM 136 23
GAIN ON SALE OF REAL ESTATE ASSET, net of minority interest
of unitholders in the operating partnership 2,284 0
------ -------
INCOME BEFORE EXTRAORDINARY ITEM 2,420 23
EXTRAORDINARY ITEM - Loss on early extinguishment of debt, net of
minority interest of unitholders in the operating partnership (68) 0
------ -------
NET INCOME $2,352 $ 23
====== =======
INCOME PER COMMON SHARE - BASIC AND DILUTED:
Income before extraordinary item $ 0.49 $ 0.00
Extraordinary item (0.01) 0.00
-------- -------
Net income $ 0.48 $ 0.00
====== =======
Weighted average common shares - basic 4,902,399 4,692,167
Weighted average common shares - diluted 7,403,915 7,445,954
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
2
<PAGE>
ROBERTS REALTY INVESTORS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in Thousands, Except Per Share Amounts)
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED JUNE 30,
2000 1999
(Unaudited) (Unaudited)
OPERATING REVENUES:
<S> <C> <C>
Rental operations $ 9,406 $ 9,047
Other operating income 733 565
------ -------
Total operating revenues 10,139 9,612
------- -------
OPERATING EXPENSES:
Personnel 949 886
Utilities 639 608
Repairs, maintenance and landscaping 616 569
Real estate taxes 858 859
Marketing, insurance and other 425 407
General and administrative expenses 1,007 1,020
Depreciation of real estate assets 2,703 2,643
------ -------
Total operating expenses 7,197 6,992
------ -------
INCOME FROM OPERATIONS 2,942 2,620
------ -------
OTHER INCOME (EXPENSE):
Interest income 95 80
Interest expense (2,679) (2,513)
Loss on disposal of assets (60) (28)
Amortization of deferred financing costs (111) (102)
Other amortization expense 0 (6)
------ ---------
Total other expense (2,755) (2,569)
------ ---------
INCOME BEFORE MINORITY INTEREST, GAIN ON SALE OF
REAL ESTATE ASSET AND EXTRAORDINARY ITEM 187 51
MINORITY INTEREST OF UNITHOLDERS IN THE OPERATING PARTNERSHIP (63) (19)
------- -------
INCOME BEFORE GAIN ON SALE OF REAL ESTATE ASSET
AND EXTRAORDINARY ITEM 124 32
GAIN ON SALE OF REAL ESTATE ASSET, net of minority interest
of unitholders in the operating partnership 2,284 0
------ -------
INCOME BEFORE EXTRAORDINARY ITEM 2,408 32
EXTRAORDINARY ITEM - Loss on early extinguishment of debt, net of
minority interest of unitholders in the operating partnership (68) 0
------ -------
NET INCOME $2,340 $ 32
====== =======
INCOME PER COMMON SHARE - BASIC AND DILUTED:
Income before extraordinary items $ 0.49 $ 0.01
Extraordinary items (0.01) 0.00
-------- -------
Net income $ 0.48 $ 0.01
====== =======
Weighted average common shares - basic 4,873,368 4,712,851
Weighted average common shares - diluted 7,404,951 7,469,341
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
3
<PAGE>
ROBERTS REALTY INVESTORS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED JUNE 30,
2000 1999
-------- -------
(Unaudited) (Unaudited)
OPERATING ACTIVITIES:
<S> <C> <C>
Net income $2,340 $ 32
Adjustments to reconcile net income to net cash provided by operating activities:
Minority interest of unitholders in the operating partnership 63 19
Gain on sale of real estate asset (2,284) 0
Loss on disposal of assets 60 28
Depreciation and amortization 2,828 2,751
Extraordinary item, net of minority interest of unitholders in the
operating partnership 68 0
Amortization of deferred compensation 32 14
Change in assets and liabilities:
Decrease (increase) in restricted cash and cash equivalents 21 (76)
Decrease in other assets 81 103
Increase in accounts payable and accrued expenses relating to operations 824 1,009
Increase in due to affiliates relating to operations 0 1
Increase in security deposits and prepaid rent 21 48
------ -------
Net cash provided by operating activities 4,054 3,929
------ -------
INVESTING ACTIVITIES:
Proceeds from sale of real estate asset 8,096 0
Construction of real estate assets (7,130) (7,523)
------ -------
Net cash provided by (used in) investing activities 966 (7,523)
------ -------
FINANCING ACTIVITIES:
Proceeds from mortgage notes payable held in escrow 0 150
Principal repayments on mortgage notes payable (451) (445)
Proceeds from land note payable 2,000 0
Payoff of land note payable (3,000) 0
Payment of loan costs (157) (65)
Proceeds from construction loan 5,294 5,432
Proceeds from short term loan 765 0
Payoff of short term loan (2,000) 0
Repurchase of partnership units 0 (28)
Repurchase of treasury stock (183) (626)
Payment of dividends and distributions (2,002) (2,224)
------- -------
Net cash provided by financing activities 266 2,194
------ -------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 5,286 (1,400)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 1,673 4,106
------ -------
CASH AND CASH EQUIVALENTS, END OF PERIOD $6,959 $ 2,706
====== =======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest $ 3,170 $ 2,857
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
4
<PAGE>
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 66.7% and 65.0% ownership interest
in it at June 30, 2000 and December 31, 1999, respectively, Roberts
Realty controls the Operating Partnership.
At June 30, 2000, Roberts Realty owned eight completed multifamily
apartment communities totaling 1,633 apartment homes in Atlanta, and an
additional 854 apartment homes were under construction (535 in Atlanta
and 319 in Charlotte, North Carolina).
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 90% 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 the Operating Partnership's units outstanding and will change
as additional shares and partnership units are issued, units are
exchanged for shares, or shares are repurchased in the open market. The
minority interest of the unitholders in the earnings 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 33.8% and 37.0% for the three months ended
June 30, 2000 and 1999, respectively, and 34.2% and 36.9% for the six
months ended June 30, 2000 and 1999, respectively. The minority
interest of the unitholders in the operating partnership was
$11,889,000 and $12,013,000 at June 30, 2000 and December 31, 1999,
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
5
<PAGE>
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 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, 2000. Certain prior period amounts have been
reclassified to conform to the 2000 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, 1999.
3. ACQUISITIONS AND DISPOSITIONS
On June 23, 2000, Roberts Realty Investors, Inc. completed the sale of
its Ivey Brook community to Ivey Brook Apartments, Inc. for
$14,550,000. Ivey Brook is a 146-unit apartment community located in
Atlanta, Georgia. Net cash proceeds were $7,256,000 after deducting:
o $6,190,000 for the mortgage note payable, which was assumed by the
buyer;
o $378,000 for closing costs and prorations; and
o $726,000 for a partnership profits interest to Roberts Properties,
Inc., a non-owned affiliate, under the terms of the agreement of
limited partnership of Roberts Properties Residential, L.P., through
which Roberts Realty conducts its business. The $726,000 partnership
profits interest was included in the $2,189,000 Due to Affiliates at
June 30, 2000 and was subsquently paid in July, 2000.
Unaudited pro forma amounts for the six month periods ended June 30,
2000 and 1999, assuming the sales of Ivey Brook and Bentley Place,
which was sold in August, 1999, had taken place as of January 1 for the
periods presented, are presented below (dollars in thousands, except
per share amounts). The unaudited pro forma information is not
necessarily indicative of the results of operations of Roberts Realty
had the acquisition and sales occurred at the beginning of the periods
presented, nor is it indicative of future results.
2000 1999
---- ----
Total operating revenues $9,250 $8,181
Net income (loss) 41 (75)
Per Share Data - Basic and Diluted
Net income (loss) 0.01 (0.02)
6
<PAGE>
4. NOTES PAYABLE
Line of Credit. Roberts Realty obtained a $2,000,000 revolving
unsecured line of credit in June 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 plus 150 basis points. At June 30,
2000, no amount was outstanding on the line.
Mortgage Notes. Mortgage notes payable were secured by the following
apartment communities at June 30, 2000 and December 31, 1999, as
follows:
<TABLE>
<CAPTION>
Fixed Interest Principal Outstanding
Rate as of
Property Securing Mortgage Maturity 06/30/00 06/30/00 12/31/99
-------------------------- -------- -------- -------- --------
<S> <C> <C> <C> <C>
Addison Place - phase I 11/15/09 6.95% $ 9,500,000 $ 9,500,000
Bradford Creek 06/15/08 7.15 8,228,000 8,273,000
Crestmark 10/01/08 6.57 15,683,000 15,778,000
Highland Park 02/15/03 7.30 7,793,000 7,844,000
Ivey Brook 02/15/07 7.14 0 6,228,000
Plantation Trace 10/15/08 7.09 11,697,000 11,760,000
Preston Oaks 10/15/02 7.21 8,257,000 8,313,000
River Oaks 11/15/03 7.15 8,891,000 8,946,000
Rosewood Plantation 07/15/08 6.62 7,925,000 7,973,000
----------- -----------
$77,974,000 $84,615,000
=========== ===========
</TABLE>
Construction Loan. On May 3, 2000, Roberts Realty closed a $22,500,000
construction loan to fund the construction of the second phase of
Addison Place. The loan has a 5-year term and bears an interest rate of
LIBOR plus 150 basis points. When the loan was closed, Roberts Realty
entered into a separate agreement which synthetically fixed the
interest rate at 8.62%.
Land Loans. 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 was secured by the land for the second phase of Addison
Place, had a six-month term, and an interest rate of LIBOR plus 150
basis points. The loan was repaid from proceeds of a construction loan
on the second phase of Addison Place - see above.
On February 1, 2000, Roberts Realty closed a $2,000,000 land loan to
fund the initial construction of the Old Norcross community. The loan
is secured by the Old Norcross land, has a 12-month term, and bears an
interest rate of LIBOR plus 150 basis points.
Interest capitalized was $291,000 and $140,000 for the three months
ended June 30, 2000 and 1999, respectively, and $591,000 and $276,000
for the six months ended June 30, 2000 and 1999, respectively.
Real estate assets having a combined depreciated cost of approximately
$93,966,000 served as collateral for the outstanding mortgage debt at
June 30, 2000.
5. EXTRAORDINARY ITEM
The 2000 extraordinary item is the write-off of unamortized loan costs
related to the Ivey Brook community, which was sold on June 23, 2000.
This extraordinary item is net of $35,000, which was allocated to the
minority
7
<PAGE>
interest of the unitholders in the operating partnership, and
calculated based on the weighted average number of partnership units
outstanding during the periods presented.
6. 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 constructed the first phase of Addison Place,
consisting of 118 townhomes, pursuant to a cost plus 10% contract.
Roberts Construction is currently constructing the second phase of
Addison Place, consisting of 285 apartment homes, under a cost plus 10%
contract.
Roberts Construction started construction of the Ballantyne community
pursuant to a cost plus 10% contract and intends to hire a third-party
general contractor to complete construction of the community under its
supervision. The material terms of the contract between Roberts Realty
and Roberts Construction will not be altered, and Roberts Construction
will continue to oversee the project. Through June 30, 2000, Roberts
Realty incurred $181,000 of costs related to the project to Roberts
Construction.
Roberts Construction is currently constructing the Old Norcross
community, consisting of 250 apartment homes, under a cost plus 10%
contract. Through June 30, 2000, Roberts Realty incurred $104,000 of
costs related to the project to Roberts Construction.
At June 30, 2000, the remaining commitments totaled $15,147,000 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 $ 9,722,000 $ 9,503,000 $ 219,000
Addison Place - phase II 21,035,000 6,107,000 14,928,000
-------------- -------------- --------------
$ 30,757,000 $ 15,610,000 $ 15,147,000
============== ============== ==============
</TABLE>
7. SHAREHOLDERS' EQUITY
Exchanges of Partnership Units for Shares. During the three months
ended June 30, 2000 and 1999, a total of 56,608 and 0 partnership
units, respectively, were exchanged for the same number of shares.
During the six months ended June 30, 2000 and 1999, a total of 133,099
and 26,907 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 and six
months ended June 30, 2000, no partnership units were
8
<PAGE>
redeemed. During the three months ended June 30, 1999, no partnership
units were redeemed. During the six months ended June 30, 1999, a total
of 3,917 partnership units were redeemed for cash of $28,000.
Treasury Stock Repurchases. During the three months ended June 30,
2000, Roberts Realty repurchased 15,500 shares at a total cost of
$109,000. During the six months ended June 30, 2000, Roberts Realty
repurchased 25,500 shares at a total cost of $183,000. During the three
months ended June 30, 1999, Roberts Realty repurchased 10,100 shares at
a total cost of $76,000. During the six months ended June 30, 1999,
Roberts Realty repurchased 84,200 shares at a total cost of $626,000.
Dividends. On June 20, 2000, Roberts Realty's Board of Directors
declared a quarterly distribution in the amount of $0.135 per common
share and partnership unit payable on July 10, 2000 to shareholders and
unitholders of record on June 30, 2000. On June 20, 2000, Roberts
Realty's Board of Directors also declared a special distribution in
connection with the sale of Ivey Brook (Note 3) in the amount of $0.25
per common share and partnership unit payable on July 27, 2000 to
shareholders and unitholders of record on July 20, 2000. The second
quarter 1999 dividend was $0.15 and was paid to shareholders and
unitholders of record as of June 30, 1999.
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).
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
------------------ ----------------
6/30/00 6/30/99 6/30/00 6/30/99
------- ------- ------- -------
<S> <C> <C> <C> <C>
Income before extraordinary item - basic $ 2,420 $ 23 $ 2,408 $ 32
Minority interest in income before
extraordinary item of the
operating partnership 1,236 13 1,230 19
----------- ---------- ---------- ----------
Income before extraordinary item - diluted $ 3,656 $ 36 $ 3,638 $ 51
=========== ========== ========== ==========
Net income - basic $ 2,352 $ 23 $ 2,340 $ 32
Minority interest in net income of the
operating partnership 1,201 13 1,195 19
----------- ---------- ---------- ----------
Net income - diluted $ 3,553 $ 36 $ 3,535 $ 51
=========== ========== ========== ==========
Weighted average shares - basic 4,902,399 4,692,167 4,873,368 4,712,851
Dilutive securities - weighted average partnership units 2,501,516 2,753,787 2,531,583 2,756,490
----------- ---------- --------- ---------
Weighted average shares - diluted 7,403,915 7,445,954 7,404,951 7,469,341
=========== ========== ========= =========
</TABLE>
8. SEGMENT REPORTING
SFAS No. 131 established standards for reporting financial and
descriptive information about operating segments in annual financial
statements. Operating segments are defined as components of an
enterprise about which separate financial information is available that
is evaluated regularly by the chief operating decision maker in
deciding how to allocate resources and in assessing performance.
Roberts Realty's chief operating decision maker is its chief executive
officer.
9
<PAGE>
Roberts Realty owns, operates, and develops multifamily apartment
communities located in Georgia and is developing and constructing a
community in North Carolina. The existing apartment communities
generate rental revenue and other income through leasing of apartment
homes to a diverse group of residents. Roberts Realty evaluates the
performance of each of its apartment communities on an individual
basis. However, because each of the apartment communities has similar
economic characteristics, residents, and products and services, the
apartment communities have been aggregated into one reportable segment.
This segment comprises 100% of Roberts Realty's total revenues for each
of the three and six months ended June 30, 2000 and 1999.
The primary financial measure for Roberts Realty's reportable business
segment is net operating income ("NOI"), which represents total
property revenues less total property operating expenses, excluding
general and administrative and depreciation expenses. Current quarter
NOI is compared to prior quarter NOI and current quarter budgeted NOI
as a measure of financial performance. NOI from apartment communities
totaled $3,401,000, and $3,177,000 for the three months ended June 30,
2000 and 1999, respectively, and $6,652,000 and $6,283,000 for the six
months ended June 30, 2000 and 1999, respectively. All other segment
measurements are disclosed in Roberts Realty's consolidated financial
statements.
9. NEW ACCOUNTING PRONOUNCEMENTS
Statement of Financial Accounting Standards ("SFAS") No. 133,
"Accounting for Derivative Instruments and Hedging Activities,"
establishes standards for reporting and display of derivative
instruments, hedges and their components. Roberts Realty will be
required to adopt SFAS 133, amended by SFAS 137 and SFAS 138, on
January 1, 2001. As of June 30, 2000, Roberts Realty has a construction
loan which includes a swap agreement; however, upon closing the loan,
the interest rate was synthetically fixed at 8.62%. Roberts Realty has
no other derivative instruments or hedging activities and, therefore,
does not expect this statement to have a material effect on its
financial position and results of operations.
10
<PAGE>
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 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 are intended to 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 June 30, 2000, we owned
eight completed multifamily apartment communities, all of which were stabilized,
consisting of 1,633 apartment homes.
We are developing and building three new multifamily communities
totaling 854 apartment homes. The 854 apartment homes under construction will
increase the size of our portfolio 52% from 1,633 to 2,487 apartment homes. One
of our communities under construction is located in Charlotte, North Carolina,
and is the first step in our diversification strategy. The other two communities
are located in north Atlanta. We began construction of the 285-unit second phase
of Addison Place during the third quarter of 1999, and we began construction of
a 250-unit apartment community located in north Atlanta on our Old Norcross land
during the second quarter of 2000. On June 23, 2000, we sold our 146-unit Ivey
Brook community.
Results of Operations
Comparison of Three Months Ended June 30, 2000 to Three Months Ended
June 30, 1999. For the three months ended June 30, 2000, we recorded net income
of $2,352,000, or $0.48 per share, compared to net income of $23,000, or $0.00
per share, for the three months ended June 30, 1999. Our operating results are
due to the following:
(a) the sale of the Ivey Brook community in June 2000, which resulted
in a gain, net of minority interest, of $2,284,000;
(b) a $193,000 increase in same-property net operating income;
(c) a $256,000 increase in net operating income from the first phase of
Addison Place; and
(d) an increase in average stabilized occupancy from 95.3% to 95.7%;
offset by:
(e) the sale of Bentley Place in August 1999;
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(f) higher interest expense due to:
o the permanent financing of the first phase of Addison Place in
October 1999;
o the land loan on Old Norcross; and
o higher average borrowings on the line of credit during the
quarter; and
(g) increased depreciation expense.
Our operating performance for all apartment communities is summarized in the
following table:
<TABLE>
<CAPTION>
Percentage
Change from Three Months Ended June 30,
1999 to 2000 2000 1999
------------ ---- ----
<S> <C> <C> <C>
Rental income 5.3% $ 4,790,000 $ 4,547,000
Total operating revenues 6.3% $ 5,164,000 $ 4,856,000
Property operating expenses (1) 5.0% $ 1,763,000 $ 1,679,000
Net operating income (2) 7.1% $ 3,401,000 $ 3,177,000
General and administrative expenses 2.0% $ 522,000 $ 512,000
Depreciation of real estate assets 1.2% $ 1,342,000 $ 1,326,000
Average stabilized occupancy (3) 0.4% 95.7% 95.3%
Operating expense ratio (4) (0.5%) 34.1% 34.6%
</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 Addison Place
beginning June 1, 2000, Ivey Brook only through June 23, 2000, which
was the date the community was sold, and Bentley Place only through
August 23, 1999, which was the date the community was sold.
(4) Represents the total of property operating expenses divided by property
operating revenues expressed as a percentage.
Our same-property operating performance, when compared to the three
months ended June 30, 1999, includes a 6.5% increase in operating revenues, a
7.0% increase in net operating income, a 4.5% increase in average monthly rent
per apartment home, higher operating margins, and a 0.9% increase in stabilized
occupancy from 95.0% to 95.9%. Seven of our communities were fully stabilized
during both the three-month periods ended June 30, 2000 and 1999: Bradford
Creek, Crestmark, Highland Park, Plantation Trace, Preston Oaks, River Oaks, and
Rosewood Plantation.
12
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Same-property operating results for these communities are summarized in
the following table:
<TABLE>
<CAPTION>
Percentage
Change from Three Months Ended June 30,
1999 to 2000 2000 1999
------------ ---- ----
<S> <C> <C> <C>
Rental income 5.3% $ 4,063,000 $ 3,857,000
Total operating revenues 6.5% $ 4,378,000 $ 4,112,000
Property operating expenses (1) 5.3% $ 1,430,000 $ 1,358,000
Net operating income (2) 7.0% $ 2,948,000 $ 2,754,000
Average stabilized occupancy (3) 0.9% 95.9% 95.0%
Operating expense ratio (4) (0.3%) 32.7% 33.0%
Average monthly rent per apartment home 4.5% $ 953 $ 912
Lease renewal percentage (5) (2.0%) 51.4% 53.4%
</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 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
three months ended June 30, 2000 and 1999.
Property operating revenue increased $308,000 or 6.3% from $4,856,000
for the three months ended June 30, 1999 to $5,164,000 for the three months
ended June 30, 2000. The increase in operating revenue is due primarily to the
following:
(1) a $361,000 increase in revenue from the first phase of Addison
Place; and
(2) a $265,000 increase in same-property operating revenue, which
includes a $42,000 increase in water sub-metering revenue;
offset by:
(3) a decrease in revenue of approximately $272,000 due to the sale of
Bentley Place; and
(4) a decrease in revenue of approximately $46,000 due to the sale of
Ivey Brook.
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<PAGE>
Property operating expenses, excluding depreciation and general and
administrative expenses, increased $84,000 or 5.0% from $1,679,000 for the three
months ended June 30, 1999 to $1,763,000 for the three months ended June 30,
2000. The increase in operating expenses is due primarily to the following:
(1) a $105,000 increase in expenses from the first phase of Addison
Place; and
(2) a $72,000 increase in same-property expenses;
offset by:
(3) a decrease in expenses of approximately $105,000 due to the sale of
Bentley Place.
General and administrative expenses increased $10,000 or 2.0% from
$512,000 for the three months ended June 30, 1999 to $522,000 for the three
months ended June 30, 2000. These expenses include legal, accounting and tax
fees, marketing and printing fees, salaries, director fees, and other costs.
General and administrative expenses as a percentage of operating revenues
decreased from 10.5% for the three months ended June 30, 1999 to 10.1% for the
three months ended June 30, 2000. We expect that as we continue to grow, these
expenses will continue to decline as a percentage of operating revenues, even
though general and administrative expenses may increase in absolute terms.
Depreciation expense increased $16,000 or 1.2% from $1,326,000 for the
three months ended June 30, 1999 to $1,342,000 for the three months ended June
30, 2000. The increase is due to the depreciation expense from the first phase
of Addison Place, offset by a decrease due to the sale of Bentley Place. We
record depreciation expense as apartment homes are completed and available for
occupancy.
Interest expense increased $54,000 or 4.3% from $1,252,000 for the
three months ended June 30, 1999 to $1,306,000 for the three months ended June
30, 2000. The increase is due primarily to the following:
(1) the $9,500,000 permanent financing of the first phase of Addison
Place in October 1999;
(2) the closing of the $22,500,000 construction loan secured by the
second phase of Addison Place in May 2000, of which $5,294,000 was
drawn;
(3) the closing of the $2,000,000 land loan secured by the second phase
of Addison Place in October 1999;
(4) the closing of the $2,000,000 Old Norcross land loan in February
2000; and
(5) higher average borrowings on our line of credit;
offset by:
(6) higher capitalized interest related to the Ballantyne project and
the second phase of Addison Place.
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Comparison of Six Months Ended June 30, 2000 to Six Months Ended June 30, 1999
------------------------------------------------------------------------------
For the six months ended June 30, 2000, we recorded net income of
$2,340,000 or $0.48 per share, compared to net income of $32,000 or $0.01 per
share for the six months ended June 30, 1999. The change in operating results is
due to the following:
(a) the sale of the Ivey Brook community in June 2000, which resulted
in a gain, net of minority interest, of $2,284,000;
(b) a $332,000 increase in same-property net operating income; and
(c) a $382,000 increase in net-operating income from the first pase of
Addison Place;
offset by:
(d) the sale of Bentley Place in August 1999;
(e) higher interest expense due to:
o the permanent financing of the first phase of Addison Place in
October 1999;
o the land loans on Old Norcross and the second phase of Addison
Place;
o the construction loan on the second phase of Addison Place; and
o higher average borrowings on the line of credit during the
quarter;
(f) increased depreciation expense; and
(g) the decline in average stabilized occupancy from 95.3% to 94.6%.
Our operating performance for all apartment communities is summarized in the
following table:
<TABLE>
<CAPTION>
Percentage
Change from Six Months Ended June 30,
1999 to 2000 2000 1999
------------ ---- ----
<S> <C> <C> <C>
Rental income 4.0% $ 9,406,000 $ 9,047,000
Total operating revenues 5.5% $ 10,139,000 $ 9,612,000
Property operating expenses (1) 4.7% $ 3,487,000 $ 3,329,000
Net operating income (2) 5.9% $ 6,652,000 $ 6,283,000
General and administrative expenses (1.3%) $ 1,007,000 $ 1,020,000
Depreciation of real estate assets 2.3% $ 2,703,000 $ 2,643,000
Average stabilized occupancy (3) (0.7%) 94.6% 95.3%
Operating expense ratio (4) (0.2%) 34.4% 34.6%
</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
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<PAGE>
from 100%. The calculation includes Addison Place beginning June 1,
2000, Ivey Brook only through June 23, 2000, which was the date the
community was sold, and Bentley Place only through August 23, 1999,
which was the date the community 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 5.0%
increase in operating revenues, a 6.1% increase in net operating income, and a
4.5% increase in average monthly rent per apartment home. Seven of our
communities were fully stabilized during both the six-month periods ended June
30, 2000 and 1999: Bradford Creek, Crestmark, Highland Park, Plantation Trace,
Preston Oaks, River Oaks, and Rosewood Plantation
Same-property operating results for these communities are summarized in
the following table:
<TABLE>
<CAPTION>
Percentage
Change from Six Months Ended June 30,
1999 to 2000 2000 1999
------------ ---- ----
<S> <C> <C> <C>
Rental income 3.7% $ 7,984,000 $ 7,696,000
Total operating revenues 5.0% $ 8,585,000 $ 8,177,000
Property operating expenses (1) 2.7% $ 2,822,000 $ 2,747,000
Net operating income (2) 6.1% $ 5,763,000 $ 5,430,000
Average stabilized occupancy (3) (0.5%) 94.5% 95.0%
Operating expense ratio (4) (0.7%) 32.9% 33.6%
Average monthly rent per apartment home 4.5% $ 950 $ 909
Lease renewal percentage (5) (4.1%) 51.7% 55.8%
</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
six months ended June 30, 2000 and 1999.
Total operating revenues increased $527,000 or 5.5% from $9,612,000 for
the six months ended June 30, 1999 to $10,139,000 for the six months ended June
30, 2000. The increase in operating revenue is due to the following:
(1) a $651,000 increase in revenue from the first phase of Addison Place;
and
(2) a $407,000 increase in same-property operating revenue, which includes
a $83,000 increase in water sub-metering revenue;
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<PAGE>
offset by:
(3) a decrease in revenue of approximately $542,000 due to the sale of
Bentley Place.
Property operating expenses, excluding depreciation and general and
administrative expenses, increased $158,000 or 4.7% from $3,329,000 for the six
months ended June 30, 1999 to $3,487,000 for the six months ended June 30, 2000.
The increase in operating expenses is due to the following:
(1) a $268,000 increase in expenses from the first phase of Addison Place;
and
(2) a $75,000 increase in same-property expenses;
offset by:
(3) a $199,000 decrease in expenses due to the sale of Bentley Place.
General and administrative expenses decreased $13,000 or 1.3% from
$1,020,000 for the six months ended June 30, 1999 to $1,007,000 for the six
months ended June 30, 2000. These expenses include legal, accounting and tax
fees, marketing and printing fees, salaries, director fees and other costs.
General and administrative expenses as a percentage of operating revenues
decreased from 10.6% for the six months ended June 30, 1999 to 9.9% for the six
months ended June 30, 2000. We expect that as we continue to grow, those
expenses will begin to decline as a percentage of operating revenues, even
though general and administrative expenses may increase in absolute terms.
Depreciation expense increased $60,000 or 2.3% from $2,643,000 for the
six months ended June 30, 1999 to $2,703,000 for the six months ended June 30,
2000. The increase is due to the depreciation expense from the first phase of
Addison Place, offset by a decrease due to the sale of Bentley Place. We record
depreciation expense as apartment homes are completed and available for
occupancy.
Interest expense increased $166,000 or 6.6% from $2,513,000 for the six
months ended June 30, 1999 to $2,679,000 for the six months ended June 30, 2000.
The increase is due primarily to the following:
(1) the $9,500,000 permanent financing of the first phase of Addison Place
in October 1999;
(2) the closing of the $22,500,000 construction loan secured by the second
phase of Addison Place in May 2000, of which $5,294,000 was drawn on
the loan;
(3) the closing of the $2,000,000 land loan secured by the second phase of
Addison Place in October 1999;
(4) the closing of the $2,000,000 Old Norcross land loan in February 2000;
and
(5) higher average borrowings on our line of credit;
offset by:
(6) higher capitalized interest related to the Ballantyne project and the
second phase of Addison Place.
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<PAGE>
On June 23, 2000, we sold the Ivey Brook community for $14,550,000,
which resulted in a gain, net of minority interest, of $2,284,000 on the sale of
real estate assets and an extraordinary loss, net of minority interest, of
$68,000 on the write-off of unamortized loan costs related to the mortgage note
secured by the community. Net sales proceeds were $7,256,000 after deduction for
loan assumption by the buyer of $6,190,000, closing costs and prorations of
$378,000, and partnership profits interest of $726,000 to Roberts Properties,
Inc., a non-owned affiliate, under the terms of the agreement of limited
partnership of Roberts Properties Residential, L.P., through which Roberts
Realty conducts its business.
Liquidity and Capital Resources
Comparison of Six Months Ended June 30, 2000 to Six Months Ended June
30, 1999. Cash and cash equivalents increased $5,286,000 during the six months
ended June 30, 2000 compared to an decrease of $1,400,000 during the six months
ended June 30, 1999. The increase is due to an increase in cash provided by
operating and investing activities offset by a decrease in cash provided by
financing activities.
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 $125,000 from $3,929,000
during the six months ended June 30, 1999 to $4,054,000 during the six months
ended June 30, 2000. The increase in cash flow from operations is due primarily
to the additional cash flow from the first phase of Addison Place and the
stabilized communities, offset by the sale of Bentley Place. Generally,
depreciation and amortization expenses are the most significant adjustments to
net income in arriving at cash provided by operating activities.
Net cash provided by investing activities increased $8,489,000 from net
cash used of $7,523,000 during the six months ended June 30, 1999 to net cash
provided of $966,000 during the six months ended June 30, 2000. This increase is
due primarily to $8,096,000 in net sales proceeds from the sale of Ivey Brook, a
$912,000 decrease in new construction costs, offset by a $519,000 increase in
development costs. We acquired no existing apartment communities during these
periods.
Net cash provided by financing activities decreased $1,928,000 from
$2,194,000 during the six months ended June 30, 1999 to $266,000 during the six
months ended June 30, 2000. This decrease is due primarily to the following:
(a) the payoff of the $3,000,000 land loan which encumbered the land
on our second phase of Addison place from proceeds of our
construction loan on the community;
(b) a decrease of $138,000 in proceeds from construction loans, from
$5,432,000 during the six months ended June 30, 1999 to
$5,294,000 during the six months ended June 30, 2000;
(c) net repayments of $1,235,000 on the $2,000,000 line of credit
during the first quarter of 2000, compared to no net borrowings
during the six months ended June 30, 1999;
offset by:
(d) the closing of a $2,000,000 land loan on our Old Norcross
property in February 2000;
(e) a decrease of $443,000 in cash used to repurchase 84,200 treasury
shares for $626,000 during the six months ended June 30, 1999,
compared to the repurchase of 25,500 treasury shares for $183,000
during the six months ended June 30, 2000;
(f) a decrease of $28,000 in cash used to repurchase of 3,917
partnership units for $28,000 during the six months ended June
30, 1999, compared to no partnership units repurchased during the
six months ended June 30, 2000; and
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<PAGE>
(g) a decrease of $222,000 in quarterly distributions paid, from
$2,224,000 for the six months ended June 30, 1999 to $2,002,000
for the six months ended June 30, 2000.
On June 23, 2000, we completed the sale of our Ivey Brook community for
$14,550,000. Net cash proceeds were $7,256,000 after deducting:
o $6,190,000 for the mortgage note payable, which was assumed by the
buyer;
o $378,000 for closing costs and prorations; and
o $726,000 for a partnership profits interest to Roberts Properties,
Inc., a non-owned affiliate, under the terms of the agreement of
limited partnership of Roberts Properties Residential, L.P., through
which Roberts Realty conducts its business.
On June 20, 2000, our Board of Directors declared a special
distribution in connection with the sale of Ivey Brook in the amount of $0.25
per common share and partnership unit payable on July 27, 2000 to shareholders
and unitholders of record on July 20, 2000.
The following facts highlight our existing debt structure:
o each of our eight communities is financed with fixed-rate debt;
o the average interest rate for all eight communities is 6.97% per
annum;
o no debt is scheduled to mature before October 2002;
o the average term to maturity is seven years; and
o debt principal will amortize at a rate of approximately $850,000
per year.
The following table summarizes the debt for each of our eight
communities:
Fixed Interest Principal
Rate as of Outstanding
06/30/00 Maturity 06/30/00
------------- -------- -----------
Addison Place - phase I 6.95% 11/15/09 $ 9,500,000
Bradford Creek 7.15 06/15/08 8,228,000
Crestmark 6.57 10/01/08 15,683,000
Highland Park 7.30 02/15/03 7,793,000
Plantation Trace 7.09 10/15/08 11,697,000
Preston Oaks 7.21 10/15/02 8,257,000
River Oaks 7.15 11/15/03 8,891,000
Rosewood Plantation 6.62 07/15/08 7,925,000
-----------
$77,974,000
===========
Each of our existing mortgage loans will require balloon payments (in
addition to monthly principal amortization) coming due over the years 2002 to
2009 as summarized below:
2002 $ 8,025,000
2003 16,057,000
2008 38,232,000
2009 8,387,000
--------------
Total $ 70,271,000
==============
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Because we anticipate that only a small portion of the principal of
that indebtedness will be repaid before maturity and that we will not have funds
on hand sufficient to repay that indebtedness, it will be necessary for us to
refinance that debt through (a) debt financing collateralized by mortgages on
individual communities or groups of communities and/or (b) equity offerings.
During the quarter ended December 31, 1999, we completed construction
on the 118-unit first phase of Addison Place, located in north Atlanta. We
funded this project with the proceeds from mortgage loan financings, operating
cash, and a $9,500,000 construction loan. On October 25, 1999, we repaid the
$8,019,000 outstanding on the construction loan plus accrued interest of $38,000
upon closing a $9,500,000 permanent loan secured by the project. 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. At June 30,
2000, the property was 90% occupied. The letter of credit was released on August
1, 2000 upon the property achieving 95% occupancy. The permanent loan includes 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. The first 12 payments are
interest-only payments of $55,021 per month.
During the quarter ended June 30, 1999, we started construction on the
second phase of Addison Place, which will consist of 285 apartment homes. We
expect occupancy to begin in the third quarter of 2000. We commenced
construction on a 319-unit community in Charlotte during the fourth quarter of
1999, and we commenced construction of a 250-unit community located in north
Atlanta on our Old Norcross land in the second 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
construction loans are secured.
On May 3, 2000, we closed a $22,500,000 construction loan to complete
the second phase of Addison Place. The loan is secured by the second phase of
Addison Place, includes a five-year term, and provides for an interest rate of
LIBOR plus 150 basis points. When the loan was closed, the interest rate was
synthetically converted to a fixed rate of 8.62%.
On February 1, 2000, we closed a $2,000,000 land loan to fund the
initial construction of the Old Norcross community. The loan is secured by the
Old Norcross land, has a 12-month term, and bears an interest rate of LIBOR plus
150 basis points.
We renewed our $2,000,000 revolving line of credit in June 2000 to
provide funds for short-term working capital purposes. The line has a one-year
term and bears an interest rate of LIBOR plus 150 basis points. At June 30,
2000, no amount was outstanding under the line.
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 property operations. We expect to meet our long-term liquidity
requirements, including future developments and debt maturities, from the
proceeds of construction and permanent loans and/or the proceeds of property
sales.
Stock Repurchase Plan
On September 3, 1998, we issued a press release announcing that 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 84,200 treasury shares for $626,000 during
the six months ended June 30, 1999. We purchased 25,500
20
<PAGE>
treasury shares for $183,000 during the six months ended June 30, 2000. From
October 1, 1998 through June 30, 2000, we have repurchased 166,000 shares for
$1,237,000.
Redemptions of Units for Cash
During the six months ended June 30, 1999, we paid $28,000 to purchase
3,917 units from unitholders who resided outside the state of Georgia. We
purchased no units during the six months ended June 30, 2000.
Supplemental Disclosure of Funds From Operations
We consider funds from operations ("FFO") to be a useful performance
measure of the operating performance of an equity REIT. Together with net income
and cash flows, FFO provides investors with an additional basis to evaluate a
REIT's ability to incur and service debt and to fund distributions and capital
expenditures. We believe that to obtain a clear understanding of our operating
results, investors should consider FFO along with net income as presented in the
financial statements and data included elsewhere in this report. We compute FFO
in accordance with standards establish by the National Association of Real
Estate Investment Trusts ("NAREIT"). Effective January 1, 2000, NAREIT amended
its definition of FFO to include in FFO all non-recurring items, except those
defined as extraordinary items under generally accepted accounting principles,
or ("GAAP"), and gains and losses from sales of depreciable operating property.
We are using the amended definition of FFO in reporting our results for all
periods on or after January 1, 2000. FFO for the six months ended June 30, 2000
and 1999, respectively, is stated on a consistent basis and was not affected by
the adoption of the new NAREIT definition.
FFO as defined by NAREIT represents net income (loss) determined in
accordance with GAAP, excluding extraordinary items as defined under GAAP and
gains or losses from sales of depreciable operating property, plus certain
non-cash items such as real estate depreciation and amortization, and after
adjustment for unconsolidated partnerships and joint ventures. FFO presented in
this report is not necessarily comparable to FFO presented by other real estate
companies, because not all real estate companies use the same definition. Our
FFO is comparable, however, to the FFO of real estate companies that use the
amended NAREIT definition. 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. We 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.
The following table reconciles net income to FFO (dollars in thousands).
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
--------------------------- -------------------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net income $ 2,352 $ 23 $ 2,340 $ 32
Minority interest of unitholders 69 13 63 19
Extraordinary items 68 0 68 0
Amortization (real estate related) 0 3 0 6
Loss on disposal of assets 21 19 60 28
Gain on sale of real estate asset (2,284) 0 (2,284) 0
Depreciation expense 1,342 1,326 2,703 2,643
------- --------- -------- ---------
Funds From Operations $ 1,568 $ 1,384 $ 2,950 $ 2,728
======= ========= ========= =========
Weighted average shares and units
outstanding during the period 7,403,915 7,445,954 7,404,951 7,469,341
</TABLE>
21
<PAGE>
New Accounting Pronouncements
Statement of Financial Accounting Standards ("SFAS") No. 133,
"Accounting for Derivative Instruments and Hedging Activities," establishes
standards for reporting and display of derivative instruments, hedges and their
components. Roberts Realty will be required to adopt SFAS 133, amended by SFAS
137 and SFAS 138, on January 1, 2001. As of June 30, 2000, Roberts Realty has a
construction loan which includes a swap agreement; however, upon closing the
loan, the interest rate was synthetically fixed at 8.62%. Roberts Realty has no
other derivative instruments or hedging activities and, therefore, does not
expect this statement to have a matieral effect on its financial position and
results of operations.
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.
Disclosure Regarding Forward-Looking Statements
This report contains "forward-looking statements" within the meaning of
Section 27A of the Securities Act of 1933, and Section 21E of the Securities
Exchange Act of 1934. 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. These
forward-looking statements are not guarantees of future performance and involve
risks and uncertainties, and actual results may differ materially from those
that are anticipated in the forward-looking statements. These risks include the
following:
o Unfavorable changes in market and economic conditions in Atlanta
and Charlotte could hurt our occupancy and rental rates.
o Increased competition in the Atlanta and Charlotte markets could
limit our ability to lease our apartment homes or increase or
maintain rents.
o Conflicts of interest inherent in business transactions between or
among Roberts Realty and/or the operating partnership on one hand,
and Mr. Roberts and/or his affiliates on the other hand, could
result in our paying more for property or services than we would
pay an independent seller or provider.
o Construction and lease-up risks inherent in our development of the
Addison Place, Ballantyne and Old Norcross communities, and the
other communities we may develop in the future, could adversely
affect our financial performance.
o We might not be able to obtain replacement financing to make
balloon payments on our fixed-rate debt, or we might have to
refinance our debt on less favorable terms.
o Because our organizational documents do not limit the amount of
debt we may incur, we could increase the amount of our debt as a
percentage of the estimated value of our properties.
o Our operations could be adversely affected if we lose key
personnel, particularly Mr. Roberts.
o We could incur costs from environmental problems even though
we did not cause, contribute to or know about them.
o Compliance or failure to comply with the Americans with
Disabilities Act and other similar laws could result in
substantial costs.
In addition, the market price of our common stock may fluctuate as a
result of, among other things:
o our operating results;
o the operating results of other REITs, particularly apartment
REITs; and
o 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 final
prospectus filed with the SEC on August 2, 1999 included in our Registration
Statement on Form S-3.
22
<PAGE>
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 4 to the consolidated financial statements included in this
report. All of our long-term borrowings are under fixed rate instruments, and
our line of credit and land loan interest rate is 150 basis points over the
three-month LIBOR rate. We have determined there is no material market risk
exposure to our consolidated financial position, results of operations or cash
flows.
23
<PAGE>
PART II
ITEM 1. LEGAL PROCEEDINGS.
Neither Roberts Realty, Roberts Properties Residential, L.P., 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 Roberts Properties Residential, L.P.
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 June 30, 2000.
During the three months ended June 30, 2000, Roberts Realty granted
3,572 shares of restricted stock to two employees as incentive compensation. The
unamortized book value of the grants equaled $25,000. The restrictions on
transfer lapse 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. These transactions have been recorded as unamortized restricted
stock compensation and are shown as a separate component of stockholders'
equity. During the three months ended June 30, 1999, Roberts Realty did not
grant or cancel any shares.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
We held our annual meeting on July 13, 2000, 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 Exchange Act of 1934, and
there was no solicitation in opposition to management's solicitations.
Both of management's nominees for directors as listed in the proxy
statement were elected with the following vote:
VOTES VOTES
FOR WITHHELD
-------- -----------
Charles S. Roberts 3,540,348 42,482
James M. Goodrich 3,544,348 34,482
24
<PAGE>
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.
Exhibit
No. Description
------- -----------
10.5.4 Agreement of Purchase and Sale between Ivey Brook Apartments,
Inc., Purchaser, and Roberts Properties Residential, , L.P.,
dated June 19, 2000.
10.14.09 Promissory Note executed by Roberts Properties Residential,
L.P. in favor of First Union National Bank, dated May 3, 2000
(Addison Place phase II).
10.14.10 Deed to Secure Debt, Security Agreement and Assignment of
Leases and Rents Agreement executed by Roberts Properties
Residential, L.P. in favor of First Union National Bank, dated
May 3, 2000 (Addison Place phase II).
10.14.11 Design and Development Agreement between Roberts Properties
Residential, L.P. and Roberts Properties, Inc. (Addison
Place).
10.14.12 Construction Administration Agreement between Roberts
Residential, L.P. and Roberts Properties, Inc. (Addison Place
phase II)
10.15.04 Line of Credit Note executed by Roberts Properties
Residential, L.P. in favor of Compass Bank, dated June 1,
2000, in the original principal amount of $2,000,000.
10.15.05 Loan Agreement executed by Roberts Properties Residential,
L.P. in favor of Compass Bank, dated June 1, 2000.
10.15.06 Continuing Guaranty executed by Roberts Properties
Residential, L.P. in favor of Compass Bank, dated June 1,
2000.
10.16.04 Design and Development Agreement between Roberts Properties
Residential, L.P. and Roberts Properties, Inc. (Old Norcross).
10.16.05 Construction Administration Agreement between Roberts
Residential, L.P. and Roberts Properties, Inc. (Old Norcross).
10.17.01 Design and Development Agreement between Roberts Properties
Residential, L.P. and Roberts Properties, Inc. (Ballantyne).
10.17.02 Construction Administration Agreement between Roberts
Residential, L.P. and Roberts Properties, Inc. (Ballantyne).
27 Financial Data Schedule.
(b) We filed no reports on Form 8-K during the quarter ended June 30, 2000.
25
<PAGE>
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: August 11, 2000 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)
26
<PAGE>
EXHIBIT INDEX
Exhibit
No. Description
------- -----------
10.5.4 Agreement of Purchase and Sale between Ivey Brook Apartments,
Inc., Purchaser, and Roberts Properties Residential, , L.P.,
dated June 19, 2000.
10.14.09 Promissory Note executed by Roberts Properties Residential,
L.P. in favor of First Union National Bank, dated May 3, 2000
(Addison Place phase II).
10.14.10 Deed to Secure Debt, Security Agreement and Assignment of
Leases and Rents Agreement executed by Roberts Properties
Residential, L.P. in favor of First Union National Bank, dated
May 3, 2000 (Addison Place phase II).
10.14.11 Design and Development Agreement between Roberts Properties
Residential, L.P. and Roberts Properties, Inc. (Addison
Place).
10.14.12 Construction Administration Agreement between Roberts
Residential, L.P. and Roberts Properties, Inc. (Addison Place
phase II)
10.15.04 Line of Credit Note executed by Roberts Properties
Residential, L.P. in favor of Compass Bank, dated June 1,
2000, in the original principal amount of $2,000,000.
10.15.05 Loan Agreement executed by Roberts Properties Residential,
L.P. in favor of Compass Bank, dated June 1, 2000.
10.15.06 Continuing Guaranty executed by Roberts Properties
Residential, L.P. in favor of Compass Bank, dated June 1,
2000.
10.16.04 Design and Development Agreement between Roberts Properties
Residential, L.P. and Roberts Properties, Inc. (Old Norcross).
10.16.05 Construction Administration Agreement between Roberts
Residential, L.P. and Roberts Properties, Inc. (Old Norcross).
10.17.01 Design and Development Agreement between Roberts Properties
Residential, L.P. and Roberts Properties, Inc. (Ballantyne).
10.17.02 Construction Administration Agreement between Roberts
Residential, L.P. and Roberts Properties, Inc. (Ballantyne).
27 Financial Data Schedule.
27
