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, 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 November 9,
2000 was 4,863,741 (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.................................. 21
PART II OTHER INFORMATION............................................... 21
ITEM 1. LEGAL PROCEEDINGS.................................. 21
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.......... 22
ITEM 4. SUBMISSION OF MATTERS TO A
VOTE OF SECURITY HOLDERS........................... 22
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K................... 22
-------------------
i
<PAGE>
PART I
<TABLE>
<CAPTION>
ITEM 1. FINANCIAL STATEMENTS.
ROBERTS REALTY INVESTORS, INC.
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
-------------------------------------------------------------------------------------------------------------------------
SEPTEMBER 30, DECEMBER 31,
ASSETS 2000 1999
---------- --------
(UNAUDITED)
<S> <C> <C>
REAL ESTATE ASSETS - At cost:
Land $ 18,160 $ 21,120
Buildings and improvements 89,426 96,124
Furniture, fixtures and equipment 11,046 11,654
--------- ---------
118,632 128,898
Less accumulated depreciation (22,713) (21,029)
--------- ---------
Operating real estate assets 95,919 107,869
Land held for future development 0 2,559
Construction in progress and real estate under development 26,241 12,393
--------- ---------
Net real estate assets 122,160 122,821
CASH AND CASH EQUIVALENTS 3,488 1,673
RESTRICTED CASH 398 1,202
DEFERRED FINANCING COSTS - Net of accumulated amortization of
$455 and $425 at September 30, 2000 and December 31, 1999, respectively 932 1,031
OTHER ASSETS - Net 453 351
--------- ---------
$ 127,431 $ 127,078
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES:
Mortgage notes payable $ 77,762 $ 84,615
Construction note payable 8,731 0
Land note payable 2,000 3,000
Line of credit 0 1,235
Accounts payable and accrued expenses 2,350 1,238
Dividends and distributions payable 820 1,010
Due to affiliates (including retainage payable of $538 and $216 at
September 30, 2000 and December 31, 1999, respectively) 2,462 1,214
Security deposits and prepaid rents 515 443
--------- ---------
Total liabilities 94,640 92,755
--------- ---------
COMMITMENTS AND CONTINGENCIES (Note 6)
MINORITY INTEREST OF UNITHOLDERS IN THE OPERATING PARTNERSHIP 10,887 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, 5,125,546 and
4,959,697 shares issued at September 30, 2000
and December 31, 1999, respectively 51 49
Additional paid-in capital 23,730 25,354
Less treasury shares, at cost (236,363 and 140,500 shares at
September 30, 2000 and December 31, 1999, respectively) (1,767) (1,054)
Unamortized restricted stock compensation (110) (136)
Accumulated deficit 0 (1,903)
--------- ---------
Total shareholders' equity 21,904 22,310
--------- ---------
$ 127,431 $ 127,078
========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
1
<PAGE>
<TABLE>
<CAPTION>
ROBERTS REALTY INVESTORS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
-----------------------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED SEPTEMBER 30,
2000 1999
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
OPERATING REVENUES:
Rental operations $ 4,603 $ 4,560
Other operating income 330 301
------ -------
Total operating revenues 4,933 4,861
------ -------
OPERATING EXPENSES:
Personnel 496 496
Utilities 318 350
Repairs, maintenance and landscaping 321 311
Real estate taxes 347 381
Marketing, insurance and other 200 196
General and administrative expenses 572 490
Depreciation of real estate assets 1,302 1,434
------ -------
Total operating expenses 3,556 3,658
------ -------
INCOME FROM OPERATIONS 1,377 1,203
------ -------
OTHER INCOME (EXPENSE):
Interest income 75 35
Interest expense (1,124) (1,357)
Loss on disposal of assets (19) (19)
Amortization of deferred financing costs (52) (47)
Other amortization expense 0 (3)
------ -------
Total other expense (1,120) (1,391)
------ -------
INCOME (LOSS) BEFORE MINORITY INTEREST, GAIN ON SALE OF
REAL ESTATE ASSET AND EXTRAORDINARY ITEM 257 (188)
MINORITY INTEREST OF UNITHOLDERS IN THE OPERATING PARTNERSHIP (86) 69
------ -------
INCOME (LOSS) BEFORE GAIN ON SALE OF REAL ESTATE ASSET
AND EXTRAORDINARY ITEM 171 (119)
GAIN ON SALE OF REAL ESTATE ASSET, net of minority interest
of unitholders in the operating partnership 0 1,023
------ -------
INCOME BEFORE EXTRAORDINARY ITEM 171 904
EXTRAORDINARY ITEM - Loss on early extinguishment of debt, net of
minority interest of unitholders in the operating partnership 0 (184)
------ -------
NET INCOME $ 171 $ 720
====== =======
INCOME PER COMMON SHARE - BASIC AND DILUTED:
Income before extraordinary item $ 0.03 $ 0.19
Extraordinary item 0.00 (0.04)
------ -------
Net income $ 0.03 $ 0.15
====== =======
Weighted average common shares - basic 4,910,526 4,712,487
Weighted average common shares - diluted 7,364,793 7,432,748
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
2
<PAGE>
<TABLE>
<CAPTION>
ROBERTS REALTY INVESTORS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
-----------------------------------------------------------------------------------------------------------------------
NINE MONTHS ENDED SEPTEMBER 30,
2000 1999
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
OPERATING REVENUES:
Rental operations $14,009 $ 13,607
Other operating income 1,063 866
------- -------
Total operating revenues 15,072 14,473
------- -------
OPERATING EXPENSES:
Personnel 1,445 1,382
Utilities 957 958
Repairs, maintenance and landscaping 937 880
Real estate taxes 1,205 1,240
Marketing, insurance and other 625 603
General and administrative expenses 1,579 1,510
Depreciation of real estate assets 4,005 4,077
------- -------
Total operating expenses 10,753 10,650
------- -------
INCOME FROM OPERATIONS 4,319 3,823
------- -------
OTHER INCOME (EXPENSE):
Interest income 170 115
Interest expense (3,803) (3,870)
Loss on disposal of assets (79) (47)
Amortization of deferred financing costs (163) (149)
Other amortization expense 0 (9)
------- --------
Total other expense (3,875) (3,960)
------- --------
INCOME (LOSS) BEFORE MINORITY INTEREST, GAINS ON SALE OF
REAL ESTATE ASSETS AND EXTRAORDINARY ITEMS 444 (137)
MINORITY INTEREST OF UNITHOLDERS IN THE OPERATING PARTNERSHIP (149) 50
------- -------
INCOME (LOSS) BEFORE GAINS ON SALE OF REAL ESTATE ASSETS
AND EXTRAORDINARY ITEMS 295 (87)
GAINS ON SALE OF REAL ESTATE ASSETS, net of minority interest
of unitholders in the operating partnership 2,284 1,023
------- -------
INCOME BEFORE EXTRAORDINARY ITEMS 2,579 936
EXTRAORDINARY ITEMS - Loss on early extinguishment of debt, net of
minority interest of unitholders in the operating partnership (68) (184)
------- -------
NET INCOME $ 2,511 $ 752
======== =======
INCOME PER COMMON SHARE - BASIC AND DILUTED:
Income before extraordinary items $ 0.52 $ 0.20
Extraordinary items (0.01) (0.04)
------- -------
Net income $ 0.51 $ 0.16
======= =======
Weighted average common shares - basic 4,885,844 4,712,728
Weighted average common shares - diluted 7,391,467 7,457,009
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
3
<PAGE>
<TABLE>
<CAPTION>
ROBERTS REALTY INVESTORS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
---------------------------------------------------------------------------------------------------------------------------
NINE MONTHS ENDED SEPTEMBER 30,
2000 1999
-------- -------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $2,511 $ 752
Adjustments to reconcile net income to net cash provided by operating activities:
Minority interest of unitholders in the operating partnership 149 (50)
Gains on sale of real estate asset (2,284) (1,023)
Loss on disposal of assets 79 47
Depreciation and amortization 4,189 4,235
Extraordinary items, net of minority interest of unitholders in the
operating partnership 68 184
Amortization of deferred compensation 49 22
Change in assets and liabilities:
Increase in restricted cash and cash equivalents (39) (20)
(Increase) decrease in other assets (102) 9
Increase in accounts payable and accrued expenses relating to operations 1,112 878
Increase in security deposits and prepaid rent 72 67
------ -------
Net cash provided by operating activities 5,804 5,101
------ -------
INVESTING ACTIVITIES:
Proceeds from sale of real estate asset 8,096 8,160
Construction of real estate assets (12,313) (12,002)
------ -------
Net cash used in investing activities (4,217) (3,842)
------ -------
FINANCING ACTIVITIES:
Proceeds from mortgage notes payable held in escrow 843 150
Payoff of mortgage notes, including prepayment penalty 0 (4,166)
Principal repayments on mortgage notes payable (663) (670)
Proceeds from land note payable 2,000 0
Payoff of land note payable (3,000) 0
Payment of loan costs (167) (91)
Proceeds from construction loan 8,731 7,866
Proceeds from short term loan 765 1,850
Payoff of short term loan (2,000) 0
Repurchase of partnership units 0 (28)
Repurchase of treasury stock (713) (696)
Payment of partnership profits interest (726) (242)
Payment of dividends and distributions (4,842) (7,031)
------ -------
Net cash provided by (used in) financing activities 228 (3,058)
------ -------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 1,815 (1,799)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 1,673 4,106
------ -------
CASH AND CASH EQUIVALENTS, END OF PERIOD $3,488 $ 2,307
====== =======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest $ 4,736 $ 4,351
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
4
<PAGE>
ROBERTS REALTY INVESTORS, INC.
NOTES TO CONSOLIDATED 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 66.8% and 65.0% ownership interest
in it at September 30, 2000 and December 31, 1999, respectively,
Roberts Realty controls the Operating Partnership.
At September 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, and was 33.3% and 36.6% for the three months ended
September 30, 2000 and 1999, respectively, and 33.9% and 36.8% for the
nine months ended September 30, 2000 and 1999, respectively. The
minority interest of the unitholders in the operating partnership was
$10,887,000 and $12,013,000 at September 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 the option either (a) to acquire those partnership
units in exchange for shares, on a one-for-one basis, or (b) to
5
<PAGE>
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 subsequently paid in July, 2000.
Unaudited pro forma amounts for the nine month periods ended September
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 $14,182 $12,421
Net income (loss) 208 (261)
Per Share Data - Basic and Diluted
Net income (loss) 0.01 (0.06)
4. NOTES PAYABLE
LINE OF CREDIT. Roberts Realty renewed a $2,000,000 revolving unsecured
line of credit in June 2000 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 September 30, 2000, no
amount was outstanding on the line.
6
<PAGE>
MORTGAGE NOTES. Mortgage notes payable were secured by the following
apartment communities at September 30, 2000 and December 31, 1999, as
follows:
<TABLE>
<CAPTION>
FIXED INTEREST PRINCIPAL OUTSTANDING
RATE AS OF
PROPERTY SECURING MORTGAGE MATURITY 09/30/00 09/30/00 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 8,205,000 8,273,000
Crestmark 10/01/08 6.57 15,635,000 15,778,000
Highland Park 02/15/03 7.30 7,767,000 7,844,000
Ivey Brook 02/15/07 7.14 0 6,228,000
Plantation Trace 10/15/08 7.09 11,665,000 11,760,000
Preston Oaks 10/15/02 7.21 8,228,000 8,313,000
River Oaks 11/15/03 7.15 8,862,000 8,946,000
Rosewood Plantation 07/15/08 6.62 7,900,000 7,973,000
----------- -----------
$77,762,000 $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%. At September 30, 2000, $8,731,000 was drawn on
the loan.
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 the 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 $324,000 and $134,000 for the three months
ended September 30, 2000 and 1999, respectively, and $915,000 and
$469,000 for the nine months ended September 30, 2000 and 1999,
respectively.
Real estate assets having a combined depreciated cost of approximately
$94,122,000 served as collateral for the outstanding mortgage debt at
September 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 interest of the unitholders in the operating partnership, and
calculated based on the weighted average number of partnership units
outstanding during the periods presented.
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.
7
<PAGE>
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 319-unit 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
September 30, 2000, Roberts Realty incurred $624,000 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 September 30, 2000, Roberts Realty incurred $164,000
of costs related to the project to Roberts Construction.
At September 30, 2000, the remaining commitments totaled $10,786,000 as
summarized in the following table:
ESTIMATED ESTIMATED
TOTAL REMAINING
CONTRACT AMOUNT CONTRACTUAL
AMOUNT INCURRED COMMITMENT
Addison Place - phase I $ 9,715,000 $ 9,625,000 $ 90,000
Addison Place - phase II 21,035,000 10,339,000 10,696,000
---------- ---------- ----------
$ 30,750,000 $ 19,964,000 $ 10,786,000
============== ============== ==============
7. SHAREHOLDERS' EQUITY
EXCHANGES OF PARTNERSHIP UNITS FOR SHARES. During the three months
ended September 30, 2000 and 1999, a total of 27,978 and 85,421
partnership units, respectively, were exchanged for the same number of
shares. During the nine months ended September 30, 2000 and 1999, a
total of 161,077 and 112,328 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 nine
months ended September 30, 2000, no partnership units were redeemed.
During the three months ended September 30, 1999, no partnership units
were redeemed. During the nine months ended September 30, 1999, a total
of 3,917 partnership units were redeemed for cash of $28,000.
TREASURY STOCK REPURCHASES. During the three months ended September 30,
2000, Roberts Realty repurchased 70,363 shares at a total cost of
$530,000. During the nine months ended September 30, 2000, Roberts
Realty
8
<PAGE>
repurchased 95,863 shares at a total cost of $713,000. 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.
DIVIDENDS. On September 7, 2000, Roberts Realty's Board of Directors
declared a quarterly distribution in the amount of $0.11 per common
share and partnership unit payable on October 13, 2000 to shareholders
and unitholders of record on September 29, 2000. The third quarter 1999
dividend was $0.15 and was paid to shareholders and unitholders of
record as of September 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 NINE MONTHS ENDED
------------------ -----------------
9/30/00 9/30/99 9/30/00 9/30/99
------- ------- ------- -------
<S> <C> <C> <C> <C>
Income before extraordinary item - basic $ 171 $ 904 $ 2,579 $ 936
Minority interest in income before
extraordinary item of the
operating partnership 86 522 1,316 541
----------- ---------- ---------- ----------
Income before extraordinary item - diluted $ 257 $ 1,426 $ 3,895 $ 1,477
=========== ========== ========== ==========
Net income - basic $ 171 $ 720 $ 2,511 $ 752
Minority interest in net income of the
operating partnership 86 415 1,281 433
----------- ---------- ---------- ----------
Net income - diluted $ 257 $ 1,135 $ 3,792 $ 1,185
=========== ========== ========== ==========
Weighted average shares - basic 4,910,526 4,712,487 4,885,844 4,712,728
Dilutive securities - weighted average partnership units 2,454,268 2,720,261 2,505,623 2,744,281
----------- ---------- ---------- ---------
Weighted average shares - diluted 7,364,793 7,432,748 7,391,467 7,457,009
=========== ========== ========== =========
</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.
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 nine months ended September 30, 2000 and 1999.
9
<PAGE>
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 $3,251,000, and $3,127,000 for the three months ended September
30, 2000 and 1999, respectively, and $9,903,000 and $9,410,000 for the
nine months ended September 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 September 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
Roberts Realty Investors, Inc. owns and operates multifamily
residential properties as a self-administered, self-managed equity real estate
investment trust, or REIT. As of September 30, 2000, all eight of our existing
communities - River Oaks, Rosewood Plantation, Plantation Trace, Preston Oaks,
Highland Park, Crestmark, Addison Place (phase I), and Bradford Creek -
containing a total of 1,633 apartment units, are stabilized. 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. One of our communities achieved stabilization during
one of the periods for which our financial results are discussed below. That
community, Addison Place phase I, achieved stabilization as of June 1, 2000.
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.
During the periods for which our financial results are shown below, we sold:
o the 117-unit Bentley Place community on August 23, 1999; and
o the 146-unit Ivey Brook community on June 23, 2000.
In our discussion below we have noted where relevant the effects of the
stabilization of Addison Place phase I and the sales of Bentley Place and Ivey
Brook.
RESULTS OF OPERATIONS
Comparison of Three Months Ended September 30, 2000 to Three Months
Ended September 30, 1999. For the three months ended September 30, 2000, we
recorded net income of $171,000, or $0.03 per share, compared to net income of
$720,000, or $0.15 per share, for the three months ended September 30, 1999. Our
operating results are due to the following:
(a) a $303,000 increase in same-property net operating income;
(b) a $229,000 increase in net operating income from the first phase of
Addison Place; and
11
<PAGE>
(c) an increase in average stabilized occupancy from 95.2% to 97.1%;
offset by:
(d) the sale of Bentley Place in August 1999, which resulted in a
$1,023,000 gain, net of minority interest, in the 1999 period but
which we no longer owned in the 2000 period;
(e) the sale of Ivey Brook in June 2000, which we owned during the 1999
period but not in the 2000 period; and
(f) higher general and administrative expenses.
Our operating performance for all apartment communities is summarized in the
following table:
<TABLE>
<CAPTION>
PERCENTAGE
CHANGE FROM THREE MONTHS ENDED SEPTEMBER 30,
1999 TO 2000 2000 1999
------------ ---- ----
<S> <C> <C> <C>
Rental income 0.9% $ 4,603,000 $ 4,560,000
Total operating revenues 1.5% $ 4,933,000 $ 4,861,000
Property operating expenses (1) (3.0%) $ 1,682,000 $ 1,734,000
Net operating income (2) 4.0% $ 3,251,000 $ 3,127,000
General and administrative expenses 16.7% $ 572,000 $ 490,000
Depreciation of real estate assets (9.2%) $ 1,302,000 $ 1,434,000
Average stabilized occupancy (3) 1.9% 97.1% 95.2%
Operating expense ratio (4) (1.6%) 34.1% 35.7%
</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 Addison Place
beginning June 1, 2000, its stabilization date, and Bentley Place only
through August 23, 1999, the date it 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 September 30, 1999, includes an 8.6% increase in operating
revenues, an 11.4% increase in net operating income, a 3.7% increase in average
monthly rent per apartment home, higher operating margins, and a 2.0% increase
in stabilized occupancy from 94.7% to 96.7%. Seven of our communities were fully
stabilized during both the three-month periods ended September 30, 2000 and
1999: Bradford Creek, Crestmark, Highland Park, Plantation Trace, Preston Oaks,
River Oaks, and Rosewood Plantation.
12
<PAGE>
Same-property operating results for these communities are summarized in
the following table:
<TABLE>
<CAPTION>
PERCENTAGE
CHANGE FROM THREE MONTHS ENDED SEPTEMBER 30,
1999 TO 2000 2000 1999
------------ ---- ----
<S> <C> <C> <C>
Rental income 7.8% $ 4,168,000 $ 3,866,000
Total operating revenues 8.6% $ 4,473,000 $ 4,117,000
Property operating expenses (1) 3.6% $ 1,513,000 $ 1,460,000
Net operating income (2) 11.4% $ 2,960,000 $ 2,657,000
Average stabilized occupancy (3) 2.0% 96.7% 94.7%
Operating expense ratio (4) (1.7%) 33.8% 35.5%
Average monthly rent per apartment home 3.7% $ 964 $ 930
Lease renewal percentage (5) 1.5% 50.9% 49.4%
</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 September 30, 2000 and 1999.
Property operating revenue increased $72,000 or 1.5% from $4,861,000
for the three months ended September 30, 1999 to $4,933,000 for the three months
ended September 30, 2000. The increase in operating revenue is due primarily to
the following:
(1) a $334,000 increase in revenue from the first phase of Addison
Place; and
(2) a $356,000 increase in same-property operating revenue, which
includes a $33,000 increase in water sub-metering revenue;
offset by
(3) a decrease in revenue of approximately $160,000 due to the sale of
Bentley Place; and
(4) a decrease in revenue of approximately $459,000 due to the sale of
Ivey Brook.
Property operating expenses, excluding depreciation and general and
administrative expenses, decreased $52,000 or 3.0% from $1,734,000 for the three
months ended September 30, 1999 to $1,682,000 for the three months ended
September 30, 2000. The decrease in operating expenses is due primarily to the
following:
(1) a decrease in expenses of approximately $65,000 due to the sale of
Bentley Place; and
(2) a decrease in expenses of approximately $131,000 due to the sale of
Ivey Brook;
13
<PAGE>
offset by
(3) a $105,000 increase in expenses from the first phase of Addison
Place; and
(4) a $54,000 increase in same-property expenses.
General and administrative expenses increased $82,000 or 16.7% from
$490,000 for the three months ended September 30, 1999 to $572,000 for the three
months ended September 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
increased from 10.1% for the three months ended September 30, 1999 to 11.6% for
the three months ended September 30, 2000.
Depreciation expense decreased $132,000 or 9.2% from $1,434,000 for the
three months ended September 30, 1999 to $1,302,000 for the three months ended
September 30, 2000. The decrease is due to sales of Ivey Brook and Bentley
Place, offset by the depreciation expense from the first phase of Addison Place.
We record depreciation expense as apartment homes are completed and available
for occupancy.
Interest expense decreased $233,000 or 17.2% from $1,357,000 for the
three months ended September 30, 1999 to $1,124,000 for the three months ended
September 30, 2000 due primarily to the sale of Ivey Brook.
Comparison of Nine Months Ended September 30, 2000 to Nine Months Ended
September 30, 1999
For the nine months ended September 30, 2000, we recorded net income of
$2,511,000 or $0.51 per share, compared to net income of $752,000 or $0.16 per
share for the nine months ended September 30, 1999. The change in operating
results is due to the following:
(a) a $2,284,000 gain, net of minority interest, resulting from the
sale of the Ivey Brook community in June 2000;
(b) a $634,000 increase in same-property net operating income;
(c) a $612,000 increase in net operating income from the first phase of
Addison Place;
(d) decreased depreciation expense; and
(e) an increase in average stabilized occupancy from 95.2% to 95.4%;
offset by:
(f) a $1,023,000 gain, net of minority interest, resulting from the
sale of Bentley Place in August 1999; and
(g) the decrease in net operating income resulting from the sales of
Bentley Place and Ivey Brook.
14
<PAGE>
Our operating performance for all apartment communities is summarized in the
following table:
<TABLE>
<CAPTION>
PERCENTAGE
CHANGE FROM NINE MONTHS ENDED SEPTEMBER 30,
1999 TO 2000 2000 1999
------------ ---- ----
<S> <C> <C> <C>
Rental income 3.0% $ 14,009,000 $ 13,607,000
Total operating revenues 4.1% $ 15,072,000 $ 14,473,000
Property operating expenses (1) 2.1% $ 5,169,000 $ 5,063,000
Net operating income (2) 5.2% $ 9,903,000 $ 9,410,000
General and administrative expenses 4.6% $ 1,579,000 $ 1,510,000
Depreciation of real estate assets (1.8%) $ 4,005,000 $ 4,077,000
Average stabilized occupancy (3) 0.2% 95.4% 95.2%
Operating expense ratio (4) (0.7%) 34.3% 35.0%
</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, the date it was stabilized; Ivey Brook only
through June 23, 2000, the date it was sold; and Bentley Place only
through August 23, 1999, the date it 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 6.2%
increase in operating revenues, higher operating margins, a 7.8% increase in net
operating income, and a 4.3% increase in average monthly rent per apartment
home. Seven of our communities were fully stabilized during both the nine-month
periods ended September 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 NINE MONTHS ENDED SEPTEMBER 30,
1999 TO 2000 2000 1999
------------ ---- ----
<S> <C> <C> <C>
Rental income 5.1% $ 12,152,000 $ 11,563,000
Total operating revenues 6.2% $ 13,058,000 $ 12,295,000
Property operating expenses (1) 3.1% $ 4,336,000 $ 4,207,000
Net operating income (2) 7.8% $ 8,722,000 $ 8,088,000
Average stabilized occupancy (3) 0.4% 95.3% 94.9%
Operating expense ratio (4) (1.0%) 33.2% 34.2%
Average monthly rent per apartment home 4.3% $ 955 $ 916
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.
15
<PAGE>
(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, 2000 and 1999.
Total operating revenues increased $599,000 or 4.1% from $14,473,000
for the nine months ended September 30, 1999 to $15,072,000 for the nine months
ended September 30, 2000. The increase in operating revenue is due to the
following:
(1) a $985,000 increase in revenue from the first phase of Addison
Place; and
(2) a $763,000 increase in same-property operating revenue, which
includes a $116,000 increase in water sub-metering revenue;
offset by
(3) a decrease in revenue of approximately $701,000 due to the sale of
Bentley Place; and
(4) a decrease in revenue of approximately $459,000 due to the sale of
Ivey Brook.
Property operating expenses, excluding depreciation and general and
administrative expenses, increased $106,000 or 2.1% from $5,063,000 for the nine
months ended September 30, 1999 to $5,169,000 for the nine months ended
September 30, 2000. The increase in operating expenses is due to the following:
(1) a $373,000 increase in expenses from the first phase of Addison
Place; and
(2) a $129,000 increase in same-property expenses;
offset by:
(3) a $264,000 decrease in expenses due to the sale of Bentley Place;
and
(4) an $87,000 decrease in expenses due to the sale of Ivey Brook.
General and administrative expenses increased $69,000 or 4.6% from
$1,510,000 for the nine months ended September 30, 1999 to $1,579,000 for the
nine months ended September 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
increased from 10.4% for the nine months ended September 30, 1999 to 10.5% for
the nine months ended September 30, 2000.
Depreciation expense decreased $72,000 or 1.8% from $4,077,000 for the
nine months ended September 30, 1999 to $4,005,000 for the nine months ended
September 30, 2000. The decrease is due to the sales of Ivey Brook and Bentley
Place, offset by the depreciation expense from the first phase of Addison Place.
We record depreciation expense as apartment homes are completed and available
for occupancy.
Interest expense decreased $67,000 or 1.7% from $3,870,000 for the nine
months ended September 30, 1999 to $3,803,000 for the nine months ended
September 30, 2000, due to the sale of Ivey Brook.
16
<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.
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. 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.
LIQUIDITY AND CAPITAL RESOURCES
Comparison of Nine Months Ended September 30, 2000 to Nine Months Ended
September 30, 1999. Cash and cash equivalents increased $1,815,000 during the
nine months ended September 30, 2000 compared to a decrease of $1,799,000 during
the nine months ended September 30, 1999. The increase is due to an increase in
cash provided by operating and financing activities offset by an increase in
cash used in investing activities.
A primary source of our liquidity is cash flow from operations.
Operating cash flows have historically been determined by the number of our
apartment homes, rental rates and operating expenses for those apartment homes.
Net cash provided by operating activities increased $703,000 from $5,101,000
during the nine months ended September 30, 1999 to $5,804,000 during the nine
months ended September 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 sales of Ivey Brook and 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 used in investing activities increased $375,000 from
$3,842,000 during the nine months ended September 30, 1999 to $4,217,000 during
the nine months ended September 30, 2000. This increase is due to a $311,000
increase in new construction costs, and a $64,000 decrease in proceeds from
sales of real estate. We acquired no existing apartment communities during these
periods.
Net cash provided by financing activities increased $3,286,000 from net
cash used of $3,058,000 during the nine months ended September 30, 1999 to net
cash provided of $228,000 during the nine months ended September 30, 2000. This
increase is due primarily to the following:
(a) proceeds from mortgage notes payable held in escrow of
$843,000 during the nine months ended September 30, 2000
compared to proceeds from mortgage notes payable held in
escrow of $150,000 during the nine months ended September 30,
1999;
(b) the payoff of the Bentley Place mortgage note totaling
$4,166,000 (which includes a prepayment fee), upon the sale of
Bentley Place in August 1999, compared to no mortgage note
payoffs in 2000;
(c) the closing of a $2,000,000 land loan on our Old Norcross
property in February 2000;
(d) an increase of $723,000 in proceeds from construction loans,
from $7,866,000 during the nine months ended September 30,
1999 to $8,589,000 during the nine months ended September 30,
2000;
(e) the decrease of $2,189,000 in quarterly dividends and
distributions paid, from $7,031,000 for the nine months ended
September 30, 1999 to $4,842,000 for the nine months ended
September 30, 2000; and
17
<PAGE>
offset by:
(f) the payoff of the $3,000,000 land loan on Addison Place phase
II from proceeds of our construction loan for that community;
(g) net repayments of $1,235,000 on the $2,000,000 line of credit
during the nine months ended September 30, 2000, compared to
net borrowings of $1,850,000 during the nine months ended
September 30, 1999; and
(h) the increase of $484,000 in partnership profits interest paid,
from $242,000 for the nine months ended September 30, 1999 to
$726,000 for the nine months ended September 30, 2000.
As previously stated, we sold Ivey Brook on June 23, 2000 for
$14,550,000, with net cash proceeds of $7,256,000.
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:
<TABLE>
<CAPTION>
FIXED INTEREST PRINCIPAL
RATE AS OF OUTSTANDING
09/30/00 MATURITY 09/30/00
-------------- -------- -----------
<S> <C> <C> <C>
Addison Place - phase I 6.95% 11/15/09 $ 9,500,000
Bradford Creek 7.15 06/15/08 8,205,000
Crestmark 6.57 10/01/08 15,635,000
Highland Park 7.30 02/15/03 7,767,000
Plantation Trace 7.09 10/15/08 11,665,000
Preston Oaks 7.21 10/15/02 8,228,000
River Oaks 7.15 11/15/03 8,862,000
Rosewood Plantation 6.62 07/15/08 7,900,000
----------
$ 77,762,000
==========
</TABLE>
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 $ 70,701,000
==============
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, we will need to refinance that
debt
18
<PAGE>
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. The letter of
credit was released on August 1, 2000 when the property achieved 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.
Occupancy began 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 on 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, has 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%. At September 30, 2000,
$8,731,000 was outstanding under the loan.
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 plan to obtain a construction loan to repay the land loan
and to finance the construction of the project.
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 September 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 from 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 93,200 treasury shares for $696,000 during
the nine months ended September 30, 1999. We purchased 95,863 treasury shares
for $713,000 during the nine months ended September 30, 2000. From October 1,
1998 through September 30, 2000, we have repurchased 236,363 shares for
$1,767,000.
19
<PAGE>
REDEMPTIONS OF UNITS FOR CASH
During the nine months ended September 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 nine months ended September 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 established 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 nine months ended September 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 SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------- -------------------------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net income $ 171 $ 720 $ 2,511 $ 752
Minority interest of unitholders 86 (69) 149 (50)
Extraordinary items 0 184 68 184
Amortization (real estate related) 0 3 0 9
Loss on disposal of assets 19 19 79 47
Gains on sale of real estate asset 0 (1,023) (2,284) (1,023)
Depreciation expense 1,302 1,434 4,005 4,077
------- --------- ------- --------
Funds From Operations $ 1,578 $ 1,268 $ 4,528 $ 3,996
========= ========= ========= =========
Weighted average shares and units
outstanding during the period 7,364,793 7,432,748 7,391,467 7,457,009
</TABLE>
20
<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 September 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.
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 risk 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, Old Norcross, and Charlotte communities, and 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.
21
<PAGE>
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.
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.
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 September 30, 2000.
During the three months ended September 30, 2000, Roberts Realty
granted 1,467 shares of restricted stock to three employees as incentive
compensation. The unamortized book value of the grants equaled $11,000. 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 September 30, 1999, Roberts Realty granted
3,996 shares of restricted stock to five employees as incentive compensation.
22
<PAGE>
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,
2000, 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
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
------- -----------
27 Financial Data Schedule.
(b) We filed no reports on Form 8-K during the quarter ended
September 30, 2000.
23
<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: November 9, 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)
24
<PAGE>
EXHIBIT INDEX
EXHIBIT
NO. DESCRIPTION
------- -----------
27 Financial Data Schedule.
25
