ROBERTS REALTY INVESTORS INC - 10-Q Quarterly Report

U.S. SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

Form 10-Q


þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
		For the quarterly period ended September 30, 2003



o		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 incorporation or organization)		(I.R.S. Employer Identification Number)

8010 Roswell Road, Suite 280, Atlanta, Georgia		30350

(Address of Principal Executive Offices)		(Zip Code)

Registrant’s telephone number, Including Area Code: (770) 394-6000

Indicate by check 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 þ No o

Indicate by check whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

Yes o No þ

The number of outstanding shares of the registrant’s Common Stock on November 4, 2003 was 5,213,448 (net of shares held in treasury).

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		15
	ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES
		ABOUT MARKET RISK		30
	ITEM 4.	CONTROLS AND PROCEDURES		30

PART II OTHER INFORMATION				31
	ITEM 1.	LEGAL PROCEEDINGS		31
	ITEM 2.	CHANGES IN SECURITIES AND USE OF PROCEEDS		31
	ITEM 3.	DEFAULTS UPON SENIOR SECURITIES		31
	ITEM 4.	SUBMISSION OF MATTERS TO A
		VOTE OF SECURITY HOLDERS		31
	ITEM 5.	OTHER INFORMATION		32
	ITEM 6.	EXHIBITS AND REPORTS ON FORM 8-K		32

PART I

ITEM 1. FINANCIAL STATEMENTS.
ROBERTS REALTY INVESTORS, INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)


					September 30,			December 31,
					2003			2002

					(Unaudited)
ASSETS

REAL ESTATE ASSETS – At cost:
	Land				$	20,411		$	20,482
	Buildings and improvements					118,698			118,511
	Furniture, fixtures and equipment					13,368			13,072

						152,477			152,065
	Less accumulated depreciation					(29,308	)		(24,437	)

		Operating real estate assets				123,169			127,628
	Construction in progress and real estate under development					42,681			35,015

				Net real estate assets		165,850			162,643
CASH AND CASH EQUIVALENTS						9,099			5,542
RESTRICTED CASH						343			309
DEFERRED FINANCING COSTS – Net of accumulated amortization of $651 and $668 at September 30, 2003 and December 31, 2002, respectively						1,213			1,191
ASSETS HELD FOR SALE						—			8,570
OTHER ASSETS – Net						494			752

					$	176,999		$	179,007


LIABILITIES AND SHAREHOLDERS’ EQUITY

LIABILITIES:
	Mortgage notes payable				$	94,307		$	92,834
	Construction notes payable					38,101			27,891
	Land notes payable					3,000			6,700
	Swap contract liability					3,890			4,813
	Accounts payable and accrued expenses					2,128			2,178
	Due to Roberts Construction (including retainage payable of $940 and $1,122 at September 30, 2003 and December 31, 2002, respectively)					1,479			2,258
	Security deposits and prepaid rents					420			413
	Liabilities related to assets held for sale					—			10,080

			Total liabilities			143,325			147,167

COMMITMENTS AND CONTINGENCIES (Note 8)
MINORITY INTEREST OF UNITHOLDERS IN THE OPERATING PARTNERSHIP						9,361			9,361


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, 5,578,959 and 5,459,391 shares issued at September 30, 2003 and December 31, 2002, respectively					56			55
	Additional paid-in capital					25,987			25,408
	Less treasury shares, at cost (362,588 shares at September 30, 2003 and December 31, 2002)					(2,764	)		(2,764	)
	Unamortized restricted stock compensation					(79	)		(139	)
	Retained earnings					3,922			3,317
	Accumulated other comprehensive loss					(2,809	)		(3,398	)

				Total shareholders’ equity		24,313			22,479

					$	176,999		$	179,007

See notes to the consolidated financial statements.

ROBERTS REALTY INVESTORS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in Thousands, Except Per Share Amounts)


			Three Months Ended						Nine Months Ended
			September 30,						September 30,

			2003			2002			2003			2002

			(Unaudited)			(Unaudited)			(Unaudited)			(Unaudited)
OPERATING REVENUES:
	Rental operations		$	4,618		$	3,923		$	13,420		$	11,664
	Other operating income			298			241			861			716

		Total operating revenues		4,916			4,164			14,281			12,380

OPERATING EXPENSES:
	Personnel			542			520			1,467			1,336
	Utilities			297			292			867			809
	Repairs, maintenance and landscaping			347			282			924			807
	Real estate taxes			472			475			1,508			1,361
	Marketing, insurance and other			297			291			842			764
	General and administrative expenses			535			561			1,618			1,575
	Depreciation of real estate assets			1,586			1,671			5,086			4,764

		Total operating expenses		4,076			4,092			12,312			11,416

INCOME FROM OPERATIONS				840			72			1,969			964

OTHER INCOME (EXPENSE):
	Interest income			23			8			55			30
	Interest expense			(1,898	)		(1,600	)		(5,703	)		(4,586	)
	Loss on disposal of assets			(10	)		(12	)		(21	)		(23	)
	Amortization of deferred financing costs			(80	)		(71	)		(225	)		(239	)

		Total other expense		(1,965	)		(1,675	)		(5,894	)		(4,818	)

LOSS BEFORE MINORITY INTEREST AND GAIN (LOSS) ON SALE OF REAL ESTATE ASSETS				(1,125	)		(1,603	)		(3,925	)		(3,854	)
MINORITY INTEREST OF UNITHOLDERS IN THE OPERATING PARTNERSHIP				316			508			1,123			1,226

LOSS BEFORE GAIN (LOSS) ON SALE OF REAL ESTATE ASSETS				(809	)		(1,095	)		(2,802	)		(2,628	)
GAIN (LOSS) ON SALE OF REAL ESTATE ASSETS, net of minority interest of unitholders in the operating partnership				—			—			77			(102	)

LOSS FROM CONTINUING OPERATIONS				(809	)		(1,095	)		(2,725	)		(2,730	)
INCOME FROM DISCONTINUED OPERATIONS, net of minority interest of unitholders in the operating partnership (Note 4)				6,078			54			6,184			171

NET INCOME (LOSS)			$	5,269		$	(1,041	)	$	3,459		$	(2,559	)

INCOME (LOSS) PER COMMON SHARE – BASIC AND DILUTED:
	Loss from continuing operations		$	(0.16	)	$	(0.22	)	$	(0.53	)	$	(0.55	)
	Income from discontinued operations			1.17			0.01			1.20			0.03

	Net income (loss)		$	1.01		$	(0.21	)	$	0.67		$	(0.52	)

	Weighted average common shares – basic			5,195,129			4,931,425			5,156,597			4,921,298
	Weighted average common shares – diluted (effect of operating partnership units)			7,224,517			7,220,324			7,223,969			7,220,774

See notes to the consolidated financial statements.

ROBERTS REALTY INVESTORS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)


					Nine Months Ended
					September 30,

					2003			2002

					(Unaudited)			(Unaudited)
OPERATING ACTIVITIES:
	Net income (loss)				$	3,459		$	(2,559	)
	Adjustments to reconcile net income (loss) to net cash provided by operating activities of continuing operations:
		Income from discontinued operations, net of minority interest				(6,184	)		(171	)
		Minority interest of unitholders in the operating partnership				(1,123	)		(1,226	)
		(Gain) loss on sale of real estate assets				(77	)		102
		Loss on disposal of assets				21			23
		Depreciation and amortization				5,311			5,003
		Amortization of deferred compensation				38			58
	Change in assets and liabilities:
		Increase in restricted cash				(34	)		(9	)
		Decrease (increase) in other assets				258			(28	)
		(Decrease) increase in accounts payable and accrued expenses relating to operations				(50	)		1,122
		Increase (decrease) in security deposits and prepaid rent				7			(25	)

			Net cash provided by operating activities from continuing operations			1,626			2,290

			Net cash provided by operating activities from discontinued operations			377			574

				Net cash provided by operating activities		2,003			2,864
INVESTING ACTIVITIES:
	Proceeds from sale of real estate assets					7,313			—
	Acquisition and construction of real estate assets					(9,475	)		(15,536	)

			Net cash used in investing activities			(2,162	)		(15,536	)

FINANCING ACTIVITIES:
	Proceeds from mortgage notes payable					10,750			22,500
	Payoff of mortgage notes payable					(8,487	)		—
	Principal repayments on mortgage notes payable					(852	)		(752	)
	Payoff of land notes payable					(3,700	)		(1,300	)
	Payment of loan costs					(248	)		(290	)
	Proceeds from construction loans					10,210			15,161
	Payoff of construction loan					—			(22,500	)
	Proceeds from lines of credit					—			802
	Payoff of line of credit					—			(2,002	)
	Payment of dividends and distributions					(3,957	)		—

			Net cash provided by financing activities			3,716			11,619

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS						3,557			(1,053	)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD						5,542			2,617

CASH AND CASH EQUIVALENTS, END OF PERIOD					$	9,099		$	1,564

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
	Cash paid for interest				$	7,322		$	6,672

See notes to the consolidated financial statements.

ROBERTS REALTY INVESTORS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. BUSINESS AND ORGANIZATION

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 consisting primarily of multifamily apartment communities. Roberts Realty owns and operates multifamily residential properties as a self-administered, self-managed equity real estate investment trust (a “REIT”). Six of Roberts Realty’s seven completed apartment communities are located in the Atlanta metropolitan area, with the seventh located in Palm Beach County, Florida.

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 (the “operating partnership”), of which Roberts Realty is the sole general partner and had a 72.2% and a 70.6% ownership interest at September 30, 2003 and December 31, 2002, respectively. As the sole general partner and owner of a majority interest of the operating partnership, Roberts Realty controls the operating partnership.

At September 30, 2003, Roberts Realty owned seven completed multifamily apartment communities totaling 1,694 apartment homes (1,494 in the Atlanta metropolitan area and 200 in Palm Beach County, Florida); an additional 319 apartment homes were under construction in Charlotte, North Carolina; and a 220-unit apartment community in Atlanta was in the planning and design phase. In addition, Roberts Realty has a 39,907 square foot commercial office building and a 39,205 square foot retail center under construction at September 30, 2003.

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 is not subject to federal and state income taxation at the corporate level to the extent it distributes annually to its shareholders at least 90% of its taxable income, as defined in the Internal Revenue Code, and satisfies certain other requirements. Accordingly, the accompanying consolidated financial statements include no provision for federal and state income taxes.

Roberts Realty enters into contractual commitments in the normal course of business with Roberts Properties, Inc. (“Roberts Properties”) and Roberts Properties Construction, Inc. (“Roberts Construction”), which are affiliates of Roberts Realty that are wholly owned by Mr. Charles S. Roberts, the President, Chief Executive Officer, and Chairman of the Board of Roberts Realty. (Roberts Properties and Roberts Construction are sometimes referred to as the Roberts Companies.) These contracts relate to the development and construction of real estate assets. (See Note 7.)

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 interest of the unitholders in the operating partnership on the accompanying balance sheets is calculated based on the minority interest ownership percentage multiplied by the operating partnership’s net assets (total assets less total liabilities). The minority interest percentage reflects the

number of shares and units outstanding and will change as additional shares and units are issued and redeemed. The minority interest of the unitholders in the earnings or loss of the operating partnership on the accompanying statements of operations is calculated based on the weighted average number of units outstanding during the period, which was 28.1% and 31.7% for the three months ended September 30, 2003 and 2002, respectively, and 28.6% and 31.8% for the nine months ended September 30, 2003 and 2002, respectively. The minority interest of the unitholders was $9,361,000 at September 30, 2003 and $9,361,000 at December 31, 2002.

Holders of partnership units generally have the right to require the operating partnership to redeem their units for shares. Upon submittal of units for redemption, the operating partnership has the option either (a) to acquire those units in exchange for shares, on a one-for-one basis, or (b) to pay cash for those 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 future 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 that 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, 2003. 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, 2002.

3. ACQUISITIONS AND DISPOSITIONS

On February 27, 2001, Roberts Realty signed an exchange agreement with an intermediary to acquire land located at the intersection of Abbotts Bridge Road and Jones Bridge Road in front of its Addison Place community in Alpharetta, Georgia. The land was previously owned by Roberts Properties Jones Bridge, LLC, of which Mr. Roberts owned a 90% interest. Roberts Realty acquired the property on June 30, 2001 for approximately $4,460,000 and, in connection with these transactions, Roberts Properties Jones Bridge, LLC received $3,498,000 for the property. Roberts Realty is constructing a 39,205 square foot retail center on a 5-acre parcel of the property and paid Roberts Construction approximately $1,979,000 for construction-related work through September 30, 2003. Roberts Realty entered into a cost plus 5% contract with Roberts Construction to complete the retail center.

On June 28, 2001, Roberts Realty purchased approximately 10.9 acres from Roberts Properties to construct a 220-unit apartment community located adjacent to its former Highland Park community. The purchase price was $5,376,000 including closing costs, and the transaction was part of a Section 1031 tax-deferred exchange. The total cost of the project is estimated to be $24,000,000. Roberts Realty has retained Roberts Properties to complete the design and development work for a fee of $2,500 per unit, or $550,000. Roberts Realty has entered into a cost plus 10% contract with Roberts Construction to build the 220 apartment units.

On June 28, 2001, Roberts Realty purchased a partially constructed office building and approximately 3.9 acres of land from Roberts Properties for $2,147,000, including closing costs. Roberts Realty intends to complete construction and estimates total project costs of $6,300,000, including the amount paid at closing. Roberts Construction will complete construction of the building for a fixed price of $3,054,000 and will perform tenant finish work for approximately $600,000. The balance of $499,000 of project costs will be paid to unrelated parties. Roberts Construction will not earn a profit on the construction of the building or on the tenant finish work. Roberts Properties did not earn a profit on the sale of the land to Roberts Realty nor will it be paid a development fee for this project. Roberts Realty will use a portion of the building as its corporate headquarters and lease the remaining space to Roberts Properties, Roberts Construction and other unaffiliated tenants.

On February 28, 2003, Roberts Realty received an aggregate of $381,000 in connection with the sale of land, reimbursement for land improvements and conveyances of temporary construction easements to Fulton County, Georgia for road right-of-way projects at the Addison Place community, which resulted in a gain of $77,000, net of minority interest of unitholders in the operating partnership.

On August 6, 2003, Roberts Realty completed the sale of its Highland Park community for $17,988,000, resulting in a gain of approximately $6,070,000, net of minority interest of $2,432,000. Net sales proceeds were approximately $6,932,000 after deduction of $9,930,000 for the mortgage note payable, which was assumed by the buyer, closing costs and prorations totaling $227,000, and a partnership profits interest of $899,000 paid to Roberts Properties under the amended partnership agreement of the operating partnership.

4. DISCONTINUED OPERATIONS

For the three and nine months ended September 30, 2003 and 2002, income from discontinued operations relates to Roberts Realty’s 188-unit Highland Park community that Roberts Realty sold on August 6, 2003. The following table summarizes information for Highland Park as of December 31, 2002 (dollars in thousands, unaudited):


		December 31,
		2002

Land		$	1,827
Buildings and improvements			9,100
Furniture, fixtures and equipment			1,226

			12,153
Less accumulated depreciation			(3,793	)

	Operating real estate assets		8,360
Restricted cash			32
Deferred financing costs, net of accumulated amortization			157
Other assets			21

Assets held for sale		$	8,570

Mortgage note payable		$	9,991
Accounts payable and accrued expenses			44
Security deposits and prepaid rents			45

Liabilities related to assets held for sale		$	10,080

The following table summarizes revenue and expense information for Highland Park for the three and nine month periods ended September 30, 2003 and 2002 (dollars in thousands, unaudited):


			Three Months Ended						Nine Months Ended

			September 30,						September 30,

			2003			2002			2003			2002

OPERATING REVENUES:
	Rental operations		$	189		$	517		$	1,190		$	1,546
	Other operating income			15			28			62			82

		Total operating revenues		204			545			1,252			1,628
OPERATING EXPENSES:
	Personnel			29			62			116			170
	Utilities			11			32			63			82
	Repairs, maintenance and landscaping			16			29			77			100
	Real estate taxes			15			47			111			144
	Marketing, insurance and other			17			34			70			95
	Depreciation of real estate assets			41			120			247			356

		Total operating expenses		129			324			684			947
INCOME FROM OPERATIONS				75			221			568			681
OTHER EXPENSE:
	Interest expense			(65	)		(138	)		(402	)		(416	)
	Gain (loss) on disposal of assets			2			—			2			(2	)
	Amortization of deferred financing costs			(1	)		(4	)		(9	)		(12	)

		Total other expense		(64	)		(142	)		(409	)		(430	)
Income before minority interest				11			79			159			251
MINORITY INTEREST OF UNITHOLDERS IN THE OPERATING PARTNERSHIP				(3	)		(25	)		(45	)		(80	)

INCOME FROM OPERATIONS OF HIGHLAND PARK				8			54			114			171
GAIN ON SALE OF HIGHLAND PARK, net of minority interest of unitholders				6,070			—			6,070			—

INCOME FROM DISCONTINUED OPERATIONS			$	6,078		$	54		$	6,184		$	171

5. NOTES PAYABLE

Roberts Realty has four types of debt: unsecured lines of credit; mortgage notes secured by some of its apartment communities; construction/permanent loans secured by other apartment communities and properties; and land loans incurred to purchase undeveloped land. These loans are summarized below.

Lines of Credit. Roberts Realty has unsecured lines of credit with two banks, aggregating $3,000,000, to provide funds for short-term working capital needs. One facility, in the amount of $1,000,000, expires June 1, 2004. The other facility, in the amount of $2,000,000, expires August 1, 2004. At September 30, 2003, there were no borrowings under either line of credit.

Mortgage Notes. The permanent mortgage notes payable secured by Roberts Realty’s completed apartment communities at September 30, 2003 and December 31, 2002 were as follows:


			Fixed Interest			Principal Outstanding
			Rate as of
Property Securing Mortgage	Maturity		9/30/03			9/30/03		12/31/02

Addison Place – Phase I		11/15/09		6.95	%	$	9,206,000	$	9,289,000
Addison Place – Phase II (1)		5/10/05		8.62	%		22,306,000		22,427,000
Bradford Creek		6/15/08		7.15	%		7,891,000		7,976,000
Highland Park (2)		12/01/12		6.76	%		—		9,991,000
Plantation Trace		10/15/08		7.09	%		11,226,000		11,345,000
Preston Oaks		2/01/08		7.18	%		12,347,000		12,453,000
River Oaks (3)		11/15/03		7.15	%		—		8,579,000
River Oaks (3)		09/01/13		5.54	%		10,738,000		—
St. Andrews at the Polo Club		12/01/11		6.95	%		20,593,000		20,766,000

						$	94,307,000	$	102,826,000

	(1)		The interest rate on this loan has been synthetically fixed at the rate shown. See Note 6.

	(2)		The buyer of Highland Park assumed the mortgage note secured by that property upon its sale on August 6, 2003. Accordingly, the $9,930,000 principal balance on that date reduced the gross sales proceeds from the transaction.

	(3)		On August 21, 2003, Roberts Realty closed a $10,750,000 loan from L.J. Melody & Company, a mortgage banking firm, to refinance the River Oaks property. As planned, L.J. Melody & Company immediately assigned the loan to the Federal Home Loan Mortgage Corporation. Because the loan amount increased from $8,500,000 to $10,750,000, Roberts Realty received net cash proceeds of approximately $2,100,000. The terms of the loan include a ten-year term with a fixed interest rate of 5.54% payable in monthly installments of $61,307 based on a 30-year amortization schedule. Roberts Realty paid an origination fee of $74,875 to L.J. Melody & Company in connection with this loan. Dennis H. James, a director of Roberts Realty, is Managing Director – Southeast Region, with L.J. Melody & Company.

Construction Loans. On April 26, 2001, Roberts Realty closed a $17,000,000 construction/permanent loan to fund the construction of its 250-unit Veranda Chase community located in Atlanta. The loan is secured by the land and improvements, has a seven-year term, and bears an interest rate of the 30-day LIBOR plus 150 basis points. Monthly payments are interest only for the first three years of the loan and thereafter include principal and interest based on a 30-year amortization schedule for the remaining four years. At the closing of the loan, Roberts Realty entered into a separate agreement that synthetically fixed the interest rate at 7.38% (see Note 6) for the first five years of the loan. At September 30, 2003, $16,774,000 was drawn on the loan. This obligation will be reclassified with mortgage notes payable in the consolidated balance sheet when it is fully drawn and installment payments are established. Roberts Realty expects this to occur during the fourth quarter of 2003.

On June 28, 2001, Roberts Realty closed a $5,280,000 loan to fund the construction of the Northridge commercial office building. The loan is secured by the land and improvements, has a 35-month term, and bears interest at the 30-day LIBOR plus 200 basis points. At September 30, 2003, $3,468,000 was drawn on the loan. Roberts Realty intends to secure permanent financing on this property prior to the maturity date on this loan of June 1, 2004.

On February 21, 2002, Roberts Realty closed a $24,000,000 construction/permanent loan to fund the construction of its 319-unit apartment community in Charlotte, North Carolina. The loan is secured by the land and improvements and matures on March 10, 2006, with Roberts Realty having the option to exercise two additional one-year extensions. Monthly payments are interest only through March 10, 2005 at the 30-day LIBOR plus 200 basis points; thereafter, interest will be payable monthly on the same basis but principal will also be payable in monthly installments calculated using a 30-year amortization schedule and an assumed interest rate of 7.0%. At September 30, 2003, $14,673,000 was drawn on the loan.

On May 30, 2003, Roberts Realty closed a $6,500,000 construction loan to fund the construction of the Addison Place retail center. The loan is secured by the land and improvements and matures on April 30, 2006. Monthly payments are interest only at the 30-day LIBOR plus 185 basis points. At September 30, 2003, $3,186,000 was drawn on the loan.

Land Loans. On June 28, 2001, Roberts Realty closed a $3,000,000 land loan to fund the initial construction of the Northridge apartment community. The loan matures on July 10, 2004, is secured by the Northridge land, and bears an interest rate of the 30-day LIBOR plus 175 basis points. At September 30, 2003, $3,000,000 was drawn on the loan. Roberts Realty intends to roll the loan into a construction loan upon starting construction of the project.

Interest capitalized was $356,000 and $575,000 for the three months ended September 30, 2003 and 2002, respectively, and $981,000 and $1,775,000 for the nine months ended September 30, 2003 and 2002, respectively.

Real estate assets having a combined depreciated cost of $102,690,000 served as collateral for the outstanding mortgage debt at September 30, 2003.

6. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES.

Effective January 1, 2001, Roberts Realty adopted Statement of Financial Accounting Standards (“SFAS”) No. 133, “Accounting for Derivative Instruments and Hedging Activities,” as amended. SFAS No. 133 establishes accounting and reporting standards for derivative instruments and for hedging activities by requiring that all derivatives be recognized on the balance sheet and measured at fair value. Gains or losses resulting from changes in the fair value of derivatives are recognized in earnings or recorded in other comprehensive income, and recognized in the income statement when the hedged item affects earnings, depending on the purpose of the derivatives and whether they qualify for hedge accounting treatment.

Roberts Realty generally enters into fixed rate debt instruments. In certain situations, Roberts Realty may utilize derivative financial instruments in the form of interest rate swaps to hedge interest rate exposure on variable-rate debt. Roberts Realty does not use these instruments for trading or speculative purposes. Roberts Realty has entered into interest rate swap agreements to effectively fix the interest rates on its Addison Place – Phase II mortgage loan and its Veranda Chase construction/permanent loan (see Note 5 – Notes Payable). The swap agreements expire May 10, 2005 and May 5, 2006, respectively. The swap agreements have been designated as cash flow hedges and, accordingly, are recorded at fair value in the consolidated balance sheets, and the related gains or losses are deferred in shareholders’ equity, net of minority interest, as a component of other comprehensive income. Amounts received or paid in connection with the swap agreements are recognized as adjustments to interest related to the designated debt. Any ineffective portion of cash flow hedges are recognized immediately in earnings. Roberts Realty intends to hold the interest rate swap arrangements and related debt agreements until maturity. In the event the interest rate swap agreement is terminated, Roberts Realty would discontinue prospectively reclassifying amounts in accumulated other comprehensive income to earnings based upon when the hedged transactions are recognized in earnings.

At September 30, 2003, Roberts Realty recorded a liability of $3,890,000 relating to the estimated fair value of the swaps as a result of lower market interest rates. This resulted in a decrease in shareholders’ equity of $2,809,000 (accumulated other comprehensive income), net of minority interest of $1,081,000. At December 31, 2002, the liability relating to the estimated fair value of the swaps was $4,813,000, which resulted in a decrease in shareholders’ equity of $3,398,000 (accumulated other comprehensive income), net of minority interest of $1,415,000. Provided that Roberts Realty holds these instruments until maturity, as it intends, it will not pay any interest other than that stated in the loan and swap agreements. The liability recorded at September 30, 2003 will be reduced as Roberts Realty performs under these instruments, as the difference between the market interest rate and the fixed rates decreases, and as these obligations mature.

7. RELATED PARTY TRANSACTIONS

Roberts Realty has engaged the Roberts Companies, which are owned by Mr. Charles S. Roberts, its Chairman of the Board, Chief Executive Officer, and President, to perform services for the operating partnership. The Roberts Companies developed and constructed all of Roberts Realty’s existing communities, except (a) the 24-unit second phase of Preston Oaks, which was constructed by an independent contractor, and (b) the 200-unit St. Andrews at the Polo Club apartment community, which Roberts Realty acquired on November 6, 2001 while still in the lease-up phase. Roberts Construction is the general contractor of Roberts Realty’s Charlotte community and will oversee the completion of its construction. Roberts Construction began construction on the Addison Place retail center and the corporate office building before Roberts Realty purchased these properties, and Roberts Realty has retained Roberts Construction to finish construction. Roberts Realty retained Roberts Properties to develop the Northridge community and entered into a cost plus 10% contract with Roberts Construction to build the 220 apartment units.

Roberts Construction constructed Addison Place – Phase II and Veranda Chase under a cost plus 10% contract and is constructing the Charlotte apartment community under a cost plus 10% arrangement. In 2001, Roberts Realty entered into a cost plus 5% contract with Roberts Construction related to the construction of the 39,205 square foot Addison Place retail center. Also in 2001, Roberts Realty entered into a fixed price contract with Roberts Construction related to the construction of the Northridge corporate office building. At September 30, 2003, the remaining commitments under construction contracts were $8,185,000 as summarized in the following table:


	Actual/Estimated				Estimated
	Total				Remaining
	Contract		Amount		Contractual
	Amount		Incurred		Commitment

Addison Place retail center	$	2,483,000	$	2,101,000	$	382,000
Northridge Office Building		4,765,000		4,152,000		613,000
Charlotte		23,193,000		16,252,000		6,941,000
Veranda Chase		15,747,000		15,609,000		138,000
Addison Place – Phase II		21,927,000		21,816,000		111,000

	$	68,115,000	$	59,930,000	$	8,185,000

Roberts Realty plans to fund the remaining contractual commitments for the Addison Place retail center, Northridge Office Building, Charlotte and Veranda Chase commitments from the remaining amounts available to be borrowed under the construction loans secured by those properties. Roberts Realty plans to fund the remaining contractual commitment for Addison Place – Phase II from working capital.

At September 30, 2003 and December 31, 2002, the amounts due to Roberts Construction are summarized in the following table:


	September 30,		December 31,
	2003		2002

Addison Place retail center	$	21,000	$	6,000
Northridge Office Building		119,000		214,000
Charlotte		1,205,000		1,158,000
Veranda Chase		87,000		834,000
Addison Place – Phase II		47,000		46,000

Total	$	1,479,000	$	2,258,000

On August 21, 2003, Roberts Realty closed a $10,750,000 loan from L.J. Melody & Company, a mortgage banking firm, to refinance the River Oaks property. As planned, L.J. Melody & Company immediately assigned the loan to the Federal Home Loan Mortgage Corporation. Roberts Realty paid an origination fee of $74,875 to L.J. Melody & Company in connection with this loan. Dennis H. James, a director of Roberts Realty, is Managing Director – Southeast Region, with L.J. Melody & Company.

8. 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.

Under Roberts Realty’s bylaws, it is obligated to indemnify its officers and directors for certain events or occurrences arising as a result of the officer or director’s serving in such capacity. The maximum potential amount of future payments Roberts Realty could be required to make under this indemnification arrangement is unlimited. Roberts Realty currently has a directors and officers liability insurance policy that may limit its exposure and enable it to recover a portion of any future amounts paid. As a result of the insurance policy coverage, Roberts Realty believes the estimated fair value of this indemnification arrangement is minimal, and Roberts Realty has recorded no liabilities for this indemnification arrangement as of September 30, 2003.

See Note 7 for information about commitments under construction contracts with Roberts Construction.

9. SHAREHOLDERS’ EQUITY

Exchanges of Units for Shares. During the three months ended September 30, 2003 and 2002, a total of 47,284 and 23,880 partnership units, respectively, were exchanged for an equal number of shares. During the nine months ended September 30, 2003 and 2002, a total of 118,981 and 43,044 partnership units, respectively, were exchanged for an equal number of shares. Each exchange was reflected in the accompanying consolidated financial statements at book value.

Restricted Share Awards. During the three months ended September 30, 2003, Roberts Realty granted 1,563 shares of restricted stock with a market value of $11,000 to certain employees. Roberts Realty granted no shares during the three months ended September 30, 2002. During the nine months ended September 30, 2003 and 2002, Roberts Realty granted 2,873 and 3,034 shares, respectively, of restricted stock to certain employees. The market value of these restricted stock grants totaled $19,000 and $22,000, respectively. These transactions have been recorded as unamortized deferred compensation and are shown as a separate component of shareholders’ equity. These restricted shares vest 100% at the end of a three-year vesting period and are being amortized to compensation expense ratably over the

vesting period. During the nine months ended September 30, 2003, 6,466 shares of restricted stock with an original market value of $45,000 were forfeited by employees who terminated employment before vesting.

Dividends and Distributions. On August 27, 2003, Roberts Realty paid a special distribution of $0.55 per share/unit to shareholders/unitholders in the operating partnership of record on August 18, 2003. Roberts Realty paid the special distribution from the profit generated by the August 6, 2003 sale of the Highland Park community. Roberts Realty suspended the regular quarterly dividend payment for all four quarters of 2003 and all four quarters of 2002.

Earnings Per Share. Reconciliations of net income (loss) to common shareholders and weighted average shares and units used in Roberts Realty’s basic and diluted earnings per share computations are detailed below (dollars in thousands, unaudited).


	Three Months					Nine Months
	Ended September 30,					Ended September 30,

	2003		2002			2003		2002

Net income (loss) – basic	$	5,269	$	(1,041	)	$	3,459	$	(2,559	)
Minority interest of unitholders in the operating partnership in loss		2,119		(483	)		1,386		(1,194	)

Net income (loss) – diluted	$	7,388	$	(1,524	)	$	4,845	$	(3,753	)

Weighted average shares – basic		5,195,129		4,931,425			5,156,597		4,921,298
Dilutive securities – weighted average units		2,029,388		2,288,899			2,067,372		2,299,476

Weighted average shares – diluted (effect of operating partnership units)		7,224,517		7,220,324			7,223,969		7,220,774

10. 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, develops and constructs multifamily apartment communities located in Georgia and Florida and is constructing a community in North Carolina. These apartment communities generate rental revenue and other income through the leasing of apartment homes. Roberts Realty evaluates the performance of each of its apartment communities on an individual basis. Because each of the apartment communities has similar economic characteristics, residents, and products and services, however, Roberts Realty has aggregated the apartment communities 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, 2003 and 2002.

Roberts Realty is constructing a 39,205 square foot retail center located adjacent to its Addison Place apartment community and a 39,907 square foot office building located adjacent to its Northridge apartment land. Roberts Realty anticipates that when these assets begin to produce a material amount of revenue, Roberts Realty will account for them in a separate segment.

11. NEW ACCOUNTING PRONOUNCEMENTS

In June 2001, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 142, “Goodwill and Other Intangible Assets” (effective January 1, 2002), which specifies that goodwill and some intangible assets will no longer be amortized but instead will be subject to periodic impairment testing. The adoption of SFAS No. 142 did not have a material impact on Roberts Realty’s financial position or results of operations.

In August 2001, the FASB issued SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.” SFAS No. 144 establishes new rules for measuring impairment of long-lived assets and accounting for discontinued operations. SFAS No. 144 supersedes SFAS No. 121, “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of,” and among other factors, establishes criteria beyond that previously specified in SFAS No. 121 to determine when a long-lived asset is to be considered held for sale. On January 1, 2002, Roberts Realty adopted SFAS No. 144, which did not have a material effect on Roberts Realty’s financial position or results of operations.

In April 2002, the FASB issued SFAS No. 145 “Rescission of SFAS Nos. 4, 44, 64 and Amendment of SFAS No. 13 and Technical Corrections.” SFAS No. 145 prevents treatment as extraordinary, gains or losses on extinguishment of debt not meeting the criteria of Accounting Principles Board Opinion No. 30. SFAS No. 145 is effective for fiscal years beginning after May 15, 2002. The adoption will affect the classifications of those amounts in the financial statements of subsequent periods and comparative prior periods. Effective January 1, 2003, Roberts Realty adopted SFAS No. 145, which did not have a material impact on Roberts Realty’s financial position or results of operations.

In June 2002, the FASB issued SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities.” SFAS No. 146 addresses financial accounting and reporting for costs associated with exit or disposal activities and nullifies Emerging Issues Task Force (“EITF”) Issue No. 94-3, “Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including certain costs incurred in a restructuring).” SFAS No. 146 requires recognition of a liability for a cost associated with an exit or disposal activity when the liability is incurred as opposed to when the entity commits to an exit plan under EITF Issue No. 94-3. SFAS No. 146 is effective for exit or disposal activities initiated after December 31, 2002. Roberts Realty believes the adoption of SFAS No. 146 will not have a material impact on its financial position or results of operations.

In November 2002, the FASB issued FASB Interpretation No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others – an Interpretation of SFAS Nos. 5, 57, and 107, and rescission of FASB Interpretation No. 34” (“FIN 45”). FIN 45 elaborates on the disclosures to be made by a guarantor in its financial statements. It also requires a guarantor to recognize a liability for the fair value of the obligation undertaken in issuing the guarantee at the inception of a guarantee. The disclosure requirements of FIN 45 were effective for Roberts Realty as of December 31, 2002. The recognition provisions of FIN 45 will be applied on a prospective basis to guarantees issued after December 31, 2002. Roberts Realty does not expect the requirements of FIN 45 to have a material impact on its financial position or results of operations.

In January 2003, the FASB issued FASB Interpretation No. 46, “Consolidation of Variable Interest Entities, an interpretation of ARB No. 51” (“FIN 46”). FIN 46 requires consolidation of all legal entities in which the enterprise holds contractual, ownership or other monetary interests that change with changes in the entity’s net asset value (such entities being designated as variable interest entities) where the enterprise is deemed the primary beneficiary. The consolidation provisions of FIN 46 are applicable immediately to all variable interest entities created after January 31, 2003. For variable interest entities created prior to February 1, 2003, where the company is deemed to be the primary

beneficiary, consolidation of such entities was originally required for the interim period ending September 30, 2003 but was deferred by the FASB on October 9, 2003 until the fourth quarter of 2003. Information required to be disclosed in 2003 pursuant to FIN 46 includes the nature, purpose, size and activities of all variable interest entities where it is reasonably possible that such entities will be required to be consolidated by the company and the company’s maximum exposure to loss from these entities. Roberts Realty does not expect the requirements of FIN 46 to have a material impact on its financial position or results of operations.

In April 2003, the FASB issued SFAS No. 149, “Amendment of Statement 133 on Derivative Instruments and Hedging Activities.” SFAS No. 149 amends and clarifies the accounting for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities under SFAS No. 133. SFAS No. 149 is generally effective for contracts entered into or modified after September 30, 2003 and for hedging relationships designated after September 30, 2003. The adoption of SFAS No. 149 did not have a material impact on Roberts Realty’s results of operations, financial condition or cash flows.

In May 2003, the FASB issued SFAS No. 150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity.” SFAS No. 150 establishes standards for the classification and measurement of certain financial instruments with characteristics of both liabilities and equity. With the exception of certain measurement criteria deferred indefinitely by the FASB, SFAS No. 150 is effective for financial instruments entered into or modified after May 31, 2003 and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. The implementation of SFAS No. 150 is not expected to have a material impact on Roberts Realty’s results of operations, financial condition or cash flows.

12. COMPREHENSIVE INCOME (LOSS)

Roberts Realty’s comprehensive income (loss), which consists of net income (loss) and the change in the fair value of the swap contract payable, is calculated as follows (dollars in thousands, unaudited):


	Three Months					Nine Months
	Ended September 30,					Ended September 30,

	2003		2002			2003		2002

Net income (loss)	$	5,269	$	(1,041	)	$	3,459	$	(2,559	)
Change in the fair value of the swap contract payable, net of minority interest		417		(927	)		589		(1,342	)

Total comprehensive income (loss)	$	5,686	$	(1,968	)	$	4,048	$	(3,901	)

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION.

This report contains “forward-looking statements” within the meaning of the federal securities laws. 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. 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 and operate multifamily residential properties as a self-administered, self-managed equity real estate investment trust, or REIT. We conduct our business through Roberts Properties Residential, L.P., which we refer to as the operating partnership. The operating partnership owns all of our properties. As of October 21, 2003, we own a 72.2% interest in the operating partnership and are its sole general partner. We expect to continue to conduct our business in this organizational structure.

On August 6, 2003, we sold our Highland Park community for $17,988,000, resulting in a gain of approximately $6,070,000, net of minority interest of $2,432,000. Net sales proceeds were approximately $6,932,000 after deduction of:

(a) $9,930,000 for the mortgage note payable assumed by the buyer,

(b) closing costs and prorations totaling $227,000, and

(c) a partnership profits interest distribution of $899,000 paid to Roberts Properties under the partnership agreement of the operating partnership.

As of September 30, 2003, we own:

• seven existing multifamily apartment communities that are stabilized containing a total of 1,694 apartment homes;

• one community under construction that will contain 319 apartment homes;

• a 10.9-acre site currently in the planning and design phase on which we intend to build a 220-unit apartment community (referred to in this report as the Northridge apartment land);

• a 39,205 square foot retail center currently under construction; and

• a 39,907 square foot office building currently under construction, a part of which we intend to use as our corporate office building.

Seven of our communities – Addison Place, Bradford Creek, Plantation Trace, Preston Oaks, River Oaks, St. Andrews at the Polo Club, and Veranda Chase – totaling 1,694 apartment homes, are stabilized. Construction of our Charlotte community is progressing steadily, and we expect it to be substantially complete by the fourth quarter of 2003. We anticipate leasing activity at our Charlotte community to begin in the fourth quarter of 2003. All of our communities are located in metropolitan Atlanta, Georgia, except the Charlotte community and St. Andrews at the Polo Club, which is located in the city of Wellington, Palm Beach County, Florida.

We consider a community to have achieved stabilized occupancy on the earlier of (a) attainment of 95% occupancy as of the first day of any month, or (b) one year after completion of construction. As of November 2, 2003, our seven stabilized communities totaling 1,694 apartment homes had a physical occupancy rate of 93.0%.

We are constructing a 39,205 square foot retail center, located at the entrance to our Addison Place apartment community in Alpharetta, Georgia. We expect to complete construction in the fourth quarter of 2003. We are in the final stages of constructing an office building on Northridge Parkway in North Fulton County, Georgia. When construction of the office building is completed, which we expect to occur in the fourth quarter of 2003, we will use a portion of the building as our corporate headquarters and lease the remaining space to Roberts Properties, Inc., Roberts Properties Construction, Inc. and unaffiliated tenants. We are in the planning and design phase of the Northridge community.

In Atlanta, our primary market, negative job growth and historically low mortgage interest rates have contributed to lower demand for apartments, while the supply of multifamily units has increased. To maintain our physical occupancy, we offer residents incentives in the form of concessions and lower rents, which result in decreased revenues and income from operations. While we are hopeful for improvement in 2004, we expect rent concessions and lower rents to continue for the foreseeable future, and we cannot offer any assurances regarding the effects of these conditions on our business or when multifamily market conditions might improve. To the extent that these conditions continue and perhaps worsen, particularly in Atlanta, our business, operating results and liquidity will be affected adversely.

On August 27, 2003, we paid a special distribution of $0.55 per share/unit to shareholders/unitholders in the operating partnership of record on August 18, 2003. We paid the special distribution from the profit generated by the sale of Highland Park. Previously, our board of directors suspended payment of our regular quarterly dividend for all four quarters of 2003 and all four quarters of 2002. We cannot predict when we might be able to resume paying regular quarterly dividends.

In addition to experiencing lower occupancy and operating revenues at our existing properties, we are completing a major growth program with three properties under construction and one property in the planning and design phase. In total, these four new properties required an investment of approximately $13.1 million of our equity that is currently not producing any cash flow. The decreased revenues, together with our growth program, have resulted in decreased cash flow for our company. We believe that our cash flow from operations will begin to increase as we complete our new properties that are currently under development and construction. Until there is a sustained and broad-based economic recovery resulting in positive job growth, the Atlanta apartment market will remain soft, and we will continue to experience the negative effects of lower occupancy and lower rents.

We have engaged two entities owned by Mr. Charles S. Roberts, our Chairman of the Board, Chief Executive Officer, and President, to perform services for the operating partnership. These entities are Roberts Properties, Inc. and Roberts Properties Construction, Inc., which we sometimes refer to as the Roberts Companies. The Roberts Companies developed and constructed all of our existing communities, except (a) the 24-unit second phase of Preston Oaks, which was constructed by an independent contractor, and (b) the 200-unit St. Andrews at the Polo Club apartment community, which we acquired on November 6, 2001 while still in the lease-up phase. We expect that affiliates of Mr. Roberts will continue to develop and construct properties for us. Roberts Construction is the general contractor of our Charlotte community and will oversee the completion of its construction. Roberts Construction began construction on the Addison Place retail center and the corporate office building before we purchased these properties, and we have retained Roberts Construction to finish construction. We retained Roberts Properties to develop our Northridge community and we entered into a cost plus 10% contract with Roberts Construction to build the 220 apartment units.

Results of Operations

The comparisons below do not include the results of our Highland Park community, which we sold on August 6, 2003. Highland Park is reflected as assets and liabilities held for sale in the accompanying consolidated balance sheets and as income from discontinued operations in the accompanying consolidated statements of operations.

Comparison of the Three Months Ended September 30, 2003 to the Three Months Ended September 30, 2002.

For the three months ended September 30, 2003, we recorded net income of $5,269,000, or $1.01 per share, compared to a net loss of ($1,041,000) or ($0.21) per share, for the three months ended September 30, 2002. Our results include:

(a) a $6,070,000 gain, net of minority interest, from the sale of our Highland Park community on August 6, 2003;

(b) a $752,000 increase in total operating revenues due primarily to Addison Place, which completed its lease-up in September 2002, and Veranda Chase, which completed its lease-up in June 2003;

(c) a $85,000 decrease in depreciation expense due primarily to fully depreciated furniture, fixtures and equipment at Bradford Creek, Plantation Trace, Preston Oaks, and River Oaks partially offset by increased depreciation expense at Veranda Chase, where we began to record depreciation expense in June 2002; and

(d) a $26,000 decrease in general and administrative expenses due primarily to lower recruiting costs;

partially offset by:

(e) a $298,000 increase in interest expense due primarily to Veranda Chase, which was substantially completed during the fourth quarter of 2002; and

(f) a $95,000 increase in property operating expenses due primarily to Veranda Chase.

The operating performance for all our continuing apartment communities is summarized in the following table:


	Three Months Ended
	September 30,
							Percentage
	2003			2002			Change

Total operating revenues	$	4,916,000		$	4,164,000			18.1	%
Property operating expenses (1)		(1,955,000	)		(1,860,000	)		5.1	%
General and administrative expenses (2)		(535,000	)		(561,000	)		(4.6	%)
Depreciation of real estate assets		(1,586,000	)		(1,671,000	)		(5.1	%)

Income from operations	$	840,000		$	72,000			1,066.7	%
Average stabilized occupancy (3)		92.8	%		92.4	%		0.4	%

(1)		Property operating expenses include personnel, utilities, real estate taxes, insurance, maintenance, landscaping, marketing, and property administration expenses.

(2)		General and administrative expenses include salaries, legal, accounting and tax fees, marketing and printing fees, travel, director fees, and other costs.

(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%. In 2003, this calculation is based on seven stabilized properties; in 2002, this calculation is based on four stabilized properties.

Four of our continuing communities (Bradford Creek, Plantation Trace, Preston Oaks, and River Oaks) were fully stabilized during both the three-month periods ended September 30, 2003 and 2002. Our same-property operating revenues decreased by $55,000, or 2.3%, from $2,383,000 for the three months ended September 30, 2002 to $2,328,000 for the three months ended September 30, 2003. Our same-property operating expenses increased by $35,000, or 3.9% from $905,000 for the three months ended September 30, 2002 to $940,000 for the three months ended September 30, 2003. Stabilized occupancy for our same-property communities was 93.1% for the three months ended September 30, 2003 compared to 92.4% for the three months ended September 30, 2002.

The following discussion compares our statements of operations for the three months ended September 30, 2003 and 2002.

Total operating revenues increased $752,000 or 18.1% from $4,164,000 for the three months ended September 30, 2002 to $4,916,000 for the three months ended September 30, 2003. The increase in operating revenues is due primarily to the following:

(a) a $876,000 increase in operating revenues from Addison Place, which completed its lease-up in September 2002, and Veranda Chase, which completed its lease-up in June 2003;

partially offset by:

(b) a decrease in operating revenues of $55,000 from same-properties and of $78,000 from St. Andrews at the Polo Club, due primarily to higher rent concessions.

Property operating expenses increased $95,000 or 5.1% from $1,860,000 for the three months ended September 30, 2002 to $1,955,000 for the three months ended September 30, 2003. The increase is due primarily to increased operating expenses at Veranda Chase, which completed its lease-up in June 2003.

General and administrative expenses decreased $26,000 or 4.6% from $561,000 for the three months ended September 30, 2002 to $535,000 for the three months ended September 30, 2003. The decrease for the three months ended September 30, 2003 is due primarily to lower recruiting costs compared to the same period of 2002. General and administrative expenses as a percentage of operating revenues decreased from 13.5% for the three months ended September 30, 2002 to 10.9% for the three months ended September 30, 2003.

Depreciation expense decreased $85,000 or 5.1% from $1,671,000 for the three months ended September 30, 2002 to $1,586,000 for the three months ended September 30, 2003. The decrease for the three months ended September 30, 2003 is due primarily to fully depreciated furniture, fixtures and equipment at Bradford Creek, Plantation Trace, Preston Oaks, and River Oaks partially offset by increased depreciation expense at Veranda Chase, where we began to record depreciation expense in June 2002. We record depreciation expense as apartment homes are completed and available for occupancy.

Interest expense increased $298,000, or 18.6%, from $1,600,000 for the three months ended September 30, 2002 to $1,898,000 for the three months ended September 30, 2003, due primarily to the completion of

construction of Veranda Chase in the fourth quarter 2002 and the discontinued capitalization of construction period interest.

Comparison of the Nine Months Ended September 30, 2003 to the Nine Months Ended September 30, 2002.

For the nine months ended September 30, 2003, we recorded net income of $3,459,000, or $0.67 per share, compared to a net loss of ($2,559,000) or ($0.52) per share, for the nine months ended September 30, 2002. Our results include:

(a) a $6,070,000 gain, net of minority interest, from the sale of Highland Park on August 6, 2003; and

(b) a $1,901,000 increase in total operating revenues due primarily to Addison Place, which completed its lease-up in September 2002, and Veranda Chase, which completed its lease-up in June 2003;

partially offset by:

(c) a $1,117,000 increase in interest expense due primarily to Veranda Chase, which was substantially completed during the fourth quarter of 2002;

(d) a $531,000 increase in property operating expenses due primarily to Veranda Chase; and

(e) a $322,000 increase in depreciation expense due primarily to Veranda Chase.

The operating performance for all our continuing apartment communities is summarized in the following table:


	Nine Months Ended
	September 30,
							Percentage
	2003			2002			Change

Total operating revenues	$	14,281,000		$	12,380,000			15.4	%
Property operating expenses (1)		(5,608,000	)		(5,077,000	)		10.5	%
General and administrative expenses (2)		(1,618,000	)		(1,575,000	)		2.7	%
Depreciation of real estate assets		(5,086,000	)		(4,764,000	)		6.8	%

Income from operations	$	1,969,000		$	964,000			104.3	%
Average stabilized occupancy (3)		89.9	%		91.5	%		(1.6	%)

(1)		Property operating expenses include personnel, utilities, real estate taxes, insurance, maintenance, landscaping, marketing, and property administration expenses.

(2)		General and administrative expenses include salaries, legal, accounting and tax fees, marketing and printing fees, travel, director fees, and other costs.

(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%. In 2003, this calculation is based on six stabilized properties, in 2002, this calculation is based on four stabilized properties.

Four of our continuing communities (Bradford Creek, Plantation Trace, Preston Oaks, and River Oaks) were fully stabilized during both the nine-month periods ended September 30, 2003 and 2002. Our same-property operating revenues decreased by $215,000 or 3.0%, from $7,157,000 for the nine months ended

September 30, 2002 to $6,942,000 for the nine months ended September 30, 2003. Our same-property operating expenses increased by $6,000 or 0.2% from $2,599,000 for the nine months ended September 30, 2002 to $2,605,000 for the nine months ended September 30, 2003. Stabilized occupancy for our same-property communities was 91.6% for the nine months ended September 30, 2003 compared to 91.5% for the nine months ended September 30, 2002.

The following discussion compares our statements of operations for the nine months ended September 30, 2003 and 2002.

Total operating revenues increased $1,901,000 or 15.4% from $12,380,000 for the nine months ended September 30, 2002 to $14,281,000 for the nine months ended September 30, 2003. The increase in operating revenues is due primarily to the following:

(a) a $2,243,000 increase in operating revenues from Addison Place, which completed its lease-up in September 2002, and Veranda Chase, which completed its lease-up in June 2003;

partially offset by:

(b) a decrease in operating revenues of $215,000 from same-properties and of $134,000 from St. Andrews at the Polo Club, due primarily to higher rent concessions.

Property operating expenses increased $531,000 or 10.5% from $5,077,000 for the nine months ended September 30, 2002 to $5,608,000 for the nine months ended September 30, 2003. The increase is due primarily to increased operating expenses at Veranda Chase, which completed its lease-up in June 2003.

General and administrative expenses increased $43,000 or 2.7% from $1,575,000 for the nine months ended September 30, 2002 to $1,618,000 for the nine months ended September 30, 2003. The increase for the nine months ended September 30, 2003 is due primarily to higher legal costs compared to the same period of 2002. General and administrative expenses as a percentage of operating revenues decreased from 12.7% for the nine months ended September 30, 2002 to 11.3% for the nine months ended September 30, 2003.

Depreciation expense increased $322,000 or 6.8% from $4,764,000 for the nine months ended September 30, 2002 to $5,086,000 for the nine months ended September 30, 2003. The increase is due primarily to depreciation expense at Veranda Chase, where we began to record depreciation expense in June 2002. We record depreciation expense as apartment homes are completed and available for occupancy.

Interest expense increased $1,117,000 or 24.4% from $4,586,000 for the nine months ended September 30, 2002 to $5,703,000 for the nine months ended September 30, 2003, due primarily to the completion of construction of Veranda Chase in the fourth quarter 2002 and the discontinued capitalization of construction period interest.

Liquidity and Capital Resources

Comparison of Nine Months Ended September 30, 2003 to Nine Months Ended September 30, 2002. Cash and cash equivalents increased $3,557,000 during the nine months ended September 30, 2003 compared to a decrease of $1,053,000 during the nine months ended September 30, 2002. The change is due to a decrease in cash used in investing activities of $13,374,000 partially offset by a decrease in cash provided by financing activities of $7,903,000 and a decrease in cash provided by operating activities of $861,000.

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 decreased $861,000 from $2,864,000 during the nine months ended September 30, 2002 to $2,003,000 during the nine months ended September 30, 2003. The decrease in

cash flow from operations is due primarily to the payment of $542,000 in the first quarter of 2003 of the 2002 real estate taxes for St. Andrews at the Polo Club. We did not pay real estate taxes for that property in the first quarter of 2002 because we had recently purchased it in November 2001. Generally, depreciation and amortization expenses are the most significant adjustments to net income (loss) in arriving at cash provided by operating activities.

On August 27, 2003, we paid a special distribution of $0.55 per share/unit to shareholders/unitholders of record on August 18, 2003. We paid this special distribution from the profit generated by the sale of our 188-unit Highland Park community. Previously, our board of directors suspended payment of our regular quarterly dividend for all four quarters of 2003 and all four quarters of 2002. We cannot predict when we might be able to resume paying regular quarterly dividends.

In addition to experiencing lower occupancy and operating revenues at our existing properties, we are completing a major growth program with three properties under construction and one property in the planning and design phase. In total, these four new properties required an investment of approximately $13.1 million of our equity that is currently not producing any cash flow. The decreased revenues, together with our growth program, have resulted in decreased cash flow for our company. We believe that our cash flow from operations will begin to increase as we complete our new properties under development and construction. Until there is a sustained and broad-based economic recovery resulting in positive job growth, the Atlanta apartment market will remain soft, and we will continue to experience the negative effects of lower occupancy and lower rents.

Net cash used in investing activities decreased $13,374,000 from $15,536,000 during the nine months ended September 30, 2002 to $2,162,000 during the nine months ended September 30, 2003. This decrease is attributable to the following:

(a) decreased spending on construction during 2003 of $6,061,000, primarily due to completion of construction at Veranda Chase in the fourth quarter of 2002;

(b) net cash proceeds of $381,000 from the sale of land and reimbursement for land improvements for right-of-way projects at the Addison Place community in February 2003; and

(c) net cash proceeds of $6,932,000 from the sale of the Highland Park community on August 6, 2003.

Net cash provided by financing activities decreased $7,903,000 from $11,619,000 during the nine months ended September 30, 2002 to $3,716,000 during the nine months ended September 30, 2003. The decrease is due primarily to the following:

(a) $10,750,000 proceeds from mortgage notes payable in 2003 compared to $22,500,000 proceeds from mortgage notes payable in 2002;

(b) the $8,487,000 payoff of the mortgage note payable secured by the River Oaks community in the third quarter of 2003;

(c) a $5,717,000 decrease in construction loan borrowings for Veranda Chase due to completion of construction in the fourth quarter of 2002;

(d) the $3,957,000 payment of a special distribution in the third quarter of 2003;

(e) the $3,700,000 payoff of a land loan in the second quarter of 2003 compared to the $1,300,000 payoff of a land loan in the second quarter of 2002;

(f) a $2,329,000 decrease in construction loan borrowings for our Charlotte community; and

(g) no borrowings from our lines of credit in 2003 compared to $802,000 borrowed in 2002;

partially offset by:

(h) paying off $22,500,000 of construction loans during 2002;

(i) a $3,186,000 increase in construction loan borrowings for the Addison Place retail center, which was initially funded in May 2003; and

(j) using $2,002,000 to pay off a line of credit in the first quarter of 2002.

The table and accompanying footnotes on the following two pages explain our current debt structure, including for each loan: the principal balance at September 30, 2003 and at its scheduled maturity, interest rate, maturity date, and monthly principal and interest payment.

ROBERTS REALTY INVESTORS, INC.
DEBT SUMMARY SCHEDULE
(Listed in order of maturity)
September 30, 2003


			Interest		Maturity	Balance at		Monthly	Current
	Lender	Interest Terms	Rate		Date	Maturity		Payment	Balance

Office Building (1) (2)	Bank of North Georgia	LIBOR plus 200 b.p		3.12	06/01/04		5,280,000	Interest only		3,468,000
Revolving $1 million credit line (1)	Bank of North Georgia	LIBOR plus 200 b.p		4.00	06/01/04		0	Interest only		0
Northridge Apartments land loan (1)	SouthTrust Bank	LIBOR plus 175 b.p		2.87	07/10/04		3,000,000	Interest only		3,000,000
Revolving $2 million credit line (1)	Compass Bank	LIBOR plus 175 b.p		3.75	08/01/04		0	Interest only		0
Addison Place Phase II (3)	Wachovia Bank	Fixed-rate const/perm		8.62	05/10/05		22,071,000	Variable		22,306,000
Addison Place Shoppes (1)	Compass Bank	LIBOR plus 185 b.p		3.50	04/30/06		6,500,000	Interest only		3,186,000
Preston Oaks (4)	Freddie Mac	Fixed-rate permanent		7.18	02/01/08		11,694,000	$86,034		12,347,000
Charlotte (1) (2)	AmSouth Bank	LIBOR plus 200 b.p		3.12	03/10/08		19,642,000	Interest only		14,673,000
Veranda Chase (5)	Compass Bank	Fixed-rate const/perm		7.38	04/25/08		16,348,000	Interest only		16,774,000
Bradford Creek (6)	Nationwide Life	Fixed-rate permanent		7.15	06/15/08		7,290,000	$56,734		7,891,000
Plantation Trace (7)	Prudential Life	Fixed-rate permanent		7.09	10/15/08		10,313,000	$79,892		11,226,000
Addison Place Phase I (7)	Prudential Life	Fixed-rate permanent		6.95	11/15/09		8,387,000	$62,885		9,205,000
St. Andrews at the Polo Club (8)	State Farm	Fixed-rate permanent		6.95	12/01/11		18,138,000	$139,009		20,593,000
River Oaks (4)	Freddie Mac	Fixed-rate permanent		5.54	09/01/13		8,945,000	$61,307		10,738,000

Totals						$	137,608,000		$	135,407,000

(1)		The interest rate shown for variable-rate debt is as of September 30, 2003. The revolving $1 million credit line with Bank of North Georgia has an interest rate floor of 4.00%. The revolving $2 million credit line with Compass Bank has an interest rate floor of 3.75%. The construction loan on the Addison Place Shoppes with Compass Bank has an interest rate floor of 3.50%.

(2)		The construction loans for Charlotte and the office building are not yet fully drawn. The amount shown in the column titled “Balance at Maturity” assumes the full amount of each loan is drawn and required principal payments are made prior to maturity.

(3)		The loan secured by Addison Place Phase II is a floating rate loan with no prepayment premium for early termination. The interest rate on the loan was synthetically fixed with an interest rate swap agreement, which may result in a prepayment premium depending upon market interest rates. The prepayment premium (if any) is equal to the present value of the difference between the existing fixed interest rate on the interest rate swap agreement and the current replacement rate for a similar structure in the marketplace at the time of prepayment. There is no minimum prepayment fee. Remaining principal payments on the loan are scheduled as follows: 2003 — $24,000; 2004 — $152,000; 2005 — $59,000, plus the balloon payment due of $22,071,000.

(4)		The loans secured by the Preston Oaks and River Oaks communities may be prepaid upon the payment of a premium equal to the greater of (a) 1% of the outstanding principal balance, or (b) the product obtained by multiplying the amount of principal being prepaid by the excess (if any) of the monthly note rate over the assumed reinvestment rate by the present value factor. If the loans are prepaid after expiration of the yield maintenance period, but more than 90 days before the maturity date, the prepayment premium will be 1% of the unpaid principal balance of the notes. The loans may be prepaid in full during the last 90 days before their maturity dates without any prepayment premium.

(5)		The construction loan for Veranda Chase is not yet fully drawn. The amount shown in the column titled “Balance at Maturity” assumes the full amount of this loan is drawn and required principal payments are made prior to maturity. The loan is a floating rate loan with no prepayment premium for early termination. The interest rate on the loan was synthetically fixed with an interest rate swap agreement, which may result in a prepayment premium depending upon market interest rates. The prepayment premium (if any) is equal to the present value of the difference between the existing fixed interest rate on the interest rate swap agreement and the current replacement rate for a similar structure in the marketplace at the time of prepayment. There is no minimum prepayment fee.

(6)		The loan secured by the Bradford Creek community may be prepaid in full upon payment of a premium equal to the greater of (a) 1% of the outstanding principal balance of the loan or (b) the sum of the present value of the scheduled monthly payments to the maturity date and the present value of the balloon payment due on the maturity date, less the outstanding principal balance of the loan on the date of prepayment. The loan may be prepaid in full during the last 90 days before its maturity date without any prepayment premium.

(7)		Each of the loans secured by the Plantation Trace and Addison Place Phase I communities may be prepaid upon payment of a premium equal to the greater of (a) 1% of the principal amount being prepaid multiplied by a fraction having as its numerator the number of months to maturity and its denominator the number of months in the full term of the loan or (b) the present value of the loan less the amount of principal and accrued interest being repaid. Each loan may be prepaid in full during the last 30 days before its maturity date without any prepayment premium.

(8)		The St. Andrews at the Polo Club loan may not be prepaid for a period of three years (no earlier than December 1, 2004). We must give written notice at least 30 days before the date selected by us as the prepayment date, at which time the entire outstanding principal may be prepaid along with a prepayment fee equal to the greater of (a) 1% of the entire principal amount to be prepaid or (b) the sum of the present value of the scheduled monthly payments to the maturity date and the present value of the balloon payment due on the maturity date, less the outstanding principal balance of the loan on the date of prepayment. The loan may be prepaid in full after September 1, 2011 without any prepayment premium.

Our existing loans will require balloon payments, in addition to monthly principal amortization, coming due over the years 2004 to 2012 as summarized below:

Debt Maturity Schedule:


	Aggregate Balloon
Year	Payments		Applicable Communities or Properties

2004		$8,280,000	Northridge apartments land loan and Northridge office building
2005		22,071,000	Addison Place Phase II
2006		6,500,000	Addison Place Shoppes
2007		0
2008		65,287,000	Preston Oaks, Bradford Creek, Plantation Trace, Charlotte and Veranda Chase
2009		8,387,000	Addison Place Phase I
2010		0
2011		18,138,000	St. Andrews at the Polo Club
2012		0
2013		8,945,000	River Oaks

Total		$137,608,000

On August 21, 2003, we closed a $10,750,000 loan from L.J. Melody & Company, a mortgage banking firm, to refinance the River Oaks property. Because we increased the loan amount from $8,500,000 to $10,750,000, we received net cash proceeds of approximately $2,100,000. As planned, L.J. Melody immediately assigned the loan to the Federal Home Loan Mortgage Corporation. The terms of the loan include a ten-year term with a fixed interest rate of 5.54% payable in monthly installments of $61,307 based on a 30-year amortization schedule. Roberts Realty paid an origination fee of $74,875 to L.J. Melody & Company in connection with this loan. Dennis H. James, a director of Roberts Realty, is Managing Director — Southeast Region, with L.J. Melody & Company.

We have lines of credit with two banks aggregating $3,000,000 to provide funds for short-term working capital purposes. One facility, in the amount of $1,000,000, expires June 1, 2004. The other credit facility, in the amount of $2,000,000, expires August 1, 2004. No principal or interest is currently outstanding on either facility. Although we intend to renew both lines of credit, there is no assurance that the banks will offer renewals or, if those renewals are offered, that they will be on favorable terms.

On May 30, 2003, we closed a $6,500,000 construction loan to fund the construction of the Addison Place retail center. The loan is secured by the land and improvements and matures on April 30, 2006. Monthly payments are interest only at the 30-day LIBOR plus 185 basis points. At September 2003, $3,186,000 was drawn on the loan.

On June 28, 2001, we closed a $3,000,000 loan secured by the Northridge land located next to our former Highland Park community. We intend to construct a 220-unit apartment community on this property. The loan has a balance of $3,000,000 and matures on July 10, 2004. We intend to roll the loan into a construction loan upon starting construction of the project. There is no assurance that this financing will be available or, if it is available, that it will be on favorable terms.

With respect to the debt that matures after 2003, we anticipate that we will repay only a small portion of the principal of that indebtedness before maturity and that we will not have funds on hand sufficient to repay that indebtedness at maturity. We currently intend to refinance our maturing debt through debt financing collateralized by mortgages on individual communities or groups of communities, although we might also seek to raise funds through equity offerings if market conditions are favorable at the time.

We enter into contractual commitments in the normal course of business with Roberts Properties and Roberts Construction that relate to the development and construction of real estate assets.

Roberts Construction constructed Addison Place — Phase II and Veranda Chase under a cost plus 10% contract and is constructing the Charlotte apartment community under a cost plus 10% arrangement. In 2001, we entered into a cost plus 5% contract with Roberts Construction related to the construction of the 39,205 square foot Addison Place retail center. Also in 2001, we entered into a fixed price contract with Roberts Construction related to the construction of the Northridge corporate office building. At September 30, 2003, the remaining commitments under construction contracts were $8,185,000 as summarized in the following table:


	Actual/Estimated				Estimated
	Total				Remaining
	Contract		Amount		Contractual
	Amount		Incurred		Commitment

Addison Place retail center	$	2,483,000	$	2,101,000	$	382,000
Northridge Office Building		4,765,000		4,152,000		613,000
Charlotte		23,193,000		16,252,000		6,941,000
Veranda Chase		15,747,000		15,609,000		138,000
Addison Place — Phase II		21,927,000		21,816,000		111,000

	$	68,115,000	$	59,930,000	$	8,185,000

We plan to fund the remaining contractual commitments for the Addison Place retail center, Northridge Office Building, Charlotte and Veranda Chase commitments from the remaining amounts available to be borrowed under the construction loans secured by those properties. We plan to fund the remaining contractual commitment for Addison Place – Phase II from working capital.

Other than as described above, we anticipate that aggregate property rental and other operating revenues will be adequate to provide short-term (12 months) liquidity for the payment of direct rental operating expenses, and interest and scheduled amortization of principal on related mortgage notes payable. We intend to meet our other short-term liquidity requirements, including improvements and renovations at existing communities, generally through our net cash provided by operations. In the event cash provided by operations is not sufficient, we intend to curtail improvement and renovation activities or use cash reserves. We expect to meet our long-term liquidity requirements, including future developments and debt maturities, from the proceeds of construction and permanent loans.

Stock Repurchase Plan

Our board of directors has authorized the repurchase of up to 400,000 shares of our outstanding common stock. We repurchased 362,588 shares for $2,764,000 prior to 2002, and we currently have authority to repurchase an additional 37,412 shares. We did not repurchase any shares during 2002 or during the nine months ended September 30, 2003. We will continue to repurchase our shares from time to time by means of open market purchases depending on availability, our cash position, and the price per share.

Inflation

Substantially all apartment leases are for an initial term of not more than 12 to 14 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.

Supplemental Disclosure of Funds From Operations

Funds from Operations, or FFO, is defined by the National Association of Real Estate Investment Trusts as net income (loss), computed in accordance with generally accepted accounting principles, excluding gains (or losses) from debt restructuring and sales of property and non-recurring items, plus real estate related depreciation and amortization. We believe that FFO is an important measure of our operating performance. We believe that FFO provides useful information to investors because it is a widely accepted financial indicator used by certain investors and analysts to analyze and compare one equity REIT with another on the basis of operating performance. We compute FFO in accordance with the current NAREIT definition, which may differ from the methodology for calculating FFO utilized by other equity REITs and, accordingly, may not be comparable to those other REITs. FFO does not represent amounts available for management’s discretionary use for payment of 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 (loss) (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 believe that to gain a clear understanding of our operating results, FFO should be evaluated in conjunction with net income (loss) (determined in accordance with GAAP). The following table reconciles net income (loss) to FFO (dollars in thousands, unaudited).


	Three Months Ended						Nine Months Ended
	September 30,						September 30,

	2003			2002			2003			2002
	(Unaudited)			(Unaudited)			(Unaudited)			(Unaudited)

Net income (loss)	$	5,269		$	(1,041	)	$	3,459		$	(2,559	)
Minority interest of unitholders — continuing operations		(316	)		(508	)		(1,123	)		(1,226	)
Minority interest of unitholders — discontinued operations		3			25			45			80
Loss on disposal of assets		8			12			19			25
(Gain) loss on sale of real estate assets, net of minority interest		—			—			(77	)		102
Gain on sale of Highland Park, net of minority interest		(6,070	)		—			(6,070	)		—
Depreciation expense — continuing operations		1,586			1,671			5,086			4,764
Depreciation expense — discontinued operations		41			120			247			356

Funds from operations	$	521		$	279		$	1,586		$	1,542

Weighted average shares and units outstanding during the period		7,224,517			7,220,324			7,223,969			7,220,774

Critical Accounting Policies and Estimates

Our financial statements are prepared in accordance with accounting principles generally accepted in the United States, or GAAP. A summary of recent accounting pronouncements and the expected impact on our financial statements is included in Note 11 in Item 1 above. Because we are in the business of owning, operating, and developing apartment communities, our critical accounting policies relate to cost capitalization, asset impairment evaluation, and derivatives and hedging activities. The following is a summary of our overall accounting policy in this area.

Cost Capitalization

Our real estate assets are stated at the lower of depreciated cost or fair value, if deemed impaired. The cost of buildings and improvements includes interest, property taxes, insurance, and development fees incurred during the construction period. Ordinary repairs and maintenance are expensed as incurred; major replacements and betterments are capitalized and depreciated over their estimated useful lives. Depreciation expense is computed on a straight-line basis over the estimated useful lives of 27.5 years for buildings and improvements, 15 years for land improvements, and five to seven years for furniture, fixtures and equipment.

We capitalize direct costs associated with the development and construction of our apartment communities. We expense all internal costs associated with the acquisition of operating apartment communities to general and administrative expense in the period we incur those costs. We capitalize interest on qualifying construction expenditures in accordance with SFAS No. 34, “Capitalization of Interest Cost,” for our real estate assets. During the development and construction of a new apartment community, we capitalize related interest costs, as well as other carrying costs such as property taxes and insurance. We begin to expense these items as the construction of the community becomes substantially complete and the apartment homes become available for initial occupancy. Accordingly, we gradually reduce the amounts we capitalize as we complete construction. During the lease-up period, as a community transitions from initial occupancy to stabilized occupancy, revenues are generally insufficient to cover interest, carrying costs and operating expenses. The size and duration of this lease-up deficit depends on how quickly construction is completed, how quickly we lease the apartments available for occupancy, and what rent levels we achieve at the community. The leasing absorption of our communities in lease-up has been slowed as a result of the weakness in the national economy, particularly in our primary market of Atlanta. Capitalization of interest and other carrying costs such as property taxes and insurance ceases entirely upon completion of development and construction activities.

Asset Impairment Evaluation

We periodically evaluate our real estate assets to determine if there has been any impairment in the carrying value of the assets in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 144 “Accounting for the Impairment or Disposal of Long-Lived Assets.” SFAS No. 144 requires impairment losses to be recorded on long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets’ carrying amounts. At September 30, 2003, we did not own any real estate assets that meet the impairment criteria of SFAS No. 144.

Derivatives and Hedging Activities

We generally enter into fixed rate debt instruments. In certain situations, we may utilize derivative financial instruments in the form of interest rate swaps to hedge interest rate exposure on variable-rate debt. We do not use such instruments for trading or speculative purposes. We entered into two interest rate swap agreements to effectively fix the variable interest rates on our $22,500,000 Addison Place Phase II permanent loan and our $17,000,000 Veranda Chase construction loan.

Effective January 1, 2001, we adopted SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities,” as amended. SFAS No. 133 establishes accounting and reporting standards for derivative instruments and for hedging activities by requiring that all derivatives be recognized on the balance sheet and measured at fair value. Gains or losses resulting from changes in the fair value of derivatives are recognized in earnings or recorded in other comprehensive income, and recognized in the income statement when the hedged item affects earnings, depending on the purpose of the derivatives and whether they qualify for hedge accounting treatment. Our swap agreements have been designated as cash flow hedges and, accordingly, are recorded at fair value in the consolidated balance sheet, and the related gains or losses are deferred in stockholders’ equity, net of minority interest, as a component of other comprehensive income. Any ineffective portions of cash flow hedges are recognized immediately in earnings. We intend to hold the interest rate swap arrangements and related debt agreements until maturity. In the event the interest rate swap agreement is terminated, we would discontinue prospectively reclassifying amounts in accumulated other comprehensive income to earnings based upon when the hedged transactions are recognized in earnings. Amounts received or paid in connection with the swap agreements are recognized as adjustments to interest related to the designated debt. The net effect of this accounting is that interest on the variable rate-debt is generally recorded based on fixed interest rates.

In April 2003, the FASB issued SFAS No. 149, “Amendment of Statement 133 on Derivative Instruments and Hedging Activities.” SFAS No. 149 amends and clarifies the accounting for derivative

instruments, including certain derivative instruments embedded in other contracts, and for hedging activities under SFAS No. 133. SFAS No. 149 is generally effective for contracts entered into or modified after September 30, 2003 and for hedging relationships designated after September 30, 2003. The adoption of SFAS No. 149 did not have a material effect on our financial position, results of operations and cash flows.

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:

• The current unfavorable market and economic conditions in Atlanta, Charlotte and Palm Beach County could continue to depress our occupancy and rental rates and adversely affect our financial performance.

• Further unfavorable changes in market and occupancy conditions, perhaps as a result of war or terrorism, could depress our occupancy and rental rates even further and worsen our financial performance.

• Increased competition in the Atlanta, Charlotte and Palm Beach County markets could limit our ability to lease our apartment homes or increase or maintain rents.

• 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.

• Construction risks inherent in our Charlotte and Northridge communities, our corporate office building and our Addison Place retail center, and the other communities we may develop in the future, could adversely affect our financial performance.

• If we are unable to lease-up our Charlotte and Northridge communities, our Addison Place retail center, and our corporate office building as we expect, our financial performance will be adversely affected.

• We might not be able to obtain replacement financing to make balloon payments on our long-term debt as it matures, or we might have to refinance our debt on less favorable terms.

• We have approximately $24,327,000 in debt at September 30, 2003 that bears interest at variable interest rates (excluding loans on which we have synthetically fixed the interest rate), and if interest rates were to increase, our cash position and financial position could be materially and adversely affected.

• 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.

• Our operations could be adversely affected if we lose key personnel, particularly Mr. Roberts.

• We could incur costs from environmental problems even though we did not cause, contribute to or know about them.

• 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 from time to time fluctuate materially as a result of, among other things:

• our operating results;

• the operating results of other REITs, particularly apartment REITs; and

• changes in the performance of the stock market in general.

Investors should review the more detailed description of these and other possible risks contained in the “Risk Factors” section of the 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.

Because some of our debt bears interest at rates that are not fixed, 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 Notes 5 and 6 to the consolidated financial statements included in this report. Our Addison Place Phase II loan and our Veranda Chase construction loan, which had an aggregate outstanding principal balance of $39,080,000 at September 30, 2003, have synthetically fixed interest rates. When we closed each of these loans, we entered into interest rate swap agreements that synthetically fixed the interest rates. The fair value of those interest rate swap agreements at September 30, 2003 was a liability of $3,890,000 as a result of lower market interest rates compared to the synthetically fixed rates. If we hold these instruments until maturity, as we intend, we will not pay any interest other than that stated in the loan and swap agreements. The liability recorded at September 30, 2003 will be reduced, as we perform under these instruments, as the difference between the market interest rate and the fixed rates decrease, and as these obligations mature. All of our other permanent mortgage loans secured by our existing communities, with an aggregate outstanding principal balance of $72,001,000 at September 30, 2003, bear interest at fixed rates.

The remaining long-term construction loans, which had an aggregate outstanding balance of $21,327,000 at September 30, 2003, bear interest ranging from 185 to 200 basis points over the 30-day LIBOR rate. Our lines of credit and land loan, which had an aggregate outstanding balance of $3,000,000 at September 30, 2003, have interest rates ranging from 175 to 200 basis points over the 30-day LIBOR rate. Given our interest rate swap agreements and the current interest rate environment, we believe there is no material market risk exposure to our consolidated financial position, results of operations or cash flows.

ITEM 4. CONTROLS AND PROCEDURES.

As of September 30, 2003, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures as defined in Exchange Act Rule 13a-15(e). Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our current disclosure controls and procedures are effective as of September 30, 2003.

The design of any system of controls and procedures is based in part upon certain assumptions about the likelihood of future events. There can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions, regardless of how remote.

PART II

ITEM 1. LEGAL PROCEEDINGS.

Neither we, the operating partnership, nor our apartment communities, are presently subject to any material litigation nor, to our knowledge, is any material litigation threatened against any of them. Routine litigation arising in the ordinary course of business is not expected to result in any material losses to us and the operating partnership.

ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.

We did not modify, limit, or qualify the rights of the holders of common stock during the three or nine months ended September 30, 2003. During the three months ended September 30, 2003, we granted 1,563 shares of restricted stock to certain employees as incentive compensation. The market value of these restricted stock grants totaled $11,000. During the nine months ended September 30, 2003, we granted 2,873 shares of restricted stock to certain employees as incentive compensation. The market value of these restricted stock grants totaled $19,000. These transactions have been recorded as unamortized deferred compensation and are shown as a separate component of shareholders’ equity. These restricted shares vest 100% at the end of a three-year vesting period. The grants were exempt from registration as private placements under section 4(2) of the Securities Act of 1933, and these securities are deemed to be restricted securities for purposes of the Act. We affixed appropriate legends to the share certificates we issued in these transactions. The recipients of these securities had adequate access to information about us through their relationship with us. During the three months ended September 30, 2002, we did not grant any shares of restricted stock. During the nine months ended September 30, 2002, we granted 3,034 shares of restricted stock to certain employees as incentive compensation. The market value of these restricted stock grants totaled $22,000. During the nine months ended September 30, 2003, 6,466 shares of restricted stock with an original market value of $45,000 were forfeited by employees who terminated employment before vesting.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

None.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

We held our annual meeting on September 3, 2003 for the purpose of electing two members of our board of directors. We solicited proxies for the meeting 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 votes (there were no abstentions or broker non-votes):


	Votes		Votes
	For		Withheld

Charles S. Roberts		4,198,395		52,985
Charles R. Elliott		4,188,395		62,985

Our articles of incorporation require the board of directors to be divided into three classes. The terms of office of Mr. Ben A. Spalding and Mr. George W. Wray, Jr. expire at the annual meeting in 2004, and the terms of office of Mr. Dennis H. James and Mr. Wm. Jarell Jones expire at the annual meeting in 2005. Those directors continue in office.

ITEM 5. OTHER INFORMATION.

None.

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

10.4.1		Multifamily Note executed by Roberts Properties Residential, L.P. in favor of L.J. Melody & Company, dated August 21, 2003, in the original principal amount of $10,750,000 (River Oaks).*

10.4.2		Multifamily Deed to Secure Debt, Assignment of Rents and Security Agreement executed by Roberts Properties Residential, L.P. in favor of L.J. Melody & Company, dated August 21, 2003 (River Oaks).*

10.4.3		Replacement Reserve Agreement executed by Roberts Properties Residential, L.P. in favor of L.J. Melody & Company, dated August 21, 2003 (River Oaks).*

10.4.4		Guaranty executed by Roberts Realty Investors, Inc. in favor of L.J. Melody & Company, dated August 21, 2003 (River Oaks).*

10.10.5		Second Amendment to Loan Documents dated July 7, 2003 by and among Roberts Properties Residential, L.P., Roberts Realty Investors, Inc. and SouthTrust Bank (Northridge Community).

31		Certifications of Charles S. Roberts and Gregory D. Fletcher pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32		Certification of Charles S. Roberts and Gregory D. Fletcher pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. This exhibit is not “filed” for purposes of Section 18 of the Securities Exchange Act of 1934 but is instead furnished as provided by applicable rules of the Securities and Exchange Commission.

		* L.J. Melody & Company immediately assigned the loan and related documents to the Federal Home Loan Mortgage Corporation (Freddie Mac).

(b)		Current Reports on Form 8-K during the quarter ended September 30, 2003.

		Form 8-K dated and filed on August 14, 2003, furnishing under Item 9 the press release regarding the financial results of Roberts Realty Investors, Inc. for the three months ended June 30, 2003.

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 6, 2003



				ROBERTS REALTY INVESTORS, INC.



				By: /s/ Gregory D. Fletcher Gregory D. Fletcher, Chief Financial Officer (The Registrant’s Principal Financial and Chief Accounting Officer, who is duly authorized to sign this report)

EXHIBIT INDEX


Exhibit
No.		Description

10.4.1		Multifamily Note executed by Roberts Properties Residential, L.P. in favor of L.J. Melody & Company, dated August 21, 2003, in the original principal amount of $10,750,000 (River Oaks).*

10.4.2		Multifamily Deed to Secure Debt, Assignment of Rents and Security Agreement executed by Roberts Properties Residential, L.P. in favor of L.J. Melody & Company, dated August 21, 2003 (River Oaks).*

10.4.3		Replacement Reserve Agreement executed by Roberts Properties Residential, L.P. in favor of L.J. Melody & Company, dated August 21, 2003 (River Oaks).*

10.4.4		Guaranty executed by Roberts Realty Investors, Inc. in favor of L.J. Melody & Company, dated August 21, 2003 (River Oaks).*

10.10.5		Second Amendment to Loan Documents dated July 7, 2003 by and among Roberts Properties Residential, L.P., Roberts Realty Investors, Inc. and SouthTrust Bank (Northridge Community).

31		Certifications of Charles S. Roberts and Gregory D. Fletcher pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32		Certification of Charles S. Roberts and Gregory D. Fletcher pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. This exhibit is not “filed” for purposes of Section 18 of the Securities Exchange Act of 1934 but is instead furnished as provided by applicable rules of the Securities and Exchange Commission.

		* L.J. Melody & Company immediately assigned the loan and related documents to the Federal Home Loan Mortgage Corporation (Freddie Mac).

1.		BUSINESS AND ORGANIZATION

		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 consisting primarily of multifamily apartment communities. Roberts Realty owns and operates multifamily residential properties as a self-administered, self-managed equity real estate investment trust (a “REIT”). Six of Roberts Realty’s seven completed apartment communities are located in the Atlanta metropolitan area, with the seventh located in Palm Beach County, Florida.

		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 (the “operating partnership”), of which Roberts Realty is the sole general partner and had a 72.2% and a 70.6% ownership interest at September 30, 2003 and December 31, 2002, respectively. As the sole general partner and owner of a majority interest of the operating partnership, Roberts Realty controls the operating partnership.

		At September 30, 2003, Roberts Realty owned seven completed multifamily apartment communities totaling 1,694 apartment homes (1,494 in the Atlanta metropolitan area and 200 in Palm Beach County, Florida); an additional 319 apartment homes were under construction in Charlotte, North Carolina; and a 220-unit apartment community in Atlanta was in the planning and design phase. In addition, Roberts Realty has a 39,907 square foot commercial office building and a 39,205 square foot retail center under construction at September 30, 2003.

		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 is not subject to federal and state income taxation at the corporate level to the extent it distributes annually to its shareholders at least 90% of its taxable income, as defined in the Internal Revenue Code, and satisfies certain other requirements. Accordingly, the accompanying consolidated financial statements include no provision for federal and state income taxes.

		Roberts Realty enters into contractual commitments in the normal course of business with Roberts Properties, Inc. (“Roberts Properties”) and Roberts Properties Construction, Inc. (“Roberts Construction”), which are affiliates of Roberts Realty that are wholly owned by Mr. Charles S. Roberts, the President, Chief Executive Officer, and Chairman of the Board of Roberts Realty. (Roberts Properties and Roberts Construction are sometimes referred to as the Roberts Companies.) These contracts relate to the development and construction of real estate assets. (See Note 7.)

		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 interest of the unitholders in the operating partnership on the accompanying balance sheets is calculated based on the minority interest ownership percentage multiplied by the operating partnership’s net assets (total assets less total liabilities). The minority interest percentage reflects the

		number of shares and units outstanding and will change as additional shares and units are issued and redeemed. The minority interest of the unitholders in the earnings or loss of the operating partnership on the accompanying statements of operations is calculated based on the weighted average number of units outstanding during the period, which was 28.1% and 31.7% for the three months ended September 30, 2003 and 2002, respectively, and 28.6% and 31.8% for the nine months ended September 30, 2003 and 2002, respectively. The minority interest of the unitholders was $9,361,000 at September 30, 2003 and $9,361,000 at December 31, 2002.

		Holders of partnership units generally have the right to require the operating partnership to redeem their units for shares. Upon submittal of units for redemption, the operating partnership has the option either (a) to acquire those units in exchange for shares, on a one-for-one basis, or (b) to pay cash for those 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 future 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 that 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, 2003. 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, 2002.

3.		ACQUISITIONS AND DISPOSITIONS

		On February 27, 2001, Roberts Realty signed an exchange agreement with an intermediary to acquire land located at the intersection of Abbotts Bridge Road and Jones Bridge Road in front of its Addison Place community in Alpharetta, Georgia. The land was previously owned by Roberts Properties Jones Bridge, LLC, of which Mr. Roberts owned a 90% interest. Roberts Realty acquired the property on June 30, 2001 for approximately $4,460,000 and, in connection with these transactions, Roberts Properties Jones Bridge, LLC received $3,498,000 for the property. Roberts Realty is constructing a 39,205 square foot retail center on a 5-acre parcel of the property and paid Roberts Construction approximately $1,979,000 for construction-related work through September 30, 2003. Roberts Realty entered into a cost plus 5% contract with Roberts Construction to complete the retail center.

		On June 28, 2001, Roberts Realty purchased approximately 10.9 acres from Roberts Properties to construct a 220-unit apartment community located adjacent to its former Highland Park community. The purchase price was $5,376,000 including closing costs, and the transaction was part of a Section 1031 tax-deferred exchange. The total cost of the project is estimated to be $24,000,000. Roberts Realty has retained Roberts Properties to complete the design and development work for a fee of $2,500 per unit, or $550,000. Roberts Realty has entered into a cost plus 10% contract with Roberts Construction to build the 220 apartment units.

		On June 28, 2001, Roberts Realty purchased a partially constructed office building and approximately 3.9 acres of land from Roberts Properties for $2,147,000, including closing costs. Roberts Realty intends to complete construction and estimates total project costs of $6,300,000, including the amount paid at closing. Roberts Construction will complete construction of the building for a fixed price of $3,054,000 and will perform tenant finish work for approximately $600,000. The balance of $499,000 of project costs will be paid to unrelated parties. Roberts Construction will not earn a profit on the construction of the building or on the tenant finish work. Roberts Properties did not earn a profit on the sale of the land to Roberts Realty nor will it be paid a development fee for this project. Roberts Realty will use a portion of the building as its corporate headquarters and lease the remaining space to Roberts Properties, Roberts Construction and other unaffiliated tenants.

		On February 28, 2003, Roberts Realty received an aggregate of $381,000 in connection with the sale of land, reimbursement for land improvements and conveyances of temporary construction easements to Fulton County, Georgia for road right-of-way projects at the Addison Place community, which resulted in a gain of $77,000, net of minority interest of unitholders in the operating partnership.

		On August 6, 2003, Roberts Realty completed the sale of its Highland Park community for $17,988,000, resulting in a gain of approximately $6,070,000, net of minority interest of $2,432,000. Net sales proceeds were approximately $6,932,000 after deduction of $9,930,000 for the mortgage note payable, which was assumed by the buyer, closing costs and prorations totaling $227,000, and a partnership profits interest of $899,000 paid to Roberts Properties under the amended partnership agreement of the operating partnership.

4.		DISCONTINUED OPERATIONS

		For the three and nine months ended September 30, 2003 and 2002, income from discontinued operations relates to Roberts Realty’s 188-unit Highland Park community that Roberts Realty sold on August 6, 2003. The following table summarizes information for Highland Park as of December 31, 2002 (dollars in thousands, unaudited):

5.		NOTES PAYABLE

		Roberts Realty has four types of debt: unsecured lines of credit; mortgage notes secured by some of its apartment communities; construction/permanent loans secured by other apartment communities and properties; and land loans incurred to purchase undeveloped land. These loans are summarized below.

		Lines of Credit. Roberts Realty has unsecured lines of credit with two banks, aggregating $3,000,000, to provide funds for short-term working capital needs. One facility, in the amount of $1,000,000, expires June 1, 2004. The other facility, in the amount of $2,000,000, expires August 1, 2004. At September 30, 2003, there were no borrowings under either line of credit.

		Mortgage Notes. The permanent mortgage notes payable secured by Roberts Realty’s completed apartment communities at September 30, 2003 and December 31, 2002 were as follows:

		Construction Loans. On April 26, 2001, Roberts Realty closed a $17,000,000 construction/permanent loan to fund the construction of its 250-unit Veranda Chase community located in Atlanta. The loan is secured by the land and improvements, has a seven-year term, and bears an interest rate of the 30-day LIBOR plus 150 basis points. Monthly payments are interest only for the first three years of the loan and thereafter include principal and interest based on a 30-year amortization schedule for the remaining four years. At the closing of the loan, Roberts Realty entered into a separate agreement that synthetically fixed the interest rate at 7.38% (see Note 6) for the first five years of the loan. At September 30, 2003, $16,774,000 was drawn on the loan. This obligation will be reclassified with mortgage notes payable in the consolidated balance sheet when it is fully drawn and installment payments are established. Roberts Realty expects this to occur during the fourth quarter of 2003.

		On June 28, 2001, Roberts Realty closed a $5,280,000 loan to fund the construction of the Northridge commercial office building. The loan is secured by the land and improvements, has a 35-month term, and bears interest at the 30-day LIBOR plus 200 basis points. At September 30, 2003, $3,468,000 was drawn on the loan. Roberts Realty intends to secure permanent financing on this property prior to the maturity date on this loan of June 1, 2004.

		On February 21, 2002, Roberts Realty closed a $24,000,000 construction/permanent loan to fund the construction of its 319-unit apartment community in Charlotte, North Carolina. The loan is secured by the land and improvements and matures on March 10, 2006, with Roberts Realty having the option to exercise two additional one-year extensions. Monthly payments are interest only through March 10, 2005 at the 30-day LIBOR plus 200 basis points; thereafter, interest will be payable monthly on the same basis but principal will also be payable in monthly installments calculated using a 30-year amortization schedule and an assumed interest rate of 7.0%. At September 30, 2003, $14,673,000 was drawn on the loan.

		On May 30, 2003, Roberts Realty closed a $6,500,000 construction loan to fund the construction of the Addison Place retail center. The loan is secured by the land and improvements and matures on April 30, 2006. Monthly payments are interest only at the 30-day LIBOR plus 185 basis points. At September 30, 2003, $3,186,000 was drawn on the loan.

		Land Loans. On June 28, 2001, Roberts Realty closed a $3,000,000 land loan to fund the initial construction of the Northridge apartment community. The loan matures on July 10, 2004, is secured by the Northridge land, and bears an interest rate of the 30-day LIBOR plus 175 basis points. At September 30, 2003, $3,000,000 was drawn on the loan. Roberts Realty intends to roll the loan into a construction loan upon starting construction of the project.

		Interest capitalized was $356,000 and $575,000 for the three months ended September 30, 2003 and 2002, respectively, and $981,000 and $1,775,000 for the nine months ended September 30, 2003 and 2002, respectively.

		Real estate assets having a combined depreciated cost of $102,690,000 served as collateral for the outstanding mortgage debt at September 30, 2003.

6.		DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES.

		Effective January 1, 2001, Roberts Realty adopted Statement of Financial Accounting Standards (“SFAS”) No. 133, “Accounting for Derivative Instruments and Hedging Activities,” as amended. SFAS No. 133 establishes accounting and reporting standards for derivative instruments and for hedging activities by requiring that all derivatives be recognized on the balance sheet and measured at fair value. Gains or losses resulting from changes in the fair value of derivatives are recognized in earnings or recorded in other comprehensive income, and recognized in the income statement when the hedged item affects earnings, depending on the purpose of the derivatives and whether they qualify for hedge accounting treatment.

		Roberts Realty generally enters into fixed rate debt instruments. In certain situations, Roberts Realty may utilize derivative financial instruments in the form of interest rate swaps to hedge interest rate exposure on variable-rate debt. Roberts Realty does not use these instruments for trading or speculative purposes. Roberts Realty has entered into interest rate swap agreements to effectively fix the interest rates on its Addison Place – Phase II mortgage loan and its Veranda Chase construction/permanent loan (see Note 5 – Notes Payable). The swap agreements expire May 10, 2005 and May 5, 2006, respectively. The swap agreements have been designated as cash flow hedges and, accordingly, are recorded at fair value in the consolidated balance sheets, and the related gains or losses are deferred in shareholders’ equity, net of minority interest, as a component of other comprehensive income. Amounts received or paid in connection with the swap agreements are recognized as adjustments to interest related to the designated debt. Any ineffective portion of cash flow hedges are recognized immediately in earnings. Roberts Realty intends to hold the interest rate swap arrangements and related debt agreements until maturity. In the event the interest rate swap agreement is terminated, Roberts Realty would discontinue prospectively reclassifying amounts in accumulated other comprehensive income to earnings based upon when the hedged transactions are recognized in earnings.

		At September 30, 2003, Roberts Realty recorded a liability of $3,890,000 relating to the estimated fair value of the swaps as a result of lower market interest rates. This resulted in a decrease in shareholders’ equity of $2,809,000 (accumulated other comprehensive income), net of minority interest of $1,081,000. At December 31, 2002, the liability relating to the estimated fair value of the swaps was $4,813,000, which resulted in a decrease in shareholders’ equity of $3,398,000 (accumulated other comprehensive income), net of minority interest of $1,415,000. Provided that Roberts Realty holds these instruments until maturity, as it intends, it will not pay any interest other than that stated in the loan and swap agreements. The liability recorded at September 30, 2003 will be reduced as Roberts Realty performs under these instruments, as the difference between the market interest rate and the fixed rates decreases, and as these obligations mature.

7.		RELATED PARTY TRANSACTIONS

		Roberts Realty has engaged the Roberts Companies, which are owned by Mr. Charles S. Roberts, its Chairman of the Board, Chief Executive Officer, and President, to perform services for the operating partnership. The Roberts Companies developed and constructed all of Roberts Realty’s existing communities, except (a) the 24-unit second phase of Preston Oaks, which was constructed by an independent contractor, and (b) the 200-unit St. Andrews at the Polo Club apartment community, which Roberts Realty acquired on November 6, 2001 while still in the lease-up phase. Roberts Construction is the general contractor of Roberts Realty’s Charlotte community and will oversee the completion of its construction. Roberts Construction began construction on the Addison Place retail center and the corporate office building before Roberts Realty purchased these properties, and Roberts Realty has retained Roberts Construction to finish construction. Roberts Realty retained Roberts Properties to develop the Northridge community and entered into a cost plus 10% contract with Roberts Construction to build the 220 apartment units.

		Roberts Construction constructed Addison Place – Phase II and Veranda Chase under a cost plus 10% contract and is constructing the Charlotte apartment community under a cost plus 10% arrangement. In 2001, Roberts Realty entered into a cost plus 5% contract with Roberts Construction related to the construction of the 39,205 square foot Addison Place retail center. Also in 2001, Roberts Realty entered into a fixed price contract with Roberts Construction related to the construction of the Northridge corporate office building. At September 30, 2003, the remaining commitments under construction contracts were $8,185,000 as summarized in the following table:

		Roberts Realty plans to fund the remaining contractual commitments for the Addison Place retail center, Northridge Office Building, Charlotte and Veranda Chase commitments from the remaining amounts available to be borrowed under the construction loans secured by those properties. Roberts Realty plans to fund the remaining contractual commitment for Addison Place – Phase II from working capital.

		At September 30, 2003 and December 31, 2002, the amounts due to Roberts Construction are summarized in the following table:

		On August 21, 2003, Roberts Realty closed a $10,750,000 loan from L.J. Melody & Company, a mortgage banking firm, to refinance the River Oaks property. As planned, L.J. Melody & Company immediately assigned the loan to the Federal Home Loan Mortgage Corporation. Roberts Realty paid an origination fee of $74,875 to L.J. Melody & Company in connection with this loan. Dennis H. James, a director of Roberts Realty, is Managing Director – Southeast Region, with L.J. Melody & Company.

8.		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.

		Under Roberts Realty’s bylaws, it is obligated to indemnify its officers and directors for certain events or occurrences arising as a result of the officer or director’s serving in such capacity. The maximum potential amount of future payments Roberts Realty could be required to make under this indemnification arrangement is unlimited. Roberts Realty currently has a directors and officers liability insurance policy that may limit its exposure and enable it to recover a portion of any future amounts paid. As a result of the insurance policy coverage, Roberts Realty believes the estimated fair value of this indemnification arrangement is minimal, and Roberts Realty has recorded no liabilities for this indemnification arrangement as of September 30, 2003.

		See Note 7 for information about commitments under construction contracts with Roberts Construction.

9.		SHAREHOLDERS’ EQUITY

		Exchanges of Units for Shares. During the three months ended September 30, 2003 and 2002, a total of 47,284 and 23,880 partnership units, respectively, were exchanged for an equal number of shares. During the nine months ended September 30, 2003 and 2002, a total of 118,981 and 43,044 partnership units, respectively, were exchanged for an equal number of shares. Each exchange was reflected in the accompanying consolidated financial statements at book value.

		Restricted Share Awards. During the three months ended September 30, 2003, Roberts Realty granted 1,563 shares of restricted stock with a market value of $11,000 to certain employees. Roberts Realty granted no shares during the three months ended September 30, 2002. During the nine months ended September 30, 2003 and 2002, Roberts Realty granted 2,873 and 3,034 shares, respectively, of restricted stock to certain employees. The market value of these restricted stock grants totaled $19,000 and $22,000, respectively. These transactions have been recorded as unamortized deferred compensation and are shown as a separate component of shareholders’ equity. These restricted shares vest 100% at the end of a three-year vesting period and are being amortized to compensation expense ratably over the

		vesting period. During the nine months ended September 30, 2003, 6,466 shares of restricted stock with an original market value of $45,000 were forfeited by employees who terminated employment before vesting.

		Dividends and Distributions. On August 27, 2003, Roberts Realty paid a special distribution of $0.55 per share/unit to shareholders/unitholders in the operating partnership of record on August 18, 2003. Roberts Realty paid the special distribution from the profit generated by the August 6, 2003 sale of the Highland Park community. Roberts Realty suspended the regular quarterly dividend payment for all four quarters of 2003 and all four quarters of 2002.

		Earnings Per Share. Reconciliations of net income (loss) to common shareholders and weighted average shares and units used in Roberts Realty’s basic and diluted earnings per share computations are detailed below (dollars in thousands, unaudited).

10.		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, develops and constructs multifamily apartment communities located in Georgia and Florida and is constructing a community in North Carolina. These apartment communities generate rental revenue and other income through the leasing of apartment homes. Roberts Realty evaluates the performance of each of its apartment communities on an individual basis. Because each of the apartment communities has similar economic characteristics, residents, and products and services, however, Roberts Realty has aggregated the apartment communities 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, 2003 and 2002.

		Roberts Realty is constructing a 39,205 square foot retail center located adjacent to its Addison Place apartment community and a 39,907 square foot office building located adjacent to its Northridge apartment land. Roberts Realty anticipates that when these assets begin to produce a material amount of revenue, Roberts Realty will account for them in a separate segment.

11.		NEW ACCOUNTING PRONOUNCEMENTS

		In June 2001, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 142, “Goodwill and Other Intangible Assets” (effective January 1, 2002), which specifies that goodwill and some intangible assets will no longer be amortized but instead will be subject to periodic impairment testing. The adoption of SFAS No. 142 did not have a material impact on Roberts Realty’s financial position or results of operations.

		In August 2001, the FASB issued SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.” SFAS No. 144 establishes new rules for measuring impairment of long-lived assets and accounting for discontinued operations. SFAS No. 144 supersedes SFAS No. 121, “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of,” and among other factors, establishes criteria beyond that previously specified in SFAS No. 121 to determine when a long-lived asset is to be considered held for sale. On January 1, 2002, Roberts Realty adopted SFAS No. 144, which did not have a material effect on Roberts Realty’s financial position or results of operations.

		In April 2002, the FASB issued SFAS No. 145 “Rescission of SFAS Nos. 4, 44, 64 and Amendment of SFAS No. 13 and Technical Corrections.” SFAS No. 145 prevents treatment as extraordinary, gains or losses on extinguishment of debt not meeting the criteria of Accounting Principles Board Opinion No. 30. SFAS No. 145 is effective for fiscal years beginning after May 15, 2002. The adoption will affect the classifications of those amounts in the financial statements of subsequent periods and comparative prior periods. Effective January 1, 2003, Roberts Realty adopted SFAS No. 145, which did not have a material impact on Roberts Realty’s financial position or results of operations.

		In June 2002, the FASB issued SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities.” SFAS No. 146 addresses financial accounting and reporting for costs associated with exit or disposal activities and nullifies Emerging Issues Task Force (“EITF”) Issue No. 94-3, “Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including certain costs incurred in a restructuring).” SFAS No. 146 requires recognition of a liability for a cost associated with an exit or disposal activity when the liability is incurred as opposed to when the entity commits to an exit plan under EITF Issue No. 94-3. SFAS No. 146 is effective for exit or disposal activities initiated after December 31, 2002. Roberts Realty believes the adoption of SFAS No. 146 will not have a material impact on its financial position or results of operations.

		In November 2002, the FASB issued FASB Interpretation No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others – an Interpretation of SFAS Nos. 5, 57, and 107, and rescission of FASB Interpretation No. 34” (“FIN 45”). FIN 45 elaborates on the disclosures to be made by a guarantor in its financial statements. It also requires a guarantor to recognize a liability for the fair value of the obligation undertaken in issuing the guarantee at the inception of a guarantee. The disclosure requirements of FIN 45 were effective for Roberts Realty as of December 31, 2002. The recognition provisions of FIN 45 will be applied on a prospective basis to guarantees issued after December 31, 2002. Roberts Realty does not expect the requirements of FIN 45 to have a material impact on its financial position or results of operations.

		In January 2003, the FASB issued FASB Interpretation No. 46, “Consolidation of Variable Interest Entities, an interpretation of ARB No. 51” (“FIN 46”). FIN 46 requires consolidation of all legal entities in which the enterprise holds contractual, ownership or other monetary interests that change with changes in the entity’s net asset value (such entities being designated as variable interest entities) where the enterprise is deemed the primary beneficiary. The consolidation provisions of FIN 46 are applicable immediately to all variable interest entities created after January 31, 2003. For variable interest entities created prior to February 1, 2003, where the company is deemed to be the primary

		beneficiary, consolidation of such entities was originally required for the interim period ending September 30, 2003 but was deferred by the FASB on October 9, 2003 until the fourth quarter of 2003. Information required to be disclosed in 2003 pursuant to FIN 46 includes the nature, purpose, size and activities of all variable interest entities where it is reasonably possible that such entities will be required to be consolidated by the company and the company’s maximum exposure to loss from these entities. Roberts Realty does not expect the requirements of FIN 46 to have a material impact on its financial position or results of operations.

		In April 2003, the FASB issued SFAS No. 149, “Amendment of Statement 133 on Derivative Instruments and Hedging Activities.” SFAS No. 149 amends and clarifies the accounting for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities under SFAS No. 133. SFAS No. 149 is generally effective for contracts entered into or modified after September 30, 2003 and for hedging relationships designated after September 30, 2003. The adoption of SFAS No. 149 did not have a material impact on Roberts Realty’s results of operations, financial condition or cash flows.

		In May 2003, the FASB issued SFAS No. 150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity.” SFAS No. 150 establishes standards for the classification and measurement of certain financial instruments with characteristics of both liabilities and equity. With the exception of certain measurement criteria deferred indefinitely by the FASB, SFAS No. 150 is effective for financial instruments entered into or modified after May 31, 2003 and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. The implementation of SFAS No. 150 is not expected to have a material impact on Roberts Realty’s results of operations, financial condition or cash flows.

12.		COMPREHENSIVE INCOME (LOSS)

		Roberts Realty’s comprehensive income (loss), which consists of net income (loss) and the change in the fair value of the swap contract payable, is calculated as follows (dollars in thousands, unaudited):

	(a)		$9,930,000 for the mortgage note payable assumed by the buyer,

	(b)		closing costs and prorations totaling $227,000, and

	(c)		a partnership profits interest distribution of $899,000 paid to Roberts Properties under the partnership agreement of the operating partnership.

	•		seven existing multifamily apartment communities that are stabilized containing a total of 1,694 apartment homes;

	•		one community under construction that will contain 319 apartment homes;

	•		a 10.9-acre site currently in the planning and design phase on which we intend to build a 220-unit apartment community (referred to in this report as the Northridge apartment land);

	•		a 39,205 square foot retail center currently under construction; and

	•		a 39,907 square foot office building currently under construction, a part of which we intend to use as our corporate office building.

	(a)		a $6,070,000 gain, net of minority interest, from the sale of our Highland Park community on August 6, 2003;

	(b)		a $752,000 increase in total operating revenues due primarily to Addison Place, which completed its lease-up in September 2002, and Veranda Chase, which completed its lease-up in June 2003;

	(c)		a $85,000 decrease in depreciation expense due primarily to fully depreciated furniture, fixtures and equipment at Bradford Creek, Plantation Trace, Preston Oaks, and River Oaks partially offset by increased depreciation expense at Veranda Chase, where we began to record depreciation expense in June 2002; and

	(d)		a $26,000 decrease in general and administrative expenses due primarily to lower recruiting costs;

			partially offset by:

	(e)		a $298,000 increase in interest expense due primarily to Veranda Chase, which was substantially completed during the fourth quarter of 2002; and

	(f)		a $95,000 increase in property operating expenses due primarily to Veranda Chase.

	(a)		a $876,000 increase in operating revenues from Addison Place, which completed its lease-up in September 2002, and Veranda Chase, which completed its lease-up in June 2003;

			partially offset by:

	(b)		a decrease in operating revenues of $55,000 from same-properties and of $78,000 from St. Andrews at the Polo Club, due primarily to higher rent concessions.

	(a)		a $6,070,000 gain, net of minority interest, from the sale of Highland Park on August 6, 2003; and

	(b)		a $1,901,000 increase in total operating revenues due primarily to Addison Place, which completed its lease-up in September 2002, and Veranda Chase, which completed its lease-up in June 2003;

			partially offset by:

	(c)		a $1,117,000 increase in interest expense due primarily to Veranda Chase, which was substantially completed during the fourth quarter of 2002;

	(d)		a $531,000 increase in property operating expenses due primarily to Veranda Chase; and

	(e)		a $322,000 increase in depreciation expense due primarily to Veranda Chase.

	(a)		decreased spending on construction during 2003 of $6,061,000, primarily due to completion of construction at Veranda Chase in the fourth quarter of 2002;

	(b)		net cash proceeds of $381,000 from the sale of land and reimbursement for land improvements for right-of-way projects at the Addison Place community in February 2003; and

	(c)		net cash proceeds of $6,932,000 from the sale of the Highland Park community on August 6, 2003.

	(a)		$10,750,000 proceeds from mortgage notes payable in 2003 compared to $22,500,000 proceeds from mortgage notes payable in 2002;

	(b)		the $8,487,000 payoff of the mortgage note payable secured by the River Oaks community in the third quarter of 2003;

	(c)		a $5,717,000 decrease in construction loan borrowings for Veranda Chase due to completion of construction in the fourth quarter of 2002;

	(d)		the $3,957,000 payment of a special distribution in the third quarter of 2003;

	(e)		the $3,700,000 payoff of a land loan in the second quarter of 2003 compared to the $1,300,000 payoff of a land loan in the second quarter of 2002;

	(f)		a $2,329,000 decrease in construction loan borrowings for our Charlotte community; and

	(g)		no borrowings from our lines of credit in 2003 compared to $802,000 borrowed in 2002;

			partially offset by:

	(h)		paying off $22,500,000 of construction loans during 2002;

	(i)		a $3,186,000 increase in construction loan borrowings for the Addison Place retail center, which was initially funded in May 2003; and

	(j)		using $2,002,000 to pay off a line of credit in the first quarter of 2002.

	•		The current unfavorable market and economic conditions in Atlanta, Charlotte and Palm Beach County could continue to depress our occupancy and rental rates and adversely affect our financial performance.

	•		Further unfavorable changes in market and occupancy conditions, perhaps as a result of war or terrorism, could depress our occupancy and rental rates even further and worsen our financial performance.

	•		Increased competition in the Atlanta, Charlotte and Palm Beach County markets could limit our ability to lease our apartment homes or increase or maintain rents.

	•		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.

	•		Construction risks inherent in our Charlotte and Northridge communities, our corporate office building and our Addison Place retail center, and the other communities we may develop in the future, could adversely affect our financial performance.

	•		If we are unable to lease-up our Charlotte and Northridge communities, our Addison Place retail center, and our corporate office building as we expect, our financial performance will be adversely affected.

	•		We might not be able to obtain replacement financing to make balloon payments on our long-term debt as it matures, or we might have to refinance our debt on less favorable terms.

	•		We have approximately $24,327,000 in debt at September 30, 2003 that bears interest at variable interest rates (excluding loans on which we have synthetically fixed the interest rate), and if interest rates were to increase, our cash position and financial position could be materially and adversely affected.

	•		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.

	•		Our operations could be adversely affected if we lose key personnel, particularly Mr. Roberts.

	•		We could incur costs from environmental problems even though we did not cause, contribute to or know about them.

	•		Compliance or failure to comply with the Americans with Disabilities Act and other similar laws could result in substantial costs.

	•		our operating results;

	•		the operating results of other REITs, particularly apartment REITs; and

	•		changes in the performance of the stock market in general.