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EX-31 - EX-31 - ACRE REALTY INVESTORS INCa2204985zex-31.htm
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EX-4.1.1 - EX-4.1.1 - ACRE REALTY INVESTORS INCa2204985zex-4_11.htm
EX-4.1.2 - EX-4.1.2 - ACRE REALTY INVESTORS INCa2204985zex-4_12.htm
EX-4.2 - EX-4.2 - ACRE REALTY INVESTORS INCa2204985zex-4_2.htm

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

x

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended June 30, 2011

 

OR

 

o

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from                      to                     

 

Commission file number:  001-13183

 

ROBERTS REALTY INVESTORS, INC.

(Exact name of registrant as specified in its charter)

 

Georgia

 

58-2122873

(State or other jurisdiction of

 

(I.R.S. Employer

incorporation or organization)

 

Identification No.)

 

 

 

450 Northridge Parkway, Suite 302
Atlanta, Georgia

 

30350

(Address of principal executive offices)

 

(Zip Code)

 

 

(770) 394-6000

 

 

(Registrant’s telephone number, including area code)

 

 

 

 

 

(Former name, former address and former fiscal year, if changed since last report)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No o

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer o   Accelerated filer o

Non-accelerated filer o

Smaller reporting company x

 

(Do not check if a smaller reporting company)

 

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

 

Class

 

Outstanding at July 19, 2011

Common Stock, $.01 par value per share

 

10,357,831 shares

 

 

 




 

NOTE 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, as amended (the “Exchange Act”).  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,” “intend,” “estimate,” “anticipate,” “believe,” and similar expressions are intended to identify forward-looking statements.  We make forward-looking statements in the notes to the unaudited condensed consolidated financial statements included in this report and in Part I, Item 2 of this report.

 

Some of the forward-looking statements relate to our intent, belief, or expectations regarding our strategies and business plan, including development and construction of new multifamily communities, the possible sale of properties, the ways we may finance our future development and construction activities, and the extensions of our loans that mature in the next 12 months.  Other forward-looking statements relate to trends affecting our financial condition and results of operations, our anticipated capital needs and expenditures, and how we may address these needs.  These statements involve risks, uncertainties, and assumptions, including the financing environment for construction loans for new multifamily communities; our possible inability to negotiate extensions of our short-term debt; whether the employment rate in Atlanta will rebound as we expect; the challenging conditions for retail shopping centers and office buildings in our market area; uncertainties with respect to the closing of the sale of our Northridge property and our evaluation of strategic alternatives with the advice of Sandler O’Neill + Partners, L.P.; and other factors discussed in this report and in our other filings with the SEC.  These forward-looking statements are not guarantees of future performance and involve risks and uncertainties.  Actual results may differ materially from those that are anticipated in the forward-looking statements.  See Item 1A, Risk Factors, in our Annual Report on Form 10-K for the year ended December 31, 2010, as well as Part II, Item 1A, Risk Factors, below, for a description of some of the important factors that may affect actual outcomes.

 

For these forward-looking statements, we claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995.  You should not place undue reliance on the forward-looking statements, which speak only as of the date of this report.  All subsequent written and oral forward-looking statements attributable to us or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this section.  We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise.

 

*   *   *   *   *   *   *   *

 

Unless the context indicates otherwise, all references in this report to “Roberts Realty,” “we,” “us” and “our” refer to Roberts Realty Investors, Inc. and our subsidiary, Roberts Properties Residential, L.P., which we refer to as the operating partnership (and its subsidiaries), except that in the discussion of our capital stock and related matters, these terms refer solely to Roberts Realty Investors, Inc. and not to the operating partnership.  All references to the “the operating partnership” refer to Roberts Properties Residential, L.P. only.

 

2


 

PART I — FINANCIAL INFORMATION

 

ITEM 1.   FINANCIAL STATEMENTS.

 

ROBERTS REALTY INVESTORS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

 

 

 

June 30,

 

December 31,

 

 

 

2011

 

2010

 

 

 

(Unaudited)

 

(Unaudited)

 

ASSETS

 

 

 

 

 

REAL ESTATE ASSETS:

 

 

 

 

 

Land

 

$

9,268,326

 

$

9,268,326

 

Buildings and improvements

 

14,163,327

 

14,163,327

 

Furniture, fixtures and equipment

 

466,364

 

460,909

 

 

 

23,898,017

 

23,892,562

 

Less: accumulated depreciation

 

(4,417,441

)

(4,136,145

)

Operating real estate assets

 

19,480,576

 

19,756,417

 

Construction in progress and real estate under development

 

36,694,973

 

36,419,588

 

Real estate assets held for sale

 

5,363,789

 

6,517,179

 

 

 

 

 

 

 

Net real estate assets

 

61,539,338

 

62,693,184

 

 

 

 

 

 

 

CASH AND CASH EQUIVALENTS

 

2,065,017

 

3,716,393

 

 

 

 

 

 

 

RESTRICTED CASH

 

1,479,340

 

1,229,040

 

 

 

 

 

 

 

DEFERRED FINANCING & LEASING COSTS — Net of accumulated amortization of $204,583 and $190,193 at June 30, 2011 and December 31, 2010, respectively

 

154,626

 

180,559

 

 

 

 

 

 

 

LEASE INTANGIBLES — Net of accumulated amortization of $355,921 and $324,847 at June 30, 2011 and December 31, 2010, respectively

 

97,252

 

128,326

 

 

 

 

 

 

 

OTHER ASSETS — Net

 

145,144

 

231,831

 

 

 

 

 

 

 

Total assets

 

$

65,480,717

 

$

68,179,333

 

 

 

 

 

 

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

 

 

 

LIABILITIES:

 

 

 

 

 

Mortgage notes payable

 

$

16,531,304

 

$

16,697,509

 

Land notes payable

 

14,220,000

 

14,400,000

 

Accounts payable and accrued expenses

 

974,938

 

484,853

 

Due to affiliates

 

50,993

 

38,305

 

Security deposits and prepaid rents

 

120,849

 

80,036

 

 

 

 

 

 

 

Total liabilities

 

31,898,084

 

31,700,703

 

 

 

 

 

 

 

COMMITMENTS AND CONTINGENCIES (Note 11)

 

 

 

 

 

 

 

 

 

 

 

NONCONTROLLING INTEREST — OPERATING PARTNERSHIP

 

5,843,379

 

6,372,817

 

 

 

 

 

 

 

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, 10,357,831 and 10,349,065 shares issued and outstanding at June 30, 2011 and December 31, 2010, respectively

 

103,579

 

103,491

 

Additional paid-in capital

 

31,345,268

 

31,305,781

 

Treasury shares, at cost

 

(71,332

)

(71,332

)

Accumulated deficit

 

(3,638,261

)

(1,232,127

)

 

 

 

 

 

 

Total shareholders’ equity

 

27,739,254

 

30,105,813

 

 

 

 

 

 

 

 

 

$

65,480,717

 

$

68,179,333

 

 

See notes to the condensed consolidated financial statements.

 

3



 

ROBERTS REALTY INVESTORS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

 

 

 

Three Months Ended June 30,

 

Six Months Ended June 30,

 

 

 

2011

 

2010

 

2011

 

2010

 

 

 

(Unaudited)

 

(Unaudited)

 

(Unaudited)

 

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

OPERATING REVENUES:

 

 

 

 

 

 

 

 

 

Rental operations

 

$

316,495

 

$

417,693

 

$

659,000

 

$

843,105

 

Other operating income

 

50,360

 

69,625

 

106,230

 

139,148

 

 

 

 

 

 

 

 

 

 

 

Total operating revenues

 

366,855

 

487,318

 

765,230

 

982,253

 

 

 

 

 

 

 

 

 

 

 

OPERATING EXPENSES:

 

 

 

 

 

 

 

 

 

Personnel

 

 

2,640

 

312

 

13,905

 

Utilities

 

37,326

 

40,730

 

100,216

 

98,190

 

Repairs and maintenance

 

71,914

 

29,734

 

110,116

 

49,805

 

Real estate taxes

 

112,488

 

82,112

 

214,311

 

220,837

 

Marketing, insurance and other

 

18,802

 

22,139

 

36,922

 

41,140

 

General and administrative expenses

 

382,904

 

404,791

 

734,751

 

828,250

 

Impairment loss on real estate assets

 

1,386,480

 

 

1,386,480

 

 

(Gain) loss on disposal of assets

 

(1,200

)

3,753

 

(4,550

)

2,503

 

Depreciation and amortization

 

156,235

 

148,615

 

312,470

 

300,431

 

 

 

 

 

 

 

 

 

 

 

Total operating expenses

 

2,164,949

 

734,514

 

2,891,028

 

1,555,061

 

 

 

 

 

 

 

 

 

 

 

LOSS FROM OPERATIONS

 

(1,798,094

)

(247,196

)

(2,125,798

)

(572,808

)

 

 

 

 

 

 

 

 

 

 

OTHER INCOME (EXPENSE):

 

 

 

 

 

 

 

 

 

Interest income

 

4,078

 

10,341

 

9,375

 

25,219

 

Loss on extinguishment of debt

 

 

(2,989,396

)

 

(2,989,396

)

Gain on sale of available for sale securities

 

 

18,230

 

 

18,230

 

Interest expense

 

(396,518

)

(338,992

)

(736,273

)

(668,336

)

Amortization of deferred financing & leasing costs

 

(32,445

)

(33,636

)

(61,005

)

(69,219

)

 

 

 

 

 

 

 

 

 

 

Total other expense

 

(424,885

)

(3,333,453

)

(787,903

)

(3,683,502

)

 

 

 

 

 

 

 

 

 

 

LOSS FROM CONTINUING OPERATIONS

 

(2,222,979

)

(3,580,649

)

(2,913,701

)

(4,256,310

)

 

 

 

 

 

 

 

 

 

 

LOSS FROM DISCONTINUED OPERATIONS

 

 

(318,423

)

 

(522,514

)

 

 

 

 

 

 

 

 

 

 

NET LOSS

 

(2,222,979

)

(3,899,072

)

(2,913,701

)

(4,778,824

)

 

 

 

 

 

 

 

 

 

 

LOSS ATTRIBUTABLE TO NONCONTROLLING INTEREST

 

(386,798

)

(692,475

)

(507,567

)

(851,586

)

 

 

 

 

 

 

 

 

 

 

LOSS AVAILABLE FOR COMMON SHAREHOLDERS

 

$

(1,836,181

)

$

(3,206,597

)

$

(2,406,134

)

$

(3,927,238

)

 

 

 

 

 

 

 

 

 

 

LOSS PER COMMON SHARE — BASIC AND DILUTED (Note 6):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss from continuing operations — basic and diluted

 

$

(0.17

)

$

(0.29

)

$

(0.23

)

$

(0.34

)

Loss from discontinued operations — basic and diluted

 

 

(0.02

)

 

(0.04

)

Net loss — basic and diluted

 

$

(0.17

)

$

(0.31

)

$

(0.23

)

$

(0.38

)

 

See notes to the condensed consolidated financial statements.

 

4



 

ROBERTS REALTY INVESTORS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

 

 

 

Six Months Ended June 30,

 

 

 

2011

 

2010

 

 

 

(Unaudited)

 

(Unaudited)

 

 

 

 

 

 

 

OPERATING ACTIVITIES:

 

 

 

 

 

Net loss

 

$

(2,913,701

)

$

(4,778,824

)

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

Loss from discontinued operations

 

 

522,514

 

Depreciation and amortization

 

373,475

 

369,650

 

Loss on extinguishment of debt

 

 

2,989,396

 

Impairment loss on real estate assets

 

1,386,480

 

 

Gain on sale of available for sale securities

 

 

(18,230

)

Amortization of deferred compensation

 

17,704

 

 

Amortization of above and below market leases

 

(5,950

)

(5,845

)

(Gain) loss on disposal of assets

 

 

2,503

 

Decrease (increase) in other assets

 

92,536

 

(4,768

)

Decrease in due to affiliates

 

(7,672

)

(10,959

)

Increase in accounts payable, accrued expenses and other liabilities relating to operations

 

509,492

 

175,110

 

 

 

 

 

 

 

Net cash used in operating activities from continuing operations

 

(547,636

)

(759,453

)

Net cash used in operating activities from discontinued operations

 

 

(125,773

)

 

 

 

 

 

 

Net cash used in operating activities

 

(547,636

)

(885,226

)

 

 

 

 

 

 

INVESTING ACTIVITIES:

 

 

 

 

 

Sale of available for sale securities

 

 

46,685

 

Payment of leasing costs

 

(5,455

)

(720

)

Increase in restricted cash

 

(250,300

)

(594,056

)

Increase in accounts payable, accrued expenses and other liabilities relating to investing activities

 

40,987

 

2,897

 

Development and construction of real estate assets

 

(508,475

)

(736,397

)

 

 

 

 

 

 

Net cash used in investing activities from continuing operations

 

(723,243

)

(1,281,591

)

Net cash used in investing activities from discontinued operations

 

 

(6,600

)

 

 

 

 

 

 

Net cash used in investing activities

 

(723,243

)

(1,288,191

)

 

 

 

 

 

 

FINANCING ACTIVITIES:

 

 

 

 

 

Principal repayments on mortgage notes payable

 

(166,205

)

(215,049

)

Principal repayments of land notes payable

 

(180,000

)

 

Payment of loan costs

 

(35,071

)

(60,089

)

Increase in accounts payable, accrued expenses and other liabilities relating to financing activities

 

779

 

6,484

 

 

 

 

 

 

 

Net cash used in financing activities

 

(380,497

)

(268,654

)

 

 

 

 

 

 

NET DECREASE IN CASH AND CASH EQUIVALENTS

 

(1,651,376

)

(2,442,071

)

 

 

 

 

 

 

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD

 

$

3,716,393

 

$

7,905,771

 

 

 

 

 

 

 

CASH AND CASH EQUIVALENTS, END OF PERIOD

 

$

2,065,017

 

$

5,463,700

 

 

 

 

 

 

 

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:

 

 

 

 

 

Cash paid for interest, net of capitalized interest of $81,940 and $326,872 for the six months ended June 30, 2011 and June 30, 2010, respectively

 

$

601,232

 

$

739,977

 

 

 

 

 

 

 

SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING ACTIVITIES AND FINANCING ACTIVITIES:

 

 

 

 

 

 

 

 

 

 

 

Development and construction of real estate assets due to but not paid to affiliates

 

$

20,360

 

$

12,132

 

 

 

 

 

 

 

Conversion of operating partnership units to common shares

 

$

17,970

 

$

111,606

 

 

 

 

 

 

 

Adjustments to noncontrolling interest in the operating partnership

 

$

(3,901

)

$

(153,722

)

 

 

 

 

 

 

NON-CASH SALE OF LAND HELD FOR INVESTMENT:

 

 

 

 

 

 

 

 

 

 

 

Sale of land held for investment

 

$

 

$

9,009,124

 

 

 

 

 

 

 

Decrease in other assets — net

 

$

 

$

64

 

 

 

 

 

 

 

Extinguishment of land notes payable

 

$

 

$

(6,019,792

)

 

 

 

 

 

 

NON-CASH SALE OF REAL ESTATE ASSETS RELATED TO DISCONTINUED OPERATIONS:

 

 

 

 

 

 

 

 

 

 

 

Sale of real estate assets related to discontinued operations

 

$

 

$

5,627,178

 

 

 

 

 

 

 

Decrease in assets related to discontinued operations

 

$

 

$

122,778

 

 

 

 

 

 

 

Extinguishment of liabilities related to discontinued operations

 

$

 

$

(6,019,792

)

 

See notes to the condensed consolidated financial statements.

 

5


 

ROBERTS REALTY INVESTORS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

1.                                      BUSINESS AND ORGANIZATION

 

Roberts Realty Investors, Inc. (“Roberts Realty”), a Georgia corporation, was formed on July 22, 1994 to serve as a vehicle for investments in, and ownership of, a professionally managed real estate portfolio of multifamily residential communities.  Roberts Realty owns and manages its real estate assets as a self-administered, self-managed equity real estate investment trust (“REIT”).

 

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”), or the operating partnership’s three wholly owned subsidiaries, which are Delaware limited liability companies.  Roberts Realty controls the operating partnership as its sole general partner and had an 82.60% ownership interest in the operating partnership at June 30, 2011 and an 82.28% ownership interest in the operating partnership at June 30, 2010.

 

At June 30, 2011, Roberts Realty owned the following real estate assets, all of which are located in the north Atlanta metropolitan area:

 

·                  three neighborhood retail centers totaling 112,322 square feet;

 

·                  one commercial office building totaling 37,864 square feet, part of which serves as Roberts Realty’s corporate headquarters; and

 

·                  five tracts of land totaling 106 acres in various phases of development and construction, which includes the 11-acre Northridge tract that is under contract to be sold and is classified as real estate assets held for sale in the accompanying condensed consolidated balance sheet.  See Note 8 — Related Party Transactions.

 

2.                                      BASIS OF PRESENTATION

 

Roberts Realty’s management has prepared the accompanying interim unaudited financial statements in accordance with generally accepted accounting principles in the United States (“GAAP”) for interim financial information and in conformity with the rules and regulations of the SEC.  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, 2011.  These financial statements should be read in conjunction with Roberts Realty’s audited financial statements and the accompanying notes in Roberts Realty’s Annual Report on Form 10-K for the year ended December 31, 2010.  Roberts Realty has omitted disclosures from these notes to condensed consolidated financial statements that substantially duplicate the disclosures contained in the notes to the audited financial statements included in the annual report. In the condensed consolidated financial statements included in this report, Roberts Realty has made certain reclassifications of prior year’s balances with respect to discontinued operations and real estate assets held for sale to conform to the current format.

 

Holders of operating partnership units generally have the right to require the operating partnership to redeem their units for shares of Roberts Realty common stock.  Upon submittal of

 

6



 

units for redemption, the operating partnership has the option either (a) to acquire those units in exchange for shares, currently on the basis of 1.647 shares for each unit submitted for redemption, or (b) to pay cash for those units at their fair market value, based upon the then current trading price of the shares and using the same exchange ratio.  Roberts Realty has adopted a policy of issuing shares in exchange for all units submitted for redemption.

 

The noncontrolling interest of the unitholders in the operating partnership on the accompanying condensed consolidated balance sheets is calculated by multiplying the noncontrolling interest ownership percentage at the balance sheet date by the operating partnership’s net assets (total assets less total liabilities).  The noncontrolling interest ownership percentage is calculated at any point in time by dividing (x) (the number of units outstanding multiplied by 1.647) by (y) the total number of shares plus (the number of units outstanding multiplied by 1.647).  The noncontrolling interest ownership percentage will change as additional shares and/or units are issued or as units are redeemed for shares of Roberts Realty common stock.  The noncontrolling interest of the unitholders in the income or loss of the operating partnership on the accompanying condensed consolidated statements of operations is calculated based on the weighted average percentage of units outstanding during the period, which was 17.40% and 17.76% for the three months ended June 30, 2011 and 2010, respectively, and 17.42% and 17.76% for the six months ended June 30, 2011 and 2010, respectively.  There were 1,324,416 units outstanding as of June 30, 2011 and 1,329,738 units outstanding as of December 31, 2010.  The noncontrolling interest of the unitholders was $5,843,379 at June 30, 2011 and $6,372,817 at December 31, 2010.

 

Under Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 810, Consolidation, Roberts Realty records noncontrolling interest in the operating partnership on its condensed consolidated balance sheets at the greater of its carrying amount or redemption value at the end of each reporting period.  Any changes in the value from period to period are charged to “additional paid-in-capital” in Roberts Realty’s condensed consolidated statements of shareholders’ equity.  The following table details the components of noncontrolling interest related to unitholders in the operating partnership for the six months ended June 30, 2011 and 2010:

 

 

 

Six Months Ended June 30,

 

 

 

2011

 

2010

 

 

 

 

 

 

 

Beginning balance

 

$

6,372,817

 

$

8,760,795

 

Net loss attributable to noncontrolling interest

 

(507,567

)

(851,586

)

Redemptions of noncontrolling partnership units

 

(17,970

)

(111,606

)

Adjustments to noncontrolling interest in operating partnership

 

(3,901

)

(153,722

)

 

 

 

 

 

 

Ending balance

 

$

5,843,379

 

$

7,643,881

 

 

Recent Accounting Pronouncements. ASU No. 2011-05; Amendments to Topic 220, Comprehensive Income.  In June 2011, FASB issued Accounting Standards Update (“ASU”) No. 2011-05.  Under the amendments in this ASU, an entity has the option to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements.  In both choices, an entity is required to present each component of net income along with total net income, each component of other comprehensive income along with a total for other comprehensive income, and a total amount for comprehensive

 

7



 

income.  This ASU eliminates the option to present the components of other comprehensive income as part of the statement of changes in stockholders’ equity.  The amendments in this ASU do not change the items that must be reported in other comprehensive income or when an item of other comprehensive income must be reclassified to net income.

 

The amendments in this ASU should be applied retrospectively.  For public entities, the amendments are effective for fiscal years, and interim periods within those years, beginning after December 15, 2011.  Early adoption is permitted, because compliance with the amendments is already permitted.  The amendments do not require any transition disclosures.  Roberts Realty does not anticipate any material impact from this ASU and will adopt the ASU retrospectively by December 15, 2011.

 

3.                                      INVESTMENTS

 

During the three months ended June 30, 2010, Roberts Realty sold its available-for-sale securities and recognized an $18,230 gain from the sale.  Roberts Realty measures the fair value of its marketable equity securities at quoted market prices in accordance with FASB ASC Topic 820-10, Fair Value Measurements.

 

 

 

Proceeds
from Sale

 

Realized
Gains

 

Cost
Basis

 

Marketable equity securities

 

$

46,685

 

$

18,230

 

$

28,455

 

 

4.                                      DISCONTINUED OPERATIONS

 

On June 30, 2010, Roberts Realty sold its 44,293 square foot Addison Place Shops retail center to the lender for the $6,000,000 of debt secured by the property.  Accordingly, the operations of the Addison Place retail center have been accounted for as discontinued operations.

 

8



 

The following table summarizes the discontinued operations for the three and six months ended June 30, 2010 (unaudited):

 

Discontinued Operations

 

 

 

Three Months Ended
June 30, 2010

 

Six Months Ended
June 30, 2010

 

 

 

(Unaudited)

 

(Unaudited)

 

 

 

 

 

 

 

OPERATING REVENUES:

 

 

 

 

 

Rental operations

 

$

70,462

 

$

141,849

 

Other operating income

 

14,942

 

29,825

 

 

 

 

 

 

 

Total operating revenues

 

85,404

 

171,674

 

 

 

 

 

 

 

OPERATING EXPENSES:

 

 

 

 

 

Personnel

 

1,196

 

3,330

 

Utilities

 

9,462

 

22,348

 

Repairs and maintenance

 

6,589

 

9,583

 

Real estate taxes

 

(5,017

)

27,126

 

Marketing, insurance and other

 

7,202

 

12,872

 

General and administrative expenses

 

42,679

 

95,290

 

Loss on leasehold improvements and leasing costs

 

 

83,557

 

Impairment loss on real estate assets

 

504,020

 

504,020

 

Depreciation and amortization

 

40,532

 

83,847

 

 

 

 

 

 

 

Total operating expenses

 

606,663

 

841,973

 

 

 

 

 

 

 

LOSS FROM OPERATIONS

 

(521,259

)

(670,299

)

 

 

 

 

 

 

OTHER EXPENSE:

 

 

 

 

 

Gain on extinguishment of debt

 

269,836

 

269,836

 

Interest expense

 

(65,208

)

(117,708

)

Amortization of deferred financing & leasing costs

 

(1,792

)

(4,343

)

 

 

 

 

 

 

Total other expense

 

202,836

 

147,785

 

 

 

 

 

 

 

LOSS FROM DISCONTINUED OPERATIONS

 

$

(318,423

)

$

(522,514

)

 

5.                                      NOTES PAYABLE

 

Roberts Realty has two types of debt:

 

1.               Mortgage notes secured by its operating properties; and

 

2.               Land loans used to purchase undeveloped land.

 

The details of each of the two types of debt are summarized below.  For the land loans and the Northridge Office Building loan, the operating partnership is the borrower, and Roberts Realty is the guarantor.  The other permanent mortgage notes are nonrecourse, and a wholly owned subsidiary of the operating partnership is the borrower.

 

9



 

Mortgage Notes. The permanent mortgage notes payable secured by Roberts Realty’s operating properties at June 30, 2011 and December 31, 2010 were as follows (in order of maturity date):

 

 

 

 

 

Interest

 

 

 

 

 

 

 

 

 

Rate as of

 

Principal Outstanding

 

Property Securing Mortgage

 

Maturity

 

6/30/11

 

6/30/11

 

12/31/10

 

 

 

 

 

 

 

 

 

 

 

Grand Pavilion Retail Center

 

7/11/13

 

5.43

%

$

6,433,286

 

$

6,433,286

 

Northridge Office Building

 

8/10/13

 

4.50

%

2,765,000

 

2,858,333

 

Spectrum at the Mall of Georgia

 

5/01/14

 

5.68

%

4,832,768

 

4,881,585

 

Bassett Retail Center

 

10/01/19

 

8.47

%

2,500,250

 

2,524,305

 

 

 

 

 

 

 

 

 

 

 

Totals

 

 

 

 

 

$

16,531,304

 

$

16,697,509

 

 

As Roberts Realty has previously stated in its annual and quarterly reports, its objective is to exit the retail business to focus exclusively on developing, constructing, and managing multifamily apartment communities.  Given that objective and Grand Pavilion’s approximately $625,000 in annual negative cash flow, Roberts Realty has elected not to make debt service payments since July 2010 on that retail center and has allowed the loan to go into default.  The loan has been placed with the special servicer, and on December 16, 2010, Roberts Realty received a formal notice of default from counsel for the special servicer.  Roberts Realty is seeking to transfer the Grand Pavilion retail center to the lender as soon as possible in satisfaction of the approximately $6,433,286 principal amount of debt (plus associated fees and costs) secured by the property.  Because the loan is nonrecourse, Roberts Realty would have no further obligations to the lender for this loan.

 

Land Loans. The loans secured by Roberts Realty’s land parcels at June 30, 2011 and December 31, 2010 were as follows (in order of maturity date):

 

 

 

 

 

Interest

 

 

 

 

 

Land Parcel

 

 

 

Rate as of

 

Principal Outstanding

 

Securing Mortgage

 

Maturity

 

6/30/11

 

6/30/11

 

12/31/10

 

 

 

 

 

 

 

 

 

 

 

Highway 20

 

04/08/12

 

5.50

%

$

3,045,000

 

$

3,225,000

 

Bradley Park

 

04/30/12

 

4.50

%

3,000,000

 

3,000,000

 

Peachtree Parkway

 

07/31/12

 

5.00

%

8,175,000

 

8,175,000

 

 

 

 

 

 

 

 

 

 

 

 Totals

 

 

 

 

 

$

14,220,000

 

$

14,400,000

 

 

Maturing Short-Term Debt. As listed in the table above, Roberts Realty has three loans with a total principal balance of $14,220,000 that mature within the next 12 months.  For an explanation of management’s plan to address Roberts Realty’s maturing short-term debt, see Note 11 — Commitments and Contingencies — Management’s Business Plan.

 

6.                                      SHAREHOLDERS’ EQUITY

 

Exchanges of Units for Shares. During the three months ended June 30, 2011, no operating partnership units were exchanged for shares, and during the six months ended June 30, 2011, a total of 5,322 operating partnership units were exchanged for 8,766 shares.  During the three

 

10



 

months ended June 30, 2010, a total of 5,447 operating partnership units were exchanged for 8,972 shares, and during the six months ended June 30, 2010, a total of 42,771 operating partnership units were exchanged for 70,446 shares.  Each redemption was reflected in the accompanying condensed consolidated financial statements based on the closing price of Roberts Realty’s stock price on the date of conversion.

 

Treasury Stock. Roberts Realty did not repurchase any shares during the three and six month periods ended June 30, 2011 and 2010.

 

Restricted Stock. Shareholders of Roberts Realty approved and adopted the 2006 Roberts Realty Investors, Inc. Restricted Stock Plan (the “Plan”) in August 2006.  The Plan provides for the grant of stock awards to employees, directors, consultants, and advisors, including employees of Roberts Properties, Inc. (“Roberts Properties”) and Roberts Properties Construction, Inc. (“Roberts Construction,” and together with Roberts Properties, the “Roberts Companies”).  Mr. Charles S. Roberts, the President, Chief Executive Officer, and Chairman of the Board of Roberts Realty, owns all of the outstanding stock of the Roberts Companies.  Under the Plan as amended, Roberts Realty may grant up to 654,000 shares of restricted common stock, subject to the anti-dilution provisions of the Plan.  The maximum number of shares of restricted stock that may be granted to any one individual during the term of the Plan may not exceed 20% of the aggregate number of shares of restricted stock that may be issued.  The Plan is administered by the compensation committee of Roberts Realty’s board of directors.

 

FASB ASC Topic 718, Compensation — Stock Compensation, requires share-based compensation cost to be measured at the date of grant based on the fair value of the award and to be recognized in the statements of operations as an expense on a straight line basis over the requisite service period, which is the vesting period.

 

There was no restricted stock activity for the three and six month periods ended June 30, 2011.  There were 50,000 unvested shares of restricted stock outstanding at June 30, 2011.  During 2010, Roberts Realty granted 50,000 shares under the Plan to an employee of Roberts Properties.  The grant includes a service based vesting period of two years.  Compensation expense related to the restricted stock grant was $8,803 and $17,704, respectively, for the three and six month periods ended June 30, 2011.

 

Earnings Per Share. The following table shows the reconciliations of loss available for common shareholders and the weighted average number of shares and units used in Roberts Realty’s basic and diluted earnings per share computations.

 

11


 

 

 

Three Months Ended June 30,

 

Six Months Ended June 30,

 

 

 

2011

 

2010

 

2011

 

2010

 

 

 

 

 

 

 

 

 

 

 

Loss from continuing operations available for common shareholders — basic

 

$

(1,836,181

)

$

(2,944,726

)

$

(2,406,134

)

$

(3,497,836

)

 

 

 

 

 

 

 

 

 

 

Loss from continuing operations attributable to noncontrolling interest

 

(386,798

)

(635,923

)

(507,567

)

(758,474

)

 

 

 

 

 

 

 

 

 

 

Loss from continuing operations — diluted

 

$

(2,222,979

)

$

(3,580,649

)

$

(2,913,701

)

$

(4,256,310

)

 

 

 

 

 

 

 

 

 

 

Loss from discontinued operations for common shareholders — basic

 

 

(261,871

)

 

(429,402

)

 

 

 

 

 

 

 

 

 

 

Loss from discontinued operations attributable to noncontrolling interest noncontrolling interest

 

 

(56,552

)

 

(93,112

)

 

 

 

 

 

 

 

 

 

 

Loss from discontinued operations — diluted

 

$

 

$

(318,423

)

$

 

$

(522,514

)

 

 

 

 

 

 

 

 

 

 

Net loss — diluted

 

$

(2,222,979

)

$

(3,899,072

)

$

(2,913,701

)

$

(4,778,824

)

 

 

 

 

 

 

 

 

 

 

Weighted average number of shares — basic

 

10,357,831

 

10,271,364

 

10,354,683

 

10,263,457

 

 

 

 

 

 

 

 

 

 

 

Dilutive securities — weighted average number of units

 

2,181,356

 

2,217,823

 

2,184,504

 

2,225,730

 

 

 

 

 

 

 

 

 

 

 

Weighted average number of shares — diluted

 

12,539,187

 

12,489,187

 

12,539,187

 

12,489,187

 

 

7.                                      SEGMENT REPORTING

 

FASB ASC Topic 280-10, Segment Reporting — Overall, 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 Mr. Roberts, its Chief Executive Officer.

 

Roberts Realty develops, constructs, owns, and manages multifamily apartment communities; owns land; and owns and manages retail centers and one office building.  (Roberts Realty does not currently own any operating multifamily communities and did not own any operating multifamily communities in 2011 or 2010.)  All of Roberts Realty’s properties are located in Atlanta, Georgia.  Roberts Realty has the following three reportable operating segments:

 

1.               the retail/office segment, which consists of operating retail centers and an office building;

 

2.               the land segment, which consists of various tracts of land; and

 

3.               the corporate segment, which consists primarily of operating cash, cash equivalents, and miscellaneous other assets.

 

12



 

The following tables summarize the operating results of Roberts Realty’s reportable segments for the three and six months ended June 30, 2011 and 2010.  The retail/office segment is composed of the Grand Pavilion, Bassett, and Spectrum at the Mall of Georgia retail centers, along with the Northridge office building.  Roberts Realty’s Addison Place Shops retail center, which was sold on June 30, 2010, is reflected as discontinued operations within the retail/office segment.  The land segment is composed of five tracts of land totaling 106 acres that are in various phases of development and construction.  The land segment also includes the 11-acre Northridge land parcel that is under contract to be sold and is classified as real estate assets held for sale.  The corporate segment consists primarily of cash and cash equivalents, miscellaneous other assets, and general and administrative expenses.

 

13



 

Three Months Ended June 30, 2011

 

 

 

 

 

 

 

 

 

 

 

Retail/Office

 

Land

 

Corporate

 

Total

 

 

 

 

 

 

 

 

 

 

 

Rental operations

 

$

313,327

 

$

3,168

 

$

 

$

316,495

 

Other operating income

 

50,356

 

 

4

 

50,360

 

 

 

 

 

 

 

 

 

 

 

Total operating revenues from consolidated entities

 

363,683

 

3,168

 

4

 

366,855

 

 

 

 

 

 

 

 

 

 

 

Operating expenses

 

211,853

 

1,452,416

 

344,445

 

2,008,714

 

Depreciation and amortization expense

 

156,185

 

 

50

 

156,235

 

 

 

 

 

 

 

 

 

 

 

Total operating expenses from consolidated entities

 

368,038

 

1,452,416

 

344,495

 

2,164,949

 

 

 

 

 

 

 

 

 

 

 

Other (expense) income

 

(255,578

)

(173,377

)

4,070

 

(424,885

)

 

 

 

 

 

 

 

 

 

 

Consolidated loss from continuing operations

 

(259,933

)

(1,622,625

)

(340,421

)

(2,222,979

)

 

 

 

 

 

 

 

 

 

 

Consolidated loss from discontinued operations (Note 4)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consolidated net loss

 

(259,933

)

(1,622,625

)

(340,421

)

(2,222,979

)

 

 

 

 

 

 

 

 

 

 

Consolidated loss attributable to noncontrolling interest

 

(45,228

)

(282,337

)

(59,233

)

(386,798

)

 

 

 

 

 

 

 

 

 

 

Consolidated loss available for common shareholders

 

$

(214,705

)

(1,340,288

)

(281,188

)

(1,836,181

)

 

 

 

 

 

 

 

 

 

 

Total assets at June 30, 2011

 

$

20,286,189

 

$

42,113,030

 

$

3,081,498

 

$

65,480,717

 

 

Three Months Ended June 30, 2010

 

 

 

 

 

 

 

 

 

 

 

Retail/Office

 

Land

 

Corporate

 

Total

 

 

 

 

 

 

 

 

 

 

 

Rental operations

 

$

414,524

 

$

3,169

 

$

 

$

417,693

 

Other operating income

 

66,822

 

 

2,803

 

69,625

 

 

 

 

 

 

 

 

 

 

 

Total operating revenues from consolidated entities

 

481,346

 

3,169

 

2,803

 

487,318

 

 

 

 

 

 

 

 

 

 

 

Operating expenses

 

219,819

 

44,258

 

321,822

 

585,899

 

Depreciation and amortization expense

 

148,444

 

 

171

 

148,615

 

 

 

 

 

 

 

 

 

 

 

Total operating expenses from consolidated entities

 

368,263

 

44,258

 

321,993

 

734,514

 

 

 

 

 

 

 

 

 

 

 

Other (expense) income

 

(249,463

)

(3,112,561

)

28,571

 

(3,333,453

)

 

 

 

 

 

 

 

 

 

 

Consolidated loss from continuing operations

 

(136,380

)

(3,153,650

)

(290,619

)

(3,580,649

)

 

 

 

 

 

 

 

 

 

 

Consolidated loss from discontinued operations (Note 4)

 

(318,423

)

 

 

(318,423

)

 

 

 

 

 

 

 

 

 

 

Consolidated net loss

 

(454,803

)

(3,153,650

)

(290,619

)

(3,899,072

)

 

 

 

 

 

 

 

 

 

 

Consolidated loss attributable to noncontrolling interest

 

(80,773

)

(560,088

)

(51,614

)

(692,475

)

 

 

 

 

 

 

 

 

 

 

Consolidated loss available for common shareholders

 

$

(374,030

)

$

(2,593,562

)

$

(239,005

)

$

(3,206,597

)

 

 

 

 

 

 

 

 

 

 

Total assets at June 30, 2010

 

$

23,487,035

 

$

45,207,765

 

$

6,750,622

 

$

75,445,422

 

 

14



 

Six Months Ended June 30, 2011

 

 

 

 

 

 

 

 

 

 

 

Retail/Office

 

Land

 

Corporate

 

Total

 

 

 

 

 

 

 

 

 

 

 

Rental operations

 

$

652,663

 

$

6,337

 

$

 

$

659,000

 

Other operating income

 

106,184

 

 

46

 

106,230

 

 

 

 

 

 

 

 

 

 

 

Total operating revenues from consolidated entities

 

758,847

 

6,337

 

46

 

765,230

 

 

 

 

 

 

 

 

 

 

 

Operating expenses

 

449,740

 

1,496,128

 

632,690

 

2,578,558

 

Depreciation and amortization expense

 

312,370

 

 

100

 

312,470

 

 

 

 

 

 

 

 

 

 

 

Total operating expenses from consolidated entities

 

762,110

 

1,496,128

 

632,790

 

2,891,028

 

 

 

 

 

 

 

 

 

 

 

Other (expense) income

 

(509,222

)

(288,048

)

9,367

 

(787,903

)

 

 

 

 

 

 

 

 

 

 

Consolidated loss from continuing operations

 

(512,485

)

(1,777,839

)

(623,377

)

(2,913,701

)

 

 

 

 

 

 

 

 

 

 

Consolidated loss from discontinued operations (Note 4)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consolidated net loss

 

(512,485

)

(1,777,839

)

(623,377

)

(2,913,701

)

 

 

 

 

 

 

 

 

 

 

Consolidated loss attributable to noncontrolling interest

 

(89,275

)

(309,700

)

(108,592

)

(507,567

)

 

 

 

 

 

 

 

 

 

 

Consolidated loss available for common shareholders

 

$

(423,210

)

(1,468,139

)

(514,785

)

(2,406,134

)

 

 

 

 

 

 

 

 

 

 

Total assets at June 30, 2011

 

$

20,286,189

 

$

42,113,030

 

$

3,081,498

 

$

65,480,717

 

 

Six Months Ended June 30, 2010

 

 

 

 

 

 

 

 

 

 

 

Retail/Office

 

Land

 

Corporate

 

Total

 

 

 

 

 

 

 

 

 

 

 

Rental operations

 

$

836,767

 

$

6,338

 

$

 

$

843,105

 

Other operating income

 

131,653

 

 

7,495

 

139,148

 

 

 

 

 

 

 

 

 

 

 

Total operating revenues from consolidated entities

 

968,420

 

6,338

 

7,495

 

982,253

 

 

 

 

 

 

 

 

 

 

 

Operating expenses

 

492,301

 

99,086

 

663,243

 

1,254,630

 

Depreciation and amortization expense

 

300,089

 

 

342

 

300,431

 

 

 

 

 

 

 

 

 

 

 

Total operating expenses from consolidated entities

 

792,390

 

99,086

 

663,585

 

1,555,061

 

 

 

 

 

 

 

 

 

 

 

Other (expense) income

 

(500,430

)

(3,226,521

)

43,449

 

(3,683,502

)

 

 

 

 

 

 

 

 

 

 

Consolidated loss from continuing operations

 

(324,400

)

(3,319,269

)

(612,641

)

(4,256,310

)

 

 

 

 

 

 

 

 

 

 

Consolidated loss from discontinued operations (Note 4)

 

(522,514

)

 

 

(522,514

)

 

 

 

 

 

 

 

 

 

 

Consolidated net loss

 

(846,914

)

(3,319,269

)

(612,641

)

(4,778,824

)

 

 

 

 

 

 

 

 

 

 

Consolidated loss attributable to noncontrolling interest

 

(150,920

)

(591,494

)

(109,172

)

(851,586

)

 

 

 

 

 

 

 

 

 

 

Consolidated loss available for common shareholders

 

$

(695,994

)

$

(2,727,775

)

$

(503,469

)

$

(3,927,238

)

 

 

 

 

 

 

 

 

 

 

Total assets at June 30, 2010

 

$

23,487,035

 

$

45,207,765

 

$

6,750,622

 

$

75,445,422

 

 

15



 

8.                                      RELATED PARTY TRANSACTIONS

 

Transactions with Mr. Charles S. Roberts and His Affiliates

 

Roberts Realty enters into contractual commitments in the normal course of business with the Roberts Companies.  The contracts between Roberts Realty and the Roberts Companies relate to the development and construction of real estate assets, and from time to time, the acquisition of real estate.  The board of directors has adopted a policy that all conflicting interest transactions must be authorized by a majority of the disinterested directors, but only if there are at least two directors who are disinterested with respect to the matter at issue.  Under the charter for the audit committee of Roberts Realty’s board of directors, related party transactions are also subject to review and oversight by the audit committee.

 

Roberts Realty, its predecessor limited partnerships, and other limited partnerships sponsored by Mr. Roberts have previously entered into agreements with Roberts Properties and Roberts Construction to provide these services for 23 apartment communities with a total of 4,648 units that were sold for a total sales price of $431,701,143.  All of these communities were sold for a substantial profit.

 

Sales Contract to Sell Northridge Property to Roberts Properties.  On June 30, 2011, the operating partnership entered into a contract to sell its 11-acre Northridge property to Roberts Properties for $5,060,000 or $23,000 per apartment unit, plus the reimbursement of $303,789 of certain development and construction expenses, for a total cash sales price of $5,363,789 or $24,381 per apartment unit.  Under the terms of the sales contract, Roberts Properties paid the operating partnership a $25,000 non-refundable earnest money deposit to be applied towards the purchase price due at closing.  The closing is scheduled to occur on or before October 31, 2011, provided that Roberts Properties has the option to extend the closing date by 30 days to November 30, 2011 by paying an additional $100,000 non-refundable earnest money deposit to be applied towards the purchase price due at closing.

 

Roberts Properties expects to purchase the property through a newly formed joint venture.  The closing of the sale is subject to the joint venture raising the equity and debt for the specific purpose of funding the purchase of the property and constructing a multifamily community.  Roberts Realty’s audit committee, which is composed of two independent directors, approved the transaction in accordance with the committee’s charter and in compliance with the applicable listing rules of the NYSE Amex Equities stock exchange.  In approving the transaction, the audit committee obtained two independent appraisals of the market value of the Northridge land parcel.  These appraisals valued the land at $3,300,000 and $5,100,000.  Roberts Realty’s board of directors also approved the transaction in accordance with its Code of Business Conduct and Ethics, with Mr. Roberts abstaining from the vote.

 

Design and Development Agreements with Roberts Properties.  Roberts Properties provides various development services that include market studies; business plans; assistance with permitting, land use and zoning issues, easements, and utility issues; as well as exterior design, finish selection, interior design, and construction administration.  Roberts Realty has entered into a design and development agreement with Roberts Properties for the project listed in the following table, for which we made payments to Roberts Properties in 2011.

 

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Total
Contract
Amount

 

Amounts
Incurred from
1/1/11 to 6/30/11

 

Remaining
Contractual
Commitment

 

 

 

 

 

 

 

 

 

Highway 20

 

$

1,050,000

 

$

250,000

 

$

475,000

 

 

Construction Contracts with Roberts Construction.  Roberts Realty has entered into cost plus 10% (5% for overhead and 5% for profit) contracts with Roberts Construction for the Bradley Park, Northridge, Peachtree Parkway, North Springs, and Highway 20 properties.  Progress payments are paid monthly to Roberts Construction based on the work that has been completed.  The following table lists the amounts incurred on these contracts during the six months ended June 30, 2011.

 

 

 

Amounts Incurred for
Labor and Materials
Costs from

1/1/11 to 6/30/11

 

Amounts Incurred for
5% Profit and
5% Overhead from
1/1/11 to 6/30/11

 

 

 

 

 

 

 

Bradley Park

 

$

11,312

 

$

1,131

 

Northridge

 

64,600

 

6,460

 

Peachtree Parkway

 

24,734

 

2,473

 

North Springs

 

8,143

 

814

 

Highway 20

 

11,009

 

1,101

 

 

 

 

 

 

 

Totals

 

$

119,798

 

$

11,979

 

 

Other Payments. At the request of Roberts Realty, Roberts Construction performed repairs and tenant improvements for new leases at the retail centers and office building.  For the six months ended June 30, 2011, Roberts Realty paid Roberts Construction $43,975 for labor and materials costs plus $4,397 (5% for profit and 5% for overhead).  Other affiliates of Mr. Roberts received cost reimbursements of $111,756 for the six months ended June 30, 2011.

 

Office Leases. Roberts Realty leases office space in the Northridge office building to the Roberts Companies.  Effective as of January 1, 2011, Roberts Realty renewed its leases with the Roberts Companies.  Under the renewed leases, Roberts Properties leases 4,431 rentable square feet, and Roberts Construction leases 1,920 rentable square feet.  Both leases are for a one-year term with a new rental rate of $17.50 per rentable square foot.  Roberts Realty recognized total rental income from Roberts Properties and Roberts Construction of $55,571 for the six months ended June 30, 2011.

 

9.                                      IMPAIRMENT LOSS ON REAL ESTATE ASSETS

 

Roberts Realty periodically evaluates its real estate assets, on a property-by-property basis, for impairment when events or changes in circumstances indicate the carrying amount of an asset may not be recoverable in accordance with FASB ASC Topic 360-10, Property, Plant, and EquipmentOverall.

 

FASB ASC Topic 360-10 requires impairment losses to be recorded on long-lived assets used in operations and land parcels 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.  The expected future cash flows depend on estimates made by management, including (1) changes in the national, regional, and/or local economic climates, (2) rental rates, (3) competition, (4)

 

17



 

operating costs, (5) tenant occupancy, (6) holding period, and (7) an estimated construction budget.  A change in the assumptions used to determine future economic events could result in an adverse change in the value of a property and cause an impairment to be recorded.  Due to uncertainties in the estimation process, actual results could differ materially from those estimates.  Roberts Realty’s determination of fair value is based on a discounted future cash flow analysis, which incorporates available market information as well as other assumptions made by Roberts Realty’s management.  Because the factors Roberts Realty’s management uses in generating these cash flows are difficult to predict and are subject to future events that may alter its assumptions, Roberts Realty may not achieve the discounted or undiscounted future operating and residual cash flows it estimates in its impairment analyses or those established by appraisals, and Roberts Realty may be required to recognize future impairment losses on its properties held for use.

 

Non-Cash Impairments on Operating Real Estate Assets. During the six months ended June 30, 2011, Roberts Realty determined that the carrying amounts of its operating real estate assets were recoverable.  Accordingly, Roberts Realty did not record an impairment loss on its operating assets during the 2011 period.  During the six months ended June 30, 2010, Roberts Realty determined that the carrying amount of the Addison Place Shops retail center was not recoverable as a result of lower estimated rental rates due to the current market and economic conditions.  Accordingly, Roberts Realty recorded a non-cash impairment loss of $504,020 on the Addison Place Shops retail center.

 

Non-Cash Impairments on Land Parcels. During the six months ended June 30, 2011, Roberts Realty determined that the carrying amount of the Northridge property was not recoverable and the determination of fair value was based on the sales contract for the property and the appraised values of the property.  As a result of this analysis, Roberts Realty recorded a fair value adjustment of $1,386,480 on the Northridge property, which is classified on the balance sheet as real estate assets held for sale.  Roberts Realty determined that the carrying amounts of its other land parcels were recoverable at June 30, 2011.

 

During the six months ended June 30, 2010, Roberts Realty determined that the carrying amounts on its land parcels were recoverable.  Accordingly, Roberts Realty did not record an impairment loss during the 2010 period.

 

10.                               FAIR VALUE MEASUREMENTS

 

FASB ASC Topic 820, Fair Value Measurement and Disclosures, defines fair value and establishes a framework for measuring fair value.  The objective of fair value is to determine the price that would be received upon the sale of an asset.  FASB ASC Topic 820 establishes a fair value hierarchy that prioritizes observable and unobservable inputs used to measure fair value into three levels:

 

·                  Level 1 — quoted prices (unadjusted) in active markets that are accessible at the measurement date for assets or liabilities;

 

·                  Level 2 — observable prices that are based on inputs not quoted in active markets, but corroborated by market data; and

 

·                  Level 3 — unobservable inputs that are used when little or no market data is available.

 

The fair value hierarchy gives the highest priority to Level 1 inputs and the lowest priority to Level 3 inputs.  In determining fair value, Roberts Realty uses valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent

 

18



 

possible.  Considerable judgment is necessary to interpret Level 2 and 3 inputs in determining fair value of financial and non-financial assets and liabilities.  Accordingly, the fair values presented in the financial statements may not reflect the amounts ultimately realized on a sale or other disposition of these assets.

 

Roberts Realty held no assets required to be measured at fair value on a recurring basis as of June 30, 2011.

 

Assets measured at fair value on a nonrecurring basis consist of real estate assets that have incurred non-cash impairment losses so that their carrying value is equal to or less than their estimated fair value.  The following tables provide the balances for those assets required to be measured at fair value on a nonrecurring basis as of June 30, 2011 and December 31, 2010.

 

 

 

As of
June 30, 2011

 

 

 

 

 

 

 

Description

 

Total

 

Level 1

 

Level 2

 

Level 3

 

 

 

 

 

 

 

 

 

 

 

Real estate assets held for sale

 

$

5,363,789

 

 

$

5,363,789

 

 

 

 

 

Year Ended
December 31,
2010

 

 

 

 

 

 

 

Description

 

Total

 

Level 1

 

Level 2

 

Level 3

 

 

 

 

 

 

 

 

 

 

 

Operating real estate assets

 

$

5,373,582

 

 

 

$

5,373,582

 

Real estate under development

 

13,100,000

 

 

 

13,100,000

 

Assets related to discontinued operations

 

$

5,627,178

 

 

 

5,627,178

 

 

 

 

 

 

 

 

 

 

 

Total assets

 

$

24,100,760

 

 

 

$

24,100,760

 

 

11.                               COMMITMENTS AND CONTINGENCIES

 

Roberts Realty has entered into various contracts for the development and construction of its projects.  The contracts with Roberts Properties and Roberts Construction are described in Note 8 — Related Party Transactions.  The construction contracts require Roberts Realty to pay Roberts Construction the labor and materials costs plus 10% (5% overhead and 5% profit).

 

In addition to the construction contracts with Roberts Construction, Roberts Realty has entered into architectural and engineering contracts with third parties for the Northridge, Bradley Park, Peachtree Parkway, and Highway 20 projects.  At June 30, 2011, outstanding commitments on these contracts totaled $230,993.

 

At June 30, 2011, Roberts Realty had a $500,000 letter of credit outstanding.  The letter of credit is required by the lender for Roberts Realty’s Spectrum retail center and is held as a reserve fund for the payment of leasing costs.  Roberts Realty assumed this obligation when it acquired the Spectrum retail center in October 2005.  The letter of credit expires on September 26, 2011 and Roberts Realty will be obligated to replace it with a new letter of credit.

 

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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 that the final outcome of these matters will not have a material adverse effect on Roberts Realty’s financial position or results of operations.  Roberts Realty has a disputed claim related to its Bradley Park property in the amount of $127,174 by an architect that has gone out of business.  Roberts Realty disputes the amount and quality of the work performed and believes this dispute will more than likely lead to litigation.

 

As a result of the mergers of various predecessor limited partnerships into the operating partnership, the former partners of those predecessor limited partnerships received operating partnership units.  Holders of units have the right to require the operating partnership to redeem their units for shares, subject to certain conditions.  Upon submittal of units for redemption, the operating partnership will have the option either (a) to pay cash for those units at their fair market value, which will be based upon the then current trading price of the shares, or (b) to acquire those units in exchange for shares (on a 1.647-for-one basis).  Roberts Realty has adopted a policy that it will issue shares in exchange for all future units submitted.  At June 30, 2011, there were 1,324,416 units outstanding that could be exchanged for shares, subject to the conditions described above.

 

Under Roberts Realty’s bylaws, it is obligated to indemnify its officers and directors for certain events or occurrences arising as a result of its officers and directors serving in these capacities.  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.  Because 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 June 30, 2011.

 

Under various federal, state, and local environmental laws and regulations, Roberts Realty may be required to investigate and clean up the effects of hazardous or toxic substances at its properties, including properties that have previously been sold.  The preliminary environmental assessments of Roberts Realty’s operating properties and development projects have not revealed any environmental liability that Roberts Realty believes would have a material adverse effect on its business, assets, or results of operations.  However, in the process of transferring the Grand Pavilion retail center to the lender in satisfaction of the debt, an environmental assessment revealed that low levels of a dry cleaning chemical were present under a suite previously leased to a dry cleaner.  The dry cleaner vacated the suite in 2008 and the environmental assessment indicated that the contamination was confined underneath the building and has not spread.  The required governmental notifications have been made and Roberts Realty’s environmental consultants believe that no environmental remediation will be required.  If state mandated remediation is required, Roberts Realty has environmental insurance on the property.  Based on the low levels of contamination and Roberts Realty’s environmental insurance coverage, Roberts Realty believes any resulting environmental liability would not have a material adverse effect on its business, assets, or results of operations.

 

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Management’s Business Plan.

 

Overview. Roberts Realty’s management is simultaneously addressing the following business objectives:

 

·                  improving Roberts Realty’s liquidity and balance sheet,

 

·                pursuing Roberts Realty’s core business of developing, constructing, managing, and selling high quality multifamily communities for cash flow and long-term appreciation, including constructing the Bradley Park multifamily community; and

 

·                  pursuing potential strategic alternatives for Roberts Realty to maximize shareholder value, including working with Sandler O’Neill + Partners, L.P., the investment banking firm that Roberts Realty retained to assist in that effort.

 

Roberts Realty’s primary liquidity requirements relate to its continuing negative operating cash flow and maturing short-term debt.  Roberts Realty’s negative cash flow is primarily due to the carrying costs of its five tracts of land and low occupancy rates at two of its retail centers and its office building.  Roberts Realty also has three loans with a total principal balance of $14,220,000 that mature within the next 12 months.  Roberts Realty’s plan is to renew these loans as they come due and extend their maturity dates at least 12 months.

 

During the past year, Roberts Realty has significantly reduced its debt and decreased its negative cash flow and intends to continue these efforts.  The June 2010 sale of the Addison Place retail center and Westside land reduced its debt by $12,000,000 and reduced the annual negative operating cash flow by approximately $800,000, and the decision not to make any more payments on the Grand Pavilion retail center loan further reduced the annual negative operating cash flow by approximately $625,000.  Additionally, the transfer of the Grand Pavilion retail center to the lender as Roberts Realty intends would further reduce the principal amount of its debt by $6,433,286.  Because the loan is nonrecourse, Roberts Realty would have no further obligations to the lender for this loan.

 

Recent Sales Contract for the Sale of Northridge. As a part of Roberts Realty’s strategy to address its needs for liquidity and capital resources, the operating partnership entered into a contract on June 30, 2011 to sell its 11-acre Northridge land parcel to Roberts Properties for a total cash sales price of $5,363,789, as described in Note 8 above.  The closing is scheduled to occur on or before October 31, 2011.  If the sale of the Northridge property closes as expected, Roberts Realty will use the proceeds of the sale to address its liquidity and capital resources needs.

 

Other Alternatives to Provide Liquidity and Capital Resources. If the sale of the Northridge property does not close as expected, Roberts Realty may seek to meet its liquidity needs by borrowing approximately $2.5 million that would be secured by the Northridge land, which is presently unencumbered.  Roberts Realty may also seek to sell one or more of its remaining land parcels to independent purchasers; may raise private equity; and is in discussions with possible joint venture participants such as pension funds, life insurance companies, hedge funds, foreign investors, and local investors.  Roberts Realty may also sell one or more of its remaining land parcels to Roberts Properties as it has agreed to do with the Northridge land parcel.  Roberts Realty may also form a new affiliate that would raise private equity for the specific purpose of funding the purchase of one of the remaining land parcels and constructing a multifamily community.

 

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Plans to Address Maturing Short-term Debt. Management believes that Roberts Realty’s long history of operating and developing real estate and its current plans for developing its existing land holdings will allow it to successfully extend its maturing loans or find alternative funding and raise additional capital for the development of the properties securing the loans.

 

Plans for Land Parcels Held for Development and Construction. Roberts Realty intends to move forward with the development and construction of its Bradley Park multifamily community.  Despite the challenging economic conditions, management believes this is an opportune time to create new multifamily assets.  Management believes that in this difficult economic climate, Roberts Realty can build at lower construction costs and create value for shareholders as Roberts Realty has historically done during economic downturns and recessions.  Roberts Realty is currently seeking to raise the equity and obtain a construction loan for Bradley Park.  Roberts Realty currently estimates that it will need approximately $20,550,000 in debt and equity to complete the construction of Bradley Park, although Roberts Realty cannot make substantial progress on constructing Bradley Park until it raises the required equity and obtains construction financing.

 

Plans for Retail Centers and Office Building. Because the retail sector took the brunt of the severe recession, Roberts Realty’s retail centers have struggled with occupancy as tenants have failed.  Management anticipates that the performance of the retail centers will continue to be weak for the foreseeable future.  Similarly, the market for office space in Atlanta is overbuilt and continues to be very challenging.  In spite of this difficult environment, however, management is committed to increasing the occupancy of both the retail centers and office building so they can be positioned for sale.  In addition to considering the sale of the Bassett and Spectrum retail centers and the Northridge office building, Roberts Realty may form a joint venture with a company that specializes in retail or office properties to use their expertise in leasing these property types.  Roberts Realty also intends to pursue joint ventures with potential partners that include local investors, pension funds, life insurance companies, hedge funds, and foreign investors.

 

As Roberts Realty has previously stated in its annual and quarterly reports, its objective is to exit the retail business to focus exclusively on developing, constructing, and managing multifamily apartment communities.  Given that objective and the approximately $625,000 in annual negative cash flow from its Grand Pavilion retail center, Roberts Realty has elected not to make debt service payments since July 2010 on that retail center and has allowed the loan to go into default.  In August 2010, Roberts Realty asked the lender to place the Grand Pavilion loan with the special servicer.  On December 16, 2010, Roberts Realty received a formal notice of default from the special servicer of the loan.  Roberts Realty is seeking to transfer the Grand Pavilion retail center to the lender as soon as possible in satisfaction of the approximately $6,433,286 principal amount of debt secured by the property.  Because the loan is nonrecourse, Roberts Realty would have no further obligations to the lender for this loan.  This transaction would move Roberts Realty closer to exiting the retail business, reduce the principal amount of its debt by $6,433,286, and reduce its annual negative operating cash flow by approximately $625,000.

 

Current economic conditions and the tight lending environment, however, create uncertainty regarding whether Roberts Realty can extend or refinance the maturing loans as planned.  If Roberts Realty were required to use its current cash balances to pay down existing loans, those repayments and the corresponding reductions in Roberts Realty’s cash could adversely affect Roberts Realty’s ability to execute its plans.

 

22



 

Possible Sale, Merger, or Business Combination. On June 30, 2011, Roberts Realty announced that it had retained Sandler O’Neill + Partners, L.P. to explore potential strategic alternatives for the company.  These alternatives could include a sale, merger, or other business combination.  As an example, given the uncertainty in the IPO market, a larger, private real estate operator could merge into Roberts Realty to become a publicly traded company and provide enhanced liquidity to the current Roberts Realty shareholders.  Management remains open to any reasonable proposal for a sale, merger, or other business combination that would reward shareholders and maximize their value.

 

Roberts Realty cautions that there can be no assurance that the exploration of strategic alternatives will result in any transaction, or that, if completed, any transaction will be on attractive terms.  Roberts Realty does not intend to disclose developments with respect to its strategic review process unless and until its board of directors has approved a specific transaction.

 

23



 

ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

 

Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995. The statements in this report that are not historical facts are forward-looking statements that involve a number of known and unknown risks, uncertainties, and other factors, all of which are difficult or impossible to predict and many of which are beyond our control, that may cause our actual results, performance, or achievements to be materially different from any future results, performance, or achievements expressed or implied by those forward-looking statements.  These risks are detailed in (a) Part I, Item 1A, Risk Factors, in our Annual Report on Form 10-K for the year ended December 31, 2010; (b) Part II, Item 1A, Risk Factors, in this report; and (c) our other SEC filings.  Please also see the cautionary statements included in the Note Regarding Forward-Looking Statements at the beginning of this report.

 

Overview

 

We are a self-administered, self-managed equity real estate investment trust, or REIT.  Our primary business is to develop, construct, own, and manage multifamily apartment communities.  The operating partnership, either directly or through one of its wholly owned subsidiaries, owns all of our properties.  At June 30, 2011, we were its sole general partner and owned an 82.60% interest in the operating partnership.  We expect to continue to conduct our business in this organizational structure.  We currently own the following properties, all of which are located in metropolitan Atlanta, Georgia:

 

·      five tracts of land totaling 106 acres that are zoned for 1,232 multifamily units, including an 11-acre tract of land that is under contract to be sold;

 

·      three retail shopping centers; and

 

·      one office building, part of which serves as our corporate headquarters.

 

As we have done in the past, we are focusing on our core business of developing, constructing, and managing high quality multifamily apartment communities for cash flow and long-term appreciation.  We plan to exit the retail business.  We have significantly reduced our debt and our negative cash flow in the past year, and we intend to continue these efforts.

 

Recent Developments

 

Peachtree Parkway Land Loan Renewal

 

On June 23, 2011, we renewed our $8,175,000 loan with Wells Fargo Bank, N.A. and extended the maturity date of the loan to July 31, 2012 on substantially the same terms and conditions.  At the closing, we deposited with Wells Fargo Bank, N.A. $458,750 as an interest and real estate tax reserve to fund these payments for the next 12 months.  Under the terms of the renewed loan, we will make monthly payments of interest only at the 1-month LIBOR index rate plus 300 basis points, with an interest rate floor of 5.00% per annum.  The loan is secured by our Peachtree Parkway property and by our North Springs property.

 

Sales Contract for the Sale of Northridge Land to Roberts Properties

 

On June 30, 2011, we entered into a contract to sell our 11-acre Northridge property to Roberts Properties, Inc. (“Roberts Properties”) for $5,060,000 or $23,000 per apartment unit, plus the reimbursement of certain development and construction expenses in the amount of $303,789, for a total cash sales price of $5,363,789 or $24,381 per apartment unit.  Under the terms of the sales contract, Roberts

 

24



 

Properties paid the operating partnership a $25,000 non-refundable earnest money deposit to be applied towards the purchase price due at closing.  The closing is scheduled to occur on or before October 31, 2011, provided that Roberts Properties has the option to extend the closing date by 30 days to November 30, 2011 by paying an additional $100,000 non-refundable earnest money deposit to be applied towards the purchase price due at closing.

 

Roberts Properties, which is wholly owned by Mr. Charles S. Roberts, the President, Chief Executive Officer, and Chairman of the Board of Roberts Realty, expects to purchase the property through a newly formed joint venture.  The closing of the sale is subject to the joint venture raising the equity and debt for the specific purpose of funding the purchase of the property and constructing a multifamily community.  Our audit committee, which is composed of two independent directors, approved the transaction in accordance with the committee’s charter in compliance with applicable listing rules of the NYSE Amex Equities stock exchange.  In approving the transaction, the audit committee obtained two independent appraisals of the market value of the Northridge land parcel.  These appraisals valued the land at $3,300,000 and $5,100,000.  Our board of directors also approved the transaction in accordance with its Code of Business Conduct and Ethics, with Mr. Roberts abstaining from the vote.

 

Engagement of Sandler O’Neill + Partners, L.P. to Explore Potential Strategic Alternatives

 

On June 30, 2011, we announced that we have retained Sandler O’Neill + Partners, L.P. to explore potential strategic alternatives for the company.  These alternatives could include a sale, merger, or other business combination.  As an example, a larger, private real estate operator could merge into Roberts Realty to become a publicly traded company and provide enhanced liquidity for our shareholders.  Our management remains open to any reasonable proposal for a sale, merger, or other business combination that would reward our shareholders and maximize their value.

 

We caution that there can be no assurance that the exploration of strategic alternatives will result in any transaction, or that, if completed, any transaction will be on attractive terms.  We do not intend to disclose developments with respect to our strategic review process unless and until our board of directors has approved a specific transaction.

 

Continuing Negative Operating Cash Flow and Maturing Short-Term Debt

 

Our primary liquidity requirements relate to (a) our continuing negative operating cash flow and (b) our maturing short-term debt.  The primary reason for our negative operating cash flow is that we have five tracts of land totaling 106 acres that do not produce revenue but incur carrying costs of interest expense and real estate taxes.  These five tracts of land have a combined carrying value of $42,058,762, and four of these tracts are encumbered with land loans totaling $14,220,000.  We have substantial equity in these tracts of land, which are an integral part of our multifamily community development and construction program.  Because the performance of our retail centers and office building is insufficient to cover our operating expenses, including the carrying costs of our land, we expect to continue to generate negative operating cash flow and to operate at a loss until we raise the equity and obtain the construction loans we need to make substantial progress in constructing and leasing up our planned multifamily communities as described in Liquidity and Capital Resources — Business Plan below.

 

To address these issues, we made substantial progress during the past year in improving our liquidity and balance sheet, and we intend to continue to do so.  The June 2010 sale of the Addison Place retail center and Westside land reduced our debt by $12,000,000 and reduced our annual negative operating cash flow by approximately $800,000, and our decision not to make any more payments on the Grand Pavilion retail center loan further reduced our annual negative operating cash flow by approximately $625,000.  Additionally, the transfer of the Grand Pavilion retail center to the lender as we

 

25



 

intend would further reduce the principal amount of our debt by $6,433,286.  Because the loan is nonrecourse, we would have no further obligations to the lender for this loan.  Further, if we close the sale of our Northridge property as we expect, the proceeds of that sale would be approximately $5,363,789, which we would use to address our liquidity and capital resources needs.

 

We had total debt of $30,751,304 as of June 30, 2011 and have three loans with a total principal balance of $14,220,000 that mature within the next 12 months: (a) the $3,045,000 Highway 20 loan that matures on April 8, 2012; (b) the $3,000,000 Bradley Park loan that matures on April 30, 2012; and (c) the $8,175,000 Peachtree Parkway loan that matures on July 31, 2012.  If we are unable to renew these loans, we may repay all or part of them from the funds we expect or are seeking to raise as described in Liquidity and Capital Resources — Business Plan below.

 

Results of Operations

 

Comparison of Three Months Ended June 30, 2011 to Three Months Ended June 30, 2010

 

The following table highlights our operating results and should be read along with the condensed consolidated financial statements and the accompanying notes included in this report.

 

 

 

Three Months Ended
June 30,

 

$(Decrease)

 

 

 

2011

 

2010

 

Increase

 

 

 

(Unaudited)

 

(Unaudited)