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Roberts Realty Investors (NYSEMKT:RPI) owns and operates multifamily residential and other properties as a self-administered, self-managed equity real estate investment trust [REIT].

At June 30, 2007, Roberts Realty owned one multi-family apartment community, four neighborhood retail centers, a 37,864 square foot commercial office building (part of which serves as the Company’s headquarters, 104 acres of undeveloped land, and a 44-acre tract of land being held for investment.

Roberts Realty has elected to be taxed as a REIT under the Internal Revenue Code of 1986. In order to qualify as a REIT—and not be subject to federal and state income taxation at the corporate level—companies must pay at least 90 percent of their taxable income in the form of shareholder dividends.

Now that U.S. real estate stocks have followed the residential housing market into the gutter as mortgage woes continue to spread, it is more important than ever to do one’s due diligence when looking at REIT stocks for investment purposes. In evaluating REIT securities, consider the dividend yield, long-term dividend growth rate, and FFO (funds from operation) growth.

When examining the regulatory filings of Roberts Realty, however, we needed only to look at the egregious compensation being paid to CEO Charles S. Roberts to realize that this REIT offers no value to potential investors.

Unlike other REITs that pay regular monthly or quarterly dividends, Robert Realty has not paid regular quarterly dividends since the third quarter of 2001, and the Company presently has no plans to resume paying regular quarterly dividends.

The Company has reported accumulated losses from continuing operations (before any gains on sale of real estate assets) of $(12.57) million for the last five-years (fiscal ended December 31, 2006).

Since 2001, Roberts Realty has paid dividends only out of the proceeds of property sales. On June 18, 2004, the Company paid a special distribution of $4.50 per share to shareholders funded from profits generated by the sale of five apartment communities to Colonial Properties Trust.

You can’t get blood from a stone—of course you can. To wit: CEO Roberts, who beneficially owns 38.2% of the common stock outstanding, has not had to sacrifice like the ‘common stockholder’ at Roberts Realty.

Roberts Realty enters into contractual commitments in the normal course of business with Roberts Properties, Inc. and Roberts Properties Construction, Inc., 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 Realty has paid substantial fees to the Roberts Companies for various types of services and will continue to do so in the future. In addition, the REIT has purchased property from Roberts Properties, and is obligated to use Roberts Properties for development services and Roberts Construction for construction services for some of its undeveloped properties. These various arrangements are summarized below:

  • Northridge Community. On June 28, 2001, the REIT purchased 10.9 acres of undeveloped land from Roberts Properties. The Company intends to develop a 220-unit apartment community on this site, located on Northridge Parkway in Atlanta adjacent to its Northridge office building. The Company retained Roberts Properties to complete the design and development work for a fee of $2,500 per unit, or $550,000. The REIT also entered into a cost plus 10% contract with Roberts Construction to build the 220 apartment units.
  • Northridge Office Building. On June 28, 2001, the REIT purchased a partially constructed office building and approximately 3.9 acres of land from Roberts Properties. The three-story, 37,864 square foot building serves as the Company’s corporate headquarters. The REIT occupies a portion of one floor in the building and leases the remaining space on that floor to Roberts Properties and Roberts Construction.
  • Peachtree Parkway Land. The REIT purchased an undivided interest in a 23.5-acre portion of the undeveloped land from Peachtree Parkway (owned by Mr. Roberts) for a cash purchase price of about $10.2 million. The land is zoned for 292 apartment units and is located across Peachtree Parkway from the upscale Forum Shopping Center.
  • In acquiring the Peachtree Parkway property, the Company assumed and became bound by a restrictive covenant recorded in those records in favor of Roberts Properties and Roberts Construction that provides that if the then-owner of the property develops it for residential use:

  • Roberts Properties, or any entity designated by Mr. Roberts, will be engaged as the development company for the project and will be paid a development fee in an amount equal to $5,000 per residential unit multiplied by the number of residential units that are developed on the property, with such fee to be paid in equal monthly amounts over the contemplated development period; and
  • Roberts Construction, or any other entity designated by Mr. Roberts, will be engaged as the general contractor for the project on a cost plus basis and will be paid the cost of constructing the project plus 10% (5% profit and 5% overhead) with such payments to be paid commencing with the start of construction.
  • Development Fees. The REIT pays Roberts Properties fees for various development services that include market studies, business plans, design, finish selection, interior design and construction administration. During 2005 and 2006, the Company entered into development and design agreements with Roberts Properties on four projects, totaling $5.06 million in associated fees.
  • Construction Contracts. The REIT enters into contracts in the normal course of business with Roberts Construction. During 2005, the Company entered into contracts with Roberts Construction on four projects. The total cost, including contractor fees, is estimated to be approximately $206 million!
  • 2006 Summary Compensation. In addition to the aforementioned millions being paid to Charles Roberts and/or entities controlled by him, on February 28, 2007, the Board granted a $25,000 salary increase to Charles S. Roberts [raising his annual salary to $224,000] “for his performance as Chief Executive Officer.”

    What performance?

    REI = Dow Jones REIT Composite Index

    According to Lipper—prior to the 1H:07 real-estate meltdown—the average real-estate fund yielded a 5-year total return of 207% (through January 2007), including an average dividend of almost 7% (June 2002) to about 4.6% (January 2007).

    As previously mentioned, Roberts Realty has made only irregular dividend payments—with a dividend payout ratio of nil during the last 12 quarters. And has rewarded stockholders with a historical price chart that looks more like a patient in asystole—a flatlined electrocardiogram!

    And the lies theyve been spinnin
    And the smiles theyve been grinnin
    There sure has been some sinnin
    But nobodys winnin
    When the walls start to crumblin
    You feel like youre stumblin
    And nobody wants you when youre down

    They took the boy from the city
    But they cant take the city from the
    Boys lookin pretty
    Now hes lookin like a pity
    Cut the flesh down to the bone
    But you cant get
    You cant get blood from a stone
    You cant get blood from a stone ~~Cinderella [Blood From A Stone]

    David J. Phillips does not hold a financial interest in Roberts Realty Investors. The 10Q Detective has a Full Disclosure Policy.

    Source: At Roberts Realty, 'Charity Begins at Home'