| ROBERTS REALTY INVESTORS INC ITEM 1A RISK FACTORS Investors or potential investors in Roberts Realty should carefully consider the risks described below |
| Additional risks of which we are presently unaware or that we currently consider immaterial may also impair our business operations and hinder our financial performance, including our ability to make distributions to our investors |
| We have organized our summary of these risks into five subsections: • real estate related risks; • financing risks; • tax risks; • environmental and other legal risks; and • risks for investors in our stock |
| We are currently experiencing negative operating cash flow as a result of selling seven residential communities in 2004 and 2005 for dlra183dtta1 million while making distributions to investors of dlra4dtta50 per share |
| In addition, we own two properties currently in lease-up, five properties in the planning and design phase and two parcels of undeveloped land held for investment purposes |
| These properties are currently producing minimal cash flow |
| Although we have replaced some of our operating revenues and cash flows by acquiring retail centers in September and October 2005, and we expect that the lease-up of the Addison Place Shops and Northridge office building will contribute positively to our operating revenues and cash flows, we expect that our overall business will continue to operate at a loss as we execute our planned development and construction program and that we will use, rather than generate, net cash in our operating activities through the end of 2006 or until our development projects are constructed and leased |
| If these losses persist for longer than we expect, our cash position and financial position could be materially and adversely affected |
| Construction risks inherent in the development and construction of new properties could negatively affect our financial performance |
| We currently estimate that it would take approximately dlra165dtta0 million to develop and construct the residential, office and retail properties we can build on the undeveloped land we now own under their current zoning |
| (This amount is only an estimate, and it will likely change by a material amount as we develop and construct our properties |
| ) Development and construction costs may exceed our original estimates due to events beyond our control, including: • increased costs for or any unavailability of materials or labor; • building restrictions; • environmental impact studies by the government; • weather delays; • increased interest costs due to rising interest rates; and • any financial instability of the developer (Roberts Properties, Inc, which is owned by Mr |
| Charles S Roberts, our President, Chief Executive Officer and Chairman of our Board of 13 _________________________________________________________________ [43]Table of Contents Directors), general contractor (Roberts Properties Construction, Inc, also owned by Mr |
| Roberts) or any subcontractor |
| We may also be unable to complete development or construction of a property on schedule, which could result in increased debt service expense or construction costs and loss of rents until the property is ready for occupancy |
| Additionally, the time required to recoup our development and construction costs and to realize a return, if any, on such costs can be long |
| Further, we typically enter into construction contracts on a cost plus basis |
| Because these contracts do not provide for a guaranteed maximum price, we must bear the entire amount of any increase in costs above the amounts we initially estimate, and these costs may be material |
| We face leasing risks in our planned development and construction program |
| The success of a real estate development project depends in part on entering into leases with acceptable terms within the lease-up period |
| If the residential homes or commercial or office space we have constructed is not leased on schedule and upon the expected terms and conditions, the yields, returns and value creation on the project could be adversely impacted |
| Whether or not tenants are willing to enter into leases on the terms and conditions we project and on the timetable we expect will depend on a large variety of factors, many of which are outside our control |
| We are currently concentrated in metropolitan Atlanta, and adverse changes in economic or market conditions in Atlanta could negatively affect our financial performance and condition |
| Currently, all of our properties are located in metropolitan Atlanta, Georgia |
| Economic conditions in this area could adversely affect our performance |
| These factors include: • lack of employment growth; • supply and demand for properties; • neighborhood values in the submarkets in which our properties are located; • zoning and other regulatory conditions; • competition from other properties; • property taxes; • weather problems; and • price increases for materials or labor |
| In that regard, this region has experienced economic recessions and depressed conditions in the local real estate markets in the past |
| Deteriorating general economic or social conditions or any natural disasters in this area could materially and adversely affect the value of our portfolio, our results of operations and our ability to pay amounts due on our debt and distributions to our investors |
| We face conflicts of interest because of our business dealings with our Chief Executive Officer and his affiliates |
| Our business practice is to retain Roberts Properties, Inc |
| to develop our properties and Roberts Properties Construction, Inc |
| Charles S Roberts, our President, Chief Executive Officer and Chairman of our Board of Directors, owns all of the equity interests in these companies (the “Roberts Companies”) |
| We have in the past and may again in the future acquire properties from Mr |
| Roberts or his affiliates |
| Although each agreement between Roberts Realty and/or the operating partnership on one hand and Mr |
| Roberts or his affiliates on the other hand must be approved by our audit committee and the independent members of our board of directors, conflicts of 14 _________________________________________________________________ [44]Table of Contents interest inherent in these business transactions could result in our paying more for property or services than we would pay an independent seller or provider |
| These agreements and transactions have not had and will not have the benefit of arm’s-length negotiation of the type normally conducted between unrelated parties |
| These arrangements also expose us to the following risks, among others: • the possibility that the Roberts Companies might incur severe financial problems or even become bankrupt; • the possibility that the Roberts Companies may at any time have economic or business interests or goals that are or that become inconsistent with our business interests or goals; or • the possibility that the Roberts Company may be in a position to take action contrary to our instructions or requests or contrary to our policies or objectives |
| We face substantial competition |
| All of our properties are located in developed areas where we face substantial competition from other properties and from other real estate companies that own or may develop or renovate competing properties |
| The number of competitive properties and real estate companies could have a material adverse effect on our ability to rent our properties, the rents we charge and our acquisition opportunities |
| In addition, the activities of these competitors and these factors could: • cause us to pay a higher price for a new property than we otherwise would have paid; • prevent us from purchasing a desired property at all; • decrease the rental rates that we would be able to charge in the absence of such direct competition; and • reduce the occupancy rates that we would otherwise be able to achieve |
| The factors could materially and adversely affect the value of our portfolio, our results of operations and our ability to pay amounts due on our debt and distributions to our investors |
| Favorable conditions for purchasing residential properties could adversely affect our revenues from our residential communities |
| Our apartment communities compete with numerous housing alternatives in attracting residents, including other apartment communities and single-family rental homes, as well as owner occupied single- and multi-family homes |
| Competitive housing in our market area and the affordability of owner occupied single and multi-family homes caused by low mortgage interest rates and government programs to promote home ownership have adversely affected and may continue to adversely affect our ability to retain our residents, lease apartment homes and increase or maintain rents |
| Changes in market or economic conditions may affect our business negatively |
| General economic conditions and other factors beyond our control may adversely affect real property income and capital appreciation |
| We are unable to determine the precise effect that the performance of the worldwide or United States economies will have on us or on the value of our common stock |
| Terrorism could impair our business |
| Terrorist attacks and other acts of violence or war could have a material adverse effect on our business and operating results |
| Attacks that directly affect one or more of our residential or commercial 15 _________________________________________________________________ [45]Table of Contents properties could significantly affect our ability to operate those properties and impair our ability to achieve the results we expect |
| Our insurance coverage may not cover any losses caused by a terrorist attack |
| In addition, the adverse effects that such violent acts and threats of future attacks could have on the United States economy could similarly have a material adverse effect on our business and results of operations |
| Our commercial and office tenants may go bankrupt or be unable to make lease payments |
| Our operating revenues from our commercial and office properties depend on entering into leases with and collecting rents from tenants |
| Economic conditions may adversely affect tenants and potential tenants in our market and, accordingly, could affect their ability to pay rents and possibly to occupy their space |
| Tenants may experience bankruptcies and various bankruptcy laws may reject those leases or terminate them |
| If leases expire or end, replacement tenants may not be available upon acceptable terms and conditions |
| In addition, if the market rental rates are lower than the previous contractual rates, our cash flows and net income could suffer a negative impact |
| As a result, if a significant number of our commercial or office tenants fail to pay their rent due to bankruptcy, weakened financial condition or otherwise, it would negatively affect our financial performance |
| Real estate properties are illiquid and may be difficult to sell, particularly in a poor market environment |
| Real estate investments are relatively illiquid, which tends to limit our ability to react promptly to changes in economic or other market conditions |
| Our ability to dispose of assets in the future will depend on prevailing economic and market conditions |
| We may be unable to sell our properties when we would prefer to do so to raise capital we need to fund our planned development and construction program or to fund distributions to investors |
| Losses from natural catastrophes may exceed our insurance coverage |
| We carry comprehensive liability, fire, flood, extended coverage and rental loss insurance on our properties, which we believe is customary in amount and type for real property assets |
| Some losses, however, generally of a catastrophic nature, such as losses from floods, may be subject to limitations |
| We may not be able to maintain our insurance at a reasonable cost or in sufficient amounts to protect us against potential losses |
| Further, our insurance costs could increase in future periods |
| If we suffer a substantial loss, our insurance coverage may not be sufficient to pay the full current market value or current replacement value of the lost investment |
| Inflation, changes in building codes and ordinances, environmental considerations and other factors also might make it impractical to use insurance proceeds to replace a damaged or destroyed property |
| Our business depends on key personnel |
| Our success depends on our ability to attract and retain the services of executive officers and key personnel |
| We face substantial competition for qualified personnel in the real estate industry, and the loss of our key personnel, particularly Mr |
| We do not carry key person insurance on any of our executive officers or other key employees |
| If we are unable to lease up our Addison Place Shops and our Northridge office building as we intend, our financial performance and condition could suffer |
| 16 _________________________________________________________________ [46]Table of Contents We currently have two properties, the Addison Place Shops and the Northridge office building, that are in the lease-up phase |
| The Addison Place Shops are approximately 18prca leased, and the Northridge office building is approximately 44prca leased |
| If we are unable to fill the remainder of the properties with tenants as we intend, our financial performance will be adversely affected |
| Financing Risks We may not be able to obtain the debt and equity we need to carry out our planned development and construction program |
| We also have two properties in lease-up, five properties in the planning and design phase, and two parcels of undeveloped land held for investment |
| With respect to the five properties that are now under development, we estimate the total cost of the projects, including development fees and contractor fees payable to the Roberts Companies, to be approximately dlra165dtta0 million, although the exact amount could be materially different |
| We cannot presently quantify with any precision the amount and timing of our long-term capital needs for development, but the amount we need will be substantial |
| We cannot provide any assurance that we will be able to raise the debt and equity needed to complete our development projects as we intend |
| If we are unable to obtain long-term debt and equity on favorable terms, we will be unable to carry out our planned development and construction program |
| We may be unable to refinance our existing debt or we may only be able to do so on unfavorable terms |
| We are subject to the normal risks associated with debt financing, including: • the risk that our cash flow will be insufficient to meet required payments of principal and interest; and • the risk that we will not be able to renew, repay or refinance our debt when it matures or that the terms of any renewal or refinancing will not be as favorable as the existing terms of that debt |
| The payment terms contained in each mortgage note secured by one of our properties do not fully amortize the loan balance, and a balloon payment of the balance will be due upon its maturity |
| In particular, we have dlra4cmam077cmam000 in short-term debt that matures on January 31, 2007 |
| If we are unable to refinance our debt at maturity on acceptable terms, or at all, we might be forced to dispose of one or more of the properties on disadvantageous terms, which might result in losses to us |
| Those losses could have a materially adverse effect on our ability to pay amounts due on our debt and to pay dividends and distributions to our investors |
| Further, if we are unable to meet mortgage payments on any mortgaged property, the mortgagee could foreclose upon the property, appoint a receiver and receive an assignment of rents and leases or pursue other remedies, all with a consequent loss of our revenues and asset value |
| Foreclosures could also create taxable income without accompanying cash proceeds, thereby hindering our ability to meet the REIT distribution requirements of the Internal Revenue Code |
| Rising interest rates could materially and adversely affect the cost of our indebtedness |
| We have incurred and may in the future again incur debt that bears interest at a variable rate |
| As of February 28, 2006, we have approximately dlra24dtta3 million in debt that bears interest at a floating rate |
| Accordingly, increases in interest rates would increase our interest costs, which could materially and 17 _________________________________________________________________ [47]Table of Contents adversely affect our results of operations and our ability to pay amounts due on our debt and distributions to our investors |
| Increased debt and leverage could affect our financial position and impair our ability to make distributions to our investors |
| Our organizational documents do not limit the amount of debt that we may incur |
| We have an informal policy that we will not incur indebtedness in excess of 75prca of what the board of directors believes is the fair market value of our assets at any given time |
| In the future, however, we may re-evaluate our borrowing policies in light of then current economic conditions, relative costs of debt and equity capital, market value of the operating partnership’s real estate assets, growth and acquisition opportunities and other factors |
| Modification of this policy may adversely affect the interests of our shareholders |
| Additional leverage may: • increase our vulnerability to general adverse economic and industry conditions; • limit our flexibility in planning for, or reacting to, changes in our business and the REIT industry, which may place us at a competitive disadvantage compared to our competitors that have less debt; and • limit, along with the possible financial and other restrictive covenants in our indebtedness, our ability to borrow additional funds |
| Any of the foregoing could materially and adversely affect our results of operations and our ability to pay amounts due on our debt and distributions to our investors |
| If we are unable to reinvest sales or refinancing proceeds as quickly as we expect, our financial condition may be adversely affected |
| We have in the past and may again in the future seek to structure future dispositions as tax-free exchanges, where appropriate, using the non-recognition provisions of Section 1031 of the Internal Revenue Code to defer income taxation on the disposition of the exchanged property |
| For an exchange to qualify for tax-free treatment under Section 1031 of the Internal Revenue Code, we must meet certain technical requirements |
| Given the competition for properties meeting our investment criteria, it may be difficult for us to identify suitable properties within the required time frames to meet the requirements of Section 1031 |
| If we are unable to reinvest sales or refinancing proceeds in the time frame required to defer recognition of taxable gains, we would be required to distribute most of the net proceeds to our shareholders and unitholders, which would adversely affect our ability to carry out our investment strategy |
| If we incur additional debt, the agreements covering those debts could contain various covenants that limit our discretion in the operation of our business |
| Lending agreements will govern any additional debt we may incur for purchasing, developing or constructing properties |
| Typically, these types of agreements contain various provisions that could limit our discretion in the operation of our business by restricting our ability to: 18 _________________________________________________________________ [48]Table of Contents • incur additional debt and issue preferred stock; • pay dividends and make other distributions; • make investments and other payments; • redeem or repurchase our capital stock; • consolidate or merge; • create liens; • sell assets; or • enter into certain transactions with our affiliates |
| If we are unable to pay our obligations to our secured lenders, they could proceed against any or all of the collateral securing our indebtedness to them |
| In addition, a breach of the restrictions or covenants contained in our loan documents could cause an acceleration of our indebtedness |
| We may not have, or be able to obtain, sufficient funds to repay our indebtedness in full upon acceleration |
| Our interest rate hedging activities may not effectively protect us from fluctuations in interest rates |
| We generally enter into fixed rate debt instruments for our completed apartment communities |
| 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 these instruments for trading or speculative purposes, but rather to increase the predictability of our financing costs |
| If the pricing of new debt instruments is not within the parameters of a particular interest rate hedging contract, the contract is ineffective |
| Contracts may also be ineffective when market interest rates produce a lower interest cost than we incur under the hedging contracts |
| Furthermore, the settlement of interest rate hedging contracts has involved and may in the future involve material charges |
| These charges are typically related to the extent and timing of fluctuations in interest rates |
| Despite our efforts to minimize our exposure to interest rate fluctuations, we cannot guarantee that we will maintain coverage for all of our outstanding indebtedness at any particular time |
| If we do not effectively protect from this risk, we may be subject to increased interest costs resulting from interest rate fluctuations Tax Risks Our company may fail to qualify for REIT status under federal income tax laws |
| Our qualification as a REIT for federal income tax purposes depends upon our ability to meet on a continuing basis, through actual annual operating results, distribution levels and diversity of stock ownership, the various qualification tests and organizational requirements imposed upon REITs under the Internal Revenue Code |
| We believe that we have qualified for taxation as a REIT for federal income tax purposes since our inception in 1994, and we plan to continue to meet the requirements to qualify as a REIT in the future |
| Many of these requirements, however, are highly technical and complex |
| We cannot guarantee, therefore, that we have qualified or will continue to qualify in the future as a REIT The determination that we qualify as a REIT for federal income tax purposes requires an analysis of various factual matters that may not be totally within our control |
| Even a technical or inadvertent mistake could jeopardize our REIT status |
| Furthermore, Congress and the IRS might make changes to the tax laws and regulations, and the courts might issue new decisions that make it more difficult, or impossible, for us to remain qualified as a REIT If we fail to qualify for taxation as a REIT in any taxable year, and certain relief provisions of the Internal Revenue Code did not apply, we would be subject to tax (including any applicable alternative minimum tax) on our taxable income at regular corporate rates, leaving less money available for distributions to investors |
| In addition, distributions to shareholders or unitholders in any year in which we 19 _________________________________________________________________ [49]Table of Contents failed to qualify would not be deductible for federal income tax purposes |
| Failing to qualify as a REIT would eliminate our requirement to make distributions to shareholders or unitholders, as well |
| We would be disqualified from taxation as a REIT for the four taxable years following the year during which we ceased to qualify as a REIT, unless entitled to relief under specific statutory provisions |
| It is not possible to predict whether in all circumstances we would be entitled to such statutory relief |
| Our failure to qualify as a REIT likely would have a significant adverse effect on the value of our common stock |
| Our operating partnership may fail to be treated as a partnership for federal income tax purposes |
| Management believes that our operating partnership qualifies, and has qualified since its formation in 1994, as a partnership for federal income tax purposes and not as a publicly traded partnership taxable as a corporation |
| We can provide no assurance, however, that the IRS will not challenge the treatment of the operating partnership as a partnership for federal income tax purposes or that a court would not sustain such a challenge |
| If the IRS were successful in treating the operating partnership as a corporation for federal income tax purposes, then the taxable income of the operating partnership would be taxable at regular corporate income tax rates |
| In addition, the treatment of the operating partnership as a corporation would cause us to fail to qualify as a REIT Environmental and Other Legal Risks We may have liability under environmental laws |
| Under federal, state and local environmental laws, ordinances and regulations, we may be required to investigate and clean up the effects of releases of hazardous or toxic substances or petroleum products at our properties, regardless of our knowledge or responsibility, simply because of our current or past ownership or operation of the real estate |
| Therefore, we may have liability with respect to properties we have already sold |
| If environmental problems arise, we may have to take extensive measures to remedy the problems, which could adversely affect our cash flow and our ability to pay distributions to our investors because: • we may have to pay for property damage and for investigation and clean-up costs incurred in connection with the contamination; • the law typically imposes clean-up responsibility and liability regardless of whether the owner or operator knew of or caused the contamination; • even if more than one person may be responsible for the contamination, each person who shares legal liability under the environmental laws may be held responsible for all of the clean-up costs; and • governmental entities or other third parties may sue the owner or operator of a contaminated site for damages and costs |
| These costs could be substantial and in extreme cases could exceed the value of the contaminated property |
| The presence of hazardous or toxic substances or petroleum products and the failure to remediate that contamination properly may materially and adversely affect our ability to borrow against, sell or rent an affected property |
| In addition, applicable environmental laws create liens on contaminated sites in favor of the government for damages and costs it incurs in connection with a contamination |
| We face risks related to mold and asbestos |
| Recently, there has been an increasing number of lawsuits against owners and managers of properties alleging personal injury and property damage caused by the presence of mold in real estate |
| 20 _________________________________________________________________ [50]Table of Contents Some of these lawsuits have resulted in substantial monetary judgments or settlements |
| Although our insurance policy currently does not exclude mold-related claims, we cannot provide any assurance that we will be able to obtain coverage in the future for those claims at a commercially reasonable price or at all |
| The presence of significant mold could expose us to liability to tenants and others if allegations regarding property damage, health concerns or similar claims arise |
| Environmental laws also govern the presence, maintenance and removal of asbestos |
| Those laws require that owners or operators of buildings containing asbestos: • properly manage and maintain the asbestos; • notify and train those who may come into contact with asbestos; and • undertake special precautions, including removal or other abatement, if asbestos would be disturbed during renovation or demolition of a building |
| Those laws may impose fines and penalties on building owners or operators who fail to comply with these requirements and may allow others to seek recovery from owners or operators for personal injury associated with exposure to asbestos fibers |
| We may acquire properties that are subject to liabilities for which we have no recourse, or only limited recourse, against the seller |
| These liabilities can include: • claims by tenants, vendors or other persons dealing with the former owners of the properties; • liabilities incurred in the ordinary course of business; and • claims for indemnification by directors, officers and others indemnified by the former owners of the properties |
| If we have to expend time and money to deal with these claims, our business could be materially and adversely affected |
| We face risks in complying with Section 404 of the Sarbanes-Oxley Act of 2002 |
| To comply with Section 404 of the Sarbanes-Oxley Act of 2002, we must furnish a report by our management on our internal controls over financial reporting with our annual report on Form 10-K for our fiscal year ending December 31, 2007 |
| The report will contain, among other matters, an assessment of the effectiveness of our internal control over financial reporting as of the end of that fiscal year, including a statement as to whether or not our internal control over financial reporting is effective |
| This assessment must include disclosure of any material weaknesses in our internal control over financial reporting |
| Material weakness in internal controls over financial reporting is defined as “a significant deficiency, or a combination of significant deficiencies, that results in more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected |
| ” The report will also contain a statement that our auditors have issued an attestation report on management’s assessment of our internal controls |
| We currently expect to begin testing of our internal controls no later than the second quarter of fiscal 2007 |
| This testing will include documenting our procedures and an analysis of the segregation of duties |
| In the course of our evaluation and testing of internal controls, we may identify areas for improvement in the documentation, design and effectiveness of our internal controls, and these areas of improvement may be material |
| We may elect or be required to disclose those weaknesses before we have 21 _________________________________________________________________ [51]Table of Contents remediated them |
| Any disclosure of this nature may adversely affect our stock price |
| We cannot assure you that we will not discover material weaknesses in the course of our testing and be required to disclose them |
| Given the risks inherent in the design and operation of internal controls over financial reporting, we can provide no assurance regarding our conclusions, or regarding the conclusions of our independent auditor, as of December 31, 2007 with respect to the effectiveness of our internal controls over financial reporting |
| Failure to comply with the Americans with Disabilities Act or other similar laws could result in substantial costs |
| A number of federal, state and local laws and regulations (including the Americans with Disabilities Act) may require modifications to existing buildings or restrict certain renovations by requiring improved access to such buildings by disabled persons and may require other structural features that add to the cost of buildings under construction |
| Legislation or regulations adopted in the future may impose further burdens or restrictions on us with respect to improved access by disabled persons |
| The costs of compliance with these laws and regulations may be substantial, and restrictions on construction or completion of renovations may limit implementation of our investment strategy in certain instances or reduce overall returns on our investments, which could have a material adverse effect on us and our ability to pay distributions to investors and to pay amounts due on our debt |
| Risks for Investors in Our Stock We do not pay regular quarterly dividends, and we do not anticipate making any distributions to investors for the indefinite future, other than possibly to preserve our REIT status if so required |
| Unlike other REITs that pay regular monthly or quarterly dividends, we have not paid regular quarterly dividends since the third quarter of 2001, and we presently have no plans to resume paying regular quarterly dividends |
| Since 2001, we have paid dividends only out of the proceeds of property sales |
| Particularly in light of our need for capital to fund our planned development and construction program, we anticipate paying distributions out of the proceeds of property sales only if we need to do so to maintain our status as a REIT for federal income tax purposes |
| The market price of our stock is subject to fluctuation as a result of our operating results, the operating results of other REITs and changes in the stock market in general |
| The trading volumes of our common stock on the American Stock Exchange have historically been relatively light, and the market price may not reflect the fair market value of our common stock (or our net asset value) at any particular moment |
| Prior sales data do not necessarily indicate the prices at which our common stock would trade in a more active market |
| The market value of our common stock may be based primarily upon the market’s perception of our growth potential and current and future cash dividends, and may be secondarily based upon the real estate market value of our underlying assets |
| In addition, general market conditions or market conditions of real estate companies in general could adversely affect the value of our common stock |
| Additional issuances of equity securities may dilute the investment of our current shareholders |
| Issuing additional equity securities to finance future developments and acquisitions instead of incurring additional debt could dilute the interests of our existing shareholders |
| Our ability to execute our 22 _________________________________________________________________ [52]Table of Contents business strategy depends on our access to an appropriate blend of debt financing, which could include a line of credit and other forms of secured and unsecured debt, equity financing or joint ventures |
| Restrictions on changes of control could prevent a beneficial takeover for investors |
| A number of the provisions in our articles of incorporation and bylaws have or may have the effect of deterring a takeover of the company |
| In particular, to qualify as a REIT for federal income tax purposes, we must comply with various requirements and avoid various prohibited events |
| A company cannot be a REIT if, during the last half of a taxable year, more than 50prca in value of its outstanding stock is owned by five or fewer individual shareholders, taking into account certain constructive ownership tests |
| To help the company comply with that test, Article 5 of our articles of incorporation provides in substance that (a) Mr |
| Roberts cannot own more than 35prca of the outstanding shares of our common stock, and (b) no other person can own more than 3dtta7prca of our outstanding common stock |
| These provisions, which are intended to limit the ownership of our common stock by five persons to no more than 49prca of our outstanding shares, have or may have the effect of deterring a takeover of the company |
| In addition, our articles of incorporation and bylaws have other provisions that have or may have the effect of deterring a takeover of the company, including: • our classified board of directors, which may render more difficult a change in control of the company or removal of incumbent management, because the term of office of only one-third of the directors expires in a given year; • the ability of our board of directors to issue preferred stock; • provisions in the articles of incorporation to the effect that no transaction of a fundamental nature, including mergers in which the company is not the survivor, share exchanges, consolidations, or sale of all or substantially all of the assets of the Company, may be effectuated without the affirmative vote of at least three-quarters of the votes entitled to vote generally in any such matter; • provisions in the articles of incorporation to the effect that they may not be amended (except for certain limited matters) without the affirmative vote of at least three-quarters of the votes entitled to be voted generally in the election of directors; • provisions in the bylaws to the effect that they may be amended by either the affirmative vote of three-quarters of all shares outstanding and entitled to vote generally in the election of the directors, or the affirmative vote of a majority of the company’s directors then holding office, unless the shareholders prescribed that any such bylaw may not be amended or repealed by the board of directors; • Georgia anti-takeover statutes under which the company may elect to be protected; and • provisions to the effect that directors elected by the holders of common stock may be removed only by the affirmative vote of shareholders holding at least 75prca of all of the votes entitled to be cast for the election of directors |
| A redemption of units is taxable |
| Holders of units in our operating partnership should keep in mind that a redemption of units will be treated as a sale of units for federal income tax purposes |
| The exchanging holder will generally recognize gain in an amount equal to the value of the common shares, plus the amount of liabilities of the operating partnership allocable to the units being redeemed, less the holder’s tax basis in the units |
| It is possible that the amount of gain recognized or the resulting tax liability could exceed the value of the shares received in the redemption |