**UNITED
STATES**


**SECURITIES
AND EXCHANGE COMMISSION**


**WASHINGTON,
DC 20549**





**FORM
10-K**





**FOR
ANNUAL AND TRANSITION REPORTS**


**PURSUANT
TO SECTIONS 13 OR 15(d) OF THE**


**SECURITIES
EXCHANGE ACT OF 1934**


(Mark
One)




þ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF
1934




For the
fiscal year ended December
31, 2004 .





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 Incorporation or Organization)
    
    (I.R.S.
      Employer Identification No.)**450
      Northridge Parkway, Suite 302, Atlanta, GA******
    
    **30350******(Address
      of Principal Executive Offices)
    
    (Zip
      Code)





Registrant’s
telephone number, including area code **(770)
394-6000**





Securities
registered under Section 12(b) of the Act: **None**





Securities
registered under Section 12(g) of the Exchange Act:


**Common
Stock**


(Title of
Class)





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 þ No o





Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. o





Indicate
by check mark whether the registrant is an accelerated filer (as defined in
Exchange Act Rule 12b-2 of the Act). Yes o No þ





State the
aggregate market value of the voting and non-voting common equity held by
non-affiliates computed by reference to the price at which the common equity was
last sold, or the average bid and asked price of such common equity, as of the
last business day of the registrant’s most recently completed second fiscal
quarter.





$31,239,744





Indicate
the number of shares outstanding of each of the registrant’s classes of common
stock, as of the latest practicable date. 5,321,485 shares of common stock (as
of March 21, 2005).





**Documents
Incorporated by Reference** .
None





****


**TABLE
OF CONTENTS**


PAGE**PART
      I**
    
    
    2ITEM
      1. DESCRIPTION OFBUSINESS
    
    
    2ITEM
      2.PROPERTIES
    
    
    12ITEM
      3.LEGAL
      PROCEEDINGS
    
    
    21ITEM
      4.SUBMISSION
      OF MATTERS TO A VOTE OF  SECURITY
      HOLDERS
    
    
    21**PART
      II**
    
    
    22ITEM
      5.MARKET
      FOR REGISTRANT’S COMMON EQUITY, RELATED
      STOCKHOLDER MATTERS AND ISSUER
      PURCHASES OF EQUITY SECURITIES
    
    
    22ITEM
      6.SELECTED
      FINANCIAL DATA
    
    
    24ITEM
      7.MANAGEMENT’S
      DISCUSSION AND ANALYSIS OF FINANCIAL
      CONDITION AND RESULTS OF OPERATIONS
    
    
    26ITEM
      7A.QUANTITATIVE
      AND QUALITATIVE DISCLOSURES ABOUT
      MARKET RISK
    
    
    47ITEM
      8.FINANCIAL
      STATEMENTS AND SUPPLEMENTARY DATA
    
    
    49ITEM
      9.CHANGES
      IN AND DISAGREEMENTS WITH ACCOUNTANTS
      ON ACCOUNTING AND FINANCIAL DISCLOSURE
    
    
    49ITEM
      9ACONTROLS
      AND PROCEDURES
    
    
    49ITEM
      9BOTHER
      INFORMATION
    
    
    49**PART
      III**
    
    
    50ITEM
      10.DIRECTORS
      AND EXECUTIVE OFFICERS OF
      THE REGISTRANT
    
    
    50ITEM
      11.EXECUTIVE
      COMPENSATION
    
    
    53ITEM
      12.SECURITY
      OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
      AND MANAGEMENT AND RELATED
      STOCKHOLDER MATTERS
    
    
    54ITEM
      13.CERTAIN
      RELATIONSHIPS AND RELATED TRANSACTIONS
    
    
    56ITEM
      14.PRINCIPAL
      ACCOUNTANT FEES AND SERVICES
    
    
    60**PART
      IV**
    
    
    62ITEM
      15.EXHIBITS
      AND FINANCIAL STATEMENT SCHEDULES
    
    
    62


**PART
I**








**ITEM
1.**  **DESCRIPTION
OF BUSINESS.**





This
report contains “forward-looking statements” within the meaning of the federal
securities laws. These statements relate to future economic performance, plans
and objectives of management for future operations and projections of revenues
and other financial items that are based on the beliefs of our management, as
well as assumptions made by, and information currently available to, our
management. The words “expect,” “estimate,” “anticipate,” “believe” and similar
expressions are intended to identify forward-looking statements. Those
statements involve risks, uncertainties and assumptions, including industry and
economic conditions, competition and other factors discussed in this and our
other filings with the SEC. If one or more of these risks or uncertainties
materialize or underlying assumptions prove incorrect, actual outcomes may vary
materially from those indicated. We will make forward-looking statements in
Items 1, 2, 5, 7 and 7A of this report. See “Disclosure Regarding
Forward-Looking Statements” at the end of Item 7 for a description of some of
the important factors that may affect actual outcomes.





**General**





Roberts
Realty Investors, Inc. is a Georgia corporation formed in 1994 that owns and
operates multifamily residential and other properties as a self-administered,
self-managed equity real estate investment trust, or REIT. We expect to continue
to qualify as a REIT for federal income tax purposes. A REIT is a legal entity
that holds real estate interests and, through its payment of distributions, is
able to reduce or avoid incurring federal income tax at the corporate level.
This structure allows shareholders to participate in real estate investments
without the “double taxation” of income - i.e., at both the corporate and
shareholder levels - that generally results from an investment in shares of a
corporation. To maintain our qualification as a REIT, we must, among other
things, distribute annually to our shareholders at least 90% of our taxable
income. We conduct our business through Roberts Properties Residential, L.P.,
which we refer to as the operating partnership. The operating partnership owns
all our properties. As of March 21, 2005, Roberts Realty owns a 73.8% interest
in the operating partnership and is its sole general partner. We expect to
continue to conduct our business in this organizational structure, which is
sometimes called an “umbrella partnership” or “UPREIT.”





Our
common stock is traded on the American Stock Exchange under the symbol “RPI.”
Our executive offices are located at 450 Northridge Parkway, Suite 302, Atlanta,
Georgia 30350, and our telephone number is (770) 394-6000. We do not maintain a
corporate website. As of February 28, 2005, we have 23 full-time
employees.





**Sales
of Six Apartment Communities in 2004 and Purchase of New Properties for
Development in 2004 and 2005**





*Sale
of Five Apartment Communities to Colonial Properties Trust* . On June
2, 2004, we sold five of our Atlanta apartment communities - Bradford Creek,
Plantation Trace, Preston Oaks, River Oaks, and Veranda Chase, totaling 1,091
units - to Colonial Properties Trust. The sales price was $109,150,000 or an
average of $100,045 per apartment unit, resulting in a gain of $32,404,000, net
of minority interest of $11,985,000. The sale was the first step in our recent
plan of selling older appreciated assets and focusing on newer assets. Net sales
proceeds were approximately $47,016,000, or $6.51 per share/unit, after
deduction of:




2




(a)
    $58,802,000
      for the mortgage notes payable assumed by the
buyer;





(b)
    closing
      costs and prorations totaling $150,000; and





(c)
    a
      partnership profits interest distribution of $3,182,000 paid to Roberts
      Properties under the amended partnership agreement of the operating
      partnership.





On June
18, 2004, we paid a distribution of $4.50 per share/unit to shareholders and
unitholders of record on June 14, 2004 from the profits of the
sale.





*Sale
of St. Andrews at the Polo Club.* On July
29, 2004, we sold our St. Andrews at the Polo Club community in Palm Beach
County, Florida to an unrelated third party for $36,000,000, resulting in a gain
of $8,254,000, net of minority interest of $3,053,000. Net sales proceeds were
approximately $15,113,000 after deduction of:





(a)
    $20,412,000
      for the mortgage note payable assumed by the buyer; and




(b)
    closing
      costs and prorations totaling $475,000.




We
reinvested the majority of the proceeds from the sale of St. Andrews at the Polo
Club in other properties through a Section 1031 tax-deferred exchange, which
permits our shareholders to defer paying the tax they would otherwise incur on
the gain.





*Recent
Purchases of New Properties for Development* .
Continuing our recent plan of selling older appreciated assets and focusing on
newer assets, we acquired three high quality properties. In December 2004 and
January 2005, we used the majority of the proceeds of the sale of St. Andrews at
the Polo Club, described above, and new borrowings to fund the following
purchases:





·
    we
      paid $7,769,500 for an 82% undivided interest in 23.547 acres of
      undeveloped land zoned for 292 apartment units in Gwinnett County,
      Georgia;





·
    we
      paid $5,880,000 for a 29.48-acre site of undeveloped land zoned for 109
      condominium units, 15,000 square feet of retail space and a density of
      500,000 square feet for auniversity
      education center in Alpharetta, Georgia;
and





·
    we
      paid $15,700,000 for a 9.84-acre site of undeveloped land zoned for 120
      condominium units, 236 apartment units, 210,000 square feet of office
      space and 56,000 square feet of retail space in Atlanta,
      Georgia.





We paid a
total of $29,349,500 to purchase these three properties. Combining the apartment
and condominium units we can build on these three properties, the 722 existing
apartment homes that we own, and our 220-unit community under development, we
have a total of 1,470 apartment units and 229 condominium units that we own and
may develop. Taking into account our investment in our existing communities and
undeveloped land, as well as estimates of what it would cost to develop and
construct the apartment and condominium units for which our undeveloped
properties are zoned, these residential communities would represent an aggregate
investment of approximately $175,000,000.





Please
see Item 7, Management’s Discussion and Analysis of Financial Condition and
Results of Operations for a discussion of the impact we expect these sales and
acquisitions to have on our future results of operations, liquidity and capital
resources.





3


****


**Current
Portfolio**





As of
March 21, 2005, we own:





**·**
    Addison
      Place, a stabilized multifamily community consisting of the 118-unit
      Addison Place Townhomes and the 285-unit Addison Place Apartments in
      Alpharetta, Georgia. As of February 28, 2005, Addison Place had a physical
      occupancy rate of 95.0%. We consider a community to have achieved
      stabilized occupancy on the earlier of (a) attainment of 95% occupancy as
      of the first day of any month, or (b) one year after completion of
      construction.





**·**
    Ballantyne
      Place, a 319-unit apartment communityin
      lease-upin
      Charlotte, North Carolina. We began leasing activity at Ballantyne Place
      in March 2004 and as of February 28, 2005, the community is 63.6% leased.





**·**
    Addison
      Place Shops, a 42,090 square foot retail center located at the entrance to
      our Addison Place apartment community in Alpharetta, Georgia that isin
      lease-up.
      We have completed construction of this retail center except for the
      interior tenant finish.





**·**
    A
      1.0-acre undeveloped commercial site adjacent to the Addison Place Shops
      that we intend to sell.





**·**
    A
      39,907 square foot office building in lease-up in Atlanta, Georgia,
      (sometimes referred to in this report as the Northridge office building).
      We occupy a portion of one floor of the building as our corporate
      headquarters, and we have entered into leases for the remaining space on
      that floor with Roberts Properties and Roberts Construction. We are in the
      process of leasing the other two floors to unaffiliated
      tenants.





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





**·**
    An
      82% undivided interest in 23.547 acres of undeveloped land zoned for 292
      apartment units in Gwinnett County,
Georgia.





**·**
    A
      29.48-acre site of undeveloped land zoned for 109 condominium units,
      15,000 square feet of retail space and a density of 500,000 square feet
      for auniversity
      education center in Alpharetta, Georgia.





**·**
    A
      9.84-acre site of undeveloped land zoned for 120 condominium units, 236
      apartment units, 210,000 square feet of office space and 56,000 square
      feet of retail space in Atlanta, Georgia.





To
enhance shareholder value in 2004, we sold six older appreciated assets, paid a
significant distribution to our shareholders and redeployed a portion of the
sales proceeds into new development assets.





In
Atlanta, our primary market, sluggish job growth and historically low mortgage
interest rates have contributed to lower demand for apartments, while the supply
of multifamily units has increased. To maintain our physical occupancy, we offer
residents incentives in the form of concessions and lower rents, which result in
decreased revenues and income from operations. We have begun to reduce rent
concessions per unit and we expect the concessions per unit to decrease
gradually over time, but we cannot offer any assurances regarding when
multifamily market conditions might improve. Until there is significant job
growth in the geographic areas in which we operate, the apartment market will
remain soft, and we will continue to experience the negative effects of lower
rents. To the extent that these conditions continue and perhaps worsen,
particularly in Atlanta, our business, operating results and liquidity will be
affected adversely.




4




We have
three properties in lease-up, one property in the planning and design phase, and
four parcels of undeveloped land. In total, we have invested approximately $46.4
million into these properties, which are currently producing minimal cash flow.
We believe that our cash flow from operations will improve as we finish the
lease-ups and our properties
under development and construction.





**Dividends
and Special Distributions**





On August
27, 2003, we paid a special distribution of $0.55 per share/unit to shareholders
and unitholders of record on August 18, 2003. We paid the special distribution
from the profit generated by the sale of our Highland Park community. On June
18, 2004, we paid a special distribution of $4.50 per share/unit to shareholders
and unitholders of record on June 14, 2004. We paid this distribution from the
profits generated by the sale of five apartment communities to Colonial
Properties Trust.





We have
paid no regular quarterly dividends since the third quarter of 2001. We
presently intend not to resume paying regular quarterly dividends. We have in
the past paid distributions from the net proceeds of property sales. We expect
in the near term to use all or most of the net proceeds of any sale for either
or both of: (a) funding our ongoing development and construction program; and
(b) acquiring other properties through a Section 1031 tax-deferred exchange, as
we did with the proceeds of the sale of our St. Andrews at the Polo Club
community. (A Section 1031 tax-deferred exchange permits our shareholders to
defer paying the tax they would otherwise incur on the gain from the sale.)





**Growth
Strategies**





Our
business plan and growth strategy are focused on creating cash flow and capital
appreciation by building and managing new apartment homes of the highest quality
and value in excellent high-growth neighborhoods. Our business objective is to
increase the long-term total return to our shareholders through appreciation in
the value of our properties and, when we sell properties, the payment of
dividends or capital distributions. To achieve this objective, we are pursuing
the following growth strategies:





(a)
    maximize
      cash flow from operations by seeking through intensive management to
      maintain high occupancy levels, obtain regular rent increases, manage
      resident turnover efficiently and control operating expenses;
      and





(b)
    develop
      and/or acquire new multifamily apartment communities in Atlanta and Palm
      Beach, Florida.





We will
engage others, including the Roberts Companies, to help us pursue these
strategies, which are described in more detail below.





*Property
Management Strategy* . We
believe that managing our communities intensively is a fundamental element of
our investment strategy. As of February 28, 2005, we employ 17 property
management personnel, including property managers, leasing managers, leasing
consultants, maintenance supervisors and technicians. We believe our property
management expertise will enable us to continue to deliver quality services,
thereby promoting resident satisfaction, maintaining high resident retention,
and enhancing the value of each of the communities. Our property management
strategy will continue to be:




5




§
    to
      increase average occupancy and rental rates as market conditions
      permit;





§
    to
      minimize resident turnover and delinquent rental payments through strict
      review of each applicant’s creditworthiness;





§
    to
      control operating expenses and increase net operating income at each of
      our communities; and





§
    provide
      superior service to our residents.





*Development
and Construction Strategy* . We
intend to continue to develop high quality apartment communities and other real
estate assets for long-term ownership. We have engaged two entities owned by Mr.
Charles S. Roberts, our Chairman of the Board and Chief Executive Officer, to
perform services for the operating partnership. These entities are Roberts
Properties, Inc. and Roberts Properties Construction, Inc., which we sometimes
refer to as the Roberts Companies. During the past 20 years, the Roberts
Companies have developed, constructed, and/or managed over 4,400 residential
units, and Roberts Properties developed and Roberts Construction has been the
general contractor for all of our existing properties. We expect that affiliates
of Mr. Roberts will continue to develop and construct properties for us, and we
have entered into agreements for those services as described in Item 13, Certain
Relationships and Related Transactions. We may also hire other development or
construction companies, as we have done in the past, in Atlanta and elsewhere if
we deem it to be in our best interests to do so. For the properties we recently
purchased on Peachtree Dunwoody Road and Westside Parkway, we intend to utilize
the Roberts Companies to develop the apartments and condominiums and engage
joint-venture partners to develop the office, retail and other
uses.





We
believe that the number and quality of the apartment units developed by the
Roberts Companies, the relationships Mr. Roberts and employees of the Roberts
Companies have developed with local permitting and governmental authorities, and
the Roberts Companies’ experience with the development, construction and
financing process will minimize the barriers to new development. These barriers
include governmental growth control, a difficult rezoning and permitting
process, and the limited availability of well-located sites. We believe that
these restraints on construction, assuming substantial improvement in the
Atlanta economy, offer a continuing opportunity for us to achieve favorable
long-term returns on the development of well-located, high quality apartment
home communities.





In
analyzing the potential development of a particular community, we will evaluate
geographic, demographic, economic, and financial data, including:





§
    households,
      population and employment growth;




§
    prevailing
      rental and occupancy rates in the immediate market area and the perceived
      potential for growth in those rates;




§
    costs
      that affect profitability of the investment, including construction,
      financing, operating and maintenance costs;




§
    income
      levels in the area;




§
    existing
      employment bases;




§
    traffic
      volume, transportation access, proximity to commercial centers and
      regional malls; and




§
    proximity
      to and quality of the area’s schools.





6





We will
also consider physical elements regarding a particular site, including the
probability of zoning approval (if required), availability of utilities and
infrastructure, and other physical characteristics of the site.





**Investment,
Financing, and Conflict of Interest Policies**





Our
investment policies, financing policies and conflict of interest policies are
set by our board of directors. The board
of directors has adopted the policies summarized below. Our board may amend or
revise them from time to time without a vote of our shareholders or any vote of
the partners of the operating partnership, except that:





(a)
    we
      cannot change our policy of holding our assets and conducting our business
      exclusively through the operating partnership without amending the
      operating partnership agreement, which will generally require the consent
      of the holders of a majority in interest of the limited partners in the
      operating partnership including, if applicable, Roberts Realty; and




(b)
    changes
      in our conflicts of interest policies must be approved by a majority of
      the independent directors and otherwise be consistent with legal
      requirements.





**Investment
Policies**





*Investments
in Real Estate or Interests in Real Estate* . We
conduct all of our investment activities through the operating partnership and
will do so for so long as the operating partnership exists. (The agreement of
limited partnership of the operating partnership provides that it is not
required to be dissolved until 2093.) Our investment objectives are to achieve
stable cash flow and, over time, to increase cash flow and portfolio value by
continuing to develop multifamily apartment communities for ownership as well as
acquiring additional multifamily apartment communities that we anticipate will
produce additional cash flow.





Our
policy is to develop assets where we believe that favorable investment
opportunities exist based on market conditions at the time of the investment. We
expect to pursue our investment objectives primarily through the direct
ownership of properties by the operating partnership, although, as discussed
below, we may also pursue indirect property ownership opportunities. We intend
to develop multifamily apartment communities primarily in Atlanta and Palm
Beach. Future development or investment activities will not be limited by our
governing documents to any geographic area, product type or specified percentage
of our assets.





*Possible
Acquisition of Properties from Mr. Roberts or His Affiliates* . Mr.
Roberts and Roberts Properties have been engaged in the development of
residential and commercial real estate since the early 1970s, and Mr. Roberts
expects that he and Roberts Properties will continue to engage in real estate
development. Provided that any transaction or agreement must comply with the
policies discussed under “Conflict of Interest Policies,” we may engage in
transactions of various types with Mr. Roberts, Roberts Properties and/or other
affiliates of Mr. Roberts to develop or acquire real estate. Those transactions
may include:





§
    hiring
      Mr. Roberts or Roberts Properties to develop and construct real estate
      under a fee arrangement;




§
    acquiring
      undeveloped property from Mr. Roberts or his affiliates for future
      development (which we did in December 2004 and January 2005 as described
      above); or




7




§
    acquiring
      from Mr. Roberts or his affiliates partially or completely constructed
      properties, whether in their lease-up phase or already leased-up.





No
particular arrangements have been determined, other than the communities now
under construction and development as described elsewhere in this
report.





An
affiliate of Mr. Roberts is planning to purchase a 14.48-acre parcel of
undeveloped land located on Westside Parkway in Alpharetta, Georgia next to a
29.48-acre tract of undeveloped land that we purchased in December 2004.
Although the 14.48-acre parcel is presently zoned for a MARTA mass
transportation rail facility, it could potentially be developed into 217 single
family attached residential units. We may acquire this parcel from the affiliate
of Mr. Roberts in the future to develop and construct a multifamily property,
but our board has not discussed a transaction of that nature with Mr. Roberts to
date. We cannot now predict whether we will in fact purchase the 14.48-acre
parcel or what the terms of that purchase might be.





*Securities
of or Interest in Persons Primarily Engaged in Real Estate Activities and Other
Issuers* . We and
the operating partnership also may invest in securities of other entities
engaged in real estate activities or invest in securities of other issuers,
including investments by us and the operating partnership for the purpose of
exercising control over those entities. We or the operating partnership may
acquire all or substantially all of the securities or assets of other REITs or
similar entities where those investments would be consistent with our investment
policies. We do not currently intend to invest in the securities of other
issuers. In making any of the investments described in this paragraph, we intend
to comply with the percentage of ownership limitations and gross income tests
necessary for REIT qualification under the Internal Revenue Code. Also, we will
not make any investments if the proposed investment would cause us or the
operating partnership to be an “investment company” under the Investment Company
Act of 1940.





*No
Investments in Mortgages* .  We
do not own any mortgages and do not currently intend to invest in mortgages or
to engage in originating, servicing or warehousing mortgages.





**Financing
Policies**





Our
organizational documents do not limit the amount of indebtedness we may incur.
We have an informal policy that we will not incur indebtedness in excess of 75%
of what the board of directors believes is the fair market value of our assets
at any given time. We may, however, from time to time 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.





To the
extent that the board of directors determines to seek additional capital, we may
raise capital through additional equity offerings, debt financing or retention
of cash flow or a combination of these methods. Our retention of cash flow is
subject to provisions in the Internal Revenue Code requiring a REIT to
distribute a specified percentage of taxable income, and we must also take into
account taxes that would be imposed on undistributed taxable income. As long as
the operating partnership is in existence, we will contribute the net proceeds
of all equity capital we raise to the operating partnership in exchange for
units or other interests in the operating partnership.





We have
not established any limit on the number or amount of mortgages on any single
property or on the operating partnership’s portfolio as a whole.


****


8





**Conflict
of Interest Policies**





The board
of directors is subject to provisions of Georgia law that are designed to
eliminate or minimize potential conflicts of interest. We can give no
assurances, however, that these policies will always eliminate the influence of
those conflicts. If these policies are not successful, the board could make
decisions that might fail to reflect fully the interests of all
shareholders.





Under
Georgia law, a director may not misappropriate corporate opportunities that he
learns of solely by serving as a member of the board of directors. In addition,
under Georgia law, a transaction effected by us or any entity we control
(including the operating partnership) in which a director, or specified related
persons and entities of the director, have a conflicting interest of such
financial significance that it would reasonably be expected to exert an
influence on the director’s judgment may not be enjoined, set aside or give rise
to damages on the grounds of that interest if either:





§
    the
      transaction is approved, after disclosure of the interest, by the
      affirmative vote of a majority of the disinterested directors, or by the
      affirmative vote of a majority of the votes cast by disinterested
      shareholders; or





§
    the
      transaction is established to have been fair to us.





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. In addition, under the applicable rules of the American Stock
Exchange, related party transactions are subject to appropriate review and
oversight by our Audit Committee, which is composed of Wm. Jarell Jones, its
chairman, Dennis H. James, and James M. Goodrich.





**Other
Policies**





We and
the operating partnership have authority to offer our securities and to
repurchase and otherwise reacquire our securities, and we may engage in those
activities in the future. We have adopted a policy that we will issue shares to
unitholders who exercise their rights of redemption. In the future, we may make
loans to joint ventures in which we participate to meet working capital needs.
We have not engaged in trading, underwriting, agency distribution or sale of
securities of other issuers, and we do not intend to do so. We intend to make
investments in a manner so that we will not be treated as an “investment
company” under the Investment Company Act of 1940.





In
September 1998, our board authorized a stock repurchase plan. See Item 7,
Management’s Discussion and Analysis of Financial Condition and Results of
Operations - Stock Repurchase Plan, for an explanation of this plan and our
repurchases of our shares from 1998 through 2001.





At all
times, we intend to make investments in a manner to be consistent with the
requirements of the Internal Revenue Code for us to qualify as a REIT unless,
because of changing circumstances or changes in the Internal Revenue Code or in
applicable regulations, the board of directors decides that it is no longer in
our best interests to qualify as a REIT.





**The
Operating Partnership**





We
conduct our business and own all of our real estate assets through the operating
partnership. We control the operating partnership as its sole general partner.
Our ownership interest in the operating partnership entitles us to share in cash
distributions from, and in the profits and losses of, the operating partnership
generally in proportion to our ownership percentage. In this report, we refer to
units of limited partnership interest in the operating partnership as “units.”
The holders of units include the former limited partners in the limited
partnerships that were merged into the operating partnership and Mr.
Roberts.


9





Holders
of units in the operating partnership, sometimes referred to in this report as
unitholders, generally have the right to require the operating partnership to
redeem their units. A unitholder who submits units for redemption will receive,
at our election, either an equal number of shares or cash for those units at
their fair market value, based upon the then current trading price of the
shares. We have adopted a policy of issuing shares in exchange for units. We
also have the right, at our election, to issue shares in exchange for all
outstanding units. Our articles of incorporation limit ownership by any one
holder to 3.7% of the outstanding shares of our common stock, with two
exceptions. First, Mr. Roberts can beneficially own up to 35% of the outstanding
shares. Second, any shareholder who beneficially owned more than 3.7% of our
outstanding common shares on July 22, 2004, the date that we filed an amendment
to our articles of incorporation revising the ownership limits, can retain
indefinitely the shares the shareholder owned as of that date but cannot
increase that ownership in the future. That shareholder can also exchange any
units in the operating partnership he owned on that date for shares of common
stock. Otherwise, unitholders cannot redeem their units if doing so would cause
the number of shares they own to exceed those ownership limits. Shares issued
for units are registered with the SEC and are freely transferable, other than by
affiliates.





Whenever
we issue shares, we are obligated to contribute the net proceeds from that
issuance to the operating partnership, and the operating partnership is
obligated to issue the same number of units to us. The operating partnership
agreement permits the operating partnership, without the consent of the
unitholders, to sell additional units and add limited partners.





**Environmental
and Other Regulatory Matters**





Under
various federal, state, and local laws and regulations, an owner of real estate
is liable for the costs of removal or remediation of hazardous or toxic
substances on the property. Those laws often impose liability without regard to
whether the owner knew of, or was responsible for, the presence of the hazardous
or toxic substances. The costs of remediation or removal of the substances may
be substantial, and the presence of the substances, or the failure to promptly
remediate the substances, may adversely affect the owner’s ability to sell the
real estate or to borrow using the real estate as collateral. In connection with
the ownership and operation of our apartment communities and other real estate
assets, we may be potentially liable for:





(a)
    remediation
      and removal costs; and




(b)
    damages
      to persons or property arising from the existence or maintenance of
      hazardous or toxic substances.





The
preliminary environmental assessments of our apartment communities, investment
land and other real estate assets have not revealed any environmental liability
that we believe would have a material adverse effect on our business, assets or
results of operations, nor are we aware of any liability of that type.
Nevertheless, these assessments may not have revealed all environmental
liabilities, and we may have material environmental liabilities that we do not
know about. Future uses or conditions - including changes in applicable
environmental laws and regulations - may cause us to have environmental
liability.


****


10


****


**Costs
of Compliance with Americans with Disabilities Act and Similar
Laws**





Under the
Americans with Disabilities Act of 1990, or the ADA, all places of public
accommodation are required to meet federal requirements related to access and
use by disabled persons. Although we believe that our communities are
substantially in compliance with present requirements of the ADA, we may incur
additional costs of complying with the ADA. A number of additional federal,
state and local laws may also require modifications to the communities, or
restrict further renovations to them, with respect to access by disabled
persons. For example, the Fair Housing Amendments Act of 1988 requires apartment
communities first occupied after March 25, 1990 to be accessible to the
handicapped. Noncompliance with this Act could result in the imposition of fines
or an award of damages to private litigants. We believe that our communities
comply with that law.





Additional
legislation may impose further burdens or restrictions on owners with respect to
access by disabled persons. We cannot estimate the ultimate cost of compliance
with the ADA or that legislation, and, while those costs are not expected to
have a material adverse effect on us, those costs could be substantial.
Limitations or restrictions on the completion of renovations may limit
application of our investment strategy in some instances or reduce overall
returns on our investments.





**Insurance**





We carry
comprehensive property, general liability, fire, extended coverage and rental
loss insurance on all of our existing communities, with policy specifications,
insured limits and deductibles customarily carried for similar properties. We
carry similar insurance with respect to our properties under development or
properties under construction, but with appropriate exceptions given the nature
of these properties.





The
Terrorism Risk Insurance Act of 2002 was signed into law on November 26, 2002.
The law provides that losses resulting from certified acts of terrorism will be
partially reimbursed by the United States after a statutory deductible amount is
paid by the insurance company providing coverage. The law also requires that the
insurance company offer coverage for terrorist acts for an additional premium.
We accepted the offer to include this coverage in our property and casualty
policies.





We
believe that our properties are adequately covered by insurance. There are,
however, some types of losses (such as losses arising from acts of war) that are
not generally insured because they are either uninsurable or not economically
insurable. If an uninsured loss or a loss in excess of insured limits occurs, we
could lose our capital invested in a property, as well as the anticipated future
revenues from the property, and we would continue to be obligated on any
mortgage indebtedness or other obligations related to the property. Any loss of
that kind would adversely affect us.





For a
description of the competition in our markets, see Item 2, Properties -
Competition.


****
 11
 ****
 **ITEM
2.**  **PROPERTIES.**





**General**





As
previously noted in Item 1, as of March 21, 2005, we own:





·
    one
      existing 403-unit apartment community (Addison Place) that includes a
      285-unit garden apartment community (Addison Place Apartments) and a
      118-unit townhome community (Addison Place Townhomes) in Alpharetta,
      Georgia that is stabilized;





·
    a
      319-unit apartment community in lease-up in Charlotte, North Carolina
      (Ballantyne Place);





·
    a
      42,090 square foot retail centerin
      lease-up(Addison
      Place Shops);





·
    a
      1.0-acre undeveloped commercial site adjacent to the Addison Place Shops
      that we intend to sell;





·
    a
      39,907 square foot office building in lease-up in Atlanta, Georgia, a part
      of which we occupy as our corporate headquarters (Northridge office
      building);





·
    a
      10.9-acre site currently in the planning and design phase on which we
      intend to build a 220-unit apartment community (Northridge
      community);





·
    an
      82% undivided interest in 23.547 acres of undeveloped land zoned for 292
      apartment units in Gwinnett County, Georgia (Peachtree Parkway
      land);





·
    a
      29.48-acre site of undeveloped land zoned for 109 condominium units,
      15,000 square feet of retail space and a density of 500,000 square feet
      for auniversity
      education center in Alpharetta, Georgia (Westside land);
    and





·
    a
      9.84-acre site of undeveloped land zoned for 120 condominium units, 236
      apartment units, 210,000 square feet of office space and 56,000 square
      feet of retail space in Atlanta, Georgia (Peachtree Dunwoody
      land).





On June
2, 2004, we sold five of our Atlanta apartment communities - Bradford Creek,
Plantation Trace, Preston Oaks, River Oaks, and Veranda Chase, totaling 1,091
units - to Colonial Properties Trust. On July 29, 2004, we sold our St. Andrews
at the Polo Club community in Palm Beach County, Florida.





We
believe that in the long-term, the demand for multifamily housing in Atlanta
will increase due to Atlanta’s growing population, although sluggish job growth
in Atlanta has resulted in a weaker apartment market. According to the Atlanta
Regional Commission, which we refer to as the ARC, both population and job
growth in Atlanta are projected to be above the national average for the
foreseeable future. The ARC is the regional planning and governmental
coordination agency for the 10-county Atlanta Region, which is composed of
Fulton, DeKalb, Gwinnett, Cobb, Clayton, Rockdale, Henry, Douglas, Cherokee and
Fayette counties.





The
following information is based on statistical estimates published by the ARC.
The estimated population of the Atlanta Region increased by 8.4% from 3,429,400
persons in 2000 to 3,716,100 persons in 2004, making it one of the largest
metropolitan areas in the country and the largest in the Southeast. The
population of the Atlanta Region is projected to grow to 3,886,900 persons in
2010.





12





Housing
units in the Atlanta Region increased 459,259 units and 43.6% since 1990 and
increased 10.1%, from 1,373,058 units in 2000 to 1,511,689 units in 2004.
Multifamily homes in the Atlanta Region increased 6.4% from 416,682 units in
2000 to 443,318 units in 2004.





The
following table summarizes basic information about our communities.




13




Year
      Completed
      or
      to be
    Number
      of
    Approximate
      Rentable
      Area
    Average
      Unit
      Size
    December
      2004
      Average
      Rental Rates
    Average
      Physical
      Occupancy
      for the
      12
      Months EndedCommunity
    Location
    Completed
    Units
    (Square
      Feet)
    (Square
      Feet)
    Per
      Unit
    Per
      Square Foot
    Dec.
      31, 2004Existing
      Communities:Addison
      Place Townhomes (1)
    Atlanta
    1999
    118
    200,194
    1,697
    1,158
    0.68
    94.0%Addison
      Place Apartments (1)
    Atlanta
    2001
    285
    403,312
    1,415
    987
    0.70
    94.2%Total
      Addison Place (1)
    Atlanta
    1999/2001
    403
    603,506
    1,498
    1,038
    0.69
    94.2%Ballantyne
      Place (2)
    Charlotte
    2005
    319
    404,222
    1,267
    1,012
    0.80
    N/A





Other
Properties and Properties Under Construction:





Northridge
      Office Building (3)
    Atlanta
    2004
    N/A
    39,907
    N/A
    N/A
    N/A
    N/AAddison
      Place Shops
    Atlanta
    2005
    N/A
    42,090
    N/A
    N/A
    N/A
    N/A










(1)
    Addison
      Place was completed in two phases. Addison Place Townhomes, the 118-unit
      first phase, was completed in October 1999, and Addison Place Apartments,
      the 285-unit second phase, was completed in September 2001.





(2)
    Ballantyne
      Place was completed in February 2005 and is in its lease-up phase. For
      this reason, its 12-month historical occupancy is not
      comparable.





(3)
    The
      Northridge office building was completed in August 2004 and is in its
      lease-up phase. For this reason, its 12-month historical occupancy is not
      comparable.




14





Annual
operating data at December 31, 2004 regarding Addison Place, our stabilized
community that includes the Addison Place Townhomes and the Addison Place
Apartments, is summarized in the following table. Except for those figures noted
with an asterisk, the occupancy rates shown represent the average physical
occupancy calculated by dividing the total number of vacant days by the total
possible number of vacant days for each year and then subtracting the resulting
number from 100%. The figures noted with asterisks reflect the applicable data
on December 31 of the specified year and are not annualized because the
applicable phase was under construction and in its initial lease-up period
during at least a portion of that year. During lease-up, units are leased as
they are constructed and made ready for occupancy building by building, thus
annualization of data is not possible during that period. Throughout this table,
“N/A” means “not applicable.”


Physical
      Occupancy Rate
    Average
      Effective Annual Rental RatesMonth
      Completed
      Initial Lease up
    
    
    
    
    
    2000
    2001
    2002
    2003
    2004Community
    2000
    2001
    2002
    2003
    2004
    Per
      Unit
    Per
      Sq.
      Ft.
    Per
      Unit
    Per
      Sq.
      Ft.
    Per
      Unit
    Per
      Sq.
      Ft.
    Per
      Unit
    Per
      Sq.
      Ft.
    Per
      Unit
    Per
      Sq.
      Ft.Addison
      Place
      Townhomes
    5/00
    97.4%*
    90.3%
    74.7%
    88.5%
    94.0%
    $1,288*
    $0.76*
    $1,335
    $0.79
    $1,275
    $0.75
    $1,195
    $0.70
    $1,157
    $0.68Addison
      Place
      Apartments
    9/02
    N/A
    63.6%*
    65.8%*
    90.3%
    94.2%
    N/A
    N/A
    $1,148*
    $0.81*
    $1.044*
    $0.74*
    $1,007
    $0.71
    $994
    $0.70Total
      Addison
      Place
    N/A
    N/A
    N/A
    N/A
    89.8%
    94.2%
    N/A
    N/A
    N/A
    N/A
    N/A
    N/A
    $1,061
    $0.71
    $1,041
    $0.69






15





As
described below, our Atlanta community and undeveloped land are located
primarily along the Georgia 400 corridor in Fulton and Gwinnett counties and
three submarkets, or geographic areas, within these counties. We also have one
community in Charlotte that is described after the Georgia properties. Each
heading identifies the property or properties within the specified county and
submarket. We obtained population and employment data for each Atlanta submarket
from the ARC.





**Fulton
County**





Fulton
County is the largest county in the Atlanta Region in terms of population,
employment, housing units and land area. Four of our properties are located in
North Fulton County. North Fulton’s population was 205,970 at the end of 2000
and grew to 218,584 by 2004. The average North Fulton household income in 2003
was $103,190, which is 67% greater than the national average. Based on our
market research, we believe North Fulton County has been adversely affected by
the economic downturn. Our indicators include unemployment rates, apartment
vacancies, business failures and mortgage foreclosures.





Alpharetta
Area - Addison Place and Westside





*Alpharetta.* The
Alpharetta area offers convenient proximity and access to both urban and
suburban employment bases and retail conveniences. Georgia 400 provides direct
access within minutes to major regional malls such as North Point Mall and
Perimeter Center Mall. The Phipps Plaza/Lenox Mall/Buckhead area and downtown
Atlanta’s Central Business District are readily accessible via the Georgia 400
extension, which connects to I-85 South near downtown Atlanta.





Within
this corridor is a large base of residential, commercial and office
developments. The success of Alpharetta’s North Point Mall accelerated the
already high rate of residential development, which caters to the upscale
consumer. North Fulton’s neighborhoods have been a major factor in the emergence
of the Georgia 400 corridor as a center for corporate headquarters.





*Addison
Place Apartments and Townhomes.* Addison
Place is a 403-unit community located on Abbotts Bridge Road near the
intersection of Abbotts Bridge and Jones Bridge roads. The first phase, the
Addison Place Townhomes, contains 118 townhouses consisting of 60 two-bedroom
townhouses of approximately 1,497 square feet each and 58 three-bedroom
townhouses of approximately 1,903 square feet each. The second phase, the
Addison Place Apartments, contains 285 garden-style apartment homes. It has 11
different floor plans, including 60 one-bedroom units ranging from 765 to 1,034
square feet, 147 two-bedroom units ranging from 1,150 to 1,550 square feet, 58
three-bedroom units at approximately 1,706 square feet and 20 four-bedroom units
at approximately 2,074 square feet, along with 40 direct-entry garages. The
weighted average unit size of the entire community is 1,498 square feet. The
buildings are of a traditional design with stacked stone accents, brick and
vinyl siding. The community features two swimming pools, a modern fitness and
exercise facility, a business center, men’s and women’s saunas and a playground.





As of
December 31, 2004, Addison Place was 93.8% occupied, and its monthly rental
rates ranged from $815 to $1,925 per month, with a weighted average monthly rent
of $1,039 per unit and $0.69 per square foot. Local real estate taxes were
$374,000 in 2004.





*Westside* . The
Westside property is located between Haynes Bridge Road and Mansell Road within
a 220-acre master planned development known as Westside. Our 29.48-acre site is
zoned for 109 condominium units, 15,000 square feet of retail
space and a density of 500,000 square feet for a  university
education center .
Westside is a new upscale mixed-use development. Its master plan includes
condominiums, office space, retail, university education and retirement housing,
as well as Encore Park for the Arts, a 27-acre arts complex including a
performing arts center and a 12,000-seat amphitheater. The property is located
on Westside Parkway, directly across Georgia 400 from the North Point Mall and
Office Park and is adjacent to a proposed MARTA rail station. We intend to
develop the condominiums ourselves and engage a joint-venture partner to develop
the retail space and education center. Because we have not begun to develop the
property, we cannot yet estimate the cost to complete the improvements or how we
will finance our development and construction activities.




16




Perimeter
Center/North Springs Area - Northridge and Peachtree Dunwoody





*Perimeter
Center/North Springs* . The
Perimeter Center/North Springs area offers convenient proximity and access to
both urban and suburban employment bases and retail conveniences. Georgia 400
and I-285 provide direct access within minutes to major regional malls such as
Perimeter Center Mall and North Point Mall. The Phipps Plaza/Lenox Mall/Buckhead
area and downtown Atlanta’s Central Business District are readily accessible via
the Georgia 400 extension, which connects to I-85 South near downtown
Atlanta.





The
Perimeter Center submarket is one of the most dynamic office, retail and housing
submarkets in the southeastern United States. It is Atlanta’s largest employment
center outside of downtown Atlanta and is comprised of more than 27 million
square feet of office space. The area currently has over 100,000 jobs and is
projected to have over 180,000 jobs in the next 20 years. The south quadrant of
the area includes medical facilities such as Northside Hospital, St. Joseph’s
Hospital and Children’s Healthcare of Atlanta. Several prominent companies such
as InterContinental Hotels Group, UPS, Cingular and Hewlett-Packard have located
their worldwide or regional headquarters within the Perimeter Center area.





*Northridge.* The
Northridge community will be located on a 10.9 acre site located adjacent to our
former Highland Park community. We intend to construct a 220-unit upscale
apartment community consisting of one and two-bedroom apartments with covered
parking for residents. We expect to start construction by the end of 2005, and
we estimate the total cost to be approximately $24 million.





*Peachtree
Dunwoody.* The
Peachtree Dunwoody property is a 9.84-acre site zoned for 120 condominium units,
236 apartment units, 210,000 square feet of office space and 56,000 square feet
of retail space. The property is located on Peachtree Dunwoody Road across the
street from MARTA’s North Springs rail station in the affluent Perimeter Center
submarket of Atlanta. We intend to start the development of the apartments and
condominiums ourselves by the end of 2005 and involve a joint-venture partner to
develop the office and retail space. Because we have not begun to develop the
property, we cannot yet estimate the cost to complete the improvements or how we
will finance our development and construction activities.





**Gwinnett
County**





From 2000
to 2004, Gwinnett’s population increased 14.0% to 670,800 persons. Gwinnett’s
strong employment base, transportation networks, excellent public education
system and affordable home prices contribute to the county’s growth. Gwinnett is
home to approximately 235 international firms, over 860 manufacturing firms and
1,300 high technology firms that generate many of its 366,275 jobs. The average
household income of the county is approximately $79,000. Our undeveloped land on
Peachtree Parkway is in Gwinnett County.





17





Peachtree
Corners Area - Peachtree Parkway





*Peachtree
Corners* . The
Peachtree Corners area is readily accessible from I-285, I-85 and Georgia 400,
providing convenient proximity and access to both urban and suburban employment
bases and retail conveniences. The upscale Forum shopping center anchors the
shopping district located within Peachtree Corners. A major technology
employment center in the area is Technology Park Atlanta, a 500-acre
master-planned office development that is home to 138 companies in 3.8 million
square feet of office space.





*Peachtree
Parkway.* The
Peachtree Parkway property is zoned for 292 apartment units. The 23.547-acre
property is located on Peachtree Parkway at the intersection of Peachtree
Corners Circle and across the street from the upscale Forum Shopping Center.





**Charlotte,
North Carolina**





The
following information is based on statistics and estimates published by the
Charlotte Chamber of Commerce. Between 1990 and 2004, Mecklenburg County’s
population grew from 511,363 to 801,137 persons. It is projected to grow to a
population of 990,525 by 2010. Employment has grown to a total of 405,325
residents employed in 2004. Five of the nation’s top 150 banks operate in
Charlotte and the nation’s largest two banks based on deposits, Bank of America
and Wachovia (formerly First Union Corporation), are both headquartered in
Charlotte. Other major employers include Carolinas Healthcare System,
Charlotte-Mecklenburg School System, Duke Energy Corporation and USAirways.
Additionally, 286 of the nation’s largest industrial and service corporations
listed by FORTUNE magazine have facilities in the area.





*Ballantyne
Place.* Ballantyne Place is located on a 23.8-acre site at the intersection of Lancaster
Highway (old NC-521) and John J. Delaney Drive in the Ballantyne area, the
largest mixed-use development in Mecklenburg County. The community is located
near I-485 and I-77, which offer convenient access to downtown Charlotte and
I-85. Ballantyne Place has 319 garden-style apartments, consisting of 110
one-bedroom units ranging from 766 square feet to 1,030 square feet, 143
two-bedroom units ranging from 1,144 square feet to 1,550 square feet, 48
three-bedroom units at 1,783 square feet and 18 four-bedroom units at 2,081
square feet, along with 36 direct-entry garages. The weighted average unit size
is 1,267 square feet. As of December 31, 2004, the community was in its initial
lease-up period and was 43.6% occupied. Rental rates range from $885 to $1,630
per month, resulting in a weighted average monthly rent of $1,050 per unit and
$0.83 per square foot. Local real estate taxes were $329,000 in 2004.





The
following table summarizes the amenities of each of our existing communities.




18




**Type
      of Amenity**
    **Addison
      Place Townhomes**
    **Addison
      Place Apartments**
    **Ballantyne
      Place**Patio,
      Porch Balcony
    Yes
    Yes
    YesWasher
      Dryer Hook-ups
    Yes
    Yes
    YesGarden
      Tubs
    Yes
    Yes
    YesFireplaces
      in select units
    No
    Yes
    YesSwimming
      Pool
    Yes
    Yes
    YesClubhouse
      Fitness Center
    No
    Yes
    YesCar
      Wash
    Yes
    Yes
    YesTennis
      Court(s)
    Yes
    Yes
    YesPlayground
    No
    Yes
    YesLaundry
      Room
    No
    Yes
    YesOther
    Lake,
      Nature
      Trail
    Lake,
      Nature
      Trail
    Two
      Lakes,
      Walking
      Trail





**Competition**





All of
the communities are located in developed areas, and numerous other apartment
projects are located within the market area of each community. The number of
competitive apartment communities in the area could have a material adverse
effect on our ability to lease our apartments at the current or anticipated
rental rates, and we can give no assurances regarding the development of
additional competing multifamily communities in the future. The remainder of
this section summarizes the competition for each of the communities. The
following information reflects our study of apartment communities in each
submarket that we believe to be closely competitive with our community or
communities within that submarket. This section includes summary information we
obtained from various sources - including developers and real estate brokers, as
well as on-site visits - regarding those apartment communities. Although we have
attempted to verify the information and believe that it is substantially
accurate on the whole, information regarding a particular community may be
incorrect due to the sources relied upon or erroneous information supplied by
competitors.





*Addison
Place.* We
believe the Addison Place multifamily submarket includes the area within an
approximately four-mile radius around this community. It is generally bounded by
the Chattahoochee River to the east, Old Alabama to the south, Georgia 400 to
the west and Windward Parkway to the north, and it currently consists of
approximately 12 communities, including Addison Place. We believe that Addison
Place draws residents from all of the approximately 11 other communities located
in the market area, which compete closely with Addison Place.





*Westside.* We
believe the Westside multifamily submarket includes the area within an
approximately two-mile radius around this community. It is generally bounded by
Alpharetta Highway to the west, Old Milton Parkway to the north, North Point
Parkway to the east and Old Alabama to the south and currently consists of nine
communities. We believe our Westside community will draw residents from the
other nine communities located in the market area and that five of the nine
communities will compete closely with the Westside community.





*Northridge.* We
believe the North Springs multifamily submarket includes the area within an
approximately two-mile radius around this planned community. It is generally
bounded by the Chattahoochee River to the north and west, Georgia 400 to the
east and Dalrymple Road to the south, and currently consists of 34 communities,
including Highland Park, which we sold on August 6, 2003. Of the approximately
34 existing communities in the market area, only five have been built since
1989. The remaining communities range in age from 15 years to over 20 years. We
believe our Northridge community will draw residents from all of the other 34
communities located in the market area, but only 11 of the 34 communities will
compete closely with the Northridge community.


**


19





*Peachtree
Dunwoody.* We
believe that the north central Perimeter multifamily submarket includes the area
within a two-mile radius around this planned community. It is generally bounded
by Roswell Road to the west, Ashford Dunwoody Road to the east, Spalding Drive
to the north and Glenridge Drive to the south. It currently consists of
approximately 26 multifamily communities, including Preston Oaks, which we sold
on June 2, 2004. Of the 26 existing communities in the market area, only six
were built before 1983. The remaining 19 communities range from approximately
two to 13 years of age. We believe that the Peachtree Dunwoody community will
compete with all 26 of these communities.





*Peachtree
Parkway.* We
believe the Peachtree Corners multifamily submarket includes the area within an
approximately four-mile radius around this community. It is generally bounded by
Peachtree Industrial to the east, Holcomb Bridge Road to the south, Jones Bridge
Road to the west and State Bridge Road to the north and currently consists of 35
communities. We believe our Peachtree Parkway community, should we choose to
develop it, will draw residents from all of the other 35 communities located in
the market area, but only five of the 35 communities will compete closely with
the Peachtree Parkway community.





*Ballantyne
Place* . We
consider the Charlotte multifamily submarket to include the area within an
approximately two-mile radius around the community. It is generally bounded by
Providence Road to the east, Providence Road West to the south, Lancaster
Highway (old NC-521) to the west and I-485 to the north, and it currently
consists of approximately nine communities, including our Ballantyne Place. We
believe that Ballantyne Place draws residents from all of the approximately
eight other existing communities located in the market area, which compete with
Ballantyne Place.





**Summary
of Debt Secured by Our Properties**





See Item
7, Management’s Discussion and Analysis of Financial Condition and Results of
Operations - Liquidity and Capital Resources - Debt Summary Schedule, for an
explanation of our current debt structure, including for each loan: the
principal balance at December 31, 2004 and at its scheduled maturity, interest
rate, maturity date, amortization schedule and monthly principal and interest
payment.





**Possible
Additional Communities to Be Developed**





From time
to time Roberts Properties plans the development of other apartment communities
to be located on property owned by Roberts Properties or other affiliates of Mr.
Roberts, or on property that one of those entities is interested in acquiring.
We may acquire those properties from Mr. Roberts or his affiliates after
complying with our conflict of interest policies and our code of ethics and
business conduct. We have recently acquired two undeveloped properties from
affiliates of Mr. Roberts in that manner. Please see Item 1, Description of
Business, Item 10, Directors and Executive Officers of the Registrant and Item
13, Certain Relationships and Related Transactions for more information about
these matters.


****


20





**Other
Real Estate Assets**





In
addition to the communities, we own the Addison Place Shops, a 42,090 square
foot retail center at the intersection of Abbotts Bridge Road and Jones Bridge
Road in Alpharetta, Georgia and located directly in front of our Addison Place
apartment community. We have completed construction of this retail center except
for the interior tenant finish, and we have begun the lease-up. We entered into
a cost plus 5% contract with Roberts Construction to build the retail
center.





We also
own an office building on Northridge Parkway in Atlanta, Georgia. We occupy a
portion of one floor of the building as our corporate headquarters; and we have
entered into leases for the remaining space on that floor with Roberts
Properties and Roberts Construction and plan to lease the other two floors to
unaffiliated tenants.





See Item
13, Certain Relationships and Related Transactions - Transactions with the
Roberts Companies, for more information about the payment of fees to the Roberts
Companies in connection with the development and construction of these
projects.




**ITEM
3.**  **LEGAL
PROCEEDINGS.**





None of
Roberts Realty, the operating partnership or our properties is presently subject
to any material litigation nor, to our knowledge, is any material litigation
threatened against any of them. Routine litigation arising in the ordinary
course of business is not expected to result in any material losses to us or the
operating partnership.




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





No matter
was submitted to a vote of security holders during the fourth quarter of
2004.




21




**PART
II**





**ITEM
5.**  **MARKET
FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES
OF EQUITY SECURITIES.**





Our
common stock trades on the American Stock Exchange, or AMEX, under the symbol
“RPI.” The following table sets forth the quarterly high and low closing sales
prices per share reported on the AMEX during 2004 and 2003, as well as the
quarterly dividends declared per share:


Quarter
      Ended
    
    High
    
    Low
    
    Dividends
      Declared2004First
      Quarter
    
    $
    8.10
    
    $
    6.81
    
    
    NoneSecond
      Quarter
    
    
    11.10
    
    
    5.50
    
    $
    4.50Third
      Quarter
    
    
    8.34
    
    
    5.66
    
    
    NoneFourth
      Quarter
    
    
    8.20
    
    
    6.80
    
    
    None2003First
      Quarter
    
    $
    6.35
    
    $
    5.95
    
    
    NoneSecond
      Quarter
    
    
    6.64
    
    
    5.85
    
    
    NoneThird
      Quarter
    
    
    7.35
    
    
    6.15
    
    $
    0.55Fourth
      Quarter
    
    
    7.35
    
    
    6.85
    
    
    None





On March
21, 2005, there were approximately 320 holders of record of our common
stock.





As of
March 21, 2005, we had 5,321,485 shares outstanding (excluding 362,588 shares
held in treasury). In addition, 1,893,120 shares are reserved for issuance to
unitholders from time to time upon their exercise of redemption rights as
explained in Item 1, Description of Business - The Operating Partnership. There
is no established public trading market for the units. As of March 21, 2005, the
operating partnership had 191 unitholders of record.





Other
than as described in our quarterly reports on Form 10-Q for the first three
quarters of 2004, we did not issue any shares of restricted common stock or
other unregistered securities during 2004. We did not repurchase any shares
during 2004.





We depend
upon distributions from the operating partnership to fund our distributions to
shareholders. Distributions by the operating partnership, and thus distributions
by us, will continue to be at the discretion of the board of directors and will
be equal in amount for each unit and share.





On August
27, 2003, we paid a special distribution of $0.55 per share to shareholders and
$0.55 per unit to unitholders in the operating partnership of record on August
18, 2003. We paid the special distribution from the profit generated by the sale
of Highland Park.





On June
18, 2004, we paid a special distribution of $4.50 per share to shareholders and
$4.50 per unit to unitholders in the operating partnership of record on June 14,
2004. We paid this distribution from the profits generated by the sale of five
apartment communities to Colonial Properties Trust.





Our board
of directors suspended payment of our regular quarterly dividends since the
third quarter of 2001. We presently intend not to resume paying regular
quarterly dividends. We have in the past paid distributions from the net
proceeds of property sales. We expect in the near term to use all or most of the
net proceeds of any sale for either or both of: (a) funding our ongoing
development and construction program; and (b) acquiring other properties through
a Section 1031 tax-deferred exchange, as we did with the proceeds of the sale of
our St. Andrews at the Polo Club community. (A Section 1031 tax-deferred
exchange permits our shareholders to defer paying the tax they would otherwise
incur on the gain from the sale.)





22





To
maintain our qualification as a REIT under the Internal Revenue Code, we must
make annual distributions to shareholders of at least 90% of our taxable income,
which does not include net capital gains. Under some circumstances, we may be
required to make distributions in excess of cash available for distribution to
meet those distribution requirements.


****


23


****


**ITEM
6.**  **SELECTED
FINANCIAL DATA.**





In June
and July 2004 we sold five Atlanta apartment communities and our only Florida
community.  As a result, we have accounted for the operations of those
communities as discontinued operations in the following table.  Please see
Item 7, Management’s Discussion and Analysis of Financial Condition and Results
of Operations for a discussion of the impact we expect these sales will have on
our future results of operations, liquidity and capital resources. Our financial
results for certain periods reflect our ownership of these six apartment
communities for part or all of those periods, and the results of operations of
these apartment communities are material to the overall results reflected and
discussed in this report.





**OPERATING
DATA:**


**(Dollars
in Thousands, Except Per Share Amounts)**




**2004**
    
    **2003**
    
    **2002**
    
    **2001**
    
    **2000**OPERATING
      DATA:
    
    ****
    
    ****REVENUES:Rental
      operations
    
    $
    5,264
    
    $
    4,607
    
    $
    3,733
    
    $
    3,305
    
    $
    1,591Other
      operating income
    
    
    313
    
    
    285
    
    
    212
    
    
    197
    
    
    16Total
      revenues
    
    
    5,577
    
    
    4,892
    
    
    3,945
    
    
    3,502
    
    
    1,607EXPENSES:Property
      operating and maintenance expense (exclusive ofdepreciation
      and amortization) (1)
    
    
    2,611
    
    
    1,703
    
    
    1,616
    
    
    1,248
    
    
    675Depreciation
      of real estate assets
    
    
    2,619
    
    
    1,795
    
    
    2,029
    
    
    1,733
    
    
    809Interest
      expense
    
    
    2,889
    
    
    2,003
    
    
    1,775
    
    
    1,115
    
    
    (326
    )Interest
      income
    
    
    (294
    )
    
    (77
    )
    
    (39
    )
    
    (263
    )
    
    (214
    )Amortization
      of deferred financing costs
    
    
    142
    
    
    149
    
    
    163
    
    
    90
    
    
    79Legal
      Settlement
    
    
    (340
    )
    
    0
    
    
    0
    
    
    0
    
    
    0General
      and administrative expense
    
    
    1,708
    
    
    2,072
    
    
    2,155
    
    
    1,732
    
    
    2,197Loss
      on disposal of assets
    
    
    1
    
    
    3
    
    
    4
    
    
    (3
    )
    
    21Total
      expenses
    
    
    9,336
    
    
    7,648
    
    
    7,703
    
    
    5,652
    
    
    3,241LOSS
      FROM CONTINUING OPERATIONS BEFORE MINORITYINTEREST
      AND GAINS ON SALE OF REAL ESTATE ASSETS
    
    
    (3,759
    )
    
    (2,756
    )
    
    (3,758
    )
    
    (2,150
    )
    
    (1,634
    )MINORITY
      INTEREST OF UNITHOLDERSIN
      THE OPERATING PARTNERSHIP
    
    
    1,011
    
    
    783
    
    
    1,184
    
    
    701
    
    
    551LOSS
      FROM CONTINUING OPERATIONS BEFORE GAINS ONSALE
      OF REAL ESTATE ASSETS
    
    
    (2,748
    )
    
    (1,973
    )
    
    (2,574
    )
    
    (1,449
    )
    
    (1,083
    )GAINS
      ON SALE OF REAL ESTATE ASSETS, net of minority interestof
      unitholders in the operating partnership
    
    
    102
    
    
    77
    
    
    941
    
    
    0
    
    
    0LOSS
      FROM CONTINUING OPERATIONS
    
    
    (2,646
    )
    
    (1,896
    )
    
    (1,633
    )
    
    (1,449
    )
    
    (1,083
    )INCOME
      (LOSS) FROM DISCONTINUED OPERATIONS, net ofMinority
      interest of unitholders in the operating partnership
    
    
    39,632
    
    
    4,586
    
    
    (883
    )
    
    8,889
    
    
    3,915Net
      income (loss)
    
    $
    36,986
    
    $
    2,690
    
    $
    (2,516
    )
    $
    7,440
    
    $
    2,832INCOME
      (LOSS) PER COMMON SHARE - BASIC AND DILUTED:Loss
      from continuing operations
    
    $
    (0.50
    )
    $
    (0.37
    )
    $
    (0.33
    )
    $
    (0.30
    )
    $
    (0.22
    )Income
      (loss) from discontinued operations
    
    
    7.51
    
    
    0.89
    
    
    (0.18
    )
    
    1.83
    
    
    0.80Net
      income (loss)
    
    $
    7.01
    
    $
    0.52
    
    $
    (0.51
    )
    $
    1.53
    
    $
    0.58Dividends
      declared (2)
    
    $
    4.50
    
    $
    0.55
    
    $
    0.00
    
    $
    0.33
    
    $
    0.74




**December
      31,**BALANCE
      SHEET DATAReal
      estate assets, before accumulated depreciation
    
    $
    80,649
    
    $
    42,175
    
    $
    42,495
    
    $
    41,937
    
    $
    18,755Real
      estate assets, net of accumulated depreciation
    
    
    71,492
    
    
    35,600
    
    
    37,658
    
    
    39,109
    
    
    17,641Total
      assets
    
    
    129,229
    
    
    177,739
    
    
    179,007
    
    
    165,503
    
    
    131,529Total
      debt
    
    
    72,942
    
    
    57,917
    
    
    53,363
    
    
    45,364
    
    
    23,644Minority
      interest of unitholders in the operating partnership
    
    
    14,368
    
    
    9,214
    
    
    9,361
    
    
    11,996
    
    
    10,607Shareholders’
      equity
    
    
    39,849
    
    
    24,049
    
    
    22,479
    
    
    25,374
    
    
    21,437








*Footnotes
are on the following page.*




24




**December
      31,****2004**
    
    **2003**
    
    **2002**
    
    **2001**
    
    **2000**OTHER
      DATA:Cash
      flow provided from (used in):Operating
      activities of continuing operations
    
    $
    (2,396
    )
    $
    (1,263
    )
    $
    (1,712
    )
    $
    (253
    )
    $
    (665
    )Operating
      activities of discontinued operations
    
    
    922
    
    
    3,234
    
    
    4,481
    
    
    6,239
    
    
    7,150Investing
      activities
    
    
    38,427
    
    
    (4,739
    )
    
    (16,221
    )
    
    (49,684
    )
    
    (11,565
    )Financing
      activities
    
    
    (17,984
    )
    
    5,809
    
    
    16,377
    
    
    44,820
    
    
    4,902Net
      increase (decrease) in cash and cash equivalents
    
    
    18,969
    
    
    3,041
    
    
    2,925
    
    
    1,122
    
    
    (178
    )Cash
      and cash equivalents, beginning of year
    
    
    8,583
    
    
    5,542
    
    
    2,617
    
    
    1,495
    
    
    1,673Cash
      and cash equivalents, end of year
    
    
    27,552
    
    
    8,583
    
    
    5,542
    
    
    2,617
    
    
    1,495Funds
      from operations (3)
    
    $
    (662
    )
    $
    2,016
    
    $
    1,987
    
    $
    4,722
    
    $
    6,173Weighted
      average common shares outstanding - basic
    
    
    5,280,064
    
    
    5,171,748
    
    
    4,943,280
    
    
    4,870,117
    
    
    4,881,601Weighted
      average common shares outstanding - diluted (effect of operatingpartnership
      units)
    
    
    7,220,658
    
    
    7,223,727
    
    
    7,220,593
    
    
    7,226,123
    
    
    7,367,068Total
      stabilized communities (at end of year)
    
    
    1
    
    
    7
    
    
    5
    
    
    8
    
    
    9Total
      stabilized apartments (at end of year)
    
    
    403
    
    
    1,632
    
    
    1,029
    
    
    1,633
    
    
    1,779Average
      physical occupancy (stabilized communities) (4)
    
    
    94.2
    %
    
    86.2
    %
    
    93.3
    %
    
    95.9
    %
    
    93.7
    %








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


(2)
    We
      began paying dividends and distributions on our common stock and units
      beginning on April 15, 1996.


(3)
    Funds
      from Operations, or FFO, is defined by the National Association of Real
      Estate Investment Trusts as net income (loss), computed in accordance with
      accounting principles generally accepted in the United States (“GAAP”),
      excluding gains (or losses) from debt restructuring and sales of property
      and non-recurring items, plus real estate related depreciation and
      amortization. We use the current NAREIT definition of FFO. Effective
      January 1, 2000, NAREIT amended its definition of FFO to include all
      non-recurring items, except those defined as extraordinary items under
      GAAP and gains and losses from sales of depreciable operating property. We
      consider FFO to be an important measure of our operating performance;
      however, FFO does not represent amounts available for management’s
      discretionary use for payment of capital replacement or expansion, debt
      service obligations, property acquisitions, development and distributions
      or other commitments and uncertainties. FFO should not be considered as an
      alternative to net income (determined in accordance with GAAP) as an
      indication of our financial performance or cash flows from operating
      activities (determined in accordance with GAAP) as a measure of our
      liquidity, nor is it indicative of funds available to fund our cash needs,
      including our ability to make distributions. We consider FFO to be an
      important measure of our operating performance. While FFO does not
      represent cash flows from operating, investing or financing activities as
      defined by GAAP, FFO does provide investors with additional information
      with which to evaluate the ability of a REIT to pay dividends, meet
      required debt service payments and fund capital expenditures. We believe
      that to gain a clear understanding of our operating results, FFO should be
      evaluated in conjunction with net income (determined in accordance with
      GAAP). FFO represents funds from operations available for shareholders and
      unitholders. See Item 7, Management’s Discussion and Analysis of Financial
      Condition and Results of Operations - Supplemental Disclosure of Funds
      From Operations, for a reconciliation of net income to
  FFO.


(4)
    Represents
      the average physical occupancy of the stabilized communities calculated by
      dividing the total number of vacant days by the total possible number of
      vacant days for each period and subtracting the resulting number from
      100%.





(Amounts
have been restated, as appropriate, to give effect to discontinued
operations.)




25





**ITEM
      7.**
    **MANAGEMENT’S
      DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
      OPERATION.**





**Overview**





We own
multifamily residential properties as a self-administered and self-managed
equity real estate investment trust. At December 31, 2004, we owned one
completed and stabilized 403-unit multifamily apartment community, consisting of
285 apartment homes and 118 townhomes, and one community in lease-up consisting
of 319 apartment homes. We also have a 220-unit apartment community under
development and three other parcels of undeveloped land that are zoned for a
total of 528 apartment homes and 229 condominium units.





In
Atlanta, our primary market, sluggish job growth and historically low mortgage
interest rates have contributed to lower demand for apartments, while the supply
of multifamily units has increased. As of December 31, 2004, our average
stabilized occupancy was 93.8%. As of February 28, 2005, our average stabilized
occupancy was 95.5%. To maintain our physical occupancy we offer residents
incentives in the form of concessions and lower rents, which result in decreased
revenues and income from operations from our stabilized communities. While
improvements were made by the end of 2004, we expect rent concessions and lower
rents to continue for the foreseeable future, and we cannot offer any assurances
regarding the effects of these conditions on our business or when multifamily
market conditions might improve materially. To the extent that these conditions
continue and perhaps worsen, particularly in Atlanta, our business, operating
results and liquidity will be affected adversely.





We will
continue to seek opportunities to create shareholder value. These efforts may
include periodically selling our properties as we have done in the past and
making distributions to our shareholders from the sales proceeds or redeploying
the proceeds of any property sale in other properties through a Section 1031
tax-deferred exchange. As noted elsewhere in this report, however, we have eight
properties that are currently producing minimal cash flow. Although we may sell
one or more of our properties in the next year or two, we expect in the near
term to use all or most of the net proceeds of any sale for either or both of:
(a) funding our ongoing development and construction program; and (b) acquiring
other properties through a Section 1031 tax-deferred exchange, as we did with
the proceeds of the sale of our St. Andrews at the Polo Club community.





*Sales
of Six Apartment Communities in 2004 and Purchase of New Properties for
Development in 2004 and 2005*





*Sale
of Five Apartment Communities to Colonial Properties Trust* . On June
2, 2004, we sold five of our Atlanta apartment communities - Bradford Creek,
Plantation Trace, Preston Oaks, River Oaks, and Veranda Chase, totaling 1,091
units - to Colonial Properties Trust. The sales price was $109,150,000 or an
average of $100,045 per apartment unit, resulting in a gain of $32,404,000, net
of minority interest of $11,985,000. Net sales proceeds were approximately
$47,016,000, or $6.51 per share/unit, after deduction of:





(a)
    $58,802,000
      for the mortgage notes payable assumed by the
buyer;





(b)
    closing
      costs and prorations totaling $150,000; and





(c)
    a
      partnership profits interest distribution of $3,182,000 paid to Roberts
      Properties under the amended partnership agreement of the operating
      partnership.





On June
18, 2004, we paid a distribution of $4.50 per share/unit to shareholders and
unitholders of record on June 14, 2004.




26


**


*Sale
of St. Andrews at the Polo Club.* On July
29, 2004, we sold our St. Andrews at the Polo Club community in Palm Beach
County, Florida to an unrelated third party for $36,000,000, resulting in a gain
of $8,254,000, net of minority interest of $3,053,000. Net sales proceeds were
approximately $15,113,000 after deduction of:





(a)  $20,412,000
for the mortgage note payable assumed by the buyer, and





(b)  closing
costs and prorations totaling $475,000.





We
reinvested the majority of the proceeds from the sale of St. Andrews at the Polo
Club in other properties through a Section 1031 tax-deferred exchange, which
permits our shareholders to defer paying the tax they would otherwise incur on
the gain.





For more
detail regarding the effects of the sales of these communities, see (a)
Anticipated Effects of Sale of Six Apartment Communities on our Future Results
of Operations, and (b) Liquidity and Capital Resources below.





*Recent
Purchases of New Properties for Development* . In
December 2004 and January 2005, we used the majority of the proceeds of the sale
of St. Andrews at the Polo Club, described above, and new borrowings to fund the
following purchases:





(a)
    we
      paid $7,769,500 for an 82% undivided interest in 23.547 acres of
      undeveloped land zoned for 292 apartment units in Gwinnett County,
      Georgia;





(b)
    we
      paid $5,880,000 for a 29.48-acre site of undeveloped land zoned for 109
      condominium units, 15,000 square feet of retail space and a density of
      500,000 square feet for a university education center in Alpharetta,
      Georgia; and





(c)
    we
      paid $15,700,000 for a 9.84-acre site of undeveloped land zoned for 120
      condominium units, 236 apartment units, 210,000 square feet of office
      space and 56,000 square feet of retail space in Atlanta,
      Georgia.





We paid a
total of $29,349,500 to purchase these three properties.





*Other
Property Sales in 2004, 2003 and 2002*





On
October 29, 2004, we sold a 1.2 acre parcel of land located adjacent to our
Addison Place community for $895,000, resulting in a gain of approximately
$102,000, net of minority interest of $37,000. Net sales proceeds were
approximately $890,000 after deduction of closing costs and prorations totaling
$5,000.





On August
6, 2003, we sold our Highland Park community for $17,988,000, resulting in a
gain of approximately $6,174,000, net of minority interest of $2,476,000. Net
sales proceeds were approximately $6,932,000 after deduction of:





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





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





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





27





On August
27, 2003, we paid a special distribution of $0.55 per share to shareholders and
$0.55 per unit to unitholders in the operating partnership of record on August
18, 2003. We paid the special distribution from the profit generated by the sale
of Highland Park.





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





We sold
our 9.5-acre East Fox Court land in November 2002 for $3,200,000 plus
reimbursement of $302,000 of previously paid sewer costs. The sale resulted in a
gain of $1,043,000, net of minority interest of $480,000. Because there was no
debt on the property, the full amount of proceeds was available for our general
corporate working capital purposes.





*Substantial
Effect of Property Sales on Future Operating Results and on the Presentation of
Our Financial Results in This Report*





In light
of the sale of five communities to Colonial during June 2004 and the sale of St.
Andrews at the Polo Club in July 2004, we have accounted for the operations of
those communities as discontinued operations for the years ended December 31,
2004, 2003 and 2002. Accordingly, the analysis and discussion in this Item 7
focuses on the continuing operations of our remaining properties. Investors
should take the sale of these communities into account in reviewing this report.
The results of operations of these apartment communities are material to the
overall results reflected and discussed in this report.





**Results
of Operations for the Years Ended December 31, 2004, 2003 and
2002**





The
comparisons below do not include the results of our discontinued operations that
are reflected as assets and liabilities held for sale in the accompanying
consolidated balance sheets and as income from discontinued operations in the
accompanying consolidated statements of operations.





**Year
      Ended December 31,**
    
    **Year
      Ended December 31,**(dollars
      in thousands)
    
    
    
    
    
    **%**
    
    
    
    
    
    **%****2004**
    
    **2003**
    
    **Change**
    
    **2003**
    
    **2002**
    
    **Change**Total
      operating revenues
    
    $
    5,577
    
    $
    4,892
    
    
    14.0
    %
    
    $
    4,892
    
    $
    3,945
    
    
    24.0
    %Property
      operating expenses (1)
    
    $
    2,611
    
    $
    1,703
    
    
    53.3
    %
    
    $
    1,703
    
    $
    1,616
    
    
    5.4
    %General
      and administrative expenses
    
    $
    1,708
    
    $
    2,072
    
    
    (17.6
    %)
    
    $
    2,072
    
    $
    2,155
    
    
    (3.9
    %)Depreciation
      of real estate assets
    
    $
    2,619
    
    $
    1,795
    
    
    45.9
    %
    
    $
    1,795
    
    $
    2,029
    
    
    (11.5
    %)Loss
      from operations
    
    $
    (1,361
    )
    $
    (678
    )
    
    100.7
    %
    
    $
    (678
    )
    $
    (1,855
    )
    
    (63.5
    %)Net
      loss from continuing operations
    
    $
    (2,646
    )
    $
    (1,896
    )
    
    39.6
    %
    
    $
    (1,896
    )
    $
    (1,633
    )
    
    16.1
    %Average
      stabilized occupancy (2)
    
    
    93.2
    %
    
    89.6
    %
    
    3.6
    %
    
    
    89.6
    %
    
    86.2
    %
    
    3.4
    %




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


(2)
    Represents
      the average physical occupancy of our stabilized properties calculated by
      dividing the total number of vacant days by the total possible number of
      vacant days for each period and subtracting the resulting number from
      100%. The calculation includes the following properties only through the
      dates shown, which are the dates we sold each respective property: (a)
      Bradford Creek, Plantation Trace, Preston Oaks, River Oaks and Veranda
      Chase only through June 2, 2004; (b) St. Andrews at the Polo Club only
      through July 29, 2004; and (c) Highland Park only through August 6,
      2003.





For the
year ended December 31, 2004, we recorded a loss from continuing operations of
$2,646,000 or $0.50 per share compared to a net loss from continuing operations
of $1,896,000 or $0.37 per share for the year ended December 31, 2003 and a net
loss from continuing operations of $1,633,000 or $0.33 per share for the year
ended December 31, 2002. The $750,000 increase in net loss from continuing
operations from $1,896,000 in 2003 to $2,646,000 in 2004 is due primarily to the
following:




28




(a)
    a
      $908,000 increase in property operating expenses (excluding depreciation
      and general and administrative expenses) due primarily to Ballantyne
      Place, which began lease-up in March 2004;





(b)
    an
      $886,000 increase in interest expense due primarily to a reduction of
      capitalized interest related to Ballantyne Place and the Northridge office
      building; and





(c)
    an
      $824,000 increase in depreciation expense due to Ballantyne Place and the
      Northridge office building, which both began depreciating in the third
      quarter of 2004;





partially
offset by:





(d)
    a
      $685,000 increase in operating revenues due primarily to Ballantyne Place,
      which began leasing activity in March 2004;





(e)
    a
      $364,000 decrease in general and administrative expenses due primarily to
      lower legal fees, salaries, recruiting costs and office
    rent;





(f)
    a
      legal settlement in April 2004, which generated $340,000 of other
      income;





(g)
    a
      $228,000 increase in the minority interest in the loss from continuing
      operations before gains on sale of real estate assets; and





(h)
    a
      $217,000 increase in interest income due to higher cash balances generated
      by the sales of six communities during
2004.





The
$263,000 increase in net loss from continuing operations from $1,633,000 in 2002
to $1,896,000 in 2003 is due primarily to the following:





(a)
    a
      gain of $1,043,000, net of minority interest, on the sale of our East Fox
      property in November 2002;





(b)
    a
      $401,000 decrease in the minority interest in the loss from continuing
      operations before gains on sale of real estate assets; and





(c)
    a
      $228,000 increase in interest expense due primarily to a reduction of
      capitalized interest related to our Northridge apartment
      community;





partially
offset by:





(d)
    a
      $947,000 increase in operating revenues due primarily to Addison Place;
      and





(e)
    a
      $234,000 decrease in depreciation expense related to the aging of
      furniture, fixtures and equipment at our Addison Place community.





29


**


*Same-Property
Operating Performance*





One of
our communities, Addison Place, was fully stabilized during the three years
ended December 31, 2004, 2003 and 2002. Results for Addison Place are summarized
in the table below.





**Year
      Ended December 31,**
    
    **Year
      Ended December 31,**(dollars
      in thousands)
    
    **2004**
    
    **2003**
    
    **%**
      **Change**
    
    **2003**
    
    **2002**
    
    **%**
      **Change**Total
      operating revenues
    
    $
    4,994
    
    $
    4,869
    
    
    2.6
    %
    
    $
    4,869
    
    $
    3,933
    
    
    23.8
    %Property
      operating expenses(1)
    
    $
    1,735
    
    $
    1,639
    
    
    5.9
    %
    
    $
    1,639
    
    $
    1,630
    
    
    0.5
    %Average
      stabilized occupancy(2)
    
    
    94.2
    %
    
    89.8
    %
    
    4.4
    %
    
    
    89.8
    %
    
    69.9
    %
    
    19.9
    %Average
      monthly rent per
      apartment
      home
    
    $
    1,041
    
    $
    1,061
    
    
    0.8
    %
    
    $
    1,061
    
    $
    1,127
    
    
    0.7
    %Lease
      renewal percentage(3)
    
    
    56.8
    %
    
    56.9
    %
    
    (0.1
    %)
    
    
    56.9
    %
    
    51.8
    %
    
    5.1
    %




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


(2)
    Represents
      the average physical occupancy of the stabilized community calculated by
      dividing the total number of vacant days by the total possible number of
      vacant days for each period and subtracting the resulting number from
      100%.


(3)
    Represents
      the number of leases renewed divided by the number of leases expired
      during the period presented, expressed as a percentage.





*Comparison
of Statements of Operations*





The
following discussion compares our statements of operations for the years ended
December 31, 2004, 2003 and 2002.





Total
operating revenues increased $685,000 or 14.0% from $4,892,000 for the year
ended December 31, 2003 to $5,577,000 for the year ended December 31, 2004. The
increase is due primarily to the following:





(a)
    a
      $513,000 increase in operating revenues at Ballantyne Place, which began
      leasing activity in March 2004; and





(b)
    a
      $125,000 increase in operating revenues at Addison
Place.





Total
operating revenues increased $947,000 or 24.0% from $3,945,000 for the year
ended December 31, 2002 to $4,892,000 for the year ended December 31, 2003. The
increase is due to Addison Place.





Property
operating expenses (excluding de0reciation and general and administrative
expenses) increased $908,000 or 53.3% from $1,703,000 for the year ended
December 31, 2003 to $2,611,000 for the year ended December 31, 2004. The
increase in property operating expenses is du% primarily to the following:





(a)
    a
      $655,000 increase due to Ballantyne Place, which began lease-up in March
      2004;





(b)
    a
      $161,000 increase in operating expenses due to our Northridge office
      building, which was completed in the third quarter of 2004;
  and





(c)
    a
      $97,000 increase in operating expenses related to Addison
  Place.





30





Property
operating expenses (excluding depreciation and general and administrative
expenses) increased $87,000 or 5.4% from $1,616,000 fop the year ended December
31, 2002 to $1,703,000 for the year ended December 31, 2003. The incpease in
property operating expenses is due primarily to increases in operating expenses
at Addison Place; property insurance at Addison Place Shops and Ballantyne
Place; and property taxes for Northridge.





General
and administrative expenses decreased $364,000 or 17.6% from $2,072,000 for the
year ended December 31, 2003 to $1,708,000 for the year ended December 31, 2004.
These expenses include salaries; legal, a#counting and tax fees; recruiting,
travel and lodging expenses; director fees; marketing and printing fees and
other costs. This decrease is due primarily to decreases in legal fees,
corporate office salaries, recruiting costs, and office rent. Genepal and
administrative expenses as a percentage of operating revenues decreased from
42.4% for the year ended December 31, 2003 to 30.6% for the year ended ecember
31, 2004.





General
and administrative expenses decreased $83,000 or 3.9% from $2,155,000 for the
year ended December 31, 2002 to $2,072,000 for the year ended December 31, 2003.
This decrease is due primarily to decreases in corporate office salaries,
recruiting costs, and travel expenses. General and administrative expenses as a
percentage of operating revenues decreased from 54.6% for the year ended
December 31, 2002 to 42.4% for the year ended December 31, 2003.





Depreciation
expense increased $824,000 or 45.9% from $1,795,000 for the year ended December
31, 2003 to $2,619,000 for the year ended December 31, 2004. The increase is due
primarily to the completion of Ballantyne Place and the Northridge office
building in the third quarter 2004.





Depreciation
expense decreased $234,000 or 11.5% from $2,029,000 for the year ended December
31, 2002 to $1,195,000 for the year ended December 31, 2003. The decrease is due
to the aging of furniture, fixtures and equipment at our Addison Place
community.





Interest
income increased $216,000 or 280.5% from $77,000 for the year ended December 31,
2003 to $294,000 for the year ended December 31, 2004. The increase is due to
higher cash balances resulting from the sales of six properties in
2004.





Interest
expense increased $886,000 or 44.2% from $2,003,000 for the year ended December
31, 2003 to $2,889,000 for the year ended December 31, 2004. The increase is due
primarily to a reduction of capitalized interest related to Ballantyne Place and
the Northridge office building, which were both completed in the third quarter
of 2004.





Interest
expense increased $228,000 or 12.8% from $1,775,000 for the year ended December
31, 2002 to $2,003,000 for the year ended December 31, 2003. The increase is due
primarily to a reduction in capitalized interest related to our Northridge
apartment community.





On April
8, 2004, we settled a lawsuit we filed against an architectural firm hired to
work on our Addison Place Apartments and Ballantyne Place. We received proceeds
of $500,000 as a result of the settlement and were required to pay $120,000 to
the defendant for use of their architectural plans. The $120,000 represents
amounts the defendants previously billed us but we had not paid because of this
business dispute.





On
November 21, 2002, we sold the 9.5 acres of land located at the corner of Jones
Bridge Road and East Fox Court, in Alpharetta, Georgia for $3,200,000 plus a
reimbursement of previously paid sewer costs of $302,000. The sale resulted in a
gain on sale of real estate assets of $1,043,000, net of minority interest of
$480,000.




31




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





On
October 29, 2004, we sold 1.2 acres of land located adjacent to our Addison
Pl!ce community fop $895,000, resulting in a gain on sale of real %state assets
of $102,000, net of minority interest of $37,000.





On August
6, 2003, we completed the sale of our Highland Park community for $17,988,000,
resultine in a gain of approximately $6,174,000, net of minority interest of
$2,476,000. The gain is reported in income from discontinued operations.





On June
2, 2004, we sold five of our Atlanta apartment communities - Bradford Creek,
Plantation Trace, Preston Oaks, River Oaks, and Veranda Chase, totaling 1,091
units - to Colonial Properties Trust. The sales price was $109,150,000 or an
average of $100,045 per apartment unit, resulting in a gain of $32,404,000, net
of minority interest of $11,985,000. The gain is reported in income from
discontinued operations.





On July
29, 2004, we sold our St. Andrews at the Polo Club community in Palm Beach
County, Florida for $36,000,000, resulting in a gain of $8,254,000, net of
minority interest of $3,053,000. The gain is reported in income from
discontinued operations.





*Anticipated
Effects of Sale of Six Apartment Communities on our Future Results of
Operations*





As
described above, in June and July 2004 we sold five Atlanta apartment
communities and our only Florida community. Those communities are Bradford
Creek, Plantation Trace, Preston Oaks, River Oaks, Veranda Chase and St. Andrews
at the Polo Club. These sales will affect our future results of operations
generally as follows:





*Reduced
Revenues* .
Revenues for the six apartment communities were $14.3 million for 2003, or
approximately 69.9% of our revenue. Accordingly, our revenues will be materially
lower in future years than in 2003. We note, however, that Ballantyne Place is
generating more revenue each month as it is leasing up.





*Reduced
Income from Operations* . Income
from operations provided by the six apartment communities was $3.5 million for
2003, or approximately 124.1% of our total income from operations. Accordingly,
we expect our income from operations will be materially lower in future years
than in 2003.





*Reduction
in Number of Employees and Associated Costs* . Our
number of employees has decreased from approximately 44 to approximately 22, and
our related costs have decreased materially. Due to our status as a public
company, with its associated costs that are largely unrelated to our asset base,
the percentage decrease in our overall general and administrative expenses will
be materially less than the percentage of our revenues represented by the
communities we have sold.





**Liquidity
and Capital Resources**





*Comparison
of Years Ended December 31, 2004, 2003 and 2002* . Cash
and cash equivalents increased $18,969,000 from $8,583,000 as of December 31,
2003 to $27,552,000 as of December 31, 2004. The increase was due to an increase
in cash provided by investing activities, offset by an increase in cash used in
financing activities and an increase in cash used in operating activities. Cash
and cash equivalents increased $3,041,000 from $5,542,000 as of December 31,
2002 to $8,583,000 as of December 31, 2003. The increase was due to a decrease
in cash used in investing activities, offset by a decrease in cash provided by
financing activities and a decrease in cash provided by operating activities.





32





In the
past, a primary source of liquidity for us has been cash flow from operations.
Operating cash flows have historically been determined by the number of
apartment homes, rental rates and operating expenses with respect to those
apartment homes. The sale of six apartment communities during 2004 resulted in a
decrease in operating revenues to a level that is less than operating expenses.
Net cash used in operations increased $3,445,000 from cash provided of
$1,971,000 during 2003 to cash used of $1,474,000 during 2004. The decrease in
cash flow from operations is due to the sale of the six apartment communities
during 2004, partially offset by revenues from Ballantyne Place as it began its
lease-up.





Net cash
provided by operating activities decreased $798,000 from $2,769,000 during 2002
to $1,971,000 during 2003. The decrease is primarily due to a decrease in
same-property operating income and higher interest expense.





In
addition to experiencing lower operating revenues from the sale of six
properties, we have three properties in lease-up, one property in the planning
and design phase and four parcels of undeveloped land. In total, these eight
properties required an investment of approximately $46.4 million that is
currently producing minimal cash flow. The decreased revenue, together with our
rebuilding program, has reduced our cash flow from operations. We believe that
our cash flow from operations will improve as we lease-up properties and finish
our new
properties under development and construction. Until
there is a sustained and broad-based economic recovery resulting in positive job
growth, however, the Atlanta apartment market will remain soft, and we will
continue to experience the negative effects of lower rents.





On August
27, 2003, we paid a special distribution of $0.55 per share to shareholders and
$0.55 per unit to unitholders of record on August 18, 2003. We paid this special
distribution from the profit generated by the sale of our 188-unit Highland Park
community. On June 18, 2004, we paid a special distribution of $4.50 per share
to shareholders and $4.50 per unit to unitholders of record on June 14, 2004. We
used the significant profits generated by the sale of five apartment communities
to Colonial Properties Trust to fund this distribution.





Our board
of directors suspended payment of our regular quarterly dividends since the
third quarter of 2001. We presently intend not to resume paying regular
quarterly dividends. We expect in the near term to use all or most of the net
proceeds of any sale for either or both of: (a) funding our ongoing development
and construction program; and (b) acquiring other properties through a Section
1031 tax-deferred exchange, as we did with the proceeds of the sale of our St.
Andrews at the Polo Club community.





On
December 29, 2004, we purchased an 82% undivided interest in approximately 23.5
acres of undeveloped land from Roberts Properties
Peachtree Parkway, L.P. of which Mr. Roberts owns a 98.7%  interest. The purchase price was $7,786,000, including closing costs for the
land located on Peachtree Parkway in Gwinnett County, Georgia. The purchase was
funded by a land loan closed on the purchase date and a portion of the sale
proceeds from the sale of St. Andrews at the Polo Club as part of a Section 1031
tax-deferred exchange. If we choose to develop the Peachtree Parkway land, a
substantial construction loan and additional equity will be required to complete
the construction of the project.





On
December 29, 2004, we purchased 29.48 acres of undeveloped land on Westside
Parkway in Alpharetta, Georgia for $5,919,000, including closing costs. The
purchase was funded by a land loan closed on the purchase date and a portion of
the sale proceeds from the sale of St. Andrews at the Polo Club as part of a
Section 1031 tax-deferred exchange. If we choose to develop the Westside Parkway
land, a substantial construction loan and additional equity will be required to
complete the construction of the project.





33





On
January 20, 2005, we purchased 9.84 acres of undeveloped land located on
Peachtree Dunwoody Road in the Perimeter Center submarket of Atlanta. The
purchase price of $15,700,000 was funded by a land loan closed on the purchase
date and a portion of the sale proceeds from the sale of St. Andrews at the Polo
Club as part of a Section 1031 tax-deferred exchange. When we begin development
of the Peachtree Dunwoody land within the next year, a substantial construction
loan and additional equity will be required to complete the construction of the
project.





Net cash
provided by investing activities increased $43,166,000 from cash used of
$4,739,000 during 2003 to cash provided of $38,427,000 during 2004. The increase
is due primarily to the following:





(a)
    a
      $55,706,000 increase in proceeds from the sale of real estate assets from
      $7,313,000 during 2003 to $63,019,000 during 2004 due
to:





§
    $47,016,000
      net proceeds from the Colonial sale in June
2004;


§
    $15,113,000
      net proceeds from the sale of our St. Andrews at the Polo Club community
      in July 2004; and


§
    $890,000
      net proceeds from the sale of the Addison Place outparcel in October
      2004;





offset
by:





§
    $6,932,000
      net proceeds from the sale of Highland Park in August 2003;
      and


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





offset
by:





(b)
    a
      $12,540,000 increase in cash used for the acquisition and construction of
      real estate assets from $12,052,000 during 2003 to $24,592,000 during 2004
      due primarily to the acquisitions of Peachtree Parkway and Westside
      Parkway in the fourth quarter of 2004.





Net cash
used in investing activities decreased $11,482,000 from $16,221,000 during 2002
to $4,739,000 during 2003. The decrease is due primarily to the following:





(a)
    construction
      and development costs of $11,667,000 in 2003 related to Veranda Chase,Ballantyne
      Place,
      the Northridge office building and the Addison Place Shops compared to
      construction and development costs of $19,542,000 in 2002 related to the
      same properties;





offset
by:





(b)
    proceeds
      of $381,000 from the sale of land and reimbursement for land improvements
      for right-of-way projects at the Addison Place community in February 2003
      and proceeds of $6,932,000 from the sale of Highland Park in August 2003,
      compared to proceeds of $3,471,000 from the sale of East Fox Court land in
      2002.





34





Net cash
used in financing activities increased $23,793,000 from cash provided of
$5,809,000 during 2003 to cash used of $17,984,000 during 2004. This increase is
due primarily to the following:





(a)
    a
      $28,547,000 increase in cash used to pay distributions from $3,962,000
      during 2003 to $32,509,000 during 2004;





(b)
    a
      $10,750,000 decrease in proceeds from mortgage notes payable from
      $10,750,000 during 2003 to none during 2004 due to the refinancing of our
      River Oaks apartment community in 2003; and





(c)
    a
      $3,731,000 decrease in proceeds received from construction loans from
      $12,567,000 during 2003 compared to $8,836,000 during 2004 due to lower
      borrowings related to Addison Place Shops, Ballantyne Place and Veranda
      Chase





offset
by:





(d)
    a
      $9,462,000 increase in proceeds from land notes payable from none during
      2003 to $9,462,000 during 2004 due to the acquisitions of the Peachtree
      Parkway and Westside Parkway properties in December
  2004;





(e)
    a
      $8,487,000 decrease in payoffs of mortgage notes from $8,487,000 during
      2003 to none during 2004 due to the refinancing of debt secured by our
      River Oaks community in 2003;





(f)
    a
      $700,000 decrease in payoffs of land notes payable due to the $3,700,000
      payoff of debt secured by Addison Place Shops in 2003 compared to the
      $3,000,000 payoff of debt secured by our Northridge apartment land in
      2004;





(g)
    a
      $455,000 decrease in principal repayments on mortgage notes payable from
      $1,107,000 during 2003 to $652,000 during 2004;
and





(h)
    a
      $131,000 decrease in cash used for the payment of loan costs from $252,000
      during 2003 to $121,000 during 2004 due primarily
to:





§
    $166,000
      of loan costs relating to the refinancing of debt secured by our River
      Oaks community in 2003; and


§
    $55,000
      of loan costs relating to the construction loan secured by the Addison
      Place Shops in 2003;





offset
by:





§
    $82,000
      of loan costs relating to the acquisitions of Peachtree Parkway and
      Westside Parkway in the fourth quarter of
2004.





Net cash
provided by financing activities decreased $10,568,000 from $16,377,000 during
2002 to $5,809,000 during 2003. This decrease is due primarily to the
following:





(a)
    a
      decrease of $6,120,000 from the $18,687,000 proceeds received from
      construction loans in 2002 compared to $12,567,000 received in 2003 due
      primarily to:





§
    a
      decrease of $6,912,000 for Veranda Chase, which was completed in
      2002;


§
    a
      decrease of $2,006,000 for our Ballantyne Place
  community;


35
  §
    a
      decrease of $491,000 for our Northridge office building;
    and


§
    a
      decrease of $102,000 for the Addison Place Apartments.





(b)
    an
      increase in cash used to pay distributions to $3,962,000 in 2003 compared
      to none in 2002;





(c)
    an
      increase in payoffs of land notes payable of $2,400,000 due to the payoff
      of the $3,700,000 Addison Place Shops land loan in 2003 compared to the
      payoff of the $1,300,000 East Fox Court land loan in
  2002;





(d)
    net
      increase of $2,372,000 from the refinancing of the Highland Park mortgage
      loan in 2002, compared to a net increase of $2,263,000 from the
      refinancing of the River Oaks mortgage loan in
2003;





offset
by:





(e)
    net
      repayments of $2,000,000 on the line of credit in 2002, compared to no
      borrowings or repayments on the line of credit in
2003.





The table
and accompanying footnotes on the following two pages explain our current debt
structure, including for each loan: the principal balance at December 31, 2004
and at its scheduled maturity, interest rate, maturity date, and monthly
principal and interest payment. The amount shown in the column titled “Balance
at Maturity” assumes the full amount of each loan is drawn and required
principal payments are made prior to maturity.





36




**ROBERTS
      REALTY INVESTORS, INC.****DEBT
      SUMMARY SCHEDULE****(Listed
      in order of maturity)**
      **December
      31, 2004****Lender**
    
    **Interest
      Terms**
    
    **Interest**
      **Rate
      (%)**
    
    **Maturity**
      **Date**
    
    **Balance
      at**
      **Maturity**
    
    **Monthly**
      **Payment**
    
    **Balance
      at**
      **12/31/04**Addison
      Place Apartments (1)
    
    
    Wachovia
      Bank
    
    
    Fixed-rate
      const/perm
    
    
    8.62
    
    
    05/10/05
    
    $
    22,071,000
    
    
    Variable
    
    $
    22,130,000NorthridgeOffice
      Building (2)
    
    
    Bank
      of North Georgia
    
    
    LIBOR
      plus 200 b.p.
    
    
    4.40
    
    
    05/28/05
    
    
    4,530,000
    
    
    Interest
      only
    
    
    4,530,000Revolving
      $2 millioncredit
      line (2)
    
    
    Compass
      Bank
    
    
    LIBOR
      plus 175 b.p.
    
    
    4.15
    
    
    08/01/05
    
    
    0
    
    
    Interest
      only
    
    
    0Land
      Loan (2)
    
    
    Wachovia
      Bank
    
    
    LIBOR
      plus 185 b.p.
    
    
    4.25
    
    
    12/29/05
    
    
    6,842,000
    
    
    Interest
      only
    
    
    9,462,000Addison
      Place Shops (2) (3)
    
    
    Compass
      Bank
    
    
    LIBOR
      plus 185 b.p.
    
    
    4.25
    
    
    04/30/06
    
    
    6,500,000
    
    
    Interest
      only
    
    
    5,280,000Ballantyne
      Place (2) (4)
    
    
    AmSouth
      Bank
    
    
    LIBOR
      plus 200 b.p.
    
    
    4.40
    
    
    03/10/08
    
    
    19,642,000
    
    
    Interest
      only
    
    
    22,484,000Addison
      Place Townhomes (5)
    
    
    Prudential
      Life
    
    
    Fixed-rate
      permanent
    
    
    6.95
    
    
    11/15/09
    
    
    8,387,000
    
    $
    62,885
    
    
    9,056,000Totals
    
    
    
    
    
    
    $
    67,972,000
    
    
    
    
    $
    72,942,000


37





(1)
    The
      loan secured by the Addison Place Apartments is a floating rate loan with
      no prepayment premium for early termination. The interest rate on the loan
      was synthetically fixed with an interest rate swap agreement, which may
      result in a prepayment premium depending upon market interest rates. The
      prepayment premium (if any) is equal to the present value of the
      difference between the existing fixed interest rate on the interest rate
      swap agreement and the current replacement rate for a similar structure in
      the marketplace at the time of prepayment. There is no minimum prepayment
      fee. Remaining principal payments on the loan are scheduled as follows:
      2005 - $59,000, plus the balloon payment of $22,071,000 due at
      maturity.





(2)
    The
      interest rate shown for variable-rate debt is as of December 31, 2004. The
      construction loan on the Addison Place Shops with Compass Bank has an
      interest rate floor of 3.50%. The construction loan on the Northridge
      office building with Bank of North Georgia has an interest rate floor of
      3.75%.





(3)
    The
      Addison Place Shops construction loan is not yet fully drawn. The amount
      shown in the column titled “Balance at Maturity” assumes the full amount
      of the loan is drawn and required principal payments are made prior to
      maturity.





(4)
    The
      loan matures on March 10, 2006, with Roberts Realty having the option to
      exercise two additional one-year extensions. Monthly payments are interest
      only through March 10, 2005 at the 30-day LIBOR plus 200 basis points;
      thereafter, principal and interest will be payable in monthly installments
      calculated using a 30-year amortization schedule and an assumed interest
      rate of 7.0% plus actual interest. The construction loan for Ballantyne
      Place is not yet fully drawn.





(5)
    The
      loan secured by the Addison Place Townhomes may be prepaid upon payment of
      a premium equal to the greater of (a) 1% of the principal amount being
      prepaid multiplied by a fraction having as its numerator the number of
      months to maturity and its denominator the number of months in the full
      term of the loan or (b) the present value of the loan less the amount of
      principal and accrued interest being repaid. The loan may be prepaid in
      full during the last 30 days before its maturity date without any
      prepayment premium.








38








Our
existing loans will require balloon payments, in addition to monthly principal
amortization, coming due over the years 2005 to 2009 as summarized below:




**Debt
      Maturity Schedule****Year**
    
    **Aggregate
      Balloon**
      **Payments**
    
    **Applicable
      Communities or Properties**2005
    
    $
    33,443,000
    
    
    Addison
      Place Apartments (1), Northridge Office Building, Land
Loan2006
    
    
    6,500,000
    
    
    Addison
      Place Shops2007
    
    
    02008
    
    
    19,642,000
    
    
    Ballantyne
      Place (2)2009
    
    
    8,387,000
    
    
    Addison
      Place Townhomes**Total**
    
    **$******
    ******67,972,000**


(1)  On May 6,
2004, we obtained a $21,000,000 loan commitment from the Federal Home Loan
Mortgage Corporation (Freddie Mac) to refinance the Addison Place Apartments.
The loan will have a ten-year term and bear interest at a fixed interest rate of
6.35%. We expect to close the new loan upon the maturity of the existing loan in
May 2005.





(2)  On July
15, 2004, we obtained a $23,000,000 loan commitment from Freddie Mac to
refinance Ballantyne Place. The loan will have a ten year term and bear interest
at a fixed interest rate of 6.06%. We expect to close the new loan in July
2005.





*Short-Term
Debt*





*Unsecured
Line of Credit* . We have
a $2,000,000 unsecured line of credit, which expires August 1, 2005, to provide
funds for short-term working capital purposes. At December 31, 2004, there were
no borrowings under this line of credit. Although we intend to renew the line of
credit, there is no assurance that the bank will offer renewals or, if the
renewal is offered, that it will be on favorable terms.





*Addison
Place Apartment* s. On May
6, 2004, we obtained a $21,000,000 loan commitment from Freddie Mac to refinance
our $22,071,000 Addison Place Apartments mortgage loan. The new loan will have a
ten-year term and bear interest at a fixed interest rate of 6.35%. We expect to
close the new loan upon the maturity of the existing loan on May 10, 2005. We
intend to repay the remaining balance of approximately $1,071,000 on the
existing loan from working capital.





*Northridge
Office Building* . On June
28, 2001, we closed a $5,280,000 loan to fund the construction of the Northridge
office building. The loan is secured by the land and improvements and bears
interest at the 30-day LIBOR plus 200 basis points. On May 28, 2004, we extended
the maturity date of the loan until May 28, 2005 and reduced to $4,530,000 the
maximum principal amount available to be borrowed under the loan. At December
31, 2004, $4,530,000 was drawn on the loan, and we anticipate that it will have
a $4,530,000 principal balance at maturity. We intend to refinance the
construction loan on this property with permanent financing before its maturity
date. To do so, we may be required to pay down its principal balance. There is
no assurance that this financing will be available or, if it is available, that
it will be on favorable terms.





*Land
Loan* . On
December 29, 2004, we closed a $20,412,000 loan to fund portions of the purchase
prices of an 82% undivided interest in 23.5 acres of undeveloped land located on
Peachtree Parkway in Gwinnett County, Georgia and 29.47 acres of undeveloped
land located in Alpharetta, Georgia. At December 31, 2004, $9,462,000 was drawn
on the loan, which has a one-year term and bears interest at the 30-day LIBOR
plus 185 basis points. In January 2005, we borrowed the remaining $10,950,000
under the loan to fund part of the purchase price of the Peachtree Dunwoody
property. We can obtain a release on each parcel by paying a set price, as we
did in February 2005 to release the parcel on Peachtree Parkway. We intend to
refinance any remaining balance of the loan at its maturity. There is no
assurance that this financing will be available or, if it is available, that it
will be on favorable terms.





39


**


*Long-Term
Debt*





With
respect to the debt that matures after 2005, we anticipate that we will repay
only a small portion of the principal of that indebtedness before maturity and
that we will not have funds on hand sufficient to repay that indebtedness at
maturity. We currently intend to refinance our maturing debt through debt
financing collateralized by mortgages on individual properties, although we
might also seek to raise funds through equity offerings if market conditions are
favorable at the time.





*Floating
Rate Debt*





Other
than the loans secured by Addison Place, our loans bear interest at floating
rates. These loans, which had an aggregate outstanding balance of $39,759,000 at
February 28, 2005, bear interest at rates ranging from 185 to 200 basis points
over the 30-day LIBOR rate. Changes in LIBOR that increase the interest rates on
these loans, as has occurred recently, have increased our interest expense and
will do so in the future if rates continue to rise. For example, a 1.0% increase
in the interest rates on those loans would increase our interest expense by
approximately $33,000 per month and adversely affect our liquidity and capital
resources to that degree.





On May
30, 2003, we closed a $6,500,000 construction loan to fund the construction of
the Addison Place Shops retail center. The loan is secured by the land and
improvements and matures on April 30, 2006. Monthly payments are interest only
at the 30-day LIBOR plus 185 basis points. At December 31, 2004, $5,280,000 was
outstanding on the loan.





On July
15, 2004, we obtained a $23,000,000 loan commitment from Freddie Mac to
refinance Ballantyne Place. The loan will have a ten-year term and bear interest
at a fixed interest rate of 6.06%. We expect to close the new loan in July 2005.
We intend to draw down no more than $23,000,000 on the existing loan. At
December 31, 2004, $22,484,000 was outstanding on the loan.





*Settlement
of Lawsuit*





On April
8, 2004, we settled a lawsuit we filed against an architectural firm hired to
work on our Addison Place Apartments and Ballantyne Place properties. We
received proceeds of $500,000 as a result of the settlement and were required to
pay $120,000 to the defendant for use of their architectural plans. The $120,000
represents amounts the defendants previously billed us but we had not paid
because of this business dispute.





*Anticipated
Effects of Sale of Six Apartment Communities on our Liquidity and Capital
Resources*





As
described above, we sold six apartment communities in June and July 2004. We
anticipate that these sales will generally affect our future liquidity and
capital resources as follows:





*Net
Cash Provided by Operating Activities from Continuing
Operations.* A
significant portion of the net cash provided by operating activities from
continuing operations has in the past been provided by the six apartment
communities that we sold. Accordingly, we expect net cash provided by operating
activities from continuing operations to be materially lower in future years
than in 2003.




40




*Reduced
Revenue* .
Revenues for the six apartment communities were $14.3 million for 2003, or
approximately 69.9% of our revenue. Accordingly, we expect our revenues to be
materially lower in future years than in 2003.





*Reduced
Mortgage Notes Payable* . As a
result of the sale of six communities, we have reduced our mortgage debt (and
associated interest rate swap agreement for the Veranda Chase loan) by a total
of $79.2 million.





*Reduced
Monthly Mortgage Payments* . Monthly
mortgage payments for the six apartment communities were $514,000, or 62.0%, of
our total monthly mortgage payments for May 2004, the last month during which we
owned all six communities. Our monthly mortgage payments have been reduced by
this amount.





*Reduced
Interest Expense* .
Interest expense for the six apartment communities was $5.6 million, or 69.9%,
of our interest for 2003. Accordingly, our interest expense will be materially
lower in future years than in 2003.





We
anticipate that aggregate operating revenues will be adequate to provide
short-term (12 months) liquidity for the payment of direct rental operating
expenses (excluding corporate general and administrative expenses), interest and
scheduled amortization of principal on related mortgage notes payable (other
than the May 2005 maturity of the Northridge office building construction loan
as noted above). We intend to meet our other short-term liquidity requirements,
including general and administrative expenses, improvements and renovations at
existing communities, with cash reserves. If we are unable to secure permanent
financing or otherwise refinance our construction loan on our Northridge office
building that matures on May 28, 2005, we may have to defer or curtail our
planned development and construction activities. We expect to meet our long-term
liquidity requirements, including future developments and debt maturities, from
the proceeds of construction and permanent loans, and if necessary from the sale
of properties.





**Contractual
Obligations**





The
following table presents contractual obligations of Roberts Realty by the period
the payments are due (dollars in thousands, unaudited):





41




**Payments
      due by period****Contractual
      obligations**
    
    **Total**
    
    **Less
      than****1
      year**
    
    **1-3
      years**
    
    **3-5
      years**
    
    **More
      than****5
      years**Long-Term
      Debt Obligations(1)
    
    $
    82,471
    
    $
    40,191
    
    $
    32,240
    
    $
    10,040
    
    $
    0Capital
      Lease Obligations
    
    
    0
    
    
    0
    
    
    0
    
    
    0
    
    
    0Operating
      Lease Obligations
    
    
    0
    
    
    0
    
    
    0
    
    
    0
    
    
    0Due
      to Roberts Construction(2)
    
    
    653
    
    
    653
    
    
    0
    
    
    0
    
    
    0Interest
      Rate Swap Contract Payable(3)
    
    
    436
    
    
    436
    
    
    0
    
    
    0
    
    
    0**Total**
    
    $
    83,560
    
    $
    41,280
    
    $
    32,240
    
    $
    10,040
    
    $
    0







(1)
    See
      Debt Summary Schedule above for a description of our long-term debt
      obligations. In computing interest expense related to our variable rate
      debt, we assumed a LIBOR of 2.4% for all periods, and for the fixed rate
      debt we used the applicable contractual
rates.


(2)
    See
      Item 13, Certain Relationships and Related Transactions - Transactions
      with the Roberts Companies - Construction Contracts for a description of
      our construction contracts with Roberts Construction, under which we are
      obligated to pay Roberts Construction to provide construction services to
      us.


(3)
    See
      Critical Accounting Policies - Derivatives and Hedging Activities and Item
      7A, Quantitative and Qualitative Disclosures about Market Risk for a
      description of our use of derivative financial instruments in the form of
      interest rate swaps to hedge interest rate exposure on variable-rate debt.
      We do not use derivative financial instruments for trading or speculative
      purposes. As described in detail in the referenced sections of this
      report, we entered into an interest rate swap agreement to effectively fix
      the variable interest rate on our $22,130,000 Addison Place Apartments
      permanent loan.





**Critical
Accounting Policies**





Our
financial statements are prepared in accordance with accounting principles
generally accepted in the United States (GAAP). A summary of the significant
accounting policies we use is included in Note 2 to the consolidated financial
statements. A summary of recent accounting pronouncements and the expected
impact on our financial statements is also included in Note 2. Because we are in
the business of owning, operating, and developing apartment communities, our
critical accounting policies relate to cost capitalization and derivatives and
hedging activities. The following is a summary of our overall accounting policy
in this area.





*Cost
Capitalization*





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





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





42


**


*Asset
Impairment Evaluation*





We
periodically evaluate our real estate assets to determine if there has been any
impairment in the carrying value of the assets in accordance with SFAS No. 144
“Accounting for the Impairment or Disposal of Long-Lived Assets.” SFAS No. 144
requires impairment losses to be recorded on long-lived assets used in
operations when indicators of impairment are present and the undiscounted cash
flows estimated to be generated by those assets are less than the assets’
carrying amounts. At December 31, 2004, we did not own any real estate assets
that meet the impairment criteria of SFAS No. 144.





*Derivatives
and Hedging Activities*





We
generally enter into fixed rate debt instruments. In certain situations, we may
utilize derivative financial instruments in the form of interest rate swaps to
hedge interest rate exposure on variable-rate debt. We do not use such
instruments for trading or speculative purposes. We entered into an interest
rate swap agreement to fix the variable interest rate on our $22,130,000 Addison
Place Apartments permanent loan.





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




43




The fair
value of our interest rate swap agreement at December 31, 2004 was a liability
of $436,000, which is a result of a lower market interest rate compared to the
synthetically fixed rate. This liability was recorded as a decrease in
shareholders’ equity of $320,000 (accumulated other comprehensive income), net
of minority interest of $116,000. We have no other derivative or hedging
instruments. For additional information related to this topic, see Item 7A,
Quantitative and Qualitative Disclosure About Market Risk.





**Stock
Repurchase Plan**





Our board
of directors has authorized the repurchase of up to 400,000 shares of our
outstanding common stock. We repurchased 362,588 shares for $2,764,000 prior to
2002, and we currently have authority to repurchase an additional 37,412 shares.
We did not repurchase any shares during 2004, 2003 or 2002. We may repurchase
our shares from time to time by means of open market purchases depending on
availability, our cash position, and the price per share.





**Supplemental
Disclosure of Funds From Operations**





Funds
from Operations, or FFO, is defined by the National Association of Real Estate
Investment Trusts as net income (loss), computed in accordance with generally
accepted accounting principles (GAAP), excluding gains (or losses) from debt
restructuring and sales of property and non-recurring items, plus real estate
related depreciation and amortization. We compute FFO in accordance with the
current NAREIT definition, which may differ from the methodology for calculating
FFO utilized by other equity REITs and, accordingly, may not be comparable to
those other REITs. FFO does not represent amounts available for management’s
discretionary use for payment of capital replacement or expansion, debt service
obligations, property acquisitions, development and distributions or other
commitments and uncertainties. FFO should not be considered as an alternative to
net income (loss) (determined in accordance with GAAP) as an indication of our
financial performance or cash flows from operating activities (determined in
accordance with GAAP) as a measure of our liquidity, nor is it indicative of
funds available to fund our cash needs, including our ability to make
distributions. We believe that to gain a clear understanding of our operating
results, FFO should be evaluated in conjunction with net income (loss)
(determined in accordance with GAAP).





FFO is
used by industry analysts and investors as a supplemental measure of an equity
REIT’s operating performance. Historical cost accounting for real estate assets
implicitly assumes that the value of real estate assets diminishes predictably
over time. Because real estate values instead have historically risen or fallen
with market conditions, many industry investors and analysts have considered
presentation of operating results for real estate companies that use historical
cost accounting to be insufficient by themselves. Thus NAREIT created FFO as a
supplemental measure of REIT operating performance that excludes historical cost
depreciation, among other items, from GAAP net income. We believe that the use
of FFO, combined with the required primary GAAP presentations, improves the
understanding of operating results of REITs among the investing public and makes
comparisons of REIT operating results more meaningful. Our management evaluates
the operating performance of our apartment communities in part based on
FFO.





44





The
following table reconciles net income (loss) to FFO (dollars in thousands,
unaudited).





**Twelve
      Months Ended December 31,****2004**
    
    **2003**
    
    **2002**Net
      income (loss)
    
    $
    36,986
    
    $
    2,690
    
    $
    (2,516
    )Minority
      interest of unitholders - continuing operations
    
    
    (1,011
    )
    
    (783
    )
    
    (1,184
    )Minority
      interest of unitholders - discontinued operations
    
    
    (427
    )
    
    (630
    )
    
    (406
    )Loss
      on disposal of assets
    
    
    10
    
    
    11
    
    
    33Gain
      on sale of real estate assets, net of minority interest
    
    
    (102
    )
    
    (77
    )
    
    (1,043
    )Gain
      on sale of Highland Park, net of minority interest
    
    
    -
    
    
    (6,174
    )
    
    -Gain
      on sale of the Colonial properties, net of minority
    interest
    
    
    (32,404
    )
    
    -
    
    
    -Gain
      on sale of St. Andrews at the Polo Club, net of minority
      interest
    
    
    (8,254
    )
    
    -
    
    
    -Loss
      on sale of Rosewood Plantation, net of
      minority
      interest
    
    
    -
    
    
    -
    
    
    102Depreciation
      expense - continuing operations
    
    
    2,619
    
    
    1,795
    
    
    2,029Depreciation
      expense - discontinued operations
    
    
    1,921
    
    
    5,184
    
    
    4,972Funds
      From Operations
    
    $
    (662
    )
    $
    2,016
    
    $
    1,987Weighted
      average shares and unitsoutstanding
      during the period
    
    
    7,220,658
    
    
    7,223,727
    
    
    7,220,593





**Inflation**





Because
substantially all of our apartment leases are for an initial term of not more
than 12 months, we are able, if market conditions permit, to seek increases in
rents after the expiration of each lease. The short-term nature of these leases
serves to reduce the risk to us of the adverse effects of
inflation.





**Disclosure
Regarding Forward-Looking Statements**





This
report contains “forward-looking statements” within the meaning of Section 27A
of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of
1934. These statements appear in a number of places in this report and include
all statements that are not historical facts. Some of the forward-looking
statements relate to our intent, belief or expectations regarding our strategies
and plans for operations and growth, including development and construction of
new multifamily apartment communities. Other forward-looking statements relate
to trends affecting our financial condition and results of operations and our
anticipated capital needs and expenditures. These forward-looking statements are
not guarantees of future performance and involve risks and uncertainties, and
actual results may differ materially from those that are anticipated in the
forward-looking statements. These risks include the following:





§
    As
      we announced on September 17, 2004, we have experienced operating losses
      and anticipate that they will continue through 2005. The cash flow
      generated from our remaining newer assets is not currently sufficient to
      cover our corporate overhead, and we intend to use our cash reserves to
      fund the operating losses. If these losses persist for longer than we
      expect, our cash position and financial position could be materially and
      adversely affected.




§
    The
      current unfavorable market and economic conditions in Atlanta and
      Charlotte could continue to depress our rental rates and adversely affect
      our financial performance.




45




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




§
    Increased
      competition in the Atlanta and Charlotte markets could limit our ability
      to lease our apartment homes or increase or maintain
  rents.




§
    Conflicts
      of interest inherent in business transactions between or among Roberts
      Realty and/or the operating partnership on one hand, and Mr. Roberts
      and/or his affiliates on the other hand, could result in our paying more
      for property or services than we would pay an independent seller or
      provider.




§
    Construction
      risks inherent in our development and construction of the Northridge
      community, our Addison Place Shops retail center, the three properties we
      purchased in December 2004 and January 2005 and the other properties we
      will develop in the future, could adversely affect our financial
      performance.




§
    If
      we are unable to lease-up Ballantyne Place, Addison Place Shops, our
      Northridge community, and the Northridge office building as we expect, our
      financial performance will suffer. We note in particular that the Atlanta
      suburban office market is particularly soft and that we may be unable to
      lease our corporate headquarters building to third party tenants without
      significant concessions.




§
    We
      may be unable to secure permanent financing or otherwise refinance some or
      all of our construction loan on our office building that matures on May
      28, 2005, or we may be able to do so only on unfavorable terms that may
      include making a material principal payment that will reduce our working
      capital. We expect that loan to have a principal balance of $4,530,000 at
      its maturity.




§
    We
      may be unable to secure permanent financing or otherwise refinance the
      land loan that matures on December 29, 2005, or we may be able to do so
      only on unfavorable terms. We expect that loan to have a principal balance
      of approximately $6,842,000 at its maturity. If we are required to use our
      cash to pay off this debt, we may have to defer or curtail our planned
      development and construction activities, which will adversely affect our
      financial performance.




§
    We
      have approximately $41,756,000 in debt at December 31, 2004 that bears
      interest at variable interest rates (excluding loans on which we have
      synthetically fixed the interest rate), and if interest rates were to
      increase, our cash position and financial position could be materially and
      adversely affected.




§
    We
      may be unable to obtain replacement financing to make balloon payments on
      our long-term debt as it matures, or we might have to refinance our debt
      on less favorable terms.




§
    Because
      our organizational documents do not limit the amount of debt we may incur,
      we could increase the amount of our debt as a percentage of the estimated
      value of our properties. This 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.




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




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




46




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





In
addition, the market price of the common stock may from time to time fluctuate
materially as a result of, among other things:




§
    our
      operating results;




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




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








**ITEM
7A.**  **QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.**





Because
some of our debt bears interest at rates that are not fixed, we are exposed to
market risk from changes in interest rates, which may adversely affect our
financial position, results of operations and cash flows. In seeking to minimize
the risks from interest rate fluctuations, we manage exposures through our
regular operating and financing activities. We do not use financial instruments
for trading or other speculative purposes. We are exposed to interest rate risk
primarily through our borrowing activities, which are described in Notes 5 and 6
to the consolidated financial statements included in this report. Our Addison
Place Apartments loan, which had an outstanding principal balance of $22,130,000
at December 31, 2004, has a synthetically fixed interest rate. When we closed
this loan, we entered into an interest rate swap agreement that synthetically
fixed the interest rate. The fair value of this interest rate swap agreement at
December 31, 2004 was a liability of $436,000 because of a lower market interest
rate compared to the synthetically fixed rate. Provided that we hold this
instrument until it matures on May 10, 2005 as we intend, we will not pay any
interest other than that stated in the loan and swap agreement. The liability
recorded at December 31, 2004 will be reduced as we perform under this
instrument, as the difference between the market interest rate and the fixed
rate decreases, and as this obligation matures. Our other permanent mortgage
loan, with an aggregate outstanding principal balance of $9,056,000 at December
31, 2004, bears interest at a fixed rate.





The
remaining construction loans, which had an aggregate outstanding balance of
$32,294,000 at December 31, 2004, bear interest ranging from 185 to 200 basis
points over the 30-day LIBOR rate. Our line of credit and land loan interest
rates range from 175 to 185 basis points over the 30-day LIBOR rate. At December
31, 2004, those loans had an aggregate outstanding principal balance of
$9,462,000. Changes in LIBOR that increase the interest rates on these loans, as
has occurred recently, have increased our interest expense and will do so in the
future if rates continue to rise. For example, a 1.0% increase in the interest
rates on those loans would increase our interest expense by approximately
$33,000 per month and adversely affect our liquidity and capital resources to
that degree. Given our interest rate swap agreement and the current interest
rate environment, we believe there is no material market risk exposure to our
consolidated financial position, results of operations or cash flows.





The
following table presents principal reductions and related weighted average
interest rates by year of expected maturity for our debt
obligations.




47





**Fair
      Value**(Dollars
      In Thousands)
    
    **2005**
    
    **2006**
    
    **2007**
    
    **2008**
    
    **2009**
    
    **Thereafter**
    
    **Total**
    
    **12/31/04**Principal
      reductions in fixed rate mortgage notes
    
    $
    129
    
    $
    139
    
    $
    149
    
    $
    159
    
    $
    8,480
    
    $
    0
    
    $
    9,056
    
    $
    9,600Average
      interest rates
    
    
    6.95
    %
    
    6.95
    %
    
    6.95
    %
    
    6.95
    %
    
    6.95
    %
    
    N/A
    
    
    6.95
    %
    
    5.53
    %Principal
      reductions in variable rate mortgage notes
    
    $
    22,130
    
    $
    0
    
    $
    0
    
    $
    0
    
    $
    0
    
    $
    0
    
    $
    22,130
    
    $
    22,130Principal
      reductions in construction/ permanent loans
    
    $
    4,880
    
    $
    5,777
    
    $
    532
    
    $
    21,105
    
    $
    0
    
    $
    0
    
    $
    32,294
    
    $
    32,294Principal
      reductions in land loan
    
    $
    9,462
    
    $
    0
    
    $
    0
    
    $
    0
    
    $
    0
    
    $
    0
    
    $
    9,462
    
    $
    9,462Interest
      Rate Swap
      (Notional
      Principal Amount)Pay
      fixed/ Receive variable
    
    $
    22,130
    
    $
    0
    
    $
    0
    
    $
    0
    
    $
    0
    
    $
    0
    
    $
    22,130
    
    $
    (436
    )Average
      Pay rate
    
    
    8.62
    %
    
    0.00
    %
    
    0.00
    %
    
    0.00
    %
    
    0.00
    %
    
    0.00
    %
    
    8.62
    %
    
    4.60
    %Receive
      rate
    
    
    LIBOR
    
    
    LIBOR
    
    
    LIBOR
    
    
    LIBOR
    
    
    LIBOR
    
    
    LIBOR
    
    
    LIBOR
    
    
    LIBOR




We
estimate the fair value of our debt based on current borrowing rates for
issuance of debt with similar terms and remaining maturities.




48





**ITEM
8.**  **FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA.**







The
financial statements are listed under Item 15(a) and are filed as part of this
annual report on the pages indicated.





Report
      of Independent Registered Public Accounting Firm
    
    
    F-1Consolidated
      Financial Statements and Schedule as of December 31, 2004 and 2003 and for
      the Years Ended December 31, 2004, 2003 and 2002:Consolidated
      Balance Sheets
    
    
    F-2Consolidated
      Statements of Operations
    
    
    F-3Consolidated
      Statements of Shareholders’ Equity
    
    
    F-4Consolidated
      Statements of Cash Flows
    
    
    F-5Notes
      to Consolidated Financial Statements
    
    
    F-6Schedule
      III - Real Estate and Accumulated Depreciation
    
    
    S-1




**ITEM
9.** **CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE.**





None




**ITEM
9A.**  **CONTROLS
AND PROCEDURES.**





As of
December 31, 2004, we carried out an evaluation, under the supervision and with
the participation of our management, including our Chief Executive Officer and
Chief Financial Officer, of the effectiveness of our disclosure controls and
procedures as defined in Exchange Act Rule 13a-15(e). Based upon that
evaluation, our Chief Executive Officer and Chief Financial Officer have
concluded that our current disclosure controls and procedures are effective as
of December 31, 2004.





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




**ITEM
9B.**  **OTHER
INFORMATION.**





This item
is not applicable because there was no information required to be disclosed by
the registrant in a report on Form 8-K during the fourth quarter of 2004 that
was not reported.




49


****


**PART
III**




**ITEM
10.**  **DIRECTORS
AND EXECUTIVE OFFICERS OF THE REGISTRANT.**





**Directors
and Executive Officers**





*Charles
S. Roberts* , age 58,
has served as our Chairman of the Board, Chief Executive Officer and President
since July 1994. Mr. Roberts’ term as a director expires at the 2006 annual
meeting of shareholders. Mr. Roberts owns, directly or indirectly, all of the
outstanding stock of, and is the President and sole Director of, Roberts
Properties, Inc. and Roberts Properties Construction, Inc.





In
October 1970, Mr. Roberts established Roberts Properties, Inc. to develop,
construct and manage real estate. Beginning in 1985, Mr. Roberts and Roberts
Properties began to focus on developing upscale multifamily residential
communities and have won numerous local, regional and national awards for the
development of these communities. Mr. Roberts has been a frequent national
speaker on the topic of developing upscale multifamily housing and has been
recognized as a leader in this industry. In April 1995, Roberts Properties
Management, Inc. (which we acquired in 1997) was recognized as the Property
Management Company of the Year by the National Association of Home Builders. On
a regional level, Roberts Properties was awarded the prestigious Southeast
Builders Conference Aurora Award for the best rental apartment community eight
out of nine years during the period 1988 through 1996. On a national level,
Roberts Properties was awarded the prestigious Pillars of the Industry Award
from the National Association of Home Builders for the best low-rise apartments
in 1991 and 1992. In 1993, Roberts Properties was awarded the coveted Golden
Aurora Award for best overall development in the Southeast.





*Wm.
Jarell Jones* , ** age 56, a
director since October 1994, is an attorney and has practiced law with the firm
of Wm. Jarell Jones, P.C., in Statesboro and St. Simons, Georgia since November
1993. Mr. Jones’ term expires at the 2005 annual meeting of shareholders. Mr.
Jones is also a Certified Public Accountant, and in 1976 he formed the public
accounting firm of Jones & Kolb in Atlanta, Georgia and served as Senior Tax
Partner and Co-Managing Partner until December 1988. In 1990 Mr. Jones moved to
Statesboro and practiced law with the firm of Edenfield, Stone & Cox until
November 1992 and then with the firm of Jones & Rutledge from November 1992
until November 1993. Mr. Jones is the Chief Executive Officer of JQUAD, Inc., a
family owned holding company of timber, farming and development interests. Mr.
Jones was a former director for six years and the former Chairman for two years
of the Downtown Statesboro Development Authority.





*Dennis
H. James* , age 57,
a director since June 1995, is Managing Director - Southeast Region, with L.J.
Melody & Company, a commercial mortgage banking firm and subsidiary of CB
Richard Ellis. Mr. James’ term expires at the 2005 annual meeting of
shareholders. Mr. James has over 30 years experience in the mortgage banking
industry and has been involved in the production of income property straight
debt loans, participating mortgages, debt/equity joint ventures and sales. As
Managing Director of L.J. Melody & Company, he is responsible for the
Southeast Region’s overall production and investor relations. He has served on
both the Allstate Life Insurance Company Correspondent Advisory Council and
State Farm Life Insurance Advisory Council. Mr. James has a bachelor’s degree in
Industrial Management from Georgia Tech, and his professional education includes
attendance at numerous real estate institutes.





*Charles
R. Elliott* , age 51,
served as a director from October 1994 to February 1995 and became a director
again in 2000. Previously he was our Secretary and Treasurer from our inception
until July 15, 2002, and our Chief Financial Officer from April 1995 until July
15, 2002, when he became our Senior Vice President - Real Estate. He left
Roberts Realty as a full-time employee on August 30, 2002 and returned on a
full-time basis from February 17, 2003 to September 30, 2003 as our Chief
Operating Officer. In this interim period he provided limited consulting
services for which he was paid a fee. Mr. Elliott’s term expires at the 2006
annual meeting of shareholders. He worked for Hunneman Real Estate Corporation
in Boston, Massachusetts from 1979 to 1993, most recently as a Senior
Vice-President of Accounting and Finance. Mr. Elliott joined Roberts Properties
in August 1993 as Chief Financial Officer and served in that role until April
1995. He holds an undergraduate degree in Accounting and a master’s degree in
Finance.





50


**


*Ben
A. Spalding* , age 70,
a director since October 1994, has worked part-time with Matteson Partners, an
Atlanta-based executive search firm, from April 2003 to the present. Mr.
Spalding’s term expires at the 2007 annual meeting of shareholders. Previously,
he served from 2000 to April 2003 as Executive Vice President of DHR
International, Inc., an executive search firm. Mr. Spalding was the sole
shareholder of Spalding & Company, a former NASD member broker-dealer that
served from 1980 to 1996 as the exclusive broker-dealer for limited partnerships
sponsored by Mr. Roberts. Mr. Spalding served as President of Spalding &
Company from 1980 until 1994. For the 20-year period through 1983, Mr. Spalding
served in several positions with Johnson & Johnson in the health care field,
most recently as Healthcare Division Sales Manager for several states in the
Southeast. Mr. Spalding has a bachelor’s degree in Business Administration from
Bellarmine College. He has served in numerous positions with civic and
charitable organizations, including serving as a National Trustee of the Cystic
Fibrosis Foundation and a member of the Board of Trustees of the Metro-Atlanta
Crime Commission. He received the Cystic Fibrosis Dick Goldschmidt Award in 1986
for his efforts on behalf of the Cystic Fibrosis Foundation.





*James
M. Goodrich,* age
64, ** served as
a director from October 1994 to December 2001 and rejoined our board in November
2004. Dr. Goodrich is a consulting engineer and private investor. He is a
trustee of the North American Electric Reliability Council, whose mission is to
promote the reliability of the electricity supply for North America. Dr.
Goodrich was a founder and the Executive Vice President of Energy Management
Associates, which provided operations and financial planning software and
related consulting services to the electric and gas utility industries, from
1975 until October 1993. He also served as a member of its board of directors
until 1992, when it was sold to Electronic Data Systems Corporation. Prior to
his experience with Energy Management Associates, Dr. Goodrich served in the
United States Navy for five years as an officer on the staff of Admiral Hyman
Rickover, where he was involved in the technical support of the design and
development of nuclear power plants for the Navy. Dr. Goodrich holds a Ph.D. in
Nuclear Engineering, a master’s degree in Engineering-Economic Systems, and a
bachelor of arts degree, all from Stanford University. He also holds a master’s
degree in Engineering Science from George Washington University. Dr. Goodrich
has appeared as an expert witness before numerous state public utility
commissions, the Federal Energy Regulatory Commission, federal courts and
arbitration panels.





*Greg
M. Burnett* , age 42,
has served as our Chief Financial Officer, Secretary and Treasurer since April
1, 2004. He served as Chief Financial Officer of The Reagan Companies, an
outdoor advertising and real estate management company in Salt Lake City, from
October 1996 to June 2003. He worked for Gannett Outdoor Group in Kansas City,
MO from April 1988 to October 1996, most recently as the Vice President and
Midwest Region Controller. Earlier in his career, Mr. Burnett worked for a
regional CPA firm based in Kansas City, Missouri. Mr. Burnett is a Certified
Public Accountant and has a bachelor’s degree in Accounting from Kansas State
University.





51


****


**Audit
Committee**





The audit
committee of our board of directors is composed of Mr. Jones, its chairman, Mr.
James, and Dr. Goodrich. The board has determined that Mr. Jones is an “audit
committee financial expert” and is “independent” as that term is used in Item
7(d)(3)(iv) of Schedule 14A under the Securities Exchange Act of
1934.





**Section
16(a) Beneficial Ownership Reporting Compliance**





Section
16(a) of the Securities Exchange Act of 1934 requires Roberts Realty’s directors
and executive officers and persons who own beneficially more than 10% of our
outstanding common stock to file with the SEC initial reports of ownership and
reports of changes in their ownership of our common stock. Directors, executive
officers and greater than 10% shareholders are required by SEC regulations to
furnish us with copies of the forms they file. To our knowledge, based solely on
a review of the copies of such reports furnished to us, during the fiscal year
ended December 31, 2004, our directors, executive officers and greater than 10%
shareholders complied with all applicable Section 16(a) filing requirements,
except as described in the following sentence. Dennis H. James was late in
filing two Form 4s that reported a total of two transactions (one of which
occurred in 2003), and Ben A. Spalding was late in filing a Form 4 that reported
a total of one transaction.





**Code
of Ethics and Business Conduct**





On March
17, 2004, our board of directors adopted a Code of Business Conduct and Ethics
as required by the rules of the American Stock Exchange and the federal
Sarbanes-Oxley Act. Our code is designed to deter wrongdoing and to
promote:





(1)
    honest
      and ethical conduct, including the ethical handling of corporate
      opportunities and actual or apparent conflicts of interest between
      personal and professional relationships;





(2)
    full,
      fair, accurate, timely and understandable disclosure in reports and
      documents that we file with, or submit to, the SEC and in other public
      communications we make;





(3)
    compliance
      with applicable governmental laws, rules and regulations;





(4)
    confidentiality;
      protection and proper use of company
assets;





(5)
    equal
      employment opportunities and prohibition of discrimination or
      harassment;





(6)
    the
      prompt internal reporting of violations of the code to an appropriate
      person or persons identified in the code; and





(7)
    accountability
      for adherence to the code.





We will
provide a copy of the code of business conduct and ethics free of charge to any
person who requests it in writing. Please direct your request to our Chief
Financial Officer, 450 Northridge Parkway, Suite 302, Atlanta, GA
30350.


****


52





**ITEM
11.**  **EXECUTIVE
COMPENSATION.**





**Compensation
of Executive Officers**





Mr.
Charles S. Roberts, our Chairman of the Board, Chief Executive Officer and
President, is our only executive officer whose total salary and bonus exceeded
$100,000 during 2004. Mr. Roberts is our “named executive officer.”





**Summary
Compensation Table**




**Annual
      Compensation****Name
      and Principal Position**
    
    **Year**
    
    **Salary
      ($)**
    
    **Bonus
      ($)**(1)Charles
      S. Roberts
    
    
    2004
    
    
    150,000
    
    
    600,000Chairman
      of the Board, Chief Executive
    
    
    2003
    
    
    150,000
    
    
    0Officer
      and President
    
    
    2002
    
    
    150,000
    
    
    0





(1)  Mr.
Roberts earned two bonuses in 2004: (a) $300,000 bonus for the profitable sale
of five apartment communities to Colonial Properties Trust and (b) $300,000 for
the profitable sale our St. Andrews at the Polo Club apartment
community





We are
not a party to any employment agreements. Although our board of directors has
from time to time in the past made individual grants of shares of restricted
stock to our officers, we have no equity compensation plans under which we could
issue stock, restricted stock or restricted stock units, phantom stock, stock
options, SARs, stock options in tandem with SARs, warrants, convertible
securities, performance units and performance shares, or similar instruments.
The board of directors may elect to grant restrictive shares in the future, and
in each such event, the board will approve the specific issuance of shares to an
individual officer or officers. Under rules of the American Stock Exchange now
in effect, however, we may not grant any additional shares of restricted stock
to officers, directors, employees, or consultants without approval of our
shareholders. No shares are presently reserved for that purpose.





We make
payments to affiliates of Mr. Roberts under various agreements and arrangements.
See Item 13, Certain Relationships and Related Transactions - Transactions with
the Roberts Companies.





**Compensation
of Directors**





We pay
our directors who are not officers of Roberts Realty fees for their services as
directors. Mr. Roberts, who is an officer, is not paid any director fees.
Non-officer directors receive an annual fee of $12,000 for attendance, in person
or by telephone, at meetings of the board of directors.





We pay
additional compensation of $250 per month to Mr. Jones for serving as the
Chairman of the Audit Committee and $750 per month for serving as the Chairman
of the Nominations and Governance Committee. We pay additional compensation of
$750 per month to Mr. James for serving as the Chairman of the Compensation
Committee. In addition, we reimburse our directors for reasonable travel
expenses and out-of-pocket expenses incurred in connection with their activities
on our behalf.





**Compensation
Committee Interlocks and Insider Participation**





The
Compensation Committee of the Board of Directors is composed of Mr. James, Mr.
Jones and Dr. Goodrich. None of them were during 2004, or at any previous time,
an officer or employee of Roberts Realty or Roberts Properties Residential,
L.P.





53





**ITEM
      12.**
    **SECURITY
      OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
      STOCKHOLDER MATTERS.**





The
following table describes the beneficial ownership of shares of our common stock
as of March 21, 2005 for:





§
    each
      person or entity known by us to be the beneficial owner of more than 5% of
      the outstanding shares of common stock;


§
    each
      director and our named executive officer; and


§
    our
      directors and executive officers as a group.





Except as
noted in the footnotes, the person owns all shares and partnership units
directly and has sole voting and investment power. Each of the persons known by
us to beneficially own more than 5% of the common stock has an address in care
of our principal office. The Number of Shares Owned column in the table includes
the shares owned by the persons named but does not include shares they may
acquire by exchanging units of partnership interest in Roberts Properties
Residential, L.P., our operating partnership, for shares of common stock as
explained in the following paragraph. The Number of Units Beneficially Owned
column in the table reflects all shares that each person has the right to
acquire by exchanging units for shares. Under SEC rules, the shares that can be
acquired in exchange for units are deemed to be outstanding and to be
beneficially owned by the person or group holding those units when computing the
percentage ownership of that person or group, but are not treated as outstanding
for the purpose of computing the percentage ownership of any other person or
group.





Except as
described in this paragraph, unitholders generally have the right to require the
operating partnership to redeem their units. Our articles of incorporation limit
ownership by any one holder to 3.7% of the outstanding shares of our common
stock, with two exceptions. First, Mr. Roberts can beneficially own up to 35% of
the outstanding shares. Second, any shareholder who beneficially owned more that
3.7% of our outstanding common shares on July 22, 2004, the date that we filed
an amendment to our articles of incorporation revising the ownership limits, can
retain indefinitely the shares the shareholder owned as of that date but cannot
increase that ownership in the future. Accordingly, a unitholder cannot redeem
units if upon their redemption  he would hold more shares than permitted
under the applicable percentage limit. A unitholder who submits units for
redemption will receive, at our election, either (a) an equal number of
shares or (b) cash in the amount of the average of the daily market prices of
the common stock for the 10 consecutive trading days before the date of
submission multiplied by the number of units submitted. Our policy is to issue
shares in exchange for units submitted for redemption.




54




**Name
      of**
      **Beneficial
      Owner**
    
    **Number
      of Shares**
      **Owned**
    
    **Number
      of Units**
      **Beneficially**
      **Owned**
    
    **Total**
    
    **Percent
      of**
      **Class**(1)Charles
      S. Roberts(2)
    
    
    941,018
    
    
    771,143
    
    
    1,712,161
    
    
    28.1
    %James
      M. Goodrich(3)
    
    
    281,847
    
    
    0
    
    
    281,847
    
    
    5.3
    %Dennis
      H. James
    
    
    101,958
    
    
    2,405
    
    
    104,363
    
    
    2.0
    %Ben
      A. Spalding(4)
    
    
    23,252
    
    
    27,318
    
    
    50,570
    
    
    *Charles
      R. Elliott
    
    
    12,000
    
    
    0
    
    
    12,000
    
    
    *Wm.
      Jarell Jones(5)
    
    
    7,012
    
    
    0
    
    
    7,012
    
    
    *All
      directors and executive officers as a group: (7 persons)(6)
    
    
    1,367,087
    
    
    800,866
    
    
    2,167,953
    
    
    35.4
    %


*Less than 1%.





(1)  The total
number of shares outstanding used in calculating this percentage is 5,321,485,
the number of shares outstanding as of March 21, 2005.





(2)  Includes
2,744 shares and 29,500 units owned by a family limited liability company of
which Mr. Roberts is the manager. Mr. Roberts disclaims beneficial ownership of
those shares and units.





(3)  Includes
158,582 shares owned jointly by Dr. Goodrich and his wife, Penelope; and 108,478
shares owned by Goodrich Enterprises, Inc., all of the outstanding shares of
which are owned by Dr. and Mrs. Goodrich and their sons. Each of Dr. and Mrs.
Goodrich disclaims beneficial ownership of the shares held by the corporation
except to the extent of their respective pecuniary interests in those shares.
Dr. Goodrich’s total also includes 14,787 shares he owns through an IRA.





(4)  Includes
7,564 shares owned by partnerships of which Mr. Spalding’s wife is the managing
partner. Mr. Spalding’s beneficial ownership of units includes 2,917 units owned
by Mrs. Spalding and 24,401 units owned by partnerships of which Mrs. Spalding
is the managing partner. Mr. Spalding disclaims beneficial ownership of all
units and shares owned by his wife or partnerships of which she is the managing
partner.





(5)  Includes
1,745 shares owned by Mr. Jones’ wife, to which Mr. Jones disclaims beneficial
ownership.





(6)  Includes
an aggregate of 9,309 shares and 27,318 units beneficially owned by two
directors’ wives, as to which shares such directors disclaim beneficial
ownership.


****


55





**ITEM
13.**  **CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS.**





**General**





Roberts
Realty conducts its business through Roberts Properties Residential, L.P., which
we refer to as the operating partnership; owns a 73.8% interest in it as of
March 21, 2005; and is its sole general partner. Mr. Charles S. Roberts, our
Chairman of the Board, Chief Executive Officer, and President, owns all of the
outstanding shares of both Roberts Properties, Inc. and Roberts Properties
Construction, Inc., which we refer to together as the Roberts Companies. As
explained below, we have entered into transactions with these companies and paid
them to perform services for us.





Under
applicable SEC rules, this Item 13 describes any transaction, or series of
similar transactions, since January 1, 2004, or any currently proposed
transaction, or series of similar transactions, to which we were or are to be a
party, in which the amount involved exceeds $60,000 and in which any of the
following persons had, or will have, a direct or indirect material
interest :





(a)
    any
      of our directors or executive officers;





(b)
    any
      holder we believe owns of record or beneficially more than 5% of our
      outstanding common stock or units; and





(c)
    any
      member of the immediate family of any of those persons.





Notes 3
and 10 to our consolidated financial statements included in this report provide
further detail regarding some of the transactions described in this section,
including in some cases information for periods before 2004.





**Transactions
with the Roberts Companies**





*Overview* . We have
paid substantial fees to the Roberts Companies for various types of services and
will continue to do so in the future. We have purchased property from Roberts
Properties, and we are obligated to use Roberts Properties for development
services and Roberts Construction for construction services for some of our
undeveloped properties. These various arrangements are summarized below.





*Transactions
with Affiliates of Mr. Roberts.* On
January 4, 2001, we sold our 152-unit Rosewood Plantation community. We used the
net proceeds from that sale to complete a Section 1031 tax-deferred exchange for
four properties in 2001 to defer taxes we would otherwise have incurred on the
gain from the sale. These transactions are described in more detail in Note 10
to the consolidated financial statements included in this report. We sold one of
the properties in 2002 for a profit. Our agreements to pay development and
construction fees with respect to the remaining three properties are described
below.





*Acquisitions
of Properties from Affiliates of Mr. Roberts and Related Arrangements.*





*Addison
Place Shops Retail Center* . On
February 27, 2001, we signed an exchange agreement with an intermediary to
acquire land previously owned by Roberts Properties Jones Bridge, LLC, of which
Mr. Roberts owned a 90% interest. We are constructing the Addison Place Shops, a
42,090 square foot retail center, on the 6.84-acre property, which is located at
the intersection of Abbotts Bridge Road and Jones Bridge Road in front of our
Addison Place community in Alpharetta, Georgia. We entered into a cost plus 5%
contract with Roberts Construction to complete the retail center. We have
completed construction of the retail center except for the interior tenant
finish.





56


**


*Northridge
Community* . On June
28, 2001, we purchased 10.9 acres of undeveloped land from Roberts Properties.
We are developing a 220-unit apartment community on this site, which is located
on Northridge Parkway in Atlanta adjacent to our former Highland Park community.
We retained Roberts Properties to complete the design and development work for a
fee of $2,500 per unit, or $550,000. We also entered into a cost plus 10%
contract with Roberts Construction to build the 220 apartment units.





*Northridge
Office Building* . On June
28, 2001, we purchased a partially constructed office building and approximately
3.9 acres of land from Roberts Properties. The three-story, 39,907 square foot
building serves as our corporate headquarters. We occupy a portion of one floor
in the building, we lease the remaining space on that floor to Roberts
Properties and Roberts Construction, and we are in the process of leasing the
other two floors to unaffiliated tenants. Roberts Construction completed
construction of the building at cost and did not earn a profit on the
construction of the building.





*Peachtree
Parkway Land* . On
December 29, 2004, we entered into a sales contract with Roberts Properties
Peachtree Parkway, L.P. (“Peachtree Parkway, L.P.”) to purchase an interest in a
parcel of undeveloped land in Gwinnett County, Georgia. Mr. Roberts owns 98.7%
of Peachtree Parkway, L.P. In February 1995, Mr. Roberts formed Peachtree
Parkway, L.P., and the partnership bought a parcel of undeveloped land in
Gwinnett County fronting on Peachtree Parkway. On August 20, 2004, Mr. Roberts
bought out the other limited partners in Peachtree Parkway, L.P. in accordance
with the terms of its partnership agreement. On November 1, 2004, Peachtree
Parkway, L.P. sold an 18% undivided interest in a 23.5-acre portion of the
property to a long-term investor in partnerships sponsored by Mr.
Roberts.





On
December 29, 2004, we purchased an 82% undivided interest in a 23.5-acre portion
of the undeveloped land from Peachtree Parkway, L.P. for a cash purchase price
of $7,770,000 (on the same terms and conditions as the investor). The land is
zoned for 292 apartment units and is located across Peachtree Parkway from the
upscale Forum Shopping Center. We acquired the property in a Section 1031
tax-deferred exchange funded in part by sales proceeds from the July 2004 sale
of the St. Andrews at the Polo Club community. Our audit committee and
independent directors approved the form of the sales contract. The purchase
price was equal to the average of the lowest two of the three appraisals
performed on the property by independent appraisers, multiplied by 82% to
reflect the undivided percentage interest purchased.





In
acquiring the Peachtree Parkway property, we 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:





(a)
    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





(b)
    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.





57





These
terms and conditions are consistent with our previous agreements with Roberts
Properties and Roberts Construction for development and construction services for
residential communities. The covenant expires on October
29, 2014.





*Peachtree
Dunwoody Land* . On
January 20, 2005, we acquired a
9.84-acre parcel of undeveloped land from Roberts Properties
Peachtree Dunwoody, LLC (“Peachtree Dunwoody, LLC”) for a cash purchase price of
$15,700,000. Mr. Roberts owns all of Peachtree Dunwoody, LLC. In August 1999,
Mr. Roberts formed Peachtree Dunwoody, LLC, which bought a parcel of undeveloped
land in Fulton County, Georgia. Peachtree Dunwoody, LLC spent two years rezoning
the property and a year successfully defending a homeowners’ lawsuit against
Fulton County that challenged the rezoning. The land is zoned for 120
condominium units, 236 apartment units, 210,000 square feet of office space and
56,000 square feet of retail space. We acquired the property in a Section 1031
tax-deferred exchange funded in part by sales proceeds from the sale of the St.
Andrews at the Polo Club community. The purchase price was equal to the average
of the lowest two of the three appraisals performed on the property by
independent appraisers. In acquiring the Peachtree Dunwoody property, we assumed
and became bound by a restrictive covenant recorded in those records in favor of
Roberts Properties and Roberts Construction. The covenant has the same terms and
conditions as the restrictive covenant related to the Peachtree Parkway land
described above, except that the covenant expires on January 3, 2015. Our audit
committee and independent directors approved the form of the sales contract.





*Development
Fees* . From
time to time, we pay Roberts Properties fees for various development services
that include market studies, business plans, design, finish selection, interior
design and construction administration. We made no development fee payments to
Roberts Properties from January 1, 2004 through February 28, 2005. When we
develop the Peachtree Dunwoody land and if we choose to develop the Peachtree
Parkway land, we will retain Roberts Properties to complete the design and
development work for a fee of $5,000 per unit.





*Construction
Contracts* . We
enter into contracts in the normal course of business with Roberts Construction.
The following table summarizes certain information regarding payments to Roberts
Construction for construction projects through February 28, 2005. For Ballantyne
Place, we paid or will pay Roberts Construction its cost, plus a fee of 10% of
its cost. For the Addison Place Shops, we have paid or will pay Roberts
Construction its cost, plus a fee of 5% of its cost. We paid Roberts
Construction its cost, but no additional fee, for construction of the corporate
office building. Additionally, when we develop the Peachtree Dunwoody land and
if we choose to develop the Peachtree Parkway land, we will retain Roberts
Construction to construct the apartments and condominiums on a cost
plus a fee of 10% basis .





**Actual/**
      **Estimated**
      **Total
      Contract**
      **Amount**
    
    **Total**
      **Amount**
      **Incurred****through
      2/28/05**
    
    **Total**
      **Amount**
      **Incurred
      1/1/04****through
      2/28/05**
    
    **Estimated**
      **Remaining**
      **Contractual**
      **Commitment**Ballantyne
      Place
    
    $
    23,193,000
    
    $
    22,367,000
    
    $
    5,078,000
    
    $
    826,000Northridge
      OfficeBuilding
    
    
    5,448,000
    
    
    5,448,000
    
    
    1,121,000
    
    
    0Addison
      Place Shops
    
    
    4,814,000
    
    
    4,122,000
    
    
    2,200,000
    
    
    692,000$
    33,455,000
    
    $
    31,937,000
    
    $
    8,399,000
    
    $
    1,518,000





58


**


*Partnership
Profits Interest* . Between
1994 and 1996, the operating partnership acquired nine limited partnerships of
which Mr. Roberts was the sole general partner. Each partnership owned an
apartment community that had been developed or was in the development process.
As a part of each acquisition, the operating partnership assumed an existing
financial obligation to an affiliate of Mr. Roberts. That financial obligation
was formalized as a profits interest in the operating partnership. As the holder
of the profits interest, Roberts Properties was entitled to receive
distributions of a specified percentage of the gross sales proceeds of some of
the apartment communities we formerly owned. The amount distributed to Roberts
Properties with respect to each affected property was limited to the amount by
which the gross proceeds from the sale of that property exceeded the sum of:




§
    the
      debt assumed, or taken subject to, by the operating partnership in
      connection with its acquisition of the property;




§
    the
      equity issued by the operating partnership in acquiring the property; and




§
    all
      subsequent capital improvements to the property made by the operating
      partnership.





On June
2, 2004, we sold five of our Atlanta apartment communities for $109,150,000
resulting in a gain of $32,404,000, net of minority interest of $11,985,000. We
paid to Roberts Properties partnership profits interest distributions totaling
$3,182,000 for three of those communities: River Oaks (5% of gross sales
proceeds), Preston Oaks Phase I (5% of gross sales proceeds) and Plantation
Trace Phase I (6% of gross sales proceeds). We made no other profits interest
distributions to Roberts Properties from January 1, 2004 to date. Because we
have sold all of the communities for which we were obligated to pay a profits
distribution to Roberts Properties, we will pay no further distributions of that
nature in the future.





*Office
Leases* . On
November 23, 2004, we entered into leases for office space on the third floor of
the Northridge office building with Roberts Properties and Roberts
Construction  for a
total of $4,200 per month for the period of June 1, 2004 to August 31, 2004; for
a total of $5,250 per month for the period of September 1, 2004 to December 31,
2004; and for a total of $5,950 per month for the period of January 1, 2005 to
March 31, 2005. At March 31, 2005, the leases convert to a month-to-month basis
with the rental rate and all other terms remaining unchanged. We intend to
negotiate longer-term leases with Roberts Properties and Roberts Construction
within the next 60 days.





*Other
Fees and Reimbursements* . From
January 1, 2004 to February 28, 2005, we paid Roberts Properties $95,000 for
reimbursement of operating costs and expenses, and we paid Roberts Construction
$12,000 for project work done at our communities. We have entered into a
reimbursement arrangement for the use of an aircraft owned by Roberts
Properties, which has provided transportation services to us by flying our
employees, including Mr. Roberts, on trips for our business purposes. We pay
Roberts Properties for these services in an amount per passenger equal to an
available unrestricted coach class fare (or business class fare if no
unrestricted coach class is available) for the date and time of travel on a
regular air carrier. From January 1, 2004 to February 28, 2005, we paid Roberts
Properties $34,530 under this policy, primarily to fly employees to and from
Charlotte to complete the construction and manage the lease-up of Ballantyne
Place, and to Palm Beach to manage the operations of St. Andrews at the Polo
Club, which we sold in July 2004, and to investigate new investment
opportunities in that area.





**Other
Related Party Transaction**





In
2004, **** we paid
Charles Elliott, who serves on the board of directors and is our former Chief
Financial Officer, $205,000 in consulting fees for services he performed on the
sale of five apartment communities to Colonial Properties Trust, the sale of St.
Andrews at the Polo Club, the refinancing of Ballantyne Place debt and the
refinancing of Addison Place Apartments debt.


****


59





**ITEM
14.**  **PRINCIPAL
ACCOUNTANT FEES AND SERVICES.**





Deloitte
& Touche LLP served as our independent auditors during 2003 and 2004.





**Audit
Fees**





*For
2003* . The
aggregate fees billed by Deloitte & Touche for professional services
rendered for the audit of our annual financial statements for the fiscal year
ended December 31, 2003, and for the reviews of the financial statements
included in our Quarterly Reports on Form 10-Q for that fiscal year, were
$111,000. During 2003, Deloitte & Touche performed a re-audit of our annual
financial statements for the fiscal year ended December 31, 2001 (which had been
audited by Arthur Andersen LLP), for which we paid Deloitte & Touche
$38,000.





*For
2004* . The
aggregate fees billed by Deloitte & Touche for professional services
rendered for the audit of our annual financial statements for the fiscal year
ended December 31, 2004, and for the reviews of the financial statements
included in our Quarterly Reports on Form 10-Q for that fiscal year, were
$116,000.





**Audit
Related Fees**





We did
not engage either Deloitte & Touche to provide, and they did not bill us
for, professional services that were reasonably related to the performance of
the audit of our 2003 or 2004 financial statements, but which are not reported
in the previous paragraph.





**Tax
Fees**





*For
2003* . The
aggregate fees billed by Deloitte & Touche for professional services
rendered related to tax compliance, tax advice, and tax planning for the fiscal
year ended December 31, 2003, were $86,525.





*For
2004* . The
aggregate fees billed by Deloitte & Touche for professional services
rendered related to tax compliance, tax advice, and tax planning for the fiscal
year ended December 31, 2004, were $120,675.





**All
Other Fees**





Deloitte
& Touche did not bill us for any services for the fiscal years ended
December 31, 2003 and December 31, 2004 other than for the services described
above.





**Pre-Approval
Policy**





Our audit
committee pre-approval guidelines with respect to pre-approval of audit and
non-audit services are summarized below.





*General.* The audit
committee is required to pre-approve the audit and non-audit services performed
by the independent auditor in order to assure that the provision of such
services does not impair the auditor’s independence. Unless a type of service to
be provided by the independent auditor has received general pre-approval, it
will require specific pre-approval by the audit committee. Any proposed services
exceeding pre-approved cost levels requires specific pre-approval by the audit
committee.





60


**


*Audit
Services.* The
annual audit services engagement terms and fees are subject to the specific
pre-approval of the audit committee. In addition to the annual audit services
engagement specifically approved by the audit committee, the audit committee has
granted general pre-approval for other audit services, which are those services
that only the independent auditor reasonably can provide.





*Audit-related
Services.* Audit-related
services are assurance and related services that are reasonably related to the
performance of the audit or review of our financial statements and that are
traditionally performed by the independent auditor. The audit committee believes
that the provision of audit-related services does not impair the independence of
the auditor.





*Tax
Services.* The audit
committee believes that the independent auditor can provide tax services to us,
such as tax compliance, tax planning and tax advice without impairing the
auditor’s independence. The audit committee will not permit the retention of the
independent auditor in connection with a transaction initially recommended by
the independent auditor, the purpose of which may be tax avoidance and the tax
treatment of which may not be supported in the Internal Revenue Code and related
regulations.





*All
Other Services* . The
audit committee has granted pre-approval to those permissible non-audit services
classified as “all other services” that it believes are routine and recurring
services, and would not impair the independence of the auditor.





*Pre-Approval
Fee Levels* . To
facilitate management’s day-to-day conduct of our business, the audit committee
deemed it advisable and in our best interests to permit certain routine,
non-audit services without the necessity of pre-approval by the audit committee.
Therefore, the audit committee expects to establish a pre-approval fee level per
engagement. Any proposal for services exceeding this level will require specific
pre-approval by the audit committee. Although management may engage non-audit
services from our independent auditor within this limit, management cannot enter
into any engagement that would violate the SEC’s rules and regulations related
to auditor independence. These non-audit service engagements are to be reported
to the audit committee as promptly as practicable.




61





**PART
IV**





**ITEM
15.**  **EXHIBITS
AND FINANCIAL STATEMENT SCHEDULES.**





(a) 1. and 2.
Financial Statements and Schedules.





The
financial statements and schedules listed below are filed as part of this annual
report on the pages indicated.





**INDEX
TO FINANCIAL STATEMENTS**





**Page**REPORT
      OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
    
    
    F-1CONSOLIDATED
      FINANCIAL STATEMENTS AND SCHEDULE AS OF DECEMBER 31, 2004 AND 2003 AND FOR
      THE YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002:Consolidated
      Balance Sheets
    
    
    F-2Consolidated
      Statements of Operations
    
    
    F-3Consolidated
      Statements of Shareholders’ Equity
    
    
    F-4Consolidated
      Statements of Cash Flows
    
    
    F-5Notes
      to Consolidated Financial Statements
    
    
    F-6Schedule
      III - Real Estate and Accumulated Depreciation
    
    
    S-1




****


62





REPORT OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM






To
Roberts Realty Investors, Inc.:





We have
audited the accompanying consolidated balance sheets of Roberts Realty
Investors, Inc. (a Georgia corporation) and its subsidiary (the “Company”) as of
December 31, 2004 and 2003, and the related consolidated statements of
operations, shareholders’ equity, and cash flows for each of the three years in
the period ended December 31, 2004. Our audits also included the financial
statement schedule listed in the Index to Financial Statements at Item 8. These
financial statements and the financial statement schedule are the responsibility
of the company’s management. Our responsibility is to express an opinion on
these financial statements based on our audits.




We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States).  Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement.  The Company is not
required to have, nor were we engaged to perform, an audit of its internal
control over financial reporting.  Our audit included consideration of
internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances but not for the purpose of
expressing an opinion on the effectiveness of the Company’s internal control
over financial reporting.  Accordingly, we express no such opinion. 
An audit also includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements, assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation.  We believe that
our audits provide a reasonable basis for our opinion.




In our
opinion, such consolidated financial statements present fairly, in all material
respects, the financial position of Roberts Realty Investors, Inc. and its
subsidiary at December 31, 2004 and 2003, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 2004 in conformity with accounting principles generally accepted in the
United States of America. Also, in our opinion, such financial statement
schedule, when considered in relation to the basic consolidated financial
statements taken as a whole, presents fairly in all material respects, the
information set forth therein.








/s/
Deloitte & Touche LLP





Atlanta,
Georgia


March 22,
2005




F-1




**ROBERTS
REALTY INVESTORS, INC.**





**CONSOLIDATED
BALANCE SHEETS**


**(Dollars
in Thousands, Except Per Share Data)**




**December
      31,**
    
    **December
      31,****2004**
    
    **2003****ASSETS**REAL
      ESTATE ASSETS - At cost:Land
    
    $
    9,109
    
    $
    5,205Buildings
      and improvements
    
    
    65,527
    
    
    33,493Furniture,
      fixtures and equipment
    
    
    6,013
    
    
    3,47780,649
    
    
    42,175Less
      accumulated depreciation
    
    
    (9,157
    )
    
    (6,575
    )Operating
      real estate assets
    
    
    71,492
    
    
    35,600Construction
      in progress and real estate under development
    
    
    28,272
    
    
    45,510Net
      real estate assets
    
    
    99,764
    
    
    81,110CASH
      AND CASH EQUIVALENTS
    
    
    27,552
    
    
    8,583RESTRICTED
      CASH
    
    
    150
    
    
    69DEFERRED
      FINANCING COSTS - Net of accumulated amortization of
      $445
      and $316 at December 31, 2004 and 2003, respectively
    
    
    341
    
    
    362ASSETS
      HELD FOR SALE
    
    
    -
    
    
    87,280OTHER
      ASSETS - Net
    
    
    1,422
    
    
    335$
    129,229
    
    $
    177,739**LIABILITIES
      AND SHAREHOLDERS’ EQUITY**LIABILITIES:Mortgage
      notes payable
    
    $
    31,186
    
    $
    31,459Construction
      loans payable
    
    
    32,294
    
    
    23,458Land
      notes payable
    
    
    9,462
    
    
    3,000Interest
      rate swap contract payable
    
    
    436
    
    
    1,801Accounts
      payable and accrued expenses
    
    
    671
    
    
    1,041Due
      to Roberts Construction (including retainage payable of $298 and $941
      at
      December
      31, 2004 and 2003, respectively)
    
    
    653
    
    
    1,867Security
      deposits and prepaid rents
    
    
    250
    
    
    111Liabilities
      related to assets held for sale
    
    
    60
    
    
    81,739Total
      liabilities
    
    
    75,012
    
    
    144,476COMMITMENTS
      AND CONTINGENCIES (Note 11)MINORITY
      INTEREST OF UNITHOLDERS IN THE OPERATING PARTNERSHIP
    
    
    14,368
    
    
    9,214SHAREHOLDERS’
      EQUITY:Preferred
      shares, $.01 par value, 20,000,000 shares authorized, no
      shares
      issued
      or outstanding
    
    
    -
    
    
    -Common
      shares, $.01 par value, 100,000,000 shares authorized, 5,668,622
      and
      5,585,206
      shares issued at December 31, 2004 and 2003, respectively
    
    
    57
    
    
    56Additional
      paid-in capital
    
    
    26,476
    
    
    26,050Less
      treasury shares, at cost (362,588 shares at
      December
      31, 2004 and 2003)
    
    
    (2,764
    )
    
    (2,764
    )Unamortized
      deferred compensation
    
    
    (18
    )
    
    (93
    )Retained
      earnings
    
    
    16,418
    
    
    3,153Accumulated
      other comprehensive loss
    
    
    (320
    )
    
    (2,353
    )Total
      shareholders’ equity
    
    
    39,849
    
    
    24,049$
    129,229
    
    $
    177,739


See notes
to the consolidated financial statements.




F-2




**ROBERTS
REALTY INVESTORS, INC.**





**CONSOLIDATED
STATEMENTS OF OPERATIONS**


**(Dollars
in Thousands, Except Per Share Data)**





**Years
      Ended December 31,****2004**
    
    **2003**
    
    **2002**OPERATING
      REVENUES:Rental
      operations
    
    $
    5,264
    
    $
    4,607
    
    $
    3,733Other
      operating income
    
    
    313
    
    
    285
    
    
    212Total
      operating revenues
    
    
    5,577
    
    
    4,892
    
    
    3,945OPERATING
      EXPENSES:Personnel
    
    
    720
    
    
    470
    
    
    474Utilities
    
    
    416
    
    
    257
    
    
    301Repairs,
      maintenance and landscaping
    
    
    403
    
    
    312
    
    
    261Real
      estate taxes
    
    
    629
    
    
    403
    
    
    351Marketing,
      insurance and other
    
    
    443
    
    
    261
    
    
    229General
      and administrative expenses
    
    
    1,708
    
    
    2,072
    
    
    2,155Depreciation
      expense
    
    
    2,619
    
    
    1,795
    
    
    2,029Total
      operating expenses
    
    
    6,938
    
    
    5,570
    
    
    5,800LOSS
      FROM OPERATIONS
    
    
    (1,361
    )
    
    (678
    )
    
    (1,855
    )OTHER
      INCOME (EXPENSE):Interest
      income
    
    
    294
    
    
    77
    
    
    39Interest
      expense
    
    
    (2,889
    )
    
    (2,003
    )
    
    (1,775
    )Legal
      settlement
    
    
    340
    
    
    -
    
    
    -Loss
      on disposal of assets
    
    
    (1
    )
    
    (3
    )
    
    (4
    )Amortization
      of deferred financing costs
    
    
    (142
    )
    
    (149
    )
    
    (163
    )Total
      other expense
    
    
    (2,398
    )
    
    (2,078
    )
    
    (1,903
    )LOSS
      FROM CONTINUING OPERATIONS BEFORE MINORITY INTEREST AND GAIN ON SALE OF
      REAL ESTATE ASSETS
    
    
    (3,759
    )
    
    (2,756
    )
    
    (3,758
    )MINORITY
      INTEREST OF UNITHOLDERS IN THE OPERATING PARTNERSHIP
    
    
    1,011
    
    
    783
    
    
    1,184LOSS
      FROM CONTINUING OPERATIONS BEFORE GAIN ON SALE OF REAL ESTATE ASSETS
    
    
    (2,748
    )
    
    (1,973
    )
    
    (2,574
    )GAINS
      ON SALE OF REAL ESTATE ASSETS, net of minority interestof
      unitholders in the operating partnership
    
    
    102
    
    
    77
    
    
    1,043LOSS
      FROM CONTINUING OPERATIONS
    
    
    (2,646
    )
    
    (1,896
    )
    
    (1,531
    )INCOME
      (LOSS) FROM DISCONTINUED OPERATIONS, net ofminority
      interest of unitholders in the operating partnership
    
    
    39,632
    
    
    4,586
    
    
    (985
    )NET
      INCOME (LOSS)
    
    $
    36,986
    
    $
    2,690
    
    $
    (2,516
    )**INCOME
      (LOSS) PER COMMON SHARE - BASIC AND DILUTED (Note
    8):**Loss
      from continuing operations
    
    $
    (0.50
    )
    $
    (0.37
    )
    $
    (0.31
    )Income
      (loss) from discontinued operations
    
    
    7.51
    
    
    0.89
    
    
    (0.20
    )Net
      income (loss)
    
    $
    7.01
    
    $
    0.52
    
    $
    (0.51
    )Weighted
      average common shares - basic
    
    
    5,280,064
    
    
    5,171,748
    
    
    4,943,280Weighted
      average common shares - diluted (effect ofoperating
      partnership units)
    
    
    7,220,658
    
    
    7,223,727
    
    
    7,220,593Cash
      dividends per share
    
    $
    4.50
    
    $
    0.55
    
    $
    0.00




See notes
to the consolidated financial statements.




F-3


****


**ROBERTS
REALTY INVESTORS, INC.**





**CONSOLIDATED
STATEMENTS OF SHAREHOLDERS’ EQUITY**


**(Dollars
in Thousands, Except Share and Per Share Data)**


**Common
      Shares****Number**
      **of** **Shares**
      **Issued**
    
    
    **Amount**
    
    
    **Paid-In**
      **Capital**
    
    
    **Treasury**
      **Shares**
    
    
    **Deferred
      Compensation**
    
    
    **Other**
      **Comprehensive
      Income**
    
    
    **Retained Earnings**
    
    
    **Total**
      **Shareholders’**
      **Equity****BALANCE
      AS OF DECEMBER 31, 2001**
    
    
    5,266,567
    
    $
    53
    
    $
    24,410
    
    $
    (2,764
    )
    $
    (202
    )
    $
    (1,956
    )
    $
    5,833
    
    $
    25,374Comprehensive
      income (loss)Net
      loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,516
    )
    
    (2,516
    )Unrealized
      loss on interest rate swaps
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,442
    )
    
    
    
    
    (1,442
    )Total
      comprehensive income (loss)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,958
    )Conversion
      of units to shares
    
    
    189,747
    
    
    2
    
    
    952
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    954Restricted
      shares issued to employees, net of forfeitures
    
    
    3,077
    
    
    
    
    
    13
    
    
    
    
    
    (13
    )Amortization
      of deferred compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    76
    
    
    
    
    
    
    
    
    76Adjustment
      for minority interest in the
      operating partnership
    
    
    
    
    
    
    
    
    33
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    33**BALANCE
      AS OF DECEMBER 31, 2002**
    
    
    5,459,391
    
    
    55
    
    
    25,408
    
    
    (2,764
    )
    
    (139
    )
    
    (3,398
    )
    
    3,317
    
    
    22,479Comprehensive
      incomeNet
      income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,690
    
    
    2,690Unrealized
      gain on interest rate swaps
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,045
    
    
    
    
    
    1,045Total
      comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,735Conversion
      of units to shares
    
    
    124,303
    
    
    1
    
    
    623
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    624Dividends
      declared ($0.55 per share)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,854
    )
    
    (2,854
    )Restricted
      shares issued to employees, net of forfeitures
    
    
    1,512
    
    
    
    
    
    8
    
    
    
    
    
    (8
    )Amortization
      of deferred compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    54
    
    
    
    
    
    
    
    
    54Adjustment
      for minority interest inthe
      operating partnership
    
    
    
    
    
    
    
    
    11
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    11**BALANCE
      AS OF DECEMBER 31, 2003**
    
    
    5,585,206
    
    
    56
    
    
    26,050
    
    
    (2,764
    )
    
    (93
    )
    
    (2,353
    )
    
    3,153
    
    
    24,049Comprehensive
      incomeNet
      income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    36,986
    
    
    36,986Unrealized
      gain on interest rate swaps
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,033
    
    
    
    
    
    2,033Total
      comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    39,019Conversion
      of units to shares
    
    
    93,896
    
    
    1
    
    
    473
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    474Dividends
      declared ($4.50 per share)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (23,721
    )
    
    (23,721
    )Restricted
      shares issued to employees, net of forfeitures
    
    
    (10,480
    )
    
    
    
    
    (75
    )
    
    
    
    
    75Adjustment
      for minority interest inthe
      operating partnership
    
    
    
    
    
    
    
    
    28
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    28**BALANCE
      AS OF DECEMBER 31, 2004**
    
    
    5,668,622
    
    $
    57
    
    $
    26,476
    
    $
    (2,764
    )
    $
    (18
    )
    $
    (320
    )
    $
    16,418
    
    $
    39,849


See notes
to the consolidated financial statements.




F-4


****


**ROBERTS
REALTY INVESTORS, INC.**





**CONSOLIDATED
STATEMENTS OF CASH FLOWS**


**(Dollars
in Thousands)**





**Years
      Ended December 31,****2004**
    
    **2003**
    
    **2002**OPERATING
      ACTIVITIES:Net
      income (loss)
    
    $
    36,986
    
    $
    2,690
    
    $
    (2,516
    )Adjustments
      to reconcile net income (loss) to net cash provided by operating
      activities of continuing
      operations:(Income)
      loss from discontinued operations, net of minority
interest
    
    
    (39,632
    )
    
    (4,586
    )
    
    985Minority
      interest of unitholders in the operating partnership
    
    
    (1,011
    )
    
    (783
    )
    
    (1,184
    )Gain
      on sale of real estate assets, net of minority interest
    
    
    (102
    )
    
    (77
    )
    
    (1,043
    )Loss
      on disposal of assets
    
    
    1
    
    
    3
    
    
    4Depreciation
      and amortization
    
    
    2,761
    
    
    1,944
    
    
    2,192Amortization
      of deferred compensation
    
    
    -
    
    
    54
    
    
    76Changes
      in assets and liabilities:(Increase)
      decrease in restricted cash
    
    
    (81
    )
    
    (7
    )
    
    14(Increase)
      decrease in other assets
    
    
    (1,087
    )
    
    300
    
    
    (392
    )(Decrease)
      increase in accounts payable and accrued expenses relating to
      operations
    
    
    (370
    )
    
    (806
    )
    
    123Increase
      in security deposits and prepaid rent
    
    
    139
    
    
    5
    
    
    29Net
      cash used in operating activities from continuing
    operations
    
    
    (2,396
    )
    
    (1,263
    )
    
    (1,712
    )Net
      cash provided by operating activities from discontinued
      operations
    
    
    922
    
    
    3,234
    
    
    4,481Net
      cash (used in) provided by operating activities
    
    
    (1,474
    )
    
    1,971
    
    
    2,769INVESTING
      ACTIVITIES:Proceeds
      from sale of real estate assets
    
    
    63,019
    
    
    7,313
    
    
    3,471Acquisition
      and construction of real estate assets
    
    
    (24,592
    )
    
    (12,052
    )
    
    (19,692
    )Net
      cash provided by (used in) investing activities
    
    
    38,427
    
    
    (4,739
    )
    
    (16,221
    )FINANCING
      ACTIVITIES:Proceeds
      from mortgage notes payable
    
    
    -
    
    
    10,750
    
    
    32,500Payoff
      of mortgage notes, including prepayment penalty
    
    
    -
    
    
    (8,487
    )
    
    (7,519
    )Principal
      repayments on mortgage notes payable
    
    
    (652
    )
    
    (1,107
    )
    
    (1,032
    )Proceeds
      from land notes payable
    
    
    9,462
    
    
    -
    
    
    -Payoff
      of land notes payable
    
    
    (3,000
    )
    
    (3,700
    )
    
    (1,300
    )Payment
      of loan costs
    
    
    (121
    )
    
    (252
    )
    
    (459
    )Proceeds
      from line of credit
    
    
    -
    
    
    -
    
    
    802Payoff
      of line of credit
    
    
    -
    
    
    -
    
    
    (2,802
    )Proceeds
      from construction loans
    
    
    8,836
    
    
    12,567
    
    
    18,687Payoff
      of construction loans
    
    
    -
    
    
    -
    
    
    (22,500
    )Payment
      of dividends and distributions
    
    
    (32,509
    )
    
    (3,962
    )
    
    -Net
      cash (used in) provided by financing activities
    
    
    (17,984
    )
    
    5,809
    
    
    16,377NET
      INCREASE IN CASH AND CASH EQUIVALENTS
    
    
    18,969
    
    
    3,041
    
    
    2,925CASH
      AND CASH EQUIVALENTS, BEGINNING OF YEAR
    
    
    8,583
    
    
    5,542
    
    
    2,617CASH
      AND CASH EQUIVALENTS, END OF YEAR
    
    $
    27,552
    
    $
    8,583
    
    $
    5,542SUPPLEMENTAL
      DISCLOSURE OF CASH FLOW INFORMATION:Cash
      paid for interest
    
    $
    6,167
    
    $
    9,395
    
    $
    9,058





See notes
to the consolidated financial statements.


****


F-5


****


**ROBERTS
REALTY INVESTORS, INC.**





**NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS**





**1.**
    **BUSINESS
      AND ORGANIZATION**





Roberts
Realty Investors, Inc., a Georgia corporation, was formed July 22, 1994 to serve
as a vehicle for investments in, and ownership of, a professionally managed real
estate portfolio consisting primarily of multifamily apartment communities.
Roberts Realty owns and operates multifamily residential properties as a
self-administered, self-managed equity real estate investment trust, or 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”), of which Roberts Realty is the sole general partner
and had a 73.5% and 72.3% ownership interest at December 31, 2004 and December
31, 2003, respectively. As the sole general partner and owner of a majority
interest of the operating partnership, Roberts Realty controls the operating
partnership.





Roberts
Realty, as the general partner of the operating partnership, does not hold any
limited partner interests in the operating partnership. Units of limited
partnership interest (“units”) in the operating partnership outstanding at
December 31, 2004 and 2003 were 1,908,571 and 2,002,467, respectively. Units
held by the minority interest as a percentage of total units and shares of
common stock of Roberts Realty outstanding were 26.5% and 27.7% at December 31,
2004 and 2003, respectively. The minority interest percentage reflects the
number of shares and units outstanding and will change as additional shares and
units are issued.





At
December 31, 2004, Roberts Realty owned one completed multifamily apartment
community totaling 403 apartment homes in the Atlanta metropolitan area; a
319-unit apartment community in Charlotte, North Carolina in its lease-up phase;
and a 220-unit apartment community in Atlanta in the planning and design phase.
In addition, Roberts Realty owns a 39,907 square foot commercial office building
which is in its lease-up phase, a 42,090 square foot retail center in its
lease-up phase, an undeveloped commercial site adjacent to the retail center,
and three undeveloped residential and mixed-use sites in the Atlanta
metropolitan area.




**2.**
    **SUMMARY
      OF SIGNIFICANT ACCOUNTING POLICIES**





**Basis
of Presentation.** The
accompanying consolidated financial statements include the consolidated accounts
of Roberts Realty and the operating partnership. All significant inter-company
accounts and transactions have been eliminated in consolidation. The financial
statements of Roberts Realty have been adjusted for the minority interest of the
unitholders in the operating partnership.





The
minority interest of the unitholders in the operating partnership on the
accompanying balance sheets is calculated based on the minority interest
ownership percentage multiplied by the operating partnership’s net assets (total
assets less total liabilities). The minority interest percentage reflects the
number of shares and units outstanding and will change as additional shares and
units are issued and redeemed. The minority interest of the unitholders in the
earnings or loss of the operating partnership on the accompanying statements of
operations is calculated based on the weighted average number of units
outstanding during the period, which was 26.9%, 28.4% and 31.5% for the years
ended December 31, 2004, 2003 and 2002, respectively. The minority interest of
the unitholders was $14,368,000 and $9,214,000 at December 31, 2004 and 2003,
respectively.





F-6





Holders
of partnership units generally have the right to require the operating
partnership to redeem their units for shares. Upon submittal of units for
redemption, the operating partnership has the option either (a) to acquire those
units in exchange for shares, on a one-for-one basis, or (b) to pay cash for
those units at their fair market value, based upon the then current trading
price of the shares. Roberts Realty has adopted a policy that it will issue
shares in exchange for all future units submitted.





**Real
Estate Assets and Depreciation.** Real
estate assets are recorded at depreciated cost less reductions for impairment,
if any. In identifying potential impairment, management considers such factors
as declines in a property’s operating performance or market value, a change in
use, or adverse changes in general market conditions. In determining whether an
asset is impaired, management estimates the future cash flows expected to be
generated from the asset’s use and its eventual disposition. If the sum of these
estimated future cash flows on an undiscounted basis is less than the asset’s
carrying cost, the asset is written down to its fair value. None of Roberts
Realty’s real estate assets have required write-downs.





Expenditures
directly related to the development, acquisition and improvement of real estate
assets are capitalized at cost as land, buildings and improvements. Ordinary
repairs and maintenance are expensed as incurred. Major replacements and
betterments are capitalized and depreciated over their estimated useful lives.
Buildings are generally depreciated over 27.5 years. Land improvements are
depreciated over 15 years, and furniture, fixtures and equipment are depreciated
over five to seven years.





**Cash
and Cash Equivalents.** All
investments purchased with an original maturity of three months or less, are
considered to be cash equivalents.





**Restricted
Cash.** Restricted cash consists of resident security deposits of $150,000 and $69,000
at December 31, 2004 and 2003, respectively.





**Deferred
Financing Costs.** Deferred
financing costs include fees and costs incurred to obtain financings and are
amortized on the straight-line method over the terms of the related
debt.





**Interest
and Real Estate Taxes.** Interest
and real estate taxes incurred during the construction period are capitalized
and depreciated over the estimated useful lives of the constructed assets.
Interest capitalized was $707,000, $1,345,000 and $2,196,000 for the years ended
December 31, 2004, 2003, and 2002, respectively.





**Revenue
Recognition.** Roberts
Realty leases its residential properties under operating leases with terms
generally one year or less. Rental income is recognized when earned, which
materially approximates revenue recognition on a straight-line
basis.





**Income
Taxes.** Roberts
Realty elected to be taxed as a REIT under the Internal Revenue Code of 1986, as
amended (the “Code”), commencing with the taxable year ended December 31, 1994.
As a result, Roberts Realty generally will not be subject to federal and state
income taxation at the corporate level to the extent it distributes annually at
least 90% of its taxable income, as defined in the Code, to its shareholders and
satisfies certain other requirements. If Roberts Realty maintains its
qualification as a REIT, it generally will not be subject to federal income tax
on distributed net income in the future. Accordingly, no provision has been made
for federal and state income taxes in the accompanying consolidated financial
statements.





**Earnings
Per Share.** Basic
earnings per share is computed based upon the weighted average number of common
shares outstanding during the period. Diluted earnings per share is computed to
reflect the potential dilution of all instruments or securities that are
convertible into shares of common stock.





F-7


****


**Use
of Estimates.** The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those
estimates.





**3.**
    **ACQUISITIONS
      AND DISPOSITIONS**





On
November 21, 2002, Roberts Realty sold the 9.5 acres of land located at the
corner of Jones Bridge Road and East Fox Court, in Alpharetta, Georgia for
$3,200,000 plus a reimbursement of previously paid sewer costs of $302,000. The
sale resulted in a gain of $1,043,000, net of minority interest of unitholders
in the operating partnership.





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





On August
6, 2003, Roberts Realty sold its Highland Park community for $17,988,000,
resulting in a gain of approximately $6,174,000, net of minority interest of
$2,476,000. Net sales proceeds were approximately $6,932,000 after deduction of
$9,930,000 for the mortgage note payable, which was assumed by the buyer,
closing costs and prorations totaling $227,000, and a partnership profits
interest of $899,000 paid to Roberts Properties under the amended partnership
agreement of the operating partnership.





On June
2, 2004, Roberts Realty sold five of its Atlanta apartment communities -
Bradford Creek, Plantation Trace, Preston Oaks, River Oaks, and Veranda Chase,
totaling 1,091 units - to Colonial Properties Trust. The sales price was
$109,150,000 or an average of $100,045 per apartment unit, resulting in a gain
of $32,404,000, net of minority interest of $11,985,000. Net sales proceeds were
approximately $47,016,000, or $6.51 per share/unit, after deduction
of:




(a)
    $58,802,000
      for the mortgage notes payable assumed by the buyer,




(b)
    closing
      costs and prorations totaling $150,000, and





(c)
    a
      partnership profits interest distribution of $3,182,000 paid to Roberts
      Properties under the amended partnership agreement of the operating
      partnership.





On June
18, 2004, Roberts Realty paid a distribution of $4.50 per share to shareholders
and unitholders of record on June 14, 2004.





On July
29, 2004, Roberts Realty sold its St. Andrews at the Polo Club community in Palm
Beach County, Florida for $36,000,000 or an average of $180,000 per apartment
unit, resulting in a gain of $8,254,000, net of minority interest of $3,053,000.
Net sales proceeds were approximately $15,113,000 after deduction of $20,412,000
for the mortgage note payable assumed by the buyer, and closing costs and
pro-rations totaling $475,000. Roberts Realty reinvested the proceeds in
replacement properties (undeveloped land on Peachtree Parkway, Westside Parkway
and Peachtree Dunwoody Road described below) through a Section 1031 tax-deferred
exchange, which permitted its shareholders to defer paying the tax they would
otherwise incur on the gain.





On
October 29, 2004, Roberts Realty sold a 1.2 acre parcel of land located adjacent
to its Addison Place community to an unrelated third party for $895,000,
resulting in a gain of approximately $102,000, net of minority interest of
$37,000. Net sales proceeds were approximately $890,000 after deduction of
closing costs and prorations totaling $5,000.





F-8





On
December 29, 2004, Roberts Realty purchased an 82% undivided interest in 23.5
acres of undeveloped land for $7,786,000, including closing costs, from Roberts Properties
Peachtree Parkway, L.P., a partnership owned and controlled by Mr. Roberts. The
land is zoned for 292 apartment units and is located on Peachtree Parkway in
Gwinnett County, Georgia. The transaction was part of a Section 1031
tax-deferred exchange partially funded by sales proceeds from the sale of St.
Andrews at the Polo Club. See Note 10 - Related Party Transactions.





On
December 29, 2004, Roberts Realty purchased 29.48 acres of undeveloped land on
Westside Parkway in the North Atlanta submarket of Alpharetta, Georgia. The land
was acquired for $5,919,000, including closing costs, and is zoned for 109
condominium units, 15,000 square feet of retail space and a density of 500,000
square feet for a  university
education center. The transaction was part of a Section 1031 tax-deferred
exchange partially funded by sales proceeds from the sale of St. Andrews at the
Polo Club.





On
January 20, 2005, Roberts Realty purchased 9.84 acres of undeveloped land from
Roberts Properties Peachtree Dunwoody, LLC, which is owned and controlled by Mr.
Roberts. The purchase price was $15,724,000 including closing costs and was part
of a Section 1031 tax-deferred exchange partially funded by sales proceeds from
the sale of St. Andrews at the Polo Club. The property is located on Peachtree
Dunwoody Road across the street from MARTA’s North Springs rail station in the
Perimeter Center submarket of Atlanta and is zoned for a mixed-use development
of 120 condominium units, 236 apartment units, 210,000 square feet of office
space and 56,000 square feet of retail space. See Note 10 - Related Party
Transactions.





Unaudited
pro forma amounts for the years ended December 31, 2004, 2003 and 2002 assuming
the sales of Highland Park, Bradford Creek, Plantation Trace, Preston Oaks,
River Oaks, Veranda Chase and St. Andrews at the Polo Club had taken place as of
January 1, 2002 for the period presented, are presented below (dollars in
thousands, except per share amounts). The unaudited pro forma information is not
necessarily indicative of the results of operations of Roberts Realty had the
acquisition and sales occurred at the beginning of the period presented, nor is
it indicative of future results.





**Years
      Ended December 31,****2004**
    
    **2003**
    
    **2002**Total
      operating revenues
    
    $
    5,577
    
    $
    4,892
    
    $
    3,945Net
      loss
    
    
    (2,646
    )
    
    (1,896
    )
    
    (1,531
    )Per
      Share Data - Basic and DilutedNet
      loss
    
    
    (0.37
    )
    
    (0.26
    )
    
    (0.21
    )




**4.**
    **DISCONTINUED
      OPERATIONS**





For the
twelve months ended December 31, 2004, 2003 and 2002, income from discontinued
operations relates to the following apartment communities that Roberts Realty
sold on the dates indicated:





·
    Highland
      Park, a 188-unit community sold on August 6,
2003;


·
    Bradford
      Creek, a 180-unit community sold on June 2,
2004;


·
    Plantation
      Trace, a 232-unit community sold on June 2,
2004;


·
    Preston
      Oaks, a 213-unit community sold on June 2,
2004;


·
    River
      Oaks, a 216-unit community sold on June 2,
2004;


·
    Veranda
      Chase, a 250-unit community sold on June 2, 2004;
and


·
    St.
      Andrews at the Polo Club, a 200-unit community sold on July 29,
      2004.





F-9





The
following table summarizes information for our assets held for sale as of
December 31, 2004 and 2003 (dollars in thousands):





December
      31,
    
    December
      31,2004
    
    2003Land
    
    $
    0
    
    $
    15,206Buildings
      and improvements
    
    
    0
    
    
    85,201Furniture,
      fixtures and equipment
    
    
    0
    
    
    9,9710
    
    
    110,378Less
      accumulated depreciation
    
    
    (0
    )
    
    (24,296
    )Operating
      real estate assets
    
    
    0
    
    
    86,082Restricted
      cash
    
    
    0
    
    
    273Deferred
      financing costs, net of accumulated amortization
    
    
    0
    
    
    784Other
      assets
    
    
    0
    
    
    141Assets
      held for sale
    
    $
    0
    
    $
    87,280Mortgage
      note payable
    
    $
    0
    
    $
    62,593Construction
      note payable
    
    
    0
    
    
    17,000Interest
      rate swap contract payable
    
    
    0
    
    
    1,454Accounts
      payable and accrued expenses
    
    
    60
    
    
    331Due
      to Roberts Construction
    
    
    0
    
    
    11Security
      deposits and prepaid rents
    
    
    0
    
    
    350Liabilities
      related to assets held for sale
    
    $
    60
    
    $
    81,739





The
following table summarizes revenue and expense information for our discontinued
operations for the twelve month periods ended December 31, 2004, 2003 and 2002
(dollars in thousands):




F-10




Twelve
      Months EndedDecember
      31,2004
    
    2003
    
    2002OPERATING
      REVENUES:Rental
      operations
    
    $
    6,071
    
    $
    14,626
    
    $
    14,202Other
      operating income
    
    
    407
    
    
    927
    
    
    864Total
      operating revenues
    
    
    6,478
    
    
    15,553
    
    
    15,066OPERATING
      EXPENSES:Personnel
    
    
    732
    
    
    1,673
    
    
    1,572Utilities
    
    
    416
    
    
    968
    
    
    904Repairs,
      maintenance and landscaping
    
    
    480
    
    
    1,050
    
    
    918Real
      estate taxes
    
    
    760
    
    
    1,646
    
    
    1,646Marketing,
      insurance and other
    
    
    449
    
    
    961
    
    
    964Depreciation
      of real estate assets
    
    
    1,921
    
    
    5,184
    
    
    4,972Total
      operating expenses
    
    
    4,758
    
    
    11,482
    
    
    10,976INCOME
      FROM OPERATIONS
    
    
    1,720
    
    
    4,071
    
    
    4,090OTHER
      EXPENSE:Interest
      expense
    
    
    (2,514
    )
    
    (5,977
    )
    
    (5,171
    )Loss
      on disposal of assets
    
    
    (9
    )
    
    (8
    )
    
    (28
    )Expenses
      related to retirement of debt
    
    
    (719
    )
    
    (148
    )
    
    (7
    )Amortization
      of deferred financing costs
    
    
    (67
    )
    
    (156
    )
    
    (173
    )Total
      other expense
    
    
    (3,309
    )
    
    (6,289
    )
    
    (5,379
    )Loss
      before minority interest
    
    
    (1,589
    )
    
    (2,218
    )
    
    (1,289
    )MINORITY
      INTEREST OF UNITHOLDERS IN THE OPERATING PARTNERSHIP
    
    
    427
    
    
    630
    
    
    406LOSS
      BEFORE GAIN ON SALE OF REAL ESTATE ASSETS
    
    
    (1,162
    )
    
    (1,588
    )
    
    (883
    )GAIN
      (LOSS) ON SALE OF REAL ESTATE ASSETS, net of minority interest of
      unitholders
    
    
    40,794
    
    
    6,174
    
    
    (102
    )INCOME
      (LOSS) FROM DISCONTINUED OPERATIONS
    
    $
    39,632
    
    $
    4,586
    
    $
    (985
    )




**5.**
    **NOTES
      PAYABLE**





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





**Lines
of Credit.** Roberts
Realty has a $2,000,000 unsecured line of credit, which expires August 1, 2005,
to provide funds for short-term working capital purposes. At December 31, 2004,
there were no borrowings under this line of credit.





F-11


****


**Mortgage
Notes** *.* The
permanent **** mortgage
notes payable secured by Roberts Realty’s completed apartment communities at
December 31, 2004 and December 31, 2003 were as follows:





**Property
      Securing Mortgage**
    
    
    **Maturity**
    
    
    **Fixed
      Interest**
      **Rate
      as of**
      **12/31/04**
    
    **Principal
      Outstanding****12/31/04**
    
    
    **12/31/03**Addison
      Place Townhomes
    
    
    11/15/09
    
    
    6.95%
    
    $
    9,056,000
    
    $
    9,177,000Addison
      Place Apartments(1)
    
    
    05/10/05
    
    
    8.62%
    
    
    22,130,000
    
    
    22,282,000$
    31,186,000
    
    $
    31,459,000





(1)
    The
      interest rate on this loan has been synthetically fixed at the rate shown
      until it matures on May 10, 2005. See Note
6.





Real
estate assets having a combined depreciated cost of $33,966,000 served as
collateral for the outstanding mortgage debt at December 31, 2004.





**Construction
Loans.** On June
28, 2001, Roberts Realty closed a $5,280,000 loan to fund the construction of
the Northridge commercial office building. The loan is secured by the land and
improvements and bears interest at the 30-day LIBOR plus 200 basis points. On
May 28, 2004, Roberts Realty extended the maturity date of the loan until May
28, 2005 and reduced to $4,530,000 the maximum principal amount available to be
borrowed under the loan. At December 31, 2004, $4,530,000 was drawn on the loan,
and Roberts Realty expects that it will have a $4,530,000 principal balance at
maturity.





On
February 21, 2002, Roberts Realty closed a $24,000,000 construction/permanent
loan to fund the construction of its 319-unit apartment community in Charlotte,
North Carolina. The loan matures on March 10, 2006, with Roberts Realty having
the option to exercise two additional one-year extensions. Monthly payments are
interest only through March 10, 2005 at the 30-day LIBOR plus 200 basis points;
thereafter, principal and interest will be payable in monthly installments
calculated using a 30-year amortization schedule and an assumed interest rate of
7.0% plus actual interest. At December 31, 2004, $22,484,000 was drawn on the
loan.





On May
30, 2003, Roberts Realty closed a $6,500,000 construction loan to fund the
construction of the Addison Place Shops retail center. The loan is secured by
the land and improvements and matures on April 30, 2006. Monthly payments are
interest only at the 30-day LIBOR plus 185 basis points. At December 31, 2004,
$5,280,000 was drawn on the loan.





**Land
Loans.** On
December 29, 2004, Roberts Realty closed a $20,412,000 loan to fund portions of
the purchase prices of an 82% undivided interest in 23.5 acres of undeveloped
land located on Peachtree Parkway in Gwinnett County, Georgia and 29.47 acres of
undeveloped land located on Westside Parkway in Alpharetta, Georgia. The loan
matures on December 29, 2005, is secured by the land, and bears an interest rate
of the 30-day LIBOR plus 185 basis points. At December 31, 2004, $9,462,000 was
drawn on the loan, and Roberts Realty expects that it will have a $6,842,000
principal balance at maturity.





F-12





The
scheduled principal payments of all debt outstanding at December 31, 2004 for
each of the years ending December 31 are as follows:





2005
    
    $
    36,601,0002006
    
    
    5,916,0002007
    
    
    681,0002008
    
    
    21,264,0002009
    
    
    8,480,000$
    72,942,000





Interest
capitalized was $707,000, $1,345,000 and $2,196,000 for the twelve months ended
December 31, 2004, 2003 and 2002, respectively.





On May 6,
2004, Roberts Realty obtained a $21,000,000 loan commitment from the Federal
Home Loan Mortgage Corporation (Freddie Mac) to refinance the 285-unit Addison
Place Apartment. The loan will have a ten-year term and bear interest at a fixed
rate of 6.35%. Roberts Realty expects to close the new loan when the existing
$22,130,000 loan matures in May 2005.




**6.**
    **DERIVATIVE
      INSTRUMENTS AND HEDGING ACTIVITIES.**





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





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





At
December 31, 2003, the liability relating to the estimated fair value of the
swap was $3,255,000, which, together with the estimated fair value of the swap
related to the mortgage loan secured by Roberts Realty’s Veranda Chase
community, resulted in a decrease in shareholders’ equity of $2,353,000
(accumulated other comprehensive income), net of minority interest of $902,000.
On June 2, 2004, when Roberts Realty sold the Veranda Chase community, the buyer
assumed the mortgage debt along with the related swap agreement.




F-13




At
December 31, 2004, Roberts Realty’s recorded liability was $436,000 relating to
the estimated fair value of the Addison Place Apartments swap because of lower
market interest rates as compared to the interest rate of the swap instrument.
The effect of this liability is a corresponding decrease in shareholders’ equity
of $320,000 (accumulated other comprehensive income), net of minority interest
of $116,000. If Roberts Realty holds this instrument until maturity, it will not
pay any interest other than that stated in the loan and swap agreement. The
liability recorded at December 31, 2004 has been and will continue to be reduced
as Roberts Realty complies with its obligations under this instrument, as the
difference between the market interest rate and the fixed rate decreases, and as
the obligation matures.
  **7.**
    **FAIR
      VALUE DISCLOSURE OF FINANCIAL
INSTRUMENTS**





The
following disclosures of estimated fair value were determined by management
using available market information and appropriate valuation methodologies.
Because considerable judgment is necessary to interpret market data and develop
the related estimates of fair value, the estimates presented herein are not
necessarily indicative of the amounts that could be realized upon disposition of
the financial instruments. The use of different market assumptions and/or
estimation methodologies may have a material effect on the estimated fair value
amounts.





The fair
value of Roberts Realty’s interest rate swap agreement on its
construction/permanent loans was a liability of $436,000 and $3,255,000 at
December 31, 2004 and 2003, respectively.





Cash and
cash equivalents, accounts payable, accrued expenses, security deposits and
other liabilities, due to their short-term nature, are carried at amounts which
reasonably approximate their fair values at December 31, 2004 and 2003. Fixed
rate mortgage debt with an aggregate carrying value of $9,056,000 at December
31, 2004 has an estimated approximate fair value of $9,600,000 based on interest
rates available to Roberts Realty for debt with similar terms and
maturities.




**8.**
    **SHAREHOLDERS’
      EQUITY**





**Exchanges
of Units for Shares.** During
the years ended December 31, 2004, 2003, and 2002, a total of 93,896, 124,303,
and 189,747 units, respectively, were exchanged for the same number of shares.
Each conversion was reflected in the accompanying consolidated financial
statements at book value.





**Restricted
Share Awards.** During
the years ended December 31, 2003, and 2002, Roberts Realty granted shares of
restricted stock to certain employees in the following amounts, respectively,
net of forfeitures: 1,512 and 3,077 shares. The market value of these restricted
stock grants totaled $7,000 and $13,000, respectively. In 2004, net forfeitures
of granted shares of restricted stock were 10,480 shares at a total market value
of $75,000. The market value of restricted stock grants was recorded as
unamortized deferred compensation and is shown as a separate component of
shareholders’ equity. These restricted shares vest 100% at the end of a
three-year vesting period and are being amortized to compensation expense
ratably over the vesting period.





**Dividends
and Distributions.** Roberts
Realty has not paid regular quarterly dividends since the third quarter of 2001.
On August 27, 2003, Roberts Realty paid a special distribution of $0.55 per
share/unit to shareholders and unitholders in the operating partnership of
record on August 18, 2003. Of the dividends declared for 2003 totaling $0.55 per
share, approximately $0.52 per share represents capital gain and $0.03 per share
represents a return of capital to the shareholders.





On June
18, 2004, Roberts Realty paid a special distribution of $4.50 per share/unit to
shareholders and unitholders in the operating partnership of record on June 14,
2004. Of the dividends declared for 2003 totaling $4.50 per share, approximately
$4.21 per share represents capital gain and $0.29 per share represents a return
of capital to the shareholders.





F-14


****


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




**2004**
    
    **2003**
    
    **2002**Loss
      from continuing operations - basic
    
    $
    (2,646
    )
    $
    (1,896
    )
    $
    (1,531
    )Minority
      interest of unitholders in the operatingpartnership
      in income attributable to continuingoperations
    
    
    (974
    )
    
    (751
    )
    
    (704
    )Loss
      from continuing operations - diluted
    
    $
    (3,620
    )
    $
    (2,647
    )
    $
    (2,235
    )Income
      (loss) from discontinued operations - basic
    
    $
    39,632
    
    $
    4,586
    
    $
    (985
    )Minority
      interest of unitholders in the operatingpartnership
      in income attributable to discontinuedoperations
    
    
    14,584
    
    
    1,844
    
    
    (453
    )Income
      (loss) from discontinued operations - diluted
    
    $
    54,216
    
    $
    6,430
    
    $
    (1,438
    )Net
      income (loss) - diluted
    
    $
    50,596
    
    $
    3,783
    
    $
    (3,673
    )Weighted
      average shares - basic
    
    
    5,280,064
    
    
    5,171,748
    
    
    4,943,280Dilutive
      securities - weighted average units
    
    
    1,940,594
    
    
    2,051,979
    
    
    2,277,313Weighted
      average shares - diluted
    
    
    7,220,658
    
    
    7,223,727
    
    
    7,220,593




**9.**
    **SEGMENT
      REPORTING**





SFAS No.
131 established standards for reporting financial and descriptive information
about operating segments in annual financial statements. Operating segments are
defined as components of an enterprise about which separate financial
information is available that is evaluated regularly by the chief operating
decision maker in deciding how to allocate resources and in assessing
performance. Roberts Realty’s chief operating decision maker is its chief
executive officer.





Roberts
Realty owns, operates, develops and constructs multifamily apartment communities
located in Georgia and North Carolina. These apartment communities generate
rental revenue and other income through the leasing of apartment homes. Roberts
Realty evaluates the performance of each of its apartment communities on an
individual basis. However, because each of the apartment communities has similar
economic characteristics, residents, and products and services, the apartment
communities have been aggregated into one reportable segment. This segment
comprised 99.4% of Roberts Realty’s total revenues for 2004 and 100% of Roberts
Realty’s total revenues for each of the two years ended December 31,
2003.





Roberts
Realty owns a 39,907 square foot office building in its lease-up phase and a
42,090 square foot retail center located adjacent to its Addison Place apartment
community in its lease-up phase. At December 31, 2004, Roberts Realty does not
meet the criteria that would require these assets to be accounted for as
separate segments.




F-15


****


**10.**
    **RELATED
      PARTY TRANSACTIONS**





Transactions
with Mr. Roberts or His Affiliates





Roberts
Realty enters into transactions with Roberts Properties, Roberts Construction
and other affiliates of Mr. Roberts, the Chairman of the Board, Chief Executive
Officer, and President of Roberts Realty Investors, Inc. in the ordinary course
of business. These transactions are discussed below.





**Land
Acquisitions.** On May
30, 2001, Roberts Realty purchased the East Fox Court land from Roberts
Properties for $1,447,000. Roberts Properties had purchased the property for
$1,070,000, and the $1,447,000 price Roberts Realty paid included $377,000 in
development-related work previously performed by Roberts Properties. Roberts
Properties completed the design and development work in 2002 for a fee of
$180,000. Roberts Realty sold East Fox Court in 2002 for a gain of $1,043,000,
net of minority interest of unitholders in the operating partnership. The
independent members of the board of directors approved the foregoing
arrangements with Roberts Properties.





On June
20, 2001, Roberts Realty purchased the Addison Place Shops retail center land
from REES 59 L.L.C. for $4,470,000. REES 59 had previously purchased the land
from Roberts Properties Jones Bridge, LLC, of which Mr. Roberts owned a 90%
interest. Roberts Realty entered into a cost plus 5% contract with Roberts
Construction to complete the retail center. The independent members of the board
of directors approved the foregoing arrangements with Roberts Properties and
Roberts Construction.





On June
28, 2001, Roberts Realty purchased the Northridge apartment land from Roberts
Properties for $5,376,000. Roberts Realty retained Roberts Properties to
complete the design and development work for a fee of $2,500 per unit, or
$550,000. Roberts Realty also entered into a cost plus 10% contract with Roberts
Construction to build the 220 apartment units. The independent members of the
board of directors approved the foregoing arrangements with Roberts Properties
and Roberts Construction.





On June
28, 2001, Roberts Realty purchased land and the partially constructed Northridge
office building from Roberts Properties for $2,147,000. The three-story, 39,907
square foot building serves as Roberts Realty’s corporate headquarters. Roberts
Realty occupies a portion of one floor in the building, leases the remaining
space on that floor to Roberts Properties and Roberts Construction, and plans to
lease the other two floors to unaffiliated tenants. Roberts Construction
completed construction of the building at cost and did not earn a profit on the
construction of the building. Roberts Properties did not earn a profit on the
sale of the land to Roberts Realty and was not paid a development fee for this
project. The independent members of the board of directors approved the
foregoing arrangements with Roberts Properties and Roberts
Construction.





On
December 29, 2004, Roberts Realty purchased an 82% undivided interest in 23.5
acres of undeveloped land for $7,770,000 from Roberts Properties
Peachtree Parkway, L.P., a partnership owned and controlled by Mr. Roberts.
Restrictive covenants on the land require that if
the property is developed for residential use Roberts Properties will be engaged
as the development company and will be paid a development fee of $5,000 per
residential unit and Roberts Construction will be engaged as the general
contractor for the project on a cost plus 10% basis. The
independent members of the board of directors approved the foregoing
arrangements with Roberts Properties and Roberts Construction.





**Construction
Contracts.** Roberts
Realty enters into contractual commitments with Roberts Construction in the
normal course of business related to the construction of real estate assets. Mr.
Roberts beneficially owns all of the outstanding shares of Roberts Construction.
Roberts Construction constructed Addison Place Apartments and Veranda Chase
under cost plus 10% contracts. Roberts Construction is constructing the
Ballantyne Place apartment community under a cost plus 10% arrangement and is
constructing the Addison Place Shops under a cost plus 5% contract. Roberts
Realty entered into a contract with Roberts Construction related to the
construction of the Northridge office building at cost. In 2003, Roberts Realty
entered into a cost plus 10% contract with Roberts Construction related to the
construction of the Northridge community. The contractual amounts for projects
started and/or completed with Roberts Construction during the last three years,
from inception through December 31, 2004, are summarized in the following
table:




F-16




**Actual/Estimated**
      **Total**
      **Contract**
      **Amount**
    
    **Amount**
      **Incurred**
    
    **Estimated**
      **Remaining**
      **Contractual**
      **Commitment**Addison
      Place Shops
    
    $
    4,814,000
    
    $
    3,944,000
    
    $
    870,000Northridge
      Office Building
    
    
    5,448,000
    
    
    5,448,000
    
    
    0Ballantyne
      Place
    
    
    23,193,000
    
    
    22,114,000
    
    
    1,079,000Veranda
      Chase
    
    
    15,608,000
    
    
    15,608,000
    
    
    0Addison
      Place Apartments
    
    
    21,876,000
    
    
    21,876,000
    
    
    0Northridge
      Community (1)
    
    
    261,000
    
    
    253,000
    
    
    8,000$
    71,200,000
    
    $
    69,243,000
    
    $
    1,957,000





(1)  Only
includes contract for site work and detention pond construction.





At
December 31, 2004 and 2003, the amounts due to Roberts Construction are
summarized in the following table:





**December
      31**
    
    **December
      31****2004**
    
    **2003**Addison
      Place Shops
    
    $
    405,000
    
    $
    95,000Northridge
      Office Building
    
    
    0
    
    
    251,000Ballantyne
      Place
    
    
    248,000
    
    
    1,517,000Veranda
      Chase
    
    
    0
    
    
    11,000Northridge
      Community
    
    
    0
    
    
    4,000Total
    
    $
    653,000
    
    $
    1,878,000





Roberts
Realty estimates the remaining contractual commitment will be paid to Roberts
Construction in 2005.





Roberts
Realty paid Roberts Construction for labor and materials to perform capital
improvements for the communities in the amount of $12,000, $57,000 and $43,000
in 2004, 2003 and 2002, respectively.





**Development
Fees.** Roberts
Properties received fees for various development services including market
studies, business plans, design, finish selection, interior design and
construction administration (including amounts described in “Land Acquisitions”
above). Fees incurred totaled $550,000 and $180,000 for the years ended December
31, 2003 and 2002, respectively (none in 2004).





**Partnership
Profits Interests.** ** Between
1994 and 1996, the operating partnership acquired nine limited partnerships of
which Mr. Roberts was the sole general partner. Each partnership owned an
apartment community that had been developed or was in the development process.
As a part of each acquisition, the operating partnership assumed an existing
financial obligation to an affiliate of Mr. Roberts. That financial obligation
was formalized as a profits interest in the operating partnership. As the holder
of the profits interest, Roberts Properties was entitled to receive
distributions of a specified percentage of the gross sales proceeds of some of
the apartment communities Roberts Realty owned. The amount distributed to
Roberts Properties with respect to each affected property was limited to the
amount by which the gross proceeds from the sale of that property exceeded the
sum of:




F-17




§
    the
      debt assumed, or taken subject to, by the operating partnership in
      connection with its acquisition of the property;




§
    the
      equity issued by the operating partnership in acquiring the property; and




§
    all
      subsequent capital improvements to the property made by the operating
      partnership.





On June
2, 2004, Roberts Realty sold five of its Atlanta apartment communities for
$109,150,000, resulting in a gain of $32,404,000, net of minority interest of
$11,985,000. Roberts Realty paid to Roberts Properties partnership profits
interest distributions totaling $3,182,000 for three of those communities: River
Oaks, Preston Oaks Phase I and Plantation Trace Phase I. During 2003, Roberts
Realty paid profits interest distributions of $899,000 in connection with the
sale of the Highland Park community. Roberts Realty paid no profits interest
distributions during 2002 and will pay no further distributions of that nature
in the future.





Roberts
Realty accounts for distributions required under the partnership profits
interests as a reduction of the sales proceeds upon the disposition of an
affected property as required by SFAS 141, Business Combinations.





**Other
Fees.** During
2004, 2003 and 2002, affiliates of Mr. Roberts received miscellaneous fees and
cost reimbursements of $88,000, $163,000, and $184,000
respectively.





**Office
Leases.** Roberts
Realty entered into leases for office space on the third floor of the Northridge
office building with Roberts Properties and Roberts Construction for a total of
$4,200 per month for the period of June 1, 2004 to August 31, 2004; for a total
of $5,250 per month for the period of September 1, 2004 to December 31, 2004;
and for a total of $5,950 per month for the period of January 1, 2005 to March
31, 2005. At March 31, 2005, the leases convert to a month-to-month basis with
the rental rate and all other terms remaining unchanged. Roberts Realty intends
to negotiate longer-term leases with Roberts Properties and Roberts Construction
within the next 60 days.





Transactions
with Other Directors and their Affiliates





**Loan
Origination Fees.** Dennis
H. James, a director of Roberts Realty, is Managing Director - Southeast Region,
with L.J. Melody & Company, a commercial mortgage banking firm that has
originated loans for Roberts Realty. Loan origination fees incurred were $75,000
in 2003. No loan origination fees were incurred in 2004 or 2002.





**Other
Fees.** In
2004, **** Roberts
Realty paid Charles R. Elliott, a director of Roberts Realty and former Chief
Financial Officer, $205,000 in consulting fees for services he performed on the
sale of five apartment communities to Colonial Properties Trust, the sale of St.
Andrews at the Polo Club, the refinancing of Ballantyne Place debt and the
refinancing of Addison Place Apartments debt.





**11.**
    **COMMITMENTS
      AND CONTINGENCIES**





Roberts
Realty and the operating partnership are subject to various legal proceedings
and claims that arise in the ordinary course of business. While the resolution
of these matters cannot be predicted with certainty, management believes that
the final outcome of these matters will not have a material adverse effect on
Roberts Realty’s financial position or results of operations.





F-18





As a
result of the mergers of various limited partnerships into the operating
partnership, the former partners of these limited partnerships received 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 one-for-one basis). Roberts Realty has adopted a
policy that it will issue shares in exchange for all future units submitted.
There were 1,908,571 units outstanding at December 31, 2004 that could be
exchanged for shares, subject to the conditions described above.





Roberts
Realty enters into contractual commitments in the normal course of business
related to the development of real estate assets. Management does not believe
that the completion of these commitments will result in a material adverse
effect on Roberts Realty’s financial position or results of operations.





Under
Roberts Realty’s bylaws, it is obligated to indemnify its officers and directors
for certain events or occurrences arising as a result of the officer or
director’s serving in such capacity. The maximum potential amount of future
payments Roberts Realty could be required to make under this indemnification
arrangement is unlimited. Roberts Realty currently has a directors and officers
liability insurance policy that may limit its exposure and enable it to recover
a portion of any future amounts paid. 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 December 31, 2004.





On May 6,
2004, Roberts Realty obtained a $21,000,000 loan commitment from the Federal
Home Loan Mortgage Corporation (Freddie Mac) to refinance the 285-unit Addison
Place Apartments. The loan will have a ten-year term and bear interest at a
fixed rate of 6.35%. Roberts Realty expects to close the new loan when the
existing $22,130,000 loan matures in May 2005.





On July
15, 2004, Roberts Realty obtained a $23,000,000 loan commitment from Freddie Mac
to refinance its 319-unit apartment community, Ballantyne Place. The loan will
have a ten-year term and bear interest at a fixed rate of 6.06%. Roberts Realty
expects to close the new loan in July 2005.




**12.**
    **SUPPLEMENTAL
      CASH FLOW INFORMATION**





Roberts
Realty paid $150,000 in April 2002 in connection with the settlement of a
lawsuit with the buyer of Rosewood Plantation under the terms of the warranty
provisions of the sales contract (Note 3). This amount is shown in the financial
statements as a loss on the sale of real estate assets, net of minority interest
of $48,000.





Non-cash
investing and financing activities for the years ended December 31, 2004, 2003,
and 2002 were as follows:




A.
    On
      August 6, 2003, Roberts Realty sold the Highland Park community. As a
      condition of the sale, the purchaser assumed the mortgage note payable
      associated with the property in the amount of $9,930,000.




B.
    On
      June 2, 2004, Roberts Realty sold five of its Atlanta apartment
      communities - Bradford Creek, Plantation Trace, Preston Oaks, River Oaks,
      and Veranda Chase. As a condition of the sale, the purchaser assumed the
      mortgage notes payable associated with the properties in the aggregate
      amount of $58,802,000.




F-19




C.
    On
      July 29, 2004, Roberts Realty sold its St. Andrews at the Polo Club
      community. As a condition of the sale, the purchaser assumed the mortgage
      note payable associated with the property in the amount of $20,412,000.




**13.**
    **SUMMARIZED
      QUARTERLY FINANCIAL INFORMATION
(UNAUDITED)**





(In
thousands, except per share data)





**Quarter
      Ended****March
      31**
    
    **June
      30**
    
    **September
      30**
    
    **December
      31****Year
      Ended December 31, 2004**Total
      operating revenues
    
    $
    1,228
    
    $
    1,287
    
    $
    1,425
    
    $
    1,637Loss
      from operations
    
    
    (20
    )
    
    (132
    )
    
    (676
    )
    
    (533
    )Loss
      from continuing operations
    
    
    (411
    )
    
    (303
    )
    
    (1,048
    )
    
    (884
    )Income
      (loss) from discontinued operations
    
    
    (182
    )
    
    31,835
    
    
    7,939
    
    
    40Net
      income (loss)
    
    
    (593
    )
    
    31,532
    
    
    6,891
    
    
    (844
    )Per
      share (basic and diluted):Loss
      from continuing operations
    
    $
    (0.08
    )
    $
    (0.06
    )
    $
    (0.19
    )
    $
    (0.17
    )Income
      (loss) from discontinued operations
    
    
    (0.03
    )
    
    6.03
    
    
    1.50
    
    
    0.01Net
      income (loss)
    
    
    (0.11
    )
    
    5.97
    
    
    1.31
    
    
    (0.16
    )**Year
      Ended December 31, 2003**Total
      operating revenues
    
    $
    1,127
    
    $
    1,215
    
    $
    1,298
    
    $
    1,252Loss
      from operations
    
    
    (290
    )
    
    (194
    )
    
    (72
    )
    
    (122
    )Loss
      from continuing operations
    
    
    (497
    )
    
    (518
    )
    
    (428
    )
    
    (453
    )Income
      (loss) from discontinued operations
    
    
    (394
    )
    
    (409
    )
    
    5,794
    
    
    (405
    )Net
      income (loss)
    
    
    (891
    )
    
    (927
    )
    
    5,366
    
    
    (858
    )Per
      share (basic and diluted):Loss
      from continuing operations
    
    $
    (0.10
    )
    $
    (0.10
    )
    $
    (0.08
    )
    $
    (0.09
    )Income
      (loss) from discontinued operations
    
    
    (0.08
    )
    
    (0.08
    )
    
    1.13
    
    
    (0.08
    )Net
      income (loss)
    
    
    (0.18
    )
    
    (0.18
    )
    
    1.05
    
    
    (0.17
    )





(Amounts
have been restated, as appropriate, to give effect to discontinued
operations).




**14.**
    **SUBSEQUENT
      EVENT (UNAUDITED)**





On
January 20, 2005, Roberts Realty purchased 9.84 acres of undeveloped land for
$15,700,000 from Roberts Properties Peachtree Dunwoody, LLC, which is owned and
controlled by Mr. Roberts. The property is located on Peachtree Dunwoody Road in
the Perimeter Center submarket of Atlanta and is zoned for a mixed-use
development of 120 condominium units, 236 apartment units, 210,000 square feet
of office space and 56,000 square feet of retail space.





F-20
 
 ****SCHEDULE
III - REAL ESTATE AND ACCUMULATED DEPRECIATION**

**ROBERTS
REALTY INVESTORS, INC.**
**REAL
ESTATE AND ACCUMULATED DEPRECIATION**
**AS
OF DECEMBER 31, 2004**
**(Dollars
in Thousands)**

Initial
      Cost to Company
    
    
    
    Carried
      at Close of PeriodDescription
    
    Encumbrance
    
    Land
    
    Buildings
      and
      Improvements
    
    Improvements
      Capitalized
      After
      Acquisition/
      Construction
    
    Land
    
    Buildings
      and
      Improvements
    
    TotalCONSTRUCTION
      IN PROGRESS AND REAL ESTATE UNDER DEVELOPMENT (A)Addison
      Place Shops
    
    $
    5,280
    
    $
    -
    
    $
    -
    
    $
    -
    
    $
    -
    
    $
    -
    
    $
    -Northridge
      Community
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -Peachtree
      Parkway (B)
    
    
    9,462
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -Westside
      Parkway (B)
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -Total
      Properties Under Construction
    
    $
    14,742
    
    $
    -
    
    $
    -
    
    $
    -
    
    $
    -
    
    $
    -
    
    $
    -OPERATING
      PROPERTIESAddison
      Place Townhomes
    
    $
    9,056
    
    $
    2,053
    
    $
    10,440
    
    $
    281
    
    $
    2,053
    
    $
    10,721
    
    $
    12,774Addison
      Place Apartments
    
    
    22,130
    
    
    3,152
    
    
    25,917
    
    
    266
    
    
    3,152
    
    
    26,183
    
    
    29,335Ballantyne
      Place Apartments
    
    
    22,484
    
    
    3,547
    
    
    28,122
    
    
    -
    
    
    3,547
    
    
    28,122
    
    
    31,669Northridge
      Office Building
    
    
    4,530
    
    
    357
    
    
    6,511
    
    
    3
    
    
    357
    
    
    6,514
    
    
    6,871Total
      Operating Properties
    
    $
    58,200
    
    $
    9,109
    
    $
    70,990
    
    $
    550
    
    $
    9,109
    
    $
    71,540
    
    $
    80,649Total
    
    $
    72,942
    
    $
    9,109
    
    $
    70,990
    
    $
    550
    
    $
    9,109
    
    $
    71,540
    
    $
    80,649

Description
    
    Accumulated
      Depreciation
    
    Life
      on which
      Depreciation
      is
      Computed
    
    Date
      Acquired
    
    Date
      of Original ConstructionAddison
      Place Townhomes
    
    $
    2,917
    
    3 -
      27.5 Years
    
    Sept
      - 99
    
    1999Addison
      Place Apartments
    
    
    5,227
    
    3 -
      27.5 Years
    
    June
      - 98
    
    1999Northridge
      Office Building
    
    
    89
    
    3 -
      27.5 Years
    
    June
      - 01
    
    2000Ballantyne
      Place Apartments
    
    
    924
    
    3 -
      27.5 Years
    
    June
      - 98
    
    2001Total
    
    $
    9,157
The
accompanying notes are an integral part of this schedule.**


S-1


(A)
    Construction
      in progress and real estate under development of $28,272,000 as of
      December 31, 2004 is excluded from Schedule III.
 
 (B)
    Peachtree
      Parkway and Westside Parkway were financed together with such properties
      being collateral for one land note payable.
 
 (C)
    Roberts
      Realty enters into contractual commitments in the normal course of
      business related to the construction of real estate assets with Roberts
      Construction - see Note 10 to the Consolidated Financial
    Statements.
 
 (D)
    Gross
      capitalized costs of operating real estate assets are summarized as
      follows:
 
 2004
    
    2003
    
    2002BALANCE
      AT BEGINNING OF PERIOD
    
    $
    152,553
    
    $
    164,217
    
    $
    143,527Additions
      during period:Other
      additions
    
    
    38,893
    
    
    -
    
    
    22,487Improvements
    
    
    217
    
    
    1,271
    
    
    227Total
      Additions
    
    
    39,110
    
    
    1,271
    
    
    22,714Deductions
      during period:Sales
    
    
    (110,646
    )
    
    (12,632
    )
    
    (1,741
    )Other
      disposals
    
    
    (368
    )
    
    (303
    )
    
    (283
    )Total
      disposals
    
    
    (111,014
    )
    
    (12,935
    )
    
    (2,024
    )Balance
      at close of period
    
    $
    80,649
    
    $
    152,553
    
    $
    164,217
 
 (E)
    Accumulated
      depreciation on operating real estate assets is as
follows:
 
 2004
    
    2003
    
    2002BALANCE
      AT BEGINNING OF PERIOD
    
    $
    30,871
    
    $
    28,229
    
    $
    21,463Additions
      during period:Depreciation
      expense
    
    
    4,540
    
    
    6,980
    
    
    7,001Deductions
      during period:Sales
    
    
    (26,101
    )
    
    (4,065
    )
    
    -Other
      disposals
    
    
    (153
    )
    
    (273
    )
    
    (235
    )Total
      disposals
    
    
    (26,254
    )
    
    (4,338
    )
    
    (235
    )Balance
      at close of period
    
    $
    9,157
    
    $
    30,871
    
    $
    28,229


S-2





(c)  Exhibits.





We have
filed some of the exhibits required by Item 601 of Regulation S-K with previous
registration statements or reports. As specifically noted in the following Index
to Exhibits, those previously filed exhibits are incorporated into this annual
report on Form 10-K by reference. All exhibits contained in the following Index
to Exhibits that are designated with an asterisk are incorporated into this
annual report by reference from our initial Registration Statement on Form 10-SB
filed with the SEC on March 22, 1996; the applicable exhibit number in that
Registration Statement is provided beside the asterisk. All material agreements
contained in the following Index to Exhibits that are designated with a footnote (1) are no
longer in effect but were in effect at some time on or after January 1, 2003.





*We
will provide a copy of any or all of the following exhibits to any shareholder
who requests them, for a cost of ten cents per page.*





**Exhibit**
      **No.**
    **Description***Articles
      of Incorporation, Bylaws and Certificates and Articles of
      Merger:*3.1
    Amended
      and Restated Articles of Incorporation of Roberts Realty Investors, Inc.
      filed with the Georgia Secretary of State on July 22, 2004. [Incorporated
      by reference to Exhibit 3.1 from our quarterly report on Form 10-Q for the
      quarter ended September 30, 2004.]3.2
    Bylaws
      of Roberts Realty Investors, Inc. [* 2.2]4.1
    Agreement
      of Limited Partnership of Roberts Properties Residential, L.P., dated as
      of July 22, 1994. [* 3.1]4.1.1
    First
      Amended and Restated Agreement of Limited Partnership of Roberts
      Properties Residential, L.P., dated as of October 1, 1994. [*
      3.1.1]4.1.2
    Amendment
      #1 to First Amended and Restated Agreement of Limited Partnership of
      Roberts Properties Residential, L.P., dated as of October 13, 1994. [*
      3.1.2]4.1.3
    Amendment
      #2 to First Amended and Restated Agreement of Limited Partnership of
      Roberts Properties Residential, L.P. [Incorporated by reference to Exhibit
      10.1 from our Registration Statement on Form S-3 filed July 8, 1999,
      registration number 333-82453.]4.2
    Certificate
      of Limited Partnership of Roberts Properties Residential, L.P. filed with
      the Georgia Secretary of State on July 22, 1994. [*
3.2]4.2.1
    Certificate
      of Merger filed with the Georgia Secretary of State on October 13, 1994,
      merging Roberts Properties River Oaks, L.P.; Roberts Properties Rosewood
      Plantation, L.P.; Roberts Properties Preston Oaks, L.P.; and Roberts
      Properties Highland Park, L.P. with and into Roberts Properties
      Residential, L.P. (1994 Consolidation). [* 3.2.1]
   62
  4.2.2
    Certificate
      of Merger filed with the Georgia Secretary of State on March 24, 1995,
      merging Roberts Properties Holcomb Bridge, L.P. with and into Roberts
      Properties Residential, L.P. (Holcomb Bridge Merger). [*
      3.2.2]4.2.3
    Certificate
      of Merger filed with the Georgia Secretary of State on May 16, 1995,
      merging Roberts Properties Plantation Trace, L.P. with and into Roberts
      Properties Residential, L.P. (Plantation Trace Merger). [*
      3.2.3]4.2.4
    Certificate
      of Merger filed with the Georgia Secretary of State on September 27, 1995,
      merging Roberts Properties-St. Simons, L.P. with and into Roberts
      Properties Residential, L.P. (Windsong Merger). [*
  3.2.4]4.2.5
    Certificate
      of Merger filed with the Georgia Secretary of State on March 21, 1996,
      merging Roberts Properties Bentley Place, L.P. with and into Roberts
      Properties Residential, L.P. (Bentley Place Merger). [Incorporated by
      reference to Exhibit 4.2.5 from our quarterly report on Form 10-QSB for
      the quarter ended June 30, 1996.]4.2.6
    Certificate
      of Merger filed with the Georgia Secretary of State on June 26, 1996,
      merging The Crestmark Club, L.P. with and into Roberts Properties
      Residential, L.P. (Crestmark Merger). [Incorporated by reference to
      Exhibit 4.2.6 from our quarterly report on Form 10-QSB for the quarter
      ended June 30, 1996.]4.2.7
    Certificate
      and Articles of Merger filed with the Georgia Secretary of State on April
      1, 1997 merging Roberts Properties Management, L.L.C. with and into
      Roberts Properties Residential, L.P. [Incorporated by reference to Exhibit
      4.2.7 from our current report on Form 8-K dated April 1,
      1997.]*Material
      Agreements with Affiliates:*10.1.1
    Construction
      Administration Agreement between Roberts Residential, L.P. and Roberts
      Properties, Inc. (Charlotte). [Incorporated by reference to Exhibit
      10.17.02 from our quarterly report on Form 10-Q for the quarter ended June
      30, 2000.]10.1.2
    Construction
      Administration Agreement between Roberts Residential, L.P. and Roberts
      Properties, Inc. (Corporate Office Building). [Incorporated by reference
      to Exhibit 10.20.5 from our quarterly report on Form 10-Q for the quarter
      ended September 30, 2001.]10.1.3
    Construction
      Administration Agreement between Roberts Residential, L.P. and Roberts
      Properties, Inc. (Addison Place Shops). [Incorporated by reference to
      Exhibit 10.21.3 from our quarterly report on Form 10-Q for the quarter
      ended September 30, 2001.]10.1.4
    Design
      and Development Agreement between Roberts Properties Residential, L.P. and
      Roberts Properties, Inc. dated June 15, 2001 (Northridge). [Incorporated
      by reference to Exhibit 10.1.17 from our annual report on Form 10-K for
      the year ended December 31, 2001.]10.1.5
    Construction
      Agreement between Roberts Properties Residential, L.P. and Roberts
      Properties Construction, Inc. (Northridge). [Incorporated by reference to
      Exhibit 10.1.18 from our quarterly report on Form 10-Q for the quarter
      ended March 31, 2003.]
  63
  10.1.6
    Office
      Lease between Roberts Properties Residential, L.P. and Roberts Properties,
      Inc. dated November 23, 2004.10.1.7
    Office
      Lease between Roberts Properties Residential, L.P. and Roberts Properties
      Construction, Inc. dated November 23, 2004.10.1.8
    Sales
      Contract dated December 29, 2004 between Roberts Properties Residential,
      L.P. and Roberts Properties Peachtree Parkway, L.P. [Incorporated by
      reference to Exhibit 10.1 from our current report on Form 8-K dated
      January 5, 2005.]10.1.9
    Tenants-In-Common
      Agreement between Georgianna Jean Valentino and Roberts Properties
      Peachtree Parkway, L.P., assumed by Roberts Properties Residential, L.P.
      on December 29, 2004. [Incorporated by reference to Exhibit 10.2 from our
      current report on Form 8-K dated January 5, 2005.]10.1.10
    Restrictive
      Covenant by Roberts Properties Peachtree Parkway, L.P., assumed by Roberts
      Properties Residential, L.P. on December 29, 2004. [Incorporated by
      reference to Exhibit 10.3 from our current report on Form 8-K dated
      January 5, 2005.]10.1.11
    Sales
      Contract dated January 19, 2005 between Roberts Properties Residential,
      L.P. and Roberts Properties Peachtree Dunwoody, LLC. [Incorporated by
      reference to Exhibit 10.1 from our current report on Form 8-K dated
      January 21, 2005.]10.1.12
    Restrictive
      Covenant by Roberts Properties Peachtree Dunwoody, LLC, assumed by Roberts
      Properties Residential, L.P. on January 20, 2005. [Incorporated by
      reference to Exhibit 10.2 from our current report on Form 8-K dated
      January 21, 2005.]10.1.13
    Determination
      of Executive Officer Salaries for 2005 and Bonuses for 2004. [Incorporated
      by reference to our current report on Form 8-K dated March 14,
      2005.]*Addison
      Place Financing Documents:*10.2.1
    Promissory
      Note executed by Roberts Properties Residential, L.P. in favor of The
      Prudential Insurance Company of America, dated October 25, 1999, in the
      original principal amount of $9,500,000 (Addison Place Townhomes).
      [Incorporated by reference to Exhibit 10.14.04 from our annual report on
      Form 10-K for the year ended December 31, 1999.]10.2.2
    Deed
      to Secure Debt and Security Agreement executed by Roberts Properties
      Residential, L.P. in favor of The Prudential Insurance Company of America,
      dated October 25, 1999, and related collateral documents (Addison Place
      Townhomes). [Incorporated by reference to Exhibit 10.14.05 from our annual
      report on Form 10-K for the year ended December 31,
  1999.]10.2.3
    Guaranty
      executed by Roberts Realty Investors, Inc. in favor of The Prudential
      Insurance Company of America, dated October 25, 1999 (Addison Place
      Townhomes). [Incorporated by reference to Exhibit 10.14.06 from our annual
      report on Form 10-K for the year ended December 31,
  1999.]
  64
  10.3.1
    Promissory
      Note executed by Roberts Properties Residential, L.P. in favor of First
      Union National Bank, dated May 3, 2000, in the original principal amount
      of $22,500,000 (Addison Place Apartments). [Incorporated by reference to
      Exhibit 10.14.09 from our quarterly report on Form 10-Q for the quarter
      ended June 30, 2000.]10.3.2
    Deed
      to Secure Debt, Security Agreement and Assignment of Leases and Rents
      Agreement executed by Roberts Properties Residential, L.P. in favor of
      First Union National Bank, dated May 3, 2000 (Addison Place Apartments).
      [Incorporated by reference to Exhibit 10.14.10 from our quarterly report
      on Form 10-Q for the quarter ended June 30, 2000.]*Ballantyne
      Place Financing Documents:*10.4.1
    Construction
      Loan Agreement executed by Roberts Properties Residential, L.P. in favor
      of AmSouth Bank, dated February 21, 2002 (Ballantyne Place construction
      loan). [Incorporated by reference to Exhibit 10.4.1 from our quarterly
      report on Form 10-Q for the quarter ended March 31,
  2002.]10.4.2
    Promissory
      Note executed by Roberts Properties Residential, L.P. in favor of AmSouth
      Bank, dated February 21, 2002 in the original principal amount of
      $24,000,000 (Ballantyne Place construction loan). [Incorporated by
      reference to Exhibit 10.4.2 from our quarterly report on Form 10-Q for the
      quarter ended March 31, 2002.]10.4.3
    Deed
      of Trust, Security Agreement, and Assignment of Rents and Leases executed
      by Roberts Properties Residential, L.P. in favor of AmSouth Bank, dated
      February 21, 2002 (Ballantyne Place construction loan). [Incorporated by
      reference to Exhibit 10.4.3 from our quarterly report on Form 10-Q for the
      quarter ended March 31, 2002.]10.4.4
    Guaranty
      Agreement executed by Roberts Realty Investors, Inc. in favor of AmSouth
      Bank, dated February 21, 2002 (Ballantyne Place construction loan).
      [Incorporated by reference to Exhibit 10.4.4 from our quarterly report on
      Form 10-Q for the quarter ended March 31, 2002.]*Peachtree
      Parkway / Peachtree Dunwoody Financing Documents*10.5.1
    Promissory
      Note in the principal amount of $20,411,550, dated December 29, 2004,
      executed by Roberts Properties Residential, L.P. in favor of Wachovia
      Bank, National Association. [Incorporated by reference to Exhibit 10.4
      from our current report on Form 8-K dated January 5,
  2005.]10.5.2
    Deed
      to Secure Debt, Security Agreement and Assignment of Leases and Rents
      dated December 29, 2004 made by Roberts Properties Residential, L.P. in
      favor of Wachovia Bank, National Association. [Incorporated by reference
      to Exhibit 10.5 from our current report on Form 8-K dated January 5,
      2005.]10.5.3
    Unconditional
      Guaranty of Payment and Performance dated December 29, 2004 made by
      Roberts Realty Investors, Inc. in favor of Wachovia Bank, National
      Association. [Incorporated by reference to Exhibit 10.6 from our current
      report on Form 8-K dated January 5, 2005.]
  65
  10.5.4
    First
      Consolidated Amendatory Agreement dated January 19, 2005 among Roberts
      Properties Residential, L.P., Roberts Realty Investors, Inc., and Wachovia
      Bank, National Association. [Incorporated by reference to Exhibit 10.3
      from our current report on Form 8-K dated January 21,
    2005.]*Community
      Sales*(1)10.6
    Sales
      Contract dated April 26, 2004 between Roberts Properties Residential, L.P.
      and Colonial Realty Limited Partnership for the sale of the Preston Oaks
      community, with First Amendment thereto dated May 21, 2004. [Incorporated
      by reference to Exhibit 2.1 from our quarterly report on Form 10-Q for the
      quarter ended June 30, 2004.]10.6.2
    Schedule
      of material differences between Sales Contract and Amendment to Sales
      Contract for Preston Oaks apartment community and Sales Contracts and
      Amendment to Sales Contracts for Bradford Creek, River Oaks, Plantation
      Trace and Veranda Chase apartment communities. [Incorporated by reference
      to Exhibit 2.2 from our quarterly report on Form 10-Q for the quarter
      ended June 30, 2004.]10.7
    Sales
      Contract dated May 24, 2004, by and between Roberts Properties
      Residential, L.P. and Wellington Development, L.C., with First, Second and
      Third Amendments thereto dated June 15, July 1, and July 12, 2004,
      respectively. [Incorporated by reference to Exhibit 2.1 from our current
      report on Form 8-K dated August 10, 2004.]*Preston
      Oaks Financing Documents:*(1)10.8.1
    Multifamily
      Note executed by Roberts Properties Residential, L.P. in favor of Primary
      Capital Advisors LC, dated February 1, 2001, in the original principal
      amount of $12,700,000 (Preston Oaks). [Incorporated by reference to
      Exhibit 10.1.3 from our quarterly report on Form 10-Q for the quarter
      ended March 31, 2001.]10.8.2
    Multifamily
      Deed to Secure Debt, Assignment of Rents and Security Agreement executed
      by Roberts Properties Residential, L.P. in favor of Primary Capital
      Advisors LC, dated February 1, 2001 (Preston Oaks). [Incorporated by
      reference to Exhibit 10.1.4 from our quarterly report on Form 10-Q for the
      quarter ended March 31, 2001.]*Highland
      Park Financing Documents:*(1)10.9.1
    Multifamily
      Note executed by Roberts Properties Residential, L.P. in favor of Primary
      Capital Advisors LC, dated November 21, 2002, in the original principal
      amount of $10,000,000 (Highland Park). [Incorporated by reference to
      Exhibit 10.3.1 from our annual report on Form 10-K for the year ended
      December 31, 2002.]10.9.2
    Multifamily
      Deed to Secure Debt, Assignment of Rents and Security Agreement executed
      by Roberts Properties Residential, L.P. in favor of Primary Capital
      Advisors LC, dated November 21, 2002 (Highland Park). [Incorporated by
      reference to Exhibit 10.3.2 from our annual report on Form 10-K for the
      year ended December 31, 2002.]10.9.3
    Replacement
      Reserve Agreement executed by Roberts Properties Residential, L.P. in
      favor of Primary Capital Advisors LC, dated November 21, 2002 (Highland
      Park). [Incorporated by reference to Exhibit 10.3.3 from our annual report
      on Form 10-K for the year ended December 31, 2002.]
  66
  *River
      Oaks Financing Documents:*(1)L.J.
      Melody & Company immediately assigned the River Oaks loan and the
      following related documents to the Federal Home Loan Mortgage Corporation
      (Freddie Mac).10.10.1
    Multifamily
      Note executed by Roberts Properties Residential, L.P. in favor of L.J.
      Melody & Company, dated August 21, 2003, in the original principal
      amount of $10,750,000 (River Oaks). [Incorporated by reference to Exhibit
      10.4.1 from our quarterly report on Form 10-Q for the quarter ended
      September 30, 2003.]10.10.2
    Multifamily
      Deed to Secure Debt, Assignment of Rents and Security Agreement executed
      by Roberts Properties Residential, L.P. in favor of L.J. Melody &
      Company, dated August 21, 2003 (River Oaks). [Incorporated by reference to
      Exhibit 10.4.2 from our quarterly report on Form 10-Q for the quarter
      ended September 30, 2003.]10.10.3
    Replacement
      Reserve Agreement executed by Roberts Properties Residential, L.P. in
      favor of L.J. Melody & Company, dated August 21, 2003 (River Oaks).
      [Incorporated by reference to Exhibit 10.4.3 from our quarterly report on
      Form 10-Q for the quarter ended September 30, 2003.]10.10.4
    Guaranty
      executed by Roberts Realty Investors, Inc. in favor of L.J. Melody &
      Company, dated August 21, 2003 (River Oaks). [Incorporated by reference to
      Exhibit 10.4.4 from our quarterly report on Form 10-Q for the quarter
      ended September 30, 2003.]*Plantation
      Trace Financing Documents:*(1)10.11.1
    Promissory
      Note executed by Roberts Properties Residential, L.P. in favor of The
      Prudential Insurance Company of America, dated September 29, 1998, in the
      original principal amount of $11,900,000 (Plantation Trace). [Incorporated
      by reference to Exhibit 10.07.04 from our quarterly report on Form 10-Q
      for the quarter ended September 30, 1998.]10.11.2
    Deed
      to Secure Debt and Security Agreement executed by Roberts Properties
      Residential, L.P. in favor of The Prudential Insurance Company of America,
      dated September 29, 1998, and related collateral documents (Plantation
      Trace). [Incorporated by reference to Exhibit 10.07.05 from our quarterly
      report on Form 10-Q for the quarter ended September 30,
    1998.]10.11.3
    Limited
      Guaranty executed by Roberts Realty Investors, Inc. in favor of The
      Prudential Insurance Company of America, dated September 29, 1998
      (Plantation Trace). [Incorporated by reference to Exhibit 10.07.06 from
      our quarterly report on Form 10-Q for the quarter ended September 30,
      1998.]*Bradford
      Creek Financing Documents:*(1)10.12.1
    Real
      Estate Note executed by Roberts Properties Residential, L.P. in favor of
      Nationwide Life Insurance Company, dated June 1, 1998, in the original
      principal amount of $8,400,000 (Bradford Creek). [Incorporated by
      reference to Exhibit 10.8.6 from our quarterly report on Form 10-Q for the
      quarter ended June 30, 1998.]
  67
  10.12.2
    Deed
      to Secure Debt and Security Agreement executed by Roberts Properties
      Residential, L.P. in favor of Nationwide Life Insurance Company of
      America, dated June 1, 1998, and related collateral documents (Bradford
      Creek). [Incorporated by reference to Exhibit 10.8.7 from our quarterly
      report on Form 10-Q for the quarter ended June 30,
  1998.]10.12.3
    Guaranty
      between Roberts Realty Investors, Inc. and Nationwide Life Insurance
      Company of America, dated June 1, 1998 (Bradford Creek). [Incorporated by
      reference to Exhibit 10.8.8 from our quarterly report on Form 10-Q for the
      quarter ended June 30, 1998.]*Veranda
      Chase (formerly Old Norcross) Financing Documents:*(1)10.13.1
    Promissory
      Note executed by Roberts Realty Residential, L.P. in favor of Compass
      Bank, dated April 25, 2001, in the original principal amount of
      $17,000,000 (Veranda Chase). [Incorporated by reference to Exhibit 10.16.4
      from our quarterly report on Form 10-Q for the quarter ended June 30,
      2001.]10.13.2
    Construction
      Loan Agreement executed by Roberts Properties Residential, L.P. in favor
      of Compass Bank, dated April 25, 2001 (Veranda Chase). [Incorporated by
      reference to Exhibit 10.16.5 from our quarterly report on Form 10-Q for
      the quarter ended June 30, 2001.]*St.
      Andrews at the Polo Club Financing Documents:*(1)10.14.1
    Promissory
      Note executed by Roberts Properties Residential, L.P. in favor of State
      Farm Life Insurance Company, dated November 6, 2001 in the original
      principal amount of $21,000,000 (St. Andrews at the Polo Club).
      [Incorporated by reference to Exhibit 10.13.1 from our annual report on
      Form 10-K for the year ended December 31, 2001.]10.14.2
    Mortgage
      and Security Agreement executed by Roberts Realty Residential, L.P. in
      favor of State Farm Life Insurance Company, dated November 6, 2001 (St.
      Andrews at the Polo Club). [Incorporated by reference to Exhibit 10.13.2
      from our annual report on Form 10-K for the year ended December 31,
      2001.]10.14.3
    Assignment
      of Rents and Lease executed by Roberts Realty Residential, L.P. in favor
      of State Farm Life Insurance Company, dated November 6, 2001 (St. Andrews
      at the Polo Club). [Incorporated by reference to Exhibit 10.13.3 from our
      annual report on Form 10-K for the year ended December 31,
      2001.]10.14.4
    Guaranty
      Agreement (Rental Achievement) executed by Roberts Realty Investors, Inc.
      in favor of State Farm Life Insurance Company, dated November 6, 2001 (St.
      Andrews at the Polo Club). [Incorporated by reference to Exhibit 10.13.4
      from our annual report on Form 10-K for the year ended December 31,
      2001.]10.14.5
    Guaranty
      Agreement (Carve out) executed by Roberts Realty Investors, Inc. in favor
      of State Farm Life Insurance Company, dated November 6, 2001 (St. Andrews
      at the Polo Club). [Incorporated by reference to Exhibit 10.13.5 from our
      annual report on Form 10-K for the year ended December 31,
      2001.]
  68
  *Other
      Exhibits:*21
    Subsidiaries
      of the Registrant23.1
    Independent
      Auditors’ Consent24.1
    Power
      of Attorney (contained on the signature page hereof).31
    Certifications
      of Charles S. Roberts and Greg M. Burnett pursuant to Section 302 of the
      Sarbanes-Oxley Act of 2002.32
    Certifications
      of Charles S. Roberts and Greg M. Burnett pursuant to Section 906 of the
      Sarbanes-Oxley Act of 2002. This exhibit is not “filed” for purposes of
      Section 18 of the Securities Exchange Act of 1934 but is instead furnished
      as provided by applicable rules of the Securities and Exchange
      Commission.




69


**SIGNATURES**





Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.





ROBERTS
REALTY INVESTORS, INC.





By: /s/
Charles S. Roberts


Charles
S. Roberts, Chairman of the Board,


Chief
Executive Officer and President





Date:
March 23, 2005





**POWER
OF ATTORNEY**





KNOW ALL
PERSONS BY THESE PRESENTS, that each person whose signature appears below
constitutes and appoints jointly and severally, Charles S. Roberts and Greg M.
Burnett, and each one of them, his attorneys-in-fact, each with the power of
substitution, for him in any and all capacities, to sign any and all amendments
to this Annual Report (Form 10-K) and to file the same, with exhibits thereto
and other documents in connection therewith, with the Securities and Exchange
Commission, hereby ratifying and confirming all that each said
attorneys-in-fact, or his substitute or substitutes, may do or cause to be done
by virtue hereof.





Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.





Signature
    
    Title
    
    Date/s/
      Charles S. Roberts
    
    Chairman
      of the Board, ChiefCharles
      S. Roberts
    
    Executive
      Officer and President
    
    March
      23, 2005/s/
      Greg M. Burnett
    
    Secretary,
      Treasurer, Chief
    
    March
      23, 2005Greg
      M. Burnett
    
    Financial
      Officer (Principal FinancialOfficer
      and Principal Accounting Officer)/s/
      Charles R. Elliott
    
    Director
    
    March
      23, 2005Charles
      R. Elliott/s/
      Dennis H. James
    
    Director
    
    March
      23, 2005Dennis
      H. James/s/
      Wm. Jarell Jones
    
    Director
    
    March
      23, 2005Wm.
      Jarell Jones/s/
      Ben A. Spalding
    
    Director
    
    March
      23, 2005Ben
      A. Spalding/s/
      James M. Goodrich
    
    Director
    
    March
      23, 2005James
      M. Goodrich


70