IMPAIRMENT LOSS ON REAL ESTATE ASSETS

9 Months Ended

Sep. 30, 2013

IMPAIRMENT LOSS ON REAL ESTATE ASSETS

IMPAIRMENT LOSS ON REAL ESTATE ASSETS

8. IMPAIRMENT LOSSON REAL ESTATE ASSETS

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

FASB ASC Topic 360-10 requires impairment losses to be recorded on long-lived assets used in operations and land parcels when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets’ carrying amounts.  The expected future cash flows depend on estimates made by management, including (1) changes in the national, regional, and/or local economic climates, (2) rental rates, (3) competition, (4) operating costs, (5) tenant occupancy, (6) holding period, and (7) an estimated construction budget.  A change in the assumptions used to determine future economic events could result in an adverse change in the value of a property and cause an impairment to be recorded.  Due to uncertainties in the estimation process, actual results could differ materially from those estimates.  Roberts Realty’s determination of fair value is based on a discounted future cash flow analysis, which incorporates available market information as well as other assumptions made by Roberts Realty’s management, evaluation of appraisals, and other applicable valuation techniques.  Because the factors Roberts Realty’s management uses in generating these cash flows are difficult to predict and are subject to future events that may alter its assumptions, Roberts Realty may not achieve the discounted or undiscounted future operating and residual cash flows it estimates in its impairment analyses or those established by appraisals, and Roberts Realty may be required to recognize future impairment losses on its properties held for use.

Non-Cash Impairments on Operating Real Estate Assets.  During the nine months ended September 30, 2013, Roberts Realty determined that the carrying amounts of its operating real estate assets were recoverable.  Accordingly, Roberts Realty did not record an impairment loss on its operating real estate assets during this period.

During the three and nine months ended September 30, 2012, Roberts Realty determined that the carrying amounts of the Bassett and Spectrum retail centers and the Northridge Office Building were not recoverable as a result of (a) a change in the occupancy at the Spectrum retail center, coupled with lower projected rental rates in the surrounding market area; and (b) lower projected renewal rental rates at the Bassett retail center and the Northridge Office Building.  The determination of fair value was based on a discounted cash flow analysis.  As a result of this analysis, Roberts Realty recorded fair value adjustments of $754,278 on the Bassett retail center, $984,342 on the Spectrum retail center, and $725,304 on the Northridge Office Building.

Non-Cash Impairments on Land Parcels.  During the nine months ended September 30, 2013, Roberts Realty determined that the carrying amount of its land parcels was recoverable.  Accordingly, Roberts Realty did not record an impairment loss on its land parcels during this period.

During the three and nine months ended September 30, 2012, Roberts Realty determined that the carrying amounts for the North Springs land and the one-acre commercial site in Johns Creek were not recoverable.  The determination of fair value for the North Springs land parcel and the one-acre commercial site was based on offers and expressions of interest from unrelated purchasers and market participants.  As a result of this analysis, Roberts Realty recorded fair value adjustments of $2,100,000 on the North Springs land and $100,000 on the Johns Creek land parcel during the three months ended September 30, 2012.  Additionally, during the six months ended June 30, 2012, Roberts Realty recorded a $275,949 fair value adjustment on the Johns Creek land parcel.

Also, during the three and nine months ended September 30, 2012, Roberts Realty determined that the carrying amounts of the Bradley Park and Highway 20 land parcels were not recoverable due to the then current market conditions.  The determination of fair value was based on a discounted cash flow analysis and the review of current market sales comparables for other land parcels.  As a result of this analysis, Roberts Realty recorded fair value adjustments of $773,334 on the Bradley Park land parcel and $210,000 on the Highway 20 land parcel.  Roberts Realty determined that the carrying amounts of its other land parcels were recoverable at September 30, 2012.