SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended June 30, 2002 Commission File Number 0-17717
FOUNDATION REALTY FUND, LTD.
----------------------------
(Exact name of Registrant as specified in its charter)
Florida 59-2802896
------- ----------
(State or other jurisdiction of (IRS Employer ID No.)
incorporation or organization)
1100 Abernathy Road NE
Building 500 Suite 700 Atlanta, GA 30328
---------------------------------- -----
(Address of principal executive offices) Zip Code
Registrant's Telephone Number, Including Area Code - (770) 551-0007
Indicate by check mark whether the Registrant (1) has filed all reports to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or shorter period that the Registrant was required to file
such reports), and (2) has been subject to such filing requirements for the past
90 days.
Yes (X) No
Number of share outstanding of each of Registrant's classes of securities.
Title of Each Class Number of units June 30, 2002
Units of Limited Partnership 9,407
Interests: $1,000 per unit
DOCUMENT INCORPORATION BY REFERENCE
Part IV - Registration Statement S-11, File No. 33-13849
FOUNDATION REALTY FUND, LTD.
(A Florida Limited Partnership)
INDEX TO FINANCIAL STATEMENTS
Part 1- Financial Information Page No.
Balance Sheets as of June 30,2002 and 3
December 31, 2001
Statements of Operations- 4
For the Six Months Ended June 30,2002 and 2001
Statement of Operations- 5
For the Three Months Ended June 30, 2002 and 2001
Statement of Partners' Equity- 6
For the Six Months Ended June 30,2002 and 2001
Statements of Cash Flows-
For the Six Months Ended June 30,2002 and 7
2001
Notes to Financial Statements 8-10
Management's Discussion and Analysis Of Financial Condition
and Results of Operations 11-12
2
FOUNDATION REALTY FUND, LTD.
(A Florida Limited Partnership)
BALANCE SHEETS
ASSETS June 30,2002 December 31, 2001
(Unaudited) (Audited)
------------ -----------------
Apartment Properties at Cost $ 22,695,137 $ 22,631,101
Less Accumulated Depreciation (8,834,241) (8,559,129)
------------ ------------
13,860,896 14,071,972
Cash and Cash Equivalents 550,027 584,564
Restricted Cash 670,636 477,695
Prepaid Expenses 25,426 7,174
Deferred Loan Cost (Net of Accumulated 93,496 114,273
------------ ------------
Amortization of $207,771 and $176,605
TOTAL ASSETS $ 15,200,481 $ 15,255,678
============ ============
LIABILITIES AND PARTNERS' EQUITY (DEFICIT)
Liabilities
Notes Payable $ 17,061,639 $ 17,169,423
Accounts Payable 210,402 42,203
Security Deposits 105,255 99,399
Unearned Rent 126,810 32,369
------------ ------------
TOTAL LIABILITIES 17,504,106 17,343,394
Partners' Equity (Deficit)
Limited Partners' Equity (Deficit) (9,407 units (2,051,139) (1,835,443)
outstanding @ June 30,2002 and December 31, 2001
General Partners' Equity (Deficit) (252,486) (252,273)
------------ ------------
Total Partners' Equity (Deficit) (2,303,625) (2,087,716)
------------ ------------
TOTAL LIABILITIES AND PARTNERS' EQUITY (DEFICIT) $ 15,200,481 $ 15,255,678
============ ============
3
FOUNDATION REALTY FUND,LTD.
(A Florida Limited Partnership)
STATEMENTS OF OPERATIONS
(Unaudited)
FOR THE SIX MONTHS ENDED JUNE 30
Property Operations: 2002 2001
----------- -----------
Rental Income $ 1,711,139 $ 1,898,029
Miscellaneous 101,544 73,343
----------- -----------
1,812,683 1,971,372
Expenses:
Depreciation 275,112 275,112
Payroll 210,890 222,771
Real Estate Taxes 161,430 157,308
Utilities 81,066 79,233
Repairs and Maintenance 177,488 361,571
Property Management 92,297 99,757
Landscaping 46,239 43,910
Other 88,556 69,715
----------- -----------
Income from Property Operations 679,605 661,995
Interest Income 2,540 14,708
----------- -----------
682,145 676,703
----------- -----------
Other Expenses:
Amortization 20,777 20,777
Interest 656,738 664,830
General & Administrative-Affiliate 1,000 1,030
Other General & Administrative 7,881 101,562
----------- -----------
686,396 788,199
----------- -----------
Net Income (Loss) $ (4,251) $ (111,496)
=========== ===========
Allocation of Net Income (Loss) -
Limited Partners $ (4,038) $ (105,921)
General Partners $ (213) $ (5,575)
----------- -----------
$ (4,251) $ (111,496)
=========== ===========
Net Income (Loss) Per
Limited Partnership Unit ($ .43) ($ 11.26)
Number of Limited Partnership Units 9,407 9,407
4
FOUNDATION REALTY FUND, LTD.
(A Florida Limited Partnership)
STATEMENTS OF OPERATIONS
(Unaudited)
FOR THE THREE MONTHS ENDED JUNE 30
Property Operations: 2002 2001
--------- ---------
Rental Income $ 825,793 $ 934,034
Miscellaneous 65,831 41,136
--------- ---------
891,624 975,170
Expenses:
Depreciation 137,556 137,556
Payroll 107,192 113,060
Real Estate Taxes 80,715 78,654
Utilities 39,531 43,977
Repairs and Maintenance 104,248 246,311
Property Management 45,500 49,939
Landscaping 24,684 21,427
Other 43,888 23,846
--------- ---------
Income from Property Operations 308,310 260,400
Interest Income 1,316 4,968
--------- ---------
309,626 265,368
--------- ---------
Other Expenses:
Amortization 10,388 10,388
Interest 327,854 332,017
General & Administrative-Affiliate 0 915
Other General & Administrative 5,589 99,640
--------- ---------
343,831 442,960
--------- ---------
Net Income (Loss) $ (34,205) $(177,592)
========= =========
Allocation of Net Income (Loss) -
Limited Partners $ (32,495) $(168,712)
General Partners $ (1,710) $ (8,880)
--------- ---------
$ (34,205) $(177,592)
========= =========
Net Income (Loss) Per
Limited Partnership Unit $ (3.45) $ (17.93)
Number of Limited Partnership Units 9,407 9,407
5
FOUNDATION REALTY FUND, LTD.
(A Florida Limited Partnership)
STATEMENTS OF PARTNERS' EQUITY (DEFICIT)
(Unaudited)
FOR THE SIX MONTHS ENDED June 30, 2002 AND 2001
Limited Partners' General Partners' Total Partners'
Equity (Deficit) Equity (Deficit) Equity (Deficit)
---------------- ---------------- ----------------
Balance, December 31, 2000 $(1,375,820) $ (250,362) $(1,626,182)
Distribution to Partners (211,658) 0 (211,658)
Net Income (Loss) (105,921) (5,575) (111,496)
----------- ----------- -----------
Balance, June 30, 2001 $(1,693,399) $ (255,937) $(1,949,336)
=========== =========== ===========
Balance December 31, 2001 $(1,835,443) $ (252,273) $(2,087,716)
Distribution to Partners (211,658) 0 (211,658)
Net Income (Loss) (4,038) (213) (4,251)
----------- ----------- -----------
Balance, June 30, 2002 $(2,051,139) $ (252,486) $(2,303,625)
=========== =========== ===========
6
FOUNDATION REALTY FUND, LTD.
(A Florida Limited Partnership)
STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED June 30
(Unaudited)
2002 2001
---------- ----------
Net Cash Provided By Operating
Activities:
Net Income (Loss) $ (4,251) $(111,496)
Adjustments to Reconcile Net Loss to Net Cash
Provided by Operating Activities:
Depreciation 275,112 275,112
Amortization 20,777 20,777
Changes in Operating Assets and Liabilities:
(Increase)in Prepaids (18,252) (17,939)
Increase in Accounts Payable 168,199 181,080
Increase in Security Deposits 5,856 4,177
Increase (Decrease)in Unearned Rents 94,441 3,825
(Increase) in Restricted Cash (192,941) (132,821)
--------- ---------
Net Cash Provided by Operating Activities: 348,941 222,715
--------- ---------
Cash Flows from Investing Activities:
Improvements to Apartment Properties (64,036) (41,567)
--------- ---------
Net Cash used in Investing Activities: (64,036) (41,567)
--------- ---------
Cash Flows from Financing Activities:
Payments from Notes Payable (107,784) (99,691)
Distributions to Partners (211,658) (211,658)
--------- ---------
Net Cash used by Financing Activities: (319,442) (311,349)
--------- ---------
Increase (Decrease) in Cash (34,537) (130,201)
Cash and Cash Equivalents at Beginning of Period 584,564 698,333
--------- ---------
Cash and Cash Equivalents at End of Period $ 550,027 $ 568,132
========= =========
Supplemental Cash Flow Information:
Interest Paid $ 656,738 $ 664,830
========= =========
7
FOUNDATION REALTY FUND, LTD
A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS (Unaudited)
NOTE 1 - ORGANIZATION
Foundation Realty Fund, Ltd., (the "Partnership"), a Florida Limited
Partnership, was formed April 14, 1987 under the laws of Florida. Operations
commenced on January 12, 1988. The Partnership operates two apartment
properties. The Partnership will terminate on December 31, 2020, or sooner, in
accordance with the terms of the Limited Partnership Agreement. The Partnership
has received Limited and General Partner capital contributions of $9,407,000 and
$1,000 respectively. J. Robert Love, an individual, and RJ Properties, Inc., a
wholly-owned subsidiary of Raymond James Financial, Inc. are the General
Partners and they manage and control the business of the Partnership.
Operating profits and losses are allocated 95% to the Limited Partners and 5% to
the General Partners. Cash from operations will be shared 95% by the Limited
Partners and 5% by the General Partners; however, distributions to the General
Partners are subordinated to certain preferred returns to the Limited Partners.
The Limited Partnership Agreement states that no cash from operations shall be
distributed to the General Partners in any year until Limited Partners have
received distributions in such year in an amount equal to 7% of their adjusted
capital contribution. Profit and loss and cash distributions from sales of
properties will be allocated as formulated in the Limited Partnership Agreement.
The Limited Partnership Agreement states that cash distribution from sales will
be distributed first to the General Partners until they receive 5% of aggregate
distributions of cash from operations. Cash distributions from sales will be
distributed second to each Limited Partner an equal amount to their adjusted
capital contribution plus an amount equal to an 8% per annum, cumulative but
non-compounded return. Cash distributions from sales will be distributed third
to the General Partners until they have received cumulative distributions in an
amount equal to 3% of the aggregate disposition price of properties sold by the
Partnership. Cash distributions from sales will be distributed fourth, the
balance if any, 85% to the Limited Partners and 15% to the General Partners.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES:
Basis of Accounting/Revenue Recognition
The Partnership utilizes the accrual basis of accounting whereby
revenues and other fees are recognized when earned and expenses are recognized
as obligations are incurred. The Partnership does not recognize revenue upon the
collection of security deposits but sets up a liability for the amount received.
Cash and Cash Equivalents
It is the Partnership's policy to include short-term investments with an
original maturity of three months or less in Cash and Cash Equivalents. These
short-term investments are comprised of money market funds, and repurchase
agreements.
Restricted Cash
Restricted cash includes $565,381 at June 30, 2002 and $378,296 at December 31,
2001 of cash held in escrow for the payment of real estate taxes, insurance and
capital replacement items. Restricted Cash also includes $105,255 at June 30,
2002 and $99,399 at December 31, 2001 of tenant security deposits held in an
escrow account.
Income Taxes
No provisions for income taxes has been made in these financial statements, as
income taxes are a liability of the partners rather than of the Partnership.
8
Depreciation
The apartment buildings are being depreciated over 35 years using the
straight-line method. Furniture and fixtures are being depreciated over 8 years
using the straight-line method.
NOTE 3 - COMPENSATION, REIMBURSEMENTS AND ACCRUALS TO THE GENERAL PARTNERS AND
AFFILIATES:
The General Partners and affiliates are entitled to the following types of
compensation and reimbursement for costs and expenses incurred for the
Partnership for the six months ended June 30, 2002.
Property Management Fees $92,297
General and Administrative Costs 1,000
The terms of the property management agreement call for the Corporate General
Partner to receive a monthly fee of up to 5% of the monthly gross receipts from
residential property operations.
Property management fees in the amount of $11,100 are due to the Corporate
General Partner at June 30, 2002. Property management fees in the amount of
$15,801 were due to the Corporate General Partner at December 31, 2001. There
were no amounts due from related parties at June 30, 2002 or December 31, 2001.
NOTE 4 - LEASES AND APARTMENT PROPERTIES:
The Partnership owns apartment complexes leased to residents under short term
operating leases. A summary of the apartment properties is as follows:
June 30, 2002 December 31, 2001
------------- -----------------
Land $3,141,510 $3,141,510
Buildings 17,298,118 17,298,118
Furniture & Fixtures 2,255,509 2,191,473
----------- -----------
Apartment Properties, at Cost 22,695,137 22,631,101
Less: Accumulated Depreciation (8,834,241) (8,559,129)
----------- ------------
$13,860,896 $14,071,972
=========== ===========
NOTE 5 - NOTES PAYABLE
The notes payable are secured by the apartment properties.
NOTE 6 - BASIS OF PREPARATION:
The unaudited financial statements presented herein have been prepared in
accordance with the instructions to Form 10-Q and do not include all of the
information and note disclosures required by generally accepted accounting
principals. These statements should be read in conjunction with the financial
statements and notes thereto included in the Partnership's Form 10-K for the
year ended December 31, 2001. In the opinion of management, such financial
9
statements include all adjustments, consisting only of normal recurring
adjustments, necessary to summarize fairly the Partnership's financial position
and results of operations. The results of operations for the periods may not be
indicative of the result to be expected for the year.
NOTE 7 - OTHER MATTERS:
A solicitation of proxy was made to the limited partners during 2001. The
subject matter of the proxy involved the Corporate General Partner seeking
approval from the limited partners to sell the assets owned by the partnership
and approval to windup partnership operations. A majority of limited partners
voted to approve the sale of the partnership assets and windup the partnership
operations.
NOTE 8 - SUBSEQUENT EVENT:
On August 1, 2002, the Partnership paid distributions of $70,553 to the Limited
Partners.
10
FOUNDATION REALTY FUND, LTD.
(A Florida Limited Partnership)
Management's Discussion and Analysis of Financial Condition and
Results of Operations
Rental income for the six months ended June 30, 2002 was $1,711,139 as compared
to $1,898,029 for the comparable period ended June 30, 2001. Rental income for
the three-month period ended June 30, 2002 was $825,793 as compared to $934,034
for the three-month period ended June 30, 2001. The decrease in rental income
for both the three month and six moth periods was a result of lower occupancy
levels at the Oakwood Village Apartments in Atlanta, Georgia and the Springfield
Apartments in Durham, North Carolina during the first three months of 2002 and
due to the prevalence of rental concessions issued during the following three
months to halt the occupancy decline. The Atlanta and Durham markets both
experienced negative job growth when comparing the first and second quarter 2001
time periods to the first and second quarter 2002 time periods. A decline in the
number of jobs in a market has a negative impact on the occupancy rate and
resultant property income levels of apartment communities. In addition, the
environment of lower interest rates during 2001 and continuing into 2002 has
contributed to many "traditional renters" becoming home owners, thus reducing
the population of potential renters.
Property operating expenses decreased by $176,299 from the first six months of
2001 to the first six months of 2002. Property operating expenses decreased
$44,843 from the first quarter of 2001 to the first quarter of 2002. The primary
factors that led to the 2002 decline in the operating expenses include the
following. Payroll expense declined $11,881 which consisted primarily of
incentive compensation awards for the property personnel for obtaining net
operating income objectives in 2001. Repair and maintenance expenses declined
$184,083. This decrease is primarily attributed to spending $112,500 for
painting and wood replacement at the Springfield Apartments in Durham, North
Carolina in 2001, a $12,000 decrease from 2001 in the amount spent for roof
replacements at both apartment communities, a $6,000 decrease from 2001 in the
amount spent for plumbing repairs at both properties, and a $6,000 decrease from
2001 in the amount spent for uniforms at both properties. During the second
quarter of 2001, the partnership spent approximately $100,000 for professional
expenses associated with the solicitation of a proxy. The subject matter of the
proxy involved the Corporate General Partners seeking approval from the limited
partners to sell the assets owned by the partnership.
Interest expense decreased from $664,830 for the six months ended
June 30, 2001 to $656,738 for the six months ended June 30, 2002. This decrease
in interest expense is a result of a lower principal loan balances on the
partnership's conventional amortizing loans.
The net loss for the six months ended June 30, 2002 was $4,251 or $.43 per
Limited Partnership Unit outstanding as compared to loss of $111,496 or $11.26
per Limited Partnership Unit for the comparable period ended June 30, 2001. The
$107,245 decrease in net loss was primarily a result of a decrease in property
operating expenses of $176,299 and general and administrative expenses of
approximately $100,000 as described above offset by decreased rental income of
$186,890.
11
Liquidity and Capital Resources
In management's opinion, working capital reserves and liquidity from property
operations are sufficient to meet the short-term operating needs of the
Partnership. The sole long-term commitments of the Partnership are the mortgages
payable which have balloon payments due November 2004. Management plans to meet
these commitments through a property sale or through approaching lenders to
refinance the Partnership mortgages. We are currently in the process of
marketing both properties for sale. If offers at acceptable prices are received,
it is probable that we may sell one or both of the properties. Capital
expenditures for any material commitments, should they occur, will be funded
from two-sources-working capital reserves and proceeds or cash flow earned from
property operations.
Cash provided by operating activities increased by $126,226 for the six month
period ended June 30, 2002 as compared to the six month period ended June 30,
2001. The increase resulted primarily from a $107,245 reduction in the net
operating loss and a $90,616 increase in prepaid rents offset by a $60,120
increase in the partnership's restricted cash balance.
Cash used by investing activities totaled $41,567 at June 30, 2001 as compared
to $64,036 at June 30, 2002. The $22,469 increase for the six month period ended
June 30, 2002 is primarily attributable to an increase in the number of carpets
replaced at both the Oakwood Village and Springfield Apartment Communities.
Cash used by financing activities increased by $8,093 from the six month period
ended June 30, 2001 when compared to the six month period ended June 30, 2002.
The increase is solely attributed to the
increase in principal payments on the partnership debt. The monthly debt service
commitments total $52,777 for Oakwood Village and $74,644 for Springfield. The
debt service is being adequately funded from Partnership operations.
12
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
report has been signed by the following persons on behalf of the Registrant and
in the capacities and on the date indicated.
FOUNDATION REALTY FUND, LTD.
A Florida Limited Partnership
By: RJ PROPERTIES, INC. a General Partner
8/10/02 J. Robert Love - President
Date (Signature)
8/10/02 Alan G. Lee - Assistant Secretary
Date (Signature)
13