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 September 30, 2002 Commission File Number 0-17717
FOUNDATION REALTY FUND, LTD
---------------------------
(Exact name of Registrant as specified in its charter)
Florida 59-2802896
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(State or other jurisdiction of (IRS Employer ID No.)
incorporation or organization)
1100 Abernathy Road NE
Building 500, Suite 700, Atlanta, GA 30328
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(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
September 30, 2002
Units of Limited Partnership 9,407
Interest: $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 I - Financial Information
Page No.
Balance Sheets as of September 30, 2002 and December 31, 2001 3
Statements of Operations -
For the Nine Months Ended September 30, 2002 and 2001 4
Statements of Operations -
For the Three Months Ended September 30, 2002 and 2001 5
Statements of Partners' Equity (Deficit) -
For the Nine Months Ended September 30, 2002 and 2001 6
Statements of Cash Flows -
For the Nine Months Ended September 30, 2002 and 2001 7
Notes to Financial Statements 8-10
Management's Discussion and Analysis of Financial
Condition and Results of Operations 11-12
FOUNDATION REALTY FUND, LTD.
(A Florida Limited Partnership)
BALANCE SHEETS
September 30, 2002 December 31, 2001
(Unaudited) (Audited)
ASSETS
Apartment Properties, at Cost $ 22,727,647 $ 22,631,101
Less - Accumulated Depreciation (8,971,797) (8,559,129)
------------ ------------
13,755,850 14,071,972
Cash and Cash Equivalents 755,292 584,564
Restricted Cash 686,883 477,695
Prepaid Expenses 25,551 7,174
Deferred Loan Cost (Net of Accumulated
Amortization of $207,771 and $176,605) 83,108 114,273
------------ ------------
TOTAL ASSETS $ 15,306,684 $ 15,255,678
============ ============
LIABILITIES AND PARTNERS' EQUITY (DEFICIT)
Liabilities:
Notes Payable $ 17,006,438 $ 17,169,423
Interest Expense Payable 109,004 0
Accounts Payable 354,784 42,203
Security Deposits 97,988 99,399
Unearned Rents 136,100 32,369
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TOTAL LIABILITIES 17,704,314 17,343,394
------------ ------------
Partners' Equity (Deficit)
Limited Partners' Equity (Deficit) (9,407
units outstanding @ September 30, 2002 and
December 31, 2001) (2,143,972) (1,835,443)
General Partners' Equity (Deficit) (253,658) (252,273)
------------ ------------
TOTAL PARTNERS' EQUITY (DEFICIT) (2,397,630) (2,087,716)
------------ ------------
TOTAL LIABILITIES AND PARTNERS' EQUITY
(DEFICIT) $ 15,306,684 $ 15,255,678
============ ============
3
FOUNDATION REALTY FUND, LTD.
(A Florida Limited Partnership)
STATEMENTS OF OPERATIONS
(Unaudited)
FOR THE NINE MONTHS ENDED SEPTEMBER 30
2002 2001
Property Operations:
Rental Income $2,608,213 $2,838,252
Miscellaneous 136,556 116,598
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2,744,769 2,954,850
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Expenses:
Depreciation 412,668 412,668
Payroll 327,399 342,410
Real Estate Taxes 242,145 235,962
Utilities 126,341 126,738
Repairs & Maintenance 291,908 455,535
Management Fee - General Partner 137,307 148,336
Insurance 29,930 38,523
Landscaping 59,201 62,397
Other 100,184 117,017
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1,727,083 1,939,586
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Income from Property Operations 1,017,686 1,015,264
Interest Income 3,957 21,380
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1,021,643 1,036,644
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Other Expenses:
Interest 983,798 996,599
Amortization 31,166 31,166
General & Administrative - Affiliate 1,080 1,030
Other General & Administrative 33,303 111,851
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1,049,347 1,140,646
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Net Income (Loss) ($27,704) ($104,002)
========== ==========
Allocation of Net Income (Loss) -
Limited Partners ($26,319) ($98,802)
General Partners (1,385) (5,200)
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($27,704) ($104,002)
========== ==========
Net Income (Loss) Per
Limited Partnership Unit ($ 2.80) ($10.50)
Number of Limited Partnership Units 9,407 9,407
4
FOUNDATION REALTY FUND, LTD.
(a Florida Limited Partnership)
STATEMENT OF OPERATIONS
(Unaudited)
FOR THE THREE MONTHS ENDED SEPTEMBER 30
2002 2001
Property Operations:
Rental Income $ 897,074 $ 940,223
Miscellaneous 35,012 43,255
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932,086 983,478
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Expenses:
Depreciation 137,556 137,556
Payroll 116,509 119,639
Real Estate Taxes 80,715 78,654
Utilities 45,275 47,505
Repairs and Maintenance 114,420 93,964
Property Management - General Partner 45,010 48,579
Insurance 6,315 12,841
Landscaping 12,962 18,487
Other 35,243 72,984
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594,005 630,209
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Income from Property Operations 338,081 353,269
Interest Income 1,417 6,672
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339,498 359,941
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Other Expenses:
Interest 327,060 331,769
Amortization 10,389 10,389
General and Administrative -Affiliate 80 0
Other General and Administrative 25,422 10,289
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362,951 352,447
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Net Income (Loss) ($ 23,453) $ 7,494
========= =========
Allocation of Net Income (Loss)-
Limited Partners ($ 22,280) $ 7,119
General Partners (1,173) 375
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($ 23,453) $ 7,494
========= =========
Net Income (Loss) Per
Limited Partnership Unit ($ 2.37) $ .76
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 NINE MONTHS ENDED SEPTEMBER 30, 2002 AND 2001
Limited General Total
Partners' Partners' Partners'
Equity Equity Equity
(Deficit) (Deficit) (Deficit)
Balance, December 31, 2000 ($1,375,820) ($250,362) ($1,626,182)
Distribution to Partners (317,486) 0 (317,486)
Net Income (Loss) (98,802) (5,200) (104,002)
----------- --------- -----------
Balance, September 30, 2001 ($1,792,108) ($255,562) ($2,047,670)
=========== ========= ===========
Balance, December 31, 2001 ($1,835,443) ($252,273) ($2,087,716)
Distribution to Partners (282,210) 0 (282,210)
Net Income (Loss) (26,319) (1,385) (27,704)
----------- --------- -----------
Balance, September 30, 2002 ($2,143,972) ($253,658) ($2,397,630)
=========== ========= ===========
6
FOUNDATION REALTY FUND, LTD.
(A Florida Limited Partnership)
STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2002 AND 2001
(Unaudited)
2002 2001
Net Cash Provided by Operating Activities:
Net Income (Loss) ($ 27,704) ($104,002)
Adjustments to Reconcile Net Loss to Net Cash
Provided by Operating Activities:
Depreciation 412,668 412,668
Amortization 31,166 31,166
Changes in Operating Assets and Liabilities:
(Increase) in Prepaids (18,377) (16,717)
Increase in Accounts Payable 421,585 251,875
Increase (Decrease) in Security Deposits (1,411) 3,480
Increase (Decrease) in Unearned Rents 103,731 (12,455)
(Increase) in Restricted Cash (209,189) (158,678)
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Net Cash Provided by Operating Activities 712,469 407,337
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Cash Flows From Investing Activities:
Improvements to Apartment Properties (96,546) (60,061)
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Net Cash Used in Investing Activities (96,546) (60,061)
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Cash Flow from Financing Activities:
Payments from Notes Payable (162,985) (150,803)
Distributions to Partners (282,210) (317,486)
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Net Cash Used by Financing Activities (445,195) (468,289)
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Increase (Decrease) in Cash 170,728 (121,013)
Cash and Cash Equivalents at Beginning of Period 584,564 698,333
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Cash and Cash Equivalents at End of Period $ 755,292 $ 577,320
========= =========
Supplemental Cash Flow Information:
Interest Paid $ 983,798 $ 996,599
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 state 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 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.
8
Restricted Cash
Restricted cash include $588,895 at September 30, 2002 and $378,296
at December 31, 2001 of cash held in escrow for the payment of real
estate taxes, insurance premiums and capital replacement items.
Restricted cash also include $97,988 at September 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.
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 nine months ended September 30, 2002.
Property Management Fees $137,307
General and Administrative Costs 1,080
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 September 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 September 30, 2002 or
December 31, 2001.
NOTE 4 - LEASES AND APARTMENT PROPERTIES:
The Partnership owns two apartment complexes leased to residents under
short term operating leases. A summary of the apartment properties
is as follows:
September 30, December 31,
2002 2001
Land $ 3,141,510 $ 3,141,510
Buildings 17,298,118 17,298,118
Furniture & Fixtures 2,288,019 2,191,473
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Apartment Properties, at Cost 22,727,647 22,631,101
Less: Accumulated Depreciation (8,971,797) (8,559,129)
----------- -----------
$13,755,850 $14,071,972
=========== ===========
NOTE 5 - NOTES PAYABLE:
The notes payable are secured by the apartment properties.
9
NOTE 6 - BASIS OF PREPARATION:
The unaudited financial statements presented herein have been pre-
pared 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 statements
include all adjustments, consisting only of normal recurring adjust-
ments, 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 - SUBSEQUENT EVENT:
On or about October 31, 2002, the Partnership will pay distributions of
$70,552 to the Limited Partners.
NOTE 8 - OTHER MATTERS:
In June 2001, the Limited Partners of the Partnership voted for a plan of
liquidation and dissolution that authorizes the Managing General Partner of
the Partnership to sell all of the assets of the Partnership and effectuate
the orderly liquidation and winding-up of the business of the Partnership.
Marketing materials and property brochures have been made to begin the
liquidation process. The Partnership has entered into a binding, non-
contingent contract for the sale of the Oakwood Village Apartments. If the
buyer's due diligent progresses as expected, we anticipate the sale to occur
before the end of the year.
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 nine months ended September 30, 2001 was
$2,838,252 as compared to $2,608,213 for the comparable period ended
September 30, 2002. Income from property operations for the nine months
ended September 30, 2001 was $1,015,264 as compared to $1,017,686 for the
comparable period ended September 30, 2002. The large rental income
differential of $230,039 or 8.1% was primarily a result of an increase in the
number of vacant units at the two properties which resulted in a rental income
decrease of $144,545 and an $153,453 increase in the rental concessions
offered because of the competitive rental markets in Atlanta and Durham.
The much smaller differential in income from property operations was a
result of higher repair and maintenance costs primarily at the Springfield
Apartments in the prior year. In 2001, the Springfield Apartments were
painted and had some wood replacement at a cost of $110,000. In addition,
approximately $40,000 was spent for roof repairs and replacements at the
property. Finally, the partnership experienced a positive income variance
of $24,698 in telephone service commissions earned at both properties.
Rental income for the three months ended September 30, 2001 was $940,223 as
compared to $897,074 for the comparable period ended September 30, 2002.
Income from property operations remained relatively stable and totaled
$353,269 for the three months ended September 30, 2001 verse $338,081 for the
three months ended September 30, 2002.
Interest expense decreased from $996,599 for the nine months ended September
30, 2001 to $983,798 for the nine months ended September 30, 2002. Other
general and administrative costs decreased $78,548 from September 30, 2001 to
September 30, 2002. The general and administrative expense decrease is solely
attributable to the costs incurred as a result of last year's proxy and
consent statement sent to all limited partners and filed with the Securities
and Exchange Commission.
Net loss for the nine months ended September 30, 2001 was $104,002 or $10.50
per Limited Partnership Unit outstanding as compared to a net loss of
$27,704 or $2.80 per Limited Partnership Unit for the comparable period
ended September 30, 2002. The $76,298 positive variance is attributable
to decreases in the Springfield repair and maintenance items mentioned
above, and the proxy expense and many other small expense variances offset by
a $210,088 decrease in total property income which resulted because of a
higher vacancy rate and the prevalence of rental concessions.
A net income of $7,494 occurred for the three months ended September 30, 2001
versus a net loss of $23,453 for the three months ended September 30, 2002.
This change was a result a $15,188 decrease in income from property operations
caused by the higher vacancy rate and the prevalence of rental concessions, a
$5,255 decrease in interest income due to a lower interest yield and
approximately $15,000 in legal costs relative to the sale contract work for
the Oakwood Village Apartments.
11
Liquidity and Capital Resources
In management's opinion, working capital reserves and liquidity are
sufficient to meet the short-term operating needs of the Partnership.
Cash provided by operating activities increased by $305,132 for the nine
month period ended September 30, 2002 as compared to the nine month
period ended September 30, 2001. The change resulted primarily from
a $76,298 decrease in the net loss caused by lower operating expenses in
the repair and maintenance and proxy expense areas coupled with a $116,186
increase in prepaid rents and a $169,710 increase in accounts payable. These
items were offset by a $50,511 increase in the restricted cash balance.
Cash used by investing activities totaled $60,061 at September 30, 2001 as
compared to $96,546 at September 30, 2002. The primary reasons for the current
year increase were the purchase of $12,650 of fitness center equipment for
both apartment communities and a $16,847 increase in the purchases of new
carpets at the two apartment communities.
Cash used by financing activities decreased by $23,094 from the nine
month period ended September 30, 2002 when compared to the nine month period
ended September 30, 2001. The increase is attributed to a $12,182 increase in
principal payments on the partnership's notes payable offset by a $35,276
reduction in limited partner distributions.
ITEM 6 - EXHIBIT AND REPORTS ON FORM 8-K
a) Exhibits - NONE
b) Reports on Form 8-K - NONE
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
11/06/02 J. Robert Love - President
Date (Signature)
11/06/02 Alan G. Lee - Secretary
Date (Signature)
13
CERTIFICATION
-------------
I John R. Luckett certify that:
1. I have reviewed this quarterly report on Form 10-Q of Foundation Realty
Fund, Ltd.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly represent in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have;
a) designed such disclosures controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of the date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit committee
of registrant's board of directors (or persons performing the equivalent
functions);
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether there were significant changes in internal controls or
in other factors that could significantly affect internal
14
controls subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
November 6, 2002
Simpson Property Group - Submanager
John R. Luckett
- ------------------------
Vice President - Finance
15
CERTIFICATION
I J. Robert Love certify that:
1. I have reviewed this quarterly report on Form 10-Q of Foundation Realty
Fund, Ltd.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly represent in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have;
a) designed such disclosures controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of the date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit committee
of registrant's board of directors (or persons performing the equivalent
functions);
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether there were significant changes in internal controls or
in other factors that could significantly affect internal
16
controls subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
November 6, 2002
RJ Properties, Inc. - Managing General Partner
J. Robert Love
- --------------
President
17