SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K
ANNUAL REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Year Ended December 31, 2003 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 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 by Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
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 December 31, 2003
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)
PART I
Item 1. Business
General Development of Business -
The Registrant is a Florida Limited Partnership ("Partnership") whose General
Partners are RJ Properties, Inc. ("RJP"), a wholly-owned subsidiary of Raymond
James Financial, Inc., and J. Robert Love, an individual (collectively, the
"General Partners"). The Partnership was formed under the laws of Florida and
commenced operations on January 12, 1988.
Financial Information about Industry Segments -
The Registrant is engaged in only one industry segment, the acquisition,
management and disposition of apartment properties.
Narrative Description of Business -
The Partnership's business is to acquire, manage, and eventually sell apartment
properties which offer the potential for providing periodic, cash distributions
to Limited Partners, capital appreciation, and preservation and protection of
the Limited Partners' Capital Contributions.
The Registrant has no direct employees. The General Partners have full and
exclusive discretion in management and control of the Partnership.
1
Item 2. Properties
As of December 31, 2003, the Partnership owned the property listed below:
Purchase Current
Property Name and Location Date Cost
Springfield Apartments 9/22/88 $13,227,546
Durham, North Carolina
The Partnership sold the Oakwood Village Apartments in Atlanta, Georgia on
November 27, 2002.
December 31, 2003 December 31, 2002
Land $ 2,154,136 $ 2,154,136
Buildings 9,613,912 9,613,912
Furniture & Fixtures 1,509,498 1,461,093
------------ ------------
Apartment Properties, at Cost 13,277,546 13,229,141
Less: Accumulated Depreciation (5,503,418) (5,178,983)
------------ ------------
$ 7,774,128 $ 8,050,158
============ ============
Item 3. Legal Proceedings
The Registrant is not a party to material pending legal proceedings.
Item 4. Submission of Matters to Vote of Security Holders
A solicitation of proxy was made to the security holders during 2001. The
subject matter the proxy dealt with was 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 the limited
partners voted to approve the sale of the partnership assets and windup the
partnership operations.
One of the two apartment properties that the Partnership originally held was
sold in 2002. The Partnership sold the remaining property on March 1, 2004.
PART II
Item 5. Market for the Registrant's Securities and Related Security Holder
Matters
(A) The Registrant's Limited Partnership interests are not publicly traded.
There is no market for the Registrant's Limited Partnership interests and it is
unlikely that any will develop.
(B) Approximate Number of Equity Security Holders:
Title of Class Number of Record Holders
as of December 31, 2003
Units of Limited Partnership Interest 731
General Partner Interest 2
2
Item 6. Selected Financial Data
2003 2002 2001 2000 1999
---- ---- ---- ---- ----
Net Income
(Loss)* $ (177,162) $ 4,659,236 $ (38,218) $ 89,573 $ 153,404
Total Assets 8,548,145 9,419,403 15,255,678 15,933,059 16,442,093
Notes Payable 9,802,243 9,940,331 17,169,423 17,373,014 17,561,620
Distributions to Limited $ 48.11 $ 357.50 $ 45.00 $ 45.00 $ 37.50
Partners Per Partnership
Unit
Net Income (Loss) Per $ (17.89) $ 542.91 $ (3.86) $ 9.05 $ 15.49
Limited Partnership Unit
Before Extraordinary Item
Net Income (Loss) Per $ -0- $ (74.43) $ -0- $ -0- $ -0-
Limited Partnership Unit
of the Extraordinary Item
Net Income (Loss) Per $ (17.89) $ 468.48 $ (3.86) $ 9.05 $ 15.49
Limited Partnership Unit
* The Partnership sold the Oakwood Village Apartments on November 27, 2002 for
$11,150,000 less selling expense of $29,839. Based upon the net book value of
$5,593,132 at the time of sale, a $5,527,029 gain on sale resulted.
The above selected financial data should be read in conjunction with the
financial statement's related notes appearing elsewhere in this report. This
statement is not covered by the auditor's opinion included elsewhere in this
report.
3
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The financial figures disclosed in this narrative consists of both the Oakwood
Village and Springfield apartment community operations in the years 2002 and
prior and the Springfield apartment community in 2003. The Oakwood Village
apartment community was sold on November 27, 2002 and the Oakwood Village net
property operations are disclosed on a separate line in the Statement of
Operations entitled "Discontinued Operations" in the years 2002 and prior.
In December 2003, the Partnership adopted Statement of Financial Accounting
Standard No. 144, "Accounting for the Impairment or Disposal of Long Lived
Assets." In accordance with SFAS 144, all operations relating to Springfield are
shown in discontinued operations.
Rental income, relating to the property held for sale and included in
discontinued operations, for the twelve months ended December 31, 2003 was
$2,015,834 as compared to $1,944,750 and $2,084,324 for the comparable periods
ended December 31, 2002 and December 31, 2001, respectively. Net loss from
property operations for the twelve months ended December 31, 2003 was $(163,795)
as compared to $(89,687) and $(115,113) for the comparable periods ended
December 31, 2002 and December 31, 2001.
The $25,426 smaller net loss from property operations in 2002 over 2001 was a
result of several factors. During 2001 the partnership incurred approximately
$110,000 of expenses in connection with the Proxy Solicitation discussed in Part
I. Item 4. above. The expenses included professional services for legal,
property appraisals and accounting, printing and mailing fee expenses and filing
fees paid to the Securities and Exchange Commission. The remaining factors which
offset the proxy solicitation expense savings was a $133,917 decrease in
property income primarily the result of lower apartment occupancies and higher
rental concession in 2002. Operating expenses, however, were $114,454 lower in
2002 after deducting Springfield portion of the proxy solicitation expense. This
expense reduction was primarily a result of the $110,225 spent for painting and
wood replacement in 2001.
The net loss from property operations increased by $74,108 in 2003. The increase
in the loss was expense related. Property payroll expense increased $40,361 and
was a result of and increase in personnel overtime and leasing bonuses paid as
occupancy improved and a result of employing a temporary worker for office and
leasing assistance. Repair and maintenance expenses increased $38,930 and was a
result of spending additional monies to make the property show well during our
intensified marketing period.
The most significant financial event in 2002 was the sale of the Oakwood Village
Apartments on November 27, 2002. The 184-unit apartment community was sold for
$11,150,000 to an unrelated third party buyer. After paying off the mortgage on
the property, including a loan payment penalty of $700,280 and the associated
closing costs, approximately $3,246,450 was returned to the limited partners in
the form of a sale distribution. The gain on sale of the property totaled
$5,527,029 or $587 per Limited Partner unit.
4
Cash distributions of $452,571, $3,363,002, and $423,316 were paid to limited
partners in 2003, 2002, and 2001 respectively. The higher distribution in 2002
was a result of the property sale distribution offset by a lower distribution
from property operations.
Other Disclosure
At the inception of the partnership, Foundation Realty Fund, Ltd. entered into a
property management agreement with RJ Properties, Inc., a general partner, for
management of the apartment properties. On March 31, 1998, a subsidiary and
certain assets of RJ Properties, Inc. were sold to SHLP Realty Corp. and the
existing employees of RJ Properties, Inc. and its affiliate transferred to the
buyer. To avoid loss of continuity, RJ Properties,Inc. entered into a
submanagement agreement with SHLP Realty Corp. for management of the
partnership's properties. This new agreement in no way changes the management
fee expense nor the personnel assigned to the day-to-day operations of the
properties. This submanagement agreement installs SHLP Realty Corp. as the named
management entity for the Partnership's properties and J. Robert Love remains
President of RJ Properties, Inc. as well as individual General Partner.
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 commitment of the Partnership is the mortgage
payable which has a balloon payment due November 2004. Management plans to meet
the long-term commitment through the property sale which occurred on March 1,
2004.
Cash provided by operating activities decreased by $4,038 from 2002 to 2003. The
reasons for the change is the result of the partnership experiencing a $52,085
larger net loss in 2003 verse 2002 offset by the many financial factors relative
to the aforementioned sale of the Oakwood Village Apartments. Factors
contributing to the higher operational net loss in 2002 are presented in the
Management Discussion and Analysis section above. Cash provided by operating
activities decreased by $438,186 from 2001 to 2002. The decrease was caused
primarily by a $829,575 increase in the properties net loss before gain on sale
and extraordinary item offset by a $358,902 decrease in restricted cash. Both of
these events were related primarily to the sale of the Oakwood Village
Apartments. The net loss from property operations included a $700,280 loan
prepayment penalty. In addition, upon sale of the property, $205,477 of
restricted cash was returned to the Partnership from the Partnership's lender.
Cash used by investing activities for capitalized asset additions totaled
$48,405, $120,662 and $77,309 in 2003, 2002 and 2001 respectively. The increase
in 2002 was primarily the result in an increase in the number of carpets
replaced at both apartment communities coupled with some roof replacements and
clubhouse improvements. The reduction in 2003 is a result of the Partnership
having one property verse two thus explaining a decrease in capitalized expense.
5
The monthly debt service commitments totaled $52,777 for Oakwood Village and
currently totals $74,644 for Springfield. The debt service is adequately funded
from Partnership operations. The mortgage obligation of the Oakwood Village
Apartments was retired upon sale of the apartment community. Cash used by
financing activities totaled $590,659 for 2003 as compared to $10,592,004 for
2002 and $626,907 in 2001. The dramatic change in cash used by financing
activities in 2002 was a result of an increase in partnership distributions of
$2,939,686 resulting from the sale of Oakwood Village, coupled with a $7,025,501
increase in principal payments on the partnership's mortgage balance resulting
from the loan payoff on the Oakwood Village mortgage.
Item 8. Financial Statements and Supplementary Data
FOUNDATION REALTY FUND, LTD.
(A Florida Limited Partnership)
INDEX TO FINANCIAL STATEMENTS
Part I - Financial Information Page No.
------------------------------ --------
Independent Auditor's Report 7
Balance Sheets as of December 31, 2003 and December 31, 2002 8
Statements of Operations - For the Years Ended December 31, 9
2003, 2002 and 2001
Statements of Partners' Equity (Deficit) - For the Years Ended 10
December 31, 2003, 2002 and 2001
Statements of Cash Flows - For the Years Ended December 31, 11
2003, 2002 and 2001
Notes to Financial Statements 12-15
Supplementary Financial Data 16
All other schedules have been omitted as not required, not applicable, or the
information required to be shown therein is included in the financial statements
and related notes.
6
Independent Auditor's Report
To the Partners of Foundation Realty Fund, Ltd.
We have audited the accompanying balance sheets of Foundation Realty Fund Ltd.
(a Florida Limited Partnership) as of December 31, 2003 and 2002, and the
related statements of operations, partners' deficit and cash flows for each of
the three years in the period ended December 31, 2003. These financial
statements are the responsibility of the partnership's management. Our
responsibility is to express an opinion of these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. These standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit also includes examining,
on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes 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, the financial statements referred to above present fairly, in
all material respects, the financial position of Foundation Realty Fund, Ltd. as
of December 31, 2003 and 2002 and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 2003 in
conformity with accounting principles generally accepted in the United States of
America.
Our audits were made for the purpose of forming an opinion on the basic
financial Statements taken as a whole. The schedules listed under items 14(2) in
the index are presented for purposes of complying with the Securities and
Exchange Commission's rules and are not part of the basic financial statements.
These schedules have been subjected to the auditing procedures applied in the
audit of the basic financial statements and, in our opinion, based on our
audits, fairly state in all material respects the financial data required to be
set forth therein in relation to the basic financial statements taken as a
whole.
As discussed in note 9, the partnership is winding down its operations.
SPENCE,MARSTON,BUNCH,MORRIS & CO.
Certified Public Accountants
Clearwater, Florida
March 8, 2004
7
FOUNDATION REALTY FUND, LTD.
(A Florida Limited Partnership)
BALANCE SHEETS
December 31, 2003 December 31, 2002
----------------- -----------------
ASSETS
Apartment Properties, at
Cost $ -0- $ 13,229,141
Less - Accumulated
Depreciation -0- (5,178,983)
------------ -------------
-0- 8,050,158
Real Estate Held for Sale 7,774,128 -0-
Cash and cash equivalents 653,389 1,144,230
Restricted Cash 88,934 92,774
Prepaid Expenses 15,204 93,764
Deferred Loan Cost (Net of
Accumulated Amortization of
$137,329 and $115,342) 16,490 38,477
------------ ------------
TOTAL ASSETS $ 8,548,145 $ 9,419,403
============ ============
LIABILITIES AND PARTNERS' (DEFICIT)
Liabilities:
Notes Payable $ 9,802,243 $ 9,940,331
Interest Payable 57,036 63,817
Accounts Payable 50,244 57,921
Security Deposits 31,952 42,163
Unearned Rent 27,885 106,653
------------ ------------
TOTAL LIABILITIES 9,969,360 10,210,885
============ ============
Partners' (Deficit):
Limited Partners' (Deficit)
(9,407 units)outstanding at
December 31, 2003 and
December 31, 2002 (1,412,357) (791,482)
General Partners' (Deficit) (8,858) -0-
------------ ------------
TOTAL PARTNERS'(DEFICIT) (1,421,215) (791,482)
------------ ------------
TOTAL LIABILITIES AND
PARTNERS'(DEFICIT) $ 8,548,145 $ 9,419,403
============ ============
The accompanying notes are an integral part of these financial statements.
8
FOUNDATION REALTY FUND, LTD.
(A Florida Limited Partnership)
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31
2003 2002 2001
---- ---- ----
Interest Income $ 3,987 $ 3,338 $ 11,119
General and Administrative (17,354) (38,718) (58,316)
----------- ----------- -----------
Net Loss before
Discontinued Operations (13,367) (35,380) (47,197)
and Extraordinary Items
Discontinued Operations (163,795) (132,133) 8,979
Gain on Sale of Property -0- 5,527,029 -0-
----------- ----------- -----------
Net Income (Loss) before
Extraordinary (177,162) 5,359,516 (38,218)
Extraordinary Item:
Mortgage Prepayment
Penalty -0- (700,280) -0-
----------- ----------- -----------
Net Income (Loss) $ (177,162) $ 4,659,236 $ (38,218)
=========== =========== ===========
Allocation of Net Income
(Loss) -
Limited Partners $ (168,304) $ 4,406,963 $ (36,307)
General Partners (8,858) 252,273 (1,911)
----------- ----------- -----------
$ (177,162) $ 4,659,236 $ (38,218)
=========== =========== ===========
Net Income (Loss) Per
Limited Partnership Unit
Before Extraordinary Item $ (17.89) $ 542.91 $ (3.86)
=========== =========== ===========
Net Income (Loss) Per
Limited Partnership Unit
of the Extraordinary Item $ -0- $ (74.43) $ -0-
========== =========== ===========
Net Income (Loss) Per
Limited Partnership Unit $ (17.89) $ 468.48 $ (3.86)
=========== =========== ===========
Number of Limited
Partnership Units 9,407 9,407 9,407
=========== =========== ===========
The accompanying notes are an integral part of these financial statements.
9
FOUNDATION REALTY FUND, LTD.
(A Florida Limited Partnership)
STATEMENTS OF PARTNERS' EQUITY (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 2003, 2002, AND 2001
Limited General Total
Partners' Partners' Partners'
Equity(Deficit) Equity(Deficit) Equity(Deficit)
--------------- --------------- ---------------
Balance, December 31, 2000 $(1,375,820) $(250,362) $(1,626,182)
----------- --------- -----------
Distribution to Partners (423,316) -0- (423,316)
Net Income (Loss) (36,307) (1,911) (38,218)
----------- --------- -----------
Balance, December 31, 2001 (1,835,443) (252,273) (2,087,716)
----------- --------- -----------
Distribution to Partners (3,363,002) -0- (3,363,002)
Net Income (Loss) 4,406,963 252,273 4,659,236
----------- --------- -----------
Balance, December 31, 2002 (791,482) -0- (791,482)
----------- --------- -----------
Distribution to Partners (452,571) -0- (452,571)
Net Income (Loss) (168,304) (8,858) (177,162)
----------- --------- -----------
Balance, December 31, 2003 $(1,412,357) $(8,858) $(1,421,215)
=========== ======= ===========
The accompanying notes are an integral part of these financial statements.
10
FOUNDATION REALTY FUND, LTD.
(A Florida Limited Partnership)
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31,
2003 2002 2001
---- ---- ----
Net Cash Provided by Operating Activities:
Net Income (Loss) $ (177,162) $ 4,659,236 $ (38,218)
Adjustments to Reconcile Net
Income (Loss) to Net Cash
Provided by Operating Activities
Depreciation & Amortization 346,422 625,140 613,798
Gain on Sale of Property -0- (5,527,029) -0-
Changes in Operating
Assets and Liabilities:
(Increase) Decrease
in Restricted Cash 3,840 384,921 26,019
(Increase) Decrease in Prepaid
Expense 78,560 (86,590) 1,104
Increase (Decrease) in Accounts
Payable (14,458) 79,535 10,355
Increase (Decrease)in Unearned
Rents (78,768) 74,284 (19,495)
Increase (Decrease) in
Security Deposits (10,211) (57,236) (3,116)
------------ ------------ ------------
Net Cash Provided by
Operating Activities 148,223 152,261 590,447
------------ ------------ ------------
Net Cash Flows from Investing
Activities:
Proceeds from Sale of Property -0- 11,120,161 -0-
Improvements to Apartment
Properties (48,405) (120,662) (77,309)
------------ ------------ ------------
Net Cash Used in Investing
Activities (48,405) 10,999,499 (77,309)
------------ ------------ ------------
Net Cash Flows from Financing Activities:
Distributions to Partners (452,571) (3,363,002) (423,316)
Payments of Notes Payable (138,088) (7,229,092) (203,591)
------------ ------------ ------------
Net Cash Used by Financing
Activities (590,659) (10,592,094) (626,907)
------------ ------------ ------------
Increase (Decrease) in Cash (490,841) 559,666 (113,769)
Cash at Beginning of Year 1,144,230 584,564 698,333
------------ ------------ ------------
Cash at End of Year $ 653,389 $ 1,144,230 $ 584,564
============ ============ ============
Supplemental Cash Flow
Information: Interest Paid $ 756,739 $ 1,901,067 $ 1,325,844
============ ============ ============
The accompanying notes are an integral part of these financial statements.
11
FOUNDATION REALTY FUND, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
December 31, 2003
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 one apartment property. 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
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 distributions 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 amount equal 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 rental revenues
and other fees are recognized when earned and expenses are recognized as
obligations when 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 is not included in cash and cash equivalents.
12
Restricted Cash
Restricted cash includes $56,392 at December 31, 2003 and $50,611 at December
31, 2002 of cash held in escrow for the payment of real estate taxes and capital
replacement items. Restricted cash also includes $32,542 at December 31, 2003
and $42,163 at December 31, 2002 of tenant security deposits held in escrow
account.
Income Taxes
No provision for income taxes has been made in these financial statements, as
income taxes are a liability of the partners rather than of the Partnership.
Concentrations of Credit Risk
Financial instruments which potentially subject the Partnership to
concentrations of credit risk consist principally of cash investments in high
credit quality financial institutions.
Depreciation
The apartment buildings are being depreciated over 35 years using the
straight-line method. Furniture and fixtures are being depreciated over eight
years using the straight-line method.
Real Estate Held for Sale
In December 2003, the Partnership adopted Statement of Financial Accounting
Standard No. 144 (SFAS 144), "Accounting for the Impairment or Disposal of Long
Lived Assets." SFAS 144 addresses financial accounting and reporting for the
impairment or disposal of long-lived assets. The Partnership has committed to
disposing of its remaining real estate asset and operations relating to that
asset have been disclosed in discontinued operations as required by SFAS 144
(Note 5 and Note 10).
Reclassifications
Certain accounts in the prior year financial statements have been reclassified
for comparison purposes to conform with the presentation in the current year
financial statements.
Advertising Costs
Advertising costs are charged to operations in the period incurred and totaled
$32,885, $38,244, and $47,731 for the years ended December 31, 2003, 2002, and
2001, respectively.
13
Risks and Uncertainties
The preparation of financial statements in conformity with generally accepted
accounting principles requires the use of estimates that affect certain reported
amounts and disclosures. These estimates are based on management's knowledge and
experience. Accordingly, actual results could differ from these estimates.
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 years ended December 31:
2003 2002 2001
---- ---- ----
Property Management Fees $105,348 $183,542 $197,363
General and Administrative Costs 1,200 1,160 1,030
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 $13,425 are due to the Corporate
General Partner at December 31, 2003. Property management fees in the amount of
$9,000 were due to the Corporate General Partner at December 31, 2002. There
were no amounts due from related parties at December 31, 2003 or December 31,
2002.
NOTE 4 - LEASES AND APARTMENT PROPERTIES:
As of December 31, 2002, the Partnership owned one apartment complex leased to
residents under short-term operating leases. As of December 31, 2003, this
property was transferred to real estate held for sale. See Note 5. A summary of
the apartment property is as follows:
December 31, 2002
-----------------
Land $ 2,154,136
Buildings 9,613,912
Furniture & Fixtures 1,461,093
------------
Apartment Property at Cost 13,229,141
Less: Accumulated Depreciation (5,178,983)
------------
$ 8,050,158
============
NOTE 5 - REAL ESTATE HELD FOR SALE:
As of December 31, 2003, the Partnership is holding its remaining real estate
asset for sale (Note 10). In accordance with SFAS 144, the Partnership ceased
depreciating the assets held for sale in December 2003. A summary of the
apartment property held for sale is as follows:
December 31, 2003
-----------------
Land $ 2,154,136
Buildings 9,613,912
Furniture & Fixtures 1,509,498
-----------
Apartment Property at Cost 13,277,546
Less: Accumulated Depreciation (5,503,418)
-----------
$ 7,774,128
===========
14
Also in accordance with SFAS 144, operations relating to the assets held for
sale are disclosed as discontinued operations. A table of the summarized
operations of the apartment property held for sale follows:
2003 2002 2001
---- ---- ----
Revenues:
Rental income $2,015,834 $1,944,750 $2,084,324
Miscellaneous income 93,709 118,185 112,528
---------- ---------- ----------
Total revenues 2,109,543 2,062,935 2,196,852
---------- ---------- ----------
Expenses:
Real estate taxes 165,426 164,161 159,735
Property management 105,348 102,916 110,393
Other property expenses 899,403 776,516 926,022
Depreciation 324,435 319,679 316,977
Interest expense 756,739 767,364 776,851
Amortization 21,987 21,986 21,987
---------- ---------- ----------
Total expenses 2,273,338 2,152,622 2,311,965
---------- ---------- ----------
Net Operating Income (Loss) $ (163,795) $ (89,687) $ (115,113)
========== ========= ==========
NOTE 6 - TAXABLE INCOME:
The Partnership's taxable income differs from financial income primarily due to
depreciation which is recorded under the Modified Accelerated Cost Recovery
System (MACRS) and the presentation of prepaid rents. The following is a
reconciliation between net income (loss) as reported and partnership income
(loss) for tax purposes:
2003 2002 2001
---- ---- ----
Net income(loss) per financial
statements $ (177,162) $ 4,659,236 $ (38,218)
Gain on sale reduced for tax in
excess of financial gain -0- 869,875 -0-
Tax depreciation in excess of or
(less than) financial depreciation (88,901) (116,868) (131,635)
Increase (decrease) in prepaid
rents added to taxable income (77,755) 68,592 (17,826)
----------- ----------- -----------
Partnership income(loss) for tax $ (343,818) $ 5,480,835 $ (187,679)
purposes =========== =========== ===========
15
NOTE 7 - NOTES PAYABLE:
The notes payable at December 31, 2003 and 2002 consist of the following:
2003 2002
---- ----
Springfield
The first mortgage note, which has
an interest rate of 7.67%, is
payable in monthly installments
including principal and interest of
$74,644 through October 2004. There
is a balloon payment of $9,666,045
due on this loan of the remaining
principal and any unpaid interest
in November 2004. $9,802,243 $9,940,331
========== ==========
The aggregate amount of principal payments due in the years after December 31,
2003 are:
2004 $9,802,243
==========
NOTE 8 - SALE OF PROPERTY:
On November 27, 2002, the Partnership sold the Oakwood Village Apartments in
Atlanta, Georgia for $11,150,000.
A table of the summarized operations of the sold property follows:
2002 2001
---- ----
(11 Months)
Total Operating Revenues $ 1,464,810 $ 1,725,186
Total Operating Expenses (1,013,807) (1,070,717)
Interest Income 3,791 18,616
Interest Expense (497,240) (548,993)
----------- -----------
Net Operating Income (Loss) $ (42,446) $ 124,092
=========== ===========
NOTE 9 - 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 10 - SUBSEQUENT EVENTS:
On February 15, 2004, the Partnership paid distributions of $47,035 to the
Limited Partners. On March 1, 2004, the real estate held for sale, Springfield
Apartments, was sold for $12,400,000 resulting in a gain on the sale of
approximately $4,544,000.
16
NOTE 11 - Selected Quarterly Financial Data (Unaudited)
2002 Q-1-02 Q-2-02 Q-3-02 Q-4-02
- ---- ------ ------ ------ ------
Net Income (Loss)
before Discontinued
Operations and
Extraordinary Items $ (1,123) $ (1,914) $ (16,198) $ (16,145)
Net Income (Loss)
before Extraordinary
Item 29,954 (34,205) (23,453) 5,387,220
Net Income (Loss) 29,954 (34,205) (23,453) 4,686,940
Net Income (Loss) Per
Limited Partnership
unit 3.02 (3.45) (2.37) 471.28
2003 Q-1-03 Q-2-03 Q-3-03 Q-4-03
- ---- ------ ------ ------ ------
Net Income (Loss)
before Discontinued
Operations and
Extraordinary Items $ (1,447) $ (7,522) $ (3,477) $ (921)
Net Income (Loss) 9,415 (21,044) (87,894) (77,639)
Net Income (Loss) Per
Limited Partnership
unit .95 (2.12) (8.87) (7.85)
The increase in net income before extraordinary item during the fourth quarter
of 2002 was a result of the sale of the Oakwood Village Apartments on November
27, 2002. This property sale, which resulted in a $5,527,029 gain, is the cause
for the significant increase.
The increasing quarterly loss in 2003 was revenue driven during the second and
third quarter as the property occupancy declined from the mid-ninety percent
range to the low nineties. Although the property occupancy increased during the
fourth quarter, the fourth quarter loss was primarily expense driven. Property
expenses increased as marketing efforts to sell the property intensified.
For comparability, the 2002 figures have been reclassified, where appropriate to
conform with the financial statement presentation used in 2003.
17
Item 9. Disagreements on Accounting and Financial Disclosures
Not applicable.
Item 9A. Controls and Procedures
Within 90 days prior to the filing of this report, under the supervision and
with the participation of the Partnership's management, including the
Partnership's chief executive and chief financial officers, an evaluation of the
effectiveness of the Partnership's disclosure controls and procedures (as
defined in Rule 13a-14(c) under the Securities Exchange Act of 1934) was
performed. Based on this evaluation, such officers have concluded that the
Partnership's disclosure controls and procedures were effective as of the date
of that evaluation in alerting them in a timely manner to material information
relating to the Partnership required to be included in this report and the
Partnership's other reports that it files or submits under the Securities
Exchange Act of 1934. There were no significant changes in the Partnership's
internal controls or in other factors that could significantly affect these
controls subsequent to the date of their evaluation.
Item 10. Directors and Executive Officers of the Registrant
The Partnership has no directors or officers.
Item 11. Executive Compensation
The Partnership has no directors or officers.
Item 12. Security Ownership of Certain Beneficial Owners & Management
The Registrant is a Limited Partnership and therefore does not have voting
shares of stock. To the knowledge of the Partnership, no person owns a record or
beneficially, more than 5% of the Partnership's outstanding units.
Item 13. Certain Relationships and Related Transactions
The General Partners and affiliates are entitled to the following types of
compensation and reimbursements for costs and expenses: Total Incurred by the
Partnership for the period ended December 31,
2003 2002 2001
---- ---- ----
Property management fees are paid to
the General Partners for services
performed in connection with, among
other things, the day to day
management to the Limited
Partnership's properties. As
compensation for management services
they perform, the General Partners
are paid a monthly fee equal to 5% of
the monthly gross receipts from
residential property. These fees
are included in the Statement of
Operations. $ 105,348 $ 183,542 $ 197,363
18
Affiliates of the General Partners
are reimbursed for general and
administrative expenses of the
partnership on an accountable basis.
This expense is included in the
Statement of Operations. Direct costs
are paid by the Partnership. 1,200 1,160 1,030
The General Partners receive 5% of
cash from operations subject to
certain subordination agreements. In
addition, the General Partners are
allocated 5% of all tax items. -0- -0- -0-
Item 14. Principal Accounting Fees
The aggregate fee billed by the Partnership's accounting firm, Spence Marston
Bunch Morris CPA's for the years ended December 31, 2003 and December 31, 2002
totaled $4,675 and $5,025 respectively. The breakdown of the accounting fees
were 75% for audit services and 25% for tax services.
PART 4
Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K
1. Financial Statements - see accompanying index to financial statements, Item
8.
2. Financial Statements Schedules - Schedule III Real Estate and Accumulated
Depreciation
3. Exhibit Index -
Table Number Page
- ------------ ----
1.1 Form of Soliciting Dealer Agreement *
1.2 Form of Escrow Agreement between Foundation Realty Fund, Ltd.
and Southeast Bank, NA *
2 Plan of acquisition, organization, arrangement, liquidation
or succession **
3.1 The form of Partnership Agreement of the Partnership *
3.2 Articles of Incorporation of RJ Properties, Inc. *
3.2.1 By-laws of RJ Properties, Inc. *
3.3 Certificate of Limited Partnership of Foundation Realty Fund, Ltd. *
4 Instruments defining the rights of security holders
including debentures **
5.1 Summary of appraisal of Oakwood Village Apartments **
8.1 Tax opinion and consent of Schifino, Fleischer & Neal, P.A. *
9 Voting Trust Agreement **
10.1 Oakwood Village Apartments Real Estate Acquisition Contract
and Exhibits thereto *
11 Computation of per share earnings **
12 Computation of ratios **
13 Annual report to security holders **
18 Letter re: change in accounting principles **
19 Previously unfiled documents **
22 Subsidiaries of the Registrant **
19
23 Published report regarding matters submitted to vote of
security holders **
24 Consents of experts and counsel
24.1 The consent of Spence, Marston & Bunch *
24.2 The consent of Charles Smallwood, CPA *
24.3 The consent of Schifino, Fleischer & Neal, PA to all references
made to them in the Prospectus included as part of the
Registration Statement of Foundation Realty Fund, Ltd., and
all amendments thereto, is included in their opinions
filed as Exhibit 8.1 to the Registration Statement *
25 Power of Attorney **
28.1 Table 6 (Acquisition of Properties by Program) of Appendix
2 to Industry Guide 5, Preparation of Registration
Statements Relating to Interests in Real Estate Limited
Partnerships *
29 Information from reports furnished to state insurance
regulatory authorities **
* Included with Form S-11, Registration No. 33-13849, previously
filed with the Securities and Exchange Commission.
** Exhibits were omitted as not required, not applicable or the information
required to be shown therein is included elsewhere in this report.
B. Reports filed on Form 8-K - None
C. Exhibits filed with this Report - None
20
Foundation Realty Fund, Ltd.
(A Florida Limited Partnership)
Schedule - III - Real Estate and Accumulated Depreciation for the Years Ended
December 31, 2003, 2002 and 2001
Period Description Encumbrance Initial Cost Carrying
------ ----------- ----------- Cost to Capitalized Amount at
Partnership Subsequent to Close of
----------- Acquisition Period
----------- ------
For the Oakwood Village First Mortgage note
year ended Apartments with 7.67% interest
12/31/2001 Atlanta, GA rate. Balance
$7,111,459 at December
31, 2001 $ 9,038,120 $427,997 $ 9,466,117
Springfield First mortgage note
Apartments Durham, with 7.67% interest
NC rate. Balance
$10,057,964 at December
31, 2001 12,767,861 397,123 13,164,984
----------- -------- -----------
TOTAL $21,805,981 $825,120 $22,631,101
=========== ======== ===========
Period Description Encumbrance Initial Cost Carrying
------ ----------- ----------- Cost to Capitalized Amount at
Partnership Subsequent to Close of
----------- Acquisition Period
For the Oakwood Village Property Sold ----------- ------
year ended Apartments November 27,
12/31/2002 Atlanta, GA 2002
Springfield First mortgage note
Apartments Durham, with 7.67% interest
NC rate. Balance
$10,057,964 at December
31, 2001 $12,767,861 $461,280 $13,229,141
----------- -------- -----------
TOTAL $12,767,861 $461,280 $13,229,141
=========== ======== ===========
Period Description Encumbrance Initial Cost Carrying
------ ----------- ----------- Cost to Capitalized Amount at
Partnership Subsequent to Close of
----------- Acquisition Period
For the Springfield First mortgage note ----------- ------
year ended Apartments Durham, with 7.67% interest
12/31/2003 NC rate. Balance
$10,057,964 at December
31, 2001 $12,767,861 $509,685 $13,277,546
----------- -------- -----------
TOTAL $12,767,861 $509,685 $13,277,546
=========== ======== ===========
21
Foundation Realty Fund, Ltd.
(A Florida Limited Partnership)
Schedule - III - Real Estate and Accumulated Depreciation for the Years Ended
December 31, 2003, 2002 and 2001
Period Description Accumulated Date of Date of Depreciation Life
------ ----------- Depreciation Purchase Construction -----------------
------------ -------- ------------
For the Oakwood Village Building-35 years
year ended Apartments Appliances &
12/31/2001 Atlanta, GA $3,699,824 1/22/88 1982 Equipment-8 years
Springfield Building-35 years
Apartments Appliances &
Durham, NC 4,859,305 9/22/88 1986 Equipment-8 years
----------
TOTAL $8,559,129
==========
Period Description Accumulated Date of Date of Depreciation Life
------ ----------- Depreciation Purchase Construction -----------------
------------ -------- ------------
For the Oakwood Village Property sold
year ended Apartments November 27,
12/31/2002 Atlanta, GA 2002
Springfield Building-35 years
Apartments Appliances &
Durham, NC $5,178,983 9/22/88 1986 Equipment-8 years
----------
TOTAL $5,178,983
==========
Period Description Accumulated Date of Date of Depreciation Life
------ ----------- Depreciation Purchase Construction -----------------
------------ -------- ------------
For the Springfield Building-35 years
year ended Apartments Appliances &
12/31/2003 Durham, NC $5,503,418 9/22/88 1986 Equipment-8 years
----------
TOTAL $5,503,418
==========
22
FOUNDATION REALTY FUND, LTD.
(A Florida Limited Partnership)
SCHEDULE III - Real Estate and Accumulated Depreciation
FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001
Balance at (Deletions) Balance at
Beginning Additions Close
of Year --------- of Year
---------- -----------
2001
Land $ 3,141,510 $ -0- $ 3,141,510
Buildings 17,298,118 -0- 17,298,118
Equipment 2,114,164 77,309 2,191,473
----------- ----------- -----------
Total $22,553,792 $ 77,309 $22,631,101
=========== =========== ===========
2002
Land $ 3,141,510 $ (987,374) $ 2,154,136
Buildings 17,298,118 (7,684,206) 9,613,912
Equipment 2,191,473 (730,380) 1,461,093
----------- ----------- -----------
Total $22,631,101 $(9,401,960) $13,229,141
=========== =========== ===========
2003
Land $ 2,154,136 $ -0- $ 2,154,136
Buildings 9,613,912 -0- 9,613,912
Equipment 1,461,093 48,405 1,509,498
----------- ----------- -----------
Total $13,229,141 $ 48,405 $13,277,546
=========== =========== ===========
The significant drop in the 2002 real estate and accumulated depreciation is a
result of the property sale of the Oakwood Village Apartments on November 27,
2002.
23
SCHEDULE III -
Real Estate and Accumulated Depreciation
FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001
Balance at Depreciation Sale of Balance at
Beginning Expense Property Close of Year
of Year ------------ -------- -------------
---------
2001
Buildings $6,217,655 $494,232 $6,711,887
Equipment 1,769,230 78,012 1,847,242
---------- -------- ----------
Total $7,986,885 $572,244 $ -0- $8,559,129
========== ======== =========== ==========
2002
Buildings $6,711,887 $475,936 $(3,267,567) $3,920,256
Equipment 1,847,242 73,408 (661,923) 1,258,727
---------- -------- ----------- ----------
Total $8,559,129 $549,344 $(3,929,490) $5,178,983
========== ======== =========== ==========
2003
Buildings $3,920,256 $274,683 $4,194,939
Equipment 1,258,727 49,752 1,308,479
---------- -------- ----------- ----------
Total $5,178,983 $324,435 $ -0- $5,503,418
========== ======== =========== ==========
24
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)
(Registrant)
By: RJ PROPERTIES, INC.
a General Partner
Date: March 22, 2004 By: J. Robert Love President
(Signature)
Date: March 22, 2004 By: Alan G. Lee Secretary
(Signature)
Pursuant to the requirements of Section 13 or 15(d) of the Securities and
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned duly authorized.
FOUNDATION REALTY FUND, LTD.
(A Florida Limited Partnership)
(Registrant)
By: RJ PROPERTIES, INC.
a General Partner
Date: March 22, 2004 By: J. Robert Love President
(Signature)
Date: March 22, 2004 By: Alan G. Lee Secretary
(Signature)
25
CERTIFICATION
-------------
I John R. Luckett certify that:
1. I have reviewed this annual report on Form 10-K of Foundation Realty Fund,
Ltd.;
2. Based on my knowledge, this annual 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 annual
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual 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 annual 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 we 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 annual 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 annual
report (the "Evaluation Date"); and
c) presented in this annual 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 function);
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
annual report whether or not there were significant changes in internal controls
or in other factors that could significantly affect internal
26
controls subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
March 22, 2004
Simpson Property Group - Submanager
- ------------------------
John R. Luckett
Vice President - Finance
27
CERTIFICATION
-------------
I J. Robert Love certify that:
1. I have reviewed this annual report on Form 10-K of Foundation Realty Fund,
Ltd.;
2. Based on my knowledge, this annual 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 annual
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual 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 annual 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 we 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 annual 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 annual
report (the "Evaluation Date"); and
c) presented in this annual 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 function);
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
annual report whether or not there were significant changes in internal controls
or in other factors that could significantly affect internal
28
controls subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
March 22, 2004
RJ Properties, Inc. - Managing General Partner
- ---------------
J. Robert Love
President