10-Q 1 foundation10q_06-02.txt JUNE 30-2002 FORM 10-Q 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

~~September~~ASSETS June 30,2002 ~~2001~~ December 31, ~~2000~~2001 (Unaudited) (Audited) ------------~~------~~ ----------------- ~~(Unaudited) Audited ASSETS~~ Apartment Properties, at Cost $ 22,~~613~~695,~~852~~137 $ 22,~~553~~631,~~792~~101 Less - Accumulated Depreciation (8,~~399~~834,~~553~~241) (78,~~986~~559,~~885~~129) ------------ ------------ 1413,~~214~~860,~~299~~896 14,~~566~~071,~~907~~972 Cash and Cash Equivalents ~~577~~550,~~320~~027 ~~698~~584,~~333~~564 Restricted Cash ~~662~~670,~~392~~636 ~~503~~477,~~714~~695 Prepaid Expenses 2425,~~995~~426 87,~~278~~174 Deferred Loan Cost (Net of Accumulated ~~Amortization of $166~~93,~~217~~496 ~~and $135~~114,~~051)~~273 ~~124,662 155,827~~ ------------ ------------ Amortization of $207,771 and $176,605 TOTAL ASSETS $ 15,~~603~~200,~~668~~481 $ 15,~~933~~255,~~059~~678 ============ ============ LIABILITIES AND PARTNERS' EQUITY (DEFICIT) Liabilities: Notes Payable $ 17,~~222~~061,~~211~~639 $ 17,~~373~~169,~~014~~423 Accounts Payable ~~283~~210,~~723~~402 3142,~~848~~203 Security Deposits 105,~~995~~255 ~~102~~99,~~515~~399 Unearned ~~Rents~~Rent 39126,~~409~~810 5132,~~864~~369 ------------ ------------ TOTAL LIABILITIES 17,~~651~~504,~~338~~106 17,~~559~~343,~~241~~394 ~~------------ ------------ Partner~~Partners's Equity (Deficit) Limited Partners' Equity (Deficit) (9,407 units (2,051,139) (1,835,443) outstanding @ ~~September~~June 30,2002 ~~2001~~ and December 31, ~~2000)~~2001 ~~(1,792,108) 1,375,820)~~ General ~~Partner~~Partners's Equity (~~255~~Deficit) (252,~~562~~486) (~~250~~252,~~362~~273) ------------ ------------ ~~TOTAL~~Total ~~PARTNERS~~Partners' ~~EQUITY~~Equity (Deficit) (2,~~047~~303,~~670~~625) (12,~~626~~087,~~182~~716) ------------ ------------ TOTAL LIABILITIES AND PARTNERS' EQUITY (DEFICIT) $ 15,~~603~~200,~~668~~481 $ 15,~~933~~255,~~059~~678 ============ ============

3 FOUNDATION REALTY FUND,LTD. (A Florida Limited Partnership) STATEMENTS OF OPERATIONS (Unaudited) FOR THE SIX MONTHS ENDED JUNE 30

~~FOR~~Property ~~THE~~Operations: ~~NINE~~2002 ~~MONTHS ENDED SEPTEMBER 30~~ 2001 ~~2000~~ ----------- ----------- ~~Property Operations :~~ Rental Income $ 21,~~838~~711,~~252~~139 $ 21,~~712~~898,~~945~~029 Miscellaneous ~~116~~101,~~598~~544 ~~108~~73,~~626~~343 ----------- ----------- 21,~~954~~812,~~850~~683 21,~~821~~971,~~571~~372 Expenses: Depreciation ~~412~~275,~~668~~112 ~~412~~275,~~668~~112 Payroll ~~342~~210,~~410~~890 ~~328~~222,~~109~~771 Real Estate Taxes ~~235~~161,~~962~~430 ~~216~~157,~~027~~308 Utilities ~~126~~81,~~738~~066 ~~157~~79,~~002~~233 Repairs &and Maintenance ~~455~~177,~~535~~488 ~~349~~361,~~466~~571 Property Management ~~- General Partner 148~~92,~~336~~297 ~~139~~99,~~816~~757 ~~Insurance 38,523 34,594~~ Landscaping 6246,~~397~~239 6243,~~623~~910 Other ~~117~~88,~~017~~556 8269,~~550~~715 ----------- ----------- ~~1,939,586 1,782,855~~ Income from Property Operations 1679,~~015,264~~605 1661,~~038,716~~995 Interest Income 212,~~380~~540 2814,~~749~~708 ----------- ----------- 1682,~~036,644~~145 1676,~~067,465~~703 ----------- ----------- Other Expenses: ~~Interest~~Amortization ~~996~~20,~~599~~777 120,~~007,210~~777 ~~Amortization~~Interest 31656,~~166~~738 31664,~~166~~830 General & Administrative - Affiliate 1,~~030~~000 1,~~988~~030 Other General & Administrative ~~111~~7,~~851~~881 6101,~~972~~562 ----------- ----------- 1686,~~140,646~~396 1788,~~047,336~~199 ----------- ----------- Net Income (Loss) ($ ~~104~~(4,~~002~~251) $ 20(111,~~129~~496) =========== =========== Allocation of Net Income (Loss) - Limited Partners ($ 98(4,~~802~~038) $ 19(105,~~123~~921) General Partners $ (213) $ (5,~~200~~575) ~~1,006~~ ----------- ----------- ($ ~~104~~(4,~~002~~251) $ 20(111,~~129~~496) =========== =========== Net Income (Loss) Per Limited Partnership Unit ($ 10.5043) ($ 211.0326) 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

~~FOR~~Property ~~THE~~Operations: ~~THREE~~2002 ~~MONTHS ENDED September 30~~ 2001 ~~2000~~ --------- --------- ~~Property Operations:~~ Rental Income $ ~~940~~825,~~223~~793 $ 934,~~732~~034 Miscellaneous 4365,~~255~~831 3041,~~691~~136 --------- --------- ~~983~~891,~~478~~624 ~~965~~975,~~423~~170 Expenses: Depreciation 137,556 137,556 Payroll ~~119~~107,~~639~~192 ~~127~~113,~~001~~060 Real Estate Taxes 80,715 78,654 ~~72,009~~ Utilities 4739,~~505~~531 8043,~~246~~977 Repairs and Maintenance 93104,~~964~~248 ~~111~~246,~~800~~311 Property Management ~~- General Partner 48~~45,~~579~~500 4749,~~167~~939 ~~Insurance 12,841 11,900~~ Landscaping 1824,~~487~~684 1521,~~347~~427 Other 7243,~~984~~888 1823,~~184~~846 --------- --------- ~~630,209 621,210~~ Income from Property Operations ~~353~~308,~~269~~310 ~~344~~260,~~213~~400 Interest Income 61,~~672~~316 94,~~886~~968 --------- --------- ~~359~~309,~~941~~626 ~~354~~265,~~099~~368 --------- --------- Other Expenses: ~~Interest~~Amortization ~~331~~10,~~769~~388 ~~334~~10,~~845~~388 ~~Amortization~~Interest 10327,~~389~~854 10332,~~389~~017 General ~~and~~& Administrative -Affiliate 0 ~~1,288~~915 Other General ~~and~~& Administrative 105,~~289~~589 2799,~~048~~640 --------- --------- ~~352~~343,~~447~~831 ~~373~~442,~~570~~960 --------- --------- Net Income (Loss) $ 7(34,~~494~~205) ($ 19(177,~~471~~592) ========= ========= Allocation of Net Income (Loss) - Limited Partners $ 7(32,~~119~~495) ($ 18(168,~~497~~712) General Partners ~~375~~$ (~~974~~1,710) $ (8,880) --------- --------- $ 7(34,~~494~~205) ($ 19(177,~~471~~592) ========= ========= Net Income (Loss) Per Limited Partnership Unit $ (3.7645) ($ 1(17.9793) 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 ~~General Total~~ Partners' General Partners' Total Partners' Equity (Deficit) Equity (Deficit) Equity (Deficit) ---------------- ---------------- ---------------- Balance, December 31, ~~1999~~2000 $(1,~~037~~375,~~598~~820) $ (~~254~~250,~~841~~362) $(1,~~292~~626,~~439~~182) Distribution to Partners (~~317~~211,~~487~~658) 0 (~~317~~211,~~487~~658) Net Income (Loss) 19(105,~~123~~921) 1(5,~~006~~575) 20(111,~~129~~496) ----------- ----------- ----------- Balance, ~~September~~June 30, ~~2000~~2001 $(1,~~335~~693,~~962~~399) $ (~~253~~255,~~835~~937) $(1,~~589~~949,~~797~~336) =========== =========== =========== Balance, December 31, ~~2000~~2001 $(1,~~375~~835,~~820~~443) $ (~~250~~252,~~362~~273) $(12,~~626~~087,~~182~~716) Distribution to Partners (~~317~~211,~~486~~658) 0 (~~317~~211,~~486~~658) Net Income (Loss) (984,~~802~~038) (~~5,200~~213) (~~104~~4,~~002~~251) ----------- ----------- ----------- Balance, ~~September~~June 30, ~~2001~~2002 $(12,~~792~~051,~~108~~139) $ (~~255~~252,~~562~~486) $(2,~~047~~303,~~670~~625) =========== =========== ===========

6 FOUNDATION REALTY FUND, LTD. (A Florida Limited Partnership) STATEMENTS OF CASH FLOWS FOR THE SIX MONTHS ENDED June 30 (Unaudited)

2002 2001 ~~2000~~ ---------- ---------- Net Cash Provided byBy Operating Activities: Net Income (Loss) $ (~~104~~4,~~002~~251) $ 20(111,~~129~~496) Adjustments to Reconcile Net Loss to Net Cash Provided by Operating Activities: Depreciation: ~~412~~275,~~668~~112 ~~412~~275,~~668~~112 Amortization 3120,~~166~~777 3120,~~166~~777 Changes in Operating Assets and Liabilities: (Increase) in Prepaids (1618,~~717~~252) (1517,~~840~~939) Increase in Accounts Payable ~~251~~168,~~875~~199 ~~228~~181,~~912~~080 Increase ~~(Decrease)~~ in Security Deposits 35,~~480~~856 34,~~906~~177 Increase (Decrease) in Unearned Rents ~~(12~~94,~~455)~~441 ~~(21~~3,~~703)~~825 (Increase) in Restricted Cash (~~158~~192,~~678~~941) 0(132,821) ----------- ----------- Net Cash Provided by Operating Activities: ~~407~~348,~~337~~941 ~~659~~222,~~238~~715 ----------- ----------- Cash Flows from Investing Activities: Improvements to Apartment Properties (6064,~~061~~036) (5741,~~683~~567) ----------- ----------- Net Cash ~~Used~~used in Investing Activities: (6064,~~061~~036) (5741,~~683~~567) ----------- ----------- Cash ~~Flow~~Flows from Financing Activities: Payments from Notes Payable (~~150~~107,~~803~~784) (~~139~~99,~~573~~691) Distributions to Partners (~~317~~211,~~486~~658) (~~317~~211,~~487~~658) ----------- ----------- Net Cash used by Financing Activities: (~~468~~319,~~289~~442) (~~457~~311,~~060~~349) ----------- ----------- Increase (Decrease) in Cash (~~121~~34,~~013~~537) ~~144~~(130,~~495~~201) Cash and Cash Equivalents at Beginning of ~~period~~Period 584,564 698,333 ~~1,168,611~~ ----------- ----------- Cash and Cash Equivalents at End of ~~period~~Period $ ~~577~~550,~~320~~027 $ 1568,~~313,106~~132 =========== =========== Supplemental Cash Flow Information: Interest Paid $ ~~996~~656,~~599~~738 $ 1664,~~007,210~~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

September 30, December 31 2001 2000 ---- ---- Land $3,141,510 $3,141,510 Buildings 17,298,118 17,298,118 Furniture & Fixtures 2,174,224 2,114,164 --------- --------- Apartment Properties, at Cost 22,613,852 22,553,792 Less: Accumulated Depreciation (8,399,553) (7,986,885) ----------- ----------- $14,214,299 $14,566,907

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