Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
Rental income for the twelve months ended December 31, 1999 was $3,621,098 as compared to $3,545,122 and $3,524,105 for the comparable periods ended December 31, 1998 and December 31, 1997, respectively. Income from property operations for the twelve months ended December 31, 1999 was $1,526,936 as compared to $1,578,145 and $1,441,200 for the comparable periods ended December 31, 1998 and December 31, 1997. The $51,209 decrease in income from property operations in 1999 was a result of increases in operating expenses at the Springfield Apartments. Maintenance and commission payroll increased by $32,000 and capital and recurring replacements items increased by $25,000 and $16,000 respectively. The expense increases were offset by the implementation of several rental rate increases over the past year.
Other expenses increased $18,471 or 14.7%. This increase is primarily attributed to increases of $5,000 and $4,000 in advertising expenditures at the Springfield apartments and Oakwood Village apartments respectively and increases of $2,000 each at the two apartment communities for administrative expenses.
Interest expense decreased from $1,578,445 for the twelve months ended December 31, 1997 to $1,367,180 for the twelve months ended December 31, 1998. This decrease in interest expense is a result of a refinancing of the original debt to loans with a lower interest rate and a replacement of the Oakwood Village First Purchase Money Mortgage with a traditional amortizing loan. In addition, a prepayment penalty of $176,500 was in- curred in 1997 with the replacement of the Springfield Purchase Money First Mortgage. The change in interest expense from 1998 to 1999 is insignificant.
Net income for the twelve months ended December 31, 1999 was $145,734 or $15.50 per Limited Partnership Unit outstanding as compared to net income of $185,026 or $19.67 per Limited Partnership Unit for the comparable period ended December 31, 1998. The primary source of funds in 2000 will accum- ulate from rental operations and investment earnings.
Cash distributions of $352,763, $482,109 and $634,973 a were paid to limited partners and cash distributions of $-0-, $-0-, and $29,706 were paid to the general partners in 1999, 1998, and 1997 respectively. The dis- tributions of cash flow from operations was lower in 1998 compared to 1997 primarily as a result of the higher debt service which occured as a result of refinancing the partnership's original debt in late 1997. The distribution of cash flow to limited partners was $129,346 lower in 1999 compared to 1998. The lower 1999 distribution is a result of the partnership setting aside $107,875 of operating funds for planned capital expenditures in 2000.
Year 2000 Disclosure
The partnership's operations were not affected negatively by the advent of the year 2000. The partnership spent between five and seven thousand dollars towards Y2K preparations and these amounts were expensed due to immateriality.
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 affil- iate 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 opertations 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 are sufficient to meet the short-term operating need of the Partnership.
Cash provided by operating activities increased by $104,685 from 1997 to 1998. The increase is primarily attributed to a $526,963 increase in net income before depreciation offset by a $442,001 decrease in deferred interest on the refinanced Oakwood Village purchase money first mortgage. Cash provided by operating activites decreased by $60,504 from 1998 to 1999. This decrease resulted from a $41,360 lower net income in 1999 compared to 1998 and a decrease in the change of net payable items including trade payables, unearned rents and security deposits of $27,728.
Cash used by investing activities totaled $82,845 for 1998 as compared to $89,194 for 1997. The decrease of $6,349 is primarily attributed to the decline in the number of carpet replacements at both apartment communities. Cash used by investing activities totaled $102,982 in 1999. The $20,137 increase in 1999 is attributed to the purchase and capitalization of exercise equipment and masonary work at the Oakwood Village Apartments and concrete and landscaping improvements at the Springfield Apartments.
Cash used by financing activities totaled $643,971 for 1998 as compared to $695,918 for 1997. The decrease is attributable to a $182,570 decrease in partner distributions offset by the costs and related proceeds and payment of the new partnership debt. Cash used by financing activities totaled $527,486 for 1999 as compared to $643,971 for 1998. This decline was primarily caused by a reduction of $129,346 in partnership distributions from 1998 to 1999 and secondarily by the increased paydown of partnership debt principal as required in the 1997 loan agreements.
Item 8.
Item 8. Financial Statements and Supplementary Data
FOUNDATION REALTY FUND, LTD. (A Florida Limited Partnership)
Part I - Financial Information Page No.
Independent Auditor's Report 7
Balance Sheets as of December 31, 1999 and December 31, 1998 8
Statements of Operations - For the Years Ended December 31, 1999, 1998 and 1997 9
Statements of Partners' Equity - For the Years Ended December 31, 1999, 1998 and 1997 10
Statements of Cash Flows - For the Years Ended December 31, 1999 1998 and 1997 11
Notes to Financial Statements 12-15
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.
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, 1999 and 1998, and the related statements of operations, partners' equity (deficit) and cash flows for each of the three years in the period ended December 31, 1999. 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 generally accepted auditing standards. 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, 1999 and 1998 and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1999 in conformity with generally accepted accounting principles.
SPENCE,MARSTON,BUNCH,MORRIS & CO. Certified Public Accountants
Clearwater, Florida February 21, 2000
FOUNDATION REALTY FUND, LTD. (A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS December 31, 1999
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 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. Profit and loss and cash distributions from sales of properties will be allocated as formulated in the Limited Partnership Agreement.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES:
Basis of Accounting
The Partnership utilizes the accrual basis of accounting whereby revenues are recognized when earned and expenses are recognized as obligations are incurred.
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
Cash and cash equivalents include $392,480 at December 31, 1999 and $328,132 at December 31, 1998 of cash held in escrow for the payment of real estate taxes and capital replacement items. Cash and cash equivalents also include $96,419 at December 31, 1999 and $87,647 at December 31, 1998 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.
Reclassifications
Certain accounts in the prior year financial statements have been reclassed for comparison purposes to conform with the presentation in the current year financial statements.
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:
1999 1998 1997
Property Management Fees $184,729 $ 182,858 $ 179,576 General and Administrative Costs 1,090 950 2,304
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:
December 31, 1999 December 31, 1998
Land $ 3,141,510 $ 3,141,510 Buildings 17,298,118 17,298,118 Furniture & Fixtures 2,045,294 1,942,312 Apartment Properties at Cost 22,484,922 22,381,940
Less: Accumulated Depreciation (7,416,918) (6,855,016)
$15,068,004 $15,526,924
NOTE 5 - 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:
1999 1998 1997 Net income(loss) per financial statements $ 153,404 $194,764 ($296,253) Tax depreciation in excess of or (less than) financial depreciation (140,947) (139,706) (137,773)
Prepaid rents added to taxable income (8,725) 53,655 0
Partnership income(loss) for tax purposes $ 3,732 $108,713 ($434,026)
NOTE 6 - NOTES PAYABLE:
The notes payable at December 31, 1999 and 1998 consist of the following:
1999 1998 Oakwood Village The first mortgage note, which has an interest rate of 7.67%, is payable in monthly installments including principal and interest of $52,777 through December 2004. There is a balloon payment of $6,825,260 due on this loan of the remaining principal and any unpaid interest in December 2004. $7,273,905 $7,346,274
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 December 2004. A prepayment penalty of $176,500 was incurred due to the early loan payoff. There is a balloon payment of $9,653,184 due on this loan of the remaining principal and any unpaid interest in December 2004. 10,287,715 10,390,069 $17,561,620 $17,736,343
The aggregate amount of principal payments due in the years after December 31, 1999 are:
2000 181,865 2001 202,298 2002 218,372 2003 235,722 2004 254,452 Thereafter 16,468,911 $17,561,620
NOTE 7 - EXTRAORDINARY ITEM:
In October 1997, the Springfield purchase money first mortgage was refinanced. A prepayment penalty of $176,500 was incurred because of the early payoff.
NOTE 8 - SUBSEQUENT EVENT:
On February 15, 2000, the Partnership paid distributions of $105,829 to the Limited Partners.
NOTE 9 - COMMITMENT AND CONTINGENCIES:
Upon sale of the Partnership's properties, the General Partners are to receive their undistributed 5% of cash from operations as a priority distribution of the sale proceeds. Cumulative undistributed General Partner distributions totaled $239,869 at December 31, 1999.
Item 9.
Item 9. Disagreements on Accounting and Financial Disclosures
Not applicable.
Item 10.
Item 10. Directors and Executive Officers of the Registrant
The Partnership has no directors or officers.
Item 11.
Item 11. Executive Compensation
The Partnership has no directors or officers.
Item 12.
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.
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, 1999 1998 1997
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. $184,729 $182,858 $179,576
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. 1,090 950 2,304
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- 29,706
PART 4
Item 14.
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
A. 1. Financial Statements - see accompanying index to financial statements, Item 8.
2. Financial Statements Schedules - see accompanying index to financial statements, Item 8.
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 ** 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
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, 2000 By: J.Robert Love President (Signature) Date: March 22, 2000 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, 2000 By: J. Robert Love President (Signature) Date: March 22, 2000 By: Alan G. Lee Secretary (Signature)