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FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES AND EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 0-11909
REALMARK PROPERTY INVESTORS LIMITED PARTNERSHIP - II
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 16-1212761
- -------------------- --------------------------------
(STATE OF FORMATION) (IRS EMPLOYER IDENTIFICATION NO.)
2350 NORTH FOREST ROAD
SUITE 12-A
GETZVILLE, NEW YORK 14068
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICE)
REGISTRANT'S TELEPHONE NUMBER: (716) 636-9090
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: UNITS OF LIMITED
PARTNERSHIP INTEREST
INDICATE BY A CHECK MARK WHETHER THE REGISTRANT: (1) HAS FILED ALL REPORTS
REQUIRED TO BE FILED BY SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH 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 [ ]
INDICATE BY A 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 THE REGISTRANT'S KNOWLEDGE, IN DEFINITIVE PROXY OR INFORMATION
STATEMENTS INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-K OR ANY
AMENDMENT TO THIS FORM 10-K. [X]
DOCUMENTS INCORPORATED BY REFERENCE
SEE ITEM 14 FOR A LIST OF ALL DOCUMENTS INCORPORATED BY REFERENCE
1
PART I
ITEM 1: BUSINESS
The registrant, Realmark Property Investors Limited Partnership-II ("the
Partnership"), is a Delaware limited partnership organized in 1982 pursuant to a
First Amended and Restated Agreement and Certificate of Limited Partnership (the
"Partnership Agreement"), under the Delaware Revised Uniform Limited Partnership
Act. The Partnership's general partners are Realmark Properties, Inc. (the
"Corporate General Partner"), a Delaware corporation, and Joseph M. Jayson (the
"Individual General Partner"). During 1988, Realmark Properties II Associates
("Associates") and RPI Investors-II, Inc. (formerly the "Corporate General
Partner") were merged with Realmark Properties, Inc. (the "Corporate General
Partner").
The Registrant commenced the public offering of its limited partnership
units, registered with the Securities and Exchange Commission under the
Securities Act of 1933, as amended, on September 3, 1982, and concluded the
offering on August 31, 1983, having raised a total of $10,000,000 before sales
commissions and expenses of the offering.
The Partnership's primary business and its only industry segment is to own
and operate income-producing real property for the benefit of its limited
partners. The Partnership presently owns an office complex in Michigan
(Northwind Office Park), and is a partner in three joint ventures: the Research
Triangle Joint Venture in Durham County, North Carolina; the Research Land Joint
Venture also in Durham County, North Carolina; and the Foxhunt Apartments Joint
Venture formed for the purpose of operating a 250 unit apartment complex in
Kettering, Ohio. The Partnership sold the Colony of Kettering Apartments,
located in Kettering, Ohio in December 1986 and Phase-I of Research Triangle
Joint Venture in June 1987.
The business of the Partnership is not seasonal. The Partnership, as of
December 31, 1999, did not directly employ any persons in a full-time position.
All regular employees who rendered services on behalf of the Partnership through
December 31, 1999 were employees of the Corporate General Partner or its
affiliates.
For the year ended December 31, 1999, Foxhunt accounted for 71% of the
total Partnership revenue, with Northwind generating roughly 29% of total
revenue, respectively. For the years ended December 31, 1998 and 1997,
approximately 72% of total Partnership revenue was generated by the Foxhunt
Apartments. The remaining 28% is attributed to Northwind.
The financial statements and financial statement schedule have been
prepared assuming that the Partnership will continue as a going concern. The
Partnership has recurring losses from operations, a partners' deficit, operating
cash flow difficulties and a mortgage payable.
2
ITEM 1: BUSINESS (CONT'D)
These issues raise substantial doubt about the Partnership's ability to
continue as a going concern. Management's plans concerning these matters are
described in note 10 to the financial statements. The financial statements do
not include any adjustments that might result from the outcome of this
uncertainty. Please refer to Item 7 and Note 10 to the financial statements for
more information regarding this issue.
This annual report contains certain forward-looking statements concerning
the Partnership's current expectations as to future results. Such
forward-looking statements are contained in Item 7: Management's Discussion and
Analysis of Financial Condition and Results of Operations. Words such as
"believes", "forecasts", "intends", "possible", "expects", "estimates",
"anticipates" or "plans" and similar expressions are intended to identify
forward-looking statements.
ITEM 2: PROPERTIES
As of December 31, 1999, the Partnership continues to own Northwind Office
Park, an office complex located in East Lansing, Michigan. The property consists
of five office buildings, two stories each, containing a total of 89,200 gross
square feet, and 70,713 net rentable square feet. At December 31, 1999,
Northwind was 86% occupied. The 1998 occupancy was 67%, while 1997 occupancy was
56%.
The first mortgage in the amount of $362,944 bears interest at 9.75% and
provides for monthly principal and interest payments of $12,305, with the
remaining balance due in December 2002.
The second mortgage with a carrying amount of $206,694 bears interest at 9%
and provides for monthly principal and interest payments of $4,828, which the
partnership continues to pay. The remaining balance was originally due in
September 1995. No extension has been granted to the Partnership. The balance is
currently payable on demand, while the Partnership continues to seek
refinancing. The lender could declare a default but has not and it is not
anticipated that the lender will do so because of the low balance remaining on
the mortgage.
The Partnership, as of December 31, 1999, continues to own a 50% interest
in Research Triangle Industrial Park West Joint Venture ("Joint Venture"). In
December 1983, the Joint Venture acquired approximately 56.3 acres of land from
Research Triangle Industrial Park West Associates (a North Carolina General
Partnership) ("Research"), and subsequently constructed a 42,000 square foot
office building and a 101,000 square foot office/warehouse distribution building
in Phase-I (which was sold in June 1987), and a 117,000 square foot
office/warehouse distribution building in Phase-II. For the fifth consecutive
year, Research Triangle was 100% occupied.
3
ITEM 2: PROPERTIES (CON'T.)
Pursuant to an agreement dated September 27, 1991, the Partnership formed a
joint venture for the purposes of operating the Foxhunt apartment complex
located in Kettering, Ohio. The other two joint venturers originally contributed
a combined $1,431,568 to the joint venture, while the Partnership contributed
the property net of the first mortgage. Subsequently, the Partnership bought out
one joint venturer while reducing the ownership percentage held by the other.
The Partnership now owns 88.5% of the joint venture. At December 31, 1999 the
mortgage balance was $6,000,000, with a fixed interest rate (8.05% at December
31, 1999). The mortgage is due in December 2009.
The apartment complex consists of 250 units and is situated on 14.7 acres
of land. The current agreement provides that the Partnership be allocated 88.5%
of any income, loss, gain, cash flow, or sale proceeds. The property is managed
by Realmark Corporation, an affiliate of the General Partner. Occupancy for
Foxhunt at December 31, 1999 was 94%. The 1998 occupancy was 86% and 1997
occupancy was 89%. Management believes that this increase in occupancy is due to
significant maintenance done to the property.
On August 20, 1992, the Partnership entered into an agreement with the
Adaron Group to form the Research Triangle Land Joint Venture. The primary
purpose of this joint venture is to develop additional land on the site of
Research Triangle Industrial Park West. This land was placed in the Land Joint
Venture by Research Triangle Industrial Park West. The value allocated to the
land in this joint venture is shown at cost of $432,984. This joint venture has
no outstanding debt at December 31, 1999.
ITEM 3: LEGAL PROCEEDINGS
The Partnership is not a party to, nor is any of the Partnership's property
the subject of, any material pending legal proceedings that would impact the
future financial position and operations of the Partnership.
ITEM 4: SUBMISSIONS OF MATTERS TO A VOTE OF SECURITY
HOLDERS
None.
4
PART II
ITEM 5: MARKET FOR REGISTRANT'S UNITS OF LIMITED
PARTNERSHIP INTEREST
There is currently no active trading market for the units of Limited
Partnership Interest of the Partnership and it is not anticipated that any will
develop in the future.
As of December 31, 1999, there were 1,153 record holders of units of
Limited Partnership Interest.
There were no Partnership distributions for the years ended December 31,
1999, 1998 or 1997.
5
ITEM 6: SELECTED FINANCIAL DATA
Realmark Properties Investors Limited Partnership
--------------------------------------------------------------------------------
Year Ended Year Ended Year Ended Year Ended Year Ended
Dec. 31, 1999 Dec. 31, 1998 Dec. 31, 1997 Dec. 31, 1996 Dec. 31, 1995
------------- ------------- ------------- ------------- -------------
Total assets $5,039,970 $5,782,341 $5,349,284 $5,806,656 $6,306,118
========== ========== ========== ========== ==========
Mortgages and
Notes payable $6,569,638 $6,710,685 $5,343,052 $5,514,863 $5,649,616
========== ========== ========== ========== ==========
Income $2,128,520 $1,930,721 $1,986,024 $1,816,085 $1,946,238
Expenses 2,826,535 3,125,654 2,340,404 2,196,931 2,615,580
---------- ---------- ---------- ---------- ----------
Loss before allocated
income (loss) from
Joint Ventures and
Minority Interest
(698,015) (1,194,933) (354,380) (380,846) (669,342)
Income (loss) from Joint
Venture 122,437 87,609 196,633 (52,873) (92,939)
Loss (income) allocated
to Minority Interest
54,127 108,517 (4,781) 14,942 31,098
--------- ---------- ---------- ---------- ----------
Net loss $(521,451) $ (998,807) $ (162,528) $ (418,777) $ (731,183)
========== =========== =========== ========== ===========
Net cash (used in)
provided by operating
activities
$(237,102) $ (562,129) $ 23,261 $ (28,291) $ (24,770)
Collection of mortgage
receivable
- - - - -
Principal payments on
long-term debt net of
debt refinancing
(141,047) (119,003) (171,811) (134,753) (124,500)
Net cash (used in)
operating
activities and
collection of mortgage
receivables less
principal payments on
long-term debt
$(378,149) $ (681,132) $ (148,550) $ (163,044) $ (149,270)
========== ========== ========== ========== ==========
Loss per limited
partnership unit (50.58) $ (96.88) $ (15.77) $ 40.62 $ (70.92)
========== ========== ========== ========== ==========
Distribution per limited
partnership unit $ - $ - $ - $ - $ -
========== ========== ========== ========== ==========
Weighted average number of
units outstanding 10,000 10,000 10,000 10,000 10,000
========== ========== ========== ========== ==========
6
ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES:
The Partnership utilized existing cash reserves to fund current operations
because there was a minor cash flow problem. However, the Partnership did
receive distributions from the Research Triangle Office Complex and cash
generated by Foxhunt Apartments. As has been true for several years, Research
Triangle continues to benefit from high occupancy due to tenant retention.
Foxhunt Apartments saw a slight increase in occupancy during the year ended
December 31, 1999 as compared to that of the previous year; occupancy at
December 31, 1999 was 94% versus 86% at December 31, 1998. Management believes
that the occupancy level has stabilized over the past year due to significant
maintenance being done to the property, which was funded by reserves and cash
flow from operations. The property has replaced carpeting throughout much of the
complex, has completed the hallways in 1999, has re-paved the entire parking
area, and has completed all contracted roof repairs, which was funded by
reserves and cash flow from operations. Northwind Office Complex experienced
cash flow difficulties during part of the 1999 year. However, the complex closed
the year at 86% occupancy. Management continues to aggressively market this
property in local rental guides and newspapers in search of tenants, however
market conditions in East Lansing, Michigan continue to make it difficult to
compete with newer, more updated office buildings which have been built in the
same area. Management renamed the complex Executive Office Park in 2000 and
installed all new signage, began to install new carpeting and fresh coats of
paint and/or wall covering in all hallways, new lights in all hallways, all new
bathrooms and the setting up of a common conference center available for use by
all tenants. The approximate cost of all renovations is expected to be $300,000
and the work should be completed by late-2000. These renovations are funded by
reserves and cash flow from operations. Northwind's cash flow shortages have
caused it to fall behind by over two years in the payment of its real estate
taxes. This delinquency may result in substantial penalties and/or the
Partnership could lose the property. In addition, one of Northwind's outstanding
mortgages came due in September 1995, and to date management has been unable to
refinance the debt. The mortgage holder continues to accept payments of interest
and principal, although the mortgage holder is unwilling to grant a "formal"
extension and therefore the debt is technically in default. Unless management is
able to refinance this property in the near future, the property could be lost
in a foreclosure. Management discontinued its plan to dispose of the property as
of April 1, 1999.
Management successfully refinanced Foxhunt Apartments during 1999; the
building has a $6,000,000 interest and principal mortgage which replaced its
previous one year bridge which had a balance of $6,000,000 at December 31, 1998.
The new mortgage is set up as an 8.05% interest loan which matures in December
2009. Starting July 1, 1999, management began marketing Foxhunt Apartments for
sale. Marketing efforts will include advertising in national newspapers, such as
The Wall Street Journal, and mailing of sales packages and follow-up telephone
calls to brokers. Such Marketing Efforts are funded by reserves and cash flow
from operations. Currently offers have been received, but they have been lower
than what management believes the property is worth in the current marketplace.
Foxhunt had come under contract for sale in July of 1996. The sale was subject
to a number of contingencies and was cancelable at any time by the buyer. During
1997, the contract for sale was canceled by the buyer.
7
ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CON'T.)
LIQUIDITY AND CAPITAL RESOURCES (CON'T.):
The Partnership made no distributions during the years ended December 31,
1999, 1998 or 1997. While it is management's desire to once again make
distributions in the coming year, at this date, all available cash continues to
be utilized to fund necessary improvements to the properties.
The Partnership conducted a review of its computer systems to identify the
systems that could have been affected by the "year 2000 issue" and implemented a
plan to resolve such issues. The year 2000 issue is the result of computer
programs being written using two digits rather than four digits to define the
applicable year. Computer programs that have time-sensitive software may
recognize a date using "00" as the year 1900 rather than the year 2000. This
could have resulted in a system failure or miscalculations causing disruptions
of operations, including, among other things, a temporary inability to process
transactions, send invoices, or engage in similar normal business activities.
Management contracted with outside independent computer consultants to resolve
the issue. The majority of the software in use is "2000 compliant" or was added
at no significant cost. Management also engaged a computer firm to re-write its
tax software making it Year 2000 compliant. Management did not experience any
significant problems with its computers as a result of the year 2000 issue and
does not anticipate any such problems in the future.
RESULTS OF OPERATIONS:
For the year ended December 31, 1999, the Partnership incurred a net loss
of $521,451 or $50.58 per limited partnership unit. This is a significant
decrease in the loss as compared to the loss from the year ended December 31,
1998 when the loss incurred totaled $998,807 or $96.88 per limited partnership
unit. There was a significant increase in the loss as compared to the loss from
the year ended December 31st 1997 when the loss incurred totaled $162,528 or
$15.77 per limited partnership unit.
Partnership revenues for the year ended December 31, 1999 totaled
$2,128,520, consisting of rental income of $1,993,775 and other income, which
includes interest, laundry income, and other miscellaneous sources of income of
$134,745. The increase in rental revenue compared to the previous year is
primarily the result of increased occupancy at Foxhunt Apartments. Similarly,
Northwind Office complex continued to improve with higher occupancy levels
reaching 86% at the end of 1999, which although improved from the occupancy at
December 31, 1998 of 67%, is still too low to generate positive cash flow.
Management continues to put forth effort to increase occupancy at Northwind
through attractive incentives to new tenants and increased leasing commissions
offered to agents/brokers. The building is undergoing extensive capital
improvements which include new carpeting, lights and paint in all common areas,
new signage and the addition of a common conference center for use by all
tenants, paid for by reserves and cash flow from operations. While incentive
programs and capital improvement work will most likely decrease cash flow
further in the Partnership in the short-term, management believes the potential
increase in occupancy will more than make up for such a short-term decrease.
Partnership rental revenues in the year ended December 31, 1998 amounted to
$1,786,424 and in the year ended December 31, 1997 totaled $1,896,470.
8
ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CON'T.)
RESULTS OF OPERATIONS (CON'T.):
There was also a slight decrease in other income during the year ended
December 31, 1999 as compared to 1998 and a notable increase over 1997. The
decrease over that of the year ended December 31, 1998 approximated 7%. The
slight decrease is primarily the result of a decrease in laundry income
collected. As compared to December 31, 1997 there was a 34% increase.
Partnership expenses for the year ended December 31, 1999 totaled
$2,826,535, a decrease of $299,119 from those of the year ended December 31,
1998 which totaled $3,125,654 and an increase of $486,131 from the year ended
December 31, 1997 which totaled $2,340,404. The largest decrease in expenses was
in interest where the decrease between the years ended December 31, 1999 and
1998 was approximately 26%. This was due to the refinancing of Foxhunt's
mortgage.
Expenses from property operations were significantly greater in 1999
($1,434,757) and 1998 ($1,535,654) as compared to 1997 ($1,015,681). The
increase is attributable to major maintenance at Foxhunt which was commenced in
1998 and completed in 1999. Such maintenance included expenditures for carpeting
common areas and a considerable number of apartments, structural repairs and
significant replacement of appliances. Interest expense also decreased in 1999
and 1998. This decrease is attributed to the write-off of a considerable portion
of mortgage acquisition costs relating to the refinanced Foxhunt mortgage. No
depreciation was taken on its Northwind Office Complex during 1998. In 1998 this
property was deemed to be "held for sale" under accounting pronouncements (see
note 3 in the financial statements). In 1999 Northwind's depreciation resumed as
of April 1, 1999. Foxhunt depreciation ceased to be taken as of July 1, 1999 due
to the property being deemed "held for sale."
The Partnership should incur lower property operations expenses in the near
future at Foxhunt Apartments and the property operation expenses will be higher
than normal at Northwind Office Complex based upon scheduled capital
improvements, which are funded by reserves and cash flow from operations (note:
these are not all improvements resulting in capitalizable assets). Although this
work is necessary in order to increase rental revenue generated at both of these
properties, management continues to keep in mind that expenditures must be
closely monitored so as not to worsen the cash flow from operations of the
Partnership.
The Research Triangle Industrial Park West Joint Venture had net income of
$255,346, $175,218 and $65,136 for the years ended December 31, 1999, 1998 and
1997, respectively. Regular increases in rental income are expected due to
rental escalation clauses in several of the tenants' leases. In accordance with
the joint venture agreement, one-half of the income or loss is allocated to each
joint venturer.
9
ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CON'T.)
RESULTS OF OPERATIONS (CON'T.):
The Foxhunt Joint Venture generated a net loss of $470,672 for the year
ended December 31, 1999 as compared to the loss of $943,631 which resulted in
the year ended December 31, 1998 and the gain of $41,574 which was reported for
1997. In accordance with the joint venture agreement, $54,127 of the 1999 loss
is allocated to the other joint venture partner; $108,517 of the 1998 loss was
allocable to the other joint venturer, while for the year 1997, $4,781 of the
reported income was allocable to the other venturer.
For the year ended December 31, 1999, the tax basis loss was $373,513 or
$36.23 per limited partnership unit compared to a tax loss of 1,176,699 or
$114.14 per unit for the year ended December 31, 1998 and a tax loss of $171,219
or $16.61 per limited partnership unit for the year ended December 31, 1997. The
Partnership agreement provides for the taxable income or losses to be allocated
97% to the Limited Partners and 3% to the General Partners, and in accordance
with this and the Internal Revenue Code, the loss for the years ended December
31, 1999, 1998 and 1997 was allocated in this fashion.
ITEM 7A: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Partnership does not have investments in instruments which are subject
to market risk (e.g., derivatives, options or other interest sensitive
instruments).
ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Listed under Item 14 of this report.
ITEM 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
As reported on Form 8-K/A, filed with the Securities and Exchange
Commission on April 17, 2000, and incorporated herein by reference in its
entirety: (i) Deloitte & Touche LLP notified the Company on January 11, 2000
that its relationship as the principal accountants to audit the Company's
financial statements had ceased; and (ii) effective January 28, 2000, the
Company engaged Toski, Schaefer & Co., P.C. as its independent accountants.
10
PART III
ITEM 10: DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The Partnership, as an entity, does not have any directors or officers. The
Individual General Partner of the Partnership is Joseph M. Jayson. The directors
and executive officers of Realmark Properties, Inc., the Partnership's Corporate
General Partner, as of December 31, 1999, are listed below. Each director is
subject to election on an annual basis.
TITLE OF ALL POSITIONS YEAR FIRST
NAME HELD WITH THE COMPANY ELECTED TO POSITION
- --------------------- --------------------- -------------------
Joseph M. Jayson President and Director 1979
Judith P. Jayson Vice President and Director 1979
Michael J. Colmerauer Secretary 1991
Joseph M. Jayson, President and Director of Realmark Properties, Inc. and
Judith P. Jayson, Vice President and Director of Realmark Properties, Inc., are
married to each other.
The Directors and Executive Officers of the Corporate General Partner and
their principal occupations and affiliations during the last six years or more
are as follows:
Joseph M. Jayson, age 61, is Chairman, Director and sole stockholder of J.
M. Jayson and Company, Inc. and certain of its affiliated companies: U.S.
Apartments LLC, Westmoreland Capital Corporation, Oilmark Corporation and U.S.
Energy Development Corporation. In addition, Mr. Jayson is chairman of Realmark
Corporation, Chairman of Realmark Properties, Inc., wholly-owned subsidiaries of
J. M. Jayson and Company, Inc. and co-general partner of Realmark Property
Investors Limited Partnership, Realmark Property Investors Limited
Partnership-II, Realmark Property Investors Limited Partnership-III, Realmark
Property Investors Limited Partnership-IV, Realmark Property Investors Limited
Partnership-V, Realmark Property Investors Limited Partnership-VI A, and
Realmark Property Investors Limited Partnership VI B. Mr. Jayson is a member of
the Investment Advisory Board of the Corporate General Partner. Mr. Jayson has
been in real estate for the last 37 years and is a Certified Property Manager as
designated by the Institute of Real Estate Management ("I.R.E.M."). Mr. Jayson
received a B.S. Degree in Education in 1961 from Indiana University , a Masters
Degree from the University of Buffalo in 1963, and has served on the Educational
Faculty of the Institute of Real Estate Management. Mr. Jayson has for the last
36 years been engaged in various aspects of real estate brokerage and
investment. He brokered residential properties from 1962 to 1964, commercial
investment properties from 1964 to 1967, and in 1967 left commercial real estate
to form his own investment firm. Since that time, Mr. Jayson and J. M. Jayson &
Company, Inc. have formed or participated in various ways with forming over 30
real estate related limited partnerships. For the past eighteen years, Mr.
Jayson and an affiliate have also engaged in developmental drilling for gas and
oil.
11
ITEM 10: DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT (CON'T.)
Judith P. Jayson, age 59, is currently Vice President and a Director of
Realmark Properties, Inc. She is also a Director of the property management
affiliate, Realmark Corporation. Mrs. Jayson has been involved in property
management for the last 28 years and has extensive experience in the hiring and
training of property management personnel and in directing, developing and
implementing property management systems and programs. Mrs. Jayson, prior to
joining the firm in 1973, taught business in the Buffalo, New York High School
System. Mrs. Jayson graduated from St. Mary of the Woods College in Terre Haute,
Indiana, with a degree in Business Administration. Mrs. Jayson is the wife of
Joseph M. Jayson, the Individual General Partner.
Michael J. Colmerauer, 42, is Secretary and in-house legal counsel for J.M.
Jayson and Company, Inc., Realmark Corporation, Realmark Properties, Inc. and
other companies affiliated with the General Partners. He received a Bachelor's
Degree (BA) from Canisius College in 1980 and a Juris Doctors (J.D.) from the
University of Tulsa in 1983. Mr. Colmerauer is a member of the American and Erie
County Bar Association and has been employed by the Jayson group of companies
for the last 16 years.
ITEM 11: EXECUTIVE COMPENSATION
No direct remuneration was paid or payable by the Partnership to directors
and officers (since it has no directors or officers) for the years ended
December 31, 1999, 1998 or 1997, nor was any direct remuneration paid or payable
by the Partnership to directors or officers of Realmark Properties, Inc., the
Corporate General Partner and sponsor, for the years ended December 31, 1999,
1998 or 1997.
12
ITEM 11: EXECUTIVE COMPENSATION (CON'T.)
The following table sets forth for the years ended December 31, 1999, 1998
and 1997, the compensation paid by the Partnership, directly or indirectly, to
affiliates of the General Partners (all of which are owned entirely by Joseph M.
Jayson):
Amounts
---------------------------
Entity Receiving Compensation Type of Compensation 1999 1998 1997
----------------------------- -------------------- ---- ---- ----
U.S. Capital Services Corp. Loan Placement Fees $ 60,000 $60,000 $ -
======== ======= =====
Realmark Properties, Inc. (The
Corporate General Partner)
Reimbursement for
allocated partnership
administration
expenses related to:
Investor Services
Brokerage 9,296 $ 7,305 $ 7,761
Portfolio Management
and Accounting 13,967 15,489 15,529
37,101 54,840 69,956
Realmark Corporation Property Management Fees
100,939 91,032 96,762
Computer Service Fees 4,560 4,560 4,560
-------- -------- --------
Total $225,863 $173,226 $194,568
======== ======== ========
The Corporate General Partner is entitled to a continuing Partnership
Management Fee equal to 7% of net cash flow (as defined in the Partnership
Agreement) of which 2% is subordinated to the receipt by the Limited Partners of
a noncumulative annual cash return equal to 7% of the average of their adjusted
Capital Contributions (as defined in the Partnership Agreement). Since the net
cash flow of the Partnership, as defined in the agreement, was negative for the
years ended December 31, 1999, 1998 and 1997, no fees were earned by the
corporate General Partner for those years. The General Partners are entitled to
3% of Distributable Cash (as defined in the Partnership Agreement) and to
certain expense reimbursements with respect to Partnership operations.
The General Partners are allowed to collect property disposition fees upon
sale of acquired properties. This fee is not to exceed the lesser of 50% of
amounts customarily charged in arm's length transactions by others rendering
similar services for comparable properties or 3% of the sales price. The
property disposition fee is subordinate to payments to the limited partners of a
cumulative annual return (not compounded) equal to 7% of their average adjusted
capital balances and to
13
repayment to the limited partners of a cumulative amount equal to their
capital contributions. The fees earned on the sale of Colony of Kettering in
1986 and Phase I of Research Triangle in 1987 will not exceed $115,500 and
$315,000 respectively. These amounts will not be recorded as a liability in the
Partnership's financial statements until such time as payment is probable which
is highly unlikely.
ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
No person is known to the Partnership to own of record or beneficially,
more than five percent (5%) of the Units of Limited Partnership Interests of the
Partnership. Excluding the General Partners' interest in the Partnership ($1,000
initial capital contribution), the Corporate General Partner, as of December 31,
1999 owned no Units of Limited Partnership Interest. Joseph M. Jayson, the
Individual General Partner and his wife, Judith P. Jayson, Vice-President of the
Corporate General Partner, owned an aggregate of eight (8) Limited Partnership
Units ($8,000) as of December 31, 1999.
ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
(a) TRANSACTIONS WITH MANAGEMENT AND OTHERS
No transactions have occurred between the Partnership and those in the
management of Realmark Properties, Inc. All transactions between the Partnership
and Realmark Properties, Inc. (the Corporate General Partner) and any other
affiliated organization are described in Item 11 of this report and in Notes 4
and 7 to the financial statements.
(b) CERTAIN BUSINESS RELATIONSHIPS
No transactions have occurred between the Partnership and those in the
management of Realmark Properties, Inc. All transactions between the Partnership
and Realmark Properties, Inc. (the Corporate General Partner) and any other
affiliated organization are described in Item 11 of this report and in Notes 4
and 7 to the financial statements.
14
ITEM 14: EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES, AND
REPORTS ON FORM 8-K
(a) FINANCIAL STATEMENTS AND SCHEDULES
FINANCIAL STATEMENTS PAGE
(i) Independent Auditors' Report F-1
(ii) Independent Auditors' Report for the
two fiscal years ended December 31, 1998 F-2
(iii) Balance Sheets as of December 31, 1999 and 1998 F-3
(iv) Statements of Operations for the years ended December 31,
1999, 1998, and 1997 F-4
(v) Statements of Partners' Deficit for the years ended
December 31, 1999, 1998, and 1997 F-5
(vi) Statements of Cash Flows for the years ended
December 31, 1999, 1998, and 1997 F-6
(vii) Notes to Financial Statements F-7
FINANCIAL STATEMENT SCHEDULES
(i) Schedule III - Real Estate and Accumulated Depreciation F-21
All other schedules are omitted because they are not applicable or the
required information is shown in the financial statements or the notes thereto.
(b) REPORTS ON FORM 8-K
None.
(c) EXHIBITS
4. Instruments defining the rights of security holders, including
indentures
(a) First Amended and Restated Agreement and Certificate of Limited
Partnership filed with the Registration Statement of the
Registrant Form S-11, filed September 30, 1982 and subsequently
amended, incorporated herein by reference.
10. Material contracts
(a) Property Management Agreement with Realmark Corporation included
with the Registration Statement of the Registrant as filed and
amended to date incorporated herein by reference.
(b) Property sales agreement with unrelated third-party included with
1996 third quarter Form 10-Q incorporated herein by reference.
15
27. Financial Data Schedule
(a) Schedule is included herewith.
16
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
REALMARK PROPERTY INVESTORS
LIMITED PARTNERSHIP - II
BY: /s/ JOSEPH M. JAYSON APRIL 18, 2000
--------------------------- ----------------------
JOSEPH M. JAYSON, DATE
INDIVIDUAL GENERAL PARTNER
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
BY: REALMARK PROPERTIES, INC.
CORPORATE GENERAL PARTNER
/s/ JOSEPH M. JAYSON APRIL 18, 2000
--------------------------- ----------------------
JOSEPH M. JAYSON, DATE
PRESIDENT AND DIRECTOR
/s/ JUDITH P. JAYSON APRIL 18, 2000
--------------------------- ----------------------
JUDITH P. JAYSON, DATE
DIRECTOR
/s/ MICHAEL J. COLMERAUER APRIL 18, 2000
--------------------------- ----------------------
MICHAEL J. COLMERAUER DATE
SECRETARY
INDEPENDENT AUDITOR'S REPORT
The Partners
Realmark Property Investors Limited Partnership-II:
We have audited the accompanying balance sheet of Realmark Property Investors
Limited Partnership-II as of December 31, 1999, and the related statements of
operations, partners' deficit, and cash flows for the year ended December 31,
1999. Our audit also included the financial statement schedule listed in the
index at Item 14. These financial statements and the financial statement
schedule are the responsibility of the General Partners. Our responsibility is
to express an opinion on the financial statements and the financial statement
schedule based on our audit. The financial statements of Realmark Property
Investors Limited Partnership-II for the years ended December 31, 1998 and 1997
were audited by other auditors whose report dated April 12, 1999, on those
statements included an explanatory paragraph that described substantial doubt
about the Partnership's ability to continue as a going concern as discussed in
note 10 to those financial statements.
We conducted our audit in accordance with generally accepted auditing standards.
Those 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 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 the
General Partners, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the financial statements present fairly, in all material
respects, the financial position of Realmark Property Investors Limited
Partnership-II as of December 31, 1999, and the results of its operations and
its cash flows for the year then ended, in conformity with generally accepted
accounting principles. Also, in our opinion, the financial statement schedule,
when considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
The accompanying financial statements and financial statement schedule have been
prepared assuming that the Partnership will continue as a going concern. As
discussed in note 10 to the financial statements, the Partnership's recurring
losses from operations, partners' deficit and the current nature of its mortgage
payable raise substantial doubt about its ability to continue as a going
concern. Management's plans concerning these matters are also described in note
10. The financial statements do not include any adjustments that might result
from the outcome of this uncertainty.
Toski, Schaefer & Co., P.C.
Williamsville, New York
March 29, 2000
F-1
INDEPENDENT AUDITORS' REPORT
The Partners
Realmark Property Investors Limited Partnership-II:
We have audited the accompanying balance sheet of Realmark Property Investors
Limited Partnership-II (the Partnership) as of December 31, 1998, and the
related statements of operations, partners' deficit, and cash flows for each of
the two years in the period ended December 31, 1998. Our audits also included
the financial statement schedule listed in the Index at Item 14. These financial
statements and financial statement schedule are the responsibility of the
General Partners. Our responsibility is to express an opinion on the financial
statements and the financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit 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 the
General Partners, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of the Partnership at December 31, 1998, and
the results of its operations and its cash flows for each of the two years in
the period ended December 31, 1998 in conformity with generally accepted
accounting principles. Also, in our opinion, such financial statement schedule,
when considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein. The
accompanying financial statements and financial statement schedule have been
prepared assuming that the Partnership will continue as a going concern. As
discussed in Note 10 to those financial statements, the Partnership's recurring
losses from operations, partners' deficit, and the current nature of its
mortgages payable raise substantial doubt about its ability to continue as a
going concern. Management's plans concerning these matters are also described in
Note 10 to those financial statements. The financial statements do not include
any adjustments that might result from the outcome of this uncertainty.
DELOITTE & TOUCHE LLP
Buffalo, New York
April 12, 1999
F-2
REALMARK PROPERTY INVESTORS LIMITED PARTNERSHIP - II
Balance Sheets
December 31, 1999 and 1998
Assets 1999 1998
-------------- ------------ ---------
Property and equipment, at cost (including assets held for sale, note 3):
Land $ 848,015 848,015
Buildings and improvements 9,161,085 9,009,386
Furniture, fixtures and equipment 441,860 439,647
------------ ----------
10,450,960 10,297,048
Less accumulated depreciation 5,867,469 5,607,242
------------ ----------
Net property and equipment 4,583,491 4,689,806
Cash 141,101 498,376
Escrow deposits 71,736 375,833
Accounts receivable, net of allowance for doubtful accounts of
$153,941 and $95,898 for 1999 and 1998, respectively 10,479 9,591
Accounts receivable - affiliates 126,347 78,416
Mortgage costs, net of accumulated amortization of
$1,200 and $92,078 in 1999 and 1998, respectively 95,983 128,910
----------- ----------
Other assets 10,833 1,409
Total assets $ 5,039,970 5,782,341
=========== ==========
Liabilities and Partners' Deficit
Liabilities:
Mortgages payable 6,569,638 6,710,685
Accounts payable and accrued expenses 469,611 593,911
Security deposits and prepaid rents 150,195 142,255
------------ -----------
Total liabilities 7,189,444 7,446,851
----------- -----------
Losses of unconsolidated joint ventures in excess of investment 1,085,462 883,135
Minority interest in consolidated joint venture 101,544 267,384
Partners' deficit:
General partners (260,850) (245,206)
Limited partners (3,075,630) (2,569,823)
----------- -----------
Total partners' deficit (3,336,480) (2,815,029)
----------- -----------
Total liabilities and partners' deficit $ 5,039,970 5,782,341
=========== ===========
See accompanying notes to financial statements
F-3
REALMARK PROPERTY INVESTORS LIMITED PARTNERSHIP - II
Statements of Operations
Years ended December 31, 1999, 1998 and 1997
1999 1998 1997
---- ---- ----
Income:
Rental $ 1,993,775 1,786,424 1,896,470
Interest and other 134,745 144,297 89,554
----------- ---------- ---------
Total income 2,128,520 1,930,721 1,986,024
Expenses:
Property operations 1,434,757 1,535,654 1,015,681
Interest 709,493 960,557 528,571
Depreciation 262,181 215,334 412,446
Administrative:
To affiliates 165,863 173,226 194,568
Other 254,241 240,883 189,138
--------- --------- ---------
Total expenses 2,826,535 3,125,654 2,340,404
--------- --------- ---------
Loss before allocated income from joint
ventures and loss (income) allocated to
minority interest (698,015) (1,194,933) (354,380)
Allocated income from joint ventures 122,437 87,609 196,633
Loss (income) allocated to minority interest 54,127 108,517 (4,781)
----------- ---------- ---------
Net loss $ (521,451) (998,807) (162,528)
=========== ========== =========
Loss per limited partnership unit $ (50.58) (96.88) (15.77)
=========== =========== ============
Weighted average number of limited partnership
units outstanding 10,000 10,000 10,000
=========== ========== ==========
See accompanying notes to financial statements
F-4
REALMARK PROPERTY INVESTORS LIMITED PARTNERSHIP - II
Statements of Partners' Deficit
Years ended December 31, 1999, 1998 and 1997
General Limited Partners
Partners Units Amount
-------- ----- ------
Balances at December 31, 1996 $ (210,366) 10,000 (1,443,328)
Net loss (4,876) - (157,652)
Balances at December 31, 1997 (215,242) 10,000 (1,600,980)
Net loss (29,964) - (968,843)
Balances at December 31, 1998 (245,206) 10,000 (2,569,823)
Net loss (15,644) - (505,807)
Balances at December 31, 1999 $ (260,850) 10,000 (3,075,630)
========== ====== ==========
See accompanying notes to financial statements
F-5
REALMARK PROPERTY INVESTORS LIMITED PARTNERSHIP - II
Statements of Cash Flows
Years ended December 31, 1999, 1998 and 1997
1999 1998 1997
----------- -------- --------
Cash flows from operating activities:
Net loss $ (521,451) (998,807) (162,528)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization 402,391 552,954 420,841
Allocated (income) loss from joint venture (127,673) (87,609) (196,633)
Income (loss) allocated to minority interest (54,127) (108,517) 4,781
Distributions to minority interest (111,713) - -
(Increase) decrease in:
Cash - security deposits - - 50,510
Escrow deposits 304,097 (98,267) (18,457)
Accounts receivable (888) (6,745) 3,577
Other assets (11,378) 17,541 9,315
Increase (decrease) in:
Accounts payable and accrued expenses (124,300) 95,949 (77,250)
Security deposits and prepaid rents 7,940 71,372 (10,895)
----------- -------- --------
Net cash provided by (used in)
operating activities (237,102) (562,129) 23,261
----------- -------- -------
Cash flows from investing activities:
(Increase) decrease in accounts receivable - affiliates (47,931) (78,416) -
Additions to property and equipment (153,912) (100,760) (16,135)
Distributions received from joint venture 330,000 250,000 -
----------- -------- -------
Net cash provided by (used in)
investing activities 128,157 70,824 (16,135)
----------- -------- --------
Cash flows from financing activities:
(Decrease) increase in cash overdraft - (80,295) 80,295
(Decrease) increase in accounts payable - affiliates - (76,669) 76,669
Proceeds from mortgage refinancing 6,000,000 6,000,000 -
Principal payments upon refinancing (6,000,000) (4,513,364) -
Principal payments on mortgages (141,047) (119,003) (171,811)
Mortgage acquisition costs (107,283) (220,988) -
----------- -------- --------
Net cash provided by (used in)
financing activities (248,330) 989,681 (14,847)
----------- -------- --------
Net increase (decrease) in cash (357,275) 498,376 (7,721)
Cash at beginning of year 498,376 - 7,721
----------- -------- --------
Cash at end of year $ 141,101 498,376 -
=========== ========== ========
Supplemental disclosure of cash flow information -
cash paid for interest $ 573,947 562,506 528,829
=========== ========== ========
See accompanying notes to financial statements
F-6
REALMARK PROPERTY INVESTORS LIMITED PARTNERSHIP - II
Notes to Financial Statements
December 31, 1999, 1998 and 1997
(1) Formation and Operation of Partnership
Realmark Property Investors Limited Partnership-II (the Partnership), a
Delaware Limited Partnership, was formed on March 25, 1982, to
invest in a diversified portfolio of income producing real estate
investments, its only industry segment.
In September 1982, the Partnership commenced the public offering of
units of limited partnership interest. On August 31, 1983 the
offering was concluded, at which time 10,000 units of limited
partnership interest were outstanding. The general partners are
Realmark Properties, Inc., a wholly-owned subsidiary of J.M. Jayson
& Company, Inc. and Mr. Joseph M. Jayson, the sole shareholder of
J.M. Jayson & Company, Inc. (JMJ). Under the partnership agreement,
the general partners and their affiliates can receive compensation
for services rendered, and reimbursement for expenses incurred on
behalf of the Partnership (note 7).
The partnership agreement also provides that distribution of funds,
revenues, and costs and expenses arising from partnership
activities, exclusive of any sale or refinancing activities, are to
be allocated 97% to the limited partners and 3% to the general
partners. Net income or loss and proceeds arising from a sale or
refinancing shall be distributed first to the limited partners in
amounts equivalent to a 7% return of their average adjusted capital
balances, plus an amount equal to their capital contributions;
second, to Realmark Properties, Inc. an amount equivalent to 5% of
their average adjusted capital balance; third, to all partners, an
amount equal to their respective positive capital account balances
and the remainder, if any, in the ratio of 86% to the limited
partners and 14% to the general partners.
(2) Summary of Significant Accounting Policies
(a) Basis of Accounting The accompanying financial statements have
been prepared on the accrual basis of accounting.
(b) Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make
estimates and assumptions that affect certain reported amounts and
disclosures. Accordingly, actual results could differ from those
estimates.
F-7
REALMARK PROPERTY INVESTORS LIMITED PARTNERSHIP - II
Notes to Financial Statements, Continued
(2) Summary of Significant Accounting Policies, Continued
(c) Property and Equipment Property and equipment are recorded at cost.
Depreciation is provided for in amounts sufficient to relate the
cost of depreciable assets to operations over their estimated
service lives using the straight-line method. The estimated useful
lives of the Partnership's assets range from 5 to 25 years.
Depreciation expense totaled $262,181, $215,334 and $412,446 for
the years ended December 31, 1999, 1998 and 1997, respectively.
Improvements are capitalized, while expenditures for maintenance
and repairs are charged to expense as incurred. Upon disposal of
depreciable property, the appropriate property accounts are reduced
by the related costs and accumulated depreciation. The resulting
gains and losses are reflected in the statements of operations. The
accelerated cost recovery system and modified accelerated cost
recovery system are used to calculate depreciation expense for tax
purposes.
(d) Cash
For purposes of reporting cash flows, cash includes money market
accounts and any highly liquid debt instruments purchased with a
maturity of three months or less.
(e) Escrow Deposits
Escrow deposits represent cash which is restricted for the payment of
property taxes, insurance and repairs and replacements in
accordance with the mortgage agreement.
(f) Mortgage Costs
Mortgage costs incurred in obtaining the property mortgage financing
are recorded at cost less applicable amortization. Amortization is
computed using the straight-line method over the life of the
respective mortgages.
(g) Unconsolidated Joint Ventures
The Partnership's investment in Research Triangle Industrial Park West
Associates Joint Venture and Research Triangle Land Joint Venture
are unconsolidated joint ventures which are accounted for on the
equity method. These joint ventures are not consolidated in the
Partnership's financial statements because the Partnership is not
the majority owner.
(h) Minority Interest in Consolidated Joint Venture
The minority interest in a consolidated joint venture formed to
operate Foxhunt Apartments is stated at the amount of capital
contributed by the minority investor adjusted for its share of
joint venture losses.
(i) Rental Income
Rental income is recognized on the straight line method over the terms
of the leases. The outstanding leases with respect to rental
properties owned are for terms of no more than one year for
residential properties and no more than five years for commercial
properties.
(j) Loss Per Limited Partnership Unit
The loss per limited partnership unit is based on the weighted average
number of limited partnership units outstanding for the year.
F-8
REALMARK PROPERTY INVESTORS LIMITED PARTNERSHIP - II
Notes to Financial Statements, Continued
(2) Summary of Significant Accounting Policies, Continued
(k) Accrued Residential Rent Receivable
Due to the nature of accrued residential rent receivable, all such
receivables are fully reserved at December 31, 1999 and 1998.
(l) Income Taxes
No income tax provision has been included in the financial statements
since profit or loss of the Partnership is required to be reported
by the respective partners on their income tax returns.
(m) Comprehensive Income
The Partnership has adopted Statement of Financial Accounting
Standards (SFAS) No. 130, "Reporting Comprehensive Income." SFAS
130 establishes standards for reporting and display of
comprehensive income and its components in a full set of general
purpose financial statements. Comprehensive income is defined as
"the change in equity of a business enterprise during a period from
transactions and other events and circumstances from non-owner
sources." Other than net income (loss), the Partnership has no
other sources of comprehensive income.
(n) Segment Information
SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information" establishes standards for the way public business
enterprises report information about operating segments and annual
financial statements. The Partnership's only operating segment is
the ownership and operation of income-producing real property for
the benefit of its partners.
(o) Accounting Changes and Developments
In June 1998, the Financial Accounting Board (FASB) issued Statement
of Financial Accounting Standards (SFAS) No. 133 - "Accounting for
Derivative Instruments and Hedging Activities" which establishes
revised accounting and reporting standards for derivative
instruments and for hedging activities. It requires that an entity
measure all derivative instruments at fair value and recognize such
instruments as either assets or liabilities in the balance sheets.
The accounting for changes in the fair value of a derivative
instrument will depend on the intended use of the derivative as
either a fair value hedge, a cash flow hedge or a foreign currency
hedge. The effect of the changes in fair value of the derivatives
and, in certain cases, the hedged items are to be reflected in
either the statements of operations or as a component of other
comprehensive income, based upon the resulting designation. As
issued, SFAS No. 133 was effective for fiscal years beginning after
June 15, 1999. In June 1999, the FASB issued SFAS No. 137 -
"Accounting for Derivative Instruments and Hedging
Activities-Deferral of the Effective Date of FASB Statement No.
133." SFAS No. 137 defers the effective date of SFAS No. 133 for
one year to fiscal years beginning after June 15, 2000. Since the
Partnership does not currently have any derivative instruments or
hedging activities, management does not believe that SFAS No. 133
will have a material effect on the Partnership financial
statements, taken as a whole.
F-9
REALMARK PROPERTY INVESTORS LIMITED PARTNERSHIP - II
Notes to Financial Statements, Continued
(p) Reclassifications
Reclassifications have been made to certain 1998 and 1997 balances in
order to conform them to the 1999 presentation.
(3) Acquisition and Disposition of Rental Property
In December 1983, the Partnership acquired an office park (Northwind)
located in East Lansing, Michigan for a purchase price of
$3,876,410, which included $285,713 in acquisition fees. In 1984
the carrying value of the property was increased for additional
acquisition fees of $123,950.
In January 1984, the Partnership acquired a 120 unit apartment complex
(Colony of Kettering) located in Kettering, Ohio for a purchase
price of $2,769,650 which included $197,032 in acquisition fees.
In February 1984, the Partnership acquired a 250 unit apartment complex
(Fox Hunt Apartments) located in Kettering, Ohio for a purchase
price of $5,702,520, which included $455,637 in acquisition fees.
In December 1986, the Partnership sold Colony of Kettering for a sale
price of $3,850,000 which generated a total net gain for financial
statement purposes of $1,482,290. For income tax purposes, the gain
was recognized under the installment method.
In July of 1996, the Partnership entered into a plan to dispose of the
property of Foxhunt Apartments with a carrying amount of $2,886,577
at December 31, 1996. Foxhunt incurred a net loss of $129,931 for
the year ended December 31, 1996. Management had determined that a
sale of the property was in the best interests of the investors. As
of December 31, 1996, an agreement, cancelable by the buyer, was
signed with an anticipated sales price of $7.4 million. The
contract expired in 1997, and the Partnership discontinued its plan
to dispose of the property in 1998.
In 1998, the Partnership entered into a plan to dispose of the property of
Northwind Office Park with a carrying amount of $2,159,032 at
December 31, 1998. Northwind Office Park incurred a net loss of
$115,275 for the year ended December 31, 1998. Effective April 1,
1999, management discontinued its plan to dispose of the property.
Effective July 1, 1999, management entered into a plan to dispose of the
property of Foxhunt Apartments with a carrying amount of $2,323,518
at December 31, 1999. Foxhunt Apartments incurred a net loss of
$470,672 for the year ended December 31, 1999. Management has
determined that a sale of the property is in the best interests of
the limited partners.
Financial Accounting Standards Statement No. 121 - "Accounting for the
Impairment of Long-lived Assets and for Long-lived Assets to be Disposed Of"
(the Statement) requires that assets to be disposed of be recorded at the lower
of carrying value or fair value, less costs to sell. The Statement also requires
that such assets not be depreciated during the disposal period, as the assets
will be recovered through sale rather than through operations. In accordance
with this Statement,
F-10
REALMARK PROPERTY INVESTORS LIMITED PARTNERSHIP - II
Notes to Financial Statements, Continued
certain long-lived assets of the Partnership, classified as held for sale on the
balance sheet, are recorded at the carrying amount which is the lower of
carrying value or fair value less costs to sell, and have not been depreciated
during the disposal period. Fair value is determined based on estimated future
cash flows. Depreciation expense, not recorded during the disposal period, for
the years ended December 31, 1999 and 1998 totaled approximately $124,000 and
$158,000, respectively. Management believes that the property's fair value has
not changed significantly since being classified as held for sale.
(4) Investment in Joint Ventures
UNCONSOLIDATED JOINT VENTURES
In December 1983, the Partnership entered into an agreement with Adaron
Group (Adaron) and formed Research Triangle Industrial Park West
Associates Joint Venture (the Joint Venture), the primary purpose
of which was to construct office/warehouse distribution buildings
as income producing property. Under the terms of the joint venture
agreement, the Partnership was to provide the majority of the
capital required for the purchase of land and completion of the
Joint Venture's development, while Adaron, the other joint
venturer, was to provide development supervision and management
services.
The initial phase of development (Phase I) which was sold in June 1987,
included an office/ distribution building containing a total of
101,000 gross square feet, and one office building containing
42,000 gross square feet. The purchaser of the property was not
affiliated with either joint venturer. The Partnership received
approximately $2,300,000 in proceeds from the sale, and in July
1987, these proceeds were distributed to the limited partners.
On August 20, 1992, Realmark Property Investors Limited Partnership - VI A
(RPILP - VI A) purchased Adaron's joint venture interest, acquiring
substantially all of the rights and claims previously held by
Adaron. Ownership of the joint venture is now divided equally
between the Partnership and RPILP - VI A. The original joint
venture agreement with Adaron provided that the Partnership will be
allocated 95% of any income received or loss incurred during Phase
I and 50% of any income received or loss incurred during Phase II.
Net cash flow from the Joint Venture is to be distributed as follows:
To the Partnership until it has received a return of 8% (10.25% prior to
September 1986) per annum on the amount of capital contributed by
the Partnership. To the extent such return is not received from
year to year, it will accrue and be paid from the next available
cash flow; to the other joint venturer, up to an amount equal to
that paid to the Partnership. No amount will be accrued in favor of
the other investor; any remaining amount will be distributed 60% to
the other joint venturer and 40% to the Partnership.
F-11
REALMARK PROPERTY INVESTORS LIMITED PARTNERSHIP - II
Notes to Financial Statements, Continued
To the extent there are net proceeds from any sale or refinancing of the
subject property, said net proceeds will be payable first to the
Partnership to the extent the 8% (10.25% prior to September 1986)
per annum return on its invested capital is unpaid. Any additional
net proceeds will be payable to the Partnership until it has
received an amount equal to its capital contributions, reduced by
any prior distribution of sale or refinancing proceeds. Thereafter,
any remaining net proceeds will be divided 50% to the Partnership
and 50% to the other joint venturer.
A summary of the assets, liabilities and equity of the Joint Venture as
of December 31, 1999 and 1998 and the results of its operations for
the years ended December 31, 1999, 1998 and 1997 follows.
F-12
RESEARCH TRIANGLE INDUSTRIAL PARK
Balance Sheets
December 31, 1999 and 1998
Assets 1999 1998
------ ---- ----
Land $ 338,112 $ 338,112
Land improvements 799,430 799,430
Buildings 4,130,637 4,130,637
----------- ----------
5,268,179 5,268,179
Less accumulated depreciation 3,694,293 3,590,813
----------- ----------
Net property 1,573,886 1,677,366
Cash 149,508 688,674
Accounts receivable - affiliates 599 29,925
Accounts receivable - other 32,261 -
Escrow deposits 694,740 559,679
Other 239,054 257,127
----------- ----------
Total assets $ 2,690,048 3,212,771
=========== ==========
Liabilities and Partners' Deficit
Liabilities:
Mortgage payable 5,418,498 5,504,596
Accounts payable and accrued expenses 74,287 106,256
----------- ----------
Total liabilities 5,492,785 5,610,852
Partners' deficit:
The Partnership (1,301,953) (1,099,626)
RPILP - VI A (1,500,784) (1,298,455)
----------- ----------
Total partners' deficit (2,802,737) (2,398,081)
----------- ----------
Total liabilities and partners' deficit $ 2,690,048 3,212,771
=========== ==========
F-13
REALMARK PROPERTY INVESTORS LIMITED PARTNERSHIP - II
Notes to Financial Statements, Continued
(4) Investment in Joint Ventures, Continued
RESEARCH TRIANGLE INDUSTRIAL PARK
Statements of Operations
Years ended December 31, 1999, 1998 and 1997
1999 1998 1997
---- ---- ----
Income:
Rental $ 1,009,978 962,352 886,634
Interest 11,823 6,985 5,496
------------ ---------- ---------
Total income 1,021,801 969,337 892,130
------------ ---------- ---------
Expenses:
Property operations 131,014 114,857 101,896
Interest 455,838 457,626 470,041
Depreciation and amortization 107,718 128,094 166,828
Administrative:
To affiliates 63,230 63,652 60,177
Other 8,655 29,890 28,052
------------ ---------- ---------
Total expenses 766,455 794,119 826,994
------------ ---------- ---------
Net income $ 255,346 175,218 65,136
============ ========== =========
Allocation of net income:
The Partnership $ 127,673 87,609 32,568
RPILP - VI A 127,673 87,609 32,568
------------ ---------- ---------
Total $ 255,346 175,218 65,136
============ ========== =========
A reconciliation of the losses in excess of investment in Research Triangle Industrial Park Joint Venture follows:
1999 1998 1997
---- ---- ----
Losses in excess of investment at beginning
of year $ (1,099,626) (937,235) (969,803)
Allocated net income 127,673 87,609 32,568
Distribution from joint venture (330,000) (250,000) -
------------ ---------- ---------
Losses in excess of investment at end of year $ (1,301,953) (1,099,626) (937,235)
============ ========== ========
F-14
REALMARK PROPERTY INVESTORS LIMITED PARTNERSHIP - II
Notes to Financial Statements, Continued
(4) Investment in Joint Ventures, Continued
On August 20, 1992, the Partnership entered into an agreement with the
Adaron Group to form the Research Triangle Land Joint Venture. The
primary purpose of this joint venture is to develop the undeveloped
land on the site of Research Triangle Industrial Park West. This land
was placed into the Land Joint Venture by Research Triangle Industrial
Park West. The ownership of the joint venture is 50% attributable to
Adaron Group and 50% to the Partnership. The value allocated to the
land in this joint venture upon acquisition was $412,500.
In 1994, engineering and surveying costs in the amount of $20,484 were
capitalized as part of the cost of land. The book value of the land
joint venture as of December 31, 1999 and 1998 was $432,984. The only
operations of the joint venture is the payment of real estate taxes and
insurance premiums for this vacant piece of land. Payment of these
bills is to be divided equally between the Partnership and Adaron.
The total capital of the joint venture of $432,982 as of December 31, 1999
and 1998 is divided equally between the Partnership and Adaron. The
Partnership's capital of $216,491 as of December 31, 1999 and 1998 is
included in losses of unconsolidated joint ventures in excess of
investment on the balance sheet. The Partnership's share of expenses,
totaling $5,236 $5,271, and $5,532, were allocated to the Partnership
for the years ended December 31, 1999, 1998 and 1997, respectively. All
payments made by each joint venture are considered capital
contributions. Such contributions are offset by the allocated loss from
such payments. Therefore, overall capital does not change. The joint
venture has no outstanding debt at December 31, 1999 and 1998.
MINORITY INTEREST IN CONSOLIDATED JOINT VENTURE:
On September 21, 1991, the Partnership entered into an agreement and
formed a joint venture with Realmark Property Investors Limited
Partnership - VI A (RPILP - VI A) and Realmark Property Investors
Limited Partnership - VI B (RPILP - VI B). The joint venture was formed
for the purpose of operating the Foxhunt Apartments owned by the
Partnership. Under the terms of the joint venture agreement, RPILP - VI
A contributed $390,000 and RPILP - VI B contributed $1,041,568 to buy
out the wraparound promissory note on the property. The Partnership
contributed the property net of the first mortgage.
The original joint venture agreement provided that any income, loss,
gain, cash flow, or sales proceeds be allocated 63.14% to the
Partnership, 10.04% to RPILP - VI A and 26.82% to RPILP - VI B. On
April 1, 1992, utilizing proceeds from a mortgage refinancing, the
Partnership bought out RPILP - VI A's interest, while RPILP - VI B's
ownership interest was decreased to 11.5%. The net loss of the joint
venture from September 27, 1991, date of inception, through December
31, 1999 has been allocated to the minority interests in accordance
with the agreement and has been recorded as a reduction of their
capital contributions.
F-15
REALMARK PROPERTY INVESTORS LIMITED PARTNERSHIP - II
Notes to Financial Statements, Continued
(4) Investment in Joint Ventures, Continued
A reconciliation of the minority interest share in the Foxhunt Joint
Venture is as follows:
RPILP - VI B
Balance at December 31, 1996 $ 371,120
Allocated income 4,781
---------
Balance at December 31, 1997 375,901
Allocated loss (108,517)
---------
Balance at December 31, 1998 267,384
Distributions (111,713)
Allocated loss (54,127)
---------
Balance at December 31, 1999 $ 101,544
=========
(5) Mortgages Payable
The Partnership has the following mortgages payable as of December 31, 1999
and 1998:
Northwind Office Park
A mortgage with a balance of $362,944 and $469,506 at December 31, 1999
and 1998, respectively, provides for monthly principal and interest
payments of $12,305 bearing interest at 9.75%. The mortgage matures in
December 2002.
A mortgage with a balance of $206,694 and $241,179 at December 31, 1999
and 1998, respectively, provides for monthly principal and interest
payments at $4,828 bearing interest at 9%. The mortgage matured
September 1995. No extension has been granted, and the loan is
currently callable on demand.
Foxhunt Apartments
A mortgage with a balance of $6,000,000 at December 31, 1998 bearing
interest at 350 basis points above the LIBOR rate was refinanced during
1999.
A new mortgage with a balance of $6,000,000 at December 31, 1999 provides
for monthly principal and interest payments of $44,235 bearing interest
at 8.05%. The remaining balance is due in December 2009.
F-16
REALMARK PROPERTY INVESTORS LIMITED PARTNERSHIP - II
Notes to Financial Statements, Continued
(5) Mortgages Payable, Continued
The aggregate maturities of the mortgages for each of the next five years
and thereafter, assuming principal payments are not accelerated, are as
follows:
Year Amount
2000 $ 373,750
2001 183,176
2002 174,375
2003 63,132
2004 68,406
Thereafter $5,706,799
----------
$6,569,638
==========
The mortgages are secured by the properties to which they relate.
(6) Fair Value of Financial Instruments
Statement of Financial Accounting Standards No: 107 requires disclosure
about fair value of certain financial instruments. The fair value of
cash, accounts receivable, other assets, accounts payable and accrued
expenses, and security deposits and prepaid rents approximate the
carrying value due to the nature of these instruments.
Management believes it is impracticable to estimate the fair value of the
mortgages payable of Northwind Office Park, with approximate carrying
values of $363,000 and $207,000 at December 31, 1999, because it is
uncertain if comparable mortgages could be obtained in the current
market due to the poor occupancy at Northwind Office Park. Management
has determined that the fair value of the mortgage payable of Foxhunt
Apartments, with a carrying value of $6,000,000 at December 31, 1999,
approximates its carrying value due to the mortgage's recent nature.
The terms of the mortgages are described in note 5.
(7) Related Party Transactions
Management fees for the management of Partnership properties are paid to an
affiliate of the general partners. The management agreement provides
for a management fee of 5% of the gross monthly rental receipts of each
complex. This fee was $100,939, $91,032 and $96,762 for the years ended
December 31, 1999, 1998 and 1997, respectively.
According to the terms of the partnership agreement, Realmark Properties,
Inc. is entitled to a continuing partnership management fee equal to 7%
of net cash flow (as defined in the Partnership Agreement), 2% of which
is subordinated to the receipt by the limited partners of a
noncumulative annual cash return equal to 7% of the average of their
adjusted capital contributions (as defined in the partnership
agreement). No such fees were paid or accrued for the years ended
December 31, 1999, 1998 and 1997.
Accounts receivable - affiliates totaled $126,347 and $78,416 as of
December 31, 1999 and 1998, respectively.
F-17
REALMARK PROPERTY INVESTORS LIMITED PARTNERSHIP - II
Notes to Financial Statements, Continued
(7) Related Party Transactions, Continued
Computer service charges for the partnership are paid or accrued to an
affiliate of the general partners. The fee is based upon the number of
apartment units and totaled $4,560, $4,560 and $4,560 for the years
ended December 31, 1999, 1998 and 1997, respectively.
Pursuant to the terms of the partnership agreement, the corporate general
partner charges the Partnership for reimbursement of certain costs and
expenses incurred by the corporate general partner and its affiliates
in connection with the administration of the Partnership and for other
direct Partnership expenses. These charges were for the Partnership's
allocated share of such costs and expenses as payroll, legal, rent,
depreciation, printing, mailing, travel and communication costs related
to Partnership accounting, partner communication and relations, and
property marketing and are included in property operations.
Additionally, Partnership accounting and portfolio management fees,
investor services fees and brokerage fees are allocated based on total
assets, number of partners and number of units, respectively. These
charges totaled $60,364, $77,634 and $93,246 for the years ended
December 31, 1999, 1998 and 1997, respectively.
The general partners are allowed to collect property disposition fees upon
sale of acquired properties. This fee is not to exceed the lesser of
50% of amounts customarily charged in arm's length transactions by
others rendering similar services for comparable properties or 3% of
the sales price. The property disposition fee is subordinate to
payments to the limited partners of a cumulative return (not
compounded) equal to 7% of their average adjusted capital balances and
to repayment to the limited partners of a cumulative amount equal to
their capital contributions. Since the conditions discussed above have
not been met, no fee has been paid or accrued on the sale of properties
to date.
In connection with the refinancing of the mortgage payable for the Foxhunt
Apartments, as described in note 5, the Partnership incurred loan
placement fees of $60,000 each year for the years ended December 31,
1999 and 1998. The fee is calculated as 1% of the mortgage loan amount
and is payable to an affiliate of the general partners. No such fees
were paid during the year ended December 31, 1997.
(8) Income Taxes
The tax returns of the Partnership are subject to examination by federal
and state taxing authorities. Under federal and state income tax laws,
regulations and rulings, certain types of transactions, may be accorded
varying interpretations and, accordingly, reported Partnership amounts
could be changed as a result of any such examination.
F-18
REALMARK PROPERTY INVESTORS LIMITED PARTNERSHIP - II
Notes to Financial Statements, Continued
(8) Income Taxes, Continued
The reconciliation of Partners' Deficit for the years ended December 31,
1999, 1998 and 1997, as reported in the balance sheets and as reported
for tax return purposes, is as follows:
1999 1998 1997
---- ---- ----
Partners' deficit - balance sheets $ (3,336,480) (2,815,029) (1,816,222)
Add to (deduct from):
Accumulated difference in depreciation (3,449,883) (3,634,419) (3,712,220)
Accumulated amortization of discounts
on mortgage payables 1,208,424 1,208,424 1,208,424
Syndication fees 1,133,176 1,133,176 1,133,176
Allowance for doubtful accounts 87,123 87,123 45,741
Gain on sale of property (561,147) (561,147) (561,147)
Other (360,478) (360,478) (228,298)
Difference in investments in joint ventures 446,315 482,913 647,808
----------- ---------- ----------
Partners' deficit - tax return
purposes $ (4,832,950) (4,459,437) (3,282,738)
============ ========== ==========
The reconciliation of net loss for the years ended December 31, 1999, 1998 and 1997, as reported in the statements of
operations, and as would be reported for tax return purposes is as follows:
1999 1998 1997
---- ---- ----
Net loss-statements of operations $ (521,451) (998,807) (162,528)
Add to (deduct from):
Difference in depreciation 184,536 77,801 114,999
Basis difference in investments in joint
ventures (36,598) (164,895) 69,318
Other - (132,180) (125,740)
Allowance for doubtful accounts - 41,382 (67,268)
------------ ---------- --------
Net loss - tax return purposes $ (373,513) (1,176,699) (171,219)
=========== ========== ========
F-19
REALMARK PROPERTY INVESTORS LIMITED PARTNERSHIP - II
Notes to Financial Statements, Continued
(9) Leases
All residential property rental agreements are for a duration of less than
one year. In connection with the operation of Northwind, a commercial
property, the Partnership has entered into numerous operating leases
with terms from 1 to 5 years. Future rentals to be received on
noncancelable operating leases with terms of more than one year are as
follows:
2000 $ 348,705
2001 201,738
2002 137,562
2003 50,917
2004 26,333
--------
$ 765,255
(10) Going Concern Considerations
The Partnership's mortgage on Northwind Office Park was due in September
1995. No extension has been granted to the Partnership, and the loan
is currently callable on demand.
Because of the uncertainty surrounding the refinancing of this mortgage,
the Partnership's recurring losses from operations and the partners'
deficit, substantial doubt exists about the Partnership's ability to
continue as a going concern.
Management plans to improve the operations of the Partnership and to
remedy the current situation with Northwind Office Park's mortgage, by
improving the occupancy at Northwind Office Park and actively
marketing the Foxhunt Apartments rental property for sale. The
financial statements do not include any adjustments that might result
from the outcome of this uncertainty.
(11) Contingencies
Included in accounts payable and accrued expenses on the balance sheet as
of December 31, 1999 are delinquent taxes and interest on Northwind
Office Park for the years 1999, 1998 and 1997, totaling approximately
$228,000. The result of these delinquencies could be substantial
penalties or the potential loss of the property. A range of total loss
is not estimable at December 31, 1999.
F-20
SCHEDULE III
--------------
REALMARK PROPERTY INVESTORS LIMITED PARTNERSHIP - II
Real Estate and Accumulated Depreciation
December 31, 1999
Gross amounts at which
Initial Cost to Carried at Close of Period
Partnership Cost --------------------------
---------------- Capitalized
Property Subsequent to
Description Encumbrances Land Buildings Acquisition Retirements Land Buildings Total
- -------------- ---------- ---------- ---------- -------------- ---------- ---------- ---------- ---------
Northwind
Office Park
E. Lansing, Ml $ 569,638 460,515 3,415,895 619,562 - 460,515 4,035,457 4,495,972
Foxhunt
Apartments
Kettering, OH 6,000,000 387,500 4,890,020 235,608 - 387,500 5,125,628 5,513,128
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
$6,569,638 848,015 8,305,915 855,170 - 848,015 9,161,085 10,009,100
========== ========== ========== ========== ========== ========== ========== ==========
Research
Triangle JV
Research
Triangle, NC 5,418,498 750,612 4,920,738 9,329 (412,500) 338,112 4,930,067 5,268,179
Research Triangle
Land JV
Research
Triangle, NC - 412,500 - 20,484 - 432,984 - 432,984
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
$5,418,498 1,163,112 4,920,738 29,813 (412,500) 771,096 4,930,067 5,701,163
========== ========== ========== ========== ========== ========== ========== ==========
SCHEDULE III
--------------
REALMARK PROPERTY INVESTORS LIMITED PARTNERSHIP - II
Real Estate and Accumulated Depreciation
December 31, 1999
(continued)
Life
on which
depreciation
in latest
Date statement of
Property Accumulated of Date operations
Description Depreciation Construction Acquired is computed
- ------------- ------------- ------------- --------- ----------------
Northwind
Office Park
E. Lansing, Ml 2,203,729 1973 12/83 25 years
Foxhunt
Apartments
Kettering, OH 3,189,610 1972 02/84 25 years
--------- --------
5,393,339
=========
Research
Triangle JV
Research
Triangle, NC 3,694,293 1985 12/83 25 years
Research Triangle
Land JV
Research
Triangle, NC - - 08/92
---------
3,694,293
=========
F-21
Schedule III, Cont.
REALMARK PROPERTY INVESTORS LIMITED PARTNERSHIP - II
Real Estate and Accumulated Depreciation
December 31, 1999
(1) Cost for Federal income tax purposes is $10,009,100
(2) A reconciliation of the carrying amount of land and buildings as of December
31, 1999, 1998 and 1997 follows:
Partnership Properties
------------------------------------------
1999 1998 1997
---- ---- ----
Balance at beginning of year $ 9,857,401 9,771,288 9,755,153
Additions 151,699 86,113 16,135
------------ --------- ---------
Balance at end of year 10,009,100 9,857,401 9,771,288
============ ========= =========
Joint Venture Property
---------------------------------------
1999 1998 1997
---- ---- ----
Balance at beginning of year $ 5,701,163 5,701,163 5,701,163
Additions - - -
------------ --------- ---------
Balance at end of year $ 5,701,163 5,701,163 5,701,163
============ ========= =========
(3) A reconciliation of accumulated depreciation for buildings and improvements for the years ended December 31, 1999, 1998 and 1997
follows:
Partnership Properties
---------------------------------------
1999 1998 1997
---- ---- ----
Balance at beginning of year $ 5,180,777 4,971,130 4,562,317
Depreciation expense 212,562 209,647 408,813
------------ --------- ---------
Balance at end of year (4) $ 5,393,339 5,180,777 4,971,130
============ ========= =========
Joint Venture Property
-----------------------------------------
1999 1998 1997
---- ---- ----
Balance at beginning of year $ 3,590,813 3,469,458 3,338,925
Depreciation expense 103,480 121,355 130,533
------------ --------- ---------
Balance at end of year (4) $ 3,694,293 3,590,813 3,469,458
============ ========= =========
(4) Balance applies entirely to buildings.
(5) Retirements relate to a land transfer to Research Triangle Land Joint
Venture.
F-22