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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 (FEE REQUIRED)
For the Fiscal Year Ended December 31, 1997
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES AND EXCHANGE ACT OF 1934. (NO FEE
REQUIRED)
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 page 14 for a list of all documents incorporated by reference
1
PART I
ITEM I: BUSINESS
The registrant, Realmark Property Investors Limited Partnership-II ("the
Partnership"), is a Delaware limited partnership organized in 1982 pursuant to
an Agreement and Certificate of Limited Partnership (the "Partnership
Agreement"), under the revised Delaware 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. (formally 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, which it still holds, and which is developing
approximately 19 acres of land in Durham County, North Carolina; the Research
Land Joint Venture which is developing approximately 16 acres of land 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, 1997, 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, 1997 were employees of the Corporate General Partner or its
affiliates.
The Partnership's investment objectives are to (1) provide a return of
capital plus capital gains from the sale of appreciated properties; (2) provide
partners with cash distributions until properties are sold; (3) preserve and
protect partners capital; and (4) achieve build-up of equity through the
reduction of mortgage loans.
For the years ended December 31, 1997 and 1996, approximately 75% of
total Partnership revenue was generated by the Foxhunt Apartments. The remaining
25% is attributed to Northwind. For the year ended December 31, 1995, Foxhunt
accounted for 74% of the total Partnership revenue, with Northwind generating
roughly 26% of total revenue, respectively.
2
ITEM 2: PROPERTIES
As of December 31, 1997, 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,
1997, Northwind was 56% occupied. The 1996 occupancy was 57%, while 1995
occupancy was 58%.
The first mortgage in the amount of $566,206 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 $278,519 bears interest at
9% and provides for monthly principal and interest payments of $4,828. 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 Partnership, as of December 31, 1997, 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 fourth consecutive
year, Research Triangle was 100% occupied.
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. At December 31, 1997 the mortgage balance was
$4,498,327, carrying an interest rate of 9%. Annual principal and interest
payments of $436,296 are due in equal monthly installments until maturity in
March 2027.
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 in 1997 was 89%. The 1996 occupancy was 89%, while 1995 occupancy
was 95%.
3
ITEM 2: PROPERTIES (Con't.)
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, 1997.
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.
ITEM 4: SUBMISSIONS OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5: MARKET FOR REGISTRANT'S UNITS OF LIMITED PARTNERSHIP INTEREST
There is currently no active trade 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, 1997, there were 1,232 record holders of units of
Limited Partnership Interest.
There were no Partnership distributions for the years ended December 31,
1997 and 1996. For the year ended December 31, 1995, distributions amounted to
$68,040 or $6.60 per limited partnership unit.
4
ITEM 6: SELECTED FINANCIAL DATA
Realmark Properties Investors Limited Partnership II
--------------------------------------------------------------------------------------------------
Year Ended Year Ended Year Ended Year Ended Year Ended
Dec. 31, 1997 Dec. 31, 1996 Dec. 31, 1995 Dec. 31, 1994 Dec. 31, 1993
------------- ------------- ------------- ------------- -------------
Total assets $5,420,179 $ 5,806,656 $ 6,306,118 $ 6,875,605 $ 9,871,580
================ ================= ================= ================= ================
Mortgages and
notes payable $5,343,052 $ 5,514,863 $ 5,649,616 $ 5,771,898 $ 8,310,555
================ ================= ================= ================= ================
- -----------------------------------------------------------------------------------------------------------------------------------
Income $1,986,024 $ 1,816,085 $ 1,946,238 $ 1,953,911 $ 2,253,442
Expenses 2,340,404 2,196,931 2,615,580 2,572,654 2,597,019
---------------- ----------------- ----------------- ----------------- ----------------
Loss before allocated
loss from Joint
Venture and
Minority Interest (354,380) (380,846) (669,342) (618,743) (343,577)
Loss from Joint Venture 196,633 (52,873) (92,939) (116,739) (117,203)
Loss allocated to
Minority Interest (4,781) 14,942 31,098 19,538 3,960
---------------- ----------------- ----------------- ----------------- ----------------
Net Loss $(162,528) $ (418,777) $ (731,183) $ (715,944) $ (456,820)
================ ================= ================= ================= ================
- -----------------------------------------------------------------------------------------------------------------------------------
Net cash (used in)
provided by operating
activities $ (47,634) $ (28,291) $ (24,770) $ 53,095 $ 90,220
Collection of
mortgage receivable - - - 2,600,000 -
Principal payments on
long-term debt net of
payments made from
Joint Venture proceeds
and debt refinancing (171,811) (134,753) (124,500) (2,539,483) (211,286)
---------------- ----------------- ----------------- ----------------- ----------------
Net cash (used in)
provided by
operating activities
and collection of
mortgage receivable
less principal payments
on long-term debt $ (219,445) $ (163,044) $ (149,270) $ 113,612 $ (121,066)
================ ================= ================= ================= ================
- -----------------------------------------------------------------------------------------------------------------------------------
Loss per limited
partnership unit $ (15.77) $ (40.62) $ (70.92) $ (69.45) $ (44.31)
================ ================= ================= ================= ================
Distributions per
limited partnership
unit $ - $ - $ 6.60 $ 1.65 $ 4.95
================ ================= ================= ================= ================
Weighted average
number of units
outstanding 10,000 $ 10,000 $ 10,000 $ 10,000 $ 10,000
================ ================= ================= ================= ================
- -----------------------------------------------------------------------------------------------------------------------------------
5
ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Liquidity and Capital Resources:
The Partnership was able to rely on cash generated from the Research
Triangle Office Complex and Foxhunt Apartments. As has been true for several
years, Research Triangle continues to benefit from high occupancy due to tenant
retention. Foxhunt Apartments saw improvements during 1997 in the respect that
collections improved and vacancies dropped. Although occupancy at the end of
1997 remained the same as that at December 31, 1996, management feels that the
occupancy level of 89% for 1997 will continue to increase in the coming year and
possibly once again reach the point where it was at December 31, 1995 (i.e.,
95%). Northwind Office Complex continues to experience cash flow difficulties
stemmed from its low occupancy level(s). Management is aggressively marketing
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. Northwind's cash flow shortages have caused it to fall
behind by over two years in the payment of its real estate taxes. 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, thus reducing the equity of
the Partnership. Management is actively pursuing a buyer for this property.
Foxhunt Apartments came under contract for sale during July 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. The
General Partners feel, however, that the sale of this property is in the best
interest of the Limited Partners, so management continues to look for potential
buyers through heavy marketing in trade journals, newspapers, etc.
Management has once again implemented corrective action plans in
response to the going concern consideration detailed in Note 10 to the financial
statements, as well as to deal with the United States Department of Housing and
Urban Development (HUD) noncompliance detailed in the notes to the financial
statements. These plans include tighter cash management through the closer
monitoring of expenses. The HUD noncompliance detailed in the notes technically
puts the Partnership in default of the mortgage which could result in fines or
interest charges being levied, or the take over of the property by HUD. A
concerted effort at correcting the noncompliance will hopefully lead to the
ultimate cure of such default.
The Partnership made no distributions during the year ended December
31, 1997 nor the year ended December 31, 1996, unlike in 1995 when distributions
totaling $68,040 or $6.60 per limited partnership unit were made. Management
hopes to once again make distributions in the coming year, but at this date, all
available cash is being utilized to fund necessary improvements to the
properties.
6
ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Con't.)
Liquidity and Capital Resources (con't.):
The Partnership has conducted a review of its computer systems to
identify the systems that could be affected by the "Year 2000 issue" and has
substantially developed an implementation plan to resolve such issue. 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 2000. This could result in a system failure or miscalculations
causing disruptions of operations, inlcuding, among other things, a temporary
inability to process transactions, send invoices, or engage in similar normal
business activities. Management has confirmed with its software providers that
all software currently in use is either "2000" compliant or will be with little
adaptation and at no significant cost.
Results of Operations:
For the year ended December 31, 1997, the Partnership incurred a net
loss of $162,528 or $15.77 per limited partnership unit. This is a significant
improvement from the years ended December 31, 1996 and 1995 when losses incurred
totaled $418,777 or $40.62 per limited partnership unit and $731,183 or $70.92
per limited partnership unit, respectively.
Partnership revenues for the year ended December 31, 1997 totaled
$1,986,024, consisting of rental income of $1,896,470 and other income, which
includes interest, laundry income, and other miscellaneous sources of income of
$89,554. The increase in rental revenue from that of the two previous years is
the result of an increase in rents charged at Foxhunt Apartments. Although
occupancy at Foxhunt remained the same as that of the previous year, the complex
saw an improvement in collections. As was the case in the years ended December
31, 1996 and 1995, Research Triangle office/warehouse building remained 100%
occupied during the year ended December 31, 1997. Similarly, Northwind Office
complex continued to struggle with low occupancy levels reaching only 56% at the
end of 1997. Management continues to put forth every effort to increase
occupancy at Northwind through attractive incentives to new tenants such as free
month(s) rent and increased leasing commissions offered to agents/brokers. The
building is currently in good condition, however it is having difficulty
competing with newer, more modern buildings which have recently been built in
this area. While incentive programs may decrease revenues in the short-term,
management feels 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, 1996 amounted to $1,746,543 and in the year ended December 31, 1995
totaled $1,857,310. There was also a noticeable increase in other income during
the year ended December 31, 1997 as compared to 1996; other income increased
back up to the level it reached in 1995. The increase over that of the year
ended December 31, 1996 approximated 29%. The increase is primarily the result
of a large increase in both laundry income collected and security deposits
forfeited at Foxhunt Apartments. Both income amounts more than doubled over that
of the previous year.
7
ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Con't.)
Results of Operations (Con't.):
Partnership expenses for the year ended December 31, 1997 totaled
$2,340,404, an increase of just over $143,000 from those of the year ended
December 31, 1996 which totaled $2,196,931 and a decrease of over $283,000 from
the year ended December 31, 1995 which totaled $2,615,580. Although there was an
increase in total expenses, Foxhunt Apartments saw a decrease in virtually all
expenses (i.e., payroll and related expenses, repairs and maintenance,
contracted services, utility costs, insurance expense, etc.), with the exception
of management fees which increased as a result of increased revenues (thus
causing the increase in administrative expenses paid to affiliates). Foxhunt
also saw an increase in depreciation expense due to accounting pronouncements
which resulted in no depreciation being taken during a period of time during the
year ended December 31, 1996 when the apartment building was considered to be
"held for sale". Northwind Office complex incurred increased operations costs in
the areas of payroll and related costs, repairs and maintenance and contracted
service costs. The increase in these costs is the direct result of management's
efforts to make the property more attractive to potential tenants. The decrease
in other administrative expenses is primarily attributable to decreased
advertising and telephone costs incurred at both Foxhunt and Northwind.
As was noted in the previous year, the Partnership once again expects
to incur higher than "normal" property operations expenses in the near future at
both Foxhunt Apartments and at Northwind Office Complex due to the costs
associated with preparing units/space for new tenants (i.e. cleaning, painting,
appliance and carpeting costs). Although this work is necessary in order to
increase rental revenue(s) 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 $65,136 for the year ended December 31, 1997. This income is a fairly
significant decrease as compared to that of 1996 which amounted to $237,025, but
is much more favorable than the loss incurred in 1995 of $185,878. 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.
The Foxhunt Joint Venture generated a net loss of $41,574 for the year
ended December 31, 1997 as compared to the loss which resulted in the years
ended December 31, 1996 and 1995 of $129,930 and $270,417, respectively. In
accordance with the joint venture agreement, $4,781 of the 1997 loss is
allocated to the other joint venture partner; $14,942 of the 1996 loss was
allocable to the other joint venturer, while for the year 1995, $31,098 was
allocable to the other venturer.
For the year ended December 31, 1997, the tax basis loss was $171,219
or $16.61 per limited partnership unit compared to a tax loss of $409,573 or
$39.73 per unit for the year ended December 31, 1996 and a tax loss of $557,113
or $54.04 per limited partnership unit for the year ended December 31, 1995. 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 year ended December
31, 1997 was allocated in this fashion.
8
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
None.
9
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 March 1, 1998, are listed below. Each director
is subject to election on an annual basis.
Title of All Positions
Name Held with the Company Year First Elected Director
- ---- ---------------------- ---------------------------
Joseph M. Jayson President and Director 1979
Judith P. Jayson Vice President, and Director 1979
Michael J. Colmerauer Secretary
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 five years or
more are as follows:
Joseph M. Jayson, age 59, is Chairman, Director and sole stockholder of
J. M. Jayson and Company, Inc. and certain of its affiliated companies:
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 35 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
35 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 seventeen years, Mr.
Jayson and J.M. Jayson & Company, Inc., and an affiliate have also engaged in
developmental drilling for gas and oil.
10
ITEM 10: DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT (Con't.)
Judith P. Jayson, age 58, 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 35 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, 39, 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 14 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, 1997, 1996 or 1995, 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, 1997, 1996 or 1995.
11
ITEM 11: EXECUTIVE COMPENSATION (Con't.)
The following table sets forth for the years ended December 31, 1997,
1996 and 1995, the compensation paid by the Partnership, directly or indirectly,
to affiliates of the General Partners:
Entity Receiving Type of Amounts
Compensation Compensation 1997 1996 1995
---------------- ------------ ---- ------- ----
Realmark Properties, Inc.
(The Corporate General
Partner) Reimbursement for
allocated partnership
administration expenses
related to:
Investor Services $ 7,761 $ 5,450 $ 5,506
Brokerage 15,529 6,698 9,525
Portfolio Management
and Accounting 69,956 72,290 136,044
Realmark Corporation Property Management Fees 96,762 87,188 95,603
Computer Service Fees 4,560 4,560 4,560
-------------- -------------- ---------------
Total $ 194,568 $ 176,186 $ 251,238
============== ============== ===============
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, 1997, 1996 and 1995, 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 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.
12
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,
1997 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, 1997.
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 Note 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 Note 7 to
the financial statements.
13
ITEM 14: EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES, AND
REPORTS ON FORM 8-K
(a) Financial Statements and Schedules
FINANCIAL STATEMENTS Page
(i) Independent Auditors' Report 16
(ii) Balance Sheets as of December 31, 1997 and 1996 17
(iii) Statements of Operations for years ended
December 31, 1997, 1996, and 1995 18
(iv) Statements of Partners' Deficit for years ended
December 31, 1997, 1996, and 1995 19
(v) Statements of Cash Flows for years ended
December 31, 1997, 1996, and 1995 20
(vi) Notes to Financial Statements 21 - 36
FINANCIAL STATEMENT SCHEDULES
(i) Schedule II - Valuation and Qualifying Accounts 37
(ii) Schedule III - Real Estate and Accumulated Depreciation 38 - 39
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) Certificate of Limited Partners filed with the
Registration Statement of the Registrant Form S-11, filed
September 30, 1982 and subsequently amended, incorporated
herein by reference.
14
ITEM 14: EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES, AND
REPORTS ON FORM 8-K (Con't.)
10. Material contracts
(b) Property Management Agreement with Realmark Corporation
included with the Registration Statement of the
Registrant as filed and amended to date incorporated
herein by reference.
(c) Property sales agreement with unrelated third-party
included with the third quarter Form 10Q incorporated
herein by reference.
15
INDEPENDENT AUDITORS' REPORT
The Partners
Realmark Property Investors Limited Partnership-II:
We have audited the accompanying balance sheets of Realmark Property Investors
Limited Partnership-II as of December 31, 1997 and 1996, and the related
statements of operations, partners' deficit, and cash flows for each
of the three years in the period ended December 31, 1997. Our audits also
include the financial statement schedules listed in the Index at Item 14. These
financial statements and financial statement schedules are the responsibility of
the General Partners. Our responsibility is to express an opinion on the
financial statements and the financial statement schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing standards
and Governmental 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 Realmark Property Investors Limited
Partnership-II at Decembr 31, 1997 and 1996 and the results of its operations
and its cash flows for each of the three years in the period ended December 31,
1996 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 schedules 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 failure to
meet its Department of Housing and Urban Development regulatory agreement
requirements, as well as the necessity for restructuring or refinancing of its
mortgage on Northwind Office Park which, is now payable on demand, and its
recurring losses from operations and partners' deficit 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.
March 10, 1998
16
REALMARK PROPERTY INVESTORS LIMITED PARTNERSHIP-II
BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
Assets 1997 1996
- ------ ----------------- -----------------
Property, at cost (including assets held for sale, Note 3):
Land $ 848,015 $ 848,015
Buildings and improvements 8,923,273 8,907,138
Furniture, fixtures and equipment 425,000 425,000
----------------- -----------------
10,196,288 10,180,153
Less accumulated depreciation 5,396,130 4,987,317
----------------- -----------------
Property, Net 4,800,158 5,192,836
Cash - 7,721
Cash - security deposits 70,895 50,510
Escrow deposits 277,566 259,109
Accounts receivable (net of allowance for doubtful accounts of
$49,139 and $125,129 for 1997 and 1996, respectively.) 2,846 6,423
Mortgage costs net of accumulated amortization
of $48,269 in 1997 and $39,874 in 1996 245,542 253,937
Other assets 23,172 36,120
----------------- -----------------
Total Assets $ 5,420,179 $ 5,806,656
================= =================
Liabilities and Partners' Deficit
- ---------------------------------
Liabilities:
Cash overdraft $ 151,190 $ -
Mortgages and note payable 5,343,052 5,514,863
Accounts payable and accrued expenses 457,535 526,132
Accounts payable - affiliates 76,669 -
Accrued interest 40,427 49,080
Security deposits 70,884 81,779
----------------- -----------------
Total Liabilities 6,139,757 6,171,854
----------------- -----------------
Losses of unconsolidated joint ventures in excess of investment 720,743 917,376
----------------- -----------------
Minority interest in consolidated joint venture 375,901 371,120
----------------- -----------------
Partners' deficit:
General partners (215,242) (210,366)
Limited partners (1,600,980) (1,443,328)
----------------- ----------------
Total partners' deficit (1,816,222) (1,653,694)
----------------- ----------------
Total Liabilities and Partners' Deficit $ 5,420,179 $ 5,806,656
================= ================
See notes to financial statements
17
REALMARK PROPERTY INVESTORS LIMITED PARTNERSHIP-II
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
1997 1996 1995
----------------- ---------------- -----------------
Income:
Rental $ 1,896,470 $ 1,746,543 $ 1,857,310
Interest and other 89,554 69,542 88,928
----------------- ---------------- -----------------
Total income 1,986,024 1,816,085 1,946,238
----------------- ---------------- -----------------
Expenses:
Property operations 1,015,681 945,519 1,247,610
Interest 520,176 508,545 525,963
Depreciation and amortization 420,841 319,685 415,774
Administrative:
Paid to affiliates 194,568 176,186 251,238
Other 189,138 246,996 174,995
----------------- ---------------- -----------------
Total expenses 2,340,404 2,196,931 2,615,580
----------------- ---------------- -----------------
Loss before allocated loss from joint venture
and loss allocated to minority interest (354,380) (380,846) (669,342)
Allocated income (loss) from joint venture 196,633 (52,873) (92,939)
(Income) loss allocated to minority interest (4,781) 14,942 31,098
----------------- ---------------- -----------------
Net loss $ (162,528) $ (418,777) $ (731,183)
================= ================ =================
Loss per limited partnership unit $ (15.77) $ (40.62) $ (70.92)
================= ================ =================
Distributions per limited partnership unit $ - $ - $ 6.60
================= ================ =================
Weighted average number of limited partnership
units outstanding 10,000 10,000 10,000
================= ================ =================
See notes to financial statements
18
REALMARK PROPERTY INVESTORS LIMITED PARTNERSHIP-II
STATEMENTS OF PARTNERS' DEFICIT
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
General
Partners Limited Partners
Amount Units Amount
--------- ----- ------
Balance, January 1, 1995 $ (173,828) 10,000 $ (261,866)
Distributions to partners (2,040) - (66,000)
Net loss (21,935) - (709,248)
--------------- ----------- -----------------
Balance, December 31, 1995 (197,803) 10,000 (1,037,114)
Net loss (12,563) - (406,214)
--------------- ----------- -----------------
Balance, December 31, 1996 (210,366) 10,000 (1,443,328)
Net loss (4,876) - (157,652)
--------------- ----------- -----------------
Balance, December 31, 1997 $ (215,242) 10,000 $ (1,600,980)
=============== =========== =================
See notes to financial statements
19
REALMARK PROPERTY INVESTORS LIMITED PARTNERSHIP-II
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
1997 1996 1995
--------------- --------------- ----------------
Cash flows from operating activities:
Net loss $ (162,528) $(418,777) $ (731,183)
Adjustments to reconcile net loss to net cash (used in)
operating activities:
Depreciation and amortization 420,841 319,685 415,774
Amortization of mortgage discounts - - 2,218
Allocated (income) loss from joint venture (196,633) 52,873 92,939
Income (loss) allocated to minority interest 4,781 (14,942) (31,098)
Changes in operating assets and liabilities:
Cash - security deposits (20,385) (15,160) (870)
Escrow deposits (18,457) 23,891 53,623
Accounts receivable 3,577 988 (4,934)
Other assets 9,315 7,014 (11,416)
Accounts payable and accrued expenses (68,597) 12,778 187,056
Accrued interest (8,653) 234 3,116
Security deposits (10,895) 3,125 5
--------------- --------------- ----------------
Net cash used in operating activities (47,634) (28,291) (24,770)
--------------- --------------- ----------------
Cash flows from investing activities:
Decrease (increase) in accounts receivable - affiliates - 146,238 (109,729)
Capital expenditures (16,135) (5,997) (31,110)
Distributions from joint venture - - 100,000
Payments on notes receivable - - 28,812
--------------- --------------- ----------------
Net cash (used in) provided by investing activities (16,135) 140,241 (12,027)
--------------- --------------- ----------------
Cash flows from financing activities:
Increase in cash overdraft 151,190 - -
Increase in accounts payable - affiliates 76,669 - -
Principal payments on mortgages and notes (171,811) (134,753) (124,500)
Distributions to partners - - (68,040)
--------------- --------------- ----------------
Net cash provided by (used in) financing activities 56,048 (134,753) (192,540)
--------------- --------------- ----------------
Net decrease in cash (7,721) (22,803) (229,337)
Cash - beginning of year 7,721 30,524 259,861
--------------- --------------- ----------------
Cash - end of year $ - $ 7,721 $ 30,524
=============== =============== ================
See notes to financial statements
20
REALMARK PROPERTY INVESTORS LIMITED PARTNERSHIP-II
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
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.
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. (See 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) Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
21
REALMARK PROPERTY INVESTORS LIMITED PARTNERSHIP-II
NOTES TO FINANCIAL STATEMENTS
(Continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Con't.):
(b) Property and Depreciation
Depreciation is provided on the straight-line method over the estimated
useful lives of the respective assets, and totaled $408,814, $309,806 and
$405,312 for the years ended December 31, 1997, 1996 and 1995, respectively. The
useful lives of the Partnership's assets range from 15 to 25 years. Expenditures
for maintenance and repairs are expensed as incurred, major renewals and
betterments are capitalized. The Accelerated Cost Recovery System or Modified
Accelerated Cost Recovery System is used to calculate depreciation expense for
tax purposes. See Footnote 3 for further discussion.
(c) 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 buildings.
(d) Cash
For purposes of reporting cash flows, cash includes the following items:
cash on hand; cash in checking; and money market savings.
Any cash overdrafts as of December 31, 1997 have been replenished by the
General Partner in the first quarter of 1998.
(e) Cash-Security Deposits
Cash-security deposits represents cash on deposit in accordance with
terms of a U.S. Department of Housing and Urban Development (HUD) regulatory
agreement for Multi-Family Housing Projects under Section 223(f).
(f) Escrow Deposits
Escrow deposits represent cash which is restricted for the payment of
property taxes or for repairs and replacements in accordance with the mortgage
agreement.
(g) Mortgage Costs
Mortgage costs incurred in obtaining property mortgage financing have
been deferred and are being amortized over the terms of the respective
mortgages.
22
REALMARK PROPERTY INVESTORS LIMITED PARTNERSHIP-II
NOTES TO FINANCIAL STATEMENTS
(Continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Con't.):
(h) Investment in 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.
(i) 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.
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.
23
REALMARK PROPERTY INVESTORS LIMITED PARTNERSHIP-II
NOTES TO FINANCIAL STATEMENTS
(Continued)
3. ACQUISITION AND DISPOSITION OF RENTAL PROPERTY (Con't.):
In July of 1996, the Partnership entered into a plan to dispose of the
property, plant and equipment 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 is 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 contact expired in 1997. The Partnership has not entered
into any other agreements since.
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, the 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. Depreciation expense, not recorded
during the disposal period, for the year ended December 31, 1996 totaled
approximately $93,000. 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.
24
REALMARK PROPERTY INVESTORS LIMITED PARTNERSHIP-II
NOTES TO FINANCIAL STATEMENTS
(Continued)
4. INVESTMENT IN JOINT VENTURES (Con't.):
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.
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, 1997 and 1996 and the results of its operations for the years
ended December 31, 1997, 1996 and 1995 presented as follows have been adjusted
to reflect audited balances for 1996 which became available during the third
quarter of 1997. The Partnership's investment in the joint venture as of
December 31, 1996 was based on the estimated results of operations for the year
then ended. Any differences from those estimates have been reflected in the
Partnership's 1997 financial statements. The losses in unconsolidated joint
ventures in excess of investment amounted to $937,234 as of December 31, 1997.
25
REALMARK PROPERTY INVESTORS LIMITED PARTNERSHIP-II
NOTES TO FINANCIAL STATEMENTS
(Continued)
4. INVESTMENT IN JOINT VENTURES (Con't.):
RESEARCH TRIANGLE INDUSTRIAL PARK
BALANCE SHEETS
December 31, 1997 and 1996
Assets 1997 1996
- ------ ---------------- -----------------
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 (3,469,458) (3,338,925)
---------------- -----------------
Property, net 1,798,721 1,929,254
Cash 1,127,231 745,127
Accounts receivable - affiliates 20,603 -
Accounts receivable - other 35,731 268,317
Escrow deposits 330,058 -
Other 263,149 49,597
---------------- -----------------
Total Assets $ 3,575,493 $ 2,992,295
================ =================
Liabilities and Partners' Deficit
- ---------------------------------
Liabilities:
Notes payable $ 5,558,723 $ 4,996,884
Accounts payable and accrued expenses 90,069 37,403
Accounts payable - affiliates - 96,443
---------------- -----------------
Total liabilities 5,648,792 5,130,730
---------------- -----------------
Partners' Deficit:
The Partnership (1,136,064) (1,168,632)
Other investors (937,235) (969,803)
---------------- -----------------
Total Partners' Deficit (2,073,299) (2,138,435)
---------------- -----------------
Total Liabilities and Partners' Deficit $ 3,575,493 $ 2,992,295
================ =================
26
REALMARK PROPERTY INVESTORS LIMITED PARTNERSHIP-II
NOTES TO FINANCIAL STATEMENTS
(Continued)
4. INVESTMENT IN JOINT VENTURES (Con't.):
RESEARCH TRIANGLE INDUSTRIAL PARK
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
1997 1996 1995
----------------- ----------------- ---------------
Income:
Rental $ 886,634 $ 1,029,367 $ 946,046
Interest 5,496 763 431
----------------- ----------------- ---------------
Total Income 892,130 1,030,130 946,477
----------------- ----------------- ---------------
Expenses:
Property operations 101,896 112,982 117,319
Interest 466,651 436,685 440,630
Depreciation and amortization 170,218 172,099 510,653
Administrative:
Paid to affiliates 60,177 58,987 63,527
Other 28,052 12,352 226
----------------- ----------------- ---------------
Total Expenses 826,994 793,105 1,132,355
----------------- ----------------- ---------------
Net income (loss) $ 65,136 $ 237,025 $ (185,878)
================= ================= ===============
Allocation of net income (loss):
The Partnership $ 32,568 $ 118,513 $ (92,939)
Other investors 32,568 118,512 (92,939)
----------------- ----------------- ---------------
Total $ 65,136 $ 237,025 $ (185,878)
================= ================= ===============
A reconciliation of the investment in Research Triangle Industrial Park Joint
Venture is as follows:
1997 1996 1995
------------------ ------------------- ------------------
Investment in joint venture at beginning of year $ (969,802) $ (1,088,315) $ (895,376)
Allocated income (loss) 32,568 118,513 (92,939)
Distribution from joint venture - - (100,000)
------------------ ------------------- ------------------
Investment in joint venture at end of year $ (937,234) $ (969,802) $ (1,088,315)
================== =================== ==================
27
REALMARK PROPERTY INVESTORS LIMITED PARTNERSHIP-II
NOTES TO FINANCIAL STATEMENTS
(Continued)
4. INVESTMENT IN JOINT VENTURES (Con't.):
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.
The joint venture has no outstanding debt at December 31, 1997 and 1996.
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, 1997, 1996 and 1995 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.
Bills paid entirely by one joint venturer will be reflected through a
receivable or payable on the Partnership books. There was a $500 receivable from
Adaron and a $500 payable to an affiliate of the Partnership as of December 31,
1997 representing premiums on the 1997 insurance policy. The receivable and
payable at December 31, 1996 was $243 and $243, respectively.
The total capital of the joint venture of $432,982 as of December 31,
1997 and 1996 is divided equally between the Partnership and Adaron. The
Partnership's capital of $216,491 as of December 31, 1997 and 1996 is included
in the Investment in Joint Ventures on the balance sheet. The Partnership's
share of expenses not previously billed by Adaron, totaling $5,532 and $7,321,
were allocated to the Partnership for the years ended December 31, 1997 and
1996, respectively. All payments made by each joint venturer are considered
capital contributions. Such contributions are offset by the allocated loss from
such payments. Therefore, overall capital does not change. A cumulative
adjustment of $7,321 was made in 1996 to adjust capital accounts to actual.
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.
28
REALMARK PROPERTY INVESTORS LIMITED PARTNERSHIP-II
NOTES TO FINANCIAL STATEMENTS
(Continued)
4. INVESTMENT IN JOINT VENTURES (Con't.):
Minority Interest in Consolidated Joint Venture (Con't.):
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 HUD 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, 1997 has been allocated to the minority interests in
accordance with the agreement and has been recorded as a reduction of their
capital contributions.
A reconciliation of the minority interest share in the Foxhunt Joint
Venture is as follows:
RPILP VI B
--------------
Balance at January 1, 1995 $ 417,160
Allocated loss (31,098)
---------------
Balance at December 31, 1995 386,062
Allocated loss (14,942)
---------------
Balance at December 31, 1996 371,120
Allocated loss 4,781
---------------
Balance at December 31, 1997 $ 375,901
===============
5. MORTGAGES AND NOTES PAYABLE:
The Partnership has the following mortgages payable:
Northwind Office Park
A mortgage with a carrying amount of $566,206 and $663,562 at December
31, 1997 and 1996, respectively, bearing interest at 9.75%. The mortgage
provides for annual principal and interest payments of $147,660, payable in
equal monthly installments with the remaining balance due in December 2002. The
Partnership is currently not in compliance with certain debt covenants requiring
timely payment of taxes levied against the property (see Note 13) and timely
filing of financial statements with the financial institution.
A mortgage with a carrying amount of $278,519 and $314,481 at December
31, 1997 and 1996, respectively, bearing interest at 9%. The mortgage provides
for annual principal and interest payments at $57,936, payable in equal monthly
installments with the remaining balance originally due in September 1995. No
extension has been granted and the loan is currently callable on demand.
29
REALMARK PROPERTY INVESTORS LIMITED PARTNERSHIP-II
NOTES TO FINANCIAL STATEMENTS
(Continued)
5. MORTGAGES AND NOTES PAYABLE (Con't.):
Foxhunt Apartments
A U.S. Department of Housing and Urban Development (HUD) guaranteed
mortgage with a balance of $4,498,327 and $4,528,289 at December 31, 1997 and
1996, respectively, bearing interest at 9%. Annual principal and interest
payments of $436,296 are due in equal monthly installments until maturity in
April 2027.
The mortgage is subject to a HUD regulatory agreement which places
certain restrictions on the operation of the Partnership. As of December 31,
1997, the Partnership was not in compliance with several of these regulations.
Other
A demand note with a balance of $8,531 at December 31, 1996. This note
was paid off in full during 1997.
The aggregate maturities of mortgages and note payable for each of the
next five years and thereafter are as follows:
Year Amount
1998 $ 406,913
1999 141,220
2000 155,328
2001 170,847
2002 168,047
Thereafter 4,300,697
----------------
TOTAL $ 5,343,052
================
The mortgages and note are secured by substantially all of the properties of the
partnership.
30
REALMARK PROPERTY INVESTORS LIMITED PARTNERSHIP-II
NOTES TO FINANCIAL STATEMENTS
(Continued)
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, deposits held in trust, accounts payable, accrued expenses
and deposit liabilities approximate the carrying value due to the nature of
these instruments.
The fair value of the mortgages payable of Northwind, with carrying
values of $566,206 and $278,519, and the mortgage payable of Foxhunt, with a
carrying value of $4,498,327, cannot be determined because it is uncertain if
comparable mortgages could be obtained in the current market due to the poor
occupancy at Northwind and the fact that Foxhunt's mortgage payable is insured
by the Department of Housing and Urban Development (HUD). See Note 5 for a
description of the terms of the mortgages payable.
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 $96,762, $87,188 and $95,603 and for the years ended December 31, 1997,
1996 and 1995, 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, 1997, 1996 and 1995.
Accounts payable - affiliates totaled $76,669 as of December 31, 1997.
There were no amounts due to or from affiliates as of December 31, 1996.
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 for each of the years ended December 31, 1997, 1996 and
1995.
31
REALMARK PROPERTY INVESTORS LIMITED PARTNERSHIP-II
NOTES TO FINANCIAL STATEMENTS
(Continued)
7. RELATED PARTY TRANSACTIONS (Con't.):
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. 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 $93,246, $84,438 and $151,075 in
1997, 1996 and 1995, 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.
8. INCOME TAXES:
No provision has been made for income taxes since the income or loss of
the Partnership is to be included in the tax returns of the Individual Partners.
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.
32
REALMARK PROPERTY INVESTORS LIMITED PARTNERSHIP-II
NOTES TO FINANCIAL STATEMENTS
(Continued)
8. INCOME TAXES (Con't.):
The reconciliation of net loss for the years ended December 31, 1997,
1996 and 1995, as reported in the statement of operations, and as would be
reported for tax return purposes is as follows:
1997 1996 1995
--------------- ---------------- ---------------
Net loss -
Statement of operations $ (162,528) $(418,777) $(731,183)
Add to (deduct) from:
Difference in depreciation 114,999 (78,980) (62,733)
Difference in amortization of loan discount - - 2,218
Basis difference in investment in joint venture 69,318 115,578 193,182
Other (125,740) (54,952) -
Allowance for doubtful accounts (67,268) 27,558 41,403
--------------- ---------------- ---------------
Net loss - tax return purposes $ (171,219) $(409,573) $(557,113)
=============== ================ ===============
The reconciliation of Partners' Deficit for the years ended December 31,
1997, 1996 and 1995, as reported in the balance sheet and as reported for tax
return purposes, is as follows:
1997 1996 1995
----------------- ------------------ ------------------
Partners' Deficit - $ (1,816,222) $(1,653,694) $(1,234,917)
Balance Sheet
Add to (deduct from):
Accumulated difference in depreciation (3,712,220) (3,827,219) (3,748,239)
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 45,741 113,009 85,451
Gain on sale of property (561,147) (561,147) (561,147)
Other (228,298) (102,558) (47,606)
Difference in investment in joint ventures 647,808 578,490 462,912
----------------- ------------------ ------------------
Partners' Deficit - tax return purposes $ (3,282,738) $(3,111,519) $(2,701,946)
================= ================== ==================
33
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:
1998 $ 244,067
1999 106,224
2000 34,023
-------------
TOTAL $ 384,314
=============
10. GOING CONCERN CONSIDERATIONS
On May 5, 1992, the Partnership obtained a mortgage guaranteed by the
Department of Housing and Urban Development (HUD). The mortgage is subject to a
HUD regulatory agreement which places restrictions on the operations of the
Partnership. As of December 31, 1997 the partnership was not in compliance with
several of these regulations, including:
o Failure to return security deposits due and/or provide an itemized list
of claims to tenants within 30 days of the tenant's move-out date;
o Not maintaining accounting records in accordance with HUD regulations;
o Lack of segregation of duties in the cash receipts system, in that the
person collecting rents and security deposits also maintains the rent
roll;
o Failure to submit reliable financial status reports on a timely basis;
and
o Failure to submit an Affirmative Fair Housing Marketing Plan for HUD
approval until after year end.
The consequences of the noncompliance with these restrictions could
include HUD-imposed sanctions such as fines or interest charges. Additionally,
the violation of the regulatory agreement could be deemed an event of default by
the mortgagor, and HUD could possibly take over as holder of the mortgage.
34
REALMARK PROPERTY INVESTORS LIMITED PARTNERSHIP-II
NOTES TO FINANCIAL STATEMENTS
(Continued)
10. GOING CONCERN CONSIDERATIONS (Con't.)
The Partnership's mortgage on Northwind Office park was originally due
in September 1994. A temporary extension on this loan was granted until
September 1995. However, no further extension has been granted to the
Partnership. The loan is currently callable on demand. The Corporate General
Partner is continuing efforts to refinance or restructure this loan.
Because of the uncertainty surrounding default on the HUD guaranteed
mortgage, refinancing of the Northwind Office Park mortgage, and the
Partnership's recurring losses from operations and partners' deficit,
substantial doubt exists about the Partnership's ability to continue as a going
concern.
Management is continuing its efforts to reduce expenses, increase rents
and implement actions to obtain appropriate refinancing. In addition, management
has responded to HUD regarding the aforementioned noncompliance including its
intentions to remedy the situation.
11. SUPPLEMENTAL SCHEDULE OF CASH FLOW INFORMATION
1997 1996 1995
---- ---- ----
Cash paid for interest $528,829 $508,311 $520,629
============ ============== ==============
12. RECLASSIFICATIONS
Certain reclassifications have been made to 1995 and 1996 balances to
conform to the classifications used for 1997 balances.
13. CONTINGENCIES
Included in Accounts Payable and Accrued Expenses on the balance sheet
are delinquent taxes and interest on Northwind Office Park for the years 1995
and 1996 totaling approximately $69,511 and $71,086, respectively. The property
is scheduled to go into tax sale on May 5, 1998 should the taxes not be paid.
The result of such tax sale could be substantial penalties or the potential loss
of the property.
35
REALMARK PROPERTY INVESTORS LIMITED PARTNERSHIP-II
NOTES TO FINANCIAL STATEMENTS
(Continued)
14. SUBSEQUENT EVENTS
Subsequent to December 31, 1997, management committed to a plan to sell
the assets of Research Triangle Joint Venture. On January 9, 1998, the Joint
Venture entered into an agreement to sell substantially all of its real property
at a purchase price of $7,600,000. The agreement subsequently expired, but
management is continuing to market the assets of the Joint Venture and
anticipates a sale in 1998.
36
SCHEDULE II
REALMARK PROPERTY INVESTORS LIMITED PARTNERSHIP-II
VALUATION AND QUALIFYING ACCOUNTS
For The Years Ended December 31, 1997, 1996 and 1995
Additions Charged to
Balance Charged to Other Balance
Beginning Cost and Described Deductions at End of
Description of Period Expenses Accounts Described Period (1)
----------- --------- ------------ ------------- ---------- ----------
Year ended December 31, 1995
Unamortized discounts on
mortgage payable $ 2,218 $ - $ - $ 2,218 (2) $ -
============ ========== ========== ============= ===========
(1) Discounts to be amortized over remaining terms of the respective
mortgages.
(2) Amortization of discounts charged to operations during the year.
37
REALMARK PROPERTY INVESTORS LIMITED PARTNERSHIP-II
REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1997
SCHEDULE III
REALMARK PROPERTY INVESTORS LIMITED PARTNERSHIP-II
REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1997
Initial Cost to Gross amounts at which
Partnership Cost Carried at Close of Period
--------------------------- Capitalized -------------------------------------
Property Subsequent to (1)(2)
Description Encumbrances Land Buildings Acquisition Retirements Land Buildings Total
- ------------ ------------ ---- --------- ------------- ----------- ---- --------- ------
Northwind
Office Park
E. Lansing, MI $ 844,725 $ 460,515 $ 3,415,895 $469,207 $ - $ 460,515 $ 3,885,102 $ 4,345,617
Foxhunt
Apartments
Kettering, OH 4,498,327 387,500 4,890,020 148,151 - 387,500 5,038,170 5,425,671
------------- ----------- ------------ ----------- ------------ ------------ ------------- -------------
$ 5,343,052 $ 848,015 $ 8,305,915 $617,358 $ - $ 848,015 $ 8,923,272 $ 9,771,288
============= =========== ============ =========== ============ ============ ============= =============
Research
Triangle JV
Research
Triangle, NC $ 5,558,723 $ 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 - 432,982 - 432,982
------------- ------------- ------------ ----------- ------------ ----------- ------------- -------------
$ 5,558,723 $ 1,163,112 $ 4,920,738 $ 29,813 $ (412,500) $ 771,094 $ 4,930,067 $ 5,701,161
============= ============= ============ =========== ============ =========== ============= =============
(table continued)
Life on
Which
Depreciation
in Latest
Statement
(3)(6) Date of
Accumulated of Date Operations
Depreciation Construction Acquired is Computed
------------ ------------ -------- -----------
Northwind
Office Park
E. Lansing, MI $ 2,203,729 1973 12/83 15 - 25 Years
Foxhunt
Apartments
Kettering, OH 2,767,401 1972 02/84 15 - 25 Years
-------------
$ 4,971,130
=============
Research
Triangle JV
Research
Triangle, NC $ 3,469,458 1985 12/83 15 - 25 Years
Research
Triangle
Land JV
Research
Triangle, NC - - 08/92 15 - 25 Years
-------------
$ 3,469,458
=============
38
REALMARK PROPERTY INVESTORS LIMITED PARTNERSHIP-II
REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1997
(1) Cost for Federal income tax purposes is $9,771,288.
(2) A reconciliation of the carrying amount of land and buildings as of
December 31, 1997, 1996 and 1995 follows:
Partnership Properties
1997 1996 1995
-------------- -------------- --------------
Balance at beginning of period $ 9,755,153 $ 9,749,156 $ 9,718,046
Additions 16,135 5,997 31,110
Dispositions - - -
-------------- -------------- --------------
Balance at end of period $ 9,771,288 $ 9,755,153 $ 9,749,156
============== ============== ==============
Joint Venture Property
1997 1996 1995
-------------- -------------- --------------
Balance at beginning of period $ 5,701,163 $ 5,691,834 $ 5,691,834
Additions - 9,329 -
Dispositions - - -
-------------- -------------- --------------
Balance at end of period $ 5,701,163 $ 5,701,163 $ 5,691,834
============== ============== ==============
(3) A reconciliation of accumulated depreciation for the years ended December
31, 1997, 1996 and 1995 follows:
Partnership Properties
1997 1996 1995
-------------- -------------- --------------
Balance at beginning of period $ 4,562,317 $ 4,252,511 $ 3,847,199
Additions charged to cost and expenses
during the period 408,813 309,806 405,312
-------------- -------------- --------------
Balance at end of period $ 4,971,130 (4) $ 4,562,317 (4) $ 4,252,511 (4)
============== ============== ==============
Joint Venture Property
1997 1996 1995
-------------- -------------- --------------
Balance at beginning of period $ 3,338,925 $ 3,231,895 $ 2,797,047
Additions charged to cost and expenses
during the period 130,533 107,030 434,848
-------------- -------------- --------------
Balance at end of period $ 3,469,458 (4) $ 3,338,925 (4) $ 3,231,895 (4)
============== ============== ==============
(4) Balance applies entirely to buildings.
(5) Land transfer to Research Triangle Land Joint Venture.
(6) The life on which depreciation is computed in latest statement of
operations is 25 years.
39
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 4/15/98
----------------------------- --------------
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: /s/ JOSEPH M. JAYSON 4/15/98
--------------------------- --------------
JOSEPH M. JAYSON, President Date
Principal Executive Officer and Director
/s/ MICHAEL J. COLMERAUER 4/15/98
------------------------------------- --------------
MICHAEL J. COLMERAUER, Date
Secretary
40
Supplemental Information to be Furnished with Reports Filed Pursuant to
Section 15(d) of the Act by Registrants Which Have Not Registered Securities
Pursuant to Section 12 of the Act.
The Form 10-K is sent to security holders. No other annual report is
distributed. No proxy statement, form of proxy or other proxy soliciting
material was sent to any of the registrant's security holders with respect to
any annual or other meeting or security holders.
41