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, 2001
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES AND EXCHANGE ACT OF 1934
Commission File Number 0-13331
REALMARK PROPERTY INVESTORS LIMITED PARTNERSHIP - III
-----------------------------------------------------
(Exact Name of Registrant as specified in its Charter)
Delaware 16-1234990
-------- ----------
(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
PART I
ITEM 1: BUSINESS
The Registrant, Realmark Property Investors Limited Partnership-III
(the "Partnership"), is a Delaware Limited Partnership organized in 1983,
pursuant to a Second 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").
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 February 1, 1984, and concluded the
offering on January 31, 1985, having raised a total of $15,551,000 before
deducting 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 partners.
At December 31, 2001, the Partnership, either directly or through a limited
liability, wholly-owned subsidiary company, owned two office buildings
(Perrymont and Inducon Amherst) with a total of 124,960 square feet of rentable
space. Both of these properties are currently being actively marketed for sale.
On October 18, 2001, the Partnership sold Ambassador Towers to an unaffiliated
entity.
It is anticipated that the Partnership will be entering into sales
contracts in the near future (one to six months) which will be subject to sales
conditions which are customary for sales contracts and there is no assurance
that the sales will be consummated.
The business of the Partnership is not seasonal and it competes on the
basis of rental rates and property operations with similar types of properties
in vicinities in which the Partnership's properties are located. The Partnership
has no real property investments located outside the United States. The
Partnership does not segregate revenue or assets by geographic region, since, in
management's view, such a presentation would not be significant to an
understanding of the Partnership's business or financial results taken as a
whole. As of December 31, 2001, the Partnership did not directly employ any
persons in a full-time position. All persons who regularly rendered services on
behalf of the Partnership through December 31, 2001 were employees of the
Corporate General Partner or its affiliates.
The occupancy for each complex at December 31 was as follows:
2001 2000 1999
---- ---- ----
Ambassador Towers - 97% 87%
Perrymont Office Building 50% 54% 51%
Inducon Amherst 66% 79% 79%
The percentage of total Partnership revenue generated by each complex
for the last three years was as follows:
2001 2000 1999
---- ---- ----
Ambassador Towers 69% 76% 69%
Perrymont Office Building 10% 10% 14%
Inducon Amherst 21% 14% 17%
2
This annual report contains certain forward-looking statements
concerning the Partnership's current expectations as to future results. Words
such as "believes", "forecasts", "intends", "possible", "expects", "estimates",
"anticipates" or "plans" and similar expressions are intended to identify
forward-looking statements. Such statements may not ultimately turn out to be
accurate due to, among other things, economic or market conditions or the
failure of the Partnership to sell an investment which is under contract.
ITEM 2: PROPERTIES
Following is a list of properties owned by the Partnership at December
31, 2001:
Property Name
and Location General Character of Property Purchase Date
------------ ----------------------------- -------------
Perrymont Office Bldg. One unencumbered office building on 2.3 August 1985
Pittsburgh, PA acres with 45,000 rentable square feet.
Inducon Amherst Four office/warehouse buildings on April 1985
Amherst, NY 4 acres with approximately 77,000 rentable
square feet, securing an 8.62% mortgage with
a balance at December 31, 2001 of
$1,766,156, maturing in March 2022.
ITEM 3: LEGAL PROCEEDINGS
As previously reported, the Partnership, as a nominal defendant, the
General Partners of the Partnership and of affiliated public partnerships, (the
"Realmark Partnerships") and the officers and directors of the Corporate General
Partner, as defendants, had been involved in a class action litigation at the
state court level regarding the payment of fees and other management issues.
On August 29, 2001, the parties entered into a Stipulation of
Settlement (the "Settlement"). On October 4, 2001, the Court issued an "Order
Preliminary Approving Settlement" (the "Hearing Order") and on November 29,
2001, the court issued an "Order and Final Judgment Approving Settlement and
Awarding Fees and Expenses" and dismissing the complaints with prejudice. The
Settlement provided, among other things, that all of the Realmark Partnerships'
properties be disposed of. The General Partners will continue to have primary
authority to dispose of the Partnerships' properties. If either (i) the General
Partners have not sold or contracted to sell 50% of the Partnerships' properties
(by value) by April 2, 2002 or (ii) the General Partners have not sold or
contracted to sell 100% of the Partnerships' properties by September 29, 2002,
then the primary authority to dispose of the Partnerships' properties will pass
to a sales agent designated by plaintiffs' counsel and approved by the Court. As
of April 2, 2002, the General Partners have contracted to sell more than 50% of
the Partnerships' properties (by value).
The settlement also provided for the payment by the Partnerships of
fees to the plaintiffs' attorneys. These payments, which are not calculable at
this time but may be significant, are payable out of the proceeds from the sale
of all of the properties owned by all of the Realmark Partnerships, following
the sale of the last of these properties in each partnership. Plaintiffs'
counsel will receive 15% of the amount by which the sales proceeds distributable
to limited partners in each partnership exceeds the value of the limited
partnership units in each partnership (based on the weighted average of the
units' trading prices on the secondary market as reported by Partnership
Spectrum for the period May through June 2001). In no event may the increase on
which the fees are calculated exceed 100% of the market value of the units as
calculated above.
ITEM 4: SUBMISSIONS OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
3
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. Accordingly, information as to the market value of a unit
at any given date is not available. As of December 31, 2001, there were 1,774
record holders of units of limited partnership interest.
The Partnership is a limited partnership and, accordingly, does not pay
dividends. It does, however, make distributions of cash to its partners. The
partnership agreement provides for the distribution to the partners of net cash
flow from operations. In connection with the pending sale of the Partnership's
properties (Item 3), it is anticipated that there will be no future
distributions of net cash flow from operations. All future distributions of net
cash from sales proceeds will be distributed, to the extent available, 100% to
the Limited Partners until there has been a return of the Limited Partner's
capital contributions plus an amount sufficient to provide a 7%, not compounded,
return on their adjusted capital contributions for all years following the
termination of the offering of the units. It is anticipated that there will not
be sufficient cash flow from the sale of the Partnership's remaining properties
to provide this return to the Limited Partners.
The gain on the sale of the properties will be allocated in the same
proportions as distributions of distributable cash from sale proceeds
(anticipated to be 100% to the Limited Partners). In the event there is no
distributable cash from sale proceeds, taxable income will be allocated 87% to
the Limited Partners and 13% to the General Partners. Any tax loss arising from
a sale will be allocated 97% to the Limited Partners and 3% to the General
Partners. The above is subject to tax laws that were applicable at the time of
the formation of the Partnership and may be adjusted due to subsequent changes
in the Internal Revenue Code.
4
ITEM 6: SELECTED FINANCIAL DATA
At or for the years ended December 31,
-----------------------------------------------------------------------
2001 2000 1999 1998 1997
-----------------------------------------------------------------------
Balance sheet data
Net rental property $ 3,338,033 6,479,500 6,831,380 6,753,103 6,842,563
Total assets 4,157,186 7,706,941 8,564,042 9,113,917 10,757,121
Mortgage loans payable 1,766,156 4,874,473 4,935,851 4,970,797 6,216,763
Partners' equity 2,313,563 2,512,045 3,316,684 3,837,552 3,927,664
=======================================================================
Operating data
Rental income 2,028,916 2,474,400 2,400,717 2,050,131 2,828,947
Other income 341,396 339,438 314,240 382,167 286,232
-----------------------------------------------------------------------
Total revenue 2,370,312 2,813,838 2,714,957 2,432,298 3,115,179
-----------------------------------------------------------------------
Property operating costs 1,656,992 1,797,539 1,915,768 1,595,748 1,863,882
Depreciation -- 465,454 343,918 227,696 426,277
Interest expense 406,070 456,940 489,199 516,918 1,375,313
Administrative expenses 528,549 515,509 486,940 500,261 530,837
-----------------------------------------------------------------------
Total expenses 2,591,611 3,235,442 3,235,825 2,840,623 4,196,309
-----------------------------------------------------------------------
Operating loss (221,299) (421,604) (520,868) (408,325) (1,081,130)
Equity in net loss of joint
ventures -- -- -- -- (213,416)
Gain on property sales 5,022,817 -- -- -- 3,095,376
Extraordinary gain on debt
extinguishment -- -- -- 318,213 --
-----------------------------------------------------------------------
Net income (loss) 4,801,518 (421,604) (520,868) (90,112) 1,800,830
=======================================================================
Cash flow data
Net cash provided (used) by:
Operating activities (224,082) 77,607 (241,310) (520,887) (1,445,008)
Investing activities 8,031,721 (113,574) (422,195) (138,234) 4,784,466
Financing activities (8,108,317) (444,413) (34,946) (927,753) (1,786,121)
-----------------------------------------------------------------------
Net increase (decrease) in cash
and equivalents (300,678) (480,380) (698,451) (1,586,874) 1,553,337
=======================================================================
Per limited partnership unit:
Net income (loss) $ 309.19 ($ 26.30) (32.49) (5.62) 105.38
Distributions 321.52 23.89 -- -- --
=======================================================================
5
ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Liquidity and Capital Resources
Effective January 1, 2001, management began formally marketing all
properties in the Partnership for sale. On October 18, 2001, the Partnership
sold Ambassador Towers to an unaffiliated entity, for cash of $8,650,000. After
satisfaction of the $3,046,000 mortgage loan on the property and payment of
closing costs, the proceeds available amounted to approximately $5.1 million.
Those proceeds enabled the Partnership to make a distribution to the Limited
Partners in the last quarter of 2001 in the amount of $5,000,000.
Cash provided through the sale and refinancing of properties prior to
1999, permitted the Partnership to perform considerable renovation work at the
Perrymont Office Building. The work which included re-facing of the exterior of
the building to give it a more updated appearance, landscaping, redecorating of
all common area restrooms, a new sprinkler system, hallway carpeting, fresh
paint throughout the building, foyer alterations, new signage, new doors,
fencing at the entrance and driveway repairs cost approximately $336,000,
$100,000 and $62,000 in 1999, 2000 and 2001, respectively.
Prior to its sale, capital improvements had also been completed over
the last three years at Ambassador Towers. Those improvements included the
re-carpeting, painting and wallpapering of all hallways in the building.
Additionally, carpets and appliances were being replaced on an as-needed basis,
and new cabinets, countertops and mirrors were being added to units when such
improvements were deemed necessary in order to rent vacant units or retain
current tenants.
While cash was used during 2000 and 1999 to fund capital improvements,
adequate liquidity enabled the Partnership to also make a $383,035 distribution
to partners in the fourth quarter of 2000. There were no distributions in 1999.
In accordance with the settlement of the lawsuit (Item 3), it is anticipated
that with the sale of the remaining properties, the Partnership may be a
position to make additional distributions to the Limited Partners. These
distributions will be reduced by the amount of fees payable to the plaintiffs'
legal counsel in connection with the settlement agreement (Item 3), any
outstanding liabilities and any mortgage prepayment penalties incurred with
regard to the sale of the Partnership's properties.
Limited Partners should be aware that it is possible that they will
receive an allocation of income from gain on sale of properties on which they
will be required to pay income taxes and there is no assurance that
distributions from the sale of the properties will be sufficient to satisfy
these obligations.
Except as described above and in the consolidated financial statements,
the General Partner is not aware of any trends or events, commitments or
uncertainties that may impact liquidity in a material way.
Results of Operations
The results of operations of the Partnership, excluding gain on sale of
property for the year ended December 31, 2001, produced a net loss of $221,299.
Effective January 1, 2001, management began formally marketing all properties in
the Partnership for sale, therefore, the properties were not depreciated in
2001. The results compare to net income, excluding depreciation, of $43,850 in
2000 and a net loss, excluding depreciation, of $176,950 in 1999.
If the sale of Ambassador Towers had occurred on January 1, 2000, the
operating results for the year ended December 31, 2000 would have been a net
loss, excluding depreciation, of $143,000, resulting from a decrease in revenue
and expense of $1,949,000 and $1,762,000, respectively. If the sale of
Ambassador Towers had occurred on January 1, 1999, the operating results for the
6
year ended December 31, 1999 would have been a net loss, excluding depreciation,
of $60,000, resulting from a decrease in revenue and expense of $1,807,000 and
$1,924,000, respectively. For the year ended December 31, 2001, the net loss
would have been $394,000, resulting from a decrease in revenue and expense of
$1,611,000 and $1,438,000, respectively.
Inflation has been consistently low during the periods presented in the
consolidated financial statements and, as a result, has not had a significant
effect on the operations of the Partnership or its properties.
2001 as compared to 2000
In 2001, occupancy at Ambassador Towers remained around 97% until its
sale. Rental income decreased 18% for the year ended December 31, 2001 as
compared to 2000. Excluding Ambassador Towers (the "Sold Asset") rental income
decreased approximately 15% due to increased vacancies at the two remaining
commercial properties, with the largest decrease of approximately $77,000
occurring at Inducon Amherst, where occupancy decreased from 79% at December 31,
2000 to 66% at December 31, 2001. Other income, excluding the Sold Asset,
decreased by 4% in 2001 due to a 17% increase in common area maintenance fees at
Inducon Amherst offset by a decrease of 45% in interest income.
Total expenses, excluding the operations for the Sold Asset, decreased
approximately 8% for the year ended December 31, 2001. Property operations
increased approximately $78,000 due primarily to an increase in real estate
taxes and increased maintenance repair work at Inducon Amherst. Other
administrative expense decreased approximately 14% due to decreased legal fees
at the Partnership level. Administrative expense to affiliated parties,
excluding the Sold Asset, increased 58% because of an allocation revision.
Interest expense for 2001 remained consistent with 2000.
2000 as compared to 1999
In 2000, excluding the Sold Asset, rental income decreased
approximately 13% due to a $100,000 decrease in rental income at Perrymont,
being offset by a $15,000 increase in rental income at Inducon Amherst. The
decrease at Perrymont was due in large part to the loss in late 1999 of the
building's major tenant. Other income increased approximately $46,000 due to
increased common area maintenance charges at the Inducon Amherst property.
Total expenses, excluding the Sold Asset, increased approximately 4%
for the year ended December 31, 2000 as compared to 1999. Property operations
expense remained relatively stable with expense decreasing approximately $80,000
at the Perrymont Office Building offset by increased expense of approximately
$75,000 at the Inducon Amherst property. Depreciation expense, excluding the
Sold Asset, increased approximately 4% due to the purchase of fixed assets.
Other administrative expenses, excluding the Sold Asset, increased approximately
$31,000 due to increased professional fees.
ITEM 7A: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Partnership invests only in short term money market instruments, in
amounts in excess of daily working cash requirements. The rates of earnings on
those investments increase or decrease in line with the general movement of
interest rates. The mortgage loans on the Partnership's properties are fixed
rate and therefore, are not subject to market risk.
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.
7
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, 2001, are listed below. Each
director is subject to election on an annual basis.
Title of All Positions Held with
Name the Corporate General Partner Year First Elected to Position
- ---- ----------------------------- ------------------------------
Joseph M. Jayson Chairman of the Board, President 1979
and Treasurer
Judith P. Jayson Vice President and Director 1979
Joseph M. Jayson and Judith P. Jayson 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 63, 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, President and Treasurer 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 has been in the real estate business for the last 39 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 39 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 20 years, Mr. Jayson and an affiliate have also engaged in
developmental drilling for gas and oil.
Judith P. Jayson, age 61, 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 30 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.
8
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), 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
year ended December 31, 2001. The Corporate General Partner and its affiliate,
Realmark Corporation, are entitled to fees and to certain expense reimbursements
with respect to Partnership operations, as set forth in item 13 hereof and in
the notes to the consolidated financial statements.
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 5% of the units of limited partnership interests of the Partnership,
except for affiliates of the General Partners that own 1111.9 units of limited
partnership interest amounting to approximately 7.2% of the partnership interest
at December 31, 2001. The General Partners and the executive officers of the
Corporate General Partner, as of December 31, 2001, owned 25.5 units of limited
partnership interest. The General Partners and affiliates will receive their
proportionate share, as limited partners, of any distributable proceeds from the
sale of the properties.
ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The properties of the Partnership and its subsidiary are managed by
Realmark Corporation, an affiliate of the Partnership's corporate general
partner, for a fee of generally 5% of annual net rental income of the
properties. Realmark Corporation and the Corporate General Partner are also
reimbursed for disbursements made on behalf of the Partnership. Those
transactions are further described, and quantified, in the note to the
consolidated financial statements entitled "Related Party Transactions".
ITEM 14: EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES, AND REPORTS ON FORM 8-K
(a) Consolidated Financial Statements Page
----
Independent Auditor's Report F-1
Consolidated Balance Sheets as of December 31, 2001 and 2000 F-2
Consolidated Statements of Operations for the years ended
December 31, 2001, 2000 and 1999 F-3
Consolidated Statements of Partners' Equity for the years
ended December 31, 2001, 2000, and 1999 F-4
Consolidated Statements of Cash Flows for the years ended
December 31, 2001, 2000, and 1999 F-5
Notes to Consolidated Financial Statements F-6
FINANCIAL STATEMENT SCHEDULE
(i) Schedule III - Real Estate and Accumulated Depreciation F-12
All other schedules are omitted because they are not applicable or the
required information is shown in the consolidated financial statements
or the notes thereto.
(b) Reports on Form 8-K
On November 2, 2001, the Partnership filed Form 8-K with the
Securities and Exchange Commission which under item 2 reported the
sale, on October 18, 2001, of Ambassador Towers. The property was sold
9
to an unaffiliated entity, for cash of $8,650,000, resulting in a net
gain of approximately $5 million.
(c) Exhibits
2. Plan of acquisition, reorganization, arrangement, liquidation, or
succession
(a) Stipulation of Settlement Agreement dated August 29, 2001 is
filed herewith.
(b) Order and Final Judgment Approving Settlement and Awarding
Fees and Expenses dated November 29, 2001 is filed herewith.
4. Instruments defining the rights of security holder, including
indentures
(a) Second Amended and Restated Agreement and Certificate of
Limited Partnership filed with the Registration Statement
of the Registrant Form S-11, filed November 21, 1983, 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 an unrelated third-party
included with the Partnership's report on Form 8-K on
November 2, 2001 is incorporate herein by reference.
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 - III
By: /s/Joseph M. Jayson April 15, 2002
------------------------------------ ------------------
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 15, 2002
------------------------------------ ------------------
JOSEPH M. JAYSON, Date
President, Treasurer and Director
/s/ Judith P. Jayson April 15, 2002
------------------------------------ ------------------
JUDITH P. JAYSON, Date
Vice President and Director
10
INDEPENDENT AUDITOR'S REPORT
----------------------------
The Partners
Realmark Property Investors Limited
Partnership - III:
We have audited the accompanying consolidated balance sheets of Realmark
Property Investors Limited Partnership - III and Subsidiary as of December 31,
2001 and 2000, and the related consolidated statements of operations, partners'
equity, and cash flows for each of the three years in the period ended December
31, 2001. Our audits also included the financial statement schedule listed in
the index at Item 14. These consolidated financial statements and the financial
statement schedule are the responsibility of the General Partners. Our
responsibility is to express an opinion on the consolidated financial statements
and the financial statement schedule based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. 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 audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Realmark Property
Investors Limited Partnership - III and Subsidiary as of December 31, 2001 and
2000, and the results of their operations and their cash flows for each of the
three years in the period ended December 31, 2001, in conformity with accounting
principles generally accepted in the United States of America. 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.
As discussed in note 7 to the consolidated financial statements, the Partnership
settled a class and derivative lawsuit in which it was involved. As a result of
this settlement, the Partnership is currently in the process of winding up its
operations and disposing of its investments. It is anticipated that this process
will take place within the next twelve months.
TOSKI, SCHAEFER & CO., P.C.
Williamsville, New York
March 25, 2002, except for Note 7,
as to which the date is April 2, 2002
F-1
REALMARK PROPERTY INVESTORS LIMITED PARTNERSHIP - III
AND SUBSIDIARY
Consolidated Balance Sheets
December 31, 2001 and 2000
Assets 2001 2000
------ ---- ----
Property and equipment, at cost, all held for sale in 2001:
Land $ 277,709 777,709
Buildings and improvements 6,062,390 11,296,548
Furniture and equipment 77,271 987,108
------------ ------------
6,417,370 13,061,365
Less accumulated depreciation 3,079,337 6,581,865
------------ ------------
Net property and equipment 3,338,033 6,479,500
Cash and equivalents 298,916 599,594
Accounts receivable, net of allowance for doubtful accounts
of $42,828 in 2001 and $82,659 in 2000 37,432 42,218
Receivables from affiliated parties 58,305 65,417
Escrow deposits 320,219 384,074
Other assets 104,281 136,138
------------ ------------
Total assets $ 4,157,186 7,706,941
============ ============
Liabilities and Partners' Equity
--------------------------------
Liabilities:
Mortgage loans payable 1,766,156 4,874,473
Accounts payable and accrued expenses 41,813 153,958
Accrued interest payable 13,110 29,466
Security deposits and prepaid rents 22,544 136,999
------------ ------------
Total liabilities 1,843,623 5,194,896
------------ ------------
Partners' equity (deficit):
General partners (86,732) (80,093)
Limited partners 2,400,295 2,592,138
------------ ------------
Total partners' equity 2,313,563 2,512,045
------------ ------------
Total liabilities and partners' equity $ 4,157,186 7,706,941
============ ============
See accompanying notes to consolidated financial statements.
F-2
REALMARK PROPERTY INVESTORS LIMITED PARTNERSHIP - III
AND SUBSIDIARY
Consolidated Statements of Operations
Years ended December 31, 2001, 2000 and 1999
2001 2000 1999
---- ---- ----
Income:
Rental $ 2,028,916 2,474,400 2,400,717
Interest and other 341,396 339,438 314,240
----------- ----------- -----------
Total income 2,370,312 2,813,838 2,714,957
----------- ----------- -----------
Expenses:
Property operations 1,656,992 1,797,539 1,915,768
Depreciation -- 465,454 343,918
Interest 406,070 456,940 489,199
Administrative:
Affiliated parties 300,322 244,441 229,141
Other 228,227 271,068 257,799
----------- ----------- -----------
Total expenses 2,591,611 3,235,442 3,235,825
----------- ----------- -----------
Loss before gain on sale of property (221,299) (421,604) (520,868)
Gain on sale of property 5,022,817 -- --
----------- ----------- -----------
Net income (loss) $ 4,801,518 (421,604) (520,868)
=========== =========== ===========
Net income (loss) per limited partnership unit $ 309.19 (26.30) (32.49)
=========== =========== ===========
Distributions per limited partnership unit $ 321.52 23.89 --
=========== =========== ===========
Weighted average number of limited partnership
units outstanding 15,551 15,551 15,551
=========== =========== ===========
See accompanying notes to consolidated financial statements.
F-3
REALMARK PROPERTY INVESTORS LIMITED PARTNERSHIP - III
AND SUBSIDIARY
Consolidated Statements of Partners' Equity
Years ended December 31, 2001, 2000 and 1999
General Limited Partners
Partners Units Amount
-------- ----- ------
Balances at December 31, 1998 $ (40,328) 15,551 3,877,880
Net loss (15,626) -- (505,242)
---------- ---------- ----------
Balances at December 31, 1999 (55,954) 15,551 3,372,638
Net loss (12,648) -- (408,956)
Distributions to partners (11,491) -- (371,544)
---------- ---------- ----------
Balances at December 31, 2000 (80,093) 15,551 2,592,138
Net income (loss) (6,639) -- 4,808,157
Distributions to partners -- -- (5,000,000)
---------- ---------- ----------
Balances at December 31, 2001 $ (86,732) 15,551 2,400,295
========== ========== ==========
See accompanying notes to consolidated financial statements
F-4
REALMARK PROPERTY INVESTORS LIMITED PARTNERSHIP - III
AND SUBSIDIARY
Consolidated Statements of Cash Flows
Years ended December 31, 2001, 2000 and 1999
2001 2000 1999
---- ---- ----
Cash flows from operating activities:
Net income (loss) $ 4,801,518 (421,604) (520,868)
Adjustments to reconcile net income (loss) to
net cash provided by (used in) operating
activities:
Depreciation and amortization 61,888 495,286 375,664
Gain on sale of property (5,022,817) -- --
Changes in:
Accounts receivable 4,786 11,199 (45,605)
Receivables from affiliated parties 7,112 54,506 (16,713)
Escrow deposits 63,855 (61,590) (50,174)
Other assets (73,356) (9,106) 10,447
Accounts payable and accrued expenses (109,188) 19,283 (16,032)
Accrued interest payable (16,356) (26,148) 19,365
Security deposits and prepaid rents 58,476 15,781 2,606
----------- ----------- -----------
Net cash provided by (used in)
operating activities (224,082) 77,607 (241,310)
----------- ----------- -----------
Cash flows from investing activities:
Proceeds from sale of property 8,129,462 -- --
Additions to property and equipment (97,741) (113,574) (422,195)
----------- ----------- -----------
Net cash provided by (used in)
investing activities 8,031,721 (113,574) (422,195)
----------- ----------- -----------
Cash flows from financing activities:
Principal payments on mortgage loans (3,108,317) (61,378) (34,946)
Distributions to partners (5,000,000) (383,035) --
----------- ----------- -----------
Net cash used in financing activities (8,108,317) (444,413) (34,946)
----------- ----------- -----------
Net decrease in cash and equivalents (300,678) (480,380) (698,451)
Cash and equivalents at beginning of year 599,594 1,079,974 1,778,425
----------- ----------- -----------
Cash and equivalents at end of year $ 298,916 599,594 1,079,974
=========== =========== ===========
Supplemental disclosure of cash flow information -
cash paid for interest $ 362,988 453,256 419,876
=========== =========== ===========
See accompanying notes to consolidated financial statements.
F-5
REALMARK PROPERTY INVESTORS LIMITED PARTNERSHIP - III
AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 2001, 2000 and 1999
(1) Formation and Operation of Partnership
Realmark Property Investors Limited Partnership - III (the Partnership) is
a Delaware limited partnership formed on November 18, 1983, to invest
in a diversified portfolio of income-producing real estate investments.
In 1984 and 1985, the Partnership sold through a public offering, 15,551
units of limited partnership interest for $15,551,000. The General
Partners are Realmark Properties, Inc. (the Corporate General Partner)
and Joseph M. Jayson (the Individual General Partner) who is the sole
shareholder of J.M. Jayson & Company, Inc. Realmark Properties, Inc. is
a wholly-owned subsidiary of J.M. Jayson & Company, Inc.
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 5).
(2) Summary of Significant Accounting Policies
(a) Basis of Accounting and Consolidation
The accompanying consolidated financial statements have been prepared
on the accrual basis of accounting in accordance with accounting
principles generally accepted in the United States of America and
include the accounts of the Partnership and its wholly-owned
subsidiary, Realmark - Inducon Amherst, LLC which owns Inducon
Amherst, an office building located in Amherst, New York, acquired
in 1985.
In consolidation, all intercompany accounts and transactions have been
eliminated.
(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.
(c) Property and Equipment
Property and equipment are recorded at cost. Depreciation is provided
using the straight-line method over the estimated lives of the
assets from 5 to 25 years. Significant improvements are
capitalized, while expenditures for maintenance, repairs and
replacements are charged to expense as incurred. Upon disposal of
depreciable property, the appropriate property accounts are
reduced by the related costs and accumulated depreciation and
resulting gains and losses are reflected in the consolidated
statements of operations.
F-6
REALMARK PROPERTY INVESTORS LIMITED PARTNERSHIP - III
AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(2) Summary of Significant Accounting Policies, Continued
The Partnership reviews long-lived assets for impairments whenever
events or changes in circumstances indicate that the carrying
amount of the assets may not be recoverable. In determining
whether there is an impairment of long-lived assets, the
Partnership compares the sum of the expected future net cash flows
(undiscounted and without interest charges) to the carrying amount
of the assets. At December 31, 2001, no impairment in value has
been recognized.
The Partnership's policy is to consider a property to be held for sale
or disposition when the Partnership has committed to a plan to
sell or dispose of such property and active marketing activity has
commenced or is expected to commence in the near term or the
Partnership has concluded that it may dispose of the property by
no longer funding operating deficits or debt service requirements
of the property thus allowing the lender to realize upon its
security. Any properties identified as "held for sale or
disposition" are no longer depreciated. All the properties were
held for sale in 2001.
(d) Cash and Equivalents
Cash and equivalents includes money market accounts and any highly
liquid debt instruments purchased with a maturity of three months
or less.
(e) Deferred Mortgage Costs
Costs incurred in obtaining mortgage financing are deferred and
amortized using the straight-line method over the life of the
respective mortgages.
(f) Rental Income
Rental income is recognized as earned according to the terms of the
leases. Leases for residential properties are generally for
periods of one year or less, payable monthly. Commercial leases
are generally for periods of one to five years. Delinquent
residential property rent is not recorded.
(g) Per Unit Data
Per limited partnership unit is based on the weighted average number
of limited partnership units outstanding for the year.
(h) Fair Value of Financial Instruments
The fair value of the Partnership's financial instruments approximated
their carrying values at December 31, 2001.
(i) Income Allocation and Distributable Cash Flow
The partnership agreement provides that income not arising from sale
and refinancing activities and all partnership losses are to be
allocated 97% to the Limited Partners and 3% to the General
Partners. Partnership income arising from sale or refinancing
activities is allocated in the same proportion as distributions of
distributable cash from sale proceeds. In the event there is no
distributable cash from sale proceeds, taxable income will be
F-7
REALMARK PROPERTY INVESTORS LIMITED PARTNERSHIP - III
AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(2) Summary of Significant Accounting Policies, Continued
(i) Income Allocation and Distributable Cash Flow, Continued
allocated 87% to the Limited Partners and 13% to the General
Partners. The above is subject to tax laws that were applicable at
the time of the formation of the Partnership and may be adjusted
due to subsequent changes in the Internal Revenue Code.
The partnership agreement also provides for the distribution to the
partners of net cash flow from operations. In connection with the
pending sale of the Partnership's properties (note 7), it is
anticipated that there will be no future distributions of net cash
flow from operations. Sale or refinancing proceeds are distributed
to the extent available, 100% to the Limited Partners until there
has been a return of the Limited Partner's capital contribution
plus an amount sufficient to provide a 7%, not compounded, return
on their adjusted capital contributions for all years following
the termination of the offering of the units. It is anticipated
that there will not be sufficient cash flow from the sale of the
Partnership's remaining properties to provide this return to the
Limited Partners.
(j) Income Taxes
No income taxes are included in the consolidated financial statements
since the taxable income or loss of the Partnership is reportable
by the partners on their income tax returns. At December 31, 2001,
net assets for financial reporting purposes were $662,000 more
than the tax bases of the net assets.
(k) Segment Information
The Partnership's operating segments all involve the ownership and
operation of income-producing real property and are aggregated
into one reporting segment.
(l) Recent Pronouncements
In June 2001, the FASB issued SFAS No. 141, "Business Combinations,"
and SFAS No. 142, "Goodwill and Other Intangible Assets." Under
these new standards, all acquisitions subsequent to June 30, 2001
must be accounted for under the purchase method of accounting and
purchased goodwill is no longer amortized over its useful life.
Rather, goodwill will be subject to a periodic impairment test
based upon its fair value.
In August 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations" ("SFAS 143"). SFAS 143 establishes
accounting standards for recognition and measurement of a
liability for the costs of asset retirement obligations. Under
SFAS 143, the costs of retiring an asset will be recorded as a
liability when the retirement obligation arises, and will be
amortized to expense over the life of the asset.
In October 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets" ("SFAS 144"). SFAS
144 addresses financial accounting and reporting for the
impairment or disposal of long-lived assets and discontinued
operations.
F-8
REALMARK PROPERTY INVESTORS LIMITED PARTNERSHIP - III
AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(l) Recent Pronouncements, Continued
The Partnership is currently evaluating the impact of these
pronouncements to determine the effect, if any, they may have on
the consolidated financial position and results of operations. The
Partnership is required to adopt each of these standards in the
first quarter of 2002.
(3) Disposal of Rental Property
On October 18, 2001, the Partnership sold Ambassador Towers to an
unaffiliated entity, for cash of $8,650,000 and recognized a related
gain on the sale amounting to $5,022,817.
In 2001, all of the properties are being actively marketed for sale. The
carrying value of the assets as of December 31, 2001, and the
properties net loss and depreciation expense not recorded for the year
ended December 31, 2001 is as follows:
Depreciation
Carrying value expense not
Property of assets Net loss recorded
-------- --------- -------- --------
Perrymont Office Building $1,457,107 (144,533) 109,000
Inducon Amherst 1,880,926 (53,677) 140,000
========== ======== =======
(4) Mortgage Loans Payable
Mortgage loans payable are as follows:
Total Balance
Interest monthly December 31,
Property collateral rate Maturity payment 2001 2000
------------------- ---- -------- ------- ---- ----
Ambassador Towers 8.25% -- $ 24,679 $ -- 3,080,977
Inducon Amherst 8.62% 2022 15,250 1,766,156 1,793,496
======== ---------- ---------
$1,766,156 4,874,473
========== =========
The aggregate maturities of mortgages for each of the five years following
2001 and thereafter, assuming principal payments are not accelerated,
are as follows:
2002 $ 32,001
2003 34,871
2004 37,999
2005 41,407
2006 45,121
Thereafter 1,574,757
----------
$1,766,156
==========
F-9
REALMARK PROPERTY INVESTORS LIMITED PARTNERSHIP - III
AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(5) Related Party Transactions
The Corporate General Partner and its affiliates earn fees, principally for
property and partnership management and are reimbursed for services
rendered to the Partnership, as provided for in the partnership
agreement. A summary of those items follows:
2001 2000 1999
---- ---- ----
Property management fees based on a
percentage (generally 5%) of the
rental income $ 139,211 130,353 120,563
Reimbursement for cost of services to the
Partnership that include investor relations,
marketing of properties, professional fees,
communications, supplies, accounting,
printing, postage and other items 161,111 114,088 108,578
--------- ------- -------
$ 300,322 244,441 229,141
========= ======= =======
In addition to the above, other property specific expenses such as
payroll, benefits, etc. are charged to property operations on the
Partnership's consolidated statements of operations. Receivables from
affiliated parties bear interest at 11% and are payable on demand.
Property Disposition Fees
According to the terms of the partnership agreement, the General Partners
are allowed to collect property disposition fees upon the 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 2.75% 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 an amount equal to their capital
contributions. The General Partners have not to date received a
disposition fee on any property sales, as the Limited Partners of the
Partnership have not received a return of 7% on their average adjusted
capital or their original capital as defined in the partnership
agreement. Fees earned on the sales will not be recorded as liabilities
by the Partnership until such time as payment is probable.
F-10
REALMARK PROPERTY INVESTORS LIMITED PARTNERSHIP - III
AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(6) Leases
In connection with its commercial properties, the Partnership has entered
into lease agreements with terms of one to five years. Minimum future
rentals to be received for each of the next five years under
noncancelable operating leases are as follows:
2002 $ 436,363
2003 312,919
2004 213,418
2005 132,675
2006 70,305
Thereafter 2,236
=========
(7) Settlement of Lawsuit
As previously reported, the Partnership, as a nominal defendant, the
General Partners of the Partnership and of affiliated public
Partnerships (the "Realmark Partnerships") and the officers and
directors of the Corporate General Partner, as defendants, had been
involved in a class action litigation at the state court level
regarding the payment of fees and other management issues.
On August 29, 2001, the parties entered into a Stipulation of Settlement
(the "Settlement"). On October 4, 2001, the Court issued an "Order
Preliminary Approving Settlement" (the "Hearing Order") and on November
29, 2001, the court issued an "Order and Final Judgment Approving
Settlement and Awarding Fees and Expenses" and dismissing the
complaints with prejudice. The Settlement provided, among other things,
that all of the Realmark Partnerships' properties be disposed of. The
General Partners will continue to have primary authority to dispose of
the Partnerships' properties. If either (i) the General Partners have
not sold or contracted to sell 50% of the Partnerships' properties (by
value) by April 2, 2002 or (ii) the General Partners have not sold or
contracted to sell 100% of the Partnerships' properties by September
29, 2002, then the primary authority to dispose of the Partnerships'
properties will pass to a sales agent designated by plaintiffs' counsel
and approved by the Court. As of April 2, 2002, the General Partners
have contracted to sell more than 50% of the Partnerships' properties
(by value).
The settlement also provided for the payment by the Partnerships of fees to
the plaintiffs' attorneys. These payments, which are not calculable at
this time but may be significant, are payable out of the proceeds from
the sale of all of the properties owned by all of the Realmark
Partnerships, following the sale of the last of these properties in
each partnership. Plaintiffs' counsel will receive 15% of the amount by
which the sales proceeds distributable to limited partners in each
partnership exceeds the value of the limited partnership units in each
partnership (based on the weighted average of the units' trading prices
on the secondary market as reported by Partnership Spectrum for the
period May through June 2001). In no event may the increase on which
the fees are calculated exceed 100% of the market value of the units as
calculated above.
F-11
Schedule III
------------
REALMARK PROPERTY INVESTORS LIMITED PARTNERSHIP - III
AND SUBSIDIARY
Real Estate and Accumulated Depreciation
December 31, 2001
Initial cost to Gross amounts at which
Partnership Cost carried at close of period
--------------- capitalized --------------------------
Property Buildings and subsequent to Buildings and Accumulated
Description Encumbrances Land improvements acquisition Land improvements Total depreciation
- ----------- ------------ ---- ------------- ----------- ---- ------------ ----- ------------
Perrymont Office
Building
Pittsburgh, PA $ -- 100,000 1,978,788 651,270 100,000 2,630,058 2,730,058 1,280,351
Inducon Amherst
Amherst, NY 1,766,156 177,709 -- 3,432,332 177,709 3,432,332 3,610,041 1,736,232
----------- ------- --------- --------- ------- --------- --------- ---------
$ 1,766,156 277,709 1,978,788 4,083,602 277,709 6,062,390 6,340,099 3,016,583
=========== ======= ========= ========= ======= ========= ========= =========
(RESTUBBED TABLE)
Life
on which
depreciation
in latest
Date statement of
of Date operations
construction acquired is computed
------------ -------- -----------
Perrymont Office
Building
Pittsburgh, PA 8/85 8/85 -- *
Inducon Amherst
Amherst, NY 4/85 4/85 -- *
==== ==== ===
*In accordance with Statement of Financial Accounting Standards No. 121, no
depreciation was recorded during the disposal period, January 1, 2001 through
December 31, 2001.
F-12
Schedule III, Cont.
-------------------
REALMARK PROPERTY INVESTORS LIMITED PARTNERSHIP - III
AND SUBSIDIARY
Real Estate and Accumulated Depreciation
December 31, 2001, 2000 and 1999
(1) Cost for Federal income tax purposes is $6,340,099.
(2) A reconciliation of the carrying amount of land, buildings and
improvements as of December 31, 2001, 2000 and 1999 is as follows:
2001 2000 1999
---- ---- ----
Balance at beginning of year $ 12,074,257 11,974,038 11,551,843
Additions 95,243 100,219 422,195
Dispositions (5) (5,829,401) -- --
------------ ---------- ----------
Balance at end of year $ 6,340,099 12,074,257 11,974,038
============ ========== ==========
(3) A reconciliation of accumulated depreciation for the years ended
December 31, 2001, 2000 and 1999 is as follows:
2001 2000 1999
---- ---- ----
Balance at beginning of year $ 5,616,576 5,125,198 4,815,825
Depreciation expense -- 491,378 309,373
Dispositions (5) (2,599,993) -- --
------------ ---------- -----------
Balance at end of year (4) $ 3,016,583 5,616,576 5,125,198
============ ========== ===========
(4) Balance applies entirely to buildings and improvements.
(5) Sale of Ambassador Towers in 2001.
F-13