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, 2002
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES AND EXCHANGE ACT OF 1934
Commission File Number 0-11909
REALMARK PROPERTY INVESTORS LIMITED PARTNERSHIP - II
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(Exact Name of Registrant as specified in its Charter)
Delaware 16-1212761
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(State of Formation) (IRS Employer Identification No.)
2350 North Forest Road
Suite 12-A
Getzville, New York 14068
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(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 15 for a list of all documents incorporated by reference
PART I
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ITEM 1: BUSINESS
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The Registrant, Realmark Property Investors Limited Partnership-II
("the Partnership"), is a Delaware limited partnership organized in 1982
pursuant to a First Amended and Restated Agreement and Certificate of Limited
Partnership (the "Partnership Agreement"), under the 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").
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
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, 2002, the Partnership, either directly or through its limited
liability subsidiary company, owned an office complex in Michigan (Northwind
Office Park), and is a partner in two joint ventures. It has a 50% interest in
Research Triangle Industrial Park Joint Venture and Research Triangle Land Joint
Venture, both in Durham County, North Carolina. The Partnership had an 88.5%
interest in Foxhunt Apartments Joint Venture that owned a 250 unit apartment
complex in Kettering, Ohio. This is a consolidated subsidiary and the property
was sold on March 1, 2001. A portion of the interest in the Research Triangle
Land Joint Venture was also sold in March 2001. All of the other properties are
currently being actively marketed for sale.
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, 2002, 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, 2002 were employees of the
Corporate General Partner or its affiliates.
The percent of total Partnership revenue generated by each complex for
the last three years was as follows:
2002 2001 2000
---- ---- ----
Northwind Office Park 100% 76% 34%
Foxhunt Apartments -- 24% 66%
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.
2
ITEM 2: PROPERTIES
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As of December 31, 2002, the Partnership owned Northwind Office Park,
an office complex located in East Lansing, Michigan. The property consists of
five office buildings containing a total of 89,200 gross square feet, and 70,713
net rentable square feet. At December 31, 2002, Northwind was 74% occupied. The
2001 and 2000 year end occupancy rates were 87% and 90%, respectively.
There was a 9.75% first mortgage loan on the Northwind property which
matured in December 2002. The 9% second mortgage loan on the property had a
balance of $73,058 at December 31, 2002 and matured in September 1995. While no
extension of the due date has been granted and the balance is currently payable
on demand, the Partnership continues to make monthly principal and interest
payments on the loan.
The Research Triangle Industrial Park Joint Venture owns a 117,000
square foot office/warehouse distribution building in Raleigh, North Carolina.
The building has been 100% occupied for several years. The first mortgage loan
on the property had a balance of $5,161,824 at December 31, 2002.
The Research Triangle Land Joint Venture owns unencumbered land near
the site of Research Triangle Industrial Park Joint Venture's building.
ITEM 3: LEGAL PROCEEDINGS
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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. On
October 4, 2002, the Court appointed a sales agent to work with the general
partners to continue to sell the Partnership's remaining properties.
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. Plaintiff's
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
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None.
3
PART II
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ITEM 5: MARKET FOR REGISTRANT'S UNITS OF LIMITED PARTNERSHIP INTEREST
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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, 2002, there were 1,062
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 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. There were no distributions to
partners made in 2002, 2001 or 2000.
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 86% to
the limited partners and 14% 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
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At or for the years ended December 31,
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2002 2001 2000 1999 1998
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Balance sheet data
Net rental property $ 2,186,727 2,170,349 4,534,501 4,583,491 4,689,806
Total assets 2,592,896 2,619,014 4,907,962 5,039,970 5,782,341
Mortgage loans payable 73,058 237,634 6,361,767 6,569,638 6,710,685
Partners' equity (deficit) 1,225,570 1,049,338 (3,460,292) (3,336,480) (2,815,029)
========================================================================
Operating data
Rental income 880,401 1,050,604 2,204,179 1,993,775 1,786,424
Other income 8,368 41,874 76,160 134,745 144,297
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Total revenue 888,769 1,092,478 2,280,339 2,128,520 1,930,721
------------------------------------------------------------------------
Property operating costs 557,457 662,336 1,284,066 1,434,757 1,535,654
Depreciation -- -- 176,647 262,181 215,334
Interest expense 15,933 117,342 581,572 709,493 960,557
Administrative expenses 278,277 335,555 489,572 420,104 414,109
------------------------------------------------------------------------
Total expenses 851,667 1,115,233 2,531,857 2,826,535 3,125,654
------------------------------------------------------------------------
Income (loss) before joint venture
operations and gain on sale of
property 37,102 (22,755) (251,518) (698,015) (1,194,933)
Equity in earnings of unconsolidated
joint ventures 139,130 317,105 131,175 122,437 87,609
Minority interest in
consolidated venture operations -- (545,015) (3,469) 54,127 108,517
Gain on sale of property -- 4,760,295 -- -- --
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Net income (loss) $ 176,232 4,509,630 (123,812) (521,451) (998,807)
========================================================================
Cash flow data
Net cash provided (used) by:
Operating activities (22,072) (408,352) 216,778 (173,320) (797,509)
Investing activities 91,622 7,351,841 10,991 176,088 149,240
Financing activities (164,576) (6,770,710) (211,321) (360,043) 1,146,645
------------------------------------------------------------------------
Net increase (decrease) in cash
and equivalents $ (95,026) 172,779 16,448 (357,275) 498,376
========================================================================
Per limited partnership unit:
Net income (loss) $ 17.09 389.11 (12.01) (50.58) (96.88)
========================================================================
5
ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
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OF OPERATIONS
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Liquidity and Capital Resources:
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Effective January 1, 2001, management began formally marketing all
remaining properties in the Partnership for sale. Foxhunt Apartments has been
actively marketed for sale since January 1, 1999 and on March 1, 2001, the
Partnership sold the property to an unaffiliated entity, for cash of $7,600,000.
After satisfaction of the $5,942,000 mortgage loan on the property and payment
of closing costs, the proceeds available to the Partnership and its joint
venture partner amounted to approximately $1.1 million. The proceeds from the
sale were distributed to the Partnership and the minority interest in the joint
venture after satisfying the remaining net liabilities from Foxhunt. The cash
proceeds received by the Partnership were used to satisfy delinquent Northwind
liabilities, primarily real estate taxes, and to complete improvements to the
Northwind property. Additionally, a portion of the Research Triangle land was
sold on March 16, 2001 for a gain of $180,199. The Partnership made no
distributions to limited partners in 2002, 2001 or 2000. In accordance with the
settlement of the lawsuit (Item 3), it is anticipated that with the sale of the
remaining property and joint ventures, the Partnership may be in a position to
make 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:
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The results of operations of the Partnership, excluding equity in
earnings from joint ventures for the year ended December 31, 2002, produced a
net income of $37,102. The results compare to a net loss of $22,755 in 2001 and
a net loss, excluding depreciation, of $74,871 in 2000.
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.
2002 as compared to 2001
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Rental income, excluding Foxhunt Apartments (the "Sold Asset" in March
2001) increased approximately 11% due to an increase in average rental rates at
Northwind. Other income, excluding the Sold Asset, decreased by approximately
$25,000 in 2002 due to a decrease in cash which provided less interest income
during the year.
Total expenses, excluding the operations for the Sold Asset, increased
approximately 2% for the year ended December 31, 2002. Property operations
increased approximately 11% due primarily to an increase in payroll, utilities,
and contracted service work at Northwind. Other administrative expense,
6
increased approximately 5% due to increased professional fees and advertising.
Administrative expense to affiliated parties, decreased approximately $23,000.
Portfolio management expenses decreased due to the Sold Asset. Interest expense
decreased approximately $19,000 due to the final payment, in October 2002, of
one of the Northwind mortgages.
2001 as compared to 2000
- ------------------------
Rental income decreased 52% for the year ended December 31, 2001 as
compared to 2000. Excluding the Sold Asset, rental income increased
approximately 4% due to occupancy during the year remaining at approximately 90%
at Northwind. Other income, excluding the Sold Asset, increased by approximately
$22,000 in 2001 due to an increase in the amount of interest income received
during the year.
Total expenses, excluding the operations for the Sold Asset, decreased
approximately 21% for the year ended December 31, 2001. Property operations
decreased approximately 8% due primarily to a decrease in repairs and
maintenance work and contracted service work at Northwind. Depreciation expense,
excluding the Sold Asset, decreased due to Northwind being held for sale and no
depreciation expense being taken in 2001. Other administrative expense,
excluding the Sold Asset, decreased approximately 26% due to decreased
professional fees. Administrative expense to affiliated parties, excluding the
Sold Asset, increased approximately $58,000 because of an allocation revision
and an increase in management fees due to an increase in rental income. Interest
expense decreased approximately $12,000 due to a larger portion of each mortgage
payment being applied towards principal due to amortization of the mortgage at
Northwind.
Joint Ventures
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The Research Triangle Industrial Park Joint Venture experienced 100%
occupancy in 2002. Its net income increased 5% for the year. Rental income
increased approximately 8% in 2002 due the sole tenant of Research Triangle
renewing their lease. Total expenses increased 9% mainly due to legal fees and
commissions from the lease renewal. Because the joint venture has had net income
during each of the last three years, the Partnership's 50% equity has enabled
the Partnership to receive cash distributions from the Venture of $108,000 in
2002, $104,500 in 2001 and $135,000 in 2000.
ITEM 7A: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
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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
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Listed under Item 15 of this report.
ITEM 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
- ------- ---------------------------------------------------------------
FINANCIAL DISCLOSURE
--------------------
None.
7
PART III
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ITEM 10: DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
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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, 2002, 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 and Treasurer 1979
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 64, 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 40 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 40 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 21 years, Mr. Jayson and an affiliate have also engaged in
developmental drilling for gas and oil.
Judith P. Jayson, age 62, 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 31 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
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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, 2002. 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 912 units of limited
partnership interest amounting to approximately 9.1% of the Partnership interest
at December 31, 2002. The general partners and the executive officers of the
Corporate General Partner, as of December 31, 2002, owned 8 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
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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: CONTROLS AND PROCEDURES
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Within the 90 days prior to the filing date of this report, the
Partnership carried out an evaluation, under the supervision and with the
participation of the Partnership's management, including Joseph M. Jayson (the
Partnership's Individual General Partner and Principal Financial Officer), of
the effectiveness of the design and operation of the Partnership's disclosure
controls and procedures. Based upon that evaluation, the Principal Financial
Officer concluded that the Partnership's disclosure controls and procedures are
effective. There have been no significant changes in the Partnership's internal
controls or in other factors that could significantly affect these controls
subsequent to the date of the evaluation.
9
PART IV
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ITEM 15: EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES, AND REPORTS ON FORM 8-K
- -------- ------------------------------------------------------------------
(a) Consolidated Financial Statements Page
--------------------------------- ----
Independent Auditors' Report F-1
Consolidated Balance Sheets as of December 31, 2002 and 2001 F-2
Consolidated Statements of Operations for the years ended
December 31, 2002, 2001 and 2000 F-3
Consolidated Statements of Partners' Equity for the years
ended December 31, 2002, 2001 and 2000 F-4
Consolidated Statements of Cash Flows for the years ended
December 31, 2002, 2001 and 2000 F-5
Notes to Consolidated Financial Statements F-6
FINANCIAL STATEMENT SCHEDULE
----------------------------
(i) Schedule III - Real Estate and Accumulated Depreciation F-16
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
-------------------
None.
(c) Exhibits
--------
2. Plan of acquisition, reorganization, arrangement, liquidation, or
succession
(a) Stipulation of Settlement Agreement dated August 29, 2001
is incorporated herein by reference.
(b) Order and Final Judgment Approving Settlement and Awarding
Fees and Expenses dated November 29, 2001 is incorporated
herein by reference.
4. Instruments defining the rights of security holders, including
indentures
(a) First Amended and Restated Agreement and Certificate of
Limited Partnership filed with the Registration Statement
of the Registrant Form S-11, filed September 30, 1982 and
subsequently amended, is 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 is incorporated herein by
reference.
99. Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 is
filed herewith.
10
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 March 31, 2003
------------------------------------- --------------
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 March 31, 2003
------------------------------------- --------------
JOSEPH M. JAYSON, Date
President, Treasurer and Director
/s/ Judith P. Jayson March 31, 2003
------------------------------------- --------------
JUDITH P. JAYSON, Date
Vice President and Director
11
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 302
OF THE SARBANES-OXLEY ACT OF 2002
I, Joseph M Jayson, Individual General Partner and Principal Financial Officer
of Realmark Property Investors Limited Partnership - II, hereby certify that:
1. I have reviewed this annual report on Form 10-K of Realmark Property
Investors Limited Partnership - II;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact
necessary in order to make the statements made, in light of
circumstances under which such statements were made, not misleading
with respect to the period covered by this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the Partnership as of, and for, the periods presented in
this annual report;
4. I am responsible for establishing and maintaining disclosure controls
and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14)
for the Partnership and I have:
a. Designed such disclosure controls and procedures to ensure the
material information relating to the Partnership, including its
consolidated subsidiary, is made known to me by others within
those entities, particularly during the period in which this
annual report is being prepared;
b. Evaluated the effectiveness of the Partnership's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this annual report (the "Evaluation Date"); and
c. Presented in this annual report my conclusions about the
effectiveness of the disclosure controls and procedures based on
my evaluation as of the Evaluation Date;
5. I have disclosed, based on my most recent evaluation, to the
Partnership's auditors and the audit committee of the board of
directors (or persons performing the equivalent function):
a. All significant deficiencies in the design or operation of
internal controls which could adversely affect the Partnership's
ability to record, process, summarize and report financial data
and have weaknesses in internal controls; and
b. Any fraud, whether or not material, that involves management or
other employees who have a significant role in the Partnership's
internal controls; and
6. I have indicated in this annual report whether or not there were
significant changes in internal controls or in other factors that
could significantly affect internal controls subsequent to the date of
my most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
March 31, 2003 /s/ Joseph M. Jayson
- -------------- --------------------
Date Joseph M. Jayson
Individual General Partner and
Principal Financial Officer
12
INDEPENDENT AUDITOR'S REPORT
----------------------------
The Partners
Realmark Property Investors Limited
Partnership - II:
We have audited the accompanying consolidated balance sheets of Realmark
Property Investors Limited Partnership - II and Subsidiary as of December 31,
2002 and 2001, and the related consolidated statements of operations, partners'
equity, and cash flows for each of the three years in the period ended December
31, 2002. Our audits also included the financial statement schedule listed in
the index at Item 15. 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 - II and Subsidiary as of December 31, 2002 and
2001, and the results of their operations and their cash flows for each of the
three years in the period ended December 31, 2002, 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 8 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, 2003
F-1
REALMARK PROPERTY INVESTORS LIMITED PARTNERSHIP - II
AND SUBSIDIARY
Consolidated Balance Sheets
December 31, 2002 and 2001
Assets 2002 2001
------ ---- ----
Property and equipment, at cost, all held for sale:
Land $ 460,515 460,515
Buildings and improvements 4,247,742 4,233,421
Furniture and equipment 9,950 7,893
---------- ----------
4,718,207 4,701,829
Less accumulated depreciation 2,531,480 2,531,480
---------- ----------
Net property and equipment 2,186,727 2,170,349
Cash and equivalents 235,302 330,328
Accounts receivable, net of allowance for doubtful accounts of
$16,300 in 2001 658 3,680
Receivables from affiliated parties 98,495 49,866
Escrow deposits 13,719 11,406
Other assets 57,995 53,385
---------- ----------
Total assets $2,592,896 2,619,014
========== ==========
Liabilities and Partners' Equity
--------------------------------
Liabilities:
Mortgage loans payable 73,058 237,634
Accounts payable and accrued expenses 81,681 82,284
Security deposits and prepaid rents 100,174 106,215
---------- ----------
Total liabilities 254,913 426,133
---------- ----------
Losses of unconsolidated joint ventures in excess of investment 1,112,413 1,143,543
Partners' equity:
General partners 359,249 353,962
Limited partners 866,321 695,376
---------- ----------
Total partners' equity 1,225,570 1,049,338
---------- ----------
Total liabilities and partners' equity $2,592,896 2,619,014
========== ==========
See accompanying notes to consolidated financial statements.
F-2
REALMARK PROPERTY INVESTORS LIMITED PARTNERSHIP - II
AND SUBSIDIARY
Consolidated Statements of Operations
Years ended December 31, 2002, 2001 and 2000
2002 2001 2000
---- ---- ----
Income:
Rental $ 880,401 1,050,604 2,204,179
Interest and other 8,368 41,874 76,160
---------- ---------- ----------
Total income 888,769 1,092,478 2,280,339
---------- ---------- ----------
Expenses:
Property operations 557,457 662,336 1,284,066
Interest 15,933 117,342 581,572
Depreciation -- -- 176,647
Administrative:
Affiliated parties 127,113 168,454 205,962
Other 151,164 167,101 283,610
---------- ---------- ----------
Total expenses 851,667 1,115,233 2,531,857
---------- ---------- ----------
Income (loss) before equity in earnings of
unconsolidated joint ventures, minority
interest in consolidated joint venture
operations, and gain on sale of property 37,102 (22,755) (251,518)
Equity in earnings of unconsolidated joint ventures 139,130 317,105 131,175
Minority interest in consolidated joint
venture operations -- (545,015) (3,469)
Gain on sale of property -- 4,760,295 --
---------- ---------- ----------
Net income (loss) $ 176,232 4,509,630 (123,812)
========== ========== ==========
Net income (loss) per limited partnership unit $ 17.09 389.11 (12.01)
========== ========== ==========
Weighted average number of limited partnership
units outstanding 10,000 10,000 10,000
========== ========== ==========
See accompanying notes to consolidated financial statements.
F-3
REALMARK PROPERTY INVESTORS LIMITED PARTNERSHIP - II
AND SUBSIDIARY
Consolidated Statements of Partners' Equity
Years ended December 31, 2002, 2001 and 2000
General Limited Partners
Partners Units Amount
-------- ----- ------
Balances at December 31, 1999 $ (260,850) 10,000 (3,075,630)
Net loss (3,714) -- (120,098)
---------- ---------- ----------
Balances at December 31, 2000 (264,564) 10,000 (3,195,728)
Net income 618,526 -- 3,891,104
---------- ---------- ----------
Balances at December 31, 2001 353,962 10,000 695,376
Net income 5,287 -- 170,945
---------- ---------- ----------
Balances at December 31, 2002 $ 359,249 10,000 866,321
========== ========== ==========
See accompanying notes to consolidated financial statements.
F-4
REALMARK PROPERTY INVESTORS LIMITED PARTNERSHIP - II
AND SUBSIDIARY
Consolidated Statements of Cash Flows
Years ended December 31, 2002, 2001 and 2000
2002 2001 2000
---- ---- ----
Cash flows from operating activities:
Net income (loss) $ 176,232 4,509,630 (123,812)
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation and amortization 10,379 10,262 190,793
Equity in earnings of joint ventures (139,130) (317,105) (138,309)
Minority interest in consolidated joint venture operations -- 545,015 3,469
Gain on sale of property -- (4,760,295) --
Changes in:
Accounts receivable 3,022 8,457 (1,658)
Receivables from affiliated parties (48,629) 14,605 91,651
Escrow deposits (2,313) (12,917) (764)
Other assets (14,989) (55,864) (3,909)
Accounts payable and accrued expenses (603) (398,578) 219,863
Security deposits and prepaid rents (6,041) 48,438 (20,546)
---------- ---------- ----------
Net cash provided by (used in)
operating activities (22,072) (408,352) 216,778
---------- ---------- ----------
Cash flows from investing activities:
Proceeds from sale of property -- 7,084,969 --
Additions to property and equipment (16,378) (81,848) (124,009)
Distributions from joint venture 108,000 348,720 135,000
---------- ---------- ----------
Net cash provided by investing
activities 91,622 7,351,841 10,991
---------- ---------- ----------
Cash flows from financing activities:
Distributions to minority interest in consolidated
joint venture -- (646,577) (3,450)
Principal payments on mortgage loan (164,576) (6,124,133) (207,871)
---------- ---------- ----------
Net cash used in financing
Activities (164,576) (6,770,710) (211,321)
---------- ---------- ----------
Net increase (decrease) in cash and equivalents (95,026) 172,779 16,448
Cash and equivalents at beginning of year 330,328 157,549 141,101
---------- ---------- ----------
Cash and equivalents at end of year $ 235,302 330,328 157,549
========== ========== ==========
Supplemental disclosure of cash flow information:
Cash paid for interest $ 14,175 111,184 528,462
========== ========== ==========
Property and equipment financed by
accounts payable $ -- -- 3,648
========== ========== ==========
See accompanying notes to consolidated financial statements.
F-5
REALMARK PROPERTY INVESTORS LIMITED PARTNERSHIP - II
AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 2002, 2001 and 2000
(1) Formation and Operation of Partnership
- -------------------------------------------
Realmark Property Investors Limited Partnership - II (the Partnership) is a
Delaware limited partnership formed on March 25, 1982, to invest in a
diversified portfolio of income producing real estate investments.
In 1982 and 1983, the Partnership sold, through a public offering, 10,000
units of limited partnership interest. 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 6).
(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 and include the accounts of the
Partnership and its subsidiary, Realmark/Foxhunt Limited
Partnership which owned and operated the Foxhunt Apartments, a 250
unit apartment complex located in Dayton, Ohio, acquired in 1984
for $5,702,520 and sold in 2001. The Partnership also owns
Northwind Office Park.
In consolidation, all intercompany accounts and transactions have been
eliminated.
(b) Estimates
-------------
The preparation of financial statements in conformity with generally
accepted accounting principles in 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 useful lives of
the assets, from 5 to 25 years. Significant improvements are
capitalized, while expenditures for maintenance and 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
gains and losses are reflected in the consolidated statements of
operations.
F-6
REALMARK PROPERTY INVESTORS LIMITED PARTNERSHIP - II
AND SUBSIDIARY
Notes to Consolidated Financial Statements
(2) Summary of Significant Accounting Policies, Continued
- ----------------------------------------------------------
(c) Property and Equipment, Continued
-------------------------------------
The Partnership reviews long-lived assets for impairment 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, 2002, no impairment in value has
been recognized.
The Partnership and its ventures' policy is to consider a property to
be held for sale or disposition when the Partnership or venture
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 or venture 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 of disposition" are no longer
depreciated. All the properties were held for sale in 2002 and
2001.
(d) Cash and Equivalents
------------------------
Cash and equivalents include 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) Unconsolidated Joint Ventures
---------------------------------
The Partnership's investment in Research Triangle Industrial Park West
Associates Joint Venture and Research Triangle Land Joint Venture
are unconsolidated joint ventures which are accounted for on the
equity method. These joint ventures are not consolidated in the
Partnership's financial statements because the Partnership is not
the majority owner.
(g) 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 and distributions. Foxhunt Apartments was
sold in 2001.
F-7
REALMARK PROPERTY INVESTORS LIMITED PARTNERSHIP - II
AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(2) Summary of Significant Accounting Policies, Continued
- ----------------------------------------------------------
(h) 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.
(i) Per Unit Data
-----------------
Per limited partnership unit is based on the weighted average number
of limited partnership units outstanding for the year.
(j) Fair Value of Financial Instruments
---------------------------------------
The fair value of the Partnership's financial instruments approximated
their carrying values at December 31, 2002.
(k) 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
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 8), 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. There were no distributions to partners made in
2002, 2001 or 2000.
(l) 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, 2002,
net assets for financial reporting purposes were $739,282 more
than the tax bases of the net assets.
F-8
REALMARK PROPERTY INVESTORS LIMITED PARTNERSHIP - II
AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(2) Summary of Significant Accounting Policies, Continued
- ----------------------------------------------------------
(m) 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.
(n) Recent Pronouncements
-------------------------
In June 2001, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 143,
"Accounting for Asset Retirement Obligations." Under SFAS No. 143,
the fair value of a liability for an asset retirement obligation
must be recognized in the period in which it is incurred if a
reasonable estimate of fair value can be made. The associated
asset retirement costs are capitalized as part of the carrying
amount of the related long-lived asset. SFAS No. 143 is effective
for fiscal years beginning after June 15, 2002.
In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB
Statements No. 4, 44, 64, Amendment of FASB Statement No. 13, and
Technical Corrections." SFAS No. 145 eliminates extraordinary
accounting treatment for reporting a gain or loss on debt
extinguishments and amends other existing authoritative
pronouncements to make various technical corrections, clarify
meanings, and describe applicability under changed conditions.
Debt extinguishments reported as extraordinary items prior to
scheduled adoption of SFAS No. 145 would be reclassified in most
cases following adoption. SFAS No. 145 is effective for fiscal
years beginning after May 15, 2002.
In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities." SFAS No. 146
requires the recording of costs associated with exit or disposal
activities at their fair values when a liability has been
incurred. Under previous guidance, certain exit costs were accrued
upon management's commitment to an exit plan, which is generally
before an actual liability has been incurred. SFAS No. 146 is
effective for fiscal years beginning after December 31, 2002.
In December 2002, the FASB issued SFAS No. 148, "Accounting for
Stock-Based Compensation - Transition and Disclosure - an
Amendment of SFAS No. 123." SFAS No. 148 amends SFAS No. 123,
"Accounting for Stock-Based Compensation," to provide alternative
methods of transition for a voluntary change to the fair value
based method of accounting for stock-based employee compensation.
In addition, SFAS No. 148 amends the disclosure requirements of
SFAS No. 123 to require prominent disclosures in both annual and
interim financial statements about the method of accounting for
stock-based employee compensation and the effect of the method
used on reported results.
F-9
REALMARK PROPERTY INVESTORS LIMITED PARTNERSHIP - II
AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(2) Summary of Significant Accounting Policies, Continued
- ----------------------------------------------------------
The Partnership does not believe that these pronouncements will have a
material impact on its financial position, cash flows, or results
of operations.
(3) Investments in Real Estate
- -------------------------------
On January 1, 2002, the Partnership adopted SFAS No. 144, "Accounting for
the Impairment or Disposal of Long-Lived Assets." SFAS No. 144
supersedes SFAS No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of." SFAS No. 144
establishes the accounting and reporting standards for the impairment
or disposal of long-lived assets by requiring those assets to be
measured at the lower of depreciated cost or fair value less selling
costs, whether reported on continuing operations or in discontinued
operations. This standard does not change the fundamental provisions of
SFAS No. 121; however, it resolves various implementation issues of
SFAS No. 121. The adoption of this standard did not have a material
effect on the Partnership's consolidated financial position or results
of operations for the year ended December 31, 2002.
Since 1992, Partnership had held an 88.5% interest in a consolidated joint
venture, Realmark/Foxhunt Limited Partnership ("Foxhunt"). The
Partnership acquired its interest by transferring to Foxhunt beneficial
title to an apartment complex property in Ohio. The 11.5% minority
interest in Foxhunt was owned by Realmark Property Investors Limited
Partnership VI-B, a publicly held entity affiliated with the
Partnership through common general partners. Effective January 1, 1999,
the Partnership entered into a plan to dispose of the property of
Foxhunt Apartments. On March 1, 2001, the property was sold to an
unaffiliated entity for $7,600,000, and the Partnership recognized a
related gain on the sale amounting to $4,760,295.
Effective January 1, 2001, the Partnership entered into a plan to dispose
of the property of Northwind Office Park. The carrying value of the
assets of Northwind Office Park was $2,186,727 at December 31, 2002,
and the property generated net income of $201,167 during the year then
ended.
Depreciation expense, not recorded during the disposal periods on Foxhunt
Apartments and Northwind Office Park amounted to $184,000, $215,000 and
$212,000, for the years ended December 31, 2002, 2001 and 2000,
respectively.
All of the properties were classified as property held for sale prior to
the adoption of SFAS No. 144 and continue to be actively marketed for
sale. Accordingly their results of operations have been recorded in
continuing operations.
F-10
REALMARK PROPERTY INVESTORS LIMITED PARTNERSHIP - II
AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(4) Investments in Joint Ventures
- ----------------------------------
(a) Unconsolidated Joint Ventures
---------------------------------
The Partnership has a 50% interest in a joint venture with Realmark
Property Investors Limited Partnership-VIA (RPILP-VIA), an entity
affiliated through common general partners. The venture owns and
operates the Research Triangle Industrial Park West, an
office/warehouse facility located in Research Triangle Park, North
Carolina. The joint venture agreement provides that any income,
loss, gain, cash flow, or sale proceeds be allocated 50% to the
Partnership and 50% to RPILP-VIA.
Summary financial information of the Venture follows:
Balance Sheet Information
-------------------------
December 31
-----------
Assets 2002 2001
------ ---- ----
Property, net of accumulated depreciation $ 1,473,368 1,473,368
Cash and equivalents 34,606 55,158
Escrow deposits 861,615 876,539
Other assets 272,481 252,727
----------- -----------
Total assets $ 2,642,070 2,657,792
=========== ===========
Liabilities and Partners' Deficit
---------------------------------
Liabilities:
Mortgage loan payable 5,161,824 5,254,865
Accounts payable and accrued expenses 140,633 134,234
----------- -----------
Total liabilities 5,302,457 5,389,099
----------- -----------
Partners' deficit:
The Partnership (1,230,778) (1,266,238)
RPILP - VI A (1,429,609) (1,465,069)
----------- -----------
Total partners' deficit (2,660,387) (2,731,307)
----------- -----------
Total liabilities and partners' deficit $ 2,642,070 2,657,792
=========== ===========
F-11
REALMARK PROPERTY INVESTORS LIMITED PARTNERSHIP - II
AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(4) Investments in Joint Ventures, Continued
- ---------------------------------------------
(a) Unconsolidated Joint Ventures, Continued
--------------------------------------------
Operating Information
---------------------
Years ended December 31,
------------------------
2002 2001 2000
---- ---- ----
Income:
Rental $ 975,220 899,322 1,026,251
Other 5,335 11,812 13,456
--------- --------- ---------
Total income 980,555 911,134 1,039,707
--------- --------- ---------
Expenses:
Property operations 178,923 127,047 133,400
Interest 433,798 442,817 450,766
Depreciation -- -- 100,518
Administrative:
Affiliated parties 54,867 47,449 67,413
Other 26,047 20,009 10,992
--------- --------- ---------
Total expenses 693,635 637,322 763,089
--------- --------- ---------
Net income $ 286,920 273,812 276,618
========= ========= =========
Allocation of net income:
The Partnership 143,460 136,906 138,309
RPILP - VI A 143,460 136,906 138,309
--------- --------- ---------
Total $ 286,920 273,812 276,618
========= ========= =========
A reconciliation of the Partnership's investment in Research Triangle
Industrial Park Joint Venture is as follows:
2002 2001 2000
---- ---- ----
Losses in excess of investment at
beginning of year $(1,266,238) (1,298,644) (1,301,953)
Allocated net income 143,460 136,906 138,309
Distribution from joint venture (108,000) (104,500) (135,000)
----------- ----------- -----------
Losses in excess of investment at
end of year $(1,230,778) (1,266,238) (1,298,644)
=========== =========== ===========
F-12
REALMARK PROPERTY INVESTORS LIMITED PARTNERSHIP - II
AND SUBSIDIARY
Notes to Consolidated Financial Statements
(4) Investments in Joint Ventures, Continued
- ---------------------------------------------
(a) Unconsolidated Joint Ventures, Continued
In 1992, the Partnership entered into an agreement with the Adaron
Group to form the Research Triangle Land Joint Venture. The
primary purpose of this joint venture is to develop the
undeveloped land on the site of Research Triangle Industrial Park
West. This land was placed into the Land Joint Venture by Research
Triangle Industrial Park West. The ownership of the joint venture
is 50% attributable to Adaron Group and 50% to the Partnership.
The value allocated to the land in this joint venture upon
acquisition was $412,500. In 2001, a portion of the land was sold
for a gain of $180,199. The Partnership's remaining investment in
the land amounted to $118,365 and $122,695 at December 31, 2002
and 2001, respectively.
(b) Minority Interest in Consolidated Joint Venture
---------------------------------------------------
A reconciliation of the minority interest share in the Foxhunt Joint
Venture is as follows:
Balance at December 31, 1999 $ 101,543
Distributions (3,450)
Allocated income 3,469
----------
Balance at December 31, 2000 101,562
Distributions (646,577)
Allocated income 545,015
----------
Balance at December 31, 2001 $ --
==========
(5) Mortgage Loans Payable
- ---------------------------
Mortgage loans payable are as follows:
Total Balance
Interest monthly December 31,
Property collateral rate Maturity payment 2002 2001
------------------- ---- -------- ------- ---- ----
Northwind Office Park 9.75% 2002 $ 12,305 $ -- 116,112
Northwind Office Park 9.00% Demand 4,779 73,058 121,522
======== --------- -------
$ 73,058 237,634
========= =======
F-13
REALMARK PROPERTY INVESTORS LIMITED PARTNERSHIP - II
AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(6) 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:
2002 2001 2000
---- ---- ----
Property management fees based on a percent-
age (generally 5%) of the rental income $ 53,157 82,191 111,513
Reimbursement for cost of services to the Partnership that include
investor relations, marketing of properties, supplies,
professional fees, communications, accounting, printing,
postage and other items 73,956 86,263 94,449
-------- -------- --------
$127,113 168,454 205,962
======== ======== ========
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 are payable on demand and bear interest at 11%.
Loan placement fees are paid or accrued to an affiliate of the general
partners. The fee is calculated at 1% of the mortgage loan amounts. No
such fees were paid during the years ended December 31, 2002, 2001 and
2000.
Property Disposition Fee
------------------------
According to the terms of the partnership agreement, the general partners
are also allowed to collect a property disposition fee 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 an amount equal to their original capital
contributions. Since these conditions described above have not been
met, no disposition fees have been paid or accrued on properties sold
in prior years.
F-14
REALMARK PROPERTY INVESTORS LIMITED PARTNERSHIP - II
AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(7) Leases
- -----------
All residential property rental agreements are for a duration of one year
or less. 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:
2003 $ 805,177
2004 401,303
2005 294,474
2006 128,995
2007 24,382
============
(8) 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
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. On October 4, 2002, the Court appointed a
sales agent to work with the general partners to continue to sell the
Partnerships' remaining properties.
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-15
Schedule III
------------
REALMARK PROPERTY INVESTORS LIMITED PARTNERSHIP - II
AND SUBSIDIARY
Real Estate and Accumulated Depreciation
December 31, 2002
Gross amounts at which
Initial Cost to Cost Carried at Close of period
Partnership capitalized --------------------------
Property ------------------- subsequent to Buildings and Accumulated
Description Encumbrances Land Buildings acquisition Retirements Land improvements Total depreciation
- ----------- ------------ ---- --------- ----------- ----------- ---- ------------ ----- ------------
Northwind
Office Park
E. Lansing, Ml $ 73,058 460,515 3,415,895 831,847 -- 460,515 4,247,742 4,708,257 2,530,690
=========== ========= ========= ======= ======== ======= ========= ========= =========
Research
Triangle JV
Raleigh, NC 5,161,824 750,612 4,920,738 9,329 (412,500) 338,112 4,930,067 5,268,179 3,794,811
Research Triangle
Land JV
Raleigh, NC -- 412,500 -- 20,484 (194,842) 238,142 -- 238,142 --
----------- --------- --------- ------- -------- ------- --------- --------- ---------
$ 5,161,824 1,163,112 4,920,738 29,813 (607,342) 576,254 4,930,067 5,506,321 3,794,811
=========== ========= ========= ======= ======== ======= ========= ========= =========
(RESTUBBED TABLE)
Life
on which
depreciation
in latest
Date statement of
of Date operations
construction acquired is computed
------------ -------- -----------
Northwind
Office Park
E. Lansing, Ml 1973 12/83 -- *
===== ===== =====
Research
Triangle JV
Raleigh, NC 1983 12/83 -- *
Research Triangle
Land JV
Raleigh, NC -- 8/92 --
===== ===== =====
*In accordance with Statement of Financial Accounting Standards No. 144, no
depreciation was recorded during the disposal period, January 1, 2002 through
December 31, 2002.
F-16
Schedule III, Cont.
-------------------
REALMARK PROPERTY INVESTORS LIMITED PARTNERSHIP - II
AND SUBSIDIARY
Real Estate and Accumulated Depreciation
December 31, 2002, 2001 and 2000
(1) Cost for Federal income tax purposes is $4,708,257.
(2) A reconciliation of the carrying amount of land and buildings as of December
31, 2002, 2001 and 2000 follows:
Partnership Properties
----------------------
2002 2001 2000
---- ---- ----
Balance at beginning of year $ 4,693,936 10,128,864 10,009,100
Additions 14,321 78,200 119,764
Dispositions (5) -- (5,513,128) --
------------ ----------- -----------
Balance at end of year $ 4,708,257 4,693,936 10,128,864
============ =========== ===========
Joint Venture Properties
------------------------
2002 2001 2000
---- ---- ----
Balance at beginning of year $ 5,506,321 5,701,163 5,701,163
Dispositions (6) -- (194,842) --
------------ ----------- -----------
Balance at end of year $ 5,506,321 5,506,321 5,701,163
============ =========== ===========
(3) A reconciliation of accumulated depreciation for buildings and
improvements for the years ended December 31, 2002, 2001 and 2000 follows:
Partnership Properties
----------------------
2002 2001 2000
---- ---- ----
Balance at beginning of year $ 2,530,690 5,613,710 5,437,852
Dispositions (5) -- (3,083,020) --
Depreciation expense -- -- 175,858
------------- ------------ -----------
Balance at end of year (4) $ 2,530,690 2,530,690 5,613,710
============= ============ ===========
Joint Venture Properties
------------------------
2002 2001 2000
---- ---- ----
Balance at beginning of year $ 3,794,811 3,794,811 3,694,293
Depreciation expense -- -- 100,518
------------- ------------ ----------
Balance at end of year (4) $ 3,794,811 3,794,811 3,794,811
============= ============ ==========
- -----------
(4) Balance applies entirely to buildings and improvements.
(5) Sale of Foxhunt Apartments in 2001.
(6) Sale of portion of Research Triangle land in 2001.
F-17